Company Announcements

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

FOR IMMEDIATE RELEASE                                                                                   9 March 2021

CAIRN ENERGY PLC ("Cairn")

Full Year Results Announcement for the year ended 31 December 2020

Agreements to acquire Shell's Western Desert assets in Egypt, sale of Cairn's UK North Sea producing assets

Simon Thomson, Chief Executive, Cairn Energy PLC said:

"As we continue to live and work with the consequences of the global pandemic, we have focused on keeping our people safe while maintaining momentum on business priorities and returning value to shareholders.

The proposed acquisition of Shell's Western Desert assets in Egypt is an important step in our strategic ambition to expand and diversify our producing asset base, bringing material reserve and production additions and offering exploration potential in a country with significant oil and gas growth opportunities. Our Joint Venture with established Egyptian operator Cheiron Petroleum Corporation creates a strong partnership with extensive experience and complementary skill sets.

We are also announcing today the proposed sale of our interests in the UK Catcher and Kraken fields. The divestment of these assets, as they fall into natural decline, will further strengthen our ability to pursue Cairn's strategic goals.

Following the unanimous arbitration decision under the UK-India Investment Treaty to award Cairn US$1.2 billion plus interest, we have engaged with the Government of India regarding adherence to the ruling and we are pursuing all avenues to protect our shareholders' rights to the value of the award."

2020 Summary

Ø The impact of COVID-19 has been managed safely across the business

Ø India Arbitration Tribunal award in December 2020 of US$1.2bn plus interest and costs

Ø Completion of sale of interests in Norway and Senegal

Ø Year-end Group cash US$570m with no drawn debt, US$250m subsequently returned to shareholders by special dividend

Ø Net oil production averaged just over 21,000[1] bopd, in line with guidance (2019: 23,000 bopd)

Ø Oil and gas sales revenue of US$324m (2019:US$504m): average realised oil price of US$42.56/bbl (before hedging gains of US$7.27/bbl): (average production cost US$20/boe)

Ø Net cash inflow from oil and gas production US$239m

Ø Capital expenditure on continuing operations was US$125m, in line with guidance

Ø Operating loss US$67m (2019: US$155m operating profit)

Ø Loss after tax of US$394m (2019: profit of US$94m), including loss on disposals of US$276m; no recognition of gain on arbitration award, held as contingent asset

2021 Outlook

Ø Completion of proposed acquisition of Shell's Western Desert assets in Egypt for consideration of US$323m², adding forecast Cairn WI 2021 production of 33,000-38,000 boepd (66% gas)

Ø Completion of proposed sale of interests in UK Catcher and Kraken fields for a firm consideration of US$460m[2] plus contingent consideration linked to oil price and production performance, further strengthening the balance sheet to deliver additional portfolio growth

Ø Continued engagement with the Government of India regarding the arbitration award of US$1.2bn plus interest and costs, whilst all necessary steps are being taken to ensure access to the value of the award for our shareholders

Ø Estimated exploration and appraisal capital expenditure (excluding Egypt and Catcher and Kraken) of US$90m, including exploration wells planned in Mexico and the UK North Sea 

Webcast

There will be a live audio webcast of the results presentation with Q&A available to view on the website (www.cairnenergy.com) at 9am GMT. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.

An 'on demand' version of the webcast will be available on the website as soon as possible after the event. This can be viewed on PC, Mac, iPad, iPhone and Android mobile devices.

Presentation

The results presentation slides will be available on the website from 7:00am GMT.

Conference call

You can listen to the results presentation by dialling in to a listen only conference call at 9am GMT using the below dial-in details.

Dial-in details:

Transcript

A transcript of the results presentation will be available on the website as soon as possible after the event.

Operational review

Covid-19

Cairn's strategic execution during 2020 has been delivered against the backdrop of a global pandemic. Our people and those who work with Cairn have successfully adopted new ways of working to ensure business continuity and momentum on all activities. We thank them for their effort and commitment. Cairn has not accessed any Government business support schemes.

