Annual Financial Report

RNS Number : 4099U

Cairn Energy PLC

06 April 2016

 

FOR IMMEDIATE RELEASE                                                                                          6 April 2016

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

Report and Accounts and Circular

The Company's annual report and accounts for the year ended 31 December 2015 (the "Report and Accounts") and a circular (the "Circular") were posted to shareholders today. The Circular contains a notice convening the 2016 Annual General Meeting (the "AGM") and details of the proposed renewal of the existing authority to dispose of the Company's residual interest in Cairn India. The AGM will be held in the Castle Suite of The Caledonian, a Waldorf Astoria Hotel, Princes Street, Edinburgh, EH1 2AB at 12.00 noon on Thursday 12 May 2016.

A copy of the Report and Accounts and Circular have also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm. The Report and Accounts and Circular are also available on the Company's website at www.cairnenergy.com.

Defined terms used in this announcement shall, unless otherwise specifically defined herein, have the same meanings as in the Circular.

Circular - Residual Cairn India Interest Disposal Authority

The Company's residual interest of approximately 10% of Cairn India represents a substantial proportion of the Group's assets and therefore, due to its size, the sale of all, or a substantial part of, the residual interest currently requires Shareholder approval under the Listing Rules. At last year's annual general meeting held on 14 May 2015, Shareholders authorised the Board to dispose of all or part of the Company's then residual interest.  Cairn is at present restricted by the Indian Income Tax Department from selling its shares in Cairn India. Nevertheless, Cairn believes it is appropriate to retain the flexibility to realise Shareholder value from its residual interest in Cairn India in the event that the Company is free to make such a disposal.

The Board continues to believe that, in order to obtain the best terms, Cairn may need to make disposals via on-market transactions which would not be possible if such sales had to be subject to Shareholder approval at the time.  The Board is therefore seeking to renew the existing authority from Shareholders for the Company to be able to sell its residual interest in Cairn India at or as close as reasonably possible to the prevailing market price if and when the Company considers it appropriate to make such disposals.  Shareholder approval is being sought to make disposals via on-market transactions.  Disposals may be executed via bought deal block-trades where an underwriting bank will assume the risk of disposing of the relevant interest efficiently. Larger disposals may be executed via accelerated book build offerings where a bank will use "best efforts" to complete a sale as agent, but the risk of completing the disposal will remain with Cairn. Disposals could also include participating in any share buy-back programme by Cairn India or any merger or offer involving Cairn India.  

The Company only intends to utilise the Residual Interest Disposal Authority where it believes that a sale is in the best interests of Shareholders as a whole and in the meantime the Company will continue to benefit from the growth and success of the discoveries in Rajasthan and elsewhere through the retained interest in Cairn India. No decision has been taken as at the date of the document on how the net proceeds of any such sale(s) will be applied.

Provided that the resolution is passed at the Annual General Meeting, the Residual Interest Disposal Authority, unless renewed, will expire on the earlier of 30 June 2017 (the last date on which the Company's annual general meeting for 2017 could be held) or at the end of the Company's annual general meeting for 2017.  Prior to that date the Company will assess the necessity and desirability of renewing the authority. Any disposal outside of the scope of the Residual Interest Authority will remain subject to the requirements for significant transactions under Listing Rule 10.

Cairn India is one of the largest oil and gas exploration and production companies in India.  Together with its joint venture partners, Cairn India accounted for 27% of India's domestic crude oil production in the Indian fiscal year 2015. As at 31 December 2015, the fair value of the Company's residual interest in Cairn India was US$384 million (extracted without material adjustment from the Group's audited consolidated financial accounts for the year ended 31 December 2015).

Annual Report and Accounts - Information required by Disclosure and Transparency Rule 6.3.5

The information set out below, which is extracted from the Annual Report and Accounts, is 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 15 March 2016 (the "Preliminary Results Announcement").  This material is not a substitute for reading the full Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Annual Report and Accounts.

Directors' responsibility statement

The following statement is extracted from page 66 of the Annual 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 Annual 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 Accounts, the Directors' Remuneration Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the directors are required to:-

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable IFRSs as issued by the IASB and adopted by the EU have been followed, subject to any material departures disclosed or explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will remain in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the 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 financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation and other jurisdictions.

Following careful review and consideration of the Cairn Energy PLC Annual Report and Accounts 2015 (the 'Accounts'), the directors consider that the Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Directors' Statement Pursuant to the Disclosure and Transparency Rules

Each of the directors, whose names are listed in the Board of Directors section on pages 62 and 63 confirms to the best of their knowledge that:

·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and

·      the Strategic report section on pages 1 to 61 of this document includes a fair review of the development and performance of the business and the position of the Group, 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:

Ian Tyler (Non-Executive Chairman)

Todd Hunt (Non-Executive Director)

Iain McLaren (Non-Executive Director)

M. Jacqueline Sheppard QC (Non-Executive Director)

Alexander Berger (Non-Executive Director)

Keith Lough (Non-Executive Director)

Peter Kallos (Non-Executive Director)

Simon Thomson (Chief Executive)

