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Notes to Accounts of Oil And Natural Gas Corporation Ltd.

Mar 31, 2015

1. Corporate information

Oil and Natural Gas Corporation Limited ('ONGC' or 'the Company') is a public limited company domiciled and incorporated in India. The Company's shares are listed and traded on Stock Exchanges in India. The Company is engaged in exploration, development and production of crude oil and natural gas.

2. Terms/rights attached to equity shares

The company has only one class of equity shares having a par value of Rs. 5 per share. Each holder of equity shares is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

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

3. Pursuant to the approval of the members dated 28.01.2011, during the financial year 2010-11, one equity share having face value of Rs. 10/- each had been sub-divided into two equity shares of Rs. 5/- each and bonus shares in proportion of one new equity bonus share of Rs. 5/- each for every one fully paid up equity share of '5/- each held on

09.02.2011 (record date) had been allotted. The company has issued total 4,277.75 million equity shares of face value of '5 each issued as fully paid up by way of bonus shares during the period of five years immediately preceding the reporting date.

4. Shares reserved for issue under option: Nil (previous year nil)

5. During the previous year 2013-14, PMT JV had downgraded reserves for the Mid and South Tapti fields due to geological surprises. As a result, the production profile is envisaged only up to 2015-16 and the sale realization (net of operating expenses and statutory levies) is being transferred to Site Restoration Fund pursuant to the Production Sharing Contract. Under these circumstances, the field has been fully depleted and depletion aggregating to Rs. 184.69 million (Previous year Rs. 9,090.44 million) has been charged to the Statement of Profit and Loss. Similarly, as at March 31, 2015, the provision for impairment of Rs. 263.62 million (Previous year Rs. 441.87 million) representing the net asset value and Capital Work in Progress in Tapti field has been carried in the financial statements.

6. In respect of Ratna R series field, a producing field of the company, MOPNG had during 1995-96, issued an award of the contract for development of the field to a consortium of Essar Oil Limited and Premier Oil limited consequent to which the company stopped production. Pending the execution of the Production Sharing Contract, the company continues to include Rs. 2,313.96 million in gross producing property (including provision for abandonment of '891.74 million.) The said field has been fully impaired and the net carrying amount as at March 31,2015 is Nil.

7. Other adjustment includes an amount of Rs. 4,196.00 million which Government of India (GoI) vide letter dated 1st January, 2015, has reimbursed as compensation for past costs incurred by ONGC in certain discovered fields awarded to Joint Ventures/ Private Companies. Accordingly an amount of Rs. 257.17 million has been adjusted against the Net Carrying Amount of assets of Panna, Mukta, Tapti and Ravva fields and balance amount of Rs. 3,938.83 million has been accounted for as other income during the year.

8. Plant and Equipment includes an amount of Rs. 8,448.52 million (Previous Year Rs. 8,436.64 million) in respect of Capital Works in Progress (CWIP) for C2-C3 plant (including C3-C4 blending and recycling facilities) which is mechanically complete and will be capitalized on completion of test run.

9. During the Financial year 2004-05, the company had acquired 90% Participating Interest in Exploration Block KG-DN-98/2 from M/s Cairn Energy India Ltd. for a lump sum consideration of Rs. 3,711.22 million which, together with subsequent exploratory drilling costs of wells had been capitalised under exploratory wells in progress. During the financial year 2012-13, the company had acquired the remaining 10% participating interest in the block from M/s Cairn Energy India Ltd. on actual past cost basis for a consideration of Rs. 2,124.44 million. Initial in-place reserves have been established in this block and adhering to original PSC time lines, a Declaration of Commercially (DoC) with a conceptual cluster development plan was submitted on 21.12.2009 for Southern Discovery Area and on 15.07.2010 for Northern Discovery Area. Thereafter, in the revised DoC submitted in December, 2013, Cluster wise development of the Block had been envisaged by division of entire development area into three clusters. The DoC in respect of Cluster II has been reviewed by the Management Committee (MC) of the block on 25.09.2014 and preparation of Field Development Plan (FDP) in progress. The review of DOC in respect of Cluster I and Cluster III by the MC is pending as on 31st March, 2015.

The exploration period of this block had been restructured by Government up to 29.12.2013 in accordance with the Rig Holiday Policy and further extended to 25.1.2014. Under the New Policy guidelines in this regard, the Government has permitted the contractor to undertake appraisal drilling, seismic API and related activities till submission of FDP which is currently underway and drilling of two appraisal wells is in progress. Pending approval of FDP by the MC in respect of Cluster II and review of DoC by the MC in respect of Cluster I and III, as a matter of abundant caution, the company has retained the provision of Rs.17,216.18 million (Previous Year Rs. 17,210.82 million) towards acquisition costs and cost of exploratory wells.

10. With effect from 28th February, 2015, ONGC Mangalore Petrochemicals Limited has become subsidiary (previous year Joint venture) of ONGC on account of direct holding of 48.99% (previous year 46%) and indirect holding of 51.00% (previous year 3%) stake through subsidiary company MRPL.

11. The Company is restrained from diluting the investment in the respective companies till the sponsored loans are fully repaid as per the covenants in the loan agreements.

12. Shares of Oil Spill response limited valued at GBP one each at the time of issuance. Total value in INR at the time of issuance of shares was Rs. 6,885/-.

13. Loan to ONGC Videsh limited (wholly owned subsidiary) amounting to Nil (previous year Rs. 50,000 million) has been converted into nil (previous year 500 million) fully paid Equity Shares of Rs. 100 each.

14. Loans and advances to employees include an amount of Rs. 0.24 million (Previous Year Rs. 0.37 million) outstanding from Key Managerial Personnel.

15. In Ravva Joint Venture, the demand towards additional profit petroleum raised by Government of India (GoI), due to differences in interpretation of the provisions of the Production Sharing Contract (PSC) in respect of computation of Post Tax Rate of Return (PTRR), based on the decision of the Malaysian High Court setting aside an earlier arbitral tribunal award in favour of operator, was disputed by the operator M/s Cairn India Ltd. The company is not a party to the dispute but has agreed to abide by the decision applicable to the operator. The company had made a provision towards the claim made by the GoI in earlier years and the amount of provision outstanding as on 31th Mar, 2015 is Rs. 10,513.79 million (equivalent to USD 167.84 million) after adjustments for interest and exchange rate fluctuations. The GoI had recovered the above amount [including interest thereon USD 54.88 million (Rs. 3437.68 million)] from the company in earlier years which has been carried as recoverable under Long Term Loans and advances in the Balance Sheet as at 31st March, 2015.

In subsequent legal proceedings, the Appellate Authority of the Honourable Malaysian High Court of Kuala Lumpur had set aside the decision of the Malaysian High Court and the earlier decision of arbitral tribunal in favour of operator was restored, against which the GoI has preferred an appeal before the Federal Court of Malaysia. The Federal Court of Malaysia, vide its order dated 11th October, 2011, has dismissed the said appeal of the GoI.

The company has taken up the matter regarding refund of the recoveries made in view of the favorable judgment of the Federal Court of Malaysia with MoP&NG. However, according to a communication dated 13th January, 2012 received, MoP&NG expressed the view that ONGC's proposal would be examined when the issue of ONGC carry under Ravva PSC is decided in its entirety by the Government along with other partners.

In view of the perceived uncertainties in obtaining the refund at this stage, the provision made in the books as above has been retained and netted off against the amount recoverable as above in the financial statements for the year ending 31st Mar 2015. (Figures in INR are reinstated).

16. During the financial year 2010-11, the Oil Marketing Companies, nominees of the GoI recovered USD 32.07 million (Rs. 2,009.02 million) ONGC's share as per directives of GoI in respect of Jointly Controlled Assets-Panna Mukta and Tapti. The recovery is towards certain observations raised by auditors appointed by the Director General of Hydrocarbons (DGH) under Production Sharing Contract (PSC) for the period 2002-03 to 2005-06 in respect of cost and profit petroleum share payable to GoI. BGEPIL along with RIL ("Claimants") have served a notice of arbitration on the GoI in respect of dispute, differences and claims arisen in connection with the term of Panna, Mukta and Tapti PSCs. Since the company is not a party to the arbitration proceedings, it had requested MoP&NG that in case of an arbitral award the same be made applicable to ONGC also, as a constituent of contractor for both the PSCs. Subsequently, vide letter dated July 4, 2011 MoP&NG has advised ONGC not to participate in the arbitration initiated by RIL and BGEPIL under Panna Mukta and Tapti PSCs. MoP&NG has also stated that in case of an arbitral award, the same will be applicable to ONGC also as a constituent of the contractor for both the PSCs. Pending final arbitral award, the same has been shown as Receivable from GoI under Advance Recoverable in Cash or Kind or Value to be Received' under Long Term Loans and Advances. (Figures in INR are reinstated).

17. Deposit under Site Restoration Fund Scheme:

A sum of Rs. 125,443.80 million till 31.03.2015 (previous year '113,101.59 million) has been deposited with banks under section 33ABA of the Income Tax Act, 1961 and can be withdrawn only for the purposes specified in the Scheme i.e. towards removal of equipments and installations in a manner agreed with Central Government pursuant to an abandonment plan to prevent hazards to life, property, environment etc. This amount is considered as restricted cash and hence not considered as 'cash and cash equivalents'.

18. The deposits maintained by the company with banks comprise time deposit, which can be withdrawn by the company at any point without prior notice or penalty on the principal.

19. Amount deposited in unclaimed dividend account is earmarked for payment of dividend and cannot be used for any other purpose.

20. Includes Rs. 21,067.60 million (Previous year Rs. 2,092.23 million) towards differential royalty being deposited from 1st February, 2014 as per the interim order of the Hon'ble Supreme Court of India. (also refer Note no. 44.1.1.b)

21. Includes an amount of Rs. 0.13 million (Previous Year Rs. 0.13 million) outstanding from Key Managerial Personnel.

22. In terms of the decision of Government of India (GOI), the company has shared Rs. 362,996.20 million (Previous Year Rs. 563,842.85 million) towards under-recoveries of Oil Marketing Companies (OMCs) on price sensitive products viz. Diesel (till 18th October'14), Domestic LPG and PDS Kerosene for the year 2014-15 (Nil in 4th quarter of FY 2014-15 as per GoI directives) by extending the discount in the prices of Crude Oil, Domestic lPg and PDS Kerosene based on the rates of discount communicated by Petroleum Planning and Analysis Cell (PPAC) and Ministry of Petroleum and Natural Gas (MoP&NG). The impact of discount is as under:

23. For Crude Oil produced in Assam, sales revenue is based on the pricing formula provided by MoP&NG. Revenue from rest of nominated crude is accounted in terms of Crude Oil Sales Agreements (COSAs) already signed and made effective from 1st April, 2010.

24. During the previous year, based on the directives issued by MoP&NG and Petroleum Planning and Analysis Cell (PPAC) vide letters dated 31st May, 2012 and 1st June, 2012 respectively, w.e.f. 1st April, 2012, refineries started making deductions from ONGC payments towards Octroi/ VAT/ CST on discounts allowed by ONGC to refineries on supplies of crude oil. Total deduction made by refineries on this account from 1st April, 2012 to 30th September, 2013 amounting to Rs. 25,032.60 million (includes Rs. 15,846.70 million for the year 2012-13) was provided for. The company had revised the sales revenue and corresponding statutory levies w.e.f. 1st April 2012 onwards, considering deductions made by refineries based on MoP&NG directives. Aforesaid provision made by the Company till 30th September, 2013 had also been written back.

