Preliminary Results

RNS Number : 9655G

Cairn Energy PLC

10 March 2015

 



EMBARGOED FOR RELEASE AT 0700                                                              10 March 2015          

CAIRN ENERGY PLC ("Cairn")

Preliminary Results Announcement

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"Cairn enters 2015 in a strong position with further drilling planned in Senegal to evaluate the scale of this world class asset. We are preparing, along with our joint venture partners, for a multi-well exploration and appraisal programme that has the ability to add substantial value for the company and all stakeholders.

In the last twelve months, we have actively managed the portfolio and streamlined the business to provide the Group with continued financial flexibility to deliver our active exploration, appraisal and development programmes."

HIGHLIGHTS
Financial

Ø Group net cash at 31 December 2014 of US$869m

Ø Seven year Reserve Based Lending bank facility of up to US$575m remains undrawn

Ø Cairn is currently unable to access the value of its ~10% residual shareholding in Cairn India Limited (CIL) valued at US$703m at 31 December 2014

Ø Completion of a farm out agreement to Dyas UK Limited for the sale of 10% interest in the Catcher development in the UK North Sea

Ø A total of 56.1 mmboe booked as 2P reserves at 31 December 2014  and 171.6 mmboe booked as 2C Contingent Resources on a net working interest basis

Exploration

Atlantic Margin - Senegal

Ø FAN-1 discovered high quality, light oil in multiple stacked deepwater fans, SNE-1 discovered high quality oil in the upper clastic target of the Shelf Edge prospect; Senegal evaluation plan to be submitted by Joint Venture (JV), Cairn Operator 40% Working Interest (WI), Q2 2015  

Ø Preliminary estimates of the gross Contingent Resource for SNE-1: P50, 330 mmbbls recoverable. Initial gross STOIIP estimates for the FAN-1 well: P50, 950 mmbbls. Resource estimates confirmed by ERC Equipoise Ltd audit

Ø Based on early evaluation, a programme of three firm and three optional exploration and appraisal wells is envisaged to begin in 2015

Ø Capital Markets Day on Senegal on 11 May 2015

Atlantic Margin - Western Sahara

Ø Exploration well in Cap Boujdour contract area completed in March 2015 (Kosmos Operator, Cairn 20% WI). Well encountered hydrocarbons but the discovery was non-commercial and the well has been plugged and abandoned

North West Europe

Ø Catcher and Kraken developments in the UK North Sea on track for first oil from 2017; targeted peak net production to Cairn of ~22,500 boepd

Ø Catcher

Ø Field Development Plan approved Q2 2014 now in execution phase

Ø Development drilling scheduled to commence in the middle of 2015

Ø Construction of the FPSO hull started in Q1 2015

Ø Kraken 

Ø Development drilling scheduled to commence in the middle of 2015

Ø FPSO construction continues in Singapore and fabrication of main process modules has started

Ø Programme of non-operated wells in North Sea:

Ø Three wells completed in 2014, Ensis and Atlas in Norway and Aragon in the UK - all three wells were plugged and abandoned

Ø West of Kraken, UK North Sea (EnQuest Operator, Cairn 25% WI) operations are close to completion

Ø Crossbill, Norwegian North Sea (Wintershall Operator, Cairn 20% WI), operations to commence in Q2 2015

Ø Additional non-operated wells for 2015 remain subject to final investment decision within the different partnerships

Ø UK 28^th Licensing Round awards: Cairn was awarded four licences in Q4 2014

Ø Norwegian 2014 Licensing Round:  Cairn was awarded five licences in Q1 2015

Ø Process to pre-qualify as Operator in Norway under way

Ø Pursuing recent entry into Barents Sea with possible applications in 23^rd Licence Round in late 2015

Enquiries:

Analysts/Investors David Nisbet, Corporate Affairs	Tel: [phone]
Media Patrick Handley, David Litterick Brunswick Group LLP	Tel: [phone]

Webcast

There will be a live audio webcast of the results presentation available to view on the website (www.cairnenergy.com) at 9am GMT. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.

An 'on demand' version of the webcast will be available on the website as soon as possible after the event. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.

Presentation

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

Conference call

You can listen to the results presentation by dialling in to a listen only conference call at 9am GMT using the below dial-in details.

Dial-in details:

UK:                                           020 3059 8125

All other locations:                     [phone]

A recording of the conference call will be available from 11am GMT Tuesday 10 March 2015 until Tuesday 17 March 2015.

Recording dial-in details:

UK:                                           0121 260 4861

All other locations:                     [phone]

Passcode:                                 0276850#

Transcript

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

Chairman's Introduction

2014 was a challenging year both for Cairn and for the wider E&P industry. In January, Cairn was notified of the previous Indian Government's decision to freeze our 10% holding in Cairn India Limited, following the introduction of retrospective tax legislation. During the second half of the year and continuing into 2015, oil prices have fallen sharply, causing all players in the sector to reassess capital plans and focus on cost efficiency.  On a more positive front, the Senegal discoveries in Cairn's significant acreage position offshore West Africa provide a material opportunity for the company to create substantial shareholder value from a potentially world class asset. 

During the year, we reconfirmed our strategy to deliver value from discovery and development within a sustainable, self-funding business model.  Cairn is well positioned with a strong balance sheet and is well funded through to cash flow sustainability from our North Sea assets.  Furthermore, management's early action, which included a fundamental rationalisation of the business whilst retaining our core geological and exploration skills, has ensured that the company can operate effectively in the current low oil price environment.

Senegal presents an exciting opportunity which we continue to evaluate. As a result of the reduction in oil prices, Cairn is able to benefit from substantially lower industry costs as we prepare for the 2015 appraisal and exploration programme. 

In India, we note the comments made by the new BJP Government about the impact of retrospective tax legislation and the negative signal it sends to the international investment community.   Our approach to date has been to focus on engagement with the Government of India and resolving this matter clearly continues to be a high priority.  

Following the 2014 AGM, as part of our long term succession planning, a number of significant changes to the Board took effect: Sir Bill Gammell retired as non-executive Chairman and I succeeded him in this role.  Dr Mike Watts, Deputy Chief Executive and Jann Brown, Managing Director and Chief Financial Officer stepped down as Executive Directors.  James Smith was appointed as Chief Financial Officer.  James joined in March 2014 from Rothschild where he had been a longstanding adviser to Cairn.  Finally, Dr James Buckee retired as a non-executive director. After standing down as Executive Directors, Mike and Jann continued in senior roles for six months focused entirely on seeking to resolve the tax situation in India. 

I would like to recognise and thank both our employees and our contractors for all their hard work and diligence in getting Cairn through a difficult year in 2014 and into a position of strength as we look forward to 2015.

Chief Executive's Statement

Cairn's strategy is to create and deliver value from the discovery and development of hydrocarbon resources.  We achieve this from a balanced portfolio and a sustainable, self-funding business model.  The combination of balance sheet strength, development stage assets with a clear path to cash flow generation and a balanced exploration and appraisal portfolio allows the Company to fund future exploration activity and to repeat the cycle of creating, adding and realising shareholder value. In 2014, we positioned the Group for future growth by:

i.    Discovering oil offshore Senegal in both wells drilled in the exploration programme

ii.    Participating successfully in the UK 28^th Licensing Round and Norwegian 2014 APA Licensing Round

iii.   Selective farm-ins and farm-downs, including the sale of a 10% interest in the Catcher development in the North Sea

iv.   Accelerating the financing of our development projects

v.    Progressing the Catcher and Kraken developments, which remain on track with free cash flow generation anticipated from 2017

vi.   Maturing prospects across our portfolio to drill ready status for 2015/16

vii.  Booking 2P Reserves on the Catcher development and 2C Resources in Senegal

2014 was marked by two significant discoveries offshore Senegal, successfully opening a new hydrocarbon basin, with the SNE-1 discovery recognised as potentially the largest global oil discovery in 2014. The discoveries occur in two separate plays and have significant follow on potential within our acreage.

The Cairn team planned and executed a safe and successful two well exploration campaign in less than 20 months following the initial announcement of the farm-in to Senegal in early 2013.  The strong JV partnership comprising Petrosen, ConocoPhillips and FAR Limited with Cairn as the Operator, has a shared vision of the prospectivity and potential of our large acreage position.

We have established an office in Dakar with a local and international team who are working closely with the Government, suppliers and local communities. I was delighted to lead a country visit in November 2014 along with executive management from ConocoPhillips to meet with President Macky Sall. We were encouraged by the support of the Senegalese authorities, and we all recognise that these discoveries, in the longer term, are potentially transformational for Senegal as a country, as well as for Cairn. 

