Half Yearly Report Announceme

RNS Number : 9443X
Cairn Energy PLC
25 August 2009
 



EMBARGOED FOR RELEASE AT 0700                                                                                25 August 2009


 

CAIRN ENERGY PLC

Half-yearly Report Announcement



OPERATIONAL HIGHLIGHTS


  • Gross operated production for H1 2009: 68,941 boepd (H1 2008 : 80,873 boepd)

  • Average net entitlement production for H1 2009: 11,573 boepd (H1 2008 : 13,886 boepd)


India 


  • Inauguration of the Mangala field and production start up scheduled for August 2009 - trial runs commenced for Train One

  • Pricing agreed with Government of India (GoI) nominated buyers for initial volumes of crude from Mangala representing a 10-15% discount to Brent on the basis of prices prevailing for the six months to June 2009

  • Key GoI approvals received: 

    • Revised Mangala Field Development Plan incorporating pipeline and higher processing capacity of 205,000 barrels of oil per day (bopd) 

    • Mangala, Bhagyam, Aishwariya (MBA) plateau production of 175,000 bopd

    • Multiple delivery points 

  • Construction of Mangala Processing Terminal (MPT) on going with scope for expansion

  • Pipeline construction ongoing with flexibility to accommodate growing production


Greenland

  • Initial 14 prospect and lead inventory for Disko blocks offshore western Greenland confirms multi-billion bbl unrisked exploration potential 

  • East Greenland prospecting licence awarded; 2D seismic survey (~4,000 km) underway

  • 2009 programme ongoing with five vessels currently acquiring data offshore west, south and east Greenland.


FINANCIAL HIGHLIGHTS


  • Loss after tax, before exceptional item, of $20m (H1 2008: profit $17m)

  • Exceptional provision for Ravva arbitration, net of tax, $55m

  • Group net cash at 30 June 2009 $631m (H1 2008 : $1,177m)


Sir Bill Gammell, Chief Executive said:  


'We are delighted that production from Mangala in Rajasthan is due to commence this week at a Government of India inauguration ceremony. This is a major milestone for the Cairn Group.


The current planned plateau production from the key fields is 175,000 bopd and we believe there is substantial scope for further growth from the existing fields, from Enhanced Oil Recovery and the expansion of the resource base.


We are excited by the frontier exploration position established offshore Greenland which provides Cairn with potential for future material exploration success.'


 Enquiries:


Analysts/Investors
Bill Gammell, Chief Executive

Mike Watts, Deputy Chief Executive

Jann Brown, Finance Director
David Nisbet, Corporate Affairs




Tel: 0131 475 3000



Media
Patrick Handley, 
David Litterick

Brunswick Group LLP



Tel: 0207 404 5959



Cairn Energy Live Audio Webcast

The webcast of the 2009 preliminary results presentation will be available at 0900 (UK time) on Tuesday 25 August 2009 on the Cairn Energy PLC website: www.cairnenergy.com 

An archived version of the webcast will be available later.


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

The significant milestone of first oil production from Rajasthan will soon be achieved, five years after the discovery of the Mangala field in the North West of India. The Rajasthan achievement is testament to Cairn's focused strategy of delivering organic growth and shareholder value. 


Underpinning this strategy for growth is the phased development of the 25 oil discoveries in Rajasthan and the evaluation of further potential upside associated with the basin's prospective resources, complemented by a new and exciting frontier exploration position in Greenland.


India

The focus for Cairn in India remains the delivery and optimisation of the high-value Rajasthan project. Initial volumes of crude will be produced through the first processing train and production ramp up will continue until all four processing trains are built and installed by 2011. Pricing has been agreed with two GoI nominated buyers, Indian Oil Corporation (IOC) and Mangalore Refinery and Petrochemicals Limited (MRPL), for the initial volumes of oil to be trucked for delivery to local refineriesThe pricing formula currently equates to an approximate 10-15% discount to Brent on the basis of the prices prevailing from January to June 2009. 

The decision to phase delivery of the Rajasthan development has allowed tight control on expenses and cost optimisation. Operating costs associated with the company's existing producing properties, Ravva, Lakshmi and Gauri in India and Sangu in Bangladesh, are very low by global industry standards and thCairn goal is to set similar standards and benchmarks in Rajasthan. 

The Rajasthan resource base has continually grown since the discovery of Mangala in 2004 and the focus in the coming years will be to realise the full potential of the Barmer BasinThe Mangala, Bhagyam and Aishwariya fields together with their Enhanced Oil Recovery (EOR) potential are being developed in sequence and when complete MBA production is expected to rise to at least 175,000 barrels of oil per day. 

The trials of EOR and optimisation of the additional 22 Rajasthan fields, including the MBA Barmer Hill discoveries, when combined with any subsequent exploration successes, provide the platform for future growth potential.

Greenland

We have gradually built up a strategic acreage position across offshore Greenland in support of our belief that this frontier country has the potential to hold commercially attractive quantities of hydrocarbons. Work programme obligations for the first four year period over all our blocks have already been completed and the interpretative results of the geological and geophysical data gathered to date are extremely encouraging. 


In the Disko area the initial prospect and lead inventory confirms a number of structures with large closures which, assuming reasonable reservoir thicknesses and parameters, support multi-billion bbl unrisked potential for these blocks.  Further seismic work along with electromagnetic and well site surveys is being carried out during this summer. Planning for the first exploration drilling campaign is well underway, with 2011 as a target.


Offshore south Greenlandthe reconnaissance seismic acquired in 2008 has confirmed a rifted continental margin and identified new prospective geological basins and sub basins for the first time. The seismic has highlighted a number of different potential play types and structures.  


Outlook


The Rajasthan project continues to provide opportunities for substantial growth. Once the pipeline infrastructure is in place there will be significant future potential for further production optimisation. 


Production is due to start shortly from Mangala with initial volumes evacuated by trucking. The target for completing the second processing train and the pipeline is the end of 2009 but it is increasingly challenging. The third and fourth trains are scheduled to be complete in H1 2010 and 2011 respectively.


Discussions on further oil sales contracts with potential buyers of the Rajasthan crude will continue as production increases over the coming months


Greenland is one of the few non-Opec countries considered to have world class yet to find exploration potential, as confirmed by independent studies from the United States Geological Survey (USGS)We firmly believe that Greenland's hydrocarbon potential can provide the next stage of the Cairn growth story and we continue to target first exploration drilling in 2011. 


Whilst delivering on the production and resource potential in Rajasthan and exploration opportunities in Greenland is our prime focus, we are constantly evaluating strategic options for further creation of shareholder value.



Norman Murray 

Chairman, 24 August 2009

  CHIEF EXECUTIVE'S REVIEW


Cairn's strategy has always been to focus on opportunities with material growth potential and we firmly believe that the Rajasthan project has the ability to create further value for shareholders and stakeholders. 


At plateau production the MBA fields will generate substantial revenues for both the Rajasthan and Indian economies and as such the inauguration of first production from Mangala will be an important event recognised nationally


The extensive nature of the resource base of the Barmer Basin in Rajasthan is well established Alongside the large MBA fields there are 22 other fields to be developed and subsequently tied into the infrastructure. In addition there remains a significant and as yet untested prospective resource potential to pursue.  


Cairn is poised to benefit from its Rajasthan investments and its long held conviction in the potential of the Barmer Basin for many years to come.


In continuing the pursuit of a transformational growth strategy, the company has also secured a leading early entry acreage position in Greenland where we have a similar vision for the potential of the acreage.


India

More than 3,000 km2 of acreage in Rajasthan is now under long term development contract to Cairn. The integrated upstream and midstream project (with self-generated local power and water supply) is one of the largest onshore oil and gas developments in India with more than 16,000 workers currently involved in construction activities in Rajasthan and Gujarat.


The MBA fields have proven plus probable (2P) gross reserves and resources of almost 700 million barrels of oil equivalent (mmboe) with a further 300 mmboe of EOR potential presently classified as contingent resource. Subject to the results of the EOR project these resources would be expected to be re-categorised over time as additional 2P reserves. In parallel, work on the remaining 22 fields and on the remaining prospective potential of the block will gradually increase. The further incremental production growth potential across this acreage was demonstrated by the Raageshwari East well, which flowed 500 bopd in December 2008.  


