Preliminary Results
EMBARGOED FOR RELEASE AT 0700 20 March 2012
CAIRN ENERGY PLC ("Cairn")
Preliminary Results Announcement
HIGHLIGHTS
Ø The completion of the transaction with Vedanta Resources plc (Vedanta) crystallises the value creation Cairn has delivered from the Indian business, returning approximately (~) $4.5 billion (bn) to shareholders over the past five years
Ø Record profit after tax of ~$4.6 bn
Ø At 31 December 2011, the Group had cash of ~$4.7 bn
Ø In February 2012, the Group returned $3.5 bn of cash to shareholders, retaining ~$1.2 bn to fund future growth opportunities
Ø Cairn retains 22% investment in Cairn India Limited (CIL) currently valued at ~$2.9 bn. Rajasthan production from Mangala and Bhagyam fields targeted to reach 175,000 barrels of oil per day (bopd) in H1 2012
Ø Significant part of currently envisaged potential of 240,000 bopd to be met from Mangala, Bhagyam and Aishwariya fields in 2013
Ø Farm-down of 30.625% interest in the Pitu block in Greenland to Statoil ASA
Ø Processing of 3D seismic on Pitu and Southern blocks in Greenland ongoing
Ø First phase of Cairn's exploration programme in Greenland encountered oil and gas shows across multiple basins
Simon Thomson, Chief Executive, Cairn Energy PLC said:
"Cairn has delivered on its key objectives for 2011: completion of the sale of 40% of Cairn India, the return of $3.5 bn to shareholders and the farm-down of the Pitu block in Greenland to Statoil.
With full cycle capabilities and balance sheet strength, Cairn is well positioned to create significant value from transformational exploration, within a well balanced portfolio of exploration and production assets."
Enquiries:
|
Analysts/Investors Jann Brown, Managing Director & CFO Mike Watts, Deputy Chief Executive David Nisbet, Corporate Affairs |
Tel: 0131 475 3000 |
|
Media Brunswick Group LLP |
Tel: 0207 404 5959
|
Webcast
There will be a live audio webcast of the results available at 9am. This can be viewed streaming on PC, Mac and iPad. For all other devices a conference call number is provided below.
An 'on demand' version of the webcast will be available from 4pm. The audio will be available to listen to on all other devices, including Android and Blackberry phones.
Slides
The results presentation slides will be available from 8:45am
Conference call
You can listen to the presentation by dialling in to a listen only conference call at 9am:
Dial-In:
Overseas +44 208 817 9301
UK 0845 634 0041
UK Freephone 0800 634 5205
Confirmation Number 6944074
A recording of the conference call will be available by 4pm, Tuesday 20 March 2012 until Tuesday 27th March 2012 by dialling 0800 634 5205 from the UK or +44 208 817 9301 internationally and using the access number: 6944074#
Transcript
A transcript of the presentation will be available on the website as soon as possible after the event.
These materials contain forward-looking statements regarding Cairn, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward-looking statements are based on our management's assumptions and beliefs in the 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 and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn's expectations with regard thereto or any change in circumstances or events after the date hereof.
CHAIRMAN'S STATEMENT
Last year represented a watershed in Cairn's corporate history. The sale of the majority of our holding in Cairn India Limited (CIL) to Vedanta in December 2011 marked the culmination of an effective twenty year association with the economic growth of the sub-continent. We can now look forward with confidence, excitement and ambition to building the future of the Company in new strategic directions from a position of significant strength.
Following the Rajasthan discoveries in 2004, Cairn elected to float its Indian business on the Bombay Stock Exchange and National Stock Exchange of India in 2007, thereby establishing CIL as a majority owned but listed subsidiary of Cairn. Proceeds from the IPO enabled approximately $1 billion to be returned to shareholders, demonstrating the Company's focus on not just creating, but also crystallizing value, while a further $1 billion was re-invested in the business. The Company ceded control of its Indian business late in 2011, when we completed the sale of 40% of CIL to Vedanta. The net proceeds of the Vedanta sale were approximately $5.4 billion, allowing a cash return of $3.5 billion to shareholders in February 2012. This brings the total cash returned to shareholders in the past five years to approximately $4.5 billion.
The remaining 22% shareholding in CIL, currently valued at ~$2.9 billion by the Indian market, along with current cash of ~$1.2 billion, provides financial flexibility and an excellent platform for Cairn to pursue future growth opportunities.
India
Cairn's success in South Asia has created significant value for shareholders and Cairn India has one of the fastest growing production profiles of any company in the world. In particular, the desert site at Mangala has been transformed by the construction of the Mangala Processing Terminal, hundreds of wells have been drilled and infrastructure is now in place, including the longest heated pipeline in the world, to take the Mangala and other crude to market.
A significant consequence of concluding the Vedanta transaction is that the Rajasthan Joint Venture is now aligned around a vision to increase substantially production from the Rajasthan fields. Achieving this vision will require further capital investments, partner and regulatory approvals as well as the cooperation of the Government of India.
It is a great source of pride that Cairn has made a difference wherever it has operated across the sub-continent and its success is testament to a longstanding vision that a well-balanced exploration and production portfolio could be built in South Asia.
The oil output from Rajasthan helps the Indian economy as it reduces imports and generates revenue for the Government, while the investment made by CIL and its partner, ONGC, into the exploration and development of the area has provided work for thousands of people, and provided significant community investment and support.
Greenland
Cairn operates approximately 40% of the currently contracted exploration acreage in Greenland. Several of the world's major oil companies now have a presence in country (including Shell, Exxon, Statoil, Chevron, Conoco, Maersk and GdF). Of the fourteen wells that have been drilled by the industry in Greenland to date, eight have been drilled by Cairn.
Whilst we have to date not established commercial quantities of hydrocarbon, we remain convinced that all of the ingredients for success in Greenland are present and we are delighted to welcome Statoil as a partner in the Pitu Block.
All of the first stage work programme commitments have been fulfilled on our acreage throughout Greenland and we are well placed to seek partners in selected areas in the future.
Board
A number of changes to the composition of the Board of Directors took effect from 1 July 2011.
Norman Murray decided to stand down and turn his energies and attention to new challenges following 12 years on the Board, nine as Chairman. Norman contributed enormously to the growth of Cairn during this time, providing constructive challenges, wise counsel and valuable guidance.
Malcolm Thoms, Chief Operating Officer, and Philip Tracy, Group Engineering and Operations Director, also stepped down from the Board. Both Malcolm and Phil made substantial contributions to the success of Cairn over the last 22 years.
In Norman's place, the Board decided that I should become Chairman and Simon Thomson should be appointed Chief Executive.
Simon has been with Cairn for more than 15 years and has played an instrumental role in the delivery of Cairn's strategy, including accessing the opportunities that Greenland offers as well as delivering value from Cairn's interests in South Asia. Simon's energy and abilities are of outstanding value to Cairn and he has made a hugely positive impact in leading the business in his new role.
Jann Brown became Managing Director and Chief Financial Officer in light of widening responsibilities including Human Resources, Corporate Affairs and Company Secretarial.
Dr Mike Watts continues in his role as Deputy Chief Executive.
The executive team of Simon, Jann and Mike is well-placed to lead the Group into the future and continue the strategic focus of delivering significant growth potential in new directions. The Cairn Board continues to pursue diversity among its directors and senior executives: currently two of its nine board members are female.
Outlook
Cairn's vision is to become the exploration company of choice for governments and investors by offering transformational exploration potential within a well balanced exploration and production portfolio.
The completion of the transaction with Vedanta crystallises the significant value we have delivered from the Indian business, allowing us to return approximately $4.5 billion to shareholders over the last five years. With a strong balance sheet and the first Greenland farm-down completed, Cairn is well-positioned to access new opportunities and further growth in 2012 and beyond.
CHIEF EXECUTIVE'S REVIEW
Cairn is in a process of evolution, triggered by the sale of a majority shareholding in CIL to Vedanta. The Company's strategy remains the same: to focus on exploration-led organic growth.
Cairn wishes to offer investors exposure to transformational organic growth potential through securing high equity exploration positions in prospective frontier geological basins. Exploration in these basins, if successful, can have a material impact on the Company's net worth because of the prospective volumes and the normally attractive commercial terms appropriate for the risk. This exploration activity, however, needs to be funded from within a balanced portfolio of assets capable of generating sustainable cash flow from producing properties and augmented with industry farm-downs.
As has previously been demonstrated, Cairn aims to return value to shareholders at the appropriate time through mechanisms such as one off special dividends, following the grow-and-shrink, or "saw-tooth", exploration-led strategy, which has served the Company well in the past.
The Vedanta transaction has been one of the key strategic goals for the Company to complete in the last twelve months. It allowed a return of $3.5 billion of cash to shareholders and provides the Company the financial flexibility and strength to pursue new opportunities in areas where the Company believes it has the ability to build and grow.
The Rajasthan project is of national importance and, at current prices, can be expected to generate well over $100 billion of revenues for the Government of India and the Rajasthan State. The residual 22% shareholding Cairn now holds in CIL is viewed by the Company as an important investment asset from which further value can be realised at the appropriate time.
Cairn will aim to maintain its focus on balance sheet strength which provides an engine for future growth. At all times, we seek to apply strategic and capital discipline across the business in both existing operations and in reviewing new opportunities. Our growth strategy is to seek exposure for shareholders to transformational exploration potential but to deliver this within a sustainable and balanced portfolio. In practice, this means we will seek to build cash flow from near term exploration, development and producing properties. The management focus is on delivering growth and corporate development opportunities in line with robust corporate development criteria.
Greenland
Cairn has built a strategic and leading early entry position offshore Greenland, a country which we believe has the necessary geological ingredients for oil and gas exploration success.
Commercial quantities of hydrocarbons have yet to be discovered, but the first phase of our exploration programme in Greenland has demonstrated that all of the geological ingredients necessary for success are present. We remain encouraged by the prospects and opportunities presented by exploration offshore Greenland and our understanding of where to direct future activity continually evolves as we interpret our extensive and growing database, allowing us to focus on where we best see material and transformational potential. After pioneering four years of active exploration operations across several basins of Western Greenland, the Company has a unique data base from which it is well positioned to be selective and focused in high grading certain areas. Future exploration drilling activity will initially be focused on prospects within the Pitu block in the undrilled Baffin Bay Basin. Statoil's farm-in to the Pitu block confirms Cairn's view of its potential and supports the industry view of the Baffin Bay potential, as exemplified by the presence of Shell, Conoco, GdF, Maersk and Statoil in adjacent acreage.
A number of exciting play types have been identified on the Pitu block, which is geologically separate from other parts of West Greenland. The extensive shallow coring programme undertaken by Cairn across the block in 2011 confirms the presence of micro oil seeps above structural closures already identified. All of the exploration evidence acquired to date points to the Baffin Bay Basin being oil generative and having multi-billion barrel potential.
