Preliminary Results
EMBARGOED FOR RELEASE AT 0700 18 March 2014
CAIRN ENERGY PLC ("Cairn")
Preliminary Results Announcement
Simon Thomson, Chief Executive, Cairn Energy PLC said:
"Cairn has an active drilling programme in 2014 that is complemented and balanced by its sustainable development and production portfolio.
The strategy continues to focus on an attractive mix of frontier and mature basin exploration. By building a growing prospect and lead inventory, from which to select and high grade prospects for drilling, we aim to offer shareholders material potential growth opportunities over the long term.
Cairn is committed to resolving the Indian tax situation and in the meantime can, if required, adapt forward capital and equity exposures."
HIGHLIGHTS
Financial
Ø Group net cash at 31 December 2013 of US$1.25 billion (bn)
Ø ~10% residual shareholding in Cairn India Limited (CIL) valued at ~US$1.0bn at 31 December 2013 which, while interactions are ongoing with the Indian Income Tax Department, Cairn is not able to sell.
Ø The Group was compliant with tax legislation in place at the time in each relevant jurisdiction, including India. The Group will take whatever steps are necessary to protect its interests.
Ø Following the restriction imposed on our ability to access the value of our shareholding in CIL, Cairn is committed to all of its planned operations in 2014 while capital allocation for future programmes will depend primarily on:
Ø the progress of Catcher through to project sanction;
Ø the conclusion of debt facilities for both Catcher and Kraken; and
Ø the results of our 2014 drilling programme.
Ø The existing portfolio provides many opportunities and we are looking closely at the allocation of capital for the programme beyond 2014, which will be guided by three core principles:
Ø creating value through exploration
Ø maintaining a balanced portfolio, with a strong operating cash flow in the future; and
Ø capital discipline
Ø The Board has decided to suspend the previously announced share buy-back programme as of 21 March 2014 until the position regarding the CIL shareholding is resolved. To date 25,180,201 shares for an aggregate consideration of ~US$94.7 million (m) have been repurchased as part of the buy-back programme. The total number of voting rights in Cairn, as at the date of this announcement is 578,189,219.
Frontier basin exploration
Atlantic Margin Operated Programme (three wells, Q2-Q4 2014)
Ø The JM-1 well (Cairn 37.5% Working Interest (WI) and Operator) drilled to evaluate Upper Jurassic and Middle Jurassic objectives reached a total depth of 3,711m TVDSS and has been plugged and abandoned without testing.
Ø As previously announced in December 2013, the FD-1 exploration well was plugged and abandoned. The primary target of the well was a Late Jurassic/Early Cretaceous deep-water turbidite slope fan and channel complex. While gas shows confirmed an active thermogenic petroleum system, the well did not encounter clastic reservoirs.
Ø The first of two planned exploration wells offshore Senegal (Cairn 40% WI) will commence in April after operations in Morocco have been completed
Ø Operations offshore West of Republic of Ireland on the Spanish Point appraisal well are targeted to commence Q2/Q3 2014 (Cairn 38% WI)
Atlantic Margin Non Operated Programme (one well, Q4 2014)
Ø One exploration well is planned to commence on the Cap Boujdour Contract Area in 2014 with Kosmos Energy (operator) and the Moroccan National Oil Company (ONHYM) (Cairn 20% WI) subject to Government approval
Mature basin exploration (three wells Q2 2014 - Q1 2015) and development
Ø Two non-operated North Sea exploration wells (Aragon and West of Kraken) are scheduled in 2014 with one further well (Tulla) scheduled for 2015
Ø The second Skarfjell appraisal well successfully delineated the field and the partners are now examining possible development concepts for Skarfjell (Cairn 20% WI)
Ø The Kraken Field Development Plan (FDP) received approval from the Department of Energy and Climate Change (DECC) with first oil expected H2 2016/H1 2017. Consequently, Cairn has booked 30 million barrels of oil equivalent (mmboe) 2P reserves. Peak forecast production is 50,000 barrels oil per day (bopd) (12,500bopd net to Cairn) (Cairn 25% WI)
Ø The Catcher FDP approval is expected by the operator in Q2 2014 (Cairn 30% WI)
Chairman
Ø As previously announced, Sir Bill Gammell will retire as non-executive Chairman of the Company with effect from the conclusion of the Company's AGM on 15 May 2014; Ian Tyler, currently a non-executive director of the Company, will be his successor
Enquiries:
|
Analysts/Investors |
|
|
Media Brunswick Group LLP |
Tel: 0207 404 5959
|
Webcast
There will be a live audio webcast of the results presentation available to view on the website (www.cairnenergy.com) at 9am GMT. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.
An 'on demand' version of the webcast will be available on the website as soon as possible after the event. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.
Presentation
The results presentation slides will be available on the website from 8:45am GMT.
Conference call
You can listen to the results presentation by dialling in to a listen only conference call at 9am GMT using the below dial-in details.
Dial-in details:
UK: 020 3059 8125
All other locations: +44 20 3059 8125
A recording of the conference call will be available from 11am GMT Tuesday 18 March 2014 until Tuesday 25 March 2014.
Recording dial-in details:
UK: 0121 260 4861
All other locations: +44 121 260 4861
Passcode: 6091508#
Transcript
A transcript of the results presentation will be available on the website as soon as possible after the event.
Chairman's Introduction
As announced on 3 March, I intend to retire from the Board following the AGM on 15 May and I am delighted that Ian Tyler will take over as non-executive Chairman. When Ian was originally brought onto the Group's Board, as part of Cairn's long term succession planning, Cairn was aware of Ian's abilities as chairman and his extensive listed company experience. As a shareholder, I am confident that Ian will be an excellent leader of the Board and ensure its continued effectiveness.
In addition, Dr James Buckee has decided not to stand for re-election at the AGM. I would like to thank Jim for his valuable contribution to the Board during his tenure as a non-executive director.
Chairman & CEO Statement
Corporate Overview
Our strategy is to focus on value creation and value realisation.
Cairn's vision is to create an exploration led and sustainable cash generative oil and gas business offering shareholders exposure to material capital growth potential. In particular, we seek to secure frontier or overlooked exploration opportunities, on appropriate commercial terms, which offer significant hidden value potential.
During 2013, Cairn delivered on its strategic goal of positioning the Group for future growth:
i. we commenced a multi-well frontier exploration programme which offers investors substantial growth potential; and
ii. we advanced two main pre-development projects, Kraken and Catcher, the former to project sanction, the latter's draft FDP was submitted to DECC early 2014.
The combination of future cash generating assets within a balanced exploration portfolio means we are well placed to fund future exploration activity and to repeat the cycle of creating, adding and realising shareholder value.
Our multiple frontier and mature basin exploration wells over the coming months are targeting close to 2 billion barrels of oil equivalent (bn boe) of mean un-risked gross prospective resource within a total of unrisked "Yet to Find" prospect potential in excess of 10 bn boe. By building a growing prospect and lead inventory, from which to select and high grade prospects for drilling, we aim to offer shareholders material potential growth opportunities over the long term.
Cairn's net cash of US$1.25 billion as at 31 December 2013 provides the necessary funding to meet planned exploration and development commitments. The FDP approval by DECC for the Kraken development in November 2013 means reserves have been booked and discussions are well advanced to secure debt finance for this project. Upon receiving FDP approval for Catcher we will similarly book Catcher reserves and progress debt financing to fund its development.
As the development plans progress, our revised valuation of the Kraken asset exceeds its carrying value in the financial statements of US$300m, although there has been a fall in value of the Catcher assets to US$250m (due to revisions to the cost and resource estimates) which results in an impairment. Deferred tax credits on both assets have also led to an impairment of goodwill. The impact of the impairments and tax credits result in a net charge of US$218m. See the Financial Review for further details.
In January 2014, Cairn received a request from the Indian Income Tax Department to provide information in relation to the year ended 31 March 2007. The correspondence indicates that the request for information is in respect of amendments introduced in the 2012 Indian Finance Act which seek to tax prior year transactions under legislation applied retrospectively. While the interactions with the Indian Income Tax Department continue, Cairn has been restricted from selling its shares in CIL (valued at US$1.0 billion as at 31 December 2013). This matter is addressed further in the Financial Review.
In line with value realisation and the Group's disciplined approach to managing its balance sheet, Cairn announced in October 2013 it would return up to US$300m to shareholders through a share repurchase programme. This maximum cash return effectively represented the aggregate of the proceeds realised from the sale of the Group's 6% WI in the North Sea Mariner Field and the capital expenditure allocated to that development.
The Board agreed to review the buy-back programme on a quarterly basis and has decided to suspend the share buy-back programme until the position with regard to the shareholding in Cairn India is resolved. To date 25,180,201 shares for an aggregate consideration of ~US$94.7 million (m) have been repurchased as part of the buy-back programme. The total number of voting rights in Cairn, as at the date of this announcement is 578,189,219.
Frontier Basin Exploration: Atlantic Margin
Cairn's frontier Atlantic Margin exploration strategy is focused along the multiple play types related to the breakup of the former supercontinent Pangea. Our current portfolio includes exploration acreage offshore Morocco, Senegal, Ireland, Mauritania and Greenland.
Offshore Morocco, we operate two exploration permits and are also a non operator partner in one exploration permit.
Our first well in the programme was the offshore Morocco, FD-1 well (Cairn 50% WI, Operator), which was plugged and abandoned in December 2013. The well established a working hydrocarbon system with a thermogenic source rock, however, the anticipated target reservoirs were not encountered.
The JM-1 well (Cairn WI 37.5%, Operator) drilled to evaluate Upper Jurassic and Middle Jurassic objectives reached a total depth of 3,711m TVDSS and has been plugged and abandoned without testing.
In the Upper Jurassic section, the well has confirmed the presence of heavy oil over a gross interval of 110 metres as originally tested in the 1968 MO-2 well, some 2km from the JM-1 well. Reservoir quality and the oil gravity in the Upper Jurassic across the Cap Juby structure require further evaluation by Cairn and its joint venture partners (Office National Des Hydrocarbures et Des Mines "ONHYM" and Genel Energy). Work is ongoing to correlate the core and log data from JM-1 with other wells on Cap Juby to evaluate the extent of moveable hydrocarbons and how any further assessment should be conducted.
