CEO statement

Cairn's strategy is to create and realise value for stakeholders through exploring, developing and producing oil and gas. In delivering this strategy, we are committed to acting in a socially responsible manner and have the goal of improving the lives of the societies in which we operate through the integration of economic prosperity, social development and environmental protection.

Approach

Over the past 20 years, Cairn's focus on South Asia has resulted in more than 40 oil and gas discoveries and the development of major fields in Bangladesh and India. Since the initial public offering (IPO) in early 2007, Cairn Group's activities in India have been managed by Cairn India, a majority owned subsidiary of Cairn Energy PLC. Outside of Cairn India, the Group manages its operations through its unlisted wholly owned subsidiary Capricorn. Cairn has an early entry frontier exploration position in Greenland, a country recognised by independent bodies such as the United States Geological Survey as having significant hydrocarbon potential. Cairn also has interests in Bangladesh, Tunisia, Albania and Nepal.

Our corporate and social responsibility strategy is based on our core values of Respect, Relationships and Responsibility. These are at the heart of all we do in the conduct of our business and we believe that it is only through responsible business practices that we will ensure a sustainable business.

Strategy

Energy is essential to social and economic progress and, at present, fossil fuels must form part of global energy supply. Cairn Group's strategy over the next three to five years is to seek to contribute to energy supply through optimising the development of the discovered and yet to find hydrocarbon resources in Rajasthan and through its focused exploration activities in Greenland.

We will ensure that all these activities are undertaken in accordance with our CR Policies and Guiding Principles and in accordance with legal and regulatory requirements and appropriate international standards. Wherever possible, we will take a precautionary approach to the environment, including our contribution to climate change.

Performance

Cairn has made good progress in 2009 towards developing the extensive resource base in Rajasthan in India and evaluating our prospective exploration portfolio in Greenland.

There have been 25 discoveries in Rajasthan of which the Mangala, Bhagyam and Aishwariya (MBA) fields are the largest. The Rajasthan fields are being developed in a phased manner with first oil production from the Mangala Field having commenced in August 2009 and will build to a plateau production rate of 175,000 barrels of oil per day in 2011. This will generate substantial revenues for both the Rajasthan and Indian economies, and will account for more than 20% of India's domestic crude oil production.

Undertaking complex projects in Rajasthan and Greenland raises corporate responsibility issues at local, national and international levels. While these are discussed more fully in the Key Issues section, the highlights across the Group in 2009 and areas of focus for the future are:

• Production from the Mangala Field in Rajasthan commenced in August 2009, beginning the generation of substantial predicted revenues for both local and national economies.
• During 2009, the construction activities on the Mangala Processing Terminal (MPT) facility covering 400 acres and the 600 km pipeline to Salaya employed 16,000 workers at their peak and 63 million man-hours were recorded.
• Three-fold increase in total people employed in Cairn's activities in 2009 to approximately 72 million man-hours (2008: approximately 24 million man-hours) due primarily to construction activities in Rajasthan.
• Despite significant effort invested in HSE supervision, safety training and providing protective equipment, regrettably there were three fatalities among contractors and vendors associated with the Rajasthan construction and production operations. The fatalities occurred in a crane accident at the pipeline contractor's maintenance yard, a contractor road tanker accident on the open highway in Gujarat and during welding operations within the MPT facility. All incidents were fully investigated and recommendations to minimise the chance of a re-occurrence implemented.
• Cairn Group's 2009 Lost Time Injury Frequency Rate (LTIFR) was 0.26 (2008: 0.25), a small increase over 2008 and lower than in the wider upstream oil and gas industry as reported by OGP (2008: 0.55).
• Good progress made in the acquisition of permanent and 'right of use' land for the Mangala pipeline in India while protecting the rights and livelihoods of local landowners.
• Continuing initiatives to stimulate local economic development and support local communities in Rajasthan via the Enterprise Centre set up in Barmer in partnership with the International Finance Corporation (IFC) and the Government of Rajasthan, the rural dairy development project, the provision of a mobile health van, and a child and maternal health awareness initiative.
• Exploration seismic and survey activities in waters offshore Greenland completed without recordable safety or environmental incidents. These survey activities involved seven vessels working through a four-month operational window which provided significant information on health, safety and environmental challenges, as well as biodiversity, ice and weather data. This along with data from our 2008 survey programme will provide vital input to the planning of the 2010 drilling programme, and in particular, the necessary Environmental and Social Impact Assessments.
• Cairn's Group CR Policies, Guiding Principles and Human Rights Handbook updated and new Biodiversity Guidelines prepared.

People

People are at the heart of everything we do and this focus is strongly reflected in our CR approach. During 2009 the focus in the Edinburgh head office has been establishing an asset managed organisation with an operational capability to support the 2010 work programme in Greenland. An Employee Opinion Survey in late 2008 also identified areas requiring attention and a number of initiatives have been implemented during 2009 to address these. A follow-up survey to be conducted in the first quarter of 2010 will determine the progress that we have made.

Future

Cairn has experienced significant growth over the last 20 years and has mapped out a strategy to continue to grow in the future. There will undoubtedly be further economic, financial and operational challenges ahead but Cairn is well placed to deliver sustainable growth.

I hope you enjoy reading this report and learning more about our activities, how we manage our impacts and create sustainable value for all our stakeholders.

Sir Bill Gammell
Chief Executive, 6 April 2010