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

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Group capital expenditure for the year on exploration, appraisal and pre-developmentactivities was US$139m.Results for the YearThe profit after tax for the year of US$73m reflects foreign exchange gains and other financeincome and the net profit after tax on disposal of financial assets. This is offset by the costsof unsuccessful exploration activities and administration costs.Unsuccessful exploration costs of US$159m predominantly relate to North Sea drillingactivity. Wells drilled include Kakelborg and Geite in the Norwegian North Sea and Tybaltand Spaniards in the UK North Sea. The costs written off include the fair value allocated tothese wells at the time of the Agora and Nautical acquisitions.One-off expenses of US$11m were incurred on the corporate acquisitions. Administrationcosts of US$15m incurred in London and Stavanger offices in the year also includes nonrecurringreorganisation costs and termination payments. The remaining head office cost ofUS$38m, up from US$33m in 2011, reflects the corporate focus of activities during 2012.The sale of an aggregate ~11.5% of the Group’s holding in CIL in two separate transactionsduring the year resulted in an accounting loss of US$82m, reflecting the movement in theprice realised from that recognised at the date of completion of the transaction with VedantaResources. As both sales took place on-market, no tax liability arose and therefore arelease of US$145m has been made from the related deferred taxation provision.Finance income of US$136m includes exchange gains of US$112m: US$62m of these gainswere due to the conversion of proceeds received in USD from the sale of a majority interestin CIL to Vedanta and held in GBP until the cash return to shareholders in February andApril 2012. A further US$50m of exchange gains arose largely on inter-company positionswithin the Group. Other finance income includes the interim dividend of US$18m receivedfrom CIL in November.Taxation credits for the year of US$267m include US$145m from the CIL sales noted above.In addition, US$83m was released from the deferred tax provision primarily as a result of thewrite off of unsuccessful exploration costs. A further US$39m of current tax credits relate toCairn’s Norwegian operations. At the year end, the closing deferred tax provisions totalUS$531m and include US$119m relating to the residual shareholding in CIL and US$412mon oil and gas assets acquired through acquisitions.Principal Risks & UncertaintiesFollowing the completion of the disposal of a majority shareholding in CIL and the return ofcash to shareholders in H1 2012, the Company entered a new phase; the building of abalanced portfolio with exploration opportunities in frontier and mature basins plusdevelopment assets which, when onstream, will provide the cash flow to fund futureexploration. During 2012, this included the acquisition of two companies and the integrationof their assets and staff, and the evaluation of a number of other new investmentopportunities. As the Company continues its strategy of targeting and realising value fromexploration success, the principal risks and uncertainties facing the Group at the end of 2012in relation to the Group’s financial and operational performance are as follows:14
‣ Lack of near-term ‘drillable’ frontier exploration opportunities‣ Lack of exploration success‣ Monetisation of Cairn India shares at the right price and the right time‣ Negative stakeholder reaction to operationsCountry, Currency and Liquidity RisksCairn’s core business is conducted and funded in US Dollars, the functional currency of themajority of companies within the Cairn Group. The Group’s remaining investment in CIL,though denominated in Indian Rupees, is underpinned by US Dollar valued assets. Theacquisition of Agora and Nautical introduced subsidiaries with Norwegian NOK and UKSterling functional currencies though neither bring any significant currency nor countryexposure to the Group, with the only additional balance sheet exposure resulting from theretranslation of the functional currency into presentational US Dollar. Cairn’s balance sheetstrength and significant cash reserves ensure that the Group is liquid. Liquidity risk isclosely monitored through detailed cash forecasting and scenario planning and policies arein place to restrict the concentration risk of funds placed on deposit. The Group’s financialand non-financial assets have been assessed for impairment at the reporting date with nomaterial impairment being identified.Change of AuditorsDuring 2012, Cairn competitively tendered the external audit service contract. As a result ofthe tender, PwC has been selected by the Board as the Company’s auditors. Ernst & Youngwill consequently resign their position as auditors on completion of their work for this yearand PwC will be appointed by the Board to commence their engagement from this time. TheBoard would like to thank Ernst & Young for the excellent services provided to the Companyover many years up to and including the 2012 year end audit. Shareholder approval will besought at the AGM to formally appoint PwC as the Company’s external auditor.Financial OutlookWith net cash plus our investment in Cairn India totalling US$2.7bn at the year end, theGroup remains well funded.We firmly believe that our reduced equity base, following the return of cash to shareholders,means that we can generate significant returns for our shareholders with explorationsuccess. We remain highly focused on investing in the right assets at the right cost todeliver that success.15
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Page 6 and 7: PeopleWe would like to recognise an
Page 8 and 9: Cairn initiated its Environmental I
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(Preliminary Results Announcement) PDF 0.71MB - Cairn Energy PLC

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