DirectorsThe Members,
Your Directors have pleasure in presenting the Fifth Annual Report on the business andoperations of the Company and the Audited Financial accounts for the year ended 31 March,2011.
FINANCIAL HIGHLIGHTS
| | In INR million |
| Standalone | Consolidated |
| For the financial year ended | For the financial year ended |
| 31 March, 2011 | 31 March, 2010 | 31 March, 2011 | 31 March, 2010 |
| Total Income | 951 | 1,634 | 104,067 | 20,307 |
| Total Expenditure | 3,077 | 2,367 | 35,167 | 10,143 |
| Profit/(loss) before tax | (2,126) | (734) | 68,900 | 10,163 |
| Taxes | - | (44) | 5,556 | (348) |
| Profit/(loss) after tax | (2,126) | (689) | 63,344 | 10,511 |
The consolidated statements provide the results of Cairn India Limited together withthose of its subsidiaries for the financial year ended 31 March, 2011.
DIVIDEND
In view of inadequacy of profits in Cairn India Limited, your Directors regret theirinability to recommend any dividend.
CHANGES IN CAPITAL STRUCTURE
During the financial year under review, 4,942,969 equity shares of INR 10/- each wereallotted on exercise of Employee Stock Options by the employees of the Company or of itssubsidiaries. Accordingly, the issued and paid up capital of the Company has increased toINR 19,019,171,010 divided into 1,901,917,101 equity shares of INR 10/- each.
Subsequent to the close of the financial year, the Company allotted 213,131 equityshares of INR 10/- each on exercise of Stock Options by the employees. Accordingly, theissued and paid up capital of the Company has increased to INR 19,021,302,320 divided into1,902,130,232 Equity shares of INR 10/- each.
CONSOLIDATED FINANCIAL STATEMENTS
Your Company is also presenting the audited consolidated financial statements preparedin accordance with the Accounting Standard 21 issued by the Institute of CharteredAccountants of India. Information in aggregate for each subsidiary in respect of capitalreserves, total assets, liabilities, investments, turnover, etc. is disclosed separatelyand forms part of the annual report.
OPERATIONS
A detailed review of operations has been included in the Management Discussion andAnalysis Report, which forms a part of this Annual Report.
EMPLOYEE STOCK OPTION SCHEMES
Your Company has established share incentive schemes viz., Cairn India SeniorManagement Plan (CISMP), Cairn India Performance Option Plan (CIPOP) and Cairn IndiaEmployee Stock Option Plan (CIESOP) pursuant to which options to acquire shares have beengranted to select employees and Directors of the Company and its subsidiaries. The Companyalso has cash awards option plan (phantom stock options) for expatriate employees of theCompany and its subsidiaries.
During the year, stock/cash options have been granted to the executive Directors andemployees of the Company or of its subsidiaries. On exercise of the options so granted,the paid-up equity share capital of the Company will increase in terms of the Stock OptionPlans mentioned above. The details of stock options granted by the Company are disclosedin compliance with Clause 12 of the Securities and Exchange Board of India (Employee StockOption Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and set out in AnnexureI to this Report.
During the period under review, 4,942,969 equity shares of INR 10/- each were allottedpursuant to the exercise of stock options.
SUBSIDIARY COMPANIES
As on 31 March, 2011, the Company had 30 subsidiaries including indirect subsidiaries.All these companies are beneficially owned 100% by Cairn India Limited. During the yearunder review, Cairn Energy Developments Pte. Ltd., subsidiary Company in Singapore wasvoluntarily dissolved w.e.f. 8 March, 2011.
The subsidiaries have their own Boards of Directors having the rights and obligationsto manage such companies in the best interest of such Companies. The Company has itsrepresentatives on the board of subsidiary Companies and monitors the performance of suchCompanies regularly.
