Scheme of arrangement

Cairn Energy PLC
09 December 2002

                                CAIRN ENERGY PLC

                                    Part One


RECOMMENDED PROPOSAL TO ESTABLISH NEW CAIRN ENERGY PLC AS THE HOLDING COMPANY OF
                          CAIRN ENERGY PLC BY MEANS OF

                            A SCHEME OF ARRANGEMENT





The Board of Cairn Energy PLC ('Cairn') today announces a recommended proposal
for the reorganisation of the Cairn Group through the introduction of a new
holding company, New Cairn Energy PLC ('New Cairn').



The reorganisation will separate the Group's operating subsidiaries from the new
holding company.  The Directors believe that this new corporate structure will,
at an appropriate time, allow the Group to transfer assets and implement its
stated strategy of realising value from exploration success in a more efficient
manner.





Summary



•         The reorganisation will be effected by means of a scheme of
arrangement under section 425 of the Companies Act 1985 which will be
conditional on the approval of Cairn Shareholders and the sanction of the Court.



•         Upon the Scheme becoming effective, New Cairn will be the holding
company of Cairn, and all existing Cairn Shares will be cancelled and replaced
with the same number of shares in New Cairn, which will have the same economic
and voting rights as Shares previously held in Cairn.



•         Applications will shortly be made for New Cairn Shares to be admitted
to the Official List and to trading on the London Stock Exchange's market for
listed securities.



•         Meetings of Cairn Shareholders are expected to be convened for 13
January 2003 to, inter alia, implement the Scheme, and it is expected that the
Scheme will become effective on or around 19 February 2003.





The Directors intend unanimously to recommend all Cairn Shareholders to vote in
favour of the resolutions to be proposed at the Court Meeting and EGM, as they
intend to do in respect of their own beneficial holdings of Cairn Shares which,
in aggregate, represent 1.12 per cent. of Cairn's issued share capital as at 6
December 2002, being the latest practicable date prior to this announcement.



Expressions used in this summary are defined in the attached announcement.  This
summary should be read in conjunction with the full text of the announcement.






Enquiries



Cairn Energy PLC:
Bill Gammell, Chief Executive                       Tel:    [phone]
Kevin Hart, Finance Director                        Tel:    [phone]



N M Rothschild & Sons Limited:
Robert Leitao, Managing Director                    Tel:    [phone]



ABN AMRO Corporate Finance Limited:
Richard Kent, Director                              Tel:    [phone]



Hoare Govett Limited:
Andrew Osborne, Director                            Tel:    [phone]



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





N M Rothschild & Sons Limited is acting for Cairn Energy PLC and New Cairn
Energy PLC and no one else in connection with the Scheme and will not be
responsible to anyone other than Cairn and New Cairn for providing the
protections afforded to customers of Rothschild or for providing advice in
relation to the Scheme.



ABN AMRO Corporate Finance Limited is acting for Cairn Energy PLC and New Cairn
Energy PLC and no one else in connection with the Scheme and will not be
responsible to anyone other than Cairn and New Cairn for providing the
protections afforded to customers of ABN AMRO or for providing advice in
relation to the Scheme.



Hoare Govett Limited, which is authorised and regulated in the United Kingdom by
the Financial Services Authority, is acting for Cairn Energy PLC and New Cairn
Energy PLC and no one else in connection with the Admission and will not be
responsible to any person other than Cairn and New Cairn for providing the
protections afforded to customers of Hoare Govett or for providing advice in
relation to the Admission.



The contents of this announcement which have been prepared by and are the sole
responsibility of Cairn Energy PLC have been approved by N M Rothschild & Sons
Limited of New Court, St. Swithin's Lane, London EC4P 4DU, and by ABN AMRO
Corporate Finance Limited of 250 Bishopsgate, London EC2M 4AA, solely for the
purposes of section 21(2)(b) of the Financial Services and Markets Act 2000.





