GEEC.L Regulatory News (GEEC)

30 May 2006 10:23

Great Eastern Energy Corp Ltd30 May 2006 30 May 2006 GREAT EASTERN ENERGY CORPORATION LTD ("Great Eastern" or "the Company") 2006 AUDITED FINANCIAL RESULTS Great Eastern Energy Corporation Ltd, an AIM-listed company (GEEC:LN)incorporated to explore, develop, distribute and market Coal Bed Methane ("CBM")in India, today announces its financial results for the year ending 31 March2006, the company's first results since joining AIM. Highlights Great Eastern raised £12.1m and placed a further £6.9m of GDRs for existingshareholders at 101 pence per GDR at flotation in December 2005. The moneyraised for the Company is being used to accelerate project development, inparticular in exploring and developing production wells for CBM. The company hasalso: • Entered definitive contracts for well drilling and completion services • Started drilling 20 production wells in January 2006. These wells are expected to be completed by October / November 2006; ten production wells have already been drilled • Sales from pilot wells expected to commence from September 2006 • Commenced a second core hole program comprising of 4 core holes; 2 core holes have already been drilled • Aiming to submit a Field Development Plan to the Directorate General of Hydrocarbons (DGH) within June 2006 • Put out a global tender for its next 20 wells program in April 2006 • Initiated cost reduction initiatives and dialogues for strategic tie-up for gas marketing YK Modi, CEO of Great Eastern Energy said: "Great Eastern has made significant operational progress in the last year. Notonly have we completed a successful listing on AIM, we have also commencedcommercial drilling and plan to complete the first phase of 20 production wellsin the fourth quarter of the 2006 calendar year. We see significantopportunities for Great Eastern as the Indian market for natural gas continue toimprove with both rising demand and prices." For further information, please contact: Great Eastern Energy Corporation Limited (+91 124 258 0465) YK Modi, Executive Chairman & Managing Director Prashant Modi, Executive Joint Managing Director Arden Partners Limited (+44 20 7398 1632) Richard Day Steve Pearce Citigate Dewe Rogerson: (+44 20 7638 9571)Media enquiries: Martin Jackson / George CazenoveAnalyst enquiries: Nina Soon website: www.geecl.com Company overview Great Eastern Energy placed 18.8m Global Depository Receipts ("GDRs") withinstitutional investors and listed on AIM in December, 2006. The notional marketcapitalisation of Great Eastern, as of 26 May 2006 is £158 million Great Eastern Energy Corporation Ltd ("Great Eastern") is a public limitedcompany incorporated in India in 1992 to explore, develop, distribute and marketCoal Bed Methane (CBM) in India. The organization, headed by Mr. Y.K. Modi, isexploring & developing production wells for Coal Bed Methane in the Raniganjcoalfields, West Bengal. A pioneering initiative and a first-of-its-kind inIndia, the process would lead to demethanation of coal beds and the avoidance ofharmful methane emissions into the atmosphere - thus turning an otherwiseenvironmental hazard into a high-potential energy resource. The Company has alicence to explore for Coal Bed Methane in the 210 sq km block (approximately52,000 acres) in the Raniganj Coalfields of the Damodar Valley, near Asansol,West Bengal. It is located approximately 200 km north-west of Kolkata and isconnected by a national highway & mainline railways. The estimated gas in place in the block, as per Schlumberger's 2005 report, is1.386 TCF and the total of proved, probable and possible reserve is 817 BCF.Three pilot wells have been drilled, cased, cemented, perforated and fracturedand currently dewatering is under progress. The Company commenced commercialdrilling of CBM wells on 14th January 2006 and has outsourced the entireactivity of commercial drilling, wire line logging & perforation services,cementing & fracturing operations of its commercial CBM wells to three leadingcompanies namely Mitchell Drilling International Pty Ltd. (Australia), HLS AsiaLimited (a collaboration company of Halliburton Energy Services Inc., USA), andBJ Services Company Middle East Limited (a subsidiary of BJ Services Company,USA), who have vast experience in CBM projects and technology. With this, GreatEastern becomes the first Indian company to commence commercial drilling of CBMwells in India. The project plan involves drilling of 100 wells over anestimated four year period in the first phase at an estimated capital outlay of$125 million. The Company may drill more wells (possibly another 200) in thenext phases to extract further CBM reserves in the block as estimated bySchlumberger. In December 2005, the Company placed 18,803,504 Global Depositary Receipts ("GDRs") with institutional investors and joined the Alternative Investment Market(AIM) of London Stock Exchange, becoming the first Indian Company to have itsprimary listing on AIM. Each GDR