GEEC.L Regulatory News (GEEC)

30 May 2006 15:03

Great Eastern Energy Corp Ltd30 May 2006 Notes to financial statement These notes accompany the financial statement issued by Great Eastern Energy at1023hrs, 20th May 2006. 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 then atwenty-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 in accordance withInternational Financial Reporting Standards (IFRS). These financial statementshave been prepared on a historical cost convention. The financial statements arepresented in USD and all values are rounded to the nearest US dollar except whenotherwise indicated. The preparation of financial statements in conformity with IFRS requiresmanagement to make certain critical accounting estimates. Actual results coulddiffer materially from these estimates. Significant estimates and assumptionsare used when accounting for certain items, such as but not limited to,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 less accumulateddepreciation and any impairment in value. Land is measured at cost. Historicalcost includes expenditure that is directly attributable to the acquisition ofthe items. Subsequent costs are included in the asset's carrying amount orrecognized as a separate asset, as appropriate, only when it is probable thatfuture economic benefits associated with them will flow to the Company and thecost of the item can be measured reliably. All other repairs and maintenanceexpenditures are charged to the income statement during the financial period inwhich they are incurred. Depreciation is calculated on a straight-line basisover 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 impairment whenevents 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 disposal or whenno future economic benefits are expected to arise from the continued use of theasset. Any gain or loss arising on derecognition of the asset (calculated as thedifference between the net disposal proceeds and the carrying amount of theitem) is included in the income statement in the year the item is derecognized. 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 has a finiteuseful 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 is asfollows: Gas Exploration RightsUseful lives FiniteMethod 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 Acquired.or acquiredImpairment testing / Annually and where an indicator of impairment exists.recoverable amounttesting Gains or losses arising from derecognition of an intangible asset are measuredas the difference between the net disposal proceeds and the carrying amount ofthe 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 the full costmethod. All expenses incurred prior to obtaining rights for exploration andevaluation of gas resources are expensed. All direct expenses like, acquisitionof rights to explore, topographical and geophysical studies, exploratorydrilling are capitalised within property, plant and equipment and intangibleasset based on the nature of expense. Once technical and commercial feasibility is demonstrated exploration andevaluation 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 exploration andevaluation 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 of time andhas been recorded at cost. Such land is being amortised over the period oflease. 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 with anoriginal tenure of the loans being less than one year. The interest accrued butnot 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 annual leave andsick leave are accrued in the year in which the associated services are renderedby 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 the risks andbenefits incidental to ownership of the leased item, are capitalized at theinception of the lease at the fair value of the leased property or, if lower, atthe present value of the minimum lease payments. Lease payments are apportionedbetween the finance charges and reduction of the lease liability so as toachieve a constant rate of interest on the remaining balance of the liability.Finance charges are charged directly against income. Lease where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Operating leasepayments 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 the economicbenefits will flow to the company and the revenue can be reliably measured. Interest income Revenue is recognized as the interest accrues to the net carrying amount of thefinancial asset using the net effective interest rate method. o. Income tax Current tax represents the amount that would be payable based on computation oftax as per prevailing taxation laws under the Indian Income Tax Act, 1961. Deferred income tax is provided, using the liability method, on all temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts for financial reporting purpose. Deferredincome tax liabilities are recognized for all taxable temporary differences. 