Preliminary Results 2008

RNS Number : 7586P

Cairn Energy PLC

31 March 2009

 



EMBARGOED FOR RELEASE AT 0700                                                                             31 March 2009 

CAIRN ENERGY PLC

Preliminary Results Announcement

HIGHLIGHTS   

OPERATIONAL

• Group booked entitlement reserves increased from 170.2 mmboe to 254.5 mmboe
• Gross operated production for 2008: 76,298 boepd (2007: 87,031 boepd)
• Average net entitlement production for 2008: 12,801 boepd (2007: 19,809 boepd)

India 

• Phased Mangala, Bhagyam and Aishwariya (MBA) development project on track and funded to deliver first oil from the core Mangala development during H2 2009

• Construction of Mangala Processing Terminal (MPT) underway with four processing trains planned with a nameplate capacity of 205,000 bopd with scope for expansion

• Four processing trains:

  • Q3 2009: Mangala production train 1 (30,000 bopd capacity), initial export by trucking

  • Q4 2009: Mangala production train 2 (50,000 bopd capacity), export by pipeline

  • H1 2010: Mangala production train 3 (50,000 bopd capacity), providing for 125,000 bopd Mangala plateau production 

  • 2011: Production train 4 (75,000 bopd capacity), providing for 175,000 bopd Rajasthan plateau production.

• Aishwariya production potential upgraded from 10,000 bopd to 20,000 bopd, subject to regulatory approval

• More than 3,000 km2 of acreage secured under long term development contract

• Raageshwari East well, 90 km south of Mangala, flowed 500 bopd on test

Greenland

• Leading material frontier exploration position offshore west and south Greenland

• Processing of 10,000 km of 2D seismic data almost complete

• Additional seismic and well site surveys planned for summer 2009 

FINANCIAL 

• Cairn placing raised $161m 

• Profit after tax of $367m including $356m exceptional gain on 4% placement of shares in Cairn India Limited (CIL) (2007 restated: $1,556m including $1,539m exceptional gain on IPO of CIL)

• Cash generated from operations $150m (2007: $155m )

• Group net cash at 31 December 2008 $898m ( 2007: $827m)

Sir Bill Gammell, Chief Executive said:  

'Cairn's Rajasthan development continues to grow in scope and scale as we approach first oil production in the second half of 2009. 

 The Mangala terminal includes the phased construction of four planned processing trains with a combined production capacity of 205,000 bopd and potential for expansion. 

We have established a material frontier exploration position offshore west and south Greenland with 72,000 km2 under licence and the company continues to examine options for early drilling.'

  Enquiries:

Analysts/Investors Bill Gammell, Chief Executive Mike Watts, Deputy Chief Executive Jann Brown, Finance Director David Nisbet, Corporate Affairs	Tel: [phone]
Media Patrick Handley, David Litterick Brunswick Group LLP	Tel: [phone]

Cairn Energy Live Audio Webcast

The webcast of the 2009 preliminary results presentation will be available at 0900 (UK time) on Tuesday 31 March 2009 on the Cairn Energy PLC website: www.cairnenergy.com 

An archived version of the webcast will be available later.

These materials contain forward-looking statements regarding Cairn, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward-looking statements are based on our management's assumptions and beliefs in the light of information available to them at this time. These forward-looking statements are, by their nature, subject to significant risks and uncertainties and actual results, performance and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn's expectations with regard thereto or any change in circumstances or events after the date hereof.

  CHAIRMAN'S STATEMENT

Corporate Overview

Cairn has a focused strategy for delivering organic growth and shareholder value. 

Underpinning the strategy for growth is the sequential development of our 25 oil discoveries in Rajasthan, complemented by a new and exciting frontier exploration position in Greenland.

Cairn's vision to create and build a business in India over the last 15 years has been based on the firm belief in the hydrocarbon potential of the country and its hidden value potential. Today Cairn's Indian business, operated and managed by Cairn India Limited (CIL), is entering a period of transformational growth with the phased build up of oil production, followed by a sustainable plateau, from its world class oil fields in Rajasthan. 

Cairn holds a similar vision for Greenland, based on the same belief in its hydrocarbon potential. These two areas are however at different stages of the exploration and production cycle; in Rajasthan, production will commence in 2009, whilst Greenland offers material frontier exploration potential, the true value of which has yet to be discovered.

In the first half of 2008, the Government of India (GoI) approved the shifting of the point where the crude would be delivered from the MBA fields in Rajasthan. This meant that the contractual crude oil delivery point moved from the Mangala Processing Terminal (MPT) in the Rajasthan desert to existing infrastructure hubs and points on the Gujarat coast, with investment in the evacuation pipeline included in the project. This change in development plan necessitated the raising of $630m of additional funds via a placing of CIL shares in April 2008.  Following the placing, the Company's holding in CIL reduced by 4% to 65%. 

In the second half of the year, the capital markets (both debt and equity) were difficult to access for most businesses. The main priority for Cairn throughout this period was to re-examine and re-schedule the phasing of certain key elements of the Rajasthan development. This was done to meet the target delivery date of first oil in the second half of 2009 and to ensure that the project remained suitably financed. 

The 5% placing of PLC shares announced in March 2009 has raised $161m to strengthen Cairn's equity capital base in order to maintain operational and financial flexibility across all of  its operations both in relation to the Rajasthan development and its exploration position in Greenland.  

India

The current focus for CIL is the delivery of the high-value Rajasthan project. 

The planned ultimate production capacity of the Rajasthan development has increased over the last 12 months as we have sought to optimise the potential of the resource base. The decision to develop the key fields in a phased manner has enhanced operational flexibility and allowed the initial focus to remain on Mangala and the export infrastructure.  The Bhagyam and Aishwariya fields, Enhanced Oil Recovery (EOR), the Barmer Hill potential and other fields will follow in sequence when production is expected to rise to more than 175,000 barrels of oil per day. 

Once Mangala is on stream it will generate revenues which will be used initially to invest in further development work in Rajasthan and to pay down debt. The increasing production profile will deliver further value from Rajasthan, which will in turn provide the Group with additional financial flexibility.

  Greenland

Cairn's exploration acreage position in Greenland is held through its 90% owned international exploration subsidiary Capricorn. A total of eight offshore blocks were acquired during 2008 and Capricorn has already completed its obligatory seismic work programme for the first four year period over all of its blocks. Planning for an exploration drilling campaign is already underway. 

The Arctic basins of Greenland are increasingly being recognised as a potentially world class prospective area. In July 2008, the U.S. Geological Survey (USGS) released its Circum-Arctic Resource Appraisal report and concluded that 'The extensive Arctic continental shelf may constitute the geographically largest unexplored prospective area for petroleum remaining on earth.' A previous study by the USGS in 1996 recognised Greenland as one of the world's top ten potential hydrocarbon destinations for 'yet to finds'.

Board 

I would like to record my thanks to Ed Story who stood down as a non executive director in January 2009 having joined the Board in 1997. His insight and knowledge of the worldwide oil and gas industry has been hugely beneficial to the Board. 

Dr James Buckee, the former President and Chief Executive Officer of Talisman Energy, was appointed to the Board in January 2009. I am also delighted to report that Mike Watts, formerly Exploration and New Business director is now Deputy Chief Executive of the company. 

Outlook

The Group intends to continue to target material growth across its business. 

The focus in 2009 is delivering production in Rajasthan on schedule and agreeing oil sales contracts with the buyers of the Rajasthan crude.

Cairn's original vision for and belief in India has been borne out by events. This year will see production commence not only in Rajasthan but also from the substantial discoveries made by Reliance off the east coast.

Our exploration activities in Greenland are at a very early stage, but we firmly believe in the country's hydrocarbon potential and our evaluation efforts will continue whilst we also investigate options for early drilling.