The Middle Jurassic objective was encountered with limited primary porosity and evaluation of well logs and side wall cores continues.
The two well exploration programme offshore Senegal (Cairn 40% WI, Operator) is expected to start in April after drilling operations are completed in Morocco.
The first exploration well will be located on the North Fan Prospect in 1,427m water depth. This well will be immediately followed by a second exploration well targeting a Shelf Edge Prospect in 1,100m of water. These will be the first deep water (>1,000m) wells drilled in Senegal and only the second and third deep water wells along this underexplored part of the margin.
An appraisal well on the Spanish Point gas/condensate discovery offshore West of Republic of Ireland (Cairn 38% WI, Operator) and a 3D seismic survey on acreage nearby are both planned to commence Q2/Q3 2014.
One exploration well is planned to commence on the Cap Boujdour Contract Area in 2014 with Kosmos Energy (operator) and the Moroccan National Oil Company (ONHYM) (Cairn 20% WI) subject to Government approval.
Mature Basin Exploration and Development: UK and Norwegian North Sea
Over the last two years, the Group has built an attractive business and acreage position in the North Sea. Importantly, this is an area which provides an active market place for asset trades as evidenced by the various swaps, farm-ins and divestments the Group has completed during the last year, with such activity set to continue.
In the UK, the Kraken and Catcher development projects are a key part of the portfolio, acquired to provide cash flow following first oil production in 2016/17. In Norway, the Group has built a strategic position around its Skarfjell discovery (Cairn WI 20%), including other discoveries and prospects which offer the potential for a hub and satellite development scheme in the future.
The strategic intention is to use free cash from these future developments to fund future exploration programmes.
People
We would like to recognise and thank all the effort, hard work and commitment the management, employees and contractor teams working for Cairn have put in during the last year.
We have an equal opportunities policy across the Group. To ensure we deliver our goals and provide shareholder value we must employ the right people in the right roles. We seek to ensure a diverse workforce. For example women currently comprise 20% of our board, 28% of our management and 50% of our staff across our whole organisation.
Outlook
The results of this year's exploration programme and the timing of the resolution of the Indian tax situation will inevitably shape the Group beyond 2014. We believe the executive team, supported by the Board, is well-placed to lead the Group and continue the strategic focus of delivering significant growth potential as the Group continues to evolve in response to changing circumstances.
We look forward to what we hope will be a successful exploration programme in 2014.
Operational Review
Overview
Cairn has a balanced portfolio of exploration and development assets.
Our exploration strategy is to focus on frontier or overlooked basins where we identify geological potential and a suitable acreage position can be secured on appropriate commercial terms. Our current target areas focus on building positions of medium risk/high reward exploration potential along the Atlantic Margin and the Mediterranean, complemented by lower risk/medium reward positions in the UK/Norwegian North Sea. We seek to participate in assets at equity levels appropriate to the overall scale and capital resources of the Group, either as operator or as non-operator in like-minded joint venture groups where we can still exert influence.
Our non-operated pre-development and future production interests in the North Sea provide balance to our exploration portfolio. At present these projects comprise Kraken (where we have booked 2P reserves of 30mmboe) and Catcher (2C resources of 30mmboe net to Cairn) in the UK and the Skarfjell and Grosbeak fields in Norway.
We continually evaluate the entire asset base to ensure that our equity is at appropriate levels to offer potential growth opportunities, allied with appropriate financial risk exposure.
Frontier Basin Exploration - Atlantic Margin
We currently have interests in the following areas along the Atlantic Margin:
Morocco
Cairn has established a position in both the Jurassic carbonate shelf and the emerging deep-water Mesozoic clastic exploration plays. The region is attracting industry interest, with other operators taking licences in the area and the industry targeting up to 10 wells over the next three years.
The FD-1 exploration well located in 1,500m of water approximately 120km offshore Morocco in the Foum Draa block (Cairn 50% WI, Operator) was plugged and abandoned. The primary target of the well was a Late Jurassic/Early Cretaceous deep-water turbidite slope fan and channel complex. While gas shows confirmed an active thermogenic petroleum system, the well did not encounter clastic reservoirs.
The JM-1 well (Cairn WI 37.5%, Operator) drilled to evaluate Upper Jurassic and Middle Jurassic objectives reached a total depth of 3,711m TVDSS and has been plugged and abandoned without testing.
In the Upper Jurassic section, the well has confirmed the presence of heavy oil over a gross interval of 110 metres as originally tested in the 1968 MO-2 well, some 2km from the JM-1 well. Reservoir quality and the oil gravity in the Upper Jurassic across the Cap Juby structure require further evaluation by Cairn and its joint venture partners (ONHYM and Genel Energy). Work is ongoing to correlate the core and log data from JM-1 with other wells on Cap Juby to evaluate the extent of moveable hydrocarbons and how any further assessment should be conducted.
The Middle Jurassic objective was encountered with limited primary porosity and evaluation of well logs and side wall cores continues.
Cairn farmed-in (20% WI non operator) to the Cap Boujdour Permit operated by Kosmos Energy and partnered by ONHYM, subject to Government of Morocco approval. Located ~50 km offshore, the permit covers an area of 29,740km2 in the Aaiun Basin in water depths of 1,000 - 3,000m. The permit is covered by a regional 2D grid and 2,000 km2 of 3D seismic surveys.
Kosmos has identified several prospects within the 3D area, with the largest of these, Gargaa, to be drilled, in water depths of ~2,135m. The gross mean unrisked prospective resource is ~1 bn boe. The Atwood Achiever, a 6th generation drillship, is being mobilised for the drilling planned to commence Q4 2014 while final preparations are being made for a further exploration 3D survey that is due to commence later this year.
Senegal
Cairn's planned two well exploration programme offshore Senegal is due to commence in April.
The three exploration blocks (Sangomar offshore, Sangomar Deep and the Rufisque offshore blocks) cover an area of ~7,490km2 near shore to deep water exploration over the shelf, slope and basin floor of the Senegalese portion of the prospective Mauritania-Senegal-Guinea-Bissau Basin. The deeper water western portion of the acreage is covered by a 2,050km2 3D seismic survey.
The initial exploration well, known as 'FAN-1' will be located on the North Fan Prospect in 1,427m water depth. This well will target multiple stacked deepwater fans interpreted as potentially thick, high quality clastic reservoirs, the two largest of which Cairn currently estimates to have gross mean unrisked prospective resource of 282mmbbls and 535mmbbls respectively. Other prospects and leads of this type provide follow up potential in the case of success at FAN-1.
The second exploration well, called 'SNE-1' is planned to be drilled after operations on FAN-1 are complete and will be located on the Shelf Edge Prospect in 1,100m of water. This dual objective prospect targets stacked Cretaceous clastics and a deeper target of karstified and fractured Lower Cretaceous shelf carbonates. The two prospect targets are estimated by Cairn to have a gross mean unrisked prospective resource of 182mmbbls and 256mmbbls respectively. There are several other shelf edge anomalies that provide follow-up potential in the success case.
Cairn estimates the block-wide "Yet to Find" gross unrisked prospective resource is currently more than 3 bn boe.
Mauritania
Interpretation and mapping of the 3,500km2 3D seismic on block C19 offshore Mauritania, which Cairn farmed into in H2 2013 with Chariot Oil and Gas, is ongoing.
Ireland
The Blackford Dolphin drilling rig is currently undergoing preparations in readiness for the proposed Spanish Point appraisal/exploration well on Frontier Exploration Licence (FEL) 2/04 offshore West of Republic of Ireland, due to commence in Q2/Q3 2014 (Cairn 38% WI, Operator). Meanwhile, contracts for support services are progressing and the approval process, including environmental assessments, is underway.
Tenders have been submitted and planning is underway for a 500km2 3D seismic survey to begin in Q2 2014 on acreage adjacent to the Spanish Point discovery on exploration licence FEL 1/14 (Cairn 38% WI, Operator).
Greenland
Cairn remains encouraged by the opportunity in the Pitu exploration block (Cairn 56.875% WI, Operator), with combined prospects within the 3D area confirming a potential multi-billion boe prospective resource, and is targeting a drilling decision in 2015. The mapping and evaluation of the 3D seismic on Pitu has identified a number of prospects.
Frontier Basin Exploration - Mediterranean
Applications for further acreage offshore Spain (in the Gulf of Lion off the North East coast) have been submitted (Cairn 100% WI). Cairn holds licences of approximately 3,175km2 in the Valencia Basin, offshore Spain and is in the early stages of its exploration programme. The authorisation for acquiring potential 3D seismic is underway.
Cairn (60% WI, Operator) has an Exploration Study Agreement (ESA) over Area 3 - Blocks 1, 2 and 3 offshore Malta. Cairn with its JV partner, Mediterranean Oil and Gas Plc, are currently mobilising to acquire approximately 1,500km of broadband 2D seismic.
Mature Basin Exploration and Development - UK and Norwegian North Sea
Work is continuing on the Kraken development targeting first oil in H2 2016/H1 2017 with EnQuest as operator. Following the Kraken FDP approval, 30mmboe were booked as Proven plus Probable (2P) Reserves at 31 December 2013 on a net working interest basis. The detailed locations for the initial development wells from the first two drill centres (DC1 and DC2) are being finalised. BUMI are currently carrying out detailed engineering of the FPSO and work on christmas trees, templates and manifolds is progressing with first drilling templates expected later this year prior to drilling starting in H1 2015.
Considerable progress has been achieved on the Premier-operated Catcher area project since the development concept (a subsea tie-back of the Catcher, Varadero and Burgman fields to a FPSO) was agreed in December 2012. Reservoir modelling has been completed and well locations and sequencing have also been optimised. It is envisaged that development drilling will commence in 2015 and continue beyond first oil. Subsea FEED for the Catcher area project has also been completed. A draft FDP has been submitted to DECC, initiating the process to target project sanction by the operator in Q2 2014. More details on Catcher and its impairment are in the Financial Review. Gross 2C resources under the initial development scheme are 96 mmboe although the development scheme makes provision for the tie-back of additional discoveries.