Cairn's exploration and appraisal assets in the Atlantic Margin, North West Europe and the Mediterranean are underpinned by Kraken and Catcher, two major North Sea development projects. The future cash flows from these projects will support a self-funding, sustainable business model over the medium and long term. From 2017, we anticipate free cash flow from these assets with a production estimate of around 22,500 barrels of oil equivalent per day net to Cairn. We keep a disciplined focus on projects right across our portfolio to ensure they deliver strong returns even in a lower oil price environment and our North Sea development investments are in line with that strategy.

In early 2014, Cairn received notice from the Income Tax Department of India citing 2012 retrospective legislation and requesting information relating to a group reorganisation in 2006.  At the same time, the Income Tax Department restricted Cairn from accessing the value of its remaining ~10% shareholding in Cairn India Limited (CIL), then valued at ~US$1billion. 

The freezing of our asset in India was an unexpected event and measures were swiftly introduced to ensure that the Company remained able to deliver its work programme and long-term strategy in the absence of access to these funds.

First of all, the timetable for bringing in debt financing for our North Sea development activities was accelerated. A Reserve Based Lending bank facility of US$575m was put in place in July and this currently remains undrawn. 

Secondly, the business was re-organised to ensure we had the right size of company for the work programme ahead.  The priority was to retain and protect the core technical, commercial and financial competencies which form the foundation of Cairn whilst outsourcing non-core capabilities and reducing costs.  The resulting new organisational structure was completed in early 2015 with a 40% reduction in the number of employees and contractors in the business. 

Thirdly, we looked to re-balance our portfolio.  In September, we announced a farm out agreement to Dyas UK Limited for the sale of a 10% interest in the Catcher development and adjacent acreage in the UK North Sea for a carry of Cairn's exploration and development costs up to a cap of US$182m, effective from 1 January 2014.  As a result of this transaction, which was successfully completed in January 2015, Cairn reduced forward capital expenditure to the end of 2017 by ~US$380m and also retained a 20% working interest in the Catcher licence with first oil expected from 2017.

The above measures strengthened our financial position and our ability to create and deliver value through a sustainable, repeatable and self-funding business model.

Outlook

We start 2015 in a strong position to deliver an exciting programme across the portfolio, especially in Senegal, which has the potential to add substantial value beyond the discoveries made to date. We have built a diverse and balanced portfolio and created the financial flexibility to progress our exploration, appraisal and development programmes and ensure ongoing strategic delivery.

Operational Review

Overview

Cairn has built a balanced portfolio of opportunities in a mixture of frontier, emerging and mature basins which offer the opportunity for sustained organic growth and value delivery.

Across the portfolio Cairn seeks to acquire significant acreage positions, at appropriate equity levels, in areas we believe have high technical and commercial potential and where, in the case of initial success, we have financial capability to leverage our knowledge and create value.  We continually evaluate the entire portfolio to ensure that our equity is at appropriate levels to offer potential growth opportunities.

Senegal

Cairn discovered oil in both wells of its Senegal exploration programme, opening a new hydrocarbon basin on the Atlantic Margin.

The first exploration well, FAN-1 located in 1,427m water depth and ~100km offshore in the Sangomar Deep block, reached a Target Depth of 4,927m and was targeting multiple stacked deepwater fans.  The well encountered a very substantial oil bearing interval that materially upgrades the prospectivity of the block with a proven petroleum system and a number of deep fan and shelf prospects established.  Preliminary analysis indicates:

Ø 29m of net oil-bearing reservoir in Cretaceous sandstones  

Ø No water contact was encountered in a gross oil bearing interval of more than 500m

Ø Distinct oil types ranging from 28° API up to 41° API  indicated so far from a number of oil samples recovered to surface

Ø Initial gross STOIIP estimates for FAN-1 range from P90 250 mmbbls, P50 950 mmbbls to P10 2,500 mmbbls and are broadly in line with pre-drill STOIIP estimates

The second exploration well, SNE-1, located in 1,100m water depth and ~100km offshore in the Sangomar Offshore block, was targeting the Shelf Edge Prospect. Wire line logging of SNE-1 confirmed hydrocarbons in the Cretaceous clastics objective which is of similar age to oil-bearing sands found approximately 24km away in FAN-1.  Initial analysis of the SNE-1 well indicates:

Ø 95m gross oil bearing column with a gas cap

Ø Excellent  reservoir sands with net oil pay of 36m

Ø Oil of  32° API from samples of gas, oil and water recovered to surface

Ø Preliminary estimates of the Contingent Resource range from P90 150 mmbbls, P50 330 mmbbls to P10 670 mmbbls recoverable

Notices of the two discoveries were submitted to the Senegal Government in November 2014. Following a six month period to plan a future work programme, the JV will submit an evaluation plan in May 2015. Based on early evaluation, the JV currently envisages three firm and three optional wells to begin in 2015.

Cairn has a 40% WI as Operator in three blocks offshore Senegal (Sangomar Deep, Sangomar Offshore and Rufisque); ConocoPhillips has 35% WI, FAR Limited 15% WI and Petrosen, the national oil company of Senegal, 10%.  The three blocks cover 7,490km².

Morocco

Offshore Morocco, we operate two exploration permits and are also a non-operator partner in one exploration permit.

Our first well in the programme offshore Morocco, FD-1 (Cairn 50% WI, Operator) in the Foum Draa licence, was plugged and abandoned in December 2013.  The well established a working hydrocarbon system with a thermogenic source rock. However, the anticipated target reservoirs were not encountered. 

The JM-1 well (Cairn 37.5% WI, Operator) drilled in the Juby Maritime licence to evaluate Upper Jurassic and Middle Jurassic objectives reached a total depth of 3,711m TVDSS and was plugged and abandoned without testing in March 2014. In the Upper Jurassic section, the well confirmed the presence of heavy oil over a gross interval of 110m as originally tested in the 1968 MO-2 well, some 2km from the JM-1 well. Reservoir quality and the oil gravity in the Upper Jurassic across the Cap Juby structure is undergoing further evaluation by JV partners (Office National Des Hydrocarbures et Des Mines "ONHYM" and Genel Energy).  Work is also ongoing to correlate the core and log data from JM-1 with other wells on Cap Juby to evaluate the extent of moveable hydrocarbons and to determine whether any further work should be conducted. 

The CB-1 well (Cairn 20% WI) commenced drilling in the Cap Boujdour licence offshore Western Sahara in December 2014, targeting the Al Khayr prospect following a 3D seismic survey earlier in the year. It was announced in March 2015 that the CB-1 exploration well encountered hydrocarbons.  The well penetrated 14m of net gas and condensate pay in clastic reservoirs over a gross hydrocarbon bearing interval of approximately 500m.  The discovery was non-commercial and the well has been plugged and abandoned.  The permit is operated by Kosmos and partnered by ONHYM.

Mauritania
Work continues to mature block C-19 (Cairn 35% WI) offshore Mauritania towards drilling.  Interpretation of the proprietary 3D data has been completed, with four drill-ready prospects identified, each with over 400 mmbbls of gross mean prospective resources (Chariot Oil & Gas Operator estimates). 

Republic of Ireland

A 900km² 3D seismic survey was completed in Q3 2014 on acreage adjacent to the Spanish Point discovery on Frontier Exploration Licence (FEL) 1/14 (Cairn 38% WI, Operator). A planned appraisal/exploration well on FEL 2/04 offshore West of Republic of Ireland, has been deferred pending discussions with partners and the Government of the Republic of Ireland.

Greenland

Cairn remains encouraged by the opportunity in the Pitu exploration block (Cairn WI 87.5%, Operator), with combined prospects within the 3D area confirming a potential multi-billion barrel of oil equivalent prospective resource. Any future drilling plans would require additional partners in this region. 

Mediterranean

As part of our longer term frontier exploration programme, Cairn has acquired interests in a number of opportunities in the Mediterranean area. A 2D seismic survey was completed offshore Malta in April 2014 (Cairn 60% WI, Operator) where the deeper water areas remain underexplored. Hydrocarbons have been demonstrated in a number of plays in the area and with modern seismic data starting to unlock new potential; the basin offers a number of opportunities for discovery. Cairn has also made applications for acreage offshore the Gulf of Lion and the Bay of Biscay in Spain.

UK and Norwegian North Sea

Cairn has built a strong position in the UK and Norway by acquiring exploration, appraisal and development assets and participating in licence rounds. The mature basins of the North Sea provide balance to the broader exploration portfolio and will deliver free cash flow to sustain future exploration.  The North Sea is an active market for asset transactions enabling Cairn to continually optimise its position within the region as well as its wider capital allocation.

Kraken and Catcher, two of the largest ongoing development projects in the UK North Sea are the Group's core development projects and a third, the Skarfjell discovery in Norway, is in the early stages of development planning. Kraken and Catcher will provide free cash flow from 2017 with peak net production to Cairn of ~22,500 boepd.  