The 3D seismic acquired over Pitu in H1 2011 is currently being processed, with final results expected in May/June 2012. Subject to the final interpretation of those results, exploration wells will be planned for the Pitu prospects. We are delighted to be working with Statoil on this block given their extensive knowledge and track record in exploration, development and production in the Arctic.
In Disko and other basins to the South, we have already fulfilled our work obligations. We continue to evaluate the data acquired across these basins, but will not be proposing further exploration activity until we have partners in selected areas, including the undrilled southern Greenland basin where we are currently processing the 3D seismic acquired in 2011.
Mediterranean
The Company was awarded two exploration permits in Spain in January 2011. These permits comprise five blocks at 100% interest in the Gulf of Valencia, which is underexplored. It is planned to acquire a 3D seismic survey (1,500 km²) over part of the acreage in 2012.
Commercial terms in Spain are attractive as the authorities try to stimulate exploration activity in frontier areas. Cairn has recently opened a small office in Madrid and is currently pursuing other acreage in Spain because of the perceived exploration potential.
As previously reported, Cairn also intends to participate, along with our consortium partners, CC Energy Development S.A.I (an associated company of CCC, a Lebanese private company) and Cove Energy PLC, in the upcoming bid rounds expected this year in both offshore Lebanon and Cyprus, subject to commercially suitable terms. The Cyprus round has recently been announced and bids are to be submitted in May 2012 with awards expected towards the end of the year. The Lebanon round has not yet been formally announced but it is currently anticipated mid-year.
Conclusion
In the last year, we committed to delivering four strategic priorities: first of all, completing the sale of our Indian business; secondly, returning cash to shareholders; thirdly, beginning the 'farm-out' process in Greenland; and, finally, opening up new business opportunities.
We have delivered on the first three strategic priorities and management's focus is now on corporate development and future growth opportunities.
I look forward, along with the rest of the management team, to leading Cairn as we seek to create and deliver value for shareholders. Cairn's key strength of entrepreneurial exploration remains the focus of the Group, offering investors significant growth potential in combination with underlying asset value and balance sheet strength.
OPERATIONAL REVIEW
Cairn has been involved in building a business in South Asia since the farm-in to the Holland Sea Search position in Bangladesh in 1993. Over the intervening years, Cairn acquired the Ravva oilfield through the acquisition of Command Petroleum, made more than 40 oil and gas discoveries, developed and brought onto production major offshore fields such as Sangu, Ravva, Lakshmi, Gauri and some of the onshore Rajasthan fields, including Mangala, the largest oil find in India for 25 years. This "home grown and full cycle" business grew from a zero gross production base in 1993 to one that operated more than 168,000 boepd by the end of 2011.
Today, Rajasthan has become a world class development with a potential resource base of at least 6.5 million barrels of oil and has the potential to provide more than 30% of India's crude oil production. Recoverable reserves are estimated to total in excess of one billion barrels of oil and will support production of 175,000 bopd being achieved in 2012. Subject to Government of India and partner approval, and also additional investment, it is estimated that these production levels could increase to at least 240,000 bopd and potentially to 300,000 bopd.
Investment in Cairn India
Rajasthan: Production and Development
Since August 2010, the Mangala field has been producing at the currently approved plateau rate of 125,000 bopd and, subject to regulatory approval, production is expected to increase to 150,000 bopd. The plant uptime stands at more than 99%, making it one of the best performing facilities in the world. A total of 148 Mangala development wells have been drilled, of which 85 wells are currently producing and 30 injector wells are injecting water into the reservoirs. The other wells will be brought on-stream in a staged manner.
Future growth work continues at the Mangala Processing Terminal (MPT) to exit H1 2012 at 175,000 bopd. The Bhagyam field, the second largest of the 25 discoveries, commenced production on 19 January 2012. The reservoir and facilities will entail a gradual and safe ramp up to reach the currently approved plateau of 40,000 bopd. Well results from the Bhagyam development drilling have been as per expectations. Development work is currently underway on the Aishwariya field. All key contracts have now been awarded. A significant part of the envisaged basin production of 240,000 bopd is to be met from Mangala, Bhagyam and Aishwariya fields by 2013.
The continuously heated and insulated pipeline from the MPT to Salaya (~590 km) is currently operational. The construction work on the remaining ~80 km Salaya to Bhogat section of the pipeline, including the Bhogat terminal and marine facility, is ongoing. The completion of this section of the pipeline will give access to more than 75% of India's refining market. The current pipeline capacity is 175,000 bopd. The pipeline can, however, handle much higher volumes in line with the basin potential through incremental investments and augmentation of facilities, subject to regulatory approvals.
The Mangala, Bhagyam and Aishwariya fields (including Enhanced Oil Recovery (EOR) potential) have gross recoverable oil reserves and resources of approximately one billion barrels. The EOR pilot continues to progress well from the current polymer injection phase. The results to date are encouraging and, based on these results, a Field Development Plan (FDP) for a full field application of polymer flood in the Mangala field is under preparation and is expected to be submitted by end H1 2012. This will be the start of the process for monetising the full EOR potential of the block.
A hydraulic fracturing programme to optimize the development of the Barmer Hill Formation is planned at the Mangala and Aishwariya fields, subject to regulatory approvals. This programme will allow evaluation of the appropriate cost effective technology for a fully optimised development of this widespread low permeability oil resource base. A Declaration of Commerciality for the Barmer Hill was submitted to the GoI in March 2010 and an FDP is under preparation. FDP revisions for two fields, Bhagyam and Aishwariya, to increase production are being prepared in conjunction with ONGC and will be submitted for regulatory approvals in due course. In addition, we believe there is a significant undeveloped and unexplored potential in the Barmer Basin.
CIL Sri Lanka
SL 2007-01-001 block
The first phase of exploration in the frontier Mannar Basin has completed with a three well drilling campaign resulting in two successive discoveries, establishing a working hydrocarbon system.
Cairn Lanka (Private) Limited, a wholly owned subsidiary of CIL, has notified the Government of Sri Lanka of its intention to enter Phase Two of the exploration period in the block.
Greenland
Cairn currently operates 11 blocks in Greenland, with a combined area of 102,000 km2, which is equivalent to 15 quadrants or 450 blocks in the UK North Sea. This acreage position is split between the four distinct Geological Provinces of West Greenland from north to south: Baffin Bay, Disko, South Ungava and South Greenland. All of Cairn's drilling operations to datehave been carried out in the Disko and South Ungava Geological Provinces. Cairn acquired 3D seismic surveys in the Baffin Bay and South Greenland Provinces in the summer of 2011, but to date both these frontier basins remain undrilled.
Drilling in the Arctic is not new, recent studies by IHS (Information Handling Services) show that more than 2,500 exploration wells have been drilled in this region since the 1940s. Cairn has, however, always recognised that drilling offshore Greenland would present logistical challenges and has approached the campaign with a focus on safety in terms of people, the environment and equipment. In 2010 and 2011, Cairn used two rigs for its drilling and exploration programme. Up to fourteen further vessels were used to support the drilling programme to provide cover for re-supply, rig standby, ice management and emergency oil spill response. In addition, Cairn also deployed specialist aviation to support activities including extensive Search and Rescue capability.
Cairn was awarded the Pitu Licence covering 8,170 km2 on 1 January 2011, following the 2010 Baffin Bay Bid Round. 1,750 km2 of proprietary 3D seismic was successfully acquired in the Block in the summer of 2011. This data is currently being processed with fully migrated results expected in Q2 2012. In addition, Cairn acquired a seabed geochemical sampling survey which identified compelling evidence of oil micro seepage above the prospective areas identified on the valuable multi-client 2D seismic.
In January 2012, Cairn entered into a farm-down agreement with Statoil ASA in respect of the Pitu Licence in the Baffin Bay Basin, West Greenland. Under the terms of the agreement Statoil will acquire, subject to final approval from the Government of Greenland, a working interest of 30.625% in the Pitu Licence. Cairn will retain operatorship (56.875% interest in the block) of the exploration and Statoil will operate any future development. Nunaoil has an ongoing 12.5% interest in the block. The exact terms of the agreement are confidential however Statoil will pay a signature bonus, back costs on the Block and promoted terms of future exploration expenditure.
Disko and South Ungava
Cairn's earliest Greenland acreage acquisitions, dating back to 2007, were made in these two Provinces and were thus the first to be drilled. The eight exploration wells drilled in 2010-2011 did not result in any commercial hydrocarbon discoveries but did demonstrate the presence of oil, wet gas condensate and biogenic gas petroleum systems and the other geological ingredients necessary for success (reservoir, seal and trap). Further analysis and evaluation of the data and samples acquired from these wells will continue through 2012. Depending on the results of these studies, future exploration programmes, which could include 3D seismic and further drilling operations, will be planned.
South Greenland
The 1,390 km2, 3D seismic survey acquired over parts of Southern Greenland in the summer of 2011 is currently being processed and fully migrated results are expected in Q2 2012. In addition, Cairn acquired a seabed geochemical sampling survey which identified good evidence of hydrocarbon micro seepage above one of the main prospects identified on the proprietary 2D seismic acquired in 2009-10. Evaluation of the extensive 2D and 3D seismic data will continue through 2012 with the objective to mature prospects for potential drilling in 2014 and beyond.
2012
The main exploration focus in 2012 will switch to the Pitu Licence in the Baffin Bay area over which 3D seismic and geochemical seabed sampling surveys were acquired in the summer of 2011. The Licence occupies a prime acreage position of 8,170 km2, covering a large part of the undrilled Melville Bay Basin and adjacent ridge. Seismic amplitude anomalies from the existing 2D seismic data have been confirmed on the early processed products from the 3D seismic survey, which, together with the newly identified geochemical anomalies, clearly indicate that the ridge is a focus for oil and gas migration.
A large dip closure is mapped over the crest of the ridge with an associated, structurally conformable seismic amplitude anomaly, further reducing the risk on the presence of hydrocarbons. The fully processed 3D seismic, scheduled for delivery in end Q2 2012, will be used to mature prospects for drilling both over the mapped closure and over several satellite structures identified downflank. Other plays, in axial and flank fan systems, possible Paleozoic reef structures and rotated fault blocks will be evaluated. Further geochemical seabed sampling is planned to cover an independent Tertiary inversion play identified on the eastern flank of the basin.
Cairn is also participating in a Shell operated consortium to drill up to 10 shallow stratigraphic cored bore holes in the extreme northern part of Baffin Bay where the entire prospective Mesozoic and Paleozoic section appears to sub crop the seabed. These cored holes will provide critical information for de-risking the prospects in the Pitu block prior to drilling and for optimising future well design.
