Interim Results Announcement
Cairn Energy PLC
20 September 2005
EMBARGOED FOR RELEASE AT 07:00 20th September 2005
CAIRN ENERGY PLC
INTERIM RESULTS ANNOUNCEMENT
Operational - Rajasthan (Block RJ-ON-90/1)
Development
• Independently certified Mangala, Bhagyam and Aishwariya 2P oil in
place increased to 1.7 billion barrels
• Cairn estimated gross life of field 2P reserves and 2P reserves plus
EOR resource for Mangala, Bhagyam and Aishwariya upgraded to 514 and 685 mmbbls
• Current discoveries potential production now in excess of 150,000 bopd
• Finalised Field Development Plan for Mangala to be submitted in
October 2005
• Declaration of Commerciality submitted for Bhagyam, N-I and Shakti
fields
• Rajasthan crude to be purchased by appointed nominee MRPL, an ONGC
subsidiary
• Early oil production from Raageshwari and Saraswati scheduled for mid
2006
Exploration and Appraisal
• Guda upgraded, highlighting potential of Southern area: Guda-7 tests
2,150 bopd
• Encouraging ongoing Vijaya and Vandana appraisal programme
• Exploration 3D seismic acquired between Bhagyam and Mangala fields
Operational - Rest of South Asia
• Five new exploration blocks awarded to Cairn and partners in Indian
licensing round
• Potentially significant deepwater Krishna-Godavari Basin gas discovery
(Cairn 10%)
• Preparations underway to drill first Cairn exploration well in Ganga
Basin
• Successful infill development wells drilled on Sangu and Lakshmi
Financial
• Average production of 27,909 boepd (H1 2004: 24,799 boepd)
• Average price received per boe $24.39 (H1 2004: $24.61 per boe)
• 2005 Interims prepared under IFRS and comparatives restated
• Profit after tax of £24.0m (H1 2004: £23.6m)
• Net funds at 30 June 2005 £85.1m (H1 2004: £3.2m)
Bill Gammell, Chief Executive said:
'Rajasthan remains the catalyst for Cairn's continued growth in South Asia.
We have to date found more than 2.5 billion barrels of oil in place in Rajasthan
. While we move from discovery towards development and future production on the
core fields we are still exploring and appraising key parts of the block that
show clear growth potential.
Cairn has created a world class strategic position in South Asia and looks
forward to an increasing resource and production base at a time when oil prices
and interest in India have never been higher.'
Enquiries to:
Cairn Energy PLC: Tel: 0131 475 3000
Analysts
Bill Gammell, Chief Executive
Mike Watts, Exploration Director
Kevin Hart, Finance Director
Media
David Nisbet, Head of Group Communications
Brunswick Group LLP: Tel: 0207 404 5959
Patrick Handley, Catherine Hicks, Mark Antelme
Cairn Energy Live Audio Webcast
There will be an audio webcast of the 2005 Interim Results presentation at
9:00am(GMT+1) on Tuesday 20 September 2005.
This will be available on the Cairn Energy PLC website:
http://www.cairn-energy.plc.uk
An archived version of the webcast will be available in the afternoon.
CHAIRMAN'S STATEMENT
From Discovery to Development and Production
Cairn has been active for more than a decade in South Asia, where it has
consistently created and delivered value.
The Company has built and grown a substantial strategic business that helps meet
the growing energy needs of India and Bangladesh. To date investment in the
region by Cairn and its partners has exceeded two billion dollars. This has
resulted in numerous significant oil and gas discoveries and the development of
several large-scale producing properties. Cairn has a strong financial base from
which to accelerate investment as the Rajasthan fields are developed.
The major thrust of Cairn's exploration, appraisal and development activities
has been focused on Rajasthan in India, where further seismic operations,
drilling and testing have continued to add to Cairn's resource base.
Mangala is the biggest oil find in India for 22 years and among 12 discoveries
made by Cairn in Rajasthan. Since the Mangala discovery 18 months ago the
Company's focus has been on establishing and then appraising all of the existing
discoveries on the block. The combined 2P (proved plus probable) oil in place
for Mangala, Bhagyam and Aishwariya, currently the three largest fields, has
been independently certified to be 1.7 billion barrels. Cairn estimates the
associated gross potential resource for these three fields to be between 514 and
685 million barrels of oil (mmbbls).
The Field Development Plan (FDP) for Mangala, Aishwariya, Saraswati and
Raageshwari has been completed and will be submitted to the Government of India
(GoI) by October 2005. Cairn continues to target first oil from Mangala at the
end of 2007, although the integration of Bhagyam and the other discoveries into
the overall northern fields development may require a modification to the
schedule in order that the development is undertaken in an optimal manner.
The Bhagyam field, which is the second largest on the Rajasthan block, has been
upgraded following appraisal and the interpretation of 3D seismic and evaluation
work is still on going. Cairn currently estimates that the field has around 100
mmbbls of gross 2P life of field reserves. An additional contingent resource of
49 mmbbls is thought to be achievable through the application of Enhanced Oil
Recovery (EOR) techniques. Adjacent to Bhagyam is the small N-I field; this
discovery and similar sized exploration prospects identified on the Bhagyam 3D
seismic demonstrate the potential for satellite fields close to the larger
fields. An application to extend the present Development Area has been submitted
to the GoI to include the Bhagyam, N-I and Shakti discoveries.
The potential of the other nine discoveries in Rajasthan and specifically those
in the central and southern fields is still being evaluated. In particular the
recent drilling and testing results at Guda in the southern area are very
encouraging and indicate the potential for further upside. Production from the
Saraswati and Raageshwari fields, which are also in the southern part of the
block, is scheduled to start in the middle of next year.
In line with the Company's objectives, progress has been made on various
community projects in the vicinity of operations in Rajasthan, which have been
achieved with the full support of the local communities. These have included
improvements to school buildings and supporting water projects. Cairn has also
entered into a programme with the International Finance Corporation (IFC)
through which technical and financial assistance will be provided in the design
of plans for community and local economic development in connection with the
Rajasthan Development Project.
