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Hindustan Oil Exploration Company Ltd.

BSE: 500186 Sector: Oil & Gas
NSE: HINDOILEXP ISIN Code: INE345A01011
BSE 00:00 | 13 Sep 107.45 -2.70
(-2.45%)
OPEN

110.90

HIGH

110.90

LOW

105.60

NSE 00:00 | 13 Sep 107.55 -2.70
(-2.45%)
OPEN

110.90

HIGH

110.90

LOW

105.50

OPEN 110.90
PREVIOUS CLOSE 110.15
VOLUME 23610
52-Week high 155.50
52-Week low 89.60
P/E 9.08
Mkt Cap.(Rs cr) 1,421
Buy Price 107.00
Buy Qty 24.00
Sell Price 107.45
Sell Qty 400.00
OPEN 110.90
CLOSE 110.15
VOLUME 23610
52-Week high 155.50
52-Week low 89.60
P/E 9.08
Mkt Cap.(Rs cr) 1,421
Buy Price 107.00
Buy Qty 24.00
Sell Price 107.45
Sell Qty 400.00

Hindustan Oil Exploration Company Ltd. (HINDOILEXP) - Auditors Report

Company auditors report

To the Members of

Hindustan Oil Exploration Company Limited

Report on the Audit of the Standalone Financial Statements

Opinion

We have audited the accompanying standalone financial statements of Hindustan OilExploration Company Limited ("the Company") which comprise the Balance Sheet asat March 312019 and the Statement of Profit and Loss (including Other ComprehensiveIncome) the Statement of Cash Flows and the Statement of Changes in Equity for the yearthen ended and a summary of significant accounting policies and other explanatoryinformation which includes seven unincorporated joint ventures accounted on aproportionate basis.

In our opinion and to the best of our information and according to the explanationsgiven to us and based on the consideration of reports of the other auditors on separatefinancial statements of unincorporated joint ventures referred to in Other Matters sectionbelow the aforesaid standalone financial statements give the information required by theCompanies Act 2013 ("the Act") in the manner so required and give a true andfair view in conformity with the Indian Accounting Standards prescribed under section 133of the Act read with the Companies (Indian Accounting Standards) Rules 2015 as amended("Ind AS") and other accounting principles generally accepted in India of thestate of affairs of the Company as at March 31 2019 and its profit total comprehensiveincome its cash flows and the changes in equity for the year ended on that date.

Basis for Opinion

We conducted our audit of the standalone financial statements in accordance with theStandards on Auditing specified under Section 143(10) of the Act (SAs). Ourresponsibilities under those Standards are further described in the Auditor'sResponsibility for the Audit of the Standalone Financial Statements section of our report.We are independent of the Company in accordance with the Code of Ethics issued by theInstitute of Chartered Accountants of India (ICAI) together with the ethical requirementsthat are relevant to our audit of the standalone financial statements under the provisionsof the Act and the Rules made thereunder and we have fulfilled our other ethicalresponsibilities in accordance with these requirements and the ICAI's Code of Ethics. Webelieve that the audit evidence obtained by us and the audit evidence obtained by theother auditors in terms of their reports referred to in Other Matters section below issufficient and appropriate to provide a basis for our audit opinion on the standalonefinancial statements.

Key Audit Matters

Key audit matters are those matters that in our professional judgment were of mostsignificance in our audit of the standalone financial statements of the current period.These matters were addressed in the context of our audit of the standalone financialstatements as a whole and in forming our opinion thereon and we do not provide aseparate opinion on these matters. We have determined the matters described below to bethe key audit matters to be communicated in our report.