represents 5 ordinary shares of INR 1 each ata placing price of 101 pence (Rs. 79) per GDR. The entire paid up capital ofthe Company comprises of 544,619,499 shares, which equates to 108,923,899 GDRs. Great Eastern Energy Corporation Ltd Audited Financial Results for the year ending 31 March 2006 Chairman & Managing Director's Statement Introduction Great Eastern Energy made real progress in 2005-2006. Not only did the Companyconduct a successful fund-raising and listing on AIM but it also madesignificant progress in its exploration and development activities during theyear. I would like to highlight the key achievements, strategies and the marketenvironment as follows: • Entered definitive contracts for well drilling and completion services • Started drilling 20 production wells in January 2006. These wells are expected to be completed by October / November 2006; ten production wells have already been drilled. • Sales from pilot wells expected to commence from September 2006 • Commenced a second core hole program comprising of 4 core holes; 2 core holes already drilled • Aiming to submit Field Development Plan to the Directorate General of Hydrocarbons (DGH) within June 2006. • Put out a global tender for its next 20 wells program in April 2006 • Initiated cost reduction initiatives and dialogues for strategic tie-up for gas marketing Operational review Great Eastern commenced commercial drilling of 20 CBM wells on January 14, 2006.The company has outsourced the entire activity of drilling, wire line logging& perforation services, cementing & fracturing operations of its commercial CBMwells to three leading companies, • Mitchell Drilling International Pty Ltd. (Australia), • HLS Asia Limited (a collaboration company of Halliburton Energy Services Inc., USA), and • BJ Services Company Middle East Limited (a subsidiary of BJ Services Company, USA). Great Eastern has already completed drilling of ten production wells and theeleventh well is in progress. The use of compressed air drilling technologyadopted by Mitchell Drilling has been successful and the average drilling timeper well is around ten days. Well completion activities (comprising mainly ofperforation and fracturing amongst other activities) will commence in June,2006. Another work-over rig is being hired to accelerate the completion ofactivities. It is expected that this work over task along with pump installationwill be completed in the fourth quarter of 2006 calendar year. The production wells have been developed in addition to the three pilot wellswhich were drilled, cased, cemented, perforated & fractured and which arecurrently dewatering and producing some gas from one seam. In addition to the production wells, Great Eastern has commenced its second corehole program comprising of four core holes. The contract has been given toMitchell Drilling and two core holes have already been completed. Central MiningResearch Institute (CMRI) is conducting the gas desorption studies at the site.Other studies such as proximate and ultimate analysis, coal ranks etc. are alsobeing carried out. The company has engaged a leading international consultant to complete the FieldDevelopment Plan (FDP) comprising of 100 wells and for providing project relatedservices. The FDP is in the final stages and is expected to be submitted to theDirectorate General of Hydrocarbons (DGH) in June 2006. In order both to reduce drilling costs and to drill a greater number of wellsquickly, the Company is acquiring a drilling rig for which the necessary letterof intent has been issued. The expected delivery time of the rig is March 2007.Further, the company has initiated dialogues with a leading Oil & Gas Sectorcompany in India for entering into a strategic tie-up for gas marketing. Great Eastern plans to commence test sale of gas from the three pilot wells inSeptember, 2006. The initial plan is to sell the gas as Compressed Natural Gas("CNG") for use in motor vehicles. The Company is collaborating with a leadingconsultant and service provider who has expertise in setting up and operatingthe required 'Mother and Daughter Booster Station(s)' for CNG sales. The processof getting regulatory approvals is in progress. The Company has also put out a global tender for a further 20 well program, andbids are expected soon from various international service providers. Financial review The results for the year 2005-2006 have been prepared under InternationalFinancial Reporting Standards ("IFRS") and all numbers presented for comparativeperiod are also under IFRS. Capital Work-in-Progress has increased to $15.2m (Previous Year - $8.5m) due tocommencement of drilling of production wells from January 2006. Net cash of thecompany has increased to $28.3m from $1.7m in the previous year. During the yearthe company earned interest income of $0.9m (Previous Year- Nil) on short termdeposits placed with banks. Outlook The directors of Great Eastern believe that the company is well positioned toexploit its