Half-Yearly Report Announcement

RNS Number : 4530P

Cairn Energy PLC

19 August 2014

 



EMBARGOED FOR RELEASE AT 0700                                                          19 August 2014

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

Half-Yearly Report Announcement

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"Cairn's future programme of high quality development projects and material exploration drilling is fully funded through to delivery of free cash flow from 2017.

The Company is focused on creating value and shareholder returns from disciplined capital allocation across a balance of exploration and development assets.

Over the next twelve months, the Company has an active programme of exploration and appraisal wells with all drilling beyond the current frontier operations targeting mature and emerging basins. In line with this strategy the farm-in to the Statoil-operated Ensis prospect in the Barents Sea commences a planned entry to this emerging region. In the meantime the Company is addressing its organisational size to ensure it has the appropriate structure to deliver the future work programme.

Cairn continues to seek resolution of the tax issue in India and will take all necessary steps to protect shareholders' interests."

Finance

Ø Group cash at 30 June 2014 of US$1.1bn

Ø US$575m Reserve Based Lending bank facility agreement concluded by all parties in July 2014

Ø H2 2014 development and exploration capex US$300m; 2015 exploration programme capex preliminary estimate of US$110m, focused on mature and emerging basins in North West Europe; 2015 to 2017 capex on Catcher and Kraken US$1billion

Ø While interactions are ongoing with the Indian Income Tax Department, Cairn is currently unable to access the value in its ~10% residual shareholding in Cairn India Limited (CIL) valued at ~US$1.1bn at 30 June 2014.  Cairn is continuing to take all necessary steps to protect shareholders' interests

Ø Addressing the organisational structure to retain core technical skills with a strong senior leadership team but delivering a reduction in the central cost base

Developments

Ø A total of 56.1mmboe were booked as 2P Reserves at 30 June 2014 on a net working interest basis

Ø The Catcher Field Development Plan (FDP) received approval from the Department of Energy and Climate Change (DECC) in June with first oil targeted mid 2017.  Consequently, Cairn has added 26.6 mmboe 2P reserves (Cairn 30% WI)

Ø The Kraken development is progressing on schedule with first oil expected 2016/2017 (Cairn 25% WI) and 2P net reserves of 29.5 mmboe

Exploration

Ø Seven exploration and appraisal wells are currently committed over the next twelve months:

Ø Drilling is ongoing on the FAN-1 well, in Senegal, following which operations will re-commence on the SNE-1 well

Ø In the Barents Sea, Cairn farmed in as non-operator to exploration block PL393B, which includes the Ensis prospect where a well is currently being drilled

Ø In the UK North Sea, drilling on the non operated Aragon well is underway.  Elsewhere in the UK North Sea, the West of Kraken well is scheduled to start drilling in Q3/Q4 2014

Ø Plans are underway to source a rig for the Spanish Point appraisal well in 2015, subject to the necessary approvals; 3D seismic acquisition in the area is ongoing

Ø 5,100km² of 3D seismic is being acquired and one exploration well is planned to commence on the Cap Boujdour Contract Area in Q4 2014

Ø A number of further material contingent exploration wells, predominantly in the North Sea, will be subject to final investment decisions by partners during H2 2014

Ø Future exploration expenditure will focus on mature and emerging basin opportunities. For the Group's extensive frontier exploration acreage, no further capital is committed beyond the current drilling programme and Cairn retains the flexibility to leverage success, farm down and partner as appropriate

Enquiries:

Analysts/Investors David Nisbet, Corporate Affairs	Tel: [phone]
Media Patrick Handley, David Litterick Brunswick Group LLP	Tel: [phone]

Webcast

There will be a live audio webcast of the results presentation available to view on the website (www.cairnenergy.com) at 9am BST. 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 BST.

Conference call

You can listen to the results presentation by dialling in to a listen only conference call at 9am BST using the below dial-in details.

Dial-in details:

UK:                                           020 3059 8125

All other locations:                     [phone]

A recording of the conference call will be available from 19 August 2014 until 26 August 2014.

Recording dial-in details:

UK:                                           0121 260 4861

All other locations:                     [phone]

Passcode:                                 2577797#

Transcript

A transcript of the results presentation will be available on the website as soon as possible after the event.

Corporate & Finance Overview

Cairn is focused on creating value and shareholder returns from a strategy of disciplined capital allocation across the E&P lifecycle with an appropriate risk/reward balance.  With Group cash at 30 June 2014 of US$1.1bn and debt facilities of US$575m in place, the Group is fully funded to deliver its core development projects through to anticipated sustainable free cash flow generation from 2017 with peak net production of ~25,000 boepd. 

Future exploration expenditure will focus on mature and emerging basin opportunities. For the Group's extensive frontier exploration acreage, no further capital is committed beyond the current drilling programme and Cairn retains the flexibility to leverage success, farm down and partner as appropriate.

Capital expenditure (net of Norwegian tax refunds) for H2 2014 on development and exploration activity is expected to be US$300m and the preliminary estimate for 2015 exploration capex is US$110m, predominantly on mature and emerging areas in North West Europe.  From 2015 to 2017 capital expenditure on the Catcher and Kraken development projects is US$1billion. Given the results from the two wells offshore Morocco the Group has charged the costs of these wells to unsuccessful exploration.

It is important that the Group's organisation is appropriate to the future activity levels and work programme.  As a result we are reviewing the organisational structure which will retain core E&P skills to deliver the business with a strong senior leadership team, but also to outsource certain non-core capabilities with a reduction in central cost base. A staff consultation process is underway and the new organisational structure will be in place in 2015.

Cairn continues to be restricted from accessing the value of its ~10% residual shareholding in CIL valued at ~US$1.1bn at 30 June 2014 whilst interaction with the Indian tax authorities continues. The Group has not received a tax assessment or demand from the Indian Income Tax Department, and  continues to seek resolution and to take all necessary steps to protect shareholders' interests.  Cairn has re-confirmed with its advisers that throughout its history of operating in India the Company has been fully compliant with and paid applicable taxes under the legislation in force at the time.

Operational Review

Cairn's current exploration inventory comprises 73 prospects and 177 leads across all of the Group's acreage.  This is underpinned and balanced by development assets in North West Europe, the free cash flow from which will be used, in part, to fund future exploration programmes.

Following the current two well operated programme in Senegal, Cairn is targeting one appraisal well and three non-operated wells in North West Europe and one committed non-operated well offshore North West Africa in the next 12 months.

Cairn's exploration focus includes North West Europe, the Mediterranean and Atlantic Margin (North Atlantic and North West Africa).  Reflecting this focus and recognising the different geographies and synergies within those different areas, Cairn's organisational structure is divided into regional units: North West Europe, North Atlantic, North West Africa and Mediterranean.

Development - North West Europe

UK - The Catcher development project has been sanctioned by DECC, and Cairn has booked 26.6 mmboe 2P reserves (Cairn 30% WI). This, coupled with the Kraken development, means that the Group's proven plus probable (2P) reserves as at 30 June 2014 on a net working interest basis are 56.1 mmboe.   

2P	Reserves 31.12.13 mmboe	Produced in 1H 2014  mmboe	Additions in 1H 2014 mmboe		Revisions in 1H 2014 mmboe	Reserves 30.6.14 mmboe
Kraken	30.0	(0.0)	0.0	(0.5)		29.5
Catcher	0.0	(0.0)	0.0	26.6		26.6
Keddington	0.05	(0.001)	0.0	0.0		0.05
Total	30.1	(0.001)	0.0	26.1		56.1

Work is continuing on the Kraken development (Cairn 25% WI), with EnQuest as operator, towards first oil currently estimated in 2016/2017.  The detailed locations for the initial development wells from the first two drill centres (DC1 and DC2) have been agreed and the first two drilling templates are ready for installation in H2 2014.  BUMI is continuing to carry out detailed engineering of the FPSO and the donor vessel has arrived in the shipyard in Singapore. 