                                CAIRN ENERGY PLC

                                    Part Two



RECOMMENDED PROPOSAL TO ESTABLISH NEW CAIRN ENERGY PLC AS THE HOLDING COMPANY OF
                          CAIRN ENERGY PLC BY MEANS OF

                            A SCHEME OF ARRANGEMENT



1. Introduction



The Board of Cairn Energy PLC ('Cairn') today announces a recommended proposal
for the reorganisation of the Cairn Group through the introduction of a new
holding company, New Cairn Energy PLC ('New Cairn').  The reorganisation is to
be implemented by way of a scheme of arrangement between Cairn and its
Shareholders under section 425 of the Act, and is subject to the sanction of the
Court and the approvals from Cairn Shareholders at the EGM and at a separate
meeting convened by the Court.



Once Shareholders have approved the Scheme at the Court Meeting and the EGM, the
Scheme must be sanctioned by the Court in order to become effective.  The
sanction of the Scheme by the Court and the subsequent registration of the order
of the Court sanctioning the Scheme with the Registrar of Companies will bind
all Shareholders to the terms of the Scheme.  It is expected that the Scheme
will become effective on or around 19 February 2003.



Upon the Scheme becoming effective, New Cairn will be the holding company of
Cairn, and all existing Cairn Shares will be cancelled and replaced with the
same number of shares in New Cairn.



Upon the Scheme becoming effective, Cairn Shareholders will receive:



For each Scheme Share cancelled                     One New Cairn Share



As a result, Cairn Shareholders will receive the same number of shares, with the
same economic and voting rights, in New Cairn as previously held in Cairn.



Applications will shortly be made for the New Cairn Shares in issue and the New
Cairn Shares to be issued pursuant to the Scheme to be admitted to the Official
List and to trading on the London Stock Exchange's market for listed securities.
  It is expected that Admission will occur and that dealings in New Cairn Shares
will commence on or around 19 February 2003.



It is intended that, immediately upon the Scheme becoming effective, New Cairn
will change its name to Cairn Energy PLC and the existing Cairn will change its
name to Cairn Energy Bangladesh PLC.



Documentation in the form of a Scheme Circular and Listing Particulars are
expected to be posted to Cairn Shareholders on or around 12 December 2002.  The
Scheme will be subject to the conditions and further terms set out in this
announcement under the heading 'Conditions to and implementation of the Scheme'
and in the Scheme Circular.



2. Background to and reasons for the Scheme



Cairn Energy PLC is the ultimate holding company for the Cairn Group and also
one of its principal trading companies with direct interests in oil and gas
assets.  Cairn holds other oil and gas interests indirectly through subsidiary
companies.  Cairn has determined that, insofar as possible, all of the Group's
trading activities should be carried on below the level of the Group holding
company.



The proposed reorganisation, to be effected by way of the Scheme, will result in
New Cairn, a new non-trading holding company, becoming the parent company of
Cairn.  The reorganisation will separate the Group's operating subsidiaries from
the new holding company.  The Directors believe that this new corporate
structure will, at an appropriate time, allow the Group to transfer assets and
implement its stated strategy of realising value from exploration success in a
more efficient manner.



3. Management and employees



The Scheme has no impact on the Cairn Group as a whole and all of the existing
Directors of Cairn are directors of New Cairn.  Cairn's executive directors,
Bill Gammell, Kevin Hart, Mike Watts and Malcolm Thoms, have been appointed
directors of New Cairn and have agreed, conditional upon the Scheme becoming
effective, to transfer their employment to New Cairn.  Cairn's non-executive
directors, Norman Murray (Chairman), Hamish Grossart (Deputy Chairman) and Ed
Story, have been appointed non-executive directors of New Cairn. All other
employees will remain employed by the existing Cairn Group.



4. Conditions to and implementation of the Scheme



The Scheme will not become effective and binding unless:



(a)           it is approved by Shareholders at the Court Meeting and the
resolution numbered 1 set out in the notice of EGM to be included in the Scheme
Circular is passed as a special resolution; and



(b)           it is sanctioned by the Court and an office copy of the order of
the Court sanctioning the Scheme and confirming the reduction of Cairn's share
capital pursuant thereto is registered with the Registrar of Companies.