The Ministry of Corporate Affairs, vide its circular nos. 2/2011 & 3/2011 dated 8February, 2011 & 21 February, 2011 respectively had granted general exemption toholding companies from attaching the financial statements of its subsidiaries to thecompany’s Annual Report. In accordance with the said circulars, the Balance Sheet,Profit & Loss Account and other documents of the subsidiary companies are not beingattached with the Balance Sheet of the Company. The Company will make available the AnnualAccounts of the subsidiary companies to any member of the Company who may be interested inobtaining the same. The annual accounts of the subsidiary companies will also be kept openfor inspection at the Registered office of the Company and respective subsidiaryCompanies. The consolidated financial statements presented by the Company include thefinancial results of its subsidiary companies.
SCHEME OF ARRANGEMENT
In order to simplify and consolidate the multi layered structure comprising foreignsubsidiaries, your Company had proposed a scheme of arrangement between Cairn IndiaLimited, Cairn Energy India Pty Limited, Cairn Energy India West B.V., Cairn Energy CambayB.V., Cairn Energy Gujarat B.V. and their Respective shareholders and creditors (the‘Scheme’). The members of the Company had approved the scheme with overwhelmingmajority in the Court Convened meeting held on 18 February, 2010.
The Hon’ble High Courts of Madras and Bombay sanctioned the Scheme in April, 2010and June, 2010 respectively. The Scheme is now subject to receipt of certain contractualand regulatory approvals. The Scheme when approved is proposed to be effective from 1January, 2010.
OPEN OFFER TO SHAREHOLDERS BY VEDANTA RESOUCES PLC
During the year under review, Cairn Energy PLC and Cairn UK Holdings Limited, promotersof the Company, agreed to sell a substantial part of their equity stake in the Company toVedanta Resources PLC and persons acting in concert (‘Vedanta’) by way of ashare purchase deed dated 15 August, 2010. In terms of the provisions of SEBI (SubstantialAcquisition of Shares and Takeovers) Regulations, 1997, Vedanta issued a PublicAnnouncement on 17 August, 2010 to make an open offer to the equity shareholders of theCompany. Vedanta also filed the draft Letter of Offer with SEBI, which was received bythem on 31 August, 2010. After the receipt of SEBI’s nod, the offer opened on 11April, 2011 and closed on 30 April 2011. Vedanta acquired 155,033,172 number of equityshares under the open offer. Vedanta also acquired 200,000,000 equity shares of theCompany from Petronas International Corporation Ltd. Subsequent to these acquisitions,Vedanta now holds 18.66% of the equity capital of the Company.
The deal for sale of shares by Cairn Energy PLC and Cairn UK Holdings Limited,promoters, to Vedanta is pending for regulatory approvals.
DIRECTORS
Mr. Philip Tracy ceased to be an alternate director with effect from 17 August, 2010.He was again appointed as an alternate Director to Ms. Jann Brown on 10 February, 2011 andceased to be so on 23 May 2011.
In accordance with the Articles of Association of the Company, Mr. Naresh Chandra andMr. Edward T Story, shall retire by rotation as Directors at the ensuing Annual GeneralMeeting and being eligible, offer themselves for re- appointment.
A brief profile of the above-named directors forms part of the Corporate Governancereport.
CORPORATE GOVERNANCE
The Corporate Governance and Management Discussion and Analysis reports form anintegral part of this report and are set out as separate sections to this annual report.The Certificate of S. R. Batliboi & Co., chartered accountants, the statutory auditorsof the Company certifying compliance with the conditions of corporate governance asstipulated in clause 49 of the listing agreement with stock exchanges is annexed with thereport on corporate governance.
AUDITORS
M/s. S. R. Batliboi & Co., chartered accountants, auditors of the Company, retireat the conclusion of the ensuing annual general meeting and being eligible, offerthemselves for re-appointment. The audit committee in its meeting held on 25 May, 2011 hasalso recommended the re-appointment of M/s. S. R. Batliboi & Co., as StatutoryAuditors of the Company. Your directors also recommend their appointment.
