REG - Indus Gas Limited - Final Results
Indus Gas Limited
Audited final results for the 12 months ended 31 March 2020
Indus Gas Limited (AIM:INDI), an oil & gas exploration and development company with assets in India, announces its full year results for the 12 months to 31 March 2020.
Highlights
§ The Petroleum & Natural Gas Regulatory Board (PNGRB) has re-invited bids for the laying of a gas pipeline from the gas processing facility for the evacuation of gas from RJ-ON/6 Block as the transportation tariff proposed in the bid was too high. The Board is confident that there is an opportunity to materially lower the transportation tariff in the next bidding round. This will enable natural gas from RJ-ON/6 block to be delivered to customers through the National Grid at a fair and reasonable transportation tariff.
§ Approvals from the DGH and Government had already been received for the development and enhanced production covering a total field area of 2176 sq. km
§ The gas sand reservoirs were successfully exploited for production.
OPERATIONAL
§ Preparations continued on site during the year for the planned ramp up in production including the drilling of additional wells.
§ Drilling and completion of production wells for the SGL field development continued as planned to meet the planned gas sale requirements.
§ Continued testing of previously drilled wells.
FINANCIAL
§ Total Revenues (including other operating income) were US$ 57.97 million (2018-19: US$ 60.61 million).
§ Operating profit increased to US$ 53.38 million (2018-19: US$ 53.29 million).
§ Profit before tax decreased to US$ 53.12 million (2018-19: US$ 53.90 million).
§ Net Investments made in property, plant and equipment, exploration and evaluation assets amounting to US$ 129.42 million.
§ All repayments under the existing debt terms were made on a timely basis.
For further information please contact:
Indus Gas Limited
+44 (0)20 7877 0022
Peter Cockburn
Jonathan Keeling
Arden Partners plc
+44 (0)20 7614 5900
Ciaran Walsh, Dan Gee-Summons (Corporate Finance)
James Reed-Daunter (Equity Sales)
Overview
Indus Gas Limited ("Indus" or "Company") is engaged in oil and gas exploration and development in Block RJ-ON/6, Rajasthan, India. Indus owns a 90% participating interest in the Block (excluding the SGL gas field, in respect of which its participating interest is 63%). Other partners in the block are (i) Focus Energy Ltd., which operates the Block, and (ii) Oil and Natural Gas Corporation (ONGC), India, which is the licensee of the Block. The 'Participative Interest' of Indus as mentioned above is held through its wholly owned subsidiaries iServices Investment Limited, Mauritius and Newbury Oil Company Limited, Cyprus. The Block currently measures an area of 2,176 sq. km and lies onshore in the highly prospective mid Indus Basin. The first discovery in the Block was made in 2006 and the first commercial production commenced in 2010. The Company has received approval from the Directorate General of Hydrocarbons (DGH) and government for the integrated Field Development Plan ("FDP") of SSG (Pariwar) & SSF (B&B) discoveries and for enhancement of production from the SGL field to 90 MMSCFD. The Petroleum & Natural Gas Regulatory Board (PNGRB) have re invited bids for the laying of a gas pipeline from the gas processing facility for the evacuation of gas from RJ-ON/6 Block. The transportation tariff proposed in the first bidding round was very high and the Board is confident that there is an opportunity to materially lower the transportation tariff in the next bidding round. This will enable natural gas from RJ-ON/6 block to be delivered to customers through the National Grid at a fair transportation tariff thereby maximizing value for shareholders.
Chairman's Statement
This has been another period of operational progress for the Group. The approval of the Field Development Plans combined with the PNGRB re-inviting bids for a pipeline to evacuate gas from the RJ-ON/6 block with a view to achieving a fair transportation tariff, represented a major milestone achieved in the period under review.
The Company's strong operational and financial performance is highlighted by another year of good profit generation and the Board continues to anticipate a substantial increase in revenues once the additional gas supplies commence through the new pipeline.
The Board would like to thank their employees, shareholders, bankers and all other stakeholders for their loyalty and continued support. The safety and well-being of our employees and all the workers on-site at the RJ-ON/6 Block is our number one priority. The directors have taken a conservative approach whilst assessing the impact of the coronavirus pandemic. This prudent approach means results for this financial year are anticipated to be slightly lower than those achieved in the year ended 31st March 2020. The board continues to monitor the situation and anticipates results will return to previous levels once the worst of the pandemic is over and the site returns to unrestricted operations. The management team will continue to focus on the execution of the Company's long-term strategy of achieving both growth in reserves and commercial production. The Indian government continues to prioritize the increase of domestic gas production thereby reducing the dependence on expensive imported energy and enhancing energy security.
Peter Cockburn
Chairman
Board of Director's Review
We are pleased to announce another strong year of consolidated total revenues (including other operating income) totaling US$ 57.97 million. We have continued to increase operating profits and our stated long term business plan remains on track. The revised Field Development Plan for the SGL area and an integrated Field Development Plan for SSG & SSF area of the Block, for the future enhancement of revenues, had been previously approved by the Management Committee. Building on these earlier successes, the PNGRB has re-invited the bids for the construction of a pipeline to evacuate gas from the RJ-ON/6 Block with the purpose of achieving a reasonable transportation tariff.
Operations
Operational activities over the last year have followed the Group's objectives and are summarised below:
a) drilling of additional wells to support the integrated field development plan;
b) drilling and completion of production wells for the SGL field development continued as scheduled to meet planned gas sale requirements;
c) testing various wells previously drilled where gas shows were encountered to enable the Group to increase its reserve base; and
d) testing the B&B gas recovery potential in addition to gas discovered in the Pariwar formation.
The current drilling programme is progressing on schedule and producing positive results. Following the approval of the FDP for SSG & SSF Development area, we continue to test concepts and obtain log and core data for analysis outside of the SGL area. In the SGL area, work continues to increase our knowledge of the producing intervals. Additional testing is an important element of the operational programme to enhance production and maximize recovery of gas through efficient asset management. Activities such as these will continue to increase as we obtain and act on new data and production history. An important development in respect of the SGL Field was the discovery of new intervals within Pariwar. These were located below the existing producing P10 sands. These reservoirs were successfully exploited for production and going forward will add to the reserves and production from both existing and new wells.
Financials
During the financial year, the Company achieved total revenue (including other operating income) of US$ 57.97 million (2018-19: US$ 60.61 million), resulting in reported operating profit of US$ 53.38 million (2018-19 US$ 53.29 million). The reported profit after tax was US$ 49.06 million (2018-19 US$ 37.49 million).
While the Company is not expected to pay any significant taxes on its income for many years in view of the 100% deduction allowed on the capital expenses incurred in the Block, the Company has accrued a non-cash deferred tax liability of US$ 4.06 million as per IFRS requirements.
Post this deferred tax liability provision, the net profit for the year was US$ 49.06 million.
The net expenditure on the purchase of property, plant & equipment was US$ 129.42 million. The property plant and equipment, including development assets and production assets, increased to US$ 980.69 million.
The current assets (excluding cash) as of 31 March 2020 stood at US$ 93.55 million, which majorly includes US$ 7.64 million of inventories, US$ 59.56 million of receivables from related party and US$ 26.36 million of trade receivables. Receivables of US$ 24.07 million of this total of US$ 26.32 million have been realized subsequent to 31 March 2020. The current liabilities of the Company, excluding the related party liability of US$ 0.35 million and current portion of long term debt of US$ 29.32 million, stood at US$ 8.12 million. This comprised mainly of deferred revenue of US$ 5.08 million (GAIL-Take or Pay Obligation) and other liabilities of US$ 3.04 million.
