|1 CORPORATE INFORMATION
Cairn India Limited ('the Company') was incorporated in India on 21
August 2006. The equity shares of the Company are listed in India on
the Bombay stock exchange and the National stock exchange.
The Company is primarily engaged in the business of surveying,
prospecting, drilling, exploring, acquiring, developing, producing,
maintaining, refining, storing, trading, supplying, transporting,
marketing, distributing, importing, exporting and generally dealing in
minerals, oils, petroleum, gas and related by-products and other
activities incidental to the above. As part of its business activities,
the Company also holds interests in its subsidiary companies which have
been granted rights to explore and develop oil exploration blocks.
The Company is a participant in various Oil and Gas blocks/fields,
which are in the nature of jointly controlled assets, granted by the
Government of India through Production Sharing Contracts ('PSC')
entered into between the Company and Government of India and other
*Operatorship has been transferred to Oil and Natural Gas Corporation
(ONGC) w.e.f 7 July 2014
** intended to be relinquished in the next year
The participating interests were same in the previous year.
2 BASIS OF PREPARATION
The financial statements of the Company have been prepared in
accordance with the generally accepted accounting principles in India
(Indian GAAP). The Company has prepared these financial statements to
comply in all material respects with the accounting standards notified
under section 133 of the Companies Act 2013, read together with
paragraph 7 of the Companies (Accounts) Rules 2014. The financial
statements have been prepared on an accrual basis and under the
historical cost convention. The accounting policies, in all material
respects, have been consistently applied by the Company and are
consistent with those used in the previous year.
On 30 March 2016, the Ministry of Corporate Affairs notified the
Companies (Accounting Standards) Amendment Rules, 2016, resulting in
amendment in certain Accounting Standards. The Company is of the view
that the said amendments shall come into effect from accounting periods
commencing on or after the publication of the notification i.e. from
the period starting 1 April 2016 onwards and hence no impact of the
same has been given in these financial statements.
2.1 Summary of Significant accounting policies
a. Oil and gas assets
The Company follows the successful efforts method of accounting for oil
and gas assets as set out by the Guidance Note issued by the ICAI on
"Accounting for Oil and Gas Producing Activities" (Revised 2013).
Expenditure incurred on the acquisition of a license interest is
initially capitalized on a license by license basis. Costs are held,
undeleted, within exploratory & development work in progress until the
exploration phase relating to the license area is complete or
commercial oil and gas reserves have been discovered.
Exploration expenditure incurred in the process of determining
exploration targets which cannot be directly related to individual
exploration wells is expensed in the period in which it is incurred.
Exploration/appraisal drilling costs are initially capitalized within
exploratory and development work in progress on a well by well basis
until the success or otherwise of the well has been established. The
success or failure of each exploration/appraisal effort is judged on a
well by well basis. Drilling costs are written off on completion of a
well unless the results indicate that oil and gas reserves exist and
there is a reasonable prospect that these reserves are commercial.
Where results of exploration drilling indicate the presence of oil and
gas reserves which are ultimately not considered commercially viable,
all related costs are written off to the statement of profit and loss
immediately. Following appraisal of successful exploration wells, when
a well is ready for commencement of commercial production, the related
exploratory and development work in progress are transferred into a
single field cost centre within producing properties, after testing for
Where costs are incurred after technical feasibility and commercial
viability of producing oil and gas is demonstrated and it has been
determined that the wells are ready for commencement of commercial
production, they are capitalized within producing properties for each
Subsequent expenditure is capitalized when it enhances the economic
benefits of the producing properties or replaces part of the existing
producing properties. Any costs remaining associated with such part
replaced are expensed off in the financial statements.
Net proceeds from any disposal of an exploration asset within
exploratory and development work in progress are initially credited
against the previously capitalized costs and any surplus proceeds are
credited to the statement of profit and loss. Net proceeds from any
disposal of producing properties are credited against the previously
capitalized cost and any gain or loss on disposal of producing
properties is recognized in the statement of profit and loss, to the
extent that the net proceeds exceed or are less than the appropriate
portion of the net capitalized costs of the asset.
