Cairn India Annual Report: 2012 - 2013

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Cairn India Annual Report: 2012 - 2013

  1. 1. EXPLORING FORTOMORROW
  2. 2. The Company was adjudged thefastest-growing energy company inthe world at the Platts Top 250 EnergyCompany Awards 2012.The Company won 16 awards in the26th Mines Safety week 2012 underthe aegis of Directorate General ofMines Safety (DGMS), Ajmer.Raageshwari Oil Mine won therunners up award at the NationalSafety Awards (Mines), 2010 heldby GoI last year for Lowest InjuryFrequency Rate per lakh Man Shifts inOil Mines Category.Ravva asset won the Platinum Awardunder the FICCI Safety ExcellenceAwards for Manufacturing 2012.Cairn India won PetroFed’s “Oil & GasPipeline Transportation – Company ofthe Year 2012”award.Cairn India won the Golden PeacockAward for Excellence in CorporateGovernance for 2012Cairn India was honoured with 4EDGE awards for demonstrating bestuse of technology. EDGE (EnterprisesDriving Growth and Excellence) is aninitiative by the reputed IT magazineInformation Week.Cairn India won CMO Asia Award 2012for best practices in Corporate SocialResponsibility.Cairn India won 3 ET NOW Talent &HR Leadership awards - Organisationwith Innovative HR practices, BestTalent Management Strategy andCHRO of the year.RECOGNITIONCairn India is amongst the world’s fastest-growing independent oil andnatural gas exploration and production companies, with 1.3 billion boeof gross proved and probable reserves and resources as of 31 March2013 and 205,323 boepd of average operated production in FY2013.We combine a world-class asset portfolio with proven expertise acrossexploration, development and production. We deliver best-in-classproduction growth with one of the lowest operating costs to createsignificant value for all stakeholders.205,323US$ 3.2 billion26US$ 2 billionUS$ 3 billionRe-commenced explorationin the Rajasthan blockAverage daily gross operated production (boepd)Record revenues in FY2013Discoveries in Rajasthan to dateCash flow generated in FY2013Net Capex through FY2016
  3. 3. INDEXManagementDiscussion &AnalysiscorporategovernancemanagementspeakbusinessresponsibilityReportAuditedFinancialStatements02 Chairman’s Statement04 CEO’s Statement08 Highlights10 Rajasthan Assets24 Ravva and Cambay Assets28 Asset Portfolio32 Financial Overview34 Our Talent36 Health, Safety & Environment40 Corporate Social Responsibility42 Business Risks44 Internal Controls & Their Adequacy46 Board of Directors50 Report on Corporate Governance62 Additional Shareholder Information67 Certificate of the Interim CEO & Whole Time Director and CFO68 Auditors’ Certificate72 Directors’ Report85 Business Responsibility Report97 Audited Financial Statements99 Independent Auditors’ Report101 Balance Sheet102 Statement of Profit and Loss 103 Cash Flow Statement140 Independent Auditors’ Report on Consolidated Financial Statements141 Consolidated Balance Sheet142 Consolidated Statement of Profit and Loss143 Consolidated Cash Flow StatementINDEX02 07 49 85 97
  4. 4. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT SPEAK2chairman’sSTATEMENTIn the past 12 months, Cairn Indiaconsolidated its position as one of theworld’s largest producing independentexploration companies with a risingproduction profile and an establishedexploration programme positionedto further increase India’s oil and gasproduction for the long term.This exploration programme, whichwill be fully funded from Cairn India’sown cash resources and target a grossrecoverable risked prospective resourceof 530 mmboe will, when successful,help reduce India’s dependence onoil imports, which currently stands at~75% of the country’s total oil usage.Cairn India is already a major producerdomestically, operating 25% of thecountry’s oil production.This is set against the backdrop of aglobal energy landscape that continuesto shift, in particular the increasingemergence of shale gas in the UnitedStates. This is leading the US to becomeless dependent on foreign imports forits own needs. Whilst in the future,US shale gas is likely to make its wayinto the Indian energy mix, it remainsa highly energy and capital-intensiveprocess, even in today’s relatively highoil price environment. In this context,the stable, low cost domestic productionthat Cairn India offers is critical for thecountry’s energy requirements. As one ofthe lowest cost producers in the world,we continue to play a key role in helpingIndia meet its energy needs.
  5. 5. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT SPEAK3Cairn India is at a major inflectionpoint in its corporate development.From our well established and highlycash generative production base,the Company is now embarking ona landmark exploration programmeof its Indian asset base. This has thepotential to transform Cairn India’salready sizeable production profile andbe a major economic driver for thecountry. The aggressive exploration andfast-track development is designed tobring new fields into production in aregion where Cairn India has alreadydiscovered around 1.3 billion boe ofgross proved and probable reserves andresources but has drilled only a part ofits acreage.For example, the Aishwariya field wassuccessfully brought on-stream, andis now our fifth producing field onour world-class Rajasthan block. Thisplayed a part in the Company reportinganother year of record production withdaily output at over 205,000 barrelsof oil equivalent. This achievement,delivered at one of the lowest costsper barrel in the industry, is a creditto the entire Cairn India team. Thecommencement of gas sales fromRajasthan was another key milestone.Even as Cairn India is leading the wayin opening up the country’s oil & gasreserves, it makes a significant grosscontribution to the exchequer - ~US$3.6 billion for the FY2013. Similarly, at aregional level, over the past fiscal yearthe Company has made a multitude ofpositive contributions in the regions inwhich we operate, strengthening thelocal economies and supporting thecommunities.Exploration has been, and willcontinue to be, central to our growthplans. We appreciate Government ofIndia’s support and for granting uspolicy clarity to continue exploringin Rajasthan as we strive to realisethe basin’s full potential. AcrossCairn India’s portfolio, explorationpotential abounds, both in our blocksin India as well as in our more recentinternational entries of Sri Lanka andSouth Africa.In addition to the Government of India,I would also like to thank the stateand private companies we work soclosely with and with whom we enjoymutually beneficial partnerships.For the FY2013 we reported recordfinancial results and are continuingwith our dividend payout policy ofaround 20% of annual consolidatednet profits.We are fortunate to have been ableto attract the talent we see today inthe Company, across all disciplinesand at all levels and I thank all CairnIndia employees for their dedication inmaking Cairn India the company it istoday.We are committed to ensuring yourCompany is a safe place to work andare pleased to be amongst the top 10global E&P companies in Health, Safetyand Environment perspective.Cairn India has an exciting futureahead. We have a well-balancedportfolio of exploration, developmentand producing assets and a clearplan, which will see us aggressivelypursue exploration and developmentopportunities in the months andyears ahead, funded by our strongproduction base and harnessed bythe on-going application of innovativetechnologies.This programme has the potential tonot only radically change India’s oilproduction profile but also the size ofthe Company and its presence in theglobal oil & gas space.Navin AgarwalChairmanDate: 22 April, 2013
  6. 6. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT SPEAK4It is an honour for me to sharewith you the achievements of yourCompany in the course of fiscal year2012-13 (FY2013). First and foremost,you will be pleased to know that wecontinue to conduct our operationssafely. Today your Company ranksamong the top 10 Global Oil & Gascompanies in HSE performance basedon the International Association of Oil& Gas Producers (OGP) benchmark.The key financial highlights for theyear gone by are:• Cairn India delivered a recordrevenue of INR 175,241 million (US$3,223 million), a 48% increase overthe previous year.• There was a 41% increase in theCompany’s Earnings Before Interest,Tax, Depreciation and Amortisation(EBITDA) — to INR 130,332 million(US$ 2,397 million) in FY2013.• Profit after tax increased by 52%to INR 120,564 million (US$ 2,218million) in FY2013.• We generated cash flows of INR110,556 million (US$ 2,034 million).This helped the balance sheet to bedebt free with cash balance of INR167,131 million (US$ 3,073 million) ason 31 March, 2013• Your Company’s Board of Directorsrecommended a final dividend of INR6.50 per ordinary equity share — ora total dividend of INR 11.50 pershare for FY2013. With the dividenddistribution tax, this translates to atotal payout of 21.2% of Cairn India’sconsolidated PAT for the year.Other achievements on the operationalside in the FY are equally impressive.ceo’sSTATEMENT
  7. 7. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT SPEAK5• Cairn India’s gross operatedproduction of 205,323 barrels ofoil equivalent per day (boepd) wasa 19% increase over FY2012. TheCompany is now firmly positioned toprovide consistent growth.• The Aishwariya field in theRajasthan block commenced oilproduction. It is the fifth oil field inRajasthan to come online.• In a landmark development,Government of India clarified policyon exploration in Developmentblocks. We promptly recommencedexploration drilling in Rajasthan andmade our 26th discovery in April2013.• We also commenced gas sales fromRajasthan.• Cairn India has submitted a formalapplication to MoPNG for anextension of the licence term inthe Rajasthan Production SharingContract (PSC).• The infill drilling campaign in theCambay Basin block (CB/OS-2) wassuccessfully completed, and hasled to the doubling of productionpotential.• Our Ravva asset achieved an averagedaily production of 29,161 boeand is currently in its 18th year ofproduction• We expanded our internationalfoot-print by farming in the PetroSA‘Block 1’ in the Orange Basin,offshore South Africa, with 60%interest and operatorship.• In Sri Lanka, we completed phase2 exploration programme and arecurrently considering options fordeveloping and monetising ourexisting discoveries.Looking forward, we have plannedfor a net capital investment of US$3 billion in a three year period fromFY2014 to FY2016. We are focusedon realising the full potential ofour world-class Rajasthan assetsthrough a combination of aggressiveexploration and fast-trackdevelopment. We plan to drill morethan 450 wells in Rajasthan blockover a three year period, a significantincrease from the current rate of25 wells drilled in FY2013. Thiswill include 100 Exploration andAppraisal (E&A) wells, while balancewill be development wells to sustainand enhance production volumes.The E&A wells are aimed to targetgross recoverable risked prospectiveresource of 530 mmboe.The Rajasthan block’s currentproduction is at around 175,000bopd. We expect to exit FY2014 witha production in the range of 200,000-215,000 bopd. The Mangala fieldis producing at plateau rates. Wehave infill wells planned for FY2014to sustain and extend the plateau.Aishwariya commenced productionin March 2013, and is expectedto ramp up to approved rate overthe next few months. Bhagyam,too, is expected to ramp up to theapproved rate by the second halfof FY2014. Moreover, the MangalaEnhanced Oil Recovery (EOR) FieldDevelopment Plan (FDP) approval isin progress. We should start full fieldimplementation in FY2015, whichwill result in greater output and afurther extension of the plateau inthe producing field.It gives me great pride to share withyou that Cairn India was adjudgedthe fastest growing energy companyin the world at the Platts Top 250Energy Company Awards 2012. Ourfocus on adhering to industry safetystandards was reflected in a numberof awards that we won in the year.At the 26th Mines Safety week2012, under the aegis of DirectorateGeneral of Mines Safety (DGMS),Cairn India won 16 awards. OurRavva asset won the Platinum Awardunder the FICCI Safety ExcellenceAwards for Manufacturing 2012.In a nutshell, your Company achievedbest-in-class performance in termsof production growth and resourcesutilised in developing and producingeach barrel of oil while maintainingthe highest standards of safety. DuringFY2013, your Company’s operationsnot only helped reduce India’sdependence on oil imports by~ INR 385,000 million (approximatelyUS$ 7 billion) but also contributednearly INR 200,000 million (US$ 3.6billion) to the exchequer.I would like to thank all of you for yoursupport and for your faith in CairnIndia. Our focus is to produce moreand more oil and gas for our Nationand we will resolutely move in ourjourney and keep the faith bestowedupon us.P. ElangoInterim Chief Executive Officer &Whole Time DirectorDate: 22 April, 2013
