Cairn Energy Annual PLC Report and Accounts 2013 Discovering Hidden Value Cairn Energy PLC Annual Report and Accounts 2013 Highlights “ Cairn has an active drilling programme in 2014 that is complemented and balanced by its sustainable development and production portfolio. The strategy continues to focus on an attractive mix of frontier and mature basin exploration. By building a growing prospect and lead inventory, from which to select and high grade prospects for drilling, we aim to offer shareholders material potential growth opportunities over the long term. Cairn is committed to resolving the Indian tax situation and in the meantime can, if required, adapt forward capital and equity exposures.” Simon Thomson Chief Executive Financial Frontier basin exploration – Group net cash at 31 December 2013 Atlantic Margin Operated Programme Mature basin exploration of US$1.25 billion (bn) (three wells, Q2-Q4 2014) (three wells Q2 2014 – Q1 2015) and development – ~10% residual shareholding in Cairn India – The JM-1 well (Cairn 37.5% Working Interest – Two non-operated North Sea exploration wells Limited (CIL) valued at ~US$1.0bn at (WI) and Operator) drilled to evaluate Upper (Aragon and West of Kraken) are scheduled 31 December 2013 which, while interactions Jurassic and Middle Jurassic objectives reached in 2014 with one further well (Tulla) scheduled are ongoing with the Indian Income Tax a total depth of 3,711m TVDSS and has been for 2015 Department, Cairn is not able to sell plugged and abandoned without testing – The second Skarfjell appraisal well successfully – The Group was compliant with tax legislation in – As previously announced in December 2013, delineated the field and the partners are now place at the time in each relevant jurisdiction, the FD-1 exploration well was plugged and examining possible development concepts for including India. The Group will take whatever abandoned. The primary target of the well was Skarfjell (Cairn 20% WI) steps are necessary to protect its interests a Late Jurassic/Early Cretaceous deep-water – The Kraken Field Development Plan (FDP) – Following the restriction imposed on our ability turbidite slope fan and channel complex. While received approval from the Department of to access the value of our shareholding in gas shows confirmed an active thermogenic Energy and Climate Change (DECC) with first CIL, Cairn is committed to all of its planned petroleum system, the well did not encounter oil expected H2 2016/H1 2017. Consequently, operations in 2014 while capital allocation for clastic reservoirs Cairn has booked 30 million barrels of oil future programmes will depend primarily on: – The first of two planned exploration wells equivalent (mmboe) 2P reserves. Peak forecast – the progress of Catcher through to offshore Senegal (Cairn 40% WI) will production is 50,000 barrels of oil per day (bopd) project sanction; commence in April after operations (12,500 bopd net to Cairn) (Cairn 25% WI) – the conclusion of debt facilities for both in Morocco have been completed – The Catcher FDP approval is expected by the Catcher and Kraken; and – Operations offshore West of Republic of operator in Q2 2014 (Cairn 30% WI) – the results of our 2014 drilling programme Ireland on the Spanish Point appraisal well – The existing portfolio provides many opportunities are targeted to commence Q2/Q3 2014 and we are looking closely at the allocation (Cairn 38% WI) Chairman of capital for the programme beyond 2014, – As previously announced, Sir Bill Gammell which will be guided by three core principles: Atlantic Margin Non-Operated Programme will retire as non-executive Chairman of the – creating value through exploration (one well, Q4 2014) Company with effect from the conclusion of the – maintaining a balanced portfolio, with a – One exploration well is planned to commence Company’s AGM on 15 May 2014; Ian Tyler, strong operating cash flow in the future; and on the Cap Boujdour Contract Area in 2014 currently a non-executive director of the – capital discipline with Kosmos Energy (operator) and the Company, will be his successor – The Board has decided to suspend the Moroccan National Oil Company (ONHYM) previously announced share buy-back (Cairn 20% WI) subject to government approval programme as of 21 March 2014 until the position regarding the CIL shareholding is resolved. To date 25,180,201 shares for an aggregate consideration of ~US$94.7 million (m) have been repurchased as part of the buy-back programme. The total number of voting rights in Cairn, as at 17 March 2014 is 578,189,219 Strategic Review Leadership and Governance Financial Statements Additional Information Strategic Review Committed to delivering 02-61 What Cairn Did In 2013 02 material growth and Chairman & CEO Statement 04 