Broker snap: Bad news priced in at Cairn

26th Oct 2010 10:35

Broker finnCap has lowered its target price for Cairn Energy following a disappointing operational update concerning its Greenland exploration programme.The oil group revealed Tuesday that drilling on Alpha-1S1 ceased at the end of September and that no commercial discovery had been made in its Greenland exploration programme at the T8-1 and T4-1 wells. The T4-1 well in the northern area of the Sigguk licence failed to encounter hydrocarbons and found only thin reservoir sands. The broker sees this as significant as it may "indicate that the prospectivity in the tertiary play is limited across the whole of the basin, although deeper potential remains untested."FinCap analyst Will Amstein has removed the T4 and Alpha prospects from is net asset value calculation, which falls by 46.4p to 397.3p per share and now includes nothing for Greenland.The target price is cut to 400p following this net asset value downgrade "but our rating remains at Hold as the shares are already off 10-15% from highs in August and the 400p levels is underpinned by its stake in Cairn India", Amstein said. "The company will also announce its forward exploration programme in the first quarter in 2011, which may reignite investor interest in the stock."