$3.5 Billion Return of Cash to Shareholders

RNS Number : 2573V

Cairn Energy PLC

10 January 2012

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, OR INTO, THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA

FOR IMMEDIATE RELEASE                                                                                            10 January 2012

CAIRN ENERGY PLC ("Cairn" or the "Company")

$3.5 Billion Return of Cash to Shareholders

On 8 December 2011 Cairn announced the proposed return of approximately $3.5 billion of cash to Shareholders following the completion of the disposal of a 40 per cent shareholding in Cairn India to Vedanta Resources plc ("Vedanta") in two tranches (the "Sale").

Further details of the proposed return of cash are set out in this announcement.

Cash Return - Highlights

Ø Shareholders to receive £1.60 for each Existing Ordinary Share

Ø Return to be implemented by way of a B share scheme with a view to providing UK tax resident shareholders with flexibility to elect to receive cash in the form of income or capital, or a combination of both

Ø Shareholders in certain prohibited territories and Shareholders who fail to make an election will be deemed to have elected for the income option and will receive a single dividend of £1.60 per B share

Ø One B share for every one Existing Ordinary Share held on the record date

Ø 13 for 33 share consolidation to seek to maintain comparability of share price and earnings per share

Ø General Meeting to approve the return on 30 January 2012

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"Cairn has returned US$4.5 billion to shareholders in the last five years in line with the Company's strategy of realising value from its successes.

Following the successful completion of the sale, shareholders will receive £1.60 per share and the remainder of the proceeds will be used to pursue other material growth opportunities with the aim of creating and realising further value for shareholders in the future.

We are seeking to effect the return of cash in a manner that gives shareholders the most flexibility in terms of how and when they receive their money."

Introduction

Cairn India's success in Rajasthan has created significant value for Shareholders. Cairn India was floated on the Bombay Stock Exchange and National Stock Exchange of India on 9 January 2007 and £481 million of the proceeds of the float were returned to shareholders. Cairn India and its joint venture partner ONGC are currently producing 125,000 barrels of oil per day from the Rajasthan Block and production is expected to reach the approved plateau of 175,000 barrels of oil per day, in excess of 20 per cent of India's domestic oil production. The current understanding of the resource base in the Rajasthan Block supports a vision to produce 300,000 barrels of oil per day, equivalent to approximately 30 per cent of India's current crude production (subject to further investments, partner and regulatory approvals including exploration rights in the development areas). As at 30 June 2011, Cairn India had gross assets of US$5,643.8 million (unaudited). For the 12 months ended 31 December 2010, Cairn India's result before tax was US$1,049.4 million.  

On 8 December 2011, Cairn announced that it had successfully completed the sale of a 30 per cent shareholding Cairn India to Vedanta and had received net proceeds of approximately US$4.1 billion. This followed the earlier sale of a 10 per cent shareholding in Cairn India to Vedanta for net proceeds of approximately US$1.4 billion in cash.

Cairn now proposes to return to Shareholders approximately US$3.5 billion of the cash realised through the Sale, representing a return of £1.60 for each Existing Ordinary Share. The remainder of the proceeds will provide financial flexibility to support the future growth of the Company. The return of cash is proposed to be made in a manner that should provide UK tax resident Shareholders with an element of choice as to when and in what form they receive the cash.

As at 31 December 2011, Cairn had a net cash balance of US$4.7 billion.

Return of Cash

The return of cash is proposed to be made by means of a B Share structure, in terms of which each Shareholder will receive:

Ø For each Existing Ordinary Share held on 3 February 2012 - 1 B Share

Ø For every 33 Existing Ordinary Shares held on 3 February 2012 - 13 New Ordinary

  Shares

The B Shares will not be listed on the Official List or admitted to trading on the London Stock Exchange. The New Ordinary Shares will be listed on the London Stock Exchange and will replace the Existing Ordinary Shares.

The choices which will be available to holders of B Shares in respect of the return of cash, if approved by Shareholders at the General Meeting, are summarised below.

The B Share Choices

Under the return of cash, Shareholders will have the following three choices in relation to the B Shares held by them on the B Share Record Date, although Shareholders resident, or with a registered address, in the United States, Australia, Canada, Japan or the Republic of South Africa (each a "Prohibited Territory") will only be entitled to receive (and will be deemed to have elected for) the Single B Share Dividend (being Choice 1 below). The other choices are not being made available to Shareholders resident, or with a registered address, in a Prohibited Territory.

