Annual Report 2007 in PDF - Cairn Energy PLC

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NOTES TO THE ACCOUNTS CONTINUED 35. Contingent Liabilities Ravva Arbitration The calculation of the GoI’s share of petroleum produced from the Ravva oil field has been a matter of disagreement for some years. Ravva is an unincorporated Joint Venture in which Cairn India has an interest. An arbitration panel opined in October 2004 and Cairn has been willing to be bound by the award, although it was not as favourable as had been hoped. The GoI, however, has lodged an appeal in the Malaysian courts and Cairn India continues to maintain its challenge to the GoI’s appeal. Cairn has challenged both the GoI’s right to appeal, and the grounds of that appeal. If the GoI were successful on both these points, it is unclear what process would then follow to resolve the original issue under dispute. Cairn India will defend its right to continue to refer to the existing arbitration panel, whose composition and terms of reference were agreed by all parties at the outset. A date for the appeal has been set in the second half of 2008. In the event that the GoI’s appeal succeeded and a process then ensued which concluded with the arbitration award being reversed in a manner and in a forum which Cairn accepted as binding, then Cairn India would be due to pay an additional $63.9m. Cairn India would also be potentially liable for interest on this sum currently estimated at $24.2m, though the calculation of interest would require further agreement. In a separate and unrelated dispute related to the profit petroleum calculations under the Ravva PSC, the Ravva JV received a claim from the DGH for approximately US$166.4m (representing US$37.4m net to Cairn) for an alleged underpayment of profit petroleum to the GOI, together with interest on that amount through to 30 June 2006 of US$30.6m (representing US$6.9m net to Cairn). This claim relates to the GOI’s allegation that the Ravva JV has recovered costs in excess of the Base Development Costs (BDC) cap imposed in the PSC and that the Ravva JV has also allowed these excess costs in the calculation of the PTRR. Cairn India and its JV partners believe that such a claim is unsustainable under the terms of the PSC because, amongst other reasons, the BDC cap only applies to the initial development of the Ravva field and not to subsequent development activities under the PSC. Additionally the Ravva JV has contested the basis of the calculation in the above claim from the DGH. Even if upheld, Cairn believes that the DGH has miscalculated the sums that would be due to the GOI in such circumstances. Indian Service Tax Cairn India has received two show cause notices from the GoI for non-payment of service tax as a recipient of services from Foreign Service providers. These notices cover periods from 16 August 2002 to 31 March 2006 and 1 April 2006 to 31 March 2007 and total $15.5m. A writ petition challenging the applicability of the service tax has been filed with the High Court in India. Should the adjudication go against Cairn India, the company would be liable for the $15.5m, though it would be able to recover amounts relating to services provided to Joint Ventures from Joint Venture partners. Guarantees It is normal practice for the Group to issue guarantees in respect of obligations during the normal course of business. The Group had provided the following guarantees at 31 December 2007: • various guarantees under the Group’s bank facilities (see Note 30) for the Group’s share of minimum work programme commitments for the current year of $80m; • parent company guarantees for the Group’s obligations under PSC, sales and other contracts. 36. Related Party Transactions The Company’s principal subsidiaries are listed in Note 18. The following table provides the balances which are outstanding with subsidiary companies at the Balance Sheet date. 126 CAIRN ENERGY PLC ANNUAL REPORT 2007 2007 2006 $’000 $’000 Amounts owed from subsidiary undertakings 50,502 71,782 Amounts owed to subsidiary undertakings (5,324) (90,403) ––––––––––– ––––––––––– 45,178 (18,621) ––––––––––– ––––––––––– The amounts outstanding are unsecured and repayable on demand, and will be settled in cash. Interest, where charged, is at market rates. No guarantees have been given.
