Half-Yearly Report Announcement

RNS Number : 2335H

Cairn Energy PLC

16 August 2016

 

EMBARGOED FOR RELEASE AT 0700                                                  16 August 2016

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

Half-Yearly Report Announcement

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"Successful appraisal of the world-class SNE discovery in Senegal has significantly increased 2C oil resources to 473 million barrels with associated 2C oil in place in excess of 2.7 billion barrels.

Drilling is scheduled to re-commence in Senegal shortly, benefiting from lower costs across the sector. The programme contains options for multiple wells and in addition to ongoing appraisal of the SNE field, the Joint Venture continues to assess optimal locations for further exploration drilling on the acreage.

Cairn's exploration and appraisal focus in Senegal is balanced with development assets in the UK, with first oil targeted from both Kraken and Catcher during 2017 and in the meantime Cairn remains fully-funded in respect of all of its capital commitments."

Senegal Exploration & Appraisal

Ø Drilled six wells in two years; two basin-opening discoveries and four successful appraisal wells

Ø SNE contingent resource upgrade: independently verified current best estimates for gross oil in place on the SNE field of more than 2.7 billion bbls*

Ø Estimated gross recoverable oil resource of 1C 274 mmbbls, 2C 473 mmbbls, 3C 906 mmbbls*

Ø Cairn estimates further Senegal exploration potential of ~500 mmbbls gross mean risked resource

Ø Joint Venture (JV) planning third phase drilling programme commencing in Q4 2016/Q1 2017 with further evaluation of SNE discovery

Ø Rig tender for next phase of appraisal and exploration benefiting from lower cost environment

Ø Conceptual development planning underway to include range of potential options including phased development to capture a potentially large resource base

*ERC Equipoise Limited (ERCE) estimate
 

Finance

Ø US$414 million (m) Group net cash at 30 June 2016

Ø Norwegian tax receivable of US$45m at 30 June 2016

Ø Reserves Based Lending bank facility remains undrawn; debt availability to fund UK development assets increasing with project progress, with availability expected to reach US$260m by 2017; additional US$175m available in the form of Letters of Credit

Ø Forecast net capex for the Catcher and Kraken development projects of US$315m from H2 2016 to expected free cash flow by year end 2017

Ø Envisaged future exploration and appraisal expenditure across the portfolio is US$135m, of which US$55m is current committed activity, with the balance principally relating to expected additional drilling activity in Senegal

Ø Cairn is currently unable to access the value of its ~10% residual shareholding in Cairn India Limited (CIL) valued at US$383m at 30 June 2016, or accrued dividend payments of US$50m

Ø International arbitration proceedings have commenced in respect of Cairn's claim under the UK-India Bilateral Investment Treaty.  Cairn is seeking restitution for losses resulting from the attachment of its shares in CIL and failure to treat Cairn and its investments fairly and equitably

Developments

Ø Kraken remains on schedule with first oil anticipated in H1 2017. Latest gross capex estimate is >US$300m (gross) or over 10% lower than sanction estimate.  In H1, acquired an additional 4.5% in the development bringing Cairn's total Working Interest (WI) to 29.5%

Ø Catcher (Cairn 20% WI) is targeting first oil H2 2017 with the FPSO hull now in Singapore; further cost reductions secured.  Latest gross capex estimate now 20% lower than at sanction

Ø Skarfjell (Cairn 20% WI) JV working towards concept selection for field development; decision expected Q4 2016

Further Exploration and New Ventures

Ø New licences acquired in Norway and Ireland

Ø Continue to actively assess and pursue new ventures within context of balanced portfolio and less competitive environment

 

Enquiries:

Analysts/Investors David Nisbet, Corporate Affairs	Tel: [phone]
Media Patrick Handley, David Litterick Brunswick Group LL	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 7am BST.

Conference all

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 16 August 2016 until 23 August 2016.

Recording Dial-in Details:

UK:                        0121 260 4861                                    

All other locations:  [phone]  

Passcode:              3626365#               

Transcript

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

Corporate & Finance Overview

Cairn's strategy is to deliver value for shareholders from the discovery and development of hydrocarbons within a sustainable, self-funding and balanced business model. We are well-positioned to deliver on our continued success as we pursue appraisal offshore Senegal where there is considerable growth potential.

With a strong balance sheet, funding in place through to production and free cash flow coming on stream from North Sea development assets in 2017, our sustainable model is in a robust position. Cairn retains the flexibility to leverage success, and we will continue to optimise and grow the asset base to deliver the best returns from a sustainable business model.

Current sources of funding include cash of US$414m at mid year, a Norwegian tax receivable of US$45m and the Reserves Based Lending bank facility which remains undrawn and has expected availability of US$260m by 2017. Current uses of capital include US$315m of committed capital expenditure on the Kraken and Catcher development projects in the UK to year end 2017 by which time the projects are expected to be onstream and cashflow generating; and an envisaged future exploration and appraisal (E&A) expenditure of US$135m across the portfolio, of which US$55m is current committed activity, with US$80m representing an estimate of additional activity in Senegal currently being agreed with joint venture partners.

Operational Review

Senegal

Following two basin opening discoveries, SNE-1 and FAN-1, in Senegal in 2014 and approval of an extensive evaluation plan by the Government of Senegal in 2015, Cairn and its JV partners completed four successful appraisal and exploration wells in the SNE field in H1 2016. Drilling operations were completed safely, ahead of schedule and under budget with four wells completed at the forecast cost of three. 

The objective of the appraisal and exploration programme in H1 was to establish the extent of the field discovered by the SNE-1 well, gather data to determine the hydrocarbon volume and reservoir deliverability and confirm and evaluate additional nearby prospects. The programme has substantially improved Cairn's understanding of the aerial extent of the SNE field, confirming its extension to both the north and south such that it is now interpreted to cover an area of more than 350km².  The well results have shown a consistent oil column of just over 100 metres (m) at approximately the same depth in every well, with good quality, sweet 32° API crude, overlain by a gas cap.  A comprehensive logging and coring programme has been conducted, with over 600m of core successfully recovered from the four wells, confirming the nature of a stacked series of upper reservoirs of generally thinner units overlying lower reservoirs of thicker more tabular sands.  Sand quality throughout is good with porosity and oil saturations very similar across all wells.  In SNE-2 and 3, a total of four drill stem tests (DSTs), were successfully carried out, covering both the lower and upper reservoir units to assess reservoir deliverability.  Together with the combined reprocessed 3D seismic and new 3D broadband seismic dataset, the log, core and test data are being integrated to build a comprehensive geological reservoir model. 

