Hardy Oil & Gas PLC Annual Report 2012

FY2012 Annual Report · Hardy Oil & Gas PLC

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Hardy Oil and Gas plc
Annual Report and Accounts
2012

Building
momentum

Hardy Oil and Gas plc is an
upstream international oil and gas
company whose operating assets
are in India. Its portfolio includes
a blend of exploration, appraisal
and development assets.

Hardy’s goal is to evaluate and
exploit its asset base with a view
to creating significant value for
its shareholders.

Overview

Operational and Financial Highlights
Our India Focus

Business Review

Chairman’s Statement
Our Business Model
Chief Executive’s Statement
Review of Operations
Financial Review
Corporate Social Responsibility
Principal Risks for 2013
Board of Directors

Governance

Governance Report
Audit Committee Report
Directors’ Remuneration Report
Nomination Committee Report
Directors’ Report

Financial Statements

Independent Auditors’ Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Parent Company Statement of Changes in Equity
Parent Company Statement of Financial Position
Parent Company Statement of Cash Flows
Notes to the Parent Company Financial Statements

Category

HSE

KPI

Total recordable injuries

Operations

Contingent resource (bcf)

Wells drilled

2012 aim/target

Reduction

Increase

No wells planned in
2012

Financial

Cash and short-term investments

> than $10 million

Cash flow overhead*

Reduce

* Administrative expense less share-based payments, foreign exchange charges, partner recharge.
∆ Excludes restructuring charge of $0.7 million.

2012

174

$29.1

$4.7∆

2011

174

$36.5

$6.2

2010

174

$36.5

$6.5

Hardy Oil and Gas plc Annual Report and Accounts 2012

Business Review
Review of Operations continued

Asset Review
The Company’s operations in
India are conducted through
its wholly owned subsidiary
Hardy Exploration &
Production (India) Inc.

Krishna Godavari
Basin

Block KG-DWN-2003/1
Exploration (Hardy 10 per cent interest)

The D3 exploration licence
in the Krishna Godavari Basin
remains at the core of our
organic growth potential
and we expect drilling to
recommence in the second
quarter of 2013.

Operations
The joint venture continued to undertake a
number of geotechnical studies including
the PSDM reprocessing of over 1,292 km2
of 3D data. Geotechnical studies have
been focused on assessing the potential
of the eastern area of the block and high
grading prospects, including deeper plays.

A revised proposal for the DOC for the
Dhirubhai 39 and 41 natural gas
discoveries, submitted earlier this year,
remain under review by the GOI. The
proposed development plan provides for
a dry gas, subsea cluster development
with the flexibility to add in additional wells
and to include a possible adjoining area of
discoveries.

Outlook
The deepwater drillship Dhirubhai
Deepwater KG2, contracted to the
D3 joint venture operator, Reliance,
is currently operating in Indian waters.
Drilling of a fifth exploration well is
expected to commence in the second
quarter of 2013.

The GOI’s review of the D3 DOC proposal
will likely continue through 2013.

2 0 0 m
1 0 0 0 m
2 0 0 0 m

3 0 0 0 m

150 km

KRISH N A GODA VA RI
BA SIN

OIL FIELD

GAS FIELD

Hardy Oil and Gas plc Annual Report and Accounts 20121

PROVEN PLAY IN BLOCK

PLEIST. BIOGENIC STRATIGRAPHIC

PLEIST. BIOGENIC STRUCTURAL

PLIOCENE BIOGENIC UNCONFORMITY

MIOCENE BIOGENIC STRAT/STR.

MIOCENE MIXED TOE THRUST

LWR. TERTIARY MIXED SUB SHALE

D3 Early stages of exploration
Expanding portfolio of plays and prospects

20 km

E T O E
L
A
E
R
T A

N H A
T H R

A/B

GAS DISCOVERY

PROSPECT/LEADS

PROVEN PLAY IN BLOCK

Ongoing geotechnical evaluation
integrated with new regional data
has identified a number of
additional prospects and leads

The new prospectivity is
primarily focused in deeper
thermogenic sourced plays

D3 Unique exploration block
Six play types present

PROVEN PLAY IN BLOCK

PLEIST. BIOGENIC STRATIGRAPHIC

PLEIST. BIOGENIC STRUCTURAL

PLIOCENE BIOGENIC UNCONFORMITY

MIOCENE BIOGENIC STRAT/STR.

MIOCENE MIXED TOE THRUST

LWR. TERTIARY MIXED SUB SHALE

Hardy Illustration

20 km

E T O E

T A

N H A

T H R

A/B

GAS DISCOVERY

PROSPECT/LEADS

PROVEN PLAY IN BLOCK

Overview
Business Review
Governance
Financial Statement
Company Information

Background
Situated in the Krishna Godavari Basin,
a prolific petroleum province on the east
coast of India, the D3 exploration licence
encompasses an area of 3,288 km2, in
water depths of 400 m to 2,200 m, and
is located approximately 45 km offshore.
The D3 block is operated by Reliance
which holds a 60 per cent participating
interest, BP and Hardy hold participating
interests of 30 per cent and 10 per cent
respectively. To date, four consecutive gas
discoveries have been made via the
Dhirubhai 39, 41, 44 and 52 (KGV-D3-A1,
B1, R1 and W1) exploration wells. The joint
venture has acquired approximately 3,250
km2 of 3D seismic data over the block.

“ The D3 exploration
licence remains at the
core of our organic
growth potential.”

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Review of Operations continued

Gujarat-Saurashtra
offshore basin

GS-01

Block GS-OSN-2000/1
Development (Hardy 10 per cent interest)

The Dhirubhai 33 natural gas
discovery is in close proximity
to the industrial state of
Gujarat which has an
established natural gas
infrastructure and robust
energy demand growth
projections.

Kodinar

A RA BIA N SEA

M-1

N. TAPTI

MID. TAPTI

S. TAPTI

B2
ONGC

B3
ONGC

B-1
S-1

A-1

BM-16
ONGC

MUKTA

PANNA

B-1C
ONGC

BM-17
ONGC

BOMBAY
HIGH 1

BM-6

B-18
ONGC

BM-12
ONGC

OIL FIELD

GAS FIELD

SUBSEA PIPELINE

BASSEIN

HEERA

RATNA

100 km

Dahanu

Mumbai

Operations
Hardy continued discussions with the
operator to facilitate the preparation of
a detailed field development plan for the
Dhirubhai 33 natural gas discovery. As a
result of our efforts the field development
plan was submitted to the GOI for review
prior to the end of the year. The
development plan provides for several
dry tree wells, and unmanned platforms,
multiphase pipelines to shore and onshore
processing and export facilities.

Early in 2013 the Company confirmed
that it was in discussions with its partner,
Reliance, to increase our participating
interest. These discussions are ongoing
and we will provide an update once
discussions are concluded.

Outlook
The GOI’s review of the field development
plan is likely to continue through 2013.

Background
In 2011, the GS-01 joint venture secured
the GOI’s approval for a DOC proposal for
the Dhirubhai 33 discovery (GS01-B1,
drilled in 2007) which flow-tested at a rate
of 18.6 million standard cubic feet per day
(mmscfd) gas with 415 bbld of
condensate through a 56/64 inch choke
at flowing tubing head pressure of 1,346
pounds per square inch (psi). The GS-01
licence is located in the Gujarat-
Saurashtra offshore basin off the west
coast of India, northwest of the prolific
Bombay High oil field, with water depths
varying between 80 m and 150 m. The
retained discovery area covers 600 km2.

Hardy Oil and Gas plc Annual Report and Accounts 2012Cauvery
Basin

PY-3

Block CY-OS 90/1
Oil Field (shut-in July 2011)
(Hardy 18 per cent interest – Operator)

As operator of the PY-3 field
Hardy implemented key
enhanced recovery techniques
that have significantly
increased the estimated
recoverable volumes and
extended the life of the field.
Following the drilling of new
wells the field could produce
for a further ten years.

Chennai

Ganesha-1 well

CY-OS-2

L-XI

NEYVELI

Villupuram

ARI YALU R-PONDICHER RY
SUB- BASIN

Pondicherry

CY-ONN2002/1

OIL FIELD

BHUVANAGL02

GAS FIELD

CY-ONN2004/1

CY-OS-2

PY-1 FIELD

GAS CONCENTRATE FIELD

L-1

CY-ONN2002/2

MADANAM

CY-ONN2004/2

KALI

L-1 (EXTN)

MYLIADUTHURAI

PY-3 FIELD

CY-OS-90/1

KUTHALAM

T RANQUEBAR
SUB- BASIN

30 km

Overview
Business Review
Governance
Financial Statement
Company Information

As previously announced, the PY-3 field
remained shut-in throughout the year
and no production was realised by the
Company. We continued to work closely
with partners and government authorities
to plan for the timely recommencement of
production. We have held a number of
constructive meetings with partners and
the India upstream oil and gas regulator
Directorate General of Hydrocarbons
(DGH). As a result we have agreed to
a timeline to submit a comprehensive full
field development plan early in 2013.

Outlook
Assuming timely approvals from partners,
a comprehensive full field development
plan is to be submitted for the GOI’s
review and approval by the end of the
second quarter of 2013. Once the revised
plan is approved, we intend to initiate a
tendering process for the required
production facility and drilling services.
Based on current assumptions, production
could recommence in the first half of
2014. The field’s existing well is capable
of producing at a gross daily rate of over
3,000 bbld and with future planned wells,
the field has the potential to reach
8,000 bbld.

Background
The PY-3 field is located off the east coast
of India 80 km south of Pondicherry in
water depths between 40 m and 450 m.
The Cauvery Basin was developed in the
late Jurassic/early Cretaceous period and
straddles the present-day east coast of
India. The licence, which covers 81 km2,
produces high-quality light crude oil
(49° API).

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Review of Operations continued

Cauvery
Basin

CY-OS/2

Block CY-OS/2
Exploration (Hardy 75 per cent interest – Operator)

Following the restoration
of the block, Hardy (as
operator) will complete the
appraisal of the Ganesha-1
natural gas discovery. The
Ganesha-1 discovery is in
close proximity of Hardy’s
PY-3 oil field.

Chennai

Ganesha-1 well

CY-OS-2

L-XI

NEYVELI

Villupuram

ARI YALU R-PONDICHER RY
SUB- BASIN

Pondicherry

CY-ONN2002/1

OIL FIELD

BHUVANAGL02

GAS FIELD

CY-ONN2004/1

GAS CONCENTRATE FIELD

L-1

CY-ONN2002/2

MADANAM

CY-ONN2004/2

KALI

L-1 (EXTN)

MYLIADUTHURAI

PY-1 FIELD

CY-OS-2

PY-3 FIELD

CY-OS-90/1

KUTHALAM

T RANQUEBAR
SUB- BASIN

30km

Operations
The formal dispute resolution process,
to extend the expiry date of the CY-OS/2
licence, progressed throughout the year.
On 4 February 2013 the Company
announced that the joint venture was
successful in obtaining an extension of the
CY-OS/2 licence. A brief summary of the
Hon’ble Tribunal’s award is provided below:

Dispute
Hardy, along with Gas Authority of India
Limited (GAIL) and Oil and Natural Gas
Corporation (ONGC), are a party and
operator to a PSC for the CY-OS/2 block.
Hardy holds 75 per cent participating
interest1 in the block. Hardy and GAIL
declared a gas discovery on 8 January
2007 which discovery qualified as
non-associated natural gas (NANG) under
the terms of the PSC. The GOI’s, Ministry
of Petroleum and Natural Gas (MOPNG)
however, stated that the discovery being
oil and the commerciality of the block not
having been declared within 24 months
from the date of the notification of the
discovery, the block stood relinquished.
Hardy had disputed the characterisation of
the discovery as oil and the consequential
relinquishment.

Hon’ble Tribunal
This dispute was referred to arbitration
under the PSC to a tribunal consisting of
three arbitrators who were former Chief
Justices of India. The Hon’ble Tribunal
passed the award on 2 February 2013
at Kuala Lumpur, Malaysia.

Award summary
The Hon’ble Tribunal has awarded and
directed as follows:
a) the Ganesha-1 discovery made
by Hardy and GAIL is NANG;
b) the order of relinquishment by the
MOPNG was illegal, being on the
erroneous impression that the
discovery was oil;

c) that the parties shall be immediately

relegated to the position in which they
stood prior to the order of
relinquishment and the block shall
be restored to Hardy and GAIL;

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

Krishna Godavari
Basin

Block KG-DWN-2001/1
Relinquished in 2012
(Hardy 10 per cent interest)

Operations
The D9 joint venture elected to surrender
the off-shore exploration block in the
Krishna Godavari Basin. Following the
integration of all geoscientific data and
the results of the three exploration wells,
including the KG-D9-A2 natural gas
discovery, the block’s hydrocarbon
potential was deemed low. The MOPNG
of the GOI has subsequently been notified
of the joint venture’s election to relinquish
the block and payment has been made
toward the unfinished minimum work
programme.

d) Hardy shall be entitled to a period of

three years from the date on which the
block is restored to it, to carry out
further appraisal;

e) MOPNG shall pay to Hardy and GAIL
interest at the simple rate of nine per
cent per annum on the amount of
Rs.5.0 billion spent by them on the
block, from the date of relinquishment
till the date on which the block is
restored (approximately $24.6 million
net to Hardy).

Outlook
Once the MOPNG has restored the
licence to the CY-OS/2 joint venture,
Hardy will recommence work on the
appraisal of the Ganesha-1 natural gas
discovery.

Background
Hardy is the operator of the CY-OS/2
exploration block and holds a 75 per cent
participating interest1, through its wholly
owned subsidiary Hardy Exploration &
Production (India) Inc and GAIL holds the
remaining 25 per cent participating interest.
The block is located in the northern part of
the Cauvery Basin immediately offshore
from Pondicherry, India and covers
approximately 859 km2. The licence
comprises of two retained areas with the
Ganesha-1 natural gas discovery located in
the northern area, which comprises an area
of approximately 300 km2.

Ganesha-1
The natural gas discovery Ganesha-1,
announced in January 2007, was drilled
to a depth of 4,089 m, encountering
sandstone reservoir within the Cretaceous
section. The well flow tested at a peak rate
of 10.7 mmscfd. The Company published
a CPR, prepared by Gaffney, Cline &
Associates, dated March 2011, which
estimates gross 2C Contingent
Resources of approximately 130 billion
cubic feet (bcf).

1 In the event of a
declaration of
commerciality, the
Government of India’s
nominee is entitled to
assume a 30 per cent
participating interest
in the block. As a
result, Hardy’s
participating interest
would be 52.5
per cent.

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Financial Review

Overview
During 2012, the Company recorded an
operating loss of $13.2 million and exited
the year with cash and short-term
investments of $29.1 million with no
debt. The Company currently plans to
drill up to two exploration wells in 2013
which will be funded from existing cash
resources.

Results for the year
The Company recorded a total
comprehensive loss of $11.1 million for
the year ended 31 December 2012. No
dividends were paid or declared during
the period.

As a result of the extended shut-in of the
PY-3 oil field no revenue from production
was realised in 2012 compared to $11.3
million revenue in 2011. The average sales
price realised in 2011 was $110.54 per
barrel.

Cost of sales
Production cost amounted to $0.3 million
for the 12 months ended 31 December
2012. The cost is attributed to support
services required during the shut-in of the
PY-3 field.

Unsuccessful exploration costs
In April 2012 the Company surrendered its
10 per cent interest in the D9 exploration
licence resulting in an unsuccessful
exploration charge of $5.4 million for the
12 months ended 31 December 2012
(2011: $3.4 million).

Administrative expenses
Administrative expense was $7.5 million
compared to $6.9 million for the same
period in 2011. As part of the Company’s
strategic review we have moved our
corporate office to Aberdeen, Scotland
from London and reduced staff in the UK
and India. These initiatives have reduced
our underlying overhead expenditures
leading into 2013.

Operating loss
The Company is reporting an operating
loss of $13.2 million for the 12 months
ended 31 December 2012 compared with
a loss of $4.7 million for the same period
in 2011.

Investment and other income
Investment and other income increased to
$0.8 million for the 12 months ended 31
December 2012 compared to $0.4 million
in 2011. The increase is mainly due to
$0.3 million interest received on tax
refunds.

Taxation
No current tax was payable for the
12 months ended 31 December 2012.
The Company has recorded a current tax
credit of $0.2 million and deferred tax
credit of $1.4 million against the pre-tax
loss of $12.7 million for the year ended
31 December 2012. This compared to
current tax credit of $ 1.3 million and
deferred tax credit of $1.3 million for
the same period in 2011.

Total comprehensive loss
The Company recorded total
comprehensive loss of $11.1 million for the
year ended 31 December 2012 compared
to a total comprehensive loss of $1.9
million for the same period in 2011.

Cash flow from operating activities
The Company’s cash outflow from
operating activities was $7.1 million for the
year ended 31 December 2012 compared
with cash outflow from operating activities
of $3.4 million for the same period in
2011.

Capital expenditure
The Group’s capital expenditure during
the 12 months ended 31 December 2012
amounted to $1.5 million compared to
$6.5 million incurred for the same period
in 2011. Capital expenditure was primarily
associated with the compensation paid to
the GOI towards the unfinished minimum
work programme for the surrendered D9
exploration block. This capital expenditure
was subsequently written-off.

“ The Company currently plans to drill up to two
exploration wells in 2013 which will be funded
from existing cash resources.”

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

2013 principal risks and uncertainties
The Board identifies the key risks for the
Company and monitors mitigation plans
and performance on a regular basis. The
Company has identified its principal risks
for the next 12 months as being:
– Strategic risk – Asset portfolio over-

weighted to long-cycle appraisal and
development; sub-commercial
exploration results

– Financial risk – Absence of stakeholder
approvals for proposed development
and appraisal programmes; liquidated
damages for incomplete minimum work
programmes

– Compliance – Deteriorating stakeholder

sentiment; changing regulatory and
political environment in India

Discussed in more detail on pages 26
and 27.

Cash and short-term investments
The Company has cash and short-term
investments of $29.1 million on 31
December 2012 compared to $36.5
million on 31 December 2011. The
Company has no debt.

Summary statement of
financial position
The Company’s non-current assets
decreased from $97.3 million at 31
December 2011 to $95.1 million at
31 December 2012. This decrease is
principally due to the write-off of the
unsuccessful exploration cost of block D9
net of the deferred tax credit. Current
assets represent the Group’s cash
resources, trade and other receivables
and inventories which have decreased
from $39.7 million as at 31 December
2011 to $32.5 million as at 31 December
2012. Current liabilities are principally
trade and other account payables which
remained unchanged at $6.1 million at the
end of 2012. The Group has considered a
contingent asset of $24.6 million on the
interest cost awarded by the arbitration
tribunal for the block CY-OS/2 (note 15).

Dividend
The Directors do not recommend
the payment of a dividend in the
foreseeable future.

Accounting policies
The Company’s significant accounting
policies and details of the significant
judgements and critical accounting
estimates are disclosed within the notes
to the financial statements. In 2011 the
Company changed to the successful
efforts method of accounting for its oil
and gas assets which allows for the
capitalisation of successful exploration
costs, whereas the dry hole and its
associated geological and geophysical
costs are written-off. The Company has
not made any material changes to its
accounting policies in the year ended
31 December 2012.

Liquidity risk management and
going concern
The Company closely monitors and
manages its liquidity risk. Cash forecasts
are regularly produced and sensitivities
run for different scenarios including
changes in timing of developments and
cost overruns of our exploration activity.
At 31 December 2012, the Company had
liquid resources of approximately $29.1
million, in the form of cash and short-term
investments, which is available to meet
ongoing capital, operating and
administrative expenditures. The
Company’s forecasts, taking into account
reasonably possible changes as
described above, show that the Company
will have sufficient financial resources for
the 12 months from the date of approval
of the 2012 Annual Report and Accounts.
At the present time, the Company does
not have any debt.

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Corporate Social Responsibility

Hardy is committed to applying high
ethical standards to maintain and
enhance its reputation as an employer
and operator of choice.

Based on mutual respect and
understanding, the Group strives to build
and maintain enduring relationships with
the Government of India, local authorities,
partners and business associates.
Respecting the rich cultural diversity of the
regions in which we engage in business,
the Company strives to minimise our
impact on the environment, taking into
consideration the specific requirements of
the region and local working practices to
achieve optimum performance and timely
delivery of projects.

Corporate social responsibility is a
fundamental part of implementing the
Group’s corporate strategy and has
both practical and ethical dimensions.
It includes managing business concerns,
such as risk, enhancing reputation in
conjunction with investing in the
community, and creating a place where
people feel good about working.

Governance
Managing our business ethically and
with integrity

Code of Business Conduct
Introduction
The Board recently adopted a Code of
Business Conduct (the Code) and was
introduced to all staff by the Chief
Executive Officer, Ian MacKenzie, in
January 2013. Our reputation with our
investors, partners and those communities
of which we are part is based on our
collective behaviour. The Board expects
every employee and all those who work
on the Group’s behalf to exercise good
judgement while carrying out our business
activities. Everyone working for Hardy is
personally responsible for following the
Code and ensuring that we conduct our
business safely and in a fair, honest and
ethical manner. A copy of the Code can
be found on the Company website
www. hardyoil.com

Compliance awareness
As part of the introduction process
employees and contract staff were invited
to attend meetings with the Chief
Executive Officer and reviewed and
discussed the Code in detail and
questions answered to ensure the Code
is embedded through the business. The
Company intends to follow-up with further
reviews throughout the year.

