HDY.L Regulatory News (HDY)

20 Sep 2007 07:02

Hardy Oil & Gas plc20 September 2007 Immediate Release 20 September 2007 HARDY OIL AND GAS plc ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") FOR THE FIRST TIME Preliminary Restatement of Financial Information for the year 2006 1. Introduction Hardy Oil and Gas Plc ("Hardy" or the "Group") has a mandatory requirement toimplement International Financial Reporting Standards (herein after referred toas "IFRS") for accounting periods commencing from 1 January 2007. This requiresHardy to report its 2007 interim results under applicable InternationalAccounting Standards and IFRS including comparative information. In order to comply with the transition to IFRS, Hardy has restated the GroupBalance Sheets as at 1 January 2006 ("transition date"), 31 December 2006 and 30June 2006 and the Group Income Statements for the year ended 31 December 2006and six months ended 30 June 2006. The restated financial statements arepresented along with reconciliations from UK GAAP to IFRS with revisedaccounting policies. Accordingly, the information in this document has beenprepared on the basis of IFRS expected to be effective as at 31 December 2007. Therefore, until such time, the possibility that the preliminary transitionalbalance sheet and the IFRS financial information presented may require amendmentbefore constituting the final opening balance sheet and final IFRS financialinformation cannot be excluded. As it is first time adoption of IFRS, the general principle for applying IFRS isone of full retrospective application. The first published results to beprepared on an IFRS basis will be those for the six months ending 30 June 2007,which will include comparative IFRS financial statements for the six monthsended 30 June 2006. The principal differences between reporting under UK GAAP and IFRS for Hardy areas follows: 1. Pre-exploration expenditures which were capitalized under UK GAAP are expensed under IFRS. 2. Under UK GAAP, unsuccessful exploration costs were transferred from intangible fixed assets to tangible fixed assets and depletion based upon the unit of production method. Under IFRS, unsuccessful exploration costs are capitalized under intangible assets - exploration pending a determination of whether or not commercial reserves exist. 3. Depletion expense under IFRS has been reduced as a result of 2 above compared to UK GAAP. Depletion expense under IFRS is determined on a field by field basis as compared to on a cost pool basis under UK GAAP. 4. Investments are stated at fair value and the differences are adjusted in equity - other reserves. 5. Appropriate deferred tax adjustments have been made as a result of reduction of depletion in the income statement. Deferred tax is also provided on unrealized gains on investments and charged to equity - other reserves. Hardy has continued to follow its existing full cost accounting policy for oiland gas assets to both exploration and appraisal activity and the assets in thedevelopment and production phases except those above. The financial information and related information relating to the year ended 31December 2006, six months ended June 30, 2006 and the transition date balancesheet have been reviewed by Horwath Clark Whitehill LLP and their report to thedirectors of the company is included herein on page 6. 2. Summary Impact of IFRS on Group Results The principal changes to the Group's reported consolidated 2006 financialinformation from the adoption of IFRS are as follows: Effects of UK GAAP transition IFRS US$ million US$ million US$ millionIncome Statement------------------Revenue 21.32 - 21.32Gross profit 12.94 3.18 16.12Operating profit 8.24 3.18 11.42Profit before tax 10.25 3.18 13.43Profit for the year 7.99 2.24 10.23 US cents US cents US centsEarnings per share - basic 14 4 18Earnings per share - diluted 13 4 17 US$ million US$ million US$ millionBalance Sheet---------------Net assets 83.16 8.24 91.40 The changes are as a result of the following: i) Incorporation of changes in presentation of financial information in the form of IFRS in line with International Accounting Standards -1. ii) Pre-exploration expenditures which were capitalized under UK GAAP are expensed under IFRS iii) Tangible fixed assets have been renamed as "property, plant and equipment" and the expenses of dry holes which were capitalized as tangible assets under the India cost pool have been reclassified as Intangible assets - exploration in line with IFRS-6. iv) Software costs were capitalized and included in the tangibles assets under UK GAAP and are now transferred to Intangible assets - others under IFRS. v) In Cash Flow Statement under IFRS, cash flows have been grouped under three main headings as cash flows from operating, investing and financing activities. The deposit made with State Bank of India to meet the site restoration obligations is removed from cash and cash equivalent and included in "site restoration deposit". Consequent to the above, certain changes in the presentation were made under IFRS though there is no material movement in cash and cash equivalents. vi) Development and production assets within property, plant and equipment have been depleted according to the unit of production method on an individual field basis in line with IAS-16, whereas under UK GAAP they were grouped into regional cost pools and depleted accordingly. vii) Investment in equity is stated at fair value based on the market price and the consequent adjustments were made in equity - other reserves. viii) Appropriate deferred tax adjustments have been made as a result ofreduction of depletion in the income statement. Deferred tax is also provided onunrealized gains on investments and charged to equity - other reserves. 3. Statement of Directors' Responsibilities The directors consider, in preparing the preliminary comparative consolidatedfinancial information and opening financial position under InternationalFinancial Reporting Standards at 1 January 2006 set out on pages 7 to 27 of thisdocument, that the Group has used appropriate accounting policies, consistentlyapplied and supported by reasonable and supportable judgments and estimates,including the assumptions that the directors have made about the standards andinterpretations expected to be effective, and the policies expected to beadopted, when they prepare their first complete set of IFRS financial statementsas at 31 December 2007 and that all accounting standards which they consider tobe applicable have been followed. 4. INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF HARDY OIL AND GAS PLCON THE PRELIMINARY IFRS FINANCIAL INFORMATION We have been instructed by the company to review the accompanying preliminaryInternational Financial Reporting Standards consolidated financial informationof Hardy Oil & Gas Plc ("the Company") and its subsidiaries (together "theGroup") for the year ended 31 December 2006, the six months ended 30 June 2006and the Group's transitional date of 1 January 2006 which comprise notes 5 to 18(hereinafter referred to as "the IFRS Financial Information"). This report is made solely to the Board of Directors, solely for the purpose ofassisting with the transition to IFRS. Our review is undertaken so that we mightstate to the Company's board of directors those matters we are required to stateto them in a review report and for no other purpose. To the fullest extentpermitted by law, we will not accept or assume responsibility to anyone otherthan the Company for our review work, for our report, or for the opinions wehave formed. The Company's directors are responsible for ensuring that the Company and theGroup maintains proper accounting records and for the preparation of the IFRSFinancial Information on the basis set out in notes 1 and 12, which describeshow IFRS will be applied under IFRS 1, including the assumptions the directorshave made about the standards and interpretations expected to be effective, andthe policies expected to be adopted, when the Company prepares its firstcomplete set of IFRS financial statements as at 31 December 2007. Ourresponsibility is to review the IFRS Financial Information and report to you ouropinion that we are not aware of any material modifications that should be madeto the IFRS Financial Information. Review work performed A review consists principally of making enquiries of management and applyinganalytical procedures to the financial information and underlying financial dataand based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the IFRS Financial Information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the IFRS Financial Information as presented for the year ended31 December 2006, the six months ended 30 June 2006 and the group's transitionaldate of 1 January 2006. Emphasis of matter Without qualifying our opinion, we draw attention to the fact that Note 1explains why there is a possibility that the accompanying IFRS FinancialInformation may require adjustment before constituting the final comparativeIFRS financial information. Moreover, we draw attention to the fact that, underIFRS, only a complete set of financial statements comprising a balance sheet,income statement, statement of recognized income and expense, cash flowstatement, together with comparative financial information and explanatorynotes, can provide a fair presentation of the company's financial position,results of operations and cash flows in accordance with IFRS. Horwath Clark Whitehill LLP Chartered Accountants19 September 2007 5. GROUP INCOME STATEMENT for the year ended 31 December 2006 Effect of UK GAAP transition to IFRS IFRS US$ US$ US$ Revenue 21,316,935 - 21,316,935 Cost of salesProduction costs (2,999,086) - (2,999,086)Depletion (5,072,414) 3,184,503 (1,887,911)Decommissioning charge (304,899) - (304,899)------------------------ ----- --------- --------- ---------Gross profit 12,940,536 3,184,503 16,125,039Other operating income 1,000,000 - 1,000,000 Administrative expenses (5,700,416) - (5,700,416)------------------------ ----- --------- --------- ---------Operating profit 8,240,120 3,184,503 11,.424,623 Interest and investment income 2,288,954 - 2,288,954Finance costs (275,428) - (275,428)------------------------ ----- --------- --------- ---------Profit on ordinary activitiesbefore taxation 10,253,646 3,184,503 13,438,149 Tax on profit on ordinaryactivities (2,260,193) (945,188) (3,205,381)------------------------ ----- --------- --------- --------- Profit attributable to the equityshareholders of the parent company 7,993,453 2,239,315 10,232,768------------------------ ----- --------- --------- --------- Earnings per share - basic 0.14 0.04 0.18Earnings per share - diluted 0.13 0.04 0.17------------------------ ----- --------- --------- --------- Further details of the IFRS adjustments can be found in notes 13 to 18. 6. GROUP BALANCE SHEET as at 31 December 2006 Effect of UK GAAP transition to IFRS IFRS US$ US$ US$AssetsNon-current assetsIntangible assets - exploration 33,788,334 33,427,947 67,216,281Property, plant and equipment 35,770,629 (30,706,559) 5,064,070Intangible assets - others - 217,198 217,198Investment 4,997,036 8,839,874 13,836,910Site restoration deposit - 2,784,660 2,784,660 --------- --------- ---------- 74,555,999 14,563,120 89,119,119 Current assetsInventories 2,729,764 - 2,729,764Trade and other receivables 4,637,062 - 4,637,062Cash and cash equivalent 27,275,599 (2,784,660) 24,490,939 --------- --------- ---------- 34,642,425 (2,784,660) 31,857,765 Total assets 109,198,424 11,778,460 120,976,884 --------- --------- ---------- LiabilitiesCurrent liabilitiesTrade and other payables (16,809,807) - (16,809,807) --------- --------- ---------- (16,809,807) - (16,809,807) Non-current liabilitiesProvisions for liabilities andcharges (4,500,000) - (4,500,000)Provision for deferred tax (4,732,296) (3.532,945) (8,265,241) --------- --------- ---------- (9,232,296) (3,532,945) (12,765,241) Total liabilities (26,042,103) (3,532,945) (29,575,048) --------- --------- ------------------------------- ----- --------- --------- ----------Net assets 83,156,321 8,245,515 91,401,836--------------------- ----- --------- --------- ---------- EquityCalled-up share capital 572,530 - 572,530Share premium account 52,982,983 - 52,982,983Shares to be issued 940,093 - 940,093Other reserves - 6,364,709 6,364,709Retained earnings 28,660,715 1,880,806 30,541,521--------------------- ----- --------- --------- ----------Total equity 83,156,321 8,245,515 91,401,836--------------------- ----- --------- --------- ---------- Further details of the IFRS adjustments can be found in notes 13 to 18. 