a. Basis of preparation
The financial statements are prepared under the historical cost
convention on accrual basis in accordance with Generally Accepted
Accounting Principles (GAAP), applying the Successful Efforts Method as
per the Guidance Note on Accounting for Oil and Gas Producing
Activities issued by the Institute of Chartered Accountants of India
and Accounting Standards notified under the Companies (Accounting
Standards) Rules, 2006 and provisions of the Companies Act, 1956. The
financial statements are presented in Indian Rupees and all values are
rounded to the nearest million except when otherwise indicated.
b. Use of Estimates
The preparation of financial statements requires estimates and
assumptions which affect the reported amount of assets, liabilities,
revenues and expenses of the reporting period. The difference between
the actual results and estimates are recognized in the period in which
the results are known or materialized.
c. Government Grant
Government Grant related to acquisition of Fixed Assets is treated as
deferred income under ''Deferred Government Grant'' and an amount equal
to proportionate depreciate depreciation of such assets is credited to
Statement of Profit & Loss.
d. Fixed Assets
d.1 Tangible Assets
d.1.1 Fixed assets are stated at historical cost less accumulated
depreciation and impairment. Fixed assets received as donations / gifts
are capitalised at assessed values with corresponding credit taken to
d.1.2 All costs, net of applicable tax credits, relating to acquisition
of fixes assets till the time of bringing the assets to working
condition for intended use are capitalised.
d.2 Intangible Assets
Intangible assets are stated at cost of acquisition, net of applicable
tax credits, less accumulated amortization and impairment.
e. Exploration, Development and Production Costs
e.1 Acquisition Cost
Acquisition cost of an oil and gas property in exploration and
development stage is taken to acquisition cost under the respective
category. Such costs are capitalized by transferring to producing
properly when it is ready to commence commercial production. In Case of
abandonment, such costs are expensed, Acquisition cost of a producing
oil and gas property is capitalized as Producing Property.
e.2 Survey Cost
Cost of Survey and Prospecting activities conducted in the search of
oil and gas are expensed as exploration cost in the year in which there
e.3 Exploratory / Development Wells in Progress
e.3.1 All acquisition costs, exploration costs incurred in drilling and
equipping exploratory and appraisal wells, cost of drilling exploratory
type stratigraphic test wells are initially capitalised as Exploratory
Wells in Progress till the time these are either transferred to
Producing Properties on Completion as per Note on 184.108.40.206 or expensed
as exploration cost (including allocated depreciation) as and when
determined to be dry or of no further use, as the case may be.
e.3.2 All wells under ''Exploratory Wells in Progress'' which are more
than two years old from the date of completion of drilling are expensed
as exploration cost (including allocated depreciation) except those
wells where it could be reasonably demonstrated that the well has
proved reserves and the development of the field in which the wells are
located has been planned.
e.3.3 All costs relating to Development Wells are initially capitalized
as ''Development Wells in Progress'' and transferred to ''Producing
Properties'' on completion as per Note On 2.f.4.1 and 2.f.4.2.
f.4 Producing Properties
f.4.1 Producing Properties are created in respect of an area / field
having proved developed oil and gas reserves, when the well in the
area/ field is ready to commence commercial production.
f.4.2 Cost of temporary occupation of land, Successful exploratory
wells, all development wells, depreciation on related equipment,
facilities and estimated future abandonment costs are capitalised and
reflected as producing properties.
g. Depletion of producing Properties
Producing Properties are depleted using the Unit of Production
Method. The rate of depletion is computed with reference to an area
covered by individual lease / license / asset / amortization base by
considering the proved developed reserves and related capital costs
incurred including estimated future abandonment costs. In case of
acquisition, cost of producing properties is depleted by considering
the proved reserves. These reserves are estimated annually by the
Reserve Estimates Committee of the Company, which follows the
International Reservoir Engineering Procedures.
h. Production Costs
Production costs include pre-well head and post-well head expenses
including depreciation and applicable operating costs of support
equipment and facilities.
i. Side tracking
i.1 The Cost of abandoned portion of side track exploratory wells is
expensed as ''Exploratory Well Cost''.
i.2 The Cost of abandoned portion of side track development wells is
considered as part of cost of development wells.
i.3 The Cost of sidetracking in respect of existing producing wells is
capitalized if it increases the proved developed reserves otherwise,
expensed as Workover Expenditure.