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 the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss; 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 of thetime value of money is material, provisions are determined by discounting theexpected 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 exposure tocommodity price risk is minimal at present as it is at a very preliminary stageof 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. 2. Property, Plant and Equipment Land and Vehicles Plant and Furniture, Total Building Equipment fittings & equipments ------------------ -------- --------- ---------- --------- ---------- At 1st April 2005Cost 48,501 8,121 73,311 19,274 149,207Accumulateddepreciation (5,229) (2,315) (35,465) (9,697) (52,707) -------- --------- ---------- --------- ----------Net carryingamount 43,272 5,804 37,847 9,577 96,500 -------- --------- ---------- --------- ---------- Year ended March 31, 2005Opening netbook amount 39,908 6,630 31,548 10,790 88,875Exchangedifferences (328) (55) (258) (89) (730)Additions 4,542 - 12,827 310 17,680Disposals - - - - -Depreciationcharge (850) (771) (6,270) (1,434) (9,325) -------- --------- ---------- --------- ----------Closing netbook amount 43,272 5,804 37,847 9,577 96,500 -------- --------- ---------- --------- ---------- At 1st April 2006Cost 513,388 111,925 456,040 49,720 1,131,073Accumulateddepreciation (13,738) (9,130) (56,323) (12,242) (91,433) -------- --------- ---------- --------- ----------Net carryingamount 499,650 102,795 399,717 37,478 1,039,640 -------- --------- ---------- --------- ---------- Year ended March 31, 2006Opening netbook amount 43,272 5,804 37,847 9,577 96,500Exchangedifferences (834) (112) (724) (184) (1,854)Additions 465,821 103,961 384,376 31,172 985,330Disposals - - (240) (354) (595)Depreciationcharge (8,609) (6,858) (21,542) (2,732) (39,741) -------- --------- ---------- --------- ----------Closing netbook amount 499,650 102,795 399,717 37,478 1,039,640 -------- --------- ---------- --------- ---------- At 1st April 2005Openingaccumulateddepreciation 4,416 1,558 29,437 8,332 43,743Depreciationfor the year 850 771 6,270 1,434 9,325Exchangedifference (37) (13) (242) (69) (360) -------- --------- ---------- --------- ----------Closingaccumulateddepreciation 5,229 2,316 35,465 9,697 52,708 -------- --------- ---------- --------- ---------- At 1st April 2006Openingaccumulateddepreciation 5,229 2,316 35,465 9,698 52,708Depreciationfor the year 8,609 6,858 21,542 2,732 39,741Exchangedifference (101) (44) (684) (188) (1,016) -------- --------- ---------- --------- ----------Closingaccumulateddepreciation 13,738 9,130 56,323 12,242 91,433 -------- --------- ---------- --------- ---------- Depreciation amounting to US Dollar 18,874 (2005: US Dollar 6100) has beentransferred to Capital work in progress. Capital work in progress As at March 31, ---------------------- 2006 2005 ------------ ------------ US Dollars US Dollars ------------ ------------Cost 15,237,804 8,527,635Accumulated depreciation - - ------------ ------------Net carrying amount 15,237,804 8,527,635 ============ ============ Opening net book amount 8,527,635 6,825,204Exchange differences (164,397) (56,161)Additions 6,874,567 1,758,592 ------------ ------------Closing net book amount 15,237,804 8,527,635 ============ ============ 3. Intangible Assets Gas Exploration ERP implementation in Total ------------------------- Right progress ------------ ------------ ------------ At 1st April 2005Cost 228,571 - 228,571Accumulated depreciation - - - ------------ ------------ ------------Net carryingamount 228,571 - 228,571 ============ ============ ============ Year ended March 31, 2005Opening netbook amount 230,468 - 230,468Exchangedifferences (1,897) - (1,897)Additions - - - ------------ ------------ ------------Closing netbook amount 228,571 - 228,571 ============ ============ ============ At 1st April 2006Cost 224,165 - 224,165Accumulated depreciation - - - ------------ ------------ ------------Net carryingamount 224,165 - 15,765,907 ============ ============ ============ Year ended March 31, 2006Opening netbook amount 228,571 20,175 248,746Exchangedifferences (4,406) - (4,406)Additions - - -Depreciation charge ------------ ------------ ------------Closing netbook amount 224,165 20,175 244,340 ============ ============ ============ 4. Leasehold Land As at March 31, --------------------- 2006 2005 ------------ ---------- US Dollars US Dollars ------------ ----------Balance at