Following the results from the second Skarfjell appraisal well, which successfully delineated the field, the partners are now examining possible development concepts for Skarfjell for both oil and gas, together with undeveloped fields in the surrounding area.
Cairn has built a strong exploration position in the UK and Norway through a combination of acquisitions, farm-ins and licence rounds, most recently boosting its presence in the Quadrant 35 area in Norway, around the Skarfjell field.
Two firm non operated exploration wells are currently planned to be drilled in the UK sector in 2014 and one in 2015.
Ø Aragon (UK Continental Shelf (UKCS), MPX operator during exploration phase, Cairn 30% WI and has agreed to acquire a further 2.5% WI from MPX) due to commence Q2 2014
Ø West of Kraken (UKCS, EnQuest operator, Cairn 25% WI) due to commence Q3 2014
Ø Tulla (UKCS, TAQA operator, Cairn 50% WI) due to commence Q1 2015
The wells planned for 2014 are targeting 13 mmbbls mean net risked resources (37 mmbbls mean net unrisked resources).
In Q1 2014, Cairn was awarded interests in all three licences applied for in the Norwegian Awards in Predefined Areas (APA) licence round and is currently reviewing this acreage, with a view to making drilling decisions over the forthcoming years.
Cairn presently holds interests in a total of 36 North Sea licences and is actively maturing new near term drilling opportunities from this acreage portfolio. The Group will also participate in the recently announced 28th UK Licencing Round.
Health and Safety
In all our activities, the Group is focused on seeking operational excellence. Given our focus on safety, we were concerned that following the start of operations offshore Morocco in 2013, two lost time incidents (LTIs) occurred. A thorough review has been undertaken to ensure any lessons learnt are captured from these incidents and to improve our forward operational safety performance.
Group Booked 2P Reserves
A total of 30.1mmboe were booked as 2P Reserves at 31 December 2013 on a net working interest basis.
|
2P |
Reserves 31.12.12 mmboe |
Produced in 2013 mmboe |
Additions in 2013 mmboe |
Revisions in 2013 mmboe |
Reserves 31.12.13 mmboe |
|
|
Kraken |
0.0 |
(0.0) |
0.0 |
30.0 |
30.0 |
|
|
Keddington |
0.053 |
(0.002) |
0.0 |
0.0 |
0.050 |
|
|
Mariner 9/11a |
15.9 |
(0.0) |
(15.9) |
0.0 |
0.0 |
|
|
Total |
16.0 |
(0.002) |
(15.9) |
30.0 |
30.1 |
|
· The Group's 2P Reserves increased by 14.1mmboe during 2013 due to the net impact of the Kraken project FDP and Mariner asset divestment.
· Further reserves additions are expected when the Catcher field achieves FDP approval.
Financial Review
Overview
The most significant event occurred post the Balance Sheet date, when, in January 2014, Cairn received a request from the Indian Income Tax Department for information relating to a group reorganisation completed in 2006.
This reorganisation was compliant with tax legislation in place at the time in each relevant jurisdiction, including India.
The Indian Income Tax Department has cited legislation introduced in 2012 as the reason for these enquiries.
While this information request is being dealt with, Cairn is unable to access the value of its shareholding in CIL (US$1 billion at the Balance Sheet date), either through disposal or future dividend income. As the restriction was not effective at the year end, no adjustment is made to the fair value reflected in the Group's 31 December 2013 Balance Sheet.
The current year's programme is funded fully from the cash on the Balance Sheet and we have moved quickly to review the capital allocation for 2015 and beyond and will keep this under review.
Oil and gas assets, goodwill and related deferred tax liabilities
2013 movements in oil and gas assets, goodwill and related deferred tax liabilities are:
|
|
Frontier exploration US$ |
Mature-Basin US$ |
Total US$m |
|
|
|
|
|
|
Asset carrying value |
50 |
1,406 |
1,456 |
|
Deferred tax liabilities |
- |
(412) |
(412) |
|
Net book value at 31 December 2012 |
50 |
994 |
1,044 |
|
|
|
|
|
|
Exploration and development additions |
200 |
204 |
404 |
|
Exploration and development disposals |
- |
(121) |
(121) |
|
Unsuccessful exploration costs |
(132) |
(81) |
(213) |
|
Impairment - exploration assets |
- |
(251) |
(251) |
|
Impairment - goodwill |
- |
(324) |
(324) |
|
Deferred tax credit |
- |
387 |
387 |
|
Foreign exchange differences |
- |
17 |
17 |
|
|
|
|
|
|
Net book value at 31 December 2013 |
118 |
825 |
943 |
|
|
|
|
|
|
Being: |
|
|
|
|
Asset carrying value |
118 |
844 |
962 |
|
Net deferred tax liability |
- |
(19) |
(19) |
Exploration and development additions and disposals
Frontier Exploration
Atlantic Margin - Africa
Cairn completed the first exploration well on the Foum Draa block, offshore Morocco in early January 2014. The Cajun Express rig subsequently moved to the Juby Maritime block, also offshore Morocco to drill the JM-1 exploration well, which completed in March 2014. As neither well encountered commercial hydrocarbon reservoirs both were plugged and abandoned. Costs incurred to 31 December 2013 of US$107m were expensed as unsuccessful exploration costs.
During 2013, Cairn completed the farm-in to three blocks offshore Senegal. Cairn subsequently agreed to farm-down a 25% WI to ConocoPhillips, which leaves the Group with a revised working interest of 40%. In the event of a commercial hydrocarbon discovery, ConocoPhillips will have the option to assume operatorship of the development project. This farm-down completed on approval from the Government of Senegal in January 2014. Costs to date of US$42m carried in the Balance Sheet include seismic and rig mobilisation costs. Following approval of the farm-down agreement subsequent to the year end, US$17m of costs were recovered from ConocoPhillips in 2014.
Building on the Group's Atlantic Margin portfolio, Cairn farmed-in to the C19 block offshore Mauritania, paying US$27m to the operator for seismic and other back costs.
Atlantic Margin - North Atlantic
Following approval by the Government of the Republic of Ireland, Cairn acquired a 38% WI as Operator of two licences offshore Republic of Ireland for back costs of US$4m plus a promoted share of future exploration and appraisal costs, up to a maximum of two wells and a monetary cap. At the year end, the Group held US$9m within exploration costs in the Balance Sheet in respect of these licences.
Mature Basin
UK and Norwegian North Sea
Cairn's interests in the UK and Norwegian North Sea were added following two corporate acquisitions in 2012. The portfolio at the year end consists of one development asset (Kraken), one near term development asset (Catcher), one recent exploration success currently under appraisal (Skarfjell) and several exploration prospects. During the year, the Group completed the disposal of its interests in the Mariner field.
The UK Kraken field (Cairn non-operated WI 25%), received DECC approval for the FDP in November 2013. Cairn is carried through the development phase costs up to a maximum between US$150m-US$240m dependent on reserve volumes with the current estimate at ~US$200m. Total capitalised costs of Kraken in the Balance Sheet at 31 December 2013 were US$300m.
On the Catcher asset (Cairn 30% non-operated WI), work has continued among partners to finalise the FDP.
Two successful appraisal wells were drilled on the Skarfjell discovery in the Norwegian North Sea during 2013 (Cairn 20% non-operated WI). Costs in the year relating to the two wells were US$36m, with a related Norwegian tax refund receivable of US$28m.
In December 2013, Cairn concluded the sale of its interest in the UK Mariner field, partially meeting one of the Group KPIs identified for the business of delivering a balanced sustainable business and preserving cash for investment. Though the disposal resulted in an accounting loss before tax of US$25m, the sale of the asset frees the Group from ~US$300m of future capital expenditure.
Impairment of exploration assets and goodwill
Catcher asset impairment
Revised economics, including resource downgrades and increased cost assumptions based on the latest operator estimates, resulted in impairment of the Catcher asset carrying value by US$251m (see section 2.1 to the Financial Statements for further information). The impact of this impairment in the Income Statement is partially offset by a reduction in the provision for deferred tax of US$152m that was initially recognised on acquisition of the assets in 2012.
Goodwill impairment
Following the corporate acquisitions in 2012, Cairn recognised goodwill of US$474m, which was fully allocated to the North Sea operating segment. The goodwill largely arose from deferred tax liabilities that were recognised on the fair value of the assets acquired. Goodwill is tested annually for impairment by comparing the net carrying value of the goodwill, the North Sea exploration, appraisal and development assets and the deferred tax liabilities related to those assets to the fair value less costs of disposal of the underlying assets in the segment based on discounted cash flow models.
During 2013, there were two significant reductions to the deferred tax liabilities that are included within the UK and Norwegian North Sea cash generating unit. Firstly, the deferred tax credit on the Catcher asset impairment reduced the deferred tax liability by US$152m. Secondly, the approval of the Kraken FDP triggered the recognition of heavy oil field allowances which eliminated the remaining deferred tax liability relating to UK North Sea assets and led to the recognition of a deferred tax asset of US$59m. As a result, the increased carrying value of the cash generating unit was no longer supported by the fair value less cost of disposal of the underlying assets, giving rise to a US$324m impairment of goodwill.
Available-for-sale financial asset
At the year end, Cairn's remaining ~10% holding in CIL was valued at ~US$1.0 billion. Following an impairment of US$268m at 30 June 2013, the value recovered by US$72m in the second half. Under IFRS, there is no reversal in impairment in the Income Statement; the mark-to-market gains are instead reflected in Other Comprehensive Income.
As the restriction on further sales of the CIL shares did not exist at 31 December 2013, the holding in CIL is measured at the fair value on the Balance Sheet date reflecting the closing market value of US$1.0bn. At the Group's next reporting date, the carrying value of the Group's financial assets will be assessed for impairment which will reflect the circumstances that exist at that time.