On Catcher, field work is continuing with Premier Oil as operator, and the FPSO, drilling rig and subsea contracts have been awarded.  First oil is targeted by the operator for mid 2017.

Norway - The partners on the Skarfjell licence (Cairn 20% WI) are examining possible development concepts for both oil and gas, together with undeveloped fields in the surrounding area.

Exploration - North West Europe

UK and Norway - Three non operated exploration wells are planned in the UK and Norwegian North Sea and Barents Sea over the next twelve months:

Ø Aragon (UK Continental Shelf (UKCS), MPX (20%) operator during exploration phase) is currently operating (Cairn 32.5% WI)

Ø Ensis (Barents Sea, Statoil operator, Cairn 25% WI) is currently operating

Ø West of Kraken (UKCS, EnQuest operator, Cairn 25% WI) due to commence Q3/Q4 2014

Cairn's entry into the Barents Sea builds on the Groups existing position in North West Europe and enables the Group to access near term, potentially high impact exploration activity in an emerging region where there have been a number of recent discoveries and to expand in a country where Cairn already has a significant portfolio of assets and fiscal terms offer a significant rebate on all exploration expenditure.  Cairn plans to seek to pre-qualify as Operator in Norway and to apply for additional acreage in the Barents Sea in the 23^rd licence round, leveraging Cairn's Arctic operational experience and Norwegian technical team.

A number of contingent exploration wells envisaged for 2015, predominantly in the UK, remain subject to a final investment decision by partners during H2 2014.

Exploration - Atlantic Margin - North Atlantic

Ireland - Cairn has commenced operations to acquire 3D seismic (covering approximately 750 km²) off the West coast of Ireland with partners Chrysaor, Providence and SOSINA in licence area FEL 1/14 (Cairn 38% WI, Operator) centred on Blocks 35/13, 35/14, 35/15, 35/18 and 35/19.

Due to the non-availability of the Blackford Dolphin rig, the Spanish Point appraisal well will not be drilled in 2014. Plans are underway to source a rig for this well in 2015, subject to the necessary approvals. 

Greenland - Cairn remains encouraged by the opportunity in the Pitu exploration block (Cairn 56.875% WI, Operator, with partners Statoil 30.625% and Nunaoil 12.5%), with combined prospects within the 3D area confirming a potential multi-billion boe prospective resource (gross mean unrisked prospective resource >3bn boe.)  In line with the stated strategy of minimising capital expenditure on high risk frontier acreage positions, any further activity on the block will be subject to further farming down Cairn's interests.

Exploration -Atlantic Margin - North West Africa

Senegal - Cairn's planned two well exploration programme offshore Senegal began in April using the 'Cajun Express,' a 5th generation semi-submersible drilling unit.  Operations continue on the FAN-1 well, located on the North Fan Prospect in 1,427m water depth in the Sangomar Deep block approximately 100 km offshore Senegal. This well is targeting multiple stacked deepwater fans interpreted as potentially thick, high quality clastic reservoirs, the two largest of which Cairn currently estimates to have gross mean unrisked prospective resource of 282mmbbls and 535mmbbls respectively.  The second well, SNE-1, located on the Shelf Edge Prospect in 1,100m water depth in the Sangomar block will be finalised directly after FAN-1.  This dual objective prospect targets stacked Cretaceous clastics and a deeper target of karstified and fractured Lower Cretaceous shelf carbonates. The two prospect targets are estimated by Cairn to have a gross mean unrisked prospective resource of 182mmbbls and 256mmbbls respectively.  There are several other shelf edge anomalies that provide follow-up potential in the success case.

Cairn (Operator) has a 40% WI in the three blocks offshore Senegal (Sangomar Deep, Sangomar Offshore, Rufisque Offshore) and is working with partners: ConocoPhillips 35% WI; FAR Ltd 15% WI and Petrosen, the Senegal National Oil Company, retaining a 10% WI in the exploration phase. In the event of a commercial success, ConocoPhillips will have the option to operate the future development of the resource.

Morocco - Cairn holds and operates two permits offshore Morocco, Foum Draa (Cairn Operator, 50% WI) and Juby Maritime (Cairn Operator, 37.5% WI). Evaluation of the Foum Draa and Juby Maritime licences continue and will direct any forward work programmes.  Within the region a number of other operators are actively drilling and results are being incorporated into an improved regional understanding before making further commitments.  Partners in Foum Draa are Office National Des Hydrocarbures et Des Mines (ONHYM), San Leon Energy plc, Serica Energy plc and Longreach Oil & Gas Limited and in Juby Maritime are ONHYM and Genel Energy.

Further south the Cap Boujdour Permit (Cairn WI 20%) operated by Kosmos (55%) and partnered by ONHYM (25%) is located ~50km offshore and covers an area of 22,265km² in the Aaiun Basin in water depths of 1,000 - 3,000m.  5,150km² of 3D seismic is currently being acquired over the permit area and will be analysed over the coming months.

Kosmos has identified a number of plays and several prospects using the existing 3D data, with the largest of these, Gargaa, targeted to commence drilling in Q4 2014, with a Cairn estimated gross mean unrisked prospective resource of ~1bn boe.

Mauritania - Interpretation and mapping of the 3,500km² 3D seismic on block C19 offshore Mauritania, which Cairn (35%) farmed into in H2 2013 with Chariot Oil and Gas (55% Operator) and the government (SMH 10%), is ongoing.

Exploration - Mediterranean

Spain - Cairn (WI 100%) holds licences of approximately 3,175 km² in the Valencia Basin, offshore Spain and is in the early stages of its exploration programme.  The authorisation process for acquiring potential 3D seismic is underway. Applications for further acreage offshore Spain (in the Gulf of Lion off the North East coast) have been submitted (Cairn 100% WI).

Malta - Cairn (60% WI, Operator) has an Exploration Study Agreement (ESA) over Area 3 - Blocks 1, 2 and 3 offshore Malta and with its partner, Melita Exploration Company Limited (a wholly owned subsidiary of Rockhopper Exploration PLC), have acquired 1,715km of broadband 2D seismic, which is currently being analysed.

Financial Review

Overview

Group cash at 30 June 2014 was US$1.1bn and in July the Group signed a US$575m seven year Reserve Based Lending facility, which is currently undrawn.  Cairn is fully funded from existing financial resources to complete its planned development and exploration programme and expects to generate free cash flow from 2017.

Cairn India

Cairn has received certain notices from the Indian Income Tax Department requesting information relating to the group reorganisation undertaken in 2006.  While interactions are ongoing with the Indian Income Tax Department, Cairn is currently not able to sell its ~10% residual shareholding in CIL.  Cairn has not received a tax assessment or demand from the Indian Income Tax Department. 

The Group's shareholding in CIL is classified as a non-current available-for-sale financial asset and was valued at US$1.1bn at 30 June 2014, reflecting the closing market value at that date.  Although Cairn is currently restricted from further sales of CIL shares, as the restriction is not a market restriction, it does not impact the fair value of the asset and, therefore, no impairment in value has been recognised as at 30 June 2014.

Prior to the restriction, Cairn sold ~0.6% of its holding in January 2014, receiving proceeds of US$63m and generating a gain on sale of US$4m.  Increases in the CIL share price over the period generated a US$156m surplus on valuation, recognised in Other Comprehensive Income.  A fall in the CIL share price to 18 August 2014 reverses substantially all of this gain.

Oil and Gas assets

North West Africa

Morocco

During the period, Cairn completed two wells offshore Morocco.  Neither well encountered commercial hydrocarbon reservoirs and both were therefore plugged and abandoned.  Costs incurred in the six months to 30 June 2014 of US$51m were expensed as unsuccessful exploration costs. In 2013, costs of US$107m relating to the two wells were expensed. 

Cairn continues to carry US$14m of Moroccan assets at 30 June 2014, mostly relating to the non-operated Cap Boujdour licence, following the farm-in in 2013.  An exploration well is planned to commence Q4 2014.

