By Ed Ballard
LONDON--Cairn Energy PLC (CNE.LN) Tuesday said it struck oil at
an offshore exploration well in Senegal, sending shares higher
along with hopes for the British oil explorer's acreage in the
region.
Cairn estimated that the FAN-1 well--100 kilometers from land on
the Sangomar Deep block, one of three in the area part-owned by
Cairn--holds somewhere between 250 million and 2.5 billion barrels
of oil.
"We have encountered a very substantial oil bearing interval
which may have significant potential as a standalone discovery,"
said Chief Executive Simon Thomson.
Shares in Cairn gained the most of any company in London's
second-tier FTSE 250 index, rising 15 pence, or 8.1%, to trade at
195 pence at 1122 GMT. Shares have dropped almost 30% this year as
Cairn has contended with a tax dispute in India, where the
government has frozen assets worth $1.1 billion.
Cairn will now measure the extent of the resource using data
from a seismic survey. The fact that Cairn said the well could be a
significant discovery in its own right points to a recoverable
resource of at least 200 to 250 million barrels, said Michael
Alsford, an analyst at Citi.
"If this mean resource estimate is successfully proved up and a
commercial discovery confirmed, it could be worth up to 70p/share
unrisked," he wrote in a note to clients.
More broadly, the discovery raises hopes that Cairn's investment
in Senegal, the focus of its exploration efforts, will pay off.
"This result materially upgrades the prospectivity of the block
with a proven petroleum system and a number of deep fan and shelf
prospects established," Mr. Thomson said.
Once work on the FAN-1 well is complete, the drilling rig will
move to the SNE-1 well on the same block. Analysts said that
prospect has been 'de-risked' by Tuesday's result.
Cairn has a 40% working interest in three blocks offshore
Senegal: Sangomar Deep, Sangomar Offshore and Rusifique.
ConocoPhillips (COP) holds 35%, FAR Ltd. has 15%, and Senegal's
national oil company Petrosen has 10%. The companies are working on
"follow-up activity" for 2015 and beyond, Cairn said.
-Alex Macdonald contributed to this article.
Write to Ed Ballard at ed.ballard@wsj.com
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