GEEC.L Regulatory News (GEEC)

20 Nov 2006 07:02

Great Eastern Energy Corp Ltd20 November 2006 Great Eastern Energy Corporation Ltd. ('Great Eastern' or the 'Company') Interim Results For the six months to 30 September 2006 Great Eastern (GEEC:LN), an AIM listed Indian energy company focused on theproduction, development, marketing and distribution of natural gas from coalbeds (Coal Bed Methane ("CBM")), announces its interim results for the sixmonths to 30 September 2006. Great Eastern is pleased to report that during the period significant progresshas been made towards reaching saleable gas production by the middle of 2007. Highlights: • First 20 wells: • Drilling now completed • 2 additional wells fractured and perforated bring total to 12 • 7 further pumps installed bring total to 10 wells dewatering on pump • Indications of earlier gas production as dewatering is substantially faster than expected • Second 20 wells: • Global tenders for drilling and well completion activities issued • Bids received being evaluated • Land and access roads for drill sites being negotiated • Current production is approximately 350 mcfd from the 13 wells being dewatered (including 3 pilot wells). • Drilling of second 'Core Well' program of 6 wells, for data collection, complete • Net cash of the company was $17.1m as at September 30, 2006 (31/03/ 06$28.3m) due to the continuing capex plan. • As expected, the Company is in discussions regarding debt facilities to fund part of the planned future well programs Commenting, YK Modi, CEO of Great Eastern, said: "We have made a significant amount of progress in the first six months of thefinancial year and Great Eastern remains on target to achieve saleable gasproduction by the middle of 2007. The first program of 20 wells is nearingcompletion and we are making good progress on the second program of a further 20wells". 20 November 2006 For further information: Great Eastern EnergyYK Modi Chairman & CEO + 44 (0) 20 7743 6673Paul S Zukerman Non-Executive Director Pelham Public RelationsJames Henderson +44 (0)20 7743 6673Philip Dennis Arden PartnersRichard Day +44 (0)20 7398 1632Steve Pearce Notes to Editors: Great Eastern placed 18.8m Global Depository Receipts ("GDRs") withinstitutional investors and listed on AIM in December, 2005. In September 2006the Company added 57,418,843 GDRs by way of a sponsored GDR program, taking thetotal GDRs admitted in AIM to 76,222,347. The entire paid up capital of theCompany comprises of 544,619,499 shares, which equates to 108,923,899 GDRs. Thenotional market capitalisation of Great Eastern, as at 17th November 2006 is GBP142.69 million. Great Eastern is a public limited company incorporated in India in 1992 toexplore, develop, distribute and market CBM in India. The organisation, headedby YK Modi, is exploring & developing production wells for CBM 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 alicense to explore for CBM in the 210 sq km block (approximately 52,000 acres)in the Raniganj Coalfields of the Damodar Valley, near Asansol, West Bengal. Itis located approximately 200 Km north-west of Kolkata and is connected by anational 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 reserves is 817 BCF.The Company commenced commercial drilling of CBM wells on 14 January 2006 andhas outsourced the entire activity of commercial drilling, wireline logging &perforation services, cementing & fracturing operations of its commercial CBMwells to three leading companies namely Mitchell Drilling International Pty Ltd.(Australia), HLS Asia Limited (a collaboration company of Halliburton EnergyServices Inc., USA) and BJ Services Company Middle East Limited (a subsidiary ofBJ Services Company, USA), which has vast experience in CBM projects andtechnology. With this, Great Eastern becomes the first Indian company tocommence commercial drilling of CBM wells in India. The project involvesdrilling of 100 wells over an estimated four year period in the first phase. TheCompany may drill more wells (possibly another 200) in the next phase to extractfurther CBM reserves in the block as estimated by Schlumberger. Introduction I am pleased to report Great Eastern Energy has continued to make good progressin the first six months of the financial year and considerable overall progresssince the Company's admission to the AIM market of the London Stock Exchangealmost a year ago in December 2005. Great Eastern Energy is focused on the production, development, marketing anddistribution of Coal Bed Methane ("CBM") gas from the Raniganj coal fields, WestBengal, India. The production of CBM is a pioneering initiative in India, whichis in ever growing need of energy