Senegal

Cairn farmed-in to three blocks offshore Senegal in 2013 and subsequently agreed to farm-down a 25% working interest to ConocoPhillips, which was approved by the Government of Senegal in January 2014, which leaves the Group with a revised working interest at 40%.  Back costs received of US$21m are credited against exploration costs carried in the Balance Sheet.

Following completion of the two Morocco wells, the Cajun Express moved to the first of two planned exploration wells offshore Senegal.  The FAN-1 well is currently drilling and costs of US$22m are carried in exploration assets at 30 June 2014.  On completion the rig will move location to complete the SNE-1 well, offshore Senegal.

North West Europe: UK and Norway - Exploration and Development

Work continued during the period on the Group's two development assets in the UK North Sea. 

Total development costs of US$468m are carried at 30 June 2014 relating to Cairn's interests in the Catcher and Kraken projects.  The FDP for the Catcher asset received approval from DECC in June 2014.   On approval, costs relating to those fields within the development area were transferred from intangible exploration/appraisal assets into development/producing assets after testing for impairment.  No impairment was identified in the current period (US$251m impairment was charged in H2 2013).  Costs relating to satellite fields and prospects outwith the development area remain in exploration/appraisal assets. 

In exploration and appraisal assets, the results of the two appraisal wells drilled on the Skarfjell discovery (Cairn 20% WI non-operated) in the Norwegian North Sea during 2013, have been fully interpreted and development options are being assessed by partners.  The pre-drill carrying value of Skarfjell aligns with the economic benefit expected to be recovered from the asset, and the appraisal wells, while technically successful in confirming this value, did not identify further economic benefit and are therefore expensed as unsuccessful exploration costs.  US$25m has been charged to the Income Statement in the period.

Cash and working capital

Cairn's funding resources comprise its cash balances and the US$575m seven year Reserve Based Lending bank facility, which was fully concluded by all parties in July 2014 and remains undrawn.  The facility was underwritten by BNP Paribas and has now been syndicated to the following banks: Commonwealth Bank of Australia, DNB Bank ASA, HSBC, Standard Chartered Bank and Société Générale. The bank facility may be drawn to fund capital expenditure on the Catcher and Kraken development projects, with the amount available to draw at any time determined by market standard Reserve Based Lending calculations and by reaching certain project milestones. 

The Group's cash balances at 30 June 2014 were US$1.1bn (30 June 2013: US$1.5bn; 31 December 2012: US$1.3bn).  Opening net funds include cash balances, offset by loans payable of US$55m under the Norwegian revolving loan facility.  During the period, this loan was repaid in full and the facility was cancelled.

Expenditure on exploration activities of US$178m was incurred in the period, with development expenditure relating to Catcher of US$8m (Cairn remains carried on Kraken).

Cash in-flows from the sale of CIL shares in January 2014 were offset by cash outflows on the repurchase of PLC shares.  The buy-back programme was suspended in March 2014 following the restriction placed on the sale of the CIL shares. 

Operating cash outflows in the six months were US$17m largely relating to the Group's administration costs and new licence activity, which remain in line with the prior year.

Results for the period

With no revenue currently recorded in the Income Statement, the Group reported a loss after tax for the period of US$62m, analysed as follows:

		Six months ended 30 June 2014	Six months ended 30 June 2013	Year-ended 31 December 2013
		$m	$m	$m
Operational and,	Pre-award  costs	(15)	(11)	(24)
administrative activities:	Unsuccessful well costs	(80)	(49)	(213)
	Net operating expenses	(30)	(25)	(42)
	Related tax credits	54	65	86
		(71)	(20)	(193)
Impairment and loss on sale of oil and gas assets:	Impairment of exploration assets	-	(22)	(251)
	Impairment of goodwill	-	-	(324)
	Loss on sale of oil and gas assets	-	-	(25)
	Related tax credits	-	13	382
		-	(9)	(218)
Finance income	Net finance income	2	3	48
Impairments and disposal of investment in Cairn India Limited:	Gain on sale	4	-	-
	Impairment	-	(268)	(268)
	Related tax credit	3	75	75
		7	(193)	(193)
Total loss after tax		(62)	(219)	(556)

Operational and administrative expenses

Unsuccessful exploration costs of US$80m include US$51m relating to the Foum Draa and Juby Maritime wells offshore Morocco, US$25m relating to North Sea appraisal wells drilled on the Skarfjell discovery and US$4m in other regions. 

Controlling administrative cost levels is a continuing priority and Cairn is currently re-organising the Group to ensure staffing levels are appropriate for the future work programme.  As a result, a restructuring provision of US$3m has been made at 30 June relating to proposed redundancies, with associated accelerated share-based payment charges of US$4m. A further restructuring provision will be required in H2 2014. Net operating expenses have therefore increased year-on-year to US$30m (H1 2013: US$25m).

Taxation credits in operational and administrative activities include US$27m of Norwegian tax credits, US$13m of which is a current tax credit on exploration and other qualifying expenditure that will be refunded and a further US$14m of deferred tax credits largely relating to Skarfjell appraisal well costs. Other tax credits of US$30m include UK deferred tax movements following the approval of the Catcher FDP which increase the deferred tax asset recognised at 30 June 2014.

Finance income

Finance income for the full year in 2013 of US$51m includes US$41m of dividends received from CIL.  No dividend was declared by CIL in the first six months of 2014.

The Group will continue to be entitled to dividend income declared by CIL, however while the Indian Tax department restriction remains, dividend proceeds will be held in India.

Principle Risks and Uncertainties

Cairn operates in a dynamic environment where taking measured risks is a fundamental part of business success. Cairn's risk appetite is to operate across the whole value chain of the upstream exploration and production business, seeking out opportunities which offer a balance of risk (technical, commercial and political) and reward.

The Group's robust risk management framework is supported across the business and is embedded throughout the organisation in all activities. Business risks across the Group are addressed in a systematic way through formal risk processes which facilitate identification, analysis, evaluation, treatment and ongoing monitoring of principal risks. The Board has overall responsibility for ensuring the Group's risk management processes are robust and fitting to support Cairn's entrepreneurial approach to business. This approach enhances the chances of safely engaging in successful business opportunities and delivering value to shareholders and other stakeholders.

Cairn's system for identifying and managing risks accords with the risk management guidelines set out in ISO31000, the International Standard for Risk Management. The risks associated with the delivery of the strategy, business plan, annual work programme and the associated mitigation measures and action plans are maintained in a series of risk registers at regional, asset, department and project levels. These are further consolidated into the Group risk matrix and register which is regularly reviewed by the Senior Leadership Team before being presented at the Group Risk Management Committee, which is currently chaired by the Chief Financial Officer, James Smith.    

Responding to Changing Risks during H1 2014

Cairn has assessed the key risks and uncertainties at the end of H1 2014 and concluded that three of the four principal risks identified at 2013 year end remain relevant and there was one additional principal risk.  These are:

-     The Indian Income Tax Department enquiry continues to be a key focus and the Group is taking all necessary steps to protect shareholders' interests.

-     Execution of the Kraken and Catcher development projects on schedule and budget. The Group continues to actively work with partners, and influence where appropriate, to ensure both projects are executed on schedule and budget.

-     Achieving exploration success. The Group remains focussed on creating value across the E&P lifecycle. Following the current two well operated programme offshore Senegal, over the forthcoming 12 months, Cairn is targeting one appraisal well and three non-operated wells in North West Europe and one non-operated well offshore North west Africa.

-     Ensuring the safe and efficient delivery of operations. The Group continues to work closely with major contractors in all operations.

Going Concern

The directors have considered the financial and operational risk relevant to support a statement of going concern.  The Group's liquidity is carefully and routinely monitored. The directors have a reasonable expectation that the Group has adequate financial resource to continue in operational existence for the foreseeable future, and therefore continue to adopt the going concern basis in preparing the financial statements.