Raising concerns
Hardy employees and contractors are
encouraged to promptly report any
concerns they have about the Company’s
business practices or where someone is
concerned or suspects that the Code has
been breached. Where staff do not feel
comfortable reporting concerns to their
line manager or executive they have been
invited to contact the Senior Non-
Executive Director directly through a
confidential email address. The Board will
not tolerate retaliation against an individual
reporting in good faith.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

We are pleased to report that there were
no recordable injuries for PY-3 oil field
support services through to termination
of contract services. As such there is no
change to our HSE record for 2012.

Environmental management system
Hardy’s environmental management
system is intended to mitigate the risks
of marine pollution due to routine and
accidental discharges of wastes and
consequent adverse impacts on the
marine environment. In 2011 the PY-3 field
has been suspended in accordance with
international industry standard.

Regulatory compliance
Engagement of, and compliance with,
ministerial and regulatory bodies such
as OISD, DGH, MOEF, DGMS, ODAG,
Coast Guard, Navy, TMB and others have
been maintained via submitting necessary
reports as required and addressing
queries promptly. Hardy participates in
different meetings convened by these
agencies.

2012 HSE performance
The PY-3 field remained shut-in throughout
2012. The floating production unit (FPU),
Tahara, and floating storage and offloading
vessel (FSO) have been out of contract
since 2011. Citing safety reasons the PY-3
joint venture continued to provide the FPU
and FSO with support services such as
stand-by offshore supply vessel (OSV)
and helicopter facilities. As operator,
Hardy has had no direct contact with the
owner of the FPU or FSO in 2012 and
terminated support services in
March 2012.

Health, safety and environment
(HSE) activities
Keeping our people safe and
minimising our environmental footprint
The Board has tailored the Group’s HSE
policy and management system taking
reference from world-class operations to
suit Indian conditions. Safety, security and
emergency procedures have been
incorporated into the weave of the Group’s
operations. The Company’s HSE policy
was reviewed and amended in late 2012
and subsequently presented to all staff
in 2013.

The central HSE Committee and
Environment Management Committees
normally meet on a monthly basis to
assess and monitor compliance. As a
result of the shut-in of the PY-3 oil field,
the meetings ceased in March 2012.

Past practices
The Company has regularly undertaken
internal and external HSE audits, including
pre-mobilisation HSE audit of rigs and
vessels. The Company has also
undertaken periodical environmental
marine monitoring around the PY-3
production facilities and around the drilling
locations. Prompt compliance with
applicable regulations by the Group has
been recognised by concerned agencies.
No such studies were undertaken in 2012.

Safety performance at a glance

Facility

Date of last lost time accident (LTA)

Accident free days since last LTA (as on 20/03/2012)

OSV – Tanzanite

OSV – Ocean Jade

Bell 412 Helicopter

Nil

Accident statistics at a glance

Lost time accidents

Non lost time accidents

Total recordable injuries

Non injurious accidents

No loss incidents

Environmental incidents

Total accidents/incidents

839 (Since charter)

798 (Since charter)

1057 (Since charter)

2012

2011

2010

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Corporate Social Responsibility continued

Our people
Being a rewarding, challenging and
pleasant place to work

The Board is appreciative of the continued
professionalism and commitment that our
employees have demonstrated during a
year of transition and uncertainty. Following
the Company’s strategic review the
decision was taken to undertake cost
reducing measures which resulted in the
regrettable reduction of staff in some areas.

Local content
India has an extensive pool of upstream oil
and gas professionals. As a result we have
been fortunate to assemble and maintain
100 per cent local content of our India-
based professionals and staff.

Management have now put in place
concrete plans for each of the Company’s
assets and our India team will continue to
be instrumental in driving the core of our
business. We expect to realise a number
of key objectives in 2013 and intend to
enhance our technical, operational and
management competencies in due course.
Management have set ambitious targets
which will require Hardy employees to
maintain their high level of proficiency
and strive for excellence.

The Board would like to take this
opportunity to recognise the importance
of our team and acknowledge their efforts
and patience in the past year.

Outlook
The Board believes that prevention of
accidents and ill health, and protection
of the environment are essential to the
efficient operation of its business. The
Board is committed to high standards of
HSE protection. These aspects command
equal prominence with other business
considerations in the decision-making
process. HSE protection are
responsibilities shared by everyone
working for the Company and the full
support of all the Company’s staff,
corporate partners and contractors is vital
to the successful implementation of this
policy. The Board ensures that personnel
are aware of their delegated HSE
responsibilities and are properly trained to
undertake them diligently. The Board aims
to ensure that the necessary resources
are provided to support this policy fully
and to seek continuous improvement in
performance.

“ I would like to acknowledge the high level
of professionalism, commitment and patience
demonstrated by our employees during a year
of transition and uncertainty.”

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Risks and Uncertainties

As an oil and gas exploration and
production company with operations
focused in India, Hardy is subject to
a variety of risks and uncertainties.
Managing risk effectively is a critical
element of our corporate responsibility
and underpins the safe delivery of our
business plans and strategic objectives.
It protects our reputation, supports our
ability to do business and helps to create
long-term competitive advantage. The
Group has a systematic approach to risk
identification and management which
combines the Board’s assessment of
risk with risk factors originating from and
identified by the Group’s senior
management team.

Identification and monitoring
The Board has adopted a framework for
risk assessment and monitoring providing
for four distinct categories: strategic;
financial; operational; and compliance.
The Board’s review of the Company’s risks
and uncertainties involves a detailed
description of each risk and an assessment
of its perceived relevance and likelihood
of materially impacting Hardy’s business.
Risks that are identified as high and/or
trending upwards are noted and assigned
to the Executive Directors to monitor and,
if possible, pro-actively mitigate. The Board
is provided with regular updates of the
identified principal risks at scheduled
Board meetings.

Clear responsibility
The Board is responsible for the
overall Group strategy, acquisition
and divestment policy, approval of major
capital expenditure projects, corporate
costs, significant financing matters and
the management of risk. The Board
recognises that risk is inherent across
Hardy’s operations, and all activities are
subject to an appropriate review to ensure
that risks are identified, monitored and
managed to the extent possible.

The underlying risks and uncertainties
inherent with Hardy’s current business
model are summarised below.

Strategy risk
The Group’s strategy is predominantly
driven by the exploration, appraisal,
development and production of its existing
assets in India. There are risks inherent in
the exploration, appraisal, development
and production of oil and gas reserves and
resources. The Group’s strategy includes
acquiring additional oil and gas properties
principally in India. The Group cannot
guarantee that it will be able to identify
appropriate properties, or negotiate
acquisitions on favourable terms, or that
it will be able to secure the financing
necessary to complete such future
acquisitions.

Overview
Business Review
Governance
Financial Statement
Company Information

Financial risk
Any volatility and future decreases in
international crude oil prices or India-
natural gas prices could materially and
adversely affect the Group’s business,
prospects, financial condition and results
of operations. Other major financial risks
facing the Company are: inability to
access debt and/or equity financing for
further exploration and development; cost
inflation or overruns activities; and overall
deterioration of shareholder sentiment.
Additional discussion of financial risks
is provided for in the Financial Review
section.

Operations risk
Exploration and production activities
by their nature involve significant risks.
Risks such as delays in executing work
programmes as a result of access to
drilling rigs, in the construction and
commissioning of production facilities or
other technical difficulties, lack of access
to key infrastructure, adverse weather
conditions, environmental hazards,
industrial accidents, occupational and
health hazards, technical failures, labour
disputes, unusual or unexpected
geological formations, explosions
and other acts of God are inherent
to the business.

Compliance risk
The Group’s current business is
dependent on the continuing enforceability
of the PSCs, farm-in agreements and
exploration and development licences.
The Group’s core operational activities
are dependent on securing various
governmental approvals. Developments
in politics, laws, regulations and/or
general adverse public sentiment could
compromise securing such approvals
in the future.

Hardy Oil and Gas plc Annual Report and Accounts 2012Business Review
Principal Risks For 2013

Throughout the year, Hardy’s senior management and Board have critically reviewed and evaluated the risks facing the Group.
As a result of this process, the Board has identified principle risks and uncertainties for 2013 and has established clear policies
and responsibilities to mitigate their possible negative impact to the business, a summary of which is provided below:

Risk or uncertainty

Strategic

Mitigating action

Ineffective or poorly executed strategy fails to create stakeholder value or fails
to meet stakeholder expectations.

Asset portfolio over-weighted to long-cycle
appraisal and development licences

Preferential allocation of resources to advance current discoveries to the development
stage. Continually assessing acquisition opportunities, consistent with stated objectives,
offering near-term production increases.

Sub-commercial exploration results

Effective portfolio management comprised with rigorous review and implementation of
best practice exploration processes and techniques. Internal expertise review process
and, when necessary, third party consultation prior to Board approval.

Financial

Asset performance and excessive leverage results in the Group being unable
to meet its financial obligations as and when they are due.

Absence of stakeholder approval for
proposed development and appraisal
programmes

Regular and proactive communication with stakeholders to identify and maintain an
understanding of key agendas and constraints. Maintain sufficient working capital to
account for extended delays and maintain tight controls on overhead inflation.

Liquidated damages for incomplete
minimum work programmes

The Company has minimum work commitments on its exploration assets. The GS-01
block has reached the end of its exploration phase with outstanding MWP commitment
and D3 MWP has yet to be completed. The Company makes provisions when the
amount is ascertained by the operator of the licence.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

Risk or uncertainty

Operational

Mitigating action

Operational event impacting staff, contractors, communities or the environment
leading to loss of reputation and/or revenue.

Loss of well control could occur during
offshore drilling operations

The Company’s planned work programme for 2013 involves the drilling of up to two
deepwater wells. These wells are on non-operated blocks and, as such, the Company
relies on the HSE procedures mandated by the operator and the contractors. Liabilities
associated with an accident are insured to the extent reasonably possible.

Lack of control on timing of exploration
on D3

Proactive communication with partners to drive corporate interests and mandates.
Each licence is governed by joint operating agreements, which provide for processes
and procedures designed to ensure that the input and interests of non-operating
partners are considered.

Securing timely approval for a PY-3 full field
development plan

Proactive communication with partners to address individual interests and agendas.
Clearly formulate and articulate mutual beneficial proposals. Mitigate expenditures prior
to budget approvals.

Loss of key staff and succession planning

The Company’s ability to compete in the upstream oil and gas exploration and
production industry is dependent on being able to retain and attract experienced
technical personnel. Structure performance-based remuneration practices and promote
a positive and rewarding work environment.

Compliance

The overall external political, industry or market environment may negatively impact
on the Group’s ability to independently grow and manage its business.

Deteriorating stakeholder sentiment

Communicate with investors on a regular basis providing transparent and timely
information. Effectively convey strategic goals and objectives and improve delivery.

Changing regulatory and political
environment in India

Develop sustainable relationships with governments and communities. Indian PSC
includes fiscal stability clauses. Actively collaborate with industry groups to formulate
and communicate interests to government authorities.

Hardy Oil and Gas plc Annual Report and Accounts 2012
Business Review
Board of Directors

Alasdair Locke (aged 59)
Non-Executive Chairman

Ian MacKenzie (aged 55)
Chief Executive

Peter Milne (aged 58)
Senior Non-Executive Director

Mr Locke is the former executive chairman
of Abbot Group plc, an oil services
company which he founded in 1992. It
was listed on the London Stock Exchange
from 1995 until its sale in 2008 for £906
million to Turbo Alpha Ltd, a company
controlled by a US private equity fund. He
sold his remaining interest in the Group
and stepped down altogether in 2009. His
early career started in investment banking
at Citigroup in 1974, where he specialised
in shipping and oil.

Mr Locke was appointed to Hardy’s Board
as Non-Executive Chairman in January
2012. He is also chairman of Argenta
Holdings plc, an unlisted holding company
which trades in Lloyds of London, and
Chairman of Ceramic Fuel Cells Limited.
Mr Locke holds a History and Economics
Degree from Oxford. He was the recipient
of the Grampian Industrialist of the Year
(2001) award, the Scottish Business
Achievement Awards Trust International
Business Achievement Award (2000)
and the Scottish Business Achievement
Awards Entrepreneur of the year (1999).

Mr MacKenzie has a proven track
record of knowledge, experience and
achievement of high performance in the
management of oil and gas operations,
technical support functions and major
design and construction projects
developed through 30 years in the oil
and gas industry.

Mr MacKenzie was a group director and
member of the executive team of KCA
DEUTAG Drilling as well as a director of
group subsidiaries including chairman of
the main Norwegian operating entity KCA
DEUTAG Norge A/S. Mr MacKenzie
gained an honours degree in Engineering
Science from Aberdeen University and a
Postgraduate Diploma in Offshore
Engineering from Robert Gordon
University, Aberdeen. He also has formal
qualifications in Finance & Accounts. He is
a Chartered Mechanical Engineer; FEANI
registered European Engineer, member of
the Institution of Mechanical Engineers,
Energy Institute, Society of Petroleum
Engineers, Institute of Directors and a past
External Examiner in the RGU Oil & Gas
MSc course.

Mr Milne has a proven track record in
the oil sector. For over 15 years he was
the finance director of Abbot Group plc,
the largest UK headquartered drilling
contractor. During that period the
company grew from being a largely UK
focused business, with turnover of £50
million, into a global organisation with
more than £1 billion turnover, operations
in 320 countries and employing over
8,000 people. This transformation was
achieved through a strategy of organic and
acquisition led growth. Mr Milne qualified
as a Chartered Accountant with Deloittes
in 1977 and was an executive director of
Abbot Group plc (a former FTSE 250
company) and KCA DEUTAG Drilling
Group up until 2010.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

Senior executives

Pradip Shah (aged 60)
Non-Executive Director

Yogeshwar Sharma (aged 61)
Non-Executive Director

Ramasamy Jeevanandam
Chief Financial Officer – HEPI

Mr Shah is the founder and chairman
of IndAsia Fund Advisors Private Limited.
He co-founded Indocean Fund in October
1994 with affiliates of Soros Fund
Management and Chemical Venture
Partners and founded and managed
CRISIL, India’s first and largest credit
agency in 1988. Mr Shah also assisted in
setting up Housing Development Finance
Company in 1977 and acted as consultant
to USAID, the World Bank and the Asian
Development Bank. Mr Shah holds an
MBA from Harvard Business School and
is a chartered accountant and cost
accountant.

Mr Jeevanandam has over 30 years of
experience in the upstream oil and gas
industry. Mr Jeevanandam previously
worked at ONGC for over 14 years holding
a position of joint director – finance prior to
leaving. He is a Certified Public Accountant
(USA), Chartered Global Management
Accountant (USA), Chartered Financial
Analyst (India), Qualified Cost Accountant
and Company Secretary from the Institute
of Cost Accountants of India and the
Institute of Company Secretaries of India
and holds a postgraduate degree in
Commerce and a degree in Law from the
University of Madras. Mr Jeevanandam
joined Hardy in 1997 as head of finance
for Indian operations and has been the
CFO and Director of HEPI since 2000.

Mr Sharma was Chief Executive Officer
until 16 May 2012 at which time he was
appointed as a Non-Executive Director.
Mr Sharma, a co-founder of Hardy, has
over 40 years of broad international oil
and gas industry experience, with
particular emphasis in reservoir
engineering and field management.
Prior to founding Hardy, he worked at
Schlumberger Doll Research in the USA
and Elf Geoscience Research Centre in
London. While with Elf International he
was an external examiner at Heriot Watt
University for three years. Mr Sharma
completed his undergraduate studies at
the University of Alberta in Mechanical
Engineering and postgraduate studies
at the University of Calgary in Chemical
Engineering. He is a registered
Professional Engineer in Alberta, Canada,
a full member of the SPE and a member
of the Society of Applied Industrial
Mathematics. Mr Sharma has published
articles on reservoir engineering and
reservoir modelling in the Journal of
Petroleum Engineering. He is also a
non-executive director of Longreach Oil
and Gas Ventures Limited, a Toronto
Stock Exchange listed company.

Richard Galvin
Treasurer & Corporate
Affairs Executive

Mr Galvin has over 15 years of commercial
and corporate finance experience in the
upstream oil and gas industry. Mr Galvin
started his career at Encana (formally
AEC) working in progressively senior
commercial roles over seven years.
Mr Galvin holds a Master of Business
Administration from the London Business
School and a Bachelor of Commerce from
the University of Calgary. Mr Galvin joined
Hardy in 2005 as Business Development
Manager and was appointed an Executive
Officer of the Company in 2011.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Governance Report

Introduction
The Board is committed to ensuring that high levels of corporate
governance are achieved. Hardy Oil and Gas plc is incorporated
in the Isle of Man and is not subject to any corporate governance
regime in its place of incorporation.

The UK Corporate Governance Code
The Company does maintain a listing on the London Stock
Exchange and as a result is required to make certain statements
relating to the way it is governed, covering issues provided for in
The UK Corporate Governance Code published in June 2010
(the UK Code). The Code is publically available on the Financial
Reporting Council’s website at www.frc.org.uk. In compliance
with the UK Code, this report describes the manner in which the
Company has applied the main principles of governance set out
in the UK Code and provides an explanation where the Board has
chosen to not comply.

The Company is a small cap upstream oil and gas company
with a modest resource base. The Company has a clear mandate
to optimise the allocation of limited resources to support its
exploration programme and development plans. As such, the
Company strives to maintain a balance between conservation of
limited resources and maintaining robust corporate governance
practices. As the Company evolves the Board is committed to
enhancing the Company’s corporate governance policies and
practices deemed appropriate for the size and maturity of the
organisation.

Set out below are Hardy’s corporate governance practices for
the year ended 31 December 2012. Disclosures below include
matters where Hardy has not fully complied during 2012.

Leadership
The Company is headed by an effective Board which is
collectively responsible for the long-term success of the
Company.

The role of the Board
The Board sets the Group’s strategy, ensuring that the necessary
resources are in place to achieve the agreed strategic priorities,
and reviews management and financial performance. It is
accountable to shareholders for the creation and delivery of
strong, sustainable financial performance and long-term
shareholder value. To achieve this, the Board directs and monitors
the Company’s affairs within a framework of controls which enable
risk to be assessed and managed effectively. The Board also has
responsibility for setting the Group’s core values and standards of
business conduct and for ensuring that these, together with the
Group’s obligations to its stakeholders, are widely understood
throughout the Company. The Board has a formal schedule of
matters reserved which is provided later in this report.

Board meetings
The core activities of the Board are carried out in scheduled
meetings of the Board and its Committees. These meetings are
timed to link to key events in the Company’s corporate calendar
and regular reviews of the business are conducted. Additional
meetings and conference calls are arranged to consider matters
which require decisions outside the scheduled meetings. During
2012, the Board met on six occasions. The Board endeavours to
arrange for one meeting to be held at its India-based office. This
provides senior managers from across several disciplines with
the opportunity to present to the Board and to meet the Board

members informally. It also provides the Board with an
opportunity to meet a broad cross-section of staff and to assess
senior managers at first hand.

Outside the scheduled meetings of the Board, the Chairman and
Chief Executive Officer maintain frequent contact with the other
Directors to discuss any issues of concern they may have relating
to the Company or their areas of responsibility, and to keep them
fully briefed on the Company’s operations.

Matters reserved specifically for the Board
The Board has a formal schedule of matters reserved that can
only be decided by the Board. The key matters reserved are the
consideration and approval of:
– the Group’s overall strategy;
– financial statements and dividend policy;
– management structure including succession planning,

appointments and remuneration (supported by the Nomination
Committee);

– material acquisitions and disposal, material contracts, major

capital expenditure projects and budgets;

– capital structure, debt and equity financing and other matters;
– risk management and internal controls (supported by the Audit

Committee);

– the Company’s corporate governance and compliance

arrangements; and
– corporate policies.

Subject to those reserved matters, the Board delegates authority
for the management of the business primarily to the Executive
Director and members of the Company’s Senior Executive team.
Certain other matters are delegated to the Board committees,
namely the Audit, Remuneration and Nominations Committees.

Summary of the Board’s work in the year
During 2012, the Board considered all relevant matters within
its remit, but focused in particular on the following key issues:
– strategy and management with a particular focus on the
optimisation of the Company’s India-focused portfolio;

– financial management;
– regulatory/compliance;
– environment, health and safety;
– appointment and succession planning – this is dealt with more
fully in the Nomination Committee’s report on pages 44 and
45; and

– stakeholder relations.