25. Recognition of revenue on account of Short Lifted Gas amounting to Rs. 1,774.13 million (Previous Year Rs. 1,253.74 million) has been postponed. This will be recognized when there is reasonable certainty regarding ultimate collection as per the policy of the company.

26. Sales revenue of Natural Gas is based on gas price fixed by GoI from time to time. Till October'14, sales revenue is based on MoP&NG order dated 31st May'10 wherein effective from 1st June'10, the price of APM gas produced by NOCs was fixed at US$ 4.2/mmbtu less royalty (on NCV basis). On 25th October'14, GoI notified "New Domestic Natural Gas Pricing Guidelines, 2014" applicable from 1st November'14. Under said guidelines, price of domestic gas produced in India during 1st November'14 to 31st March'15 has been fixed as US$ 5.05/mmbtu (on GCV basis). For gas consumers in North-East, consumer price is 60% of the producer price and the difference between producer price and consumer price is paid to the company through GoI Budget and shown as 'North-East Gas Subsidy'.

27. The company is supplying majority of Natural gas to Gas Authority of India Limited (GAIL) which also purchases gas from other sources and sells to APM and non-APM consumers. Based on the Government directives, excess in Gas Pool Account at the end of financial year is transferred to ONGC/ OIL in accordance with their contribution. Based on the details received from GAIL, an amount of Rs. 2,292.30 million (Previous year Rs. 3,508.10 million) for Gas Pool Receipts for the current year and Rs. 974.74 million (Previous year Rs. 212.37 million) on account of interest on Gas Pool Account has been considered as 'Surplus from Gas Pool Account'.

28. Excise duty on sale of product has been deducted from Sales revenue and Excise duty shown above represents the difference between Excise duty on opening and closing stock of finished goods.

29. During the year, Government has directed the company to make following payments/adjustments towards differential royalty at uniform rate of discount for the period 2008-09 to 2013-14 to the State and Central Government:

30. Disclosure under the Revised Accounting Standard -15 on "Employee Benefits"

31. Brief Description: A general description of the type of Employee Benefits Plans is as follows:

32.All the employee benefit plans of the Company are run as Group administration plans (Single Employer Scheme) including employees seconded to ONGC Videsh Limited (OVL), 100% subsidiary.

33. Earned Leave (EL) Benefit

Accrual - 30 days per year

Encashment while in service - 75% of Earned Leave balance subject to a maximum of 90 days per calendar year

Encashment on retirement - maximum 300 days

34. Good Health Reward (Half pay leave)

Accrual - 20 days per year

Encashment while in service - Nil

Encashment on retirement - 50% of Half Pay Leave balance.

35. Gratuity

15 days salary for each completed year of service. Vesting period is 5 years and the payment is restricted to Rs. 1.00 million.

36. Post-Retirement Medical Benefits

Upon payment of one time prescribed contribution by the employees, full medical benefits on superannuation and on voluntary retirement subject to the completion of minimum 20 years of service and 50 years of age.

37. Terminal Benefits

a. At the time of superannuation, employees are entitled to settle at a place of their choice and they are eligible for Transfer Travelling Allowance.

b. Employees are gifted gold coins on retirement up to 31.01.2015, depending upon their level and years of service. This scheme has been discontinued w.e.f. 27.02.2015. Accordingly Rs. 5,854.33 million provided in earlier years has been written back (Note 7 & 11). Re-measured figures are restated accordingly in note no. 37.3 and 37.5.

38. The amounts included in the fair value of plan assets of gratuity fund in respect of Reporting Enterprise's own financial instruments and any property occupied by, or other assets used by the reporting enterprise are Nil (Previous Year Nil)

The discount rate is based upon the market yield available on Government bonds at the Accounting date with a term that matches. The salary growth rate takes account of inflation, seniority, promotion and other relevant factor on long term basis. Expected rate of return on plan assets is based on market expectation, at the beginning of the year, for return over the entire life of the related obligation.

39. Disclosure under Accounting Standard -17 on "Segment Reporting"

The segment information is presented under the Notes to the Consolidated Financial Statements as required under the standard.

40. Disclosure under Accounting Standard -18 on "Related Party Disclosure":

40.1 Name of related parties and description of relationship:

Jointly Controlled Entity

i. Petronet LNG Limited

ii. ONGC Teri Biotech Limited

iii. Mangalore SEZ Limited

iv. ONGC Petro-additions Limited

v. ONGC Tripura Power Co. Limited

vi. Dahej SEZ Limited

vii. ONGC Mangalore Petrochemicals Limited (up to 28.02.2015)

40.2 Key Managerial Personnel:

i) Shri D K Sarraf, Chairman and Managing Director

ii) Shri A K Banerjee, Director (Finance) up to 30.04.2015

iii) Shri T K Sengupta, Director (Offshore)

iv) Shri Ashok Verma, Director (Onshore) from 19.06.2014

v) Shri D D Misra, Director (Hr) from 01.08.2014

vi) Shri A K Dwivedi, Director (Exploration) from 16.03.2015

vii) Shri Shashi Shanker, Director (T&FS)

viii) Shri N K Verma, Director (Exploration) up to 26.08.2014

ix) Shri K.S Jamestin, Director (HR) up to 31.07.2014

x) Shri N K Sinha, Company Secretary

41. Disclosure under Accounting Standard - 19 on 'Leases'

The company has certain office/residential premises on Operating Lease which are cancellable by giving appropriate notice as per the respective agreements. During the year Rs. 977.22 million (Previous year Rs. 934.64 million) had been paid towards cancellable Operating Lease.

42. The financial statements of 117 (previous year 124) out of 134 (previous year 135) JVs/NELP blocks have been incorporated in the accounts to the extent of Company's participating interest in assets, liabilities, income, expenditure and profit / (loss) before tax on the basis of statements certified in accordance with production sharing contract and in respect of balance 17 (previous year 11) JVs/NELP blocks, the figures have been incorporated on the basis of uncertified statements prepared under the production sharing contracts. Both the figures have been adjusted for changes as per Note No. 2.j.1 The financial positions of JV/NELP are as under:

43. As per the Production Sharing Contracts signed by the Company with the Gol, the Company is required to complete Minimum Work Programme (MP) within stipulated time. In case of delay in completion of the MWP, Liquidated Damages (LD) is payable for extension of time to complete MWP Further, in case the Company does not complete MWP or surrenders the block without completing the MP, the estimated cost of completing balance work programme is required to be paid to the Gol. During the year LD amounting to (net of reversal) Rs. 24.08 million (Previous year Rs. 245.65 million) and cost of unfinished MWP (net of reversal) Rs. 1,420.64 million (Previous year (net of reversal) Rs. (-) 59.14 million), paid/payable to the Gol is included in survey and wells written off expenditure respectively.

44. In respect of 3 NELP blocks (previous year 12) which have expired as on 31st March, 2015, the Company's share of Unfinished Minimum Work Programme (MWP) amounting to '820.40 million (previous year to Rs. 18,014.12 million) has not been provided for since the company has already applied for further extension of period in these blocks as 'excusable delay'/special dispensations citing technical complexities, within the extension policy of NELP Blocks, which are under active consideration of GoI. The delays have occurred generally on account of pending statutory clearances from various Govt. authorities like Ministry of Defense, Ministry of Commerce, environmental clearances, State Govt. permissions etc. The above MWP amount of '820.40 million (previous year Rs. 18,014.12 million) is included in MWP commitment under note no. 44.1.6.

45. The company has relinquished 30% Participating Interest (PI) in SGL Field with future interest in block RJ-ON/6 Jaisalmer Basin Rajasthan to Focus Energy Ltd (Operator), on condition that Focus Energy Ltd (Operator) to pay towards 100% past royalty obligation, PEL/ML fees, other statutory levies and waive off development/ Production costs payable by OnGc in SGL Field of the block as well as take all future 100% royalty obligation of ONGC as licensee and also not exercise its option of acquiring 30% PI in two gas discoveries namely SSG-1 and SSF-2 in Block. Pending farm out agreement/ government approval, no adjustment is made in the accounts in respect of relinquishment of RJ-ON/6.

46. Disclosure under Accounting Standard - 28 and Guidance note on Accounting for Oil and gas producing Activities (Revised) on "Impairment of Assets"

47. The Company is engaged mainly in the business of oil and gas exploration and production in On-shore and Offshore. In case of onshore assets, the fields are using common production/transportation facilities and are sufficiently economically interdependent to constitute a single cash generating unit (CGU). Accordingly, impairment test of all onshore fields are performed in aggregate of all those fields at the Asset Level. In case of Offshore Assets, a field is generally considered as CGU except for fields which are developed as a Cluster, for which common facilities are used, in which case the impairment testing is performed in aggregate for all the fields included in the cluster.

48. The Value in Use of producing/developing CGUs is determined under a multi-stage approach, wherein future cash flows are initially estimated based on Proved Developed Reserves. Under circumstances where the further development of the fields in the CGUs is under progress and where the carrying value of the CGUs is not likely to be recovered through exploitation of proved developed reserves alone, the Proved and probable reserves (2P) of the CGUs are also taken for the purpose of estimating future cash flows. In such cases, full estimate of the expected cost of evaluation/development is also considered while determining the value in use.

49. In assessing value in use, the estimated future cash flows from the continuing use of the assets and from its disposal at the end of its useful life are discounted to their present value. The present values of cash flows are determined by applying discount rates of 19.71% (previous year 19.10 %) for Rupee transactions and 13.89% (previous year 13.00 %) for crude oil and value added products revenue, which are measured in USD. Future cash inflows from sale of crude oil and value added products are computed using the future prices, on the basis of market-based average prices of the Dated Brent crude oil as per assessment by 'Platt's Crude Oil Market wire' and its co-relations with benchmark crudes and other petroleum products. Future cash flows from sale of natural gas is also computed based on the expected future prices on the basis of the notification issued by the Government of India and discounted applying the rate applicable to the cash flows measured in USD in view of the new pricing guidelines issued by GoI. (refer note no.26.5)

50. During the year Rs. 2,136.53 million (Previous Year Rs. 1,025.48 million) is provided as impairment loss. Out of this, an amount of Rs. 380.89 million (Previous Year Rs. 355.97 million) has been provided as additional impairment in respect of onshore CGUs - Jodhpur and Silchar. Rs. 146.40 million (Previous Year Rs. 69.05 million) has been provided for already impaired offshore CGU- Ratna. For B 121 an amount of '49.73 million (Previous Year '20.09 million) has been provided as additional impairment. In addition, Rs. 367.91 million (Previous Year Rs. 30.42 million) pertaining to block CY-OS- 90/1 (PY-3) has been provided as presently the field does not have any potential to produce. An amount of Rs. 1,025.81 million (Previous Year Rs. 79.40 million) mainly represents additional impairment charge in respect of certain onshore Pre- NELP joint venture blocks (RJ ON 6, CB ON 2 and CB ON 3) due to adjustment of cost recovery from revenue and sharing of 100% royalty. Balance amount of Rs. 73.38 million, Rs. 91.14 million (previous year Rs. 15.90 million) and Rs. 1.27 million has been provided for Ankleswar, Hazira Plant and Retail Trading respectively.

51. Further, Rs. 201.88 million (Previous Year Rs. 806.08 million) impairment losses has been reversed because of decrease in Abandonment cost estimation in respect Offshore CGU D-18 and Tapti.

52. Impairment testing of assets under exploratory phase (Exploratory Wells in Progress) has been carried out as on 31.03.2015, and an amount of Rs. 1,172.15 million (Previous year Rs. 2,546.46 million) has been provided during the year 2014-15 as impairment loss. Further, Rs. 1,203.23 million (Previous Year Nil) impairment loss has been reversed in the Statement of Profit and Loss as exploratory phase assets have been transferred to producing properties.