The next two years promise to be an exciting time for Cairn. With a marked increase in Group production and cash flow we will continue to evaluate the strategic options for further creation of shareholder value.

Norman Murray 

Chairman, 30 March 2009

  CHIEF EXECUTIVE'S REVIEW

Cairn strategy has always been to focus on opportunities with material growth potential. For more than 20 years Cairn has been successful in exploring for, finding and developing hydrocarbons and the focus on South Asia has been the cornerstone of the Group's growth. Integral to the next stage of growth are the Rajasthan development project centred on Mangala, the largest of 25 current discoveries on the block and the expansion into frontier exploration acreage in Greenland.

India

Cairn India, in its second year of operation as an Indian listed subsidiary, has continued to make good progress across all of its business. 

The integrated upstream and midstream project in Rajasthan (with local power and water supply) is one of the largest onshore oil and gas developments in India with more than 10,000 workers currently involved in construction activities in Rajasthan and Gujarat.

Preparations for first oil from the Rajasthan fields are on track and the development of the MPT to which the bulk of the other field facilities will be connected is well underway. Construction of the 600 km heated pipeline from the MPT to the coast and the complex work in respect of the related facilities is on track. 

The size and scope of the Rajasthan project has substantially increased since the original Mangala discovery in 2004 when peak production was originally forecast at 100,000 barrels of oil per day (bopd). Today the facilities at the MPT will include the phased construction of four processing trains with a production capacity of 205,000 bopd and scope for expansion. 

The MBA fields have proven plus probable (2P) gross reserves and resources of almost 700 million barrels of oil equivalent (mmboe) with a further 300 mmboe of EOR potential presently classified as contingent resource. Subject to the results of the EOR project these resources would be expected to be re-categorised over time as additional 2P reserves. First production from Rajasthan is scheduled to commence by trucking in Q3 2009. The pipeline and the significant related terminal facilities are currently being built to be ready by Q4 2009. Mangala plateau production is planned to reach 125,000 bopd in 2010 with overall plateau production of 175,000 bopd expected to commence in 2011 from the MBA fields. 

The GoI is in the process of confirming multiple nominees for the Rajasthan crude. The pipeline routing to a nodal point within the existing Indian Oil Corporation (IOC) infrastructure and to coastal destinations gives Cairn and its partner, ONGC, access to wider refining capacity. In order to facilitate the trucking and sale of oil ahead of the pipeline completion, trial runs have been successfully carried out on the route from Mangala to the Gujarat coast.

More than 3,000 km2 in Rajasthan are now under long term development contract. There is further incremental production growth potential across this acreage as demonstrated by the Raageshwari East well, which flowed 500 bopd in December 2008.  

The challenge in the coming years will be to exploit the full resource potential in the Barmer basin in Rajasthan through the use of EOR techniques and through further work on the remaining fields including the Barmer Hill reservoirs. 

Subject to regulatory approval there is potential to extend and also enhance peak plateau production from the resource base of the Rajasthan fields above the level of 175,000 bopd.

  Greenland

A significant frontier exploration position in Greenland has been established. Within the first year of the licence agreements a 10,000 km 2D seismic programme in the west and south of Greenland has been acquired and final processed results for the Disko area became available in late March. The seismic results for the southern area are expected in April. This seismic programme has satisfied in full the Group's initial four year exploration work programme across all of its acreage. Interpretation of these data sets is now underway.

The first Cairn operated exploration drilling in Greenland is planned for 2011. It is however the intention to undertake at least three drilling site surveys and to purchase certain long lead items this year in order to preserve the option, should a suitable rig become available, for exploration drilling in 2010.

Offshore west Greenland can be considered as containing three separate geological basin areas with various sub-basins; the eight blocks Cairn has acquired are spread across each of these main basins. The two Disko blocks, for example, lie within the Baffin Bay Basin, where to date no offshore drilling has taken place. 

In view of the perceived material exploration potential of Greenland, Cairn is still looking to enhance its acreage portfolio, particularly when the Baffin Bay and North East Greenland Basins are put up for bid by the authorities in 2010 and 2012 respectively. Subject to Government approval the company intends to acquire reconnaissance seismic along the coast of east Greenland this year where it has applied for a Prospecting Licence. 

Financial Review

In 2008, Cairn has focused on allocating its resources to those assets which will drive shareholder value. At 31 December 2008 Cairn had net cash of $898m, positive operating cash flows and net assets of $2.3bn.

The Group's existing cash resources, debt facilities and cash flow from operations provide adequate funding to complete the core Mangala development project plus the pipeline and to commence first production in 2009.  However, Cairn will continue to monitor the credit markets to assess current pricing and may consider expanding its facilities in due course.

Cairn has always maintained a capital structure appropriate for its operations in exploration, appraisal and development. Given the background of global market conditions Cairn decided to strengthen its equity capital base and earlier this month raised a further $161m through a 5% placing of shares. 

Cairn has entered 2009 with the financial and operational flexibility necessary to deliver its key project in Rajasthan thereby providing cash flow to target the next phase of growth and continued creation of shareholder value.

Sir Bill Gammell

Chief Executive, 30 March 2009

  OPERATIONAL REVIEW 

Group Production

Cairn's average gross production during 2008 was 76,298 barrels of oil equivalent per day (boepd) (2007: 87,031 boepd). The Group's average entitlement production for 2008 was 12,801 boepd net to Cairn (2007:19,809 boepd).  

The figures in the table below show group production for 2008 on a gross, working interest and entitlement interest basis (including 100% of both CIL's and Capricorn's production).

Production (boepd)	Ravva	CB/OS-2	Sangu	Total
Gross field	53,809	13,778	8,711	76,298
Working interest	12,107	5,511	3,267	20,885
Entitlement interest	5,711	4,478	2,612	12,801

The average realised price per barrel of oil equivalent for 2008 was $63.88 (2007: $39.70). Cairn's current entitlement interest production is 46% gas: 54% oil. On commencement of production from Rajasthan the vast majority of the Group's production will be oil.

Group Booked 2P Reserves

The table below shows reserves information at 31 December 2008 on an entitlement interest basis for the Group (including 100% of both CIL's and Capricorn's reserves). For accounting and reserves purposes, the Group has used an oil price assumption of $50/bbl for 2009 and $65 for 2010 onwards (real) (2007: $60/bbl (real)). 

2P	Reserves 31.12.07 mmboe	Produced in  mmboe	Additions in  mmboe	Revisions in  mmboe	Reserves 31.12.08 mmboe
India	169.4	(3.7)	65.9	21.3	252.9
Bangladesh	0.8	(1.0)	-	1.8	1.6
Total	170.2	(4.7)	65.9	23.1	254.5

On a direct working interest basis, 2P reserves as at 31 December 2008 have increased by 92.7 mmboe to 348.0 mmboe (31 December 2007: 255.3 mmboe), comprising 346.0 mmboe in India and 2.0 mmboe in Bangladesh. The net entitlement reserves position has also increased by 84.3 mmboe from 170.2 to 254.5 mmboe. This increase is largely due to the booking of Bhagyam and Aishwariya 2P reserves. It also includes an increase in the entitlement to Mangala oil as a result of the increase of plateau offtake rate and the inclusion of pipeline costs following the GoI approval to the moving of the delivery point to the coast. There is also a reduction as a consequence of a change in the Group's oil price assumption.

The Group's net entitlement interest to reserves is significantly geared to the oil price assumption used and the potential movement in reserves at different long term oil prices is shown below.

Oil Price ($/barrel of oil equivalent (boe))	Net entitlement reserves  (mmboe)	Increase/(reduction) compared to $65/ boe base case (mmboe)
$40	291.3	36.8
$80	241.3	(13.2)

Figures include 100% of CIL's and Capricorn's production and reserves.