7. GROUP CASH FLOW STATEMENT for the year ended 31 December 2006 Effect of UK GAAP transition to IFRS IFRS US$ US$ US$ Operating activitiesCash flow generated by operations 23,942,864 - 23,942,864Taxation paid (143,280) - (143,280) --------- -------- --------Net cash from operating activities 23,799,584 - 23,799,584 Investing activitiesPurchase of intangibleassets-exploration (51,034,004) - (51,034,004)Purchase of property, plant andequipment (148,215) - (148,215)Purchase of intangible fixed assets- others - (176,972) (176,972)Purchase of other fixed assets (424,964) 176,972 (247,992)Purchase of investment (2,778,914) - (2,778,914)Site restoration deposit - (2,784,660) (2,784,660) --------- -------- --------Net cash used in investingactivities (54,386,097) (2,784,660) (57,170,757) Financing activitiesInterest and investment income 2,376,072 - 2,376,072Finance costs (275,428) - (275,428)Issue of shares 24,527,092 - 24,527,092 --------- -------- --------Net cash provided in financingactivities 26,627,736 - 26,627,736 Net decrease in cash and cashequivalent (3,958,777) (2,784,660) (6,743,437)Cash and cash equivalent at thebeginning of the year 31,234,376 - 31,234,376----------------------- ------ --------- -------- --------Cash and cash equivalent at the endof the year 27,275,599 (2,784,660) 24,490,939----------------------- ------ --------- -------- -------- Further details of the IFRS adjustments can be found in notes 13 to 18. 8. GROUP BALANCE SHEET as at 1 January 2006 Effect of UK GAAP transition to IFRS IFRS US$ US$ US$AssetsNon-current assetsIntangible assets - exploration 9,547,305 6,634,972 16,182,277Property, plant and equipment 11,395,296 (7,028,399) 4,366,897Intangible assets - others - 147,510 147,510Investment 2,218,122 15,750,130 17,968,252 --------- --------- ---------- 23,160,723 15,504,213 38,664,936 Current assetsInventories 349,929 - 349,929Deferred tax asset 745,000 (745,000) -Trade and other receivables 4,343,755 - 4,343,755Cash and cash equivalent 31,234,376 - 31,234,376 --------- --------- ---------- 36,673,060 (745,000) 35,928,060 Total assets 59,833,783 14,759,213 74,592,996 --------- --------- ---------- LiabilitiesCurrent liabilitiesTrade and other payables (5,267,588) - (5,267,588) --------- --------- ---------- (5,267,588) - (5,267,588) Non-current liabilitiesProvisions for liabilities andcharges (1,863,720) - (1,863,720)Provision for deferred tax (2,754,158) (3,777,628) (6,531,786) --------- --------- ---------- (4,617,878) (3,777,628) (8,395,506) Total liabilities (9,885,466) (3,777,628) (13,663,094) --------- --------- ------------------------------- ------ --------- --------- ----------Net assets 49,948,317 10,981,585 60,929,902--------------------- ------ --------- --------- ---------- EquityCalled-up share capital 520,467 - 520,467Share premium account 28,507,954 - 28,507,954Shares to be issued 252,634 - 252,634Other reserves - 11,340,094 11,340,094Retained earnings 20,667,262 (358,509) 20,308,753--------------------- ------ --------- --------- ----------Total equity 49,948,317 10,981,585 60,929,902--------------------- ------ --------- --------- ---------- Further details of the IFRS adjustments can be found in notes 13 to 18. 9. GROUP INCOME STATEMENT for the six months ended 30 June 2006 Effect of transition UK GAAP to IFRS IFRS US$ US$ US$ Revenue 11,878,101 - 11,878,101 Cost of sales Production costs (1,504,090) - (1,504,090) Depletion (985,761) 493,662 (492,099) Decommissioning charge (167,158) - (167,158) -------------------- ------ --------- --------- ---------- Gross profit 9,221,092 493,662 9,714,754 Administrative expenses (2,969,351) (301,107) (3,270,458) -------------------- ------ --------- --------- ---------- Operating profit 6,251,741 192,555 6,444,296 Interest and investment income 1,041,584 - 1,041,584 Finance costs (148,341) - (148,341) -------------------- ------ --------- --------- ---------- Profit on ordinary activities before taxation 7,144,984 192,555 7,337,539 Tax on profit on ordinary activities (1,920,000) (52,611) (1,972,611) -------------------- ------ --------- --------- ---------- Profit attributable to the equity shareholders of the parent company 5,224,984 139,944 5,364,928 -------------------- ------ --------- --------- ---------- Earnings per share - basic 0.09 0.01 0.10 Earnings per share - diluted 0.09 - 0.09 -------------------- ------ --------- --------- ---------- Further details of the IFRS adjustments can be found in notes 13 to 18. 10. GROUP BALANCE SHEET as at 30 June 2006 Effect of transition UK GAAP to IFRS IFRS US$ US$ US$AssetsNon-current assetsIntangible assets - exploration 14,191,220 9,261,186 23,452,406Property, plant and equipment 15,802,921 (9,300,014) 6,502,907Intangible assets - others - 286,573 286,573Investment 2,218,122 10,254,233 12,472,355Site restoration deposit - 2,663,394 2,663,394 --------- --------- ---------- 32,212,263 13,165,372 45,377,635 Current assetsInventories 1,334,890 - 1,334,890Trade and other receivables 6,857,942 - 6,857,942Cash and cash equivalent 54,501,797 (2,663,394) 51,838,403 --------- --------- ---------- 62,694,629 (2,663,394) 60,031,235 Total assets 94,906,892 10,501,978 105,408,870 --------- --------- ---------- LiabilitiesCurrent liabilitiesTrade and other payables (7,162,777) - (7,162,777) --------- --------- ---------- (7,162,777) - (7,162,777)Non-current liabilitiesProvisions for liabilities andcharges (4,500,000) - (4,500,000)Provision for deferred tax (3,581,000) (3,036,388) (6,617,388) --------- --------- ---------- (8,081,000) (3,036,388) (11,117,388) Total liabilities (15,243,777) (3,036,388) (18,280,165) --------- --------- ------------------------------- ------ --------- --------- ----------Net assets 79,663,115 7,465,590 87,128,705--------------------- ------ --------- --------- ---------- EquityCalled-up share capital 572,513 - 572,513Share premium account 52,978,564 - 52,978,564Shares to be issued - 301,107 301,107Other reserves - 7,383,048 7,383,048Retained earnings 26,112,038 (218,565) 25,893,473--------------------- ------ --------- --------- ----------Total equity 79,663,115 7,465,590 87,128,705--------------------- ------ --------- --------- ---------- Further details of the IFRS adjustments can be found in notes 13 to 18. 