TIDMCNE
RNS Number : 7328L
Cairn Energy PLC
10 September 2019
EMBARGOED FOR RELEASE AT 0700 10 September 2019
CAIRN ENERGY PLC ("Cairn" or "Company" or "Group")
Half-Year Report Announcement
Simon Thomson, Chief Executive, Cairn Energy PLC said:
"As a full cycle E&P business Cairn has seen good progress
in the first half of 2019 with the opportunity to develop and
deliver multiple catalysts for future growth.
Production performance from our North Sea assets is ahead of
expectations, delivering significant cash flow to reinvest in the
portfolio. The SNE development in Senegal, where FID is expected in
H2, remains on schedule for first oil in 2022.
Our drilling programme is about to commence offshore Mexico,
where Cairn has built a material footprint in one of the world's
most prolific basins. Recent portfolio acreage additions provide
line of sight to future high potential exploration prospects."
H1 2019 Summary
Ø Combined net oil and gas production ahead of 2019 guidance at
23,700 boepd (+15% v previous six months)
Ø Oil and gas sales revenue US$257m, average realised price
US$68/boe; average production cost US$17/boe
Ø Net cash inflow from oil and gas production US$177m
Ø Capital expenditure: cash outflow US$135m (US$14m of tax
refund receivable)
Ø Group cash at 30 June 2019 US$58m; US$60m drawn under US$575m
RBL facility
2019 Outlook
Ø Full year oil production guidance: upgraded to 21,000-23,000
bopd from 19,000-22,000 bopd; average production cost reduced from
US$20/boe to US$18/boe
Ø Full year forecast capital expenditure US$295m; Exploration
& Appraisal US$165m (net of tax refund), Development &
Production US$130m
Ø Portfolio Management: agreed to farm down 15% WI in Chimera to
DNO, agreement with ENI to swap 15% WI in Block 10 Mexico and
agreed sale of 10% WI in Nova development to ONE-Dyas
Ø Senegal: SNE field development (Cairn 40% WI) major contracts
awarded. JV progressing towards FID in H2 2019, targeting first oil
in 2022
Ø Mexico: two operated wells Block 9 (Cairn 50% WI) to be
drilled in Q3 and Q4: two non-operated wells on Block 7 (Cairn 35%
WI) and Block 10 (Cairn 15% WI) to commence in H2 2019
Ø UK and Norway: Drilling about to commence on Chimera (Cairn
45% WI) exploration well
Enquiries to:
Analysts / Investors
David Nisbet, Corporate Affairs Tel: 0131 475 3000
Media
Linda Bain, Corporate Affairs Tel: 0131 475 3000
Cairn Energy PLC
Patrick Handley, David Litterick Tel: 0207 404 5959
Brunswick Group LLP
Webcast
There will be a live audio webcast of the results presentation
available to view on the website (www.cairnenergy.com) at 9am BST.
This can be viewed on PC, Mac, iPad, iPhone and Android mobile
devices.
An 'on demand' version of the webcast will be available on the
website as soon as possible after the event. This can be viewed on
PC, Mac, iPad, iPhone and Android mobile devices.
Presentation
The results presentation slides will be available on the website
from 7am BST.
Conference call
You can listen to the results presentation by dialling in to a
listen only conference call at 9am BST using the below dial-in
details.
Dial-in Details:
United Kingdom (Local): +44 (0)330 336 9411
Access code: 6783932
Transcript
A transcript of the presentation will be available on the
website as soon as possible after the event.
Corporate & Finance Overview
In H1 2019, improved production performance has allowed
investment in additional growth whilst giving flexibility to make
long-term investment decisions that offer the Company the
opportunity for continued shareholder returns.
Through managing the portfolio our investment approach ensures
we apply strict capital discipline to maintain appropriate balance
sheet strength. Our full cycle, sustainable business model enables
us to leverage success and we continue to optimise and where
appropriate expand the asset base.
By continuing to build and diversify the exploration portfolio,
we have established attractive positions across ten countries with
up to 14 wells planned in 2019-2020. Cairn seeks to participate in
a range of exploration opportunities from early entry in frontier
basins, to taking significant positions in emerging and mature
basins and aims to deliver a material ongoing programme of operated
and non-operated wells.
Current sources of funding include cash of US$58m at the half
year end and the US$575m RBL facility of which US$60m has been
drawn. The group also has a NOK700m Norway Exploration Finance
Facility, which is available to finance future tax refunds on
Norwegian exploration expenditure, of which NOK344m (US$40m) is
currently drawn.
During H1, we were pleased to see strong production from our UK
assets, generating oil and gas sales of US$257m and cash inflows of
US$177m. Average oil prices for H1 were US$67.84 per boe (before a
US$0.75 gain on hedging). Average production costs were US$16.73
per boe.
At 30 June 2019, Cairn has hedged 3.4 mmbbls of future
production through to December 2020 using collar structures with a
weighted average floor of US$64.53 per bbl and an average ceiling
of US$78.83 per bbl.
Capital expenditure for the full year 2019 is expected to be
US$295m, including US$25m anticipated expenditure on Kraken and
Catcher, US$105m on the Senegal and Nova developments and forecast
E&A expenditure of up to US$165m. Capital expenditure in H1
2019 was US$135m (US$121m net of future Norwegian tax refunds).
Production
In H1 oil and gas production averaged 23,700 boepd net to Cairn,
up 15% on the previous six months. To date in Q3 we have continued
to see exceptional uptime on Catcher and significantly improved
facilities performance at Kraken and as a result, are upgrading
2019 full year production guidance to 21,000-23,000 bopd net. Both
fields have further investments planned with additional drilling
opportunities in 2020 to help maximise recovery.
Catcher
Catcher's 99% operating efficiency, coupled with the Excess
Production Amendment agreed with the FPSO owner, has allowed
sustained production at 66,600 bopd gross (13,300 bopd net) in H1.
The formal approval for the satellite fields, Catcher North and
Laverda has been received which will help to sustain production
rates. These two wells together with the Varadero infill well are
scheduled to spud in Q2 2020 with first oil targeted in 2021. A 4D
seismic survey across the Catcher Area is scheduled for mid-2020 to
help confirm additional future infill well locations.
Kraken
Average gross production in the six months to June 2019, was
more than 32,700 bopd (9,650 bopd net). Significantly improved
facilities performance at Kraken together with the DC4 wells coming
online has resulted in more continuous periods with production
rates above 40,000 bopd being achieved. Additional drilling
opportunities are maturing in the Western flank where development
drilling of a producer-injector pair through spare capacity in the
existing DC2 sub-sea infrastructure is planned for 2020. Kraken
crude pricing continues to strengthen internationally in light of
the current heavy oil market.
Developments
Senegal
The SNE field development first phase remains on schedule,
targeting first oil in 2022 with expected gross production of
100,000 bopd. The JV submitted an updated SNE Exploitation and
Development Plan to the Ministry of Petroleum and Energies in
August 2019 in order to meet changes and further details requested
by the Ministry ahead of approval. The JV is targeting the Final
Investment Decision in H2 2019 and is progressing finance
arrangements including project financing.
Diamond Offshore was awarded the development drilling contract
in Q2 2019 with phased drilling targeted to commence in Q1 2021.
Two Diamond drill ships, Ocean BlackRhino and Ocean BlackHawk, will
undertake this programme. Halliburton and BHGE have been awarded
the main Drilling Services contracts. Shearwater was awarded a
high-density multi-azimuth 3D seismic acquisition contract over the
SNE field and neighbouring FAN discovery. Data acquisition for this
survey commenced in H2. The subsea and FPSO FEED activities have
progressed well and are now complete.
Norway
The Nova development is on schedule with first oil targeted in
2021 and has expected gross recoverable reserves of 80m boe, of
which the majority will be oil.
In August, Cairn entered into an agreement for the sale of a 10%
WI in the Nova development to ONE-Dyas Norge AS for US$59.5m plus
working capital adjustments, which is expected to increase group
liquidity by US$100m. Following this transaction, Cairn retains a
participating interest of 10% in the Nova development. The
transaction remains subject to the written consent of the Norwegian
Ministry of Petroleum and Energy.
Nova is anticipated to deliver peak production of 50,000 bopd
(net to Cairn 5,000 bopd). The first project milestone was achieved
in H1 with two subsea templates installed on the ocean floor. This
unlocked the next phase of the field development with 65km of
pipelines laid in preparation for tie-back to the nearby Gjøa
platform. Gjøa will receive the well stream and provide water
injection and gas lift to the Nova field. A new module will be
lifted onto Gjøa in 2020. Further satellite developments planned to
be tied back to Gjøa have been submitted to the NPD with a likely
positive impact on the operating expenditure and field life of the
Nova.
Exploration
LATAM Exploration
Mexico
Since the opening of the region to international oil companies
for the first time, there have been only five exploration wells
drilled by IOCs in the Sureste Basin with more than 25 planned in
the next five years. This compares to more than 3,000 wells in the
US Gulf of Mexico in the last 35 years. Cairn now holds a material
shallow water footprint in one of the world's most prolific
hydrocarbon provinces.
Cairn has a position in four blocks (7, 9, 10 and 15) in the
Gulf of Mexico, two as operator and two as non-operator. Mexico
provides an exciting opportunity to discover commercial quantities
of hydrocarbons in an under-explored region.
Cairn is targeting an estimated gross mean prospective resource
of 550 mmboe in the 2019 drilling programme due to commence in
September. The two operated wells on Block 9 will be drilled on the
Alom and Bitol prospects with the Maersk Developer semi-submersible
rig. Contingent on the success of this exploration campaign, Cairn
will seek to expediate the appraisal of any discovery.
Non-operated drilling activity will run in parallel on Blocks 7
and Block 10 where two Eni operated wells are expected to commence
in Q4 2019.
In August 2019, Cairn agreed a farm-in agreement with ENI to
swap 15% of Cairn's interest in Block 9 for 15% of ENI's interest
in Block 10. On completion, this transaction will result in Cairn
holding a reduced interest of 50% on Block 9 and a new interest of
15% on Block 10 (subject to Government approval).
Cairn operates an additional licence in Mexico on Block 15 (50%
WI) located in the shallow water Tampico-Misantla Basin, north-west
of the Sureste Basin interests. In August 2019 the regulator,
Comisión Nacional de Hidrocarburos, approved the exploration plan
with work commitments comprising the purchase of 3D seismic data
and an environmental baseline survey, both of which have been
completed. Further evaluation of the Block is ongoing.
Suriname
In Suriname (Cairn 100% WI), a 4,500 km 2D seismic survey was
acquired in H1. Fast track processing was completed and fully
processed products will be delivered in Q4 2019. This new data will
be incorporated into block wide interpretations, leading to an
updated prospect inventory and decision on future 3D seismic
acquisition.
