Interim Results

RNS Number : 8164K

Cairn Energy PLC

28 August 2012

 



EMBARGOED FOR RELEASE AT 0700                                                   28 August 2012

CAIRN ENERGY PLC ("Cairn")
Half-yearly Report Announcement
For the six months ended 30 June 2012

"Re-balancing the business to deliver exploration-led growth"

The first half has seen Cairn return ~US$3.5 billion (bn) of cash to shareholders, agree a farm-out with Statoil in the Pitu exploration block in Greenland and move to re-balance the portfolio by acquiring the private Agora Oil & Gas AS (Agora) and, in August, the AIM listed Nautical Petroleum plc (Nautical) bringing near-term exploration, appraisal and development activity. The Company has also been working on new basin initiatives and is to farm-in as Operator (50%) to Foum Draa blocks 1-3 offshore Morocco.

At the half-year, the Company's net cash position was US$927 million (m) and, following that date, it received US$371m net proceeds from the sale of a 3.5% Cairn India Limited (CIL) stake in July and it completed the Nautical acquisition in August for a net ~US$560m  consideration.  At year end 2012, the cash position is currently expected to be >US$500m and the Company's residual 18.3% shareholding in CIL has a current market value of ~US$2.2 bn on the Indian Stock Exchanges.

Highlights

Ø Return of ~US$3.5 bn cash from the completion of sale of 40% shareholding in CIL, taking total returns to shareholder to  ~US$4.5 bn over five years

Ø Further on-market sale of 3.5% shareholding in CIL for a net cash consideration of US$371m

Ø Agreement to farm-down a 30.625% interest in the Pitu block in Greenland to Statoil ASA

Ø Acquired net 2C resources totalling ~106 mmbbls (excluding Skarjfell) from North Sea transactions

Ø 20% interest in Skarfjell oil discovery offshore Norway (gross 2C resource estimate 60 - 160 mmbbls)

Ø Post period end, frontier exploration position built in Morocco (10,000 km²) operated interest - exploration well targeted 2013

Ø Interpretation of 3D seismic on the Pitu Baffin Bay block and southern Greenland is well advanced

Ø Key frontier exploration blocks target > 4 billion barrels of Yet to Find potential

Ø Active North Sea exploration programme in next 16 months

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"Cairn is actively re-balancing its portfolio to deliver exploration led growth.

With a strong balance sheet and the foundations for sustainable revenue generation in the coming years principally set, management attention and operational effort is focused on building a series of material exploration positions in prospective and fiscally attractive areas in order to offer investors exposure to capital growth potential through future transformational exploration. Current efforts are focused across three areas:  the North Sea and Norwegian continental shelf; the Atlantic margin; and the Mediterranean. 

Cairn has the financial flexibility and strong operational capability in place to support our technical, new business and commercial teams in the search for capital growth."

Enquiries:

Analysts/Investors
Simon Thomson, Chief Executive
Jann Brown, Managing Director & CFO
Mike Watts, Deputy Chief Executive
David Nisbet, Corporate Affairs                                                                            Tel: [phone]

Media  
Patrick Handley, David Litterick
Brunswick Group LLP                                                                                         Tel: [phone]

Webcast

There will be an audio webcast of the results presentation at 9am.

This can be viewed streaming on PC and Mac and also on most smart devices such as: iPhone/iPad, Blackberry and Android. Alternatively a conference call number is available.

The webcast can be accessed on the day from the Cairn Energy website homepage www.cairnenergy.com

An 'on demand' version of the webcast will be available later in the day.

Slides

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

Conference call

You can listen to the presentation by dialling in to a conference call at 9am:

Dial-In numbers are listed below:

Participant UK Free Call Dial-In:                                  08006940257

Participant UK Non-free Call Dial-In:                           08444933800

Participant Standard International Dial-In:                  [phone]

The operator will ask for a conference code, which is:        #23434118

An 'on-demand' recording of the conference call will be available by 30 August until 6 September 2012 by dialling into the conference call number: [phone]. Participants in the conference call will be able to ask questions.  Instructions will be available once on the call.

Transcript

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

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. 

OPERATIONAL REVIEW

Cairn has now acquired significant non-operated pre-development and exploration interests in the UK, North Sea and Norwegian continental shelf and operated exploration interests in the UK sector and elsewhere in addition to high calibre and focussed work teams. If the recent Skarfjell discovery is taken into account, the total net contingent resource in the UK North Sea fields of Kraken, Catcher, Mariner and Skarfjell in Norway has been acquired at an aggregate cost close to US$7/boe.

Cairn is well poised to build on this pre-development platform in the UK North Sea and Norwegian continental shelf by pursuing farm-in and licence round opportunities in an area where it can exploit its knowledge edge.

The application of our technical expertise and ability to access capital will be used to create and unlock further value. In particular, our balance sheet strength gives us flexibility and capacity to equity fund and debt finance near-term developments.

Transformational Exploration

The Company has reached agreement to farm-in as Operator (50%) to Foum Draa blocks 1-3 offshore Morocco. This frontier exploration acreage in the Atlantic margin is a significant addition to our exploration portfolio and is expected to lead to drilling one or more deep water exploration wells targeting Q4 2013. The Foum Draa blocks are adjacent to the Juby Maritime I - III blocks which Cairn now also operates (50%) through the Nautical acquisition.  Completion of the farm-in is expected in Q4 this year.

In Greenland, our efforts are primarily focussed on the Pitu block in the undrilled Baffin Bay Basin  where we have Statoil as a partner. The Pitu 3D seismic data has now been fully processed, the interpretation of the data set is well advanced and initial interpreted results are extremely encouraging. The seabed geochemical survey acquired in 2011 identified microbial anomalies indicative of micro oil seeps above some of the most prospective structures and consequently we are extending the survey this year. The combined new seismic and geochemical data set is being used to build a prospect inventory which is expected to reduce the exploration risks of individual prospects. We are currently targeting 2014 for a Pitu exploration well. 

Industry activity is taking place across the Baffin Bay Basin this summer as other operators (Shell, Conoco and Maersk) and their JV partners are acquiring a combination of seismic and stratigraphic boreholes over their acreage, which is adjacent to Pitu.

In addition, Cairn has submitted exploration bids as Operator in offshore Cyprus and Spain and we also intend participating in the anticipated forthcoming Lebanon bid round, as part of a regional strategy for the Mediterranean area. Elsewhere other areas of potential interest are also being evaluated.

UK and Norwegian North Sea Contingent Resources

The Agora assets comprised a 15% non-operated interest in the Greater Catcher area in the UK sector of the North Sea and a number of non-operated exploration blocks variously held at between 10 and 40% equity levels across the UK and Norway. The associated resource base at the time the Agora acquisition was agreed and prior to the Skarfjell discovery (initial gross resource estimate 60 and 160 mmbbls, Cairn share 20%), which was drilled before completion, is estimated by Cairn to have been:

i)          ~20 mmboe of 2C contingent resources (95% oil)

ii)          213 mmboe of un-risked prospective resource (Pmean), and

iii)         49 mmboe of risked prospective resource (Pmean)

The Nautical assets comprised a 15% non-operated interest in the Greater Catcher area, a 25% carried non-operated interest in the Kraken heavy oil field and a 6% interest in block 9/11a (The Mariner oil field), also in the UK sector of the North Sea. The Nautical 2C contingent resource base is estimated by Cairn to have been 86 mmbbls. The un-risked and risked prospective resources associated with Nautical exploration blocks variously held at equity levels between 6% and 100% across both the UK and internationally are still being assessed and evaluated by Cairn.

In some circumstances, the Operator and Cairn current estimates of contingent resources may differ depending on differences in data interpretation and/or development concept. However, in each instance, the finally agreed 2C contingent resources will become 2P reserves at the point of Field Development Plan (FDP) approval.