53. Other Disclosures under Schedule III to the Companies Act, 2013:

54. Contingent liabilities and commitments (to the extent not provided for)

55. Contingent Liabilities:

Claims against the Company/ disputed demands not acknowledged as debt:-

(Rs. in million)

Particulars As at As at 31st March, 31st March, 2015 2014 I In respect of Company

i. Income Tax 80,032.68 55,087.45

ii. Excise Duty 8,572.86 9,406.06

iii. Custom Duty 190.61 1,599.77

iv. Royalty (Note - 44.1.1.b) 117,738.83 117,301.90

v. Cess 6.57 6.57

vi. AP Mineral Bearing Lands (Infrastructure) Cess 2,371.76 2,211.27

vii. Sales Tax 24,776.47 46,086.36

viii. Service Tax 1,374.57 4225.07

ix. Octroi 205.52 68.54

x. Specified Land Tax (Assam) 3,863.05 3,528.89

xi. Claims of contractors (Incl. LAQ) in Arbitration/Court 72,750.49 50,783.08

xii. Employees Provident Fund 66.35 66.35

xiii. Others 53,578.89 53,911.41

Sub Total (A) 365,528.65 344,282.72

II In respect of Joint Ventures

i. Income Tax 8.91 8.91

ii. Excise Duty 4.17 4.17

iii. Custom Duty 1,473.86 3,798.73

iv. Sales Tax and Service Tax 2,880.48 2,879.82

v Claims of contractors in Arbitration / Court 5,356.90 5,095.94

vi. Others 867.31 854.74

Sub Total (B) 10,591.63 12,642.31

TOTAL (A B) 376,120.28 356,925.03

a. The Company's pending litigations comprise of claims against the Company and proceedings pending with Tax/Statutory/Government Authorities. The Company has reviewed all its pending litigations and proceedings and has made adequate provisions, wherever required and disclosed the contingent liabilities, wherever applicable, in its financial statements. The Company does not expect the outcome of these proceedings to have a material impact on its financial position. Future cash outflows in respect of the above are determinable only on receipt of judgments/decisions pending with various forums/ authorities.

b. In terms of the statutory provisions of Oilfields (Regulation and Development) Act, 1948 (ORDA), Petroleum & Natural Gas (PNG) Rules 1959 and Notifications issued thereunder; the Company is liable to pay royalty to Central Government (GoI) and State Governments, on production of Crude Oil and Natural Gas from offshore fields and onshore fields, respectively. Since 2008-09, the Company has been paying royalty on crude oil at realized price which is net of under-recovery of the OMCs shared by the Company as per GoI directives. On an application filed by the State of Gujarat, the Hon'ble High Court of Gujarat in its order dated 30.11.2013 has directed the Company to pay the shortfall of royalty on crude oil produced from the onshore fields in the State of Gujarat on pre-discount prices from 01.04.2008 onwards. Based on the Special Leave Petition filed by the Company against the said order of the Hon'ble High Court of Gujarat, pending further orders, Hon'ble Supreme Court vide order dated 13.02.2014 stayed the operation of the impugned judgment subject to the condition that the company pays royalty to the State of Gujarat on pre-discounted price of crude oil w.e.f. 01.02.2014 onwards. Accordingly, differential amount of Rs. 117,242.00 million (reduced to the extent Rs. 16,440.00 million which is paid to Gujarat Govt.- refer Note No. 31.2) on this account for the period from April, 2008 to March, 2015 C116,326.96 million as on 31.03.2014) has been considered as Contingent Liability. Pending the final outcome of the SLP filed before the Hon'ble Supreme Court, differential royalty (royalty on pre-discount price minus royalty on post-discount price) amounting to Rs. 21,067.60 million deposited w.e.f. February, 2014 C2,092.23 million as on 31.03.2014) in terms of Hon'ble Supreme Court order has been shown as deposit.

56. Corporate Guarantees executed by the Company on behalf of its wholly owned subsidiary, ONGC Videsh Limited (OVL):

57. Guarantees executed for financial obligations:

i) Amount of Guarantee Rs. 304,152.81 million (Previous year Rs. 321,657.40 million)

ii) Amount outstanding Rs. 301,671.35 million (Previous year Rs. 314,417.66 million)

44.1.4 Corporate Guarantees executed by the Company on behalf of its subsidiary, MRPL:

i) Amount of Guarantee Rs. 29,754.00 million (Previous year Rs. 13,513.50 million)

ii) Amount outstanding Rs. 3,290.04 million (Previous year Rs. 7,370.56 million)

58. Capital Commitments:

Estimated amount of contracts remaining to be executed on capital account:-

i) In respect of Company: Rs. 134,081.19 million (Previous year Rs. 83,351.44 million).

ii) In respect of Joint Ventures: Rs. 3,842.99 million (Previous year Rs. 4,367.54 million).

59. Other Commitments

Estimated amount of Minimum Work Programme (MWP) committed under various 'Production Sharing Contracts' with Government of India/ Nominated Blocks:

i) In respect Nominated Blocks Nil (Previous year '441.59 million).

ii) In respect of NELP blocks in which the Company has 100% participating interest: Rs. 3,000.14 million (Previous year Rs. 9,600.47 million).

iii) In respect of NELP blocks in Joint Ventures, company's share: Rs. 32,705.26 million (Previous year '62,247.39 million).

60. The Company has given an undertaking to The State Bank of India, for a Rupee term loan agreement amounting to Rs. 30,350 million (previous year Rs. 30,350 million) in respect of ONGC Tripura Power Co. Limited (OTPC) for not to dilute the shareholding till two years after Commercial Operation Date (COD) of the project and to bear any cost overrun to the extent of 10% of the estimated project cost of Rs. 40,470 million.

61. The year-end reserves of the company have been estimated by the Reserves Estimation Committee (REC) which follows international reservoir engineering procedures consistently. The company has adopted deterministic approach for reserves estimation and is following Society of Petroleum Engineers (SPE) - 1997 guidelines which defines reserves as "estimated volumes of crude oils, condensate, natural gas, natural gas liquids and associated substances anticipated to be commercially recoverable from known accumulations from a given date forward, under existing economic conditions, by established operating practices, and under current Government regulations." Volumetric estimation is the main procedure in estimation, which uses reservoir rock and fluid properties to calculate hydrocarbons in-place and then estimate that portion which will be recovered from it. As the field gets matured with reasonably good production history is available then performance method such as material balance, simulation, decline curve analysis are applied to get more accurate assessments of reserves.

The Company uses the services of third party agencies for due diligence and it gets the reserves of its assets audited by third party periodically by internationally reputed consultants who adopt latest industry practices for their evaluation.

The annual revision of estimates is based on the yearly exploratory and development activities and results thereof. New in- place Volume and Ultimate Reserves are estimated for new field discoveries or new pool discoveries in already discovered fields. Also, appraisal activities lead to revision in estimates due to new subsurface data. Similarly, reinterpretation exercise is also carried out for old fields due to necessity of revision in petro-physical parameters, updating of static and dynamic models and performance analysis leading to change in reserves. Intervention of new technology, change in classifications and contractual provisions also necessitates revision in estimation of reserves.

62. The Company has a system of physical verification of Inventory, Fixed Assets and Capital Stores in a phased manner to cover all items over a period of three years. Adjustment of differences, if any, is carried out on completion of reconciliation.

63. Discrepancies of crude oil of 96,496 MT (valued at Rs. 395.47 million as on March 31,2014) between physical and book records at Ankleshwar Asset have been ascertained by the management during the year and accordingly these have been written off/adjusted in inventories. Further, 70,746 MT of pit oil lying in book of Ahmedabad Asset (valued at nil as on March 31,2014) has also been written off during the year. These write offs and consequential adjustments thereto have been made on account of over reporting of crude oil production in earlier financial years. The discrepancies as mentioned above are under investigation by the appropriate authorities.

64. The Company did not have any long term contracts including derivative contracts for which there were any material foreseeable losses.

65. Some balances of Trade/Other Receivables, Trade/Other Payables and Loans and Advances are subject to confirmation/reconciliation. Adjustments, if any, will be accounted for on confirmation/reconciliation of the same, which will not have a material impact.

66. Previous year's figures have been regrouped/reclassified, wherever necessary, to conform to current year's classification.

67. Figures in parenthesis as given in these Notes to Financial Statement relate to previous year.


Mar 31, 2013

1. Corporate information

Oil and Natural Gas Corporation Limited (''ONGC'' or ''the Company'') is a public limited company domiciled in India and incorporated under the provisions of Companies Act, 1956. Its Shares are listed and traded on Stock exchanges in India. The Company is engaged in exploration, development and production of crude oil and natural gas.

2.1 Subsequent to the date of balance sheet, ONGC Petro-addition Limited has allotted equity shares against the advance for equity of Rs. 3,328.69 million.

2.2 Loans and advances to employees include an amount ofRs.0.50 million (Previous YearRs.0.11 million) outstanding from whole time directors.

2.3 In Rawa Joint Venture, the demand towards additional profit petroleum raised by the Government of India (Gol), due to differences in interpretation of the provisions of the Production Sharing Contract (PSC) in respect of computation of Post Tax Rate of Return (PTRR), based on the decision of the Malaysian High Court setting aside an earlier arbitral tribunal award in favour of operator, was disputed by the operator M/s Cairn Energy India Pty Ltd. The company is not a party to the dispute but has agreed to abide by the decision applicable to the operator. The company had made a provision towards the claim made by the Gol in earlieryears and the amount of provision outstanding as on 31st March, 2013 isRs.9,129.07 million (equivalenttoUSD 167.84 million) after adjustments for interest and exchange rate fluctuations. The Gol had recovered the above amount [including interest thereon USD 54.88 million (Rs. 2,984.92 million)] from the company in earlier years which has been carried as recoverable under Long Term Loans and advances in the Balance Sheet as at 31 st March, 2013.

In subsequent legal proceedings, the Appel late Authority of the Honorable Malaysian High Court of Kuala Lumpur had set aside the decision of the Malaysian High Court and the earlier decision of arbitral tribunal in favour of operator was restored, against which the Gol had preferred an appeal before the Federal Court of Malaysia. The Federal Court of Malaysia, vide its order dated 11 th October, 2011, had dismissed the said appeal of the Gol.

The company has taken up the matter regarding refund of the recoveries made in view of the favourable judgment of the Federal Court of Malaysia with MoP&NG. However, according to a communication dated 13th January 2012 received, MoP&NG expressed the view that ONGC''s proposal would be examined when the issues of ONGC carry under Rawa PSC is decided in its entirety by the Government along with other partners.

In view of the perceived uncertainties in obtaining the refund at this stage, the provision made in the books as above has been retained and netted off against the amount recoverable as above in the financial statements for the year ended 31 st March, 2013.

3. Deposit under Site Restoration Fund Scheme:

Asum ofRs. 101,331.21 million till 31.03.2013 (previous yearRs. 91,825.72 million) has been deposited with banks under section 33ABAof the Income TaxAct, 1961 and can be withdrawn only for the purposes specified in the Scheme i.e. towards removal of equipments and installations in a manner agreed with Central Government pursuant to an abandonment plan to prevent hazards to life, property, environment etc. This amount is considered as restricted cash and hence not considered as ''cash and cash equivalents''.

4.1 This includes an amount of Rs. 0.56 million (previous yearRs. 0.56 million) in respect of Carbon Credits.

5.1 The deposits maintained by the company with banks comprise time deposit, which can be withdrawn by the company at any point without prior notice or penalty on the principal. Fixed deposits ofRs. Nil (Previous yearRs.52,380.00 million) has been pledged to Banksagainst Short term loan taken from Banks.