Nicaragua
In H1, Cairn secured all consents to complete a farm-in to a
35.1% WI of the Equinor operated exploration blocks in the Sandino
Basin, offshore Nicaragua's Pacific coast. The partnership has
recently completed the acquisition and processing of a modern 3D
seismic survey which has provided further encouragement to support
exploration drilling.
East Atlantic Exploration
Côte d'Ivoire
Cairn has entered into the frontier onshore rift play which is
adjacent to an established hydrocarbon province with both oil and
gas production. Cairn's farm-in for a 30% WI in all seven of Tullow
Oil's onshore licences was completed in H1. A 2D seismic
acquisition programme which includes passive seismic acquisition,
is expected to commence in coming months, subject to the receipt of
regulatory approvals. The acquisition will be phased, beginning in
the eastern blocks (CI-520-CI-522) and due to be completed in
2020.
Israel
Following the end of the reporting period and subject to final
completion matters, Cairn was awarded eight licences offshore
Israel in the country's second offshore bid round. Cairn is
Operator of the licences with a 33.34% WI alongside two JV
partners: Ratio Oil Exploration with 33.33% WI, which together with
partners discovered one of the world's largest deep-water gas
discoveries, Leviathan, offshore Israel; and SOCO International plc
with 33.33% WI.
UK & Norway Exploration
One exploration well was completed in Norway in H1: PL885 (30%
WI) containing the Presto prospect which was unsuccessful. A
further two exploration wells have been completed so far in Norway
in Q3 2019: PL758 (Cairn Operator 50% WI) containing the Lynghaug
and PL842 (Cairn Operator 40% WI) containing the Godalen prospect.
Both wells were unsuccessful, there were no traces of petroleum and
the wells were classified as dry.
Drilling is about to commence on a well on P2312 (45% WI),
targeting the Chimera prospect which is the Company's second
operated well in the UK North Sea. The well is targeting a material
prospect of 150 mmbbls gross with stand-alone development
potential. The well is being drilled by the Stena Don and
operations are expected to complete in Q4 2019.
Cairn was awarded the two licences it applied for in the UK
Frontier 31(st) Offshore Licensing Round in H1: Operatorship and
100% WI in the Mane licence which is located close to Chimera and
50% WI and Operatorship in the East Orkney Basin licence.
In 2020, Cairn expects to continue an exploration campaign
across the UK & Norway region with two firm wells.
India
There is no change in outlook with regard to the Indian
arbitration. Drafting of the award by the Tribunal is ongoing and
Cairn continues to have a high level of confidence in the merits of
its claim. Cairn is seeking full restitution for losses totalling
more than US$1.4bn resulting from India's expropriation of its
investments in India in 2014, and India's unfair and inequitable
treatment of those investments, due to the imposition of
retrospective tax measures.
Financial Review
Key Statistics
H1 2019 FY 2018 H1 2018
Production - net WI share (boepd)(1) 23,714 17,533 14,377
Sales volumes (boepd)(2) 20,941 15,946 14,205
Average price per boe (US$)(3) 67.84 67.99 67.81
Revenue from production (US$m) 257.1 395.7 174.3
Average production costs per boe (US$)(4) 16.73 20.49 24.30
Depletion and amortisation costs per
boe (US$) 28.57 26.75 25.29
Net cash inflow from oil and gas production 176.6 224.2 57.3
Net cash inflow from operating activities 172.9 209.0 33.1
============================================= ======== ======== ========
(1) Based on 20% Catcher production and 29.5% of Kraken
production before deducting FlowStream's entitlement to Kraken
volumes during the period of 1,475 bopd (YE 2018: 1,360 bopd; H1
2018: 1,382 bopd)
(2) Working interest share of cargoes sold during the period,
net of FlowStream entitlement
(3) Excluding hedging gains of US$0.75/boe (2018 full year:
costs of US$1.34/boe; 2018 half year: costs of US$0.84/boe)
(4) Production costs include cost of sales plus right-of-use
asset lease repayments; total lease costs of US$8.92/boe (2018 full
year: US$10.46/boe; 2018 half year US$12.43/boe)
Production
During the first half of 2019, daily production volumes on both
assets have increased significantly. Catcher production averaged
70,200 boepd gross for the first half of the year and Kraken
averaged more than 32,700 bopd for the period.
Revenue
Revenue from the sale of oil and gas was US$257.1m in the six
months to 30 June 2019, before adjusting for hedging gains of
US$2.9m. Release of deferred revenue of US$9.7m and royalty income
in Mongolia of US$0.6m, increased total revenue to US$270.3m.
Cost of sales
Total production costs of US$33.8m include US$10.1m of variable
lease payments on the Catcher and Kraken FPSOs. Following adoption
of IFRS 16, both the Kraken and Catcher FPSOs are recorded as
right-of-use assets in the Balance Sheet with lease liabilities
recognised representing minimum payments due over the expected life
of the lease contract. Previously, Catcher was accounted for as an
operating lease, with all payments charged direct to production
costs. Comparative information in the financial statements has not
been adjusted.
Movements in oil inventory and overlift/underlift positions,
measured at market value, of US$9.8m were credited against cost of
sales in the period.
The increased depletion and amortisation cost per boe arises
from the capitalisation and subsequent amortisation of the
right-of-use asset in relation to the Catcher FPSO.
Net cash inflow from operating activities and cash generated
from oil and gas production
Reported net cash inflow from operating activities for the
period of US$172.9m reflects net cash generated from oil and gas
sales after deducting administrative costs. After adding back
administrative costs and pre-award expenditure, and deducting lease
payments, net cash inflow from oil and gas production was
US$176.6m.
Net cash inflow for the Period
US$m
Opening cash and long-term borrowings at 1 January
2019 (18.7)
Net cash inflow from oil and gas production(1) 176.6
Pre-award costs and new venture activities (14.0)
Exploration expenditure(2) (69.8)
Development and pre-development expenditure(3) (65.1)
Administration expenses and corporate assets (17.1)
Drawings under Exploration Finance Facility 12.9
Net finance costs and foreign exchange movements (7.0)
Closing net cash and long-term borrowings at 30
June 2019(4) (2.2)
==================================================== ===================
(1) Net cash inflow from oil and gas production includes cash
flows from sale of oil and gas and includes all FPSO lease payments
(including financing cash flows for lease payments and
reimbursements)
(2) Exploration expenditure represents investing cash outflow of
US$89.5m excluding US$19.7m of pre-development spend in Senegal
(3) Includes investing cash outflow of US$45.4m on
development/producing assets and US$19.7m of pre-development spend
in Senegal
(4) Cash balance of US$57.8m offset by US$60m of drawings under
the RBL facility
Cairn had net debt of US$2.2m at 30 June 2019, representing a
net cash inflow of US$16.5m over the six-month period. Borrowings
under the Group's RBL facility at 30 June 2019 were US$60m, before
adjusting for unamortised facility fees and accrued interest,
representing a net repayment of US$25m in the period. Closing net
cash and long-term borrowings presented above exclude US$39.6m
drawn under the Norwegian Exploration Finance Facility ("EFF")
which are advances secured against tax refunds due from the
Norwegian government and are not considered a true reflection of
the Group's current indebtedness.
There were no changes to the terms of either the RBL or EFF
during the period.
Cash outflows on exploration expenditure in the period include
US$22.6m of UK & Norway costs primarily relating to the
unsuccessful wells in Norway, US$28.7m on completion of farm-ins in
Nicaragua and Côte D'Ivoire and US$11.0m in advance of drilling in
Mexico, with the balance of US$7.5m on the Group's remaining
exploration licence and licence options in Suriname, Ireland and
Mauritania.
Development and pre-development cash outflows in the period
primarily relate to costs on Kraken, Nova and Senegal. On Kraken,
cash spend of US$17m included the completion of final development
drilling on Drill Centre 4 and on Nova cash expenditure of US$26.8m
was incurred as the development progresses. Cash outflows in
relation to Senegal pre-development of US$19.7m included FEED costs
prior to FID approval expected later this year.
Capital expenditure on Oil and Gas Assets
US$m
Opening oil and gas assets at 1 January 2019* 1,765.5
Exploration and appraisal additions
UK & Norway 20.6
LATAM 37.2
East Atlantic 11.2
Pre-development additions:
Senegal 21.5
Development additions
UK & Norway 68.7
Unsuccessful exploration costs - UK & Norway (24.6)
Depletion and amortisation - UK & Norway (122.6)
Other movements (0.6)
Foreign exchange movements 2.2
Closing oil and gas assets at 30 June 2019 1,779.1
=============================================== ===================
* after opening IFRS 16 adjustment
Exploration and appraisal asset additions in the UK & Norway
include costs of the three exploration wells that were either
completed or had commenced in the period. In LATAM, US$22.1m of
costs relate to Nicaragua following the farm-in to four
non-operated blocks and US$5.5m was incurred in Suriname following
the 2018 farm-in to the B61 licence. The remaining LATAM costs of
US$9.6m were spent in Mexico in advance of exploration drilling
commencing this year.
In the East Atlantic segment, US$8.7m was incurred following the
completion of the farm-in to seven non-operated licences in Côte
D'Ivoire and the balance of US$2.5m on licence options in
Mauritania and Ireland.
Senegal activities reflect the continuing work on development
planning following the transfer of the operatorship of the licence
to Woodside.
Development additions in the period totalling US$68.7m include
the completion of development drilling on Kraken and related
increases to the decommissioning asset and costs incurred on the
Nova development. Spend on Catcher was minimal during the
period.
Subsequent to the period-end Cairn has entered into four
asset-related transactions for which approval from relevant
authorities is awaited: the farm-down of the Group's working
interest in the UK Laverda discovery to equalise its interests with
the main Catcher development, the farm-down of a 15% working
interest in the UK Chimera licence, the sale of a 10% working
interest in the Norwegian Nova development and a swap of a 15%
working interest in Block 9 in Mexico for the same working interest
in neighbouring Block 10. Of the four, only the Nova sale is
expected to have a material impact on the financial statements,
where a gain on sale of US$31m is forecast.
Cairn has reviewed all exploration/appraisal and
development/producing assets for indicators of impairment, testing
for impairment where an indicator was identified. No impairment was
recorded. This reflects relatively stable market conditions and
performance from assets in line with or above expectation. The
Group's oil price assumption remains unchanged at the three-year
Brent forward curve then US$70 per bbl long term.
