Oil and Natural Gas Corporation

1. In terms of the decision of Government of India (GOI), the Company
 has shared under recoveries of Oil Marketing Companies (OMCs) for the
 year 2007-08 by allowing discount in the prices of Crude Oil, PDS
 kerosene and domestic LPG based on provisional rates of discount
 communicated by Petroleum Planning and Analysis Cell (PPAC) on
 quarterly basis to the tune of Rs. 220,008.79 million (Previous Year
 Rs. 170,238.79 million). The net impact after adjustment of Value Added
 Tax (VAT) on sales revenue on the above products is Rs.  212,169.60
 million (Previous year Rs. 164,281.80 million). The company does not
 foresee any material impact on finalization of discount rates.
 
 2.1 Sales revenue in respect of Crude Oil is based on the pricing
 formula agreed with the customers for the period from 01.04.2002 to
 31.03.2004. Pending finalization of fresh Memorandum of Understanding
 with the customers, the same pricing formula has been provisionally
 applied from 01.04.2004 onwards.
 
 2.2 Sales revenue in respect of Natural Gas under Administered Price
 Mechanism (APM) is based on the gas prices fixed on provisional basis
 as per directives of the GOI, Ministry of Petroleum and Natural Gas
 (MoP&NG) dated 20th June, 2005 and 5th June, 2006.
 
 2.3 Adjustments, if any, on account of para 2.1 and 2.2 above shall be
 carried out on finalization of agreement/ directives. However, Company
 does not foresee any material impact on current years results.
 
 3.  Claim for compensation towards payment of way leave fees and loss
 of revenue by the Company in earlier years due to laying of crude
 pipelines during 1978 to 2002 has been accepted by MoP&NG and a sum of
 Rs. 1,973.70 million has been received by way of 8.40% Oil Marketing
 Companies Government of India Special Bonds, 2025 which has been
 recognized as Other Income during the year.
 
 4.  Sales revenue and Purchases include Rs. 65,168.60 million (Previous
 Year Rs. 59,473.48 million) and Rs.  65,115.31 million (Previous Year
 Rs. 59,401.05 million) respectively on account of trading of products
 of a subsidiary i.e. Mangalore Refinery and Petrochemicals Limited
 (MRPL).
 
 5.  Capital Commitment
 
 a.  Estimated amount of Contracts remaining to be executed on capital
 account and not provided for.
 
 i) In respect of Company- Rs. 78,903.63 million (Previous year Rs.
 71,742.32 million).
 
 ii) In respect of Joint Ventures -Rs. 6,886.90 million (Previous year
 Rs. 5,328.68 million).
 
 b.  Minimum Work Programme Committed under various Production Sharing
 Contracts with Govt, of India.
 
 i) In respect of NELP blocks in which the company has 100%
 participating interest - Rs. 32,773.98 million (Previous year Rs.
 7,346.30 million).
 
 ii) In respect of others- Rs. 40,545.16 million (Previous year Rs.
 2,526.31 million).
 
 6.  Contingent Liabilities
 
 a) Claims against the company/disputed demands not acknowledged as
 debts:
 
                                                       (Rs. in million)
                                              As at 31st     As at 31st
                                              March, 2008    March, 2007
 
 I In respect of Company
 
 i.  Income Tax matters                         38,962.90    18,363.94
 
 ii. Excise Duty matters                         3,195.75     2,939.30
 
 iii.  Custom Duty matters                       1,437.48     1,437.47
 
 iv.  Royalty                                      360.39       360.39
 
 v.  Cess                                            0.22         1.49
 
 vi.  AP Mineral bearing Lands 
     (Infrastructure) Cess                         726.96       364.02
 
 vii. Sales Tax                                    799.09       831.49
 
 viii. Municipal Corporation                        66.89        80.80
 
 ix.  Specified Land Tax (Assam)                 1,354.36     1,046.38
 
 x. Claims of contractors in 
    Arbitration/Court *                         50,817.26    17,230.61
 
 xi.  In respect of other matters                5,913.95     6,170.59
 
 Sub Total (A)                                 103,635.25    48,826.48
 
 II In respect of Joint Ventures
 
 i.  Income Tax matters*                             8.91         8.91
 
 ii.  Custom Duty matters                        5,185.11     5,027.82
 
 iii.  Royalty                                      21.04       240.04
 
 iv.  Cess                                           8.71         7.76
 
 v.  Sales Tax                                   2,028.79     1,926.80
 
 vi.  Claim of GOI for additional 
      Profit Petroleum                           4,531.52     4,946.89
 
 vii.  In respect of other matters                 737.61     1,307.11
 
 Sub Total (B)                                  12,521.69    13,465.33
 
 TOTAL (A + B)                                 116,156.94    62,291.81
 
 In the opinion of the Company, the above claims/demands are not tenable
 and are at various stages of appeal.
 
