(Preliminary Results Announcement) PDF 0.71MB - Cairn Energy PLC

The combined acquisition cost of the two transactions was broadly in line with the fair valuesattributed to the underlying assets acquired. However, acquisition accounting for a businesscombination under IFRS requires the deferred tax provision to be based on these revisedcarrying values of the assets. For accounting purposes, the deferred tax liability createdreduced the value of the net assets acquired by US$485m and resulted in the recognition ofgoodwill on acquisition. Following these accounting adjustments, Cairn’s Balance Sheetadditions include US$474m of goodwill from the transactions.Goodwill is allocated to the North Sea operating segment and was tested for impairment atthe Balance Sheet date. Though no impairment was identified, the recoverable amount ofthe underlying assets was not significantly above their carrying value. A key assumption inthe impairment test was the fair value attributed to the Skarfjell discovery, where anappraisal well is currently operating. The results of this well are due shortly and a review ofthe carrying value of goodwill will be carried out at that stage. Any impairment arising wouldbe reflected in our interim results for the six months to June 2013.Of the assets acquired, the Catcher and Kraken discoveries are now at a late predevelopmentstage while the approval of the FID in December 2012 by JV partners and byDECC in February 2013 for the Mariner field has resulted in a re-classification of this assetto ‘development’ and reserves being booked. The Skarfjell discovery, which occurred afterthe acquisition of Agora had been agreed but before it completed, added further successfulexploration to Cairn’s Balance Sheet. At 31 December, US$849m was held in intangibleexploration/appraisal assets and US$71m in property plant and equipment relating to NorthSea properties.Since the acquisitions completed, seven exploration wells have been drilled in the North Seawithout commercial success and a charge of US$159m has been made to the IncomeStatement. During the first half of 2013 it is anticipated that a further four exploration andappraisal wells will be drilled in this region.Financial Assets and Working CapitalCairn’s Balance Sheet strength is underpinned by its cash and listed investment assetswhich are available to fund planned and future exploration, appraisal and developmentopportunities.At the year end the Group’s remaining ~10% holding in CIL was valued at US$1.1bn.During 2012 Cairn disposed of an aggregate ~11.5% of its shareholding in two separate onmarket transactions in June and September. These sales generated US$1.3bn of net cashinflows.As a result of the return of ~US$3.5bn in cash to shareholders in the first half of 2012, theGroup’s net cash balance of $1.6bn at 31 December 2012 is significantly lower than theequivalent 2011 figure.The Group has bank borrowings of US$30m. These short term loans are drawn againstfuture tax refunds receivable in Norway on qualifying exploration expenditure incurred in theyear.13