Final Results
EMBARGOED FOR RELEASE AT 0700 15 March 2016
CAIRN ENERGY PLC ("Cairn")
Preliminary Results Announcement
Simon Thomson, Chief Executive, Cairn Energy PLC said:
"We are delighted with the results to date of our multi-well evaluation programme offshore Senegal, which has confirmed the scale and extent of the significant resource base in this world class asset.
Cairn's 2C current resource estimate for the SNE field has gone up by 20 percent and the positive results of the latest appraisal well provide the potential to further increase the size of the SNE field.
A combination of financial strength and continued exposure to material growth opportunities leaves Cairn well-placed to deliver additional value for shareholders from its balanced portfolio."
HIGHLIGHTS
Financial
Ø US$603 million (m) Group net cash at 31 December 2015
Ø Reserve Based Lending bank facility remains undrawn; debt availability to fund UK development assets increasing with project progress, with availability expected to reach US$335m at peak and US$260m by 2017; additional US$175m available in the form of Letters of Credit
Ø A total of 49.5 mmboe booked as 2P reserves and 196.5 mmboe booked as 2C Contingent Resources on a net working interest basis at 31 December 2015
Exploration Senegal
Ø Cairn resource estimates of the SNE-1 discovery in the Sangomar Deep Offshore block upgraded following the incorporation of SNE-2 well results to:
Ø P90 (1C) increased by 30% to 200 mmbbls
Ø P50 (2C) increased by 20% to 385 mmbbls
Ø P10 (3C) increased to 690 mmbbls
Ø Successful testing of SNE-2, the first appraisal well with positive results, announced in January 2016
Ø Successful testing of SNE-3, the second appraisal well, announced in March 2016
Ø BEL-1 exploration well commenced operations in March 2016
Ø Resource upgrade does not include results of the SNE-3 appraisal well where data analysis is ongoing. Any further resource revisions following full analysis of the results of SNE-3 and BEL-1 will be announced in due course
North Sea
Ø Catcher and Kraken developments in the UK North Sea on track for first oil from 2017
Ø Additional 4.5% interest in Kraken acquired, after the year end, from First Oil bringing Cairn's total working interest to 29.5%
Ø Peak net targeted production to Cairn for North Sea interests of ~25,000 boepd
Ø Five new licences awarded in Norway in Q1 2016, including one as Operator
Ø Kraken West, UK North Sea (EnQuest Operator, Cairn 29.5% WI) appraisal well confirmed the presence of oil with potential for upside. Further evaluation is ongoing
Ø Crossbill, Norwegian North Sea (Wintershall Operator, Cairn 20% WI) was a dry well. Operations were completed in Q2 and the well was permanently plugged and abandoned
India Tax Dispute
Ø International arbitration proceedings have commenced to settle the Indian tax dispute, with Cairn claiming full compensation for the ~US$1 billion value of which its shareholders have been deprived
Ø The total assets of the Cairn subsidiary against which the Indian Tax Authorities are seeking to pursue a tax claim are US$477m (including principally the group's ~10% shareholding in Cairn India Limited) and any recovery by the Indian authorities would be limited to such assets
Enquiries:
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Analysts/Investors |
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Media
Brunswick Group LLP |
Tel: 0207 404 5959
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Webcast
There will be a live audio webcast of the results presentation available to view on the website (www.cairnenergy.com) at 9am GMT. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.
An 'on demand' version of the webcast will be available on the website as soon as possible after the event. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.
Presentation
The results presentation slides will be available on the website from 8:45am GMT.
Conference call
You can listen to the results presentation by dialling in to a listen only conference call at 9am GMT using the below dial-in details.
Dial-in details:
UK: 020 3059 8125
All other locations: +44 20 3059 8125
A recording of the conference call will be available from 11am on Tuesday 15 March 2016 until Tuesday 22 March 2016.
Recording dial-in details:
UK: 0121 260 4861
All other locations: +44 121 260 4861
Passcode: 2708804#
Transcript
A transcript of the results presentation will be available on the website as soon as possible after the event.
Chairman's Introduction
Cairn's strategy is to deliver value for shareholders from the discovery and development of hydrocarbons within a sustainable, self-funding business model. We are well positioned to deliver on our exploration success and we continue to pursue appraisal offshore Senegal. With a strong balance sheet and funding in place through to free cash flow from our North Sea development assets, our sustainable model is in a robust position. Our level of resource is appropriate to our existing scale of operations; the company is operating effectively and is well positioned to endure the impact of the current oil price environment.
The prevailing environment presents challenges to the industry, but it also presents opportunities. From a position of relative financial strength, Cairn can allocate capital to value enhancing projects while benefitting from reduced operational costs. By assessing the appropriate balance of political, technical and commercial risks across our asset portfolio, we target assets that remain robust at low oil prices.
Senegal provides a material opportunity for Cairn to create substantial shareholder value from a world class asset. Our significant acreage position offers an exciting opportunity which has the potential to be transformational to the business, our partners and our shareholders. Senegal is an important regional hub and provides a firm economic base for a large West African population. With a vision for sustainable and steady economic growth, the government has maintained stable legal and fiscal frameworks which encourage investment in the region and which support the future development of the Cairn project.
The Board of Directors met in Dakar in 2015 and visited the rig, port and local office; meeting the in-country Cairn team along with the shore base operation. Dakar is an attractive and exciting place to operate as we focus on achieving commerciality from our two back-to-back discoveries.
Our approach in Senegal is consistent with Cairn's strategic delivery in recent years; we are a highly experienced operator with a focus on health and safety and providing benefit to the communities in which we operate. Central to this are the strong partnerships we form with industry and government alike. The Board saw first hand not only the size and scale of opportunity in Senegal, but also the strength and depth of the team managing the project. The Joint Venture (JV) in Senegal brings many capabilities that are being applied to the existing exploration and appraisal programme and will also benefit future development. Importantly, the JV shares a common and universal commitment to health, safety, security, environment and sustainable development. Cairn is very familiar with operating at this stage of an emerging hydrocarbon province where there is a national desire to move steadily forward to hydrocarbon production whilst safeguarding the interests of local communities and the environment.
We welcomed two new independent non-executive Directors to the Board in 2015 - Keith Lough and Peter Kallos - who both have a wealth of experience in the oil and gas industry and in the wider energy and resources sector. During the year, we undertook an external evaluation of board performance and effectiveness with a number of improvements identified. I would like to recognise and thank all our employees and contractors for their effort, commitment and hard work in 2015 in what has been a very busy year, as we look forward to an exciting year ahead.
Chief Executive's Statement
Our business model is to create, add and realise shareholder value from a balanced portfolio - we aim to offer material growth potential from exploration and appraisal activity, supported by established development and production assets with a strong balance sheet behind them.
Cairn is in a strong position: we have a robust financial base, our North Sea development projects are on track, but perhaps most importantly, we are in the midst of an extremely promising appraisal and further exploration programme in Senegal, which we believe can create significant value for all our stakeholders by proving additional resource on the acreage.
Following the two world class discoveries in Senegal in 2014, our focus in 2015 was on evaluating the discoveries and drawing up work plans to take advantage of this exceptionally attractive opportunity. We are proud to have opened up a new oil province in Senegal and to have done so with two consecutive exploration well successes within such a large acreage positon.
The ongoing drilling programme in Senegal aims to optimise our understanding of the resource base by gathering further data; and to do so as safely, more efficiently and at a lower cost than the initial exploration phase. We are building on the knowledge we have gained since 2014 which has enabled us to improve our logistics, approvals and clearances and overall drilling performance. We have also built on our excellent onshore HSE record and extended that into the offshore environment, working closely with the drilling contractor and service companies. Drilling time on the campaign to date is ahead of expectations.
Whilst the low oil price environment clearly presents challenges to our industry, it also creates a time of opportunity for Cairn with the oil field services market having been reshaped following the dramatic fall in the oil price. This has allowed us not only to secure markedly better pricing but also improved and more dependable levels of service as the supply constraints on oilfield service firms' human resources and equipment have been sharply reduced.
Cairn is a focused operator; we move quickly and will continue to bring pace to the Senegal investment where we have been operational for three years. In 2014, we drilled two successful exploration wells and farmed down to improve our risk and equity profile. In 2015, we submitted an ambitious plan to the government, secured a Presidential Decree extending the Petroleum Sharing Contract by the requested three years from Q1 2016, completed a 3D seismic programme and commenced a firm three-well appraisal programme. In Q1 2016, we announced results from two of those follow up appraisal wells which completed operations in January and March.
Following the first appraisal well (SNE-2), Cairn's 2C resource estimate for the SNE field has now increased by 20 percent to 385 million barrels. The positive results of the recent SNE-3 appraisal well are being evaluated and, in combination with ongoing activity, provide the potential for further revisions to resource estimates for the SNE field. The third well (BEL-1) commenced operations in March.
The current programme will increase our understanding of existing discoveries, as well as evaluate prospects and help to plan the longer-term development of the field.
Alongside our activities in Senegal, Cairn has built an attractive mature basin position in the North Sea where our two key UK development projects are supported by a strong balance sheet to take them through to first oil and deliver the cashflows that will sustain our balanced portfolio over the longer term. Catcher remains on schedule and under budget to date and Kraken is also on schedule and under budget with forward capex costs reduced by more than ten percent. We continue to build our North Sea portfolio and we were pleased to be awarded five new Norwegian licences in Q1 2016, including our first as Operator.
We are taking full advantage of the lower industry cost environment as we shape the business for the future. We continue to actively assess new ventures within the context of our balanced offering whether they be potential additions to our portfolio of future exploration opportunities or cash flow generating assets where we believe the current oil price environment gives us the potential to add material value. In reviewing new investment opportunities we maintain strict economic assessment parameters to ensure that we continue to optimise our capital allocation in a lower oil price environment.
Finally, international arbitration proceedings have commenced with the Government of India to seek resolution of the ongoing retrospective tax dispute. Our claim also seeks to recoup in full the value of which we have been deprived, approximately US$1 billion. The total assets of the Cairn subsidiary against which the Indian Tax Authorities are seeking to purse a tax claim are US$477m, including primarily the group's ~10% shareholding in CIL and any recovery by the authorities would be limited to these assets.
Operational Review
Across the portfolio Cairn seeks to acquire significant acreage positions, at appropriate equity levels, in areas we believe have high technical and commercial potential and where, in the case of initial success, we have the financial capability to leverage our knowledge and create value. We continually evaluate the entire portfolio to ensure that our equity is at appropriate levels to offer potential growth opportunities.
Senegal
Cairn has been active in Senegal since 2013 and drilled two wells in 2014, discovering oil in both and opening a new hydrocarbon basin on the Atlantic Margin, with the SNE-1 discovery recognised as the largest global oil discovery in 2014.
These were the first wells to be drilled offshore Senegal in more than 20 years and the first deep-water wells. The success of the programme and the discoveries have attracted the attention of the global oil industry.
Cairn and its JV partners submitted a three year evaluation work plan to the Government of Senegal in Q2 2015. The programme was designed to lay the foundation for a long term, multi-field, multi-phase exploitation plan. The approved current programme has three firm and three optional exploration and appraisal wells and drilling started in Q4 2015 focused on the acreage around the SNE-1 discovery well. Cairn estimates that the existing two discoveries and the currently identified prospects and leads have an estimated mean risked resource base of more than one billion barrels.
The key objectives of this second phase of drilling are to derisk the resource base to demonstrate the commerciality of the SNE field, to optimise our understanding of the reservoir characteristics and begin development planning, and to test further prospectivity around the existing discoveries.
The first appraisal well, SNE-2, completed testing in January 2016 with positive results. Operations were safely and successfully completed following drilling, coring, logging and drill stem testing (DST). The well tests were significant in demonstrating the ability of the reservoirs to flow at commercially viable rates. SNE- 2 was a crestal well in a central location on the field, located in 1,200 metres (m) water depth, approximately 100 kilometres (km) offshore in the Sangomar Offshore block. The well reached planned total depth (TD) of 2,800m below sea level (TVDSS) and appraised the 2014 discovery of high quality oil in the SNE-1 well, 3 km to the south. Drill stem testing over a 12m interval of high quality pay flowed at a maximum stabilised, but constrained rate of ~8,000bopd on a 48/64" choke, confirming the high deliverability of the principal reservoir unit in the SNE-2 well.
The second appraisal well, SNE-3, commenced operations in January 2016 on the Southern Flank to test the southern extent of the field and to help delineate the shape of the structure and define the aerial extension to the south. The SNE-3 well was located in 1,186m water depth, approximately 95 km offshore in the Sangomar Offshore block, and reached the planned TD of 2,782m below sea level TVDSS. In early March 2016, it was announced that operations were safely and successfully completed following drilling, coring, logging and DST. Two drill stem tests were conducted within the Upper Reservoirs, confirming the deliverability of these units and multiple samples of oil and gas were recovered to the surface from wireline logs and drill stem tests. The results demonstrated the ability of the upper reservoir to flow at commercially viable rates and confirmed similar reservoir quality and correlation of the principal reservoir units between SNE-1, SNE-2 and SNE-3 and initial indications confirm the same 32 degree API oil quality as seen in SNE-1 and SNE-2.
The rig has moved to drill the third committed well, exploration well BEL-1, which will test the Bellatrix prospect and then be deepened as an appraisal well to evaluate the northern extent of the SNE field.
A 3D seismic acquisition programme of ~2,400km2 over the Sangomar Offshore block and south west part of the Rufisque block was completed in December 2015 with the objective of developing additional prospectivity to a drill ready status in 2016.
Cairn has a 40% WI as Operator in three blocks offshore Senegal (Sangomar Deep, Sangomar Offshore and Rufisque); ConocoPhillips has 35% WI, FAR Limited 15% WI and Petrosen, the national oil company of Senegal, 10% WI. The three blocks cover 7,490km2.
UK and Norway Developments
Cairn has built a strong position in the UK and Norway by acquiring exploration, appraisal and development assets and participating in licence rounds. The mature basins of the North Sea provide balance to the broader exploration portfolio and will deliver free cash flow to sustain future exploration. The North Sea is an active market for asset transactions enabling Cairn to continually optimise its position within the region as well as its wider capital allocation.
Kraken and Catcher, two of the largest ongoing development projects in the UK North Sea are the Group's core development projects and a third, the Skarfjell discovery in Norway, is in the early stages of development planning. Kraken and Catcher will provide free cash flow from 2017 with peak net production to Cairn of ~25,000 boepd.
Catcher
Catcher is progressing on schedule and under budget to date to deliver first oil in the second half of 2017. Key milestones have been achieved during the year including the subsea installation work planned for 2015, which was completed with the successful installation of the pipeline end manifold and tow templates at Catcher and Burgman. In addition, the 60 km gas export pipeline was successfully laid and tied in during July with minimal weather downtime. Fabrication of the subsea equipment including flowline bundles and associate towheads, the buoy and the mid water arches, which are all due to be installed in the summer of 2016, is on schedule.
Drilling activities which started in July using the Ensco 100 rig progressed well, with excellent operational performance. The three Catcher wells, two injectors (CTI1 and CCI2) and one producer (CCP3), all met or exceeded pre-drill expectations in terms of reservoir quality and flow rates. In addition, the injection well tests successfully demonstrated that water can be injected into the field.
Fabrication of the FPSO hull and topsides is ongoing in Asia, following mitigating actions put in place by the FPSO provider BW Offshore to address initial scheduling issues. The first major FPSO hull section was successfully delivered in December to the yard in Japan from South Korea. Topsides module and turret construction continues to progress well in Batam and Singapore. The FPSO contractor currently plans the commencement of hull and integration work in Singapore from summer 2016.
Kraken
In 2015, the Kraken project continued on schedule and overall forward capex reductions of US$300 m were implemented compared to the capital expenditure at the sanction of the project. In 2016, the development continues to make strong progress, in particular the critical path conversion programme for the Kraken FPSO vessel is on schedule for departure from Singapore for commissioning and hook up, with production in H1 2017. The drilling programme is focused on drill centres one and two and is currently ahead of schedule, despite a particularly harsh North Sea winter. This should ensure that the planned four production and four injections wells will be available for first oil. In February 2016, Cairn announced the acquisition of an additional 4.5% interest in the Kraken development in the UK North Sea from First Oil plc bringing Cairn's total working interest to 29.5%. There was a nominal cash consideration payable in respect of the transaction however Cairn will waive its right to reclaim approximately US$3m of cash calls paid on behalf of First Oil in January and February 2016.
Skarfjell
The partners are now investigating the best option for the development of the field and the decision on concept selection is expected to be made in Q4 2016. This reflects the JV's need for more detailed technical studies concerning the concept selection (Cairn 20% WI).
Keddington
The K-5 onshore well completed drilling in Q1 2016 with elevated gas readings, indicative of the presence of hydrocarbons recorded from a gross interval of 141m, containing 62m of net sand. The borehole was completed for future production (Cairn 10% WI).
UK & Norway Exploration
In Q4 2015, Cairn submitted applications for acreage in the 23rd Licensing Round in Norway and in Q1 2016 the company was awarded five new licences in Norway including one as Operator as part of APA 2015. Cairn's first operatorship in the region is on production licence 842 with the Storhaug prospect in the Norwegian North Sea (Cairn 40% WI). The Kraken West appraisal well in the UK North Sea confirmed the presence of oil, with potential for upside and further evaluation is ongoing. The Crossbill well in the Norwegian North Sea (Wintershall Operator, Cairn 20% WI) was dry and operations were completed in Q2 and the well permanently plugged and abandoned. In the Greater Catcher area, the Bonneville satellite oil discovery was relinquished during the year as changes in UK tax allowances no longer meant the field was commercially viable. The Laverda exploration well in the UK North Sea is planned for Q2 2016 (Cairn 36% WI).
Morocco
The Foum Draa and Juby Maritime Permits offshore Morocco were relinquished in Q3 and Q4 2015. The CB-1 well drilled in Cap Boujdour, encountered hydrocarbons but the discovery was non-commercial and the well was plugged and abandoned in Q1 2015. Discussions are ongoing with Office National des Hydrocarbures et des Mines (ONHYM) for a new Boujdour Maritime contract area offshore Western Sahara (Kosmos Operator 55% WI, ONHYM 25% WI, Cairn 20% WI).
Mauritania
In block C19 offshore Mauritania, additional technical studies are being conducted during an extension period to the first exploration phase, in order to further de-risk the prospects prior to a decision on entering the next phase, which has drilling commitments (Cairn 35% WI, Chariot Oil & Gas Operator 55% WI, Société Mauritanienne des Hydrocarbures et de Patrimoine Minier (SMHPM) 10% WI).
Republic of Ireland
The appraisal/exploration well on FEL 2/04 offshore West of Ireland is now planned for 2017/18, subject to Government of Ireland approval. Further interpretation and mapping will be carried out to finalise the additional prospective resource potential. (Cairn Operator 38% WI, Providence 58% WI and Sosina 4%).
Outlook
As a result of its significant value potential, Senegal will be the key focus for Cairn in 2016. Our attention is on confirming the scale of our Senegal discovery, expanding the resource base and moving it towards commercialisation. Our two developments in the UK North Sea remain on schedule and on budget with first oil from 2017. This activity is set against a backdrop of a balanced, well-funded company with a continued focus on allocation of capital and resources. We are well placed to take advantage of this exciting opportunity.
Financial Review
Overview
Cairn enters 2016 fully funded to complete an active exploration and appraisal drilling campaign focusing on Senegal, as well as to deliver first oil from the Kraken and Catcher development projects in the UK North Sea, which will generate cashflow for the Group from 2017.
As a result of actively managing its capital programme, reducing administrative expenditure and maintaining strong cash balances and undrawn debt facilities, the Group is in a strong financial position, able to withstand and deliver returns from a lower oil price environment.
Net funds and capital expenditure
At 31 December 2015, the Group held cash balances of US$603m (2014: US$869m). The Group's Reserve-Based Lending facility remains undrawn with debt availability to fund UK development assets increasing with project progress and with availability expected to reach US$335m at peak and US$260m by 2017. An additional sum of US$175m is available in the form of Letters of Credit.
The Group is currently operating a three well exploration and appraisal campaign offshore Senegal with remaining costs forecast of US$100m. Cash expenditure on the Group's development projects in the year was US$114m with forecast costs through to end 2017 of US$465m.
