Preliminary Results

Cairn Energy PLC
14 March 2006

CAIRN ENERGY PLC


PRELIMINARY RESULTS ANNOUNCEMENT


Operations

   •Estimated total oil in place for Rajasthan block now in excess of 3.5
    billion barrels
   •Cairn estimated gross life of field 2P reserves, and 2P reserves plus EOR
    resource, for northern fields (Mangala, Bhagyam and Aishwariya) upgraded to
    606 and 795 mmbbls respectively from 502 and 667 mmbbls (up 20.7% and 19.2%)
   •Mangala first production target 2008; southern fields 2006
   •Mangala detailed design and engineering commenced with Mustang
    Engineering
   • Five exploration blocks secured in the fifth Indian bid round (NELP-V)

   •Oil production from Gauri commenced in the offshore Cambay Basin
   •Three further deepwater gas discoveries in the KG Basin (KG-DWN-98/2)


Financial


   •Financing process to fund Rajasthan development on track
   •Adoption of IFRS and successful efforts based accounting policy
   •Average entitlement production up 24% to 28,240 boepd (2004: 22,789
    boepd)
   •Profit after tax of $79.1m (2004: loss $15.7m)
   •Net funds $95.5m with $240m unutilised debt facilities (2004: net funds
    $138.3m)


Corporate


   •Examining a partial initial public offering of the Indian exploration and
    production business on the Bombay Stock Exchange with a view to returning
    cash to shareholders


Sir Bill Gammell, Chief Executive said:


'The material increase in both oil in place and reserves at Mangala and Bhagyam
confirms the world class nature of these fields.


The support we have received in India, both politically and commercially,
underscores the ability to do business effectively in this hugely important
growth economy. We look forward to receiving formal approval from the Government
of India to proceed with the Rajasthan field developments.


We now believe the time is right to examine methods of increasing the local
autonomy of our Indian business, in line with our strategy of adding value for
shareholders and in recognition of the superb growth opportunities available in
India. In particular, we intend to examine a partial initial public offering of
our Indian exploration and production business on the Bombay Stock Exchange.'



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 



Interviews with Sir Bill Gammell, Chief Executive, and Kevin Hart, Finance
Director, in video/audio and text are now available on 
http://www.cairn-energy.plc.uk/ 
and on 
http://www.cantos.com/


Cairn Energy Live Audio Webcast

The webcast of the 2005 Preliminary results presentation will be available at
09:00hrs (UK time) on Tuesday, 14th March, 2006.

This will be available on the Cairn Energy PLC website:
www.cairn-energy.plc.uk 

An archived version of the webcast will be available in the afternoon.





CHAIRMAN'S STATEMENT


Overview


Cairn consistently seeks to create value for its shareholders. It has achieved
this by establishing a strong strategic position in South Asia, where it has
made more than 25 oil and gas discoveries. In particular, the Company is ideally
placed through its world class discoveries in Rajasthan to continue to play a
part in the economic growth of the region.


For more than a decade Cairn has established a record in South Asia for first,
finding hydrocarbons, and then developing these fields through to production on
a fast track basis. Throughout this time the Company and its joint venture
partners have invested more than $2 billion in a variety of exploration and
production (E&P) projects that are helping to provide energy for the rapidly
expanding economies of India and Bangladesh.


During 2005, Cairn grew apace to meet the task of developing the Mangala field
against a backdrop of India emerging as an area of world focus for future
industry activity and investment.


Corporate


Following our recent successes in India and the consequential changing nature of
the business we now believe the time is right to examine methods of increasing
the local autonomy of our Indian business.


•arious options available for realising shareholder value and for positioning
the Company for new growth have been considered by the Cairn Board. Consistent
with the long stated objective of adding and realising value for shareholders a
review of the business has concluded that it is now an appropriate juncture to
examine a partial initial public offering (IPO) of the Indian E&P business on
the Bombay Stock Exchange, prior to first oil from Mangala and subject to market
conditions.


It is our view that a partial IPO of Cairn's Indian business will reinforce the
Company's competitive business edge and established track record in India, at a
time of tremendous future cash flow generation and so position it more
effectively to maximise new investment opportunities in the rapidly expanding
Indian market. Cairn will also examine methods of returning the substantial part
of any cash proceeds to shareholders. Post any partial IPO, the rest of the
business will continue to follow a strategy of adding shareholder value through
material exploration.

Cairn will keep the market informed of any developments on the partial IPO.


Stakeholders


Communication and interaction with stakeholders is given a high priority within
Cairn. In November 2005 we hosted a visit to India for investors and analysts in
order that they could see for themselves some of our producing assets and the
ongoing operations in Rajasthan. The visit also allowed attendees to meet key
people not only inside but also outside of the organisation, enabling them to
witness first-hand the importance of the relationships Cairn has built up in
South Asia and the positive approach the Government of India (GoI) takes to
foreign investment. In the coming year the Board also plans to hold two of its
regular meetings in India.


We have a number of community programmes in all of our operational areas across
South Asia. The impact of our discoveries for Rajasthan is highly significant,
not just in terms of revenues, but in terms of job creation and investment in
and around the Barmer area. It was heartening for the Board to see the number of
children going to school increasing in one location near the Mangala discovery
because of the improvements Cairn has made to this school, including
installation of solar panels on the school roof to generate electricity.
Supporting numerous educational initiatives in Rajasthan has been a key focus as
we start to build on the discoveries in the area.


Staff


The size of the recent Rajasthan discoveries has meant a significant step up in
scale for the whole Cairn organisation. The pace of growth has meant integrating
new staff and practices into the Company and this has been successfully
achieved.


Cairn has 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. Our people are our key asset and the vast
majority of the Cairn workforce is indigenous to South Asia.


The new staff development and performance review process implemented during 2005
provides an important framework for ensuring that all staff contribute to the
success of the Company and continue to develop key competencies as we grow.


I would also like to record the Company's congratulations to Sir Bill Gammell,
Cairn's chief executive, on the award of a knighthood for services to industry
in Scotland.


Outlook


The Group's focus on Rajasthan will continue as Cairn progresses the main fields
from discovery to production.


The challenge in the coming years is to build on the strong strategic position
that Cairn has established in South Asia whilst capitalising on the opportunity
to turn world class discoveries in Rajasthan into large scale developments,
generating significant cash flow.


The Group is well positioned to meet this challenge.


Norman Murray

Chairman, 14th March 2006



CHIEF EXECUTIVE'S REVIEW


Overview


In a little over two years since discovering the world class Mangala field, we
have explored the basin extensively and now believe there is more than 3.5
billion barrels of oil in place within our Rajasthan acreage and this resource
base can still grow. At current oil prices the Rajasthan fields are capable of
generating many billions of dollars of revenue over the project life for Cairn,
the State of Rajasthan and the Government of India (GoI), whilst also helping to
meet India's growing import requirements.


Cairn is making good progress in Rajasthan, with various key milestones being
achieved over the last few months. The Field Development Plans (FDPs) for the
Mangala, Aishwariya, Saraswati and Raageshwari fields have been agreed by the
joint venture Operating Committee (OC) and are awaiting final approval. These
approvals are a precursor to formal sanctioning of the project by the Cairn
Board which is anticipated during Q2 2006. The initial development investment
for Mangala and Raageshwari gas by the joint venture to first oil is estimated
to be in the region of $800 million and we are on track to have financing in
place to fund our share of the project.


