|20% CoS on 150MMBo reserves - I'm a bit surprised that's worth drilling given the location/water depth. I guess in a tie-back scenario it might work|
|I find the director sales a bit disappointing - if ST really believed they were going to win the Indian arbitration I think he would have held on to more, despite having shell out for tax and NI. With the slide in the Share price back to the early 200s the underperformance, against Brent, is once again established, talking of which the share price behaviour has been bizarre - it's either computer driven trading or failed expectations that they had done a deal to hive off the CI stake (subject to the arbitration proceedings).|
|Interesting view from Investors Chronicle today:-
Oil prices rebounded to within sight of their January and February trading range last week, and this was just one of the several positive factors pushing up the share price of our Value Tip of the Year Cairn Energy (CNE). The first came from VR-1 appraisal well offshore Senegal, which was drilled 5km west of the line of wells which include the major SNE-1 discovery. This revealed "reservoirs within the oil column as anticipated", and sands that were "better and slightly thicker than previously encountered". While a secondary exploration target was deemed non-commercial, the drilling programme is reported to be ahead of schedule and under budget.
Second, Cairn announced plans to sell its residual stake in Mumbai-listed Vedanta Limited, which the FTSE 250 group received as part payment for its sale of Cairn India in 2010. Cairn Energy says its 10 per cent holding in Cairn India is equivalent to a 5 per cent interest in Vedanta Limited, or $656m.
The annual report also contained details of chief executive Simon Thomson's revamped bonus package which, if approved at next month's AGM, will be reduced from 500 per cent to 375 per cent of his basic salary and with a greater focus on short-term performance. On average, analysts are expecting Cairn to book a pre-tax loss of $87.7m and an adjusted loss per share of 11.4¢ this year, swinging to profits of $88m and 12.5¢ in 2018.
Executing the sale of the Vedanta stake will be tricky, but offers the potential to unlock a major hitherto restricted asset. At 216p, the shares are essentially flat on our buy call (220p, 5 January 2017), but we're encouraged by progress. Buy.|
|Perhaps Trump didn't tell them he was going to launch missiles at a Syrian airbase??|
RNS this afternoon says the directors sold a total of 888,000 shares at 201p yesterday.
They may regret their timing?!!!! (Shares are 217p in the market atm. They missed out on another 16p per share.)
Or, was the price taken down to capture their shares cheaply?
Who knows? .....|
|I'm not 100% sure, so do check, but I think the tax dispute arose out of a transfer of the Indian assets within the Cairn structure to Cairn India Holdings Limited. That company is registered in the Channel Islands, which charges nil corporation tax and nil capital gains tax. The Indian government felt that Cairn had unfairly dodged a tax charge that would have applied if the transfer hadn't happened. There's also apparently an indemnity provided by Cairn Energy plc to guarantee that the Indian government receives all the tax due.
It's very complicated and I may have it only approximately right. Highly paid barristers have been arguing over this for years, so I accept I am out of my depth trying to reason the outcome of the arbitration.
Whatever, someone seems happy to buy Cairn shares this morning (up >4%). Perhaps there will be some news on Monday?|
|You make interesting points Ed. I don't feel Cairn is in the Google et al category because my understanding is that they paid the tax due and years later, after changing the rules, the Indians came along looking for more.
Strangely enough, Cairn is the company highlighted in today's Daily Telegraph 'Business Insight' column. Their SWOT analysis states under 'Strengths' that $4.5bn has been returned to shareholders in the past 5 years. The truth is not a penny has been received in nearly five years!
Interesting moves today. Still a long way off my £2.72.|
The dispute moved on from the Indian justice system. It's now with the International Court of Arbitration. To be fair to India, other countries (including the UK) are trying to get more tax paid by some foreign companies which they feel are not living up the spirit of the tax legislation. So, here, Google, Apple and Amazon among others, have agreed to pay more tax than was strictly due according to the letter of the law.
The obvious problem for Cairn is that it can't project with certainty its capital requirements. The tax bill and the value of the frozen shares are very material to Cairn.
To an extent, holding Cairn shares is a gamble on the outcome of the arbitration. Looking at the sector leading performance by Cairn this morning (up >3%) I wonder if someone is expecting good news?|
|a retrospective tax demand of Rs. 29,047 crore on 10-year old internal reorganisation of its India unit, Cairn India
I keep having to look up the original tax demand. Crore is 10 million rupees. They were also demanding interest but govt generously offered to waive interest if the tax was paid, offer which was not taken up and has expired.|
|Morning Ed. I have no facts to base my opinion on but have always felt it was an illegal move either to bolster Vedanta or to allow, say, an American company to pick up Cairn on the cheap. I purchased my small holiding of 5,000 shares in July 2012. At the time CNE had a market cap equal to its one billion dollar residual holding in Cairn India. So, my thoughts were that the rest of the company was in the price for nothing and Cairn has a good reputation for finding oil and returning profits to shareholders. Along came this ludicrous claim and no investor in their right mind would want to be involved in a company that pays no dividend, is being portrayed as a tax cheat and is now drowning in the lethargy of the Indian 'justice' system. That leaves CNE shares open to the wolves. To answer your question: I don't see how the Indian government have a leg to stand on but it is a very corrupt country and I still see Vedanta/Goldman Sachs as having orchestrated this and if so, they will get their way in the end. I am holding because I have no gains to offset.|
The parties are very likely talking to each other. An agreement can be reached without requiring the arbitrators to come to any decision. My view is that the stockmarket is pricing Cairn shares assuming it will lose its 9.8% holding in Cairn India but no more than that. What is your view?
