Half-yearly report

RNS Number : 9610B

Cairn Energy PLC

26 August 2008

 



EMBARGOED FOR RELEASE AT 0700     26 August 2008 

CAIRN ENERGY PLC

HALF-YEARLY REPORT

HIGHLIGHTS

OPERATIONAL

• Group booked entitlement reserves increased 41% from 170 mmbbls to 240 mmbbls

• Gross operated production for H1 2008: 80,873 boepd (H1 2007: 92,173 boepd)

• Average net entitlement production for H1 2008: 13,886 boepd (H1 2007: 22,486 boepd)

Cairn India

• Revised FDP for Mangala submitted to Operating Committee:

  • 30% increase in the expected ultimate recovery over previous estimates at approximately 478 mmbbls (a recovery factor of more than 37% of 2P STOIIP)

  • Plateau production rate of 125,000 bopd, 25% increase over FDP estimates

• Rajasthan upstream development underway and on track for first commercial production H2 2009

• Construction of the export crude oil insulated pipeline, gas pipeline and associated facilities from Barmer, Rajasthan to the Gujarat coast is underway

• Appraisal, exploration and development drilling in H2 2008 in Rajasthan and elsewhere in India

Capricorn

• Greenland blocks acquired and exploration programme commenced

  • Acquisition of ~10,000 km 2D seismic programme underway 

• First exploration well in Tunisia scheduled for Q4 2008 / Q1 2009

FINANCIAL 

• Profit after tax of $375.3m including $358.7m exceptional gain on 4% placement in shares in Cairn India  (H1 2007 restated: $1,518.3m including $1,539.5m exceptional gain on IPO of Cairn India)

• Cash generated from operations $104.9m (H1 2007: $74.8m )

• Group net cash, including bank deposits, at 30 June 2008 of $1,176.6m (H1 2007 restated: $861.0m)

Sir Bill Gammell, Chief Executive said:  

'The group has the ability to deliver material growth in the two arms of its business.

Cairn India is on track to deliver crude oil from Rajasthan in the second half of 2009 and significant progress has been made towards optimising and sustaining plateau production levels in this core asset.

Seismic acquisition has commenced in Capricorn's Greenland acreage where Cairn believes there is transformational exploration potential.'  Enquiries:

Analysts/Investors Bill Gammell, Chief Executive Jann Brown, Finance Director Mike Watts, Exploration & New Business Director David Nisbet, Corporate Affairs	Tel: [phone]
Media Patrick Handley, Brunswick Group LLP	Tel: [phone]

Cairn Energy Live Audio Webcast

The webcast of the 2008 interim results presentation will be available at 0900 (UK time) on Tuesday 26 August 2008.

The webcast and the half-yearly report will be available at the Cairn Energy PLC website:  

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

Corporate Overview

The two separate arms of the Cairn business have continued to make good progress.

First production from Rajasthan remains on track for H2 2009. The company remains absolutely focused upon optimising and sustaining plateau production rates. At the same time new exploration assets have been acquired in the region and further growth avenues are being explored. 

A material acreage position has been built up in Greenland, a country increasingly being recognised as possessing significant exploration potential. 

Cairn India

In its second year as a listed company, Cairn India remains focused on delivery of the high-value Rajasthan project. The company is committed to continuing investment for growth and is very much fixed on creating further shareholder value by developing and optimising the potential of its world class resource base in Rajasthan and seeking to continue Cairn's track record of exploration success in India and elsewhere. 

Both the Rajasthan upstream development and the pipeline to the Gujarat coast are making good progress with construction well underway and all major contracts signed. 

Capricorn

I am also delighted to report excellent progress in Cairn's international exploration subsidiary Capricorn. A 10,000 km 2D seismic survey is currently underway in Greenland and the programme is expected to be completed during October. An exploration drilling programme is scheduled to commence in Tunisia at the end of the year.

Outlook

India is deficient in oil and gas and will continue to have significant excess demand for hydrocarbons in the years to come. Once plateau rates are achieved in Rajasthan, Cairn India will have the potential to contribute more than 20% of India's daily oil production.

The Group is well placed to deliver growth in the two arms of the business through balance sheet strength and operational flexibility.

Norman Murray 

Chairman, 25 August 2008

  CHIEF EXECUTIVE'S REVIEW

CAIRN INDIA

I am pleased to report that, in its second year of operation as a listed business, Cairn India has continued to make good progress in all of its operated assets. 

Production from the Ravva and CB/OS-2 oil and gas fields continues to provide important cashflow for re-investment in the company's activities across India.

We continue to schedule delivery of first oil from the Mangala field in H2 2009, followed by oil from Bhagyam and Aishwariya in 2010. We are on track to commission the Rajasthan-Gujarat oil pipeline in time for first commercial oil production from Rajasthan.

Cairn India has an extensive portfolio of oil and gas exploration, development and production assets in India and has been awarded one new exploration block in Sri Lanka. The exploration programme for the coming months will include approximately 6 wells and several seismic acquisition programmes all aimed at securing future growth.  

Once on stream, the Rajasthan fields will benefit the Government of India (GoI), the Rajasthan State Government as well as investors and other stakeholders in both Cairn and Cairn India.

Rajasthan Upstream 

The Field Development Plan (FDP) for the second biggest field in Rajasthan - Bhagyam has been approved and the revised FDP for Mangala has been submitted. This will allow Cairn and its partner ONGC to reach an estimated sustainable plateau rate of production from the three proven Rajasthan fields - Mangala, Bhagyam and Aishwariya - of 175,000 barrels of oil per day (bopd) an increase from the previously forecast figure of 150,000 barrels of oil per day. 

The revised FDP also includes proposals to start field trials for Enhanced Oil Recovery (EOR). The EOR techniques will target a further resource of over 300 million barrels of oil that has the potential to extend and enhance plateau production from Rajasthan.

Development drilling will begin during the second half of this year providing further information on the potential resource that may be accessed in the lower permeability reservoirs found in the Barmer basin.

Further details on progress on the upstream elements of the Rajasthan development can be found in the Operational Review. 

Rajasthan Pipeline 

The laying of the oil and gas pipelines commenced in Gujarat in June this year - a key milestone in the delivery of the project. 

Agreement by the GoI to shift the delivery point of the crude from Barmer in Rajasthan to the Gujarat coast has allowed the oil export pipeline to be included in the revised Mangala FDP. 

The proposed routing of the pipeline will allow access to an extensive existing pipeline infrastructure and refinery network, with a final coastal delivery point that also affords access to the majority of India's refining capacity. 

CAPRICORN

Capricorn has established a significant frontier exploration position in Greenland. It is currently shooting a 10,000km 2D seismic programme in the west and south of Greenland and in view of the perceived transformational exploration potential it is aiming to enhance its acreage portfolio. 

The Arctic part of Greenland is increasingly being recognised as a potentially world class prospective area. In July, the U.S. Geological Survey (USGS) released its Circum-Arctic Resource Appraisal report and concluded that 'The extensive Arctic continental shelf may constitute the geographically largest unexplored prospective area for petroleum remaining on earth.' The report contains the USGS 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. 

The interpreted results of the 2D seismic programme in Greenland should become available from H1 2009 onwards.

Capricorn has two separate slots in a jack-up Tunisian drilling campaign and is expecting to commence its first exploration well in the Louza permit at the end of the year. The second slot in the sequence could be used for an appraisal or an exploration well location. Planning is also underway to secure a semi-submersible rig for drilling in the Nabeul permit later in 2009.

A first exploration well in offshore Albania is also currently planned for 2010.

FINANCIAL REVIEW

Cairn continues to be well placed to deliver the Rajasthan development and pursue opportunities for growth. At 30 June 2008, following the private placement of Cairn India shares to Petronas and Orient Global, Cairn has net cash of $1.2bn, positive operating cashflows and total facilities of $910m. 

