31st Mar 2008 07:02
Cairn Energy PLC31 March 2008 EMBARGOED FOR RELEASE AT 0700 31 March 2008 CAIRN ENERGY PLC PRELIMINARY RESULTS ANNOUNCEMENT OPERATIONAL O Gross operated production 87,031 boepd (2006: 105,028 boepd) O Average net entitlement production 19,809 boepd (2006: 24,523 boepd) Cairn India O First commercial oil from Mangala field in Rajasthan on target for H2 2009 O Rajasthan growing resource base, current estimates: gross 3.75 billion boe in place with 2P reserves, 2C resources and 2C EOR potential increased 19% to 1.08 billion boe O Mangala, Bhagyam and Aishwariya (MBA) gross 2P reserves and resources (2041) increased by 9 % to 685 mmbbls (net 479 mmbbls) O MBA Enhanced Oil Recovery (EOR) 2C resource potential 308 mmbbls (net 216 mmbbls) O EOR field pilot planned for 2009 O MBA potential plateau production of >175,000 bopd O Rajasthan small and tight fields potential - 1.7 billion boe in place O Rajasthan upstream and midstream development estimated costs from 2008 to end 2009 $1.8 billion net O Bids submitted for offshore acreage in Sri Lanka O 15 exploration/appraisal wells planned in 2008 plus 6 seismic surveys Capricorn O Magnama gas discovery in Bangladesh pending further appraisal O Exploration position established in Tunisia, through acquisition of Plectrum and medOil - drilling planned for Q4 2008 O Six exploration blocks acquired offshore Greenland FINANCIAL O Profit after tax of $1,527.8m (2006 restated loss: $97.1m) including $1,537.0m exceptional gain on IPO of Cairn India O Cash flow from operating activities $155.3m (2006: $189.4m) O Group net cash at 31 December 2007 of $827.3m (2006: $701.3m) O Cairn India $625m placement Sir Bill Gammell, Chief Executive said: "All of the major contracts for the midstream and upstream developments inRajasthan have been awarded and work is progressing well towards first Mangalaoil in H2 2009. We are increasingly confident about the scale of the resource base in Rajasthan.We firmly believe that a plateau production of 175,000 bopd is now achievablewith the potential for higher rates and more value optimisation should theencouraging tests on enhanced oil recovery be confirmed in the field trials. Capricorn continues to build new acreage positions, including Greenland whereexploration is at an embryonic stage. The Group has the capacity to drive forward the Rajasthan development and thefinancial flexibility to pursue opportunities for growth." Enquiries to: Analysts/Investors Tel: +44 (0)131 475 3000Bill Gammell, Chief ExecutiveJann Brown, Finance DirectorMike Watts, Exploration & New Business DirectorDavid Nisbet, Corporate Communications Media Tel: +44 (0)207 404 5959 Brunswick Group LLP:Patrick Handley, Mark Antelme Cairn Energy Live Audio Webcast The webcast of the 2007 Preliminary results presentation will be available at0900 (UK time) 1330 (IST) on Monday 31 March 2008. This will be available at the Cairn Energy PLC website: www.cairn-energy.plc.ukand at the Cairn India website www.cairnindia.com An archived version of the webcast will be available later. There will be a conference call with the Cairn India management team at 1100 (UKtime) 1530 (IST) on the same day. These materials contain forward-looking statements regarding Cairn, ourcorporate plans, future financial condition, future results of operations,future business plans and strategies. All such forward-looking statements arebased on our management's assumptions and beliefs in the light of informationavailable to them at this time. These forward-looking statements are, by theirnature, subject to significant risks and uncertainties and actual results,performance and achievements may be materially different from those expressed insuch statements. Factors that may cause actual results, performance orachievements to differ from expectations include, but are not limited to,regulatory changes, future levels of industry product supply, demand andpricing, weather and weather related impacts, wars and acts of terrorism,development and use of technology, acts of competitors and other changes tobusiness conditions. Cairn undertakes no obligation to revise any suchforward-looking statements to reflect any changes in Cairn's expectations withregard thereto or any change in circumstances or events after the date hereof. CHAIRMAN'S STATEMENT Corporate Overview Cairn Energy restructured its operations in 2007 by splitting into two separatebusinesses. The initial public offering (IPO) in January of Cairn India established it as anautonomously-run subsidiary listed on the Bombay Stock Exchange and NationalStock Exchange of India allowing the return of $936 million to Cairnshareholders in April. The remaining Group assets have been placed within aseparate exploration-led subsidiary called Capricorn. This restructuring has enabled each entity to focus on its respective strengthsand long term growth potential Cairn India In its first year of listing on the Bombay and National Stock Exchanges, CairnIndia has been confirmed as one of the key oil and gas exploration companies inIndia. Across all assets in India the total reserves and resources net to CairnIndia is more than 800 million barrels of oil equivalent (mmboe). In Rajasthan, construction activities have started on both the upstream andmidstream projects with first commercial production from Mangala planned tocommence in the second half of 2009. Rajasthan is a major resource base and the Joint Venture (JV) partners arefocussed on realising the full potential through conventional and enhanced oilrecovery techniques. The size and scale of the overall potential valueopportunity in the basin continues to grow, offering scope for furthersignificant optimisation. This would also translate into a significant growth inoperating cash flows, thereby demonstrating value for all Cairn Indiastakeholders. While Cairn India remains focused on delivering the Rajasthan project, andgrowing its core upstream business, there are significant opportunities in otherareas in the oil and gas value chain, where it can leverage its existingstrengths and skill base. The energy sector in India offers tremendous valuecreation potential and Cairn India has an active new business unit which iscurrently evaluating a number of these exciting opportunities. Capricorn Capricorn's aim is to create value for shareholders in the future by seeking togrow an exploration-led, balanced Exploration and Production business. The corporate acquisition of two AIM listed companies, Plectrum Petroleum Plcand medOil plc, in 2007, has given Capricorn a material exploration positionoffshore Tunisia. In January 2008 Capricorn made a significant exploration entryinto Greenland by acquiring interests in six acreage blocks. Capricorn continues to evaluate new venture opportunities where it believesthere may be potential to discover hidden value. Outlook The coming 18 months are a transformational period for Cairn India as it looksto significantly grow its production which will be fundamental to the future ofthe company and its shareholders. Capricorn is planning its first exploration drilling in Tunisia at the end ofthe year and is actively pursuing the longer-term growth potential of itsposition in Greenland. The Group is well placed to deliver the Rajasthan development and to continuepursuing potential growth opportunities in other business areas. In summary, the respective strategies of the two arms of the Cairn business arenow well defined and both are making significant progress in achieving theirobjectives for growth and creating value for shareholders. Norman Murray Chairman, 28 March 2008 CHIEF EXECUTIVE'S REVIEW Cairn India Rajasthan Upstream The integrated upstream and midstream development is on course to produce firstoil from Mangala in the second half of 2009. Cairn India is totally focussed ondelivering this goal. All major civil and construction contracts have been awarded, long lead timeitems have been procured and work on both the upstream and midstream are wellunderway. Our confidence in the ability of the Rajasthan fields to produce more thaninitially anticipated has grown as the reserves base has increased. The provenplus probable (2P) gross reserves and resources from the three main MBA fieldshave increased 9% to 685 million barrels of oil (mmbbls) (479 mmbbls net). Theother Rajasthan fields and the low permeability Barmer Hill fields have a gross2P in place estimate of 1.7 billion barrels of oil equivalent (boe) reinforcingthe scope for continued resource growth. The Mangala Stock Tank Oil Initially in Place (STOIIP), reserves and resourceshave been upgraded. The increase in the 2P STOIIP and 2P Reserves and Resourcesis 21% and 29% respectively over the original Field Development Plan (FDP). Subject to regulatory approval, the latest Field Development Plans for the threemain fields assume a sustainable peak plateau production of 175,000 barrels ofoil per day (bopd): Mangala 125,000 bopd, Bhagyam 40,000 bopd and Aishwariya10,000 bopd. Laboratory trials have been very encouraging and have confirmed the furtherpotential of chemical EOR techniques. The current assessment of the EOR resourcebase is more than 300 mmbbls of incremental recoverable oil from Mangala,Bhagyam and Aishwariya. The first EOR field trials will take place in 2009. Rajasthan Midstream The Government of India (GoI) has agreed to grant Rights of Use (RoU) for thepipeline in order to meet the planned schedule. The front end engineering anddesign (FEED) has already been completed as has the procurement process for mostof the long lead items. Pipeline construction work will commence on site in H2 2008, with the completionof Phase I of the pipeline from Barmer to the intermediate pumping station atViramgam scheduled for early 2009. The proposed routing of the pipeline will allow access to an extensive existingpipeline infrastructure and refinery network, with a final coastal deliverypoint that also affords access to the majority of India's refining capacity. Rajasthan Costs The increase in the Mangala resource potential has instigated an ongoing reviewto optimise the scale and schedule of the Rajasthan development with a view toachieving higher levels of production. This review is also addressing ways ofmitigating the impact of the increasing cost challenges on the project, whichhave been driven by the general demand for engineering resources and materialsin the industry. At this stage, all major civil and construction contracts havebeen awarded and long lead time items ordered providing market information oncosts. Based on this information, the estimated cost of the upstreamdevelopment to the end of 2009 is approximately $1.8 billion gross of whichCairn India's share is 70%. The current estimated pipeline cost is approximately$800 million gross. Revised cost estimates will be available by mid-2008 bywhich time the majority of contracts for the development will be in place. Ravva and CB/OS-2 The development drilling campaigns in Ravva and CB/OS-2 have been successfulwith production on stream from the new wells. These two assets have been andcontinue to be the bedrock of the development of Cairn in India - it isespecially important in a time of high oil prices that we maximise the valuethat these assets generate. Capricorn Capricorn continues to build an asset base for exploration-led growth.Subsequent to the successful acquisitions of Plectrum and medOil in 2007,Capricorn has recently further strengthened its exploration portfolio byacquiring a new acreage position in Greenland. A two-well exploration drilling programme in Bangladesh has resulted in onediscovery on the Magnama prospect over which further appraisal will be requiredbefore commerciality can be established. A farm-out of a 50% interest inCapricorn's Bangladesh assets to Santos in October 2007 raised cash and reducedCapricorn's exposure to forward work programme expenditure whilst still allowingthe company to retain a material position. Recent well intervention work inthree wells at the Sangu field has bolstered production levels in the near term. Capricorn now has assets in south Asia (northern India, Bangladesh and Nepal),the Mediterranean (Tunisia, Albania and pending licence awards in Spain andSicily), Peru, Papua New Guinea and Greenland. Results and Financial Performance In January 2007 Cairn India was floated on the Bombay Stock Exchange and theNational Stock Exchange of India realising a gain of $1,537.0m. The totalproceeds (before expenses) raised in the flotation were $1,984.1m ($751.8m wasreceived in 2006 with the balance $1,232.3m being received in 2007). Of theseproceeds $935.7m (including expenses) was returned to shareholders in 2007(equivalent to £3 per share). In September 2007, Dyas BV acquired a 10% holding in Capricorn for a totalconsideration of $91.0m (before expenses). In addition, the Group announced tworecommended cash offers totalling $76.2m (before expenses) for PlectrumPetroleum Plc and medOil plc which were declared unconditional in October 2007.Also in October 2007, Santos International Holdings Pty acquired 100% of CairnEnergy Bangladesh Limited from the Group (50% of Cairn's Bangladesh position)for a total cash consideration of $55.8m. Production for the year, on an entitlement interest basis, has decreased by 19%to 19,809 barrels of oil equivalent per day (boepd) (2006: 24,523 boepd). Thisis primarily due to reduced field production at both Sangu and CB/OS-2. The Group's production continues to be predominantly gas (circa 63% on anentitlement basis). This production mix, together with price caps in the gascontracts, results in an average price realised by the Group for the year of$39.70 per boe (2006: $31.84 per boe). The increase is due primarily to thehigher oil price environment in 2007. Revenue for the year was $287.7m (2006: $286.3m). The Group made an operating loss of $76.3m (2006: $64.6m) and generated anoperating cash flow of $155.3m (2006: $189.4m). The Group made a loss after tax(pre the Cairn India and Capricorn gains on disposal) of $49.4m (2006 restated:$97.1m). Cairn entered 2008 with net cash of $827.3m, positive operating cash flows andtotal facilities of $910m. Cairn will receive approximately $625m followingformal approval of the private placement of shares to Petronas and Orient Globaland is in advanced discussions with its bankers to extend the credit available.With this strong base, the Group has the capacity to drive forward the Rajasthandevelopment and provide financial flexibility to pursue opportunities forgrowth. Sir Bill Gammell Chief Executive, 28 March 2007 OPERATIONAL REVIEW Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%) Development - Upstream Good progress is being made on the civil works and process facilitiesconstruction contracts which have been awarded for the Rajasthan upstreamproject. All access roads to the four hundred acre site have been built and workon the civil works on the Mangala terminal has started. Mangala will be brought on stream in phases with production commencing in H22009. The transportation of the crude will be via pipeline to the coast forwhich the FEED are complete. The long lead procurement process is underway andconstruction is due to commence in H2 2008. The construction of two purpose built rigs which will be used to drill thedevelopment wells is nearing completion and these rigs will be available inIndia in the second half of the year. These state-of-the-art rigs will allow thedrilling and completing of the Mangala wells (some of which will be horizontal),which Cairn India intends to use to deliver the first phase of production fromthe Rajasthan fields. A 120 km2 high definition 3D seismic survey was completed over the Mangala fieldand processing of the data is expected to be complete during 2008. This datawill be used for more detailed reservoir characterisation for developmentdrilling and for the application of future time lapse monitoring techniques. An upgrade of the Mangala STOIIP and reserves and resources has been submittedto the JV partners and the GoI. The increase in the 2P STOIIP and 2P Reservesand Resources is 21% and 29% respectively over the original FDP. This representsan increase of 8% percent and 11 % over the figures provided at the time of theIPO of the Indian business. The increased resource in the Mangala field providesa commensurate increase in the production potential of the Mangala field. TheMangala field is capable of producing at plateau rates of up to 125,000 bopd.This represents an increase of up to 25% on the Mangala production ratecontained in the original FDP submitted in 2005. Gross STOIIP 2P Gross Reserves 2P Net Reserves / 2C Resources / Resources ----------- ----------- ----------- (mmboe) Cairn D&M Cairn D&M Cairn D&M---------------- ------ ------ ------ ------ ------ -------Rajasthan MBA fields 685 701 479 491 2,054 2,118Rajasthan MBA EOR 308 308 216 216 RJ Small Fields: Saraswati &Raageshwari Oil / gas 300 144 12 39 9 27 RJ other fields 1,397 1,216 72 54 51 38 ------ ------ ------ ------ ------ -------Total 3,751 3,478 1,077 1,102 755 772 ------ ------ ------ ------ ------ ------- Note: 1. Cairn holds a 70% Net Working Interest in RJ-ON-90/1. 2. The gross proven plus probable and possible (3P) initially in place Cairn estimate for Mangala is approximately 1,600 mmboe indicating the potential for further volumetric upside. 3. 2P Reserves include estimates of expected production during the current Production Sharing Contract (PSC) term (14 May 2020 for Rajasthan). 2C Resources are those volumes expected to be produced outside the current PSC term (end of field life) or where development planning or approval is pending. 