Half Yearly Report Announcement

RNS Number : 2896W

Cairn Energy PLC

18 August 2015

 



EMBARGOED FOR RELEASE AT 0700                                                             18 August 2015

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

Half-Yearly Report Announcement

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"We are delighted to have agreement from the Government of Senegal for our extensive evaluation plan which commences shortly with a 3D seismic survey and continues later this year with a multi-well exploration and appraisal programme.

Cairn estimates that the two discoveries made in Q4 2014 and the currently identified prospects and leads have a gross mean risked resource base of more than one billion barrels.

Our aim is to maximise the value of our Senegal asset within a balanced, well-funded company.  Cairn is well placed to take advantage of this exciting opportunity as we build on the success of last year's discoveries."

Senegal Exploration

Ø Government of Senegal agreement of an extensive evaluation plan submitted by the Joint Venture (JV) Q2 2015

Ø JV finalising the sequence, location and evaluation targets for three firm appraisal and exploration wells; with plans to core and test the appraisal wells

Ø 3D seismic acquisition programme expected to commence Q3 2015

Ø Drilling operations expected to commence Q4 2015

Ø Well programme and budget for further three optional wells will be presented to JV Q3 2015

Finance

Ø Group cash at 30 June 2015 of US$725m

Ø Seven year Reserve Based Lending bank facility up to US$575m remains undrawn

Ø Forecast exploration and appraisal expenditure for the committed programme of US$170m (predominantly Senegal drilling activity during H2 2015 and H1 2016)

Ø Forecast net development capex on Catcher and Kraken projects remain unchanged, with net cost to Cairn of US$615m from H2 2015 to expected free cash flow by year-end 2017, as adjusted for completion of the Catcher farm-out

Ø Cairn is currently unable to access the value of its ~10% residual shareholding in Cairn India Limited (CIL) valued at US$526m at 30 June 2015 having received a draft assessment order Q1 2015 relating to an internal group reorganisation completed in 2006 

Ø Cairn strongly contests the basis of the draft assessment order and has commenced international arbitration proceedings with the Government of India under the UK-India Investment Treaty supported by detailed legal advice on the strength of the legal protections available to it under international law. In addition, Cairn will also seek restitution of losses resulting from the attachment of its CIL stake since 2014

Developments

Ø A total of 47.2mmboe booked as 2P Reserves at 30 June 2015 on a net working interest basis

Ø Catcher remains within budget and on schedule for first oil 2017. Fabrication of the FPSO hull and topsides is ongoing and subsea installation has commenced. The Ensco rig is on hire and  development drilling has commenced (Cairn 20% WI)

Ø Kraken continues to be within budget and on schedule for first oil 2017.  The drilling rig is at field location and batch drilling of the top-holes at the first drill centre has been completed.  The FPSO vessel continues to be on track for delivery 2016 (Cairn 25% WI)

Enquiries:

Analysts/Investors David Nisbet, Corporate Affairs	Tel: [phone]
Media Patrick Handley, David Litterick Brunswick Group LLP	Tel: [phone]

Webcast

There will be a live audio webcast of the results presentation available to view on the website (www.cairnenergy.com) at 9am BST. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.

An 'on demand' version of the webcast will be available on the website as soon as possible after the event. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.

Presentation 

The results presentation slides will be available on the website from 8:45am BST.

Conference call

You can listen to the results presentation by dialling in to a listen only conference call at 9am BST using the below dial-in details.

Dial-in details:

UK:                                 020 3059 8125          

All other locations:            [phone]

A recording of the conference call will be available from 18 August 2015 until 25 August 2015.

Recording dial-in details:

UK:                                  0121 260 4861   

All other locations:            [phone]

Passcode:                        1517218#

Transcript

A transcript of the presentation will be available on the website as soon as possible after the event.

Corporate & Finance Overview

Cairn's strategy is to create and deliver value from the discovery and development of hydrocarbon resources.  We aim to achieve this from a balanced portfolio and a sustainable, self-funding business model. The combination of balance sheet strength, development stage assets with a clear path to cash flow generation and an extensive exploration and appraisal portfolio provides a balanced platform to repeat the cycle of creating, adding and realising value for shareholders.

With Group cash at 30 June 2015 of US$725m and debt facilities up to US$575m in place, the Group is fully funded to deliver its committed exploration and core development projects through to anticipated sustainable free cash flow generation from 2017 with peak net production of ~22,500 boepd. 

For the Group's extensive frontier exploration acreage, no further capital is committed beyond the planned Senegal drilling programme and Cairn retains the flexibility to leverage success, optimise the portfolio and partner as appropriate.

Exploration and appraisal capex for the forthcoming programme is projected to be US$170m over H2 2015 and H1 2016, with spend predominantly in Senegal.  Forecast development Capex for the Catcher and Kraken projects remains unchanged, with net cost to Cairn of US$615m from H2 2015 to expected free cashflow by year-end 2017, as adjusted for completion of the Catcher farm-out.

Cairn continues to be restricted from accessing the value of its ~10% residual shareholding in CIL with a market value of US$526m at 30 June 2015.  The ~10% residual shareholding was valued at US$1billion on 31 December 2013, which was immediately prior to the imposed restriction. On 10 March 2015, Cairn received a draft assessment order from the Indian Income Tax Department in relation to the Cairn Group restructuring that was undertaken in 2006 prior to the CIL IPO, to the amount of INR 102.4 billion (US$1.6billion) plus any applicable interest and penalties.  Cairn has appealed against the draft assessment in India, and furthermore has filed a Notice of Dispute under The UK-India Investment Treaty in order to protect its legal position and shareholder interests.  Cairn has appointed an arbitrator and awaits the Government of India to name its appointment to the international panel.    

Cairn contests the basis of the draft assessment and the Notice of Dispute is supported by detailed legal advice on the strength of the legal protections available to it under international law. In addition, Cairn will seek restitution of losses resulting from the attachment of its CIL stake since 2014.

Cairn notes the announcement made by the Vedanta Group in June regarding a proposed merger of Vedanta with CIL and will assess whether the proposal is in the interests of Cairn Energy PLC as the largest minority shareholder in CIL in due course. 

Operational Review

Cairn's current exploration inventory comprises 65 prospects and 195 leads across all of the Group's acreage.  This is underpinned and balanced by development assets in North West Europe, the free cash flow from which will be used, in part, to fund future exploration programmes.

Following the two discoveries in Senegal in Q4 2014, Cairn and its JV partners are planning three firm and three contingent wells offshore Senegal commencing Q4 2015 as well as a 3D seismic acquisition programme Q3 2015.

Cairn's exploration focus includes North West Europe, the Mediterranean and Atlantic Margin (North Atlantic and North West Africa). 

Exploration -Atlantic Margin - North West Africa

Senegal - The Government of Senegal has agreed an extensive evaluation plan submitted by Cairn and its JV partners in Q2 2015. The sequence, location and evaluation targets of the three firm wells are being finalised along with details of the 3D seismic acquisition activity.

Cairn estimates that the two discoveries made Q4 2014 and the currently identified prospects and leads have an estimated gross mean risked resource base of more than a billion barrels. The objective of the 2015/16 forward programme is to establish firm volumes of the SNE-1 discovery in the Sangomar Deep Offshore block and to confirm and evaluate additional nearby prospects.  Cairn's preliminary analysis and estimates indicate a Contingent Resource range of P90 150 mmbbls, P50 330 mmbbls and P10 670 mmbbls recoverable.  The appraisal and exploration programme will also substantially increase Cairn's understanding of the aerial extent of hydrocarbons across all three blocks. 