It is worth noting that the size and scope of the Rajasthan project has substantially increased since the original Mangala discovery in 2004 when peak production was originally forecast at 100,000 bopd. Today the planned facilities at the MPT will include the phased construction of four processing trains with a production capacity of 205,000 bopd and scope for expansion. 


In view of the significant resource base there is in-built potential within the Barmer Basin to extend and also enhance peak plateau production above the level of 175,000 bopd, subject to the appropriate regulatory approvals. Specificallythe capacity of the evacuation pipeline has the flexibility to cater for potential future growth, subject to additional investment and GoI approval.


An ongoing challenge for the coming years will be to optimise the exploitation of the basin's full resource potential.


Greenland

The recent rise in oil prices has seen the first industry interest in Greenland for many years. The Government of Greenland offers exploration acreage both through competitive Bid Rounds and direct applications via its Open Door Policy. Cairn has taken a leading position in this process and is at the forefront of the opening up of this exciting frontier country. 


The prospective geological basins around the coast of Greenland are at a very early stage of evaluation with only six offshore and one onshore exploration well having been drilled to date, and five of those during the 1970s.  The results of these wells, together with more recent onshore geological mapping over the past 15 years, have confirmed the presence of all the essential elements required for a working petroleum system. In support of this view, the Circum-Arctic Resource Appraisal study published by the USGS in 2008 estimates significant 'yet to find' hydrocarbons within the Arctic Greenlandic basins, recognising Greenland as a very prospective, but under-explored country.


During 2008, the obligation seismic work programme for the first licence phase over all six of the operated licences was completed.  Interpretation and evaluation of this seismic is ongoing.  


Baffin Bay - Disko Area


Thtwo Disko West blocks (Capricorn 87.5%, Nunaoil 12.5%) lie within the undrilled Baffin Bay Basin and currently 14 significant leads and prospects have been initially identified. Basin analysis work confirms that with reasonable source rock thickness and quality assumptions, the kitchen for the Disko area could have generated many hundreds of billions of barrels of oil and assuming a trapping efficiency of a few percent, structures on the blocks could potentially be fully charged on an unrisked basis.


A Controlled Source Electromagnetic (CSEM) survey, well site surveys, gravimetric, environmental and ice management surveys are underway on the Disko blocks aimed at ranking these leads and prospects and providing a prospect and operational risk assessment. Dependent on the results of the ongoing 2009 surveys, further data acquisition is likely in 2010.


A drilling project team has been formed and initiated planning for a drilling campaign starting in 2011. Availability options for a suitable rig are under review.  


The Greenland authorities are asking companies to pre-qualify in 2009 for the Baffin Bay bid round to be held in 2010. 


South Greenland

In South Greenland (Capricorn 92%, Nunaoil 8%), a number of previously unknown basins or sub-basins have been confirmed for the first time.  A variety of potential hydrocarbon plays are recognised, some similar to those proved on the adjacent Canadian coast.  In September a 3600 km infill 2D seismic survey over the principal areas of interest will be acquired.


East Greenland

Cairn (Capricorn) was awarded a prospecting licence over the east coast of Greenland earlier this year and is presently acquiring ~4000 km of regional 2D seismic data along the coast aimed at recognising new basins and future potential.


West Greenland

In the Lady Franklin and Atammik blocks in west Greenland operated by Encana (47.5%, Capricorn 40%, Nunaoil 12.5%), the 2008 CSEM survey has highlighted resistivity anomalies over some of the mapped prospects and leads. These data are being incorporated into the prospect assessments and a decision on committing to the next licence phase which involves drilling is required in the next 6 months.


Iraq

The government of Iraq is announcing its Second Round timetable to the industry in Istanbul today, 25 August. Key features are expected to be bid submissions late 2009 with awards in 2010. Cairn is one of 43 companies to have qualified for the Second Round.

  Financial Review


At 30 June 2009, following a 5% placement of PLC shares in March 2009, Cairn has net cash of $631m and total facilities of $899m, of which $850m has been drawn down. 


Key Financial Performance Indicators



H1

2009

H1

2008

Production (boepd)*

11,573

13,886

Average price per boe ($)

**38.68

71.19

Revenue ($m)

**81

180

Average production costs per boe ($)

7.76

14.09

Operating (loss)/profit ($m)

**(13)

44

(Loss)/profit before tax ($m)

**(20)

407




(Loss/)profit after tax ($m)

**(20)

375




Exceptional items ($m)

(55)

359




Cash flow from operating activities ($m)

(25)

105

Net assets ($m)

2,408

2,382

Net cash ($m)

631

1,177


*     on an entitlement interest basis

**    excludes the impact of the Ravva arbitration exceptional provision (see below)


Production, Revenue & Gross Profit 


All numbers are stated before the impact of the exceptional item.


Group oil and gas revenues for the period were $81m, compared with $180m in the first half of 2008.  This drop in revenues was a result of the natural decline in gross production levels from the existing producing fields combined with lower realised prices. Average entitlement production fell by 17% to 11,573 boepd (H1 2008, 13,886 boepd), of which oil production accounted for 58% (H1 2008: 53%).The blended average price realised was $38.68, compared to $71.19 in the first half of 2008.


Production costs, at $16 million, were down 56% over H1 2008 ($36m).  2008 production costs included a number of infill and workover wells on Ravva and CB/OS-2, while in 2009 the costs base was reduced by a one-off credit of $7m for the receipt of a pipeline tariff on Sangu, which had been fully provided for in prior years.


The majority of the unsuccessful exploration costs of $24m (H1 2008: $6m) have arisen following a reallocation of general, non well-specific costs carried against the Rajasthan block. This is in accordance with our accounting policy for oil and gas assets.


The fall in the depletion and decommissioning charge reflects the decline in Group production and the rate per boe remains broadly comparable with the comparative period.


After taking all of these items into account, the Group generated a gross profit of $18m (H1 2008: $109m) before taking account of the exceptional items associated with the Ravva arbitration provision.


Results for the Period


Administrative expenses include non-cash charges for share-based payments of $8m (H1 2008: $14m) and for depreciation and amortisation of $4m (H1 2008: $5m). Net of these charges, administrative expenses have decreased from $33m to $25m primarily as a result of the difference in foreign exchange rates across the two periods.


Net finance costs for the period were $7m (H1 2008: $4m income). Finance costs include a realised foreign exchange loss of $26m (H1 2008 $15m) and a $3m (H1 2008: $6m) fair value charge in respect of foreign exchange options. 


In the comparative period the Group made an exceptional gain of $356m on the deemed disposal of 4% of Cairn India to Petronas and Orient Global Tamarind Fund Pte Limited through an issue of shares. No such gain has occurred during this period.


The Group is showing a tax credit of $0.2m (H1 2008: $32m charge) for the period as a result of changes in the calculation of deferred tax, due mainly to foreign exchange movements and to the phasing of forecast capital expenditure.


The Group made a loss before exceptional items for the period of $20m (H1 2008: profit $17m).  Taking account of the exceptional items associated with the Ravva arbitration provision the post tax loss for the period is $75m.


Exceptional Item - Ravva Arbitration


The calculation of the GoI's share of petroleum produced from the Ravva field has been disputed for some years and an arbitration to settle the matter was launched in 2003. The biggest single issue, the treatment of an item known as the ONGC carry, was found in our favour by the arbitration panel in 2004. This was subsequently appealed by the GoI, following which it has been disclosed as a contingent liability in our financial statements.  At 30 June 2009, Cairn's share of this liability was $64m plus interest of $32m.


Following the procedure laid out in the Ravva Production Sharing Contract (PSC), the GoI's appeal was made to the Malaysian courts and in January 2009 they advised us that they have decided to set aside the arbitration award made in our favour. Although this is not the final step in the legal process, the GoI then instructed the buyers of the Ravva crude not to pass over the revenues to Cairn until such time as they believed that the liability had been settled in full.


As at 30 June 2009, revenues of $67m had been withheld by the buyers and, if this pattern continues, it is likely that the GoI will recover the full $96m by the end of the year.