FIXED DEPOSITS
The Company has not invited any deposits from the public under Section 58A of theCompanies Act, 1956.
HUMAN RESOURCES
Company’s industrial relations continued to be harmonious during the period underreview.
PARTICULARS OF EMPLOYEES
Particulars of employees required to be furnished under Section 217(2A) of theCompanies Act, 1956 (‘the Act’) form part of this report. However, as per theprovisions of Section 219(1)(b)(iv) of the Act, the report and accounts are being sent tothe shareholders of the Company excluding the particulars of employees under Section217(2A) of the Act. Any shareholder interested in obtaining a copy of the said statementmay write to the
Company Secretary for the same.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
Information on Conservation of Energy Technology Absorption and Foreign ExchangeEarnings and Outgo is given in Annexure II to this report.
DIRECTORS’ RESPONSIBILITY STATEMENT
Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that:
(i) In the preparation of the annual accounts, the applicable accounting standards havebeen followed along with proper explanation relating to material departures
(ii) Appropriate accounting policies have been selected and applied consistently andhave made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as at 31 March 2011 and of the profit ofthe Company for the year ended 31 March 2011
(iii) Proper and sufficient care has been taken for maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act, 1956 for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities
(iv) The annual accounts have been prepared on a going concern basis
CORPORATE SOCIAL RESPONSIBILITY
At Cairn, Corporate Social Responsibility (CSR) emcompasses much more than socialoutreach programs and is an integral part of the way the Company conducts its business.Detailed information on the initiatives of the Company towards CSR activities is providedin the Corporate Social Responsibility section of the Annual Report.
LISTING
The Company has paid the annual listing fee for the year 2011-12 to Bombay StockExchange Limited and National Stock Exchange Limited of India.
APPRECIATION
Your Directors wish to place on record their sincere appreciation of the concernedefforts and dedicated service of all employees, which contributed to the continuous growthand consequent performance of the Company. Your Directors wish to place on record theirgratitude for the valuable assistance and co-operation extended to the Company by theCentral Government, State Governments, Joint Venture Partners, Banks, Institutions,Investors and Customers.
For and on behalf of the Board of Directors
Sir William B.B. Gammell
Chairman
Place Gurgaon
Date 25 May, 2011
Annexures to the Directors’ 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 April 2010 - March 2011 | Nil | 584,144 | 3,027,463 |
| 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 April 2010 - March 2011 | NIL | 777,498 | 3,903,265 |
| 4. | Options Exercised during April 2010 - March 2011 | NIL | 922,045 | 4,020,924 |
| 5. | Total number of Shares arising as a result of exercise of options | NIL | 922,045 | 4,020,924 |
| during April 2010 - March 2011 | | | |
| 6. | Options lapsed during April 2010 - March 2011 | NIL | 141,268 | 922,020 |
| 7. | Variation of terms of options | None | None | None |
| 8. | Money realized by exercise of options during April 2010 - March 2011 | NIL | Rs. 9,220,450 | Rs. 661,259,192 |
| 9. | Total number of options in force as on 31 March 2011 | 2,238,077 | 2,147,664 | 12,730,726 |
| 10. | Employee wise details of options granted during the year to: | | | |
| (i) Senior Managerial Person | None | Indrajit Banerjee | 41,036 | None |
| | | Manu Kapoor | 22,041 | |
| | | S V Nair | 40,308 | |
| | | P Elango | 35,451 | |
| | | Santosh Chandra | 30,231 | |
| (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 | Venkatesan T K | 30,778 | None |
| | | Ajay Gupta | 35,944 | |
| iii) Identified 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 |
| Diluted Earnings Per Share (EPS) pursuant to issue of | (1.12) | (1.12) | (1.12) |
| 11. | Shares on exercise of options calculated in accordance with Accounting Standard 20 | | | |
| 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) | | 456,750 | |