In the West Disko and Ungava areas, rigless well abandonment operations will be carried out on the wells from the 2010 and 2011 drilling campaigns whilst interpretation will continue on integrating the results from the wells. In Southern Greenland, work will focus on prospect generation on the large structures identified in the 3D seismic survey acquired in 2011.
Mediterranean
Cairn entered the Mediterranean in 2008 because it considered many parts of the Basin to be underexplored with potential for new plays to emerge. Cairn has focused some of its activities in the offshore parts of the Spanish Mediterranean in a basin where there are indications of the potential for hydrocarbon discoveries. Moreover, Cairn considers that the need for energy diversification in support of economic policy, which is allied to good fiscal terms for exploration make Spain an attractive country in which to invest.
The Spanish Government awarded Cairn two hydrocarbon exploration permits in January 2011. The permits comprise five contiguous blocks in the Gulf of Valencia area offshore Spain and cover an area of approximately 3,992 km2, where the water depths range from 50 metres to more than 1,000 metres. Cairn has a 100% interest in these blocks and is actively pursuing other acreage in Spain.
We also intend to participate, along with our consortium partners, CC Energy Development S.A.I and Cove Energy PLC, in the upcoming bid rounds expected during 2012 in both offshore Lebanon and Cyprus, subject to suitable commercial terms.
Albania
The Government of Albania has approved a one year extension to our first exploration period under the Joni V production sharing contract; this amendment is pending ratification.
Nepal
We are in discussions with the Government of Nepal in respect of our Petroleum Agreements and the execution of our work programmes.
FINANCIAL REVIEW
Financial Strategy
Cairn's financial strategy continues to focus on preserving our balance sheet strength and allocating our capital in line with robust investment criteria. The completion of the sale of a 40% interest in Cairn India to Vedanta generated post-tax cash inflows of $5.4 billion, realising an accounting gain on disposal of $4.4 billion. After returning ~$3.5 billion (£1.60 per share) to shareholders in February 2012, Cairn has retained over $1 billion in cash and cash equivalents to fund the ongoing capex programme and new business opportunities. The remaining 22% interest in Cairn India is now accounted for on a mark-to-market basis. At the balance sheet date, our shareholding was valued at 314 INR per share, $2.5 billion in total. The Group had no debt at the year end.
Assets and Investments
Oil and Gas Assets
Oil and gas assets at 31 December 2011 were $80.8m (2010: $262.8m)
Greenland
Following completion of the five-well drilling programme offshore Greenland in 2011, all drilling costs associated with the wells on the Lady Franklin, Atammik, Sigguk and Napariaq blocks have been charged to the Income Statement. In addition, costs capitalised as unsuccessful exploration costs in accordance with the Group's accounting policies relating to the Alpha-1 Well, (drilled and suspended in 2010) have also been charged to the Income Statement as it is now considered unlikely that this well will be re-entered. Total unsuccessful exploration costs charged in the year were therefore $942m.
All general exploration costs capitalised, not directly attributed to individual wells, are reviewed for indicators of impairment at the balance sheet date. Cairn remains encouraged that all components for commercial success are in evidence and exploration/appraisal activities are continuing to evaluate and interpret the results of the wells drilled. However, as there are no current plans in place to drill on those blocks, Cairn has reviewed the carrying value of those costs and recognised an impairment charge of $75m in the Income Statement.
During 2011, 3D seismic was acquired over the Pitu block in Northern Greenland and the Saqqamiut block, South Greenland. These costs form the majority of the $81m which remains capitalised in the Group's intangible exploration/appraisal assets at the year end. In January 2012, Cairn agreed the farm-down of 30.625% of the Group's working interest in the Pitu block to Statoil ASA. This farm-down has no direct impact on the carrying value of the Group's assets at the year end.
Other Exploration Assets
Minimal costs have been incurred to date on the licences acquired offshore Spain while costs incurred on the Group's Nepal acreage have been charged to the Income Statement during the year as the unstable political environment continues to prevent meaningful exploration activity.
Available-for-sale Financial Assets, Net Funds and Working Capital
Following the sale of a 40% shareholding in Cairn India to Vedanta, Cairn now holds a 22% stake in Cairn India. Cairn has no significant influence over Cairn India post-sale and, therefore, the remaining shareholding has been accounted for as an investment rather than an associate. Under International Financial Reporting Standards the investment is accounted for as an available-for-sale financial asset.
This investment is marked-to-market at 31 December with a closing value in the Group's balance sheet of $2.5 billion, with deferred taxation of $254m provided against this investment.
Movements in the value of the shares and the related deferred tax are recorded in the Group Statement of Other Comprehensive Income, not charged to the Income Statement. Subsequent increases in the CIL share price to 16 March have increased the value of this investment to ~$2.9 billion.
A resolution will be proposed at the Group's Annual General Meeting to renew the authority granted at the Company's General Meeting on 30 January 2012, to dispose of the remaining CIL interest on market and close to market price. The resolution, if passed, will be valid for 12 months.
At 31 December 2011, the Group had net cash of ~$4.7 billion. In February 2012, the Group returned $3.5 billion of cash to shareholders, retaining $1.2 billion to fund future activities.
Other Assets and Liabilities
Goodwill of $63m allocated to the Greenland operating segment following the buy-out of non-controlling interests in prior years has been fully impaired at the year end following the completion of the 2011 drilling campaign.
During the year, the Cairn Group, excluding CIL, drew $200m from its $900m bank facilities. This amount was fully repaid in July on receipt of the first tranche of Vedanta proceeds, and the facility was cancelled.
Performance for the Year
Operating Loss
During the year, the Group recorded an operating loss from continuing operations of $1.1 billion.
Unsuccessful exploration costs charged during the year of $942m include $732m in relation to the 2011 drilling campaign and $210m from the 2010 campaign relating to the Alpha-1 well drilled on the Eqqua block. A further $141m was charged as an impairment relating to non-drilling costs and goodwill as noted above.
Administration costs were $33m, down from $35m in 2010. Non-cash items within administrative expenses include $3.7m (2010: $2.5m) of depreciation and amortisation costs and $6.5m (2010: $9.2m) of share-based payment charges. Exceptional administration costs of $6.7m relate to share-based payments arising on the replacement LTIP awards made following the Extraordinary General Meeting on 21 December 2009 and are presented as such for consistency with prior years. No future charges relating to these share awards will occur.
Following receipts from the sale of the 30% tranche of Cairn India to Vedanta in December, ~$3.5 billion was converted to £2.3 billion to allow the cash return to shareholders to be made in Sterling. This Sterling cash balance generated accounting exchange losses of $39m out of a group total of $41m to the year end, although these losses have reversed in 2012. Finance costs incurred of $14m relate to charges associated with the Group's facilities which were cancelled during the year.
The Group made a profit from discontinued operations of $5,755m. This consists of the year-to-date profits of Cairn India to the date of disposal on 7 December of $1,362m and a $4,392m gain on disposal.
Profits for the year to date of disposal for Cairn India ($1,362m) reflect gross production in the year of 168,010 boepd (2010: 126,360 boepd) at an average price realised of $106.02 per boe (2010: $69.17 per boe). Prior to completing the sale to Vedanta, Cairn had agreed to allow Royalty paid by its Joint Venture partner in Rajasthan to be recovered as a contract cost, which reduced Cairn India's revenues by $629m. As the assets of Cairn India were classified as held-for-sale throughout the period, no depletion or decommissioning charges were recognised in the Cairn India profit.
The gain on disposal ($4.4 billion) is calculated by deducting the net assets of the Cairn India Group from the net proceeds received plus the fair value of the remaining interest retained by the Group. The Group received net proceeds of $6,023m, from which withholding tax in India of $590m had been deducted. Expenses of $57m incurred in connection with the sale are also deducted. The net assets of the Cairn India group at the date of disposal were $4,704m, of which $1,487m was attributable to non-controlling interests and $84m of related currency translation differences were recycled to the Income Statement in accordance with IAS 21. Finally, the fair value and related deferred taxation liability of the Group's remaining 21.8% shareholding in CIL at 7 December of $2,317m was credited to the gain.
Cash Flow
The Group generated operating cash flows of $1,913m during the year (2010: $837m). The Cairn India Group generated operating cash flows to the date of disposal of $1,922m (2010: $875m) offsetting the operating outflows of the Group's continuing operations.
Investing cash inflows of $2,671m (2010: outflow of $1,388m) include the net cash impact of the Vedanta transaction of $4,722m reduced by expenditure of $963m on exploration/appraisal activities and a further $407m of development expenditure in Cairn India. Net proceeds received from the Vedanta transaction were $5,433m while $712m of cash and cash equivalents of Cairn India were derecognised on disposal. Exploration expenditure includes $831m largely related to Greenland drilling costs in the continuing group and $132m in Cairn India. Financing cash outflows of $394m (2010: $19m) reflect repayments of borrowings and debentures in Cairn India prior to disposal.
Closing cash and cash equivalents of the Group at the year end were $4,731m. There were no amounts on deposits greater than three months (2010: $626m with $453m on bank deposits; $438m and $453m relating to discontinued operations).
Post year end, $3,530m of cash has been returned to shareholders in February 2012 through a B share scheme, with a further $23m expected to be returned in April 2012.
Principal Risks and Uncertainties
With the completion of both the disposal of a majority shareholding in Cairn India and the Greenland Drilling Project at the end of 2011, Cairn's risk profile has changed considerably in early 2012. The Company is now entering a new phase during which it will be looking to develop a more balanced portfolio with additional investment opportunities. As we commence delivering this next phase of investments, the principal risks and uncertainties facing the Company in relation to the Group's financial and operational performance, are as follows
· Challenges of accessing the right opportunities at the right price to deliver our growth strategy
· Assessment of timing of monetising our remaining stake in Cairn India
· Management of stakeholder relationships
Going Concern and Liquidity Risk Management
The directors have considered the financial and operational risks relevant to support a statement of going concern. The Group's liquidity is carefully and routinely monitored through cash forecasts which are prepared using a number of different scenarios. These forecasts show that the Group will be able to operate with significant financial headroom for the 12 months from the date of approval of the 2011 Annual Report and Accounts.
Outlook
The completion of the sale of a 40% interest in Cairn India to Vedanta in December 2011 brought to a successful conclusion Cairn's direct involvement in India built up over a period of 15 years. Over the last five years, Cairn has now returned a total of ~$4.5 billion to shareholders from this success. The combination of cash on the balance sheet and our residual holding in Cairn India now provides a strong platform from which to enter a new phase of growth opportunities in 2012 and beyond.