Consequently, following a court ruling on 4 August 2009 and on a conservative basis, Cairn has now provided for the full $96m liability as an exceptional item. The disputed share of profit petroleum of $64m has been charged against revenue and the related interest charge of $32m has been recognised as a finance cost. An associated tax credit of $40m has also been recognised, giving a total net impact on profit after tax of $55m. Further details can be found in Note 2 of the interim financial statements.


Cairn's view of the merits of the underlying case remains unchanged and we are taking all legal routes open to us to defend our position and to recover the revenues which we believe have been wrongfully withheld.


Cash Flow, Capital Investment and Liquidity


Cash inflow from operating activities, before taking account of the exceptional items associated with the Ravva arbitration provision, was $42m (H1 2008: $105m). Including the exceptional items associated with the Ravva arbitration provision the Group's cash outflow from operating activities was $25m.


Major inflows during the year arose from the 5% share placement by PLC raising $158m (net of expenses) and from the drawdown of $350m of the $850m CIL loan facility, taking the total debt drawn at the period end to $850m. The Group earned interest on cash balances of $26m (H1 2008: $28m).


Cash outflow on capital expenditure is set out on the table below:



H1 2009

H1 2008


$ million

$ million




Exploration/ appraisal expenditure

31

88

Development expenditure

428

257

Other capital expenditure

2

3




Total

461

348





In line with the Group's focus on delivering first production from Mangala in the third quarter of the year, the majority of the Group's capital expenditure is associated with the Rajasthan development.


Group net cash at 30 June 2009, after taking account of the $850m debt drawn was $631m (H1 2008: $1,177m).  


Going Concern


The directors have considered the financial and operational risks relevant to support a statement of going concern.  They have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing the interim financial statements.


Outlook


The impact of the cash raised in the March placing has been to strengthen the Group's balance sheet and allow us to continue our preparations for exploration drilling in Greenland.


The Group responded quickly to last year's downturn in international credit markets to ensure that its available resources were fully targeted on delivering the Rajasthan project. As first oil starts to flow this month, the cash flow generated from this new production base will initially be reinvested in the other discoveries in Rajasthan with a view to optimising production and cash flow to fuel future growth in the Group. 



Sir Bill Gammell

Chief Executive24 August 2009



  OPERATIONAL REVIEW 


Group Production


The Group's average entitlement production for H1 2009 was 11,573 barrels of oil equivalent per day (boepd) net to Cairn compared to 13,886 boepd in H1 2008.  


The figures in the table below show Group production for H1 2009 on a gross, working interest and entitlement basis (including 100% of both CIL and Capricorn production).

 

Production (boepd)

Ravva

CB/OS-2

Sangu

Total

Gross field

46,157

13,714

9,070

68,941

Working interest

10,385

5,486

3,401

19,272

Entitlement interest

4,820

4,033

2,720

11,573

 

Group entitlement production during H1 2009 was 42% gas: 58% oil. On commencement of production from Rajasthan the vast majority of the Group's production will be oil.


Group Booked 2P Reserves


The table below shows reserves information at 30 June 2009 on an entitlement interest basis for the Group (including 100% of CIL's and Capricorn's reserves). For accounting and reserves purposes, the Group has used an oil price assumption of $50/barrel (bbl) flat in 2009 and $65/bbl (real) for 2010 onwards.



Reserves

31.12.08

mmboe

Produced in 

mmboe

Additions in 

mmboe

Revisions in 

mmboe

Reserves

30.06.09

mmboe

India

252.9

(1.6)

-

(1.6)

249.7

Bangladesh

1.6

(0.5)

-

0.4

1.5

Total

254.5

(2.1)

-

(1.2)

251.2


The 2009 mid year entitlement reserves position has decreased by 3.3 mmboe from 254.5 mmboe at 2008 year end to 251.2 mmboe, which is principally due to net production of 2.1 mmboe and a negative total net entitlement reserves revision of -1.6 mmboe in CIL resulting from a number of factors.


The affect on net entitlement reserves of different future oil prices is summarised below:

 

Oil Price

($/boe)

Net Entitlement Reserves 

(mmboe)

Increase/(reduction) compared to $65/ boe base case (mmboe)

$40

287.0

35.8

$80

240.8

(10.4)


On a direct working interest basis, reserves as at 30 June 2009 have decreased by 2.7 mmboe to 345.3 mmboe (31 December 2008: 348.0 mmboe), comprising 343.5 mmboe in India and 1.8 mmboe in Bangladesh


  CAIRN INDIA - OPERATIONAL REVIEW


Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%)


The revised Mangala Field Development Plan (FDP) incorporating an increased offtake to 125,000 bopd for Mangala and a higher processing capacity of 205,000 bopd for MPT and pipeline to the Gujarat coast has been approved by the GoI, the Management Committee (MC), (Cairn, Oil and Natural Gas Corporation (ONGC) and the Director General Hydrocarbons (DGH))Cairn India and its Joint Venture (JV) partner ONGC have an area of 3,111 km2 under long term contract on the Rajasthan licence.


Approximately 16,000 people are currently involved in the construction of both the upstream and midstream projects. 


The phased integrated development plan for the block, which includes gas, water and pipeline operations, is focused on the Mangala field with the MPT the hub through which all facilities will be connected. 


Development - Upstream 


The facilities at Train one of the MPT is complete and ready to start production.  


All of the key elements at the MPT to enable production from Trains two and three are progressing. Work on the well pads, the Raageshwari gas terminal, the Thumbli water field, in-field pipelines, processing facilities, buildings, power generation and associated utilities are well advanced. The construction of Trains two and three at the MPT with a combined capacity of 100,000 bopd is targeted to attain Mangala plateau production of 125,000 bopd by H1 2010. 


Development drilling and well completion activities are currently underway with two drilling rigs and one completion rig operating in the Mangala development area. To date 28 wells have been drilled of which 1wells have been completed. The wells drilled to date will support the ramp up production profile for the Mangala field.


Development - Midstream (Pipeline)


The export pipeline route passes through the states of Rajasthan and Gujarat covering eight districts and more than 250 villages. Work is currently in progress across nine construction spreads.  


The final construction approvals have been received and all land purchases for the Above Ground Installations (AGI's) and main terminals have been completed. All long lead items and materials have been delivered to the site to ensure smooth completion of the pipeline.


Weather and typical execution factors continue to pose schedule risks. Cairn and its major contractor, Larsen and Toubro, are working to mitigate those risks to deliver completion by the end of 2009.  


Pre-commissioning and testing activities have commenced on the pipeline.


Crude - Sales


The GoI has nominated MRPL, IOC and HPCL for the offtake of initial crude quantities from the Rajasthan Block for the periods 2009-10 and 2010-11. Discussions are in progress with the GoI to allocate additional volumes.


The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with GoI nominees, IOC and MRPL. In accordance with the PSC this pricing is based on comparable low sulphur crude frequently traded in the region - Bonny Light, with appropriate adjustments for crude quality. 


The implied price realisation represents a 10-15% discount to Brent on the basis of prices prevailing for the six months to June 2009. This pricing is subject to GoI approval.


The oil from Rajasthan is categorised as medium gravity and is of sweet grade with a low sulphur content of about 0.1% by weight.  While the crude has a high pour point and viscosity due to its waxy nature it is an excellent secondary processing feedstock for refiners.


In order to facilitate the sale of oil ahead of completion of the pipeline, it is planned that the crude from the first train at MPT will be trucked to the Gujarat coast and then shipped to MRPL. Trial trucking runs have been successfully completed on the route from Mangala to the Gujarat coast. Crude sales to IOC will be by injection into their existing pipeline network in Gujarat


The discussions for further volumes are ongoing.


 

CAIRN INDIA - PRODUCING ASSETS 


Cambay Basin CB/OS-2 (Cairn India 40% (Operator)


Average gross production from Block CB/OS-2 for H1 2009 was 13,714 boepd (comprising average gas production of 28 million standard cubic feet of gas per day (mmscfd) and average oil/condensate production of 8,966 bopd). 


Oil production has increased from the new wells that were added during the 2008 infill well development drilling campaign.


Krishna-Godavari Basin - Eastern India 

Ravva (Cairn India 22.5% (Operator) 


Average gross production from the Ravva field for H1 2009 was 46,157 boepd (comprising average oil/condensate production of 37,317 bopd and average gas production of 53 mmscfd). 



