As markets move higher after Friday’s reasonable US jobs figures, as well as positive Chinese trade data over the weekend, one of the biggest gainers in Cairn Energy.
The exploration group, which currently has no producing assets, has jumped nearly 9% or 13.7p to 171.6p after it announced a second oil discovery off the coast of Senegal. It said it had found oil at its SNE-1 well, close to the FAN-1 well where it made a discovery last month, and suggested it could hold 150m to to 670m barrels of recoverable reserves.
Some traders suggestes that the success could allow the company to sell part of its 40% share of three blocks in Senegal to fund exploration work in Europe and Morocco.
Analysts were positie about the discovery, with Liberum saying:
This looks like a significant oil find for Cairn and, based on preliminary estimates, management believes it is a commercial discovery and opens a new basin on the Atlantic Margin. With further wells planned in Morocco, the North Sea and Ireland, Cairn offers some attraction to investors looking for offshore exploration risk.
Mark Wilson at Jefferies said:
The SNE-1 exploration well, offshore Senegal, West Africa has discovered 36m of net oil pay in its first target zone and is described as having commercial discovery potential. This success follows up from the FAN-1 discovery and we raise our target price by 6% to 282p a share.
It may be considered unfashionable, given all that we have seen in the sector lately, to consider raising an E&P company target price, but here is a company doing the principal thing the independent E&P sector is there to do...find commercial hydrocarbon discoveries.
Oriel analyst Dragan Trajkov said:
This discovery certainly looks to merit appraisal and at this early stage appears to be very significant. Alongside the FAN-1 well, where commerciality is uncertain, it suggests a highly active petroleum province. On completion the partners will decide upon an appraisal campaign for 2015. Assuming a nominal $5 a barrel value, the resource announced today would be worth a significant proportion of Cairn’s market capitalisation (on an unrisked basis – it is likely the market will not ascribe full value at this early stage). It’s worth noting that Cairn’s 15% partner in the well, Australian- listed FAR Ltd increased its market cap by $100m in overnight trading.
Overall the FTSE 100 is currently 13.57 points higher at 6580.81, with mining shares boosted by the better than expected Chinese trade figures, although imports were weaker than expected, and inflation data continued to suggest a slowdown. However the region was also boosted by news of a long awaited link between Hong Kong and Shanghai exchanges allowing foreign investors to tap the Chinese equity market.
Some of the shine has come off shares on continuing worries about the situation in Ukraine, and poor manufacturing figures from Italy rekindling concerns about the struggling eurozone economy.
Among the mining shares, Fresnillo is up 17p to 751p, Antofagasta has added 16.5p to 720p and Anglo American is 21.5p better at £13.86. Five of the ten biggest risers in the FTSE 100 are currently mining shares.
Elsewhere Serco has slumped 99.7p to 217.4p after the outsourcing group announced a £550m cash call after cutting its profit forecast amid deteriorating trading. The grim statement has sent rivals lower, with G4S down 4.8p at 259.9p and Capita off 25p at £10.78.