Our estimate of the Rajasthan reserve base for the three main northern fields,
Mangala, Bhagyam and Aishwariya has grown significantly. We believe these
reserves can be further increased by applying enhanced oil recovery (EOR)
techniques to reach our current estimated gross resource base of 795 million
barrels of oil (mmbbls). The combined southern fields estimated gross reserve
base is 102 mmboe of which 42 mmboe is attributed to Raageshwari gas. This
results in a combined resource base of 897 mmboe with further potential upside
in fields with low permeability reservoirs. The evaluation of many of these
fields continues and only for those fields under active development planning
have initial reserves been currently booked.


Only 18 months ago we said the key fields in Rajasthan (Mangala, Bhagyam and
Aishwariya) could produce between 60,000 and 100,000 barrels of oil per day
(bopd). Today we believe that these discoveries have the potential to produce at
a peak of 150,000 bopd.


Primarily as a result of the growth in the reserve base and the requirement to
tie in additional discoveries but also as a result of global factors such as
delays in availability of equipment and services, and shortages of skilled
labour, Cairn currently considers the most likely start up date for Mangala is
now in 2008.


Cairn has clear alignment with the GoI to bring the nationally important
Rajasthan fields on stream as soon as possible in order to help meet the
country's energy needs. With the GoI projecting an economic and gross domestic
product growth for India of up to 10% per annum, current estimates for crude oil
imports, according to the GoI, will rise from 70% to 85% by 2020. The GoI is
highly supportive of both international and domestic oil companies increasing E&
P efforts to augment current production.


Results


Cairn has implemented IFRS in 2005 and has also adopted a successful efforts
based accounting policy in preparing its 2005 Annual Report & Accounts.
Comparative figures have been restated to reflect these revised accounting
policies. Cairn is also reporting its financial results in US dollars for the
first time as this aligns the presentational currency of the Group's financial
statements with the principal underlying functional currency of the business.


Average daily entitlement production for 2005 was 28,240 barrels of oil
equivalent per day (boepd) (2004: 22,789 boepd).


The 2005 results include the first full year of production from the 37.5%
interest in Sangu acquired from Shell (transaction completion date 30 June 2004). 
Field deliverability from both Sangu and Lakshmi has been enhanced following
successful infill drilling campaigns in the latter part of 2004. Due to the
Group's current entitlement production being heavily gas biased and the
existence of contractual caps on the price received for this gas, the average
price realised for 2005 was $25.44 per boe (2004: $24.06 per boe). Revenue for
the year was $262.6m (2004 restated: $172.9m).


Operating profit (pre exceptional items) and operating cash flows were $55.6m
and $139.6m respectively (2004: $12.8m loss and $138.5m). The exceptional gain
on sale of $15.3m arising in 2005 was in relation to the ONGC transaction that
completed in March 2005, realising $135m gross proceeds. The Group made a profit
for the year of $79.1m (2004 restated: loss $15.7m).


Initial Rajasthan reserves for Mangala, Saraswati and Raageshwari oil have been
booked at the year end. As the depletion and decommissioning charge is
calculated on a field basis no charges arise in the Income Statement until
production commences. Exploration/appraisal costs associated with the booked
reserves have been transferred to development/producing assets.


At the year end the Group had net funds of $95.5m (2004: net funds $138.3m). The
Group currently has $240m of unutilised unsecured revolving credit facilities.
Following Cairn's discoveries in Rajasthan, the Group is currently progressing
the refinancing of its debt facilities required to fund the associated
developments.


Outlook


With a substantial increase in the reserve base for the northern fields in
Rajasthan and a growing resource base we believe now is the time to examine the
potential to create two world class businesses, one based in the United Kingdom
and one in India.

In the coming year an evaluation of the potential for a partial IPO of the
Group's Indian operations will be a key activity.


The future offers us challenges and opportunities and we always work in a spirit
of partnership and co-operation with Governments and our joint venture partners.
Cairn has a clear and consistent strategy and, with the growing industry and
investment interest in South Asia, has an optimal opportunity to capitalise on
its competitive edge.


Sir Bill Gammell

Chief Executive, 14th March 2006



OPERATIONAL REVIEW


Cairn's gross operated production across South Asia during 2005 was 105,800
boepd (net entitlement 28,240 boepd).


The majority of Cairn's operational activity in the last three years has been
focused on the exploration and appraisal of its Rajasthan block in North West
India. This effort has resulted in the discovery of 17 fields including the
world class Mangala and Bhagyam oil fields in the northern part of the block. To
date, more than 3.5 billion barrels of oil in place have been discovered on the
acreage, and the FDPs for four fields namely Mangala, Aishwariya, Saraswati and
Raageshwari are awaiting final approval from the GoI. The present focus is to
bring Mangala on stream at the earliest opportunity and based on the Cairn Board
sanctioning the project in Q2 2006, the target date for first commercial
production has been revised to 2008.


It is intended to start production from the southern Rajasthan fields, Saraswati
and Raageshwari, in Q2 and Q3 this year respectively, subject to obtaining all
the required regulatory consents.


RAJASTHAN BASIN - North West India


Overview


Cairn operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC) signed
on 15th May 1995. The original seven year exploration period of the PSC, which
had been extended for a further three year period, expired in May 2005.
Currently the Contract Area is divided into four areas, namely:


   • The Development Area (1,858 km2), which includes Mangala, Aishawariya,
    Saraswati and Raageshwari. This area is secured under a long term production
    contract, which currently runs to May 2020. However, the PSC envisages
    extensions to the production term by mutual consent between the Contractor
    and the GoI. The FDPs have been submitted on the basis of an extension of
    the term to at least 2041.
   • The Extended Development Area (1,228 km2), which includes the Bhagyam,
    N-I, Shakti and N-E fields. Operating Committee (OC) approval was given in
    February 2006 for this area and GoI approval is pending.
   • A northern Appraisal Area (2,884 km2). An 18 month extension for these
    areas was granted to 14th November 2006.
   • A southern Exploration Area (1,935 km2). An application for an 18 month
    extension has been submitted.


The combined gross proved plus probable (2P) oil in place estimate for the three
northern fields of Mangala, Bhagyam and Aishwariya as submitted in documents to
the GoI during 2005, was 1,614 mmbbls with associated 2P reserves of 502 mmbbls.
These figures were slightly revised at the 2005 Interims to 1,661 mmbbls and 514
mmbbls respectively on account of a revision to Bhagyam. However, continued
evaluation, further appraisal drilling, re-interpretation of three dimensional
(3D) seismic and evaluation of new core data have led to a more significant
upwards revision of all three fields. The current combined gross 2P oil in place
estimate is 1,859 mmbbls with an associated gross 2P reserve estimate of 606
mmbbls. In addition, there is also an estimated gross contingent resource of 189
mmbbls obtainable from these three fields as a result of applying standard EOR
or Tertiary Recovery Techniques. This results in a total combined gross 2P
reserves plus EOR resource estimate of 795 mmbbls for the three fields.


