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Notes to Accounts of Hindustan Oil Exploration Company Ltd.

Mar 31, 2015

1. Background

Hindustan Oil Exploration Company Limited ('the Company') was incorporated in India on September 22, 1983 under the provisions of the Companies Act, 1956 and is listed on the National Stock Exchange of India Limited ('NSE') and BSE Limited ('BSE'). The Company is engaged in the exploration, development and production of crude oil and natural gas in India, both onshore and offshore.

The Company is a participant in various Oil and Gas blocks/fields (which are in the nature of jointly controlled assets with rights and obligations are several and not joint and several) granted by the Government of India through Production Sharing Contracts ('PSC') entered into between the Company and Government of India and other venture partners. The Company has seven onshore assets of which three are located in Cambay basin in the state of Gujarat, one in Assam Arakan basin in the state of Assam, two in Jaisalmer Basin in the state of Rajasthan and one in Pranhita Godavari basin in the state of Telengana. The Company has three offshore assets of which two assets are located in the Cauvery basin on the east coast of India, and one in Gulf of Cambay on the west coast of India. Details of Company's participating interest are fully disclosed in Note 28.

2 Terms/rights attached to equity shares

The Company has only one class of equity shares having par value of INR 10 per share. Each holder of equity shares is entitled to one vote per share.

In the event of liquidation of the Company, the holders of equity shares will be entitled to receive assets of the Company remaining after settlement of all liabilities. The distribution will be in proportion to the number of equity shares held by the shareholders.

3 Long Term Incentive Plan, Scheme 2005

Under the HOEC Limited Employee Stock Option Scheme - 2005 (ESOS Scheme) approved by the Shareholders, and as amended from time to time, the Board had granted options in the prior years to the eligible Employees and eligible Directors at Nil exercise price as part of the Long Term Incentive Plan (LTIP). There are no outstanding share options as on March 31, 2015.

Method Used for Accounting for Share Based Payment Plan:

Under the LTIP Scheme 2005, the options are granted in the succeeding year after adoption of the Annual Audited Accounts for the given year. The Company charges the entire amount provided towards performance bonus and stock options to the Statement of Profit and Loss for the year for which the grant corresponds to. Any upward variation in the market price/acquisition price of the ESOS stocks, as may be applicable, as on the date of Balance Sheet, is charged to the Statement of Profit and Loss for the period as per LTIP.

The fair value of the options granted under LTIP Scheme 2005 approximates the intrinsic value of the options on the date of the grant.

4 Employee Benefits a. Gratuity

The Company's obligation towards the Gratuity Fund is a Defined Benefit Plan. Every employee who has completed a continuous period of five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with Life Insurance Corporation of India in the form of a qualifying insurance policy.

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

5 Segmental Reporting

The Company is primarily engaged in a single business segment of "Hydrocarbons and other incidental services". All the activities of the Company revolve around the main business. Further, the Company does not have any separate geographic segments other than India. Hence, there are no separate reportable segments as per AS-17 "Segmental Reporting".

b) In respect of two of its Unincorporated Joint Ventures (UJV) not operated by the Company, the Company has incorporated its share of the balances as at March 31, 2015 based on the unaudited financial information as follows:

i) CY-OS-90/1 (PY-3): The operations in the field have been stopped since July 2011 and the last relevant audited financial statements for the UJV were received for the year ended March 31, 2012. Subsequent to July 31, 2011 no further expenses that have been approved by the Management Committee and hence the Company has not accounted for the same. The Company does not expect any further expenses with respect to this field. Accordingly, the Company has accounted for its share based on the audited accounts till the year ended March 31, 2012 and subsequent adjustments (if any) till the period ending March 31, 2015 which is based on the unaudited financial information.

ii) CB-OS/1: The Company has accounted for its share of balances based on the audited accounts till the year ended March 31, 2014 and for the balances as at March 31, 2015, the Company has accounted based on the un-audited financial information received from the operator

The financial statements include, Company's share of current assets/(liabilities), non-current assets/(liabilities), expenses and cash flows aggregating to INR 829,974 / INR (79,685,217), INR 310,586,199 / INR (331,065,000), INR Nil and INR (1,924) respectively as at or for the year ended March 31, 2015 in respect of the above two UJVs.

