Operational Update

Cairn Energy PLC
29 January 2007

                                                                 29 January 2007

EMBARGOED FOR RELEASE AT 0700

                                CAIRN ENERGY PLC


                               Operational Update

Cairn will announce its preliminary results for the year to 31 December 2006 on
27 March 2007. In advance of these results, Cairn is providing information on
recent operations since the last update on 5 September 2006 and guidance in
respect of the Group's trading performance in 2006. This information is
unaudited and is subject to further review.

Highlights

CORPORATE

  • Initial Public Offering (IPO) of Cairn India successfully completed -
    trading commenced in January 2007
  • Return of cash to Cairn Energy PLC shareholders scheduled for Q2 2007

INDIA

  • Cairn India and ONGC progressing discussions with the Government of
    India (GoI) on midstream solution - resolution anticipated in H1 2007
  • Ravva infill drilling campaign underway with positive results on first
    two wells
  • Non-operated ultra-deep water well on KG-DWN-98/2 has encountered
    hydrocarbons and is currently operating
  • New oil discovery in Rajasthan (Shakti North East)

BANGLADESH

  • Sangu gross booked reserves reduction of 187 billion cubic feet (Bcf)
  • Three well drilling campaign, including the potential high impact Hatia
    exploration well, commenced offshore Bangladesh in January 2007
  • Onshore seismic campaign ongoing on Blocks 5 and 10

NEPAL

  • Agreement reached to acquire 100% interest in Blocks 3 and 5, subject
    to required consents

Sir Bill Gammell, Chief Executive said:

'The successful completion of the IPO has created an autonomous business and
management team for our world class assets in India as well as realising
significant value for our existing shareholders.

I am pleased to be able to report that good progress has been made by Cairn
India in determining offtake arrangements for Rajasthan crude and remain
confident that the first oil target of 2009 from Mangala can be achieved.

The combination of future Rajasthan production and active drilling programmes in
both India and Bangladesh provides the potential for continued growth in the
respective asset portfolios and Cairn India is poised to play an integral part
in meeting India's growing energy demand.'


Enquiries to:
Analysts/Investors
Jann Brown, Finance Director
Mike Watts, Exploration Director                     Tel: [phone]

Media                                                Tel: [phone]
Brunswick Group LLP:
Patrick Handley, Mark Antelme, Phoebe Buckland

Cairn India Media Enquiries
David Nisbet                                         Tel: [phone]



Corporate

The flotation and listing of Cairn India on the Bombay Stock Exchange and the
National Stock Exchange of India on 9 January 2007 was a major achievement. The
culmination of Cairn's vision, focus and effort on South Asia has resulted in
the creation of India's largest independent exploration and production company
and raised a total of $1.9 billion.

Cairn India is now an Indian listed company managed and directed from within
India. Cairn has retained a holding of approximately 69% in Cairn India, with
the balance of shares held by Petronas (10%), Indian domestic and global
institutional investors. Cairn India is committed to continuing investment in
India.

The Cairn India IPO underscores the increasing confidence of businesses and
investors in the Indian regulatory environment, the Indian capital markets and
the associated growth potential offered by Cairn India.

The proceeds of the IPO will be used to fund the future growth of both Cairn and
Cairn India, with the remaining funds to be returned to shareholders of Cairn
Energy PLC in Q2 2007. As previously indicated, this will be done in a way to
maximise tax efficiency for shareholders.


To maintain future operational flexibility, all of the assets not transferred to
Cairn India (Bangladesh, Nepal and some exploration interests in northern India)
have been brought under a subsidiary called Capricorn Energy Limited
('Capricorn') which is 100% owned by Cairn Energy PLC.

Operations

Cairn India

Cairn India has active operated exploration and infill drilling campaigns in
Rajasthan and Ravva, with further development drilling planned in the Cambay
Basin during 2007. In addition, Cairn India is currently participating in an
ONGC operated exploration well offshore eastern India in ultra-deep water. Cairn
India and Capricorn both participated in an ONGC operated exploration well
(Tisua-1) in the Ganga Valley which failed to flow on test and is interpreted as
having encountered only residual hydrocarbons.

The Rajasthan development continues apace, with construction work commencing
shortly in preparation for planned first oil in 2009. Talks on determining the
offtake arrangements with the GoI are progressing and Cairn India is confident
that a satisfactory resolution will be determined in the interests of all
stakeholders in order to maximise the value of this world class resource base.