Cairn Energy PLC
Group Income Statement
For the year ended 31 December 2011
|
|
Section |
Year ended 31 December 2011 $m |
Year ended 31 December 2010 $m |
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
Production costs |
|
2.7 |
(1.1) |
|
Pre-award costs |
|
(16.7) |
(12.7) |
|
Unsuccessful exploration costs |
2.1 |
(941.8) |
(211.9) |
|
Other operating income |
|
- |
0.8 |
|
Administrative expenses |
|
(32.8) |
(35.0) |
|
Exceptional administrative expenses |
|
(6.7) |
(35.6) |
|
Impairment |
2.1, 2.4 |
(141.0) |
(16.0) |
|
Gain on sale of intangible exploration/appraisal assets |
|
- |
12.6 |
|
|
|
|
|
|
Operating loss |
|
(1,136.3) |
(298.9) |
|
|
|
|
|
|
Finance income |
|
2.2 |
2.5 |
|
Finance costs |
|
(55.2) |
(7.2) |
|
|
|
|
|
|
Loss before taxation from continuing operations |
|
(1,189.3) |
(303.6) |
|
|
|
|
|
|
Taxation |
|
|
|
|
Tax (charge)/credit |
3.2 |
(0.1) |
0.3 |
|
|
|
|
|
|
Loss after taxation from continuing operations |
|
(1,189.4) |
(303.3) |
|
|
|
|
|
|
Profit for the year from discontinued operations |
3.3 |
5,754.6 |
1,386.5 |
|
Profit for the year |
|
4,565.2 |
1,083.2 |
|
|
|
|
|
|
Attributable to : |
|
|
|
|
Equity holders of the parent |
|
4,101.1 |
794.3 |
|
Non-controlling interests |
|
464.1 |
288.9 |
|
|
|
|
|
|
Earnings per ordinary share - basic (cents) |
3.4 |
742.64 |
144.72 |
|
Earnings per ordinary share - diluted (cents) |
3.4 |
740.86 |
143.72 |
|
|
|
|
|
|
Loss per ordinary share - basic from continuing operations (cents) |
3.4 |
(215.39) |
(55.26) |
|
Loss per ordinary share - diluted from continuing operations (cents) |
3.4 |
(215.39) |
(55.26) |
Cairn Energy PLC
Group Statement of Comprehensive Income
For the year ended 31 December 2011
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
2011 |
2010 |
||
|
|
Section |
$m |
$m |
||
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
4,565.2 |
1,083.2 |
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
Deficit on valuation of financial assets |
|
|
2.2 |
(127.7) |
- |
|
Deferred tax credit on valuation of financial assets |
|
|
3.2 |
19.8 |
- |
|
Currency translation differences |
|
|
|
(33.9) |
0.5 |
|
Currency translation differences recycled on disposal of subsidiary |
|
|
|
84.5 |
- |
|
Other comprehensive income for the year |
|
|
|
(57.3) |
0.5 |
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
|
|
4,507.9 |
1,083.7 |
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
Equity holders of the parent |
|
|
|
4,057.4 |
793.6 |
|
Non-controlling interests |
|
|
|
450.5 |
290.1 |
|
|
|
|
|
4,507.9 |
1,083.7 |
Cairn Energy PLC
Group Balance Sheet
As at 31 December 2011
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
2010 |
|
|
|
|
Section |
$m |
$m |
|
Non-current assets |
|
|
|
|
|
|
Intangible exploration/appraisal assets |
|
|
2.1 |
80.8 |
262.8 |
|
Property, plant & equipment - other |
|
|
|
1.5 |
1.1 |
|
Intangible assets - other |
|
|
2.4 |
1.2 |
64.9 |
|
Available-for-sale financial assets |
|
|
2.2 |
2,463.3 |
- |
|
|
|
|
|
2,546.8 |
328.8 |
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
|
|
|
93.1 |
39.4 |
|
Cash and cash equivalents |
|
|
2.3 |
4,730.7 |
187.0 |
|
|
|
|
|
4,823.8 |
226.4 |
|
Assets held-for-sale |
|
|
|
- |
4,725.6 |
|
Total assets |
|
|
|
7,370.6 |
5,280.8 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
|
|
|
209.1 |
77.0 |
|
Provisions |
|
|
|
14.0 |
2.8 |
|
Income tax liabilities |
|
|
|
0.1 |
0.1 |
|
|
|
|
|
223.2 |
79.9 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Deferred tax liabilities |
|
|
3.3 |
254.1 |
- |
|
|
|
|
|
254.1 |
- |
|
Liabilities related to disposal units held-for-sale |
|
|
|
- |
1,362.5 |
|
Total liabilities |
|
|
|
477.3 |
1,442.4 |
|
Net assets |
|
|
|
6,893.3 |
3,838.4 |
|
|
|
|
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
|
|
|
Called-up share capital |
|
|
|
13.9 |
16.7 |
|
Share premium |
|
|
|
483.7 |
484.7 |
|
Shares held by ESOP Trust |
|
|
|
- |
(8.2) |
|
Shares held by SIP Trust |
|
|
|
(1.7) |
(0.8) |
|
Foreign currency translation |
|
|
|
(7.0) |
(39.5) |
|
Capital reserves - non distributable |
|
|
|
40.2 |
40.2 |
|
Available-for-sale reserve |
|
|
|
(107.9) |
- |
|
Retained earnings |
|
|
|
6,472.1 |
2,317.6 |
|
|
|
|
|
6,893.3 |
2,810.7 |
|
Non-controlling interests |
|
|
|
- |
1,027.7 |
|
Total equity |
|
|
|
6,893.3 |
3,838.4 |
Cairn Energy PLC
Group Statement of Cash Flows
For the year ended 31 December 2011
|
|
|
|
|
Section |
Group 2011 $m |
Group 2010 $m |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
(Loss)/profit before taxation from continuing activities |
|
|
|
|
(1,189.3) |
(303.6) |
|
Profit before taxation from discontinued activities |
|
|
|
|
1,951.2 |
1,045.2 |
|
Profit before taxation |
|
|
|
|
761.9 |
741.6 |
|
|
|
|
|
|
|
|
|
Revenue provision release |
|
|
|
|
(64.0) |
- |
|
Unsuccessful exploration costs |
|
|
|
|
946.2 |
235.0 |
|
Depletion, depreciation, decommissioning and amortisation |
|
|
|
|
3.7 |
151.0 |
|
Share-based payments charge |
|
|
|
|
28.3 |
68.8 |
|
Impairment |
|
|
|
|
141.0 |
16.0 |
|
Gain on sale of oil and gas assets |
|
|
|
|
- |
(12.6) |
|
Finance income |
|
|
|
|
(56.8) |
(26.8) |
|
Finance costs |
|
|
|
|
147.3 |
84.6 |
|
Net interest paid |
|
|
|
|
(72.1) |
(73.9) |
|
Income tax paid |
|
|
|
|
(370.5) |
(221.5) |
|
Foreign exchange differences |
|
|
|
|
(20.9) |
(3.4) |
|
Movement on inventory of oil and condensate |
|
|
|
|
(7.2) |
(0.1) |
|
Trade and other receivables movement |
|
|
|
|
(116.0) |
(210.6) |
|
Trade and other payables movement |
|
|
|
|
(34.7) |
62.8 |
|
Movement in other provisions |
|
|
|
|
627.2 |
26.2 |
|
Net cash generated from operating activities |
|
|
|
|
1,913.4 |
837.1 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Proceeds on disposal of Cairn India group |
|
|
|
3.3 |
4,721.5 |
- |
|
Expenses incurred on disposal of Cairn India group |
|
|
|
|
(15.0) |
- |
|
Expenditure on intangible exploration/appraisal assets |
|
|
|
|
(963.2) |
(533.7) |
|
Expenditure on property, plant & equipment - development/producing assets |
|
|
|
|
(406.7) |
(526.6) |
|
Purchase of property, plant & equipment - other |
|
|
|
|
(3.5) |
(3.6) |
|
Purchase of intangible assets - software |
|
|
|
|
(5.3) |
(5.9) |
|
Proceeds on disposal of intangible exploration/appraisal assets |
|
|
|
|
1.5 |
78.5 |
|
Movement in funds on bank deposits |
|
|
|
|
(715.3) |
(439.9) |
|
Interest received |
|
|
|
|
56.8 |
43.5 |
|
Net cash from/(used in) investing activities |
|
|
|
|
2,670.8 |
(1,387.7) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Proceeds from increase in non-controlling interest |
|
|
|
|
5.8 |
11.9 |
|
Arrangement and facility fees |
|
|
|
|
(7.1) |
(28.5) |
|
Proceeds from issue of debentures |
|
|
|
|
- |
304.6 |
|
Repayment of debentures |
|
|
|
|
(20.5) |
- |
|
Cost of shares purchased |
|
|
|
|
(0.9) |
(9.8) |
|
Proceeds from exercise of share options |
|
|
|
|
3.3 |
11.3 |
|
Payment of finance lease liabilities |
|
|
|
|
(1.1) |
(1.5) |
|
Proceeds of borrowings |
|
|
|
|
200.0 |
(307.2) |
|
Return of cash to shareholders |
|
|
|
|
(0.6) |
- |
|
Repayment of borrowings |
|
|
|
|
(573.0) |
- |
|
Net cash flows used in financing activities |
|
|
|
|
(394.1) |
(19.2) |
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
|
|
4,190.1 |
(569.8) |
|
Opening cash and cash equivalents at beginning of year |
|
|
|
|
625.5 |
1,176.5 |
|
Exchange gains on cash and cash equivalents |
|
|
|
|
(84.9) |
18.8 |
|
Closing cash and cash equivalents |
|
|
|
2.3 |
4,730.7 |
625.5 |
Cairn Energy PLC
Group Statement of Changes in Equity
For the year ended 31 December 2011
|
|
Equity share capital |
Shares held by ESOP Trust and SIP Trust |
Foreign currency translation |
Capital reserves |
Available-for-sale reserve |
Retained earnings |
Non-controlling interests |
Total equity |
|
Group |
$m |
$m |
$m |
$m |
$m |
$m |
$m |
$m |
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2010 |
490.1 |
(27.2) |
(38.8) |
40.2 |
- |
1,488.8 |
723.9 |
2,677.0 |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
794.3 |
288.9 |
1,083.2 |
|
Currency translation differences |
- |
- |
(0.7) |
- |
- |
- |
1.2 |
0.5 |
|
Total comprehensive income for the year |
- |
- |
(0.7) |
- |
- |
794.3 |
290.1 |
1,083.7 |
|
Exercise of employee share options |
11.3 |
- |
- |
- |
- |
- |
- |
11.3 |
|
Share-based payments |
- |
- |
- |
- |
- |
58.5 |
5.8 |
64.3 |
|
Increase in non-controlling interest through the exercise of share options |
- |
- |
- |
- |
- |
4.0 |
7.9 |
11.9 |
|
Cost of shares purchased |
- |
(9.8) |
- |
- |
- |
- |
- |
(9.8) |
|
Cost of shares vesting |
- |
28.0 |
- |
- |
- |
(28.0) |
- |
- |
|
At 31 December 2010 |
501.4 |
(9.0) |
(39.5) |
40.2 |
- |
2,317.6 |
1,027.7 |
3,838.4 |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
4,101.1 |
464.1 |
4,565.2 |
|
Deficit on valuation of financial assets |
- |
- |
- |
- |
(127.7) |
- |
- |
(127.7) |
|
Deferred tax credit on valuation of financial assets |
- |
- |
- |
- |
19.8 |
- |
- |
19.8 |
|
Currency translation differences |
- |
- |
(20.3) |
- |
- |
- |
(13.6) |
(33.9) |
|
Currency translation differences recycled on disposal of subsidiary |
- |
- |
84.5 |
- |
- |
- |
- |
84.5 |
|
Total comprehensive income for the year |
- |
- |
64.2 |
- |
(107.9) |
4,101.1 |
450.5 |
4,507.9 |
|
Foreign exchange on functional currency change |
(7.2) |
- |
(31.7) |
- |
- |
38.9 |
- |
- |
|
Exercise of employee share options |
3.3 |
- |
- |
- |
- |
- |
- |
3.3 |
|
Share-based payments |
- |
- |
- |
- |
- |
22.2 |
4.7 |
26.9 |
|
Shares issued for cash |
0.1 |
(0.1) |
- |
- |
- |
- |
- |
- |
|
Costs incurred on return of cash to shareholders |
- |
- |
- |
- |
- |
(0.7) |
- |
(0.7) |
|
Cost of shares purchased |
- |
(0.9) |
- |
- |
|
- |
- |
(0.9) |
|
Cost of shares vesting |
- |
8.3 |
- |
- |
- |
(8.3) |
- |
- |
|
Increase in non-controlling interest through the exercise of share options |
- |
- |
- |
- |
- |
1.3 |
4.5 |
5.8 |
|
Disposal of non-controlling interest on sale of subsidiary |
- |
- |
- |
- |
- |
- |
(1,487.4) |
(1,487.4) |
|
At 31 December 2011 |
497.6 |
(1.7) |
(7.0) |
40.2 |
(107.9) |
6,472.1 |
- |
6,893.3 |
1.1 Significant Accounting Policies and Presentation of Financial Information
a) Accounting Policies and basis of preparation
Cairn prepares its accounts on a historical cost basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed in the relevant accounting policy.