As of 31 March 2020, the outstanding debt of the Company to banks was US$ 100.15 million, of which US$ 25.75 million was categorised as repayable within a year and the remaining US$ 74.40 million has been categorised as a long term liability. During the year, the Company repaid an amount of US$ 39.40 million of the outstanding term loan facilities, as per the scheduled repayment plan. As of 31 March 2020, the outstanding unsecured debt from bonds was US$ 153.47 million, of which US$ 3.58 million was categorized as repayable within a year and the remaining US$ 149.89 million has been categorized as a long term liability.
Outlook
During the next twelve months, we expect that the Company will be able to withstand the adverse impact of the coronavirus pandemic and look forward to continued drilling success in both Pariwar and B&B combined with delivering further progress on the commercialization of our gas reserves.
Jonathan Keeling
Director
Consolidated Statement of Financial Position
(All amounts in United States Dollars, unless otherwise stated)
31 March 2020
31 March 2019
ASSETS
Non-current assets
Intangible assets: exploration and evaluation assets
7
-
-
Property, plant and equipment
8
980,692,787
2,029,537
550
851,277,557
2,695,055
605
Tax assets
Other assets
Total non-current assets
982,722,874
853,973,217
Current assets
Inventories
11
7,635,420
9,327,984
Trade and other receivables
Receivables from related party
12
17
26,359,203
59,558,299
27,628,583
57,098,640
Cash and cash equivalents
13
284,619
129,152
Total current assets
93,837,541
94,184,359
Total assets
1,076,560,415
948,157,576
LIABILITIES AND EQUITY
Shareholders' equity
Share capital
14
3,619,443
3,619,443
Additional paid-in capital
14
46,733,689
46,733,689
Currency translation reserve
14
(9,313,782)
(9,313,782)
Merger reserve
14
19,570,288
19,570,288
Retained earnings
14
188,815,231
139,755,664
Total shareholders' equity
249,424,869
200,365,302
Liabilities
Non-current liabilities
Long term debt, excluding current portion
15
224,294,116
249,722,044
Provision for decommissioning
16
1,699,209
1,606,825
Deferred tax liabilities (net)
Payable to related parties, excluding current portion
9
17
93,504,835
444,282,706
89,442,675
331,088,491
Deferred revenue
19
25,563,995
25,563,995
Total non-current liabilities
789,344,861
697,424,030
Current liabilities
Current portion of long term debt
15
29,323,478
42,869,400
Current portion payable to related parties
17
351,405
352,909
Trade and other payables
18
3,038,716
2,068,849
Deferred revenue
19
5,077,086
5,077,086
Total current liabilities
37,790,685
50,368,244
Total liabilities
827,135,546
747,792,274
Total equity and liabilities
1,076,560,415
948,157,576
(The accompanying notes are an integral part of these consolidated financial statements)
These consolidated financial statements were approved and authorized for issue by the board on 28 September 2020 and was signed on its behalf by:
Peter Cockburn
Chairman
Consolidated Statement of Comprehensive Income
(All amounts in United States Dollars, unless otherwise stated)
Note
Year ended
31 March 2020
Year ended
31 March 2019
Revenues
19
Cost of sales
Gross profit
Cost and expenses
Administrative expenses
Operating profit
Foreign currency exchange (loss)/gain, net
Interest Income
21
Profit before tax
Income taxes
10
- Deferred tax expense
Profit for the year
Total comprehensive income for the year (attributable to the shareholders of the Group)
Earnings per share
23
Basic
Diluted
(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
Retained earnings
Total shareholders' equity
No. of shares
Amount
Balance as at 1 April 2018
182,973,924
3,619,443
46,733,689
(9,313,782)
19,570,288
102,268,989
162,878,627
Profit and total comprehensive income for the year
-
-
-
-
-
37,486,671
Balance as at 31 March 2019
182,973,924
3,619,443
46,733,689
(9,313,782)
19,570,288
139,755,660
200,365,298
-
Profit and total comprehensive income for the year
-
-
-
-
-
Balance as at 31 March 2020
182,973,924
3,619,443
46,733,689
(9,313,782)
19,570,288
188,815,231
249,424,869
(The accompanying notes are an integral part of these consolidated financial statements)
Consolidated Statement of Cash Flow
(All amounts in United States Dollars, unless otherwise stated)
Note
Year ended
31 March 2020
Year ended
31 March 2019
Cash flow from operating activities
Profit before tax
53,121,730
53,897,815
Adjustments
Unrealized exchange (gain)/loss
364,016
(612,594)
Interest income
-
(56)
Depreciation
8
2,072,366
3,995,473
Changes in operating assets and liabilities
Inventories
1,692,563
(986,900)
Trade receivables
1,299,558
(9,431,672)
Other current and non-current assets
(30,167)
23,443
Payable to related party-operating activities
2,815,402
4,697,692
Provisions for decommissioning
92,384
25,729
Accrued expenses and other liabilities
968,363
996,591
Cash generated from operations
62,396,215
52,605,521
Income taxes paid
317,441
(270,528)
Net cash generated from operating activities
62,713,656
52,334,993
Cash flow from investing activities
Purchase of property, plant and equipment A
(90,871,650)
(118,948,933)
Interest received
-
56
Net cash used in investing activities
(90,871,650)
(118,948,877)
Cash flow from financing activities
Repayment of long term debt from banks
(39,402,000)
(32,942,671)
Proceeds from loans by related parties
87,900,000
108,299,952
Payment of interest
(20,168,638)
(22,569,737)
Net cash generated from financing activities
28,329,362
52,787,544
Net (decrease)/increase in cash and cash equivalents
171,368
(13,826,340)
Cash and cash equivalents at the beginning of the year
129,152
13,342,498
Effects of exchange differences on cash and cash equivalents
(15,901)
612,994
Cash and cash equivalents at the end of the year
284,619
129,152
A The purchase of property, plant and equipment above, includes additions to exploration and evaluation assets amounting to US$ 19,180,603 (previous year: US$ 9,569,925) transferred to development cost, as explained in note 7.
(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 Co. 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 wholly owned subsidiaries iServices and Newbury (hereinafter collectively referred to as "the Group") are engaged in the business of oil and gas exploration, development and production.
Focus Energy Limited ("Focus"), an entity incorporated in India, 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 for petroleum exploration and development concession in India known as RJ-ON/06 ("the Block"). Focus is the Operator of the Block. On 13 January 2006, iServices and Newbury entered into an interest sharing agreement with Focus and obtained a 65 per cent and 25 per cent share respectively in the Block. The balance of 10 per cent of participating interest is owned by Focus. The participating interest explained above is subject to any option exercised by ONGC in respect of individual fields (already exercised for all the wells in 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 adopted by the European Union ('EU'). The consolidated financial statements have been prepared on a going concern basis (refer to note 28), and are presented in United States Dollar (US$). The functional currency of the Company as well as its subsidiaries is US$.
3. JOINTLY CONTROLLED ASSETS
As explained above, the Group through its subsidiaries -Iservices and Newbury has an "Interest sharing arrangement" with Focus in the block, which under IFRS 11 Joint Arrangements, is classified as a 'Joint operation'. 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, the GOI, through ONGC has an option to acquire a 30 per cent participating interest in any discovered field, upon such successful discovery of oil or gas reserves, which has been declared as commercially feasible to develop.
The block is divided into 3 fields - SGL, SSF and SSG.
The SGL field has received its declaration of commercial discovery on 21 January 2008. Subsequent to the declaration of commercial discovery in SGL field, ONGC had exercised the option to acquire a 30 per cent participating interest in the discovered fields on 6 June 2008. The exercise of this option would reduce the interest of the existing partners proportionately.
However, on exercise of this option, ONGC is liable to pay its share of 30 per cent of the SGL field development costs and production costs incurred after 21 January 2008 and are entitled to a 30 per cent share in the production of gas subject to recovery of contract costs as explained below.
The allocation of the production from the field to each participant in any year is determined on the basis of the respective proportion of each participant's cumulative unrecovered contract costs as at the end of the previous year or where there is no unrecovered contract cost at the end of previous year on the basis of participating interest of each such participant in the field. For recovery of past contract cost, production from the field is first allocated towards exploration and evaluation cost and thereafter towards development cost.
On the basis of the above, gas production for the year ended 31 March 2020 is shared between Focus, iServices and Newbury in the ratio of 10 percent, 65 percent and 25 percent, respectively. ONGC will not be entitled to any participating interest in the production until the full exploration and development cost is recovered by other participants.
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:
31 March 2020
31 March 2019
Non-current assets
Current assets
980,692,787
851,277,557
66,426,624
67,193,720
Non-current liabilities
1,699,209
1,606,825
Expenses (net of finance income)
2,815,402
4,697,750
Commitments
NIL
NIL
Further, the SSF and SSG field has also received its declaration of commerciality on 24th November 2014. Subsequent to the declaration of commerciality for SSF and SSG discovery, ONGC did not exercise the option to acquire 30 percent in respect of SSG and SSF field. The participating interest in SSG and SSF field between Focus, I services and Newbury will remain in ratio of 10 percent, 65 percent and 25 percent respectively for exploration, evaluation and development cost, and production revenue for SSF and SSG in the block.
4. NEW AND AMENDED STANDARDS ADOPTED BY THE GROUP
A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies as a result of adopting the following standards. As a result, Company has changed its accounting policies, which has been detailed below:
IFRS 16: Leases
The International Accounting Standard Board (IASB) issued IFRS 16 Leases replacing the previous lease standard, IAS 17 Leases. The standard establishes the principles for the recognition, measurement, presentation and disclosure of leases for both the lessee and lessor. The standard defines lease as contract that conveys the right to use an asset for a period of time in exchange for consideration. The standard requires all lease transactions to be recognised on the balance sheet as Right of use assets and lease liabilities, and to depreciate lease assets separately from interest on lease liabilities in the income statement. This standard became effective on 1 January 2019. There are optional exemptions for short-term leases and leases of low value items.
Having assessed the requirements of IFRS 16, management has concluded that the Group's leases do not falls under the definition of 'leases" as per the standard as the Group does not have the right to direct the use of leased asset. The operator of the block i.e Focus Energy Limited has entered the lease agreements and it has not been subleased to joint arrangement. Therefore, the recognition principle is not applicable for the Group and no right of use asset or lease liability has been recognised.
5. STANDARDS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE AND YET TO BE APPLIED BY THE GROUP
A number of new and amended accounting standards and interpretations have been published that are not mandatory for the Group's accounts ended 31 March 2020, nor have they been early adopted. These standards and interpretations are not expected to have a material impact on the Group's consolidated financial statements:
· Amendments to References to Conceptual Framework in IFRS Standards (effective from 1 January 2020);
· Amendments to IFRS 3 'Definition of a Business' (effective from 1 January 2020);
· IFRS 17 'Insurance Contracts' (effective from 1 January 2023).
· Amendments to IAS 16 -PPE - Proceeds before intended use (effective from 1 January 2023).
· Amendments to IAS 1 & IAS 8- 'Definition of material' (effective from 1 January 2020).
· IBOR Reform Phase 1 amendments (IFRS9, IAS 39 & IAS 7)- January 2020.
· Annual Improvements to IFRS's 2018-2020 cycle - 1 January 2022.
· Amendments to IAS 1 'classification of Liabilities as current or non-current' (effective from 1 January 2023).
· Amendment for covid -19 related rent concessions- (effective from 1 June 2020)
6. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements have been prepared on a historical basis, except where specified below. A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements are detailed below.
6.1. BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of the parent company and all of its subsidiary undertakings drawn up to 31 March 2020. The Group consolidates entities which it controls. Control exists when the parent has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns by using its power over the entity. Power is demonstrated through existing rights that give the ability to direct relevant activities, those which significantly affect the entity's returns.
The Group recognises in relation to its interest in a joint operation:
a. its assets, including its share of any assets held jointly;
b. its liabilities, including its share of any liabilities incurred jointly;
c. its revenue from the sale of its share of the output arising from the joint operation;
d. its share of the revenue from the sale of the output by the joint operation; and
e. its expenses, including its share of any expenses incurred jointly.
Intra-Group balances and transactions, and any unrealised gains and losses arising from intra-Group transactions are eliminated in preparing the consolidated financial statements. 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 losses of subsidiaries acquired or disposed of during the year are recognised from the date of control of acquisition, or up to the effective date of disposal, as applicable.
6.2. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
In preparing consolidated financial statements, the Group's management is required to make judgments, 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 and recognition of provision for decommissioning represent certain particularly sensitive estimates. The estimates and underlying assumptions are reviewed on an on-going 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. Information about significant judgments, estimates and assumptions that have the most significant effect on recognition and measurement of assets, liabilities, revenues and expenses is provided in note 27.
6.3. FOREIGN CURRENCIES
The consolidated financial statements have been presented in US$ which is the functional currency of the Company and the group entities.
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). Functional currency is the currency of the primary economic environment in which the entity operates.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items and other foreign currency transactions are recognised in consolidated statement of comprehensive income.
Non-monetary items measured at historical cost are recorded in the functional currency of the entity using the exchange rates at the date of the transaction.
6.4. REVENUE RECOGNITION
In accordance with IFRS 15, Revenue from contracts with customers is recognised when or as the Company satisfies a performance obligation by transferring control of a promised good or service to a customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for the sale of products and service, net of taxes on sales, estimated rebates and other similar allowances.
Sale of gas
The contracts with customers generally establishes, a single performance obligation in relation to supply of natural gas. The transfer of control of natural gas usually coincides with title passing to the customer and the customer taking physical possession. The whole of the transaction price of the contract is allocated to supply of natural gas and the revenue has been recognised on point in time basis when the quantities of natural gas are supplied to the customers.
Take or pay: Any payment received on account of lesser gas volume lifted by the customer against the 'annual contracted volume' for which an obligation exists to make-up such differential gas in subsequent periods is recognised as Contract Liabilities in the year of receipt. Revenue in respect of take or pay obligation is recognised when such gas is actually supplied or when the customer's right to make up is expired, whichever is earlier. For other contracts, where the Company does not have any obligation to make up such gas in subsequent period is directly recognised as revenue.
Revenue from technical services
The Company provides technical and commercial feasibility reports to its customers to enable them in their evaluation of investments in oil and gas fields. Each report is considered as a separate performance obligation and the transfer of control of reports usually coincides with acceptance of reports by the customer. The price charged for each such report is reflective of its standalone selling price and the revenue has been recognised on point in time basis on acceptance of the report by its customers.