S.No Key Audit Matter Auditor's Response
1 Impairment of Oil and Gas Assets Principal audit procedures:
The Balance Sheet includes property plant and equipment (PP&E) of $ 32834 Lakhs of which $ 32552 Lakhs are oil and gas assets. We tested management's internal controls over the setting of oil and gas prices and reserve estimates. In addition we conducted the following substantive procedures: Reserves estimates
Recoverability of PP&E assets has been identified as a key audit matter due to:
• The significance of the carrying value of the assets being assessed; and • We reviewed Company's reserves estimation methods and policies.
• The assessment of the recoverable amount of the Company's Cash Generating Units (CGUs) involving significant judgements about future cash flow forecasts and the discount rates applied. • We performed a look-back analysis to check for indicators of bias over time.
• Estimation of oil and natural gas reserves being a significant area of judgement due to the technical uncertainty and having a substantial impact on impairment testing. • We assessed how these policies had been applied to five internal reserves estimates.
• We assessed the competence capability and objectivity of Company's internal reserve experts through obtaining their relevant professional qualifications and experience.
As required by Ind AS 36 'Impairment of Assets' management estimated the recoverable amount of the CGU to determine if any impairment charges or reversals were required. Other procedures
• We challenged management's cash generating unit determination scrutinized the impairment and impairment reversal indicator analysis and considered whether there was any contradictory evidence present.
• We verified estimated future capital and operational costs by comparison to approved budgets and assessed them with reference to field production forecasts.
• We compared hydrocarbon production forecasts and proved and probable reserves to reserve reports and our understanding of the life of the fields.
• We assessed these estimates against management's historical forecasting accuracy and whether the estimates had been determined and applied on a consistent basis.
2 Measurement of provision for decommissioning dismantling removal and restoration ("DDRR") Principal audit procedures:
The provision outstanding for DDRR of the Company amounts to $ 9790 Lakhs which represents 81% the Company's non-current liabilities. We tested management's internal controls over determination of Decommissioning Provision. In addition we conducted the following substantive procedures:
The estimation of DDRR provision involves significant degree of judgement complex calculations and estimation uncertainty. • We have tested the reasonableness of management's inflation and discount rates used for the decommissioning provision based on market data.
Decommissioning provisions are inherently subjective given they are based on estimates of costs that will be settled in the future. • We re-performed the calculation of the DDRR provision over the five blocks.
Management's estimate has been based on third party estimates. • We assessed the competence capability and objectivity of Company's external experts through obtaining their relevant professional qualifications and experience.

Information Other than the Financial Statements and Auditor's Report Thereon

The Company's Board of Directors is responsible for the preparation of otherinformation. The other information comprises the information included in the Board'sReport including Annexures to Board's Report Management's Discussion and Analysis andCorporate Governance Report but does not include the standalone financial statements andour auditor's report thereon.

Our opinion on the standalone financial statements does not cover the other informationand we do not express any form of assurance conclusion thereon.

In connection with our audit of the standalone financial statements our responsibilityis to read the other information and in doing so consider whether the other informationis materially inconsistent with the standalone financial statements or our knowledgeobtained during the course of our audit or otherwise appears to be materially misstated.

If based on the work we have performed we conclude that there is a materialmisstatement of this other information we are required to report that fact. We havenothing to report in this regard.

Management's Responsibility for the Standalone Financial Statements

The Company's Board of Directors is responsible for the matters stated in section134(5) of the Act with respect to the preparation of these standalone financial statementsthat give a true and fair view of the financial position financial performance includingother comprehensive income cash flows and changes in equity of the Company in accordancewith the Ind AS and other accounting principles generally accepted in India. Thisresponsibility also includes maintenance of adequate accounting records in accordance withthe provisions of the Act for safeguarding the assets of the Company and for preventingand detecting frauds and other irregularities; selection and application of appropriateaccounting policies; making judgments and estimates that are reasonable and prudent; anddesign implementation and maintenance of adequate internal financial controls that wereoperating effectively for ensuring the accuracy and completeness of the accountingrecords relevant to the preparation and presentation of the standalone financialstatements that give a true and fair view and are free from material misstatement whetherdue to fraud or error.

In preparing the standalone financial statements management is responsible forassessing the Company's ability to continue as a going concern disclosing as applicablematters related to going concern and using the going concern basis of accounting unlessmanagement either intends to liquidate the Company or to cease operations or has norealistic alternative but to do so.

The Board of Directors are also responsible for overseeing the Company's financialreporting process.

Auditor's Responsibility for the Audit of the Standalone Financial Statements

Our objectives are to obtain reasonable assurance about whether the standalonefinancial statements as a whole are free from material misstatement whether due to fraudor error and to issue an auditor's report that includes our opinion. Reasonable assuranceis a high level of assurance but is not a guarantee that an audit conducted in accordancewith SAs will always detect a material misstatement when it exists. Misstatements canarise from fraud or error and are considered material if individually or in theaggregate they could reasonably be expected to influence the economic decisions of userstaken on the basis of these standalone financial statements.

As part of an audit in accordance with SAs we exercise professional judgment andmaintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the standalonefinancial statements whether due to fraud or error design and perform audit proceduresresponsive to those risks and obtain audit evidence that is sufficient and appropriate toprovide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error as fraud may involvecollusion forgery intentional omissions misrepresentations or the override of internalcontrol.

