REG - Indus Gas Limited - Preliminary Financial Results <Origin Href="QuoteRef">INDII.L</Origin> - Part 2
29/10/2014 13:59
- Part 2: For the preceding part double click ID:nRSX4397Sa
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
5.6. 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 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.
Production 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.
Advances paid for the acquisition/ construction of property, plant and
equipment which are outstanding at the consolidated 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'.
5.6. 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 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. 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.
5.7. 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 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 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 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.
5.8. 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 subsequently carried at amortised cost using the effective interest
method, less provision for impairment. Gains and losses are recognised in
profit or loss 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 have
been affected.
De-recognition of loans and receivables occur when the rights to receive cash
flows from the instrument expire or are transferred and substantially all of
the risks and rewards of ownership have been transferred.
5.9. 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 less 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 a transaction value that 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.
5.10. 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.
5.11. 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 that
change occurs.
In addition where the effect of a modification leads to an increase in the
fair value of the options granted, such increase will be accounted for as an
expense immediately or over the period of the respective grant.
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.
5.12. 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.
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.
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 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.
5.13. 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 an un-utilised debt facility is treated as
prepayments to be adjusted against the carrying value of debt as and when
drawn.
5.14. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand and at bank in demand deposits,
which are readily convertible to known amounts of cash. These assets are
subject to an insignificant risk of change in value.Cash and cash equivalents
are classified as loans and receivables under the financial instruments
category.
5.15. 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 profit or loss of the year.
All leases other than finance leases are treated as operating leases.
Operating lease payments are recognised as an expense in profit or loss on the
straight line basis over the lease term.
Where the lease payments in respect of operating leases are made for
exploration and evaluation activities or development and production
activities, these are capitalized as part of the cost of these assets.
5.16. 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
recognized 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 decommissioningis recognised when the
Group has an obligation and a reliable estimate can be made. The amount
recognised is the present value of the estimated future expenditure. A
corresponding item of property, plant and equipment of an amount equivalent to
the provision is also recognised and is subsequently depreciated as part of
the asset. The unwinding discount is recognised as a finance cost.
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.
5.17. 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.
5.18. ADOPTION OF NEW STANDARDS BECOMING APPLICABLE DURING THE YEAR
The Group has adopted the following new standards and amendment to standards,
including any consequential amendment to other standards, with a date of
initial application from 1 April 2013.
-- IFRS 13 Fair Value Measurement
The adoption of above new standards does not have any significant impact on
the consolidated financial statements.
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6. INTANGIBLE ASSETS : EXPLORATION AND EVALUATION ASSETS
Intangible assets comprise of exploration and evaluation assets. Movement in
intangible assets is as below:
Balance as at 1 April 2012 40,997,873
Additions 53,569,365
Transfer to development assets A (76,139,848)
Balance as at 31 March 2013 18,427,390
Additions 59,380,804
Transfer to development assets B (77,808,194)
Balance as at 31 March 2014 -
Balance as at 31 March 2014
-
The above includes borrowing costs capitalised of US$ 2,810,610 (previous
year: US$ 3,769,364) during the year. The weighted average capitalisation rate
on funds borrowed generally is 6.02 per cent per annum (previous year 5.8 per
cent).
ABased on a study conducted by an independent expert and their report of 03
December 2012, the Group had assessed gas reserves discovered in the SSF field
in the Block as technically feasible and commercially viable. Accordingly, the
balance of exploration and evaluation costs as at 19 November 2012 was
reclassified into development assets.
B Expenditure incurred subsequent to 19 November 2012 has been transferred to
development assets on submission of an 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.