5.2 Amount deposited in unclaimed dividend account is earmarked for payment of dividend and cannot be used for any other purpose.

6.1 Loans and advances to employees include an amount ofRs. 0.39 million (Previous YearRs. 0.24 million) outstanding from whole time directors.

6.2 During the financial year 2010-11, the Oil Marketing Companies, nominees of the Gol recovered USD 32.07 million (Rs. 1,744.29 million), ONGC''s share as per directives of Gol in respect of Jointly Controlled Assets - Panna, Mukta & Tapti. The recovery is towards certain observations raised by auditors appointed by the Director General of Hydrocarbons (DGH) under Production Sharing Contract (PSC) for the period 2002-03 to 2005-06 in respect of cost and profit petroleum share payable to Gol. BGEPIL along with RIL ("Claimants") have served a notice of arbitration on the Gol in respect of dispute, differences and claims arisen in connection with the term of Panna, Mukta & Tapti PSC''s. Since the company is not a party to the arbitration proceedings, it had requested MoP&NG that in case of an arbitral award, the same be made applicable to ONGC also, as a constituent of contractor for both the PSC''s. Subsequently, vide letter dated July 4,2011 MoP&NG has advised ONGC not to participate in the arbitration initiated by RIL & BGEPIL under Panna, Mukta & Tapti PSC''s. MoP&NG has also stated that in case of an arbitral award, the same will be applicable to ONGC also as a constituent of the contractor for both the PSC''s. Pending final arbitral award, the same has been shown as Receivable from Gol under ''Advance Recoverable in Cash or in kind orfor value to be received''.

7.1 Crude Oil Sales Agreements (COSA) with Indian Oil Corporation Limited (IOC) has been signed on 20th September, 2012. Since the COSAis made effective from 1st April, 2010, necessary adjustments amounting to Rs. 7,289.50 million (inclusive of VAT Rs.306.54 million) for 2010-11 and 2011-12 considering revised crude prices for supplies made to IOC for the period from IstApril, 2010 to 31 st March, 2012 have been made in books of accounts during 2012-13, by way of issue of credit notes.

7.2 COSA with Chennai Petroleum Corporation Limited (CPCL) has been signed on 15th May, 2013. Since the COSA is made effective from IstApril, 2010, necessary adjustments amounting toRs. 171.03 million (inclusive of VATRs. 11.97 million) for 2010-11 and 2011 -12 considering revised crude prices for supplies made to CPCLfor the period from 1 st April, 2010 to 31 st March, 2012 have been made in books of accounts during 2012-13, by way of issue of credit notes.

7.3 COSA with Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited HPCL was signed and implemented during 2011-12. Sales revenue in respect of crude Oil supplied to Mangalore Refinery and Petrochemicals Limited (MRPL) is based on the pricing formula agreed with the refinery in terms of erstwhile Moll. For Crude Oil produced in Assam, sales revenue is based on the pricing formula provided by MoP&NG.

7.4 Based on the directives issued by MoP&NG and Petroleum Planning and Analysis Cell (PPAC) vide letters dated 31st May, 2012 and 1st June, 2012 respectively, w.e.f. 1 April, 2012, refineries started making deductions from ONGC payments towards Octroi/VAT/CST on discounts allowed by ONGC to refineries on supplies of crude oil. Total deduction made by refineries on this account for the period from IstApril, 2012 to 31st March, 2013 works out toRs. 15,846.70 million. The same amount has been provided for in the accounts.

7.5 Recognition of revenue on account of Short Lifted Gas amounting toRs. 571.42 million (Previous YearRs. 55.45 million) has been postponed. This will be recognized when there is reasonable certainty regarding ultimate collection as per the policy of the company.

7.6 Sales revenue of Natural Gas is based on producer price fixed by Gol vide letter dated 31.05.2010 in respect of APM gas produced by National Oil Companies (NOCs) at US$ 4.2/mmbtu inclusive of royalty effective from 01.06.2010. For APM consumers, except for consumers in North Eastern states, the consumer price is same as producer price, i.e. US$ 4.2/mmbtu inclusive of royalty. For APM consumers in North-East, consumer price is 60% of the producer price, i.e., US$ 2.52/ mmbtu inclusive of royalty and the difference between producer price and consumer price is paid to the company through Gol Budget up to allocated quantity and shown as ''North-East Gas Subsidy''.

7.7 The company is supplying majority of Natural gas to GAIL (India) Limited (GAIL) which also purchases gas from other sources and sells to APM and non-APM consumers. Based on the Government directives, excess in Gas Pool Account at the end of financial year is transferred to ONGC I OIL in accordance with their contribution. Based on the details received from GAIL, an amount ofRs. 3700.00 million for Gas Pool Receipts for the current year,Rs. 339.23 million on account of interest on Gas Pool Account and reversal ofRs. 441.50 million w.r.t. previous year''s balance in Gas Pool Account, has been considered as ''Surplus from Gas Pool Account'' as on 31 st March, 2013.

8.1 As per the Farm Out agreement dated 5th November, 2012 entered into by the company with INPEX Offshore East India Ltd (INPEX), the company has agreed to transfer 26% Participating Interest (PI) in Block KG-DWN-2004/6 to INPEX for a consideration of USD 9.10 million (Rs. 494.95 million), with effect from IstApril, 2012. The approval of the Government of India for the assignment of PI, which is a condition precedent to the above agreement, has been received on 15th April, 2013 and accordingly, the consideration ofRs. 494.95 million has been accounted under the head miscellaneous receipts.

9.1 The Government has revised the rate of Cess from Rs.2,500/MT to Rs.4,500/MT w.e.f. 17.03.2012, resulting in the material increase in the expenditure.

9.2 Excise duty on sale of product has been deducted from Sales revenue and Excise duty shown above represents the difference between excise duty on opening and closing stock of finished goods.

9.3.1 During the year, the Company has recognised additional liability ofRs. 5,079.53 million towards revision in Long Service Rewards Scheme. Further, in terms of DPE guidelines, the company has recognized liability of Rs.18,504.79 million towards superannuation benefits to employees. These have been allocated to activities as per the policy of the company.

10. Disclosure under the Revised Accounting Standard -15 on "Employee Benefits"

10.1 Brief Description: A general description of the type of Defined Benefit Plans is as follows:

10.1.1 Earned Leave (EL) Benefit :-

Accrual - 30 days per year

Encashment while in service - 75% of Earned Leave balance subject to a maximum of 90 days per calendar year Encashment on retirement - maximum 300 days

10.1.2 Good Health Reward (Half pay leave) :- Accrual - 20 days per year Encashment while in service - Nil

Encashment on retirement - 50% of Half Pay Leave balance.

10.1.3 Gratuity:-

15 days salary for each completed year of service. Vesting period is 5 years and the payment is restricted toRs. 1.00 million.

10.1.4 Post-Retirement Medical Benefits :-

Upon payment of one time prescribed contribution by the employees, full medical benefits on superannuation and on voluntary retirement subject to the completion of minimum 20 years of service and 50 years of age.

10.1.5 Terminal Benefits:-

At the time of superannuation, employees are entitled to settle at a place of their choice and they are eligible for Transfer Travelling Allowance. Employees are gifted gold coins also, depending upon their level and years of service.

10.4 The amounts included in the fair value of plan assets of gratuity fund in respect of Reporting Enterprise''s own financial instruments and any property occupied by, or other assets used by the reporting enterprise areRs. Nil (Previous YearRs. Nil)

11 Disclosure under Accounting Standard -17 on "Segment Reporting"

The segment information is presented under the Notes to the Consolidated Financial Statements as required under the standard.

12 Disclosure under Accounting Standard -18 on "Related Party Disclosure":

12.1 Key Management Personnel:

Whole-time Functional Directors:

i) Shri Sudhir Vasudeva, Chairman and Managing Director

ii) Shri K.S. Jamestin

iii) Shri A. K. Banerjeefrom22.05.2012

iv) Shri P. K. Borthakurfrom 30.10.2012

v) Shri Shashi Shankerfrom 01.12.2012

vi) ShriN.K.VermafromOI.04.2013

vii) ShriS.V. Raoupto31.03.2013

viii) ShriU. N. Boseupto30.11.2012

ix) Shri A. K. Hazarikaupto30.09.2012

13 Disclosure under Accounting Standard -19 on ''Leases''

The company has certain office/residential premises on Operating Lease which are cancellable by giving appropriate notice as per the respective agreements. During the year Rs.914.03 million (Previous year Rs.799.74 million) had been paid towards cancellable Operating Lease.

14 Disclosure under Accounting Standard - 27 on Financial Reporting of Interest in Joint Ventures:

14.1.1 In respect of 16 NELP blocks (previous year 16) which have expired as on 31 st March, 2013, the Company''s share of Unfinished Minimum Work Programme (MWP) amounting to Rs. 19,560.95 million (previous year to Rs.23,949.27 million) has not been provided for since the company has already applied for further extension of period in these blocks as ''excusable delay''/ special dispensations citing technical complexities, within the extension policy of NELP Blocks, which are under active consideration of Gol. The delays have occurred generally on account of pending statutory clearances from various Govt, authorities like Ministry of Defense, Ministry of Commerce, environmental clearances, State Govt, permissions etc. The above MWP amount of Rs. 19,560.95 million (previous yearRs. 23,949.27 million) is included in MWP commitment under note no. 43.2.1.

14.1.2 As per the Production Sharing Contracts signed by the Company with the Gol, the Company is required to complete Minimum Work Programme (MWP) within stipulated time. In case of delay in completion of the MWP, Liquidated Damages (LD) is payable for extension of time to complete MWP. Further, in case the Company does not complete MWP or surrender the block without completing the MWP, the estimated cost of completing balance work programme is required to be paid to the Gol. LD amounting toRs. 293.30 million (Previous yearRs. 870.42 million) and cost of unfinished MWP Rs.217.14 million (Previous yearRs. 146.57 million) paid/payable to the Gol is included in survey and wells written off expenditure.

15 Disclosure under Accounting Standard - 28 on "Impairment of Assets"

15.1 The Company is engaged mainly in the business of oil and gas exploration and production where each cost centre used for depreciation (depletion) purposes is identified as independent Cash Generating Unit (CGU) for assessing the impairment in Producing Properties and fixed assets etc. on the basis of ''value in use''. The Company has tested all its CGUs for impairment as on 31.03.2013 by applying discount rates of 20.10% (previous year 20.40%) for Rupee transactions and 14.00% (previous year 13.67 %) for crude oil and value added products revenue measured in USD as on 31.03.2013.

15.2 During the yearRs. 3,014.50 million (Previous YearRs. 932.83 million) is provided as impairment loss. Out of this an amount of Rs. 2,363.50 million (Previous Year nil) has been provided in respect of Eastern Offshore Asset, Rajahmundry.Rs. 45.36 million (Previous YearRs. 83.30 million) has been provided as additional impairment in respect of onshore CGUs - Jodhpur and Silchar and for offshore CGU- Ratna,Rs. 31.02 million (Previous YearRs. 75.83 million) and D18Rs. 6.98 million (Previous Year nil) has been provided on account of increase in the estimate of abandonment liability. In addition,Rs. 23.40 million (Previous YearRs. 154.99 million) pertaining to block CY-OS-90/1 (PY-3) has been provided as presently the field does not have any potential to produce. An amount ofRs. 453.11 million (Previous YearRs. 540.14 million) mainly represents additional impairment charge in respect of certain onshore Pre-NELP Joint Ventures (RJ ON 6 and CB ON 2) due to adjustment of cost recovery from revenue and sharing of 100% royalty. Balance amount ofRs. 91.12 million has been provided in Rajahmundry onshore CGU for CWIP

Further,Rs. 756.47 million (Previous YearRs. 827.73 million) has been reversed as impairment loss for Onshore CGU - Silchar and Jodhpur during the year.

