Chart Analysis of the Share of Cairn Energy from 2010 to 2011

1. Introduction

Cairn Energy PLC is one of the biggest gas and oil exploration and production firm in Europe. Their domicile is in Edinburgh and they are part of the FTSE100 Index. The main oil-producing areas are Greenland, Tunisia, Albania, India, Nepal and Bangladesh (Cairn Energy 2011). The four biggest shareholders are BlackRock Investment Management (11.22 %), HSBC Global Asset Management (8.00%), Baillie Gifford & Co. (6.22%) and Legal & General Investment Management Ltd. (5.41%). Over 50 % of the shares are free floated (Finanzen100 2011). The Beta of Cairn Energy was at 0.97 in the period from January 2010 until January 2011 whereby the chart moved closely with the market (Boersennews 2011).

The content of this paper deals with an analysis of the chart of Cairn Energy PLC from January 2010 to January 2011. The aim is to identify the reasons for the most important chart movements.

2. Chart analysis of Cairn Energy PLC (January 2010 to January 2011)

The following chart shows that the share price of Cairn Energy increased about nearly 24% and that it had numerous fluctuations from January 2010 to January 2011. Every significant point will be analysed in the text below. Additional charts are enclosed in some text passages in order to explain the variations clearly.

Chart of Cairn Energy PLC from January 2010 to January 2011 (DailyFinance 2011).

1. The first light decrease was at the end of January. Cairn Energy stated in 2009 that they will start drilling in Greenland in 2010 hence the newspaper wrote that this will be a very risky project. In January 2010 they announced that they will add a second drilling rig for the exploration i.e. the risk will be doubled. Consequently numerous shares were sold and the share price decreased to a lower level (OilVoice 2010).

2. On January 28th Cairn Energy published that their net oil and gas production had more than doubled in 2009 and that they are able to triple the net oil and gas production in 2010. The main reason for this enlargement was the new foundation of the major fields in India (Rigzone 2010). Additionally to this Deloitte (a business advisory firm) released a ranking of the best UK upstream independent oil companies. This ranking stated that Cairn Energy is one of the two most dominant players in the UK (OilVoice 2010). Hence the shareholders reacted to this information and bought shares, so that the share price increased in the first weeks of February 2010.

3. At the end of February nothing in particular happened but the share price decreased slightly. One reason for this could be that some shareholders wanted to realize the profit of the last weeks by selling their shares.

4. After the short decrease at the end of February, the people began to buy the shares again so that the share price increased heavily. The shareholders felt optimistic about the future because there have been a lot of positive news about Cairn Energy in March 2010. They published e.g. preliminary profits for 2009. Sir Bill Gammell, CEO, said that they are gaining a key moment of the history of Cairn Energy. The result and the forecast for the next years were brilliant (OilVoice 2010).

5. After the sharp increase of the share price the share decreased till the middle of April. The reason for this could be a pullback. The shareholders took the profits and waited to buy when the share is on a lower level again (Kirkpatrick & Dahlquist 2011). Evidences for this are the sales in April 2010.

6. On April 19th Cairn Energy stated that their subsidiary MedOil has finished a research in Tunisia successfully (OilVoice 2010). Due to this information the chart increased slightly.

7. At the end of April the short recovery was over and the downturn continued till the third week of May. The reason for this was on the one hand, the strong and abrupt decrease of the oil price. It slipped to $68 a barrel on May 25th (Guardian 2010). On the other hand, the FTSE100 lost approximately 10% in May 2010 (Boersennews 2011) because of the debt crisis in the euro zone and because of the new parliament in the UK. For the first time since 1974 no party was able to govern alone. This situation was certainly responsible for the variation on the share market (Broker-Test 2010).

On May 20th Cairn Energy published that they double the production of oil in India in the second half of 2010 because they finished the construction of a pipeline (Commodityonline 2010). Furthermore the oil price rose about $7 within a few days and the FTSE100 escalated as well (Boersennews 2011). These events were deciding reasons for shareholders to buy in this situation. Consequently the share price increased.