  India Reserves

With approved Field Development Plans (FDPs) in place for the Mangala, Saraswati, Raageshwari, Bhagyam and Aishwariya fields, net entitlement 2P reserves totalling 240.5 mmboe have been booked for the Rajasthan fields at the 2008 year end. There is a further 12.4 mmboe 2P reserves in the Lakshmi, Gauri and Ravva fields at the year end.

The net entitlement 2P reserves for Mangala, Saraswati and Raageshwari were originally booked at the 2005 year end following the approval by the GoI of the FDPs. The Aishwariya reserves were not booked at that time even though the FDP was approved. This was because the Aishwariya development was planned to follow the larger Bhagyam development and the Bhagyam FDP was not yet submitted. 

Two additional Mangala wells were drilled and extensive reservoir studies completed following the submission of the original Mangala FDP. During 2007, the stock tank oil initially in place (STOIIP) volumes in Mangala and Aishwariya were also updated based on the results of remapping, more accurate water saturation determination and a comprehensive petrophysical review. 

A Mangala FDP Addendum was submitted in Q4 2008, which included a higher oil production offtake from 100,000 bopd to 125,000 bopd (resulting in greater cumulative production during the production sharing contract (PSC) period) and implementation of an EOR pilot. This higher offtake rate has been included in the calculation of Mangala reserves. The estimated incremental volumes expected to be recovered through EOR are not included in the reserves figures but are classified as contingent resources.

The Bhagyam FDP was submitted to the Joint Venture (JV) and the GoI in May 2007 and was approved by the GoI in March 2008. Consequently, Bhagyam and Asihwariya reserves were booked at 2008 mid year. 

Bangladesh Reserves

The net entitlement 2P reserves for Sangu are 1.6 mmboe at the 2008 year end, compared to 0.8 mmboe at the 2007 year end. The increase has resulted from better than forecast production from a number of wells, well intervention work in Q4 2008 and incremental recovery associated with installation of onshore compression, which is due to commence operation in Q3 2009. A reduction in forecast operating costs has also extended the expected field life. Sangu net entitlement 2P reserves now represent around 0.6% of total booked Group reserves.  

  CAIRN INDIA

Rajasthan (Block RJ-ON-90/1) (Cairn India 70% (Operator); ONGC 30%)

Cairn and its JV partner ONGC now have 3,111 km2 under long term contract on the Rajasthan licence of which the main field development area covers 1,859 km2. The Bhagyam and Kameshwari development areas cover 430 km2 and 822 km2 respectively.

The phased integrated development plan for the block, which includes gas, water and pipeline operations, is focused on the Mangala field with the MPT the hub through which all facilities will be connected. 

Development - Upstream  

In readiness for production in Q3 2009 good progress is being made in the development of the MPT with more than 6,000 workers currently involved in upstream construction activities in Rajasthan.

The well pads to enable first production have been completed and development drilling is well underway with two multi purpose mobile drilling rigs at the Mangala site. The work over rig to complete the wells is also on site. The wells drilled to date support the ramp up production profile for the Mangala field.

Construction of the key facilities and related infrastructure in readiness for the Q3 start is making good progress with all of the key elements to enable production from the MPT now in an advanced stage of preparation. These include key features such as well pads, in-field infrastructure, processing facilities, export facilities and power generation and utilities.

The overall development includes the construction of four planned processing trains with a capacity of 205,000 bopd and scope for expansion:

• Q3 2009: Mangala production train 1 (30,000 bopd capacity), initial export by trucking

• Q4 2009: Mangala production train 2 (50,000 bopd capacity), export by pipeline

• H1 2010: Mangala production train 3 (50,000 bopd capacity), providing for 125,000 bopd Mangala plateau production 

• 2011: Production train 4 (75,000 bopd capacity), providing for 175,000 bopd Rajasthan plateau production

Cairn has been able to significantly enhance the reserves, stock tank oil initially in place (STOIIP) and production rates since the original FDP was approved by the GoI in 2006.  

The key features of the revised Mangala FDP submitted in 2008 and which is now with GoI for approval are:

• A 25% increase in the plateau production rate to 125,000 bopd 

• Upward revision of the 2P (P50) STOIIP to 1,293 mmbbls, an increase of more than 20% over the earlier estimated figures

• A 30% increase in the expected ultimate recovery over previous estimates to ~476 mmbbls (a recovery factor of around 37% of 2P STOIIP)

The revised FDP was submitted following further drilling in the development area, along with extensive subsurface and detailed design and engineering studies.

The front end engineering design for Bhagyam has been completed. The Aishwariya STOIIP has increased to 290 mmbbls. The estimated increased 2P reserves is 64 mmboe supporting a plateau production of 20,000 bopd compared to the 10,000 bopd plan approved in 2006. These estimates are subject to regulatory and partner approvals and the implementation of a revised FDP.

  Development - Pipeline - (Cairn India 70% (Operator) ONGC 30%)

Construction of the ~600 km insulated and heated pipeline is well underway with more than 4,000 personnel involved in the building of the facilities including the terminals. 

Approval under Right of Use (ROU) has been obtained in principle from the GoI for the entire length of the pipeline from Barmer to the Gujarat coast. The land for all the above ground installations and the terminals at Viramgam, Radhanpur and the Gujarat coast has been acquired.

The pipeline route through Rajasthan and Gujarat passes through eight districts and more than 250 villages. There are also 35 heating stations under construction along the length of the pipeline plus a terminal at Viramgam, which will function as both a storage and pump station with the ability to distribute to refiners. 

Currently there are nine pipeline laying spreads deployed in Gujarat and Rajasthan. To date ~215 km of pipeline has been constructed and lowered. 

The pipeline route has ~600 crossings of various types (rivers, roads, rail etc) with all the necessary approvals from the respective statutory authorities in place. In total there are 59 cased crossings of which 36 have been completed with construction underway on seven additional cased crossings.

Construction at the Viramgam terminal is well advanced, with all storage tanks and the main building superstructures nearing completion. The manufacture and delivery of all long lead items are in the final stages of completion and are well in advance of the dates they are required on site to support construction.

Rajasthan - Sales 

India currently imports more than two million bopd against a domestic production of 700,000 bopd. The Indian refining sector is growing rapidly and demand for crude oil is expected to increase.  

Following final GoI approvals, the route of the Rajasthan pipeline allows access to an existing pipeline infrastructure, with a final coastal delivery point that will afford access to the majority of India's refining capacity.

The oil from Rajasthan is categorised as medium sweet crude with an average API of 280. The viscosity and pour point are relatively high, but normal for crude generated from this type of onshore lacustrine source rock. The oil must however be kept warm during transportation. 

Prior to first production via the pipeline the crude from the MPT will be trucked to the Gujarat coast. The GoI has nominated Mangalore Refinery and Petrochemicals Limited (MRPL) as purchaser of the crude and is in the process of confirming additional nominees. Currently, Cairn India's focus is to complete arrangements for crude oil sales in Q3 2009.  

In order to facilitate the trucking and sale of oil ahead of the pipeline completion trial runs have been successfully carried out on the route from Mangala to the Gujarat coast.

Kameshwari Development Area (Cairn India 100%) 

During 2008 the GoI approved the three discoveries made in Kameshwari West 2, 3 and 6 and the new Development Area of 822 km2.

Enhanced Oil Recovery (EOR)

Cairn has made 25 discoveries in the RJ-ON-90/1 block to date and has established a significant growing resource base in the Barmer basin, currently estimated at around 3.7 billion barrels of oil in place. Cairn continues its efforts to develop this resource base through the application of appropriate cost efficient technologies. The initial focus has been to develop the MBA fields which contain over two billion barrels in place in the Fatehgarh reservoirs, through primary and secondary recovery schemes. 