4. These are current estimates which have not been booked. For booked net entitlement reserves please see the reserves section of this announcement. The FDP for Bhagyam, the second largest field in the block, is pending finalapproval on the basis of a planned plateau production rate of 40,000 bopd. TheBhagyam and Shakti fields are contained within a second Development Area of 430km2. The Aishwariya FDP, which has already received Government of India (GoI)approval, has a planned plateau production rate of 10,000 bopd. An upgrade ofthe Aishwariya 2P STOIIP has been submitted to the JV and the GoI in January2008. This represents an increase of 37% and 17% over the figures provided atthe time of the FDP and IPO respectively. It is expected that this upgrade inSTOIIP will also result in a commensurate increase in the field reserves. Enhanced Oil Recovery (EOR) Cairn is currently studying the staged and early application of aqueous-basedchemical flooding EOR techniques for the MBA fields. Early application of EOR inthese fields would be designed to extend their crude oil production plateauperiods, reduce water production, mitigate future decline rates and potentiallyaccelerate crude oil production. The first phase of laboratory studies for the Mangala field was successfullyconcluded in January 2007. The coreflood data have been successfully matched ina reservoir simulator allowing full field simulation of polymer andalkaline-surfactant-polymer (ASP) flooding. A pilot for polymer and ASP floodingfor the Mangala field has also been conceptualised, and approvals will be soughtin 2008 from the JV partners and the GoI to commence the pilot followingcommencement of production from the field in 2009. The current assessment of the EOR resource base is more than 300 mmbbls ofincremental recoverable oil from Mangala, Bhagyam and Aishwariya. If the Mangalafield pilot is successful it is envisaged that EOR could be introduced at afield scale in Rajasthan in 2013 or even earlier, commencing in Mangala, andthat an increase in plateau offtake will be considered on a field by fieldbasis. The first phase of laboratory work for the Bhagyam field has also beensuccessfully completed. The second phase of laboratory work for the Mangala field has commenced which isdesigned to confirm and refine chemical selection for the pilot project. Northern Appraisal Area (Cairn India 100%) A Declaration of Commerciality (DoC) for the three discoveries made in this area(Kameshwari West 2, 3 and 6) has been approved by the JV partners, along with aproposed new Development Area of 1,178 km2. The DoC is now awaiting approvalfrom the GoI. These three discoveries have opened up a new play in the Barmer Hill/LowerDharvi Dungar sands on the western margin of the Rajasthan basin. Development-Midstream Work on the midstream is progressing well with key orders placed. The contracts to ensure timely construction of the pipeline in 2009 have beenplaced. The contracts for the line pipe, with tracer tube and insulation, andfor the Skin Effect Heat Management System have been awarded. The orders for gasengines for the heating stations, export pumps and drivers and main block valveshave also been awarded. The Engineering Procurement Contract (EPC) for the pipeline has been issued, ashas the EPC Contract for land development of the Viramgam Terminal. Sitepreparation work commenced at the Viramgam Terminal site in mid February 2008. Obtaining access to the land on which the pipeline will be built is welladvanced under the RoU process in Gujarat and Rajasthan. The land for all eight heating stations in Rajasthan and ten stations in Gujaratalong the route of the pipeline has been purchased, as well as land for theViramgam Terminal. Discussions are ongoing with the GoI regarding the potential inclusion of themidstream infrastructure within the FDP for cost recovery purposes Exploration Overview Rajasthan and other assets Exploration and appraisal activity in 2007 included the drilling of 13 wells andacquisition of 1,345km2 3D and 588 km 2D seismic data. Preliminary estimates ofsuccessful 2P reserve and resource additions are 6.9 mmboe on a working interestbasis and represent approximately 101% of 2007 working interest production.Constant re-evaluation of Cairn India's prospects and leads portfolio, plus theaddition of NELP VI blocks, PR-OSN-2004/1 and KK-DWN-2004/1 has resulted in acumulative unrisked prospective resource of 1,033 mmboe, excluding the prospectsdrilled in 2007. Oil and gas discoveries were made in the Northern Appraisal Area (NAA) inRajasthan and in both the Ravva and Lakshmi Fields. The 2008 exploration programme includes the drilling of 15 wells, seven of whichwill be operated by Cairn India and the acquisition of three onshore 2D seismicsurveys a 200 km2 onshore 3D survey and two offshore 2D surveys comprising 6,150km, all but one of which will be operated by Cairn India. The 2008 seismicacquisition will position Cairn India for an extensive drilling programme in2009. Five wells are expected to be drilled in RJ-ON-90/1 from the third quarter of2008, including appraisal of the 2003 Kameshwari Discovery and drilling ofunder-explored plays within the basin. An important well in GV-ONN-2002/1, inthe state of Bihar, will test the potential of this part of the frontier GangaBasin. Cairn India continues to invest a substantial amount of effort into explorationnew ventures. Two bid applications for blocks in the Sri Lanka bid round havebeen submitted. The company is also actively evaluating the blocks available inIndia as part of the NELP VII Round, which is expected to close in April 2008. Cambay Basin - Western India Block CB/OS-2: (Cairn India 40% (Operator)) In the CB/OS-2 block the Lakshmi, Gauri and CB-X fields are primarily gasproducing, averaging a combined 50.0 million standard cubic feet of gas per day(mmscfd) sales rate. Oil/condensate production averaged 4,407 bopd during 2007 -this combines to total average field production of 12,746 boepd. CB/OS-2 oilproduction reached a daily record of more than 10,000 bopd gross in February2008. In September 2007 a drilling campaign began in CB/OS-2 with four wellssuccessfully drilled and completed as part of the further development of theLakshmi and Gauri fields. By February 2008 all of these wells have been placedon production. Three well workovers aimed at restoring production in wells withmechanical problems or allowing access to other hydrocarbon pools were alsosuccessfully completed. The oil potential of the Lakshmi and Gauri fields was recognised during theirappraisal and earlier development phases, with several wells encountering andtesting oil columns. An appraisal well LA East South-1 was drilled. The wellwhich intersected water bearing sands with traces of oil was plugged andabandoned. CB-ONN-2002/1 (Cairn India 30% (ONGC Operator)) A three well drilling programme is expected to commence in 2008. Krishna-Godavari Basin - Eastern India Ravva (Cairn India 22.5% (Operator)) Average gross production from the Ravva field for 2007 was 60,441 boepd(comprising average oil production of 48,078 bopd and average gas production of74.18 mmscfd). The Ravva field now has a history of production of more than 14 years. An infilldrilling campaign commenced in the field in October 2006, which was aimed atextending the plateau and adding reserves. The Ravva field has been producing atits plateau rate of approximately 50,000 bopd for eight years and it isanticipated that the infill development will help to maintain the plateau and/orminimise decline. The recent infill campaign, in which four new producers andthree new injectors have been drilled, has been successful in meeting thedesired objectives. Production has now commenced from the four new infill wells. In addition, twowater injection wells have been put into service to enhance the reservoirwater-flood scheme, while the third is planned to start injection in March 2008.Two well workovers were also completed. Based on the results of three exploration/appraisal wells, two discoverynotifications were issued to the GoI. The first well RX-10 encountered gas butin sub-commerical quantities. The RX-8 exploration well found oil and gas infour Miocene reservoirs. The total hydrocarbon-bearing sands intersected in fourpay zones extend to 44 metres net. A further well RB-4 was drilled to appraisethe extent of this discovery and a series of thin sands were completed in thiswell for future production. KG-DWN-2003/1 (Cairn India 49% (Operator - exploration phase)) The acquisition of a 500 km 2D seismic programme commenced in January 2008 to befollowed by the acquisition of a 200km2 3D programme. Planning has commenced insupport of drilling between three and five exploration wells from the beginningof 2009. KG-DWN-98/2 (Cairn India 10% (ONGC Operator)) The JV has approved a three well appraisal programme for 2008, together withadditional 3D seismic acquisition. Discussions with the GoI continue withrespect to approval of an appraisal period under the PSC for appraisal of thediscoveries made in the block to date. PR-OSN-2004/1 (Cairn India 35%, (Operator)) The acquisition of an offshore 3,100 km 2D seismic programme commenced in March2008. Ganga Basin- Northern India GV-ONN-2002/1 (Cairn India 50% (Operator) Capricorn 50%) An exploration well on this PSC will be drilled in 2009. Full environmentalapprovals are expected shortly and site construction is expected to be completedearly in the third quarter. GV-ONN-97/1 (Cairn India 15% Capricorn 15% (ONGC, Operator)) A well, Banda-1, was spudded at the end of 2007 and was still operating at 31March 2008. GV-ONN-2003/1 (Cairn India 49% (Operator - exploration phase) Capricorn 25%) The acquisition of a 550 km 2D seismic programme is expected to commence in2008. Rest of India VN-ONN-2003/1 (Cairn India 49% (Operator - exploration phase)) The acquisition of a 500 km 2D seismic programme is expected to commence in2008. RJ-ONN-2003/1 (Cairn India 30% (ENI Operator)) At least one well is expected to be drilled in 2008. KK-DWN-2004/1 (Cairn India 40% (ONGC, Operator)) A 3,500 km 2D seismic programme is expected to be acquired in 2008. CAPRICORN In addition to its positions in Bangladesh and Nepal, the main strategicobjective for Capricorn in 2007 was to secure new acreage opportunities offeringlong-term organic growth potential. The successful implementation of thisstrategy is evidenced by the entry into Tunisia, as a result of the corporatetakeovers of Plectrum and medOil, and the acquisition of new acreage inGreenland. Capricorn continues to evaluate further potential growthopportunities. Capricorn now has assets in south Asia (northern India, Bangladesh and Nepal),the Mediterranean (Tunisia, Albania and pending licence awards in Spain andSicily), Peru, Papua New Guinea