Cairn's cash resources reduced from US$869m at 31 December 2014 to US$603m at the year end. Cairn's net cash outflow is analysed as follows:
|
2015 Net Cash Movement |
US$m |
|
|
|
|
Opening cash and cash equivalents |
869 |
|
Pre-award costs |
(35) |
|
Exploration and development additions |
(323) |
|
Proceeds on farm-down of assets |
55 |
|
Norway tax refund |
52 |
|
Administration and other income and expenses |
(8) |
|
Foreign exchange movements |
(7) |
|
Closing net cash |
603 |
Analysis of the cash flow movements on assets to expenditure in the financial statements is as follows:
|
|
Exploration and pre-award costs |
|
Development |
||||
|
|
|
Senegal |
North West Europe |
Other |
Total |
|
North Sea |
|
|
|
US$m |
US$m |
US$m |
US$m |
|
US$m |
|
|
|
|
|
|
|
|
|
|
Expenditure |
|
61 |
66 |
61 |
188 |
|
231 |
|
Working capital movements (excluding carry) |
|
53 |
40 |
(37) |
56 |
|
(47) |
|
Dyas Carry (non-cash) |
|
- |
- |
- |
- |
|
(70) |
|
Cash outflow |
|
114 |
106 |
24 |
244 |
|
114 |
Oil and Gas assets
|
2015 Movements in Oil and Gas Assets |
US$m |
|
|
|
|
Opening oil and gas assets |
885 |
|
|
|
|
Exploration additions |
152 |
|
Development additions - North West Europe |
231 |
|
Unsuccessful exploration costs - Africa and other |
(53) |
|
Unsuccessful exploration costs - North West Europe |
(44) |
|
Disposals - North West Europe |
(73) |
|
Impairment - North West Europe |
(43) |
|
Foreign exchange |
(52) |
|
Closing oil and gas assets |
1,003 |
Exploration assets
Senegal
Cairn commenced its current exploration and appraisal programme offshore Senegal in September 2015 with the seismic programme across the Sangomar Offshore block and part of the Rufisque block. The first of the current three well exploration and appraisal wells planned, the SNE-2 appraisal well spudded in October 2015 and completed in January 2016.
Following completion of the well, the Ocean Rig Athena moved to the SNE-3 well location which commenced drilling operations in January 2016 and completed in March 2016.
For the year to 31 December 2015, exploration and appraisal additions in Senegal of US$61m include costs of the seismic campaign of US$5m and drilling costs associated with the two wells spudded in 2015 of US$40m. At 31 December 2015, total exploration costs capitalised in Senegal were US$228m.
Other Africa
The Group completed one further well in the African region during 2015; the Cap Boujdour well, offshore Morocco. The well, which completed in March 2015 was unsuccessful with total costs relating to the licence of US$82m charged to the Income Statement, US$35m in 2015 and US$47m in 2014. The Cap Boujdour licence is now in the process of relinquishment, though the JV is looking to enter into a new exploration licence on the acreage. Cairn relinquished the Foum Draa and Juby Maritime licences offshore Morocco in the current year.
The Group have agreed a 12 month extension to its offshore exploration licence C-19 in Mauritania. There are no significant commitments under this licence.
North West Europe
Exploration
In the North Sea, Cairn completed one exploration well and one appraisal well in 2015, one in Norway and one in the UK.
The Crossbill exploration well in Norway was dry and costs of US$13m were expensed. The West Kraken appraisal well in the UK completed during the year successfully encountering oil. Work continues to evaluate this discovery.
In the Greater Catcher area, the Bonneville oil discovery was relinquished during the year. Changes in UK tax allowances together with reduced oil price meant the discovery was no longer commercially viable. Related costs of US$24m were charged to the Income Statement as unsuccessful exploration. The Carnaby satellite field, within the Catcher development area, is sub-commercial under revised economics and related costs of US$17m have been fully impaired in the year.
The carrying value of exploration assets in North West Europe at 31 December of US$134m includes US$64m of costs related to the Skarfjell discovery in Norway where progress continues towards development sanction. Remaining costs of US$70m are spread across the Group's portfolio of North Sea exploration licences, including US$35m relating to the Laverda and Sunbeam prospects in the Greater Catcher area where firm exploration wells are planned in 2016 and 2018 respectively.
Cairn continues to pursue new opportunities in the UK-Norway region including the Barents Sea. Seismic acquisition costs in the year in this area were US$7m and are included in pre-award costs expensed through the Income Statement.
Development assets
Catcher farm-down
Cairn completed the farm-down of a 10% working interest in the Catcher Development asset and associated exploration licences to Dyas in January 2015. Proceeds were in the form of a carry of US$182m back dated to the economic effective date of 1 January 2014. On completion of the deal, Cairn received a refund of costs of US$55m (US$36m under the carry) and the remaining carry was recognised as a current asset at its discounted, post-tax fair value.
The transaction resulted in an accounting gain of US$27m, with a related deferred tax credit of US$5m. US$12m of proceeds have been allocated to exploration assets.
Additions in the year
2015 was a year of significant progress on the Group's two UK development projects.
Development drilling in the Kraken project commenced in May 2015 and, by the year end, 13 wells (including top-holes) had spudded. Sub-surface activity has continued as planned and on budget. Total capital expenditure in the year was US$152m.
Following the Catcher farm down to Dyas, the costs of Cairn's working interest share in the Catcher development were carried through the period. Additions in the year of US$80m primarily reflect the carry that has been utilised post completion of the farm down. It is currently forecast that Cairn will continue to be carried to mid 2016. During the year, development drilling also commenced in Catcher and two wells were drilled by the end of 2015.
As the developments progress, Cairn has provided US$31m for the costs of decommissioning based on the number of wells spudded and the subsurface work undertaken to the year end.
Impairments testing on exploration/appraisal and development assets and related goodwill
At the year end, Cairn's exploration, appraisal and development assets were tested for impairment. The fair value of the Group's key exploration and development assets used in the impairment test are calculated using discounted cash-flow models. Key inputs into the models include the forecast date of first-oil from the development assets, reserve estimates and production profiles and the directors' long-term oil price assumption.
At the December Board meeting, the directors agreed to reduce the Group's long-term oil price assumption effective for the period commencing 1 January 2019, from US$90 per barrel to US$80, per barrel. The Group's short-term assumption, based on the forward curve for the initial three year period, remains unchanged.
As a consequence of the revised oil price assumption, an impairment has arisen on the Group's exploration assets in the Greater Catcher area, with a charge of US$17m and a further charge of US$25m on the Catcher development asset. No impairment arose on Kraken. Sensitivity analysis is included in the financial statements, but a reduction in the long-term assumption to US$70 per barrel would increase the impairment charge on development assets to US$176m.
The impact of delays to either or both development projects has also been considered in the sensitivity analysis with no material impact at oil price assumptions greater than US$65. Delays to first oil production will have greater impact on the Group's liquidity position and this has been tested through various scenarios run to allow directors to conclude on both the going concern assumption used to prepare the Group financial statements and in the longer-term viability statement included in the Strategic Report.
The Group's goodwill allocated to the North Sea operating segment was also tested for impairment using the same oil price assumptions; no impairment was identified.
Financial Asset - Investment in Cairn India
Cairn's residual ~10% interest in CIL remains classified as a non-current available for sale financial asset, with a carrying value of US$384m at the balance sheet date.
The fall in value of the Group's investment over the year of US$319m, is recorded as an impairment in the Group Income Statement (US$177m was recorded as an impairment in the Group's 2015 half-year financial statements).
Results for the year
|
|
Year ended 31 December 2015 US$m |
Year ended 31 December 2014 US$m |
|
|
|
|
|
Pre-award costs |
(35) |
(55) |
|
Unsuccessful well costs |
(97) |
(208) |
|
Administrative expenses and other income/costs |
(31) |
(65) |
|
Related tax credit |
37 |
122 |
|
Operational and administrative expenses |
(126) |
(206) |
|
|
|
|
|
Net finance (costs)/income |
(1) |
4 |
|
|
|
|
|
Impairment of financial asset |
(319) |
(194) |
|
Gain on sale of financial asset |
- |
4 |
|
Related tax credit |
10 |
41 |
|
CIL investment impairment and disposal |
(309) |
(149) |
|
|
|
|
|
Gain on disposal of oil and gas assets |
27 |
2 |
|
Impairment of oil and gas assets |
(43) |
(47) |
|
Related tax (charge)/credit |
(64) |
15 |
|
Oil and gas asset sales and impairment |
(80) |
(30) |
|
|
|
|
|
Total loss after tax |
(516) |
(381) |
Pre-award costs
Seismic acquisition costs in the Barents Sea and North Sea new ventures activities account for US$25m of the Group's total pre-award costs of US$35m.
Unsuccessful exploration costs
Moroccan exploration write offs reflect the Cap Boujdour well, drilled over Q4 2014 and Q1 2015 and final costs from the 2013/14 drilling campaign. The North West Europe charges occur following the unsuccessful Crossbill exploration well and the relinquishment of the Bonneville satellite field in the Catcher area. Other unsuccessful costs are offset by the release of provisions on exit from Nepal.
Administration expenses
Following the Group re-organisation implemented in 2014, Cairn's year-on-year, recurring administration costs have reduced from US$59m to US$30m. Non-recurring administration costs include the cost of defending the Group's position in India which were US$4m (2014: US$8m). Costs of the re-organisation itself of US$8m, including accelerated share-based payment charges, were incurred in 2014; no charges arose in the current year.
Tax credit on operational and administrative expenses
The tax credit in the year primarily relates to refunds receivable in Norway on qualifying pre-award and
administrative costs and on the costs of the unsuccessful Crossbill well.
Impairment of financial asset
The decline in the market value of Cairn India Limited results in an impairment charge for the year of US$319m (2014: US$194m). There were no disposals of shares in Cairn India Limited in the current period as the restriction on sale imposed on Cairn was in place throughout the year. Sales in 2014 prior to the imposition of the restriction generated gains of US$4m.
Gain on sale of oil and gas assets
The Catcher farm-down, completed in January 2015, generated a gain on sale of US$27m. Associated tax credits of US$5m arose on the transaction.
Impairment of oil and gas assets
The reduction in the Group's long term oil price assumption drove a US$43m impairment of oil and gas assets. In addition, the Group reversed deferred tax assets previously recognised in respect of UK tax losses available for offset against future production from its UK assets.
