Cairn Ind
ia Limited
Annual Report and Financial Statem
ents 2008–09
Cairn India Limited3rd & 4th Floors, Vipul Plaza, Sun CitySector 54, Gurgaon 122 002, India
www.cairnindia.com
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Company Information
board of directors Sir William B.B. Gammell (Chairman)
Malcolm Shaw Thoms (Deputy Chairman)
Jann Brown
Naresh Chandra
Dr Omkar Goswami
Aman Mehta
Edward T. Story
Rahul Dhir (Managing Director & Chief Executive Offi cer)
Indrajit Banerjee (Executive Director & Chief Financial Offi cer)
Rick Bott (Executive Director & Chief Operating Offi cer)
board committees
Audit CommitteeAman Mehta (Chairman)
Naresh Chandra
Dr Omkar Goswami
Edward T. Story
Jann Brown
Remuneration CommitteeNaresh Chandra (Chairman)
Sir William B.B. Gammell
Malcolm Shaw Thoms
Aman Mehta
Dr Omkar Goswami
Nomination CommitteeSir William B.B. Gammell (Chairman)
Rahul Dhir
Jann Brown
Malcolm Shaw thoms
Edward T. Story
Shareholders’ / Investors’ Grievance CommitteeDr Omkar Goswami (Chairman)
Naresh Chandra
Rahul Dhir
company secretaryNeerja Sharma
statutory auditorsS.R. Batliboi & Associates
Golf View Corporate Tower B
Sector 42, Sector Road
Gurgaon 122 002, India
bankersCitibank | State Bank of India | ABN AMRO
stock exchanges listed onBombay Stock Exchange Limited
National Stock Exchange of India Limited
registered office 101, West View
Veer Savarkar Marg
Prabhadevi
Mumbai 400 025, India
corporate office3rd & 4th Floors, Vipul Plaza
Sun City, Sector 54
Gurgaon 122 002, India
registrar & share transfer agentLink Intime India Private Limited
(formerly Intime Spectrum Registry Limited)
C-13, Pannalal Silk Mills Compound
L.B.S.Marg , Bhandup (West)
Mumbai 400 078, India
Contents Highlights
Total acreage of theRajasthan fi elds
3,111 km2
Nearly the same as the combined area of National Capital Region of Delhi and Greater London
Area of the Mangala Processing Terminal (MPT) 1.6 km2
or approximately 400 acresEquivalent to 200 football grounds, or 27 times the size of the Eden Garden cricket ground at Kolkata, or three times the area of the Red Fort Complex in Delhi
Mangala, Bhagyam and Aishwariya plan to produce 175,000bopd(barrels of oil per day)
At peak production which is estimated to account for more than 20% of India’s crude oil production
Total capacity of the four trains of the MPT
205,000bopd
The MPT will have four crude oil processing trains, together designed to handle a total capacity of 205,000 bopd.
These are:TRAIN 1 Capacity of 30,000 bopd from the Mangala fi eld which is ready to start production. Initial evacuation by trucking
TRAIN 2 Capacity of 50,000 bopd, also from the Mangala fi eld is targeted for completion by Q4 2009, along with the heated pipeline.
TRAIN 3 Capacity of 50,000 bopd — targeted for completion in H1 of 2010. Will access the plateau production of the Mangala fi eld
TRAIN 4 Capacity of 75,000 bopd, designed to accommodate production from Bhagyam and Aishwariya and further expansion. Will be commissioned by 2011
2 Board of Directors
4 Letter from the CEO
6 Management Discussion and Analysis
32 Cairn Milestones
34 Corporate Social Responsibility
40 Report on Corporate Governance
58 Directors’ Report
65 Auditors’ Report
68 Balance Sheet
69 Profit and Loss Account
70 Statement of Cash Flows
71 Schedules to the Financial Statements
92 Balance Sheet Abstract and Company’s General Business Profile
93 Auditors’ Report on Consolidated Financial Statements
94 Consolidated Balance Sheet
95 Consolidated Profit and Loss Account
96 Consolidated Statement of Cash Flows
97 Schedules to Consolidated Financial Statements
123 Glossary
Cairn is ready to produce fi rst oil from Rajasthan, which can go up to
30,000 bopd
Given the progress at the MPT, we are targeting producing oil from Train 2 — up to an additional 50,000 bopd — by Q4 2009
EOR resource base of incremental recoverable oil
> 300mmbbls(million barrels)
The current assessment of the enhanced oil recovery (EOR) resource base is greater than 300 mmbbls of incremental recoverable oil from Mangala, Bhagyam and Aishwariya fi elds
Building facilities to handle
80,000 bopdby Q4 2009
Cairn is targeting completion of the pipeline in time to evacuate crude oil by the time Train 2 is operational. The Company is building facilities that will have the capacity to handle 80,000 bopd by Q4 2009
Operational expense at Ravva and Cambay
US$ 2.4 per barrel
The fi eld direct operational expense for the current producing blocks, Ravva and Cambay is one of the lowest in the world
Estimated Rajasthan Upstream operating expenses
aroundUS$ 3.50 per barrel during fi eld life
If one were to add to that the cost of pipeline operating expenses, the total opex of Rajasthan crude is targeted at around US$ 5 per barrel during fi eld life
Vehicle accident frequency rate
1.33 per million km travelled
During 2008, contractor vehicles travelled for more than 15 million km without any fatalities or serious accidents. The motor vehicle accident frequency rate was 1.33 per million km travelled — which is well below international benchmark in this industry
The 24” heated & insulated pipeline runs for approximately
700 km
It runs from the MPT at Barmer to a marine terminal on the Gujarat Coast. Of the 700 km of pipeline, 154 km is located in Rajasthan and the rest is in Gujarat
Headcount in 2008increased by
50%
While many businesses faced reducing employee numbers or revisited their recruitment plans, Cairn has been hiring throughout 2008, and will continue to do so in 2009
1 HIGHLIGHTS
Board of Directors
Sir Bill Gammell, 56, holds a BA in Economics and Accountancy from Stirling University and was awarded a knighthood in 2006 for services to industry in Scotland. He has over 25 years’ experience in the international oil and gas industry. He founded Cairn Energy PLC and was ap-pointed Chief Executive on its initial listing in 1988. He is the non-executive Chair-man of Cairn India Limited and is a member of the Asia Task Force and the UK India Business Council. Sir Bill, who is an ex–Scotland rugby internationalist, is also Chairman of Winning Scotland Foundation and a director of sport Scotland and Glasgow 2014 Limited
sir bill gammellChairman and Non-Executive Director
Ms Jann Brown, 54, holds an MA degree from Edinburgh University and joined Cairn Energy PLC in 1998 after a career in the accountancy profession, mainly with KPMG. She was appointed Finance Director of Cairn Energy PLC in 2006. Prior to her appointment as Finance Director, she served on the Group Management Board for seven years. She is a member of the Institute of Chartered Accountants of Scotland and the Chartered Institute of Taxation
jann brownNon-Executive Director
Mr Aman Mehta, 62, is an economics graduate from Delhi University. He was earlier the Chief Executive Offi cer of HSBC Asia Pacifi c until 2003. Mr Mehta is currently an independent non-executive director of several public companies in India as well as overseas. Besides this he is also a member of the Advisory Council of INSEAD, France and International Advisory Boards of Prudential Inc., USA and CapitaLand Ltd. of Singapore
aman mehtaNon-Executive and Independent Director
Dr Omkar Goswami, 52, holds a Master of Econom-ics Degree from the Delhi School of Economics. He is a D. Phil. in Economics from Oxford University. He has authored various books and research papers on economic history, industrial economics, public sector, bankruptcy laws and proce-dures, economic policy, cor-porate fi nance, corporate governance, public fi nance, tax enforcement and legal reforms
dr omkar goswamiNon-Executive and Independent Director
Mr Indrajit Banerjee, 53, graduated from the Univer-sity of Calcutta with a Bach-elor’s degree in Commerce. An associate member of the Institute of Chartered Accountants of India, Mr Banerjee started his career at Price Waterhouse Coopers in Calcutta in 1979 and has held several senior positions throughout his career, including 17 years at the Indian Aluminium Company which was part of the Alcan Group, and two years in Lucent Technolo-gies (India). Before joining the Company, he was President-Finance and Plan-ning at Lupin Limited
indrajit banerjeeExecutive Director and CFO
2 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Mr Malcolm Thoms, 53, holds a BSc Hons degree in Physics from Edinburgh University and is an MBA from Heriot-Watt Univer-sity. He started his career in the oil industry as a fi eld en-gineer with Schlumberger and subsequently became manager of their businesses in Qatar and Brunei. He joined Cairn Energy PLC in 1989 where he held a number of senior manage-ment positions prior to his appointment as an Execu-tive Director in 2000. He is currently Chief Operating Offi cer of Cairn Energy PLC. Mr Thoms is also a trustee of the University of Edinburgh Development Trust. He has been a regular visitor to South Asia since 1994 and was instrumental in developing Cairn’s busi-ness interests in the region
malcolm shaw thomsNon-Executive Director
Mr Rahul Dhir, 43, joined Cairn India in May 2006 and was appointed Chief Executive Offi cer on 22 August 2006. He was educated at the Indian In-stitute of Technology, Delhi (Bachelor of Technology), the University of Texas at Austin (M.Sc) and at the Wharton Business School in Pennsylvania (MBA). Mr Dhir started his career as an oil and gas reservoir en-gineer before moving into investment banking. He has worked at SBC Warburg, Morgan Stanley and Merrill Lynch, where he managed a team advising several major oil companies and a number of independent E&P companies on mergers and acquisitions and capital market related issues. Before joining Cairn India, he was Managing Director and Co-Head of Energy and Power Investment Banking at Merrill Lynch
rahul dhirManaging Director and CEO
Mr Naresh Chandra, 74, is a post graduate (MSc. in Mathematics) from Allahabad University and a retired IAS offi cer. Previously, Mr Chandra was Chairman of the Committee on Corporate Governance, India’s Ambassador to the US, Advisor to the Prime Minister, Governor of Raj-asthan, Cabinet Secretary to the Government of India, and Chief Secretary of Rajasthan. A reputed administrator and diplomat, Mr Chandra serves as an independent director on the boards of a number of companies
naresh chandraNon-Executive and Independent Director
Mr Rick Bott, 49, was appointed as Additional Director on 29 April 2008 and assumed offi ce of Ex-ecutive Director and Chief Operating Offi cer with ef-fect from 15 June 2008. Mr Bott holds a B.S in Marine Sciences and Masters in Geology from Texas A & M. He joined Cairn India from Devon Energy’s Interna-tional division where he was Vice President responsible for developing and imple-menting business growth and exploration strategy for assets in 12 countries outside of North America, focusing on the deepwater, West Africa, South America and the Middle East /Asia. Previously he served as President of Ocean Egypt Companies and as President of Ocean Yemen Corpora-tion. He also served in a number of international management and technical positions with British Gas and Tenneco and has exten-sive global exploration and production experience with more than 21 years in the industry leading integrated organisations, developing new business and focusing on cross-cultural leadership development
rick bottExecutive Director and COO
Mr Edward T Story, 65, is a science graduate from Trinity University, San Antonio, Texas and holds a Masters degree in Business Administration from the University of Texas. He has also been conferred an hon-orary Doctorate degree by the Institute of Finance and Economics of Mongolia and is Chairman of the North America Mongolia Business Council.Mr Story has more than 40 years experience in the international oil and gas industry and is the founder, President and Chief Executive Offi cer of SOCO International PLC, an international explora-tion and production (E&P) company listed on the London Stock Exchange. SOCO International has E&P interests in South East Asia and Africa
edward t. storyNon-Executive and Independent Director
3 BOARD OF DIRECTORS
Letter from the CEO
Dear Shareholder,
If I were to describe the progress of your Company from the previous annual report to this one, the most apt phrase would be: “From Concept to Reality”. Let me explain what this means
first oilConcept In April 2008, in my previous letter to you, I had written of “the commitment of Cairn India to deliver fi rst oil from Rajasthan by the second half of 2009”.Reality Your Company and its joint venture partner ONGC, is ready to deliver fi rst oil from Rajasthan. Cairn will be able to produce up to 30,000 barrels of oil per day (bopd) from the Train 1 of the Mangala Processing Terminal (MPT).The initial production is targeted to be evacuated by trucking to refi neries in different parts of India.
Spread over 400 acres, the size of the MPT is equivalent to 200 football grounds or three times the area of the Red Fort complex in Delhi. The infrastructure to and from the MPT involves some 500 kilometres (km) of intra- and inter-fi eld pipelines (more than the distance from Delhi to Lucknow), and 80 km of inter-fi eld roads.
At peak production, Mangala, Bhagyam and Aishwariya (MBA) together will produce 175,000 barrels of oil per day (bopd) — which will account for more than 20% of India’s crude oil production. The MPT will have the capacity to process not only this 175,000 bopd, but also any additional crude oil produced through enhanced oil recovery and from other fi elds.
the pipelineConcept We had promised to complete the insulated heated pipeline from the MPT to Guja-rat before the end of 2009. When we made this pledge last year, there were still several hurdles to overcome regarding acquiring the rights of use and the laying of the pipeline in Rajasthan. Reality Thanks to cooperation from the Gov-ernment of India (GoI) and the State Govern-ments of Rajasthan and Gujarat, your Company is targeting completion of the pipeline from the MPT to the Gujarat coast by Q4 2009.
This is one of the longest continously heated
and insulated pipelines in the world— approxi-mately 700 kilometres (km) in length. The insu-lated pipeline has an outer diameter of 24” with an 8” pipeline running along it that will carry gas from the Raageshwari fi eld for heating the main pipeline to ensure that the crude remains at a constant temperature of 65°C. Along the pipe-line, there will be more than 35 heating stations. In addition, there is an intermediate terminal at Viramgam for storage and further pumping to the coast. There are also two pigging stations to clean the pipe and scour it of wax.
fundingConcept In December 2007, there was an increase in the Rajasthan project cost conse-quent to an increase in the scale and scope with a greater engineering need and higher input prices. At that time, neither was the capital requirement for the Rajasthan upstream project precisely defi ned, nor the funding for the pipe-line fi rmly established. Reality In April 2008, Cairn India obtained US$ 625 million through a private placement of its shares — the largest such placement in the Indian equity market during 2008–09. This included 63.3 million shares at Rs. 224.30 per share to our existing shareholder, Petronas.
In addition, despite the global fi nancial crisis, your Company was able to fully draw down its earlier debt facility of US$ 850 million. This, together with the US$ 625 million private place-ment, has eliminated funding uncertainties for the core upstream and pipeline development in Rajasthan.
In addition the Company has an ongoing dia-logue with various international and domestic institutions to review its fi nancing options — to create fi nancial fl exibility by securing competi-tively priced long term debt
We are, thus, fi nancially well placed to imple-ment our business plans.
4 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
optimising costsConcept By the end of 2007, there was signifi -cant infl ation in the oil industry, driven by rising levels of activity, increases in steel prices and an acute shortage of skilled professionals. The planned capital expenditure on the Rajasthan project for 2008 and 2009 rose to US$ 1.8 billion on net basis (i.e. net to Cairn, the 70% partner of the Cairn–ONGC joint venture). We had to trim project costs — and yet ensure that the target for production of fi rst oil was maintained.Reality The project cost was reduced by US$ 400 million to US$ 1.4 billion through a tight control on expenses and the phased develop-ment of the MPT and the pipeline. The fi eld direct operating expense at Ravva and CB/OS-2 in 2008 was US$ 2.4 per barrel — one of the lowest in the world. We plan to apply these skill sets in Rajasthan and continue as a low cost operator. The Rajasthan upstream operating expenses are estimated at US$ 3.5 per barrel and the pipeline opex is estimated at US$ 1.5 per barrel during the life of fi eld.
Thanks to cost optimisation, your Company will be well placed to create shareholder value under any reasonable price scenario for crude oil.
reserves and enhanced oil recoveryThe stock tank oil initially in place (STOIIP) for the MBA fi elds is now estimated at 2,054 million barrels of oil equivalent (mmboe).
We continue to improve our understanding of these fi elds through the application of in-novative techniques. At Mangala, these efforts have resulted in a 20% increase in our estimated oil in place; and a 30% increase in reserves and resources, resulting in a 25% rise in the potential plateau rate to 125,000 bopd.
Similarly, the STOIIP at Aishwariya has increased by over 37% — from 213 million barrels (mmbbls) in the originally approved fi eld development plan to 293 mmbbls. This has
doubled the fi eld’s production potential from 10,000 bopd to 20,000 bopd.
We continue to explore for additional hy-drocarbons in the Barmer basin. In December 2008, our efforts resulted in Cairn’s 25th oil and gas discovery adjacent to Raageshwari fi eld. Tests indicate an oil fl ow of around 500 bopd, plus 0.4 mmscfd gas. In addition, the Barmer Hill formation has an estimated STOIIP of ap-proximately 400 mmbbls.
We are also focusing on the early application of enhanced oil recovery (EOR) techniques in the MBA fi elds. Our laboratory and computer studies indicate that an additional 308 mmbbls of oil can be recovered through the use of EOR from these fi elds.
Cairn will make use of all the viable Rajasthan fi elds to optimise both the life of the different hydrocarbon resources and the associated revenue streams.
ravva and cambay (cb/os-2)Cairn’s gross production from these two op-erating assets in India during 2008 was 66,146 boepd. It’s net working interest was 17,264 boepd.
These assets highlight our ability to maximise recovery and manage costs. In Ravva, we have now produced over 200 million barrels, and ex-pect to recover over 60% of the STOIIP. Around US$ 4 billion has been contributed to the GoI from the share of profi ts following the oil and gas sales at Ravva.
In Cambay, we have applied new seismic interpretations to identify further hydrocarbons and with minimal investment, we managed to convert the processing facilities to handle oil pro-duction as well. In addition to gas, we are now producing over 10,000 bopd from these fi elds.
Cambay is a case where discovery to delivery took place in only 28 months and during 2008 it generated its highest revenues since the start of production.
explorationIn September 2008, the Sri Lanka Board of In-vestment and your Company signed a commit-ment for the Mannar Basin which lies offshore north-west Sri Lanka and covers approximately 3,000 km2 in water depths of 200 metres to 1,800 metres. The work programme includes the acquisition of seismic data and the drilling of three wells in the fi rst three years of the explora-tion period.
health and safetyDuring 2008, occupational health and safety management systems at Ravva and Suvali were certifi ed to best-in-class international standards, namely OHSAS 18001 and ISO 14001. For the year, our contractor vehicles travelled over 15 million km without any fatalities or serious accidents.
These are a few examples of what I began the letter with — the determined journey of Cairn from concept to reality.
This journey would not have been possible without the efforts of all your Company’s em-ployees — many of whom have been working day and night in Rajasthan and along the pipe-line in testing weather conditions, where day temperatures can soar to more than 48°C.
It is a journey that fulfi ls your Company’s pledge — to be a major supplier of crude oil to India and to generate long term shareholder value.
Thank you for your support. You have had faith in us. The results will now be for you to see.
Rahul DhirManaging Director and CEO
5 LETTER FROM THE CEO
R A H U L D H I R
Management Discussion & Analysis
Much has happened at Cairn India Limited (‘Cairn’ or ‘the Company’) between what was reported in last year’s Management Discussion and Analysis and this one — changes that can be described in a single phrase: “From Concept to Reality”
6 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
To understand the importance of this phrase, it is best to begin this Management Discussion and Analysis by describing what the Company has accomplished in the course of one year in Rajasthan — in terms of developing the up-stream facility at the Mangala Processing Termi-nal (MPT) at Barmer as well as the progress in constructing the approximately 700 kilometres (km) insulated heated pipeline that will fl ow the crude oil from MPT to the coast of Gujarat.
the rajasthan projectBroadly speaking, the Company’s immedi-ate project in Rajasthan involves three sets of activities:
Production of crude oil from the three main fi elds: fi rst Mangala, then Bhagyam, followed by Aishwariya, as well as the develop-ment and operations of the MPT.
Laying and completing the insulated heat-ed pipeline from the MPT to the Gujarat coast, including more than 35 heating stations and an intermediate terminal at Viramgam (Gujarat).
Enhancing Rajasthan resources — through reservoir development, enhanced oil recovery (EOR), the phased development of the other 22 fi elds and potential for further discoveries in Rajasthan.
rajasthan upstream The discovery of the Mangala oil fi eld among others in Rajasthan, spurred the fl otation and the creation of a separate Indian business. It has provided the Company with the right platform to translate the exploration success into real and tangible operational excellence. The fl ow of oil from the fi elds in Rajasthan at a planned peak of 175,000 barrels of oil per day (bopd) will help meet more than one fi fth of the country’s domestic production and is a signifi cant contribution to aid the nation’s energy security.
Cairn fi rst came into Rajasthan in the late 1990s, when it acquired an interest in the block RJ-ON-90/1. The Company fi rmly believed that the area was not only rich in hydrocarbons but also had all the key ingredients for successful commercial production. By 2003, Cairn had acquired 100% of the exploration interest and assumed the role of operator of this acreage. In 2004, a major discovery of crude oil was made in the Mangala fi eld which has been the largest onshore discovery in India over the last 25 years. This was followed by key discoveries at Bhagyam and Aishwariya which, along with Mangala, comprise the MBA fi elds. In all, 25 discoveries have now been made in Rajasthan.
Today, Cairn is the operator of the Rajasthan block, with a 70% development and production interest. The balance 30% is held by India’s public sector oil and gas major, the Oil and
7 MANAGEMENT DISCUSSION AND ANALYSIS
Natural Gas Corporation Limited (ONGC) fol-lowing their exercise of an option provided for in the PSC.
Chart A gives the location of the Rajasthan resources.
The development areas in Rajasthan consist of three contiguous areas: (i) Mangala, Aish-wariya, Raageshwari and Saraswati (MARS) fi elds; (ii) Bhagyam; and (iii) Kaameshwari West. The total acreage of the development areas in Rajasthan accounts for 3,111 square kilometers (km2). This is nearly the same as the combined area of national capital region of Delhi and Greater London. More than 350 wells and over 40 well pads are currently planned throughout the Rajasthan fi elds.
Peak production from the MBA fi elds is planned at a rate of 175,000 bopd — which is estimated to account for more than 20% of India’s crude oil production.
mangala processing terminalIn order to produce the oil and separate associ-ated gas and water, the Company has set up the Mangala Processing Terminal (MPT). The capacity to produce 30,000 bopd will be devel-oped at the MPT by Q3 2009, to be evacuated by road tankers. As stated in last year’s annual report, the next phase is targeting a capac-ity to handle 80,000 bopd before the end of 2009 — all of which is planned to be evacuated ultimately by the insulated heated pipeline.
The MPT will have four crude oil processing trains, designed to handle a total capacity of 205,000 bopd with scope for expansion:
train 1 Capacity of 30,000 bopd from the Mangala fi eld which is ready to start production. Initial evacuation will be by trucking.
train 2 Capacity of 50,000 bopd, also from the Mangala fi eld is targeted for completion by Q4 2009, along with the heated pipeline.
train 3 Capacity of 50,000 bopd — targeted for completion in H1 of 2010 — will access the plateau production of the Mangala fi eld.
train 4 Capacity of 75,000 bopd, designed to accommodate production from Bhagyam and Aishwariya and further expansion. Will be com-missioned by 2011.
After Train 4 is commissioned, the MPT will have the capacity to process not only the pla-teau production of the MBA fi elds of 175,000 bopd, but will also have additional capacity to support further potential production from EOR and the 22 other fi elds.
Spread over an area of 1.6 square km, or approximately 400 acres, the size of the MPT is equivalent to 200 football grounds, or 27 times the size of the Eden Garden cricket ground at Kolkata, or three times the area of the Red Fort complex in Delhi.
The processing of crude oil from four trains requires the MPT to have an extensive water heating, circulating and recycling system; gas recovery systems; heat and power systems; and built-in fi re and safety systems. The infrastruc-ture to and from the MPT involves some 500 km of intra- and inter-fi eld pipelines (more than the distance from Delhi to Lucknow), and 80 km of inter-fi eld roads.
Steam will be the main source of heat to help produce the Rajasthan crude, with the use of fi ve 115 metric ton / hour boilers. The advan-tage of steam is that it is an effi cient, pollution-free and renewable resource. All power require-ments of the MPT will be met by captive power plants, comprising four 12 megawatt (MW) steam turbine generators, plus three 2 MW emergency diesel generators. There will be 20 water and oil storage tanks, 16 buildings hous-ing various equipment, including the power sta-tions and different control systems, and several kilometres of pipe racks to carry all the pipes and cables across the facility. When completed, the MPT will have used up more than 98,000 cubic metres of concrete and 23,600 metric tons of steel — excluding the steel used for the insulated heated pipeline.
Chart B gives a geographical snapshot of the Rajasthan Field and the MPT. The water to cre-ate steam and for fl ooding the oil reservoirs to
Peak production from Mangala, Bhagyam and Aishwariya is planned at a rate of 175,000 barrels of oil per day (bopd) — which is estimated to account for more than 20% of India’s crude oil production
8 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Barrel of Oil The standard oil barrel of 42 US gallons (159 litres) is used in the United States as a measure of crude oil.
The measurement originated in the Pennsylvania oil fi elds in the 1860s, when there was no standard container for oil. To remove distrust, the oil producers decided to use the 40 gallon whisky barrel, and add a couple more gallons to ensure buyers’ confi dence — like the baker’s dozen. Of course, nobody uses barrels any more
BHAGYAM DEVELOPMENT AREA
MANGALA PROCESSING TERMINAL (MPT)
KAAMESHWARI WEST DEVELOPMENT AREA
MANGALA, AISHWARIYA, RAAGESHWARI& SARASWATI DEVELOPMENT AREA
I N D I A
A Cairn’s Rajasthan Block
9 MANAGEMENT DISCUSSION AND ANALYSIS
Oil Processing System
MAKE UP GAS FROM RAAGESHWARI
TO EXPORT PIPELINE
ASSOCIATED GAS
TO INJECTION AND POWER
WATER SYSTEMS
48 MW Power for Plant Utilities Steam Turbine
GeneratorsInjection Heaters
Process Heaters
Tank Heaters
Thumbli Well
Boilers
MAKE UP WATER FROM THUMBLI SALINE WELLSRECOVERED WATER
C The Steam and Power System at the MPTSCHEMATIC DIAGRAM
10 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
help extract the crude comes from the Thumbli saline water aquifer discovered by Cairn in 2004. The Thumbli reservoir is 22 km away from the MPT (see (B) in Chart B). Cairn has drilled fi ve water wells, each with a capacity of 63,000 barrels per day. The saline water is transported to the MPT by a pipeline 20” in diameter. The water is desalinated and then fed to the fi ve boilers at the MPT to generate steam.
The gas needed to fi re the boilers and, more importantly, to generate the power to heat the waxy crude at an average of 65°C along the pipeline, comes from the Raageshwari gas fi eld, located some 90 km away from the MPT (see (C) in Chart B). The Raageshwari Gas Terminal (RGT), with four gas well pads and 35 wells, is designed to produce dry gas of over 30 million standard cubic feet per day (mmscfd). The gas will be transported via a 12” gas pipeline to the MPT and the gas liquids, or condensate, by a 4” pipeline. This will involve 180 km of pipeline.
All the power requirements will be met by three 1250 KVA steam turbine generators. The gas from Raageshwari will be used to supple-ment the produced gas at MPT as fuel for the boilers. Steam from the boilers will be used to produce power and also for heating of fl uids at the MPT.
Chart C explains the closed-loop steam and power system of the MPT. Water from the Thumbli aquifer is desalinated and fed to the boilers, along with gas from Raageshwari. Steam generated from the fi ve boilers is used for four purposes:
First, to drive the four steam turbines to create 48 MW of power for the MPT.
Second, to heat water to inject into the oil wells for extracting the crude oil.
Third, to heat the crude oil process heaters to maintain the minimum heat needed for ensuring that the waxy crude fl ows freely to the oil tanks.
Fourth, to continuously heat the oil tanks that hold the crude at the MPT — again to ensure
Barrels of oil equivalent is a unit based on the approximate energy released by burning one barrel (42 US gallons) of crude oil.
1 boe = 5.8 x 10 6 BTU (British Thermal Unit) = 6.1178632 x 10 9 J (joule), or approximately 6.1 GJ (giga joule).
A boe is roughly 6,000 cubic feet (170 cubic metres) of typical natural gas. The boe or mmboe is used by oil and gas companies as a way of combining oil and natural gas reserves and production into a single measure.
BHAGYAMMANGALAMPT & WELL PADSAISHWARIYATHUMBLI WATERSYSTEM
RAARAAGESGESGESSSHWAHWAHWAHWHWHHH RI RI RI GASS TETE TEETETEERMIRMIRMIRMINALNALNALLLLNA ANDANDNDNDAND WE WE WEWEW LL LL LL PADPADPADPADP SS
OILOILOILOILOILO EX EXEX EX EXPORPORPORPP T T T T TPIPPIPPIPP ELIELILIINE NE NE & & &&&&HEAHEAHEAHEAHEAH TINTINTINTING GG GGHHHSTASTASTASTASTAATIOTIOTITIOTIOT NSNSN
B Rajasthan Block & Mangala Processing Unit
The water to create steam and for fl ooding the oil reservoirs for extraction of crude comes from the Thumbli saline water aquifer discovered by Cairn in 2004. The Thumbli reservoir is 22 km away from the MPT
B O E
11 MANAGEMENT DISCUSSION AND ANALYSIS
FLUIDS FROM OIL WELLS
ASSOCIATED GAS RECOVERYMAKEUP GAS FROM RAAGESHWARI
PRODUCED WATER TREATMENTMAKEUP WATER FROM THUMBLI SALINE WELLS
Heater SeparatorSlug Catcher Settling Tank Dehydrator Export Oil Storage Tank
Oil Pump
TO EXPORT PIPELINE
TO FUEL GAS DISTRIBUTION SYSTEM
INJECTED BACK INTO OIL WELLS
FIRST STAGE PREPARATION SECOND STAGE PREPARATION STORAGE & EXPORT
that the oil is maintained at the required tem-perature.
The water recovered from well injection is then stripped of its oil, desalinated, re-heated and re-used for further injection in the wells or for generating steam at the boilers.
The scheme of the processing system at the MPT is depicted in Chart D. The crude goes through various stages of separation to yield oil, associated gas and water. The associated gas is recovered for use as fuel for steam generation. The water is separated out and re-injected into the wells following treatment. The separated oil goes through a dehydrator, where any remain-ing water is removed. Finally the oil is sent to the oil storage tanks from where it is pumped to the heated pipeline.
The process system is designed in such a way that there is no fl aring of gas during the normal course of operation and also all the water produced is re-used in the crude extraction process. This ensures minimal impact to the environment.
Desalinated water from the Thumbli saline water system is injected into the wells to extract crude oil. The crude goes through a fi rst stage separation of oil, associated gas and water. The associated gas is recovered to fi re the steam tur-bines; and the separated water is treated. The crude then goes through a heater for the sec-ond stage of separation, with the same results. Thereafter, it goes to a settling tank, where the fi nal associated residual gas is taken off from the top, as is the water that settles at the bottom. Thereafter, it is processed through a dehydrator to take out the last remnants of water. Finally it goes to the oil storage tanks, from where it is pumped to the heated pipeline. All separated water is recycled.
At the time of writing this Management Discussion and Analysis:
There are more than 450 engineers from �
the Indian construction major, Larsen and Toubro (L&T), 100 engineers from Cairn and more than 6,000 workmen at the MPT site, all focused on the goal of producing oil from Train 1 by Q3 2009, from Train 2 by Q4 2009 and from Train 3 by H1 2010. Work is on schedule for the completion of �
the 20 tanks at the MPT along with the facili-ties at the Raageshwari Gas Terminal. At the MPT the boilers have been erected and the steam turbine generators are being erected according to schedule.
In addition to all these activities, Cairn has built a wide channel and a Gabion Wall running across the MPT as a fl ood mitigation measure. Barmer was fl ooded by unseasonal and unprec-edented heavy rains in August 2006. Despite the statistically improbable nature of the heavy rains at Barmer, the Company decided to create a fl oodwater outfl ow channel and protect the MPT by a Gabion Wall through an innovative engineering solution that reduced the cost from an initial estimate of US$ 57 to US$ 30 million.
A full schematic presentation of the entire crude oil extraction process at the MPT is given in Chart E.
Cairn is ready to produce fi rst oil from Rajast-han via the fi rst train, which can be scaled up to 30,000 bopd. The completion of Train 2 — with an additional capacity of 50,000 bopd — is targeted for Q4 2009.
D Overview of the Processing System at the MPTSCHEMATIC DIAGRAM
12 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
A
A
B
B
C
C
Gas Recovery System
Vertical Well
Horizontal Well
Water Injector
Heater
Separator + Heat
Export Oil Storage Tank
TO FUEL GAS DISTRIBUTION
SYSTEM
THUMBLI SALINE AQUIFIER
BARMER HILL
FATEHGARH
WATER TABLE
FRESH WATER
OIL
TO EXPORT PIPELINE
Saline Water Abstraction
E The Oil Recovery SystemSCHEMATIC DIAGRAM
13 MANAGEMENT DISCUSSION AND ANALYSIS
the rajasthan–gujarat pipelineOn 30 April 2008, the Government of India (GoI) approved the shifting of the crude oil de-livery point as defi ned under the PSC from the MPT at Barmer to the Gujarat coast. Thereafter, ‘in principle’ approval of RoU (Right of Use) was granted to lay the pipeline up to the marine terminal on the Gujarat coast.
The GoI had granted the Right of Use (RoU) to Cairn on 22 August 2007 and had directed the state governments of Rajasthan and Gujarat to nominate competent authorities to process the RoU. The Gujarat authorities granted their RoUs to enable an early start on that section of the pipeline. The Rajasthan RoUs followed in February 2009, and the company took the nec-essary steps to source the construction teams to commence work with the aim of meeting the initial target for completion of Q4 2009.
The 24” heated and insulated pipeline is approximately 700 km long from the MPT at Barmer to a marine terminal on the Gujarat Coast. Some 154 km of the pipeline is located in Rajasthan and the rest is in Gujarat.
The heated and insulated pipeline has an outer diameter of 24” with an 8” pipeline run-ning along it that will carry Raageshwari gas, that will be used for power generation. The heating of the pipeline is based on an electric heat induction technology named Skin Effect Heat Management System (SEHMS). Along the length of the pipeline, there will be more than 35 SEHMS heating stations or Above Ground Installations (AGIs). Gas will be supplied at each station to generate the power required to heat the pipeline for approximately 10 km on either side — to ensure that the crude remains constantly heated above 65°C. In addition, there is an intermediate terminal at Viramgam for storage and further pumping to the coast. There are also two pigging stations at Sanchore and Wankaner to insert ‘pigs’ (basically metal cylinders) that are used to clean the pipe and scour it of wax.
As on 31 March 2009, the status of the heat-ed and insulated pipeline — India’s fi rst, and one of the world’s longest — was as follows:
Nine spreads (which are teams of trenchers, �
welders and layers) are in operation — fi ve in Gujarat and four in RajasthanSignifi cant length of pipeline has been �
lowered.In addition to the main pipeline, there will be a 22 km spur line at Radhanpur (Gujarat), culminating in an export terminal having two pre-heated tanks, each with a capacity of 9,000 barrels.
A comprehensive SEHMS test was carried out on a suitable length of pipeline. The test performed as per design — confi rming that the system should be capable of meeting the heat-ing needs for the pipeline.
Cairn is targeting completion of the pipeline in time to evacuate crude oil by the time Train 2 is operational. The Company is building facilities that will have the capacity to handle 80,000 bopd through the pipeline by Q4 2009.
hydrocarbon resources in rajasthan To date, estimates of the hydrocarbon reserves and resources in the MBA fi elds calculated by Cairn are consistent with those of the indepen-dent specialists, DeGolyer and McNaughton.
Stock Tank Oil Initially in Place (STOIIP), or �
the estimate of the size of the accumulations in MBA: 2,054 million barrels of oil (mmbbls).Of this, the proved plus probable (2P) �
reserves and resources that can be produced from MBA under water fl ooding techniques are estimated to be 685 mmbbls. 2P implies that there is at least a 50% probability of equalling or exceeding the estimate.In addition to this, the 2P estimate of oil �
resource that can be produced by EOR tech-niques is 308 mmbbls. The total 2P estimate of MBA reserves and resources therefore stands at 993 mmbbls. Since Cairn holds a 70% participating interest �
in the approved development areas under the PSC — the other 30% partner being ONGC — the net 2P estimate of reserves and resources in MBA is 695 mmbbls, or 70% of the gross 2P estimate of 993 mmbbls.
Pigging is the practice of using pipeline inspection gauges or ‘pigs’ to perform
various operations on a pipeline without stopping the fl ow of oil. They make a squealing sound while traveling through a pipeline not unlike the sound a pig makes. Cleaning and inspection of the pipeline is done by inserting the pig into a ‘pig launcher’ — a funnel shaped Y section in the pipeline. The launcher is then closed and the pressure of the product in the pipeline is used to push it along down the pipe until it reaches the receiving trap — the ‘pig catcher’
F Map of the ~700 km Rajasthan–Gujarat Pipeline
T H A NT H A NR A J A S TA S TR A J A T
ManM gala ManM gala TerrminminalTerrminminal
Viramgam Viramgam TerminalTerminal
WWankanka erWWankankaner
Terrminminal on oerrminminal on oGujujaraarat Ct Coasoa tararat Ct Coasoa tt
SSanSanSa chochohoreeSSanSanSa chochohoree
ThaThaTharararaThaThaTharararaRadhananpurRadhananpur
G U JU A R AA R ATG U JU A R AAT
14 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Cairn is targeting completion of the pipeline in time to evacuate crude oil by the time Train 2 is operational. The Company is building facilities that will have the capacity to handle 80,000 bopd through the pipeline by Q4 2009
G The Rajasthan–Gujarat PipelineSCHEMATIC DIAGRAM
COASTAL TERMINAL STORAGE AND EXPORT
Distribution to buyer
MANGALA PROCESSING TERMINAL
SHEMS
RAAGESHWARI GAS SUPPLY
Distribution to Refiners
Sanchore Pigging Station
Wankaner Pigging Station
VIRAMGAM INTERMEDIATE TERMINAL
Storage, Pumping and Export
GAS PIPELINE
HEATED CRUDE OIL PIPELINE
15 MANAGEMENT DISCUSSION AND ANALYSIS
SHAKTI NE
SHAKTINC WEST OIL & GAS
N-I
MANGALA
AISHWARIYA
VIJAYA & VANDANA
N-R
GS-V
SARASWATIKAAMESHWARI
RAAGESHWARI OILRAAGESHWARI GASRAAGESHWARI EAST
GUDA
OIL GAS
N-I-NORTHBHAGYAMBHAGYAM
SOUTH
N-EN-P
KAAMESHWARIWEST 6
KAAMESHWARIWEST 3
KAAMESHWARIWEST 2
0 5
Kilometers
10 20
Chart H gives the details.