Cairn prepares its accounts in accordance with applicable International Financial Reporting Standards ("IFRS") as adopted by the EU.
The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. However, the financial statements contained in this announcement are extracted from the audited statutory accounts for the financial year ended 31 December 2011, which will be delivered to the Registrar of Companies. Those accounts are expected to have an unqualified audit opinion.
All accounting policies applied are consistent with those adopted and disclosed in the Group's annual financial statements for the year ended 31 December 2010. During the year, the Group adopted the following standards and interpretations:
- IFRS 3 'Business combinations';
- IFRS 7 'Financial Instruments - Disclosures';
- IAS 1 'Presentation of Financial Statements';
- IAS 24 'Related Party Transactions' (amendment);
- IAS 27 'Consolidated and separate Financial Statements'; and
- IAS 32 'Financial Instruments: Presentation ' (amendment)
b) Presentation of discontinued operations
In the 2010 consolidated financial statements, the results of discontinued operations were disclosed in a separate column on the face of the Income Statement. This information is now given in section 3.3.
c) Going Concern
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.
d) 2011 Annual Report and Accounts
Full accounts are due to be posted to shareholders in April 2012 and will be available at the Company's registered office, 50 Lothian Road, Edinburgh, EH3 9BY.
The Annual General Meeting is due to be held on Thursday 17 May 2012 at 12 midday.
2.1 Intangible Exploration/Appraisal Assets
|
|
Cairn India Group |
Greenland |
Mediterranean & South Asia |
Total |
|
|
$m |
$m |
$m |
$m |
|
Cost |
|
|
|
|
|
At 1 January 2010 |
340.6 |
14.5 |
232.0 |
587.1 |
|
Exchange differences arising |
(1.8) |
- |
- |
(1.8) |
|
Additions |
60.8 |
432.5 |
28.0 |
521.3 |
|
Disposals |
- |
- |
(74.1) |
(74.1) |
|
Unsuccessful exploration costs |
(23.1) |
(186.7) |
(94.4) |
(304.2) |
|
Transfers to assets held-for-sale |
(376.5) |
- |
(77.2) |
(453.7) |
|
At 1 January 2011 |
- |
260.3 |
14.3 |
274.6 |
|
Additions |
- |
835.9 |
2.1 |
838.0 |
|
Unsuccessful exploration costs |
- |
(941.8) |
- |
(941.8) |
|
At 31 December 2011 |
- |
154.4 |
16.4 |
170.8 |
|
Impairment |
|
|
|
|
|
At 1 January 2010 |
- |
- |
210.9 |
210.9 |
|
Impairment |
- |
- |
11.6 |
11.6 |
|
Disposals |
- |
- |
(65.8) |
(65.8) |
|
Unsuccessful exploration costs |
- |
- |
(69.2) |
(69.2) |
|
Transfers to assets held-for-sale |
- |
- |
(75.7) |
(75.7) |
|
At 1 January 2011 |
- |
- |
11.8 |
11.8 |
|
Impairment |
- |
74.9 |
3.3 |
78.2 |
|
At 31 December 2011 |
- |
74.9 |
15.1 |
90.0 |
|
Net book value at 31 December 2011 |
- |
79.5 |
1.3 |
80.8 |
|
Net book value at 31 December 2010 |
- |
260.3 |
2.5 |
262.8 |
|
Net book value at 1 January 2010 |
340.6 |
14.5 |
21.1 |
376.2 |
Assets reclassified as held-for-sale in 2010 include the assets of Cairn India of $376.5m which were being held-for-sale pending completion of the Vedanta transaction and $1.5m costs, net of impairment, relating to Tunisian assets.
Expenditure incurred by Cairn India on exploration/appraisal activities while the assets are classified as held-for-sale is included with expenditure on exploration/appraisal assets disclosed in the Cash Flow Statement.
Unsuccessful exploration costs
Total unsuccessful exploration cost write-offs for the year were $941.8m, all relating to Greenland assets. During 2011, the Group drilled five exploration wells offshore West Greenland. Three wells, the AT7-1 and the AT2-1 wells on the Attamik Block and the L57-1 well on the Lady Franklin Block, were drilled in the South Ungava Area. The other two wells, the Gamma-1 Well on the Eqqua Block and the Delta-1 Well on the Napariaq block, were drilled in the West Disko Area. None of the wells drilled encountered commercial volumes of hydrocarbons and consequently all drilling costs incurred in the year relating to these wells have been written off as unsuccessful exploration costs.
Following the results of the Delta-1 well on the Napariaq block, it is now considered unlikely that the Group will re-enter the Alpha-1 well on the neighbouring Sigguk block drilled and suspended in 2010. Costs of $210.3m are included in the 2011 unsuccessful exploration costs relating to the Alpha-1 well.
2010 unsuccessful exploration costs of $304.2m include costs of two exploration wells in Greenland and an exploration well in Tunisia. In Greenland the T8-1 and the T4-1 wells were drilled on the Sigguk block in the Disko West Area offshore West Greenland. Neither well resulted in commercial discoveries and as a result all associated well costs were charged to the Income Statement as unsuccessful exploration costs.
In April 2010, Cairn completed an exploration well offshore Tunisia in the Louza block. Although minor evidence of light oil was observed, the expected target reservoir was not developed in the well. The well therefore was plugged and abandoned without testing and the block subsequently relinquished. All related costs were charged to the Income Statement. As $69.2m of these costs were previously impaired, the impairments were released on relinquishment of the block.
2.1 Intangible Exploration/Appraisal Assets (continued)
Impairment
Following completion of the 2011 Greenland drilling campaign, Cairn has reviewed the remaining costs capitalised as intangible exploration/appraisal assets for indicators of impairment. Though none of the wells drilled in 2010 and 2011 have resulted in commercial discoveries, Cairn remain encouraged that all ingredients for commercial success are in evidence and exploration/appraisal activities are continuing to evaluate and interpret the results of the wells drilled with a view to identifying future exploration targets on these blocks. At this time however, the Group has no firm plans in place to drill further on those blocks and Cairn has concluded that indicators of impairment do exist on non-well specific exploration costs associated with these blocks. As there are no development or producing assets in the Greenland operating segment, these costs have been impaired in full and $74.9m charged to the Income Statement.
In 2011 a further $3.3m of impairment has been charged in relation to the Group's Nepal assets. The ongoing political instability in the country prevents further exploration activities.
Intangible exploration/appraisal costs remaining at the year end include costs incurred on Cairn's Greenland licences where no drilling has yet taken place. The majority of these costs were incurred on the Pitu Block in the Baffin Bay area, offshore Northern Greenland and on the Group's blocks in Southern Greenland where 3D seismic was acquired during 2011 and is currently undergoing interpretation. No adjustments have been made for the Statoil farm-down on the Pitu block in January 2012 noted in section 4.1.
2.2 Available-for-sale Financial Assets
|
Group |
|
Listed equity shares $m |
|
|
|
|
|
Fair value of the residual available-for-sale financial asset recognised at date of sale |
|
2,591.0 |
|
Deficit on valuation for period to 31 December 2011 |
|
(127.7) |
|
As at 31 December 2011 |
|
2,463.3 |
Available-for-sale financial assets represent the Group's remaining strategic investment in the fully-diluted share capital of Cairn India, listed in India, which by its nature has no fixed maturity or coupon rate. These listed equity securities present the Group with opportunity for return through dividend income and trading gains.
The Group disposed of its majority shareholding in Cairn India in 2011, as disclosed in section 3.3. The remaining minority holding of 21.8% is not held for trading and accordingly is classified as available-for-sale. The fair value of $2,463.3m is based on the closing market value of INR 314.25 at 31 December 2011.
2.3 Net Funds
|
|
|
|
31 December 2011 |
31 December 2010 |
|
|
|
|
$m |
$m |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
4,730.7 |
187.0 |
|
|
|
|
4,730.7 |
187.0 |
|
|
|
|
|
|
|
Bank deposits held in discontinued operations |
|
|
- |
452.6 |
|
Cash and cash equivalents held in discontinued operations |
|
|
- |
438.5 |
|
Loans and borrowings held in discontinued operations |
|
|
- |
(673.7) |
|
Net cash |
|
|
4,730.7 |
404.4 |
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods from overnight deposits to three months depending on the cash requirements of the Group and Company.
Subsequent to the year end, Cairn announced a return of cash to shareholders. Approximately $3.5 billion of cash was returned to shareholders in February 2012. See section 4.2 for further detail.
