CORPORATE RESPONSIBILITY

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1 34 CAIRN ENERGY PLC ANNUAL REPORT Collecting water in Rajasthan During 2009, Cairn concentrated on eight key areas of business practice identified as having high significance through our business risk management and stakeholder engagement processes. Responsible behaviour is integral to Cairn s operations. As an oil and gas exploration and production company that aims to create value for all its stakeholders, we are committed to improving the lives of the people in the communities in which we operate through the integration of economic prosperity, social development and environmental protection. Cairn s approach to CR management and 2009 performance is summarised in the following section. In previous years Cairn also issued a separate Group CR Report with more detailed descriptions and performance data; for 2009 this is provided on the Cairn website at Environmental Resource Management (ERM) has also provided limited assurance of the contents of the 2009 CR Report and a statement of their findings is available on the website CR HIGHLIGHTS Production from the Mangala Field in Rajasthan commenced in August 2009, beginning the generation of substantial predicted revenues for both local and national economies A three fold increase in total people employed in Cairn Group s activities to 72 million man-hours (2008: 24 million man-hours) due primarily to construction activities in Rajasthan Despite significant effort invested in site HSE supervision, safety training and providing protective equipment, regrettably there were three fatalities among contractors working in the Rajasthan construction and production operations 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 development and support local communities in Rajasthan via our Enterprise Centre and rural dairy development projects in Barmer Exploration seismic and survey activities in Arctic waters offshore Greenland completed without safety or environmental incidents Cairn s Group CR Policies, Guiding Principles and Human Rights Handbook updated and new Biodiversity Guidelines prepared. OUR APPROACH TO The complexity and scale of our business raises a variety of CR issues at local, national and international level. Cairn is conscious that its operations, especially in regions of economic, social or environmental sensitivity, may have impacts on staff, contractors, local communities and the environment. Consequently, Cairn is committed to developing and maintaining a sustainable approach to its business strategy by conducting all its activities in a responsible manner. Our CR 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. Our Group CR Policies and Guiding Principles, both reviewed and updated in 2009, lie at the heart of all we do in the conduct of our business. The Group CR Guiding Principles are consistent with the United Nations (UN) Global Compact Guiding Principles and are available to download at They are promoted to staff, partners, suppliers and contractors to help ensure a sustainable business culture. Our Group CR Guiding Principles are based on the value of responsible behaviour across our different stakeholder groups, namely: Behaving responsibly in all our business relationships Behaving responsibly to our people Behaving responsibly towards the environment Behaving responsibly to society

2 CAIRN ENERGY PLC ANNUAL REPORT OVERVIEW BUSINESS REVIEW Find out more at GOVERNANCE FINANCIAL ACCOUNTS

3 36 CAIRN ENERGY PLC ANNUAL REPORT 2009 Continued 1. Development drilling in Rajasthan 2. Truck drivers at the MPT 3. Cairn-supported mobile medical service in Rajasthan To support the delivery of the commitments made in these CR Policies and Guiding Principles, we implement a Group CR Management System (CRMS), which is supported by detailed procedures and guidelines. Applying the Group CRMS to all our business activities is essential in maintaining our licence to operate and building our business reputation. Our Group CRMS is consistent with the international environmental management standard ISO 14001, and we have successfully retained certification to this standard at our production sites at Sangu in Bangladesh and Ravva and Suvali in India. OUR PROGRESS IN 2009 Cairn s activities in India and the associated CR strategy are managed by Cairn India, a majority-owned subsidiary of Cairn listed in India and based in Gurgaon. Outside of Cairn India, the Group manages CR impacts of its operations in Greenland, the Mediterranean and South Asia through its unlisted whollyowned subsidiary Capricorn, which is delivered by an asset-led matrix organisation based in Edinburgh. Cairn India Cairn India is a key player in oil and gas exploration and production in the region and is expected to operate over 20% of India s domestic oil production by In 2009, production began at the Mangala oilfield, which will contribute significantly to local and national economies over the course of its lifetime. Key CR challenges in Cairn India include community development, land acquisition, access to water and security of installations. Cairn India takes a proactive approach to managing CR issues, working closely with local communities to ensure they are active partners in its activities and that it balances social and environmental needs. Cairn (excluding Cairn India) The exploration activities in the waters off Greenland involve significant CR challenges. These range from health and safety issues resulting from operating in harsh climatic conditions, to meeting the expectations of local people, through to minimising potential environmental and biodiversity impacts. In the Mediterranean and South Asia assets, CR activities in 2009 included EIAs in Albania and Bangladesh prior to seismic surveys and preparing for drilling operations in Tunisia. During 2009, we concentrated CR activities across the Group on eight priority areas: Stakeholder Engagement Business Ethics Environmental Impact Climate Change Employee Development Occupational Health and Safety Community and Suppliers Human Rights The following sections discuss the steps taken during 2009 in each of these priority areas. STAKEHOLDER ENGAGEMENT We strive to develop mutually beneficial relationships with all stakeholder groups as one of our CR Guiding Principles. Our activities are influenced by, and can impact, many different stakeholders at local, national and international levels. Our Group CRMS provides guidelines for country, asset and project managers to identify stakeholder groups and to develop effective stakeholder engagement strategies. For every project we undertake, stakeholder engagement strategies are outlined within Public Consultation and Disclosure Plans (PCDP). A key element of each PCDP is the defining of a clear stakeholder issues procedure through which concerns can be voiced and addressed.