Shareholders who fail to make an election will also be deemed to have elected for the Single B Share Dividend.

Shareholders resident in the United Kingdom should read the Circular carefully as it explains the United Kingdom tax consequences of the three choices under current law. Any Shareholder who is in any doubt as to his tax position, or who is resident for tax purposes in a jurisdiction other than the United Kingdom, should consult an appropriate professional adviser without delay.

Save as noted above, Shareholders may elect to receive any one of, or a combination of, the B Share Choices.

Choice 1: Single B Share Dividend

Shareholders can elect in respect of all or some of their B Shares, to receive a single dividend of £1.60 per B Share. It is expected that the dividend will become payable on 14 February 2012, following which those B Shares which have been so elected will be automatically converted into Deferred Shares with a negligible value.

The Single B Share Dividend will be taxed as income, as more fully described in the Circular.

Choice 2: Initial Purchase Offer

For Shareholders who validly elect for this choice in respect of all or some of their B Shares, it is expected that those B Shares will be purchased from those Shareholders by Morgan Stanley Securities Limited ("Morgan Stanley") on 14 February 2012 at £1.60 per B Share, free of all dealing expenses and commissions. Details of the terms of the offer to be made by Morgan Stanley are set out in paragraphs 4 to 8 of Part V of the Circular. Shareholders should note that the Initial Purchase Offer will not be made if the conditions thereto are not satisfied or waived by Morgan Stanley or if the Initial Purchase Offer Deed is terminated.

It is expected that the proceeds from this purchase should be treated as capital for United Kingdom tax purposes on the basis of current practice.

Choice 3: Future Purchase Offer

Shareholders, who validly elect for this choice in respect of all or some of their B Shares, will retain those B Shares for the time being. It is expected that Morgan Stanley will make an offer to acquire such B shares during April 2012 at £1.60 per B Share, free of all dealing expenses and commissions, although this cannot be guaranteed. It is expected that the conditions to the making of the Future Purchase Offer and its terms will similar to those in respect of the Initial Purchase Offer. If this is the case (and assuming there has been no change in current practice) the proceeds from this Future Purchase Offer should also be treated as capital for United Kingdom tax purposes.

Share Capital Consolidation

The aggregate amount proposed to be returned to Shareholders pursuant to the return of cash was equivalent to approximately 60.6 per cent of the market capitalisation of Cairn at the close of business on 6 January 2012 (being the latest practicable date before the publication of the Circular).

The effect of the Share Capital Consolidation is that the Existing Ordinary Shares will be replaced by the New Ordinary Shares so as to reduce the number of shares in issue to reflect the amount of cash to be returned to Shareholders. The aim of this is to seek to make the market price of a Cairn share comparable before and after the Return of Cash, subject to normal market movements following the date of the Circular.

The ratio used for the Share Capital Consolidation has been set by reference to the closing middle-market price of £2.64 per Existing Ordinary Share on 6 January 2012. On that basis, the Share Capital Consolidation will result in each Shareholder receiving 13 New Ordinary Shares, for every 33 Existing Ordinary Shares, held by him. Fractional entitlements arising from the Share Capital Consolidation will be aggregated and sold in the market on behalf of the relevant Shareholders. The proceeds of sale are expected to be sent to Shareholders on 21 February 2012 (or, if less than £3.00 in the case of any one Shareholder, donated to charities chosen by the Board). The value of any one Shareholder's fractional entitlement will not exceed the value of one New Ordinary Share.

As all ordinary shareholdings in the Company will be consolidated, the number of shares held by each Shareholder will reduce but Shareholders' percentage holdings in the issued ordinary share capital of the Company will (save in respect of fractional entitlements) remain unchanged immediately following the Share Capital Consolidation.

Similarly, although the nominal value of each Ordinary Share will change from 8/13 pence to 231/169 pence, the New Ordinary Shares will be equivalent in all other respects to the Existing Ordinary Shares, including their dividend, voting and other rights and will be admitted to trading in the same way as the Existing Ordinary Shares.

Following the Share Capital Consolidation, the Company's issued equity share capital will comprise 554,509,486 New Ordinary Shares (assuming that no further shares are issued between 6 January 2012 and the date on which the Share Capital Consolidation becomes effective).