Amounts which are not being paid by the joint venture partner in oil
and gas blocks where the Company is the operator and have hence been
funded by it are treated as exploration, development or production
costs, as the case may be.
b. Site restoration costs
At the end of the producing life of a field, costs are incurred in
restoring the site of production facilities. The Company recognizes the
full cost of site restoration as a liability when the obligation to
rectify environmental damage arises. The site restoration expenses form
part of the exploration & development work in progress or cost of
producing properties, as the case may be, of the related asset. The
amortization of the asset, calculated on a unit of production basis
based on proved and developed reserves, is included in the depletion
cost in the statement of profit and loss.
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Company
estimates the asset's recoverable amount. An asset's recoverable amount
is the higher of an asset's or cash-generating units (CGU) fair value
less cost of disposal and its value in use. The recoverable amount is
determined for an individual asset, unless the asset does not generate
cash infows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset or CGU exceeds
its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the
estimated future cash fows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. In determining
net selling price, recent market transactions are taken into account,
if available. If no such transactions can be identified, an appropriate
valuation model is used. The Company bases its impairment calculation
on detailed budgets and forecast calculations which are prepared
separately for each of the Company's cash-generating units to which the
individual assets are allocated.
After impairment, depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the Company
estimates the asset's or cash-generating unit's recoverable amount. A
previously recognized impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset's
recoverable amount since the last impairment loss was recognized. The
reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that
would have been determined, net of depreciation, had no impairment loss
been recognized for the asset in prior years. Such reversal is
recognized in the statement of profit and loss.
d. Other tangible and intangible fixed assets
Tangible assets, other than oil and gas assets, are stated at cost less
accumulated depreciation and impairment losses, if any. Cost comprises
the purchase price and any attributable cost of bringing the asset to
its working condition for its intended use.
Intangible assets, other than oil and gas assets, acquired separately
are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less accumulated
depreciation and impairment losses, if any.
Borrowing costs relating to acquisition of fixed assets which take a
substantial period of time to get ready for its intended use are also
included to the extent they relate to the period till such assets are
ready to be put to use.
e. Depletion, depreciation and amortization
Oil and gas assets
Depletion is charged on a unit of production basis, based on proved
reserves for acquisition costs and proved and developed reserves for
successful exploratory wells, development wells, processing facilities,
distribution assets, estimated future abandonment cost and all other
related costs (also refer note 40). These assets are depleted within
each cost centre. Reserves for this purpose are considered on working
interest basis which are reassessed at least annually. Impact of
changes to reserves are accounted for prospectively.
Leasehold lands are amortized over the lease period which is a maximum
of 10 years. Leasehold improvements are amortized over the remaining
period of the primary lease (3 to 12 years) or expected useful economic
lives, whichever is shorter.
Finance leases, which effectively transfer substantially all the risks
and benefits incidental to ownership of the leased item, are
capitalized at the lower of the fair value and present value of the
minimum lease payments at the inception of the lease term and disclosed
as leased assets. Lease payments are apportioned between the finance
charges and reduction of the lease liability based on the implicit rate
of return. Finance charges are recognized as an expense in the
statement of profit and loss. Lease management fees, legal charges and
other initial direct costs are capitalized.
If there is no reasonable certainty that the Company will obtain the
ownership by the end of the lease term, capitalized leased assets are
depreciated over the shorter of the estimated useful life of the asset
or the lease term.
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the statement of profit and loss on a straight-line basis over the
Investments that are readily realizable and intended to be held for not
more than a year from the date on which such investments are made, are
classified as current investments. All other investments are classified
as long-term investments. Current investments are measured at cost or
market value, whichever is lower, determined on an individual
investment basis. Long term investments are measured at cost. However,
provision for diminution in value is made to recognize a decline other
than temporary in the value of the long-term investments.
Inventories of oil and condensate held at the balance sheet date are
valued at cost or net realizable value, whichever is lower. Cost is
determined on a quarterly weighted average basis.
