Cairn Energy slashes costs amid pandemic, oil price collapse
Cairn Energy updated the market in light of the Covid-19 coronavirus pandemic on Friday, saying it was “proactively reviewing” each of its assets and related capital expenditure programmes.
The FTSE 250 company said “significant” reductions and deferrals had already been identified for the 2020 programme, representing an overall 23% reduction in capital expenditure for the year.
Further initiatives relating to the whole forward programme were also under active discussion with joint venture partners and other stakeholders.
Those changes were not expected to impact the firm’s previously-disclosed production and production cost guidance for 2020.
At its producing assets, Cairn said planned 2020 capital expenditure on the UK assets was expected to be less than $45m, reduced from the original forecast of $65m as a result of cost savings identified, and the deferral of certain activities planned for the Catcher fields.
Looking at its development assets, the company said the Sangomar joint venture partnership was working to assess several substantial initiatives to reduce and re-phase capital expenditure.
At the current stage, based on initiatives already identified, Cairn said it was expecting net capital expenditure on Sangomar to be less than $330m for 2020, down from the original forecast of $400m.
It said a broader review of capital expenditure for 2020 and future years was ongoing with the joint venture, and an update on the results of that would be provided in due course.
On the exploration front, Cairn said all forward capital expenditure on exploration and appraisal activity was now deferred, with the exception of ongoing operations on the Eni-operated Ehecatl well in Mexico.
Capital expenditure on exploration in 2020 was now anticipated to be about $100m, down from the initial forecast of $150m.
The company said it was “well funded” from existing sources of financing, with a 2020 opening cash position of $255m, proforma for the sale of its Norwegian subsidiary, which completed in February.
It was expecting continued cash flows from UK production, which was expected to be between 19,000 and 23,000 barrels of oil per day in 2020, with 36% of mid case production hedged at $62 per barrel Brent and a targeted all-in production cost of below $20 per barrel of oil equivalent.
The company also noted its undrawn $575m reserves-based lending facility, which included an accordion option to increase commitments by up to an additional $425m on the inclusion of Sangomar in the borrowing base assets.
An update on the actual additional debt capacity determined by the inclusion of Sangomar in the facility would be provided, the board said, as discussions with lenders progressed.
“The health and safety of our staff and contractors remains our primary focus in these challenging times,” said chief executive officer Simon Thomson.
“We have also moved quickly to adjust our forward capital programme to current market conditions.
“Our balance sheet remains strong and we are proactively reviewing options for further capital expenditure savings and deferrals, whilst retaining the financial flexibility to add value on an ongoing basis.”
At 1039 GMT, shares in Cairn Energy were down 4.29% at 82.6p.