Capricorn

For a combination of reasons explained in the reserves section below, gross
Sangu field reserves have been reduced by 125 Bcf. A further 62 Bcf has been
reclassified from the probable (2P) to the possible (3P) category resulting in a
total gross reserves reduction of 187 Bcf.

A three well drilling programme was commenced in January 2007 targeting an
appraisal well on South Sangu, an infill development well on Sangu and an
exploration well on the Hatia prospect.

Rajasthan RJ-ON-90/1 (Cairn India 70% and Operator)


Development Areas

Construction work will commence shortly for planned first production from
Mangala in 2009. The Field Development Plans (FDPs) for the Mangala, Aishwariya,
Saraswati and Raageshwari fields have been agreed by the GoI and the funding
secured for the initial upstream development, with the first phase of
development drilling on Saraswati now underway.

All the permits and permissions required to begin major construction work have
been granted and Cairn India is currently procuring the major items of long lead
equipment required to establish the production facilities as planned. The
technical specifications for three purpose built rigs have been released and
bids sought for the provision of these 'flex type' modularised rigs which will
be used to drill the development wells. These state of the art rigs will allow
the drilling of the Mangala horizontal wells and running completions which will
be used to deliver the first phase of the target production rate of 150,000
barrels of oil per day (bopd).

The detailed engineering design for the Mangala development is progressing in
Houston; the design team comprises Cairn India personnel working alongside
colleagues from Mustang Engineering. The impact of the severe flooding in
Rajasthan last year on field development design and activities is being
assessed.

The GoI has approved the Declaration of Commerciality (DoC) for Bhagyam, the
second largest field, along with the Shakti field. These fields are contained
within a second development area of 430 km2. It is currently anticipated that
FDPs for Bhagyam and Shakti will be submitted to the GoI in Q1 2007. An FDP for
the Guda field will be submitted separately.

An additional discovery, Shakti North East, has been retained within the Bhagyam
/Shakti development area. Shakti-NE-1, which is located 6 km north-east of the
Shakti-1 discovery, encountered approximately 6 metres of net pay of oil with an
API of 13-15 degrees. A cased hole test on Shakti-NE-1 confirmed a flow of 83
bopd.


Midstream


Under the terms of the RJ-ON-90/1 Production Sharing Contract (PSC), the GoI or
its nominee is responsible for the purchase of crude oil and the transportation
of the crude oil produced from the delivery point at the field facilities to the
refinery (midstream activities). Transportation currently entails the
construction of a pipeline downstream of the delivery point to handle the
expected volumes of crude oil.

By conducting studies and third party discussions relating to the evacuation of
the crude, Cairn India has built up a comprehensive understanding of the likely
construction timescale for the pipeline and the associated technical and
commercial issues involved.

In order to ensure efficient offtake of the Rajasthan crude, Cairn India has
been involved in ongoing and detailed discussions with the GoI, ONGC and other
third parties. The purpose of these discussions is to ensure the proper
integration and control of both the upstream and the midstream in order to
maximise the distribution and marketing options. Discussions are progressing and
Cairn India believes that this issue will be resolved in order to meet the
schedule to achieve first oil in 2009.

Subject to the outcome of discussions with the GoI as to its role in the
midstream project Cairn India is ready to award the front end engineering design
(FEED) contract for the first phase of the preferred pipeline alternative.


Southern Fields


In the south of the Rajasthan block, first commercial production by trucking
from the Saraswati field is ready to start and will begin as soon as an
arrangement for oil sales has been finalised with the GoI. First commercial
production from the Raageshwari oil field is expected to commence within 12
months of Saraswati.


Northern Appraisal Area (Cairn India 100% and Operator)


In June 2005, Cairn was granted an 18 month extension (until 14 November 2006)
to complete its activities in the northern appraisal area to the north and west
of the Development Area. However, the work programme in this area was
interrupted by the severe flooding in Rajasthan in 2006. Cairn has subsequently
ceased operations in this area and is in discussions with the GoI for a further
extension of part of this acreage to complete its work programme.


Eastern India


Ravva (Cairn India 22.5% and Operator)


An onshore exploration well (RX-9), spudded in June 2006, was plugged and
abandoned after encountering non-commercial quantities of hydrocarbons.

