Final Results
Cairn Energy PLC
31 March 2008
EMBARGOED FOR RELEASE AT 0700 31 March 2008
CAIRN ENERGY PLC
PRELIMINARY RESULTS ANNOUNCEMENT
OPERATIONAL
O Gross operated production 87,031 boepd (2006: 105,028 boepd)
O Average net entitlement production 19,809 boepd (2006: 24,523 boepd)
Cairn India
O First commercial oil from Mangala field in Rajasthan on target for H2
2009
O Rajasthan growing resource base, current estimates: gross 3.75 billion
boe in place with 2P reserves, 2C resources and 2C EOR potential
increased 19% to 1.08 billion boe
O Mangala, Bhagyam and Aishwariya (MBA) gross 2P reserves and resources
(2041) increased by 9 % to 685 mmbbls (net 479 mmbbls)
O MBA Enhanced Oil Recovery (EOR) 2C resource potential 308 mmbbls (net 216
mmbbls)
O EOR field pilot planned for 2009
O MBA potential plateau production of >175,000 bopd
O Rajasthan small and tight fields potential - 1.7 billion boe in place
O Rajasthan upstream and midstream development estimated costs from 2008
to end 2009 $1.8 billion net
O Bids submitted for offshore acreage in Sri Lanka
O 15 exploration/appraisal wells planned in 2008 plus 6 seismic surveys
Capricorn
O Magnama gas discovery in Bangladesh pending further appraisal
O Exploration position established in Tunisia, through acquisition of
Plectrum and medOil - drilling planned for Q4 2008
O Six exploration blocks acquired offshore Greenland
FINANCIAL
O Profit after tax of $1,527.8m (2006 restated loss: $97.1m) including
$1,537.0m exceptional gain on IPO of Cairn India
O Cash flow from operating activities $155.3m (2006: $189.4m)
O Group net cash at 31 December 2007 of $827.3m (2006: $701.3m)
O Cairn India $625m placement
Sir Bill Gammell, Chief Executive said:
'All of the major contracts for the midstream and upstream developments in
Rajasthan have been awarded and work is progressing well towards first Mangala
oil in H2 2009.
We are increasingly confident about the scale of the resource base in Rajasthan.
We firmly believe that a plateau production of 175,000 bopd is now achievable
with the potential for higher rates and more value optimisation should the
encouraging tests on enhanced oil recovery be confirmed in the field trials.
Capricorn continues to build new acreage positions, including Greenland where
exploration is at an embryonic stage.
The Group has the capacity to drive forward the Rajasthan development and the
financial flexibility to pursue opportunities for growth.'
Enquiries to:
Analysts/Investors Tel: +44 (0)131 475 3000
Bill Gammell, Chief Executive
Jann Brown, Finance Director
Mike Watts, Exploration & New Business Director
David Nisbet, Corporate Communications
Media Tel: +44 (0)207 404 5959
Brunswick Group LLP:
Patrick Handley, Mark Antelme
Cairn Energy Live Audio Webcast
The webcast of the 2007 Preliminary results presentation will be available at
0900 (UK time) 1330 (IST) on Monday 31 March 2008.
This will be available at the Cairn Energy PLC website: www.cairn-energy.plc.uk
and at the Cairn India website www.cairnindia.com
An archived version of the webcast will be available later.
There will be a conference call with the Cairn India management team at 1100 (UK
time) 1530 (IST) on the same day.
These materials 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.
CHAIRMAN'S STATEMENT
Corporate Overview
Cairn Energy restructured its operations in 2007 by splitting into two separate
businesses.
The initial public offering (IPO) in January of Cairn India established it as an
autonomously-run subsidiary listed on the Bombay Stock Exchange and National
Stock Exchange of India allowing the return of $936 million to Cairn
shareholders in April. The remaining Group assets have been placed within a
separate exploration-led subsidiary called Capricorn.
This restructuring has enabled each entity to focus on its respective strengths
and long term growth potential
Cairn India
In its first year of listing on the Bombay and National Stock Exchanges, Cairn
India has been confirmed as one of the key oil and gas exploration companies in
India. Across all assets in India the total reserves and resources net to Cairn
India is more than 800 million barrels of oil equivalent (mmboe).
In Rajasthan, construction activities have started on both the upstream and
midstream projects with first commercial production from Mangala planned to
commence in the second half of 2009.
Rajasthan is a major resource base and the Joint Venture (JV) partners are
focussed on realising the full potential through conventional and enhanced oil
recovery techniques. The size and scale of the overall potential value
opportunity in the basin continues to grow, offering scope for further
significant optimisation. This would also translate into a significant growth in
operating cash flows, thereby demonstrating value for all Cairn India
stakeholders.
While Cairn India remains focused on delivering the Rajasthan project, and
growing its core upstream business, there are significant opportunities in other
areas in the oil and gas value chain, where it can leverage its existing
strengths and skill base. The energy sector in India offers tremendous value
creation potential and Cairn India has an active new business unit which is
currently evaluating a number of these exciting opportunities.
Capricorn
Capricorn's aim is to create value for shareholders in the future by seeking to
grow an exploration-led, balanced Exploration and Production business.
The corporate acquisition of two AIM listed companies, Plectrum Petroleum Plc
and medOil plc, in 2007, has given Capricorn a material exploration position
offshore Tunisia. In January 2008 Capricorn made a significant exploration entry
into Greenland by acquiring interests in six acreage blocks.
Capricorn continues to evaluate new venture opportunities where it believes
there may be potential to discover hidden value.
Outlook
The coming 18 months are a transformational period for Cairn India as it looks
to significantly grow its production which will be fundamental to the future of
the company and its shareholders.
Capricorn is planning its first exploration drilling in Tunisia at the end of
the year and is actively pursuing the longer-term growth potential of its
position in Greenland.
The Group is well placed to deliver the Rajasthan development and to continue
pursuing potential growth opportunities in other business areas.
In summary, the respective strategies of the two arms of the Cairn business are
now well defined and both are making significant progress in achieving their
objectives for growth and creating value for shareholders.
Norman Murray
Chairman, 28 March 2008
CHIEF EXECUTIVE'S REVIEW
Cairn India
Rajasthan Upstream
The integrated upstream and midstream development is on course to produce first
oil from Mangala in the second half of 2009. Cairn India is totally focussed on
delivering this goal.
All major civil and construction contracts have been awarded, long lead time
items have been procured and work on both the upstream and midstream are well
underway.
Our confidence in the ability of the Rajasthan fields to produce more than
initially anticipated has grown as the reserves base has increased. The proven
plus probable (2P) gross reserves and resources from the three main MBA fields
have increased 9% to 685 million barrels of oil (mmbbls) (479 mmbbls net). The
other Rajasthan fields and the low permeability Barmer Hill fields have a gross
2P in place estimate of 1.7 billion barrels of oil equivalent (boe) reinforcing
the scope for continued resource growth.
The Mangala Stock Tank Oil Initially in Place (STOIIP), reserves and resources
have been upgraded. The increase in the 2P STOIIP and 2P Reserves and Resources
is 21% and 29% respectively over the original Field Development Plan (FDP).
Subject to regulatory approval, the latest Field Development Plans for the three
main fields assume a sustainable peak plateau production of 175,000 barrels of
oil per day (bopd): Mangala 125,000 bopd, Bhagyam 40,000 bopd and Aishwariya
10,000 bopd.
Laboratory trials have been very encouraging and have confirmed the further
potential of chemical EOR techniques. The current assessment of the EOR resource
base is more than 300 mmbbls of incremental recoverable oil from Mangala,
Bhagyam and Aishwariya. The first EOR field trials will take place in 2009.
Rajasthan Midstream
The Government of India (GoI) has agreed to grant Rights of Use (RoU) for the
pipeline in order to meet the planned schedule. The front end engineering and
design (FEED) has already been completed as has the procurement process for most
of the long lead items.
Pipeline construction work will commence on site in H2 2008, with the completion
of Phase I of the pipeline from Barmer to the intermediate pumping station at
Viramgam scheduled for early 2009.
The proposed routing of the pipeline will allow access to an extensive existing
pipeline infrastructure and refinery network, with a final coastal delivery
point that also affords access to the majority of India's refining capacity.
Rajasthan Costs
The increase in the Mangala resource potential has instigated an ongoing review
to optimise the scale and schedule of the Rajasthan development with a view to
achieving higher levels of production. This review is also addressing ways of
mitigating the impact of the increasing cost challenges on the project, which
have been driven by the general demand for engineering resources and materials
in the industry. At this stage, all major civil and construction contracts have
been awarded and long lead time items ordered providing market information on
costs. Based on this information, the estimated cost of the upstream
development to the end of 2009 is approximately $1.8 billion gross of which
Cairn India's share is 70%. The current estimated pipeline cost is approximately
$800 million gross. Revised cost estimates will be available by mid-2008 by
which time the majority of contracts for the development will be in place.