Based on the five well penetrations so far, the current best estimate, independently assessed by ERCE, for oil in place on the SNE field is more than 2.7 billion bbls gross with estimated gross recoverable contingent oil resource of 1C 274 mmbbls, 2C 473 mmbbls, 3C 906 mmbbls.  The 2016 drilling campaign consisted of the following sequence of wells:

Ø  The SNE-2 appraisal well was in a central location in the heart of the field, 3 kilometres (km) north of the SNE-1 discovery. The well results were significant in demonstrating the ability of the reservoirs to flow at commercially viable rates, with a test in the lower reservoir measured at >8,000 bopd confirming very high quality reservoir.   Multiple samples of oil and gas were recovered to the surface.  216m of continuous core was taken across the entire reservoir interval with 100% recovery and similar oil-down-to and oil-up-to depths (103m gross) as seen in SNE-1 were observed, with initial indications confirming the same 32° API oil quality. 

Ø   The SNE-3 appraisal well was aimed at delineating the shape of the structure and defining the aerial extension of the field to the south, being positioned almost 3km SW of SNE-1. The reservoirs were found slightly shallower than expected, yet further extending the field area. Two DSTs were conducted in the upper reservoirs, each flowed at maximum rates of >5,000 bopd, confirming the deliverability of these units, and validating the scale and growth potential of the field. Some pressure depletion was observed following each test, confirming that reservoir connectivity in the upper reservoirs is not as good as the lower reservoirs. Multiple samples of oil and gas were recovered to the surface, confirming the same 32° API fluid qualities as the previous wells.  Reservoir quality and correlation of principal reservoir units between SNE-1, 2 and 3 was confirmed by log and bio stratigraphic analysis.  Continuous core of 144m was taken across the entire oil bearing reservoir interval with 100% recovery.  There was similar oil-down-to and oil-up-to depths (101m gross) seen in SNE-1 and 2 and initial indications confirmed oil quality. Gauges were set in the well to allow for future interference testing.  Above the main SNE appraisal targets as encountered in SNE-1 and 2, a further two shallower gas bearing sands were encountered in SNE-3.

Ø    BEL-1 was primarily an exploration well targeting the Bellatrix prospect in shallower reservoir targets above the main SNE field but was also deepened as an appraisal well to evaluate the Northern Flank of the field, some 3km to the north of SNE-2.  The principal shallower ("Buried
Hill") exploration reservoir targets were found to be impermeable and gas bearing.  Two slightly deeper gas bearing sand zones, similar to those seen in SNE-3 were encountered above the main SNE targets. In deepening the well, the SNE appraisal results confirmed the northern extent of the high quality reservoirs seen in the other SNE wells and demonstrated a similar consistent oil column (~100m gross) in this area of the field. The same reservoir units were encountered as in the previous wells, as confirmed by well log, pressure data and bio stratigraphic analysis.  Continuous core of 144m was taken across the entire oil bearing reservoir interval with 100% recovery.  As planned, no DSTs were conducted in this well.

Ø   SNE-4: Following the positive campaign results from the first three "firm" wells, the JV continued the evaluation programme with a fourth well location, SNE-4, some 5km to the east of SNE-3 with the intent of evaluating the nature and structural position of the upper reservoirs in the oil zone to the eastern side of the field.   The well results confirm the extension of the reservoirs to the eastern area of the field, finding oil bearing upper reservoir sands of similar quality and correlating predictably to those encountered elsewhere, with essentially the same gross 100m oil column.    A continuous core of 108m was taken across the entire oil bearing reservoir interval with 100% recovery.  No DSTs were conducted in this well, although gauges were set in anticipation of possible future interference testing.  The shallower gas-bearing sands encountered in SNE-3 and BEL-1 were also encountered as gas bearing in SNE-4.

The four well appraisal campaign results have been highly positive in confirming the increased size of accumulation, gathering a significant database of information, demonstrating excellent operational and budgetary performance and being carried out safely.  As we plan future activity, we can see clear potential to access additional cost savings from the current lower cost operating environment. A rig tender and services process is well advanced as we prepare for stage three of the campaign and is benefiting from the lower cost environment and significant availability of high quality rigs.

The JV is working to determine how best to phase the development of the large resource base.  We are also consolidating our views on how the changes in industry pricing will impact the capital expenditure cost estimates of development including the economic field size.

In the current JV, 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 (10%).

In mid-July 2016, Woodside Petroleum Limited (Woodside) announced that it had entered into a Purchase and Sale Agreement with ConocoPhillips to acquire all of ConocoPhillips' interests in Senegal subject to all necessary approvals based on the effective date of 1 January 2016.  We look forward to working with Woodside which will bring expertise in development, operation of subsea infrastructure and FPSOs principally in Australasia. 

UK and Norway Exploration

Cairn has built a strong position in the UK and Norway by acquiring exploration, appraisal and development assets and participating in licencing rounds. Cairn now has 22 licences in Norway including two operated licences and is a partner in the Skarfjell discovery. In addition, Cairn has 15 licences in the UK, including one as Operator.

Cairn pre-qualified as an Operator in Norway in late 2015 and in H1 2016 was awarded the company's first operated licence, PL 842 with the Storhaug prospect, in the Norwegian North Sea (Cairn 40% WI).  In addition to the non-operated interests in four exploration licences awarded in the APA 2015 Licensing Round, Cairn was awarded three licences, including one as Operator, in the Barents Sea in the 23^rd Licensing Round.  Cairn believes that the Barents Sea has high potential for commercial oil discoveries. The Norwegian Petroleum Directorate state the yet to find potential in the Barents Sea at 8.8 billion boe and only ~100 wells drilled to date.  We look forward to working with partners, Statoil, Lundin and PGNIG in the coming years.

In the UK North Sea, the Laverda exploration well, adjacent to the Catcher field, encountered 14 feet net oil bearing Tay sands, but did not encounter any indications of hydrocarbons in the deeper, high risk Slough prospect.  The well was plugged and abandoned ahead of the rig continuing development drilling in the Catcher area (Premier Operator, Cairn 20% WI).

Morocco

In Q2 2016, Cairn (20% WI) and Kosmos (Operator, 55% WI) signed an agreement with ONHYM, (25% WI carried) on behalf of the Government of Morocco, regarding a new Petroleum Agreement for contract area offshore Boujdour Maritime with a commitment for 3D seismic to be acquired by Q2 2020.

Mauritania

Alongside Operator Chariot Oil & Gas, Cairn elected not to enter into the First Renewal Phase of the C-19 licence which had drilling commitments.  The work undertaken to de-risk the asset resulted in industry interest, with a number of partnering discussions reaching advanced stages, however these did not lead to a firm transaction within the defined timeframe (Cairn 35% WI).  

Ireland

Cairn was awarded one Licence Option (LO) in the 2015 Atlantic Margin Oil and Gas Exploration Licensing Round - Phase 2 Awards - Porcupine Basin LO16/18 (1,500 km²) (Cairn Operator, 100% WI) with an initial work programme aimed at evaluating the petroleum potential of this area offshore Ireland.

A planned appraisal/exploration well on FEL 2/04 (Cairn Operator, 38% WI) (Spanish Point) offshore West of Ireland is deferred, pending further discussions with partners and the Government of the Republic of Ireland.

