Comparatives in these interim results from oil explorer Cairn Energy are misleading. Last year, profits were flattered by a $359m (£219m) exceptional gain on an Indian stock exchange placement in subsidiary, Cairn India. This year, there was a $95.6m exceptional provision for a long-running legal dispute on the Ravva oilfield in India, which slashed revenue, boosted finance costs and pushed the bottom line well into the red. Nevertheless, at a pre-exceptional level, gross profits (revenues minus production, exploration and depletion costs) fell to just $18m, compared to $109m for the first half in 2008 and $137m for 2008. This reflects lower oil and gas prices, reduced output due to field decline and one-off previously unallocated cost recognition.
Of course, for Cairn the real story is not current small beer production (11,573 barrels of oil-equivalent per day on an entitlement basis in the first half) from already operational fields across India and Bangladesh, but ongoing development of its flagship Rajasthan oilfields onshore in northern India (vested in 65 per cent-owned Cairn India). First production from the Mangala field commences this week, with initial volumes trucked to customers, while the pipeline should complete by year-end. By mid-2010, Cairn should be producing 125,000 barrels per day (bpd) from Rajasthan, with a currently forecast plateau of 175,000bpd. Yet processing capacity is planned at 205,000bpd, as the company hopes to pump more, thanks to enhanced oil recovery and additional exploration success.
The first couple of years will see 100 per cent production entitlement (as cost recovery), but in 2015 Cairn should still be seeing 80 per cent entitlement. Meanwhile, it is chasing its next opportunity for high profile exploration success - offshore of Greenland. By 2011, Cairn should be drilling the first wells in what is hoped to be a lucrative licence footprint in this frontier territory.
RBC Capital Markets anticipates full-year adjusted EPS of 15¢ (2008: actual 4¢), rising to 477¢ in 2010 and 607¢ in 2011.
| CAIRN ENERGY (CNE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,581p | MARKET VALUE: | £3.5bn | |
| TOUCH: | 2580-2581p | 12-MONTH HIGH: | 2,986p | LOW: 1125p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 1264¢ * | NET FUNDS: | $626m | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2008 | 180 | 407 | 279 | nil |
| 2009 | 17 | -115 | -45.5 | nil |
| % change | -91 | - | - | - |
*Includes intangible assets of $560m, or 407¢ a share £1=$1.64 | ||||
