The Hindu Business Line : Different `reserves' and deepwater economics

TILL March 2003, there was no accounting literature on the oil and gas industry, notes Ernst & Young (E&Y) in a chapter included in Oil & Gas Exploration and Production in India: A Reference Book, from Infraline (www.infraline.com), distributed by Bharat Book Bureau (www.bharatbook.com).

A milestone, therefore, was the Guidance Note (GN) on `oil and gas producing activities' from the Institute of Chartered Accountants of India. You can download the 10-page GN from www.icai.org. E&Y notes that India is one of the few countries to have developed an industry-specific accounting guidance. "The fact that many companies have already aligned their accounting to the requirements of the GN is no doubt a positive indicator," it adds.

An instance of compliance can be found in the `Accounting Conventions' paragraph of Oil and Natural Gas Corporation Ltd's financial statements for the year ended March 31, 2005 (www.ongcindia.com). It reads, "The financial statements are prepared under the historical cost conventions in accordance with Generally Accepted Accounting Principles (GAAP), under the Successful Efforts Method as per the Guidance Note on Accounting for Oil and Gas Producing Activities issued by the Institute of Chartered Accountants of India."

There is an important chapter on `standards', not of accounting but for estimation of oil and gas reserves, based on `degree and accuracy of geological and engineering data'. It seems there is a basic difference in the definition of `reserves'! "In Western countries, the `reserves' of petroleum are the amount that can be produced at a profit from known fields, using known techniques in known time."

How are they defined in India? "As the estimates of oil/gas in place which can be realistically appraised with existing knowledge of parameters such as structure, stratigraphy, depth, size, fluid properties and reservoir mechanism." US definitions tend to be conservative, while our system recognises reserve categories as a function of maturity, explains the book.

The useful industry reference has chapters on the geology and hydrocarbon potential of sedimentary basis, geology of producing and moderately-explored basins, apart from basin-wise profiles of oil and gas fields and NELP (New Exploration Licensing Policy). With a basic knowledge of industry jargon, you should be able to make meaning of sentences such as: A fault controlled NE-SW trending structure with three culminations; IOIP is 0.03 MMT; sandstone of Palaeocene-early Eocene age constitutes the reservoir; the crude oil is of 32 degree API gravity; and IGIP is of the order of 55 MMm{+3}, of which around 33 MMm{+3} are recoverable.

Ever heard of `deepwater economics'? A section titled thus discusses the economics of the typical Indian deepwater exploration and development vis-à-vis Brazil, Indonesia, Malaysia, Nigeria and Vietnam, based on "after-tax cash flow projections of the same set of hypothetical stand-alone oilfield developments". Worth exploring!

`Dull people need not apply'

WITH Jeevan Sivasubramaniam's illustrations, here is Dave Hemsath's 301 More Ways to Have Fun at Work, from Tata McGraw-Hill (www.tatamcgrawhill.com). Fun at work has become an oxymoron for many people, rues Dave, and assures that work can be fun. But "fun can be a lot of, well, work"! The first major hurdle is inertia, he points out.

His `fun pyramid' has `acceptance and inclusion' at the base, and ascends to communication, trust, participation and identity. "Fun is not fun unless everyone can be included," declares the author. Communication is not about `gossip and badmouthing' but sitting down and talking openly with one another, he clarifies.

Hiring gets the first attention of Dave. Make fun an integral part of your recruiting, he exhorts: "Dull people need not apply, we're looking for fun-atics." An example he cites is of Keister Radice Co, an accounting firm that advertised, "Bean counters need not apply," and found that the quality of applicants dramatically improved.

A quote of John Chambers, CEO of Cisco Systems, reads: "There are very few people at Cisco who don't have the opportunity to leave for a 50 per cent pay raise any time they want. What keeps them here is that it's fun, it's exciting, and you can make a difference."

One of the tips in the book is from Barry Lee, who heads a trucking company. "This is a high-pressure business, so when I see tension building I usually do something stupid," says Lee. Such as? Calling his accounts and pretending to be an auditor from the Internal Revenue Service. Techniques to try out!

Cost per Re 1 of income transferred

AS A proportion of aggregate expenditure, India spends 24-28 per cent on the social sector, informs Handbook of Poverty in India, edited by R. Radhakrishna and Shovan Ray, from Oxford University Press (www.oup.com). The percentage is higher after the reforms started, notes the book. Per capita expenditure has risen from Rs 623 in 1990-91 to Rs 959 in 2000-01, `an increase of 54 per cent in 11 years.'

Disturbingly, however, the contribution of external aid has increased. Thus, "the share of external aid in sectoral spending on children in the Union Budget has increased from 0.5 per cent in 1990-91 to around 29 per cent in 1997-98." On average, for every Rs 100 spent on children, around Rs 20 came from external aid, during the 1990s. "More than 50 per cent of child health expenditure came from external sources."

There are insights to draw from the section on `cost effectiveness and efficacy' of PDS (Public Distribution System) and EGS (Employment Guarantee Scheme). Compared to EGS, transfer efficiency is higher under PDS but its benefit-cost ratio is only half. "This is because of better targeting in employment programmes," observe the editors.

Alarming numbers show up on a table titled `Cost per Rupee 1 of income transferred by various programmes'. Andhra Pradesh's rice subsidy cost Rs 6.35, while ICDS (Integrated Child Development Services) cost Rs 1.80.

Proper assessment of efficacy is an urgent need in times of calamity relief, as now. Which is why it will be advisable for the regional body of CAs and cost accountants to offer their services to the Government. For, what can assure taxpayers better than an independent verification of granted relief?

BooksOfAccount@TheHindu.co.in

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