11. GROUP CASH FLOW Statement for the six months ended 30 June 2006 Effect of transition UK GAAP to IFRS IFRS US$ US$ US$ Operating activitiesCash flow generated byoperations 5,494,305 - 5,494,305Taxation paid (97,312) - (97,312) --------- --------- ----------Net cash from operatingactivities 5,396,993 - 5,396,993 Investing activitiesPurchase of intangible assets-exploration (7,270,129) - (7,270,129)Purchase of property, plant andequipment (72,927) - (72,927)Purchase of intangible fixedassets -others - (172,472) (172,472)Purchase of other fixed assets (310,029) 172,472 (137,557)Site restoration deposit - (2,663,394) (2,663,394) --------- --------- ----------Net cash used in investingactivities (7,653,085) (2,663,394) (10,316,479) Financing activitiesInterest and investment income 1,149,198 - 1,149,198Finance costs (148,341) - (148,341)Issue of shares 24,522,656 - 24,522,656 --------- --------- ----------Net cash provided in financingactivities 25,523,513 - 25,523,513 Net (decrease) / increase incash and cash equivalent 23,267,421 (2,663,394) 20,604,027Cash and cash equivalent at thebeginning of the period 31,234,376 - 31,234,376--------------------- ------ --------- --------- ----------Cash and cash equivalent at theend of the period 54,501,797 (2,663,394) 51,838,403--------------------- ------ --------- --------- ---------- Further details of the IFRS adjustments can be found in notes 13 to 18. 12 Accounting Policies Hardy has adopted the accounting policies in relation to preliminary comparativefinancial information and intends to adopt IFRS for its interim and annualfinancial statements for the year 2007. Accounting policies have thus beenapplied are as follows: a) Basis of preparation The group prepares its accounts in accordance with applicable InternationalFinancial Reporting Standards ("IFRS"). The preliminary comparative financial information has been prepared inaccordance with International Financial Reporting Standards ("IFRS") andinterpretations issued by the International Accounting Standards Board. Theeffective date of transition from UK generally accepted accounting principles("UK GAAP") to IFRS is 1 January 2006. Accordingly, Hardy has prepared thepreliminary comparative financial information for the year ended 31 December2006 and for the six months ended 30 June 2006.The accounts are prepared under the historical cost convention except for therestatement of investment at fair value. While adopting IFRS all applicable accounting standards need to be applied fullyin retrospective as a general principle. These accounts are prepared keeping theabove principles in view while adopting IFRS 6 "Exploration for and evaluationof mineral resources". Hardy has continued to apply its existing full cost accounting policy withrespect to its acquisition, exploration, appraisal, development and productionactivity subject to changes in accounting policy specifically required under"IFRS-6". b) Basis of consolidation The consolidated accounts include the results of Hardy Oil & Gas plc, and itssubsidiary undertakings. The consolidated income statement and cash flowstatement include the results and cash flows of subsidiary undertakings up tothe date of disposal. The group conducts the majority of its exploration, development and productionthrough unincorporated joint arrangements with other companies. The accountsreflect the group's share of production and costs attributable to itsparticipating interests under the proportional consolidation method. c) Revenue Revenue represents the sale value of the group's share of oil which excludes theprofit oil sold and paid to the Government as a part of profit sharing in theyear, tariff, and the income from technical services to third parties if any.Revenues are recognized when crude oil has been lifted and title has been passedto the buyer or when services are rendered. d) Oil & Gas Assets i) Exploration and evaluation assets Hardy follows the full cost method of accounting for oil and gas assets. Underthis method, all expenditures incurred in connection with and directlyattributable to the acquisition, exploration and appraisal having regard to therequirements IFRS 6 "Exploration for and evaluation of mineral resources" areaccumulated and capitalized in two geographical cost pools, which are not largerthan a segment: India and Nigeria. The capitalized exploration and evaluation costs are classified as Intangibleassets - exploration which includes the license acquisition, exploration andappraisal costs relating either to unevaluated properties or properties awaitingfurther evaluation but do not include costs incurred prior to having obtainedlegal right to explore an area, which are expensed directly to the incomestatement as they are incurred. Intangible exploration and evaluation cost relating to each license or blockremain capitalized pending a determination of whether or not commercial reservesexists. Commercial reserves are defined as proven and probable reserves on a netentitlement basis. When a decision to develop these properties has been taken or there is evidenceof impairment, the costs are transferred to the cost pools within development/producing assets when the commercial reserves attributable to the underlyingasset have been established. ii) Oil and gas development and producing assets Development and production assets are accumulated on a field by field basis. Thecost of developing commercial reserves discovered and to put on productiontogether with the exploration and evaluation costs transferred from intangibleexploration and evaluation assets as stated in policy above. Further, interest payable and exchange differences incurred on borrowingsdirectly attributable to development projects if any, fixed assets in theproduction phase and cost of recognizing provision for future restoration anddecommissioning are capitalized. iii) Decommissioning At the end of the producing life of a field, costs are to be incurred inremoving, decommissioning facilities, plugging and abandoning the wells.Decommissioning costs are estimated and stated at an amount representing thecosts, which would be incurred should decommissioning occur at the balance sheetdate and the estimates are reassessed each year. The provision is assessed atprices ruling at the balance sheet date. The decommissioning asset is includedwithin the tangible fixed assets with the cost of the related assets installedand are adjusted for any revision to the decommissioning costs and the provisionthere for. The amortization of the asset, calculated on a unit of productionbasis based on proved and probable reserves, is shown as "Decommissioningcharge" in the income statement. iv) Disposal of assets In case of any disposal of oil and gas assets, proceeds from any such disposalare credited against the specific tangible or intangible capitalized costsincluded in the relevant cost pool and any loss or gain on disposal isrecognized in the income statement. In the case of disposal of subsidiaryundertaking, net proceeds represent the net book value of the assets soldtogether with the gain or loss arising on disposal of that subsidiary isrecorded as gain or loss in the income