Key financial performance indicators

	H1 2008	H1 2007
Production (barrels of oil equivalent per day (boepd))*	13,886	22,486
Average price per boe ($)	71.19	34.10
Turnover ($m)	180.4	138.7
Average production costs per boe ($)	14.09	7.47
Operating profit/(loss) ($m)	44.2	(18.2)
Profit before tax ($m)	407.0	**1,529.6
Exceptional items ($m)	358.7	**1,539.5
Profit/(loss) after tax ($m)	375.3	**1,518.3
Cash flow from operating activities ($m)	104.9	74.8
Net assets ($m)	2,381.8	**1661.5
Net cash, including bank deposits ($m)	1,176.6	**861.0

* on an entitlement interest basis

** restated

Accounting overview

In March 2008 Cairn India arranged a private placement of $636.8m with Petronas and Orient Global Tamarind Fund Pte Limited, who subscribed for a total of 113 million shares. As a result of this private placement Cairn's holding in Cairn India has reduced from 69% to 65%. The 35% interest in Cairn India held by external shareholders is reflected as a minority interest.

The fair values assigned to the assets and liabilities of subsidiaries acquired in the last financial year have been reassessed in accordance with IFRS 3 (see Note 2 of the Interim Results for further details). In addition, the prior period results have been adjusted for restatements made in the Financial Statements for the year ended 31 December 2007 and further changes in the accounting for deferred tax.  The net impact of these adjustments is set out in Note 15 of the Interim Results.

PROFIT AND LOSS

Turnover

Revenue for the period was $180.4m (H1 2007: $138.7m). 

Production for the period, on an entitlement basis, has decreased by 38% to 13,886 boepd (H1 2007: 22,486 boepd). This is principally due to a fall in overall field production at Ravva and Sangu, but particularly in Sangu which is a mature field now in decline.  The current period also reflects the sale of 50% of our share of Sangu to Santos.

Gas production accounted for 47% of total production compared to 68% for the same period last year. The average realised price for oil during the period was $114.73 per boe (H1 2007: $64.37 per boe). Contractual gas price caps resulted in an average gas price realised of $3.74 per mmscf (H1 2007: $3.32 per mmscf). Combined, the average realised price for the period was $71.19 per boe (H1 2007: $34.10 per boe). Cairn's exposure to world oil prices will increase significantly when production commences from Rajasthan.

Gross profit

The Group generated a gross profit of $109.2m (H1 2007: $31.1m)

Cost of sales for the period was $71.2m (H1 2007: $107.6m) Cost of sales includes the write-off of unsuccessful exploration costs of $6.3m (H1 2007: $33.6m).

Production costs for the period were $35.6m (H1 2007: $30.4m). These include pre-exploration costs expensed under International Financial Reporting Standard (IFRS) 6 and inventory movements. Production costs per boe have increased to $14.09 per boe (H1 2007: $7.47 per boe) due to a fixed cost base being spread over a reduced level of entitlement production.

Depletion and decommissioning costs have decreased to $29.3m (H1 2007: $43.6m) following the sale of 50% of the Group's interest in Sangu last year. The average Group rate for depletion and decommissioning has increased slightly by 8% to $11.58 per boe (H1 2007: $10.72 per boe). 

Profit for the period

Administrative expenses (net of operating income) for the period were $46.2m (H1 2007: $34.0m). This includes a charge of $18.3m (H1 2007: $11.7m) for share based payments and associated taxes.  

An impairment charge of $19.5m has been recognised on the Magnama and Hatia exploration well costs incurred in the period. The prior period charge of $15.3m related to an impairment of the Sangu field.

Net finance income for the period was $4.1m (H1 2007 restated: $8.3m). Finance costs include a realised foreign exchange loss of $14.6m (H1 2007 $21.2m) and a $6.4m (H1 2007: nil) fair value charge in respect of foreign exchange options.  

The Group made an exceptional gain of $358.7m on the deemed disposal of 4% of Cairn India to Petronas and Orient Global Tamarind Fund Pte Limited through an issue of shares. The prior year exceptional gain of $1,539.5m (restated) relates to the disposal of 31% of Cairn India on its initial public offering (IPO). These gains are not chargeable to tax.

The tax charge for the period was $31.7.m  (H1 2007 restated: $11.3m).  

The Group's profit for the period was $375.3m (H1 2007 restated: profit $1,518.3m). 

BALANCE SHEET

Capital expenditure

Balance sheet additions during the period were $375.2m (H1 2007: $211.7m):

	H1 2008	H1 2007
	$ million	$ million
Exploration/appraisal expenditure	49.2	86.0
Development expenditure	320.9	120.0
Other capital expenditure	5.1	5.7
Total	375.2	211.7

Exploration/appraisal expenditure during the period relates principally to the India seismic programme and the Hatia and Magnama wells in Bangladesh. The Hatia and Magnama wells have been impaired. The majority of the development expenditure was on Rajasthan, plus some activity on CB/OS-2 and Ravva. Further details can be found in the Operational Review.

Costs totalling $35.7m have been transferred from exploration/appraisal assets to development assets reflecting the booking of Bhagyam and Aishwariya reserves. A further $8.0m of costs relating to Ravva were also transferred.

CASHFLOW

Cashflows from operating activities

Cash generated from group operations has increased to $104.9m (H1 2007: $74.8m). Tax payments during 2008 were $5.6m (H1 2007: $7.4m).

Cashflows from investing activities

Cash outflows from investing activities, excluding movements in bank deposits, during 2008 were $348.4m (H1 2007: $198.3m):

	H1 2008	H1 2007
	$ million	$ million
Exploration/ appraisal expenditure	88.2	58.3
Development expenditure	256.9	135.2
Other capital expenditure	3.3	4.8
Total	348.4	198.3

Cashflows from financing activities

Cashfow from financing activities includes proceeds of $636.8m from the private placement of 113 million Cairn India shares with Petronas and Orient Global Tamarind Fund Pte Limited. 

Net assets/net cash

Net assets at 30 June 2008 were $2,381.8m (H1 2007 restated: $1,661.5m). At the period end the Group had net cash, including bank deposits, of $1,176.6m (H1 2007 restated: $861.0m).

The Group continues to demonstrate the balance sheet strength to deliver its strategy and meet the funding needs of both arms of the business.

In India, the Rajasthan development programme is well underway and Cairn India is in the process of finalising a dedicated project facility of $1.4bn. At the same time, the Group continues to target opportunities for real growth in its exploration portfolio.

Sir Bill Gammell

Chief Executive, 25 August 2008

  OPERATIONAL REVIEW 

GROUP PRODUCTION

Cairn's gross operated production across South Asia during H1 2008 was 80,873 boepd (H1 2007: 92,173 boepd)

The Group's average entitlement production for H1 2008 was 13,886 boepd net to Cairn compared to 22,486 boepd in H1 2007.  

The figures in the table below show group production for H1 2008 on a gross, working interest and entitlement basis.

Production (boepd)	Ravva	CB/OS-2	Sangu	Total
Gross field	57,006	13,918	9,949	80,873
Working interest	12,826	5,567	3,731	22,124
Entitlement interest	6,305	4,598	2,983	13,886

Group production during H1 2008 was 47% gas: 53% oil and condensate. On commencement of oil production from Rajasthan, the majority of Group production will be oil (currently estimated to be approximately 90%). 

GROUP BOOKED RESERVES

The table below shows reserves information at 30 June 2008 on an entitlement basis for the Group. 

	Reserves 31.12.07 mmboe	Produced in  mmboe	Additions in  mmboe	Revisions in  mmboe	Reserves 30.06.08 mmboe
India	169.4	(2.0)	65.9	6.2	239.5
Bangladesh	0.8	(0.5)	0.0	0.6	0.9
Total	170.2	(2.5)	65.9	6.8	240.4

On a direct working interest basis, reserves as at 30 June 2008 have increased by 88.1 million barrels of oil equivalent (mmboe) to 343.4 mmboe (31 December 2007: 255.3 mmboe), comprising 342.4 mmboe in India and 1 mmboe in Bangladesh. The net entitlement reserves position has also increased but by slightly less, by 70.2 mmboe from 170.2 to 240.4 mmboe. This increase is largely due to the booking of Bhagyam and Aishwariya proven plus probable (2P) reserves, an increase in the entitlement to Mangala oil as a result of the inclusion of pipeline costs following the GoI approval to the moving of the delivery point to the coast, and a reduction as a consequence of a change in the Group oil price assumption.