Ravva and CB/OS-2
The development drilling campaigns in Ravva and CB/OS-2 have been successful
with production on stream from the new wells. These two assets have been and
continue to be the bedrock of the development of Cairn in India - it is
especially important in a time of high oil prices that we maximise the value
that these assets generate.
Capricorn
Capricorn continues to build an asset base for exploration-led growth.
Subsequent to the successful acquisitions of Plectrum and medOil in 2007,
Capricorn has recently further strengthened its exploration portfolio by
acquiring a new acreage position in Greenland.
A two-well exploration drilling programme in Bangladesh has resulted in one
discovery on the Magnama prospect over which further appraisal will be required
before commerciality can be established. A farm-out of a 50% interest in
Capricorn's Bangladesh assets to Santos in October 2007 raised cash and reduced
Capricorn's exposure to forward work programme expenditure whilst still allowing
the company to retain a material position. Recent well intervention work in
three wells at the Sangu field has bolstered production levels in the near term.
Capricorn now has assets in south Asia (northern India, Bangladesh and Nepal),
the Mediterranean (Tunisia, Albania and pending licence awards in Spain and
Sicily), Peru, Papua New Guinea and Greenland.
Results and Financial Performance
In January 2007 Cairn India was floated on the Bombay Stock Exchange and the
National Stock Exchange of India realising a gain of $1,537.0m. The total
proceeds (before expenses) raised in the flotation were $1,984.1m ($751.8m was
received in 2006 with the balance $1,232.3m being received in 2007). Of these
proceeds $935.7m (including expenses) was returned to shareholders in 2007
(equivalent to £3 per share).
In September 2007, Dyas BV acquired a 10% holding in Capricorn for a total
consideration of $91.0m (before expenses). In addition, the Group announced two
recommended cash offers totalling $76.2m (before expenses) for Plectrum
Petroleum Plc and medOil plc which were declared unconditional in October 2007.
Also in October 2007, Santos International Holdings Pty acquired 100% of Cairn
Energy Bangladesh Limited from the Group (50% of Cairn's Bangladesh position)
for a total cash consideration of $55.8m.
Production for the year, on an entitlement interest basis, has decreased by 19%
to 19,809 barrels of oil equivalent per day (boepd) (2006: 24,523 boepd). This
is primarily due to reduced field production at both Sangu and CB/OS-2.
The Group's production continues to be predominantly gas (circa 63% on an
entitlement basis). This production mix, together with price caps in the gas
contracts, results in an average price realised by the Group for the year of
$39.70 per boe (2006: $31.84 per boe). The increase is due primarily to the
higher oil price environment in 2007.
Revenue for the year was $287.7m (2006: $286.3m).
The Group made an operating loss of $76.3m (2006: $64.6m) and generated an
operating cash flow of $155.3m (2006: $189.4m). The Group made a loss after tax
(pre the Cairn India and Capricorn gains on disposal) of $49.4m (2006 restated:
$97.1m).
Cairn entered 2008 with net cash of $827.3m, positive operating cash flows and
total facilities of $910m. Cairn will receive approximately $625m following
formal approval of the private placement of shares to Petronas and Orient Global
and is in advanced discussions with its bankers to extend the credit available.
With this strong base, the Group has the capacity to drive forward the Rajasthan
development and provide financial flexibility to pursue opportunities for
growth.
Sir Bill Gammell
Chief Executive, 28 March 2007
OPERATIONAL REVIEW
Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%)
Development - Upstream
Good progress is being made on the civil works and process facilities
construction contracts which have been awarded for the Rajasthan upstream
project. All access roads to the four hundred acre site have been built and work
on the civil works on the Mangala terminal has started.
Mangala will be brought on stream in phases with production commencing in H2
2009. The transportation of the crude will be via pipeline to the coast for
which the FEED are complete. The long lead procurement process is underway and
construction is due to commence in H2 2008.
The construction of two purpose built rigs which will be used to drill the
development wells is nearing completion and these rigs will be available in
India in the second half of the year. These state-of-the-art rigs will allow the
drilling and completing of the Mangala wells (some of which will be horizontal),
which Cairn India intends to use to deliver the first phase of production from
the Rajasthan fields.
A 120 km2 high definition 3D seismic survey was completed over the Mangala field
and processing of the data is expected to be complete during 2008. This data
will be used for more detailed reservoir characterisation for development
drilling and for the application of future time lapse monitoring techniques.
An upgrade of the Mangala STOIIP and reserves and resources has been submitted
to the JV partners and the GoI. The increase in the 2P STOIIP and 2P Reserves
and Resources is 21% and 29% respectively over the original FDP. This represents
an increase of 8% percent and 11 % over the figures provided at the time of the
IPO of the Indian business. The increased resource in the Mangala field provides
a commensurate increase in the production potential of the Mangala field. The
Mangala field is capable of producing at plateau rates of up to 125,000 bopd.
This represents an increase of up to 25% on the Mangala production rate
contained in the original FDP submitted in 2005.
Gross STOIIP 2P Gross Reserves 2P Net Reserves
/ 2C Resources / Resources
----------- ----------- -----------
(mmboe) Cairn D&M Cairn D&M Cairn D&M
---------------- ------ ------ ------ ------ ------ -------
Rajasthan MBA fields 685 701 479 491
2,054 2,118
Rajasthan MBA EOR 308 308 216 216
RJ Small Fields: Saraswati &
Raageshwari Oil / gas 300 144 12 39 9 27
RJ other fields 1,397 1,216 72 54 51 38
------ ------ ------ ------ ------ -------
Total 3,751 3,478 1,077 1,102 755 772
------ ------ ------ ------ ------ -------
Note:
1. Cairn holds a 70% Net Working Interest in RJ-ON-90/1.
2. The gross proven plus probable and possible (3P) initially in place Cairn
estimate for Mangala is approximately 1,600 mmboe indicating the potential
for further volumetric upside.
3. 2P Reserves include estimates of expected production during the current
Production Sharing Contract (PSC) term (14 May 2020 for Rajasthan). 2C
Resources are those volumes expected to be produced outside the current PSC
term (end of field life) or where development planning or approval is
pending.
4. These are current estimates which have not been booked. For booked net
entitlement reserves please see the reserves section of this announcement.
The FDP for Bhagyam, the second largest field in the block, is pending final
approval on the basis of a planned plateau production rate of 40,000 bopd. The
Bhagyam and Shakti fields are contained within a second Development Area of 430
km2.
The Aishwariya FDP, which has already received Government of India (GoI)
approval, has a planned plateau production rate of 10,000 bopd. An upgrade of
the Aishwariya 2P STOIIP has been submitted to the JV and the GoI in January
2008. This represents an increase of 37% and 17% over the figures provided at
the time of the FDP and IPO respectively. It is expected that this upgrade in
STOIIP will also result in a commensurate increase in the field reserves.
Enhanced Oil Recovery (EOR)
Cairn is currently studying the staged and early application of aqueous-based
chemical flooding EOR techniques for the MBA fields. Early application of EOR in
these fields would be designed to extend their crude oil production plateau
periods, reduce water production, mitigate future decline rates and potentially
accelerate crude oil production.
The first phase of laboratory studies for the Mangala field was successfully
concluded in January 2007. The coreflood data have been successfully matched in
a reservoir simulator allowing full field simulation of polymer and
alkaline-surfactant-polymer (ASP) flooding. A pilot for polymer and ASP flooding
for the Mangala field has also been conceptualised, and approvals will be sought
in 2008 from the JV partners and the GoI to commence the pilot following
commencement of production from the field in 2009.
The current assessment of the EOR resource base is more than 300 mmbbls of
incremental recoverable oil from Mangala, Bhagyam and Aishwariya. If the Mangala
field pilot is successful it is envisaged that EOR could be introduced at a
field scale in Rajasthan in 2013 or even earlier, commencing in Mangala, and
that an increase in plateau offtake will be considered on a field by field
basis.
The first phase of laboratory work for the Bhagyam field has also been
successfully completed.
The second phase of laboratory work for the Mangala field has commenced which is
designed to confirm and refine chemical selection for the pilot project.
Northern Appraisal Area (Cairn India 100%)
A Declaration of Commerciality (DoC) for the three discoveries made in this area
(Kameshwari West 2, 3 and 6) has been approved by the JV partners, along with a
proposed new Development Area of 1,178 km2. The DoC is now awaiting approval
from the GoI.
These three discoveries have opened up a new play in the Barmer Hill/Lower
Dharvi Dungar sands on the western margin of the Rajasthan basin.
Development-Midstream
Work on the midstream is progressing well with key orders placed.
The contracts to ensure timely construction of the pipeline in 2009 have been
placed. The contracts for the line pipe, with tracer tube and insulation, and
for the Skin Effect Heat Management System have been awarded. The orders for gas
engines for the heating stations, export pumps and drivers and main block valves
have also been awarded.
The Engineering Procurement Contract (EPC) for the pipeline has been issued, as
has the EPC Contract for land development of the Viramgam Terminal. Site
preparation work commenced at the Viramgam Terminal site in mid February 2008.
