Annual Report 2007 in PDF - Cairn Energy PLC

More documents

Recommendations

Info

RISk FACTORS CONTINUED The Group’s financing costs may be significantly affected by interest rate volatility. The Group is also exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to draw down and the risk that financial assets cannot readily be converted to cash without loss of value. Furthermore, the GoI currently operates certain controls on currency exports which restrict the transfer from India of Rupees. While the policy and practice of the GoI has been to relax many of these controls and no restrictions are in place at present that would prevent free remittance of dividends from Cairn India to the Company, there is a risk that controls may be re-imposed in future. Regulation The Group may incur material costs in complying with, or as a result of health, safety and environmental laws and regulations. The Group is subject to a broad range of health, safety and environmental laws and regulations that impose controls on, among other things, the storage, handling and transportation of petroleum products, employee exposure to hazardous substances and other aspects of its operations. The Group may also incur liabilities for environmental damage caused by acts or omissions of any third party contractors. Further, the adoption of new health, safety and environmental laws and regulations, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments in the future may require additional capital expenditures or result in the Group incurring additional operating expenses in order to maintain current or future operations. These laws and regulations are increasingly stringent and may in the future create substantial environmental compliance or remediation liabilities and costs. If the Group fails to meet environmental requirements or has a major accident or disaster, it may also be subject to administrative, civil and criminal proceedings by governmental authorities, as well as civil proceedings by environmental groups and other individuals, which could result in fines, penalties and damages against it as well as orders that could limit, halt or even cause closure of its operations, any of which could have material adverse effect on its business, results of operations and financial condition. The Cairn India Group is also subject to limits as to how much it may borrow under both the Indian Companies Act 1956 and its Articles of Association. Indian law further restricts the ability of the Company to dispose of shares in Cairn India for certain periods of time. Capricorn is still waiting for amendments to its PSCs in Blocks 5 and 10 in Bangladesh to be formalised in writing, further details of which are set out on page 20. Capricorn also currently has licence awards pending in Spain and in Sicily, further details of which are set out on page 20. Market Place The Group’s results of operations and financial condition are subject to fluctuations in oil and gas prices. The oil and natural gas industry is highly competitive. Due to, amongst other things, the significant increases in international oil prices, the Group is subject to highly competitive market conditions for the resources required to conduct its ongoing business, in particular with regard to the engagement of leading third party service providers and the purchase of capital equipment. Coupled with relatively limited resources and expertise in India, in particular in the area surrounding Rajasthan, this has resulted in a strain on the specialist engineering and other services that Cairn India needs to develop its fields in Rajasthan. The remaining development costs, as well as the current target of the second half of 2009 for first commercial production from the Mangala field, are subject to these risks of raw material and equipment shortages, or price increases above those anticipated and an inability to procure or design the engineering services required. Year on year cost escalation in the upstream oil and gas sectors is reported to have been in excess of 20% in US Dollar terms during 2007. Insurance Consistent with good industry practice, a comprehensive insurance programme is maintained to mitigate significant losses. There is a risk, however, that the Group’s insurance policies may not be sufficient in covering all losses which it or any third parties may suffer. If the Group suffers an event for which it is not adequately insured, there is a risk that this could have a