Cairn continues its efforts on the staged and early application of aqueous-based chemical flooding EOR techniques in the MBA fields. Early application of chemical flooding EOR in these fields would be designed to increase the overall recovery from the fields, extend their crude oil production plateau periods, reduce water production, mitigate future decline rates and potentially accelerate crude oil production. Cairn is actively planning to conduct an EOR pilot trial in the Mangala field following very encouraging results obtained from the laboratory and simulation studies. The current assessment of the EOR resource base is more than 300 mmbbls of incremental recoverable oil from the MBA fields. 

In addition Cairn continues to evaluate the resources and the development options of the other discoveries, of which the Barmer Hill formation over the Mangala and Aishwariya fields contains around 400 mmbbls of oil in place in tighter reservoir rocks (lower permeabilities). This reservoir has tested oil at rates of up to 250 bopd after stimulation. Analogous fields in the world have been developed with expected ultimate recoveries of 7-20% under primary and secondary recovery schemes. Cairn is planning to conduct pilot activities to evaluate this additional resource potential and associated development options. 

Cairn will also continue to consider low cost development options for the smaller fields through the use of cost effective technologies and by leveraging the existing infrastructure. 

Cairn India - Producing Assets

Average gross production from Block CB/OS-2 for 2008 was 13,778 boepd (comprising average gas production of 39 million standard cubic feet of gas per day (mmscfd) and average oil/condensate production of 7,228 bopd). 

Oil production has increased from the new wells that were added during the 2008 infill well development drilling campaign.

Krishna-Godavari Basin - Eastern India 

Ravva (Cairn India 22.5% (Operator) 

Average gross production from the Ravva field for 2008 was 53,809 boepd (comprising average oil production of 41,999 bopd and average gas production of 71 mmscfd). 

Production at Ravva is being sustained with the contribution from new wells and successful workovers that were conducted in the 2008 drilling campaign. Further studies are continuing to identify additional in place reserves within the field.

Three new infield subsea pipelines have been installed to overcome pipeline capacity bottlenecks and the commissioning of these pipelines is ongoing to aid production from the field.

Cairn India - Exploration 

During 2008 Cairn India operated four of seven wells in which it participated, three of which were successful: 

     The RB-4 well in Ravva encountered additional oil sands that were later put on stream at 500 bopd through the Ravva production facilities. 

     Raageshwari East-1 in Rajasthan flowed 500 bopd and 0.4 mmscfd on test from Thumbli sands in a separate oil accumulation adjacent to the Raageshwari field. 

     The Mangala North-1 well extended the contingent resource in the Barmer Hill Formation for the Mangala field. 

Two wells were drilled in CB-ONN-2002/1 and one in each of GV-ONN-2002/1 and GV-ONN-97/1, all of which were dry. 

Seismic acquisition included both 2D and 3D seismic in blocks KG-ONN-2003/1, GV-ONN-2003/1 and 2D in block VN-ONN-2003/1. A marine 2D seismic survey was also completed in block KK-DWN-2004/1 in 2008. 

Over the next 12 months further drilling and seismic programmes are planned. Drilling is scheduled onshore in the KG basin, with acquisition of 3D seismic totalling 1,800 km2 to commence offshore India and in Sri Lanka. 

CAPRICORN

Capricorn continues to build an asset base for exploration led growth and has strengthened its exploration portfolio by building its acreage position in Greenland throughout 2008. 

Capricorn now has assets in South Asia (Northern India, Bangladesh and Nepal), Greenland, the Mediterranean (Tunisia, Albania and pending licence awards in Spain) and Papua New Guinea.  

Greenland

Capricorn has acquired a leading frontier exploration position offshore west and south Greenland.

The prospective geological basins around the coast of Greenland are at a very early stage of evaluation with only six offshore and one onshore exploration well having been drilled to date, and most of those during the 1970s.  However, the results of these wells, together with more recent onshore geological mapping over the past 15 years, have confirmed the presence of all the essential elements required for the generation and trapping of hydrocarbons.

The Circum-Arctic Resource Appraisal study published by the United States Geological Survey (USGS) in 2008 estimates significant 'yet to find' hydrocarbons within the Arctic Greenlandic basins, recognising Greenland as a potentially very prospective, but under- explored country.

The report contains the USGS assessment of risked potential in the eastern Greenland (31 billion boe)), northern Greenland (3.3 billion boe) and western Greenland - east Canada (17 billion boe) basins. The south Greenland offshore area lies outside of the Arctic Circle and was not included in the survey. 

The Greenlandic and Danish authorities are in the process of gradually opening up the Arctic areas of these basins to the industry through competitive bid rounds, whilst other selected areas are available via application.

During 2008, Capricorn completed its obligation seismic work programme for the first licence phase over all six of its operated licences.  A 6,600 km 2D seismic survey was acquired in the Disko West blocks Sigguk and Eqqua, followed by the acquisition of a further 1,200 km 2D seismic survey in the southern Kingittoq and Saqqamuit blocks and around 1,780 km of 2D seismic data over the Salliit and Uummannarsuaq blocks (Cape Farewell 1 & 2). Processing of all the collected data is nearing completion.

A Controlled Source Electromagnetic Survey (CSEM) was also acquired in 2008 over the Lady Franklin and Atammik blocks operated by EnCana and the data is currently being evaluated.  

Additional seismic and well site surveys are being planned for the 2009 operational season. 

Bangladesh

Production and Development

In 2008, the Sangu gas field passed a landmark of 10 years on production, during which time it has consistently demonstrated an enviable record for safety and low cost production.  The field is now in decline and during the year, Cairn and its JV partners successfully completed three well intervention programmes and committed to a compression project which is currently being implemented.  These measures will help to increase and extend production.

The third well intervention programme carried out on wells 1 and 9 in the Sangu field resulted in an initial 60% improvement in production, and rates are now around 55 mmscfd. 

To augment further gas production from Sangu the installation of an onshore compressor is under way and is expected to be operational by July 2009. 

Sangu has produced in excess of 440 bcf since production started in 1998. Located in the Bay of Bengal, some 50 km off the coast at Chittagong, the field is the only offshore gas field in Bangladesh. Sangu was one of the largest discoveries in the 1990s, when Cairn was one of the first international companies to start operating in the country. To date, Cairn and its JV partners have invested approximately $1 bn in Bangladesh. 

The JV partners in the Sangu field are currently Cairn, Santos and HBR Energy.

Exploration

Following the drilling campaign at Magnama and Hatia earlier in 2008, there have been no further operations in Block 16 and an appraisal programme is being considered.

In Block 5 Cairn and its JV Partner Santos have decided not to proceed into the next phase of the PSC and the block has therefore been returned to the Government of Bangladesh.

Nepal

The security situation in Nepal continues to be monitored closely. Contractual force majeure remains in place on the acreage in Nepal, precluding in-country operations.  As soon as the security situation permits, fieldwork will include aerogravity and seismic acquisition.  

Other Assets 

(Tunisia, Albania, Australia, Peru, Spain, Papua New Guinea)

In the Mediterranean, site surveys have been carried out in Tunisia for exploration well locations in both the Louza and Nabeul permits.  

An environmental impact assessment is presently underway offshore Albania ahead of a planned 2009 3D seismic survey.  

Several licence applications offshore Spain remain pending.  As a result of an ongoing rationalisation programme, the exploration permits inherited from Plectrum in Australia (Bremer Basin), Peru and The Shetlands have been either transferred or relinquished.  

In Papua New Guinea the Operator (Talisman) has recently completed a 3D seismic survey over the undeveloped Pandora gas field to define better the extent of the gas resource.

  FINANCIAL REVIEW

In 2008, Cairn has focused on allocating its resources to those assets which will drive shareholder value. At 31 December 2008 Cairn had net cash and bank deposits of $898m, positive operating cash flows and net assets of $2.3bn. In March 2009, Cairn announced a 5% placing which raised a further $161m (£116m). Cairn is therefore well placed to deliver the core Mangala development project in Rajasthan and to continue to pursue opportunities for growth.

