Annual Financial Report

RNS Number : 0383L

Cairn Energy PLC

29 April 2010

 



FOR IMMEDIATE RELEASE                                                                                         29 April 2010

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

Report and Accounts

Two copies of the annual report and accounts for the year ended 31 December 2009 (the "Report and Accounts") have been submitted to the UK Listing Authority and are or will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:

The Financial Services Authority

25 North Colonnade

Canary Wharf

London E14 5HS

The Report and Accounts is also available on the Company's website www.cairnenergy.com

Information required by Disclosure and Transparency Rule 6.3.5

The principal purpose of this announcement is to notify the submission by the Company to the UK Listing Authority of copies of the Report and Accounts. However, the information set out below, which is extracted from the Report and Accounts, is also included in this announcement for the sole purpose of complying with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issuers as to how to make annual financial reports public.  It should be read in conjunction with the Company's preliminary results announcement, released on 23 March 2010 (the "Preliminary Results Announcement").  This material is not a substitute for reading the full Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Report and Accounts.

Responsibility statement

The following statement is extracted from page 58 of the Report and Accounts. This statement is repeated here solely for the purposes of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from the Report and Accounts. It is not connected to the extracted information presented in this announcement or in the Preliminary Results Announcement.

 "Directors' Responsibility Statement

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In preparing those financial statements, the directors are required to:

·    select suitable accounting policies and then apply them consistently;

·    make judgements and estimates that are reasonable and prudent; and

·    state that the Group and Company financial statements have complied with IFRSs as adopted by the European Union,
subject to any material departures being disclosed and explained.

The directors confirm that they have complied with the above requirements in preparing the financial statements.

Each of the directors, whose names are listed in the Board of Directors section on pages 42 and 43 confirms to the best of his knowledge that:

·    the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and

·    the Directors Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company's financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities."

The names of the directors who have given this responsibility statement are:

Norman Murray (Non-Executive Chairman)

Hamish Grossart (Non-Executive Deputy Chairman)

Todd Hunt (Non-Executive Director)

Mark Tyndall (Non-Executive Director)

Iain McLaren (Non-Executive Director)

Dr James Buckee (Non-Executive Director)

Sir Bill Gammell (Chief Executive)

Dr Mike Watts (Deputy Chief Executive)

Malcolm Thoms (Chief Operating Officer)

Phil Tracy (Engineering & Operations Director)

Jann Brown (Finance Director)

Simon Thomson (Legal & Commercial Director)

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from pages 32 to 33 (inclusive) of the Report and Accounts:

"Principal Risks and Uncertainties

A Skilled Team Managing Business Risks

Given the nature of the oil and gas exploration and production business, getting risk management right is an essential component of business success at Cairn.

At the highest level, Cairn's strategy is to establish commercial reserves from strategic positions in high potential exploration plays, resulting in the creation and delivery of shareholder wealth. In pursuing this strategy Cairn considers investment opportunities that provide the right mix of political, commercial and technical risks. Cairn's success in South Asia over the past 20 years has been achieved through having the confidence in Cairn's technical and commercial acumen and ability to identify, assess and effectively manage uncertainties. Cairn will also knowingly take informed risks which are appropriate for the component parts of the business in pursuit of Cairn's vision. Cairn has recently acquired a large acreage position in Greenland where it will seek to replicate its earlier and continued success in South Asia.Since the IPO in early 2007, the Group's activities in India have been managed by Cairn India, a majority-owned subsidiary of Cairn Energy PLC listed in India. Outside of Cairn India, the Group manages its operations through its unlisted wholly-owned subsidiary Capricorn.

Business risks across the Group are addressed in a systematic way through a risk management structure shown opposite and within an integrated business risk management process that puts in place controls to mitigate these risks. More detail on Cairn's approach to risk management is provided in the Internal Control section of the Corporate Governance Statement on pages 59 and 60.

Our principal risks, uncertainties and mitigation strategies as at the end of 2009 are summarised below:

Strategic Risks

Impact:  Strategy fails to create shareholder value or meet shareholder expectations.

Risk: Strategy fails to create shareholder value or meet shareholder expectations	Mitigation: Our strategy is focused on the development of our production base in India and our potentially high impact exploration position in Greenland.  We have regular, open and transparent communications with all stakeholders to ensure there is a clear understanding of the Group and its strategy (risks and potential rewards). In addition, we protect our strategic alignment with our listed subsidiary, CIL, through our controlling shareholding and our representation on the CIL Board, all of which is underpinned by a formal Relationship Agreement.
Risk: Ineffective capital allocation	Mitigation: Regular reviews of the risk and reward potential across the asset base of the Group.
Risk: Inadequate resource and succession planning across the Group	Mitigation: Competitive remuneration and incentivisation policies and staff appraisal, training and development programmes.  Executive and senior management succession planning.

Financial Risks

Impact:  Asset financial requirement and access to funding may not be matched, leading to an inability to meet the Group's financial obligations.

Risk: Inability to fund exploration and development work programmes	Mitigation: Prudent approach adopted in budgeting and business planning to ensure sufficient equity cash is available to meet commitments on exploration drilling, while maintaining appropriate leverage to enhance returns from development and production assets.
Risk: Shortfall in operational cash flow, through lower than expected oil prices or production levels	Mitigation: Scenario planning for both oil price and production volumes is a key feature of our business planning process, which provides comfort on our funding headroom.
Risk: Potential impact of disputes resulting from different interpretation of fiscal, legal agreements or regulations, leading to additional costs, increased taxation and failure to achieve cost recovery	Mitigation: Compliance matrices and legal, financial, supply chain and operational due diligence to minimise the potential for inadequate processes leading to disputes.

