We update our valuation to reflect the Druid and SNE North well results and lower long-term oil price assumption. We look forward to the half-year results on 21 August when Cairn Energ (OTC:CRNCY) plans to update the market on reserves estimates and the development concept for SNE, which will help to firm up potential value for the field. After adjustments and accounting for our lower long-term oil price assumption, the contingent NAV falls to 196p (from 225p/share).
Wells did not deliver as hoped
The large, primary target of Druid (we had modelled around 600mmboe) was water-bearing and the SNE North well was a technical discovery, but did not show connection to the main structure. The company is studying its potential commerciality – it could bode well for further exploration in the north of the block. As a result, the only exploration catalyst is the smaller, deeper Drombeg cretaceous fan target (1,000m below Druid) in Ireland, which Providence estimates could contain 1.9bnbbls OIP (we model 250mmboe recoverable), although lack of hydrocarbons in Druid may imply a lower chance of success.
To read the entire report Please click on the pdf File Below: