Last checked at 15 Sep 2010 07:00
For Immediate Release 15 September 2010
Indus Gas Limited
("Indus" or "the Company")
Preliminary Results
Indus Gas Limited (AIM:INDI.L), an oil & gas exploration and development company with assets in India, is pleased to report its full year results for the 12 months to 31 March 2010.
Highlights
·; Commencement of production and revenues, through 'take or pay' agreement, from the SGL field from July 2010, including the following key development activities:
o Award of 'Petroleum Mining License' for 176 km² SGL field area and grant of other key approvals from Government of India and other relevant authorities.
o Completion of Phase 1 production facilities for around 7 MMCF/d production and 90km distribution pipeline, connecting the field to the end user power plant.
o End user power plant on target to expand capacity and demand for SGL gas, paving the way to increase sales to around 33.5 MMSCF/d.
o Planning and ordering of 2nd phase SGL field production and CO² removal facilities commenced.
·; New drilling and seismic programme on track with extensive ramp up in operations.
o Drilled 1 exploratory and 7 appraisal wells since April 2009 with a cumulative depth of over 23,631 meters.
o Drilling campaign targeted to extend well coverage from previous success over sparsely drilled western portion of the Block.
o Emergence of significant tight gas plays in B&B and Pariwar formations in addition to earlier tested conventional gas discoveries/shows from Pariwar formation.
o Currently drilling Southern Comfort and SSG-2 wells as planned.
o Acquisition of 207 km² 3D seismic data since April 2009.
o First hydro-fracturing pilot completed on Indian Shingli 1 well. Further hydro-fracturing operations planned to test the potentially large tight gas plays.
·; Strong funding position with:
o Cash Balance (including short term deposits with Banks) of US$ 8.76 m as of 31 March 2010
o SGL Field development fully funded post completion of US$110 million long term bank debt and restructuring of US$40 million long term loan from Focus Energy on unsecured subordinated terms.
·; Total investments in exploration, evaluation and development assets of US$41.17 million during FY ending 31 March 2010 with total cumulative investment of US$119.86 million as of 31 March 2010.
Commenting, Marc Holtzman, Chairman of Indus, said:
"Bringing production on stream from the SGL field is a major achievement for the Company. Sales and revenues from that field are contracted to ramp up over the next year and will underpin the ongoing wider development of Indus Gas for years to come. Operations over the last year have further highlighted the significant hydrocarbon potential within the block, including a number of tight gas plays in addition to the traditional formations on which the Company is largely valued. With an aggressive drilling plan in place, solid financing and access to four deep drilling rigs, Indus is set to significantly growover the next year"
For further information please contact:
| Indus Gas Limited | | |
| John Scott | CFO | +44 (0)20 7877 0022 |
| Arden Partners plc | | |
| Richard Day | | +44 (0)20 7614 5917 |
| Adrian Trimmings | | |
| Pelham Bell Pottinger | | |
| Philip Dennis | | +44 (0)20 7861 3919 |
| Elena Dobson | | +44 (0) 20 7861 3147 |
RESULTS STATEMENT
Introduction
Indus Gas has now become a producing oil & gas company, along side its ongoing appraisal and development operations. Following the completion of the production facilities on the SGL field and the distribution pipeline connecting the field to the end user, sales commenced, under the Take or Pay agreement, on 9th July 2010. This marks a further milestone in the evolution of Indus Gas and is the first step towards monetising the hydrocarbon resources within Block RJ-ON/6.
Moving to become a production company sits alongside other achievements made during the period including further drilling successes, the beginnings of starting to tap the tight gas potential within the Block and securing major debt funding.
Production - SGL Field
During the year, the operator, Focus, put in place the facilities required to enable production of 7MMCF/d from the SGL field to commence; meeting the commitments under the 1st phase of the Company's gas sales contract with the Gas Authority of India Limited (GAIL).
Completion of the production facilities for phase 1 included the installation and commissioning of the Gas Gathering Station (GGS), a gas dehydration plant, condensate removal and storage facilities together with the related flow lines up to the delivery point and various other associated facilities.
During the period, GAIL also successfully installed and commissioned the 90km 10" dia pipeline from our GGS to the power plant at Ramgarh, where 1st phase gas supplies are to be used to fill the shortfall of gas required to operate the existing 110 MW power plant.
Consequent to the completion of the phase 1 production facilities, the Group started invoicing GAIL, with effect from 9th July 2010. While gas was initially supplied to GAIL, deliveries ceased shortly thereafter due to part of the Ramgarh power plant going temporarily off line for operational repairs. It is Group's understanding that these repairs have now been largely completed and gas supplies will resume shortly. The Group intends to exercising its right under the "take or pay" Gas Sale Agreement with GAIL, to recover a minimum of 80% value of the contracted supplies (7 MMCF/d) on each quarterly basis and an additional 10% value on an annual basis for any shortfall in the contracted quantities and actual gas supplies due to such stoppages.
The operator has now commenced the planning and ordering of equipment for the 2nd phase SGL production facilities, which will enable daily production capacity to increase suitably to meet contracted sales requirement of 33.5 MMCF/d. Work and equipment needed to satisfy this second phase of the project include the installation of a Carbon Dioxide removal plant, additional production facilities and further production wells. Under the sales agreement with GAIL, there is a requirement to remove approximately 18% of the CO² from the produced gas. In order to meet the sales commitment of around 33.5MMCF/d, we estimate upto four additional producing well will be required, bringing the total to six producing wells. An additional eight producing wells will be needed during next 10 years to maintain the required daily flow rate over the estimated 21 year life of the field.
The Ramgarh power plant is expected to be in a position to receive the additional quantities of gas in Q2/Q3 2011, post the construction of a new power plant, that will sit along side the existing facilities, and installation of an additional gas turbine capable of producing a further 160 MW of electricity. It is the Group's understanding that the new gas turbine has already been received and that construction of the new plant will commence shortly. Based on the valuable experience gained from the installation of the SGL phase 1 facilities, the group is confident of being able to install the 2nd phase production facilities in and around the same timeframe. If for any reason there is a delay in the uptake of the additional quantities of gas by GAIL or the power plant, the Group has "take or pay" rights similar to those described above such that its cash flows will remain protected.
Drilling, Seismic and Completion Operations
As previously outlined, the planned drilling campaign is determined by a number of factors, including the terms of the production sharing contract (PSC) for the block. As is often standard under PSCs, the Group is required to relinquish certain areas of the block where discoveries have not been made post the end of the exploration/appraisal period. The drilling strategy, over the last year, has as such been to further delineate the hydrocarbon resources within the Block, particularly within the western part, , where there has been previous success but is sparsely covered and substantial in size and with significant and varying play types. The programme has therefore included a series of step outs from known discoveries, with a higher risk factor than in the previous year conventional appraisal wells. We believe this is a strategy that provides shareholders with the best possible long terms returns from the Block combined with limited funding risk due to the favourable exploration payback terms under the SGL field sales and revenue agreement in place.
Since April 2009, appraisal drilling continued as planned, with six additional wells spudded and further drilling on two existing wells, with a total cumulative depth drilled of over 23,631 meters as at 31 August 2010. Some of these wells, particularly, Eastern Promise and Indian Shingli, have recorded significant hydrocarbon shows, which are further being evaluated for hydrocarbon resources. These new wells have provided a significant amount of additional data, enabling the Group to get a better understanding of the Block, including affirmation of the various plays types. The earlier SGL discovery was from a conventional gas reservoir, in the Pariwar formation but additional potential for tight gas from the B&B formation and parts of the Pariwar formation, have been established.
Post this additional drilling work and the data obtained, the Company has engaged a UK based technical consulting firm to provide an independent report on the hydrocarbon resources within the Block. The report is expected to be completed in Q4, 2010.
Between 1st April 2009 and 31 August 2010, the Group acquired a further 207 Km² of 3D seismic in the north-west portion of the Block, brings the total amount of 3D seismic data acquired to date to 873 km², covering 21.68% of the Block. The Group also has 1,037 Km² of 2D seismic covering a 25.75% of the block. The seismic data acquired greatly enhances the group's analysis and interpretation of the Block and supports the ongoing drilling activities.
Drilling of Wells:
As mentioned above, in additional to the follow on drilling on two existing wells, Indian Shingli and SSM-1, the following 6 new wells were spudded since April 2009:
1) Eastern Promise [Total drilled 4355 meter ]
The Eastern Promise well was located to test a structural closure target in the western parts of Block RJ-ON/6, approximately 16.5 kilometres to the south-southwest of the proven productive SGL-1 well. The primary objective of the well was to assess the potential of the Pariwar Formation, including the same key reservoir zones as those proven in the SGL Field to the north. The secondary objectives of the well were to target gas bearing sands of the B&B Formation. The well successfully flowed gas from sands in the upper parts of the Pariwar Formation. Significant gas shows were also encountered within the Upper B&B target sands, although these were not tested.
2) Tirath [Total drilled - 3867 meter]
Tirath-1 was located in the northernmost part of RJ-ON/6 to test a structural target approximately 24.5 kilometres to the Northeast of the proven SGL-1 well. The primary aims of this well were to assess key reservoir sands within the Pariwar Formation under structural closure and to establish the northern extent of gas within the Lower B&B Formation overpressured tight gas sand system. The well did not encounter significant gas shows in the Pariwar target zones, but significant overpressured gas was encountered in the basal B&B tight gas Sands, proving the extent of this system as far north as the Tirath Location. Technical difficulties due to the effect of controlling the overpressured lower B&B section in this well led to hole collapse and abandonment of the well without further testing.
