One is the firm’s new acquisition in Egypt, which chief executive Simon Thomson says will add “material gas-weighted production, low-cost, near-term growth and attractive exploration potential, in a region with strong demand trends.” Cairn should complete the deal in Q3.
At the same time, it proposes to divest its UK North Sea assets, which should conclude by Q4. What we’re seeing is a clear move away from high-cost production to lower-cost assets. Cairn says the move towards Egypt should, among other things, help with the company’s cash flow growth.
Speaking of cash, Cairn is edging closer to the resolution of its India taxation dispute, which has moved in its favour. It’s a legal issue, though, so I’ll remain cautious until the judges have put the final stamp on the papers. But the apparent resolution has helped boost the Cairn Energy share price since the start of August.
The other key step is the proposed return to shareholders of up to $700m, pending the conclusion of the Indian issue. Cairn is already in a decent cash position, with $341m on the books at 30 June 2021. That’s with no debt drawn, and after paying January’s special dividend of $257m.
It reported cash outflow from capital expenditure of $25m during the first half. The company expects net capital expenditure for the full year to reach $125m. With the taxation dispute in India almost settled (fingers crossed), that looks to be well covered. The Cairn Energy share price opened 2.5% ahead of Monday’s close.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.