NOTES TO THE ACCOUNTS CONTINUED The following table provides the transactions with subsidiary companies recorded in the profit (2006: loss) for the year, all of which were carried out on an arm’s-length basis. 2007 2006 $’000 $’000 Amounts invoiced 36,905 43,546 Management fees 1,575 4,574 Waiver of inter-company loan balances – (11,258) Inter-company interest receivable 750 923 Inter-company interest payable 898 925 (a) 2006 Group reorganisations Capitalisation of loan with Cairn Energy Bangladesh Limited and capital reduction On 24 March 2006, the Company received equity from Cairn Energy Bangladesh Limited (‘CEBL’) in settlement of an intercompany loan of $70m. On 28 April 2006, a further $63.6m of share capital was injected into CEBL by Cairn Energy PLC. On 21 June 2006, CEBL received Court approval for a capital reduction where $361.5m was returned to Cairn Energy PLC, creating a capital reserve in the Company’s Balance Sheet. The $361.5m was settled by way of transfer of the share capital of the following subsidiaries: • Cairn Petroleum India Limited • Cairn Energy Discovery Limited • Cairn Energy Search Limited • Cairn Energy Hydrocarbons Limited • Cairn Energy Holdings Limited • Cairn Exploration and Production Company Limited. Loan capitalisation and share exchange agreement with Capricorn for investments in subsidiaries On 24 April 2006, Cairn Energy PLC incorporated a new subsidiary, Capricorn, which was initially incorporated as Cairn Resources Limited. On 30 June 2006, Cairn Energy Nepal Holdings Limited, a subsidiary of the Company, issued 2,039,011 ordinary £1 shares at par in settlement of a loan balance. On 30 June 2006, the Company received 8,610,481 ordinary £1 shares from Capricorn in a share for share exchange for the entire issued share capital of the following companies: • Cairn Energy Bangladesh Limited • Cairn Energy Exploration Bangladesh Limited • Cairn Energy Sangu Field Limited • Cairn Energy Nepal Holdings Limited • Cairn Energy Management Limited • Cairn Oil Limited • Cairn Energy North Sea Limited • Cairn Resources Management Limited • Energy Explorer Limited • Cairn Energy Assets Limited. Share exchange agreement with Cairn UK Holdings Limited for investments in subsidiaries On 26 June 2006, the Company incorporated a new subsidiary, Cairn Uk Holdings Limited. On 30 June 2006 the company received 221,444,034 ordinary £1 shares at par from Cairn Uk Holdings Limited in a share for share exchange for the entire issued share capital of the following companies: • Cairn Petroleum India Limited • Cairn Energy Discovery Limited • Cairn Energy Gujarat Block 1 Limited • Cairn Energy Hydrocarbons Limited • Cairn Energy Holdings Limited • Cairn Exploration (No. 7) Limited • Cairn Exploration (No. 6) Limited • Cairn Exploration (No. 4) Limited • Cairn Exploration (No. 2) Limited. CAIRN ENERGY PLC ANNUAL REPORT 2007 127
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ANNUAL REPORT & ACCOUNTS 2007 CAIRN
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CAIRN is an edinburgh based oil and
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CAIRN INDIA performance First comme
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2000 lakshmi disCovery 2001 sarasWa
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THE RESTRUCTURING OF THE GROUP INTO
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ajasthan midstream the government o
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Cambay Basin, India CAIRN ENERGY PL
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Cairn india assets 30% 30% 49% 40%
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Rajasthan, India the increased reso
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Detail heading here relore min ullu
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uk (West Of shetland) Block 214/19
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nePal the security situation in nep
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angladesh reserves sangu gross 2p r
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activities in all operated blocks.
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2007 marked the beginning of a new
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key financial performance indicator
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CAIRN INDIA CAPITAL EXPENDITURE FOR
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3 9 12 4 8 1 Sir Bill Gammell, Chie
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2007 ACCOUNTS Risk Factors 36 Corpo
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RISk FACTORS CONTINUED The developm
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RISk FACTORS CONTINUED Corporate Re
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CORPORATE GOVERNANCE STATEMENT CONT
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DIRECTORS’ REPORT CONTINUED At 31
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DIRECTORS’ REPORT CONTINUED Elect
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DIRECTORS’ REPORT CONTINUED Age o
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DIRECTORS’ REMUNERATION REPORT Re
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DIRECTORS’ REMUNERATION REPORT CO
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INDEPENDENT AUDITOR’S REPORT TO T
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PRINCIPAL LICENCE INTERESTS ASIA In
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GROUP INCOME STATEMENT For the year
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