6.5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprises development assets and other properties, plant and equipment used in the gas fields and for administrative purposes. These assets are stated at cost plus decommissioning cost less accumulated depreciation and any accumulated impairment losses.
Development assets are accumulated on a field by field basis and comprise 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 6.6. As consistent with the full cost method, all exploration and evaluation expenditure incurred up to the date of the 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 the consolidated statement of comprehensive income 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.
Production assets are 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.
Advances paid for the acquisition/ construction of property, plant and equipment which are outstanding as at the end of the reporting period and the cost of property, plant and equipment under construction before such date are disclosed as 'Capital work-in-progress'.
6.6. 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 capitalized 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 license 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 license are written off as a loss in the year 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. Where technical feasibility and commercial viability is demonstrated, the carrying value of the relevant exploration and evaluation asset is reclassified as a development and production asset and tested for impairment on the date of reclassification. Impairment loss, if any, is recognised.
6.7. IMPAIRMENT TESTING FOR EXPLORATION AND EVALUATION ASSETS AND PROPERTY, PLANT AND EQUIPMENT
An impairment loss is recognised for the amount by which an asset's 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 an item of 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 recoverable amount and any resulting impairment loss is written off in the 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 re-valued amount, in which case the reversal is treated as a revaluation increase.
6.8. FINANCIAL ASSETS
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Financial assets and financial liabilities are measured initially at fair value plus transactions costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value. The value of interest free financial assets and financial liabilities with short term maturities are not discounted at initial recognition if the impact is not material. Financial assets and financial liabilities are measured subsequently as described below.
On initial recognition, a financial asset is classified as measured at
- Amortised cost;
- Fair value through other comprehensive income (FVOCI) - debt investment;
- Fair value through other comprehensive income (FVOCI) - equity investment; or
- Fair value through profit and loss (FVTPL)
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Group changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
· The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
· The category determines subsequent measurement and whether any resulting income and expense is recognised in consolidated statement of comprehensive income.
After initial recognition, financials assets at amortised cost are measured at amortised cost using the effective interest method.
Impairment of financial assets
IFRS 9's impairment requirements use more forward-looking information to recognise expected credit losses - the 'expected credit loss (ECL) model'. The Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument.
In applying this forward-looking approach, a distinction is made between:
· financial instruments that have not deteriorated significantly in credit quality since initial recognition or that have low credit risk and
· financial instruments that have deteriorated significantly in credit quality since initial recognition and whose credit risk is not low.
· financial assets that have objective evidence of impairment at the reporting date.
'12-month expected credit losses' are recognised for the first category while 'lifetime expected credit losses' are recognised for the second category.
The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables only, the Group applies the simplified approach required by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
6.9. FINANCIAL LIABILITIES
The Group's financial liabilities include borrowings, trade payables and other payables which are classified as financial liabilities recognised at amortised cost. Financial liabilities are measured subsequently at amortized cost using the effective interest method except for financial liabilities at fair value through profit or loss ("FVTPL"), that are carried subsequently at fair value with gains or losses recognised in profit or loss in consolidated statement of comprehensive income.
6.10. 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 the first in first out method. The cost for drilling bits is computed based on specific identification method.
6.11. ACCOUNTING FOR INCOME TAXES
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 consolidated statement of comprehensive income .
Deferred income taxes are calculated using the balance sheet method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the financial statement with their tax base. The cost incurred on the each field is claimed as deduction from the year of commercial production. 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 and laws 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 profit or loss of the year, except where they relate to items that are charged or credited directly to other comprehensive income or equity in which case the related deferred tax is also charged or credited directly to other comprehensive income or equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.
6.12. 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. While the Company has not made any specific borrowings for construction of a qualifying asset, they have capitalised certain borrowing costs on account of general borrowings at an average rate of borrowings for the Company in terms of IAS 23 'Borrowing Costs'.
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 an unutilised debt facility are treated as prepayments to be adjusted against the carrying value of debt as and when drawn.
6.13. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, at bank in demand deposits and deposit with maturities of 3 months or less from inception, which are readily convertible to known amounts of cash. These assets are subject to an insignificant risk of change in value.
6.14. LEASING ACTIVITIES
IFRS 16 supersedes IAS 17 Leases. All contracts that meet the definition of a lease will be recorded in the consolidated statements of financial position with a "Right of use" asset and a corresponding lease liability. The Group has elected not to recognize right-of-use assets and lease liabilities for leases that have a lease term of 12 months or less and for leases of low-value assets.
In accordance with management's evaluation, the Group's leases do not fall under the definition of leases as per the standard since the Group does not have the right to direct the use of leased asset. The operator of the block i.e Focus Energy Limited has entered the lease agreements and it has not been subleased to joint arrangement. Therefore, the Group recognises its share in the lease cost from the operations in accordance with the IFRS 6 "Exploration for and evaluation of mineral resources".
Where the Group makes the lease payments in respect of its share of lease cost for exploration and evaluation activities or development and production activities, these are capitalised as part of the cost of these assets (Exploration and evaluation, development and production assets).
6.15. 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 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 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 provisions representing management's best estimate of the Group's liability for restoring the sites of drilled wells to their original status. Provision for decommissioning is recognised at the present value of the estimated future expenditure when the Group has an obligation and a reliable estimate can be made, with a corresponding addition to property, plant and equipment which is subsequently depreciated as part of the asset.
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 but disclosed in the financial statements when an inflow of economic benefits is probable but when it is virtually certain than the asset is recognised in the financial statements.
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.
6.16. 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 is as below:
Exploration and Evaluation assets
Balance as at 1 April 2018
-
Additions A
9,569,925
Transfer to development assets B
(9,569,925)
Balance as at 31 March 2019
-
Additions A
19,826,564
Transfer to development assets B
(19,826,564)
Balance as at 31 March 2020
-
A The above includes borrowing costs of US$ 645,961 (previous year: US$ 314,083). The weighted average capitalisation rate on funds borrowed generally is 6.74 per cent per annum (previous year: 6.70 per cent per annum).
B On 19 November 2013, Focus Energy Limited submitted an integrated declaration of commerciality (DOC) to the Directorate General of Hydrocarbons, ONGC, the Government of India and the Ministry of Petroleum and Natural Gas. Upon submission of DOC, exploration and evaluation cost incurred on SSF and SSG field was transferred to development cost. Focus continues to carry out further appraisal activities in the Block, and exploration and evaluation cost incurred subsequent to 19 November 2013, to the extent considered recoverable as per DOC submitted by Focus, is immediately transferred on incurrence to development assets.
