Pre-Close Op & Trading Update

Cairn Energy PLC
03 July 2006

EMBARGOED FOR RELEASE AT 0700 3 JULY 2006





                                CAIRN ENERGY PLC


                    Pre-Close Operational and Trading Update


Cairn intends to announce its interim results for the six months to 30 June 2006
on Tuesday, 5 September 2006. In advance of these results, Cairn is providing an
update on recent operations and guidance in respect of the Group's trading
performance in 2006. This information has not been audited and is subject to
further review.


Operational Highlights


Final Government of India approval received for first four Field
Development Plans (FDPs) for the Mangala, Aishwariya, Saraswati and Raageshwari
fields in Block RJ-ON-90/1, Rajasthan.


$1 billion bank facility signed. $850 million to be allocated to funding
Cairn's share of the above field developments in Rajasthan.


A hydraulic fracture programme in Rajasthan has highlighted the potential
for new reserves in low permeability reservoirs.


The Company continues to target Q4 2006 to Q1 2007 for the partial
Initial Public Offering (IPO) of the Indian business on Bombay Stock Exchange.


Sir Bill Gammell, Chief Executive said:


'Obtaining Government approval for the Mangala, Aishwariya, Saraswati and
Raageshwari fields in Rajasthan and securing finance for the first phase of the
developments is a significant achievement on the path to first oil.'


Enquiries to:

Cairn Energy PLC:                         Tel: [phone]
Analysts/Investors      Bill Gammell      Chief Executive
                        Kevin Hart        Finance Director
                        Mike Watts        Exploration Director
Media                   David Nisbet      Head of Group Communications

Brunswick Group LLP:                      Tel: [phone]
                        Patrick Handley, Mark Antelme



Corporate


Following our recent successes in India and the consequential changing nature of
the business, Cairn indicated that a partial IPO of the Indian business would
take place. Work on progressing the IPO is well underway and on track to allow
the Company to meet its aim of listing on the Bombay Stock Exchange in the last
quarter of 2006 or early 2007 subject to market conditions.


Rahul Dhir, the new Chief Executive Officer appointed in April 2006 to lead the
Indian business, is now resident in Gurgaon, near Delhi. The formation of the
management team, operations team and organisation required to run the India
business on a stand alone basis is well advanced.


Rajasthan RJ-ON-90/1 Overview


Development


The Company's main focus is to bring Mangala on stream at the earliest
opportunity, currently scheduled for Q4 2008, followed by Bhagyam and Aishwariya
approximately one year later. A detailed update will be provided with the
Interim Results in September.


The Government of India (GoI) has given its final approval for the Field
Development Plans (FDPs) for the Mangala, Aishwariya, Saraswati and Raageshwari
fields in Block RJ-ON-90/1, Rajasthan, North West India. The FDPs were approved
by the Management Committee (MC - Directorate General Hydrocarbons representing
the Government of India, ONGC and Cairn) in May. This final approval follows the
earlier agreement on the FDPs reached at the joint venture Operating Committee
(OC - Cairn and ONGC).


In order to fund its 70% share of the Northern Fields development project, Cairn
has signed a $1 billion bank facility with the International Finance Corporation
(IFC), The Royal Bank of Scotland plc and several other international banks; to
finance the first phase of the development. Subsequent development costs are
anticipated to be funded out of cash flow.


The first commercial production from the Saraswati and Raageshwari fields is
planned for Q4 2006. The initial combined target plateau rate of between 2,000
and 3,000 barrels of oils per day (bopd) will be constrained by having to export
the produced oil via road tanker. However, once the Mangala export
infrastructure is installed, it is planned, subject to capacity, that the
Saraswati and Raageshwari fields, as well as other southern discoveries, will be
tied in to the export system. Under the terms of the Production Sharing Contract
(PSC) the construction of the export system is the responsibility of the GoI
through its nominated buyer, MRPL (a subsidiary of ONGC).


The Declaration of Commerciality (DoC) for the Bhagyam and Shakti fields was
approved by the OC on 1 February 2006, which is the first step in the
development approval process under the Production Sharing Contract (PSC). The MC
is currently considering a Development Area extension to cover the Bhagyam, N-I,
Shakti and N-E fields. The Bhagyam and Shakti FDP is expected to be submitted to
the OC in Q4 2006 and once approved it will be submitted to the MC.


Facilities and Engineering design for Mangala is ongoing with a specialist team
from Cairn working alongside the contractors, Mustang, in Houston.


The FDP for the Guda field in the south is expected to be submitted in Q3 2006.
The oil quality of the southern fields is lighter and is found in a variety of
different reservoirs which are generally of poorer quality than those in the
northern fields. Nevertheless, wells such as Guda 2, 3 and 7; which flowed at >
1,000 bopd of 38 degree API oil, show that locally these reservoirs can be very
productive for onshore wells.


Northern Appraisal Area (Cairn 100%)


In June 2005, Cairn was granted an 18 month extension to complete its appraisal
activities in three areas covering 2,884 km2, to the north and west of the
Development Area.