| (iii) The impact of this difference on profits and on EPS of the Company | | | |
| Profit after Tax (PAT) (Rs. in thousands) | | (2,126,721) | |
| Less: Additional employee Compensation cost based on | | | |
| | | 456,750 | |
| fair value (Rs. in thousands) | | | |
| Adjusted PAT (Rs. in thousands) | | (2,583,471) | |
| Adjusted EPS Basic (Rs.) | | (1.36) | |
| Adjusted EPS Diluted (Rs.) | | (1.36) | |
| 13. | Weighted-average exercise prices of options granted during April 2010 - March 2011 | NA | 10.00 | 331.25 |
| Weighted-average fair value of each option outstanding as on 31 March 2011 | 135.31 | 248.94 | 123.83 |
| 14. | A description of the method and significant 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% | 7.28% | 7.61% |
| (ii) | expected life (in years) | 2.45 | 3.09 | 6.50 |
| (iii) | expected volatility | 44.08% | 44.16% | 42.98% |
| (iv) | expected dividends | NA | NA | NA |
| (v) | price of the underlying Share in market at the time of option grant | 160.00 | 256.93 | 244.48 |
ANNEXURE II
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
CONSERVATION OF ENERGY
Energy conservation measures taken
As a responsible Corporate Citizen and in adherence to our climate change strategy, weare continuously taking effective steps to conserve energy and to reduce methane and otherGreen House Gas (GHG) emissions, wherever feasible. GHG emissions in 2010 were withintargets set at the beginning of the year notwithstanding a rise in energy use.
Cairn India recognises the responsibility to minimise environmental impact from itsactivities. Last year saw on-ground implementation of many such planned measures inRajasthan upstream as well as pipeline projects that were targeted at prevention &control of pollution and improvement of environmental performance. We have also continuedwith our initiatives on energy and resource conservation at our Ravva and Suvalifacilities.
The Company regularly monitored air emission sources and the ambient air quality, andwas able to maintain emission levels within regulatory standards in 2010-11.
Measures taken for reduction of energy consumption & consequent impact
During the period under review, several energy conservation initiatives were adopted,some of which are listed below:
• Augmenting renewable energy harnessing potential. Additional windmills wereinstalled at Ravva offshore platforms in March 2010. Installation of 400 Watt wind millsat the platforms has resulted in energy saving of 0.589 MWH.
• Solar powered lights were installed in the plant, living quarters and explosivemagazine area at Ravva in July 2010. Installation of the 14 Watt solar powered lights haveresulted in energy saving of 0.1232 MWH.
• During the ongoing Ravva infill drilling campaign new well designs have beenimplemented by using different technology to previous campaigns.
These technologies are:
- ‘Stand alone screens with SSD’ for zonal isolation and swell packer forcompartmentalization of open hole section.
- ‘Stand alone screen with ICDs and swell packers’ in the horizontal sectionof RD-10 to provide uniform drainage.
- Slimline TRSVs for 4-1/2 Tubing inside 7 casing.
• Absorption of these technologies has helped us reduce total carbon footprint andtotal cost of each well by:
- Reduction in Casing size in top hole section.
- Replacing the Casing, Cementing, Perforation and Gravel Packing in the reservoirsection with Stand Alone screens and swell packers for zonal isolation and sand control.
- Saving of 2 days of rig time by elimination of the above operations.
• Energy conservation at our Suvali plant was achieved by installation of newEnergy Efficient Air compressor in February 2011. Determination of energysavings and performance monitoring is in progress.
• Several energy conservation initiatives at the Cairn’s Gurgaon office haveresulted in saving of approximately 200,708 kwh (units) of electricity. These initiativesare:
- Ensuring that all except the emergency lights are turned off after working hours andon holidays.
- Air handling units start at 7 am and are turned off when the employees leave office.
- Lights in empty cubicles are turned off post 6 pm.
- On all working days, lights are turned on only by the employees when they arrive onduty.