Inventories of stores and spares related to exploration, development
and production activities are valued at cost or net realizable value
whichever is lower. Cost is determined on first in first out (FIFO)
Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated
costs necessary to make the sale.
i. Joint Ventures
The Company participates in several Joint Ventures involving joint
control of assets for carrying out oil and gas exploration, development
and producing activities. The Company accounts for its share of the
assets and liabilities of Joint Ventures along with attributable income
and expenses in such Joint Ventures, in which it holds a participating
j. Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will fow to the Company and the revenue can be
reliably measured. The following specific recognition criteria must
also be met before revenue is recognized.
Revenue from operating activities
From sale of oil, gas and condensate
Revenue represents the Company's share (net of Government's share of
profit petroleum) of oil, gas and condensate production, recognized on
a direct entitlement basis, when Significant risks and rewards of
ownership are transferred to the buyers. Government's share of profit
petroleum is accounted for when the obligation (legal or constructive),
in respect of the same arises.
As operator from the joint venture
The Company recognizes revenue from joint ventures for services
rendered in the form of parent company overhead based on the provisions
of respective PSCs.
Tolling income represents the Company's share of revenues from Pilotage
and Oil Transfer Services from the respective joint ventures, which is
recognized based on the rates agreed with the customers, as and when
the services are rendered.
Interest income is recognized on a time proportion basis.
Treatment of Taxes
The Company collects sales taxes and value added taxes (VAT) on behalf
of the government and, therefore, these are not economic benefits
fowing to the Company. Hence, they are excluded from revenue.
Revenue is recognized when the instrument/unit holders' right to
receive payment is established by the balance sheet date.
k. Borrowing costs
Borrowing costs include interest and commitment charges on borrowings,
amortization of costs incurred in connection with the arrangement of
borrowings, exchange differences to the extent they are considered a
substitute to the interest cost and finance charges under leases. Costs
incurred on borrowings directly attributable to development projects,
which take a substantial period of time to complete, are capitalized
within the development/producing asset for each cost-centre.
All other borrowing costs are recognized in the statement of profit and
loss in the year in which they are incurred.
l. Foreign currency transactions and translations
The Company translates foreign currency transactions into Indian Rupees
at the rate of exchange prevailing at the transaction date. Monetary
assets and liabilities denominated in foreign currency are translated
into Indian Rupees at the rate of exchange prevailing at the balance
sheet date. Non-monetary items which are carried in terms of historical
cost denominated in a foreign currency are reported using the exchange
rate at the date of the transaction.
Exchange differences arising on the settlement of monetary items or on
reporting the Company's monetary items at rates different from those at
which they were initially recorded during the year, or reported in
previous financial statements, are recognized as income or as expenses
in the period in which they arise.
m. Income taxes
Tax expense comprises of current and deferred tax. Current income tax
is measured at the amount expected to be paid to the tax authorities in
accordance with the Indian Income Tax Act, 1961. Deferred income tax
reflects the impact of current period timing differences between
taxable income and accounting income for the period and reversal of
timing differences of earlier period.
Deferred tax assets and liabilities are measured, based on tax rates
and laws enacted or substantively enacted at the balance sheet date.
Deferred tax assets are recognized only to the extent that there is
reasonable certainty that sufficient future taxable income will be
available against which such deferred tax assets can be realized. If
the Company has carry forward of unabsorbed depreciation and tax
losses, deferred tax assets are recognized only if there is virtual
certainty, supported by convincing evidence, that all such deferred tax
assets can be realized against future taxable profits. Unrecognized
deferred tax assets of earlier periods are re-assessed and recognized
to the extent that it has become reasonably certain or virtually
certain, as the case may be, that future taxable income will be
available against which such deferred tax assets can be realized.
