Cairn Energy PLC Posts $62m Loss, Plans Cost Cutting

Cairn Energy PLC (LON: CNE) is still seeking to resolve tax issue in India, but it’s exploration activity is showing no signs of slowing down.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 19 August, 2014 2:40 pm BST

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Shares of Cairn Energy (LSE: CNE) fell by up to 4% in early trade, but by the afternoon the dip had been pared back to a little under 1%. Cairn, the oil explorer, unveiled a $62m loss in the six months to 30 June, and a cost reduction programme is under way, leading to restructuring and potential job cuts.

The firm’s Indian business is being investigated by the country’s tax authority over unpaid capital gains taxes — dating back around seven years. Cairn firmly denies the allegations, stating that it has “been fully compliant with and paid applicable taxes under the legislation in force at the time”. Until the issue is resolved Cairn cannot sell down any of its $1.1bn shareholding in Cairn India Limited (CIL).

Cairn suspended its share buyback programme earlier this year, although investors will be cheered that with $1.1bn cash and $575 in bank financing — which may be drawn to fund investment in the Catcher and Kraken development wells — the firm is in no danger of being unable to afford its exploration activity.

The chief executive, Simon Thomson, commented:

“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 … Cairn continues to seek resolution of the tax issue in India and will take all necessary steps to protect shareholders’ interests.”

Cairn’s shares have fallen 31% so far this year, and whether investor pessimism will set the stage for a sizeable rebound remains to be seen, and the decision to ‘buy’ remains your own decision.