Malta

Cairn (Operator, 60% WI) is continuing 2D seismic and geological evaluation work ahead of a potential decision later in 2016 to proceed to the next stage of the licence, which would involve commitment to a 3D seismic survey to be acquired prior to end of 2018. 

Cyprus

Cairn has submitted an application for Block 8 offshore Cyprus in a tender for oil and/or gas exploration rights with a consortium which includes Delek Drilling and Avner Oil Exploration.

UK Development 

The Catcher and Kraken developments in the UK North Sea are targeting first oil 2017; targeted peak production net to Cairn of ~25,500 boepd.

Kraken 

Kraken development remains on schedule with first oil anticipated in H1 2017.  The latest capex estimate is >US$300m or over 10% lower than the sanction estimate.

In H1, Cairn acquired an additional 4.5% working interest in the Kraken development from First Oil plc bringing Cairn's total working interest to 29.5%.

Good progress is being made on the FPSO in Singapore. All the topsides modules have been lifted onto the vessel and the completion and integration works are well underway. Sail away from the shipyard is expected before the end of 2016.

The 2016 subsea installation programme is nearing completion. The Drill Centre 2 (DC2) and DC3 production and water injection manifolds, DC3 flowlines, and all flexible risers have been successfully installed.

The drilling programme continues to make excellent progress. A total of three producer and four injector wells have now been safely drilled and completed, with results meeting or exceeding pre-drill predictions.

Catcher

Catcher is targeting first oil in H2 2017. Further cost savings have been secured against the project estimates, with the release of contingencies as work scopes are finished and drilling activities are completed below budget. The Operator now forecasts capex to first oil of US$1.3bn and total project capex of US$1.8bn, a ~20% reduction on the original sanctioned estimates.

The subsea installation campaign remains on schedule for completion by Q4 2016: the flowline towheads and bundles, as well as the buoy and its mooring system are installed, and good progress is being made installing the risers. Six wells have now been safely drilled in the Catcher area, including most recently the first Burgman production well, with all meeting or exceeding pre-drill expectations for reservoir and fluid properties. Well sequencing has also been modified to avoid costly winter rig moves and work continues to evaluate the potential to reduce overall well count without impacting production.

The FPSO hull has now been delivered to the Keppel yard in Singapore while fabrication of the topsides modules is progressing well.

Skarfjell

Partners are currently investigating the best option for the development of the field and the decision on concept selection is expected to be made in Q4 2016. (Wintershall Norge AS, Operator 35% WI, Cairn 20% WI).

Cairn India

Cairn is currently unable to access the value of its ~10% residual shareholding in Cairn India Limited (CIL) valued at US$383m at 30 June 2016 or accrued dividends with a value of US$50m. International arbitration proceedings have commenced in respect of Cairn's claim under the UK-India Bilateral Investment Treaty.  Cairn is seeking restitution for losses resulting from the attachment of its shares in CIL and failure to treat Cairn and its investments fairly and equitably. 
 

Financial Review

Overview

The Group's North Sea development projects remain on track for delivery of first oil in 2017.  A successful four well appraisal programme in Senegal was completed at the start of the year and, subject to joint operator approval, the Group is planning a further exploration and appraisal campaign commencing later this year.

Cash

At 30 June 2016, Cairn had cash balances of US$414m, down from US$603m at 31 December 2015.  The significant cash outflows in the period include total exploration costs of US$90m, of which Senegal exploration and appraisal costs were US$70m, and Kraken development costs of US$87m.   

Committed expenditure from 30 June 2016 to year end 2017 comprises US$315m development capital expenditure of the Catcher and Kraken projects and US$55m committed exploration and appraisal expenditure.  A further US$80m of currently non-committed expenditure is envisaged for future activity in Senegal based on current planning estimates.

Oil and Gas Assets

Exploration and Appraisal

In the six months to 30 June 2016, Cairn completed four successful appraisal wells in Senegal and a dual target exploration well in the Greater Catcher Area in the UK North Sea. 

Senegal

Cairn has now completed six successful exploration and appraisal wells in Senegal with capitalised costs to 30 June of US$317m.  Additions in the year-to-date were US$89m; US$78m of drilling costs primarily on the SNE-3, SNE-4 and BEL-1 appraisal wells completed in the period, and US$11m other exploration costs and development studies. 

UK and Norway

A dual target exploration well drilled in the UK North Sea Greater Catcher Area targeted the Laverda and Slough prospects.  The Laverda prospect encountered hydrocarbons, the deeper Slough prospect was dry.  Work continues to conclude on the commerciality of the Laverda discovery.  The asset was tested for impairment at 30 June 2016 within the Catcher cash generating unit, but no impairment was identified.

International

In Mauritania, the C19 licence was relinquished and costs to date of US$32m written off. 

Development

UK North Sea

The Group's UK development projects, Kraken and Catcher, remain on track to deliver first oil in 2017.

In February 2016, Cairn increased its working interest in Kraken by 4.5% to 29.5%.  Cairn acquired the increased interest from First Oil plc for a nominal amount and assumed working capital liabilities of US$16m, including outstanding January and February cash calls due. 

Cairn's current year costs relating to the Catcher development continue to be carried.

Cairn's UK development assets are held in a GBP functional subsidiary.  The sharp fall in the value of GBP against USD triggered by the EU referendum reduces the carrying value of the Group's assets by U$68m at 30 June 2016.  This translation loss is included in exchange differences in other comprehensive income on consolidation. 

Impairment tests were conducted on the Group's development assets at 30 June 2016 with no impairment identified.  No changes were made to the Group's corporate assumptions from those disclosed at 31 December 2015.   Sensitivity analysis is included in note 2.5 of the Financial Statements.  There would be no tax impact on any impairment.

Available for Sale Financial Asset - Cairn India Limited Investment

The valuation of the Group's ~10% residual holding in Cairn India Limited (CIL) at 30 June 2016 of US$383m is largely unchanged from 31 December 2015, thus no further impairment arises. 

Cairn continues to disclose a contingent liability for the final tax assessment issued by the Government of India.  Further details are provided in note 5.4 to the financial statements.  Cairn remains unable to access the value of its residual shareholding or accrued dividends of US$50m including US$8m declared in July 2016.

Results for the Period

	Six months ended 30 June 2016 US$m	Six months ended 30 June 2015 US$m	Year ended 31 December 2015 US$m
Pre-award costs	(6)	(18)	(35)
Unsuccessful exploration costs	(34)	(46)	(97)
Administrative expenses and other income/costs	(16)	(12)	(31)
Related tax credit/(charge)	19	(10)	37
Operational and administrative expenses	(37)	(86)	(126)
Net finance costs	(1)	(8)	(1)
Impairment of financial asset	-	(177)	(319)
Related tax credit	-	9	10
CIL investment and impairment	-	(168)	(149)
Gain on disposal of oil and gas assets	-	27	27
Impairment of oil and gas assets	-	-	(43)
Related tax credit/(charge)	-	5	(64)
Oil and gas asset sales and impairment	-	32	(80)
Total loss after tax	(38)	(230)	(516)

Unsuccessful Exploration Costs

The charge for the six month period comprises costs incurred on the Group's Mauritanian licence of US$32m and US$2m of other licences relinquished in the North Sea.