Obtaining access to the land on which the pipeline will be built is well
advanced under the RoU process in Gujarat and Rajasthan.
The land for all eight heating stations in Rajasthan and ten stations in Gujarat
along the route of the pipeline has been purchased, as well as land for the
Viramgam Terminal.
Discussions are ongoing with the GoI regarding the potential inclusion of the
midstream infrastructure within the FDP for cost recovery purposes
Exploration Overview Rajasthan and other assets
Exploration and appraisal activity in 2007 included the drilling of 13 wells and
acquisition of 1,345km2 3D and 588 km 2D seismic data. Preliminary estimates of
successful 2P reserve and resource additions are 6.9 mmboe on a working interest
basis and represent approximately 101% of 2007 working interest production.
Constant re-evaluation of Cairn India's prospects and leads portfolio, plus the
addition of NELP VI blocks, PR-OSN-2004/1 and KK-DWN-2004/1 has resulted in a
cumulative unrisked prospective resource of 1,033 mmboe, excluding the prospects
drilled in 2007.
Oil and gas discoveries were made in the Northern Appraisal Area (NAA) in
Rajasthan and in both the Ravva and Lakshmi Fields.
The 2008 exploration programme includes the drilling of 15 wells, seven of which
will be operated by Cairn India and the acquisition of three onshore 2D seismic
surveys a 200 km2 onshore 3D survey and two offshore 2D surveys comprising 6,150
km, all but one of which will be operated by Cairn India. The 2008 seismic
acquisition will position Cairn India for an extensive drilling programme in
2009.
Five wells are expected to be drilled in RJ-ON-90/1 from the third quarter of
2008, including appraisal of the 2003 Kameshwari Discovery and drilling of
under-explored plays within the basin. An important well in GV-ONN-2002/1, in
the state of Bihar, will test the potential of this part of the frontier Ganga
Basin.
Cairn India continues to invest a substantial amount of effort into exploration
new ventures. Two bid applications for blocks in the Sri Lanka bid round have
been submitted. The company is also actively evaluating the blocks available in
India as part of the NELP VII Round, which is expected to close in April 2008.
Cambay Basin - Western India
Block CB/OS-2: (Cairn India 40% (Operator))
In the CB/OS-2 block the Lakshmi, Gauri and CB-X fields are primarily gas
producing, averaging a combined 50.0 million standard cubic feet of gas per day
(mmscfd) sales rate. Oil/condensate production averaged 4,407 bopd during 2007 -
this combines to total average field production of 12,746 boepd. CB/OS-2 oil
production reached a daily record of more than 10,000 bopd gross in February
2008.
In September 2007 a drilling campaign began in CB/OS-2 with four wells
successfully drilled and completed as part of the further development of the
Lakshmi and Gauri fields. By February 2008 all of these wells have been placed
on production. Three well workovers aimed at restoring production in wells with
mechanical problems or allowing access to other hydrocarbon pools were also
successfully completed.
The oil potential of the Lakshmi and Gauri fields was recognised during their
appraisal and earlier development phases, with several wells encountering and
testing oil columns. An appraisal well LA East South-1 was drilled. The well
which intersected water bearing sands with traces of oil was plugged and
abandoned.
CB-ONN-2002/1 (Cairn India 30% (ONGC Operator))
A three well drilling programme is expected to commence in 2008.
Krishna-Godavari Basin - Eastern India
Ravva (Cairn India 22.5% (Operator))
Average gross production from the Ravva field for 2007 was 60,441 boepd
(comprising average oil production of 48,078 bopd and average gas production of
74.18 mmscfd).
The Ravva field now has a history of production of more than 14 years. An infill
drilling campaign commenced in the field in October 2006, which was aimed at
extending the plateau and adding reserves. The Ravva field has been producing at
its plateau rate of approximately 50,000 bopd for eight years and it is
anticipated that the infill development will help to maintain the plateau and/or
minimise decline. The recent infill campaign, in which four new producers and
three new injectors have been drilled, has been successful in meeting the
desired objectives.
Production has now commenced from the four new infill wells. In addition, two
water injection wells have been put into service to enhance the reservoir
water-flood scheme, while the third is planned to start injection in March 2008.
Two well workovers were also completed.
Based on the results of three exploration/appraisal wells, two discovery
notifications were issued to the GoI. The first well RX-10 encountered gas but
in sub-commerical quantities. The RX-8 exploration well found oil and gas in
four Miocene reservoirs. The total hydrocarbon-bearing sands intersected in four
pay zones extend to 44 metres net. A further well RB-4 was drilled to appraise
the extent of this discovery and a series of thin sands were completed in this
well for future production.
KG-DWN-2003/1 (Cairn India 49% (Operator - exploration phase))
The acquisition of a 500 km 2D seismic programme commenced in January 2008 to be
followed by the acquisition of a 200km2 3D programme. Planning has commenced in
support of drilling between three and five exploration wells from the beginning
of 2009.
KG-DWN-98/2 (Cairn India 10% (ONGC Operator))
The JV has approved a three well appraisal programme for 2008, together with
additional 3D seismic acquisition. Discussions with the GoI continue with
respect to approval of an appraisal period under the PSC for appraisal of the
discoveries made in the block to date.
PR-OSN-2004/1 (Cairn India 35%, (Operator))
The acquisition of an offshore 3,100 km 2D seismic programme commenced in March
2008.
Ganga Basin- Northern India
GV-ONN-2002/1 (Cairn India 50% (Operator) Capricorn 50%)
An exploration well on this PSC will be drilled in 2009. Full environmental
approvals are expected shortly and site construction is expected to be completed
early in the third quarter.
GV-ONN-97/1 (Cairn India 15% Capricorn 15% (ONGC, Operator))
A well, Banda-1, was spudded at the end of 2007 and was still operating at 31
March 2008.
GV-ONN-2003/1 (Cairn India 49% (Operator - exploration phase) Capricorn 25%)
The acquisition of a 550 km 2D seismic programme is expected to commence in
2008.
Rest of India
VN-ONN-2003/1 (Cairn India 49% (Operator - exploration phase))
The acquisition of a 500 km 2D seismic programme is expected to commence in
2008.
RJ-ONN-2003/1 (Cairn India 30% (ENI Operator))
At least one well is expected to be drilled in 2008.
KK-DWN-2004/1 (Cairn India 40% (ONGC, Operator))
A 3,500 km 2D seismic programme is expected to be acquired in 2008.
CAPRICORN
In addition to its positions in Bangladesh and Nepal, the main strategic
objective for Capricorn in 2007 was to secure new acreage opportunities offering
long-term organic growth potential. The successful implementation of this
strategy is evidenced by the entry into Tunisia, as a result of the corporate
takeovers of Plectrum and medOil, and the acquisition of new acreage in
Greenland. Capricorn continues to evaluate further potential growth
opportunities.
Capricorn now has assets in south Asia (northern India, Bangladesh and Nepal),
the Mediterranean (Tunisia, Albania and pending licence awards in Spain and
Sicily), Peru, Papua New Guinea and Greenland. As a result of an ongoing
rationalisation programme, the exploration interests inherited from Plectrum in
Australia (Bremer Basin) and the UK (West of the Shetlands) are considered to be
non-core assets.
BANGLADESH
Production and Development
An offshore drilling campaign in Block 16 commenced in January 2007 during which
two wells (South Sangu-3 and Sangu-10) were drilled. The appraisal well South
Sangu-3, was drilled to evaluate the earlier South Sangu discovery, and
encountered sub-commercial quantities of gas. The development well Sangu-10, was
drilled as an extended reach delineation well in the main Sangu field and
encountered gas in new sand above the main producing intervals contained in what
is considered to be a small, isolated gas bearing reservoir.
Production from the Sangu field is declining and efforts are being focussed on
extending the economic life of the field. The separate shallower reservoir in
Sangu-10 was brought on production in March 2008 as part of an ongoing well
intervention programme at an initial rate of 20 mmscfd.
Exploration
A two-well exploration drilling programme over the 2007/2008 winter has resulted
in a gas discovery in normally-pressured reservoirs in the Magnama 1 well, while
gas shows were encountered in the Hatia 1 well. Further appraisal work will be
required over Magnama before commerciality can be established and consideration
is being given to evaluating the updip potential at Hatia.
NEPAL
The security situation in Nepal continues to be monitored closely. Contractual
force majeure remains in place in Capricorn's acreage in Nepal precluding new
seismic acquisition. As soon as the security situation permits, final planning
for seismic field operations will re-commence.
TUNISIA
The key objective of the Plectrum and medOil acquisitions was to acquire a
material acreage position in Tunisia and Capricorn now has a 50% interest in the
Nabeul permit and a 100% interest in the Louza permit, both of which are
operated by Capricorn and are located offshore Tunisia. It is currently planned
to drill two to four exploration wells in Tunisia between Q4 2008 and Q4 2009
with first activity commencing on the Louza permit.