There will be comprehensive coring and testing in the evaluation programme to assess field deliverability and to build a detailed geological reservoir model, from which reservoir connectivity can be demonstrated. This comprehensive information will allow the JV to determine the further oil potential of the SNE-1 discovery and underpin the longer term field development plan.

The Ocean Rig Athena, a 7^th generation dual activity drill ship, under long term contract with ConocoPhillips, has been selected for the drilling programme and is expected to commence operations Q4 2015.

The firm 2015/16 drilling campaign will consist of the following sequence of wells:

Ø The first appraisal well, SNE-2, is in the Sangomar Deep Offshore block, 3km north of the SNE-1 discovery.  SNE-2 is a Crestal well in a central location in the heart of the field.  SNE-2 will spud Q4 2015 and is expected to take approximately six weeks to drill and core and a further four weeks to test.  

Ø The second appraisal well, SNE-3, is on the Southern Flank and is expected to begin Q4 2015/Q1 2016. This well will test the southern extent of the field and will help to delineate the shape of the structure and define the aerial extension to the south. This is a key well to establish deliverability and the full potential of the field.

Ø The third well, BEL-1, is an exploration well which is also planned to be deepened as an SNE appraisal well and will commence operations in Q1/Q2 2016.  This well will test the Bellatrix prospect and also evaluate the Northern Flank of the SNE field. 

The seismic acquisition activity, scheduled to commence Q3 2015, will cover a 2,600km² area over the Sangomar Offshore block and the south west part of the Rufisque block where 15 leads have already been identified.  The objective is to develop additional prospectivity to a drill ready status within 2016.

In September 2015, the JV will present the programme planned for 2016/17.

Cairn (Operator) has a 40% WI in the three blocks offshore Senegal (Sangomar Deep, Sangomar Offshore, Rufisque Offshore) and is working with partners: ConocoPhillips (35% WI); FAR Ltd (15% WI) and Petrosen, the Senegal National Oil Company, retaining a 10% WI in the exploration phase. In the event of a commercial success, ConocoPhillips will have the option to operate the future development of the resource.

Morocco - Offshore Morocco, Cairn operates the Juby Maritime permit and is also a non-operator partner in an exploration permit in Cap Boujdour. The Foum Draa permit was relinquished Q3 2015.

The CB-1 well (Cairn 20% WI) drilled in Cap Boujdour, encountered hydrocarbons but the discovery was non-commercial and the well was plugged and abandoned Q1 2015.  We are currently assessing the well results with operator Kosmos with a view to identifying additional play trends. 

Mauritania - in Block C19, a one year extension has been granted to the first exploration phase which will provide sufficient time to carry out additional studies to further de-risk the prospects prior to entering the next phase which has drilling commitments. (Cairn 35% WI, Chariot Oil & Gas Operator).  

Development - North West Europe

Catcher and Kraken developments in the UK North Sea on track for first oil 2017; targeted peak net production to Cairn of ~22,500 boepd.

Catcher

Ø The Catcher project remains within budget and on schedule for first oil 2017

Ø Subsea installation work has commenced with two templates already installed and gas export pipeline successfully laid

Ø The Ensco rig is now on hire and batch drilling of the first four development wells has commenced

Ø Fabrication of the FPSO hull and topsides is ongoing

Kraken
 

Ø The Kraken project remains within budget and on schedule for first oil 2017

Ø The fixed pipelines for the first two drill centres have been installed on the seabed.  Installation of the mooring system of the FPSO also started  H1 2015

Ø The Kraken FPSO vessel is at the shipyard in Singapore and the conversion programme is continuing on plan. Equipment procurement and fabrication of the modules is in progress

Ø In H2 2015, following completion of the Kraken batch top hole drilling programme, the drilling rig is progressing with the pre-drilling of individual wells

Exploration - North West Europe

Ø Programme of non-operated wells in the North Sea:

o  West of Kraken, UK North Sea (EnQuest Operator, Cairn 25% WI) appraisal well confirmed the presence of oil, with potential for upside. Further evaluation is ongoing

o  Crossbill, Norwegian North Sea (Wintershall Operator, Cairn 20% WI), was a dry well.  Operations were completed Q2 and the well permanently plugged and abandoned

o  Additional non-operated wells for 2015 remain subject to final investment decision within the different partnerships

Ø Norwegian 2014 Licensing Round:  Cairn was awarded five licences Q1 2015.  These licences do not carry firm well commitments and are in locations adjacent to current areas of interest in Norway

Ø Norwegian 2015 Licensing Round: considering possible applications to be submitted Q3 2015.

Ø Process to pre-qualify as Operator in Norway is well advanced

Ø Pursuing recent entry into Barents Sea with possible applications in 23^rd Licence Round Q4 2015

Exploration - Atlantic Margin - North Atlantic

Ireland - A planned appraisal/exploration well on FEL 2/04 offshore West of Ireland has been deferred pending discussions with partners and the Government of the Republic of Ireland.
Greenland - In line with Cairn's strategy for capital allocation and maintaining appropriate JV equity interests, any future capital on the block will be subject to farming down Cairn's interests.

Exploration - Mediterranean

As part of our longer term frontier exploration programme, Cairn has interests in a number of opportunities in the Mediterranean area. In Malta (Cairn 60% WI Operator) an exploration study in Area 3 (Malta/Sicily Channel) is in progress. Cairn is also applying for a number of permits offshore Italy. The Company has made applications for acreage offshore the Gulf of Lion and the Bay of Biscay in Spain. Cairn has informed the Spanish Ministry that it intends to withdraw from its four existing exploration permits offshore Gulf of Valencia. 

Financial Review

Overview

Cairn is fully funded to build on the success in Senegal in 2014 and to continue to add value through the committed exploration and appraisal programme commencing later this year.  The Group's North Sea development projects remain on track and within budget for delivery of first oil in 2017 and the farm-down of a 10% working interest in Catcher completed in Q1 2015.  The Group's bank facility up to US$575m remains undrawn.

Oil and Gas Assets

Exploration and appraisal activity

At 30 June 2015, Cairn's exploration asset costs capitalised in the Balance Sheet are US$425m (31 December 2014: US$417m).  Additions in the period of US$71m include the costs of the three wells completed in the period: one in Morocco; two in the North Sea.  The Cap Boujdour (Morocco) and Crossbill (Norwegian North Sea) exploration well costs were subsequently written off as unsuccessful.  Disposals of US$12m in the period result from the Catcher farm-down.

Atlantic Margin - North West Africa

In Senegal, costs of US$9m were incurred in H1 2015 in preparation for the exploration drilling planned later this year. 

Operations on the Cap Boujdour exploration well, offshore Morocco, completed Q1 2015.  The well was unsuccessful, encountering sub-commercial quantities of gas, and costs of US$33m were charged to the Income Statement in the period.  Costs incurred to 31 December 2014 of US$47m were charged in the Income Statement in the prior year.  Further unsuccessful costs in Morocco of US$6m relate to the finalisation of costs from the 2013/2014 exploration programme.

North West Europe - North Sea

During the period to 30 June 2015, one exploration well and one appraisal well were completed in the North Sea.  The Crossbill well in the Norwegian sector failed to encounter hydrocarbons resulting in unsuccessful costs charged of US$12m.  Costs of the West of Kraken appraisal well in the UK North Sea, which confirmed the presence of oil, remain capitalised.