6 Related Party Disclosures

(i) The related parties of the Company as at March 31, 2015 are as follows:

(A) Wholly Owned Subsidiary Company:

1. HOEC Bardahl India Limited

(B) Promoter Group:

1. ENI UK Holding Plc (Wholly Owned Subsidiary of ENI S.p.A, Italy)

2. Burren Shakti Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding Plc.)

3. Burren Energy India Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding Plc.)

(C) Other Group Entities:

1. ENI Finance International S.A., Belgium

2. ENI Lasmo Plc

3. ENI India Limited, United Kingdom

4. Banque ENI, Belgium

5. Saipem (Portugal) Comercio Maritimo Su Lda

(D) Unincorporated Joint Ventures:

As per details given in Note 28 above

(E) Key Management Personnel:

Mr Manish Maheshwari - Managing Director (till 9th October, 2014)

Mr P Elango - Managing Director (from 2nd February, 2015)

Mr R. Jeevanandam - CFO and Additional Director (from 2nd February, 2015)

7 Recovery of Expenses

Recovery of expenses represents expenditure incurred by the Company for the UJVs where the Company is the Operator. Such costs are recovered from the respective UJVs as per the terms of the Production Sharing Contract.

8 The Company has capital requirements to implement its development plan under the Production Sharing Contract (PSC) for the block AAP-ON-94/1 approved by the Directorate General of Hydrocarbons and the Ministry of Petroleum and Natural Gas in the near future. The development cost estimated for the total project is INR 527 Crores (US$ 85 million) and the share of the Company is estimated to be in the order of INR 142 Crores (US$ 22.85 million). These expenditures are to be incurred over a period of two years. The carrying value of the assets in the books of the Company's for the successful exploration and appraisal is INR 117.27 Crores.

The Company has net current assets of INR 127.54 Crores (including tax receivables of INR 82.41 Crores) as on March 31, 2015 before adjusting a liability of INR 26.30 Crores payable to the group companies of the Promoter Management is confident that the above liability of INR 26.30 Crores can be deferred for a period of more than one year and to the completion of the development of the block AAP-ON-94/1.

The Company may be liable for the obligation in respect of unfinished Minimum Work Program in term of the Production Sharing Contract for the block RJ-ONN-2005/1. In case of non-operated block RJ-ONN-2005/2 the Operator has sought the extension of the block validity and if the Minimum Work Program is not completed the Company may be liable for the obligation of the unfinished minimum work program.

The Company has been rated for BBB for a line of credit of INR 100 Crores by Indian Credit Rating Agency on May 15, 2015. Company is confident of meeting the capital requirements to implement its business plan, discretionary capital expenditure, commitments and the obligations under the Production Sharing Contracts (PSC) and liabilities in the foreseeable future with the existing cash and cash equivalents / liquid assets, tax refunds due to the Company and by raising financial resources through debt / equity financing as required without any additional financial support from the promoter The Company has a successful track record of raising capital both debt and equity in the past and shall raise financial resources for the growth of the Company as and when required without any additional capital infusion from the promoter. Accordingly, the Financial Statements have been prepared on the basis that the Company is a going concern with no further adjustments to the carrying value of assets and liabilities.

9 In compliance with SEBI directions relating to treatment of survey cost under the Guidance Note (Accounting for Oil and Gas Producing Activities, issued by Institute of Chartered Accountants of India), the Company has expensed off survey costs amounting to INR 7.05 Crores [Previous Year: INR 44.61 Crores] in the Statement of Profit and Loss.

10 Previous Year Figures

Previous year's figures have been regrouped and reclassified wherever necessary to confirm to the current year's presentation.


Mar 31, 2014

1. Commitments and Contingencies

Particulars As at As at March 31, 2014 March 31, 2013

(i) Contingent Liabilities

(a) Counter Guarantees on account of Bank 256,825,234 208,107,930 Guarantees

(b) Claims against the Company Not 393,584,832 393,584,832 Acknowledged as Debt Income Tax Demands under Appeal

(c) Service Tax Liability (pertaining to 2,139,321 2,139,321 one Unincorporated Joint Venture)

(d) Hire Charges (pertaining to one 217,881,005 51,694,208 Unincorporated Joint Venture)

(e) Liquidated damages under appeal 47,630,122 47,630,122 (Pertaining to one Unincorporated Joint Venture)

(f) Royalty payable under appeal 141,252,121 — (Pertaining to one Unincorporated Joint Venture

(ii) Commitments

(a) Estimated amount of Contracts remaining 13,417,649 397,242,309 to be Executed on Capital Account and Not Provided for

2. Recovery of Expenses

Recovery of expenses represents expenditure incurred by the Company for the UJVs where the Company is the Operator. Such costs are recovered from the respective UJVs as per the terms of the Production Sharing Contract. Recovery of expenses also includes an amount of INR 5,534,431 (Previous Year INR 37,353,814) recovered as parent company overhead pursuant to the respective Production Sharing Contracts.

