Annual Financial Report

RNS Number : 0089F

Cairn Energy PLC

15 April 2011

 



FOR IMMEDIATE RELEASE                                                                                         15 April 2011

CAIRN ENERGY PLC ("Cairn" or "the Company")

Report and Accounts

The Company's annual report and accounts for the year ended 31 December 2010 (the "Report and Accounts") was posted to shareholders on 14 April 2011. A copy of the Report and Accounts has also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.

The Report and Accounts is also available on the Company's website www.cairnenergy.com

Information required by Disclosure and Transparency Rule 6.3.5

The principal purpose of this announcement is to notify the submission by the Company to the National Storage Mechanism of the Report and Accounts. However, the information set out below, which is extracted from the Report and Accounts, is also included in this announcement for the sole purpose of complying with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issuers as to how to make annual financial reports public.  It should be read in conjunction with the Company's preliminary results announcement, released on 22 March 2011 (the "Preliminary Results Announcement").  This material is not a substitute for reading the full Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Report and Accounts.

Responsibility statement

The following statement is extracted from page 64 of the Report and Accounts. This statement is repeated here solely for the purposes of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from the Report and Accounts. It is not connected to the extracted information presented in this announcement or in the Preliminary Results Announcement.

 "Directors' Responsibility Statement

The directors are responsible for preparing the annual report and the Group and Company financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union.

Under Company law the directors must not approve the Group and Company financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group and Company for that period. In preparing those financial statements, the directors are required to:

In preparing those financial statements, the directors are required to:

·    select suitable accounting policies in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;

·    present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·    provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

·    state that the Group and Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and

·    make judgements that are reasonable and prudent.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company's financial statements comply with the Companies Act 2006 and Article 4 of the steps for the prevention and detection of fraud and other irregularities.

Director's Statement Pursuant to the Disclosure and Transparency Rules

Each of the directors, whose names are listed in the Board of Directors section on pages 48 and 49 confirms to the best of his knowledge that:

·    the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and

·    the Directors Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces."

The names of the directors who have given this responsibility statement are:

Norman Murray (Non-Executive Chairman)

Todd Hunt (Non-Executive Director)

Iain McLaren (Non-Executive Director)

Dr James Buckee (Non-Executive Director)

Alexander Berger (Non-Executive Director)

M. Jacqueline Sheppard QC (Non-Executive Director)

Sir Bill Gammell (Chief Executive)

Dr Mike Watts (Deputy Chief Executive)

Malcolm Thoms (Chief Operating Officer)

Phil Tracy (Engineering & Operations Director)

Jann Brown (Finance Director)

Simon Thomson (Legal & Commercial Director)

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from pages 32 to 35 (inclusive) of the Report and Accounts:

"Principal Risks and Uncertainties

Risk management is embedded in Cairn's organisation structure, operations and management systems.

Managing Business Risks

Getting risk management right is an essential component of business success at Cairn. The identification, evaluation and management of risk, together with the way we respond to changes in the external operating environment, are key to our success and underpin the safe delivery of our business plans and strategic objectives, protect our licence to operate and reputation, and help create long-term competitive advantage.

In pursuing its strategy, Cairn considers investment opportunities that provide the right mix of political, commercial and technical risks. Cairn's success in South Asia over the past twenty-plus years has been achieved through confidence in our technical and commercial acumen and the ability to identify, assess and effectively manage uncertainties. We knowingly accept business risks which are appropriate for the component parts of our business in pursuit of our vision.

Risk management is embedded in Cairn's organisation structure, operations and management systems. Business risks across the Group are addressed in a systematic way through the risk management structure shown here which ensures that the Board's assessment of risk is informed by risk factors and mitigating controls originating from and identified by the Group's assets, functional departments and in-country operations, including Cairn India, the Company's majority owned subsidiary in India.