It is the intention to renew and regenerate the prospective resource base continuously over time as the Company seeks to grow organically through exploration.

Greater Catcher area

Blocks 28/9a and 28/10c are operated by Premier Oil and comprise the Catcher, Burgman, Varadero and Carnaby discoveries and the Bonneville, Rocket and Cougar exploration prospects.  The discoveries lie approximately 25 kilometres (km) south of Bittern and 30 km west of Curlew in the UK Central North Sea. Cairn has a 30% equity interest in these blocks.

The Catcher field area comprises excellent quality injectite reservoir sands. New 3D seismic data is being interpreted but the basis for Cairn's volumetric assessment is the three main discoveries - namely the Catcher; Varadero; and Burgman fields.  Several additional exploration prospects and the Carnaby discovery contain further incremental upside potential.

In view of its material position, Cairn is presently working very closely with the Operator and joint venture partners on the sub-surface interpretation and the development concept selection process.

Kraken development

The Kraken oil sands are very high quality reservoirs and recent tests at the 5Z well confirm the mobility and high deliverability potential of this heavy oil.

EnQuest (the Operator) and Cairn currently estimate gross 2C resources of 160 mmbbls but further appraisal drilling is required to define better the field size. Independent gross field contingent resource estimates recently published by Gaffney Cline and Associates are: 1C 100 mmbbls, 2C 172 mmbbls, 3C 273 mmbbls.

Part of Cairn's share of the Kraken development costs will be carried by EnQuest, following its earlier farm-in agreement with Nautical.  The exact amount of the carry is to be calculated between a minimum of US$150m and a maximum of US$240m dependent on the post-appraisal assessment of reserves.

Mariner

Mariner is one of the largest undeveloped fields in the UK North Sea.  It is a heavy oil field with high well deliverability and the Operator (Statoil) is working towards Project Sanction in 2012/13. Cairn's interest in block 9/11 is 6%, however the Company has an 80% operated interest in block 9/11c to the south into which Mariner may extend.

UK and Norwegian North Sea Exploration

Cairn now holds interests in 27 offshore licences in the UK and Norway.

During 2012, six wells have so far been drilled on this acreage and of these two were successful, three were unsuccessful and one was temporarily suspended before reaching the planned objective.

i)          The Skarfjell exploration well (Cairn interest 20%) was a successful oil discovery. The well encountered two main high quality oil bearing reservoirs with a long oil column(s) and no water. The Operator (Wintershall) carries a preliminary gross contingent resource estimate for Skarfjell of between 60 and 160 mmbbls. A new 3D seismic survey was acquired over the discovery and further appraisal wells are planned in 2013. In view of the large potential field size, Cairn expects Skarfjell to be a candidate for a future stand-alone development.

ii)          The Carnaby discovery, announced on 6 June 2012, demonstrates the further incremental potential of the greater Catcher area development. 

iii)         The Tybalt appraisal well, completed and announced on 28 May 2012, failed to demonstrate the presence of moveable hydrocarbons. 

iv)         The Kakelborg exploration well, completed in August 2012, did not encounter targeted reservoir rocks and was plugged and abandoned. 

v)          The Cladhan South exploration well in the UK Northern North Sea was plugged and abandoned.

vi)         The Timon well was temporarily suspended above the reservoir objective due to equipment failure.

Over the next 16 months, Cairn is expecting to participate in ~7 firm and ~8 contingent North Sea exploration and appraisal wells.

In seeking to build on its North Sea edge and prospective block inventory, Cairn submitted 14 bids in the UK 27^th Licensing Round earlier this year and is also expecting to participate in the forthcoming Norwegian Continental Shelf APA 2012 Licence Round.

The acreage acquired from Nautical elsewhere in North West Europe is currently being reviewed.

Greenland

Cairn has established the leading early entry position in the frontier basins offshore Greenland.

The first phase of Cairn's pioneering exploration activity has confirmed that the necessary geological elements for success are present across the Greenlandic basins. While no commercial quantities of hydrocarbons were found during 2010/11, a very considerable body of proprietary data has been gathered for future evaluation. All the necessary ingredients for a potential discovery have been encountered. The second exploration phase is now targeting lower technical risk areas at reduced equity levels with financial exposure shared with partners.

The agreement to farm-out an interest to Statoil in the Pitu block in the undrilled Baffin Bay Basin, announced in January 2012, demonstrates that the second phase of the exploration strategy is underway. Cairn is delighted to be working with Statoil on this block given its extensive knowledge of, and track record in exploration, development and production in the Arctic.

Interpretation of 3D seismic acquired over parts of Pitu in H1 2011 is well advanced. Depending on the outcome of the mapping and technical evaluation, exploration drilling of one or more Pitu prospects is currently targeted for 2014. The current inventory on the block includes two prospects targeting a gross mean un-risked combined resource of 680 mmbbls and 267 mmbbls respectively. The initial probability of success on the two identified prospects is estimated to be 22% and 17% respectively. A further 11 defined leads and more than five notional leads have been identified and will be subject to further evaluation.

Cairn is also participating this year in a joint regional and shallow (up to 800 metres) borehole drilling programme in Baffin Bay, operated by Shell on behalf of an industry consortium which includes Conoco, Statoil, GdF and Maersk. This extensive core gathering programme, which is already underway, will provide valuable information to help stratigraphic correlations across the undrilled Baffin Bay Basin.

In South Greenland, where Cairn also acquired a 3D seismic survey in 2011, all work obligations have been fulfilled.  Interpretation of the 3D seismic is ongoing and an effective 3D seabed geochemical sampling survey is planned for H2 2012. A task for 2013 will be to seek a farm-in partner before considering any further significant activity.

In the Disko and Ungava areas, where Cairn has drilled eight wells in the past two years, work is ongoing on the post well evaluation.

Mediterranean

The Mediterranean is one of Cairn's areas of focus as the business seeks exposure to transformational exploration potential within a sustainable and balanced portfolio. Cairn is currently in the early stages of carrying out frontier exploration in the Valencia Basin offshore Spain where there is significant potential for hydrocarbons. In addition, a number of new block applications have been submitted in Spain and await gazettal by the Spanish authorities.

Cairn, via its operating subsidiary Capricorn Oil Limited, is participating along with consortium partners in the current bid round offshore Cyprus.  Bids were submitted in May 2012 with awards expected towards the end of the year. Cairn holds a 40% share in the bidding consortium and other partners comprise Marathon Oil Company (40%), CC Energy S.A.L (an associated company of the CCC Group of companies, a Lebanese private company) (10%) and Oranje-Nassau Energie B.V. (10%).  Cyprus offers early stage frontier exploration acreage with moderate technical risk. A number of recent discoveries in the region have stimulated industry interest in a potential new source of gas, most likely for European markets, hence the bid round has been extremely competitive. Cairn also expects to participate in the offshore Lebanon bid round, expected to be announced later this year with bids in 2013.

Morocco: Cap Juby

Cairn, through its acquisition of Nautical, holds a 37.5% interest and operatorship of the Cap Juby Maritime licence offshore Morocco. Other equity holders in the licence are the Moroccan state oil company, Office National des Hydrocarbures et des Mines (ONHYM) (25%) and Barrus Petroleum 37.5%. The licence includes the Cap Juby heavy oil accumulation and a variety of other oil plays in Mesozoic sequences in a basin with proven hydrocarbon potential. A 3D seismic survey is planned for 2012, together with reprocessing of older data to target deeper light oil objectives. A decision on future drilling will be subject to evaluation of the new data. The block is located offshore Southern Morocco in water depths of 100-1,500 metres covering an area of 5,600 km².

Morocco: Foum Draa

Cairn will acquire an aggregate 50% interest from current licencees, San Leon Energy, Serica Energy and Longreach Oil and Gas and will be the Operator of this frontier exploration block, subject to regulatory approvals. Cairn will pay its equity interest share of past costs and the first US$60m towards the costs of an exploration well.