A further nine fields: Shakti, Saraswati, Raageshwari oil, Raageshwari gas, N-I,
N-E, Guda, Kameshwari and GS-V are at various stages of appraisal but are
currently estimated to contain combined gross 2P oil in place of 724 mmboe with
an associated gross 2P reserve estimate of 102 mmboe, of which 42 mmboe is
attributed to Raageshwari gas.


In summary, this results in a current total 2P reserve plus EOR resource
estimate for the majority of the Rajasthan fields discovered to date of 897
mmboe.


In addition the fields Vijaya, Vandana, N-R, Mangala Barmer Hill and Aishwariya
Barmer Hill are estimated to contain significantly more than 1 billion barrels
of oil in place. The evaluation of these fields is ongoing but recoveries are
anticipated to be less than 10%.


Development Area - Northern Fields (Cairn 70 % (Operator); ONGC 30%)


In October 2004, Cairn was granted a single Development Area of 1,859 km2
covering 12 of the discoveries made to date. In January 2005, the GoI exercised
its right under the PSC to back-in for 30% of the Development Area and appointed
ONGC as its equity nominee.


The Mangala oil in place volumes and reserves continue to grow. The Mangala-7
and Mangala-7ST appraisal wells established the precise position of the western
boundary fault and more importantly detailed core analysis has demonstrated a
significant increase in oil saturations over previous log based estimates. Both
these factors have led to an increase in volume estimates.


   •The current gross 2P oil in place estimates and 2P reserves for Mangala
    are 1,202 mmbbls and 428 mmbbls respectively, which are 12.2% and 16.3%
    above the FDP estimates.


   •The current gross 2P oil in place estimates and 2P reserves for
    Aishwariya are 249 mmbbls and 56 mmbbls respectively, which are 16.9% and
    16.7% above the FDP estimates.


   •A further gross 120 mmbbls and 20 mmbbls are estimated to be recoverable
    through EOR techniques on Mangala and Aishwariya respectively. This gives a
    current estimated resource base for Mangala of 548 mmbbls and 76 mmbbls for
    Aishwariya.


   •DeGolyer & MacNaughton (D&M), the independent auditor of reserves,
    estimates gross 2P oil in place for Mangala of 1,206 mmbbls and 2P reserves
    (to 2025) of 337 mmbbls; and gross 2P oil in place for Aishwariya of 281
    mmbbls and 2P reserves (to 2025) of 61.7 mmbbls. D&M estimate a further
    contingent resource associated with EOR of 120 mmbbls for Mangala and 20
    mmbbls for Aishwariya.


Cairn continues to make progress on preparatory work for the development of the
Mangala field and subject to GoI approval of the FDP anticipates giving project
sanction in Q2 2006. As a result of the growth in the reserve base and the
requirement to tie in additional discoveries along with global increases in
costs and availability of equipment and services the development schedule has
changed. Currently it is considered that the most likely start up date for
Mangala is during 2008.


Initially, it was planned to develop Aishwariya concurrently with Mangala, but
the discovery of the Bhagyam and N-I fields has necessitated a review of the
optimal development schedule. The development of the other fields is aimed at
establishing the optimal sequence for attaining the target production rate of
150,000 bopd and is still under review. Subject to obtaining the relevant
approvals it is currently intended that Bhagyam will be the second northern
field to be developed.


The overall development concept involves the construction of a central
processing facility (CPF) at Mangala supplied by group gathering stations, with
oil production and water injection wells being drilled from a number of well
pads. The CPF and associated Mangala facilities will initially be sized to
handle up to 120,000 bopd with near term expansion to handle approximately
150,000 bopd for all of the main northern fields (Mangala, Bhagyam and
Aishwariya). The produced hydrocarbons will be treated at this facility, with
any treated produced water being re-injected.


The detailed design and engineering contract for the Mangala production and
treatment facilities was awarded to Mustang Engineering in Houston, a subsidiary
of Wood Group, in Q4 2005.


In January 2006, the Rajasthan State Government gave permission for Cairn to
extract local saline groundwater as part of the field developments. This saline
groundwater will be injected into the oil producing reservoirs for pressure
maintenance and reservoir management purposes. Other pre-sanction critical path
activities, including environmental clearance and land acquisition, are also
well advanced.


Development Area - Southern Fields (Cairn 70% (Operator); ONGC 30%)


Discoveries in the central and southern part of the Development Area include the
Saraswati, Raageshwari and Guda fields. Development plans for the first two
fields were approved by the joint venture OC in December 2005 and we await final
approval from the GoI. The FDP for Guda is expected to be submitted in mid 2006.
The oil in these southern fields is in a variety of different reservoirs which
are of lesser quality than those in the northern fields. Nevertheless, wells
such as Raageshwari-6, which flowed at 550 bopd of 38 degree API oil on a
natural flow test, show the producing potential of these reservoirs.


The first commercial production from the Saraswati and Raageshwari fields
subject to GoI approval of the FDPs is expected in Q2 and Q3 2006 respectively.
The initial combined target plateau rate of between 2,000 and 3,000 bopd will be
constrained by having to export the produced oil via road tanker. The actual
production rates achieved will depend on how well the logistics of a road tanker
export scheme can be optimised. However, once the Mangala export infrastructure
is installed, it is planned that the Saraswati and Raageshwari fields as well as
other southern discoveries will be tied-in to the export system.



Detailed mapping and core analysis work continues on the Vijaya, Vandana and
N-R-4 discoveries, integrating the results from the latest wells into the
interpretation. The Vijaya and Vandana core data confirms the poor quality and
heterogeneous nature of the reservoirs encountered in these discoveries to date.


Extended Development Area (Currently Cairn 100%)


The Declaration of Commerciality (DoC) for the Bhagyam and Shakti fields was
approved by the OC on 1 February 2006 and submitted to the Management Committee
(MC) for review and approval. This is the first step in the development approval
process under the PSC. The DoC contains a proposed Development Area extension of
1,228 km2 to cover the Bhagyam, N-I, Shakti and N-E fields. Once the MC has
approved the DoC, work will begin on the Bhagyam and Shakti FDP, which is
expected to be submitted mid 2006.


The estimates of the Bhagyam in place volumes and reserves continue to grow as
the evaluation progresses. The Bhagyam-5, 6 and 7 appraisal wells encountered
the reservoir structurally higher than anticipated and the ongoing core
evaluation work also indicates that the initial estimates of oil saturations
were too conservative. Both of these factors increase the estimates of
hydrocarbons in place.


   •The current gross 2P oil in place estimates and 2P reserves for Bhagyam
    are 408 mmbbls and 122 mmbbls respectively, which are 23.6% and 41.9% above
    the DoC estimates of 330 mmbbls and 86 mmbbls. Bhagyam was previously
    upgraded at the interim results from the DOC figures to 377 mmbbls and 98
    mmbbls.


   •A further gross 49 mmbbls is estimated to be recoverable through EOR
    techniques on Bhagyam. This gives a current estimated resource base for
    Bhagyam of 171 mmbbls.


   •D&M estimate gross 2P oil in place for Bhagyam of 557 mmbbls and 2P
    reserves (to 2025) of 156 mmbbls. D&M estimate a further contingent resource
    associated with EOR of 56 mmbbls for Bhagyam.