Catcher Farm-Down

Cairn completed the farm-down of a 10% working interest in the Catcher Development asset to Dyas in Q1 2015.  Proceeds were in the form of a carry of US$182m back dated to the economic effective date of 1 January 2014.  On completion of the deal, Cairn received a refund of costs of US$55m (US$37m under the carry) and the remaining carry was recognised as a receivable at its discounted, post-tax fair value.

The transaction resulted in an accounting gain of US$27m, with a related deferred tax credit of US$5m. US$12m of proceeds have been allocated to exploration assets.

Development assets

Total development costs in the Balance Sheet of US$455m include additions in the period of US$47m.

The Group's two UK North Sea development projects are on track to come on stream in 2017.  Catcher additions to 30 June 2015 of US$20m reflect costs incurred on Cairn's behalf under the remaining carry resulting from the Catcher farm-down.

Development drilling on Kraken commenced in June 2015 and construction of the FPSO continues in Singapore.  Until April this year, Cairn was carried through the costs of the development by the operator (EnQuest) but with this initial carry now complete, additions on Kraken of US$27m have been recorded in the period.  The carry arose on a transaction between the operator and a Group subsidiary company, prior to Cairn's acquisition of that subsidiary.

The Catcher carry resulting from the farm-down is recorded as a receivable in the Group's balance sheet reflecting the fair value of the proceeds received under the farm-down.  No separate receivable was recorded for the Kraken carry which was acquired through a business combination with the fair value of the then exploration asset including the economic benefit of the carry.

Available-for-sale Financial Asset

Cairn's residual shareholding in Cairn India Limited, with a market value of US$526m at 30 June 2015, remains classified as a non-current available-for-sale financial asset. The ~10% residual shareholding was valued at US$1billion on 31 December 2013, which was immediately prior to the imposed restriction. The continuing restriction on sale does not directly impact the classification or measurement of the asset. 

During the period, the value of Cairn's investment has continued its recent decline and a further US$177m of value has eroded.  As in the prior year, this fall in value has been recycled from Other Comprehensive Income and recognised as an impairment in the Income Statement. 

Following receipt of a Draft Assessment Order from the Indian Income Tax Department in March 2015, Cairn filed a Notice of Dispute under the UK-India Investment Treaty in order to protect its legal and economic interests. Cairn has appointed an arbitrator to represent the company in this legal process and awaits the Government of India to name their appointment to the International panel.  No provision has been made in the financial statements relating to this draft assessment.

Cash and Working Capital

At 30 June 2015, Cairn's net funds were US$725m and the Group's Reserve Based Lending facility up to US$575m remains undrawn.  Net cash outflows over the six month period to 30 June 2015 were US$141m. 

Exploration spend during H1 2015 of US$152m largely relates to the Cap Boujdour, Crossbill and West of Kraken wells completed in the current period and settlement of final invoices following the 2013/2014 exploration programme in Morocco and Senegal.  Expenditure on the development assets of US$29m largely reflects costs incurred on the Kraken development in May and June 2015. 

The Group received proceeds of US$55m from the Catcher sale, while operating cash outflows fell to US$14m from US$17m from the equivalent period last year following the restructuring of the Group undertaken in H2 2014.

Working capital balances at 30 June 2015 include US$77m of Norwegian tax refunds receivable and the remaining balance of the Catcher carry of US$44m.  US$33m of dividends due from CIL (remittance of which is also currently restricted) also remain receivable. CIL declared a further dividend in July 2015 and an additional US$11m is now receivable.

Results for the Period

	Six months ended 30 June 2015 US$m	Six months ended 30 June 2014 US$m	Year ended 31 December 2014 US$m
Pre-award costs	(18)	(15)	(55)
Unsuccessful well costs	(46)	(80)	(208)
Administrative expenses and other income/costs	(12)	(30)	(65)
Related Tax (charge)/credit	(10)	54	122
Operational and administrative expenses	(86)	(71)	(206)
Net finance (costs)/income	(8)	2	4
Impairment of financial asset	(177)	-	(194)
Gain on disposal of financial asset	-	4	4
Related tax credit	9	3	41
Impairment and disposal of CIL investment	(168)	7	(149)
Gain on disposal of oil and gas assets	27	-	2
Impairment of oil and gas assets	-	-	(47)
Related tax credit	5	-	15
Oil and gas asset sales and impairment	32	-	(30)
Total loss after tax	(230)	(62)	(381)

Operational and administrative expenses

Pre-award costs

Costs for the six month period of US$18m include US$10m of seismic data purchases as the Group targets new opportunities in North West Europe.

Unsuccessful exploration costs

Total unsuccessful exploration costs to 30 June 2015 were US$46m.  The US$51m costs of the two exploration wells completed in the period in Cap Boujdour, Morocco and Crossbill, Norway are offset by the finalisation of residual provisions and accruals on other assets within the portfolio, previously charged as unsuccessful.

Administrative expenses

The Group reorganisation implemented in 2014 is now complete and contributed to a significant decrease in the level of like-for-like administration costs incurred over the first half of 2015.  Comparative costs for H1 2014 include non-recurring expenses of US$10m; US$6m related to the re-organisation itself and a further US$4m in relation to the CIL tax issue.

Tax credits

Tax credits on operational and administrative expenses reflect the tax recoverable in Norway on qualifying pre-award, unsuccessful exploration and administrative expenses.  This also includes deferred tax charges on the Group's oil and gas assets.

Impairment of CIL investment

As noted previously, the continued fall in the valuation of the Group's residual interest in CIL has led to a further impairment of the financial asset.  The deferred tax liability provided on the asset has now fully reversed.

Gain on sale and asset impairments

The gain on sale and related tax credit arise on the Catcher farm-down.  The Group's oil and gas assets were reviewed for indicators of impairment that may have arisen since the year end.  One indicator was identified but the resultant impairment test did not identify any impairment of the underlying asset.

Principal Risks and Uncertainties

Managing the risks and opportunities is essential to Cairn's long-term success and sustainability. The Group endeavours to pursue investment opportunities which provide the right balance of political, commercial and technical risk and seeks to maintain exposure to these risks at an acceptable level in line with the risk appetite of the organisation.

Cairn's system for identifying and managing risks is embedded from the top down in its organisational structure, operations and management systems and accords with the risk management guidelines and principles set out in ISO 31000, the International Standard for Risk Management. The Group's risk management framework supports Cairn's approach to business and enhances the chances of safely engaging in successful business opportunities and delivering value to shareholders and other stakeholders.

The Board has overall responsibility for ensuring the Group's risk management and internal control frameworks are appropriate and applied across the organisation. Principal risks are reviewed at each Board meeting and, at least once a year, the Board undertakes a risk workshop to perform a "deep-dive" review of these risks. The Risk Management Committee is responsible for setting the strategic direction for risk management in the Group and aims to facilitate continual improvement of the risk management system.

Responding to Changing Risks during H1 2015

Cairn has assessed the key risks and uncertainties at the end of H1 2015 and concluded that three of the four principal risks identified at 2014 year end remain relevant. These are:

The Indian Income Tax department enquiry continues to be a key focus. The Group is taking all necessary steps to protect shareholders' interests

Execution of the Kraken and Catcher development projects on schedule and budget. The Group continues to actively work with partners, and influence where appropriate, to ensure both projects are executed on schedule and budget

Ensuring the safe and efficient delivery of operations. The group continues to work closely with major contractors in all operations.