the beginning of the year 8,894 9,309Exchange difference on Conversion 718 (76)Addition during the year 28,277Amortisation charge for the year (333) (339) ------------ ----------Balance at the end of the year 37,556 8,894 ============ ==========Cost 39,159 10,164Accumulated amortisation (1,603) (1,270) ------------ ----------Carrying value, net 37,556 8,894 ============ ========== 5. Deferred Taxes ------------------ -------------------- As at March 31, For the year ended March 31, ------------------ -------------------- 2006 2005 2006 2005 ----------- --------- ------------ ---------- US Dollar US Dollar US Dollar US Dollar ----------- --------- ------------ ---------- Deffered Income Tax Liabilities (DTL) Difference in written downvalues of property, plant andequipment. (18,372) (5,555) (12,817) (1,096) Deferred Income Tax Assets (DTA) Superannuation Fund 7,874 3,212 4,661 1208Leave Liability 13,502 3,977 9,525 3057Provident Fund Liability - - - (2,092)Grauity 3,368 1,132 2,236 480 ----------- --------- ------------ ---------- Total 24,744 8,321 ----------- --------- ------------ ----------Restricted to the DTL 18,372 - ----------- --------- ------------ ----------Net Deferred Tax Asset - 2,766 ----------- --------- ------------ ---------- 3,605 1,557Less:The net DTA (as, DTA to berecognized only to the extentof DTL) (3605)The net DTA recognized as atMarch 31, 2005. (2766)Foreign Currency Translationdifference 34 (33) ----------- --------- ------------ ----------Deferred Income Tax Charge (2732) 1,524 ----------- --------- ------------ ---------- The company has filed a return of income to the tax authorities declaring nilincome and has foregone its right to claim the losses incurred during the yearand also any carried forward losses of past years. Hence, no deferred tax isbeing recognized for such brought forward losses of the company. Therealizability of the Deferred tax assets is uncertain as the Company will beenjoying a tax holiday period after the commencement of operations. Thus, theCompany has decided to recognize asstes only to the extent of Deferred taxliability. ------------------------ ------- ------- -------------- ----------Reconciliation for Deferred Tax: -------------- ---------- For the year ended March 31 ---------------------- ------------ 2006 2005 ------------ ------------ US Dollar US Dollar ------------ ------------Income / (Loss) before taxes (42,535) (433,448) Average enacted tax rate in India 33.66% 33.66% Expected tax expense (14,317) (145,899) Deferred Tax assets on the Post retirementbenefits 16,422 Deferred Tax liability on Depreciationallowance (12,817) (1,096) Tax effect of permanent differences 10,745 142,788 Earlier recognized Deferred tax asset 2,732 - ------------ ------------Total Tax expense / (benefit) 2,732 (1,555) ============ ============ 6. Loans and Advances (Non Current) As at March 31, -------------------- 2006 2005 ------------ ---------- US Dollars US Dollars ------------ ----------Advances recoverable in cash or in kind or for valueto be received 2,522 -Sundry deposits 15,196 11,517Due from related parties 26,631 22,857 ------------ ---------- 44,348 34,374 ============ ========== 7. Inventories Inventories As at March 31, --------------------- 2006 2005 ------------ ------------ US Dollars US Dollars ------------ ------------Consumable Stores and Spares 376,932 64,298 ------------ ------------ 376,932 64,298 ============ ============ 8. Loans and Advances As at March 31, --------------------- 2006 2005 ------------ ------------ US Dollar US Dollar ------------ ------------Advance recoverable in cash or kind or for value tobe 196,147 273,727receivedLess: Provision for doubtful advances (48,496) (49,449) ------------ ------------ 147,651 224,278Sundry deposit 15,196 11,517Advance tax including tax deducted at source 314,533 7,350Dues from related parties 29,716 33,053Interest receivable 79,580 -Prepayments 46,860 3,578Less: Non Current portion - -Advance recoverable in cash or kind or for (2,522) -value to be received - Sundry Deposits (15,196) (11,517) -Due from Related Parties (26,631) (22,857) ------------ ------------ 589,188 245,403 ============ ============ The carrying values of loans and advances are representative of their fairvalues at respective balance sheet dates and have an original maturity period of1 year or less 9. Cash and Cash Equivalents As at March 31, --------------------- 2006 2005 ------------ ------------ US Dollars US Dollars ------------ ------------Cash in Hand 2,312 349With Scheduled Banks - on Current Account 410,172 1,407 - on Fixed Deposit 3,859,421 - ------------ ------------ 4,271,906 1,756 ============ ============ Cash and cash equivalents include: The carrying value of Cash and Short-Term deposits are representative of fairvalues at respective balance sheet dates 10. Deposits with Bank and Restricted Deposits The restricted cash represents margin money deposits against guarantees issuedby banks on behalf of the Company, letters of credit etc. Restrictions on suchdeposits are released on the expiry of the terms of the respective arrangements. 