strategy as a leading exploration and production company for CoalBed Methane (CBM) in India by continuing to grow its proven and probablereserves by an efficient and cost effective programme of drilling, testing andevaluation and by adopting best working practices and the latest technology.The demand/supply and pricing scenario for Natural Gas in India continues to beencouraging. Liquefied Natural Gas (LNG) has been transacted recently at $11 perMMBTU. The projected supply of Natural Gas for the year 2006-2007 is 95 MMSCMDas against a projected demand of 231 MMSCMD as per the estimates given byDirectorate General of Hydrocarbons (DGH). In view of this encouraging marketscenario, the directors believe that Great Eastern will have significantpotential after commercial production commences. YK Modi Chairman & Managing Director 30 May 2006 Great Eastern Energy Corporation Limited Balance Sheets (In US Dollars unless otherwise stated) Note As at March 31, 2006 2005 AssetsNon-current assetsProperty, plant and equipment, net 2 1,039,640 96,500Lease hold land 4 37,556 8,894Capital work in progress 15,237,804 8,527,635Intangible assets 3 244340 228,571Deferred tax assets 5 - 2,766Loans and advances 6 44,348 34,374 16,603,688 8,898,740 Current assetsInventories 7 376,932 64,298Loans and advances 8 589,188 245,403Restricted deposits 9 3,082,621 -Deposit with banks 10 20,928,686 -Cash and cash equivalents 10 4,271,906 1,756 29,249,333 311,456Total Assets 45,853,021 9,210,197 Capital and reserve attributable to equity holders' of theCompanyIssued capital 11 12,246,781 8,040,722Advance against share capital 1,264,344Share premium, net of equity trasaction cost 33,301,944 1,031,826Other reserve/(deficit) (103,291) 5,441Retained earnings (1,980,192) (1,934,925)Total equity 43,465,242 8,407,408 Non current liabilities 12Retirement benefit obligations 13 73,496 12,788Provisions and other liabilities 14 13,450 4,571 86,946 17,359Current liabilitiesTrade and other payables 15 2,131,467 613,862Interest-bearing loans and borrowings 16 - 122,926Other provisions 17 169,366 48,642Total liabilities 2,300,833 785,430Total Equity and Liabilities 45,853,021 9,210,197 Great Eastern Energy Corporation Limited Income Statement (In US Dollars unless otherwise stated) Note Year ended March 31, 2006 2005IncomeProfit on sale of investments - 320Interest income 916,936 -Miscellaneous income 198,322 1,602 Total Income 1,115,258 1,922 ExpensesAdministrative and general expenses 18 1,123,803 414,388Depreciation 20,867 3,225Other expenses 4,041 -Foreign exchange gain 9,082 17,757Loss before tax 42,535 433,448Income taxes 2,732 1,524Loss after tax for the year 45,267 431,924Earnings per share - basic and diluted earning per shre 20 0.00013 0.00120 Great Eastern Energy Corporation Limited Statement of changes in equity for the years' ended March 31, 2006 and 2005 (In US Dollars unless otherwise stated) Issued Share premium Equity Advance Retained Other Total equity capital Transaction against earnings reserves costs capital At April 1,2004 6,891,900 1,031,826 - 308,980 (1,503,001) 21,016 6,750,721 Loss forthe - - - - (431,924) - (431,924)year Issue ofShare 1,148,822 - - - - - 1,148,822capital Moniesreceivedagainstcapital - - - 955,364 - - 955,364 Net gainsonavailableforsalefinancialassetsrealized - - - - - (141) (141)during theyear, netoftaxes Currencytransactiondifferences - - - - - (15,434) (15,434) At March31, 8,040,722 1,031,826 - 1,264,344 (1,934,925) 5,441 8,407,4082005 Loss forthe (45,267) (45,267)year Issue ofShare 4,206,059 35,221,397 (2,951,279) (1,264,344) - - 35,211,833capital Currencytransactiondifferences (108,732) (108,732) At March31, 12,246,781 36,253,223 (2,951,279) - (1,980,192) (103,291) 43,465,2412006 * Share premium represents the premium paid by shareholders on issue of shares.Under the Indian Companies Act, 1956 such a reserve has a got restricted usage. ** Other reserves include unrealized gain on available-for-sale financialsecurities and exchange difference on currency translation. Net unrealized gain records movements for available for sale financial assets tofair value. Exchange difference on translation is used to record exchange differencesarising on translation from functional currency to presentation currency. Great Eastern Energy Corporation Limited Statement of changes in equity for the years' ended March 31, 2006 and 2005 (In US Dollars unless otherwise stated) Cash flow statement for the year ended 31st March'2006 Year ended March 31, 2006 2005A. Cash flow from operating activities Cash paid to suppliers and employees (95,945) (371,546) Refund from parties 16,821 Fringe Benefit tax paid (38,528) - Direct taxes paid (103,730) (2,517) Net Cash from Operating Activities (41,409) (357,242) B. Cash flow from Investing Activities Purchase of fixed assets (1,021,889) (15,766) Increase in Capital work in progress (6,765,918) (1,892,469) Interest Received 916,936 1,586 Short term deposit with bank (including (24,179,332) restricted