For the purpose of the consolidated cash flow statement, cash and cash equivalents comprises the following:
|
|
|
|
31 December 2011 |
31 December 2010 |
|
|
|
|
$m |
$m |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
4,730.7 |
187.0 |
|
Cash and cash equivalents held in discontinued operations |
|
|
- |
438.5 |
|
|
|
|
4,730.7 |
625.5 |
2.4 Intangible Assets - Other
|
|
Goodwill $m |
Software Costs $m |
Total $m |
|
|
|
|
|
|
Cost |
|
|
|
|
At 1 January 2010 |
67.2 |
21.5 |
88.7 |
|
Exchange differences arising |
- |
(0.2) |
(0.2) |
|
Additions |
- |
5.9 |
5.9 |
|
Disposals |
- |
(1.8) |
(1.8) |
|
Transfer to assets held-for-sale |
- |
(16.5) |
(16.5) |
|
At 1 January 2011 |
67.2 |
8.9 |
76.1 |
|
Exchange differences arising |
- |
(0.1) |
(0.1) |
|
Additions |
- |
1.8 |
1.8 |
|
At 31 December 2011 |
67.2 |
10.6 |
77.8 |
|
Amortisation and impairment |
|
|
|
|
At 1 January 2010 |
- |
15.8 |
15.8 |
|
Exchange differences arising |
- |
(0.2) |
(0.2) |
|
Charge for the year |
- |
4.7 |
4.7 |
|
Impairment |
4.4 |
- |
4.4 |
|
Disposals |
- |
(1.8) |
(1.8) |
|
Transfer to assets held-for-sale |
- |
(11.7) |
(11.7) |
|
At 1 January 2011 |
4.4 |
6.8 |
11.2 |
|
Exchange differences arising |
- |
(0.1) |
(0.1) |
|
Charge for the year |
- |
2.7 |
2.7 |
|
Impairment |
62.8 |
- |
62.8 |
|
At 31 December 2011 |
67.2 |
9.4 |
76.6 |
|
Net book value at 31 December 2011 |
- |
1.2 |
1.2 |
|
Net book value at 31 December 2010 |
62.8 |
2.1 |
64.9 |
|
Net book value at 1 January 2010 |
67.2 |
5.7 |
72.9 |
For impairment testing, goodwill was previously allocated to two cash-generating units which are also operating segments; the Greenland operating segment and the Mediterranean operating segment. During 2010, $4.4m of goodwill relating to the Mediterranean operating segment was fully impaired following the unsuccessful exploration drilling offshore Tunisia.
The recoverable amount of a cash-generating unit is determined by taking the higher of its fair value less costs to sell or its value-in-use, using estimated cash flow projections over the licence period of the exploration assets risk-weighted for future exploration success. At the year end the recoverable amount was determined using the fair value of Greenland assets implied through third-party discussions on proposed farm down agreements. Given that the 2010 and 2011 drilling campaign offshore Greenland has not resulted in the discovery of commercial hydrocarbon reserves, the fair value of Greenland assets no longer supports the carrying value of the $62.8m of goodwill allocated to the operating segment. Consequently, the remaining goodwill allocated to the Greenland operating segment is fully impaired in the current year.
3.1 Segmental Analysis
Operating Segments
For management purposes, the continuing operations of the Cairn Group are organised into business units based on a geographical basis. The discontinued operations of the Cairn India Group were a separate business unit up to the point of disposal.
The Cairn Group's continuing operations focus on new exploration activities in Greenland and the Mediterranean. The Group's South Asia business unit holds the Group's interests in Nepal and a share in certain North Indian assets operated by Cairn India Limited. During 2010 this segment also included the results of the Group's Sangu asset, operating in Bangladesh, which was sold during that year. The Mediterranean and South Asia operating segments have been combined into the "Other Cairn Energy" reportable segment. Operating segments based on the geographical locations of the Capricorn Group's Greenland, Mediterranean and South Asia were aggregated to form the Capricorn reportable segment in 2010; prior year comparative information has been restated to reflect current reporting.
Management monitors the results of its business units separately for the purposes of making decisions about resource allocation and performance assessment.
Throughout the year, the Board monitored the performance of the Group by reference to the results of its operating Cairn India operating segment separate from its other operating segments. The Cairn India operating segment followed accounting policies which did not reflect the classification of assets and liabilities of Cairn India as held-for-sale. A summary of the adjustments made to reconcile this segment's results to those reported under the Group's accounting policies are included within the segmental information provided.
These adjustments include the reversal of the depletion, depreciation and amortisation charges for the period after the date the transaction was announced and a deferred tax position prepared on the basis that Cairn India was held-for-sale. The combined impact of these adjustments is to increase profit after tax by $133.7m to the date of sale (2010: $638m).
Geographic Information: Non-current assets
|
|
|
|
31 December 2011 |
31 December 2010 |
|
|
|
|
$m |
$m |
|
|
|
|
|
|
|
Greenland |
|
|
79.7 |
261.3 |
|
UK |
|
|
2,465.5 |
64.9 |
|
Mediterranean |
|
|
1.6 |
- |
|
South Asia |
|
|
- |
2.6 |
|
|
|
|
2,546.8 |
328.8 |
Non-current assets for this purpose consist of intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; property, plant & equipment - other; and, intangible assets - other.
3.1 Segmental Analysis (continued)
The segment results for the year ended 31 December 2011 are as follows:
|
|
Greenland |
Other Cairn Energy Group |
Total Continuing Cairn Energy Group |
Cairn India Group |
Total 2011 |
|
|
$m |
$m |
$m |
$m |
$m |
|
|
|
|
|
|
|
|
Revenue from external customers |
- |
- |
- |
2,307.8 |
2,307.8 |
|
Reversal of revenue provision |
- |
- |
- |
64.0 |
64.0 |
|
Production costs |
- |
2.7 |
2.7 |
(351.7) |
(349.0) |
|
Pre-award costs |
(1.6) |
(15.1) |
(16.7) |
(3.2) |
(19.9) |
|
Unsuccessful exploration costs |
(941.8) |
- |
(941.8) |
(4.4) |
(946.2) |
|
Depletion and decommissioning charge |
- |
- |
- |
(377.7) |
(377.7) |
|
|
|
|
|
|
|
|
Gross (loss)/profit |
(943.4) |
(12.4) |
(955.8) |
1,634.8 |
679.0 |
|
|
|
|
|
|
|
|
Depreciation |
(0.1) |
(0.9) |
(1.0) |
(3.5) |
(4.5) |
|
Amortisation |
- |
(2.7) |
(2.7) |
(3.4) |
(6.1) |
|
Other income and administrative expenses |
(0.4) |
(28.7) |
(29.1) |
(39.5) |
(68.6) |
|
Exceptional administrative expenses |
- |
(6.7) |
(6.7) |
- |
(6.7) |
|
Impairment |
(137.7) |
(3.3) |
(141.0) |
- |
(141.0) |
|
|
|
|
|
|
|
|
Operating (loss)/profit |
(1,081.6) |
(54.7) |
(1,136.3) |
1,588.4 |
452.1 |
|
|
|
|
|
|
|
|
Interest income |
- |
2.2 |
2.2 |
54.6 |
56.8 |
|
Interest expense |
- |
(1.1) |
(1.1) |
(20.9) |
(22.0) |
|
Other finance income and costs |
0.9 |
(55.0) |
(54.1) |
(62.7) |
(116.8) |
|
|
|
|
|
|
|
|
(Loss)/profit before taxation |
(1,080.7) |
(108.6) |
(1,189.3) |
1,559.4 |
370.1 |
|
|
|
|
|
|
|
|
Taxation (charge)/credit |
- |
(0.1) |
(0.1) |
(330.7) |
(330.8) |
|
|
|
|
|
|
|
|
(Loss)/profit after taxation |
(1,080.7) |
(108.7) |
(1,189.4) |
1,228.7 |
39.3 |
|
|
|
|
|
|
|
|
Adjustments to reconcile to the financial statements |
|
|
|
|
|
|
Inventory |
- |
- |
- |
7.2 |
7.2 |
|
Depletion, depreciation and amortisation |
- |
- |
- |
384.6 |
384.6 |
|
Deferred taxation |
- |
- |
- |
(258.1) |
(258.1) |
|
|
|
|
|
|
|
|
(Loss)/profit after taxation |
(1,080.7) |
(108.7) |
(1,189.4) |
1,362.4 |
173.0 |
|
|
|
|
|
|
|
|
Gain on sale of subsidiary |
- |
- |
- |
4,982.5 |
4,982.5 |
|
Tax on gain on sale of subsidiary |
- |
- |
- |
(590.3) |
(590.3) |
|
Reported Profit/(loss) for the year |
(1,080.7) |
(108.7) |
(1,189.4) |
5,754.6 |
4,565.2 |
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
Equity holders of the parent |
(1,080.7) |
(108.7) |
(1,189.4) |
5,290.5 |
4,101.1 |
|
Non-controlling interests |
- |
- |
- |
464.1 |
464.1 |
|
|
|
|
|
|
|
|
Capital expenditure |
836.2 |
4.9 |
841.1 |
563.4 |
1,404.5 |
Revenue for the year 2011 arose from 7 (2010: 7) customers who were all domestic customers.
