Accounting for Oil Exploring Activities at Oil and Natural Gas Corporation (ONGC) Limited
Case
Teaching Notes
Supplementary Resources
Abstract
Based on accounting for oil exploring activities at a leading Oil and Gas Company from India, this case aims to help the students in understanding judgement involved in accounting and importance intervention of mangers in choosing the right decision to present true and fair financial condition and performance of the company. According to accounting guidelines issued by Institute of Chartered Accountants of India, there are two alternative methods of accounting for oil exploring activities till 31st March, 2016 in India. These are Successful Efforts Method and Full Cost Method of accounting. The case helps the students in understanding the accounting for oil exploring activities under these two methods, impact of these methods on financial statements and ratio analysis of Oil and Natural Gas Corporation (ONGC) Limited, and merits and demerits of these two methods.
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2026 Sage Publications, Inc. All Rights Reserved
Resources
Exhibit 1: Guidance Note on Accounting for Oil and Gas Producing Activities (Revised 2013)
Successful Efforts Method
Description
Under the successful efforts method, generally only those costs that lead directly to the discovery, acquisition and development of specific oil and gas reserves are capitalised and become part of the capitalised costs of the cost centre. Costs that are known at the time of incurrence to fail to meet this criterion are generally charged to expense in the period they are incurred. When the outcome of such costs is unknown at the time they are incurred, they are recorded as capital work-in-progress/intangible asset under development and written off when the costs are determined to be non-productive.
Full Cost Method
Description
Under the full cost method, all costs incurred in, acquiring mineral interests, exploration, and development, are accumulated in cost centres that may not be related to geological factors. The cost centre, under this method, is not normally smaller than a country except where warranted by major difference in economic, fiscal or other factors in the country. The capitalised costs of each cost centre are depreciated as the reserves in each cost centre are produced.
Source: Guidance Note on Accounting for Oil and Gas Producing Activities (Revised 2013) issued by Institute of Chartered Accountants of India
Exhibit 2: Significant Accounting Policies
2. Significant Accounting Policies
Basis of Preparation
The financial statements are prepared under the historical cost convention on accrual basis in accordance with Generally Agreed Accounting Principles (GAAP), applying Successful Efforts Method as per the Guidance Note on Accounting for Oil and Gas Producing Activities (Revised) issued by Institute of Chartered Accountants of India and Accounting Standards as prescribed under the Companies (Accounts) Rules, 2014 and provisions of the Companies Act, 2013.
Source: Annual Report of ONGC Limited for 2014–15
Exhibit 3: Financial Statements of ONGC Limited
Balance Sheet of ONGC Limited as on 31st March, 2019 (INR in Million)
| Particulars | Note No | As at 31st March 2015 | as 31st March 2014 |
| I. EQUITY AND LIBILITIES | |||
| 1. Shareholder’s fund | |||
| (a) Share capital | 3 | 42,777.60 | 42,777.60 |
| (b) Reserve and surplus | 4 | 14,03,232.15 | 13,24,472.45 |
| 2. Non-current liabilities | |||
| (a) Deferred tax liabilities (Net) | 5 | 1,77,331.54 | 1,65,786.78 |
| (b) Other long-term Liabilities | 6 | 11,288.85 | 11,779.09 |
| (c) long-term capital provision | 7 | 2,54,433.79 | 2,57,270.72 |
| 3. CURRENT LIABILITIES | |||