Strategic progress

Financial flexibility to rebuild a balanced portfolio

Financial flexibility is integral to Cairn's strategy. At the onset of the pandemic, swift action was taken to proactively manage the capital programme without risking future activity and opportunity. Active portfolio management saw completion of the sale of the Group's interests in Norway in Q1, and of its Senegal interests in Q4, eliminating significant, long term capital commitments totalling US$1.7bn and enabling a US$250m special dividend to shareholders, which was paid in January 2021.

With balance sheet strength, Cairn is well positioned to fund growth and today announces the proposed acquisition of 50% of Shell's production, development and exploration upstream interests in the Western Desert, Egypt for a purchase price of US$323m net to Cairn, with additional contingent consideration of up to US$140m net to Cairn if certain requirements are met. The remaining 50% of the interests will be acquired by Cairn's consortium partner Cheiron, an experienced local operator. Cheiron will operate the production and development assets and two exploration concessions, with Cairn operating three exploration concessions.

The acquisition is in line with Cairn's strategy of expanding and diversifying the production base. The assets provide low-cost production, near-term development and exploration growth potential and enhance the contribution of gas within Cairn's portfolio.

Transaction Highlights

Ø Adds WI 2P reserves of 113 mmboe as at 31 December 2020

Ø Adds low-cost 2021 forecast WI production of between 33,000-38,000 boepd with an opex/bbl of <US$6/boe, with significant potential to increase production levels in future years.

Ø Two-thirds of production from the Assets is gas weighted, adjusting Cairn's current hydrocarbon split towards gas

Ø Significant Cashflow from Operations (CFFO) contribution: average CFFO[3] for previous three years (2017 - 2019) was ~US$140m net to the interest being acquired by Cairn

Ø Enhances near-term growth opportunities with 2C contingent resources WI of 49 mmboe as at 31 December 2020 to Cairn and significant exploration potential remaining

Ø Cairn, together with Cheiron Energy, plans to finance the Acquisition with a new joint acquisition reserve-based lending facility of up to US$350m, joint junior debt facility of US$100m and existing cash on balance sheet

Ø The economic effective date of the Acquisition is 1 January 2020. Production for the assets being acquired averaged 83,000 boepd (Cairn WI of 41,500 boepd) in 2020

Subject to the approval of the Egyptian authorities and Cairn's shareholders, the acquisition is expected to complete in H2 2021.

Cairn also announces the proposed sale of its entire interests in the UK Catcher and Kraken fields to Waldorf Production UK Limited for a firm consideration of US$460m with a further uncapped contingent consideration dependent on oil price and production performance. The divestment realises value for these assets as they fall into natural decline, enabling Cairn to further pursue its strategic goals at an opportune time in the industry cycle.

Subject to regulatory and shareholder approval, the disposal is expected to complete in H2 2021.

Further details of both proposed transactions are available on www.cairnenergy.com.

India

On 23^rd December, Cairn announced that the tribunal established to rule on its claim against the Government of India ("GoI") had found in Cairn's favour.

The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and it awarded to Cairn damages of US$1.2bn plus interest and costs, which immediately became payable. The total due at the year-end was US$1.7bn.

Cairn has engaged directly with the GoI regarding satisfaction of the Award, which is also enforceable against India-owned assets in over 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Cairn has already taken steps to have the Award recognised in certain major jurisdictions in which Indian sovereign assets have been identified.

Disposal of Senegal interests and return of cash to shareholders

The sale of Cairn's interests in Senegal to Woodside completed in Q4 2020, providing flexibility for future investment, enabling shareholder returns and avoiding significant long-term development capital expenditure. Cash received at completion was US$525m, comprising the US$300m acquisition consideration and a US$225m reimbursement of expenditure incurred on the sale assets since 1 January 2020.  A further US$100m is payable to Cairn subject to certain conditions being met relating to the date of first production from the Sangomar development and the prevailing oil price at that time.

As a result of this transaction, in January 2021 Cairn returned approximately US$250m to shareholders via a special dividend of 32 pence per eligible ordinary share.

Cairn's discoveries offshore Senegal opened up a new basin on the Atlantic Margin, laying the foundations for Senegal's first multi-phase offshore oil and gas development. 

