14th Mar 2006 07:04
Cairn Energy PLC14 March 2006 CAIRN ENERGY PLC PRELIMINARY RESULTS ANNOUNCEMENT Operations •Estimated total oil in place for Rajasthan block now in excess of 3.5 billion barrels •Cairn estimated gross life of field 2P reserves, and 2P reserves plus EOR resource, for northern fields (Mangala, Bhagyam and Aishwariya) upgraded to 606 and 795 mmbbls respectively from 502 and 667 mmbbls (up 20.7% and 19.2%) •Mangala first production target 2008; southern fields 2006 •Mangala detailed design and engineering commenced with Mustang Engineering • Five exploration blocks secured in the fifth Indian bid round (NELP-V) •Oil production from Gauri commenced in the offshore Cambay Basin •Three further deepwater gas discoveries in the KG Basin (KG-DWN-98/2) Financial •Financing process to fund Rajasthan development on track •Adoption of IFRS and successful efforts based accounting policy •Average entitlement production up 24% to 28,240 boepd (2004: 22,789 boepd) •Profit after tax of $79.1m (2004: loss $15.7m) •Net funds $95.5m with $240m unutilised debt facilities (2004: net funds $138.3m) Corporate •Examining a partial initial public offering of the Indian exploration and production business on the Bombay Stock Exchange with a view to returning cash to shareholders Sir Bill Gammell, Chief Executive said: "The material increase in both oil in place and reserves at Mangala and Bhagyamconfirms the world class nature of these fields. The support we have received in India, both politically and commercially,underscores the ability to do business effectively in this hugely importantgrowth economy. We look forward to receiving formal approval from the Governmentof India to proceed with the Rajasthan field developments. We now believe the time is right to examine methods of increasing the localautonomy of our Indian business, in line with our strategy of adding value forshareholders and in recognition of the superb growth opportunities available inIndia. In particular, we intend to examine a partial initial public offering ofour Indian exploration and production business on the Bombay Stock Exchange." Enquiries to: Cairn Energy PLC: Tel: 0131 475 3000 Analysts/Investors Bill Gammell, Chief Executive Kevin Hart, Finance Director Mike Watts, Exploration Director Media David Nisbet, Head of Group Communications Brunswick Group LLP: Tel: 0207 404 5959 Patrick Handley, Mark Antelme Interviews with Sir Bill Gammell, Chief Executive, and Kevin Hart, FinanceDirector, in video/audio and text are now available on http://www.cairn-energy.plc.uk/ and on http://www.cantos.com/ Cairn Energy Live Audio Webcast The webcast of the 2005 Preliminary results presentation will be available at09:00hrs (UK time) on Tuesday, 14th March, 2006. This will be available on the Cairn Energy PLC website:www.cairn-energy.plc.uk An archived version of the webcast will be available in the afternoon. CHAIRMAN'S STATEMENT Overview Cairn consistently seeks to create value for its shareholders. It has achievedthis by establishing a strong strategic position in South Asia, where it hasmade more than 25 oil and gas discoveries. In particular, the Company is ideallyplaced through its world class discoveries in Rajasthan to continue to play apart in the economic growth of the region. For more than a decade Cairn has established a record in South Asia for first,finding hydrocarbons, and then developing these fields through to production ona fast track basis. Throughout this time the Company and its joint venturepartners have invested more than $2 billion in a variety of exploration andproduction (E&P) projects that are helping to provide energy for the rapidlyexpanding economies of India and Bangladesh. During 2005, Cairn grew apace to meet the task of developing the Mangala fieldagainst a backdrop of India emerging as an area of world focus for futureindustry activity and investment. Corporate Following our recent successes in India and the consequential changing nature ofthe business we now believe the time is right to examine methods of increasingthe local autonomy of our Indian business. •arious options available for realising shareholder value and for positioningthe Company for new growth have been considered by the Cairn Board. Consistentwith the long stated objective of adding and realising value for shareholders areview of the business has concluded that it is now an appropriate juncture toexamine a partial initial public offering (IPO) of the Indian E&P business onthe Bombay Stock Exchange, prior to first oil from Mangala and subject to marketconditions. It is our view that a partial IPO of Cairn's Indian business will reinforce theCompany's competitive business edge and established track record in India, at atime of tremendous future cash flow generation and so position it moreeffectively to maximise new investment opportunities in the rapidly expandingIndian market. Cairn will also examine methods of returning the substantial partof any cash proceeds to shareholders. Post any partial IPO, the rest of thebusiness will continue to follow a strategy of adding shareholder value throughmaterial exploration. Cairn will keep the market informed of any developments on the partial IPO. Stakeholders Communication and interaction with stakeholders is given a high priority withinCairn. In November 2005 we hosted a visit to India for investors and analysts inorder that they could see for themselves some of our producing assets and theongoing operations in Rajasthan. The visit also allowed attendees to meet keypeople not only inside but also outside of the organisation, enabling them towitness first-hand the importance of the relationships Cairn has built up inSouth Asia and the positive approach the Government of India (GoI) takes toforeign investment. In the coming year the Board also plans to hold two of itsregular meetings in India. We have a number of community programmes in all of our operational areas acrossSouth Asia. The impact of our discoveries for Rajasthan is highly significant,not just in terms of revenues, but in terms of job creation and investment inand around the Barmer area. It was heartening for the Board to see the number ofchildren going to school increasing in one location near the Mangala discoverybecause of the improvements Cairn has made to this school, includinginstallation of solar panels on the school roof to generate electricity.Supporting numerous educational initiatives in Rajasthan has been a key focus aswe start to build on the discoveries in the area. Staff The size of the recent Rajasthan discoveries has meant a significant step up inscale for the whole Cairn organisation. The pace of growth has meant integratingnew staff and practices into the Company and this has been successfullyachieved. Cairn has opened a new Indian headquarters at Gurgaon on the outskirts of Delhito provide improved support for the Rajasthan project team and to manage theCompany's business interests in India. Our people are our key asset and the vastmajority of the Cairn workforce is indigenous to South Asia. The new staff development and performance review process implemented during 2005provides an important framework for ensuring that all staff contribute to thesuccess of the Company and continue to develop key competencies as we grow. I would also like to record the Company's congratulations to Sir Bill Gammell,Cairn's chief executive, on the award of a knighthood for services to industryin Scotland. Outlook The Group's focus on Rajasthan will continue as Cairn progresses the main fieldsfrom discovery to production. The challenge in the coming years is to build on the strong strategic positionthat Cairn has established in South Asia whilst capitalising on the opportunityto turn world class discoveries in Rajasthan into large scale developments,generating significant cash flow. The Group is well positioned to meet this challenge. Norman Murray Chairman, 14th March 2006 CHIEF EXECUTIVE'S REVIEW Overview In a little over two years since discovering the world class Mangala field, wehave explored the basin extensively and now believe there is more than 3.5billion barrels of oil in place within our Rajasthan acreage and this resourcebase can still grow. At current oil prices the Rajasthan fields are capable ofgenerating many billions of dollars of revenue over the project life for Cairn,the State of Rajasthan and the Government of India (GoI), whilst also helping tomeet India's growing import requirements. Cairn is making good progress in Rajasthan, with various key milestones beingachieved over the last few months. The Field Development Plans (FDPs) for theMangala, Aishwariya, Saraswati and Raageshwari fields have been agreed by thejoint venture Operating Committee (OC) and are awaiting final approval. Theseapprovals are a precursor to formal sanctioning of the project by the CairnBoard which is anticipated during Q2 2006. The initial development investmentfor Mangala and Raageshwari gas by the joint venture to first oil is estimatedto be in the region of $800 million and we are on track to have financing inplace to fund our share of the project. Our estimate of the Rajasthan reserve base for the three main northern fields,Mangala, Bhagyam and Aishwariya has grown significantly. We believe thesereserves can be further increased by applying enhanced oil recovery (EOR)techniques to reach our current estimated gross resource base of 795 millionbarrels of oil (mmbbls). The combined southern fields estimated gross reservebase is 102 mmboe of which 42 mmboe is attributed to Raageshwari gas. Thisresults in a combined resource base of 897 mmboe with further potential upsidein fields with low permeability reservoirs. The evaluation of many of thesefields continues and only for those fields under active development planninghave initial reserves been currently booked. Only 18 months ago we said the key fields in Rajasthan (Mangala, Bhagyam andAishwariya) could produce between 60,000 and 100,000 barrels of oil per day(bopd). Today we believe that these discoveries have the potential to produce ata peak of 150,000 bopd. Primarily as a result of the growth in the reserve base and the requirement totie in additional discoveries but also as a result of global factors such asdelays in availability of equipment and services, and shortages of skilledlabour, Cairn currently considers the most likely start up date for Mangala isnow in 2008. Cairn has clear alignment with the GoI to bring the nationally importantRajasthan fields on stream as soon as possible in order to help meet thecountry's energy needs. With the GoI projecting an economic and gross domesticproduct growth for India of up to 10% per annum, current estimates for crude oilimports, according to the GoI, will rise from 70% to 85% by 2020. The GoI ishighly supportive of both international and domestic oil companies increasing E&P efforts to augment current production. Results Cairn has implemented IFRS in 2005 and has also adopted a successful effortsbased accounting policy in preparing its 2005 Annual Report & Accounts.Comparative figures have been restated to reflect these revised accountingpolicies. Cairn is also reporting its financial results in US dollars for thefirst time as this aligns the presentational currency of the Group's financialstatements with the principal underlying functional currency of the business. Average daily entitlement production for 2005 was 28,240 barrels of oilequivalent per day (boepd) (2004: 22,789 boepd). The 2005 results include the first full year of production from the 37.5%interest in Sangu acquired from Shell (transaction completion date 30 June 2004). Field deliverability from both Sangu and Lakshmi has been enhanced followingsuccessful infill drilling campaigns in the latter part of 2004. Due to theGroup's current entitlement production being heavily gas biased and theexistence of contractual caps on the price received for this gas, the averageprice realised for 2005 was $25.44 per boe (2004: $24.06 per boe). Revenue forthe year was $262.6m (2004 restated: $172.9m). Operating profit (pre exceptional items) and operating cash flows were $55.6mand $139.6m respectively (2004: $12.8m loss and $138.5m). The exceptional gainon sale of $15.3m arising in 2005 was in relation to the ONGC transaction thatcompleted in March 2005, realising $135m gross proceeds. The Group made a profitfor the year of $79.1m (2004 restated: loss $15.7m). Initial Rajasthan reserves for Mangala, Saraswati and Raageshwari oil have beenbooked at the year end. As the depletion and decommissioning charge iscalculated on a field basis no charges arise in the Income Statement untilproduction commences. Exploration/appraisal costs associated with the bookedreserves have been transferred to development/producing assets. At the year end the Group had net funds of $95.5m (2004: net funds $138.3m). TheGroup currently has $240m of unutilised unsecured revolving credit facilities.Following Cairn's discoveries in Rajasthan, the Group is currently progressingthe refinancing of its debt facilities required to fund the associateddevelopments. Outlook With a substantial increase in the reserve base for the northern fields inRajasthan and a growing resource base we believe now is the time to examine thepotential to create two world class businesses, one based in the United Kingdomand one in India. In the coming year an evaluation of the potential for a partial IPO of theGroup's Indian operations will be a key activity. The future offers us challenges and opportunities and we always work in a spiritof partnership and co-operation with Governments and our joint venture partners.Cairn has a clear and consistent strategy and, with the growing industry andinvestment interest in South Asia, has an optimal opportunity to capitalise onits competitive edge. Sir Bill Gammell Chief Executive, 14th March 2006 OPERATIONAL REVIEW Cairn's gross operated production across South Asia during 2005 was 105,800boepd (net entitlement 28,240 boepd). The majority of Cairn's operational activity in the last three years has beenfocused on the exploration and appraisal of its Rajasthan block in North WestIndia. This effort has resulted in the discovery of 17 fields including theworld class Mangala and Bhagyam oil fields in the northern part of the block. Todate, more than 3.5 billion barrels of oil in place have been discovered on theacreage, and the FDPs for four fields namely Mangala, Aishwariya, Saraswati andRaageshwari are awaiting final approval from the GoI. The present focus is tobring Mangala on stream at the earliest opportunity and based on the Cairn Boardsanctioning the project in Q2 2006, the target date for first commercialproduction has been revised to 2008. It is intended to start production from the southern Rajasthan fields, Saraswatiand Raageshwari, in Q2 and Q3 this year respectively, subject to obtaining allthe required regulatory consents. RAJASTHAN BASIN - North West India Overview Cairn operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC) signedon 15th May 1995. The original seven year exploration period of the PSC, whichhad been extended for a further three year period, expired in May 2005.Currently the Contract Area is divided into four areas, namely: • The Development Area (1,858 km2), which includes Mangala, Aishawariya, Saraswati and Raageshwari. This area is secured under a long term production contract, which currently runs to May 2020. However, the PSC envisages extensions to the production term by mutual consent between the Contractor and the GoI. The FDPs have been submitted on the basis of an extension of the term to at least 2041. • The Extended Development Area (1,228 km2), which includes the Bhagyam, N-I, Shakti and N-E fields. Operating Committee (OC) approval was given in February 2006 for this area and GoI approval is pending. • A northern Appraisal Area (2,884 km2). An 18 month extension for these areas was granted to 14th November 2006. • A southern Exploration Area (1,935 km2). An application for an 18 month extension has been submitted. The combined gross proved plus probable (2P) oil in place estimate for the threenorthern fields of Mangala, Bhagyam and Aishwariya as submitted in documents tothe GoI during 2005, was 1,614 mmbbls with associated 2P reserves of 502 mmbbls.These figures were slightly revised at the 2005 Interims to 1,661 mmbbls and 514mmbbls respectively on account of a revision to Bhagyam. However, continuedevaluation, further appraisal drilling, re-interpretation of three dimensional(3D) seismic and evaluation of new core data have led to a more significantupwards revision of all three fields. The current combined gross 2P oil in placeestimate is 1,859 mmbbls with an associated gross 2P reserve estimate of 606mmbbls. In addition, there is also an estimated gross contingent resource of 189mmbbls obtainable from these three fields as a result of applying standard EORor Tertiary Recovery Techniques. This results in a total combined gross 2Preserves plus EOR resource estimate of 795 mmbbls for the three fields. A further nine fields: Shakti, Saraswati, Raageshwari oil, Raageshwari gas, N-I,N-E, Guda, Kameshwari and GS-V are at various stages of appraisal but arecurrently estimated to contain combined gross 2P oil in place of 724 mmboe withan associated gross 2P reserve estimate of 102 mmboe, of which 42 mmboe isattributed to Raageshwari gas. In summary, this results in a current total 2P reserve plus EOR resourceestimate for the majority of the Rajasthan fields discovered to date of 897mmboe. In addition the fields Vijaya, Vandana, N-R, Mangala Barmer Hill and AishwariyaBarmer Hill are estimated to contain significantly more than 1 billion barrelsof oil in place. The evaluation of these fields is ongoing but recoveries areanticipated to be less than 10%. Development Area - Northern Fields (Cairn 70 % (Operator); ONGC 30%) In October 2004, Cairn was granted a single Development Area of 1,859 km2covering 12 of the discoveries made to date. In January 2005, the GoI exercisedits right under the PSC to back-in for 30% of the Development Area and appointedONGC as its equity nominee. The Mangala oil in place volumes and reserves continue to grow. The Mangala-7and Mangala-7ST appraisal wells established the precise position of the westernboundary fault and more importantly detailed core analysis has demonstrated asignificant increase in oil saturations over previous log based estimates. Boththese factors have led to an increase in volume estimates. •The current gross 2P oil in place estimates and 2P reserves for Mangala are 1,202 mmbbls and 428 mmbbls respectively, which are 12.2% and 16.3% above the FDP estimates. •The current gross 2P oil in place estimates and 2P reserves for Aishwariya are 249 mmbbls and 56 mmbbls respectively, which are 16.9% and 16.7% above the FDP estimates. •A further gross 120 mmbbls and 20 mmbbls are estimated to be recoverable through EOR techniques on Mangala and Aishwariya respectively. This gives a current estimated resource base for Mangala of 548 mmbbls and 76 mmbbls for Aishwariya. •DeGolyer & MacNaughton (D&M), the independent auditor of reserves, estimates gross 2P oil in place for Mangala of 1,206 mmbbls and 2P reserves (to 2025) of 337 mmbbls; and gross 2P oil in place for Aishwariya of 281 mmbbls and 2P reserves (to 2025) of 61.7 mmbbls. D&M estimate a further contingent resource associated with EOR of 120 mmbbls for Mangala and 20 mmbbls for Aishwariya. Cairn continues to make progress on preparatory work for the development of theMangala field and subject to GoI approval of the FDP anticipates giving projectsanction in Q2 2006. As a result of the growth in the reserve base and therequirement to tie in additional discoveries along with global increases incosts and availability of equipment and services the development schedule haschanged. Currently it is considered that the most likely start up date forMangala is during 2008. Initially, it was planned to develop Aishwariya concurrently with Mangala, butthe discovery of the Bhagyam and N-I fields has necessitated a review of theoptimal development schedule. The development of the other fields is aimed atestablishing the optimal sequence for attaining the target production rate of150,000 bopd and is still under review. Subject to obtaining the relevantapprovals it is currently intended that Bhagyam will be the second northernfield to be developed. The overall development concept involves the construction of a centralprocessing facility (CPF) at Mangala supplied by group gathering stations, withoil production and water injection wells being drilled from a number of wellpads. The CPF and associated Mangala facilities will initially be sized tohandle up to 120,000 bopd with near term expansion to handle approximately150,000 bopd for all of the main northern fields (Mangala, Bhagyam andAishwariya). The produced hydrocarbons will be treated at this facility, withany treated produced water being re-injected. The detailed design and engineering contract for the Mangala production andtreatment facilities was awarded to Mustang Engineering in Houston, a subsidiaryof Wood Group, in Q4 2005. In January 2006, the Rajasthan State Government gave permission for Cairn toextract local saline groundwater as part of the field developments. This salinegroundwater will be injected into the oil producing reservoirs for pressuremaintenance and reservoir management purposes. Other pre-sanction critical pathactivities, including environmental clearance and land acquisition, are alsowell advanced. Development Area - Southern Fields (Cairn 70% (Operator); ONGC 30%) Discoveries in the central and southern part of the Development Area include theSaraswati, Raageshwari and Guda fields. Development plans for the first twofields were approved by the joint venture OC in December 2005 and we await finalapproval from the GoI. The FDP for Guda is expected to be submitted in mid 2006.The oil in these southern fields is in a variety of different reservoirs whichare of lesser quality than those in the northern fields. Nevertheless, wellssuch as Raageshwari-6, which flowed at 550 bopd of 38 degree API oil on anatural flow test, show the producing potential of these reservoirs. The first commercial production from the Saraswati and Raageshwari fieldssubject to GoI approval of the FDPs is expected in Q2 and Q3 2006 respectively.The initial combined target plateau rate of between 2,000 and 3,000 bopd will beconstrained by having to export the produced oil via road tanker. The actualproduction rates achieved will depend on how well the logistics of a road tankerexport scheme can be optimised. However, once the Mangala export infrastructureis installed, it is planned that the Saraswati and Raageshwari fields as well asother southern discoveries will be tied-in to the export system. Detailed mapping and core analysis work continues on the Vijaya, Vandana andN-R-4 discoveries, integrating the results from the latest wells into theinterpretation. The Vijaya and Vandana core data confirms the poor quality andheterogeneous nature of the reservoirs encountered in these discoveries to date. Extended Development Area (Currently Cairn 100%) The Declaration of Commerciality (DoC) for the Bhagyam and Shakti fields wasapproved by the OC on 1 February 2006 and submitted to the Management Committee(MC) for review and approval. This is the first step in the development approvalprocess under the PSC. The DoC contains a proposed Development Area extension of1,228 km2 to cover the Bhagyam, N-I, Shakti and N-E fields. Once the MC hasapproved the DoC, work will begin on the Bhagyam