statement. e) Depletion and impairment i) Depletion The net book values of the producing assets are depreciated on a field by fieldbasis by using the unit of production basis, based on proved and probablereserves taking into consideration future development expenditures necessary tobring the reserves into production. The company periodically obtains anindependent third party assessment of reserves which is used as a basis forcomputing depletion. ii) Impairment Exploration assets are reviewed regularly for indications of impairment if any,where circumstances indicate that the carrying value might not be recoverable.In such circumstances, if the exploration asset has a corresponding development/ producing cost pool, then the exploration costs are transferred to the costpool and are written off on a unit of production basis through the depletioncharge. In cases, where no such development/producing cost pool exists, theimpairment of exploration costs is recognized in the income statement.Impairment reviews on development / producing oil and gas assets for each fieldis carried out on each year by comparing the net book value of the cost poolwith the associated discounted future cash flows. If there is any impairment ina field represents a material component of the cost pool, an impairment test iscarried out for the cost pool as a whole. If the net book value of the cost poolis higher, then the difference is recognized in the income statement asimpairment. f) Property, plant and equipment Property, plant and equipment other than oil and gas assets are measured at costand depreciated over their expected useful economic lives as follows:________________________________________________________________________________ Annual Rate (%) Depreciation Method Leasehold improvements over lease period Straight lineFurniture and fixtures 20% Straight lineIT and computers 33% Straight lineOther equipment 20% Straight line________________________________________________________________________________ g) Intangible assets Intangible assets other than oil and gas assets are measured at cost anddepreciated over their expected useful economic lives as follows:________________________________________________________________________________ Annual Rate (%) Depreciation Method Computer software 33 % Straight line________________________________________________________________________________ h) Investments Investments in publicly traded securities are recognized at fair values basedupon the quoted market prices on the balance sheet date. Gains and losses arerecognized under equity - other reserves. On disposal of an investment,cumulative gain or loss is recognized in the income statement. i) Inventories Inventory of crude oil is valued at lower of the cost and market value. Costbeing determined based on the production cost. Inventories of drilling storesand spares are accounted at cost including taxes duties and freight. Provisionis made for obsolete, or defective items where appropriate based on technicalevaluation. j) Financial Instruments Financial assets and financial liabilities are recognized at fair value ongroup's balance sheet based on the contractual provisions of the instrument thegroup becomes liable. Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by necessary provisions for estimated irrecoverable amounts. Trade payables are not interest bearing and are state at their nominal value. k) Equity Equity instrument issued by the company and the group are recorded at netproceeds after direct issue costs. l) Taxation The tax expense represents the sum of current tax and deferred tax. The current tax is based on the taxable profit of the year. Taxable profitdiffers from net profit as reported in the income statement as it excludescertain item of income or expenses that are taxable or deductible in years otherthan the current year and it further excludes items that are never taxable ordeductible. The current tax liability is calculated using the tax rates thathave been enacted or subsequently enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferred income tax liabilities are recognized for all taxable temporarydifferences and deferred tax assets are recognized to the extent that it isprobable that taxable profits will be available against which deductibletemporary differences can be utilized. Deferred income tax liabilities are recognized for all temporary differencesexcept in respect of taxable temporary differences associated with investment insubsidiaries, associates and interest in joint ventures where the timing of thereversal of the temporary differences can be controlled and it is possible thatthe temporary differences will not reverse in the foreseeable future. Deferred tax is recognized in respect of all temporary differences that haveoriginated but not reversed at the balance sheet date where transactions orevents have occurred at that date that will result in an obligation to pay moreor a right to pay less or to receive more tax. Deferred tax assets is reviewed at each balance sheet date and reduced to theextent that it is no longer probable that sufficient taxable profits will beavailable to allow or part of the assets to be recovered. Deferred tax assets and liabilities are measured on an undiscounted basis at thetax rates that are expected to apply in the periods in which temporarydifferences reverse, based on tax rates and laws enacted or substantivelyenacted at the balance sheet date. m) Foreign currencies Hardy maintains the accounts of the company and all subsidiary undertakings inUS dollars. Foreign currency transactions are accounted for at the exchange rateruling on the date of the transaction. At the year end, all foreign currencyassets are restated at the average of the buying and the selling exchange ratesprevailing at the balance sheet date. Exchange difference arising out of actualpayments / realizations and from the year end restatement referred to above isdealt in the income statement. Rate of exchanges were as follows: 31 December 31 December 2006 2005____________________________________________________________________________£ to US $ 1.9658 1.7191US $ to Indian Rupees 44.1700 45.1300____________________________________________________________________________ n) Leasing commitments Rental charges or charter hire charges payable under operating leases arecharged to the income statement as part of production expenses over the leaseterm. o) Share based payments Hardy issues share options to directors and employees, which are measured atfair value at the date of grant. The fair value of the equity settled optionsdetermined at the grant date is expensed on a straight line basis over thevesting period based on the actual number of shares vested in the accountingperiod. In performing the valuation of these options, only conditions other thanthe market conditions were taken into account. Fair value is measured by use ofa binomial model and the expected life used in the model is adjusted based onthe estimates of the management considering non-transferability, exerciserestrictions and behavioral considerations. 