Additional investments and proposals being implemented for conservation of energy
Additional funds were allocated during the year for energy conservation. Newtechnologies were absorbed & adapted to reduce the carbon foot print of the Companylike installation of wind mills and solar arrays on platforms, solar water heaters and LEDstreet lights, wherever feasible.
TECHNOLOGY ABSORPTION, ADAPTION & INNOVATION
Research & Development (R&D)
Specific areas in which R & D was carried out by the Company
Cairn has been actively pursuing the application of EOR (Enhanced Oil Recovery)technology in the Mangala, Bhagyam and Aishwariya Fields. Studies by research institutesto define optimum formulations for increased oil recovery have been conducted. A fieldscale EOR pilot plant has been set up within the Mangala Processing Terminal. Eight wellshave been drilled and completed for the EOR pilot. The injection sequence planned in thepilot is nearly 5 months each of initial water flood followed sequentially by polymerslug, alkali-surfactant-polymer (ASP) slug, chase polymer slug and chase water flood. Thewater flood phase of the EOR pilot has already commenced and the facilities for polymerflood are under construction. Re-injection of produced water separated at the Ravvaterminal, back into the reservoir helps reduce discharge of waste water to sea andextraction of ground water for injection purposes. Produced Water Re-Injection (PWRI) hasbeen designed and implemented to treat and handle a maximum capacity of 45,000 barrels ofwater per day. The PWRI is presently re-injecting 50% of the produced water.
Various other technology absorption, adaption and innovation initiatives/ methods likeRapid Rig for drilling wells, customised well designs, multi well pad approach reducingthe environmental imprint by 85% over single wells, Rotary steerable drilling and high endLogging. While Drilling technology, customised compact well head equipment, usage ofenvironmentally friendly bio degradable base oil in the synthetic oil based mud system ononshore drilling applications which is not only environmentally friendly but also re usedin multiple wells thus avoiding dumping of thousands of barrels of drilling fluids. Theuse of modern horizontal well technology, sand control technology integral with sleevedevices, hydraulic fracturing technology, Sand Jet Perforating, Micro seismic for fracmodelling and multiphase metering technology were taken/used for the well construction forthe development of the oil fields in Rajasthan.
Benefits derived as a result of this R&D
All these initiatives are helping the Company in improving the overall efficiency,lowering the land impact & environmental concerns, cost effectiveness & projecteconomics thus leading to drilling and completing the wells faster than most companies inthe world leading to much less fuel oil and energy consumed / utilised for this projectthan one would normally do in this scale of development. Cairn’s research in EORapplications for the MBA fields has the potential to unlock additional oil reserves withinthese fields 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 salinitychanges of ground water sets an example of ‘good industry practice’. We are alsoreassured that our operation in Ravva does not have an adverse impact on ground water andthe environment.
Expenditure on R&D
Details outlined in the Table below.
| | In INR |
| No. | Particulars | Amount |
| 1 | Capital | 1,002,025,131* |
| 2 | Recurring | 48,300,192 |
| 3 | Total | 1,050,325,323 |
| 4 | Total R&D expenditure as a % of total turnover | 1.01% |
*These are consolidated numbers for the Twelve months period ended 31 March 2011
FOREIGN EXCHANGE EARNINGS AND OUTGO
Activities relating to exports; initiatives taken to increase exports; development ofnew export markets for products and services; and export plans
India imports approximately 75% of its oil and gas requirement and in this situation,the export of crude oil and natural gas, which are the main products of Cairn are notrelevant in this sector.
However, by discovering new oil & gas finds and bringing them into production,Cairn is working towards enhancing energy security and increasing the self sufficiency ofthe nation which is in line with policy of the Indian Government. At peak production rate,Rajasthan block is expected to contribute more than 20% of domestic crude oil production.
Foreign exchange used and earned
During the period ended 31 March, 2011, the Company earned INR 23.94 million andincurred expenditure of INR 345.76 million in foreign exchange.
For and on behalf of the Board of Directors
Sir William B.B. Gammell
Chairman
Place Gurgaon Date 25 May, 2011