The Bhagyam-5 well tested gas from the Barmer Hill formation, confirming the
existence of a small gas cap on the Bhagyam field.


Northern Appraisal Area (Cairn 100%)


In June 2005, Cairn was granted an 18 month extension to complete its appraisal
activities in three areas covering 2,891 km2, to the north and west of the
Development Area.


An extensive 3D seismic programme is planned in the southern part of this
appraisal area, south of the Barmer airbase. Seismic acquisition will commence
in April 2006, followed by early drilling, given the November 2006 deadline for
completion of activities. In addition, an exploratory well on the northern end
of the large airbase structure is planned for Q2 2006, pending environmental
clearances.



Southern Exploration Area outwith the Development Area


An application for an 18 month extension of the 1,935 km2 Southern Area which
expired in May 2005 is with the GoI for consideration.


Reservoir Stimulation Programme


A programme of hydraulic fracture stimulation has recently commenced on the
Raageshwari deep gas accumulation. Preliminary post fracture well results are
expected to be available in April 2006, although full evaluation of these well
stimulation treatments is expected to take several months. Gas from these wells
will be utilised as fuel for the Mangala development and subsequent northern
area developments.


The stimulation programme will continue with fracture stimulation of the Barmer
Hill formation in two wells at Mangala and Aishwariya, with the objective of
investigating and unlocking the additional resource potential of this formation.


The Vijaya, Vandana and N-R fields are also potential candidates for fracture
stimulation.


Oil Sales and Export


Under the terms of the PSC, Cairn is obligated to sell the crude to the GoI
until India is self sufficient and the GoI has the right to appoint a nominee to
take delivery of the oil. In September 2005, MRPL (a subsidiary of ONGC) was
nominated by the GoI to purchase the entire crude produced from the block, in
accordance with the relevant provisions of the PSC.


The construction of the export system is the responsibility of the GoI through
its nominated buyer. One of the options is to take the produced oil via an
insulated pipeline to the coast, where it will be dispatched to selected Indian
refineries. Cairn has conducted a risk assessment of the likely construction
schedule and has incorporated this into its own risk assessment of the date of
the Mangala field start-up.


MRPL has indicated that it may subsequently consider the establishment of an
in-situ refinery.


CAMBAY BASIN - Western India


Block CB/OS-2: Lakshmi and Gauri Gas Fields (Cairn 40% (Operator))


Development & Production


The second phase of Lakshmi development drilling and the installation of onshore
booster compression were completed in the first half of 2005. The programme
successfully restored gas deliverability to meet the maximum daily quantities
specified under the gas sales contracts.


At both Lakshmi and Gauri there are oil-bearing reservoirs beneath the producing
gas and condensate reservoirs. These oil reservoirs are not thought to be well
connected and the current plan therefore envisages each accumulation being
developed independently. The first of these accumulations is being developed via
the GA-3 Gauri oil well, which was commissioned in November 2005. The future
performance of this well will be important in determining the oil reserves in
Gauri and it will also help in the assessment of the potential of the more
extensive oil reservoirs at Lakshmi, where oil production has been targeted
within the next 12 months.


The Gauri oil is transported concurrently with the gas and condensate to the
Suvali gas processing plant where it is separated out. Average liquids
production was 2,100 bopd in December 2005 and 2,800 bopd in January 2006. The
facilities have been tested to a peak production of 4,800 bopd for a short
period and demonstrated that the modifications made to the gas processing
facilities at Suvali have been successful in handling these oil production
rates. The GA-3 oil production rate is currently constrained by the limitations
of exporting the oil and produced condensate (associated with the gas
production) by road tanker. Studies are underway to review alternative ways of
exporting the produced oil from the oil storage facilities on a long term basis
and to examine increasing the oil handling facilities at the plant to 7,500
bopd.


The onshore CB-X gas discovery (made in January 2005) has been declared
commercial and a single well development plan has been submitted for approval.
Field activities to lay a short pipeline from the Suvali plant to connect the
CB-X-1 well are planned to commence in the first half of 2006 and first gas at
rates between 4 and 5 million standard cubic feet of gas per day (mmscfd) is
expected in the second half of 2006.


The Ambe gas field, to the west of Lakshmi and Gauri, was discovered in January
2001, declared commercial by the OC in January 2006 and submitted for MC
approval. Various development options for Ambe are currently being evaluated. As
with Lakshmi and Gauri, the Ambe gas field lies above oil-bearing reservoirs.


The Suvali processing plant achieved ISO 14001 certification in 2005.


CB-ONN-2001/1 (Cairn 30%; ONGC (Operator))

Exploration


The Vanthvali-1 exploration well was plugged and abandoned as a dry hole in
2005. Two further exploration wells are planned in the first half of 2006.


CB-ONN-2002/1 (Cairn 30%; ONGC (Operator))

Exploration


The Operator is preparing to drill two exploration wells in the first half of
2006 and a second phase of 3D seismic acquisition is currently being acquired on
the block.



KRISHNA-GODAVARI (KG) BASIN - Eastern India


Ravva (Cairn 22.5% (Operator))


Development & Production


The Ravva field has produced more than 182 million boepd to date and is expected
to come off the plateau production rate of 50,000 bopd in the first half of
2006. An infill development well programme to extend the plateau rate was
planned for Q4 2005. There was a delay in obtaining the required drilling
approvals and combined with the reduced availability of offshore drilling rigs
has resulted in the rescheduling of the infill drilling campaign to June 2006.
Subject to the availability of a drilling rig and the associated services
further drilling is expected to take place later in the year.


Exploration


The deep drilling rig Cairn has been using in its Rajasthan programme is to be
mobilised across country to drill two exploration prospects on the onshore part
of the Ravva contract area commencing in the first half of 2006.


KG-DWN-98/2 (Cairn 10%, ONGC (Operator))


Exploration


The 'D' gas discovery was made in August 2005 in the KG deep water block.
Following a short break, drilling recommenced in November. Two further gas
discoveries have since been made on the 'A' and 'U' exploration prospects. Based
on the initial available information, these as yet unappraised discoveries are
unlikely to be commercial on a stand-alone basis but potentially could be
exploited in a cluster development as satellites.


Current operations are focused on the 'W' exploration well. A high resolution 3D
seismic survey is being acquired over all the existing deep water discoveries on
the block.


An exploration well is planned for later this year which will target a high risk
prospect with over 600 km2 of closure in a water depth of 2,800 metres.


HIMALAYAN FORELAND BASIN - Nepal & Northern India


Nepal Blocks 1,2,4,6 & 7 (Cairn 100% (Operator))


Exploration


In August 2005, Cairn declared contractual force majeure on its five exploration
blocks in Nepal prior to entering Contract Year 2 of the PSC. This step was
taken in consultation with the Government of Nepal and in view of the current
security situation. Consequently, the start of field operations has been
deferred. In the meantime, however, Cairn is continuing its desktop technical
and environmental evaluations.

The Company is closely monitoring security developments with a view to
commencing field operations at the earliest opportunity.

Northern India


GV-ONN-2002/1 (Cairn 100% (Operator))


Exploration


An airborne geophysical survey is planned over this acreage in Q4 2006.