In addition, the Directors will not take the necessary steps to enable the
Scheme to become effective unless, at the relevant time, they consider that it
continues to be in Cairn's best interests that the Scheme should become
effective and certain conditions set out in the Scheme Circular have either been
satisfied or waived.



Notices convening the following Shareholder meetings to implement the Scheme are
expected to be contained at the end of the Scheme Circular:



(a)           the Court Meeting; and



(b)           the EGM to consider and, if thought fit, pass the special
resolutions to approve and implement the Scheme, to amend the articles of
association of Cairn and to change the name of Cairn immediately upon the Scheme
becoming effective.



If the Scheme is sanctioned by the Court and the conditions to the Scheme are
satisfied or waived by the Directors, the Scheme is expected to become effective
on or around 19 February 2003, and dealings in the New Cairn Shares to be issued
pursuant to the Scheme are expected to commence on or around the same date. If
the Scheme has not become effective by 30 September 2003 (or such later date as
the Court may allow) it will lapse, in which event Shareholders will remain
holders of Cairn Shares, which will continue to be listed on the Official List
and traded on the market for listed securities of the London Stock Exchange.




5. Information on New Cairn



Information on New Cairn will be contained in the Listing Particulars which are
expected to be posted to Shareholders, together with the Scheme Circular, on or
around 12 December 2002.



6. Cairn Share schemes



Cairn operates three employee share schemes, the Cairn Energy PLC Executive
Share Option Scheme (an Inland Revenue approved scheme) (the 'Approved Scheme'),
the Cairn Energy PLC 1996 Second Share Option Scheme (an unapproved performance
based option scheme) (the 'Unapproved Scheme') and the Cairn Energy PLC Long
Term Incentive Plan (the 'Cairn LTIP').



It is expected that participants in the Approved Scheme, the Unapproved Scheme
and the Cairn LTIP will receive a letter from the Chairman of Cairn explaining
the impact of the Scheme on their awards or options (as applicable) in more
detail, and explaining the action (if any) to be taken by them in connection
with the Scheme.



7. Meetings



The Scheme Circular will contain notices convening the Court Meeting and EGM, in
order to seek the relevant Shareholder approvals to give effect to the Scheme.



Shareholders should note that, in order to become effective, the resolution to
be proposed at the Court Meeting must be supported by a majority in number of
those Shareholders who attend and vote (either in person or by proxy) at the
Court Meeting and who hold in aggregate not less than 75 per cent. of the total
Cairn Shares for which votes are cast at the Court Meeting. Voting at the Court
Meeting will be by poll and those present in person or by proxy will be entitled
to one vote for each Cairn Share held by them.



It is important that a high proportion of votes is cast at the Court Meeting so
that the Court can be satisfied that the result fairly represents the opinion of
Cairn Shareholders.



The resolutions to be proposed at the EGM must, in order to become effective, be
approved by at least 75 per cent. of the votes cast. Voting at the EGM will be
on a show of hands unless a poll is validly demanded, in which case those
present in person or by proxy will be entitled to one vote for each Cairn Share
held by them.



If the Scheme becomes effective, it will be binding on all Scheme Shareholders,
whether or not they attended the Meetings or voted in favour of the Scheme or
the resolutions proposed at the EGM.



8. Admission, dealings, share certificates and settlement



Applications will shortly be made for the New Cairn Shares in issue and the New
Cairn Shares to be issued pursuant to the Scheme to be admitted to the Official
List and to trading on the London Stock Exchange's market for listed securities.
The last day of dealings in Cairn Shares is expected to be on or around 18
February 2003.  The last time for registration of transfers of Scheme Shares
will be 5.30 p.m. on the last day of dealings.  It is expected that Admission
will occur and that dealings in the New Cairn Shares will commence on or around
19 February 2003.



On the Scheme Date, share certificates for the Scheme Shares will cease to be
valid.