Application of technologies such as hi-density 3D seismic, detailed core studies, detailed data gathering and analysis among others at Mangala has resulted in:
20% increase in STOIIP over the original FDP;• 30% increase in reserves and resources; and• 25% increase in the plateau rate of the fi eld.•
The FDP for the Bhagyam fi eld has been ap-proved by the GoI, and is based on a plateau off-take rate of 40,000 bopd. Front end engineering design has been completed for Bhagyam.
The STOIIP at Aishwariya has increased by over 37% — from 213 million barrels (mmbbls) in the originally approved FDP to 293 mmbbls. This rise in STOIIP provides a commensurate increase in 2P reserves and resources from Aishwariya to 62 mmbbls. It also doubles the fi eld’s plateau production potential from 10,000 bopd to 20,000 bopd, subject to regulatory approvals.
Additional hydrocarbon resources have been discovered in the Barmer Hill formation over the Mangala and Aishwariya fi elds, estimated at around 400 mmbbls of STOIIP in tighter reser-voir rocks with lower permeability. This Barmer Hill reservoir has tested oil at fl ow rates of up to 250 bopd (from a single well) after stimula-tion. Fields of similar structures elsewhere in the world have been developed with recoveries ranging 7%–10% of the STOIIP under primary recovery, and around 20% as secondary recov-ery. Cairn is planning to conduct pilot activities to evaluate this additional resource potential and the associated development options.
There are also a series of smaller fi elds in Rajasthan (see Chart I). The Kaameshwari West Development Area has been awarded by the GoI and an FDP is under preparation. The Shakti FDP has been submitted to the Operat-ing Committee; and the Guda FDP is under preparation. Cairn proposes to develop these resources at low cost by optimising technologi-cal applications such as low cost drilling and modular facilities, and by leveraging the main infrastructure. When developed, these fi elds
Stock Tank Oil Initially in Place is the total hydrocarbon content of an oil reservoir, referring to the oil in place before the commencement of production. STOIIP must not be confused with oil reserves — which refer to the technically and economically recoverable portion of oil volume in the reservoir. Current recovery factors for oil fi elds around the world range between 10% and 60%, with a few at over 80%. This wide variance is due to the diversity of fl uid and reservoir characteristics for different deposits
STOIIP MANGALA, BHAGYAM, AISHWARIYA
2P GROSS EOR + WATERLOG
2P NET TO CAIRN INDIA
2,054
993
695
308+ 685
216+ 479
I The Rajasthan FieldsRAJASTHAN BLOCK RJ-ON-90/1
H Hydrocarbon Estimates at the MBA FieldsIN MMBOE
Proved volume is equivalent to P90 volumes of hydrocarbon, i.e. defi ned as the
point on an expectation curve at which reserves have a 90% probability of exceeding the quoted value
Proved plus Probable volume is equivalent to P50, the median point on an
expectation curve — with at least a 50% probability of equaling or exceeding the estimate
Proved plus Probable plus Possible volumes is equivalent to P10, the point
on the expectation curve where there is a 10% chance of exceeding the estimate
S T O I I P 1 P
2 P
3 P
16 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
will tie in to the MPT.An example of the potential for future growth
was highlighted at the end of 2008. In addition to the existing Raageshwari gas fi eld, Cairn test-ed a new play in the southern part of the Barmer Basin and made another oil and gas discovery in an adjacent fi eld in December 2008 named as the Shaheed Tukaram Ombale ASI (Tukaram) fi eld. This is located approximately 1.5 km east of the Raageshwari 1 well in the southern part of the MARS development area. Early tests indicate a potential oil fl ow of around 500 bopd, plus 0.4 mmscfd gas. Other such fi nds could easily tie into the infrastructure that is being built.
Cairn intends to make use of all the viable Rajasthan fi elds — so as to optimise both the life of the different hydrocarbon resources and the associated revenue streams.
enhanced oil recovery EOR techniques are exactly what they mean — methods of increasing recovery from oil fi elds. Historically, EOR has been considered as a tertiary recovery method — to be applied at the late stage of fi eld life after the primary and secondary recovery schemes.
Cairn recognised the opportunity to imple-ment EOR techniques in MBA very early in the fi eld life, and is planning to conduct a fi eld pilot to demonstrate its applicability in the Mangala fi eld. The reservoir quality, oil properties and temperature make these fi elds ideal for chemical fl ooding EOR methods such as polymer or Alkali Surfactant Polymer (ASP) fl ooding. The potential benefi ts of such applications are: an increase in reserves, extended oil plateau production period, reduced water production thereby ac-celerating oil production. Chart J illustrates the advantages of EOR application in MBA fi elds.
Given the wax content of the oil in MBA, under a conventional water–fl ood scenario, the injected water will ‘fi nger’ through the oil and reach the producer wells early — leaving behind un-drained crude. Adding polymer to the injection water brings the viscosity of the injected water closer to the oil viscosity, and thus improves the sweep of oil. In addition, the
use of alkali and surfactant makes the injected water act like soap, further helping to wash more oil off the reservoir rock. Both these EOR processes will aim to increase the overall recov-ery from the MBA fi elds.
Studies conducted by two independent labo-ratories show favourable results of 30%–40% incremental recovery from the application of EOR. However, fi eld recoveries are expected to be lower. Detailed fi eld scale modelling and simulation studies carried out incorporating the fi ndings of the laboratory evaluation indicate incremental recoveries of some 15% from the MBA fi elds.
If the pilot is successful, the intention is to implement chemical fl ooding on a fi eld scale in Mangala, followed by Bhagyam and Aishwariya. The current assessment of the EOR resource base is greater than 300 mmbbls of incremental recoverable oil from the MBA fi elds.
funding rajasthan and the pipeline: securing finance and optimising costs
Innovations in Securing FinanceAs covered in last year’s Management Discus-sion and Analysis, April 2008 saw Cairn obtain US$ 625 million through a private placement of its shares — the largest private placement in the Indian equity market during 2008–09.
Enhanced Oil Recovery is a term for special techniques to increase the amount of crude oil that can be extracted from a fi eld, over and above conventional methods which typically recover 20% to 40% of the STOIIP. Using EOR methods, an additional 10% to 20% of STOIIP can be extracted. For example, polymers can be used to increase the viscosity of injected water, forcing it to move into regions of the reservoir that would not be contacted by water, resulting in a more effi cient fl ood and sweeping of more oil.Small amounts of detergent-like surfactants can also be injected with the water and polymer; these “soaps” help “scrub” more oil out of the rock, further enhancing oil recovery
J Effect of Enhanced Oil RecoverySCHEMATIC REPRESENTATION
E O R
Q3 2009 2011 2013 2015 2017 2019
CURRENT FDP
175,000 bopd
OIL RATE
EORPotential to extend & enhance plateau
WATER FLOODMangala, Bhagyam & Aishwariya
17 MANAGEMENT DISCUSSION AND ANALYSIS
As a response to the global fi nancial crisis Cairn has tailored its spending plans to the available liquidity — demonstrating its commitment to preserving fi nancial and operational fl exibility. The Company remains focused on maintaining strict capital discipline and is continually evaluating opportunities to reduce costs even further
18 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
This included 63.3 million shares at Rs. 224.30 per share to our existing shareholder, Petronas. This proactive move enabled Cairn to work on building the pipeline and to keep the Rajasthan development plan on track and ensure timely production of fi rst oil from the Mangala fi eld.
In addition, Cairn had a debt fi nancing facil-ity for US$ 850 million to fund the upstream development. Since the Rajasthan project has grown in scale and scope — especially with the inclusion of the pipeline — there was a need for additional fi nancing. This has been met by the private placement of shares.
The Company is well placed fi nancially with signifi cant cash on its balance sheet, and a full drawdown of the US$ 850 million credit facility that was provided by our bankers.
In addition, the Company has an ongoing dia-logue with various international and domestic institutions to review its fi nancing options — to create fi nancial fl exibility by securing competi-tively priced long term debt.
In this, the guiding principle is always to secure terms that will enhance long term share-holder value.
Innovations in Optimising Project CostsSimultaneously, Cairn has been focusing on various ways of optimising costs in Rajasthan. The introduction of a more economical smaller Train 1 with a capacity of 30,000 bopd, phasing Bhagyam and Aishwariya to 2010–11, limiting the number of wells during the initial period, and ensuring greater fl exibility in delivery points have reduced costs and optimised the develop-ment of the Rajasthan project.
As a response to the global fi nancial crisis Cairn has tailored its spending plans to the avail-able liquidity — demonstrating its commitment to preserving fi nancial and operational fl exibility. The Company remains focused on maintaining a strict capital discipline and is continually evalu-ating opportunities to reduce costs even further.
The earlier planned capital expenditure for 2008 and 2009 was US$ 1.8 billion on net basis (i.e. net to Cairn, the 70% partner of the Cairn–ONGC joint venture). This has been reduced to
US$ 1.4 billion through tight control on expens-es and innovative project design and planning for the MPT and the pipeline. Examples of these include — proactive placement and ordering of equipment and material prior to global price rise in steel; the ordering of customised rapid drill rigs that work at a faster rate thereby reduc-ing movement time between wells; optimising well designs and pads; and the incorporation of closed loop systems to ensure proper and complete energy utilisation while achieving zero fl aring during normal operations.
Cairn has spent approximately US$ 610 mil-lion in fi nding the oil in Rajasthan — the largest onshore discovery in India since 1985. Post exploration, the Company is planning to spend between US$ 3.8 billion to US$ 4.1 billion on a gross basis (US$ 2.7 billion to US$ 2.9 billion on net basis) up to 2011 on the development of the MBA fi elds the largest discoveries in Rajasthan.
Cairn aims to run low cost operations in Raj-asthan. Given that its fi eld direct opex at Ravva and CB/OS-2 in 2008 was US$ 2.4 per barrel, the Company has one of the lowest operating expenses in the world. We plan to apply these skill sets in Rajasthan and continue as a low cost operator.
The Rajasthan upstream operating expenses are estimated at US$ 3.5 per barrel and the pipeline opex is estimated at US$ 1.5 per barrel during the life of the fi eld.
19 MANAGEMENT DISCUSSION AND ANALYSIS
K Weekly West Texas Intermediate Spot PriceUS$ PER BARREL
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 200
20 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
rajasthan: the ‘what ifs’
What if global crude oil prices crash once again, as occurred in the second half of 2008?It is indeed true that oil prices have been ex-tremely volatile in recent times, especially since the beginning of 2007. The price of West Texas Intermediate (WTI), a leading benchmark crude, rose from US$ 54 per barrel in January 2007 and hit an intra-day peak of over US$ 145 per barrel in July 2008. Thereafter, it fell to a low of US$ 40 per barrel in December 2008, before rising again. At the time of writing this Manage-ment Discussion and Analysis, the crude oil price is above US$ 60 per barrel. Chart K plots the average weekly FOB spot price of WTI since January 1986.
What Chart K shows is that, despite volatility, crude oil prices have been above US$ 40 per barrel since May 2004. The average long term analysts’ expectation for the oil price is in the range of US$ 75 to US$ 100 per barrel.
We remain focussed on leveraging our low cost operations to drive the competitive advan-tage. With opex of the existing operations at Ravva and CB/OS-2 of US$ 2.4 per barrel and the estimated Rajasthan opex costs of US$ 5 per barrel, we are well placed to create greater shareholder value even at lower oil prices.
What if MPT doesn’t produce oil according to schedule?Train 1 is completed and is ready to start pro-duction in Q3 2009 with a capacity of 30,000 bopd via trucking to the Gujarat coast. We are targeting completion of Train 2 by Q4 2009, with a capacity of up to 80,000 bopd by the end of 2009.
What if the pipeline is delayed?The pipeline is targeting completion by Q4 2009, in line with the additional oil to be pro-duced through Train 2. As of now, we remain committed to this date. However, in spite of the hard work put in by the teams, some risk remains — particularly on account of the monsoons. Trucking shall continue to be an interim measure.
What if Cairn ran out of funds for the Rajasthan project?The prompt action to raise funds through private placement of equity, re-phasing of Bhag-yam and Aishwariya and the targeting of cost savings through innovative project design and planning has placed Cairn in a strong fi nancial position. With most of the contracts entered into — providing a level of certainty over the cost base — the Company believes it has taken the necessary steps to prevent a funding short-fall. Table 1 gives the estimated costs for 2008 to 2011, versus the funding already in place.
Moreover, Cairn will have additional sources of funds. These are:
Continuous cash fl ows from existing opera-• tions from Ravva and CB/OS-2Start of cash generation from the Rajasthan • operationsThus we believe that there is adequate
funding for Rajasthan. Equally, we continue to explore possibilities for additional fi nancing — if necessary and available at terms that can enhance long term corporate value.
150
120
90
60
30
0
04 2005 2006 2007 2008 2009
1 Cost vs Funds Available for the Rajasthan ProjectIN US$ BILLION
Estimated Costs Financed by
2008 & 2009
Gross (Upstream 1.2, Pipeline 0.8) 2.0 Opening cash on 1 January 2008 0.4
Net to Cairn 1.4 Cash fl ow from operations * 0.2
2010 & 2011 Preferential allotment of equity (2008) 0.6
Gross 1.5–1.8 Existing debt facility 0.9
Net to Cairn ~1.1-1.3 Total 2.1
* from Ravva and CB, for January 2008 – March 2009
21 MANAGEMENT DISCUSSION AND ANALYSIS
22 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Krishna–Godavari (KG) Basin Offshore, Eastern IndiaRAVVA (Cairn is the operator with 22.5% participating interest)
Average gross from the Ravva fi eld for 2008 was 52,539 boepd — comprising average oil production of 41,227 bopd and average gas production of 68 mmscfd.
Ravva has been producing for more than 14 years. Well optimisation measures and surface de-bottlenecking in the last quarter of 2008 helped extend the plateau and arrest the ex-pected production decline. The RD-9 and RB-4 LM sands are producing under extended well test at an average rate of 1,600 bopd. Reservoir pressure was maintained by optimal water injec-tion. 4D time-lapse seismic surveys have been initiated to locate potential bypassed oil, and preparations are underway for the execution of critical development projects to maintain production rates.
Ravva fi eld milestones are: increased produc-tion from 3,700 bopd to 50,000 bopd; plateau extended to nine years and reserves doubled; produced over 200 mmbbls; 2.4 million hours worked with no LTI; ISO14001 and OH-SAS18001 certifi ed; around US$ 4 billion profi t on petroleum paid to GoI.
Cairn intends to maintain and consolidate its position as a low cost operator. The fi eld direct operational expenses for the current producing blocks, Ravva and Cambay, were US$ 2.4 per barrel in 2008 — one of the lowest in the world.
cairn’s operating assets: ravva and cambayAt present, Cairn has two signifi cant producing assets: at CB/OS-2 in the Cambay Basin, off the Gujarat coast in western India, and Ravva, located in the Krishna–Godavari basin off the Andhra Pradesh coastline in Eastern India.
Cairn’s gross operated production from these two assets in India during 2008 was 66,146 boepd (net working interest: 17,264 boepd).
Cambay Basin Offshore, Western IndiaBLOCK CB/OS-2 (Cairn is the operator with 40% participating interest)
In CB/OS-2 block, the Lakshmi and Gauri off-shore fi elds are currently producing oil and gas, while the onshore fi eld, CB-X, is producing only gas. The average gross production from the CB/OS-2 block for 2008 was 13,607 boepd — comprising average oil production 7,376 bopd and average gas production of 37.4 mmscfd.
The drilling and work-over campaign carried out during 2007–08 has not only transformed the CB/OS-2 block from a predominately gas to an oil producing asset, but has also extended its economic life. Two development wells were drilled successfully. The onshore facilities were fully upgraded to handle and process 10,000 bopd, and the fi eld is currently producing around 8,500 bopd.
Cambay has some notable fi eld milestones; Discovery to delivery took just 28 months; health, safety and environment (HSE) — 1.4 million hours of work with no lost time injury (LTI); the facility is both ISO14001 and OHSAS18001 certifi ed. Cambay generated its historically highest revenues during 2008 aided by greater oil production from the new wells and higher oil prices.
Cairn intends to maintain and consolidate its position as a low cost operator. The fi eld direct operational expenses for the current producing blocks, Ravva and Cambay, wereUS$ 2.4 per barrel in 2008 — one of the lowest in the world
23 MANAGEMENT DISCUSSION AND ANALYSIS
mannar basin
saurashtra and cambay basin
I N D I Ags-osn-2003/1cairn india 49%, ongc operator ambe
lakshmi
gauri
cb/os-2lakshmi, gauri, cb-x, ambecairn india 40%, operator
kk-dwn-2004/1cairn india 40%, ongc operator
ravvacairn india 22.5%, operator
pr-osn-2004/1cairn india 35%, operator
vn-onn-2003/1cairn india 49%, operator
gv-onn-2002/1cairn india 50%, operator
gv-onn-2003/1cairn india 24%, operator
kg-dwn-98/2cairn india 10%, ongc operator
kg-onn-2003/1cairn india 49%, operator
rj-onn-2003/1cairn india 30%, eni operator
rj-on-90/1cairn india 70%, operator, ongc 30%
rajasthan ganga valley basin
krishna - godavari basin
non-operated blocks
operated blocks
A R A B I A N S E A
B A N G L A D E S H
B AY O F B E N G A L
B H U TA N
cb-x
sl2007-01-001cairn india 100%, operator
L Cairn’s Exploration Assets
24 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
explorationCairn is a major long term player in oil and gas exploration. It has an experienced team, a large proprietary database, and a record of successful exploration over 10 years by its parent company Cairn Energy — with a success ratio that is close to 40%. The exploration strategy is based on building a portfolio of high reward prospects across the risk spectrum in a diversity of basins, plays and operating environments. The key tools of the Company’s exploration methodol-ogy are:
Acquisition and processing of best-in-class �
seismic dataIntegrated petroleum systems evaluation and �
predictive basin modelling Reprocessed and enhanced regional gravity �
and magnetic data for basin delineation Application of appropriate leading-edge �
technology.Chart L shows the map with Cairn’s exploration assets.
Last year’s Management Discussion and Analysis presented a detailed overview of Cairn’s exploration assets. This time, the focus is on key developments that have occurred since then.
discoveries in rajasthanIn December 2008, Cairn made a separate oil and gas discovery adjacent to the existing Raageshwari gas fi eld in Rajasthan. Early tests indicate a waxy oil of 40° API gravity with a potential fl ow of around 500 bopd, plus 0.4 mmscfd gas.
Also in Rajasthan, a third development area was awarded to Cairn by the GoI. This is the Kaameshwari West Development Area measur-ing 822 km2, where there have been three dis-coveries: Kaameshwari West 2, 3 and 6 — with Kaameshwari West 2 and 3 lying in a new play in the Upper Barmer Hill / Lower Dharvi Dungar sandstones.
sri lankaIn September 2008, the Sri Lanka Board of Investment (BoI) and Cairn India signed a com-mitment to explore the Mannar Basin, a frontier
petroleum province. Block SL 2007-01-001 lies offshore north–west Sri Lanka and covers approximately 3,000 km2 in water depths of 200 metres to 1,800 metres. The work programme includes the commitment to acquire signifi cant quantities of seismic data and drill three wells in the initial three of the eight years exploration period. Cairn will explore the block by applying the best in class technologies and industry practices. The plan is to acquire 2D and 3D seismic in late 2009 and 2010 and, depending on results, start exploration drilling in 2011.
building the future and transformational growthTo summarise, therefore, Cairn’s strategy going forward is based on four building blocks as given below.
1 Maximize recovery from production baseSuccessful drilling at Ravva and CB/OS-2• Maintain low operating cost base• Time lapse (4D) seismic in Ravva•
2 Execute Rajasthan developmentFirst production Mangala Q3 2009• Major regulatory clearances obtained• Delivery point shifted• Major contracts awarded• Mangala FDP revision submitted•
3 Maximize potential in RajasthanOver 3,000 km• 2 under long term contractGrowing resource base• Increased Mangala recovery• EOR • Monetise Barmer Hill and other fi elds•
4 Identify new growth opportunitiesUnrisked potential of 1.4 billion bbls• New leads in existing portfolio• Seismic programmes completed• Acreage in Sri Lanka• If each of these work according to plan,
Cairn will witness transformational growth — with production rising from roughly 63,000 bopd (gross) in Q4 of calendar 2008 to around 200,000 bopd (gross) in 2011.
Cairn will witness transformational growth — with production rising from roughly 63,000 bopd (gross) in Q4 of calendar 2008 to around 200,000 bopd (gross) in 2011
25 MANAGEMENT DISCUSSION AND ANALYSIS
26 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
health, safety and environment (hse)The Company’s policies on HSE are clear: no harm to the people, and no adverse impact on the environment and the communities in which we operate. Hence, the priorities were excel-lence in construction safety, minimising the environmental impact of all activities including those carried out by contractors, and continuing to improve HSE across all assets and operations.
health and safetyCairn has successfully developed and rolled out a Corporate Responsibility Management System (CRMS) in line with international best practices. The CRMS has fi ve key sub-systems — health, safety, environment, security and corporate social responsibility (details on CSR are given in a separate chapter).
During 2008, Ravva and Suvali were re-certifi ed to the ISO 14001 standard and also to OHSAS 18001 for their occupational health and safety management systems.
Road SafetyIn 2008, road safety training was upgraded with the help of the Institute of Road Traffi c Educa-tion (IRTE), with all drivers given additional training.
Journey management plans are key to road travel safety, and all Cairn vehicles are being fi tted with an ‘in-vehicle monitoring system’ (IVMS). A heavy vehicle safety programme has been initiated to ensure that trailers and other heavy vehicles have appropriate safeguards and are regularly inspected.
During 2008, contractor vehicles travelled for more than 15 million km without any fatalities or serious accidents. The motor vehicle accident frequency rate was 1.33 per million km travelled — which is well below the international bench-mark in this industry.
Operational & Construction Safety With over 10,000 contract workers of varying skill levels at multiple project sites across the country, it was a challenge to ensure all–round
safety at the work place. A comprehensive Safety Management System was implemented across all sites. All workers have been trained in site rules and safe work practices.
In Rajasthan Mine Safety Week 2008, Cairn’s rig site judged as the best entry in overall opera-tional and HSE performance.
2008 saw an excellent health and safety re-cord. There were no fatalities or serious injuries involving permanent disability. The Lost Time Injury Frequency Rate (LTIFR) was 0.27 which is below the International Association of Oil & Gas Producers average of 0.66. There were 10 further recordable incidents involving minor in-juries with a Total Recordable Injury Frequency Rate (TRIFR) of 0.49.
Process SafetyOperating assets continue to focus on the pro-cess safety management programmes to ensure asset integrity and emergency preparedness. Emergency exercises involving employees, con-tractors and the surrounding communities have been conducted at various Company sites.
Health During 2008, a study was conducted on workplace ergonomics and feedback given to employees. A clinic with a doctor and / or para-medics and an ambulance were deployed at all construction sites. Workforce pre-employment medical assessments were also carried out.
environmentCairn recognises its responsibility to minimise environmental impacts from its activities. Work-ing closely with our contractors, we are manag-ing the environmental issues during construc-tion of our projects to achieve our goals.
Performance Highlights
Environmental impacts were assessed for our new exploration activities.
Environmental and social management plans developed for Rajasthan project.
Air emissions in 2008 have been maintained at similar rates to 2007 despite a quantum rise in energy demand.
Several initiatives were taken at Ravva towards reducing energy consumption. It is estimated that these initiatives have led to a saving of 1,659 giga joule (GJ) in 2008. Power supply for offshore platforms at Ravva is now being met by solar arrays and back up wind turbine generators.
Treated waste water marine discharge has gone down drastically at Ravva with produced water now being re-injected into the reservoir.
Loss time Injury Frequency Rate
Discharges to WaterMG OF OIL PER L ITRE OF WATER LOST
0.6
0.3
9
0.2
7
2006 2007 2008
8.9
1
7.5
6
6.6
4
2006 2007 2008
2008 saw an excellent health and safety record. There were no fatalities or serious injuries involving permanent disability. The Lost Time Injury Frequency Rate (LTIFR) was 0.27 which is below the International Association of Oil & Gas Producers average of 0.66
27 MANAGEMENT DISCUSSION AND ANALYSIS
28 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
human resourcesCairn’s human resource strategy and direction has been aligned with the ongoing business pri-orities. The focus during 2008 was on hiring and creating robust people management practices in four key areas:
Improving the effi ciency of acquiring new �
staffFocusing on staff development �
Overall retention of staff, especially those �
with high potentialLeveraging SAP to improve the operational �
effectiveness of HR processes.The introduction of SAP Employee Self Service (ESS) in 2008 marked the beginning of a journey to make all HR processes seamless and available at all times to employees. The new system resulted in process and time sav-ing effi ciencies. The goal is to introduce new modules and functions — thereby leveraging a world class Enterprise Resource Planning (ERP) system in support of integrated human resource management.
While many businesses reduced their em-ployee count or put on hold their recruitment plans, Cairn has been hiring throughout 2008, and will continue to do so in 2009. During the fi nancial year under review, the head count increased by 50%.
As part of a Company-wide focus on improv-ing talent management initiatives, the technical competency framework was introduced during 2008 and is intended to ultimately form the core of many people processes. As a fi rst step, the framework was introduced for all roles in the geo-technical functions. It has provided a struc-tured basis for the development of staff, with each employee given a personal development plan that clearly articulates the areas of strength and areas for redevelopment.
The leadership development initiative was targeted to help provide a supply of leaders, to aid succession planning. Cairn has a partner-ship with the Indian Institute of Management (Ahmedabad) to provide classroom training on leadership skills. The two-phase leadership development programme is interspersed with a cross-functional project assignments focusing on the business challenges.
Retention levels improved with focus on development of staff. During 2008, 94% of staff and 98% of key personnel retained.
As on 31 March 2009, Cairn had 902 full time employees.
29 MANAGEMENT DISCUSSION AND ANALYSIS
internal control systems and their adequacyIn 2008, Cairn implemented the SAP enterprise resource planning system, which signifi cantly enhanced the Company’s internal control en-vironment. SAP implementation was widened with the launch of the Maintenance Manage-ment and Employee Self Service modules. The Programme Offi ce was certifi ed as ISO 27001 compliant for information systems. A review of management processes was carried out by an external consultant, which has resulted in improved programmes being developed for implementation in the areas of contracts and procurement, project management and human resources.
The Cairn Business Risk Management System has been implemented for all activities.
Operational policies and procedures have been documented and disseminated to appro-priate departments / functions. However, the process is still ongoing in Rajasthan — which will be put in place before fi rst oil. Cairn’s operational activities have been subjected to audits and peer reviews — and the recom-mendations and actions arising from such audit reports are regularly and formally monitored by senior management.
Financial management policies, standards and delegations of authority have been dissemi-nated to appropriate levels of management. Cairn’s fi nancial activities are subjected to inde-pendent audits — both internal and statutory — and these reports are placed before the senior management and the Audit Committee of the Board of Directors.
An updated Code of Business Ethics has been prepared which, after approval by senior management and the Board of Directors, will be disseminated throughout the Company.
Emergency response plans are in place for key operations and the IT disaster recovery plan and business continuity plans have been developed.
As part of improvement in the system of internal controls, the following are the major programmes planned in 2009:
Implementation of a robust mechanism for �
identifi cation, updating and tracking of regu-latory requirements. Implementation of improved processes in the �
areas of contracts and procurement, project management and human resources.
abridged financial resultsThe year ending for Cairn India was changed from 31 December to 31 March to align the Company’s fi nancial year with India’s tax year. Consequently, the results for the current ac-counting period covers 15 months, while for the previous it was 12 months. Thus, one cannot readily compare the results over the two suc-cessive periods. Table 2 gives the consolidated and audited results.
outlookAt the time of writing this Management Discus-sion and Analysis, Cairn is targeting delivering transformational growth — beginning Q3 2009.
We will soon start delivering fi rst oil from Rajasthan — with the capacity to produce up to 30,000 bopd through Train 1.
We aim to complete the pipeline by Q4 2009.
We are targeting completion of Train 2 at the MPT by Q4 2009 — and thus should have the capacity to produce up to 80,000 bopd of oil.
By 2011, with Bhagyam and Aishwariya coming on stream, Rajasthan will have the ability to pro-duce up to 175,000 bopd of oil — all of which will be processed at the MPT.
Thus, by 2011, we will have a targeted increase in overall operated production from approxi-mately 63,000 bopd (gross) in Q4 of calender 2008 to around 200,000 bopd (gross) in 2011.
We are, therefore, confi dent of being a signifi -cant provider of India’s energy needs in the near future.
The Cairn Business Risk Management System has been implemented for all activities. Emergency response plans are in place for key operations and the IT disaster recovery plan and business continuity plans have been developed
30 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
2 Abridged Consolidated Audited Financials for Cairn IndiaRS. MILLION EXCEPT FOR EPS, WHICH IS IN RS.
For 12 months ended 31 Dec 07
For 15 months ended 31 Mar 09
incomeIncome from Operations 10,123 14,327
Other Income 1,324 5,072
Total Income 11,447 19,398
expenditure(Increase)/Decrease in Stock-in-trade -112 222
Operating Expenses 1,946 2,130
Employees Cost 1,257 1,145
Depreciation, Depletion, Amortisation & Site Restoration 2,077 2,698
Other Administration Cost 360 1,732
Exploration Costs 2,512 1,684
Foreign Exchange Fluctuation 2,120
Total Expenditure 10,161 9,611
Interest and Finance Cost 27 64
Exceptional Items 156
Profi t/(Loss) before taxation 1,259 9,879
provision for taxationa) Current Tax 388 1,111
b) Deferred Tax 764 623
c) Fringe Benefi t Tax 353 110
Net Profi t/(Loss) for the period -245 8,035
Paid up Equity Share Capital (face value of Rs.10 each) 17,784 18,967
Reserves excluding Revaluation Reserves 275,627 308,668
earnings/(loss) per share (not annualised)a) Basic -0.14 4.31
b) Diluted -0.14 4.28
public shareholdinga) Number of Shares 551,555,629 669,824,025
b) Percentage of Shareholding 31.01% 35.32%
cautionary statementStatements in this Management Discussion and Analysis describing the Company’s objectives, projections, estimates and expectations may be ‘forward looking statements’ within the mean-ing of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Company’s operations include a downtrend in the sector, signifi cant changes in political and economic environment in India, exchange rate fl uctua-tions, tax laws, litigation, labour relations and interest costs.
31 MANAGEMENT DISCUSSION AND ANALYSIS
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M AO N D M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1
RJ BLOCK MILESTONESRAJASTHAN BASIN
CB/OS-2 MILESTONESCAMBAY BASIN
MAY 95 Production Sharing Contract signed
DEC 1999 Cairn farmed in for an additional 22.5%
1998 Cairn farmed in for 27.5%
NOV 2001 Saraswati discovery
1999 Guda (discovered by Shell)
JAN 2001 Gauri oil & gas fi eld discovery
JUN 1998 Production Sharing Contract signed
JAN 2001 Ambe oil & gas fi eld discovery
MAY 2000 Lakshmi oil & gas fi eld discovery
Fastest progress in India
Discovery to production in only 28 months
$9.8 PER BARREL
OCT 1994 Production Sharing Contract signed
DATE Description of milestone for Rajasthan Field
DATE Description of milestone for Ravva Field
DATE Description of milestone for CBOS2 Field
DISCOVERY DATE Well discovered in the Rajasthan Field
DISCOVERY DATE Well discovered in the CBOS2 Field
Oil produced in bopd
100 million barrels of oil produced
100 million barrels of oil produced
JAN 1995 Command Petroleum took-over as JV Operator
DEC 1996 Phase-II of development commissioned
OCT 1997 Cairn took over from Command Petroleum
1998 Ravva fi eld
doubled its oil reserves
1999 Ramped up production to
50,000 bopd
NOV 2000 Water injection up gradation
2001 Additional subsea lines for Ravva satellite gas project
SEPT 2001 Ravva Satellite Gas
Development Project
JUN 2001 Third associate gas
recovery compressor
JULY 2001 Zero fl aring
WHEN THE BRENT CRUDE OIL PRICES WERE…US$ PER BARREL
RAVVA MILESTONESKRISHNA GODAVARI BASIN
32
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A MJ F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9
MARCH 2008 Completion of Infi ll drilling programme in 17 months
JUNE 2003 Lakshmi fi elds ramped up gas production to
130 mmscfd
JUNE 2003
Cairn acquired 100% interest
JAN 2004 Mangala discovery
OCT 2003 Kaameshwari discovery
JAN 2007 IPO of Cairn India
MAY 2005 Vandana discovery
JUNE 2005 N-I discovered
MAR 2004 Aishwariya discovery
SEPT 2004 Vijaya discovery
AUG 2004 Bhagyam discovery
APR 2004 Shakti discovery
NOV 2005 GSV & N-C-West discovered
DEC 2005 Bhagyam South
JAN 2006 Raag Deep gasN-E discovered
APR 2006 N-P & Mangala Barmer Hill discoveries
NOV 2006 Shakti-NE-1 discovery
DEC 2006 K-W-2 discovery
FEB 2007 N-I-North discovery
MAY 2007 K-W-3 & Saraswati- Crest - 1 discoveries
AUG 2007 K-W-6 discoveryFEB 2003
Raageshwari discovery
NOV 2003 G-R-F-1 discovery(now part of Guda)
DEC 2008 Raageshwari-
East-1z discovery
NOV 2005 Gauri Oil Development
First oil from Gauri
JAN 2006 Oil production up to
3,000 bopd
FEB 2008 Oil production up to
6,000 bopd
APR 2004 Gauri fi eld developed and
Gas production commenced
JUL 2002
Safety case developed for the fi rst time in India JUN 2006
Reverse Osmosis plant installed at Suvali village
MAY 2009 Upgraded oil processing capacity to
10,000 bopd
CB/OS-2 onshore & offshore facilities certifi ed for OHSAS
18001:2007 standards
DEC 2004
Hydrocarbon Dew Point project
completed to meet sales gas specifi cations
APR 2005 CB/OS-2 onshore & offshore facilities certifi ed for ISO 14001:2004 standards
APR 2006 Ambe fi eld
Commerciality declared
MAR 2005 Lakshmi fi eld Phase-II development –
5 new wells drilled OCT 2002 Lakshmi gas fi eld developed and
Gas production commenced
FEB 2004 CB-X onshore discovery
JUNE 2007 CB-X fi eld development completed and
Gas sales commenced
VALUED AT $133.9
DEC 2005 Innovative technology application of drag reducing additive for incremental oil production30
mmscfd70 mmscfd
2002Ramped up gas Sales
JUN 2002 Additional crude oil storage tank installed
JAN 2003
100 mn barrelsof oil production by JV
Micro vendor development- programme initiated to encourage the local village contractors at site- for which Casurina plantation in an area of 110 acres at Ravva onshore (along the beach)
JAN 2005 & SEPT 2008 ISO 14001 & OSHAS 18001 certifi cation Installation of additional compressors APR 2008
200 mn barrels of oil production by JV
JAN 2008 First of its kind in India
Multiphase pumpsfor incremental oil production
MAY 2008
Commissioned Produced Water Re- Injection project
making Ravva Eco-Friendly
2008 – 2009 additional subsea lines planned for Ravva
2004 TERI Awards conferred for the Micro vendor development Programme
»
33
Corporate Social Responsibility
Our vision is ‘sustainable development’, which we interpret as growing our business in a socially and environmentally responsible way, while simultaneously meeting the legitimate interests of our stakeholders
34 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
overviewOur activities are of importance to the social and economic environment of the communities in which we operate. Helping to bring positive benefi ts to such communities not only improves their state of well-being but also facilitates the smooth running of our operations. As an exam-ple, helping people have access to clean water has been a common issue for the communities we have worked with in India. Our fi rst projects to bring fresh water supplies to local communi-ties started around our Ravva plant in Andhra Pradesh. This initiative continues in Rajasthan.
stakeholder engagementAt Cairn, we believe that building strong, open and lasting relationships with our stakeholders is as much a social responsibility, as it is vital to achieve our business goals. Our activities are typically large in scale and often involve the neighbouring communities. Therefore, it is important for us to continuously cooperate with governments and local communities to ensure ‘win-win’ outcomes for all — the people in com-munities around us and our businesses.
In Rajasthan, for instance, the scale of our development project requires extensive consultation. This continues to be guided by a Public Consultation and Disclosure Plan that completed 54 consultation meetings in 2008: 34 grievances were received for the project in 2008, all of which were successfully resolved.
community developmentCairn recognises that its activities can affect the social and economic environment of the com-munities in which we operate. This is particu-larly true where its presence dominates local industrial or commercial activity — as is the case in the remote and arid part of Rajasthan. In 2008, we have continued our partnership with the International Finance Corporation (IFC) a part of the World Bank group, to establish an Enterprise Centre at Barmer for promoting local economic development, a rural dairy develop-ment project and a child and maternal health awareness initiative.
human rightsCairn recognises the importance of human rights. In Rajasthan, we continue to apply a ‘Rights Aware’ approach to safeguard the local community’s right to water in an area with limited water resources while accessing the water required to support our operations. Similarly, land acquisition which is critical for the Rajasthan project, has been carried out after extensive consultations with local communities and immediate stakeholders.
policyCairn is committed to maintaining the highest standards of corporate social responsibility in its business activities. To meet this commit-
ment, we seek to respect the rule of law, adopt appropriate international standards, implement management systems, and strive to maintain the highest standard of ethics with regard to our employees, investors, shareholders, local com-munities and suppliers.
visionOur vision is ‘sustainable development’, which we interpret as growing our business in a socially and environmentally responsible way, while simultaneously meeting the legitimate interests of our stakeholders. Executing this vision involves community involvement, which means taking an active role and responsibility in empowering local communities to achieve their ambitions.
Cairn’s vision of CSR is further encapsulated in 3Rs: Respect, Relationships and Responsibility.
Respect Respect for the people, who are Cairn’s key asset. This is not only respect for Cairn’s employees, but also for everyone who works in our facilities and lives in the communi-ties with which we interact.
Relationships Cairn’s success would not be possible without the consistent support that we have enjoyed. Relationships are all-important, whether with people living next to a drill site in Rajasthan, people from nearby villages or of-fi cials and politicians making decisions.
Responsibility We have a responsibility to manage the expectations of the people who are affected by Cairn’s operations. Working in any country is only possible when values are shared. We believe that our core values of integrity, social and environmental responsibility, team-work and nurturing of individuals, creativity, risk management and alliances with key partners are all ingredients that are central to our success.
Cairn operates in areas that are economi-cally, socially and environmentally sensitive and therefore needs to take due recognition of these challenges when developing its plans.
objectivesAt Cairn, we seek to:
Proactively manage stakeholder expectations �
to attain and maintain the ‘social licence’ to operatePartner with communities for sustainable �
developmentCreate and sustain a positive perception of �
Cairn in its areas of operationShow leadership in corporate citizenship. �
csr initiativesCairn aims to promote inclusive and sustainable development. Hence, it focuses on:
Development of social capital through health �
and education initiativesEconomic development of the disadvantaged �
35 CORPORATE SOCIAL RESPONSIBIL ITY
— in enhancing their well-being and wealth by increasing their opportunities and access to servicesInfrastructure development to facilitate the �
process of economic regenerationEffective protection of the environment and �
prudent use of natural resources.