3. Accounting Standard 11 – The Effects of Changes in Foreign Exchange Rates

The details of the adjustment pursuant to the above are as under:

4. Deferred tax:

Company has restricted the creation of deferred tax assets on carried forward business losses and unabsorbed depreciation to the extent that it believes that there is virtual certainty supported by convincing evidence that sufcient future taxable income will be available against which such deferred tax assets can be realised. Accordingly, the Company has restricted the deferred tax assets to the extent of deferred tax liability existing in books as at March 31, 2014 and March 31, 2013 (See Note 11).

5. The Company has capital requirements to implement its business plans and commitments under the Production Sharing Contracts (PSC) in the foreseeable future, which cannot be met through internal accruals alone. As a strategic exercise initiated pursuant to appointment of a Financial Advisor, discussions are underway between the Promoter and prospective investors. Notwithstanding uncertainties which may be attached to the outcome of any such process, the Board recognizes that the Company has a successful track record of raising capital in the past and that the Company shall raise financial resources as and when needed to meet its commitments under the Production Sharing Contracts and to transform the reserves from the existing discoveries to production in the near to mid-term. Based on the foregoing, the Financial Statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities.

6. While the EBITDA of INR 2,364.15 lacs for FY 2013-14 has been positive, the Company has reported negative EBIT of INR 12,402.13 lacs and PBT of INR 13,767.36 lacs for the same period, primarily due to high depletion, depreciation and amortization (DDA) charge in an ofshore producing property, PY-1, located in the Cauvery Basin. Te Company, as Operator, has commissioned a comprehensive geological and reservoir study by an independent third party for PY-1 Field, the results and recommendations of which are still awaited. Pending the results of the Study, the Company has relied on the last independent reserve report of January 2013 and the capital allocation assumption considered towards drilling additional producer wells at the time of the Impairment Test for the year ended March 2013. Should the fndings of the Study and the capital allocation assumptions undergo revision, there may be uncertainty in the recoverability of the carrying value of PY-1 Asset, which as of March 31, 2014 is approximately INR 116,571 lacs.

The Auditors have qualified their opinion in this regard and the Company''s position is as explained above.

7. In compliance with SEBI directions with respect to previous audit qualification relating to treatment of survey cost under the Guidance Note (Accounting for Oil and Gas Producing Activities, issued by Institute of Chartered Accountants of India), the Company has expensed of survey costs amounting to INR 4,461 lacs (INR 3,410 lacs pertaining to previous years) in the Statement of Profit and Loss which were initially capitalized as ''Exploration Expenditure''.

8. Previous Year Figures

Previous year''s figures have been regrouped and reclassified wherever necessary to confirm to the current year''s presentation.


Mar 31, 2013

A. Background

Hindustan Oil Exploration Company Limited (''the Company'') was incorporated in India on September 22, 1983 under the provisions of the Companies Act, 1956 and is listed on the National Stock Exchange (''NSE'') and Bombay Stock Exchange (''BSE''). Te Company is engaged in the exploration, development and production of crude oil and natural gas in India, both onshore and ofshore.

Te Company is participant in various Oil and Gas blocks / felds (which are in the nature of jointly controlled assets) granted by the Government of India through Production Sharing Contracts (''PSC'') entered into between the Company and Government of India and other venture partners. Te Company has seven onshore assets of which three are located in Cambay basin in the state of Gujarat, one in Assam Arakan basin in the state of Assam, two in Jaisalmer basin in the state of Rajasthan and one in Pranhita Godavari basin in the state of Andhra Pradesh. Te Company has three ofshore assets of which two assets are located in the Cauvery basin on the east coast of India, and one in Gulf of Cambay on the west coast of India. Details of Company''s participating interest are fully disclosed in Note 28.

2. Related Party Disclosures

(i) Te related parties of the Company as at March 31, 2013 are as follows:

(A) Wholly Owned Subsidiary Company: HOEC Bardahl India Limited

(B) Promoter Group:

1. ENI UK Holding plc. (Wholly Owned Subsidiary of ENI S.p.A, Italy)

2. Burren Shakti Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding plc.)

3. Burren Energy India Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding plc.)

(C) Other Group Entities

1. ENI Finance International, S.A., Belgium

2. ENI India Limited, United Kingdom

3. Banque ENI, Belgium

(D) Unincorporated Joint Ventures:

As per details given in Note 28 above

(E) Key Management Personnel:

1. Mr. Manish Maheshwari – Managing Director

2. Mr. Sergio Laura – Managing Director

3. Recovery of Expenses

Recovery of expenses represents expenditure incurred by the Company for the UJVs where the Company is the Operator. Such costs are recovered from the respective UJVs as per the terms of the Production Sharing Contract. Recovery of expenses also includes an amount of INR 37,353,814 (Previous Year: INR 10,303,863) recovered as parent company overhead pursuant to the respective Production Sharing Contracts.

