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Cairn Energy Plc Annual Report & Accounts 2009

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Cairn Energy Plc Annual Report & Accounts 2009 CAIRN ENERGY PLC ANNUAL REPORT & ACCOUNTS 2009 WE ARE CAIRN ENERGY, ONE OF EUROPE’S LARGEST INDEPENDENT OIL AND GAS EXPLORATION AND PRODUCTION COMPANIES. WE ARE LISTED ON THE LONDON STOCK EXCHANGE AND BASED IN EDINBURGH. OUR BUSINESS IS DIVIDED INTO TWO KEY UNITS: ONE FOCUSED ON DEVELOPING THE RAJASTHAN RESOURCE BASE; THE OTHER EXPLORING FRONTIER BASINS IN GREENLAND. OVERVIEW 1 Highlights of the Year 4 Who We Are and What We’ve Achieved in 2009 8 Values, Vision and Approach 12 The Rajasthan Development BUSINESS REVIEW 14 Chairman’s Statement 16 Chief Executive’s Review 20 Operational Review 28 Financial Review 32 Principal Risks and Uncertainties 34 Corporate Responsibility 42 Board of Directors 44 Directors’ Report GOVERNANCE 52 Corporate Governance Statement 62 Directors’ Remuneration Report 78 Principal Licence Interests 80 Independent Auditor’s Report to the Members of Cairn Energy PLC FINANCIAL ACCOUNTS 81 Group Income Statement 82 Statements of Comprehensive Income 83 Balance Sheets 84 Statements of Cash Flows 85 Statements of Changes in Equity 86 Notes to the Accounts 141 Reserves 142 Glossary of Terms 144 Notice of Annual General Meeting 148 Company Information An HTML version of this report is available “ THE GROUP OFFERS AN ATTRACTIVE to view at www.cairnenergy.com/AR2009 – please take the time to have a look. In addition, while you will find a summary BALANCE BETWEEN THE STRONG of our CR performance in this report, the full CR report is only available online this year, CASH FLOWS THAT WILL BE at www.cairnenergy.com/CRR2009 www.cairnenergy.com/AR2009 GENERATED IN RAJASTHAN AND www.cairnenergy.com/CRR2009 HIGH RISK, TRANSFORMATIONAL POTENTIAL IN GREENLAND.” The Mangala Processing Terminal, Rajasthan CAIRN ENERGY PLC ANNUAL REPORT 2009 1 HIGHLIGHTS OF THE YEAR OVERVIEW OPERATIONAL: Oil production commenced from the Mangala field, Rajasthan INDIA: Discovered in place resource increased from 3.7 billion boe to 4 billion boe BUSINESS REVIEW GREENLAND: Geophysical surveys across west, south and eastern Greenland acquired in 2009 GREENLAND: PETRONAS became a 10% partner in existing operated blocks OPERATIONAL INDIA GREENLAND t Group booked entitlement reserves RAJASTHAN RESOURCE BASE: t Geophysical surveys across west, 253.9 mmboe (2008: 254.5 mmboe) t south and eastern Greenland Discovered in place resource GOVERNANCE FINANCIAL ACCOUNTS increased from 3.7 billion boe acquired in 2009 t Gross operated production: to 4 billion boe 77,222 * boepd (2008: 76,298 boepd) t PETRONAS became a 10% t Exploration potential increased; partner in existing operated blocks t Average net entitlement production: prospective in place resource 20,307 * boepd (2008: 12,801 boepd) t Two drilling rigs secured for estimated 2.5 billion boe multi-well offshore exploration * Includes Rajasthan boepd production for 125 days t Block total potential in place programme summer 2010 resource now 6.5 billion boe t Preparations for 2010 geophysical FINANCE t Resource base provides potential surveys and exploration drilling t Group gross cash balances of ~$1.2bn to produce 240,000 bopd underway t PLC/Capricorn net cash of $596m t Four planned exploration wells with a further $64m received in 2010 INDIA target ~1.6 billion of risked oil in following the PETRONAS farm-in RAJASTHAN DEVELOPMENT: place and ~385 mmbbls of risked to Greenland resources, (16 billion of unrisked oil t Processing Train 1 complete and in place and 4.1 billion bbls unrisked t Cairn India Ltd (CIL) gross cash $594m, currently producing ~20,000 bopd net debt of $96m and following the resources) (gross mean figures) t Trains 2 and 3 at the Mangala $1.6bn refinancing during the year, t Pre-qualified as Operator for Processing Terminal (MPT) to be CIL has committed undrawn loan the 2010 Baffin Bay Bid Round facilities of $923m ready Q2 2010 t ~600 km pipeline from MPT to Salaya t Profit after tax before exceptional to be commissioned Q2 2010 items of $52.7m (2008: $10.9m) t Sales arrangements in place for 143,000 bopd t Production expected to ramp up to 125,000 bopd in H2 2010 t Development wells indicate Mangala production potential of 150,000 bopd subject to GoI approval 2 CAIRN ENERGY PLC ANNUAL REPORT 2009 The steam generators at the Mangala Processing Terminal (MPT) in Rajasthan CAIRN ENERGY PLC ANNUAL REPORT 2009 3 bopd Rajasthan development on track to ramp up production OVERVIEW 125,000 to 125,000 bopd in H2 2010 VISION, FOCUS AND ENERGY BUSINESS REVIEW GIVE US OUR EDGE GOVERNANCE FINANCIAL ACCOUNTS Further potential to take Mangala target production to 150,000 bopd Rajasthan target production is now 240,000 bopd View online at www.cairnenergy.com/AR2009 4 CAIRN ENERGY PLC ANNUAL REPORT 2009 WHO WE ARE AND WHAT WE’VE ACHIEVED IN 2009 “ The group has secured financial and operational flexibility.” CAIRN AT A GLANCE Cairn is a dynamic