We have audited the accompanying standalone financial statements of Hindustan Oil Exploration Company Limited ("the Company"), which comprise the Balance Sheet as at March 31, 2024, and the Statement of Profit and Loss (including Other Comprehensive Income), the Statement of Cash Flows and the Statement of Changes in Equity for the year then ended on that date, and notes to the financial statements, including a summary of material accounting policies and other explanatory information and which includes eight unincorporated joint ventures accounted on proportionate basis.
In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of reports of the other auditors on separate financial information of the unincorporated joint ventures referred to in the Other Matters section below, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 ("the Act") in the manner so required and give a true and fair view in conformity with the Indian Accounting Standards prescribed under Section 133 of the Act, ("Ind AS") and other accounting principles generally accepted in India, of the state of affairs of the Company as at March 31,2024, and its profit, total comprehensive income, 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 the Standards on Auditing ("SAs") specified under Section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditor's Responsibility 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 the Institute of Chartered Accountants of India ("ICAI") together with the ethical requirements that are relevant to our audit of the standalone financial statements under the provisions of the Act and the Rules made thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ICAI's Code of Ethics. We believe that the audit evidence obtained by us and the audit evidence obtained by the other auditors in terms of their reports referred to in the Other Matters section below, is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance 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 financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. we have determined the matters described below to be the key audit matters to be communicated in our report.
|
S.No
|
Key Audit Matter
|
Auditor's Response
|
|
1
|
Impairment of Upstream Oil and Gas assets included in PP&E and Capital Work in Progress and loans and advances given to subsidiary companies for Oil and Gas assets
Oil and Gas assets included in Property, Plant and Equipment (PP&E) and Capital Work in Progress of the Company aggregate $ 78,652 lakhs and Loans and advances given to its subsidiary companies which have Oil and Gas assets aggregate $ 12,421 lakhs.
|
Principal audit procedures performed:
Our procedures relating to testing the impairment of the upstream Oil and Gas assets, Capital work in Progress and loans and advances given to subsidiary companies for oil and gas assets included the following, among others:
a) We tested the effectiveness of internal controls over the Company's process in estimating the oil and gas reserves, the completeness and accuracy
|
|
S.No
|
Key Audit Matter
|
Auditor’s Response
|
| |
Recoverability of such Oil and Gas assets has been identified as a key audit matter due to:
• The significance of the carrying value of the assets being assessed;
• The assessment of the recoverable amount of the Company's Cash Generating Units (CGUs) involves significant judgements about future cash flow forecasts and the discount rates applied; and
• The estimation of oil and natural gas reserves is a significant area of judgement due to the technical uncertainty involved and this has a substantial impact on impairment testing.
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.
|
of the input data used and the reasonableness of key assumptions considered in the impairment evaluation including the discount rates and future oil and gas prices.
b) We obtained the impairment workings prepared by the Company and performed the following procedures:
(i) Assessed the valuation methodology used by management, evaluated the appropriateness of management's identification of the CGU's and tested the arithmetical accuracy of the impairment calculations.
(ii) Conducted corroborative inquiries with the Company personnel, including internal reserve experts, to identify factors, if any, which should be considered in the analysis.
(iii) Tested the key assumptions used in the assessment including reserve estimate, oil and gas prices by comparing them with prior year's data and external data, where relevant.
(iv) Assessed the reasonableness of the discount rates used.
(v) Verified the estimated future capital and operational costs, by comparing the same with the budgets and the production forecasts.
(vi) Performed sensitivity analysis of key assumptions, including estimate of production-based revenue growth rates and the discount rates applied in the valuation workings.
|
|
2
|
Measurement of provision for decommissioning, dismantling, removal and restoration ("DDRR")
The provision outstanding for DDRR of the Company amounts to $ 14,461 Lakhs. The estimation of DDRR provision, involves significant degree of judgement and uncertainty in estimation.
DDRR provisions are inherently subjective given they are based on estimates of costs that will be settled in the future. The Company reviews the DDRR provision on an annual basis, of which key components include the interest rate, inflation rate and expected future costs.
|
Principal audit procedures performed:
Our procedures relating to testing the measurement of the provision for DDRR included the following, among others:
(i) Tested the effectiveness of internal controls over
the Company's process in estimating the future costs, the completeness and accuracy of the input data used and the reasonableness of key assumptions considered in their evaluation including the inflation and discount rates.