Attendance at meetings:

Member

Alasdair Locke (Chairman)
Carol Bell
Ian Bruce
Ian MacKenzie
Peter Milne
Paul Mortimer
Pradip Shah
Yogeshwar Sharma

Through
2012

Meetings
attended

from 12 January 2012
to 16 May 2012
to 16 May 2012
from 1 March 2012
from 1 March 2012
to 16 May 2012
continuous
continuous

6 of 6
3 of 3
2 of 3
5 of 5
5 of 5
2 of 3
6 of 6
6 of 6

The Board is pleased with the high level of attendance and
participation by both Executive and Non-Executive Directors
at Board and committee meetings.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

Division of responsibility
There is a defined separation of the responsibilities between
Alasdair Locke, the Non-Executive Chairman, and Ian MacKenzie,
the Chief Executive Officer, which has been set out in writing and
agreed by the Board. The Chairman is primarily responsible for
the effective working of the Board, whilst the Chief Executive
Officer is responsible for the operational management of the
business, for developing strategy in consultation with the Board
and for implementation of the strategy.

The Chairman
On appointment as Chairman on 16 January 2012, Alasdair Locke
met the independence criteria set out in the Code.

Non-Executive Directors
The Non-Executive Directors bring a broad range of business
and commercial experience to the Company and have a particular
responsibility to challenge independently and constructively the
performance of the Executive management and to monitor the
performance of the management team in the delivery of the
agreed objectives and targets. As part of this responsibility, the
Non-Executive Directors meet at least twice a year without the
Executive Directors present. Separately, the Chairman and Chief
Executive Officer hold informal meetings with the Non-Executive
Directors to discuss current issues affecting the Company.

As Senior Independent Non-Executive Director, Peter Milne is
available to meet shareholders if they have concerns that cannot
be resolved through discussion with the Chairman, Chief Executive
Officer or for which such contact is inappropriate. Efforts are made
to ensure that the Non-Executive Directors are briefed on the more
technical and operational aspects of our activities.

Non-Executive Directors are initially appointed for a term of three
years, which may, subject to satisfactory performance and
re-election by shareholders, be extended by mutual agreement.
Pradip Shah and Yogeshwar Sharma have been members of the
Board for over nine years. As a result they are subject to re-
election on an annual basis.

Delegations of authority
Board Committees
The Board has delegated matters to three committees, namely
the Audit, Remuneration, and Nomination Committees. The
memberships, roles and activities of these committees are
detailed in separate reports: the Audit Committee on pages 35
and 36, the Nomination Committee on pages 44 and 45, and the
Remuneration Committee on pages 37 to 43. Each committee
reports to the Board and the issues considered at meetings of
the committees are provided by the respective committee
chairmen. The terms of reference of each committee are
reviewed by the Board every other year.

In January 2013 the Board agreed to form a Risk Committee and
appointed Ian MacKenzie (chair), Alasdair Locke and Peter Milne
as members. The Risk Committee’s terms of reference will be
available on the Company’s website.

Executive Committee
The Board delegates authority for the management of the
day-to-day business and operational matters to the Chief
Executive Officer and other Executives. The Executive Committee

meets on an informal basis at least once a month. The Committee
currently comprises the Chief Executive Officer, the Chief Financial
Officer (of HEPI) and the Treasurer & Corporate Affairs Executive.

Other governance matters
All of the Directors are aware that independent professional
advice is available to each Director in order to properly discharge
their duties as a Director. In addition, each Director and Board
committee has access to the advice of the Company Secretary.

The Company Secretary
The Company Secretary is Richard Vanderplank who is retained
on a consultancy basis. He is available to Directors and
responsible for the Board complying with Isle of Man procedures.
He is supported by the Treasurer & Corporate Affairs Executive
in the provision of company secretarial services to the Company.

Effectiveness
The Board currently comprises of a Non-Executive Chairman,
Chief Executive Officer, and three independent Non-Executive
Directors. Biographical details of the Board members are set
out on page 28 and 29 of this report.

The Directors are of the view that the Board and its committees
consist of Directors with an appropriate balance of skills,
experience, independence and diverse backgrounds to enable
them to discharge their duties and responsibilities effectively.

Changes to the Board
The following changes in Board composition were made during
the year:
– On 16 January 2012, the Board approved the appointment
of Alasdair Locke as Non-Executive Director and Chairman
of the Board.

– On 1 March 2012, the Board approved the appointment

of Ian MacKenzie as Executive Director and became Chief
Executive Officer effective 16 May 2012.

– On 1 March 2012, the Board approved the appointment

of Peter Milne as a Non-Executive Director.

– On 16 May 2012, Yogeshwar Sharma stepped down as Chief
Executive Officer and the Board confirmed his re-appointment
as a Non-Executive Director.

– On 16 May 2012, Carol Bell, Ian Bruce and Paul Mortimer

ceased to be Directors of the Company.

At the Company’s AGM held on 16 May 2012, shareholders
elected Alasdair Locke, Ian MacKenzie, and Peter Milne to the
Board. In addition Pradip Shah and Yogeshwar Sharma were
re-elected as Non-Executive Directors.

Independence
The Non-Executive Directors bring a broad range of business
and commercial experience to the Company. The Board
considers Alasdair Locke, Peter Milne and Pradip Shah to be
independent Directors in character and judgement.

Pradip Shah has served as a Director for a period of more than
nine years. He has also been awarded 260,233 employee stock
options to purchase Ordinary Shares in the Company. Such
options were granted upon the Company’s listing on AiM in June
2005. The Board has dispensed with the grant of stock options
to the Non-Executive Directors since 2005. He is based in India

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Governance report continued

and is actively involved in many business endeavours, holding
executive and non-executive roles across a diverse range of
industries and is well established within India’s commerce and
political communities. Notwithstanding Pradip Shah’s tenure and
option holdings, the Board is fully satisfied that he demonstrates
complete independence, robustness of character and judgement
both in his designated role and as a Board member. The
appointment of a new Chief Executive Officer, in 2012, has
reinforced the Board’s view of his independence.

Board performance and evaluation
Hardy has a policy of appraising Board performance annually.
Having reviewed various approaches to Board appraisal, Hardy
has concluded that for a company of its current scale, an internal
process in which all Board members submit answers to a
questionnaire that considers the functionality of the Board and its
committees is most appropriate at this stage. This questionnaire
also contains a series of questions to evaluate the performance
of individual Board members and that of the Chairman.

The Senior Independent Non-Executive Director is responsible
for reporting on this matter to the Board, including reviewing the
performance of the Chairman, with the exception of reviewing
their own performance (which is carried out by the Chairman).
The process of completing the performance evaluation of the
Board as a whole, its Chairman, and individual Executive and
Non-Executive Directors, was completed in early 2013. In
summary, it was felt that the Board was functioning well and
that all the Directors feel proud to be part of Hardy’s team.

Re-election
The Board has agreed that Pradip Shah and Yogeshwar Sharma
will stand for re-election at the Company’s 2013 AGM. The
Directors’ position is subject to satisfactory performance of their
responsibilities and is subject to reappointment by shareholders
at the Annual General Meeting. The Board of Directors is pleased
with the attendance of all Directors at Board and committee
meetings, despite significant travel and time requirements. The
Board of Directors is also satisfied with the participation by all
the Directors in formulating corporate strategies and for their
engagement in meaningful dialogue and discussions at Board
and committee meetings.

Accountability
The Board is committed to providing shareholders with a clear
assessment of the Group’s position and prospects. This is
achieved through this report and as required other periodic
financial and trading statements.

The arrangements established by the Board for the application
of risk management and internal control principles are detailed on
pages 25 to 27. The Board has delegated to the Audit Committee
oversight of the relationship with the Company’s auditors as
outlined in the Audit Committee report on page 35.

Going concern
The Company’s business activities, together with factors likely
to affect its future operations, financial position, and liquidity
position are set out in the Chairman’s Statement, Chief
Executive’s Statement, Review of Operations, Financial Review,
and the Risks and Uncertainties sections of the Annual Report.
In addition, note 25 to the consolidated financial statements
discloses the Company’s financial risk management practices
with respect to its capital structure, foreign currency risk, liquidity
risk, interest rate risk, commodity price risk, credit risk, and other
related matters.

Yogeshwar Sharma has served as an Executive Director of Hardy
for more than nine years. He was the Company’s Chief Executive
Officer from 4 March 2010 to 16 May 2012. He has previously
been granted 1,280,700 options to purchase Ordinary Shares
in the Company (details of the awards are provided on page 40).
Such options were issued as part of his remuneration package
as an Executive Director of the Company. The Board considers
Yogeshwar Sharma a significant member of the Board, providing:
upstream oil and gas technical expertise; strong relationships in,
and an in-depth perspective of, the India commercial and
geopolitical environment; and, as a founder of the Company,
possesses significant knowledge of the history of Hardy. Due
to his recent tenure as an Executive Officer and interest in Hardy
share options, the Board does not consider Yogeshwar Sharma
to be an independent Director.

Appointments
The Nomination Committee is responsible for reviewing the
structure, size and composition of the Board and making
recommendations to the Board with regards to any required
changes.

Commitments
All Directors have disclosed any significant commitments to the
Board and confirmed that they have sufficient time to discharge
their duties.

Induction
All new Directors received an induction as soon as practical on
joining the Board. This included meetings with the Executive
Committee members and other senior management and, where
appropriate, visits to the Company’s principal offices of operation.
The new Directors were also provided an overview of their duties
as a Director, corporate governance policies and established
Board procedures as part of the induction process. An induction
was given to Messrs Locke, MacKenzie and Milne at the
beginning of 2012. In 2012, the Chairman reviewed training and
development needs with each Director. It was agreed that each
Director had the necessary current and relevant experience and
expertise to effectively discharge their respective responsibilities.

Conflict of interest
A Director has a duty to avoid a situation in which he or she has,
or can have, a direct or indirect interest that conflicts, or possibly
may conflict with the interests of the Company. The Board had
satisfied itself that there is no compromise to the independence
of those Directors who have appointments on the Boards of, or
relationships with, companies outside the Company. The Board
requires Directors to declare all appointments and other
situations which could result in a possible conflict of interest.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

The Directors, having made due and careful enquiry, are of
the opinion that the Company has adequate working capital to
execute its operations and has the ability to access additional
financing, if required, over the next 12 months. The Directors,
therefore, have made an informed judgement, at the time of
approving financial statements, that there is a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. As a result,
the Directors have continued to adopt the going concern basis
of accounting in preparing the annual financial statements in
accordance with Going Concern and Liquidity Risk: Guidance
for Directors of UK Companies 2009.

Internal controls
The Board of Directors reviews the effectiveness of the
Company’s system of internal controls in line with the requirement
of the Code. The internal control system is designed to manage
the risk of failure to achieve its business objectives. This covers
internal financial and operational controls, compliances and risk
management. The Company has necessary procedures in place
for the year under review and up to the date of approval of the
Annual Report and Accounts. The Directors acknowledge their
responsibility for the Company’s system of internal controls and
for reviewing its effectiveness. The Board confirms the need for
an ongoing process for identification, evaluation and
management of significant risks faced by the Company. A risk
assessment for each project is carried out by a team consisting
of the Executive Directors and senior management before
making any commitments. This team meets as and when
required. Internal and external risks, including exploration and
development risks, regulatory and compliance obligations under
various production-sharing contracts, economics including oil
price, interest rate and currency exposure, as well as natural
catastrophes are continuously assessed.

The Audit Committee regularly reviews and reports to the Board
on the effectiveness of the system of internal control. Given the
size of the Company, the relative simplicity of the systems and the
close involvement of senior management, the Board considers
that there is no current requirement for an internal audit function.
The procedures that have been established to provide internal
financial control are considered appropriate for a company of its
size and include controls over expenditure, regular reconciliations
and management accounts. Most of the assets are owned jointly
with others, budgets and expenditures are rigorously reviewed
and approvals as well as external project audits take place with
respect to capital and operating expenditures on a regular basis.

The Directors are responsible for taking such steps as are
reasonably available to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.

Business model
Hardy creates value through the exploration of undiscovered
hydrocarbons. In order to explore we must first be granted a
licence by the governments of the countries in which we choose
to invest. After extensive analysis, exploration campaigns are
planned to try to discover oil and gas fields within underexplored
sedimentary basins. When we have a significant discovery we

undertake appraisal programmes which may include the drilling of
wells and further geotechnical analysis to determine the size and
quality of the discovery. If the appraisal programme confirms that
development of a discovery will be commercially and financially
viable, we begin work on a development plan. This maps out how
we will get the hydrocarbons into production to generate revenue
and cash flow. We also create value through the implementation
of enhanced production strategies to optimise the value of
recoverable hydrocarbons from existing producing fields.

Remuneration
The Board has delegated to the Remuneration Committee
responsibility for agreeing the remuneration policy for the
Chairman, Chief Executive Officer and senior executives. The
Directors’ Remuneration Report on pages 37 and 43 contains full
details of the role and activities of the Remuneration Committee.

Shareholder relations
Communication and dialogue
Open and transparent communication with shareholders is given
high priority and there is regular dialogue with institutional
investors, as well as general presentations made at the time of
the release of the annual and interim results. All Directors are
kept aware of changes in major shareholders in the Company
and are available to meet with shareholders who have specific
interests or concerns. The Company issues its results promptly
to individual shareholders and also publishes them on the
Company’s website: www.hardyoil.com. Regular updates to
record news in relation to the Company and the status of its
exploration and development programmes are included on the
Company’s website. Shareholders and other interested parties
can subscribe to receive these news updates by email by
registering online on the website free of charge.

The Chairman and Executive Director are available to meet
with institutional shareholders to discuss any issues and gain
an understanding of the Company’s business, its strategies
and governance. At the 2012 Annual General Meeting of
shareholders, most Directors were present, including the
Chairman. Peter Milne currently serves as the Senior
Independent Non-Executive Director of the Company and is
available to shareholders if they have concerns that have not been
resolved through the normal channels of Chairman or Executive
Director. Meetings are also held with the corporate governance
representatives of institutional investors when requested.

Annual General Meeting
At every AGM individual shareholders are given the opportunity
to put questions to the Chairman, Executive Directors and to
other members of the Board that may be present. Notice of the
AGM is sent to shareholders at least 20 working days before the
meeting. Details of proxy votes for and against each resolution,
together with the votes withheld, are announced to the London
Stock Exchange and are published on the Company’s website
as soon as practical after the meeting.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Governance Report continued

Non-compliance with the UK Corporate Governance Code
The Company did not comply with the UK Corporate Governance Code in the following matters during 2012:

Code provision

Subject matter

Discussion

B.1.1

Non-Executive Directors meeting
independence requirements

B.2.4

Use of an external search
consultancy or open advertising

Pradip Shah has served on the Board for more than nine years. He was also granted
share options in 2005 when the Company’s Ordinary Shares were listed on AIM.
Notwithstanding the above, Pradip’s actions in 2012 demonstrated independent
character and judgement and having regard for the Company’s appointment of a
new Chief Executive Officer the Board considers Pradip Shah independent.

The Board considers Yogeshwar Sharma an instrumental member of the Board,
providing: upstream oil and gas technical expertise; strong relationships in, and an
in-depth perspective of, the India commercial and geopolitical environment; and, as
a founder of the Company, significant knowledge of the Company’s history. Due to his
recent tenure as an Executive Officer and his interest in share options, the Board does
not consider Yogeshwar Sharma to be independent.

The Board confirms, notwithstanding the above, that it considers Pradip Shah as an
independent Director.

Appointment of Non-Executive Director – With the expected departure of the Audit
Committee chair, the primary recruitment criteria for a non-executive candidate was
current and relevant financial expertise and significant industry experience. Mr Locke
put forward Peter Milne, a strong candidate that met the Board’s identified criteria.
As a result the Board deemed the expense of securing an external consultant
inappropriate.

D.1.3

Remuneration for Non-Executive
Directors should not include share
options

Share options were granted in 2005 to Non-Executive Directors when the Company
was listed on AIM and not subject to the UK Code.

No share options have been granted to Non-Executive Directors since 2005.

The Board believes that its composition is suitable having regard to its international stature with a focus on India. Notwithstanding
the long tenure of some of the Directors, the Board believes all of the Non-Executive Directors provide valuable advice and counsel
in furthering the business objectives of the Company.

Although Hardy is a publicly listed company and has been listed on the London Stock Exchange’s main market for listed securities
since February 2008, the Company is a small cap upstream oil and gas company with a modest resource base. The Company has
a clear mandate to optimise the allocation of limited resources to support its exciting exploration programme. As such, the Company
strives to maintain a balance between conservation of limited resources and maintaining robust corporate governance practices.
As the Company evolves, the Board is committed to enhancing the Company’s corporate governance policies and practices
deemed appropriate for the size and maturity of the organisation.

Alasdair Locke
Chairman
6 March 2013

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Audit Committee Report

Overview
Business Review
Governance
Financial Statement
Company Information

The Audit Committee comprises of three Non-Executive Directors
and oversees the Company’s financial reporting and internal
controls, and provides a formal reporting link with the external
auditors. The ultimate responsibility for reviewing and approving
the Annual Report and Accounts and the half-yearly reports
remains with the Board.

Main responsibilities
The Audit Committee acts as a preparatory body for discharging
the Board’s responsibilities in a wide range of financial matters by:
– monitoring the integrity of the financial statements and formal

announcements relating to the Company’s financial
performance;

– reviewing significant financial reporting issues and accounting

policies and disclosures in financial reports;

– overseeing that an effective system of internal control and risk

management systems are maintained;

– ensuring that effective whistle-blowing, anti-fraud and bribery

procedures are in place;

the 2012 audit process, the Audit Committee Chairman met with
the audit engagement partner from Crowe Clark Whitehill LLP,
without the presence of management.

Meetings
In 2012, the Audit Committee met on three occasions. Meetings
are scheduled to allow sufficient time to enable full discussion of
key topics. Some or all Executive Directors attend meetings of the
Audit Committee by invitation. The attendance of members at the
Audit Committee meetings held in 2012 was as follows:

Committee member

Peter Milne (Chairman1)
Dr Carol Bell (Chairman)
Ian Bruce
Pradip Shah
Yogeshwar Sharma

Member through 2012

from 5 March 2012
to 16 May 2012
to 16 May 2012
continuous
from 16 May 2012

Meetings
attended

3 of 3
2 of 2
2 of 2
3 of 3
1 of 1

– considering the Company’s internal audit requirements and

1 Mr Milne was appointed Chairman of the Audit Committee on 16 May 2012.

make recommendations to the Board;

– overseeing the Board’s relationship with the external auditors
and, where appropriate, the selection of new external auditors;
– approving non-audit services provided by the external auditors,
or any other accounting firm, ensuring the independence and
objectivity of the external auditors is safeguarded when
appointing them to conduct non-audit services; and

– ensuring compliance with legal requirements, accounting
standards and the Listing Rules and the Disclosure and
Transparency Rules.

The Audit Committee terms of reference can be accessed via
the Company’s website www.hardyoil.com. Following a review,
the Board approved the amendment of the Audit Committee’s
terms of reference in January 2013. The Committee fully
discharged its responsibilities during the year.

Governance
The UK Code requires that at least one member of the Audit
Committee has recent and relevant financial experience. Mr
Milne, who has been the Chairman of the Audit Committee from
16 May 2012, has been a Chartered Accountant for 35 years and
has over 30 years of oil and gas sector experience. He was until
2010 the Finance Director of Abbot Group plc, the largest UK
headquartered drilling contractor, with turnover of more than £1
billion, operations in 20 countries and employing over 8,000
people. Pradip Shah, who was a member of the Audit Committee
throughout the year, is also a Chartered Accountant. As a result
the Board is satisfied that the Audit Committee has recent and
relevant financial experience.

Members of the Audit Committee are appointed by the Board
and all of its members are considered to be independent.

The Company’s external auditors are Crowe Clark Whitehill LLP
and the Audit Committee closely monitor the level of audit and
non-audit services they provide to the Group. In 2012 Crowe
Clark Whitehill LLP did not provide non-audit services to the
Company.

In 2012 the Chief Financial Officer (of Hardy Exploration &
Production (India) Inc) and the Treasurer were invited to attend
each meeting of the Audit Committee. The external auditors have
unrestricted access to the Audit Committee Chairman. During

The key work undertaken by the Audit Committee was as follows:

Consideration and review of full-year and half-yearly results
– The Audit Committee met with the external auditors as part
of the full-year and half-yearly accounts approval process.

– During the audit process the Audit Committee considered the

most appropriate treatment and disclosure of any new or
judgemental matters identified during the audit of the full-year
accounts or half-yearly review, as well as any other
recommendations of observation made by the external auditor.

Audit planning and update on relevant accounting
developments
– The Company prepares financial statements under International

Financial Reporting Standards (IFRS).

– The Audit Committee continued to review the appropriateness
of the Company’s accounting policies and was satisfied that
the policies adopted by management are currently appropriate.

– The Audit Committee approved the scope of the work to be
undertaken by the external auditors for interim and year-end
statutory audits.

Consideration and approval of the risk management
framework, appropriateness of key performance indicators
– The Audit Committee considered the recommendations put
forward by the management to adopt a risk management
framework which provides for a systematic approach to risk
identification and management which combines the Board’s
assessment of risk with risk factors originating from and
identified by the Group’s senior management.

– The management provided clear updates of risk and

uncertainties facing the Company and accompanying actions
to mitigate such risk.