 * Includes a contract for carrying out certain works relating to G-1
 and GS-15 fields in Godavari Basin awarded to a contractor which was
 terminated due to non performance by the contractor. During the course
 of arbitration, contractor has put forward a claim for USD 869.50
 million (equivalent to Rs. 34,623.49 million) as compensation for
 termination of contract, which is contested by the Company.
 
 b) Bank Guarantees given by the Company:
 
 (i) Rs. 1,175.08 million (Previous year Rs. 4,834.70 million) including
 Rs. 1,154.13 million (Previous year Rs. 3,803.70 million) for NELP
 Blocks where the Company has 100% participating interest.
 
 (ii) In respect of Joint Ventures-Rs. 1,697.51 million (Previous year
 Rs. 573.20 million).
 
 c) Corporate Guarantees executed by the company on behalf of its wholly
 owned subsidiary, ONGC Videsh Limited (OVL) and ONGC Nile Ganga BV
 (wholly owned subsidiary of OVL):
 
 A.  Guarantees executed for financial obligations:
 
 (i) Amount of Guarantee Rs. 32,233.25 million (Previous year Rs.
 33,353.41 million).
 
 (ii) Amount Outstanding Rs. 3,082.86 million (Previous year Rs.
 2,312.57 million).
 
 B.  Performance Guarantees executed under the contracts:
 
 (i) Guarantee executed jointly with CNPC in favour of Petro Canada
 Germany GmBH (Seller) for the performance of obligation under sale
 agreement for acquiring seller share in Petro Canada Nina GmBH for
 acquisition of interest in Syrian operations, without any financial
 ceiling.
 
 (ii) Guarantee executed in favour of Petrobras & Shell Brazil as a part
 of acquisition of 15% Participating Interest in Block BC-10 Brazil by
 ONGBV, a subsidiary of OVL for fulfillment of obligation under
 concession contract and joint venture documents without any financial
 ceiling.
 
 (iii) Guarantee in respect of Sakhalin Project in favour of
 Exxonneftgas Ltd., M/s. Roseneft-S, SMNG-S and RN- Astra towards
 performance of Companys obligation under assignment agreement, carry
 finance agreement and JOA without any financial ceiling.
 
 (iv) Guarantee executed in favour of Govt, of State of Qatar for Najwat
 Najem Oil Structure, Qatar without any financial ceiling.
 
 d) Corporate Guarantees executed by the company on behalf of its
 subsidiary, MRPL:
 
 (i) Amount of Guarantee Rs. 14,335.20 million (Previous year Rs.
 13,475.70 million).
 
 (ii) Amount Outstanding Rs. 8,468.52 million (Previous year Rs.
 5,273.35 million).
 
 8.  The Company has reviewed and revised the estimated eventual
 liability towards costs relating to dismantling, abandoning and
 restoring Offshore Well Sites and allied facilities based on the advice
 of the outside consultant who has suggested cost effective rigless
 methodology for plugging and abandonment in respect of wells.
 Accordingly, there is a reduction in liability for abandonment cost by
 Rs. 33,165.96 million with corresponding decrease in producing
 properties. This has resulted in decrease in depletion for the year
 with corresponding increase in profit before tax by Rs. 3,829.33
 million.
 
 9.  The Company is mainly in the oil and gas exploration and production
 activities where each cost centre used for depreciation (depletion)
 purposes has been identified as independent Cash Generating Unit (CGU)
 for assessing the impairment in Producing Properties and fixed assets
 etc. on the basis of Value in use. The Company has tested all its
 assets for impairment by applying discount rates of 15.64% (Previous
 year 15.07%) for Rupee transactions and 11.13% (Previous year 11.59%)
 for crude oil and value added products revenue measured in USD as on
 31st March, 2008.
 
