Mid cap oil firm Cairn Energy (CNE) is down 2.7% to 170p as full year numbers see confirmation of a reserves downgrade for its Kraken field in the North Sea.
This follows on from yesterday’s news of a delay in the arbitration proceedings over an Indian tax dispute and means the shares have now fallen 13.5% since the start of the week.
The downgrade at Kraken, which reduced the estimated proved and probable reserves contained in the field by 6.8m barrels of oil equivalent (boe) to 29m boe, had been flagged but the associated impairment, plus write-offs associated with its interest in former subsidiary Cairn India, saw it post a net loss of $1.27bn.
It is worth noting these are non-cash items and the company generated cash flow of $229m from its oil and gas production.
A decision on the long-running dispute with the Indian government from an independent arbitration panel is now up in the air and effectively Cairn’s assets in the country have been frozen since 2014.
Production guidance for 2019 of 19,000 to 22,000 barrels of oil equivalent per day (boepd) compares with 17,500 boepd in 2018. The company is sticking with a plan of spending $300m in the year, with up to seven exploration wells planned.
The company should deliver a final investment decision on the development of its SNE field in Senegal by the middle of the year.
KITCHEN SINKING EXERCISE
The fact Cairn has taken the step of downgrading reserves on Kraken suggests it is taking a conservative stance, given its partner Enquest (ENQ) - itself down 8.8% at 16.85p - is sticking with the previous estimate.
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Investment bank BMO Capital Markets says: ‘Yesterday’s announcement of a delay to a decision on the Cairn India arbitration refocuses attention back on the rest of the portfolio.
‘A decision is still to be made on equity retained in SNE, and the lack of clarity around Cairn India complicates that, in our view, although we continue to believe the investment case doesn’t rely on the arbitration so remain positive. We already assumed a reduction in Kraken reserves so do not anticipate material changes to our estimates.’
Cantor Fitzgerald comments: ‘Most of the important figures have already been flagged, although the kitchen-sinking of the profit and loss today might frighten a few investors.’