11. Issued Capital As at March 31, --------------------- ------------ 2006 2005 ------------ ------------AuthorisedOrdinary Shares of INR 1 each 12,571,429 12,571,429(USD equivalent 0.023) ------------ ------------ 12,571,429 12,571,429 ------------ ------------ -Issued and fully paid Share Value (Number) $ ------------ ------------At 1st April 2004 306,000,000 6,891,900 ------------ ------------ ------------ ------------Issued on 24th May 2004 on preferential basis forcash for INR 10 each(USD equivalent 0.220) 26,000,000 573,066 ------------ ------------Issued on 28th July 2004 on preferential basis forcash for INR 10 each(USD equivalent 0.216) 18,000,000 388,685 ------------ ------------Issued on 5th November 2004 on preferential basisfor cash for INR 1 each(USD equivalent 0.222) 5,325,700 118,087 ------------ ------------Issued on 5th November 2004 on preferential basisfor cash for INR 1 each(USD equivalent 0.222) 3,111,200 68,984 ------------ ------------At 31st March 2005 358,436,900 8,040,722 ------------ ------------ At 1st April 2005 358,436,900 8,040,722Issued on 14th April 2005 on preferential basis forcash for INR 1(USD Equivalent 0.223 ) 60,613,573 1,385,453Issued on 13th September 2005 on preferential basisfor cash for INR 1(USD Equivalent 0.223) ( onconversion of warrants) 65,569,026 1,498,554Issued on 13th December 2005 on preferential basisfor cash for INR 1(USD Equivalent 0.223) ( against120,00,000 GDRs) 60,000,000 1,322,052 ------------ ------------At 31st March 2006 544,619,499 12,246,781 ------------ ------------ 1. During the year the Company has issued 126,182,599 equityshares of Re 1/- each to various investors in India and abroad on preferential/private placement basis. Out of the above, names of the holders of 65,569,026equity shares of Re 1/- each have been entered into the register of members onsurrender of share warrants. 2. During the year the Company has issued Global DepositoryReceipts (GDR's) comprising of 12,000,000 GDRs against fresh issue of 60,000,000equity shares of Re 1 each and 6,803,504 sponsored GDRs representing 34,017,520equity shares offered by the existing shareholders of the company, at a price of101 pence per GDR. These GDR's have been listed in the Alternative InvestmentMarket (AIM) of the London Stock Exchange. A part of the GDR issue expensesamounting to USD 984,489 incurred by the Company were recovered from theproceeds of the sponsored GDRs on a proportionate basis and the balance remittedto the shareholders who had offered their shares for sale under the sponsoredGDR scheme. An amount of USD 1,771,628 representing the balance issue expensehas been adjusted against the share premium account. 12. Provisions and other Liabilities (Non Current) As at March 31, ----------------------- 2006 2005 ------------- ------------ US Dollars US Dollars ------------- ------------ Retirement benefit 73,496 12,788Site restoration 13,450 4,571 ------------- ------------ 86,946 17,359 ============= ============ 13. Employee Benefits Pension and other post-employment benefit plans The company has two post employment unfunded benefit plans, namely gratuity andsuperannuation and one state administered provident fund, which is a fundedplan. Gratuity is computed as half-month's salary, for every completed year of serviceand is payable on retirement/termination. The company makes provision of suchgratuity liability in the books of accounts on the basis of actuarial valuation. The Superannuation (pension) plan for the company is a defined benefitcontribution scheme where monthly contribution at the rate of 15% of salary ispayable. These contributions will accumulate at the prevailing rate of interest.At the time of retirement, termination or separation of employee, accumulatedcontribution will be utilised to buy pension annuity from an insurance company.The company makes provision of such pension liability in the books of accountson the basis of actuarial valuation. The following table summarizes the components of net expense recognized in theincome statement and amounts recognized in the balance sheet for gratuity andsuperannuation plans. Net Benefit expense: For the year ended March 31, For the year ended March 31, 2006 2005 ------------------ -------------------- Pension Post-employment Pension