deposits) Sale of available for sale financial asset 25,178 Loan to promoter companies (1,764) Refund of margin money 23,359 Net cash used in Investing Activities (31,050,203) (1,859,876) C. Cash flow from financing Activities Proceeds from share issue 35,511,903 2,078,624 Repayment of loan (121,400) 109,010 Net cash used in financing Activities 35,390,503 2,187,634 Net changes in cash & cash equivalents(A+B+C) 4,298,891 (29,484) Net foreign exchange difference (28,741) (1,074) Cash & cash equivalents - opening balance 1,756 32,314 Cash & cash equivalents - closing balance 4,271,906 1,756 Great Eastern Energy Corporation Limited Notes to the Financial Statements (Amounts in US Dollars, except per share data and unless otherwise states) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Corporate information Great Eastern Energy Corporation Limited ('GEECL' or 'the Company') is a publiclimited company incorporated in India with its registered office at 1D, 'BallyHigh', 1 Ballygunge Park Road, Kolkata, India. The Company was incorporated in 1992 to explore, develop, distribute and marketCoal Bed Methane or CBM in India. GEECL originally entered into a licenceagreement in December 1993 with Coal India Limited (CIL) for exploration anddevelopment of CBM over an area of approximately 210 Sq. km (approximately52,000 acres) in the Raniganj coalfields of West Bengal (the Block). Followingthe transfer of CBM administration in India from the Ministry of Coal to theMinistry of Petroleum and Natural Gas (MoPNG), the Company entered into theexisting CBM production sharing contract (PSC) on 31 May 2001 for the Block. The PSC is effective from 9 November 2001 as a result of the granting byGovernment of West Bengal of the Petroleum Exploration License on the same dateand provides for a five year initial assessment and market development phase, followed by a five year development phase and thena twenty-five year production phase, extendable with the approval of theGovernment of India (GOI). The PSC also provides that the Company can producegas during any phase with the prior approval of the GOI. GEECL is currentlystill in the exploratory and market development phase, with dewatering andproduction testing underway. Three pilot wells have already been drilled. a. Basis of preparation The financial statements of the Company have been prepared inaccordance with International Financial Reporting Standards (IFRS). Thesefinancial statements have been prepared on a historical cost convention. Thefinancial statements are presented in USD and all values are rounded to thenearest US dollar except when otherwise indicated. The preparation of financial statements in conformity with IFRSrequires management to make certain critical accounting estimates. Actualresults could differ materially from these estimates. Significant estimates andassumptions are used when accounting for certain items, such as but not limitedto, allowances for uncollectible accounts receivable, future obligations underemployee benefit plans, useful lives of property and equipment, valuationallowances for deferred taxes and contingencies (Refer 'note u' below) . b. Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of the Company are measured using thecurrency of the primary economic environment in which the entity operates ('thefunctional currency'). The functional currency of the Company is Indian Rupee(INR). The financial statements are presented in United States dollars, which isthe presentation currency. For the purpose of conversion from the functionalcurrency to the presentation currency the assets and liabilities for eachbalance sheet presented is translated at the closing rate at the date of thatbalance sheet. Income and expense for each income statement presented areconverted using a periodic weighted average rate and all resulting exchangedifference is recognized as a separate component of equity. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Monetary assetsand liabilities are translated into functional currency at the exchange ratesruling at the balance sheet date. Exchange differences arising on the settlementof monetary items or translation at rates that are different from those at whichthey were initially recorded, are recognized as income or expenses in the periodin which they arise. c. Property, plant and equipment Plant, equipment and buildings are stated at historical cost lessaccumulated depreciation and any impairment in value. Land is measured at cost.Historical cost includes expenditure that is directly attributable to theacquisition of the items. Subsequent costs are included in the asset's carryingamount or recognized as a separate asset, as appropriate, only when it isprobable that future economic benefits associated with them will flow to theCompany and the cost of the item can be measured reliably. All other repairs andmaintenance expenditures are charged to the income statement during thefinancial period in which they are