Finance Income and Costs
Finance income includes dividends receivable from Cairn India of US$12m (2014: US$35m). Cairn India is currently prohibited from remitting the proceeds of the dividends to Cairn. Finance income also includes US$4m of unwinding of discount on the Catcher carry.
Finance costs include exchange losses of US$14m and charges on the Group's undrawn facility of US$6m.
Taxation
Indian Tax arbitration
International arbitration proceedings have commenced to settle the Indian tax dispute with Cairn claiming full compensation for the value of which its shareholders have been deprived. Based on detailed legal advice, no provision is recorded in the financial statements. Details of the assessment order received from the Indian Income Tax Department and the Group's maximum exposure are included within the contingent liability disclosures in note 5.5 to the financial results included in this announcement.
Principal Risks and Uncertainties
As the Group continue to focus on delivering value for shareholders from the discovery and development
of hydrocarbons within a sustainable, self-funding business model, the principal risks and uncertainties
facing the Group at the end of 2015 were as follows:
- Sustained low oil price;
- Restriction on ability to sell Cairn India Limited shareholding;
- Kraken and Catcher development activities and production start up not executed on schedule and budget; and
- Lack of exploration or appraisal success
Cairn Energy PLC
Group Income Statement
For the year ended 31 December 2015
|
|
Section |
2015 US$m |
2014 US$m |
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
Pre-award costs |
|
(35.2) |
(54.8) |
|
Unsuccessful exploration costs |
2.1 |
(97.4) |
(208.4) |
|
Net operating expenses |
4.2 |
(29.7) |
(64.5) |
|
Impairment of intangible exploration/appraisal assets |
2.1 |
(17.9) |
(46.9) |
|
Impairment of property, plant & equipment - development/producing assets |
2.2 |
(25.1) |
- |
|
Gain on disposal of oil and gas assets |
2.3 |
26.6 |
2.3 |
|
|
|
|
|
|
Operating loss |
|
(178.7) |
(372.3) |
|
|
|
|
|
|
Gain on disposal of available-for-sale financial assets |
3.1 |
- |
3.9 |
|
Impairment of available-for-sale financial assets |
3.1 |
(318.6) |
(194.3) |
|
Finance income |
|
19.8 |
38.3 |
|
Finance costs |
|
(20.3) |
(34.7) |
|
|
|
|
|
|
Loss before taxation from continuing operations |
|
(497.8) |
(559.1) |
|
|
|
|
|
|
Taxation |
|
|
|
|
Tax (charge)/credit |
5.2 |
(17.7) |
178.0 |
|
Loss for the year attributable to equity holders of the parent |
|
(515.5) |
(381.1) |
|
|
|
|
|
|
Loss per ordinary share - basic (cents) |
4.3 |
(90.26) |
(66.51) |
|
Loss per ordinary share - diluted (cents) |
437 |
(90.26) |
(66.51) |
Group Statement of Comprehensive Income
For the year ended 31 December 2015
|
|
Section
|
2015
US$m
|
2014
US$m
|
|
|
|
|
|
|
Loss for the year
|
|
(515.5)
|
(381.1)
|
|
|
|
|
|
|
Other comprehensive income – items that may be recycled to profit or loss
|
|
|
|
|
Deficit on valuation of financial assets
|
3.1
|
(318.6)
|
(261.1)
|
|
Deferred tax credit on valuation of financial assets
|
5.2
|
9.5
|
56.6
|
|
Valuation movement recycled to Income Statement
|
3.1
|
318.6
|
189.2
|
|
Deferred tax credit on valuation movement recycled to Income Statement
|
5.2
|
(9.5)
|
(40.9)
|
|
Currency translation differences
|
|
(63.5)
|
(58.8)
|
|
Other comprehensive income for the year
|
|
(63.5)
|
(115.0)
|
|
|
|
|
|
|
Total comprehensive income for the year attributable to equity holders of the parent
|
|
(579.0)
|
(496.1)
|
Cairn Energy PLC
Group Balance Sheet
As at 31 December 2015
|
|
|
2015 |
2014 |
|
|
Section |
US$m |
US$m |
|
Non-current assets |
|
|
|
|
Intangible exploration/appraisal assets |
2.1 |
423.4 |
417.0 |
|
Property, plant & equipment - development/producing assets |
2.2 |
579.6 |
467.8 |
|
Intangible assets - goodwill |
|
131.9 |
145.1 |
|
Other property, plant & equipment and intangible assets |
|
3.9 |
5.5 |
|
Available-for-sale financial assets |
3.1 |
384.0 |
702.6 |
|
Deferred tax assets |
5.4 |
- |
106.2 |
|
|
|
1,522.8 |
1,844.2 |
|
Current assets |
|
|
|
|
Income tax asset |
5.3 |
33.0 |
60.3 |
|
Inventory |
|
0.7 |
5.0 |
|
Other receivables |
|
148.9 |
238.6 |
|
Cash and cash equivalents |
3.2 |
602.8 |
869.3 |
|
|
|
785.4 |
1,173.2 |
|
Total assets |
|
2,308.2 |
3,017.4 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
120.1 |
278.2 |
|
Provisions - other |
|
- |
11.6 |
|
|
|
120.1 |
289.8 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Deferred tax liabilities |
5.4 |
48.8 |
61.7 |
|
Provisions - decommissioning |
|
37.1 |
- |
|
Provisions - other |
|
2.8 |
2.8 |
|
|
|
88.7 |
64.5 |
|
Total liabilities |
|
208.8 |
354.3 |
|
Net assets |
|
2,099.4 |
2,663.1 |
|
|
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
|
Called-up share capital |
|
12.4 |
12.4 |
|
Share premium |
|
487.1 |
487.0 |
|
Shares held by ESOP/SIP Trusts |
|
(23.0) |
(26.7) |
|
Foreign currency translation |
|
(146.2) |
(82.7) |
|
Capital reserves - non distributable |
|
40.8 |
40.8 |
|
Merger reserve |
|
255.9 |
255.9 |
|
Retained earnings |
|
1,472.4 |
1,976.4 |
|
Total equity |
|
2,099.4 |
2,663.1 |
Cairn Energy PLC
Group Statement of Cash Flows
For the year ended 31 December 2015
|
|
Section
|
2015
US$m
|
2014
US$m
|
|
Cash flows from operating activities
|
|
|
|
|
Loss before taxation
|
|
(497.8)
|
(559.1)
|
|
|
|
|
|
|
Unsuccessful exploration costs
|
|
97.4
|
208.4
|
|
Depreciation and amortisation
|
|
3.4
|
3.3
|
|
Share-based payments charge
|
|
15.2
|
21.4
|
|
Impairment of intangible exploration/appraisal assets
|
|
17.9
|
46.9
|
|
Impairment of property, plant & equipment - development/producing assets
|
|
25.1
|
-
|
|
Gain on disposal of oil and gas assets
|
|
(26.6)
|
(2.3)
|
|
Gain on disposal of available-for-sale financial assets
|
|
-
|
(3.9)
|
|
Inventory disposal/write down
|
|
(0.2)
|
8.4
|
|
Impairment of available-for-sale financial assets
|
|
318.6
|
194.3
|
|
Finance income
|
|
(19.8)
|
(38.3)
|
|
Finance costs
|
|
20.3
|
34.7
|
|
Interest paid
|
|
(0.2)
|
(0.5)
|
|
Income tax received from operating activities
|
|
23.6
|
30.0
|
|
Foreign exchange differences
|
|
(0.4)
|
8.8
|
|
Other receivables movement
|
|
4.3
|
4.3
|
|
Trade and other payables movement
|
|
6.1
|
(4.6)
|
|
Provisions movement
|
|
(2.4)
|
2.9
|
|
Net cash used in operating activities
|
|
(15.5)
|
(45.3)
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
Expenditure on intangible exploration/appraisal assets
|
|
(208.4)
|
(336.0)
|
|
Expenditure on property, plant & equipment - development/producing assets
|
|
(114.2)
|
(39.8)
|
|
Income tax received from investing activities
|
|
28.2
|
36.0
|
|
Proceeds on disposal of oil and gas assets
|
|
54.7
|
31.4
|
|
Movement on inventory
|
|
0.8
|
(3.9)
|
|
Purchase of other property, plant & equipment and intangible assets
|
|
(2.1)
|
(3.2)
|
|
Proceeds from disposal of available-for-sale financial assets
|
|
-
|
62.6
|
|
Movement in funds on bank deposits
|
|
-
|
0.2
|
|
Interest received
|
|
3.6
|
3.1
|
|
Net cash used in investing activities
|
|
(237.4)
|
(249.6)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
Cost of shares purchased
|
|
-
|
(64.3)
|
|
Facility, arrangement fees and bank charges
|
|
(6.3)
|
(19.2)
|
|
Proceeds from exercise of share options
|
|
0.1
|
0.3
|
|
Repayment of borrowings
|
|
-
|
(53.4)
|
|
|
|
|
|
|
Net cash flows used in financing activities
|
|
(6.2)
|
(136.6)
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(259.1)
|
(431.5)
|
|
Opening cash and cash equivalents at beginning of year
|
|
869.3
|
1,308.3
|
|
Exchange losses on cash and cash equivalents
|
|
(7.4)
|
(7.5)
|
|
Closing cash and cash equivalents
|
3.2
|
602.8
|
869.3
|
Cairn Energy PLC
Group Statement of Changes in Equity
For the year ended 31 December 2015
|
|
Equity share capital
|
Shares held by ESOP Trust and SIP Trust
|
Foreign currency translation
|
Merger and capital reserves
|
Available-for-sale reserve
|
Retained earnings
|
Total equity
|
|
|
US$m
|
US$m
|
US$m
|
US$m
|
US$m
|
US$m
|
US$m
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2014
|
499.7
|
(28.0)
|
(23.9)
|
296.3
|
56.2
|
2,387.5
|
3,187.8
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
-
|
-
|
-
|
-
|
-
|
(381.1)
|
(381.1)
|
|
Deficit on valuation of financial assets
|
-
|
-
|
-
|
-
|
(261.1)
|
-
|
(261.1)
|
|
Deferred tax credit on valuation of financial assets
|
-
|
-
|
-
|
-
|
56.6
|
-
|
56.6
|
|
Valuation movement recycled to Income Statement
|
-
|
-
|
-
|
-
|
189.2
|
-
|
189.2
|
|
Deferred tax credit on valuation movement recycled to Income Statement
|
-
|
-
|
-
|
-
|
(40.9)
|
-
|
(40.9)
|
|
Currency translation differences
|
-
|
-
|
(58.8)
|
-
|
-
|
-
|
(58.8)
|
|
Total comprehensive income for the year
|
-
|
-
|
(58.8)
|
-
|
(56.2)
|
(381.1)
|
(496.1)
|
|
Share buy-back
|
(0.4)
|
-
|
-
|
0.4
|
-
|
(50.3)
|
(50.3)
|
|
Share-based payments
|
-
|
-
|
-
|
-
|
-
|
21.4
|
21.4
|
|
Exercise of employee share options
|
0.1
|
0.2
|
-
|
-
|
-
|
-
|
0.3
|
|
Cost of shares vesting
|
-
|
1.1
|
-
|
-
|
-
|
(1.1)
|
-
|
|
At 31 December 2014
|
499.4
|
(26.7)
|
(82.7)
|
296.7
|
-
|
1,976.4
|
2,663.1
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
-
|
-
|
-
|
-
|
-
|
(515.5)
|
(515.5)
|
|
Deficit on valuation of financial assets
|
-
|
-
|
-
|
-
|
(318.6)
|
-
|
(318.6)
|
|
Deferred tax credit on valuation of financial assets
|
-
|
-
|
-
|
-
|
9.5
|
-
|
9.5
|
|
Valuation movement recycled to Income Statement
|
-
|
-
|
-
|
-
|
318.6
|
-
|
318.6
|
|
Deferred tax credit on valuation movement recycled to Income Statement
|
-
|
-
|
-
|
-
|
(9.5)
|
-
|
(9.5)
|
|
Currency translation differences
|
-
|
-
|
(63.5)
|
-
|
-
|
-
|
(63.5)
|
|
Total comprehensive income for the year
|
-
|
-
|
(63.5)
|
-
|
-
|
(515.5)
|
(579.0)
|
|
Share-based payments
|
-
|
-
|
-
|
-
|
-
|
15.2
|
15.2
|
|
Exercise of employee share options
|
0.1
|
-
|
-
|
-
|
-
|
-
|
0.1
|
|
Cost of shares vesting
|
-
|
3.7
|
-
|
-
|
-
|
(3.7)
|
-
|
|
At 31 December 2015
|
499.5
|
(23.0)
|
(146.2)
|
296.7
|
-
|
1,472.4
|
2,099.4
|
Section 1 - Basis of Preparation
1.1 Significant Accounting Policies
a) Basis of preparation
Cairn prepares its financial statements on a historical cost basis, unless accounting standards require an alternate measurement basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed either in the relevant accounting policy or in the notes to the financial statements. The financial statements comply with the Companies Act 2006 as applicable to companies using IFRS.