Post-employment Plan benefits Plan benefits --------- ---------- --------- ---------- US Dollars US Dollars US Dollars US Dollars --------- ---------- --------- ----------Currentservice cost 12,938 6,047 3,056 1,411Interest Coston benefitobligations 954 332 497 139Net actuarialLossrecognisedduring theyear - 80 - 75 --------- ---------- --------- ----------Annual expenses 13,892 6,459 3,553 1,625 ========= ========== ========= ========== Movement in benefit liability: As at March 31, 2006 As at March 31, 2005 ----------------- ----------------- Pension Post-employment Pension Post-employment Plan benefits Plan benefits --------- ---------- --------- ---------- US Dollars US Dollars US Dollars US Dollars --------- ---------- --------- ----------Opening Balance 9,311 3,477 5,805 1,867Exchangedifference onTranslation 183 68 (47) (15)Annual expense 13,892 6,460 3,553 1,625 --------- ---------- --------- ----------Closing Balance 23,386 10,005 9,311 3,477 ========= ========== ========= ========== The principal assumptions used in determining pension and post-employmentbenefit obligations for the company are shown below: ------------ --------- 2006 2005 (%) (%) ------------ ---------Discount Rate 7.50 7.50Future salary increases 3.50 3.00Inflation factor 2.00 2.50Rate of Interest 7.50 7.50 Provident Fund The State administered Provident Fund is a defined contribution scheme wherebythe company deposits an amount determined as a fixed percentage of basic pay tothe fund every month. Vacation Benefit Vacation benefit comprises of leave balances accrued by employees. The Leavebalance is not en-cashable*. These balances can be accumulated up to a maximumof 60 days and carried forward for 2 years. The leave lapses after 2 years ifunutilized, on the employee leaving the Company or on retirement. Vacationbenefit has been measured at cost to the Company basis. Leave pay expenses amounted to USD 9,024 and USD 21,614 for the years endedMarch 31, 2005 and 2006 respectively. Accrued employee cost include USD 11,816and USD 40,105 leave pay obligation of GEECL as of March 31, 2005 and 2006respectively. * except for three employees (under the old policy) 14. Site Restoration Costs A provision for restoring the land back to its originality is created by way ofsite restoration costs, on a well by well basis. Such expenses are provided whenthe wells have been drilled substantially. All expenses which are expected to beincurred within the next 12 months are treated as current expense. These areexpected to be incurred when the company has commercially exploited the provedreserves of the well or when a well which has been drilled has been declared asa dead well. Provision for Site Restoration US DollarsAt 1st April, 2004 4,609 Currency Translation (38)Provided during the year -Utilised during the year - ---------------At 31st March, 2005 4,571 =============== At 1st April, 2005 4,571Provided during the year 8,969Currency Translation (90)Utilised during the year - ---------------At 31st March, 2006 13,450 =============== 15. Trade and Other Payables As at March 31, --------------------- 2006 2005 ------------ ----------- US Dollars US Dollars ------------ -----------Trade Payables 1,693,715 331,303Statutory dues payable 144,348 52,251Taxes payable 16,043 42Accured expenses 176,813 78,226Other Liabilities 100,548 152,039 ------------ ----------- 2,131,467 613,862 ============ =========== Trade creditors are non-interest bearing and are normally settled on 90 dayterms. Other Liabilities primarily include salary payable for the month of March2006, technical fees payable and provisions for general day to day expenses. 16. Interest-bearing Loans and Borrowings As at March 31, --------------------- 2006 2005 ------------ -----------SecuredShort term - from others - 112,000Interest accrued and due - 10,926 ------------ ----------- Total - 122,926 ============ =========== The borrowings were secured by way of hypothecation of motor vehicles. Thecarrying values of all the loans and borrowings are representative of fairvalues and have an original maturity period of less than 1 year. 17. Other Provisions (demobilisation costs ) A provision is recognized in the accounts for demobilization of equipmentspayable to various service providers, as and when the equipments reach the site.All expenses which are expected to be incurred within the next 12 months aretreated as current expense. ------------- Provision for Site Demobilisation -------------At 1st April, 2004 124,924Currency Translation (1,028)Provided during the year 10,286Utilised during the year 85,539 -------------At 31st March, 2005 48,643 ============= At 1st April, 2005 48,643Provided during the year 169,366Currency