Chair succession

Nicoletta Giadrossi succeeded Ian Tyler as Board Chair on 1 January 2021. We thank Ian for his significant contribution to the business during his seven years on the Board, six as Chairman.

Reserves

The Group 2P reserves decreased during the year by 116.8 mmboe from 149.7 mmboe to 32.9 mmboe.  This was principally as a result of disposals (106.5 mmboe relating to Sangomar and Nova) but also accounts for production in the period (7.8 mmboe) and revisions (2.5 mmboe), the latter primarily related to a change in oil price assumptions for the Group.

Production

The North Sea production assets delivered 2020 annual net production of just over 21,000 bopd, (cum. 7.81m bbl) in line with revised full year guidance. Crude sales from both fields averaged dated Brent pricing or better during the period.

Catcher

Average 2020 gross production from the Catcher Area (Cairn 20% WI) was 50,200 bopd, with production levels impacted in H2 by planned maintenance, shutdown activity and a produced water plant issue, resolved by the Operator. Drilling of the Varadero infill well (VP1) was completed with the well supporting plateau oil rates.

In 2020 Phase 1 of a gas injection trial took place, with Phase 2 taking place in Q1/Q2 of this year.

Kraken

Average 2020 gross production from Kraken (Cairn 29.5% WI) was 37,500 bopd. The FPSO delivered high production efficiency rates over the period, averaging 87% oil production efficiency and 91% water injection.

In 2020, the Kraken JV successfully brought on-line the Worcester producer-injector well pair.  Overall subsurface and well performance has been good, with the rate of water cut evolution remaining stable.

Exploration

Exploration continues to be a core part of Cairn's strategy. We aim to maintain a flexible exploration portfolio with a balance of near infrastructure, short cycle time opportunities alongside select frontier opportunities.

Mexico

Cairn has interests in four blocks in the Gulf of Mexico, two as Operator (Blocks 9 and 15) and two as non-Operator (Blocks 7 and 10[4]). 

In Block 10 in the Sureste basin, an oil discovery was confirmed on the ENI-operated Saasken-1 exploration well (15% non-operated WI)  during Q1 2020, with Operator preliminary estimates of 200 to 300 million barrels of oil in place. Following regulatory approval of the Operator's updated exploration plan, the JV is preparing a second exploration well on the licence in H1 2021. The appraisal plan for the Saasken discovery, with the option to drill an appraisal well, is being assessed by CNH. 

On Block 9 (50% WI), Cairn completed its second operated well in Mexico in Q1 2020. The exploration objectives were dry and the well was permanently plugged and abandoned. Cairn continues to update its assessment of the prospectivity of Block 9 (50% WI).

On Block 7 (30% WI), the Ehecatl-1 well, operated by Eni, completed operations during Q2 2020 and was permanently plugged and abandoned. The Operator ENI and Cairn are working to identify prospects for drilling a second exploration well, currently planned for 2022.

UK

Following the exchange of 50% WI between Cairn operated P2379 and Shell operated licence P2380 in 2020, Shell expects to spud the Jaws prospect on P2380 during Q2 2021. Cairn aims to drill the Diadem prospect (P2379 50% WI operated) in Q2 2022, with a site survey underway. With both licences close to Shell's Nelson platform, exploration success can be fast-tracked to production via subsea tieback. A drill stem test is planned in a success case for both wells. There is analogous follow-on potential in the event of success on licences P2379 and P2381(100% WI).

On licence P2468 (50% WI, operated) in the East Orkney Basin, reprocessing of legacy 2D seismic is completed and shallow boreholes and geophysical data will be acquired in 2021 to inform a decision on acquisition of 3D seismic over this acreage.

Cairn exited the Agar-Plantain (P1763) and Chimera (P2312) licences as it proactively managed its portfolio.

Suriname

Cairn (100% WI) operates Block 61, the largest offshore PSC in Suriname at 13,080 km². The block is situated within the world-class Guyana-Suriname basin where significant discoveries continued to be made in 2020 and 2021. On Block 61, acquisition of 3D seismic is being considered to develop potential drilling opportunities in both shallow and deep-water areas of the block. The licence has been extended for an additional 12 months until June 2022.