13. Reconciliation of Group Equity as at 31 December 2006 UK GAAP Pre-exploration Transfer of Loss on sale of Depletion Software ---------- ------- written-off dry-hole costs asset & entity write-back transferred to ------- ------- charged-off ------ intangible - ------ others ------ US$ US$ US$ US$ US$ US$AssetsNon-currentassetsIntangibleassets-exploration 33,788,334 (272,675) 33,700,622 - - -Property,plant andequipment 35,770,629 - (33,700,622) (705,742) 3,917,003 (217,198)Intangibleassets -others - - - - - 217,198Investment 4,997,036 - - - - -Site -restoration ------- ------- ------- ------ ------ ------deposit 74,555,999 (272,675) - (705,742) 3,917,003 -CurrentassetsInventories 2,729,764 - - - - -Trade andotherreceivables 4,637,062 - - - - -Cash andcash 27,275,599 - - - - -equivalent ------- ------- ------- ------ ------ ------ 34,642,425 - - - - -Total assets 109,198,424 (272,675) - (705,742) 3,917,003 -LiabilitiesCurrentliabilitiesTrade andother (16,809,807) - - - - -payables ------- ------- ------- ------ ------ ------ (16,809,807) - - - - -Non-currentliabilitiesProvisionsforliabilities (4,500,000) - - - - -and chargesProvisionfor (4,732,296) - - - - -deferred tax ------- ------- ------- ------ ------ ------ (9,232,296) - - - - -Totalliabilities (26,042,103) - - - - ----------- ------- ------- ------- ------ ------ ------Net assets 83,156,321 (272,675) - (705,742) 3,917,003 ----------- ------- ------- ------- ------ ------ ------EquityCalled-upshare 572,530 -capitalSharepremium 52,982,983accountShares to beissued 940,093Other -reservesRetainedearnings 28,660,715 (272,675) (705,742) 3,917,003 ----------- ------- ------- ------- ------ ------ ------Total equity 83,156,321 (272,675) - (705,742) 3,917,003 ----------- ------- ------- ------- ------ ------ ------ Fair value Transfer of Deferred Effect of IFRS ---------- adjustment of site taxation transition to ------ investment restoration ------ IFRS ------- deposit ------- ------- US$ US$ US$ US$ US$AssetsNon-currentassetsIntangibleassets-exploration - - - 33,427,947 67,216,281Property,plant andequipment - - - (30,706,559) 5,064,070Intangibleassets -others - - - 217,198 217,198Investment 8,839,874 - - 8,839,874 13,836,910Siterestorationdeposit 2,784,660 2,784,660 2,784,660 ------- ------- ------ ------- ------ 8,839,874 2,784,660 - 14,563,120 89,119,119CurrentassetsInventories - - - - 2,729,764Trade andotherreceivables - - - - 4,637,062Cash andcash - (2,784,660) - (2,784,660) 24,490,939equivalent ------- ------- ------ ------- ------ - (2,784,660) - (2,784,660) 31,857,765Total assets 8,839,874 - - 11,778,460 120,976,884LiabilitiesCurrentliabilitiesTrade andother - - - - (16,809,807)payables ------- ------- ------ ------- ------ - - - - (16,809,807)Non-currentliabilitiesProvisionsforliabilities - - - - (4,500,000)and chargesProvisionfor (2,475,165) - (1,057,780) (3,532,945) (8,265,241)deferred tax ------- ------- ------ ------- ------ (2,475,165) - (1,057,780) (3,532,945) (12,765,241)Totalliabilities (2,475,165) - (1,057,780) (3,532,945) (29,575,048)---------- ------- ------- ------ ------- ------Net assets 6,364,709 - (1,057,780) 8,245,515 91,401,836---------- ------- ------- ------ ------- ------EquityCalled-upshare 572,530capitalSharepremium 52,982,983accountShares to beissued 940,093Other 6,364,709 6,364,709 6,364,709reservesRetainedearnings - - (1,057,780) 1,880,806 30,541,521---------- ------- ------- ------ ------- ------Total equity 6,364,709 - (1,057,780) 8,245,515 91,401,836---------- ------- ------- ------ ------- ------ 14. Reconciliation of Group Equity as at 30 June 2006 UK GAAP) Pre-exploration Transfer of Loss on sale of Depletion Software --------- ------ written-off dry-hole costs asset & entity write-back transferred to ------ ------ charged-off ------ intangible - ------ others ------ US$ US$ US$ US$ US$ US$AssetsNon-currentassetsIntangibleassets-exploration 14,191,220 (272,675) 9,533,861 - - -Property,plant andequipment 15,802,921 - (9,533,861) (705,742) 1,226,162 (286,573)Intangibleassets-others - - - - - 286,573Investment 2,218,122 - - - - -Site -restoration ------ ------ ------ ------ ------ ------deposit 32,212,263 (272,675) - (705,742) 1,226,162 -CurrentassetsInventories 1,334,890 - - - - -Trade andotherreceivables 6,857,942 - - - - -Cash and cashequivalent 54,501,797 - - - - - ------ ------ ------ ------ ------ ------ 62,694,629 - - - - -Total assets 94,906,892 (272,675) - (705,742) 1,226,162 -LiabilitiesCurrentliabilitiesTrade andother (7,162,777) - - - - -payables ------ ------ ------ ------ ------ ------ (7,162,777) - - - - -Non-currentliabilitiesProvisionsforliabilities (4,500,000) - - - - -and chargesProvision fordeferred tax (3,581,000) - - - - - ------ ------ ------ ------ ------ ------ (8,081,000) - - - - -Totalliabilities (15,243,777) - - - - ---------- ------ ------ ------ ------ ------ ------Net assets 79,663,115 (272,675) - (705,742) 1,226,162 ---------- ------ ------ ------ ------ ------ ------EquityCalled-upshare capital 572,513 - - - - -Share premiumaccount 52,978,564 - - - - -Shares to be - - - - - -issuedOther - - - - - -reservesRetainedearnings 26,112,038 (272,675) - (705,742) 1,226,162 ---------- ------ ------ ------ ------ ------ ------Total equity 79,663,115 (272,675) - (705,742) 1,226,162 ---------- ------ ------ ------ ------ ------ ------ Fair value Transfer of Deferred Share based Effect of IFRS --------- adjustment of site taxation charges transition to ------ investment restoration ------ ------ IFRS ------ deposit ------ ------ US$ US$ US$ US$ US$ US$AssetsNon-currentassetsIntangibleassets-exploration - - - - 9,261,186 23,452,406Property,plant andequipment - - - - (9,300,014) 6,502,907Intangibleassets-others - - - - 286,573 286,573Investment 10,254,233 - - - 10,254,233 12,472,355Siterestorationdeposit 2,663,394 2,663,394 2,663,394 ------ ------ ------ ------ ------ ------ 10,254,233 2,663,394 - - 13,165,372 