and Shakti FDP, which isexpected to be submitted mid 2006. The estimates of the Bhagyam in place volumes and reserves continue to grow asthe evaluation progresses. The Bhagyam-5, 6 and 7 appraisal wells encounteredthe reservoir structurally higher than anticipated and the ongoing coreevaluation work also indicates that the initial estimates of oil saturationswere too conservative. Both of these factors increase the estimates ofhydrocarbons in place. •The current gross 2P oil in place estimates and 2P reserves for Bhagyam are 408 mmbbls and 122 mmbbls respectively, which are 23.6% and 41.9% above the DoC estimates of 330 mmbbls and 86 mmbbls. Bhagyam was previously upgraded at the interim results from the DOC figures to 377 mmbbls and 98 mmbbls. •A further gross 49 mmbbls is estimated to be recoverable through EOR techniques on Bhagyam. This gives a current estimated resource base for Bhagyam of 171 mmbbls. •D&M estimate gross 2P oil in place for Bhagyam of 557 mmbbls and 2P reserves (to 2025) of 156 mmbbls. D&M estimate a further contingent resource associated with EOR of 56 mmbbls for Bhagyam. The Bhagyam-5 well tested gas from the Barmer Hill formation, confirming theexistence of a small gas cap on the Bhagyam field. Northern Appraisal Area (Cairn 100%) In June 2005, Cairn was granted an 18 month extension to complete its appraisalactivities in three areas covering 2,891 km2, to the north and west of theDevelopment Area. An extensive 3D seismic programme is planned in the southern part of thisappraisal area, south of the Barmer airbase. Seismic acquisition will commencein April 2006, followed by early drilling, given the November 2006 deadline forcompletion of activities. In addition, an exploratory well on the northern endof the large airbase structure is planned for Q2 2006, pending environmentalclearances. Southern Exploration Area outwith the Development Area An application for an 18 month extension of the 1,935 km2 Southern Area whichexpired in May 2005 is with the GoI for consideration. Reservoir Stimulation Programme A programme of hydraulic fracture stimulation has recently commenced on theRaageshwari deep gas accumulation. Preliminary post fracture well results areexpected to be available in April 2006, although full evaluation of these wellstimulation treatments is expected to take several months. Gas from these wellswill be utilised as fuel for the Mangala development and subsequent northernarea developments. The stimulation programme will continue with fracture stimulation of the BarmerHill formation in two wells at Mangala and Aishwariya, with the objective ofinvestigating and unlocking the additional resource potential of this formation. The Vijaya, Vandana and N-R fields are also potential candidates for fracturestimulation. Oil Sales and Export Under the terms of the PSC, Cairn is obligated to sell the crude to the GoIuntil India is self sufficient and the GoI has the right to appoint a nominee totake delivery of the oil. In September 2005, MRPL (a subsidiary of ONGC) wasnominated by the GoI to purchase the entire crude produced from the block, inaccordance with the relevant provisions of the PSC. The construction of the export system is the responsibility of the GoI throughits nominated buyer. One of the options is to take the produced oil via aninsulated pipeline to the coast, where it will be dispatched to selected Indianrefineries. Cairn has conducted a risk assessment of the likely constructionschedule and has incorporated this into its own risk assessment of the date ofthe Mangala field start-up. MRPL has indicated that it may subsequently consider the establishment of anin-situ refinery. CAMBAY BASIN - Western India Block CB/OS-2: Lakshmi and Gauri Gas Fields (Cairn 40% (Operator)) Development & Production The second phase of Lakshmi development drilling and the installation of onshorebooster compression were completed in the first half of 2005. The programmesuccessfully restored gas deliverability to meet the maximum daily quantitiesspecified under the gas sales contracts. At both Lakshmi and Gauri there are oil-bearing reservoirs beneath the producinggas and condensate reservoirs. These oil reservoirs are not thought to be wellconnected and the current plan therefore envisages each accumulation beingdeveloped independently. The first of these accumulations is being developed viathe GA-3 Gauri oil well, which was commissioned in November 2005. The futureperformance of this well will be important in determining the oil reserves inGauri and it will also help in the assessment of the potential of the moreextensive oil reservoirs at Lakshmi, where oil production has been targetedwithin the next 12 months. The Gauri oil is transported concurrently with the gas and condensate to theSuvali gas processing plant where it is separated out. Average liquidsproduction was 2,100 bopd in December 2005 and 2,800 bopd in January 2006. Thefacilities have been tested to a peak production of 4,800 bopd for a shortperiod and demonstrated that the modifications made to the gas processingfacilities at Suvali have been successful in handling these oil productionrates. The GA-3 oil production rate is currently constrained by the limitationsof exporting the oil and produced condensate (associated with the gasproduction) by road tanker. Studies are underway to review alternative ways ofexporting the produced oil from the oil storage facilities on a long term basisand to examine increasing the oil handling facilities at the plant to 7,500bopd. The onshore CB-X gas discovery (made in January 2005) has been declaredcommercial and a single well development plan has been submitted for approval.Field activities to lay a short pipeline from the Suvali plant to connect theCB-X-1 well are planned to commence in the first half of 2006 and first gas atrates between 4 and 5 million standard cubic feet of gas per day (mmscfd) isexpected in the second half of 2006. The Ambe gas field, to the west of Lakshmi and Gauri, was discovered in January2001, declared commercial by the OC in January 2006 and submitted for MCapproval. Various development options for Ambe are currently being evaluated. Aswith Lakshmi and Gauri, the Ambe gas field lies above oil-bearing reservoirs. The Suvali processing plant achieved ISO 14001 certification in 2005. CB-ONN-2001/1 (Cairn 30%; ONGC (Operator)) Exploration The Vanthvali-1 exploration well was plugged and abandoned as a dry hole in2005. Two further exploration wells are planned in the first half of 2006. CB-ONN-2002/1 (Cairn 30%; ONGC (Operator)) Exploration The Operator is preparing to drill two exploration wells in the first half of2006 and a second phase of 3D seismic acquisition is currently being acquired onthe block. KRISHNA-GODAVARI (KG) BASIN - Eastern India Ravva (Cairn 22.5% (Operator)) Development & Production The Ravva field has produced more than 182 million boepd to date and is expectedto come off the plateau production rate of 50,000 bopd in the first half of2006. An infill development well programme to extend the plateau rate wasplanned for Q4 2005. There was a delay in obtaining the required drillingapprovals and combined with the reduced availability of offshore drilling rigshas resulted in the rescheduling of the infill drilling campaign to June 2006.Subject to the availability of a drilling rig and the associated servicesfurther drilling is expected to take place later in the year. Exploration The deep drilling rig Cairn has been using in its Rajasthan programme is to bemobilised across country to drill two exploration prospects on the onshore partof the Ravva contract area commencing in the first half of 2006. KG-DWN-98/2 (Cairn 10%, ONGC (Operator)) Exploration The "D" gas discovery was made in August 2005 in the KG deep water block.Following a short break, drilling recommenced in November. Two further gasdiscoveries have since been made