More recently, Cairn entered the emerging Barents Sea and is in the process of applying for operatorship in Norway, leveraging Cairn's Arctic operational experience and Norwegian presence.

Catcher

The Catcher field (Premier Operator 50%, Cairn 20%, MOL 20%, Dyas 10%) was discovered in 2010 in block 28/9a of the UK Central North Sea.  Follow up wells in the block then discovered the Varadero, Burgman, Carnaby and Bonneville fields.  These discoveries together with four adjacent licences make up what is known as the Greater Catcher area.

In 2014, a Field Development Plan (FDP) for the development of the Catcher, Varadero and Burgman fields was approved by DECC and 2P reserves were booked.  The development will comprise a Floating Production Storage and Offloading (FPSO) facility which is currently under construction in Singapore and will be capable of processing 60,000 bopd.

The development will be located 170km south east of Aberdeen in water depths of ~90m.
Development drilling will start in 2015 with more than 20 wells expected to be drilled over a period of more than four years. First oil is anticipated in 2017 with net peak production to Cairn of ~10,000 boepd.   

Kraken

The Kraken field (EnQuest Operator 60%, Cairn 25%, First Oil 15%) was discovered in 1985 in block 9/2b of the UK North Sea, followed by the Kraken North field in 2013.  Combined, these two fields make up the Kraken development.  The JV is continuing to evaluate additional opportunities in the block.

The FDP for the Kraken development was approved by DECC in 2013 and the FPSO vessel, which will be capable of processing 80,000 bopd, is currently under construction in Singapore. The field is located ~350km north east of Aberdeen and ~125km east of the Shetland Islands in water depths of ~115m. Development drilling will start in 2015 with 25 wells expected to be drilled over more than four years.  First oil is anticipated in 2016/17 with net peak production to Cairn of ~12,500 boepd.

UK & Norway Exploration

In 2014, Cairn continued to build the exploration portfolio in order to leverage our subsurface knowledge and operational synergies and applied for and was awarded interests in both the UK and Norwegian licensing rounds. In Q1 2014, we were awarded interests in all three licences applied for in the Norwegian Awards in Predefined Areas (APA) 2013 Licensing Round and are currently reviewing this acreage, with a view to making drilling decisions in future years. Cairn was also awarded non-operated interests in five licences in the 2014 APA Licensing Round. These licences do not carry firm well commitments and are in locations adjacent to current areas of interest in Norway. In the UK 28^th Licensing Round, Cairn was awarded four licences in Q4 2014.

In 2014, the company participated in three non-operated wells:

Ø Aragon exploration well (Cairn 32.5% WI) licence P1763 in UK North Sea plugged and abandoned in Q4 2014

Ø Ensis prospect (Cairn 25% WI) PL393B in the Barents Sea plugged and abandoned in Q3 2014

Ø Atlas prospect (Cairn 20% WI) PL420 in the Skarfjell area plugged and abandoned in Q4 2014

In 2015, the current programme of non-operated wells in the North Sea is:

Ø West of Kraken, UK North Sea (EnQuest Operator, Cairn 25% WI) operations are ongoing

Ø Crossbill, Norwegian North Sea (Wintershall Operator, Cairn 20% WI), operations to commence in Q2

Financial Review

Overview

Cairn is fully funded to deliver its core development projects through to anticipated sustainable free cash flow generation from 2017.  The Group secured additional funding of up to US$575m during the year through a Reserve Based Lending facility.  Together with the sale of a 10% interest in Catcher, completed in January 2015, this provides additional financial flexibility for the Group to successfully achieve its strategy of delivering value from discovery and development through disciplined capital allocation across a balanced portfolio.

Oil and gas assets

2014 Movements in Oil and Gas Assets	US$m
Opening oil and gas assets	798
Atlantic Margin: Senegal exploration additions	146
Atlantic Margin: Morocco additions	100
Atlantic Margin: Greenland and Ireland additions	19
Atlantic Margin: Unsuccessful exploration costs	(107)
Atlantic Margin: Impairments	(23)
Atlantic Margin: Disposals	(26)
North West Europe: Exploration additions	109
North West Europe: Unsuccessful exploration costs	(95)
North West Europe: Impairments	(24)
North West Europe: Development additions Mediterranean: Exploration asset movements	50 (1)
Foreign exchange	(61)
Closing oil and gas assets	885

Exploration assets

During 2014, Cairn successfully completed a four-well frontier exploration programme, focussed on the Atlantic Margin offshore Morocco and Senegal. The first exploration well in the programme, located in the Foum Draa block, completed in January 2014, and the second, in the Juby Maritime block, completed in March 2014. The rig then moved to Senegal where the FAN-1 exploration well and the SNE-1 exploration well completed in September and November 2014 respectively. 

Cairn participated in three unsuccessful wells drilled in North West Europe during 2014; two in the North Sea and one in the Barents Sea.

A further appraisal well planned offshore Ireland was deferred as the contracted rig was delayed beyond an acceptable weather window.

Atlantic Margin - Africa

Morocco

During the year, Cairn operated two exploration wells offshore Morocco, both wells were plugged and abandoned after failing to encounter commercial hydrocarbon reservoirs.  Unsuccessful exploration costs in 2014 include US$53m relating to these wells (2013: US$107m).  At 31 December 2014, no material balances remain capitalised in relation to the operations in Morocco (2013: US$4m).

In January 2014, Cairn completed the farm-in to the Cap Boujdour licence in Western Sahara.  The CB-1 non-operated exploration well commenced in December 2014, but was confirmed unsuccessful after the balance sheet date.

The total costs incurred on the Cap Boujdour well to 31 December 2014 were US$47m and are included in unsuccessful exploration costs charged in the year.

Senegal

Cairn holds a 40% interest in three contiguous blocks offshore Senegal after gaining approval to farm-down 25% to ConocoPhillips early in 2014.  Back costs of US$21m were recovered.  Following completion of the Morocco wells, the Cajun Express went on to complete the FAN-1 and SNE-1 exploration wells offshore Senegal.  Costs of these two successful wells remain capitalised and are included in the total exploration costs of US$167m carried in Senegal.

Atlantic Margin - North Atlantic

Greenland

Cairn continues to work to farm-down the Group's interests in Greenland in advance of any further  activity and until such a farm-down is concluded, no further exploration activity is planned, an indicator that the asset may be impaired.  After testing for impairment in line with Cairn's accounting policy, costs previously capitalised of US$23m were fully charged to the Income Statement.

North West Europe

UK and Norwegian North Sea

During the year, Cairn drilled two exploration and appraisal wells in the North Sea.  Neither the Aragon nor Atlas wells encountered commercial hydrocarbons. Unsuccessful exploration costs of US$50m were charged to the Income Statement.

The conclusion of Skarfjell appraisal activities following drilling in 2013 led to an additional charge to the Income Statement.  Though the work was technically successful and confirmed the fair value of the asset at the point of acquisition, the appraisal work did not identify any incremental increase in value and therefore was expensed as unsuccessful costs.  An additional charge of US$25m was made to the Income Statement.

Costs remaining capitalised of US$193m include US$159m relating to the Skarfjell discovery and remaining exploration discoveries/prospects in the Catcher area that were not included in the FDP.

Norwegian Barents Sea

Cairn entered into the Barents Sea region by farming in to the Statoil operated Ensis well, which completed in Q3 2014.  The well was unsuccessful and costs of US$17m were charged to the Income Statement.

Development assets

North West Europe

UK North Sea

The Catcher area FDP was approved by DECC in June 2014.  Costs relating to the fields within the development area of US$148m were transferred from exploration to development assets.

In September 2014, Cairn entered into a sales agreement with Dyas UK Limited to farm-down a 10% interest in the Catcher development and adjacent acreage, for a carry of US$182m on future exploration and/or development expenditure and a refund of exploration and development costs incurred from 1 January 2014. Approval for this deal was received subsequent to the year end.  Following completion, Cairn retains a 20% working interest.

Costs held in development assets at year end 2014 of US$468m include the Group's 30% interest in Catcher (including the 10% subsequently sold to Dyas UK Limited) and the Group's 25% interest in the Kraken development. Cairn's 2014 costs relating to Kraken were carried by the operator EnQuest.

Impairment testing

Given recent declines in oil prices, indicating the possibility of impairment of certain Group assets, Cairn has tested the relevant exploration and development assets for impairment.  Goodwill, allocated to the Group's North Sea operating segment, is tested annually for impairment by comparing the net carrying value of the goodwill, the North Sea exploration, appraisal and development assets and the deferred tax assets and liabilities related to those assets to the fair value of the underlying assets in the segment based on recent market transactions or risk-weighted discounted cash flow models.

