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Cairn Energy has committed itself to returning a further $300m to investors through a share buyback programme.
The Edinburgh-based oil explorer, which delivered a $3.5bn return to shareholders in February last year, ended its third quarter with net cash of $1.4bn, marginally down on the $1.5bn total at the halfway stage.
Simon Thomson, chief executive, said Thursday that the further cash return would still leave Cairn “maintaining appropriate balance-sheet strength as it progresses its exploration and development programmes”.
The company, which is currently lossmaking as it holds no production assets, also ended the quarter with a 10 per cent stake in Cairn India, its former sister company now controlled by Indian metals and mining group Vedanta Resources.
Cairn’s residual stake in the India-quoted venture is valued at about $1bn.
Cairn also announced that it is about to start drilling off the coast of Morocco as part of a $700m programme of exploration and appraisal drilling running to the end of next year.
The company, which wrote off $1.2bn spent on an unsuccessful two-year drilling campaign in Arctic waters off Greenland ahead of last year’s cash return, has also targeted Atlantic waters off Senegal and Ireland for future investment in exploration.
Cairn has also made a large investment from its cash pile in North Sea development projects, which are designed, once cash flows are achieved, to help finance further exploration activity as Cairn’s cash balances are eroded.
Shares in Cairn closed up 4.8 per cent at 289p following the announcement of the buyback programme.
Analysts at Investec said: “Our view is that at 270p the shares discount value for exploration, which Cairn’s recent record may not warrant.
Above 300p you’re paying for quite a bit of exploration and therefore we don’t believe the risk-reward dynamics stack. Consequently we remain at hold.”
Malcolm Graham-Wood, analyst at VSA Capital, described the update as positive “The only downside is the share buyback scheme, which we are not fans of generally. A special dividend may have been a more attractive option.”
Cairn said a decision on whether to resume drilling off Greenland in partnership with Statoil of Norway in late 2014 would be made by the end of this year.