Edinburgh-based international oil and gas company Cairn Energy said on Tuesday it plans to sell its stakes in UK North Sea fields Catcher and Kraken to private firm Waldorf Production UK for $460 million — and buy onshore fields in Egypt’s Western Desert with Cairo-based Cheiron Petroleum for up to $926 million from Royal Dutch Shell.
“We’re transitioning from that portfolio in decline into one where we see that we can build greater cashflow generation into the future,” Cairn chief executive Simon Thomson told a conference call.
Thomson said Cairn, which produced around 21,000 barrels per day (bpd) in 2020, can boost its net share from the Shell assets to 50,000 bpd from 35,000 bpd within a couple of years.
The deal could triple Cairn’s reserves.
The flurry of deals came as Cairn announced its 2020 results showing it made a loss after tax of $394m — including a loss on disposals of $276 million — compared to a profit of $94 million in 2019.
Oil and gas sales revenue fell to $324 million from $504 million in 2019.
“Cairn needed to rejuvenate its investment case, and this move does that,” wrote RBC Capital Markets analyst Al Stanton.
“However, shareholders are faced with a steep learning curve” with Egyptian assets typically providing “limited oil-price leverage.”
Cairn shares have risen more than 100% over the past 12 months to give the firm a current stock market value of around £1 billion.
Cairn CEO Thomson said: “The proposed acquisition of Shell’s Western Desert assets in Egypt is an important step in our strategic ambition to expand and diversify our producing asset base, bringing material reserve and production additions and offering exploration potential in a country with significant oil and gas growth opportunities.
“Our joint venture with established Egyptian operator Cheiron Petroleum Corporation creates a strong partnership with extensive experience and complementary skill sets.
“We are also announcing today the proposed sale of our interests in the UK Catcher and Kraken fields.
“The divestment of these assets, as they fall into natural decline, will further strengthen our ability to pursue Cairn’s strategic goals.
“Following the unanimous arbitration decision under the UK-India Investment Treaty to award Cairn US$1.2 billion plus interest, we have engaged with the Government of India regarding adherence to the ruling and we are pursuing all avenues to protect our shareholders’ rights to the value of the award.”