Outlook

Cairn will continue to work with the Indian Government to seek resolution to the ongoing tax issue.  The Group is well funded to continue to offer shareholder value through exploration activity, securing funding to deliver the Group's development projects which will in turn provide a stable source of cash to continue the Group's strategy.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

Statement of directors' responsibilities 

The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The directors of Cairn Energy PLC are listed in the Cairn Energy PLC Annual Report for 31 December 2013. A list of current directors is maintained on the Cairn Energy PLC website: www.cairnenergy.com
By order of the Board.

Simon Thomson            James Smith

Chief Executive               Chief Financial Officer

18 August 2014              18 August 2014

INDEPENDENT REVIEW REPORT TO CAIRN ENERGY PLC

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed the condensed consolidated interim financial statements, defined below, in the 'half-yearly financial report' of Cairn Energy PLC for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

·      The condensed consolidated interim financial statements, which are prepared by Cairn Energy PLC, comprise:

·      the condensed consolidated Group Balance Sheet as at 30 June 2014;

·      the condensed consolidated Group Income Statement and Group Statement of Comprehensive Income for the period then ended;

·      the condensed consolidated Group Statement of Cash Flows for the period then ended;

·      the condensed consolidated Group Statement of Changes in Equity for the period then ended; and

·      the explanatory notes to the condensed consolidated interim financial statements.

As disclosed in note 1.1, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated interim financial statements included in the half-yearly financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed consolidated financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

Responsibilities for the condensed consolidated interim financial statements and the review

Our responsibilities and those of the directors

The half-yearly financial report, including the condensed consolidated interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed consolidated interim financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

18 August 2014

Glasgow

Notes:

Where the report is included on the website, these notes will be included unless the statement of directors' responsibilities clearly:

·      states the directors' responsibility for the maintenance and integrity of the website; and

·      refers to the fact that uncertainty regarding legal requirements is compounded as information published on the internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements.

(a)  The maintenance and integrity of the Cairn Energy PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b)  Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Contents

Group Income Statement

Group Statement of Comprehensive Income

Group Balance Sheet

Group Statement of Cash Flows

Group Statement of Changes in Equity

Section 1 Basis of Preparation

1.1 Accounting Policies

Assets and Investments

Section 2 Oil and Gas Assets

2.1 Intangible Exploration/Appraisal Assets

2.2 Property, Plant & Equipment - Development/Producing Assets

2.3 Assets and Liabilities Held-for-sale

2.4 Capital Commitments

Section 3  Financial Assets and  Working Capital

3.1 Available-for-sale Financial Assets

3.2 Net Funds

3.3 Other Receivables

3.4 Trade and Other Payables

Section 4 Results for the Period

4.1 Segmental Analysis

4.2 Net Operating Expenses

4.3 Taxation on Loss

4.4 Earnings per Ordinary Share

Section 5 Events after the Balance Sheet Date

5.1 North West Europe Asset Transactions

5.2 US$575.0m Reserve Based Lending Facility

Cairn Energy PLC

Group Income Statement

For the six months ended 30 June 2014

Continuing operations	Section	Six months ended 30 June 2014  (unaudited) US$m	Six months ended 30 June 2013  (unaudited)  US$m	Year ended  31 December 2013 (audited) US$m
Pre-award costs		(15.4)	(11.3)	(23.5)
Unsuccessful exploration costs	2.1	(79.9)	(49.2)	(213.1)
Net operating expenses	4.2	(29.9)	(24.8)	(42.2)
Impairment of oil and gas assets	2.1,2.2	-	(22.4)	(251.4)
Loss on sale of oil and gas assets	2.2	-	-	(24.7)
Impairment of goodwill		-	-	(324.2)
Operating loss		(125.2)	(107.7)	(879.1)
Gain on sale of available-for-sale financial asset	3.1	3.9	-	-
Impairment of available-for-sale financial asset	3.1	-	(267.5)	(267.5)
Finance income		1.8	3.8	50.6
Finance costs		(0.2)	(1.2)	(2.9)
Loss before taxation from continuing operations		(119.7)	(372.6)	(1,098.9)
Taxation
Tax credit	4.3a	57.6	153.5	543.0
Loss for the period attributable to equity holders of the parent		(62.1)	(219.1)	(555.9)
Loss per ordinary share - basic (cents)	4.4	(10.80)	(36.70)	(93.24)
Loss per ordinary share - diluted (cents)	4.4	(10.80)	(36.70)	(93.24)

Group Statement of Comprehensive Income

For the six months ended 30 June 2014

		Six months  ended 30 June 2014 (unaudited) US$m	Six months ended  30 June 2013 (unaudited) US$m	Year ended 31 December 2013 (audited) US$m
Loss for the period		(62.1)	(219.1)	(555.9)
Other comprehensive income - items that may be recycled to profit or loss
Surplus/(deficit) on valuation of financial assets	3.1	155.5	(182.8)	(110.8)
Deferred tax (charge)/credit on valuation of financial assets		(33.6)	64.6	48.8
Valuation movement recycled to Income Statement		(5.2)	267.5	267.5
Deferred tax credit/(charge) on valuation movement  recycled to Income Statement		1.1	(74.5)	(74.5)
Currency translation differences		22.6	(73.1)	7.6
Other comprehensive income for the period		140.4	1.7	138.6
Total comprehensive income for the period attributable to equity holders of the parent		78.3	(217.4)	(417.3)

Cairn Energy PLC

Group Balance Sheet

 As at 30 June 2014

		30 June 2014 (unaudited)	30 June 2013 (unaudited)	31 December 2013 (audited)
	Section	US$m	US$m	US$m
Non-current assets
Intangible exploration/appraisal assets	2.1	401.4	894.8	498.6
Property, plant & equipment - development/producing assets	2.2	468.0	-	299.9
Intangible assets - goodwill		165.9	453.1	163.4
Other property, plant & equipment and intangible assets		6.3	7.2	6.0
Available-for-sale financial assets	3.1	1,119.2	955.6	1,027.6
Deferred tax assets	4.3c	87.8	-	58.7
		2,248.6	2,310.7	2,054.2
Current assets
Income tax assets	4.3b	93.6	103.0	81.3
Inventory		9.7	-	10.0
Other receivables	3.3	185.1	35.3	152.3
Cash and cash equivalents and bank deposits	3.2	1,073.6	1,512.8	1,308.3
		1,362.0	1,651.1	1,551.9
Assets held-for-sale	2.3	-	56.2	-
Total assets		3,610.6	4,018.0	3,606.1
Current liabilities
Trade and other payables	3.4	198.7	76.0	201.0
Provisions		15.6	37.0	11.4
Loans and borrowings	3.2	-	60.1	55.3
		214.3	173.1	267.7
Non-current liabilities
Deferred tax liabilities	4.3c	162.7	405.5	148.0
Provisions		2.8	2.7	2.6
		165.5	408.2	150.6
Liabilities held-for-sale	2.3	-	6.1	-
Total liabilities		379.8	587.4	418.3
Net assets		3,230.8	3,430.6	3,187.8
Equity attributable to equity holders of the parent
Called-up share capital		12.4	13.0	12.8
Share premium		487.0	486.9	486.9
Shares held by ESOP/SIP Trust		(27.3)	(28.1)	(28.0)
Foreign currency translation		(1.3)	(104.6)	(23.9)
Capital reserves - non-distributable		40.8	40.2	40.4
Merger reserve		255.9	255.9	255.9
Available-for-sale reserve		174.0	-	56.2
Retained earnings		2,289.3	2,767.3	2,387.5
Total equity		3,230.8	3,430.6	3,187.8

 