James Smith (Chief Financial Officer)

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from page 37 of the Annual Report and Accounts. Further detailed information in relation to business risk management at Cairn is included on pages 38 to 42 of the Annual Report and Accounts:-

"Principal Risks and Uncertainties

As the Group continues to focus on delivering value for shareholders from the discovery and development of hydrocarbons within a sustainable, self-funding business model, the principal risks and uncertainties facing the Group at the end of 2015 were as follows:

Sustained low oil price

The continuing low oil price is both a risk and opportunity for the Group. The low oil price is driving down industry costs and introducing the potential for cost efficiencies in the Group's exploration, appraisal and development projects. The lower oil price environment, however, has reduced the amount of debt available under the Group's Reserve Based Lending (RBL) facility and may impact on the availability of other sources of funding for the Group. Declining oil prices may also impact the ability of our JV partners to fund work programme expenditures.

Kraken and Catcher development activities and production start-up not executed on schedule and budget

The Kraken and Catcher development projects remain on track to deliver free cash flow from 2017. Development projects of this nature, however, can be susceptible to delays and budget increases for a variety of reasons and this may lead to increased costs and delays in future cash flow. To mitigate these risks, the Group works closely with its JV partners to support and / or influence key decisions.

Restriction on ability to sell Cairn India Limited shareholding

The Indian Income Tax Department is seeking to apply tax to a 2006 internal group reorganisation prior to the IPO of the Group's Indian business at that time. Cairn strongly contests their tax claim and is challenging it under domestic Indian and international law. However, in the meantime, Cairn is restricted from monetising its remaining assets in India which are material to the Group. If that restriction continues or if the tax claim is enforced against those Indian assets, that value may be further impaired.

Lack of exploration and appraisal success

Exploration and appraisal success is fundamental to the strategy of creating value through discovery and development of hydrocarbon resources. In 2015, the Group commenced its appraisal programme offshore Senegal with successful testing of SNE-2, building on the success of the 2014 discoveries. A lack of exploration and appraisal success, specifically in Senegal, may lead to limited or no value creation and a loss of investor confidence in the Group's business model.

Related party transactions

The following description of related party transactions is extracted from page 154 of the Annual Report and Accounts:

"7.8 Related Party Transactions

The Company's principal subsidiaries are listed in Section 7.6. The following table provides the Company's balances which are outstanding with subsidiary companies at the Balance Sheet date:

	2015		2014
	US$m		US$m
Amounts payable to subsidiary undertakings	(52.2)		(57.6)
	(52.2)		(57.6)

The amounts outstanding are unsecured and repayable on demand and will be settled in cash.

The following table provides the Company's transactions with subsidiary companies recorded in the loss for the year:

	2015		2014
	US$m		US$m
Amounts invoiced to subsidiaries	10.4		17.3
Amounts invoiced by subsidiaries	10.8		7.2

Directors' Remuneration

The remuneration of the directors of the Company is set out below. Further information about the remuneration of individual directors is provided in the audited part of the Directors' Remuneration report on pages 81 to 104.

	2015		2014
Company	US$m		US$m
Emoluments	3.3		5.8
Share-based payments	0.3		-
	3.6		5.8

Pension contributions were made on behalf of directors in 2015 of US$0.2m (2014: US$0.4m).

120,297 LTIP share awards to directors vested during 2015 (2014: none). Share-based payments shown above represent the market value at vesting date of these awards.

Other transactions

During the year the Company did not make any purchases in the ordinary course of business from an entity under common control (2014: US$nil)."

Directors' emoluments and remuneration of key management personnel

The following description of directors' emoluments and remuneration of key management personnel is extracted from page 137 of the Annual Report and Accounts:

"4.4 (C) Directors' Emoluments and Remuneration of Key Management Personnel

Details of each director's remuneration, pension entitlements, share options and awards pursuant to the LTIP are set out in the Directors' Remuneration Report on pages 81 to 104. Directors' remuneration, their pension entitlements, and any share awards vested during the year is provided in aggregate in section 7.8.

Remuneration of key management personnel

The remuneration of the directors of the Company and of the members of the Management and Corporate teams who are the key management personnel of the Group is set out below in aggregate.

	2015		20164
Company	US$m		US$m
Short-term employee benefits	6.4		9.8
Termination benefits	0.7		0.3
Post-employment benefits	0.6		0.6
Share-based payments	4.4		6.8
	12.1		17.5

In addition employer's national insurance contributions for key management personnel in respect of short-term employee benefits were $0.9m (2014: US$1.4m).

Share-based payments shown above represent the cost to the Group of key management personnel's participation in the Company's share schemes, measured under IFRS 2.

During 2015, 295,198 shares awarded to key management personnel vested under the 2009 LTIP scheme (2014: nil).

Forward looking statements

This announcement contains or may contain forward-looking statements regarding Cairn, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward-looking statements are based on our management's assumptions and beliefs in the light of information available to them at this time. These forward-looking statements are, by their nature, subject to significant risks and uncertainties and actual results, performance and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn's expectations with regard thereto or any change in circumstances or events after the date hereof.

 

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