In 2008, Cairn achieved a number of milestones in CSR across all its operations.
We won the prestigious TERI (The Energy Research Institute) CSR Award, 2008, for our micro-vendor programme at Ravva.
At a corporate level, the framework for our Pubic Consultation and Disclosure Plan (PCDP) and the Land Acquisition and Compensation Plan (LACP) has been defi ned; and this has been aligned with the requirements of the IFC’s Policies and Performance Standards on Social and Environmental Sustainability. This framework has been embedded within the systems and operations of Cairn throughout the project life cycle. During 2008, IFC carried out independent audits of Cairn, which showed that the Company is progressing well towards full compliance with the IFC standards.
In Rajasthan, the IFC–Cairn Linkage Programme launched in 2007 led to skills development of
more than 5,000 local people — enabling them to be associated with construction-related job opportunities. Efforts were made to strengthen relationships with the local community, espe-cially those who had contributed land to Cairn for the Rajasthan project, so as to enhance their economic possibilities and outreach.
In Bihar, the major CSR objective was to address the socio-economic needs of the communities around our project areas and build an environ-ment of trust and cooperation. More than 5,500 farmers were given training in organic farming techniques and organised into farmers’ clubs for sustainability. Cairn supported more than 20,000 fl ood affected families by providing shel-ters in relief camps and by making provisions for medical aid, water and sanitation.
CSR initiatives were also launched in the exploration blocks of Uttar Pradesh (UP). The major focus in UP is on improving reproduc-tive and child health care practices through a project called ‘Janani Pariyojna’ in four districts of eastern UP, namely Gorakhpur, Maharajganj, Deoria, and Kushinagar.
The CSR programmes at Ravva and Suvali focus on promoting health, education, sustainable livelihoods and improving local infrastructure together with the local administration.
A self-employment programme focusing on making handicrafts and establishing linkages with locally-based exporters has brought economic benefi ts to more than 200 women
In Bihar, more than 5,500 farmers were given training in organic farming techniques and organised into farmers’ clubs for sustainability. Cairn supported more than 20,000 fl ood affected families by providing shelters in relief camps and by making provisions for medical aid, water and sanitation
36 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
infrastructure developmentSeveral initiatives have been undertaken that recognise the importance of infrastructure de-velopment in growth and poverty reduction:
Working for the last fi ve years to create water security in the district of Barmer by constructing over 1,300 water harvesting structures. This year, a water vending outlet was constructed at Naya Nagar, Barmer — which is an important location for the community on the highway.
Supporting the construction of 200 houses for the poor at Ravva, under the Indira Awaas Yojana.
Supporting schools around its operational area by constructing classrooms, providing drinking water facilities, building boundary walls and establishing computer learning centres.
Constructing panchayat offi ces, community halls and internal roads in Ravva, benefi ting over 35,000 villagers.
Constructing an emergency ward in the Com-munity Health Centre, Baitu (Barmer) which will cater to the needs of more than 25,000 people and handle several emergency cases, especially road accidents.
educationEducation is a key area of focus for Cairn. Several initiatives are underway across the operational areas:
Supporting an interactive mode of learning for children in 27 government schools in rural Barmer called ‘Theatre in Education’. This pro-gramme has been instrumental in breaking the monotony of classroom teaching and making education more lively and interesting.
Supporting infrastructure improvements for rural schools in our operational areas which has aided enrolment and reduced the numbers dropping out of schools.
Partnering with All India Radio to broadcast two community awareness programmes ‘Gaon Ki Dhani’ and ‘Hello Doctor’. ‘Gaon Ki Dhani’ provides expert advice on agriculture, livestock rearing; while ‘Hello Doctor’ advises on health related issues. The programmes have been very effective and have reached out to more than 10,000 villagers.
Supporting a computer literacy programme in various government schools in Bihar since 2007. The objective is to give students of Classes IX and X exposure to computers to improve their academic options and career opportunities.
Starting adult education centres. Contract work-men at the Ravva terminal have been attending these centres, and some have qualifi ed for the graduation courses entrance examination conducted by the Andhra University. Cairn also supports the education of girl students to continue their studies — especially those who dropped out after matriculation.
economic developmentCairn is working on a two-fold strategy:
Developing capabilities of SMEs /general �
suppliers /contractors /micro-entrepreneurs to act as vendors to large industries and supply them with goods and services.
Developing the skills of locals to match the �
market requirements for employment.
Cairn received the TERI Corporate Award for Social Responsibility, 2008, in recognition of its efforts for the Micro-Vendor Programme at Ravva. The programme was initiated in 2005. It registers local people as potential suppliers and provides training in quality, safety and en-vironmental skills. The training helped create a pool of vendors that can supply goods and ser-vices to Cairn and other business enterprises. Contracts worth over US$ 1 million have been awarded to about 80 micro-vendors at Ravva.
37 CORPORATE SOCIAL RESPONSIBIL ITY
More than 780 economically marginal households have become members of 13 milk collection societies which are supplying milk to the Barmer district cooperative society (SARAS). Over 400,000 litres of milk was collected in 2008, compared with 200,000 litres in 2007 — and generated total revenue of over Rs.4.8 million
38 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Under the IFC–Cairn Linkage Programme, an enterprise centre (EC) has been set up at the Industrial Training Institute (ITI) Barmer. TheEC aims to develop the skills of local youth — enabling them to be employed with Cairn or other industries in the area. The EC also acts as a catalyst for micro, small and medium enter-prise growth and development in Barmer.
By the end of 2008, the Barmer EC had trained more than 5,000 individuals in construc-tion related skills (reinforced concrete construc-tion, masonry, bar bending, electrical, plumbing carpentry, scaffolding and fabrication); in handicrafts (garments and key chain making); in auto repairs; mobile and electrical appliances repairing; and in teaching spoken English. Ap-proximately 70% of the trainees have secured employment following such training.
A self-employment programme focusing on making handicrafts and establishing linkages with locally-based exporters has brought eco-nomic benefi ts to more than 200 women.
Another component of the IFC-Cairn Linkage Programme is the community-based rural dairy development project at Barmer.
More than 780 economically marginal households have become members of 13 milk collection societies which are supplying milk to the Barmer district cooperative society (SARAS). Over 400,000 litres of milk was col-lected in 2008, compared with 200,000 litres in 2007 — and generated total revenue of over Rs. 4.8 million.
healthCairn’s community based health initiatives work at three levels:
Supporting GoI initiatives with health care �
through infrastructure support and capacity building of health service providers
Helping improve health literacy so that �
people can make informed choices
Creating partnerships with stakeholders to �
build capacity for leadership development at
the grassroot level, supported by health promo-tional practices.
Cairn’s health initiatives have been:
Child and Maternal Health (CMH) Awareness: This is a component of IFC–Cairn Linkage programme and is being implemented in part-nership with the Centre for Development and Population Activities (CEDPA), an international NGO. The project aims to increase awareness regarding HIV/AIDS prevention, reproductive, child and other major health concerns by em-powering Government of Rajasthan health prac-titioners and elected panchayat representatives. Under the project, both in- and out-of- school adolescents are empowered through life skill education programmes. The other component is awareness generation on HIV/AIDS for more than 4,000 truckers in the area, who are consid-ered to be in the high risk group.
Cairn has been addressing the issue of commu-nity health in Ravva by running a village clinic for the community in Surasaniyanam. This has helped improve the health status of more than 6,000 people in and around the village.
A 12 bed hospital has been constructed by Cairn in Surasaniyanam — as well as a veteri-nary clinic at the mandal headquarters.
Health camps are organised periodically for specifi c health issues and health education.
Reproductive and Child Health (RCH): Cairn is implementing a project on RCH in four districts of Uttar Pradesh. The aim is to increase commu-nity action that directly and indirectly improves reproductive and child health care practices.
39 CORPORATE SOCIAL RESPONSIBIL ITY
company»s philosophy on corporate governanceTransparency, integrity, professionalism and accountability are the cornerstones of our value system. These guide the Company’s manage-ment in all aspects of business conduct, and in its relationship with all its stakeholders — including shareholders, customers, employees and the communities in which it operates.
In India, corporate governance standards for listed companies are regulated by the Securities and Exchange Board of India (SEBI) through Clause 49 of the Listing Agreement of the Stock Exchanges. This chapter, along with those on Management Discussion and Analysis, reports Cairn India’s compliance with Clause 49.
board of directors composition of the boardThe Company believes that good corporate governance begins with setting the tone at the top. Its Board of Directors, therefore, com-prises not only eminent experts from various fi elds, but also people who are committed to all the key underlying principles and values that constitute the best standards of corporate governance.
For most of 2008-09, the Company had an appropriate mix of independent and executive / promoter Directors, as specifi ed by Clause 49 of the Listing Agreement. However, subsequent to the SEBI clarifi cation issued on 23 October 2008, the Company was required to increase the number of independent Directors to at least half the strength of the Board. To this end, the Company has inducted Mr Edward T. Story — an international expert in oil exploration and production — as an independent Director. It is actively in the process of inducting two more independent Directors with requisite expertise. By the end of 2009-10, Cairn India intends to have half of the Board comprising independent Directors.
As on 31 March 2009, the Company’s Board comprised ten Directors, including seven non-executive Directors, four of whom are also independent. The Chairman of the Board is a non-executive promoter Director. All non-executive Directors are professionals who have rich experience in a wide spectrum of functions including management, fi nance, economics, oil and gas exploration and general administration.
The executive Directors have been ap-pointed for a term of fi ve years barring Mr Rick Bott, who has a three-year contract.
As mandated by the Clause 49, the indepen-dent Directors on the Company’s Board:
Apart from receiving Director’s remuneration, do not have any material pecuniary relationships or transactions with the Company, its promot-ers, its Directors, its senior management or its holding company, its subsidiaries and associates which may affect their independence.
Are not related to promoters or persons occu-pying management positions at the Board level or at one level below the Board.
Have not been executives of the Company in the immediately preceding three fi nancial years.
Are not partners or executives, or were not partners or executives, during the preceding three years of the:
Statutory audit fi rm or the internal audit fi rm • that is associated with the Company.Legal fi rm(s) and consulting fi rm(s) that have • a material association with the Company.
Are not material suppliers, service providers or customers or lessors or lessees of the Company which may affect their independence.
Are not substantial shareholders of the
Company i.e. do not own two percent or more of a block of voting Shares.
Are not less than 21 years of age.
information supplied to the board The Board has complete access to all informa-tion with the Company. The quantum and qual-ity of information supplied by the management to the Board goes well beyond the minimum requirement stipulated in Clause 49. All infor-mation, except critical price sensitive informa-tion (which is considered immediately by the Board), is given to the Directors well in advance of the Board and Committee meetings.
The Board periodically reviews compliance reports of all applicable laws as well as steps taken by the Company to rectify instances of non-compliances, if any. Signifi cant transactions and arrangements entered into by the unlisted subsidiary companies are also discussed and deliberated in advance by the Board.
board procedureThe Company follows a structured process of decision-making by the Board and its Committees. The meeting dates are usually fi nalised at the beginning of the year. Meetings are generally convened by fi xing dates a year in advance. The meetings are usually held at the Company’s corporate offi ce in Gurgaon. Detailed agenda, management reports and other explana-tory statements are circulated at least seven days ahead of the meeting for facilitating meaningful, informed and focused discussions and decision-making. To address specifi c urgent needs, meet-ings are also called at shorter notice — but never less than a minimum of seven days. In some instances, resolutions are passed by circulation.
Directors have complete access to all information of the Company. The Board is also free to recommend inclusion of any matter in
Report on Corporate Governance
The philosophy of Cairn India Limited (‘Cairn India’ or ‘the Company’) is to assist the management in conducting its business in a fair, ethical, effi cient and transparent manner to ensure higher long term stakeholder and shareholder value
40 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
the agenda for discussion. Senior management offi cials are called to provide additional inputs on the matters being discussed by the Board/Committee, as and when necessary.
During the course of the fi nancial year ended 31 March 2009, the following changes were made in the composition of the Board:
Mr Lawrence W. Smyth � resigned from the Board with effect from 21 January 2008.
Mr Rick Bott � was appointed as an additional Director with effect from 29 April 2008 and as
an executive Director and chief operating of-fi cer with effect from 15 June 2008.
Ms Jann Brown � was appointed as an alter-nate Director to Mr Norman L. Murray with ef-fect from 25 November 2008, and ceased to be an alternate Director from 10 December 2008. Thereafter, she was appointed as additional Director with effect from 19 December 2008.
Mr Norman L. Murray � resigned from the Board with effect from 18 December 2008, and was appointed as an alternate Director to Ms Jann Brown on 19 December 2008.
Thereafter, he ceased to be an alternate Director effective 10 February 2009.
Mr Edward T. Story � was appointed as an additional Director with effect from 18 March 2009.
Mr Philip Tracy � was appointed as an alternate Director to Sir William B. B. Gammell on 18 March 2009. He ceased to be an alternate Director effective 26 May 2009.
The composition of the Board as on 31 March 2009 is given in Table 1. As mandated by Clause 49 of the Listing Agreement, none
1 Composition of the BoardAS ON 31 MARCH 2009
S.No. Name of Director Executive/Non-Executive
No. of other Directorships Memberships/ Chairmanships of Board-level Committees**
Indian Foreign * Member Chairman
1 Sir William B.B. Gammell Chairman, Non-Executive Director - 29 - -
2 Ms Jann Brown1 Non-Executive Director - 42 1 -
3 Mr Aman Mehta Non-Executive & Independent Director 6 3 7 3
4 Mr Naresh Chandra Non-Executive & Independent Director 15 2 10 1
5 Dr Omkar Goswami Non-Executive & Independent Director 9 - 9 2
6 Mr Malcolm Shaw Thoms Non-Executive Director - 30 - -
7 Mr Rahul Dhir Managing Director & CEO - 5 1 -
8 Mr Indrajit Banerjee Executive Director & CFO - 29 - -
9 Mr Rick Bott 2 Executive Director & COO - - - -
10 Mr Edward T. Story 3 Non-Executive & Independent Director - 1 1 -
11 Mr Philip Tracy 4 Non-Executive Director - 1 - -
* Includes Foundations** Only the Audit Committee and the Shareholders’ / Investors’ Grievance Committee of Indian public limited companies have been considered1 Appointed as an additional Director with effect from 19 December 20082 Appointed as an additional Director with effect from 29 April 20083 Appointed as an additional Director with effect from 18 March 20094 Appointed as an alternate Director to Sir William B.B. Gammell with effect from 18 March 2009 and ceased to be alternate Director with effect from 26 May 2009
41 CORPORATE GOVERNANCE
Report on Corporate Governance Continued
of the Directors is a member of more than ten Board-level committees of public limited Indian companies; nor are they chairmen of more than fi ve committees in which they are mem-bers. Moreover, none of the Directors of the Company is related to the other, or to any other employee of the Company.
number of board meetingsDuring the fi nancial year ended 31 March 2009, the Board of Directors met 10 times. The dates were: 21 January 2008, 17 March 2008, 27 March 2008, 31 March 2008, 29 April 2008, 25 June 2008, 29 July 2008, 29 October 2008, 10 December 2008 and 18 March 2009. The maximum gap between any two meetings was less than four months.
directors’ attendance record Table 2 gives the Directors’ attendance at Board Meetings and the Annual General Meeting (AGM) during the fi nancial year ended 31 March 2009.
directors‘ remunerationTable 3 lists the remuneration paid or payable to the Directors. The non-executive Directors do not have any material pecuniary relationship or transactions with the Company, other than sitting fees paid to them. The non-executive Directors are also eligible for commission up to 1% of net profi ts as permitted by the Companies Act, 1956 and as approved by sharehold-ers in the annual general meeting held on 20 September 2007.
During the year under review, 69,630 options were granted to Mr Indrajit Banerjee under the Cairn India Performance Option Plan, 2006 (CIPOP). These options have been granted based on performance in contributing to busi-ness results, organisational strength and market position of the Company and criticality of the role assigned. The vesting period is minimum three years, subject to the fulfi llment of performance conditions in the Plan. The exercise period is three months from the date of vesting of options. Table 4 details the options exercised by the executive Directors during the year.
2 Directors’ Attendance RecordFOR THE F INANCIAL YEAR ENDED 31 MARCH 2009
Name of the Director No. of meetings held during the period the Director was on Board
No. of Meetings attended Presence at the last AGM
Sir William B. B. Gammell 10 5 * Yes
Ms Jann Brown 1 1 1 NA
Mr Norman L. Murray 2 9 7 Yes
Mr Rahul Dhir 10 8 Yes
Mr Malcolm Shaw Thoms 10 7 Yes
Mr Aman Mehta 10 9 No
Mr Naresh Chandra 10 10 Yes
Dr Omkar Goswami 10 8 Yes
Mr Indrajit Banerjee 10 10 Yes
Mr Rick Bott 3 5 5 Yes
Mr Edward T. Story 4 - - NA
Mr Philip Tracy 5 1 1 NA
Mr Lawrence W. Smyth 6 - - NA
* Sir William B. B. Gammell also participated in the proceedings of 3 Board Meetings through audio conference1 Appointed as an additional Director with effect from 19 December 20082 Resigned from an the Board with effect from 18 December 20083 Appointed as additional Director with effect from 29 April 20084 Appointed as an additional Director with effect from 18 March 20095 Appointed as an alternate Director to Sir William B.B. Gammell with effect from 18 March 2009 and ceased to be alternate Director with effect from 26 May 20096 Resigned from the Board with effect from 21 January 2008
42 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Report on Corporate Governance Continued
3 Details of Directors’ RemunerationFOR THE F INANCIAL YEAR ENDED 31 MARCH 2009, IN RS.
Name of the Director Salary Bonus and Performance
incentives
Retirement Benefi ts
Commission Sitting Fee Total
Sir William B. B. Gammell - - - - - -
Ms Jann Brown 1 - - - - - -
Mr Norman L. Murray 2 - - - - - -
Mr Rahul Dhir * 56,334,353 13,423,473 1,701,442 - - 71,459,268
Mr Malcom Shaw Thoms - - - - - -
Mr Aman Mehta - - - - 440,000 440,000
Mr Naresh Chandra - - - - 480,000 480,000
Dr Omkar Goswami - - - - 400,000 400,000
Mr Indrajit Banerjee ** 16,274,192 8,099,000 1,749,600 - - 26,122,792
Mr Rick Bott 3 *** 26,783,554 86,598,000 1,169,703 - - 114,551,257
Mr Edward T. Story 4 - - - - - -
Mr Lawrence W. Smyth 5 **** 11,373,143 14,141,503 - - - 25,514,646
1 Appointed as an additional Director with effect from 19 December 20082 Resigned from the Board with effect from 18 December 20083 Appointed as an additional Director with effect from 29 April 2008 4 Appointed as an additional Director with effect from 18 March 20095 Resigned from the Board with effect from 21 January 2008* Rs. 71,459,268 includes Rs. 3,000,000 paid by Cairn India Limited as salary and retiral benefi ts. Further benefi ts and perquisites valued at Rs. 54,000,436 were provided by Cairn Energy India Pty Limited (CEIPL, incorporated in Australia). ** Salary of Rs. 2,008,929 and retirement benefi ts / perquisites of Rs. 241,071 was paid by Cairn India Limited and balance by CEIPL. *** Rs. 114,551,257 includes Rs. 950,000 paid by Cairn India Limited as salary and retiral benefi ts. Further benefi ts and perquisites valued at Rs. 67,936,605 were provided by CEIPL. **** Lawrence W. Smyth, who resigned from the Board on 21 January 2008, was paid salary of Rs.11,373,143 and perquisites of Rs. 14,141,503 by CEIPL. Further benefi ts and perquisites valued at Rs. 13,821,800 were provided by CEIPL.Mr Philip Tracy, alternate Director was paid retirement benefi ts / perquisites of Rs. 1,353,642 by CEIPL for the period for which he was alternate Director.
4 Employee Stock OptionsUNDER THE CAIRN INDIA SENIOR MANAGEMENT PLAN, 2006 (CISMP)
Name of the Director No. of Options granted
No. of Options vested
No. of Options exercised
No. of Options cancelled
No. of Options outstanding
Exercise Price (in Rs.)
Mr Rahul Dhir 6,714,233 4,476,156 4,476,156 - 2,238,077 * 33.70
Mr Lawrence W. Smyth 1 1,584,480 792,240 792,240 792,240 - 33.70
1 Resigned from the Board with effect from 21 January 2008* The outstanding options of Mr Rahul Dhir will vest on Company’s achieving 30 days’ consecutive production of over 150,000 bopd from the Rajasthan Block and can be exercised within a period of eighteen months from the date of vesting
43 CORPORATE GOVERNANCE
Report on Corporate Governance Continued
shareholding of non-executive directors Sir William B. B. Gammell, Ms Jann Brown and Mr Malcolm Shaw Thoms, who are non-executive Directors of the Company hold one equity share each in the Company as nominees of Cairn UK Holdings Limited, the holding company. Apart from this, none of the non-executive Directors holds any equity shares or convertible instruments of the Company.
code of conduct The Company’s Board of Directors has laid down a ‘Code of Conduct for the Board of Directors and Senior Management’ of the Company. For details, see www.cairnindia.com. All Directors and senior management have affi rmed compliance with the Code for the fi nancial year ended 31 March 2009.
committees of the board(a) audit committeeThe Audit Committee of the Company plays a key role in ensuring maintenance of high level of governance standards in the organisation. It oversees, monitors, and advises the Company’s management and auditors in conducting audits and preparing fi nancial statements, subject to the ultimate authority of the Board of Directors. It ensures accountability on the part of man-agement and internal and external auditors; makes certain that all groups involved in the fi nancial reporting and internal controls process understand their roles; gains input from the auditors and external experts when needed and safeguards the overall objectivity of the fi nancial reporting and internal controls process.
The Company has an adequately qualifi ed and independent Audit Committee. As on 31 March 2009, the Committee comprised fi ve non-executive Directors: Mr Aman Mehta (Chairman), Mr Naresh Chandra, Ms Jann Brown, Dr Omkar Goswami and Mr Edward T. Story. Four of the fi ve members are indepen-dent. All members have the fi nancial knowledge and expertise mandated by Clause 49 of the Listing Agreement.
Mr Indrajit Banerjee, Executive Director and CFO, Mr Raj Agarwal, Partner S. R. Batliboi and Associates and Mr Raman Sobti, Director KPMG are invitees to the meetings of the Audit Committee. Ms Neerja Sharma, Company Secretary is the Secretary to the Committee.
The current Charter of the Audit Committee is in line with international best practices as well as the regulatory requirements mandated by SEBI and Clause 49 of the Listing Agreement
with the Stock Exchanges on which the Company is listed. The brief terms of reference of the Company’s Audit Committee are listed below.
Terms of Reference
Overseeing the Company’s fi nancial reporting process and the disclosure of its fi nancial infor-mation to ensure correct, suffi cient and credible fi nancial information
Recommending to the Board the appointment, re-appointment or replacement of statutory auditors and the setting up of audit fees
Approval of payment to statutory auditors for any other services rendered by the statutory auditors
Reviewing, with management, the annual fi nan-cial information before submission to the Board for approval, with particular reference to:
matters required to be included in the • Directors’ Responsibility Statement in the Board’s Report pursuant to subsection (2AA) of Section 217 of the Companies Act, 1956changes, if any, in accounting policies and • practices and reasons for such changes;major accounting entries involving estimates • based on the exercise of judgement by the Company’s managementany signifi cant adjustments made in the fi nan-• cial information arising out of audit fi ndings;compliance with listing and other legal or • regulatory requirements relating to fi nancial informationdisclosure of any ‘related party transactions’• any qualifi cations in the draft Audit Report•
Reviewing, with management, the quarterly fi nancial information before submission to the Board for approval
Reviewing, with the management, the state-ment of uses / application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter
Reviewing, with management, the performance
44 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Report on Corporate Governance Continued
of statutory and internal auditors, and the adequacy of the internal control systems of the Company
Approving the appointment, removal and terms of remuneration of the chief internal auditor
Reviewing the adequacy of the internal audit function, if any, including the structure of the internal audit department, staffi ng and seniority of the offi cial heading the department, reporting structure coverage and frequency of internal audit
Discussing with internal auditors any signifi cant fi ndings and following up on any such signifi -cant fi ndings
Reviewing the fi ndings of any internal investiga-tion by internal auditors into matters relating to irregularities, fraud, or a failure in internal control systems of a material nature, and report-ing such matters to the Board
Having pre-audit discussions with the statutory auditors as to the nature and scope of the audit, and post-audit discussions to ascertain any areas of concern
Looking into the reasons for any substantial defaults in payments to debenture holders, shareholders (in case of the non-payment of declared Dividends) and creditors
Reviewing the Company’s fi nancial and risk management policies
Monitoring the utilisation of funds to be raised pursuant to a public issue
Carrying out any other function as the Board may from time to time refer to the Audit Committee
The Audit Committee also reviews the following information:
Management discussion and analysis of fi nan-cial condition and results of operations
Statement of signifi cant related party transac-tions (as defi ned by the Audit Committee), submitted by management
Management letters / letters of internal control weaknesses issued by the statutory auditors
Internal audit reports relating to internal control weaknesses
During the fi nancial year ended 31 March 2009, the Audit Committee met six times: on 21 January 2008, 27 March 2008, 29 April 2008, 29 July 2008, 29 October 2008 and 29 January 2009. The attendance record of the Audit Committee is given in Table 5.
As Mr Aman Mehta, Chairman of the Audit Committee was out of the country on the date
of annual general meeting held on 25 June 2008, Mr Naresh Chandra attended the meet-ing as an Interim Audit Committee Chairman to answer queries from the shareholders.
(b) shareholders’/ investors’ grievance committeeThe Company has constituted a Shareholders’/ Investors’ Grievance Committee primarily with the objective of redressal of shareholders’ and investors’ complaints such as relating to transfer of shares, non-receipt of Balance Sheet and non-receipt of declared Dividends.
During the year, the terms of reference of the Shareholders’ / Investors’ Grievance Committee was amended with the addition of following powers and duties:
To approve / refuse / reject registration of trans-fer / transmission / transposition of shares
To authorise issue of duplicate share certifi cates and issue of share certifi cates after split / con-solidation / rematerialisation of shareholding
To authorise printing of share certifi cates
To authorise affi xation of common seal of the Company on share certifi cates of the Company
To authorise directors / managers / offi cers / signatories for signing / endorsing share certifi cates
5 Attendance Record of Audit Committee FOR THE F INANCIAL YEAR ENDED 31 MARCH 2009
Name of the Member Position Status No. of Meetings held during the period the
Director was a Member of the Committee
No. of Meetings attended
Mr Aman Mehta Independent Director Chairman 6 6
Mr Naresh Chandra Independent Director Member 6 6
Dr Omkar Goswami Independent Director Member 6 5
Mr Norman L. Murray 1 Non-executive Director Member 5 5
Ms Jann Brown 2 Non-executive Director Member 1 -
Mr Edward T. Story 3 Non-executive Director Member - -
1 Resigned from the Board with effect from 18 December 20082 Appointed as an additional Director and co-opted on the Audit Committee with effect from 19 December 20083 Appointed as an additional Director and co-opted on the Audit Committee with effect from 18 March 2009
45 CORPORATE GOVERNANCE
Report on Corporate Governance Continued
Procedure laid down for Shareholders’ / Investors’ Grievance CommitteeThe Company has appointed Link Intime India Private Limited (formerly Intime Spectrum Registry Limited) as the Registrar and Transfer Agent to handle the investor grievances in co-ordination with the Compliance Offi cer. All grievances can be addressed to the Registrar and Share Transfer Agent. The Company moni-tors the work of the Registrar to ensure that the investor grievances are settled expeditiously and satisfactorily. The Shareholders’/ Investors’ Grievance Committee oversees redressal of shareholders’ grievances.
As on 31 March 2009, the Committee comprised three Directors: Dr Omkar Goswami (Chairman), Mr Naresh Chandra and Mr Rahul Dhir. Two of these members, including the Chairman, are independent. Ms Neerja Sharma, Company Secretary, is the Compliance Offi cer of the Company and the Secretary of the Committee. The Committee met twice during the fi nancial year: on 29 April 2008 and 10 December 2008. Table 6 details the atten-dance record of the Committee.
The status of complaints received during the 15-month period ended 31 March 2009 by the
Company and the Registrar and Share Transfer Agent is given in Table 7.
(c) remuneration committeeThe Board has a Remuneration Committee to make recommendations to the Board as to the Company’s framework or broad policy for the remuneration of the Chairman, the executive Directors of the Board, and senior executives one level below the Board.
The objective of the Company’s remunera-tion policy is to ensure the Company’s execu-tive Directors and senior executives receive suf-fi cient incentive for enhanced performance and are fairly rewarded for their contribution to the Company’s overall performance. In determining this policy, the Committee takes into account all factors it deems relevant and give due regard to the interests of the shareholders and to the fi -nancial and commercial health of the Company. The Committee ensures that levels of remunera-tion are suffi cient to attract and retain executive directors and senior executives of the quality required to run the Company successfully.
Within the terms of the agreed policy, the Committee determines the entire individual remuneration packages for the Chairman and
the executive Directors. The Committee en-sures that a signifi cant proportion of executive Directors’ remuneration is structured so as to link rewards to corporate and individual perfor-mance. In determining packages of remunera-tion, the Committee consults with the Chairman as appropriate.
The Committee is responsible for overseeing the Company’s share option schemes and long term incentive plans, including determining eligibility for benefi ts and approving total annual payments. The Committee also recommends and monitors the level and structure of remu-neration for the fi rst layer of management below Board level.
As on 31 March 2009, the Remuneration Committee comprised fi ve non-executive Directors: Mr Naresh Chandra (Chairman), Sir William B.B. Gammell, Mr Malcolm Shaw Thoms, Mr Aman Mehta and Dr Omkar Goswami. Three of these members are independent. Ms Neerja Sharma, Company Secretary, is the Secretary to the Committee.
During the fi nancial year ended 31 March 2009, six meetings of the Remuneration Committee were held: on 21 January 2008, 27 March 2008, 29 April 2008, 29 July 2008,
7 Nature of Complaints received and attended DURING THE F INANCIAL YEAR ENDED 31 MARCH 2009
Nature of Complaint No. of Complaints
Received Attended Pending
Non-receipt of refund orders / revalidation 26 26 Nil
Referred by SEBI 58 58 Nil
Referred by Stock Exchanges 19 19 Nil
Received from Investors 188 188 Nil
Non receipt of Annual Report 7 7 Nil
Total 298 298 Nil
6 Attendance record of Shareholders’/ Investors’ Grievance CommitteeFOR THE F INANCIAL YEAR ENDED 31 MARCH 2009
Name of the Member Position Status No. of Meetings held No. of Meetings attended
Dr Omkar Goswami Independent Director Chairman 2 2
Mr Naresh Chandra Independent Director Member 2 2
Mr Rahul Dhir Managing Director and CEO Member 2 2
46 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Report on Corporate Governance Continued
10 December 2008 and 18 March 2009. The attendance record of the Remuneration Committee is given in Table 8.
(d) nomination committeeAs on 31 March 2009, the Nomination Committee comprised fi ve Directors: Sir William B.B. Gammell (Chairman), Mr Rahul Dhir, Ms Jann Brown, Mr Malcolm Shaw Thoms and Mr Edward T. Story. Ms Jann Brown and Mr Edward T. Story were inducted on the Committee on 19 December 2008 and 18 March 2009 respectively.
The functions of the Nomination Committee are:
Reviewing the structure, size and composition of the Board, with a view to ensuring continued ability of the Company to compete effectively in the market place, and make recommendations to the Board with regard to any changes
Identifying and nominating, for the approval of the Board, appropriate individuals to fi ll Board vacancies as and when they arise
Evaluating the balance of skills, knowledge and experience of the Board and, in the light of this evaluation, preparing a description of the role and capabilities required for particular appoint-ments; and then identifying suitable candidates for the Board
Reviewing time required from each non-exec-utive Director and assessing whether s(he) has given suffi cient commitment to the role
Considering succession planning in the course of its work, taking into account the challenges and opportunities facing the Company, and what skills and expertise are needed from mem-
bers of the Board in the future
Ensuring that on appointment to the Board, the non-executive Directors receive a formal letter of appointment setting out clearly what is expected of them in terms of time commitment, committee service and involvement outside Board meetings
The Nomination Committee met once during the fi nancial year on 10 January 2009.
managementmanagement discussion and analysisThis Annual Report has a detailed chapter on Management Discussion and Analysis.
disclosures The Company follows the accounting standards and guidelines laid down by the Institute of Chartered Accountants of India (ICAI) in preparation of its fi nancial statements. No mate-rial fi nancial and commercial transactions were reported by the management to the Board, in which the management had any personal inter-est that either had or could have had a confl ict with the interest of the Company at large.
There were no transactions with the Directors or Management, their associates or their relatives etc. that either had or could have had a confl ict with the interest of the Company at large.
any non-compliance by the companyThere were no penalties or strictures imposed on the Company by Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets, during the last three years.
code for prevention of insider trading practices In compliance with the SEBI regulation on prevention of insider trading, the Company has instituted a comprehensive Code of Conduct for its management and staff. The Code lays down guidelines which advise management and staff on procedures to be followed and disclosures to be made while dealing with shares of the Company, and cautions them of the consequences of violations.
risk management Cairn India follows well-established and detailed risk assessment and minimisation procedures, which are periodically reviewed by the Board.
ceo / cfo certificationThe CEO and CFO certifi cation of the fi nancial statements for the fi nancial year under review is enclosed at the end of the report.
subsidiary companiesAll subsidiaries of the Company are unlisted wholly owned subsidiary companies and are foreign subsidiaries. These subsidiaries have their own Board of Directors having the rights and obligations to manage such companies in best interest of the Company. The Company has its representatives on the Boards of subsidiary companies and monitors the performance of such companies regularly.
8 Attendance record of Remuneration CommitteeFOR THE F INANCIAL YEAR ENDED 31 MARCH 2009
Name of the Member Position Status No. of Meetings held No. of Meetings attended
Mr Naresh Chandra Independent Director Chairman 6 6
Sir William B.B. Gammell Non-Executive Director Member 6 2
Dr Omkar Goswami Independent Director Member 6 5
Mr Aman Mehta Independent Director Member 6 6
Mr Malcolm Shaw Thoms Non-Executive Director Member 6 5
47 CORPORATE GOVERNANCE
Report on Corporate Governance Continued
shareholdersdisclosure regarding appointment or re-appointment of directorsBrief profi les of the persons to be appointed /re-appointed as Director at the annual general meeting of the Company are given below.
Mr Edward T. Story, 65, was appointed as an additional Director with effect from 18 March 2009. He is a science graduate from Trinity University, San Antonio, Texas and holds a Masters degree in Business Administration from the University of Texas. He has also been conferred an honorary Doctorate degree by the Institute of Finance and Economics of Mongolia and is Chairman of the North America Mongolia Business Council.
Mr Story has more than 40 years experience in the international oil and gas industry and is the Founder, President and Chief Executive Offi cer of SOCO International PLC, an inter-national exploration and production (E&P) company listed on the London Stock Exchange.
Soco International has E&P interests in South East Asia and Africa.
Ms Jann Brown, 54, was appointed as an ad-ditional Director with effect from 19 December 2008. She holds an MA degree from Edinburgh University and joined Cairn Energy PLC in 1998 after a career in the accountancy profession, mainly with KPMG. She was appointed Finance Director of Cairn Energy PLC in 2006. Prior to her appointment as Finance Director, she served on the Group Management Board for seven years. She is a member of the Institute of Chartered Accountants of Scotland and the Chartered Institute of Taxation.
Mr Aman Mehta, 62, is an Economics gradu-ate from Delhi University. He was earlier the Chief Executive Offi cer of HSBC Asia Pacifi c until 2003. Mr Mehta is currently an indepen-dent non-executive Director of several public companies in India as well as overseas. Besides this he is also a member of the Advisory Council of INSEAD, France and International Advisory
Boards of Prudential Inc, USA and CapitaLand Ltd of Singapore.
Dr Omkar Goswami, 52, holds a Master of Economics Degree from the Delhi School of Economics and a D. Phil. in Economics from Oxford University. He has authored various books and research papers on economic history, industrial economics, public sector, bank-ruptcy laws and procedures, economic policy, corporate fi nance, corporate governance, public fi nance, tax enforcement and legal reforms.
Dr Goswami was Chief Economist for the Confederation of Indian Industry and the Editor of Business India. He is founder and chairman of CERG Advisory Private Limited which advises companies on corporate governance, investor relations, business restructuring and economic research. Dr Goswami is currently a non-exec-utive Director on a number of Boards of other companies.
The directorships and committee positions held by these Directors as at 31 March 2009 is detailed in Table 9 below.
9 Details of Directorship & Committee Positions held in other Companies
Name of Director Name of the Company in which Directorship held Committee Chairmanship# Committee Membership#
Mr Edward T. Story SOCO International PLC - -
Ms Jann Brown Cairn Energy PLC - -
Hansen Transmissions International N.V. - Audit Committee
Cairn India Holdings Limited - -
Cairn Energy Birganj Limited - -
Cairn Energy Dhangari Limited - -
Cairn Energy Exploration & Production Company Limited - -
Cairn Energy Karnali Limited - -
Cairn Energy Lumbini Limited - -
Cairn Energy Malangawa Limited - -
Cairn Energy Nepal Holdings Limited - -
Cairn Energy Search Limited - -
Cairn Exploration (No. 1) Limited - -
Cairn Resources Management Limited - -
Capricorn Energy Limited - -
Cairn Resources (2002) PLC - -
Medoil PLC - -
Cairn UK Holdings Limited - -
Capricorn Oil Limited - -
Capricorn Exploration Limited - -
48 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Report on Corporate Governance Continued
Name of Director Name of the Company in which Directorship held Committee Chairmanship# Committee Membership#
Ms Jann Brown Capricorn Greenland Exploration 1 Limited - -
Capricorn Greenland Exploration 2 Limited - -
Capricorn Greenland Exploration 3 Limited - -
Capricorn Greenland Exploration 4 Limited - -
Capricorn Greenland Exploration 5 Limited - -
Capricorn Greenland Exploration 6 Limited - -
Capricorn Greenland Exploration 7 Limited - -
Capricorn Greenland Exploration 8 Limited - -
Capricorn Petroleum Limited - -
Capricorn Oil and Gas Limited - -
Plectrum Oil and Gas Limited - -
Plectrum Oil Limited - -
Plectrum Petroleum Limited - -
Banchory Exploration Limited - -
Medoil Resources Limited - -
Capricorn Albania Limited - -
Capricorn Atammik Limited - -
Capricorn Lady Franklin Limited - -
Capricorn Greenland Exploration 9 Limited - -
Capricorn Greenland Exploration 10 Limited - -
Capricorn Greenland Exploration 11 Limited - -
Capricorn Bangladesh Limited - -
Capricorn Spain Limited - -
Mr Aman Mehta PCCW Ltd, Hongkong Audit Committee -
Tata Consultancy Services Limited Audit Committee -
Vedanta Resources PLC, UK Audit Committee -
Godrej Consumer Products Limited - Audit Committee
Emaar MGF Land Limited - Audit Committee
ING Group N.V.Netherlands - -
Max India Limited - -
Jet Airways Limited Audit Committee -
Wockhardt Pharmaceuticals Limited - Audit Committee, Shareholders/ Investor Grievance Committee
Dr Omkar Goswami Dr Reddy’s Laboratories Limited Audit Committee -
Infosys Technologies Limited - Audit Committee, Shareholders Committee
DSP BlackRock Investment Managers Limited - -
IDFC Limited - Audit Committee,Shareholders Committee
Crompton Greaves Limited - Audit Committee
Ambuja Cements Limited - -
Godrej Consumer Products Limited - Audit Committee
Max New York Life Insurance Company Limited - -
CERG Advisory Private Limited - -
# Only Audit and Shareholders’/Investors’ Grievance Committees included. 49 CORPORATE GOVERNANCE
Report on Corporate Governance Continued
means of communication financial resultsThe Company intimates un-audited as well as audited fi nancial results to the Stock Exchanges, immediately after the Board / Committee meet-ings at which they are approved. The results of the Company are also published in at least one prominent national and one regional newspaper having wide circulation. The fi nancial results are also displayed on the Company’s website www.cairnindia.com and posted on Corporate Filing and Dissemination System at www.corpfi ling.co.in.
news release, analyst presentation etc.The offi cial news releases, detailed presenta-tions made to media, institutional investors, fi nancial analysts etc. are displayed on the Company’s website www.cairnindia.com.