• Obtain an understanding of internal financial control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances. Under section143(3)(i) of the Act we are also responsible for expressing our opinion on whether theCompany has adequate internal financial controls system in place and the operatingeffectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonablenessof accounting estimates and related disclosures made by the management.

• Conclude on the appropriateness of management's use of the going concern basisof accounting and based on the audit evidence obtained whether a material uncertaintyexists related to events or conditions that may cast significant doubt on the Company'sability to continue as a going concern. If we conclude that a material uncertainty existswe are required to draw attention in our auditor's report to the related disclosures inthe standalone financial statements or if such disclosures are inadequate to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor's report. However future events or conditions may cause the Company to cease tocontinue as a going concern.

• Evaluate the overall presentation structure and content of the standalonefinancial statements including the disclosures and whether the standalone financialstatements represent the underlying transactions and events in a manner that achieves fairpresentation.

Materiality is the magnitude of misstatements in the standalone financial statementsthat individually or in aggregate makes it probable that the economic decisions of areasonably knowledgeable user of the standalone financial statements may be influenced. Weconsider quantitative materiality and qualitative factors in (i) planning the scope of ouraudit work and in evaluating the results of our work; and (ii) to evaluate the effect ofany identified misstatements in the standalone financial statements.

We communicate with those charged with governance regarding among other matters theplanned scope and timing of the audit and significant audit findings including anysignificant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have compliedwith relevant ethical requirements regarding independence and to communicate with themall relationships and other matters that may reasonably be thought to bear on ourindependence and where applicable related safeguards.

From the matters communicated with those charged with governance we determine thosematters that were of most significance in the audit of the standalone financial statementsof the current period and are therefore the key audit matters. We describe these mattersin our auditor's report unless law or regulation precludes public disclosure about thematter or when in extremely rare circumstances we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonablybe expected to outweigh the public interest benefits of such communication.

Other Matters

a) We did not audit the financial statements of seven unincorporated joint venturesincluded in the standalone Ind AS financial statements of the Company whose financialstatements reflect total assets of $ 36511 Lakhs as at March 312019 and total revenuesof $ 27 Lakhs for the year ended on that date as considered in the standalone Ind ASfinancial statements. The financial statements of these unincorporated joint ventures havebeen audited by the other auditors whose reports have been furnished to us and ouropinion in so far as it relates to the amounts and disclosures included in respect ofthese unincorporated joint ventures and our report in terms of sub-section (3) of Section143 of the Act in so far as it relates to the aforesaid unincorporated joint ventures isbased solely on the report of such other auditors.

b) We have placed reliance on technical / commercial evaluation by the management inrespect of categorization of wells as exploratory development producing and dry wellsallocation of costs incurred on them proved developed hydrocarbon reserves and depletionthereof on Oil and Gas assets impairment and liability for site restoration costs.

Our opinion on the standalone financial statements and our report on Other Legal andRegulatory Requirements below is not modified in respect of these matters.

Report on Other Legal and Regulatory Requirements

1. As required by Section 143(3) of the Act based on our audit and on theconsideration of the reports of the other auditors on the separate financial statements ofthe unincorporated joint ventures referred to in the Other Matters paragraph above wereport to the extent applicable that:

a) We have sought and obtained all the information and explanations which to the bestof our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion proper books of account as required by law have been kept by theCompany so far as it appears from our examination of those books.

c) The Balance Sheet the Statement of Profit and Loss including Other ComprehensiveIncome Statement of Cash Flows and Statement of Changes in Equity dealt with by thisReport are in agreement with the relevant books of account.

d) In our opinion the aforesaid standalone financial statements comply with the Ind ASspecified under Section 133 of the Act.

e) On the basis of the written representations received from the directors as on March312019 taken on record by the Board of Directors none of the directors is disqualifiedas on March 31 2019 from being appointed as a director in terms of Section 164(2) of theAct.

f) With respect to the adequacy of the internal financial controls over financialreporting of the Company and the operating effectiveness of such controls refer to ourseparate Report in "Annexure A". Our report expresses an unmodified opinion onthe adequacy and operating effectiveness of the Company's internal financial controls overfinancial reporting.

g) With respect to the other matters to be included in the Auditor's Report inaccordance with the requirements of section 197(16) of the Act as amended:

In our opinion and to the best of our information and according to the explanationsgiven to us the remuneration paid by the Company to its directors during the year is inaccordance with the provisions of Section 197 of the Act.