resources as a result of continued rapideconomic growth. CBM is natural gas that can be used directly to help meet India's ever growingenergy requirement. Whilst it is a relatively new source of energy in India, CBMaccounts for over 10% of gas supply and consumption in the US. The process ofextracting CBM that is known to exist as a result of detailed comprehensivedata, turns an otherwise environmental hazard into a high potential and valuableenergy source. Operations Update The process of extracting CBM gas from coal seams involves drilling and wellcompletion activities, such as perforating and fracturing to increase porosity,and de-watering which allows the gas to flow out of the well. CBM wells tend tobe shallow and are as such relatively cheap and quick to drill. Great Eastern's initial project development plan involves drilling 100 wellsover an estimated four year period, in order to extract part of the recoverableCBM deposits in the block. As outlined when the Company was admitted to AIM in December 2005, the proceedsof the placing on the flotation are being used to fund the first 20 productionwells of the project development plan. The remaining 80 wells will be fundedthrough a combination of cashflows and debt financing. We continue to estimatethat a further 200 wells will be required to fully exploit the recoverable CBMdeposits in the block. As expected, drilling the first 20 wells of the project plan has now beensuccessfully completed, with 10 wells drilled since the full year results inMay. Great Eastern commenced drilling the first 20 wells of the project plan inJanuary 2006. Of the 20 wells drilled, perforation and fracturing has now been completed on anadditional 2 wells bringing the total to 12 wells, and 7 more pumps have beeninstalled, to assist the de-watering process, bringing the total number of wellsthat have been perforated, fractured and are on pump de-watering to 10. Thede-watering process is currently producing over 5000 bpd of water. We remain ontarget to have all 20 of these wells perforated and fractured by December 2006and pumps installation to be completed by January 2007. Contracts for the drilling and well completion activities for the next 20 wellshave been submitted for global tender. Great Eastern is currently innegotiations with a number of major international companies and expects tofinalise the details of the contracts by the end of 2006. Drilling locations and access roads for the further 20 wells are also beingprocured and negotiations are under way with various land owners. 15 of theseadditional wells will interact with the previous 20 wells and existing 3 pilotwells, improving the de-watering and production process from the wells. The remaining 5 wells in this additional program are planned for another area inthe block, around one of the new core wells. These 5 wells will provide vitalgas and water production information, which will further help in the developmentof the area in the following drill program. In addition to the two 20 well programs outlined above, we have also completedthe drilling of a second core well program, comprising 6 wells. The purpose ofthe core well program is for data collection purposes for desorption and otherstudies in order to obtain further geological data for further evaluation anddrilling. The data received from the second core well program is currently beingevaluated, although initial data is in line with expectations and suggests goodgas content and coal thickness. The studies are being carried out by the CentralMining Research Institute, in India and additional samples have also been sentto TerraTek Inc, a leading laboratory in the US, for analysis. The drilling rig purchased by Great Eastern is expected to be delivered by April2007. Apart from providing flexibility in the drilling program it is alsoexpected to reduce the cost of drilling. Great Eastern outsources the entire operation of drilling the wells and wellcompletion activities to a number of world leading companies with significantexperience in the CBM area. These companies include Mitchell DrillingInternational, HLS Asia Limited and BJ Services Company Middle East Limited. Production Current production from one seam is approximately 350 mcfd and water productionis over 5000 bpd from the 13 wells being dewatered (including 3 pilot wells). 