Business Risk Management at Cairn

CAIRN ENERGY PLC BOARD
▲ AUDIT COMMITTEE
▲ RISK MANAGEMENT COMMITTEE
▲ INTEGRATED BUSINESS RISK MANAGEMENT SYSTEM, INCLUDING REVIEW BY CEC
▲ CORPORATE AND FUNCTIONAL DEPARTMENT RISKS	▲ ASSET RISKS (GREENLAND, MEDITERRANEAN AND SOUTH ASIA)	▲ CAIRN INDIA RISKS

Strategic Risks

Impact: Strategy fails to create shareholder value or meet shareholder expectations.
Risk:		Mitigation:
Strategy fails to create shareholder value or meet shareholder expectations		Our strategy has been focused on the development of our production base in India and our high potential exploration position in Greenland.
		We have regular, open and transparent communications with all stakeholders to ensure there is a clear understanding of the Group strategy and its risks and potential rewards.
		We manage our strategic alignment with our listed subsidiary, Cairn India, through our controlling shareholding and our representation on the Cairn India Board, all of which is underpinned by a formal Relationship Agreement.
		The sale of a majority shareholding in Cairn India to Vedanta was approved by our shareholders in 2010, and awaits Government of India approval at the highest level. Completion of this transaction would allow the realisation of value in that subsidiary.
Risk:		Mitigation:
Inadequate portfolio management		Regular reviews are undertaken of our existing portfolio and of new opportunities with the potential to add to shareholder value.
		During 2010, non-core assets were disposed of in Bangladesh and Tunisia, and new offshore exploration blocks have recently been awarded in Spain.
Risk:		Mitigation:
Ineffective capital allocation		Regular reviews of the risk and reward potential are conducted across the asset base of the Group.
Risk:		Mitigation:
Inadequate resource and succession planning across the Group		Resource planning is an essential element of our annual work programme and budgeting process.
		Staff are supplemented by consultants and/or contractors during periods of high activity or where additional specialists are required.
		Regular reviews are undertaken to ensure Cairn retains competitive remuneration and incentivisation policies.
		Staff appraisal, training and development programmes are in place, along with executive and senior management succession plans.
		Recruitment processes were enhanced in 2010, which resulted in our staff headcount increasing by 22%.

Operational Risks

Impact: Exploration, development or production operations detrimentally impacted by incidents involving staff, contractors, communities, suppliers or losses to the environment, leading to reputational damage, project delays, cost overruns or loss of revenue.
Risk:		Mitigation:
Major accidents		Management systems, standards and internal and independent external assurance and review processes are in place, covering the design and operation of facilities, pipelines and well drilling operations.
		Maintaining and regularly testing emergency organisation, procedures and equipment in order to be able to respond appropriately to an emergency.
		Participation in industry initiatives to ensure capture of lessons learned from incidents elsewhere in the industry.
Risk:		Mitigation:
Health, safety, security and environmental incidents		Implementation of Corporate Responsibility (CR) Management System on all projects, with regular monitoring of effectiveness of risk mitigation measures and reporting and investigation of all incidents.
		Health, safety, security and environmental risks evaluated during project screening processes and protective measures regularly tested.
		Emergency response organisation and procedures in place and regularly tested.
Risk:		Mitigation:
Lack of maintenance of regulatory approval for projects/operations		Compliance matrices established in each asset/project covering legal and regulatory requirements. Regular monitoring of compliance measures.
		Regular engagement with government and regulators to maintain understanding of requirements of existing or potentially new laws and/or regulations.
Risk:		Mitigation:
Ineffective business management system		Regular reviews and audits conducted to ensure policies, standards, processes and procedures are effective and up-to-date given changing business activities and external requirements.
Risk:		Mitigation:
Failure to secure materials, services or resources		Contracting strategy and procurement processes in place, supplemented by market intelligence and regular engagement with contractors/suppliers.

Risk:		Mitigation:
Inadequate ice management plan for drilling in Greenland		Lessons learned from successful implementation of ice management plan during Greenland 2010 drilling programme incorporated in forward plans.
Risk:		Mitigation:
Ineffective business continuity plans		Disaster recovery plans and recovery facility in place and regularly tested. Business continuity plan in place, maintained up-to-date and regularly tested.
Risk:		Mitigation:
Inadequate systems to prevent bribery and corruption		Consistent application of the Group Code of Business Ethics in all business activities and throughout supply chain processes.
		Anti-bribery and corruption processes updated during 2010 in line with the requirements of the UK Bribery Act.

Financial Risks

Impact: Asset financial performance and access to funding may not be matched, leading to an inability to meet the Group's financial obligations.
Risk:		Mitigation:
Inability to fund exploration and development work programmes		A prudent approach is applied in budgeting and business planning to ensure sufficient equity capital is available to meet commitments on exploration drilling, whilst maintaining appropriate leverage to enhance returns from development and production assets.
		At the end of 2010, a stand-by secured revolving debt facility of $900 million was secured to provide liquidity to the Group.
Risk:		Mitigation:
Shortfall in operational cash flow, through lower than expected oil prices or production levels		Scenarios for both oil price and production volumes are rigorously prepared and monitored on a regular basis, providing reassurance on our funding headroom.
Risk:		Mitigation:
Disputes resulting from different interpretations of fiscal legal agreements or regulations, leading to additional costs, increased taxation and failure to achieve cost recovery		Compliance matrices and legal, financial, supply chain and operational due diligence reviews are in place to ensure that our understanding of our contractual rights and obligations is clear and robustly defended; and to minimise the potential for inadequate processes or interpretations that could lead to disputes.