Oil Price ($/boe)	Net Entitlement Reserves  (mmboe)	Increase/(reduction) compared to $75/ boe base case (mmboe)
$55	263.8	23.4
$95	227.6	(12.8)

Note: Figures include 100% of Cairn India and Capricorn's production and reserves   RAJASTHAN BASIN - North West India 

Block RJ-ON-90/1

Oil field development work at Cairn India's world class discovery in Rajasthan is in full flow. The integrated upstream and pipeline project is on course to produce first oil from Mangala in H2 2009. 

The Mangala FDP in its present form was approved by the GoI on May 27th, 2006. Following further drilling in the development area, along with extensive subsurface and detailed design and engineering studies, Cairn has been able to significantly enhance the reserves, stock tank oil initially in place (STOIIP) and production rates. Subsequent to the FDP approval, the GoI has also approved the proposal to lay a pipeline for evacuating crude oil to the Gujarat coast. All these developments have necessitated an appropriate revision to the FDP, which has now been submitted to the GoI. 

The key features of the revised Mangala FDP are:

• Upward revision of the 2P (P50) STOIIP to 1,293 mmbbls, an increase of more than 20% over the earlier estimated figures.

• 30% increase in the expected ultimate recovery over previous estimates to ~478 mmbbls (a recovery factor of 37% of 2P STOIIP).

• A 25% increase in the plateau production rate to 125,000 bopd.

• Pro-active field trials of EOR methods starting in H2 2009 to recover additional resources of over 300 mmbbls.  

Development - Pipeline Project (Cairn India 70% (Operator),ONGC 30%) 

In keeping with the H2 2009 schedule, all major contracts works and construction have been awarded in Rajasthan, and long lead time items have been either ordered or procured. 

Larsen and Toubro Limited (L&T) was awarded the Engineering Procurement and Construction (EPC) Contract for the 24 inch insulated crude oil pipeline, 8 inch gas pipeline and associated above ground installations (AGIs) from Barmer, Rajasthan to the Gujarat coast. The detailed engineering and procurement are well advanced and construction has commenced for both the pipeline and the AGIs. 

Indian Oil Tanker Limited (IOTL) was awarded the EPC contract for the Viramgam Terminal, consisting of mainline intermediate pumping and crude oil storage. Detailed engineering is progressing well and construction of storage tank pad foundations have commenced after the completion of the initial Land Development works by Janak Construction Limited. 

Jindal SAW Limited in association with Perma-pipe Middle East FZE has been awarded the supply contract for the 24 inch insulated linepipe and 8 inch linepipe with polyethylene coating. 

The electrical power required for the heating system along the pipeline will be generated by 32 1MW gas engine units. GE Jenbacher in Austria has been awarded the full supply contract. The first units have recently undergone functioned load testing in Austria.

Obtaining access to the land on which the pipeline will be built continues to progress under the Rights of Use (RoU) process in Gujarat and Rajasthan. The land for the first 25 heating stations (starting from Barmer) and the Viramgam Terminal has been acquired through direct negotiation with land owners and construction at these locations has commenced.

The GoI communication of 30 April 2008 accorded their consent to shift the delivery point from the outlet flange of the crude oil processing facility in Barmer to the Gujarat coast.  

The proposed routing of the pipeline will allow access to an extensive existing pipeline infrastructure and refinery network, with a final coastal delivery point that also affords access to the majority of India's refining capacity. 

Northern Appraisal Area (Cairn India 100%) 

A Declaration of Commerciality (DoC) for the three discoveries made in this area (Kameshwari West 2, 3 and 6) has been approved by the joint venture partners (JV), along with a proposed new Development Area of 1,178 km2.  The DoC is now awaiting approval from the GoI. 

Exploration Overview Rajasthan and other assets 

The 2008 exploration programme is well underway and new acreage has been awarded in Sri Lanka and bids submitted in the Seventh New Exploration Licensing Policy round (NELP VII) in India.

The seismic acquisition carried out this year will position the company for the planned 2009 exploration drilling programme.

Two rigs have been contracted to drill three wells in RJ-ON-90/1 starting in late Q3 2008, including drilling of under-explored plays within the basin. An important well in GV-ONN-2002/1, in the state of Bihar, which will test the potential of this part of the frontier Ganga Basin, is scheduled for Q4 2008. 

The Government of Sri Lanka has awarded an exploration licence to explore for oil and natural gas in the Mannar Basin to Cairn India. The Petroleum Resources Agreement for the offshore block SL 2007-01-001 was signed in July 2008. The block covers approximately 3,000 km2   in water depths of 200 metres to 1800 metres. 

The company has also submitted bids for blocks available in India as part of the NELP VII Round.

Cambay Basin - Western India 

Block CB/OS-2: (Cairn India 40% (Operator)) 

In the CB/OS-2 block the Lakshmi, Gauri and CB-X fields are producing gas with additional oil production. The average gross production for H1 2008 was 13,918 boepd (comprising average gas production of 42.62 million standard cubic feet of gas per day (mmscfd) and average oil/condensate production of 6,814 bopd). Oil production has commenced from the new wells that were added during the recent infill/development drilling campaign that concluded in Q1 2008.

CB-ONN-2002/1 (Cairn India 30% (ONGC, Operator))

A three well drilling programme started in Q2 2008. The first well has been drilled and has been tested. A 5m interval flowed at an estimated rate of 120 bopd.

Krishna-Godavari Basin - Eastern India 

Ravva (Cairn India 22.5% (Operator)) 

Average gross production from the Ravva field for H1 2008 was 57,006 boepd (comprising average oil production of 44,800 bopd and average gas production of 73.24 mmscfd). In the last quarter the JV reached the milestone of producing 200 million barrels of oil from the Ravva block.

Production has now commenced from four new infill wells and two work over wells. In addition, one water injection well has been put into service to enhance the reservoir water-flood scheme, while one more is planned to start injection after testing the upper zone (LM6) in Q3 2008. 

KG-ONN-2003/1 (Cairn India 49% (Operator - exploration phase))

Two seismic programmes have been undertaken in this block. The acquisition of a 500 km 2D seismic programme commenced in January 2008 followed by the acquisition of a 255km2 3D programme. Planning has commenced in support of drilling between two and five exploration wells from the beginning of 2009.

KG-DWN-98/2 (Cairn India 10% (ONGC Operator))

The JV have approved a three well appraisal programme for 2008, together with additional 3D seismic acquisition. Approval of an appraisal period up to July 2010 under the production sharing contract for appraisal of the discoveries made in the block to date has been given by the GoI.

PR-OSN-2004/1 (Cairn India 35% (Operator))

The acquisition of an offshore 3,100 km 2D seismic programme has been successfully completed and processing of the data is nearing completion.

Ganga Basin - Northern India

GV-ONN-2002/1 (Cairn India 50% (Operator), Capricorn 50%)

An exploration well will be drilled in Q4 2008.  Site construction is expected to be completed in Q3 2008.

GV-ONN-97/1 (Cairn India 15%, Capricorn 15%, (ONGC, Operator))

The Banda-1 well, which was spudded at the end of 2007 has been completed. The licence which ran for seven years has now been relinquished at the end of the final exploration phase of the Production Sharing Contract. 

GV-ONN-2003/1 (Cairn India 49% (Operator - exploration phase), Capricorn 25%)

The acquisition of a 550 km 2D seismic programme is expected to commence in Q4 2008.

Rest of India

VN-ONN-2003/1 (Cairn India 49% (Operator - exploration phase))

The acquisition of a 500 km 2D seismic programme is expected to commence in Q3 2008.