TranslationUtilised during the year (48,643) -------------At 31st March, 2006 169,366 ============= NOTES TO THE INCOME STATEMENT 18. Administrative and General Expenses Year ended 31, ----------------------- ------------ 2006 2005 ------------- ------------ US Dollar US Dollar ------------- ------------ 39,503Audit Fees 39,503 2,836Service Tax 4,969 516Professional Fees 275,301 93,143Salaries and Other Allowances 225,042 27,393Electricity charges 10,463 5,072Repairs & Maintenance 28,003 4,692Insurance 22,243 932Rent 79,438 4,387Rates & Taxes 2,283 1,515Postage, Printing & Stationery 13,367 3,474Telephone/Fax charges 20,968 4,804Traveling and Conveyance 247,017 57,515Management service Charges - 133,481Bank Charges 4,636 102Fee & Legal Charges 1,012 22,635Sitting Fees 13,318 2,225Interest Charges 1,418 1,909Freight & Cartages 747 451Miscellaneous Expenses 134,075 47,306 ------------- ------------ 1,123,803 414,388 ============= ============ 19. Miscellaneous Income The company had entered into a Memorandum of Understanding (MOU) with EnergyVentures, L.L.C. (EV) on 4th July 2005,a company incorporated under the laws ofDelaware, USA for acquiring upto 20% 'farm-in' i.e. participating interest inthe company's contract area under the Production sharing contract with DirectorGeneral of Hydrocarbon, Ministry of Petroleum and Natural Gas, Government ofIndia. As per the terms of the MOU, EV had agreed to fund USD 25,000,000 againstapproved work programme for the development phase. The company had received USD200,000 as non refundable advance from EV, subject to the approval of Governmentof India. However, the company has subsequently terminated the MOU with EV and forfeitedthe non-refundable advance of USD 200,000 received from EV, in terms of the MOUentered into with them. 20. Earning Per Share Basic earning per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the company by the weightedaverage number of ordinary equity shares outstanding during the year. Weighted average number of ordinary shares outstanding for calculation of basicearning per share also contains the weighted average of advance against sharecapital as on the balance sheet date. Advance against share capital is moneyreceived by the company from prospective shareholders. As per the arrangementsbetween these prospective shareholders and the Company, the company is legallycommitted to allot shares against these advances. The following reflects the income and share data used in the computation ofbasic earning per share calculation For the year ended March 31, ---------------------- 2006 2005 US Dollars US DollarsNet Loss attributable to equity share holders 45,267 431,924 ------------- ----------- 45,267 431,924 ============= =========== ------------- ----------- As at March 31, ---------------------- 2006 2005 ------------- -----------Weighted average number of ordinary shares forbasic earning per share 470,737,675 343,803,354Weighted average number of advance against sharecapital for basic earning per share - 16,012,948 ------------- ----------- 470,737,675 359,816,302 ============= =========== OTHER NOTES TO ACCOUNTS 21. Contingencies: Claims made against the Company not acknowledged As at March 31, as debt -------------------------- 2006 2005 -------------- -------------- US Dollars US Dollars -------------- --------------(a) Claims made by Contractors -M/s Adkins Services Inc. 6,234,028 6,356,571 -M/s Dalma Energy LLC - 821,022 (b) Claims made by Government of India (Ministry of 91,908 93,714 Petroleum & Natural Gas) (c) Claims made by Income tax Authorities 2,704 - Future cash outflows in respect of the above are determinable on receipt ofjudgements / decisions pending with various forum / authorities. a) Loans and advances include USD 48,496 (31st March 2005 - USD 49,449)recoverable from M/s Adkins Services Inc., (Adkins), a drilling contractor. Thecontract with Adkins was terminated by the Company on the ground ofnon-performance and continued breach of contract. The Company in addition to theabove amount has made a claim of USD 4.44 million (31st March 2005 - USD 4.53Million) for damages on account of delay in providing the services by the saidcontractor. The Contractor has also filed a counter claim of USD 6.23 Million(31st March 2005 - USD 6.36 million) against the Company for loss of profit,damages etc which the Company disputes. The Company had filed an applicationbefore Hon'ble High Court at Calcutta for the appointment of PresidingArbitrator for the arbitral proceedings to be started. The Hon'ble High Court atCalcutta vide its order dated 18th March, 2004 has appointed the PresidingArbitrator. Necessary adjustments, if any, will be made in the