| (a) Short-term borrowings | 8 | 13,930.00 | 0.00 |
| (b) Trade payables | 9 | 54,891.03 | 63,724.81 |
| (c) other current liabilities | 10 | 1,02,938.07 | 1,19,257.45 |
| (d) Short-term provisions | 11 | 19,975.78 | 7,815.39 |
| TOTAL | 20,80,798.81 | 19,92,884.29 | |
| II. ASSETS | |||
| 1. Non-current assets | |||
| (a) Fixed assets | |||
| (i) Tangible assets | 12 | 3,14,211.24 | 3,02,291.89 |
| (ii) Producing properties | 13 | 6,67,110.29 | 6,57,832.64 |
| (iii) Intangible assets | 14 | 696.04 | 500.61 |
| (iv) Capital work-in progress | 15 | 1,26,906.58 | 1,16,450.34 |
| (v) Exploratory/Development Wells in progress | 16 | 1,58,885.29 | 1,39,127.59 |
| (b) Non-current investments | 17 | 1,81,242.83 | 1,72,043.06 |
| (c) Long-term loans and advances | 18 | 1,94,708.20 | 1,81,783.61 |
| (d) Deposits under site restoration fund scheme | 19 | 1,25,443.80 | 1,13,101.59 |
| (e) Other non-current assets | 20 | 9,962.00 | 11,319.96 |
| 2. CURRENT ASSETS | |||
| (a) current investments | 0.00 | 0.00 | |
| (b) Inventories | 21 | 59,635.27 | 58,825.41 |
| (c)Trade receivables | 22 | 1,35,782.74 | 81,656.70 |
| (d) Cash and cash-equivalents | 23 | 27,600.68 | 1,07,988.77 |
| (e) short-term loans and advances | 24 | 69,476.77 | 43,669.60 |
| (f) Other current Assets | 25 | 9,137.08 | 6,292.52 |
| TOTAL | 20,80,798.81 | 19,92,884.29 | |
Source: Annual Report of ONGC for 2014–15
Statement of Profit and Loss for the Year Ended 31st March, 2015 (INR in Million)
| Particulars | Note No | 2014–15 | 2013–14 |
| 1. INCOME | |||
| Revenue from operation (gross) | 26 | 8,30,934.67 | 8,42,027.80 |
| Less: Excise duty | 2,225.06 | 3,125.09 | |
| Revenue from operations (Net) | 8,28,709.61 | 8,38,902.71 | |
| Other Income | 28 | 53,665.67 | 67131.99 |
| TOTAL REVENUE | 8,82,375.28 | 9,06,034.70 | |
| 2. EXPENSES | |||
| (Increase)/Decrease in inventories | 29 | (1,674.29) | 1,042.80 |
| Purchase of stock-in-trade | 44.2.2 | 44.11 | 31.8 |
| Production, Transportation, selling and distribution expenditure | 31 | 3,92,662.80 | 3,93,334.90 |
| Exploration cost written off | |||
| Survey cost | 19,146.47 | 15,911.62 | |
| Exploratory well cost | 86,078.16 | 62445.15 | |
| Depreciation, depletion, amortisation, Impairment | 32 | 1,14,583.12 | 1,09,258.90 |
| Financing cost | 33 | 27.87 | 3.57 |
| Provisions and write-offs | 34 | 2,115.60 | 2,188.50 |
| Adjustment relates to prior period | 35 | 3,839.09 | (2,501.86) |
| TOTAL EXPENSES | 6,16,822.93 | 5,81,715.38 | |
| Profit before exceptional, extraordinary items and tax | 2,65,552.35 | 3,24,319.32 | |
| Exceptional items | 0.00 | 0.00 | |
| Profit before extraordinary items | 2,65,552.35 | 3,24,319.32 | |
| Extraordinary items | 0.00 | 0.00 | |
| profit before tax | 2,65,552.35 | 3,24,319.32 | |
| Tax expenses: | |||
| Current tax | 82,000.00 | 65,500.00 | |
| MAT credit entitlement | 0.00 | (2,800.00) | |
| Earlier years | (5,848.30) | 2,145.87 | |
| Deferred tax | 12,071.11 | 38,525.38 | |
| profit after tax | 1,77,329.54 | 2,20,948.07 | |
| Earnings per equity share-basic and diluted (face value ₹ 5/– share) | 36 | 20.73 | 25.83 |
Source: Annual Report of ONGC for 2014–15
Cash Flow Statement for the Year Ended 31st March, 2015 (INR in Million)
| Year ended 31st March 2015 | Year ended 31st March 2014 | |
| A. CASH FLOW FROM OPERATING ACTIVITIES | ||
| Net profit before tax and extraordinary items | 2,65,552.35 | 3,24,319.32 |
| Adjustments for: |
|
|
| Prior Period Items | 3,839.09 | (2,501.86) |
| Depreciation, Depletion, Amortisation and Impairment | 1,14,583.12 | 1,09,258.90 |
| Exploratory well written off | 86,078.16 | 62,445.15 |
| Interest on borrowings | 27.87 | 3.57 |
| Unrealized foreign exchange Loss/(gain) | 222.91 | 341.11 |