Administrative Expenses

The year-on-year increase in administration expenses reflects costs incurred on the CIL arbitration and an increase in non-cash share-based payment charges.

Taxation

Tax credits comprise US$16m of deferred tax credits on UK development assets and US$3m of Norwegian net tax credits.

The UK deferred tax credit represents deferred tax assets recognised to offset deferred tax liabilities arising on Group's development asset additions.  Deferred tax assets are currently only recognised to the extent that they offset deferred tax liabilities.

At 30 June 2016, Cairn had total UK ring fence trading losses of US$632m.  US$383m of losses are recognised as deferred tax assets to fully offset deferred tax liabilities of US$181m. The remaining US$269m of losses represent an unrecognised deferred tax asset of US$135m.

Principal Risks and Uncertainties

Managing the risks and opportunities is essential to Cairn's long-term success and sustainability. The Group endeavours to pursue investment opportunities which offer an appropriate level of return whilst ensuring the level of associated political, commercial and technical risk remain within the risk appetite of the Group.

Cairn's system for identifying and managing risks is embedded from the top down in its organisational structure, operations and management systems and accords with the risk management guidelines and principles set out in ISO 31000, the International Standard for Risk Management. The Group's risk management framework supports Cairn's approach to business and enhances the chances of safely engaging in successful business opportunities and delivering value to shareholders and other stakeholders.

Responding to Changing Risks during H1 2016

Cairn has assessed the principal risks and uncertainties at the end of H1 2016 and concluded that the principal risks identified at 2015 year end remain relevant. These are:

·      Sustained low oil price. The continuing low oil price is both a risk and opportunity for the Group. The low oil price is driving down industry costs. However, it has also reduced the amount of debt available under the Group's Reserve Based Lending facility and may impact on the availability of other sources of funding for the Group.

·      Restriction on ability to sell Cairn India Limited Shareholding. International arbitration proceedings have commenced in respect of Cairn's claim under the UK-India Bilateral Investment Treaty. 

·      Kraken and Catcher development activities and production start-up not executed 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.

·      Lack of exploration and appraisal success. In 2016, the Group completed its initial appraisal programme offshore Senegal building on the success of the 2014 discoveries. The joint venture has commenced planning for the third phase drilling programme commencing in Q4 2016/Q1 2017 with further evaluation of the SNE discovery.

Further detail on the principal risks and uncertainties can be found in the Cairn Energy PLC Annual Report and Accounts 2015. 

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 2015. 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

15 August 2016             15 August 2016

Independent review report to Cairn Energy PLC

Report on the consolidated interim financial statements

Our conclusion

We have reviewed Cairn Energy PLC's consolidated interim financial statements (the "interim financial statements") in the half-yearly report of Cairn Energy PLC for the 6 month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·      the Group Balance Sheet as at 30 June 2016;

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

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

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

·      the explanatory notes to the interim financial statements.

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

As disclosed in note 1.1 to the interim financial statements, 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.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

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

Our responsibility is to express a conclusion on the interim financial statements in the half-yearly 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 Rules and Transparency Rules of the United Kingdom's 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.

What a review of interim 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 report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Glasgow

15 August 2016

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 interim 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

1.2 Going Concern

Section 2 Oil and Gas Assets and Decommissioning Provisions

2.1 Intangible Exploration/Appraisal Assets

2.2 Property, Plant & Equipment - Development/Producing Assets

2.3 Provisions - Decommissioning

2.4 Capital Commitments

2.5 Impairment Testing - Sensitivity Analysis

Section 3  Financial Assets and Working Capital

3.1 Available-for-Sale Financial Assets

3.2 Other Receivables

3.3 Trade and Other Payables

Section 4 Results for the Period

4.1 Segmental Analysis

4.2 Net Operating Expenses

4.3 Earnings per Ordinary Share

Section 5 Taxation and Other Disclosures

5.1 Taxation on Loss

5.2 Income Tax Asset

5.3 Deferred Tax Assets and Liabilities

5.4 Contingent Liability - Indian Tax Assessment

Cairn Energy PLC

Group Income Statement

For the six months ended 30 June 2016

Continuing operations	Section	Six months ended 30 June 2016  (unaudited) US$m	Six months ended 30 June 2015  (unaudited)  US$m	Year ended  31 December 2015 (audited) US$m
Pre-award costs		(6.1)	(18.1)	(35.2)
Unsuccessful exploration costs	2.1	(33.8)	(46.4)	(97.4)
Net operating expenses	4.2	(16.2)	(12.1)	(29.7)
Impairment of intangible exploration/appraisal assets		-	-	(17.9)
Impairment of property, plant and equipment - development/producing assets		-	-	(25.1)
Gain on disposal of oil and gas assets		-	26.6	26.6
Operating loss		(56.1)	(50.0)	(178.7)
Impairment of available-for-sale financial assets		-	(177.1)	(318.6)
Finance income		3.6	4.4	19.8
Finance costs		(4.5)	(12.0)	(20.3)
Loss before taxation from continuing operations		(57.0)	(234.7)	(497.8)
Taxation
Tax credit/(charge)	5.1	19.2	4.4	(17.7)
Loss for the period attributable to equity holders of the parent		(37.8)	(230.3)	(515.5)
Loss per ordinary share - basic (cents)	4.3	(6.61)	(40.35)	(90.26)
Loss per ordinary share - diluted (cents)	4.3	(6.61)	(40.35)	(90.26)

 

Group Statement of Comprehensive Income

For the six months ended 30 June 2016

		Six months  ended 30 June 2016 (unaudited) US$m	Six months ended  30 June 2015 (unaudited) US$m	Year ended 31 December 2015 (audited) US$m
Loss for the period		(37.8)	(230.3)	(515.5)
Other comprehensive income - items that may be recycled to profit or loss
Deficit on valuation of financial assets	3.1	(0.6)	(177.1)	(318.6)
Deferred tax credit on valuation of financial assets		-	9.5	9.5
Valuation movement recycled to Income Statement		-	177.1	318.6
Deferred tax credit on valuation movement  recycled to Income Statement		-	(9.5)	(9.5)
Currency translation differences		(56.0)	2.9	(63.5)
Other comprehensive income for the period		(56.6)	2.9	(63.5)
Total comprehensive income for the period attributable to equity holders of the parent		(94.4)	(227.4)	(579.0)