GV-ONN-97/1 (Cairn 30%; ONGC (Operator))


Exploration


The first exploration well in the Himalayan Foreland Basin in which Cairn has
participated is planned on this block in Q2 2006.


NELP-V


Cairn was awarded five new exploration blocks as part of the 5th New Exploration
Licensing Policy (NELP-V) in India in 2005. The PSCs were signed in September
2005.


NELP-VI


The sixth exploration bidding round in India is taking place during 2006 and
Cairn will be an active participant.


BENGAL BASIN - Bangladesh


Overview


The Block 16 PSC was signed in 1994 and the Sangu gas field was discovered
offshore in the Bay of Bengal in 1996. This field was subsequently developed and
delivered the first gas into Chittagong in 1998. Today, Sangu delivers
approximately 75% of the gas demand of Chittagong and the surrounding area
whilst continuing to achieve world-class performance in operational safety and
field uptime.


Sangu (Cairn 75 % (Operator))


Development & Production


Sangu gas production is processed at the Chillimpur processing plant, which
recently achieved six million man-hours without incurring any lost time injuries
or environmental incidents since 1998. This, together with the ISO 14001
certification, is a significant health and safety achievement.


In 2004/2005, the Sangu joint venture partners invested $50 million in a second
phase of development of the field, drilling an additional three producing gas
wells to sustain and extend gas production.


The Sangu infill drilling programme was successful in increasing the field
deliverability but also indicated that the field is structurally more complex
than previously thought (Sangu is not covered by a 3D seismic survey) and
requires the drilling of further wells to maintain plateau production. Cairn has
received approval from its joint venture partners and PetroBangla to begin an
offshore drilling programme at the end of 2006. A contract for a drilling rig
has been signed and it is currently planned to drill a further Sangu infill well
and a South Sangu appraisal well in the more favourable weather period of late
2006/early 2007 in the Bay of Bengal.

The decision to develop South Sangu will depend on the appraisal well results.


Exploration


During 2005 Cairn signed an Amendment Agreement to the original Block 16 PSC
with PetroBangla and the Government of Bangladesh. The Amendment Agreement,
which is subject to partner approval, extends the exploration period until 5th
May 2008 for the Magnama, Hatia and Manpura exploration prospects which, taken
together, cover a combined contract area of 1,428 km2 in part blocks from the
original Block 16 acreage.


An exploration well on the Hatia prospect is planned as part of the winter 2006/
2007 infill and exploration drilling campaign in the Bay of Bengal.


Blocks 5 (Cairn 90% (Operator) & 10 (Cairn 90% (Operator)).


Exploration


Cairn continues to evaluate the exploration potential of its acreage in southern
Bangladesh and of particular interest is the large Char Jabbar prospect in Block
10.


Block 7


Cairn is awaiting formal approval from the Government of Bangladesh for the
assignment of a 45% interest in Block 7 from Chevron the operator. Chevron is
currently acquiring two dimensional (2D) seismic survey over Block 7.



Group Production


The Group's entitlement production for 2005 was 28,240 boepd net to Cairn
compared to 22,789 boepd in 2004.  Current production is in line with the
Company's expectations.

Production boepd        Ravva        Sangu       Lakshmi & Gauri         Total
(approximate)
Gross field            64,300       24,700                16,800       105,800
Working interest       14,500       18,500                 7,100        40,100
Entitlement interest    6,800       13,800                 7,700        28,300


Due to Cairn's current gas biased production mix and the existence of
contractual caps on the price received, the average price realised for 2005 was
$25.44 per boe (2004: $24.06)


Group Reserves


The FDPs for Mangala, Aishwariya, Saraswati and Raageshwari fields in Rajasthan
were approved by the OC in December 2005 and are currently awaiting GoI
approval. The associated net entitlement 2P reserves until May 2020 for Mangala,
Saraswati and Raageshwari have now been booked based on the expectation that the
Cairn Board approval for Project Sanction will be granted in Q2 2006. Aishwariya
reserves will be booked at a later date once the development schedule is
finalised. No resources attributable to EOR have been booked as they are still
at the screening stage. Similarly, the Raageshwari deep gas reserves are also
not booked since this gas will be used as fuel for the development of Mangala
and the other northern fields.


The Development Area production term in each FDP assumes production until 2041
as permissible under the PSC. Once the FDPs are approved Cairn will be seeking
separate and specific Government confirmation of the production term running to
at least 2041 before transferring these additional resources to booked reserves.


At this point no reserves associated with Bhagyam have been booked. The DoC for
Bhagyam and Shakti was approved by the OC in February 2006 and is awaiting MC
approval.  The Bhagyam FDP is expected to be submitted to the GoI later in 2006.


The analysis of the Sangu field performance in 2005 has led to a reduction in
the current main field Sangu 2P gas reserves of 67 billion standard cubic feet
of gas (bscf). In addition, the decision to further appraise the South Sangu
discovery prior to sanctioning the development results in a further de-booking
of 155 bscf from Sangu reserves.


The estimated remaining gross 2P reserves for Sangu at the end of 2005 are 378
bscf (2004: 654 bscf) and the net remaining entitlement reserves are estimated
at 177 bscf (2004: 308 bscf) which after allowing for 2005 production represents
a 36% reduction in remaining reserves.


The table below shows reserves information at the end of 2005 on an entitlement
basis for the Group (@$20/bbl).

        Reserves at  Produced   Additions   Disposals   Revisions   Reserves at
        31/12/04     in 2005    in 2005     in 2005     in 2005     31/12/05
        mmboe        mmboe      mmboe       mmboe       mmboe       mmboe
South   81.4        (10.3)      186.0      (2.2)       (17.0)       237.9
Asia


Based on a $40/bbl oil price assumption the Company's estimated entitlement to
reserves at 31st December 2005 is 201.9 mmboe


On a direct working interest basis, reserves at 31st December 2005 totalled
275.7 mmboe (2004: 123.9 mmboe).


Separately, Cairn has engaged D&M to provide independent estimates of reserves.
D&M has now concluded recent reviews (within the last twelve months) of all the
Company's producing properties and major assets. The D&M estimates for Rajasthan
reserves (out to 2025 as provided in the PSC by mutual agreement with the GoI)
are tabulated below.

Field          2P Oil in Place          2P Reserves          EOR (2040)
               mmbbls                   mmbbls               mmbbls
Mangala        1,206                    338                  +120
Aishwariya     281                      62                   +20
Bhagyam        557                      156                  +56



FINANCIAL REVIEW


Cairn enters 2006 in a net funds position, with strong operating cash flows and
with significant progress made on financing arrangements to fund its share of
Rajasthan development expenditure.


Key statistics
                                            2005         2004**     % Increase/
                                                                     (Decrease)
Production (boepd)*                       28,240       22,789             23.9
Average price per boe ($)                  25.44        24.06              5.7
Revenue ($m)                               262.6        172.9             51.9
Average production costs per boe ($)        4.87         6.09            (20.0)
Profit/(loss) before tax ($m)              101.2        (30.4)               -
Profit/(loss) after tax ($m)                79.1        (15.7)               -
Cash generated from operations ($m)        139.6        138.5              0.8
Net assets ($m)                            757.6        711.2              6.5
Net funds ($m)                              95.5        138.3            (30.9)

* on an entitlement interest basis

** restated (where applicable) following mandatory implementation of
International Financial Reporting Standards (IFRS) in 2005, adoption of
successful efforts based accounting policy and US dollar reporting.