financialstatements once the arbitration proceedings are complete. b) The Company had given permission to its contractor, Dalma Energy LLC forchangeover of rig (an equipment required for drilling wells) supplied by thembased on certain terms and conditions agreed mutually. Such terms includedcompensation for changeover period payable to the Company and reduction in rateof future hire charges payable by the Company for the rig replaced. The Companyhas raised a claim of USD 639,149 against the contractor and treated hirecharges paid for rig supplied by a third party amounting to USD 221,034 asamount recoverable from Dalma. The contractor has continued to bill the workover charges at the old rateswithout considering any reduction in the rates, which is disputed by theCompany. Pending settlement of the claim and revision of the daily rates as peragreed terms the liability of USD 677,557 for workover charges for the periodfrom January 2004 to 31st December 2004 and liability for drilling chargesamounting to USD 143,465 for the period from 1st October 2003 to 10th November2003 has not been provided in these accounts. Subsequent to the 31st March 2005, the company has settled the dispute withDalma LLC and has agreed to pay USD 80,441 further to the advances already givento the contractor, as full and final settlement towards all dues. The settlementhas been considered in the accounts for the period ended 31st March 2006. c) The Directorate General of Hydrocarbons, Government of India, has raisedclaims amounting to USD 91,908 (31st March 2005- USD 93,714) towards additionalfee for Gas Exploration Licence. The Company has taken a legal opinion on thepossibility of liability against the claim devolving on the company. In view ofsuch opinion, which is in favor of the Company, the claim has been treated as acontingent liability. This dispute has been referred to Arbitration pursuant to the terms & conditionsof the Production Sharing Contract signed with the Government of India. Thearbitration proceedings have already been initiated. 22. Capital Commitment: As at March 31, --------------------------- --------------- 2006 2005 -------------- --------------- US Dollars US Dollars -------------- --------------- Purchase of Land 50,661 - Capital Assets 3,505,928 71,417 23. The Company has acquired a property under an operating leasefor an initial period of three years renewable by mutual consent on mutuallyagreeable terms. The lease rental of USD 48,758 incurred has been charged to theprofit and loss account. 24. The company is in the exploration phase of Coal Bed Methane Gasoperations. Wells under exploration will be converted to Producing Properties,when the well is ready to commence commercial production. Capital expenditureincurred for these wells will be allocated to Producing Properties. 25. The members of the Company have passed a resolution in theextra-ordinary general meeting held on April 10, 2005 for conversion of theCompany into a Public Limited Company. The Company has completed other legalformalities in this regard and has changed its status into a 'Public Limited'company from the current year. Related Party Disclosures As at March 31, As at March 31, 2005 2006 a) Shareholders having CBM Investments YKM Holdings Pvt. Ltdsignificant influence Ltd YKM Holdings CBM Investments Ltd Pvt. Ltd Bokel Investments Ltd Covanta Energy India(CBM) Ltd b) Kay Management Personnel Mr. Y K Modi Mr. Y K Modi Mr. Prashant Mr. Prashant Modi Modi Dr. P K Roy Dr. P K Roy MR. S K Grover (resigned on 2 January 2005) Mr. P Murari (appointed in July 2004) Mr Kashi Nath Memani (appointed in Nov. 2004) (1) The following tables provides the total amount of transactions whichhave been entered into with related parties for the relevant financial year Related Payment Reimbursement Expenses Provision Amount owed to of Incurred on incurred by of (receivable from) behalf of company on Services related party behalfParty towards Company of the related equity partyBokel Investments Ltd.March - 1122 - 133482 146732005March - - - -2006YKM Holdings Pvt. LtdMarch 68984* 2055 787 - 13132005March 1074 5593 88291 297162006CBM Investments LtdMarch - - - - -2005March 1278781 - - - -2006 Key Management Personnel For the year ended March 31, For the year ended March 31, 2006 2005 Salaries andallowances 149431 23999Postemploymentbenefits 27009 3351Totalcompensationpaid to keymanagementpersonnel 176440 27350Non Whole timeDirectorsSalaries andallowance 34782 The company has paid USD 13318 ( 2005 USD1,557) as sitting fee to thenon-executive directors for attending various meetings. 