Last updated: January 23, 2012 5:11 pm

Statoil buys in to Cairn’s Greenland stake

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Cairn Energy, the FTSE 100 oil explorer, has sold down part of its exploration interests in Greenland’s Arctic waters to Statoil of Norway following its own failure to make a commercial oil strike during a $1.2bn drilling campaign off the island, which it opted to pursue without risk-sharing partners.

The deal could be one of several struck by Cairn in the coming months as it seeks to mitigate the risks involved in its attempts to establish Greenland as a major oil resource.

Shares in the company, which peaked at more than 473p early last year, have fallen with each disappointing announcement about the Greenland campaign. On Monday, they stood at 295½p.

Neither Statoil nor Cairn would reveal the implied value placed on the acquired stake in the Greenland block. The deal comes a week ahead of a vote by Cairn investors to approve the return of $3.5bn of funds to shareholders following the sale of a stake in Indian oilfields to Vedanta, the mining and metals group.

Simon Thomson, Cairn’s chief executive, said the experience of state-controlled Statoil in operating and developing Arctic assets made it the “partner of choice” in the farm-out of a 31 per cent interest in the Pitu block in waters in the north of Baffin Bay.

Statoil will pay an unspecified signature bonus to Cairn along with costs towards the block’s development to date, as well as agreed terms for contributing towards future exploration expenditure.

Pitu is one of 11 exploration blocks held by Cairn and is adjacent to two Shell-operated blocks in which Statoil already has minority stakes. Cairn will maintain a 57 per cent stake in the Pitu field, with the remaining 12.5 per cent interest held by Nunaoil, Greenland’s national oil company.

Statoil has recently signalled its own determination to push ahead with further exploration of the Barents Sea in Arctic waters, to the north of established fields in Norway’s own section of Europe’s continental shelf.

The announcement of the farm-out in Greenland comes a week ahead of an extraordinary meeting to approve a 160p-a-share cash return to investors. But Cairn also faces a shareholder revolt over a vote to approve the granting of a £2.5m bonus in share options, along with a further £1m contribution to charity, to Sir Bill Gammell, its chairman.

Shares in Cairn closed up 1.8p at 292.4p.

. . .

FT Comment

Investors looking beyond Cairn’s planned $3.5bn cash return and untroubled by quibbles over Sir Bill’s bonuses should welcome the first of several planned farm-outs of stakes in its Greenland blocks. Obscurity over the terms of the deal gives little clue to the total valuation of Cairn’s Arctic assets, though analysts speculated that Cairn might net $100m or more from Statoil’s farm-in from one block alone. But looked at from the top down, Cairn’s return of cash will reduce its market capitalisation from £4.15bn to about £1.9bn. That will leave its shares set to trade at a discount to its remaining cashpile of more than $1bn and a residual stake in Cairn India valued at $2.5bn. That implies Cairn’s remaining exploration assets focused on Greenland, but also including Spain, Albania and Nepal, are being thrown in for free. After the pain of $1.2bn spent in Greenland without reward so far, Monday’s deal points to some valuable upside in the emerging rump company.

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