For Scheme Shareholders who hold their Shares in a CREST account, New Cairn
Shares are expected to be credited to the relevant CREST accounts on the Scheme
Date.  For those holding Shares in certificated form, definitive certificates
for the New Cairn Shares are expected to be despatched within five business days
after the Scheme Date.  Pending despatch of share certificates, transfers of New
Cairn Shares will be certified by the Registrars against the share register.



9. Cancellation of Cairn Listing



The London Stock Exchange and the UK Listing Authority will be requested to
cancel the trading and listing respectively of the Cairn Shares with effect from
the opening of business on the Scheme Date.



10. Recommendation



The Directors, who have received financial advice from Rothschild and ABN AMRO,
consider the terms of the Scheme to be in the best interests of Cairn and its
Shareholders as a whole. In providing financial advice to the Directors,
Rothschild and ABN AMRO have relied upon the Directors' commercial assessment of
the merits of the Scheme.  The Directors also consider the resolutions to be
proposed at the EGM to be in the best interests of Cairn and its Shareholders as
a whole.



Accordingly, the Directors intend unanimously to recommend all Cairn
Shareholders to vote in favour of the resolutions to be proposed at the Court
Meeting and EGM, as they intend to do in respect of their own beneficial
holdings of Cairn Shares which, in aggregate, represent 1.12 per cent. of
Cairn's issued share capital as at 6 December 2002, being the latest practicable
date prior to publication of this announcement.





Enquiries



Cairn Energy PLC:
Bill Gammell, Chief Executive                      Tel:    [phone]
Kevin Hart, Finance Director                       Tel:    [phone]



N M Rothschild & Sons Limited:
Robert Leitao, Managing Director                   Tel:    [phone]



ABN AMRO Corporate Finance Limited:
Richard Kent, Director                             Tel:    [phone]



Hoare Govett Limited:
Andrew Osborne, Director                           Tel:    [phone]



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








N M Rothschild & Sons Limited is acting for Cairn Energy PLC and New Cairn
Energy PLC and no one else in connection with the Scheme and will not be
responsible to anyone other than Cairn and New Cairn for providing the
protections afforded to customers of Rothschild or for providing advice in
relation to the Scheme.



ABN AMRO Corporate Finance Limited is acting for Cairn Energy PLC and New Cairn
Energy PLC and no one else in connection with the Scheme and will not be
responsible to anyone other than Cairn and New Cairn for providing the
protections afforded to customers of ABN AMRO or for providing advice in
relation to the Scheme.



Hoare Govett Limited, which is authorised and regulated in the United Kingdom by
the Financial Services Authority, is acting for Cairn Energy PLC and New Cairn
Energy PLC and no one else in connection with the Admission and will not be
responsible to any person other than Cairn and New Cairn for providing the
protections afforded to customers of Hoare Govett or for providing advice in
relation to the Admission.



The contents of this announcement, which have been prepared by and are the sole
responsibility of Cairn Energy PLC, have been approved by N M Rothschild & Sons
Limited of New Court, St. Swithin's Lane, London EC4P 4DU, and by ABN AMRO
Corporate Finance Limited of 250 Bishopsgate, London EC2M 4AA, solely for the
purposes of section 21(2)(b) of the Financial Services and Markets Act 2000.










                        Appendix I - Expected timetable


Posting of Scheme Circular and Listing Particulars                          on or around 12 December 2002
Court Meeting                                                                2.30 p.m. on 13 January 2003
Extraordinary General Meeting1                                               2.40 p.m. on 13 January 2003
Record Date                                                                 on or around 18 February 2003
Court Hearing                                                               on or around 18 February 2003
Scheme becomes effective2                                                   on or around 19 February 2003
Admission of New Cairn Shares and dealings to commence2                     on or around 19 February 2003
CREST accounts to be credited2                                              on or around 19 February 2003
New Cairn share certificates to be despatched2                              on or around 26 February 2003



Notes:



1         To commence at the time specified or, if later, immediately following
the conclusion or adjournment of the Court Meeting