incurred. Depreciation is calculated on astraight-line basis over the estimated useful life of the asset as follows: Buildings - 30 years Plant and Machinery - 5 to 10 years Motor Vehicles - 10 years Furniture, fittings and equipments- 5 to 15 years The carrying values of plant and equipment are reviewed for impairmentwhen events or changes in circumstances indicate the carrying value may not berecoverable. If any such indication exists and where the carrying values exceedthe estimated recoverable amount, the assets or cash-generating units arewritten down to their recoverable amount. The recoverable amount of plant andequipment is the greater of net selling price and value in use. In assessingvalue in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments ofthe time value of inflows. The recoverable amount is determined for thecash-generating unit to which the asset belongs. Impairment losses arerecognized in the income statement. An item of property, plant and equipment is derecognized upon disposalor when no future economic benefits are expected to arise from the continued useof the asset. Any gain or loss arising on derecognition of the asset (calculatedas the difference between the net disposal proceeds and the carrying amount ofthe item) is included in the income statement in the year the item isderecognized. Expenses incurred for developing and constructing wells are capitalized andincluded under the head Capital work in progress until the wells are ready fortheir intended use. Upon being ready for their intended use such assets areclassified as Gas Properties. Once the assets are ready for their intended usedepreciation is charged on 'unit of production' method. The carrying value ofsuch assets is reviewed for impairment annually when the asset is not yet in useor more frequently when an indicator of impairment arises during the reportingyear indicating that the carrying value may not be recoverable. d. Intangible assets (i) Gas exploration right Gas exploration right is capitalized at historical cost. The right hasa finite useful right of 25 years and the cost of the asset is amortised on astraight-line basis over its useful life. The intangible asset is tested forimpairment annually either individually or at the cash generating unit level.Useful life is also examined on an annual basis and adjustments, whereapplicable are made on a prospective basis. A summary of the policies applied to the Company's intangible asses isas follows: Gas Exploration Rights Useful lives Finite Method used To be amortised over the life of the exploration right i.e 25 years Currently, since the asset is not ready for its intended use, no amortization is being done. Internally generated or acquired Acquired. Impairment testing / recoverable amount testing Annually and where an indicator of impairment exists. Gains or losses arising from derecognition of an intangible asset aremeasured as the difference between the net disposal proceeds and the carryingamount of the asset and are recognized in the income statement when the asset isderecognized. (iii)Computer software Generally costs associated with acquiring and maintaining computer softwareprogram are recognized as expense when incurred. However, costs that aredirectly associated with identifiable and unique software products controlled bythe Company and have probable economic benefits exceeding the cost beyond oneyear are recognized as intangible assets. Direct cost includes staff cost of thesoftware development team and an appropriate portion of the relevant overheads.Computer software development costs recognised as asset are amortised using thestraight line method over their useful lives not exceeding 5 years. Cost incurred during the development stage of computer software are shown underintangible assets under development and are not amortised till the software isready for its intended use. e. Exploration and evaluation assets Exploration and evaluation expenditures are accounted for using thefull cost method. All expenses incurred prior to obtaining rights forexploration and evaluation of gas resources are expensed. All direct expenseslike, acquisition of rights to explore, topographical and geophysical studies,exploratory drilling are capitalised within property, plant and equipment andintangible asset based on the nature of expense. Once technical and commercial feasibility is demonstrated explorationand evaluation assets are tested for impairment and transferred to developmenttangible and intangible assets depending upon the nature of the assets. No depreciation and /or amortization is charged during the explorationand evaluation phase. f. Financial assets Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They are includedin current assets, except for maturities greater than 12 months after thebalance sheet date. These are classified as non-current assets. g. Inventories Inventories of stores, spares and consumables are valued at the lower of costand net realizable