CAIRN Energy is set to capitalise on opportunities created by the slump in oil and gas prices after agreeing to sell its stake in a giant find it made off Senegal which could be worth up to $400 million (£310m).
The deal agreed with Russia’s Lukoil by Edinburgh-based Cairn will increase its firepower for acquisitions while paving the way for it to make big payouts to shareholders.
Cairn said yesterday it expected to return at least $250m of the deal proceeds to shareholders. News of the transaction sent shares in Cairn surging.
The deal appears to represent a coup for Cairn.
The company negotiated the sale as oil and gas firms grappled with the most challenging conditions sector players have faced for years.
Commodity prices have tumbled this year in response to the sharp fall in demand that resulted from the imposition of lockdowns.
Chief executive Simon Thomson noted the transaction would put Cairn in a much stronger position to capitalise on the shake up in the industry this is likely to trigger.
He said acquisitions could be on the agenda as Cairn looks at “counter-cyclical opportunities”.
While buyers for oil and gas assets are in short supply, he said Cairn was comfortable with the price Lukoil has agreed to pay.
“What’s more important is the position it has put us in,” he added.
The deal will allow Cairn to reduce its dependence on Senegal while avoiding the hefty costs that would be involved in developing the Sangomar find it made there.
Cain expects to end the year with around $600m net cash at a time when many firms in the sector are labouring under massive debts.
The deal provides vindication for Cairn’s decision to take the risks involved in launching a pioneering hunt for oil and gas off Senegal.
The Sangomar oil field it discovered in 2014 is set to become the first to come into production off Senegal. The development was approved in January. First oil is expected in 2023.
Mr Thomson said the company was proud of what it had achieved in Senegal.
“Our discoveries were the country’s first deep-water wells and opened up a new basin play on the Atlantic Margin,” he said, noting that the Sangomar development will deliver enduring benefits to Senegal’s people.
The company could use proceeds from the Lukoil deal to invest in growing its operations in other areas.
Cairn has developed a big North Sea production business under Mr Thomson’s lead. He noted yesterday the company could increase its exposure to the area, in which it is producing oil for less than $20 per barrel. Brent crude is trading at around $43.50 compared with about $70 in January.
Cairn may invest in diversifying its portfolio, which also includes exploration interests in countries ranging from Mexico to Israel.