WebsiteThe Company’s website www.cairnindia.com contains a separate dedicated section ‘Investor Relations’ where shareholders information is available. The full Annual Report, shareholding pattern and Corporate Governance Report is also available on the website in a user-friendly manner.
general body meetingsThe Company in its brief history has had two Annual General Meetings (AGM) and four Extraordinary General Meetings (EGM). The third AGM is scheduled to take place on 18 August 2009. The desired details in respect of General Meetings are given in Table 10 above.
special resolutions passed in the last three years
Annual General MeetingsIn the previous AGMs held on 20 September 2007 and 25 June 2008, the following special resolutions were passed:
20 September 2007Keeping register of members and other • related documentsConsent of shareholders for issue of further • securitiesPayment of commission to non-executive • Directors
25 June 2008Keeping register of members and other • related documents
Extraordinary General MeetingsAt the EGMs held on 8 September 2006, 21 September 2006, 17 November 2006 and 16 April 2008, the following special resolutions were passed:
8 September 2006Investment in shares of Cairn India Holdings • Limited
21 September 2006Amendment in the memorandum of associa-• tion of the Company Amendment in the articles of association of • the Company Appointment of non- retiring Directors•
10 Location and Time of General Meetings LAST THREE YEARS (2006-2008)
Financial Year
Location of the meeting Date Time
AGMs
2006 Birla Matushri Sabhagar, 19, New Marine Lines, Mumbai 20 Sept 2007 11:00 AM
2007 Birla Matushri Sabhagar, 19, New Marine Lines, Mumbai 25 June 2008 11:00 AM
EGMs
2006 50 Lothian Road, Edinburgh, EH3, 9BY 8 Sept 2006 3:00 PM
2006 50 Lothian Road, Edinburgh, EH3, 9BY 21 Sept 2006 2:00 PM
2006 50 Lothian Road, Edinburgh, EH3, 9BY 17 Nov 2006 2:15 PM
2008 Birla Matushri Sabhagar, 19, New Marine Lines, Mumbai 16 April 2008 2:30 PM
50 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Report on Corporate Governance Continued
Issue of equity shares of the Company on a • private placement basisIssue of equity shares of the Company by an • initial public offeringIncrease in the limit of foreign institutional • investment in the CompanyInvestment in the shares of Cairn India • Holdings Limited
17 November 2006Appointment of Chief Executive Offi cer of • the CompanyEmployee stock option plans• Amendment in the articles of association of • the Company Remuneration of non-executive Directors•
16 April 2008Allotment of the equity shares of the • Company on preferential basis
resolution passed through postal ballot last yearThe Company passed a special resolution through a postal ballot, where the sharehold-ers approved change in fi nancial year of the Company beginning 1 January 2008, by extending it by a period of three months, so as to end on 31 March 2009 and subsequent fi nancial year(s) from the fi rst day of April in each calendar year to the last day of March in the subsequent calendar year.
The Company followed a transparent postal ballot process, where all members on the books as of 12 December 2008 were sent a postal bal-lot form along with postage pre-paid business reply envelope. All replies received up to close of working hours on 21 January 2009 were con-sidered. All postal ballot forms were kept in the control of the scrutiniser, Mr Sunil K. Grover, a practicing Company Secretary. The postal ballots were opened on 21 January 2009 under the scrutiny of Mr Grover. Table 11 shows the
details of the voting pattern.
compliance with clause 49Mandatory Requirements The Company is fully compliant with the ap-plicable mandatory requirements of the revised Clause 49 except with respect to composition of the Board as stated in this report, which it intends to comply with fully in the course of 2009-10.
Adoption of Non-Mandatory Requirements
Remuneration Committee The Board has constituted a Remuneration Committee, details of which have been given earlier.
Shareholder Rights A half-yearly declaration of fi nancial performance including summary of the signifi cant events in last six-months, is sent to the shareholders.
Audit qualifi cations The Company’s fi nancial statements are free from any qualifi cations by the Auditors.
Training of Board Members The Board of Directors is periodically updated on the busi-ness model, company profi le, and the risk pro-fi le of the business parameters of the Company.
Whistle Blower Policy Though there is no formal Whistle Blower Policy, the Company takes cognizance of the complaints made and suggestions given by employees and others. Complaints are looked into and whenever necessary, suitable corrective steps are taken. No employee of the Company has been denied access to the Audit Committee of the Board of Directors of the Company. Further, the Company is in the process of fi nalising a formal Whistle Blower Policy to provide a mechanism to enable employees and others to raise con-cerns in a responsible and effective manner.
11 Voting Result of Special Resolution passed through Postal Ballot
Number of valid postal ballot forms received 1,751
Votes in favour of the resolution 1,467,378,264
Votes against the resolution 1,823
Resolution passed by % of valid votes received 99.99
51 CORPORATE GOVERNANCE
Additional Shareholder Information
annual general meetingDate 18 August 2009Time 11:00 AMVenue Birla Matushri Sabhagar, 19, New Marine Lines, Mumbai 400 020.
financial calendarFor the year ended 31 March 2009, results were announced on:
29 April 2008 � : First quarter29 July 2008 � : Half yearly29 October 2008 � : Third quarter29 January 2009 � : Fourth quarter27 May 2009 � : Fifth (last) quarter and the 15-month fi nancial year’s results
For the year ending 31 March 2010, results will be announced by
Last week of July 2009 � : First quarterLast week of October 2009 � : Half yearlyLast week of January 2010 � : Third quarterLast week of June 2010 � : Fourth quarter and full fi nancial year’s results.
book closure The dates of book closure are from Tuesday, 11 August 2009 to Tuesday, 18 August 2009, inclusive of both days.
listingThe equity shares of the Company are listed on Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE). The annual listing fee for the fi nancial year 2009-10 has been paid to BSE and NSE.
stock codesTable 1 gives the details.
market price dataTable 2 and Chart A and B give the details.
Distribution of ShareholdingTables 3 and 4 list the distribution of the Shareholding and Shareholding pattern of the Company by size and by ownership class as on
1 Stock Exchange Codes
Name of the Stock Exchange Code
National Stock Exchange of India Limited CAIRN
Bombay Stock Exchange Limited 532792
2 High, low and volume of Company’s Shares traded at BSE and NSEFINANCIAL YEAR ENDED 31 MARCH 2009
Month BSE NSE
High (in Rs.) Low (in Rs.) No. of Shares traded High (in Rs.) Low (in Rs.) No. of Shares traded
January 2008 268.50 136.00 22,875,865 268.90 125.00 94,497,993
February 2008 232.15 180.25 20,054,261 231.00 180.15 67,078,925
March 2008 255.90 187.50 35,871,458 255.85 187.60 118,341,281
April 2008 270.00 219.10 25,973,973 269.90 219.50 88,965,150
May 2008 342.50 242.10 102,080,820 342.70 242.00 262,823,438
June 2008 304.90 251.00 53,467,345 304.90 250.95 152,074,023
July 2008 277.00 205.00 47,488,361 278.00 206.50 170,252,458
August 2008 254.50 226.50 17,092,651 254.55 229.85 70,131,190
September 2008 251.80 189.90 15,417,795 251.80 190.00 63,555,709
October 2008 218.70 88.15 21,467,558 219.20 88.20 91,523,174
November 2008 162.80 122.05 21,044,237 163.20 122.15 76,067,146
December 2008 176.80 129.25 23,676,299 176.90 129.10 90,987,024
January 2009 184.70 142.50 14,766,974 184.00 140.00 65,556,537
February 2009 170.75 148.20 12,425,863 170.75 147.10 51,998,380
March 2009 199.00 150.00 15,162,536 199.00 152.25 79,457,245
52 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Additional Shareholder Information Continued
3 Distribution of ShareholdingAS ON 31 MARCH 2009
No. of Shares No. of Shareholders % of Shareholders Total Shares % of Shares
Up to 5,000 245,780 99.61 41,785,436 2.20
5,001-10,000 282 0.11 2,076,139 0.11
10,001-20,000 173 0.07 2,493,051 0.13
20,001-30,000 66 0.03 1,649,854 0.09
30,001-40,000 47 0.02 1,675,699 0.09
40,001-50,000 30 0.01 1,375,077 0.07
50,001-100,000 72 0.03 5,179,409 0.27
100,001 & above 283 0.12 1,840,433,151 97.04
Total 246,733 100.00 1,896,667,816 100.00
B Share Performance on NSE versus Nifty FINANCIAL YEAR ENDED 31 MARCH 2009
Share prices, BSE Sensex and Nifty indexed to 100 as on the fi rst working day of the fi nancial year 2008–09 i.e.1 January 2008
A Share Performance on BSE versus BSE Sensex FINANCIAL YEAR ENDED 31 MARCH 2009
SENSEX
CAIRN
150
125
100
75
50
25
JAN 2008
FEB2008
MAR2008
APR2008
MAY2008
JUN2008
JUL2008
AUG2008
SEPT2008
OCT2008
NOV2008
DEC2008
JAN2009
FEB2009
MAR2009
NIFTY
CAIRN
150
125
100
75
50
25
JAN 2008
FEB2008
MAR2008
APR2008
MAY2008
JUN2008
JUL2008
AUG2008
SEPT2008
OCT2008
NOV2008
DEC2008
JAN2009
FEB2009
MAR2009
53 CORPORATE GOVERNANCE
Additional Shareholder Information Continued
4 Shareholding Pattern by OwnershipAS ON 31 MARCH 2009
No. of Equity Shares (Face Value Rs. 10 each)
Shares Held (%)
promoters holdingIndian Promoters - -
Foreign Promoters 1,226,843,791 64.68
Persons acting in concert - -
non-promoters holding(a) Banks, Financial Institutions, Insurance Companies
(Central / State Govt. / Non-Government Institutions) 75,162,817 3.96
(b) Foreign Institutional Investors 166,620,923 8.78
(c) Foreign Company 49,700,000 2.62
(d) Public 50,560,707 2.67
(e) Mutual Funds 31,842,774 1.68
(f) NRI (Repatriable) 1,067,598 0.06
(g) NRI (Non-Repatriable) 381,195 0.02
(h) Bodies Corporate 43,588,865 2.30
(i) Foreign Bodies Corporate 246,882,573 13.02
(j) Clearing Member 3,973,515 0.21
(k) Trusts 43,058 -
Grand Total 1,896,667,816 100.00
31 March 2009. Further details of top twenty shareholders are given in Table 5.
dematerialisation of shares As on 31 March 2009, over 99.99% shares of the Company were held in dematerialised form. The shares of the Company are permitted to be traded only in dematerialised form under ISIN INE910H01017.
outstanding gdrs / adrs /warrants or any convertible instruments, conversion date and likely impact on equityThere are no outstanding GDRs / ADRs / war-rants or any convertible instruments issued by the Company. However, the Company has out-standing employee stock options, the details of which as on 31 March 2009 are as per Table 6.
The last date of exercise in case of CIPOP is considered on the assumption that the options shall vest after three years of their grant.
If all the outstanding Stock Options granted get vested and exercised, the number of equity shares will increase by 16,352,417.
details of funding obtained in the last three years The Company’s Initial Public Offering (IPO) of 328,799,675 equity shares, which closed on 15 December 2006, was fully subscribed aggre-gating Rs. 52,608 million at the issue price of Rs. 160. The Company also placed Rs. 33,547 million through a pre-IPO placement and exercised its Green Shoe Option for 13,085,041 shares. The total proceeds aggregated Rs. 88,249 million.
The Company made a preferential issue of 113,000,000 equity shares to Petronas International Corporation Ltd and Orient Global Tamarind Fund Pte Ltd. amounting to Rs. 25,345.9 million on 22 April 2008. The shares were issued at a premium of Rs. 214.30 per share.
share suspense accountIn pursuance of Clause 5A of the Listing Agreement, the status of the Equity Shares lying in the Suspense Account is given in Table 7.
54 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Additional Shareholder Information Continued
5 Top Twenty ShareholdersAS ON 31 MARCH 2009
S.No. Name No. of Equity Shares
Shares Held (%)
1 Cairn UK Holdings Limited 1,226,843,791 64.68
2 Petronas International Corporation Limited 239,831,438 12.64
3 Orient Global Tamarind Fund Pte Ltd 49,700,000 2.62
4 Life Insurance Corporation of India 38,852,092 2.05
5 Merrill Lynch International Investment Funds 13,245,952 0.70
6 LIC of India - Market Plus 12,872,266 0.68
7 Europacifi c Growth Fund 12,812,190 0.68
8 State Bank of India (Equity) 12,423,119 0.65
9 ICICI Prudential Life Insurance Company Ltd 10,404,456 0.55
10 FID Funds (Mauritius) Limited 7,061,281 0.37
11 International Finance Corporation 7,050,035 0.37
12 New World Fund Inc 6,587,000 0.35
13 Reliance Capital Trustee Co Ltd - Reliance Natural Resources Fund
6,536,219 0.34
14 Bajaj Allianz Life Insurance Company Ltd. 6,422,984 0.34
15 PRU India Equity Open Limited 6,260,658 0.33
16 Government of Singapore 4,956,608 0.26
17 Emerging Markets Management, L.L.C. A/C EMSAF - Mauritius
4,955,677 0.26
18 Rahul Dhir 4,476,156 0.24
19 DWS Invest - DWS Invest Bric Plus 4,000,025 0.21
20 Fortis Banque Luxembourg Sa A/C Fortis L Fund 3,963,504 0.21
6 Outstanding Employee Stock OptionsAS ON 31 MARCH 2009
ESOP Scheme
No. of options outstanding
Last date for exercise Exercise Price (Rs.)
CIESOP 2,468,615 31 December 2016 160.00
4,757,911 19 September 2017 166.95
3,651,678 28 July 2018 227.00
36,040 9 December 2018 143.00
CIPOP * 759,809 31 March 2010 10.00
1,673,335 19 December 2010 10.00
766,952 28 October 2011 10.00
CISMP 2,238,077 18 months after the vesting date which will occur on the Company achieving 30 days’ consecutive production
of over 150,000 bopd from the Rajasthan Block
33.70
Total 16,352,417
* The vesting period is minimum three years, subject to the fulfi llment of performance conditions as defi ned in the Plan. The exercise period is three months from the date of vesting of options.
55 CORPORATE GOVERNANCE
Additional Shareholder Information Continued
share transfer systemThe Company has appointed Link Intime India Private Limited as its Registrar and Transfer Agent with effect from 1 January 2008. All share transfers and related operations are conducted by Link Intime India Private Limited, which is registered with the SEBI. The Company has a Shareholders’/Investors’ Grievance Committee for redressing the complaints/queries of share-holders and investors.
Investor correspondence should be addressed to either:Registrar and Transfer AgentLink Intime India Private Limited (formerly Intime Spectrum Registry Limited)(Unit: Cairn India Limited)C-13, Pannalal Silk Mills CompoundL.B.S Marg, Bhandup (West)Mumbai 400 078, IndiaE-Mail [email protected] +91 22 25946970 Fax +91 22 25946969
or
Company SecretaryCairn India Limited4th Floor, Vipul Plaza, Sun City, Sector 54Gurgaon 122 002, IndiaE-Mail [email protected] +91 124 2703000 Fax +91 124 2889320Investors can e-mail their queries/complaints to [email protected]. The weblink to this E-Mail ID is also available on Company’s website www.cairnindia.com under Investor Relations section.
investor relations The Company has a dedicated Shares Investor Relations Department which helps investors, including FIIs and institutional investors, in mak-ing informed decisions. This team also maintains close liaison with investors and shares informa-tion through periodic meetings including tele-conferencing in India and abroad, regular press meeting with investment bankers, research analysts, the media, institutional investors etc.The ‘Investor Relations’ section on the Company’s website www.cairnindia.com updates information sought by investors and analysts. It provides the latest information on fi nancial statements, investor-related events and presentations, annual reports and sharehold-ing pattern along with media releases and the current Company overview. The section helps existing and potential investors to interact with the Company.
operational locationsThe Company’s oil and gas fi elds are located at:
Ravva � (Andhra Pradesh)Cambay Basin � (Gujarat)Barmer � (Rajasthan)
registered office addressCairn India Limited101, West ViewVeer Savarkar MargPrabhadeviMumbai 400 025, India
7 Status of Equity Shares lying in the Suspense Account DURING THE 15 MONTH PERIOD ENDED 31 MARCH 2009
Particulars Number of Shareholders
Number of Shares
Aggregate number of Shareholders and the outstanding Shares in the suspense account lying as on 1 January 2008
112 19,950
Shares transferred to suspense account - Recovery against incorrect credit 1 525
No. of Shareholders who approached for transfer of shares from suspense account 40 7,980
No. of Shareholders to whom Shares were transferred from suspense account 40 7,980
Aggregate number of Shareholders and the outstanding shares in the suspense account as on 31 March 2009
73 12,495
56 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Certifi cations Under Clause 49 of Listing Agreement
certification by the chief executive officer and chief financial officer of the company
We, Rahul Dhir, Chief Executive Offi cer, and Indrajit Banerjee, Chief Financial Offi cer, of Cairn India Limited hereby certify to the Board that:
a. We have reviewed fi nancial statements and the cash fl ow statement for the fi nancial year ended 31 March 2009 and that to the best of our knowledge and belief: i. These statements do not contain any materially untrue statement
or omit any material fact or contain statements that might be misleading;
ii. These statements together present a true and fair view of the Company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.
b. There are, to the best of our knowledge and belief, no transactions en-tered into by Cairn India Limited during the year which are fraudulent, illegal or violative of the Company’s Code of Ethical Conduct.
c. We are responsible for establishing and maintaining internal controls for fi nancial reporting in Cairn India Limited, and we have evaluated the effectiveness of the internal control systems of the Company per-taining to fi nancial reporting. We have disclosed to the auditors and the Audit Committee, defi ciencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these defi ciencies.
d. We have indicated to the auditors and the Audit Committee i. Signifi cant changes in internal control over fi nancial reporting dur-
ing the year; ii. Signifi cant changes in accounting policies during the year and the
same have been disclosed in the notes to the fi nancial statements; and
iii. Instances of signifi cant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a signifi cant role in the Company’s internal control system over fi nancial reporting.
e. We affi rm that we have not denied any personnel access to the Audit Committee of the Company (in respect of matters involving alleged misconduct).
f. We further declare that all Board members and senior management have affi rmed compliance with the Company’s Code of Conduct for the fi nancial year ended 31 March 2009.
Rahul DhirManaging Director & CEO
Indrajit BanerjeeExecutive Director & CFO
Place Gurgaon Date 27 May 2009
auditors» certificate
To The Members of Cairn India Limited
We have examined the compliance of conditions of corporate gover-nance by Cairn India Limited (‘the Company’), for the fi fteen months period ended on 31 March 2009, as stipulated in clause 49 of the Listing Agreement of the said Company with stock exchanges.
The compliance of conditions of corporate governance is the responsi-bility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the com-pliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the fi nancial statements of the Company.
In our opinion and to the best of our information and according to the explanations given to us, subject to the fact that the proportion of the independent directors to the total strength of the Board being 40% is less than the minimum prescribed limit of 50%, the Chairman of the Board being related to the promoter of the Company in terms of clarifi cation dated 23 October 2008 issued by the Securities and Exchange Board of India, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement.
We further state that such compliance is neither an assurance as to the future viability of the Company nor the effi ciency or effectiveness with which the management has conducted the affairs of the Company.
For S. R. Batliboi & AssociatesChartered Accountants
per Raj Agrawal Partner Membership No. 82028 Place GurgaonDate 27 May 2009
57 CORPORATE GOVERNANCE
The consolidated statements provide the results of Cairn India Limited together with those of its subsidiaries for the fi nancial year ended 31 March 2009.
dividendThis being just the third year since inception of the Company and in the absence of enough distributable income, your Directors do not recommend any dividend.
change in financial year The current fi nancial year of the Company beginning 1 January 2008 has been changed, by extending it by a period of three months, so as to end on 31 March 2009 and subsequent fi nan-cial year(s) have been changed to start from the fi rst day of April in each calendar year to the last day of March in the subsequent calendar year. Accordingly, previous year’s numbers are not comparable with numbers of the current year. Further, with the change, the Company is now compliant with the IFRS provisions which would be applicable effective 1 April 2011.
operations A detailed review of operations has been included in the Management Discussion and Analysis Report, which forms a part of this Annual Report.
changes in capital structureDuring the fi nancial year under review, your Company made a successful Preferential is-sue of 113,000,000 equity shares to Petronas International Corporation Ltd and Orient Global Tamarind Fund Pte Ltd. amounting to Rs. 25,345.9 million. The Shares were issued at a premium of Rs. 214.30 per share.
Further, 5,268,396 equity shares of Rs. 10/- each were allotted on exercise of Employee Stock Options by executive Directors. Accordingly the issued and paid up capital of the Company has increased to Rs. 18,966,678,160 divided into 1,896,667,816 equity shares of Rs. 10/- each.
utilization of ipo proceedsIn December 2006, the Company raised Rs. 88,249 million from its maiden offer to the
Your Directors have pleasure in presenting the third Annual Report, together with the Audited Accounts of your Company for the Financial Year ended 31 March 2009
Directors’ Report
Financial ResultsIN RUPEES THOUSANDS
Standalone Consolidated
For the fi nancial year ended For the fi nancial year ended
31 March 2009(Fifteen months)
31 December 2007(Twelve months)
31 March 2009(Fifteen months)
31 December 2007(Twelve months)
Total income 2,980,403 339,623 20,271,368 11,446,716
Total expenditure 1,859,687 807,300 10,392,502 10,187,488
Profi t / (Loss) before tax 1,120,716 (467,677) 9,878,866 1,259,228
Taxes 578,309 320,489 1,844,360 1,504,669
Profi t / (Loss) after tax 542,407 (788,166) 8,034,506 (245,441)
58 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
public for the stated objects in the Prospectus dated 22 December 2006. The amounts ear-marked for each object category, as mentioned in the prospectus, were based on the plans and requirements of the business at the time of is-suance of the prospectus in December 2006. In view of the dynamic environment, the business plans and requirements have changed since the public offer and necessitate rescheduling of the capital expenditure programme and increase /decrease of the amount needed to meet each object category.
Three object categories namely (a) consid-eration to Cairn UK Holdings Limited (CUHL),
(b) contingencies and (c) issue expenses, have some unutilized balances as on 31 March 2009. The end purpose of these object categories has been achieved and no further expenditure is envisaged to be incurred under these catego-ries. It is proposed to transfer the unutilized balance of Rs. 5,449 million inter-se from above mentioned three categories to the object category of “Development” after obtaining the approval of the Shareholders of the Company in the forthcoming Annual General Meeting. The proposed revised utilization schedule is given in the table below.
Proposed Revised Utilization ScheduleIN RS. MILLION
S.No. Particulars Total funding requirement
as per the prospectus
Funding envisaged from IPO
proceeds as per prospectus
Amount actually
utilised till 31 March
2009
Balance unutilised
amount
Revised utilization schedule
1 Acquisition of shares of Cairn India Holdings Limited 62,250 62,250 59,581 2,669 59,581
2 Contingencies 2,530 2,530 Nil 2,530 Nil
3 Issue expenses 1,850 1,850 1,600 250 1,600
4 Development in the Rajasthan Block and additional drilling activities in Ravva and Cambay
55,250 16,120 21,153 1,877 26,838 *
5 Exploration and appraisal activities including funding minimum work program for capital commitments and any additional appraisal expenditure that may arise as a result of exploration success in existing blocks and blocks that may be awarded in NELP VI round 6,910 6,910
Included in 4 above
Included in 4 above -
6 General corporate purposes 230 230 230 - 230
7 Less: Shortfall in Issue Proceeds 1,641
Total 129,020 89,890 82,563 5,686 88,249*
* After adjusting shortfall in issue proceeds of Rs. 1641 million
59 DIRECTORS’ REPORT
Directors’ ReportContinued
employee stock option schemeThe Company has established share incentive schemes viz., Cairn India Senior Management Plan (CISMP), Cairn India Performance Option Plan (CIPOP) and Cairn India Employee Stock Option Plan (CIESOP) pursuant to which op-tions to acquire shares have been granted to select employees and Directors of the Company and its subsidiaries. The Company also has cash awards option plan (phantom stock options) for expatriate employees of the Company and its subsidiaries.
During the year, stock options have been granted to the executive Directors and employ-ees of the Company. On exercise of the options so granted, the paid-up equity share capital of the Company will increase in terms of the Stock Option Plans mentioned above. The details of stock options granted by the Company are disclosed in compliance with Clause 12 of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and set out in Annexure I to this Report.
subsidiary companiesDuring the fi nancial year under review, CIG Mauritius Holding Pvt. Limited, CIG Mauritius Pvt. Limited, Cairn Lanka Pvt. Limited and Cairn Energy Developments Pte. Limited became subsidiaries of the Company. As on 31 March 2009 the Company had 31 subsidiaries includ-ing indirect subsidiaries.
Pursuant to the provisions of Section 212(8) of the Companies Act, 1956, the Company has obtained exemption from the Ministry of Corporate Affairs, Government of India from attaching the accounts of its subsidiaries to the Company’s Annual Accounts for the fi nancial year ended 31 March 2009. The accounts of the subsidiaries are available for inspection by members on any working day at the Registered Offi ce of the Company between 10 a.m. and 12 noon. A statement in respect of subsidiary companies is attached to the accounts.
consolidated financial statementsYour Company is also presenting the audited consolidated fi nancial statements prepared in accordance with the Accounting Standard 21 is-sued by the Institute of Chartered Accountants of India. Information in aggregate for each subsidiary in respect of capital reserves, total assets, liabilities, investments, turnover, etc. is disclosed separately and forms part of the annual report.
directors
Mr Rick Bott was appointed as additional Director on the Board with effect from 29 April 2008, and as Executive Director and Chief Operating Offi cer with effect from 15 June 2008.
During the fi nancial year under review, Ms Jann Brown, was appointed as an alternate Director to Mr Norman L. Murray with effect from 25 November 2008 and later ceased to be an alternate Director from 10 December 2008. Thereafter, she was appointed as additional Director effective 19 December 2008. Pursuant to the provisions of Section 260 of the Companies Act, 1956, she holds offi ce up to the ensuing annual general meeting. The Company has received a notice from a member of the Company sponsoring her candidature as Director of the Company. Ms Jann Brown is proposed to be appointed as a non-rotational Director.
Mr Edward T. Story was appointed as ad-ditional Director on 18 March 2009. Pursuant to the provisions of Section 260 of the Companies Act, 1956, he holds offi ce up to the ensuing annual general meeting. The Company has re-ceived a notice from a member of the Company sponsoring his candidature as Director of the Company.
Mr Lawrence Smyth resigned as Executive Director and COO with effect from 21 January 2008. Mr Norman L. Murray resigned from the Board with effect from 18 December 2008, and was appointed as alternate Director to Ms Jann Brown on 19 December 2008. Later he ceased to be an alternate Director effective 10 February 2009. Your Directors wish to place on record their sincere appreciation of the valu-able contribution made by Mr Lawrence Smyth and Mr Norman Murray during their tenure on the Board of the Company.
Mr Philip Tracy was appointed as alternate Director to Sir Bill Gammell on 18 March 2009 and later ceased to be alternate Director with effect from 26 May 2009.
Mr Aman Mehta and Dr Omkar Goswami retire by rotation at the ensuing annual general meeting and being eligible, offer themselves for re-appointment.
60 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Directors’ ReportContinued
corporate governanceThe Corporate Governance and Management Discussion and Analysis Reports form an integral part of this report and are set out as separate sections to this annual report. The Certifi cate of S. R. Batliboi & Associates, chartered accountants, the statutory auditors of the Company certifying compliance with the conditions of corporate governance as stipu-lated in Clause 49 of the listing agreement with stock exchanges is annexed with the report on corporate governance.
auditorsM/s. S. R. Batliboi & Associates, chartered accountants, auditors of the Company, retire at the conclusion of the ensuing annual general meeting and being eligible, offer themselves for re-appointment. The audit committee in its meeting held on 27 May 2009 has recom-mended the re-appointment of M/s. S. R. Batliboi & Associates, as statutory auditors of the Company.
fixed depositsThe Company has not invited any deposits from the public under Section 58A of the Companies Act, 1956.
human resourcesCompany’s industrial relations continued to be harmonious during the period under review.
particulars of employees Particulars of employees required to be furnished under Section 217(2A) of the Companies Act, 1956 (‘the Act’) form part of this report. However, as per the provisions of Section 219(1)(b)(iv) of the Act, the report and accounts are being sent to the sharehold-ers of the Company excluding the particulars of employees under Section 217(2A) of the Act. Any shareholder interested in obtaining a copy of the said statement may write to the Company Secretary at the Registered Offi ce of the Company.
conservation of energy, technology absorption and foreign exchange earnings and outgoInformation on Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo is given in Annexure II to this report.
directors’ responsibility statementPursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confi rm that:
(i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explana-tion relating to material departures
(ii) appropriate accounting policies have been selected and applied consistently and have made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 March 2009 and of the profi t of the Company for the year ended 31 March 2009
(iii) proper and suffi cient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguard-ing the assets of the Company and for preventing and detecting fraud and other irregularities
(iv) the annual accounts have been prepared on a going concern basis
appreciationYour Directors wish to place on record their gratitude for the valuable assistance and co-operation extended to the Company by the Central Government, State Governments, Banks, Institutions, Investors and Customers.
For and on behalf of the Board of Directors
Sir William B.B. GammellChairman
Place Gurgaon Date 27 May 2009
61 DIRECTORS’ REPORT
Annexures to theDirectors’ Report
annexure i Disclosure pursuant to the provisions of Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
S.No. Particulars Cairn India Senior Management Plan
Cairn India Performance
Option Plan (2006)
Cairn India Employee Stock
Option Plan (2006)
1 Options granted during January 2008 - March 2009 Nil 789,567 3,809,896
2 The Pricing Formula Rs. 33.70 per Share Rs. 10 per Share Price determined by the Remuneration
Committee but not less than the fair
market value of a share on the date of grant
3 Options Vested during January 2008 - March 2009 2,238,078 NIL NIL
4 Options Exercised during January 2008 - March 2009 5,268,396 NIL NIL
5 Total number of Shares arising as a result of exercise of options during January 2008 - March 2009
5,268,396 NIL NIL
6 Options lapsed during January 2008 - March 2009 792,240 2,344,715 1,441,362
7 Variation of terms of options None None None
8 Money realized by exercise of options during January 2008 - March 2009 Rs. 177,544,945 NIL NIL
9 Total number of options in force as on 31 March 2009 2,238,077 3,200,096 10,914,244
10 Employee wise details of options granted during the year to:
(i) Senior Managerial Person None Indrajit BanerjeeSantosh Chandra
Elango P.Senthil Kumar P.
S. V. NairAnanthakrishnan B.
: 69,630: 48,676: 78,269: 32,605: 89,195: 48,024
None
(ii) Any other employee who receives a grant in any one year of option amounting to 5% or more of options granted during the year
None Venkateshan T. K.Narayanan P. S.
Ajay Gupta
: 45,978: 49,204: 75,191
None
(iii) Identifi ed employees who were granted options during any 1 year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants & conversions) of the Company at the time of grant
None None None
11 Diluted Earnings Per Share (EPS) pursuant to issue of Shares on exercise of options calculated in accordance with Accounting Standard 20
Rs. 0.29 NA NA
12 (i) Method of calculation of employee compensation cost Intrinsic Value Method
(ii) Difference between the employee compensation cost so computed at 12(i) above and the employee compensation cost that shall have been recognised if it had used the fair value of the options (Rs. in thousands)
485,151
(iii) The impact of this difference on profi ts and on EPS of the Company
Profi t after Tax (PAT) (Rs. in thousands) 542,407
Less: Additional employee Compensation cost based on fair value (Rs. in thousands) 485,151
Adjusted PAT (Rs. in thousands) 57,256
Adjusted EPS Basic (Rs.) 0.03
Adjusted EPS Diluted (Rs.) 0.03
13 Weighted-average exercise prices of options granted during January 2008 - March 2009
NA 10.00 226.21
Weighted-average fair value of each option outstanding as on 31 March 2009
131.50 165.46 101.47
62 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
annexure iiconservation of energy, technology absorption, foreign exchange earnings and outgoconservation of energyEnergy conservation measures takenWe have continued our efforts in conserving energy from our operating assets. In line with our climate change strategy, we have been monitoring and setting targets for both methane and other Green House Gas (GHG) emissions since 2000. We have implemented several initiatives to reduce these emissions including the installation of high effi ciency fl ares, third stage compression, gas ejector systems and improving plant operations to minimise volumes of gas fl ared during plant upsets.
At Ravva , energy audits were carried out and certain energy conservation measures were recommended. Some of the recommendations that were implemented include:
1 Installation of additional solar arrays at offshore platformsThe power supply requirement for offshore platforms is met by using solar arrays. With the increase in load, additional solar arrays were installed to minimize the usage of the DG set. With this addition, the total solar energy utiliza-tion is 5.87 MWH per annum.
2 Installation of wind turbine generators at offshore platformsThe back up power supply requirement for offshore platforms during the rainy season is met by installing the wind turbine generators at platforms to minimize usage of the DG set. The estimated energy usage is 7.2 MWH per annum.
3 Variable frequency drives Variable frequency drives were introduced in
Multi Phase Pump (MPP) and Produced Water Reinjection (PWRI) projects as an energy con-servation measure.
Energy conservation initiatives were adopted at the Gurgaon corporate offi ce through better operational practices. An estimated 156 MWH energy saving was achieved.
Additional investments and proposals being implemented for conservation of energyWe have implemented major design modifi ca-tions at the MPT in Rajasthan to reduce overall energy consumption. As per the earlier plan crude / natural gas based thermal power plant was considered with additional heaters for meeting the heating requirements for main-taining the pour point of the crude. This was replaced with natural gas fi red steam turbines and elimination of heaters. This initiative will not only ensure much lower gaseous emissions but also effi cient use of energy.
Impact of the above measures for reduction of energy consumption and consequent impact on the cost of productionThe design modifi cations at the MPT will sub-stantially reduce emissions and will ensure effi -cient use of energy. This design change will not affect production of hydrocarbons. The installa-tion of renewable energy sources at the Ravva plant will reduce dependence on conventional energy and the aim is to carry out all operations at the platforms using renewable energy.
technology absorptionResearch and Development (R&D)Specifi c areas in which R&D was carried out by the CompanyCairn has been actively pursuing the applica-tion of EOR (Enhanced Oil Recovery) technol-
Annexures to theDirectors’ Report Continued
S.No. Particulars Cairn India Senior Management Plan
Cairn India Performance
Option Plan (2006)
Cairn India Employee Stock
Option Plan (2006)
14 A description of the method and signifi cant assumptions used during the year to estimate the fair values of options, including the following weighted-average information:
(i) risk-free interest rate 7.05% 7.77% 8.13%
(ii) expected life (in years) 2.45 3.12 6.50
(iii) expected volatility 44.08% 37.90% 40.14%
(iv) expected dividends NA NA NA
(v) price of the underlying Share in market at the time of option grant 160.00 180.06 185.93
63 DIRECTORS’ REPORT
ogy in the Mangala, Bhagyam and Aishwariya Fields. Corefl ood studies have been carried out in 2 independent laboratories in order to determine the effi ciency of the chemical fl ood processes and also to determine the optimum chemical formulations. In house simulation work has also been carried out to determine the ef-fi ciency at fi eld level. The laboratory studies are ongoing to optimise the chemical formulations.
Re-injection of produced water separated at the Ravva terminal, back into the reservoir helps reduce discharge of waste water to sea and abstraction of ground water for injection purposes. PWRI has been designed and imple-mented to treat and handle a maximum capacity of 90,000 BWPD. The PWRI was successfully commissioned in Q2 2008 and is presently re-injecting 90% of the produced water.
Benefi ts derived as a result of this R&DCairn ’s research in EOR applications for the MBA fi elds has the potential to unlock addi-tional oil reserves within these fi elds and a long term strategy for EOR is being developed with this end in mind.
Cairn ’s study with the National Geophysical Research Centre (NGRI) on salinity changes of ground water sets an example of ‘good industry practice’. We are reassured that our operation in Ravva does not have an adverse impact on ground water and the environment.
Expenditure on R&DDetails outlined in the Table above.
foreign exchange earnings and outgo Activities relating to exports; initiatives taken to increase exports ; development of new export markets for products and services ; and export plans India imports approximately 75% of its oil & gas requirement and in this situation; the export of crude oil & natural gas which are the main products of Cairn are not relevant in this sector. However, by discovering new oil & gas fi nds and bringing them into production, Cairn is working towards enhancing energy security and increasing the self suffi ciency of the nation which is in line with policy of the Indian Government. At peak production rate, Rajasthan block is expected to contribute upto 20% of domestic crude oil production.
Foreign exchange used and earned. During the period ended 31 March 2009, the Company earned Rs. 37.58 million and incurred expenditure of Rs. 1036.31 million in foreign exchange.
For and on behalf of the Board of Directors
Sir William B.B. GammellChairman
Place Gurgaon Date 27 May 2009
Annexures to theDirectors’ Report Continued
Expenditure on R&DIN RS.