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7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise of the following:
Balance as at 1 April 2012 36,437 2,951,796 203,083,017 4,252,696 3,694,409 1,300,409 2,137,451 217,456,215
Additions/transfers - 625,721 105,992,814 981,106 1,086,084 123,491 1,022,958 109,832,174
Disposals/transfers - - - - - (1,156,137) (1,156,137)
Balance as at 31 March 2013 36,437 3,577,517 309,075,831 5,233,802 4,780,493 1,423,900 2,004,272 326,132,252
Additions/transfers 130,811 153,920 98,306,895 150,729 24,009 54,668 426,576 99,247,608
Disposals/transfers - - (317,476) - - - (1,024,519) (1,341,995)
Balance as at 167,248March 2014 3,731,437 407,065,250 5,384,531 4,804,502 1,478,568 1,406,329 424,037,865
Accumulated Depreciation
Balance as at 1 April 2012 - 460,382 640,223 2,188,364 1,030,020 730,063 - 5,049,052
Depreciation for the year - 249,274 1,509,277 755,316 748,148 228,102 - 3,490,117
Balance as at 31 March 2013 - 709,656 2,149,500 2,943,680 1,778,168 958,165 - 8,539,169
Depreciation for the year - 334,288 4,773,127 831,921 741,570 235,539 - 6,916,445
Balance as at 31March 2014 - 1,043,944 6,922,627 3,775,601 2,519,738 1,193,704 - 15,455,614
Carrying values
At 31 March 2013 36,437 2,867,861 306,926,331 2,290,122 3,002,325 465,735 2,004,272 317,593,083
At 31 March 2014 167,248 2,687,493 400,142,623 1,608,930 2,284,764 284,864 1,406,329 408,582,251
The balances above represent the Group's share in property, plant and
equipment as per Note 3.
Tangible assets comprising of development/ production assets 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 in respect of the SGL field. Since ONGC has exercised the option
to acquire a 30 per cent participating interest in the discovered field,
accordingly the additions to development and production assets represents 63
per cent of the total cost incurred by the participating parties. Further, the
additions during the year include the expenditure incurred for the drilling of
further wells in the SGL field to enhance the production activity. Also
included under development and production assets are completed additional
production facilities (gas gathering station - 2) in respect of the SGL field.
The Group commenced the production facility from October 2012, and accordingly
such production assets have been depreciated since this date.
As mentioned in note 6, during the year ended 31 March 2014, development
assets also include a transfer from exploration and evaluation assets, in
respect of the SSF and SSG field, consequent to the commercial viability and
technical feasibility of the reserves in the field, based on integrated
declaration of commerciality report submitted by Focus Energy Limited to the
Directorate General of Hydrocarbons, ONGC, the Government of India and the
Ministry of Petroleum and Natural Gas and the evaluation made by the Group's
management in respect of these reserves. Pending the assessment of these
reserves by the above mentioned authorities and completion of development for
production activities, no depreciation has been charged on the same.
Development/Production assets also include borrowing costs capitalised of US$
10,281,753 (previous year: US$ 8,699,988). The weighted average capitalisation
rate on funds borrowed generally is 6.02 per cent per annum (previous year
5.80 per cent).
D These vehicles have been secured against the finance leases as disclosed in
Note 16 until the obligation exists. As of March 31 2014, there are no
outstanding lease obligations.
The depreciation has been included in the following headings-
Depreciation included in exploration and 1,602,375 1,509,214
evaluation assets
Depreciation included in development assets 540,943 471,626
Depreciation included in statement of comprehensive income under the head cost of sales 4,773,127 1,509,277
Total 6,916,445 3,490,117
8. DEFERRED TAX ASSETS/ LIABILITIES (NET)
Deferred taxes arising from temporary differences are summarized as follows:
Deferred tax assetsUnabsorbed losses/creditsTotalDeferred tax liability 142,330,042 142,330,042 124,118,984124,118,984
Exploration and evaluation assets 120,924,768 96,725,907
Development assets/ property, plant and equipment 34,093,000 30,847,559
Total 155,017,768 127,573,466
Net deferred tax liabilities (12,687,726) (3,454,482)
127,573,466
Net deferred tax liabilities
(12,687,726)
(3,454,482)
a) The Group has created 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 9.