The Foum Draa Block is located offshore southern Morocco in water depths of 500-2,000 metres and covers an area of ~5,090 km². Two key prospects on the block have been identified.  Timing of the drilling of the first exploration well is Q4 2013 at the earliest and will be subject to securing a suitable drilling unit and regulatory approvals.

Following completion of the farm-in, the partners in the block will be Cairn (50% operator), ONHYM, 25%), San Leon (14.2%), Serica (8.3%) and Longreach (2.5%).  The farm-in is expected to be completed in Q4 2012. 

FINANCIAL REVIEW

ASSETS AND INVESTMENTS

Oil and Gas Assets

Operating assets at 30 June 2012 were US$433m (30 June 2011: US$486m; 31 December 2011: US$81m).

In January 2012, Cairn agreed the farm-down of 30.625% of the Group's working interest in the Pitu Block, North Greenland, to Statoil ASA.  Government of Greenland approval for this agreement was received in July and it is expected to complete shortly.  

On 9 May 2012, Cairn completed the acquisition of 100% of the issued share capital of Agora Oil & Gas AS, a private Norwegian company with non-operated exploration assets in the Norwegian and United Kingdom North Sea.  The fair value of Agora's intangible exploration/appraisal assets at the date of acquisition was US$411m, including its 15% interest in the Catcher discovery in the UK North Sea and a 20% interest in the Skarfjell discovery in the Norwegian sector.  The fair value of other assets and liabilities acquired of US$25m included cash of US$41m.  The recognition of deferred tax liabilities of US$197m on the fair value of assets is a requirement of IFRS and is largely accountable for the goodwill of US$214m generated on the acquisition.

Total exploration costs written off to 30 June were US$50m.

On 13 June 2012, Cairn announced the acquisition of Nautical Petroleum plc.  The transaction completed in August 2012 and so is not reflected in the financial results for the period.

Minimal costs have been incurred to date on the licences acquired offshore Spain.

Available-for-sale financial assets, Net funds and Working Capital

Cairn's shareholding in Cairn India is classified as an available-for-sale financial asset, following the disposal of its majority shareholding in 2011.  The Group disposed of a further 3.5% in June 2012 with net proceeds of US$371m received in early July.  An accounting loss of US$45m is recognised in the Income Statement.  Deferred tax provisions relating to the 3.5% holding sold of US$44m were released to the Income Statement as the on-market sale did not incur any tax charge leaving a net loss on the Income Statement of US$1m.  The fair value of the remaining 18.3% minority holding of US$1,933m is based on the closing market value of INR307.55 at 29 June 2012, with deferred taxation of US$195m provided against this financial asset on the assumption that further sales may be subject to tax. Subsequent movements in the CIL share price to 27 August have increased the value to US$2.2 billion. 

The Group had net cash of US$927m at 30 June.  Through the acquisition of Agora, Cairn acquired US$41m cash and US$6m of loans and borrowings.

Income tax assets of US$35m at 30 June represent tax refundable in Norway on exploration costs incurred during the period, US$30m of which was included in the acquisition balance sheet of Agora.

RESULTS FOR THE PERIOD

Profit from continuing operations

During the period, the Group recorded a loss before tax of US$50m (H1 2011: US$141m), with current and deferred tax credits released to the Income Statement resulting in a profit after tax of US$37m (H1 2011: loss of US$141m from continuing operations).

Unsuccessful exploration costs charged during the period were US$50m. This includes US$63m on North Sea assets, comprising US$47m on the Tybalt well and US$16m relating to the Kakelborg exploration well.  The realisation of cost savings relating to the 2011 exploration campaign in Greenland have resulted in a US$13m reduction in estimated unsuccessful exploration costs which were accrued in 2011.  Negotiations continue on disputed costs of US$16m relating to 2011 campaign.  These costs remain fully accrued at 30 June 2012. 

Administration costs were US$19m, down from US$30m in H1 2011, included in which is US$4m (H1 2011: US$11m) of share-based payment charges.

Following the disposal in 2011 of its majority shareholding in CIL, the Group sold a further 3.5% of its shareholding in June 2012. This resulted in an accounting loss of US$45m in the Income Statement, reflecting the disposal proceeds receivable of US$371m compared to its market value at the time of the disposal of the controlling interest in CIL. 

Following receipt of proceeds from the 30% sale of CIL in December 2011, US$3.6 bn was converted to sterling in advance of the cash return to shareholders.  This sterling cash balance was held until the cash was returned.  Finance income of US$72m includes the resultant exchange gain of US$60m on these funds. The remaining US$8m exchange gain is mainly attributable to exchange movements on intercompany loan balances. Interest received of US$4m was generated from cash on deposit.

Taxation credits taken to the Income Statement include the release of deferred tax provisions relating to the unsuccessful wells drilled in the North Sea of US$38m, US$5m of Norwegian tax credits and US$44m released on the disposal of the 3.5% holding in CIL.

Cash Flow

The Group absorbed operating cash outflows of US$33m during the period (H1 2011: inflow of US$1,049m). 

Investing cash outflows of US$250m (H1 2011: US$942m) include the net cash outflow of US$155m paid on the acquisition of Agora.  Expenses of US$44m incurred on the disposal of the controlling interest in CIL Group were settled during the period.  Exploration expenditure of US$52m includes the costs incurred for the North Sea Tybalt appraisal well and Kakelborg exploration well.

Financing cash outflow of ~US$3.5 bn (H1 2011: US$158m) reflects the return of cash to shareholders completed in February and April 2012.

Closing cash and cash equivalents of the Group are US$933m.  Agora has a credit facility secured against future tax credits for Norwegian exploration costs.  At 30 June, US$6m of this facility had been drawn down resulting in Group net cash of US$927m.

Post Balance Sheet Events

On 8 August 2012, Cairn completed the acquisition of Nautical.  Nautical is an oil and gas exploration company, which was listed on AIM, with interests in the North Sea and elsewhere in Europe and North Africa.  Its main assets include a 15% interest in the Catcher discovery, increasing the Cairn Group's interest to 30%, and a 25% interest in the Kraken discovery.  Net cash outflows on the acquisition of US$558m will be reflected in the full-year results.

Given the proximity of the date of acquisition to the half-year results announcement date it is not practical to include details of the acquisition accounting in these statements. 

Country and Currency Risks

Cairn's core business is conducted and funded in US Dollars, the functional currency of the majority of companies within the Cairn Group.  The Group's remaining investment in CIL, though denominated in India Rupee, is underpinned by US Dollar valued assets.  The acquisition of Agora introduced subsidiaries with Norwegian NOK and UK sterling functional currencies though neither bring any significant currency nor country exposure to the Group.  The only additional Balance Sheet exposure results from the retranslation of the functional currency of certain subsidiaries into presentational US Dollar.  

Cairn's Balance Sheet strength and significant cash reserves ensure that the Group is liquid and policies are in place to restrict the concentration of funds placed on deposit. The Group's financial and non-financial assets have been assessed for impairment at the reporting date with no material impairment being identified.

2012 Principal Risks & Uncertainties

We operate in a dynamic environment and risk management is an essential component of business success at Cairn.

In the delivery of our strategy, we seek out investment opportunities which offer the optimum balance of risk (technical, political and commercial) and reward. The identification, evaluation and management of risk, together with the way we respond to changes in the external environment, are keys to our success and underpin the safe delivery of our business plans and strategic objectives, protect our 'licence to operate' and reputation, and help create long-term competitive advantage.

The board has overall responsibility for risk management and our approach is embedded throughout the organisation. It is supported by formal processes and a number of risk management forums, which feed into the Group Risk Management Committee chaired by the Chief Executive, with participation from both executive and non-executive directors plus members of the senior management team.

