Drilling Report

Cairn Energy PLC
17 December 2004


EMBARGOED FOR RELEASE AT 0700

                                                                17 December 2004

                                CAIRN ENERGY PLC

                             Contract Notification

Cairn Energy has been notified by the Indian Government through the Ministry of
Petroleum and Natural Gas (MoPNG) that it is of the opinion that the Contractor
is liable for CESS, a tax on the production of crude oil, on the Rajasthan
Production Sharing Contract ('PSC').

The notification does not accord with Cairn's interpretation of either the
wording or the intent of the PSC or the underlying legislation and Cairn has
notified the Government accordingly.

The Contractor parties are currently 100% Cairn, with ONGC expected to exercise
its right to take 30% equity in the development area which includes the Mangala
and Aishwariya fields.
In the event that the view expressed by MoPNG prevails, and the Contractor is
liable to pay CESS, Cairn believes that the rate applicable is 900 rupees per
tonne* and that the PSC allows for cost recovery of any CESS paid. CESS is not
due and payable until the commencement of production.

Cairn will continue to defend its contractual rights under the PSC and to work
with the Government of India and ONGC to resolve these differences.

Bill Gammell Chief Executive said:

'Cairn refutes the Government's position. Assessing the impact on Cairn of any
potential CESS liability in Rajasthan is extremely uncertain at this time. CESS
is a fixed rate tax and Cairn's economic interest will be affected to a greater
extent by production rates, the prevailing price of oil and the ultimate
recovery of reserves in Rajasthan.'

* Current exchange rate is approximately 45 Rupees to US$1.
1 metric tonne = 6.97 barrels of 25 o API oil

Enquiries to:

  Cairn Energy PLC
  Bill Gammell, CEO                                         Tel: [phone]
  Kevin Hart, Finance Director
  David Nisbet, Head of Group Communications

  Brunswick Group PPL
  Patrick Handley, Mark Antelme                             Tel: [phone]


Notes to Editors/Background:

  • CESS is a tax levied on production of Crude Oil.

  • India currently imports approximately 2 million barrels of oil a day. It
    produces 650,000 barrels a day itself of which 50,000 comes from the Cairn
    operated Ravva field.

  • The Mangala discovery in the Thar desert of the North West Indian state
    has an estimated one billion barrels of oil in the ground according to
    Degolyer & MacNaughton the Independent Oil Reserve Specialists.

  • Cairn Energy has received formal approval from the Government of India
    for a Declaration of Commerciality in respect of the Mangala, N-A, Saraswati
    and Raageshwari discoveries. The approval secures Cairn an extensive
    Development Area of 1,858 square kilometres which also incorporates the
    unappraised GR-F, Kameshwari and N-R discoveries.

  • The Development Area is retained until 2020 with options for further
    extension subject to mutual agreement with the Government of India.

  • Work is underway on how best to develop the field, through the Front End
    Engineering Design (FEED). This work is looking at the various ways of
    delivering the crude to the buyers. Decisions on the preferred options are
    likely to be made in the early part of 2005.

  • At the same time preliminary work on a Field Development Plan (FDP) for
    Mangala and Aishwariya formerly N-A has started.

  • In order to conform to the terms of the PSC additional consents and
    permissions will require to be obtained before production finally commences.

  • Under the PSC, ONGC has 90 days from the date of the DOC, which is 15th
    October 2004, within which to acquire a 30% interest in the development.

  • The development area is the equivalent to the size of 12 North sea
    Blocks.


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