  8. 8. CAIRN INDIA ANNUAL REPORT 2012-13BUSINESS RESPONSIBILITY REPORT6
  9. 9. 0707managementdiscussion &analysismanagementdiscussion &analysis
  10. 10. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS8Produced recordrevenues and profitConsolidated annual revenue ofthe Company was US$ 3.2 billion— an increase of ~ 30% overFY2012. Profit after tax (PAT) wasUS$ 2.2 billion, representing agrowth of 34% over the previousyear. Earnings per share (EPS) forFY2013 was INR 63.2, comparedto INR 41.7 in FY2012.Record ProductionThe average daily gross operatedproduction in FY2013 fromRajasthan, Ravva and Cambaywas 205,323 barrels of oilequivalent per day (boepd) — anincrease of 19% over FY2012.The average price realisationwas US$ 97.6 per boe. TheCompany expects to exit FY2014at 225,000-240,000 boepd.Started productionfrom AishwariyaThe third largest discovery inthe Rajasthan block startedproduction in March 2013. It isthe fifth oil field in Rajasthan tostart production.Commenced commercialgas sales from RajasthanThis is the first step towardsunlocking the natural gaspotential of the block.The Company’s continuingexploration programme inRajasthan will target other gasprospects that are expected torealise natural gas potential inthe future.Restarted explorationin RajasthanThe Government of India (GoI)clarified policy on explorationin development blocks. Thishas enabled the Company tore-commence a substantialexploration drilling programmethat should help harness thefull potential of the BarmerBasin in Rajasthan. Renewedexploration efforts led to anotheroil discovery — Cairn India’s 26thdiscovery on the block.Concluded salesagreements for largeroff-takeGiven the planned increase inproduction from Rajasthan, crudeoil sales agreements have beenfinalised for volumes in excessof 200,000 barrels of oil per day(bopd) for FY2014.Realised higher productionpotential from CambayBasinCairn India successfullycompleted an infill drillingcampaign; doubling productionpotential of the Block.Entered South AfricaIn August 2012, Cairn Indiasubsidiary and PetroSA signeda farm-in agreement for ‘Block1’ in the Orange Basin off thewest coast of South Africa. CairnIndia subsidiary has a 60%stake and is the operator. A 3Dsurvey is currently in progress.The Petroleum Agency of SouthAfrica (PASA) also approved aTechnical Cooperation Permit(TCP) for another block, for whichan agreement was signed inFebruary 2013.Made first post-listingdividend payoutCairn India declared a totaldividend of INR 11.50 per sharefor FY2013 comprising interimdividend of INR 5 per share paidin November 2012 and a finaldividend of INR 6.5 per sharerecommended by the Board. Thisrepresents a total payout of 21.2%of consolidated PAT, including thedividend distribution tax.Further strengthenedbalance sheetFor FY2013, the Companygenerated cash flows of US$ 2billion. The net cash balance isUS$ 3.1 billion.highlightsAerial view of RG Platform, Ravva Offshore
  11. 11. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS9Earnings before interest, tax, depreciation and amortisation (EBITDA) in FY2013 was INR 130,332million (INR 13,033 crore or US$ 2,397 million) — a 41% increase over the previous year.Profit after tax grew by 52% — to INR 120,564 million (INR 12,056 crore or US$ 2,218 million)in FY2013.Generated cash flows of INR 110,556 million (INR 11,056 crore or US$ 2,034 million).Strong and debt free balance sheet — a cash balance of INR 167,131 million (INR 16,713 croreor US$ 3,073 million).financials at a glanceCentral Processing Terminal, Barmer
  12. 12. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS10• The Rajasthan block, RJ-ON-90/1, is spread over 3,111 km2in the Barmer district.• Cairn India is the operator with 70% participating interest. Its joint venture (JV) partner, ONGC, hasthe remaining 30% participating interest.• The block consists of three contiguous development areas: (i) Development Area (DA) 1, comprisingthe Mangala, Aishwariya, Raageshwari and Saraswati (MARS) fields; (ii) DA 2, consisting of theBhagyam and Shakti fields; and (iii) DA 3, comprising the Kaameshwari West fields.• At present, five oil fields – Mangala, Bhagyam, Aishwariya, Raageshwari and Saraswati produce~175,000 bopd.• In March 2013 Cairn India commenced commercial sale of gas — the first step towards unlockingthe natural gas potential of the block.RAJASTHAN ASSETSThe Rajasthan assets are of nationalimportance. Currently, five fields— Mangala, Bhagyam, Aishwariya,Raageshwari and Saraswati produce~175,000 bopd. Output from thesefields contributes significantly to India’stotal domestic crude oil production.Cairn India’s adherence to Operationaland Health, Safety, Environment andAssurance standards has ensuredefficient operations. The Rajasthanoperation and projects, including thepipeline, had 28 million LTI free hoursduring FY2013. The facilities and welluptime stood at 97.7%. This placesRajasthan operations and projects in thetop decile amongst its global peers.Cairn India, together with its 30% jointventure (JV) partner, the Oil and NaturalGas Corporation Limited (ONGC), hasinvested significantly in these assets.As of 31 March, 2013, gross cumulativedevelopment capital expenditure standsat around US$ 3.8 billion.The Mangala, Bhagyam and Aishwariya(MBA), among others, constitute CairnIndia’s key fields in Rajasthan. Theyare the three largest finds in Rajasthan.The Mangala field — considered to bethe largest onshore hydrocarbon findin India in more than two decades— was discovered in January 2004.This was followed by discoveries ofthe Aishwariya and Bhagyam fields.26 discoveries have been made in theRajasthan block. Studies indicate thatthe block has further potential forgrowth.As on 31 March 2013, the gross proved& probable Hydrocarbons Initially InPlace (HIIP) for the block stands at4.2 bnboe. The MBA fields have grossultimate oil recovery of over 1 bnbblsfrom primary, secondary and EnhancedOil Recovery (EOR) methods.Mangala, Bhagyam,Aishwariya and Other FIELDSOne of the low costoperators; placed in thelowest decile amongstglobal peers.Rajasthan Block KEY Facts
  13. 13. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS11The GoI clarified policy on explorationin development blocks. As a result ofrenewed exploration, the Companymade its 26th discovery.Processing Units, Central Processing Terminal
  14. 14. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS12Drilling in progress, Bhagyam field
  15. 15. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS13MangalaThe Mangala field is a world-class asset and has continued tooutperform expectations in termsof resource growth and productionperformance. It has continued toproduce at designated peak rates formore than two and a half years.To maintain this plateau productionrate over a longer period and toincrease the ultimate oil recovery,Cairn India plans to drill 48 infillwells. A full field EOR polymer phasewill be implemented in FY2015 tomaintain plateau production. Thesewells shall be later utilised during thisphase.BhagyamBhagyam is the second largest fieldin Rajasthan, with an approvedproduction plateau of 40,000 bopd.The field is expected to ramp upto its approved field developmentplan (FDP) rate in the second half ofFY2014.The field’s oil in place volumes haveproved better than initial prognosisbut deliverability of individual wellshas been below expectations. Thus,drilling more wells than the FDPapproved number is required toramp up production. Approval foradditional infill drilling later inFY2014 is being sought to enablethe FDP approved rate. Theseadditional wells will also be utilisedas part of the planned BhagyamEOR project.AishwariyaAishwariya, the third largestdiscovery in Rajasthan, commencedproduction in March 2013. It isthe fifth oil producing field fromthe block. To date, reservoirperformance has been in line withprognosis. Cairn India anticipatesthe field to gradually ramp up tothe FDP approved rate of 10,000bopd in the coming months, asadditional FDP approved wells aredrilled and completed. A total ofseven development wells have beendrilled.Raageshwari Deep Gas FieldIn March 2013, Cairn Indiacommenced the commercial sale ofgas from the Raageshwari deep gasfield. This is the first step towardsunlocking the natural gas potentialof the Rajasthan assets. An on-going exploration programmeOver the last two fiscal years, four oilfields commenced production from ourRajasthan block. FY2013 also saw thefirst commercial gas sales – a first steptowards unlocking further potential.4,1978905551,085*70130Rajasthan BlockMature AssetsRavva + CambayKG Onshore + Sri Lanka*Includes Rajasthan MBA EOR potentialAs on 31 March, 2013Other AssetsGross 2P HIIPGross 2P Reserves &ResourcesCairn India GroupReserves and Resources (mmboe)
  16. 16. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS14will target other gas prospects thatare expected to add to natural gasproduction over the coming years.Raageshwari and Saraswatioil fieldsThe Raageshwari oil field commencedproduction in March 2012, whilethe Saraswati field commencedproduction in May 2011. Bothfields continue to cumulativelycontribute over 500 bopd towardsthe total production from theblock. Availability of the integratedprocessing and evacuation facility hasreduced operating costs — and hastherefore made these marginal fieldseconomically viable.Monetising other fieldsIn addition to sustaining andincreasing production from the fiveoil producing fields, the Company isworking towards monetising 20 otherdiscoveries, including Barmer Hill.Barmer Hill is a low permeabilityresource. Cairn India intends to utilisestate-of-the-art fracture stimulationand horizontal well completiontechnology in order to monetise it.As part of this process, Cairn Indiahas prepared and submitted to theJV, a development plan. Subject toapproval, production from the BarmerHill is expected to commence inFY2014. Development plans have alsobeen submitted for two other satellitediscoveries on the block — called theNI and NE fields.central processing terminalThe Central Processing Terminal (CPT)is spread over an area of 1.6 km2and isa core asset. The CPT processes crudeoil produced from the Rajasthan assets.Following processing, the crude oil istransported to refineries through a24” diameter continuously heated andinsulated pipeline. The CPT’s integrated productionfacilities support the FDP approvedproduction, which is in line with theCompany’s unified Rajasthan blockoff-take capability. In FY2013, the CPTfacilities played a key role in sustainingproduction of ~150,000 bopd from theMangala field.The CPT saw installation of additionalpumps and conversion of one powerfluid pump to an injection waterpump. A new pipeline was laid fromthe Thumbli saline aquifer to theCPT to further enhance the waterinjection capabilities. The Company isworking to install additional injectionpumps, injection filters, steam andutility systems, which will support theincreased processing demand resultingfrom higher production.Facilities at the CPT are beingcontinually upgraded in order tosupport production ramp up. Goingforward, the Company expects the CPTto play a key role in the development ofthe Rajasthan assets, given that FY2014will see production ramp up andincreased EOR activities.Mangala DevelopmentPipeline (MDP)The MDP is designed to evacuate thecrude oil produced from the Rajasthanassets and provide access to markets.Starting at the CPT, it passes througheight districts across two states, i.e.Rajasthan and Gujarat. The pipelineends at the coastal location of Bhogatnear Jamnagar on the western coastof India. It is the world’s longest,continuously heated and insulatedpipeline.The construction from CPT to Salayawas completed in a record time of 18months. The CPT to Salaya section (~590km) of the pipeline continues to safelydeliver crude oil to Indian refiners andis operating in line with the currentproduction profile. The balance sectionbetween Salaya to Bhogat (~80 km) isexpected to be mechanically completedin first half of FY2014.The MDP is not a conventional pipeline.Its technological ingenuity wasnecessitated on account of the waxynature of crude oil. The challenge wasto ensure that the crude oil remainsabove the Wax Appearance Temperature(WAT) of 65°C through its entire length.This required Cairn India to build acontinuously heated and insulatedpipeline to maintain mobility and flowthrough its journey over the entirelength of the pipeline.The pipeline also incorporates aPipeline Intrusion Detection System.