b) The deferred tax movements during the current year have been recognised
in the Consolidated Statement of Comprehensive income
9. INCOME TAXES
Income tax is based on tax rate 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:
Current tax - -
Deferred tax charge (9,233,244) (1,678,625)
Total (9,233,244) (1,678,625)
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 profit or loss is reconciled as follows:
Accounting profit for the year before tax 21,005,178 3,072,792
Non-taxable loss (859,004) (902,166)
Taxable income 21,864,182 3,974,958
Effective tax at the domestic rates applicable to profits in the country concerned (9,233,244) (1,678,625)
Tax expense (9,233,244) (1,678,625)
Indus Gas profits are taxable as per the tax laws applicable in Guernsey where
a zero percent 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 in respect of the gas
block incurred 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 Company has opted to claim the expenditure in the first year of
commercial production. The Group commenced commercial production during the
year ended 31 March 2011 and has been generating profits in Newbury and
iServices since then. The unutilized expenditure can be carried forward
indefinitely under Indian Income tax Act. Based on the present estimation of
quantity of reserve established, the management believes there is reasonable
certainty of utilization of remaining unutilized expenditure in the future
years. Therefore, deferred tax asset has been created on the unutilized
balance of these expenditure. Applicable income tax rate in India on income
arising on such operations is 42.23%.
10. INVENTORIES
Inventories comprise of the following:
31 March 2014 31 March 2013
Drilling and production stores and spares 8,455,623 5,814,038
Fuel 49,294 79,888
Goods in transit 821,350 80,690
Total 9,326,267 5,974,616
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 5.10.
Inventories of US$ 224,491 (previous year: US$ 319,667) were recorded as an
expense under the heading 'cost of sales' in the consolidated statement of
comprehensive income during the year ended 31 March 2014.
11. OTHER CURRENT ASSETS
31 March 2014 31 March 2013
Prepayments for
- procurement of debt 363,762 -
- others 44,883 43,125
Total 408,645 43,125
12. CASH AND CASH EQUIVALENTS
31 March 2014 31 March 2013
Cash at banks in current accounts 977,028 7,546,024
Total 977,028 7,546,024
The Group only deposits cash surpluses with major banks of high quality credit
standing.
13. 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 2014 is 182,973,924 (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 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$.
Share option reserve
The amount of share option reserve represents the accumulated expense
recognized by the company in its profit & loss on account of share based
options given by the Company.
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.
14. LONG TERM DEBT FROM BANKS
Maturity 31 March 2014 31 March 2013
Non-current portion of long term debt 2018/2021 85,266,117 102,213,678
Current portion of long term debt from banks 17,301,889 16,962,446
Total 102,568,006 119,176,124
The Group obtained two term loan facilities from a consortium of banks
amounting to US$110,000,000 and US$40,000,000. Against the loan of
US$110,000,000, Indus Gas has drawn US$ 109,904,073 (previous year US$
109,904,073) and the balance has lapsed and cannot be utilised. The other loan
facility of US$ 40,000,000 has been fully utilised.
The term loan of US$110,000,000, with an outstanding balance of US$ 66,416,294
repayable through quarterly instalments of US$3,939,000 with the last
instalment falling due in May 2018. This loan bears interest of LIBOR plus 500
basis points payable along with each quarterly instalment.
The term loan of US$40,000,000, with an outstanding balance of US$ 36,151,712
is repayable through quarterly instalments of US$ 400,000 till March 2019 and
US$ 3,600,000 with last instalment falling due in May 2021. This loan bears
interest of LIBOR plus 400 basis points payable along with each quarterly
instalment.
Interest capitalised on loans above have been disclosed in notes 6 and 7.
The term loans are secured by 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 the SGL field and all future receivables from
gas sales.
The fair value of the above variable rate borrowings are considered to
approximate their carrying amounts.