3) Sandwich [Total drilled - 3912 meter]
The Sandwich-1 well was located 19.5 kilometres to the southeast of the proven SGL-1 location. The well was drilled on a structural closure in a structurally complex part of the block in order to assess the potential for gas within the key Pariwar and Upper B&B Formation conventional reservoir zones. The second key objective of the well was to assess the eastern extent of the Lower B&B Formation overpressured tight gas system. The well encountered gas shows at the Pariwar Target level but testing of these was inconclusive due to problems relating to sand production. Local gas shows were also present within the Upper B&B Formation and throughout the Lower B&B interval, although these were somewhat subdued relative to the very significant gas shows usually associated with the lower B&B section in wells further to the west where this section is significantly overpressured. The well has been cased throughout the entire B&B interval suitable for further assessment/testing.
4) Sanu [Total drilled - 3516 meter]
Sanu-1 was located 1 kilometre to the west-southwest of the Eastern Promise location. The aim of this well was to further appraise the Pariwar reservoir target that was successfully tested in Eastern Promise, whilst also penetrating the Lower B&B interval. The well encountered gas shows at the key Pariwar reservoir level but technical difficulties meant that it terminated within the Pariwar section without further testing.
5) Southern comfort [Drilling at 3385 meters as of 31 August 2010]
The Southern Comfort well spudded as planned in the middle of the year. The well is located in the extreme south-western part of the RJ-ON/6 Block and drilling is continuing. The primary aim of this well is to assess the distribution of the Lower B&B Formation overpressured tight gas system in this part of the block, which was successfully encountered by well Indian Shingli 12.5 kilometres to the Northeast of this present location. The secondary objective of the well is to assess the Pariwar and Upper B&B reservoir targets.
6) SSG-2 [Drilling at 3275 meter as of 31 August 2010].
Well SSG-2 is located 1.7 kilometres to the south-southwest of well SSG-1, which encountered gas within the upper Pariwar reservoir sands but failed to fully penetrate and test the key lower Pariwar reservoir zone. The purpose of SSG-2 is therefore to target both of the Pariwar reservoir zones for further testing on the same structural closure target as the previous SSG-1 well. Drilling of this well remained underway.
The Company's initial primary target was the conventional gas reservoir in Pariwar formations. Subsequent appraisal drilling, however, resulted in emergence of whole new plays in the Block, leading to the possibility of finding a significant section of tight gas, within the Baisaskhi & Bedesir (B&B) and Pariwar formations, prevalent across a very large section of the Western portion of the Block.
Indian Shingli was the first well aimed at specifically assessing this tight gas play. The well reached a depth of approximately 5,351m and intersected a 650m gas bearing interval largely in the B&B formation. While there were extensive indications of hydrocarbon shows during drilling , the interval showed characterstics of low porosity and permeability requiring hydro-fracturing in order to achieve a better gas flow rate.
In addition to Indian Shingli, the Group now has data from a number of deep wells intersecting the B&B formation, which support the notion of a large tight gas play in the western part of the Block. These wells include Lang 2 (drilled by ONGC prior to commencement of drilling by the Group), Saatchi, SSF-2 and Eastern Promise
In order to further evaluate the tight gas play, Schlumberger was contracted to undertake a small hydro-fracturing pilot in one gas bearing zone in the B&B formation in the Indian Shingli well. The fracturing was based on the initial data set available. Commencing in December 2009 and after a series of operations, a 12 meter zone at a depth of between 3950 and 3962 meters was successfully fractured with gas flowing to surface in several test sequences.
The pilot provided significant data on the potential of the B&B tight gas formation, including pressures, rock/sand characteristics and gas flow to surface. It also, however, became apparent during the fracturing operations that equipment with greater pressure capacity will generally be required for future hydro-fracturing operations to enable the fracturing of a larger reservoir area and achieve better flow rates. The Group has now gained access to certain of the equipment required, which is under contract on a stand by basis. The additional equipment needed has been requested and is likely to become available to the Group before the end of the year. Once in place, the Group intends to undertake a series of hydro-fracturing operations during late 2010 and 2011 across various wells. These operations will focus on the tight gas formations in the B&B sequence as well as where tight gas has been found within the shallower Pariwar formation.
Financials
During the period, the Company completed a US$110 million long term debt facility and made its first drawing under the facility of US$15 million, which was used to refund prepayments made on Indus' behalf to finance its share of the SGL field development to-date. As previously stated, the remainder of the funds will also be used to finance the development of the SGL field and certain other operations.
Combined with future cashflows, the loan facility provides sufficient funding to fully finance the development of the SGL field. We received commitments in excess of our needs from the international offices of Indian banks and their funding support for the expansion of the Indian energy industry deserves recognition.
In addition to the US$110 million facility, Indus has also restructured a US$40 million long term loan from Focus on unsecured subordinated terms, which along with interest due thereon (US$2.6 million as of 31 March 2010), is repayable after full settlement of US$110 million debt facility. This amount was previously repayable to Focus on demand. Both these loan facilities have been contracted at reasonable costs.
The Company incurred a total investment in exploration, evaluation and development assets of US$41.17 mn during the FY ending March 2010 with cumulative investment of US$119.86 mn as of March 2010. The expenses of US$ 41.17 million represents Company share of expenses for drilling the wells as described above, seismic data acquisition, hydro-fracturing operations, installation of part of phase-1 of SGL production facilities and capitalization of interest payable on debt funding. The Company had a cash balance (including short term fixed deposit with banks of US$ 8.76 million as of 31 March 2010.
Outlook
The Company intends to continue its current strategy of assessing the hydrocarbon potential of the block, by drilling additional step out appraisal wells, ahead of the appraisal period coming to an end in 2013 pursuant to the PSC terms.
Over the next year, the Group will continue to put in place the production facilities on the SGL field needed to meet the increase in the contracted quantity of gas under phase-2 of the project. Once the reasonable progress has been made on these facilities, we also intend to drill additional production wells to meet the increased levels of production needed. Completion of these wells will be timed to co-inside with the completion of the phase-2 production facilities.
With an aggressive drilling programme in place, complemented by growing production and revenues, underpinned by established funding, we look forward to the year ahead confident of making further solid progress.
Consolidated Statement of Financial Position
(All amounts in United States Dollars, unless otherwise stated)
|
|
| 31 March 2010 |
| 31 March 2009 |
| ASSETS |
|
|
|
|
|
|
|
|
|
|
| Non-current assets |
|
|
|
|
| Intangible assets - Exploration and Evaluation assets | 7 | 68,534,029 |
| 32,464,788 |
| Property, plant and equipment | 8 | 55,869,566 |
| 47,719,923 |
| Capital work-in-progress | 8 | 1,332,454 |
| 1,222,420 |
| Other assets |
| 9,643 |
| 9,092 |
| Total non-current assets |
| 125,745,692 |
| 81,416,223 |
|
|
|
|
|
|
| Current assets |
|
|
|
|
| Inventories | 9 | 5,337,532 |
| 3,090,900 |
| Recoverable from related party |
| 56,543 |
| 2,544 |
| Other current assets | 10 | 1,216,007 |
| 22,836 |
| Short term investments | 11 | 8,538,802 |
| - |
| Cash and cash equivalents | 12 | 220,724 |
| 20,308,583 |
| Total current assets |
| 15,369,608 |
| 23,424,863 |
|
|
|
|
|
|
| Total assets |
| 141,115,300 |
| 104,841,086 |
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
| STOCKHOLDERS' EQUITY |
|
|
|
|
| Share capital | 13 | 3,618,472 |
| 3,618,472 |
| Additional paid-in capital | 13 | 46,501,666 |
| 46,501,666 |
| Currency translation reserve |
| (10,554,972) |
| (12,726,337) |
| Merger reserve |
| 19,570,288 |
| 19,570,288 |
| Share options reserve | 21 | 341,303 |
| - |
| Accumulated earnings/ (losses) |
| (1,124,725) |
| 601,803 |
|
|
|
|
|
|
| Total Stockholders' Equity |
| 58,352,032 |
| 57,565,892 |
|
|
|
|
|
|
| LIABILITIES |
|
|
|
|
| Non-Current liabilities |
|
|
|
|
| Long term debt from banks | 14 | 14,815,524 |
| - |
| Provisions for decommissioning | 15 | 369,809 |
| 273,264 |
| Finance lease obligations, excluding current portion | 16 | 99,289 |
| 156,692 |
| Payable to related parties, other than current | 17 | 42,600,000 |
| - |
|
|
|
|
|
|
| Total non-current liabilities |
| 57,884,622 |
| 429,956 |
Consolidated Statement of Financial Position (Contd.)