See also Financial Risk Management Objectives and Policies in Note 29 in Notes to the Accounts on pages 130 to 133 of the Report and Accounts.

Business Risk Management at Cairn

Functional Department Risks ►
Corporate & New Venture Risks       ►	Integrated business risk management system, including review by CEC  ►	Risk Management Committee        ►	Audit Committee    ►	Cairn Energy PLC Board
Asset/Country Risks (India, Greenland, Mediterranean & South Asia)           ►

Operational Risks

Impact:  Exploration, development or production operations detrimentally impacted by incidents involving staff, contractors, communities, suppliers or losses to the environment, leading to reputational damage, project delays, cost overruns or loss of revenue.

Risk: Health, safety and environmental incidents	Mitigation: Implementation of Corporate Responsibility (CR) Management System on all projects, with regular monitoring of effectiveness of risk mitigation measures and reporting and investigation of all incidents.  Emergency response organisation and procedures regularly tested.
Risk: Security incidents	Mitigation: Security risks evaluated during project screening processes and protective measures regularly tested.  Emergency and crisis response organisation and procedures regularly tested.
Risk: Maintaining regulatory approval for projects/operations	Mitigation: Understanding of legal and regulatory requirements, engagement with government and regulators and maintenance of compliance matrices in each asset/project.
Risk: Ineffective Business Management System	Mitigation: Operational activities conducted in accordance with policies, standards and procedures, which are regularly reviewed and audited.
Risk: Failure to secure materials, services or resources	Mitigation: Contracting strategy and procurement processes, supplemented by market intelligence and regular engagement with contractors/suppliers.
Risk: Inadequate ice management plan for drilling in Greenland	Mitigation: Ice monitoring surveys undertaken and specialist ice management consultancy providing advice and input to ice management plan.
Risk: Ineffective business continuity plans	Mitigation: Disaster recovery and business continuity plans regularly tested.
Risk: Inadequate systems to prevent bribery and corruption	Mitigation: Consistent application of Group Code of Business Ethics throughout the supply chain.

Related party transactions

The following description of related party transactions is extracted from pages 139 and 140 of the Report and Accounts:

"35. Related Party Transactions

The Company's principal subsidiaries are listed in Note 18. The following table provides the balances which are outstanding with subsidiary companies at the Balance Sheet date:

                                                                                                              At                              At
                                                                                               31 December              31 December
                                                                                                           2009                           2008
                                                                                                             $m                             $m

Amounts owed from subsidiary undertakings                                          246.6                           37.4

Amounts owed to subsidiary undertakings                                           (230.1)                         (10.0)

                                                                                                            16.5                           27.4

The amounts outstanding are unsecured, repayable on demand and will be settled in cash.  Interest, where charged, is at market rates.  No guarantees have been given.

The following table provides the transactions with subsidiary companies recorded in the profit (2008: profit) for the year, all of which were carried out on an arm's length basis:

                                                                                                                              2009            2008
                                                                                                                                $m               $m

Amounts invoiced to subsidiaries                                                                              13.8             14.5

Amounts invoiced by subsidiaries                                                                               8.2               6.6

Cost sharing arrangement                                                                                             -               4.6

a) Remuneration of key management personnel

The remuneration of Directors, who are the key management personnel of the Group, is set out below in aggregate. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report
on pages 62 to 77.

                                                                                                                             2009            2008
Group and Company                                                                                                  $m               $m

Short-term employee benefits                                                                                     7.3               9.0

Pension contributions                                                                                                 0.5               0.6

Share-based payments                                                                                             17.2               3.5

                                                                                                                               25.0             13.1

b) Other transactions     

During the year, the Group did not make any purchases in the ordinary course of business from an entity under common control (2008: $nil). There were no amounts owed to the party at the year end (2008: $nil). In 2008, the Company disposed of its intangible assets to Capricorn Energy Limited, a direct subsidiary, at arm's length values (refer to Note 16)."

Forward-looking statements

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. The Company cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", or other words of similar meaning. Examples of forward-looking statements include, amongst others, statements regarding or which make assumptions in respect of the future performance of the Company's principal subsidiary undertakings (Cairn India Limited and Capricorn Oil Limited), the on-going development of the discovered oil fields in Rajasthan, India, the future continued operation of the Cairn group's producing assets, the timing of the commencement of future production and the sustainability of that production, the ability of the Cairn group to discover new reserves, the prices achievable by the Cairn group in respect of its production, the costs of exploration, development or production, future foreign exchange rates, interest rates and currency controls, the future political and fiscal regimes in the overseas markets in which the Cairn group operates, the Cairn group's future financial position, plans and objectives for future operations and any other statements that are not historical fact. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in the price of oil or changes in interest rates and foreign exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ("IFRS") applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation or regulatory investigations, the success of future explorations, acquisitions and other strategic transactions and the impact of competition. A number of these factors are beyond the Company's control. As a result, the Company's actual future results may differ materially from the plans, goals, and expectations set forth in the Company's forward-looking statements. Any forward-looking statements made in this announcement by or on behalf of the Company speak only as of the date they are made. Except as required by the Financial Services Authority (the "FSA"), the London Stock Exchange or applicable law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. 

 

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