4. Deferred tax:

During the current year, the Company has restricted the creation of deferred tax assets on carried forward business losses and unabsorbed depreciation to the extent that it believes that there is virtual certainty supported by convincing evidence that sufcient future taxable income will be available against which such deferred tax assets can be realised. Accordingly, the Company has restricted the deferred tax assets to the extent of deferred tax liability existing in books as at March 31, 2013 (See Note 11).

5. Previous Year Figures

Previous year''s fgures have been regrouped and reclassifed wherever necessary to confrm to the current year''s presentation.


Mar 31, 2012

1. Long Term Incentive Plan, Scheme 2005

Under the HOEC Limited Employee Stock Option Scheme - 2005 (ESOS Scheme) approved by the Shareholders, and as amended from time to time, the Board had on November 09, 2011 approved grant of 34,524 options (Previous Year: 17,680 options approved on January 31, 2011) to the eligible Independent Directors at Nil exercise price as part of the Long Term Incentive Plan (LTIP). In terms of the ESOS Scheme, the options would vest at the third anniversary from the end of the financial year for which the grant corresponds to. For the year ended March 31, 2012 an aggregate amount of INR Nil (Previous Year: INR 20,000,000) has been provided towards performance bonus and stock options as per the LTIP Scheme 2005. During the year, the Company has written back excess provision towards cash and ESOS (deferred bonus) made during prior years amounting to INR 1,976,665 (Previous Year: INR 6,527,308) based on the approval/ratification of the Board of Directors of the Company.

Method used for Accounting for Share Based Payment Plans

Under the LTIP Scheme 2005, the options are granted in the succeeding year after adoption of the Annual Audited Accounts for the given year. The Company charges the entire amount provided towards performance bonus and stock options to the Profit and Loss Account for the year for which the grant corresponds to. Any upward variation in the market price / acquisition price of the ESOS stocks, as may be applicable, as on the date of Balance Sheet, is charged to the Profit and Loss Account for the period as per LTIP.

2. Employee Benefits

a. Gratuity

The Company's obligation towards the Gratuity Fund is a Defined Benefit Plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with Life Insurance Corporation of India in the form of a qualifying insurance policy.

3. Segmental Reporting

The Company is primarily engaged in a single business segment of "Hydrocarbons and other incidental services". All the activities of the Company revolve around the main business. Further, the Company does not have any separate geographic segments other than India. Hence, there are no separate reportable segments as per AS-T7 "Segmental Reporting".

4. Related Party Disclosures

(i) The related parties of the Company as at March 31, 2012 are as follows:

(A) Wholly Owned Subsidiary Company: HOEC Bardahl India Limited

(B) Promoter Group:

1. ENI UK Holding pic. (Wholly Owned Subsidiary of ENI S.p.A, Italy)

2. Burren Shakti Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding pic.)

3. Burren Energy India Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding pic.)

(C) Other Group Entities

1. ENI Finance International, S.A., Belgium (formerly known as ENI Coordination Center S.A., Belgium)

2. ENI India Limited, United Kingdom

3. Banque ENI, Belgium

(D) Unincorporated Joint Ventures:

As per details given in Note 28 above

(E) Key Management Personnel:

1. Mr. Manish Maheshwari - Managing Director from September 28, 2011 (Joint Managing Director upto September 27, 2011)

2. Mr. Sergio Laura - Managing Director from September 28, 2011

3. Mr. Luigi Ciarrocchi - Managing Director upto September 27, 2011

5. Recovery of Expenses

Recovery of expenses represents expenditure incurred by the Company for the UJVs where the Company is the Operator. Such costs are recovered from the respective UJVs as per the terms of the Production Sharing Contract. Recovery of expenses also includes an amount of INR 10,303,863 (Previous Year: INR 12,728,726) recovered as parent company overhead pursuant to the respective Production Sharing Contracts.

6. Impairment

As of March 31, 2012, the Company has reviewed the carrying amount of its assets for indications of impairment and based on such review, the Company has concluded that none of the assets of the Company has suffered impairment loss as at March 31, 2012.

7. Previous Year Figures

During the year ended 31 March, 2012, the Revised Schedule VI notified under the Companies Act 1956, became applicable to the Company. The Company has presented the Financial Statements in accordance with the requirements of Revised Schedule VI and has hence reclassified and regrouped the previous year's figures to confirm to this year's classification.

 
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