16 Other Disclosures under Schedule VI to the Companies Act, 1956:

16.1 Capital Commitments:

Estimated amount of contracts remaining to be executed on capital account: -

i) In respect of Company-Rs.87,601.57 million (Previous yearRs. 114,069.33 million).

ii) In respect of Joint Ventures - Rs.5,611.71 million (Previous yearRs.3,561.76 million).

16.2 Other Commitments

16.2.1 Estimated amount of Minimum Work Programme (MWP) committed under various ''Production Sharing Contracts'' with Government of India/ Nominated Blocks:

i) In respect of Nominated Blocks Rs.958.54 million (Previous year Rs.282.68 million).

ii) In respect of NELP blocks in which the Company has 100% participating interest -Rs. 12,305.38 million (Previous year Rs.15,052.01 million).

iii) In respect of NELP blocks in Joint Ventures, company''s share- Rs.62,127.36 million (PreviousyearRs. 71,183.60 million). 16.2.2 The Board of directors has approved loan uptoRs. 50,000.00 million (Previous yearRs. 50,000.00 million) to Mangalore Refinery & Petrochemicals Limited (MRPL), a subsidiary of the Company. Out of whichRs. 33,000.00 million (previousyearRs. 26,000.00 million) has been disbursed and Rs. 17,000.00 million (previous year Rs.24,000.00 million) can be availed by MRPL on or before 30th September, 2013.

16.2.3 The Company has given an undertaking to Power Finance Corporation Limited (PFC), for an additional funding up toRs. 2,223.80 million (previousyearRs. 2,234.00 million) in respectof ONGC Tripura Power Co. Limited (OTPC) for cost overrun, if any.

16.3.1 The above claims I demands are at various stages of appeal. In the opinion of the management, these claims I demands are not tenable.

16.3.2 This includes an amount ofRs. 16,240.00 million towards infusion of one time grant to Post Retirement Benefit Scheme for conversion of defined benefitscheme to defined contribution scheme, pending approval from MoP&NG.

16.4 Corporate Guarantees executed by the Company on behalf of its wholly owned subsidiary, ONGC Videsh Limited (OVL) and ONGC Nile GangaBV (wholly owned subsidiary of OVL):

16.4.1 Guarantees executed forfinancial obligations:

i) Amount of GuaranteeRs. 91,285.50 million (Previous yearRs. 42,372.48 million)

ii) Amount outstandingRs. 73,774.85 million (Previous yearRs. 30,845.81 million)

16.4.2 Performance Guarantees executed underthe contracts:

Guarantee in respect of Sakhalin Project in favour of Exxonneftgas Ltd., M/s. Roseneft-S, SMNG-S and RN-Astra towards performance of OVL''s obligation under Joint Operating Agreementwithout any financial ceiling.

16.4.3 Corporate Guarantees executed by the Company on behalf of its subsidiary, MRPL:

i) Amount of Guarantee Rs. 12,237.75 million (Previous yearRs. 8,179.20 million)

ii) Amount outstandingRs. 11,262.75 million (Previous yearRs. 4,071.20 million)

17 Disclosure on Foreign currency exposures at year end that have not been hedged by derivative instrument or otherwise:

The Company has receivables and payables in foreign currency as at the balance sheet date. These foreign currency exposures are not hedged by any derivative instruments or otherwise.

18 The Company has a system of physical verification of Inventory, FixedAssets and Capital Stores in a phased manner to coverall items over a period of three years. Adjustment of differences, if any, is carried out on completion of reconciliation.

19 Some balances of Trade/Other Receivables, Trade/Other Payables and Loans & Advances are subject to confirmation/ reconciliation. Adjustments, if any, will be accounted for on confirmation/ reconciliation of the same, which will not have a material impact.

20 Previous year''s figures have been regrouped/ reclassified, wherever necessary, to confirm to current year''s classification.

21 Figures in parenthesis as given in these Notes to Financial Statement relate to previous year.


Mar 31, 2012

1. Corporate Information

Oil and Natural Gas Corporation Limited ('ONGC' or 'the Company') is a public limited company domiciled in India and incorporated under the provisions of Companies Act, 1956. Its Shares are listed and traded on Stock exchanges in India. The Company is engaged in exploration, development and production of Crude oil and natural gas.

Notes

1.1 Terms / rights attached to equity shares

The Company has only one class of equity shares having a par value of Rs.5 Per share. Each holder of equity shares is entitled to one vote per share. The company declares and pays dividends in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting.

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

1.2 Pursuant to the approval of the members dated 28.01.2011, during the financial year 2010-11, one Equity share having face value of Rs.10/- each had been sub-divided into two Equity Shares of Rs.5/- each and bonus shares in proportion of one new Equity bonus Share of Rs.5/- each held on 09.02.2011 (record date) had been allotted. Company has issued total 4,277.75 million (Previous Year 4,277.75 million) Equity shares of face value of Rs. 5 each issued as fully paid up by way of bonus shares during the period of five years immediately preceding the reporting date.

2.1 Represents assessed value of assets received as gift.

2.2 The Board of Directors has recommended a final dividend of Rs.2.00 per share which is subject to the approval of the shareholders in the ensuing Annual General Meeting over and above the interim dividend of Rs. 7.75 (Rs. 6.25 and Rs. 1.50) per share paid in two phases.

3.1 No amount is due for payment to investor education and protection fund.

4.1 Plant & Machinery includes an amount of Rs. 8,159.95 million (Previous Year Rs. 7,841.69 million) in respect of Capital Works in Progress (CWIP) for C2-C3 plant which is mechanically complete and will be capitalized on completion of test run which is pending due to non receipt of approval for allocation of gas from Ministry of Petroleum and Natural Gas (MoP & NG) for swap arrangement through GAIL.

5.1 During the financial year 2004-05, the company had acquired 90% participating Interest in Exploration Block KG-DWN-98/2 from M/s Cairn Energy India Ltd, for a lump sum consideration of Rs.3,711.22 million which, together with subsequent exploratory drilling costs of wells had been capitalized under Exploratory Wells in Progress. Initial-in-Place- Reserves have been established in this block and a conceptual development plan as part of the proposal for Declaration of Commerciality had been submitted on 21.12.2009 for Southern Discovery Area and on 15.07.2010 for Northern Discovery Area to Management Committee (MC) for review. There is no significant change in the status of this block during the current year. Pending final decision on the DOC by the MC, as a matter of abundant caution, the Company has made a provision of Rs. 9,412.09 million (including provisions created in earlier years Rs. 9,401.34) towards exploratory wells which are more than two years old from the date of completion of drilling.

5.2 As per the production sharing Contracts signed by the Company with the Gol, the Company is required to complete Minimum Work Programme (MWP) within stipulated time. In case of delay in completion of the MWP, Liquidated Damages (LD) is payable for extension of time to complete MWP. Further, in case the Company does not complete MWP or surrender the block without completing the MWP, the estimated cost of completing balance work programme is required to be paid to the Gol. LD amounting to Rs. 870.42 million (previous Year Rs. 113.72 million) and cost of unfinished MWP Rs. 146.57 million (Previous Year Rs. 919.81 million) paid / payable to the Gol is included in survey and wells written off expenditure.

6.1 GBP one each, total value Rs. 6,885/-

6.2 Since the Bond is maturing in September 2012, the same has been shown under Current Investment.

7.1 Loans and advances to employees include an amount of Rs.0.11 million (Previous Year Rs. 0.15 million) outstanding from whole time directors.

7.2 In Ravva Joint Venture, the demand towards additional profit petroleum raised by the Government of India (Gol), due to differences in interpretation of the provisions of the production sharing contract in respect of computation of post tax rate of return (PTRR), based on the decision of the Malaysian High Court Setting aside an earlier arbitral tribunal award in favour of operator, was disputed by the operator M/s Cairn Energy India Pvt. Ltd. The Company is not a party to the dispute but has agreed to abide by the decision applicable to the operator. The Company had made a provision towards the claim made by the Gol in earler years and the amount of provision outstanding as on 31st March, 2012 is Rs. 8,580.22 million (equivalent to USD 167.84 million) after adjustments for interst and exchange rate fluctuations. The Gol had recovered the above amount [including interest there on USD 54.88 million (Rs. 2,829.86 million)] from the company in earlier years which has been carried as recoverable under Long Term Loans and advances in the Balance Sheet as at 31st March, 2012.

In subsequent legal proceedings, The Appellate Authority of the Honourable Malaysian High Court of Kualal Lumpur had set aside the decision of the Malaysian High Court and the earlier decision of arbitral tribunal in favour of operator was restored, against which the Gol has preferred an appeal before the Federal Court of Malaysia. During the year, The Federal Court of Malaysia, vide its order dated 11th October, 2011, has dismissed the said appeal of the Gol.

The Company has taken up the matter regarding refund of the recoveries made in view of the favourable judgment of the Federal Court of Malaysia with MoP & NG. However, according to a communication dated 13th January, 2012 received, MoP & NG expressed the view that ONGC's proposal would be examined when the issue of ONGC carried under Ravva PSC is decided in its entirety by the Government along with other partners.

In view of the perceived uncertainites in obtaining the refund at this stage, the provision made in the books as above has been retained and netted off against the amount recoverable as above in the financial statements for the year ended 31st March, 2012.

7.3 The Finance (No.2) Act, 2009, has specified the definition of "undertaking" for the purpose of claiming tax holiday under section 80-IB(9) of Income Tax Act, 1961 to be 'all blocks licensed under a single contract' retrospectively whereas the company had earlier considered each "Well" as an undertaking. Since the Amendment still requires clairty on various issues and also considering the advice of legal experts, the company continued to make provision for tax withour considering the benefit under section 80-IB(9).

8. Deposit under Site Restoration Fund Scheme:

A sum of Rs. 91,825.72 million till 31.03.2012 (previous year Rs. 81,155.06 million) has been deposited with banks under Section 33ABA of the Income Tax Act, 1961 and can be withdrawn only for the purposes specified in the Scheme i.e towards removal of equipments and installations in a manner agreed with Central Government pursuant to an abandonment plan to prevent hazards to life, property, environment etc. This amount is considered as restricted cash and hence not considered as 'cash and cash equivalents'.

9.1 The deposits maintained by the company with banks comprise time deposit, which can be withdrawn by the company at any point without prior notice or penalty on the principal. Fixed deposits of Rs. 52,380.00 million (previous year Nil) have been pledged to Banks against short term loan taken from Banks.

9.2 Amount deposited in unclaimed divided account is earmarked for payment of dividend and cannot be used for any other purpose.

10.1 Loans and advances to employees include an amount of Rs. 0.24 million (previous Year Rs. 0.11 million) outstanding from whole time directors.