CAIRN INDIA - EXPLORATION


Over the next 12 months further drilling and seismic programmes are planned. Drilling is scheduled onshore in the KG basin, with acquisition of 3D seismic to commence offshore India and in Sri Lanka



GREENLAND

Capricorn has acquired a leading frontier exploration position offshore west and south Greenland where the prospective geological basins around the coast are at a very early stage of evaluation.  However, a re-interpretation of the few earlier well results together with more recent onshore geological mapping over the past 15 years, have confirmed the presence of all the essential elements required for the generation and trapping of hydrocarbons.


The 2008 USGS Circum-Arctic report contains an assessment of risked potential in the eastern Greenland (31 billion barrels of oil equivalent (boe)), northern Greenland (3.3 billion boe) and western Greenland - east Canada (17 billion boe) basins. The south Greenland offshore area lies outside of the Arctic Circle and was not included in the survey. 


During 2008, Capricorn acquired a 6,600 km 2D seismic survey in the Disko West blocks Sigguk and Eqqua, followed by the acquisition of a further 1,200 km 2D seismic survey in the southern Kingittoq and Saqqamuit blocks and around 1,780 km of 2D seismic data over the Salliit and Uummannarsuaq blocks (Cape Farewell 1 & 2). Processing of all the collected data is complete and interpretation of the seismic is ongoing.  


In the Disko West area, a number of significant leads and prospects in a variety of plays are being evaluated, with a view to a drilling campaign starting in 2011. A drilling project team has initiated planning and a suitable rig is being sought. This summer, a CSEM survey, site surveys, gravimetric, environmental and ice management surveys are underway aimed at ranking the leads and prospects and understanding the risks and uncertainties involved in planning and committing to a drilling campaign. Dependent on the results of the ongoing 2009 surveys, further data acquisition is likely in 2010 to finalise precise drilling locations.


In the Cape Farewell and Southern Greenland areas, a number of previously unknown basins have been confirmed by the regional 30km 2D seismic grid acquired in 2008. A variety of potential hydrocarbon plays are recognised, some similar to those proved on the adjacent Canadian coast. A number of structural and stratigraphic leads have been identified. This September, an infill 2D seismic survey will be acquired over the principal lead areas with the aim of maturing the leads into prospects.


Nunaoil, the Greenlandic State oil company, holds a 12.5% carried interest in the Disko West licences and an 8% carried interest in the Southern Greenland and Cape Farewell licences, the balance being held by Capricorn.


In the Lady Franklin and Atammik blocks operated by Encana (47.5%, Capricorn 40%, Nunaoil 12.5%), a CSEM survey was also acquired in 2008 and the data has recognised resistivity anomalies over some of the mapped prospects and leads. These data are being incorporated into the prospect assessments and a decision on committing to the next licence phase which involves drilling is required in the next 6 months.


On the east coast of Greenland, in a large prospecting licence, Cairn is currently acquiring a regional 2D seismic survey aimed at recognising new basins.  



BANGLADESH

Production and Development


The Sangu gas field operations continue with an emphasis on safety and low cost production.  The field is in decline and to augment gas production from Sangu, Cairn and its JV partners completed the installation of an onshore gas compression facility in early July 2009 within schedule and budget. The compression facility is now operational and undergoing performance trials.


Sangu has produced almost 460 bcf since production started in 1998. Located in the Bay of Bengal, some 50 km off the coast at Chittagong, the field is the only offshore gas field in Bangladesh. Sangu was one of the largest discoveries in the 1990s, when Cairn was one of the first international companies to start operating in the country. To date, Cairn and its JV partners have invested over $1 bn in Bangladesh


The JV partners in the Sangu field are currently Cairn, Santos and HBR Energy.


Exploration


In Block 16 significant progress has been achieved in improving the commercial terms for future gas sales in Bangladesh. The Government has granted the Block 16 non-Sangu Joint Venturers the right, in principle, to sell new gas directly to end consumers at freely negotiated prices and volumes. With this positive and encouraging change, the JV of Cairn and Santos is now planning to undertake a 3D seismic survey over the Magnama structure at the end of this year and into early 2010 as a prelude to possible appraisal drilling.


In Block 10 Cairn and its JV Partner Santos have decided not to proceed into the next phase of the PSC and the block has therefore been returned to the Government of Bangladesh.



NEPAL


The security situation in Nepal continues to be monitored closely. Contractual force majeure remains in place on the acreage in Nepal, precluding in-country operations.  As soon as the security situation permits, fieldwork will include aerogravity and seismic acquisition.  


 

OTHER ASSETS

(TunisiaAlbaniaAustraliaPeruSpainPapua New Guinea)


In the Mediterranean, site surveys have been carried out in Tunisia for exploration well locations in both the Louza and Nabeul permits.  Planning has restarted for a well in Louza in 2010.


An environmental impact assessment has been completed offshore Albania ahead of the 3D seismic survey which should commence in late August 2009.  


Several licence applications offshore Spain remain pending.  As a result of an ongoing rationalisation programme, the exploration permits inherited from Plectrum in Australia (Bremer Basin), Peru and west of Shetland have been either transferred or relinquished.  


In Papua New Guinea the Operator (Talisman) has recently completed a 3D seismic survey over the undeveloped Pandora gas field to better define the extent of the gas resource. This data is currently being evaluated.


 PRINCIPAL RISKS AND UNCERTAINTIES 


For the six months to 30 June 2009 no new risk factors have been identified and the following risk factors, as detailed in pages 41-44 of the 2008 Annual Report and Accounts, remain pertinent. 


The risk factors are not intended to be presented in any order of priority. In addition, the risks set out below may not be exhaustive and additional risks and uncertainties, not presently known to the Company, or which the Company currently deems immaterial, may arise or become material in the future. The risk factors should be considered in conjunction with the cautionary note to shareholders in relation to forward-looking statements set out on page 136 of the 2008 Annual Report and Accounts. 


The Company's Performance is dependent upon the performance of Cairn India and the Capricorn Group

Relationship with Cairn India 

Project Assessment and Delivery

Operations 

Commercial

Exchange Rates, Interest Rates, Currency Controls and Fiscal Regulation

Environmental Regulation 

Market Place

Insurance 

Human Resources 

Corporate Responsibility (CR) 

War, Terrorist Attack and Natural Disasters 

Political Climate

Cash Flow and Funding

Global Economic Slowdown and Associated Risk


Changes in relation to the following risk factors have, however, been identified and are reported below. The following statements should be read in conjunction with the relevant risk factors detailed on pages 41-44 of the 2008 Annual Report and Accounts. 


Project Assessment and Delivery


The Company's principal project is the development of the Mangala Field, which is due to come on stream in Q3 2009, with initial export by trucking. The production is then expected to build up to 125,000 bopd during the first half of 2010, with export via the pipeline. In order to facilitate the sale of oil ahead of completion of the pipeline, it is planned that the crude from the first train at MPT will be trucked to the Gujarat coast and then shipped to MRPL and HPCL. Trial trucking runs have been successfully completed on the route from Mangala to the Gujarat coast. Crude sales to IOC will be by injection into their existing pipeline network in Gujarat.


Commercial 


Cairn India may not be able to sell all of the oil that it is able to produce from its fields in Rajasthan or obtain the crude oil price for all of its oil production determined in accordance with the PSC. The GoI has nominated MRPL, IOC and HPCL for the offtake of initial crude quantities from the Rajasthan Block for the periods 2009-10 and 2010-11 and discussions are in progress with the GoI to allocate additional volumes.


The commercial terms and pricing negotiations for the initial offtake of the Rajasthan crude have been concluded with GoI nominees, IOC and MRPL. In accordance with the PSC this pricing is based on comparable low sulphur crude frequently traded in the region - Bonny Light, with appropriate adjustments for crude quality. 


The implied price realisation represents a 10-15% discount to Brent on the basis of prices prevailing for the six months to June 2009.  This pricing is subject to GoI approval.


 Cash Flow and Funding


Cash flows from the Ravva Field have been reduced following the decision of the GoI to recover monies from the buyers following the GoI's successful appeal against the Ravva Post Tax Rate of Return (PTRR) arbitration. Cairn India have appealed the decision.



