Annual Report 2007 in PDF - Cairn Energy PLC

NOTES TO THE ACCOUNTS
CONTINUED
Other reserves
Other reserves, comprising capital redemption reserves and other distributable capital reserves of a subsidiary, were capitalised
in 2006. Following a subsequent capital reduction in the subsidiary, these were transferred to retained earnings.
Capital reserves – non-distributable
Capital reserves – non-distributable include non-distributable amounts arising on various Group acquisitions. Movement in
2006 follows capitalisation of reserves in a subsidiary. Following a subsequent capital reduction in the subsidiary, these were
transferred to retained earnings.
Cash returned to shareholders
In April 2007, Cairn Energy PLC returned cash to shareholders of £3 per share out of the proceeds of the flotation of Cairn
India on the Bombay Stock Exchange and National Stock Exchange of India. Costs of the transaction of $3,292,000 have been
charged direct to equity and are included within the reduction in retained earnings
Capital
Equity Shares Foreign reserves
share held by currency – non- Retained Total
capital ESOP trust translation distributable earnings equity
Company $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2006 223,670 (37,311) (8,219) 79 73,928 252,147
Exercise of employee share options 3,219 – – – – 3,219
Share-based payments – – – – 6,739 6,739
Cost of shares vesting – 3,214 – – (3,214) –
Cost of shares purchased – (21,659) – – – (21,659)
Currency translation differences – – 45,400 – – 45,400
Profit for the year – – – – 164,870 164,870
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At 1 January 2007 226,889 (55,756) 37,181 79 242,323 450,716
Exercise of employee share options 9,968 – – – – 9,968
Share-based payments – – – – 10,579 10,579
Cost of shares vesting – 9,935 – – (9,935) –
Cash returned to shareholders (12,931) 13,802 – – (936,524) (935,653)
Currency translation differences 2,820 – 8,589 – – 11,409
Profit for the year – – – – 1,170,772 1,170,772
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At 31 December 2007 226,746 (32,019) 45,770 79 477,215 717,791
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30. Financial Risk Management: Objectives and Policies
Cairn Energy PLC Group and Company
The primary financial instruments comprise bank loans, cash, short- and medium-term deposits, money market liquidity
funds, loans and other receivables and financial liabilities held at amortised cost. The Group’s strategy has been to finance its
operations through a mixture of retained profits and bank borrowings. Other alternatives such as equity finance and project
finance are reviewed by the Board, when appropriate, to fund substantial acquisitions or oil and gas projects.
The Group and local treasury functions are responsible for managing investment and funding requirements including banking
and cash flow monitoring. They must also recognise and manage interest and foreign exchange exposure whilst ensuring that
the Company and the Group has adequate liquidity at all times in order to meet their immediate cash requirements.
The Company and the Group may from time to time opt to use derivative financial instruments to minimise their exposure to
fluctuations in foreign exchange and interest rates. During the year, Cairn India entered into forward foreign exchange options
to hedge the exposure of future Indian Rupee requirements as part of the Rajasthan Development. Refer to Note 31 for further
details.
During 2007, a currency exchange option contract matured. The contract was entered into by the Company in 2006 in order to
hedge the impact of currency fluctuations resulting from transactions carried out in Indian Rupees as part of the IPO. This was
not exercised due to favourable movements in the exchange rate.
CAIRN ENERGY PLC ANNUAL REPORT 2007 119