3.1 Segmental Analysis (continued)
The segment results for the year ended 31 December 2010 were as follows:
|
|
Greenland |
Other Cairn Energy Group |
Total Continuing Cairn Energy Group |
Cairn India Group |
Total 2010 |
|
|
$m |
$m |
$m |
$m |
$m |
|
|
|
|
|
|
|
|
Revenue from external customers |
- |
7.1 |
7.1 |
1,594.2 |
1,601.3 |
|
|
|
|
|
|
|
|
Production costs |
- |
(6.3) |
(6.3) |
(252.5) |
(258.8) |
|
Pre-award costs |
(6.4) |
(6.3) |
(12.7) |
(1.9) |
(14.6) |
|
Unsuccessful exploration costs |
(186.8) |
(25.1) |
(211.9) |
(23.1) |
(235.0) |
|
Depletion and decommissioning charge |
(0.9) |
- |
(0.9) |
(351.4) |
(352.3) |
|
|
|
|
|
|
|
|
Gross (loss)/profit |
(194.1) |
(30.6) |
(224.7) |
965.3 |
740.6 |
|
|
|
|
|
|
|
|
Depreciation |
(0.1) |
(0.4) |
(0.5) |
(3.4) |
(3.9) |
|
Amortisation |
- |
(2.1) |
(2.1) |
(3.7) |
(5.8) |
|
Other income and administrative expenses |
- |
(34.4) |
(34.4) |
(48.9) |
(83.3) |
|
Exceptional administrative expenses |
- |
(37.9) |
(37.9) |
- |
(37.9) |
|
Impairment |
- |
(16.0) |
(16.0) |
- |
(16.0) |
|
Gain on sale of oil and gas assets |
- |
3.3 |
3.3 |
- |
3.3 |
|
|
|
|
|
|
|
|
Operating (loss)/profit |
(194.2) |
(118.1) |
(312.3) |
909.3 |
597.0 |
|
|
|
|
|
|
|
|
Interest income |
- |
1.7 |
1.7 |
24.3 |
26.0 |
|
Interest expense |
- |
- |
- |
(46.8) |
(46.8) |
|
Other finance income and costs |
(1.6) |
(4.7) |
(6.3) |
(30.7) |
(37.0) |
|
|
|
|
|
|
|
|
(Loss)/profit before taxation |
(195.8) |
(121.1) |
(316.9) |
856.1 |
539.2 |
|
|
|
|
|
|
|
|
Taxation (charge)/credit |
- |
0.3 |
0.3 |
(94.1) |
(93.8) |
|
|
|
|
|
|
|
|
(Loss)/profit after taxation |
(195.8) |
(120.8) |
(316.6) |
762.0 |
445.4 |
|
|
|
|
|
|
|
|
Adjustments to reconcile to the financial statements |
|
|
|
|
|
|
Inventory |
- |
- |
- |
(17.9) |
(17.9) |
|
Depletion, depreciation and amortisation |
- |
- |
- |
211.0 |
211.0 |
|
Deferred taxation |
- |
- |
- |
444.7 |
444.7 |
|
|
|
|
|
|
|
|
Reported profit after taxation |
(195.8) |
(120.8) |
(316.6) |
1,399.8 |
1,083.2 |
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
Equity holders of the parent |
(195.8) |
(120.8) |
(316.6) |
1,110.9 |
794.3 |
|
Non-controlling interests |
- |
- |
- |
288.9 |
288.9 |
|
|
|
|
|
|
|
|
Capital expenditure |
432.5 |
31.9 |
464.4 |
784.5 |
1,248.9 |
|
|
|
|
|
|
|
3.2 Taxation on Loss
a) Analysis of tax charge/(credit) in year
|
Current tax: |
|
2011 $m |
2010 $m |
|
|
|
|
|
|
UK corporation tax |
|
|
|
|
Tax on profits at 26.49% (2010: 28.00%) |
|
2.1 |
2.9 |
|
|
|
|
|
|
Foreign Tax |
|
|
|
|
Indian Corporate Income Tax on profits for the year at 42.08% (2010: 42.23%) |
|
10.9 |
28.5 |
|
Indian Regular Tax on profits for the year at 32.65% (2010: 33.99%) |
|
2.5 |
(1.3) |
|
Indian Minimum Alternate Tax on profits for the year at 19.32% (2010: 18.27%) |
|
279.9 |
208.8 |
|
Indian tax on capital gains at 21.01% (2010: 21.12%) |
|
590.3 |
- |
|
Adjustments in respect of prior periods |
|
- |
14.4 |
|
Withholding taxes deducted at source |
|
- |
0.1 |
|
|
|
883.6 |
250.5 |
|
Total current tax |
|
885.7 |
253.4 |
|
Deferred tax:
|
|
|
|
|
United Kingdom |
|
|
|
|
Temporary differences in respect of non-current assets |
|
- |
(0.4) |
|
|
|
|
|
|
India |
|
|
|
|
Temporary differences in respect of non-current assets |
|
798.7 |
(603.9) |
|
Total deferred tax |
|
798.7 |
(604.3) |
|
Tax charge/(credit) on profit/(loss) |
|
1,684.4 |
(350.9) |
The tax charge/(credit) to the income statement is disclosed as follows:
|
|
|
2011 $m |
2010 $m |
|
|
|
|
|
|
Tax charge/(credit) on continuing operations |
|
0.1 |
(0.3) |
|
Tax charge/(credit) on discontinued operations |
|
1,684.3 |
(350.6) |
|
|
|
1,684.4 |
(350.9) |
3.2 Taxation on Loss (continued)
b) Factors affecting tax charge/(credit) for year
A reconciliation of income tax expense applicable to profit before income tax at the applicable tax rate to income tax expense at the Group's effective income tax rate is as follows:
|
|
2011 $m |
2010 $m |
|
|
|
|
|
Loss from continuing operations before tax |
(1,189.3) |
(303.6) |
|
Profit from discontinued operations before tax |
7,438.8 |
1,035.9 |
|
|
|
|
|
Profit before taxation |
6,249.5 |
732.3 |
|
|
|
|
|
Tax at the weighted average rate of corporation tax of 33.61% (2010: 48.90%) |
2,100.5 |
358.1 |
|
|
|
|
|
Effects of: |
|
|
|
Temporary differences not recognised |
308.0 |
(1.4) |
|
Minimum Alternate Tax payable |
117.8 |
56.8 |
|
Foreign exchange movements |
0.2 |
(17.4) |
|
Non-deductible expenses and non-taxable income |
(1.4) |
3.3 |
|
Share-based payments |
(10.1) |
15.5 |
|
Disposal of subsidiary charged at Capital Gains Tax rate |
(345.6) |
1.7 |
|
Indian tax holiday |
(485.0) |
(205.4) |
|
Adjustments in respect of prior years - current tax |
- |
14.4 |
|
Change of rate applied to assets classified as held-for-sale |
- |
(444.7) |
|
Utilisation of brought forward losses |
- |
(131.9) |
|
|
|
|
|
Total tax charge/(credit) |
1,684.4 |
(350.9) |
The applicable tax rate was the weighted average rate for the year of the UK, Netherlands, Australian, Indian, Jersey, Swiss, Bangladeshi, Tunisian, Sri Lankan, Singaporean and Mauritian tax rates. There were no major changes in the statutory tax rates applying in each of these jurisdictions, however, the weighted average rate is subject to fluctuations from year to year based on the level of profits and losses which arise to the Group in each jurisdiction.
c) Factors that may affect future corporation tax charges
At 31 December 2011, Cairn had no losses (2010: $237.1m) available for offset against future trading profits chargeable to UK Corporation Tax. In addition there are surplus management expenses of $324.1m (2010: $192.3m) and non-trade deficits of $66.5m (2010: $19.6m) available for offset against future investment income. None of the trading losses, surplus management expenses or non-trade deficits has been recognised for deferred tax as it is not considered sufficiently probable that they will be used. Under UK tax law, tax losses may generally be carried forward indefinitely.
3.2 Taxation on Loss (continued)
d) Reconciliation to deferred tax assets and liabilities
|
|
Assets $m |
Liabilities $m |
Group $m |
|
|
|
|
|
|
At 1 January 2010 |
- |
(79.5) |
(79.5) |
|
Credit to Income Statement |
524.8 |
79.5 |
604.3 |
|
Transferred to assets held-for-sale |
(524.8) |
- |
(524.8) |
|
At 1 January 2011 |
- |
- |
- |
|
Initial recognition of deferred tax provision on available-for-sale financial asset |
- |
(273.9) |
(273.9) |
|
Deferred tax credit on movement in fair value of available-for-sale financial assets recognised in other comprehensive income |
- |
19.8 |
19.8 |
|
|
|
|
|
|
At 31 December 2011 |
- |
(254.1) |
(254.1) |
|
|
|
|
|
As at 31 December 2011, the Group had a deferred tax asset of $0.3m (2010: $11.9m) in respect of future United Kingdom corporation tax deductions for equity-based remuneration. This asset has not been recognised as it is not considered probable that there will be sufficient profits to utilise these tax deductions.
As at the Balance Sheet date, a deferred tax asset was not recognised in respect of Group losses of $390.6m (2010: $449.0m) where it is not probable that they can be utilised in future periods.
No deferred tax asset has been recognised at 31 December 2011 or 31 December 2010 in respect of trading or other losses, as it is not considered to be probable that these losses will be utilised against future trading or other profits arising to the Group.
3.3 Discontinued Operations
During 2011, Cairn completed the sale of a 40% shareholding in Cairn India to Vedanta. The transaction completed in two tranches; the first tranche of 10% completed on 11 July 2011 and the second tranche of 30% completed on 7 December 2011. Total consideration received for the transaction was $6.0bn (post-tax $5.4bn). Assets and liabilities of the Cairn India Group were previously classified as held-for-sale.
Following completion of this transaction, Cairn holds a residual interest of 21.8% of the fully-diluted share capital of Cairn India, with Vedanta holding a controlling interest of 58.5%. Cairn India's results for the period to completion have been presented as discontinued operations in these financial statements.
Cairn announced the conditional agreement for sale to Vedanta on 16 August 2010. Shareholder approval from both parties was obtained and, although regulatory approval and joint venture partner approval were required to complete the proposed transaction, as at 31 December 2010 Cairn believed the necessary approvals would be received and classified the assets and liabilities of the Cairn India Group as a disposal group held-for-sale.
On 20 December 2010, Santos International Holdings Pty Limited agreed to purchase the entire share capital of Cairn Energy Sangu Field Limited, which held a 37.5% interest in the producing Sangu gas field, offshore Bangladesh, and a 50% interest in Block 16 exploration acreage for a consideration of $0.8m. As a result of this transaction Cairn no longer has operations in Bangladesh. The Sangu Field's results for the period to completion are therefore presented as discontinued operations in the 2010 comparatives for these financial statements.
The results of the Cairn India Group are reported as an Operating Segment in section 3.1. The results of Cairn Energy Sangu Field Limited are included within the "Other Cairn Group" reportable segment comparative disclosures for 2010.
a) Discontinued operations results for the year
|
|
Cairn India Limited 2011 |
Cairn India Limited 2010 |
Cairn Energy Sangu Field Limited 2010 |
Total 2010 |
|
|
$m |
$m |
$m |
$m |
|
|
|
|
|
|
|
Revenue |
2,371.8 |
1,594.2 |
7.1 |
1,601.3 |
|
Cost of sales |
(352.1) |
(438.1) |
(6.1) |
(444.2) |
|
Gross profit |
2,019.7 |
1,156.1 |
1.0 |
1,157.1 |
|
Other operating income and expenses |
(39.5) |
(53.6) |
(5.2) |
(58.8) |
|
Operating profit/(loss) |
1,980.2 |
1,102.5 |
(4.2) |
1,098.3 |
|
Net finance costs |
(29.0) |
(53.1) |
- |
(53.1) |
|
Profit/(loss) before taxation |
1,951.2 |
1,049.4 |
(4.2) |
1,045.2 |
|
Taxation |
(588.8) |
350.6 |
- |
350.6 |
|
|
|
|
|
|
|
Profit/(loss) on ordinary activities for the year |
1,362.4 |
1,400.0 |
(4.2) |
1,395.8 |
|
Gain/(loss) on disposal |
4,392.2 |
- |
(9.3) |
(9.3) |
|
Profit/(loss) for the year |
5,754.6 |
1,400.0 |
(13.5) |
1,386.5 |
|
|
|
|
|
|
|
Attributable to : |
|
|
|
|
|
Equity holders of the parent |
5,290.5 |
1,111.1 |
(13.5) |
1,097.6 |
|
Non-controlling interests |
464.1 |
288.9 |
- |
288.9 |
|
|
|
|
|
|
|
|
5,754.6 |
1,400.0 |
(13.5) |
1,386.5 |
|
Earnings per share: |
|
|
|
|
|
Basic (cents) |
958.03 |
|
|
199.98 |
|
Diluted (cents) |
955.73 |
|
|
198.76 |
The earnings per share has been calculated on profit available to equity holders of the parent divided by the weighted average number of ordinary shares for both basic and diluted amounts.