Results for the period - Other operating income and expense
Other operating income and costs, administrative expenses and
net finance costs
Period ended Period ended Year ended
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
Pre-award costs (10.8) (12.0) (25.4)
Unsuccessful exploration costs (25.2) (46.8) (48.2)
Administrative expenses and
other income/costs (17.6) (14.4) (49.9)
Related tax credits 23.4 33.3 41.1
================================ ============= ============= =============
Operational and administrative
expenses (30.2) (39.9) (82.4)
Net finance costs (15.9) (18.2) (18.6)
================================ ============= ============= =============
Pre-award costs reflect ongoing activity as Cairn seeks new
opportunities to add to its portfolio of assets. Subsequent to the
period-end Cairn was awarded eight licences offshore Israel.
Unsuccessful exploration costs, relating almost exclusively to
the UK & Norway region, include costs written off on the
Lynghaug, Presto and Godalen wells offshore Norway of US$12.3m,
US$7.9m and US$3.7m respectively. The balance of US$1.3m was
expensed on other licences where no further exploration activities
are planned.
Related tax credits reflect Norwegian current tax refunds
receivable on qualifying exploration and administrative
expenses.
Taxation
During the period, Cairn made a UK ring fence profit in the
period which was fully offset by brought forward losses. At 30 June
2019, Cairn had total UK ring fence losses of US$795.0m and
supplementary charge losses of $710.4m. US$795.0m of UK ring fence
losses as well as $317.9m of supplementary charge losses are
recognised as deferred tax assets to fully offset deferred tax
liabilities of US$270.3m. The remaining supplementary charge tax
losses of US$392.4m, the activated investment allowance total of
$627.4m and the deferred tax impact of the decommissioning
liability represent an unrecognised deferred tax asset of US$159.3m
at 30 June 2019.
A cash tax refund is receivable in Norway in respect of 78% of
qualifying exploration and overhead spend. US$13.7mm of tax credits
are recorded for amounts receivable relating to the current period.
Norwegian deferred tax liabilities at 30 June 2019 of US$57.6m
reflect timing differences on the carrying value of exploration
assets where either a tax refund has been claimed or an uplift is
available on capital spend.
Board Changes
In H1, Cairn announced the appointment of two new independent
non-executive directors: Catherine Krajicek and Alison Wood who
joined the Board with effect from 1 July 2019. Alison Wood is a
member of the Company's audit committee. Alexander Berger served on
the Board for nine years as non-executive director and retired from
the Company at the AGM in May 2019.
Environmental Social Governance (ESG)
Our approach is governed by our commitment to working
responsibly in all of our activities. Our culture is based on our
longstanding core values, known as the 3Rs which stand for:
building Respect, nurturing Relationships and acting
Responsibly.
We recognise that internationally agreed climate change targets
will require a significant transition to alternative sources of
energy across the world. However, oil and gas will continue to play
a critical role in meeting growing global energy demand during that
transition period and Cairn will help meet that demand safely and
responsibly.
We are committed to working to International Finance Corporation
(IFC) Performance Standards on Social and Environmental
Sustainability, which are in line with the UN Global Compact
principles. Since 2012 we have also been a participating company in
the Extractive Industries Transparency Initiative (EITI) which is a
coalition of governments, companies and civil society that have
adopted a joint approach to applying the EITI global standard,
promoting transparency of payments in the oil, gas and mining
sectors.
Our (non-operated) Catcher and Kraken assets come under the EU
Emissions Trading Scheme Regulations.
We will continue to work to better understand and respond to the
climate change associated challenges facing the industry. We will
continue to work to global standards and reaffirm our commitment to
the United Nations Global Compact, a voluntary initiative based on
CEO commitments to implement universal sustainability principles in
support of UN goals. These topics are considered by the Senior
Executives and Board on a regular basis
Principal risks and uncertainties
Managing the Group's key risks and associated opportunities is
essential to Cairn's long-term success and sustainability. The
Group endeavours to pursue investment opportunities which offer an
appropriate level of return whilst ensuring the level of associated
political, commercial and technical risk remains within the defined
risk appetite of the Group.
The Group's risk management framework provides a systematic
process for the identification and management of the key risks and
opportunities which may affect the delivery of the Group's
strategic objectives. Key Performance Indicators are set annually,
and determining the level of risk the Group is willing to accept in
the pursuit of these objectives is a fundamental component of the
Group's risk management framework.
Overall responsibility for the system of risk management and
internal control and reviewing the effectiveness of such systems
rests with the Board. Principal risks, as well as progress against
key risk projects, are reviewed at each Board meeting and at least
once a year the Board undertakes a risk workshop to review the
Group's principal risks. This integrated approach to risk
management has been and continues to be critical to the delivery of
strategic objectives.
Responding to Changing Risks during H1 2019
Cairn has assessed the principal risks and uncertainties at the
end of H1 2019 and concluded that the principal risks identified at
2018 year-end remain relevant. The principal risks are:
-- Lack of exploration success
-- Volatile oil and gas prices
-- Securing new venture opportunities
-- Delay in Senegal development plan approval
-- Kraken and Catcher operational and project performance
-- Reliance on JV operators for asset performance
-- Health, safety, environment and security
-- Fraud, bribery and corruption
-- Inability to secure or repatriate value from India
-- Political and fiscal uncertainties
-- Access to debt markets
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors' confirm that these condensed consolidated interim
financial statements have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and loss for
the period and that the interim management report includes a fair
review of the information required by DTR 4.2.7 and DTR 4.2.8,
namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The directors of Cairn Energy PLC are listed in the Cairn Energy
PLC Annual Report for 31 December 2018. A list of current directors
is maintained on the Cairn Energy PLC website:
www.cairnenergy.com
By order of the Board.
Simon Thomson James Smith
Chief Executive Chief Financial Officer
9 September 2019 9 September 2019
Independent review report to Cairn Energy PLC
Report on the consolidated financial statements
Our conclusion
We have reviewed Cairn Energy PLC's consolidated financial
statements (the "interim financial statements") in the half-year
report of Cairn Energy PLC for the 6-month period ended 30 June
2019. Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the group balance sheet as at 30 June 2019;
-- the group income statement and group statement of
comprehensive income for the period then ended;
-- the group statement of cash flows for the period then ended;
-- the group statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half-year
report have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-year report, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the
half-year report in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-year report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-year
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Edinburgh
9 September 2019
Contents
-----------------------------------------------------------------
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Cash Flows
Group Statement of Changes in Equity
Section 1 - Basis of Preparation
1.1 Accounting Policies
1.2 Going Concern
1.3 Adoption of IFRS 16 'Leases'
Section 2 - Oil and Gas Assets and Operations
2.1 Gross Profit: Revenue and Cost of Sales
2.2 Intangible Exploration/Appraisal Assets
2.3 Property, Plant & Equipment - Development/Producing
Assets
2.4 Decommissioning Provisions
2.5 Capital and Lease Commitments
Section 3 - Working Capital, Financial Instruments and Long-term
Liabilities
3.1 Loans and Borrowings
3.2 Lease Liabilities
3.3 Trade and Other Receivables
3.4 Derivative Financial Instruments
3.5 Trade and Other Payables
3.6 Deferred Revenue
Section 4 - Income Statement Analysis
4.1 Segmental Analysis
4.2 Earnings per Ordinary Share
Section 5 - Taxation
5.1 Tax Credit on Profit/(Loss) for the Period
5.2 Income Tax Asset
5.3 Deferred Tax Assets and Liabilities
5.4 Contingent Liability - Indian Tax Assessment
Section 6 - Other Disclosures
6.1 Post Balance Sheet Events
Cairn Energy PLC
Group Income Statement
For the six months ended 30 June 2019
Six months Year
Six months
ended ended ended
30 June 30 June 31 December
2019 2018 2018
(unaudited) (unaudited) (audited)
Note US$m US$m US$m
--------------------------------------------- ----- ------------- ------------- --------------
Continuing operations
Revenue 2.1 270.3 182.4 410.3
Cost of sales 2.1 (33.8) (78.0) (131.4)
Depletion and amortisation 2.3 (122.6) (65.7) (171.2)
--------------------------------------------- ----- ------------- ------------- --------------
Gross profit 113.9 38.7 107.7
Pre-award costs (10.8) (12.0) (25.4)
Unsuccessful exploration costs 2.2 (25.2) (46.8) (48.2)
Loss on disposal of intangible
exploration/appraisal assets - (4.5) (4.5)
Other operating income - 5.0 5.0
Administrative expenses (17.6) (14.9) (50.4)
Impairment of property, plant &
equipment - development/producing
assets - - (166.3)
Operating profit/(loss) 60.3 (34.5) (182.1)
Loss on derecognition of financial
assets at fair value through profit
or loss - (230.8) (713.1)
Loss on financial assets at fair
value through profit or loss (1.0) (319.4) (352.2)
Finance income 2.2 5.9 19.2
Finance costs (18.1) (24.1) (37.8)
Profit/(Loss) before taxation from
continuing operations 43.4 (602.9) (1,266.0)
Tax credit 5.1 23.1 102.4 130.5
--------------------------------------------- ----- ------------- ------------- --------------
Profit/(Loss) for the period attributable
to equity holders of the parent 66.5 (500.5) (1,135.5)
--------------------------------------------- ----- ------------- ------------- --------------
Profit/(Loss) per ordinary share
- basic (cents) 4.2 11.44 (86.20) (195.59)
Profit/(Loss) per ordinary share
- diluted (cents) 4.2 11.35 (86.20) (195.59)
--------------------------------------------- ----- ------------- ------------- --------------
Cairn Energy PLC
Group Statement of Comprehensive Income
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
(unaudited) (unaudited) (audited)
Note US$m US$m US$m
---------------------------------------- ----- ---------------- ------------- --------------
Profit/(Loss) for the period 66.5 (500.5) (1,135.5)
Other Comprehensive Income - items
that may be recycled to the Income
Statement
Fair value on hedge options 3.4 (25.3) (15.6) 36.1
Hedging (gain)/loss recycled to
the Income Statement 2.1 (2.9) 2.2 7.8