Cairn Energy PLC

Group Balance Sheet

 As at 30 June 2016

		30 June 2016 (unaudited)	30 June 2015 (unaudited)	31 December 2015 (audited)
	Section	US$m	US$m	US$m
Non-current assets
Intangible exploration/appraisal assets	2.1	498.3	424.9	423.4
Property, plant & equipment - development/producing assets	2.2	679.1	455.4	579.6
Intangible assets - goodwill		126.1	143.3	131.9
Other property, plant & equipment and intangible assets		2.8	5.4	3.9
Available-for-sale financial assets	3.1	383.4	525.5	384.0
Deferred tax assets	5.3	-	68.0	-
		1,689.7	1,622.5	1,522.8
Current assets
Income tax asset	5.2	45.1	77.2	33.0
Inventory		0.7	4.9	0.7
Other receivables	3.2	164.9	179.5	148.9
Cash and cash equivalents		414.3	725.4	602.8
		625.0	987.0	785.4
Total assets		2,314.7	2,609.5	2,308.2
Current liabilities
Trade and other payables	3.3	170.0	103.2	120.1
Provisions - decommissioning	2.3	-	3.6	-
Provision - other		-	0.7	-
		170.0	107.5	120.1
Non-current liabilities
Deferred tax liabilities	5.3	58.7	49.0	48.8
Provisions - decommissioning	2.3	68.7	5.8	37.1
Provisions - other		2.6	2.8	2.8
		130.0	57.6	88.7
Total liabilities		300.0	165.1	208.8
Net assets		2,014.7	2,444.4	2,099.4
Equity attributable to equity holders of the parent
Called-up share capital		12.4	12.4	12.4
Share premium		487.2	487.1	487.1
Shares held by ESOP/SIP Trusts		(11.1)	(24.9)	(23.0)
Foreign currency translation		(202.2)	(79.8)	(146.2)
Capital reserves - non-distributable		40.8	40.8	40.8
Merger reserve		255.9	255.9	255.9
Available-for-sale reserve		(0.6)	-	-
Retained earnings		1,432.3	1,752.9	1,472.4
Total equity		2,014.7	2,444.4	2,099.4

 

Cairn Energy PLC

Group Statement of Cash Flows

For the six months ended 30 June 2016

		Six months ended 30 June 2016 (unaudited)	Six months ended 30 June 2015 (unaudited)	Year ended 31 December 2015 (audited)
		US$m	US$m	US$m
Cash flows from operating activities
Loss before taxation		(57.0)	(234.7)	(497.8)
Unsuccessful exploration costs		33.8	46.4	97.4
Depreciation and amortisation		1.5	0.9	3.4
Share-based payments charge		9.6	8.6	15.2
Impairment of intangible exploration/appraisal assets		-	-	17.9
Impairment of property, plant and equipment - development/producing assets		-	-	25.1
Gain on disposal of oil and gas assets		-	(26.6)	(26.6)
Impairment of available-for-sale financial asset		-	177.1	318.6
Finance income		(3.6)	(4.4)	(19.8)
Finance costs		4.5	12.0	20.3
Interest paid		-	-	(0.2)
Income tax received from operating activities		-	-	23.6
Foreign exchange differences		(1.4)	1.6	(0.4)
Other receivables movement		(3.7)	4.4	4.3
Trade and other payables movement		(2.3)	2.3	6.1
Provisions movement		0.3	(2.0)	(2.4)
Net cash used in operating activities		(18.3)	(14.4)	(15.5)
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets		(89.7)	(151.6)	(208.4)
Expenditure on property, plant & equipment -  development/producing assets		(87.3)	(29.2)	(114.2)
Income tax received from investing activities		-	-	28.2
Proceeds on disposal of oil and gas assets		-	54.7	54.7
Movement on inventory		-	-	0.8
Purchase of property, plant & equipment and intangible assets		(1.0)	(0.9)	(2.1)
Interest received		1.7	2.0	3.6
Net cash used in investing activities		(176.3)	(125.0)	(237.4)
Cash flows from financing activities
Facility, arrangement fees and bank charges		(2.4)	(1.5)	(6.3)
Proceeds from exercise of share options		0.1	0.1	0.1
Net cash flows used in financing activities		(2.3)	(1.4)	(6.2)
Net decrease in cash and cash equivalents		(196.9)	(140.8)	(259.1)
Opening cash and cash equivalents at beginning of period		602.8	869.3	869.3
Exchange losses on cash and cash equivalents		8.4	(3.1)	(7.4)
Closing cash and cash equivalents		414.3	725.4	602.8

Cairn Energy PLC

Group Statement of Changes in Equity

For the six months ended 30 June 2016

	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 2015	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
Loss for the period	-	-	-	-	-	(37.8)	(37.8)
Deficit on valuation of financial assets	-	-	-	-	(0.6)	-	(0.6)
Currency translation differences	-	-	(56.0)	-	-	-	(56.0)
Total comprehensive income for the period	-	-	(56.0)	-	(0.6)	(37.8)	(94.4)
Share-based payments	-	-	-	-	-	9.6	9.6
Exercise of employee share options	0.1	-	-	-	-	-	0.1
Cost of shares vesting	-	11.9	-	-	-	(11.9)	-
At 30 June 2016	499.6	(11.1)	(202.2)	296.7	(0.6)	1,432.3	2,014.7

Cairn Energy PLC

Group Statement of Changes in Equity (continued)

For the six months ended 30 June 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 2015	499.4	(26.7)	(82.7)	296.7	-	1,976.4	2,663.1
Loss for the period	-	-	-	-	-	(230.3)	(230.3)
Deficit on valuation of financial assets	-	-	-	-	(177.1)	-	(177.1)
Deferred tax credit on valuation of financial assets	-	-	-	-	9.5	-	9.5
Valuation movement recycled to Income Statement	-	-	-	-	177.1	-	177.1
Deferred tax charge on valuation movement recycled to Income Statement	-	-	-	-	(9.5)	-	(9.5)
Currency translation differences	-	-	2.9	-	-	-	2.9
Total comprehensive income for the period	-	-	2.9	-	-	(230.3)	(227.4)
Share-based payments	-	-	-	-	-	8.6	8.6
Exercise of employee share options	0.1	-	-	-	-	-	0.1
Cost of shares vesting	-	1.8	-	-	-	(1.8)	-
At 30 June 2015	499.5	(24.9)	(79.8)	296.7	-	1,752.9	2,444.4

 

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 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union. They should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union.

The disclosed figures, which have been reviewed but not audited, are not statutory accounts in terms of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2015, on which the auditors gave an audit report which was unqualified, which did not contain an emphasis of matter paragraph and which did not contain any statement under section 498 of the Companies Act 2006 have been filed with the Registrar of Companies. 

This half-yearly report has been prepared on a basis consistent with the accounting policies expected to be applied for the year ending 31 December 2016, and uses the same accounting and financial risk management policies and methods of computation as those applied for the year ended 31 December 2015, other than changes to accounting policies resulting from the adoption of new or revised accounting standards.  Changes to IFRS effective 1 January 2016 have no significant impact on Cairn's accounting policies or financial statements. 

