Interim Results
Cairn Energy PLC
7 September 2000
CAIRN ENERGY PLC
INTERIM RESULTS ANNOUNCEMENT
Strong financial results, three gas discoveries including major find in core
Indian market, and commencement of multi-well exploration programme.
HIGHLIGHTS
* Turnover up 86% year on year to £55.9m (H1 1999: £30.1m)
* Operating profit up fourfold to record £30.0m (H1 1999: £7.9m)
* Pre-tax profit up 167% to £29.9m (H1 1999: £11.2m)
* Operating cash flow of £33.9m (H1 1999: £9.2m)
* Net cash of £7.2m at 30 June 2000
* Signature of Production Sharing Contract ('PSC') for 100% interest in
new Indian block
* Significant gas discoveries in western India and Bangladesh, with
additional drilling success in The Netherlands
Bill Gammell, Chief Executive, commented:
'We are delighted to be reporting record turnover, cash flow and profits.
Cairn has recently commenced a high impact drilling programme in the Indian
sub-continent and we expect continuing strong financial performance in the
second half.'
Enquiries to:
Cairn Energy PLC:
Bill Gammell, Chief Executive Tel: 0385 557 310
Mike Watts, Exploration Director Tel: 0468 631 328
Kevin Hart, Finance Director Tel: 07771 934 974
Brunswick Group Limited:
Victoria Sabin Tel: 0207 396 7422
Melissa Miller Tel: 0207 396 7487
CHAIRMAN'S STATEMENT
OVERVIEW
In order to create shareholder value in a cyclical industry, exploration and
production companies must have a compelling vision augmented with a real
competitive business edge. Cairn's core area of focus since the early 1990s
has been the Indian sub-continent where the Group now has commanding
positions strategically placed to access key growing energy markets.
The Group's portfolio in the Indian sub-continent offers substantial organic
growth potential in four proven but under explored hydrocarbon provinces
combined with a long life, low operating cost production base.
Cairn's focus on high impact exploration met with success in May 2000 with
the discovery of the Lakshmi gas field in Block CB-OS/2 in western India,
immediately adjacent to one of the main energy demand centres in the state
of Gujurat. The company's robust financial position has enabled it to plan a
continuous multi-well exploration programme across its entire acreage
portfolio in the Indian sub-continent. This drilling campaign is now
underway and significantly, it offers the potential to add material new
reserves over the next 12 months.
RESULTS AND FINANCIAL PERFORMANCE
Financial Highlights
% Increase/
H1 2000 H1 1999 (Decrease)
Production (boepd) 21,180 21,265 (0.4)
Average price per boe ($) 22.45 12.58 78
Turnover (£m) 55.9 30.1 86
Average production costs per
boe ($) 5.05 4.79 5
Pre-tax profit (£m) 29.9 11.2 167
Profit after tax (£m) 18.3 7.7 138
Operating cash flow (£m) 33.9 9.2 268
The first half of 2000 has seen a continuation of the high oil price
environment experienced during the latter half of 1999. These conditions,
together with the Group's low cost production base, have ensured that Cairn
remains in a strong financial position as it enters a period of increased
capital expenditure.
The average oil price realised for the first half of 2000 was $22.45 per boe
compared with $12.58 per boe for the equivalent period in 1999. Average
daily production was 21,180 boepd, a modest decrease on the record 21,265
boepd achieved during the corresponding period last year.
Turnover from continuing operations increased by 86% year on year to £55.9m
(H1 1999: £30.1m). Average production costs for the period were just $5.05
per boe (H1 1999: $4.79 per boe). Operating profit after an exceptional item
of £0.9m relating to restructuring costs was a record £30.0m (H1 1999:
£7.9m).
Administrative expenses excluding exceptionals for the period were £3.6m (H1
1999: £3.6m). Net interest payable was £0.3m (H1 1999: net received £0.1m)
and the Group realised a foreign currency exchange gain of £0.2m (H1 1999:
£1.2m). An £11.6m tax charge arises on profits in India and the UK,
resulting in profit after tax of £18.3m (H1 1999 £7.7m). This represents a
138% increase year on year.
The Group's operating cash flow remained strong during the period with net
cash inflow from operations after administrative expenses, interest and
taxation totalling £31.1m.
Cash outflow from capital expenditure for the period was £14.1m, the
majority of which was exploration spend.
At 30 June 2000 the Group had net cash of £7.2m.