and Greenland. As a result of an ongoingrationalisation programme, the exploration interests inherited from Plectrum inAustralia (Bremer Basin) and the UK (West of the Shetlands) are considered to benon-core assets. BANGLADESH Production and Development An offshore drilling campaign in Block 16 commenced in January 2007 during whichtwo wells (South Sangu-3 and Sangu-10) were drilled. The appraisal well SouthSangu-3, was drilled to evaluate the earlier South Sangu discovery, andencountered sub-commercial quantities of gas. The development well Sangu-10, wasdrilled as an extended reach delineation well in the main Sangu field andencountered gas in new sand above the main producing intervals contained in whatis considered to be a small, isolated gas bearing reservoir. Production from the Sangu field is declining and efforts are being focussed onextending the economic life of the field. The separate shallower reservoir inSangu-10 was brought on production in March 2008 as part of an ongoing wellintervention programme at an initial rate of 20 mmscfd. Exploration A two-well exploration drilling programme over the 2007/2008 winter has resultedin a gas discovery in normally-pressured reservoirs in the Magnama 1 well, whilegas shows were encountered in the Hatia 1 well. Further appraisal work will berequired over Magnama before commerciality can be established and considerationis being given to evaluating the updip potential at Hatia. NEPAL The security situation in Nepal continues to be monitored closely. Contractualforce majeure remains in place in Capricorn's acreage in Nepal precluding newseismic acquisition. As soon as the security situation permits, final planningfor seismic field operations will re-commence. TUNISIA The key objective of the Plectrum and medOil acquisitions was to acquire amaterial acreage position in Tunisia and Capricorn now has a 50% interest in theNabeul permit and a 100% interest in the Louza permit, both of which areoperated by Capricorn and are located offshore Tunisia. It is currently plannedto drill two to four exploration wells in Tunisia between Q4 2008 and Q4 2009with first activity commencing on the Louza permit. GREENLAND Capricorn announced on 10 January 2008, that it has an interest in sixhydrocarbon licences offshore west Greenland, having recently been awarded fourblocks and acquired an interest in a further two blocks from EnCana Corporation.The six exploration blocks cover a combined total area of approximately 52,000km2. Capricorn's interests are as follows:- •an 87.5% operated interest in two blocks (Sigguk and Eqqua) awarded in the Disko West Licensing Round; •a 92% operated interest in two blocks (Saqqamiut and Kingittoq) awarded in the Open Door Area; and •a 40% non-operated interest in two blocks (Atammik and Lady Franklin) acquired from EnCana. It is the intention to acquire 8,000km of 2D seismic over the operated blocks in2008/2009. An electromagnetic survey is being planned over the Atammik and LadyFranklin blocks during 2008 by EnCana, the operator. In line with its licence agreements, Capricorn is working with the national oilcompany, Nunaoil A/S, and the Greenlandic and Danish authorities to ensurecompliance with the environmental regulations and procedures coveringexploration activities offshore Greenland. OTHER ASSETS Seismic surveys are being planned for offshore blocks in Albania and Peru for2008/2009. Licence applications have been made in Sicily and Spain. Blocks inthe Bremer Basin (Australia) and the west of Shetlands are considered non-coreassets. Talisman the operator for Block PRL-1 in Papua New Guinea, is seeking a licenceextension and if granted by the Government is planning to acquire a 3D seismicsurvey in 2009 over the Pandora gas field and other prospects. GROUP PRODUCTION The Group's entitlement production for 2007 was 19,809 boepd net to Cairn,compared to 24,523 boepd in 2006. Production (boepd) Ravva CB/OS-2 Sangu Total Gross field 60,441 12,746 13,844 87,031Working interest 13,599 5,098 9,765 28,462Entitlement interest 7,124 4,878 7,807 19,809 Cairn's current entitlement interest production is 63% gas: 37% oil. The averageprice per boe realised in 2007 was $39.70, compared with $31.84 in 2006. Theaverage price realised by Cairn India for oil was $73.56/bbl (2006: $66.32/bbl)and for gas was $23.39/boe (2006: 21.03/boe). The average realised price forgas in Capricorn was $17.60/boe (2006: $17.59/boe) On commencement of oil production from Rajasthan the vast majority of Groupproduction will be oil and, as a consequence, the Group will become much morehighly geared to prevailing oil prices. Group Entitlement Reserves The table below shows reserves information at the end of 2007 on an entitlementbasis for the Group (including 100% of Cairn India reserves). For accounting andreserves purposes, the Group has used an oil price of $60 per bbl (real) (2006:$30 per bbl (real)). Reserves Produced in Additions Revisions Reserves 31.12.06 2007 in 2007 in 2007 31.12.07 mmboe mmboe mmboe mmboe mmboe India 185.7 (4.4) 1.5 * (13.4) 169.4Bangladesh 10.3 (2.8) - ** (6.7) 0.8Total 196.0 (7.2) 1.5 (20.1) 170.2 * The revision is made up of an increase of 29.2 mmboe (primarily Mangala grossreserves revision) offset by a decrease of 42.6 mmboe (due solely to theincrease in the oil price assumption from $30/bbl to $60/bbl). ** The downward revision includes a write down of Sangu reserves of 3.5 mmboeand the sale of 50% of our share of Sangu to Santos amounting to 3.2 mmboe. On a direct working interest basis, booked reserves as at 31 December 2007totalled 255.3 mmboe (2006: 230.5 mmboe), comprising 254.3 mmboe in India and1.0 mmboe in Bangladesh. India Reserves The net entitlement 2P reserves for Mangala, Saraswati and Raageshwari werebooked in 2005 following the approval by the GoI of the FDPs. Since submissionof the original Mangala FDP, two additional wells have been drilled andextensive reservoir studies completed. During 2007 the STOIIP volumes in Mangalaand Aishwariya have been updated based on the results of remapping, moreaccurate water saturation determination, a comprehensive petrophysical review.EOR studies establishing its feasibility to augment secondary recovery have alsobeen undertaken. A reserves report was submitted to the GoI in December 2007with the higher STOIIP estimate of just under 1.3 billion boe and recommendingan increase in the Mangala field plateau production rate to 125,000 bopd andimplementation of an EOR pilot. The proposed development sequence for the Rajasthan northern fields remainsMangala, Bhagyam and Aishwariya. The Bhagyam FDP was submitted to the JV and theGoI in May 2007. As at 2007 year end the GoI approval for Bhagyam wasoutstanding and the associated reserves were therefore not booked. FDPs forother fields including Shakti and Guda are currently in preparation. Bangladesh Reserves Sangu gross 2P remaining reserves have been reduced by 70.1 billion standardcubic feet of gas (bscf) to 15.6 bscf. This reduction is attributable to thedisappointing results from the Sangu-10 infill development well drilled in 2007,despite finding gas in a shallower reservoir, and poorer than predictedperformance from existing production wells. Well intervention work has beencompleted during Q1 2008 as a result of which production has been recovered to75mmcfd thus ameliorating the production decline. Sangu net entitlement 2Preserves are now 0.8 mmboe, which represents less than 0.5% of total bookedGroup reserves. FINANCIAL REVIEW Cairn enters 2008 with the financial flexibility to drive forward the Rajasthandevelopment and to pursue opportunities for growth. Cairn has net cash of $827m,positive operating cash flows and total facilities of $910m. In addition Cairnwill receive approximately $625m in April, following formal approval of theprivate placement of shares to Petronas and Orient Global. Key financial performance indicators 2007 2006 % Increase/ (Decrease) Production (boepd) 19,809* 24,523* (19.2)Average price per boe ($) 39.70 31.84 24.7Turnover ($m) 287.7 286.3 0.5Average production costs per boe ($) 9.20 6.36 44.7Operating loss ($m) (76.3) (64.6) 18.1Profit/(loss)before tax ($m) 1,553.2 (91.8) ** 1,791.9Exceptional items ($m) 1,577.3 - -Profit/(loss) after tax ($m) 1,527.8 (97.1) ** 1,673.4Cash flow from operating activities ($m) 155.3 189.4 (18.0)Net assets ($m) 1,749.8 678.8** 157.8Net cash ($m) 827.3 701.3*** 18.0 *on an entitlement interest basis **restated ***includes $751.8m raised in pre IPO placing Accounting overview On 9 January 2007, Cairn India was floated on the Bombay Stock Exchange and theNational Stock Exchange of India. The total proceeds (before expenses) raised inthe flotation were $1,984.1m, with $935.7m (including expenses) returned toshareholders in 2007, a return of £3 per share. Cairn India retained $600m, with the remainder of the proceeds held to fundCairn's exploration-led subsidiary, Capricorn. On 7 September 2007, Dyas BV acquired a 10% holding in Capricorn for a totalconsideration, before expenses, of $91.0m. Cairn Energy PLC's consolidated accounts include 100% of the results of both ofthese subsidiary undertakings, Cairn India and Capricorn. The interests held byexternal shareholders (31% in Cairn India and 10% in Capricorn) are thenreflected as minority interest adjustments. On 7 September 2007, the Group announced two recommended cash offers totalling$76.2m (before expenses) - one for Plectrum Petroleum Plc and the other formedOil plc. Both of these