Currency translation differences 2.7 (0.8) (15.6)
---------------------------------------- ----- ---------------- ------------- --------------
Other Comprehensive (Expense)/Income
for the period (25.5) (14.2) 28.3
---------------------------------------- ----- ---------------- ------------- --------------
Total Comprehensive Income/(Expense)
for the period attributable to
equity holders of the parent 41.0 (514.7) (1,107.2)
---------------------------------------- ----- ---------------- ------------- --------------
Cairn Energy PLC
Group Balance Sheet
As at 30 June 2019
30 June 30 June 31 December
2019 2018 2018
(unaudited) (unaudited) (audited)
Note US$m US$m US$m
------------------------------------------------------------ ----- ------------- ------------- ------------
Non-current assets
Intangible exploration/appraisal assets 2.2 660.7 632.7 595.1
Property, plant & equipment - development/producing assets 2.3 1,118.4 1,150.1 1,022.9
Property, plant & equipment - other 10.0 1.7 1.2
Intangible assets - goodwill 126.4 128.6 125.8
Intangible assets - other 5.9 7.6 6.7
Derivative financial instruments 3.4 2.6 - 7.7
1,924.0 1,920.7 1,759.4
------------------------------------------------------------ ----- ------------- ------------- ------------
Current assets
Inventory 12.4 9.1 8.2
Financial asset at fair value through profit or loss 5.9 522.0 6.9
Cash and cash equivalents 57.8 74.8 66.3
Trade and other receivables 3.3 128.0 130.5 91.2
Derivative financial instruments 3.4 13.8 1.8 36.7
Income tax asset 5.2 46.9 62.2 32.8
264.8 800.4 242.1
------------------------------------------------------------ ----- ------------- ------------- ------------
Total assets 2,188.8 2,721.1 2,001.5
------------------------------------------------------------ ----- ------------- ------------- ------------
Current liabilities
Loans and borrowings 3.1 31.5 92.9 26.2
Lease liabilities 3.2 53.6 5.1 18.5
Derivative financial instruments 3.4 - 14.6 -
Trade and other payables 3.5 105.7 153.7 103.1
Deferred revenue 3.6 17.7 21.5 22.0
Provisions - other 2.8 2.8 2.8
211.3 290.6 172.6
------------------------------------------------------------ ----- ------------- ------------- ------------
Non-current liabilities
Provisions - decommissioning 2.4 148.4 121.0 119.1
Loans and borrowings 3.1 58.9 28.3 75.5
Lease liabilities 3.2 249.8 169.8 146.9
Deferred revenue 3.6 25.4 42.9 30.8
Deferred tax liabilities 5.3 57.6 87.5 66.5
540.1 449.5 438.8
------------------------------------------------------------ ----- ------------- ------------- ------------
Total liabilities 751.4 740.1 611.4
------------------------------------------------------------ ----- ------------- ------------- ------------
Net assets 1,437.4 1,981.0 1,390.1
------------------------------------------------------------ ----- ------------- ------------- ------------
Equity attributable to equity holders of the Parent
Called-up share capital 12.6 12.6 12.6
Share premium 489.7 489.5 489.7
Shares held by ESOP/SIP Trusts (17.2) (15.7) (19.6)
Foreign currency translation (187.8) (175.7) (190.5)
Capital reserves - non-distributable 40.8 40.8 40.8
Merger reserve 255.9 255.9 255.9
Hedge reserve 12.8 (16.3) 41.0
Retained earnings 830.6 1,389.9 760.2
------------------------------------------------------------ ----- ------------- ------------- ------------
Total equity 1,437.4 1,981.0 1,390.1
------------------------------------------------------------ ----- ------------- ------------- ------------
Cairn Energy PLC
Group Statement of Cash Flows
For the six months ended 30 June 2019
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
(unaudited) (unaudited) (audited)
US$m US$m US$m
--------------------------------------------------------------------- --------------- -------------- --------------
Cash flows from operating activities
Profit/(Loss) before taxation from continuing operations 43.4 (602.9) (1,266.0)
Adjustments for non-cash income and expense and non-operating cash
flow:
Release of deferred revenue (9.7) (9.6) (21.2)
Unsuccessful exploration costs 25.2 46.8 48.2
Depreciation, depletion and amortisation charges 125.2 67.5 174.9
Share-based payments charge 6.3 8.5 14.7
Impairment of property, plant & equipment - development/producing
assets - - 166.3
Loss on derecognition of financial assets at fair value through
profit or loss - 230.8 713.1
Loss on financial assets at fair value through profit or loss 1.0 319.4 352.2
Loss on disposal of intangible exploration/appraisal assets - 4.5 4.5
Finance income (2.2) (5.9) (19.2)
Finance costs 18.1 24.1 37.8
Adjustments for cash flow movements in assets and liabilities:
Income tax refund received relating to operating activities - - 20.4
Inventory movement (4.2) 1.3 2.2
Trade and other receivables movement (26.3) (66.4) (41.6)
Trade and other payables movement (3.9) 15.0 22.7
Net cash flows from operating activities 172.9 33.1 209.0
--------------------------------------------------------------------- --------------- -------------- --------------
Cash flows from investing activities
Expenditure on intangible exploration/appraisal assets (89.5) (73.5) (188.0)
Expenditure on property, plant & equipment - development/producing
assets (45.4) (61.0) (109.5)
Proceeds on disposal of intangible exploration assets - - 3.6
Income tax refund received relating to investing activities - - 16.4
Purchase of other property, plant & equipment and intangible assets (2.5) (0.8) (2.9)
Interest received and other finance income 2.0 0.6 2.0
Net cash flows used in investing activities (135.4) (134.7) (278.4)
--------------------------------------------------------------------- --------------- -------------- --------------
Cash flows from financing activities
Debt arrangement fees - (2.4) (10.4)
Other interest and charges (8.0) (4.3) (12.6)
Proceeds from borrowings 32.9 94.4 117.4
Repayment of borrowings (45.0) - (31.2)
Proceeds from the issue of shares - 1.6 1.7
Cost of shares purchased - (3.7) (13.6)
Lease payments (30.0) - (7.4)
Lease reimbursements 5.1 2.8 4.7
Net cash flows (used in)/from financing activities (45.0) 88.4 48.6
--------------------------------------------------------------------- --------------- -------------- --------------
Net decrease in cash and cash equivalents (7.5) (13.2) (20.8)
Opening cash and cash equivalents at the beginning of the period 66.3 86.5 86.5
Foreign exchange differences (1.0) 1.5 0.6
--------------------------------------------------------------------- --------------- -------------- --------------
Closing cash and cash equivalents 57.8 74.8 66.3
--------------------------------------------------------------------- --------------- -------------- --------------
Cairn Energy PLC
Group Statement of Changes in Equity
For the six months ended 30 June 2019
Equity
share Shares
capital held by Foreign Merger
and share ESOP/ currency and capital Hedge Retained Total
premium SIP Trusts translation reserves reserve earnings equity
US$m US$m US$m US$m US$m US$m US$m
---------------------- ------------ ------------- -------------- -------------- --------- ---------- ----------
At 1 January 2018 500.5 (10.2) (174.9) 296.7 (2.9) 1,885.3 2,494.5
Loss for the year - - - - - (1,135.5) (1,135.5)
Fair value on hedge
options - - - - 36.1 - 36.1
Hedging loss recycled
to the Income
Statement - - - - 7.8 - 7.8
Currency translation
differences - - (15.6) - - - (15.6)
Total comprehensive
expense - - (15.6) - 43.9 (1,135.5) (1,107.2)
Share-based payments - - - - - 14.7 14.7
Shares issued for
cash 0.1 (0.1) - - - - -
Cost of shares
purchased - (13.6) - - - - (13.6)
Exercise of employee
share options 1.7 - - - - - 1.7
Cost of shares
vesting - 4.3 - - - (4.3) -
At 31 December
2018 502.3 (19.6) (190.5) 296.7 41.0 760.2 1,390.1
Profit for the
period - - - - - 66.5 66.5
Fair value on hedge
options - - - - (25.3) - (25.3)
Hedging gain recycled
to the Income
Statement - - - - (2.9) - (2.9)
Currency translation
differences - - 2.7 - - - 2.7
Total comprehensive
income - - 2.7 - (28.2) 66.5 41.0
Share-based payments - - - - - 6.3 6.3
Cost of shares
vesting - 2.4 - - - (2.4) -
At 30 June 2019 502.3 (17.2) (187.8) 296.7 12.8 830.6 1,437.4
---------------------- ------------ ------------- -------------- -------------- --------- ---------- ----------
Cairn Energy PLC
Group Statement of Changes in Equity (continued)
For the six months ended 30 June 2018:
Equity
share Shares
capital held by Foreign Merger
and share ESOP/ currency and capital Hedge Retained Total
premium SIP Trusts translation reserves reserve earnings equity
US$m US$m US$m US$m US$m US$m US$m
---------------------- ------------ ------------- -------------- -------------- ---------- ---------- ---------
At 1 January 2018 500.5 (10.2) (174.9) 296.7 (2.9) 1,885.3 2,494.5
Loss for the period - - - - - (500.5) (500.5)
Fair value on hedge
options - - - - (15.6) - (15.6)
Hedging loss recycled
to the Income
Statement - - - - 2.2 - 2.2
Currency translation
differences - - (0.8) - - - (0.8)
Total comprehensive
expense - - (0.8) - (13.4) (500.5) (514.7)
Share-based payments - - - - - 8.5 8.5
Shares issued for
cash 0.1 - - - - - 0.1
Exercise of employee
share options 1.5 - - - - - 1.5
Cost of shares
purchased - (8.9) - - - - (8.9)
Cost of shares
vesting - 3.4 - - - (3.4) -
---------------------- ------------ ------------- -------------- -------------- ---------- ---------- ---------
At 30 June 2018 502.1 (15.7) (175.7) 296.7 (16.3) 1,389.9 1,981.0
---------------------- ------------ ------------- -------------- -------------- ---------- ---------- ---------
Section 1 - Basis of Preparation
1.1 Accounting Policies
Basis of preparation
The half-yearly condensed consolidated Financial Statements for
the six months ended 30 June 2019 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with International Accounting Standard IAS 34,
'Interim financial reporting', as adopted by the European Union.
They should be read in conjunction with the annual Financial
Statements for the year ended 31 December 2018, which have been
prepared in accordance with International Financial Reporting
Standards ('IFRS') as adopted by the European Union.
This half-yearly report was approved by the Directors on 9
September 2019.
The disclosed figures, which have been reviewed but not audited,
are not statutory accounts in terms of Section 434 of the Companies
Act 2006. Statutory accounts for the year ended 31 December 2018,
on which the auditors gave an unqualified audit report, which did
not contain an emphasis of matter paragraph or any statement under
section 498 of the Companies Act 2006, have been filed with the
Registrar of Companies.
This half-yearly report has been prepared on a basis consistent
with the accounting policies expected to be applied for the year
ending 31 December 2019, and uses the same accounting and financial
risk management policies and methods of computation as those
applied for the year ended 31 December 2018, other than changes to
accounting policies resulting from the adoption of new or revised
accounting standards.
The impact on the Financial Statements of the adoption of IFRS
16 'Leases' on 1 January 2019 can be found in note 1.3. Other
changes to IFRS effective 1 January 2019 have no significant impact
on Cairn's accounting policies or Financial Statements.
Significant key estimates and assumptions are unchanged from
those applied in the year ended 31 December 2018 and the same have
accordingly been applied here. Key estimates and assumptions
applied on the adoption of IFRS 16 are detailed in note 1.3.
1.2 Going Concern
The Directors have considered the factors relevant to support a
statement of going concern.