Israel
Cairn has a 33.34% WI as Operator in eight licences offshore Israel. During 2020, as part of the minimum work commitment, Cairn awarded a contract for seismic processing, which is ongoing. The project aims to improve the imaging of existing seismic in order to mature prospectivity.

Côte d'Ivoire

Cairn has assumed Operatorship (90% WI) in blocks CI-301 and CI-302 from Tullow which has exited both licences. Cairn remains in the Tullow-operated CI-520 (30% WI). The JV has exited blocks CI-518, CI-519, CI-521 and CI-522 effective end Q4 2020. The proposed 2021 work programme for blocks CI-301 and CI-302 is focused on completing the planned 2D seismic acquisition, when safe to do so.

Outlook

Cairn's engagement with the Government of India on its arbitration award will continue in parallel with pursuing options of enforcement and monetisation of the Award in order to safeguard shareholders' rights. As a result of the transactions announced today, Cairn will deliver a step change in the scale and growth potential of the business with the planned material expansion and diversification of our production profile. The broadening of Cairn's production base will provide the funding and cash flow to support selective exploration activity, with wells in Egypt, the UK and Mexico during 2021.  Underpinning Cairn's approach to capital allocation decisions is our longstanding principle of weighing business development and investment opportunities against a track record of returning cash to shareholders and we will continue to seek opportunities to realise value for shareholders.

Energy transition

As an exploration and production business, Cairn's role in the transition to lower net carbon energy is to responsibly produce hydrocarbons in support of the UN Sustainable Development Goals. The company is committed to driving down emissions in its operations wherever possible and has committed to the World Bank global gas flaring reduction initiative. During 2020, Cairn invested in the NECCUS project, which is examining proof-of-concept industrial carbon capture projects: an engineered solution to helping businesses and governments achieve CO2 abatement on the path to net zero. Cairn assesses its reporting against the Task Force on Climate-related Financial Disclosure and is committed to complying with its framework.

Principal risks and uncertainties

Managing the Group's key risks and associated opportunities is essential to Cairn's long-term success and sustainability. The Group endeavours to pursue investment opportunities which offer an appropriate level of return whilst ensuring the level of associated political, commercial and technical risk remain within the defined risk appetite of the Group.

The Group's risk management framework provides a systematic process for the identification and management of the key risks and opportunities which may affect the delivery of the Group's strategic objectives. Key Performance Indicators are set annually and determine the level of risk the Group is willing to accept in the pursuit of these objectives is a fundamental component of the Group's risk management framework. 

Overall responsibility for the system of risk management and internal control and reviewing the effectiveness of such systems rests with the Board.  Principal risks, as well as progress against key risk projects, are reviewed at each Board meeting and at least once a year the Board undertakes a risk workshop to review the Group's principal risks. This integrated approach to risk management has been and continues to be critical to the delivery of strategic objectives.

Responding to Changing Risks during 2020

Cairn has assessed the principal risks and uncertainties at the end of 2020 and concluded that the majority of principal risks identified at H1 2020 remain relevant. The principal risks are:

·      Volatile oil and gas prices

·      Inability to promptly and fully secure or repatriate value from India

·      Underperformance on Kraken and Catcher assets

·      Climate change policy and its impacts on energy transition

·      Lack of adherence to health, safety, environment and security policies

·      Lack of exploration success

·      Failure to secure new venture opportunities

·      Misalignments with JV operators

·      Fraud, bribery and corruption

·      Political and fiscal uncertainties

·      Diminished access to capital markets

As part of the embedded risk management process, the Group actively considers emerging risks and threats which could impact on the business. The Group identified the direct and indirect impacts from COVID-19 as emerging risks which are actively assessed and monitored, with steps taken to ensure staff safety and delivery of business-critical activities. With moves to remote working as a response to the pandemic, new and evolving cyber threats were identified as an emerging risk to the Group with the IT function monitoring the cyber security environment and implementing mitigations as threats are identified.

Financial Review

Award under the International Arbitration

On 23^rd December, Cairn announced that the tribunal established to rule on its claim against the GoI had found in Cairn's favour.

