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 The company news service from the London Stock Exchange
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