3.3 Discontinued operations (continued)
b) Discontinued operations cashflows
The cash flows attributable to discontinued operations were as follows:
|
|
Cairn India Limited |
Cairn India Limited |
Cairn Energy Sangu Field Limited |
Total |
|
|
2011 |
2010 |
2010 |
2010 |
|
|
$m |
$m |
$m |
$m |
|
|
|
|
|
|
|
Cash inflow/(outflow) from operating activities |
1,922.1 |
874.7 |
(1.6) |
873.1 |
|
Cash outflow from investing activities |
(1,204.1) |
(1,013.9) |
- |
(1,013.9) |
|
Cash outflow from financing activities |
(396.2) |
(20.7) |
- |
(20.7) |
|
Net cash inflow/(outflow) |
321.8 |
(159.9) |
(1.6) |
(161.5) |
c) Gain on disposal arising from sale of 40% interest in Cairn India Limited
|
|
7 December 2011 |
|
|
$m |
|
Net Proceeds |
|
|
Consideration received recognised in Income Statement |
6,023.4 |
|
Less: Expenses attributable directly to the sale |
(56.9) |
|
|
5,966.5 |
|
Derecognition of CIL Group |
|
|
Net assets of the CIL group (per table below, excluding deferred tax assets) |
(4,472.7) |
|
Non-controlling interests eliminated |
1,487.4 |
|
Currency translation differences recycled |
(84.5) |
|
Fair value of the residual available-for-sale financial asset recognised at date of sale |
2,591.0 |
|
|
|
|
Gain on sale |
5,487.7 |
|
|
|
|
Tax |
|
|
Withholding tax |
(590.3) |
|
Deferred tax asset derecognised on sale of the CIL Group |
(231.3) |
|
Deferred tax provision recognised on fair value of the residual available-for-sale financial asset |
(273.9) |
|
|
|
|
Tax charge on gain on sale |
(1,095.5) |
|
|
|
|
|
|
|
Net gain on disposal |
4,392.2 |
3.3 Discontinued operations (continued)
c) Gain on disposal arising from sale of 40% interest in Cairn India Limited (continued)
The following table sets out the net assets of Cairn India Limited at the date of disposal.
|
|
|
7 December 2011 $m |
|
Assets |
|
|
|
Intangible exploration/appraisal assets |
|
514.0 |
|
Property, plant & equipment - development/producing assets |
|
2,763.1 |
|
Property, plant & equipment - other |
|
8.4 |
|
Intangible assets - other |
|
8.4 |
|
Deferred tax asset |
|
231.3 |
|
Inventory |
|
18.0 |
|
Trade and other receivables |
|
797.6 |
|
Bank deposits |
|
1,104.4 |
|
Cash and cash equivalents |
|
711.6 |
|
|
|
|
|
Liabilities |
|
|
|
Trade and other payables |
|
(444.0) |
|
Obligations under finance leases |
|
(0.5) |
|
Provisions |
|
(710.0) |
|
Income tax liabilities |
|
(57.8) |
|
Loans and borrowings |
|
(240.5) |
|
|
|
4,704.0 |
|
Net cash inflow arising on disposal: |
|
|
|
Consideration received in cash and cash equivalents |
|
5,433.1 |
|
Less: cash and cash equivalents disposed of |
|
(711.6) |
|
|
|
4,721.5 |
The total consideration was received in cash, net of withholding tax. There was no deferred consideration.
3.4 Earnings per Ordinary Share
Basic and diluted earning per share are calculated using the following measures of (loss)/profit:
|
|
Section |
2011 |
2010 |
|
|
|
$m |
$m |
|
|
|
|
|
|
Loss for the year - continuing operations |
|
(1,189.4) |
(303.3) |
|
Profit for the year - discontinued operations attributable to the equity holders of the parent |
3.3 |
5,290.5 |
1,097.6 |
|
Profit attributable to the equity holders of the parent |
|
4,101.1 |
794.3 |
|
Less potential increase in non-controlling interest - discontinued operations |
|
- |
(2.4) |
|
Diluted profit attributable to equity holders of the parent |
|
4,101.1 |
791.9 |
|
|
|
|
|
|
Analysed as: |
|
|
|
|
Diluted loss attributable to equity holders of the parent - continuing operations |
|
(1,189.4) |
(303.3) |
|
Diluted profit attributable to equity holders of the parent - discontinued operations |
|
5,290.5 |
1,095.2 |
|
|
|
4,101.1 |
791.9 |
The following reflects the share data used in the basic and diluted earnings per share computations:
|
|
|
2011 |
2010 (restated) |
|
|
|
'000 |
'000 |
|
|
|
|
|
|
Weighted average number of shares |
|
553,061 |
551,027 |
|
Less weighted average shares held by ESOP and SIP Trusts |
|
(829) |
(2,127) |
|
Basic weighted average number of shares |
|
552,232 |
548,900 |
|
|
|
|
|
|
Dilutive potential ordinary shares: |
|
|
|
|
Employee share options |
|
1,329 |
2,151 |
|
Diluted weighted average number of shares |
|
553,561 |
551,051 |
The weighted average number of shares used in the calculations of earnings per share for 2011 and 2010 has been adjusted to reflect the consolidation of shares which took place on 6 February 2012. Further details of the consolidation are provided in section 4.2.
4.1 Farm down agreement with Statoil ASA
On 23 January 2012, Cairn announced that it has entered into a farm down agreement with Statoil ASA for the Pitu block in the Baffin Bay Basin west of Greenland.
Under the terms of the agreement Statoil will, subject to the approval of the Greenland Government, acquire a working interest of 30.625% in the Pitu licence. Cairn will retain operatorship (56.875% interest in the block) of the exploration and Statoil will operate any future development. Nunaoil has an ongoing 12.5% interest in the block.
Statoil will pay a signature bonus and back costs on the Block of $27.5m and promoted terms of future exploration expenditure. Under the Group's accounting policies, proceeds received for the bonus and back costs will be credited against the Group's intangible exploration/appraisal costs; no adjustment is made for promoted terms of future exploration expenditure.
4.2 Return of cash to shareholders
On 30 January 2012 Cairn received shareholder approval for the return of cash to shareholders totalling approximately $3.5 billion. Shareholders are entitled to receive £1.60 for each existing ordinary share implemented through a B share scheme. Settlement of the Initial Purchase Offer and Single B Share Dividend for Shareholders was made on 21 February 2012.
In conjunction with the cash return, shareholders also approved a 13 for 33 share consolidation to seek to maintain share price comparability. The share consolidation completed on 6 February 2012 where the existing ordinary shares of 1,407,669,087 ordinary shares of 8/13 pence each were replaced with 554,536,307 ordinary shares of 231/169 pence each.
The weighted average of shares used in both basic and diluted earnings per share calculations disclosed on the Income Statement and in sections 3.3 and 3.4 have been adjusted to reflect this consolidation. Comparatives have also been restated.
GLOSSARY OF TERMS
The following are the main terms and abbreviations used in this announcement:
Corporate
|
Board |
the Board of Directors of Cairn Energy PLC |
|
Cairn |
Cairn Energy PLC and/or its subsidiaries as appropriate |
|
Cairn India/CIL |
Cairn India Limited and/or its subsidiaries as appropriate |
|
Capricorn |
Capricorn Oil Limited and/or its subsidiaries as appropriate |
|
Company |
Cairn Energy PLC |
|
GoI |
Government of India |
|
Group |
the Company and its subsidiaries |
|
IHS |
Information Handling Services |
|
INR |
Indian Rupee |
|
IPO |
Initial Public Offering |
|
JV |
Joint Venture |
|
LTIP |
Long-Term Incentive Plan |
|
MPT |
Mangala Processing Terminal |
|
ONGC |
Oil and Natural Gas Corporation Limited |
|
Statoil |
Statoil ASA |
|
Vedanta |
Vedanta Resources plc |
Technical
|
2D/3D/4D |
two dimensional/three dimensional/four dimensional |
|
boe |
barrel(s) of oil equivalent |
|
boepd |
barrels of oil equivalent per day |
|
bopd |
barrels of oil per day |
|
EOR |
enhanced oil recovery |
|
FDP |
field development plan |
NOTES TO EDITORS
All references to the share capital of Cairn India in this announcement are calculated on a fully diluted basis.
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. Following the IPO of Cairn India in January 2007, there are two separate arms to the business:
o Cairn India limited ("Cairn India") is listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 10 acreage blocks in India and Sri Lanka. Cairn currently retains approximately 22% interest in Cairn India (on an un-diluted basis).
o Capricorn Oil Limited ("Capricorn"), a 100% subsidiary of Cairn, is focused on exploration. Capricorn has assets in Nepal, Greenland, Albania and Spain.
Ø "Cairn" where referred to in this release means Cairn Energy PLC and/or its subsidiaries (including Cairn India and Capricorn), as appropriate.
Ø "Cairn India" where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate.
Ø Cairn historically focused its activities on the geographic region of South Asia, which has already resulted in a significant number of oil and gas discoveries. In particular, Cairn made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. Cairn has now made more than 20 discoveries in Rajasthan block RJ-ON-90/1. Production from Rajasthan started in August 2009 and is expected to reach the approved plateau of 175,000 bopd in 2012.
Ø Cairn Energy PLC (including Capricorn) is run from Edinburgh with operational offices in Kathmandu, Nuuk and Spain.
Cairn in Greenland
Ø Cairn through its subsidiary, Capricorn, operates 11 blocks offshore Greenland.
Ø Cairn carried out extensive Environmental and Social Impact Assessments to identify how potential environmental and social impacts of its drilling programme can be avoided or mitigated.
Ø A total of 14 exploration wells have been drilled offshore Greenland to date, five of which were drilled in the 1970s, one in 2000, three in 2010 by Cairn Energy and five by Cairn Energy in 2011.
For further information on Cairn please see: www.cairnenergy.com
This information is provided by RNS
COMPANIES COVERED:
Latest directors dealings
- 2 days ago FRP Advisory Group
- 2 days ago Marks Electrical Group
- 2 days ago CLS Holdings
- 2 days ago QinetiQ Group
- 2 days ago Spectris