The tribunal ruled unanimously that India had breached its obligations to Cairn under the UK-India Bilateral Investment Treaty and awarded to Cairn damages of US$1.2 billion plus interest and costs, which immediately became payable. The total due at the year-end was US$1.7 billion.

Cairn has engaged directly with the GoI regarding satisfaction of the Award, which is also enforceable against Indian-owned assets in more than 160 countries that have signed and ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.  Cairn has already taken steps to have the Award recognised in certain major jurisdictions in which Indian sovereign assets have been identified.

Cairn is extremely confident that satisfaction of the award will be achieved either by negotiated settlement or by enforcement against Indian assets (with potential financing and risk sharing options available to accelerate access to cash recovered through enforcement).  However, neither route to recovery is sufficiently well defined in terms of the timing and amount of expected settlement to provide the virtual certainty required by IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" which would allow recognition of an asset on the Balance Sheet.  The receivable under the Award therefore remains classified as a contingent asset at this time.

The taxation of future receipts in respect of the Award is currently uncertain. Further work will be undertaken to assess the tax treatment of future receipts in respect of the Award, which may include discussions with relevant tax authorities.

Post-Balance Sheet Date Transactions

On 8^th March 2021, Cairn signed a sale and purchase agreement for the joint purchase by Cairn and Cheiron of Shell's Western Desert assets in Egypt at an initial cost of US$323m.  This acquisition is an important step in Cairn's strategic ambition to expand and diversify the producing asset base.  It will be funded by existing cash balances and new debt facilities. 

Also, on 8^th March, Cairn agreed the sale of the Group's interests in the UK Catcher and Kraken fields. The divestment of these assets, which are now falling into natural decline, will further strengthen Cairn's ability to pursue Cairn's strategic goals at an opportune point in the cycle.  As the sales process was not sufficiently advanced at the year end, the assets were not re-classified as held-for-sale.

Both transactions require shareholder and government approvals.

Neither transaction impacts the results reported for the current year.  Assuming all necessary approvals, the acquisition in Egypt shall be assessed for accounting under IFRS 3 - Business Combinations.  The sale on UK assets is forecast to generate a book loss after tax of ~US$140m as a result of a reversal of deferred tax assets on UK tax losses which currently offset deferred tax liabilities recorded on the assets.

Gross Profit analysis

Key Statistics

¹ Based on 20% Catcher production and 29.5% of Kraken production before deducting FlowStream's entitlement to Kraken volumes during the year of 1,012 boepd (2019: 1,460 boepd)

² Working interest share of cargoes sold during the period, net of FlowStream entitlement

³ Excluding hedging gains of US$7.27/bbl (2019: US$1.42/bbl)

⁴ Based on total production costs of US$155.8m (2019: US$150.5m), including total lease payments; see table below

Production

During 2020, daily production volumes on both assets remained within revised guidance at just over 21,000 bopd, net to Cairn.  Kraken performance remained strong throughout the year, while Catcher was constrained in the fourth quarter due to operational issues.  Catcher production averaged ~51,200 boepd (2019: ~67,200 boepd) gross for the year and Kraken averaged ~37,500 bopd (2019: ~35,600 bopd).  Net to Cairn, combined production for 2020, including Catcher gas, averaged 21,350 boepd before adjusting for FlowStream entitlement.

Revenue

Revenue from the sale of oil and gas was US$324.5m (2019: US$504.2m), before adjusting for hedging gains of US$55.9m (2019: US$10.9m).  Oil sales realised US$42.56/bbl against an average Brent price of US$41.96/bbl for the year reflecting strong, consistent pricing of both Catcher and Kraken crudes.  Release of deferred revenue of US$13.9m (2019: US$17.2m) and royalty income in Mongolia of US$0.4m (2019: US$1.1m), increased total revenue to US$394.7m (2019: US$533.4m).

The gains recorded on hedge options during 2020 reflect volumes of 1.9 mmbbls of collars, settled on weighted-average floor prices of US$62.09/bbl, and 0.9 mmbbls of swaps, with weighted-average strike price of US$61.85/bbl.  At 31 December 2020, Cairn has hedged ~1.0m barrels of forecast production through to December 2021.  ~0.5m barrels have been hedged using three-way-collar structures with a weighted average floor of US$48.27/bbl and sub-floor of US$35.00/bbl and an average ceiling of US$55.00/bbl, and ~0.5m barrels hedged using swaps with a weighted average strike price of US$45.20/bbl. 