The Group's base case short-term oil price assumption is based on a three-year forward curve, and thereafter a long-term assumption of US$90 per barrel is used.  With no free cash flow generation anticipated until 2017, the impact of the current low-price environment on the fair value calculations is limited. A comprehensive review of the Group's assumptions has been undertaken and Cairn believes these remain appropriate. Impairment tests resulted in an impairment of North Sea exploration assets of US$24m and the write-off of remaining costs in Greenland of US$23m.  No impairment arises on the Group's key North Sea development projects or the goodwill associated with the North Sea business.

Available-for-sale financial asset

As at 31 December 2014, Cairn's remaining ~10% holding in Cairn India Limited was valued at US$703m. 

The current restriction on sale of the financial asset does not directly impact its carrying value in the Balance Sheet as the restriction applies only to Cairn and is not a wider market restriction.  Dividends declared by CIL of US$35m during 2014, recognised as finance income in the period are also included within other receivables.  A decrease in the CIL share price over the year to a close of INR241 at 31 December 2014, resulted in the recycling of the cumulative deficit on valuation of US$194m to the Income Statement where it is disclosed as impairment.

Cash and working capital

Cairn's cash resources at the year end are supported by the US$575m Reserve Based Lending facility which the Group entered into during 2014.  The facility is available to draw down to fund development capex in the Catcher and Kraken projects and in the form of letters of credit or bank guarantees required for Cairn's operational activity. The amount available to fund the projects is determined by standard reserves based lending calculations and by reaching certain project milestones.  

The Group's net funds (cash at bank less bank borrowings) were US$869m (31 December 2013: US$1.3bn)

Bank loans in Norway of US$55m at 31 December 2013 were repaid in full early in 2014 and the facility cancelled.

The US$575m Reserve-Based Lending Facility was undrawn at the year end. Arrangement and facility fees incurred on entering into the loan agreement are held within prepayments and will be amortised on an effective interest rate basis over the life of the loan, based on drawdown projections. Charges incurred while the facility remains undrawn are charged to the Income Statement.

During the year, Cairn bought back 19m shares for US$64m.

2014 Net Funds Movement	US$m
Opening net funds	1,308
Exploration and development spend	(376)
Proceeds on farm-down of assets	31
Norway tax refund	66
Proceeds on sale of CIL shares	63
Share buy-back	(64)
Repayment of borrowings and facility fees	(73)
Pre-award costs, administration and misc. expenses	(77)
Foreign exchange movements	(9)
Closing net funds	869

Results for the year

With no revenue currently recorded in the Income Statement, the Group reported a loss after tax for the year of US$381m, analysed as follows:

		2014	2013
		$m	$m
Operational and	Pre-award  costs	(55)	(24)
administrative activities:	Unsuccessful well costs	(208)	(213)
	Administrative expenses and other income/costs	(65)	(42)
	Related tax credits	122	86
		(206)	(193)
Finance income	Net finance income	4	48
Impairments and disposal of investment in CIL:	Impairment	(194)	(268)
	Gain on sale	4	-
	Related net tax credit	41	75
		(149)	(193)
Impairment and loss on sale of oil and gas assets:	Impairment of exploration assets	(47)	(251)
	Impairment of goodwill	-	(324)
	Gain/(loss) on sale of oil and gas assets	2	(25)
	Related tax credits	15	382
		(30)	(218)
Total loss after tax		(381)	(556)

Pre-award costs

The Group continues to seek cost-effective entry into new exploration prospects in the Norwegian Barents Sea and the UK and Norwegian North Sea.  Pre-award costs include US$22m of seismic data acquired in the Barents Sea.   Cairn is also active in new UK and Norwegian Licensing Rounds and in the Norwegian 2014 APA Licensing Round, Cairn was awarded non-operated interests in five licences.

Operational and administrative expenses

Unsuccessful exploration costs of US$208m include US$100m relating to the Morocco Foum Draa, Juby Maritime and Cap Boujdour wells; US$53m relating to North Sea exploration wells drilled including Aragon and Atlas and US$17m of costs relating to the Ensis well in the Barents Sea. US$25m of costs relating to the Skarfjell appraisal wells drilled in Norway in 2013 were also charged along with US$13m of other exploration costs.

During 2014, Cairn implemented a Group reorganisation and as a result, US$6m has been provided for the costs of redundancy and a further charge of US$2m on associated share-based payments has been recognised.   In addition, during 2014, Cairn incurred costs of US$8m in its efforts to seek resolution of the tax issue in India.

These additional costs contribute to the rise in net administration costs from US$42m in 2013 to US$67m for the current year.  Controlling administrative cost levels remains a priority for the Group and the measures taken by Cairn should ensure that they remain appropriate for the level and nature of business activity in the medium term.

Finance income

Finance income of US$38m includes US$35m of dividends declared by CIL which currently remain frozen. 

Impairment and disposal of available-for-sale financial assets

Prior to the restriction on sale of the Group's investment in CIL in January 2014, the Group sold 0.6% of its holding: recognising a gain on sale of US$4m. The cumulative deficit in valuation of the investment of US$194m has been recycled from reserves and is disclosed as impairment.

Impairment

Remaining costs of US$23m associated with the Group's activities in Greenland have been impaired in full as any further activity is subject to a farm-down of Cairn's interests.  Impairment tests conducted on North West Europe assets identified an impairment of US$24m.

Principal Risks and Uncertainties

In 2014, Cairn's strategy was to deliver value from discovery and development.  There are a number of risks associated with the delivery of the strategy and work programme which the Group actively manage and mitigate.           

The principal risks in relation to the Group's financial and operational performance are as follows:

-       Lack of exploration success

-       Restriction on ability to sell CIL shareholding

-       Operational and project performance

-       Kraken and Catcher development projects not executed on schedule and budget

Cairn Energy PLC    

Group Income Statement

For the year ended 31 December 2014

	Section	2014 US$m	2013 US$m
Continuing operations
Pre-award costs		(54.8)	(23.5)
Unsuccessful exploration costs	2.1	(208.4)	(213.1)
Net operating expenses	4.2	(64.5)	(42.2)
Impairment of intangible exploration/appraisal assets	2.1	(46.9)	(251.4)
Gain/(loss) on disposal of oil and gas assets	2.2	2.3	(24.7)
Impairment of goodwill	2.3	-	(324.2)
Operating loss		(372.3)	(879.1)
Gain on disposal of available-for-sale financial assets		3.9	-
Impairment of available-for-sale financial assets	3.1	(194.3)	(267.5)
Finance income		38.3	50.6
Finance costs		(34.7)	(2.9)
Loss before taxation from continuing operations		(559.1)	(1,098.9)
Taxation
Tax credit	4.3a	178.0	543.0
Loss for the year attributable to equity holders of the parent		(381.1)	(555.9)
Loss per ordinary share - basic (cents)	4.4	(66.51)	(93.24)
Loss per ordinary share - diluted (cents)	4.4	(66.51)	(93.24)

Group Statement of Comprehensive Income

For the year ended 31 December 2014

	Section	2014 US$m	2013 US$m
Loss for the year		(381.1)	(555.9)
Other comprehensive income - items that may be recycled to profit or loss
Deficit on valuation of financial assets	3.1	(261.1)	(110.8)
Deferred tax credit on valuation of financial assets	4.3a	56.6	48.8
Valuation movement recycled to Income Statement	3.1	189.2	267.5
Deferred tax charge on valuation movement recycled to Income Statement	4.3a	(40.9)	(74.5)
Currency translation differences		(58.8)	7.6
Other comprehensive income for the year		(115.0)	138.6
Total comprehensive income for the year attributable to equity holders of the parent		(496.1)	(417.3)

Cairn Energy PLC

Group Balance Sheet

 As at 31 December 2014

		2014	2013
	Section	US$m	US$m
Non-current assets
Intangible exploration/appraisal assets	2.1	417.0	498.6
Property, plant & equipment - development/producing assets	2.2	467.8	299.9
Intangible assets - goodwill	2.3	145.1	163.4
Other property, plant & equipment and intangible assets		5.5	6.0
Available-for-sale financial assets	3.1	702.6	1,027.6
Deferred tax assets	4.3c	106.2	58.7
		1,844.2	2,054.2
Current assets
Income tax asset		60.3	81.3
Inventory		5.0	10.0
Other receivables		238.6	152.3
Cash and cash equivalents	3.2	869.3	1,308.3
		1,173.2	1,551.9
Total assets		3,017.4	3,606.1
Current liabilities
Trade and other payables		278.2	201.0
Provisions		11.6	11.4
Loans and borrowings	3.2	-	55.3
		289.8	267.7
Non-current liabilities
Deferred tax liabilities	4.3c	61.7	148.0
Provisions		2.8	2.6
		64.5	150.6
Total liabilities		354.3	418.3
Net assets		2,663.1	3,187.8
Equity attributable to equity holders of the parent
Called-up share capital		12.4	12.8
Share premium		487.0	486.9
Shares held by ESOP/SIP Trusts		(26.7)	(28.0)
Foreign currency translation		(82.7)	(23.9)
Capital reserves - non distributable		40.8	40.4
Merger reserve		255.9	255.9
Available-for-sale reserve		-	56.2
Retained earnings		1,976.4	2,387.5
Total equity		2,663.1	3,187.8