Cash and working capital
Cairn's Balance Sheet is underpinned by its cash balances which are available to fund the current exploration programme and contribute towards future development projects.
|
2013 Movements in net funds |
US$m |
|
|
|
|
Net funds at 31 December 2012 |
1,559 |
|
Exploration and development spend |
(418) |
|
Norwegian tax refund |
60 |
|
Proceeds on Mariner disposal |
73 |
|
Share-buy back |
(37) |
|
Dividends received from CIL |
40 |
|
Administrative expenses, interest received and finance costs |
(24) |
|
|
|
|
Net funds at 31 December 2013 |
1,253 |
The Group's net funds (cash at bank less bank borrowings) were US$1.25bn (31 December 2012: US$1.56bn). This includes US$100m of restricted cash.
Bank loans in Norway increased to US$55m, up US$26m year-on-year. These short term loans were drawn against future tax refunds receivable in Norway on qualifying exploration expenditure incurred in the year. Subsequent to the year end, this loan was repaid in full and the facility cancelled.
Results for the year
With no revenue currently recorded in the Income Statement, the Group reported a loss after tax for the year of US$556m, analysed as follows:
|
|
|
2013 |
2012 |
|
|
|
US$m |
US$m |
|
|
|
|
|
|
Operational and, |
Pre-award costs |
(24) |
(18) |
|
administrative activities: |
Unsuccessful exploration costs |
(213) |
(159) |
|
|
Administrative and other costs |
(42) |
(64) |
|
|
Related tax credits |
86 |
122 |
|
|
|
(193) |
(119) |
|
|
|
|
|
|
Impairment and loss on sale of oil and gas assets: |
Impairment of exploration assets |
(251) |
(6) |
|
Impairment of goodwill |
(324) |
- |
|
|
Loss on sale of oil and gas assets |
(25) |
- |
|
|
Related tax credits |
382 |
- |
|
|
|
|
(218) |
(6) |
|
|
|
|
|
|
Finance income |
Net finance income |
48 |
135 |
|
|
|
|
|
|
Impairment and disposal of investment in Cairn India: |
Impairment |
(268) |
- |
|
Loss on sale |
- |
(82) |
|
|
Related tax credit |
75 |
145 |
|
|
|
|
(193) |
63 |
|
|
|
|
|
|
|
|
|
|
|
Total (loss)/profit after tax |
|
(556) |
73 |
Operational and administrative expenses
Unsuccessful exploration costs of US$213m include US$107m relating to the Foum Draa and Juby Maritime wells offshore Morocco, US$81m relating to North Sea exploration wells drilled include Frode and Klara in the Norwegian North Sea and Timon in the UK North Sea and a further US$25m written off assets elsewhere.
The fall in administration and other costs from US$64m in 2012 to US$42m for the current year reflect non-recurring expenses incurred acquiring and subsequently integrating the new subsidiaries in 2012 and Cairn's increased operational focus in 2013 with a greater portion of costs directly attributable to the Groups oil and gas assets. Controlling administrative cost levels remains a priority for the Group.
Finance income
Net finance income of US$48m includes US$40m of dividends received from CIL. Restructuring and capitalisation of inter-company group debt early in 2013 has eliminated much of Cairn's Income Statement exposure to foreign exchange movements.
The Group will continue to be entitled to dividend income declared by CIL going forward, however while the Indian Income Tax department restriction remains, dividend proceeds will be held in India.
Impairment of investment in Cairn India
The impairment recognised at 30 June 2013 of US$268m includes mark-to-market deficits of US$85m recognised in equity in prior years. The impairment is offset by related tax credits of US$75m. Deferred tax of US$70m remains provided at the year end on the assumption that a future sale of the remaining holding would be liable to Indian capital gains tax.
Principal Risks and Uncertainties
In 2013, Cairn delivered on its priorities, creating a business offering multiple opportunities for growth within a coherent strategy and sustainable business model. This included frontier opportunities in the Atlantic Margin and Mediterranean basins and non-operated mature basin exploration and development projects in the North Sea. There are a number of risks linked to these opportunities which the Group is actively managing. Following year end, in January 2014, Cairn received a request from the Indian Income Tax Department to provide information in relation to the year ended 31 March 2007. The correspondence indicates that the request for information is in respect of amendments introduced in the 2012 Indian Finance Act which seek to tax prior year transactions under legislation applied retrospectively. While the interactions with the Indian Income Tax Department continue, Cairn has been restricted from selling its shares in CIL (valued at US$1.0 billion as at 31 December 2013). The Group will take whatever steps are necessary to protect its interests. The actions of the Indian Income Tax Department were taken without any prior discussion with Cairn and could not have been anticipated. It is therefore not possible at this stage to predict the course of any future action it might take.
The principal risks in relation to the Group's financial and operational performance are as follows:
- Lack of exploration success
- Continued restriction on the ability to sell CIL shareholding
- Health, safety, environmental and security incidents
- Kraken and Catcher development projects not executed on schedule and budget
Outlook
Following the restriction imposed on our ability to access the value of our shareholding in CIL, we have moved quickly to ensure that all of our commitments in 2014 are fully covered. Capital allocation for future programmes will depend primarily on three things:
• the progress of Catcher through to project sanction;
• the conclusion of debt facilities for both Catcher and Kraken; and
• the results of our 2014 drilling programme.
The existing portfolio provides many opportunities and we are looking closely at the allocation of capital for the programme beyond 2014, which will be guided by three core principles:
• creating value through exploration;
• maintaining a balanced portfolio, with a strong operating cash flow in the future; and
• capital discipline.
Cairn Energy PLC
Group Income Statement
For the year ended 31 December 2013
|
|
Section |
2013 US$m |
2012 US$m |
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
Pre-award costs |
|
(23.5) |
(18.1) |
|
Unsuccessful exploration costs |
2.1 |
(213.1) |
(158.7) |
|
Administrative expenses |
|
(42.2) |
(53.3) |
|
Other expenses |
|
- |
(11.2) |
|
Impairment of oil and gas assets |
2.1 |
(251.4) |
(6.0) |
|
Loss on sale of oil and gas assets |
2.2 |
(24.7) |
- |
|
Impairment of goodwill |
2.3 |
(324.2) |
- |
|
|
|
|
|
|
Operating loss |
|
(879.1) |
(247.3) |
|
|
|
|
|
|
Loss on sale of available-for-sale financial assets |
3.1 |
- |
(81.5) |
|
Impairment of available-for-sale financial assets |
3.1 |
(267.5) |
- |
|
Finance income |
|
50.6 |
135.9 |
|
Finance costs |
|
(2.9) |
(1.3) |
|
|
|
|
|
|
Loss before taxation from continuing operations |
|
(1,098.9) |
(194.2) |
|
|
|
|
|
|
Taxation |
|
|
|
|
Tax credit |
4.2a |
543.0 |
266.8 |
|
(Loss)/profit for the year attributable to equity holders of the parent |
|
(555.9) |
72.6 |
|
|
|
|
|
|
(Loss)/earnings per ordinary share - basic (cents) |
4.3 |
(93.24) |
11.13 |
|
(Loss)/earnings per ordinary share - diluted (cents) |
4.3 |
(93.24) |
11.12 |
Group Statement of Comprehensive Income
For the year ended 31 December 2013
|
|
Section |
2013 US$m |
2012 US$m |
|
|
|
|
|
|
(Loss)/profit for the year |
|
(555.9) |
72.6 |
|
|
|
|
|
|
Other comprehensive income - items that may be recycled to profit or loss |
|
|
|
|
(Deficit)/surplus on valuation of financial assets |
3.1 |
(110.8) |
55.6 |
|
Deferred tax credit/(charge) on valuation of financial assets |
4.2a |
48.8 |
(18.8) |
|
Valuation movement recycled to Income Statement |
3.1 |
267.5 |
(12.8) |
|
Deferred tax (charge)/credit on valuation movement recycled to Income Statement |
4.2a |
(74.5) |
9.1 |
|
Currency translation differences |
|
7.6 |
(24.5) |
|
Other comprehensive income for the year |
|
138.6 |
8.6 |
|
|
|
|
|
|
Total comprehensive income for the year attributable to equity holders of the parent |
|
(417.3) |
81.2 |
Cairn Energy PLC
Group Balance Sheet
As at 31 December 2013
|
|
|
2013 |
2012 |
|
|
Section |
US$m |
US$m |
|
Non-current assets |
|
|
|
|
Intangible exploration/appraisal assets |
2.1 |
498.6 |
899.8 |
|
Property, plant & equipment - development/producing assets |
2.2 |
299.9 |
71.0 |
|
Intangible assets - goodwill |
2.3 |
163.4 |
485.5 |
|
Other property, plant & equipment and intangible assets |
|
6.0 |
6.6 |
|
Available-for-sale financial assets |
3.1 |
1,027.6 |
1,138.4 |
|
Deferred tax assets |
4.2c |
58.7 |
- |
|
|
|
2,054.2 |
2,601.3 |
|
Current assets |
|
|
|
|
Income tax asset |
|
81.3 |
65.1 |
|
Inventory |
|
10.0 |
- |
|
Other receivables |
|
152.3 |
72.7 |
|
Cash and cash equivalents and bank deposits |
3.2 |
1,308.3 |
1,588.6 |
|
|
|
1,551.9 |
1,726.4 |
|
Total assets |
|
3,606.1 |
4,327.7 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
201.0 |
82.4 |
|
Provisions |
