Exploration, Development & Production Costs

5.2 Survey costs :

Cost of surveys and prospecting activities conducted in the
search of oil and gas are expensed in the year in which these are incurred.

5.3 Exploratory/Development wells in progress :

5.3.1 All acquisition costs, exploration costs involved in
drilling and equipping exploratory and appraisal wells, cost of drilling
exploratory type stratigraphic test wells are initially capitalised as
exploratory wells in progress till the time these are either transferred to
producing properties on completion as per policy no. 5.4.1 or expensed in the
year when determined to be dry or of no further use, as the case may be.

5.3.2 All wells under as ‘exploratory wells in progress’
which are more than two years old from the date of completion of drilling are
charged to Profit and Loss Account except those wells which have proved reserves
and the development of the fields in which the wells are located has been
planned.

5.3.3 All costs relating to development wells are initially
capitalised as development wells in progress and transferred to producing
properties on completion as per policy no. 5.4.1.

5.4 Producing properties :

5.4.1 Producing properties are created in respect of an
area/field having proved developed oil and gas reserves, when the well in the
area/field is ready to commence commercial production.

5.4.2 Cost of temporary occupation of land, successful
exploratory wells, all development wells, depreciation on related equipment and
facilities, and estimated future abandonment costs are capitalised and reflected
as producing properties.

5.4.3 Depletion of producing properties :

Producing properties are depleted using the ‘Unit of
Production Method’. The rate of depletion is computed with reference to the area
covered by individual lease/licence/asset/amortisation base by considering the
proved developed reserves and related capital costs incurred including estimated
future abandonment costs. In case of acquisition, cost of producing properties
is depleted by considering the proved reserves. These reserves are estimated
annually by the Reserve Estimates Committee of the Company, which follows the
International Reservoir Engineering Procedures.

5.5 General administrative expenses :

General administrative expenses at assets, basins, services,
regions and headquarters are charged to Profit and Loss Account.

5.6 Production costs :

Production costs include pre-well head and post well head
expenses including depreciation and applicable operating costs of support
equipment and facilities.

7.1 The full eventual estimated liability towards costs
relating to dismantling, abandoning and restoring offshore well sites and allied
facilities is recognised at the initial stage as cost of producing property and
liability for abandonment cost, based on the latest technical assessment
available at current costs with the Company. The same is reviewed annually.

7.2 Cost relating to dismantling, abandoning and restoring
onshore well sites and allied facilities are accounted for in the year in which
such costs are incurred, as the salvage value is expected to take care of the
abandonment costs.

15.1 Revenue from sale of products is recognised on transfer
of custody to customers.

15.2 Sale of crude oil and gas produced from exploratory
wells in progress in exploratory areas is deducted from expenditure on such
wells.

15.3 Sales are inclusive of all statutory levies except Value
Added Tax (VAT). Any retrospective revision in prices is accounted for in the
year of such revision.

15.4 Revenue in respect of fixed price contracts is
recognised for the quantum of work done on the basis of percentage of completion
method. The quantum of work done is measured in proportion of cost incurred to
date to the estimated total cost of the contract or based on reports of physical
work done.

15.5 Finance income in respect of assets given on finance
lease is recognised based on a pattern reflecting a constant periodic rate of
return on the net investment outstanding in respect of the finance lease.

15.6 Revenue in respect of the following is recognised when
there is reasonable certainty regarding ultimate collection :

(a) Shortlifted quantity of gas.
(b) Gas pipeline transportation charges and statutory duties thereon.
(c) Reimbursable subsides and grants.
(d) Interest on delayed realisation from customers.
(e) Liquidated damages from contractors.