Significant key estimates and assumptions are unchanged from those applied in the year ended 31 December 2015 and the same have accordingly been applied here.

This half-yearly report was approved by the Directors on 15 August 2016.

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. 

Section 2 - Assets and Investments: Oil and Gas Assets and Decommissioning Provisions

2.1     Intangible Exploration/Appraisal Assets

	Senegal	UK & Norway	International	Total
	US$m	US$m	US$m	US$m
Cost
At 1 January 2015	166.8	217.6	125.1	509.5
Foreign exchange	-	(4.8)	(0.5)	(5.3)
Additions	9.4	21.8	39.7	70.9
Disposals	-	(11.6)	-	(11.6)
Unsuccessful exploration costs	-	(11.8)	(34.6)	(46.4)
At 30 June 2015	176.2	211.2	129.7	517.1
Foreign exchange	-	(16.0)	-	(16.0)
Additions	52.0	10.5	19.1	81.6
Unsuccessful exploration costs	-	(32.4)	(66.2)	(98.6)
At 31 December 2015	228.2	173.3	82.6	484.1
Foreign exchange	-	(3.7)	0.2	(3.5)
Additions	89.0	16.2	3.4	108.6
Unsuccessful exploration costs	-	(0.6)	(33.2)	(33.8)
At 30 June 2016	317.2	185.2	53.0	555.4
Impairment
At 1 January 2015	-	24.2	68.3	92.5
Foreign exchange	-	0.2	(0.5)	(0.3)
At 30 June 2015	-	24.4	67.8	92.2
Foreign exchange	-	(1.8)	-	(1.8)
Impairment charge	-	16.7	1.2	17.9
Unsuccessful exploration costs	-	-	(47.6)	(47.6)
At 31 December 2015	-	39.3	21.4	60.7
Foreign exchange	-	(3.8)	0.2	(3.6)
At 30 June 2016	-	35.5	21.6	57.1
Net book value
At 30 June 2015	176.2	186.8	61.9	424.9
At 31 December 2015	228.2	134.0	61.2	423.4
At 30 June 2016	317.2	149.7	31.4	498.3

Senegal

Cairn completed four exploration/appraisal wells during the six months to June 2016. The BEL-1 exploration and appraisal well encountered hydrocarbons in the exploration target and successfully appraised of the SNE-1 discovery. The additional SNE-2, SNE-3 and SNE-4 appraisal wells confirms the resource base of the world-class SNE-1 discovery made in 2014.  Capitalised costs of US$89.0m include the costs associated with these wells and costs of preparing for future drilling in Senegal.

UK and Norway

One exploration well was completed in the period in the Greater Catcher Area in the UK North Sea.  The dual prospect well encountered hydrocarbons in the upper Laverda prospect while the deeper Slough prospect was dry. Assessment of the commerciality of the Laverda discovery is ongoing.  At 30 June 2016, costs associated with this prospect were tested for impairment, within the Catcher cash generating unit.  No impairment was identified.

International

Unsuccessful exploration costs of US$33.2m primarily relate to the C-19 Mauritania licence which was relinquished in June 2016.  Exploration costs of US$31.4m remaining at the period end include US$25.6m and US$5.8m respectively on licences in Ireland and Malta.

Section 2 - Assets and Investments: Oil and Gas Assets and Decommissioning Provisions

2.2     Property, Plant & Equipment - Development/Producing Assets

	UK & Norway	Total
	US$m	US$m
Cost
At 1 January 2015	467.8	467.8
Foreign exchange	1.9	1.9
Additions	46.9	46.9
Disposals	(61.2)	(61.2)
At 30 June 2015	455.4	455.4
Foreign exchange	(34.4)	(34.4)
Additions	183.7	183.7
At 31 December 2015	604.7	604.7
Foreign exchange	(70.0)	(70.0)
Additions	167.1	167.1
At 30 June 2016	701.8	701.8
Impairment
At 1 January 2015 and 30 June 2015	-	-
Impairment charge	25.1	25.1
At 31 December 2015	25.1	25.1
Foreign exchange	(2.4)	(2.4)
At 30 June 2016	22.7	22.7
Net book value
At 30 June 2015	455.4	455.4
At 31 December 2015	579.6	579.6
At 30 June 2016	679.1	679.1

Additions in the year include US$15.8m as Cairn increased its working interest in Kraken by 4.5% on 22 February 2016.  The additional interest was acquired from First Oil plc for nominal consideration with Cairn liable for working capital liabilities relating to interest acquired at the date of the agreement.  Further additions on the Kraken development were US$104.2m, including an increase of US$16.0m in the decommissioning asset.

Remaining additions in 2016 include US$25.8m spend on the Catcher development, settled on Cairn's behalf by Dyas under the carry agreement following the 2015 farm-down, and an increase in the decommissioning asset recognised of US$21.3m.

Section 2 - Assets and Investments: Oil and Gas Assets and Decommissioning Provisions

2.3     Provisions - Decommissioning

	Exploration well abandonment	Development assets	Total
	US$m	US$m	US$m
At 1 January 2015	3.6	-	3.6
Provided in year	-	5.8	5.8
At 30 June 2015	3.6	5.8	9.4
Foreign exchange	(0.4)	(1.4)	(1.8)
Provided in year	3.0	26.5	29.5
At 31 December 2015	6.2	30.9	37.1
Foreign exchange	(0.6)	(5.5)	(6.1)
Provided in year	0.1	37.6	37.7
At 30 June 2016	5.7	63.0	68.7

2.4     Capital Commitments

	30 June 2016 US$m	30 June 2015 US$m	31 December 2015 US$m
Oil and gas expenditure:
Intangible exploration/appraisal assets	119.4	105.1	150.3
Property, plant & equipment - development/producing assets	845.5	891.7	887.9
Contracted for	964.9	996.8	1,038.2

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 2016 relate to operations in Senegal and the UK and Norwegian North Sea. 

Capital commitments for Property, Plant & Equipment - Development/Producing Assets include US$572.7m relating to a lease commitment due within the next eight 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.

2.5     Impairment Testing - Sensitivity Analysis

At 30 June 2016, impairment tests were conducted on the Group's UK Catcher and Kraken exploration/appraisal and development assets.  No impairment was recorded.

Impairment tests were conducted using the Group's key estimates and assumptions consistent with those disclosed in the 2015 Annual Report and Accounts. This includes a short/medium term oil price assumption based on a three-month average forward curve for three years from the balance sheet date followed by a long-term oil price assumption of US$80 per barrel.

Cairn has run sensitivities, disclosed below, on the long-term oil price assumption of US$80, using alternate prices ranging from US$75 per barrel to US$60 per barrel.  All other assumptions, including costs and discount rate, remain unchanged.