STATEMENT OF DIRECTORS' RESPONSIBILITIES


The directors confirm that, to the best of their knowledge, these condensed financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 and the Disclosure and Transparency Rules of the UK Financial Services Authority. The accounting policies applied are consistent with those described in the Annual Report and Accounts 2008. 


The interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R being a fair review of the business and important events impacting it, as well as a description of the principal risks and uncertainties that Cairn faces for the remainder of the year and a fair review of the related party disclosure requirements. 


A List of the current directors is maintained on the Cairn Energy PLC website: www.cairnenergy.com


By order of the Board. 







Sir Bill Gammell

Jann Brown

Chief Executive

Finance Director



24 August 2009



GROUP INCOME STATEMENT

For the six months ended 30 June 2009


 











Continuing operations (unaudited)

$'m




Continuing exceptional items (unaudited)

$'m

Six months

ended 30 June

2009

(unaudited)

$'m

Six months

ended 30 June

2008

(unaudited)

$'m

Year ended

31 December

2008

(audited)

$'m








Revenue 

2

81.1

(64.0)

17.1

180.4

299.3








Cost of sales







Production costs


(16.3)

-

(16.3)

(35.6)

(66.9)

Unsuccessful exploration costs


(24.0)

-

(24.0)

(6.3)

(47.7)

Depletion and decommissioning charge


(22.9)

-

(22.9)

(29.3)

(47.6)


Gross profit/(loss)


17.9

(64.0)

(46.1)


109.2


137.1

Other operating income


6.4

-

6.4

5.8

12.0

Administrative expenses


(37.2)

-

(37.2)

(52.0)

(94.6)

Impairment of intangible exploration/appraisal assets

4

(0.5)

-

(0.5)

(19.5)

(21.0)

Reversal of impairment of intangible exploration/appraisal assets

4

-

-

-

-

6.5

Reversal of impairment of oil and gas assets

4

-

-

-

0.7

2.7


Operating (loss)/profit


(13.4)

(64.0)

(77.4)


44.2

42.7








Exceptional gain on deemed disposal of subsidiary

Finance income

2

-


27.1

-


-

-


27.1

358.7


28.1

355.8


66.2

Finance costs

2

(33.7)

(31.6)

(65.3)

(24.0)

(23.8)


(Loss)/profit before taxation


(20.0)

(95.6)

(115.6)


407.0


440.9

Taxation credit/(charge) on (loss)/profit


2,6


0.2


40.4


40.6


(31.7)


(74.2)

(Loss)/profit for the period 


(19.8)

(55.2)

(75.0)

375.3


366.7



Attributable to :

Equity holders of the parent

Minority interests







(60.9)

(14.1)



361.7

13.6



348.8

17.9



Earnings per ordinary share - basic (cents)

(attributable to equity holders of the parent) 


Earnings per ordinary share - diluted (cents)

(attributable to equity holders of the parent) 

 








(45.54)





(45.54)



279.08





278.31


268.73





266.92



  GROUP STATEMENT OF COMPREHENSIVE INCOME 

For the six months ended 30 June 2009





Six months 

ended 30 June 

2009

(unaudited)

$'m



Six months 

ended 30 June 

2008

(unaudited)

$'m



Year ended

 31 December 

2008

(audited)

$'m





(Loss)/profit for the period

                   (75.0)

               375.3

                 366.7





Other comprehensive income: 




Deficit on valuation of financial assets

(1.9)

(11.3)

(14.0)

Currency translation differences

40.4

(51.8)

(150.6)


Other comprehensive income for the period

38.5

(63.1)


(164.6)





Total comprehensive income for the period

(36.5)

312.2

202.1





Attributable to:




Equity holders of the parent

(25.0)

321.0

236.5

Minority interests

(11.5)

(8.8)

(34.4)



(36.5)


312.2


202.1


  GROUP BALANCE SHEET

As at 30 June 2009





Notes

As at 30 June

2009

(unaudited)

$'m

As at 30 June

2008

(unaudited)

$'m

As at

31 December

2008

(audited)

$'m






Non-current assets





Intangible exploration/appraisal assets  

7

549.2

585.6

563.0

Property, plant & equipment - development/producing assets  

8

1,513.0

833.9

1,119.6

Property, plant and equipment - other


7.1

7.8

8.6

Intangible assets - other


11.2

15.4

10.7

Available for sale financial assets


-

4.6

1.9





2,080.5


1,447.3


1,703.8






Current assets





Inventory


5.1

3.9

2.6

Trade and other receivables      


277.5

467.6

501.9

Bank deposits

9

418.4

84.0

284.9

Cash and cash equivalents  

9

1,062.2

1,207.6

1,113.0

Derivative financial instruments


0.5

0.1

3.7

Income tax assets


5.1

6.1

10.5





1,768.8


1,769.3


1,916.6

Total assets


3,849.3

3,216.6

3,620.4


Current liabilities





Trade and other payables


317.1

439.5

540.9

Obligations under finance leases


1.6

2.1

2.2

Provisions


30.3

3.7

2.0

Income tax liabilities


-

-

6.3



349.0

445.3

551.4


Non-current liabilities





Loans and borrowings

9

850.0

115.0

500.0

Obligations under finance leases


2.6

3.0

3.2

Provisions


30.2

44.7

26.7

Deferred tax liabilities


209.2

226.8

260.4





1,092.0


389.5


790.3


Total liabilities 



1,441.0


834.8


1,341.7


Net assets



2,408.3


2,381.8


2,278.7


Equity attributable to equity holders of the parent






Called-up share capital    


16.4

15.9

15.8

Share premium


376.4

218.5

219.0

Shares held by ESOP Trust


(27.2)

(28.8)

(28.8)

Foreign currency translation


(41.7)

(9.0)

(78.8)

Capital reserves - non-distributable


40.2

40.2

40.2

Retained earnings


1,375.9

1,442.8

1,433.7





1,740.0


1,679.6


1,601.1


Minority interests



668.3


702.2


677.6


Total equity



2,408.3


2,381.8

2,278.7


  GROUP STATEMENT OF CASHFLOWS

For the six months ended 30 June 2009









Note


Six months

ended 30 June

2009

(unaudited)

$'m


Six months

ended 30 June

2008

(unaudited)

$'m


Year ended

31 December

2008

(audited)

$'m

Cash flows from operating activities





(Loss)/profit before taxation


(115.6)

407.0

440.9

Exceptional revenue provision


64.0

-

-

Unsuccessful exploration costs


24.0

6.3

47.7

Depletion, depreciation decommissioning and amortisation


26.6

33.8

57.4

Share based payments charge


8.1

14.0

20.9

Impairment and impairment reversals of oil and gas assets


0.5

18.8

11.8

Exceptional gain on deemed disposal of subsidiary


-

(358.7)

(355.8)

Finance income


(27.1)

(28.1)

(66.2)

Finance costs


33.7

24.0

23.8

Exceptional finance costs


31.6

-

-

Net interest paid


(9.0)

(6.7)

0.4

Income tax paid


(11.5)

(5.6)

(13.6)

Gain on sale of property, plant and equipment - other


-

(0.1)

-

Foreign exchange differences


(6.4)

2.5

(9.5) 

Movement on inventory of oil and condensate 


(2.5)

4.0

5.4

Trade receivables movement 


(46.5)

(32.8)

5.9

Trade payables movement


34.5

21.2

(18.4)

Movement in other provisions


(29.2)

5.3

(0.3)


Net cash (used in)/from operating activities


(24.8)

104.9

150.4






Cash flows from investing activities





Expenditure on intangible exploration/appraisal assets


(31.4)

(88.2)

(125.2)

Expenditure on tangible development/producing assets


(428.0)

(256.9)

(493.7)

Purchase of property, plant and equipment - other


(0.3)

(1.0)

(4.1)

Purchase of intangible assets - other


(1.7)

(2.3)

(1.3)

Cash disposed of on disposal of subsidiary


-

-

(1.5)

Proceeds on disposal of property, plant and equipment - other


0.1

0.3

-

Movement in funds on bank deposit


(132.8)

