Notes to Financial Statements for the year ended 31st March, 2015
1. Corporate information
Oil and Natural Gas Corporation Limited ('ONGC' or 'the Company') is a public limited company domiciled and incorporated in India. The Company's shares are listed and traded on Stock Exchanges in India. The Company is engaged in exploration, development and production of crude oil and natural gas.
2. Significant Accounting Policies
a. Basis of brparation
The financial statements are brpared 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 (Revised) issued by the Institute of Chartered Accountants of India and Accounting Standards as brscribed under the Companies (Accounts) Rules, 2014 and provisions of the Companies Act, 2013.
As the operating cycle cannot be identified in normal course due to the special nature of industr y, the same has been assumed to have duration of 12 months. Accordingly, all assets and liabilities have been classified as current or non-current as per the Company's operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013.
The financial statements are brsented in Indian Rupees and all values are rounded to the nearest million except otherwise stated.
b. Use of Estimates
The brparation 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 Government Grant' and an amount equal to proportionate debrciation of such assets is credited to Statement of Profit and Loss.
d. Fixed Assets d.1 Tangible Assets
d.1.1 Fixed assets are stated at historical cost less accumulated debrciation and impairment. Fixed assets received as donations/gifts are capitalised at assessed values with corresponding credit taken to Capital Reserve.
d.1.2All costs, net of applicable tax credits, relating to acquisition of fixed 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 Pre-acquisition cost
Expenditure incurred before obtaining the right(s) to explore, develop and produce oil and gas are expensed as and when incurred.
e.2 Acquisition Cost
Acquisition costs of an oil and gas property are costs related to right to acquire mineral interest and are accounted/ treated as follows:-Exploration and Development stage: Acquisition cost relating to projects under exploration or developments are initially accounted as capital work in progress. Such costs are capitalized by transferring to Producing Property when a well is ready to commence commercial production. In case of abandonment/ relinquishment, such costs are written off.
Acquisition costs of a producing oil and gas property are capitalized as proved property acquisition cost under producing properties and amortized over the production profile of the underlying asset using the unit of production method over proved reserves.
e.3 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 these are incurred.
e.4 Exploratory/ Development Wells in Progress e.4.1 All exploration costs incurred in drilling and equipping exploratory and appraisal wells, cost of drilling exploratory type stratigraphic test wells are initially capitalized as Exploratory ells in Progress till the time these are either transferred to Producing Properties on completion as per note no.2. f.1.1 or expensed as exploration cost (including allocated debrciation) as and when determined to be dry or of no further use, as the case may be.
e.4.2 Costs of exploratory wells are not carried unless there are indications of sufficient quantity of reserves and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. All such carried costs are subject to review for impairment as per note no. 2.n.7.
e.4.3 All costs relating to Development Wells are initially capitalized as 'Development ells in Progress' and transferred to 'Producing Properties' on "completion" as per note no. 2.f.
f. Producing Properties
f.1.1 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.1.2 Cost of temporary occupation of land, successful exploratory wells, all development wells, debrciation on related equipment, facilities and estimated future abandonment costs are capitalised and reflected as Producing Properties.
g. Production Costs
Production costs include br-well head and post-well head expenses including debrciation and applicable operating costs of support equipment and facilities.
h. Side tracking
h.1 In case of an exploratory well, Cost of Side-tracking is treated in the same manner as the cost incurred on a new exploratory well. The cost of abandoned portion of side tracked exploratory wells is expensed as 'Exploratory Well Cost written off.'.
h.2 In case of development wells, the entire cost of abandoned portion and side tracking is capitalised.
h.3 In case of Producing wells, if the side-tracking results in additional proved developed oil and gas reserves or increases the future economic benefits therefrom beyond brviously assessed standard of performance, the cost incurred on side tracking is capitalised, whereas the cost of abandoned portion of the well is depleted in the normal way. Otherwise, the cost of side tracking is expensed as Work over Expenditure'
i. Abandonment Cost
1.1 The full eventual estimated liability towards costs relating to dismantling, abandoning and restoring well sites and allied facilities are recognized in respective assets when the well is complete / facilities are installed. The abandonment cost on dry well is expensed as exploratory well cost.