In the situations where the Company is entitled to a tax holiday under
the Income-tax Act, 1961 enacted in India or tax laws prevailing in the
respective tax jurisdictions where it operates, no deferred tax (asset
or liability) is recognized in respect of timing differences which
reverse during the tax holiday period, to the extent the Company's
gross total income is subject to the deduction during the tax holiday
period. Deferred tax in respect of timing differences which reverse
after the tax holiday period is recognized in the year in which the
timing differences originate. However, the Company restricts
recognition of deferred tax assets to the extent that it has become
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available against which such
deferred tax assets can be realized. For recognition of deferred taxes,
the timing differences which originate first are considered to reverse
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The Company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realized. Any such write-down is reversed to the extent that it becomes
reasonably certain or virtually certain, as the case may be, that
sufficient future taxable income will be available.
Minimum Alternative Tax (MAT) credit is recognized as an asset only
when and to the extent there is convincing evidence that the Company
will pay income tax under the normal provisions during the specified
period, resulting in utilization of MAT credit. In the year in which
the MAT credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in Guidance Note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the statement of profit and loss and
shown as MAT Credit Entitlement. The Company reviews the same at each
balance sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that the Company will utilize MAT credit during the specified
n. Earnings Per Share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders by the weighted
average number of equity shares outstanding during the year. The
weighted average number of equity shares outstanding during the year is
adjusted for events of bonus issue, bonus element in a rights issue to
existing shareholders, share split and reverse share split
(consolidation of shares) that have changed the no of equity shares
outstanding, without corresponding change in resources.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares, if
A provision is recognized when the Company has a present obligation as
a result of past event and it is probable that an outfow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
p. Cash and Cash equivalents
Cash and cash equivalents comprise of cash at bank and in hand and
short term investments, with an original maturity of 90 days or less.
q. Employee Benefits
Retirement and Gratuity benefits
Retirement benefits in the form of provident fund, superannuation fund
and national pension scheme are defined contribution schemes. The
Company has no obligation, other than the contribution payable to the
provident fund, superannuation fund and national pension scheme. The
Company recognizes contribution payable to the provident fund,
superannuation fund and national pension scheme as an expenditure, when
an employee renders the related service. If the contribution payable to
the fund for service received before the balance sheet date exceeds the
contribution already paid, the deficit payable to the fund is
recognized as a liability after deducting the contribution already
paid. If the contribution already paid exceeds the contribution due for
services received before the balance sheet date, then excess is
recognized as an asset to the extent that the pre payment will lead to,
for example, a reduction in future payment or a cash refund.
Gratuity liability is a defined benefit obligation and is provided for
on the basis of an actuarial valuation on projected unit credit method
made at the end of each financial year. The scheme is maintained and
administered by an insurer to which the trustees make periodic
Short term compensated absences are provided for based on estimates.
Long term compensated absences and cash option award are provided for
based on actuarial valuation made at the end of each financial year.
The actuarial valuation is done on projected unit credit method.
Actuarial gains / losses are immediately taken to statement of profit
and loss and are not deferred.
Employee Stock Compensation Cost
In accordance with the Securities and Exchange Board of India (Share
Based Employee Benefits) Regulations, 2014 and the Guidance Note on
Accounting for Employee Share-based Payments, the Company measures
compensation cost relating to employee stock options using the fair
Compensation expense is amortized over the vesting period of the option
on a straight line basis.
r. Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or
non-occurrence of one or more uncertain future events beyond the
control of the Company or a present obligation that is not recognized
because it is not probable that an outfow of resources will be required
to settle the obligation. A contingent liability also arises in
extremely rare cases where there is a liability that cannot be
recognized because it cannot be measured reliably. The Company does not
recognize a contingent liability but discloses its existence in the
s. Segment Reporting
Identification of segments:
The Company's operating businesses are organized and managed separately
according to the nature of products and services provided, with each
segment representing a strategic business unit that offers different
products and serves different markets. The analysis of geographical
segments is based on the areas in which major operating divisions of
the Company operate.
t. Derivative instruments
As per the ICAI Announcement, accounting for derivative contracts,
other than those covered under AS-11, is done on marked to market on a
portfolio basis, and the net loss is charged to the income statement.
Net gains are ignored.
u. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the results of operations during the reporting
period end. Although these estimates are based upon management's best
knowledge of current events and actions, actual results could differ
from these estimates.