Cost of sales

Total production costs of US$155.8m (2019: US$150.5m) include US$23.0m of variable lease payments (2019: US$25.6m) on the Catcher and Kraken FPSOs respectively. 

Production costs included in the table above are calculated as follows:

¹Fixed lease costs for FPSOs are included in total lease costs disclosed in note 3.3

²Total lease cost per boe are included in total production costs per boe

Net decreases in oil inventory and underlift positions, measured at market value, of US$16.6m were charged against cost of sales in the year (2019: increases of US$20.6m credited against cost of sales).  Following a change in crude marketing arrangements, where Cairn now receive the Group's WI share of each cargo lifted on both assets, there is no overlift or underlift position at the year end.

The increased depletion and amortisation cost per boe arise as a result of reserve adjustments at the year end, primarily on the Kraken producing asset.

Sale of oil and gas assets

During the year Cairn completed the disposal of its Norwegian subsidiary and its interests in Senegal, freeing the Group from multi-year capital commitments totalling over US$1.7 billion.

Cairn announced the disposal of Group's interests in Senegal in July 2020 and completed the sale to Woodside in December. Cash received at completion was US$525m, comprising US$300m acquisition consideration and a US$225m reimbursement of expenditure incurred on the sale assets since 1 January 2020.  Further consideration of up to US$100m is receivable based on the first-oil date and the oil price prevailing at that time.

The completion of the sale of Capricorn Norge AS to Sval Energi in February 2020 generated total net cash flows of US$102.5m to the Group. 

Together, the transactions resulted in a combined loss of U$276.3m recognised within discontinued operations. Post completion of the sale of the Senegal operations, Cairn announced a return of cash to shareholders of £188m (using US$250m of Senegal sales proceeds) by way of dividend and this was paid in January 2021.  The return of cash further demonstrates Cairn's commitment to return value to shareholders at the appropriate opportunity.

Net cash inflow for the Year

¹ Includes cash balance of US$7.2m held by Capricorn Norge AS

²Cash outflows on new venture activities of US$7.0m not relating to pre-award activities are reallocated from administration expenses

³Development expenditure of US$271.4m per statutory cash flow, offset by lease reimbursements of US$4.0m

Reconciliation of statutory cash flow to cash inflow from operations:

Cairn had cash balances of US$569.6m at 31 December 2020, representing a net cash inflow of US$415.9m over the year. There were no borrowings under the Group's Reserve-Based Lending facility, at either the beginning or end of the current year.  US$250m of cash was returned to shareholders in January 2021.

Cairn generated US$239.4m of cash inflow from the sale of oil and gas from Catcher and Kraken.  Completing the sale of the Group's interests in Senegal and Norway generated net cash inflows of US$625.6m.

Cash outflows on exploration expenditure in the year include US$89.4m of costs in Mexico on completion of the Bitol-1 and Ehecatl-1 exploration wells, US$14.6m across the seven licences in Côte d'Ivoire, and US$11.3m in Mauritania where new licence terms on the existing acreage is expected to be agreed shortly, and US$11.4m across other regions.

Development cash outflows in the period primarily relate to costs on Senegal, with US$235.9m spent prior to completion of the sale in the year.  On Kraken, cash spend of US$17.5m included the drilling of a development well on the Worcester satellite field.  US$14.7m was spent on drilling on Catcher with the remining US$3.3m relating to spend in Norway prior to disposal.

Capital expenditure on Oil and Gas Assets

Analysis of additions:

Senegal

Capital expenditure relating to Senegal was reimbursed on completion of the sale to Woodside in December 2020.  

Exploration and Appraisal assets

Exploration and appraisal asset additions and disposals in the UK primarily relate to a swap between Cairn and Shell for interests in licences containing the Jaws and Diadem prospects planned for drilling in 2021.  Unsuccessful costs in the UK include US$19.4m on relinquishment of the Agar-Plantain licence relinquished early in 2021.

