Shares in Cairn Energy plunged on Tuesday after the Edinburgh-based oil and gas firm reported a pre-tax loss of more than $1 billion.
The preliminary $1.09bn return for 2013 represents more than a five-fold increase on 2012’s loss of $194.2 million.
Tens of millions were wiped off the company’s value as stock fell by more than 14% as investors came to terms with the scale of the losses and Cairn’s decision to suspend its $300m share buyback scheme.
The company whose founder and chairman Sir Bill Gammell is stepping down in May said it remained committed to its revised multi-frontier exploration strategy and was working to resolve a major issue with the Indian Income Tax Department. Cairn’s operating loss included a $267.5m impairment in the value of its 10% residual shareholding in Cairn India Ltd, which had fallen to $955.6m by June 30.
Sir Bill said the return of cash to shareholders through the share repurchase scheme had been suspended as a result of the Indian situation, which first came to light in January.
“The results of this year’s exploration programme and the timing of the resolution of the Indian tax situation will inevitably shape the group beyond 2014,” Sir Bill said.
“We believe the executive team, supported by the board, is well placed to lead the group and continue the strategic focus of delivering significant growth potential as the group continues to evolve in response to changing circumstances.
“We look forward to what we hope will be a successful exploration programme in 2014.”
The bulk of Cairn’s loss was due to $213.1m of unsuccessful exploration costs and a $251.4m impairment on the value of the Catcher field in the North Sea.
The firm also booked a $324.2m goodwill impairment on Catcher and its other main UK prospect Kraken.
In its operational review, Cairn said it was targeting first oil from EnQuest-operated Kraken by the first half of 2017 and detailed locations of the initial development wells across two drill centre were currently being finalised. It expects drilling to begin on the prospect in the first half of next year.
The company said considerable progress had also been made on Catcher, with a draft field development plan having been submitted to the Department for Energy and Climate Change and project sanction by operator Premier expected within the next three months.
“Cairn has an active drilling programme in 2014 that is complemented and balanced by its sustainable development and production portfolio,” chief executive Simon Thomson said.
“The strategy continues to focus on an attractive mix of frontier and mature basin exploration.
“By building a growing prospect and lead inventory from which to select, and high-grade prospects for drilling, we aim to offer shareholders material potential growth opportunities over the long term,” he added.
“Cairn is committed to resolving the Indian tax situation and in the meantime can, if required, adapt forward capital and equity exposures.”