Cairn Energy PLC

Group Statement of Cash Flows

For the six months ended 30 June 2014

		Six months ended 30 June 2014 (unaudited)	Six months ended 30 June 2013 (unaudited)	Year ended 31 December 2013 (audited)
	Section	US$m	US$m	US$m
Cash flows from operating activities
Loss before taxation from continuing activities		(119.7)	(372.6)	(1,098.9)
Unsuccessful exploration costs		79.9	49.2	213.1
Depreciation and amortisation		1.4	1.7	4.5
Share-based payments charge		14.7	6.3	14.0
Loss on sale of inventory		3.2	-	-
Impairment of oil and gas assets		-	22.4	251.4
Loss on sale of oil and gas assets		-	-	24.7
Impairment of goodwill		-	-	324.2
Gain on sale of available-for-sale financial asset		(3.9)	-	-
Impairment of available-for-sale financial asset		-	267.5	267.5
Net finance income		(1.6)	(2.6)	(47.7)
Interest paid		(0.3)	(1.2)	(2.9)
Income tax received		-	-	59.9
Foreign exchange differences		(1.4)	2.0	1.3
Other receivables movement		4.7	4.9	(6.4)
Trade and other payables movement		2.7	(0.1)	34.5
Movement in provisions		3.0	-	-
Net cash (used in)/from operating activities		(17.3)	(22.5)	39.2
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets		(178.4)	(73.8)	(386.6)
Expenditure on property, plant & equipment -  development/producing assets		(7.9)	(10.0)	(31.4)
Proceeds on disposal of intangible exploration/appraisal assets		23.9	-	7.1
Proceeds on disposal of property, plant & equipment- development/producing assets		-	-	72.7
Purchase of inventory		(2.0)	-	(10.3)
Purchase of property, plant & equipment and intangible assets		(1.5)	(2.6)	(4.4)
Proceeds on disposal of available-for-sale financial assets		62.6	-	-
Movement in funds on bank deposits		0.2	-	2.0
Dividends received		-	-	40.5
Interest received		1.0	1.2	3.8
Net cash used in investing activities		(102.1)	(85.2)	(306.6)
Cash flows from financing activities
Cost of shares purchased		(64.3)	-	(36.6)
Proceeds from exercise of share options		0.3	-	-
Proceeds of borrowings		-	36.6	59.4
Repayment of borrowings		(53.4)	-	(26.9)
Net cash flows (used in)/from financing activities		(117.4)	36.6	(4.1)
Net decrease in cash and cash equivalents		(236.8)	(71.1)	(271.5)
Opening cash and cash equivalents at beginning of period		1,308.0	1,586.3	1,586.3
Exchange gains/(losses) on cash and cash equivalents		2.3	(4.7)	(6.8)
Closing cash and cash equivalents	3.2	1,073.5	1,510.5	1,308.0

Cairn Energy PLC

Group Statement of Changes in Equity

For the six months ended 30 June 2014

	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 2013	499.9	(28.7)	(31.5)	296.1	(74.8)	2,980.7	3,641.7
Loss for the year	-	-	-	-	-	(555.9)	(555.9)
Deficit on valuation of financial assets	-	-	-	-	(110.8)	-	(110.8)
Deferred tax credit on valuation of financial assets	-	-	-	-	48.8	-	48.8
Valuation movement recycled to Income Statement	-	-	-	-	267.5	-	267.5
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	(74.5)	-	(74.5)
Currency translation differences	-	-	7.6	-	-	-	7.6
Total comprehensive income for the year	-	-	7.6	-	131.0	(555.9)	(417.3)
Share buy-back	(0.2)	-	-	0.2	-	(50.6)	(50.6)
Share-based payments	-	-	-	-	-	14.0	14.0
Cost of shares vesting	-	0.7	-	-	-	(0.7)	-
At 31 December 2013	499.7	(28.0)	(23.9)	296.3	56.2	2,387.5	3,187.8
Loss for the period	-	-	-	-	-	(62.1)	(62.1)
Surplus on valuation of financial assets	-	-	-	-	155.5	-	155.5
Deferred tax charge on valuation of financial assets	-	-	-	-	(33.6)	-	(33.6)
Valuation movement recycled to Income Statement	-	-	-	-	(5.2)	-	(5.2)
Deferred tax credit on valuation movement recycled to Income Statement	-	-	-	-	1.1	-	1.1
Currency translation differences	-	-	22.6	-	-	-	22.6
Total comprehensive income for the period	-	-	22.6	-	117.8	(62.1)	78.3
Share buy-back	(0.4)	-	-	0.4	-	(50.3)	(50.3)
Share-based payments	-	-	-	-	-	14.7	14.7
Exercise of employee share options	0.1	0.2	-	-	-	-	0.3
Cost of shares vesting	-	0.5	-	-	-	(0.5)	-
At 30 June 2014	499.4	(27.3)	(1.3)	296.7	174.0	2,289.3	3,230.8

Cairn Energy PLC

Group Statement of Changes in Equity (continued)

For the six months ended 30 June 2013

	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 2013	499.9	(28.7)	(31.5)	296.1	(74.8)	2,980.7	3,641.7
Loss for the period	-	-	-	-	-	(219.1)	(219.1)
Deficit on valuation of financial assets	-	-	-	-	(182.8)	-	(182.8)
Deferred tax credit on valuation of financial assets	-	-	-	-	64.6	-	64.6
Valuation movement recycled to Income Statement	-	-	-	-	267.5	-	267.5
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	(74.5)	-	(74.5)
Currency translation differences	-	-	(73.1)	-	-	-	(73.1)
Total comprehensive income for the period	-	-	(73.1)	-	74.8	(219.1)	(217.4)
Share-based payments	-	-	-	-	-	6.3	6.3
Cost of shares vesting	-	0.6	-	-	-	(0.6)	-
At 30 June 2013	499.9	(28.1)	(104.6)	296.1	-	2,767.3	3,430.6

Section 1 - Basis of Preparation

1.1    Accounting Policies

Basis of Preparation

The half-yearly condensed consolidated financial statements for the six months ended 30 June 2014 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting".  The disclosed figures are not statutory accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2013, on which the auditors gave an audit report which was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006, have been filed with the Registrar of Companies.  The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

This half-yearly report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ended 31 December 2014, and uses the same accounting policies and methods of computation applied for the year ended 31 December 2013 other than changes to accounting policies resulting from the adoption of new or revised accounting standards.

Effective 1 January, Cairn have adopted the following standards:

-       IFRS 10 'Consolidated Financial Statements'; (effective 1 January 2014)

-       IFRS 11 'Joint arrangements'; (effective 1 January 2014)

-       IFRS 12 'Disclosure of interests in Other Entities'; (effective 1 January 2014)

-       IAS 27 (amendment) 'Separate Financial Statements; (effective 1 January 2014)

-       IAS 28 (amendment) 'Investments in associates and Joint Ventures'; (effective 1 January 2014)

On adoption of IFRS11, Cairn has reviewed the joint arrangements which determine the control of the Group's interests in oil and gas exploration, appraisal and development assets and concluded that the Group's material interests are all Joint Operations and are now classified as such.  This change in classification does not result in any other change to the Group's accounting policy for oil and gas assets and no adjustment to the carrying value of the Group's share of assets and liabilities in the Balance Sheet arises.

Other changes to IFRS effective 1 January 2014 have no impact on Cairn's accounting policies or financial statements.