Key financial performance indicators

	2008	2007	% Increase/ (Decrease)
Production (boepd)*	12,801	19,809	(35)
Average price per boe ($)	63.88	39.70	61
Revenue ($m)	299	288	4
Average production costs per boe ($)	14.28	9.20	22
Operating profit/(loss) ($m)	43	(76)	156
Profit before tax ($m)	441	**1,590	(72)
Exceptional items ($m)	356	**1,579	(77)
Profit after tax ($m)	367	**1,556	(76)
Cash flow from operating activities ($m)	150	155	(3)
Net assets ($m)	2,279	**1,770	29
Net cash ($m)	898	827	9

*on an entitlement interest basis

**restated as a result of changes in the accounting for deferred tax

Accounting overview

In March 2008 CIL arranged a private placement with Petronas and Orient Global Tamarind Fund Pte Limited, who subscribed $634m for a total of 113m new shares, representing 4% of the company. As a consequence Cairn's holding in CIL has reduced from 69% to 65%.  

The 35% interest in CIL held by external shareholders is reflected in our Financial Statements as a minority interest, as is the 10% interest in Capricorn held by Dyas.

The fair values assigned to the assets and liabilities of subsidiaries acquired in the last financial year have been reassessed in accordance with IFRS 3 resulting in a reduction on goodwill from $14m to $4m. In addition, the prior period results have been adjusted for changes in the accounting for deferred tax.  

The Group's significant accounting policies and details of the key accounting estimates and assumptions are disclosed within the notes to the Financial Statements where appropriate.

Production, revenue & gross profit

Oil production accounted for 54% (2007: 37%) of the Group's entitlement production. Total average entitlement production for 2008 has fallen by 35% from 19,809 boepd to 12,801 boepd. This reflects the sale of 50% of our interest in Sangu last year, a general decline in gross production across all of our fields and the impact of higher oil prices, which also reduces Cairn's entitlement interest.

Lower entitlement production levels have, however been offset by the strong oil prices and revenue therefore remains in line with 2007. 

Total production costs, which include pre-award costs and stock movements, have also remained in line with 2007. Production costs per boe have increased slightly as the fixed cost elements are spread over a declining production base; in addition pre-award costs have increased.

Unsuccessful exploration costs of $48m for the year primarily relate to dry exploration wells in and porposed relinquishment of the GV-ONN 97/1, GV-ONN 2002/1 and CB-ONN-2002/1 blocks.

Total depletion and decommissioning charges have fallen significantly reflecting the sale of 50% of our interest in Sangu in 2007. The depletion and decommissioning charge per boe has also fallen from $13.29 to $10.16 as a consequence of reserve additions in Sangu and CB/OS-2.

Gross profit for the year was $137m (2007: $62m).

Profit for the year

Administrative expenses include non-cash charges for share-based payments of $21m (2007: $25m) and for depreciation and amortisation of $10m (2007: $6m). Net of these charges, administrative expenses have increased from $57m to $64m reflecting the growth in CIL's corporate infrastructure.

An impairment charge of $21m has been recognised against the Magnama and Hatia exploration well costs incurred in the year. The impairment charge in 2007 also related to Magnama and Hatia well costs and certain other blocks in Bangladesh and Nepal.

Net finance income for the year was $42m (2007: $52m). Finance income received, mainly bank interest, was $66m (2007: $65m). Finance costs have increased from $12m to $24m primarily as a result of realised foreign exchange losses (increased from $6m to $10m) and charges in respect of options held to manage Rupee currency exposures (increased from $3m to $7m).

The Group made an exceptional gain of $356m on the deemed disposal of 4% of CIL to Petronas and Orient Global Tamarind Fund Pte Limited through an issue of shares. The prior year exceptional gain relates to the disposal of 31% of CIL on its initial public offering (IPO) and the disposal of a 10% interest in Capricorn to Dyas. These gains are not chargeable to tax.

The Group's total tax charge for the year was $74m (2007: $34m). Of this, only $14m is current tax (2007: $4m, after the release of an $8m provision). Actual tax paid was $14m (2007: $15m). The majority of the total tax charge is deferred tax on temporary differences between the book values and tax written down values of the Rajasthan fields.  Deferred tax is provided at the effective tax rate expected to apply over the life of these fields.

Reported profit for the year was $367m (2007 restated: $1,556m). Profit for the year, adjusted for the gains arising on the deemed disposal and IPO of CIL, was $11m (2007 restated: loss $23m).

Portfolio management

The Board continues to monitor the Group's portfolio actively. In order to secure a release from commitments, the Group relinquished its interests in Block 5 Bangladesh and Blocks 214/19 and 214/20 West of Shetland and transferred $1.5m to Gold Oil along with its interest in Block Z-34 Peru. In addition, exploration permits WA-379-P and WA-380-P offshore Western Australia were transferred to Enovation Resources Limited and Arcadia Petroleum Limited respectively. These transactions had no impact on the Group's profit for the year.

Cash flow, capital investment and liquidity

Cash flow from operating activities has decreased slightly from $155m to $150m.

Major inflows during the year came from the private placement by CIL raising $630m (net of expenses) and from the drawdown of $425m of its $850m facility, taking the total debt drawn at the year end to $500m. The Group earned interest on cash balances of $51m (2007: $65m).

Cash outflow on capital expenditure is set out on the table below:

	2008 $m	2007 $m
Exploration/appraisal expenditure	125	156
Development/producing expenditure	494	244
Other capital expenditure	5	11

In light of the downturn in global market conditions the Group has targeted its cash resources on the core Mangala development project in Rajasthan and where prudent, exploration activities have been deferred, resulting in a lower overall exploration spend this year.

The Board will continue to focus the Group's cash resources to maximise shareholder value and maintain financial and operational flexibility. Balance sheet additions on the core Mangala development in 2009 are expected to be $910m net to Cairn ($1.3bn gross). 

Group net cash at 31 December 2008, after taking account of the $500m debt drawn was $898m (2007: $827m).  The facility is now fully drawn and has a phased repayment schedule which does not start until July 2010.  

Financial strategy and outlook

The Group's existing cash resources, debt facilities and cash flow from operations provide adequate funding to complete the core Mangala development project plus the pipeline and to commence first production in 2009.  However, Cairn will continue to monitor the credit markets to assess current pricing and may consider expanding its facilities in due course.

Cairn has always maintained a capital structure appropriate for its operations in exploration, appraisal and development. Given the background of global market conditions Cairn decided to strengthen its equity capital base and earlier this month raised a further $161m through a 5% placing of shares. 

Cairn has entered 2009 with the financial and operational flexibility necessary to deliver its key project in Rajasthan thereby providing cash flow to target the next phase of growth and continued creation of shareholder value.