|
|
| 31 March 2010 |
| 31 March 2009 |
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
| Payable to related parties - current portion | 17 | 24,753,666 |
| 46,709,224 |
| Finance lease obligations - current portion | 16 | 75,270 |
| 90,404 |
| Accrued expenses and other liability |
| 49,710 |
| 45,610 |
|
|
|
|
|
|
| Total current liabilities |
| 24,878,646 |
| 46,845,238 |
|
|
|
|
|
|
| Total liabilities |
| 82,763,268 |
| 47,275,194 |
|
|
|
|
|
|
| Total equity and liabilities |
| 141,115,300 |
| 104,841,086 |
(The accompanying notes are an integral part of these consolidated financial statements)
These financial statements were approved and authorised for issue by the board on 13 September 2010 and was signed on its behalf by:
John Scott
Director
Consolidated Statement of Comprehensive Income
(All amounts in United States Dollars, unless otherwise stated)
|
|
| Year ended 31 March 2010 |
| Year ended 31 March 2009 |
|
|
|
|
|
|
| Revenues |
| - |
| - |
|
|
|
|
|
|
| Cost and expenses |
|
|
|
|
| Administrative expenses |
| 1,754,580 |
| 2,118,378 |
|
|
|
|
|
|
| Loss from operations |
| (1,754,580) |
| (2,118,378) |
|
|
|
|
|
|
| Foreign exchange (loss)/ gain, net | 18 | (353,424) |
| 2,424,705 |
| Interest income |
| 381,476 |
| 863,958 |
|
|
|
|
|
|
| (Loss)/ profit before tax |
| (1,726,528) |
| 1,170,285 |
|
|
|
|
|
|
| Income tax expense | 20 | - |
| - |
|
|
|
|
|
|
| (Loss)/ profit for the year |
| (1,726,528) |
| 1,170,285 |
|
|
|
|
|
|
| Other comprehensive income |
| - |
| - |
|
|
|
|
|
|
| Currency translation adjustment |
| 2,171,365 |
| (12,727,418) |
|
|
|
|
|
|
| Total comprehensive income/ (loss) for the year |
| 444,837 |
| (11,557,133) |
|
|
|
|
|
|
| (Loss)/ earnings per share |
|
|
|
|
|
|
|
|
|
|
| Basic | 22 | (0.01) |
| 0.01 |
| Diluted |
| (0.01) |
| 0.01 |
| Par value of each share | GBP | 0.01 |
| 0.01 |
(The accompanying notes are an integral part of these consolidated financial statements)
Consolidated Statement of Changes in Equity
(All amounts in United States Dollars, unless otherwise stated)
|
| Common stock | Additional paid in capital | Currency translation reserve | Merger reserve | Share option reserve | Accumulated earnings/ (losses) | Total stockholders' equity
| |
|
| No. of shares | Amount | ||||||
| Balance as at 1 April 2008 | 167,670,002 | 3,320,856 |
| 1,081 | 19,570,288 | - | (568,482) | 22,323,743 |
|
|
|
|
|
|
|
|
|
|
| Profit for the year | - | - | - | - | - | - | 1,170,285 | 1,170,285 |
| Currency translation adjustment | - | - | - | (12,727,418)
| - | - | - | (12,727,418) |
| Total comprehensive loss for the year | - | - | - | (12,727,418) | - | - | 1,170,285 | (11,557,133) |
| Share capital issued | 15,243,922 | 297,616 | 48,511,505 | - | - | - | - | 48,809,121 |
| Cost of issue of shares | - | - | (2,009,839) | - | - | - | - | (2,009,839) |
| Transaction with owners | 15,243,922 | 297,616 | 46,501,666 | - | - | - | - | 47,799,382 |
| Balance as at 31 March 2009 | 182,913,924 | 3,618,472 | 46,501,666 | (12,726,337) | 19,570,288 | - | 601,803 | 57,565,892 |
|
|
|
|
|
|
|
|
|
|
| Loss for the year | - | - | - | - | - | - | (1,726,528) | (1,726,528) |
| Currency translation adjustment | - | - | - | 2,171,365 | - | - | - | 2,171,365 |
| Total comprehensive income for the year | - | - | - | 2,171,365 | - | - | (1,726,528) | 444,837 |
| Share based payment transactions | - | - | - | - | - | 341,303 | - | 341,303 |
| Transaction with owners | - | - | - | - | - | 341,303 | - | 341,303 |
| Balance as at 31 March 2010 | 182,913,924 | 3,618,472 | 46,501,666 | (10,554,972) | 19,570,288 | 341,303 | (1,124,725) | 58,352,032 |
(The accompanying notes are an integral part of these consolidated financial statements)Consolidated
Statement of Cash Flows
(All amounts in United States Dollars, unless otherwise stated)
|
|
| Year ended 31 March 2010 |
| Year ended 31 March 2009 |
| Cash flows from operating activities |
|
|
|
|
| (Loss)/ profit before tax |
| (1,726,528) |
| 1,170,284 |
| Adjustments |
|
|
|
|
| Unrealised exchange gain |
| (1,996,001) |
| (2,450,620) |
| Interest earned |
| (381,476) |
| (863,958) |
| Share based payment |
| 341,303 |
| - |
| Changes in operating assets and liabilities |
|
|
|
|
| Inventories |
| (2,246,633) |
| (804,647) |
| Payable to related parties - Operating activities |
| 2,948,901 |
| 983,128 |
| Other current and non current assets |
| (1,312,674) |
| (22,220) |
| Accrued expenses and other liabilities |
| 1,058 |
| 41,148 |
| Cash used in operations |
| (4,372,050) |
| (1,946,885) |
| Income taxes paid |
| - |
| - |
| Net cash used in operating activities |
| (4,372,050) |
| (1,946,885) |
|
|
|
|
|
|
| Cash flow for investing activities |
|
|
|
|
| Investment in Exploration and Evaluation assets |
| (18,105,302) |
| (22,097,471) |
| Purchase of property, plant and equipment |
| (8,332,214) |
| (1,492,068) |
| Purchase of short term investments |
| (8,906,497) |
| - |
| Interest received |
| 258,445 |
| 863,958 |
| Net cash used in investing activities |
| (35,085,568) |
| (22,725,581) |
|
|
|
|
|
|
| Cash flow from financing activities |
|
|
|
|
| Issue of share capital, net of cost of issue |
| - |
| 47,070,086 |
| (Repayment)/ proceeds from short term borrowings |
| (170,000) |
| 170,000 |
| Proceeds from loans by related parties |
| - |
| 8,364,107 |
| Proceeds from debt |
| 17,662,975 |
| - |
| Net cash provided by financing activities |
| 17,492,975 |
| 55,604,193 |
| Net (decrease)/ increase in cash and cash equivalents |
| (21,964,643) |
| 30,931,727 |
|
|
|
|
|
|
| Cash and cash equivalents at the beginning of the year |
| 20,308,583 |
| 5,720 |
| Effects of exchange rate changes on the balance of cash held in foreign currencies |
| 1,876,784 |
| (10,628,864) |
| Cash and cash equivalents at the end of the year | 12 | 220,724 |
| 20,308,583 |
(The accompanying notes are an integral part of these consolidated financial statements)
Notes to Consolidated Financial Statements
(All amounts in United States Dollars, unless otherwise stated)
1. INTRODUCTION
Indus Gas Limited ("Indus Gas" or "the Company") was incorporated in the Island of Guernsey on 4 March 2008 pursuant to an Act of the Royal Court of the Island of Guernsey. The Company was set up to act as the holding company of iServices Investments Limited ("iServices") and Newbury Oil Company Limited ("Newbury"). iServices and Newbury are companies incorporated in Mauritius and Cyprus respectively. iServices was incorporated on 18 June 2003 and Newbury was incorporated on 17 February 2005. The Company was listed on the Alternative Investment Market (AIM) of the London Stock Exchange on 6 June 2008.
Indus Gas through its subsidiaries iServices and Newbury (hereinafter collectively referred to as "the Group") is engaged in the business of oil and gas exploration, development and production. The Group owns an aggregate of 90 per cent participating interest in a petroleum exploration and development concession in India known as RJ-ON/06 ("the Block"). The balance 10 per cent participating interest is owned by Focus Energy Limited ("Focus"). Focus entered into a Production Sharing Contract ("PSC") with the Government of India ("GOI") and Oil and Natural Gas Corporation Limited ("ONGC") on 30 June 1998 in respect of the Block. The participating interest explained above is subject to any option exercised by ONGC in respect of individual wells (already exercised for SGL field as further explained in Note 3).
2. GENERAL INFORMATION
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS') as developed and published by the International Accounting Standards Board ('IASB'). The consolidated financial statements have been prepared on a going concern basis, and are prepared and presented in United States Dollar (US$). US$ was the Company's functional currency up to its listing on the AIM as well as that of its subsidiaries. Upon listing the functional currency of the Company was re-assessed as Pound Sterling (GBP) and that of its subsidiaries continues to be US$. The Group's management believes that US$ is a better presentation currency than Pound Sterling considering that operations of the Group are primarily conducted in US$ and internationally the oil and gas industry largely operates and transacts in US$.
3. JOINTLY CONTROLLED ASSETS
The Group is jointly engaged in oil and gas exploration, development and production activities along with Focus. This venture is a jointly controlled asset as defined under IAS 31: Interest in Joint Ventures. All rights and obligations in respect of exploration, development and production of oil and gas resources under the Interest sharing agreement are shared between Focus, iServices and Newbury in the ratio of 10 per cent, 65 per cent and 25 per cent respectively.
Under the PSC, subsequent to the declaration of commercial discovery in well SGL #1 and SGL #2 on 21 January 2008 (SGL being an area within the Block declared as a commercial discovery on 21 January 2008), the GOI through ONGC, has exercised the option to acquire a 30 per cent participating interest in the discovered fields on 6 June 2008. On exercise of this option, the GOI (through ONGC) is required to contribute its share i.e. 30 per cent in development and production costs in respect of the relevant fields from the date of service of notice of the option i.e. 4 June 2008 and it shall be entitled to a 30 per cent share in the revenues. Following the exercise of this option, Indus' participating interest in the SGL Field is reduced to 63 per cent. The ONGC will also be responsible for 100 per cent of the applicable royalty and certain taxes with reference to the income from the field. Focus, iServices and Newbury continue to share costs and revenues after excluding GOI's share as explained above, in the existing ratio of 10 per cent, 65 per cent and 25 per cent respectively. The contribution from ONGC would be payable to Focus from the date of commencement of commercial production.
