Cairn bullish despite swing to H1 loss and Indian woes
● £383m pre-tax loss as firm faces tax dispute costs ● Production from North Sea revived to within guidance
Edinburgh-based oil explorer and producer Cairn Energy has swung to a loss in the first half despite higher revenues, dragged by a long-running tax dispute in India.
The company, founded in 1980 by Sir Bill Gammell, reported a pre-tax loss of $500.5 million (£383m) compared to a profit of $70.9m in the same period in 2017. That came as revenue increased nearly 17-fold from $10.8m to $182.4m.
Chief executive Simon Thomson said the firm made “strong progress” across its balanced portfolio, and established cashflow from the North Sea.
The firm said in terms of production that the Catcher development averaged about 27,000 barrels of oil equivalent per day (boepd) in the first half, “reflecting constrained production as commissioning was completing and ramp up continued”, growing to 60,000 last month.
Kraken, which also started producing its first oil last year, averaged about 30,700 in the first six months of the year, mainly due to both “planned and unplanned” production downtime. That grew to 35,000 to 40,000 in August.
Fiona Cincotta, senior market analyst at City Index, said the combined net production from the two fields of about 14,000 barrels per day “is substantially lower than previous company guidance of 17,000 to 20,000”, although she acknowledged the improvement in June to 19,700.
Thomson said the firm is “comfortable” with progress in the half and its guidance going forward, with production set to average up to 22,000 barrels a day in the second half. He added that development projects in Senegal and Norway are “well advanced” to support the production base over the long term.
David Barclay, head of office at Brewin Dolphin Aberdeen, said: “Cairn Energy is a wellbalanced oil and gas business with a diversified set of assets.”
But he also noted that the tax dispute in India still “hangs over” the company. Cairn said in July that the Indian government had sold part of the Scottish firm’s stake in Vedanta and seized the $216m proceeds. Thomson said at the time that Cairn would write down the value of its investment in Vedanta and take an impairment charge in its half year results due to the sale.
The Scottish firm said yesterday that the sale of shares in the period resulted in a loss on derecognition of $230.8m. Thomson said: “We’re looking forward to getting the panel’s decision – we’re hoping that will be around the year-end.”
He added: “Looking forward we’re going to be progressing developments, we’re going to be providing exploration drilling results, and obviously there’s the outcome of India ahead of us as well so I think we’re well-positioned as a company to deliver further value for shareholders.”