KK-DWN-2004/1 (Cairn India 40% (ONGC, Operator))

A 3,500 km 2D seismic programme has started and is expected to be completed in H2 2008.

CAPRICORN

Capricorn now has assets in south Asia (northern India, Bangladesh and Nepal), the Mediterranean (Tunisia, Albania and pending licence awards in Sicily), Peru, Papua New Guinea and Greenland. As a result of an ongoing rationalisation programme, the exploration interests inherited from Plectrum in Australia (Bremer Basin) and the UK (West of the Shetlands) have been respectively transferred and relinquished.

GREENLAND

A 6,600 km 2D seismic survey is in progress in the Disko West blocks Sigguk and Eqqua and acquisition is expected to complete in mid-September 2008. The seismic vessel will then proceed to acquire around 3,000 km of 2D data in the Southern Blocks Kingittoq and Saqqamuit and in the surrounding prospecting area.

A Controlled Source Electromagnetic Survey is currently in progress in the Lady Franklin and Atammik blocks operated by EnCana. The processing and interpretation of this survey is expected to be completed towards the end of the year.

TUNISIA

Preparations are underway to commence drilling the first well in the Louza licence by Q4 2008 / Q1 2009 using a jack-up rig.  The well targets multiple Cretaceous reservoirs updip and to the west of the M'Sela discovery made by Union Texas in the block in 1995.  Preparations have commenced to drill the first well in the Nabeul licence using a semi-submersible rig in H2 2009.

ALBANIA

Evaluation of the Joni V block using the existing data set has been completed and a number of prospects have been identified. Work is in progress to design the commitment 3D seismic survey to evaluate the most attractive prospects ahead of a decision on drilling in 2010.

HIMALAYAN FORELAND BASIN - Nepal 

Blocks 1, 2, 4, 6 & 7 (Capricorn 100% (Operator))

The security situation in Nepal continues to be monitored closely and a contractual force majeure remains in place on these blocks. As soon as the security situation permits, planning for seismic acquisition operations will commence. An office in Kathmandu has been already been established to support Capricorn's activities in Nepal.

BENGAL BASIN - Bangladesh 

Sangu (Capricorn 37.5% (Operator)) 

Production and Development

Production from the Sangu field is declining and efforts are being focused on extending the economic life of the field. The separate shallower reservoir in Sangu-10 was brought on production in March 2008 as part of an ongoing well intervention programme at an initial rate of 20 mmscfd. 

Exploration 

A two-well exploration drilling programme over the 2007/2008 winter has resulted in a gas discovery in normally-pressured reservoirs in the Magnama 1 well, while gas shows were encountered in the Hatia 1 well. Further appraisal work will be required over Magnama before commerciality can be established and consideration is being given to evaluating the updip potential at Hatia. 

PRINCIPAL RISKS AND UNCERTAINTIES

For the six months to 30 June 2008 no new risk factors have been identified and the following risk factors, as detailed in pages 36-39 of the 2007 Annual Report and Accounts, remain fully pertinent.

Dependency upon the performance of Cairn India and the Capricorn Group

Relationship with Cairn India

Operations

Commercial

Regulation 

Insurance

Human Resources

Corporate Responsibility 

War, Terrorist Attack and Natural Disasters

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 pages 36-39 of the 2007 Annual Report and Accounts.

Project Assessment and Delivery

Engineering, procurement and construction activities on the development of discovered oil fields in Rajasthan by Cairn India have continued to progress. Residual schedule risks remain relevant.

Capricorn's ability to conduct its operations in its Greenland acreage may be adversely affected by icepack and icebergs, which are present throughout the year but allow an operating window during the period from July to October. The 2D seismic survey currently underway has proceeded with minimal downtime.  

Exchange Rates, Interest Rates and Currency Controls

Attention is drawn to the potential impact of recent adverse developments in the financial markets in relation to this risk factor.

Cairn India has recently adopted an interest rate risk and hedging strategy. Cairn India has also retained the proceeds from a private placement of shares in Indian Rupees to further hedge its currency exposures.

Market Place

This risk factor continues to be pertinent. However, in relation to the principal project of Cairn India, a majority of contracts for supply of equipment and construction have now been awarded, potentially lowering overall exposure to this risk factor. 

Political Climate

Certain elements of this risk factor may be exacerbated in the context of sustained high oil prices.

Nepal was declared a Republic on 28 May 2008 but the political situation there, although improving, remains delicate. For this reason Capricorn has not lifted the force majeure notices served earlier in respect of its exploration interests and will await further stabilisation before doing so.  

Funding and Cash Flow

The cash generation of producing fields in Cairn India has been strengthened by the recent and projected higher oil price environment. However the recent developments in the financial markets may impact on the Group's ability to raise the necessary credit facilities to complete its work programmes.

The risk factors are not intended to be presented in any order of priority. In addition, the risks set out above 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 pages 36 to 39 of the 2007 Annual Report and Accounts. 

  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 2007. 

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.cairn-energy.plc.uk.

By order of the Board. 

Sir Bill Gammell	Jann Brown
Chief Executive	Finance Director

25 August 2008 

GROUP INCOME STATEMENT

For the six months ended 30 June 2008

		Six months ended 30 June 2008 (unaudited) $'m	Six months ended 30 June 2007  (unaudited) (restated) $'m	Year ended 31 December 2007 (audited) (restated) $'m
Revenue		180.4	138.7	287.7
Cost of sales
Production costs		(35.6)	(30.4)	(66.5)
Unsuccessful exploration costs		(6.3)	(33.6)	(40.7)
Depletion and decommissioning charge		(29.3)	(43.6)	(119.0)
Gross profit		109.2	31.1	61.5
Other operating income		5.8	2.9	6.0
Administrative expenses		(52.0)	(36.9)	(88.4)
Impairment of intangible exploration/appraisal assets	4	(19.5)	-	(58.9)
Reversal of impairment/(impairment) of oil and gas assets	4	0.7	(15.3)	3.7
Loss on sale of oil and gas assets		-	-	(0.1)
Operating profit/(loss)		44.2	(18.2)	(76.2)
Exceptional gain on deemed disposal of subsidiary Finance income	5	358.7 28.1	1,539.5 38.5	1,579.2 65.1
Finance costs		(24.0)	(30.2)	(12.9)
Negative goodwill on acquisition	2(b)	-	-	35.0
Profit before taxation		407.0	1,529.6	1,590.2
Taxation (expense)/credit on profit - UK - Overseas	7 7	- (31.7)	6.1 (17.4)	13.9 (48.3)
Profit for the period		375.3	1,518.3	1,555.8
Attributable to : Equity holders of the parent Minority interests		361.7 13.6	1,513.7 4.6	1,543.1 12.7
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)		279.08 278.31	1,065.58 1,063.35	1,137.76 1,135.94

  GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the six months ended 30 June 2008

	Six months  ended 30 June  2008 (unaudited) $'m	Six months  ended 30 June  2007 (unaudited) (restated) $'m	Year ended  31 December  2007 (audited) (restated) $'m
Income and expense recognised directly in equity
(Deficit)/surplus on valuation of financial assets	(11.3)	(0.1)	8.0
Currency translation differences	(51.8)	32.9	27.6
Total (expense)/income recognised direct in equity	(63.1)	32.8	35.6
Profit for the period	375.3	1,518.3	1,555.8
Total recognised income and expense for the period	312.2	1,551.1	1,591.4
Attributable to:
Equity holders of the parent	321.0	1,543.3	1,572.6
Minority interests	(8.8)	7.8	18.8
	312.2	1,551.1	1,591.4