The aggregate amounts relating to jointly controlled assets, liabilities, expenses and commitments related thereto that have been included in the Consolidated Financial Statements are as follows:
|
| Year ended 31 March 2010 | Year ended 31 March 2009 |
|
|
|
|
| Non current assets | 125,720,640 | 81,407,131 |
| Current assets | 5,337,532 | 3,090,900 |
|
|
|
|
| Non current liabilities | 43,069,098 | 429,956 |
| Current liabilities | 24,375,352 | 46,432,610 |
|
|
|
|
| Expenses (net of finance income) | 442,965 | 155,897 |
|
|
|
|
| Commitments | 377,778 | 145,442 |
|
|
|
|
The GOI, through ONGC, has option to acquire similar participating interest in any future successful discovery of oil or gas reserves in the Block.
4. CHANGES IN ACCOUNTING POLICIES
The Group has adopted the following new interpretations, revisions and amendments to IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Group's financial statements for the annual period beginning 1 April 2009:
Presentation of financial statements
In September 2007, the IASB issued amendments to IAS 1 (Presentation of Financial Statements). These include proposals for renaming certain sections of the financial statements, the requirement to publish an opening Statement of Financial Position for the previous financial year in certain circumstances, separate presentation of changes in equity arising from transactions with owners and with non-owners, separate disclosure by component of amounts removed from stockholders' equity and recognised in income, and disclosure of the related income tax effect by component in the statement of recognised income and expense. Accordingly the Group has applied this standard for annual periods beginning on or after 1 April 2009 and has also provided comparative information of previous period. The adoption of the standard does not affect the financial position but gives rise to additional disclosures. The Group has elected to present 'Statement of Comprehensive Income' in single statement: the 'Statement of Comprehensive Income'. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged.
There have been no restatements and/ or reclass made to the statement of financial position at 31 March 2009.
Segment reporting
IFRS 8 becomes applicable to the Group during the year and accordingly has been adopted for the preparation of these consolidated financial statements. The standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. IFRS 8 does not have material impact on consolidated financial statements.
5. STANDARDS AND INTERPRETATIONS ISSUED BY IASB BUT NOT YET APPLIED BY THE GROUP
Summarised in the paragraphs below are standards, interpretations or amendments that have been issued till the date of approval of these consolidated financial statements and will be applicable for transactions in the Group but are not yet effective. These have not been adopted early by the Group and accordingly have not been considered in the preparation of the consolidated financial statements of the Group.
Management anticipates that all of these pronouncements will be adopted by the Group in the first accounting period beginning after the effective date of each of the pronouncements. Based on the Group's current business model and accounting policies, management does not expect material changes to the recognition and measurement principles on the Group's consolidated financial statements when these Standards/Interpretations become effective. Information on the new standards, amendments and interpretations that are expected to be relevant to the Group's consolidated financial statements is provided below.
IFRS 3 Business Combinations (Revised 2008) (effective from 1 July 2009)
The standard is applicable for business combinations occurring in reporting periods beginning on or after 1 July 2009 and will be applied prospectively. The new standard introduces changes which affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period in which an acquisition occurs and future reported results. The accounting requirements for business combinations, using the acquisition method will have a significant effect on business combinations occurring in future reporting periods.
IAS 27 Consolidated and Separate Financial Statements
The revised standard, effective for annual periods beginning on or after 1 July 2009, introduces changes to the accounting requirements for the loss of control of a subsidiary and for changes in the Group's interest in subsidiaries. These changes will be applied prospectively in accordance with the transitional provisions and so do not have an immediate effect on the Group's financial statements.
IFRS 9 Financial Instruments
The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2010, with the replacement standard to be effective for annual periods beginning 1 January 2013. IFRS 9 is the first part of Phase 1 of this project.
The main phases are:
·; Phase 1: Classification and Measurement
·; Phase 2: Impairment methodology
·; Phase 3: Hedge accounting
In addition, a separate project is dealing with de-recognition. Management has yet to assess the impact that this amendment is likely to have on the financial statements of the Group. However, they do not expect to implement the amendments until all chapters of the IAS 39 replacement have been published and they can comprehensively assess the impact of all changes.
6. SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying Consolidated Financial Statements are as follows:
6.1. OVERALL CONSIDERATIONS
The Consolidated Financial Statements have been prepared on the historical cost basis.
6.2. BASIS OF CONSOLIDATION
The Group financial statements consolidate those of the parent company and all of its subsidiary undertakings drawn up to 31 March 2010. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. Indus Gas obtains and exercises control through more than half of the voting rights. All subsidiaries have a reporting date of 31 March.
Unrealised gains and losses on transactions between Group companies are eliminated. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Profit or loss of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.
6.3. SIGNIFICANT ACCOUNTING ESTIMATES
In preparing Consolidated Financial Statements, Group's management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. The management's estimates for the useful life and residual value of tangible assets, impairment of tangible and intangible assets, fair value of share based payments and recognition of restoration cost represent certain particularly sensitive estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
6.4. FOREIGN CURRENCIES
The Consolidated Financial Statements have been presented in US$.
Foreign currency transactions are translated into the functional currency of the respective Group entities, using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items at year-end exchange rates are recognised as profit or loss of the year.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated).
As explained above, the Group has used a presentation currency other than the functional currency of the Company and accordingly relevant assets and liabilities have been translated into US$ using the closing rate at the reporting date. Income and expenses have been translated into US$ at the average rate over the reporting period. Exchange differences are charged/ credited to the currency translation reserve in equity. On disposal of a foreign operation the cumulative translation differences recognised in equity are reclassified to profit or loss and recognised as part of the gain or loss on disposal.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
·; exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; and
·; exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.
6.5. REVENUE RECOGNITION
The Group's share in revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenues can be reliably measured. Currently, the Group is in a pre-revenue generating phase.
Interest income is recognised as interest accrues (using effective interest method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the asset.)
6.6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprises of Development assets and other properties, plant and equipments used in the oil and gas fields and for administrative purposes. These assets are stated at cost less accumulated depreciation and any accumulated impairment losses.
Development assets are accumulated on a field by field basis and comprise of costs of developing the commercially feasible reserve, expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and other costs of bringing such reserves into production. It also includes the Exploration and Evaluation costs incurred in discovering the commercially feasible reserve, which have been transferred from the Exploration and Evaluation assets as per the policy mentioned in note 6.7 below. As consistent with the full cost method, all Exploration and Evaluation expenditure incurred till the date of the first commercial discovery have been classified under development assets of that field.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss of the year in which the asset is derecognised. However, where the asset is being consumed in developing Exploration and Evaluation intangible assets, such gain or loss is recognised as part of the cost of the intangible asset.
The asset's residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each period end. No depreciation is charged on development assets until production commences.
Depreciation on property, plant and equipment is provided at rates estimated by the management. Depreciation is computed using the straight line method of depreciation, whereby each asset is written down to its estimated residual value evenly over its expected useful life. The useful lives estimated by the management are as follows:
| Extended well test equipment | 20 years |
| Bunk houses | 5 years |
| Vehicles | 5 years |
| Other assets |
|
| Furniture and fixture | 5 years |
| Buildings | 10 years |
| Computer equipment | 3 years |
| Other equipment | 5 years |
Land acquired is recognised at cost and no depreciation is charged as it has an unlimited useful life. Development assets will be depreciated, from the date of commencement of production, on a field by field basis with reference to the unit of production method for the commercially probable and proven reserves in the particular field and also taking into account the future development costs to be incurred on these respectively for the probable and proven reserves, (taken at the current price). Changes in the prices and quantities are applied prospectively to future periods.
Advances paid for the acquisition/ construction of property, plant and equipment which are outstanding at the Statement of Financial Position date and the cost of property, plant and equipment under construction before such date are disclosed as 'Capital work-in-progress'.
6.7. EXPLORATION AND EVALUATION ASSETS
The Group adopts the full cost method of accounting for its oil and gas interests, having regard to the requirements of IFRS 6: Exploration for and Evaluation of Mineral Resources. Under the full cost method of accounting, all costs of exploring for and evaluating oil and gas properties, whether productive or not are accumulated and capitalised by reference to appropriate cost pools. Such cost pools are based on geographic areas and are not larger than a segment. The Group currently has one cost pool being an area of land located in Rajasthan, India.
Exploration and Evaluation costs may include costs of licence acquisition, directly attributable exploration costs such as technical services and studies, seismic data acquisition and processing, exploration drilling and testing, technical feasibility, commercial viability costs, finance costs to the extent they are directly attributable to financing these activities and an allocation of administrative and salary costs as determined by management. All costs incurred prior to the award of an exploration licence are written off as loss of the year as incurred.
Exploration and Evaluation costs are classified as tangible or intangible according to the nature of the assets acquired and the classification is applied consistently. Tangible Exploration and Evaluation assets are recognised and measured in accordance with the accounting policy on property, plant and equipment. To the extent that such a tangible asset is consumed in developing an intangible Exploration and Evaluation asset, the amount reflecting that consumption is recorded as part of the cost of the intangible asset.
Exploration and Evaluation assets are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities, if technical feasibility is demonstrated and commercial reserves are discovered, then, following development sanction, the carrying value of the relevant Exploration and Evaluation asset is reclassified as a development and production asset.
6.8. IMPAIRMENT TESTING FOR EXPLORATION AND EVALUATION ASSETS AND PROPERTY, PLANT AND EQUIPMENT
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.
Where there are indicators that an exploration asset may be impaired, the exploration and evaluation assets are grouped with all development/producing assets belonging to the same geographic segment to form the Cash Generating Unit (CGU) for impairment testing. Where there are indicators that a property, plant and equipment asset is impaired, assets are grouped at the lowest levels for which there are separately identifiable cash flows to form the CGU. The combined cost of the CGU is compared against the CGU's net present value and any resulting impairment loss is written off in profit or loss of the year. No impairment has been recognised during the year.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.
6.9. FINANCIAL ASSETS
Financial assets and financial liabilities are recognised on the Group's Statement of Financial Position when the Group has become a party to the contractual provisions of the related instruments.