4 CAIRN ENERGY PLC ANNUAL REPORT OVERVIEW 3 BUSINESS REVIEW In 2009, a new PCDP and a CR Plan were developed for the 3D seismic programme in Bangladesh. Cairn India, Greenland and Albania also have PCDPs in place, while in Tunisia the PCDP was updated in January 2010 to reflect our drilling programme commencing in March In Greenland, we are committed to an ongoing process of stakeholder engagement. In consultation with the Bureau of Minerals and Petroleum (BMP), we are currently undertaking a detailed EIA and SIAs of the offshore drilling exploration programme planned for summer Through this we aim to agree mutually beneficial solutions and provide a forum through which stakeholders can share their views and air any possible issues. In 2009, Cairn India continued to pioneer a proactive approach to stakeholder engagement in the region. We continue to interact positively with communities in the Barmer region of Rajasthan through initiatives run by the Enterprise Centre, established and funded by Cairn India in partnership with the World Bank s International Finance Corporation (IFC) and the Government of Rajasthan. The creation of the Mangala Development Pipeline, which runs from the Rajasthan oilfield to the Gujarat coast at Bhogat through two Indian states and approximately 250 villages, raises important issues with regards to land acquisition. In 2009, we continued to secure mutually beneficial agreements with landowners for both Right of Use and permanent land acquisition through a cooperative and transparent approach which goes beyond statutory requirements. The careful consideration of landowner rights and issues in this process means that the successful and peaceful conclusion of Right of Use acquisition involving more than 25,000 land users should be achieved by the end of BUSINESS ETHICS We are committed to behaving with honesty and integrity in all our business activities wherever we operate. We are aware of the potentially damaging impact of corruption on our business, in particular because we operate in some countries with a relatively low ranking on the Transparency International 2008 Corruption Perceptions Index. As a result, we need to be particularly vigilant that we operate with the highest standards of integrity at all times. In May 2009, a revised Group Code of Business Ethics and a Whistleblowing Policy was approved and implemented across our business, supported by a comprehensive communications campaign to make all employees aware of their responsibilities as representatives of Cairn. All employees are provided with their own copy of the Code prior to joining the Company and are required to formally agree to it as a condition of employment. Breaches of the Code are reported to the Chief Executive s Committee. Further steps are planned in 2010 towards addressing potential risks of bribery and corruption in our business activities. Given the significance of the revenues paid to government and the value of contracts awarded as a result of our operations, we strive to act with integrity, honesty and transparency at all times. We publish details of the tax and royalty payments made to governments around the world by the Group in the 2009 CR Report. GOVERNANCE FINANCIAL ACCOUNTS

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6 CAIRN ENERGY PLC ANNUAL REPORT Construction at the MPT 2. Seismic operations offshore Greenland 3. Trucking at the MPT, Rajasthan OVERVIEW ENVIRONMENTAL IMPACTS Our business operations can have an impact on the environment, and we place a high priority on mitigating this risk, especially as some of our exploration and production acreage lie in areas of environmental significance. Behaving responsibly towards the environment forms an integral part of our CR Guiding Principles, which include seeking to avoid negative impacts on the environment, striving to prevent pollution and working to ensure no net loss of biodiversity. In 2009, we completed our seismic and survey activities in preparation for drilling in 2010 in Greenland without environmental incident. The surveys acquired significant information on the particular environmental challenges of working in this unique and harsh environment. In 2009, we also began the process of developing a detailed EIA in consultation with key local stakeholders in Greenland, which is due to be completed in 2010 prior to any drilling activities commencing. EIA and SIAs were also conducted for the trucking operation in Rajasthan and Gujarat and for the offshore 3D seismic survey in Sri Lanka. Across Cairn Group, we continued to monitor, manage and report air emissions of greenhouse gases and energy usage, achieving reduced emissions from the production plant in Sangu due to the implementation of third stage gas compression. Emissions across our production activities in Cairn India have increased by 5% over last year s levels with the start of production in Rajasthan. Comprehensive spill prevention measures are implemented to mitigate potential environmental risks resulting from our activities, and detailed spill contingency plans are in place should any incident occur. These are supported by dedicated resources, equipment and training activities. There were two minor spills totalling 0.07 bbls (12 litres) reported from our 2009 operations at Sangu, and in Cairn India, there were three minor oil spills totalling 12 bbls (1,900 litres) and one chemical spill of 2 bbls (318 litres). To reduce the risk of spills from road transportation in India, Cairn India set up a safety management system in 2009 which includes a road risk survey, detailed tanker specifications and driver competency testing. CLIMATE CHANGE Cairn acknowledges the potential adverse effects of climate change on a global scale and the role we have as a responsible business in responding to this complex issue. Our climate change strategy is one of our CR Guiding Principles and we continue to focus on four key elements: measurement, verification and reporting of greenhouse gas emissions; maintaining energy and emissions efficiency; demonstrating informed and transparent action on climate change; and contributing to programmes that address the environmental and social impacts of climate change. EMPLOYEE DEVELOPMENT People are at the heart of everything we do, and this focus is strongly reflected in our CR approach. Our priorities include protecting our people s health, safety and security, providing them with a supportive workplace in which diversity and equality are respected and valued, and in which they are given support and opportunities to develop to their full potential. At a Group level, the key focus areas in 2009 were the review of the HR policies, which led to enhancements covering such issues as flexible working hours, maternity leave, childcare vouchers policy and employee volunteering, engagement with our staff in our Edinburgh Head Office and developing the organisation to support the 2010 work programme. The Employee Opinion Survey in late 2008 identified areas requiring attention and a number of initiatives have been implemented during 2009 to address these. A follow-up survey carried out in the first quarter of 2010 will determine the progress that we have made in the relationship with our employees. OCCUPATIONAL HEALTH AND SAFETY We recognise the inherent potential risks associated with the exploration for and production of hydrocarbons and our responsibility to protect our employees and contractors from all work-related injuries and illnesses. The assessment of health and safety risks associated with our activities, and the design and implementation of robust measures to mitigate such risks, are key elements of our CRMS. During 2009, in Cairn India there was a threefold increase in the number of people working on the construction activities on the MPT facility covering 1.6 km 2 and ~600 km long pipeline to Salaya. At their peak, there were up to 16,000 workers involved in these projects and approximately 63 million man-hours were recorded. BUSINESS REVIEW GOVERNANCE FINANCIAL ACCOUNTS