  17. 17. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS15In addition to sustaining and increasingproduction from five oil producingfields, the Company is working towardsmonetising 20 other discoveries.Pipeline laying, Bhogat
  18. 18. *PlannedRJ Additional Production20 existing discoveries are yet to bemonetised. Barmer Hill is expected to comeinto production this year and developmentplans have been submitted for two satellitediscoveries in the NI and NE fields. Barmer Hilldiscovery holds significant potential acrossmuch of the RJ Block but is not adequatelyexplored to date. Whilst not uniform, thediscovery at Barmer Hill is in a tight rockformation and the Company will require state-of-the-art fracture stimulation and horizontalwell completion technology to monetise.rajasthan assets: FY2014 - 2016exploring for tomorrowRJ Production SustenanceThe application of EOR technique is aimedat recovering bypassed oil from producingreservoirs. Tests show that such techniquecan considerably increase the recovery factor.Post a successful polymer pilot in the Mangalafield, the Company expects to start a full fieldimplementation in FY2015.RJ Exploration3.1 billion barrels of oil equivalent in placeprospective resource, located within 20different identified play types on the block. Ofthe 20 play types, 11 are proven and 9 remainto be proved up. 100 prospects have beenidentified, to be drilled over the next 3 years;targeting 530 mmboe of gross recoverablerisked prospective resource – half to be testedin FY2014. A 3D seismic programme is alsoplanned covering more than 50% of the RJBlock area over the 3 years.>350development wells100exploration &appraisal wells~US$ 2.4 bncapital expenditure2002-032002-035004504003503002502001501005001098765432102003-042003-042004-052004-052005-062005-062006-072006-072007-082007-082008-092008-092009-102009-102010-112010-112011-122011-122012-132012-132014-16*2014-16*NUMBER OF WELLSNUMBER OF RIGS
  19. 19. TechnologyIn the near future, application of twokey technologies, EOR and hydraulicfracturing, will enable Cairn India toenhance and maintain production rates.EOR is a tertiary recovery method ofaccessing oil, which is not recoveredduring the application of primary and/orsecondary water-flood recovery methods.The Company plans to apply two forms ofEOR: Polymer Flood and Alkali-SurfactantPolymer Flood.Hydraulic fracturing (or fraccing) is theprocess of providing a conducive path forhydrocarbons to flow from the reservoirto the wellbore, in low permeabilityreservoirs.Over 3,000 km²~2,100 Gulf of Mexico OCSBlocksUS$ 2.4 per bbl directfield operating cost32% year-on-yearproduction increase97.7% uptime – topdecile amongst global peersGross Proved & ProbableReserves & ResourcesGross Proved & ProbableHydrocarbons InitiallyIn PlaceRajasthan Facts4.2 bn boe1.1 bn boeRajasthan AssetsP 50Oil FieldsGas FieldsWells DrilledOil PipelineGas PipelineWater Pipeline
  20. 20. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS18This provides security cumsurveillance along the entire lengthof the pipeline, utilising a fibre opticsystem that generates an alarm. Thisis linked to a central control unit viaa Distributed Control System (DCS).The pipeline is monitored at the CPT,Viramgam and Bhogat terminals forflow, temperature, pressure, and otheroperational parameters.Cairn India had embarked on aproject to de-bottleneck the CPT toSalaya section so that it could handleadditional production. This involved:• Adopting a proven approach, thatutilises polymer additives in thepipeline which play the role of DragReducing Agents (DRAs) to increasethe flow of waxy crude. DRAsare used in crude oil pipelines toincrease flow efficiency and reduceturbulence, allowing the oil to flowunder a reduced frictional dragenvironment.• DRAs increase the pipelineexport capacity without the needto add any booster pumpinginfrastructure. Capacityenhancement can be achievedwithin short time and no majorequipment is needed under thisprocess. Moreover, it allows forgreater operational flexibility. .This project was successfullycompleted in FY2013. It has beentested and proven to deliver highervolumes in line with Cairn India’splanned production ramp up.Bhogat Terminal FacilitiesThe Bhogat terminal in the Jamnagardistrict, Gujarat, is a 160 hectare sitelocated 8 km from the Arabian Seacoast. The terminal will facilitate thestorage and evacuation of crude bysea. Some key elements of the Bhogatterminal are:• Two 24” sub-sea export pipelinesfrom the Bhogat landfall point tothe Single Point Mooring (SPM)system to enable crude transfer.• SPM system and sub-sea pipelineend manifold in deep sea to enabletanker berthing and loading.Rajasthan SalesThe JV received GoI approval onnatural gas sales in March 2013. Gassales commenced with initial targetedvolumes of about 5 mmscfd. Thisleverages the existing gas processinginfrastructure that currently supportsoil production. The 8” gas pipelinerunning along the oil pipeline is beingused to supply gas to the buyer. Thisis a step towards the diligent usage ofresources in an environment friendlyway.With the commencement of crude oilproduction from the Aishwariya field,coupled with production ramp upfrom other producing fields during theyear, Cairn India expects Rajasthan tosupport a higher level of productionvis-à-vis FY2013. Accordingly, for2010 2011 2012 2013180000160000140000120000100000800006000040000200000200,000-215,0002014Gross operated productionin Rajasthan (bopd), yearending MarchRajasthan blockproduction is expectedto exit the current fiscalyear at a rate of 200,000- 215,000 bopd.
  21. 21. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS19FY2014, crude oil sales agreementshave been finalised for volumes inexcess of 200,000 bopd with the publicsector and private refiners.Crude oil pricingAs per the Rajasthan PSC, crude oilprice is benchmarked to Bonny Light,West African low sulphur crude thatis frequently traded in the region,with appropriate adjustments forcrude quality. The implied crudeprice realisation for FY2013 — whichis an average of twelve months upto March 2013 — is within the thenstated guidance of 10% to 15% per centdiscount to Brent.In the first half of FY2014, the Companyexpects to mechanically complete theSalaya to Bhogat section of the pipelineand the Bhogat terminal. Once theseare operational, subject to GoI approval,Rajasthan crude oil is expected to servea wider market. Cairn India aims to exitFY2014 with production levels in therange of 200,000 — 215,000 bopd fromRajasthan.Exploration in DevelopmentBLOCKS: A Game ChangingPolicy InitiativeIn February 2013, the GoI providedpolicy clarity on exploration indevelopment blocks. Subsequently,an exploration work programme wasendorsed and in less than two weeks,exploration drilling recommenced inThe renewed explorationprogramme will target a grossrecoverable risked prospectiveresource of 530 mmboe.Rajasthan. An exploration well wasdrilled in the prolific Barmer Basin,which resulted in Cairn India’s 26thdiscovery on the block. The Companybelieves that renewed explorationwill help the JV realise an estimated530 mmboe of gross recoverablerisked prospective resource. This isa key step towards realising the longterm basin production potential of300,000 bopd.TechnologyHistorically, Cairn India has beena pioneer in the application ofinnovative technologies. Examplesinclude building the world’s longest,continuously heated and insulatedcrude oil pipeline, application of EORtechniques in early stages of field life,multi-well pad design and custom-made rapid rig design.In the near future, application of twokey technologies, EOR and hydraulicfracturing, will enable Cairn India toenhance and maintain productionrates.Enhanced Oil Recovery (EOR)EOR is a tertiary recovery method ofaccessing oil, which is not recoveredduring the application of primaryand/or secondary water-floodrecovery methods. EOR methodsinclude, for example: thermalrecovery, gas injection, chemicalflooding, microbial, etc.