Residual Interest Disposal Authority

Cairn's strategy has always been to focus on exploration, appraisal and development opportunities where the Board believes there is a strategic fit with Cairn's ongoing goal to add and, where appropriate, realise value for Shareholders. The Company's residual interest in Cairn India represents a substantial proportion of Cairn's assets and therefore due to its size, the sale of any material part of the residual interest would be subject to shareholder approval under the Listing Rules. The Company is therefore seeking authority from Shareholders to provide the necessary flexibility, if it so chooses, to dispose of a part, and up to all of, the residual interest in Cairn India in a way which delivers best value for Shareholders. The purpose of any such sales would be to invest the proceeds elsewhere in the Company's portfolio and in other exploration, appraisal and development opportunities that it identifies in accordance with its stated strategy.

As the shares of Cairn India are listed and freely traded on the Indian Stock Exchanges, the Board believes that potential purchasers would expect to be able to purchase Cairn India shares at the prevailing market price on the basis of normal market terms. Accordingly, potential purchasers of Cairn India shares are unlikely to be willing to enter into any agreement to purchase Cairn India shares which is conditional on Shareholder approval, given the readily available alternative of making market purchases without such a condition.

The Board believes that, in order to obtain the best terms when disposing of all or part of its residual shareholding in Cairn India, it needs to be able to sell or agree to sell those shares on normal market terms without having to obtain prior approval from Shareholders. The Board is therefore seeking approval in advance for the Company to be able to sell its residual interest in Cairn India at or as close as reasonably possible to the prevailing market price if and when the Company considers it appropriate to make such disposals. Cairn is seeking Shareholder authority to make disposals via on-market transactions. Disposals may be executed via bought deal block-trades where an underwriting bank will assume the risk of disposing of the relevant interest efficiently. Larger disposals may be executed via accelerated book build offerings where a bank will use "best efforts" to complete a sale as agent. However the risk of completing the disposal will remain with Cairn.

The Company only intends to utilise the Residual Interest Disposal Authority where it believes that a sale is in the best interests of Shareholders and in the meantime the Company will continue to benefit from the growth and success of the discoveries in Rajasthan and elsewhere through the retained interest in Cairn India. Unless renewed, the Residual Interest Disposal Authority will expire on 30 January 2013 (prior to which expiry the Company will assess the necessity and desirability of renewing the authority).

Circular

Cairn is posting a circular to Shareholders in connection with the return of cash, Residual Interest Disposal Authority and the share consolidation today (the "Circular"). The Circular contains a notice convening a General Meeting of Cairn shareholders. The General Meeting will be held at in the Esk and Forth Suites of the Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ on 30 January 2012 at 10.00 a.m. Shareholders may appoint a proxy by completing the form of proxy enclosed with the Circular. Alternatively, shareholders may register their proxy appointment electronically. The procedures and timings for the appointment of a proxy are set out in the notes to the notice of the General Meeting which is included in the Circular.

The Circular will shortly be available for viewing on the investors section of Cairn's website at www.cairnenergy.com. A copy of the Circular will also be submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm.

Key Dates

A detailed timetable is set out in the Circular. The following are the key dates in respect of the return of cash.

Latest time and date for receipt of Electronic Proxy Instruction, CREST Proxy Instruction or From of Proxy for General Meeting	10.00 a.m. on 26 January 2012
General Meeting	10.00 a.m. on 30 January 2012
Latest time and date for receipt of Election Forms and TTE Instructions from CREST holders in relation to the B Choices and Election Form Effective Date	4.30 p.m. on 10 February 2012
Despatch of cheques or bank accounts credited, as appropriate, in respect of the Single B Share Dividend (Choice 1)	21 February 2012
Despatch of cheques or CREST accounts credited, as appropriate, in respect of the B Shares purchased on the Initial Purchase Date (Choice 2)	21 February 2012

These dates may, however, be subject to change.

Enquiries to:

Analysts/Investors

Simon Thomson, Chief Executive

Mike Watts, Deputy Chief Executive

Jann Brown, Managing Director and CFO

David Nisbet, Corporate Affairs                                                                               Tel: [phone]

Media

Patrick Handley, David Litterick

Brunswick Group LLP                                                                                            Tel: [phone]

Brokers

Andrew Foster, Morgan Stanley                                                                             Tel: [phone]

Notes to Editors

Ø All references to the share capital of Cairn India in this announcement are calculated on a fully diluted basis.

