Cairn shares eye new seven year lows

Shares of two closely watched mid-cap oil firms slipped early on Tuesday, after both released grim earnings, underscoring deepening industry challenges as oil prices mark fresh lows.

First-half results from Cairn Energy and oilfield services provider Wood Group are the first in a gush of numbers due over the next fortnight from UK-listed ‘SME’ oil producers and ‘services’ contractors.

These will provide up to date insights about how the sector, the bulk of which is listed on the FTSE 350 mid-cap index, is coping with persistently weak crude oil prices.

Cairn Energy, the largest oil firm to report this week, posted a loss after tax of $230m for the first half, compared with a $62m loss a year earlier, largely because of a $177m impairment charge from operations in India.

The deepening loss is related to a tax dispute which prevents the group accessing “the value of its ~10% residual shareholding in Cairn India Limited (CIL) valued at US$526m”.

Cairn is “strongly” contesting a tax ruling in India related to the group’s reorganisation in 2006, and said it would “seek restitution for losses” resulting from its inability to access its stake in CIL since 2014.

This has all been very disquieting for shareholders, although Cairn’s net funds at $725m may be some comfort.

The exploration-only group said it had exploration and development projects that were fully funded (at a fraction of many of its rivals’ leverage) to produce sustainable free cash flow by 2017.

However, traders placed more emphasis on the lack of a meaningful updates on India, or Cairn’s views on the continually sliding oil price, after the US-focused WTI grade of crude last week etched new low six-year lows.

Cairn’s shares are following a similar path, even if they’re sitting on a relatively contained loss of 21% over a year, compared to dives of 70% or higher in its peer group.

The latest selling of this name on Tuesday has pushed it through a closely watched Fibonacci projection—161.8%—of its decline from a failed rally ending mid-July.

This appears to set CNE on a path back toward its seven-year low at 141.25p.

That level bisects falling trend lines from February and July.

Should all of these levels be breached in the short-term, meaning this week, the next major extension level at 261.8%, representing 133p could be seen.

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