Cairn Energy Plc Ord 8/13p

Company overview

Cairn Energy is an oil and gas exploration and production company based in Edinburgh. In 2006 Cairn split itself into two: Cairn India controls the assets in India, 'Capricorn' controls the remainder. The group operates in Bangladesh and Nepal. Following the flotation of Cairn India Limited in January 2007, the Group’s interests in India are now operated by Cairn India Limited. Capricorn Oil Limited, a subsidiary of Cairn is focused on exploration. Capricorn now has assets in Bangladesh, Nepal, Northern India, Greenland, Tunisia, Albania, and pending licence awards in Spain. Cairn has been listed on the London Stock Exchange since 1988 and is a constituent of the FTSE 100 index.

HL Comment (23 January 2012)

In advance of announcing full-year results, Cairn Energy Plc provided an operational update earlier today. The oil explorer reported that it had agreed to sell a 30.6% working interest in the Pitu oil and gas exploration block off the west coast of Greenland to Norway's oil and gas company Statoil. Under the terms of the agreement, Statoil will acquire a working interest of 30.625% in the Pitu licence. Cairn will retain exploration operatorship, with a 56.875% interest in the block, while Statoil will operate any future development. Nunaoil maintains an ongoing 12.5% interest in the block. The agreement is subject to the approval of the Greenland government. Cairn plans to report its preliminary results for the year to 31 December 2011 on 20 March 2012.

Negative Points:

• Cairn Energy last year became the first company to drill for oil and gas off Greenland in a decade, but so far it had not found commercial levels.
• Unexpected changes to the political and fiscal regimes within the countries which the company operates may have adverse effects.
• The group is exposed to unexpected delays in the development of its oil fields, or a period of sustained exploration disappointment.
• Oil exploration stocks have historically proved very volatile (high risk), with uncertainties regarding both future exploration success and the price of oil shifting sentiment.

Positive Points:

• The group confirmed the completion of the 40% sale of Cairn India Limited (CIL) to Vedanta Resources.
• Cairn said it intends to return $3.5 billion of the proceeds from the sale to shareholders in February 2012 (following the CIL sale to Vedanta).
• Bhagyam, the second biggest field in Rajasthan, commenced production in January 2012 and will ramp up production to achieve 40,000 barrels of oil per day (bopd)
• Cairn benefits from a strong balance sheet. Group cash at 31 December 2011 stood at $4.7 billion.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Fundamental data for this stock is not available at present.