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Cairn Energy hopes to build through downturn

The group's Sangomar project in Senegal has the green light but the oil producer's capex bill of over $600m might prove an obstacle
March 11, 2020

Cairn Energy’s (CNE) 2019 results may as well have been from 2006 for all the impact they could have had on the group this month.

IC TIP: Hold at 79p

Released in the aftermath of Saudi Arabia’s attack on the oil market in response to Russia refusing to back a supply cut to help pricing during the Covid-19 outbreak, Cairn snuck into the black based on higher revenue and the net reversal of impairments from the previous year worth $68m (£52m).  

Despite spending $107m on unsuccessful exploration, the group moved from an operating loss of $129m in 2018 to a $155m profit last year. Production averaged 23,000 barrels of oil per day (bopd) for the year, a 31 per cent year-on-year increase. 

Cairn’s share price fell 28 per cent on ‘Black Monday’ to 86p and then came down further when its results came out the next day, to 80p. 

Chief executive Simon Thomson sought to calm investors, stating on an analyst call that the group had brought two projects into production after the oil price crash of 2016 and could survive in another downturn. Cairn’s capital spending for 2020 is expected to be around $615m, with work on the Sangomar project in Senegal ramping up. Panmure Gordon analyst Colin Smith said financing the project could be “challenging” if oil prices stay low. 

The group’s cash balance was $255m at the end of February, with $108m coming in from the sale of its Norwegian subsidiary, although it is looking to raise around $400m in senior debt this year, adding to its existing $575m undrawn facility. 

Consensus estimates compiled by Bloomberg expect operating profit of $64m in 2020, down from $155m last year. 

CAIRN ENERGY (CNE)    
ORD PRICE:79pMARKET VALUE:£466m
TOUCH:78.9-79.3p12-MONTH HIGH:217pLOW: 79p
DIVIDEND YIELD:naPE RATIO:5
NET ASSET VALUE:247ȼNET DEBT:9%*
Year to 31 DecTurnover ($m)Pre-tax profit ($bn)Earnings per share (ȼ)Dividend per share (ȼ)
2015nil-0.50-90.3nil
2016nil-0.15-16.6nil
201733.30.2645.6nil
2018 (restated)410-1.21-193nil
20195330.1220.5nil
% change+30---
Ex-div:na   
Payment:na   
£1=$1.30 *Includes lease liabilities of $283m