(55.4)

(254.3)

Interest received


26.2

27.9

50.9


Net cash used in investing activities


(567.9)

(375.6)

(829.2)


Cash flows from financing activities 





Proceeds from deemed disposal of subsidiaries


-

636.8

633.7

Arrangement and facility fees


-

(7.3)

(23.3)

Proceeds from shares issued for cash


157.8

-

-

Proceeds from exercise of share options


0.2

7.7

8.1

Payment of finance lease liabilities


(1.5)

(1.2)

(0.8)

Proceeds of borrowings


350.0

40.0

425.0


Net cash flows from financing activities


506.5

676.0

1,042.7


Net (decrease)/ increase in cash and cash equivalents


(86.2)

405.3

363.9

Opening cash and cash equivalents at beginning of period


1,113.0

872.3

872.3

Exchange gains/(losses) on cash and cash equivalents


35.4

(70.0)

(123.2)

Closing cash and cash equivalents 

9

1,062.2

1,207.6

1,113.0


  GROUP STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2009




Equity 

share capital

Shares held by ESOP Trust

Foreign currency translation

Capital reserves

Retained earnings


Minority interests


Total

Equity


$'m

$'m

$'m

$'m

$'m

$'m

$'m









At 1 January 2008

226.7

(32.0)

24.0

40.2

1,081.7

429.2

1,769.8

Total comprehensive income for the period


-

-

(33.0)

-

354.0

(8.8)

312.2

Exercise of employee share options


7.7

-

-

-

-

-

7.7

Minority interests created on deemed disposal of subsidiary


-

-

-

-

-

278.1

278.1

Share based payments 

-

-

-

-

10.3

3.7

14.0

Cost of shares vesting

-

3.2

-

-

(3.2)

-

-


At 30 June 2008


234.4

(28.8)

(9.0)

40.2

1,442.8

702.2


2,381.8

Total comprehensive income for the period


-

-

(69.8)

-

(14.7)

(25.6)


(110.1)

Exercise of employee share options


0.4

-

-

-

-

-


0.4

Minority interests created on deemed disposal of subsidiaries

-

-

-

-

-

(0.3)

(0.3)

Share based payments

-

-

-

-

5.6

1.3

6.9


At 1 January 2009


234.8

(28.8)

(78.8)

40.2

1,433.7

677.6

2,278.7

Total comprehensive income for the period


-

-

37.1

-

(62.1)

(11.5)

(36.5)

Exercise of employee share options


0.2

-

-

-

-

-

0.2

Shares issued in period for cash

157.8

-

-

-

-

-

157.8

Share based payments 

-

-

-

-

5.9

2.2

8.1

Cost of shares vesting

-

1.6

-

-

(1.6)

-

-



At 30 June 2009

392.8

(27.2)

(41.7)

40.2

1,375.9

668.3

2,408.3


On 11 March 2009, Cairn completed a placing of 6,542,270 new ordinary shares at a price of 1775 pence per share. The gross proceeds of the placement were $161.0m.



NOTES TO THE ACCOUNTS

For the six months ended 30 June 2009

 

 

1. Accounting Policies


Basis of Preparation


The interim condensed consolidated financial statements for the six months ended 30 June 2009 have been prepared in accordance with IAS 34 'Interim Financial Reporting'. The disclosed figures are not statutory accounts in terms of Section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2008, on which the auditors gave an unqualified report, have been filed with the Registrar of Companies. The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.


This Interim Report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ended 31 December 2009, and which is also consistent with the accounting policies applied for the year ended 31 December 2008 except for the adoption of relevant new standards and interpretations.


During the period, the Group adopted IAS 1 (Revised) 'Presentation of financial statements'. The Group has adopted the two statement approach and presented separately the Group Income Statement and the Group Statement of Comprehensive Income. The Group also adopted IAS 23 (Amendment) 'Borrowing costs'. There was no impact on the financial position or performance of the Group on adoption of either of these new IFRS.



2. Exceptional Items


Ravva Arbitration 

The calculation of the GoI's share of petroleum produced from the Ravva field has been the subject of differing interpretations for some years and an arbitration to settle the matter was launched in 2003. The biggest single issue, the treatment of an item known as the ONGC carry, was found in Cairn's favour by the arbitration panel in 2004. This was subsequently appealed by the GoI, following which it has been disclosed as a contingent liability in the notes to the financial statements. At 30 June 2009, Cairn India's share of this liability was US$64.0m principal, plus interest of $31.6m.


Following the procedure laid out in the Ravva Production Sharing Contract (PSC), the GoI's appeal was made to the Malaysian courts and in January 2009 they decided to set aside the arbitration award made in favour of Cairn India. Although this is not the final step in the legal process, the GoI then instructed the buyers of the Ravva crude not to pass over the revenues to Cairn until such time as they believed that the liability had been settled in full.


As at 30 June 2009, revenues of $67.2m had been withheld by the buyers and if this pattern continues, it is likely that the GoI will recover the full $95.6m by the end of the year.


Consequently, on a conservative basis, Cairn has now provided for the full $95.6m liability as an exceptional item. The disputed share of profit petroleum of $64.0m has been charged against revenue and the potential interest charge of $31.6m has been recognised as a finance cost. An associated deferred tax credit of $40.4m has also been recognised, making a net impact on profit after tax of $55.2m.


Cairn's view of the merits of the underlying case remains unchanged and Cairn are taking all legal routes open to defend the Group's position and to recover the revenues which Cairn believe have been wrongfully withheld. Success through any of these route's should result in a return of this cash to the Group.


Gain on Deemed Disposal of Subsidiary


During the six months to 30 June 2008, the Group made an exceptional gain of $358.7m on the deemed disposal of 4.23% of Cairn India Limited during the period. 4.12% of this disposal was through the private placement on the Bombay Stock Exchange and National Stock Exchange of India, which completed on 16 April 2008. Cairn India Limited entered an agreement with Petronas and Orient Global Tamarind Fund Pte Limited, further to which the investors agreed to purchase a total of 113m shares of Cairn India Limited at Rs. 224.30 per share. Further costs of $2.9m in relation to this transaction were incurred in the second half of 2008, reducing the exceptional gain to $355.8m.


Share option exercises under the Cairn India Senior Management Plan account for the additional reduction of the Group's indirect percentage holding in Cairn India Limited.  


There were no further issues of shares by Cairn India Limited in the six months ended 30 June 2009. At 30 June 2009, the Company retained an indirect holding of 64.68% in Cairn India Limited (31 December 2008: 64.68%; 30 June 2008 64.76%).



3. Segmental Analysis - Operating Segments


Operating Segments


For management purposes, the Group is organised into two business units; the Capricorn Group, being Capricorn Oil Limited and its subsidiary undertakings, and the Cairn India Group, each reporting internally to its own chief executive. There are three reportable operating segments as follows:


Cairn India Limited Group's operations are primarily within India.


Capricorn Group's operations focus on new exploration activities in Greenland and the Mediterranean.  The Capricorn Group also includes the Group's interests in Bangladesh and Nepal and a share in certain North Indian assets operated by Cairn India Limited.


Cairn Energy PLC, exists to accumulate the activities and results of Cairn UK Holdings Limited, an intermediate holding company and direct parent of Cairn India Limited, and Cairn Energy PLC company results. 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 this segment.


No operating segments have been aggregated to form the above reportable segments. 


Management monitors the results of its business units separately for the purposes of making decisions about resource allocation and performance assessment.  