Producing Properties, Development Wells in Progress (DWIP) and Fixed
Assets (including Capital Works in Progress) of a Cash Generating
Unit (CGU) are reviewed for impairment at each Balance Sheet date. In
case, events and circumstances Indicate any impairment, recoverable
amount of these assets is determined. An impairment loss is recognized,
whenever the carrying amount of such assets exceeds the recoverable
amount. The recoverable amount is its ''value in use'' or ''net selling
price'' (if determinable) whichever is higher. In assessing value in
sue, the estimated future cash flows from the use of assets and from
its disposal at the end of its useful life are discounted to their
present value at appropriate rate.
An Impairment loss is reversed if there is change in the recoverable
amount and such loss either no longer exists or has decreased.
Impairment loss / reversal thereof is adjusted to the carrying value of
the respective assets, which in case of CGU, is allocated to its assets
on a pro-rata basis. Subsequent to impairment, depreciation in provided
on the revised carrying value of the assets over the remaining usefully
k. Abandonment Cost
k.1 The full eventual estimated liability towards costs relating to
dismanting, abandoning and restoring offshore well sites and allied
facilities are recognized in respective assest when the well is
complete / facilities are installed.
k.2 The full eventual estimated liability towards costs relating to
dismanting, abandoning and restoring onshore well sites are recognized
when the well is complete. Cost relating to dismanting, abandonig and
restoring its allied facilities are accounted for in the year in which
such costs are incurred as the salvage value is expected to take care
of the abandonment costs. The abandonment cost on dry well is expensed
as exploratory well cost.
k.3 Provision for abandonment cost in updated based on the technical
assessment at current costs.
l. Joint Ventures
The Company has Joint Ventures in the nature of Production Sharing
Contracts (PCS) with the Government of India and various corporate
bodies for exploration, development and production activities.
l.1 The Company''s share in the assets and liabilities along with
attributable income and expenditure of the Jointly Controlled Assets is
merged on line by line basis with the similar items in the Financial
Statements of the Company and adjusted for depreciation, depletion,
survey, dry wells, abandonment, impairment and sidetracking in
accordance with the accounting policies of the Company.
l.2 Consideration for the right to participate in operations
recoverable from new Joint Venture Partners are:
i) Reduced from respective capitalized cost wherever applicable
ii) Reduced from current expenditure to the extent it relates to
iii) Balance is considered as miscellaneous receipts.
l.3 The hydrocarbon reserves in such areas are taken in proportion to
the participating interest of the Company.
Long-term investments are valued at cost. Provision is made for any
diminution, other than temporary, in the value of such investments.
Current investments are valued at lower of cost and fair value.
n.1 Finished goods (other than Sulphur) and stock in pipelines / tanks
and carbon credits are valued at Cost or net realisable value whichever
is lower. Cost of finished goods is determined on absorption costing
method, Sulphur in valued at net realisable value. The value of
inventories includes excise duty, royalty (wherever applicable) but
n.2 Crude oil in unfinished condition in flow lines upto Group
Gathering Stations / Platform and Natural Gas in Pipelines are not
n.3 Inventory of stores and spare parts is valued at Weighter Average
Cost or net realisable value, whichever is lower provisions are made
for obsolete and non moving inventories.
n.4 Unserviceable and scrap items, when determined, are valued at
estimated net realisable value.
o. Revenue Recognition
o.1 Revenue from sale of products is recognized on transfer of custody
o.2 Sale of crude oil and gas (net of levies) produced from Exploratory
Wells in Progress is deducted from expenditure on such wells.
o.3 Sales are inclusive of all statutory levies except Value Added Tax
(VAT). Any retrospective revision in prices is accounted for in the
year of such revision.
o.4 Revenue in respect of the following is recognized when there is
reasonable certainly regarding ultimate collection:
a. Short lifted quantity of gas
b. Gas Pipeline transportation charges
c. Reimbursable subsidies and grants
d. Surplus from Gas Pool Account
e. Interest on delayed realization from customers
f. Liquidated damages from contractors / suppliers
p. Depreciation and Amortisation
p.1 Depreciation on fixed assets is provided for under the written down
value method in accordance with the rates specified in Schedule XIV to
the Companies Act, 1956.
p.2 Depreciation on Additions / deletions during the year is provided
on pro rata basis with reference to the date of additions / deletions
except items of plant and machinery used in wells with 100% rate of
depreciation and low value items not exceeding Rs. 5,000/- which are
fully depreciated at the time of addition.
p.3 Depreciation on Subsequent expenditure on fixed assets arising on
account of capital improvement or other factors is provided for
Depreciation on refurbished / revamped assets which are capitalized
separately is provided for over the reassessed useful life at rates
which are not less than the rates specified in Schedule XIV to the
Companies Act, 1956.