3new wells are producing approximately 200 mcfd and the balance are producingassociated gas of approximately 150 mcfd. Overall production is expected to increase once more wells and the second seamstarts de-watering and interaction amongst the wells increases. We believe thiswill take place by the middle of next year when the Company expects to havesaleable production. It is, however, worth noting that due to early signs of gasproduction being seen in 3 new wells, it is likely the de-watering time will beshorter than previously expected leading to earlier gas production. Infrastructure It is anticipated that work on both the pipeline network and group gatheringstation will start in December this year. The survey and design work is completeand bids for the various equipment needed and pipelines is currently beingevaluated. The Group Gathering Station is expected to be fully operational byJune 2007. As announced in our trading update in September, the contract for these projectshas been awarded to MECON Limited. The contract covers project management andengineering services. MECON has significant experience in this area havingexecuted similar projects for a number of oil and gas operators. Sales / Market Natural gas currently accounts for a relatively small part of India's overallresource requirement but demand is growing at a faster rate than any otherresource. Currently natural gas accounts for 8% of the total energy supply inIndia against 24% globally. It is expected that gas produced in India willaccount for 20% of domestic supply by the year 2025. (Source: DGH, GAIL) Great Eastern's license block is located within 50km of major urban andindustrial areas, such as Asansol, Raniganj, Durgapur, Kulti, and Barakar, whichmake up the majority of the Company's target market. Demand in this area frommajor industrial enterprises, such as Durgapur Steel and IISCO (both are SteelPlants of Steel Authority of India Ltd.(SAIL)), as well as from smallerindustrial and domestic use exceeded 140 MMSCFD currently, which is alreadysignificantly greater than Great Eastern's total anticipated production. Within the Compressed Natural Gas (CNG) market, Great Eastern has recentlysigned a Memorandum of Understanding with the Indian Oil Corporation Ltd (IOCL),a Fortune 500 company and India's largest downstream operation with the largestnumber of retail outlets. The MOU is primarily for the marketing anddistribution of CNG in Asansol and other near by cities. As part of thisagreement, we will put in place the infrastructure needed to dispense CNG at oneoutlet, as previously announced, and the intention will be to establishadditional dispensers at IOCL outlets over the coming year. The MOU alsoentails City Gas Distribution in the area as well as envisages the formation ofseparate Joint Venture Company between Great Eastern and IOCL to carry out theseactivities. During 2006, India experienced overall increases in the price of natural gas dueto increased demand and import of LNG. The Great Eastern Board expects thistrend to continue as natural gas in India is increasingly becoming a majorsource of energy. Financial Review The results for the six months period ended September 30, 2006 have beenprepared under International Financial Reporting Standards ("IFRS") and allnumbers presented for comparative period are also under IFRS. Capital Work-in-Progress has increased to $ 26.4m (March 31, 2006 balance -$15.4m) due to completion of significant drilling and completion activitiesrelated to the Company's first twenty production wells program. Net cash of thecompany has reduced to $17.1m as at September 30, 2006 from $28.3m as at March31, 2006 due to the company's continuing capex plan. During the six monthsperiod, the company earned interest income of $0.8m (Previous Period-$0.2m) onshort term deposits placed with banks. Outlook Great Eastern expects to have the gas gathering facilities operational andsaleable production of between 1.5-2 MMSCFD by mid 2007 as expected. From thatpoint we believe production will gradually increase. Demand for gas in India remains extremely strong and the gas pricing scenario isexpected by the Board to remain favourable. The Board anticipates finalising the details of the contracts for the drillingand development of the next 20 wells by the end of this year with actualdrilling starting in May / June 2007. As expected, the Company is currently in discussions regarding its debt facilityto fund some of the planned well programs and anticipates being able to announcefurther details in due course. Given the significant progress made during the period and that Great Easternremains well on target for saleable gas production by the middle of 2007, weremain confident of the Company's prospects for the foreseeable future. -ends- Great Eastern Energy Corporation Limited Interim Condensed Balance Sheet as at 30 September 2006 (In US Dollars unless otherwise stated) Notes As at September As at March 31, 30, 2006 2006 Audited AuditedAssetsNon-current