value. Costs include, expenses incurred in bringing eachproduct to its present location and condition and is determined on weightedaverage basis. Net realizable value is the replacement cost of the stores, spares andconsumables. h. Leasehold Land Leasehold Land represents land taken on lease for different periods oftime and has been recorded at cost. Such land is being amortised over the periodof lease. i. Cash and cash equivalents Cash and cash equivalents include all highly liquid financial instruments, whichare readily convertible into cash and have original maturities of three monthsor less on the date of purchase. j. Interest-bearing loans and borrowings All borrowings are interest bearing and are current in the nature withan original tenure of the loans being less than one year. The interest accruedbut not due on such loans in being added to the carrying amount of the loans. k. Provisions Provisions are recognized when the company has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. Where thecompany expects some or all of a provision to be reimbursed, for example underan insurance contract, the reimbursement is recognized as a separate asset butonly when the reimbursement is virtually certain. The expense relating to anyprovision is presented in the income statement net of any reimbursement. If theeffect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money and, where appropriate,the risks specific to the liability. Where discounting is used, the increase inthe provision due to the passage of time is recognized as other finance expense. l. Employee costs, Pensions and other post-employment benefits Wages, salaries, bonuses, social security contributions, paid annualleave and sick leave are accrued in the year in which the associated servicesare rendered by employees of the company. The company has three retirement benefit plans in operation Gratuity, StateAdministered Provident Fund and Superannuation. Superannuation and Gratuity areunfunded. The cost of providing benefits under superannuation and gratuity isdetermined separately for each plan using the projected unit credit actuarialvaluation method. Actuarial gains and losses are recognized as and when theyarise. The State Administered Provident Fund is a defined contribution schemewhereby the company has to deposit a fixed amount to the fund every month. m. Leases Finance lease, which transfer to the company substantially all therisks and benefits incidental to ownership of the leased item, are capitalizedat the inception of the lease at the fair value of the leased property or, iflower, at the present value of the minimum lease payments. Lease payments areapportioned between the finance charges and reduction of the lease liability soas to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged directly against income. Lease where the lessor retains substantially all the risks andbenefits of ownership of the asset are classified as operating leases. Operatinglease payments are recognized as an expense in the income statement on thestraight-line basis over the lease term. n. Revenue Revenue is recognized to the extent that it is probable that theeconomic benefits will flow to the company and the revenue can be reliablymeasured. Interest income Revenue is recognized as the interest accrues to the net carryingamount of the financial asset using the net effective interest rate method. o. Income tax Current tax represents the amount that would be payable based oncomputation of tax as per prevailing taxation laws under the Indian Income TaxAct, 1961. Deferred income tax is provided, using the liability method, on alltemporary differences at the balance sheet date between the tax bases of assetsand liabilities and their carrying amounts for financial reporting purpose.Deferred income tax liabilities are recognized for all taxable temporarydifferences. Deferred income tax assets are recognized for all deductible temporarydifferences, carry-forward of unused tax assets and unused tax losses (wheresuch right has not been foregone), to the extent that it is probable thattaxable profit will be available against which the deductible temporarydifferences, and the carry-forward of unused tax asses and unused tax losses canbe utilized : • except where the deferred income tax asset relating to thedeductible temporary difference arises from the initial recognition of an assetor liability in a transaction that is not a business combination and, at thetime of transaction, affects neither the accounting profit nor taxable profit orloss; and The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent it is no longer probable that sufficienttaxable profit will be available to allow all or part of the deferred income taxasset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply to the year when the asset is realized or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date. p. Borrowing costs Borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take asubstantial