Cairn Energy PLC

Group Statement of Cash Flows

For the year ended 31 December 2014

	Section	2014 US$m	2013 US$m
Cash flows from operating activities
Loss before taxation		(559.1)	(1,098.9)
Unsuccessful exploration costs		208.4	213.1
Depreciation and amortisation		3.3	4.5
Share-based payments charge		21.4	14.0
Impairment of intangible exploration/appraisal assets		46.9	251.4
(Gain)/loss on sale of oil and gas assets		(2.3)	24.7
Gain on disposal of available-for-sale financial assets		(3.9)	-
Inventory disposal/write down		8.4	-
Impairment of goodwill		-	324.2
Impairment of available-for-sale financial assets		194.3	267.5
Finance income		(38.3)	(50.6)
Finance costs		34.7	2.9
Interest paid		(0.5)	(2.9)
Income tax received		66.0	59.9
Foreign exchange differences		8.8	1.3
Other receivables movement		4.3	(6.4)
Trade and other payables movement		(4.6)	34.5
Provisions movement		2.9	-
Net cash (used in)/from operating activities		(9.3)	39.2
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets		(336.0)	(386.6)
Expenditure on property, plant & equipment -  development/producing assets		(39.8)	(31.4)
Proceeds on disposal of intangible exploration/appraisal assets		31.4	7.1
Proceeds on disposal of property, plant & equipment -  development/producing assets		-	72.7
Purchase of inventory		(4.5)	(10.3)
Proceeds from disposal of inventory		0.6	-
Purchase of other property, plant & equipment and intangible assets		(3.2)	(4.4)
Proceeds from disposal of available-for-sale financial assets		62.6	-
Movement in funds on bank deposits		0.2	2.0
Dividend received		-	40.5
Interest received		3.1	3.8
Net cash used in investing activities		(285.6)	(306.6)
Cash flows from financing activities
Cost of shares purchased		(64.3)	(36.6)
Facility and arrangement fees		(19.2)	-
Proceeds from exercise of share options		0.3	-
Proceeds of borrowings		-	32.5
Repayment of borrowings		(53.4)	-
Net cash flows used in financing activities		(136.6)	(4.1)
Net decrease in cash and cash equivalents		(431.5)	(271.5)
Opening cash and cash equivalents at beginning of year		1,308.3	1,586.6
Exchange losses on cash and cash equivalents		(7.5)	(6.8)
Closing cash and cash equivalents	3.2	869.3	1,308.3

Cairn Energy PLC

Group Statement of Changes in Equity

For the year ended 31 December 2014

	Equity share  capital	Shares held by ESOP Trust and SIP Trust	Foreign currency translation	Merger and capital reserves	Available-for-sale reserve	Retained earnings	Total equity
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 1 January 2013	499.9	(28.7)	(31.5)	296.1	(74.8)	2,980.7	3,641.7
Loss for the year	-	-	-	-	-	(555.9)	(555.9)
Deficit on valuation of financial assets	-	-	-	-	(110.8)	-	(110.8)
Deferred tax credit on valuation of financial assets	-	-	-	-	48.8	-	48.8
Valuation movement recycled to Income Statement	-	-	-	-	267.5	-	267.5
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	(74.5)	-	(74.5)
Currency translation differences	-	-	7.6	-	-	-	7.6
Total comprehensive income for the year	-	-	7.6	-	131.0	(555.9)	(417.3)
Share buy-back	(0.2)	-	-	0.2	-	(50.6)	(50.6)
Share-based payments	-	-	-	-	-	14.0	14.0
Cost of shares vesting	-	0.7	-	-	-	(0.7)	-
At 31 December 2013	499.7	(28.0)	(23.9)	296.3	56.2	2,387.5	3,187.8
Loss for the year	-	-	-	-	-	(381.1)	(381.1)
Deficit on valuation of financial assets	-	-	-	-	(261.1)	-	(261.1)
Deferred tax credit on valuation of financial assets	-	-	-	-	56.6	-	56.6
Valuation movement recycled to Income Statement	-	-	-	-	189.2	-	189.2
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	(40.9)	-	(40.9)
Currency translation differences	-	-	(58.8)	-	-	-	(58.8)
Total comprehensive income for the year	-	-	(58.8)	-	(56.2)	(381.1)	(496.1)
Share buy-back	(0.4)	-	-	0.4	-	(50.3)	(50.3)
Share-based payments	-	-	-	-	-	21.4	21.4
Exercise of employee share options	0.1	0.2	-	-	-	-	0.3
Cost of shares vesting	-	1.1	-	-	-	(1.1)	-
At 31 December 2014	499.4	(26.7)	(82.7)	296.7	-	1,976.4	2,663.1

Section 1 - Basis of Preparation

1.1       Significant Accounting Policies

a)        Basis of Preparation

Cairn prepares its financial statements on a historical cost basis, unless accounting standards require an alternate measurement basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed either in the relevant accounting policy or in the notes to the financial statements. 

The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. However, the Financial Statements contained in this announcement are extracted from audited statutory accounts for the financial year ended 31 December 2014, which will be delivered to the Registrar of Companies. Those accounts are expected to have an unqualified audit opinion.

b)        Accounting Standards 

Cairn prepares its financial statements in accordance with applicable International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB")  as adopted by the EU.  The Group's financial statements are also consistent with IFRS as issued by the International Accounting Standards Board ("IASB") as they apply to accounting periods ended 31 December 2014.

Effective 1 January 2014, Cairn has adopted the following standards:

-  IFRS 10 "Consolidated Financial Statements"

-  IFRS 11 "Joint Arrangements"

-  IFRS 12 "Disclosure of interests in Other Entities"

-  IAS 27 (amendment) "Separate Financial Statements"

-  IAS 28 (amendment) "Investments in Associates  and Joint Ventures"

Adopting IFRS 11 has the most significance as the Group's material interests in oil and gas exploration and development licences are managed through joint arrangements with fellow partners.

Previously, the Group's interests in these arrangements were classified as jointly controlled assets and disclosed as joint venture balances in the notes to the appropriate financial statement line item.  Following implementation of IFRS 11, the Group's joint arrangements are all now classified as joint operations and the disclosures in the financial statements amended accordingly.  There was no impact on the results for the year as a result of adoption.

c)        Going Concern

The Directors have considered the factors relevant to support a statement of going concern. They have a reasonable expectation that the Group will continue in operational existence for the foreseeable future and have therefore used the going concern basis in preparing the financial statements. 

d)        Annual Report and Accounts

Full accounts are due to be posted to shareholders in April 2015 and will be available at the Company's registered office, 50 Lothian Road, Edinburgh, EH3 9BY.

The Annual General Meeting is due to be held on Thursday 14 May 2015 at Midday.

Section 2 - Oil and Gas Assets and related Goodwill

2.1       Intangible Exploration/Appraisal Assets

	Atlantic Margin				North West Europe - UK and Norway
	Senegal	Other Africa	Greenland and Republic of Ireland	Mediterranean		Total
	US$m	US$m	US$m	US$m	US$m	US$m
Net book value
At 1 January 2013	-	2.2	44.5	3.6	849.5	899.8
Foreign exchange	-	-	-	-	7.4	7.4
Additions	41.6	136.3	17.3	4.5	160.5	360.2
Disposals	-	-	-	(0.5)	(5.1)	(5.6)
Transfers	-	-	-	-	(298.7)	(298.7)
Impairment	-	-	-	-	(251.4)	(251.4)
Unsuccessful exploration costs	-	(107.4)	(23.6)	(0.8)	(81.3)	(213.1)
At 1 January 2014	41.6	31.1	38.2	6.8	380.9	498.6
Foreign exchange	-	-	(0.8)	(0.8)	(28.6)	(30.2)
Additions	145.7	99.8	19.1	5.5	108.8	378.9
Disposals	(20.5)	(0.3)	(5.5)	-	(0.3)	(26.6)
Transfers	-	-	-	-	(148.4)	(148.4)
Impairment	-	-	(22.7)	-	(24.2)	(46.9)
Unsuccessful exploration costs	-	(100.1)	(6.6)	(6.9)	(94.8)	(208.4)
At 31 December 2014	166.8	30.5	21.7	4.6	193.4	417.0

Atlantic Margin - Senegal

Cairn completed the farm-down of the three contiguous Senegalese blocks to ConocoPhillips in January 2014.  Back costs received under the agreement are shown as disposals of US$20.5m.  Cairn had originally farmed-in to the three blocks during 2013.