1.2 Provision for abandonment cost is updated based on the technical assessment at current costs. The effects of changes resulting from revisions to estimated liability are adjusted to the carrying amount of the related Asset and considered for depletion on a prospective basis.
j. Jointly Controlled Assets
The Company has Joint Ventures in the nature of Production Sharing Contracts (PSC) with the Government of India and various body corporates for exploration, development and production activities.
j.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 debrciation, depletion, survey, dry wells, abandonment, impairment and sidetracking in accordance with the accounting policies of the Company.
j.2 Disposal of Interest
Gain or loss on sale of interest in a cost center, is recognized in the statement of profit and loss, except that no gain is recognized at the time of such sale if substantial uncertainty exists about the recovery of the costs applicable to the retained interest or if the company has substantial obligation for future performance. The gain in such situation is treated as recovery of cost related to that cost center.
j.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.
1.1 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 is valued at net realisable value. The value of inventories includes excise duty, royalty (wherever applicable) but excludes Cess.
1.2 Crude oil in unfinished condition in flow lines up to Group Gathering Stations/platform and Natural gas is not valued as it is not stored.
1.3 Inventory of stores and spare parts is valued at weighted average cost or net realisable value, whichever is lower. Provisions are made for obsolete and non-moving inventories.
1.4 Unserviceable and scrap items, when determined, are valued at estimated net realisable value.
m. Revenue Recognition
m.1 Revenue from sale of products is recognized on transfer of custody to customers. m.2 Sale of crude oil and gas (net of levies) produced from Wells in Progress is deducted from expenditure on such wells. m.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.
m.4 Revenue in respect of the following is recognized when there is a reasonable certainty 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 m.5 Dividend income is recognized when right to receive is established. Interest income is recognized on time proportion basis taking into account the amount outstanding and rate applicable.
n. Debrciation, Depletion, Amortisation and Impairment
n.1 Debrciation on fixed assets is provided for under the written down value method over the useful life of Asset as specified in Schedule II to the Companies Act, 2013 except in case of certain items of plant and equipment where useful life ranging from 3 to 25 years has been considered based on technical assessment by the management which is lower than the useful life brscribed under schedule II to the Companies Act 2013.
n.2 Debrciation on additions/deletions during the year is provided on pro rata basis with reference to the date of additions/deletions except low value items not exceeding Rs. 5,000/- which are fully debrciated at the time of addition.
n.3 Debrciation on subsequent expenditure on fixed assets arising on account of capital improvement or other factors is provided for prospectively over the remaining useful life.
Debrciation on refurbished/revamped assets which are capitalized separately is provided for over the reassessed useful life, which is not more than the life specified in Schedule II to the Companies Act, 2013.
n.4 Debrciation 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.n.5. Debrciation on equipment/ assets deployed for survey activities is charged to the Statement of Profit and Loss.
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 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.
Amortisation n.6 Leasehold land is amortized over the lease period except perpetual leases.
Intangible assets are amortized on Straight Line Method (SLM) over the useful life not exceeding five years from the date of capitalization.
n.7 Producing Properties, Development Wells Progress (DWIP), and Fixed Assets (includinCapital Works in Progress) of a "Cash Generatin
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 higher of its 'value in use' or 'net selling price' (if determinable). In assessing value in use, 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 brsent value at appropriate rate.
An impairment loss is reversed if there is increase 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, debrciation is provided on the revised carrying value of the assets over the remaining useful life. Impairment testing during exploratory phase is carried out at area level when further exploration activities are not planned in near future or when sufficient data exists to indicate that although a development in the specific area is likely to proceed, the carrying amount of the exploration asset is unlikely to be recovered in full from successful development or by sale. Impairment is reversed subsequently, to the extent that conditions for impairment are no longer brsent.
o. Foreign Exchange Transactions
Transactions in foreign currencies are accounted for at the exchange rate brvailing on the date of the transaction. Foreign currency monetary assets and liabilities at the year-end are translated using mean exchange rate brvailing 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 and Loss.
p. Employee Benefits
p.1 All short term employee benefits are recognized at their undiscounted amount in the accounting period in which they are incurred.