h) With respect to the other matters to be included in the Auditor's Report inaccordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014 as amended inour opinion and to the best of our information and according to the explanations given tous:

i. The Company has disclosed the impact of pending litigations on its financialposition in its standalone financial statements;

ii. The Company did not have any long-term contracts including derivative contracts forwhich there were any material foreseeable losses.

iii. There has been no delay in transferring amounts required to be transferred tothe Investor Education and Protection Fund by the Company

2. As required by the Companies (Auditor's Report) Order 2016 ("the Order")issued by the Central Government in terms of Section 143(11) of the Act we give in"Annexure B" a statement on the matters specified in paragraphs 3 and 4 of theOrder.

For Deloitte Haskins & Sells LLP
Chartered Accountants
(Firm's Registration No.117366W/W-100018)
Bhavani Balasubramanian
Partner
Date: May 14 2019 Membership No. 22156
Place: Mumbai

ANNEXURE "A" TO THE INDEPENDENT AUDITOR'S REPORT

(Referred to in paragraph 1(f) under 'Report on Other Legal and RegulatoryRequirements' section of our report of even date)

Report on the Internal Financial Controls Over Financial Reporting under Clause (i) ofSub-section 3 of Section 143 of the Companies Act 2013 ("the Act")

We have audited the internal financial controls over financial reporting of HindustanOil Exploration Company Limited ("the Company") as of March 312019 inconjunction with our audit of standalone Ind AS financial statements of the Company forthe year ended on that date.

Management's Responsibility for Internal Financial Controls

The Company's management is responsible for establishing and maintaining internalfinancial controls based on the internal control over financial reporting criteriaestablished by the Company considering the essential components of internal control statedin the Guidance Note on Audit of Internal Financial Controls Over Financial Reportingissued by the Institute of Chartered Accountants of India. These responsibilities includethe design implementation and maintenance of adequate internal financial controls thatwere operating effectively for ensuring the orderly and efficient conduct of its businessincluding adherence to respective company's policies the safeguarding of its assets theprevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information asrequired under the Companies Act 2013.

Auditor's Responsibility

Our responsibility is to express an opinion on the internal financial controls overfinancial reporting of the Company based on our audit. We conducted our audit inaccordance with the Guidance Note on Audit of Internal Financial Controls Over FinancialReporting (the "Guidance Note") issued by the Institute of Chartered Accountantsof India and the Standards on Auditing prescribed under Section 143(10) of the CompaniesAct 2013 to the extent applicable to an audit of internal financial controls. ThoseStandards and the Guidance Note require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether adequate internalfinancial controls over financial reporting was established and maintained and if suchcontrols operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy ofthe internal financial controls system over financial reporting and their operatingeffectiveness. Our audit of internal financial controls over financial reporting includedobtaining an understanding of internal financial controls over financial reportingassessing the risk that a material weakness exists and testing and evaluating the designand operating effectiveness of internal control based on the assessed risk. The proceduresselected depend on the auditor's judgement including the assessment of the risks ofmaterial misstatement of the financial statements whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our audit opinion on the Company's internal financial controls systemover financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A company's internal financial control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generallyaccepted accounting principles. A company's internal financial control over financialreporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that in reasonable detail accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorisations ofmanagement and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorised acquisition use or disposition of thecompany's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financialreporting including the possibility of collusion or improper management override ofcontrols material misstatements due to error or fraud may occur and not be detected.Also projections of any evaluation of the internal financial controls over financialreporting to future periods are subject to the risk that the internal financial controlover financial reporting may become inadequate because of changes in conditions or thatthe degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion to the best of our information and according to the explanations givento us the Company has in all material respects an adequate internal financial controlssystem over financial reporting and such internal financial controls over financialreporting were operating effectively as at March 312019 based on the criteria forinternal financial control over financial reporting established by the Company consideringthe essential components of internal control stated in the Guidance Note on Audit ofInternal Financial Controls Over Financial Reporting issued by the Institute of CharteredAccountants of India.

For Deloitte Haskins & Sells LLP
Chartered Accountants
(Firm's Registration No.117366W/W-100018)
Bhavani Balasubramanian
Partner
Date: May 14 2019 Membership No. 22156
Place: Mumbai

ANNEXURE “B” TO THE INDEPENDENT AUDITOR'S REPORT

(Referred to in paragraph 2 under 'Report on Other Legal and Regulatory Requirements'section of our report of even date)

(i) (a) The Company has maintained proper records showing full particulars includingquantitative details and situation of Property plant and equipment.