Particulars Amount
(i) Capital 3,704,225 *
(ii) Recurring -
(iii) Total 3,704,225
(iv) Total R&D expenditures as a % of total turnover 0.02%
* These are consolidated numbers for the fi fteen months period ended 31 March 2009
64 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
65
Auditors' Report
TO
THE MEMBERS OF CAIRN INDIA LIMITED
1. We have audited the attached balance sheet of Cairn India Limited ('the Company') as at March 31, 2009 and also the profit and loss account and
the cash flow statement for the fifteen months period ended on that date annexed thereto, which include the Company's share of net liabilities,
expenses and cash outflows aggregating to Rs. 44,467 thousand, Rs. 213,225 thousand and Rs. 20,344 thousand, respectively in the
unincorporated joint ventures ('JVs') not operated by the Company or its subsidiaries, the accounts of which have been audited by the auditors of
the respective JVs and further include the Company's share of net assets, expenses and cash flows aggregating to Rs. 1,871 thousand,
Rs. 137,193 thousand and Rs. Nil, respectively in certain JVs, the accounts of which have been certified by the operators of the respective JVs
(for which, as informed to us, the audits are in progress) and relied upon by us. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
3. As required by the Companies (Auditor's Report) Order, 2003 (as amended) ('the Order') issued by the Central Government of India in terms of
sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4
and 5 of the said Order. In respect of clauses (ix)(a), (ix)(b), (ix)(c) and (xxi), our comments are restricted to the operations of the Company and
the JV's where the Company is the operator and does not cover the JV's where any third party is the operator.
4. Further to our comments in the Annexure referred to above, we report that:
i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of
our audit;
ii. In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those
books;
iii. The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account;
iv. In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting
standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;
v. On the basis of the written representations received from the directors, as on March 31, 2009, and taken on record by the Board of Directors,
we report that none of the directors is disqualified as on March 31, 2009 from being appointed as a director in terms of clause (g) of sub-
section (1) of section 274 of the Companies Act, 1956;
vi. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information
required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles
generally accepted in India;
a) in the case of the balance sheet, of the state of affairs of the Company as at March 31, 2009;
b) in the case of the profit and loss account, of the profit for the fifteen months period ended on that date; and
c) in the case of cash flow statement, of the cash flows for the fifteen months period ended on that date.
For S. R. Batliboi & Associates
Chartered Accountants
per Raj Agrawal
Partner
Membership No.: 82028
Place : Gurgaon
Date : 27th May, 2009
66 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Annexure referred to in paragraph 3 of our report of even date
Re: Cairn India Limited (‘the Company’)
(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) Fixed assets have been physically verified by the management during the year and no material discrepancies were identified on such
verification.
(c) There was no substantial disposal of fixed assets during the year.
(ii) The Company has not started commercial production in any of its oil and gas blocks and has not purchased any inventories.
Therefore the provisions of clause 4(ii) of the Order are not applicable to the Company.
(iii) (a-d) As informed, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the
register maintained under section 301 of the Companies Act, 1956. Therefore the provisions of clause 4(iii) (b), (c) and (d) of the
Order are not applicable to the Company.
(e-g) As informed, the Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the
register maintained under section 301 of the Companies Act, 1956. Therefore the provisions of clause 4(iii) (f) and (g) of the Order
are not applicable to the Company.
(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system
commensurate with the size of the Company and the nature of its business, for the purchase of fixed assets and for the sale services.
During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. Since
the Company has not started commercial production in any of its oil and gas blocks, it has neither purchased any inventories nor sold
any goods.
(v) (a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts
or arrangements referred to in section 301 of the Companies Act, 1956 that need to be entered into the register maintained under
section 301 have been so entered.
(b) In respect of transactions made in pursuance of such contracts or arrangements exceeding the value of Rupees five lakhs entered
into during the financial year, because of the unique and specialized nature of the items involved and absence of any comparable
prices, we are unable to comment whether the transactions were made at prevailing market prices at the relevant time.
(vi) The Company has not accepted any deposits from the public.
(vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.
(viii) The Company has not commenced commercial production in any of its oil and gas blocks. Accordingly, the provisions of clause 4(viii)
of the Order are not applicable to the Company.
(ix) (a) Undisputed statutory dues including provident fund, investor education and protection fund, income-tax, service tax, cess have
generally been regularly deposited with the appropriate authorities. The provisions relating to employees' state insurance, sales tax,
wealth tax, customs duty and excise duty are not applicable to the Company.
(b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor
education and protection fund, income-tax, service tax, cess and other undisputed statutory dues were outstanding, at the year end,
for a period of more than six months from the date they became payable. The provisions relating to employees' state insurance, sales
tax, wealth tax, customs duty and excise duty are not applicable to the Company.
(c) According to the information and explanation given to us, there are no dues of income tax and cess which have not been deposited
on account of any dispute. The provisions relating to sales tax, wealth tax, customs duty and excise duty are not applicable to the
Company.
(x) The Company has been registered for a period of less than five years and hence we are not required to comment on whether or not
the accumulated losses at the end of the financial year is fifty per cent or more of its net worth and whether it has incurred cash
losses in such financial year and in the immediately preceding financial year.
(xi) The Company has no outstanding dues in respect of a financial institution, bank or debenture holders.
(xii) According to the information and explanations given to us and based on the documents and records produced to us, the Company
has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.
(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund / society. Therefore, the provisions of clause 4(xiii) of
the Order are not applicable to the Company.
(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the
provisions of clause 4(xiv) of the Order are not applicable to the Company.
(xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from
bank or financial institutions.
(xvi) The Company did not have any term loans outstanding during the period.
(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we
report that no funds raised on short-term basis have been used for long-term investment.
(xviii) The Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under
section 301 of the Companies Act, 1956.
Auditors' Report
67
(xix) The Company did not have any outstanding debentures during the year.
(xx) We have verified that the end use of money raised by public issue is as disclosed in the note no. 5 of schedule 18 to the financial
statements.
(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per
the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or
reported during the course of our audit.
For S. R. Batliboi & Associates
Chartered Accountants
per Raj Agrawal
Partner
Membership No.: 82028
Place : Gurgaon
Date : 27th May, 2009
Auditors' Report
68 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
SOURCES OF FUNDS
Shareholders’ funds
Share capital 1 18,966,678 17,783,994
Stock options outstanding 2 388,978 947,084
Reserves and surplus 3 301,090,274 276,084,115
320,445,930 294,815,193
APPLICATION OF FUNDS
Fixed assets 4
Gross cost 974 –
Less: Accumulated amortisation 365 –
Net book value 609 –
Exploratory work in progress 5 540,299 –
Investments 6 292,253,966 294,137,285
Current assets, loans and advances
Sundry debtors 7 17,942 12,708
Cash and bank balances 8 27,632,762 7,757
Other current assets 9 633,645 –
Loans and advances 10 220,814 35,950
28,505,163 56,415
Less: Current liabilities and provisions
Current liabilities 11 1,076,734 138,410
Provisions 12 315,373 320,504
1,392,107 458,914
Net current assets 27,113,056 (402,499)
Profit and loss account 538,000 1,080,407
320,445,930 294,815,193
Notes to accounts 18
Balance SheetAS AT MARCH 31, 2009
The schedules referred to above and the notes to accounts form an integral part of the balance sheet.
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of Directors
Chartered Accountants Rahul Dhir Managing Director and Chief Executive Officer
per Raj Agrawal Aman Mehta Director
Partner Indrajit Banerjee Executive Director and Chief Financial Officer
Membership No.: 82028 Neerja Sharma Company Secretary
Place : Gurgaon
Date : 27th May, 2009
Schedules As at As at
March 31, 2009 December 31, 2007
(All amounts are in thousand Indian Rupees, unless otherwise stated)
69
Profit and Loss AccountFOR THE PERIOD ENDED MARCH 31, 2009
INCOME
Revenue from operating activities 37,331 12,708
Other income 13 2,943,072 326,915
2,980,403 339,623
EXPENDITURE
Staff costs 14 212,519 623,374
Data acquisition and pre exploration cost 36,235 –
Administrative expenses 15 793,554 174,838
Unsuccessful exploration costs 5 813,568 8,879
Amortisation 4 365 –
Finance costs 16 3,446 209
1,859,687 807,300
Profit/(Loss) before taxation 1,120,716 (467,677)
Current tax 543,800 –
Fringe Benefit Tax 34,509 320,489
Profit/(Loss) for the period / year 542,407 (788,166)
Add: Accumulated losses at the beginning of (1,080,407) (292,241)
the period / year
Deficit carried forward to balance sheet (538,000) (1,080,407)
Earnings/(Loss) per share in INR 17
Basic 0.29 (0.44)
Diluted (previous year considered anti-dilutive) 0.29 (0.44)
[Nominal value of shares Rs. 10]
Notes to accounts 18
Schedules Fifteen months ended Twelve months endedMarch 31, 2009 December 31, 2007
The schedules referred to above and the notes to accounts form an integral part of the profit and loss account.
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of Directors
Chartered Accountants Rahul Dhir Managing Director and Chief Executive Officer
per Raj Agrawal Aman Mehta Director
Partner Indrajit Banerjee Executive Director and Chief Financial Officer
Membership No.: 82028 Neerja Sharma Company Secretary
Place : Gurgaon
Date : 27th May, 2009
(All amounts are in thousand Indian Rupees, unless otherwise stated)
70 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Cash flow from operating activities
Profit / (loss) before taxation for the period / year 1,120,716 (467,677)Adjustments for:– Employee compensation expense (stock options) - net of exceptional gains (33,325) 602,025– Interest income (1,341,376) (96,166)– Dividend from unquoted current investments (200,225) (203,117)– Depreciation, depletion and site restoration costs 365 –– Profit on sale of unquoted current investments (net) (1,245,686) (27,632)– Share issue expenses 208,410 –– Unrealised exchange loss / (gain) on restatement of assets and liabilities (net) 183,896 –– Unsuccessful exploration cost 813,568 –– Interest expense 388 209Operating (loss) before working capital changes (493,269) (192,358)Movements in working capital:(Increase)/decrease in debtors (5,234) (12,708)(Increase)/decrease in loans and advances and other current assets (212,729) (16,395)Increase/(decrease) in current liabilities and provisions 909,781 125,944Cash generated from / (used in) operations 198,549 (95,517)Direct taxes paid including fringe benefit tax (553,060) (24,488)Net cash (used in) operating activities (A) (354,511) (120,005)
Cash flow from investing activities
Payment made for exploration and development activities (1,371,119) –Long term investments made in subsidiaries during the period (1,562,784) (55,028,070)Payment for purchase of fixed assets (974) –Fixed deposits made (37,573,811) –Proceeds from matured fixed deposits 10,005,000 –Current, unquoted investments made during the period (43,293,242) (13,297,748)Interest received 707,732 107,819Dividend received from unquoted current investments 200,225 203,117Proceeds from sale of unquoted current investments 47,985,031 8,271,805Net cash (used in) investing activities (B) (24,903,942) (59,743,077)
Cash flow from financing activities
Proceeds from issue of equity shares (including securities premium) 25,523,445 2,093,607Payment for share issue expenses (208,410) (1,422,257)Unsecured loans repaid – (204,708)Security deposit recovered from / (paid) to a stock exchange – 30,000Interest paid (388) (209)Net cash from financing activities (C) 25,314,647 496,433
Net increase in cash and cash equivalents (A+B+C) 56,194 (59,366,649)Cash and cash equivalents at the beginning of the period / year 7,757 59,374,406Cash and cash equivalents at the end of the period / year 63,951 7,757
Components of cash and cash equivalents as at March 31, 2009 December 31, 2007
Cash in hand 15 –Balances with scheduled banks– on current accounts 13,936 7,757– on deposit accounts 27,618,811 –
Less: Deposits having maturity of over 90 days (27,568,811) –63,951 7,757
Notes:1) The above Cash Flow Statement has been prepared under the ‘Indirect Method’ as set out in Accounting Standard-3 on “Cash flow statements”.2) Amounts in bracket indicate a cash outflow or reduction.3) Bank balance in deposit accounts includes INR 1,530,000 thousand, previous year Nil, pledged with the banks.
Statement of Cash FlowsFOR THE PERIOD ENDED MARCH 31, 2009
Particulars Fifteen months ended Twelve months ended
March 31, 2009 December 31, 2007
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants Rahul Dhir Managing Director and Chief Executive Officerper Raj Agrawal Aman Mehta DirectorPartner Indrajit Banerjee Executive Director and Chief Financial OfficerMembership No.: 82028 Neerja Sharma Company Secretary
Place : GurgaonDate : 27th May, 2009
(All amounts are in thousand Indian Rupees, unless otherwise stated)
71
Schedules to the Financial Statements
As at As at
March 31, 2009 December 31, 2007
SCHEDULE - 1
Share capital
Authorised:
2,250,000,000 (previous year 2,250,000,000) equity shares of INR 10 each 22,500,000 22,500,000
Issued, subscribed and fully paid up:
1,896,667,816 (previous year 1,778,399,420) equity shares of INR 10 each 18,966,678 17,783,994
18,966,678 17,783,994
Note:
1) Issued, subscribed and fully paid up share capital includes 1,226,843,791 equity shares (previous year - 1,226,843,791 equity shares) of INR 10
each held by Cairn UK Holdings Limited, the holding company together with its nominees.
2) Shares held by the holding company includes 861,764,893 equity shares (previous year - 861,764,893 equity shares) of INR 10 each, allotted as
fully paid up pursuant to contracts for consideration other than cash.
3) For stock options outstanding refer note no. 6 in schedule 18.
SCHEDULE - 2
Stock options outstanding
Employee stock options outstanding 782,548 2,496,095
Less: Deferred employee compensation outstanding 393,570 1,549,011
388,978 947,084
SCHEDULE - 3
Reserves and surplus
Securities premium account
Opening balance 276,084,115 275,017,837
Add: Additions during the period / year 25,006,159 1,962,756
Less: Adjustment against share issue expenses – 896,478
Closing Balance 301,090,274 276,084,115
SCHEDULE - 4
Fixed assets
Intangible Assets - Computer Software
Gross Block
Additions during the period / year 974 –
Closing balance 974 –
Accumulated amortisation
For the period / year 365 –
Closing balance 365 –
Net Block 609 –
(All amounts are in thousand Indian Rupees, unless otherwise stated)
72 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Schedules to the Financial Statements Continued
SCHEDULE - 5
Exploratory work in progress
Additions during the period / year 1,353,867 8,879
Less: Unsuccessful exploration costs for the period / year 813,568 8,879
540,299 –
SCHEDULE - 6
Investments
Long term investments in Subsidiary Companies (at cost)
Unquoted, trade and fully paid-up
292,929,752 equity shares (previous year: 272,389,192 equity shares) of 290,524,514 289,083,710
GBP 1 each in Cairn India Holdings Limited, U.K.
2,509,960 equity shares (previous year: Nil) of USD 1 each in CIG Mauritius 121,980 –
Holding Pvt Limited
Current Investments (at lower of cost and market value)
Unquoted and non trade
Mutual Funds (Refer note no. 21 in Schedule 18 for details) * 1,607,472 5,053,575
292,253,966 294,137,285
Aggregate amount of unquoted investments 292,253,966 294,137,285
Repurchase price of mutual fund units, represented by Net Asset Value 1,607,472 5,114,006
* Includes unutilized monies of the public issue. (Refer note no. 5 in Schedule 18)
SCHEDULE - 7
Sundry Debtors
Debts outstanding for a period exceeding six months
– Unsecured, considered good 7,609 8,587
Other debts
– Unsecured, considered good 10,333 4,121
17,942 12,708
SCHEDULE - 8
Cash and bank balances
Cash in hand 15 –
Balances with scheduled banks *
– on current accounts 13,936 7,757
– on deposit accounts ** 27,618,811 –
27,632,762 7,757
* Includes unutilized monies of the public issue (refer note no.5 in Schedule 18)
** Includes INR 1,530,000 thousand, previous year Nil, pledged with the banks
(All amounts are in thousand Indian Rupees, unless otherwise stated)
As at As at
March 31, 2009 December 31, 2007
73
Schedules to the Financial Statements Continued
SCHEDULE - 9
Other current assets
Interest accrued on bank deposits 633,645 –
633,645 –
SCHEDULE - 10
Loans and advances
Unsecured considered good:
Advances recoverable in cash or in kind or for value to be received 12,855 417
Advances recoverable from subsidiary companies 192,795 663
Deposits 15,164 –
Advance income tax / tax deducted at source (Net of provisions Nil, previous year Nil) – 34,870
220,814 35,950
SCHEDULE - 11
Current liabilities
Sundry Creditors
– Total outstanding dues to Micro and Small Enterprises (refer note no. 20 in schedule 18) 6 –
– Total outstanding dues to other than Micro and Small Enterprises 97,773 111,964
Amounts payable to Cairn Energy Plc., the ultimate holding company 24,109 25,000
Amounts payable to subsidiary companies 753,778 –
Other liabilities 201,068 1,446
1,076,734 138,410
SCHEDULE - 12
Provisions
Provision for taxation (net of advance tax -INR 338,382 thousand, previous year Nil) 205,118 –
Provision for fringe benefit tax (net of advance tax payments INR 266,883 thousand, 105,235 320,231
previous year - INR 258 thousand)
Provision for gratuity 3,994 233
Provision for leave encashment 1,026 40
315,373 320,504
(All amounts are in thousand Indian Rupees, unless otherwise stated)
As at As atMarch 31, 2009 December 31, 2007
74 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
SCHEDULE - 13
Other income
Interest on bank deposits (Gross, tax deducted at source INR 304,879 thousand, 1,341,377 96,166
previous year INR 23,103 thousand)
Dividend from non-trade current investments 200,225 203,117
Profit on sale of non-trade current investments (net) 1,245,686 27,632
Miscellaneous income 61 –
Exceptional gain (refer note no. 8 in schedule 18) 155,723 –
2,943,072 326,915
SCHEDULE - 14
Staff costs
Salary, wages and bonus 74,089 19,904
Contribution to provident fund 3,314 349
Contribution to superannuation fund 1,716 904
Gratuity expenses 3,720 192
Leave encashment expenses 1,103 –
Staff welfare expenses 6,179 –
Employee compensation expense (stock options) 122,398 602,025
212,519 623,374
Fifteen months ended Twelve months endedMarch 31, 2009 December 31, 2007
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements Continued
75
Fifteen months ended Twelve months endedMarch 31, 2009 December 31, 2007
(All amounts are in thousand Indian Rupees, unless otherwise stated)
SCHEDULE - 15
Administrative expenses
Legal and professional expenses 254,050 109,461
Contract employee charges 4,517 –
Rent 1,377 –
Auditor’s remuneration
As Auditors
– Fees for statutory audit and consolidated financial statements 5,314 2,921
– Fees for tax audit 828 563
– Fees for limited review 7,595 1,014
– Fees for certification 506 –
– Fees for statutory reporting for parent companies consolidated 10,566 13,847
financial statements
– Other services 2,997 10,637
– Out of pocket expenses 443 28,249 552 29,534
Directors’ sitting fees 1,320 700
Advertisement and publicity 14,385 14,321
Public relation expenses 42,959 14,329
Sponsorship 15,666 –
Repairs and maintenance (others) 303 140
Travel expenses 30,954 1,308
Insurance expenses 197 –
Communication expenses 5,983 4,777
Share issue expenses (refer note no. 13 in schedule 18) 208,410 –
Exchange differences (net) 180,632 –
Miscellaneous expenses 4,552 268
793,554 174,838
SCHEDULE - 16
Finance costs
Interest on bank overdraft – 200
Other interest 388 –
Bank charges 3,058 9
3,446 209
SCHEDULE - 17
Earnings / (Loss) per share
Profit/(Loss) for the period / year as per profit and loss account 542,407 (788,166)
Weighted average number of equity shares in 1,866,146,993 1,777,001,292
calculating basic earning / (loss) per share
Add: Number of equity shares arising on grant of stock options 10,052,076 11,017,256
Weighted average number of equity shares in 1,876,199,069 1,788,018,548
calculating diluted earning / (loss) per share
Earning/(Loss) per share in INR
Basic 0.29 (0.44)
Diluted (previous year considered as anti-dilutive) 0.29 (0.44)
Schedules to the Financial Statements Continued
76 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
1. NATURE OF OPERATIONS
Cairn India Limited (‘the Company’) was incorporated in India on August 21, 2006 and is a subsidiary of Cairn UK Holdings Limited, which in turn
is a wholly owned subsidiary of Cairn Energy Plc., UK which is listed on London Stock Exchange.
The Company is primarily engaged in the business of surveying, prospecting, drilling, exploring, acquiring, developing, producing, maintaining,
refining, storing, trading, supplying, transporting, marketing, distributing, importing, exporting and generally dealing in minerals, oils, petroleum,
gas and related by-products and other activities incidental to the above. As part of its business activities, the Company also holds interests in its
subsidiary companies which have been granted rights to explore and develop oil exploration blocks in the Indian sub-continent.
The Company is participant in various Oil and Gas blocks/fields granted by the Government of India through Production Sharing Contracts (‘PSC’)
entered into between the Company and Government of India and other venture partners. The Company has interest in the following Oil and Gas
blocks/fields-
Oil and Gas blocks/fields Area Participating Interest
Operated block (through subsidiaries)
1 VN-ONN-2003/1* Vindhyan Onshore 25%
2 PR-OSN-2004 Palar Basin Offshore 25%
3 KG-ONN-2003/1* Krishna Godavari Onshore 25%
Non – operated block
4 RJ-ONN-2003/1* Rajasthan Onshore 30%
5 GS-OSN-2003/1* Gujarat Saurashtra Onshore 49%
6 KK-DWN-2004 Kerala Konkan Basin Offshore 40%
7 CB-ONN-2002/1* Cambay Onshore 30%
(proposed to be relinquished)
*Acquired during current period through assignment of interest from subsidiary companies
2. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The financial statements have been prepared to comply in all material respects with the mandatory Accounting Standards notified under the
Companies (Accounting Standard) Rules, 2006 under the historical cost convention and on an accrual basis. The accounting policies, in all material
respects, have been consistently applied by the Company and are consistent with those used in the previous period, except to the extent stated in
note no. 8 below.
(b) Oil and gas assets
The Company follows a successful efforts method for accounting for oil and gas assets as set out by the Guidance Note issued by the Institute of
Chartered Accountants of India (ICAI) on “Accounting for Oil and Gas Producing Activities”.
Expenditure incurred on the acquisition of a license interest is initially capitalised on a license by license basis. Costs are held, undepleted, within
exploratory and development wells in progress until the exploration phase relating to the license area is complete or commercial oil and gas
reserves have been discovered.
Exploration expenditure incurred in the process of determining exploration targets which cannot be directly related to individual exploration
wells, is expensed in the period in which it is incurred. Exploration/appraisal drilling costs are initially capitalised within exploratory and
development work in progress on a well by well basis until the success or otherwise of the well has been established. The success or failure of each
exploration/appraisal effort is judged on a well by well basis. Drilling costs are written off on completion of a well unless the results indicate that oil
and gas reserves exist and there is a reasonable prospect that these reserves are commercial.
Where results of exploration drilling indicate the presence of oil and gas reserves which are ultimately not considered commercially viable, all
related costs are written off to the profit and loss account. Following appraisal of successful exploration wells, when a well is ready for
commencement of commercial production, the related exploratory and development wells in progress are transferred into a single field cost centre
within producing properties, after testing for impairment.
Where costs are incurred after technical feasibility and commercial viability of producing oil and gas is demonstrated and it has been
determined that the wells are ready for commencement of commercial production, they are capitalised within producing properties for each cost
centre. Subsequent expenditure is capitalised when it enhances the economic benefits of the producing properties or replaces part of the existing
producing properties. Any costs remaining associated with such part replaced are expensed in the financial statements.
Net proceeds from any disposal of an exploration asset within exploratory and development work in progress is initially credited against the
previously capitalised costs and any surplus proceeds are credited to the profit and loss account. Net proceeds from any disposal of producing
properties are credited against the previously capitalised cost and any gain or loss on disposal of producing properties is recognised in the profit
and loss account, to the extent that the net proceeds exceed or are less than the appropriate portion of the net capitalised costs of the asset.
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
77
(c) Depletion
The expenditure on producing properties is depleted within each cost centre.
Depletion is charged on a unit of production basis, based on proved reserves for acquisition costs and proved and developed reserves for
other costs.
(d) Site restoration costs
At the end of the producing life of a field, costs are incurred in restoring the site of production facilities. The Company recognizes the full cost of
site restoration as a liability when the obligation to rectify environmental damage arises. The site restoration expense forms part of the cost of
producing properties of the related asset. The amortization of the asset, calculated on a unit of production basis based on proved and developed
reserves, is included in the “depletion and site restoration costs” in the profit and loss account.
(e) Impairment
i. The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external
factors. An impairment loss is recognized where the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is
the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value at the weighted average cost of capital.
ii. After impairment, depreciation/depletion is provided in subsequent periods on the revised carrying amount of the asset over its remaining
useful life.
(f) Other tangible fixed assets, depreciation and amortization
Tangible assets, other than oil and gas assets, are stated at cost, less accumulated depreciation and impairment losses, if any. Cost comprises the
purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition
of fixed assets which take a substantial period of time to get ready for its intended use are also included to the extent they relate to the period till
such assets are ready to be put to use. Depreciation is provided using the Straight Line Method as per the useful lives of the assets estimated by
the management, or at the rates prescribed under Schedule XIV of the Companies Act 1956, whichever is higher. The expected useful economic
lives are as follows:
Vehicles 2 to 5 years
Freehold buildings 10 years
Computers 2 to 5 years
Furniture and fixtures 2 to 5 years
Office equipments 2 to 5 years
Plant and Equipment 2 to 5 years
Leasehold improvements are amortized over the remaining period of the primary lease or expected useful economic lives, whichever is shorter.
(g) Intangible fixed assets and amortization
Intangible assets, other than oil and gas assets, have finite useful lives and are measured at cost and amortized over their expected useful
economic lives as follows:
Computer software 2 to 4 years
Goodwill arising on acquisition is capitalized and is subject to review for impairment.
(h) Leases
Finance leases, which effectively transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the
lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease
payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are
charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalised.
If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalised leased assets are
depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating
leases. Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term.
(i) Investments
Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. Current investments
are measured at cost or market value, whichever is lower, determined on an individual investment basis. All other investments are classified as
long-term investments. Long term investments are measured at cost. However, provision for diminution in value is made to recognise a decline
other than temporary in the value of the investments.
(j) Joint Ventures
The Company participates in several Joint Ventures which involve the joint control of assets used in the oil and gas exploration, development and
producing activities. It accounts for its share of the assets and liabilities of Joint Ventures along with attributable income and expenses in such Joint
Ventures, in which it holds a participating interest. Joint venture cash and cash equivalent balances are considered by the Company to be the
amounts contributed in excess of the Company’s obligations to the joint ventures and are, therefore, disclosed within loans and advances.
(k) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably
measured.
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
78 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Revenue from operating activities
The Company recognizes operators fees as revenue from joint ventures (in which its foreign subsidiaries are participants) based on the provisions
of respective PSCs.
Interest income
Interest income is recognised on a time proportion basis.
(l) Borrowing costs
Borrowing costs include interest and commitment charges on borrowings, amortisation of costs incurred in connection with the arrangement of
borrowings, exchange differences to the extent they are considered a substitute to the interest cost and finance charges under leases. Costs
incurred on borrowings directly attributable to development projects, which take a substantial period of time to complete, are capitalised within
the development/producing asset for each cost centre.
All other borrowing costs are recognised in the profit and loss account in the period in which they are incurred.
(m) Foreign currency transactions and translations
The Company translates foreign currency transactions into Indian Rupees at the rate of exchange prevailing at the transaction date. Monetary
assets and liabilities denominated in foreign currency are translated into Indian Rupees at the rate of exchange prevailing at the balance sheet
date. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at
the date of the transaction.
Exchange differences arising on the settlement of monetary items or on reporting the Company’s monetary items at rates different from those
at which they were initially recorded during the period, or reported in previous financial statements, are recognised as income or as expenses in
the period in which they arise except those arising from investments in non-integral operations.
All transactions of integral foreign operations are translated as if the transactions of those foreign operations were the transactions of the
Company itself. In translating the financial statements of a non-integral foreign operation for incorporating in the Company’s financial statements,
the Company translates the assets and liabilities at the rate of exchange prevailing at the balance sheet date. Income and expenses of non-integral
operations are translated using rates at the date of transactions. Resulting exchange differences are disclosed under the foreign currency
translation reserve until the disposal of the net investment in non-integral operations.
(n) Income taxes
Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax are measured at the amount
expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Fringe benefit tax also includes the proportionate
amount of tax likely to be paid by the Company, on the exercise of share options of the Company. Deferred income tax reflects the impact of
current period timing differences between taxable income and accounting income for the period and reversal of timing differences of earlier
periods.
Deferred tax assets and liabilities are measured, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. If the Company has carry forward of unabsorbed depreciation and tax losses, deferred tax
assets are recognised only if there is virtual certainty, supported by convincing evidence, that such deferred tax assets can be realised against
future taxable profits. Unrecognised deferred tax assets of earlier periods are re-assessed and recognised to the extent that it has become
reasonably certain that future taxable income will be available against which such deferred tax assets can be realised.
(o) Earnings Per Share
Basic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average
number of equity shares outstanding during the period. The weighted average number of equity shares outstanding during the period is adjusted
for events of bonus issue, bonus element in a rights issue to existing shareholders, share split and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the
weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares, if any.
(p) Provisions
A provision is recognised when the Company has a present obligation as a result of past event and it is probable that an outflow of resources will
be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are
determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and
adjusted to reflect the current best estimates.
(q) Cash and Cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short-term investments, with an original maturity of
90 days or less.
(r) Employee Benefits
Retirement and Gratuity benefits
Retirement benefits in the form of provident fund and superannuation scheme are defined contribution schemes and the contributions are
charged to the profit and loss account of the period when the contributions to the respective funds are due. There are no obligations other than
the contribution payable to the respective funds.
Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made
at the end of each financial year. The scheme is maintained and administered by an insurer for the entire Cairn India Group to which the trustees
make periodic contributions.
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
79
Short term compensated absences are provided for based on estimates. Long term compensated absences are provided for based actuarial
valuation made at the end of each financial year. The actuarial valuation is done as per projected unit credit method.
Actuarial gains / losses are immediately taken to profit and loss account and are not deferred.
Employee Stock Compensation Cost
Measurement and disclosure of the employee share-based payment plans is done in accordance with SEBI (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on Accounting for Employee Share-based Payments, issued by the
Institute of Chartered Accountants of India. The Company measures compensation cost relating to employee stock options using the intrinsic
value method. Compensation expense is amortized over the vesting period of the option on a straight line basis.
(s) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements
and the results of operations during the reporting period end. Although these estimates are based upon management’s best knowledge of current
events and actions, actual results could differ from these estimates.
(t) Segment Reporting Policies
Identification of segments: The Company’s operating businesses are organized and managed separately according to the nature of products and
services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The
analysis of geographical segments is based on the areas in which major operating divisions of the Company operate.
3. SEGMENTAL REPORTING
Business segments
The primary reporting of the Company has been prepared on the basis of business segments. The Company has only one business segment,
which is the exploration, development and production of oil and gas and operates in a single business segment based on the nature of the
products, the risks and returns, the organisation structure and the internal financial reporting systems. Accordingly, the figures appearing in these
financial statements relate to the Company’s single business segment.
Geographical segments
Secondary segmental reporting is prepared on the basis of the geographical location of customers. The operating interests of the Company are
confined to India in terms of oil and gas blocks and customers. Accordingly, the figures appearing in these financial statements relate to the
Company’s single geographical segment being operations in India.
4. RELATED PARTY TRANSACTIONS
(a) Names of related parties:
Companies having control
• Cairn UK Holdings Limited, UK • Cairn Energy Plc., UK
Holding Company Ultimate holding company
Subsidiary companies
• Cairn Energy Australia Pty Limited • Cairn Energy India Pty Limited
• CEH Australia Pty Limited • Cairn Energy Asia Pty Limited
• Sydney Oil Company Pty Limited • Cairn Energy Investments Australia Pty Limited
• Wessington Investments Pty Limited • CEH Australia Limited
• Cairn India Holdings Limited (‘CIHL’) • CIG Mauritius Holding Private Limited (‘CMHPL’) –
• CIG Mauritius Private Limited – with effect from 1st July 2008 with effect from 1st July 2008
• Cairn Energy Holdings Limited • Cairn Energy Discovery Limited
• Cairn Exploration (No. 2) Limited • Cairn Exploration (No. 6) Limited
• Cairn Energy Hydrocarbons Limited • Cairn Petroleum India Limited
• Cairn Energy Gujarat Block 1 Limited • Cairn Exploration (No. 4) Limited
• Cairn Exploration (No. 7) Limited • Cairn Energy Development Pte Limited –
• Cairn Lanka Private Limited – with effect from 3rd July 2008 with effect from 16th July 2008
• Cairn Energy Group Holdings BV • Cairn Energy India West BV
• Cairn Energy India West Holding BV • Cairn Energy Gujarat Holding BV
• Cairn Energy India Holdings BV • Cairn Energy Netherlands Holdings BV
• Cairn Energy Gujarat BV • Cairn Energy Cambay BV
• Cairn Energy Cambay Holding BV
Key Managerial Personnel
• Rahul Dhir • Winston Frederick Bott Jr. Executive Director
Managing Director and Chief Executive Officer and Chief Operating Officer (Appointed on 29th April 2008)
• Indrajit Banerjee • Lawrence Smyth
Executive Director and Chief Financial Officer Executive Director and Chief Operating Officer (Appointed on
(Appointed on 1st March 2007) 1st March 2007 and resigned on 21st January 2008)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
80 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
(b) Transactions during the period/year:
Nature of the Transactions Related Party Current period Previous year
Expenses incurred by related party on Cairn Energy India Pty Limited 93,757 858
behalf of the Company
Expenses incurred by the Company Cairn Energy India Pty Limited 256,499 1,100
on behalf of related party
Cairn Energy Plc. 854 Nil
CIG Mauritius Holding Private Limited 491 Nil
CIG Mauritius Private Limited 264 Nil
Cairn Energy Gujarat Block 1 Limited 10,648 Nil
Cairn Exploration (No. 4) Limited 100 Nil
Cairn Exploration (No. 7) Limited 13,668 Nil
Cairn Lanka Private Limited 881 Nil
Cairn Energy Hydrocarbons Limited 30,597 Nil
Total 314,002 1,100
Equity contributions made during the period Cairn India Holdings Limited 1,440,804 22,265,000
CIG Mauritius Holding Private Limited 121,980 Nil
Total 1,562,784 22,265,000
Assignment of interest in oil & gas blocks from Cairn Energy Gujarat Block 1 Limited 89,513 Nil
Cairn Exploration (No. 2) Limited 302,085 Nil
Cairn Exploration (No. 4) Limited 68,462 Nil
Cairn Exploration (No. 6) Limited 7,164 Nil
Cairn Exploration (No. 7) Limited 160,166 Nil
Total 627,390 Nil
Recovery of share option charge Cairn Energy India Pty Limited 140,617 Nil
Shares issued including premium and Cairn UK Holding Ltd Nil 2,093,607
stock option charge
Rahul Dhir 716,185 Nil
Lawrence Smyth 126,758 Nil
Total 842,943 2,093,607
Remuneration Rahul Dhir 3,000 2,400
Winston Frederick Bott Jr. 950 Nil
Indrajit Banerjee 2,250 1,500
Lawrence Smyth Nil 1,800
Total 6,200 5,700
(c) Balances outstanding as at the end of the period/year:
Nature of the Balance Related Party 31st March 2009 31st December 2007
Accounts receivable Cairn Energy India Pty Limited 160,563 663
CIG Mauritius Holding Private Limited 491 Nil
CIG Mauritius Private Limited 264 Nil
Cairn Lanka Private Limited 881 Nil
Cairn Energy Hydrocarbons Limited 30,596 Nil
Total 192,795 663
Accounts payable Cairn Energy Plc. 24,109 25,000
Cairn Energy Gujarat Block 1 Limited 102,552 Nil
Cairn Exploration (No. 2) Limited 367,147 Nil
Cairn Exploration (No. 4) Limited 86,635 Nil
Cairn Exploration (No. 6) Limited 9,558 Nil
Cairn Exploration (No. 7) Limited 187,886 Nil
Total 777,887 25,000
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
81
Remuneration payable Rahul Dhir Nil 3,261
Winston Frederick Bott Jr. Nil Nil
Indrajit Banerjee Nil 1,500
Lawrence Smyth Nil 1,800
Total Nil 6,561
Note: The remuneration to the key managerial personnel does not include the provisions made for gratuity and leave encashment benefits, as they
are determined on an actuarial basis for the Company as a whole.
5. As at 31st March 2009, the Company and its subsidiaries together have utilized INR 82,563,170 thousand (previous year – 71,682,135 thousand)
for the purposes listed in the prospectus issued for the Initial Public Offer. The details of utilization of funds is as follows-
Particulars Upto 31st March 2009 Upto 31st December 2007
Acquisition of shares of Cairn India Holdings Limited from Cairn UK Holdings Limited 59,580,837 59,580,837
Exploration and development expenses 21,152,714 10,411,239
General corporate purposes 230,000 90,440
Issue expenses 1,599,619 1,599,619
Total 82,563,170 71,682,135
The details of the unutilized monies out of the public issue proceeds is as follows-
Particulars 31st March 2009 31st December 2007
Mutual funds 718,277 7,337,856
Balances with banks 4,967,454 9,228,910
Total 5,685,731 16,566,766
6. EMPLOYEES STOCK OPTION PLANS
The Company has provided various share-based payment schemes to its employees. During the period ended 31st March 2009, the following
schemes were in operation-
Particulars CISMP CIPOP CIESOP
Date of Board Approval 17th Nov 2006 17th Nov 2006 17th Nov 2006
Date of Shareholder’s approval 17th Nov 2006 17th Nov 2006 17th Nov 2006
Number of options granted till March 2009 8,298,713 5,732,956 12,792,651
Method of Settlement Equity Equity Equity
Vesting Period Refer vesting conditions below 3 years from grant date 3 years from grant date
Exercise Period 18 months from vesting 3 months from vesting date 7 years from vesting date
Number of options granted till March 2009
24th Nov 2006 8,298,713 – –
1st Jan 2007 – 1,708,195 3,467,702
20th Sept 2007 – 3,235,194 5,515,053
29th July 2008 – 789,567 3,773,856
10th Dec 2008 – – 36,040
Total 8,298,713 5,732,956 12,792,651
The vesting conditions of the above plans are as under-
CISMP plan
(a) 6,714,233 options are to be vested in the following manner-
– 1/3rd of the options will vest on the day following the date on which the equity shares have been admitted to listing on the Stock
Exchanges (‘admission date’). Listing date was 9th Jan 2007.
– 1/3rd of the options will vest 18 months after the admission date.