(ii) Obtained the calculation of the DDRR provision prepared by the Company and performed the following procedures:
• Obtained and evaluated the workings received by the Company from internal specialist for reasonableness.
• Tested the completeness of the provision by comparing the list of operating blocks with the obligation to create a provision for DDRR.
• Tested the arithmetical accuracy of the Decommissioning liability.
|
Information Other than the Financial Statements and Auditor’s Report Thereon
• The Company's Board of Directors is responsible for the other information. The other information comprises the information included in the Board's Report, Corporate Governance Report, Management Discussion and Analysis and Business Responsibility and Sustainability Report, but does not include the consolidated financial statements, standalone financial statements and our auditor's report thereon. The Board's Report, Corporate Governance Report, Management Discussion and Analysis and Business Responsibility and Sustainability Report are expected to be made available to us after the date of this auditor's report.
• Our opinion on the standalone financial statements does not cover the other information and will not express any form of assurance conclusion thereon.
• In connection with our audit of the standalone financial statements, our responsibility is to read the other information identified above when it becomes available and, compare with the financial information of the unincorporated joint ventures audited by the other auditors, to the extent it relates to these entities and, in doing so, place reliance on the work of the other auditors and consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated. Other information so far as it relates to the unincorporated joint ventures, is traced from their financial information audited by the other auditors.
• When we read the Board's Report, Corporate Governance Report, Management Discussion and Analysis and Business Responsibility and Sustainability Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance as required under SA 720 'The Auditor's responsibilities Relating to Other Information'.
Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
The Company's Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance including other comprehensive income, cash flows and changes in equity of the Company in accordance with the accounting principles generally accepted in India, including Ind AS specified under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, management and Board of Directors is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intend to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
The Company's Board of Directors are also responsible for overseeing the Company's financial reporting process. Auditor’s Responsibility for the Audit of the Standalone Financial Statements
Our objectives are to obtain reasonable assurance about whether the standalone financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these standalone financial statements.
As pant of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the standalone financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal financial controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Company has adequate internal financial controls with reference to standalone financial statements in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the standalone financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and whether the standalone financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the Company and unincorporated joint ventures to express an opinion on the standalone financial statements. We are responsible for the direction, supervision and performance of the audit of the financial statements of such entities or business activities included in the standalone financial statements of which we are the independent auditors. For the other entities or business activities included in the standalone financial statements, which have been audited by the other auditors, such other auditors remain responsible for the direction, supervision and performance of the audits carried out by them. We remain solely responsible for our audit opinion.
Materiality is the magnitude of misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the standalone financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and in evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatements in the standalone financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal financial controls that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the standalone financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Matters
a) We have placed reliance on the technical/commercial evaluation performed by the management in respect of the categorization of wells as exploratory, development, producing and dry wells, allocation of costs incurred on them, proved developed hydrocarbon reserves and depletion thereof on Oil and Gas assets, impairment and liability for site restorations costs.
b) Management had performed year end physical verification of inventory of crude oil at offshore location. However, we were not able to physically observe the verification of the inventory that was carried out by the Management due to practical and safety considerations. Consequently, we have performed alternate procedures to audit the existence and condition of inventory as per the guidance provided in SA 501 "Audit evidence - Specific consideration for selected items" and have obtained sufficient appropriate audit evidence to issue our unmodified opinion on these standalone financial statements. Our report on the standalone financial statements is not modified in respect of this matter.
c) We did not audit the financial information of seven unincorporated joint ventures included in the standalone financial statements of the Company, whose financial statements reflect total assets of $ 591 lakhs as at March 31, 2024 and total revenues of $ Nil lakhs for the year ended on that date, as considered in the standalone financial statements. The financial information of these unincorporated joint ventures have been audited by the other auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these unincorporated joint ventures and our report in terms of subsection (3) of Section 143 of the Act, in so far as it relates to the aforesaid unincorporated joint ventures, is solely based on the report of such other auditors.
d) We did not audit the financial information of one unincorporated joint venture included in the standalone financial statements, whose financial information reflect total assets of $ 248 lakhs as at March 31, 2024 and total revenues of $ Nil lakhs for the year ended on that date, as considered in the standalone financial statements. The financial information of this unincorporated joint ventures is unaudited and have been furnished to us by the Management and our opinion in so far as it relates to the amounts and disclosures included in respect of this unincorporated joint venture, is based solely on such unaudited financial information. In our opinion and according to the information and explanations given to us by the Management, this financial information is not material to the Company.