During 2014, Cairn completed two exploration wells offshore Senegal: the FAN-1 and SNE-1 wells.  Both wells encountered hydrocarbons.  Results to date indicate that the SNE-1 well discovered commercial volumes of oil while further work is required to determine the commerciality of the FAN-1 discovery.  Capitalised costs of US$166.8m at 31 December 2014 include the cost of these wells.  Cairn, along with its partners in the joint operation, are preparing further exploration and appraisal programmes for submission to the Government of Senegal in May 2015, with a drilling programme due to commence in Q4 2015.    

Atlantic Margin - Other Africa: Morocco and Mauritania

Cairn completed two exploration wells offshore Morocco in the current year. The Foum Draa and Juby Maritime wells did not encounter commercial hydrocarbons and both were plugged and abandoned. US$53.2m of unsuccessful exploration costs were charged to the Income Statement in 2014.  Costs of US$107.4m incurred to 31 December 2013 were charged as unsuccessful costs in the prior year. 

A third well in Morocco, offshore Western Sahara, the non-operated Cap Boujdour well, commenced drilling in December 2014. The well failed to encounter commercial hydrocarbons and costs to 31 December of US$46.9m were charged to the Income Statement in 2014 as unsuccessful exploration costs. 

Work continued on the C-19 licence offshore Mauritania during 2014 with additions of US$2.9m in the current year (2013: US$27.0m). Costs of US$30.5m remaining at the year end represent US$29.9m of Mauritania costs and US$0.6m of other costs.

Atlantic Margin - Greenland and Republic of Ireland

Cairn is actively seeking to farm-down the Group's interests in Greenland before undertaking any further exploration activities across the licence interests it holds.  Though Cairn remains encouraged by the Pitu prospect, with no firm plans for future exploration activity, the remaining costs of US$22.7m associated with the Greenland licences were fully impaired at the year end. 

The costs of US$21.7m remaining at the year end relate to the Spanish Point appraisal prospect, offshore Republic of Ireland.

2.1       Intangible Exploration/Appraisal Assets (continued)

North West Europe - UK and Norway

UK and Norwegian North Sea

Additions in the current year of US$108.8m (2013: US$160.5m) relate to expenditure on exploration and appraisal wells drilled and new prospects added to the portfolio.  The Group added to its existing exploration portfolio through the acquisition of non-operated interests in the PL248c Grosbeak prospects in the Norwegian North Sea and through licences awarded under the latest rounds in both the UK and Norway.

During 2014, two exploration wells were completed in the North Sea.  Neither the UK Aragon well nor the Norwegian Atlas well discovered hydrocarbons.  Unsuccessful exploration costs of US$50.0m were charged to the Income Statement together with US$2.2m relating to other licences.  2013 unsuccessful costs of US$81.3m included costs of US$53.5m and US$18.6m relating to the Frode and Klara exploration wells in the Norwegian North Sea.

Following the two-well appraisal programme on the Skarfjell discovery which completed drilling operations in 2013, the interpretation of the well results concluded in the current year. The appraisal wells confirmed the estimated reserve volumes of the discovery without materially increasing the future economic value of the field. As the Skarfjell asset was initially recognised at fair value, it is unlikely that the costs relating to the appraisal wells will be recovered and costs of US$25.2m are charged as unsuccessful exploration costs in the year.

DECC approval of the Catcher FDP was received in June 2014. Costs of US$148.4m were transferred from Intangible exploration/appraisal assets to Property, plant & equipment - development/producing assets during the year. A similar transfer of US$298.7m was made in 2013 following approval of the Kraken FDP.

Exploration costs remaining at the year end include the net book value of the Catcher satellite discoveries and exploration prospects and the Skarfjell discovery and associated satellite prospects.

At the year end, Cairn reviewed its intangible exploration/appraisal assets for indicators of impairment.  Impairment tests identified impairment on one of the Group's intangible exploration assets, resulting in a charge of US$24.2m to the Income Statement.

The 2013 year end impairment review identified an indicator of impairment on the Catcher asset. The subsequent test resulted in an impairment charge of US$251.4m.

Norwegian Barents Sea

Cairn has farmed-in to Block PL393B in the Barents Sea, which included the Ensis exploration well which completed in September 2014. The well did not encounter any hydrocarbons and was plugged and abandoned. Farm-in costs and additional costs incurred of US$17.4m were charged to the Income Statement as unsuccessful exploration costs.  No costs remain capitalised at the year end. 

2.2       Property, Plant & Equipment - Development/Producing Assets 

	North West Europe - UK and Norway	Total
	US$m	US$m
Cost and net book value
At 1 January 2013	71.0	71.0
Foreign exchange	1.7	1.7
Additions	44.2	44.2
Transfers from intangible exploration/appraisal assets	298.7	298.7
Disposals	(115.7)	(115.7)
At 1 January 2014	299.9	299.9
Foreign exchange	(30.5)	(30.5)
Additions	50.0	50.0
Transfers from intangible exploration/appraisal assets	148.4	148.4
At 31 December 2014	467.8	467.8

2.2       Property, Plant & Equipment - Development/Producing Assets (continued)

Exploration and appraisal costs of US$148.4m relating to the Catcher fields included in the FDP were transferred to development/producing assets in 2014. A similar transfer of exploration costs for the Kraken field was made in 2013 upon receiving DECC approval. 

In September 2014, Cairn entered into an agreement to farm-down 10% of the Group's 30% working interest in the Catcher development, satellite fields and surrounding exploration acreage to Dyas UK Limited ("Dyas").  Under the terms of the deal, Dyas will fund Cairn's exploration and development costs in respect of the licences up to a cap of US$182.0m. 

Final approval for the sale to Dyas was received in January 2015. As the deal had an effective economic date of 1 January 2014, on completion, Cairn received a refund of costs of US$54.7m including US$36.5m received under the carry. 

During 2013, Cairn agreed the sale of the Mariner asset in the UK North Sea to Dyas BV, receiving formal approval in December 2013.  The disposal of Mariner resulted in a US$24.7m loss to the Income Statement.

Impairment tests were performed on the Group's development/producing assets at the Balance Sheet date.  The value of Catcher implicit in the Dyas sale supports the carrying value of the Group's remaining 20% working interest.  Impairment tests were also performed on the Kraken development asset and concluded that no impairment existed (2013: US$nil).

2.3       Intangible Assets - Goodwill

	UK and Norwegian North Sea US$m	Total US$m
Net book value
At 1 January 2013	485.5	485.5
Foreign exchange	2.1	2.1
Impairment	(324.2)	(324.2)
At 1 January 2014	163.4	163.4
Foreign exchange	(18.3)	(18.3)
At 31 December 2014	145.1	145.1

Goodwill is fully allocated to the UK and Norwegian North Sea operating segment.  At 31 December 2014, the goodwill impairment test did not identify any impairment, with the carrying value of the UK and Norwegian North Sea operating segment being less than the recoverable amount of the underlying assets, principally the Catcher, Kraken and Skarfjell assets.

The impairment of the Catcher asset in 2013 (see section 2.1) reduced both the carrying value of the operating segment and its recoverable amount in equal measures. The release of deferred tax provided on the Catcher asset, however, increased the carrying value of the segment in relation to the recoverable amount.  Additionally, the recognition of tax credits for field allowances to which the Kraken asset was eligible further increased the carrying value of the segment.  As a result, the recoverable amount of the assets could no longer support their carrying value and at 31 December 2013 the year end impairment test identified impairment and a charge of US$324.2m was recorded.

The remaining carrying value of goodwill at 31 December 2013 was supported by the fair value less costs of disposal of the Group's UK and Norwegian North Sea assets.

Section 3 - Financial Assets and Working Capital

3.1       Available-for-sale Financial Assets

		Listed equity shares US$m
Fair Value
As at 1 January 2013		1,138.4
Deficit on valuation		(110.8)
As at 1 January 2014		1,027.6
Deficit on valuation		(261.1)
Disposal		(63.9)
As at 31 December 2014		702.6

Available-for-sale financial assets represent the Group's remaining investment in the fully diluted share capital of Cairn India Limited, 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.

In January 2014, Cairn was contacted by the Indian Income Tax Department to provide information in relation to the year ending 31 March 2007. While interaction with the Indian Income Tax Department continues, Cairn has been restricted by the Indian Income Tax Department from selling its shares in, or receiving dividends declared by, Cairn India Limited.