In Mexico, US$47.3m of costs relate to drilling of Bitol-1 and Ehecatl-1 wells completed in 2020, with further non-well costs of US$8.7m incurred. Both wells were declared unsuccessful and costs of US$47.3m charged to the Income Statement.  

In Côte d'Ivoire additions of US$8.6m were incurred across the seven licences held by Cairn during the year.  Cairn took over operatorship of two blocks during the year, retain a non-operating interest in a third and the remaining four blocks were relinquished.  Costs relating to those four of US$11.6m were expensed.

Finally, in Mauritania the Group completed the farm-in to Block 7 early in 2020, however the licence was relinquished after the operator withdrew.  Cairn expects to complete the signing of a new licence across the acreage in the near term.

UK Development and Producing assets

Development additions in the year totalling US$35.6m include further development drilling on both assets with Worcester satellite well completed on Kraken and the Varadero infill well completed on Catcher.  Drilling of the Catcher North and Laverda development wells, originally planned for the year, have been delayed due to COVID-19.

Impairment testing

At the year end, Cairn reassessed its long-term oil and gas price assumptions.  Cairn's long-term oil price assumption has reduced from US$65/bbl to US$55/bbl with escalation of prices removed (previously 2%).  The Group's short-term price assumption remains on a rolling average of the forward curve, but the period has been reduced from three to two years. The Group's discount rate remains at 10%.

Despite this reduction in the oil price assumptions, no impairment was recorded on tests performed on the two producing assets.  Sensitivity analysis is provided in the note to the accounts.  Impairment reviews on the Group's exploration and appraisal assets identified no indicators of impairment.

Results for the year - Other operating income and expense

Other operating income and costs, administrative expenses and net finance costs

Pre-award costs reflects ongoing activity as Cairn seeks new opportunities to add to its portfolio of assets. 

Unsuccessful exploration costs, discussed further within asset movements, include wells in Mexico and the relinquishment of licences in Côte d'Ivoire and the UK.

Administration costs have increased year-on-year, largely due to current year costs incurred in advance of the arbitration award and increased accruals relating to share-based payments.

Significant components of net finance costs include an exchange loss of US$26.4m, largely arising on intercompany lending across subsidiaries with differing functional currencies, and £ denominated decommissioning provisions.  Exchange losses in the Income Statement are offset by gains of US$21.6m included within other comprehensive income on the translation of non-USD functional companies to the presentational currency.  Further significant finance costs include US$13.3m of lease interest charges and US$6.4m of borrowing cost and facility fee amortisation charges.

Discontinued Operations

Prior to disposal, neither the Norwegian business nor Senegal operations generated significant profit or loss with a small profit of US$0.5m recorded. 

On disposal of Capricorn Norge, cumulative historic translation losses of US$44.6m arising on consolidation of the NOK denominated subsidiary in US$, were recycled from reserves to the Income Statement, and this generated a loss on disposal of US$39.5m.  The assets and liabilities of Capricorn Norge, including goodwill allocated, had been written down to their recoverable value in 2019.

The sale of operations in Senegal generated a loss on disposal of US$237.3m.  Prior to disposal, Cairn entered a Bridge Financing Facility to fund development expenditure until the date of completion of the sale.  All associated borrowing costs are included in the loss on sale, through capitalisation within the development costs disposals, and the facility was repaid in full in December following receipt of proceeds.

The calculation of the loss on the sale of Senegal does not assume any further income associated with the deferred consideration of up to US$100m.    

Taxation - UK unrecognised deferred tax assets

During the year, Cairn made a UK ring fence profit which was fully offset by brought forward losses. At 31 December 2020, Cairn had total UK ring fence losses of US$486.3m and supplementary charge losses of US$409.8m. All of the UK ring fence losses (at the applicable tax rate of 30%) and the supplementary charge tax losses (at the applicable tax rate of 10%), and activated UK investment allowance and decommissioning liabilities of US$579.2m and US$2.3m respectively, are recognised as deferred tax assets only to the extent they fully offset the deferred tax liabilities of US$245.7m. The remainder of the decommissioning liability represents an unrecognised deferred tax asset of US$148.7m at 31 December 2020.