Further, field development plan has been approved by Directorate General of Hydrocarbons ('DGH') as on 23 June 2017. Accordingly, the cost incurred on the aforesaid fields from 23 June 2017 is capitalized directly to development cost.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise of the following:
Cost
Land
Extended well test equipment
Development assets
Production assets
Bunk Houses
Vehicles
Other assets
Capital work-in-progress
Total
Balance as at 31 March 2018
167,248
4,324,033
587,114,867
190,449,112
5,926,920
4,767,563
1,620,590
1,371,441
795,741,774
Additions
-
263,697
90,923,274
21,562,829
-
5,764
69,510
265,491
113,090,565
Disposals
-
-
-
-
-
-
-
-
-
Balance as at 31 March 2019
167,248
4,587,730
678,038,141
212,011,941
5,926,920
4,773,327
1,690,100
1,636,932
908,832,339
Additions
-
287,354
100,548,333
29,008,120
1,013,584
143,708
5,165
1,020,875
132,027,139
Transfers
-
-
-
-
929,071
-
-
(929,071)
-
Disposals
-
-
-
-
-
-
-
-
-
Balance as at 31 March 2020
167,248
4,875,084
778,586,474
241,020,061
7,869,575
4,917,035
1,695,265
1,728,736
1,040,859,478
Accumulated Depreciation
Balance as at 1 April 2018
-
2,105,807
-
39,645,716
5,652,284
4,059,330
1,573,350
-
53,036,487
Depreciation for the year
-
176,618
-
3,995,473
129,833
183,883
32,488
-
4,518,295
Balance as at 31 March 2019
-
2,282,425
-
43,641,189
5,782,117
4,243,213
1,605,838
-
57,554,782
Depreciation for the year
-
189,687
-
2,072,366
111,078
194,869
43,909
-
2,611,909
Balance as at 31 March 2020
-
2,472,112
-
45,713,555
5,893,195
4,438,082
1,649,747
-
60,166,691
Carrying values
At 31 March 2018
167,248
2,218,226
587,114,867
150,803,396
274,636
708,233
47,240
1,371,441
742,705,287
At 31 March 2019
167,248
2,305,305
678,038,141
168,370,752
144,803
530,114
84,262
1,636,932
851,277,557
At 31 March 2020
167,248
2,402,972
778,586,474
195,306,506
1,976,380
478,953
45,518
1,728,736
980,692,787
The balances above represent the Group's share in property, plant and equipment as per note 3.
Tangible assets comprise development /production assets in respect of SGL field and development assets in respect of SSF and SSG field.
Development assets of SGL field includes the amount of exploration and evaluation expenditure transferred to development cost on the date of the first commercial discovery declared by the Group in 2012 and also includes expenditure incurred for the drilling of further wells in the SGL field to enhance the production activity. Production assets in respect of SGL field includes completed production facilities and under construction gas gathering station - 2. The Group commenced the production facility in October 2012, and accordingly such production assets have been depreciated since this date.
Development assets of SSF and SSG are explained in note 7. The assessment of these reserves by the Directorate General of Hydrocarbons, ONGC, the Government of India and the Ministry of Petroleum and Natural Gas has been received by the Company post 31 March 2017 hence pending the development for production activities, no depreciation has been charged on the same.
The additions in development assets also include borrowing costs US$ 45,891,007 (previous year: US$ 41,500,334) (including the amount stated in note 7 above). The weighted average capitalisation rate on funds borrowed generally is 6.74 per cent per annum (previous year 6.70 per cent).
The depreciation has been included in the following headings-
31 March 2020
31 March 2019
Depreciation included in development assets
539,543
522,822
Depreciation included in statement of comprehensive income under the head cost of sales
2,072,366
3,995,473
Total
2,611,909
4,518,295
9. DEFERRED TAX ASSETS/ LIABILITIES (NET)
Deferred taxes arising from temporary differences are summarized as follows:
31 March 2020
31 March 2019
Deferred tax assets
Unabsorbed losses/credits
Total
Deferred tax liability
275,249,311
275,249,311
276,662,094
276,662,094
Development assets/ property, plant and equipment
368,754,146
366,104,769
Total
368,754,146
366,104,769
Net deferred tax liabilities
93,504,835
89,442,675
a) The Group has recognised deferred tax assets on all of its unused tax losses/unabsorbed depreciation considering there is convincing evidence of availability of sufficient taxable profit in the Group in the future as summarized in note 10.
b) The deferred tax movements during the current year have been recognised in the consolidated statement of comprehensive income
10. INCOME TAXES
Income tax is based on the tax rates applicable on profit or loss in various jurisdictions in which the Group operates. The effective tax at the domestic rates applicable to profits in the country concerned as shown in the reconciliation below have been computed by multiplying the accounting profit by the effective tax rate in each jurisdiction in which the Group operates. The individual entity amounts have then been aggregated for the consolidated financial statements. The effective tax rate applied in each individual entity has not been disclosed in the tax reconciliation below as the amounts aggregated for individual Group entities would not be a meaningful number.
Income tax credit is arising on account of the following:
31 March 2020
31 March 2019
Deferred tax charge
(4,062,159)
(16,411,144)
Total
(4,062,159)
(16,411,144)
The relationship between the expected tax expense based on the domestic tax rates for each of the legal entities within the Group and the reported tax expense in consolidated statement of comprehensive income is reconciled as follows:
31 March 2020
31 March 2019
Accounting profit for the year before tax
53,121,730
54,897,815
Effective tax at the domestic rates applicable to profits in the country concerned
23,203,572
23,489,235
Tax impact of bought forward losses lapsed during the year
-
7,668,185
Non-taxable income
(19,141,413)
(14,746,276)
Tax expense
4,062,159
16,411,144
The reconciliation shown above has been based on the rate 43.68 per cent (previous year: 43.26 per cent) as applicable under Indian tax laws.
The Company's profits are taxable as per the tax laws applicable in Guernsey where zero per cent tax rate has been prescribed for corporates. Accordingly, there is no tax liability for the Group in Guernsey. IServices and Newbury 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 incurred in respect of the respective fields in the Oil Block until the start of commercial production (whether included in the exploration and evaluation assets or development assets) as deductible expense in the first year of commercial production or over a period of 10 years. The Group has opted to claim the expenditure in the first year of commercial production. As the Group has commenced commercial production for SGL field in 2011 and has generated profits in Newbury and iServices, the management believes there is reasonable certainty of utilization of such losses in the future years and thus a deferred tax asset has been created in respect of these.
11. INVENTORIES
Inventories comprise the following:
31 March 2020
31 March 2019
Drilling and production stores and spares
6,232,486
8,291,996
Fuel
68,620
26,350
Goods in transit
1,334,314
10,09,638
Total
7,635,420
9,327,984
The above inventories are held for use in the exploration, development and production activities. These are valued at cost determined based on policy explained in paragraph 6.10.
Inventories of US$ 115,326 (previous year: US$ 529,007) were recorded as an expense under the heading 'cost of sales' in the consolidated statement of comprehensive income during the year ended 31 March 2020.
Inventories of US$ 11,960,540 (previous year: US$ 9,142,006) were capitalized as part of exploration and evaluation assets and development assets.
12. TRADE AND OTHER RECEIVABLE
31 March 2020
31 March 2019
Trade receivable
26,318,068
27,617,626
Prepayments
41,135
10,957
Total
26,359,203
27,628,583
The carrying amount of trade receivables approximates their fair values. Refer "Credit risk" in note 30 for further information.
13. CASH AND CASH EQUIVALENTS
31 March 2020
31 March 2019
Cash at banks in current accounts
284,619
129,152
Total
284,619
129,152
The Group only deposits cash surpluses with major banks of high quality credit standing.
14. 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.
Issued share capital
The total issued share capital of the Company is USD 3,619,443 (previous year: 3,619,443) divided into 182,973,924 shares (previous year: 182,973,924).
--For all matters submitted to vote in the shareholders meeting of the Company, every holder of ordinary shares, as reflected in the records of the Company 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 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
Currency translation reserve represents the balance of translation of the entities financial statements into US$ until 30 November 2010 when its functional currency was assessed as GBP. Subsequent to 1 December 2010, the functional currency of Indus Gas was reassessed as US$.