An 8 well offshore infill and exploration drilling programme on Ravva commenced
in October 2006. The first appraisal well (RD-7) encountered oil and gas in the
main producing intervals at Ravva with 38 m of net oil pay. The second well
(RD-8), also an appraisal well on one of the main Ravva fault blocks,
encountered 16 m net of Middle Miocene oil bearing sands with average porosity
of 30% and average oil saturation of 60%. In addition a 3.5 m thick sand
prognosed to be absent was encountered in an oil leg. Current operations are on
a crestal infill development well (RC-5).


Gas sale price increase

The ceiling prices under each of the Ravva gas sales contracts (GSCs) have been
increased following re-negotiation with the buyer (GAIL). The ceiling price for
associated gas has increased by 18% and the ceiling price for non-associated gas
has increased by 30%.

KG-DWN-98/2 (Cairn India 10%, ONGC Operator)

The G-1 exploration well drilled in August and September 2006 was plugged and
abandoned with gas shows. The UD-1 ultra-deep water exploration well, located
140 km south of Ravva, was spudded in late September 2006 after the acquisition
and interpretation of additional 2D seismic data. The UD-1 well has encountered
hydrocarbons in a secondary objective. The well has been side-tracked for
mechanical reasons and is currently operating above the main target.


Northern India

GV-ONN-2002/1 (Cairn India 50% (Operator), Cairn Energy PLC/Capricorn 50%)

An airborne geophysical survey is scheduled to commence shortly followed by a 2D
seismic acquisition programme commencing in March 2007.

GV-ONN-97/1 (Cairn India 15%, Cairn Energy PLC/Capricorn 15%; ONGC Operator)

The first exploration well in the Himalayan Foreland Basin in which Cairn has
participated (Tisua-1) has been plugged and abandoned after encountering
residual oil shows.


Western India

Block CB/OS-2: Lakshmi and Gauri Gas Fields (Cairn India 40% and Operator)

An offshore four well infill development drilling programme is scheduled to
commence in H2 2007.

The GSCs with the buyers (GTCL and GPEC) have been re-negotiated and these
contracts are currently being finalised with the joint venture partners.

Engineering studies to upgrade the oil handling facilities at Gauri to 9,000
bopd have been completed and an upgrade is scheduled for completion in Q3 2007.
During 2006 oil sales to private buyers averaged 3,539 bopd at an average
realised price of $57 per barrel.

The onshore CB-X well has been completed and the pipeline installation is in
progress to deliver first gas in Q2 2007.

Block RJ-0NN-2003/1 (Cairn India 30%, ENI Operator)

The Operator has recently commenced acquisition of a 3D seismic survey on this
Rajasthan block, which was awarded in NELP V.


NELP VI

The GoI has yet to formally announce the outcome of the sixth New Exploration
Licensing Policy round (NELP VI). There was an unprecedented level of interest
in this latest round with highly competitive bidding from domestic companies.
Cairn, through Cairn India and Capricorn, submitted joint venture bids along
with ONGC, Videocon, Tata Petrodyne, British Gas and Total.

Following the bidding, which closed on 15 September 2006, the GoI has indicated
that the relevant PSCs will be signed in the coming months.


Bangladesh (Cairn Energy PLC/Capricorn 75% and Operator)

The Sangu gas field, although now in decline, has produced in excess of 400 Bcf
since commencement of production in 1998. To date, the Sangu joint venture has
generated gross revenue of approximately $800 million.

Cairn has commenced a three month offshore drilling programme in Bangladesh
which will consist of three wells. The first of these is an appraisal well on
the Sangu South field approximately 4 km south-east of the main Sangu field. The
second well will target a potentially undrained part of the main Sangu field.
The third well (Hatia-1) will be a vertical exploration well to be drilled on a
1 trillion cubic feet (unrisked) prospect located approximately 10 km north-west
of Sangu.

In parallel to the drilling of these three wells, Cairn is also undertaking well
intervention work on some existing production wells which is intended to boost
production.

A 392 km 2D seismic survey has recently been completed on Block 10 and a further
296 km 2D survey has now commenced on Block 5.


Nepal Blocks 1, 2, 4, 6 and 7 (Cairn Energy PLC/Capricorn 100% and Operator)

Assuming continued improvement in the political climate in Nepal, Cairn
anticipates that it will be in a position to commence field operations in late
2007 or early 2008, subject to agreement with the Government to cease the
contractual force majeure currently in place in respect of these blocks.

In addition, Cairn has reached agreement with Texana for the acquisition of a
100% interest in Blocks 3 and 5 in Nepal, subject to contract and required
Government approvals.