One new additional risk has been added:

The sustained low oil price. The low oil price has increased the potential for capital constraints throughout the industry. However, without current production, a lower oil price is not directly impacting the Group's operating cash-flow at this time.

Lack of operational success was identified as a risk at 2014 year end.  In 2014, both the Senegal operated wells discovered oil, mitigating this risk to a degree.

Going concern

The directors have considered the financial and operational risks relevant to support a statement of going concern. The Group's liquidity is carefully and routinely monitored. The directors have a reasonable expectation that the Group has adequate financial resource to continue in operational existence for the foreseeable future, and therefore continue to adopt the going concern basis in preparing the financial statements.

Outlook

The Group is fully funded to fulfil the committed exploration and appraisal programme in Senegal, building on last year's exploration success and to continue towards first oil and free cash flow production from the two North Sea development projects. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

Statement of directors' responsibilities

The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Cairn Energy PLC are listed in the Cairn Energy PLC Annual Report for 31 December 2014. A list of current directors is maintained on the Cairn Energy PLC website: www.cairnenergy.com 

By order of the Board.

Simon Thomson            James Smith

Chief Executive               Chief Financial Officer

17 August 2015              17 August 2015

INDEPENDENT REVIEW REPORT TO CAIRN ENERGY PLC

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed the condensed consolidated interim financial statements, defined below, in the 'half-yearly report' of Cairn Energy PLC for the six months ended 30 June 2015. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are 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 Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed consolidated interim financial statements, which are prepared by Cairn Energy PLC, comprise:

·      the Group Balance Sheet as at 30 June 2015;

·      the Group Income Statement and Group Statement of Comprehensive Income for the period then ended;

·      the Group Statement of Cash Flows for the period then ended;

·      the Group Statement of Changes in Equity for the period then ended; and

·      the explanatory notes to the condensed consolidated interim financial statements.

As disclosed in note 1.1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated interim financial statements included in the half-yearly report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed consolidated financial statements involves

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.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Responsibilities for the condensed consolidated interim financial statements and the review

Our responsibilities and those of the directors

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

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half-yearly report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP
Chartered Accountants
17 August 2015
Glasgow

Notes:

(a)  The maintenance and integrity of the Cairn Energy PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b)  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Contents

Group Income Statement

Group Statement of Comprehensive Income

Group Balance Sheet

Group Statement of Cash Flows

Group Statement of Changes in Equity

Section 1 Basis of Preparation

1.1 Accounting Policies

Assets and Investments

Section 2 Oil and Gas Assets

2.1 Intangible Exploration/Appraisal Assets

2.2 Property, Plant & Equipment - Development/Producing Assets

2.3 Gain on Disposal of Oil and Gas Assets

2.4 Capital Commitments

Section 3  Financial Assets and  Working Capital

3.1 Available-for-sale Financial Assets

3.2 Cash and cash equivalents

3.3 Other Receivables

3.4 Trade and Other Payables

Section 4 Results for the Period

4.1 Segmental Analysis

4.2 Net Operating Expenses

4.3 Taxation on Loss

4.4 Earnings per Ordinary Share

Section 5 Other Disclosures

5.1 Contingent Liability

Cairn Energy PLC

Group Income Statement

For the six months ended 30 June 2015

Continuing operations	Section	Six months ended 30 June 2015  (unaudited) US$m	Six months ended 30 June 2014  (unaudited)  US$m	Year  ended  31 December 2014 (audited) US$m
Pre-award costs		(18.1)	(15.4)	(54.8)
Unsuccessful exploration costs	2.1	(46.4)	(79.9)	(208.4)
Net operating expenses	4.2	(12.1)	(29.9)	(64.5)
Impairment of intangible exploration/appraisal assets	2.1	-	-	(46.9)
Gain on disposal of oil and gas assets	2.3	26.6	-	2.3
Operating loss		(50.0)	(125.2)	(372.3)
Gain on disposal of available-for-sale financial assets		-	3.9	3.9
Impairment of available-for-sale financial assets	3.1	(177.1)	-	(194.3)
Finance income		4.4	1.8	38.3
Finance costs		(12.0)	(0.2)	(34.7)
Loss before taxation from continuing operations		(234.7)	(119.7)	(559.1)
Taxation
Tax credit	4.3a	4.4	57.6	178.0
Loss for the period attributable to equity holders of the parent		(230.3)	(62.1)	(381.1)
Loss per ordinary share - basic (cents)	4.4	(40.35)	(10.80)	(66.51)
Loss per ordinary share - diluted (cents)	4.4	(40.35)	(10.80)	(66.51)

 

Group Statement of Comprehensive Income

For the six months ended 30 June 2015

		Six months  ended 30 June 2015 (unaudited) US$m	Six months ended  30 June 2014 (unaudited) US$m	Year  ended 31 December 2014 (audited) US$m
Loss for the period		(230.3 )	(62.1)	(381.1)
Other comprehensive income - items that may be recycled to profit or loss
(Deficit)/surplus on valuation of financial assets	3.1	(177.1)	155.5	(261.1)
Deferred tax credit/(charge) on valuation of financial assets		9.5	(33.6)	56.6
Valuation movement recycled to Income Statement		177.1	(5.2)	189.2
Deferred tax credit/(charge) on valuation movement  recycled to Income Statement		(9.5)	1.1	(40.9)
Currency translation differences		2.9	22.6	(58.8)
Other comprehensive income for the period		2.9	140.4	(115.0)
Total comprehensive income for the period attributable to equity holders of the parent		(227.4)	78.3	(496.1)

Cairn Energy PLC

Group Balance Sheet

 As at 30 June 2015

		30 June 2015 (unaudited)	30 June  2014 (unaudited)	31 December 2014 (audited)
	Section	US$m	US$m	US$m
Non-current assets
Intangible exploration/appraisal assets	2.1	424.9	401.4	417.0
Property, plant & equipment - development/producing assets	2.2	455.4	468.0	467.8
Intangible assets - goodwill		143.3	165.9	145.1
Other property, plant & equipment and intangible assets		5.4	6.3	5.5
Available-for-sale financial assets	3.1	525.5	1,119.2	702.6
Deferred tax assets	4.3c	68.0	87.8	106.2
		1,622.5	2,248.6	1,844.2
Current assets
Income tax asset	4.3b	77.2	93.6	60.3
Inventory		4.9	9.7	5.0
Other receivables	3.3	179.5	185.1	238.6
Cash and cash equivalents	3.2	725.4	1,073.6	869.3
		987.0	1,362.0	1,173.2
Total assets		2,609.5	3,610.6	3,017.4
Current liabilities
Trade and other payables	3.4	103.2	198.7	278.2
Provisions		4.3	15.6	11.6
		107.5	214.3	289.8
Non-current liabilities
Deferred tax liabilities	4.3c	49.0	162.7	61.7
Provisions		8.6	2.8	2.8
		57.6	165.5	64.5
Total liabilities		165.1	379.8	354.3
Net assets		2,444.4	3,230.8	2,663.1
Equity attributable to equity holders of the parent
Called-up share capital		12.4	12.4	12.4
Share premium		487.1	487.0	487.0
Shares held by ESOP/SIP Trusts		(24.9)	(27.3)	(26.7)
Foreign currency translation		(79.8)	(1.3)	(82.7)
Capital reserves - non-distributable		40.8	40.8	40.8
Merger reserve		255.9	255.9	255.9
Available-for-sale reserve		-	174.0	-
Retained earnings		1,752.9	2,289.3	1,976.4
Total equity		2,444.4	3,230.8	2,663.1