GREENLAND
Capricorn announced on 10 January 2008, that it has an interest in six
hydrocarbon licences offshore west Greenland, having recently been awarded four
blocks and acquired an interest in a further two blocks from EnCana Corporation.
The six exploration blocks cover a combined total area of approximately 52,000
km2. Capricorn's interests are as follows:-
•an 87.5% operated interest in two blocks (Sigguk and Eqqua) awarded in
the Disko West Licensing Round;
•a 92% operated interest in two blocks (Saqqamiut and Kingittoq) awarded
in the Open Door Area; and
•a 40% non-operated interest in two blocks (Atammik and Lady Franklin)
acquired from EnCana.
It is the intention to acquire 8,000km of 2D seismic over the operated blocks in
2008/2009. An electromagnetic survey is being planned over the Atammik and Lady
Franklin blocks during 2008 by EnCana, the operator.
In line with its licence agreements, Capricorn is working with the national oil
company, Nunaoil A/S, and the Greenlandic and Danish authorities to ensure
compliance with the environmental regulations and procedures covering
exploration activities offshore Greenland.
OTHER ASSETS
Seismic surveys are being planned for offshore blocks in Albania and Peru for
2008/2009. Licence applications have been made in Sicily and Spain. Blocks in
the Bremer Basin (Australia) and the west of Shetlands are considered non-core
assets.
Talisman the operator for Block PRL-1 in Papua New Guinea, is seeking a licence
extension and if granted by the Government is planning to acquire a 3D seismic
survey in 2009 over the Pandora gas field and other prospects.
GROUP PRODUCTION
The Group's entitlement production for 2007 was 19,809 boepd net to Cairn,
compared to 24,523 boepd in 2006.
Production (boepd) Ravva CB/OS-2 Sangu Total
Gross field 60,441 12,746 13,844 87,031
Working interest 13,599 5,098 9,765 28,462
Entitlement interest 7,124 4,878 7,807 19,809
Cairn's current entitlement interest production is 63% gas: 37% oil. The average
price per boe realised in 2007 was $39.70, compared with $31.84 in 2006. The
average price realised by Cairn India for oil was $73.56/bbl (2006: $66.32/bbl)
and for gas was $23.39/boe (2006: 21.03/boe). The average realised price for
gas in Capricorn was $17.60/boe (2006: $17.59/boe)
On commencement of oil production from Rajasthan the vast majority of Group
production will be oil and, as a consequence, the Group will become much more
highly geared to prevailing oil prices.
Group Entitlement Reserves
The table below shows reserves information at the end of 2007 on an entitlement
basis for the Group (including 100% of Cairn India reserves). For accounting and
reserves purposes, the Group has used an oil price of $60 per bbl (real) (2006:
$30 per bbl (real)).
Reserves Produced in Additions Revisions Reserves
31.12.06 2007 in 2007 in 2007 31.12.07
mmboe mmboe mmboe mmboe mmboe
India 185.7 (4.4) 1.5 * (13.4) 169.4
Bangladesh 10.3 (2.8) - ** (6.7) 0.8
Total 196.0 (7.2) 1.5 (20.1) 170.2
* The revision is made up of an increase of 29.2 mmboe (primarily Mangala gross
reserves revision) offset by a decrease of 42.6 mmboe (due solely to the
increase in the oil price assumption from $30/bbl to $60/bbl).
** The downward revision includes a write down of Sangu reserves of 3.5 mmboe
and the sale of 50% of our share of Sangu to Santos amounting to 3.2 mmboe.
On a direct working interest basis, booked reserves as at 31 December 2007
totalled 255.3 mmboe (2006: 230.5 mmboe), comprising 254.3 mmboe in India and
1.0 mmboe in Bangladesh.
India Reserves
The net entitlement 2P reserves for Mangala, Saraswati and Raageshwari were
booked in 2005 following the approval by the GoI of the FDPs. Since submission
of the original Mangala FDP, two additional wells have been drilled and
extensive reservoir studies completed. During 2007 the STOIIP volumes in Mangala
and Aishwariya have been updated based on the results of remapping, more
accurate water saturation determination, a comprehensive petrophysical review.
EOR studies establishing its feasibility to augment secondary recovery have also
been undertaken. A reserves report was submitted to the GoI in December 2007
with the higher STOIIP estimate of just under 1.3 billion boe and recommending
an increase in the Mangala field plateau production rate to 125,000 bopd and
implementation of an EOR pilot.
The proposed development sequence for the Rajasthan northern fields remains
Mangala, Bhagyam and Aishwariya. The Bhagyam FDP was submitted to the JV and the
GoI in May 2007. As at 2007 year end the GoI approval for Bhagyam was
outstanding and the associated reserves were therefore not booked. FDPs for
other fields including Shakti and Guda are currently in preparation.
Bangladesh Reserves
Sangu gross 2P remaining reserves have been reduced by 70.1 billion standard
cubic feet of gas (bscf) to 15.6 bscf. This reduction is attributable to the
disappointing results from the Sangu-10 infill development well drilled in 2007,
despite finding gas in a shallower reservoir, and poorer than predicted
performance from existing production wells. Well intervention work has been
completed during Q1 2008 as a result of which production has been recovered to
75mmcfd thus ameliorating the production decline. Sangu net entitlement 2P
reserves are now 0.8 mmboe, which represents less than 0.5% of total booked
Group reserves.
FINANCIAL REVIEW
Cairn enters 2008 with the financial flexibility to drive forward the Rajasthan
development and to pursue opportunities for growth. Cairn has net cash of $827m,
positive operating cash flows and total facilities of $910m. In addition Cairn
will receive approximately $625m in April, following formal approval of the
private placement of shares to Petronas and Orient Global.
Key financial performance indicators
2007 2006 % Increase/
(Decrease)
Production (boepd) 19,809* 24,523* (19.2)
Average price per boe ($) 39.70 31.84 24.7
Turnover ($m) 287.7 286.3 0.5
Average production costs per boe ($) 9.20 6.36 44.7
Operating loss ($m) (76.3) (64.6) 18.1
Profit/(loss)before tax ($m) 1,553.2 (91.8) ** 1,791.9
Exceptional items ($m) 1,577.3 - -
Profit/(loss) after tax ($m) 1,527.8 (97.1) ** 1,673.4
Cash flow from operating activities ($m) 155.3 189.4 (18.0)
Net assets ($m) 1,749.8 678.8** 157.8
Net cash ($m) 827.3 701.3*** 18.0
*on an entitlement interest basis
**restated
***includes $751.8m raised in pre IPO placing
Accounting overview
On 9 January 2007, Cairn India was floated on the Bombay Stock Exchange and the
National Stock Exchange of India. The total proceeds (before expenses) raised in
the flotation were $1,984.1m, with $935.7m (including expenses) returned to
shareholders in 2007, a return of £3 per share.
Cairn India retained $600m, with the remainder of the proceeds held to fund
Cairn's exploration-led subsidiary, Capricorn.
On 7 September 2007, Dyas BV acquired a 10% holding in Capricorn for a total
consideration, before expenses, of $91.0m.
Cairn Energy PLC's consolidated accounts include 100% of the results of both of
these subsidiary undertakings, Cairn India and Capricorn. The interests held by
external shareholders (31% in Cairn India and 10% in Capricorn) are then
reflected as minority interest adjustments.
On 7 September 2007, the Group announced two recommended cash offers totalling
$76.2m (before expenses) - one for Plectrum Petroleum Plc and the other for
medOil plc. Both of these offers were declared unconditional on 10 October 2007
and their results are included in the Group's consolidated financial statements
from that date.
On 25 October 2007, Santos International Holdings Pty acquired 100% of Cairn
Energy Bangladesh Limited from the Group (50% of Cairn's Bangladesh position)
for a total cash consideration of $55.8m. This has been reflected as a disposal
of oil and gas assets.
The prior year financial statements have been adjusted for changes in the
accounting for deferred tax and financial assets. The net impact of these
adjustments in 2006 was an increase in the loss for the year attributable to
equity holders from $82.0m to $97.1m and a decrease in net assets from $681.2m
to $678.8m.
PROFIT AND LOSS
Turnover
Revenue for the year was $287.7m (2006: $286.3m).
Production for the year, on an entitlement interest basis, has decreased by 19%
to 19,809 boepd (2006: 24,523 boepd). This is primarily due to reduced field
production at both Sangu and CB/OS-2.
The Group's production continues to be predominantly gas (circa 63% on an
entitlement basis). This production mix, together with price caps in the gas
contracts, results in an average price realised by the Group for the year of
$39.70 per boe (2006: $31.84 per boe). The increase is due primarily to the
higher oil price environment in 2007.
Gross Profit
The Group generated a gross profit of $61.5m (2006: $63.9m).
Cost of sales for the year was $226.2m (2006: $222.4m). This includes a
write-off of unsuccessful exploration costs and general exploration expenditure
of $40.7m (2006: $62.0m) in accordance with the Group's successful efforts based
accounting policies.