Share Buy-Back Programme
On 6 and 7 July 2000 the Company purchased a total of 3,670,000 of its own
shares thereby continuing its successful share buy-back programme. Over the
past 10 months the Company has purchased 23,720,322 of its own shares
(representing approximately 15% of the issued share capital) at an average
price of £1.38 and a total cost of £33m. The buy-backs are in accordance
with the Company's stated objective of enhancing net asset value per share
for shareholders.
OPERATIONS
BANGLADESH
Production
Sangu (Shell operator, Cairn 37.5%)
During the first half of 2000, offtake from the Sangu gas field averaged 128
MMscfd, an increase of 33% on the 96 MMscfd achieved for the corresponding
period last year and 13% on the second half of 1999 (113 MMscfd). The
realised gas price for the period was $2.87/mcf, close to the contract
ceiling price of $2.89/mcf. Production volumes continue to be published on a
monthly basis on Cairn's website.
Pursuant to the terms of the Sangu GSPA, the Cairn/Shell Joint Venture ('the
Joint Venture') and Petrobangla await the outcome of an expert re-
determination regarding an increase in the DCQ from the present 160 MMscfd
to 200 MMscfd.
Exploration
Blocks 15 and 16 (Cairn 50.0%)
The South Sangu-1 exploration well, in which Cairn was carried 100% by
Shell, discovered an extension of the producing Sangu gas field in January
2000. The well intersected 34 gross metres of normally pressured gas-bearing
sandstone at depths of around 3,300m. The well then drilled into the highly
over-pressured 'deep' reservoir section to a depth of over 4,600m,
encountering gas shows in several sections. Prior to log evaluation, an
internal blow-out occurred which resulted in cross-flow of fluids (assumed
to be high pressure water) between zones at different depths. Technical
difficulties prevented operations which could have stopped this cross-flow
and the well had to be abandoned. The Joint Venture plans to re-drill the
Sangu deep prospect from a nearby surface location as soon as practicable.
It is anticipated that almost the entire cost of the re-drill will be
covered by a claim under the Joint Venture's insurance policy. The Joint
Venture is continuing to use the Cairn-owned EEIV in the forward programme
and the rig is currently operating on Sandwip East-1.
In addition, the Joint Venture initialled PSCs for Blocks 5 and 10 (Cairn
45%) with the Government of Bangladesh in June 2000. The PSCs are yet to be
signed. It has been agreed with the Government that commitment exploration
wells will not have to be drilled on the acreage until there is a
demonstrable market. Twenty-five million dollars ($25m) of Cairn's net
expenditure will be carried by Shell as part of the original farm-in
agreement.
INDIA
Eastern India - Krishna-Godavari Basin
Production
Ravva (Cairn operator, 22.5%)
Ravva remains on plateau production and averaged 49,200 bopd and 24 MMscfd
for the first half of 2000. In February 2000, Ravva cumulative production
exceeded 50 million barrels of oil.
All necessary approvals have now been obtained to develop the non-associated
(dry gas) satellite gas fields at Ravva. The Development Plan anticipates 30
MMscfd of additional gas production commencing Q3 2001. The gas is to be
sold to GAIL at a price linked to a premium over HSFO but between $2.30 and
$3.30/mcf.
A 310 km sq 3D seismic survey was completed over the Ravva block in Q2 2000.
Exploration
Block KG-OS/6 (Cairn operator, 50%)
Cairn acquired two 3D seismic programmes, totalling 760 km sq, over this
block during the first half of 2000, supplementing the 1,500 km of 2D
seismic acquired over winter 1999/2000. The first of a two well exploration
programme on the block is planned commencing Q4 2000.
Block KG-DWN-98/2 (Cairn operator, 100%)
Cairn signed a PSC with the Government of India for this block on 12 April
2000.
A 1,500 km sq 3D seismic survey was acquired in Q2 2000 over the northern
portion of the block, which includes a pre-existing oil discovery. An
exploration well is anticipated to commence in early Q1 2001.
Western India
Block CB-OS/2, Cambay Basin (Cairn operator, 75%)
Cairn drilled its first offshore exploration well in Block CB-OS/2 in April
making a significant gas discovery (Lakshmi). Further appraisal drilling is
required and planned to commence in October. Cairn's current estimated gross
unrisked mean reserves for Lakshmi are approximately 400 Bcf.
ONGC has a right to increase its stake on declaration of commerciality
(Government back-in right pursuant to the PSC). In this case, Cairn's equity
interest in the Lakshmi Development Area would reduce from 75% to 50%.
Exploration drilling will re-commence during Q4 2000 with up to four
exploration wells planned.
Block RJ-ON-90/1, Rajasthan Basin (Cairn operator, 50%)
Cairn has commenced a comprehensive seismic acquisition programme consisting
of 1,000 km of 2D infill seismic across the basin and 200 km sq of 3D
seismic over the structural trend of the Guda oil discovery. Exploration
drilling is planned to commence during the first half of 2001.