Cairn Energy PLC

Group Statement of Cash Flows

For the six months ended 30 June 2015

		Six months ended 30 June 2015 (unaudited)	Six months  ended 30 June  2014 (unaudited)	Year  ended 31 December 2014 (audited)
	Section	US$m	US$m	US$m
Cash flows from operating activities
Loss before taxation		(234.7)	(119.7)	(559.1)
Unsuccessful exploration costs		46.4	79.9	208.4
Depreciation and amortisation		0.9	1.4	3.3
Share-based payments charge		8.6	14.7	21.4
Impairment of intangible exploration/appraisal assets		-	-	46.9
Gain on disposal of oil and gas assets		(26.6)	-	(2.3)
Gain on disposal of available-for-sale financial asset		-	(3.9)	(3.9)
Impairment of available-for-sale financial asset		177.1	-	194.3
Inventory disposal/write down		-	3.2	8.4
Finance income		(4.4)	(1.8)	(38.3)
Finance costs		12.0	0.2	34.7
Interest paid		-	(0.3)	(0.5)
Income tax received		-	-	66.0
Foreign exchange differences		1.6	(1.4)	8.8
Other receivables movement		4.4	4.7	4.3
Trade and other payables movement		2.3	2.7	(4.6)
Provisions movement		(2.0)	3.0	2.9
Net cash used in operating activities		(14.4)	(17.3)	(9.3)
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets		(151.6)	(178.4)	(336.0)
Expenditure on property, plant & equipment -  development/producing assets		(29.2)	(7.9)	(39.8)
Proceeds on disposal of oil and gas assets		54.7	23.9	31.4
Purchase of inventory		-	(2.0)	(4.5)
Proceeds from disposal of inventory		-	-	0.6
Purchase of property, plant & equipment and intangible assets		(0.9)	(1.5)	(3.2)
Proceeds on disposal of available-for-sale financial assets		-	62.6	62.6
Movement in funds on bank deposits		-	-	0.2
Interest received		2.0	1.0	3.1
Net cash used in investing activities		(125.0)	(102.3)	(285.6)
Cash flows from financing activities
Cost of shares purchased		-	(64.3)	(64.3)
Facility and arrangement fees		(1.5)	-	(19.2)
Proceeds from exercise of share options		0.1	0.3	0.3
Repayment of borrowings		-	(53.4)	(53.4)
Net cash flows used in financing activities		(1.4)	(117.4)	(136.6)
Net decrease in cash and cash equivalents		(140.8)	(237.0)	(431.5)
Opening cash and cash equivalents at beginning of period		869.3	1,308.3	1,308.3
Exchange (losses)/gains on cash and cash equivalents		(3.1)	2.3	(7.5)
Closing cash and cash equivalents	3.2	725.4	1,073.6	869.3

 

 

 

Cairn Energy PLC

Group Statement of Changes in Equity

For the six months ended 30 June 2015

	Equity share  capital	Shares held by ESOP Trust and SIP Trust	Foreign currency translation	Merger and capital reserves	Available-for-sale reserve	Retained earnings	Total equity
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 1 January 2014	499.7	(28.0)	(23.9)	296.3	56.2	2,387.5	3,187.8
Loss for the year	-	-	-	-	-	(381.1)	(381.1)
Deficit on valuation of financial assets	-	-	-	-	(261.1)	-	(261.1)
Deferred tax credit on valuation of financial assets	-	-	-	-	56.6	-	56.6
Valuation movement recycled to Income Statement	-	-	-	-	189.2	-	189.2
Deferred tax credit on valuation movement recycled to Income Statement	-	-	-	-	(40.9)	-	(40.9)
Currency translation differences	-	-	(58.8)	-	-	-	(58.8)
Total comprehensive income for the year	-	-	(58.8)	-	(56.2)	(381.1)	(496.1)
Share buy-back	(0.4)	-	-	0.4	-	(50.3)	(50.3)
Share-based payments	-	-	-	-	-	21.4	21.4
Exercise of employee share options	0.1	0.2	-	-	-	-	0.3
Cost of shares vesting	-	1.1	-	-	-	(1.1)	-
At 31 December 2014	499.4	(26.7)	(82.7)	296.7	-	1,976.4	2,663.1
Loss for the period	-	-	-	-	-	(230.3)	(230.3)
Deficit on valuation of financial assets	-	-	-	-	(177.1)	-	(177.1)
Deferred tax credit on valuation of financial assets	-	-	-	-	9.5	-	9.5
Valuation movement recycled to Income Statement	-	-	-	-	177.1	-	177.1
Deferred tax credit on valuation movement recycled to Income Statement	-	-	-	-	(9.5)	-	(9.5)
Currency translation differences	-	-	2.9	-	-	-	2.9
Total comprehensive income for the period	-	-	2.9	-	-	(230.3)	(227.4)
Share-based payments	-	-	-	-	-	8.6	8.6
Exercise of employee share options	0.1	-	-	-	-	-	0.1
Cost of shares vesting	-	1.8	-	-	-	(1.8)	-
At 30 June 2015	499.5	(24.9)	(79.8)	296.7	-	1,752.9	2,444.4

Cairn Energy PLC

Group Statement of Changes in Equity (continued)

For the six months ended 30 June 2014

	Equity share  capital	Shares held by ESOP Trust and SIP Trust	Foreign currency translation	Merger and capital reserves	Available-for-sale reserve	Retained earnings	Total equity
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 1 January 2014	499.7	(28.0)	(23.9)	296.3	56.2	2,387.5	3,187.8
Loss for the period	-	-	-	-	-	(62.1)	(62.1)
Surplus on valuation of financial assets	-	-	-	-	155.5	-	155.5
Deferred tax charge on valuation of financial assets	-	-	-	-	(33.6)	-	(33.6)
Valuation movement recycled to Income Statement	-	-	-	-	(5.2)	-	(5.2)
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	1.1	-	1.1
Currency translation differences	-	-	22.6	-	-	-	22.6
Total comprehensive income for the period	-	-	22.6	-	117.8	(62.1)	78.3
Share buy-back	(0.4)	-	-	0.4	-	(50.3)	(50.3)
Share-based payments	-	-	-	-	-	14.7	14.7
Exercise of employee share options	0.1	0.2	-	-	-	-	0.3
Cost of shares vesting	-	0.5	-	-	-	(0.5)	-
At 30 June 2014	499.4	(27.3)	(1.3)	296.7	174.0	2,289.3	3,230.8

Section 1 - Basis of Preparation

Accounting Policies

Basis of Preparation

The half-yearly condensed consolidated financial statements for the six months ended 30 June 2015 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union. They should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

The disclosed figures, which have been reviewed but not audited, are not statutory accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2014, on which the auditors gave an audit report which was unqualified, which did not contain an emphasis of matter paragraph and which did not contain any statement under section 498 of the Companies Act 2006 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 half-yearly report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ending 31 December 2015, and uses the same accounting and financial risk management policies and methods of computation as those applied for the year ended 31 December 2014, other than changes to accounting policies resulting from the adoption of new or revised accounting standards.  Changes to IFRS effective 1 January 2015 have no significant impact on Cairn's accounting policies or financial statements. 

Significant key estimates and assumptions are unchanged from those applied in the year ended 31 December 2014 and the same have accordingly been applied here.

This half-yearly report was approved by the Directors on 17 August 2015.

Going Concern

The Directors have considered the factors relevant to support a statement of 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. 