The Group's financial statements are prepared on a going concern basis.
The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. However, the Financial Statements contained in this announcement are extracted from audited statutory accounts for the financial year ended 31 December 2015, which will be delivered to the Registrar of Companies. Those accounts are expected to have an unqualified audit opinion.
b) Accounting standards
Cairn prepares its financial statements in accordance with applicable International Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board ("IASB") as adopted by the EU, and interpretations issued by the IFRS Interpretations Committee ("IFRS IC") and Companies Act 2006 applicable to companies reporting under IFRS. The Group's financial statements are also consistent with IFRS as issued by the International Accounting Standards Board ("IASB") as they apply to accounting periods ended 31 December 2015.
Effective 1 January 2015, Cairn has adopted the following standards:
- Annual improvements to IFRSs 2011-2013 Cycle
The adoption of these amendments will have no material impact on Cairn's results or financial statement disclosures.
The following amendments to standards issued by the IASB and endorsed by the EU have yet to be adopted by the Group:
- Annual improvements to IFRSs 2010-2012 Cycle (effective 1 February 2015)
- Amendments to IFRS11: Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016)
- Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016)
- Annual improvements to IFRSs 2012-2014 Cycle (effective 1 January 2016)
- Amendments to IAS 1: Disclosure Initiative (effective 1 January 2016)
- Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016)
- Amendments to IAS 7: Statement of Cash Flows (effective 1 January 2017)
The adoption of these amendments will have no material impact on Cairn's results or financial statement disclosures. There are no other standards or amendments issued by the IASB and endorsed by the EU that will impact the Group.
c) Annual Report and Accounts
Full accounts are due to be posted to shareholders in April 2016 and will be available at the Company's registered office, 50 Lothian Road, Edinburgh, EH3 9BY.
The Annual General Meeting is due to be held on Thursday 12 May 2016 at 12 midday.
Section 1 - Basis of Preparation
1.2 Going concern
The directors have considered the factors relevant to support a statement of going concern.
In assessing whether the going concern assumption is appropriate, the Board and Audit Committee considered the Group cash flow forecasts under various scenarios, identifying risks and mitigants and ensuring the Group has sufficient funding to meet its current commitments as and when they fall due.
The directors have a reasonable expectation that the Group will continue in operational existence for a period of 12 months from the date of signing these financial statements and have therefore used the going concern basis in preparing the financial statements.
The Board and Audit Committees assessment of risk and mitigants to the Group's operational existence beyond this 12 month period is included in the viability statement.
Section 2 - Oil and Gas Assets and Related Goodwill
Key estimates and assumptions in this section:
Impairment testing of Intangible exploration/appraisal assets and Property, plant & equipment - development assets
Where an indicator of impairment is identified on an intangible exploration/appraisal asset or a development asset, an impairment test is conducted in accordance with the Group's accounting policies. The test compares either the carrying value of the asset or the carrying value of the cash-generating unit ("CGU") containing the asset, to the recoverable amount of that asset or CGU.
The recoverable amount of an asset represents its fair value less costs of disposal. This is based on either a verifiable third-party arm's-length transaction from which a fair value can be obtained or where there is no such transaction, the fair value less costs of disposal of an asset is calculated using discounted post-tax cash flow models over the field life of the asset.
The key assumptions used in the Group's discounted cash flow models reflect past experience and take account of external factors. These assumptions include:
- Short/medium-term oil price based on a three-month average forward curve for three years from the Balance Sheet date;
- Long-term oil price of US$80 per boe (2014: US$90 per boe) escalated at 2.0% (2014: 2.5%) per annum;
- Reserve estimates of discovered resource (2P and 2C) based on P50 reserve estimates;
- Production profiles based on Cairn's internal estimates which are not materially different from those of the operators;
- Cost profiles for the development of the field and subsequent operating costs supplied by the operator and escalated at 2.0% (2014: 2.0%) per annum; and
- Post-tax discount rates of 10% (2014: 10%) for the Group's UK and Norwegian North Sea assets.
2.1 Intangible Exploration/Appraisal Assets
|
|
Atlantic Margin |
|
Other |
|
||
|
|
Senegal |
Other Africa |
Greenland and Republic of Ireland |
North West Europe - UK and Norway |
Total |
|
|
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
Net book value |
|
|
|
|
|
|
|
At 1 January 2014 |
41.6 |
31.1 |
38.2 |
380.9 |
6.8 |
498.6 |
|
Foreign exchange |
- |
- |
(0.8) |
(28.6) |
(0.8) |
(30.2) |
|
Additions |
145.7 |
99.8 |
19.1 |
108.8 |
5.5 |
378.9 |
|
Disposals |
(20.5) |
(0.3) |
(5.5) |
(0.3) |
- |
(26.6) |
|
Transfers |
- |
- |
- |
(148.4) |
- |
(148.4) |
|
Impairment |
- |
- |
(22.7) |
(24.2) |
- |
(46.9) |
|
Unsuccessful exploration costs |
- |
(100.1) |
(6.6) |
(94.8) |
(6.9) |
(208.4) |
|
At 1 January 2015 |
166.8 |
30.5 |
21.7 |
193.4 |
4.6 |
417.0 |
|
Foreign exchange |
- |
- |
- |
(19.2) |
- |
(19.2) |
|
Additions |
61.4 |
56.8 |
5.3 |
32.3 |
(3.3) |
152.5 |
|
Disposals |
- |
- |
- |
(11.6) |
- |
(11.6) |
|
Impairment |
- |
- |
(1.2) |
(16.7) |
- |
(17.9) |
|
Unsuccessful exploration costs |
- |
(56.2) |
(0.9) |
(44.2) |
3.9 |
(97.4) |
|
At 31 December 2015 |
228.2 |
31.1 |
24.9 |
134.0 |
5.2 |
423.4 |
Atlantic Margin - Senegal
In September 2015, Cairn commenced a three well exploration and appraisal programme offshore Senegal, following the two successful exploration wells completed in 2014, the FAN-1 and SNE-1 wells. The SNE-2 and SNE-3 appraisal wells completed in Q1 2016. The third well, the BEL-1 well with exploration and appraisal targets, is ongoing. Subsequent exploration and appraisal wells are subject to joint operator approval.
Further appraisal is required to determine the commerciality of the FAN-1 discovery and costs to date remain capitalised. Capitalised costs of US$228.2m at 31 December 2015 include the cost of the 2014 SNE-1 and FAN-1 wells and 2015 year-to-date costs of the current drilling programme.
Section 2 - Oil and Gas Assets and Related Goodwill
2.1 Intangible Exploration/Appraisal Assets (continued)
Atlantic Margin - Senegal (continued)
Disposals of US$20.5m in 2014 represent back costs received following the farm-down to ConocoPhillips, completed in January 2014.
Atlantic Margin - Other Africa
The Cap Boujdour well, offshore Morocco, completed in March 2015, failing to encounter commercial hydrocarbon volumes. Costs incurred in the current year on this well and other close-out costs on the Foum Draa and Juby Maritime relinquished licences of US$56.2m (2014: US$100.1m) were charged to the Income Statement.
Costs of US$31.1m remaining in exploration/appraisal at the year end represent costs to date in Mauritania.
Atlantic Margin - Greenland and Republic of Ireland
The costs of US$24.9m remaining at the year end primarily relate to the Spanish Point appraisal prospect, offshore Republic of Ireland.