7 40 CAIRN ENERGY PLC ANNUAL REPORT 2009 Continued 1. Local resident, Rajasthan LOST TIME INJURY FREQUENCY RATE (LTIFR) Number per million man-hours TOTAL RECORDABLE INCIDENT FREQUENCY RATE (TRIFR) Number per million man-hours GREENHOUSE GAS INTENSITY Tonnes CO 2E per 1,000 tonnes Cairn (excluding Cairn India) Cairn India OGP Benchmark* Cairn (excluding Cairn India) Cairn India OGP Benchmark* Sangu production site, Bangladesh Cairn India production sites OGP Benchmark* * OGP benchmark is not yet available for 2009 Despite significant effort invested in site supervision, safety training and providing protective equipment, regrettably there were three fatalities among contractors and vendors associated with our Rajasthan construction and production operations. One of the fatalities occurred during welding operations within the MPT facility and the other two occurred outside of the Cairn sites through a crane accident at the pipeline contractor s maintenance yard and as a result of a contractor road tanker accident on the open highway in Gujarat. All incidents were fully investigated and recommendations to minimise the chance of a re-occurrence implemented. The seismic and survey activities in Greenland and Albania were completed without injuries. There was however a lost time injury at the Sangu plant in Bangladesh in early 2009; our first in the Sangu plant in 10 years. Cairn Group s 2009 LTIFR of 0.26 (2008: 0.25) and Total Recordable Incident Frequency Rate (TRIFR) of 0.64 (2008: 0.68) were similar to performance in 2008 and remain lower than in the wider upstream oil and gas industry as reported by OGP, where the most recent available figures (2008) for LTIFR and TRIFR were 0.55 and In India, we continue to work extensively with contractors to address the management of health and safety issues and we have invested in road safety training for contractors engaged in the transport of crude oil from the Mangala oilfield. COMMUNITY AND SUPPLIERS In the areas in which we operate, we aim to contribute to community and social development by behaving responsibly in all our business relationships and towards society. In addition to our business activities, which provide energy, infrastructure, employment and trade with local enterprises, we seek to add value to communities through focused social investment. SIAs are undertaken prior to major projects commencing and seek to engage with local communities and to provide a forum in which concerns can be addressed and mutually beneficial solutions agreed. In 2009, we continued to support community development in Rajasthan, through initiatives run by the Enterprise Centre in the Barmer region, which is funded by Cairn in partnership with the IFC and Government of Rajasthan. These have included a rural development project, mobile health van, and child and maternal health programmes. Cairn, like other oil and gas exploration companies, outsources much of its activities to its supply chain. The majority of operational man-hours worked on behalf of Cairn are therefore completed by contractors, so their performance is vital to our overall performance. In recent years, we have strengthened our relationships with existing suppliers and contractors, encouraging them to meet the standards required by our CR Policies and Guiding Principles. Major contractors in all locations are evaluated against these CR criteria prior to any contract being awarded. We also plan to implement a process in 2010 to monitor our contractors performance against the criteria following contract award to ensure that they deliver on their commitments. HUMAN RIGHTS At Cairn, we recognise human rights as fundamental and work continually to preserve the rights and conditions of all our stakeholders, including employees, suppliers and those affected by our activities. In Rajasthan, for example, we apply a Rights Aware approach to safeguard the local community s right to water in an area with limited water resources while accessing the water required to support our operations. Respect for human rights is one of our CR Guiding Principles and we have recently updated our Human Rights Handbook to encourage best practice across our operations in this area.

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