10.2 During the financial year 2010-11, the Oil Marketing Companies, nominees of the Gol recovered USD 32.07 million (Rs. 1,639.55 million), ONGC's share as per directives of the Gol in respect of Jointly Controlled Assets-Panna Mukta & Tapti. The recovery is towards certain observations raised by auditors appointed by the Director General of Hydrocarbons (DGH) under production Sharing Contract (PSC) for the period 2002-03 to 2005-06 in respect of cost and profit petroleum share payable to Gol. BGEPIL along with RIL ("Claimants") have served a notice of arbitration on the Gol in respect of dispute, differences and claims arisen in connection with the term of panna, Mukla and Tapti PSC's. Since the company is not a party to the arbitration proceedings, it had request MoP&NG that in case of an arbitral award, the same be made applicable to ONGC also, as a constituent of contractor for both the PSCs. Subsequently, vide letter dated july 4,2011 MoP&NG has advised ONGC not to participate in the arbitration initiated by RIL&BGEPIL under Panna, Mukta & Tapti PSCs. MoP&NG has also stated that in case of an arbitral award, the same will be applicable to ONGC also as a constituent of the contractor for both the PSCs. Pending final arbitral award, the same has been shown as Receivable from the Gol under 'Advance Recoverable in Cash or in Kind'.

11.1 New Crude Oil Sales Agreements (COSAs), with Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL), have been signed on 5th January, 2012 and 12th April, 2012 respectively. Since, the new COSA is made effective from 1st April, 2010, necessary adjustments amounting to Rs. 173.40 million considering revised crude prices for supplies made to BPCL and HPCL Refineries w.e.f 1st April, 2010 have been made in the accounts of 2011-12.

11.2 Sales revenue in respect of Crude Oil supplied to other refineries (other than BPCL and HPCL) is eased on (he pricing formula agreed with the refineries in items of eratwhile MoU. For crude oil produced in Assam, sales revenue is based on the pricing formula provided by MoP&NG. COSA with Indian Oil Corporation limited (IOCL) is under finalizalion stage, with proposed effective dates of 11,April. 2010. As IOC is making the payment as per initialed COSA, firs their provision amount n g to Rs. 2,010.70 million (Previous Year Rs. 1,075.10 million) has been made during the year Provision made till 31st March, 2012 is Rs.3.065.BD million (Previous Year Rs. 1,075.10 million).

11.3 Sales revenue of Natural Gas is based on producer price feed by the Col vide letter dated 31.05.2010 in re sped of ARM gas produced by National Oil Companies (NOCs) at USS 4.2/mm Mu inclusive of royally effective from 01.06.2010. For APM consumer, except for consumers in North Eastern states, the consumer price is same as producer price, i.e. US$ 4,21 mm be the Inside of royalty, For APM consumers in North-East, consumer price is 60% of the producer price, i ,e,, US$ 2,521 mmbtu inclusive of royalty and the difference between producer price and consumer price is paid lo the company through UneGol Budget and shown as'North-East Gas Subsidy'.

11.4 The company Is supplying majority of Natural gas to GAIL (India) Limited which also purchases gas from other sources and sells to APM and non-APM consumers. Based on the Government directives, excess in Gas Pool Account at the end of financial year is transferred to ONGC/Oil India Limited (OIL) In accordance with their contribution. Based on the details received from GAIL, an amount off 1,946.33 million (Previous Year Rs. 21,914.90 million) has been considered as 'Surplus from Gas Pool Account.

11.5 In terms of the decision of Government of India (Gol), the company has stared under-recoveries of Oil Marketing Companies (OMCs) on price sensitive products viz Diesel, Domestic LPG and PDS Kerosene for the year 2011-12 by extending the discount in the prices of Crude Oil, Domestic LPG and POS Kerosene based on the rates of discount communicated by Petroleum Planning and Analysis Cell (PPAC). Ministry of Petroleum and Natural Gas (MoP&NG). The impact of discount is as under:

12.1 Excise duty on sale of product has been deducted from Sales revenue and Excise duty shown above represents the difference between excise duty on opening and dosing stock of finished goods.

13. Disclosure under the Revised Accounting Standard -16 on "Employee Benefits"

14.1 Brief Description: A general description of It type Of Defined Benefit Plans is as follows:

15.1 A Earned Leave (EL) Benefit:-

Accrual - 30 day s per year

Encashment while in service - 75% of Earned Leave balance subject to a maximum of 90 days per calendar year

Encashment on retirement- maximum 300days

16.1.2 Good Health Reward (Half pay leave)

Accrual - 20 days per year Encashment white in service - Nil

Encashment in retirement - 50% of Half Pay Leave balance.

16.1.3 Gratuity:-

15 days salary for every completed year of service. Vesting period is 5 years and Die payment is resented toRs.1.DO million.

16.1.4 Post Retirement Medical Benefits:-

Upon payment of one time prescribed contribution by the employees, lull medical benefits on superannuation and on voluntary retirement subject to the completion of minimum 20 yea re of service and 5G years of age.

16.1.5 terminal Benefits:-

At the time of superannuation, employees are entitled to settle at a place of their choice and they am eligible for Transfer Travelling Allowance, Employees are gifted a sliver plaque also, depending upon their level.

The discount rate is based upon the market yield available on Government bonds at the Accounting dale with a term that matches. The salary growth rate takes account of inflation, seniority, promotional other relevant factor on long term basis. Expected rate of return on plan assets is based on market expectations, at the beginning of the year, for return over the entire life of the related obligation.

17. Disclosure under Accounting Standard-16 on "Borrowing Costs"

The Company did not incur arty borrowing cost for any qtialifying asset, No borrowing cost is capitalized during the year (previous year Nil),

18. Disclosure under Accounting Standard -17 on " Segment Reporting"'

The segment information is presented under the Notes to the Consolidated financial Statement as required under the standard.

19. Disclosure under Accounting Standard-18 on "Related Party Disclosure"

19.2 Key Management Personnel:

Whole-time Functional Directs

i) Shri Sudhir Vasudeva, Chairman and Managing Director from 03.10.2011

ii) Shri A. K. Hazarika, holding additional Charge of Chairman and Managing Director up to 03.10.3011

iii) ShriU.N. Bose

iv) Shri D K.Sarrf up to 15.09.2011

v) Shri S V Rao

vi) Shri K.S. Jamestin from 25.05.2D11

20. Disclosure under Accounting Standard -19 on "Leases"

The company has certain office / residential premises on Operating Lease which are cancellable by giving appropriate notice as per the respective agreements. During the year Rs. 799.74 million (Previous year Rs.749.63 million) had been paid towards cancellable Operating Lease.

21. Disclosure under Accounting Standard - 27 on Financial Reporting of Interest in Joint Ventures;

21.1. Jointly Controlled Assets

In respect of certain blocks., the Company's Joint Ventures (JV) with certain corporate bodies have entered into Production Sharing Contacts (PSCs) with the Gol, Details of these blocks and JVs as on 31.03-2012 are as under:

21.2.1 The financial statement of 128 (Previous Year 128) out of 139 (Previous Year 135) JV&NELP as per note no. 41.3 have been incorporated in the accounts to the extent of company's participating interest in assets, liabilities, Income, expenditure and profit/(loss) before tax on the basis of statements certified in accordance with production sharing contact and the same has been adjusted for changes as per Note No. 2.1.1.

21.2.2 In respect of balance 11 (Previous Year 7) JVs/NELP assets, liabilities, income and expenditure amounting to Rs. 1,026.31 Million (Previous year Rs.47.51 Million), Rs.1,933.61 million (Previous Year Rs. 782.66 million), Rs. 370,31 million (Previous Year Rs. 55.28 million) and Rs.2,053.41 million (Previous Year Rs. 943.31 million) respectively have been incorporated on the basis of uncertified statements prepared under the production sharing controls and the same has been adjusted for changes as per Note No. 2.1.1.

21.2.3 The company has acquired 10% Participating interest (PI) of Caim Energy India Limited (CEIL) in the Block KG DWN 98/2 on actual past cost basis. Accordingly a Heads of Agreement (HOA) was signed between ONGC & CEIL on 11.1.2012 for a provisional sum of Rs. 2,387.82 Million (USD 46.71 Million) as consideration. The effective date of transfer of PI shall be the date of Government approval, which is pending. Hence, no adjustment is made in the accounts towards the same.

21.2.4 The company has acquired the Participating Interest (PI) of British Gas Exploration & Production India Ltd (BGEPIL) In the following blocks, effective from the following dates as approved by the board of directors.

British Gas has agreed to pay a lump sum amount of USD 50 Million, towards full and final settlement of carry costs/cash calls due in all the above blocks, subject to government approval, which is pending. Hence, no adjustment for this sum is made in the accounts towards the lump sum amount due as above.

22 Disclosure under Accounting Standard -28 on ''Impairment of Assets"

22.1 The Company is engaged mainly in the business of oil and gas exploration and production where each cost centre used for depreciation (depletion) purposes is identified as independent Cash Generating Unit (CGU) for assessing the impairment in Producing Properties and fixed assets etc. on the basis of 'value in use'. The Company has rested all its CGUs for Impairment as on 31.03.2012 by applying discount rates of 20.40% (Previous Year 17.16 for Rupee transactions and Rs.13.67 % (Previous Year 12.80 %) for crude oil and value added product's revenue measured in USD as on 31.03.2012.

22.2 During the year Rs.932.83 million (Previous Year Rs.1534,73 million) is provided as impairment loss. Out of this Rs.83.30 million (Previous Year Rs.600.07 million) has been provided as additional impertinent in respect of onshore CGUs - Jodhpur and Silchar for offshore CGU- Ratna, Rs. 76.93 million (Previous Year nil) has been provided on account of increase in the estimate of abandonment liability. In addition, Rs. 154.99 million (Previous Year nil) pertaining to block CY-OS-90/1 (PY-3) has been provided as presently the field has potential only to produce for next two years and an amount of Rs. 76.57 million (Previous Year nil) has been provided in respect of Tatipaka mini Refinery, Rajahmundry. Balance amount of Rs. 540.14 million (Previous Year Rs. 934.66 million) mainly represents additional impairment charge in respect of certain onshore NELP blocks due to adjustment of cost recovery from revenue and sharing of 100% royalty.

Further, Rs. 827.73 million (Previous Year Rs. 192.53 million) has been reversed as impairment loss during the year. Out of this, an amount of Rs.791.25 million (Previous Year nil) has been reversed for offshore- Krishna Godavari CGU, Rajahmundry due to better economic performance of the asset based on the future production profile. Balance amount reversed is attributable to Jodhpur and Silchar onshore due to transfer of assets to another CGU and change in estimation of abandonment liability in respect of offshore.

23 Other Disclosures under Schedule VI to the Companies Act, 1956:

23.1 Capital Commitments:

Estimated amount of contacts regaining to be executed on capital account;-

i) In respect of Company- Rs. 114,069.33 million (Previous Year Rs.164,076.06 million).

ii) In respect of Joint Ventures- Rs. 3.581.76 million (Previous Year Rs. 145.45 million).

23.2 Other Commitments

44.2.1 Estimated amount of Minimum Work Programme (MWP) committed under various 'Production Sharing Contracts' with Government of India/ Nominated Blocks:

i) In respect or NELP blocks in which the Company has 100% participating interest - Rs. 15,052.01 million (Previous Year S2.5S&W million).

ii) In respect to Nominated Stocks million (Previous Yea rRs.374.D4 million).

iii) In respect or NELP blocks in Joint Ventures - Rs. 71,103,60 million {Previous YearRs. 92,560.05 million).

23.2.2 Board has approved the loan up to Rs. 50,000,00 million (Previous Year Nil) lo MRPL, a subsidiary of the Company, Out of whichRs. 26,000.00 million has been disbursed and Rs. 24,000.00 million ca n be availed by MRPL up to 31st December, 2012.

23.2.3 The Company has given an undertaking to Power Finance Corporation (PFC), for an additional funding up to Rs.2,234.00 million (Previous Year Rs.2.234.00 million) m respect of ONGC Tripura Power Co. Limited (OTPC) For cost overrun, if any.