|
11.4 |
40.5 |
|
Loans and borrowings |
3.2 |
55.3 |
29.6 |
|
|
|
267.7 |
152.5 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Deferred tax liabilities |
4.2c |
148.0 |
530.9 |
|
Provisions |
|
2.6 |
2.6 |
|
|
|
150.6 |
533.5 |
|
Total liabilities |
|
418.3 |
686.0 |
|
Net assets |
|
3,187.8 |
3,641.7 |
|
|
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
|
Called-up share capital |
|
12.8 |
13.0 |
|
Share premium |
|
486.9 |
486.9 |
|
Shares held by ESOP/SIP Trusts |
|
(28.0) |
(28.7) |
|
Foreign currency translation |
|
(23.9) |
(31.5) |
|
Capital reserves - non distributable |
|
40.4 |
40.2 |
|
Merger reserve |
|
255.9 |
255.9 |
|
Available-for-sale reserve |
|
56.2 |
(74.8) |
|
Retained earnings |
|
2,387.5 |
2,980.7 |
|
Total equity |
|
3,187.8 |
3,641.7 |
Cairn Energy PLC
Group Statement of Cash Flows
For the year ended 31 December 2013
|
|
Section |
2013 US$m |
2012 US$m |
|
Cash flows from operating activities |
|
|
|
|
Loss before taxation |
|
(1,098.9) |
(194.2) |
|
|
|
|
|
|
Unsuccessful exploration costs |
|
213.1 |
158.7 |
|
Depreciation and amortisation |
|
4.5 |
3.5 |
|
Share-based payments charge |
|
14.0 |
9.9 |
|
Impairment of oil and gas assets |
|
251.4 |
6.0 |
|
Loss on sale of oil and gas assets |
|
24.7 |
- |
|
Impairment of goodwill |
|
324.2 |
- |
|
Loss on sale of available-for-sale financial asset |
|
- |
81.5 |
|
Impairment of available-for-sale financial assets |
|
267.5 |
- |
|
Net finance income |
|
(47.7) |
(134.6) |
|
Interest paid |
|
(2.9) |
(1.3) |
|
Income tax received |
|
59.9 |
8.2 |
|
Foreign exchange differences |
|
1.3 |
(9.3) |
|
Other receivables movement |
|
(6.4) |
29.4 |
|
Trade and other payables movement |
|
34.5 |
(31.5) |
|
Net cash from/(used in) operating activities |
|
39.2 |
(73.7) |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Expenditure on intangible exploration/appraisal assets |
|
(386.6) |
(139.1) |
|
Expenditure on property, plant & equipment - development/producing assets |
|
(31.4) |
- |
|
Proceeds on disposal of intangible exploration/appraisal assets |
|
7.1 |
33.3 |
|
Proceeds on disposal of property, plant & equipment - development/producing assets |
|
72.7 |
- |
|
Purchase of inventory |
|
(10.3) |
- |
|
Purchase of other property, plant and equipment and intangible assets |
|
(4.4) |
(6.0) |
|
Movement in funds on bank deposits |
|
2.0 |
6.4 |
|
Dividend received |
|
40.5 |
18.0 |
|
Interest received |
|
3.8 |
6.7 |
|
Consideration paid for business combinations |
|
- |
(844.5) |
|
Cash acquired as a result of business combinations |
|
- |
123.9 |
|
Expenses incurred on disposal of Cairn India group |
|
- |
(43.7) |
|
Proceeds on disposal of available-for-sale financial asset |
|
- |
1,286.2 |
|
Net cash (used in)/from investing activities |
|
(306.6) |
441.2 |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Cost of shares purchased |
|
(36.6) |
(27.0) |
|
Proceeds from exercise of share options |
|
- |
3.2 |
|
Proceeds of borrowings |
|
32.5 |
22.5 |
|
Return of cash to shareholders |
|
- |
(3,575.2) |
|
|
|
|
|
|
Net cash flows used in financing activities |
|
(4.1) |
(3,576.5) |
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
(271.5) |
(3,209.0) |
|
Opening cash and cash equivalents at beginning of year |
|
1,586.3 |
4,730.7 |
|
Exchange (losses)/gains on cash and cash equivalents |
|
(6.8) |
64.6 |
|
Closing cash and cash equivalents |
3.2 |
1,308.0 |
1,586.3 |
Cairn Energy PLC
Group Statement of Changes in Equity
For the year ended 31 December 2013
|
|
Equity share capital |
Shares held by ESOP Trust and SIP Trust |
Foreign currency translation |
Merger and capital reserves |
Available-for-sale reserve |
Retained earnings |
Total equity |
|
|
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
US$m |
|
|
|
|
|
|
|
|
|
|
At 1 January 2012 |
497.6 |
(1.7) |
(7.0) |
40.2 |
(107.9) |
6,472.1 |
6,893.3 |
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
- |
- |
- |
72.6 |
72.6 |
|
Surplus on valuation of financial assets |
- |
- |
- |
- |
55.6 |
- |
55.6 |
|
Deferred tax charge on valuation of financial assets |
- |
- |
- |
- |
(18.8) |
- |
(18.8) |
|
Valuation movement recycled to Income Statement |
- |
- |
- |
- |
(12.8) |
- |
(12.8) |
|
Deferred tax credit on valuation movement recycled to Income Statement |
- |
- |
- |
- |
9.1 |
- |
9.1 |
|
Currency translation differences |
- |
- |
(24.5) |
- |
- |
- |
(24.5) |
|
Total comprehensive income for the year |
- |
- |
(24.5) |
- |
33.1 |
72.6 |
81.2 |
|
Exercise of employee share options |
3.2 |
- |
- |
- |
- |
- |
3.2 |
|
Share-based payments |
- |
- |
- |
- |
- |
9.9 |
9.9 |
|
Shares issued for acquisitions |
1.0 |
- |
- |
255.9 |
- |
- |
256.9 |
|
Return of cash to shareholders |
(1.9) |
- |
- |
- |
- |
(3,573.9) |
(3,575.8) |
|
Cost of shares purchased |
- |
(27.0) |
- |
- |
- |
- |
(27.0) |
|
At 31 December 2012 |
499.9 |
(28.7) |
(31.5) |
296.1 |
(74.8) |
2,980.7 |
3,641.7 |
|
|
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
- |
(555.9) |
(555.9) |
|
Deficit on valuation of financial assets |
- |
- |
- |
- |
(110.8) |
- |
(110.8) |
|
Deferred tax credit on valuation of financial assets |
- |
- |
- |
- |
48.8 |
- |
48.8 |
|
Valuation movement recycled to Income Statement |
- |
- |
- |
- |
267.5 |
- |
267.5 |
|
Deferred tax charge on valuation movement recycled to Income Statement |
- |
- |
- |
- |
(74.5) |
- |
(74.5) |
|
Currency translation differences |
- |
- |
7.6 |
- |
- |
- |
7.6 |
|
Total comprehensive income for the year |
- |
- |
7.6 |
- |
131.0 |
(555.9) |
(417.3) |
|
Share buy-back |
(0.2) |
- |
- |
0.2 |
- |
(50.6) |
(50.6) |
|
Share-based payments |
- |
- |
- |
- |
- |
14.0 |
14.0 |
|
Cost of shares vesting |
- |
0.7 |
- |
- |
- |
(0.7) |
- |
|
At 31 December 2013 |
499.7 |
(28.0) |
(23.9) |
296.3 |
56.2 |
2,387.5 |
3,187.8 |
1 Basis of Preparation
1.1 Significant Accounting Policies and Presentation of Financial Information
a) Basis of preparation
Cairn prepares its accounts on a historical cost basis. Where there are assets and liabilities calculated on a different basis, this fact is disclosed in the relevant accounting policy.
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 434 of the Companies Act 2006. However, the Financial Statements contained in this announcement are extracted from audited statutory accounts for the financial year ended 31 December 2013, 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 Group's annual financial statements for the year ended 31 December 2012. During the year, the Group adopted the following standards and interpretations:
- IFRS 13 'Fair Value Measurement';
- IAS 1 (amended) 'Presentation of Financial Statements; and
- IAS 19 (revised) 'Employee Benefits'.
Going Concern
The Directors have considered the factors relevant to support a statement of 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.
Annual Report and Accounts
Full accounts are due to be posted to shareholders in April 2014 and will be available at the Company's registered office, 50 Lothian Road, Edinburgh, EH3 9BY.
The Annual General Meeting is due to be held on Thursday 15 May 2014 at 12 midday.
2 Oil and Gas Assets and related Goodwill
2.1 Intangible Exploration/Appraisal Assets
|
|
Frontier Exploration |
|
Mature Basin |
|
||
|
|
North Atlantic |
Africa |
Mediterranean |
|
UK and Norwegian North Sea |
Total |
|
|
US$m |
US$m |
US$m |
|
US$m |
US$m |
|
Net book value |
|
|
|
|
|
|
|
At 1 January 2012 |
79.5 |
- |
1.3 |
|
- |
80.8 |
|
Foreign exchange |
0.1 |
- |
- |
|
20.3 |
20.4 |
|
Acquisitions |
- |
- |
- |
|
976.5 |
976.5 |
|
Additions |
(2.1) |
2.2 |
8.3 |
|
82.1 |
90.5 |
|
Disposals |
(33.3) |
- |
- |
|
- |
(33.3) |
|
Transfers |
- |
- |
- |
|
(70.4) |
(70.4) |
|
Impairment |
(5.8) |
- |
(0.2) |
|
- |
(6.0) |
|
Unsuccessful exploration costs |
6.1 |
- |
(5.8) |
|
(159.0) |
(158.7) |
|
At 1 January 2013 |
44.5 |
2.2 |
3.6 |
|
849.5 |
899.8 |
|
Foreign exchange |
- |
- |
- |
|
7.4 |
7.4 |
|
Additions |
17.3 |
177.9 |
4.5 |
|
160.5 |
360.2 |
|
Disposals |
- |
- |
(0.5) |
|
(5.1) |
(5.6) |
|
Transfers |
- |
- |
- |
|
(298.7) |
(298.7) |
|
Impairment |
- |
- |
- |
|
(251.4) |
(251.4) |
|
Unsuccessful exploration costs |
(23.6) |
(107.4) |
(0.8) |
|
(81.3) |
(213.1) |
|
At 31 December 2013 |
38.2 |
72.7 |
6.8 |
|
380.9 |
498.6 |
Frontier Exploration
North Atlantic - Greenland and Republic of Ireland
In Greenland, additional costs of the well abandonment programme were offset by the release of costs accrued following the resolution of a disputed contract from the 2011 drilling campaign, leaving net additions of US$8.7m. Costs of US$23.6m relating to certain licences in Greenland where no future exploration activity is planned have been charged to the Income Statement as unsuccessful exploration costs.
Disposals in 2012 relate to proceeds received from Statoil to cover back costs and bonuses under the terms of the farm down agreement for the Pitu block in North West Greenland.
Republic of Ireland additions of US$8.6m in 2013 represent costs incurred post the farm-in completed in the year.