Section 2 - Assets and Investments: Oil and Gas Assets

2.1       Intangible Exploration/Appraisal Assets

	North Atlantic	North West Africa	Mediterranean	North West Europe	Total
	US$m	US$m	US$m	US$m	US$m
Net book value
At 1 January 2013	44.5	2.2	3.6	849.5	899.8
Foreign exchange	-	(0.3)	-	(57.4)	(57.7)
Additions	(1.7)	19.0	1.4	83.2	101.9
Unsuccessful exploration costs	7.9	-	(1.4)	(55.7)	(49.2)
At 30 June 2013	50.7	20.9	3.6	819.6	894.8
Foreign exchange	-	0.3	-	64.8	65.1
Additions	19.0	158.9	3.1	77.3	258.3
Disposals	-	-	(0.5)	(5.1)	(5.6)
Transfers	-	-	-	(298.7)	(298.7)
Impairment	-	-	-	(251.4)	(251.4)
Unsuccessful exploration costs	(31.5)	(107.4)	0.6	(25.6)	(163.9)
At 1 January 2014	38.2	72.7	6.8	380.9	498.6
Foreign exchange	-	-	-	4.4	4.4
Additions	12.0	106.6	2.9	29.1	150.6
Disposals	(3.4)	(20.5)	-	-	(23.9)
Transfers	-	-	-	(148.4)	(148.4)
Unsuccessful exploration costs	(4.0)	(50.7)	-	(25.2)	(79.9)
At 30 June 2014	42.8	108.1	9.7	240.8	401.4

North West Africa - Morocco, Senegal and Mauritania

In the first six months of 2014 Cairn completed the first two wells of its Atlantic Margin drilling campaign: the Foum Draa and Juby Maritime wells, both offshore Morocco.  Neither well encountered commercial hydrocarbons and both were plugged and abandoned.  US$50.7m of unsuccessful exploration costs were charged in the period (H2 2013: US$107.4m).

In January 2014, Cairn received approval for the farm-down to ConocoPhillips of 25% of its three contiguous blocks, Rufisque Offshore, Sangomar Offshore and Sangomar Deep, located offshore Senegal, West Africa.  Disposals of US$20.5m represent back costs paid by ConocoPhillips under this agreement.

Additions to 30 June 2014 include US$39.0m relating to two exploration wells offshore Senegal.  The FAN-1 well is currently drilling following which operations on the SNE-1 exploration well will recommence and is expected complete in H2 2014.

North West Europe

Following the two-well appraisal programme on the Skarfjell discovery which concluded in 2013, the interpretation of the well results completed in the current period.  The appraisal wells successfully confirmed the estimated reserve volumes of the discovery, which was made before the Group's acquisition completed in 2012, without materially increasing the future economic value of the field.  As the Skarfjell asset was initial recognised at fair value,  under the Group's accounting policy as the costs relating to the wells of US$25.2m are unlikely to be recovered, they are charged as unsuccessful exploration costs in the period.

Following DECC approval of the Catcher Field Development Plan, costs of US$148.4m have been transferred from Intangible Exploration/Appraisal assets to Property, Plant & Equipment - Development/Producing Assets in the current period.  A similar transfer of US$298.7m was made in H2 2013 following approval of the Kraken Field Development Plan.  The 2013 year end impairment review identified impairment of the Catcher asset of US$251.4m.  Prior to transfer, the asset was again tested for impairment with no further impairment identified.

Cairn has reached agreement with Statoil to farm-in to Block PL393B in the Barents Sea, which includes the Ensis prospect, currently drilling.  Cairn will acquire a 25% non-operated working interest for a promoted share of future drilling costs.

Section 2 - Assets and Investments: Oil and Gas Assets

2.2     Property, Plant & Equipment - Development/Producing Assets

	North West Europe	Total
	US$m	US$m
Cost and net book value
At 1 January 2013	71.0	71.0
Foreign exchange	(4.6)	(4.6)
Additions	12.2	12.2
Transfers to assets held-for-sale	(56.2)	(56.2)
Impairment	(22.4)	(22.4)
At 30 June 2013	-	-
Foreign exchange	6.3	6.3
Additions	32.0	32.0
Transfers	298.7	298.7
Disposals	(37.1)	(37.1)
At 1 January 2014	299.9	299.9
Foreign exchange	13.1	13.1
Additions	6.6	6.6
Transfers	148.4	148.4
At 30 June 2014	468.0	468.0

During 2013, Cairn agreed the sale of the Mariner asset to Dyas BV.  In H1 2013, costs of US$56.2m were transferred to assets held-for-sale after recognising an impairment of US$22.4m.  On completion of the sale in H2 2013 the costs transferred and impaired were reclassified as disposals in the Group's 2013 year end financial statements, together with the H2 2013 costs of US$37.1m. The disposal of Mariner resulted in a US$24.7m loss to the Income Statement.

2.3     Assets and Liabilities Held-for-sale

As noted above, during H1 2013, Cairn agreed the sale of the Mariner asset to Dyas BV with formal approval for the sale received in December 2013.  At 30 June 2013, the costs of the asset and its related liabilities were classified as held-for-sale. 

2.4       Capital Commitments

	30 June 2014 US$m	30 June 2013 US$m	31 December 2013 US$m
Oil and gas expenditure:
Intangible exploration/appraisal assets - non-rig commitments	281.6	631.7	292.6
Intangible exploration/appraisal assets - drilling rig commitments	52.6	-	195.2
Property, plant & equipment - development/producing assets	506.8	-	372.8
Contracted for	841.0	631.7	860.6

Capital commitments represent Cairn's share of obligations in relation to its interests in joint operations.  These commitments include Cairn's share of the capital commitments of the joint operations themselves. 

The capital commitments for Intangible Exploration/Appraisal Assets at 30 June 2014 relate to operations in Morocco, Senegal, Republic of Ireland, Mauritania, Spain and the UK and Norwegian North Sea.  The drilling rig commitments disclosed do not reflect the rig costs of US$23.9m that Cairn expects to recover from partners in the joint arrangements.

Capital commitments for Property, Plant & Equipment - Development/Producing Assets include US$330.0m relating to a lease commitment due over the next 10 years.  The lease term for this asset has not yet commenced.

The Group has no further material capital expenditure committed at the Balance Sheet date.

Section 3 - Assets and Investments: Financial Assets and Working Capital

3.1       Available-for-sale Financial Assets

	Listed equity shares
	US$m
At 1 January 2013	1,138.4
Deficit on valuation	(182.8)
At 30 June 2013	955.6
Surplus on valuation	72.0
At 1 January 2014	1,027.6
Disposal	(63.9)
Surplus on valuation	155.5
As at 30 June 2014	1,119.2

The non-current available-for-sale financial assets represent the Group's remaining strategic 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 and is categorised as level 1 in the fair value hierarchy.  The minority holding of ~10% is not held for trading and continues to be classified as available-for-sale. The fair value is based on the closing market value at 30 June 2014 of INR 365.05 (30 June 2013: INR 290.00; 31 December 2013: INR 323.75).Increases in the CIL share price over the period to 30 June generated a US$155.5m surplus on valuation, recognised in Other Comprehensive Income.  A fall in the CIL price to 18 August 2014 reverses substantially all this gain.

In January 2014, Cairn was contacted by the Indian Income Tax Department to provide information in relation to the year ending 31 March 2007. See Section 4.3d.  While interaction with the Indian Income Tax Department continues, Cairn has been restricted by the Indian Income Tax Department from selling its shares in Cairn India Limited.

Prior to the restriction in January, the Company disposed of 12,048,836 shares in Cairn India Limited, recognising a gain of US$3.9m in the Income Statement. The disposal of 0.6% shareholding leaves a residual 9.7% interest in Cairn India Limited.

At 30 June 2014, Cairn has reviewed its financial asset for indicators of impairment and concluded that no impairment arises.  Although Cairn is currently not able to sell its ~10% residual holding, there is no restriction in the wider market where Cairn India Limited shares trade freely.   Cairn expects to fully recover the value of its asset.  To date, Cairn has not received any tax assessment or demand from the Indian Income Tax Department. 

3.2       Net Funds

	30 June 2014	30 June 2013	31 December 2013
	US$m	US$m	US$m
Bank deposits	0.1	2.3	0.3
Cash and cash equivalents	1,073.5	1,510.5	1,308.0
Loans and borrowings	-	(60.1)	(55.3)
Net funds	1,073.6	1,452.7	1,253.0

Cash and cash equivalents earn interest at floating rates based on daily bank deposit rates.  Short-term deposits are made for varying periods from overnight deposits to three months depending on the cash requirements of the Group.