What Cairn’s Business Model Is 08 How Cairn Delivers Its Strategy 10 shareholder value Global Oil and Gas Trends In 2013 12 Where Cairn Is Focused 14 Cairn Energy PLC is an established and pioneering reflective of the company size, in the Atlantic Margin Who Our Regional Team Is 16 independent oil and gas exploration company with and Mediterranean basins. This frontier strategy How We Operate Responsibly 18 a track record of delivering substantial returns and is underpinned by the non-operated mature basin How We Work Responsibly 20 capital growth to shareholders. exploration and development projects in the How We Nurture Our People 22 North Sea which will provide growth and income How We Monitor Performance 24 Cairn’s growth model is to create, add and realise in the medium term to fund future exploration. value within a self funding business which has either Operational Review 30 balance sheet cash or operating cash flow from which In 2013, Cairn delivered on its priorities, creating Financial Review 38 to fund exploration. The exploration programme a business offering multiple opportunities for How We Manage Risk 42 is focused on seeking to create value within frontier growth within a coherent strategy and a sustainable Working Responsibly 50 opportunities with suitable equity levels, which are business model. Leadership and Governance 62-98 Board of Directors 62 Directors’ Report 64 Corporate Governance Statement 67 Audit Committee Report 78 Directors’ Remuneration Report 81 Financial Statements 99-146 Independent Auditors’ Report 99 Group Income Statement 104 Group Statement of Comprehensive Income 104 Group Balance Sheet 105 Group Statement of Cash Flow 106 US$1.25bn 62 licences Group Statement of Changes in Equity 107 Group net cash at 31 December 2013. in 11 countries in frontier and mature Section 1 – Basis of Preparation 108 basins at 31 December 2013. Section 2 – Oil and Gas Assets and 110 Related Goodwill Section 3 – Financial Assets, Working Capital 116 and Provisions Section 4 – Results for the Year 121 Section 5 – Capital Structure and 127 Other Disclosures Section 6 – Post Balance Sheet Events 132 Company Balance Sheet 133 Company Statement of Cash Flow 134 Company Statement of Changes in Equity 135 Section 7 – Notes to the Company 136 Financial Statements Appendices to the Group and 140 Company Financial Statements Additional Information 62 prospects 7 wells 147-150 and 155 leads within the targeted in 2014. current portfolio. Cairn Group Licence List 147 Glossary 150 Company Information Inside Back Cover Corporate Offices Back Cover Cairn Energy PLC Annual Report and Accounts 2013 01 What Cairn Did In 2013 A year of progress Quarter One Quarter Two January to March 2013 April to June 2013 Q1: Building Q2: Developing a Platform the Business Seismic survey vessel Cajun Express drilling unit Cairn farmed-in to the Aragon prospect (30% WI) in the In April, Cairn secured a year-long contract with Transocean for UK in January. Furthermore, Cairn was awarded interests in the Cajun Express drilling unit for use on its multi-well frontier two further licences in Norway in the Awards in Predefined exploration drilling campaign in North West Africa in Q4 2013 Areas (APA) licence round. In March, drilling operations and 2014. The Cajun Express is a deepwater, 5th generation, completed on the Timon exploration well located in the UK dynamically positioned, semi-submersible drilling rig with (Cairn 25% WI, as non-operator). The well reached a total shallow mooring capabilities and a 15,000 psi blow out depth of 10,787 feet but did not encounter hydrocarbons preventer (BOP) stack. and was plugged and abandoned. In March, Cairn added to its Atlantic Margin portfolio focus by farming-in In May, Cairn added further opportunities to its Atlantic Margin as Operator to three blocks offshore Senegal with a WI of 65%. The three programme with new acreage in the Republic of Ireland following the contiguous blocks – Rufisque Offshore, Sangomar Offshore and Sangomar farm-in, as Operator, to two licences in the Porcupine Basin which contain Deep – cover an area of approximately 7,490km2 in the Senegalese portion the undeveloped Spanish Point gas condensate and Burren oil discoveries, of the productive Mauritania-Senegal-Guinea-Bissau Basin. Subject to the and six adjacent licensing option blocks. Cairn and its JV partners will necessary approvals, Cairn and its JV partners will begin their two well commence an appraisal well on the Spanish Point discovery in Q2/Q3 exploration programme in H1 2014. 2014. The acreage covers an area of 2,753km2 with more than 500km2 covered by 3D seismic data. During this period, Cairn also completed 680km2 of 3D seismic acquisition over the Juby Maritime block, offshore Morocco. During this