 During the year, Rs. 84.89 million (Previous year Rs. 2,072.56 million)
 has been provided as additional impairment loss in respect of Jodhpur
 and Silchar CGUs (Previous year six CGUs). Further, impairment loss to
 the extent of Rs. 521.78 million (Previous year Rs. 343.03 million) has
 been reversed in respect of Ratna and CB-ON-7 fields due to decrease in
 abandonment liability and increase in price of crude oil respectively.
 
 10.  The Company had changed the rate of depreciation in 2005-06 on all
 Trunk Pipelines and Onshore Flow lines (assets below ground) from
 27.82% to 100% based on technical assessment by the management. The
 Company has made a reference to the Ministry of Corporate Affairs in
 2006-07 for confirmation of the rate of depreciation.  Pending
 clarification by the Ministry, the Company continues to charge
 depreciation at 100% on such assets.
 
 11.  Till the year 2006-07, the company had been charging certain
 employee benefits (CPF, Gratuity, Leave Encashment, Annual Incentive,
 Additional Annual Incentive and Post Retirement Death in Service
 Benefit Scheme expenses and Post Retirement Medical Benefits) and
 general administrative expenses at Assets, Basins, Services, Regions
 and Head quarters to Production, Transportation, Selling fit
 Distribution Expenditure. The Company has reviewed and rationalized
 its allocation policy during the year w.e.f. 1st April, 2007.
 Accordingly, the above employee benefits and directly identifiable
 general administrative expenses at Assets, Basins and Services have
 been allocated to Exploration, Development and Production activities
 etc. As a result of this change, Profit before tax is higher by Rs.
 6,308.24 million approximately.
 
 12.  The Company had acquired 90% Participating Interest in Exploration
 Block KG-DWN-98/2 from M/s. Cairn Energy India Ltd., in 2004-05 for a
 lump sum consideration of Rs. 3,711.22 million, which was capitalized
 under Exploratory wells in Progress as per Accounting Policy no. 6.1.
 
 Subsequently drilling of three wells has been completed in this block
 till March 2006 at a cost of Rs. 2,393.58 million and included in
 Exploratory wells in Progress. There are Initial-in-Place-Reserves in
 this block and also conceptual development plan is underway. The block
 is located in deep waters needing more time for completion of appraisal
 programme. However, the company as an abundant prudence has made a
 provision of Rs. 6,104. 80 million, in respect of above costs.
 
 16.  Since the Company has prepared the Consolidated Financial
 Statements as per Accounting Standard (AS-21), segment information has
 been presented in the Consolidated Financial Statements.
 
 17.  The Company has a system of physical verification of Inventory,
 Fixed Assets and Capital Stores in a phased manner at regular intervals
 with general ledger balances. Adjustment of differences, if any, is
 carried out in books of account after examination of these differences.
 
 18.  Some of the balances of Debtors, Creditors and Loans & Advances
 are subject to confirmation/reconciliation.  Adjustments, if any, will
 be accounted for on receipt / confirmation of the same after
 examination.
 
 19.  (a) As per the Production Sharing Contracts signed by the company
 with the GOI, the company is required to complete Minimum Work
 Programme (MWP) within stipulated time. In case of delay in completion
 of the MWP, Liquidated Damages (LD) are payable for extension of time.
 Further in case of inability to complete MWP or surrender of block
 without completing the MWP, the estimated cost of completing balance
 work programme is to be paid to the GOI. The LD amounting to Rs. 498.51
 million (Previous year Rs. 683 million) and cost of unfinished MWP net
 of reversal is Rs. 97.89 (credit) million (Previous year Rs. 3,844.80
 million) paid/payable for the year to the GOI has been included in
 survey expenditure and drywells respectively under recouped cost in
 Schedule 22.
 
 (b) In respect of NELP Block CY-DWN-2001/1 and KK-DWN-2001/3, LD
 amounting to Rs. 449.28 million (companys share) has not been
 provided, since the moratorium proposal for exploration in deepwater
 blocks is under active consideration of the GOI.
 
 20.  Pay Revision of Officers and Unionized category is due w.e.f.
 1.1.2007. Pending finalization, the company has provided for a sum of
 Rs.10,500.47 million as estimated by the Management. The same has been
 allocated to activities as per the policy of the Company.
 