The segment results for the six months ended 30 June 2009 are as follows:

 
 
Cairn India Group
Capricorn Group
 
 
Cairn Energy PLC
Six months ended 30 June 2009
 
 
$’m
$’m
$’m
$’m
 
 
 
 
 
 
Revenue from sale of oil, gas and condensate
 
8.0
8.7
-
16.7
Tariff income
 
0.4
-
-
0.4
 
 
 
 
 
 
Total revenue
 
8.4
8.7
-
17.1
 
 
 
 
 
 
Segment (loss)/profit after taxation
 
(41.7)
0.4
(33.7)
(75.0)



  3.  Segmental Analysis - Operating segments (continued)


The segment results for the six months ended 30 June 2008 were as follows:

 
 
Cairn India Group
Capricorn Group
 
 
Cairn Energy PLC
Six months ended 30 June
 2008
 
 
$’m
$’m
$’m
$’m
 
 
 
 
 
 
Revenue from sale of oil, gas and condensate
 
170.3
9.6
-
179.9
Tariff income
 
0.5
-
-
0.5
 
 
 
 
 
 
Total revenue
 
170.8
9.6
-
180.4
 
 
 
 
 
 
Segment profit/(loss) after taxation
 
50.8
(27.7)
352.2
375.3




The segment results for the year ended 31 December 2008 were as follows:

 
 
Cairn India Group
Capricorn Group
 
Cairn Energy PLC
Year ended 31 December
 2008
 
 
$’m
$’m
$’m
$’m
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from sale of oil, gas and condensate
 
281.5
16.9
-
298.4
Tariff income
 
0.9
-
-
0.9
 
 
 
 
 
 
Total revenue
 
282.4
16.9
-
299.3
 
 
 
 
 
 
Segment profit/(loss) after taxation
 
69.1
(47.5)
345.1
366.7



 

The segment assets are as follows:

 
 
Cairn India Group
Capricorn Group
Cairn Energy PLC
Group
 
 
$’m
$’m
$’m
$’m
 
 
 
 
 
 
As at 30 June 2009
 
3,160.8
492.0
196.5
3,849.3
 
As at 30 June 2008
 
2,635.6
557.7
23.3
3,216.6
 
As at 31 December 2008
 
3,037.5
541.6
41.3
3,620.4



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 deferred tax assets and inter-company balances.


 4.  Impairment and Reversal of Impairment




Six months ended 30 June 2009

$'m


Six months ended 30 June 2008

$'m


Year ended 31 December 2008

$'m





Impairment of intangible exploration/appraisal assets

(0.5)

(19.5)

(21.0)

Reversal of impairment of intangible exploration/appraisal assets

-

-

6.5

Reversal of impairment of property, plant & equipment - development/producing assets

-

0.7

2.7


At 30 June 2009, the Group carried out impairment reviews of intangible exploration/appraisal assets where indicators of impairment were found to exist. As the cash generating unit of the Capricorn Group is currently carried at net present value there is no additional headroom to support the carrying value of exploration assets where such indicators exist. As a result a write down of $0.5m (31 December 2008: $21.0m; 30 June 2008: $19.5m) in relation to intangible exploration/appraisal assets was charged to the Income Statement.


During 2008, the Group relinquished Block 5 in Bangladesh. As a result costs of $6.5m were charged to the Income Statement as unsuccessful exploration costs. As these costs were previously fully impaired, the impairments were released on relinquishment of the block. 


At 30 June 2009, the Group also performed a review of the carrying value of cash generating units within property, plant & equipment - development/producing assets. No impairment was identified.  


The review of property, plant & equipment - development/producing assets in 2008 determined that the value of certain assets previously impaired within the Capricorn Group was in excess of the carrying value. As a result a reversal of the prior year impairment charge of $2.7m was recognised through the Income Statement in the year ended 31 December 2008 ($0.7m reversal recognised in the six months ended 30 June 2008).  


  5. Share Based Payments


The 2009 Long Term Incentive Plan and the 2009 Approved and Unapproved Share Option Plans were approved at the Cairn Annual General Meeting on 19 May 2009. The Plan and Schemes are discretionary arrangements which allow Cairn to grant options over its shares to employees and directors. The vesting of these options will generally be dependent on both continued employment and the extent to which predetermined performance conditions are met over a specified period of at least three years. The Approved and Unapproved Share options are generally exercisable between three and ten years after the date of grant. The shares awarded under the 2009 Long Term Incentive Plan generally vest on the third anniversary of the date of the award and only 50% of any such vesting will be transferred to the participant immediately, with the remaining 50% being transferred after a further year.



2009 Long Term Incentive Plan (LTIP)


The following awards were made under the 2009 LTIP during the period:

Grant Date
Number
WAEP (£)
Fair Value (£)
 
May 2009
431,628
24.56
3,720,000



The fair value of the awards made during the period is based on an independent valuation, using the Binomial pricing model with the following assumptions: 


Vesting % 

35.09%

Volatility %

52%

Lapse due to withdrawals

nil



2009 Approved Share Option Plan


The following awards were made under the 2009 Approved Share Option Plan during the period:

Grant Date
Number
WAEP (£)
Fair Value (£)
 
May 2009
41,076
24.56
457,000



The fair value of the awards made during the period is based on an independent valuation, using the Binomial pricing model with the following assumptions: 


Vesting % 

45.28%

Volatility %

52%

Risk free rate

4.3% p.a.

Lapse due to withdrawals

5% p.a.



2009 Unapproved Share Option Plan


The following awards were made under the 2009 unapproved Share Option Plan during the period:

Grant Date
Number
WAEP (£)
Fair Value (£)
 
May 2009
26,546
24.56
295,000




The fair value of the awards made during the period is based on an independent valuation, using the Binomial pricing model with same assumptions as used for the 2009 Approved Share option awards. 


  6. Income Tax


Analysis of Tax Charge


 



Six months ended 30 June 2009

$'m


Six months ended 30 June 2008

$'m


Year ended 31 December 2008

$'m

Current tax:








UK corporation tax




Adjustments in respect of prior periods

-

-

(0.1)



-

-

(0.1)





Overseas Tax





Indian Regular Tax on profits for the period at 42.23% (30 June 2008 and 31 December 2008: 42.23%)

1.8

4.6

7.6

Indian Regular Tax on profits for the period at 33.99% (30 June 2008: and 31 December 2008: 33.99%)

6.4

-

6.7

Indian Minimum Alternate Tax charge at 10.56% (30 June 2008 and 31 December 2008: 10.56%)

2.3

2.6

5.3

Other overseas taxes

-

-

0.2

Adjustments in respect of prior periods

-

(2.2)

(6.0)

Withholding taxes deducted at source

0.1

-

0.2






10.6

5.0

14.0





Total current tax 

10.6

5.0

13.9



Deferred tax:








India




Temporary differences in respect of non current assets

(11.2)

28.9

63.6

Other temporary differences

0.4

(2.2)

(3.3)



(10.8)

26.7

60.3





Exceptional deferred tax:




India




Other temporary differences (see Note 2) 

(40.4)

-

-



(40.4)

-

-


Total deferred tax

(51.2)

26.7

60.3


Tax (credit)/charge on (loss)/profit

(40.6)

31.7

74.2


  7. Intangible Exploration/Appraisal Assets



Cairn India Group

Capricorn Group

Total


$m

$m

$m

Cost 




At 1 January 2008

456.2

209.8

666.0

Additions

20.1

27.9

48.0

Transfers between categories

(43.7)

-

(43.7)

Unsuccessful exploration costs

(4.0)

(2.3)

(6.3)


At 30 June 2008

428.6

235.4

664.0

Additions

20.9

48.0

68.9

Transfers between categories

(55.1)

-

(55.1)

Unsuccessful exploration costs

(23.8)

(17.6)

(41.4)


At 1 January 2009

370.6

265.8

636.4

Additions

18.4

11.5

29.9

Transfers between categories

(19.2)

-

(19.2)

Unsuccessful exploration costs

(21.3)

(2.7)

(24.0)


At 30 June 2009

348.5


274.6

623.1


Impairment




At 1 January 2008

-

58.9

58.9

Impairment 

-

19.5

19.5


At 30 June 2008

-

78.4

78.4

Impairment 

-

1.5

1.5

Reversal of impairment 

-

(6.5)

(6.5)


At 1 January 2009

-

73.4

73.4

Impairment 

-

0.5

0.5


At 30 June 2009

-


73.9

73.9


Net book value at 30 June 2009

348.5


200.7

549.2


Net book value at 1 January 2009

370.6


192.4

563.0


Net book value at 30 June 2008

428.6


157.0

585.6


Net book value at 1 January 2008

456.2


150.9

607.1


In the six months ended 30 June 2009, exploration costs of $0.5m (six months ended 31 December 2008: $1.5m, six months ended 30 June 2008: $19.5m) relating to Bangladesh/Nepal assets have been impaired. In the six months ended 31 December 2008, the Group relinquished Block 5 in Bangladesh. As a result costs of $6.5m were charged to the Income statement as unsuccessful exploration costs. As these costs were previously fully impaired, the impairments have been released on relinquishment of the block. See note 4 for further detail.