on the "A" and "U" exploration prospects. Basedon the initial available information, these as yet unappraised discoveries areunlikely to be commercial on a stand-alone basis but potentially could beexploited in a cluster development as satellites. Current operations are focused on the "W" exploration well. A high resolution 3Dseismic survey is being acquired over all the existing deep water discoveries onthe block. An exploration well is planned for later this year which will target a high riskprospect with over 600 km2 of closure in a water depth of 2,800 metres. HIMALAYAN FORELAND BASIN - Nepal & Northern India Nepal Blocks 1,2,4,6 & 7 (Cairn 100% (Operator)) Exploration In August 2005, Cairn declared contractual force majeure on its five explorationblocks in Nepal prior to entering Contract Year 2 of the PSC. This step wastaken in consultation with the Government of Nepal and in view of the currentsecurity situation. Consequently, the start of field operations has beendeferred. In the meantime, however, Cairn is continuing its desktop technicaland environmental evaluations. The Company is closely monitoring security developments with a view tocommencing field operations at the earliest opportunity. Northern India GV-ONN-2002/1 (Cairn 100% (Operator)) Exploration An airborne geophysical survey is planned over this acreage in Q4 2006. GV-ONN-97/1 (Cairn 30%; ONGC (Operator)) Exploration The first exploration well in the Himalayan Foreland Basin in which Cairn hasparticipated is planned on this block in Q2 2006. NELP-V Cairn was awarded five new exploration blocks as part of the 5th New ExplorationLicensing Policy (NELP-V) in India in 2005. The PSCs were signed in September2005. NELP-VI The sixth exploration bidding round in India is taking place during 2006 andCairn will be an active participant. BENGAL BASIN - Bangladesh Overview The Block 16 PSC was signed in 1994 and the Sangu gas field was discoveredoffshore in the Bay of Bengal in 1996. This field was subsequently developed anddelivered the first gas into Chittagong in 1998. Today, Sangu deliversapproximately 75% of the gas demand of Chittagong and the surrounding areawhilst continuing to achieve world-class performance in operational safety andfield uptime. Sangu (Cairn 75 % (Operator)) Development & Production Sangu gas production is processed at the Chillimpur processing plant, whichrecently achieved six million man-hours without incurring any lost time injuriesor environmental incidents since 1998. This, together with the ISO 14001certification, is a significant health and safety achievement. In 2004/2005, the Sangu joint venture partners invested $50 million in a secondphase of development of the field, drilling an additional three producing gaswells to sustain and extend gas production. The Sangu infill drilling programme was successful in increasing the fielddeliverability but also indicated that the field is structurally more complexthan previously thought (Sangu is not covered by a 3D seismic survey) andrequires the drilling of further wells to maintain plateau production. Cairn hasreceived approval from its joint venture partners and PetroBangla to begin anoffshore drilling programme at the end of 2006. A contract for a drilling righas been signed and it is currently planned to drill a further Sangu infill welland a South Sangu appraisal well in the more favourable weather period of late2006/early 2007 in the Bay of Bengal. The decision to develop South Sangu will depend on the appraisal well results. Exploration During 2005 Cairn signed an Amendment Agreement to the original Block 16 PSCwith PetroBangla and the Government of Bangladesh. The Amendment Agreement,which is subject to partner approval, extends the exploration period until 5thMay 2008 for the Magnama, Hatia and Manpura exploration prospects which, takentogether, cover a combined contract area of 1,428 km2 in part blocks from theoriginal Block 16 acreage. An exploration well on the Hatia prospect is planned as part of the winter 2006/2007 infill and exploration drilling campaign in the Bay of Bengal. Blocks 5 (Cairn 90% (Operator) & 10 (Cairn 90% (Operator)). Exploration Cairn continues to evaluate the exploration potential of its acreage in southernBangladesh and of particular interest is the large Char Jabbar prospect in Block10. Block 7 Cairn is awaiting formal approval from the Government of Bangladesh for theassignment of a 45% interest in Block 7 from Chevron the operator. Chevron iscurrently acquiring two dimensional (2D) seismic survey over Block 7. Group Production The Group's entitlement production for 2005 was 28,240 boepd net to Cairncompared to 22,789 boepd in 2004. Current production is in line with theCompany's expectations. Production boepd Ravva Sangu Lakshmi & Gauri Total(approximate)Gross field 64,300 24,700 16,800 105,800Working interest 14,500 18,500 7,100 40,100Entitlement interest 6,800 13,800 7,700 28,300 Due to Cairn's current gas biased production mix and the existence ofcontractual caps on the price received, the average price realised for 2005 was$25.44 per boe (2004: $24.06) Group Reserves The FDPs for Mangala, Aishwariya, Saraswati and Raageshwari fields in Rajasthanwere approved by the OC in December 2005 and are currently awaiting GoIapproval. The associated net entitlement 2P reserves until May 2020 for Mangala,Saraswati and Raageshwari have now been booked based on the expectation that theCairn Board approval for Project Sanction will be granted in Q2 2006. Aishwariyareserves will be booked at a later date once the development schedule isfinalised. No resources attributable to EOR have been booked as they are stillat the screening stage. Similarly, the Raageshwari deep gas reserves are alsonot booked since this gas will be used as fuel for the development of Mangalaand the other northern fields. The Development Area production term in each FDP assumes production until 2041as permissible under the PSC. Once the FDPs are approved Cairn will be seekingseparate and specific Government confirmation of the production term running toat least 2041 before transferring these additional resources to booked reserves. At this point no reserves associated with Bhagyam have been booked. The DoC forBhagyam and Shakti was approved by the OC in February 2006 and is awaiting MCapproval. The Bhagyam FDP is expected to be submitted to the GoI later in 2006. The analysis of the Sangu field performance in 2005 has led to a reduction inthe current main field Sangu 2P gas reserves of 67 billion standard cubic feetof gas (bscf). In addition, the decision to further appraise the South Sangudiscovery prior to sanctioning the development results in a further de-bookingof 155 bscf from Sangu reserves. The estimated remaining gross 2P reserves for Sangu at the end of 2005 are 378bscf (2004: 654 bscf) and the net remaining entitlement reserves are estimatedat 177 bscf (2004: 308 bscf) which after allowing for 2005 production representsa 36% reduction in remaining reserves. The table below shows reserves information at the end of 2005 on an entitlementbasis for the Group (@$20/bbl). Reserves at Produced Additions Disposals Revisions Reserves at 31/12/04 in 2005 in 2005 in 2005 in 2005 31/12/05 mmboe mmboe mmboe mmboe mmboe mmboeSouth 81.4 (10.3) 186.0 (2.2) (17.0) 237.9Asia Based on a $40/bbl oil price assumption the Company's estimated entitlement toreserves at 31st December 2005 is 201.9 mmboe On a direct working interest basis, reserves at 31st December 2005 totalled275.7 mmboe (2004: 123.9 mmboe). Separately, Cairn has engaged D&M to provide independent estimates of reserves.D&M has now concluded recent reviews (within the last twelve months) of all theCompany's producing properties and major assets. The D&M estimates for Rajasthanreserves (out to 2025 as provided in the PSC by mutual agreement with the GoI)are tabulated below. Field 2P Oil in