Cairn Energy has announced a deal in Senegal at the same time as announcing reduced annual losses.
The exploration group will invest in three blocks in Senegal, earning a 65% working interest by paying up to $80m for the first drilling well and around $10m of other costs.
At the same time Cairn said it planned a number of exploration programmes during the coming year, including two to four wells offshore Morocco. It will also make a decision on its controversial plans offshore Greenland, targeting an exploration well in 2014 subject to the necessary approvals.
Meanwhile losses reduced from $1.1bn to $194m, and it returned $3.5bn to shareholders early in the year.
Analyst Laura Loppacher at Jefferies issued a buy note, saying:
With a strong portfolio of development assets, growing suite of exploration acreage and strong balance sheet, we continue to see Cairn as having greater upside than is reflected in the current share price.
With the addition of Senegal to Morocco, Greenland and north west Europe (and unsuccessful bid in Trinidad and Tobago), we believe Cairn's exploration strategy is becoming clearer and is focused on the Atlantic Margin theme. We believe the company may still look to add additional acreage along the margin where it believes the commercial and technical risk/reward is attractive.
We continue to like Cairn for its strong portfolio of development assets, growing suite of exploration acreage, strong balance sheet (around $2.5bn in cash and Cairn India shares) and attractive valuation.
But Investec moved from buy to hold and cut its price target from 340p to 310p, saying it saw limited catalysts in the near term. Cairn's shares have slipped 2p to 287.2p.
Earlier in the month it was lifted by talk that Cairn India, the business it sold to Vedanta Resources, might turn the tables and bid for its former parent. The suggestion came from a report by Asian brokerage CLSA which noted that Cairn India - 58.8% owned by Vedanta and 10.3% by Cairn Energy - held around $2.7bn in cash.
