Reliance Industries writes down nearly Rs 40,000 crore on change in accounting policy

Reliance Industries Ltd has written down Rs 39,570 crore in value of its oil and gas assets including the flagging KG basin D6 block and US shale gas projects, in view of change in accounting policy.

RIL has restated its reserves following a change in accounting standards from April 1, 2016. It has moved from the Full-Cost Method (Indian GAAP) to the Successful-Efforts Method under IND AS.

This has led to devaluation of its oil and gas assets by Rs 39,570 crore as on March 31, 2016, according to RIL's third quarter earning statement.

The write down investments reflects plummeting oil and gas prices.

"The impact on account of change in accounting policy from FCM to SEM is recognised in the Opening Reserves on the date of transition and consequential impact of depletion and write offs is recognised in the Profit and Loss Account," RIL said.

Major differences impacting such change of accounting policy are in the areas of expenditure on surrendered blocks, unproved wells, abandoned wells, seismic and expired leases and licenses, it said.

Transiting from one accounting method to another requires going back to the time when that asset was acquired and calculating its present book value if successful completion had been followed since then.

RIL has taken a Rs 20,114 crore write-down on its KG-D6 block in the Bay of Bengal.

In the October-December quarter, the company reported a pre-tax loss of Rs 295 crore from its oil and gas business mainly because of "continuing decline in domestic production and weak price realisations".

Gas price for KG-D6 reduced to USD 2.5 per million British thermal unit from USD 3.06 per mmBtu earlier.

Its US shale performance improved q-o-q with higher realisations despite lower production. US shale production in 3Q FY17 was down 9 per cent at 37.5 billion cubic feet but price realisation was up 12 per cent at USD 2.85 per thousand cubic feet.

KG-D6 production stood at 7.5 million standard cubic meters per day and 3,329 barrels per day of oil. 

A company spokesperson said: "RIL and its subsidiaries have adopted Ind AS with effect from April 1, 2016 pursuant to the notification issued by Ministry of Corporate Affairs (MCA)."

He said the impact of Rs 39,570 crore is entirely on account of change in accounting policy from Full Cost Method (FCM) to Successful Efforts Method (SEM).

"This was disclosed by the Company in July 2016 while announcing its 1Q FY17 results. The break-up between Domestic and US shale is almost equal (51:49)," he added.