Cairn Energy: Producer, Developer, Explorer
Edison | Jul 24, 2017 06:27AM ET
We refresh our view on Cairn Energy Plc (LON:CNE), focusing on key areas of interest for investors already familiar with the company. We examine a number of valuation approaches for SNE in Senegal, the potential for reserve upgrades and exploration value. We believe SNE is an outsized asset and assume Cairn seeks to farm-down. This will naturally affect long-term value upside, but would in our view drive a better balance of asset and financial risk. We also examine features of Catcher, Cairn’s cost of capital and look at the Indian tax dispute.
After a long period of value stagnation (as cash was invested to develop Catcher/Kraken), coming years could be a time when investors see a path to this investment steadily bearing fruit. Our core contingent NAV is 225p/share and our RENAV is 255p/share.
SNE reserves upgrades hinge on upper reservoir
The recent SNE-6 well test appeared to show strong connectivity between wells in the upper reservoirs, going some way to settle concerns that the pressure declines seen in past well testing would be major obstacles to recovery. If we assume that lower reservoirs have recovery of 30% (as hinted at by Cairn), this implies the current 473mmbbl 2C estimate has recovery factors in the upper reservoirs of between 9-14%, with FAR’s 641mmbbl estimate implying 19-22%. The interference test may well clear the way for higher recovery factors than 9-14% to be used by Cairn, but it may be more difficult to move much beyond 20% we suspect. Given the positive interference test and other appraisal results, we choose to use FAR’s estimate for the time being, awaiting an August update from Cairn.
To read the entire report please click on the pdf file below:
Cairn Energy - Producer, Developer, Explorer
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.