– The Audit Committee undertook a review of the key

performance indicators that had been adopted by the
Company in previous years. As a result of the review the Audit
Committee recommended that the Board modify its reported
key performance indicators for 2012.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Audit Committee Report continued

Review of the Company’s Code of Business Conduct
– In line with best practice and to ensure that Hardy works to the
highest ethical standard, in early 2013 the Company adopted
a Code of Business Conduct which provides clear guidance
for ethical behaviour and decision making as well as whistle-
blowing and anti-bribery procedures and practices. The Code
of Business Conduct was introduced to all employees in the
first quarter of 2013 and a copy is available on the Company’s
website www.hardyoil.com. The Committee considers the
whistle-blowing procedure to be appropriate for the size and
scale of the Company.

Review the Audit Committee terms of reference
– The Audit Committee reviewed its terms of reference during

the year. As a result of the review the Audit Committee
recommended that the Board adopt several amendments
to comply with current ISCA guidelines and the UK Corporate
Governance Code. Key amendments were:
– 9.3 – added a committee duty to review and monitor the

Company’s compliance, whistle-blower and fraud policies
and practices;

– 9.6 – added a committee duty to advise the Board as to
whether the Company’s Annual Report and Accounts
provide a fair and balanced representation of the Company.

– A copy of the revised terms of reference can be found on the

Company’s website www.hardyoil.com.

Review of the effectiveness of the Audit Committee
– During the year the Board completed a review of its

effectiveness which included the assessment of the Audit
Committee. The review was coordinated by the Chairman
of the Audit Committee and Treasurer. As a result the Audit
Committee was considered to be operating effectively and
in accordance with the UK Corporate Governance Code.

Internal controls
– As part of my induction in 2012, I undertook a comprehensive
review of the Company’s internal control and risk management
policies and practices. The Company’s established procedures
to provide internal financial control are considered appropriate
for a company of Hardy’s size and current activities. The
procedures include controls over expenditure, regular
reconciliations and management accounts. Most of the assets
are owned jointly with others and as a result budgets and
expenditures are subject to rigorous reviews and approvals.
External project audits, of jointly held assets, take place with
respect to capital and operating expenditures on a regular basis.

The UK Code states that the Audit Committee should have
primary responsibility for making a recommendation on the
appointment, re-appointment or removal of the external auditors.
On the basis of the review of external audit effectiveness, the
Committee recommends to the Board that it recommends
to shareholders the re-appointment of the auditors at the
Company’s 2013 Annual General Meeting.

Peter Milne
Chairman of the Audit Committee
6 March 2013

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Directors’ Remuneration Report

Overview
Business Review
Governance
Financial Statement
Company Information

On behalf of the Board, I am pleased to present a report on
Directors’ remuneration for 2012, for which we will be seeking
approval from shareholders at our Annual General Meeting.

The Committee is aware of the sensitive nature of executive
remuneration and regularly considers the guidelines on executive
remuneration set out by the Association of British Insurers and
discusses remuneration practice with major shareholders.

The Committee has noted feedback from various shareholder
interest groups regarding the Company’s previous remuneration
practices. Based on the Committee’s recommendations, the
Board has adopted a simple and effective incentive arrangement.
The Committee believes the current incentive arrangement
adopted best serves the mission that management is charged
with, which is focused on creating shareholder value.

On behalf of the Board I would like to thank shareholders for their
continued support. Should any shareholder wish to contact me
in connection with the Company’s senior executive remuneration
policy, please email me at investor.relations@hardyoil.com.

Pradip Shah
Chairman of the Remuneration Committee
6 March 2013

Introduction
This Directors’ Remuneration Report has been prepared in
accordance with the requirements of the Listing Rules of the
Financial Services Authority. The relevant legislation requires the
auditors to report to the Company’s members on the ‘auditable
part’ of the Directors’ Remuneration Report and to state whether,
in their opinion, the part of the report that has been subject to
audit has been properly prepared in accordance with the relevant
legislation. This report is therefore divided into separate sections
to disclose the audited and unaudited information.

Unaudited information
The Remuneration Committee
The Company’s Remuneration Committee comprises of three
Non-Executive Directors: Pradip Shah (Chairman), Alasdair
Locke, and Peter Milne.

Hardy’s Remuneration Committee operates within the terms of
reference approved by the Board. The Remuneration Committee
reviewed its terms of reference during the year. As a result of the
review the Remuneration Committee recommended that the
Board adopt several amendments to comply with current ISCA
guidelines and the UK Corporate Governance Code. The key
amendments were:
– Duties – Clauses 9.3 to 9.7 – several clauses were amended
clarifying the Remuneration Committee’s responsibilities to
monitor internal and external remuneration trends, full authority
to commission remuneration consultants and determine
individual remuneration packages for the Chairman, Executive
Director and other senior executives;

– other matters regarding: access to resources; timely training;
consideration of law and regulations; and periodic review of
committee performance.

A copy of the revised terms of reference can be found on the
Company’s website www.hardyoil.com.

Committee’s main responsibilities
– The Remuneration Committee considers remuneration policy,

employment terms and remuneration of the Executive Directors
and also reviews the remuneration of senior management.
– The Remuneration Committee’s role is advisory in nature and

it makes recommendations to the Board on the overall
remuneration packages for Executive Directors and senior
management in order to attract, retain and motivate high-quality
executives capable of achieving the Group’s objectives.
– The Remuneration Committee also reviews proposals for
the share option plans and other incentive plans, makes
recommendations for the grant of awards under such plans,
as well as approving the terms of any performance-related
pay schemes.

– The Board’s policy is to remunerate the Group’s senior

executives fairly and in such a manner as to facilitate the
recruitment, retention and motivation of suitably qualified
personnel.

– The Remuneration Committee, while considering the

remuneration packages of Hardy executives, has reviewed
the policies of comparable groups in the industry. The
remuneration of the Non-Executive Directors is determined by
the Chairman and the Executive Director outside the framework
of the Remuneration Committee.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Directors’ Remuneration Report continued

The Remuneration Committee met four times in 2012. The
attendance of members at the Remuneration Committee
meetings held in 2012 was as follows:

Committee member

Pradip Shah (Chairman)
Carol Bell
Alasdair Locke
Peter Milne
Paul Mortimer

Member throughout 2012

Continuous
to 16 May 2012
from 16 May 2012
from 16 May 2012
to 16 May 2012

Meetings
attended

4 of 4
2 of 2
2 of 2
2 of 2
2 of 2

Committee evaluation
The performance of the Remuneration Committee was evaluated
as part of the Board evaluation which was completed in 2013.
The review was coordinated by the Chairman of the Audit
Committee and Treasurer. As a result the Remuneration
Committee was considered to be operating effectively.

Committee advisers
In the past the Remuneration Committee had engaged Simon
Patterson of Patterson Associates as a Remuneration Consultant
to assist the committee in setting the remuneration of Executive
Directors and Non-Executive Directors. No remuneration advisers
were retained by the Remuneration Committee during 2012.

The Company also consults with the Company’s major investors
and investor representative groups as appropriate. No Director
takes part in any decision directly affecting their remuneration.
The Company Chairman also absents himself during discussion
relating to his own fees.

Statement of Hardy’s policy on Directors’ remuneration
The Company’s policy is to maintain levels of remuneration so
as to attract, motivate, and retain Executive Directors and senior
executives of the highest calibre who can contribute their
experience to deliver industry leading performance with the
Company’s operations. The remuneration package for Executive
Directors and senior executives comprises of base salary, annual
bonus, taxable benefits, pension payments and participation in
the Company’s share incentive arrangements.

A meaningful proportion of executive and senior managements’
remuneration is structured so as to link rewards to corporate
and individual performance, align their interests with those of
shareholders and to incentivise them to perform at the highest
levels. The Remuneration Committee considers remuneration
policy and the employment terms and remuneration of the
executives and makes recommendations to the Board of
Directors on the overall remuneration packages for the
executives.

Remuneration components
Base salaries
The base salaries are reviewed annually. No changes to base
salaries were made in 2012. Ian MacKenzie joined Hardy on
1 February 2012 and became a board member on 1 March 2012.
Senior executive remuneration was last reviewed in 2011.

Pension and other benefits
The Company provides for pension contributions to the Executive
Director’s personal pension plan as well as life, long-term
disability and medical insurance.

Annual bonus
Although the Company has a policy of awarding cash bonuses,
no such awards have been made to the Executive Director or
senior executives in 2012. In the future, the Remuneration
Committee will consider recommending the total amount
available for annual bonuses having regard to the cash
requirements and overall performance of the Group. The size of
the bonus will correspond to the salary of the Executive Director
and each participant based upon performance targets, including
corporate, team and individual performance measures. Each year,
transparent objectives are to be set for each participant.

Share incentive arrangements
The Company has adopted a policy of granting stock option
awards on an annual basis although stock option awards are
not made during close periods. The Board believes that equity
incentives are and will continue to be an important means of
retaining, attracting and motivating Directors, senior management
and key employees. The Board has adopted a simple and
effective incentive arrangement which it believes best serves
the mission that management is charged with, which is to get
a higher share price for all shareholders. Pradip Shah received
his awards at the time the company was listed

Unapproved share options
In June 2005, the Board adopted the share option scheme
entitling the Company to award options to Directors and
employees. The Company’s share option scheme was
considered and approved by the shareholders in 2006. Options
are not granted at a discount to the market value. Under the
scheme, options are exercisable between the 1st and 10th
anniversaries of the date of grant.

Options granted in June 2005 were subject to performance
conditions whereby the share price of Hardy would need to rise
by 20 per cent, 45 per cent and 70 per cent of the price at which
the Hardy initial public offering (IPO) was undertaken. In the first
year of the performance period, one third of the options would
become exercisable at or after 12 months following the date of
grant. One third of the options would become exercisable at or
after 24 months following the date of grant. The remaining one
third of the options would become exercisable at or after 36
months following the date of grant. All of such performance
conditions have been met.

All options granted in 2010 and subsequent years will generally
vest between the third and fifth anniversary of the date of
grant (the “Vesting Period”) subject to the satisfaction of a
Performance Condition. The Performance Condition shall be
satisfied where at any time during the Vesting Period, the volume

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

weighted average market price of an Ordinary Share for any ten
consecutive London Stock Exchange trading days is equal to
or greater than the Ordinary Share price of the Company on the
date of grant as increased by compounded growth of five per
cent per annum in the share price as at the end of such 10-day
period. In the event that the Performance Condition is not
satisfied by the fifth anniversary of the date of grant, the options
shall lapse. Options will vest immediately upon the occurrence
of a Rule 8 Event under the unapproved share option scheme
(relating to change of control etc).

ExSOP scheme
The ExSOP scheme is an executive shared ownership plan.
Under the terms of the ExSOP certain employees and/or
executive Directors may be invited to acquire (for a nominal
payment), jointly with the trustee of an employee trust, the
beneficial interest in a number of shares upon the terms of a joint
ownership agreement (JOA). Under a JOA, the employee/director
will benefit from any growth in value of the jointly owned shares
from the time of the award in excess of a “carrying cost” fixed by
the Committee in respect of each award. Arrangements on similar
terms may be put in place for Non-Executive Directors. The
ExSOP was considered and approved by Shareholders at the
Company’s 2012 Annual General Meeting. To date no awards
have been made under the ExSOP scheme.

Non-Executive remuneration
Policy
The main goals of the Company’s remuneration policy for the
Chairman and Non-Executive Directors are to assure alignment
with shareholders through independence, recognise time
commitments devoted to corporate affairs and attract and
retain outstanding candidates.

The remuneration of the Non-Executive Directors is determined
by the Chairman and the Executive Director outside the
framework of the Remuneration Committee and approved by
the Board of Directors. The fees paid are set at a level to attract
individuals with the necessary experience and ability to make
a significant contribution to the Company’s activities, while also
reflecting the time commitment and responsibility of the role.
None of the Directors participate in any discussion or votes
on any proposal relating to his or her own remuneration.

Director fees
Each Non-Executive Director currently receives an annual fee
of £36,000. Alasdair Locke received an additional annual fee
of £64,000 to reflect his additional responsibilities as Chairman
of the Board. Peter Milne received an additional £14,000 to
reflect his additional responsibilities as Chairman of the Audit
Committee and Senior Independent Non-Executive Director.
Each Non-Executive Director is also entitled to the
reimbursement of necessary travel and other expenses.

Restricted share awards
Effective 1 January 2009, restricted shares are to be issued
to the Chairman and each Non-Executive Director on an annual
basis. The number of restricted shares to be issued will be

equivalent to 25 per cent of their annual fee based on the market
value of Hardy shares on the last trading day prior to the date of
issue. These shares will remain restricted for three years from the
date of issue. The shares will become unrestricted and are
delivered to the individual three years after the date of issue. The
share award will be in addition to the annual cash fee. In the event
of a close period, such shares will not be issued until after the
close period is over. In the event of change of control of Hardy
and the participant is no longer a Director going forward, all of
the restricted shares will vest. In the event of death of a Director,
all shares will become fully vested. Upon the Director not being
re-elected at a general meeting of shareholders after offering
himself for re-election as a Director at a general meeting, the
shares will vest. In all other circumstances, shares that will remain
restricted are forfeited if the participant is no longer a Director of
Hardy. In addition, the Board has discretion to accelerate vesting
on a date determined by it.

A one-time restricted share award may be made to a new
Non-Executive Director on joining the Board. Such an award
was made to Alasdair Locke and Peter Milne following their
appointments. The shares were allotted to them in March 2012.
Such shares will be held in trust and will be released after three
years from the date of issue (subject to earlier release in certain
circumstances) provided they remain Directors of the Company
for that period.

Legacy share option awards to Non-Executive Directors
Pradip Shah and Yogeshwar Sharma have previously been
granted options to purchase Ordinary Shares of Hardy. No
options have been granted to Non-Executive Directors since
2005. Yogeshwar Sharma received his awards as part of his
remuneration package as an executive of Hardy. Pradip Shah
received his awards before the company was listed.

Options will be forfeited if a Director resigns before the options
vest. In other circumstances, the vesting of options will be at the
discretion of the Remuneration Committee and Board approval.
In the event of a change of control, all of the unvested options will
vest. Options granted following the initial public offering in June
2005 were subject to performance conditions based upon
appreciation in the price of Ordinary Shares of the Company.
All of the performance conditions have been met. Subsequent
options granted have been subject to vesting provisions over a
three-year period, commencing from the anniversary of the date
of grant.

Chairman’s additional remuneration
Alasdair Locke’s terms of agreement provides for the one-time
award of restricted shares equivalent to £50,000 in the event that
the average price of the Company’s Ordinary Shares remains
above £3.00 for any consecutive three-month period during the
term of his appointment. In line with Alasdair Locke’s appointment
letter, upon the appointment of Ian MacKenzie as Chief Executive
Officer, Alasdair Locke was awarded restricted shares equivalent
to £50,000.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Directors’ Remuneration Report continued

Performance graph
Ordinary Shares of the Company were listed on the AIM exchange from 10 June 2005, and on the Official List of the London Stock
Exchange’s market for listed securities (Main Market) from 20 February 2008. In the circumstances, and since the Company’s
principal business is upstream oil and gas exploration, development and production, the Company has chosen to compare its
performance with the FTSE All Share Index and FTSE 350 Oil and Gas Producers Index.

Shareholders return and index performance
5 June 2005 – 31 December 2012

350%

300%

250%

200%

150%

100%

50%

Jun 05

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Hardy Oil and Gas

UK FTSE All-Share

FTSE 350 Index Oil and Gas Producers

Service agreements and letters of appointment
All of the service contracts with Directors are on an evergreen basis, subject to termination provisions. The Company may, in lieu of
notice, terminate an Executive Director’s employment with immediate effect by making a payment which does not exceed: a lump sum
equal to basic salary, pension entitlement and other benefits at the rate prevailing at the date of termination for a period which does
not exceed 12 months; and a bonus to the extent earned and awarded by the Company at the date of termination in lieu of the notice
period. As a matter of Company policy, no bonuses shall accrue as a result of lapse of time in the event of termination. The
appointments of Executive Directors are subject to termination of 12 months or less by either party. The appointments of Non-Executive
Directors are subject to termination upon at least three months’ notice.

Chief Executive
Ian MacKenzie entered into a service agreement with the Company, effective 1 February 2012, subject to termination upon 12 months’
notice by either party. The agreement provides for an annual salary of £225,000, 7.5 per cent pension contribution, membership of a
medical scheme, life and long-term disability assurance cover, travel costs and professional dues. On appointment, Ian MacKenzie
received an award of 750,000 share options in accordance with the Company’s Unapproved Share Option Scheme.

The service contract of Ian MacKenzie is on an evergreen basis until terminated by not less than twelve months’ written notice or such
longer period as may be required by statute. If a written notice is given by either party, the Company may require the Executive Director
to continue to perform such duties as the Board may direct during the notice period or require the Executive Director to perform no
duties. In each case, the Company will continue to pay salary and provide all other benefits arising under the service contracts.

Yogeshwar Sharma stepped down from his role as Chief Executive Officer effective 16 May 2012 and his service contract with
the Company was terminated. Effective 16 May 2012 Yogeshwar Sharma entered into a service agreement with the Company
as a Non-Executive Director.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

The services of Paul Mortimer, Dr Carol Bell and Ian Bruce were, and Pradip Shah, Alasdair Locke, Peter Milne and Yogeshwar
Sharma are, as Non-Executive Directors, provided under the terms of agreements with the Company dated as follows:

Non-Executive Director

Carol Bell
Ian Bruce
Alasdair Locke
Peter Milne
Paul Mortimer
Pradip Shah
Yogeshwar Sharma

Year of
appointment

Number of
years completed

Date of current
engagement letter

Standing
down date

2005
2008
2012
2012
1998
1999
1997

6
3
1
1
13
13
15

16 December 2005
24 October 2008
12 January 2012
29 February 2012
2 June 2005
2 June 2005
16 May 2012

16 May 2012
16 May 2012
–
–
16 May 2012

–

These appointments are subject to termination upon at least three months’ notice.

The Directors who held office at 31 December 2012 and who had beneficial interests in the Ordinary Shares of the Company are
summarised as follows:

Name of Director

Alasdair Locke1
Peter Milne1
Ian MacKenzie
Pradip Shah1
Yogeshwar Sharma

As at 31 December

Position

2012

2011

Non-Executive Chairman
Senior Non-Executive Director
Chief Executive Officer
Non-Executive Director
Non-Executive Director

829,227
30,000
250,000
679,347
4,158,135

673,541
4,158,135

1 Also includes restricted shares awarded to Non-Executive Directors (including the Chairman) as part of their remuneration.

Other than above, the Directors do not have any beneficial interest in the Ordinary Shares or any other securities of the Company,
except for stock options.

Information subject to audit
Directors’ emoluments and compensation
Set out below are the emoluments of the Directors for the years indicated (US$):

Name of Director

Carol Bell1
Ian Bruce1
Alasdair Locke2,3
Ian MacKenzie4
Peter Milne5
Paul Mortimer1
Pradip Shah
Yogeshwar Sharma6,7,8

Salaries/fees

21,732
21,732
158,173
328,340
69,025
28,977
57,182
562,580

Restricted
shares

14,423
14,423
452,963
–
74,524
19,232
14,423
–

2012

Bonuses

–
–
–
–
–
–
–
–

Benefits

–
–
–
30,767
–
–
–
11,906

Total

36,155
36,155
611,136
359,107
143,549
48,209
71,605
574,486

2011
Total

70,960
70,960
–
–
–
94,616
70,960
342,713

1 Carol Bell, Ian Bruce and Paul Mortimer ceased to be Directors effective 16 May 2012.
2 Upon his appointment Alastair Locke was awarded restricted shares amounting to $372,621.
3 Upon the appointment of Ian MacKenzie, Alasdair Locke was awarded restricted shares amounting to $80,342.
4 Ian Mackenzie’s benefits included pension contribution and life and medical insurance.
5 Upon his appointment Peter Milne was awarded restricted shares amounting to $74,524.
6 Yogeshwar Sharma’s benefits included pension contribution and medical insurance.
7 In 2012 Yogeshwar Sharma received a payment of $348,938 in connection with the cessation of his employment as Chief Executive Officer.
8 Yogeshwar Sharma became a Non-Executive Director effective 16 May 2012 and subsequently received fees amounting to $35,703.