  22. 22. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS20EOR in Rajasthan AssetsCairn India has been actively pursuingchemical flooding; specifically polymerand Alkali Surfactant Polymer (ASP)flooding.Uniquely, the Company identified theopportunity to implement EOR atvery early stage of field life in order tosustain the plateau production rates.The efficiency of the secondary recoverymethod of water-flooding in the MBAfields is relatively low due to higherviscosity of the oil compared to thatof water. The addition of more viscouspolymers to the water enables a betterdisplacement of the oil.In addition, use of Alkali andSurfactants, along with polymers,further increase the recovery factor.The Alkali and Surfactants help inmobilising more oil.Studies conducted by two independentlaboratories show favourable results.Based on these results an incrementalrecovery of 15% is expected from theapplication of chemical flooding in theMBA fields and thereby the expectedultimate recovery from the MBA fields is estimated to be ~50%.EOR Pilot in MangalaCairn India has been conducting a fieldpilot to demonstrate the applicability ofchemical flooding in the Mangala field.The polymer pilot was successful indemonstrating incremental oil recoveryover water-flooding.Following the successful polymer floodpilot, an FDP for a full field applicationof polymer flood in Mangala has beensubmitted.The Mangala polymer EOR full fielddevelopment plan includes:• Drilling of additional wells fromexisting well pads.• Use of existing wells for a closelyspaced pattern of polymer injection.• Staggered polymer injection in allunits of Fatehgarh formation.Cairn India is working towards fullfield implementation in FY2015. Thiswill be one of the largest polymer floodprojects in the world, and will illustratethe application of this technology byCairn India.In addition, preparation forcommencing an Alkali SurfactantPolymer (ASP) phase is underway.Cairn India intends to apply chemicalflooding in Bhagyam and Aishwariya.On successful completion of the ASPpilot, an FDP would be submitted for afull field implementation.Hydraulic FracturingHydraulic fracturing (or fraccing orhydro-frac) is the process of providingAdvanced techniquesare being utilised tomaximise oil recovery.Simultaneously,processing and off-take facilities are beingcontinually upgradedto support productionramp up.
  23. 23. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS21a conducive path for hydrocarbons toflow from the reservoir to the wellbore,in low permeability reservoirs. Ithas been an important technologyin opening up new opportunities forcommercial development of what hadbeen considered uneconomical fields.Fraccing is used to stimulate wells ingeologic formations that may containlarge quantities of oil or gas, but havelow permeability (a poor flow rate). Thisis applied in tight oil and gas bearingsands, shale and coal bed methaneformations.Each oil and gas zone is differentand requires a hydraulic fracturingdesign tailored to the particularproperties of the formation. The designwould change depending upon localsubsurface conditions.Although hydraulic fracturingoperations are of short duration, thishighly developed and regulated processinvolves an array of activities, the useof advanced technology and a varietyof equipment — from data monitoringto hydraulic fracturing blenders andpumps.Hydraulic Fracturing at Cairn IndiaCairn India has been successfullyutilising hydraulic fracturing in BarmerHill and other tight reservoirs inRajasthan. More recently it has alsobeen using the technology in tightreservoirs in the Krishna-Godavaribasin on the east coast of India.Two key technologies for the Companywill be — EOR and hydraulic fracturing. Bothwill enable increased recovery factor andenhance production in numerous assets.Trucks de-liver water forthe fracturingprocessA truck injects amix of sand,water andchemicals intothe wellHydrocarbons flow out of wellRecovered wateris stored in openpits, then taken to atreatment plantHydrocarbonspiped to marketWater TableWell turnshorizontalTight formationsHydraulic Fracturing SchematicSand keepsfissures openHydro-fracWellFissureHydrocarbonsflow fromfissures intowellMixture ofwater, sandand chemicalagentsThe formation isfractured by thepressure insidethe wellHydro-frac fissuresWell
  24. 24. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS22Seismic truck, Rajasthan
  25. 25. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS23During hydraulic fracture operationsin the wellbore, the progress of thefractures in the subsurface may bemonitored by use of a technologyknown as micro-seismic hydro-fracmonitoring.Cairn India was the first Company inIndia to apply this technology, in theRaageshwari Deep Gas field. Geophones(listening devices) placed in an adjacentwellbore can ‘hear’ the rock fracturingand so the locations of the subsurfacefracs can be mapped. This is key tooptimising the hydro-frac operationsand development of the field, and it isutilised extensively in unconventionaldevelopments in North America. Thistechnology will continue to be appliedin the development of Barmer Hill.In Rajasthan, the Barmer Hill reservoiris present throughout the basinand directly overlies the Fatehgarhformation. It largely consists ofhigh porosity but low-to-very-lowpermeability rocks. Virtually all thewells in the basin penetrating theBarmer Hill reservoir have hydrocarbonindications.Currently, an integrated effort forsubsurface characterisation, optimalwell placement and multi-stagehydraulic fracturing and monitoringis being planned across the BarmerHill reservoir.The reservoirs of Raageshwari DeepGas field are tight; they contain leangas condensate. Hydraulic fracturingis one of the key mechanismsto commercially exploit this lowpermeability reservoir - previousapplications have seen the well flowrate increasing by five times.Cairn India also conducted hydraulicfracturing operations in hightemperature and pressure conditionsin a low porosity-low permeabilitysuccessful discovery in the Krishna-Godavari basin.Cairn India was the first Company inIndia to apply micro-seismic hydro-frac monitoring technology, in theRaageshwari Deep Gas Field.
  26. 26. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS24Ravva and Cambay AssetsPKGM-1 Block (Ravva field), Krishna-Godavari Basin, Eastern India (CairnIndia is the operator with 22.5%participating interest)For FY2013, the average grossproduction from the Ravva field was29,161 boepd — comprising an averagedaily oil production of 21,849 bblsand an average daily gas productionof 44 mmscfd. Ravva recorded 1.61million LTI free hours during the fiscalyear, demonstrating Cairn India’scommitment to safety.The plant uptime of 99.7%demonstrates the Company’s emphasison operational efficiencies. The directoperating costs are one of the lowestamong Cairn India’s peers. This islargely a result of Cairn’s focus on life-cycle planning, continuous monitoring,control of operational costs andapplication of innovative technologies.In order to optimally harness theexisting potential of the Ravva field,Cairn India continues to evaluate andutilise numerous technology drivenapproaches aimed at increasing theultimate recovery of oil and gas. Onesuch approach was a 4D seismicsurveys which shall enable an infilldrilling campaign.Cairn India also has a strategy in placeaimed at increasing the potential ofthe field and enhancing the remainingvalue of the asset. The approachincludes drilling a deep explorationprospect, evaluating deeper prospects,developing contingent resources, aninfill drilling campaign and evaluatingEOR techniques.Later in FY2014, the Company willmobilise a drilling rig to targethydrocarbons from the high value,high risk deep exploration prospect. Ashighlighted above, we will initiate aninfill drilling campaign based on the4D seismic data acquired. For the infilldrilling campaign, we plan to mobilisea mat supported jack up drilling rig.The infill drilling campaign, expectedto commence in second half of FY2014,will comprise three wells, which willtap by-passed oil.Currently, there are eight unmannedoffshore platforms and a 225 acreonshore processing facility atAt Ravva, we wouldtarget a high value – highrisk deep explorationprospect. In addition,athree well infill drillingcampaign would tap theby-passed oil.• Cairn India’s production operations in the Krishna-Godavari Basin are centred on the Ravvaoil and gas field, lying off the coast of Andhra Pradesh in Eastern India, in water depths of upto 80 metres.• Developed in partnership with ONGC, Videocon and Ravva Oil Singapore, Cairn became theoperator in 1996. The PSC is valid until 2019.• The block has produced more than 253 mmbbls of crude and sold 317 billion cubic feet of gas• Proving Cairn India’s ability to apply technology, this is approximately three times greaterthan initial estimates.ravva key Facts
  27. 27. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS25A successful infill drillingcampaign during the year hasresulted in doubling the CB/OS-2block’s production potential.Offshore Platform, Suvali
  28. 28. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS26Aerial view of the Ravva Onshore Processing Terminal
  29. 29. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS27Surasaniyanam for processing thenatural gas and crude oil producedfrom the offshore field.The Ravva onshore terminal operatesas per internationally recognisedenvironmental standard (ISO 14001),and has the capacity to handle 70,000bopd, 95 million standard cubic feetper day (mmscfd) of natural gas and110,000 bbls of water injection per day.The terminal also has the capacity tostore 1 mmbbls of crude oil.CB/OS-2 Block, Cambay Basin,Western India(Cairn India is the operator with 40%participating interest)For FY2013, the average grossproduction from the block was 6,772boepd — comprising an average dailycrude oil production of 4,541 bbls andan average daily gas production of 13mmscfd.As part of the Company’s optimalasset utilisation strategy, the facilitieshave also enabled early gas productionfrom ONGC’s North Tapti and Olpadfields, which are outside the CB/OS-2acreage.An 82-acre onshore processing facilityat Suvali processes natural gas andcrude oil from the Lakshmi and Gaurifields. It has a capacity to process 150mmscfd of natural gas and 10,000bopd of crude oil and includes threestage separator trains, a 28,300 bblsstorage tank as well as two 2.4 MWcaptive power generation plants.The processing plant and offshoreinfrastructure are certified to ISO14001 and OHSAS 18001 standards.Ravva production (1996 - 2013)year ending March967000060000500004000030000200001000097 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13Gas (boepd)Oil Production (bopd)Cambay production (2003 - 2013)year ending March03 04 05 06 07 08 09 10 11 12 1320000150001000050000The CB/OS-2 Block has completed10 years of production and crosseda cumulative production of over 50mmboe hydrocarbons. The CB/OS-2facilities had exemplary efficiencies - an uptime of 99.9% for FY2013.Much like the Company’s strategy forthe Ravva field, the focus is onmaximising the potential of theexisting assets while evaluating furtherdevelopment opportunities to unlockadditional value. During the yearCairn India successfully completedan infill drilling campaign comprisingtwo new wells and one work-overwell, which resulted in the doublingof the production potential. This is asignificant achievement given that theasset commenced production in 2002.As a result of an infill drillingcampaign and improved understandingof the subsurface, the gross estimatedultimate recovery of the block hasincreased by ~10 mmboe.• The Company’s operations in CB/OS-2 block are centred on the Lakshmi and Gauri oil and gasfields. Gas production commenced from the Lakshmi gas field in 2002 and in 2004 from theGauri field. In 2005 Gauri commenced crude oil production.• Exploration, development and production in the CB/OS-2 block is governed by a PSC that runsuntil 2023. This is developed in partnership with ONGC and Tata Petrodyne Limited.• Application of advanced geophysical tools have transformed the CB/OS-2 block from apredominantly gas field to an oil field through the discovery of an oil leg.Cambay, CB/OS-2 key Facts
  30. 30. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS28asset PORTFOLIOKrishna-Godavari Basin:KG-ONN-2003/1(Operator: Cairn India, 49%participating interest)Nagayalanka-1Z was the first discoveryin the block. Following this discovery,the JV for the block (Cairn India andONGC) opted to enter Phase-II ofthe Exploration License. The secondexploration well, Nagayalanka-SE-1,was drilled in Phase-II which alsoresulted in a light oil discovery andis, to date, the largest oil discovery inthe onshore part of the KG basin. TheGross Proved & Probable HydrocarbonsInitially in Place is estimated at 481mmboe.As a next step, Cairn India plansto initiate a two well appraisalprogramme. The tendering for rig andservices is completed and drillingis expected to commence shortly.The appraisal drilling programme isdesigned to help evaluate the size andcommerciality of the discoveries.Krishna-Godavari Basin:KG-OSN-2009/3(Operator: Cairn India, 100%participating interest)A bathymetry survey covering thelicense area was completed in May2011. The environmental clearance fora 3D survey was obtained. However, theplanned 3D seismic survey has beendeferred due to denial of Ministry ofDefence clearances. Cairn India hasreceived conditional approval to initiatepetroleum operations in 60% of theblock area with certain conditions.Krishna-Godavari Basin:KG-DWN-98/2(Operator: ONGC. Cairn India, 10%participating interest)Cairn India divested its 10% workinginterest to its JV partner, ONGC, duringFY2013 and no longer holds any interestin the block. This divestment of non-material equity is part of the Company’scontinuous efforts of portfoliooptimisation.Mumbai Offshore Basin:MB-DWN-2009/1(Operator: Cairn India, 100%participating interest)This block was awarded under the NELPVIII licensing round and is located in theMumbai Offshore Basin. Environmentalclearance was obtained for theacquisition of a 2D survey in early2012. The planned acquisition has beendeferred due to denial of clearancesfrom the Ministry of Defence. CairnIndia has received conditional approvalto initiate exploration activities.Palar-Pennar Basin:PR-OSN-2004/1(Operator: Cairn India, 35% participatinginterest)This block is located betweendiscoveries in the Krishna-Godavari andThe Company willinitiate a two wellappraisal programme inKG-ONN-2003/1 block to assess the potential.