An extensive 3D seismic programme is underway in the southern part of this
appraisal area, south of the Barmer airbase, which is to be followed by early
drilling, given the November 2006 deadline for completion of activities.
Following NP-2, three appraisal wells on the northern end of the NP structure
close to the airbase have been drilled with mixed results. One well encountered
19m of oil bearing Fatehgarh reservoir, with a heavy 16 degree API crude. In two
other wells in separate fault blocks 745m and 3.2km to the west the Fatehgarh
section was missing. Further drilling on and around the structure will be
required to delineate the NP field.


Reservoir Stimulation Programme


A programme of hydraulic fracture stimulation on various lower permeability
reservoirs is nearing completion.


Results on the Raageshwari deep gas field from a single tested zone in
Raageshwari 5 indicated a two-fold increase in productivity. Testing on
Raageshwari 7 is currently on-going following a three stage fracture stimulation
treatment. Mechanical problems have curtailed the programme for Raageshwari 4-Z.


Gas from the Raageshwari wells will be utilised as fuel for the Mangala
development and subsequent northern area developments.


The first fracture stimulation of the Barmer Hill formation at Mangala was
conducted on the Mangala 6 well and resulted in up to 150 bopd. Test production
using a sucker rod pump has been completed, producing a total of 1,200 barrels
of oil (bbls) in approximately four weeks.


A second fracture stimulation operation of the Barmer Hill formation at
Aishwariya was conducted on the Aishwariya 4 well and resulted in initial flow
rates of 400 to 500 bopd. The well has been tested for several weeks with an
increasing gas oil ratio (GOR) indicating a possible gas-cap.


The test results from the two Barmer Hill wells are very encouraging in
highlighting the potential to unlock material reserves in the Mangala and
Aishwariya Barmer Hill reservoirs. Additional work is needed to quantify the
potential. This work is likely to be completed by September.


The Vijaya, Vandana, N-R and southern fields are also potential candidates for
future fracture stimulation to access new reserves or accelerate production.


Ravva


The Ravva field has remained on plateau in the first half of 2006. An offshore
drilling programme of 6 Ravva infill wells and 1 exploration well is due to
commence in September. An onshore exploration well, RX-9, is currently
operating.


Western India


Lakshmi and Gauri production is up for the year to date, in barrels of oil
equivalent (boe) terms, due to increased oil and condensate production. In view
of the encouraging performance further evaluation of the oil play is planned.


Northern India


The ONGC operated exploration well at the Tisua prospect in the Ganga Valley is
expected to spud shortly.


NELP VI


The sixth Indian Government exploration bidding round, NELP VI, closes 15
September 2006. Cairn will be an active participant in this round.


Bangladesh


A winter 2006/2007 offshore drilling programme is being planned in Block 16 to
drill Sangu infill wells, a Sangu south appraisal well and at least one
exploration well.


Nepal


The Company continues to monitor security developments in Nepal with a view to
commencing field operations at the earliest opportunity.


Group Production


The Group estimates entitlement production for the first six months of 2006 to
be approximately 27,301 barrels of oil equivalent per day (boepd) net to Cairn
(2005: 27,909boepd).

--------------                ---------  ---------       -----------  ----------
Production (boepd)              Ravva      Sangu      Lakshmi & Gauri      Total
to 30 June 2006 (approximate)
--------------                 ---------  ---------      -----------  ----------
Gross field                     62,700     24,200           24,800     111,700
--------------                 ---------  ---------      -----------  ----------
Working interest                14,100     18,100            9,900      42,100
--------------                 ---------  ---------      -----------  ----------
Entitlement interest             6,400*    10,300*          10,600*     27,300*
==============                 =========  =========      ===========  ==========

* provisional figures


Due to the Group's current production mix being heavily gas biased and the
existence of contractual caps on the price received for this gas, the average
price realised for the six months to 30 June 2006 is expected to be in the
region of $30 per boe (H1 2005: $24.39).


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 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. Cairn has now made 18 discoveries in Rajasthan block RJ-ON-90/1.


   •Cairn operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC)
    signed on 15 May 1995. The Development Area (1,858 km2), which includes
    Mangala, Aishwariya, Saraswati and Raageshwari; is shared between Cairn and
    ONGC, with Cairn holding 70% and ONGC having exercised their back in right
    for 30%.


   •India currently imports approximately 2,000,000 barrels of oil per day
    (bopd).  It produces approximately 650,000 bopd itself of which 50,000 bopd
    comes from the Cairn operated Ravva field on the east coast of India.


   •Cairn has recently opened a new Indian headquarters at Gurgaon on the
    outskirts of Delhi to provide improved support for the Rajasthan project
    team and to manage the Company's business interests in India.


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


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



Notes: No action will be taken to permit the shares to be offered in the IPO
(the 'Shares') to be sold in a public offer in any jurisdiction outside India.
In particular, no offer of the Shares to the public will be made in any Member
State of the European Economic Area or in the United States. The Shares have not
been and will not be registered under the US Securities Act of 1933, as amended.


There are matters discussed in this Statement that are forward looking.  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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