15. PROVISION FOR DECOMMISSIONING
Balance at 1 April 2012 745,651
Additions 163,864
Balance as at 31 March 2013 909,515
Additions 170,431
Balance as at 31 March 2014 1,079,946
Balance as at 31 March 2014
1,079,946
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.
16. 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 on account of these finance
lease payments:
31 March 2014 31 March 2013
Finance lease - 2,692
Less: current portion - (2,692)
Non-current portion - -
Balance outstanding as on 31 March 2013 was entirely payable within one year
along with interest of US$ 156.
17. PAYABLE TO RELATED PARTIES
Related parties payable comprise of the following:
Maturity 31 March 2014 31 March 2013
Current
Liability payable to Focus On demand 96,783,891 55,845,886
Payable to directors On demand 63,914 -
96,847,805 55,845,886
Other than current
Borrowings from Gynia Holdings Ltd.* 112,947,262 106,053,767
112,947,262 106,053,767
Total 209,795,067 161,899,653
Liability payable to Focus
Liability payable to Focus represents amounts due 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 (hereinafter referred to
as "Assignment Agreement").
On 31 March 2013 through an amendment to the Assignment agreement between the
Group and Focus, the entire outstanding balance of Focus is converted into a
short-term liability payable on demand.
The management estimates the current borrowings to be repaid on demand within
twelve months from the statement of financial position date and these have
been classified as current borrowings.
* Borrowings from Gynia Holdings Ltd. carries interest rate of 6.5 per cent
per annum compounded annually. Out of this loan from Gynia Holdings Ltd., US$
52.6 million is subordinated to loans taken from the banks (detailed in note
14) and therefore, is repayable along with related interest subsequent to
repayment of bank loans in March 2021. The balance of US$ 52 million is
repayable along with related interest in the year ending 31 March 2019. The
balance appearing in above table is inclusive of interest payable till
reporting date.
Interest capitalised on loans above have been disclosed in notes 6 and 7.
18. EMPLOYEE COST
Cost pertaining to the employees of Focus have been included in the cost of
sales and administrative expenses in the consolidated statement of
comprehensive income amounting to US$ 286,366 (previous year US$ 262,325) and
US$ 444,466 (previous year US$ 380,253) respectively. Cost pertaining to the
employees of the Group has been included under administrative expense is US$
315,914 (previous year US$ 447,344).
19. FOREIGN CURRENCY EXCHANGE GAIN, NET
The Group has recognised the following in the profit or loss on account of
foreign currency fluctuations:
31 March 2014 31 March 2013
Gain/(loss) on restatement of foreign currency monetary receivables and payables 1,423 (85,555)
Gain arising on settlement of foreign currency transactions and restatement of foreign currency balances arising out of Oil block operations 77,466 116,450
Total 78,889 30,895
20. OPERATING LEASES
Lease payments capitalised under exploration and evaluation assets and
development/ production assets during the year ended 31 March 2014 amount to
US$ 40,284,032 (previous year US$ 45,260,114). 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 can be cancelled 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.
21. SHARE BASED PAYMENT
The Company 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 Nominated Advisor known as the
"Directors' option agreements", "Advisers Option agreement" and "Arden option
deed", respectively. The Company 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 the issuance of new shares on payment of
the 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 fair values of options
granted were determined using the Black Scholes option pricing model that
takes into account factors specific to the share incentive plans along with
other external inputs. Vesting of these options have completed in earlier
years and there is no expense in respect of these options during the year
ended 31 March 2014 and 2013.
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 Directors and Advisors
All the options granted to the Directors and Advisors are fully vested in
earlier years. During the year ended 31 March 2013, one of the directors had
exercised his right of share option for 60,000 Shares. The outstanding balance
and exercisable share options as on 31 March 2014 and 31 March 2013 were
180,000 shares having a weighted average price of US$ 1.64 per option. These
options are due to expire in June 2015.