Production costs for the year were $66.5m (2006: $56.9m). These include
pre-exploration costs expensed and stock movements. Production costs per boe
have increased to $9.20 per boe (2006: $6.36 per boe) due in part to higher
pre-award/new venture costs and the impact of workover costs for Ravva, but also
to the fall in entitlement production, with fixed costs spread over a smaller
production base.
The average Group rate for depletion and decommissioning has increased by 15.0%
to $13.29 per boe (2006: $11.56 per boe), mainly as a result of the downgrade of
the Sangu reserves as outlined in the Operational Review.
Profit for the Year
Administrative expenses for the year were $88.4m (2006: $60.3m). These include a
charge of $32.2m (2006: $18.5m) for share based payments plus associated taxes.
Cairn India's underlying administrative expenses have also increased following
its establishment as an autonomous business with its own listing.
An impairment charge of $51.8m has been made in respect of Bangladesh
exploration blocks 5, 7 and 10 and the Magnama-1 well and Hatia-1 well in Block
16. The costs of these two wells have been impaired until the future plans to
assess their potential have been completed. The carrying value of the Group's
exploration assets in Nepal of $7.1m has also been impaired given the continued
uncertainty over the lifting of contractual force majeure.
Net finance income for the year was $34.8m (2006 restated: net finance cost
$27.3m). Finance income increased from $4.6m to $65.2m reflecting interest
generated on cash balances held following the IPO of Cairn India at the
beginning of the year. Finance costs include a realised foreign exchange loss of
$23.1m (2006: $14.2m) and a $3.3m (2006: $9.7m) fair value charge in respect of
foreign exchange options entered into to manage currency exposure. Realised
foreign exchange losses arose primarily due to the treatment under IFRS of
exchange movements on intra-group funding arising from the weakening of the US
dollar against Sterling in the year.
In accordance with IFRS 3 'Business Combinations', negative goodwill arising on
the acquisition of medOil plc has been recognised immediately in the Income
Statement.
The Group made an exceptional gain of $1,537.0m on the disposal of 31% of Cairn
India through the IPO and an exceptional gain of $40.3m on the disposal of 10%
of Capricorn Energy to Dyas BV. These gains are not chargeable to tax.
The tax charge for the year was $25.4m (2006 restated: $5.3m).
The Group's profit for the year is $1,527.8m (2006 restated: loss $97.1m).
BALANCE SHEET
Capital expenditure
Balance sheet additions during the year were $591.5m (2006: $284.0m), broken
down as follows:
2007 2006
$m $m
Acquisition of subsidiaries 139.5 -
Exploration/appraisal assets 180.5 161.0
Development/producing assets 245.6 110.5
Other assets 25.9 12.5
Total 591.5 284.0
Acquisition of subsidiaries relate to the acquisitions of Plectrum Petroleum Plc
and medOil plc.
Exploration/appraisal expenditure by Cairn India during the year relates
principally to the continued drilling programme in Rajasthan. Capricorn's
exploration/appraisal programme comprised three wells in Bangladesh - South
Sangu-3, Magnama-1 and Hatia-1 wells (Hatia was completed in 2008).
The majority of the development expenditure was on Rajasthan, plus some activity
on Ravva and Sangu as described in the Operational Review.
CASH FLOW
Cash flows from operating activities
Cash generated from operating activities has decreased to $155.3m (2006:
$189.4m). Interest paid was $6.7m (2006: $5.6m) and income tax payments during
2007 were $14.7m (2006: $12.2m).
Cash flows from investing activities
Cash outflows from investing activities during 2007 were $398.8m (2006: $256.1m)
and included the following items:
2007 2006
$m $m
Exploration/appraisal expenditure 156.4 157.5
Development/producing expenditure 244.0 115.0
Other capital expenditure 10.6 9.1
The acquisitions of Plectrum Petroleum Plc and medOil plc are also included
within cashflows from investing activities, as is the disposal of Cairn Energy
Bangladesh Limited to Santos.
Cash flows from financing activities
Cashfows from financing activities includes proceeds from the IPO of Cairn
India, received in January 2007 and the acquisition of 10% of Capricorn Energy
by Dyas BV in September 2007.
In April 2007, following the IPO of Cairn India, the Group returned cash to
shareholders of £3 per share, a total return of $935.7m (including expenses).
Net assets/net cash
Net assets at 31 December 2007 were $1,749.8m (2006 restated: $678.8m). At the
year end, the Group had net cash of $827.3m (2006: $701.3m).
Post balance sheet events
In March 2008, Cairn India arranged a private placement of approximately $625m
with Petronas and Orient Global Tamarind Fund Pte Limited, who have agreed to
subscribe for a total of 113 million shares. As a result of this private
placement Cairn Energy's holding in Cairn India will reduce from 69% to 65%. The
cash is due to be received in April, following formal approval of the
transaction.
Financial strategy and outlook
During 2007 the two separate businesses have been fully established within
Cairn, each with their own financial strategy and funding needs. In Cairn India,
the development programme underway in the Rajasthan project will generate levels
of cash flow previously unseen in the group and provide the springboard for
future growth. As well as the cash on the Balance Sheet, the strong operating
cash flows and the cash raised through the recent equity issue, there is
dedicated project credit facility already in place and discussions to extend
this are at an advanced stage.
In Capricorn, the business is exploration led and the investments planned for
2008 and beyond will drive future growth on this side of the business. The
transactions with Dyas and Santos during the year have demonstrated the range of
options open to the Capricorn business and provided the cash to fund the initial
stages of this investment programme. It is now key to ensure that the available
funds are targeted on the real growth opportunities in this portfolio.
Jann Brown
Finance Director, 28 March 2008
Group Income Statement
For the year ended 31 December 2007
----------------------- ------ -------- -------- -------- --------
Notes Group Group
2007 2006
$'000 (Restated)
$'000
----------------------- ------ -------- -------- -------- --------
Revenue 287,656 286,304
Cost of sales
Production costs (66,483) (56,931)
Unsuccessful exploration (40,714) (62,018)
costs
Depletion and (118,994) (103,487)
decommissioning charge
----------------------- ------ -------- -------- -------- --------
Gross profit 61,465 63,868
Other operating income 6,010 3,340
Administrative expenses (88,430) (60,323)
Impairment of intangible
exploration/appraisal (58,924) -
assets
Impairment of property,
plant & equipment - - (71,455)
development/producing
assets
Reversal of impairment of
property, plant & 3,718 -
equipment - development/
producing assets
Loss on sale of oil and gas (89) -
assets
----------------------- ------ -------- -------- -------- --------
Operating loss (76,250) (64,570)
Negative goodwill on 17,373 -
acquisition
Exceptional gain on deemed disposal
of 1,577,276 -
subsidiaries
Finance income 65,176 4,603
Finance costs (30,339) (31,875)
----------------------- ------ -------- -------- -------- --------
Profit/(loss) before 1,553,236 (91,842)
taxation
Taxation expense on profit/ 7 (25,391) (5,280)
(loss)
----------------------- ------ -------- -------- -------- --------
Profit/(loss) for the year 1,527,845 (97,122)
----------------------- ------ -------- -------- -------- --------
Attributable to:
Equity holders of the 1,519,653 (97,122)
parent
Minority interests 8,192 -
----------------------- ------ -------- -------- -------- --------
Earnings per ordinary share 4 1,120.38 (61.60)
- basic (cents)
Earnings per ordinary share 4 1,118.57 (61.60)
- diluted (cents)
----------------------- ------ -------- -------- -------- --------
Group Statement of Recognised Income and Expense
For the year ended 31 December 2007
---------------------------- ---------- --------- --------
Notes Group Group
2007 2006
$'000 $'000
---------------------------- ---------- --------- --------
Income and expense recognised directly in
equity
Surplus on valuation of financial assets 9 8,037 -
Surplus on valuation of financial assets -
prior - 603
year adjustment
Currency translation differences 9 27,524 10,725
---------------------------- ---------- --------- --------
Total income recognised directly in equity 35,561 11,328
---------------------------- ---------- --------- --------
Profit/(loss) for the year
Profit/(loss) for the year 1,527,845 (82,017)
Prior year adjustment - (15,105)
---------------------------- ---------- --------- --------
Profit/(loss) for the year (restated) 1,527,845 (97,122)
---------------------------- ---------- --------- --------
Total recognised income and expense for the 1,563,406 (85,794)
year ---------- --------- --------
----------------------------
Attributable to:
Equity holders of the parent 1,549,215 (85,794)
Minority interests 14,191 -
---------------------------- ---------- --------- --------
1,563,406 (85,794)
---------------------------- ---------- --------- --------
Group Balance Sheet
As at 31 December 2007
------------------------ --------- ------- -------- ---------
Notes Group Group
2007 2006
$'000 (Restated)
$'000
------------------------ --------- ------- -------- ---------
Non-current assets
Intangible exploration/appraisal assets 607,055 419,239
Property, plant & equipment - development/
producing 498,223 394,010
