UK Edition
Cairn Energy returns to profit as North Sea alliances pay off
Cairn Energy’s collaboration with two of the North Sea’s largest independent oil operators has paid off as the company returns to profit and prepares for a new phase of growth.
The Edinburgh-based group holds a fifth of Premier Oil’s new Catcher project and a 29.5pc stake in Enquest’s Kraken project, both of which began producing their first oil late last year.
The two North Sea projects, neither of which are operated by Cairn, will add between 17,000 to 20,000 barrels of oil a day to the group’s portfolio this year.
The fresh oil flows combined with rising oil prices are expected to build momentum behind the company's growth as it bounces back into the black with a pre-tax profit of $256.4m for 2017 from a loss of $151.5m the year before.
Cairn ended the year with just $86m of cash, but left its $200m reserve based lending facility undrawn.
Although the full-year results offered shareholders little new information on the company’s activities, the report underlines a step-change for the company following the North Sea start-ups.
Simon Thomson, Cairn’s chief executive, said the group’s revived health is the result of a five year rebalancing programme to create a pipeline of projects through exploration, development and production phases.
“We have line of sight on long-term production which provides certainty in terms of cash flow generation and confidence in our programme,” he said.
Equity analysts were in broad agreement that Cairn is ready to enter a new phase of growth.
“There are signs of the shift to the next growth phase and a return to the traditional exploration focus of the group – albeit now with a platform of production to support Cairn through investment and equity market cycles,” analysts at Davy said.
Last year Cairn snapped up other low-cost oil field stakes in Mexico and Suriname, in line with its plan to target areas for growth without tipping its balance sheet.
Cairn has also successfully appraised five wells at its SNE field in Senegal and Mr Thomson said it hopes to clinch the local government’s approval for the plans by the end of this year.
The company is still considering the option of selling a stake in its SNE project amid “pretty strong” competition in the oil market for asset deals, Mr Thomson said.
“We have always been clear that this is something we may consider but we have full flexibility over whether we take the opportunity or not. The last thing you’d want is feeling that you need to do a deal, and we don’t,” he said.