Place 2P Reserves EOR (2040) mmbbls mmbbls mmbblsMangala 1,206 338 +120Aishwariya 281 62 +20Bhagyam 557 156 +56 FINANCIAL REVIEW Cairn enters 2006 in a net funds position, with strong operating cash flows andwith significant progress made on financing arrangements to fund its share ofRajasthan development expenditure. Key statistics 2005 2004** % Increase/ (Decrease)Production (boepd)* 28,240 22,789 23.9Average price per boe ($) 25.44 24.06 5.7Revenue ($m) 262.6 172.9 51.9Average production costs per boe ($) 4.87 6.09 (20.0)Profit/(loss) before tax ($m) 101.2 (30.4) -Profit/(loss) after tax ($m) 79.1 (15.7) -Cash generated from operations ($m) 139.6 138.5 0.8Net assets ($m) 757.6 711.2 6.5Net funds ($m) 95.5 138.3 (30.9) * on an entitlement interest basis ** restated (where applicable) following mandatory implementation ofInternational Financial Reporting Standards (IFRS) in 2005, adoption ofsuccessful efforts based accounting policy and US dollar reporting. Accounting policies & developments Adoption of IFRS and successful efforts based accounting policy In accordance with European legislation, Cairn has adopted IFRS in preparing itsFinancial Statements from 1st January 2005. This has also required adjustingprior periods to arrive at the opening balances and comparative figures.Following the publication of IFRIC guidance in November 2005, which noted thelimited scope of IFRS 6 "Exploration for and Evaluation of Mineral Resources",Cairn reviewed its accounting policies and has decided to adopt a successfulefforts based accounting policy for its financial statements. As a consequence,Cairn updated and reissued its prior period restatement document on 28thFebruary 2006 to reflect the changes arising from the implementation of thisrevised methodology. The key implications from an oil and gas accounting perspective on adopting thispolicy and IFRS are as follows: • Costs of unsuccessful wells initially capitalised within explorationassets are expensed in the Income Statement in the period they are determinedunsuccessful; • Depletion of development/producing assets is now performed on a fieldby field basis although fields within development areas can be combined whereappropriate; • Pre-exploration expenditure previously capitalised is now expensed; and • Impairment testing for development/producing assets is now performed oneach individual cash-generating unit (normally development area). Other key changes arising from IFRS implementation, including accounting forshare based payments, are outlined in more detail in the prior periodrestatement document. The prior year comparatives contained in the restatementdocument have been subsequently revised to reflect an updated interpretation ofIAS 21 in respect of foreign currencies and its implications for the Group. Presentational currency Cairn is reporting its financial results in US dollars for the first time. Thisaligns the presentational currency of the Group's financial statements with thepredominant currency of the business, as although headquartered in the UK, themajority of the Group's income and expenditure is transacted in US dollars. PROFIT AND LOSS Revenue Average production on a working interest basis was 40,100 boepd compared to34,300 boepd in 2004. On an entitlement interest basis, production for the yearincreased by 24% to 28,240 boepd (2004: 22,789 boepd). The 2005 results include the first full year of production from the 37.5%interest in Sangu acquired from Shell (transaction completion date 30th June2004). Following completion of the ONGC transaction in March 2005, Cairn'sworking interest in CB/OS-2 production has reduced from 50% to 40%. However,field deliverability from both Lakshmi and Sangu have been enhanced followingsuccessful infill drilling campaigns in the latter part of 2004. The Group's production mix remains heavily gas biased (circa 80%). This,combined with the contractual gas price caps, results in an average pricerealised by the Group for the year of $25.44 per boe (2004: $24.06 per boe).Cairn's exposure to world oil prices will increase significantly when productioncommences from Rajasthan. Revenue for the year was $262.6m (2004 restated: $172.9m). Gross Profit Cost of sales for the year was $168.8m (2004 restated: $159.2m). Cost of salesin 2005 includes the write-off of unsuccessful exploration costs of $26.9m (2004restated: $36.3m) arising from the Group's adoption of revised accountingpolicies. Production costs for the year were $50.2m (2004 restated: $50.8m). Increasedentitlement production in 2005 contributed to the improvement in productioncosts per barrel from $6.09 in 2004 to $4.87 in 2005. Production costs includepre-exploration costs now expensed under IFRS 6 and stock adjustments. The average Group rate for depletion and decommissioning has increased by 3.0%to $8.90 per boe in comparison to $8.64 per boe in 2004. This arises fromchanges in field mix and individual rates year on year as depletion is nowcalculated on a field basis. Lakshmi and Gauri field depletion has decreased dueto the effect of the ONGC farm-out. Sangu field depletion however has increasedas a consequence of the reserves revision outlined in the Operational Review. Certain reserves relating to Rajasthan have been booked at the year end andthese are summarised in the Operational Review. As the depletion anddecommissioning charge is calculated on a field basis no charge arises in theIncome Statement until production commences. Exploration/appraisal costsassociated with the booked reserves have been transferred to development/producing assets. The Group generated a gross profit of $93.7m (2004 restated: $13.7m). Profit for the Year Administrative expenses for the year were $38.1m (2004 restated: $26.5m). Thisincludes a charge of $10.0m (2004 restated: $4.6m) for share based payments andassociated National Insurance Contribution in accordance with IFRS 2.Administrative expenses have also increased as a result of the growth inbusiness following the discoveries in Rajasthan. Net finance income was $30.3m (2004 restated: net finance costs $17.6m),including a foreign currency exchange gain of $27.1m (2004: restated loss$15.6m). Realised exchange rate movements arose due to the strengthening of theUS dollar against Sterling in the period and were also impacted by therecognition of exchange differences on intra-group funding under IFRS. The majority of the $22.1m tax charge (2004 restated: credit $14.7m) arises onprofits in India. The credit in 2004 is a result of the change to a successfulefforts based policy under IFRS which substantially reduces the deferred taxprovisions required. Exceptional items The exceptional gain on sale of $15.3m arising in 2005 was the result of thefarm-out of a 90% interest in KG-DWN-98/2 and of a 10% interest in the CB/OS-2development area to ONGC detailed under "Transactions" below. The Group made a profit for the year of $79.1m (2004 restated: loss $15.7m). BALANCE SHEET Capital expenditure Capital expenditure additions during 2005 were $241.8m (2004 restated: $232.0m),comprising $193.1m on exploration/appraisal activities, $41.0m on developmentactivities and $7.7m on other fixed assets. The exploration/appraisalexpenditure during the year was incurred largely on the continuing drillingprogramme in Rajasthan. The majority of the development expenditure was forcompletion of the infill campaigns on both the Lakshmi and Sangu gas fields andpre-development expenditure on Rajasthan. CASH FLOW Cash flows from operating activities Cash generated from Group operations was $139.6m (2004 restated: $138.5m).Operating cash flows for the year have been reduced by cash payments of $35.3mmade in settlement of amounts due following the previously announced Ravvaarbitration proceedings. These amounts were fully provided for in the 2004accounts. Tax payments during 2005 were $6.6m (2004: restated $8.6m). Cash flows from