None of the remuneration paid was subject to performance conditions. No bonuses were paid to any of the Executive Directors from
2009 to 2012.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Directors’ Remuneration Report continued

Share options
The Company has adopted a share option scheme which allows it to grant options to subscribe for Ordinary Shares at the discretion
of the Board of Directors to Directors and selected employees of Hardy and its subsidiary companies. The plan has not been
approved by UK tax authorities. No options have been granted to Non-Executive Directors since 2005. Set out below is certain
information pertaining to share options granted to Directors who hold office at 31 December 2012:

Director

Carol Bell

Ian MacKenzie

Paul Mortimer

Pradip Shah

Yogeshwar Sharma

Beginning of
2012

Granted during
2012

Forfeited
during 2012

End of 2012

Date of grant

Vested at end of
2012

260,233

–

260,233

–

7 Jun 05

–

750,000

–

750,000

14 Mar 12

260,233

–

7 Jun 05

–

260,233

780,700
300,000
200,000

–

–
–
–

260,233

780,700
300,000
200,000

7 Jun 05

260,233

7 Jun 05
2 Jul 07
11 Oct 10

780,700
300,000
–

Expiry date

6 Jun 15

13 Mar 22

6 Jun 15

6 Jun 15
1 Jul 17
10 Oct 20

Exercise price
per share (£)

2.860

1.546

1.440

1.440
4.310
2.116

Total

2,061,399

750,000

520,466

2,290,933

No price was paid for any grant of options by the Directors to the Company. There were no variations made during the year in the
terms and conditions with respect to any outstanding share options granted by the Company.

Options granted on 7 June 2005 are subject to performance criteria based upon appreciation in the market value of Ordinary Shares
of the Company. All of such performance conditions have been met. All subsequent options granted to the end of 2009 are subject to
vesting provisions whereby one third of the options granted vest on each of the three anniversaries from the date of grant. All options
granted in 2010 and subsequent years will generally vest between the third and fifth anniversary of the date of grant (the Vesting
Period) subject to the satisfaction of a Performance Condition. The Performance Condition shall be satisfied where at any time during
the Vesting Period, the volume weighted average market price of an Ordinary Share for any 10 consecutive London Stock Exchange
trading days is equal to or greater than the Ordinary Share price of the Company on the date of grant as increased by compounded
growth of five per cent per annum in the share price as at the end of such 10-day period. In the event that the Performance Condition
is not satisfied by the fifth anniversary of the date of grant, the options shall lapse. Options will vest immediately upon the occurrence
of a Rule 8 Event under the unapproved share option scheme (relating to change of control etc). Ian MacKenzie’s 750,000 share
options awarded in 2012 are subject to the conditions outlined above.

No share options were exercised by any of the Directors of the Company during 2012.

On 31 December 2012, the market price of an Ordinary Share of Hardy was £0.90 per share. The highest and lowest market price
of an Ordinary Share of Hardy during 2012 was £1.848 and £0.843 respectively.

Restricted shares
As mentioned above, the Board of Directors has adopted a policy whereby restricted shares will be issued to the Chairman and each
Non-Executive Director on an annual basis. The number of restricted shares to be issued will be equivalent to 25 per cent of their
annual cash fee based on the market value of Hardy shares on the last trading day prior to the date of issue. These shares will remain
restricted for three years. The share award will be in addition to the annual cash fee.

In the event of change of control of Hardy and the participant is no longer a Director going forward, all of the restricted shares will vest.
In the event of death of a Director, all shares will become fully vested.

In the event that a Director is not re-elected at a general meeting of shareholders after offering himself for re-election as a Director at
a general meeting, the shares will vest. In all other circumstances, shares that are still restricted are forfeited if the participant is no
longer a Director of Hardy. In the event of a close period, the restricted shares will, subject to Board approval, be issued after the
close period is over.

Hardy Oil and Gas plc Annual Report and Accounts 2012Other matters
The Company does not have any long-term incentive schemes in
place for any of the Directors.

The Company does not have any pension plans for any of the
Directors.

The Company has not paid out any excess retirement benefits
to any Directors or past Directors.

The Company has not paid any compensation to past Directors.

The Company has not paid any sums to third parties with respect
to any services of Directors.

Approved on behalf of the Board of Directors.

Pradip Shah
Chairman of the Remuneration Committee
6 March 2012

Overview
Business Review
Governance
Financial Statement
Company Information

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Nomination Committee Report

The Nomination Committee had an active 2012 with the
significant restructuring of the Board. Carol Bell, Ian Bruce
and Paul Mortimer advised their intention to not put themselves
forward for re-election and would retire following the Company’s
AGM in May 2012. Accordingly, the Nomination Committee
recommended to the Board for the appointment of Alasdair
Locke as Non-Executive Chairman, the appointment of Peter
Milne, as Non-Executive Director and Ian MacKenzie as Chief
Executive Officer.

Committee’s role
The Nomination Committee reviews the composition and balance
of the Board and senior executive team on a regular basis to
ensure that the Board and senior management have the right
structure, skills and experience in place for the effective
management of the Company’s business.

Main responsibilities
In 2013 the Nomination Committee reviewed its terms of
reference and recommended that the Board adopt several
changes which were approved by the Board in January 2013.
A copy of the Nomination Committee’s terms of reference can
be found on the Company’s website www.hardyoil.com.

The main duties of the Nomination Committee are
summarised below:
– review the structure, size and composition of the Board and
make recommendations to the Board with regard to any
changes;

– succession planning for Directors and other senior executives;
– identifying and nominating, for Board approval, candidates to

fill Board vacancies as and when required;

– reviewing annually the time commitment required of Non-

Executive Directors; and

– making recommendations to the Board regarding membership
of the Audit and Remuneration Committee in consultation with
the Chairman of each Committee.

Committee membership
The Nomination Committee currently comprises of four Non-
Executive Directors with Alasdair Locke as Chairman. The
Nomination Committee met twice in 2012. Mr Locke was
appointed Chairman of the committee following the retirement
of Ian Bruce. As part of a restructuring of all three Board
committees, the Board approved the appointment of three
Non-Executive Directors including the Chairman of the Board.

The membership and attendance of members at Committee
meetings held in 2012 are provided below:

Committee member

Alasdair Locke (Chairman)
Ian Bruce (Chairman)
Peter Milne
Dr Carol Bell
Pradip Shah
Yogeshwar Sharma

Member through 2012

from 16 May 2012
to 16 May 2012
from 16 May 2012
to 16 May 2012
continuous
from 16 May 2012

Meetings
attended

1 of 1
1 of 1
1 of 1
1 of 1
2 of 2
1 of 1

Committee activities during 2012 and subsequent to
year end
Chair succession
Paul Mortimer had advised the Board in 2011 that he intended
to retire as Chairman. Accordingly, the Nomination Committee
considered the balance of skills, knowledge and experience on
the Board and prepared job specifications and estimated time
commitments. Following a comprehensive recruitment process,
which included the appointment of an external consultant and
consultation with major shareholders, the Nomination Committee
made a recommendation to the Board that Alasdair Locke be
appointed to the Board as Chairman with effect of 16 January
2012. The recommendation was approved by the Board on
16 January 2012.

Chief Executive succession
In late 2011 Yogeshwar Sharma advised the Board of his
intention to cease being an Executive Director and his desire to
continue as a Non-Executive Director following the recruitment
of an appropriate candidate. Subsequently Alasdair Locke,
Chairman of the Board, put forward a candidate for the
Nomination Committee’s consideration. Members of the
Nomination Committee undertook a number of interviews with the
candidate, resulting in the Nomination Committee recommending
to the Board the appointment of Ian MacKenzie as Chief
Executive Officer.

Board refreshment
In 2012 Carol Bell, Ian Bruce and Paul Mortimer advised the
Board that they would not be putting themselves forward for
re-election at the Company’s 2012 Annual General Meeting
scheduled for 16 May 2012.

Accordingly, the Nomination Committee evaluated the skills
and experience of the outgoing non-executives, the Committee’s
review noted that Carol Bell, senior non-executive and Chair of
the Audit Committee, and Ian Bruce, Chair of the Nomination
Committee and member of the Audit Committee, had extensive
relevant financial experience and expertise. It was agreed that a
primary requirement of potential candidates would be current and
relevant financial experience and expertise.

Having consideration for the pending loss of Board members
with current and relevant financial experience and expertise,
Alasdair Locke put forward a non-executive candidate for the
Nomination Committee to consider. The Nomination Committee
interviewed the candidate put forward by Alasdair Locke and
subsequently recommended to the Board for the appointment
of Peter Milne as Non-Executive Director. The Board accepted
the Nomination Committee’s recommendation and Peter Milne
was appointed as a Non-Executive Director to the board which
took effective on 1 March 2012.

Board Committee membership
The Nomination Committee is responsible for nominating
appropriate individuals for membership of the Board’s
Committees. Following the refreshment of the Board a number of
changes were made to the composition of the Board Committees
to ensure that they are comprised of individuals with necessary
skills, knowledge and experience.

Hardy Oil and Gas plc Annual Report and Accounts 2012Review terms of reference
The Nomination Committee reviewed its terms of reference
during the year. As a result of the review the Nomination
Committee recommended that the Board adopt several
amendments to comply with current ISCA guidelines and the
UK Corporate Governance Code. The key amendments were:
– Duties – Clauses 9.5 to 9.10 – several clauses were amended

regarding guidelines for identification and appointment of
Directors;

– Other matters regarding: access to resources; timely training;
consideration of law as and regulations; and periodic review
of committee performance.

A copy of the revised terms of reference can be found on the
Company’s website www.hardyoil.com.

Committee evaluation
The performance of the Nomination Committee was evaluated
as part of the Board evaluation which was completed in 2013.
The review was coordinated by the Chairman of the Audit
Committee with the assistance of the Company Treasurer.
As a result the Nomination Committee was considered to
be operating effectively.

Alasdair Locke
Chairman of the Nomination Committee
6 March 2013

Overview
Business Review
Governance
Financial Statement
Company Information

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Directors’ Report

The Directors of Hardy Oil and Gas plc present their Annual Report together with the audited financial statements for the year
ended 31 December 2012. These will be presented before the shareholders at the Annual General Meeting scheduled to be held
on 9 May 2013.

Business review and future developments
Hardy is an international upstream oil and gas company focused in India. The Company is incorporated in the Isle of Man and its
registered office is Fort Anne, Douglas, Isle of Man, IM1 5PD. Hardy’s objective is to be a leading independent exploration and
production company in India and deliver consistent step change growth in shareholder value through the exploration of potential
commercial hydrocarbon accumulations. A full review of the Company’s activities during 2012 and plans for 2013 can be found in
the Chairman’s Statement, Chief Executive Officer’s Statement, Review of Operations, Financial Review, Corporate Responsibility
Statement, Directors’ Remuneration Report and the Risks and Uncertainties section of the Annual Report, which are incorporated
herein by reference.

Directors
The Directors that served in office during 2012 were:

Board member

Carol Bell

Ian Bruce

Position

Throughout 2012

Committee member

Senior Non-Executive Director

to 16 May 2012

Non-Executive Director

to 16 May 2012

Alasdair Locke

Non-Executive Chairman

from 16 January 2012

Ian MacKenzie

Peter Milne

Chief Executive Officer
Executive Director

Senior Non-Executive Director
Non-Executive Director

from 16 May 2012
from 1 March 2012

Paul Mortimer

Non-Executive Chairman

to 16 January 2012

Non-Executive Director

to 16 May 2012

Pradip Shah

Non-Executive Director

continuous

– Audit (Chairman)
– Remuneration

– Audit
– Nomination (Chairman)

– Remuneration
– Nomination (Chairman)

– Audit (Chairman)
– Remuneration
– Nomination

– Remuneration
– Nomination

– Remuneration (Chairman)
– Audit
– Nomination

Yogeshwar Sharma

Chief Executive Officer
Non-Executive Director

to 16 May 2012
from 16 May 2012

– Audit
– Nomination

Indemnity provision for Directors
Subject to the Isle of Man Companies Acts 1931 to 2004, but without prejudice to any indemnity to which a Director may otherwise
be entitled, every Director shall be entitled to be indemnified out of the assets of the Company against all costs, charges, losses,
damages and liabilities incurred by the Director in the actual or purported execution of his or her duties. The Company has a Directors’
and Officers’ liability insurance policy in place.

Results and dividends
The Group is reporting a total comprehensive loss of $11,069,191 for 2012 compared to a comprehensive loss of $1,877,954
for 2011. The Directors do not recommend the payment of a dividend for 2012.

Election and re-election of Directors
At the next Annual General Meeting of the Company, to be held on 9 May 2013, Yogeshwar Sharma and Pradip Shah will offer
themselves for re-election as Non-Executive Directors. Biographical details for Mr Yogeshwar Sharma and Mr Pradip Shah are set
out on pages 28 to 29.

Messrs Locke, Shah, Milne and Sharma have entered into engagement letters with the Company in respect of their appointments
as Non-Executive Directors of the Company. The appointments are subject to termination upon at least three months’ notice by
either party.

Ian MacKenzie has entered into a service agreement as an Executive Director with the Company pursuant to which his engagement
is subject to termination upon 12 months’ notice by either party.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

Pradip Shah and Yogeshwar Sharma have served as Directors for more than nine years. The Company had remained unlisted until
June 2005 when Ordinary Shares of the Company were listed on the Alternative Investment Market of the London Stock Exchange.

Pradip Shah chairs the Company’s Remuneration Committee and is a member of the Audit and Nomination Committees. Yogeshwar
Sharma is a member of the Audit and Nomination Committees.

The Board of Directors believe that the contribution being made by all the Directors continues to be invaluable and are satisfied that
they conduct themselves in an appropriate manner and in the best interest of shareholders. The Board of Directors is satisfied that
the performance of all Directors continues to be effective and is also satisfied as to their commitment to their role as Directors.

Capital structure and significant shareholders
The Company’s authorised and issued share capital and changes thereto are disclosed in note 21 to the consolidated financial
statements. Disclosures with respect to share options are provided in note 8 to the consolidated financial statements and in the
Directors’ Remuneration Report.

At 31 December 2012 and at the date of this report, there were 73,032,706 and 73,032,706 Ordinary Shares of Hardy respectively
that were issued and fully paid. Major interests in share capital of the Company, in excess of three per cent, as of the date of this report
are as follows:

Shareholding

Lloyds TSB Group plc.
Universities Superannuation Scheme Limited
Seren Capital Management Limited
Aegon Asset Management
Yogeshwar Sharma
Aequitas Investments Limited
Henderson Global Investors
Standard Life Investments Ltd
NFU Mutual Insurance Society Limited
Gadus SE
John Grahame Whateley

Total

Number of Ordinary
Shares held

11,363,500
6,174,638
5,617,418
5,538,544
4,158,135
3,928,866
3,653,457
3,111,312
2,713,479
2,554,829
2,438,169

51,252,347

Per cent

15.56%
8.45%
7.69%
7.58%
5.69%
5.38%
5.00%
4.26%
3.72%
3.50%
3.34%

70.18%

Annual General Meeting
The Company’s next Annual General Meeting will be held at Skene House, Rosemount Viaduct, Aberdeen AB25 1NX, Scotland, on
9 May 2013 at 11.00 BST. The notice of meeting and the explanatory circular to shareholders setting out business to be conducted at
the Annual General Meeting accompanies this Annual Report. The notice includes an item of special business which is explained by
the Chairman in his letter contained in the circular. The item of special business concerns the disapplication of the pre-emption rights
set out in article 5.1 of the Company’s Articles of Association.

Statement of Directors’ responsibilities
The Directors are responsible for preparing the financial statements in accordance with applicable law and International Financial
Reporting Standards as adopted by the European Union. Under such requirements, the Directors are required to prepare
Consolidated and Parent Company financial statements of Hardy Oil and Gas plc for the year ended 31 December 2012, which
comprise Consolidated Statement of Comprehensive Income, Consolidated and Parent Company Statements of Financial Position,
Consolidated and Parent Company Statements of Cash Flows, Consolidated and Parent Company Statements of Changes in Equity,
and related notes. In preparing these financial statements, the Directors are required to:
– select suitable accounting policies and apply them consistently;
– make judgements and estimates that are reasonable and prudent;
– state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained

in the financial statements; and

– prepare the financial statements on a going concern basis.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the Company and of the Group and to enable them to ensure that the financial statements comply with the Isle of Man
Companies Acts 1931 to 2004. The Directors are responsible for ensuring the Directors’ Report and other information included in the
Annual Report are prepared in accordance with company law of the Isle of Man and are also responsible for ensuring that the Annual
Report includes information required by the rules of the London Stock Exchange.

Hardy Oil and Gas plc Annual Report and Accounts 2012Governance
Directors’ Report continued

In addition to the above, the Directors are also responsible for
safeguarding the assets of the Company and of the Group and
hence for taking reasonable steps for the prevention and
detection of fraud or other irregularities.

Directors’ responsibility statement pursuant to disclosure
and Transparency Rule 4.1.12
The Directors confirm that, to the best of their knowledge:
a) the financial statements, which are prepared in accordance
with International Financial Reporting Standards as adopted
by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and

b) the Directors’ Report, Annual Report and incorporate

statements includes a fair review of the development and
performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties that they face.

Internal control and risk management systems
The Board has the ultimate responsibility for the Group’s internal
control and risk management systems. The Audit Committee
monitors internal controls and risk management systems on
an annual basis.

The Group has established a system of control and risk
management involving an appropriate degree of oversight
by senior management in each of the business units in which
it operates.

Charitable and political donations
During 2012, the Company made no payments to charitable
institutions or political associations.

Payment policy
Hardy’s policy with respect to payments to its vendors is
to establish terms of payment when contracting for goods
or services and generally abide by those payment terms.
Normal credit terms are generally 30 days.

Reappointment of auditors
Crowe Clark Whitehill LLP have expressed their willingness
to continue as auditors. In accordance with the Isle of Man
Companies Acts 1931 to 2004, a resolution reappointing Crowe
Clark Whitehill LLP as auditors of the Company will be proposed
at the next Annual General Meeting.

Going concern
The Company’s business activities, together with factors likely
to affect its future operations, financial position, and liquidity
position are set out in the Chairman’s Statement, Chief Executive
Officer’s Statement, Review of Operations, Financial Review,
and the Risks and Uncertainties section of the Annual Report.
In addition, note 25 to the financial statements disclosed the
Company’s financial risk management practices with respect
to its capital structure, foreign currency risk, liquidity risk,
interest rate risk, commodity price risk, credit risk, and other
related matters.

The Directors, having made due and careful enquiry, are of the
opinion that the Company has adequate working capital to
execute its operations over the next 12 months. The Directors,
therefore, have made an informed judgement, at the time of
approving financial statements, that there is a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. As a result,
the Directors have continued to adopt the going concern basis
of accounting in preparing the annual financial statements.

Events subsequent to 31 December 2012
On 2 February 2013, the Hon’ble Tribunal issued an award
regarding a dispute involving the Company. The details of the
award are disclosed in note 15 to the consolidated financial
statements. There have not been any other material events that
have occurred since 31 December 2012 to the date of this report.

Approved by the Board of Directors.

Alasdair Locke
Chairman
6 March 2012

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Independent Auditor’s Report to the shareholders
of Hardy Oil and Gas plc

Overview
Business Review
Governance
Financial Statement
Company Information

We have audited the Group and parent company financial statements (the “financial statements”) of Hardy Oil and Gas plc for the year
ended 31 December 2012 which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Parent Company
Statements of Financial Position, the Consolidated and Parent Company Statements of Cash Flows, the Consolidated and Parent
Company Statements of Changes in Equity, and the related notes. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards
the parent company financial statements, as applied in accordance with the provisions of the Isle of Man Companies Acts 1931 to 2004.

This report is made solely to the parent company’s members, as a body, in accordance with section 15 of the Isle of Man Companies Act
1982. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditors
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors;
and the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Chairman’s Statement, Directors’ Report (The information
in the Directors’ Report includes that specific information presented in the Review of Operations and Financial Review that is cross
referred from the Business Review section of the Directors’ Report) and the unaudited sections of the Directors’ Remuneration Report
to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.

Opinion on financial statements
In our opinion:
– the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December

2012 and of the Group’s profit for the year then ended;

– the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
– the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union

and as applied in accordance with the provisions of the Isle of Man Companies Acts 1931 to 2004; and

– the financial statements have been prepared in accordance with the requirements of the Isle of Man Companies Acts 1931 to 2004

and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Isle of Man Companies Acts 1931 to 2004 we are required to report to you if, in our opinion:
– the parent company and the Group have not kept proper accounting records;
– the financial statements are not in agreement with the accounting records and returns;
– if we have not received all the information and explanations we require for our audit; or
– if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.

Under the Listing Rules we are required to review:
– the Directors’ statement in relation to going concern;
– the part of the Corporate Governance Statement relating to the company’s compliance with certain elements of the UK Corporate

Governance Code specified for our review; and

– certain elements of the Board of Directors’ Remuneration Report to shareholders.

