Building on its previous exploration success in Senegal, oil producer Cairn Energy (CNE) gains 1.7% to 245.7p as it gears up for a renewed drilling campaign off the coast of the west African country.

EXPLORATION UPSIDE

As part of a wider update on its plans for 2017, Cairn outlines its intention to drill two firm wells on its 40%-owned SNE project with options for follow ups should these prove successful. Work is scheduled to start in late January.

The results from these wells should offer an indication of how much can be recovered from the estimated 2.7bn barrels in place at SNE.

Cairn has one of the strongest balance sheets in the sector with net cash of $335m but is increasing its debt funding with a credit facility expected to hit $350m at its peak. Capex is guided at $295m in 2017, of which $125m is committed to appraisal drilling and the remainder to its development projects in the UK.

DEVELOPMENT PROJECTS

Kraken and Catcher are both on time and under budget, reflecting in capex guidance which is some way below broker Davy’s previous assumption of $365m. Due on stream in the second quarter and second half respectively, at their full potential these fields are expected to provide 25,000 barrels of oil equivalent per day to Cairn.

There is no update on the lingering Indian tax dispute which is preventing the company from accessing the value from its residual shareholding in former spin-off Cairn India.

Davy analyst Caren Crowley reiterates ‘outperform’ advice and comments that ‘it offers better value and lower risk than other stocks under coverage.’

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Issue Date: 17 Jan 2017