  31. 31. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS29Cambay Basin - CB/OS-2MB-DWN-2009/1Rajasthan - RJ-ON-90/1KG-ONN-2003/1KG-OSN-2009/3PR-OSN-2004/1Sri Lanka SL-2007-01-001Ravva - PKGM-1South Africa Block-1
  32. 32. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS30Drilling Activity, Sri Lanka
  33. 33. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS31Cauvery basins. After interpretationof 2D and 3D seismic data, threeprospects were identified for drilling.The Department of Space denied drillingpermission due to which the area isbeing classified as a restricted area.Significant progress has been madetowards resumption of explorationactivities.Mannar Basin, Sri Lanka:SL 2007-01-001(Operator: Cairn India subsidiary,100% participating interest)Cairn Lanka (Private) Limited, a whollyowned subsidiary of CIG MauritiusPrivate Limited under Cairn India, hasplayed a leading role in establishingthe hydrocarbon resources of SriLanka. Following the success ofPhase-I exploration resulting in twogas discoveries — CLPL-Dorado-91H/1z and CLPL-Barracuda-1G/1 — Cairn completed drilling of afourth exploration well as part ofthe Phase-II exploration programme.The well encountered high qualityreservoir sands, which were waterbearing. Consequently the well wasplugged and abandoned, and therig demobilised. Cairn is consideringoptions to appraise, develop andmonetise the two discoveries.Orange Basin, South Africa:‘Block 1’(Operator: Cairn India subsidiary,60% participating interest)Following the Company’s strategyof building potentially significantinternational positions, Cairn Indiasubsidiary completed a farm-inagreement with PetroSA in ‘Block 1’in the Orange Basin, offshore SouthAfrica. In March 2013, the Companycommenced 3D seismic survey, 80%of which has been completed.The Company has also received anapproval from The Petroleum Agencyof South Africa for a TechnicalCooperation Permit (TCP) for anotherblock. The Company will have anoption to convert this TCP to anexploration permit after a one yearstudy period, subject to governmentapprovals.In Sri Lanka, the Company isconsidering options to appraise,develop and monetisetwo discoveries.In line with theCompany’s strategyto build potentiallysignificant internationalpositions, Cairn Indiaentered South Africa.
  34. 34. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS32financial overviewDuring FY2013, the Company declareda total dividend of INR 11.5 per equityshare, amounting to 21.2% of profit aftertax for the year (including dividenddistribution tax). This is in line withthe Company’s stated dividend policy.The total dividend comprises a finaldividend of INR 6.5 per equity shareand an interim dividend of INR 5 perequity share, paid to the shareholdersin November 2012. The final dividend issubject to shareholders’ approval at theAnnual General Meeting (AGM) of theCompany (24 July, 2013).Following approvals from the GoI, theCompany completed its reorganizationexercise during the year. This saw theIndian businesses of certain overseassubsidiaries being transferred toCairn India, from the appointed dateof 1 January, 2010. Operations of thesubsidiaries, from the appointeddate, have been accounted for as theCompany’s own operations and reflectedaccordingly in the financial statementsfor Cairn India, following relevantadjustments, if any. Post completionof the reorganization, the Companytransferred approximately US$ 1.5 billionof deposits into INR deposits, directlyresulting in increased interest receiptson these investments. As a result of thereorganization, approximately 50% ofthe Company’s revenues are invoiced inUS$ and received in INR.During the year, the Company’s grossoperated production of 205,323 boepdhad a direct impact on reducingthe nation’s crude oil import billby approximately US$ 7 billion andcontributed approximately US$ 3.6billion to the GoI (excluding direct taxes).As on 31 March, 2013, the CairnIndia group had gross cash and cashequivalents of INR 167,131 million (US$3.1 billion). The Company fully redeemedthe non-convertible debentures (NCD)during the year.Capital ExpenditureEstimated expenditure(US$ billion) % of total capexRJ ExplorationRJ Production Sustenance (MBA+EOR+Infill) 1.1 ~40RJ Additional Production (BH+Satellite fields) 0.5 ~15Other Assets 0.6 ~20Total Capex 3.0 100Capital Expenditure through FY20160.8 ~25Note: Total capex excludes any expenditure on New ventures and development of new explorationdiscoveries in Rajasthan.The Company’s strongrevenues and profitsprovide flexibility todevelop asset base andsupport acceleratedgrowth.
  35. 35. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS33The currency markets have beenhighly volatile during the year,as evidenced by INR fluctuationsof over 13%. INR depreciated byapproximately 8% in FY2013 due tovarious economic factors includingreduced investor confidence, a slowingpace of economic reforms and awidening current account deficit.Cairn India continually monitors thecurrency markets and undertakescurrency hedging, in accordance withthe Board approved policy. DuringFY2013, the Company hedged itsexposure to the currency marketspredominantly through options.As on 31 March, 2013, Cairn Indiaheld its financial assets in the form ofdeposits, Bank CD, tax free bonds andinvestment in liquid money market(debt) mutual funds.The Company has a strong balancesheet backed by robust cashflows from the operating assetsin Rajasthan, Ravva and Cambay.This provides sufficient liquidity tomeet expected capital expenditurerequirements and also providessignificant headroom for futuregrowth.In order to further explore anddevelop various blocks, including themain Rajasthan assets, the Companyplans to spend around US$ 3 billionover the next 3 years (throughFY2016).The Company has a strong balancesheet backed by robust cash flows. Thetotal dividend of INR 11.5 per equity shareamounted to 21.2% of profit after tax.63,34479,378120,564PAT33.3641.7163.20INREarningsperShareIncomefromOperations2010-112010-11 2010-112010-11 2011-122011-12 2011-122011-12 2012-132012-13 2012-132012-13102,779118,607175,241INR MillionINR Million149,103172,887boepdGrossProduction205,323US$ 2.2 billionUS$ 3.1 billionINR 63.20Profit after taxNet Cashkey highlightsEarnings per share
  36. 36. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS34OUR TALENTCairn India’s success has much todo with the contributions from itsemployees and the “Can-Do” spirit thateach of them epitomise and adopt.Much of the Company’s growth hasbeen achieved through consistentfocus on attracting best-in-class talent,developing and nurturing its people todeliver and to be equal partners in thegrowth journey.FY2013 was a flagship year for thehuman resources (HR) function atCairn India, with the team winningthree prestigious ET Now awards.FY2013 also witnessed the launch andre-design of some major HR initiatives,which should facilitate the Company’sfuture growth and enhance the talentlandscape.Cairn India fosters a culture ofentrepreneurship and meritocracycoupled with accountability andcare. Our success is also a result ofthe diverse and inclusive culture.We have talent from more than 10nationalities contributing to oursuccess. We have been able to blend thebest of all cultures and yet retain ouruniqueness where people feel a senseof belonging and accomplishmentbuilt on the foundations of respect andcollaboration.Developing CapabilitiesTo further enhance the capabilitiesand effectiveness of our people, theCompany launched MPower. Theinitiative is aimed at democratisingdevelopment by making all learningresources available to the employeesand their managers. MPower is aimedat revolutionising the approach towardslearning and development by makingit self-pace, result oriented, curriculumdriven with shorter modules. It hasdevelopment guide, world classe-learning & blended learning solutionsfrom the most reputed institutions.To enhance people managers’capabilities in managing our mostvaluable asset – people – we conductedthe much acclaimed Great ManagerProgramme.Leadership DevelopmentKey to our future success will beeffective and expanded leadership.To further leverage the power ofcoaching for leadership effectiveness,the Company launched a pioneeringinitiative – Power Hour coaching. Underthis, a coach is available on demand.They are drawn from a pool of globalcoaches trained rigorously. It usesinstant coaching over a 60-minuteconversation to arrive at an actionablesolution to any situation leaders mayhave in hand.Cairn India’s successis also a result of thediverse and inclusiveculture. The Companyfosters a culture ofentrepreneurship andmeritocracy coupledwith accountabilityand care.