material adverse effect on its business, results of operations and financial condition. The programme is also subject to certain limits, deductibles and other terms and conditions. Human Resources The Group’s performance and its ability to mitigate those risk factors within its control depend on the skills and efforts of its employees and management teams across the Group. Future success will depend to a large extent on the Group’s continued ability to attract, retain and motivate highly skilled and qualified personnel. Attracting and retaining top quality managerial talent has become a serious challenge facing companies in the oil and gas exploration and production sector. Failure to have or retain key positions and functions in place could have a material adverse effect on the Group’s business, results of operations and financial condition. 38 CAIRN ENERGY PLC ANNUAL REPORT 2007
RISk FACTORS CONTINUED Corporate Responsibility The Group recognises that applying its CR Policies and ‘Guiding Principles’ in all activities is essential in maintaining its ‘licence to operate’ and business reputation. CR risks occur when any part of the business fails to implement these Policies and ‘Guiding Principles’. CR risks that could affect the Group’s ability to deliver projects on time and within budget include inadequate stakeholder engagement, failure to put in place appropriate controls to mitigate environmental and social impacts, not having adequate processes in place to protect human rights in activities in our ‘sphere of influence’ and the ineffective implementation of health and safety policies. War, Terrorist Attack and Natural Disasters The Group’s business may be adversely affected by a war, terrorist attack, natural disaster or other catastrophe, particularly given the location of some of the Group’s assets in South Asia where terrorist attacks have become more prevalent in recent times. Furthermore, the Group’s assets are exposed to risks from adverse weather conditions; in particular, Capricorn’s assets in Bangladesh are exposed to risks from extreme weather conditions, which are often experienced in South Asia. In addition, the low-lying nature of much of Bangladesh puts it at risk from any rise in sea levels as a result of global warming. Any damage to the Capricorn infrastructure in Bangladesh or disruption or suspension of production (in particular from the Sangu gas field) could have a material adverse affect on the financial condition and/or operating results of Capricorn and the Group. In addition, Capricorn’s assets in Greenland are subject to the onset of ice during a portion of the year. Political Climate The Group is active in a number of overseas markets and may be affected by a change in fiscal policy in respect of, or which impacts upon, these markets. The Group cannot predict the impact of future changes in fiscal policy in the countries and markets in which it operates. Amendments to existing legislation (particularly increases in tax rates or withdrawals of tax relief), the introduction of new tax laws (such as the imposition of import and/or export quotas or import and/or export tariffs) and changes from time to time in the interpretation of existing tax laws could materially adversely affect the Group’s reputation, financial condition and/or operating results. In particular, Cairn India may be liable to pay cess under the Indian Oil Industry (Development) Act 1974 (‘OIDA cess’) in relation to the production of crude oil from Rajasthan under the terms of the RJ-ON-90/1PSC. After receiving an order confirming its liability to pay OIDA cess on pit oil in March 2006, Cairn India appealed this decision with the Customs, Excise and Service Tax Appellate Tribunal in New Delhi; this appeal currently remains pending. Any requirement to pay OIDA cess on commercial production of crude oil, whether or not recoverable pursuant to the terms of the PSC, may have a material adverse effect on Cairn India’s financial condition and results of operations. In respect of the political climate in Nepal, despite the ceasefire and ongoing negotiations between the Government of Nepal and Maoist rebels, the political situation in that country is extremely sensitive. The Group has sought to preserve its contractual position with respect to its Nepalese interests by serving force majeure notices on the Government of Nepal. There is a risk that the situation in Nepal may never improve sufficiently to enable the Group to