Cash-Rich Cairn Energy Joins Australia's FAR To Explore Offshore Senegal
Since the blazing success of its ventures in India, Cairn Energy has seemed a little adrift as it seeks new places to spend its resulting riches. There was a rather disappointing series of wells offshore Greenland in 2010 and 2011 and while the Edinburgh-based company, which retains a 10 per cent stake in its former Indian outfit worth US$1.1 billion, has added new exploration territories in Northwest Africa, the North Sea and the Mediterranean none have yet to deliver the firepower of its former territories in Rajasthan (although it wasn't until Cairn drilled a series of oil discoveries from 1999 onwards that the potential of this ex-Shell acreage in northwest India became apparent.)
This week the London-listed company agreed to farm into three contiguous blocks offshore Senegal. The deal was struck with ASX-explorer FAR Limited and will see Cairn pay 100 per cent of an exploration well to earn a 65 per cent working interest in the Rufisque, Sangomar and Sangomar Deep blocks. FAR will retain a 25 per cent working interest and state oil company Petrosen a carried ten per cent working interest. Cairn will also pay around US$10 million in back costs to FAR.
The three blocks span 7,490 sq km from the near shore to deep water and is covered by over 2,000 sq km of 3D seismic. Cairn's chief executive Simon Thomson said the Senegalese acreage complemented the company's Atlantic Margin strategy, where it has already bagged acreage in Morocco and, of course, Greenland. “The Senegalese acreage is an excellent strategic fit for Cairn and as an Operator gives us access to a gross prospective resource potential in excess of 1.5 billion barrels," he said.
This adds further drill-bit action to Cairn's planned multi-well 18 month programme that is due to kick off in Q4 2013, targeting more than 3.5 billion boe of mean un-risked gross prospective resources. In addition to the well in Senegal – and there may be more than one – there are plans for up to four exploration wells offshore Morocco, raising the prospect of synergies across the two drilling campaigns, as well as a return to Greenland in 2014. In the UK and Norwegian sectors of the North Sea, there will be four non-operated wells, two of which are already underway, and field development plans for the Catcher and Kraken fields will be submitted this year. The company also has early stage exploration interests in Malta and Spain and is applying for acreage in Trinidad & Tobago and Lebanon.
Even so, analysts feel this is all a bit small scale for a company with Cairn's resources – it ended 2012 with a whopping US$1.6 billion in cash. Analysts at Investec downgraded the company to HOLD and reduced the target price from 340 pence to 310 pence because of “limited material catalysts in the near-term”. The excitement will be back-loaded at the end of the year when the first high impact well off Morocco spuds – unless, of course, the company decides to unleash the spending power of its US$1.6 billion cash pile. Agreeing farm-ins with US$10 million back payments and reasonable promotes may well prove astute in the longer term should wildcatting yield an extension of the Atlantic Margin plays of Ghana, Sierra Leone and South America but it's not going to move the needle now.
For FAR, however, the tie-up with Cairn is certainly a good deal, providing a carry through a first high impact well and boosting the bottom line by US$10 million. The Australian E&P, which first listed in 1985 with roots in Australasia and the Gulf of Mexico before changing its name to FAR in 2010, had made farm-outs of its frontier exploration portfolio a key goal for the year. The A$112 million market cap company hosted data rooms in London, Houston and Melbourne from November 2012 to January 2013 and it is to its credit that by March it has already landed a credible cash-rich partner for one of its ventures (it also acreage in Kenya, Guinea Bissau and the AGC).
Certainly the prospective numbers for its acreage are of a scale to tempt big players. A recent update on the resource estimates for its L6 block in Kenya, where two wells are planned in the coming 12 months, and the Senegalese blocks saw the resource base almost double, to 7.3 billion barrels gross (5.4 billion barrels net). Analysts at Perth-based Hartleys note that fellow operators are busy near FAR's acreage, with Anadarko, Apache and BG all having active programs in Kenya, where four wells could be drilled this year, while African Energy will target the Alhamdulillah prospect in Gambia that stretches into FAR’s Senegal block. For FAR followers, this will be one to watch.
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