Cairn retains one licence in Greenland, containing the Pitu prospect. Cairn is looking to farm-down its interest before committing to further exploration work and at the year end all costs associated with this licence have been impaired. All other licences in Greenland have been or are currently in the process of relinquishment and all previously capitalised costs have been written off.
North West Europe - UK and Norway
UK and Norwegian North Sea
Additions in the current year of US$32.3m (2014: US$108.8m) relate to expenditure on exploration and appraisal wells drilled and ongoing licence costs. Two wells were drilled during 2015, the successful Kraken West appraisal well in the UK North Sea and the unsuccessful Crossbill exploration well in the Norwegian North Sea.
Disposal proceeds of US$11.6m relate to the sale of a 10% working interest in the Catcher asset (refer to section 2.3 for further details).
Unsuccessful exploration costs charged to the Income Statement in the year were US$44.2m. Costs of the Crossbill exploration well were US$12.7m. A further US$23.7m related to the Bonneville satellite discovery in the Greater Catcher area, which, due to changes in UK tax legislation specific to oil and gas companies and the reduced oil price, is no longer commercial and will be relinquished. Finally, costs of US$7.8m were expensed on licences where no further exploration activity is planned.
During 2014, two exploration wells were completed in the North Sea. Neither the UK Aragon well nor the Norwegian Atlas well discovered hydrocarbons. Unsuccessful exploration costs of US$50.0m were charged to the Income Statement together with US$2.2m relating to other licences. Costs of US$25.2m were also charged to the 2014 Income Statement in respect of Skarfjell appraisal drilling. The appraisal wells confirmed the estimated reserve volumes of the discovery without materially increasing the future economic value of the field and it was considered unlikely that the costs relating to the wells would be recovered in full.
DECC approval of the Catcher FDP was received in June 2014. Costs of US$148.4m were transferred from Intangible exploration/appraisal assets to Property, plant & equipment - development/producing assets during the prior year.
At the year end, Cairn reviewed its intangible exploration/appraisal assets for indicators of impairment. Indicators were identified where the fall in the oil price may impact the future commerciality of exploration and appraisal assets. Impairment tests identified impairment on the Group's intangible exploration assets, resulting in a charge of US$16.7m to the Income Statement (2014: US$24.2m). The charge relates to the impairment of satellite fields within the Catcher development area.
Exploration costs remaining at the year end include the net book value of the UKCS exploration prospects, Laverda and Sunbeam, the Skarfjell discovery and associated satellite prospects and the Kraken West exploration costs.
Norwegian Barents Sea
In 2014, Cairn farmed-in to Block PL393B in the Barents Sea. Farm-in and other costs and the unsuccessful Ensis exploration well costs of US$17.4m were charged to the Income Statement in the prior year. No costs remain capitalised at the year end.
Section 2 - Oil and Gas Assets and Related Goodwill
2.2 Property, Plant & Equipment - Development/Producing Assets
|
|
North West Europe - UK and Norway |
Total |
|
|
US$m |
US$m |
|
Cost and net book value |
|
|
|
At 1 January 2014 |
299.9 |
299.9 |
|
Foreign exchange |
(30.5) |
(30.5) |
|
Additions |
50.0 |
50.0 |
|
Transfers from intangible exploration/appraisal assets |
148.4 |
148.4 |
|
|
|
|
|
At 1 January 2015 |
467.8 |
467.8 |
|
Foreign exchange |
(32.5) |
(32.5) |
|
Additions |
230.6 |
230.6 |
|
Disposals |
(61.2) |
(61.2) |
|
Impairment |
(25.1) |
(25.1) |
|
At 31 December 2015 |
579.6 |
579.6 |
Disposals of US$61.2m relate to the farm-down of a 10% working interest in Catcher, see section 2.3. Subsequent additions during the year include US$70.1m under the carry receivable as consideration in that transaction. Further additions include US$32.3m for the decommissioning asset recognised, US$127.7m of expenditure on the Kraken development project and other sole costs incurred.
In 2014, exploration and appraisal costs of US$148.4m relating to the Catcher fields included in the FDP were transferred to development/producing assets.
Impairment tests were performed on the Group's development/producing assets at the Balance Sheet date, resulting in an impairment charge of US$25.1m being recorded against the Catcher development asset. The impairment results from continuing low oil price environment, leading to a reduction in the Group's short term oil price assumption and a downward revision to the Group's long term assumption.
2.3 Gain on Disposal of Oil and Gas Assets
In January 2015, Cairn completed the farm-down of 10% of the Group's working interest in the Catcher development, satellite fields and surrounding exploration acreage to Dyas. Under the terms of the deal, Dyas will fund Cairn's exploration and development costs in respect of the licences up to a cap of US$182.0m, from an effective economic date of 1 January 2014.
On completion of the transaction, Cairn received cash proceeds of US$54.7m (US$36.5m under the carry, US$18.2m as a refund of the 10% share of costs from 1 January 2014) and recognised the remaining carry as a receivable at its discounted, post-tax fair value of US$44.7m. US$11.6m of the proceeds received were allocated to exploration assets and credited against previously capitalised exploration costs. The remaining proceeds and carry receivable were allocated to development assets.
The disposal of 10% of the Group's working interest in the development asset (with related working capital adjustments) resulted in a gain on disposal of US$26.6m and a tax credit of US$4.6m.
Section 3 - Financial Assets and Working Capital
3.1 Available-for-sale Financial Assets
|
|
|
Listed equity shares US$m |
|
Fair Value |
|
|
|
As at 1 January 2014 |
|
1,027.6 |
|
Deficit on valuation |
|
(261.1) |
|
Disposal |
|
(63.9) |
|
As at 1 January 2015 |
|
702.6 |
|
Deficit on valuation |
|
(318.6) |
|
As at 31 December 2015 |
|
384.0 |
Available-for-sale financial assets represent the Group's remaining investment in the fully diluted share capital of Cairn India Limited, listed in India, which by its nature has no fixed maturity or coupon rate. These listed equity securities present the Group with an opportunity for return through dividend income or trading gains.
At 31 December 2015, the value of the investment in Cairn India Limited had fallen to US$384.0m. The significant accumulated deficit during 2015 of US$318.6m (2014: US$194.3m - the cumulative deficit from 1 July 2013 to 31 December 2014) was recycled to the Income Statement and recorded as impairment.
Cairn is currently restricted from selling its shares in Cairn India Limited. See section 5.5. In January 2014, the Company disposed of 12,048,836 shares in Cairn India Limited, a 0.6% interest, prior to the restriction being enforced.
The Group is exposed to equity price risks arising from the listed equity investments it holds in Cairn India Limited.
Movements in the fair value during the year are recognised directly in equity and are disclosed in the Statement of Comprehensive Income. The cumulative gain or loss that arises on disposal of available-for-sale financial assets is recycled through the Income Statement.
3.2 Cash and Cash Equivalents
|
|
2015
|
2014
|
|
|
US$m
|
US$m
|
|
|
|
|
|
Cash and cash equivalents
|
602.8
|
869.3
|
|
|
602.8
|
869.3
|
Cash and cash equivalents earn interest at floating rates. Short-term deposits are made for varying periods from overnight deposits to three months depending on the cash requirements of the Group.
Cairn limits the placing of deposits, certificates of deposit and other investments to banks or financial institutions that have ratings of A- or above from at least two of Moody's, Standard & Poor's or Fitch, unless a Sovereign Guarantee is available from an AAA rated Government. The counterparty limits vary between US$50.0m and US$200.0m depending on the ratings of the counterparty. No investments are placed with any counterparty with a five-year CDS exceeding 250 bps. Investments in money market liquidity funds are only made with AAA rated liquidity funds and the maximum holding in any single fund is 5% of total investments.
On 18 July 2014, Cairn Energy PLC signed a seven year Reserve Based Lending facility with a syndicate of six international banks (BNP Paribas, Commonwealth Bank of Australia, DNB Bank ASA, HSBC Bank PLC, Societe Generale and Standard Chartered Bank) which was effective 1 August 2014. Until completion of the Catcher and Kraken developments the facility can be utilised to fund development costs on those projects and facility finance costs. The facility may also be utilised to issue letters of credit and performance guarantees for the Cairn Group of up to US$175.0m. Following completion, the facility can be used for general corporate purposes.
Interest on outstanding debt will be charged at the appropriate LIBOR for the currency drawn plus an applicable margin. The facility is subject to bi-annual redeterminations, has a market standard suite of covenants and is cross-guaranteed by all Group companies' party to the facility. Debt is repayable in line with the amortisation of bank commitments over the period from 1 July 2018 to the final maturity date of 30 June 2021.
Section 4 - Results for the Year
4.1 Segmental Analysis
Operating segments
Cairn holds a balanced portfolio of exploration and development assets focused in three geographical regions: North West Europe; the Atlantic Margin; and the Mediterranean.
The operations of the Group are organised on a country-by-country basis; countries form the Group's operating segments. For management reporting purposes, operating segments are combined into regional business units. Cairn monitors the results of each regional unit separately for the purposes of making decisions about resource allocation and performance assessment.
The Group's Atlantic Margin exploration region contains two units. Assets in Greenland and the Republic of Ireland are combined into one unit while the Group's African operating segments in Senegal, Morocco and Mauritania also form a separate unit. There were no profit or loss items incurred during the year for Senegal or Mauritania.
The North West Europe regional unit holds the UK and Norway operating segments. Currently the segment contains the Group's North Sea assets including the Skarfjell discovery in Norway and the UK Catcher and Kraken developments.
The results of the Mediterranean region are reported along with the Group's corporate assets within "Other Cairn Energy Group".
Subsequent to the year end, the Group reorganised its Atlantic Margin and Mediterranean business units into two new units: Senegal and International. This change is not reflected in the analysis provided in these financial statements.