Accounting policies & developments


Adoption of IFRS and successful efforts based accounting policy

In accordance with European legislation, Cairn has adopted IFRS in preparing its
Financial Statements from 1st January 2005. This has also required adjusting
prior periods to arrive at the opening balances and comparative figures.
Following the publication of IFRIC guidance in November 2005, which noted the
limited scope of IFRS 6 'Exploration for and Evaluation of Mineral Resources',
Cairn reviewed its accounting policies and has decided to adopt a successful
efforts based accounting policy for its financial statements. As a consequence,
Cairn updated and reissued its prior period restatement document on 28th
February 2006 to reflect the changes arising from the implementation of this
revised methodology.


The key implications from an oil and gas accounting perspective on adopting this
policy and IFRS are as follows:


• Costs of unsuccessful wells initially capitalised within exploration
assets are expensed in the Income Statement in the period they are determined
unsuccessful;

• Depletion of development/producing assets is now performed on a field
by field basis although fields within development areas can be combined where
appropriate;

• Pre-exploration expenditure previously capitalised is now expensed; and

• Impairment testing for development/producing assets is now performed on
each individual cash-generating unit (normally development area).


Other key changes arising from IFRS implementation, including accounting for
share based payments, are outlined in more detail in the prior period
restatement document. The prior year comparatives contained in the restatement
document have been subsequently revised to reflect an updated interpretation of
IAS 21 in respect of foreign currencies and its implications for the Group.


Presentational currency

Cairn is reporting its financial results in US dollars for the first time. This
aligns the presentational currency of the Group's financial statements with the
predominant currency of the business, as although headquartered in the UK, the
majority of the Group's income and expenditure is transacted in US dollars.


PROFIT AND LOSS


Revenue

Average production on a working interest basis was 40,100 boepd compared to
34,300 boepd in 2004. On an entitlement interest basis, production for the year
increased by 24% to 28,240 boepd (2004: 22,789 boepd).


The 2005 results include the first full year of production from the 37.5%
interest in Sangu acquired from Shell (transaction completion date 30th June
2004). Following completion of the ONGC transaction in March 2005, Cairn's
working interest in CB/OS-2 production has reduced from 50% to 40%. However,
field deliverability from both Lakshmi and Sangu have been enhanced following
successful infill drilling campaigns in the latter part of 2004.


The Group's production mix remains heavily gas biased (circa 80%). This,
combined with the contractual gas price caps, results in an average price
realised by the Group for the year of $25.44 per boe (2004: $24.06 per boe).
Cairn's exposure to world oil prices will increase significantly when production
commences from Rajasthan.


Revenue for the year was $262.6m (2004 restated: $172.9m).


Gross Profit

Cost of sales for the year was $168.8m (2004 restated: $159.2m). Cost of sales
in 2005 includes the write-off of unsuccessful exploration costs of $26.9m (2004
restated: $36.3m) arising from the Group's adoption of revised accounting
policies.


Production costs for the year were $50.2m (2004 restated: $50.8m). Increased
entitlement production in 2005 contributed to the improvement in production
costs per barrel from $6.09 in 2004 to $4.87 in 2005. Production costs include
pre-exploration costs now expensed under IFRS 6 and stock adjustments.


The average Group rate for depletion and decommissioning has increased by 3.0%
to $8.90 per boe in comparison to $8.64 per boe in 2004. This arises from
changes in field mix and individual rates year on year as depletion is now
calculated on a field basis. Lakshmi and Gauri field depletion has decreased due
to the effect of the ONGC farm-out. Sangu field depletion however has increased
as a consequence of the reserves revision outlined in the Operational Review.


Certain reserves relating to Rajasthan have been booked at the year end and
these are summarised in the Operational Review. As the depletion and
decommissioning charge is calculated on a field basis no charge arises in the
Income Statement until production commences. Exploration/appraisal costs
associated with the booked reserves have been transferred to development/
producing assets.


The Group generated a gross profit of $93.7m (2004 restated: $13.7m).


Profit for the Year

Administrative expenses for the year were $38.1m (2004 restated: $26.5m). This
includes a charge of $10.0m (2004 restated: $4.6m) for share based payments and
associated National Insurance Contribution in accordance with IFRS 2.
Administrative expenses have also increased as a result of the growth in
business following the discoveries in Rajasthan.


Net finance income was $30.3m (2004 restated: net finance costs $17.6m),
including a foreign currency exchange gain of $27.1m (2004: restated loss
$15.6m). Realised exchange rate movements arose due to the strengthening of the
US dollar against Sterling in the period and were also impacted by the
recognition of exchange differences on intra-group funding under IFRS.


The majority of the $22.1m tax charge (2004 restated: credit $14.7m) arises on
profits in India. The credit in 2004 is a result of the change to a successful
efforts based policy under IFRS which substantially reduces the deferred tax
provisions required.


Exceptional items

The exceptional gain on sale of $15.3m arising in 2005 was the result of the
farm-out of a 90% interest in KG-DWN-98/2 and of a 10% interest in the CB/OS-2
development area to ONGC detailed under 'Transactions' below.


The Group made a profit for the year of $79.1m (2004 restated: loss $15.7m).


BALANCE SHEET


Capital expenditure

Capital expenditure additions during 2005 were $241.8m (2004 restated: $232.0m),
comprising $193.1m on exploration/appraisal activities, $41.0m on development
activities and $7.7m on other fixed assets. The exploration/appraisal
expenditure during the year was incurred largely on the continuing drilling
programme in Rajasthan. The majority of the development expenditure was for
completion of the infill campaigns on both the Lakshmi and Sangu gas fields and
pre-development expenditure on Rajasthan.


CASH FLOW


Cash flows from operating activities

Cash generated from Group operations was $139.6m (2004 restated: $138.5m).
Operating cash flows for the year have been reduced by cash payments of $35.3m
made in settlement of amounts due following the previously announced Ravva
arbitration proceedings. These amounts were fully provided for in the 2004
accounts. Tax payments during 2005 were $6.6m (2004: restated $8.6m).


Cash flows from investing activities

Cash outflow from capital expenditure during 2005 was $290.9m, made up of
$218.3m exploration/appraisal expenditure, $64.9m development expenditure and
$7.7m other expenditure. (2004: $173.7m - $140.2m exploration/appraisal, $29.6m
development and $3.9m other). The difference arising between capitalisation of
expenditure and cash flow is principally due to costs of the Sangu and Lakshmi
infill drilling campaigns and the Rajasthan drilling programme that were
incurred in 2004 but paid for in 2005.


In addition, there was an inflow on completion of the ONGC transaction of
$127.5m after adjusting for working capital adjustments and other costs (gross
proceeds $135m) (2004: outflow arising on Bangladesh acquisition $42.5m and an
inflow on completion of the Gryphon disposal of $12.9m).


Net assets/net funds

Net assets at 31st December 2005 were $757.6m (2004: restated $711.2m).


