Cairn Energy cleared to start Senegal drilling operations

Cairn Energy has been prevented from accessing its remaining 10% stake in Cairn India in a tax row with the government of India

Oil and gas explorer Cairn Energy has been given the green light to press ahead with a major drilling programme off Senegal in West Africa.

The company said it had been cleared by government officials in Senegal to launch an evaluation plan.

Cairn, which made two discoveries in the area last year, estimated fields there could contain more than a billion barrels of oil.

Its evaluation plan will start shortly with a 3D seismic survey.

Later this year it aims to launch a multi-well exploration and appraisal programme.

Edinburgh-based Cairn has a 40% interest in three blocks offshore Senegal (Sangomar Deep, Sangomar Offshore, Rufisque Offshore).

Its partners include ConocoPhillips (35%) and FAR Ltd (15%), with Petrosen, the Senegal National Oil Company, retaining a 10% interest in the exploration phase.

Tax row

In its latest half-yearly report, Cairn also said that it had started international arbitration proceedings with the government of India over a tax row.

Cairn has been prevented by Indian authorities from accessing the value of its 10% residual shareholding in Cairn India Limited (CIL).

In March, the company received a tax bill for $1.6bn plus interest and penalties, covering the tax year 2006-07, when it was preparing to float Cairn India on the Mumbai stock exchange.

Cairn has contested the bill and plans to seek restitution for losses resulting from the falling value of its stake in CIL.

Due to the lower oil price, its value has dropped from $1bn in December 2013 to $526m, as at 30 June this year.

The lower valuation saw Cairn book a $177.1m impairment loss in its first half, as it reported a post-tax loss of $230m - up from $62m a year ago.

The company generates no revenue because its focus is exploration work.

However, at the end of the first half, Cairn reported a cash balance of $725m.

Cairn's share price was down by about 5% on Tuesday morning.