Prior to the restriction in January, the Company disposed of 12,048,836 shares in Cairn India Limited, recognising a gain of US$3.9m. This includes prior year unrealised gains recycled from equity of US$5.1m. The disposal of 0.6% shareholding leaves a residual 9.8% interest in Cairn India Limited.

At 31 December 2014, the value of the investment in Cairn India Limited had fallen to US$702.6m.  The significant accumulated deficit of US$194.3m from the date of a previous impairment was recycled to the Income Statement and recorded as impairment. An impairment of US$267.5m was recycled to the Income Statement in June 2013 following a significant fall in value from the date of original recognition.

3.2       Net Funds

	2014	2013
	US$m	US$m
Cash and cash equivalents	869.3	1,308.3
Loans and borrowings	-	(55.3)
Net funds	869.3	1,253.0

Cash and cash equivalents earn 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.

Cairn limits the placing of deposits, certificates of deposit and other investments to banks or financial institutions that have ratings of A- or above from at least two of Moody's, Standard & Poor's or Fitch, unless a Sovereign Guarantee is available from an AAA rated Government. The counterparty limits vary between US$50.0m and US$200.0m depending on the ratings of the counterparty.  No investments are placed with any counterparty with a five-year CDS exceeding 250 bps. Investments in money market liquidity funds are only made with AAA rated liquidity funds and the maximum holding in any single fund is 5% of total investments.

The 2013 bank loan represents amounts drawn under the Capricorn Norge AS revolving exploration loan facility.  During 2014, this facility was fully repaid and subsequently cancelled.

Section 3 - Financial Assets and Working Capital

3.2       Net Funds (continued)

On 18 July 2014 Cairn Energy PLC signed a US$575.0m senior secured borrowing base facility with a syndicate of six international banks (BNP Paribas, Commonwealth Bank of Australia, DNB Bank ASA, HSBC Bank PLC, Societe Generale and Standard Chartered Bank) which was effective 1 August 2014. Until completion of the Catcher and Kraken developments the facility can be utilised to fund development costs on those projects and facility finance costs. The facility may also be utilised to issue letters of credit and performance guarantees for the Cairn Group of up to US$175.0m. Following completion, the facility can be used for general corporate purposes. Interest on outstanding debt is charged at the appropriate LIBOR for the currency drawn plus an applicable margin. The facility is subject to bi-annual redeterminations, has a market standard suite of covenants and is cross-guaranteed by all Group companies party to the facility. The outstanding debt is repayable in line with the amortisation of bank commitments over the period from 1 July 2018 to the final maturity date of 30 June 2021.

Cairn Energy PLC had issued a US$100.0m Letter of Credit on 22 July 2013 as required under the membership of the Oil Spill Response Scheme's "Cap and Contain" arrangement which was fully cash backed. On 31 December 2014, the Letter of Credit was released by the beneficiary and the cash released such that no restrictions now apply. Any future requirement for such a Letter of Credit could be drawn from the US$575.0m committed facility signed in 2014. 

Section 4 - Results for the year

4.1       Segmental Analysis

Operating segments

Cairn holds a balanced portfolio of exploration and development assets focused in three geographical regions: North West Europe; the Atlantic Margin; and the Mediterranean.

The operations of the Group are organised on a country-by-country basis; countries form the Group's operating segments. For management reporting purposes, operating segments are combined into regional business units.  Cairn monitors the results of each regional unit separately for the purposes of making decisions about resource allocation and performance assessment. 

The Group's Atlantic Margin exploration region contains two regional units. Assets in Greenland and the Republic of Ireland are combined into one unit while the Group's African assets in Senegal, Morocco and Mauritania also form a separate unit. 

The North West Europe regional unit holds the UK and Norway operating segments.  This region was previously reported as "UK and Norwegian North Sea".  Currently the segment contains the Group's North Sea assets including the Skarfjell discovery in Norway and the UK Catcher and Kraken developments. The Ensis prospect in the Norwegian Barents Sea is also included in this segment.

The results of the Mediterranean region are reported along with the Group's corporate assets within "Other Cairn Energy Group".  The Mediterranean includes licences in Spain, France and Malta.

Geographical information: non-current assets

	2014	2013
	US$m	US$m
North West Europe
UK and Norway	807.0	844.6
Atlantic Margin Greenland and Republic of Ireland	21.7	38.2
Senegal, Morocco and Mauritania	197.3	73.1
Other Cairn Energy Group
Mediterranean	4.6	6.9
Others	4.8	5.1
	1,035.4	967.9

Non-current assets for this purpose consist of intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; intangible assets - goodwill; and other property, plant & equipment and intangible assets.

4.1       Segmental Analysis (continued)

The segment results for the year ended 31 December 2014 are as follows:

	Atlantic Margin
	Senegal, Morocco and Mauritania	Greenland and Republic of Ireland	North West Europe - UK and Norway		Other Cairn Energy Group	Total
	US$m	US$m	US$m		US$m	US$m
Pre-award costs	-	(0.7)	(45.1)		(9.0)	(54.8)
Unsuccessful exploration costs	(100.1)	(6.6)	(94.8)		(6.9)	(208.4)
Inventory disposal/write down	-	-	-		(8.4)	(8.4)
Depreciation	-	(0.1)	(0.3)		(0.7)	(1.1)
Amortisation	-	-	-		(2.2)	(2.2)
Other income and administrative expenses	-	(0.4)	(2.1)		(50.3)	(52.8)
Impairment of oil and gas assets	-	(22.7)	(24.2)		-	(46.9)
Gain on disposal of oil and gas assets	-	-	2.3		-	2.3
Operating loss	(100.1)	(30.5)	(164.2)		(77.5)	(372.3)
Gain on disposal of available-for-sale financial assets	-	-	-		3.9	3.9
Impairment of available-for-sale financial assets	-	-	-		(194.3)	(194.3)
Interest income	-	-	1.2		1.9	3.1
Interest expense	-	-	(0.1)		-	(0.1)
Other finance income and costs	0.8	(0.4)	3.5		(3.3)	0.6
Loss before taxation	(99.3)	(30.9)	(159.6)		(269.3)	(559.1)
Tax credit	(1.3)	-	134.0		45.3	178.0
Loss for the year	(100.6)	(30.9)	(25.6)		(224.0)	(381.1)
Capital expenditure	245.5	19.1	159.5		8.0	432.1
Total assets	358.1	28.0	988.8		1,642.5	3,017.4
Total liabilities	203.7	0.8	119.2		30.6	354.3

4.1       Segmental Analysis (continued)

The segment results for the year ended 31 December 2013 are as follows:

	Atlantic Margin
	Senegal, Morocco and Mauritania	Greenland and Republic of Ireland	North West Europe - UK and Norway		Other Cairn Energy Group	Total
	US$m	US$m	US$m		US$m	US$m
Pre-award costs	-	(1.1)	(10.3)		(12.1)	(23.5)
Unsuccessful exploration costs	(107.4)	(23.6)	(81.3)		(0.8)	(213.1)
Depreciation	-	(0.1)	(0.5)		(1.1)	(1.7)
Amortisation	-	-	-		(2.8)	(2.8)
Other income and administrative expenses	(0.5)	(0.2)	(2.6)		(34.4)	(37.7)
Impairment of oil and gas assets	-	-	(251.4)		-	(251.4)
Loss on disposal of oil and gas assets	-	-	(24.7)		-	(24.7)
Impairment of goodwill	-	-	(324.2)		-	(324.2)
Operating loss	(107.9)	(25.0)	(695.0)		(51.2)	(879.1)
Impairment of available-for-sale financial assets	-	-	-		(267.5)	(267.5)
Interest income	-	-	1.3		2.5	3.8
Interest expense	-	-	(2.5)		-	(2.5)
Other finance income and costs	-	0.4	(0.2)		46.2	46.4
Loss before taxation	(107.9)	(24.6)	(696.4)		(270.0)	(1,098.9)
Tax credit	-	-	468.7		74.3	543.0
Loss for the year	(107.9)	(24.6)	(227.7)		(195.7)	(555.9)
Capital expenditure	177.9	17.3	204.9		8.4	408.5
Total assets	49.4	163.8	1,129.1		2,263.8	3,606.1
Total liabilities	8.8	135.1	169.0		105.4	418.3

4.2       Net Operating Expenses

		2014	2013
		US$m	US$m
Other income		(3.1)	-
Administrative expenses		59.2	42.2
Inventory disposal/write down		8.4	-
		64.5	42.2

Administrative expenses include US$7.6m relating to the Group reorganisation, US$1.6m of which were accelerated share-based payment charges.  US$8.5m (2013: US$nil) incurred to defend the Group's tax position in India are also included in administrative expenses.