Again, my view only, even if Cairn does well out of the process, it is not going to get all the losses/damages it has sought. That would have been a starting point for negotiation, presumably listing all direct and indirect/consequential losses, totalling up to a huge sum. So, I think we can forget £8 per share.
Realistic upside? I think, if Cairn gets the decision that no further tax is due and its Cairn India holding is unfrozen, and sellable, that will be a very good result for Cairn shareholders.
How do you think the arbitration will go and why?|
|Ed. You are saying these are worth £8 if we win; £1.20 if we lose?. I am with Dogwalker and think the Indian government is totally at it. This should never have happened but been resolved years ago. There must surely be another agenda behind the scenes here.|
|Thank you Ed123. I'm unable to better the market vis-a-vis putting a current value on companies. I can only hope here that : there's a tax refund in India; the poo goes higher & stays higher; that the co.'s North Sea assets prove as productive as hoped; & the other , exploration, assets do well. On balance I expect the share price to increase as the story, inc cash in the bank, sounds comparatively solid, but I know that doesn't answer your question.|
2C is proved plus probable contingent resources. 2P is proved plus probable reserves.
I wouldn't say the Indian government is trying to steal, they are trying to recover taxes that they consider should be paid.
How much do you think Cairn is worth and why?|
|Yes : what's '2C'? And...'2P'?
Without posters being explicit it's often hard for some of us to follow.
Other than that, great post Ed 123. I hadn't realised the company was worth so much if the India govt wasn't trying to thieve from us.|
|Hi Frazboy, Royaloak and all.
From what I've read Cairn are claiming about £4.4 billion in total from the Indian government and the latter are claiming about £1.5 billion from Cairn and have frozen about £0.5 billion of Cairn owned assets. You may know the history? The Indian government lost its case in the Supreme Court of India and then passed legislation which it said clarified the law but its effect was to retrospectively make companies (including Vodafone and Cairn) liable for tax which the Supreme Court had said was not due.
I have been trying to estimate what Cairn's share price of 200p-ish says about the market's expectation of the result of the arbitration.
Cairn's market cap is about £1.2 billion. It is valued at about $5/bbl for its reserves and resources. I'm assuming that the 2C will convert to 2P by the end of this year and, on that basis, the market appears to have it about right, imo.
So, I guess Cairn holders are playing for exploration upside (especially offshore Senegal) and a positive outcome from the arbitration. The latter could take the value of Cairn up to four times its present value.
Downside? Cairn loses and gets a bill of £1.5 billion or about £1.0 billion net of the value of the assets frozen by the Indian government. If that happened, Cairn's share price could drop to around 120p, by my estimates.
These are my rough calculations. Any thoughts?|
My concerns for Cairn are India, FAR cash raising again A$80 Million at 8 cents per share, disappointing but fully underwritten, in my opinion the best way to participate in Senegal and surrounding areas is through FAR, Cairn not having to pay FAR's share, in fact I think the likes of Cairn and bigger companies will eventually takeover FAR.|
|I don't know of any new news. The Indian government submitted its response to Cairn's claim. The expected date of the final judgement is January 2018. The reports I've read suggest that Cairn should win, based on the principle that it is unfair to pass a new law which can be applied back to a transaction that took place 6 years earlier.|
|Hi Ed, I was jumping to conclusions a little. Clearly they're not awash with cash, or they wouldn't be raising funds. I forget the numbers in Cairn's recent results but $47m Aus won't last them much beyond the current work programme, and IIRC, there was talk of extending this for a further 2 wells?
Where PMO and ENQ are concerned, I agree, they will find the funding to get to the fields on-line - and I also hope they'll find the funds to complete the well programmes (about 20 wells in each field). At start-up they will have around two third to three quarters of the well stock. There's no hint that this will not be the case (the full well programme not being completed within 12 months of start-up) , but it does cast a slight shadow.
Agree, Cairn drifting, and underperforming. And, yes perhaps a little off the radar.
I'm considering adding, my major concern is that the Indian settlement will go against them. It was stated at the time of the dividend being released by the International court of Arbitration that this action has no bearing (the release of the dividend) on the outcome of the final settlement on the tax claim. Any news that anyone has on this would be greatly appreciated.|
Why do you think FAR has no cash? In March 2017 they announced that they were funded for the 2017 work program and had A$47million at 31 December 2016. They are in the process of raising more funds - presumably on the back of their exploration success and for the purpose of taking on further work?
PMO and ENQ are in big debt situations but have enough funds available to continue with their commitments.
Cairn drifting back to 200p? It's waiting on the Indian arbitration and is part way through its 2017 Senegal campaign. Maybe a bit off the radar atm? Seems to have value at the 200p level and is demonstrating growing resources in Senegal, which is a hot postcode in global oil addressing.|
|So, FAR have no cash, PMO have no cash, and ENQ have no cash. I don't forsee Cairn picking up tabs (for any of the developments) for any of these companies but there indebtedness must weigh on the Cairn share price|