The principal risks and uncertainties facing the Group at 2011 year end were set out in pages 36 - 43 of the Annual Report and Accounts 2011.

Responding to Changing Risk during H1 2012

Following the completion of a number of significant transactions in the first half of 2012, the Company is now entering a period of integrating the new business and further portfolio management. This will be undertaken against a backdrop of continuing economic uncertainties in a number of the countries in which we operate.

The current poor economic climate has resulted in increased pressure on Government finances and there is an increased risk of intervention in fiscal and regulatory frameworks of the oil and gas industry. Turbulence in global financial markets can also result in a reduction in the price and liquidity of Cairn's shares.

The principal risks and uncertainties facing the Company in relation to the Group's financial and operational performance in the second half of 2012 are as follows:

Ø Assessment of timing of monetising our remaining stake in CIL

Ø Delivery of our medium term growth strategy

Ø Oil price affected by weak world economy

Ø Reliance on joint venture Operators for asset performance

Ø Successful integration of recently acquired assets and staff

Going Concern

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

Outlook

The first half of 2012 has seen us significantly regear the business to exploration success through the return of ~US$3.5 bn to shareholders. We have also moved quickly to reduce our cost exposure in Greenland, with no adverse impact on the reward side of the equation; and to convert some of the cash retained from the sale of the majority stake in CIL into direct holdings in upstream E&P assets, through the acquisitions of Agora and Nautical.  The assets acquired in these two transactions provide both lower risk exploration activities and a pipeline of developments which will deliver operating cash flow in the medium term to underpin and fund our core activities. 

The process of converting our financial assets continues with the farm-in to Morocco and our focus is on targeting assets which deliver value and keep the portfolio in balance between lower risk exploration, and the more transformational opportunities in frontier areas.

The strength of the balance sheet will be enhanced at the right time by introducing debt funding for the North Sea developments, unlocking value in the assets acquired.

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 (DTRs) of the UK Financial Services Authority.

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.

The directors of the Company are listed in the Annual Report for the year ended 31 December 2011.

By order of the Board.

Simon Thomson            Jann Brown

Chief Executive               Managing Director & CFO

27 August 2012               27 August 2012

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 2012 which comprises the Group Income Statement, Group Statement of Comprehensive Income, Group Balance Sheet, Group Statement of Cash Flows, Group Statement of Changes in Equity and the related notes 1.1 to 7.2. 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 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. 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 1.1, 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 2012 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, 27 August 2012

Financial Statements   Contents
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Cash Flows
Group Statement of Changes in Equity
Section 1 Basis of Preparation
1.1 Accounting Policies
Assets and Investments
Section 2 Oil and Gas Assets
2.1 Acquisition of Subsidiary 2.2 Intangible Exploration/Appraisal Assets
2.3 Capital Commitments 2.4 Provisions
Section 3  Financial Assets and Working Capital
3.1 Available-for-sale Financial Assets
3.2 Net Funds 3.3 Trade and Other Receivables
Section 4 Other Assets and Liabilities
4.1 Intangible Assets - Other
Section 5 Results for the Period
5.1 Segmental Analysis 5.2 Finance Income
5.3 Taxation on Loss
5.4 Earnings per Ordinary Share
Section 6 Capital Structure and Other Disclosures
6.1 Issued Capital and Reserves
6.2 Related Party Transactions
Section 7 Events After the Balance Sheet Date
7.1 Acquisition of Nautical Petroleum PLC 7.2 Morocco Farm-in Agreement

Group Income Statement

For the six months ended 30 June 2012

	Section	Six months ended 30 June 2012  (unaudited)  $m	Six months ended 30 June 2011 (restated) (unaudited)  $m	Year ended  31 December 2011 (audited) $m
Continuing operations
Production costs		-	-	2.7
Pre-award costs		(7.7)	(3.6)	(16.7)
Unsuccessful exploration costs	2.2	(50.0)	(94.8)	(941.8)
Administrative expenses		(19.0)	(23.6)	(32.8)
Exceptional administrative expenses		-	(6.8)	(6.7)
Impairment		-	-	(141.0)
Operating loss		(76.7)	(128.8)	(1,136.3)
Loss on disposal of available-for-sale financial asset	3.1	(45.1)	-	-
Finance income	5.2	71.9	0.2	2.2
Finance costs		(0.1)	(12.7)	(55.2)
Loss before taxation from continuing operations		(50.0)	(141.3)	(1,189.3)
Taxation
Tax credit/(charge)	5.3	87.1	-	(0.1)
Profit/(loss) after taxation from continuing operations		37.1	(141.3)	(1,189.4)
Profit for the period from discontinued operations		-	784.1	5,754.6
Profit for the period		37.1	642.8	4,565.2
Attributable to :
Equity holders of the parent		37.1	371.5	4,101.1
Non-controlling interests		-	271.3	464.1
Earnings per ordinary share - basic (cents)	5.4	5.24	30.05	330.93
Earnings per ordinary share - diluted (cents)	5.4	5.23	29.85	330.58
Profit/(loss) per ordinary share - basic from continuing operations (cents)	5.4	5.24	(11.43)	(95.98)
Profit/(loss) per ordinary share - diluted from continuing operations (cents)	5.4	5.23	(11.43)	(95.98)

 

Group Statement of Comprehensive Income

For the six months ended 30 June 2012

	Section
			Six months ended 30 June 2012 (unaudited)	Six months ended 30 June 2011 (unaudited)	Year ended 31 December 2011 (audited)
			$m	$m	$m
Profit for the period			37.1	642.8	4,565.2
Other comprehensive income
Deficit on valuation of financial assets	3.1		(137.1)	-	(127.7)
Deferred tax credit on valuation of financial assets			17.0	-	19.8
Valuation movement recycled to Income Statement			22.5	-	-
Deferred tax charge on valuation movement  recycled to Income Statement			(1.7)	-	-
Currency translation differences			(22.0)	2.4	(33.9)
Currency translation differences recycled on disposal of subsidiary			-	-	84.5
Other comprehensive income for the period			(121.3)	2.4	(57.3)
Total comprehensive income for the period			(84.2)	645.2	4,507.9
Attributable to:
Equity holders of the parent			(84.2)	373.9	4,057.4
Non-controlling interests			-	271.3	450.5
			(84.2)	645.2	4,507.9

 

Group Balance Sheet

 As at 30 June 2012

				As at 30 June 2012 (unaudited)	As at 30 June 2011 (unaudited)	As at 31 December 2011 (audited)
	Section			$m	$m	$m
Non-current assets
Intangible exploration/appraisal assets	2.2			432.5	485.6	80.8
Property, plant & equipment - other				2.3	1.5	1.5
Intangible assets - other	4.1			210.6	65.0	1.2
Available-for-sale financial assets	3.1			1,932.5	-	2,463.3
				2,577.9	552.1	2,546.8
Current assets
Trade and other receivables	3.3			454.9	62.5	93.1
Cash and cash equivalents	3.2			932.8	75.2	4,730.7
Income tax assets	5.3			35.3	-	-
				1,423.0	137.7	4,823.8
Assets held-for-sale				-	5,643.8	-
Total assets				4,000.9	6,333.6	7,370.6
Current liabilities
Loans and borrowings	3.2			6.0	120.0	-
Trade and other payables				109.2	210.3	209.1
Provisions				-	7.8	14.0
Derivative financial instruments				-	0.5	-
Income tax liabilities				0.3	0.1	0.1
				115.5	338.7	223.2
Non-current liabilities
Provisions	2.4			26.6	-	-
Deferred tax liabilities				365.2	-	254.1
				391.8	-	254.1
Liabilities related to disposal units held-for-sale				-	1,487.6	-
Total liabilities				507.3	1,826.3	477.3
Net assets				3,493.6	4,507.3	6,893.3
Equity attributable to equity holders of the parent
Called-up share capital	6.1			13.0	16.8	13.9
Share premium	6.1			484.4	487.1	483.7
Shares held by ESOP Trust and SIP Trust				(2.6)	(1.7)	(1.7)
Foreign currency translation				(29.0)	(37.1)	(7.0)
Merger reserve	6.1			255.9	-	-
Capital reserves - non distributable				40.2	40.2	40.2
Available-for-sale reserve				(207.2)	-	(107.9)
Retained earnings				2,938.9	2,697.3	6,472.1
				3,493.6	3,202.6	6,893.3
Non-controlling interests				-	1,304.7	-
Total equity				3,493.6	4,507.3	6,893.3