Matthew Stallabrass
Responsible Individual
For and on behalf of:
Crowe Clark Whitehill LLP
Recognised Auditor
London
6 March 2013

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2012

Continuing operations
Revenue
Cost of sales
Production costs
Unsuccessful exploration costs
Depletion
Decommissioning charge

Gross (loss) profit
Administrative expenses

Operating loss
Interest and investment income
Finance costs

Loss before taxation
Taxation

Total comprehensive loss for the year attributable to owners of the parent

Loss per share
Basic and diluted
Comprehensive loss per share
Basic and diluted

Notes

4
15

5
10
11

2012
US$

2011
US$

–

11,279,596

(277,100)
(5,358,471)
–
–

(5,635,571)
(7,516,316)

(13,151,887)
848,850
(361,224)

(12,664,261)
1,595,070

(4,045,717)
(3,432,734)
(1,377,228)
(210,303)

2,213,614
(6,877,035)

(4,663,421)
445,026
(382,569)

(4,600,964)
2,723,010

(11,069,191)

(1,877,954)

(0.15)

(0.03)

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Consolidated Statement of Changes in Equity
For the year ended 31 December 2012

Overview
Business Review
Governance
Financial Statement
Company Information

At 1 January 2011
Changes in equity for the year 2011
Total comprehensive loss for the year
Share-based payment
Share options exercised
Restricted shares issued
Issue of share capital

At 31 December 2011
Changes in equity for the year 2012
Total comprehensive loss for the year
Share-based payment
Adjustment of lapsed vested options
Share options exercised
Restricted shares issued

Share capital
US$

Share premium
US$

Shares to be issued
US$

Retained earnings
US$

Total
US$

719,225

117,940,279

5,596,421

3,014,004

127,269,929

–
–
250
220
8,157

–
48,196
57, 979
59,861
1,889,769

–
(1,339,895)
–
–
–

(1,877,954)
–
–
–
–

(1,877,954)
(1,291,699)
58,229
60,081
1,897,926

727,852

119,996,084

4,256,526

1,136,050

126,116,512

–
–

100
2,375

–
5,654

22,600
587,613

–
757,785
(415,566)
–
–

(11,069,191)
–
415,566
–
–

(11,069,191)
763,439
–
22,700
589,988

At 31 December 2012

730,327

120,611,951

4,598,745

(9,517,575) 116,423,448

Hardy Oil and Gas plc Annual Report and Accounts 2012
Financial Statement
Consolidated Statement of Financial Position
As at 31 December 2012

Assets
Non-current assets
Property, plant and equipment
Intangible assets – exploration
Intangible assets – others
Site restoration deposits
Deferred tax asset

Total non-current assets
Current assets
Inventories
Trade and other receivables
Short-term investments
Cash and cash equivalents
Total current assets

Total assets

Equity and liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Shares to be issued
Retained (loss) earnings

Total equity
Non-current liabilities
Provision for decommissioning
Current liabilities
Trade and other payables

Total current liabilities

Total liabilities

Total equity and liabilities

Approved and authorised for issue by the Board of Directors on 6 March 2013.

Alastair Locke
Non-Executive Chairman

Ian MacKenzie
Chief Executive Officer

Notes

2012
US$

2011
US$

14
15
16
23
12

18
19
20
25

5,947,203
77,818,796
4,536
3,970,628
7,385,911

5,886,118
81,701,488
10,380
3,737,505
6,001,302

95,127,074

97,336,793

2,024,502
1,410,976
26,032,807
3,052,150
32,520,435

2,068,524
1,129,872
29,693,968
6,804,018
39,696,382

127,647,509

137,033,175

730,327
120,611,951
4,598,745
(9,517,575)

727,852
119,996,084
4,256,526
1,136,050

116,423,448

126,116,512

5,152,050

4,815,000

6,072,011

6,101,663

6,072,011

6,101,663

11,224,061

10,916,663

127,647,509

137,033,175

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Consolidated Statement of Cash Flows
For the year ended 31 December 2012

Operating activities
Cash flow (used in) operating activities
Taxation refund/(paid)

Net cash (used in) operating activities
Investing activities
Expenditure on property, plant and equipment
Expenditure on intangible assets – exploration
Purchase of other fixed assets
Site restoration deposit
Short-term investments

Net cash from (used in) investing activities
Financing activities
Interest and investment income
Financial costs
Issue of shares

Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

Overview
Business Review
Governance
Financial Statement
Company Information

Notes

2012
US$

2011
US$

(7,059,025)
606,926

(3,441,912)
(52,751)

(6,452,099)

(3,494,663)

–
(1,475,779)
(108,165)
(233,123)
3,661,161

727,734
(7,301)
(6,339)
347,425
(1,544,472)

1,844,094

(482,953)

857,611
(24,174)
22,700

856,137
(3,751,868)
6,804,018

457,579
(67,569)
2,016,236

2,406,246
(1,571,370)
8,375,388

3,052,150

6,804,018

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Notes to the Consolidated Financial Statements
For the year ended 31 December 2012

1. Accounting policies
The following accounting policies have been applied in preparation of consolidated financial statements of Hardy Oil and Gas plc
(Hardy or the Group). The country of incorporation, address of the registered office and a description of the Group’s principal
activities can be found in the Director’s Report.

a) Basis of measurement
Hardy prepares its financial statements on a historical cost basis except as otherwise stated.

b) Going concern
The Group has in the past generated working capital from its production activities and successfully raised finance to provide
additional funding for its ongoing exploration and development programmes. The Directors, having considered the guidance given in
the document Going concern and liquidity risk: Guidance for Directors issued in October 2009 by the Financial Reporting Council,
having reviewed the Group’s ongoing activities including its future intentions in respect of the drilling of exploration wells, having
regard to the Group’s existing working capital position and its ability to potentially raise finance, if required, are of the opinion that
the Group has adequate resources to enable it to undertake its planned work programme of exploration, appraisal and development
activities over the next 12 months from the date of these financial statements.

c) Basis of preparation
Hardy prepares its financial statements in accordance with applicable International Financial Reporting Standards (IFRSs)
and interpretations issued by the International Accounting Standards Board as adopted by the European Union.

As at the date of approval of these financial statements, the following standards and interpretations were in issue but not yet effective:

Issued but not yet EU adopted
IFRS 9 – Financial instruments

Issued and EU adopted
IFRS 1 Amendments – Severe hyper inflation and removal of fixed dates for first time adoption
IFRS 7 – (amended) – Financial instruments disclosures
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint Arrangements
IFRS 12 – Disclosure of Interests in other entities
IFRS 13 – Fair Value Measurement
IAS 1 – (amended) – Presentation of items of other comprehensive income
IAS 12 – (amended) – Deferred tax: Recovery of underlying Assets
IAS 19 – (amended) – Employee Benefits
IAS 27 – Separate Financial Statements
IAS 28 – Investments in Associates and Joint Ventures
IAS 32 – (amended) – Financial instruments presentation
IFRIC 20 – Stripping costs in the production Phase of a surface mine

The Directors do not anticipate that the adoption of these standards and interpretations in future reporting periods will have a material
impact on the Group’s results.

d) Functional and presentation currency
These financial statements are presented in US dollars which is the Group’s functional currency. All financial information presented
is rounded to the nearest US dollar.

e) Basis of consolidation
The consolidated financial statement includes the results of Hardy Oil and Gas plc and its subsidiary undertakings. The Consolidated
Statement of Comprehensive Income and the Consolidated Statement of Cash Flows include the results and cash flows of subsidiary
undertakings up to the date of disposal.

The Group conducts the majority of its exploration, development and production through unincorporated joint arrangements with other
companies.

The consolidated financial statements reflect the Group’s share of production revenues and costs attributable to its participating
interest under the proportional consolidation method.

f) Revenue and other income
Revenue represents the sale value of the Group’s share of oil (which excludes the profit oil sold and paid to the Government of India
as a part of profit sharing) and the income from technical services to third parties if any. Revenues are recognised when crude oil has
been lifted and title has been passed to the buyer or when services are rendered.

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

1. Accounting policies continued
g) Joint ventures
The Group participates in several unincorporated joint ventures which involve the joint control of assets used in the Group’s oil and
gas exploration and production activities. The Group accounts for its share of assets, liabilities, income and expenditure of joint
ventures in the Statement of Financial Position and Statement of Comprehensive Income as appropriate.

h) Oil and gas assets
i) Exploration and evaluation assets
Hardy has adopted the successful efforts based accounting policy for its oil and gas assets.

Costs incurred prior to acquiring the legal rights to explore an area are expensed immediately in the income statement.

Expenditure incurred in connection with and directly attributable to the acquisition, exploration and appraisal of oil and gas assets are
capitalised for each licence granted under the production sharing contracts and are undepleted within intangible exploration assets
until the validity to explore the contract area is ended or commercial reserves have been discovered.

Exploration expenditure incurred for geological and geophysical activities before the commencement of exploratory drilling is initially
capitalised within intangible exploration assets. Exploration drilling costs are initially capitalised on a well-by-well basis until the
success or otherwise of the well has been established. The success or failure is assessed on a well-by-well basis. Exploration well
costs are written off on completion of the well unless the results indicate the presence of hydrocarbons which have reasonable
commercial potential.

Following appraisal of successful exploration, if commercial reserves are established and technical feasibility for extraction is
demonstrated, the related capital intangible exploration and appraisal costs are transferred into a cost centre within the property,
plant and equipment – development assets after testing for impairment, if any. Where exploration well results indicate the presence
of hydrocarbons which are ultimately not considered commercially viable, all related costs will be written-off to the income statement.

ii) Oil and gas development and producing assets
Development and production assets are accumulated on a field-by-field basis. These comprise the cost of developing commercial
reserves discovered to put them on production and the exploration and evaluation costs transferred from intangible exploration and
evaluation assets, as stated in the policy above. In addition, interest payable and exchange differences incurred on borrowings directly
attributable to development projects, if any, and assets in the production phase, as well as cost of recognising provision for future
restoration and decommissioning, are capitalised.

iii) Decommissioning
At the end of the producing life of a field, costs are incurred in removing and decommissioning facilities, plugging and abandoning
wells. The full discounted cost of decommissioning is estimated and considered as an asset and liability. The decommissioning cost is
included within the cost of property, plant and equipment-development assets. Any revision in the estimated cost of decommissioning
which alters the provisions required also adjusted in the cost of asset. The amortisation of the asset, calculated on a unit of production
basis based on proved reserves, is shown as “Decommissioning charge” in the Statement of Comprehensive Income and unwinding
of the discount on the provision is included in the finance costs.

iv) Disposal of assets
Proceeds from any disposal of assets are credited against the specific capitalised costs included in the relevant cost pool and any
loss or gain on disposal is recognised in the Statement of Comprehensive Income. Gain or loss arising on disposal of a subsidiary
is also recorded in the Statement of Comprehensive Income.

i) Depletion and impairment
i) Depletion
The net book values of the producing assets are depreciated on a field-by-field basis using the unit of production method, based on
proved and probable reserves. Hardy periodically obtains an independent third party assessment of reserves which is used as a basis
for computing depletion.

ii) Impairment
Exploration assets are reviewed regularly for indications of impairment following the guidance in IFRS 6 Exploration and Evaluation
of Mineral Resources, where circumstances indicate that the carrying value might not be recoverable. In such circumstances, if the
exploration asset has a corresponding development/producing cost pool, then the exploration costs are transferred to the cost pool
and depleted on unit of production. In cases where no such development/producing cost pool exists, the impairment of exploration
costs is recognised in the Statement of Comprehensive Income. Impairment reviews on development/producing oil and gas assets
for each field are carried out on each year by comparing the net book value of the cost pool with the associated discounted future
cash flows. If there is any impairment in a field representing a material component of the cost pool, an impairment test is carried out
for the cost pool as a whole. If the net book value of the cost pool is higher than the associated discounted future cash flows, the
excess amount is recognised in the Statement of Comprehensive Income as impairment and deducted from the pool value.

Hardy Oil and Gas plc Annual Report and Accounts 20121. Accounting policies continued
j) Property, plant and equipment
Property, plant and equipment other than oil and gas assets are measured at cost and depreciated over their expected useful
economic lives as follows:

Leasehold improvements
Furniture and fixtures
Information technology and computers
Other equipment

Annual rate
(%)

over lease period
20
33
20

Depreciation
method

Straight line
Straight line
Straight line
Straight line

k) Intangible assets
Intangible assets other than oil and gas assets are measured at cost and depreciated over their expected useful economic lives as
follows:

Computer software

Amortisation charges included within the administrative expenses.

l) Investments
Investments by the parent company in its subsidiaries are stated at cost.

Annual rate
(%)

Depreciation
method

Straight line

m) Short-term investments
Short-term investments are regarded as “financial assets at fair value through profit or loss” and are carried at fair value. In practice,
the nature of these investments is such that the fair value equates to the value of initial outlay and therefore in normal circumstances
no fair value gain or loss is recognised in the Statement of Comprehensive Income.

n) Inventory
Inventory of crude oil is valued at the lower of average cost and net realisable value. Average cost is determined based on actual
production cost for the year. Inventories of drilling stores are recorded at cost including taxes, duties and freight. Provision is made
for obsolete or defective items where appropriate, based on technical evaluation.

o) Financial instruments
Financial assets and financial liabilities are recognised at fair value in the Group’s Statement of Financial Position based on the
contractual provisions of the instrument.

Trade receivables are not interest bearing and their fair value is deemed to be their nominal value as reduced by necessary provisions
for estimated irrecoverable amounts.

Trade payables are not interest bearing and their fair value is deemed to be their nominal value.

p) Equity
Equity instruments issued by Hardy and the Group are recorded at net proceeds after direct issue costs.

q) Taxation
The tax expense represents the sum of current tax and deferred tax.

Current tax is based on the taxable profit of the year. Taxable profit differs from net profit as reported in the Statement of
Comprehensive Income as it excludes certain item of income or expenses that are taxable or deductible in years other than the current
year and it further excludes items that are never taxable or deductible. The current tax liability is calculated using the tax rates that have
been enacted or substantially enacted by the year end date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
liability method.

Deferred income tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial StatementNotes to the Consolidated Financial Statements continuedFor the year ended 31 December 2012Overview
Business Review
Governance
Financial Statement
Company Information

1. Accounting policies continued
Deferred income tax liabilities are recognised for all temporary differences except in respect of taxable temporary differences
associated with investment in subsidiaries, associates and interest in joint ventures where the timing of the reversal of the temporary
differences can be controlled and it is possible that the temporary differences will not reverse in the foreseeable future.

Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the year end date, where
transactions or events have occurred at that date that will result in an obligation to pay more or a right to pay less or to receive more tax.

Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply in the periods
in which temporary differences reverse, based on tax rates and laws enacted at the year end date.

r) Foreign currencies
Foreign currency transactions are accounted for at the exchange rate prevailing on the date of the transaction. At the year end date,
all foreign currency monetary assets and monetary liabilities are restated at the closing rate. Exchange differences arising out of actual
payments/realisations and from the year end restatement are reflected in the Statement of Comprehensive Income.

Rates of exchanges were as follows:

£ to US$
US$ to Indian Rupees

31 December
2012

31 December
2011

1.62
55.01

1.55
53.24

s) Leasing commitments
Rental charges or charter hire charges payable under operating leases are charged to the Statement of Comprehensive Income
as part of production cost over the lease term.

t) Share-based payments
Hardy issues share options to Directors and employees, which are measured at fair value at the date of grant. The fair value of the
equity-settled options determined at the grant date is expensed on a straight line basis over the vesting period. In performing the
valuation of these options, only conditions other than market conditions are taken into account. Fair value is derived by use of the
binomial model. The expected life used in the model is based on management estimates and considers non-transferability, exercise
restrictions and behavioural considerations. In case of lapsed vested options, the amount recognised in the shares to be issued
is adjusted to the retained earnings as a reserve movement.

u) Contingent assets
Contingent assets are disclosed but not recognised where the receipt of income is probable but not virtually certain. The asset
and related income is only then recognised in the period when the change occurs and the receipt becomes virtually certain.

2. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are addressed below.

i) Intangible assets – exploration
Hardy has been awarded costs and interest after the conclusion of the arbitration on the CY-OS/2 block, in which it holds a 75 per
cent participating interest. Hardy’s share of these awards totals approximately $24.8 million and has been disclosed as a contingent
asset. This is regarded as a significant area of judgement and full details are disclosed in note 15 to these financial statements.

ii) Decommissioning
The liability for decommissioning is reviewed based on the updated current cost estimates of the decommissioning, which is
predominated by the charter hire charges of drill ship and supply boats. Accordingly, the provision made in the books will reflect
the risk free discounted future cost for decommissioning and this is an annual adjustment based on the changes in costs as a result
of technical advancements and other factors. Further details are contained in note 23.

iii) Deferred tax asset
The deferred tax asset will be realised with the recommencement of production from PY-3 field and also from the production of oil
and gas from those areas which are available for commercial development. Further details are contained in note 12.

Hardy Oil and Gas plc Annual Report and Accounts 20123. Segment analysis
The Group is organised into two business units as at end of the year: India and United Kingdom. The India business unit is operated by
the wholly owned subsidiary, Hardy Exploration & Production (India) Inc. and Hardy Oil and Gas plc operates in the United Kingdom.

The India business unit focuses on exploration and production of oil and gas assets in India. The United Kingdom business unit is the
holding company. Management monitors these business units separately for resource allocation, decision making and performance
assessment.

Revenue
Other income

Operating loss
Interest income
Interest on inter-corporate loan
Finance costs
Interest on inter-corporate loan

Loss before taxation
Taxation

Loss for the year

Segment assets
Inter corporate loan
Segment liabilities
Inter-corporate borrowings
Capital expenditure
Unsuccessful exploration costs
Depreciation, depletion and amortisation

Revenue
Oil sales
Profit oil to government
Management fees
Management fees
Other income

Operating loss
Interest income
Interest on inter-corporate loan
Interest on inter-corporate loan
Finance costs

Loss before taxation
Taxation

Loss for the year

Segment assets
Inter-corporate loan
Segment liabilities
Inter-corporate borrowings
Capital expenditure
Unsuccessful exploration costs
Depreciation, depletion and amortisation

2012
US$

–

India

–

(9,223,442)
754,707
–
(361,224)
(1,121,145)

(9,951,104)
793,183

(3,928,445)
94,143
1,121,145
–
–

(2,713,157)
801,887

(9,157,921)

(1,911,270)

Inter-segment
elimination

–

–
–
(1,121,145)
–
1,121,145

–
–

–

102,570,256
–
(11,003,670)
(100,661,878)
1,475,779
(5,358,471)
(17,828)

25,077,253
100,661,878
(220,391)
–
108,165
–
(35,096)

–
(100,661,878)
–
100,661,878
–
–
–

Total

–

(13,151,887)
848,850
–
(361,224)
–

(12,664,261)
1,595,070

(11,069,191)

127,647,509
–
(11,224,061)
–
1,583,944
(5,358,471)
(52,924)

2011
US$

India

15,796,702
(4,732,595)
–
(180,000)
46,038

10,930,145

(2,886,699)
366,657
–
(1,119,894)
(382,569)

(4,022,505)
2,709,935

–
–
180,000

169,451

349,451

(1,776,722)
78,369
1,119,894

–

(578,459)
13,075

(1,312,570)

(565,384)

Inter-segment
elimination

–
–
(180,000)
180,000
–

Total

15,769,702
(4,732,595)
–
–
215,489

–

11,279,596

–
–
(1,119,894)
1,119,894
–

–
–

–

(4,663,421)
445,026
–
–
(382,569)

(4,600,964)
2,723,010

(1,877,954)

137,033,175
–
(10,916,663)
–
(714,094)
(3,432,734)
(1,638,424)

104,569,369
–
(10,761,308)
(93,842,704)
(718,138)
(3,432,734)
(1,609,225)

32,463,806
93,842,704
(155,355)
–
4,044
–
(29,199)

–
(93,842,704)
–
93,842,704
–
–
–

3. Segment analysis continued
The Group is engaged in one business activity, the production of and exploration for oil and gas. Other income relates to technical
services to third parties, overhead recovery from joint venture operations and miscellaneous receipts, if any. Revenue arises from
the sale of oil produced from the contract area CY-OS-90/1 India and the revenue by destination is not materially different from
the revenue by origin.

4. Cost of sales
Production cost included in the cost of sales consists of:

Opening stock of crude oil
Cost of crude oil produced
Closing stock of crude oil

Production cost

5. Operating loss
Operating loss is stated after charging:

Unsuccessful exploration costs
Depletion charge of property, plant and equipment – producing
Decommissioning charge of property, plant and equipment – producing
Depreciation charge of property, plant and equipment – others
Provision for irrecoverable costs
Movement in inventory of oil
Operating lease costs
– Plant and machinery
– Land and buildings
External auditors’ remuneration
– Fees payable to the Company’s auditors for the audit of the Company’s annual accounts
– Fees payable to the Company’s auditors and its associates for other services
– Audit-related assurance services
Exchange loss

2012
US$

–
277,100
–

277,100

2011
US$

389,801
3,655,916
–

4,045,717

2012
US$

2011
US$

5,358,471
–
–
52,924
1,073,402
–

–
358,631

72,655
–
13,103
142,373

3,432,734
1,377,228
210,303
50,893
2,333,148
389,801

2,207,631
440,732

61,910
–
13,021
910,641

The provision for potentially irrecoverable costs relates to the costs potentially irrecoverable from the parties to a production sharing
contract for which budget approval is pending from the concerned parties. This provision is contained in administrative costs.

The Group has a policy in place for the award of non-audit services to be provided by the auditors, which requires approval of the
Audit Committee.