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 of subsidiaries from other entities under common control.
Retained earning
Retained earnings include current and prior period retained profits.
15. LONG TERM DEBT
From Banks
Maturity
31 March 2020
31 March 2019
Non-current portion of long term debt
2022/2024
74,400,500
100,003,278
Current portion of long term debt from banks
25,750,809
39,171,055
Total
100,151,309
139,174,333
Current interest rates are variable and weighted average interest for the year was 6.78 per cent per annum (previous year: 6.89 per cent per annum). The fair value of the above variable rate borrowings is considered to approximate their carrying amounts. The maturity profile (undiscounted) is explained in note 30.
Due to outbreak of Covid-19 pandemic, RBI has issued guidelines relating to Covid-19 Regulatory Package dated March 27, 2020 wherein Banks have proposed to offer three months holiday on the payment of instalments to eligible borrowers. The Company has availed the offer and accordingly classified the current maturities of long term loans from Bank.
Interest capitalised on loans above have been disclosed in notes 7 and 8.
The term loans are secured by following: -
· First charge on all project assets of the Group both present and future, to the extent of SGL Field Development and to the extent of capex incurred out of this facility in the rest of RJ-ON/6 field.
· First charge on the current assets (inclusive of condensate receivable) of the Group to the extent of SGL field.
· First Charge on the entire current assets of the SGL Field and to the extent of capex incurred out of this facility in the rest of RJON/6 field.
From Bonds
Maturity
31 March 2020
31 March 2019
Non-current portion of long term debt
2022
149,893,616
149,718,766
Current portion of long term debt
3,572,669
3,698,345
Total
153,466,285
153,417,111
The Group has issued US Dollar 150 million notes which carries interest at the rate of 8 per cent per annum. These notes are unsecured notes and are fully repayable at the end of 5 years i.e. December 2022, further interest on these notes is paid semi-annually.
16. PROVISION FOR DECOMMISSIONING
Amount
Balance at 1 April 2018
1,581,096
Increase in provision
25,729
Balance as at 31 March 2019
1,606,825
Increase in provision
92,384
Balance as at 31 March 2020
1,699,209
As per the PSC, the Group is required to carry out certain decommissioning activities on gas wells. The provision for decommissioning relates to the estimation of future disbursements related to the abandonment and decommissioning of gas wells. The provision has been estimated by the Group's engineers, based on individual well filling and coverage. This provision will be utilised when the related wells are fully depleted. The majority of the cost is expected to be incurred within a period of next 4 years.
17. PAYABLE/ RECEIVABLE TO RELATED PARTIES
Related parties payable comprise the following:
Maturity
31 March 2020
31 March 2019
Current
Payable to directors
On demand
351,405
352,909
351,405
352,909
Other than current
Borrowings from Gynia Holdings Ltd.*
444,282,706
331,088,491
444,282,706
331,088,491
Total
444,634,111
331,441,400
* Borrowings from Gynia Holdings Ltd. carries interest rate of 6.5 per cent per annum compounded annually. The entire outstanding balance (including interest) is subordinate to the loans taken from the banks (detailed in note 15) and therefore, is payable along with related interest subsequent to repayment of bank loan in year 2024.
Interest capitalised on loans above have been disclosed in notes 7 and 8.
Related parties' receivable comprise the following:
Maturity
31 March 2020
31 March 2019
Current
Amount receivable from Focus
On demand
59,558,299
57,098,640
Total
59,558,299
57,098,640
Amount receivable from Focus
Amount receivable from Focus represents excess amounts paid to them in respect of the Group's share of contract costs, for 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.
18. TRADE AND OTHER PAYABLES
31 March 2020
31 March 2019
Trade payables
2,948,400
1,948,400
VAT payables
50,653
29,443
Other liabilities
39,663
91,006
3,038,716
2,068,849
The carrying amount of trade and other payable approximates their fair values and are non-interest bearing.
19. REVENUE
The Group's revenue disaggregated by primary geographical markets is as follows:
31 March 2020
31 March 2019
Asia
37,371,296
41,605,486
Europe
20,600,000
19,000,000
57,971,296
60,605,486
The Group's revenue disaggregated by the portion of revenue recognition is as follows:
31 March 2020
31 March 2019
Goods transferred at a point in time
37,371,296
41,605,486
Services transferred at a point in time
20,600,000
19,000,000
57,971,296
60,605,486
Sale of Goods (Gas)
The revenue majorly pertains to the sale of natural gas and condensate production (by-product). The Group sells its natural gas to GAIL at a price fixed under the agreement. The condensate is sold in the open market through bidding.
Further, the Company has entered into a gas sale agreement wherein the customer is be liable to pay 75 % (Previous year: 50%) of the annual contracted quantity if the customer does not purchase gas during the financial year.
Sale of services
The sale of services represents revenue earned from technical and other support services being rendered to oil and gas exploration companies.
Contractual assets and Contractual Liabilities
31 March 2020
31 March 2019
Current
Non-current
Current
Non-current
Opening balance of Contract liabilities - Deferred revenue
5,077,086
25,563,995
5,077,086
25,563,995
Less: Amount of revenue recognised against opening contract liabilities
(5,077,086)
-
(5,077,086)
-
Add: Transfer from non-current to current liabilities
5,077,086
(5,077,086)
5,077,086
(5,077,086)
Add: Addition in balance of contract liabilities for current year
-
5,077,086
-
5,077,086
Closing balance of Contract liabilities - Deferred revenue
5,077,086
25,563,995
5,077,086
25,563,995
20. EMPLOYEE COST
Per the PSC, Focus is the Operator of the Block. For SGL field, ONGC has a participative interest of 30% in the development cost. Hence, the share of Iservices and Newbury are proportionately reduced (i.e. 45.5% and 17.5% respectively). For the Non-SGL field, the share of Iservices, Newbury and Focus are in the ratio of 65%, 25% and 10% respectively. The Employee cost attributable to Indus Gas Limited has been allocated in the agreed ratio (refer note 3) by Focus and recorded as cost of sales and administrative expenses in the consolidated statement of comprehensive income amounting to US$ 249,963 (previous year US$ 331,882) and US$ 91,214 (previous year US$ 254,718) respectively. Cost pertaining to the employees of the Group have been included under administrative expense is US$ 226,407 (previous year US$ 172,828).
21. FOREIGN CURRENCY EXCHANGE (LOSS)/ GAIN, NET
The Group has recognised the following in the consolidated statement of comprehensive income on account of foreign currency fluctuations:
31 March 2020
31 March 2019
Loss on restatement of foreign currency monetary receivables and payables
(411,462)
(19,456)
Gain arising on settlement of foreign currency transactions and restatement of foreign currency balances arising out of Oil block operations
150,708
632,050
Total
(260,754)
612,594
22. LEASES
The leasing activities involve lease of drilling rig and other equipments for exploration and development purpose by the operator. In reference to note 4 and 6.14, the Group's leases do not fall under the definition of lease as per IFRS 16 and accordingly they capitalise the share of lease rentals under exploration and evaluation assets and development assets. Group's share in lease payments capitalised under exploration and evaluation assets and development assets during the year ended 31 March 2020 amount to US$ 56,370,023 (previous year US$ 43,682,502).
No sublease payments or contingent rent payments were made or received. All the leases of the Group can be cancelled and there are no future minimum payments for the existing operating leases. The terms and conditions of these leases do not impose any significant financial restrictions on the Group.