Financial assets of the Group, under the scope of IAS 39 'Financial Instruments: Recognition and Measurement' fall into the category of loans and receivables. When financial assets are recognised initially, they are measured at fair value plus transaction costs. The Group determines the classification of its financial assets at initial recognition.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method, less provision for impairment. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
Loans and receivables are assessed for indicators of impairment at the end of each reporting period. Loans and receivables are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition, the estimated future cash flows of the have been affected.
De-recognition of loans and receivables occurs when the rights to receive cash flows from the instrument expires or are transferred and substantially all of the risks and rewards of ownership have been transferred.
6.10. FINANCIAL LIABILITIES
The Group's financial liabilities include debts, bank overdrafts, trade and other payables and loans from related parties.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the related instrument.
Financial liabilities are recognised at their fair value plus transaction costs and subsequently measured at amortised cost less settlement payments. Amortised cost is computed using the effective interest method.
Trade and other payables and loans from related parties are interest free financial liabilities with maturity period of less than twelve months and are carried at transaction value which is not materially different from their fair value.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
6.11. INVENTORIES
Inventories are measured at the lower of cost and net realisable value. Inventories of drilling stores and spares are accounted at cost including taxes, duties and freight. The cost of all inventories other than drilling bits is computed on the basis of first in first out method. The cost for drilling bits is computed based on specific identification method.
6.12. SHARE BASED PAYMENTS
The Group operates equity-settled share-based plans for its employees, directors, consultants and advisors. Where persons are rewarded using share-based payments, the fair values of services rendered by employees and others are determined indirectly by reference to the fair value of the equity instruments granted. This fair value is appraised using the Black Scholes model at the respective measurement date. In the case of employees and others providing services, the fair value is measured at the grant date. The fair value excludes the impact of non-market vesting conditions. All share-based remuneration is recognised as an expense in profit or loss with a corresponding credit to 'Share Option Reserve'.
If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs from previous estimates and any impact of the change is recorded in the year in which change occurs.
Upon exercise of share options, the proceeds received up to the nominal value of the shares issued are allocated to share capital with any excess being recorded as additional paid-in capital.
6.13. ACCOUNTING FOR INCOME TAXES
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period that are unpaid / un-recovered at the date of the Statement of Financial Position. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in profit or loss of the year.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the financial statement with the tax base. Deferred tax is, however, neither provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted at the date of the Statement of Financial Position.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the profit or loss of the year, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
6.14. BORROWING COSTS
Any interest payable on funds borrowed for the purpose of obtaining qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, is capitalised as a cost of that asset until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
Any associated interest charge from funds borrowed principally to address a short term cash flow shortfall during the suspension of development activities is expensed in the period.
Transaction costs incurred towards un-utilised debt facility is treated as prepayments to be adjusted against the carrying value of debt as and when drawn.
6.15. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and at bank in demand and other short-term deposits, which are readily convertible to known amounts of cash. These assets are subject to an insignificant risk of changes in value. Cash and cash equivalents are classified as loans and receivables under the financial instruments category.
6.16. LEASING ACTIVITIES
Finance leases which transfer substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, at the fair value of the leased property or the present value of the minimum lease payments, whichever is lower. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly in the profit or loss of the year.
All leases other than finance leases are treated as operating leases. Operating lease payments are recognised in profit or loss on the straight line basis over the lease term.
6.17. OTHER PROVISIONS AND CONTINGENT LIABILITIES
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision net of any reimbursement is recognised in the profit or loss of the year. To the extent such expense is incurred for construction or development of any asset, it is included in the cost of that asset. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as other finance expenses.
Provisions include decommissioning provision representing management's best estimate of the Group's liability for restoring the sites of drilled wells to their original status
Commitments and contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.
In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognised in the Statement of Financial Position and no disclosure is made.
6.18. OPERATING EXPENSES
Operating expenses are recognised in the profit or loss upon utilisation of the service or at the date of their origin.
6.19. SEGMENT REPORTING
Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance. The Company considers that it operates in a single operating segment being the production and sale of gas.
7. INTANGIBLE ASSETS : EXPLORATION AND EVALUATION ASSETS
Intangible assets comprise of Exploration and Evaluation assets. Movement in Intangible assets was as under:
|
| Intangible assets - Exploration and Evaluation assets |
|
|
|
| Balance as at 1 April 2008 | 3,926,210 |
| Additions | 28,538,578 |
| Balance as at 31 March 2009 | 32,464,788 |
| Additions | 36,069,241 |
| Balance as at 31 March 2010 | 68,534,029 |
|
|
|
In accordance with the Group's accounting policy, no amortisation has been charged on the Exploration and Evaluation assets as the exploration, evaluation and appraisal activities have not concluded in the Block during the reported period.
As further elaborated in Note 8 below, subsequent to commercial discovery of gas in well SGL #1 and SGL #2 on 21 January 2008, amounts accumulated in Exploration and Evaluation assets up to such date have been transferred to development assets, in consistency with the full cost accounting method that the Group follows for such assets. Cost incurred on exploration and evaluation activities subsequent to 21 January 2008 are classified under Exploration and Evaluation assets.
The above also includes borrowing costs capitalised of US$ 2,533,141 (Previous year: US$ 2,592,682) during the year. The weighted average capitalisation rate on funds borrowed generally is 8.61% per annum.
Indus has been successful in proving prospectivity of the block by declaring SGL # 1 and SGL # 2 as commercial discoveries and SSF as the other discovery in the Block and entire 4026 sq km area has been declared as a discovery area. ONGC in its capacity as the licensee of the block is obliged to pay the license fees in respect of the Block. Under the PSC, a period of 2.5 years is allowed to appraise the discoveries already made prior to the expiry of the exploration period and a 5 year period is allowed to declare discovery as commercial. Accordingly, the PSC permits evaluation/ appraisal of the discoveries per the extension period above and till 2013 to declare such discoveries as commercial.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise of the following:
| Cost | Land | Extended well test equipment | Development Assets - Oil and Gas | Bunk Houses | Vehicles* | Other assets | Capital work-in-progress | Total |
|
|
|
|
|
|
|
|
|
|
| Balance as at 1 April 2008 | 34,204 | 255,675 | 46,221,326 | 955,842 | 295,028 | 364,824 | 55,188 | 48,182,087 |
| Additions | - | 117,569 | - | 326,495 | 239,432 | 97,166 | 1,167,232 | 1,947,894 |
|
|
|
|
|
|
|
|
|
|
| Balance as at 31 March 2009 | 34,204 | 373,244 | 46,221,326 | 1,282,337 | 534,460 | 461,990 | 1,222,420 | 50,129,981 |
| Additions | - | 1,053,544 | 5,104,759 | 1,793,024 | 526,041 | 338,574 | 3,268,625 | 12,084,567 |
| Disposals/ transfers | - | - | - | 1,325 | - | - | 3,158,591 | 3,159,916 |
| Balance as at 31 March 2010 | 34,204 | 1,426,788 | 51,326,085 | 3,074,036 | 1,060,501 | 800,564 | 1,332,454 | 59,054,632 |
|
|
|
|
|
|
|
|
|
|
| Accumulated Depreciation |
|
|
|
|
|
|
| |
| Balance at 1 April 2008 | - | 38,962 | - | 480,722 | 87,664 | 212,684 | - | 820,032 |
| Depreciation for the year | - | 24,832 | - | 209,304 | 54,140 | 79,330 | - | 367,606 |
|
|
|
|
|
|
|
|
|
|
| Balance as at 31 March 2009 | - | 63,794 | - | 690,026 | 141,804 | 292,014 | - | 1,187,638 |
| Depreciation for the year | - | 67,229 | - | 291,558 | 198,778 | 107,409 | - | 664,974 |
|
|
|
|
|
|
|
|
|
|
| Balance as at 31 March 2010 | - | 131,023 | - | 981,584 | 340,582 | 399,423 | - | 1,852,612 |
|
|
|
|
|
|
|
|
|
|
| Carrying values |
|
|
|
|
|
|
| |
| At 31 March 2009 | 34,204 | 309,450 | 46,221,326 | 592,311 | 392,656 | 169,976 | 1,222,420 | 48,942,343 |
|
|
|
|
|
|
|
|
|
|
| At 31 March 2010 | 34,204 | 1,295,765 | 51,326,085 | 2,092,452 | 719,919 | 401,141 | 1,332,454 |
57,202,020 |
|
|
|
|
|
|
|
|
|
|
\* These vehicles have been secured against the finance leases as disclosed on the Statement of Financial Position.
The balances above represent the Group's share in property, plant and equipment as per Note 3.
The depreciation in all reported years has been included in the cost of Intangible assets - Exploration and Evaluation assets.
As mentioned in Note 7 above, tangible assets comprising of Development Assets - Oil and Gas represent the amount of Exploration and Evaluation expenditure incurred and accumulated up to the date of the first commercial discovery declared by the Group on 21 January 2008 respect of well SGL # 1 and SGL # 2. Since ONGC, has exercised the option to acquire a 30 per cent participating interest in the discovered field, accordingly the additions to development assets represents 63 per cent of the total cost incurred by the participating parties.
The above also includes borrowing costs capitalised of US$ 2,387,717 (Previous year: US$ Nil). The weighted average capitalisation rate on funds borrowed generally is 8.61% per annum.
No depreciation has been charged on the development assets in accordance with the Group's accounting policy as production is yet to commence on the field.