4.3       Taxation on Loss

a)      Analysis of tax credit on loss in the year

	2014 US$m	2013 US$m
Current tax credits:
Norwegian tax refunds receivable	(67.3)	(81.6)
Withholding taxes deducted at source	1.4	-
	(65.9)	(81.6)
Deferred tax credit:
Norwegian deferred tax credit	(13.4)	20.3
Recognition of eligibility to future field allowances on UK development asset	(71.2)	(211.9)
Release of provision on disposal of UK development asset	-	(32.8)
Release of provision on impairment of UK intangible exploration/appraisal asset	(15.0)	(152.2)
Other UK deferred tax credits	28.4	(10.3)
Recycled from other comprehensive income on impairment of financial assets	(42.0)	(74.5)
Recycled from other comprehensive income on sale of financial assets	1.1	-
	(112.1)	(461.4)
Total tax credit on loss	(178.0)	(543.0)
Tax included in Other Comprehensive Income:
Deferred tax credit on valuation of financial assets	(56.6)	(48.8)
Deferred tax charge on valuation movement recycled to Income Statement	40.9	74.5
Total tax charge in Other Comprehensive Income	(15.7)	25.7

Norwegian deferred tax credit includes a credit of US$6.9m (2013: charge of US$23.8m) on temporary differences in respect of non-current assets and a credit of US$6.5m (2013: US$3.5m) on losses and other temporary differences.

Other UK deferred tax charges includes a charge of US$112.9m (2013: US$59.0m) on temporary differences in respect of non-current assets and a credit of US$84.5m (2013: credit of US$69.3m) on losses and other temporary differences.

b)            Factors affecting tax credit for the year

A reconciliation of income tax credit applicable to loss before income tax at the UK statutory rate to income tax credit at the Group's effective income tax rate is as follows:

	2014 US$m	2013 US$m
Loss before taxation	(559.1)	(1,098.9)
Loss before tax multiplied by the UK statutory rate of corporation tax of 21.5% (2013: 23.25%)	(120.2)	(255.5)
Effect of:
Special tax rates and reliefs applying to oil and gas activities	(145.5)	(200.6)
Impact of field allowances on deferred tax	(47.8)	(145.5)
Additional deferred tax credit on disposal of development asset	-	(27.0)
Non-deductible impairment of goodwill	-	72.3
Adjustments in respect of prior periods	(2.6)	(16.6)
Temporary differences not recognised	147.2	46.0
Deferred tax credit on disposal of available-for-sale financial asset	(3.3)	-
Foreign exchange movements	(1.6)	(12.1)
Other	(4.2)	(4.0)
Total tax credit on loss	(178.0)	(543.0)

4.3       Taxation (continued)

The reconciliation shown above has been based on the average UK statutory rate of corporation tax for 2014 of 21.5% (2013: 23.25%).

The UK main rate of corporation tax was 23% prior to 1 April 2014, and 21% from that date onwards.  The reduction in the tax rate from 23% to 21% has resulted in an average rate of corporation tax of 21.5% for the year ended 31 December 2014, as shown above. The rate will reduce to 20% on 1 April 2015.

Special rates of tax apply to oil and gas activities in the UK and Norwegian North Sea operating segment. The applicable UK statutory tax rate applying to North Sea oil and gas activities is 62% and the applicable Norwegian rate applying to oil and gas activities is 78%.

c)            Deferred tax assets and liabilities recoverable/due after more than one year

Reconciliation of movement in deferred tax assets/(liabilities):

	Temporary difference in respect of non-current assets	Losses	Other temporary differences	Total
	US$m	US$m	US$m	US$m
Deferred tax assets
At 1 January 2013	-	-	-	-
Deferred tax credit though Income Statement	(50.6)	109.3	-	58.7
At 1 January 2014	(50.6)	109.3	-	58.7
Deferred tax credit though Income Statement Exchange differences arising	(31.3) (0.2)	84.5 (5.5)	- -	53.2 (5.7)
At 31 December 2014	(82.1)	188.3	-	106.2
Deferred tax liabilities
At 1 January 2013	(597.4)	62.7	3.8	(530.9)
Deferred tax credit though Income Statement	448.4	(49.3)	3.7	402.8
Deferred tax charge through Other Comprehensive Income	(25.6)	-	-	(25.6)
Exchange differences arising	18.4	(12.4)	(0.3)	5.7
At 1 January 2014	(156.2)	1.0	7.2	(148.0)
Deferred tax credit though Income Statement	52.3	3.9	2.6	58.8
Deferred tax charge through Other Comprehensive Income	15.7	-	-	15.7
Exchange differences arising	14.5	4.2	(6.9)	11.8
At 31 December 2014	(73.7)	9.1	2.9	(61.7)

Deferred tax assets/(liabilities) analysed by country:

	2014 US$m	2013 US$m
Deferred tax assets:
UK	106.2	58.7
	106.2	58.7
Deferred tax liabilities:
Norway	(52.2)	(77.5)
India	(9.5)	(70.5)
	(61.7)	(148.0)

4.3       Taxation (continued)

c)            Deferred tax assets and liabilities recoverable/due after more than one year (continued)

Unrecognised deferred tax assets

No deferred tax asset has been recognised on the following as it is not considered probable that it will be utilised in future periods:         

	2014 US$m	2013 US$m
UK fixed asset temporary differences	244.5	163.8
UK Ring Fence trading losses	167.8	-
UK Ring Fence pre-trade losses	-	16.1
UK non-Ring Fence trading losses	3.9	-
UK non-Ring Fence pre-trade losses	5.3	5.3
UK excess management expenses	311.9	205.4
UK non-trade deficits	39.8	53.2
UK other temporary differences	7.6	6.6
Greenlandic tax losses	1,301.5	1,277.0

4.4       Earnings per Ordinary Share

Basic and diluted earnings per share are calculated using the following measures of loss:

		2014	2013
		US$m	US$m
Loss and diluted loss attributable to equity holders of the parent		(381.1)	(555.9)

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

		2014	2013
		'000	'000
Weighted average number of shares		578,845	602,279
Less weighted average shares held by ESOP and SIP Trusts		(5,730)	(5,969)
Basic weighted average number of shares		573,115	596,310
Dilutive potential ordinary shares:
Employee share options		33	389
Diluted weighted average number of shares		573,148	596,699

Section 5 - Post Balance Sheet Events

5.1     Sale of 10% working interest in Catcher

In September 2014, Cairn entered into an agreement to farm-down 10% of the Group's working interest in the Catcher development, satellite fields and surrounding exploration acreage to Dyas.  Under the terms of the deal, Dyas will fund Cairn's exploration and development costs in respect of the licences up to a cap of US$182.0m. 

Final approval for the sale to Dyas was received in January 2015. As the deal had an effective economic date of 1 January 2014, on completion Cairn received a refund of costs of US$54.7m including US$36.5m received under the carry. 

Glossary

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

Corporate

AGM                           Annual General Meeting

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

Q1/2/3/4                      quarter 1/2/3/4

Technical

APA                           awards in predefined area

boe                             barrel(s) of oil equivalent

boepd                         barrel(s) of oil equivalent per day

bopd                           barrels of oil per day

DECC                         Department of Energy and Climate Change

ESA                           exploration study agreement

FPSO                         floating production, storage and offloading

FDP                            field development plan

JV                              joint venture (referring to industry term, not IFRS definition)

mmbbls                       million barrels of oil

mmboe                       million barrels of oil equivalent

mmscfd                       million standard cubic feet of gas per day

STOIIP                        stock-tank oil initially in place

TD                              target depth

TVDSS                       total vertical depth Sub Sea

US$                            US dollar

WI                              working interest

2C                              best estimate of contingent resources

2D/3D                         two dimensional/three dimensional

2P                              proven plus probable

NOTES TO EDITORS

Cairn Energy PLC ("Cairn") is one of Europe's leading independent oil and gas exploration and development companies and is listed on the London Stock Exchange. Cairn has discovered and developed oil and gas reserves in a variety of locations around the world.

Cairn's business operations are now focused on frontier exploration acreage in North West Europe, North West Africa, North Atlantic and Mediterranean, underpinned by interests in development assets in the North Sea. Cairn has its headquarters in Edinburgh, Scotland supported by operational offices in London, Norway and Senegal. 

Cairn and Corporate Responsibility

Ø Cairn is a signatory to the UN Global Compact and our core values of respect, responsibility, relationships and our commitments towards people, the environment and society are enshrined in our Business Principles, which are available on the Cairn website at http://www.cairnenergy.com/index.asp?pageid=282

Ø Cairn became a participating company in the Extractive Industry Transparency Initiative (EITI) in September 2013. The EITI is a coalition of governments, companies and civil society, who have adopted a multi-stakeholder approach to applying the EITI global standard promoting transparency of payments in the oil, gas and mining sectors http://eiti.org/

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

 

END

 

 

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