Share options granted to Arden Partners
There was no movement in the outstanding options under this category during
the year ended 31 March 2014 as the Share options granted to advisors on 28
May 2008 are fully vested and consequently, there is no accounting implication
during the reported period. The outstanding balance and exercisable share
options granted to advisors for on 31 March 2014 and 31 March 2013 were 76,220
having a weighted average price of US$ 1.64 per option. These options are due
to expire in June 2015.
22. 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.
(This space has been intentionally left blank)
Calculation of basic and diluted earnings per share is as follows:
31 March 2014 31 March 2013
Profits attributable to shareholders of Indus Gas Limited, for basic and dilutive 11,771,933 1,394,167
Weighted average number of shares (used for basic earning per share) 182,973,924 182,931,020
No of equivalent shares in respect of outstanding options 55,454 43,097
Diluted weighted average number of shares (used forDiluted earnings per share) 183,029,378 182,974,117
Basic earnings per share 0.06 0.01
Dilutive earnings per share 0.06 0.01
23. RELATED PARTY TRANSACTIONS
The related parties for each of the entities in the Group have been summarised
in the table below:
I. Holding Company Gynia Holdings Ltd.
II. Ultimate Holding Company Multi Asset Holdings Ltd. (Holding Company ofGynia Holdings Ltd.)
III. Enterprises over which Key Management Personnel (KMP) exercise control (with whom there are transactions) Focus Energy Limited
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 2014 and 31 March 2013 is as under:
Transactions with parent company
Transactions during the year with the holding company
Loan takenInterest -6,893,495 59,086,1304,427,101
Balances at the end of the year
Total payables* 112,947,262 106,053,767
*including interest
112,947,262
106,053,767
*including interest
Transactions with KMP and entity over which KMP exercise control
Transactions during the year
Remuneration to KMP
· Short term employee benefits 315,914 447,344
· Share based payments - -
Total 315,914 447,344
Entity over which KMP exercise control
Share of cost incurred by Focus in respect of the Block 68,524,909 70,466,095
Remittances 26,774,123 76,525,210
Expenses reimbursed 812,786 71,310
Interest payable - 2,549,593
Balances at the end of the year
Total payables* 96,783,891 55,845,886
Total payables*
96,783,891
55,845,886
*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 also separately disclosed in the directors' report
on page 9.
24. SEGMENT REPORTING
The Chief Operating Decision Maker, 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$ 408,583,136
(previous year: US$ 336,021,358).
The Group has a single product, i.e. the sale of natural gas, which is
supplied to a single customer, GAIL in a single geographical segment, being
India.
25. COMMITMENTS AND CONTINGENCIES
The group has no contingencies as at 31 March 2014 (previous year Nil).
The group has no commitments as at 31 March 2014 (previous year Nil).
26. 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 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 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 5.6and 6 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 36 and IFRS 6 to determine when a
tangible or an intangible asset is impaired. This determination requires
significant judgment to evaluate indicators triggeringimpairment. 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 2014 to require impairment
testing of property, plant and equipment 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. 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 7.
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 15.
Impairment testing
As explained above, the management carried out impairment testing of property,
plant and equipment and intangible assets 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
recognized 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 existing selling price to GAIL which is fixed upto 31
March 2015 and thereafter is based on the currently prevailing market prices.
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 10% 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.
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 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, especially when it can be utilized
without a time limit, then deferred tax asset is usually recognized in full.
27. BASIS OF GOING CONCERN ASSUMPTION
The Group has current liabilities amounting to US$ 119,353,258 the majority of
which is towards current portion of borrowings from banks and related parties,
primarily to Focus. As at 31 March 2014, the amounts due for repayment within
the next 12 months to banks are US$ 17,301,889 which the Group expects to meet
from its internal generation of cash from operations. Further, the Group has
obtained sanction of additional debt of US$ 180 million subsequent to the year
end. Part of this debt is to be used for repayment of payable towards Focus
and balance will be utilised towards further development expenditure on Block.
Based on this, the consolidated financial statements have been prepared on
going concern basis.
28. 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
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