At the year end the Group had net funds of $95.5m (2004: net funds $138.3m). The
Group currently has $240m of unutilised unsecured revolving credit facilities.
Following Cairn's discoveries in Rajasthan, the Group is progressing the
refinancing of its debt facilities required to fund the associated developments.
These new facilities will provide Cairn with the financial flexibility to take
its Rajasthan discoveries through development to production.


Transactions

The previously announced ONGC transaction for the farm-out of 90% of KG-DWN-98/2
exploration assets, 10% of the CB/OS-2 development area (including the Lakshmi
and Gauri fields) and 15% of the CB/OS-2 exploration area, and the farm-in to
two blocks in Northern India, was completed in March 2005. $127.5m net proceeds
were received on completion. A gain on sale of $15.3m has therefore been
recognised in the Income Statement. The operating profits from the farmed-out
interests in the CB/OS-2 producing interests have been recognised in the Income
Statement up to the date of completion.



Kevin Hart

Finance Director, 14th March 2006

Cairn Energy PLC

Group Income Statement

For the year ended 31st December 2005


---------------------------                  ------  ---    --------      ----------
                                                             Group          Group
                                                              2005           2004
                                                             $'000      (Restated)
                                                                            $'000
---------------------------                  ------  ---    --------      ----------

Revenue                                                    262,562         172,909

Cost of sales
Production costs                                           (50,235)        (50,757)
Unsuccessful exploration costs                             (26,867)        (36,325)
Depletion and decommissioning charge                       (91,740)        (72,095)
---------------------------                  ------  ---    --------      ----------
Gross profit                                                93,720          13,732

Administrative expenses                                    (38,088)        (26,516)
Exceptional gain on sale of oil and gas                     15,272               -
assets                                       ------  ---    --------      ----------
---------------------------
Operating profit/(loss)                                     70,904         (12,784)

Finance income                                              32,543           3,306
Finance costs                                               (2,236)        (20,932)
---------------------------                  ------  ---    --------      ----------

Profit/(loss) before taxation                               101,211        (30,410)
------------------------                     ------  ---    --------      ----------
Taxation on profit/(loss)                                   
                   - UK                                     (4,386)         15,822
                   - Overseas                               (17,753)        (1,086)
---------------------------                  ------  ---    --------      ----------

Profit/(loss) for the year attributable to equity
holders                                                     79,072         (15,674)
                                                     ---    --------      ----------
------------------------------                                            ----------
Earnings per ordinary share - basic (cents)                  50.37          (10.28)
------------------------------                  ---  ---    --------
Earnings per ordinary share - diluted (cents)                50.10          (10.28)
------------------------------                  ---  ---    --------      ----------



Cairn Energy PLC

Statement of Changes in Equity

For the year ended 31st December 2005


-------------------------                              -------------  ----------
                                                            Group        Group
                                                             2005         2004
                                                            $'000    (Restated)
                                                                         $'000
-------------------------                              -------------  ----------

Opening equity                                             711,197     532,223
Currency translation differences                           (23,893)     15,966
-------------------------                              -------------  ----------
Total (expense)/income recognised direct in equity         (23,893)     15,966
Profit/(loss) for the year                                  79,072     (15,674)
-------------------------                              -------------  ----------
Total recognised income and expense for the year            55,179         292
-------------------------                              -------------  ----------
New shares issued in respect of share placing                    -     184,814
New shares issued in respect of employee share               3,782       8,239
options
Cost of share based payments                                 4,592       2,169
Cost of shares purchased                                   (17,152)    (16,540)
-------------------------                              -------------  ----------
Closing equity attributable to the equity holders          757,598     711,197
-------------------------                              -------------  ----------



Cairn Energy PLC

Balance Sheet

As at 31st December 2005
                                                            Group        Group
                                                              2005        2004
                                                             $'000   (Restated)
                                                                         $'000
Non-current assets
Intangible exploration/appraisal assets                    321,855     364,189
Property, plant & equipment - development/producing        456,929     411,737
assets
Property, plant & equipment - other                          4,158       2,757
Intangible assets - other                                    2,601       1,347
Investments                                                     96          96
Deferred tax assets                                          2,606       8,744
----------------------------------                       -----------    --------
                                                           788,245     788,870
----------------------------------                       -----------    --------
Current assets
Inventory                                                    5,533       2,160
Trade and other receivables                                124,725     131,101
Bank deposits                                               20,000      15,361
Cash and cash equivalents                                   75,509     122,961
----------------------------------                       -----------    --------
                                                           225,767     271,583
----------------------------------                       -----------    --------
Total assets                                             1,014,012   1,060,453
----------------------------------                       -----------    --------
Current liabilities
Trade and other payables                                    94,736     151,362
Income tax liabilities                                       7,550       5,626
----------------------------------                       -----------    --------
                                                           102,286     156,988
----------------------------------                       -----------    --------
Non-current liabilities
Deferred tax liabilities                                   136,672     133,463
Provisions                                                  17,456      58,805
----------------------------------                       -----------    --------
                                                           154,128     192,268
----------------------------------                       -----------    --------
Total liabilities                                          256,414     349,256
----------------------------------                       -----------    --------
Net assets                                                 757,598     711,197
----------------------------------                       -----------    --------
Equity
Called-up share capital                                     25,775      25,635
Share premium                                              197,895     194,253
Shares held by ESOP trust                                  (37,311)    (23,624)
Foreign currency translation                                (7,927)     15,966
Other reserves                                              37,284      37,284
Capital reserves - non distributable                        45,331      45,331
Capital reserves - distributable                           178,429     178,429
Retained earnings                                          318,122     237,923
----------------------------------                       -----------    --------
Total equity attributable to the equity holders            757,598     711,197
----------------------------------                       -----------    --------



Cairn Energy PLC

Statement of Cash Flows

For the year ended 31st December 2005

                                                             Group       Group
                                                              2005        2004
                                                             $'000   (Restated)
                                                                         $'000

Cash flows from operating activities
Cash generated from operations                             139,621     138,464
Interest paid                                               (1,201)     (2,258)
Income tax paid                                             (6,563)     (8,570)
--------------------------------------                      --------    --------
Net cash generated from operating activities               131,857     127,636
--------------------------------------                      --------    --------

Cash flows from investing activities
Expenditure on exploration/appraisal assets               (218,324)   (140,215)
Expenditure on development/producing assets                (64,921)    (29,583)
Acquisition of Bangladesh assets                                 -     (42,500)
Purchase of property, plant & equipment - other             (4,079)     (2,106)
Purchase of intangible assets - other                       (3,623)     (1,832)
Expenditure on investments                                       -           -
Proceeds on disposal of exploration/appraisal assets        91,930         562
Proceeds on disposal of development/producing assets        35,574      12,340
Proceeds on disposal of property, plant & equipment -           95          89
other
Movement in funds on bank deposit                           (5,656)    (14,656)
Interest received                                            4,378       3,105
--------------------------------------                      --------    --------
Net cash used in investing activities                     (164,626)   (214,796)
--------------------------------------                      --------    --------

Cash flows from financing activities
Proceeds from issue of shares                                3,782     193,053
Purchase of own shares                                     (17,152)    (16,540)
--------------------------------------                      --------    --------
Net cash flows from financing activities                   (13,370)    176,513
--------------------------------------                      --------    --------

