10th Mar 2015 12:17
LONDON (Alliance News) - Cairn Energy Tuesday reported a significantly narrower pretax loss for 2014 after recording fewer impairments and lower costs for unsuccessful exploration compared to 2013, and said the current downturn on oil prices will allow it to complete its 2015 appraisal and exploration programme in Senegal for less money.
The FTSE 250 oil company, which does not currently generate any revenue, reported a pretax loss from continuing operations of USD559.1 million, significantly narrower than the USD1.09 billion loss reported at the end of 2013 after recording fewer impairments in 2014.
Cairn booked an a USD208.4 million charge on unsuccessful exploration in 2014, attributable to Morocco, the UK and Norway, USD64.5 million in operating expenses, USD46.9 million in impairments of exploration and appraisal assets in the UK, Norway and Greenland and USD54.8 million in pre-award costs relating to data acquired for its assets in Norway.
Although Cairn's impairments in 2014 were significant, they were substantially lower than in 2013 when it recorded higher unsuccessful exploration costs, impairment charges on exploration and appraisal assets and a USD324.2 million impairment of goodwill, whereas it did not record any impairment of goodwill in 2014.
In total, exceptional items cost Cairn USD372.3 million in 2014, compared to USD879.1 million in 2013.
This led the company to an operating loss of USD372.3 million, compared to a USD879.1 million loss a year earlier.
In addition in 2014, Cairn recorded a USD194.3 million impairment of available-for-sale financial assets, which represents the company's remaining 10% stake held in Cairn India Ltd after it was restricted by the Indian Income Tax Department from selling its shares in, or receiving dividends declared by, Cairn India Ltd.
"In January, Cairn was notified of the previous Indian government's decision to freeze our 10% holding in Cairn India Ltd, following the introduction of retrospective tax legislation," said the company.
Cairn said it continues to try and resolve the issues with the Indian government as a "top priority".
At the end of the period, the company reported net cash of USD869 million.
"During the second half of the year and continuing into 2015, oil prices have fallen sharply, causing all players in the sector to reassess capital plans and focus on cost efficiency...As a result of the reduction in oil prices, Cairn is able to benefit from substantially lower industry costs as we prepare for the 2015 appraisal and exploration programme (in Senegal)," said the company.
Cairn is planning a programme consisting of three firm wells and three optional exploration and appraisal wells in Senegal during 2015. The company said its 2015 indicative exploration and appraisal programme in Senegal, Western Sahara and in the UK and Norwegian North Sea will total around USD185 million.
In Senegal, Cairn holds a 40% interest and is the operator with its partners ConocoPhillips holding a 35% stake, whilst FAR owns 15% and Petrosen holds the remaining 10%.
Of the USD185 million, USD135 million will be spent in Senegal, USD35 million will be spent in the UK and Norway and USD15 million will be attributable to other exploration and appraisal work.
"On a more positive front, the Senegal discoveries in Cairn's significant acreage position offshore West Africa provide a material opportunity for the company to create substantial shareholder value from a potentially world class asset," said Cairn.
On top of this, Cairn will spend USD590 million on the development of the Catcher and Kraken projects, both in the UK North Sea, between 2015 and 2017, of which USD100 million will be spent during 2015.
Of the USD590 million, the Kraken project will absorb most of expenditure at USD445 million, with the remaining USD145 million being spent on the Catcher project. Cairn said the North Sea development projects remain on track and on budget to deliver free cash flow from 2017 onwards.
Cairn holds a 20% stake in the Catcher project and a 25% stake in the Kraken project, which combined will deliver 22,500 barrels of oil per day net to Cairn once in production.
In the second half of 2015, Cairn plans to start development drilling at Catcher, with over 20 wells expected to be drilled over a period of more than four years. At Kraken, development drilling will take place in 2015, with over 25 wells expected to be drilled over the four year period.
"We start 2015 in a strong position to deliver an exciting programme across the portfolio, especially in Senegal, which has the potential to add substantial value beyond the discoveries made to date. We have built a diverse and balanced portfolio and created the financial flexibility to progress our exploration, appraisal and development programmes and ensure ongoing strategic delivery," said Chief executive Simon Thomson.
Cairn Energy shares were down 6.4% to 185.40 pence per share on Tuesday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance
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