Elsewhere in Cairn's South Asian portfolio, there has also been significant
infill development drilling campaigns on the Lakshmi and Sangu producing gas
fields. This drilling has been successful in restoring deliverability from these
fields. There have also been a number of production initiatives on the Ravva oil
field, which have resulted in improved reservoir performance.
Earlier this month what appears to be a significant gas discovery in the
Krishna-Godavari deepwater offshore basin was made with our Joint Venture
partner ONGC. Despite increasing international and domestic competition, Cairn
was successful in the latest bidding round of blocks on offer from the GoI in
India's fifth New Exploration Licensing Policy (NELP-V). Cairn was awarded five
new blocks with ONGC, our main partner in India, and was partnered in a Joint
Venture for the first time by the Italian group ENI in a new block in Rajasthan.
RESULTS AND FINANCIAL PERFORMANCE
Cairn's underlying financial position, including a strong balance sheet and net
funds, provide the flexibility that enables it to pursue the
company-transforming developments in Rajasthan.
Key Statistics H1 2005 H1 2004* % Increase/
(Decrease)
Production (boepd)*** 27,909 24,799** 13
Average price per boe ($) 24.39 24.61 (1)
Turnover (£ million) 65.7 61.1 8
Average cost of sales per boe (£) 5.89 5.79 2
Profit before tax (£ million) 31.3 30.9 1
Profit after tax (£ million) 24.0 23.6 2
Earnings per share (pence) 15.3 15.9 (4)
Operating cash flow (£ million) 34.3 45.5 (25)
Net funds 85.1 3.2 -
*restated as a result of the mandatory implementation of IFRS in 2005
**the figures given are those of last year's Interim Results. The first quarter
2004 entitlement production was revised in the full year results to reflect a
higher Government profit share during this period, calculated following the
October 2004 Ravva arbitration hearing award. The restated H1 2004 production
in the full year results was 23,157 boepd.
***figures stated on an entitlement basis
Profit and Loss Account
Average daily production was 27,909 barrels of oil equivalent per day (boepd)
(H1 2004: 24,799 boepd). The increased Cairn share of Sangu production, as a
result of the acquisition of Shell's 37.5% interest, has been recognised from
the transaction completion date of 30 June 2004. Following completion of the
ONGC transaction in March 2005, Cairn's working interest in CB/OS-2 production
has reduced from 50% to 40%. Both Sangu and Lakshmi field deliverability have
been enhanced following successful infill drilling campaigns which commenced in
the latter part of 2004.
The Group's current production mix remains heavily gas biased (circa 80%). This,
combined with the existence of contractual caps on the price received for this
gas, results in an average price realised for the first half of 2005 of $24.39
per boe (H1 2004: $24.61 per boe). The Group's financial gearing to world oil
prices will increase significantly once Rajasthan production comes on stream.
Turnover during the period has increased by 8% to £65.7m (H1 2004: £61.1m).
Average cost of sales per barrel of oil equivalent (boe) for the first half of
2005 remained relatively unchanged from the equivalent period last year at £5.89
(H1 2004: £5.79). Underlying this however, is a 19% decrease in production costs
per boe, principally as a result of movements in stock balances (H1 2005: £2.49;
H1 2004: £3.07). This has been offset by a 27% increase in depletion charge per
boe (H1 2005: £3.27; H1 2004: £2.58) as a consequence of 2004 year end reserves
revisions.
Rajasthan reserves have been disclosed, but have not been booked in the 2005
Interim Financial Statements, pending finalisation of Field Development Plans.
Administrative expenses for the period were £10.0m (H1 2004: £7.7m). This
includes a charge of £2.1m for share based payments and associated NIC (H1 2004
£1.6m). Net interest receivable was £5.4m (H1 2004: £1.5m), including a foreign
currency exchange gain of £4.4m (H1 2004: £2.2m). Realised exchange movements
arose principally due to the weakening of Sterling against the US$ in the period
and were also impacted by the adoption of IFRS.
The Group generated a profit before tax of £31.3m (H1 2004: £30.9m). The
majority of the £7.3m tax charge (H1 2004: £7.3m) arises on profits in India.
Profit after tax for the period was £24.0m (H1 2004: £23.6m).
Balance Sheet
Capital expenditure during the first half of 2005 was £68.2m (H1 2004: £43.8m),
comprising £44.6m on exploration/appraisal activities, £22.4m on development
activities and £1.2m on other fixed assets. The exploration/appraisal
expenditure during the period was incurred largely on the continuing Rajasthan
drilling campaign. The majority of the development expenditure was for the
completion of the infill campaigns on Lakshmi and Sangu.
Cashflow and Financing
The Group's operating cash flow over the period, after deduction of tax payments
of £1.9m, was £34.3m (H1 2004: £45.5 million). Net cash outflows from capital
expenditure during the first half comprised £53.4m exploration/appraisal
expenditure, £37.9m development expenditure and £1.2m other fixed assets. The
difference arising between capitalisation of expenditure and cashflow is
principally due to the infill campaigns and Rajasthan drilling programme
activity that was incurred in 2004 but paid in 2005. There was a pre tax cash
inflow of $135m (£72.0m) on completion of the ONGC transaction from the sale of
exploration and development assets (£45.3m and £26.7m respectively).
Cash payments are being made during the second half of 2005 in settlement of
amounts due following the previously announced Ravva arbitration proceedings.
These amounts have already been fully provided for in the accounts.
The Group had net funds of £85.1m at the balance sheet date (H1 2004: net funds
£3.2m) together with undrawn unsecured committed revolving credit facilities of
$240m (comprising $200m three and $40m seven year facilities put in place in
January 2004). Following the significant 2004 Rajasthan discoveries, the Group
is undertaking a review of its financing requirements and arrangements with the
intention of refinancing its debt facilities.