offers were declared unconditional on 10 October 2007and their results are included in the Group's consolidated financial statementsfrom that date. On 25 October 2007, Santos International Holdings Pty acquired 100% of CairnEnergy Bangladesh Limited from the Group (50% of Cairn's Bangladesh position)for a total cash consideration of $55.8m. This has been reflected as a disposalof oil and gas assets. The prior year financial statements have been adjusted for changes in theaccounting for deferred tax and financial assets. The net impact of theseadjustments in 2006 was an increase in the loss for the year attributable toequity holders from $82.0m to $97.1m and a decrease in net assets from $681.2mto $678.8m. PROFIT AND LOSS Turnover Revenue for the year was $287.7m (2006: $286.3m). Production for the year, on an entitlement interest basis, has decreased by 19%to 19,809 boepd (2006: 24,523 boepd). This is primarily due to reduced fieldproduction at both Sangu and CB/OS-2. The Group's production continues to be predominantly gas (circa 63% on anentitlement basis). This production mix, together with price caps in the gascontracts, results in an average price realised by the Group for the year of$39.70 per boe (2006: $31.84 per boe). The increase is due primarily to thehigher oil price environment in 2007. Gross Profit The Group generated a gross profit of $61.5m (2006: $63.9m). Cost of sales for the year was $226.2m (2006: $222.4m). This includes awrite-off of unsuccessful exploration costs and general exploration expenditureof $40.7m (2006: $62.0m) in accordance with the Group's successful efforts basedaccounting policies. Production costs for the year were $66.5m (2006: $56.9m). These includepre-exploration costs expensed and stock movements. Production costs per boehave increased to $9.20 per boe (2006: $6.36 per boe) due in part to higherpre-award/new venture costs and the impact of workover costs for Ravva, but alsoto the fall in entitlement production, with fixed costs spread over a smallerproduction base. The average Group rate for depletion and decommissioning has increased by 15.0%to $13.29 per boe (2006: $11.56 per boe), mainly as a result of the downgrade ofthe Sangu reserves as outlined in the Operational Review. Profit for the Year Administrative expenses for the year were $88.4m (2006: $60.3m). These include acharge of $32.2m (2006: $18.5m) for share based payments plus associated taxes.Cairn India's underlying administrative expenses have also increased followingits establishment as an autonomous business with its own listing. An impairment charge of $51.8m has been made in respect of Bangladeshexploration blocks 5, 7 and 10 and the Magnama-1 well and Hatia-1 well in Block16. The costs of these two wells have been impaired until the future plans toassess their potential have been completed. The carrying value of the Group'sexploration assets in Nepal of $7.1m has also been impaired given the continueduncertainty over the lifting of contractual force majeure. Net finance income for the year was $34.8m (2006 restated: net finance cost$27.3m). Finance income increased from $4.6m to $65.2m reflecting interestgenerated on cash balances held following the IPO of Cairn India at thebeginning of the year. Finance costs include a realised foreign exchange loss of$23.1m (2006: $14.2m) and a $3.3m (2006: $9.7m) fair value charge in respect offoreign exchange options entered into to manage currency exposure. Realisedforeign exchange losses arose primarily due to the treatment under IFRS ofexchange movements on intra-group funding arising from the weakening of the USdollar against Sterling in the year. In accordance with IFRS 3 'Business Combinations', negative goodwill arising onthe acquisition of medOil plc has been recognised immediately in the IncomeStatement. The Group made an exceptional gain of $1,537.0m on the disposal of 31% of CairnIndia through the IPO and an exceptional gain of $40.3m on the disposal of 10%of Capricorn Energy to Dyas BV. These gains are not chargeable to tax. The tax charge for the year was $25.4m (2006 restated: $5.3m). The Group's profit for the year is $1,527.8m (2006 restated: loss $97.1m). BALANCE SHEET Capital expenditure Balance sheet additions during the year were $591.5m (2006: $284.0m), brokendown as follows: 2007 2006 $m $mAcquisition of subsidiaries 139.5 -Exploration/appraisal assets 180.5 161.0Development/producing assets 245.6 110.5Other assets 25.9 12.5 Total 591.5 284.0 Acquisition of subsidiaries relate to the acquisitions of Plectrum Petroleum Plcand medOil plc. Exploration/appraisal expenditure by Cairn India during the year relatesprincipally to the continued drilling programme in Rajasthan. Capricorn'sexploration/appraisal programme comprised three wells in Bangladesh - SouthSangu-3, Magnama-1 and Hatia-1 wells (Hatia was completed in 2008). The majority of the development expenditure was on Rajasthan, plus some activityon Ravva and Sangu as described in the Operational Review. CASH FLOW Cash flows from operating activities Cash generated from operating activities has decreased to $155.3m (2006:$189.4m). Interest paid was $6.7m (2006: $5.6m) and income tax payments during2007 were $14.7m (2006: $12.2m). Cash flows from investing activities Cash outflows from investing activities during 2007 were $398.8m (2006: $256.1m)and included the following items: 2007 2006 $m $m Exploration/appraisal expenditure 156.4 157.5Development/producing expenditure 244.0 115.0Other capital expenditure 10.6 9.1 The acquisitions of Plectrum Petroleum Plc and medOil plc are also includedwithin cashflows from investing activities, as is the disposal of Cairn EnergyBangladesh Limited to Santos. Cash flows from financing activities Cashfows from financing activities includes proceeds from the IPO of CairnIndia, received in January 2007 and the acquisition of 10% of Capricorn Energyby Dyas BV in September 2007. In April 2007, following the IPO of Cairn India, the Group returned cash toshareholders of £3 per share, a total return of $935.7m (including expenses). Net assets/net cash Net assets at 31 December 2007 were $1,749.8m (2006 restated: $678.8m). At theyear end, the Group had net cash of $827.3m (2006: $701.3m). Post balance sheet events In March 2008, Cairn India arranged a private placement of approximately $625mwith Petronas and Orient Global Tamarind Fund Pte Limited, who have agreed tosubscribe for a total of 113 million shares. As a result of this privateplacement Cairn Energy's holding in Cairn India will reduce from 69% to 65%. Thecash is due to be received in April, following formal approval of thetransaction. Financial strategy and outlook During 2007 the two separate businesses have been fully established withinCairn, each with their own financial strategy and funding needs. In Cairn India,the development programme underway in the Rajasthan project will generate levelsof cash flow previously unseen in the group and provide the springboard forfuture growth. As well as the cash on the Balance Sheet, the strong operatingcash flows and the cash raised through the recent equity issue, there isdedicated project credit facility already in place and discussions to extendthis are at an advanced stage. In Capricorn, the business is exploration led and the investments planned for2008 and beyond will drive future growth on this side of the business. Thetransactions with Dyas and Santos during the year have demonstrated the range ofoptions open to the Capricorn business and provided the cash to fund the initialstages of this investment programme. It is now key to ensure that the availablefunds are targeted on the real growth opportunities in this portfolio. Jann BrownFinance Director, 28 March 2008 Group Income StatementFor the year ended 31 December 2007 ----------------------- ------ -------- -------- -------- -------- Notes Group Group 2007 2006 $'000 (Restated) $'000 ----------------------- ------ -------- -------- -------- -------- Revenue 287,656 286,304 Cost of salesProduction costs (66,483) (56,931)Unsuccessful exploration (40,714) (62,018)costsDepletion and (118,994) (103,487)decommissioning charge ----------------------- ------ -------- -------- -------- --------Gross profit 61,465 63,868 Other operating income 6,010 3,340Administrative expenses (88,430) (60,323)Impairment of intangibleexploration/appraisal (58,924) -assetsImpairment of property,plant & equipment - - (71,455)development/producingassetsReversal of impairment ofproperty, plant & 3,718 -equipment - development/producing assetsLoss on sale of oil and gas (89) -assets ----------------------- ------ -------- -------- -------- --------Operating loss (76,250) (64,570) Negative goodwill on 17,373 -acquisitionExceptional gain on deemed disposalof 1,577,276 -subsidiariesFinance income 65,176 4,603Finance costs (30,339) (31,875)----------------------- ------ -------- -------- -------- -------- Profit/(loss) before 1,553,236 (91,842)taxationTaxation expense on profit/ 7 (25,391) (5,280)(loss) ----------------------- ------ -------- -------- -------- -------- Profit/(loss) for the year 1,527,845 (97,122)----------------------- ------ -------- -------- -------- -------- Attributable to:Equity holders of the 1,519,653 (97,122)parentMinority interests 8,192 ------------------------ ------ -------- -------- -------- --------Earnings per ordinary share 4 1,120.38 (61.60)- basic (cents)Earnings per ordinary share 4 1,118.57 (61.60)- diluted (cents) ----------------------- ------ -------- -------- -------- -------- Group Statement of Recognised Income and Expense For the year ended 31 December 2007 ---------------------------- ---------- --------- -------- Notes Group Group 2007 2006 $'000 $'000 ---------------------------- ---------- --------- -------- Income and expense recognised directly inequity Surplus on valuation of financial assets 9 8,037 -Surplus on valuation of financial assets -prior - 603year adjustmentCurrency translation differences 9 27,524 10,725---------------------------- ---------- --------- --------Total income recognised directly in equity 35,561 11,328---------------------------- ---------- --------- -------- Profit/(loss) for the year Profit/(loss) for the year 1,527,845 (82,017)Prior year adjustment - (15,105)---------------------------- ---------- --------- --------Profit/(loss) for the year (restated) 1,527,845 (97,122)---------------------------- ---------- --------- --------Total recognised income and expense for the 1,563,406 (85,794)year ---------- --------- ------------------------------------ Attributable to:Equity holders of the parent 1,549,215 (85,794)Minority interests 14,191 ----------------------------- ---------- --------- -------- 1,563,406 (85,794)---------------------------- ---------- --------- -------- Group Balance Sheet As at 31 December 2007 ------------------------ --------- ------- -------- --------- Notes Group Group 2007 2006 $'000 (Restated) $'000 ------------------------ --------- ------- -------- ---------Non-current assetsIntangible exploration/appraisal assets 607,055 419,239Property, plant & equipment - development/producing 498,223 394,010assetsProperty, plant & equipment - other 6,566 5,891Intangible assets - other 25,276 6,724Available for sale financial assets 15,905 7,868------------------------------- ------- -------- --------- 1,153,025 833,732------------------------------- ------- -------- ---------Current assetsInventory 7,978 4,615Trade and other receivables 307,003 218,159Bank deposits 8 30,053 -Cash and cash equivalents 8 872,272 856,266Derivative financial instruments 2,479 -Income tax assets 7,935 -------------------------------- ------- -------- --------- 1,227,720 1,079,040------------------------------- ------- -------- ---------Total assets 2,380,745 1,912,772------------------------------- ------- -------- --------- Current liabilitiesTrade and other payables 273,570 897,232Obligations under finance leases 1,949 1,380Provisions 17,766 6,845Derivative financial instruments - 9,694Income tax liabilities 76 6,064------------------------------- ------- -------- --------- 293,361 921,215------------------------------- ------- -------- ---------Non-current liabilitiesLoans and borrowings 8 75,000 155,000Obligations under finance leases 2,431 3,092Provisions 40,061 24,740Deferred tax liabilities 220,076 129,965------------------------------- ------- -------- --------- 337,568 312,797------------------------------- ------- -------- ---------Total liabilities 630,929 1,234,012------------------------------- ------- -------- ---------Net assets 1,749,816 678,760------------------------------- ------- -------- ---------Equity attributable to equity holders of theparentCalled-up share capital 9 15,845 25,870Share premium 9 210,901 201,019Shares held by ESOP Trust 9 (32,019) (55,756)Foreign currency translation 9 23,996 2,798Capital reserves - non distributable 9 40,222 40,222Retained earnings 9 1,064,148 464,607------------------------------- ------- -------- --------- 1,323,093 678,760Minority interests 9 426,723 -------------------------------- ------- -------- ---------Total equity 1,749,816 678,760------------------------------- ------- -------- --------- Group Statement of Cash Flows For the year ended 31 December 2007 Notes Group Group 2007 2006 $'000 (Restated) $'000Cash flows from operating activitiesProfit/(loss) before taxation 1,553,236 (91,842)Unsuccessful exploration costs 40,714 62,018Depletion, depreciation, decommissioning andamortisation 125,326 110,494Share based payments charge 25,274 13,304Impairment and impairment reversals of oil andgas 55,206 71,455assetsLoss on sale of oil and gas assets 89 -Negative goodwill on acquisition (17,373) -Exceptional gain on deemed disposal of (1,577,276) -subsidiariesFinance income (65,176) (4,603)Finance costs 30,339 31,875Net interest paid (6,708) (5,599)Income tax paid (14,716) (12,184)Gain on sale of other non current assets - (2)Foreign exchange differences (2,829) (282)Movement on inventory of oil and condensate (3,363) 918Trade and other receivables movement 1,883 (7,037)Trade and other payables movement 8,039 15,139Movement in other provisions 2,611 5,762---------------------------- -------- -------- -------Net cash generated from/(used in) operating 155,276 189,416activities ---------------------------- -------- -------- ------- Cash flows from investing activitiesExpenditure on intangible exploration/appraisal (156,394) (157,535)assetsExpenditure on tangible development/producing (244,009) (114,995)assetsPurchase of property, plant & equipment - other (2,122) (1,346)Purchase of intangible assets - other (8,443) (7,779)Acquisition costs for business combinations (77,295) -Cash acquired as a result of business 7,335 -combinationsCash disposed of on disposal of subsidiary (6,738) -Proceeds on disposal of subsidiary 54,393 -Proceeds on disposal of property, plant &equipment - - 20otherMovement in funds on bank deposits (30,053) 20,000Interest received 64,532 5,568---------------------------- -------- -------- -------Net cash (used in)/from investing activities (398,794) (256,067)---------------------------- -------- -------- ------- Cash flows from financing activitiesPayment of costs for deemed disposal of (64,304) (23,276)subsidiariesProceeds from deemed disposal of subsidiaries 1,323,329 751,849Arrangement and facility fees (22,759) (17,074)Proceeds from issue of shares 9,968 3,219Purchase of own shares - (21,659)Payment of finance lease liabilities (1,405) (285)(Repayment)/drawdown of loan facilities (80,000) 155,000Return of cash to shareholders (935,653) ----------------------------- -------- -------- -------Net cash flows from/(used in) financing 229,176 847,774activities ---------------------------- -------- -------- ------- Net (decrease)/increase in cash and cash (14,342) 781,123equivalentsOpening cash and cash equivalents at beginning 856,266 75,509of yearExchange gains/(losses) on cash and cash 30,348 (366)equivalents --------------------------- --------- -------- -------Closing cash and cash equivalents 8 872,272 856,266--------------------------- --------- -------- ------- Notes to the Preliminary Financial Statements 1. Accounting Policies and Presentation of Financial information Cairn prepares its accounts in accordance with applicable InternationalFinancial Reporting Standards (IFRS) as adopted by the EU. The financial information contained in this announcement does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. However,the financial statements contained in this announcement are extracted from theaudited statutory accounts for the financial year ended 31 December 2007, whichwill be delivered to the Registrar of Companies. All accounting policies applied are consistent with those adopted and disclosedin the Group's annual financial statements for the year ended 31 December 2006,except where the Group has adopted new IFRS. During the year, the Group adoptedInternational Financial Reporting Interpretations Committee (IFRIC) 8 'Scope ofIFRS 2'; amendment to IFRS 2 'Share-based payment' Vesting Conditions andCancellations"; amendment to International Accounting Standard (IAS) 1'Presentation of Financial Statements - Capital Disclosures'; and IFRS 7'Financial Instruments: Disclosures', amendment to IAS 32 'FinancialInstruments: Disclosure and Presentation'. The prior year financial statements have been restated to correct the accountingfor deferred tax and financial assets. The net impact of these adjustments in2006 was an increase in the loss for the year attributable to equity holdersfrom $82.0m to $97.1m and a decrease in net assets from $681.2m to $678.8m. 2. Going Concern The directors have considered the factors relevant to support a statement ongoing concern. They have a reasonable expectation that the Group will continuein operational existence for the foreseeable future and have therefore used thegoing concern basis in preparing the financial statements. 3. Cash returned to Shareholders In April 2007, Cairn Energy PLC returned cash to shareholders of £3 per shareout of the proceeds of the flotation of Cairn India Limited on the Bombay StockExchange and National Stock Exchange of India. Total cash returned was$935,653,000 including costs of the transaction. No further dividend isproposed. 4. Earnings per share The earnings per ordinary share is calculated on a profit of $1,519,653,000(2006 (restated): loss $97,122,000) and on a weighted average of 135,637,411ordinary shares (2006: 157,654,751). The weighted average of ordinary sharesexcludes shares held by the Cairn Energy PLC Employees' Share Trust. Noretrospective adjustment was made to the weighted average number of shares,relating to the share consolidation of 23 March 2007, as there was acorresponding change in resources in the form of the return of cash toshareholders. The diluted earnings per ordinary share is calculated on a profit of$1,519,511,000 and on 135,844,139 ordinary shares. The profit of $1,519,511,000reflects the reduced profit attributable to equity holders of the parent afterpotential Cairn India Limited share option issues. The 135,844,139 ordinaryshares is the basic weighted average of 135,637,411 ordinary shares and the206,728 dilutive potential ordinary shares relating to share options. In respect of 2006, 587,128 potential ordinary shares were anti-dilutive. Notes to the Preliminary Financial Statements (continued) 5. 