UK independents' financials boom on production and oil price

UK independent oil companies Enterprise Oil PLC and Cairn Energy PLC each turned in extremely strong interim results today, fuelled by the persistently high oil price and production successes. Enterprise reported post-tax profits of �196 million, a record for the company, while Cairn announced profits after tax of �18.3 million, a 138% improvement on the same period last year.


Darius Snieckus
OGJ Online

LONDON�UK independent oil companies Enterprise Oil PLC and Cairn Energy PLC each turned in extremely strong interim results today, fuelled by the persistently high oil price and production successes. Enterprise reported post-tax profits of �196 million, a record for the company, while Cairn announced profits after tax of �18.3 million, a 138% improvement on the same period last year.

Enterprise recorded seven-fold higher operating profits than last year at this time, some �477 million vs. �70 million for the first half of 1999, boosted by a 40% growth in production and soaring oil prices. Current daily production rates of over 277,000 boe were being powered by the oil company's share in seven new North Sea fields that came onstream over the last year, including ExxonMobil Corp.'s Jotun development, which is producing 60% ahead of expectations.

Despite these record numbers, analyst group Lehman Brothers expressed unease as to the independent's record outside its home patch. In a report issued today, the analyst group said that, while Enterprise "continues to demonstrate a good track record in the North Sea," its record in other provinces is "still a concern. Unlike the North Sea, which generates more than 95% of operating cash flow, new venture areas will continue to absorb cash."

Lehman Brothers noted that the oil company had sunk some �400 million into US Gulf of Mexico fields�and would have to invest a further �200 million to help along the Boomvang and Llano developments, but is unlikely to recoup this sum in full within the next 10 years.

"If we assume production will generate cash flow of $5/bbl, around 200 million bbl will need to be produced before payback of [its] initial investment," the analyst group suggested. "These less-than-attractive economics are the price Enterprise has paid for arriving late and having to pay a premium to gain access [to the region]."

Enterprise Chief Executive Pierre Jungels chose to look to the longer term upside of its late entry into the US Gulf. "The purchase of R&B Falcon Corp.'s exploration and production assets, including the Boomvang development, as well as the acquisition of new exploration acreage have contributed significantly to our aim of establishing the US as one of the group's core areas of activity," he said

Jungles added that the �43 million writedown suffered at Garden Banks 161�where "performance sufficiently failed to meet expectations"�showed the importance of a "broad portfolio" and was more than offset by first flow from fields such as Jotun and Pierce fields in the North Sea.

For Scottish independent Cairn, operating profit increased four-fold, greatly helped by its Indian subcontinent assets, where the company claims to have "commanding positions strategically placed to access key growing energy markets."

Cairn saw production on eastern Indian Ravva field continue on plateau, averaging some 50,000 b/d of oil and 24 MMscfd of gas over the first half of the year, and has been given the greenlight by Indian authorities to develop the nonassociated satellite gas fields at Ravva, through which it expects add 30 MMscfd starting in the third quarter of next year.

On block CB-OS/2 in the Western Indian Cambay basin, where Cairn drilled a first offshore well in April, it made a "significant" gas find�Lakshmi�estimated to hold reserves in the region of 400 bcf.

Cairn said it "intends to move quickly" with a concentrated drilling and exploration program in key blocks in India, as well as Bangladesh, starting with the Sandwip East-1 well this month.

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