assets
Property, plant & equipment - other 6,566 5,891
Intangible assets - other 25,276 6,724
Available for sale financial assets 15,905 7,868
------------------------------- ------- -------- ---------
1,153,025 833,732
------------------------------- ------- -------- ---------
Current assets
Inventory 7,978 4,615
Trade and other receivables 307,003 218,159
Bank deposits 8 30,053 -
Cash and cash equivalents 8 872,272 856,266
Derivative financial instruments 2,479 -
Income tax assets 7,935 -
------------------------------- ------- -------- ---------
1,227,720 1,079,040
------------------------------- ------- -------- ---------
Total assets 2,380,745 1,912,772
------------------------------- ------- -------- ---------
Current liabilities
Trade and other payables 273,570 897,232
Obligations under finance leases 1,949 1,380
Provisions 17,766 6,845
Derivative financial instruments - 9,694
Income tax liabilities 76 6,064
------------------------------- ------- -------- ---------
293,361 921,215
------------------------------- ------- -------- ---------
Non-current liabilities
Loans and borrowings 8 75,000 155,000
Obligations under finance leases 2,431 3,092
Provisions 40,061 24,740
Deferred tax liabilities 220,076 129,965
------------------------------- ------- -------- ---------
337,568 312,797
------------------------------- ------- -------- ---------
Total liabilities 630,929 1,234,012
------------------------------- ------- -------- ---------
Net assets 1,749,816 678,760
------------------------------- ------- -------- ---------
Equity attributable to equity holders of the
parent
Called-up share capital 9 15,845 25,870
Share premium 9 210,901 201,019
Shares held by ESOP Trust 9 (32,019) (55,756)
Foreign currency translation 9 23,996 2,798
Capital reserves - non distributable 9 40,222 40,222
Retained earnings 9 1,064,148 464,607
------------------------------- ------- -------- ---------
1,323,093 678,760
Minority interests 9 426,723 -
------------------------------- ------- -------- ---------
Total equity 1,749,816 678,760
------------------------------- ------- -------- ---------
Group Statement of Cash Flows
For the year ended 31 December 2007
Notes Group Group
2007 2006
$'000 (Restated)
$'000
Cash flows from operating activities
Profit/(loss) before taxation 1,553,236 (91,842)
Unsuccessful exploration costs 40,714 62,018
Depletion, depreciation, decommissioning and
amortisation 125,326 110,494
Share based payments charge 25,274 13,304
Impairment and impairment reversals of oil and
gas 55,206 71,455
assets
Loss on sale of oil and gas assets 89 -
Negative goodwill on acquisition (17,373) -
Exceptional gain on deemed disposal of (1,577,276) -
subsidiaries
Finance income (65,176) (4,603)
Finance costs 30,339 31,875
Net interest paid (6,708) (5,599)
Income tax paid (14,716) (12,184)
Gain on sale of other non current assets - (2)
Foreign exchange differences (2,829) (282)
Movement on inventory of oil and condensate (3,363) 918
Trade and other receivables movement 1,883 (7,037)
Trade and other payables movement 8,039 15,139
Movement in other provisions 2,611 5,762
---------------------------- -------- -------- -------
Net cash generated from/(used in) operating 155,276 189,416
activities
---------------------------- -------- -------- -------
Cash flows from investing activities
Expenditure on intangible exploration/appraisal (156,394) (157,535)
assets
Expenditure on tangible development/producing (244,009) (114,995)
assets
Purchase of property, plant & equipment - other (2,122) (1,346)
Purchase of intangible assets - other (8,443) (7,779)
Acquisition costs for business combinations (77,295) -
Cash acquired as a result of business 7,335 -
combinations
Cash disposed of on disposal of subsidiary (6,738) -
Proceeds on disposal of subsidiary 54,393 -
Proceeds on disposal of property, plant &
equipment - - 20
other
Movement in funds on bank deposits (30,053) 20,000
Interest received 64,532 5,568
---------------------------- -------- -------- -------
Net cash (used in)/from investing activities (398,794) (256,067)
---------------------------- -------- -------- -------
Cash flows from financing activities
Payment of costs for deemed disposal of (64,304) (23,276)
subsidiaries
Proceeds from deemed disposal of subsidiaries 1,323,329 751,849
Arrangement and facility fees (22,759) (17,074)
Proceeds from issue of shares 9,968 3,219
Purchase of own shares - (21,659)
Payment of finance lease liabilities (1,405) (285)
(Repayment)/drawdown of loan facilities (80,000) 155,000
Return of cash to shareholders (935,653) -
---------------------------- -------- -------- -------
Net cash flows from/(used in) financing 229,176 847,774
activities
---------------------------- -------- -------- -------
Net (decrease)/increase in cash and cash (14,342) 781,123
equivalents
Opening cash and cash equivalents at beginning 856,266 75,509
of year
Exchange gains/(losses) on cash and cash 30,348 (366)
equivalents
--------------------------- --------- -------- -------
Closing cash and cash equivalents 8 872,272 856,266
--------------------------- --------- -------- -------
Notes to the Preliminary Financial Statements
1. Accounting Policies and Presentation of Financial information
Cairn prepares its accounts in accordance with applicable International
Financial Reporting Standards (IFRS) as adopted by the EU.
The financial information contained in this announcement does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. However,
the financial statements contained in this announcement are extracted from the
audited statutory accounts for the financial year ended 31 December 2007, which
will be delivered to the Registrar of Companies.
All accounting policies applied are consistent with those adopted and disclosed
in the Group's annual financial statements for the year ended 31 December 2006,
except where the Group has adopted new IFRS. During the year, the Group adopted
International Financial Reporting Interpretations Committee (IFRIC) 8 'Scope of
IFRS 2'; amendment to IFRS 2 'Share-based payment' Vesting Conditions and
Cancellations'; amendment to International Accounting Standard (IAS) 1
'Presentation of Financial Statements - Capital Disclosures'; and IFRS 7
'Financial Instruments: Disclosures', amendment to IAS 32 'Financial
Instruments: Disclosure and Presentation'.
The prior year financial statements have been restated to correct the accounting
for deferred tax and financial assets. The net impact of these adjustments in
2006 was an increase in the loss for the year attributable to equity holders
from $82.0m to $97.1m and a decrease in net assets from $681.2m to $678.8m.
2. Going Concern
The directors have considered the factors relevant to support a statement on
going concern. They have a reasonable expectation that the Group will continue
in operational existence for the foreseeable future and have therefore used the
going concern basis in preparing the financial statements.
3. Cash returned to Shareholders
In April 2007, Cairn Energy PLC returned cash to shareholders of £3 per share
out of the proceeds of the flotation of Cairn India Limited on the Bombay Stock
Exchange and National Stock Exchange of India. Total cash returned was
$935,653,000 including costs of the transaction. No further dividend is
proposed.
4. Earnings per share
The earnings per ordinary share is calculated on a profit of $1,519,653,000
(2006 (restated): loss $97,122,000) and on a weighted average of 135,637,411
ordinary shares (2006: 157,654,751). The weighted average of ordinary shares
excludes shares held by the Cairn Energy PLC Employees' Share Trust. No
retrospective adjustment was made to the weighted average number of shares,
relating to the share consolidation of 23 March 2007, as there was a
corresponding change in resources in the form of the return of cash to
shareholders.
The diluted earnings per ordinary share is calculated on a profit of
$1,519,511,000 and on 135,844,139 ordinary shares. The profit of $1,519,511,000
reflects the reduced profit attributable to equity holders of the parent after
potential Cairn India Limited share option issues. The 135,844,139 ordinary
shares is the basic weighted average of 135,637,411 ordinary shares and the
206,728 dilutive potential ordinary shares relating to share options.
In respect of 2006, 587,128 potential ordinary shares were anti-dilutive.
Notes to the Preliminary Financial Statements (continued)
5. 2007 Annual Report and Accounts
Full accounts are due to be posted to shareholders on Wednesday 23 April 2008
and will be available at the Company's registered office, 50 Lothian Road,
Edinburgh, EH3 9BY, from that date.
The Annual General Meeting is due to be held on Friday 23 May 2008 at 12.00 pm.
6. Segmental Analysis
Geographic segments
The Group's operating activities are organised into two distinct sub-Groups, the
Capricorn Energy Group and the Cairn India Limited Group, each reporting
internally to its own chief executive. A third segment 'Other' exists to
accumulate the activities and results of Cairn UK Holdings Limited and Cairn
Energy PLC company which includes the administrative expenses of Cairn's head
office in Edinburgh. Unallocated expenditure and net assets/(liabilities)
including amounts of a corporate nature, not specifically attributable to one of
the sub-Groups, are also included within 'Other'.
The Capricorn Energy Group's operations focus on the Group's South Asian assets
in Bangladesh and Nepal together with new exploration activities in Tunisia,
Greenland and the rest of the world. The Cairn India Limited Group's operations
are entirely within India.