6. Reconciliation of operating profit (loss) of continuing operations to operating cash flows

Operating loss
Unsuccessful exploration costs
Depletion and depreciation
Decommissioning charge
Share-based payments

Decrease in inventory
(Increase)/decrease in trade and other receivables
(Decrease) in trade and other payables

Cash (used in) operating activities

2012
US$

2011
US$

(13,151,887)
5,358,471
52,924
–
972,464

(6,768,028)
44,022
(305,367)
(29,652)

(4,663,421)
3,432,734
1,428,121
210,303
(1,269,420)

(861,683)
430,667
4,223,777
(7,234,673)

(7,059,025)

(3,441,912)

Hardy Oil and Gas plc Annual Report and Accounts 20127. Staff costs

Wages and salaries
Social security costs
Share-based payments charge

2012
US$

2011
US$

2,363,548
269,081
419,254

3,003,506
292,388
(1,291,699)

3,051,883

2,004,195

Staffs costs, including Executive Directors’ salaries, fees, benefits and share-based payments, are shown gross before amounts
recharged to joint ventures.

The average monthly number of employees, including Executive Directors and individuals employed by the Group working on joint
venture operations, are as follows:

Management and administration
Operations

2012

17
12

2011

19
18

8. Share-based payments
Share options have been granted to subscribe for Ordinary Shares of US$0.01 each in the capital of the Company, which are
exercisable between 2012 and 2023 at prices of £1.19 to £7.69 per Ordinary Share.

Hardy has an unapproved share option scheme for the Directors and employees of the Group. Options are exercisable at the quoted
market prices of the Company’s shares on the date of grant. The vesting period is three years with a stipulation that the options are
granted in proportion to the period of employment after the grant subject to a minimum of one year, or, with respect to options from
2010 onwards, the period is three years. The options are exercisable for a period of 10 years from the date of grant. Details of the
share options outstanding during the years are as follows:

Outstanding at beginning of the year
Granted during the year
Forfeited/lapsed during the year
Exercised during the year

Outstanding at the end of the year

Exercisable at the end of the year

2012

2011

Number of
options

Weighted average
price

Number of
options

Weighted average
price

3,393,399
800,000
(556,466)
(10,000)

3,626,933

2,147,933

£2.64
£1.52
£2.15
£1.44

£2.47

£2.94

4,453,399
–
(1,035,000)
(25,000)

3,393,399

2,708,399

£2.80
–
£3.85
£1.44

£2.64

£2.77

The aggregate of the estimated fair values of the options granted and outstanding as at 31 December 2012 is US$6,235,811.
The inputs into the binomial model for computation of value of options are as follows:

Share price at grant date
Option exercise price at grant date
Expected volatility
Expected life
Risk free rate
Expected dividend

Varies from £1.19 to £7.69
Varies from £1.19 to £7.69
8%–40%
6–8 years from grant date
0.5%–4.70%
Nil

Expected volatility was determined by calculating Hardy’s historical volatility. The expected life used has been adjusted based on
management’s best estimate for the effects of non-transferability, exercise restrictions and behavioural considerations. Details of
outstanding options at the end of the year with the weighted average exercise price (WAEP) as follows:

8. Share-based payments continued

2005–2016
2006–2017
2007–2018
2008–2019
2010–2021
2012–2023

2012

2011

Number

1,240,933
30,000
600,000
277,000
679,000
800,000

WAEP

£1.51
£3.02
£3.70
£7.69
£2.12
£1.52

Number

WAEP

1,771,399
30,000
630,000
277,000
685,000
–

£1.68
£3.02
£3.67
£7.69
£2.12
–

On 14 March 2012, the Company issued 182,342 restricted Ordinary Shares having a face value of US$0.01 per share and an
aggregate market value of US$452,963 (£282,630) to Mr Alasdair Locke and issued 30,000 restricted Ordinary Shares having a
face value of US$0.01 per share and an aggregate market value of US$74,524 (£46,500) to Mr Peter Milne upon their appointments
as a Non-Executive Directors. The cost of issuing such shares is charged to the Statement of Comprehensive Income over a three-
year period from the date of issue. During 2012, an amount of US$146,524 has been expensed with the remaining amount of
US$ 380,963 transferred to prepayments.

The Group has expensed a net amount of US$972,464 in the current year (2011: US$1,269,420) towards equity-settled share-based
payments. Equity shares to be issued are re-valued at the exchange rate as at 31 December 2012. The revaluation loss for the year
2012 is US$252,665 (2011: US$411,475). The value of shares to be issued as at 31 December 2012 is US$4,598,745 (2011:
US$4,256,526).

9. Directors’ emoluments
Details of each Director’s remuneration and share options are set out in the Directors’ Remuneration Report that forms part of the
Company’s Annual Report. Director’s emoluments are included within the remuneration of the key management personnel in note 31.

10. Interest and investment income

Bank interest
Other interest income
Dividend

11. Finance costs

Bank guarantee charges
Other finance costs

12. Taxation
a) Analysis of taxation (credit) for the year

Current tax charge
UK corporation tax
Foreign tax – India
Minimum alternate tax
Foreign tax – USA

Total current tax (credit)
Deferred tax (credit)

Taxation (credit)

2012
US$

525,481
273,243
50,126

848,850

2012
US$

24,174
337,050

361,224

2011
US$

409,180
–
35,846

445,026

2011
US$

67,569
315,000

382,569

2012
US$

2011
US$

–
(180,912)
(29,549)
–

(210,461)
(1,384,609)

–
–
(1,359,390)
–

(1,359,390)
(1,363,620)

(1,595,070)

(2,723,010)

Hardy Oil and Gas plc Annual Report and Accounts 201212. Taxation continued

Deferred tax (credit) charge
Origination and reversal of temporary differences

Deferred tax analysis:

Difference between accumulated depletion, depreciation and amortisation and capital allowances
Other temporary differences

Deferred tax asset

b) Factors affecting tax charge for the year

Loss before taxation from continuing operations
Profit before taxation multiplied by the rate of tax in UK of 23%

Foreign tax on overseas income – current year

2012
US$

2011
US$

–
(1,384,609)

–
(1,363,620)

2012
US$

2011
US$

3,909,448
3,476,463

2,811,865
3,189,437

7,385,911

6,001,302

2012
US$

2011
US$

(12,664,261)
–

(4,600,964)
–

–

Indian operations of the Group are subject to a tax rate of 42.024 per cent which is higher than UK and US corporations tax rates.
To the extent that the Indian profits are taxable in the US and/or the UK, those territories should provide relief for Indian taxes paid,
principally under the provisions of double taxation agreements. Based on the current expenditure plans, the Group anticipates that
the tax allowances will continue to exceed the depletion charge of each year, though the timing of related tax relief is uncertain.

13. Loss per share
Loss per share is calculated on a loss of US$11,069,191 for the year 2012 (2011: US$1,877,954) on a weighted average of
72,984,352 Ordinary Shares for the year 2012 (2011: 72,531,961). No diluted loss per share is calculated.

Comprehensive loss per share is calculated on a loss of US$11,069,191 for the year 2012 (2011: US$1,877,954) on a weighted
average of 72,984,352 Ordinary Shares for the year 2012 (2011: 72,531,961).

No diluted loss per share on loss attributable to parent company for the year 2012 and 2011 is calculated.

14. Property, plant and equipment
Oil and gas assets represents interest in producing oil and gas assets falling under the India cost pool. Other fixed assets consist
of office furniture, computers, workstations and office equipment.

Cost
At 1 January 2011
Additions
Deletions
At 1 January 2012
Additions
Deletions

At 31 December 2012

Depletion, depreciation and amortisation
At 1 January 2011
Charge for the year
Deletions
At 1 January 2012
Charge for the year
Deletions

At 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011

Oil and gas
assets
US$

Other fixed
assets
US$

Total
US$

35,726,109
(201,713)
–
35,524,396
–
–

2,175,100
6,339
(78,823)
2,102,616
108,165
(426,891)

37,901,209
(195,374)
(78,823)
37,627,012
108,165
(426,891)

35,524,396

1,783,890

37,308,286

28,096,787
1,587,531
–
29,684,318
–
–

29,684,318
5,840,078
5,840,078

2,090,565
44,834
(78,823)
2,056,576
47,080
(426,891)

1,676,765
107,125
46,040

30,187,352
1,632,365
(78,823)
31,740,894
47,080
(426,891)

31,361,083
5,947,203
5,886,118

Oil and gas asset have not been used since 31 July 2011 and would be used as soon as the associated facilities required for
production is secured.

15. Intangible assets – exploration

Costs and net book value
At 1 January 2011
Additions
Reversal of charges
Unsuccessful exploration costs

At 1 January 2012
Additions
Unsuccessful exploration cost

At 31 December 2012

India
US$

85,126,921
6,503,223
(6,495,922)
(3,432,734)

81,701,488
1,475,779
(5,358,471)

77,818,796

In March 2009, Hardy were informed by the Government of India that the block CY-OS/2, in which Hardy holds a 75 per cent
participating interest, was relinquished as Hardy had failed to declare commerciality within the two years from the date of discovery
which is applicable to an oil discovery. Hardy disputed this ruling believing that the discovery was a gas discovery and consequently
that it was entitled to a period of five years from the date of discovery to declare commerciality. As no agreement was reached the
dispute was referred to arbitration under the terms of the PSC.

The arbitrators ruled on 2 February 2013 that the discovery was a gas discovery and consequently that the order for the
relinquishment of the block was illegal. The arbitrators have ordered the Government of India to restore the block to Hardy and its
partners and to allow them a period of three years from the date of restoration to complete the appraisal programme. In addition, the
arbitrators awarded costs of $0.2 million and interest on the exploration expenditure incurred to date. Hardy’s 75 per cent share of the
interest awarded is approximately $24.6 million. As the award was only received in February 2013 and as the Government of India has
not yet indicated to Hardy the acceptance of the arbitration award, the above amounts will be accounted for when their receipt is
virtually certain and therefore it is currently treated as a contingent asset.

Hardy Oil and Gas plc Annual Report and Accounts 2012
15. Intangible assets – exploration continued
The details of the intangible assets stated above are as follows:

Exploration expenditure – block CY-OS/2
Exploration expenditure – block KG-DWN-2003/1 (D3)
Exploration expenditure – block GS-OSN

Total

16. Intangible assets – others

Cost
At 1 January 2011
Additions
At 1 January 2012
Additions

At 31 December 2012

Accumulated depreciation

At 1 January 2011
Charge for the year
At 1 January 2012
Charge for the year

At 31 December 2012

Net book value as at 31 December 2012

Net book value as at 31 December 2011

US$

51,023,493
21,746,583
5,048,720

77,818,796

US$

508,728
–
508,728
–

508,728

492,289
6,059
498,348
5,844

504,192

4,536

10,380

Intangible assets – others represent the cost of software used for geological and geophysical studies and other software for normal
business operations.

17. Members of the Group
The Group comprises the parent company – Hardy Oil and Gas plc – and the wholly owned subsidiary Hardy Exploration & Production
(India) Inc. which is incorporated under the Laws of State of Delaware, United States of America. The members of the Group are
engaged in the business of exploration and production of oil and gas and all are included in the consolidated financial statements.

18. Inventory

Drilling and production stores and spares

19. Trade and other receivables

Other receivables
Prepayments and accrued income

20. Short-term investments

HSBC US$ Liquidity Fund Class-A
HSBC £ Liquidity Fund Class-A

2012
US$

2011
US$

2,024,502

2,068,524

2,024,502

2,068,524

2012
US$

2011
US$

1,024,510
386,466
1,410,976

1,080,222
49,650
1,129,872

2012
US$

2011
US$

25,999,256
33,551

27,505,453
2,188,515

26,032,807

29,693,968

The above investments are in liquid funds which can be converted into cash at short notice. Book value of these investments
approximates fair values.

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial StatementNotes to the Consolidated Financial Statements continuedFor the year ended 31 December 201221. Share capital

Authorised Ordinary Shares
At 1 January 2012
At 31 December 2012

Allotted, issued and fully paid Ordinary Shares
At 1 January 2011
Share options exercised during the year
Restricted shares issued during the year
Shares issued during the year

At 1 January 2012
Share options exercised during the year
Restricted shares issued during the year

At 31 December 2012

Overview
Business Review
Governance
Financial Statement
Company Information

Number
$0.01
Ordinary
Shares

US$

200,000,000
200,000,000

2,000,000
2,000,000

71,922,533
25,000
21,971
815,700

72,785,204
10,000
237,502

73,032,706

719,225
250
220
8,157

727,852
100
2,375

730,327

Ordinary Shares issued have equal voting and other rights with no guarantee to dividend or other payments.

22. Reserves
Hardy holds the following reserves, in addition to share capital and retained earnings:

Share premium account
The share premium account is the additional amount over and above the nominal share capital that is received for shares issued less
any share issue costs.

Shares to be issued
The shares to be issued represent the fair value of share options issued to Directors and employees.

23. Provision for decommissioning

At 1 January 2011

Change in decommissioning estimate

At 1 January 2012
Change in decommissioning estimate

At 31 December 2012

US$

4,500,000

315,000

4,815,000
337,050

5,152,050

The provision has been made by estimating the decommissioning cost at the current prices using existing technology. The inflation at
5.6 per cent and discount rates at 4.75 per cent applied have been based on suitable current market information. Decommissioning
costs are expected to be incurred between 2020 and 2025.

An amount of Rs.218,424,223 (US$3,970,628) has been deposited with State Bank of India for site restoration obligations.
This amount has been treated as a non-current asset as this deposit has end use restriction for site restoration.

24. Trade and other payables

Trade payables
Other payables
Accruals

2012
US$

2011
US$

4,889,918
179,782
1,002,311

4,606,945
259,671
1,235,047

6,072,011

6,101,663

Trade and other payable are unsecured, payable on demand and are outstanding for a period of less than 12 months. Trade payables,
other payables and accruals are all expected to be settled within normal credit terms.

Hardy Oil and Gas plc Annual Report and Accounts 201225. Financial risk management
Hardy finances its operations through a mixture of equity and retained earnings. Finance requirements are reviewed by the Board
when funds are required for acquisition, exploration and development of projects.

Hardy’s policy is to maintain a strong financial position to sustain future development of the business. There were no changes to
the Group’s capital management approach during the year.

Hardy’s treasury functions are responsible for managing fund requirements and investments which include banking, cash flow
management, interest and foreign exchange exposure to ensure adequate liquidity at all times to meet cash requirements.

Hardy’s principal financial instruments are cash, deposits and short-term investments and these instruments are only for the purpose
of meeting its requirement for operations.

Hardy’s main financial risks are foreign currency risk, liquidity risk, commodity price risk and credit risks. Set out below are policies that
are used to manage such risks:

Foreign currency risk
The Group reports in US dollars and the majority of its business is conducted in US dollars. All revenues from oil sales are received in
US dollars and all costs except a portion towards expenses for overheads are incurred in US dollars. For currency exposure other than
US dollars, a portion of the cash is kept on deposit in other currencies to meet its payments as required. No forward exchange
contracts were entered into during the year.

Liquidity risk
The Group currently has surplus cash which has been placed in deposits and short-term investments which can be converted into
cash at short notice, ensuring sufficient liquidity to meet the Group’s expenditure requirements. Hardy has no outstanding loan
obligations at year end dates.

Interest rate risk
Surplus funds are placed in deposits and short-term investments at fixed or floating rates. Hardy’s policy is to place deposits only
with well established banks or financial institutions that offer the competitive interest rates and ensure security of capital at the time
of issue.

Commodity price risks
The Group’s share of production of crude oil from PY-3 field is sold to the Government of India’s nominee Chennai Petroleum
Corporation Limited. The sale price is arrived at based on an average price for the 30 days period commencing 15 days before
and ending 15 days after the delivery of crude oil. No commodity price hedging contracts have been entered into by the Group.

Credit risk
All Hardy’s sales are to Chennai Petroleum Corporation Limited, a state oil company in India. As it is the Government of India nominee
for the purchase of crude oil, the credit risk is negligible.

Deposits and other money market instruments, as a general rule, are placed with banks and financial institutions that have ratings
of not less than AA or equivalent, which are verified before placing the deposits. Cash surpluses are also invested in short-term
investments in certain liquid funds. These funds are primarily invested in terms deposits and graded commercial papers of not less
than AA or equivalent.

The Board will continue to assess the strategies for managing credit risk and is satisfied with the existing policies for sale of crude oil
to Chennai Petroleum Corporation Limited. At year end, the Group did not have any bad debt risk. The maximum financial risk
exposure relating to the financial assets is the carrying value of such financed assets as on the year end date.

Capital management
The objective of the Group’s capital management is to ensure that there is sufficient liquidity within the Group to carry out the
committed work programme requirements of all its production sharing contracts. The Group monitors the long-term cash flow
requirements of the business in order to assess the requirement for changes to the capital structure to meet that objective and to
maintain flexibility. The Group considers its capital to consist of share capital only.

The Board manages the structure of the capital and makes necessary adjustments to accommodate the changes in the economic
conditions. To maintain or adjust the capital structure, the Board may issue new shares for cash, repay debit if any, put in place new
debt facilities or such other restructuring as appropriate. No significant changes were made in the objectives, policies or processes
during the year ended 31 December 2012.

25. Financial risk management continued
Maturity of non-current financial liabilities
The maturity of non-current financial liabilities as at 31 December 2012 and 31 December 2011 is as follows:

In more than two years but not more than five years

In more than five years

2012
US$

–

2011
US$

–

5,152,050

4,815,000

The Group does not have any fixed maturity or interest bearing financial liabilities as at 31 December 2012 or 31 December 2011.

Interest rate risk profile of financial assets
The interest rate risk profile of the financial assets of the Group as at 31 December 2012 is as follows:

US dollar
Pound sterling
Indian rupee
Cash and cash equivalents

Fixed rate
financial asset
US$

Floating rate
financial asset
US$

–
–
1,836,567
1,836,567

763,901
210
–
764,111

Financial asset
– no interest is
earned
US$

325,937
31,809
93,726
451,472

Total
US$

1,089,838
32,019
1,930,293
3,052,150

An amount of Rs.218,424,223 (US$3,970,628) deposited with State Bank of India for site restoration obligation is treated as a
non-current asset. The interest rate of this deposit is based on the highest rate of interest as applicable for the period paid by the State
Bank of India.

Interest income will increase or decrease by US$26,007 for every one per cent change in interest rate. Financial assets include cash
and deposits and the floating interest rates are based on market rates.

The interest rate risk profile of the financial assets of the Group as at 31 December 2011 is as follows:

US dollar
Pound sterling
Indian rupee
Cash and cash equivalents

Fixed rate
financial asset
US$

5,000,000
–
760,696
5,760,696

Floating rate
financial asset
US$

794,958
219
–
795,177

Financial asset
– no interest is
earned
US$

35,584
85,429
127,132
248,145

Total
US$

5,830,542
85,648
887,828
6,804,018

An amount of Rs.198,984,770 (US$3,737,505) deposited with State Bank of India for site restoration obligation is treated as a
non-current asset. The interest rate of this deposit is based on the highest rate of interest as applicable for the period paid by the State
Bank of India.

Interest income will increase or decrease by US$65,559 for every one per cent change in interest rate. Financial assets include cash
and deposits and the floating interest rates are based on market rates.

Currency exposures
The currency exposures of the monetary assets denominated in currencies other than US dollars of the Group as at 31 December
2012 are as follows:

US$

Indian rupees
US$

Pound sterling
US$

Total
US$

5,900,921

65,570

5,966,491

An amount of US$135,749 was recognised as foreign exchange loss on account of exchange rate fluctuations on bank balances and
investments made in currencies other than US dollars for the year 2012.

Exchange gain will increase by US$60,261 for every one per cent appreciation of Indian rupee and sterling and loss of US$59,081
for every one per cent depreciation of Indian rupee and sterling.

Hardy Oil and Gas plc Annual Report and Accounts 201225. Financial risk management continued
The currency exposures of the foreign currency monetary assets denominated in currencies other than US dollars of the Group as at
31 December 2011 are as follows:

US$

Indian rupees
US$

Pound sterling
US$

Total
US$

4,625,333

2,274,163

6,899,496

An amount of US$912,321 was recognised as foreign exchange loss on account of exchange rate fluctuations on bank balances and
investments made in currencies other than US dollars for the year 2011.

Exchange gain will increase by US$45,737 for every one per cent appreciation of Indian rupee and sterling and a loss of US$46,662
for every one per cent depreciation of Indian rupee and sterling.

26. Financial instruments
Book values and fair values of Hardy’s financial assets and liabilities are as follows:

Financial assets

Primary financial instruments

Short-term investments
Cash and short-term deposits
Trade and other receivables
Site restoration deposit

Financial liabilities

Primary financial instruments

Accounts payable
Provisions for decommissioning

Book value 2012
US$

Fair value 2012
US$

Book value 2011
US$

Fair value 2011
US$

26,032,807
3,052,150
1,410,976
3,970,628

29,693,968
6,804,018
1,129,872
3,737,505

34,466,561

41,365,363

Book value 2012
US$

Fair value 2012
US$

Book value 2011
US$

Fair value 2011
US$

(6,072,011)
(5,152,050)

(6,101,663)
(4,815,000)

(11,224,061)

(10,916,663)

All of the above financial assets and liabilities are current at the year end dates.