Geographical information: non-current assets
Non-current assets for this purpose consist of intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; intangible assets - goodwill; and other property, plant & equipment and intangible assets.
|
|
2015 |
2014 |
|
|
US$m |
US$m |
|
North West Europe |
|
|
|
UK and Norway |
845.8 |
807.0 |
|
Atlantic Margin Greenland and Republic of Ireland |
24.9 |
21.7 |
|
Senegal, Morocco and Mauritania |
259.3 |
197.3 |
|
|
|
|
|
Other Cairn Energy Group |
|
|
|
Mediterranean |
5.2 |
4.6 |
|
Others |
3.6 |
4.8 |
|
|
|
|
|
|
1,138.8 |
1,035.4 |
Section 4 - Results for the Year
4.1 Segmental Analysis (continued)
The segment results for the year ended 31 December 2015 are as follows:
|
|
Atlantic Margin
|
|
|
|
|
|
|
|
Africa
|
Greenland and
Republic of Ireland
|
North West Europe –
UK and Norway
|
|
Other Cairn
Energy
Group
|
Total
|
|
|
US$m
|
US$m
|
US$m
|
|
US$m
|
US$m
|
|
|
|
|
|
|
|
|
|
Pre-award costs
|
(1.9)
|
(1.9)
|
(27.6)
|
|
(3.8)
|
(35.2)
|
|
Unsuccessful exploration costs
|
(56.2)
|
(0.9)
|
(44.2)
|
|
3.9
|
(97.4)
|
|
Inventory disposal/write down
|
-
|
-
|
-
|
|
(0.2)
|
(0.2)
|
|
Depreciation
|
(0.1)
|
-
|
(0.3)
|
|
(0.6)
|
(1.0)
|
|
Amortisation
|
-
|
-
|
-
|
|
(2.4)
|
(2.4)
|
|
Other income and administrative expenses
|
-
|
(0.3)
|
(2.1)
|
|
(23.7)
|
(26.1)
|
|
Impairment of oil and gas assets
|
-
|
(1.2)
|
(41.8)
|
|
-
|
(43.0)
|
|
Gain on disposal of oil and gas assets
|
-
|
-
|
26.6
|
|
-
|
26.6
|
|
|
|
|
|
|
|
|
|
Operating loss
|
(58.2)
|
(4.3)
|
(89.4)
|
|
(26.8)
|
(178.7)
|
|
|
|
|
|
|
|
|
|
Impairment of available-for-sale financial assets
|
-
|
-
|
-
|
|
(318.6)
|
(318.6)
|
|
Interest income
|
-
|
-
|
1.4
|
|
2.2
|
3.6
|
|
Interest expense
|
-
|
-
|
(0.3)
|
|
-
|
(0.3)
|
|
Other finance income and costs
|
-
|
-
|
1.1
|
|
(4.9)
|
(3.8)
|
|
|
|
|
|
|
|
|
|
Loss before taxation
|
(58.2)
|
(4.3)
|
(87.2)
|
|
(348.1)
|
(497.8)
|
|
|
|
|
|
|
|
|
|
Tax (charge)/credit
|
-
|
-
|
(27.2)
|
|
9.5
|
(17.7)
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
(58.2)
|
(4.3)
|
(114.4)
|
|
(338.6)
|
(515.5)
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
118.2
|
5.3
|
263.1
|
|
(1.4)
|
385.2
|
|
|
|
|
|
|
|
|
|
Total assets
|
291.9
|
26.6
|
977.9
|
|
1,011.8
|
2,308.2
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
52.4
|
0.1
|
139.5
|
|
16.8
|
208.8
|
Section 4 - Results for the Year
4.1 Segmental Analysis (continued)
The segment results for the year ended 31 December 2014 are as follows:
|
|
Atlantic Margin
|
|
|
|
|
|
|
|
Africa
|
Greenland and
Republic of Ireland
|
North West Europe –
UK and Norway
|
|
Other Cairn
Energy
Group
|
Total
|
|
|
US$m
|
US$m
|
US$m
|
|
US$m
|
US$m
|
|
|
|
|
|
|
|
|
|
Pre-award costs
|
-
|
(0.7)
|
(45.1)
|
|
(9.0)
|
(54.8)
|
|
Unsuccessful exploration costs
|
(100.1)
|
(6.6)
|
(94.8)
|
|
(6.9)
|
(208.4)
|
|
Inventory disposal/write down
|
-
|
-
|
-
|
|
(8.4)
|
(8.4)
|
|
Depreciation
|
-
|
(0.1)
|
(0.3)
|
|
(0.7)
|
(1.1)
|
|
Amortisation
|
-
|
-
|
-
|
|
(2.2)
|
(2.2)
|
|
Other income and administrative expenses
|
-
|
(0.4)
|
(2.1)
|
|
(50.3)
|
(52.8)
|
|
Impairment of oil and gas assets
|
-
|
(22.7)
|
(24.2)
|
|
-
|
(46.9)
|
|
Gain on disposal of oil and gas assets
|
-
|
-
|
2.3
|
|
-
|
2.3
|
|
|
|
|
|
|
|
|
|
Operating loss
|
(100.1)
|
(30.5)
|
(164.2)
|
|
(77.5)
|
(372.3)
|
|
|
|
|
|
|
|
|
|
Gain on disposal of available-for-sale financial assets
|
-
|
-
|
-
|
|
3.9
|
3.9
|
|
Impairment of available-for-sale financial assets
|
-
|
-
|
-
|
|
(194.3)
|
(194.3)
|
|
Interest income
|
-
|
-
|
1.2
|
|
1.9
|
3.1
|
|
Interest expense
|
-
|
-
|
(0.1)
|
|
-
|
(0.1)
|
|
Other finance income and costs
|
0.8
|
(0.4)
|
3.5
|
|
(3.3)
|
0.6
|
|
|
|
|
|
|
|
|
|
Loss before taxation
|
(99.3)
|
(30.9)
|
(159.6)
|
|
(269.3)
|
(559.1)
|
|
|
|
|
|
|
|
|
|
Tax (charge)/credit
|
(1.3)
|
-
|
134.0
|
|
45.3
|
178.0
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
(100.6)
|
(30.9)
|
(25.6)
|
|
(224.0)
|
(381.1)
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
245.5
|
19.1
|
159.5
|
|
8.0
|
432.1
|
|
|
|
|
|
|
|
|
|
Total assets
|
358.1
|
28.0
|
988.8
|
|
1,642.5
|
3,017.4
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
203.7
|
0.8
|
119.2
|
|
30.6
|
354.3
|
All transactions between the segments are carried out at arm's length basis.
Section 4 - Results for the Year
4.2 Net Operating Expenses
|
|
2015 |
2014 |
|
|
US$m |
US$m |
|
|
|
|
|
Other income |
- |
(3.1) |
|
Administrative expenses |
29.5 |
59.2 |
|
Inventory disposal/write down |
0.2 |
8.4 |
|
|
29.7 |
64.5 |
Administration expenses in 2015 include charges of US$4.3m (2014: US$8.5m) incurred to defend the Group's tax position in India.
The reduction in administration expenses partly reflects the Group re-organisation completed in 2014. Administrative expenses to December 2014 include US$7.6m relating to the Group reorganisation, US$1.6m of which were accelerated share-based payment charges. There were no such re-organisation costs in 2015.
4.3 Earnings per Ordinary Share
Basic and diluted earnings per share are calculated using the following measures of loss:
|
|
2015 |
2014 |
|
|
US$m |
US$m |
|
|
|
|
|
Loss and diluted loss attributable to equity holders of the parent |
(515.5) |
(381.1) |
The following reflects the share data used in the basic and diluted earnings per share computations:
|
|
2015 |
2014 |
|
|
'000 |
'000 |
|
|
|
|
|
Weighted average number of shares |
576,336 |
578,845 |
|
Less weighted average shares held by ESOP and SIP Trusts |
(5,244) |
(5,730) |
|
Basic and diluted weighted average number of shares |
571,092 |
573,115 |
|
|
|
|
|
Anti-dilutive shares: |
|
|
|
2009 LTIP awards |
15,885 |
- |
|
2009 Approved and Unapproved Plans |
365 |
33 |
|
2015 Employee Share Awards |
166 |
- |
|
Anti-dilutive number of shares |
16,416 |
33 |
Section 5 - Taxation
5.1 Tax Strategy and Governance
The Group's tax strategy is fully aligned with its overarching business objectives and principles. Cairn commits to managing its tax affairs in a transparent and responsible manner and ensuring that all statutory obligations and disclosure requirements are met. Cairn's aim is to comply with both the letter and spirit of the law in the relevant jurisdictions in which we operate, to ensure that the right amount of tax is paid, at the right time, within the right jurisdiction.
As the Group's UK s activities are focussed on assets in development, with no saleable production at present, there are currently no taxable profits in the UK. Taxable profits in other jurisdictions, where Cairn's assets are in the early stages of the value creation cycle, are also minimal, and as a result there was no cash payments of corporation taxes in the year (2014: nil).
Cairn's policy is to not enter into any artificial tax avoidance schemes and to build and maintain strong collaborative working relationships with all relevant tax authorities, based on honesty, integrity and proactive cooperation. The Group aims for certainty in relation to the tax treatment of all items; however, it is acknowledged that this will not always be possible, for example where transactions are complex or there is a lack of maturity in the tax regime in the relevant jurisdiction in which the Group are operating. In such circumstances Cairn will seek external advice where appropriate and ensure that the approach adopted in any relevant tax return is supportable and includes full disclosure of the position taken.
5.2 Tax Charge/(Credit) on Loss for the Year
Analysis of tax charge/(credit) on loss for the year
|
|
2015 US$m |
2014 US$m |
|
Current tax credits: |
|
|
|
Norwegian tax refunds receivable |
(37.1) |
(67.3) |
|
Withholding taxes deducted at source |
- |
1.4 |
|
|
(37.1) |
(65.9) |
|
Deferred tax charge/(credit): |
|
|
|
Norwegian deferred tax charges |
4.7 |
(13.4) |
|
Reduction in UK supplementary charge tax rate |
45.6 |
- |
|
Recognition of eligibility to future field allowances on UK development asset |
- |
(71.2) |
|
Reversal of eligibility to future field allowances on disposal of UK development asset |
13.7 |
- |
|
Release of provision on disposal of UK development asset |
(18.7) |
- |
|
Release of provision on impairment of UK intangible exploration/appraisal asset |
- |
(15.0) |
|
Reversal of UK deferred tax asset |
22.4 |
- |
|
Release of provision on carried interests due to change in tax rate |
(3.4) |
- |
|
Other UK deferred tax charges |
- |
28.4 |
|
Recycled from other comprehensive income on impairment of financial assets |
(9.5) |
(42.0) |
|
Recycled from other comprehensive income on sale of financial assets |
- |
1.1 |
|
|
54.8 |
(112.1) |
|
|
17.7 |
(178.0) |
|
|
|
|
|
Tax included in Other Comprehensive Income: |
|
|
|
Deferred tax credit on valuation of financial assets |
(9.5) |
(56.6) |
|
Deferred tax credit on valuation movement recycled to Income Statement |
9.5 |
40.9 |
|
Total tax charge in Other Comprehensive Income |
- |
(15.7) |
Norwegian deferred tax charges includes a charge of US$5.2m (2014: credit of US$6.9m) on temporary differences in respect of non-current assets and a credit of US$0.5m (2014: credit of US$6.5m) on losses and other temporary differences.