Transactions
The previously announced ONGC transaction for the farm out of 90% of KG-DWN-98/
2, 10% of the CB/OS-2 development area (including the Lakshmi and Gauri fields)
and 15% of the CB/OS-2 exploration area, and the farm-in to two blocks in
Northern India, was completed in March 2005. The $135m pre tax proceeds received
were credited against the relevant exploration and development cost pool.
Accounting Developments
In accordance with European legislation, Cairn has adopted IFRS as the basis for
preparation of its financial statements from 1 January 2005. Interim results to
30 June 2005 have therefore been reported on this basis with all comparative
information restated to comply with IFRS requirements. Audited restated
financial information was published on 8 September 2005 and is available on the
Group's website. This included reconciliations from UK GAAP to IFRS and revised
accounting policies which were both agreed with the Group's auditors. The
restatement document highlights that the Group continues to apply its existing
full cost accounting policy for oil and gas assets pending receipt of any
guidance or clarification received from either the IFRIC Agenda Committee or
IFRIC.
Following the implementation of IFRS by the Group, Cairn is considering
reporting its future financial results in US$ since this is the principal
functional currency of the business. The Group currently reports in Sterling
although both income and expenditure are mainly in US$.
OPERATIONS
RAJASTHAN: Block RJ-ON-90/1, Rajasthan Basin
Rajasthan Overview
Cairn operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC) signed
on 15 May 1995. The original seven year exploration period of the PSC, which had
been extended for a further three year period, expired in May 2005. Since May
2002, Cairn has conducted a very aggressive exploration campaign and by the end
of the extended exploration period in mid-May 2005 had acquired 4,100 kilometres
of 2D seismic, 750 square kilometres of 3D seismic and had drilled 83
exploration and appraisal wells, resulting in a total of 12 discoveries. The
total number of wells drilled is now 100. Cairn estimates that more than 2.5
billion bbls of oil in place have so far been established and believes that
significant further upside remains on the block.
The discoveries to date in Rajasthan are at differing stages of appraisal and
evaluation. The seven fields for which appraisal has already been undertaken and
for which Field Development Plans are variously progressed; namely Mangala,
Aishwariya, Bhagyam, Shakti, Saraswati, Raageshwari oil and Raageshwari gas;
Cairn estimates 2P (proven plus probable) oil in place volumes to be 1.85
billion bbls. The associated gross 2P reserves to 2041 for these seven fields
are currently estimated as 541 mmbbls. The total resource estimate for these
three fields may exceed 700 mmbbls if enhanced oil recovery (EOR) techniques can
be succesfully employed.
In October 2004, Cairn was granted a single Development Area of 1,859 square
kilometres covering nine of the discoveries made to date. The Development Area
is secured until at least 2020 and, in line with PSC provisions, the Joint
Venture will be seeking to extend this period to 2041 when it submits its
development plans.
In January 2005, the GoI exercised its right under the PSC to back-in for 30% of
the Development Area and it appointed ONGC as its equity nominee.
Cairn has set up two dedicated development teams, one focused on the large
fields in the north and one focused on the smaller fields in the south. The
finalised Field Development Plans for Mangala and Aishwariya, in the north, and
Saraswati and Raageshwari in the south, are planned to be submitted to the GoI
in October 2005.
In June 2005, Cairn was granted an 18 month extension period to complete its
appraisal activities in an area covering 2,891 square kilometres which lies to
the north and west of the Development Area. This area contains the Bhagyam, N-I
and Shakti fields, for which Declarations of Commericality have been submitted,
as well as various wells with strong residual hydrocarbon indications that
confirm their presence on the oil migration pathway. An application to extend
the Development Area by 1,141 square kilometres to include these fields and
surrounding areas of significant appraisal potential has been submitted to the
GoI. A 320 square kilometres 3D seismic programme covering part of this area has
just been completed and initial interpretation is underway.
Work on the other five discoveries, Guda, Vijaya, Vandana, Kameshwari and N-I,
is either ongoing or will commence in the near term. Exploration efforts across
the acreage still continue with the present focus on the northern Fatehgarh
play, the stratigraphic potential of the Vijaya/Vandana area and prospects on
the flanks of the Central Basin High.
Three drilling rigs and one work-over rig have been retained to continue
exploration, appraisal and pre-development drilling activities.
Rajasthan Development Area - Northern Fields (Cairn 70% (Operator); ONGC 30%)
The development concept for the Mangala field involves the construction of a
central processing facility (CPF) and group gathering station, with oil
production and water injection wells being drilled from a number of well pads.
The CPF and associated facilities have currently been sized to handle an initial
production rate of 100,000 bopd with the ability to expand the processing
capacity up to 150,000 bopd or more if required. The required expansion is
dependent on the start up timings and plateau production rates of the other
fields. The produced hydrocarbons will be treated at this facility, with any
treated water produced being re-injected.
Field saline water production and injection trials are on going for the purposes
of gathering data for optimising secondary recovery by water flooding the
reservoirs. Results of this work are very encouraging. Water extraction tests
from the Fatehgarh reservoirs in the Vijaya area, 20 kilometres south east of
Mangala, have established the required volumes of producible water from
individual wells. An injection test at Mangala has recently been completed in
which up to 12,000 barrels per day of heated water was successfully injected
into a 13 metre interval in the Fatehgarh reservoir.
Initially it was planned to develop the Aishwariya field concurrently with the
Mangala field, but following the discovery of the Bhagyam and N-I fields, Cairn
has been reviewing the optimal development schedule. It is expected that this
review will be completed in Q4 2005. The current fast-track development schedule
for the Mangala field is targeted at achieving first oil at the end of 2007 with
production from the other northern discoveries being brought on line as soon as
possible thereafter. The development schedule will be finalised once the results
of this review are known.
In order to meet the current fast-track development schedule, various studies
have already been started. Front-End Engineering Design (FEED) studies for the
Mangala development are largely complete and selected engineering companies have
been asked to tender for the detailed design work. An Environmental Impact
Assessment has been completed and the application for an Environmental Consent
for the project will be submitted to the relevant authorities.