Africa - Morocco, Senegal and Mauritania
The first well in Cairn's Atlantic Margin drilling campaign offshore Morocco was drilled on the Foum Draa block and completed in early 2014. Subsequently the rig moved to the Juby Maritime block, also offshore Morocco and completed the second exploration well in March 2014. Both wells failed to encounter commercial hydrocarbons and were plugged and abandoned. Costs of US$107.4m incurred to 31 December 2013 have been charged to the Income Statement; US$93.1m relating to the Foum Draa well and US$14.3m to Juby Maritime costs incurred in advance of drilling.
Further additions in the year of US$70.5m include back-costs paid of US$27.0m as Cairn farmed-in to the C19 licence offshore Mauritania and costs incurred in relation to the current drilling programme. An additional US$41.6m was incurred in three blocks offshore Senegal, including back-costs following the farm-in completed in the year and subsequent additions, of which US$17.4m will be recovered following completion of a farm-down to ConocoPhillips (see section 5.2).
Mature Basin
UK and Norwegian North Sea
Acquisition costs of US$976.5m in 2012 represent the fair value of exploration and appraisal assets added through the acquisitions of Agora Oil & Gas AS (now Capricorn Norge AS) (US$411.0m) and Nautical Petroleum plc (US$565.5m).
2.1 Intangible Exploration/Appraisal Assets (continued)
Additions in the current year of US$160.5m (2012: US$82.1m) relate to expenditure on exploration and appraisal wells drilled and new prospects added to the portfolio. From the date of acquisition, Cairn has participated in 12 exploration and appraisal wells; seven in 2012 and five in 2013. Four of these wells were successful, of which three are in the Skarfjell field. A summary of the unsuccessful costs, by well, is as follows:
|
|
2013 US$m |
2012 US$m |
|
UK: |
|
|
|
Timon |
5.5 |
29.4 |
|
Tybalt |
- |
50.2 |
|
Bardolph |
0.3 |
22.3 |
|
Spaniards East |
0.3 |
7.3 |
|
Other non-drilling costs |
1.7 |
- |
|
|
|
|
|
Norway: |
|
|
|
Frode |
53.5 |
- |
|
Klara |
18.6 |
- |
|
Kakelborg |
1.4 |
34.1 |
|
Geite |
- |
15.7 |
|
Unsuccessful exploration costs |
81.3 |
159.0 |
During 2013, Cairn and its joint venture partners received approval of the development plan of the Kraken field, and consequently costs of US$298.7m were transferred from intangible exploration/appraisal assets to property, plant and equipment - development/producing assets, after testing for impairment. The similar transfer in 2012 of US$70.4m related to the Mariner field.
During the year end impairment review of exploration/appraisal assets, an indicator of impairment was identified on the Catcher asset which consists of the main Catcher project, satellite discoveries and additional prospects. Revisions to the project economics, with lower resource estimates and increased cost assumptions, have reduced the recoverable amount of the asset below its carrying value. The subsequent impairment test conducted resulted in a US$251.4m charge to the Income Statement.
Exploration costs remaining at the year end include the net book value of the Catcher and Skarfjell fields and associated satellite prospects. The Group added additional prospects to its existing exploration portfolio through the acquisition of non-operated interests in the Klara and Grosbeak prospects in the Norwegian North Sea and through licences awarded under the latest rounds in the UK and Norway.
2.2 Property, Plant & Equipment - Development/Producing Assets
|
|
Mature Basin |
|
|
|
UK and Norwegian North Sea |
Total |
|
|
US$m |
US$m |
|
Cost and net book value |
|
|
|
At 1 January 2012 |
- |
- |
|
Transfers |
70.4 |
70.4 |
|
Foreign exchange |
0.6 |
0.6 |
|
|
|
|
|
At 1 January 2013 |
71.0 |
71.0 |
|
Foreign exchange |
1.7 |
1.7 |
|
Additions |
44.2 |
44.2 |
|
Transfers |
298.7 |
298.7 |
|
Disposals |
(115.7) |
(115.7) |
|
At 31 December 2013 |
299.9 |
299.9 |
Additions in the year relate to costs incurred on the Mariner field, which was transferred from exploration/appraisal assets in 2012. During the current period, Cairn agreed the sale of the Mariner asset to Dyas BV and the sale received formal approval in December 2013. The disposal of Mariner resulted in a US$24.7m loss to the Income Statement.
Costs of the Kraken field were transferred to development/producing assets in 2013 and this asset represents the carrying value as at 31 December 2013. Impairment tests performed at 31 December 2013 concluded that no impairment existed and no reasonable change in estimates would give rise to impairment (2012: US$nil).
2.3 Intangible Assets - Goodwill
|
|
Mature Basin |
|
|
|
UK and Norwegian North Sea US$m |
Total US$m |
|
Net book value |
|
|
|
At 1 January 2012 |
- |
- |
|
Additions |
473.9 |
473.9 |
|
Foreign exchange |
11.6 |
11.6 |
|
At 1 January 2013 |
485.5 |
485.5 |
|
Foreign exchange |
2.1 |
2.1 |
|
Impairment |
(324.2) |
(324.2) |
|
At 31 December 2013 |
163.4 |
163.4 |
Goodwill additions in 2012 relate to the corporate acquisitions during the year and are largely generated by the deferred tax provided. This goodwill is fully allocated to the UK and Norwegian North Sea operating segment.
At 31 December 2012, the goodwill impairment test did not identify any impairment, with the carrying value of the UK and Norwegian North Sea operating segment being equal to the recoverable amount of the underlying assets, notably the Catcher, Kraken and Skarfjell assets.
The impairment of the Catcher asset in 2013 (see section 2.1) reduces both the carrying value of the operating segment and its recoverable amount in equal measure. The release of deferred tax provided on the Catcher asset, however, increases the carrying value of the segment in relation to the recoverable amount. Additionally the recognition of tax credits for field allowances to which the Kraken asset is eligible, further increases the carrying value of the segment. As a result, the recoverable amount of the assets can no longer support their carrying value and at 31 December 2013, the year end impairment test indentified an impairment and a charge of US$324.2m was recorded.
The remaining carrying value of goodwill at 31 December 2013 is supported by fair value less cost of disposal of the Group's UK and Norwegian North Sea assets, principally though its three main projects Catcher, Kraken and Skarfjell. Additional fair value is attributed to other exploration prospects that have been identified in this segment. The values are calculated internally and the key assumptions used in the valuations include a high level of subjectivity reflecting the nature of oil and gas exploration activities.
3 Financial Assets and Working Capital
3.1 Available-for-sale Financial Assets
|
|
|
Listed equity shares US$m |
|
Fair Value |
|
|
|
As at 1 January 2012 |
|
2,463.3 |
|
Disposals |
|
(1,380.5) |
|
Surplus on valuation |
|
55.6 |
|
As at 1 January 2013 |
|
1,138.4 |
|
Deficit on valuation |
|
(110.8) |
|
As at 31 December 2013 |
|
1,027.6 |
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.
At 30 June 2013, the value of the investment in Cairn India Limited had fallen to US$955.6m. As this represented a significant fall in value from its original recognition, the accumulated deficit of US$267.5m in the available-for-sale reserve was recycled to the Income Statement and recorded as impairment. In the second half of the year the value of the asset increased by US$72.0m. This increase is included within other comprehensive income.
During 2012, the Group disposed of 11.5% of its shareholding in Cairn India Limited in two separate transactions resulting in the recognition of a loss of US$81.5m in the Income Statement, including US$12.8m recycled from the reserves. The remaining minority holding of 10.3% is not held for trading and continues to be classified as non-current available-for-sale financial asset. The fair value of US$1,027.6m (2012: US$1,138.4m) is based on the closing market value at 31 December 2013 of INR 323.75 (2012: INR 319.10).
Subsequent to the year end, the Indian Income Tax department have placed a restriction on Cairn selling further shares in Cairn India Limited. As no restriction existed at the measurement date there is no impact on the closing valuation of the available-for-sale financial asset or on the results for the year. Full details are given in section 5.1.
3.2 Net Funds
|
|
2013 |
2012 |
|
|
US$m |
US$m |
|
|
|
|
|
Bank deposits |
0.3 |
2.3 |
|
Cash and cash equivalents |
1,308.0 |
1,586.3 |
|
|
|
|
|
|
1,308.3 |
1,588.6 |
|
Loans and borrowings |
(55.3) |
(29.6) |
|
Net funds |
1,253.0 |
1,559.0 |
Cash and cash equivalents earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods from overnight deposits to three months depending on the cash requirements of the Group. Loans and borrowings represent amounts drawn under the Capricorn Norge AS (previously Agora Oil and Gas AS) revolving exploration loan facility. Subsequent to the year end, this loan has been repaid in full and the facility cancelled.
Cash and cash equivalents include US$100.0m of cash placed with BNP Paribas to support a letter of credit issued on 22 July 2013 as required under the membership of the Oil Spill Response Scheme's 'Cap and Contain' arrangement. The Group's use of this cash is therefore restricted.
Cairn limits the placing of deposits, certificates of deposit and other investments to banks or financial institutions that have at least two A- or above ratings from Moody's, Standard & Poor's or Fitch unless a Sovereign Guarantee is available from an AAA rated Government. The counterparty limits vary between US$50.0m and US$200.0m depending on the ratings of the counterparty. No investments are placed with any counterparty with a five year CDS exceeding 250 bps. Investments in money market liquidity funds are only made with AAA rated liquidity funds and the maximum holding in any single fund is 5% of total investments.
4 Results for the Year
4.1 Segmental Analysis
Operating Segments
Cairn's operations focus on frontier exploration activities in areas within similar geological structures which have the potential to add material value to the Group, balanced by lower risk exploration and development assets in mature basins. For management purposes, the operations of the Group are organised based on geographical regions within either the frontier exploration or mature basin categories.
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.
Frontier exploration
The Group's frontier exploration activities currently focus on the Atlantic Margin and the Mediterranean. The Atlantic Margin comprises two operating segments: the North Atlantic, with assets in Greenland and Republic of Ireland, and Africa, which includes Cairn's interests in Morocco, Senegal and Mauritania. The Group's current operated multi-well exploration drilling programme, which commenced in 2013 and will continue through 2014, includes exploration drilling offshore Morocco, Senegal and Republic of Ireland.
