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Cairn's story morphs

The focus on Cairn's SNE project is starting to shift to the North Sea – and The Hague
August 23, 2017

Our Value Tip of the Year Cairn Energy (CNE) has had a bumpy ride so far in 2017, but half-year results for the oil and gas explorer were warmly welcomed by the market. For a start, Cairn became a producing company again, after the Kraken field in which it holds a 29.5 per cent working interest started to pump oil; although the timing of that output – and with it Cairn’s net interest – failed to trickle through to the income statement.

IC TIP: Buy at 180p

The novel inclusion of revenues in the table below instead relates to royalty income from two fields in Mongolia, following a successful arbitration claim. The company will hope for a repeat in January, when a panel of lawyers meets in The Hague to decide whether Indian tax authorities unfairly deprived Cairn of $105m (£82m) in dividends, and a further $1bn equal to the energy group’s former stake in Cairn India (CIL). Following CIL’s merger with Vedanta in April, Cairn chose to treat its 5 per cent stake in the latter as a net gain of $403m, which explains the half-year swing to profit.

Elsewhere, there was positive news from the SNE field, as estimated resources were revised up 19 per cent. Planning for phased development is afoot there, though slowing at Catcher, where production is expected by the year end.

On average, analysts expect a full-year pre-tax loss of $59m and a loss per share of 13.5¢, against losses of $126m and 13¢ in 2016.

CAIRN ENERGY (CNE)   
ORD PRICE:180pMARKET VALUE:£ 1.05bn
TOUCH:179.5-180p12-MONTH HIGH:251pLOW: 164p
DIVIDEND YIELD:NILPE RATIO:5
NET ASSET VALUE:396¢NET CASH:$232m *
Half-year to 30 JunTurnover ($m)   Pre-tax profit ($m)Earnings per share (¢)Dividend share (¢)
2016nil-57.0-6.61nil
201710.131354.5nil
% change----
Ex-div:n/a   
Payment:n/a   
£1=$1.28. * Excludes finance lease liabilities of $183m