– 1/3rd of the options will vest on achieving 30 days’ consecutive production of over 150,000 bopd from the Rajasthan Block.
(b) 1,584,480 options are to be vested in the following manner-
– 1/2 of the options will vest on the day following the date on which the equity shares have been admitted to listing on the Stock
Exchanges.
– 1/4th of the options will vest on the date on which all major equipment for the start-up of the Mangala field is delivered to site.
– 1/4th of the options will vest on achieving 100,000 boepd from the Mangala Field.
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Nature of the Balance Related Party 31st March 2009 31st December 2007
82 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
CIPOP plan
Options will vest (i.e become exercisable) at the end of a “performance period” which will be set by the remuneration committee at the time of
grant (although such period will not be less than three years). However, the percentage of an option which vests on this date will be determined
by the extent to which pre-determined performance conditions have been satisfied.
CIESOP plan
There are no specific vesting conditions under CIESOP plan.
Details of activities under Employees Stock Option Plans
CISMP Plan Current period Previous year
Number Weighted average Number Weighted averageof options exercise of options exercise
Price in INR Price in INR
Outstanding at the beginning of the year 8,298,713 33.70 8,298,713 33.70
Granted during the year Nil NA Nil NA
Forfeited during the year Nil NA Nil NA
Exercised during the year 5,268,396 33.70 Nil NA
Expired during the year 792,240 33.70 Nil NA
Outstanding at the end of the year 2,238,077 33.70 8,298,713 33.70
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options granted 131.50 NA 131.50 NA
on the date of grant (INR)
The weighted average share price on the dates of exercise of stock options was INR 220.09
CIPOP Plan Current period Previous year
Number Weighted average Number Weighted averageof options exercise of options exercise
Price in INR Price in INR
Outstanding at the beginning of the year 4,755,244 10.00 Nil NA
Granted during the year 789,567 10.00 4,943,389 10.00
Forfeited during the year Nil NA Nil NA
Exercised during the year Nil NA Nil NA
Expired during the year 2,344,715 10.00 188,145 10.00
Outstanding at the end of the year 3,200,096 10.00 4,755,244 10.00
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options granted 165.46 NA 165.46 NA
on the date of grant (INR)
CIESOP Plan Current period Previous yearNumber Weighted average Number Weighted average
of options exercise of options exercise
Price in INR Price in INR
Outstanding at the beginning of the year 8,545,710 164.49 Nil NA
Granted during the year 3,809,896 226.21 8,982,755 164.27
Forfeited during the year Nil NA Nil NA
Exercised during the year Nil NA Nil NA
Expired during the year 1,441,362 169.33 437,045 160.00
Outstanding at the end of the year 10,914,244 185.39 8,545,710 164.49
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options granted 101.47 NA 89.40 NA
on the date of grant (INR)
83
The details of exercise price for stock options outstanding as at March 31, 2009 are:
Scheme Range of No. of Weighted average Weighted
exercise options remaining contractual average
price (INR) outstanding life of options exercise
(in years) price (INR)
CISMP Plan 33.70 2,238,077 2.08 33.70
CIPOP Plan 10.00 3,200,096 1.51 10.00
CIESOP Plan 143-227 10,914,244 1.60 185.39
The details of exercise price for stock options outstanding as at December 31, 2007 are:
CISMP Plan 33.70 8,298,713 1.04 33.70
CIPOP Plan 10.00 4,755,244 2.49 10.00
CIESOP Plan 160-166.95 8,545,710 2.47 164.49
Inputs for Fair valuation of Employees Stock Option Plans
The Share Options have been fair valued using an Option Pricing Model (Black Scholes Model). The main inputs to the model and the Fair Value
of the options, based on an independent valuation, are as under:
Variables - CISMP A B
Grant date 24th Nov 2006 24th Nov 2006
Stock Price/fair value of the equity shares on the date of grant (INR) 160.00 160.00
Vesting date Refer vesting Refer vesting
conditions conditions
Vesting % Refer vesting Refer vesting
conditions conditions
Volatility (Weighted average) 44.08% 46.59%
Risk free rate (Weighted average) 7.05% 6.94%
Time to maturity in years (Weighted average) 2.45 2.00
Exercise price – INR 33.70 33.70
Fair Value of the options (Weighted average) - INR 131.69 130.69
Variables – CIESOP
Grant date 1st Jan 2007 20th Sept 2007 29th July 2008 10th Dec 2008
Stock Price/fair value of the equity shares on 160.00 166.95 228.55 150.10
the date of grant (INR)
Vesting date 1st Jan 2010 20th Sept 2010 29th July 2011 10th Dec 2011
Vesting % 100% 100% 100% 100%
Volatility 41.04% 40.24% 39.43% 38.19%
Risk free rate 7.50% 7.65% 9.20% 6.94%
Time to maturity (years) 6.50 6.50 6.50 6.50
Exercise price (INR) 160.00 166.95 227.00 143.00
Fair Value of the options (INR) 87.30 90.72 130.42 79.80
Variables – CIPOP
Grant date 1st Jan 2007 20th Sept 2007 29th July 2008
Stock Price/fair value of the equity shares on 160.00 166.95 228.55
the date of grant (INR)
Vesting date 1st Jan 2010 20th Sept 2010 29th July 2011
Vesting % Refer vesting Refer vesting Refer vesting
conditions conditions conditions
Volatility 41.61% 36.40% 37.49%
Risk free rate 7.33% 7.23% 9.37%
Time to maturity (years) 3.12 3.12 3.12
Exercise price (INR) 10.00 10.00 10.00
Fair Value of the options (INR) 152.05 158.97 221.09
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
84 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Volatility is the measure of the amount by which the price has fluctuated or is expected to fluctuate during the period. The measure of volatility
used in Black-Scholes option-pricing model is the annualized standard deviation of the continuously compounded rates of return on the stock over
a period of time. Time to maturity /expected life of options is the period for which the Company expects the options to be live. The time to
maturity has been calculated as an average of the minimum and maximum life of the options.
Effect of Employees Stock Option Plans on Financial Position
Effect of the employee share-based payment plans on the profit and loss account and on its financial position:
Particulars Current Period Previous Year
Total Employee Compensation Cost pertaining to equity settled share-based (33,325) 602,025
payment plans (including exceptional gain of INR 155,723 thousand in the
current period-refer note no. 8 below)
Liability for employee stock options outstanding as at period / year end 388,978 947,084
Deferred Compensation Cost 393,570 1,549,011
Impact of Fair Valuation Method on net profits and EPS
In March 2005, the Institute of Chartered Accountants of India has issued a guidance note on "Accounting for Employees Share Based Payments"
applicable to employee based share plan the grant date in respect of which falls on or after April 1, 2005. The said guidance note requires the
Proforma disclosures of the impact of the fair value method of accounting of employee stock compensation accounting in the financial statements.
Applying the fair value based method defined in the said guidance note, the impact on the reported net profit and earnings per share would be as
follows:
Particulars Current Period
Profit as reported 542,407
Add: Employee stock compensation under intrinsic value method (33,325)
(net of exceptional gain of INR 155,723 thousand-refer note no. 8 below)
Less: Employee stock compensation under fair value method 451,826
Proforma profit 57,256
Earnings Per Share in INR
Basic
– As reported 0.29
– Proforma 0.03
Diluted
– As reported 0.29
– Proforma 0.03
7. The Company has offered certain share options to some of the employees of one of its subsidiary companies and it was bearing the charge in its
profit and loss account till 31st March 2008. With effect from 1st April 2008, the management decided that this charge would be borne by the
immediate employer company of those employees. Accordingly, the stock option charge for the current period is lower and the profit after tax is
higher by INR 140,617 thousand.
8. During the current period, the Company decided to retrospectively account for stock options using the Intrinsic Value Method as against the Fair
Value Method (Black Scholes) followed till the financial year ended 31st December 2007. Accordingly, the excess stock option provision up to
31st December 2007 was reversed during the current period ended 31st March 2009, resulting in an exceptional gain of INR 155,723 thousand.
Further, the stock option charge for the current period is lower and the profit after tax is higher by INR 485,151 thousand (including exceptional
gain of INR 155,723 thousand) due to this change.
9. LEASE OBLIGATIONS DISCLOSURES
Operating Lease
The Joint Ventures, in which the Company has participating interest, have entered into operating lease for equipments. All such leases are
cancellable in nature. There are neither escalation clauses nor any restrictions in the lease agreements. There are no subleases.
Particulars 31st March 2009 31st December 2007
Lease rentals recognized during the period 7,255 Nil
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
85
10. DERIVATIVE INSTRUMENTS AND UNHEDGED FOREIGN CURRENCY EXPOSURE
The Company did not take any derivative instruments during the current period / previous year. Particulars of unhedged foreign currency
exposures are as follows-
Particulars 31st March 2009 31st December 2007
Sundry debtors 17,942 12,708
Current assets 16,925 Nil
Current liabilities 785,562 25,000
11. The Company has a gratuity plan, wherein every employee who has completed five years or more of service gets a gratuity on departure at 15
days salary (last drawn salary) for each completed year of service. The gratuity plan of the Company is an unfunded scheme. However, one of the
subsidiary companies has taken an insurance policy with the Life Insurance Corporation of India to cover the gratuity liability of the entire group.
The following tables summarize the components of net benefit expense recognised in the profit and loss account and the amounts recognised in
the balance sheet for the gratuity plans.
Profit and Loss account
Net employee benefit expense (recognised in Employee Cost)
Particulars 31st March 2009
Current service cost 1,011
Interest cost on benefit obligation 200
Net actuarial (gain) / loss recognised in the year 2,509
Past service cost Nil
Net benefit expense 3,720
Balance sheet
Details of Provision for Gratuity
Particulars 31st March 2009
Defined benefit obligation 3,994
Less: Unrecognized past service cost Nil
Plan asset / (liability) (3,994)
Changes in the present value of the defined benefit obligation are as follows:
Particulars 31st March 2009
Opening defined benefit obligation 274
Current service cost 1,011
Interest cost 200
Benefits paid Nil
Actuarial (gains) / losses on obligation 2,509
Closing defined benefit obligation 3,994
The principal assumptions used in determining gratuity liability for the Group's plans are shown below:
Particulars 31st March 2009
Discount rate 7.00 %
Future salary increase 10.00 %
Employee turnover 13.13 %
Mortality Rate LIC (1994-96) Ultimate Table
Note: The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant
factors, such as supply and demand in the employment market.
Gratuity liabilities for the current period are as follows:
Particulars 31st March 2009
Defined benefit obligation 3,994
Surplus / (deficit) (3,994)
Experience adjustments on plan liabilities (loss) / gain (45)
Note - The Company has adopted AS-15 (Revised 2005) Employee Benefits for the first time during the current period, as the liability as at
31st December 2007 was not material. Disclosures required by paragraph 120 (n) of AS-15 (Revised 2005) are required to be furnished
prospectively from the date of transition and hence have been furnished for the current period only.
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
86 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
12. DETAILS OF MOVEMENT IN SHARE CAPITAL IS AS UNDER
Date Number Description Issue price Share capital Securities
of equity shares in INR premium
of INR 10 each
31st December 2006 1,765,314,379 Closing balance 17,653,144 275,017,837
8th February 2007 13,085,041 Issued under Green Shoe Option 160.00 130,850 1,962,756
Less: Share issue expenses
adjusted against premium (896,478)
31st December 2007 1,778,399,420 17,783,994 276,084,115
7th March 2008 792,240 Exercise of stock options 33.70 7,922 18,776
22nd April 2008 113,000,000 Preferential allotment of
shares to non promoter investors 224.30 1,130,000 24,215,900
7th May 2008 525,000 Exercise of share options 33.70 5,250 12,443
27th May 2008 1,713,078 Exercise of share options 33.70 17,131 40,600
8th December 2008 1,600,000 Exercise of share options 33.70 16,000 37,920
19th December 2008 638,078 Exercise of share options 33.70 6,381 15,122
Add : Share options liability transferred
to securities premium upon exercise of
the options 665,398
31st March 2009 1,896,667,816 18,966,678 301,090,274
13. Share issue expenses of INR 208,410 thousand incurred on the preferential allotment of 113,000,000 equity shares have been charged to the
profit and loss account and not adjusted from the securities premium account on conservative basis.
14. In accordance with the provisions of Accounting Standard 22 'Accounting for taxes on income', the Company would have had deferred tax assets
of approximately INR 511,000 thousand, primarily comprising of accumulated tax losses and unamortized issue expenses. However, as the
management is not virtually certain of subsequent realization of the asset, no deferred tax asset has been computed or recognized in these
financial statements.
15. MANAGERIAL REMUNERATION
Remuneration paid or payable to the Directors Current period Previous year
Salary and other benefits 6,200 5,700
Sitting fees 1,320 700
Total 7,520 6,400
Note - As the future liability for gratuity and leave encashment is provided on actuarial basis for the Company, the amount pertaining to the
directors is not ascertainable and therefore, not included above.
16. EARNINGS IN FOREIGN CURRENCY (ACCRUAL BASIS)
Particulars Current period Previous year
Parent company overhead 37,331 12,708
Interest 249 Nil
Total 37,580 12,708
17. EXPENDITURE IN FOREIGN CURRENCY (ACCRUAL BASIS)
Particulars Current period Previous year
Professional fees 128,251 26,776
Exploration cost 279,599 Nil
Assignment of interest in oil and gas blocks 627,390 Nil
Other expenses 1,072 Nil
Total 1,036,312 26,776
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
87
18. The Company has neither imported any goods nor consumed any stores and spares during the current period/previous year. Further, none of the
joint ventures where the Company has participating interest has commenced commercial production. Accordingly, no additional disclosures, other
than those furnished, are required in terms of paragraphs 3, 4C and 4D of Part-II of Schedule-VI to the Companies Act, 1956.
19. CAPITAL COMMITMENTS (NET OF ADVANCES)
Particulars 31st March 2009 31st December 2007
Company's share of Joint Ventures' Exploration and Development activities 3,517,376 Nil
20. DETAILS OF DUES TO MICRO, SMALL AND MEDIUM ENTERPRISES AS PER MSMED ACT, 2006
31st March 2009 31st December 2007
The principal amount (interest-nil) remaining unpaid to any supplier as at the end of each accounting year 6 Nil
The amount of interest paid by the buyer in terms of section 16, of the Micro Small and Medium Nil Nil
Enterprise Development Act, 2006 along with the amounts of the payment made to the supplier
beyond the appointed day during each accounting year
The amount of interest due and payable for the period of delay in making payment (which have Nil Nil
been paid but beyond the appointed day during the year) but without adding the interest specified
under Micro Small and Medium Enterprise Development Act, 2006.
The amount of interest accrued and remaining unpaid at the end of each accounting year; and Nil Nil
The amount of further interest remaining due and payable even in the succeeding years, Nil Nil
until such date when the interest dues as above are actually paid to the small enterprise for the
purpose of disallowance as a deductible expenditure under section 23 of the Micro Small and
Medium Enterprise Development Act, 2006
21. CURRENT INVESTMENTS - UNQUOTED AND NON TRADE:
The details of investments in mutual fund units are as tabulated under:
31st March 2009
1 63,626,783.898 units, face value of Rs.10 each, of Birla Cash Plus - Institutional Premium- 637,509
Daily Dividend Reinvestment plan
2 21,126,234.606 units, face value of Rs.10 each, of HDFC Liquid Fund - Premium Plan- 259,003
Daily Dividend Reinvestment plan
3 26,081,125.863 units, face value of Rs.10 each, of ICICI Prudential Institutional Liquid Plan - 260,824
Super Iinst- Daily Dividend Reinvestment plan
4 15,494,677.273 units, face value of Rs.10 each, of Reliance Liquid Fund - Treasury Plan- 236,870
Institutional Option- Daily Dividend Reinvestment plan
5 191,352.168 units, face value of Rs.1000 each, of Tata Liquid Fund - SHIP- Daily Dividend 213,266
Reinvestment plan
Total 1,607,472
31st December 2007
1 20,594,145.28 units, face value Rs 10 each, of ABN AMRO Mutual Fund of ABN AMRO 238,367
Money Plus Fund-Institutional Plan-Growth Option
2 51,971,029.11 units, face value Rs 10 each, of Birla Sun Life Mutual Fund under Birla Sun Life 763,907
Liquid Plus-Institutional Plan - Growth Option
3 225,723.55 units, face value Rs 1,000 each, of DSP Merrill Lynch Mutual Fund under DSP 250,000
Merrill Lynch Liquid Plus Fund - Institutional Plan - Growth Option
4 28,699,826.62 units, face value Rs 10 each, of HDFC Mutual Fund under HDFC Floating 380,692
Rate Income Fund-Short Term Plan - Wholesale Option - Growth
5 17,009,296.46 units, face value Rs 10 each, of HDFC Mutual Fund under HDFC Cash 290,000
Management Savings Plus - Wholesale Plan Growth Option
6 23,353,354.94 units, face value Rs 10 each, of HDFC Mutual Fund under HDFC 250,000
Quarterly Interval Fund-Plan A Wholesale Growth
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
88 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
7 43,733,776.21 units, face value Rs 10 each, of ICICI Prudential Mutual Fund under 502,628
ICICI Prudential Floating Plan D - Growth
8 19,998,847.30 units, face value Rs 10 each, of ICICI Prudential Mutual Fund under 290,047
ICICI Prudential Flexible Income Plan - Growth
9 47,430,680.06 units, face value Rs 10 each, of ING Mutual Fund under ING Liquid 500,000
Plus Fund - Institutional Growth Option
10 242,823.20 units, face value Rs 10 each, of Reliance Mutual Fund under Reliance 255,450
Liquid Plus Fund - Institutional Option - Growth Plan
11 23,960,359.98 units, face value Rs 10 each, of Reliance Mutual Fund under Reliance
Quarterly Interval Fund-Series III -Institutional Growth Plan 250,000
12 20,000,000.00 units, face value Rs 10 each, of SBI Mutual Fund under SBI Debt Fund 200,000
Series - 90 Days - November 2007 - Growth
13 55,482,327.99 units, face value Rs 10 each, of Tata Mutual Fund under 639,784
Tata Floater Fund - Growth
14 20,898,812.55 units, face value Rs 10 each, of Franklin Templeton Mutual Fund under 242,700
Templeton Floating Rate Income Fund Short Term Plan Institutional Option - Growth
TOTAL 5,053,575
The following mutual fund units were purchased and sold during the current period :-
1 288,767,315.348 units of Birla Sunlife mutual fund under Birla Sunlife Cash Plus - Institutional Premium - Daily Dividend Reinvestment
2 396,375,092.433 units of Birla Sunlife mutual fund under Birla Sunlife Cash Plus - Institutional Premium - Growth
3 22,951,572.183 units of Birla Sunlife mutual fund under Birla Sunlife Interval Income - Institutional - Quarterly - Series 2 - Growth
4 76,578,714.912 units of Birla Sunlife mutual fund under Birla Sunlife Liquid Plus - Institutional - Daily Dividend Reinvestment
5 185,222,322.210 units of Birla Sunlife mutual fund under Birla Sunlife Liquid Plus - Institutional - Growth
6 15,000,000.000 units of Canara Robeco mutual fund under Canara Robeco FMP - Series 3 - 90 Days - IP - Growth
7 48,919,527.434 units of Canara Robeco mutual fund under Canara Robeco Liquid Plus Super Institutional - Daily Dividend Reinvestment
8 31,366,504.158 units of Fidelity mutual fund under Fidelity Cash - SIP - Growth
9 62,263,785.752 units of Fidelity mutual fund under Fidelity Liquid Plus - SIP - Daily Dividend Reinvestment
10 57,042,071.083 units of Fidelity mutual fund under Fidelity Liquid Plus - SIP - Growth
11 128,735,016.559 units of HDFC mutual fund under HDFC Cash Mgmt - Savings Plan - Daily Dividend Reinvestment
12 193,231,349.459 units of HDFC mutual fund under HDFC Cash Mgmt - Savings Plus Plan - Wholesale - Daily Dividend Reinvestment
13 174,864,026.065 units of HDFC mutual fund under HDFC Cash Mgmt - Savings Plus Plan - Wholesale - Growth
14 166,891,417.599 units of HDFC mutual fund under HDFC Floating Rate Income - Short Term Plan - Wholesale - Daily Dividend Reinvestment
15 193,913,572.172 units of HDFC mutual fund under HDFC Floating Rate Income - Short Term Plan - Wholesale - Growth
16 24,000,000.000 units of HDFC mutual fund under HDFC FMP 90D (VIII)(3) - Wholesale - Growth
17 62,847,681.039 units of HDFC mutual fund under HDFC Liquid - Premium Plan - Daily Dividend Reinvestment
18 303,956,967.062 units of HDFC mutual fund under HDFC Liquid - Premium Plan - Growth
19 41,003,275.892 units of HDFC mutual fund under HDFC Liquid - Premium Plus Plan - Weekly Dividend Reinvestment
20 23,586,685.788 units of HDFC mutual fund under HDFC Quarterly Interval -Plan B Wholesale Growth - Growth
21 106,509,667.336 units of HSBC mutual fund under HSBC Cash - Inst Plus - Daily Dividend Reinvestment
22 155,825,133.036 units of HSBC mutual fund under HSBC Cash - Inst Plus - Growth
23 146,239,354.262 units of HSBC mutual fund under HSBC Liquid Plus - IP - Daily Dividend Reinvestment
(All amounts are in thousand Indian Rupees, unless otherwise stated)
31st December 2007
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
89
24 229,632,812.180 units of HSBC mutual fund under HSBC Liquid Plus - IP - Growth
25 150,719,932.352 units of ICICI Prudential mutual fund under ICICI Prudential Flexible Income Plan - Daily Dividend Reinvestment
26 208,534,658.087 units of ICICI Prudential mutual fund under ICICI Prudential Flexible Income Plan - Growth
27 32,963,478.576 units of ICICI Prudential mutual fund under ICICI Prudential FRF - Plan D - Growth
28 475,076,846.158 units of ICICI Prudential mutual fund under ICICI Prudential Inst Liquid Plan - Super Iinst - Daily Dividend Reinvestment
29 446,678,299.784 units of ICICI Prudential mutual fund under ICICI Prudential Inst Liquid Plan - Super Iinst - Growth
30 24,485,318.603 units of ICICI prudential mutual fund under ICICI Prudential Interval II Quarterly Interval Plan B - Retail Cumulative - Growth
31 49,165,295.525 units of IDFC mutual fund under IDFC Cash - Super Institutional Plan C - Daily Dividend Reinvestment
32 81,765,529.637 units of IDFC mutual fund under IDFC Floating Rate -LT-Inst Plan B - Growth
33 24,000,000.000 units of IDFC mutual fund under IDFC FMP Qtr Series 31 - Growth
34 64,428,611.450 units of IDFC mutual fund under IDFC Liquid Plus - Investment Plan - Inst Plan B - Daily Dividend Reinvestment
35 15,341,933.611 units of IDFC mutual fund under IDFC Quarterly Interval - Plan A - Inst - Daily Dividend Reinvestment
36 15,984,796.682 units of IDFC mutual fund under IDFC Quarterly Interval - Plan A - Inst - Growth
37 18,000,000.000 units of ING mutual fund under ING Interval - Quarterly-C-Institutional - Growth
38 115,482,013.676 units of ING mutual fund under ING Liquid Super Institutional - Growth
39 128,337,221.108 units of ING mutual fund under ING Liquid Plus - Institutional - Growth
40 23,518,230.356 units of ING mutual fund under ING Vysya Liquid Plus - IP - Growth
41 66,088,564.716 units of JP Morgan mutual fund under JP Morgan India Liquid Plus - Growth
42 20,913,376.793 units of Kotak Mahindra mutual fund under Kotak Liquid - Institutional Premium - Growth
43 3,165,848.830 units of Principal mutual fund under Principal Cash Mgmt LO- Institutional Plan - Growth
44 50,350,377.553 units of Principal mutual fund under Principal Cash Mgmt LO- Institutional Premium Plan - Daily Dividend Reinvestment
45 150,114,424.840 units of Principal mutual fund under Principal Floating Rate - FMP - Institutional - Daily Dividend Reinvestment
46 197,490,161.056 units of Principal mutual fund under Principal Floating Rate - FMP - Institutional - Growth
47 20,583,956.929 units of Reliance mutual fund under Reliance Liquid - Treasury Plan-Institutional Option - Daily Dividend Reinvestment
48 82,564,434.800 units of Reliance mutual fund under Reliance Liquid - Treasury Plan-Institutional Option - Growth
49 2,052,210.472 units of Reliance mutual fund under Reliance Liquid Plus - Institutional - Daily Dividend Reinvestment
50 2,380,813.521 units of Reliance mutual fund under Reliance Liquid Plus - Institutional - Growth
51 23,091,764.916 units of Reliance mutual fund under Reliance Liquidity - Daily Dividend Reinvestment
52 36,180,904.523 units of Reliance mutual fund under Reliance Liquidity - Growth
53 158,916,208.254 units of Reliance mutual fund under Reliance Medium Term - Daily Dividend Reinvestment
54 21,680,412.651 units of Reliance mutual fund under Reliance Monthly Interval - Series I Institutional - Growth
55 23,407,582.184 units of Reliance mutual fund under Reliance Quarterly Interval - Series II Institutional - Growth
56 29,168,603.376 units of SBI mutual fund under SBI Magnum Insta Cash - Daily Dividend Reinvestment
57 20,444,600.000 units of SBI mutual fund under SBI SDFS - 90 Days - Growth
58 98,778,981.505 units of SBI mutual fund under SBI SHF - Liquid Plus - IP - Daily Dividend Reinvestment
59 233,026,708.605 units of SBI mutual fund under SBI SHF - Liquid Plus - IP - Growth
60 859,254.684 units of Standard Chartered mutual fund under Standard Chartered Liquidity Manager Plus - Growth
61 259,059,637.734 units of Tata mutual fund under Tata Floater - Daily Dividend Reinvestment
62 206,755,712.884 units of Tata mutual fund under Tata Floater - Growth
63 38,774,117.501 units of Tata mutual fund under Tata Floating Rate - STP - Institutional Plan - Growth
64 2,457,011.120 units of Tata mutual fund under Tata Liquid - SHIP - Daily Dividend Reinvestment
65 329,826.757 units of Tata mutual fund under Tata Liquid - SHIP - Growth
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
90 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
The following mutual fund units were purchased and sold during the previous year:-
1 18,535,141.015 units of ABN AMRO Mutual Fund under ABN AMRO Cash Fund - Institutional Plus Plan - Daily Dividend Reinvestment
Option
2 50,701,760.398 units of ABN AMRO Mutual Fund under ABN AMRO Money Plus Fund-Institutional Plan- Daily Dividend Option
3 22,604,265.015 units of ABN AMRO Mutual Fund under ABN AMRO Money Plus Fund-Institutional Plan-Growth Option
4 51,286,477.010 units of Birla Sun Life Mutual Fund under Birla Cash Plus-Institutional Premium Plan - Daily Dividend
5 51,393,934.559 units of Birla Sun Life Mutual Fund under Birla Floating Rate Fund-Long Term Plan-Weekly Dividend
6 1,175,375.415 units of Birla Sun Life Mutual Fund under Birla Cash Plus-Institutional (Growth)
7 62,395,963.596 units of Birla Sun Life Mutual Fund under Birla Sunlife Liquid Plus Fund - Institutional - Daily Dividend
8 1,055,356.222 units of Birla Sun Life Mutual Fund under Birla Sunlife Liquid Plus Fund - Institutional - Growth
9 799,966.925 units of DSP Merrill Lynch Mutual Fund under DSP Merrill Lynch Liquid Fund - Institutional Plan - Daily Dividend
Reinvestment Option
10 810,376.138 units of DSP Merrill Lynch Mutual Fund under DSP Merrill Lynch Liquid Plus Fund - Institutional Plan - Daily Dividend
Reinvestment Option
11 30,429,402.715 units of Standard Chartered Mutual Fund under Grindlays Floating Rate Fund - Long Term - Institutional Plan B - Daily
Dividend Reinvestment Option
12 25,141,266.651 units of Standard Chartered Mutual Fund under Grindlays Floating Rate Fund - Long Term - Institutional Plan B - Growth
13 74,125,061.345 units of HDFC Mutual Fund under HDFC Cash Management Fund - Savings Plan - Daily Dividend Reinvestment Option
14 79,686,483.778 units of HDFC Mutual Fund under HDFC Cash Management Fund - Savings Plus Plan - Wholesale - Daily Dividend
Reinvestment Option
15 32,404,919.325 units of HDFC Mutual Fund under HDFC Floating Rate Income Fund - Short Term Plan - Retail Option Dividend
Reinvestment - Daily
16 24,820,364.948 units of HDFC Mutual Fund under HDFC Floating Rate Income Fund - Short Term Plan - Retail Option - Growth
17 18,698,998.482 units of HDFC Mutual Fund under HDFC Floating Rate Income Fund - Short Term Plan - Wholesale - Growth
18 59,976,612.345 units of HSBC Mutual Fund under HSBC Cash Fund - Institutional Plus - Daily Dividend Reinvestment Option
19 62,786,020.733 units of HSBC Mutual Fund under HSBC Liquid Plus Fund - Institutional Plus - Daily Dividend Reinvestment Option
20 57,943,951.333 units of HSBC Mutual Fund under HSBC Liquid Plus Fund - Institutional Plus - Growth
21 686,242.889 units of ICICI Prudential Mutual Fund under ICICI Prudential Flexible Income Plan - Growth
22 100,777,456.602 units of ICICI Prudential Mutual Fund under ICICI Prudential Floating Rate Plan D - Daily Dividend - Reinvest Dividend
23 131,634,015.968 units of ICICI Prudential Mutual Fund under ICICI Prudential Liquid Plan - Super Institutional Dividend Daily
24 61,166,842.849 units of ING Mutual Fund under ING Liquid Plus Fund - Institutional Daily Dividend Option
25 58,606,580.178 units of ING Mutual Fund under ING Liquid Plus Fund - Institutional Growth Option
26 32,523,815.818 units of Kotak Mahindra Mutual Fund under Kotak Flexi Debt Fund - Daily Dividend
27 40,671,100.686 units of PRINCIPAL Mutual Fund under Principal Cash Management-Liquid Option-Institutional Premium - Daily Dividend
28 40,602,212.009 units of PRINCIPAL Mutual Fund under Principal Floating Rate Fund - SMP - Institutional - Growth
29 502,053.962 units of Reliance Mutual Fund under Reliance Liquid Plus Fund - Institutional Option - Daily Dividend Plan
30 234,933.967 units of Reliance Mutual Fund under Reliance Liquid Plus Fund - Institutional Option - Growth Plan
31 406,648.782 units of Standard Chartered Mutual Fund under Standard Chartered Liquidity Manager Plus-A-Dividend Daily
32 60,938,518.404 units of Sundaram BNP Paribas Mutual Fund under Sundaram BNP Paribas Liquid Plus Super Institutional Daily Dividend
33 58,603,615.153 units of Sundaram BNP Paribas Mutual Fund under Sundaram BNP Paribas Liquid Plus Super Institutional Growth
34 64,847,479.846 units of Tata Mutual Fund under Tata Floater Fund Growth
35 594,550.430 units of Tata Mutual Fund under Tata Liquid Super High Investment Plan - Daily
36 808,048.384 units of Franklin Templeton Mutual Fund under Templeton India Treasury Management Account-Super Institutional
Plan - Daily Dividend
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
91
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of Directors
Chartered Accountants Rahul Dhir Managing Director and Chief Executive Officer
per Raj Agrawal Aman Mehta Director
Partner Indrajit Banerjee Executive Director and Chief Financial Officer
Membership No. 82028 Neerja Sharma Company Secretary
Place : Gurgaon
Date : 27th May, 2009
22. Details of outstanding advances given to subsidiary companies in which directors are interested are same as disclosed in note 4 (c) above. The
balance outstanding as at the period/year end is also the maximum amount outstanding during the period/year.
23. Change in financial year and prior year comparatives
The shareholders of the Company have approved the change of financial year end from 31st December to 31st March. Therefore, the current
financial year consists of fifteen month period from 1st January 2008 to 31st March 2009. Subsequent financial years would be for twelve months
period ending 31st March every year. Accordingly, previous year figures in the profit and loss account and cash flow statement are not
comparable with current extended financial year.
Previous year's figures have been regrouped where necessary to confirm to this year's classification.
Schedules to the Financial Statements ContinuedSCHEDULE 18 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
92 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
i) Registration Details
Registration No. L11101MH2006PLC163934
State Code 11
Balance Sheet Date 31/03/2009
ii) Capital raised during the year* (Amount in INR Thousands)
Public Issue –
Rights Issue –
Bonus Issue –
Private Placement (Includes stock options exercised) 1,182,684
*Does not include securities premium
iii) Position of Mobilisation and Deployment of Funds (Amount in INR Thousands)
Total Liabilities 321,300,037
Total Assets 321,300,037
Source of Funds
Paid up Capital 18,966,678
Reserves & Surplus (Includes stock options outstanding) 301,479,252
Secured Loans Nil
Unsecured Loans Nil
Application of Funds
Net Fixed Assets (Includes exploratory work-in-progress) 540,908
Investments 292,253,966
Net Current Assets 27,113,056
Miscellaneous Expenditure Nil
Accumulated losses 538,000
iv) Performance of the Company (Amount in INR Thousands)
Turnover (Total Income) 2,980,403
Total Expenditure 1,859,687
Profit/(Loss) before tax 1,120,716
Profit/(Loss) after tax 542,407
Profit per Share in Rs. (Basic & Diluted) 0.29
Dividend rate % Nil
v) Generic Names of Principal Products/Services of Company (as per monetary terms)
Item Code No. (ITC Code) 27090000
Product Description Crude Oil
Item Code No. (ITC Code) 27112100
Product Description Natural Gas
Balance Sheet Abstract and Company’s General Business Profile
For and on behalf of the Board of Directors
Rahul Dhir Managing Director and Chief Executive Officer
Aman Mehta Director
Indrajit Banerjee Executive Director and Chief Financial Officer
Neerja Sharma Company Secretary
Place : Gurgaon
Date : 27th May, 2009
93
Auditors' Report on Consolidated Financial Statements
TO
THE BOARD OF DIRECTORS OF CAIRN INDIA LIMITED
1. We have audited the attached consolidated balance sheet of Cairn India Limited (the Company) and its subsidiaries (collectively called 'the Cairn
India Group') as at March 31, 2009 and also the consolidated profit and loss account and the consolidated cash flow statement for the fifteen
months period ended on that date, annexed thereto. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
3. We report that the consolidated financial statements have been prepared by the Company's management in accordance with the requirements of
Accounting Standard (AS) 21, Consolidated Financial Statements notified under the Companies (Accounting Standard) Rules, 2006.
4. In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give a true
and fair view in conformity with the accounting principles generally accepted in India:
(a) in the case of the consolidated balance sheet, of the state of affairs of the Cairn India Group as at March 31, 2009;
(b) in the case of the consolidated profit and loss account, of the profit of the Cairn India Group for the fifteen months period ended on that date;
and
(c) in the case of the consolidated cash flow statement, of the cash flows of the Cairn India Group for the fifteen months period ended on that
date.
For S. R. Batliboi & Associates
Chartered Accountants
per Raj Agrawal
Partner
Membership No.: 82028
Place : Gurgaon
Date : 27th May, 2009
94 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
SOURCES OF FUNDS
Shareholders’ funds
Share capital 1 18,966,678 17,783,994
Stock options outstanding 2 388,978 947,084
Reserves and surplus 3 308,667,596 276,084,115
328,023,252 294,815,193
Loan funds
Secured loans (Finance lease liabilities) 222,402 169,361
Unsecured loans 4 43,341,500 2,955,000
43,563,902 3,124,361
Deferred tax liabilities (net) 5 5,623,782 4,916,494
377,210,936 302,856,048
APPLICATION OF FUNDS
Fixed assets 6
Gross cost 1,434,686 1,092,632
Less: Accumulated depreciation / amortisation 801,843 606,126
Net book value 632,843 486,506
Exploration, Development and Site-restoration costs 7
Cost of producing facilities (net) 3,013,742 4,389,517
Exploratory and development work in progress 62,027,323 24,670,264
Net book value 65,041,065 29,059,781
Goodwill 253,192,675 253,192,675
Investments 8 1,712,806 7,128,909
Deferred tax assets (net) 5 83,935 –
Current assets, loans and advances
Inventories 9 1,682,808 1,216,048
Sundry debtors 10 1,516,418 1,348,578
Cash and bank balances 11 65,270,674 13,317,907
Other current assets 12 704,244 134,533
Loans and advances 13 3,505,102 4,867,071
72,679,246 20,884,137
Less: Current liabilities and provisions
Current liabilities 14 11,794,353 4,691,797
Provisions 15 4,337,281 3,661,347
16,131,634 8,353,144
Net current assets 56,547,612 12,530,993
Profit & Loss account – 457,184
377,210,936 302,856,048
Notes to accounts 23
Consolidated Balance SheetAS AT MARCH 31, 2009
Schedules As at As at
March 31, 2009 December 31, 2007
The schedules referred to above are an integral part of the consolidated balance sheet.As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants Rahul Dhir Managing Director and Chief Executive Officerper Raj Agrawal Aman Mehta DirectorPartner Indrajit Banerjee Executive Director and Chief Financial OfficerMembership No. 82028 Neerja Sharma Company Secretary
Place : GurgaonDate : 27th May, 2009
(All amounts are in thousand Indian Rupees, unless otherwise stated)
95
Consolidated Profit and Loss AccountFOR THE PERIOD ENDED MARCH 31, 2009
INCOME
Income from operations 16 14,326,716 10,122,627
Other income 17 5,944,652 1,324,089
20,271,368 11,446,716
EXPENDITURE
Operating expenses 18 2,129,743 1,945,812
Depletion and site restoration costs 7 2,635,431 1,906,379
Unsuccessful exploration costs 7 1,683,851 2,512,282
Administrative expenses 19 3,311,407 3,884,855
(Increase)/decrease in inventories 20 222,342 (111,715)
Prior period exchange difference 283,045 –
Depreciation and amortisation 6 62,593 33,701
Finance costs 21 64,090 16,174
10,392,502 10,187,488
Profit before taxation 9,878,866 1,259,228
Current tax (net of INR 225,490 thousand, previous 1,110,792 387,756
year Nil of MAT credit availed during the period)
Deferred tax 623,354 764,194
Fringe Benefit Tax 110,214 352,719
1,844,360 1,504,669
Profit/(Loss) for the period / year 8,034,506 (245,441)
Surplus / (Deficit) brought forward from the previous year (457,184) (211,743)
Surplus / (Deficit) carried to Balance sheet 7,577,322 (457,184)
Earnings / (Loss) per share in INR 22
Basic 4.31 (0.14)
Diluted (previous year considered anti-dilutive) 4.28 (0.14)
(Nominal value of shares INR 10)
Notes to accounts 23
Schedules Fifteen months ended Twelve months ended
March 31, 2009 December 31, 2007
The schedules referred to above are an integral part of the consolidated profit and loss account.