External Risks

Impact: Cairn is active in a number of overseas markets and strategy delivery may be affected by changes in political, regulatory or market conditions.
Risk:		Mitigation:
Changes in regulatory and fiscal environment affecting delivery of strategy or value		While the Group cannot predict the impact of future changes in fiscal policy in the countries and markets in which it operates, building successful relationships with governments, regulators, local community representatives and industry associations allows the Group to keep abreast of potential changes and allows appropriate lobbying.
Risk:		Mitigation:
Ineffective management of stakeholder relationships		Corporate and asset-level stakeholder management and communication plans are designed to maintain successful relationships with internal and external stakeholders. Robust response procedures are in place for addressing complaints or grievances.
Risk:		Mitigation:
Inadequate response to natural disasters affecting Group assets or staff		Risks are evaluated during project screening processes, and appropriate precautionary steps identified and tested. Insurance is in place for assets.
		Emergency and crisis response organisation and procedures are in place and regularly tested.

Related party transactions

The following description of related party transactions is extracted from pages 137 and 138 of the Report and Accounts:

"34. Related Party Transactions

The Company's principal subsidiaries are listed in Note 17. The following table provides the Company's balances which are outstanding with subsidiary companies at the Balance Sheet date:

	At 31 December		At 31 December
	2010		2009
	$m		$m
Amounts owed from subsidiary undertakings	92.8		246.6
Amounts owed to subsidiary undertakings	(78.1)		(230.1)
	14.7		16.5

The amounts outstanding are unsecured, repayable on demand and will be settled in cash. Interest, where charged, is at market rates. No guarantees have been given.

During the year ended 31 December 2010, the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2009: nil).

The following table provides the Company's transactions with subsidiary companies recorded in the profit (2009: profit) for the year, all of which were carried out on an arm's length basis:

	2010		2009
	$m		$m
Amounts invoiced to subsidiaries	21.6		13.8
Amounts invoiced by subsidiaries	18.7		8.2

a) Remuneration of key management personnel

The remuneration of directors, who are the key management personnel of the Company, is set out below in aggregate. Further information about the remuneration of individual directors is provided in the audited part of the Directors' Remuneration Report on pages 68 to 83.

	2010		2009
Company	$m		$m
Short-term employee benefits	7.5		7.3
Pension contributions	0.6		0.5
Share-based payments	26.3		17.2
	34.4		25.0

In addition, employer's national insurance contributions for key management personnel in respect of short-term employee benefits was $1.1m (2009: $0.7m).

b) Other transactions

During the year, the Group did not make any purchases in the ordinary course of business from an entity under common control (2009: $nil). There were no amounts owed to the party at the year end (2009: $nil).

Forward-looking statements

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. The Company cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", or other words of similar meaning. Examples of forward-looking statements include, amongst others, statements regarding or which make assumptions in respect of the future performance of the Company's principal subsidiary undertakings (Cairn India Limited and Capricorn Oil Limited), the on-going development of the discovered oil fields in Rajasthan, India, the future continued operation of the Cairn group's producing assets, the timing of the commencement of future production and the sustainability of that production, the ability of the Cairn group to discover new reserves, the prices achievable by the Cairn group in respect of its production, the costs of exploration, development or production, future foreign exchange rates, interest rates and currency controls, the future political and fiscal regimes in the overseas markets in which the Cairn group operates, the Cairn group's future financial position, plans and objectives for future operations and any other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in the price of oil or changes in interest rates and foreign exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ("IFRS") applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation or regulatory investigations, the success of future explorations, acquisitions and other strategic transactions and the impact of competition. A number of these factors are beyond the Company's control. As a result, the Company's actual future results may differ materially from the plans, goals, and expectations set forth in the Company's forward-looking statements. Any forward-looking statements made in this announcement by or on behalf of the Company speak only as of the date they are made. Except as required by the Financial Services Authority (the "FSA"), the London Stock Exchange or applicable law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. 

 

END

 

 

MSCEAELSFAPFEFF