 

Group Statement of Cash Flows

For the six months ended 30 June 2012	Section		Six months ended 30 June 2012 (unaudited) $m			Six months ended 30 June 2011 (unaudited) $m	Year ended 31 December 2011 (audited) $m
Cash flows from operating activities
Loss before taxation from continuing activities				(50.0)		(141.3)	(1,189.3)
Profit before taxation from discontinued activities				-		1,114.7	1,951.2
(Loss)/profit before taxation					(50.0)	973.4	761.9
Revenue provision release					-	-	(64.0)
Unsuccessful exploration costs					50.0	98.4	946.2
Depletion, depreciation, decommissioning and amortisation					0.9	1.1	3.7
Share-based payments charge					3.5	18.6	28.3
Loss on disposal of available-for-sale financial asset					45.1	-	-
Impairment					-	-	141.0
Finance income					(71.9)	(25.1)	(56.8)
Finance costs					0.1	41.6	147.3
Net interest paid					(0.1)	(29.8)	(72.1)
Income tax paid					-	(242.3)	(370.5)
Foreign exchange differences					1.2	(0.3)	(20.9)
Movement on inventory of oil and condensate					-	(3.6)	(7.2)
Trade and other receivables movement					0.4	(172.7)	(116.0)
Trade and other payables movement					(12.3)	34.4	(34.7)
Movement in other provisions					-	364.9	627.2
Derivative financial instruments movement					-	(9.9)	-
Net cash (used in)/generated from operating activities					(33.1)	1,048.7	1,913.4
Cash flows from investing activities
Consideration paid for business combinations	2.1				(196.2)	-	-
Cash acquired as a result of business combinations	2.1				41.4	-	-
Proceeds on disposal of Cairn India group					-	-	4,721.5
Expenses incurred on disposal of Cairn India group					(43.7)	-	(15.0)
Expenditure on intangible exploration/appraisal assets					(51.6)	(242.3)	(963.2)
Expenditure on property, plant & equipment -  development/producing assets					-	(218.4)	(406.7)
Purchase of property, plant & equipment - other					(0.4)	(2.0)	(3.5)
Purchase of intangible assets - software					(2.9)	(2.5)	(5.3)
Proceeds on disposal of intangible exploration/appraisal assets					-	-	1.5
Movement in funds on bank deposits					-	(501.9)	(715.3)
Interest received					3.5	25.1	56.8
Net cash (used in)/from investing activities					(249.9)	(942.0)	2,670.8
Cash flows from financing activities
Proceeds from increase in non-controlling interest				-		4.5	5.8
Arrangement and facility fees				-		(15.2)	(7.1)
Repayment of debentures				-		-	(20.5)
Cost of shares purchased				(0.9)		(0.8)	(0.9)
Proceeds from exercise of share options				0.8		2.4	3.3
Payment of finance lease liabilities				-		(0.8)	(1.1)
(Repayment)/proceeds of borrowings				-		(148.0)	200.0
Return of cash to shareholders				(3,575.2)		-	(0.6)
Repayment of borrowings				-		-	(573.0)
Net cash flows used in financing activities				(3,575.3)		(157.9)	(394.1)
Net (decrease)/increase in cash and cash equivalents				(3,858.3)		(51.2)	4,190.1
Opening cash and cash equivalents at beginning of period				4,730.7		625.5	625.5
Exchange gain/(losses) on cash and cash equivalents				60.4		(0.4)	(84.9)
Closing cash and cash equivalents	3.2			932.8		573.9	4,730.7

Group Statement of Changes in Equity 

For the six months ended 30 June 2012

	Equity share  capital	Shares held by ESOP Trust and SIP Trust	Foreign currency translation	Merger and Capital reserves	Available-for-sale reserve	Retained earnings	Non-controlling interests	Total equity
	$m	$m	$m	$m	$m	$m	$m	$m
At 1 January 2011	501.4	(9.0)	(39.5)	40.2	-	2,317.6	1,027.7	3,838.4
Profit for the year	-	-	-	-	-	4,101.1	464.1	4,565.2
Deficit on valuation of financial assets	-	-	-	-	(127.7)	-	-	(127.7)
Deferred tax credit on valuation of financial assets	-	-	-	-	19.8	-	-	19.8
Currency translation differences	-	-	(20.3)	-	-	-	(13.6)	(33.9)
Currency translation differences recycled on disposal of subsidiary	-	-	84.5	-	-	-	-	84.5
Total comprehensive income for the year	-	-	64.2	-	(107.9)	4,101.1	450.5	4,507.9
Foreign exchange on functional currency change	(7.2)	-	(31.7)	-	-	38.9	-	-
Exercise of employee share options	3.3	-	-	-	-	-	-	3.3
Share-based payments	-	-	-	-	-	22.2	4.7	26.9
Shares issued for cash	0.1	(0.1)	-	-	-	-	-	-
Costs incurred on return of cash to shareholders	-	-	-	-	-	(0.7)	-	(0.7)
Cost of shares purchased	-	(0.9)	-	-		-	-	(0.9)
Cost of shares vesting	-	8.3	-	-	-	(8.3)	-	-
Increase in non-controlling interest through the exercise of share options	-	-	-	-	-	1.3	4.5	5.8
Disposal of non-controlling interest on sale of subsidiary	-	-	-	-	-	-	(1,487.4)	(1,487.4)
At 31 December 2011	497.6	(1.7)	(7.0)	40.2	(107.9)	6,472.1	-	6,893.3
Profit for the period	-	-	-	-	-	37.1	-	37.1
Deficit on valuation of financial assets	-	-	-	-	(137.1)	-	-	(137.1)
Deferred tax credit on valuation of financial assets	-	-	-	-	17.0	-	-	17.0
Valuation movement recycled to Income Statement	-	-	-	-	22.5	-	-	22.5
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	(1.7)	-	-	(1.7)
Currency translation differences	-	-	(22.0)	-	-	-		(22.0)
Total comprehensive income for the period	-	-	(22.0)	-	(99.3)	37.1	-	(84.2)
Exercise of employee share options	0.8	-	-	-	-	-	-	0.8
Share-based payments	-	-	-	-	-	3.5	-	3.5
Shares issued for acquisitions	1.0	-	-	255.9	-	-	-	256.9
Return  of cash to shareholders	(2.0)	-	-	-	-	(3,573.8)	-	(3,575.8)
Cost of shares purchased	-	(0.9)	-	-		-	-	(0.9)
At 30 June 2012	497.4	(2.6)	(29.0)	296.1	(207.2)	2,938.9	-	3,493.6

Group Statement of Changes in Equity (continued)