assetsProperty, plant and equipment 7 1,063,405 1,039,640Lease hold land 64,701 36,768Capital work in progress 9/16 26,431,179 15,418,158Intangible assets 8 368,442 244,340Loans and advances 31,560 44,348 27,959,287 16,783,254 Current assetsLeasehold land 1,408 788Loans and advances 16 1,699,010 785,766Deposit with banks 4 8,122,479 24,011,307Cash and cash equivalents 3 9,003,569 4,271,906 18,826,466 29,069,767Total Assets 46,785,753 45,853,021 Capital and reserves attributable to equity holders of theCompanyIssued capital 11 12,246,781 12,246,781Share premium 33,301,944 33,301,944Other reserves (1,351,810) (103,291)Retained earnings (2,161,043) (1,980,192)Total equity 42,035,872 43,465,242 Non current liabilitiesRetirement benefit obligations 10 41,058 33,392Provisions 33,725 13,450 74,783 46,842Current liabilitiesTrade and other payables 4,650,043 2,171,571Other provisions 25,055 169,366Total liabilities 4,675,098 2,340,937Total Equity and Liabilities 46,785,753 45,853,021 The notes on pages 5 to 11 are an integral part of these financial statements. As per our report of even date attached On behalf of the Board of Directors Ernst & Young Yogendra Kumar Modi Kashi Nath Memani Chairman and Chief Executive Officer Director Place: Delhi Date: 17th November 2006 Great Eastern Energy Corporation Limited Interim Condensed Income Statement for six months ended 30 September 2006 (In US Dollars unless otherwise stated) Notes Six months period ended September 30, 2006 2005 Audited UnauditedIncomeInterest income 780,011 156,016Miscellaneous income - 825Foreign Exchange Gain - 2,273Total Income 780,011 159,114 ExpensesAdministrative and general expenses 16 969,225 1,642,619Other Expenses 9 6,672 -Foreign Exchange Loss 1,402 -Loss before tax (197,288) (1,483,505)Income Taxes: 5 - - CurrentDeferred - (519)Loss after tax (197,288) (1,482,986)Loss per share - basic and diluted loss per share-after rectification of error (0.000362) (0.003521) vide Note No.16 - basic and diluted loss per share-Before rectification of (0.000362) (0.003519) error vide Note No.16 The notes on pages 5 to 11 are an integral part of these financial statements. As per our report of even date attached On behalf of the Board of Directors Ernst & Young Yogendra Kumar Modi Kashi Nath Memani Chairman and Chief Executive Officer Director Place: Delhi Date: 17th November 2006 Great Eastern Energy Corporation Limited Interim Condensed Statement of changes in equity for the six months ended September 30, 2006 (In US Dollars unless otherwise stated) Audited Issued capital Share premium Retained earnings Other reserves Total equityAt April 1, 2006 12,246,781 33,301,944 (1,980,192) (103,291) 43,465,242 Loss for the (197,288) (197,288)period Input Credit for 16,437 16,437VAT and Servicetax recognised(Please Refer Note16) Currency (1,248,519) (1,248,519)transactiondifferences At September 30, 12,246,781 33,301,944 (2,161,043) (1,351,810) 42,035,8722006 Interim Condensed Statement of changes in equity for the six months ended September 30, 2005 (In US Dollars unless otherwise stated) Unaudited Issued capital Share premium Advance against Retained Other Total equity capital earnings reservesAt April 1, 2005 8,040,722 1,031,826 1,264,344 (1,934,925) 5,441 8,407,408 Loss for the period (1,482,986) (1,482,986) Input Credit for VAT 3,239 3,239and Service taxrecognised(Please Refer Note 16) Issue of Share 2,879,733 14,605,968 (1,273,508) 16,212,193capital Refund of Share 9,164 9,164application money Currency transaction 362,190 362,190differences At September 30, 10,920,455 15,637,794 - (3,414,672) 367,631 23,511,2082005 a) Share premium represents the premium paid by shareholders on issue of sharesand is net of equity transaction costs. Under the Indian Companies Act, 1956such a reserve has got a restricted usage. b) Other reserves represent exchange differences arising on translation fromfunctional currency to presentation currency. Great Eastern Energy Corporation Limited Interim Condensed Statement of Cash Flows for the six months ended September 30, 2006 (In US Dollars unless otherwise stated) Six months ended September 30, 2006 2005A. Cash flows from operating activities Audited Unaudited(Loss) before tax (197,288) (1,483,505)Adjustments for:Depreciation 40,210 18,879Interest income (780,011) (156,016) Foreign exchange loss/(gain) 1,402 (2,273)Provisions 8,650 1,985Operating Profit before working capital changes (927,037) (1,620,930) (Increase)/ Decrease in other receivables (1,038,017) 53,728 Increase / (Decrease) in payables & accruals 3,095,366 (266,720)Net cash flows from operating activities 1,130,312 (1,833,922) B. Cash flows from investing activities Cash paid for