  8. Property, Plant and Equipment - Tangible Development/Producing Assets



Cairn India Group

Capricorn Group

Total


$m

$m

$m

Cost




At 1 January 2008

736.2

81.5

817.7

Additions

319.5

1.0

320.5

Transfers between categories

43.7

-

43.7


At 30 June 2008


1,099.4


82.5


1,181.9

Additions

244.9

2.1

247.0

Transfers between categories

55.1

-

55.1


At 1 January 2009


1,399.4


84.6


1,484.0

Additions

397.2

(0.1)

397.1

Transfers between categories

19.2

-

19.2

At 30 June 2009


1,815.8


84.5


1,900.3






Depletion and decommissioning




At 1 January 2008

241.9

77.6

319.5

Charge for the period

27.9

1.3

29.2

Reversal of impairment

-

(0.7)

(0.7)


At 30 June 2008


269.8


78.2


348.0

Charge for the period

16.9

1.5

18.4

Reversal of impairment 

-

(2.0)

(2.0)


At 1 January 2009


286.7


77.7


364.4

Charge for the period

21.2

1.7

22.9


At 30 June 2009


307.9


79.4


387.3


Net book value at 30 June 2009


1,507.9


5.1


1,513.0


Net book value at 1 January 2009


1,112.7


6.9


1,119.6


Net book value at 30 June 2008


829.6


4.3


833.9


Net book value at 1 January 2008


494.3


3.9


498.2


At each reporting date, the Group reviews the carrying value of cash generating units within property, plant and equipment - development/producing assets for indicators of impairment or reversal of prior year impairment. The review at 30 June 2009 determined that there was no impairment or reversal of impairment. The reviews at 30 June 2008 and 31 December 2008 determined that the value of certain units previously impaired within the Capricorn Group was in excess of the carrying value and resulted in the reversal of prior year impairment. See note 4 for further details.


  9. Net Funds



At 1 January 2009

$'m

Cash flow

$'m

Exchange movements

$'m

At 30 June 2009

$'m






Bank deposits

284.9

132.8

0.7

418.4






Cash at bank

14.5

(50.1)

47.8

12.2

Short term deposits

1,098.5

(36.1)

(12.4)

1,050.0


Cash and cash equivalents

1,113.0

(86.2)

35.4

1,062.2


Bank loans

(500.0)

(350.0)

-

(850.0)


Net cash 

897.9

(303.4)

36.1

630.6


Finance leases

(5.4)

1.5

(0.3)

(4.2)


Net funds

892.5

(301.9)

35.8

626.4



10.  Contingent Liabilities


Details on the changes in the Ravva arbitration dispute can be found in note 2. There have been no further significant changes in contingent liabilities from those reported in the Cairn Energy PLC 2008 Annual Report and Accounts.  


11.  Capital Commitments


At 30 June 2009, the Group had capital commitments of $245.6m (31 December 2008: $289.5m) in relation to intangible exploration/appraisal assets and $863.3m (31 December 2008: $726.6m) in relation to property, plant and equipment - development/producing assets, largely relating to the Rajasthan development.  


12.  Related Party Transactions


(a)    Remuneration of Key Management Personnel

The remuneration of directors, who are the key management personnel of the Group, for the year ended 31 December 2008 is set out in the Directors' Remuneration Report contained in the Cairn Energy PLC 2008 Annual Report and Accounts. There have been no material changes in the period ended 30 June 2009.


(b)    Other Transactions

No other related party transactions have taken place in the six months ended 30 June 2009 that have materially affected the financial position or the performance of the Group during that period.


  13.  Events After the Balance Sheet Date


Indian Budget changes impacting Current and Deferred taxation


On 6 July 2009, the Indian Budget proposed a number of changes to the fiscal regime. These changes are non-adjusting post balance sheet events and have therefore not been recognised in the taxation credit on the group loss for the period, or in the current or deferred tax balances as at the balance sheet date.


The budget included an amendment to the legislation such that tax holidays available to hydrocarbons operations are based on production from a 'contract area'. The basis of tax holiday was previously undefined and Cairn has claimed relief or provided deferred tax assuming tax holiday relief on bases other than contract area. If this change in the tax holiday basis had been recognised in the taxation credit on the group loss for the period, the taxation credit would have been increased by $20.6m (consisting of a current taxation charge of $4.9m, and a deferred taxation credit of $25.5m). The balance sheet impact of this, after allowing for foreign exchange as appropriate, would be to reduce the current tax debtor by $5.1m, and to decrease the deferred tax liability by $25.5m.


In addition, the budget increased the rate of Indian Minimum Alternate Tax ('MAT') from 10.56% to 15.83%, and also increased from seven to ten years the carry-forward period for MAT paid during the tax holiday period (which can then be used, subject to certain restrictions, as 'MAT credits' to reduce regular tax liabilities arising after expiry of the tax holiday). Had the change in the MAT rate been recognised in the period, the taxation credit in the income statement would have been reduced by $2.3m, being current taxation; after allowing for foreign exchange, the current tax debtor would have been reduced by $2.4m. The new carry-forward period for MAT credits would have resulted in an increase in the deferred taxation credit in the group income statement for the period ended 30 June 2009 by $7.6m, and would have reduced the deferred tax liability at 30 June 2009 by the same amount.



INDEPENDENT REVIEW REPORT TO CAIRN ENERGY PLC


Introduction


We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 which comprise the Group Income Statement, Group Statement of Comprehensive Income, Group Balance Sheet, Group Statement of Cash Flows, Group Statement of Changes in Equity and the related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.


Directors' Responsibilities 


The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.


Our Responsibility


Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 


Scope of Review 


We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 


Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


Ernst & Young LLP
Glasgow
25 August 2009


  

GLOSSARY OF TERMS 


The following are the main terms and abbreviations used in this announcement:


Corporate


Board 

the Board of Directors of Cairn Energy PLC

Cairn 

Cairn Energy PLC and/or its subsidiaries as appropriate

Cairn India/CIL 

Cairn India Limited and/or its subsidiaries as appropriate

Capricorn

Capricorn Oil Limited and/or its subsidiaries as appropriate

Company 

Cairn Energy PLC

DGH

Director General Hydrocarbons

HPCL

Hindustan Petroleum Corporation Limited

IOC

Indian Oil Corporation

JV

Joint Venture

MBA

Mangala, Bhagyam and Aishwariya 

MPT

Mangala Processing Terminal

MRPL

Mangalore Refinery and Petrochemicals Limited, (subsidiary of ONGC)  

GoI 

Government of India

Group

the Company and its subsidiaries 

ONGC 

Oil and Natural Gas Corporation Limited


Technical


2P 

proven plus probable

2D/3D 

two dimensional/three dimensional

AGIs

above ground installations

bbl

barrel

boe

barrels of oil equivalent

boepd 

barrels of oil equivalent per day

bopd 

barrels of oil per day

CSEM

Controlled Source Electromagnetic survey

EOR 

enhanced oil recovery

FDP 

field development plan

mmboe

million barrels of oil equivalent

mmbbls 

million barrels of oil

mmscfd 

million standard cubic feet of gas per day

PSC 

production sharing contract

USGS

United States Geological Survey

STOIIP

stock tank oil initially in place


Accounting


$

United States Dollars

bn

billion

m

million

PTRR

post tax rate of return


  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 parts of the business:

  • Cairn India limited ('Cairn India') is listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 13 acreage blocks in India and Sri Lanka. Cairn currently retains a 65% interest in Cairn India.

  • Capricorn Oil Limited ('Capricorn'), a 90% subsidiary of Cairn is focused on exploration. Capricorn now has assets in BangladeshNepal, Northern India, GreenlandTunisiaAlbania, and pending licence awards in Spain.

  • '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 Oil Limited and/or its subsidiaries as appropriate.

  • 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. 

  • 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) is run from Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu.

For further information on Cairn see www.cairnenergy.com  



This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR MGGZRKKDGLZG
UK 100