For the six months ended 30 June 2012

For the six months	Equity share  capital	Shares held by ESOP Trust and SIP Trust	Foreign currency translation	Capital reserves	Retained earnings	Non-controlling interests	Total equity
ended 30 June 2011	$m	$m	$m	$m	$m	$m	$m
At 1 January 2011	501.4	(9.0)	(39.5)	40.2	2,317.6	1,027.7	3,838.4
Profit for the period	-	-	-	-	371.5	271.3	642.8
Other comprehensive income for the period	-	-	2.4	-	-	-	2.4
Total comprehensive income for the period	-	-	2.4	-	371.5	271.3	645.2
Exercise of employee share options	2.4	-	-	-	-	-	2.4
Shares issued to ESOP Trust	0.1	(0.1)	-	-	-	-	-
Share-based payments	-	-	-	-	15.2	2.4	17.6
Increase in non-controlling interest through the exercise of share options	-	-	-	-	1.2	3.3	4.5
Cost of shares purchased	-	(0.8)	-	-	-	-	(0.8)
Cost of shares vesting	-	8.2	-	-	(8.2)	-	-
At 30 June 2011	503.9	(1.7)	(37.1)	40.2	2,697.3	1,304.7	4,507.3

Section 1 - Basis of Preparation

1.1       Accounting Policies

a)   Basis of Preparation

The half-yearly condensed consolidated financial statements for the six months ended 30 June 2012 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".  The disclosed figures are not statutory accounts in terms of Section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011, on which the auditors gave an audit report which was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, have been filed with the Registrar of Companies.  The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

This half-yearly report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ended 31 December 2012, and uses the same accounting policies and methods of computation applied for the year ended 31 December 2011.

There were no new relevant standards or interpretations to be adopted for the six months ended 30 June 2012.

b)   Presentation of Discontinued Operations

In the 2011 half-yearly financial statements, the results of discontinued operations were disclosed in a separate column on the face of the Income Statement.  These results are now disclosed as a separate line on the face of the Income Statement.

2. 1      Acquisition of Subsidiary

On 9 May 2012 Cairn completed the acquisition of 100 per cent of the issued share capital of Agora Oil & Gas AS.  Agora Oil & Gas AS is aprivate Norwegian company with non-operated exploration assets in both the Norwegian North Sea and, through its wholly owned subsidiary Agora Oil and Gas (UK) Limited,in the United Kingdom North Sea.

Agora Oil & Gas AS was acquired as a step towards Cairn's stated goal of expanding its portfolio by adding lower risk, near-term exploration, appraisal and development assets to complement transformational frontier exploration in Greenland and the Mediterranean, resulting in a more balanced business overall.  The acquisition adds drilling activity to Cairn's 2012 exploration and appraisal programme, with three wells completed since the date of acquisition and further wells scheduled to be drilled in the UK and Norway over the remainder of the year. The acquisition includes Agora's 15% stake in the Catcher area planned for development.  

Recognised amounts of identifiable assets and liabilities acquired	Fair value
	$m
Income tax assets	30.4
Financial assets	25.7
Cash and cash equivalents	41.4
Property, plant and equipment	0.5
Intangible exploration/appraisal assets	411.0
Financial liabilities	(54.9)
Deferred tax liability	(215.3)
Total identifiable assets	238.8
Goodwill	214.3
Total consideration	453.1
Satisfied by:
Cash	196.2
Equity instruments (47,662,603 ordinary shares of Cairn Energy PLC)	256.9
Total consideration transferred	453.1
Net cash outflow arising on acquisition:
Cash consideration	(196.2)
Less: cash and cash equivalent balances acquired	41.4
	(154.8)

The goodwill of $214.3m recognised on the acquisition arises largely from deferred tax provided of $196.6 on the temporary taxable difference between the fair value of intangible exploration/appraisal assets acquired and their respective tax base costs. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the 47,662,603 ordinary shares issued as part of the consideration paid for Agora Oil & Gas AS ($256.9m) was determined on the basis of a closing share price on 9 May 2012 of £3.39 ($5.39) of Cairn Energy PLC.

Acquisition costs, included in administrative expenses, amounted to $1.0m.

The Group's profit has been reduced by the Agora Group loss of $21.7m for the period between the date of acquisition and the Balance Sheet date.  Had the results of the Agora Group been included in the full six month results to 30 June 2012, Cairn Group's profit for the six months would have been $33.0m.

2.2       Intangible Exploration/Appraisal Assets

		Greenland $m	North Sea $m	Other $m	Total $m
	Cost
	At 1 January 2011	260.3	-	14.3	274.6
	Foreign exchange	0.5	-	-	0.5
	Additions	316.4	-	0.7	317.1
	Unsuccessful exploration costs	(94.8)	-	-	(94.8)
	At 30 June 2011	482.4	-	15.0	497.4
	Foreign exchange	(0.5)	-	-	(0.5)
	Additions	519.5	-	1.4	520.9
Unsuccessful exploration costs		(847.0)	-	-	(847.0)
At 1 January 2012		154.4	-	16.4	170.8
	Foreign exchange	-	(14.6)	-	(14.6)
	Acquisitions during the period	-	411.0	-	411.0
	Additions	(17.0)	21.0	1.3	5.3
	Unsuccessful exploration costs	12.8	(62.5)	(0.3)	(50.0)
	At 30 June 2012	150.2	354.9	17.4	522.5

	Impairment
	At 1 January 2011 and 30 June 2011		-		-		11.8		11.8
Impairment			74.9		-		3.3		78.2
At 1 January 2012  and 30 June 2012			74.9		-		15.1		90.0
	Net book value at 30 June 2012		75.3		354.9		2.3		432.5
	Net book value at 1 January 2012		79.5		-		1.3		80.8

The Group's South Asia business unit holds the Group's interests in Nepal. The Mediterranean includes Spanish and Albanian exploration licences. These operating segments have been combined into the "Other" reportable segment. 

Unsuccessful exploration costs

During the six month period to 30 June 2012 total unsuccessful exploration cost write-offs were $50.0m, predominantly relating to North Sea assets. 

Initial interpretation of the Tybalt appraisal well completed in June failed to demonstrate the presence of moveable hydrocarbons.  Unsuccessful efforts cost write-offs relating to this well amounted to $47.0m.  The Kakelborg exploration well, completed in August, did not encounter targeted reservoir rocks and was therefore permanently plugged and abandoned.  Explorations costs incurred to 30 June in relation to this well of $15.5m have also been written off as unsuccessful efforts. 

Primarily due to final contract closures there have been cost reductions relating to the 2011 exploration campaign in Greenland resulting in $17.0m reversal of additions and $12.8m reversal of unsuccessful exploration costs.  

2.3       Capital Commitments

At 30 June 2012, the Group had capital commitments of $150.0m  (30 June 2011: $624.4m; 31 December 2011: $27.6m) in relation to intangible exploration/appraisal assets predominantly in the North Sea. 

2.4       Provisions

Non-current provisions of $26.6m relate to costs on the abandonment of four wells in Greenland expected to be incurred during the second half of 2013.  $14.0m was previously provided in 2011 and classified as a current provision prior to operations being rescheduled.

3.1       Available-for-sale Financial Assets

		Listed equity shares $m
Fair value of the residual available-for-sale financial asset recognised at date of sale		2,591.0
Deficit on valuation for period to 31 December 2011		(127.7)
As at 31 December 2011		2,463.3
Disposal		(393.7)
Deficit on valuation for period to 30 June 2012		(137.1)
As at 30 June 2012		1,932.5

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

Following the disposal in 2011 of its majority shareholding in Cairn India, the Group disposed of a further 3.5% of its shareholding in June 2012 resulting in the recognition of a loss of $45.1m in the Income Statement.  Proceeds on disposal of $370.6m were received on 6 July.  The remaining minority holding of 18.3% is not held for trading and continues to be classified as available-for-sale. The fair value of $1,932.5m is based on the closing market value of INR 307.55 at 29 June 2012.