purchase of property, plant and equipment (56,120) (545,596)Cash paid for Development of Wells (11,943,408) (674,928)Cash paid for purchase of Intangibles (131,308) -Cash paid for purchase of Leasehold land (30,258) -Proceeds/(Payment) on encashment/(acquisitions) of short term 15,186,840bank deposits (Net) (10,400,804)Interest received from investments 702,142 102,547 Net cash flows from investing activities 3,727,888 (11,518,781) C. Cash flows from financing activitiesCash Proceeds from issue of shares - 16,759,402Refund of share application money (9,164)Repayment of borrowings - (123,207) Net Cash flows from Financing activities - 16,627,031 Net changes in cash & cash equivalents (A+B+C) 4,858,200 3,274,328 Cash and Cash equivalents as on 1st April 4,271,906 1,756Foreign currency translation difference on cash balances (126,537) (25,317)Cash and Cash equivalents as on 30th September 9,003,569 3,250,767 a) Cash and cash equivalents are same as that disclosed under note 3. b) Closing Cash and Cash equivalents include restricted deposits amounting toUSD 663,620 (2005: 3,455). 1. 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 then a twenty-five year productionphase, extendable with the approval of the Government of India (GOI). The PSCalso provides that the Company can produce gas during any phase with the priorapproval of the GOI. GEECL is currently still in the exploratory and marketdevelopment phase, with dewatering and production testing underway. To date, 3Pilot wells, 20 production wells and 8 core holes have been drilled. 2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The interim condensed financial statements for the six months period ended 30thSeptember 2006 have been prepared in accordance with IAS-34 Interim FinancialReporting. The interim condensed financial statements do not include all the informationand disclosures required in the annual financial statements, and should be readin conjunction with the Company's annual audited financial statements as atMarch 31, 2006. The financial statements are presented in USD and all values are rounded to thenearest US dollar except when otherwise indicated. Significant Accounting Policies The accounting polices adopted in preparation of the interim condensed financialstatements are consistent with those followed in the preparation of theCompany's annual audited financial statements for the year ended March 31, 2006,except for the adoption of the following amendments mandatory for annual periodsbeginning on or after January 1, 2006. i) IFRIC 4 - Determining whether an Arrangement contains a Lease(effective from 1 January 2006). IFRIC 4 requires determination of whether anarrangement is or contains a lease to be based on the substance of thearrangement. It requires an assessment of whether: (a) fulfillment of thearrangement is dependent on the use of a specific asset or assets (the asset);and (b) the arrangement conveys a right to use the asset. The leasingarrangements have been assessed with respect to this amendment and necessarydisclosures have been made. (Please refer note 12 below) The adoption of above did not affect the Company's results of operations orfinancial position. 3. Cash and Cash Equivalents As at September 30, 2006 2005Cash in Hand 2,810 5,916Cash at Banks - on Current Account 667,426 289,634 - on Fixed Deposit (including restricted cash deposits $ 663,620 8,333,333 2,955,217(2005-$ 3,455)) 9,003,569 3,250,767 Fixed deposits with banks include $ 663,620 (2005: $ 3,455) kept as margin moneydeposits against letter of credit issued by banks on behalf of the Company.Restrictions on such deposits are released on the expiry of the terms of therespective arrangements. 4. Deposits with Bank Deposits with Banks include restricted deposits $ 664,696 (2005-Nil)representing margin money deposits against guarantees and Letters of Creditissued by banks on behalf of the Company. Restrictions on such deposits arereleased on the expiry of the terms of the respective arrangements. 5. Income Tax There is no current tax liability in view of losses for the period. The Companyhas not carried forward the losses incurred till 31st March 2005; however forthe year ended 31st March 2006, the Company intends to carry forward such lossfor set-off against future taxable profits. Further, the Company will beenjoying a tax holiday period in accordance with the Income Tax Act in India.Accordingly, there are no deferred tax assets recognized. 6. Segment Reporting The Company operates in a single geographical segment, being India, and in asingle business segment, being the production and sale of gas. Hence, noseparate segment information has been furnished herewith. 