The above claims I demands are at various stages of appeal and in the opinion of the Company, the same are not tenable.

23.4 Corporate Guarantees executed by the Company on behalf of its wholly owned subsidiary, ONGC Videsh United (OVLJ and ONGC Nile Ganga BV (wholly owned subsidiary of OVL):

23.4.1 Guarantees executed for financial obligations:

i) Amount of GuaranteeRs. 42,372.45 million (Previous year Rs.38,371.66 million).

ii) Amount Outstanding Rs. 30.845.81 million (Previous yearRs. 33,934.69 million).

23.4.2 Performance Guarantees executed under the contracts:

Guarantee in respect of Sakhalin Project in favour of Exxonnafigas Lid., M/s, Rosenefit-S, SMNG-S and RN-Astra towards performance of Company's obligation under Joint Operating Agreement without any financial ceiling.

23.5 Corporate Guarantees, executed by the Company on behalf of its subsidiary, HRPL:

i) Amount of Guarantee T 8,179.20 million (Previous year Rs.7,155.20 million}.

ii) Amount Outstanding Rs.4,071,20 million (Previous year Rs. 3,443.93 million),

23.6 Uncalled liability On parity paid shares is Rs.1,337.19 million (Previous Year Rs. 1,337.19 million) against Which advance paid Rs.1,233.87 million (Previous Year Rs. 1,233.87 million].

Notes;

1. Production includes internal consumption and intermediary losses.

2. Production of 1,013 MT (Previous year 203,799 MT) Crude Oil and 15,175 TM1 (Previous year 17,059 TM1) of Natural Gas is induced which is the difference between participating interest and entitlement interest in respect of CB-ON/3, CB-QN/2 and RJ-0N/6JVs.

3. Crude oil production includes condensate of 1.952 MMT (Previous Year 2.042 MMT).

Notes:

1. Loan to QVL is repayable within a notice period of minimum one year and carries no interest during the year 2010-11 and 2011-12.

2. Loan to MRPL comprises two loans: First loan carries interest @ 7% per annum and is repayable at quarterly intervals.

Second loan carries interest @ SBI Prime Lending Rate (SBAR) with a spread of minus 385 basis points. Repayment of the loan will start in 2& equal installments starting from 31.03.3014. QNGC can call these loans on notice of 90 days, MRPL can also prepay whole or part of the loan to ON GC as per its requirement.

3 The Company has not advanced any money to its employees for the purposes of investment in the securities of the Company.

24. Pursuant to the finalization of the agreement between ONGC, Claims Energy Pic, Vedanta Resources Pic and their associates during the year, the royalty paid by ONGC in respect of RJ-QN-9Q/1 Block has been treated as contact cost eligible for cost recovery. As a result, an income of Rs.31,405 47 million received from M-s Claim India Ltd. towards Royalty paid for the period August 200$ to September 2011 has been disclosed as an exceptional item.

25. The Company has a system of physical verification of Inventory, Fixed Assets and Capital Stores in a phased manner to cover all items over a period of three years. Adjustment of differences, if any. is earned out on completion of reconciliation.

26. Some balances of Trade/Other Receivables, Trade/Other Payables and Loans A Advances are subject to confirmation/ reconciliation. Adjustments if any, will be accounted for on confirmation.' reconciliation of the same, which will not have a material impact.

27. Previous year's figures have been regrouped/ reclassified, as required under Revised Schedule-Vi to the Companies Act, 1956 wherever necessary, to confirm to current year's classification.

28. figures in parenthesis as given in these Notes to Financial Statement relate to previous year.


Mar 31, 2010

1. In terms of the decision of Government of India (Gol), the Company has shared under-recoveries of Oil Marketing Companies (OMCs) for the year 2009-10 by allowing discount in the prices of Crude Oil, PDS Kerosene and domestic LPG based on provisional rates of discount communicated by Petroleum Planning and Analysis Cell, Ministry of Petroleum & Natural Gas (MoP&NG). The Company does not foresee any material impact on finalization of discount rates.

2.1 Sales revenue in respect of Crude Oil is based on the pricing formula agreed with the customers for the period from 01.04.2002 to 31.03.2004. Pending finalization of fresh Memorandum of Understanding (MOU)/Crude Oil Sale Agreement (COSA) with the customers, the same pricing formula has been provisionally adopted from 01.04.2004 onwards. However, for Crude Oil produced in Assam, benchmark price revised by MoP&NG w.e.f. 01.04.2008 has been adopted.

2.2 Sales revenue in respect of Natural Gas under Administered Price Mechanism (APM) is based on the gas prices fixed on provisional basis as per directives dated 20.06.2005 and 05.06.2006 of the Gol, MoP&NG.

2.3 Adjustments, if any, on account of Para 2.1 and 2.2 above shall be carried out on finalization of agreements/ receipt of government directives. However, the Company does not foresee any material impact on current years results.

3. MoP&NG vide letters dated 15.03.10 and 09.04.10 have directed GAIL (India) Limited (GAIL) that difference between consumer price and producer price revised vide MoP&NG letter dated 5th June, 2006 for APM gas being supplied to City Gas Distribution Projects and small consumers having allocations up to 0.05 MMSCMD should be transferred by GAIL from surplus in Gas Pool Account to the producers. Accordingly, an amount ofRs. 4,415.79 million on account of above for the period from 06.06.06 to 31.03.10 has been recognised during the current year.

4. The MOU for trading in products of Mangalore Refinery and Petrochemicals Limited (MRPL), a subsidiary of the Company, expired on 31st March, 2009, and accordingly no trading activity of their products was carried out during the year. Sales revenue and Purchases on account of trading of such products in the previous year was Rs. 85,098.15 million and Rs. 85,073.62 million respectively.

5.1 During the year, the Company has changed its accounting policy on abandonment cost and started providing the full eventual estimated liability towards costs relating to dismantling, abandoning and restoring of onshore well sites. Such cost of onshore well site has been capitalized to Producing Property/Development Wells in Progress /Exploratory Wells in Progress when completed and in case of dry wells it is charged to Profit & Loss account. This has resulted in increase in Producing Property by Rs. 8,353.36 million, Exploratory Wells in Progress by Rs. 166.64 million and Development Wells in Progress by Rs. 102.57 million with corresponding increase in abandonment liability by Rs. 8,622.57 million. This has also resulted in increase in Depletion cost by Rs. 403.72 million and cost of dry wells by Rs. 88.50 million with corresponding decrease in profit before tax by Rs. 492.22 million.

5.2 Further, in case of offshore wells, upto the previous year the Company was providing full eventual estimated liability towards costs relating to dismantling, abandoning and restoring of offshore wells/facilities that were forming part of producing properties. However, during the current year, the Company started providing such liability in respect of wells completed and facilities capitalized also whether they are transferred to Producing Property or not. This has resulted in increase in Development Wells in Progress by Rs. 305.52 million and corresponding increase in abandonment liability by a similar amount. This has no impact on profit before tax.

6. During the year, the Company changed its accounting policy of amortising intangible assets from Written Down Value Method @ 40% to Straight Line Method over the useful life not exceeding a period of 5 years in order to systematically amortize its intangible assets. This has resulted in decrease in Depreciation, Depletion, Amortisation and Impairment by Rs. 424.55 million, consequently activity cost decreased by Rs. 3.22 million and Profit before tax increased by Rs. 421.33 million.

7. In Ravva Joint Venture, the demand towards additional profit petroleum raised by Gol, based on the decision of the Malaysian High Court, was disputed by the Operator M/s. Cairn Energy India Limited, due to difference in interpretation of provision of Production Sharing Contract (PSC) in respect of computation of Post Tax Rate of Return (PTRR). The Company is not a party to the dispute but agreed to abide by the decision applicable to the Operator. As the dispute between the Operator and Gol was not resolved, the Company made a provision in Financial Year 2008-09 amounting to Rs. 5,771.14 million (USD 113.82 million) on account of additional profit petroleum and Rs. 2,829.86 million (USD 54.88 million) towards interest thereon totaling to Rs. 8,601.00 million (USD 168.70 million) as an abundant precaution. Gol has recovered such amount subsequently.

The appellate authority of Honorable Malaysian High Court of Kuala Lumpur, Malaysia has set aside the decision of the Malaysian High Court and the decision of arbitral tribunal in favour of Operator was restored on 15th September 2009, Gol has filed an appeal in the Federal Court of Malaysia against such restoration.

An additional interest of Rs. 65.41 million (USD 1.45 million) has been provided during the year. Pending final outcome of this appeal, the provision is retained at Rs. 7,679.21 million (USD 170.15 million) net of reversal of Rs. 987.20 million towards exchange gain during the year.

8. The Company acquired 90% Participating Interest in Exploration Block KG-DWN-98/2 from M/s Cairn Energy India Ltd. in 2004-05 for a lump sum consideration ofRs. 3,711.22 million which was capitalized under Exploratory Wells in Progress as per Accounting Policy No. 6.3. Subsequent exploratory drilling costs of wells in this block were capitalized as Exploratory Wells in Progress. Initial-in-Place-Reserves have been established in this block and a conceptual development plan is also under preparation. This being deep water block, needs more time for completion of appraisal programme. However, the Company as an abundant precaution made a provision ofRs. 6,104.80 million and Rs. 2,360.39 million in respect of above costs in 2007-08 and 2008-09 respectively. Since there is no significant change in status of this block during the current year, the expenditure amounting to Rs. 918.48 million on the wells completed upto 31 st March 2008, being more than two years old is provided for in the current year.

9. As perthe Production Sharing Contracts signed by the Company with the Gol, the Company is required to complete Minimum Work Programme (MWP) within stipulated time. In case of delay in completion of the MWP, Liquidated Damages (LD) is payable for extension of time to complete MWP. Further, in case the Company does not complete MWP or surrender the block without completing the MWP, the estimated cost of completing balance work programme is required to be paid to the Gol. LD amounting to Rs. (-)78.41 million net of reversal (Previous year Rs. 563.28 million) and cost of unfinished MWP Rs. 3,148.58 million (Previous year Rs. 1,439.51 million) paid/payable to the Gol is included in survey and wells written off expenditure in Schedule 21.

10. In respect of 16 (Previous year 16) Deepwater NELP Blocks, companys share in LD and MWP amounting to Rs. 12,037.37 million (Previous year Rs. 6,229.03 million) and Rs. 33,024.85 million (Previous year Rs. 13,075.42 million) respectively has not been provided for, since the rig moratorium proposal is under consideration of Gol as per the letter dated 18.08.2008 from Director General of Hydrocarbons (DGH). Out of the above, MWP amounting to Rs. 1,770.62 million (Previous year Nil) has already been completed during the year and balance amounting to Rs. 31,254.23 million (Previous yearRs. 13,075.42 million) is included in Capital Commitment (Note No 27.1.2).

11. The Finance (No. 2) Act, 2009 has specified the definition of "undertaking" for the purpose of claiming tax holiday under section 80-IB(9) of Income Tax Act, 1961 to be all blocks licensed under a single contract retrospectively whereas the company had earlier considered each well as an "undertaking".Since the amendment still requires clarity on various issues and also considering the advice of legal experts, the company continued to make provision for tax without considering the benefit u/s80-IB(9).

12. The Jharia CBM Block was awarded by Gol to ONGC-CIL consortium on nomination basis for exploration and exploitation of Coal Bed Methane (CBM) gas. Ministry of Coal (MoC) later awarded a coal mining block to the private company which overlapped with a part of the Companys CBM Block. It was decided by the MoC and MoP&NG that such area of exploratory wells drilled by the Company are excluded from the mining area to the private company. These well sites are permanently acquired by the Company and the titles are in the name of the Company. Pending resolution and receipt of equitable land for future exploration activities in consideration of the overlapped area, amounting toRs. 1.54 million incurred on exploratory wells is shown under Exploratory Wells in Progress.