2         These dates will depend, inter alia, upon the date on which the Court
sanctions the Scheme and the date on which steps are taken to make the Scheme
effective




Definitions





The following definitions apply throughout this document



'ABN AMRO'                          ABN AMRO Corporate Finance Limited


'Act'                               the Companies Act 1985 (as amended)


'Admission'                         admission of the New Cairn Shares issued and to be issued
                                    pursuant to the Scheme becoming effective, to the Official
                                    List and to trading on the London Stock Exchange's market for
                                    listed securities


'Board' or 'Directors'              the board of directors of Cairn


'Cairn', or 'the Company'           Cairn Energy PLC


'Cairn Group' or 'Group'            Cairn (or, following the Scheme becoming effective, New Cairn)
                                    and its subsidiary and associated undertakings


'Cairn Shareholders' or             holders of Cairn Shares
'Shareholders'


'Cairn Shares' or 'Shares'          ordinary shares of 10 pence each in the capital of Cairn


'Court'                             the Court of Session in Edinburgh


'Court Hearing'                     the final hearing of the Petition


'Court Meeting'                     the meeting of Cairn Shareholders to be convened by
                                    interlocutor of the Court, notice of which will be contained
                                    at the end of the Scheme Circular


'CREST'                             a relevant system (as defined in the CREST Regulations) in
                                    respect of which CRESTCo Limited is the operator (as defined
                                    in the CREST Regulations)


'CREST Regulations'                 the Uncertificated Securities Regulations 2001 (SI 2001/3755)
                                    as from time to time amended
'Extraordinary General Meeting' or  the extraordinary general meeting of Shareholders to be held
'EGM'                               in connection with the Scheme, notice of which is expected to
                                    be contained at the end of the Scheme Circular


'Hoare Govett'                      Hoare Govett Limited


'Listing Particulars'               the listing particulars expected to be posted to Cairn
                                    Shareholders on or around 12 December 2002 relating to New
                                    Cairn and the New Cairn Shares prepared in accordance with the
                                    Listing Rules


'Listing Rules'                     the listing rules of the UK Listing Authority


'London Stock Exchange'             London Stock Exchange plc


'Meetings'                          the Court Meeting and the EGM


'New Cairn'                         New Cairn Energy PLC registered in Scotland with number
                                    SC226712 and, where the context so requires, its subsidiary
                                    and associated undertakings


'New Cairn Shares'                  ordinary shares of 10 pence each in the capital of New Cairn


'Official List'                     the official list maintained by the UK Listing Authority


'Petition'                          the petition to the Court to sanction the Scheme


'Record Date'                       the business day immediately preceding the Scheme Date


'Registrar of Companies'            the Registrar of Companies in Edinburgh


'Registrars'                        Lloyds TSB Registrars Scotland, P.O. Box 28448, Finance House,
                                    Orchard Brae, Edinburgh EH4 1ZF, a branch of Lloyds TSB
                                    Registrars, The Causeway, Goring By Sea, Worthing, West Sussex
                                    BN99 6DA


'Rothschild'                        N M Rothschild & Sons Limited


'Scheme'                            the proposed scheme of arrangement pursuant to Section 425 of
                                    the Act between Cairn and the Scheme Shareholders


'Scheme Circular'                   the document expected to be posted to Cairn Shareholders on or
                                    around 12 December 2002 containing the Scheme and the
                                    explanatory statement required pursuant to section 426 of the
                                    Act


'Scheme Date'                       the date on which the Scheme becomes effective, expected to be
                                    on or around 19 February 2003


'Scheme Record Time'                5.30 pm on the business day immediately preceding the date of
                                    the Court Hearing (or, if the Court Hearing continues beyond
                                    one day, the business day immediately preceding the final day
                                    of the Court Hearing)


'Scheme Shareholder'                a holder of Cairn Shares on the Record Date


'Scheme Shares'                     all Cairn Shares in issue at the Scheme Record Time


'UK' or 'United Kingdom'            the United Kingdom of Great Britain and Northern Ireland








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