	Decrease in long term oil price assumption to:
	US$75	US$70	US$65	US$60
	US$m	US$m	US$m	US$m
Impairment charge on exploration/appraisal assets	24.0	25.3	25.3	25.3
Impairment charge on development assets	39.0	110.6	184.6	263.6

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 2015	702.6
Deficit on valuation	(177.1)
At 30 June 2015	525.5
Deficit on valuation	(141.5)
At 31 December 2015	384.0
Deficit on valuation	(0.6)
As at 30 June 2016	383.4

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 and trading gains and are Level 1 assets measured at fair value.

Cairn is currently restricted from selling its shares in Cairn India Limited.  See section 5.4.

3.2     Other Receivables

	30 June 2016	30 June 2015	31 December 2015
	US$m	US$m	US$m
Other receivables	75.0	102.3	81.1
Prepayments	19.5	19.5	18.4
Financial assets on derivative contracts	1.2	-	-
Joint operation receivables	69.2	57.7	49.4
	164.9	179.5	148.9

Other receivables include US$18.9m for the unspent carry balance receivable from Dyas which was initially recorded at fair value in relation to the 10% Catcher disposal.  Also included in other receivables are costs incurred by Cairn awaiting recharge to joint operations and dividends receivable of US$42.3m from Cairn India Limited. While the restriction over Cairn's investment remains, Cairn India Limited is unable to remit these dividends to the Group.

Joint operation receivables includes Cairn's working interest share of the receivables relating to joint operations and amounts recoverable from partners in joint operations.  

3.3     Trade and Other Payables

	30 June 2016	30 June 2015	31 December 2015
	US$m	US$m	US$m
Trade payables	2.0	8.6	2.6
Other taxation and social security	2.0	1.4	1.5
Other payables	2.4	1.0	1.6
Accruals	11.3	17.3	14.9
Joint operation payables	152.3	74.9	99.5
	170.0	103.2	120.1

Joint operation payables includes Cairn's share of the trade and other payables of operations in which the Group participates.  Where Cairn is operator of the joint operation, joint operation payables also includes amounts that Cairn will settle and recover from partners. 

Section 4 - Results for the Period

4.1     Segmental Analysis

Operating Segments

Cairn's business model is to create, add and realise value from a balanced portfolio. To ensure focus on Senegal, while actively managing the balanced portfolio, from 1 January 2016 Cairn implemented a new organisational structure based around three groups of Senegal, UK & Norway and International.

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.    

Senegal is monitored and forms a business unit. UK & Norway consists of exploration and development activities in the North Sea and Barents Sea. The international business unit is the aggregate of all other regions including Greenland, Ireland, Morocco, Mauritania and the Mediterranean.

"Other Cairn Energy Group" exists to accumulate the activities and results of the holding company and other unallocated expenditure and net assets/liabilities including amounts of a corporate nature not specifically attributable to any of the business units.

The segmental results for the six months ended 30 June 2016 are as follows:

	Senegal	UK & Norway	International	Other Cairn Energy Group	Total
	US$m	US$m	US$m	US$m	US$m
Pre-award costs	-	(2.0)	-	(4.1)	(6.1)
Unsuccessful exploration costs	-	(0.6)	(33.2)	-	(33.8)
Depreciation	-	(0.1)	-	(0.4)	(0.5)
Amortisation	-	-	-	(1.0)	(1.0)
Other income and administrative expenses	-	(2.8)	(0.6)	(11.3)	(14.7)
Operating loss	-	(5.5)	(33.8)	(16.8)	(56.1)
Interest income	-	-	-	1.7	1.7
Other finance income and costs	-	4.9	(0.1)	(7.4)	(2.6)
Loss before taxation	-	(0.6)	(33.9)	(22.5)	(57.0)
Tax credit	-	19.2	-	-	19.2
Profit/(loss) for the period	-	18.6	(33.9)	(22.5)	(37.8)
Capital expenditure	89.0	183.5	3.4	0.5	276.4
Total assets	358.2	1,086.5	37.3	832.7	2,314.7
Total liabilities	62.5	205.0	19.3	13.2	300.0
Segment non-current assets	317.2	955.3	31.4	2.4	1,306.3

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.

Section 4 - Results for the Period

4.1     Segmental Analysis (continued)

The segmental results for the six months ended 30 June 2015 were as follows:

	Senegal	UK & Norway	International	Other Cairn Energy Group	Total
	US$m	US$m	US$m	US$m	US$m
Pre-award costs	-	(15.7)	(0.1)	(2.3)	(18.1)
Unsuccessful exploration costs	-	(11.8)	(34.6)	-	(46.4)
Depreciation	-	(0.1)	-	(0.1)	(0.2)
Amortisation	-	-	-	(0.7)	(0.7)
Other income and administrative expenses	-	(0.3)	-	(10.9)	(11.2)
Gain on disposal of oil and gas assets	-	26.6	-	-	26.6
Operating loss	-	(1.3)	(34.7)	(14.0)	(50.0)
Impairment of available-for-sale financial assets	-	-	-	(177.1)	(177.1)
Interest income	-	0.9	-	1.1	2.0
Other finance income and costs	-	-	0.1	(9.7)	(9.6)
Loss before taxation	-	(0.4)	(34.6)	(199.7)	(234.7)
Tax (charge)/credit	-	(5.1)	-	9.5	4.4
Loss for the period	-	(5.5)	(34.6)	(190.2)	(230.3)
Capital expenditure	9.4	68.7	39.7	0.9	118.7
Total assets	196.3	1,017.2	74.5	1,321.5	2,609.5
Total liabilities	20.8	122.6	9.4	12.3	165.1
Segment non-current assets	176.2	786.1	62.2	4.5	1,029.0

Section 4 - Results for the Period

4.1     Segmental Analysis (continued)

The segmental results for the year ended 31 December 2015 were as follows:

	Senegal	UK & Norway	International	Other Cairn Energy Group	Total
	US$m	US$m	US$m	US$m	US$m
Pre-award costs	-	(27.6)	(3.8)	(3.8)	(35.2)
Unsuccessful exploration costs	-	(44.2)	(53.2)	-	(97.4)
Inventory disposal/write down	-	-	-	(0.2)	(0.2)
Depreciation	-	(0.3)	(0.1)	(0.6)	(1.0)
Amortisation	-	-	-	(2.4)	(2.4)
Other income and administrative expenses	-	(2.1)	(0.3)	(23.7)	(26.1)
Impairment of oil and gas assets	-	(41.8)	(1.2)	-	(43.0)
Gain on disposal of oil and gas assets	-	26.6	-	-	26.6
Operating loss	-	(89.4)	(58.6)	(30.7)	(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	-	(87.2)	(58.6)	(352.0)	(497.8)
Tax (charge)/credit	-	(27.2)	-	9.5	(17.7)
Loss for the period	-	(114.4)	(58.6)	(342.5)	(515.5)
Capital expenditure	61.4	263.1	58.8	1.9	385.2
Total assets	249.6	977.9	68.9	1,011.8	2,308.2
Total liabilities	29.4	139.5	23.1	16.8	208.8
Segment non-current assets	228.2	845.8	61.2	3.6	1,138.8

