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Cairn Energy* ( *RBS Hoare Govett Ltd is broker to this company)
Trading statement - first thoughts
As we expected, no significant new disclosures in the TS. Management expects
completion of the Cairn India disposal by April. Offshore Greenland, Cairn has
increased its interests in the Lady Franklin and Attamik blocks, while the detail of
the 2011 campaign should be revealed in May.
! As we expected, there are no significant new disclosures in the trading statement.
! Cairn continues to work with the Government of India to secure the necessary consents and
approvals for the proposed Cairn India stake disposal to Vedanta. Management expect to
complete the deal before 15 April 2011 (the date on which the sale agreement lapses). If
approvals from the GoI are received in February (our current assumption) then we believe the
required open offer to minority shareholders can be delivered and the deal completed within
the April timeframe. We don't believe that the mention of the lapse date in the TS need unduly
worry the market - clearly both sides want this deal to happen and we believe the timeframe
can be extended if necessary.
! In Greenland, the main new disclosure is Cairn's acquisition of Encana's interests and
operatorship in the Lady Franklin and Attamik licences. Cairn's interest will now rise to 87.5%,
and the move will provide Cairn with operational flexibility given the licences are free of ice all
year round.
! The only other new piece of information is that Cairn is evaluating 10-12 possible drilling
locations for the 2011 drilling campaign. Final selection of prospects and well targets is
expected by management in May. While having a wide inventory of prospects at this point is a
sensible move, we expect that the drilling campaign will be focused on one particular area
and/or play. We still believe a return to the Sigguk licence (scene of 2010 campaign) is one of
the more likelier options at the moment.
! Cairn has been awarded a 100% interest in two exploration licences that cover 5 blocks
offshore Spain in the Gulf of Valencia. The licences do not carry a drilling commitment and
the initial stage of exploration will be desktop studies. As a result we doubt that the Spain
acreage will be a focus of the investment case in the near-term, but it is the first diversification
move away from Greenland we have seen for a while.
! On the operational front, working interest production averaged 68,475boepd in 2010, slightly
below our 71.5kboepd estimate, with CB/OS-2 the main shortfall. However, we doubt that the
market will focus on the detail of the production out-turn in India given the planned Cairn India
stake disposal.
! All in, we see nothing in the statement to alter our investment view of the company. We
continue to believe that the Cairn India disposal will complete on the current terms, and that
the Greenland prospectivity deserves a premium, which drives our 510p price target. The TS
suggests to us that management plans to use scheduled updates (next one being the FY10
prelims on 22 March) to provide further detail on the Greenland acreage position. While the
actual prospect attributes may not emerge until May, we would imagine that a high-level
update on the petroleum geology of offshore Greenland would be next on the agenda.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Cairn Energy* ( *RBS Hoare Govett Ltd is broker to this company)
Trading statement - first thoughts
As we expected, no significant new disclosures in the TS. Management expects
completion of the Cairn India disposal by April. Offshore Greenland, Cairn has
increased its interests in the Lady Franklin and Attamik blocks, while the detail of
the 2011 campaign should be revealed in May.
! As we expected, there are no significant new disclosures in the trading statement.
! Cairn continues to work with the Government of India to secure the necessary consents and
approvals for the proposed Cairn India stake disposal to Vedanta. Management expect to
complete the deal before 15 April 2011 (the date on which the sale agreement lapses). If
approvals from the GoI are received in February (our current assumption) then we believe the
required open offer to minority shareholders can be delivered and the deal completed within
the April timeframe. We don't believe that the mention of the lapse date in the TS need unduly
worry the market - clearly both sides want this deal to happen and we believe the timeframe
can be extended if necessary.
! In Greenland, the main new disclosure is Cairn's acquisition of Encana's interests and
operatorship in the Lady Franklin and Attamik licences. Cairn's interest will now rise to 87.5%,
and the move will provide Cairn with operational flexibility given the licences are free of ice all
year round.
! The only other new piece of information is that Cairn is evaluating 10-12 possible drilling
locations for the 2011 drilling campaign. Final selection of prospects and well targets is
expected by management in May. While having a wide inventory of prospects at this point is a
sensible move, we expect that the drilling campaign will be focused on one particular area
and/or play. We still believe a return to the Sigguk licence (scene of 2010 campaign) is one of
the more likelier options at the moment.
! Cairn has been awarded a 100% interest in two exploration licences that cover 5 blocks
offshore Spain in the Gulf of Valencia. The licences do not carry a drilling commitment and
the initial stage of exploration will be desktop studies. As a result we doubt that the Spain
acreage will be a focus of the investment case in the near-term, but it is the first diversification
move away from Greenland we have seen for a while.
! On the operational front, working interest production averaged 68,475boepd in 2010, slightly
below our 71.5kboepd estimate, with CB/OS-2 the main shortfall. However, we doubt that the
market will focus on the detail of the production out-turn in India given the planned Cairn India
stake disposal.
! All in, we see nothing in the statement to alter our investment view of the company. We
continue to believe that the Cairn India disposal will complete on the current terms, and that
the Greenland prospectivity deserves a premium, which drives our 510p price target. The TS
suggests to us that management plans to use scheduled updates (next one being the FY10
prelims on 22 March) to provide further detail on the Greenland acreage position. While the
actual prospect attributes may not emerge until May, we would imagine that a high-level
update on the petroleum geology of offshore Greenland would be next on the agenda.
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