 21.1.1 The Company has 61 joint ventures (Previous year 61) for
 exploration and production. As at the end of the year, the companys
 share in the total value of assets, liabilities, income, expenditure
 and net profit before tax of above joint ventures amounts to Rs.
 58,580.95 million (Previous year Rs. 51,873.85 million), Rs. 24,180.80
 million (Previous year Rs. 17,546.89 million), Rs. 51,857.66 million
 (Previous year Rs. 46,479.07 million), Rs.  38,879.84 million (Previous
 year Rs. 31,320.52 million) and Rs. 12,977.82 million (Previous year
 Rs. 15,158.55 million) respectively.
 
 21.1.2 The Company has entered into Production Sharing Contracts with
 Govt, of India in respect of 30 New Exploration Licensing Policy (NELP)
 blocks (Previous year 29) where the Company has 100% participating
 Interest. The total value of assets, liabilities, income, expenditure
 and loss before tax of these NELP blocks amounts to Rs. 760.43 million
 (Previous year Rs. 519.23 million), Rs. 361.87 million (Previous year
 Rs. 146.87 million), Rs. 22.48 million (Previous year Rs. 0.10
 million), Rs. 8,921.43 million (Previous year Rs. 6,906.50 million) and
 Rs. 8,898.95 million (Previous year Rs. 6,906.40 million) respectively.
 
 21.1.3 Total value of assets, liabilities, income, expenditure and loss
 before tax in respect of 12 blocks (Previous Year 12 blocks)
 surrendered till the end of the year amounts to Rs. 8.44 million
 (Previous Year Rs. 46.00 million), Rs.  572.72 million (Previous Year
 Rs. 882.86 million), Rs. 0.23 million, (Previous Year Rs. 1.89 million)
 Rs. 38.04
 
 21.1.4 The financial statements of 91 out of 103 JVs/NELP as per para
 no. 21.1.1 to 21.1.3 have been incorporated in the accounts by the
 company to the extent of companys participating interest in assets,
 liabilities, expenditure, income and profit (loss) before tax on the
 basis of statements certified in accordance with production sharing
 contract and the same has been adjusted for changes as per accounting
 policy no. 9.1
 
 In respect of balance 12 (Previous year 27) JVs/NELP assets,
 liabilities, Income and expenditure amounting to Rs. 163.18 million
 (Previous year Rs. 11.20 million), Rs. 48.41 million (Previous year Rs.
 15.18 million), Rs.  0.19 million (Previous year Nil) and Rs. 962.74
 million (Previous year Rs. 112.51 million) respectively have been
 incorporated on the basis of uncertified statements prepared under the
 production sharing contracts.
 
 24.  The required disclosure under the Revised Accounting Standard 15
 is given below:
 
 (A) Brief Description: A general description of the type of Defined
 Benefit Plans is as follows:
 
 (i) Earned Leave (EL) Benefit Accrual - 30 days per year
 
 Encashment while in service - 75% of Earned Leave balance subject to a
 maximum of 90 days per calendar year Encashment on retirement - maximum
 300 days
 
 (ii) Good Health Reward (Half pay leave) Accrual - 20 days per year
 Encashment while in service- Nil
 
 Encashment on retirement - 25% of Half Pay Leave balance subject to a
 minimum balance of 120 days, restricted to maximum 480 days
 
 (iii) Gratuity
 
 15 days salary for every completed year of service. Vesting period is 5
 years and the payment is restricted to Rs. 10 lakhs (Rs. 3.5 lakhs
 previous year)
 
 (iv) Post Retirement Medical Benefits
 
 Upon payment of one time prescribed contribution by the employees, full
 medical benefits on superannuation 6t on voluntary retirement subject
 to the completion of minimum 20 years of service and 50 years of age
 
 (v) Terminal Benefits
 
 At the time of superannuation, employees are entitled to settle at a
 place of their choice and they are eligible for Transfer Traveling
 Allowance. Employees are gifted a silver plaque also depending upon
 their level
 
 28.  Previous years figures have been regrouped/ reclassified wherever
 necessary to conform to current years classification.
 
 29.  Figures in bracket as given in Notes to the Accounts relate to
 previous year.