NORTH SEA
Cairn continues to hold small interests in several non-operated UK and Dutch
producing properties in the North Sea. Average net production for these two
areas in the first half of 2000 was 3,507 boepd. Whilst non-core, these
assets provide relatively stable cash flows to help fund Cairn's projects in
the Indian sub-continent.
The Gryphon Joint Venture (Cairn 10%) is currently operating an infill well,
9/18b-Cent-A. If successful, this well could significantly add to Gryphon's
total daily production, which is currently approximately 18,000 bopd (1,800
bopd net to Cairn).
In April 2000, the operator of block P6 (Cairn 9.75%) announced a gas
discovery with the P6-9 exploration well. Further appraisal of this
discovery is planned with the P6-10 well in Q4 2000. Early development
options are currently being reviewed by the P6 Group with the aim of
achieving first production in 2001. In addition, a small gas discovery was
recently made on block P9 (Cairn 4.7%), the commerciality of which remains
to be established.
RESERVES
Booked 2P reserves at 30 June 2000 were 84 million boe on a net entitlement
basis (equivalent to 108 million boe on a working interest basis), with 93%
of these reserves in the Indian sub-continent. Reserves attributed to the
Lakshmi, South Sangu and P6-9 gas discoveries are expected to be booked at
the year end following completion of the respective development plans.
OUTLOOK
Cairn intends to move quickly with its focused drilling and exploration
programme in key blocks across India and Bangladesh. Commencing with the
Sandwip East-1 exploration well in August, Cairn has embarked on a
continuous multi-well programme which it is hoped will see at least 13 high
impact exploration prospects drilled in India (10 wells) and Bangladesh (3
wells) over the next 12 months. The estimated mean unrisked reserve
potential of these prospects is 1.86 billion boe gross and 930 million boe
net to Cairn on a working interest basis. The estimated cost of drilling
these exploration wells net to Cairn is approximately £40m.
Early monetisation of the Lakshmi gas discovery is a key objective for
Cairn. This will entail appraisal of the discovery and securing a GSPA
during the second half of 2000, followed by a rapid development programme
throughout 2001 in order to achieve first gas by January 2002.
BOARD OF DIRECTORS
I am pleased to report that Malcolm Thoms BSc MBA was appointed to the Board
as an Executive Director with effect from 1 July 2000. Malcolm (44) joined
Cairn in 1989 in a commercial role and, in addition to his existing duties
as Group General Manager, has assumed specific responsibility for the
Group's assets in Bangladesh.
GLOSSARY OF TERMS
The following are the main terms and abbreviations used in the Chairman's
Statement:-
Corporate
The Board the Board of Directors of Cairn Energy PLC
The Company Cairn Energy PLC
The Group the Company and its subsidiaries
Cairn the Company and/or its subsidiaries as appropriate
EEIV Energy Explorer IV drilling rig
GAIL Gas Authority of India Limited
ONGC Oil & Natural Gas Company Ltd.
(Indian state oil and gas company)
Petrobangla Bangladesh Oil, Gas & Mineral Corporation
(Bangladesh state oil and gas company)
Shell Shell Bangladesh Exploration and Development B.V.
Technical
Bcf billion cubic feet
boe barrels of oil equivalent
boepd barrels of oil equivalent per day
bopd barrels of oil per day
DCQ Daily Contract Quantity
GSPA Gas Sales and Purchase Agreement
HSFO High Sulphur Fuel Oil
km kilometres
km sq square kilometres
/mcf per metric cubic foot
MMscf million standard cubic feet of gas
MMscfd million standard cubic feet of gas per day
PSC(s) Production Sharing Contract(s)
2D two dimensional
3D three dimensional
2P proved and probable
Note:
This press release contains forward looking statements that reflect Cairn's
expectations regarding future events. Forward looking statements involve
risks and uncertainties. Actual events could differ materially from those
projected herein and depend on a number of factors including the
uncertainties relating to oil and gas exploration and production and sale of
oil and gas.
