Provisions, contingent liabilities and contingent assets
A provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event
and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation,
in respect of which a reliable estimate can be made.
Provisions (excluding retirement benefits, compensated absences and decommissioning liability) are not discounted
to its present value and are determined based on best estimate required to settle the obligation at the balance sheet
date. These are reviewed at each balance sheet date adjusted to reflect the current best estimates.
In case of contingent liabilities, where there is no certainty of outflow or the amount of obligation cannot be measured
reliably, disclosure is made in the notes forming part of the financial statements. Contingent assets are not recognized
in the financial statements. However, where the realization of income is reasonably certain, a disclosure of the fact is
provided.
xviii) Leases
The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company
assesses whether: (i) the contract involves the use of an identified asset (ii) the Company has substantially all of the
economic benefits from use of the asset through the period of the lease and (iii) the Company has the right to direct
the use of the asset.
At the date of commencement of the lease, the Company recognizes a right-of-use asset ("ROU") and a corresponding
lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less
(short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes the
lease payments as an operating expense on a straight-line basis over the term of the lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term.
ROU assets and lease liabilities includes these options when it is reasonably certain that they will be exercised. The
right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted
for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any
lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the
lease term and useful life of the underlying asset. Right of use assets are evaluated for recoverability whenever events
or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment
testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined
on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from
other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the
asset belongs.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental
borrowing rates in the country of domicile of these leases. Lease liabilities are re-measured with a corresponding
adjustment to the related right of use asset if the Company changes its assessment if whether it will exercise an
extension or a termination option.
The Company has elected not to recognize right-of-use assets and lease liabilities for short term leases of real estate
properties that have a lease term of 12 months. The Company recognizes the lease payments associated with these
leases as an expense on a straight-line basis over the lease term are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards incidental to the ownership of an asset to the Company.
All other leases are classified as operating leases. Operating lease payments for land are recognized as prepayments
and amortized on a straight-line basis over the term of the lease. Contingent rentals, if any, arising under operating
leases are recognized as an expense in the period in which they are incurred.
xix) 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 the weighted average
number of equity shares that could have been issued upon conversion of all dilutive potential equity shares.
xx) Statement of cash flow
Cash flows are reported using the indirect method, whereby 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 are segregated into operating,
investing and financing activities.
xxi) Cash and cash equivalents
Cash comprises for the purposes of cash flow statement comprise cash on hand and demand deposits with banks.
Cash equivalents are short-term balances with a maturity of not exceeding three months, highly liquid investments
that are readily convertible in to known amounts of cash which are subject to insignificant risk of change in value.
xxii) Borrowing costs
Borrowing costs include interest and amortization of ancillary costs incurred. Costs in connection with the borrowing
of funds to the extent not directly related to the acquisition of qualifying assets are charged to the Statement of
Profit and Loss over the tenure of the loan. Borrowing costs, allocated to and utilized for qualifying assets, pertaining
to the period from commencement of activities relating to construction / development of the qualifying asset upto the
date of capitalization of such asset is added to the cost of the assets. Capitalization of borrowing costs is suspended
and charged to the statement of Profit and Loss during extended periods when active development activity on the
qualifying assets is interrupted. Interest Income earned on temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing
costs are recognized in profit or loss in the period which they incurred.
3. Critical accounting judgments, assumptions and key sources of estimation uncertainty
Inherent in the application of many of the accounting policies used in preparing the Financial Statements is the need for
Management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual outcomes
could differ from the estimates and assumptions used.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimates are revised and future periods are affected.
Key source of judgments, assumptions and estimation uncertainty in the preparation of the Financial Statements which
may cause a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are in
respect of oil and gas reserves, impairment, useful lives of property, plant and equipment, depletion of oil and gas assets,
decommissioning provision, employee benefit obligations, provisions, provision for income tax, measurement of deferred tax
assets and contingent assets & liabilities.
3.1 Critical judgments in applying accounting policies
The following are the critical judgements, apart from those involving estimations (Refer note 3.2), that the Management
have made in the process of applying the Company's accounting policies and that have the significant effect on the
amounts recognized in the Financial Statements.