  37. 37. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS35The Company’s success would notbe possible without the exceptionalpool of talent and the “Can-Do”spirit of our employees.Young talent at Cairn India
  38. 38. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS36Health, Safety &EnvironmentCairn India’s HSE vision is to be asafe operator, leading the industry insafety standards. It is committed tomaintaining the highest HSE standards.Greening India: Project ShrishtiUnder ‘Project Shrishti’, Cairn Indiahas created social forests and parksin Banaskantha district and at the NalSarovar area in the Ahmedabad districtof Gujarat. Approximately 35,000 treeshave been planted and 38 hectaresof barren and underdeveloped landconverted into a lush green area. It isalso working on a mangrove plantationdevelopment in the Olpad Talukaof the Surat district in Gujarat. Thisplantation will cover an area of about50 hectares.Similarly, the Company is activelyinvolved in developing social forestsin the Barmer and Jalore districtsof Rajasthan over approximately 52hectares of land, where it is in theprocess of planting around 50,000 trees.The Company also launched a uniqueprogramme based on the belief thateverybody has aspiration to plant atree. In order to realise this dream,Cairn India, with the help of NGO,has developed “e-Plantation Portal”.This platform allows everyone fromanywhere to log-on to an internetportal and pick a project site ofindividual choice and plant a tree.The Company’s total footprint under‘Project Shrishti’ is ~140 hectares. Itplans to continue initiatives as part ofthe project across its operational areas.Zero Tolerance and Life SaversKeeping people safe is a top priorityfor Cairn India. During FY2013, theCompany launched the ‘Zero Tolerance& Life Savers’ initiative to enforce itsHSE commitment with greater vigourand to inculcate safe behaviour as apersonal value. This initiative coversfour key areas: (i) personal safety, (ii)driving, (iii) site safety, and (iv) controlof work.Compliance is mandatory for all CairnIndia employees and contractors whileon business at the Company’s sites.The rules focus on modifying workerand supervisor behaviour by raisingawareness of unsafe practices andconditions, which are most likely toresult in serious injury or fatalities.Defensive Driving: Road SafetyCairn India is committed to theprevention of road accidents and it isimplementing training in ‘DefensiveDriving’, which is conducted by aspecialist organisation across all itsassets.Cairn India is amongst theglobal top 10 Exploration& Production companiesin HSE performance.
  39. 39. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS37More than 5,000 community members,apart from employees and allcontractors, have been trained underthis campaign at Barmer, including 170school children. These initiatives haveresulted in reducing the frequency rateof motor vehicle accidents by 30%.Reducing Gas FlaringThe Company has been reportingits Greenhouse Gas (GHG) EmissionIntensity since 2002 and has beenparticipating in the Carbon DisclosureProject since 2009.Cairn India currently utilises associatedgas at the CPT to generate power forits operations. The endeavour is toreduce gas flaring. This is done throughimproved well control management,utilising the available gas salesinfrastructure to sell the excess gasand, where such an option is notavailable, to actively participate withthe government to secure approvals forgas sale.These practices are reflected in theCompany’s GHG emission intensity.Though production has increased byabout 67% over the last three years,the GHG emission intensity hasincreased by only 4%. In addition,during FY2013, Cairn India reduced itsgas flaring intensity by 42%. At present,the overall average flaring intensity NOx Emissions in Tonnes2,2432,3701,9972010 2011Volatile Organic Compounds in Tonnes5552673292010 2011 2012-13 2012-13Lost Time Injury Frequency RatePer million man hours0.400.180.082010 2011 2012-13Total Recordable Incident Frequency RatePer million man hours1.480.880.432010 2011 2012-13Nal Sarovar Green Development Project, Gujarat
  40. 40. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS38Embracing eco-friendly mode of transport, CPT
  41. 41. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS39By promoting safe and ethical workpractices, adhering to environmentaland social responsibilities, CairnIndia endeavours to maximisestakeholder value.is 4.5 metric tonnes of natural gasflared per thousand metric tonne ofhydrocarbon produced.Cairn India’s average energyconsumption for productionoperations during the reportingperiod was 1.12 GJ per metric tonneof crude equivalent produced againsta global average of 1.6 GJ per metrictonne (OGP 2012 Report).The associated gas from the wellfluid processing is separated andused for captive power generation.Cairn India’s flaring intensity duringFY2013 was about 4.5 metric tonnesof natural gas per thousand metrictonnes of hydrocarbon producedversus the global average of 15.7metric tonnes for exploration andproduction upstream operations(OGP 2012 Report).Cairn India’s current GHG emissionintensity is approximately 94 metrictonnes of CO2emission per thousandmetric tonnes of hydrocarbonproduced, versus a global average of159 metric tonnes (OGP 2012 Report).The Company is working to furtherreduce gas flaring to a minimumoperational level.Sustainability DevelopmentCairn India’s approach tosustainability is enshrined in its 3RDirect GHG Intensity Tonnes CO2e/1000tonnes of HC producedGHG Daily Gross operated production (April-March: 2010-11, 2011-12 and 2012-13)90.65 94.2184.502010 2011 2012-13Direct GHG Emissions Tonnes CO2e589,689691,065990,4472010 2011 2012-13ideology — Respect, Responsibilityand Relationships. The concept ofsustainability for Cairn India meansintegrating environmental, socialand economic considerations intoour corporate strategy and deliveringvalue to all stakeholders.Cairn India’s operations contributeto India’s vision of ‘energy sufficiencyand independence’. The organisationstrives to achieve this through theapplication of the best technologiesand safe and ethical work practices.During FY2013, the Companyconstituted an empoweredSustainability Development (SD)Steering Committee with a seniorexecutive committee member asthe Chairman. The objective of theSD Steering Committee is to provide astructured and holistic approach andstrengthen the SD initiatives withinthe organisation.Cairn India proposes to publish itsfirst Sustainability Report based onGlobal Reporting Initiative guidelinesin the last quarter of 2013.Based on an independentassessment the Company is judgedto be substantially responsive. TheNational Voluntary Guidelines report,as per the SEBI guidelines, forms apart of this Annual Report.149,103172,887205,323
  42. 42. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS40Corporate SocialResponsibilityThe Company leverages its resourcesto advocate the broad vision andaspirations of the Twelfth Five YearPlan – ‘Faster, Sustainable, and MoreInclusive Growth’.The Company focuses on inclusivegrowth by fostering social capitalthrough health and educationinitiatives and creating accessto opportunities and resourcesthrough economic development andinfrastructure support initiativesenvisaged by the ‘MillenniumDevelopment Goals’.Supporting Inclusive GrowthCairn India established the CairnEnterprise Centre (CEC) in 2007 inBarmer. The Centre is designed topromote and support employability andlocal economic development throughvocational training, development of softskills and local vendor development.Since inception, the CEC has trainedover 8,000 youth; of which 60 per centhave already been employed or havecreated their own micro-enterprises.During the fiscal year, Cairn Indiaentered into an agreement withIL&FS Skills to provide training tothe youth in Barmer district; therebymaking them more employable and‘market ready’. The same has beenreplicated at Ravva in partnership withNASSCOM, where the youth have beenprovided employment opportunitieswith leading retail outlets and ITcompanies in Andhra Pradesh andTamil Nadu.Cairn India has been able to benefitmore than 150 local vendors in Barmerthrough ‘Vendor Engagement Cell’ ande-tendering processes.On the other hand, Cairn Indiacontinues to augment livelihoodopportunities across its operationalareas targeted through the dairydevelopment initiative in Rajasthan,generating revenue in excess of US$1 million for local communities todate. While in Gujarat, the Agri-Kioskservices benefitted over 10,000 farmersacross 193 villages.As part of Cairn’s initiatives todevelop and nurture skill, andprovide economic capabilities andopportunities, the Company hasdecided to establish the Cairn Centreof Excellence (CCoE) at Jodhpur. Thisis a vocational skill developmentinstitute that will provide globallycertified courses. The courses willbe strongly linked to the dynamicdemands of the employment market.This initiative is in line with theGovernment of Rajasthan’s vision todevelop Jodhpur as an educationalhub, with a number of world classinstitutions in the neighbourhood.The proposed CCoE is expected to be aflagship project for the Company.Cairn India is committedto the highest standardsof Corporate SocialResponsibility (CSR).The Company believesthat business growthshould propel communitygrowth and create valuefor all stakeholders.Cairn India’s socialdevelopment initiativeshave benefited ~100,000households acrossoperational areas.
