Cairn Energy: SNE Larger But Phased
Edison | Aug 25, 2017 03:29AM ET
Cairn Energy's (LON:CNE) interim report revealed higher contingent resources at SNE of 563mmbbl, but a phased development plan targeting the lower reservoirs initially. Lower capex to first oil is balanced by a lower (and longer) plateau period of 75-125mb/d. Other offshore projects indicate that phase one will have low production rates (of perhaps 80mb/d), while we expect further phases to increase over time. As a result of these changes, and a number of other adjustments throughout our modelling (not least for the commissioning issues seen at Kraken), our contingent valuation remains broadly flat at 195p, but our RENAV increases to 205p (from 200p).
SNE volumes increase, but are phased
Cairn’s estimate of SNE contingent resources has increased from 473mmbbl to 563mmbbl on a 2C basis, with 900mmbbl on a 3C basis (a 19% increase). Positive results in the appraisal drilling programme and the interference testing this year has given more confidence. However, with the phased development, the company will be concentrating on the lower reservoirs initially, aiming to extract 240mmbbl before moving onto future phases developing the thinner and less productive upper reservoirs. This will necessitate lower production rates for the FPSO than a combined development, leading to a lower and longer plateau.
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