7. Property, Plant & Equipment During the six months ended 30th September 2006, the Company acquired assetswith a cost of $ 65,729 (2005 - $544,633). There were no disposals during theperiod. 8. Intangible Assets During the six months ended 30th September 2006, the Company has incurred costsof $ 124,102 (2005: Nil) towards implementation of SAP. The useful life of thishas been assessed as not exceeding five years. It has been put to use after 30thSeptember 2006, accordingly it will be amortized in five years. The costs incurred on training activities and on post implementationsupport have been accounted for as an expense in the Income Statement. 9. Well Development Costs During the six months period ended 30th September 2006, the Company has finishedcommercial drilling of 13 production wells. The cost of drilling, wire linelogging and perforation services, cementing and fracturing services, which havebeen outsourced, has been taken to Well Development Costs. All other expensesincurred with respect to developing and constructing wells are capitalized andincluded under Well Development costs. During the period, the Company hasincurred for $11,013,021 (2005: $ 871,396) as additions to Well DevelopmentCosts. The Company has disclosed certain items as Inventory in its annual financialstatements for the year ended 31st March 2006 amounting to $ 376,931; however,these items have now been grouped as part of Well Development Cost as on 30thSeptember 2006. These items are not meant for sale in the ordinary course ofbusiness or for use as supplies in the production process of saleable Gas, butare to be used towards Well Development and hence, are treated as Capital Workin Progress. This regrouping has no impact on the operating results of theCompany and on Earnings per share. During the six months ended 30th September 2006, the Company has written downdamaged and unusable materials amounting to $6,672 (2005: Nil) 10. Retirement Benefits The Company has two post employment unfunded benefit plans, namely gratuity andsuperannuation and one state administered provident fund, which is a fundeddefined contribution plan. Gratuity and Superannuation are defined benefitschemes. The Company has made provision for Gratuity and Superannuation benefitson the basis of actuarial valuation. 11. Authorized and Issued Capital During the six months period ended 30th September 2006, the Company hasincreased its Authorized Share Capital by $2,153,316 comprising of 100,000,000equity shares of INR 1 each. During the period, the Company has issued sponsored Global Depository Receipts(GDRs) comprising of 57,418,843 GDRs against 287,094,215 equity shares of Re 1each offered by the existing shareholders of the company, at a price of 127.50pence per GDR. These GDRs have been listed in the Alternative Investment Market(AIM) of the London Stock Exchange. However, this does not increase the amountof issued capital of the Company. 12. Leases and Arrangements containing lease The Company has entered into Equipment lease and other arrangements with variouscontractors for development of its wells, whereby the specific assets leased bythe contractors are used only at the company's well development site and sucharrangements convey the right to use the assets. Some of these arrangementscontain lease as per IFRIC 4. The significant terms and arrangements aredescribed below. a) Drilling Rig has been taken on Lease from John Energy Limited, for asix months period. The arrangements have terms describing the operating rate perhour, the standby rate per hour and the repair rate per hour. The Leasearrangement is not cancelable and terminates only on happening of a 'forcemajeure' event. The total lease payments made under this contract during theperiod are $ 115,981 (2005: $ 66,043). The future minimum rentals payable under such type of lease are As at 30 September, As at 30 September, 2006 2005Within one year 39,164 NilAfter one year but not more than five years Nil Nil b) Wire-line logging of Core holes has been contracted to ScintrexGeophyscial Services (India) Private Limited, which includes hiring of drillingequipments along with the services of its crew. The lease terms include rate ofequipments hiring along with the payments towards non-lease elements. The Leasearrangement is not cancelable and terminates only on happening of a 'forcemajeure' event. The work has been completed as on 30th September 2006 under thisarrangement. c) The Wire-line logging and perforation services for Production Wellshave been contracted to HLS Asia Limited. The terms of contract include separatepayment arrangements towards lease and non-lease payments. The lease arrangementis