investing activities Cash outflow from capital expenditure during 2005 was $290.9m, made up of$218.3m exploration/appraisal expenditure, $64.9m development expenditure and$7.7m other expenditure. (2004: $173.7m - $140.2m exploration/appraisal, $29.6mdevelopment and $3.9m other). The difference arising between capitalisation ofexpenditure and cash flow is principally due to costs of the Sangu and Lakshmiinfill drilling campaigns and the Rajasthan drilling programme that wereincurred in 2004 but paid for in 2005. In addition, there was an inflow on completion of the ONGC transaction of$127.5m after adjusting for working capital adjustments and other costs (grossproceeds $135m) (2004: outflow arising on Bangladesh acquisition $42.5m and aninflow on completion of the Gryphon disposal of $12.9m). Net assets/net funds Net assets at 31st December 2005 were $757.6m (2004: restated $711.2m). At the year end the Group had net funds of $95.5m (2004: net funds $138.3m). TheGroup currently has $240m of unutilised unsecured revolving credit facilities.Following Cairn's discoveries in Rajasthan, the Group is progressing therefinancing of its debt facilities required to fund the associated developments.These new facilities will provide Cairn with the financial flexibility to takeits Rajasthan discoveries through development to production. Transactions The previously announced ONGC transaction for the farm-out of 90% of KG-DWN-98/2exploration assets, 10% of the CB/OS-2 development area (including the Lakshmiand Gauri fields) and 15% of the CB/OS-2 exploration area, and the farm-in totwo blocks in Northern India, was completed in March 2005. $127.5m net proceedswere received on completion. A gain on sale of $15.3m has therefore beenrecognised in the Income Statement. The operating profits from the farmed-outinterests in the CB/OS-2 producing interests have been recognised in the IncomeStatement up to the date of completion. Kevin Hart Finance Director, 14th March 2006 Cairn Energy PLC Group Income Statement For the year ended 31st December 2005 --------------------------- ------ --- -------- ---------- Group Group 2005 2004 $'000 (Restated) $'000--------------------------- ------ --- -------- ---------- Revenue 262,562 172,909 Cost of salesProduction costs (50,235) (50,757)Unsuccessful exploration costs (26,867) (36,325)Depletion and decommissioning charge (91,740) (72,095)--------------------------- ------ --- -------- ----------Gross profit 93,720 13,732 Administrative expenses (38,088) (26,516)Exceptional gain on sale of oil and gas 15,272 -assets ------ --- -------- -------------------------------------Operating profit/(loss) 70,904 (12,784) Finance income 32,543 3,306Finance costs (2,236) (20,932)--------------------------- ------ --- -------- ---------- Profit/(loss) before taxation 101,211 (30,410)------------------------ ------ --- -------- ----------Taxation on profit/(loss) - UK (4,386) 15,822 - Overseas (17,753) (1,086)--------------------------- ------ --- -------- ---------- Profit/(loss) for the year attributable to equityholders 79,072 (15,674) --- -------- ---------------------------------------- ----------Earnings per ordinary share - basic (cents) 50.37 (10.28)------------------------------ --- --- --------Earnings per ordinary share - diluted (cents) 50.10 (10.28)------------------------------ --- --- -------- ---------- Cairn Energy PLC Statement of Changes in Equity For the year ended 31st December 2005 ------------------------- ------------- ---------- Group Group 2005 2004 $'000 (Restated) $'000------------------------- ------------- ---------- Opening equity 711,197 532,223Currency translation differences (23,893) 15,966------------------------- ------------- ----------Total (expense)/income recognised direct in equity (23,893) 15,966Profit/(loss) for the year 79,072 (15,674)------------------------- ------------- ----------Total recognised income and expense for the year 55,179 292------------------------- ------------- ----------New shares issued in respect of share placing - 184,814New shares issued in respect of employee share 3,782 8,239optionsCost of share based payments 4,592 2,169Cost of shares purchased (17,152) (16,540)------------------------- ------------- ----------Closing equity attributable to the equity holders 757,598 711,197------------------------- ------------- ---------- Cairn Energy PLC Balance Sheet As at 31st December 2005 Group Group 2005 2004 $'000 (Restated) $'000Non-current assetsIntangible exploration/appraisal assets 321,855 364,189Property, plant & equipment - development/producing 456,929 411,737assetsProperty, plant & equipment - other 4,158 2,757Intangible assets - other 2,601 1,347Investments 96 96Deferred tax assets 2,606 8,744---------------------------------- ----------- -------- 788,245 788,870---------------------------------- ----------- --------Current assetsInventory 5,533 2,160Trade and other receivables 124,725 131,101Bank deposits 20,000 15,361Cash and cash equivalents 75,509 122,961---------------------------------- ----------- -------- 225,767 271,583---------------------------------- ----------- --------Total assets 1,014,012 1,060,453---------------------------------- ----------- --------Current liabilitiesTrade and other payables 94,736 151,362Income tax liabilities 7,550 5,626---------------------------------- ----------- -------- 102,286 156,988---------------------------------- ----------- --------Non-current liabilitiesDeferred tax liabilities 136,672 133,463Provisions 17,456 58,805---------------------------------- ----------- -------- 154,128 192,268---------------------------------- ----------- --------Total liabilities 256,414 349,256---------------------------------- ----------- --------Net assets 757,598 711,197---------------------------------- ----------- --------EquityCalled-up share capital 25,775 25,635Share premium 197,895 194,253Shares held by ESOP trust (37,311) (23,624)Foreign currency translation (7,927) 15,966Other reserves 37,284 37,284Capital reserves - non distributable 45,331 45,331Capital reserves - distributable 178,429 178,429Retained earnings 318,122 237,923---------------------------------- ----------- --------Total equity attributable to the equity holders 757,598 711,197---------------------------------- ----------- -------- Cairn Energy PLC Statement of Cash Flows For the year ended 31st December 2005 Group Group 2005 2004 $'000 (Restated) $'000 Cash flows from operating activitiesCash generated from operations 139,621 138,464Interest paid (1,201) (2,258)Income tax paid (6,563) (8,570)-------------------------------------- -------- --------Net cash generated from operating activities 131,857 127,636-------------------------------------- -------- -------- Cash flows from investing activitiesExpenditure on exploration/appraisal assets (218,324) (140,215)Expenditure on development/producing assets (64,921) (29,583)Acquisition of Bangladesh assets - (42,500)Purchase of property, plant & equipment - other (4,079) (2,106)Purchase of intangible assets - other (3,623) (1,832)Expenditure on investments - -Proceeds on disposal of exploration/appraisal assets 91,930 562Proceeds on disposal of development/producing assets 35,574 12,340Proceeds on disposal of property, plant & equipment - 95 89otherMovement in funds on bank deposit (5,656) (14,656)Interest received 4,378 3,105-------------------------------------- -------- --------Net cash used in investing activities (164,626) (214,796)-------------------------------------- -------- -------- Cash flows from financing activitiesProceeds from issue of shares 3,782 193,053Purchase of own shares (17,152) (16,540)-------------------------------------- -------- --------Net cash flows from financing activities (13,370) 176,513-------------------------------------- -------- -------- Net (decrease)/increase in cash and cash equivalents (46,139) 89,353Opening