13. In case of Jointly Controlled Assets - Panna Mukta & Tapti (ONGC Share - 40%), where Blocks auditors have opined regarding non ascertainment and adjustment of certain observations raised by auditors appointed by Director General Hydrocarbon (DGH) under Production Sharing Contract for the period 1994 to 2007 in respect of cost and profit petroleum share. Pending resolution of such issues, no adjustment has been made in the accounts of the operator. The amount of liability arising out of such observations has not been quantified and impact of the same on Companys accounts is unascertainable.

14. Pending finalization, the Company provided liability for pay revision in respect of unionized category of employees amounting to Rs. 1,910.00 million during the year (till 31.03.2010 Rs. 4,100.00 million) and is allocated to activities as per the policy of the company.

15. The Company changed the rate of depreciation on all Trunk Pipelines and Onshore Flow Lines (assets below ground) from 27.82% to 100% based on technical assessment by the management during 2005-06. The Company made a reference to the Ministry of Corporate Affairs (MCA) during 2006-07 for confirmation of the rate of depreciation. Pending confirmation by the MCA, Company continues to charge depreciation at 100% on such assets.

16. The Company has a system of physical verification of Inventory, Fixed Assets and Capital Stores in a phased manner at regular intervals. Adjustment of differences, if any, will be accounted for after examination of these differences.

17. Some balances of Debtors, Creditors and Loans & Advances are subject to confirmation/ reconciliation. Adjustments, if any, will be accounted for on receipt/confirmation of the same after examination.

18. Disclosure under the Revised Accounting Standard -15 on "Employee Benefits" 19.1 Brief Description: Ageneral description of the type of Defined Benefit Plans is as follows:

19.1.1 Earned Leave (EL) Benefit

Accrual - 30 days per year

Encashment while in service - 75% of Earned Leave balance subject to a maximum of 90 days per calendaryear

Encashment on retirement - maximum 300 days

19.1.2 Good Health Reward (Half pay leave) Accrual - 20 days per year Encashment while in service - Nil

Encashment on retirement - 50% of Half Pay Leave balance.

19.1.3 Gratuity

15 days salary for every completed year of service. Vesting period is 5 years and the payment is restricted to Rs. 1.00 million.

19.1.4 Post Retirement Medical Benefits -

Upon payment of one time prescribed contribution by the employees, full medical benefits on superannuation and on voluntary retirement subject to the completion of minimum 20 years of service and 50 years of age.

19.1.5 Terminal Benefits

At the time of superannuation, employees are entitled to settle at a place of their choice and they are eligible for Transfer Traveling Allowance. Employees are gifted a silver plaque also, depending upon their level.

20. Disclosure under Accounting Standard -16 on "Borrowing Costs"

The Company did not incur any borrowing cost for any qualifying asset. No borrowing cost is capitalised during the year (previous year Nil).

21. Disclosure under Accounting Standard -17 on "Segment Reporting"

The segment information is presented under the notes to accounts of the Consolidated Financial Statements as required under the standard.

22. Disclosure under Accounting Standard -18 on "Related Party Disclosure"

22.1 Name of related parties and description of relationship:

22.1.1 Joint Ventures/Jointly Controlled Entities

Sl. No Name Relationship

i) Ravva Joint Venture

ii) CY-OS-90/1(PY3) Joint Venture

iii) Panna.Mukta&Tapti Joint Venture

iv) CB-OS-1 Joint Venture

v) CB-OS-2 Joint Venture

vi) GK-OSJ-3 Joint Venture

vii) RJ-ON-90/1 Joint Venture

viii) RJ-ONN-2003/1 JointVenture

ix) KK-DWN-2004/1 JointVenture

x) ONGCMangalore Petrochemicals Limited Joint Controlled Entity

xi) Petronet LNG Limited Joint Controlled Entity

xii) ONGC Teri Biotech Limited Joint Controlled Entity

xiii) Mangalore SEZ Limited Joint Controlled Entity

xiv) ONGC Petro Additions Limited Joint Controlled Entity

xv) ONGC Tripura Power Co. Limited Joint Controlled Entity

xvi)Dahej SEZ Limited Joint Controlled Entity

22.1.2 Key Management Personnel:

Whole-time Functional Directors:

i) Shri R.S. Sharma, Chairman and Managing Director

ii) Dr.A.K.Balyan

iii) ShriA.K. Hazarika

iv) Shri U. N. Bose

v) Shri D.K. Pande

vi) Shri D.K.Sarraf

vii) Shri SudhirVasudeva .

23.1.1 The financial statements of 117 (Previous year 93) out of 124 (Previous year 112) JVs/NELP as per para no. 24.3 have been incorporated in the accounts to the extent of Companys participating interest in assets, liabilities, income, expenditure and profit/(loss) before tax on the basis of statements certified in accordance with production sharing contract and the same has been adjusted for changes as per accounting policy No. 9.1 in Schedule-26.

23.1.2 In respect of balance 7 (Previous year 19) JVs/NELP assets, liabilities, income and expenditure amounting to Rs. 69.80 million (Previous yearRs. 32.93 million), Rs. 143.98 million (Previous yearRs. 921.25 million), Rs. 152.55 million (Previous yearRs. 0.06 million) and Rs. 812.85 million (Previous year Rs. 478.69 million) respectively have been incorporated on the basis of uncertified statements prepared under the production sharing contracts and the same has been adjusted for changes as per accounting policy No. 9.1 in Schedule-26.

24. In respect of Farm Out agreements, where necessary approval from Central Government has been obtained during the year, a sum ofRs. 1,196.19 million (Previous year Rs. 4,979.55 million) has been considered recoverable from the farmers towards the share of expenditure incurred from the effective date of the farm out agreement and has been credited to Miscellaneous Receipts amounting to Rs. 1,049.66 million (Previous year Rs. 4,976.82 million) in respect of earlier years and the balance current year expenditure has been credited to respective natural heads.

24.1. The Company has given an undertaking to Power Finance Corporation (PFC), for an additional funding up to Rs. 2,234.00 million in respect of ONGCTripura Power Co. Limited (OTPC)for cost overrun, if any.

25 Disclosure under Accounting Standard - 28 on "Impairment of Assets"

25.1 The Company is engaged mainly in the business of oil and gas exploration and production where each cost centre used for depreciation (depletion) purposes is identified as independent Cash Generating Unit (CGU) for assessing the impairment in Producing Properties and fixed assets etc. on the basis ofvalue in use. The Company has tested all its CGUs for impairment as on 31.03.2010 by applying discount rates of 17.31% (Previous year 16.61 %) for Rupee transactions and 13.07 % (Previous year 13.40 %) for crude oil and value added products revenue measured in USD as on 31.03.2010.

25.2 During the year X 553.45 million (Previous year Rs. 1,240.59 million) was provided as an additional impairment loss in respect of certain CGUs. Further, impairment loss to the extent of Rs. 986.17 million (Previous year Rs. 4,350.91 million) has been reversed in respect of DVP Jorhat and Ratna CGUs due to increased sale price and accretion in reserves.

26 Disclosures under Schedule VI to the Companies Act, 1956:

26.1 Capital Commitment not provided for:

26.1.1 Estimated amount of contracts remaining to be executed on capital account:-

i) In respect of Company-Rs. 184,507.29 million (Previous yearRs. 112,871.64 million).

ii) In respect of Joint Ventures - Rs. 194.47 million (Previous yearRs. 3,026.16 million).

27. Estimated amount of Minimum Work Programme (MWP) committed under various Production Sharing Contracts with Government of India/ Nominated Blocks:

i) In respect of NELP blocks in which the Company has 100% participating interest - Rs. 33,419.14 million (Previous year Rs. 21,016.72 million).

ii) In respect of Nominated Blocks Rs. 1,128.13 million (Previous year Nil).

iii) In respect of NELP blocks in Joint Ventures-Rs. 87,076.90 million (Previous yearRs. 51,675.97 million).

27.1 Contingent Liabilities:

Claims against the Company/ disputed demands not acknowledged as debt:-

(Rs. in million)

As at As at 31.03.2010 31.03.2009

I In respect of Company

i. IncomeTax 15,721.36 20,723.73

ii. Excise Duty 2,372.44 1,648.95

iii. Custom Duty 1,447.47 1,447.47

iv. Royalty 18,849.79 360.39

v. Cess 12.76 4.92

vi AP Mineral Bearing Lands (Infrastructure) Cess 1,171.84 922.92

vii. Sales Tax 20,135.52 7,271.46

viii. Octroi 66.89 66.89

ix. Specified Land Tax (Assam) 2,274.50 1,646.06

x. Claims of contractors in Arbitration / Court 21,262.90 62,796.57

xi. Others 17,317.84 5,038.78

Sub Total (A) 100,633.31 101,928.14

II In respect of Joint Ventures

i. IncomeTax 8.91 8.91

ii. Excise Duty 322.42

iii. Custom Duty 3,457.89 3,262.74

iv. Royalty - 12.39

v. Cess 10.64 10.64

vi. Sales Tax 2,959.13 2,941.15

vii. Claims of contractors in Arbitration/ Court 740.73 471.74

viii. Others 4,898.72 550.41

Sub Total (B) 12,398.44 7257.98

TOTAL(A+B) 113,031.75 109,186.12

The above claims / demands are at various stages of appeal and in the opinion of the Company are not tenable.

27.2 Bank Guarantees given by the Company:

i) Rs. 3,426.38 million (Previous year Rs. 1,542.65 million) including ^ 1,142.37 million (Previous year Rs. 1,495.11 million) for NELP Blocks where the Company has 100% participating interest.

ii) In respect of Joint Ventures - Rs. 7,082.46 million (Previous yearRs. 4,947.94 million).

iii) Out of total Bank Guarantees of ONGC an amount of Rs. 7,044.00 million (Previous year Rs. 4,544.32 million) has been provided in respect of MWP committed under various Production Sharing Contracts with Government of India and Nominated Blocks which is also included in Capital Commitments under para 27.1.2.

27.3 Corporate Guarantees executed by the Company on behalf of its wholly owned subsidiary, ONGC Videsh Limited (OVL) and ONGC Nile Ganga BV (wholly owned subsidiary of OVL):

27.4. Guarantees executed for financial obligations:

i) Amount of GuaranteeRs. 38,043.51 million (Previous yearRs. 57,062.28 million). ii) Amount Outstanding Rs. 34,932.70 million (Previous yearRs. 56,447.65 million).

27.4.1 Performance Guarantees executed underthe contracts:

Guarantee in respect of Sakhalin Project in favour of Exxonneftgas Ltd., M/s. Roseneft-S, SMNG-S and RN-Astra towards performance of Companys obligation under Joint Operating Agreement without any financial ceiling.

28. Corporate Guarantees executed by the Company on behalf of its subsidiary, MRPL:

i) Amount of GuaranteeRs. 16,246.80 million (Previous yearRs. 18,356.40 million). ii) Amount Outstanding Rs. 4,828.91 million (Previous yearRs. 3,295.49 million).

28.1 Uncalled liability on partly paid shares is Rs. 1,337.19 million (Previous Year Rs. 1,337.19 million) against which advance paid Rs. 1,233.87 million (Previous YearRs. 1,233.87 million).

29 Previous years figures have been regrouped/ reclassified, wherever necessary, to conform to current years classification.

30 Figures in parenthesis as given in these Notes to Accounts relate to previous year.

 
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