8. INVENTORIES
Inventories comprise of the following:
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| Drilling and production stores and spares | 4,336,264 | 3,029,606 |
| Fuel | 32,539 | 22,673 |
| Goods in transit | 968,729 | 38,621 |
| Total | 5,337,532 | 3,090,900 |
As all of the above inventories are held for use in the exploration activities, these are valued at cost determined based on policy explained in paragraph
9. OTHER CURRENT ASSETS
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| Prepayments for |
|
|
| - procurement of debt | 1,168,407 | - |
| - others | 47,600 | 22,836 |
|
|
|
|
| Total | 1,216,007 | 22,836 |
Prepayments for procurement of debts represent the proportionate fee paid for the un-utilised facility.
10. SHORT TERM INVESTMENTS
Short term investments constitute various investments in bank deposits, which have a maturity of more than three months and less than twelve months from the date of deposit, considered to be held till the date of their maturity.
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| Short term investments in bank deposits | 8,538,802 | - |
|
|
|
|
| Total | 8,538,802 | - |
Fair value of the deposits closely approximates their carrying value on the balance sheet date. The Group recorded an income US$ 381,476 (Previous year: US$ 863,958) in the profit or loss on the total short term investments made into bank deposits in the year.
11. CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, cash and cash equivalents include cash at banks and on hand and short-term deposits, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the statement of cash flows can be reconciled to the related items in the Statement of Financial Position as follows:
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| Cash at banks and on hand | 220,724 | 19,308,267 |
| Short-term deposits | - | 1,000,316 |
|
|
|
|
| Total | 220,724 | 20,308,583 |
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. Fair values of the short deposits closely approximate their carrying value on respective balance sheet dates.
The Group only deposits cash surpluses with major banks of high quality credit standing.
12. EQUITY
Authorised share capital
The total authorised share capital of the Company is GBP 5,000,000 divided into 500,000,000 shares of GBP 0.01 each. The total number of shares issued by the Company as at 31 March 2010 is 182,913,924 (Previous year: 182,913,924).
--For all matters submitted to vote in the shareholders meeting of each Company, every holder of ordinary shares, as reflected in the records of each of the Companies on the date of the shareholders' meeting has one vote in respect of each share held.
All shareholders are equally eligible to receive dividends and the repayment of capital in the event of liquidation of the individual entities of the Group.
Additional paid in capital
Additional paid-in capital (APIC) represents excess over the par value of share capital paid in by shareholders in return for the shares issued to them, recorded net of expenses incurred on issue of shares.
Currency translation reserve
The exchange difference arising on translation of foreign operations is being debited or credited to currency translation reserve.
Merger reserve
The balance on the merger reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares issued in an acquisition made by the issue of shares.
Cost of new shares issued
Incremental direct costs incurred in relation to issue of shares classified as equity, such as underwriting, accounting and legal fees, printing costs, and taxes, are treated as a reduction of the proceeds. Costs associated with listing of the Company's shares are expensed off as Listing Expenses. Common cost relating to issue of new equity and listing of Company's shares are allocated on rational basis.
13. LONG TERM DEBT FROM BANKS
|
| Maturity | 31 March 2010 | 31 March 2009 |
|
|
|
|
|
| Non-current |
|
|
|
| US$ 15,000,000 bank loan, secured | 2018 | 14,815,524 | - |
|
|
|
|
|
| Total |
| 14,815,524 | - |
In March 2010, Indus signed an agreement with a consortium of banks for a term loan of US$ 110,000,000 repayable in quarterly instalments commencing on 31 August 2011. It bears interest of LIBOR plus 500 basis points. Indus has drawn US$ 15,000,000 against this loan during the current financial year.
The bank loan is secured over all the assets of subsidiaries of Indus i.e. iServices and Newbury in addition to the Group's participating interest in the Block RJ-ON/6 to the extent of SGL Field and certain future receivables from gas sales.
Interest capitalised on this loan under Exploration and Evaluation assets and developments asset is US$ 15,409 (Previous year: Nil)
14. PROVISION FOR DECOMMISSIONING
|
| Amount |
|
|
|
| Balance at 1 April 2008 | 222,109 |
| Additions | 97,648 |
| Effect of foreign currency exchange differences | (46,493) |
|
|
|
| Balance as at 31 March 2009 | 273,264 |
| Additions | 65,181 |
| Effect of foreign currency exchange differences | 31,364 |
|
|
|
| Balance as at 31 March 2010 | 369,809 |
|
|
|
As per the PSC, the Group is required to carry out certain decommissioning activities on oil wells. Provision for decommissioning relates to the estimation of future disbursements related to the abandonment and decommissioning of oil wells. The provision has been estimated by the Company's engineers, based on individual well filling and coverage. This provision will be utilised when the related wells are fully depleted.
15. FINANCE LEASE OBLIGATIONS
Finance lease obligations represent leases entered into for vehicles which are used and operated by the Group for the exploration and evaluation activities.
The table below summarises the total liability (short term and long term) on account of these finance lease payments:
|
|
| 31 March 2010 | 31 March 2009 |
| Secured |
|
|
|
| Finance lease |
| 174,559 | 247,096 |
| Less: current portion |
| 75,270 | 90,404 |
| Non current portion |
| 99,289 | 156,692 |
|
|
|
|
|
The management considers the fair value of these leases to be not materially different from their carrying amounts recognised in the Statement of Financial Position as the interest rates have not significantly changed during the reported period.
The finance lease obligations that are payable within the next 5 years from each reported period are as follows:
| Amount due as at 31 March 2010 | Minimum lease payments | Interest | Principal |
|
|
|
|
|
| Within 1 year | 97,450 | 22,180 | 75,270 |
| 1- 5 years | 111,968 | 12,679 | 99,289 |
| 5 years or thereafter | - | - | - |
| Total | 209,418 | 34,859 | 174,559 |
| Amount due as at 31 March 2009 | Minimum lease payments | Interest | Principal |
|
|
|
|
|
| Within 1 year | 121,040 | 30,636 | 90,404 |
| 1- 5 years | 187,961 | 31,269 | 156,692 |
| 5 years or thereafter | - | - | - |
| Total | 309,001 | 61,905 | 247,096 |
16. PAYABLE TO RELATED PARTIES
Related parties payable comprise of the following:
|
| Maturity | 31 March 2010 | 31 March 2009 |
|
|
|
|
|
| Current |
|
|
|
| Liability payable to Focus | On demand | 24,326,767 | 46,342,206 |
| Short term borrowings from iEnergiser Holding Limited | On demand | - | 170,000 |
| Other payables | On demand | 426,899 | 197,018 |
|
|
| 24,753,666 | 46,709,224 |
|
|
|
|
|
| Other than current |
|
|
|
| Liability payable to Focus | After payment of bank loan per Note 14 | 42,600,000 | - |
|
|
| 42,600,000 | - |
|
|
|
|
|
| Total |
| 67,353,666 | 46,709,224 |
Liability payable to Focus
Liability payable to Focus represents unpaid amount of the cost share of the Group in respect of its participating interest in Block RJ-ON/6 pursuant to the terms of Agreement for Assignment dated 13 January 2006 and its subsequent amendments from time to time (hereinafter referred to as "Assignment Agreement").
The Group had earlier provided a guarantee of Indian Rupee 820 million (equivalent to US$ 16,162,413) to the bankers of Focus in respect of the above liability and created a charge on certain of its future receivables in favour of Punjab National Bank. During the financial year ending 31 March 2010, the Group repaid US$ 15 million directly to the banker of Focus, thus releasing the Group from the above guarantee obligations and the consequently the charge on its future receivables in favour of Punjab National Bank was also released.
As per the Amendment to Agreement for assignment of participating interest agreement signed with Focus on 26 March 2010, effective 1 April 2009, (hereinafter referred to as the Amendment No. 4), Focus has agreed to convert US$40 million being part of the outstanding balance due as subordinated unsecured long term loan repayable along with interest calculated at 6.5% per annum after payment and full settlement of US$110 million loan taken from a consortium of banks as described in note 14 above, i.e. after August 2018. The Group agreed to pay the entire outstanding balance to Focus, as reduced by US$ 40 million, not later than 31 March 2011 on demand by Focus and accordingly classified as short term borrowings. The Group has agreed to reimburse interest cost incurred by Focus on loans taken from third parties to finance the short term borrowing subject to a minimum interest rate of 6.5% per annum and maximum interest rate of 10% per annum. The weighted average interest rate for the entire balance is 8.61% for the current year.
Short term borrowings from iEnergiser Holding Limited were interest free and repayable on demand. Other payables to related parties comprise of outstanding balances to associate entities and directors, all the amounts are short term. The carrying value of the short term borrowings and other payables are considered to be a reasonable approximation of fair value.
17. FOREIGN CURRENCY EXCHANGE (LOSS)/ GAIN, NET
The Group has recognised the following in the profit or loss on account of foreign currency fluctuations:
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| (Loss)/ Gain on restatement of foreign currency receivables in Indus Gas | (2,184,783) | 2,450,620 |
| Gain on restatement of foreign currency payables in Indus Gas | 1,996,001 | - |
| (Loss)/ Gain arising on settlement of foreign currency transactions and restatement of foreign currency balances arising out of Oil block operations | (164,642) | (25,915) |
|
| (353,424) | 2,424,705 |
18. OPERATING LEASES
Lease payments capitalised under exploration and evaluation asset during the year ended 31 March 2010 amount to US$ 21,434,436 (Previous year: US$ 16,275,456). No sublease payments or contingent rent payments were made or received. No sublease income is expected as all assets held under lease agreements are used exclusively by the Group. All the operating leases of the Group are cancellable at a short notice of not more than 90 days and there are no future minimum payments for the existing operating leases.
The terms and conditions of these operating leases do not impose any significant financial restrictions on the Group. Most of the leases allow for renewals at the Group's option. These operating lease agreements do not contain any contingent rent clauses.
