Annual Financial Report

RNS Number : 7335I

Cairn Energy PLC

27 March 2015

 



FOR IMMEDIATE RELEASE                                                                                      27 March 2015

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

Report and Accounts and Circular

The Company's annual report and accounts for the year ended 31 December 2014 (the "Report and Accounts") and a circular (the "Circular") were posted to shareholders today. The Circular contains a notice convening the 2015 Annual General Meeting (the "AGM") and details of the proposed renewal of the existing authority to dispose of the Company's residual interest in Cairn India. The AGM will be held in the Castle Suite of The Caledonian, a Waldorf Astoria Hotel, Princes Street, Edinburgh, EH2 2EQ at 12.00 pm on Thursday 14 May 2015.

A copy of the Report and Accounts and Circular have also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm. The Report and Accounts and Circular are also available on the Company's website at www.cairnenergy.com.

Defined terms used in this announcement shall, unless otherwise specifically defined herein, have the same meanings as in the Circular.

Circular - Residual Cairn India Interest Disposal Authority

The Company's residual interest of approximately 10% of Cairn India represents a substantial proportion of the Group's assets and therefore, due to its size, the sale of all, or a substantial part of, the residual interest currently requires Shareholder approval under the Listing Rules. At last year's annual general meeting held on 15 May 2014, Shareholders authorised the Board to dispose of all or part of the Company's then residual interest.  Cairn is at present restricted by the Indian Income Tax Department from selling its shares in Cairn India.  Notwithstanding this restriction and the receipt of the draft tax assessment order from the Indian Income Tax Department which was announced by the Company on 10 March 2015, Cairn believes it is appropriate to retain the flexibility to realise Shareholder value from its residual interest in Cairn India in the event that the Company becomes free to make such a disposal.

In such circumstances, the Board continues to believe that, in order to obtain the best terms when disposing of all or part of its residual shareholding in Cairn India, Cairn may need to make disposals via on-market transactions which would not be possible if such sales had to be subject to Shareholder approval at the time.  The Board is therefore seeking to renew the existing authority from Shareholders for the Company to be able to sell its residual interest in Cairn India at or as close as reasonably possible to the prevailing market price if and when the Company considers it appropriate to make such disposals.  Shareholder approval is being sought to make disposals via on-market transactions.  Disposals could also include participating in any share buy-back programme by Cairn India or any merger or offer involving Cairn India.  

The Company only intends to utilise the Residual Interest Disposal Authority where it believes that a sale is in the best interests of Shareholders as a whole and in the meantime the Company has the opportunity to continue to benefit from the growth and success of the discoveries in Rajasthan and elsewhere through the retained interest in Cairn India. No decision has been taken as at the date of the document on how the net proceeds of any such sale(s) will be applied.

Provided that the resolution is passed at the Annual General Meeting, the Residual Interest Disposal Authority, unless renewed, will expire on the earlier of 30 June 2016 (the last date on which the Company's annual general meeting for 2016 could be held) or at the end of the Company's annual general meeting for 2016.  Prior to that date the Company will assess the necessity and desirability of renewing the authority.

Cairn India is one of the largest oil and gas exploration and production companies in India.  Together with its joint venture partners, Cairn India accounted for ~28% of India's domestic crude oil production in the Indian fiscal year 2014. As at 31 December 2014, the fair value of the Company's residual interest in Cairn India was US$703 million (extracted without material adjustment from the Group's audited consolidated financial accounts for the year ended 31 December 2014).

Report and Accounts - Information required by Disclosure and Transparency Rule 6.3.5

The information set out below, which is extracted from the Report and Accounts, is 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 10 March 2015 (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.

Directors' responsibility statement

The following statement is extracted from page 62 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, the Directors' Remuneration 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 parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing these 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;

·      state whether applicable IFRSs as issued by the IASB and adopted by the EU have been followed, subject to any material departures disclosed or explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will remain in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation and other jurisdictions.

The directors consider that the Cairn Energy PLC Annual Report and Accounts 2014, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Directors' Statement Pursuant to the Disclosure and Transparency Rules

Each of the directors, whose names are listed in the Board of Directors section on pages 58 and 59 confirms to the best of their knowledge that:

·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and

·      the Strategic report section on pages 1 to 57 of this document includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces."

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

Ian Tyler (Non-Executive Chairman)

Todd Hunt (Non-Executive Director)

Iain McLaren (Non-Executive Director)

M. Jacqueline Sheppard QC (Non-Executive Director)

Alexander Berger (Non-Executive Director)

Simon Thomson (Chief Executive)

James Smith (Chief Financial Officer)

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from page 36 of the Report and Accounts. Further detailed information in relation to business risk management at Cairn is included on pages 37 to 41 of the Report and Accounts:-

"Principal Risks and Uncertainties

As the Group continues to focus on creating value and shareholder returns from disciplined capital allocation across a balance of exploration and development assets, the principal risks and uncertainties facing the Group at the end of 2014 were as follows:

Lack of exploration success

Exploration success is fundamental to the strategy of creating value through the discovery and development of hydrocarbon resources. Consequently, a sustained lack of exploration success may lead to limited or no value creation and a loss of investor confidence in the Group's business model. In 2014, both the Senegal operated wells discovered oil, mitigating this risk to a degree. The Group continues to actively evaluate a number of potential new exploration investment opportunities for 2015 and beyond, which are all subject to extensive external and internal peer review.