  43. 43. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS41Cairn India’s initiatives focus onimproving employability of ruralyouth and the region’s overallHuman Development Index.Under the PPP model, Cairn haslaunched an ambitious project ‘JeevanAmrit’ to provide quality potablewater to local communities acrossvillages in Rajasthan. The project isa joint initiative between Cairn, TataProjects and Government Public HealthEngineering Department.Further, as part of its inclusive growthstrategy, Cairn India is undertakingseveral initiatives focussed on improvinghealthcare access to the community.Through these initiatives Cairn Indiahas been able to cater to over 200,000community members across 200 villagesand 8 districts of Rajasthan and Gujaratand 25,000 community members inAndhra Pradesh’s Krishna district.In order to enhance educationinitiatives for rural students, thecompany continues to implementseveral innovative projects, likethe Mobile Science Van, Theatre inEducation, Rural School Library, ScienceExpress, Environment and Energyconservation to improve the learningand teaching practices. Through itseducation initiatives Cairn has beenable to reach out to over 100,000students in 140 schools of Rajasthanand Gujarat to date.Cairn India focused on renewableenergy by implementing the SolarElectrification project in 26 villages;24 villages along the Salaya-Bhogatsection of the pipeline in Jamnagarand two villages in Banaskantha,Gujarat. More than 3,000 solar streetlights were installed benefitingapproximately 10,000 households.Through its inclusive growthapproach Cairn India has been ableto benefit approximately 500,000community members through variouscommunity development initiatives.The Company also strives to achieveinclusive growth by creating sharedvalue in its operational areas.Cairn India strives tosupplement governmentefforts to improveinfrastructure needs ofthe community, whilstleveraging governmentschemes to provide betterfacilities.Jeevan Amrit Project, Rajasthan
  44. 44. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS42Business RisksOil and gas exploration andproduction activities are subjectto significant risks and hazards.Effective management of alluncertainties is imperative and ofprime importance to Cairn India.The senior employees and the Boardof Directors are aware of the risksto our business and its operations.Management is prepared to takemeasures, when needed, to mitigateand alleviate such risks to the bestpossible extent.Risk: Crude oil and natural gasreserves are estimates and actualrecoveries may vary significantly.There are numerous uncertaintiesinherent in estimating crude oiland natural gas reserves. Reservoirengineering follows a subjectiveprocess of estimating undergroundaccumulations of crude oil andnatural gas. It is well understoodthat these cannot be measuredin an exact manner. Throughenhanced understanding of thereservoirs, achieved by undertakingadditional work, these risks aregradually mitigated. Reservesestimations involve a high degreeof judgement and it is a functionof the quality of the available dataand the engineering and geologicalinterpretation. Results of drilling,testing, and production maysubstantially change the reserveestimates for a given reservoir over aperiod of time.For these reasons, actual results mayvary substantially. Such variation inresults may materially impact CairnIndia’s actual production, revenueand expenditures.Risk: Due to a delay or denialin approvals, Cairn India mightnot be able to achieve thetarget production level from theRajasthan.Cairn India cannot increaseproduction beyond the approvedproduction rate — as it requires theprior consent of the JV partner, theappropriate regulatory authoritiesand the Government of India to doso. Such approval might be delayedand/or denied by the JV partner orthe regulatory authority. In suchinstances, production could beimpacted.Risk: Availability of oilfield serviceswill have a significant influence onfuture performanceTo fully capitalise on the potentialfrom the Rajasthan block, Cairn Indiaplans to drill over 450 wells in theRajasthan block during a three yearperiod. To successfully execute thisprogramme, the Company will haveto rely on services providers — geo-scientific surveyors, rigs and others.This may expose Cairn India touncertainties in the oilfield servicesmarket with a resultant negativeimpact on operations. Getting theappropriate service providers, andsecuring rigs at right time andappropriate price could pose apotential challenge. All of these couldhave a material adverse effect on
  45. 45. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS43operational and financial performance.Risk: Cairn India might not be ableto pay dividends.The payment of future dividends issubject to the recommendation ofBoard of Directors and approval ofshareholders. Among other factors,the payment of future dividends willbe driven by the Company’s operatingresults, financial conditions, outlookfor earnings growth, credit riskconsiderations; and future capitalrequirements. Key considerations arealso given to the general businessand market conditions. Due tomacroeconomic conditions and businessimperatives, the Company may not havesufficient cash to pay dividends.Risk: Regulatory uncertainties mayimpact the Company’s business.The Company’s business has beenpreviously affected by the changingregulatory landscape and this mightcontinue in future. It might be affectedby political developments by the central,state, local laws and regulations suchas production restrictions, changesin taxes, royalties and other amountspayable to the various governmentsor their agencies. New politicaldevelopments, laws and a changingregulatory environment may adverselyimpact the business.Risk: Business outlookOn the positive side, Cairn Indiashould see higher production fromthe Rajasthan block and is poised torealise increased revenues and profitsin FY2014. On the negative side,hydrocarbon players tend to attracthefty taxes whenever Governmentwants to raise additional financialresources. If increased taxes were tobe imposed, it would constrain andpotentially reduce the Company’spost-tax profits. On balance, CairnIndia remains cautiously optimisticabout FY2014.Cautionary StatementStatements in this ManagementDiscussion and Analysis describingthe Company’s objectives, projections,estimates and expectations maybe ‘forward looking statements’within the meaning of applicablelaws and regulations. Actualresults might differ substantially ormaterially from those expressed orimplied. Important developmentsthat could affect the Company’soperations include a downtrend inthe sector, significant changes inpolitical, regulatory and economicenvironment in India, exchange ratefluctuations, tax laws, litigation,labour relations and interest costs.
  46. 46. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS44Internal Controls &their AdequacyCairn India continued to strengthen itsinternal controls processes by makinginvestments to simplify processesand extend IT enablement across theentire procurement-to-pay process.This included, for example, the projecton ‘Driving Implementation forSimplicity, Harmonisation and Agility’,which has started to yield positiveresults.During the year, the Company rolledout a web-based sourcing solutionwhich is a step towards automationof the procurement process toensure standardisation and real timemonitoring of sourcing activities. Asupplier portal ‘Smart Connect’ waslaunched by the Company, whichwill result in an increased onlinecollaboration with suppliers.Business Risk Management ProcessCairn India has in place a RiskManagement Policy. A RiskManagement Committee (RMC)comprising senior executives ofthe Company, chaired by the CEO,is responsible for the review ofrisk management processes andoverseeing the implementation of thepolicy.The RMC provides updates to theBoard on a quarterly basis on key risksfacing the Company, and proposesmitigating actions, as required. TheDirector of Risk Assurance is theSecretary to the RMC.The RMC is, in turn, assisted byfunction-specific Risk ManagementSub-Committees, which are responsiblefor overseeing various activitiesincluding proactively identifying anyemerging risks that may impact theCompany.Operating Policies and ProceduresOperating policies are disseminatedto appropriate departments andfunctions to increase awarenessand compliance. Cairn India’soperational policies, procedures andactivities have all been subjectedto internal audits and compared toits peer group. Implementation ofrecommendations arising from theaudit reports is regularly monitoredby the senior management. DuringFY2013, the Company moved to anelectronic management system toenhance the governance process forany modifications to the productionfacilities. This provides a uniform andconsistent process workflow acrossthe organisation and facilitates bettercompliance to safety guidelines.In addition, the Company has adoptedan electronic permit to work systemthat facilitates safe operations througha consistent process across theorganization, while providing improvedvisibility and effective tracking throughdashboards.Legal and Commercial ProceduresLegal and commercial procedureshave been actively disseminatedthroughout the Company. A legalcompliance management system hasbeen developed to track regulatory
  47. 47. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS45compliance requirements. It has beensuccessful in identifying areas whichrequire immediate legal attentionand has reduced instances of non-compliance.Code of Business EthicsAll of the Company’s employees haveaffirmed that they have understood andaccepted the provisions of the ‘Code ofBusiness Ethics’ for the FY2013.Financial and Management ReportingFinancial policies, standards anddelegations of authority have beendisseminated to senior managementto allocate within their departments.Procedures to ensure conformance withthe policies, standards and delegationsof authority have been put in placecovering all activities.The Company conducts periodicassessment of the accuracy andreliability of the budget modelcompared to actual results achieved.An analysis of the variance betweenbudget and actual is carried out toensure full understanding of thevariance and adopt any requisitecourse correction.Audit Review of Operating andFinancial ActivitiesCairn India’s processes and financialactivities are subjected to independentaudits by internal as well asstatutory auditors. Implementationof recommendations from variousaudit reports is regularly monitoredby the senior management. Internaland statutory audit reports andfindings, including comments by themanagement are placed each quarterbefore the Audit Committee of theBoard of Directors.Performance Setting andMeasurementObjectives and key performanceindicators (KPIs) have been alignedwith Cairn India’s overall visionstatement. A system is in place tomonitor and report the progressof these KPIs to the ExecutiveCommittee and the Board ofDirectors on regular basis.Business ContinuityEmergency response andmanagement plans are in place forall operations. A business continuityplan covering the key risks forthe corporate office at Gurgaonexists and has been implemented.Development of a comprehensivebusiness continuity plan for allthe remaining Cairn India sites iscurrently underway and are expectedto be completed during CY2013.Cairn India’s strategy for riskmanagement is to ensure thatthe Company and its employeescontinue to operate a ‘go beyond’compliance approach. This createsan environment where there is anembedded culture of informed riskacceptance, supported by an effectiveframework to create and fostergrowth.
  48. 48. Mr. Navin AgarwalChairman and Non-Executive DirectorMr. Navin Agarwal, 52, is the DeputyExecutive Chairman of VedantaResources Plc. He plays a key rolein strategic planning and drivesthe organic and inorganic growthof the group. He also oversees largecapital raising initiatives, globalinvestor relations and development ofleadership talent at the managementlevel. Mr. Agarwal has been part ofthe group for the last 30 years sinceits inception. He chairs Vedanta’sgroup Executive Committee where heprovides strategic direction and guidesthe sharing and implementation ofbest management practices across thegroup.Mr. Naresh ChandraNon-Executive and IndependentDirectorMr. Naresh Chandra, 78, is a postgraduate (MSc. in Mathematics) fromAllahabad University and a retired IASofficer. Previously, Mr. Chandra wasChairman of the Indian GovernmentCommittee on Corporate Governance,India’s Ambassador to the USA, SeniorAdvisor to the Prime Minister, Governorof Rajasthan, Cabinet Secretary tothe Government of India, and ChiefSecretary to the Government ofRajasthan. A reputed administratorand diplomat, Mr. Chandra serves as anIndependent Director on the boards ofa number of companies.BOARD OF DIRECTORSMr. Edward T. StoryNon-Executive and IndependentDirectorMr. Edward T. Story, 69, holds aBachelor of Science degree fromTrinity University, San Antonio,Texas, a Masters degree in BusinessAdministration from the Universityof Texas and an honorary Doctoratedegree by the Institute of Financeand Economics of Mongolia. He isthe Chairman of the North AmericaMongolia Business Council. Mr. Storyhas more than 41 years of experiencein the international oil and gasindustry and is the founder, Presidentand Chief Executive Officer of theLondon Stock Exchange listed SOCOInternational Plc.CAIRN INDIA ANNUAL REPORT 2012-13BOARD OF DIRECTORS46