GROUP BALANCE SHEET

As at 30 June 2008

	Notes	As at 30 June 2008 (unaudited) $'m	As at 30 June 2007 (unaudited) (restated) $'m	As at 31 December 2007 (audited) (restated) $'m
Non-current assets
Intangible exploration/appraisal assets	8	585.6	460.6	607.1
Property, plant & equipment - development/producing assets	9	833.9	466.1	498.2
Property, plant and equipment - other		7.8	7.2	6.6
Intangible assets - other		15.4	9.1	16.1
Available for sale financial assets		4.6	7.8	15.9
		1,447.3	950.8	1,143.9
Current assets
Inventory		3.9	5.9	8.0
Trade and other receivables		467.6	209.3	307.0
Bank deposits	10	84.0	-	30.1
Cash and cash equivalents	10	1,207.6	936.0	872.3
Derivative financial instruments		0.1	-	2.4
Income tax assets		6.1	-	7.9
		1,769.3	1,151.2	1,227.7
Total assets		3,216.6	2,102.0	2,371.6
Current liabilities
Trade and other payables		439.5	161.9	273.6
Obligations under finance leases		2.1	1.9	1.9
Provisions		3.7	10.2	8.6
Income tax liabilities		-	4.4	0.1
		445.3	178.4	284.2
Non-current liabilities
Loans and borrowings	10	115.0	75.0	75.0
Obligations under finance leases		3.0	3.1	2.4
Provisions		44.7	24.9	40.1
Deferred tax liabilities		226.8	159.1	200.1
		389.5	262.1	317.6
Total liabilities		834.8	440.5	601.8
Net assets		2,381.8	1,661.5	1,769.8
Equity attributable to equity holders of the parent	11
Called-up share capital		15.9	15.8	15.8
Share premium		218.5	206.8	210.9
Shares held by ESOP Trust		(28.9)	(32.1)	(32.1)
Foreign currency translation		(9.0)	29.7	24.0
Capital reserves - non-distributable		40.2	40.2	40.2
Retained earnings		1,442.9	1,036.7	1,081.8
		1,679.6	1,297.1	1,340.6
Minority interests		702.2	364.4	429.2
Total equity		2,381.8	1,661.5	1,769.8

  GROUP STATEMENT OF CASHFLOWS

For the six months ended 30 June 2008

	Note	Six months ended 30 June 2008 (unaudited) $'m	Six months ended 30 June 2007 (unaudited) (restated) $'m	Year ended 31 December 2007 (audited) (restated) $'m
Cash flows from operating activities
Profit before taxation		407.0	1,529.6	1,590.2
Unsuccessful exploration costs		6.3	33.6	40.7
Depletion, depreciation decommissioning and amortisation		33.8	46.9	125.3
Share based payments charge		14.0	13.1	25.3
Impairment and impairment reversals of oil and gas assets		18.8	15.3	55.2
Loss on sale of oil and gas assets		-	-	0.1
Negative goodwill on acquisition		-	-	(35.0)
Exceptional gain on deemed disposal of subsidiary		(358.7)	(1,539.5)	(1,579.2)
Finance income		(28.1)	(38.5)	(65.1)
Finance costs		24.0	30.2	12.9
Net interest paid		(6.7)	(4.4)	(6.7)
Income tax paid		(5.6)	(7.4)	(14.7)
Gain on sale of property, plant and equipment - other		(0.1)	-	-
Foreign exchange differences		2.5	(0.1)	(2.9)
Movement on inventory of oil and condensate		4.0	(1.3)	(3.4)
Trade receivables movement		(32.8)	11.4	1.9
Trade payables movement		21.2	(16.8)	8.1
Movement in other provisions		5.3	2.7	2.6
Net cash generated from operating activities		104.9	74.8	155.3
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets		(88.2)	(58.3)	(156.4)
Expenditure on tangible development/producing assets		(256.9)	(135.2)	(244.0)
Purchase of property, plant and equipment - other		(1.0)	(1.5)	(2.1)
Purchase of intangible assets - other		(2.3)	(3.3)	(8.5)
Acquisition costs for business combinations		-	-	(77.2)
Cash acquired as a result of business combinations		-	-	7.3
Cash disposed of on disposal of subsidiary		-	-	(6.7)
Proceeds on disposal of subsidiary		-	-	54.4
Proceeds on disposal of property, plant and equipment - other		0.3	-	-
Movement in funds on bank deposit		(55.4)	-	(30.1)
Interest received		27.9	36.0	64.5
Net cash used in investing activities		(375.6)	(162.3)	(398.8)
Cash flows from financing activities
Payment of costs for deemed disposal of subsidiaries		-	(64.3)	(64.3)
Proceeds from deemed disposal of subsidiaries		636.8	1,232.3	1,323.3
Arrangement and facility fees		(7.3)	(6.6)	(22.8)
Currency exchange option		-	(9.7)	-
Proceeds from issue of shares		7.7	5.9	10.0
Payment of finance lease liabilities		(1.2)	(0.7)	(1.4)
Proceeds/(repayment) of borrowings		40.0	(80.0)	(80.0)
Return of cash to shareholders		-	(935.6)	(935.6)
Net cash flows from financing activities		676.0	141.3	229.2
Net increase/(decrease) in cash and cash equivalents		405.3	53.8	(14.3)
Opening cash and cash equivalents at beginning of period		872.3	856.3	856.3
Exchange (losses)/gains on cash and cash equivalents		(70.0)	25.9	30.3
Closing cash and cash equivalents	10	1,207.6	936.0	872.3

  NOTES TO THE ACCOUNTS

For the six months ended 30 June 2008

1. Accounting Policies

Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with IAS 34 'Interim Financial Reporting'.  The disclosed figures are not statutory accounts in terms of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 2007, on which the auditors gave an unqualified report, have been filed with the Registrar of Companies.  Details of prior year adjustments made to comparative information can be found in note 15.

This Interim Report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ended 31 December 2008, and which is also consistent with the accounting policies applied for the year ended 31 December 2007 except for the adoption of new standards and interpretations.

During the period, the Group adopted 'IFRIC 11- Group and Treasury Share Transactions'. The adoption of this interpretation had no impact on the financial position or performance of the Group.  

2. Acquisitions and Disposals 

During 2007 the Group acquired Plectrum Petroleum Plc ('Plectrum') and medOil Plc ('medOil'). As required under IFRS 3 'Business Combinations', fair values were assigned to the identifiable assets and liabilities of those companies including intangible exploration assets. Given the inherently uncertain nature of oil and gas exploration, these fair value calculations are highly judgemental in nature. The fair value calculations were based on the information available at the date of acquisition and have been reassessed in accordance with IFRS 3 during the period ended 30 June 2008.

• Acquisition of Plectrum Petroleum Plc 

On 7 September 2007, the Group announced a recommended cash offer for Plectrum. Plectrum holds a 50% equity interest in the Nabeul permit offshore Tunisia and in addition held interests in Australia, Peru and the UK. The offer was declared unconditional in all respects and Cairn gained control of Plectrum on 10 October 2007. 

The fair value of the identifiable assets and liabilities of Plectrum as at the date of acquisition and the corresponding carrying amounts immediately prior to acquisition were:

	Fair value recognised on acquisition	Previous carrying value
	$'m	$'m
Intangible exploration/appraisal assets	72.6	4.9
Intangible assets - other	-	12.0
Trade and other receivables	4.0	1.3
Cash and cash equivalents	6.1	6.1
Trade and other payables	(3.2)	(3.2)
Deferred tax liabilities	(34.2)	-
Provisions	(1.7)	-
Net Assets	43.6	21.1
Goodwill arising on acquisition	4.4
Total consideration	48.0

Provisions have been reassessed at 30 June 2008 and reduced accordingly. Consequently, goodwill arising on acquisition has been restated to $4.4m from $13.5m reported in the 31 December 2007 financial statements.  

The total cost of the combination was $48.0m which was made up of:

	$'m
Cash purchase of Plectrum shares at 13p per share	46.5
Costs associated with the acquisition	1.5
	48.0

Cash outflow on acquisition:

	$'m
Net cash acquired	6.1
Cash paid on acquisition	(48.0)
Net cash outflow	(41.9)

(b) Acquisition of medOil plc

On 7 September 2007, the Group announced a recommended cash offer for medOil. medOil holds a 100% equity interest in the Louza permit offshore Tunisia and in addition has interests in Albania, Spain and Sicily. The offer was declared unconditional in all respects and Cairn gained control of medOil on 10 October 2007. 