45,377,635CurrentassetsInventories - - - - - 1,334,890Trade andotherreceivables - - - - - 6,857,942Cash and cashequivalent - (2,663,394) - - (2,663,394) 51,838,403 ------ ------ ------ ------ ------ ------ - (2,663,394) - - (2,663,394) 60,031,235Total assets 10,254,233 - - - 10,501,978 105,408,870LiabilitiesCurrentliabilitiesTrade andother - - - - - (7,162,777)payables ------ ------ ------ ------ ------ ------ - - - - - (7,162,777)Non-currentliabilitiesProvisionsforliabilities - - - - - (4,500,000)and chargesProvision fordeferred tax (2,871,185) - (165,203) - (3,036,388) (6,617,388) ------ ------ ------ ------ ------ ------ (2,871,185) - (1,65,203) - (3,036,388) (11,117,388)Totalliabilities (2,871,185) - (165,203) - (3,036,388) (18,280,165)--------- ------ ------ ------ ------ ------ ------Net assets 7,383,048 - (165,203) - 7,465,590 87,128,705--------- ------ ------ ------ ------ ------ ------EquityCalled-upshare capital - - - - - 572,513Share premiumaccount - - - - - 52,978,564Shares to beissued - - - 301,107 301,107 301,107Other 7,383,048 - - - 7,383,048 7,383,048reservesRetainedearnings - - (165,203) (301,107) (218,565) 25,893,473--------- ------ ------ ------ ------ ------ ------Total equity 7,383,048 - (165,203) - 7,465,590 87,128,705--------- ------ ------ ------ ------ ------ ------ 15. Reconciliation of Group Equity as at 1 January 2006 UK GAAP Pre-exploration Transfer of Loss on sale of Depletion Software ----------- ------- written off dry-hole costs asset write-back transferred to -------- ------- charged-off ------- intangible - ------ others ------- US$ US$ US$ US$ US$ US$AssetsNon-currentassetsIntangibleassets -exploration 9,547,305 (272,675) 6,907,647 - - -Property,plant andequipment 11,395,296 - (6,907,647) (705,742) 732,500 (147,510)Intangibleassets - - - - - 147,510-othersInvestment 2,218,122 - - - - - ------- -------- ------- ------ ------- ------- 23,160,723 (272,675) - (705,742) 732,500 -CurrentassetsInventories 349,929 - - - - -Deferred taxasset 745,000 - - - - -Trade andotherreceivables 4,343,755 - - - - -Cash andcash 31,234,376 - - - - -equivalent ------- -------- ------- ------ ------- ------- 36,673,060 - - - - -Total assets 59,833,783 (272,675) - (705,742) 732,500 -LiabilitiesCurrentliabilitiesTrade andother (5,267,588) - - - - -payables (5,267,588) - - - - - ------- -------- ------- ------ ------- -------Non-currentliabilitiesProvisionsforliabilities (1,863,720) - - - - -and chargesProvisionfor (2,754,158) - - - - -deferred tax ------- -------- ------- ------ ------- ------- (4,617,878) - - - - -Totalliabilities (9,885,466) - - - - ------------ ------- -------- ------- ------ ------- -------Net assets 49,948,317 (272,675) - (705,742) 732,500 ------------ ------- -------- ------- ------ ------- -------EquityCalled-upshare 520,467 - - - - -capitalSharepremium 28,507,954 - - - - -accountShares to beissued 252,634 - - - - -Other - - - - - -reservesRetainedearnings 20,667,262 (272,675) - (705,742) 732,500 ------------ ------- -------- ------- ------ ------- -------Total equity 49,948,317 (272,675) - (705,742) 732,500 ------------ ------- -------- ------- ------ ------- ------- Fair value Deferred Effect of IFRS ----------- adjustment of taxation transition to -------- investment ------ IFRS -------- ------- US$ US$ US$ US$AssetsNon-current assetsIntangibleassets -exploration - - 6,634,972 16,182,277Property,plant andequipment - - (7,028,399) 4,366,897Intangibleassets -others - - 147,510 147,510Investment 15,750,130 - 15,750,130 17,968,252 -------- ------ ------- -------- 15,750,130 - 15,504,213 38,664,936Current assetsInventories - - - 349,929Deferred taxasset - (745,000) (745,000) -Trade andotherreceivables - - - 4,343,755Cash and cashequivalent - - - 31,234,376 -------- ------ ------- -------- - (745,000) (745,000) 35,928,060Total assets 15,750,130 (745,000) 14,759,213 74,592,996LiabilitiesCurrent liabilitiesTrade andother payables - - - (5,267,588) - - - (5,267,588) -------- ------ ------- --------Non-current liabilitiesProvisions forliabilitiesand charges - - - (1,863,720)Provision fordeferred tax (4,410,036) 632,408 (3,777,628) (6,531,786) -------- ------ ------- -------- (4,410,036) 632,408 (3,777,628) (8,395,506)Totalliabilities (4,410,036) 632,408 (3,777,628) (13,663,094)----------- -------- ------ ------- --------Net assets 11,340,094 (112,592) 10,981,585 60,929,902----------- -------- ------ ------- --------EquityCalled-upshare capital - - - 520,467Share premiumaccount - - - 28,507,954Shares to beissued - - - 252,634Other reserves 11,340,094 - 11,340,094 11,340,094Retainedearnings - (112,592) (358,509) 20,308,753----------- -------- ------ ------- --------Total equity 11,340,094 (112,592) 10,981,585 60,929,902----------- -------- ------ ------- -------- 16. Reconciliation of Group Income Statement for the year ended 31 December 2006 UK GAAP Depletion Deferred Effect of IFRS write-back taxation transition to IFRS US$ US$ US$ US$ US$ Revenue 21,316,935 - - - 21,316,935 Cost of salesProduction costs (2,999,086) - - - (2,999,086)Depletion (5,072,414) 3,184,503 - 3,184,503 (1,887,911)Decommissioning charge (304,899) - - - (304,899)Gross profit 12,940,536 3,184,503 - 3,184,503 16,125,039 Other operating income 1,000,000 - - - 1,000,000Administrative expenses (5,700,416) - - - (5,700,416)Operating profit 8,240,120 3,184,503 - 3,184,503 11,424,623 Interest and investment income 2,288,954 - - - 2,288,954Finance costs (275,428) - - - (275,428)Profit on ordinary activities 10,253,646 3,184,503 - 3,184,503 13,438,149before taxation Tax on profit on ordinary (2,260,193) - (945,188) (945,188) (3,205,381)activitiesProfit attributable to the 7,993,453 3,184,503 (945,188) 2,239,315 10,232,768equity shareholders of theparent company 17. Reconciliation of Group Income Statement for the six months ended 30 June 2006 UK GAAP Depletion Deferred Share Effect of IFRS write-back taxation based transition charges to IFRS US$ US$ US$ US$ US$ US$ Revenue 11,878,101 - - - - 11,878,101 Cost of salesProduction costs (1,504,090) - - - - (1,504,090)Depletion (985,761) 493,662 - - 493,662 (492,099)Decommissioning charge (167,158) - - - - (167,158)Gross profit 9,221,092 493,662 - - 493,662 9,714,754 Administrative expenses (2,969,351) - - (301,107) (301,107) (3,270,458)Operating profit 6,251,741 493,662 - (301,107) 192,555 6,444,296 Interest and investment income 1,041,584 - - - - 1,041,584Finance costs (148,341) - - - - (148,341)Profit on ordinary activities 7,144,984 493,662 - (301,107) 192,555 7,337,539before taxation Tax