26. Standards, interpretations and amendments to publishedstandards that are not yet effective Certain new standards, amendments and interpretations to existing standards havebeen published that are mandatory for the Company's accounting periods beginning on or after 1January 2006 or later periods but which the Company has not early adopted, asfollows: i) IAS 19 (Amendment), Employee Benefits (effective from 1 January2006). This amendment introduces the option of an alternative recognitionapproach for actuarial gains and losses. It may impose additional recognitionrequirements for multi-employer plans where insufficient information isavailable to apply defined benefit accounting. It also adds new disclosurerequirements. As the Company does not intend to change the accounting policyadopted for recognition of actuarial gains and losses and does not participatein any multi-employer plans, adoption of this amendment will only impact theformat and extent of disclosures presented in the accounts. ii) IAS 39 (Amendment), Cash Flow Hedge Accounting of ForecastIntra-group Transactions (effective from 1 January 2006). The amendment allowsthe foreign currency risk of a highly probable forecast intra-group transactionto qualify as a hedged item in the consolidated financial statements, providedthat: (a) the transaction is denominated in a currency other than the functionalcurrency of the entity entering into that transaction; and (b) the foreigncurrency risk will affect consolidated profit or loss. This amendment is notrelevant to the Company's operations. iii) IAS 39 (Amendment), The Fair Value Option (effective from 1January 2006). This amendment changes the definition of financial instrumentsclassified at fair value through profit or loss and restricts the ability todesignate financial instruments as part of this category. The Company believesthat this amendment should not have a significant impact on the classificationof financial instruments. iv) IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts(effective from 1 January 2006). This amendment requires issued financialguarantees, other than those previously asserted by the entity to be insurancecontracts, to be initially recognised at their fair value and subsequentlymeasured at the higher of: (a) the unamortised balance of the related feesreceived and deferred, and (b) the expenditure required to settle the commitmentat the balance sheet date. Management considered this amendment to IAS 39 andconcluded that it is not relevant to the Company. v) IFRS 7, Financial Instruments: Disclosures, and a complementaryamendment to IAS 1, Presentation of Financial Statements - Capital Disclosures(effective from 1 January 2007).IFRS 7 introduces new disclosures to improve theinformation about financial instruments. It requires the disclosure ofqualitative and quantitative information about exposure to risks arising fromfinancial instruments, including specified minimum disclosures about creditrisk, liquidity risk and market risk, including sensitivity analysis to marketrisk. It replaces IAS 30, Disclosures in the Financial Statements of Banks andSimilar Financial Institutions, and disclosure requirements in IAS 32, FinancialInstruments: Disclosure and Presentation. It is applicable to all entities thatreport under IFRS. The amendment to IAS 1 introduces disclosures about the levelof an entity's capital and how it manages capital. The Company will apply IFRS 7and the amendment to IAS 1 from annual periods beginning 1 January 2007. vi) IFRIC 4, Determining whether an Arrangement contains a Lease(effective from 1 January 2006). IFRIC 4 requires the determination of whetheran arrangement is or contains a lease to be based on the substance of thearrangement. It requires an assessment of whether: (a) fulfilment 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. Management iscurrently assessing the impact of IFRIC 4 on the Company's operations. vii) IFRIC 5, Rights to Interests arising from Decommissioning,Restoration and Environmental Rehabilitation Funds (effective from 1 January2006). IFRIC 5 is not relevant to the Company's operations. The management hasnot yet assessed the impact of IFRIC 5 to the Company. viii) IFRIC 6, Liabilities arising from Participating in a SpecificMarket - Waste Electrical and Electronic Equipment (effective from 1 December2005). IFRIC 6 is not relevant to the Company's operations. 27. Figures of the previous year have been regrouped / rearrangedwherever considered necessary. 28. The financial statements on pages 2 to 27 were approved by theBoard of Directors on 26th May,2006 and were signed on its behalf by Mr Y KModi, Chairman and Managing Director and Mr Kashi Nath Memani, Director This information is provided by RNS The company news service from the London Stock Exchange