Net (decrease)/increase in cash and cash equivalents       (46,139)     89,353
Opening cash and cash equivalents at beginning of year     122,961      31,801
Exchange (losses)/gains on cash and cash equivalents        (1,313)      1,807
--------------------------------------                      --------    --------
Closing cash and cash equivalents                           75,509     122,961
--------------------------------------                      --------    --------



Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from
operating activities

                                                             Group       Group
                                                              2005        2004
                                                             $'000   (Restated)
                                                                         $'000

Operating profit/(loss)                                     70,904     (12,784)

Depletion, depreciation, decommissioning & amortisation     96,680      75,307
Share based payments charge                                  4,592       2,169
Inventory movement                                          (3,373)      1,904
Debtors movement                                           (16,590)     (2,852)
Creditors movement                                          14,551       6,178
Movement in other provisions                               (39,048)     31,044
Exceptional gain on sale of oil and gas assets             (15,272)          -
Gain on sale of other non current assets                       (41)        (76)
Unsuccessful exploration costs                              26,867      36,325
Foreign exchange differences                                   351       1,249
-----------------------------------                        ---------   ---------

Net cash inflow/(outflow) from operating activities        139,621     138,464
-----------------------------------                        ---------   ---------



Net Funds

                                                         Group           Group
                                                         2005             2004
                                                                     (Restated)
                                                        $'000            $'000

Bank deposits                                          20,000           15,361
-----------------------------------                   ---------        ---------
Bank deposits                                          20,000           15,361
-----------------------------------                   ---------        ---------

Cash at bank                                           15,831           17,820
Short term deposits                                    59,678          105,141
-----------------------------------                   ---------        ---------
Cash and cash equivalents                              75,509          122,961
-----------------------------------                   ---------        ---------
-----------------------------------                   ---------        ---------
Net funds                                              95,509          138,322
-----------------------------------                   ---------        ---------


In addition to the Cash and Cash Equivalents shown above, the Group has a
deposit of $20m as at 31 December 2005 (2004: $15.4m) which matures on 31 March
2006. This deposit has been classified under Bank Deposits as it was placed on
deposit for a period of greater than three months.



NOTES:


1.      No dividend has been declared (2004: nil).

2.      The earnings per ordinary share is calculated on a profit of $79,072,000
(2004: loss $15,674,000) and on a weighted average of 156,995,878 ordinary
shares (2004: 152,522,282). The weighted average of ordinary shares excludes
shares held under the LTIP - the shares are held by the Cairn Energy PLC
Employees' Share Trust.

The diluted earnings per ordinary share is calculated on a profit of $79,072,000
and on 157,841,207 ordinary shares being the basic weighted average of
156,995,878 ordinary shares and the dilutive potential ordinary shares of
845,329 ordinary shares relating to share options. In respect of 2004, 1,191,457
potential ordinary shares were anti-dilutive.

3.      Accounting policies

Basis of preparation


Cairn's 2005 Annual Report & Accounts has been prepared under applicable
International Financial Reporting Standards (IFRS). Comparative information has
also been restated under IFRS.


Changes of accounting policies


On 1st January 2005 it became mandatory for the Group to comply with IFRS. The
2005 Annual Report & Accounts and restated comparative financial information
have been prepared on the basis of all IFRS and interpretations issued by the
International Accounting Standards Board (IASB) and endorsed by the European
Commission (EC) effective for the Group's reporting year end 31st December 2005.


Revised accounting policies under IFRS including the transition to a successful
efforts based accounting methodology can be found in the 'Restatement of 2004
Results from UK GAAP to IFRS' issued on 28 February 2006 and is available on the
Company's website. This document also includes reconciliations of comparative
information from UK GAAP to IFRS. The prior year comparatives contained in this
restatement document have been subsequently revised to reflect an updated
interpretation of IAS 21 in respect of foreign currencies and its implications
for the Group.


These financial statements are also prepared in accordance with IFRS 6
'Exploration for and evaluation of mineral resources' following early adoption
by Cairn of this standard.


4.      The financial information contained in this announcement does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985. However, the financial statements contained in this announcement are
extracted from the audited statutory accounts for the financial year ended 31st
December 2005 (including restated 2004), which will be delivered to the
Registrar of Companies.


5.      The directors have considered the factors relevant to support a
statement on 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.

6.      Full accounts are due to be posted to shareholders on Friday, 24th March
2006 and will be available at the Company's registered office, 50 Lothian Road,
Edinburgh, EH3 9BY, from that date.

7.      The Annual General Meeting is due to be held at the Company's registered
office, 50 Lothian Road, Edinburgh, EH3 9BY on Thursday, 20th April 2006 at
12.00pm.





Notes to Editors:


   •Cairn focuses its activities on the geographic region of South Asia.  The
    Group holds material exploration and production positions in west India,
    east India and Bangladesh along with new exploration rights in northern
    India and Nepal.


   •This focus on South Asia has already resulted in a significant number of
    oil and gas discoveries.  In particular, the Company made a major oil
    discovery (Mangala) in Rajasthan in the north west of India at the beginning
    of 2004.


   •India currently imports 2 million barrels of oil a day.  Domestic
    production is 650,000 bopd of which 50,000 bopd comes from the Cairn
    operated Ravva field.


   • Unless otherwise stated any reference to reserves refers to gross life
    of field 2P reserves. Any reference to resource base refers to gross 2P
    reserves plus contingent resources.

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



Note: There are matters discussed in this Statement that are forward looking.
All such forward looking statements are based on 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.



Glossary of Terms


The following are the main terms and abbreviations used in this announcement:
Corporate
2P         proved plus probable
Board      the Board of Directors of Cairn Energy PLC
Cairn      the Company and/or its subsidiaries as appropriate
Company    Cairn Energy PLC
D&M        DeGolyer & MacNaughton
DoC        declaration of commerciality
E&P        exploration and production
GoI        Government of India
Group      the Company and/or its subsidiaries as appropriate
IPO        Initial public offering
KG         Krishna-Godavari
MC         Management Committee
MRPL       Mangalore Refinery & Petrochemicals Ltd and/or its subsidiaries as
           appropriate
NELP-V     5th New Exploration Licensing Policy
ONGC       Oil and Natural Gas Corporation Ltd and/or its subsidiaries as
           appropriate
OC         Operating Committee

Technical
2D / 3D    two dimensional / three dimensional
bscf       billion standard cubic feet of gas
boepd      barrels of oil equivalent per day
bopd       barrels of oil per day
CPF        central processing facility
degree API American Petroleum Institute units as a measure of oil specific
           gravity
EOR        enhanced oil recovery
FDP        field development plan
mmbbls     million barrels of oil
mmscfd     million standard cubic feet of gas per day
PSC        production sharing contract

Accounting
IAS 21     International Accounting Standard 21 'The Effects of Changes in
           Foreign Exchange Rates'
ESOP Trust Employee Share Ownership Plan Trust
IFRIC      International Financial Reporting Interpretations Committee
IFRS       International Financial Reporting Standards
IFRS 2     International Financial Reporting Standard 2 'Share-based Payment'
$/US       United States Dollars
dollars








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