A brief look at Cairn Energy (CNE) would leave many wondering how on earth the company can be worth its current market cap of more than £1.15 billion. Especially when you consider that although it is an oil producer, in H1 2018 it only averaged 14,400boepd, and there are many others on the market producing those sort of quantities with much lower market valuations. What you would be missing though is the fact that this company has huge future growth potential, both from increased production from its existing Kracken and Catcher operations in the North Sea, but far more importantly from the future development of the SNE field in Senegal and Nova in Norway.
In the first half of the year gross production at the company's 20% owned Catcher field was just 27,000boepd, but that was ramped up to 60,000boepd in August, so 12,000boepd net to Cairn. It is a similar story at its 29.5% Kracken field, with 30,700boepd gross averaged during H1, largely as a result of production downtime, but now that is back on track and producing at 35,000 to 40,000boepd. Overall this will give Cairn a more respectable overall net production of up to 22,000boepd for the second half of this year. But even that amount doesn’t look all that exciting given the valuation, and that is where Senegal (40%) really comes in, as that could see net production of as much as 40,000bopd at its peak once it is in production. To a lesser extent the Nova field will also have a significant impact as that will peak at around 10,000bopd net to Cairn, and when combined with Senegal will make the company a very different prospect to where it currently sits, in terms of its output. You will need a bit of patience for all of this to come to fruition though, as first oil for both projects is expected around 2021-22 and so far things are going to plan in terms of reaching that stage.
Senegal in particular has the potential to be huge, with 240 million barrels being targeted in phase one alone, and a further 250 million barrels to follow from phases two and three, which should follow within four years of first oil being achieved. Obviously, this sort of development isn’t cheap, with phase one expected to come in at up to $3 billion in total, and financing for the joint venture on this field is being worked out. Nova is a fair bit cheaper, but will still cost $1.2 billion to develop, so it is a good thing for Cairn that it has reached this stage at a time when oil is still looking fairly bullish. The company isn’t just sitting back and waiting for these projects to come online though, as it is continuing its drilling of exploration plays in a number of locations around the world, including Mexico, in a bid to line up more fields for future development.
On paper it doesn’t look anything special at the moment either, especially with some adjustments resulting in a large loss for the first half of the year, but relative to its peers in general it doesn’t have crippling amounts of debt on its books, and also has plenty of headroom from its reserve based lending facility. Those adjustments relate to the ongoing case surrounding Cairn India, with the write-downs being a result of the sale of shares and seizure of the proceeds. Arbitration proceedings are currently ongoing, so the eventual outcome of those, and any financial award, remains unclear. It also has net assets of just under $2 billion currently, so on that basis alone you could argue that it is cheap and no future growth potential is being factored in, only risk associated with the assets which make up that value. The shares have rallied slightly, but I can still see plenty of value at the current price of 195p, especially if the company is able to grow in the way that it is planning, as that would put it in a very strong position as long as oil prices remain at a decent level in the coming years, which seems likely.
Filed under: Cairn Energy, Ascent Resources, MySquar fraud, Victoria plc, Concepta, TomWinnifrith.com
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.