recommence its activities in that country. In addition, there is a risk that if the Government of Nepal changes as a result of the recent political instability in that country, the new government may seek to disclaim the Group’s interests in Nepal. Cash Flow Due to their concentration on exploration, appraisal and development activities, both Cairn India and Capricorn are expected to remain cash flow negative for some time. Cairn India plans to finance its operations from cash generated from its producing fields, from the cash proceeds received and retained in respect of the IPO, from, subject to shareholder approval, the private placement of shares to Petronas and Orient Global and from committed and available loan facilities. Capricorn expects to finance its activities from cash generated from its producing field, from the recent disposal of a 50% interest in this field, from cash injected as share capital by the Company and from the issue of 10% of the share capital of Capricorn to Dyas BV, further details of which are set out on page 91. If production from any of the Group’s currently producing fields is interrupted or suspended, this would have a further impact on the Group’s cash flow. The Group is also exposed to credit risks if counterparties fail to meet their payment obligations. CAIRN ENERGY PLC ANNUAL REPORT 2007 39
Page 1 and 2: ANNUAL REPORT & ACCOUNTS 2007 CAIRN
Page 3 and 4: CAIRN is an edinburgh based oil and
Page 5 and 6: CAIRN INDIA performance First comme
Page 7 and 8: 2000 lakshmi disCovery 2001 sarasWa
Page 9 and 10: THE RESTRUCTURING OF THE GROUP INTO
Page 11 and 12: ajasthan midstream the government o
Page 13 and 14: Cambay Basin, India CAIRN ENERGY PL
Page 15 and 16: Cairn india assets 30% 30% 49% 40%
Page 17 and 18: Rajasthan, India the increased reso
Page 19 and 20: Detail heading here relore min ullu
Page 21 and 22: uk (West Of shetland) Block 214/19
Page 23 and 24: nePal the security situation in nep
Page 25 and 26: angladesh reserves sangu gross 2p r
Page 27 and 28: activities in all operated blocks.
Page 29 and 30: 2007 marked the beginning of a new
Page 31 and 32: key financial performance indicator
Page 33 and 34: CAIRN INDIA CAPITAL EXPENDITURE FOR
Page 35 and 36: 3 9 12 4 8 1 Sir Bill Gammell, Chie
Page 37 and 38: 2007 ACCOUNTS Risk Factors 36 Corpo
Page 39: RISk FACTORS CONTINUED The developm
Page 43 and 44: CORPORATE GOVERNANCE STATEMENT CONT
Page 53 and 54: DIRECTORS’ REPORT CONTINUED At 31
Page 55 and 56: DIRECTORS’ REPORT CONTINUED Elect
Page 57 and 58: DIRECTORS’ REPORT CONTINUED Age o
Page 59 and 60: DIRECTORS’ REMUNERATION REPORT Re
Page 61 and 62: DIRECTORS’ REMUNERATION REPORT CO
Page 71 and 72: INDEPENDENT AUDITOR’S REPORT TO T
Page 73 and 74: PRINCIPAL LICENCE INTERESTS ASIA In
Page 75 and 76: GROUP INCOME STATEMENT For the year
Page 77 and 78: BALANCE SHEETS As at 31 December 20
Page 79 and 80: NOTES TO THE ACCOUNTS For the year
Page 81 and 82: NOTES TO THE ACCOUNTS CONTINUED Net
Page 83 and 84: NOTES TO THE ACCOUNTS CONTINUED Cas
Page 85 and 86: NOTES TO THE ACCOUNTS CONTINUED No
Page 87 and 88: NOTES TO THE ACCOUNTS CONTINUED 2.
Page 89 and 90: NOTES TO THE ACCOUNTS CONTINUED Cas
Page 91 and 92:
NOTES TO THE ACCOUNTS CONTINUED The
Page 93 and 94:
NOTES TO THE ACCOUNTS CONTINUED (b)
Page 95 and 96:
NOTES TO THE ACCOUNTS CONTINUED Und
Page 97 and 98:
NOTES TO THE ACCOUNTS CONTINUED 200
Page 99 and 100:
NOTES TO THE ACCOUNTS CONTINUED Emp
Page 101 and 102:
Page 103 and 104:
NOTES TO THE ACCOUNTS CONTINUED (b)
Page 105 and 106:
NOTES TO THE ACCOUNTS CONTINUED All
Page 107 and 108:
NOTES TO THE ACCOUNTS CONTINUED Ten
Page 109 and 110:
NOTES TO THE ACCOUNTS CONTINUED Sof
Page 111 and 112:
Page 113 and 114:
NOTES TO THE ACCOUNTS CONTINUED Gro
Page 115 and 116:
NOTES TO THE ACCOUNTS CONTINUED As
Page 117 and 118:
NOTES TO THE ACCOUNTS CONTINUED At
Page 119 and 120:
NOTES TO THE ACCOUNTS CONTINUED Num
Page 121 and 122:
NOTES TO THE ACCOUNTS CONTINUED Oth
Page 123 and 124:
NOTES TO THE ACCOUNTS CONTINUED Cai
Page 125 and 126:
Page 127 and 128:
NOTES TO THE ACCOUNTS CONTINUED 34.
Page 129 and 130:
Page 131 and 132:
RESERVES Direct Direct working enti
Page 133 and 134:
NOTICE OF ANNUAL GENERAL MEETING No
Page 135 and 136:
NOTICE OF ANNUAL GENERAL MEETING CO
Page 137 and 138:
GLOSSARY OF TERMS CONTINUED TECHNIC
Page 139 and 140:
The cover and text pages 1-36 of th
show all

Annual Report 2007 in PDF - Cairn Energy PLC

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?