Section 2 - Assets and Investments: Oil and Gas Assets

2.1     Intangible Exploration/Appraisal Assets

	Atlantic Margin				Other
	Senegal	Other Africa	Greenland and Republic of Ireland	North West Europe - UK and Norway		Total
	US$m	US$m	US$m	US$m	US$m	US$m
Net book value
At 1 January 2014	41.6	31.1	38.2	380.9	6.8	498.6
Foreign exchange	-	-	-	4.4	-	4.4
Additions	43.8	62.8	12.0	29.1	2.9	150.6
Disposals	(20.5)	-	(3.4)	-	-	(23.9)
Transfers to development/ producing assets	-	-	-	(148.4)	-	(148.4)
Unsuccessful exploration costs	-	(50.7)	(4.0)	(25.2)	-	(79.9)
At 30 June 2014	64.9	43.2	42.8	240.8	9.7	401.4
Foreign exchange	-	-	(0.8)	(33.0)	(0.8)	(34.6)
Additions	101.9	37.0	7.1	79.7	2.6	228.3
Disposals	-	(0.3)	(2.1)	(0.3)	-	(2.7)
Impairment	-	-	(22.7)	(24.2)	-	(46.9)
Unsuccessful exploration costs	-	(49.4)	(2.6)	(69.6)	(6.9)	(128.5)
At 1 January 2015	166.8	30.5	21.7	193.4	4.6	417.0
Foreign exchange	-	-	-	(5.0)	-	(5.0)
Additions	9.4	39.1	4.5	21.8	(3.9)	70.9
Disposals	-	-	-	(11.6)	-	(11.6)
Unsuccessful exploration costs	-	(38.7)	-	(11.8)	4.1	(46.4)
At 30 June 2015	176.2	30.9	26.2	186.8	4.8	424.9

Other Africa

The Cap Boujdour well, offshore Morocco, completed March 2015, failed to encounter commercial hydrocarbon volumes.  Costs incurred in the current period of US$38.7m were charged to the Income Statement.  Costs of US$46.9m to 31 December 2014 were charged to the Income Statement in the prior year.

North West Europe

Additions in this segment of US$21.8m include the costs of the West of Kraken appraisal well and the Crossbill exploration well in the UK and Norwegian North Sea respectively. The Crossbill exploration well was unsuccessful and costs of US$11.8m were charged to the Income Statement. 

Disposal proceeds of US$11.6m relate to the sale of a 10% working interest in the Catcher asset (refer to section 2.3 for further details).

Section 2 - Assets and Investments: Oil and Gas Assets

2.2     Property, Plant & Equipment - Development/Producing Assets

	North West Europe	Total
	US$m	US$m
Cost and net book value
At 1 January 2014	299.9	299.9
Foreign exchange	13.1	13.1
Additions	6.6	6.6
Transfers from exploration/appraisal assets	148.4	148.4
At 30 June 2014	468.0	468.0
Foreign exchange	(43.6)	(43.6)
Additions	43.4	43.4
At 1 January 2015	467.8	467.8
Foreign exchange	1.9	1.9
Additions	46.9	46.9
Disposals	(61.2)	(61.2)
At 30 June 2015	455.4	455.4

Disposals of US$61.2m relate to the farm-down of a 10% working interest in Catcher, see section 2.3.  Additions during the period include US$18.2m under the carry receivable as consideration in that transaction. Remaining additions relate to the Kraken development project.

2.3     Gain on Disposal of Oil and Gas Assets

In January 2015, Cairn completed the farm-down of 10% of the Group's working interest in the Catcher development, satellite fields and surrounding exploration acreage to Dyas.  Under the terms of the deal, Dyas will fund Cairn's exploration and development costs in respect of the licences up to a cap of US$182.0m, from an effective economic date of 1 January 2014. 

On completion of the transaction, Cairn received cash proceeds of US$54.7m (US$36.5m under the carry, US$18.2m as a refund of the 10% share of costs from 1 January 2014) and recognised the remaining carry as a receivable at its discounted, post-tax fair value.   US$11.6m of the proceeds received were allocated to exploration assets and credited against previously capitalised exploration costs.  The remaining proceeds and carry receivable were allocated to development assets.

The disposal of 10% of the Group's working interest in the development asset (with related working capital adjustments) resulted in a gain on disposal of US$26.6m and a tax credit of US$4.6m.

Section 2 - Assets and Investments: Oil and Gas Assets

2.4     Capital Commitments

	30 June 2015 US$m	30 June 2014 US$m	31 December 2014 US$m
Oil and gas expenditure:
Intangible exploration/appraisal assets	105.1	334.2	146.1
Property, plant & equipment - development/producing assets	891.7	506.8	1,271.4
Contracted for	996.8	841.0	1,417.5

Capital commitments represent Cairn's share of obligations in relation to its interests in joint operations.  These commitments include Cairn's share of the capital commitments of the joint operations themselves. 

The capital commitments for Intangible Exploration/Appraisal Assets at 30 June 2015 relate to operations in Africa and the UK and Norwegian North Sea. 

Capital commitments for Property, Plant & Equipment - Development/Producing Assets include US$572.7m relating to a lease commitment due within the next eight years.  The lease term for this asset has not yet commenced.

The Group has no further material capital expenditure committed at the Balance Sheet date.

Section 3 - Assets and Investments: Financial Assets and Working Capital

3.1     Available-for-sale Financial Assets

	Listed equity shares
	US$m
At 1 January 2014	1,027.6
Disposal	(63.9)
Surplus on valuation	155.5
At 30 June 2014	1,119.2
Deficit on valuation	(416.6)
At 1 January 2015	702.6
Deficit on valuation	(177.1)
As at 30 June 2015	525.5

Available-for-sale financial assets represent the Group's remaining investment in the fully diluted share capital of Cairn India Limited, listed in India, which by its nature has no fixed maturity or coupon rate. These listed equity securities present the Group with an opportunity for return through dividend income and trading gains.

At 30 June 2015, the value of the investment in Cairn India Limited had fallen to US$525.5m. The significant accumulated deficit of US$177.1m was recycled to the Income Statement and recorded as impairment.

Cairn is currently restricted from selling its shares in Cairn India Limited.  See section 5.1.

3.2     Cash and cash equivalents

Cash and cash equivalents earn interest at floating rates.  Short-term deposits are made for varying periods from overnight deposits to three months depending on the cash requirements of the Group.

At 30 June 2015, no funds had been drawn under the Group's US$575.0m Reserve Based Lending facility signed in 2014. 

Section 3 - Assets and Investments: Financial Assets and Working Capital

3.3     Other Receivables

	30 June 2015	30 June 2014	31 December 2014
	US$m	US$m	US$m
Other receivables	102.3	55.7	105.8
Prepayments	19.5	7.0	19.1
Joint operation receivables	57.7	122.4	113.7
	179.5	185.1	238.6

Other receivables include US$44.1m for the carry receivable from Dyas which was initially recorded at fair value. This relates to the 10% Catcher disposal. See section 2.3 for details.  Also included in other receivables are costs incurred by Cairn awaiting recharge to joint operations and dividends receivable of US$33.3m from Cairn India Limited. While the restriction over Cairn's investment remains, Cairn India Limited is unable to remit these dividends to the Group.

Joint operation receivables includes Cairn's working interest share of the receivables relating to joint operations and amounts recoverable from partners in joint operations.  