Cairn Energy PLC  

GROUP INCOME STATEMENT

For the year ended 31 December 2008

		Notes		Group 2008 $m	Group 2007 (restated) $m
Revenue				299.3	287.7
Cost of sales
Production costs				(66.9)	(66.5)
Unsuccessful exploration costs				(47.7)	(40.7)
Depletion and decommissioning charge				(47.6)	(119.0)
Gross profit				137.1	61.5
Other operating income				12.0	6.0
Administrative expenses				(94.6)	(88.4)
Impairment of intangible exploration/appraisal assets				(21.0)	(58.9)
Reversal of impairment of intangible exploration/appraisal assets				6.5	-
Reversal of impairment of property, plant & equipment - development/producing assets				2.7	3.7
Loss on sale of oil and gas assets				-	(0.1)
Operating profit/(loss)				42.7	(76.2)
Negative goodwill on acquisition				-	35.0
Exceptional gain on deemed disposal of subsidiaries				355.8	1,579.2
Finance income				66.2	65.1
Finance costs				(23.8)	(12.9)
Profit before taxation				440.9	1,590.2
Taxation expense on profit		6		(74.2)	(34.4)
Profit for the year				366.7	1,555.8
Attributable to:
Equity holders of the parent		8		348.8	1,543.1
Minority interests		8		17.9	12.7
Earnings per ordinary share - basic (cents) Earnings per ordinary share - diluted (cents)		3 3		268.73 266.92	1,137.76 1,135.94

   Cairn Energy PLC

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 31 December 2008

	Notes	Group 2008 $m	Group 2007  (restated) $m
Income and expense recognised directly in equity
(Deficit) / Surplus on valuation of financial assets	8	(14.0)	8.0
Currency translation differences	8	(150.6)	27.6
Total (expense)/income recognised directly in equity		(164.6)	35.6
Profit for the year		366.7	1,555.8
Total recognised income and expense for the year		202.1	1,591.4
Attributable to:
Equity holders of the parent		236.5	1,572.6
Minority interests		(34.4)	18.8
		202.1	1,591.4

  Cairn Energy PLC

GROUP BALANCE SHEET

As at 31 December 2008

		Notes	Group 2008 $m	Group 2007 (restated) $m
Non-current assets
Intangible exploration/appraisal assets			563.0	607.1
Property, plant & equipment - development/producing assets			1,119.6	498.2
Property, plant & equipment - other			8.6	6.6
Intangible assets - other			10.7	16.1
Available for sale financial assets			1.9	15.9
			1,703.8	1,143.9
Current assets
Inventory			2.6	8.0
Trade and other receivables			501.9	307.0
Bank deposits		7	284.9	30.1
Cash and cash equivalents		7	1,113.0	872.3
Derivative financial instruments			3.7	2.4
Income tax assets		6	10.5	7.9
			1,916.6	1,227.7
Total assets			3,620.4	2,371.6
Current liabilities
Trade and other payables			540.9	273.6
Obligations under finance leases			2.2	1.9
Provisions			2.0	8.6
Income tax liabilities		6	6.3	0.1
			551.4	284.2
Non-current liabilities
Loans and borrowings			500.0	75.0
Obligations under finance leases			3.2	2.4
Provisions			26.7	40.1
Deferred tax liabilities		6	260.4	200.1
			790.3	317.6
Total liabilities			1,341.7	601.8
Net assets			2,278.7	1,769.8
Equity attributable to equity holders of the parent
Called-up share capital	8		15.8	15.8
Share premium	8		219.0	210.9
Shares held by ESOP Trust	8		(28.8)	(32.0)
Foreign currency translation	8		(78.8)	24.0
Capital reserves - non distributable	8		40.2	40.2
Retained earnings	8		1,433.7	1,081.7
			1,601.1	1,340.6
Minority interests	8		677.6	429.2
Total equity			2,278.7	1,769.8

  Cairn Energy PLC

GROUP STATEMENT OF CASH FLOWS

For the year ended 31 December 2008

Notes	Group 2008 $m	Group 2007 (restated) $m
Cash flows from operating activities
Profit before taxation	440.9	1,590.2
Unsuccessful exploration costs	47.7	40.7
Depletion, depreciation, decommissioning and amortisation	57.4	125.3
Share based payments charge	20.9	25.3
Impairment and impairment reversals of oil and gas assets	11.8	55.2
Loss on sale of oil and gas assets	-	0.1
Negative goodwill on acquisition	-	(35.0)
Exceptional gain on deemed disposal of subsidiaries	(355.8)	(1,579.2)
Finance income	(66.2)	(65.1)
Finance costs	23.8	12.9
Net interest paid	0.4	(6.7)
Income tax paid	(13.6)	(14.7)
Foreign exchange differences	(9.5)	(2.9)
Movement on inventory of oil and condensate	5.4	(3.4)
Trade and other receivables movement	5.9	1.9
Trade and other payables movement	(18.4)	8.1
Movement in other provisions	(0.3)	2.6
Net cash generated from operating activities	150.4	155.3
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets	(125.2)	(156.4)
Expenditure on tangible development/producing assets	(493.7)	(244.0)
Purchase of property, plant & equipment - other	(4.1)	(2.1)
Purchase of intangible assets - other	(1.3)	(8.5)
Acquisition costs for business combinations	-	(77.2)
Cash acquired as a result of business combinations	-	7.3
Cash disposed of on disposal of subsidiary	(1.5)	(6.7)
Proceeds on disposal of subsidiary	-	54.4
Movement in funds on bank deposits	(254.3)	(30.1)
Interest received	50.9	64.5
Net cash used in investing activities	(829.2)	(398.8)
Cash flows from financing activities
Payment of costs for deemed disposal of subsidiaries	-	(64.3)
Proceeds from deemed disposal of subsidiaries	633.7	1,323.3
Arrangement and facility fees	(23.3)	(22.8)
Proceeds from issue of shares	8.1	10.0
Payment of finance lease liabilities	(0.8)	(1.4)
Drawdown/(repayment) of loan facilities	425.0	(80.0)
Return of cash to shareholders	-	(935.6)
Net cash flows from financing activities	1,042.7	229.2
Net increase/(decrease) in cash and cash equivalents	363.9	(14.3)
Opening cash and cash equivalents at beginning of year	872.3	856.3
Exchange (losses)/gains on cash and cash equivalents	(123.2)	30.3
Closing cash and cash equivalents 7	1,113.0	872.3

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

For the year ended 31 December 2008

1.    Accounting Policies and Presentation of Financial information

Cairn prepares its accounts in accordance with applicable International Financial Reporting Standards (IFRS), as adopted by the EU. 

The financial information contained in this announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. However, the financial statements contained in this announcement are extracted from the audited statutory accounts for the financial year ended 31 December 2008, which will be delivered to the Registrar of Companies. Those accounts are expected to have an unqualified audit opinion.

All accounting policies applied are consistent with those adopted and disclosed in the Groups annual financial statements for the year ended 31 December 2007, except where the Group's has adopted new IFRS.  During the year, the Group adopted IFRIC 11 'Group and Treasury Share Transactions' and IFRS 8 'Operating Segments'.  

The prior year financial statements have been restated to correct the accounting for deferred tax and adjust the fair value of assets acquired under IFRS 3. The net impact of these adjustments in 2007 was an increase in the profit for the year attributable to equity holders from $1,519.6m to $1,543.1m and an increase in net assets from $1,749.8m to $1,769.8m.

2.    Going Concern

The directors have considered the factors relevant to support a statement on going concern. They have a reasonable expectation that the Group will continue in operational existence for the foreseeable future and have therefore used the going concern basis in preparing the financial statements.

3    Earnings per Ordinary Share

The earnings per ordinary share is calculated on a profit of $348.8m (2007 (restated): profit $1,543.1m) and on a weighted average of 129,803,431 ordinary shares (2007: 135,637,411). The weighted average number of shares excludes shares held by the Cairn Energy PLC Employees' Share Trust. No retrospective adjustment was made to the weighted average number of shares, relating to the share consolidation of 23 March 2007, as there was a corresponding change in resources in the form of the return of cash to shareholders .

The diluted earnings per ordinary share is calculated on a profit of $346.9m (2007 (restated): profit $1,543.1m) and on 129,973,851 ordinary shares (2007: 135,844,139). The profit of $346.9m reflects the reduced profit attributable to equity holders of the parent after potential Cairn India Limited share option issues. The 129,973,851 ordinary shares is the basic weighted average of 129,803,431 ordinary shares and the 170,420 dilutive potential ordinary shares relating to share options.

4.    2008 Annual Report and Accounts

Full accounts are due to be posted to shareholders on Wednesday 22 April 2009 and will be available at the Company's registered office, 50 Lothian Road, Edinburgh, EH3 9BY, from that date.