Rajasthan Development Area - Southern Fields (Cairn 70% (Operator); ONGC 30%)
Several oil discoveries have been made in the central and southern part of the
Rajasthan block. These include the Saraswati, Raageshwari and Guda fields.
Development Plans for Guda will be submitted to the GoI in early 2006.The
various oil bearing reservoirs in the central and southern area are not of as
high a quality as the Fatehgarh reservoirs in the north. Nevertheless attractive
commercial rates are achievable, for example the Raageshwari-6 well drilled
recently flowed at 550 bopd of 38 degree API oil on test. The Company believes
that these discoveries have good commercial potential.
The first commercial production from the Saraswati and Raageshwari fields is
currently scheduled for mid 2006, depending on the required approvals. The
initial target plateau rate is between 2,000 and 3,000 bopd, and is constrained
by exporting the produced oil via road tanker. Once the Mangala export
infrastructure is installed, the option of exporting higher production volumes
from the southern fields via pipeline to the processing facilities in the north
will be reviewed.
Rajasthan Development Area - Oil Sales (Cairn 70% (Operator); ONGC 30%)
Under the terms of the PSC, the GoI appoints a nominee to purchase and take
delivery of the oil. Indian Oil Corporation (IOC) was initially selected as the
nominee; however following expressions of interest, the GoI recently asked two
other public sector undertakings, Mangalore Refinery & Petrochemicals Ltd
(MRPL), an ONGC subsidiary, and the Hindustan Petroleum Corporation Ltd (HPCL)
to submit proposals for consideration as nominee. In September 2005, MRPL was
nominated by the GoI to purchase the entire crude in compliance with the PSC.
Discussions have commenced with MRPL in respect of a detailed Crude Oil Sales
Agreement.
The export route favoured by MRPL is to take the produced oil via a pipeline to
the coast, where it will be dispatched to a selected Indian refinery. MRPL is
also considering the feasibility of constructing a refinery in Rajasthan.
Rajasthan Development Area - Appraisal
Recent appraisal drilling has confirmed that there is considerable potential in
the area surrounding the Guda discovery. This appraisal drilling suggests that
the Guda and GR-F discoveries are part of the same overall structure at the
Thumbli and Dharvi Dungar reservoir levels.
The Guda field, located on the Central Basin High (CBH), comprises a shallow
Thumbli oil reservoir and a deeper Dharvi Dungar oil reservoir. The field was
discovered by the Guda-2 exploration well in July 1999, which tested 2,070 bopd
from 10.6 metres of hydrocarbon-bearing sands in the Dharvi Dungar formation. In
February 2003 the Raageshwari-1 exploration well, located 15 kilometres to the
north of Guda, encountered hydrocarbons in the stratigraphically younger Thumbli
formation. The Thumbli was preferentially targeted in the central basin area
prior to the May 2005 deadline for the extended exploration term.
An analysis of the Guda Thumbli field was undertaken in July 2005 prior to
embarking on the present eight well appraisal programme. There is considerable
reservoir variability across the field and preliminary indications are that
between 50 and 100 wells may be required to optimise recovery. A draft Field
Development Plan is being prepared for anticipated submission to the GoI in
January 2006.
The Guda-7 well drilled in September 2005 encountered 14.3 metres of net pay in
the Dharvi Dungar formation. A five metre test zone flowed 2,150 bopd of 38
degree API oil. The Dharvi Dungar reservoir occurs in channels which, cannot be
mapped on seismic, but the geological model suggests may extend over a wide
area. Presently there are no volume estimates associated with the Dharvi Dungar
in the Guda area but conceptually the volumes could be significant.
As part of its evaluation of the Guda field, Cairn has recently recommenced a
long-term production test programme.
Initial estimates indicate that the Guda field could contain around 180 mmbbls
of oil in place at the 2P level for the Thumbli and has the potential to
significantly increase once the Dharvi Dungar is included. Work is continuing on
the reservoir management plan which is aimed at optimising the potential
recovery.
Other appraisal activity within the existing Development Area is currently
focused on the Vijaya and Vandana discoveries. These are the first stratigraphic
oil traps to be found in the basin. Vijaya-1 and Vandana-1 have both been tested
on pump at rates between 25 and 38 bopd. There is a wide range of oil in place
estimates for these discoveries however recovery factors will be low and these
reservoirs are candidates for stimulation.
Rajasthan Development Area - Exploration (Cairn 100% (Operator))
Exploration efforts within the Development Area presently concentrate on three
main areas:
i) prospects in the vicinity of Vijaya and Vandana;
ii) flank plays along the CBH;
iii) the widespread Barmer Hill play (which has encountered
relatively tight oil bearing reservoirs in many wells and is also a candidate
for stimulation).
Activities Outwith the Development Area (Cairn 100% (Operator))
A successful appraisal campaign was carried out on the Bhagyam field between Q1
and Q3 2005. Seven appraisal wells were drilled in which 475 metres of cores
were taken, and the field was covered by 3D seismic. The Fatehgarh reservoir in
the Bhagyam field is of a high quality and intra-field connectivity has been
successfully established.
Following the 3D seismic and appraisal of Bhagyam, an independent assessment has
recently been conducted with an estimated 2P oil in place of approximately 400
mmbbls, 2P reserves of 96 mmbbls and an additional gross contingent resource of
52 mmbbls assuming the successful application of EOR techniques.
Immediately to the east of Bhagyam lies the N-I field which has recently been
appraised and is also covered by 3D seismic. Two Fatehgarh oil zones tested in
the N-I-3 well flowed at 480 and 750 bopd respectively during September 2005.
The Fategarh also has a small gas cap. A gas column of approximately 80 metres
was encountered within poor quality reservoirs in the Barmer Hill and tested in
the Fatehgarh reservoir at 4 million standard cubic feet of gas per day
(mmscfd). The Barmer Hill section will be separately tested shortly.