The fair value of the identifiable assets and liabilities of medOil as at the date of acquisition and the corresponding carrying amounts immediately prior to acquisition were:

	Fair value recognised on acquisition	Previous carrying value
	$'m	$'m
Intangible exploration/appraisal assets	66.9	4.0
Trade and other receivables	1.6	-
Cash and cash equivalents	1.2	1.2
Trade and other payables	(1.8)	(1.8)
Provisions	(2.1)	-
Net Assets	65.8	3.4
Negative goodwill arising on acquisition	(35.0)
Total consideration	30.8

Deferred tax liabilities recognised on acquisition have subsequently been reassessed and released in full. Consequently, negative goodwill arising on acquisition has been restated to $35.0m from $17.4m reported in the 31 December 2007 financial statements.  The negative goodwill arises on acquisition as the fair value of the net assets acquired exceeds the consideration paid. In accordance with IFRS the negative goodwill is recognised immediately in the Income Statement.

The total cost of the combination was $30.8m which was made up of:

	$'m
Cash purchase of medOil shares at 23p per share	29.6
Costs associated with the acquisition	1.2
	30.8

Cash outflow on acquisition:

	$'m
Net cash acquired	1.2
Cash received for share warrants exercised	1.6
Cash paid on acquisition	(30.8)
Net cash outflow	(28.0)

3.    Segmental Analysis - Operating segments

During the six months ended 30 June 2008 the Group's operating activities were internally reported to the chief operating decision maker based on two separable areas grouped into different subsidiary entities: Capricorn Oil Group and Cairn India Group. A third segment 'Other' exists to accumulate Cairn UK Holdings Limited and Cairn Energy PLC company which will include the administrative expenses of Cairn's head office in Edinburgh. This also includes taxation and interest expenses of the Group which cannot be allocated to an operating segment. 

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

		Cairn India Group	Capricorn Oil   Group	Other	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
Segmental operating profit/(loss)		84.1	(33.5)	(6.4)	44.2

The segment results for the six months ended 30 June 2007 were as follows:

		Cairn India Group	Capricorn Oil   Group	Other	Six months ended 30 June  2007
		$’m	$’m	$’m	$’m
Revenue from sale of oil, gas and condensate		107.7	30.7	-	138.4
Tariff income		0.3	-	-	0.3
Total revenue		108.0	30.7	-	138.7
Segmental operating profit/(loss)		32.9	(33.1)	(18.0)	(18.2)

The segment results for the year ended 31 December 2007 were as follows:

		Cairn India Group (restated)	Capricorn Oil   Group	Other (restated)	Year ended 31 December  2007 (restated)
		$’m	$’m	$’m	$’m
Revenue from sale of oil, gas and condensate		236.7	50.2	-	286.9
Tariff income		0.8	-	-	0.8
Total revenue		237.5	50.2	-	287.7
Segmental operating profit/(loss)		71.2	(120.2)	(27.2)	(76.2)

The segment assets are as follows:

		Cairn India Group	Capricorn Oil   Group	Other	Group
		$’m	$’m	$’m	$’m
As at 30 June 2008		2,635.6	557.7	23.3	3,216.6
As at 30 June 2007 (restated)		1,603.1	291.4	207.5	2,102.0
As at 31 December 2007 (restated)		1,761.8	584.8	25.0	2,371.6

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.

Other assets include assets of Cairn's head office in Edinburgh, as well as deferred tax assets, interest receivable, deposits, cash and cash equivalents of the Group which cannot be allocated to an operating segment.

4. Impairment and reversal of impairment

	Six months ended 30 June 2008 $'m	Six months ended 30 June 2007 $'m	Year ended 31 December 2007 $'m
Impairment of intangible exploration/appraisal assets	(19.5)	-	(58.9)
Impairment of property, plant & equipment - development/producing assets	-	(15.3)	-
Reversal of impairment of property, plant & equipment - development/producing assets	0.7	-	3.7

At 30 June 2008, 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 $19.5m (31 December 2007: $58.9m) in relation to intangible exploration/appraisal assets was charged to the Income Statement. 

At 30 June 2008, the Group also performed a review of the carrying value of cash generating units within property, plant & equipment - development/producing assets. The review 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 $0.7m (31 December 2007: $3.7m) was recognised through the Income Statement.  

The impairment of property, plant & equipment - development/producing assets at 30 June 2007 followed an impairment review which determined that the estimated net present value of future cash flows was less than the carrying value of the asset in the cash generating unit. As a result a write down of $15.3m was charged to the Income Statement.   Following the sale of Cairn Energy Bangladesh Limited to Santos International holdings Pty Limited there was no impairment at 31 December 2007.

5. Exceptional gain on deemed disposal of subsidiaries

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.

Share option exercises under the Cairn India Senior Management Plan account for the additional reduction of the Company's indirect percentage holding in Cairn India Limited.  At 30 June 2008, the Company retained an indirect holding of 64.76% in Cairn India Limited.

During the period ended 30 June 2007, the Group made an exceptional gain of $1,539.5m (restated) on the deemed disposal of 31% of Cairn India Limited through the Initial Public Offer on the Bombay Stock Exchange and National Stock Exchange of India, which completed on 9 January 2007. Cairn India Limited listed with a partial Initial Public Offer ('IPO') of 538.5m shares of 10 Rupees each, including 209.7m shares by way of pre-IPO placement. A further 13.1m shares were issued during the subsequent stabilisation period. The Company's indirect percentage holding in Cairn India Limited reduced as a result from 100% to 69.0%.  On the settlement of final costs in the second half of 2007, the gain reduced by $0.6m.

The Group also made an exceptional gain of $40.3m on the deemed disposal of 10% of Capricorn Oil Limited (previously Capricorn Energy Limited) to Dyas B.V. on 7 September 2007. This resulted from the issue of share capital by Capricorn Oil Limited in a private placement. The Company retains a direct 90% interest in Capricorn Oil Limited.

6. Share Based Payments

2006 Long Term Incentive Plan (LTIP)

The following awards were made under the 2006 LTIP during the period:

	Capricorn Units			Cairn India Units
Grant Date	Number	Notional exercise price (£)	Fair Value (£)	Number	Notional exercise price (£)	Fair Value (£)
May 2008	3,982,925	1.40	2,070,946	940,084	3.22	967,000

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: 

	Capricorn Units	Cairn India Units
Vesting %	37.14%	31.94%
Volatility %	74%	41%
Risk free rate	4.7% p.a.	4.7% p.a.
Lapse due to withdrawals	nil	nil

2006 Share Option Plan

The following awards were made under the 2006 Share Option Plan during the period:

	Capricorn Units
Grant Date	Number	Notional exercise price (£)	Fair Value (£)
May 2008	939,519	1.40	251,000
June 2008	71,429	1.40	19,000

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: 

	Capricorn Units (May)	Capricorn Units (June)
Vesting %	33.43%	33.43%
Volatility %	74%	74%
Risk free rate	4.7% p.a.	5.1% p.a.
Lapse due to withdrawals	5% p.a.	5% p.a.

The notional exercise price was equal to the notional price of either a Capricorn or Cairn India unit on the date of grant. Details of the vesting conditions and the notional price calculation, for the purposes of the 2006 LTIP and Share Option Plan, can be found within the Directors' Remuneration Report of the Cairn Energy PLC 2007 Annual Report and Accounts.