In assessing whether the going concern assumption is
appropriate, the Board considered the Group cash flow forecasts
under various scenarios, identifying risks and mitigating factors
and ensuring the Group has sufficient funding to meet its current
and contracted commitments as and when they fall due for a period
of at least 12 months from the date of signing these Financial
Statements.
The Directors have a reasonable expectation that the Group will
continue in operational existence for this 12-month period and have
therefore used the going concern basis in preparing the Financial
Statements.
1.3 Adoption of IFRS 16 'Leases'
Cairn has adopted IFRS 16 'Leases' with effect from 1 January
2019. Cairn has chosen to apply IFRS 16 retrospectively with the
cumulative effect of initial application recognised at the date of
adoption. In doing so Cairn has elected not to re-assess whether
contracts contain a lease.
IFRS 16 introduces a single lessee accounting model and requires
a lessee to recognise assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low
value. A lessee is required to recognise a right-of-use asset
representing its right to use the underlying leased asset and a
lease liability representing its obligation to make lease
payments.
In assessing the impact of IFRS 16, Cairn identified the
following assets where right-of-use assets and lease liabilities
are recognised on adoption:
- Accounting for the FPSO on the UK Catcher producing asset; and
- Accounting for non-cancellable leases of the Group's office
premises in Edinburgh, London, Stavanger and Mexico City.
All other leases identified have either yet to commence on the
date of adoption, are for periods of less than one year, have less
than one year remaining on the date of adoption or are for
low-value items which have no material impact on the Group's
Financial Statements.
In applying IFRS 16, Cairn has used the following practical
expedients permitted by the standard:
- Accounting for leases with a remaining term of less than 12
months at 1 January 2019 as short-term leases; and
- The exclusion of initial direct costs for the measurement of
the right-of-use assets at the date of adoption.
Cairn has also chosen to measure the right-of-use assets
recognised at the amount equal to the lease liability, adjusted by
the amount of any prepaid or accrued lease payments, immediately
before the date of adoption for all right-of-use assets recognised.
There is therefore no adjustment to opening retained earnings.
Section 1 - Basis of Preparation (continued)
1.3 Adoption of IFRS 16 'Leases' (continued)
Kraken FPSO
Under IFRS 16, the carrying amount of a right-of-use asset and
lease liability for leases previously classified as finance leases
is equal to the carrying amount of the lease asset and lease
liability immediately before the date of adoption. Therefore, the
adoption of IFRS 16 has no impact on the right-of-use asset and
lease liability previously recognised for the Kraken FPSO.
Catcher FPSO
Cairn has recognised a lease liability and a corresponding
right-of-use asset of US$147.5m for the Catcher FPSO on adoption of
IFRS 16. The Catcher FPSO lease was previously classified as an
operating lease under IAS 17.
The key estimates and assumptions applied in measuring the
right-of-use asset and lease liability were as follows:
- The minimum lease commitment is equal to 75% of the contracted
day rate with all payments in excess of the minimum being
classified as variable lease payments dependent upon
performance;
- The lease term is equal to the current non-cancellable period
of the lease with no reasonable plans to extend the lease contract
beyond the initial term;
- No exercise of the option to purchase at the end of the initial term; and
- The interest rate applied is equal to the Group's incremental
borrowing rate on the date of adoption rather than a rate implicit
in the lease contract which could not be readily determined.
The right-of-use asset is being amortised on a
unit-of-production basis in accordance with the Group's accounting
policy.
Other Property, Plant & Equipment - Leasehold Property
The Group recognised lease liabilities and corresponding
right-of-use assets of US$10.0m in relation to leasehold
premises.
The key estimates and assumptions applied in measuring these
right-of-use assets and lease liabilities were as follows:
- The lease term is equal to the current non-cancellable period
of the lease with no reasonable plans to extend the lease contract
beyond the initial term for any of the Group's office premises;
- The interest rate applied is equal to the Group's incremental
borrowing rate on the date of adoption rather than a rate implicit
in the lease contracts where this could not be readily
determined.
The assets will be amortised on a straight-line basis over the
remaining life of the leases.
Adjustments recognised on adoption of IFRS 16: Reconciliation to
2018 Operating lease commitment
A reconciliation of operating lease commitments at 31 December
2018 to the opening lease liabilities on adoption of IFRS 16 is as
follows:
Exploration/ Development/
Production Appraisal Producing Administrative
costs assets assets expenses Total
US$m US$m US$m US$m US$m
----------------------------------- ------------- ------------- ------------- ----------------- --------
Operating lease commitments 171.6 21.2 13.4 11.5 217.7
Attributable to:
Leases yet to commence - (20.7) (9.5) - (30.2)
Short-term leases - (0.5) (3.9) - (4.4)
Lease of low value
items - - - (0.3) (0.3)
----------------------------------- ------------- ------------- ------------- ----------------- --------
Gross lease liability 171.6 - - 11.2 182.8
Interest implicit
in lease (24.1) - - (1.2) (25.3)
----------------------------------- ------------- ------------- ------------- ----------------- --------
Opening lease liabilities
adjustment 147.5 - - 10.0 157.5
----------------------------------- ------------- ------------- ------------- ----------------- --------
Right-of-use asset
- tangible development/producing
asset 147.5 - - - 147.5
Right-of-use assets
- property, plant
& equipment - other - - - 10.0 10.0
----------------------------------- ------------- ------------- ------------- ----------------- --------
Opening right-of-use
assets adjustments 147.5 - - 10.0 157.5
----------------------------------- ------------- ------------- ------------- ----------------- --------
The weighted average incremental borrowing rate used to discount
opening lease liabilities is 5.75%.
Section 1 - Basis of Preparation (continued)
1.3 Adoption of IFRS 16 'Leases' (continued)
Impact on Financial Statements at 30 June 2019
As a result of adoption of IFRS 16, the following Income
Statement line items have been impacted for the period ending 30
June 2019:
US$m
--------------------------------------------- -------
Decrease in cost of sales 16.8
Increase in depletion and amortisation (24.0)
Decrease in gross profit (7.2)
Decrease in administrative expenses 0.2
Decrease in operating profit (7.0)
Increase in finance costs (4.0)
Decrease in profit before taxation (11.0)
Decrease in profit after taxation (11.0)
Impact on profit after taxation by segment:
UK & Norway (11.0)
--------------------------------------------- -------
Basic and diluted earnings per share decreased by 1.90 cents and
1.88 cents per share respectively for the six months ended 30 June
2019.
In the Cash Flow Statement, lease payments of US$18.6m, which
would previously have been classified as operating cash outflows
are now included in financing activities.
In the Group Balance Sheet at 30 June 2019, Property, plant
& equipment - development/producing assets have increased by
US$123.5m, Property, plant & equipment - other by US$8.6m and
lease liabilities by US$143.4m as a result of adoption. The impact
on assets and liabilities per segment as disclosed in note 4.1 is
as follows:
US$m
---------------------------------- ------
Increase in segment assets:
UK & Norway 124.4
Other Cairn Energy PLC Group 7.2
LATAM 0.5
Increase in segment liabilities:
UK & Norway 135.4
Other Cairn Energy PLC Group 7.5
LATAM 0.5
---------------------------------- ------
Section 2 - Oil and Gas Assets and Operations
2.1 Gross Profit: Revenue and Cost of Sales
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
------------------------------------------ ----------- ----------- -------------
Oil sales 255.4 174.1 393.2
Gas sales 1.7 0.2 2.5
Gain/(Loss) on hedge options 2.9 (2.2) (7.8)
Release of deferred revenue 9.7 9.6 21.2
------------------------------------------ ----------- ----------- -------------
Revenue from oil and gas sales 269.7 181.7 409.1
Royalty income 0.6 0.7 1.2
------------------------------------------ ----------- ----------- -------------
Revenue 270.3 182.4 410.3
------------------------------------------ ----------- ----------- -------------
Production and other costs (33.5) (30.9) (64.2)
Oil inventory and overlift/underlift
adjustments 9.8 (14.8) (7.7)
Variable and operating lease charges (10.1) (32.3) (59.5)
Cost of sales (33.8) (78.0) (131.4)
Depletion and amortisation charges (note
2.3) (122.6) (65.7) (171.2)
------------------------------------------ ----------- ----------- -------------
Gross profit 113.9 38.7 107.7
------------------------------------------ ----------- ----------- -------------
Section 2 - Oil and Gas Assets and Operations (continued)
2.2 Intangible Exploration/Appraisal Assets
Senegal UK & Norway LATAM East Atlantic Total
US$m US$m US$m US$m US$m
----------------------------------- -------- ------------- ------ -------------- --------
Cost
At 1 January 2018 434.5 210.2 13.1 24.3 682.1
Foreign exchange - 1.4 - - 1.4
Additions 12.1 44.8 5.9 1.8 64.6
Disposals - (5.9) - - (5.9)
Unsuccessful exploration
costs - (45.9) - (0.9) (46.8)
----------------------------------- -------- ------------- ------ -------------- --------
At 30 June 2018 446.6 204.6 19.0 25.2 695.4
Foreign exchange - (2.0) - - (2.0)
Additions 16.4 57.4 13.7 (3.7) 83.8
Disposals - (2.3) - - (2.3)
Transfer to development/producing
assets - (115.7) - - (115.7)
Unsuccessful exploration
costs - (16.7) - 15.3 (1.4)
-----------------------------------
At 31 December 2018 463.0 125.3 32.7 36.8 657.8
Foreign exchange - 0.3 - - 0.3
Additions 21.5 20.6 37.2 11.2 90.5
Disposals - - - - -
Unsuccessful exploration
costs - (24.6) - (0.6) (25.2)
----------------------------------- -------- ------------- ------ -------------- --------
At 30 June 2019 484.5 121.6 69.9 47.4 723.4
----------------------------------- -------- ------------- ------ -------------- --------
Impairment
----------------------------------- -------- ------------- ------ -------------- --------
At 1 January 2018, 30
June 2018,
31 December 2018 and
30 June 2019 - 48.1 - 14.6 62.7
----------------------------------- -------- ------------- ------ -------------- --------
Net book value
----------------------------------- -------- ------------- ------ -------------- --------
At 30 June 2018 446.6 156.5 19.0 10.6 632.7
----------------------------------- -------- ------------- ------ -------------- --------
At 31 December 2018 463.0 77.2 32.7 22.2 595.1
----------------------------------- -------- ------------- ------ -------------- --------
At 30 June 2019 484.5 73.5 69.9 32.8 660.7
----------------------------------- -------- ------------- ------ -------------- --------
As explained in note 4.1 the International Segment has now been
separated into two business units, 'East Atlantic' (which includes
the Group's exploration assets in Ireland, Mauritania, and Cote
D'Ivoire) and 'LATAM' (which includes Latin American assets in
Mexico, Nicaragua and Suriname).