The Annual General Meeting is due to be held on Tuesday 19 May 2009 at 12.00 pm.

5    Segmental Analysis

Operating Segments

For management purposes, the Group is organised into two business units; the Capricorn Group, being Capricorn Oil Limited and its subsidiary undertakings, and the Cairn India Group, each reporting internally to its own chief executive. There are three reportable operating segments as follows:

Cairn India Limited Group's operations are primarily within India.

Capricorn Group's operations focus on new exploration activities in Greenland and the Mediterranean.  The Capricorn Group also includes the Group's interests in Bangladesh and Nepal and a share in certain North Indian assets operated by Cairn India Limited.

Cairn Energy PLC, exists to accumulate the activities and results of Cairn UK Holdings Limited, an intermediate holding company and direct parent of Cairn India Limited, and Cairn Energy PLC company results. Unallocated expenditure and net assets/(liabilities) including amounts of a corporate nature, not specifically attributable to one of the sub-Groups, are also included within this segment.

No operating segments have been aggregated to form the above reportable segments. 

Management monitors the results of its business units separately for the purposes of making decisions about resource allocation and performance assessment.  

The segment results for the year ended 31 December 2008 are as follows:

	Cairn India Group	Capricorn Group	Cairn Energy PLC	Group 2008
	$m	$m	$m	$m
Revenue from external customers	282.4	16.9	-	299.3
Results
Depreciation	(3.5)	(0.6)	-	(4.1)
Amortisation	(3.2)	(2.5)	-	(5.7)
Unsuccessful exploration costs	(27.8)	(19.9)	-	(47.7)
Depletion and decommissioning charge	(44.8)	(2.8)	-	(47.6)
Impairment of intangible exploration/appraisal assets	-	(21.0)	-	(21.0)
Reversal of impairment of intangible exploration/appraisal assets	-	6.5	-	6.5
Reversal of impairment of property, plant & equipment - development/producing assets	-	2.7	-	2.7
Exceptional gain on deemed disposal of subsidiaries	-	-	355.8	355.8
Interest income	56.2	9.1	0.9	66.2
Interest expense	(9.3)	-	-	(9.3)
Tax (charge) / credit	(74.1)	(0.2)	0.1	(74.2)
Minority Interest	22.7	(4.8)	-	17.9
Segment Profit / (Loss)	69.1	(47.5)	345.1	366.7
Capital expenditure	613.2	79.0	-	692.2
Operating assets	3,037.5	541.6	41.3	3,620.4
Operating liabilities	1,234.5	112.8	(5.6)	1,341.7

  5    Segmental Analysis (continued)

The segment results for the year ended 31 December 2007 are as follows:

	Cairn India Group (Restated)	Capricorn Group (Restated)	Cairn Energy PLC (Restated)	Group 2007 (Restated)
	$m	$m	$m	$m
Revenue from external customers	237.5	50.2	-	287.7
Results:
Depreciation	(1.5)	(0.1)	(0.4)	(2.0)
Amortisation	(2.6)	(1.6)	(0.1)	(4.3)
Unsuccessful exploration costs	(15.3)	(25.4)	-	(40.7)
Depletion and decommissioning charge	(62.6)	(56.4)	-	(119.0)
Impairment of intangible exploration/appraisal assets	-	(58.9)	-	(58.9)
Reversal of impairment of property, plant & equipment - development/producing assets	-	3.7	-	3.7
Exceptional gain on deemed disposal of subsidiaries	-	-	1,579.2	1,579.2
Interest income	33.8	9.5	21.8	65.1
Interest expense	(6.5)	(0.1)	(0.7)	(7.3)
Tax charge	(48.0)	5.6	8.0	(34.4)
Minority Interest	15.6	(2.9)	-	12.7
Segment Profit / (Loss)	48.5	(62.5)	1,569.8	1,555.8
Capital expenditure	320.8	257.2	4.4	582.4
Operating assets	1,761.8	584.9	24.9	2,371.6
Operating liabilities	328.9	46.8	226.1	601.8

Capital expenditure in 2007 includes exploration assets acquired through business combinations.

Segment assets include intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; property, plant & equipment - other; intangible assets - other; trade receivables and operating cash. They exclude inter-company balances.

Segment liabilities comprise operating liabilities and exclude items such as taxation, corporate borrowings and inter-company balances.

Other assets include assets of Cairn's head office in Edinburgh, as well as interest receivable, deposits, cash and cash equivalents of the Group which cannot be allocated to an operating segment.

Other liabilities include liabilities of Cairn's head office in Edinburgh, as well as income tax liabilities and deferred tax liabilities of the Group which cannot be allocated to an operating segment.

  5    Segmental Analysis (continued)

Geographic Information

Revenues from external customers:

	Group 2008	Group   2007
	$m	$m
India	282.4	237.5
Bangladesh	16.9	50.2
	299.3	287.7

The revenue information above is based on the location of the sales.

Revenue from one customer in the Cairn India Group segment amounted to $127.4m, arising from oil and gas contract sales.

Non-current assets

	Group   2008	Group 2007
	$m	$m
India	1,503.6	969.6
Tunisia	156.7	145.6
Greenland	35.5	-
Bangladesh	12.3	4.0
UK	2.7	2.2
Other	3.9	6.6
	1,714.7	1,128.0

Non-current assets for this purpose consist of intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; property, plant & equipment - other; and, intangible assets - other. Available for sale financial assets have been excluded.

  6.    Taxation on Profit

      a)    Analysis of tax charge in year

			2008   $m	2007 (restated)   $m
Current tax:
UK corporation tax
Adjustments in respect of prior periods			(0.1)	(7.6)
			(0.1)	(7.6)
Foreign Tax
Indian Regular Tax on profits for the year at 42.23% (2007: 42.13%)			7.6	-
Indian Regular Tax on profits for the year at 33.99% (2007: 33.91%)			6.7	-
Indian Minimum Alternate Tax on profits for the year at 10.56% (2007: 10.53%)			5.3	9.0
Other overseas taxes			0.2	-
Adjustments in respect of prior periods			(6.0)	2.2
Withholding taxes deducted at source			0.2	0.3
			14.0	11.5
Total current tax			13.9	3.9

Deferred tax:
United Kingdom
Temporary differences in respect of non-current assets			-	(1.6)
Losses			-	(4.6)
Other temporary differences			-	(0.1)
			-	(6.3)
India
Temporary differences in respect of non-current assets			63.6	36.1
Losses			-	2.2
Other temporary differences			(3.3)	(1.5)
			60.3	36.8
Total deferred tax			60.3	30.5
Tax charge on profit			74.2	34.4

6    Taxation on Profit (continued)

      b)    Factors affecting tax charge for year

A reconciliation of income tax expense applicable to profit before income tax at the applicable tax rate to income tax expense at the Group's effective income tax rate is as follows:

			2008 $m	2007 (restated) $m
Profit before taxation			440.9	1,590.2
Tax at the weighted average rate of corporation tax of 31.91% (2007 (restated): 29.66%)			140.7	471.7
Effects of:
Minimum Alternate Tax payable			5.3	9.0
Adjustments in respect of prior years - current tax			(6.1)	(5.4)
- deferred tax			17.5	(5.5)
Temporary differences not recognised			34.7	35.7
Non-taxable gain on disposal / deemed disposal of subsidiaries			(101.0)	(466.8)
Non-deductible expenses and non-taxable income			(17.0)	(8.5)
Withholding tax			0.2	0.3
Foreign exchange movements			0.5	3.7
Other			(0.6)	0.2
Total tax charge			74.2	34.4

The applicable tax rate was the weighted average rate for the year of the UK, Netherlands, Australian, Indian, Jersey, Swiss, Bangladeshi, Sri Lankan and Mauritian tax rates. The UK mainstream rate of corporation tax reduced from 30% to 28% on 1 April 2008, resulting in an averaged UK rate for the year of 28.5%. Other than this, there have been no major changes in the statutory tax rates applying in each of these jurisdictions, however, the weighted average rate is subject to fluctuations from year to year based on the level of profits and losses which arise to the Group in each jurisdiction.

c)   Factors that may affect future corporation tax charges

At 31 December 2008, Cairn had losses of approximately $366.0m (2007: $261.9m) available for offset against future trading profits chargeable to UK Corporation Tax. In addition there are surplus management expenses of $121.9m (2007: $134.4m) and non-trade deficits of $10.1m (2007: $14.4m) available for offset against future investment income. None of the trading losses, surplus management expenses or non-trade deficits have been recognised for deferred tax as there is no reasonable certainty that they will be used. Under UK tax law, tax losses may generally be carried forward indefinitely.