The acquisition of a 300 square kilometres 3D exploration seismic survey between
Bhagyam and Mangala was completed in September 2005. This survey is designed to
evaluate the potential of the northern Fatehgarh play where prospects similar to
the satellite N-I field are known to exist. This area has at least five
Fatehgarh prospects. Interpretation of the 3D is expected to commence in
October with the first exploration wells planned at the year end.
An application for an 18 month extension to allow proper evaluation of the 1,935
square kilometre Southern Area is pending with the GoI.
WESTERN INDIA - Cambay Basin
Development and Production
Block CB/OS-2: Lakshmi and Gauri Gas Fields (Cairn 40% (Operator))
In the first half of 2005, the second phase of Lakshmi development drilling and
the installation of booster compression were completed, successfully restoring
field deliverability.
There are undeveloped oil-bearing reservoirs beneath these producing gas
reservoirs at both Lakshmi and Gauri. The CB/OS-2 Joint Venture has now approved
a Declaration of Commerciality, allowing an oil production test from the Gauri-3
well. A Development Plan has been prepared and submitted to the GoI for
approval. Currently it is anticipated that oil production will begin at the end
of this year with anticipated initial rates of between 2,000 and 3,000 bopd.
The onshore CB-X gas discovery made in January 2005 has been declared commercial
and the single well Development Plan has been submitted for approval. Field
activities to lay a short pipeline from the plant to connect the CB-X-1 well are
planned to commence in the first half of 2006 at expected rates of between 5 and
10 mmscfd.
Exploration
CB-ONN-2001/1 (Cairn 30%; ONGC (Operator))
Detailed well proposals have been received from ONGC for the drilling of three
of the four wells which form part of the minimum work commitment for the first
phase of the Exploration Period as specified under the PSC. One well was drilled
by ONGC is 2004, before Cairn joined the block, which was a minor oil discovery.
A declaration of commerciality has not been made. A second exploration well,
Vanth Vali-1, is currently operating. Planning is underway for the drilling of
two of the remaining wells, with drilling operations expected to begin in 2005/
2006.
CB-ONN-2002/1 (Cairn 30%; ONGC (Operator))
The 2D and 3D seismic reprocessing programmes are currently underway. These form
part of the minimum work commitment for the first phase of the Exploration
Period as specified under the PSC.
EASTERN INDIA
Development and Production
Ravva (Cairn 22.5 % (Operator))
The Ravva oil and gas field continues to perform well and has remained on
plateau, with average gross production for the first half of 2005 being 50,484
bopd and 86 mmscfd. A number of production and injection enhancement activities
were undertaken in 2005 and water injection rates have been increased to 90,000
barrels of water per day. This improved water injection rate is expected to
enhance recovery sweep efficiencies.
The planned infill drilling programme of five development wells and one
appraisal well has now been approved by the Ravva Joint Venture. The timing of
drilling operations is dependent on rig availability.
Exploration
KG-DWN-98/2 (Cairn 10%; ONGC (Operator))
The KG-DWN-98/2 Joint Venture has approved a three well drilling programme using
two of the drilling rigs currently contracted to ONGC. The prospects to be
drilled were among those previously identified by Cairn in deep-water drilling
operations on this block. Drilling operations on the first of these wells
commenced in August 2005. The first exploration well has resulted in what
appears to be a significant gas discovery in water depths of 600 metres, two
kilometres from the Cairn N-1 gas discovery made in 2001. Operational problems
prevented the well from being tested.
NELP Blocks
Cairn has been awarded five new exploration blocks in India. The blocks were
awarded to Cairn and its Joint Venture partners under the fifth New Exploration
Licensing Policy round (NELP-V).
There was an unprecedented level of international interest for this latest round
of licences. In competitive bidding there were a total of 69 bids for 20
exploration blocks with bids from 26 foreign companies including Cairn.
Cairn has been awarded four onshore and one offshore blocks, including two
blocks in Rajasthan. The blocks are as follows:
•RJ-ONN-2003/1 Onshore Western Rajasthan, Rajasthan Basin
Cairn (30%), ONGC (36%) and ENI (34%, Operator)
•VN-ONN-2003/1 Onshore Eastern Rajasthan, Vindhyan Basin
Cairn (49%, Operator) and ONGC (51%)
•KG-ONN-2003/1 Onshore Andhra-Pradesh, Krishna-Godavari Basin
Cairn (49%, Operator) and ONGC (51%)
•GV-ONN-2003/1 Onshore Uttar Pradesh, Ganga Valley Basin
Cairn (49%, Operator) and ONGC (51%)
•GS-OSN-2003/1 Offshore Gujarat, Saurashtra Basin
Cairn (49%) and ONGC (51%, Operator)
The GoI has indicated that the signing of the PSCs for these blocks will take
place on 23 September 2005, enabling initial work to commence in 2006.
BANGLADESH
Development and Production
Sangu (Cairn 75% (Operator))
As part of the second phase of Sangu development drilling, three additional
wells have been drilled, completed and put on production at different stages
during the first half of 2005. The Sangu gas plant continues to perform well and
the plateau production from the field has been restored to 154 mmscfd, with peak
off take rates being as high as 180 mmscfd. The demand pattern is variable since
it is largely dependent on the power and fertiliser sector but overall, demand
continues to increase steadily.
Exploration
Cairn is in discussions with the Government of Bangladesh and its Joint Venture
partners with a view to securing the right to drill exploration prospects in
parts of Block 16 outwith the Sangu Development Area.
In Blocks 5 and 10 a 1,250 kilometre seismic survey was completed in Q2 2005.
NEPAL AND NORTHERN INDIA
Exploration
In August, as a result of the current security situation, Cairn informed the
Government of Nepal that it had declared contractual force majeure. This defers
the start of Cairn's field operations in Nepal, where it holds licences for five
exploration blocks. Notwithstanding this declaration, Cairn will continue with
its current technical and environmental evaluation activities. The Company
continues to closely monitoring security developments with a view to commencing
field operations at the earliest opportunity.