Senegal
Additions in the period of US$21.5m have mainly been incurred
for exploitation and pre-development costs.
UK & Norway
During the period the Group participated in two Norwegian
exploration wells: PL758 Lynghaug and PL885 Presto. Subsequent to
the period-end a third Norwegian well, PL842 Godalen, also
completed. Additions in the period of US$20.6m include US$13.2m
relating to the three wells, including costs of US$8.5m in respect
of short-term leases, primarily for drilling rigs. All three wells
were unsuccessful and costs of US$24.6m have been charged to the
Income Statement.
LATAM (Latin America)
Additions in the period include US$22.1m following the farm-in
to non-operated licences in Nicaragua, US$9.6m incurred in Mexico
in advance of exploration drilling commencing in the second half of
2019 and US$5.5m in Suriname, of which US$3.9m was on the
acquisition of seismic.
East Atlantic
Additions in the period of US$11.2m include US$8.7m in Côte
D'Ivoire following the farm-in to seven non-operated licences.
Impairment review
At 30 June 2019, Cairn reviewed its intangible
exploration/appraisal assets for indicators of impairment, and
where indicators were identified, performed impairment tests. An
indicator of impairment was identified on the UK Laverda asset
which is allocated to the Catcher cash-generating unit for
impairment testing. No impairment was recorded from the subsequent
test. Sensitivity analysis performed using downward oil-price
sensitivities consistent with those run at the 31 December 2018
year end did not identify impairment under any of these
scenarios.
Section 2 - Oil and Gas Assets and Operations (continued)
2.3 Property, Plant & Equipment - Development/Producing Assets
UK & Norway
right-of-use
UK & Norway leased assets Total
US$m US$m US$m
--------------------------------------------- ------------ --------------- --------
Cost
At 1 January 2018 1,050.2 177.4 1,227.6
Additions 9.3 - 9.3
--------------------------------------------- ------------ --------------- --------
At 30 June 2018 1,059.5 177.4 1,236.9
Foreign exchange (6.8) - (6.8)
Additions 47.2 - 47.2
Transfer from exploration/appraisal assets 115.7 - 115.7
Re-measurement of right-of-use leased
asset - (11.5) (11.5)
--------------------------------------------- ------------ --------------- --------
At 31 December 2018 1,215.6 165.9 1,381.5
Right-of-use leased asset - IFRS 16 opening
balance adjustment (see note 1.3) - 147.5 147.5
At 1 January 2019 1,215.6 313.4 1,529.0
Foreign exchange 1.9 - 1.9
Additions 68.4 0.3 68.7
--------------------------------------------- ------------ --------------- --------
At 30 June 2019 1,285.9 313.7 1,599.6
--------------------------------------------- ------------ --------------- --------
Depletion, amortisation and impairment
At 1 January 2018 17.6 3.5 21.1
Depletion and amortisation 57.8 7.9 65.7
--------------------------------------------- ------------ --------------- --------
At 30 June 2018 75.4 11.4 86.8
Depletion and amortisation 95.2 10.3 105.5
Impairment 166.3 - 166.3
---------------------------------------------
At 31 December 2018 336.9 21.7 358.6
Depletion and amortisation 88.8 33.8 122.6
At 30 June 2019 425.7 55.5 481.2
--------------------------------------------- ------------ --------------- --------
Net book value
--------------------------------------------- ------------ --------------- --------
At 30 June 2018 984.1 166.0 1,150.1
--------------------------------------------- ------------ --------------- --------
At 31 December 2018 878.7 144.2 1,022.9
--------------------------------------------- ------------ --------------- --------
At 30 June 2019 860.2 258.2 1,118.4
--------------------------------------------- ------------ --------------- --------
Additions during the period include a non-cash increase of
US$28.5m for decommissioning estimates and US$39.9m of development
activity spend funded through cash and working capital.
Impairment review
Impairment reviews on the Group's development/producing assets
are conducted at each reporting date. The Group's
development/producing assets were reviewed for indicators of
impairment at 30 June 2019 and no indicators of impairment were
identified. There have been no significant changes in market
conditions or management's estimates and assumptions used in
impairment testing at the December 2018 year end. Asset performance
in 2019 has remained in line with or exceeded management's
expectation.
Section 2 - Oil and Gas Assets and Operations (continued)
2.4 Decommissioning Provisions
Exploration Development/
well abandonment Producing
assets Total
US$m US$m US$m
----------------------------------- ------------------- --------------- ------
At 1 January 2018 4.2 116.9 121.1
Foreign exchange (0.1) (2.7) (2.8)
Unwinding of discount - 1.2 1.2
Provided in the period - 1.5 1.5
At 30 June 2018 4.1 116.9 121.0
Foreign exchange (0.1) (4.0) (4.1)
Unwinding of discount - 1.1 1.1
(Released)/Provided in the period (2.7) 3.8 1.1
At 31 December 2018 1.3 117.8 119.1
Foreign exchange - (0.4) (0.4)
Unwinding of discount - 1.2 1.2
Provided in the period - 28.5 28.5
At 30 June 2019 1.3 147.1 148.4
----------------------------------- ------------------- --------------- ------
At 30 June 2019, the decommissioning estimate for the Kraken
producing asset has increased by US$24.7m. This reflects the
conclusion of final development drilling during the period and an
internal review of the latest cost estimates received from the
operator. A decommissioning provision of US$3.8m was recognised for
work performed on the Nova development project. The Catcher
decommissioning estimate remained unchanged.
The decommissioning of the Group's development/producing assets
is forecast to occur between 2026 and 2040.
2.5 Capital and Lease Commitments
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
------------------------------------------------------------ -------- -------- ------------
Oil and gas expenditure:
Intangible exploration/appraisal assets 194.4 178.7 146.1
Property, plant & equipment - development/producing assets 40.0 51.0 80.1
Contracted for 234.4 229.7 226.2
------------------------------------------------------------ -------- -------- ------------
Capital commitments represent Cairn's share of obligations in
relation to its interests in joint operations. These commitments
include Cairn's share of the capital commitments of the joint
operations themselves.
The capital commitments for intangible exploration/appraisal
assets as at 30 June 2019 include US$86.8m relating to operations
in LATAM, predominantly Mexico. The remaining US$107.6m includes
commitments in Senegal of US$43.3m, UK & Norway commitments of
US$48.7m and East Atlantic commitments of US$15.6m.
As at 30 June 2019, Cairn had the following commitments relating
to short-term leases and leases yet to commence. These amounts are
also included in the total of capital commitments shown above.
Exploration/ Development/
Appraisal Producing
assets assets Total
US$m US$m US$m
--------------------- ------------- ------------- --------
Lease commitments 19.7 9.7 29.4
--------------------- ------------- ------------- --------
Section 3 - Working Capital, Financial Instruments and Long-Term
Liabilities
3.1 Loans and Borrowings
Cairn has two loan facilities at 30 June 2019, the Reserve-Based
Lending ('RBL') facility available to several Group companies and
the Norwegian Exploration Finance Facility ('EFF').
30 June 30 June 31 December
Reconciliation of opening and closing 2019 2018 2018
liability to cash flow movements: US$m US$m US$m
----------------------------------------- -------- -------- ------------
Opening liabilities 101.7 29.8 29.8
Loans advances disclosed in the Cash
Flow Statement
RBL advances in the period 20.0 65.0 85.0
EFF advances in the period 12.9 29.4 32.4
----------------------------------------- -------- -------- ------------
32.9 94.4 117.4
----------------------------------------- -------- -------- ------------
Loan repayments disclosed in the Cash
Flow Statement
RBL repayments in the period (45.0) - -
EFF repayments in the period - - (31.2)
----------------------------------------- -------- -------- ------------
(45.0) - (31.2)
----------------------------------------- -------- -------- ------------
Debt arrangement fees paid - (2.4) (10.4)
Non-cash movements
Amortisation of debt arrangement fees 0.5 - -
Foreign exchange 0.3 (0.6) (3.9)
----------------------------------------- -------- -------- ------------
0.8 (0.6) (3.9)
----------------------------------------- -------- -------- ------------
Closing liabilities 90.4 121.2 101.7
----------------------------------------- -------- -------- ------------
Amounts due less than one year:
RBL facility - 62.6 -
EFF 31.5 30.3 26.2
----------------------------------------- -------- -------- ------------
31.5 92.9 26.2
Amounts due greater than one year:
RBL facility 50.8 - 75.5
EFF 8.1 28.3 -
----------------------------------------- -------- -------- ------------
58.9 28.3 75.5
90.4 121.2 101.7
----------------------------------------- -------- -------- ------------
RBL
The Group's RBL facility had cash drawings of US$60.0m at 30
June 2019.
Cairn signed an extension to its existing RBL facility with a
syndicate of international banks in 2018, with a revised final
maturity date of 20 December 2025. Under IFRS 9, the extension of
the facility to December 2025 constitutes substantially different
terms from the original and as such the financial liability
relating to the original facility was extinguished on the date of
the extension and replaced with a new liability based on the
revised terms. The classification of amounts due in current and
prior periods of less than and greater than one year reflects the
impact of the extension to the facility. The maximum currently
available to draw under the facility is US$488.0m.
EFF
As at 30 June 2019, US$40.3m (NOK 343.8m) was drawn under the
Norwegian EFF. The maximum available amount is currently forecast
to be US$60.0m (NOK 480.0m).
Interest on outstanding debt is charged at the appropriate NIBOR
plus an applicable margin. Debt is repayable by the final maturity
date, which is the earlier of 31 December 2022 or the date of
receipt of the tax refund relating to exploration spend for
2021.