cancelable at the option of either party to the contract. d) The Company has entered into two different arrangements with MitchellDrilling Operations PTY Limited and Mitchell Drilling International PTY Limitedfor drilling of production wells and core holes respectively. The terms ofcontract include comprehensive payment rates to include both lease and non-leaseelements which are not separable. The arrangement is cancelable at the option ofeither party to the contract. The work has been completed on 6th October underthese arrangements. e) For Cementing and fracturing of wells, equipment and personnel from BJServices Company Middle East Limited have been hired. The arrangement iscancelable at the option of either party to the contract. The terms of contractinclude separate payment arrangements towards lease and non-lease elements. The above mentioned arrangements include non-lease elements also and are beingtreated as well development costs along with other costs. The segregation oflease and non-lease elements under some of these arrangements is not possible.The details of total expenses during the six months period ended 30 September2006 are as follows. Nature 30 September, 2006 30 September, 2005Towards Minimum Lease payments:-Cementing and Fracturing Charges 834,937 20,282Logging and Wire line charges 502,400 NilTowards Lease payments under arrangements where lease and non-leasepayments are combinedWell Testing Charges Nil 6,690Drilling Charges (including core hole drilling) 2,881,239 Nil f) The company has taken a building on finance lease, the net carryingamount of which is $ 273,524 (2005: $ 291,111). The entire consideration hasbeen paid during the previous year and there are no future lease rentalspayable. g) The Company has acquired a property under an operating lease for aninitial period of three years renewable by mutual consent on mutually agreeableterms. The lease is also cancelable at the option of either party by serving ofappropriate notice. The lease rental of USD 42,768 (2005: $ 24,742) incurred hasbeen charged to the profit and loss account. 13. Commitments and Contingencies The claim from Directorate General of Hydrocarbons (DGH), Government of India,towards additional fee for Gas Exploration Licence, continues to be underarbitration with both the parties to the dispute filing their additionalcomments on the matter with the Arbitrator. During the period, DGH has alsoraised claim towards interest on the amount of shortfall, since the date of thecontract. Such additional amount of interest is $ 101,496, which along with theoriginal claim has been treated by the Company as a Contingent Liability. Therehas been no other change to the Contingencies as were existing as at 31 March2006. There are no new contingencies existing for the Company arising out ofactivities and operations during the six months period ended 30 September 2006. 14. Capital Commitments At 30 September 2006, the Company has following Capital Commitments. As at September 30 2006 2005 Capital Assets 1,932,215 2,572,433* * This excludes agreement for capital services where the chargeable rates arefixed but the volume of work is not quantified. 15. Business Developments a) The Company has applied for License for mining activity onthe freehold and leasehold lands and is awaiting the receipt of such license. b) The work on Route Survey, Pipeline network and the GasGathering Station (GGS) has also commenced during the period. The survey anddesign work is nearing completion and the physical work is expected to start inDecember 2006. The Company has awarded a contract to MECON Limited for providingproject management and engineering services for this scheme. The GGS is expectedto be operational by June 2007. c) The Company has entered into a Memorandum of Understandingwith Indian Oil Corporation Limited (IOC) on 24th August 2006, for sale of CoalBed Methane Gas and developing City Gas Distribution network including CNGretailing in the state of West Bengal in India. The terms and arrangements forsale of CBM Gas are under negotiation with IOC. 16. The Company is eligible for Input Tax Credit for Value AddedTax and Service Tax paid by it on purchase of goods and services, in accordancewith the relevant VAT and Service tax rules in India, against VAT and ExciseDuty to be paid by it once commercial sale of gas begins. Accordingly, $ 789,948(2005: $ 16,054) have been recognised as current assets disclosed under currentloans and advances, as Input Tax credit availed but yet to be utilized. Theabove amount includes $ 212,639 paid until 31 March 2006. As at 31 March 2006,these amounts were not separately treated as current assets but were