Cash and cash equivalents include US$100.0m of cash placed with BNP Paribas to support a letter of credit issued on 22 July 2013 as required under the membership of the Oil Spill Response Scheme's 'Cap and Contain' arrangement. The Group's use of this cash at 30 June 2014 is therefore restricted.

The 2013 bank loan represents amounts drawn under the Capricorn Norge AS revolving exploration loan facilities.  During 2014, this facility was fully repaid and subsequently cancelled.  In July 2014, the Group entered into a new US$575.0m Reserve Based Lending facility.  See Section 5.2.

Section 3 - Assets and Investments: Financial Assets and Working Capital

3.3       Other Receivables

	30 June 2014	30 June 2013	31 December 2013
	US$m	US$m	US$m
Other receivables	55.7	8.1	86.2
Prepayments	7.0	4.6	5.2
Receivables and prepayments - joint operations	122.4	22.6	60.9
	185.1	35.3	152.3

3.4       Trade and Other Payables

	30 June 2014	30 June 2013	31 December 2013
	US$m	US$m	US$m
Trade payables	10.5	14.4	10.3
Other taxation and social security	1.5	3.5	6.4
Other payables	0.8	2.5	15.2
Accruals	24.0	8.6	33.5
Payables and accruals - joint operations	161.9	47.0	135.6
	198.7	76.0	201.0

Section 4 - Results for the Period

4.1       Segmental Analysis

Operating Segments

Cairn's operations focus on exploration activities in areas within similar geological structures which have the potential to add material value to the Group, balanced by development assets in mature basins. For management purposes, the operations of the Group are organised based on geographical regions.  

Geographical regions are combined into regional business units which form the Group's operating segments. Each business unit is headed by its own regional director (a regional director may be responsible for more than one business unit) and management monitors the results of each separately for the purposes of making decisions about resource allocation and performance assessment. 

The North Atlantic operating segment includes assets in Greenland and Republic of Ireland.  The North West Africa operating segment includes Cairn's interests in Morocco, Senegal and Mauritania.  North West Europe assets are held in one operating segment.  This segment was previously reported as 'UK and Norwegian North Sea'.  Currently the segment contains the Group's North Sea assets including the Skarfjell discovery in Norway and the UK Catcher and Kraken fields which are in the early stages of development. The Ensis prospect in the Norwegian Barents Sea will also be included in this segment.

The results of the Mediterranean operating segment are reported along with the Group's corporate assets in the "Other Cairn Energy" reportable segment.  The Mediterranean operating segment includes licences in Spain, France and Malta.

The segment results for the six months ended 30 June 2014 are as follows:

	North Atlantic	North West Africa	North West Europe	Other Cairn Energy Group	Total
	US$m	US$m	US$m	US$m	US$m
Pre-award costs	(0.8)	-	(10.5)	(4.1)	(15.4)
Unsuccessful exploration costs	(4.0)	(50.7)	(25.2)	-	(79.9)
Depreciation	-	-	(0.2)	(0.3)	(0.5)
Amortisation	-	-	-	(0.9)	(0.9)
Other income	-	-	-	2.5	2.5
Other administrative expenses	(0.2)	-	(1.0)	(26.6)	(27.8)
Loss on sale of inventory	-	-	-	(3.2)	(3.2)
Operating loss	(5.0)	(50.7)	(36.9)	(32.6)	(125.2)
Gain on sale of available-for-sale financial asset	-	-	-	3.9	3.9
Interest income	-	-	0.1	1.0	1.1
Interest expense	-	-	(0.1)	-	(0.1)
Other finance income and costs	(1.0)	(0.5)	(3.1)	5.2	0.6
Loss before taxation	(6.0)	(51.2)	(40.0)	(22.5)	(119.7)
Taxation credit	-	-	54.2	3.4	57.6
(Loss)/profit after taxation	(6.0)	(51.2)	14.2	(19.1)	(62.1)
Segment non-current assets	42.8	108.2	875.1	15.5	1,041.6

Section 4 - Results for the Period

4.1       Segmental Analysis (continued)

The segment results for the six months ended 30 June 2013 were as follows:

	North Atlantic	North West Africa	North West Europe	Other Cairn Energy Group	Total
	US$m	US$m	US$m	US$m	US$m
Pre-award costs	(0.8)	-	(2.6)	(7.9)	(11.3)
Unsuccessful exploration costs	7.9	-	(55.7)	(1.4)	(49.2)
Depreciation	-	-	(0.2)	(0.5)	(0.7)
Amortisation	-	-	-	(1.0)	(1.0)
Other administrative expenses	0.2	-	(3.9)	(19.4)	(23.1)
Impairment of oil and gas assets	-	-	(22.4)	-	(22.4)
Operating profit/(loss)	7.3	-	(84.8)	(30.2)	(107.7)
Impairment of available-for-sale financial assets	-	-	-	(267.5)	(267.5)
Interest income	-	-	0.3	1.3	1.6
Interest expense	-	-	(1.0)	-	(1.0)
Other finance income and costs	0.7	-	0.7	0.6	2.0
Profit/(loss) before taxation	8.0	-	(84.8)	(295.8)	(372.6)
Taxation credit	-	-	79.0	74.5	153.5
Profit/(loss) after taxation	8.0	-	(5.8)	(221.3)	(219.1)
Segment non-current assets	50.9	7.2	1,273.9	23.1	1,355.1

The segment results for the year ended 31 December 2013 were as follows:

	North Atlantic	North West Africa	North West Europe	Other Cairn Energy Group	Total
	US$m	US$m	US$m	US$m	US$m
Pre-award costs	(1.1)	-	(10.3)	(12.1)	(23.5)
Unsuccessful exploration costs	(23.6)	(107.4)	(81.3)	(0.8)	(213.1)
Depreciation	(0.1)	-	(0.5)	(1.1)	(1.7)
Amortisation	-	-	-	(2.8)	(2.8)
Other administrative expenses	(0.2)	(0.5)	(2.6)	(34.4)	(37.7)
Impairment of oil and gas assets	-	-	(251.4)	-	(251.4)
Loss on sale of oil and gas assets	-	-	(24.7)	-	(24.7)
Impairment of goodwill	-	-	(324.2)	-	(324.2)
Operating loss	(25.0)	(107.9)	(695.0)	(51.2)	(879.1)
Impairment of available-for-sale financial assets	-	-	-	(267.5)	(267.5)
Interest income	-	-	1.3	2.5	3.8
Interest expense	-	-	(2.5)	-	(2.5)
Other finance income and costs	0.4	-	(0.2)	46.2	46.4
Loss before taxation	(24.6)	(107.9)	(696.4)	(270.0)	(1,098.9)
Taxation credit	-	-	468.7	74.3	543.0
Loss after taxation	(24.6)	(107.9)	(227.7)	(195.7)	(555.9)
Segment non-current assets	38.2	73.1	844.6	12.0	967.9

Section 4 - Results for the Period

4.2       Net Operating Expenses

	Six months ended 30 June 2014 US$m	Six months ended 30 June 2013 US$m	Year ended 31 December 2013 US$m
Other income	(2.5)	-	-
Administrative expenses	29.2	24.8	42.2
Loss on sale of inventory	3.2	-	-
	29.9	24.8	42.2

Administrative expenses charged in the period include a provision for redundancy costs of US$3.0m (30 June 2013: US$0.1m; 31 December 2013: US$0.3m) and share-based payment charges of US$14.7m (30 June 2013: US$6.3m; 31 December 2013: US$14.0m) including accelerated charges relating to the redundancy of US$3.5m.