(a) Determination of functional currency
Currency of the primary economic environment in which the Company operates ("the functional currency") is
Indian Rupee ($) in which the company primarily generates and expends cash. Accordingly, the Management has
assessed its functional currency to be Indian Rupee ($). In case of foreign subsidiaries in United States Dollar,
it is converted using the year end exchange rates.
(b) Evaluation of indicators for impairment of oil and gas assets
The evaluation of applicability of indicators of impairment of assets requires assessment of external factors
such as significant decline in asset's value, significant changes in the technological, market, economic or legal
environment, market interest rates etc. and internal factors such as obsolescence or physical damage of an
asset, poor economic performance of the asset etc. which could result in significant change in recoverable
amount of the oil and gas assets.
3.2 Assumptions and key sources of estimation uncertainty
a) Estimation of provision for decommissioning
The Company estimates provision for decommissioning for the future decommissioning of oil & gas assets at the
end of their economic lives. Most of these decommissioning activities would be in the future, the exact
requirements that may have to be met when the occurrence of removal events are uncertain. Technologies and
costs for decommissioning are varying constantly. The timing and amounts of future cash flows are subject to
significant uncertainty.
The timing and the future expenditures are reviewed at the end of each reporting period, together with rate of
inflation for current cost estimates and the interest rate used in discounting the cash flows. The economic life
of the oil & gas assets is estimated based on the economic production profile of the relevant oil & gas asset.
b) Estimation of reserves
Management estimates production profile (proved and developed reserves) in relation to all the oil and gas
assets determined as per the industry practice. The estimates so determined are used for the computation of
depletion and loss of impairment if any.
The year-end reserves of the Company have been estimated by the Geological & Geophysical team which follows
the guidelines for application of the petroleum resource management system consistently. The Company has
adopted the reserves estimation by following the guidelines of Society of Petroleum Engineers (SPE) which
defines "Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of
development projects to known accumulations from a given date forward under defined conditions. Reserves
must further satisfy four criteria: They must be discovered, recoverable, commercial and remaining (as of a
given date) based on development project(s) applied". Volumetric estimation is made which uses reservoir rock
and fluid properties to calculate hydrocarbons in-place and then estimate the recoverable reserves from it. As
the field gets matured with production history the material balance, simulation, decline curve analysis are
applied to get more accurate assessments of reserves.
The annual revision of estimates is based on the yearly exploratory and development activities and results
thereof. In addition, new in- place volume and ultimate recoverable reserves are estimated for any new discoveries
or new pool of discoveries in the existing fields and the appraisal activities may lead to revision in estimates due
to new sub-surface data. Similarly, reinterpretation is also carried out based on the production data by updating
the static and dynamic models leading to change in reserves. New interventional technologies, change in
classifications and contractual provisions may also necessitate revision in the estimation of reserves.
c) Defined Benefit Obligation (DBO)
Managements estimate of the DBO is based on a number of critical underlying assumptions such as standard
rates of inflation, medical cost trends, mortality, discount rate and anticipation of future salary increases.
Variation in these assumptions may significantly impact the DBO amount and the annual defined benefit expenses.
3.3 Standards issued/amended but not yet effective:
Ministry of Corporate Affairs ('"MCA1") notifies new standard or amendments to the existing standards under Companies
(Indian Accounting Standards) Rules as amended from time to time. On March 31,2023, MCA amended the Companies
(Indian Accounting Standards) Amendment Rules, 2022, applicable from April 1st, 2023, as below:
Ind AS 1 - Presentation of Financial Statements - This amendment requires the entities to disclose their material
accounting policies rather than their significant accounting policies.
Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors - This amendment has introduced a
definition of accounting estimates' and included amendments to Ind AS 8 to help entities distinguish changes in
accounting policies from changes in accounting estimates.
Ind AS 12 - Income Taxes - This amendment has narrowed the scope of the initial recognition exemption so that it does
not apply to transactions that give rise to equal and offsetting temporary differences.
The Company has evaluated that the aforesaid amendments does not have any significant impact in its standalone
financial statements.
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