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of Directors
Chartered Accountants Rahul Dhir Managing Director and Chief Executive Officer
per Raj Agrawal Aman Mehta Director
Partner Indrajit Banerjee Executive Director and Chief Financial Officer
Membership No. 82028 Neerja Sharma Company Secretary
Place : Gurgaon
Date : 27th May, 2009
(All amounts are in thousand Indian Rupees, unless otherwise stated)
96 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Cash flow from operating activities
Profit / (Loss) before taxation for the period / year 9,878,866 1,259,228
Adjustments for
– Employee compensation expense (equity settled stock options) - net of exceptional gains 107,292 780,365
– Depreciation, depletion and site restoration costs 2,949,665 2,077,055
– Loss on sale / discard of fixed assets (net) 1,835 10,055
– Unsuccessful exploration costs 1,683,851 2,512,281
– Share issue expenses 208,410 –
– Unrealised exchange loss / (gain) on restatement of assets and liabilities (net) (1,710,406) 1,844,459
– Interest expense 819,258 8,256
– Profit on sale of non trade current investments (net) (1,245,686) (595,663)
– Interest income (1,920,273) (727,431)
– Dividend from investments (221,876) –
– Unrealised loss on option contracts 112,973 63,010
– Provisions written-back (60,351) –
Operating profit before working capital changes 10,603,558 7,231,615
Movements in working capital:
(Increase)/decrease in inventories (466,761) 35,062
(Increase)/decrease in debtors (108,344) 406,420
(Increase)/decrease in loans and advances and other current assets 186,699 (1,998,426)
Increase/(decrease) in current liabilities and provisions 1,601,491 649,255
Cash generated from operations 11,816,643 6,323,926
Current tax/FBT paid (net of refunds) (1,457,679) (819,797)
Net cash from operating activities (A) 10,358,964 5,504,129
Cash flow from investing activities
Payments made for acquisition of subsidiaries – (32,763,069)
Payments made for exploration and development activities (31,150,183) (11,566,913)
Payments made for purchase of fixed assets (462,608) (176,058)
Mutual funds purchased (43,293,242) (15,295,380)
Fixed deposits made (43,410,755) (14,076,538)
Proceeds from matured fixed deposits 11,686,817 –
Proceeds from sale of mutual funds 49,955,033 8,271,805
Proceeds from sale of fixed assets 202 4,270
Interest received 1,293,614 710,969
Dividend from investments received 224,849 587,403
Net cash used in investing activities (B) (55,156,273) (64,303,511)
Cash flow from financing activities
Proceeds from issue of equity shares 25,523,445 2,093,607
Payments made for share issue expenses (208,410) (1,422,257)
Finance lease taken 175,645 (204,708)
Repayment of finance lease (124,838) –
Proceeds from long term borrowings 37,620,170 31,217
Repayment of long term borrowings – (1,517,999)
Interest paid (724,779) (24,503)
Net cash from/(used in) financing activities (C) 62,261,233 (1,044,643)
Net increase/(decrease) in cash and cash equivalents (A+B+C) 17,463,924 (59,844,025)
Cash and cash equivalents at the beginning of the period / year 1,503,807 61,347,832
Cash and cash equivalents at the end of the period / year 18,967,731 1,503,807
Unrealised exchange differences on closing cash and cash equivalents 2,764,904 –
Cash and cash equivalents as per financial statements 21,732,635 1,503,807
Components of cash and cash equivalents as at March 31, 2009 December 31, 2007
Cash in hand 626 108
Balances with banks
– on current accounts 228,024 609,096
– on deposit accounts 65,042,024 12,708,703
Less: Deposits having maturity of over 90 days (43,538,039) (11,814,100)
21,732,635 1,503,807
Notes:1) The above Cash Flow Statement has been prepared under the ‘Indirect Method’ as set out in Accounting Standard-3 on “Cash flow statements”.2) Amounts in bracket indicate a cash outflow or reduction.3) Bank balance in deposit accounts includes INR 3,312,342 thousand, previous year INR 1,717,840 thousand, pledged with the banks.
Consolidated Statement of Cash FlowsFOR THE PERIOD ENDED MARCH 31, 2009
Fifteen months ended Twelve months ended
March 31, 2009 December 31, 2007
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of DirectorsChartered Accountants Rahul Dhir Managing Director and Chief Executive Officerper Raj Agrawal Aman Mehta DirectorPartner Indrajit Banerjee Executive Director and Chief Financial OfficerMembership No. 82028 Neerja Sharma Company Secretary
Place : GurgaonDate : 27th May, 2009
(All amounts are in thousand Indian Rupees, unless otherwise stated)
97
Schedules to the Consolidated Financial Statements
AS at As at
March 31, 2009 December 31, 2007
SCHEDULE - 1
Share capital
Authorised:
2,250,000,000 (previous year 2,250,000,000) equity shares of INR 10 each 22,500,000 22,500,000
Issued, subscribed and paid up:
1,896,667,816 (previous year 1,778,399,420) equity shares of INR 10 each 18,966,678 17,783,994
18,966,678 17,783,994
Note:
1) Issued, subscribed and fully paid up share capital includes 1,226,843,791 equity shares (previous year - 1,226,843,791 equity shares) of INR 10
each held by Cairn UK Holdings Limited, the holding company together with its nominees.
2) Shares held by the holding company includes 861,764,893 equity shares (previous year - 861,764,893 equity shares) of INR 10 each, allotted as
fully paid up pursuant to contracts for consideration other than cash.
3) For stock options outstanding refer note no. 7 in schedule 23.
SCHEDULE - 2
Stock Options Outstanding
Employee stock options outstanding 782,548 2,496,095
Less: Deferred employee compensation outstanding (393,570) (1,549,011)
Closing Balance 388,978 947,084
SCHEDULE - 3
Reserves and Surplus
Securities premium account
Opening Balance 276,084,115 275,017,837
Add:- Additions during the period / year 25,006,159 1,962,756
Less:- Adjustment against preliminary expenses / share issue expenses – (896,478)
Closing Balance 301,090,274 276,084,115
Profit and Loss Account 7,577,322 –
308,667,596 276,084,115
SCHEDULE - 4
Unsecured Loans
Long term loans
– from International Finance Corporation 7,648,500 521,471
– from banks 35,693,000 2,433,529
43,341,500 2,955,000
(All amounts are in thousand Indian Rupees, unless otherwise stated)
98 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Schedules to the Consolidated Financial Statements Continued
SCHEDULE - 6
Fixed Assets
Description Gross Block Accumulated Depreciation / Amortisation Net Block
As on Additions Deletions/ As on As on For the Deletions/ As on As on As on01.01.2008 Adjustments 31.03.2009 01.01.2008 period Adjustments 31.03.2009 31.03.2009 31.12.2007
A) Tangible Assets
Freehold land 43,583 – – 43,583 – – – – 43,583 43,583
Buildings 5,247 – – 5,247 1,109 1,224 – 2,333 2,914 4,138
Office equipments 364,752 182,623 (35,353) 512,022 233,766 145,535 (34,862) 344,439 167,583 130,986
Furniture and fittings 200,962 116,416 (17,508) 299,870 76,094 66,627 (15,961) 126,760 173,110 124,868
Vehicles 945 10,038 – 10,983 915 1,745 – 2,660 8,323 30
B) Intangible Assets
Computer software 477,143 153,531 (67,693) 562,981 294,242 99,102 (67,693) 325,651 237,330 182,901
Grand Total 1,092,632 462,608 (120,554) 1,434,686 606,126 314,233 (118,516) 801,843 632,843 486,506
Previous period 1,326,837 176,058 (410,263) 1,092,632 831,387 170,677 (395,938) 606,126 486,506 495,450
Notes:1. Furniture and fittings includes Leasehold improvements of INR 278,895 thousand (previous year INR 165,013 thousand), accumulated depreciation thereon INR 110,482
thousand (previous year INR 49,882 thousand).2. Leasehold improvements and Office equipments of INR 278,271 thousand (previous year INR 164,389 thousand) and INR 210,192 thousand (previous year INR 135,539
thousand) respectively have been acquired under finance lease. The depreciation charge for the period on these assets is INR 60,569 thousand (previous year INR 25,096thousand) and INR 61,040 thousand (previous year INR 24,181 thousand) respectively and the accumulated depreciation thereon is INR 110,355 thousand (previous year INR49,786 thousand) and INR 139,781 thousand (previous year INR 78,741 thousand) respectively.
3. Depreciation charge for the period includes INR 251,640 thousand (previous year INR 136,976 thousand) allocated to joint ventures.4. Fixed assets include INR 176,798 thousand (previous year INR 120,805 thousand) jointly owned with the joint venture partners. Accumulated depreciation on these assets is
INR 82,643 thousand (previous year INR 60,932 thousand) and net book value is INR 94,155 thousand (previous year INR 59,873 thousand).
(All amounts are in thousand Indian Rupees, unless otherwise stated)
SCHEDULE - 5
Deferred tax asset / liabilities (net)
Effect of differences in block of fixed assets as per tax books and financial books 6,178,716 5,208,962
Gross deferred tax liabilities 6,178,716 5,208,962
Effect of lease accounting 8,972 8,972
Expenditure debited to profit and loss but allowed for tax purposes in following years 629,897 283,496
Gross deferred tax assets 638,869 292,468
Net Deferred tax liabilities * 5,539,847 4,916,494
* After setting off net deferred tax assets aggregating to INR 83,935 thousand, previous year Nil in respect of certain group companies
As at As at
March 31, 2009 December 31, 2007
99
Schedules to the Consolidated Financial Statements Continued
As at As at
March 31, 2009 December 31, 2007
SCHEDULE - 7
Exploration, Development and Site restoration costs
Opening balance of producing properties 4,389,517 2,976,132
Additions / Deletions / Transfer for the period / year 1,259,656 3,319,764
5,649,173 6,295,896
Less: Depletion and site restoration costs 2,635,431 1,906,379
Net producing properties 3,013,742 4,389,517
Opening balance of exploratory & development work in progress 24,670,264 17,122,353
Additions / Deletions / Transfer for the period / year 39,040,910 10,060,193
Less: Unsuccessful exploration costs for the period / year 1,683,851 2,512,282
Exploration and Development work in progress 62,027,323 24,670,264
Net book value 65,041,065 29,059,781
Note: Additions for the period includes borrowing costs (net of income on temporary investments INR 241,350 thousand, previous year Nil)
aggregating to INR 1,620,043 thousand (previous year INR 573,983 thousand)
SCHEDULE - 8
Investments
Long term investments (at cost)
Quoted and non-trade
755,275 (previous year 755,275) equity shares of INR 10 each 105,334 105,334
fully paid up in Videocon Industries Limited
Current Investments (at lower of cost and market value)
Unquoted and non trade
Mutual Funds 1,607,472 7,023,575
1,712,806 7,128,909
SCHEDULE - 9
Inventories
Stores and spares 1,595,774 906,672
Finished goods 87,034 309,376
1,682,808 1,216,048
SCHEDULE - 10
Sundry Debtors
Debts - Unsecured and outstanding for a period exceeding six months :
– Considered Good 94,261 8,587
– Considered doubtful – 62,025
Other unsecured debts :
– Considered Good 1,422,157 1,339,991
1,516,418 1,410,603
Less: Provision for doubtful debts – (62,025)
1,516,418 1,348,578
(All amounts are in thousand Indian Rupees, unless otherwise stated)
100 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
As at As at
March 31, 2009 December 31, 2007
Schedules to the Consolidated Financial Statements Continued
SCHEDULE - 11
Cash and bank balances
Cash in hand 626 108
Balances with banks:
– on current accounts 228,024 609,096
– on deposit accounts (including deposits more than 3 months)* 65,042,024 12,708,703
65,270,674 13,317,907
* includes INR 3,312,342 thousand, previous year INR 1,717,840 thousand, pledged with the banks
SCHEDULE - 12
Other Current Assets
Interest accrued on bank deposits 660,639 28,614
Dividend receivable – 8,260
Outstanding option contracts 43,605 97,659
704,244 134,533
SCHEDULE - 13
Loans and advances
Unsecured and considered good, unless otherwise stated:
Advances recoverable in cash or kind or for value to be received* 5,789,515 5,921,540
Deposits 169,469 25,169
Advance tax and tax deducted at source (net of tax provisions 599,367 565,441
INR 1,921,505 thousand, (previous year INR 3,011,025 thousand)
Fringe benefit tax paid (net of provisions INR 266, 883 thousand, 13,290 1,920
previous year INR 6,000 thousand)
6,571,641 6,514,070
Less: Provision for doubtful advances (3,066,539) (1,646,999)
3,505,102 4,867,071
*Includes doubtful balances INR 3,066,539 thousand (previous year INR 1,646,999 thousand)
SCHEDULE - 14
Current liabilities
Amount payable to Cairn Energy Plc., the ultimate holding company 1,296,164 1,033,919
Sundry creditors 8,647,926 3,587,844
Lease equalisation liability 9,279 –
Interest accrued but not due 94,471 21,383
Other liabilities 1,746,513 48,651
11,794,353 4,691,797
(All amounts are in thousand Indian Rupees, unless otherwise stated)
101
As at As at
March 31, 2009 December 31, 2007
Schedules to the Consolidated Financial Statements Continued
SCHEDULE - 15
Provisions
Provision for taxation (net of advance tax - INR 356,794 thousand, previous year Nil) 250,643 222,901
Provision for fringe benefit tax (net of advance tax payments, INR 127,956 thousand, 105,235 320,231
previous year - INR 258 thousand)
Site restoration provision * 3,886,882 2,714,913
Provision for Government share of profit petroleum ** 11,444 362,382
Provision for leave encashment 16,305 3,941
Provision for gratuity 39,571 36,979
Provision for employee stock options (cash settled) *** 27,201 –
4,337,281 3,661,347
* Site restoration provision
Opening balance 2,714,913 2,232,264
Additions for the period / year 1,388,000 482,649
Reversed during the period / year (216,031) –
Closing balance 3,886,882 2,714,913
** Provision for Government share of profit petroleum
Opening balance 362,382 306,211
Additions for the period / year 26,453 56,171
Payments during the period / year (377,391) –
Closing balance 11,444 362,382
*** Provision for employee stock options (cash settled)
Opening balance – –
Additions for the period / year 27,201 –
Payments during the period / year – –
Closing balance 27,201 –
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Fifteen months ended Twelve months ended
March 31, 2009 December 31, 2007
SCHEDULE - 16
Income from operations
Revenue from sale of oil, gas and condensate 24,476,702 16,287,379
Less: Government share of Profit Petroleum (10,829,219) (6,438,550)
13,647,483 9,848,829
Tolling income 50,391 31,995
Income received as operator from joint venture 628,842 241,803
14,326,716 10,122,627
102 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
SCHEDULE - 17
Other income
Interest on bank deposits 1,858,924 727,431
Profit on sale of non trade current investments (net) 1,245,686 27,632
Dividend income from non trade current investments 216,589 568,031
Dividend income from non trade long term investments 5,287 –
Exchange fluctuation (net) 2,319,158 –
Miscellaneous income 143,285 995
Exceptional gain (refer note no. 8 in schedule 23) 155,723 –
5,944,652 1,324,089
SCHEDULE - 18
Operating expenses
Production expenses 952,510 943,863
Data acquisition and analysis 66,266 32,884
Insurance 56,677 39,630
Royalty 393,787 342,907
Cess 546,365 487,569
Production bonus 114,138 98,959
2,129,743 1,945,812
SCHEDULE - 19
Administrative expenses
Salaries, wages and bonus 3,408,323 2,325,513
Employee compensation expense (stock options) 454,546 780,365
Contribution to Provident fund 97,356 35,490
Contribution to Superannuation fund 53,226 30,865
Leave encashment expenses 29,916 1,041
Gratuity expenses 40,888 33,137
Staff welfare expenses 280,312 32,519
Contract employee charges 1,295,828 1,534,541
Legal and professional expenses 1,488,580 464,776
Share issue expenses (refer note no. 15 in schedule 23) 208,410 –
Repair and maintenance 260,933 206,779
Rent 455,648 212,806
Travelling and conveyance expenses 511,320 192,505
Communication expenses 150,906 56,944
Exchange Fluctuation (net) – 2,057,001
Insurance 3,127 6,464
Directors' sitting fees 1,320 700
Loss on sale / discard of fixed assets (net) 1,835 10,055
Loss on derivative contracts 434,328 63,010
Miscellaneous expenses 357,706 246,298
9,534,508 8,290,809
Less: Cost allocated to joint ventures (6,223,101) (4,405,954)
3,311,407 3,884,855
Fifteen months ended Twelve months ended
March 31, 2009 December 31, 2007
Schedules to the Consolidated Financial Statements Continued
(All amounts are in thousand Indian Rupees, unless otherwise stated)
103
SCHEDULE - 20
(Increase) / Decrease in inventories
Inventories at the beginning of the period / year
Finished goods 309,376 197,661
Inventories at the end of the period / year
Finished goods 87,034 309,376
222,342 (111,715)
SCHEDULE - 21
Finance costs
Interest on bank overdraft – 199
Other interest 38,581 –
Finance lease charges 40,855 7,524
Bank charges 20,734 19,326
100,170 27,049
Less: Cost allocated to joint ventures (36,080) (10,875)
64,090 16,174
SCHEDULE - 22
Earnings / (Loss) Per Share
Profit / (Loss) for the period / year as per profit and loss account 8,034,506 (245,441)
Weighted average number of equity shares in calculating basic 1,866,146,993 1,777,001,292
earnings / (loss) per share
Add: Number of equity shares arising on grant of stock options 10,052,076 11,017,255
Weighted average number of equity shares in calculating diluted 1,876,199,069 1,788,018,547
earnings / (loss) per share
Earnings / (Loss) per share in INR
Basic 4.31 (0.14)
Diluted (previous year considered anti-dilutive) 4.28 (0.14)
Fifteen months ended Twelve months ended
March 31, 2009 December 31, 2007
Schedules to the Consolidated Financial Statements Continued
(All amounts are in thousand Indian Rupees, unless otherwise stated)
104 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
1. NATURE OF OPERATIONS
Cairn India Limited ('the Company') was incorporated in India on August 21, 2006 and is a subsidiary of Cairn UK Holdings Limited, which in turn
is a wholly owned subsidiary of Cairn Energy Plc., UK which is listed on London Stock Exchange.
The Company is primarily engaged in the business of surveying, prospecting, drilling, exploring, acquiring, developing, producing,
maintaining, refining, storing, trading, supplying, transporting, marketing, distributing, importing, exporting and generally dealing in minerals,
oils, petroleum, gas and related by-products and other activities incidental to the above. As part of its business activities, the Company also holds
interests in its subsidiary companies which have been granted rights to explore and develop oil exploration blocks in the Indian sub-continent.
The Company along with its subsidiaries are herein referred to as 'Cairn India Group'. The entities under the Cairn India Group are participants in
various Oil and Gas blocks/fields granted by the Government of India/Sri Lanka through Production Sharing Contract ('PSC')/Production
Resources Agreement ('PRA') entered into between these entities and Government of India/Sri Lanka and other venture partners.
2. COMPONENTS OF THE CAIRN INDIA GROUP
The Consolidated Financial Statements represent consolidation of accounts of the Company and its subsidiaries as detailed below:
S. No. Name of the Subsidiaries Country of Incorporation
i Cairn Energy Australia Pty Limited Australia
ii Cairn Energy India Pty Limited Australia
iii CEH Australia Pty Limited Australia
iv Cairn Energy Asia Pty Limited Australia
v Sydney Oil Company Pty Limited Australia
vi Cairn Energy Investments Australia Pty Limited Australia
vii Wessington Investments Pty Limited Australia
viii CEH Australia Limited British Virgin Islands
ix Cairn India Holdings Limited ('CIHL') Jersey
x CIG Mauritius Holding Private Limited ('CMHPL') - with effect from 1st July 2008 Mauritius
xi CIG Mauritius Private Limited - with effect from 1st July 2008 Mauritius
xii Cairn Energy Holdings Limited Scotland
xiii Cairn Energy Discovery Limited Scotland
xiv Cairn Exploration (No. 2) Limited Scotland
xv Cairn Exploration (No. 6) Limited Scotland
xvi Cairn Energy Hydrocarbons Limited Scotland
xvii Cairn Petroleum India Limited Scotland
xviii Cairn Energy Gujarat Block 1 Limited Scotland
xix Cairn Exploration (No. 4) Limited Scotland
xx Cairn Exploration (No. 7) Limited Scotland
xxi Cairn Energy Development Pte Limited - with effect from 16th July 2008 Singapore
xxii Cairn Lanka Private Limited - with effect from 3rd July 2008 Sri Lanka
xxiii Cairn Energy Group Holdings BV Netherlands
xxiv Cairn Energy India West BV Netherlands
xxv Cairn Energy India West Holding BV Netherlands
xxvi Cairn Energy Gujarat Holding BV Netherlands
xxvii Cairn Energy India Holdings BV Netherlands
xxviii Cairn Energy Netherlands Holdings BV Netherlands
xxix Cairn Energy Gujarat BV Netherlands
xxx Cairn Energy Cambay BV Netherlands
xxxi Cairn Energy Cambay Holding BV Netherlands
CIHL and CMHPL are wholly owned subsidiaries of the Company. All other above mentioned companies are direct or indirect wholly owned
subsidiaries of either CIHL or CMHPL.
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
(All amounts are in thousand Indian Rupees, unless otherwise stated)
105
Cairn India Group has interest in the following Oil and Gas blocks/fields-
S. No. Oil and Gas blocks/fields Area Participating Interest
Operated block
i Ravva Krishna Godavari 22.50%
ii CB-OS/2 - Exploration area Cambay Offshore 60%
CB-OS/2 - Development area Cambay Offshore 40%
iii RJ-ON-90/1 - Exploration area Rajasthan Onshore 100%
RJ-ON-90/1 - Development area Rajasthan Onshore 70%
iv GV-ONN-2003/1 Ganga Valley Onshore 24%
v VN-ONN-2003/1 Vindhyan Onshore 49%
vi PR-OSN-2004 Palar Basin Offshore 35%
vii SL 2007-01-001 North West Sri Lanka Offshore 100%
viii KG-ONN-2003/1 Krishna Godavari Onshore 49%
ix GV-ONN-2002/1 Ganga Valley Onshore 50%
Non - operated block
x KG-DWN-98/2 Krishna Godavari Deep water 10%
xi RJ-ONN-2003/1 Rajasthan Onshore 30%
xii GS-OSN-2003/1 Gujarat Saurashtra Onshore 49%
xiii KK-DWN-2004 Kerala Konkan Basin Offshore 40%
xiv CB-ONN-2002/1 Cambay Onshore 30%
(proposed to be relinquished)
xv GV-ONN-97/1 Ganga Valley Onshore 15%
(relinquished in 2008)
xvi CB-ONN-2001/1 Cambay Onshore 30%
(relinquished in 2007)
3. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
The financial statements have been prepared to comply in all material respects with the mandatory Accounting Standards notified under the
Companies (Accounting Standard) Rules, 2006 under the historical cost convention and on an accrual basis. The accounting policies, in all
material respects, have been consistently applied by Cairn India Group and are consistent with those used in the previous period, except to the
extent stated in note no. 8 below.
Principles of consolidation:
The consolidated financial statements relate to the Cairn India Group. In the preparation of these consolidated financial statements, investments in
subsidiaries have been accounted for in accordance with the provisions of AS 21 (Accounting for Consolidated Financial Statements). The
financial statements of the subsidiaries have been drawn up to the same reporting date as of Cairn India Limited. The consolidated financial
statements are prepared on the following basis:
i. The financial statements of the Company and its subsidiary companies are consolidated on a line-by-line basis by adding together the book
values of the like items of assets, liabilities, income and expenses after eliminating all significant intra-group balances and intra-group
transactions and also unrealised profits or losses in accordance with Accounting Standard (AS) 21 "Consolidated Financial Statements".
ii. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar
circumstances and are presented, to the extent possible, in the same manner as the Company's separate financial statements. The financial
statements of the subsidiaries are adjusted for the accounting principles and policies followed by the Company.
iii. The difference between the cost to the Company of its investment in subsidiaries and its proportionate share in the equity of the investee
company at the time of acquisition of shares in the subsidiaries is recognized in the financial statements as Goodwill or Capital Reserve, as the
case may be. Goodwill is tested for impairment by the management on each reporting date.
(b) Oil and gas assets
Cairn India Group follows a successful efforts method for accounting for oil and gas assets as set out by the Guidance Note issued by the Institute
of Chartered Accountants of India (ICAI) on "Accounting for Oil and Gas Producing Activities".
Expenditure incurred on the acquisition of a license interest is initially capitalised on a license by license basis. Costs are held, undepleted,
within exploratory and development work in progress until the exploration phase relating to the license area is complete or commercial oil and gas
reserves have been discovered.
Exploration expenditure incurred in the process of determining exploration targets which cannot be directly related to individual exploration
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
106 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
wells is expensed in the period in which it is incurred.
Exploration/appraisal drilling costs are initially capitalised within exploratory and development work in progress on a well by well basis until
the success or otherwise of the well has been established. The success or failure of each exploration/appraisal effort is judged on a well by well
basis. Drilling costs are written off on completion of a well unless the results indicate that oil and gas reserves exist and there is a reasonable
prospect that these reserves are commercial.
Where results of exploration drilling indicate the presence of oil and gas reserves which are ultimately not considered commercially viable, all
related costs are written off to the profit and loss account. Following appraisal of successful exploration wells, when a well is ready for
commencement of commercial production, the related exploratory and development wells in progress are transferred into a single field cost centre
within producing properties, after testing for impairment.
Where costs are incurred after technical feasibility and commercial viability of producing oil and gas is demonstrated and it has been
determined that the wells are ready for commencement of commercial production, they are capitalised within producing properties for each cost
centre. Subsequent expenditure is capitalised when it enhances the economic benefits of the producing properties or replaces part of the existing
producing properties. Any costs remaining associated with such part replaced are expensed in the financial statements.
Net proceeds from any disposal of an exploration asset within exploratory and development work in progress are initially credited against the
previously capitalised costs and any surplus proceeds are credited to the profit and loss account. Net proceeds from any disposal of producing
properties are credited against the previously capitalised cost and any gain or loss on disposal of producing properties is recognised in the profit and
loss account, to the extent that the net proceeds exceed or are less than the appropriate portion of the net capitalised costs of the asset.
(c) Depletion
The expenditure on producing properties is depleted within each cost centre.
Depletion is charged on a unit of production basis, based on proved reserves for acquisition costs and proved and developed reserves for
other costs.
(d) Site restoration costs
At the end of the producing life of a field, costs are incurred in restoring the site of production facilities. Cairn India Group recognizes the full cost
of site restoration as a liability when the obligation to rectify environmental damage arises. The site restoration expense forms part of the cost of
producing properties of the related asset. The amortization of the asset, calculated on a unit of production basis based on proved and developed
reserves, is included in the "depletion and site restoration costs" in the profit and loss account.
(e) Impairment
i. The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/
external factors. An impairment loss is recognized where the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount is the greater of the asset's net selling price and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value at the weighted average cost of capital.
ii. After impairment, depreciation/depletion is provided in subsequent periods on the revised carrying amount of the asset over its
remaining useful life.
(f) Tangible Fixed Assets, depreciation and amortization
Tangible assets, other than oil and gas assets, are stated at cost, less accumulated depreciation and impairment losses, if any. Cost comprises the
purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition
of fixed assets which take a substantial period of time to get ready for its intended use are also included to the extent they relate to the period till
such assets are ready to be put to use.
Depreciation is provided using the Straight Line Method as per the useful lives of the assets estimated by the management, or at the rates
prescribed under Schedule XIV of the Companies Act 1956, whichever is higher. The expected useful economic lives are as follows:
Vehicles 2 to 5 years
Freehold buildings 10 years
Computers 2 to 5 years
Furniture and fixtures 2 to 5 years
Office equipments 2 to 5 years
Plant and Equipment 2 to 5 years
Leasehold improvements are amortized over the remaining period of the primary lease or expected useful lives, whichever is shorter.
(g) Intangible fixed assets and amortization
Intangible assets, other than oil and gas assets, have finite useful lives and are measured at cost and amortized over their expected useful
economic lives as follows:
Computer software 2 to 4 years
Goodwill arising on acquisition is capitalized and is subject to review for impairment.
(h) Leases
Finance leases, which effectively transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the
lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
107
payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are
charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalised.
If there is no reasonable certainty that Cairn India Group will obtain the ownership by the end of the lease term, capitalised leased assets are
depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item, are classified as operating
leases. Operating lease payments are recognised as an expense in the profit and loss account on a straight-line basis over the lease term.
(i) Investments
Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. Current investments
are measured at cost or market value, whichever is lower, determined on an individual investment basis. All other investments are classified as
long-term investments. Long term investments are measured at cost. However, provision for diminution in value is made to recognise a decline
other than temporary in the value of the investments.
(j) Inventory
Inventories of oil and condensate held at the balance sheet date are valued at net realizable value based on the estimated selling price. Inventory
of stores and spares related to exploration, development and production activities are stated at cost, determined on First in First out (FIFO) basis.
(k) Joint Ventures
Cairn India Group participates in several Joint Ventures which involve the joint control of assets used in the oil and gas exploration, development
and producing activities. It accounts for its share of the assets and liabilities of Joint Ventures along with attributable income and expenses in such
Joint Ventures, in which it holds a participating interest. Joint venture cash and cash equivalent balances are considered by the Cairn India Group
to be the amounts contributed in excess of the Cairn India Group's obligations to the joint ventures and are, therefore, disclosed within Loans and
Advances.
(l) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Cairn India Group and the revenue can be
reliably measured.
Revenue from operating activities
From sale of oil, gas and condensate
Revenue represents the Cairn India Group's share of oil, gas and condensate production, recognised on a direct entitlement basis, when
significant risks and rewards of ownership are transferred to the buyers.
As operator from the joint venture
Cairn India Group recognizes operators fees as revenue from joint ventures based on the provisions of respective PSCs.
Tolling income
Tolling income represents Cairn India Group's share of revenues from Pilotage and Oil Transfer Services from the respective joint ventures, which
is recognized based on the rates agreed with the customers, as and when the services are rendered.
Interest income
Interest income is recognised on a time proportion basis.
Dividend income
Revenue is recognized when the shareholders' right to receive payment is established by the balance sheet date. Dividend from subsidiaries is
recognized even if same are declared after the balance sheet date but pertains to period on or before the date of balance sheet as per the
requirement of schedule VI of the Companies Act, 1956.
(m) Borrowing costs
Borrowing costs include interest and commitment charges on borrowings, amortisation of costs incurred in connection with the arrangement of
borrowings, exchange differences to the extent they are considered a substitute to the interest cost and finance charges under leases. Costs
incurred on borrowings directly attributable to development projects, which take a substantial period of time to complete, are capitalised within
the development/producing asset for each cost centre.
All other borrowing costs are recognised in the profit and loss account in the period in which they are incurred.
(n) Foreign currency transactions and translations
Cairn India Group translates foreign currency transactions into Indian Rupees at the rate of exchange prevailing at the transaction date. Monetary
assets and liabilities denominated in foreign currency are translated into Indian Rupees at the rate of exchange prevailing at the Balance Sheet
date. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at
the date of the transaction.
Exchange differences arising on the settlement of monetary items or on reporting the Cairn India Group's monetary items at rates different
from those at which they were initially recorded during the year, or reported in previous financial statements, are recognised as income or as
expenses in the year in which they arise except those arising from investments in non-integral operations.
All transactions of integral foreign operations are translated as if the transactions of those foreign operations were the transactions of the
group itself. In translating the financial statements of a non-integral foreign operation for incorporating in the group's financial statements, the
Cairn India Group translates the assets and liabilities at the rate of exchange prevailing at the balance sheet date. Income and expenses of non-
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
108 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
integral operations are translated using rates at the date of transactions. Resulting exchange differences are disclosed under the foreign currency
translation reserve until the disposal of the net investment in non-integral operations.
(o) Income taxes
Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax are measured at the amount
expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Fringe benefit tax also includes the proportionate
amount of tax likely to be paid by Cairn India Group, on the exercise of share options of the Company. Deferred income tax reflects the impact of
current period timing differences between taxable income and accounting income for the period and reversal of timing differences of earlier
period.
Deferred tax assets and liabilities are measured, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities across various subsidiaries or countries of operation are not set off against each other as Cairn India
Group does not have a legal right to do so. Current and deferred tax assets and liabilities are only offset where they arise within the same entity
and tax jurisdiction.
Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available
against which such deferred tax assets can be realised. If Cairn India Group has carry forward of unabsorbed depreciation and tax losses, deferred
tax assets are recognised only if there is virtual certainty, supported by convincing evidence, that such deferred tax assets can be realised against
future taxable profits. Unrecognised deferred tax assets of earlier periods are re-assessed and recognised to the extent that it has become
reasonably certain that future taxable income will be available against which such deferred tax assets can be realised.
The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a
deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income
will be available against which deferred tax asset can be realised. Any such write-down is reversed to the extent that it becomes reasonably
certain or virtually certain, as the case may be, that sufficient future taxable income will be available.
Minimum Alternative Tax (MAT) credit is recognised as an asset only when and to the extent there is convincing evidence that the company
will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in guidance note issued by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the profit and loss account and shown as MAT Credit Entitlement. The Company reviews the same at each balance
sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that
Company will pay normal Income Tax during the specified period.
(p) Earnings Per Share
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average
number of equity shares outstanding during the period. The weighted average number of equity shares outstanding during the period is adjusted
for events of bonus issue, bonus element in a rights issue to existing shareholders, share split and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and the
weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares, if any.
(q) Provisions
A provision is recognised when Cairn India Group has a present obligation as a result of past event and it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and
are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date
and adjusted to reflect the current best estimates.
(r) Cash and Cash equivalents
Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short-term investments, with an original maturity of
90 days or less.
(s) Employee Benefits
Retirement and Gratuity benefits
Retirement benefits in the form of provident fund and superannuation scheme are defined contribution schemes and the contributions are
charged to the profit and loss account of the period when the contributions to the respective funds are due. There are no obligations other than
the contribution payable to the respective funds.
Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation on projected unit credit method made
at the end of each financial year. The scheme is maintained and administered by an insurer to which the trustees make periodic contributions.
Short term compensated absences are provided for based on estimates. Long term compensated absences are provided for based on
actuarial valuation made at the end of each financial year. The actuarial valuation is done as per projected unit credit method.
Actuarial gains / losses are immediately taken to profit and loss account and are not deferred.
Employee Stock Compensation Cost
Measurement and disclosure of the employee share-based payment plans is done in accordance with SEBI (Employee Stock Option Scheme and
Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on Accounting for Employee Share-based Payments, issued by the
Institute of Chartered Accountants of India. Cairn India Group measures compensation cost relating to employee stock options using the intrinsic
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
109
value method. Compensation expense is amortized over the vesting period of the option on a straight line basis. The cost of awards to employees
under the Company's ultimate parent entity's Long Term Incentive Plans ("the LTIP") is recognised based on the amount cross charged by the
parent entity.
(t) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements
and the results of operations during the reporting period end. Although these estimates are based upon management's best knowledge of current
events and actions, actual results could differ from these estimates.
(u) Segment Reporting Policies
Identification of segments:
The Company's operating businesses are organized and managed separately according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different products and serves different markets. The analysis of geographical segments
is based on the areas in which major operating divisions of the Company operate.
(v) Derivative Instruments
As per the ICAI Announcement, accounting for derivative contracts, other than those covered under AS-11, is done on marked to market on a
portfolio basis, and the net loss is charged to the income statement. Net gains are ignored.
4. SEGMENTAL REPORTING
Business segments
The primary reporting of Cairn India Group has been prepared on the basis of business segments. Cairn India Group has only one business
segment, which is the exploration, development and production of oil and gas and operates in a single business segment based on the nature of
the products, the risks and returns, the organisation structure and the internal financial reporting systems. Accordingly, the figures appearing in
these financial statements relate to the Cairn India Group's single business segment.
Geographical segments
Secondary segmental reporting is prepared on the basis of the geographical location of customers. The operating interests of the Cairn India
Group are confined to the Indian sub-continent in terms of oil and gas blocks and customers. Accordingly, the figures appearing in these financial
statements relate to Cairn India Group's single geographical segment being operations in the Indian sub-continent.
5. RELATED PARTY TRANSACTIONS
(a) Names of related parties:
Companies having control
• Cairn UK Holdings Limited, UK • Cairn Energy Plc., UK
Holding Company Ultimate holding company
Key Managerial Personnel
• Rahul Dhir • Winston Frederick Bott Jr.
Managing Director and Chief Executive Officer Executive Director and Chief Operating Officer
(Appointed on 29th April 2008)
• Indrajit Banerjee • Philip Tracy
Executive Director and Chief Financial Officer Alternate Director
(Appointed on 1st March 2007) (Appointed on 18th March 2009)
• Lawrence Smyth
Executive Director and Chief Operating Officer
(Appointed on 1st March 2007 and resigned on 21st January 2008)
(b) Transactions during the period/year:
Nature of the Transactions Related Party Current period Previous year
Reimbursement of expenses Cairn Energy Plc. 279,725 197,600
Shares issued including premium and stock option charge Rahul Dhir 716,185 Nil
Lawrence Smyth 126,758 Nil
Total 842,943 Nil
Remuneration (including bonus on cash basis) Rahul Dhir 125,460 165,579
Winston Frederick Bott Jr. 182,488 Nil
Indrajit Banerjee 26,123 15,593
Philip Tracy 1,354 Nil
Lawrence Smyth 39,336 113,677
Total 374,761 294,849
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
110 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
(c) Balances outstanding as at the end of the period/year:
Nature of the Balance Related Party 31st March 2009 31st December 2007
Accounts payable Cairn Energy Plc. 1,296,164 1,033,919
Remuneration payable Rahul Dhir Nil 3,261
Indrajit Banerjee Nil 1,500
Lawrence Smyth Nil 1,800
Total Nil 6,561
Note: The remuneration to the key managerial personnel does not include the provisions made for gratuity and leave encashment benefits, as
they are determined on an actuarial basis for the Cairn India Group as a whole.