At 31 December 2008, Cairn had losses of approximately $14.7m (2007: $14.7m) available for offset against future trading profits chargeable to Netherlands Corporate Income Tax, but there are restrictions on the use of these losses. Under Netherlands tax law, losses may be carried forward for a period of up to nine years. No deferred tax asset has been recognised in respect of these losses.

At 31 December 2008, Cairn had losses of approximately $369.1m (2007: $373.6m) available for offset against future trading profits chargeable to Indian Corporate Income Tax. Under Indian tax laws, losses may be carried forward for a period of up to eight years. These losses have not been recognised for deferred tax purposes as it is not sufficiently certain that they will be utilised against future trading profits chargeable to Indian tax. $334.9m (2007: $341.7m) of the loss has not been recognised as it is expected that these losses will expire during the period of an Indian tax holiday. The remaining $34.2m (2007: $31.9m) of the loss has not been recognised due to expectations regarding the level of income in the entity concerned.  

Tax losses incurred in one jurisdiction cannot usually be offset against profits or gains arising in another jurisdiction.

7    Net Funds

Group	At 1 January 2008 $m	Cash flow $m	New Finance Leases $m	Exchange movements $m	At 31 December 2008 $m
Bank deposits	30.1	254.3	-	0.5	284.9
Cash at bank	25.5	(12.5)	-	1.5	14.5
Short term deposits	846.8	376.4	-	(124.7)	1,098.5
Cash and cash equivalents	872.3	363.9	-	(123.2)	1,113.0
Bank loans	(75.0)	(425.0)	-	-	(500.0)
Net cash	827.4	193.2	-	(122.7)	897.9
Finance leases	(4.3)	0.8	(2.4)	0.5	(5.4)
Net funds	823.1	194.0	(2.4)	(122.2)	892.5

Group	At 1 January 2007 $m	Cash flow $m	New Finance Leases $m	Exchange movements $m	At 31 December 2007 $m
Bank deposits	-	30.1	-	-	30.1
Cash at bank	27.6	(14.0)	-	11.9	25.5
Short term deposits	828.7	(0.3)	-	18.4	846.8
Cash and cash equivalents	856.3	(14.3)	-	30.3	872.3
Bank loans	(155.0)	80.0	-	-	(75.0)
Net cash	701.3	95.8	-	30.3	827.4
Finance leases	(4.5)	1.4	(0.8)	(0.4)	(4.3)
Net funds	696.8	97.2	(0.8)	29.9	823.1

As at the year end, the Group had no cash balances in Bangladeshi Taka in Bangladesh which are not readily convertible into other currencies (2007: $0.2). The Group has deposits equivalent to $30.1m (2007: $nil) in Sri Lanka Rupee in Sri Lanka which are not readily convertible into other currencies.

Cash at bank earns 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.

8    Equity

Group	Equity  Share Capital	Shares held by ESOP Trust	Foreign currency translation	Capital reserves - non distributable	Retained earnings (Restated)	Minority Interests	Total Equity (Restated)
	$m	$m	$m	$m	$m	$m	$m
At 1 January 2007	226.9	(55.8)	2.8	40.2	464.9	-	679.0
Prior year adjustments	-	-	-	-	(6.1)	-	(6.1)
A 1 January 2007 (restated)	226.9	(55.8)	2.8	40.2	458.8	-	672.9
Exercise of employee share options	9.9	-	-	-	-	-	9.9
Minority interests created on deemed disposal of subsidiaries	-	-	-	-	-	405.9	405.9
Share based payments	-	-	-	-	20.8	4.5	25.3
Cost of shares vesting	-	10.0	-	-	(10.0)	-	-
Currency translation differences	2.8	-	21.2	-	-	3.6	27.6
Cash returned to shareholders	(12.9)	13.8	-	-	(936.5)	-	(935.6)
Surplus on valuation of financial assets	-	-	-	-	5.5	2.5	8.0
Profit for the year	-	-	-	-	1,543.1	12.7	1,555.8
At 1 January 2008	226.7	(32.0)	24.0	40.2	1,081.7	429.2	1,769.8
Exercise of employee share options	8.1	-	-	-	-	-	8.1
Minority interests created on deemed disposal of subsidiaries	-	-	-	-	-	277.8	277.8
Share based payments	-	-	-	-	15.9	5.0	20.9
Cost of shares vesting	-	3.2	-	-	(3.2)	-	-
Currency translation differences	-	-	(102.8)	-	-	(47.8)	(150.6)
Surplus on valuation of financial assets	-	-	-	-	(9.5)	(4.5)	(14.0)
Profit for the year	-	-	-	-	348.8	17.9	366.7
At 31 December 2008	234.8	(28.8)	(78.8)	40.2	1,433.7	677.6	2,278.7

GLOSSARY OF TERMS 

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
JV	Joint Venture
MBA	Mangala, Bhagyam and Aishwariya
MPT	Mangala Processing Terminal
MRPL	Mangalore Refinery and Petrochemicals Limited, (subsidiary of ONGC)
GoI	Government of India
Group	the Company and its subsidiaries
ONGC	Oil and Natural Gas Corporation Limited

Technical

2P	proven plus probable
2D/3D	two dimensional/three dimensional
boe	barrel(s) of oil equivalent
boepd	barrels of oil equivalent per day
bopd	barrels of oil per day
EOR	enhanced oil recovery
FDP	field development plan
mmboe	million barrels of oil equivalent
mmbbls	million barrels of oil
mmscfd	million standard cubic feet of gas per day
PSC	production sharing contract
STOIIP	stock tank oil initially in place

NOTES TO EDITORS: 

• Cairn Energy PLC ('Cairn') is an Edinburgh-based oil and gas exploration and production company listed on the London Stock Exchange. Following the IPO of Cairn India in January 2007, there are two separate parts of the business:

• Cairn India limited ('Cairn India') is listed on the Bombay Stock Exchange and the National Stock Exchange of India and has interests in a total of 14 acreage blocks in India and Sri Lanka. Cairn currently retains a 65% interest in Cairn India.

• Capricorn Oil Limited ('Capricorn'), a 90% subsidiary of Cairn is focused on exploration. Capricorn now has assets in Bangladesh, Nepal, Northern India, Greenland, Tunisia, Albania, and pending licence awards in Spain.

• 'Cairn' where referred to in this release means Cairn Energy PLC and/or its subsidiaries (including Cairn India and Capricorn), as appropriate. 

• 'Cairn India' where referred to in the release means Cairn India Limited and/or its subsidiaries, as appropriate. 

• 'Capricorn' where referred to in this release means Capricorn Oil Limited and/or its subsidiaries as appropriate.

• Cairn has focused its activities on the geographic region of South Asia, which 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 more than 20 discoveries in Rajasthan block RJ-ON-90/1. 

• 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) is run from Edinburgh with operational offices in Dhaka, Chittagong and Kathmandu.

For further information on Cairn see www.cairnenergy.com  

 

END

 

 

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