partlygrouped under Well Development Costs, and partly charged to Income Statement.The following accounting adjustments have been made for rectification of thiserror. d) For the amount of credit relating to earlier years ending onor before 31 March 2005, adjustment has been made to Well Development Costs $11,595 and Retained earnings $ 3,239, as applicable, as on 1 April 2005. e) For the amount relating to six months period ended 30September 2005, adjustment has been made to Well Development Costs $ 661 andAdministrative and General Expenses $ 559, as applicable, as at and for theperiod ended 30 September 2005. f) For the amount relating to six months period ended 31 March2006, adjustment has been made to Well Development costs $ 183,946 and RetainedEarnings $ 12,639, as applicable, as at 31 March 2006. 17. The Company enjoys exemption from paying Excise duty on thepurchase of goods under the Deemed Export category as per EXIM policy of theGovernment of India. 18. Translation to Presentation Currency The company has converted INR balances to USD equivalent balances onthe following basis: • For conversion of all assets and liabilities, other than equity, as atthe reporting dates, the exchange rates prevailing as at the reporting date havebeen used, which are as follows: • as at 30th September 2006: USD 1 = INR 45.96 • as at 30th September 2005: USD 1 = INR 43.99 • For conversion of all expenses and income on income statement and thecash flow statement, for the respective periods, periodic average exchange rateshave been used, which are as follows: • For the six months period ended 30 September 2006: USD 1 = INR 45.95 • For the six months period ended 30 September 2005: USD 1 = INR 43.65 • For conversion of issued Share Capital and Share Premium, historicalexchange rates prevailing on the respective dates of issue of shares have beentaken into consideration. • For conversion of authorized share capital, historical exchange ratesprevailing on the respective dates of authorization of such share capital havebeen taken into consideration. 19. Related Party Disclosures The Company has transactions with following related parties during the periodended 30 September 2006 and 2005. As at 30th September 2006 As at 30th September 2005 a) Shareholders having • YKM Holdings Pvt. Ltd. • YKM Holdings Pvt. Ltd. Significant influence b) Key Management • Mr. Y K Modi • Mr. Y K Modi Personnel • Mr. Prashant Modi • Mr. Prashant Modi • Dr. P K Roy (upto August • Dr. P K Roy 19, 2006) • Mr. P Murari • Mr. P Murari • Mr. Kashi Nath Memani • Mr. Kashi Nath Memani • Mr Haigreve Khaitan • Mr. Serajul Haq Khan • Mr Paul Sebastian Zuckerman c) Entities that are controlled, jointly • Indian Purchase.com Infoware • Indian Purchase.com Infoware controlled or significantly Limited Limited influenced by, or for which significant voting power in such • Khaitan & Co. entity resides with, directly or indirectly, any individual or close family member of such individual Referred to in (b) above The following tables provide the total amount of transactions which have beenentered into with related parties during the six months period ended 30September 2006 and 2005. Related Lease Reimbursement of Provision of Amount owed to (receivable rentals expenses incurred on Services from) related party Party behalf of CompanyYKM Holdings Pvt. Ltd: September 2006 42,768 1,627 - (275)September 2005 24,742 2,325 - (2,308)Other Related PartiesIndian Purchase.comInfoware Limited:September 2006 - - 109 870September 2005 - -Khaitan & Co.:September 2006 25,283 (544)September 2005 29,062 (23,135) Compensation paid to Key Management Personnel As at 30th September 2006 As at 30th September 2005a) Salaries and allowances 124,222 54,323b) Post employment benefits 12,652 11,906 Total compensation paid to 136,874 66,229 key management personnel The company has paid $ 6,963 (2005: $ 4,353) as sitting fees to thenon-executive directors for attending various meetings. 22. Figures for the corresponding six months period ended 30 September 2005 areunaudited. 23. Figures of the previous period have been regrouped / rearranged whereverconsidered necessary (Please Refer Note Nos. 9 and 16). Figures in bracketsrepresent amounts relating to six months period ended 30 September 2005. 24. These interim condensed financial statements were approved by the Board ofDirectors on 17th November 2006. As per our report of even date attached On behalf of the Board of Directors Ernst & Young Yogendra Kumar Modi Kashi Nath Memani Chairman and Chief Executive Officer Director Place: DelhiDate: 17th November 2006 This information is provided by RNS The company news service from the London Stock Exchange