7. Income Tax

Analysis of tax charge 

	Six months ended 30 June 2008 $’m	Six months ended 30 June 2007 (restated) $’m	Year ended 31 December 2007 (restated) $’m
Current tax:
UK corporation tax
Adjustments in respect of prior periods	-	0.5	(7.6)
	-	0.5	(7.6)
Overseas Tax
Indian Minimum Alternate Tax charge at 10.56% (30 June 2007: 9.80%; 31 December 2007: 10.53% )	2.6	4.9	9.0
Indian Corporate Income Tax charge at 42.23% (30 June 2007: 42.00%; 31 December 2007: 42.13% )	4.6	-	-
Adjustments in respect of prior periods	(2.2)	-	1.6
Withholding taxes deducted at source	-	-	0.3
	5.0	4.9	10.9
Total current tax	5.0	5.4	3.3

Deferred tax:
United Kingdom
Temporary differences in respect of non current assets	-	(4.9)	(1.6)
Losses	-	(0.2)	(4.6)
Other temporary differences	-	(1.5)	(0.1)
	-	(6.6)	(6.3)
India
Temporary differences in respect of non current assets	28.9	17.0	36.7
Losses	-	(4.0)	2.2
Other temporary differences	(2.2)	(0.5)	(1.5)
	26.7	12.5	37.4
Total deferred tax	26.7	5.9	31.1
Tax charge on profit	31.7	11.3	34.4

8. Intangible exploration/appraisal assets

Group additions to intangible exploration/appraisal assets during the six months ended 30 June were $49.2m (six months ended 30 June 2007:$86.0m; year ended 31 December 2007: $180.5m). During the period, Cairn booked reserves in respect of the Bhagyam and Aishwariya oil fields in Rajasthan. As a consequence $35.7m of costs were transferred to property, plant and equipment - tangible development/producing assets. A further $8.0m of cost was transferred relating to a Ravva exploration/appraisal well drilled in 2007 which has subsequently been determined successful. Details of impairment tests and resulting impairments and reversals of impairment can be found in note 4.

9. Property, plant and equipment - Tangible development/producing assets

In addition to the transfer of costs from intangible exploration/appraisal assets noted above, the Group additions to property, plant and equipment - tangible development/producing assets for the six months ended 30 June were $320.9m (six months ended 30 June 2007: $120.0m; year ended 31 December 2008: $245.6m). Details of impairment tests and resulting impairments and reversals of impairment can be found in note 4.

10. Net Funds

	At 1 January 2008 $'m	Cash flow $'m	New finance leases $'m	Exchange movements $'m	At 30 June 2008 $'m
Bank deposits	30.1	55.4	-	(1.5)	84.0
Bank deposits	30.1	55.4	-	(1.5)	84.0
Cash at bank	25.5	(2.9)	-	0.6	23.2
Short term deposits	846.8	408.2	-	(70.6)	1,184.4
Cash and cash equivalents	872.3	405.3	-	(70.0)	1,207.6
Bank loans	(75.0)	(40.0)	-	-	(115.0)
Net cash	827.4	420.7	-	(71.5)	1,176.6
Finance leases	(4.3)	1.2	(2.2)	0.2	(5.1)
Net funds	823.1	421.9	(2.2)	(71.3)	1,171.5

Notes to the Accounts (continued)

11. Equity

	Equity  share capital	Shares held by ESOP Trust			Foreign currency translation	Capital reserves - non distributable		Retained earnings (restated)		Minority interests (restated)	Total Equity (restated)
	$'m	$'m			$'m	$'m		$'m		$'m	$'m
At 1 January 2007 - as reported	226.9		(55.8)	2.8			40.2		464.9	-		679.0
Prior year adjustments (Note 15)	-		-	-			-		(6.1)	-		(6.1)
At 1 January 2007 (restated)	226.9		(55.8)	2.8			40.2		458.8	-		672.9
Exercise of employee share options	5.8		-	-			-		-	-		5.8
Minority interests created on deemed disposal of subsidiary	-		-	-			-		-	354.2		354.2
Share based payments	-		-	-			-		10.7	2.4		13.1
Cost of shares vesting	-		9.9	-			-		(9.9)	-		-
Currency translation differences	2.8		-	26.9			-		-	3.2		32.9
Cash returned to shareholders	(12.9)		13.8	-			-		(936.5)	-		(935.6)
Deficit on valuation of financial assets	-		-	-			-		(0.1)	-		(0.1)
Profit for the period	-		-	-			-		1,513.7	4.6		1,518.3
At 30 June 2007	222.6		(32.1)	29.7			40.2		1,036.7	364.4		1,661.5
Exercise of employee share options	4.1		-	-			-		-	-		4.1
Minority interests created on deemed disposal of subsidiaries	-		-	-			-		-	51.7		51.7
Share based payments	-		-	-			-		10.1	2.1		12.2
Surplus on valuation of financial assets	-		-	-			-		5.6	2.5		8.1
Currency translation differences	-		-	(5.7)			-		-	0.4		(5.3)
Profit for the period	-		-	-			-		29.4	8.1		37.5
At 1 January 2008	226.7		(32.1)	24.0			40.2		1,081.8	429.2		1,769.8
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)	-		-
Currency translation differences	-		-	(33.0)			-		-	(18.8)		(51.8)
Surplus on valuation of financial assets	-		-	-			-		(7.7)	(3.6)		(11.3)
Profit for the period	-		-	-			-		361.7	13.6		375.3
At 30 June 2008	234.4		(28.9)	(9.0)			40.2		1,442.9	702.2		2,381.8

12. Contingent liabilities

There have been no significant changes in contingent liabilities from those reported in the Cairn Energy PLC 2007 Annual Report and Accounts.

13. Capital commitments

At 30 June 2008, the Group had capital commitments of $389.7m (31 December 2007: $698.1m) in relation to intangible exploration/appraisal assets and $1,060.6m (31 December 2007: $88.6m) in relation to property, plant and equipment - development/producing assets, largely relating to the Rajasthan development.  

14.    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 2007 is set out in the Directors Remuneration Report contained in the Cairn Energy PLC 2007 Annual Report and Accounts. There have been no material changes in the period ended 30 June 2008.

(b)    Other transactions

No other related party transactions have taken place in the six months ended 30 June 2008 that have materially affected the financial position or the performance of the Group during that period.

15.    Prior year adjustments

The following prior year adjustments have been recorded in the financial performance for the period ended and the financial position as at the respective dates.  

30 June 2007

Indian deferred tax liabilities

Deferred tax liabilities relating to India have been restated to reflect the taxable temporary difference that remains at the end of the seven year tax holiday period on the Rajasthan tangible development/producing asset in two of the Group's subsidiaries. 

Cairn Energy India Pty Limited had recorded deferred tax liabilities to reflect the difference between the net book value of development/producing assets and tax written down values. However, a liability should only have been created to recognise the taxable temporary difference on balances remaining at the end of the tax holiday period since movements in net book values and tax written down values during the tax holiday period will have no tax impact.  Inconsistencies were also identified in the deferred tax calculations of Cairn Energy India Pty Limited with the rest of the Group and these have also been adjusted (this also resulted in a restatement at 31 December 2007).  

Cairn Energy Hydrocarbons Limited previously had no deferred tax liability recognised due to the availability of Indian tax losses. As these losses will unwind during the tax holiday period, a taxable temporary difference will remain at the end of the tax holiday period reflecting the forecast excess of net book values over tax written down values. A deferred tax liability should therefore have been recognised.

Financial assets

Investments, representing the Group's holding in Videocon Industries Limited, a company listed in India, have been correctly reclassified as available for sale financial assets. This investment was previously recorded as an investment measured at cost but as a reliable measure of fair value was readily available this asset should have been reclassified under IAS 39 in prior years.  

UK deferred tax assets

Deferred tax assets representing UK tax losses available on Indian assets in Cairn Energy Hydrocarbons Limited have been reversed on the basis that they have no economic benefit to the group given the excess of Indian tax rates over UK rates and the availability of double taxation relief. As there would have been no economic benefit associated with the losses in previous years, a prior year adjustment has been made.

Cash returned to the ESOP Trust

Following the cash return to shareholders during 2007, cash was returned to the ESOP Trust and this transaction has now been reflected in the June 2007 financial statements. 

The amount of the prior period adjustments for June 2007 and the financial statement line items affected are shown below. 