cash and cash equivalents at beginning of year 122,961 31,801Exchange (losses)/gains on cash and cash equivalents (1,313) 1,807-------------------------------------- -------- --------Closing cash and cash equivalents 75,509 122,961-------------------------------------- -------- -------- Reconciliation of operating profit/(loss) to net cash inflow/(outflow) fromoperating activities Group Group 2005 2004 $'000 (Restated) $'000 Operating profit/(loss) 70,904 (12,784) Depletion, depreciation, decommissioning & amortisation 96,680 75,307Share based payments charge 4,592 2,169Inventory movement (3,373) 1,904Debtors movement (16,590) (2,852)Creditors movement 14,551 6,178Movement in other provisions (39,048) 31,044Exceptional gain on sale of oil and gas assets (15,272) -Gain on sale of other non current assets (41) (76)Unsuccessful exploration costs 26,867 36,325Foreign exchange differences 351 1,249----------------------------------- --------- --------- Net cash inflow/(outflow) from operating activities 139,621 138,464----------------------------------- --------- --------- Net Funds Group Group 2005 2004 (Restated) $'000 $'000 Bank deposits 20,000 15,361----------------------------------- --------- ---------Bank deposits 20,000 15,361----------------------------------- --------- --------- Cash at bank 15,831 17,820Short term deposits 59,678 105,141----------------------------------- --------- ---------Cash and cash equivalents 75,509 122,961----------------------------------- --------- -------------------------------------------- --------- ---------Net funds 95,509 138,322----------------------------------- --------- --------- In addition to the Cash and Cash Equivalents shown above, the Group has adeposit of $20m as at 31 December 2005 (2004: $15.4m) which matures on 31 March2006. This deposit has been classified under Bank Deposits as it was placed ondeposit for a period of greater than three months. NOTES: 1. No dividend has been declared (2004: nil). 2. The earnings per ordinary share is calculated on a profit of $79,072,000(2004: loss $15,674,000) and on a weighted average of 156,995,878 ordinaryshares (2004: 152,522,282). The weighted average of ordinary shares excludesshares held under the LTIP - the shares are held by the Cairn Energy PLCEmployees' Share Trust. The diluted earnings per ordinary share is calculated on a profit of $79,072,000and on 157,841,207 ordinary shares being the basic weighted average of156,995,878 ordinary shares and the dilutive potential ordinary shares of845,329 ordinary shares relating to share options. In respect of 2004, 1,191,457potential ordinary shares were anti-dilutive. 3. Accounting policies Basis of preparation Cairn's 2005 Annual Report & Accounts has been prepared under applicableInternational Financial Reporting Standards (IFRS). Comparative information hasalso been restated under IFRS. Changes of accounting policies On 1st January 2005 it became mandatory for the Group to comply with IFRS. The2005 Annual Report & Accounts and restated comparative financial informationhave been prepared on the basis of all IFRS and interpretations issued by theInternational Accounting Standards Board (IASB) and endorsed by the EuropeanCommission (EC) effective for the Group's reporting year end 31st December 2005. Revised accounting policies under IFRS including the transition to a successfulefforts based accounting methodology can be found in the "Restatement of 2004Results from UK GAAP to IFRS" issued on 28 February 2006 and is available on theCompany's website. This document also includes reconciliations of comparativeinformation from UK GAAP to IFRS. The prior year comparatives contained in thisrestatement document have been subsequently revised to reflect an updatedinterpretation of IAS 21 in respect of foreign currencies and its implicationsfor the Group. These financial statements are also prepared in accordance with IFRS 6"Exploration for and evaluation of mineral resources" following early adoptionby Cairn of this standard. 4. The financial information contained in this announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. However, the financial statements contained in this announcement areextracted from the audited statutory accounts for the financial year ended 31stDecember 2005 (including restated 2004), which will be delivered to theRegistrar of Companies. 5. The directors have considered the factors relevant to support astatement on going concern. They have a reasonable expectation that the Groupwill continue in operational existence for the foreseeable future and havetherefore used the going concern basis in preparing the financial statements. 6. Full accounts are due to be posted to shareholders on Friday, 24th March2006 and will be available at the Company's registered office, 50 Lothian Road,Edinburgh, EH3 9BY, from that date. 7. The Annual General Meeting is due to be held at the Company's registeredoffice, 50 Lothian Road, Edinburgh, EH3 9BY on Thursday, 20th April 2006 at12.00pm. Notes to Editors: •Cairn focuses its activities on the geographic region of South Asia. The Group holds material exploration and production positions in west India, east India and Bangladesh along with new exploration rights in northern India and Nepal. •This focus on South Asia has already resulted in a significant number of oil and gas discoveries. In particular, the Company made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. •India currently imports 2 million barrels of oil a day. Domestic production is 650,000 bopd of which 50,000 bopd comes from the Cairn operated Ravva field. • Unless otherwise stated any reference to reserves refers to gross life of field 2P reserves. Any reference to resource base refers to gross 2P reserves plus contingent resources. For further information on Cairn see www.cairn-energy.plc.uk Note: There are matters discussed in this Statement that are forward looking.All such forward looking statements are based on management's assumptions andbeliefs in light of information available to them at this time. These forwardlooking statements are, by their nature, subject to significant risks anduncertainties and actual results, performance or achievements may be materiallydifferent from those expressed in such statements. Glossary of Terms The following are the main terms and abbreviations used in this announcement:Corporate2P proved plus probableBoard the Board of Directors of Cairn Energy PLCCairn the Company and/or its subsidiaries as appropriateCompany Cairn Energy PLCD&M DeGolyer & MacNaughtonDoC declaration of commercialityE&P exploration and productionGoI Government of IndiaGroup the Company and/or its subsidiaries as appropriateIPO Initial public offeringKG Krishna-GodavariMC Management CommitteeMRPL Mangalore Refinery & Petrochemicals Ltd and/or its subsidiaries as appropriateNELP-V 5th New Exploration Licensing PolicyONGC Oil and Natural Gas Corporation Ltd and/or its subsidiaries as appropriateOC Operating Committee Technical2D / 3D two dimensional / three dimensionalbscf billion standard cubic feet of gasboepd barrels of oil equivalent per daybopd barrels of oil per dayCPF central processing facilitydegree API American Petroleum Institute units as a measure of oil specific gravityEOR enhanced oil recoveryFDP field development planmmbbls million barrels of oilmmscfd million standard cubic feet of gas per dayPSC production sharing contract AccountingIAS 21 International Accounting Standard 21 "The Effects of Changes in Foreign Exchange Rates"ESOP Trust Employee Share Ownership Plan TrustIFRIC International Financial Reporting Interpretations CommitteeIFRS International Financial Reporting StandardsIFRS 2 International Financial Reporting Standard 2 "Share-based Payment"$/US United States Dollarsdollars This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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