(b) The Property plant and equipment were physically verified during the year by theManagement in accordance with a regular programme of verification which in our opinionprovides for physical verification of all the Property plant and equipment at reasonableintervals. According to the information and explanation given to us no materialdiscrepancies were noticed on such verification.

(c) According to the information and explanations given to us and the records examinedby us and based on the examination of the registered sale deed provided to us we reportthat the title deeds comprising all the immovable properties of land and buildings whichare freehold are held in the name of the Company as at the balance sheet date.

(ii) As explained to us the inventories were physically verified during the year bythe Management at reasonable intervals and no material discrepancies were noticed onphysical verification.

(iii) The Company has not granted any loans secured or unsecured to companies firmsLimited Liability Partnerships or other parties covered in the register maintained underSection 189 of the Companies Act 2013.

(iv) In our opinion and according to the information and explanations given to us theCompany has complied with the provisions of Sections 185 and 186 of the Companies Act2013 in respect of grant of loans making investments and providing guarantees andsecurities as applicable.

(v) The Company has not accepted any deposit during the year and does not have anyunclaimed deposits as at March 31 2019 and therefore the provisions of the clause (v) ofthe Order are not applicable.

(vi) The maintenance of cost records has been specified by the Central Government undersection 148(1) of the Companies Act 2013. We have broadly reviewed the cost recordsmaintained by the Company pursuant to the Companies (Cost Records and Audit) Rules 2014as amended prescribed by the Central Government under sub-section (1) of Section 148 ofthe Companies Act 2013 and are of the opinion that prima facie the prescribed costrecords have been made and maintained. We have however not made a detailed examinationof the cost records with a view to determine whether they are accurate or complete.

(vii) According to the information and explanations given to us in respect ofstatutory dues:

(a) The Company has generally been regular in depositing undisputed statutory duesincluding Provident Fund Income tax Goods and Services Tax Customs Duty Value AddedTax Cess and other material statutory dues applicable to it with the appropriateauthorities.

(b) There were no undisputed amounts payable in respect of Provident Fund Income-taxGoods and Services Tax Customs Duty Value Added Tax cess and other material statutorydues in arrears as at March 31 2019 for a period of more than six months from the datethey became payable.

(c) Details of dues of Service Tax which have not been deposited as on March 31 2019on account of disputes are given below:

Name of Statute Nature of Dues Forum where Dispute is Pending Period to which the Amount Relates Amount Involved ($)
Finance Act 1994 Service Tax CESTAT Chennai April 2006 to November 2007 1474789
October 2007 to March 2011 14646272*

* Net of $ 770856 paid under protest

(viii) The Company has not taken any loans on borrowings from financial institutionsbanks and government or has not issued any debentures. Hence reporting under clause (viii)of the Order is not applicable.

(ix) The Company has not raised moneys by way of initial public offer or further publicoffer (including debt instruments) or term loans and hence reporting under clause (ix) ofthe Order is not applicable.

(x) To the best of our knowledge and according to the information and explanationsgiven to us no fraud by the Company and no material fraud on the Company by its officersor employees has been noticed or reported during the year.

(xi) In our opinion and according to the information and explanations given to us theCompany has paid/provided managerial remuneration in accordance with the requisiteapprovals mandated by the provisions of section 197 read with Schedule V to the CompaniesAct 2013.

(xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of theOrder is not applicable.

(xiii) In our opinion and according to the information and explanations given to us theCompany is in compliance with Section 177 and 188 of the Companies Act 2013 whereapplicable for all transactions with the related parties and the details of related partytransactions have been disclosed in the standalone financial statements as required by theapplicable accounting standards.

(xiv) During the year the Company has not made any preferential allotment or privateplacement of shares or fully or partly paid convertible debentures and hence reportingunder clause (xiv) of the Order is not applicable.

(xv) In our opinion and according to the information and explanations given to usduring the year the Company has not entered into any non-cash transactions with itsdirectors or persons connected to its directors and hence provisions of Section 192 of theCompanies Act 2013 are not applicable.

(xvi) The Company is not required to be registered under Section 45-IA of the ReserveBank of India Act 1934.

For Deloitte Haskins & Sells LLP
Chartered Accountants
(Firm's Registration No.117366W/W-100018)
Bhavani Balasubramanian
Partner
Date: May 14 2019 Membership No. 22156
Place: Mumbai