19. TAXATION
Indus Gas profits are taxable as per the tax laws applicable in Guernsey where nil percent tax rate has been prescribed for corporate assesses. Accordingly, there is no tax liability for the Group in Guernsey. Newbury and iServices being participants in the PSC are covered under the Indian Income tax laws as well as tax laws for their respective countries. However, considering the existence of double tax avoidance arrangement between Cyprus and India and Mauritius and India, profits in Newbury and iServices are not likely to attract any additional tax in their local jurisdiction. Under Indian tax laws, Newbury and iServices are allowed to claim the entire expenditure in respect of the Oil Block incurred till the start of commercial production (whether included in the Exploration and Evaluation assets or expensed in their respective financial statements) as deductible expense in the first year of commercial production. This expense to the extent not adjusted in the profit of the year of commercial production is allowed to be carried forward and adjusted against the profits of subsequent 8 years. Considering the uncertainties involved around ultimate utilisation of losses in Newbury and iServices, the management does not currently consider their utilisation probable and therefore has decided not to create any deferred tax assets.
20. SHARE BASED PAYMENT
The Group maintains an equity settled share-based payment scheme adopted and approved by the directors on 29 May 2008. Presently, the Company has approved three schemes for the Directors, Consultant and Advisor known as the "Directors' option agreements", "Advisers Option agreement" and "Arden option deed" respectively. The Group has no legal or constructive obligation to repurchase or settle the options. In accordance with the Plan, upon vesting, the stock options will be settled by issuance of new shares on payment of exercise price.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. The total expense recognised in profit or loss of the year ended 31 March 2010 is US$ 341,303 (Previous year: Nil).The forfeiture rate for the year has been considered as Nil (Previous year: Nil).
The fair values of options granted were determined using Black Scholes option pricing model that takes into account factors specific to the share incentive plans along with other external inputs.
The following principal assumptions were used in the valuation: Expected volatility was determined by comparison with implied volatility of traded options. Dividend yield is taken as nil as the Group has not paid any dividend. The risk-free rate is the rate associated with a risk-free security with the same maturity as the option. At each reporting date, the Group reviews its estimates of the number of options that are expected to vest. The Group recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to 'retained earnings' in equity.
The inputs to the Black Scholes model for options that have been granted during the reporting periods are summarised as follows:
|
| Employees and Others | Advisor |
| Grant date | 29 May 2008 | 29 May 2008 |
| Fair value of option using the Black Scholes model at grant date (GBP) | 0.84 | 0.62 |
| Exercise price (GBP) | 1.64 | 1.64 |
| Expected volatility | 35% | 35% |
| Option life (in years) | 5 | 3 |
| Dividend yield | - | - |
| Risk-free interest rate | 4.99% | 5.06% |
The total outstanding and exercisable share options and weighted average exercise prices for the various categories of option holders during the reporting periods are as follows:
Share options granted to Employees and others providing similar services
|
| 31 March 2010 |
| 31 March 2009 | ||
|
| Number of options | Weighted average exercise price |
| Number of options | Weighted average exercise price |
|
|
| GBP |
|
| GBP |
| Balance at beginning of year | 240,000 | 1.64 |
| - | - |
| Granted during the year | - | - |
| 240,000 | 1.64 |
| Forfeited during the year | - | - |
| - | - |
| Exercised during the year | - | - |
| - | - |
| Expired during the year | - | - |
| - | - |
|
|
|
|
|
|
|
| Balance at end of year | 240,000 | 1.64 |
| 240,000 | 1.64 |
|
|
|
|
|
|
|
| Exercisable at year end | 80,000 |
|
| 80,000 |
|
The share options outstanding at the end of the year had an exercise price of GBP 1.64 (Previous year: GBP 1.64), and a weighted average remaining contractual life of 3.16 years (Previous year: 4.16 years).
Share options granted to Advisors
|
| 31 March 2010 |
| 31 March 2009 | ||
|
| Number of options | Weighted average exercise price |
| Number of options | Weighted average exercise price |
|
|
| GBP |
|
| GBP |
| Balance at beginning of year | 76,220 | 1.64 |
| - | - |
| Granted during the year | - | - |
| 76,220 | 1.64 |
| Forfeited during the year | - | - |
| - | - |
| Exercised during the year | - | - |
| - | - |
| Expired during the year | - | - |
| - | - |
|
|
|
|
|
|
|
| Balance at end of year | 76,220 | 1.64 |
| 76,220 | 1.64 |
|
|
|
|
|
|
|
| Exercisable at year end | 76,220 |
|
| 76,220 |
|
The share options outstanding at the end of the year had an exercise price of GBP 1.64 (Previous year: GBP 1.64), and a weighted average remaining contractual life of 1.16 years (Previous year: 2.16 years).
The value of the share options granted to the advisor has been measured as and when services are received from them. As the management believes that the fair value of the services received from the advisor cannot be ascertained reliably, the value of the services received from the advisor has been determined indirectly with reference to the fair value of the options granted to them.
Share options granted to Directors and Consultants
Share options were granted to the Directors and Consultants on the date of admission to the AIM) of the London Stock Exchange on 29 May 2008 and the first part (one third of the stock options i.e. 80,000 shares) have been vested on the first anniversary of the admission to AIM and approved by the directors on 21 September 2009 which are yet to be exercised by the parties for the year ended 31 March 2010. The outstanding balance and exercisable share options granted to the Directors and Consultants for the year ended 31 March 2010 were 80,000 having a weighted average price of GBP 1.64 per option. The total expense recognised in profit or loss, under 'administrative expenses', for the year ended 31 March 2010 is US$ 265,997 (Previous year: Nil).
Share Options granted to an Advisor
Share options were granted to the Advisor on the date of admission to the AIM of the London Stock Exchange on 29 May 2008 and were vested on the same day itself (being significant services being provided). The total shares vested are 76,220 which are yet to be exercised by the Advisor for the year ended 31 March 2010. The outstanding balance and exercisable share options granted to the Advisor for the year ended 31 March 2010 were 76,220 having a weighted average price of GBP 1.64 per option. The total expense recognised in profit or loss, under 'administrative expenses', for the year ended 31 March 2010 is US$ 75,306 (Previous year: Nil).
21. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on the profits attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period.
Calculation of basic and diluted earnings/ (loss) per share for period ending 31 March 2010 and 31 March 2009 are as follows:
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| (Loss)/ profit attributable to shareholders of Indus Gas Limited, for basic and dilutive | (1,726,528) | 1,170,285 |
| Weighted average number of shares (used for basic (loss)/ earnings per share) | 182,913,924 | 180,157,489 |
| Diluted weighted average number of shares (used for diluted (loss)/ earnings per share) | 182,913,924 | 180,157,489 |
|
|
|
|
| Basic (loss)/ earnings per share | (0.01) | 0.01 |
| Dilutive (loss)/ earnings per share | (0.01) | 0.01 |
The Group has outstanding share options, however, those are considered anti-dilutive as the Group has incurred loss during the year.
22. RELATED PARTY TRANSACTIONS
The related parties for each of the entities in the Group have been summarised in the table below:
| Nature of the relationship | Related Party's Name |
|
|
|
| I. Holding Company | Gynia Holdings Ltd. |
|
|
|
| II. Ultimate Holding Company | Multi Asset Holdings Ltd. (Holding Company of Gynia Holdings Ltd.) |
|
|
|
| III. Key management personnel ("KMP"): | Ajay Kalsi |
|
| John Scott |
|
|
|
Disclosure of transactions between the Group and related parties and the outstanding balances as on 31 March 2010 and 31 March 2009 is as under:
Transactions with parent and subsidiary companies
| Particulars | 31 March 2010 | 31 March 2009 |
|
|
|
|
| Transactions during the year with the holding company |
|
|
| Loan given | 56,543 | 2,544 |
| Shares issued | - | 3,320,856 |
|
|
|
|
| Balances at the end of the year |
|
|
| Total receivables | 56,543 | 2,544 |
Transactions with KMP and entities over which KMP exercise control
| Particulars | 31 March 2010 | 31 March 2009 |
|
|
|
|
| Transactions during the year |
|
|
| Remuneration to KMP |
|
|
| ·; Short term employee benefits | 376,676 | 380,093 |
| ·; Share based payments | 104,809 | - |
|
|
|
|
| Entities over which KMP exercise control |
|
|
|
|
|
|
| Remittances | 26,421,188 | 25,538,385 |
| Net assets transferred during the year | 46,979,096 | 30,940,035 |
| Loans given | - | 170,000 |
| Expenses to be reimbursed | 26,685 | 5,130 |
|
|
|
|
| Balances at the end of the year |
|
|
| Total receivables | - | - |
| Total payables | 67,353,666 | 46,893,644 |
|
|
|
|
Directors' remuneration
Directors' remuneration, by director, is separately disclosed in the directors' report on page [ ].
23. SEGMENT REPORTING
The Chief Operating Decision Maker reviews the business as one operating segment being the extraction and production of oil and gas. Hence, no separate segment information has been furnished herewith.
The Group has not started commercial production of gas till the year ended 31 March 2010 and accordingly, the disclosure requirement on revenues from external customers in not applicable.
All of the non-current assets other than financial instruments (there are no employment benefit assets, deferred tax assets and rights arising under insurance contracts) are located in India and amounted US$ 125,736,049 (Previous year: US$ 81,407,131).