		June 2007  Financial Statements		Financial assets adjustment		UK  Deferred taxation adjustment		India Deferred taxation adjustment		Cash returned to ESOP	Restated  June 2007
		$’m		$’m		$’m		$’m		$’m	$’m
Balance Sheet
Financial assets		-		7.8		-		-		-	7.8
Investments		0.1		(0.1)		-		-		-	-
Deferred tax asset		23.4		-		(23.4)		-		-	-
Bank and cash		922.2		-		-		-		13.8	936.0
Total assets		2,103.9		7.7		(23.4)		-		13.8	2,102.0
Deferred tax liabilities		159.0		-		-		0.1		-	159.1
Total liabilities		440.4		-		-		0.1		-	440.5
Net assets		1,663.3		7.7		(23.4)		0.1		13.8	1,661.5
Shares held by ESOP Trust		(45.9)		-		-		-		13.8	(32.1)
Retained earnings		1,048.4		7.7		(23.4)		4.0		-	1,036.7
Total equity attributable to equity     holders of the parent		1,295.0		7.7		(23.4)		4.0		13.8	1,297.1
Minority interests		368.5		-		-		(4.1)		-	364.4
Total equity		1,663.5		7.7		(23.4)		(0.1)		13.8	1,661.5
Income Statement
Exceptional gain on deemed disposal		1,537.6		-		-		1.9		-	1,539.5
Finance costs		(25.2)		-		-		(5.0)		-	(30.2)
Profit before tax		1,532.7		-		-		(3.1)		-	1,529.6
Taxation – UK		7.0		-		(4.5)		3.6		-	6.1
Taxation – Overseas		(16.0)		-		-		(1.4)		-	(17.4)
Profit for the period		1,523.7		-		(4.5)		(0.9)		-	1,518.3
Profit for the period attributable to:           Equity holders of the parent		1,516.8		-		(3.1)		-		-	1,513.7
Minority interests		6.9		-		(1.4)		(0.9)		-	4.6
Earnings per share – basic (cents)		1,067.81		-		(2.23)		-		-	1,065.58
Earnings per share – diluted (cents)		1,065.60		-		(2.25)		-		-	1,063.35
Statement of Recognised Income and Expense
Deficit on valuation of financial     assets		-		(0.1)		-		-		-	(0.1)
Total income/expense recognised     directly in equity		32.9		(0.1)		-		-		-	32.8
Profit for the period		1,523.7		-		(4.5)		(0.9)		-	1,518.3
Total recognised income and expense for the period		1,556.6		(0.1)		(4.5)		(0.9)		-	1,551.1

31 December 2007

Fair Values on acquisition of subsidiaries

Fair values were assigned to the assets and liabilities of subsidiaries acquired during 2007. Under IFRS 3, these fair values have been re-assessed during the period. See note 2 for further details.

Indian deferred tax liabilities

Cairn Energy India Pty Limited had recorded deferred tax liabilities to reflect the difference between the net book value of development/producing assets and tax written down values.  Inconsistencies were identified in the deferred tax calculations of Cairn Energy India Pty Limited with the rest of the Group and these have now been adjusted.  

The amount of the prior period adjustments for December 2007 and the financial statement line items affected are shown below. 

		December 2007 Financial Statements		IFRS 3 restatements		India Deferred taxation adjustments		Restated December 2007
		$’m		$’m		$’m		$’m
Intangible assets – other		25.2		(9.1)		-		16.1
Total assets		2,380.7		(9.1)		-		2,371.6
Provisions		17.7		(9.1)		-		8.6
Deferred tax liabilities		220.1		(17.6)		(2.4)		200.1
Total liabilities		630.9		(26.7)		(2.4)		601.8
Net assets		1,749.8		17.6		2.4		1,769.8
Retained earnings		1,064.3		15.8		1.7		1,081.8
Total equity attributable to equity     holders of the parent		1,323.1		15.8		1.7		1,340.6
Minority interests		426.7		1.8		0.7		429.2
Total equity		1,749.8		17.6		2.4		1,769.8
Income Statement
Exceptional gain on deemed disposal		1,577.3		-		1.9		1,579.2
Finance costs		(30.3)				17.4		(12.9)
Negative goodwill on acquisition		17.4		17.6		-		35.0
Profit before taxation		1,553.3		17.6		19.3		1,590.2
Taxation - Overseas		(39.3)		-		(9.0)		(48.3)
Profit for the year		1,527.9		17.6		10.3		1,555.8
Profit for the year attributable to:           Equity holders of the parent		1,519.6		15.8		7.7		1,543.1
Minority interests		8.3		1.8		2.6		12.7
Earnings per share – basic (cents)		1,120.38		11.70		5.68		1,137.76
Earnings per share – diluted (cents)		1,118.57		11.70		5.67		1,135.94
Statement of Recognised Income and Expense
Profit for the year		1,527.9		17.6		10.3		1,555.8
Total recognised income and expense for the period		1,563.5		17.6		10.3		1,591.4

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 2008 which comprises Group Income Statement, Group Statement of Changes in Equity, Group Balance Sheet, Group Statement of Cash Flows and the related notes 1 to 15. 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 2008 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 2008

  GLOSSARY OF TERMS 

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

$	United States dollars
$'m	million dollars
2D/3D	two dimensional/three dimensional
2P	proven plus probable
AGIs	above ground installations
Board	the Board of Directors of Cairn Energy PLC
boe	barrels of oil equivalent
boepd	barrels of oil equivalent per day
bopd	barrels of oil per day
Cairn	Cairn Energy PLC and/or its subsidiaries as appropriate
Cairn India	Cairn India Limited and/or its subsidiaries as appropriate
Capricorn	Capricorn Energy Limited
Company	Cairn Energy PLC
DoC	Declaration of Commerciality
EOR	enhanced oil recovery
EPC	Engineering Procurement and Construction
FDP	field development plan
GoI	Government of India
Group	the Company and its subsidiaries
IAS	International Accounting Standard
IFRS	International Financial Reporting Standard
IPO	initial public offering
JV	joint venture partners
medOil	medOil plc
mmbbls	million barrels of oil
mmboe	million barrels of oil equivalent
mmscfd	million standard cubic feet of gas per day
mmscf	million standard cubic feet of gas
NELP VII	Seventh New Exploration Licensing Policy round
ONGC	Oil and Natural Gas Corporation
Plectrum	Plectrum Petroleum Plc
RoU	Rights of Use
STOIIP	Stock Tank Oil Initially in Place
USGS	U.S. Geological Survey

  NOTES TO EDITORS

• Cairn Energy PLC ('Cairn') is an Edinburgh-based oil and gas exploration and production company listed on the London Stock Exchange. Following the IPO of Cairn India in January 2007, there are two separate arms to the business: 

  • Cairn India limited ('Cairn India') is now an autonomous business listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 14 India and Sri Lanka acreage blocks. Cairn currently retains a 65% interest in Cairn India. 

  • Capricorn Energy Limited ('Capricorn'), a subsidiary of Cairn is the exploration focused arm. Capricorn now has assets in Bangladesh, Nepal, Northern India, Greenland, Tunisia, Peru, Albania, and pending licence awards in Sicily. 

• 'Cairn' where referred to in this release means Cairn Energy PLC and/or its subsidiaries (including Cairn India and Capricorn), as appropriate. 

• 'Cairn India' where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate. 

• 'Capricorn' where referred to in this release means Capricorn Energy Limited and/or its subsidiaries as appropriate. 

• 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. 

• Capricorn acquired Plectrum Petroleum plc and medOil plc in September 2007.  

• Cairn India is headquartered in Gurgaon on the outskirts of Delhi, with operational offices in Chennai, Gujarat, Andhra Pradesh and Rajasthan. 

• Cairn Energy PLC (including Capricorn) will continue to be run from Edinburgh with operational offices in Dhaka, Chittagong, Kathmandu and Tunis.

For further information on Cairn see www.cairn-energy.plc.uk

 

END

 

 

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