3.2       Net Funds

	At 30 June 2012	At 30 June 2011	At 31 December 2011
	$m	$m	$m
Cash and cash equivalents	932.8	75.2	4,730.7
Loans and borrowings	(6.0)	(120.0)	-
	926.8	(44.8)	4,730.7
Bank deposits held in discontinued operations	-	953.6	-
Cash and cash equivalents held in discontinued operations	-	498.7	-
Loans and borrowings held in discontinued operations	-	(404.2)	-
Net cash	926.8	1,003.3	4,730.7

Cash at bank earns interest at floating rates based on daily bank deposit rates.  Short-term deposits are made for varying periods from overnight deposits to three months depending on the cash requirements of the Group.

$3.6 billion of cash was returned to shareholders in February and April 2012. 

For the purpose of the Group Statement of Cash Flows, cash and cash equivalents comprises the following:

	At 30 June 2012	At 30 June 2011	At 31 December 2011
	$m	$m	$m
Cash and cash equivalents	932.8	75.2	4,730.7
Cash and cash equivalents held in discontinued operations	-	498.7	-
	932.8	573.9	4,730.7

3.3       Trade and Other Receivables

Trade and other receivables of $454.9m include $370.6m receivable on the sale of the 3.5% shareholding in Cairn India.

4.1       Intangible Assets - Other

	Goodwill $m	Software Costs $m	Total $m
Cost
At 1 January 2012	67.2	10.6	77.8
Exchange differences arising	(7.4)	0.1	(7.3)
Additions	214.3	2.9	217.2
At 30 June 2012	274.1	13.6	287.7
Amortisation and impairment
At 1 January 2012	67.2	9.4	76.6
Exchange differences arising	-	0.1	0.1
Charge for the period	-	0.4	0.4
At 30 June 2012	67.2	9.9	77.1
Net book value at 30 June 2012	206.9	3.7	210.6

Goodwill additions in the period of $214.3m arising from the acquisition of Agora are allocated to the North Sea operating segment.

Goodwill brought forward in 2011 was previously allocated to two cash-generating units which are also operating segments; the Greenland operating segment and the Mediterranean operating segment.  Following unsuccessful exploration drilling in these segments, all previous goodwill remaining was fully impaired during 2011.

5.1     Segmental Analysis

Operating Segments

For management purposes, the continuing operations of the Cairn Group are organised into business units based on a geographical basis.

On 9 May 2012, Cairn completed the acquisition of Agora Oil and Gas AS, creating the Group's North Sea reporting segment.

The Cairn Group's existing operating segments comprise Greenland, the Mediterranean and South Asia.  The Mediterranean and South Asia operating segments have been combined into the "Other" reportable segment. 

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

The discontinued operations of the Cairn India Group were a separate business unit up to the point of disposal in 2011.

            The segment results for the six months ended 30 June 2012 are as follows:

	Greenland		North Sea	Other	Total six months ended 30 June 2012
	$m		$m	$m	$m
Pre-award costs		(1.8)	-	(5.9)	(7.7)
Unsuccessful exploration costs		12.8	(62.5)	(0.3)	(50.0)
Gross profit/(loss)		11.0	(62.5)	(6.2)	(57.7)
Depreciation		(0.1)	(0.1)	(0.3)	(0.5)
Amortisation		-	-	(0.4)	(0.4)
Other income and administrative expenses		-	(2.4)	(15.7)	(18.1)
Operating profit/(loss)		10.9	(65.0)	(22.6)	(76.7)
Loss on disposal of available-for-sale financial asset		-	-	(45.1)	(45.1)
Interest income		-	-	3.7	3.7
Other finance income and costs		(0.5)	0.1	68.5	68.1
Profit/(loss) before taxation		10.4	(64.9)	4.5	(50.0)
Segment assets		95.6	655.4	3,249.9	4,000.9

5.1       Segmental Analysis (continued)

The segment results for the year ended 30 June 2011 were as follows:

			Greenland	Other Cairn Energy Group	Total Continuing Cairn Energy Group
			$m	$m	$m
Pre-award costs			(0.6)	(3.0)	(3.6)
Unsuccessful exploration costs			(94.7)	(0.1)	(94.8)
Gross loss			(95.3)	(3.1)	(98.4)
Depreciation			-	(0.2)	(0.2)
Amortisation			-	(0.9)	(0.9)
Other income and administrative expenses			(0.1)	(22.4)	(22.5)
Exceptional administrative expenses			-	(6.8)	(6.8)
Operating loss			(95.4)	(33.4)	(128.8)
Interest income			-	0.2	0.2
Interest expense			-	(11.4)	(11.4)
Other finance income and costs			1.3	(2.6)	(1.3)
Loss before taxation			(94.1)	(47.2)	(141.3)
Segment assets			311.2	378.6	689.8

The segment results for the year ended 31 December 2011 are as follows:

			Greenland	Other Cairn Energy Group	Total Continuing  Cairn Energy Group
			$m	$m	$m
Production costs			-	2.7	2.7
Pre-award costs			(1.6)	(15.1)	(16.7)
Unsuccessful exploration costs			(941.8)	-	(941.8)
Gross loss			(943.4)	(12.4)	(955.8)
Depreciation			(0.1)	(0.9)	(1.0)
Amortisation			-	(2.7)	(2.7)
Other income and administrative expenses			(0.4)	(28.7)	(29.1)
Exceptional administrative expenses			-	(6.7)	(6.7)
Impairment			(137.7)	(3.3)	(141.0)
Operating loss			(1,081.6)	(54.7)	(1,136.3)
Interest income			-	2.2	2.2
Interest expense			-	(1.1)	(1.1)
Other finance income and costs			0.9	(55.0)	(54.1)
Loss before taxation			(1,080.7)	(108.6)	(1,189.3)
Segment assets			159.9	4,747.4	4,907.3

5.2       Finance Income

	Six months ended 30 June 2012	Six months ended 30 June 2011	Six months ended 31 December 2011
	$m	$m	$m
Bank interest	3.7	-	2.2
Foreign exchange gain	68.2	0.2	-
	71.9	0.2	2.2

5.3       Taxation on Loss

a)         Analysis of Tax (Credit)/Charge

Current tax:		Six months ended 30 June 2012 $m	Six months ended 30 June 2011 $m	Year ended 31 December 2011 $m
UK corporation tax
Tax on profits at 25.00% (30 June 2011: 26.35%; 31 December 2011: 26.49%)		-	1.4	2.1
Foreign Tax
Norwegian tax credit at 78%		(5.5)	-	-
Indian Corporate Income Tax on profits for the prior period  to 30 June 2011 at 42.23% (31 December 2011: 42.08%)		-	16.3	10.9
Indian Regular Tax on profits for the prior year at 32.65%		-	-	2.5
Indian Minimum Alternate Tax on profits for the prior period  to 30 June 2011 at 19.93% (31 December 2011: 19.32%)		-	170.2	279.9
Indian tax on capital gains for the prior year at 21.01%		-	-	590.3
Withholding tax deducted at source		0.1	-	-
		(5.4)	186.5	883.6
Total current tax (credit)/charge		(5.4)	187.9	885.7
Deferred tax:
United Kingdom
Temporary differences in respect of non-current assets		(30.0)	-	-
Norway
Temporary differences in respect of non-current assets		(7.3)	-	-
Losses		(0.4)	-	-
India
Temporary differences in respect of non-current assets		-	142.7	798.7
Deferred tax reversed on disposal of available-for-sale financial asset		(44.0)	-	-
Total deferred tax (credit)/charge		(81.7)	142.7	798.7
Tax (credit)/charge on loss		(87.1)	330.6	1,684.4

5.3     Taxation on Loss (continued)

The tax (credit)/charge to the Income Statement is disclosed as follows:

Tax (credit)/charge on continuing operations		(87.1)	-	0.1
Tax charge on discontinued operations		-	330.6	1,684.3
		(87.1)	330.6	1,684.4

b)         Income Tax Asset

The Income tax asset of $35.3m represents Norwegian tax refunds which can be claimed on expenditure during the period.