The Mediterranean operating segment includes licences in Spain, France and Malta which are at the early stages of exploration activity and have yet to incur significant costs.
Mature Basin
The mature basin assets are held in one operating segment in the UK and Norwegian North Sea. This segment includes the Catcher and Skarfjell fields held in intangible exploration/appraisal assets and the Kraken field, now included in property, plant and equipment - development/producing assets. Details of exploration wells drilled in 2013 can be found in section 2.1.
Other
The results of the Mediterranean operating segment are reported along with the Group's corporate assets in the "Other Cairn Energy" reportable segment.
Geographical information: Non-current assets
|
|
2013 |
2012 |
|
|
US$m |
US$m |
|
Mature Basin |
|
|
|
UK and Norwegian North Sea |
844.6 |
1,407.3 |
|
Frontier Exploration North Atlantic - Greenland and Republic of Ireland |
38.2 |
44.7 |
|
Africa - Morocco, Senegal, Mauritania |
73.1 |
2.4 |
|
Mediterranean |
6.9 |
3.8 |
|
Others |
5.1 |
4.7 |
|
|
|
|
|
|
967.9 |
1,462.9 |
Non-current assets for this purpose consist of intangible exploration/appraisal assets; property, plant & equipment - development/producing assets; intangible assets - goodwill; and other property, plant & equipment and intangible assets.
4.1 Segmental Analysis (continued)
The segment results for the year ended 31 December 2013 are as follows:
|
|
Frontier Exploration |
|
Mature Basin |
|
|
|
|
|
|
North Atlantic |
Africa |
|
UK and Norwegian North Sea |
|
Other Cairn Energy Group |
Total |
|
|
US$m |
US$m |
|
US$m |
|
US$m |
US$m |
|
|
|
|
|
|
|
|
|
|
Pre-award costs |
(1.1) |
- |
|
(10.3) |
|
(12.1) |
(23.5) |
|
Unsuccessful exploration costs |
(23.6) |
(107.4) |
|
(81.3) |
|
(0.8) |
(213.1) |
|
Depreciation |
(0.1) |
- |
|
(0.5) |
|
(1.1) |
(1.7) |
|
Amortisation |
- |
- |
|
- |
|
(2.8) |
(2.8) |
|
Other administrative expenses |
(0.2) |
(0.5) |
|
(2.6) |
|
(34.4) |
(37.7) |
|
Impairment of oil and gas assets |
- |
- |
|
(251.4) |
|
- |
(251.4) |
|
Loss on sale of oil and gas assets |
- |
- |
|
(24.7) |
|
- |
(24.7) |
|
Impairment of goodwill |
- |
- |
|
(324.2) |
|
- |
(324.2) |
|
|
|
|
|
|
|
|
|
|
Operating loss |
(25.0) |
(107.9) |
|
(695.0) |
|
(51.2) |
(879.1) |
|
|
|
|
|
|
|
|
|
|
Impairment of available-for-sale financial assets |
- |
- |
|
- |
|
(267.5) |
(267.5) |
|
Interest income |
- |
- |
|
1.3 |
|
2.5 |
3.8 |
|
Interest expense |
- |
- |
|
(2.5) |
|
- |
(2.5) |
|
Other finance income and costs |
0.4 |
- |
|
(0.2) |
|
46.2 |
46.4 |
|
|
|
|
|
|
|
|
|
|
Loss before taxation |
(24.6) |
(107.9) |
|
(696.4) |
|
(270.0) |
(1,098.9) |
|
|
|
|
|
|
|
|
|
|
Taxation credit |
- |
- |
|
468.7 |
|
74.3 |
543.0 |
|
|
|
|
|
|
|
|
|
|
Loss after taxation |
(24.6) |
(107.9) |
|
(227.7) |
|
(195.7) |
(555.9) |
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
17.3 |
177.9 |
|
204.9 |
|
8.4 |
408.5 |
The segment results for the year ended 31 December 2012 are as follows:
|
|
Frontier Exploration |
|
Mature Basin |
|
|
|
|
|
|
North Atlantic |
Africa |
|
UK and Norwegian North Sea |
|
Other Cairn Energy Group |
Total |
|
|
US$m |
US$m |
|
US$m |
|
US$m |
US$m |
|
|
|
|
|
|
|
|
|
|
Pre-award costs |
(3.4) |
- |
|
(5.4) |
|
(9.3) |
(18.1) |
|
Unsuccessful exploration costs |
6.1 |
- |
|
(159.0) |
|
(5.8) |
(158.7) |
|
Depreciation |
(0.1) |
- |
|
(0.6) |
|
(0.8) |
(1.5) |
|
Amortisation |
- |
- |
|
- |
|
(2.0) |
(2.0) |
|
Other expenses and administrative expenses |
(0.2) |
- |
|
(14.8) |
|
(46.0) |
(61.0) |
|
Impairment |
(5.8) |
- |
|
- |
|
(0.2) |
(6.0) |
|
|
|
|
|
|
|
|
|
|
Operating loss |
(3.4) |
- |
|
(179.8) |
|
(64.1) |
(247.3) |
|
|
|
|
|
|
|
|
|
|
Loss on sale of available-for-sale asset |
- |
- |
|
- |
|
(81.5) |
(81.5) |
|
Interest income |
- |
- |
|
1.2 |
|
4.9 |
6.1 |
|
Interest expense |
- |
- |
|
(0.8) |
|
- |
(0.8) |
|
Other finance income and costs |
(0.2) |
- |
|
(0.9) |
|
130.4 |
129.3 |
|
|
|
|
|
|
|
|
|
|
Loss before taxation |
(3.6) |
- |
|
(180.3) |
|
(10.3) |
(194.2) |
|
|
|
|
|
|
|
|
|
|
Taxation credit |
- |
- |
|
122.3 |
|
144.5 |
266.8 |
|
|
|
|
|
|
|
|
|
|
(Loss)/profit after taxation |
(3.6) |
- |
|
(58.0) |
|
134.2 |
72.6 |
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
(2.1) |
2.2 |
|
1,546.9 |
|
13.8 |
1,560.8 |
4.2 Taxation on Loss
a) Analysis of tax credit on loss in the year
|
|
2013 US$m |
2012 US$m |
|
Current tax credits: |
|
|
|
Norwegian tax refunds receivable |
(81.6) |
(39.4) |
|
Withholding taxes deducted at source |
- |
0.1 |
|
|
(81.6) |
(39.3) |
|
Deferred tax credit: |
|
|
|
Norwegian deferred tax charge |
20.3 |
(8.1) |
|
Recognition of eligible field allowance on UK development asset |
(211.9) |
- |
|
Release of provision on disposal of UK development asset |
(32.8) |
- |
|
Release of provision on impairment of UK intangible exploration/appraisal asset |
(152.2) |
- |
|
Other UK deferred tax credits |
(10.3) |
(74.8) |
|
Recycled from other comprehensive income on impairment of financial assets |
(74.5) |
- |
|
Release of provision on sale of available-for-sale financial asset |
- |
(144.6) |
|
|
(461.4) |
(227.5) |
|
Total tax credit on loss |
(543.0) |
(266.8) |
|
|
|
|
|
Tax included in Other Comprehensive Income: |
|
|
|
Deferred tax (credit)/charge on valuation of financial assets |
(48.8) |
18.8 |
|
Deferred tax charge/(credit) on valuation movement recycled to Income Statement |
74.5 |
(9.1) |
|
Total tax charge in Other Comprehensive Income |
25.7 |
9.7 |
Norwegian deferred tax charge includes a charge of US$23.8m (2012: credit of US$6.7m) on temporary differences in respect of non-current assets and a credit of US$3.5m (2012: US$1.4m) on losses and other temporary differences.
Other UK deferred tax charges includes a charge of US$59.0m (2012: US$64.4m) on temporary differences in respect of non-current assets and a credit of US$69.3m (2012: charge of US$10.4m) on losses and other temporary differences.
4.2 Taxation (continued)
b) Factors affecting tax credit for the year
A reconciliation of income tax credit applicable to loss before income tax at the UK statutory rate to income tax credit at the Group's effective income tax rate is as follows:
|
|
2013 US$m |
2012 US$m |
|
Loss before taxation |
(1,098.9) |
(194.2) |
|
|
|
|
|
Loss before tax multiplied by the UK statutory rate of corporation tax of 23.25% (2012: 24.50%) |
(255.5) |
(47.6) |
|
|
|
|
|
Effect of: |
|
|
|
Special tax rates and reliefs applying to oil and gas activities |
(200.6) |
(81.1) |
|
Impact of field allowances on deferred tax |
(145.5) |
- |
|
Additional deferred tax credit on disposal of development asset |
(27.0) |
- |
|
Non-deductible impairment of goodwill |
72.3 |
- |
|
Adjustments in respect of prior periods |
(16.6) |
- |
|
Temporary differences not recognised |
46.0 |
(16.7) |
|
Deferred tax credit on disposal of available-for-sale financial asset |
- |
(124.6) |
|
Foreign exchange movements |
(12.1) |
(0.6) |
|
Other |
(4.0) |
3.8 |
|
|
|
|
|
Total tax credit on loss |
(543.0) |
(266.8) |
The reconciliation shown above has been based on the average UK statutory rate of corporation tax for 2013 of 23.25% (2012: 24.50%).
The UK main rate of corporation tax was 24% prior to 1 April 2013, and 23% from that date onwards. The reduction in the tax rate from 24% to 23% has resulted in an average rate of corporation tax of 23.25% for the year ended 31 December 2013, as shown above. The rate will reduce to 21% on 1 April 2014 and to 20% on 1 April 2015.
Special rates of tax apply to oil and gas activities in the UK and Norwegian North Sea operating segment. The applicable UK statutory tax rate applying to North Sea oil and gas activities is 62% and the applicable Norwegian rate applying to oil and gas activities is 78%.