23. EARNINGS PER SHARE
The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.
Calculation of basic and diluted earnings per share is as follows:
31 March 2020
31 March 2019
Profits attributable to shareholders of Indus Gas Limited, for basic and dilutive
49,059,571
37,486,671
Weighted average number of shares (used for basic earnings per share)
182,973,924
182,973,924
Diluted weighted average number of shares (used for diluted earnings per share)
Diluted earnings per share)
182,973,924
182,973,924
Basic earnings per share
0.27
0.20
Diluted earnings per share
0.27
0.20
24. 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. Enterprises over which Key Management Personnel (KMP) exercise control (with whom there are transactions)
Focus Energy Limited
Disclosure of transactions between the Group and related parties and the outstanding balances as at 31 March 2020 and 31 March 2019 is as under:
Transactions with holding Company
Particulars
31 March 2020
31 March 2019
Transactions during the year with the holding Company
Amount received
87,900,000
108,299,250
Interest
25,294,215
18,147,917
Balances at the end of the year
Total payable*
444,282,706
331,088,491
*including interest
Transactions with KMP and entity over which KMP exercise control
Particulars
31 March 2020
31 March 2019
Transactions during the year
Remuneration to KMP
Short term employee benefits
226,407
179,741
Total
226,407
179,741
Entity over which KMP exercise control
Cost incurred by Focus on behalf of the Group in respect of the Block
83,481,341
72,742,272
Remittances to Focus
85,941,000
115,926,000
Balances at the end of the year
Total receivables*
59,558,229
57,098,640
Total payable*
(351,405)
(352,909)
*including interest
Directors' remuneration
Directors' remuneration is included under administrative expenses, evaluation and exploration assets or development assets in the consolidated financial statements allocated on a systematic and rational manner. Remuneration by director is separately disclosed in the directors' report on page 7.
25. SEGMENT REPORTING
The Chief Operating Decision Maker being the Chief Executive Officer of the Group, reviews the business as one operating segment being the extraction and production of gas. Hence, no separate segment information has been furnished herewith.
All of the non-current assets other than financial instruments and deferred tax assets (there are no employment benefit assets and rights arising under insurance contracts) are located in India and amounted to US$ 980,692,787 (previous year: US$ 851,277,557).
Revenue from customers have been identified on the basis of the customer's geographical location and are disclosed in note 19. The total revenue from the Group is from the sale of natural gas, its by-products (i.e. condensate) and from the technical assistance services to Oil and gas exploration companies. The revenue from the top three customer comprise 97.31% (Previous year: 97.67%) of the Group's total revenue.
26. COMMITMENTS AND CONTINGENCIES
The Group has no contingent liabilities as at 31 March 2020 (previous year Nil).
The Group has no commitments as at 31 March 2020 (previous year Nil).
27. ACCOUNTING ESTIMATES AND JUDGEMENTS
In preparing consolidated financial statements, the 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 statements 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 in 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. In the management's view each of the individual entity's functional currency reflects the transactions, events and conditions under which the entity conducts its business. The management believes that US$ has been taken as the functional currency for each of the entities within the Group. US$ is the currency in which each of these entities primarily generate and expend cash and also generate funds for financing activities.
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 6.6 and 7, exploration and evaluation assets recorded using 'full cost' approach are tested for impairment prior to reclassification into development assets on successful discovery of gas reserves.
Impairment of tangible assets
The Group follows the guidance of IAS 36 and IFRS 6 to determine when a tangible asset is impaired. This determination requires significant judgment to evaluate indicators triggering impairment. The Group monitors internal and external indicators of impairment relating to its tangible assets. The management has assessed that no such indicators have occurred or exists as at 31 March 2020 to require impairment testing of property, plant and equipment.
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. Specifically, production assets are depreciated on a basis of unit of production (UOP) method which involves significant estimates in respect of the total future production and estimate of reserves. The calculation of UOP rate of depreciation could be impacted to the extent that the actual production in future is different from the forecasted production. During the financial year, the directors determined that no change to the useful lives of any of the property, plant and equipment is required. The carrying amounts of property, plant and equipment have been summarised in note 8.
Recognition of provision for decommissioning cost
As per the PSC, the Group is required to carry out certain decommissioning activities on gas 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. The liabilities estimated in respect of decommissioning provisions have been summarised in note 16.
Impairment testing
As explained above, management carried out impairment testing of property, plant and equipment of the Block on 19 November 2013 on submission of integrated declaration of commerciality report by Focus Energy Limited to the Directorate General of Hydrocarbons, ONGC, the Government of India and the Ministry of Petroleum and Natural Gas. An impairment loss is recognised for the amount by which the asset's or cash generating unit's carrying amount exceeds its recoverable amount.
To determine the recoverable amount, management estimates expected future cash flows from the Block and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows management makes assumptions about future gross profits. These assumptions relate to future events and circumstances. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors.
The recoverable amount was determined based on value-in-use calculations, basis gas reserves confirmed by an independent competent person. Selling price of the gas is based on selling price to GAIL which has been agreed for a period of three years which has expired on September 2016 (the Company is presently in negotiations with GAIL for increase in gas price.). The discount rate calculation is based on the Company's weighted average cost of capital adjusted to reflect pre-tax discount rate and amounts to 8% p.a. Management believes that no reasonably possible changes in the assumptions may lead to impairment of property, plants and equipment and intangible assets of the Block.
The Group is in the process of negotiating selling prices with GAIL and expects that revised selling price will not be less than the existing selling price. However, the agreement clearly specifies that until both the parties mutually agree to change the selling price, the prices will remain the same.
Deferred tax assets
The assessment of the probability of future taxable income in which deferred tax assets can be utilized is based on the management's assessment, which is adjusted for specific limits to the use of any unused tax loss or credit. The tax rules in the jurisdictions in which the Group operates are also carefully taken into consideration. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, then deferred tax asset is usually recognised in full. The recoverability of deferred tax assets is monitored as an ongoing basis based on the expected taxable income from the sale of gas.
28. BASIS OF GOING CONCERN ASSUMPTION
The Group has current liabilities amounting to US$ 37,790,686 the majority of which is towards current portion of borrowings from banks and related parties, primarily to Focus. As at 31 March 2020, the amounts due for repayment (including interest payable) within the next 12 months for long term borrowings are US$ 29,323,478 which the Group expects to meet from its internal generation of cash from operations.
The Group is contemplating to raise funds which will be used for planned capital expenditures (including the exploration, appraisal and development of assets).
Further, there is no significant impact of Covid-19 on the company's ability to continue as going concern considering that the entity is in the business of essential services. Also, refer note 31 for management's evaluation on covid-19 impact.
29. 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. Debt is calculated as total liabilities (including 'current and non-current liabilities' as shown in the consolidated Statement of Financial Position). Total equity is calculated as 'equity' as shown in the consolidated statement of financial position plus total debt.
31 March 2020
31 March 2019
Total debt (A)
827,135,546
747,792,274
Total equity (B)
249,424,869
200,365,302
Total capital employed (A+B)
1,076,560,415
948,157,576
Gearing ratio
76.83 %
78.87 %
The gearing ratio has marginally decreased since in the current year due to proportionately greater increase in equity as compared to increase in the draw-down of loans from banks and related party to fund additional exploration, evaluation and development activities for the Group.
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.