2007 Annual Report and Accounts Full accounts are due to be posted to shareholders on Wednesday 23 April 2008and will be available at the Company's registered office, 50 Lothian Road,Edinburgh, EH3 9BY, from that date. The Annual General Meeting is due to be held on Friday 23 May 2008 at 12.00 pm. 6. Segmental Analysis Geographic segments The Group's operating activities are organised into two distinct sub-Groups, theCapricorn Energy Group and the Cairn India Limited Group, each reportinginternally to its own chief executive. A third segment 'Other' exists toaccumulate the activities and results of Cairn UK Holdings Limited and CairnEnergy PLC company which includes the administrative expenses of Cairn's headoffice in Edinburgh. Unallocated expenditure and net assets/(liabilities)including amounts of a corporate nature, not specifically attributable to one ofthe sub-Groups, are also included within "Other". The Capricorn Energy Group's operations focus on the Group's South Asian assetsin Bangladesh and Nepal together with new exploration activities in Tunisia,Greenland and the rest of the world. The Cairn India Limited Group's operationsare entirely within India. Notes to the Preliminary Financial Statements (continued) 6. Segmental Analysis (continued) The segment results for the year ended 31 December 2007 are as follows: Cairn India Capricorn Other Group Group Energy Group 2007 $'000 $'000 $'000 $'000 Revenue from saleof oil, gas andcondensate 236,724 50,147 - 286,871Tariff income 785 - - 785----------------------- --------- --------- --------- ---------Total revenue 237,509 50,147 - 287,656 Cost of sales (123,466) (102,725) - (226,191)----------------------- --------- --------- --------- ---------Grossprofit/(loss) 114,043 (52,578) - 61,465----------------------- --------- --------- --------- --------- Segmentaloperatingprofit/(loss) 71,215 (120,179) (27,286) (76,250)----------------------- --------- --------- --------- --------- Cost of sales in the segmentresults above includes:Production costs (45,497) (20,986) - (66,483)Unsuccessfulexploration costs (15,347) (25,367) - (40,714)Depletion anddecommissioningcharge (62,622) (56,372) - (118,994) Other segment items includedin the IncomeStatement are:Depreciation (1,544) (56) (422) (2,022)Amortisation (2,582) (1,610) (118) (4,310)Impairment losseson financialassets (Otherloans andreceivables) (2,547) (1,059) - (3,606)Impairment ofintangibleexploration/appraisal assets - (58,924) - (58,924)Reversal ofimpairment ofproperty, plant &equipment -development/producing assets - 3,718 - 3,718Loss on sale ofoil and gasassets - (89) - (89)Negative goodwill - 17,373 - 17,373Exceptional gainon deemeddisposal ofsubsidiaries - - 1,577, 276 1,577,276 Notes to the Preliminary Financial Statements (continued) 6. Segmental Analysis (continued) The segment results for the year ended 31 December 2006 were as follows: Cairn India Capricorn Other Group Group Energy Group (restated) 2006 (restated) $'000 $'000 $'000 $'000 Revenue from saleof oil, gas andcondensate 221,956 63,753 - 285,709Tariff income 595 - - 595----------------------- --------- --------- --------- ---------Total revenue 222,551 63,753 - 286,304----------------------- --------- --------- --------- --------- Cost of sales (143,751) (78,685) - (222,436) ----------------------- --------- --------- --------- ---------Grossprofit/(loss) 78,800 (14,932) - 63,868----------------------- --------- --------- --------- --------- Segmentaloperatingprofit/(loss) 119,725 (143,675) (40,620) (64,570)----------------------- --------- --------- --------- --------- Cost of sales in the segmentresults above includes:Production costs (38,585) (18,346) - (56,931)Unsuccessfulexploration costs (56,650) (5,368) - (62,018)Depletion anddecommissioningcharge (48,516) (54,971) - (103,487) Other segment items included inthe IncomeStatement are:Depreciation (2,393) (3) (749) (3,145)Amortisation (2,242) - (1,620) (3,862)Impairment losseson financialassets (Otherloans andreceivables) (3,332) (1,274) - (4,606)Impairment ofintangibleexploration/appraisal assets - (71,455) - (71,455) The segment assets and liabilities as at 31 December 2007 and capitalexpenditure for the year then ended are as follows: ----------------------- --------- --------- --------- --------- Cairn India Capricorn Other Group Group Energy Group 2007 ----------------------- --------- --------- --------- --------- $'000 $'000 $'000 $'000 Assets 1,761,816 593,916 25,013 2,380,745 Liabilities 331,423 73,439 226,067 630,929 Capitalexpenditure 320,820 266,298 4,393 591,511 Capital expenditure includes exploration assets acquired through businesscombinations. Notes to the Preliminary Financial Statements (continued) 6. Segmental Analysis (continued) The segment assets and liabilities as at 31 December 2006 and capitalexpenditure for the year then ended are as follows: ----------------------- --------- --------- --------- --------- Cairn India Capricorn Other Group Group Energy Group (restated) (restated) 2006 (restated) ----------------------- --------- --------- --------- --------- $'000 $'000 $'000 $'000 Assets 1,099,794 151,250 661,728 1,912,772 Liabilities 1,132,689 35,620 65,703 1,234,012 Capitalexpenditure 249,622 31,624 2,715 283,961 Segment assets include intangible exploration/appraisal assets; property, plant& equipment - development/producing assets; property, plant & equipment - other;intangible assets - other; trade receivables and operating cash. They excludeinter-company balances. Segment liabilities comprise operating liabilities and exclude items such astaxation, corporate borrowings and inter-company balances. Other assets include assets of Cairn's head office in Edinburgh, as well asinterest receivable, deposits, cash and cash equivalents of the Group whichcannot be allocated to an operating segment. Other liabilities include liabilities of Cairn's head office in Edinburgh, aswell as income tax liabilities and deferred tax liabilities of the Group whichcannot be allocated to an operating segment. Business Segments Cairn operates in only one business segment, being the oil and gas extractiveindustry, and therefore no business segmental analysis is provided. Notes to the Preliminary Financial Statements (continued) 7. Taxation on Profit/(Loss) a) Analysis of tax charge in year 2007 2006 (restated) $'000 $'000Current tax: UK corporation taxAdjustments in respect of prior periods (7,589) (1)------------------------------ -------- -------- (7,589) (1)------------------------------ -------- -------- Foreign TaxIndian Minimum Alternate Tax on profits for the 8,978 8,273year at 10.53% (2006: 9.80%)Adjustments in respect of prior periods 1,580 -Withholding taxes deducted at source 302 1,388------------------------------ -------- -------- 10,860 9,661------------------------------ -------- -------- Total current tax 3,271 9,660------------------------------ -------- -------- Deferred tax: United KingdomTemporary differences in respect of non current assets (1,571) (23,536)Losses (4,594) -Other temporary differences (171) (344)------------------------------- -------- -------- (6,336) (23,880)------------------------------- -------- -------- IndiaTemporary differences in respect of non current assets 25,820 20,282Losses 2,698 (178)Other temporary differences (62) (604)------------------------------- -------- -------- 28,456 19,500------------------------------- -------- --------Total deferred tax 22,120 (4,380)------------------------------- -------- --------Tax charge on profit/(loss) 25,391 5,280------------------------------- -------- -------- Notes to the Preliminary Financial Statements (continued) 7. Taxation on Profit/(Loss) (continued) b) Factors affecting tax charge for year A reconciliation of income tax expense applicable to profit/(loss) before incometax at the applicable tax rate to income tax expense at the Group's effectiveincome tax rate is as follows: 2007 2006 $'000 (restated) $'000 Profit/(loss) before taxation 1,553,236 (91,842)--------------------------- -------- -------- Tax at the weighted average rate of corporation tax of29.66% 460,690 (33,605)(2006 (restated): 36.59%) Effects of:Minimum Alternate Tax payable 8,978 4,506Adjustments in respect of prior periods - current tax (6,009) (1) - deferred tax (5,469) (4,084)Temporary differences not recognised 27,285 29,056Non-taxable gain on deemed disposal of subsidiaries (466,287) -Non-deductible expenses and non-taxable income (3,316) 7,421Withholding tax 302 1,388Foreign exchange movements 8,879 1,419Other 338 (820)--------------------------- -------- --------Total tax charge 25,391 5,280--------------------------- -------- -------- The applicable tax rate was the weighted average rate for the year of the UK,Netherlands, Australian, Indian, Jersey and Bangladesh tax rates. There havebeen no major changes in the statutory tax rates applying in each of thesejurisdictions, however, the weighted average rate is subject to fluctuationsfrom year to year based on the level of profits and losses which arise to theGroup in each