| Provision for leave Encashment | 1,556.81 | (17,273.47) |
| Provision for other employee benefits | 3,279.49 | 2,764.16 |
| Other provisions and write-offs | 2,115.60 | 2,188.50 |
| Excess provision written back | (6,456.33) | (16,328.86) |
| Provision for abandonment | 283.48 | 243.56 |
| Interest income | (30,564.45) | (33,006.23) |
| Excess Liability written back | (856.54) | (2,836.39) |
| Amortization of Government Grant | (14.17) | (2.87) |
| Dividend Income | (4,889.51) | (3,744.37) |
| Operating profit before working capital changes | 4,34,757.88 | 4,25,870.22 |
| Adjustments for: |
|
|
| Receivables | (54,503.49) | 2,779.65 |
| Loans and advances | (28,881.97) | (2,677.53) |
| Other currents assets | (225.33) | 4300.38 |
| Inventories | (542.54) | (2,704.45) |
| Trade payables and other liabilities | (24,277.96) | 29,225.79 |
| Cash generated from operation | 3,26,326.59 | 4,56,794.06 |
| Direct tax paid (Net of Tax refund) | (76,080.81) | (78,080.58) |
| Cash flow before Prior Period | 2,50,245.78 | 3,78,713.48 |
| Prior Period items (Cash items) | (524.6) | 166.71 |
| Net cash flow from operating activities ‘A’ | 2,49,721.18 | 3,78,880.19 |
| B. CASH FLOW FROM INVESTING ACTIVITIES | ||
| Purchase of fixed assets | (82389.32) | (1,01,082.42) |
| Sale of fixed assets | 62.27 | 7.28 |
| Exploratory and development drilling | (1,77,557.51) | (1,99,047.62) |
| Advance/Investment in Joint Controlled Entities | (2,516.54) | (9,910.69) |
| Loan to Associates | 350.45 | 337.88 |
| Loan and advances to subsidiary | (5,961.93) | 6,941.01 |
| Investments/Loans to Public Sector Undertakings | 0.00 | (26,707.47) |
| Deposits in site restoration fund | (12,342.21) | (11,770.38) |
| Dividend received from associates | 37.80 | 11.46 |
| Dividend received from other investments | 4,851.71 | 3,732.91 |
| Interest received | 26,332.31 | 31,984.50 |
| Net cash flow from investing activities ‘B’ | (249132.97) | (305503.54) |
| C. CASH FLOW FROM FINANCING ACTIVITIES | ||
| Short-term borrowings | 13,930.00 | 0.00 |
| Dividend paid | (79,133.08) | (83,399.48) |
| Tax on dividend | (15,748.94) | (14,170.69) |
| Interest Paid | (24.28) | (3.57) |
| Net cash flow from Financing Activities ‘C’ | (80,976.30) | (97,573.74) |
| Net Increase/(decrease) in cash and cash Equivalents (A + B + C) | (80,388.09) | (24,197.09) |
| Cash and Cash Equivalents as at 1st April 2014 (opening balance) | 1,07,988.77 | 1,32,185.86 |
| Cash and Cash Equivalents as at 31st March 2015 (Closing balance) | 27,600.68 | 1,07,988.77 |
| (80,388.09) | (24,197.09) | |
Source: Annual Report of ONGC for 2014–15
Exhibit 4: Exploratory Wells in Progress of ONGC (INR in Million)
| Particulars | As at 31st March, 2015 | As at 31st March, 2014 |
| (A) EXPLORATORY WELLS IN PROGRESS | ||
| Gross Cost | ||
| Opening Balance | 1,33,955.37 | 86,489.94 |
| Expenditure during the year | 1,11,701.28 | 1,16,872.08 |
| Less: Sale proceeds of Oil and Gas | 547.85 | 470.54 |
| 1,11,153.43 | 1,16,401.54 | |
| Depreciation during the year ((Note No.32) | 3,284.45 | 2,506.44 |
| 2,48,393.25 | 2,05,397.92 | |
| Less: | ||
| Transfer to producing properties | 10,189.11 | 8,950.30 |
| Wells written off during the year | 88,137.36 | 62,508.91 |
| Other adjustments | 2,638.80 | −16.66 |
| 1,47,427.98 | 1,33,955.37 | |
| Less: Provisions (Note no-16.1)/Impairment (Note no-42.6) | ||
| Opening Balance | 24,518.71 | 17,169.79 |
| Provided during the year | 1,177.50 | 7,348.92 |
| Write back during the year | −1,203.23 | 0 |
| Exploratory wells-in-Progress (A) | 1,22,935.00 | 1,09,436.66 |
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2026 Sage Publications, Inc. All Rights Reserved
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