LONDON (Alliance News) - Cairn Energy PLC said Tuesday that its net loss narrowed sharply in the first half of the year, after last year's result was hit by big impairments, but its operating loss widened as unsuccessful exploration costs rose.
The oil explorer, which is fighting tax claims from the Indian government, reported a net loss of USD62 million for the six months to June 30, compared with the USD219 million loss it reported a year earlier when it had booked a USD268 million writedown on its investment in its Indian subsidiary.
However, its operating loss widened to USD125.2 million, from USD107.7 million in the first half of 2013, as unsuccessful exploration costs rose to USD79.9 million, from USD49.2 million. The company isn't currently earning any revenue.
It said the unsuccessful exploration costs included USD51 million relating to the Foum Draa and Juby Maritime wells offshore Morocco, USD25 million relating to North Sea appraisal wells drilled on the Skarfjell discovery and USD4 million in other regions.
"Controlling administrative cost levels is a continuing priority and Cairn is currently re-organising the group to ensure staffing levels are appropriate for the future work programme. As a result, a restructuring provision of USD3 million has been made at 30 June relating to proposed redundancies, with associated accelerated share-based payment charges of USD4 million. A further restructuring provision will be required in the second half of 2014," the company said in its statement.
The company is still facing a big tax bill in India, one of several foreign companies to have had their tax affairs questioned by the Indian authorities. The Indian tax authorities are looking into Cairn's tax assessments for the financial year to end-March 2007, and until the dispute is resolved, Cairn is unable to increase or reduce its stake in its Indian subsidiary.
The tax authorities were requesting information regarding transactions undertaken by its subsidiary Cairn UK Holdings Ltd, which filed a nil return for 2007 as none of the transactions undertaken by it during that year were chargeable to tax in India. The authorities also claim the subsidiary should have withheld tax on dividends paid to Cairn Energy, which Cairn intends to refute.
Cairn says that the tax claims are retrospective, and the result of a law brought in after the year affected by the claim. It reiterated that it "is continuing to take all necessary steps to protect shareholders' interests".
As of June 30Cairn Energy held group cash of USD1.1 billion, it said, compared to USD1.5 billion for the first-half of 2013.
It is planning capital expenditure of USD300 million in the second half of this year on exploration and development. It expects to spend USD110 million in its 2015 exploration programme, which will focus on mature and emerging basins in North West Europe, and then spend USD1 billion on its catcher and Kraken fields between 2015 and 2017.
"Cairn's future programme of high quality development projects and material exploration drilling is fully funded through to delivery of free cash flow from 2017," said Chief Executive, Simon Thomson. Peak net production is anticipated to reach around 25,000 barrels of oil equivalent per day.
"Over the next twelve months, the company has an active programme of exploration and appraisal wells with all drilling beyond the current frontier operations targeting mature and emerging basins. In line with this strategy the farm-in to the Statoil-operated Ensis prospect in the Barents Sea commences a planned entry to this emerging region," he added.
Cairn Energy shares were down 2.6% at 182.60 pence early Tuesday.