30. 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 recognised at the end of the reporting period are as follows:
31 March 2020
31 March 2019
Non-current assets
Loans
- Security deposits
550
605
Current assets
- Trade receivables
26,318,068
27,617,626
- Cash and cash equivalents
284,619
129,152
Total financial assets under loans and receivables
26,603,237
27,747,383
Non-current liabilities
Financial liabilities measured at amortised cost:
- Long term debt
224,294,116
249,722,044
- Payable to related parties
444,282,706
331,088,491
Current liabilities
Financial liabilities measured at amortised cost:
- Current portion of long term debt
29,323,478
42,869,400
- Current portion of payable to related parties
351,405
352,909
- Trade and other payables (other than VAT payable)
2,988,063
2,039,406
Total financial liabilities measured at amortised cost
701,290,421
626,101,693
The fair value of the financial assets and liabilities described above closely approximates their carrying value on the statement of financial position date.
Risk management objectives and policies
The Group finances its operations through a mixture of 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 funding 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 functional currency of each entity within the Group is US$ and the majority of its business is conducted in US$. All revenues from gas sales are received in US$ and substantial costs are incurred in US$. No forward exchange contracts were entered into during the year.
Entities within the Group conduct the majority of their transactions in their functional currency other than amounts of cash held in GBP, SGD and INR. All other monetary assets and liabilities are denominated in functional currencies of the respective entities. The currency exposure on account of assets and liabilities which are denominated in a currency other than the functional currency of the entities of the Group as at 31 March 2020 and 31 March 2019 is as follows:
Particulars
Functional currency
Foreign currency
31 March 2020
31 March 2019
(Amount in US$)
(Amount in US$)
Short term exposure-
Cash and cash equivalents
US$
US$
US$
Great Britain Pound
Singapore Dollar
Indian Rupee
58,607
10,191
18,530
17,537
10,758
-
Total exposure
87,328
28,295
As at March 31, 2020, every 1% (increase)/decrease of the respective foreign currencies compared to the functional currency of the Group entities would impact profit before tax by approximately US$ (873) and US$ 873 respectively.
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.
The table below summaries the maturity profile of the Group's financial liabilities based on contractual undiscounted payments for the liquidity analysis.
0-3 months
3 months to 1 year
1-2 years
2-5 years
5+ years
Total
31 March 2020
Non-interest bearing
3,390,121
-
-
-
-
3,390,121
Variable interest rate liabilities*
-
25,463,872
20,530,461
54,156,976
-
100,151,309
Fixed interest rate liabilities
3,572,669
-
-
594,176,322
-
597,748,991
6,962,790
25,463,872
20,530,461
648,333,298
-
701,290,421
* Deferment of loan installment for 3 months due to RBI moratorium.
0-3 months
3 months to 1 year
1-2 years
2-5 years
5+ years
Total
31 March 2019
Non-interest bearing
2,421,758
-
-
-
-
2,421,758
Variable interest rate liabilities
10,008,335
28,765,245
31,236,252
69,164,501
-
139,174,333
Fixed interest rate liabilities
3,747,945
-
-
149,669,166
331,088,491
484,505,602
16,178,038
28,765,245
31,236,252
218,833,667
331,088,491
626,101,693
Interest rate risk
The Group's policy is to minimize interest rate risk exposures on the borrowing from the banks and the sum payable to Focus Energy Limited. Borrowing from the Gynia Holdings Ltd. is at fixed interest rate and therefore, does not expose the Group to risk from changes in interest rate. The interest rate on bond is fixed at 8% per annum. The Group is exposed to changes in market interest rates through bank borrowings at variable interest rates.
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. Based on volatility in interest rates in the previous 12 months, the management estimates a range of 50 basis points to be approximate basis for the reasonably possible change in interest rates. All other variables are held constant.
Interest rate
+ 0.50 per cent
- 0.50 per cent
31 March 2020
618,722
--
(618,722)
31 March 2019
695,853
(695,853)
Since the loans are taken specifically for the purpose of exploration and evaluation, development and production activities and according to the Group's policy the borrowing costs are capitalized to the cost of the asset and hence changes in the interest rates do not have any immediate adverse impact on the profit or loss.
Commodity price risks
The Group's share of production of gas from the Block is sold to GAIL. The prices have been agreed for a period of three years which expired in September 2016. As per the terms of contract, after expiry of three years' period, the price will be reviewed periodically and reassessed mutually between the parties. The Company is presently in negotiations with GAIL for increase in gas price. No commodity price hedging contracts have been entered into.
Credit risk
The Group has concentration of credit risk as some of Group's trade receivables are held with GAIL. However, GAIL has a reputable credit standing and hence the Group does not consider credit risk in respect of these to be significant. The management has evaluated the impact of expected credit loss on the receivable balance, the impact was insignificant and accordingly no adjustment has been recorded in the financial statements. Other receivables such as security deposits and cash and cash equivalents do not comprise of a significant balance and thus do not expose the Group to a significant credit risk. The tables below detail the credit quality of the Group's financial assets and other items, as well as the Group's maximum exposure to credit risk by credit risk rating grades.
Internal credit rating
12M or Lifetime ECL
Gross carrying amount
Loss allowance
Net carrying amount
31 March 2020
Security deposits
Performing
12 Month ECL
550
-
550
Trade receivables
Performing
Lifetime ECL (simplified approach)
26,318,068
-
26,318,068
Cash and cash equivalents
Performing
12 Month ECL
284,619
-
284,619
26,603,237
-
26,603,237
Internal credit rating
12M or Lifetime ECL
Gross carrying amount
Loss allowance
Net carrying amount
31 March 2019
Security deposits
Performing
12 Month ECL
605
-
605
Trade receivables
Performing
Lifetime ECL (simplified approach)
27,617,626
-
27,617,626
Cash and cash equivalents
Performing
12 Month ECL
129,152
-
129,152
27,747,383
-
27,747,383
An assets is performing when the counterparty has a low risk of default.
Post reporting date event
No adjusting or significant non adjusting event have occurred between 31 March 2020 and the date of authorization.
31. Covid-19 Impact
India and global markets have experienced significant disruption resulting from Covid-19 pandemic. Considering that the entity is in the business of essential services and facts and circumstances available, the management has assessed that there is not much of a significant impact likely on operations of the Group, liquidity position, recoverability of its assets etc due to this pandemic. The Group continues to maintain sufficient liquidity to meet all its obligations.
However, the impact assessment of Covid-19 is a continuing process given the uncertainties associated with its nature and duration and the impact of Covid-19 may be different from that estimated as at the date of approval of these financial statements and the Group will continue to monitor any material changes to future economic conditions.
32. RECONCILIATION OF LIABILITIES FROM FINANCING ACTIVITIES
Non-current borrowings
As at April 01, 2019
623,679,935
Cash Movement:
Net proceeds
28,329,361
Other non- cash movements
Impact of effective interest rate adjustment
739,399
Impact of exchange fluctuations
-
Interest accruals
45,151,609
Net debts as at March 31, 2020
697,900,300
Non-current borrowings
Cash Movement:
Net proceeds
52,787,544
Other non- cash movements
Impact of effective interest rate adjustment
738,367
Impact of exchange fluctuations
(42,235)
Interest accruals
40,804,599
Net debts as at March 31, 2019
623,679,935
33. Posting of Annual Report and Accounts
Indus Gas Limited confirms the Company will post its Annual Report and Accounts for the 12 months to 31 March 2020 to shareholders on 30 September 2020. The Annual Report and Accounts is available for review at http://www.indusgas.com/
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