GV-ONN-2002/1 (Cairn 100% (Operator))
The Petroleum Exploration Licence for this block was issued by the Bihari
authorities in June 2005. It is intended to carry out aero-magnetic and other
studies as part of the minimum work commitment for the first phase of the
Exploration Period.
GV-ONN-97/1 (Cairn 30%; Oil India 30%; ONGC 40% (Operator))
Detailed prospect reviews are continuing on this block. The drilling of the
Tisua prospect which is a large folded anticline with fracture potential
represents the first of a Cairn supported drilling campaign across the whole of
the Ganga Valley basin. The importance of this well is that if it encounters
hydrocarbons in any quantity then a working petroleum system, of potentially
regional significance, will have been established, in an area where Cairn has a
leading acreage position.
PRODUCTION SUMMARY
Following successful infill drilling campaigns on the Lakshmi (offshore north
west India) and Sangu (offshore Bangladesh) gas fields, the Group's entitlement
production for the first six months of 2005 was 27,909 boepd net to Cairn. Full
year entitlement production for 2004 was 22,789 boepd. Current production is in
line with the Company's expectations.
Production Lakshmi
(approximate) Ravva Sangu and Gauri Total
boepd boepd boepd boepd
Gross field 65,000 23,000 15,000 103,000
Working interest 14,625 17,250 6,750 38,625
Entitlement interest 6,900 13,500 7,500 27,900
RESERVES
The table below shows booked reserves information on an entitlement basis for
the Group. It is current Cairn practice to conduct independent assessment of
Company reserves on a regular basis. As at 30 June 2005, no reserves had been
booked in respect of the Rajasthan discoveries.
Acquisitions/ Reserves
Reserves at Produced in Disposals in Revisions in at
31.12.04 H1 2005 H1 2005 H1 2005 30.06.05
mmboe mmboe mmboe mmboe mmboe
South Asia 81.4 (5.0) (2.2) (0.6) 73.6
Total 81.4 (5.0) (2.2) (0.6) 73.6
On a direct working interest basis, reserves as at 30 June 2005 totalled 115.3
million barrels of oil equivalent (mmboe) (31 December 2004: 123.9 mmboe).
OUTLOOK
The increasing international interest in India as an investment destination,
combined with an exciting unfolding exploration story across the sub-continent
has confirmed Cairn's early vision. The unprecedented interest in NELP-V and
recent significant exploration successes by Cairn and others has highlighted the
fact that India and the South Asia region have significant hydrocarbon
potential. With its experience in this part of the world, an enviable acreage
position and excellent relationships with local oil companies such as ONGC,
Cairn is ideally positioned to maximise potential opportunities.
The discovery of substantial oil resources in Rajasthan means that for the
foreseeable future the Company's organic growth potential will continue to be
dominated by its development and exploration activities in North West India.
Cairn has built a strong strategic position in South Asia at a time of
historically high global oil prices when the interest in India as a
hydrocarbon-rich destination has never been greater.
Norman Murray
Chairman, 20 September 2005
CONSOLIDATED INCOME STATEMENT
For the six months to 30 June 2005
Six months Six months Year ended
to 30 June to 30 June 31 Dec
2005 2004 2004
(unaudited) (unaudited) (audited)
Notes £'000 £'000 £'000
------ -------- -------- ---------
Revenue 65,658 61,055 95,449
Cost of sales
Production costs (12,595) (13,866) (27,726)
Depletion (16,530) (11,636) (28,236)
Decommissioning charge (647) (654) (1,183)
----------------------- ------ -------- -------- ---------
Gross profit 35,886 34,899 38,304
----------------------- ------ -------- -------- ---------
Administrative expenses (10,011) (7,665) (14,539)
Operating profit 25,875 27,234 23,765
Exceptional gain on sale of - 2,147 2,206
oil and gas assets ------ -------- -------- ---------
Profit on ordinary activities 25,875 29,381 25,971
before interest
Interest income 5,994 2,477 1,811
Finance costs (618) (987) (6,234)
----------------------- ------ -------- -------- ---------
Profit on ordinary activities 31,251 30,871 21,548
before taxation ------ -------- -------- ---------
-----------------------
Taxation on profit on
ordinary activities
- UK (270) (746) 1,805
- Overseas (7,004) (6,520) (5,171)
----------------------- ------ -------- -------- ---------
Profit for the period 23,977 23,605 18,182
attributable to equity ------ -------- -------- ---------
holders
-----------------------
Earnings per ordinary share - 1 15.29p 15.86p 11.92p
basic
Earnings per ordinary share - 2 15.21p 15.75p 11.83p
diluted ------ -------- -------- ---------
-----------------------
Notes:
1. The basic earnings per ordinary share is calculated on a profit of
£23,977,000 (H1 2004: £23,605,000) on a weighted average of 156,806,174 (H1
2004: 148,837,342) ordinary shares.
2. The diluted earnings per ordinary share is calculated on a profit of
£23,977,000 (H1 2004: £23,605,000) on 157,628,121 (H1 2004: 149,867,522)
ordinary shares, being the basic weighted average of 156,806,174 (H1 2004:
148,837,342) ordinary shares and the dilutive potential ordinary shares of
821,947 (H1 2004: 1,030,180) ordinary shares relating to share options.