Our opinion on the standalone financial statements and our report on Other Legal and Regulatory 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 the consideration of the reports of the other auditors on the separate financial information of the unincorporated joint ventures, referred to in the Other Matters section above we report, to the extent applicable that:
a. We have sought and obtained all the information and explanations which to the best of 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 the Company and its unincorporated joint ventures so far as it appears from our examination of those books and the reports of the other auditors except for not complying with the requirement of audit trail as stated in (i)(vi) below.
c. The Balance Sheet, the Statement of Profit and Loss including Other Comprehensive Income, the Statement of Cash Flows and Statement of Changes in Equity dealt with by this Report are in agreement with the relevant books of account.
d. In our opinion, the aforesaid standalone financial statements comply with the Ind AS specified under Section 133 of the Act.
e. On the basis of the written representations received from the directors as on March 31,2024 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2024 from being appointed as a director in terms of Section 164(2) of the Act
f. The modification relating to the maintenance of accounts and other matters connected therewith, are as stated in paragraph (b) above.
g. With respect to the adequacy of the internal financial controls with reference to standalone financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in "Annexure A". Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company's internal financial controls with reference to standalone financial statements.
h. With respect to the other matters to be included in the Auditor's Report in accordance 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 explanations given to us, the remuneration paid by the Company to its directors during the year is in accordance with the provisions of Section 197 of the Act.
i. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended in our opinion and to the best of our information and according to the explanations given to us:
i. The Company has disclosed the impact of pending litigations on its financial position in its standalone financial statements. Refer note 45 of the standalone financial statements;
ii. The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.
iv. (a) The Management has represented that, to the best of its knowledge and belief, as disclosed in
note 58 to the standalone financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Company to or in any other person(s) or entity(ies) including foreign entities, with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(b) The Management has represented, that, to the best of its knowledge and belief, as disclosed in note 59 to the standalone financial statements, no funds have been received by the Company from any person(s) or entity(ies), including foreign entities including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Company shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
(c) Based on the audit procedures that has been considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (i) and (ii) of Rule 11(e), as provided under (a) and (b) above, contain any material misstatement.
v. The Company has not declared or paid any dividend during the year and has not proposed final dividend for the year.
vi. Based on our examination, which included test checks, the Company has used accounting softwares for maintaining its books of account for the year ended March 31, 2024 which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the softwares except that:
a. The feature of recording audit trail (edit log) facility was not enabled at the database level to log any direct data changes for the accounting software used by the Company.
b. In respect of a software operated by a third party software service provider, for maintaining payroll records, based on the independent auditor's system and organization controls report covering the requirement of audit trail, the Company has used a software which has a feature of recording audit trail (edit log) facility and the same has operated during the period April 1, 2023 till December 31, 2023 and no instance of audit trail feature being tampered with has been reported in such independent auditor's report for the aforesaid period. In the absence of an independent auditor's report covering the audit trail requirement for the remaining period, we are unable to comment whether the audit trail feature of the said software was enabled and operated from January 1, 2024, for all relevant transactions recorded in the software or whether there was any instance of the audit trail feature been tampered with.
Further, during the course of our audit we did not come across any instance of the audit trail feature being tampered with, in respect of accounting software for the period for which the audit trail feature was enabled and operating.
As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from April 1, 2023, reporting under Rule 11 (g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the financial year ended March 31, 2024. 2. As required by the Companies (Auditor's Report) Order, 2020 ("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 the Order.
For Deloitte Haskins & Sells LLP Chartered Accountants
(Firm's Registration No.117366W/W-100018)
C Manish Muralidhar
Place : Hyderabad (Partner)
Date : May 29, 2024 (Membership No. 213649)
MM/JM/2024/17 (UDIN: 24213649BKCJGA2867)
|