Group Production

The Group's entitlement production for 2006 was 24,500 barrels of oil equivalent
per day (boepd) net to Cairn compared to 28,300 boepd in 2005.


Production (boepd)      Ravva       Lakshmi/Gauri         Sangu          Total
(approximate)
Gross field            61,600              21,200        22,200        105,000
Working interest       13,800               8,500        16,700         39,000
Entitlement interest    6,500               8,100         9,900         24,500


Cairn's current production is 74% gas: 26% oil. This high gas weighting,
combined with the contractual caps on the gas price received, means that the
average price per boe in 2006 is approximately $32. On commencement of oil
production from Rajasthan, the majority of Group production will be oil
(currently estimated to be approximately 90%). As a direct consequence of this,
the Group will become much more highly geared to prevailing oil prices.


Group Reserves

The FDPs for the Mangala, Aishwariya, Saraswati and Raageshwari fields were
approved by the RJ-ON-90/1 Management Committee ('the Management Committee') and
initial reserves for Mangala, Saraswati and Raageshwari to 2020 have been
booked. The proposed development sequence for the Rajasthan northern fields is
Mangala, Bhagyam and Aishwariya. A decision on the booking of the Aishwariya
reserves will be deferred until the Bhagyam FDP and associated expenditure have
been approved by the Management Committee.

The draft FDPs for the Bhagyam and Shakti fields are scheduled to be submitted
in Q1 2007 for approval by the Management Committee. Once this approval has been
obtained, associated reserves from these fields to 2020 will also be booked. An
FDP for the Guda field will be submitted separately.

Sangu gross proven and probable (2P) reserves have been reduced by a total of
187 Bcf. Of this 69 Bcf is attributable to the results of the 2005/2006 Sangu
appraisal drilling campaign, combined with poorer than predicted production
performance in 2006. Another 56 Bcf is attributable to a decision to reclassify
the reserves associated with Sangu gas compression to the contingent resources
category.

Currently, an additional 100 Bcf of gross reserves is attributed to a
potentially undrained compartment of the Sangu field on which an infill
development well is planned as part of the ongoing drilling programme. Of this,
a decision has been taken to move a risked 62 Bcf from the probable (2P) to the
possible (3P) category. The impact of these adjustments is to reduce current
Sangu gross booked reserves to 142 Bcf, which represents less than 6% of the
total estimated currently booked Group reserves for 2006.

The final Group reserves position for the year ended 31 December 2006 will be
included in the results announcement scheduled for 27 March 2007.


Notes to Editors:

   •On 9 January 2007, Cairn successfully concluded the flotation of its
    Indian business with the commencement of trading of Cairn India Limited on
    the Bombay Stock Exchange and the National Stock Exchange of India. Cairn
    Energy PLC currently holds a majority shareholding in Cairn India Limited.
   •'Cairn' where referred to in this release means Cairn Energy PLC and/or
    its subsidiaries (including Cairn India), as appropriate.
   •'Cairn India' where referred to in the release means Cairn India Limited
    and/or its subsidiaries, as appropriate.
   •Cairn focuses its activities on the geographic region of South Asia.  The
    Group holds material exploration and production positions in west India,
    east India and Bangladesh along with new exploration rights in India and
    Nepal.
   •This focus on South Asia has already resulted in a significant number of
    oil and gas discoveries.  In particular, Cairn made a major oil discovery
    (Mangala) in Rajasthan in the north west of India at the beginning of 2004.
    Cairn has now made over 20 discoveries in Rajasthan block RJ-ON-90/1.
   •Cairn operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC)
    signed on 15 May 1995. The main Development Area (1,858 km2), which includes
    Mangala, Aishwariya, Saraswati and Raageshwari; is shared between Cairn and
    ONGC, with Cairn holding 70% and ONGC having exercised their back in right
    for 30%.
   •India currently imports approximately 2,000,000 barrels of oil per day
    (bopd).  It produces approximately 700,000 bopd itself of which 50,000 bopd
    comes from the Cairn operated Ravva field on the east coast of India.
   •Cairn India is headquartered in Gurgaon on the outskirts of Delhi, with
    operational offices in Chennai, Gujarat, Andhra Pradesh and Rajasthan.
   •Cairn Energy PLC (including Capricorn) will continue to be run from
    Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu.

For further information on Cairn see www.cairn-energy.plc.uk




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