on profit on ordinary (1,920,000) - (52,611) - (52,611) (1,972,611)activitiesProfit attributable to the equity 5,224,984 493,662 (52,611) (301,107) 139,944 5,364,928shareholders of the parentcompany 18. Notes to reconciliations for the year ended 31 December 2006 The following notes reconcile the UK GAAP financial statements, as derived fromthe annual report of 2006 with the IFRS preliminary comparative financialinformation. a) Consolidated Income Statement i) Pre-exploration write offs Under IFRS 6, costs incurred prior to the legal rights to explore an area may nolonger be capitalized as exploration assets whereas under UK GAAP all costsincurred prior to having obtained the license rights were included withinintangible fixed assets. Accordingly, the pre-exploration costs incurred byHardy in prior years totaling US$ 272,675 have been written-off against theretained earnings at 1 January 2006. ii) Loss on sale of entity and asset Loss on sale of Sanganpur field (part of India cost pool) was capitalized underUK GAAP in 2004 in the amount of US$ 282,682, which was reversed and charged asan expense under IFRS against retained earnings at 1 January, 2006.Likewise, awholly owned subsidiary of Heramec Limited was sold in the year 2004 and theresulting loss of US$ 423,060 was capitalized under India cost pool as tangiblefixed assets and depleted. Under IFRS, the loss on sale of entity has beencharged against the retained earnings at 1 January 2006. iii) Depletion Under UK GAAP costs carried within each regional cost pool, which may contain anumber of individual fields, were depleted on a unit of production basis byreference to that cost pool. Under IFRS costs are still depleted on a unit ofproduction basis but by reference to specific fields. Under UK GAAP,unsuccessful exploration costs were transferred from intangible fixed assets totangible fixed assets and depleted accordingly. Under IFRS, the unsuccessfulexploration costs are capitalized as intangible fixed assets pendingdetermination of whether or not commercial reserves exist. As a result, thedepletion charge for the year 2006 is reduced by US$ 3,184,503 and for theprevious period up to 2005 by US$ 732,500 which has been adjusted in theretained earnings at 1 January 2006. iv) Taxation There was no impact on current tax but the deferred taxation has been adjustedto account for the impact of reduction in depletion and loss on sale of assetsby US$ 112,592 in the retained earnings at 1 January 2006 and US$ 945,188 in theincome statement of 2006. b) Consolidated Balance Sheets i) Intangible assets - exploration Under UK GAAP, intangible fixed assets represented pre-license acquisition costsand exploration and evaluation ("E&E") costs of individual license interestsheld outside the depreciable cost pools pending determination of commerciality.Under IFRS, intangible assets have been adjusted to write off cumulativepre-license acquisition costs of US$ 272,675 relating Nigeria cost pool, whichwas capitalized in the intangible assets. ii) Property, plant and equipment Under UK GAAP, tangible fixed assets comprised of oil and gas properties forwhich the existence or otherwise of commercial reserves had been established,recorded by reference to the geographic cost pools such as India and Nigeria.This caption also included certain exploration and evaluation expenditureincurred within the cost pools and other fixed assets, including non oil and gasspecific plant and equipment, office furniture and IT equipment. Under UK GAAP, the cost of dry holes of exploration blocks pending determinationof commerciality of reserves have been capitalized and included in the tangiblefixed assets in the respective cost pools. Under IFRS, the cost of dry holes ofexploration blocks pending determination of commerciality are capitalized underIntangible cost - exploration and are not depleted. Accordingly, under IFRS anamount of US$ 6,907,647 was transferred to Intangible assets - exploration fromtangible fixed assets at 1 January 2006. Like wise, an amount of US$26,792,975was transferred from tangible fixed assets to intangible assets - exploration in2006. Under UK GAAP, the loss on sale of asset and the loss on sale of wholly ownedsubsidiary undertaking amounting to US$ 705,742 were capitalized as tangiblefixed assets in 2004 and were also considered for charging depletion. UnderIFRS, the net cost included in tangible fixed assets of US$ 631,927 (net ofdepletion) is written-off against retained earnings at 1 January 2006. (iii) InvestmentUnder UK GAAP, investments in publicly traded securities are held at cost. UnderIFRS, such investments are recognized at fair values based upon quoted marketprices on balance sheet dates. As a result, the carrying value of investment hasbeen increased by US$15,750,130 at January 1, 2006 and by US$8,839,874 atDecember 31, 2006. Deferred tax of US$ 4,410,036 and US$ 2,475,165 has beenprovided on such unrealized gain on investment as of January 1, 2006 andDecember 31, 2006 respectively. Net gains at January 1, 2006 and December 31,2006 have been directly credited to equity - other reserves. iv) Site restoration deposit As of December 31, 2006, an amount of $US 2,784,660 was deposited with StateBank of India as site restoration fund. This amount was included in cash andcash equivalents and is now transferred to site restoration deposit under IFRSas of 31 December 2006. v) Provision for deferred taxation Consequential changes have been made to provision for deferred taxes at 1January, 2006 and 31 December, 2006 as a result of writing off pre explorationexpenditures, providing for losses on sale of assets and subsidiaries, reducingdepletion and reflecting investment at fair value. c) Consolidated Cash Flow Statement Cash flow statements prepared under IAS 7 presents the cash flows in threecategories: operating activities, investing activities and financing activities,which are fewer than the categories under UK GAAP. Other than thereclassification and the movement of deposit of site restoration deposit fromcash and cash equivalent, no other material changes were made. Pre-license costs were shown within "capital expenditure" under UK GAAP. Sincesuch costs are being expensed under IFRS, they have been classified withinoperating cash flows under IFRS. Purchases of software was taken under tangible fixed assets under UK GAAP havebeen reclassified to purchases of intangible assets - others. This information is provided by RNS The company news service from the London Stock Exchange