18th Aug 2015 07:54
LONDON (Alliance News) - Cairn Energy PLC on Tuesday said its pretax loss significantly widened in the first half of 2015 as it prepares to spend big in the second half on developing its assets in Senegal and the North Sea.
The FTSE 250-listed oil producer reported a pretax loss of USD234.7 million in the first half of 2015, widening from a USD62.1 million loss a year earlier after the company booked an USD177.1 million impairment against its remaining investment in Cairn India Ltd. The company does not generate any revenue.
Cairn India has been at the centre of a long running dispute between the government of India and the owners of the company, Cairn Energy and fellow FTSE 250-listed Vedanta Resources PLC. Vedanta holds a 59.8% stake, whilst Cairn holds a 9.8% stake.
The dispute is over claims by the Indian Income Tax Department that Cairn India failed to deduct withholding tax on alleged capital gains arising in 2006-7, when the company was owned by Cairn UK Holdings Ltd, a subsidiary of Cairn.
Vedanta has previously stated that the amount demanded from Cairn India totals around USD3.29 billion, but it is unclear how much would be attributable to each company.
Cairn said its stake in the subsidiary was worth around USD526.0 million at the end of June, which is almost half the USD1.0 billion it was worth at the end of December 2013. The large USD177.1 million impairment relates to the dwindling value of the subsidiary.
Vedanta has also recently said it plans to to merge Cairn India with its other Indian subsidiary Vedanta Ltd.
As of the end of the first half, Cairn Energy reported a cash balance of USD725.0 million, and it still has a USD575.0 million bank facility that remains undrawn.
Operationally, the company is focused on its development in Senegal, where it plans to begin a drilling campaign in the fourth quarter of 2015 before stretching into the first half of 2016. The final budget for that campaign will be released in the third quarter, but Cairn said it expects exploration and appraisal expenditure for the committed programme of around USD170 million.
"We are delighted to have agreement from the government of Senegal for our extensive evaluation plan which commences shortly with a 3D seismic survey and continues later this year with a multi-well exploration and appraisal programme," said Chief Executive Simon Thomson.
That drilling campaign will comprise of three contingent wells offshore Senegal as well as the 3D seismic programme. Two of those three wells will be drilled before the end of 2015, with the third and final well being drilled before the end of the first half of 2016.
"Cairn estimates that the two discoveries made in the fourth quarter of 2014 and the currently identified prospects and leads have a gross mean risked resource base of more than one billion barrels," he added.
"Our aim is to maximise the value of our Senegal asset within a balanced, well-funded company. Cairn is well placed to take advantage of this exciting opportunity as we build on the success of last year's discoveries," said Thomson.
Cairn has a 40% stake in Senegal and is also the operator of the project. However, in the event of a commercial success, Cairn's partner and US energy giant ConocoPhillips will have the option to operate the future development of the resource.
At the Kraken and Catcher developments in the UK North Sea, development capital expenditure remains unchanged at a net cost to Cairn of USD615 million from the second half of 2015. Those projects are still expected to be cashflow generative before the end of 2017.
Cairn said both of those projects "remain within budget and on schedule for first oil in 2017". Cairn has a 20% stake in the Catcher development and a 25% stake in the Kraken development.
The company said it has not committed any further capital to other exploration beyond the planned Senegal drilling campaign and said it "retains the flexibility to leverage success, optimise the portfolio and partner as appropriate".
Cairn's current exploration inventory comprises 65 prospects and 195 leads across all of the group's acreage.
At the end of June, the company had a total of 47.2 million barrels of oil equivalent as 2P reserves, meaning proven and probable.
Cairn shares were down 2.3% to 150.90 pence on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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