Cairn bags North Sea assets

Cairn Energy has announced that it is to acquire Agora Oil & Gas AS, a private Norwegian company that holds a mixed portfolio of exploration, appraisal and development assets in the North Sea. Subject to approval, Cairn will pay $450m (£281m) for Agora in cash and shares. Agora's management holds 16 per cent of the equity and will receive approximately 90 per cent of their consideration in Cairn's shares. The remainder of the proceeds will go to RIT Capital Partners and Lord Rothschild's family interests, which funded Agora's formation in 2009.

The deal looks positive for Cairn and Agora has scheduled drilling for nine exploration and appraisal wells in the UK and Norway this year. The acquisition also includes Agora's 15 per cent stake in the Catcher area, as well as a 20 per cent holding in Valiant Petroleum's Tybalt discovery. Agora's assets cover 22m barrels of oil equivalent (boe) in 2C contingent resources (or where development is effectively on hold) – 95 per cent of which is oil, together with a prospective mean-risked resource that's currently estimated at 49m boe. Cairn was also boosted by news that Cairn India – in which the group holds a 21.8 per cent stake following the sale of a 40 per cent stake to Vedanta Resources – made another substantial oil discovery at the Krishna Godavari basin block.

Numis Securities says …

Buy. Cairn Energy has used part of its $1.2bn cash pile to acquire Agora and we believe that the deal was towards the top end of recent transaction multiples – based on discovered resource. That implies that Cairn is paying up for access to prospective licences and the Agora team. Nevertheless, we view the deal as a positive, with Cairn Energy's shares trading at a material discount to our 415p-a-share net asset value estimate. That comprises 119p a share of cash, 23.5p a share for the Greenland assets and 272.5p a share for its retained stake in Cairn India.

Bernstein Research says …

Outperform. Subtracting net working capital and the tax shelter from the deal price – after comparison with Agora's 2C contingent resource volumes – implies a $14.40-a-barrel acquisition price. That's below the $17.70 price that we estimate for Premier's acquisition in October of EnCore – so the deal looks priced just below that of other recent North Sea acquisitions. Moreover, Cairn is a company that rarely comes to shareholders for cash and, more typically, hands back large quantities of it. We therefore reiterate our outperform recommendation and 450p price target – which includes 313p a share for the residual stake in Cairn India.