4.3       Taxation on Loss

a)         Analysis of Tax Credit on loss for the period

	Six months ended 30 June 2014 US$m	Six months ended 30 June 2013 US$m	Year ended 31 December 2013 US$m
Current tax credit:
Norwegian tax refunds receivable	(13.4)	(45.4)	(81.6)
	(13.4)	(45.4)	(81.6)
Deferred tax credit:
Norwegian deferred tax (credit)/charge	(13.9)	4.9	20.3
Recognition of eligible field allowance on UK development asset	(62.2)	-	(211.9)
Release of provision on disposal of UK development asset	-	-	(32.8)
Release of provision on impairment of UK intangible exploration/appraisal asset	-	(13.9)	(152.2)
Release of provision on disposal of available-for-sale financial assets	(4.5)	-	-
Other UK deferred tax charge/(credit)	35.3	(24.6)	(10.3)
Recycled from other comprehensive income	1.1	(74.5)	(74.5)
	(44.2)	(108.1)	(461.4)
Tax credit on loss	(57.6)	(153.5)	(543.0)
Tax included in Other Comprehensive Income:
Deferred tax charge/(credit) on valuation of financial assets	33.6	(64.6)	(48.8)
Deferred tax (credit)/charge on valuation movement recycled to Income Statement	(1.1)	74.5	74.5
Total tax charge in Other Comprehensive Income	32.5	9.9	25.7

b)         Income Tax Asset

The Income tax asset of US$93.6m (30 June 2013: US$103.0m; 31 December 2013: US$81.3m) represents Norwegian tax refunds.

Section 4 - Results for the Period

4.3       Taxation on Loss (continued)

c)         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 asset
At 1 January and 30 June 2013	-	-	-	-
Deferred tax credit though Income Statement	(262.5)	109.3	211.9	58.7
At 1 January 2014	(262.5)	109.3	211.9	58.7
Deferred tax credit though Income Statement	(99.4)	103.6	22.7	26.9
Exchange differences arising	(9.8)	(5.2)	17.2	2.2
At 30 June 2014	(371.7)	207.7	251.8	87.8
Deferred tax liabilities
At 1 January 2013	(597.4)	62.7	3.8	(530.9)
Deferred tax credit though Income Statement	113.6	(9.0)	3.5	108.1
Deferred tax charge through Other Comprehensive Income	(9.9)	-	-	(9.9)
Exchange differences arising	31.9	(0.2)	(4.5)	27.2
At 30 June 2013	(461.8)	53.5	2.8	(405.5)
Deferred tax credit though Income Statement	334.7	(40.2)	0.2	294.7
Deferred tax charge through Other Comprehensive Income	(15.7)	-	-	(15.7)
Exchange differences arising	(13.4)	(12.3)	4.2	(21.5)
At 1 January 2014	(156.2)	1.0	7.2	(148.0)
Deferred tax credit though Income Statement	16.5	7.9	(7.1)	17.3
Deferred tax charge through Other Comprehensive Income	(32.5)	-	-	(32.5)
Exchange differences arising	0.6	(0.1)	-	0.5
At 30 June 2014	(171.6)	8.8	0.1	(162.7)

d)         Indian Tax

In January 2014, Cairn was contacted by the Indian Income Tax Department to provide information in relation to the year ending 31 March 2007. The information requested focused on the internal restructuring of the Cairn Group which took place prior to the IPO of Cairn India Limited in January 2007.  Specifically, the Indian Income Tax Department is examining the taxable gain, if any, on the sale recorded in the 2006 year end accounts of the subsidiary that holds the Group's remaining ~10% interest in Cairn India Limited.

Cairn has re-confirmed with its advisers that throughout its history of operating in India the Group has been fully compliant with the tax legislation in force in each year.

While interaction with the Indian Income Tax Department continues, Cairn has been restricted by the Indian Income Tax Department from selling its shares in Cairn India Limited.

Cairn classifies the remaining investment in Cairn India Limited as a non-current available-for-sale financial asset.  This asset is measured at fair value at the Balance Sheet date.  Further details on the fair value are provided in note 3.1.

Section 4 - Results for the Period

4.4       Earnings per Ordinary Share

Basic and diluted earnings per share are calculated using a loss of US$62.1m (30 June 2013: loss of US$219.1m; 31 December 2013: loss of US$555.9m).  The share data used in the computations is as follows:

	Six months ended 30 June 2014	Six months  ended 30 June 2013	Year ended  31 December 2013
	'000	'000	'000
Weighted average number of shares	581,468	603,264	602,279
Less weighted average shares held by ESOP and SIP Trusts	(5,554)	(6,024)	(5,969)
Basic weighted average number of shares	575,914	597,240	596,310
Dilutive potential ordinary shares:
Employee share options	1,220	402	389
Diluted weighted average number of shares	577,134	597,642	596,699

Section 5 - Events after the Balance Sheet Date

5.1    North West Europe Asset Transactions

Following the period end, Cairn has finalised UK and Norwegian asset transactions:

-       A farm-in to the Statoil operated Norwegian Barents Sea exploration licence PL393b  where Cairn acquired a Working interest of 25%; and

-       A linked transaction where Cairn purchased from Statoil a 20% interest in Norwegian North Sea Exploration licence PL248c (excluding existing discoveries on this block) and sold to Statoil a 15% interest in UK North Sea Licences P2040 (Block 29/11) and P2086 (blocks 28/9b and 28/14) in the Greater Catcher Area.

In both transactions the net consideration payable by Cairn will be settled through a carry capped at a specific monetary level.

5.2    US$575.0m Reserve Based Lending Facility

On 18 July 2014, Cairn concluded agreements with all parties relating to the seven year US$575m Reserve Based Lending bank facility which may be drawn to fund capital expenditure on the Catcher and Kraken development projects, with the amount available to draw at any time determined by market standard reserves based lending calculations and by reaching certain project milestones. The facility was underwritten by BNP Paribas and has now been syndicated to Commonwealth Bank of Australia, DNB Bank ASA, HSBC, Standard Chartered Bank and Société Générale.

The facility is currently undrawn.

Glossary

The following are the main terms and abbreviations used in this announcement:

Corporate

Board                          the Board of Directors of Cairn Energy PLC

Cairn                           Cairn Energy PLC and/or its subsidiaries as appropriate

Cairn India/CIL             Cairn India Limited and/or its subsidiaries as appropriate

Capricorn                    Capricorn Oil Limited and/or its subsidiaries as appropriate

Company                    Cairn Energy PLC

Group                         the Company and its subsidiaries

Technical

APA                           awards in predefined area

2D/3D                         two dimensional/three dimensional

boe                             barrel(s) of oil equivalent

boepd                         barrel(s) of oil equivalent per day

bopd                           barrels of oil per day

DECC                         Department of Energy and Climate Change

ESA                           exploration study agreement

FPSO                         floating production, storage and offloading

FDP                            field development plan

mmbbls                       million barrels of oil

mmboe                       million barrels of oil equivalent

mmscfd                       million standard cubic feet of gas per day

US$                            US dollar

WI                              working interest

NOTES TO EDITORS

Cairn Energy PLC ("Cairn" or the "Group" or the "Company") is one of Europe's leading independent oil and gas exploration and development companies and is listed on the London Stock Exchange. Cairn has discovered and developed oil and gas reserves in a variety of locations around the world.

Cairn's business operations are focused on exploration acreage in North West Europe, North West Africa, North Atlantic and the Mediterranean, underpinned by interests in development assets in the North Sea. Cairn has its headquarters in Edinburgh, Scotland supported by operational offices in London, Norway, Spain and Senegal. 

Cairn and Corporate Responsibility

Ø Cairn is a signatory to the UN Global Compact and our core values of respect, responsibility, relationships and our commitments towards people, the environment and society are enshrined in our Business Principles, which are available on the Cairn website at http://www.cairnenergy.com/index.asp?pageid=282

Ø Cairn became a participating company in the Extractive Industry Transparency Initiative (EITI) in September 2013. The EITI is a coalition of governments, companies and civil society, who have adopted a multi-stakeholder approach to applying the EITI global standard promoting transparency of payments in the oil, gas and mining sectors http://eiti.org/

For further information on Cairn please see: www.cairnenergy.com

 

END

 

 

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