2. Exploration and Development Costs :
The Company generally follows the ‘Successful Efforts Method’
of accounting for its exploration and production activities as explained below :
(i) Cost of exploratory wells, including survey costs, is
expensed in the year when determined to be dry/abandoned or is transferred to
the producing properties on attainment of commercial production.
(ii) Cost of temporary occupation of land, successful
exploratory wells, development wells and all related development costs,
including depreciation on support equipment and facilities, are considered as
development expenditure. These expenses are capitalised as producing
properties on attainment of commercial production.
(iii) Producing properties, including the cost incurred on
dry wells in development areas, are depleted using ‘Unit of Production’ method
based on estimated proved developed reserves. Any changes in reserves and/or
cost are dealt with prospectively. Hydrocarbon reserves are estimated and/or
approved by the management committees of the joint ventures, which follow the
International Reservoir Engineering Principles.
Explanatory Notes :
1. All exploration costs including acquisition of geological
and geophysical seismic information, licence and acquisition costs are initially
capitalised as ‘Capital Work in Progress-Exploration Expenditure’, until such
time as either exploration well(s) in the first drilling campaign is determined
to be successful, at which point the costs are transferred to ‘Producing
Properties’ or it is unsuccessful in which case such costs are written off
consistent with para 2 below.
2. Exploration costs associated with drilling, testing and
equipping exploratory well and appraisal well are initially capitalised as
‘Capital Work in Progress — Exploration Expenditure’, until such time as such
costs are transferred to ‘Producing Properties’ on attainment of commercial
production or charged to the Profit and Loss Account, unless :
(a) such well has found potential commercial reserves; or
(b) such well test result is inconclusive and is subject to
further exploration or appraisal activity like acquisition of seismic, or
re-entry of such well, or drilling of additional exploratory/step out well in
the area of interest, such activity to be carried out no later than 2 years
from the date of completion of such well testing;
Management makes quarterly assessment of the amounts included
in ‘Capital Work in Progress-Exploration Expenditure’ to determine whether
capitalisation is appropriate and can continue. Exploration well(s) capitalised
beyond 2 years are subject to additional judgment as to whether facts and
circumstances have changed and therefore the conditions described in (a) and (b)
no longer apply.
Site restoration :
Estimated future liability relating to dismantling and
abandoning producing well sites and facilities whose estimated producing life is
expected to end during next ten years is expensed in proportion to the
production for the year and remaining estimated proved reserves of hydrocarbons
based on latest technical assessment available with the Company.