Section 5 - Taxation
5.2 Tax Charge/(Credit) on Loss for the Year (continued)
Deferred tax liabilities on the Group's available-for-sale financial asset fully reversed in the year as the valuation of the Group's residual interest in Cairn India Limited declined. As the deficit on the valuation of the financial asset was recycled to the Income Statement as impairment, the US$9.5m (US$40.9m) of deferred tax credits relating to the deficit were also recycled.
Factors affecting tax charge for the year
A reconciliation of income tax charge applicable to loss before income tax at the UK statutory rate to income tax credit at the Group's effective income tax rate is as follows:
|
|
2015 US$m |
2014 US$m |
|
Loss before taxation |
(497.8) |
(559.1) |
|
|
|
|
|
Loss before tax multiplied by the UK statutory rate of corporation tax of 20.25% (2014: 21.5%) |
(100.8) |
(120.2) |
|
|
|
|
|
Effect of: |
|
|
|
Special tax rates and reliefs applying to oil and gas activities |
(71.5) |
(145.5) |
|
Impact of change in tax rate on opening deferred tax |
89.5 |
- |
|
Impact of field allowances on deferred tax |
- |
(47.8) |
|
Temporary differences not recognised |
100.5 |
147.2 |
|
Deferred tax credit on disposal of available-for-sale financial asset |
- |
(3.3) |
|
Release of provision on carried interests due to change in tax rate |
(3.4) |
- |
|
Foreign exchange movements |
(1.7) |
(1.6) |
|
Other |
5.1 |
(6.8) |
|
|
|
|
|
|
17.7 |
(178.0) |
The reconciliation shown above has been based on the average UK statutory rate of corporation tax for 2015 of 20.25% (2014: 21.5%).
The UK main rate of corporation tax was 21% prior to 1 April 2015, and 20% from that date onwards. The reduction in the tax rate from 21% to 20% has resulted in an average rate of corporation tax of 20.25% for the year ended 31 December 2015, as shown above.
The applicable UK statutory tax rate applying to North Sea oil and gas activities is 50%. The applicable rate applying to the prior year was 62%. The reduction in rate was effective from 1 January 2015.The applicable Norwegian rate applying to oil and gas activities is 78%.
Temporary differences not recognised represents the reversal of the UK deferred tax asset during the year and other temporary differences originating during the year on which no deferred tax asset has been recognised.
5.3 Income Tax Assets
Income tax assets of US$33.0m (2014: US$60.3m) relate to cash tax refunds due from the Norwegian authorities on the tax value of exploration and other qualifying expenses incurred in Norway during the year. This refund will be received in 2016.
Section 5 - Taxation
5.4 Deferred Tax Assets and Liabilities
Reconciliation of movement in deferred tax assets/(liabilities):
|
|
Temporary difference in respect of non-current assets |
Losses |
Other temporary differences |
Total |
|
|
US$m |
US$m |
US$m |
US$m |
|
Deferred tax assets |
|
|
|
|
|
At 1 January 2014 |
(50.6) |
109.3 |
- |
58.7 |
|
Foreign exchange |
(0.2) |
(5.5) |
- |
(5.7) |
|
Deferred tax credit though Income Statement |
(31.3) |
84.5 |
- |
53.2 |
|
At 1 January 2015 |
(82.1) |
188.3 |
- |
106.2 |
|
Foreign exchange |
6.4 |
(9.8) |
- |
(3.4) |
|
Deferred tax credit though Income Statement |
(35.0) |
(24.6) |
- |
(59.6) |
|
Deferred tax movement on acquisition of development assets in respect of carried interests |
(43.2) |
- |
- |
(43.2) |
|
At 31 December 2015 |
(153.9) |
153.9 |
- |
- |
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
At 1 January 2014 |
(156.2) |
1.0 |
7.2 |
(148.0) |
|
Foreign exchange |
14.5 |
4.2 |
(6.9) |
11.8 |
|
Deferred tax credit though Income Statement |
52.3 |
3.9 |
2.6 |
58.8 |
|
Deferred tax credit through Other Comprehensive Income |
15.7 |
- |
- |
15.7 |
|
|
|
|
|
|
|
At 1 January 2015 |
(73.7) |
9.1 |
2.9 |
(61.7) |
|
Foreign exchange |
10.2 |
(1.7) |
(0.4) |
8.1 |
|
Deferred tax credit though Income Statement |
4.2 |
3.1 |
(2.5) |
4.8 |
|
At 31 December 2015 |
(59.3) |
10.5 |
- |
(48.8) |
Analysis by country:
|
|
2015 US$m |
2014 US$m |
|
Deferred tax assets: |
|
|
|
UK |
- |
106.2 |
|
|
- |
106.2 |
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
Norway |
(48.8) |
(52.2) |
|
India |
- |
(9.5) |
|
|
|
|
|
|
(48.8) |
(61.7) |
Recognised deferred tax assets
As at the Balance Sheet date, no net deferred tax asset or liability has been recognised in the UK as other temporary differences and tax losses are recognised to offset the UK deferred tax liability arising on business combinations and carried interests attributable to UK Ring Fenced trading activity as it is no longer deemed probable that future profits will be available to recover the value of the asset given the detrimental change in market conditions impacting the oil and gas industry. At 31 December 2014 a deferred tax asset of US$106.2m was recognised.
A deferred tax asset in respect of Norwegian tax losses of US$10.5m (2014: US$9.1m) is offset against a Norwegian deferred tax liability arising from business combinations and expenditure on assets for which current tax refunds have been claimed.
Section 5 - Taxation
5.4 Deferred Tax Assets and Liabilities (continued)
Unrecognised deferred tax assets
No deferred tax asset has been recognised on the following as it is not considered probable that it will be utilised in future periods:
|
|
2015 US$m |
2014 US$m |
|
|
|
|
|
UK fixed asset temporary differences |
294.2 |
244.5 |
|
UK Ring Fence trading losses |
260.1 |
167.8 |
|
UK non-Ring Fence trading losses |
3.7 |
3.9 |
|
UK non-Ring Fence pre-trade losses |
5.5 |
5.3 |
|
UK excess management expenses |
288.6 |
311.9 |
|
UK non-trade deficits |
64.3 |
39.8 |
|
UK temporary differences on share based payments |
21.0 |
4.7 |
|
UK other temporary differences |
0.3 |
2.9 |
|
Greenlandic tax losses |
1,031.3 |
1,301.5 |
|
Temporary differences in respect of available for sale financial asset |
274.8 |
- |
At the Balance Sheet date, the Group has US$567.9m (2014: US$471.5) UK Ring Fence trading losses available to offset against future UK Ring Fence trading profits. A deferred tax asset has been recognised in respect of US$307.8m (2014: US$303.7m) of these losses, offsetting in full a deferred tax liability on Ring Fence fixed asset temporary differences. No deferred tax asset has been recognised on the remaining UK Ring Fence losses of US$260.1m (2014: US$167.8m) as it is not considered probable that this amount will be utilised in future periods.
The deferred tax liability recognised on UK Ring Fence fixed asset temporary differences of US$153.9m (2014: US$82.1m) includes temporary differences in respect of investment allowances (previously field allowances) of US$722.2m (2014: US$833.3m) on the Catcher and Kraken developments which will reduce future Ring Fence profits subject to Supplementary Charge.
5.5 Contingent Liability - Indian Tax Assessment
Cairn UK Holdings Limited ("CUHL"), a direct subsidiary of Cairn Energy PLC, is in receipt of an assessment order from the Indian Income Tax Department ("IITD") relating to the intra-group restructuring undertaken in 2006 prior to the IPO of CIL in India, which cites a retrospective amendment to Indian tax law introduced in 2012. Cairn strongly contests the basis of this attempt to retrospectively tax the group for an internal restructuring.
The assessment order is in the amount of INR102billion (approximately US$1.6bn) plus interest back dated to 2007 totalling INR 188bn (approximately US$2.8bn). The total assets of CUHL have a current value of US$477.5m (comprising principally the group's 9.8% shareholding in CIL) and any recovery by the Indian authorities would be limited to such assets.
CUHL is pursuing its rights under Indian law to appeal the assessment, both in respect of the basis of taxation and the quantum assessed. CUHL's 9.8% shareholding in CIL was originally attached by the IITD in January 2014 and CUHL continues to be restricted by the IITD from selling such shares. See section 3.1.
Section 5 - Taxation
5.5 Contingent Liability - Indian Tax Assessment (continued)
Furthermore, Cairn has also commenced international arbitration proceedings against the Republic of India under the UK-India Bilateral Investment Treaty (the "Treaty"), on the basis that India's actions have breached the Treaty by (1) expropriating Cairn's property without adequate and just compensation, (2) denying fair and equitable treatment to Cairn in respect of its investments and (3) restricting Cairn's right to freely transfer funds in connection with its investment. Based on detailed legal advice, Cairn is confident that it will be successful in such arbitration. Cairn's claim will seek relief by way of indemnification in respect of the tax demand, plus full compensation for its losses (including the loss of the value in the CIL shares).
Section 6 - Other Disclosures
6.1 Post Balance Sheet Events
Acquisition of 4.5% Working Interest in Kraken
On 22 February 2016, Cairn entered into an agreement to acquire a further 4.5% working interest share in the Kraken development asset in the UK North Sea from First Oil Limited, bringing Cairn's total working interest in the development to 29.5%.
The 4.5% working interest was acquired for a nominal value. Under the agreement Cairn have settled First Oil Limited's outstanding cash calls from January and February 2016 of US$2.9m and are liable for working capital balances relating to the 4.5% working interest of ~US$15m. The acquisition increases the Group's capital commitments by US$95.1m over those disclosed at 31 December 2015.
This information is provided by RNS
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