jurisdiction. c) Factors that may affect future corporation tax charges At 31 December 2007 Cairn had losses of approximately $261.9m (2006: $167.4m)available for offset against future trading profits chargeable to UK CorporationTax. In addition there are surplus management expenses of $134.4m (2006: $54.0m)and non-trade deficits of $14.4m (2006: $26.7m) available for offset againstfuture investment income. There were no capital losses at 31 December 2007(2006: $24.3m) available to offset future capital gains arising in the UK. Thecapital losses are no longer carried forward within the Group following thedisposal of Cairn Energy Bangladesh Limited. None of the trading losses, surplusmanagement expenses or non-trade deficits have been recognised for deferred taxas there is no reasonable certainty that they will be used. Under UK tax law,tax losses may generally be carried forward indefinitely. At 31 December 2007 Cairn had losses of approximately $14.7m (2006: $14.7m)available for offset against future trading profits chargeable to NetherlandsCorporate Income Tax, but there are restrictions on the use of these losses.Under Netherlands tax law, losses may be carried forward for a period of up tonine years. No deferred tax asset has been recognised in respect of theselosses. Notes to the Preliminary Financial Statements (continued) 7. Taxation on Profit/(Loss) (continued) At 31 December 2007 Cairn had losses of approximately $373.6m (2006: $274.6m)available for offset against future trading profits chargeable to IndianCorporate Income Tax. Under Indian tax laws, losses may be carried forward for aperiod of up to eight years. These losses have not been recognised for deferredtax purposes as it is not sufficiently certain that they will be utilisedagainst future trading profits chargeable to Indian tax. $341.7m (2006: $269.3m)of the loss has not been recognised as it is expected that these losses willexpire during the period of an Indian tax holiday. The remaining $31.9m (2006:nil) of the loss has not been recognised due to expectations regarding the levelof income in the entity concerned. Tax losses incurred in one jurisdiction cannot usually be offset against profitsor gains arising in another jurisdiction. Notes to the Preliminary Financial Statements (continued) 8. Net funds At 1 January Cash flow New Finance Exchange At 31 December 2007 Leases movements 2007 $'000 $'000 $'000 $'000 $'000 Bank deposits - 30,053 - - 30,053-------------- --------- --------- --------- --------- ---------Cash at bank 27,573 (13,986) - 11,907 25,494Short termdeposits 828,693 (356) - 18,441 846,778-------------- --------- --------- --------- --------- ---------Cash and cashequivalents 856,266 (14,342) - 30,348 872,272Bank loans (155,000) 80,000 - - (75,000)-------------- --------- --------- --------- --------- ---------Net cash 701,266 95,711 - 30,348 827,325-------------- --------- --------- --------- --------- ---------Finance leases (4,472) 1,406 (768) (546) (4,380)-------------- --------- --------- --------- --------- ---------Net funds 696,794 97,117 (768) 29,802 822,945-------------- --------- --------- --------- --------- --------- At 1 January Cash flow New Finance Exchange At 31 December 2006 Leases movements 2006 $'000 $'000 $'000 $'000 $'000 Bank deposits 20,000 (20,000) - - --------------- --------- --------- --------- --------- ---------Cash at bank 15,831 12,779 - (1,037) 27,573Short termdeposits 59,678 768,344 - 671 828,693-------------- --------- --------- --------- --------- ---------Cash and cashequivalents 75,509 781,123 - (366) 856,266Bank loans - (155,000) - - (155,000)-------------- --------- --------- --------- --------- ---------Net cash 95,509 606,123 - (366) 701,266-------------- --------- --------- --------- --------- ---------Finance leases - 953 (5,432) 7 (4,472)-------------- --------- --------- --------- --------- ---------Net funds 95,509 607,076 (5,432) (359) 696,794-------------- --------- --------- --------- --------- --------- As at the year end, the Group had cash balances equivalent to $213,000 (2006:$245,000) in Bangladeshi Taka in Bangladesh which are not readily convertibleinto other currencies. 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 tothree months depending on the cash requirements of the Group. Notes to the Preliminary Financial Statements (continued) 9. Equity Equity Shares held by Foreign Other Capital Retained Minority Total ESOP Trust currency reserves - non earnings Interests translation distributable Share Capital Reserves (Restated) Equity (Restated) $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 At 1 January2006 223,670 (37,311) (7,927) 215,713 45,331 318,122 - 757,598Prior yearadjustment - - - - - 12,092 - 12,092-------------- -------- -------- -------- -------- --------- -------- -------- ---------At 1 January2006(restated) 223,670 (37,311) (7,927) 215,713 45,331 330,214 - 769,690Exercise ofemployee shareoptions 3,219 - - - - - - 3,219Share basedpayments - - - - - 13,304 - 13,304Cost of sharesvesting - 3,214 - - - (3,214) - -Cost of sharespurchased - (21,659) - - - - - (21,659)Surplus onvaluation offinancialassets - - - - - 603 - 603Currencytranslationdifferences - - 10,725 - - - - 10,725Transfer toretainedearnings - - - (215,713) (5,109) 220,822 - -Loss for theyear - - - - - (97,122) - (97,122)--------------- -------- -------- -------- -------- --------- -------- -------- ---------At 1 January2007 226,889 (55,756) 2,798 - 40,222 464,607 - 678,760Exercise ofemployee shareoptions 9,968 - - - - - - 9,968Minorityinterestscreated ondeemeddisposal ofsubsidiaries - - - - - - 408,061 408,061Share basedpayments - - - - - 20,803 4,471 25,274Cost of sharesvesting - 9,935 - - - (9,935) - -Currencytranslationdifferences 2,820 - 21,198 - - - 3,506 27,524Cash returnedtoshareholders (12,931) 13,802 - - - (936,524) - (935,653)Surplus onvaluation offinancialassets - - - - - 5,544 2,493 8,037Profit for theyear - - - - - 1,519,653 8,192 1,527,845--------------- -------- -------- -------- -------- --------- -------- -------- ----------At 31 December2007 226,746 (32,019) 23,996 - 40,222 1,064,148 426,723 1,749,816--------------- -------- -------- -------- -------- --------- -------- -------- ---------- GLOSSARY OF TERMS The following are the main terms and abbreviations used in this announcement: $ United States dollars2D/3D two dimensional/three dimensional 2P proven plus probableASP alkaline-surfactant-polymerBoard the Board of Directors of Cairn Energy PLCboe barrels of oil equivalentboepd barrels of oil equivalent per daybopd barrels of oil per daybscf billion standard cubic feet of gasCairn Cairn Energy PLC and/or its subsidiaries as appropriateCairn India Cairn India Limited and/or its subsidiaries as appropriateCapricorn Capricorn Energy LimitedCompany Cairn Energy PLCDoC Declaration of CommercialityEOR enhanced oil recoveryEPC Engineering Procurement ContractFDP field development planFEED front end engineering and designGoI Government of IndiaGroup the Company and its subsidiariesIAS International Accounting StandardIFRS International Financial Reporting StandardsIPO initial public offering (of shares in Cairn India Limited)JV joint ventureMBA fields Mangala, Bhagyam and AishwariyamedOil medOil plcmmbbls million barrels of oilmmboe million barrels of oil equivalentmmscfd million standard cubic feet of gas per dayNELP VI Sixth New Exploration Licensing Policy roundNELP VII Seventh New Exploration Licensing Policy roundONGC Oil and Natural Gas CorporationPlectrum Plectrum Petroleum PlcPSC production sharing contractRoU Rights of UseSTOIIP Stock Tank Oil Initially in Place Notes to Editors: •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: •Cairn India Limited ("Cairn India") is now an autonomous business listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 14 Indian acreage blocks. Cairn currently retains a 69% interest in Cairn India. •Capricorn Energy Limited ("Capricorn"), a subsidiary of Cairn is the exploration focused arm. Capricorn now has assets in Bangladesh, Nepal, Northern India, Greenland, Tunisia, Peru, UK (West of Shetlands), Albania, Australia, and pending licence awards in Spain and Sicily. • "Cairn" where referred to in this release means Cairn Energy PLC and/or its subsidiaries (including Cairn India and Capricorn), as appropriate. • "Cairn India" where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate. • "Capricorn" where referred to in this release means Capricorn Energy Limited and/or its subsidiaries as appropriate. •The Group holds material exploration and production positions in west India, east India and Bangladesh along with new exploration rights in India and Nepal. •Cairn has 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. •The exploration-led business of Capricorn has, through the acquisitions of Petroleum Plc and medOil plc in September 2007, acquired new exploration interests in Tunisia, Peru, UK (West of Shetland), Albania, Australia and pending licence awards in Spain and Sicily. In addition, Capricorn has separately acquired licence interests offshore west Greenland. •Cairn India is headquartered in Gurgaon on the outskirts of Delhi, with operational offices in Chennai, Gujarat, Andhra Pradesh and Rajasthan. •Cairn Energy PLC (including Capricorn) will continue to be run from Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu. For further information on Cairn see www.cairn-energy.plc.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Capricorn Energy PLC