Notes to the Preliminary Financial Statements (continued)
6. Segmental Analysis (continued)
The segment results for the year ended 31 December 2007 are as follows:
Cairn India Capricorn Other Group
Group Energy Group 2007
$'000 $'000 $'000 $'000
Revenue from sale
of oil, gas and
condensate 236,724 50,147 - 286,871
Tariff income 785 - - 785
----------------------- --------- --------- --------- ---------
Total revenue 237,509 50,147 - 287,656
Cost of sales (123,466) (102,725) - (226,191)
----------------------- --------- --------- --------- ---------
Gross
profit/(loss) 114,043 (52,578) - 61,465
----------------------- --------- --------- --------- ---------
Segmental
operating
profit/(loss) 71,215 (120,179) (27,286) (76,250)
----------------------- --------- --------- --------- ---------
Cost of sales in the segment
results above includes:
Production costs (45,497) (20,986) - (66,483)
Unsuccessful
exploration costs (15,347) (25,367) - (40,714)
Depletion and
decommissioning
charge (62,622) (56,372) - (118,994)
Other segment items included
in the Income
Statement are:
Depreciation (1,544) (56) (422) (2,022)
Amortisation (2,582) (1,610) (118) (4,310)
Impairment losses
on financial
assets (Other
loans and
receivables) (2,547) (1,059) - (3,606)
Impairment of
intangible
exploration/appra
isal assets - (58,924) - (58,924)
Reversal of
impairment of
property, plant &
equipment -
development/produ
cing assets - 3,718 - 3,718
Loss on sale of
oil and gas
assets - (89) - (89)
Negative goodwill - 17,373 - 17,373
Exceptional gain
on deemed
disposal of
subsidiaries - - 1,577, 276 1,577,276
Notes to the Preliminary Financial Statements (continued)
6. Segmental Analysis (continued)
The segment results for the year ended 31 December 2006 were as follows:
Cairn India Capricorn Other Group
Group Energy Group
(restated) 2006
(restated)
$'000 $'000 $'000 $'000
Revenue from sale
of oil, gas and
condensate 221,956 63,753 - 285,709
Tariff income 595 - - 595
----------------------- --------- --------- --------- ---------
Total revenue 222,551 63,753 - 286,304
----------------------- --------- --------- --------- ---------
Cost of sales (143,751) (78,685) - (222,436)
----------------------- --------- --------- --------- ---------
Gross
profit/(loss) 78,800 (14,932) - 63,868
----------------------- --------- --------- --------- ---------
Segmental
operating
profit/(loss) 119,725 (143,675) (40,620) (64,570)
----------------------- --------- --------- --------- ---------
Cost of sales in the segment
results above includes:
Production costs (38,585) (18,346) - (56,931)
Unsuccessful
exploration costs (56,650) (5,368) - (62,018)
Depletion and
decommissioning
charge (48,516) (54,971) - (103,487)
Other segment items included in
the Income
Statement are:
Depreciation (2,393) (3) (749) (3,145)
Amortisation (2,242) - (1,620) (3,862)
Impairment losses
on financial
assets (Other
loans and
receivables) (3,332) (1,274) - (4,606)
Impairment of
intangible
exploration/appra
isal assets - (71,455) - (71,455)
The segment assets and liabilities as at 31 December 2007 and capital
expenditure for the year then ended are as follows:
----------------------- --------- --------- --------- ---------
Cairn India Capricorn Other Group
Group Energy Group
2007
----------------------- --------- --------- --------- ---------
$'000 $'000 $'000 $'000
Assets 1,761,816 593,916 25,013 2,380,745
Liabilities 331,423 73,439 226,067 630,929
Capital
expenditure 320,820 266,298 4,393 591,511
Capital expenditure includes exploration assets acquired through business
combinations.
Notes to the Preliminary Financial Statements (continued)
6. Segmental Analysis (continued)
The segment assets and liabilities as at 31 December 2006 and capital
expenditure for the year then ended are as follows:
----------------------- --------- --------- --------- ---------
Cairn India Capricorn Other Group
Group Energy Group
(restated) (restated) 2006
(restated)
----------------------- --------- --------- --------- ---------
$'000 $'000 $'000 $'000
Assets 1,099,794 151,250 661,728 1,912,772
Liabilities 1,132,689 35,620 65,703 1,234,012
Capital
expenditure 249,622 31,624 2,715 283,961
Segment assets include intangible exploration/appraisal assets; property, plant
& equipment - development/producing assets; property, plant & equipment - other;
intangible assets - other; trade receivables and operating cash. They exclude
inter-company balances.
Segment liabilities comprise operating liabilities and exclude items such as
taxation, corporate borrowings and inter-company balances.
Other assets include assets of Cairn's head office in Edinburgh, as well as
interest receivable, deposits, cash and cash equivalents of the Group which
cannot be allocated to an operating segment.
Other liabilities include liabilities of Cairn's head office in Edinburgh, as
well as income tax liabilities and deferred tax liabilities of the Group which
cannot be allocated to an operating segment.
Business Segments
Cairn operates in only one business segment, being the oil and gas extractive
industry, and therefore no business segmental analysis is provided.
Notes to the Preliminary Financial Statements (continued)
7. Taxation on Profit/(Loss)
a) Analysis of tax charge in year
2007 2006 (restated)
$'000 $'000
Current tax:
UK corporation tax
Adjustments in respect of prior periods (7,589) (1)
------------------------------ -------- --------
(7,589) (1)
------------------------------ -------- --------
Foreign Tax
Indian Minimum Alternate Tax on profits for the 8,978 8,273
year at 10.53% (2006: 9.80%)
Adjustments in respect of prior periods 1,580 -
Withholding taxes deducted at source 302 1,388
------------------------------ -------- --------
10,860 9,661
------------------------------ -------- --------
Total current tax 3,271 9,660
------------------------------ -------- --------
Deferred tax:
United Kingdom
Temporary differences in respect of non current assets (1,571) (23,536)
Losses (4,594) -
Other temporary differences (171) (344)
------------------------------- -------- --------
(6,336) (23,880)
------------------------------- -------- --------
India
Temporary differences in respect of non current assets 25,820 20,282
Losses 2,698 (178)
Other temporary differences (62) (604)
------------------------------- -------- --------
28,456 19,500
------------------------------- -------- --------
Total deferred tax 22,120 (4,380)
------------------------------- -------- --------
Tax charge on profit/(loss) 25,391 5,280
------------------------------- -------- --------
Notes to the Preliminary Financial Statements (continued)
7. Taxation on Profit/(Loss) (continued)
b) Factors affecting tax charge for year
A reconciliation of income tax expense applicable to profit/(loss) before income
tax at the applicable tax rate to income tax expense at the Group's effective
income tax rate is as follows:
2007 2006
$'000 (restated)
$'000
Profit/(loss) before taxation 1,553,236 (91,842)
--------------------------- -------- --------
Tax at the weighted average rate of corporation tax of
29.66% 460,690 (33,605)
(2006 (restated): 36.59%)
Effects of:
Minimum Alternate Tax payable 8,978 4,506
Adjustments in respect of prior periods - current tax (6,009) (1)
- deferred tax (5,469) (4,084)
Temporary differences not recognised 27,285 29,056
Non-taxable gain on deemed disposal of subsidiaries (466,287) -
Non-deductible expenses and non-taxable income (3,316) 7,421
Withholding tax 302 1,388
Foreign exchange movements 8,879 1,419
Other 338 (820)
--------------------------- -------- --------
Total tax charge 25,391 5,280
--------------------------- -------- --------
The applicable tax rate was the weighted average rate for the year of the UK,
Netherlands, Australian, Indian, Jersey and Bangladesh tax rates. There have
been no major changes in the statutory tax rates applying in each of these
jurisdictions, however, the weighted average rate is subject to fluctuations
from year to year based on the level of profits and losses which arise to the
Group in each jurisdiction.
c) Factors that may affect future corporation tax charges
At 31 December 2007 Cairn had losses of approximately $261.9m (2006: $167.4m)
available for offset against future trading profits chargeable to UK Corporation
Tax. In addition there are surplus management expenses of $134.4m (2006: $54.0m)
and non-trade deficits of $14.4m (2006: $26.7m) available for offset against
future investment income. There were no capital losses at 31 December 2007
(2006: $24.3m) available to offset future capital gains arising in the UK. The
capital losses are no longer carried forward within the Group following the
disposal of Cairn Energy Bangladesh Limited. None of the trading losses, surplus
management expenses or non-trade deficits have been recognised for deferred tax
as there is no reasonable certainty that they will be used. Under UK tax law,
tax losses may generally be carried forward indefinitely.
At 31 December 2007 Cairn had losses of approximately $14.7m (2006: $14.7m)
available for offset against future trading profits chargeable to Netherlands
Corporate Income Tax, but there are restrictions on the use of these losses.
Under Netherlands tax law, losses may be carried forward for a period of up to
nine years. No deferred tax asset has been recognised in respect of these
losses.
