Cairn Energy makes ‘significant’ reductions to capex. All exploration activity deferred

Oil and gas company Cairn Energy has made significant reductions and deferrals regarding its 2020 capital program, representing an overall 23 percent reduction in capital expenditure for the year.

Cairn said on Friday that further initiatives related to the whole forward program were under active discussion with joint venture partners and other stakeholders.

According to the company, these changes are not expected to impact its previously disclosed production and production cost guidance for 2020.

Simon Thomson, CEO of Cairn Energy, said: “The health and safety of our staff and contractors remains our primary focus in these challenging times. We have also moved quickly to adjust our forward capital program 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.”

Within the capital program, Cairn reduced its planned 2020 capital expenditure on the UK producing assets to below $45 million, from the original forecast of $65 million as a result of cost savings identified and the deferral of certain activities planned for the Catcher fields.

As for the Woodside-operated Sangomar project, the joint venture partnership is working collaboratively to assess several substantial initiatives to reduce and re-phase capital expenditure on the project.

At this stage, based on initiatives already identified, Cairn expects that net capital expenditure on Sangomar in 2020 will be below $330 million, reduced from the original forecast of $400 million.

A broader review of capital expenditure for 2020 and future years is ongoing.

The company added that all forward capital expenditure on exploration and appraisal activity was deferred except ongoing operations on the Eni-operated Ehecatl well in Mexico.

Capital expenditure on exploration in 2020 is now anticipated to be approximately $100 million, reduced from the original forecast of $150 million.

Cairn further stated that it was well funded from existing sources of financing such as the 2020 opening cash position of $255 million from the Norwegian subsidiary sale in February, cashflows from UK production – expected to be in the range of 19,000-23,000 bopd in 2020 with 36 percent of mid-case production hedged at $62/bbl and a targeted all-in production cost of below $20/boe, as well as undrawn $575 million reserves-based lending facility with an option to increase lending commitments by up to an additional $425 million on the inclusion of Sangomar in the borrowing base assets.