5.4     Earnings per Ordinary Share

Basic and diluted earning per share are calculated using the following measures of profit/(loss):

		Six months to 30 June 2012	Six months to 30 June 2011	Year ended 31 December 2011
		$m	$m	$m
Profit/(loss) for the period - continuing operations		37.1	(141.3)	(1,189.4)
Profit for the period - discontinued operations attributable to the equity holders of the parent		-	512.8	5,290.5
Profit attributable to the equity holders of the parent		37.1	371.5	4,101.1
Less potential increase in non-controlling interest - discontinued operations		-	(1.9)	-
Diluted profit attributable to equity holders of the parent		37.1	369.6	4,101.1
Analysed as:
Diluted profit/(loss) attributable to equity holders of the parent - continuing operations		37.1	(141.4)	(1,189.4)
Diluted profit attributable to equity holders of the parent - discontinued operations		-	511.0	5,290.5
		37.1	369.6	4,101.1

The following reflects the share data used in the basic and diluted earnings per share computations:

		Six months to 30 June 2012	Six months to 30 June 2011	Year ended 31 December 2011
		'000	'000	'000
Weighted average number of shares		708,306	1,237,255	1,240,092
Less weighted average shares held by ESOP and SIP Trusts		(471)	(934)	(829)
Basic weighted average number of shares		707,835	1,236,321	1,239,263
Dilutive potential ordinary shares:
Employee share options		762	1,876	1,329
Diluted weighted average number of shares		708,597	1,238,197	1,240,592

The weighted average number of shares used in the calculations of earnings per share for 2012 and 2011 has been adjusted to reflect the consolidation of shares which took place on 6 February 2012.

6.1  Issued Capital and Reserves

Share capital	Number 1/13p B shares	Number 8/13p Ordinary	Number 231/169p Ordinary		8/13p Ordinary	231/169p Ordinary
	'000	'000	'000		$m	$m
Allotted, issued and fully paid ordinary shares
At 1 January 2012	-	1,407,601	-		13.9	-
Issued and allotted for employee share options pre consolidation	-	68	-		-	-
Consolidation of shares	1,407,669	(1,407,669)	554,536		(13.9)	12.0
B shares repurchased and cancelled	(1,407,669)	-	-		-	-
Issued and allotted for employee share options post consolidation	-	-	176		-	-
Issued to shareholders of Agora	-	-	47,663		-	1.0
At 30 June 2012	-	-	602,375		-	13.0
Share premium				$m
At 1 January 2012				483.7
Issued and allotted for employee share options pre consolidation				0.2
Issued and allotted for employee share options post consolidation				0.5
At 30 June 2012				484.4

Consolidation of shares and cash returned to shareholders

By special resolution effective from 6 February 2012 the share capital was subdivided and consolidated on the basis of 13 new ordinary shares of 231/169 pence for every 33 ordinary shares of 8/13 pence held.  One B Share of 1/13 pence each was also issued for each ordinary share of 8/13 pence held at the time of the capital reorganisation.  The B share scheme allowed Cairn to return to shareholders approximately $3.6 billion of cash in February and April 2012.  All B shares had been repurchased by Cairn and cancelled by 30 June 2012.

Merger reserve

The merger reserve of $255.9m arose on shares issued by Cairn on the acquisition of Agora.

6.2   Related Party Transactions

Key management personnelreceived dividends totaling $24.9m (£15.8m) as part of the return of the cash made by the Group in February 2012.

No other related party transactions have taken place in the six months ended 30 June 2012 that have materially affected the financial position or the performance of the Group during that period.

7.1       Acquisition of Nautical Petroleum PLC

On 8 August 2012, Cairn announced that it had completed the acquisition of 100% of the share capital of Nautical Petroleum PLC.

The combined acquisitions of Nautical and Agora, with primary interests in the UK and Norwegian North Sea, provide Cairn with a core platform for growth from organic, near-term exploration, appraisal and development activities, ultimately leading to sustainable cash flow.

The acquisition of Nautical will expand Cairn's existing portfolio in North West Europe through three core interests. The first is a 15% interest in the Greater Catcher area, taking the overall interest to 30%. The second is a 25% carried interest in the Kraken heavy oil development and a 50% interest in Ketos; an adjacent exploration prospect to be appraised in the future. The third is a 6% interest in the Mariner Oil field, which is one of the largest undeveloped and strategically important fields in the North Sea.

The acquisition values the issued, and to be issued, share capital of Nautical at approximately $647m (£414m). The offer price represents a 51.1% premium of the closing price of 297.8 pence per share on 12 June 2012. The consideration is to be paid in cash. Net cash outflows on the acquisition are $558m.

The disclosure of revenue and profit or loss since the date of acquisition of Nautical is impracticable as the initial accounting for the acquisition is incomplete. Subsequently, the fair value of assets and liabilities and goodwill generated has not yet been calculated. The final acquisition costs to be incurred are currently unknown. 

7.2       Morocco Farm-in Agreement

Cairn has entered into a farm-in agreement to Foum Draa offshore blocks 1-3 offshore Morocco.

Conditional upon the receipt of regulatory approvals, Cairn will acquire an aggregate 50% interest from current licencees, San Leon Energy, Serica Energy and Longreach Oil and Gas and will be the operator of this frontier exploration block. Cairn will pay its equity interest share of past costs, approximately $1.5m, and the first US $60m towards the costs of an exploration well to be drilled in the first exploration extension period.

The farm-in is expected to complete in Q4 2012.

GLOSSARY OF TERMS

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

Corporate

Board                          the Board of Directors of Cairn Energy PLC

Cairn                           Cairn Energy PLC and/or its subsidiaries as appropriate

Cairn India/CIL             Cairn India Limited and/or its subsidiaries as appropriate

Capricorn                    Capricorn Oil Limited and/or its subsidiaries as appropriate

Company                    Cairn Energy PLC

Group                         the Company and its subsidiaries

Statoil                         Statoil ASA

Technical

2D/3D/4D                    two dimensional/three dimensional/four dimensional

boe                             barrel(s) of oil equivalent

bopd                           barrels of oil per day

mmbbls                       million barrels of oil

mmboe                       million barrels of oil equivalent

FDP                            field development plan

NOTES TO EDITORS

Cairn Energy PLC

Ø Cairn Energy PLC ("Cairn") is an Edinburgh-based oil and gas exploration and production company listed on the London Stock Exchange.

Ø "Cairn" where referred to in this release means Cairn Energy PLC and/or its subsidiaries as appropriate.

Ø Cairn currently holds approximately 18.3% of the issued share capital of Cairn India Limited (CIL).  Production from CIL's Rajasthan operations is 175,000 bopd.

Ø Cairn (including Capricorn) is run from Edinburgh with operational offices in London, Nuuk, Madrid, Stavanger and Kathmandu.

Cairn in Greenland

Ø Cairn through its subsidiary, Capricorn, operates 11 blocks offshore Greenland.

Ø A total of 14 exploration wells have been drilled offshore Greenland to date, five of which were drilled in the 1970s, one in 2000, three in 2010 by Cairn Energy and five by Cairn Energy in 2011.

Cairn in North West Europe

Ø Agora Oil & Gas is 100% owned by Cairn.

o  Agora has non-operated, exploration, appraisal and development assets in the UK and Norwegian North Sea.

o  Agora has 15 employees who are based in Stavanger and the UK.

Ø Nautical Petroleum is 100% owned by Cairn.

o  Nautical has development assets in the UK North Sea and international exploration.

o  Nautical has 10 employees who are based in London.

Cairn in the Mediterranean

Ø Cairn is in the early stages of carrying out frontier exploration in Spain and expects to participate in the offshore Lebanon bid round later this year.

Ø Cairn is participating along with consortium partners in the current bid round offshore Cyprus.

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

 

END

 

 

IR UBOWRUNAWUAR