Cairn says exploration unit 'will fly under own wings'

CAPRICORN, the exploration arm of Edinburgh-based Cairn Energy, could be spun off and floated before the end of this year with a likely price tag of several hundred million pounds.

Cairn chief executive Sir Bill Gammell said that while there was no pressure from shareholders to seek a separate listing for Capricorn "at some point hopefully it'll go out and fly under its own wings".

Delivering Cairn Energy's results for 2007, Gammell said: "From a group perspective it may well be later this year, but we haven't given any commitment and we're not under any pressure (to de-merge Capricorn] at the moment."

Capricorn, named after the birth sign of both Gammell and Cairn's head of exploration, Mike Watts, would be Cairn Energy's second demerger, after it floated Cairn India, owner of most of the Scottish firm's current oil production, last year.

A flotation of the exploration business has been widely mooted since Dyas, a subsidiary of Dutch conglomerate SHV, bought 10 per cent of Capricorn last September.

"When it (Capricorn] does emerge, it will be based on people's hopes and aspirations for it technically, as well as taking a view on the management which has run Cairn all these years," Gammell said.

The $90m Dyas paid for its stake implied Capricorn would have a market capitalisation of about £450 million, enough to gain a place in the FTSE 250 index. It is possible Capricorn could now be worth more, after securing frontier exploration acreage in Greenland in January, as well as taking over two Aim-listed companies to secure a large exploration position in Tunisia.

But Gammell said yesterday that Cairn was "pretty unlikely" to conduct a fund-raising in conjunction with a de-merger – instead simply allotting shares to its existing shareholder base – meaning a valuation "isn't really relevant", with the market deciding the share value.



Capricorn has exploration assets from Australia to Peru and the North Sea. The focus, however, is largely on Tunisia in North Africa and Greenland.

Cairn finance director Jann Brown said the rest of the portfolio was under review with the possibility of selling off unwanted assets.

Cairn yesterday revealed a profit of $1.52 billion (£766 million), but this was inflated by an exceptional gain from the Cairn India flotation, without which it would have made a loss of about £5m.

The group vowed to push ahead with a key Indian pipeline, even if it was not able to recover its part of the cost of the project from oil revenues, which would cost it about $300m. It maintains a target of production from the Rajasthan fields in the second half of 2009. The fields are now expected to produce at least 175,000 barrels of oil a day, with Cairn predicting cash flow from the fields of $2.5bn a year.