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.
But if you have a low tolerance for risk, then you may prefer to find out about some of the Motley Fool’s favourite foundation shares, which should prove especially durable during periods of wider market volatility.
Mark Stones has no position in any shares mentioned. The Motley Fool has recommended shares in Cairn Energy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.