3.4     Trade and Other Payables

	30 June 2015	30 June 2014	31 December 2014
	US$m	US$m	US$m
Trade payables	8.6	10.5	28.5
Other taxation and social security	1.4	1.5	6.4
Other payables	1.0	0.8	3.0
Accruals	17.3	24.0	4.7
Joint operation payables	74.9	161.9	235.6
	103.2	198.7	278.2

Joint operation payables includes Cairn's share of the trade and other payables of operations in which the Group participates.  Where Cairn is operator of the joint operation, joint operation payables also includes amounts that Cairn will settle and recover from partners. 

Section 4 - Results for the Period

4.1     Segmental Analysis

Operating Segments

Cairn holds a balanced portfolio of exploration and development assets focused in three geographical regions: North West Europe; the Atlantic Margin; and the Mediterranean.

The operations of the Group are organised on a country-by-country basis; countries form the Group's operating segments. For management reporting purposes, operating segments are combined into regional business units.  Cairn monitors the results of each regional unit separately for the purposes of making decisions about resource allocation and performance assessment. 

The Group's Atlantic Margin exploration region contains two regional units. Assets in Greenland and the Republic of Ireland are combined into one unit while the Group's African operating segments in Senegal, Morocco and Mauritania form a separate unit.  The results of the Africa unit below relate to operations in Morocco as there were no items of profit or loss for Senegal or Mauritania.

The North West Europe regional unit holds the UK and Norway operating segments. Currently the segment contains the Group's North Sea assets including the Skarfjell discovery in Norway and the UK Catcher and Kraken developments.

The results of the Mediterranean region are reported along with the Group's corporate assets within "Other Cairn Energy Group". 

Section 4 - Results for the Period

4.1     Segmental Analysis (continued)

The segment results for the six months ended 30 June 2015 are as follows:

	Atlantic Margin
	Africa	Greenland and Republic of Ireland	North West Europe - UK and Norway		Other Cairn Energy Group	Total
	US$m	US$m	US$m		US$m	US$m
Pre-award costs	-	(0.1)	(15.7)		(2.3)	(18.1)
Unsuccessful exploration costs	(38.7)	-	(11.8)		4.1	(46.4)
Depreciation	-	-	(0.1)		(0.1)	(0.2)
Amortisation	-	-	-		(0.7)	(0.7)
Other income and administrative expenses	0.2	(0.2)	(0.3)		(10.9)	(11.2)
Gain on disposal of oil and gas assets	-	-	26.6		-	26.6
Operating loss	(38.5)	(0.3)	(1.3)		(9.9)	(50.0)
Impairment of available-for-sale financial assets	-	-	-		(177.1)	(177.1)
Interest income	-	-	0.9		1.1	2.0
Interest expense	-	-	-		-	-
Other finance income and costs	-	0.1	-		(9.7)	(9.6)
Loss before taxation	(38.5)	(0.2)	(0.4)		(195.6)	(234.7)
Tax (charge)/credit	-	-	(5.1)		9.5	4.4
Loss for the period	(38.5)	(0.2)	(5.5)		(186.1)	(230.3)
Segment non-current assets	207.2	26.2	786.1		9.5	1,029.0

Non-current assets for this purpose consist of intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; intangible assets - goodwill; and other property, plant & equipment and intangible assets.

Section 4 - Results for the Period

4.1     Segmental Analysis (continued)

The segment results for the six months ended 30 June 2014 were as follows:

	Atlantic Margin
	Africa	Greenland and Republic of Ireland	North West Europe - UK and Norway		Other Cairn Energy Group	Total
	US$m	US$m	US$m		US$m	US$m
Pre-award costs	-	(0.8)	(10.5)		(4.1)	(15.4)
Unsuccessful exploration costs	(50.7)	(4.0)	(25.2)		-	(79.9)
Inventory disposal/write down	-	-	-		(3.2)	(3.2)
Depreciation	-	-	(0.2)		(0.3)	(0.5)
Amortisation	-	-	-		(0.9)	(0.9)
Other income and administrative expenses	-	(0.2)	(1.0)		(24.1)	(25.3)
Operating loss	(50.7)	(5.0)	(36.9)		(32.6)	(125.2)
Gain on disposal of available-for-sale financial assets	-	-	-		3.9	3.9
Interest income	-	-	0.1		1.0	1.1
Interest expense	-	-	(0.1)		-	(0.1)
Other finance income and costs	(0.5)	(1.0)	(3.1)		5.2	0.6
Loss before taxation	(51.2)	(6.0)	(40.0)		(22.5)	(119.7)
Tax credit	-	-	54.2		3.4	57.6
(Loss)/profit for the period	(51.2)	(6.0)	14.2		(19.1)	(62.1)
Segment non-current assets	108.2	42.8	875.1		15.5	1,041.6

Section 4 - Results for the Period

4.1     Segmental Analysis (continued)

The segment results for the year ended 31 December 2014 were as follows:

	Atlantic Margin
	Africa	Greenland and Republic of Ireland	North West Europe - UK and Norway			Other Cairn Energy Group	Total
	US$m	US$m	US$m			US$m	US$m
Pre-award costs	-	(0.7)	(45.1)			(9.0)	(54.8)
Unsuccessful exploration costs	(100.1)	(6.6)	(94.8)			(6.9)	(208.4)
Inventory disposal/write down	-	-	-			(8.4)	(8.4)
Depreciation	-	(0.1)	(0.3)			(0.7)	(1.1)
Amortisation	-	-	-			(2.2)	(2.2)
Other income and administrative expenses	-	(0.4)	(2.1)			(50.3)	(52.8)
Impairment of oil and gas assets	-	(22.7)	(24.2)			-	(46.9)
Gain on disposal of oil and gas assets	-	-	2.3			-	2.3
Operating loss	(100.1)	(30.5)	(164.2)			(77.5)	(372.3)
Gain on disposal of available-for-sale financial assets	-	-	-			3.9	3.9
Impairment of available-for-sale financial assets	-	-	-			(194.3)	(194.3)
Interest income	-	-	1.2			1.9	3.1
Interest expense	-	-	(0.1)			-	(0.1)
Other finance income and costs	0.8	(0.4)	3.5			(3.3)	0.6
Loss before taxation	(99.3)	(30.9)	(159.6)			(269.3)	(559.1)
Tax (charge)/credit	(1.3)	-	134.0			45.3	178.0
Loss for the year	(100.6)	(30.9)	(25.6)			(224.0)	(381.1)
Segment non-current assets	197.3	21.7	807.1			9.3	1,035.4

4.2     Net Operating Expenses

	Six months ended 30 June 2015 US$m	Six months ended 30 June 2014 US$m	Year ended 31 December 2014 US$m
Other income	-	(2.5)	(3.1)
Administrative expenses	12.1	29.2	59.2
Inventory disposal/write down	-	3.2	8.4
	12.1	29.9	64.5

The reduction in administration expenses partly reflects the Group re-organisation completed in 2014. Administrative expenses to June 2014  also include a provision for redundancy of US$3.0m, accelerated share-based payment charges of US$3.5m and costs incurred in defending the Group's interests in India of US$3.5m.  No such costs were incurred in the current period.