Restriction on ability to sell Cairn India Limited (CIL) shareholding

In January 2014, Cairn received a request from the Indian Income Tax Department to provide information regarding a group reorganisation that took place during the fiscal year ended 31 March 2007 and as a result a restriction was applied to the sale of the Group's CIL shares. The restriction remains in place and the Group continues to cooperate with the Indian Income Tax Department Investigation. The continued freeze of the Group's CIL shares could restrict the Group's funding capacity. The Group will take whatever steps are necessary to protect its interests.

Operational and project performance

Delivering all operated and non-operated projects in a safe and efficient manner is a key objective for the Group. In 2014, the Morocco and Senegal drilling campaigns experienced delays as a result of unscheduled maintenance requirements on the Cajun Express rig. With safety being the principal concern, the Group ceased drilling until acceptable mitigation plans were implemented. Anticipated in 2015, offshore wells in Senegal, Western Sahara, the UK and Norway will be drilled and the Group will be working with the rig contractors to agree on a safe and efficient execution plan. In addition, the Group will work closely with JV partners to ensure the Kraken and Catcher development projects are delivered safely and efficiently.

Kraken and Catcher development projects not executed on schedule and budget

The Kraken and Catcher development projects will provide future cash flow to sustain the Group's business plan and are part of the North West Europe portfolio which provides balance to the Group's exploration and appraisal activities in earlier stage hydrocarbon basins. Development projects of this nature can be susceptible to delays and budget increases for a variety of reasons and this may lead to increased costs and delays in future cash flow. To mitigate these risks, the Group works closely with its JV partners to support and / or influence key decisions. The Catcher and Kraken developments in the North Sea are progressing, with first oil targeted for 2017.

Related party transactions

The following description of related party transactions is extracted from page 137 of the Report and Accounts:

"7.8 Related Party Transactions

The Company's principal subsidiaries are listed in Appendix 1. The following table provides the Company's balances which are outstanding with subsidiary companies at the Balance Sheet date:

	2014		2013
	US$m		US$m
Amounts receivable from subsidiary undertakings	-		307.8
Amounts payable to subsidiary undertakings	(57.6)		(4.2)
	(57.6)		303.6

The amounts outstanding are unsecured and repayable on demand and will be settled in cash.

During the year the Company increased its investment in Capricorn Oil Limited through capitalisation of loan balances receivable from the subsidiary. See section 7.6 for more details.

The following table provides the Company's transactions with subsidiary companies in the loss for the year:

	2014		2013
	US$m		US$m
Amounts invoiced to subsidiaries	17.3		8.4
Amounts invoiced by subsidiaries	7.2		2.2
Dividend received from subsidiary	-		57.7

Directors' Remuneration

The remuneration of the directors of the Company is set out below. Further information about the remuneration of individual directors is provided in the audited part of the Directors' Remuneration report on pages 76 to 97.

	2014		2013
	US$m		US$m
Emoluments	5.8		4.8
	5.8		4.8

Pension contributions were made on behalf of directors in 2014 of US$0.4m (2013: US$0.2m).

No share awards to directors vested during 2014 (2013: none).

Other transactions

During the year the Company did not make any purchases in the ordinary course of business from an entity under common control (2013: US$nil)."

Directors' emoluments and remuneration of key management personnel

The following description of directors' emoluments and remuneration of key management personnel is extracted from page 130 of the Report and Accounts:

"5.5 Directors' Emoluments and Remuneration of Key Management Personnel

Details of each director's remuneration, pension entitlements, share options and awards pursuant to the LTIP are set out in the Directors' Remuneration Report on pages 76 to 97. Directors' remuneration, their pension entitlements, and any share awards vested during the year is provided in aggregate in section 7.8.

Remuneration of key management personnel

The remuneration of the directors of the Company and of the members of the Management and Corporate teams who are the key management personnel of the Group is set out below in aggregate.

	2014		2013
Company	US$m		US$m
Short-term employee benefits	9.8		10.2
Termination benefits	0.3		-
Post-employment benefits	0.6		0.6
Share-based payments	6.8		5.3
	17.5		16.1

In addition employer's national insurance contributions for key management personnel in respect of short-term employee benefits were $1.4m (2013: US$1.3m).

Share-based payments represent the cost to the Group of key management personnel's participation in the Company's share schemes, measured under IFRS 2.

Forward looking statements

This announcement contains or may contain forward-looking statements regarding Cairn, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward-looking statements are based on our management's assumptions and beliefs in the light of information available to them at this time. These forward-looking statements are, by their nature, subject to significant risks and uncertainties and actual results, performance and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn's expectations with regard thereto or any change in circumstances or events after the date hereof.

 

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