24. COMMITMENTS AND CONTINGENCIES
A summary of the contingencies and commitments existing as at 31 March 2010 and 31 March 2009 are as follows:
|
| Nature of the contingency/ commitments | 31 March 2010 | 31 March 2009 |
|
|
|
|
|
| i. (ii) | Group's share in the commitment for Engineering Studies and Design for surface facility, pipeline and Control System including utilities and purchase of equipment
| 377,778 | 145,442 |
| ii. (iii) | Guarantee provided by iServices and Newbury in respect of the loans taken by Focus. In case the Group is made to pay this amount due to default by Focus, the Group will have a right to either recover this money from Focus or adjust the same against amount it owes to Focus (Indian Rupees 820 million) | - | 16,162,413 |
|
| Total | 377,778 | 16,307,855 |
The Group has not accrued a provision for the above mentioned contingencies.
25. ACCOUNTING OF ESTIMATES AND JUDGEMENTS
In preparing Consolidated Financial Statements, Group's management is required to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. The judgments and estimates are based on management's best knowledge of current events and actions and actual results from those estimates may ultimately differ.
Significant judgments applied in the preparation of the Consolidated Financial Statements are as under:
Determination of functional currency of individual entities
Following the guidance under IAS 21 "The effects of changes in foreign exchange rates" the functional currency of each individual entity is determined to be the currency of the primary economic environment in which the entity operates. The management reckons that the each individual entity's functional currency reflects the transactions, events and conditions under which the entity conducts its business.
Full cost accounting for Exploration and Evaluation expenditure
The Group has followed 'full cost' approach for accounting Exploration and Evaluation expenditure against the 'successful efforts' method. As further explained in Note 6.7 and 7 above, Exploration and evaluation assets recorded using 'full cost' approach is tested for impairment prior to reclassification into Development assets on successful discovery of gas reserves.
Impairment of tangible and intangible assets
The group follows the guidance of IAS 39 and IFRS 6 to determine when a tangible or an intangible asset is impaired. This determination requires significant judgement to evaluate indicators triggering an impairment. The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets. The management has assessed that no such indicators have occurred or exists as at 31 March 2010 to require impairment testing of property, plant and equipments and intangible assets.
Estimates used in the preparation of the Consolidated Financial Statements
Useful life and residual value of tangible assets
The Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. During the financial year, the directors determined that no change to the useful lives of any of the property, plant and equipment items is required.
Fair value for share-based payments
The Group measures the cost of equity-settled transactions with employees, advisors and others by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 21.
Recognition of restoration cost
As per the PSC, the Group is required to carry out certain decommissioning activities on oil wells. The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there could be adjustments to the provisions established which would affect future financial results.
26. CAPITAL MANAGEMENT POLICIES
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital.
Net debt is calculated as total borrowings (including 'current and non current borrowings' as shown in the consolidated Statement of Financial Position). Total capital is calculated as 'equity' as shown in the consolidated Statement of Financial Position plus net debt.
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| Net debt | 82,763,268 | 47,275,194 |
| Total equity | 58,352,032 | 57,565,892 |
| Total capital employed | 141,115,300 | 104,841,086 |
| Gearing ratio | 59% | 45% |
|
|
|
|
The Group is not subject to any externally imposed capital requirements. There were no changes in the Group's approach to capital management during the year.
27. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A summary of the Group's financial assets and liabilities by category are mentioned in the table below:
The carrying amounts of the Group's financial assets and liabilities as recognised at the date of the Statement of Financial Position of the reporting periods under review may also be categorised as follows:
|
| 31 March 2010 | 31 March 2009 |
| Non-current assets |
|
|
| Loans and receivables |
|
|
| - Security deposits | 9,643 | 9,092 |
|
|
|
|
| Current assets |
|
|
| Loans and receivables |
|
|
| - Related party receivables | 56,543 | 2,544 |
| - Cash and cash equivalents | 220,724 | 20,308,583 |
| - Short term investments | 8,538,802 | - |
|
|
|
|
| Non current liabilities |
|
|
| Financial liabilities measured at amortised cost: |
|
|
| - Provisions for decommissioning | 369,809 | 273,264 |
| - Finance lease obligations- non current | 99,289 | 156,692 |
| - Long term debt | 14,815,524 | - |
| - Payable to related parties - non current | 42,600,000 | - |
|
|
|
|
| Current liabilities |
|
|
| Financial liabilities measured at amortised cost: |
|
|
| - Payable to related parties | 24,753,666 | 46,709,224 |
| - Finance lease obligations (current portion) | 75,270 | 90,404 |
| - Accrued expenses and other liability | 49,710 | 45,610 |
|
|
|
|
Risk management objectives and policies
The Group finances its operations through a mixture of retained earnings, loans from banks and related parties and equity. Finance requirements such as equity, debt and project finance are reviewed by the board when funds are required for acquisition, exploration and development of projects.
The Group treasury functions are responsible for managing fund requirements and investments which includes banking and cash flow management. Interest and foreign exchange exposure are key functions of treasury management to ensure adequate liquidity at all times to meet cash requirements.
The Group's principal financial instruments are cash held with banks and financial liabilities to banks and related parties and these instruments are for the purpose of meeting its requirements for operations. The Group's main risks arising from financial instruments are foreign currency risk, liquidity risk, commodity price risk and credit risks. Set out below are policies that are used to manage such risks:
Foreign currency risk
The group reports in US$ and the majority of its business is conducted in US$. All revenues from oil sales is intended to be received in US$ and substantial costs are incurred in US$. No forward exchange contracts were entered into during the year.
Currency exposures
Entities within the Group conducts majority of their transactions in their functional currency. Other than a US$ 15,000,000 loan taken by Indus Gas and finance lease obligation balance which is maintained in Indian Rupees all other monetary assets and liabilities are denominated in functional currencies of the respective entities. The currency exposure on account of liability which are denominated in a currency other than the functional currency of the entities of the Group as at 31 March 2010 and 31 March 2009 is as follows:
| Functional currency | Foreign currency | 31 March 2010 | 31 March 2009 |
|
|
|
|
|
| GBP | US$ | 14,815,524 | - |
| US$ | Indian rupee | 174,559 | 247,096 |
|
|
|
|
|
The Group's sensitivity to a 2.5% increase and decrease in the US$ against GBP is a respective decrease and increase in profit and loss by US$ 396,552. However there would no impact on equity balance. 2.5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the reasonably possible change in foreign exchange rates.
The Group's currency exposure risk towards Indian Rupee is negligible due to the insignificant currency balance exposed to such risk.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an appropriate liquidity risk management framework for the management of the Group's short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Since majority of the payables of the Group are to parties under common control or on which significant influence can be exercised, the liquidity risk on these outstanding balances is negligible. Further table of 'Financing Facilities' below sets out details of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
|
| On demand | 1-3 months | 3 months to 1 year | 1-5 years | 5+ years |
Total |
| 31 March 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-interest bearing | 59,102 | 14,439 | 414,344 | - | - | 487,885 |
| Finance lease liability | - | 26,229 | 71,221 | 111,968 | - | 209,418 |
| Variable interest rate instruments | 24,300,082 | - | - | 11,237,579 | 7,573,896 | 43,111,557 |
| Fixed interest rate instruments | - | - | - | - | 70,502,816 | 70,502,816 |
|
| 24,359,184 | 40,668 | 485,565 | 11,349,547 | 78,076,712 | 114,311,676 |
|
| On demand | 1-3 months | 3 months to 1 year | 1-5 years | 5+ years |
Total |
| 31 March 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-interest bearing | 195,785 | 32,167 | 7,068 | 177,607 | - | 412,627 |
| Finance lease liability | - | 40,258 | 80,782 | 187,961 | - | 309,001 |
| Variable interest rate instruments | - | - | - | 46,709,224 | - | 46,709,224 |
|
| 195,785 | 72,425 | 87,850 | 47,074,792 | - | 47,430,852 |
Financing facilities
|
| 31 March 2010 | 31 March 2009 |
|
|
|
|
| Bank loan facilities with various maturity dates through to 2018 |
|
|
| - amount used | 15,000,000 | - |
| - amount unused | 95,000,000 | - |
|
| 110,000,000 | - |
|
|
|
|
Interest rate risk
The Group's policy is to minimise interest rate risk exposures on long-term financing. Longer-term borrowings are therefore usually at fixed rates. Borrowing from Focus is divided between short term and long term. While long term is fixed at 6.5 percent, the interest rate on short term portion is linked to actual interest incurred by Focus capped between 6.5 percent and 10 percent. Therefore, borrowing from Focus doesn't expose the Group to any significant risk from changes in interest rate. Short term investments of the Group are also at fixed interest rate and therefore, don't expose the Group to risk from changes in interest rate. At 31 March 2010, the Group is exposed to changes in market interest rates through bank borrowings at variable interest rates. Interest rate on bank borrowing is 5 percent plus LIBOR.
The Group's interest rate exposures are concentrated in US$.
The analysis below illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates. The analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates. All other variables are held constant.
|
|
| Interest rate | |
|
|
| + 0.50% | - 0.50% |
|
|
|
|
|
| 31 March 2010 |
| 80,800 | (80,800) |
|
|
|
|
|
| 31 March 2009 |
| - | - |
|
|
|
|
|
Since the loans are taken specifically for the purpose of exploration and evaluation activities and according to the Group's policy is capitalised to the cost of the asset and hence doesn't have any immediate adverse impact on profit or loss.
Commodity price risks
The Group's share of production of crude oil from the Block is intended to be sold to GAIL India Limited. The price has been agreed for the current agreement and the same would be reviewed periodically and reassessed mutually by the parties. No commodity price hedging contracts have been entered into.
Credit risk
Currently the Group is in the pre-revenue generative stage and hence is not exposed to any risk on account of credit sales. The Group has made short term deposits of surplus funds available with banks and financial institutions of good credit repute and therefore, doesn't consider the credit risk to be significant. Other receivables on account security deposits and balance placed as advance with related parties, the cumulative balance of which is trivial and does not expose the Group to a significant credit risk.