p.4 Depreciation on fixed assets (including support equipment and
facilities) used for exploratory / development drilling and on
production facilities is initially capitalised as part of drilling cost
or producing properties and expensed / depleted as stated in Note
no.2.f and 2.g above. Depreciation on equipment / assets deployed for
survey activities is charged to statement of profit and loss.
p.5 Leasehold land is amortized over the lease period except perpetual
p.6 Intangible assets are amortized on Straight Line Method (SLM) over
the useful life not exceeding five years from the date of
q. Foreign Exchange Transactions
Transactions in foreign currencies are accounted for at the exchange
rate prevailing on the date of the transaction. Foreign currency
monetary assets and liabilities at the year end are translated using
means exchange rate prevailing on the last day of the financial year.
The loss or gain thereon and also the exchange differences on
settlement of the foreign currency transactions during the year are
recognized as income or expense and adjusted to the statement of Profit
& Loss except where such liabilities and / or transactions relate to
fixed assets / projects and these were incurred / entered into before
1.4.2004 in which case, these are adjusted to the cost of respective
r. Employee Benefits
r.1 All short term employee benefits are recognized at their
undiscounted amount in the accounting period in which they are
r.2 Employee Benefit under defined contribution plans comprising
provident fund etc. is recognized based on the undiscounted amount of
obligations of the company to contribute to the plan. The same is paid
to a fund administered through a separate trust.
r.3 Employee benefits under defined benefit plans comprising of
gratuity, leave encashment, compensated absences, post retirement
medical benefits and other terminal benefits are recognized based on
the present value of defined benefit obligation, which is computed on
the basis of actuarial valuation using he projected Unit Credit Method.
Actuarial Liability in excess of respective plan assets is recognized
during the year. Actuarial gains and losses in respect of post
employment and other long-term benefits are recognized during the year.
r.4 Liability for gratuity as per actuarial valuation is funded with a
s. Voluntary Retirement Scheme
Expenditure on Voluntary Retirement Scheme (VRS) is charged to
statement of profit & Loss when incurred.
t. General Administrative Expenses
General administrative expenses which are identifiable to Assets,
Basins & Services are allocated to activities and the balance is
charged to Statement of Profit & Loss. Such expenses relating to Head
quarter are charged to statement of profit & Loss.
u. Insurance Claims
The Company accounts for insurance claims as under:-
u.1 In case of total loss of asset, by transferring either the carrying
cost of the relevant asset or insurance value (Subject to deductibles),
whichever is lower under the head *Claims Recoverable-Insurance on
intimation to Insurer. In case insurance claim is less than carrying
cost, the difference is charged to statement of profit & Loss.
u.2 In case of partial or other losses, expenditure incurred / payments
made to put such assets back into use, to meet third party or other
liabilities (less policy deductibles) if any, are accounted for as
Claims Recoverable-Insurance. Insurance policy deductibles are
expensed in the year the corresponding expenditure is incurred.
u.3 As and when claims are finally received from insurer, the
difference, if any, between Claims Recoverable-Insurance and claims
received is adjusted to Statement of Profit & Loss.
v. Research Expenditure
Revenue expenses on Research are charged to statement of Profit & Loss,
w. Taxes on Income
Provision for current tax is made as per the provisions of the Income
Tax Act, 1961. Deferred Tax Liability / Asset resulting from timing
difference between book profit and taxable profit is accounted for
considering the tax rate and laws that have been enacted or
substantively enacted as on the Balance Sheet date. Deferred Tax Asset
is recognized and carried forward only to the extent that there is
reasonable certainly that the asset will be realized in future.
x. Borrowing Costs
Borrowing Cost specifically identified to the acquisition or
construction of qualifying assets is capitalized as part of such
assets. A qualifying asset is one that necessarily takes substantial
period of time to get ready for intended use. All other borrowing costs
are charged to statement of Profit & Loss.
y. Rig Days Costs
Rig movement costs are booked to the next location drilled / planned
for drilling. Abnormal Rig day''s costs are considered as unallocable
and charged to statement of Profit & Loss.
z. Deferred Revenue Expenditure
Dry docking charges of Rigs / Multipurpose Supply Vessels (MSVz), Geo
Technical Vessels (GVTs), well stimulation Vessels, Offshore Supply
Vessels (OSVs), Rig / equipment mobilzation expenses and other related
expenditure are considered as deferred revenue expenditure and
amoritzed over the period of use not exceeding five years.
za. Provisions, Contingent Liabilities and Contingent Assets
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outflow of resources.
Contingent Assets are neither recognized nor disclosed in the financial
statements. Contingent liabilities are disclosed by way of notes to