  49. 49. Mr. Aman MehtaNon-Executive and IndependentDirectorMr. Aman Mehta, 66, is an economicsgraduate from Delhi University. He hasover 36 years of experience in variouspositions with the HSBC Group, fromwhere he retired in January 2004 asCEO Asia Pacific. Mr. Mehta occupieshimself primarily with corporategovernance, with Board and Advisoryroles in a range of Companies andInstitutions in India as well as overseas.Formerly, he has been a SupervisoryBoard member of ING Group NVand a Director of Raffles Holdings,Singapore. He is also a member of thegoverning board of the Indian Schoolof Business, Hyderabad and a memberof the International Advisory Board ofPrudential of America.Dr. Omkar GoswamiNon-Executive and IndependentDirectorDr. Omkar Goswami, 56, holds a Masterof Economics Degree from the DelhiSchool of Economics. He is a D. Philin Economics from Oxford University.He has taught in several academicinstitutions in India and abroad, editedone of India’s best known businessmagazines, was the Chief Economist forthe Confederation of Indian Industry,and is the Executive Chairman of CERGAdvisory Private Limited, a consultingand advisory firm. Dr. Goswami servesas an Independent Director on theboard of a number of companiesand is author of various books andresearch papers on economic history,industrial economics, public sector,bankruptcy laws and procedures,economic policy, corporate finance,corporate governance, public finance,tax enforcement and legal reforms.Ms. Priya AgarwalNon-Executive DirectorMs. Priya Agarwal, 23, B.Sc. Psychologywith Business Management from theUniversity of Warwick in the UK.She had experience in PublicRelations with Ogilvy & Mather andin Human Resources with KornFerryInternational, Vedanta Resources andHDFC Bank.Mr. Tarun JainNon-Executive DirectorMr. Tarun Jain, 53, is a graduatefrom the Institute of Cost and WorksAccountants of India and a fellowmember of both the Institute ofChartered Accountants of India andthe Institute of Company Secretaries ofIndia.He is the Director of Finance ofSterlite Industries (India) Limited. Mr.Jain has over 27 years of experiencein corporate finance, accounts,audit, taxation, secretarial and legalmatters. He is responsible for Sterlite’sstrategic finance, including corporatefinance, corporate strategy, businessdevelopment and M&As.Mr. P. ElangoInterim CEO & Whole Time DirectorMr. P. Elango, 51, holds a Mastersdegree in Business Administration fromAnnamalai University, Chennai. He hasplayed a key role in helping developCairn India into a leading Oil & Gascompany. With a career spanning over26 years in Upstream Oil & Gas, Mr.Elango has held several leadershiproles in different areas of the businessand is currently a recognized leader inthe industry in India.Prior to becoming the Interim CEO &Whole Time Director, Mr. Elango wasthe Strategy and Business ServicesDirector for Cairn, responsible forspearheading the strategic planningfor the company as well as leadingand integrating the business servicefunctions to support the core activitiesof Exploration, Development andProduction.Mr. Elango began his career with ONGCin 1985 and over a span of 10-years,performed a range of diverse roles.He joined Cairn in January 1996.CAIRN INDIA ANNUAL REPORT 2012-13BOARD OF DIRECTORS47From left to right, seated: Mr. Aman Mehta,Mr. Navin Agarwal, Mr. Naresh ChandraFrom left to right, standing: Mr P. Elango,Mr. Tarun Jain, Ms. Priya Agarwal, Mr. Edward T.Story, Dr. Omkar Goswami
  50. 50. CAIRN INDIA ANNUAL REPORT 2012-13MANAGEMENT DISCUSSION AND ANALYSIS48
  51. 51. 4949corporategovernancecorporategovernance
  52. 52. CAIRN INDIA ANNUAL REPORT 2012-13CORPORATE GOVERNANCE501 Composition of the BoardAs on 31 March, 2013S. No. Name Executive/Non-ExecutiveNo. of otherDirectorshipsMemberships/Chairmanshipsof Board-level Committees**Indian Others* Member Chairman1 Mr. Navin Agarwal Chairman, Non-Executive Director 6 5 2 -2 Mr. Tarun Jain Non-Executive Director 3 4 4 -3 Ms. Priya Agarwal Non-Executive Director - - - -4 Mr. Aman Mehta Non-Executive Independent Director 5 2 3 35 Mr. Naresh Chandra Non-Executive Independent Director 11 4 8 16 Dr. Omkar Goswami Non-Executive Independent Director 10 2 6 47 Mr. Edward T. Story Non-Executive Independent Director - 3 2 -8 Mr. P. Elango1Interim CEO and Whole Time Director - 15 - -* Directorships in private limited companies, foreign companies and companies under section 25 of the Companies Act, 1956.** Only the Audit Committee and the Shareholders’ / Investors’ Grievance Committee of Indian public limited companies have been considered.1. Appointed as Whole Time Director on 21 January, 2013Board of DirectorsCOMPOSITION, BOARD PROCEDUREAND INFORMATION SUPPLIED TO THEBOARDAs on 31 March, 2013, the Boardcomprised 8 Directors, including sevennon-executive Directors, four of whomare also independent.The Chairman of the Board is anon-executive Promoter Director.All non-executive Directors arerenowned professionals, having diverseexperience and expertise in finance,economics, oil and gas exploration andgeneral administration.The composition of the Board as on 31March, 2013 is given in Table 1. None ofthe Directors is a member of more than10 Board-level committees of Indianpublic limited companies; nor are theychairmen of more than five committeesin which they are members. Further,none of the Directors is related to theother, or to any other employee of theCompany except Mr. Navin Agarwaland Ms. Priya Agarwal. Ms. Agarwal isthe daughter ofF Mr. Navin Agarwal’selder brother, Mr. Anil Agarwal. Duringthe period under review, the followingchanges were made in the compositionof the Board:• Mr. Rahul Dhir resigned as ManagingDirector and Chief Executive Officereffective 31 August, 2012.• Mr. P. Elango was appointed asinterim CEO of the Companyeffective 1 September, 2012 andwas appointed as additional andWhole Time Director by the Board ofDirectors on 21 January, 2013.report on CORPORATEGOVERNANCeThe corporategovernance philosophyof Cairn India Limited(‘Cairn India’ or ‘theCompany’) is structuredto institutionalisepolicies and proceduresthat enhance theefficacy of the Boardand inculcate a cultureof accountability,transparency andintegrity across theCairn India group asa whole.
  53. 53. CAIRN INDIA ANNUAL REPORT 2012-13CORPORATE GOVERNANCE512 Directors’ Attendance RecordFor year ended 31 March, 2013NameNo. of meetings held during theperiod the Director was on BoardNo. of meetingsattended*Presence atthe last AGMMr. Navin Agarwal 5 5 YesMr. Tarun Jain 5 5 YesMs. Priya Agarwal 5 3 YesMr. Aman Mehta 5 5 YesMr. Naresh Chandra 5 5 YesDr. Omkar Goswami 5 4 YesMr. Edward T. Story 5 3 NoMr. P. Elango1- - NAMr. Rahul Dhir22 2 Yes* Video/ tele conferencing facilities are provided to Directors to participate in the meetings, whenever required.1. Appointed as Whole Time Director on 21 January, 2013.2. Resigned from the Board effective 31 August, 2012.The Company follows a structuredprocess of decision-making by theBoard and its Committees. The meetingdates are usually finalised well beforethe beginning of the year. Detailedagenda, management reports andother explanatory statements arecirculated at least seven days aheadof the meeting. To address specificurgent needs, meetings are also calledat shorter notice but never less thana minimum of seven days. In someinstances, resolutions are also passedby circulation. These are often precededby Board discussions through audioconference. The Board is also free torecommend inclusion of any matterin the agenda for discussion. Seniormanagement officials are often calledto provide additional inputs on thematters being discussed by the Board/Committee.The Board has complete access toall the relevant information of theCompany. The quantum and qualityof information supplied by themanagement to the Board goes wellbeyond the minimum requirementstipulated in Clause 49. All information,except critical price sensitiveinformation (which is handed out atthe meetings), is given to the Directorswell in advance of the Board andCommittee meetings.BOARD SUPPORTThe Company Secretary is responsiblefor collation, review and distributionof all papers submitted to the Boardfor consideration and preparation ofthe agenda as well as convening ofthe Board Meetings. The CompanySecretary attends all the meetings ofthe Board and its Committees, advises/assures the Board on Compliance andGovernance principles and ensuresappropriate recording of minutes ofthe meetings. Further, the processfor the Board/ Committee meetingsprovides an effective post meetingfollow up, review and reporting processfor the action taken on decisions/instructions/ directions of the Boardand its Committees. As per Board’sdecision, the Company Secretaryintimates the action points arising outof the deliberations during the meetingto the concerned functional heads whoin turn provide updates to the Board atthe next meeting.The process for theBoard/ Committeemeetings provides aneffective post meetingfollow up, review andreporting process forthe action taken ondecisions/ instructions/directions of the Boardand its Committees.
  54. 54. CAIRN INDIA ANNUAL REPORT 2012-13CORPORATE GOVERNANCE524 Attendance Record of Audit CommitteeFor the year ended 31 March, 2013Name Position StatusNo. of meetings held during the periodthe Director was a Member of theCommitteeNo. of meetingsattended*Mr. Aman Mehta Independent Director Chairman 4 4Mr. Naresh Chandra Independent Director Member 4 4Dr. Omkar Goswami Independent Director Member 4 4Mr. Tarun Jain Non- Executive Director Member 4 4Mr. Edward T Story Independent Director Member 4 33 Directors’ RemunerationFor the year ended 31 March, 2013 (in INR Lacs)Name Salary Perquisites Bonus & PerformanceincentivesRetirementBenefitsCommission SittingFeeTotalMr. Navin Agarwal - - - - - 1.40 1.40Mr. Tarun Jain - - - - - 2.40 2.40Ms. Priya Agarwal - - - - - 0.40 0.40Mr. Aman Mehta - - - - 36.00 2.60 38.60Mr. Naresh Chandra - - - - 36.00 2.60 38.60Dr. Omkar Goswami - - - - 36.00 2.80 38.80Mr. Edward T. Story - - - - 36.00 1.20 37.20Mr. P Elango 30.87 2.72 - 4.09 - - 37.68Mr. Rahul Dhir 438.47 607.71 640.94 20.10 - - 1,707.22Notes: 1. Mr. P Elango and Mr. Rahul Dhir’s remunerations details are for the period during the time they were on the Board. 2. Mr Rahul Dhir’s salary as stated above includes salary of INR 1,697.22 lacs from Cairn Energy India Pty Limited. 3. Mr. Aman Mehta, Dr. Omkar Goswami and Mr. Naresh Chandra were paid a remuneration of INR 34.50 lacs each from Cairn Energy HoldingsLimited, Cairn Energy Hydrocarbons Limited and Cairn Energy Asia Pty Limited, respectively, in their capacity as Directors of the subsidiarycompanies till 30 September, 2012.* Video/ tele conferencing facilities are provided to Directors to participate in the meetings, whenever required.NUMBER OF BOARD MEETINGS ANDTHE ATTENDANCE OF DIRECTORSDuring the year ended 31 March, 2013,the Board of Directors met five times on:20 April, 2012, 23 July, 2012, 22 October,2012, 31 October, 2012 and 21 January,2013. The maximum gap betweenany two meetings was less than fourmonths.Table 2 gives the Directors’ attendanceat board meetings and the AnnualGeneral Meeting (AGM) during the yearended 31 March, 2013.DIRECTORS’ REMUNERATIONTable 3 lists the remuneration paidor payable to the Directors. Thenon-executive Directors do not haveany material pecuniary relationshipor transactions with the Company,other than sitting fees / Directors’remuneration paid / payable to them.The non-executive Directors are eligiblefor commission up to 1% of net profitsas permitted by the Companies Act,1956 and as approved by shareholdersin the annual general meeting held on18 August, 2011.During the year under review, 35,455stock options were granted to Mr. P.Elango, interim CEO & Whole TimeDirector. He also exercised 27,081 stockoptions during the year.SHAREHOLDING OF NON-EXECUTIVEOR INDEPENDENT DIRECTORSNone of the non-executive orindependent Directors hold any equityshares or convertible instruments ofthe Company.

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