p.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.
p.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 brsent value of defined benefit obligation, which is computed on the basis of actuarial valuation using the 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. The Company contributes all ascertained liabilities with respect to Gratuity and leave/compensated absences to the ONGC's Gratuity Fund Trust (OGFT) and Life Insurance Corporation of India (LICI) respectively. Other defined benefit schemes are unfunded.
q. Voluntary Retirement Scheme
Expenditure on Voluntary Retirement Scheme (VRS) is charged to the Statement of Profit and Loss when incurred.
r. General Administrative Expenses
General administrative expenses which are directly attributable are allocated to activities and the balance is charged to Statement of Profit and Loss.
s. Insurance claims
The company accounts for insurance claims as under :-
s.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 and Loss.
s.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.
s.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 and Loss. t. Research Expenditure
Expenditure of capital nature are capitalised and expenses of Revenue nature are charged to the Statement of Profit and Loss, as and when incurred.
u. 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 certainty that the asset will be realized in future.
v. 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 the Statement of Profit and Loss.
w. Rig Days Costs
Rig movement costs are booked to the next location drilled/planned for drilling. Abnormal Rig days' costs are considered as unallocable and charged to the Statement of Profit and Loss.
x. Unamortised Expenditure
Dry docking charges of Rigs/ Multipurpose Supply Vessels (MSVs), Geo Technical Vessels (GTVs), Well Stimulation Vessels, Offshore Supply Vessels (OSVs), Rig/equipment mobilization expenses and other related expenditure is amortized over the period of use not exceeding five years and the balance is carried under head "Unamortized Expenditure" in the Balance Sheet.
y. Provisions, Contingent Liabilities and Contingent Assets
Provisions involving substantial degree of estimation in measurement are recognized when there is a brsent obligation as a result of past events and it is probable that there will be an outflow of resources embodying economic benefits. Contingent Assets are neither recognized nor disclosed in the financial statements. Contingent liabilities are disclosed by way of notes to account. z. Earnings per Share
Basic earnings per share are computed by dividing the net profit after tax by the weighted average number of equity shares outstanding during the period. Diluted earnings per share is computed by dividing the profit after tax by the weighted average number of equity shares considered for deriving basic earnings per share and also the weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
aa. Cash Flow Statement
Cash flows are reported using the indirect method, where by profit before tax is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated.
1. Loan to OVL is repayable within a notice period of minimum one year and carries no interest during the years 2014-15 and 2013-14.
2. Loan to MRPL carries interest @State Bank Advance Rate (SBAR) with a sbrad of minus 385 basis points. The Loan is repayable quarterly in 28 equal instalments. The repayment of loan had started from the last quarter of FY 2013-14. ONGC can call these loans on notice of 90 days. MRPL can brpay whole or part of the loan to ONGC as per its requirement.
3. The Company has not advanced any money to its employees for the purposes of investment in the securities of the Company
4. The Company has a system of physical verification of Inventory, Fixed Assets and Capital Stores in a phased manner to cover all items over a period of three years. Adjustment of dif ferences, if any, is carried out on completion of reconciliation.
5. Discrepancies of crude oil of 96,496 MT (valued at `395.47 million as on March 31, 2014) bet ween physical and book records at Ankleshwar Asset have been ascertained by the management during the year and accordingly these have been written of f/adjusted in inventories. Further, 70,746 MT of pit oil lying in book of Ahmedabad Asset (valued at nil as on March 31, 2014) has also been written of f during the year. These write of fs and consequential adjustments thereto have been made on account of over reporting of crude oil production in earlier financial years. The discrepancies as mentioned above are under investigation by the appropriate authorities.
6. The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses.
7. Some balances of Trade/Other Receivables, Trade/Other Payables and Loans and Advances are subject to confirmation/reconciliation. Adjustments, if any, will be accounted for on confirmation/reconciliation of the same, which will not have a material impact.
8. Previous year's figures have been regrouped/reclassified, wherever necessary, to conform to current year's classification.
9. Figures in parenthesis as given in these Notes to Financial Statement relate to brvious year.