Ø Unless otherwise stated, defined terms set out in this announcement have the same meaning as in the Circular posted to Shareholders today.

 Cairn Energy PLC

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

Ø Capricorn Oil Limited ("Capricorn"), a 100% subsidiary of Cairn, is focused on exploration. Capricorn has assets in Nepal, Northern India, Greenland, Albania and Spain.

Ø Cairn has an approximate 22% shareholding in Cairn India limited ("Cairn India"). Cairn India is listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 11 acreage blocks in India and Sri Lanka. Cairn India's principal asset is the major oil discovery (Mangala) in Rajasthan in the north west of India made by Cairn at the beginning of 2004. Production from Rajasthan started in August 2009 and is expected to reach the approved plateau of 175,000 bopd.

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

Ø "Cairn India" where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate.

Ø Cairn Energy PLC (including Capricorn) is run from Edinburgh with operational offices in Kathmandu (Nepal), Nuuk (Greenland) and Madrid (Spain).

Cairn in Greenland

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

Ø Cairn drilled five wells offshore Greenland during 2011.  Two state-of-the-art rigs were used for the drilling and exploration programme - the Ocean Rig Corcovado, a sixth generation drill-ship, and the Leiv Eiriksson, a fifth generation semi-submersible.

Ø Up to fourteen vessels supported the drilling programme.  They provided cover for emergency response, rig stand-by, ice management, anchor handling, oil spill response and re-supply operations.

Ø Cairn carried out extensive Environmental and Social Impact Assessments to identify how potential environmental and social impacts of the drilling programme could be avoided or mitigated. 

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

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

Cautionary Statements

This announcement does not constitute or form part of an offer or invitation, or a solicitation of any offer or invitation, to purchase any Cairn shares or other securities.

None of the Existing Ordinary Shares, New Ordinary Shares or the B Shares have been or will be registered under the US Securities Act of 1933, as amended (the 'US Securities Act') or the securities laws or regulations of any state of the United States, and none of them may be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and any applicable state securities laws.

None of the Existing Ordinary Shares, New Ordinary Shares or the B Shares nor the Circular have been approved, disapproved or otherwise recommended by the SEC or any US state securities commission or any non-US securities commission or regulatory authority nor have such authorities confirmed the accuracy or determined the adequacy of the Circular. Any representation to the contrary is a criminal offence in the United States.

This announcement contains (or may contain) certain forward-looking statements with respect to Cairn's current expectations and projections about future events. These statements, which sometimes use, but are not limited to, words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, neither Cairn nor Morgan Stanley Securities Limited ("Morgan Stanley") assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement.

Morgan Stanley is acting as broker to Cairn and is acting for no one else in connection with the Initial Purchase Offer, any Future Purchase Offer and any purchase of Deferred Shares and will not be responsible to anyone other than Cairn for providing the protections afforded to customers of Morgan Stanley nor for providing advice in connection with the Initial Purchase Offer, any Future Purchase Offer and any purchase of Deferred Shares or the contents of this announcement or any other matter referred to herein or in  the Return of Cash Circular.

NM Rothschild and Sons Limited ("Rothschild"), which is regulated in the United Kingdom by the Financial Services Authority, is acting as financial adviser solely for Cairn in relation to the Return of Cash and the Residual Interest Disposal Authority and nobody else and will not be responsible to anyone other than Cairn for providing the protections afforded to clients of Rothschild nor for providing advice in relation to the Return of Cash or any other matter referred to in this announcement or the Return of Cash Circular.

This announcement has been issued by, and is the sole responsibility of, Cairn.

Apart from the responsibilities and liabilities, if any, which may be imposed upon Morgan Stanley or Rothschild by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, none of Morgan Stanley and Rothschild accepts any responsibility whatsoever nor makes any representation or warranty, express or implied, concerning the contents of this announcement, including its accuracy, completeness or verification, or concerning any other statement made or purported to be made by them, or on their behalf, in connection with Cairn, the B Shares, the Return of Cash, the Initial Purchase Offer, any Future Purchase offer, any purchase of Deferred shares or the Residual Interest Disposal Authority and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Each of Morgan Stanley and Rothschild accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to herein) which they might otherwise have in respect of this announcement or any such statement.

 

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