Section 4 - Results for the Period

4.3     Taxation on Loss

a)         Analysis of Tax Credit on loss for the period

	Six months ended 30 June 2015 US$m	Six months ended 30 June 2014 US$m	Year  ended 31 December 2014 US$m
Current tax credit:
Norwegian tax refunds receivable	(20.7)	(13.4)	(67.3)
Withholding taxes deducted at source	-	-	1.4
	(20.7)	(13.4)	(65.9)
Deferred tax credit:
Norwegian deferred tax credit	(0.7)	(13.9)	(13.4)
Reduction in UK supplementary charge tax rate	45.6	-	-
Recognition of eligible field allowance on UK development asset	-	(62.2)	(71.2)
Reversal of eligible field allowance on disposal of UK development asset	13.7	-	-
Release of provision on impairment of UK intangible exploration/appraisal asset	-	-	(15.0)
Release of provision on disposal of UK oil and gas assets	(18.3)	-	-
Release of provision on disposal of available-for-sale financial assets	-	(4.5)	-
Other UK deferred tax credits realised	(12.3)	35.3	28.4
Release of provision on carried interests due to change in tax rate	(2.2)	-	-
Recycled from other comprehensive income on impairment of financial assets	(9.5)	-	(42.0)
Recycled from other comprehensive income on sale of financial assets	-	1.1	1.1
	16.3	(44.2)	(112.1)
Tax credit on loss	(4.4)	(57.6)	(178.0)
Tax included in Other Comprehensive Income:
Deferred tax (credit)/charge on valuation of financial assets	(9.5)	33.6	(56.6)
Deferred tax (credit)/charge on valuation movement recycled to Income Statement	9.5	(1.1)	40.9
Total tax charge/(credit) in Other Comprehensive Income	-	32.5	(15.7)

The tax credit is calculated on the actual results for the period.

b)       Income Tax Asset

The Income tax asset of US$77.2m (30 June 2014: US$93.6m; 31 December 2014: US$60.3m) represents Norwegian tax refunds receivable.

Section 4 - Results for the Period

4.3     Taxation on Loss (continued)

c)       Reconciliation of movement in deferred tax assets/ (liabilities):

	Temporary difference in respect of non-current assets	Losses	Other temporary differences	Total
	US$m	US$m	US$m	US$m
Deferred tax asset
At 1 January 2014	(50.6)	109.3	-	58.7
Deferred tax charge/(credit) through Income Statement	(76.7)	103.6	-	26.9
Exchange differences arising	7.4	(5.2)	-	2.2
At 30 June 2014	(119.9)	207.7	-	87.8
Deferred tax charge/(credit) through Income Statement	45.4	(19.1)	-	26.3
Exchange differences arising	(7.6)	(0.3)	-	(7.9)
At 1 January 2015	(82.1)	188.3	-	106.2
Deferred tax  charge through Income Statement	(20.8)	(5.7)	-	(26.5)
Deferred tax movement on carried interests in development assets	(11.4)	-	-	(11.4)
Exchange differences arising	(3.6)	3.3	-	(0.3)
At 30 June 2015	(117.9)	185.9	-	68.0
Deferred tax liabilities
At 1 January 2014	(156.2)	1.0	7.2	(148.0)
Deferred tax credit/(charge) through Income Statement	16.5	7.9	(7.1)	17.3
Deferred tax charge through Other Comprehensive Income	(32.5)	-	-	(32.5)
Exchange differences arising	0.6	(0.1)	-	0.5
At 30 June 2014	(171.6)	8.8	0.1	(162.7)
Deferred tax credit/(charge)through Income Statement	35.8	(4.0)	9.7	41.5
Deferred tax credit through Other Comprehensive Income	48.2	-	-	48.2
Exchange differences arising	13.9	4.3	(6.9)	11.3
At 1 January 2015	(73.7)	9.1	2.9	(61.7)
Deferred tax credit/(charge) through Income Statement	8.5	1.9	(0.2)	10.2
Exchange differences arising	3.1	(0.5)	(0.1)	2.5
At 30 June 2015	(62.1)	10.5	2.6	(49.0)

Section 4 - Results for the Period

4.4     Earnings per Ordinary Share

Basic and diluted earnings per share are calculated using a loss of US$230.3m (30 June 2014: loss of US$62.1m; 31 December 2014: loss of US$381.1m).  The share data used in the computations is as follows:

	Six months ended 30 June 2015	Six months  ended 30 June 2014	Year  ended  31 December 2014
	'000	'000	'000
Weighted average number of shares	576,329	581,468	578,845
Less weighted average shares held by ESOP and SIP Trusts	(5,531)	(5,554)	(5,730)
Basic weighted average number of shares	570,798	575,914	573,115
Dilutive potential ordinary shares:
Employee share options	9,607	1,220	33
Diluted weighted average number of shares	580,405	577,134	573,148

Section 5 - Other Disclosures

5.1    Contingent Liability

On 10 March 2015, Cairn received a draft assessment order from the Indian Income Tax Department in relation to the Cairn Group restructuring that was undertaken in 2006 prior to the Cairn India Limited IPO.  The draft assessment order was to the amount of INR 102.4 billion (US$1.6billion) plus any applicable interest and penalties. Cairn has appealed against the draft assessment in India and furthermore has filed a Notice of Dispute under The UK-India Investment Treaty in order to protect its legal position and shareholder interests. Cairn has appointed an arbitrator and awaits the Government of India to name its appointment to the international panel.

Cairn strongly contests the basis of the draft assessment and the Notice of Dispute is supported by detailed legal advice on the strength of the legal protections available to it under international law. In addition, Cairn will also seek restitution of losses resulting from the attachment of its CIL stake since 2014.

Cairn continues to be restricted by the Indian Income Tax Department from selling its ~10% shareholding in CIL, with a market value of 30 June 2015 at US$525.5m. The Indian Tax Department has also issued an assessment to Cairn India Limited, the Company's former subsidiary, for failure to withhold tax in the amount of INR 102.4 billion (US$1.6billion), plus a further INR 102.4 billion (US$1.6billion) in interest and penalties in relation to the Cairn Group restructuring that was undertaken in 2006 prior to the IPO.

Glossary

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

Group                                        the Company and its subsidiaries

Technical

APA                                          awards in predefined area

2D/3D                                        two dimensional/three dimensional

boe                                            barrel(s) of oil equivalent

boepd                                        barrels of oil equivalent per day

bopd                                          barrels of oil per day

DECC                                        Department of Energy and Climate Change

ESA                                          exploration study agreement

FPSO                                        floating production, storage and offloading

FDP                                          field development plan

mmbbls                                     million barrels of oil

mmboe                                      million barrels of oil equivalent

mmscfd                                     million standard cubic feet of gas per day

US$                                           US dollar

WI                                             Working interest

NOTES TO EDITORS

Cairn Energy PLC ("Cairn") is one of Europe's leading independent oil and gas exploration and development companies and is listed on the London Stock Exchange. Cairn has discovered and developed oil and gas reserves in a variety of locations around the world.

Cairn's business operations are now focused on frontier exploration acreage in North West Europe, North West Africa, North Atlantic and Mediterranean, underpinned by interests in development assets in the North Sea. Cairn has its headquarters in Edinburgh, Scotland supported by operational offices in London, Norway and Senegal. 

Cairn and Corporate Responsibility

Ø Cairn is a signatory to the UN Global Compact and our core values of respect, responsibility, relationships and our commitments towards people, the environment and society are enshrined in our Business Principles, which are available on the Cairn website at http://www.cairnenergy.com/index.asp?pageid=282 

Ø Cairn became a participating company in the Extractive Industry Transparency Initiative (EITI) in September 2013. The EITI is a coalition of governments, companies and civil society, who have adopted a multi-stakeholder approach to applying the EITI global standard promoting transparency of payments in the oil, gas and mining sectors http://eiti.org/  

For further information on Cairn please see: www.cairnenergy.com

 

END

 

 

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