Section 3 - Working Capital, Financial Instruments and Long-Term
Liabilities (continued)
3.2 Lease Liabilities
30 June 30 June 31 December
Reconciliation of opening and closing 2019 2018 2018
liability to cash flow movements: US$m US$m US$m
-------------------------------------------------- -------- -------- ------------
Opening liability brought forward 165.4 169.7 169.7
IFRS 16 opening balance adjustment (note
1.3) 157.5 - -
-------------------------------------------------- -------- -------- ------------
Revised opening liabilities 322.9 169.7 169.7
Leases commenced and revisions to leases
in period:
Liabilities recognised on commencement
of leases - - -
Revisions to lease liabilities 0.4 - (11.5)
-------------------------------------------------- -------- -------- ------------
0.4 - (11.5)
-------------------------------------------------- -------- -------- ------------
Lease payments disclosed in the Cash
Flow Statement as financing cash flows:
Total lease payments (40.1) (17.4) (30.1)
Variable lease payments 10.1 17.4 22.7
-------------------------------------------------- -------- -------- ------------
(30.0) - (7.4)
-------------------------------------------------- -------- -------- ------------
Lease reimbursements disclosed in the
Cash Flow Statement as financing cash
flows:
Reimbursements received from lessors 5.1 2.8 4.7
-------------------------------------------------- -------- -------- ------------
Other non-cash lease movements
Reimbursements due transferred to other
receivables (3.0) (1.4) 2.1
Lease interest charges 7.9 3.8 7.8
Foreign exchange 0.1 - -
-------------------------------------------------- -------- -------- ------------
5.0 2.4 9.9
-------------------------------------------------- -------- -------- ------------
Closing liabilities 303.4 174.9 165.4
-------------------------------------------------- -------- -------- ------------
Amounts due less than one year:
Tangible development/producing assets
- right-of-use assets 51.7 5.1 18.5
Other property, plant & equipment - right-of-use -
assets 1.9 -
-------------------------------------------------- -------- -------- ------------
53.6 5.1 18.5
Amounts due greater than one year:
Tangible development/producing assets
- right-of-use assets 242.8 169.8 146.9
Other property, plant & equipment - right-of-use -
assets 7.0 -
249.8 169.8 146.9
-------------------------------------------------- -------- -------- ------------
Total lease liabilities 303.4 174.9 165.4
-------------------------------------------------- -------- -------- ------------
Comparative information has not been restated on adoption of
IFRS 16.
Variable lease costs are disclosed in note 2.1. Amortisation
charges on right-of-use assets relating to tangible
development/producing assets are disclosed in note 2.3.
Depreciation charges on other right-of-use assets are disclosed in
note 4.1. Costs relating to short-term leases and leases of low
value assets, relating to exploration and development activities
are disclosed in notes 2.2 and 2.3 where material. There are no
further material short-term leases or charges for leases of
low-value assets.
The carrying value of right-of-use development/producing assets
at 30 June 2019 is US$258.2m (see note 2.3) and the carrying value
of right-of-use assets included in other property, plant &
equipment is US$8.6m.
Section 3 - Working Capital, Financial Instruments and Long-Term
Liabilities (continued)
3.3 Trade and Other Receivables
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
----------------------------- -------- -------- ------------
Trade receivables 59.1 55.5 39.0
Other receivables 12.2 12.6 12.7
Accrued income - underlift 5.9 - 0.1
Prepayments 7.4 5.2 4.4
Joint operation receivables 43.4 57.2 35.0
128.0 130.5 91.2
----------------------------- -------- -------- ------------
Joint operation receivables include Cairn's working interest
share of the receivables relating to joint operations and amounts
recoverable from partners in joint operations.
3.4 Derivative Financial Instruments
30 June 30 June 31 December
2019 2018 2018
Carrying amount and fair value US$m US$m US$m
------------------------------------------- -------- -------- ------------
Non-current assets
Financial assets - hedge options maturing
after one year 2.6 - 7.7
Current assets
Financial assets - hedge options maturing
within one year 13.8 1.8 36.7
Current liabilities
Financial liabilities - hedge options
maturing within one year - (14.6) -
16.4 (12.8) 44.4
------------------------------------------- -------- -------- ------------
Cairn continues to hedge commodity prices to protect debt
capacity and support committed capital programmes. The Group has
entered into a number of hedge options using collar structures
which have been designated as hedges for hedge accounting. Hedge
effectiveness is assessed at commencement of the option and
prospectively thereafter. Hedge options are held at fair value
determined by models which have observable inputs and are level 2
financial instruments.
Effects of hedge accounting on financial 30 June 30 June 31 December
position and profit/(loss) for the period: 2019 2018 2018
--------------------------------------------- ---------- ---------- ------------
Volume of production hedged 3.4 mmbls 2.8 mmbls 3.2 mmbls
Weighted average floor price of options US$64.53 US$61.59 US$67.14
Weighted average ceiling price of options US$78.83 US$76.06 US$83.81
Jul 2019 Jul 2018
- - Jan 2019
Maturity dates Dec 2020 Jun 2019 - Mar 2020
US$m US$m US$m
--------------------------------------------- ---------- ---------- ------------
Financial assets 16.4 1.8 44.4
Financial liabilities - (14.6) -
Hedge reserve 12.8 (16.3) 41.0
Hedging (loss)/gain recorded in Other
Comprehensive Income (25.3) (15.6) 36.1
Hedging (gain)/loss recycled to the Income
Statement (2.9) 2.2 7.8
Hedging gain/(loss) recorded in the Income
Statement included within revenue (see
note 2.1) 2.9 (2.2) (7.8)
--------------------------------------------- ---------- ---------- ------------
Section 3 - Working Capital, Financial Instruments and Long-Term
Liabilities (continued)
3.5 Trade and Other Payables
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
------------------------------------ -------- -------- ------------
Trade payables 9.6 18.3 9.7
Deferred income - overlift - 7.9 -
Other taxation and social security 1.9 2.5 1.4
Accruals and other payables 19.7 29.6 30.9
Joint operation payables 74.5 95.4 61.1
105.7 153.7 103.1
------------------------------------ -------- -------- ------------
Joint operation payables include Cairn's share of the trade and
other payables of joint operations in which the Group participates.
Where Cairn is operator of the joint operation, joint operation
payables also include amounts that Cairn will settle to third
parties on behalf of joint operation partners. The amount to be
recovered from partners for their share of such liabilities are
included within joint operation receivables.
3.6 Deferred Revenue
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
------------------------------------------------- -------- -------- ------------
Opening deferred revenue 52.8 74.0 74.0
Released during the period (note 2.1) (9.7) (9.6) (21.2)
Closing deferred revenue 43.1 64.4 52.8
------------------------------------------------- -------- -------- ------------
Amounts expected to be released within one year 17.7 21.5 22.0
Amounts expected to be released after one year 25.4 42.9 30.8
------------------------------------------------- -------- -------- ------------
43.1 64.4 52.8
------------------------------------------------- -------- -------- ------------
Deferred revenue relates to the stream agreement with FlowStream
entered into in 2017.
Section 4 - Income Statement Analysis
4.1 Segmental Analysis
Operating segments
The Group's portfolio of exploration and development/producing
assets are managed through regional business units. Each business
unit is headed by a regional director (a regional director may be
responsible for more than one business unit) and the Board monitors
the results of each segment separately for the purposes of making
decisions about resource allocation and performance assessment.
In 2019, Cairn's business units have been revised to reflect
changes in the portfolio of assets now held and therefore the
Group's segmental analysis has been updated to align with the
updated management structure and Board reporting. The International
segment has been split into two separate units; 'East Atlantic'
includes the Group's exploration assets in Ireland, Mauritania, and
Cote D'Ivoire and 'LATAM' includes the Group's growing portfolio of
Latin American assets in Mexico, Nicaragua and Suriname.
Remaining segments are unchanged. The Senegal business unit and
segment is focussed on the development of the SNE discoveries, with
approval of the development plan expected this year. The UK &
Norway segment includes ongoing exploration programmes in the North
Sea, Norwegian Sea and Barents Sea, the Norwegian Nova development
project and UK Catcher and Kraken producing fields. The 'Other
Cairn Energy Group' segment captures costs associated with the
Group's head office and other corporate assets not allocable to a
geographic segment.
The segment results for the six months ended 30 June 2019 are as
follows:
Other
Cairn Group
UK & East Energy adj for
Senegal Norway LATAM Atlantic Group segments Total
US$m US$m US$m US$m US$m US$m US$m
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
Revenue - 269.7 - - 0.6 - 270.3
Cost of sales - (33.8) - - - - (33.8)
Depletion and amortisation
charges - (122.6) - - - - (122.6)
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
Gross profit - 113.3 - - 0.6 - 113.9
Pre-award costs - (2.2) (3.2) (1.4) (4.0) - (10.8)
Unsuccessful exploration
costs - (24.6) - (0.6) - - (25.2)
Depreciation - Purchased
assets - (0.3) - - (0.1) - (0.4)
Depreciation - Right-of-use
assets - (0.2) (0.1) - (0.9) - (1.2)
Amortisation of other
intangible assets - (0.2) - - (0.8) - (1.0)
Other administrative
expenses/income (0.1) (0.2) 0.2 (0.2) (14.7) - (15.0)
Operating (loss)/profit (0.1) 85.6 (3.1) (2.2) (19.9) - 60.3
Loss on fair value
of financial assets - - - - (1.0) - (1.0)
Interest income - 0.4 - - 1.8 - 2.2
Finance costs - (15.6) (0.1) - (2.4) - (18.1)
(Loss)/Profit before
taxation (0.1) 70.4 (3.2) (2.2) (21.5) - 43.4
Tax credit/(charge) - 23.4 (0.3) - - - 23.1
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
(Loss)/Profit for
the period (0.1) 93.8 (3.5) (2.2) (21.5) - 66.5
Capital expenditure 21.5 90.3 37.2 11.2 0.3 - 160.5
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
Total assets 488.2 1,787.8 84.9 36.2 87.1 (295.4) 2,188.8
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
Total liabilities 10.1 723.3 13.1 2.5 297.8 (295.4) 751.4
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
Non-current assets 484.5 1,323.9 70.4 32.8 12.4 - 1,924.0
----------------------------- -------- -------- -------- ---------- -------- ----------- --------
Section 4 - Income Statement Analysis (continued)
4.1 Segmental Analysis (continued)
All transactions between the segments are carried out on an
arm's length basis, other than where inter-group loans are made
interest-free or at interest rates below market value.