3. No dividend has been declared.
4. Comparative figures throughout this document have been adjusted as a
result of the change in accounting policies arising from the implementation of
International Financial Reporting Standards.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to 30 June 2005
Six months Six months Year ended 31
to 30 June to 30 June December
2005 2004 2004
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Opening equity 405,996 309,389 309,389
Currency translation differences 23,078 (4,081) (19,985)
--------------------------- --------- --------- ---------
Total income/(expense) recognised 23,078 (4,081) (19,985)
direct in equity
Profit for the period 23,977 23,605 18,182
--------------------------- --------- --------- ---------
Total recognised income for the 23,977 23,605 18,182
period
--------------------------- --------- --------- ---------
Total recognised income and 47,055 19,524 (1,803)
expense for the year
New shares issued for cash - - 101,889
New shares issued in respect of 1,354 4,349 4,559
employee share options
Cost of shares purchased by ESOP (8,981) (9,329) (9,329)
Trust
Share based payments charges 1,020 552 1,291
--------------------------- --------- --------- ---------
Closing equity attributable to the 446,444 324,485 405,996
Company's equity holders --------- --------- ---------
---------------------------
CONSOLIDATED BALANCE SHEET
As at 30 June 2005
As at 30 As at 30 As at 31
June June December
2005 2004 2004
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Non-current assets
Intangible exploration assets 247,012 187,723 232,926
Tangible development/producing 221,116 230,735 226,316
assets
Property, plant and equipment 1,332 1,313 1,456
Intangible assets 1,180 664 724
Investments 54 53 50
-------------------------- --------- --------- --------
470,694 420,488 461,472
-------------------------- --------- --------- --------
Current assets
Inventory 2,814 1,517 1,125
Trade and other receivables 78,152 57,381 68,282
Bank deposits 11,154 - 8,000
Cash and cash equivalents 73,975 16,438 64,042
-------------------------- --------- --------- --------
166,095 75,336 141,449
-------------------------- --------- --------- --------
Total assets 636,789 495,824 602,921
-------------------------- --------- --------- --------
Current liabilities
Trade and other payables 83,020 43,482 78,830
Income tax liabilities 7,071 8,693 2,930
-------------------------- --------- --------- --------
90,091 52,175 81,760
Non-current liabilities
Deferred tax liabilities 89,977 90,764 84,537
Bank loans - 13,230 -
Provisions 10,277 15,170 30,628
-------------------------- --------- --------- --------
100,254 119,164 115,165
-------------------------- --------- --------- --------
Total liabilities 190,345 171,339 196,925
-------------------------- --------- --------- --------
Net assets 446,444 324,485 405,996
-------------------------- --------- --------- --------
Equity
Called-up share capital 15,952 15,142 15,901
Share premium 108,581 5,938 107,278
Shares held by the ESOP Trust (20,886) (14,031) (14,031)
Foreign currency translation 3,093 (4,081) (19,985)
Other reserves 24,256 24,256 24,256
Capital reserves - non 26,281 26,281 26,281
distributable
Capital reserves - distributable 109,635 109,635 109,635
Retained earnings 179,532 161,345 156,661
-------------------------- --------- --------- --------
Total equity attributable to the 446,444 324,485 405,996
Company's equity holders --------- --------- --------
--------------------------
Notes:
1. 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
2004, on which the auditors gave an unqualified report, have been filed with the
Registrar of Companies.
2. Bank deposits with a maturity of greater than three months at the
balance sheet date are classified as bank deposits. Those with a maturity of
less than three months at the balance sheet date are included in 'cash and cash
equivalents'.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months to 30 June 2005
Six months Six months Year ended
to 30 June to 30 June 31 December
2005 2004 2004
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cash flows from operating
activities
Cash generated from operations 36,542 47,420 78,205
Interest paid (331) (576) (1,220)
Income tax paid (1,895) (1,357) (4,678)
------------------------ --------- -------- --------
34,316 45,487 72,307
Net cash generated from operating
activities --------- -------- --------
------------------------
Cash flows from investing
activities
Expenditure on exploration assets (53,420) (24,825) (76,455)
Expenditure on development/producing (37,847) (11,517) (18,252)
assets
Acquisition of Bangladesh assets - (24,213) (23,843)
Purchase of property, plant and (368) (277) (1,146)
equipment
Purchase of intangible assets (858) (577) (1,006)
Proceeds on disposal of exploration 45,362 - -
assets
Proceeds on disposal of development/ 26,684 7,277 7,305
producing assets
Proceeds on disposal of property, 3 7 44
plant and equipment
Movement on long term deposits (3,154) - (8,000)
Interest received 821 182 1,711
------------------------ --------- -------- --------
(22,777) (53,943) (119,642)
Net cash used in investing
activities --------- -------- --------
------------------------
Cash flows from financing
activities
Proceeds from issue of shares - 1,354 4,349 4,559
equity share options
Proceeds from issue of shares - - - 101,889
equity share placing
Purchase of own shares (8,981) (9,329) (9,329)
Drawdown of loan facilities - 13,088 -
------------------------ --------- -------- --------
Net cash flows from financing (7,627) 8,108 97,119
activities --------- -------- --------
------------------------
3,912 (348) 49,784
Net increase/(decrease) in cash and
cash equivalents
Opening cash and cash equivalents 64,042 17,766 17,766
Exchange gains/(losses) on cash and 6,021 (980) (3,508)
cash equivalents --------- -------- --------
------------------------
Closing cash and cash equivalents 73,975 16,438 64,042
------------------------ --------- -------- --------
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
For the six months to 30 June 2005
Six months Six months Year ended
to 30 June to 30 June 31 December
2005 2004 2004
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Operating profit 25,875 27,234 23,765
Depletion, depreciation and 17,522 12,161 29,644
amortisation
Decommissioning charge 647 654 1,183
Share based payments 1,020 552 1,291
Working capital movement 13,225 5,518 8,960
Other provisions (21,430) 753 16,234
Gain on sale of other fixed assets (3) (6) (41)
Foreign exchange differences (314) 554 (2,831)
-------------------- ---------- ----------- -----------
Net cash inflow from operating 36,542 47,420 78,205
activities ---------- ----------- -----------
--------------------
NET FUNDS
As at 30 June 2005
At 1 January Cash Exchange At 30 June
2005 flow movements 2005
£'000 £'000 £'000 £'000
Cash at bank 7,979 (2,120) 1,113 6,972
Short term deposits 56,063 6,032 4,908 67,003
--------------- ---------- --------- --------- ---------
64,042 3,912 6,021 73,975
------------------ ---------- --------- --------- ---------
Cash on long term deposit 8,000 3,154 - 11,154
---------- --------- --------- ---------
72,042 7,066 6,021 85,129
--------------------- ---------- --------- --------- ---------
NOTES TO THE ACCOUNTS
For the six months to 30 June 2005
1. Accounting Policies
Basis of Preparation
This Interim Report has been prepared on a basis consistent with the Group's
anticipated 2005 IFRS accounting policies. Comparative information has also been
restated under IFRS.