Cairn Energy PLC
Consolidated Profit and Loss Account (unaudited)
For the six months to 30 June 2000
N Continuing Contin- Six months Six months Year
o operations uing to 30 June to 30 June ended 31
t £'000 Opera- 2000 1999 Dec 1999
e tions £'000 £'000 £'000
s excep-
tional
items
£'000
Turnover
Producing 55,112 - 55,112 30,055 74,611
Rig 816 - 816 - 2,210
__________ _______ ___________ _________ ________
55,928 - 55,928 30,055 76,821
Cost of sales
Production
costs (12,458) - (12,458) (11,030) (24,435)
Rig operating
costs (579) - (579) - (2,861)
Depletion (6,952) - (6,952) (5,954) (14,317)
Decommis-
sioning
charge (179) - (179) (133) (304)
Deprecia-tion
of rig (1,243) - (1,243) - (3,139)
__________ _______ ___________ _________ ________
Gross profit 34,517 - 34,517 12,938 31,765
Write-down of
oil and gas
assets - - - - (1,246)
Write-down of
rig - - - - (2,291)
Administra-
tive expenses 1 (3,634) (911) (4,545) (5,056) (8,675)
__________ _______ ___________ _________ ________
Operating
profit/
(loss) 30,883 (911) 29,972 7,882 19,553
Gain on
disposal of
listed
investment - - - - 2,128
Write back
value of
listed
investment - - - 1,980 -
__________ _______ ___________ _________ ________
Profit/
(loss) on
ordinary
activities
before
interest 30,883 (911) 29,972 9,862 21,681
Interest
receivable
and similar
income 504 - 504 1,668 1,932
Interest
payable and
similar
charges (569) - (569) (338) (669)
__________ _______ ___________ _________ ________
Profit/
(loss) on
ordinary
activities
before
taxation 30,818 (911) 29,907 11,192 22,944
Taxation on
profit on
ordinary
activities
-current (5,767) - (5,767) (470) (2,532)
-deferred (5,812) - (5,812) (3,050) (4,160)
__________ _______ ___________ _________ ________
(11,579) - (11,579) (3,520) (6,692)
Profit/
(loss) for
the period 19,239 (911) 18,328 7,672 16,252
__________ _______ ___________ _________ ________
Earnings per
ordinary
share -basic 12.17p 4.50p 9.66p
Earnings per
ordinary
share -
diluted 12.13p 4.50p 9.63p
Notes:
1 The exceptional charge relates to the costs of restructuring the Group
2 In accordance with a Special Resolution passed at the Annual General
Meeting on 2 May 2000, and after receiving clearance from the Court of
Session on 30 June 2000, the Group's share premium account has been
reduced by £110,000,000. £73,565,000 has been transferred to the
Group's Profit and Loss account and the remaining £36,435,000 has been
transferred to a Special Reserve.
3 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 1999, on which the auditors gave an unqualified report, have
been filed with the Registrar of Companies
4 No dividend has been declared.
Cairn Energy PLC
Consolidated Balance Sheet (unaudited)
As at 30 June 2000
As at As at As at
30 June 30 June 1999 31 Dec 1999
2000 £000 £000
£000
Fixed Assets
Exploration assets 154,384 117,756 130,041
Development/producing assets 112,898 122,473 110,706
Other fixed assets 17,571 22,014 17,813
Investments 555 758 685
___________ ___________ __________
285,408 263,001 259,245
Current Assets
Debtors 47,331 56,495 38,342
Investments - 3,765 -
Cash at bank 10,535 19,017 8,517
___________ ___________ __________
57,866 79,277 46,859
Creditors:
amounts falling due within
one year 44,651 49,066 42,247
___________ ___________ __________
Net current assets 13,215 30,211 4,612
___________ ___________ __________
Total assets less current
liabilities 298,623 293,212 263,857
Provision for liabilities and
charges 5,240 8,355 6,212
Deferred taxation 15,340 13,315 8,627
___________ ___________ __________
Net assets 278,043 271,542 249,018
___________ ___________ __________
Capital and reserves - equity
interest
Called-up share capital 15,067 17,055 15,060
Share premium 72,489 182,370 182,439
Special reserve 36,435 - -
Capital reserves - non-
distributable 50,120 48,115 50,120
Capital reserves -
distributable 41,537 68,193 41,537
Profit & loss account 62,395 (44,191) (40,138)
___________ ___________ __________
Shareholders' funds 278,043 271,542 249,018
___________ ___________ __________
Cairn Energy PLC
Group Statement of Total Recognised Gains and Losses (unaudited)
For the six months to 30 June 2000
Six months Six months Year ended
to to 31 Dec 1999
30 June 30 June 1999 £000
2000 £000
£000
Profit for the period 18,328 7,672 16,252
Unrealised foreign exchange
differences 10,640 7,132 1,779
________ ________ ________
Total recognised gains and
losses for the period 28,968 14,804 18,031
________ ________ ________
Reconciliation of Movements in Shareholders' Funds (unaudited)
For the six months to 30 June 2000
Six Six Year
months months to ended
to 30 June 31 Dec
30 June 1999 1999
2000 £000 £000
£000
Total recognised gains and losses