4.2     Net Operating Expenses

	Six months ended 30 June 2016 US$m	Six months ended 30 June 2015 US$m	Year ended 31 December 2015 US$m
Administrative expenses	16.2	12.1	29.5
Inventory disposal/write down	-	-	0.2
	16.2	12.1	29.7

 

Section 4 - Results for the Period

4.3     Earnings per Ordinary Share

Basic and diluted earnings per share are calculated using a loss of US$37.8m (30 June 2015: loss of US$230.3m; 31 December 2015: loss of US$515.5m).  The share data used in the earnings per share computations is as follows:

	Six months ended 30 June 2016	Six months  ended 30 June 2015	Year ended  31 December 2015
	'000	'000	'000
Weighted average number of shares	576,477	576,329	576,336
Less weighted average shares held by ESOP and SIP Trusts	(3,761)	(5,531)	(5,244)
Basic and diluted weighted average number of shares	572,716	570,798	571,092
Anti-dilutive shares:
2009 LTIP awards	20,263	9,412	15,885
2009 Approved and Unapproved Plans	6,227	17	365
2015 Employee Share Awards	1,583	178	166
Anti-dilutive number of shares	28,073	9,607	16,416

Section 5 - Taxation and Other Disclosures

5.1     Taxation on Loss

	Six months ended 30 June 2016 US$m	Six months ended 30 June 2015 US$m	Year  ended 31 December 2015 US$m
Current tax credit:
Norwegian tax refunds receivable	(10.3)	(20.7)	(37.1)
	(10.3)	(20.7)	(37.1)
Deferred tax (credit)/charge:
Norwegian deferred tax credit	7.2	(0.7)	4.7
Reduction in UK supplementary charge tax rate	-	45.6	45.6
Reversal of eligibility to future field allowances on disposal of UK development asset	-	13.7	13.7
Release of provision on disposal of UK oil and gas assets	-	(18.3)	(18.7)
Reversal of UK deferred tax asset	-	-	22.4
Other UK deferred tax credits realised	(13.0)	(12.3)	-
Release of provision on carried interests due to change in tax rate	(3.1)	(2.2)	(3.4)
Recycled from other comprehensive income on impairment of financial assets	-	(9.5)	(9.5)
	(8.9)	16.3	54.8
Tax (credit)/charge on loss	(19.2)	(4.4)	17.7
Tax included in Other Comprehensive Income:
Deferred tax credit on valuation of financial assets	-	(9.5)	(9.5)
Deferred tax credit on valuation movement recycled to Income Statement	-	9.5	9.5
Total tax charge in Other Comprehensive Income	-	-	-

The tax credit is calculated on the actual results for the period.

5.2     Income Tax Asset

The Income tax asset of US$45.1m (30 June 2015: US$77.2m; 31 December 2015: US$33.0m) represents Norwegian tax refunds receivable.

Section 5 - Taxation and Other Disclosures

5.3     Deferred Tax Assets and 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 2015	(82.1)	188.3	-	106.2
Deferred tax charge through Income Statement	(20.8)	(5.7)	-	(26.5)
Deferred tax movement on carried interests in development assets	(11.4)	-	-	(11.4)
Exchange differences arising	(3.6)	3.3	-	(0.3)
At 30 June 2015	(117.9)	185.9	-	68.0
Deferred tax charge through Income Statement	(14.2)	(18.9)	-	(33.1)
Deferred tax movement on carried interests in development assets	(31.8)	-	-	(31.8)
Exchange differences arising	10.0	(13.1)	-	(3.1)
At 31 December 2015	(153.9)	153.9	-	-
Deferred tax credit/(charge) through Income Statement	(2.6)	18.7	-	16.1
Deferred tax movement on carried interests in development assets	(16.1)	-	-	(16.1)
Exchange differences arising	(8.9)	8.9	-	-
At 30 June 2016	(181.5)	181.5	-	-
Deferred tax liabilities
At 1 January 2015	(73.7)	9.1	2.9	(61.7)
Deferred tax credit/(charge) through Income Statement	8.5	1.9	(0.2)	10.2
Exchange differences arising	3.1	(0.5)	(0.1)	2.5
At 30 June 2015	(62.1)	10.5	2.6	(49.0)
Deferred tax credit/(charge)through Income Statement	(4.3)	1.2	(2.3)	(5.4)
Exchange differences arising	7.1	(1.2)	(0.3)	5.6
At 31 December 2015	(59.3)	10.5	-	(48.8)
Deferred tax credit/(charge) through Income Statement	(7.9)	0.7	-	(7.2)
Exchange differences arising	(3.3)	0.6	-	(2.7)
At 30 June 2016	(70.5)	11.8	-	(58.7)

5.4    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$1.5bn) plus interest back dated to 2007 totalling INR 188bn (approximately US$2.8bn). The total assets of CUHL have a current value of US$475.2m (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.

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.  

The seat of arbitration has been agreed as The Hague in the Netherlands and Cairn has filed its Statement of Claim which clearly demonstrates that applying the retrospective amendment to Cairn and seizing US$1bn worth of CIL shares was in breach of the UK-India Investment Treaty obligations of fair and equitable treatment and its protections against expropriation.  The Republic of India's Statement of Defence is expected to be filed in Q4 2016 with evidential hearings in 2017.

Cairn has asked the arbitration panel either to order India to withdraw its unlawful tax demand and compensate Cairn for the harm suffered by the seizure of the CIL shares, being not less than US$1.1bn (plus costs); or, if the tax demand remains in place, compensate Cairn for the quantum of the tax assessment and the harm suffered by the seizure of the CIL shares, being together not less than US$5.6bn (plus costs).

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

JV                                             Joint Venture

Technical

APA                                          awards in predefined area

API                                            American Petroleum Institute

1C                                             low estimate contingent resources

2C                                             best estimate contingent resources

3C                                             high estimate contingent resources

2P                                             proven plus probable

2D/3D                                        two dimensional/three dimensional

bbls                                           barrels

boe                                            barrel(s) of oil equivalent

boepd                                        barrels of oil equivalent per day

bopd                                          barrels of oil per day

DECC                                        Department of Energy and Climate Change

DST                                           drill stem tests

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

PSC                                          production sharing contract

US$                                           US dollar

WI                                             Working interest

NOTES TO EDITORS

Cairn has a 40% Working Interest (WI) in three blocks offshore Senegal (Sangomar Deep, Sangomar Offshore and Rufisque), ConocoPhillips has 35% WI, FAR Ltd 15% WI and PETROSEN, the national oil company of Senegal 10% WI.  The three blocks cover 4,490km².

Cairn Energy PLC ("Cairn") 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 now focused on opportunities across a growing resource base in Senegal and the UK and Norway and our portfolio elsewhere including Africa and the Mediterranean. Cairn has its headquarters in Edinburgh, Scotland supported by operational offices in London, Norway and Senegal. 

Cairn and Corporate Responsibility

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 

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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