4.2 Taxation (continued)
c) Deferred tax asset and liabilities recoverable/due after more than one year
Reconciliation of movement in deferred tax assets/(liabilities):
|
|
Temporary difference in respect of non-current assets |
Losses |
Other temporary differences |
Total |
|
|
US$m |
US$m |
US$m |
US$m |
|
Deferred tax asset |
|
|
|
|
|
At 1 January 2012 and 2013 |
- |
- |
- |
- |
|
Deferred tax credit though Income Statement |
(262.5) |
109.3 |
211.9 |
58.7 |
|
At 31 December 2013 |
(262.5) |
109.3 |
211.9 |
58.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
At 1 January 2012 |
(254.1) |
- |
- |
(254.1) |
|
Deferred tax on fair value on corporate acquisitions |
(545.4) |
51.0 |
0.7 |
(493.7) |
|
Deferred tax credit through Income Statement |
215.6 |
11.1 |
0.8 |
227.5 |
|
Deferred tax charge through Other Comprehensive Income |
(9.7) |
- |
- |
(9.7) |
|
Exchange difference arising |
(3.8) |
0.6 |
2.3 |
(0.9) |
|
|
|
|
|
|
|
At 1 January 2013 |
(597.4) |
62.7 |
3.8 |
(530.9) |
|
Deferred tax credit though Income Statement |
448.4 |
(49.3) |
3.7 |
402.8 |
|
Deferred tax charge through Other Comprehensive Income |
(25.6) |
- |
- |
(25.6) |
|
Exchange differences arising |
18.4 |
(12.4) |
(0.3) |
5.7 |
|
At 31 December 2013 |
(156.2) |
1.0 |
7.2 |
(148.0) |
Deferred tax asset /(liabilities) analysed by country:
|
|
2013 US$m |
2012 US$m |
|
Deferred tax asset: |
|
|
|
UK |
58.7 |
- |
|
|
58.7 |
- |
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
UK |
- |
(348.8) |
|
Norway |
(77.5) |
(62.9) |
|
India |
(70.5) |
(119.2) |
|
|
|
|
|
|
(148.0) |
(530.9) |
Recognised deferred tax assets
As at the Balance Sheet date, a net deferred tax asset of US$58.7m (2012: deferred tax liability of US$348.8m) has been recognised in the UK on other temporary differences and tax losses in excess of the UK deferred tax liability arising on temporary differences in respect of non-current assets attributable to UK Ring Fence trading activity. The UK other temporary difference of US$211.9m (2012: US$nil) represents field allowances on the Kraken development which will reduce future Ring Fence profits subject to Supplementary Charge. The eligible field allowances were confirmed when DECC approved the Kraken field development plan and will be claimed when production commences.
A deferred tax asset has also been recognised in respect of Norwegian tax losses of US$7.3m (2012: US$7.3m) against a Norwegian deferred tax liability arising on temporary differences in respect of non-current assets.
4.2 Taxation (continued)
c) Deferred tax (continued)
Unrecognised deferred tax assets
At the Balance Sheet date, the Group had a potential deferred tax asset of US$0.3m (2012: US$0.3m) in respect of future UK corporation tax deductions for equity-based remuneration. This asset has not been recognised as it is not considered probable that there will be sufficient profits to utilise these tax deductions.
In addition, no deferred tax liability has been recognised at the year end on UK fixed asset temporary differences of US$163.8m (2012: US$1,274.0m) and no deferred tax asset has been recognised on UK Ring Fence pre-trade losses of US$16.1m (2012: US$0.5m), UK non-Ring Fence pre-trade losses of US$5.3m (2012: US$37.8m), UK excess management expenses of US$205.4m (2012: US$319.6m), UK non-trade deficits of US$53.2m (2012: US$0.7m) and UK other temporary differences of US$5.0m (2012: US$0.6m) as it is not considered probable that the net deferred tax asset will be utilised in future periods.
d) Tax strategy and governance
The Group's tax strategy is fully aligned with its overarching business objectives and principles. Cairn commits to managing its tax affairs in a transparent and responsible manner and ensuring that all statutory obligations and disclosure requirements are met. We aim to comply with both the letter and spirit of the law in the relevant jurisdictions in which we operate, to ensure that the right amount of tax is paid, at the right time, within the right jurisdiction.
As the Group is currently at an early stage in the value creation cycle and the level of its exploration activities is high, there are currently no taxable profits in the UK. Taxable profits in other jurisdictions are also minimal, and as a result cash payments of corporation taxes are currently low.
Cairn's policy is to not enter into any artificial tax avoidance schemes and to build and maintain strong collaborative working relationships with all relevant tax authorities, based on honesty, integrity and proactive cooperation. The Group aims for certainty in relation to the tax treatment of all items, however we acknowledge that this will not always be possible, for example where transactions are complex and there is a lack of maturity in the tax regime in the relevant jurisdiction in which we are operating. In such circumstances the Group will seek external advice where appropriate and ensure that the approach adopted in any relevant tax return is supportable and includes full disclosure of the position taken.
4.3 Earnings per Ordinary Share
Basic and diluted earnings per share are calculated using the following measures of (loss)/profit:
|
|
|
2013 |
2012 |
|
|
|
US$m |
US$m |
|
|
|
|
|
|
(Loss)/profit and diluted (loss)/profit attributable to equity holders of the parent |
|
(555.9) |
72.6 |
|
|
|
|
|
The following reflects the share data used in the basic and diluted earnings per share computations:
|
|
|
2013 |
2012 |
|
|
|
'000 |
'000 |
|
|
|
|
|
|
Weighted average number of shares |
|
602,279 |
655,140 |
|
Less weighted average shares held by ESOP and SIP Trusts |
|
(5,969) |
(2,187) |
|
Basic weighted average number of shares |
|
596,310 |
652,953 |
|
|
|
|
|
|
Dilutive potential ordinary shares: |
|
|
|
|
Employee share options |
|
389 |
445 |
|
Diluted weighted average number of shares |
|
596,699 |
653,398 |
5 Post Balance Sheet Events
5.1 Restriction on sale of available-for-sale financial asset
In January 2014, Cairn was contacted by the Indian Income Tax Department to provide information in relation to the year ending 31 March 2007. The information requested focused on the internal restructuring of the Cairn Group which took place prior to the IPO of Cairn India Limited in January 2007. Specifically, the Indian Income Tax Department is examining the taxable gain, if any, on the sale recorded in the 2006 year end accounts of the subsidiary that holds the Group's remaining ~10% interest in Cairn India Limited.
Cairn has re-confirmed with its advisers that throughout its history of operating in India the Group have been fully compliant with the tax legislation in force in each year. The Indian Income Tax Department are continuing their examination and presently there is no determination whether Cairn has any further liability to Indian taxation.
While interaction with the Indian Income Tax Department continues, Cairn has been restricted by the Indian Income Tax Department from selling its shares in Cairn India Limited.
Cairn classifies the remaining investment in Cairn India Limited as a non-current available-for-sale financial asset. This asset is measured at fair value at the Balance Sheet date. As the restriction was not effective at the year end, no adjustment is made to the fair value reflected in the Group's 31 December 2013 Balance Sheet.
5.2 Farm-down of Senegal licences
On 9 January 2014, Cairn received formal approval for the farm-down agreement entered into with ConocoPhillips for 25% of its three contiguous blocks, Rufisque Offshore, Sangomar Offshore and Sangomar Deep, located offshore Senegal, West Africa where a 2,050km2 3D seismic survey has been used to identify prospects.
Cairn will operate the exploration phase with a reduced 40% working interest. The planned two well exploration programme will commence on completion of the operated drilling offshore Morocco using the Cajun Express rig. In the event of a commercial success, ConocoPhillips would have the option to apply to operate the future development of the resource.
Under the agreement, ConocoPhillips will pay Cairn a payment inclusive of a portion of back costs on the blocks, along with promoted terms of future exploration expenditure.
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 |
|
Other |
|
|
AGM |
Annual General Meeting |
|
APA |
awards in predefined area |
|
2D/3D |
two dimensional/three dimensional |
|
2P |
proven plus probable |
|
boe |
barrel(s) of oil equivalent |
|
boepd |
barrel(s) of oil equivalent per day |
|
bopd |
barrels of oil per day |
|
DC |
drill centre |
|
DECC |
Department of Energy and Climate Change |
|
ESA |
exploration study agreement |
|
FDP |
field development plan |
|
FEED |
front end engineering design |
|
FEL |
frontier exploration licence |
|
FPSO |
floating production, storage and offloading |
|
GMT |
Greenwich Mean Time |
|
IFRS |
International Financial Reporting Standards |
|
JV |
joint venture |
|
KPI |
key performance indicator |
|
LTI |
lost time injury |
|
mmbbls |
million barrels of oil |
|
mmboe |
million barrels of oil equivalent |
|
mmscfd |
million standard cubic feet of gas per day |
|
TVDSS |
total vertical depth sub sea |
|
UKCS |
UK Continental Shelf |
|
US$ |
US dollar |
|
WI |
working interest |
NOTES TO EDITORS
"Cairn" or the "Group" or the "Company" as the context requires refers to Cairn Energy PLC and/or any of its subsidiaries.
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 frontier exploration acreage in Morocco, Senegal, Republic of Ireland, Greenland, Mauritania and the Mediterranean along with exploration and pre-development interests in the North Sea. Cairn has its headquarters in Edinburgh, Scotland supported by operational offices in London, Greenland, Norway, Spain, Morocco and Senegal.
Cairn and Corporate Responsibility
Ø Cairn is a signatory to the UN Global Compact and our core values of respect, responsibility, relationships and our commitments towards people, the environment and society are enshrined in our Business Principles, which are available on the Cairn website at http://www.cairnenergy.com/index.asp?pageid=282
Ø Cairn became a participating company in the Extractive Industry Transparency Initiative (EITI) in September 2013. The EITI is a coalition of governments, companies and civil society, who have adopted a multi-stakeholder approach to applying the EITI global standard promoting transparency of payments in the oil, gas and mining sectors http://eiti.org/
For further information on Cairn please see: www.cairnenergy.com
This information is provided by RNS
COMPANIES COVERED:
Latest directors dealings
- 1 day ago FDM Group (Holdings)
- 1 day ago Neo Energy Metals
- 1 day ago DCC (CDI)
- 1 day ago 3i Group
- 1 day ago 3i Group