for the period 28,968 14,804 18,031
New shares issued in respect of
employee share options 57 5 84
Repurchase of shares - - (26,656)
________ ________ ________
Net additions/(deductions) to
shareholders' funds 29,025 14,809 (8,541)
Opening shareholders' funds 249,018 256,733 257,559
________ ________ ________
Closing shareholders' funds 278,043 271,542 249,018
________ ________ ________
Cairn Energy PLC
Group Statement of Cash Flows (unaudited)
For the six months to 30 June 2000
N Six months Six months Year ended
o to to 31 Dec 1999
t 30 June 30 June 1999 £000
e 2000 £000
s £000
Net cash inflow from operating
activities 33,902 9,151 36,624
Returns on investments and
servicing of finance (224) 286 675
Taxation (2,539) (1,020) (14,053)
Capital expenditure and
financial investment
Purchase of exploration
assets (11,199) (7,275) (25,282)
Purchase of
development/producing assets (2,352) (454) (1,309)
Purchase of other fixed assets
(including Energy
Explorer IV) (500) (1,898) (3,758)
Purchase of own shares - (802) (802)
Sale of other fixed assets - 183 226
Sale of current asset
investments - - 3,857
Cash receipts from Shell 1 - 52,763 52,763
________ ________ ________
(14,051) 42,517 25,695
________ ________ ________
Equity dividends paid - - -
________ ________ ________
Net cash inflow before use of
liquid resources and financing 17,088 50,934 48,941
Management of liquid resources 2
Cash on short term deposit (6,812) (16,944) -
Financing
Issue of shares 57 5 84
Repurchase of shares - - (26,656)
Debt drawdowns - - 18,070
Repayment of debt (15,127) (36,995) (36,995)
_________ ___________ ___________
(15,070) (36,990) (45,497)
_________ ___________ ___________
(Decrease)/increase in cash in
the period (4,794) (3,000) 3,444
_________ ___________ ___________
Reconciliation of operating
profit to operating cash flows
Operating Profit 29,972 7,882 19,553
Depletion, depreciation and
decommissioning 8,817 6,648 18,862
Amortisation of long term
incentive plan 134 44 178
Exceptional write-down of oil
and gas assets - - 1,246
Exceptional write-down of rig - - 2,291
Exceptional administrative
expenses 911 1,457 1,594
Working capital movement (6,051) (7,540) (4,587)
Other provisions (1,310) 738 (547)
Loss/(gain) on sale of other
fixed assets - 27 (137)
Foreign exchange differences 1,940 604 30
_________ ___________ ___________
34,413 9,860 38,483
Cash outflow on closure of
Sydney office - (709) (870)
Cash outflow on transfer of
Operatorship and Group
restructuring (511) - (989)
_________ ___________ ___________
Net cash inflow from operating
activities 33,902 9,151 36,624
_________ ___________ ___________
Notes:
1 During 1998, the Group sold part of its interests in Bangladesh to
Shell for consideration of US$65m, plus recovery of back costs. The
proceeds were included within debtors at 31 December 1998.
2 Short term deposits of less than one year are disclosed as liquid
resources.
NOTES:
1 No dividend has been declared (H1 1999: nil).
2 The earnings per ordinary share is calculated on a profit of
£18,328,000 (H1 1999: £7,672,000) on a weighted average of 150,607,060
(H1 1999: 170,539,327) ordinary shares.
The diluted earnings per ordinary share is calculated on a profit of
£18,328,000 on 151,142,454 (H1 1999: 170,550,322) ordinary shares,
being the basic weighted average of 150,607,060 (H1 1999: 170,539,327)
ordinary shares and the dilutive potential ordinary shares of 535,394
(H1 1999: 10,995) ordinary shares relating to share options.
INDEPENDENT REVIEW REPORT TO CAIRN ENERGY PLC
Introduction
We have been instructed by the Company to review the financial information
set out on pages 8 to 12 and we have read the other information contained in
the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The Interim Report, including the financial information contained therein,
is the responsibility of, and has been approved by the Directors. The
Listing Rules of the Financial Services Authority require that the
accounting policies and presentation applied to the interim figures should
be consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board. A review consists principally
of making enquiries of group management and applying analytical procedures
to the financial information and underlying financial data and based
thereon, assessing whether the accounting policies and presentation have
been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with Auditing Standards and therefore provides
a lower level of assurance than an audit. Accordingly we do not express an
audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 30 June 2000.
Ernst & Young
Edinburgh
7 September 2000
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