organization which embraces change to Cairn explores for, discovers, develops and produces oil and gas ensure continued competitiveness. Innovation and ideas are assets globally. We have a proven track record of creating and encouraged at every level of the organisation and Cairn treat delivering transformational value through focused exploration people with fairness, dignity and respect. and development. CAIRN’S STRATEGY Our story is about being pioneers and partners. We aim to Cairn’s strategy is to establish commercial reserves from strategic build material positions in frontier areas whilst working with the positions in high-potential exploration plays in order to create communities in which we operate. Over the past 20 years Cairn and deliver shareholder value. Energy has had a focus on South Asia. This focus has resulted in over 40 oil and gas discoveries and the development of major The Company has focused on gaining early entry into key fields in India and Bangladesh. geographic regions such as India and Greenland. Cairn has a long-standing, experienced senior management team geared Cairn also has an early entry and strategic frontier exploration to delivering value for all stakeholders. In the implementation position in Greenland, a country recognised by the United States of this strategy, the Group focuses on identifying assets that Geological Survey (USGS) as having significant yet-to-find are capable of providing significant and sustainable growth hydrocarbon potential. through exploration and value through development. Our values of building respect, nurturing relationships and acting responsibly are at the core of all we do. People are our key asset and our teamwork, innovation and ability to combine technical and commercial expertise give us our edge. KEY MILESTONES 2009 TO 2010 QUARTER 1 2009 QUARTER 2 2009 QUARTER 3 2009 19.01.09 Government of India approves Declaration of Commerciality on Rajasthan Block Northern Appraisal Area 29.08.09 Cairn starts oil production in Rajasthan – Prime 11.03.09 Minister of India dedicates Successful Placing of 6,542,270 it to the Indian Nation new Ordinary Shares at a Placing (see image above opposite) Price of £17.75 per share INDIA GREENLAND OTHER ASSETS CORPORATE 15.01.09 Dr James Buckee appointed as a non-Executive Director CAIRN ENERGY PLC ANNUAL REPORT 2009 5 1 1. First oil inauguration ceremony The Mangala field was dedicated to the Indian nation by the Hon’ble Prime OVERVIEW Minister of India, Dr Manmohan Singh (middle), at the MPT, 29 August 2009, in a ceremony attended by central and state government officials, including the Chief Minister of Rajasthan, Ashok Gehlot (2nd left) and the Petroleum Minister of the GoI, Murli Deora (left) seen here with Sir Bill Gammell (right) and Rahul Dhir (2nd right). BUSINESS REVIEW QUARTER 4 2009 QUARTER 1 2010 GOVERNANCE FINANCIAL ACCOUNTS 04.11.09 Cairn India reaches initial agreement for crude supplies to Reliance Industries Ltd (RIL) 30.11.09 04.01.10 Cairn enters into Cairn secures Stena Don vessel agreement with Dyas for Greenland exploration to swap stake in Capricorn for shares in Cairn and interests in Mediterranean 21.12.09 14.10.09 EGM approves a 16.03.10 Cairn India completes ‘10 for 1’ subdivision of the Drilling commences on US $1.6bn financing share capital of Cairn and Louza block, Tunisia the conversion of certain outstanding share incentive awards 14.10.09 Cairn agrees farm-out with 21.12.09 PETRONAS International Cairn secures Stena Corporation Ltd for existing Forth vessel for Greenland blocks Greenland exploration 6 CAIRN ENERGY PLC ANNUAL REPORT 2009 Local Rajasthani business woman who has benefited from attending courses at the Cairn and IFC supported Enterprise Centre CAIRN ENERGY PLC ANNUAL REPORT 2009 7 In Rajasthan and Gujarat more than 16,000 people were employed OVERVIEW 16,000 in building the MPT and pipeline RESPECT, RELATIONSHIPS BUSINESS REVIEW AND RESPONSIBILITY LIE AT THE HEART OF CAIRN’S CULTURE GOVERNANCE FINANCIAL ACCOUNTS Threefold increase in Exploration seismic total Group employment and survey activities in 2009 to 72 million offshore Greenland man-hours (2008: completed without 24 million man-hours) incidents Cairn Group’s 2009 Lost We have trained nearly Time Injury Frequency 61,000 people in health, Rate (LTIFR) was 0.26 safety and environment (2008: 0.25) – lower than (HSE) across the Rajasthan in the wider upstream upstream and pipeline oil and gas industry project View online at www.cairnenergy.com/AR2009 8 CAIRN ENERGY PLC ANNUAL REPORT 2009 VALUES, VISION AND APPROACH “ We encourage innovation and teamwork. We recognise that working closely with the local communities and authorities are key to our business success.” 1 CAIRN ENERGY PLC ANNUAL REPORT 2009 9 VALUES APPROACH Respect, Relationships and Responsibility lie at the heart We recognise the potential impact of our business on the of Cairn’s culture. We believe that a positive attitude, societies and environments in which we operate.
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