Change of accounting policies
On 1 January 2005 it became mandatory for the Group to comply with International
Financial Reporting Standards.
The Interim Results for the six months to 30 June 2005 have been prepared on the
basis of all IFRS and interpretations issued by the International Accounting
Standards Board ('IASB') effective for the Group's reporting year ending 31
December 2005, on the assumption that they will be fully endorsed by the
European Commission ('EC'). Should the EC fail to endorse some of these
standards and interpretations in full this could result in the need to change
the basis of accounting or presentation of certain financial information in the
2005 Annual Report and Accounts.
Revised accounting policies under IFRS can be found in the 'Restatement of 2004
Results from UK GAAP to IFRS' document published on the Group's website on 8
September 2005. This document also includes reconciliations of comparative
information from UK GAAP to IFRS.
These accounts are also prepared in accordance with IFRS 6 'Exploration for and
evaluation of mineral resources' following early adoption by Cairn of this
standard.
The Group has continued to apply its existing full cost accounting policy for
oil and gas assets to both exploration and appraisal activity and in the
development and production phase. However, as at the date these accounts are
authorised for issue, the Board are aware that, owing to a lack of clarity in
the authoritative literature, agreement has not been reached amongst the UK oil
industry and the accounting profession on the acceptability of applying full
cost policies under IFRS beyond the exploration and appraisal phase. As a
result, the matter has been referred to the Agenda Committee of the
International Financial Reporting Interpretations Committee ('IFRIC') to request
consideration of the matter by IFRIC. The timing and outcome of the Agenda
Committee discussions and any referral to IFRIC are currently uncertain.
Consequently, for the purposes of these accounts, the Company has continued to
apply the UK GAAP full cost accounting policies that were in effect immediately
prior to the Group's transition to IFRS, subject to changes in accounting policy
specifically required under IFRS 6.
The Board will reconsider the appropriateness of the full cost accounting policy
for the Group's Annual Report and Accounts and take into account any guidance or
clarification received from either the Agenda Committee or IFRIC.
INDEPENDENT REVIEW REPORT TO CAIRN ENERGY PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 which comprises the Group Income Statement,
Group Balance Sheet, Group Cash Flow Statement, Group Statement of Changes in
Equity, and the related note 1. 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.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' 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 interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 1, the next annual financial statements of Cairn Energy PLC
will be prepared in accordance with those IFRS adopted for use by the European
Union. This Interim Report has been prepared in accordance with the requirements
of IFRS 1, 'First Time Adoption of International Financial Reporting Standards'
relevant to interim reports.
The accounting policies are consistent with those that the directors intend to
use in the next financial statements. There is, however, a possibility that the
directors may determine that some changes to these policies are necessary when
preparing the full annual financial statements for the first time in accordance
with those IFRS adopted for use by the European Union. In particular, as noted
in note 1 we highlight that the Directors are aware that the application of full
cost accounting under IFRS has been referred to the IFRIC Agenda Committee for
consideration.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. 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 have been applied. 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 United Kingdom 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 2005.
Ernst & Young LLP
London
September 2005
NOTES TO EDITORS:
•Cairn focuses its activities on the geographic region of South Asia. The
Group holds material exploration and production positions in west India,
east India and Bangladesh along with new exploration rights in northern
India and Nepal.
•This focus on South Asia has already resulted in a significant number of
oil and gas discoveries. In particular, the Company made a major oil
discovery (Mangala) in Rajasthan in the north west of India at the beginning
of 2004.
•India currently imports 2 million barrels of oil a day. It produces
650,000 barrels a day itself of which 50,000 bopd comes from the Cairn
operated Ravva field.
For further information on Cairn see www.cairn-energy.plc.uk
GLOSSARY OF TERMS
The following are the main terms and abbreviations used in this announcement:
Corporate
2P proved plus probable
3P proved plus probable and possible
Board the Board of Directors of Cairn Energy PLC
Cairn the Company and/or its subsidiaries as appropriate
Company Cairn Energy PLC
D&M DeGolyer & MacNaughton
ENI Eni SpA and/or its subsidiaries as appropriate
GoI Government of India
Group the Company and/or its subsidiaries as appropriate
HPLC Hindustan Petroleum Corporation Ltd and/or its subsidiaries as
appropriate
IFC International Finance Corporation
IOC Indian Oil Corporation and/or its subsidiaries as appropriate
MRPL Mangalore Refinery & Petrochemicals Ltd and/or its subsidiaries as
appropriate
NELP-V India's fifth New Exploration Licensing Policy
ONGC Oil and Natural Gas Corporation Ltd and/or its subsidiaries as
appropriate
Shell Royal Dutch Petroleum Company and/or Shell Transport and Trading
Company and/or their subsidiaries as appropriate
Technical
2D / 3D two dimensional / three dimensional
bbls barrels of oil
boe barrels of oil equivalent
boepd barrels of oil equivalent per day
bopd barrels of oil per day
CPF central processing facility
degree American Petroleum Institute units as a measure of oil specific
API gravity
EOR enhanced oil recovery
FDP field development plan
FEED front-end engineering design
mmbbls million barrels of oil
mmscfd million standard cubic feet of gas per day
PSC production sharing contract
Resource quantities of hydrocarbons which are estimated on a given date to be
recoverable
Accounting
ESOP Trust Employee Share Ownership Plan Trust
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
NIC National Insurance Contributions
UK GAAP Generally Accepted Accounting Practice in the United Kingdom
Note: There are matters discussed in this Chairman's Statement that are forward
looking statements. All such forward-looking statements are based on our
management's assumptions and beliefs in 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 or
achievements may be materially different from those expressed in such
statements.
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