Cairn eyes positive end to India row as ‘busy year’ looms
● Oil firm asks for $51m in dividends from former subsidiary ahead of dispute ruling
Oil and gas explorer Cairn Energy is “very confident” that an arbitration panel will rule in its favour over a $1 billion (£823 million) tax dispute with the Indian authorities.
Chief executive Simon Thomson said that a final and binding ruling over the row, which has left the firm unable to sell its remaining 10 per cent stake in former subsidiary Cairn India, valued at $656m, is due in January.
He said: “We remain very confident of our case and therefore the recovery of the money due to us. We expect $1bn to come back to us.”
His comments came as Cairn said it had requested the “immediate” payment of $51m in dividends from Cairn India after the country’s government approved their release.
Cairn ended the year with a cash balance of $335m , along with an undrawn reservesbased lending facility that could peak at $400m, and Thomson said that this financial flexibility allowed the firm to commit to increased exploration spending.
He hailed “positive progress” across the group’s portfolio, pointing to the Catcher and Kraken projects in the North Sea that are due to come onstream this year, having achieved “considerable” savings of more than 20 per cent since they were sanctioned amid falling oil prices.
“The operators in each case, Enquest for Kraken and Premier for Catcher, have worked very hard to bring down contract costs,” Thomson told The Scotsman yesterday.
“Contingencies have been removed as a result of positive build performance, and there’s been some foreign exchange advantage as well. We’re looking at $700m gross savings on Kraken and $650m on Catcher.”
A report last week from the Oil & Gas Authority said that less than a quarter of new oil and gas projects on the UK continental shelf (UKCS) have been delivered on time since 2011, but Thomson said: “These are attractive projects in today’s oil prices – once they’re on plateau, the overall production costs spread across Kraken and Catcher are about $17 a barrel.
“It shows that you have to pick and choose and be focused on the value of the barrels that you’re exploiting.”
Cairn has a 29.5 per cent stake in the Kraken project and 20 per cent in Catcher, and expects net production from the developments to peak at about 25,000 barrels of oil equivalent per day.
Thomson added: “We’ll probably get to an investment decision at the back end of this year on Skarfjell in Norway, which is a 100-million barrel field in which we have a 20 per cent interest. That’s a positive addition to our sustainable cashflow generation.
“Drilling is going very well in Senegal, where we’ve just completed our fifth successful appraisal well. Notwithstanding the real focus on Senegal, we have two farm-ins in Ireland, and we’ve expanded our position in the Barents Sea. On the exploration side it’s going to be a busy year and that’s what we want.”