RIL Takes $6-Billion Writedown On Oil & Gas Assets Under New Accounting Standards
Reliance writedowns include depletion in value of investments in KG-D6, U.S. Shale
Reliance Industries Ltd. has taken a writedown of Rs 39,570 crore, or nearly $6 billion, on its oil and gas assets for the financial year 2015-16, the company disclosed as part of its third quarter earnings on Monday.
Reliance has restated its reserves following a change in accounting standards from April 1, 2016. It has moved from the full-cost (Indian GAAP) to the successful-efforts method under IND AS.
According to a media statement, Reliance has devalued its oil and gas assets by Rs 39,570 crore on a consolidated basis. Reliance’s consolidated writedown includes depletion in the value of its investments in Krishna Godavari Basin D6 block and U.S. shale gas.
When you transition from one method to another, as per accounting standards you have to go back in time – when you acquired that asset and if you had followed successful completion since then, what would have been your book value at the beginning of April 1, 2015, which is the previous financial financial year. And then you make that adjustment... (which) is roughly the Rs 40,000 crore (for oil and gas) negative that is adjusted to reservesV Srikanth, Deputy Chief Financial Officer, Reliance Industries
From now on, Srikanth said, the company would report earnings as per the new accounting standard. “So the Rs 40,000 crore represents the value in reduction in the opening balance in the reserve, and if you reduce that value, you are correspondingly reducing the net worth,” he said.
Krishna-Godavari D6 Block
Reliance has taken a Rs 20,114-crore writedown on its domestic oil and gas assets comprising largely of KG-D6 fields. The writedown, the company clarified, was taken to recognise expenditure on surrendered blocks, and unproved and abandoned wells. It also recognised depletion in producing asset using the proved developed reserve (successful-efforts method) as against the proved reserve (full-cost method).
Reserve Reconciliation
The company disclosed that after reconciliation for the change in accounting standards, its reserves for the financial year 2015-16 rose from Rs 2,36,944 crore to Rs 2,50,155 crore. This, Reliance said, was because the company added Rs 41,292 crore to reserves against appreciation of fair value of property, plant and equipment.
Reliance has 30,000 acres of land in India. The company included the impact of Rs 4,110 crore as increase in fair value of financial assets. It also wrote off deferred tax worth Rs 11,947 crore from the reserve.
Under the IND AS accounting standard, companies are required to revalue their assets once a year. Any subsequent change in fair value of assets for financial year 2016-17 will be known only at the time of annual audited earnings.