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North Sea production on Cairn's horizon

Although some costs remain, first oil from Catcher and Kraken is on track, and set for this year.
March 8, 2017

Despite another production-free year, 2016 results for Cairn Energy (CNE) highlighted the enormous number of moving parts at the mid-tier oiler. Many of those movements have been positive; for example a larger than expected Norwegian tax credit pared back net losses to just $95m (£78m), which in turn meant the year ended with an even stronger balance sheet.

IC TIP: Buy at 223.5p

That was reassuring, because Cairn plans to spend $150m on the final developmental stages of the Kraken and Catcher fields this year, and a further $170m on drilling, predominantly in Senegal. To support this strain on working capital, the group has taken on a couple of innovative funding sources since January: a $60m finance facility which allows the group to borrow against future Norwegian exploration tax refunds, and a $75m streaming deal for early Kraken production.

There may be a further bonus on the cash front. The group has now received confirmation from its ongoing arbitration with the Indian government that $51m in dividends it expects from its Cairn India stake are no longer restricted. That case is now expected to conclude in January 2018.

Average market expectations are for adjusted pre-tax and per-share losses of $64m and 10¢, respectively, this year, swinging to a profit of $98m and EPS of 14¢ a share in 2018.

CAIRN ENERGY (CNE)

ORD PRICE:224pMARKET VALUE:£1.29bn
TOUCH:223.1-224p12-MONTH HIGH:251pLOW: 169p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:379¢*NET CASH:$335m

Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
2012nil-0.2011.0nil
2013nil-1.10-93.2nil
2014nil-0.56-66.5nil
2015nil-0.50-90.3nil
2016nil-0.15-16.6nil
% change----

*Includes intangible assets of $590m, or 102¢ a share £1=$1.22