Notes to the Preliminary Financial Statements (continued)
7. Taxation on Profit/(Loss) (continued)
At 31 December 2007 Cairn had losses of approximately $373.6m (2006: $274.6m)
available for offset against future trading profits chargeable to Indian
Corporate Income Tax. Under Indian tax laws, losses may be carried forward for a
period of up to eight years. These losses have not been recognised for deferred
tax purposes as it is not sufficiently certain that they will be utilised
against future trading profits chargeable to Indian tax. $341.7m (2006: $269.3m)
of the loss has not been recognised as it is expected that these losses will
expire during the period of an Indian tax holiday. The remaining $31.9m (2006:
nil) of the loss has not been recognised due to expectations regarding the level
of income in the entity concerned.
Tax losses incurred in one jurisdiction cannot usually be offset against profits
or gains arising in another jurisdiction.
Notes to the Preliminary Financial Statements (continued)
8. Net funds
At 1 January Cash flow New Finance Exchange At 31 December
2007 Leases movements 2007
$'000 $'000 $'000 $'000 $'000
Bank deposits - 30,053 - - 30,053
-------------- --------- --------- --------- --------- ---------
Cash at bank 27,573 (13,986) - 11,907 25,494
Short term
deposits 828,693 (356) - 18,441 846,778
-------------- --------- --------- --------- --------- ---------
Cash and cash
equivalents 856,266 (14,342) - 30,348 872,272
Bank loans (155,000) 80,000 - - (75,000)
-------------- --------- --------- --------- --------- ---------
Net cash 701,266 95,711 - 30,348 827,325
-------------- --------- --------- --------- --------- ---------
Finance leases (4,472) 1,406 (768) (546) (4,380)
-------------- --------- --------- --------- --------- ---------
Net funds 696,794 97,117 (768) 29,802 822,945
-------------- --------- --------- --------- --------- ---------
At 1 January Cash flow New Finance Exchange At 31 December
2006 Leases movements 2006
$'000 $'000 $'000 $'000 $'000
Bank deposits 20,000 (20,000) - - -
-------------- --------- --------- --------- --------- ---------
Cash at bank 15,831 12,779 - (1,037) 27,573
Short term
deposits 59,678 768,344 - 671 828,693
-------------- --------- --------- --------- --------- ---------
Cash and cash
equivalents 75,509 781,123 - (366) 856,266
Bank loans - (155,000) - - (155,000)
-------------- --------- --------- --------- --------- ---------
Net cash 95,509 606,123 - (366) 701,266
-------------- --------- --------- --------- --------- ---------
Finance leases - 953 (5,432) 7 (4,472)
-------------- --------- --------- --------- --------- ---------
Net funds 95,509 607,076 (5,432) (359) 696,794
-------------- --------- --------- --------- --------- ---------
As at the year end, the Group had cash balances equivalent to $213,000 (2006:
$245,000) in Bangladeshi Taka in Bangladesh which are not readily convertible
into other currencies.
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Short term deposits are made for varying periods from overnight deposits to
three months depending on the cash requirements of the Group.
Notes to the Preliminary Financial Statements (continued)
9. Equity
Equity Shares held by Foreign Other Capital Retained Minority
Total
ESOP Trust currency reserves - non earnings Interests
translation distributable
Share Capital Reserves (Restated)
Equity
(Restated)
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2006 223,670 (37,311) (7,927) 215,713 45,331 318,122 - 757,598
Prior year
adjustment - - - - - 12,092 - 12,092
-------------- -------- -------- -------- -------- --------- -------- -------- ---------
At 1 January
2006
(restated) 223,670 (37,311) (7,927) 215,713 45,331 330,214 - 769,690
Exercise of
employee share
options 3,219 - - - - - - 3,219
Share based
payments - - - - - 13,304 - 13,304
Cost of shares
vesting - 3,214 - - - (3,214) - -
Cost of shares
purchased - (21,659) - - - - - (21,659)
Surplus on
valuation of
financial
assets - - - - - 603 - 603
Currency
translation
differences - - 10,725 - - - - 10,725
Transfer to
retained
earnings - - - (215,713) (5,109) 220,822 - -
Loss for the
year - - - - - (97,122) - (97,122)
--------------- -------- -------- -------- -------- --------- -------- -------- ---------
At 1 January
2007 226,889 (55,756) 2,798 - 40,222 464,607 - 678,760
Exercise of
employee share
options 9,968 - - - - - - 9,968
Minority
interests
created on
deemed
disposal of
subsidiaries - - - - - - 408,061 408,061
Share based
payments - - - - - 20,803 4,471 25,274
Cost of shares
vesting - 9,935 - - - (9,935) - -
Currency
translation
differences 2,820 - 21,198 - - - 3,506 27,524
Cash returned
to
shareholders (12,931) 13,802 - - - (936,524) - (935,653)
Surplus on
valuation of
financial
assets - - - - - 5,544 2,493 8,037
Profit for the
year - - - - - 1,519,653 8,192 1,527,845
--------------- -------- -------- -------- -------- --------- -------- -------- ----------
At 31 December
2007 226,746 (32,019) 23,996 - 40,222 1,064,148 426,723 1,749,816
--------------- -------- -------- -------- -------- --------- -------- -------- ----------
GLOSSARY OF TERMS
The following are the main terms and abbreviations used in this announcement:
$ United States dollars
2D/3D two dimensional/three dimensional
2P proven plus probable
ASP alkaline-surfactant-polymer
Board the Board of Directors of Cairn Energy PLC
boe barrels of oil equivalent
boepd barrels of oil equivalent per day
bopd barrels of oil per day
bscf billion standard cubic feet of gas
Cairn Cairn Energy PLC and/or its subsidiaries as appropriate
Cairn India Cairn India Limited and/or its subsidiaries as appropriate
Capricorn Capricorn Energy Limited
Company Cairn Energy PLC
DoC Declaration of Commerciality
EOR enhanced oil recovery
EPC Engineering Procurement Contract
FDP field development plan
FEED front end engineering and design
GoI Government of India
Group the Company and its subsidiaries
IAS International Accounting Standard
IFRS International Financial Reporting Standards
IPO initial public offering (of shares in Cairn India Limited)
JV joint venture
MBA fields Mangala, Bhagyam and Aishwariya
medOil medOil plc
mmbbls million barrels of oil
mmboe million barrels of oil equivalent
mmscfd million standard cubic feet of gas per day
NELP VI Sixth New Exploration Licensing Policy round
NELP VII Seventh New Exploration Licensing Policy round
ONGC Oil and Natural Gas Corporation
Plectrum Plectrum Petroleum Plc
PSC production sharing contract
RoU Rights of Use
STOIIP Stock Tank Oil Initially in Place
Notes to Editors:
•Cairn Energy PLC ('Cairn') is an Edinburgh-based oil and gas exploration
and production company listed on the London Stock Exchange. Following the
IPO of Cairn India in January 2007, there are two separate arms to the
business:
•Cairn India Limited ('Cairn India') is now an autonomous business listed
on the Bombay Stock Exchange and the National Stock Exchange of India and
has interests in a total of 14 Indian acreage blocks. Cairn currently
retains a 69% interest in Cairn India.
•Capricorn Energy Limited ('Capricorn'), a subsidiary of Cairn is the
exploration focused arm. Capricorn now has assets in Bangladesh, Nepal,
Northern India, Greenland, Tunisia, Peru, UK (West of Shetlands), Albania,
Australia, and pending licence awards in Spain and Sicily.
• 'Cairn' where referred to in this release means Cairn Energy PLC and/or
its subsidiaries (including Cairn India and Capricorn), as appropriate.
• 'Cairn India' where referred to in the release means Cairn India Limited
and/or its subsidiaries, as appropriate.
• 'Capricorn' where referred to in this release means Capricorn Energy
Limited and/or its subsidiaries as appropriate.
•The Group holds material exploration and production positions in west
India, east India and Bangladesh along with new exploration rights in India
and Nepal.
•Cairn has focused its activities on the geographic region of South Asia,
which has already resulted in a significant number of oil and gas
discoveries. In particular, Cairn made a major oil discovery (Mangala) in
Rajasthan in the north west of India at the beginning of 2004. Cairn has now
made more than 20 discoveries in Rajasthan block RJ-ON-90/1.
•The exploration-led business of Capricorn has, through the acquisitions
of Petroleum Plc and medOil plc in September 2007, acquired new exploration
interests in Tunisia, Peru, UK (West of Shetland), Albania, Australia and
pending licence awards in Spain and Sicily. In addition, Capricorn has
separately acquired licence interests offshore west Greenland.
•Cairn India is headquartered in Gurgaon on the outskirts of Delhi, with
operational offices in Chennai, Gujarat, Andhra Pradesh and Rajasthan.
•Cairn Energy PLC (including Capricorn) will continue to be run from
Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu.
For further information on Cairn see www.cairn-energy.plc.uk
This information is provided by RNS
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