The segment results for the six months ended 30 June 2018 were
as follows:
Other
East Cairn Group
UK & LATAM* Atlantic* Energy adj
Senegal Norway (restated) (restated) Group for segments Total
US$m US$m US$m US$m US$m US$m US$m
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
Revenue - 181.7 - - 0.7 - 182.4
Cost of sales - (78.0) - - - - (78.0)
Depletion and amortisation
charges - (65.7) - - - - (65.7)
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
Gross profit - 38.0 - - 0.7 - 38.7
Pre-award costs - (2.1) (0.7) - (9.2) - (12.0)
Unsuccessful exploration
costs - (45.9) - (0.9) - - (46.8)
Other operating income - - - 5.0 - - 5.0
Loss on disposal of
intangible
exploration/appraisal
assets - (4.5) - - - - (4.5)
Depreciation - (0.4) - - (0.3) - (0.7)
Amortisation of other
intangible assets - - - - (1.1) - (1.1)
Other administrative
expenses (0.1) (0.5) (0.2) (0.2) (12.1) - (13.1)
Operating (loss)/profit (0.1) (15.4) (0.9) 3.9 (22.0) - (34.5)
Loss on derecognition
of financial assets - - - - (230.8) - (230.8)
Loss on fair value
of financial asset - - - - (319.4) - (319.4)
Interest income - - - - 0.6 - 0.6
Other finance income
and costs - (19.2) - - 0.4 - (18.8)
(Loss)/Profit before
taxation (0.1) (34.6) (0.9) 3.9 (571.2) - (602.9)
Tax credit - 33.3 - - 69.1 - 102.4
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
(Loss)/Profit for
the period (0.1) (1.3) (0.9) 3.9 (502.1) - (500.5)
Capital expenditure 12.1 54.2 6.0 1.8 0.2 - 74.3
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
Total assets 456.0 1,692.4 24.0 29.4 613.4 (94.1) 2,721.1
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
Total liabilities 13.7 660.7 3.1 23.4 133.3 (94.1) 740.1
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
Non-current assets 446.6 1,437.4 19.1 10.6 7.1 - 1,920.7
-------------------------------- -------- -------- ------------ ------------- -------- --------------- --------
* Previously combined as 'International'
Section 4 - Income Statement Analysis (continued)
4.1 Segmental Analysis (continued)
The segment results for the year ended 31 December 2018 were as
follows:
Other
East Cairn Group
UK & LATAM* Atlantic* Energy adj
Senegal Norway (restated) (restated) Group for segments Total
US$m US$m US$m US$m US$m US$m US$m
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
Revenue - 409.1 - - 1.2 - 410.3
Cost of sales - (131.4) - - - - (131.4)
Depletion and amortisation
charges - (171.2) - - - - (171.2)
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
Gross profit - 106.5 - - 1.2 - 107.7
Pre-award costs - (6.8) (5.2) (6.2) (7.2) - (25.4)
Unsuccessful exploration
costs - (62.6) - 14.4 - - (48.2)
Other operating income - - - 5.0 - - 5.0
Loss on disposal of
intangible
exploration/appraisal
assets - (4.5) - - - - (4.5)
Depreciation - (0.4) - - (0.6) - (1.0)
Amortisation of other
intangible assets - (0.4) - - (2.3) - (2.7)
Other administrative
expenses - (1.7) (0.3) (0.3) (44.4) - (46.7)
Impairment of property,
plant & equipment
- development/producing
assets - (166.3) - - - - (166.3)
Operating (loss)/profit - (136.2) (5.5) 12.9 (53.3) - (182.1)
Loss on derecognition
of financial assets - - - - (713.1) - (713.1)
Loss on fair value
of financial assets - - - - (352.2) - (352.2)
Interest income 0.1 0.1 - - 1.5 - 1.7
Other finance income
and costs - (21.9) - - 1.6 - (20.3)
Profit/(Loss) before
taxation 0.1 (158.0) (5.5) 12.9 (1,115.5) - (1,266.0)
Tax credit - 41.1 - - 89.4 - 130.5
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
Profit/(Loss) for
the year 0.1 (116.9) (5.5) 12.9 (1,026.1) - (1,135.5)
Capital expenditure 28.5 147.7 19.7 (1.9) 0.8 - 194.8
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
Total assets 470.5 1,532.7 42.0 40.4 82.2 (166.3) 2,001.5
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
Total liabilities 16.9 585.6 2.4 2.2 170.6 (166.3) 611.4
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
Non-current assets 463.0 1,235.7 32.7 22.2 5.8 - 1,759.4
---------------------------- -------- -------- ------------- ------------ ---------- --------------- ----------
* Previously combined as 'International'
Section 4 - Income Statement Analysis (continued)
4.2 Earnings per Ordinary Share
Basic and diluted earnings per share are calculated using the
following measures of profit/(loss):
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
------------------------------------------ ------------ ------------ -------------
Profit/(Loss) and diluted profit/(loss)
attributable to equity holders of the
Parent 66.5 (500.5) (1,135.5)
------------------------------------------ ------------ ------------ -------------
The following reflects the share data used in the basic and
diluted earnings per share computations:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
'000 '000 '000
---------------------------------------------- ------------- ------------ --------------
Weighted average number of shares 589,511 586,547 588,032
Less weighted average shares held by
the ESOP and SIP Trusts (8,296) (5,838) (7,502)
---------------------------------------------- ------------- ------------ --------------
Basic weighted average number of shares 581,215 580,709 580,530
Potential dilutive effect of shares issuable
under employee share plans:
LTIP awards 3,138 - -
Approved and unapproved plans 40 - -
Employee share awards 1,188 - -
---------------------------------------------- ------------- ------------ --------------
Diluted weighted average number of shares 585,581 580,709 580,530
---------------------------------------------- ------------- ------------ --------------
Potentially issuable shares not included
above:
LTIP awards 24,145 28,019 27,337
Approved and unapproved plans 2,816 3,393 3,341
Employee share awards 3,483 4,141 4,174
Number of potentially issuable shares 30,444 35,553 34,852
---------------------------------------------- ------------- ------------ --------------
2018 potentially issuable shares were all anti-dilutive due to
the loss for the period.
Section 5 - Taxation
5.1 Tax Credit on Profit/(Loss) for the Period
Analysis of tax credit on profit/(loss) for the period
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2019 2018 2018
US$m US$m US$m
----------------------------------------- ----------- ----------- -------------
Current tax credit:
Norwegian tax refunds receivable (13.7) (24.4) (35.5)
Mexican corporation tax payable 0.3 - -
(13.4) (24.4) (35.5)
Deferred tax credit:
Norwegian deferred tax credit (9.7) (8.9) (5.6)
Deferred tax on valuation of financial
assets at fair value through profit or
loss - (69.1) (89.4)
Total deferred tax credit (9.7) (78.0) (95.0)
----------------------------------------- ----------- ----------- -------------
Total tax credit on profit/(loss) (23.1) (102.4) (130.5)
----------------------------------------- ----------- ----------- -------------
5.2 Income Tax Asset
The income tax asset of US$46.9m (30 June 2018: US$62.2m; 31
December 2018: US$32.8m) mainly comprises cash tax refunds due from
the Norwegian authorities on the tax value of exploration and other
qualifying expenses incurred in Norway.
Section 5 - Taxation (continued)
5.3 Deferred Tax Assets and Liabilities
Reconciliation of movement in deferred tax
assets/(liabilities):
Temporary difference in
respect of non-current assets Losses Other temporary differences Total
US$m US$m US$m US$m
------------------------------- ------------------------------ ------------- ---------------------------- --------
Deferred tax assets
At 1 January 2018 (349.0) 349.0 - -
Deferred tax credit through
the Income Statement 21.5 (21.5) - -
At 30 June 2018 (327.5) 327.5 - -
Deferred tax credit through
the Income Statement 84.4 (84.4) - -
At 31 December 2018 (243.1) 243.1 - -
Deferred tax credit through
the Income Statement 32.9 32.9 - -
------------------------------- ------------------------------ ------------- ---------------------------- --------
At 30 June 2019 (276.0) 276.0 - -
------------------------------- ------------------------------ ------------- ---------------------------- --------
Deferred tax liabilities
At 1 January 2018 (179.9) 15.3 0.2 (164.4)
Foreign exchange (1.1) - - (1.1)
Deferred tax credit through
the Income Statement 75.9 1.8 0.3 78.0
------------------------------- ------------------------------ ------------- ---------------------------- --------
At 30 June 2018 (105.1) 17.1 0.5 (87.5)
Foreign exchange 6.2 (1.9) (0.3) 4.0
Deferred tax credit through
the Income Statement 9.1 6.7 1.2 17.0
At 31 December 2018 (89.8) 21.9 1.4 (66.5)
Foreign exchange (1.2) 0.3 0.1 (0.8)
Deferred tax (charge)/credit
through the Income Statement (0.1) 5.7 4.1 9.7
------------------------------- ------------------------------ ------------- ---------------------------- --------
At 30 June 2019 (91.1) 27.9 5.6 (57.6)
------------------------------- ------------------------------ ------------- ---------------------------- --------
30 June 30 June 31 December
Deferred tax liabilities analysed by 2019 2018 2018
country: US$m US$m US$m
India - (20.3) -
Norway (57.6) (67.2) (66.5)
Total deferred tax liabilities (57.6) (87.5) (66.5)
-------------------------------------- -------- -------- ------------
5.4 Contingent Liability - Indian Tax Assessment
The formal hearings and submissions in respect of Cairn's claim
under the UK-India Bilateral Investment Treaty concluded in 2018
and the arbitration panel is preparing its final award.
Whilst the panel had originally guided the parties that it
expected to issue an award as expeditiously as possible, workload
and the number of matters before the panel have meant that the
timetable for issuing the award will be more protracted than
originally anticipated and the award is therefore unlikely to be
before late 2019.
Based on detailed legal advice, Cairn remains confident that it
will be successful in this arbitration and accordingly no provision
has been made for any of the tax or penalties assessed by the India
Income Tax Department ('IITD').
The Group also has legal advice confirming that the maximum
amount that could ultimately be recovered from Cairn by the IITD,
in excess of the assets already seized, is limited to the value of
CUHL's assets, including the remaining ordinary shares in Vedanta
Limited.
Section 6 - Other Disclosures
6.1 Post Balance Sheet Events
Farm-out agreement for the sale of a 10% interest in the Nova
development
On 6 August 2019, Cairn announced that it has entered into a
farm-out agreement for the sale of a 10% interest in the Nova
development offshore Norway.
From an economic effective date of 1 January 2019, ONE-Dyas
Norge AS shall acquire 10% in the project by paying US$59.5m plus
working capital adjustments to the date of completion. The
transaction remains subject to written consent by the Norwegian
Ministry of Petroleum and Energy, partner and third-party
approvals.
Following this transaction Cairn will retain a participating
interest of 10% interest in the Nova development.
The net book value of the Nova development asset cash-generating
unit at 1 January 2019 was US$56.9m and Cairn expect to realise a
profit after taxation of approximately US$31.0m on completion of
the sale, subject to final working capital adjustments and exchange
differences.
Glossary
AGM Annual General Meeting
bbl Barrel of oil
bn Billion
boe Barrels of Oil Equivalent
boepd Barrels of Oil Equivalent Per Day
bopd Barrels of Oil Per Day
CUHL Cairn UK Holdings Limited
DC4 Drill Centre four
E&P Exploration and Production
EFF Exploration Finance Facility
EITI Extractive Industries Transparency Initiative
ESG Environmental and Social Governance
ESIA Environmental and Social Impact Assessment
ESOP Employee Share Option Plan
FEED Front-End Engineering Design
FID Final Investment Decision
FPSO Floating Production Storage and Offloading facility
IFC International Finance Corporation
IFRS International Finance Reporting Standards
IOC International Oil Company
JV Joint Venture
LATAM Latin America
m Million
mmbbls Million Barrels of Oil
mmboe Million barrels of oil equivalent
NOK Norwegian Krone
RBL Reserves Based Lending (facility)
SIP Share Incentive Plan
WI Working Interest
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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