6. As at 31st March 2009, the Company and its subsidiaries together have utilized INR 82,563,170 thousand for the purposes listed in the
prospectus issued for the Initial Public Offer. The details of utilization of funds is as follows-
Particulars Upto Upto
31st March 2009 31st December 2007
Acquisition of shares of Cairn India Holdings Limited from Cairn UK Holdings Limited 59,580,837 59,580,837
Exploration and Development expenses 21,152,714 10,411,239
General corporate purposes 230,000 90,440
Issue expenses 1,599,619 1,599,619
Total 82,563,170 71,682,135
The details of the unutilized monies out of the public issue proceeds is as follows-
Particulars 31st March 2009 31st December 2007
Mutual funds 718,277 7,337,856
Balances with banks 4,967,454 9,228,910
Total 5,685,731 16,566,766
7. EMPLOYEES STOCK OPTION PLANS
The Company has provided various share-based payment schemes to its employees. During the period ended 31st March 2009, the following
schemes were in operation:
Particulars CISMP CIPOP CIESOP CIPOP CIESOP
Phantom Phantom
Date of Board Approval 17th Nov 2006 17th Nov 2006 17th Nov 2006 Not applicable Not applicable
Date of Shareholder's approval 17th Nov 2006 17th Nov 2006 17th Nov 2006 Not applicable Not applicable
Number of options granted till March 2009 8,298,713 5,732,956 12,792,651 822,867 362,556
Method of Settlement Equity Equity Equity Cash Cash
Vesting Period Refer vesting 3 years from 3 years from 3 years from 3 years from
conditions below grant date grant date grant date grant date
Exercise Period 18 months 3 months from 7 years from Immediately Immediately
from vesting vesting date vesting date upon vesting upon vesting
Number of options granted till March 2009
24th Nov 2006 8,298,713 – – – –
1st Jan 2007 – 1,708,195 3,467,702 – –
20th Sept 2007 – 3,235,194 5,515,053 – –
29th July 2008 – 789,567 3,773,856 822,867 324,548
10th Dec 2008 – – 36,040 – 38,008
Total 8,298,713 5,732,956 12,792,651 822,867 362,556
The vesting conditions of the above plans are as under-
CISMP plan
(a) 6,714,233 options are to be vested in the following manner-
– 1/3rd of the options will vest on the day following the date on which the equity shares have been admitted to listing on the Stock Exchanges
('admission date'). Listing date was 9th Jan 2007.
– 1/3rd of the options will vest 18 months after the admission date.
– 1/3rd of the options will vest on achieving 30 days' consecutive production of over 150,000 bopd from the Rajasthan Block.
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
111
(b) 1,584,480 options are to be vested in the following manner-
– 1/2 of the options will vest on the day following the date on which the equity shares have been admitted to listing on the Stock Exchanges.
– 1/4th of the options will vest on the date on which all major equipment for the start-up of the Mangala field is delivered to site.
– 1/4th of the options will vest on achieving 100,000 boepd from the Mangala Field.
CIPOP plan (including phantom options)
Options will vest (i.e become exercisable) at the end of a "performance period" which will be set by the remuneration committee at the time of
grant (although such period will not be less than three years). However, the percentage of an option which vests on this date will be determined
by the extent to which pre-determined performance conditions have been satisfied.
CIESOP plan (including phantom options)
There are no specific vesting conditions under CIESOP plan.
Details of Activities under Employees Stock Option Plans
CISMP Plan Current period Previous year
Number of Weighted Number of Weightedoptions average exercise options average exercise
Price in INR Price in INR
Outstanding at the beginning of the year 8,298,713 33.70 8,298,713 33.70
Granted during the year Nil NA Nil NA
Forfeited during the year Nil NA Nil NA
Exercised during the year 5,268,396 33.70 Nil NA
Expired during the year 792,240 33.70 Nil NA
Outstanding at the end of the year 2,238,077 33.70 8,298,713 33.70
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options 131.50 NA 131.50 NA
granted on the date of grant (INR)
The weighted average share price on the dates of exercise of stock options was INR 220.09
CIPOP Plan Current period Previous year
Number of Weighted Number of Weightedoptions average exercise options average exercise
Price in INR Price in INR
Outstanding at the beginning of the year 4,755,244 10.00 Nil NA
Granted during the year 789,567 10.00 4,943,389 10.00
Forfeited during the year Nil NA Nil NA
Exercised during the year Nil NA Nil NA
Expired during the year 2,344,715 10.00 188,145 10.00
Outstanding at the end of the year 3,200,096 10.00 4,755,244 10.00
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options 165.46 NA 165.46 NA
granted on the date of grant (INR)
CIESOP Plan Current period Previous year
Number of Weighted Number of Weightedoptions average exercise options average exercise
Price in INR Price in INR
Outstanding at the beginning of the year 8,545,710 164.49 Nil NA
Granted during the year 3,809,896 226.21 8,982,755 164.27
Forfeited during the year Nil NA Nil NA
Exercised during the year Nil NA Nil NA
Expired during the year 1,441,362 169.33 437,045 160.00
Outstanding at the end of the year 10,914,244 185.39 8,545,710 164.49
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options 101.47 NA 89.40 NA
granted on the date of grant (INR)
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
112 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
CIPOP Plan - Phantom options Current period Previous year
Number of Weighted Number of Weightedoptions average exercise options average exercise
Price in INR Price in INR
Outstanding at the beginning of the year Nil NA Nil NA
Granted during the year 822,867 10.00 Nil NA
Forfeited during the year Nil NA Nil NA
Exercised during the year Nil NA Nil NA
Expired during the year 38,008 10.00 Nil NA
Outstanding at the end of the year 784,859 10.00 Nil NA
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options 175.40 NA Nil NA
granted on reporting date (INR)
CIESOP Plan - Phantom options Current period Previous year
Number of Weighted Number of Weightedoptions average exercise options average exercise
Price in INR Price in INR
Outstanding at the beginning of the year Nil NA Nil NA
Granted during the year 362,556 218.19 Nil NA
Forfeited during the year Nil NA Nil NA
Exercised during the year Nil NA Nil NA
Expired during the year Nil NA Nil NA
Outstanding at the end of the year 362,556 218.19 Nil NA
Exercisable at the end of the year Nil NA Nil NA
Weighted average fair value of options 48.13 NA Nil NA
granted on reporting date (INR)
The details of exercise price for stock options outstanding as at March 31, 2009 are:
Scheme Range of No. of Weighted Weighted
exercise options average averageprice (INR) outstanding remaining exercise
contractual price (INR) life of options
(in years)
CISMP Plan 33.70 2,238,077 2.08 33.70
CIPOP Plan 10.00 3,200,096 1.51 10.00
CIESOP Plan 143-227 10,914,244 1.60 185.39
CIPOP Plan - Phantom options* 10.00 784,859 2.33 10.00
CIESOP Plan - Phantom options* 143-227 362,556 2.37 218.19
The details of exercise price for stock options outstanding as at December 31, 2007 are:
CISMP Plan 33.70 8,298,713 1.04 33.70
CIPOP Plan 10.00 4,755,244 2.49 10.00
CIESOP Plan 160-166.95 8,545,710 2.47 164.49
*Introduced during the current period
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
113
Effect of Employees Stock Option Plans on Financial Position
Effect of the employee share-based payment plans on the profit and loss account and on its financial position:
Particulars Current Period Previous Year
Total Employee Compensation Cost pertaining to share-based payment plans 134,493 602,025
(including exceptional gain of INR 155,723 thousand in the current period-refer note no. 8 below)
Compensation Cost pertaining to equity-settled employee share-based payment plan included above 107,292 602,025
Compensation Cost pertaining to cash-settled employee share-based payment plan included above 27,201 Nil
Liability for equity-settled employee stock options outstanding as at period / year end 388,978 947,084
Liability for cash-settled employee stock options outstanding as at period / year end 27,201 Nil
Deferred compensation cost of equity-settled options 393,570 1,549,011
Deferred compensation cost of cash-settled options 94,719 Nil
Inputs for Fair valuation of Employees Stock Option Plans
The Share Options have been fair valued using an Option Pricing Model (Black Scholes Model). The main inputs to the model and the Fair Value of
the options, based on an independent valuation, are as under:
Variables - CISMP A B
Grant date 24th Nov 2006 24th Nov 2006
Stock Price / fair value of the equity shares on the date of grant (INR) 160.00 160.00
Vesting date Refer vesting Refer vesting
conditions conditions
Vesting % Refer vesting Refer vesting
conditions conditions
Volatility (Weighted average) 44.08% 46.59%
Risk free rate (Weighted average) 7.05% 6.94%
Time to maturity in years (Weighted average) 2.45 2.00
Exercise price - INR 33.70 33.70
Fair Value of the options (Weighted average) - INR 131.69 130.69
Variables - CIESOP
Grant date 1st Jan 2007 20th Sept 2007 29th July 2008 10th Dec 2008
Stock Price/fair value of the equity shares 160.00 166.95 228.55 150.10
on the date of grant (INR)
Vesting date 1st Jan 2010 20th Sept 2010 29th July 2011 10th Dec 2011
Vesting % 100% 100% 100% 100%
Volatility 41.04% 40.24% 39.43% 38.19%
Risk free rate 7.50% 7.65% 9.20% 6.94%
Time to maturity (years) 6.50 6.50 6.50 6.50
Exercise price (INR) 160.00 166.95 227.00 143.00
Fair Value of the options (INR) 87.30 90.72 130.42 79.80
Variables - CIPOP
Grant date 1st Jan 2007 20th Sept 2007 29th July 2008
Stock Price/fair value of the equity shares on the date of grant (INR) 160.00 166.95 228.55
Vesting date 1st Jan 2010 20th Sept 2010 29th July 2011
Vesting % Refer vesting Refer vesting Refer vesting
conditions conditions conditions
Volatility 41.61% 36.40% 37.49%
Risk free rate 7.33% 7.23% 9.37%
Time to maturity (years) 3.12 3.12 3.12
Exercise price (INR) 10.00 10.00 10.00
Fair Value of the options (INR) 152.05 158.97 221.09
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
114 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Variables - CIPOP Phantom
Grant date 29th July 2008
Stock Price of the equity shares on the reporting date (INR) 184.10
Vesting date 29th July 2011
Vesting % Refer vesting conditions
Volatility 44.64%
Risk free rate 5.97%
Time to maturity (years) 2.33
Exercise price (INR) 10.00
Fair Value of the options (INR) 175.40
Variables - CIESOP Phantom
Grant date 29th July 2008 10th Dec 2008
Stock Price of the equity shares on the reporting date (INR) 184.10 184.10
Vesting date 29th July 2011 10th Dec 2011
Vesting % 100% 100%
Volatility 44.64% 42.35%
Risk free rate 5.97% 6.18%
Time to maturity (years) 2.33 2.70
Exercise price (INR) 227.00 143.00
Fair Value of the options (INR) 44.41 79.91
Volatility is the measure of the amount by which the price has fluctuated or is expected to fluctuate during the period. The measure of volatility
used in Black-Scholes option-pricing model is the annualized standard deviation of the continuously compounded rates of return on the stock over
a period of time. Time to maturity /expected life of options is the period for which the Company expects the options to be live. The time to
maturity has been calculated as an average of the minimum and maximum life of the options.
Impact of Fair Valuation Method on net profits and EPS
In March 2005 the ICAI has issued a guidance note on "Accounting for Employees Share Based Payments" applicable to employee based share
plan the grant date in respect of which falls on or after April 1, 2005. The said guidance note requires the Proforma disclosures of the impact of
the fair value method of accounting of employee stock compensation accounting in the financial statements. Applying the fair value based method
defined in the said guidance note, the impact on the reported net profit and earnings per share would be as follows:
Particulars Current Period
Profit as reported 8,034,506
Add: Employee stock compensation under intrinsic value method
(including exceptional gain of INR 155,723 thousand-refer note no. 8 below) 134,493
Less: Employee stock compensation under fair value method 622,866
Proforma profit 7,546,133
Earnings Per Share
Basic
– As reported 4.31
– Proforma 4.04
Diluted
– As reported 4.28
– Proforma 4.02
8. During the current period, Cairn India Group decided to retrospectively account for stock options using the Intrinsic Value Method as against the
Fair Value Method (Black Scholes) followed till the financial year ended 31st December 2007. Accordingly, the excess stock option provision up to
31st December 2007 was reversed during the current period ended 31st March 2009, resulting in an exceptional gain of INR 155,723 thousand.
Further, the stock option charge for the current period is lower and the profit after tax is higher by INR 488,373 thousand (including exceptional
gain of INR 155,723 thousand) due to this change.
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
115
9. LEASE OBLIGATIONS DISCLOSURES
Finance Lease:
Fixed assets include office equipments and leasehold improvements obtained under finance lease. The lease is secured by way of hypothecation of
the respective assets acquired under them. The lease term is for 3 to 6 years and renewable for further period/years at the option of the Cairn India
Group. There is no escalation clause in the lease agreements. There are no restrictions imposed by lease arrangements and there are no subleases.
Current Period Minimum lease Principal Interest due
payments amount due
Within one year of the balance sheet date 97,740 80,366 17,374
Due in a period between one year and five years 160,059 142,037 18,022
Due after five years Nil Nil Nil
Total 257,799 222,403 35,396
Previous Year Minimum lease Principal Interest due
payments amount due
Within one year of the balance sheet date 86,166 74,764 11,402
Due in a period between one year and five years 104,096 94,597 9,499
Due after five years Nil Nil Nil
Total 190,262 169,361 20,901
Note: The interest rate on finance lease ranges from 3.77% to 14.64%
Operating Lease:
Cairn India Group has entered into operating leases for office premises and office equipments. The leases have a life of 3 to 6 years. There is an
escalation clause in the lease agreement for the primary lease period. There are no restrictions imposed by lease arrangements and there are no
subleases. There are no contingent rents.
Particulars 31st March 2009 31st December 2007
Lease payments made during the period 120,173 40,199
Minimum lease payments in case of non-cancellable operating leases
Within one year of the balance sheet date 124,628 117,470
Due in a period between one year and five years 150,536 264,797
Due after five years Nil Nil
10. CONTINGENT LIABILITIES
Ravva Joint Venture Arbitration proceedings : ONGC Carry
Ravva is an unincorporated Joint Venture (JV) in which Cairn India Group has an interest. The calculation of the Government of India's (GoI) share
of petroleum produced from the Ravva oil field has been a matter of disagreement for some years.
An arbitration panel opined in October 2004 and Cairn has been willing to be bound by the award, although it was not as favourable as had been
hoped. The GoI, however, had lodged an appeal in the Malaysian courts in respect of one element of the award which was in Cairn's favour,
namely the "ONGC Carry" issue. The "ONGC Carry" issue relates to whether Contractor Parties under Ravva PSC are entitled to include in their
accounts for the purposes of calculating the PTRR certain costs paid by Contractor Parties in consideration for ONGC having paid 100% of costs
prior to the signing of the Ravva PSC in 1994.
Cairn India Group challenged both the GoI's right to appeal and the grounds of that appeal.
A judgement was delivered by the Malaysian High Court on 12th January 2009, ruling in favour of the GoI and setting the arbitration award aside.
This has the effect of negating the original award in favour of Cairn India Group. This judgement is subject to appeal to the Malaysian Court of
Appeal and, potentially, the Malaysian Federal Court. Cairn has appealed to the Malaysian Court of Appeal.
Should Cairn finally lose the argument through the Malaysian courts, given the terms of the High Court's award itself, this will require the matter
to be arbitrated afresh under the terms of the PSC for dispute resolution.
Cairn India Group has received advice from their Malaysian legal counsel to the effect that there are strong grounds for appeal through the
Malaysian courts but, even if this proved unsuccessful, given there was one arbitration award in Cairn India Group's favour on this issue and a
similar award was made in favour of one of Cairn India Group's joint venture partners on the same issue in a separate arbitration with GoI, Cairn
India Group believes it has a good chance of any new arbitration panel coming to the same conclusion.
The GoI has challenged Cairn's understanding of the effect of a set-aside claiming that this would not entitle Cairn to a fresh arbitration should we
ultimately lose in Malaysia. This dispute is currently before the courts in India although Cairn has received clear and consistent advice from
Malaysian lawyers that a set-aside under Malaysian law does not constitute a judgement in favour of GoI.
In addition, consistent with GoI's view that the set-aside meant they now have a binding judgement in their favour, GoI has demanded and
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
116 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
commenced recovery from Cairn's buyers, of revenues from sale proceeds to set-off against the sums they claim are now due as a result of the
Malaysian judgement being in their favour. This recovery action is currently being contested by Cairn in the Indian courts.
In the event that the GoI's appeal ultimately succeeded in a manner which resulted in a ruling which Cairn India Group accepted as binding, then
Cairn India Group would be required to pay an additional USD 64 million (approximately INR 3,265,000 thousand). Cairn India Group would also
be potentially liable for interest on this sum currently estimated at approximately USD 30 million (INR 1,536,000 thousand) though the calculation
of interest would require further agreement.
Ravva Joint Venture Arbitration proceedings : Base Development Cost
In a separate and unrelated dispute related to the profit petroleum calculations under the Ravva PSC, the Ravva joint venture received a claim from
the Director General of Hydrocarbons (DGH) for the period from 2000-2005 for USD 166.4 million for an alleged underpayment of profit
petroleum to the Indian Government, out of which Cairn India Group's share will be USD 37.4 million (approximately INR 1,909,000 thousand)
plus potential interest at applicable rate (LIBOR plus 2% as per PSC).
This claim relates to the Indian Government's allegation that the Ravva JV has recovered costs in excess of the Base Development Costs ("BDC")
cap imposed in the PSC and that the Ravva JV has also allowed these excess costs in the calculation of the Post Tax Rate of Return (PTRR). Cairn
believes that such a claim is unsustainable under the terms of the PSC because, amongst other reasons, the BDC cap only applies to the initial
development of the Ravva field and not to subsequent development activities under the PSC. Additionally the Ravva JV has also contested the
basis of the calculation in the above claim from the DGH. Even if upheld, Cairn believes that the DGH has miscalculated the sums that would be
due to the Indian Government in such circumstances. Companies have initiated the arbitration proceedings with appointment of an arbitrator.
Government of India has also appointed its arbitrator. Presiding arbitrator is yet to be appointed.
Service tax
One of the subsidiary companies of the Cairn India Group has received three show cause notices from the tax authorities in India for non payment
of service tax as a recipient of services from foreign suppliers. These notices cover periods from 16th August 2002 to 31st March 2008. A writ
petition(s) challenging the liability to pay service tax as recipient of services in respect of first show cause notice (16th August 2002 to 31st March
2006) and challenging the scope of some services in respect of second show cause notice (1st April 2006 to 31st March 2007), has been filed
with the Chennai High Court. The reply for second and third show cause notice has also been filed before the authorities. Should the adjudication
go against Cairn India Group, it will be liable to pay the service tax of approximately INR 978,000 thousand plus potential interest of
approximately INR 395,000 thousand, although this could be recovered in part where it relates to services provided to Joint Venture of which
Cairn India is operator.
Tax holiday on gas production
Section 80-IB(9) of the Income Tax Act, 1961 allows the deduction of 100% of profits from the commercial production or refining of mineral oil.
The term 'mineral oil' is not defined but has always been understood to refer to both oil and gas, either separately and collectively.
The 2008 Finance Bill appeared to remove this deduction by stating [without amending section 80-IB(9)] that "for the purpose of section 80-IB(9),
the term 'mineral oil' does not include petroleum and natural gas, unlike in other sections of the Act". Subsequent announcements by the Finance
Minister and the Ministry of Petroleum and Natural Gas have confirmed that tax holiday would be available on production of crude oil but have
continued to exclude gas.
Cairn India Group filed a writ petition to the Gujarat High Court in December 2008 challenging the restriction of section 80-IB to the production of
oil. In the event this challenge is unsuccessful, the potential liability for tax and related interest on tax holiday claimed on gas production for all
periods to 31st March 2009 is approximately INR 2,370,000 thousand.
Based on the legal opinions received, the management is of the view that the liability in these cases is not probable and accordingly no provision
has been made in the financial statements.
11. CAPITAL COMMITMENTS (NET OF ADVANCES)
a. In respect of Cairn India Group's share of Joint Ventures' Exploration activities - INR 11,324,140 thousand (previous year - INR 23,442,498
thousand).
b. In respect of the Cairn India Group's share of Joint Ventures' Development activities - INR 34,536,062 thousand (previous year - INR
3,351,442 thousand).
12. DERIVATIVE INSTRUMENTS AND UNHEDGED FOREIGN CURRENCY EXPOSURE
Cairn India Group has taken USD put/INR call options to hedge the risk of foreign currency exposure. The aggregate amount of outstanding
options as at 31st March 2009 aggregated to USD 214,000 thousand (previous year USD 210,000 thousand)
Particulars of Unhedged Foreign Currency Exposure at the Balance Sheet date
Particulars 31st March 2009 31st December 2007
Unsecured Loans 43,341,500 2,955,000
Sundry Debtors 1,516,418 1,335,754
Cash and Bank 31,366,364 11,304,311
Current Assets 2,266,955 4,843,437
Current Liabilities 5,623,077 4,168,594
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
117
13. Cairn India Group has a defined contribution gratuity plan. Every employee who has completed five years or more of service gets a gratuity on
departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a
qualifying insurance policy.
The following tables summarize the components of net benefit expense recognised in the profit and loss account and the funded status and amounts
recognised in the balance sheet for the gratuity plans.
Profit and Loss account
Net employee benefit expense (recognised in Employee Cost)
Particulars 31st March 2009 31st December 2007
Current service cost 23,529 10,846
Interest cost on benefit obligation 6,051 2,863
Expected return on plan assets (3,666) (1,798)
Net actuarial (gain) / loss recognised in the year 14,974 21,226
Past service cost Nil Nil
Net benefit expense 40,888 33,137
Actual return on plan assets 6,700 2,975
Balance sheet
Details of Provision for Gratuity
Particulars 31st March 2009 31st December 2007
Defined benefit obligation 108,425 66,142
Fair value of plan assets 68,854 29,163
Less: Unrecognized past service cost Nil Nil
Plan asset / (liability) (39,571) (36,979)
Changes in the present value of the defined benefit obligation are as follows:
Particulars 31st March 2009 31st December 2007
Opening defined benefit obligation 66,142 41,207
Current service cost 23,529 10,846
Interest cost 6,051 2,515
Benefits paid (5,306) (10,829)
Actuarial (gains) / losses on obligation 18,009 22,403
Closing defined benefit obligation 108,425 66,142
Changes in the fair value of plan assets are as follows:
Particulars 31st March 2009 31st December 2007
Opening fair value of plan assets 29,163 25,693
Expected return 3,666 1,798
Contributions by employer 38,296 11,324
Benefits paid (5,306) (10,829)
Actuarial gains / (losses) 3,035 1,177
Closing fair value of plan assets 68,854 29,163
Note: The Group's expected contribution to the fund in the next year is INR 34,725 thousand.
The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
Particulars 31st March 2009 31st December 2007
Investments with insurer 100% 100%
The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which
the obligation is to be settled.
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
118 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
The principal assumptions used in determining gratuity liability for the Group's plans are shown below:
Particulars 31st March 2009 31st December 2007
Discount rate 7% 8%
Future salary increase 10% 10%
Expected rate of return on assets 9.35% 9.1%
Employee turnover 13.13% 13.13%
Mortality Rate LIC (1994-96) LIC (1994-96)
Ultimate Table Ultimate Table
Note: The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant
factors, such as supply and demand in the employment market.
Gratuity liabilities for the current and previous period are as follows:
Particulars 31st March 2009 31st December 2007
Defined benefit obligation 108,425 66,142
Plan assets 68,854 29,163
Surplus / (deficit) (39,571) (36,979)
Experience adjustments on plan assets (loss)/gain 3,132 2,970
Experience adjustments on plan liabilities (loss)/gain (11,964) (6,960)
Notes:
a) The Group has adopted AS 15 (Revised 2005) Employee Benefits for the first time during the previous year. Disclosures required by
paragraph 120 (n) of AS-15 (Revised 2005) are required to be furnished prospectively from the date of transition and hence have been
furnished for the current and the previous year only.
b) The Group is maintaining a fund with the Life Insurance Corporation of India (LIC) to meet its gratuity liability. The present value of the plan
assets represents the balance available with the LIC as at the end of the period. The total value of plan assets amounts to INR 68,854
thousand as certified by the LIC.
14. DETAILS OF MOVEMENT IN SHARE CAPITAL IS AS UNDER
Date Number of equity Description Issue price Share capital Securities
shares of INR 10 each in INR premium
31st December 2006 1,765,314,379 Closing balance 17,653,144 275,017,837
8th February 2007 13,085,041 Issued under Green Shoe Option 160.00 130,850 1,962,756
Less: Share issue expenses (896,478)
adjusted against premium
31st December 2007 1,778,399,420 17,783,994 276,084,115
7th March 2008 792,240 Exercise of stock options 33.70 7,922 18,776
22nd April 2008 113,000,000 Preferential allotment of shares 224.30 1,130,000 24,215,900
to non promoter investors
7th May 2008 525,000 Exercise of share options 33.70 5,250 12,443
27th May 2008 1,713,078 Exercise of share options 33.70 17,131 40,600
8th December 2008 1,600,000 Exercise of share options 33.70 16,000 37,920
19th December 2008 638,078 Exercise of share options 33.70 6,381 15,122
Add : Share options liability 665,398
transferred to securities premium
upon exercise of the options
31st March 2009 1,896,667,816 18,966,678 301,090,274
15. The share issue expenses of INR 208,410 thousand incurred on the preferential allotment of 113,000,000 equity shares have been charged to the
profit and loss account and not adjusted from the securities premium account on conservative basis.
16. Cairn India Group supplies gas from its Ravva and Cambay blocks to various customers. The price contracts with two customers are due for
revision with effect from December 2008 and currently the same are under negotiation. Pending finalization of the price contracts, revenue has
been recognised based on the last agreed prices on a conservative basis, as the management is expecting an upward price revision.
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
119
17. The goodwill of Cairn India Group amounting to INR 253,192,675 thousand has arisen on consolidation of financial statements of the Company
with its subsidiaries and represents the difference between the cost to the Company of its investment in Cairn India Holdings Limited (which
largely represent Cairn India Group's operations in India through its subsidiaries) and its proportionate share in the net book value of Cairn India
Holdings Limited on consolidated basis at the time of acquisition of shares in Cairn India Holdings Limited. The management has carried out the
tests for impairment of goodwill at the year-end as per requirements of AS 28 (Impairment of Assets) by computing the value in use of the assets
and comparing the same with the carrying amount of the net assets. Value in use is based on the discounted future net cash flows of the oil and
gas assets held by the Cairn India Group. For all blocks in the exploration stage, valuation has been carried out using risked NPV / boe. The result
of the impairment tests indicate that the value in use is higher than the carrying amounts and no impairment provision is required to be created at
the reporting date.
18. The management committee for the Rajasthan block has recently approved the declaration of commerciality and has granted an area of 822 square
kilometers for future development. This includes an additional area of 238 square kilometers where the approval of the Ministry of Petroleum and
Natural Gas is awaited.
19. Long term investment represents shares of Videocon Industries Limited held by Cairn Energy India Pty Limited (CEIPL) by virtue of its holdings in
erstwhile Videocon Petroleum Limited, which subsequently merged with Videocon Industries Limited. CEIPL is yet to receive the share certificates
of the merged entity and the matter is being pursued with the company.
20. The current tax and deferred tax provisions have been computed on the basis of the standalone financial statements of the Company's
subsidiaries, i.e. not based on the consolidated financial statements of Cairn India Limited and its subsidiaries. There was a reversal of deferred tax
liability amounting to INR 237,884 thousand during the current period due to changes in assumptions for computing the timing differences in
relation to certain assets of Rajasthan project during the tax holiday period.
21. Cairn India Holdings Limited (CIHL), a wholly owned subsidiary of the Company along with some of its subsidiaries has entered into a loan facility
agreement for USD 850 million with a consortium of banks. For the purposes of securing this facility, CIHL along with some of its subsidiaries has
created a negative pledge on its assets and those of its subsidiaries, whereby it has undertaken not to dispose any of the said assets or create any
charge on the same without the prior consent of the lenders. Further, the entire shares of Cairn Energy Hydrocarbons Limited a wholly owned
subsidiary of CIHL, has been pledged with the lenders.
22. Cairn India Group's estimate of hydrocarbon reserves and resources at the period/year end is as follows-
Particulars Gross proved and probable Gross proved and probable Net proved and probable
hydrocarbons initially in place reserves and resources reserves and resources
(mmboe) (mmboe) (mmboe)
Current Year Previous Year Current Year Previous Year Current Year Previous Year
Rajasthan MBA Fields 2,054 2,054 685 685 479 479
Rajasthan MBA EOR – – 308 308 216 216
Rajasthan Block Other Fields 1,708 1,697 86 84 61 60
Ravva Fields 625 584 72 82 16 18
CBOS/2 Fields 156 116 20 25 8 10
KG-DWN-98/2 650 650 353 353 35 35
Total 5,193 5,101 1,524 1,537 815 818
Cairn India Group's net working interest in proved and probable reserves is as follows-
Particulars Proved and Proved and probable
probable Reserves reserves (developed)
Oil (mmstb) Gas (bscf) Oil (mmstb) Gas (bscf)
Reserves as at 1st January 2007* 207.15 53.19 18.10 53.19
Additions / revision during the year 44.47 4.21 3.63 4.21
Production during the year 4.59 13.40 4.59 13.40
Reserves as at 31st December 2007** 247.03 44.00 17.14 44.00
Additions / revision during the fifteen months period 98.35 (1.66) 2.64 (1.66)
Production during the fifteen months period 5.58 13.74 5.58 13.74
Reserves as at 31st March 2009*** 339.80 28.60 14.20 28.60
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
120 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
As per our report of even date
For S. R. Batliboi & Associates For and on behalf of the Board of Directors
Chartered Accountants Rahul Dhir Managing Director and Chief Executive Officer
per Raj Agrawal Aman Mehta Director
Partner Indrajit Banerjee Executive Director and Chief Financial Officer
Membership No.: 82028 Neerja Sharma Company Secretary
Place : Gurgaon
Date : 27th May, 2009
(All amounts are in thousand Indian Rupees, unless otherwise stated)
Schedules to the Consolidated Financial Statements Continued
SCHEDULE 23 - NOTES TO ACCOUNTS
* Includes probable oil reserves of 35.81 mmstb (of which 3.24 mmstb is developed) and probable gas reserves of 16.73 bscf (of which 16.73
bscf is developed)
** Includes probable oil reserves of 41.78 mmstb (of which 4.17 mmstb is developed) and probable gas reserves of 16.57 bscf (of which 16.57
bscf is developed)
*** Includes probable oil reserves of 57.70 mmstb (of which 5.7 mmstb is developed) and probable gas reserves of 12.80 bscf (of which 12.80 bscf
is developed)
mmboe = million barrels of oil equivalent
mmstb = million stock tank barrels
bscf = billion standard cubic feet
1 million metric tonnes = 7.4 mmstb
1 standard cubic meter = 35.315 standard cubic feet
MBA = Mangala, Bhagyam & Aishwarya
EOR = Enhanced Oil Recovery
23. CHANGE IN FINANCIAL YEAR AND PRIOR YEAR COMPARATIVES
Shareholders of the Company have approved the change of financial year end from 31st December to 31st March. Therefore, the current financial
year consists of fifteen month period from 1st January 2008 to 31st March 2009. Subsequent financial years would be for twelve months period
ending 31st March every year. Accordingly, previous year figures in the profit and loss account and cash flow statement are not comparable with
current extended financial year.
Previous year's figures have been regrouped where necessary to confirm to current period's classification.
121
Sta
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uan
t to
Secti
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21
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8)
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122 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Sta
tem
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t P
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uan
t to
Secti
on
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f th
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om
pan
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Date
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7th
May
, 2
00
9
123
GlossaryABBREVIATIONS AND FULL FORMS FOR MAIN TERMS USED IN THIS ANNOUNCEMENT
CORPORATE
AGM Annual General Meeting
Board The Board of Directors of Cairn India Limited
BSE Bombay Stock Exchange Ltd
Cairn Cairn India Limited and its subsidiaries
CEIL or CEIPL Cairn Energy India Pty Limited
CIG Cairn India Group
CIHL Cairn India Holdings Limited
Company Cairn India Limited
DGH Director General of Hydrocarbons
EGM Extraordinary General Meeting
FDP Field Development Plan
GoI Government of India
IP Institutional Plan
IPO Initial Public Offering
ISIN International Securities Identifying Number
ITC Item code No.
KPI Key Performance Indicator
LACP Land Acquisition and Compensation Plan
LTIP Long Term Incentive Plans
MoPNG Ministry of Petroleum and Natural Gas
MPT Mangala Processing Terminal
NELP New Exploration Licensing Policy
NRI Non Resident Indian
NSE National Stock Exchange of India Limited
ONGC Oil and Natural Gas Corporation Limited
PRA Production Resources Agreement
PCDP Public Consultation and Disclosure Plan
PSC Production Sharing Contract
RoU Right of Use
SEBI Securities and Exchange Board of India
SME Small & Medium Enterprise
TECHNICAL
1P Proven
2P Proven plus Probable
3D 3 Dimensional
3P Proven plus Probable and Possible
AGI Above Ground Installation
API American Petroleum Institute
ASP Alkali Surfactant Polymer
boepd barrels of oil equivalent per day
bopd barrels of oil per day
bscf billion standard cubic feet
BTU British Thermal Unit
°C Celcius
CO2
Carbon Dioxide
DG Diesel Generator
E & P Exploration and Production
EC Enterprise Centre
EOR Enhanced Oil Recovery
GHG Green House Gas
GJ Giga Joule
Kbopd Thousand barrels of oil per day
Km Kilo Meter
Km2 Square Kilo Meter
MARS Mangala, Aishwariya, Raageshwari and Saraswati
MBA Mangala, Bhagyam and Aishwariya
mmbbls million barrels
mmboe million barrels of oil equivalent
mmscfd million standard cubic feet of gas per day
mmstb million stock tank barrels
MW Mega Watt
MWH Mega Watt per Hour
pigs pipeline inspection gauges
SEHMS Skin Effect Heat Management System
STOIIP Stock Tank Oil Initially in Place
ACCOUNTING
$ US Dollar
ADR American Depository Receipt
AS Accounting Standard
AUS $ Australian Dollar
BDC Base Development Costs
CAGR Compounded Annual Growth Rate
CIESOP Cairn India Employee Stock Option Plan
CIPOP Cairn India Performance Option Plan
CISMP Cairn India Senior Management Plan
EPS Earnings per share
ESOP Employee Stock Option Plan
EUR Euro - currency
FBT Fringe Benefit Tax
GDR Global Depository Receipt
H1 First Half
ICAI Institute of Chartered Accounts of India
IFC International Finance Corporation
IFRS International Financial Reporting Standards
INR Indian Rupees
LIBOR London Inter Bank Offered Rate
MAT Minimum Alternate Tax
NLG Dutch Guilder - currency
NPV Net Present Value
PTRR Post Tax Rate of Return
CORPORATE RESPONSIBILITY
AIR All India Radio
CAB Corporate Advisory Board
CEDPA Centre for Development and Population Activities
CSR Corporate Social Responsibility
IAY Indira Awas Yojna
ISO International Organisation for Standardization
ITI Industrial Training Institute
NGO Non Government Organisation
NGRI National Geophysical Research Centre
PCDP Public Consultation and Disclosure Plan
PWRI Produced Water Re Injection
RGT Reproductive and Child Health
TERI The Energy Resources Institute
124 CAIRN INDIA LIMITED ANNUAL REPORT 2008-2009
Notes
Company Information
board of directors Sir William B.B. Gammell (Chairman)
Malcolm Shaw Thoms (Deputy Chairman)
Jann Brown
Naresh Chandra
Dr Omkar Goswami
Aman Mehta
Edward T. Story
Rahul Dhir (Managing Director & Chief Executive Offi cer)
Indrajit Banerjee (Executive Director & Chief Financial Offi cer)
Rick Bott (Executive Director & Chief Operating Offi cer)
board committees
Audit CommitteeAman Mehta (Chairman)
Naresh Chandra
Dr Omkar Goswami
Edward T. Story
Jann Brown
Remuneration CommitteeNaresh Chandra (Chairman)
Sir William B.B. Gammell
Malcolm Shaw Thoms
Aman Mehta
Dr Omkar Goswami
Nomination CommitteeSir William B.B. Gammell (Chairman)
Rahul Dhir
Jann Brown
Malcolm Shaw thoms
Edward T. Story
Shareholders’ / Investors’ Grievance CommitteeDr Omkar Goswami (Chairman)
Naresh Chandra
Rahul Dhir
company secretaryNeerja Sharma
statutory auditorsS.R. Batliboi & Associates
Golf View Corporate Tower B
Sector 42, Sector Road
Gurgaon 122 002, India
bankersCitibank | State Bank of India | ABN AMRO
stock exchanges listed onBombay Stock Exchange Limited
National Stock Exchange of India Limited
registered office 101, West View
Veer Savarkar Marg
Prabhadevi
Mumbai 400 025, India
corporate office3rd & 4th Floors, Vipul Plaza
Sun City, Sector 54
Gurgaon 122 002, India
registrar & share transfer agentLink Intime India Private Limited
(formerly Intime Spectrum Registry Limited)
C-13, Pannalal Silk Mills Compound
L.B.S.Marg , Bhandup (West)
Mumbai 400 078, India
Contents Highlights
Total acreage of theRajasthan fi elds
3,111 km2
Nearly the same as the combined area of National Capital Region of Delhi and Greater London
Area of the Mangala Processing Terminal (MPT) 1.6 km2
or approximately 400 acresEquivalent to 200 football grounds, or 27 times the size of the Eden Garden cricket ground at Kolkata, or three times the area of the Red Fort Complex in Delhi
Mangala, Bhagyam and Aishwariya plan to produce 175,000bopd(barrels of oil per day)
At peak production which is estimated to account for more than 20% of India’s crude oil production
Total capacity of the four trains of the MPT
205,000bopd
The MPT will have four crude oil processing trains, together designed to handle a total capacity of 205,000 bopd.
These are:TRAIN 1 Capacity of 30,000 bopd from the Mangala fi eld which is ready to start production. Initial evacuation by trucking
TRAIN 2 Capacity of 50,000 bopd, also from the Mangala fi eld is targeted for completion by Q4 2009, along with the heated pipeline.
TRAIN 3 Capacity of 50,000 bopd — targeted for completion in H1 of 2010. Will access the plateau production of the Mangala fi eld
TRAIN 4 Capacity of 75,000 bopd, designed to accommodate production from Bhagyam and Aishwariya and further expansion. Will be commissioned by 2011
2 Board of Directors
4 Letter from the CEO
6 Management Discussion and Analysis
32 Cairn Milestones
34 Corporate Social Responsibility
40 Report on Corporate Governance
58 Directors’ Report
65 Auditors’ Report
68 Balance Sheet
69 Profit and Loss Account
70 Statement of Cash Flows
71 Schedules to the Financial Statements
92 Balance Sheet Abstract and Company’s General Business Profile
93 Auditors’ Report on Consolidated Financial Statements
94 Consolidated Balance Sheet
95 Consolidated Profit and Loss Account
96 Consolidated Statement of Cash Flows
97 Schedules to Consolidated Financial Statements
123 Glossary
Cairn Ind
ia Limited
Annual Report and Financial Statem
ents 2008–09
Cairn India Limited3rd & 4th Floors, Vipul Plaza, Sun CitySector 54, Gurgaon 122 002, India
www.cairnindia.com
Des
igne
d by
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w.i
cdin
dia
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& P
rinte
d at
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ess
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