period of time to get ready for their intended use, are added to thecost of those assets, until such time as the assets are substantially ready fortheir intended use. All other borrowing costs are recognized as interest payable in the incomestatement in the period in which they are incurred q. Decommissioning costs Liabilities for decommissioning costs are recognized when the company has anobligation to dismantle and remove a facility or an item of plant and to restorethe site on which it is located, and when a reasonable estimate of thatliability can be made. Where an obligation exists for a new well the liabilitywill be provided on construction or installation. An obligation fordecommissioning may also crystallize during the period of operation of afacility through a change in legislation or through a decision to terminateoperations. The amount recognized is the present value of the estimated futureexpenditure determined in accordance with local conditions and requirements. Acorresponding tangible item of property plant and equipment of an amountequivalent to the provision is also created. This is subsequently depreciated aspart of the capital costs of the facility or item of plant. If the effect ofthe time value of money is material, provisions are determined by discountingthe expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and, where appropriate, the risksspecific to the liability. Any change in the present value of the estimated expenditure is reflected as anadjustment to the provision and the corresponding property, plant and equipment. r. Equity instruments Equity instruments, convertible into fixed number of equity shares at a fixedpre-determined price, and which are exercisable after a specific period, areaccounted for as and when such instruments are exercised. The transaction costspertaining to such instruments are adjusted against equity. s. Advance towards share capital Advances towards share capital received from interested investors, against whichthe Company is committed to issue equity shares are treated as part of equityand also considered for computation of basic earnings per share. t. Segment reporting A geographical segment is engaged in providing products or services within aparticular economic environment that are subject to risks and return that aredifferent from those of components operating in other economic environments. A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. The Company considers that it operates ina single geography being India and in a single business segment being theproduction and sale of gas. u. Critical accounting estimates The Company makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are discussed below. (i) Income taxes The Company is subject to the provisions of income taxes. Significant judgmentis required in determining provision for income taxes. There are manytransactions and calculations for which the ultimate tax determination isuncertain during the ordinary course of business. The Company recognisesliabilities for anticipated tax audit issues based on estimates of whetheradditional taxes will be due. Where the final tax outcome of these matters isdifferent from the amounts that were initially recorded, such differences willimpact the income tax and deferred tax provisions in the period in which suchdetermination is made. v. Critical judgments in applying the entities accounting policies The Company invests in the development and production of coal based methane gasin accordance with the accounting policy stated in note e. The assessment as towhether this expenditure will achieve a complete product for which the technicalfeasibility is assured is a matter of judgment, as is the forecasting of how theproduct will generate future economic benefit. Finally, the period of time overwhich the economic benefit associated with the expenditure occurred will ariseis also a matter of judgment. w. Financial risk management The Company's activities expose it to a variety of financial risks; market risk(for example, currency risk, interest rate risk and liquidity risk. (i) Currency Risk The Company is exposed to currency risk on contracts relating to purchase ofservices for development of wells, which are denominated in USD, whereas thefunctional currency of the Company is INR. The Company does not have a practiceof taking any cover against such exposures at present. The Company's exposureto commodity price risk is minimal at present as it is at a very preliminarystage of operations and activities. (ii) Interest rate risk The Company has a practice of borrowing funds at fixed rates of interest, whichexposes it to interest rate risk. The Company does not enter into derivativefinancial instruments to hedge its exposure to such interest rate risk. (iii) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and cashequivalents and maintaining adequate credit facilities. This information is provided by RNS The company news service from the London Stock Exchange