27. Capital commitments

Oil and gas expenditure

28. Pension commitments
The Group has no pension commitments as at the year end date.

2012
US$

–

2011
US$

–

29. Other financial commitments under operating leases
The Group entities have entered into commercial leases for land and building and office equipment. These leases have an average life
of one to five years and there are no restrictions placed on the lessee by entering into these leases. The minimum future lease
payments for the non-cancellable operating leases are as follows:

Land and buildings:
One year
Two to five years
After five years
Other:
One year
Two to five years
After five years

2012
US$

2011
US$

110,595
71,348
–

11,158
18,937
–

168,584
–
–

2,617
–
–

30. Contingent liabilities
Bank guarantees for US$1,693,545 have been issued to Government of India. The guarantees were obtained by placing a fixed
deposit of Rs.101,029,531 (US$1,836,567) in the bank with the interest rate of nine per cent.

The Group issues guarantees in respect of obligations under various Production Sharing Contracts (PSC) in the normal course of
business. The Group has provided the guarantees for US$1,693,545 as at 31 December 2012 issued under a facility with a bank for
the Group’s share of minimum work programme commitments for the year to 31 March 2013. The details of the bank guarantees
provided are as follows:

PSC

KG-DWN-2003/1

Guarantee Number

US$

ILG011/42465/07

1,693,545

In addition, the parent company guarantees the Group’s obligation under various PSCs to the Government of India. The guarantees
are deemed to have negligible fair value and are therefore accounted for as contingent liabilities.

31. Related party transactions
The aggregate remuneration of Directors and the key management personnel, including its subsidiary undertaking, of the Group is
as follows:

Short-term employee benefits
Share-based payments

2012
US$

2011
US$

1,342,576
443,918
1,786,494

1,759,491
204,806
1,964,297

Key management personnel include the Directors and the executive officers of the Group as set out in the overview of the Board
of Directors in the Business Review. Further information about the remuneration of individual Directors is provided in the Directors’
Remuneration Report which forms part of the Group’s 2012 Annual Report.

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Parent Company Statement of Changes in Equity
For the year ended 31 December 2012

At 1 January 2011

719,225

117,940,279

5,596,421

7,589,016

131,844,941

Share capital
US$

Share premium
US$

Shares to be issued
US$

Retained earnings
US$

Total
US$

Changes in equity for the year 2011
Total comprehensive loss for the year
Share-based payment
Share option exercised
Restricted shares issued
Issue of share capital

–
–
250
220
8,157

–
48,196
57,979
59,861
1,889,769

–
(1,339,895)
–
–
–

(565,384)
–
–
–
–

(565,384)
(1,291,699)
58,229
60,081
1,897,926

At 31 December 2011

727,852

119,996,084

4,256,526

7,023,632

132,004,094

Changes in equity for the year 2012
Total comprehensive loss for the year
Share-based payment
Share option exercised
Restricted shares issued

–
–
100
2,375

–
5,654
22,600
587,613

–
342,219
–
–

(1,911,270)
415,566
–
–

(1,911,270)
763,439
22,700
589,988

At 31 December 2012

730,327

120,611,951

4,598,745

5,527,928

131,468,951

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Parent Company Statement of Financial Position
For the year ended 31 December 2012

Assets
Non-current assets
Property, plant and equipment
Intangible assets – others
Investments

Total non-current assets
Current assets
Trade and other receivables
Short-term investments
Cash and cash equivalents

Total current assets

Total assets

Equity and liabilities
Equity attributable to the owners
Equity
Called-up share capital
Share premium
Shares to be issued
Retained earnings

Total equity
Non-current liabilities
Provision for deferred tax

Current liabilities
Trade and other payables

Total liabilities

Total equity and liabilities

Approved and authorised for issue by the Board of Directors on 6 March 2013.

Overview
Business Review
Governance
Financial Statement
Company Information

Notes

2012
US$

2011
US$

9
10
11

12
13
17

96,381
–
106,612,089

23,312
–
99,695,643

106,708,470

99,718,955

470,121
26,032,807
271,065

62,272
29,693,968
5,098,350

26,773,993

34,854,590

133,482,463

134,573,545

730,327
120,611,951
4,598,745
5,527,928

727,852
119,996,084
4,256,526
7,023,632

131,468,951

132,004,094

1,793,121

2,414,096

220,391

155,355

2,013,512

2,569,451

133,482,463

134,573,545

Hardy Oil and Gas plc Annual Report and Accounts 2012
Financial Statement
Parent Company Statement of Cash Flows
For the year ended 31 December 2012

Operating activities
Cash flow (used in) operating activities

Tax refund

Net cash (used in) operating activities
Investing activities
Purchase of other property, plant and equipment
Short-term investments

Net cash (used in) from investing activities
Financing activities
Interest and investment income
Inter-corporate loan
Issue of shares

Net cash (used in) from financing activities
Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the year

Cash and cash equivalent at the end of the year

Notes

2012
US$

2011
US$

(2,994,271)

(2,484,496)

180,912

–

(2,813,359)

(2,484,496)

(108,165)
3,661,161

(4,044)
(1,544,472)

3,552,996

(1,548,516)

1,229,552
(6,819,174)
22,700

(5,566,922)
(4,827,285)

1,192,860
587,047
2,016,236

3,796,143
(236,869)

5,098,350

5,335,219

271,065

5,098,350

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Notes to the Parent Company Financial Statements
For the year ended 31 December 2012

1. Accounting policies
The company follows the accounting policies of the Group.

2. Revenue

Overhead recovery
Management fees from subsidiary

Overview
Business Review
Governance
Financial Statement
Company Information

2012
US$

–
–
–

2011
US$

169,451
180,000
349,451

The Directors do not consider there to be more than one class of business or geographic segment for the purposes of reporting.
The Company operates in one geographical area, the United Kingdom, and the Company’s activity is one class of business as holding
company for the Group.

3. Statement of comprehensive income
The Company has taken advantage of the exemption provided under section 3 of the Isle of Man Companies Act 1982 not to publish
its statement of comprehensive income and related notes. The Company’s loss for the year was US$1,191,225 (2011: US$565,384).

4. Reconciliation of operating loss to operating cash flows

Operating loss
Depreciation
Share-based payments

(Increase)/decrease in trade and other receivables
(Increase)/decrease in trade and other payables

Cash flow (used in) operating activities

5. Staff costs

Wages and salaries
Social security costs
Share-based payments

2012
US$

2011
US$

(3,928,445)
35,096
875,192

(1,776,722)
29,199
(994,571)

(3,018,157)

(2,742,094)

(41,150)
65,036

369,533
(111,935)

(2,994,271)

(2,484,496)

2012
US$

2011
US$

1,313,786
172,131
321,982

1,807,899

1,347,594
155,140
(1,016,850)

485,884

Staff costs include Executive Directors’ salaries, fees, benefits and share-based payments. The Company has no pension
commitments as at the year end dates.

The weighted average monthly number of employees, including Executive Directors and individuals employed by the Company, are
as follows:

Management and administration

6. Share-based payments
Share-based payments are disclosed in note 8 to the consolidated financial statements.

2012

2011

7. Audit fees
Audit fees payable to the Company’s auditors for the audit of the parent company financial statements for the year 2012 is US$10,000
(2011: US$10,000).

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Notes to the Parent Company Financial Statements continued
For the year ended 31 December 2012

8. Interest and investment income

Bank interest
Interest on inter-corporate loan
Other interest
Dividend

9. Property, plant and equipment

Cost
At 1 January 2011

Additions

At 1 January 2012
Additions

Deletion

At 31 December 2012

Depreciation
At 1 January 2011
Charge for the year

At 1 January 2012

Charge for the year

Deletion

At 31 December 2012

Net book value at 31 December 2012

Net book value at 31 December 2011

10. Intangible assets – others

Cost
At 1 January 2011

At 1 January 2012

At 31 December 2012

Accumulated depreciation
At 1 January 2011
Charge for the period

At 1 January 2012
Charge for the period

At 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011

2012
US$

2011
US$

2,348
1,121,145
41,669
50,126

45,523
1,119,894
–
35,846

1,215,288

1,198,263

Total
US$

368,334

4,044

372,378
108,165

(266,766)

213,777

319,867
29,199

349,066

35,096

(266,766)

117,396

96,381

23,312

Total
US$

131,250

131,250
–

131,250
–
–

Intangible assets represent the software used for office automation and other business applications of the Group.

Hardy Oil and Gas plc Annual Report and Accounts 201211. Investment

Carrying value at 1 January 2011
Additional investment during the year

Carrying value at 1 January 2012
Additional investment during the year

Carrying value at 31 December 2012

Overview
Business Review
Governance
Financial Statement
Company Information

Shares in subsidiary
US$

Loan to subsidiary
US$

6,127,788
(274,849)

94,429,751
(587,047)

5,852,939
97,272

93,842,704
6,819,174

5,950,211

100,661,878

Shares in subsidiary represent the investment made as at 31 December 2012 in Hardy Exploration & Production (India) Inc, the wholly
owned subsidiary of Hardy Oil and Gas plc. Full details of this subsidiary are given in note 17 of the consolidated financial statements.

Loan to subsidiary at 31 December 2012 consists of US$100,661,878 to Hardy Exploration & Production (India) Inc. This loan is long
term and is repayable on commercial production of the ongoing exploration projects. Interest on these loans is LIBOR plus one per cent.

12. Trade and other receivables

Other receivables
Prepayments and accrued income
Prepaid expenses – share-based payments

13. Short-term investments

HSBC US$ Liquidity Fund Class-A
HSBC £ Liquidity Fund Class-A

2012
US$

89,158
–
380,963

470,121

2011
US$

48,008
14,264
–

62,272

2012
US$

2011
US$

25,999,256
33,551

27,505,453
2,188,515

26,032,807

29,693,968

The above investments are in liquid funds which can be converted into cash at short notice. Fair value of these investments
approximates book values as at 31 December 2012 and 2011.

14. Share capital

Authorised Ordinary Shares
At 1 January 2011
At 1 January 2012
At 31 December 2012

Allotted, issued and fully paid Ordinary Shares
At January 2011
Share options exercised during the year
Restricted shares issued
Shares issued during the year

At 1 January 2012
Share options exercised during the year
Restricted shares issued

At 31 December 2012

Number $0.01
Ordinary Shares
‘000

US$

200,000
200,000
200,000

2,000,000
2,000,000
2,000,000

71,922,533
25,000
21,971
815,700

72,785,204
10,000
237,502

73,032,706

719,225
250
220
8,157

727,852
100
2,375

730,327

Ordinary Shares issued have equal voting and other rights with no guarantee to dividend or other payments.

Hardy Oil and Gas plc Annual Report and Accounts 2012Financial Statement
Notes to the Parent Company Financial Statements continued
For the year ended 31 December 2012

15. Deferred taxation
Deferred tax analysis:

Differences between accumulated depreciation and capital allowances
Other temporary differences
Group relief availed

Deferred tax (liability)

16. Trade and other payables

Trade payables
Accruals

2012
US$

2011
US$

55,214
802,555
(2,650,890)

57,391
1,187,956
(3,659,443)

(1,793,121)

(2,414,096)

2012
US$

155,719
64,672

220,391

2011
US$

92,200
63,155

155,355

17. Financial risk management
The Company follows the risk management policy stipulated in note 25 to the consolidated financial statements.

Interest rate risk profile of financial assets
The interest rate risk profile of the financial assets of the Company as at 31 December 2012 is as follows:

US dollar
Pound sterling

Cash and cash equivalents

Fixed rate
financial asset
US$

Floating rate
financial asset
US$

–
–

–

–
210

210

Financial asset
– no interest is
earned
US$

243,710
27,145

270,855

Total
US$

243,710
27,355

271,065

Financial assets include cash and deposits and the floating interest rates are based on the base rate of the relevant central bank.

The interest rate risk profile of the financial assets of the Company as at 31 December 2011 is as follows:

US dollar
Pound sterling
Cash and cash equivalents

Fixed rate
financial asset
US$

5,000,000
–
5,000,000

Floating rate
financial asset
US$

Financial asset
– no interest is
earned
US$

Total
US$

–
219
219

18,547
79,584
98,131

5,018,547
79,803
5,098,350

Financial assets include cash and deposits and the floating interest rates are based on the base rate of the relevant central bank.

Currency exposures
The currency exposures of the monetary assets denominated in currencies other than US dollars of the Company are as follows:

US$

Pound sterling in equivalent
US$

2012

2011

60,906

2,268,318

Foreign exchange gain recognised on account of exchange rate for the year 2012 is US$49,057 (2011: Loss US$4,637).

Hardy Oil and Gas plc Annual Report and Accounts 2012Overview
Business Review
Governance
Financial Statement
Company Information

18. Financial instruments
Book values and fair values of the Company’s financial assets and liabilities are as follows:

Financial assets

Primary financial instruments

Short-term investments
Cash and short-term deposits
Trade and other receivables

Book value 2012
US$

Fair value 2012
US$

Book value 2011
US$

Fair value 2011
US$

26,032,807
271,055
470,121

29,693,968
5,098,350
62,272

26,773,993

34,854,590

All of the above financial assets are current and unimpaired as at the year end date.

Financial liabilities

Primary financial instruments

Accounts payable

Book value 2012
US$

Fair value 2012
US$

Book value 2011
US$

Fair value 2011
US$

(220,391)

(155,355)

All of the above financial liabilities are current as at the year end date.

19. Other financial commitments under operating leases
The Company has entered into commercial leases for land and building and office equipment. These leases have an average life of
one to five years and there are no restrictions placed on the lessee by entering into these leases. The minimum future lease payments
for the non-cancellable operating leases are as follows:

Land and buildings
One year
Two to five years

2012
US$

2011
US$

43,654
71,348

70,199
–

20. Related party transactions
a) The Company’s wholly owned subsidiary is Hardy Exploration & Production (India) Inc. The following table provides the details of
balances outstanding with subsidiary companies at year end dates:

Amount owned from subsidiary undertakings

2012
US$

2011
US$

100,661,878

93,842,704

b) The following table provides the details of the transactions with subsidiary companies all of which were carried out at an arm’s
length basis:

Parent company fees to joint venture operations of subsidiary
Management fees
Inter-company interest income

The interest income is based on market rates.

2012
US$

2011
US$

–
–
1,121,145

169,451
180,000
1,119,894

Hardy Oil and Gas plc Annual Report and Accounts 2012Notes

Overview
Business Review
Governance
Financial Statement
Company Information

Hardy Oil and Gas plc Annual Report and Accounts 2012Company Information
Reserves and Resources

Due to limited drilling activity in 2012 and the uncertainty surrounding the recommencement of production in the PY-3 asset, the
Company has taken the decision to postpone the updating of a competent person’s report (CPR) until further data is acquired.
The estimates provided in the Company’s 2011 CPR are provided below.

Reserves (Proven + Probable)
Net PY-3 oil production from 31 December 2010 to 31 December 2012 was 129 MBbl.

RESERVES (Proven + Probable)1

PY-32

Total Reserves (Proven + Probable)

Producing

Oil

MMBbl

31 December 2010

Gross

15.1

Net 4

2.1

Notes:
1. The GCA has used the Petroleum Resources Management System published by the Society of Petroleum Engineers, World Petroleum Council, American Association of Petroleum

Geologists and Society of Petroleum Evaluation Engineers in March 2007 (SPE PRMS) as the basis for its classification and categorisation of hydrocarbon volumes.

2. On 19 April 2007, the PY-3 joint venture management committee had approved gross expected ultimate 2P oil Reserves of 44.4 MMBbl. As of 31 December 2010 the field had

produced 24.1 MMBbl giving 2P oil Reserves of 20.3 MMBbl, about 5 MMBbl higher than the 2P estimate by GCA.

3. The Company has filed the GCA Competent Persons Report (March 2011) with the Directorate General of Hydrocarbons, of the Ministry of Petroleum and Natural Gas, of the

Government of India (DGH).

4. Net entitlement reserves are reserves based on Hardy’s entitlement of cost oil plus a share of profit oil.

Contingent Resources (2c)
Net 2C gas Contingent Resources are 175 BCF.

CONTINGENT RESOURCES (2C)1

GS-01

CY-OS/2 2, 3

GS-01

Total Contingent Resources1 (2C)

B1 (Dhirubhai 33)

Ganesha 1

A1 (Dhirubhai 39)

B1 (Dhirubhai 41)

R1 (Dhirubhai 44)

W1 (Dhirubhai 52)

B1 (Dhirubhai 33)

Gas

Oil

Gas

Oil

BCF

MMBbl

BCF

MMBbl

31 December 2010

Gross

83.0

130.0

210.0

213.0

98.0

162.4

1.85

896.4

1.85

Net

8.3

97.5

21.0

21.3

9.8

16.2

0.19

174.1

0.19

Notes
1. GCA has used the Petroleum Resources Management System published by the Society of Petroleum Engineers, World Petroleum Council, American Association of Petroleum

Geologists and Society of Petroleum Evaluation Engineers in March 2007 (SPE PRMS) as the basis for its classification and categorisation of hydrocarbon volumes.

2. With respect to Ganesha-1 (CY-OS/2) non-associated natural gas discovery, in 2010 the Group formally commenced arbitration proceedings pursuant to dispute resolution

provisions of the governing PSC regarding a licence extension request.

3. In the event of a commercial development of a discovery, ONGC has the option to back-into the CY-OS/2 licence at an interest of 30 per cent.

Hardy Oil and Gas plc Annual Report and Accounts 2012

Prospective Resources
Net Best Estimate Risked Prospective Resources are 494 BCF

Risked Prospective Resources (Best Estimate)1, 2

CY-OS/2 3, 4

GS-01

Prospects

Gas

Prospects and Leads Gas

Total Risked Prospective Resources (Best Estimate)1, 2

Gas

BCF

Overview
Business Review
Governance
Financial Statement
Company Information

31 December 2010

Gross

113

142

3,959

4,214

Net

396

494

Notes:
1. Aggregated risked Prospective Resources have been derived by Hardy and are not aggregated or provided as risked volumes by GCA.
2. The GCA has used the Petroleum Resources Management System published by the Society of Petroleum Engineers, World Petroleum Council, American Association of Petroleum

Geologists and Society of Petroleum Evaluation Engineers in March 2007 (SPE PRMS) as the basis for its classification and categorisation of hydrocarbon volumes.

3. With respect to Ganesha-1 (CY-OS/2) non-associated natural gas discovery, in 2010 the Group formally commenced arbitration proceedings pursuant to dispute resolution

provisions of the governing PSC regarding a licence extension request.

4. In the event of a commercial development of a discovery, ONGC has the option to back-into the CY-OS/2 licence at an interest of 30 per cent.

Hardy Oil and Gas plc Annual Report and Accounts 2012barrel
barrel per day
The Board of Directors of Hardy Oil and Gas plc
BP plc
Hardy’s Code of Business Conduct adopted January 2013
Hardy Oil and Gas plc
Chennai Petroleum Company Limited, formerly known as Madras Refinery Limited
Competent persons report
Licence KG-DWN-2003/1 awarded in NELP V
Licence KG-DWN-2001/1 awarded in NELP III
Directorate General of Hydrocarbons
Gas discovery on GS-01-B1 well
Gas discovery on KGV-D3-A1 well
Gas discovery on KGV-D3-B1 well
Gas discovery on KGV-D3-R1 well
Field development plan
Floating Production Unit
Floating storage and offloading vessel
Gas Authority of India Limited
Gas discovery on Fan-A1 well located in CY-OS/2
Gaffney, Cline & Associates Ltd
The Company and its subsidiaries
Licence GS-OSN-2000/1 awarded under NELP II
Hardy Oil and Gas plc
Hardy Exploration & Production (India) Inc.
Hardy Oil (Africa) Limited
Hindustan Oil Exploration Company Limited
Hardy Oil Nigeria Limited
Health, safety and environment
International Financial Reporting Standards
Initial public offering
Krishna Godavari sedimentary basin comprising an area on the south east India continental shelf
London Stock Exchange plc
Lost time accident
Official List of the London Stock Exchange’s market for listed securities
As per India PSCs the Management Committee comprises representatives of each participating
interest holder, DGH and the Ministry of Petroleum and Natural Gas of India
Ministry of Petroleum and Natural Gas
New Exploration Licensing Policy of the Ministry of Petroleum and Natural Gas of India
Oil and Natural Gas Corporation Limited
As per India PSCs the Operating Committee comprises representatives of the various
participating interest holders in the licence
The Ordinary Share of US$0.01 each in the capital of the Company
Offshore Support Vessel
Production sharing contract
Licence CY-OS-90/1
Reliance Industries Limited
United Kingdom
UK Code of Conduct 2010
United States of America

bbl:
bbld:
Board:
BP:
the Code:
the Company:
CPCL:
CPR:
D3:
D9:
DGH:
Dhirubhai 33:
Dhirubhai 39:
Dhirubhai 41:
Dhirubhai 44:
FDP:
FPU:
FSO:
GAIL:
Ganesha:
GCA:
the Group:
GS-01:
Hardy:
HEPI:
HOA:
HOEC:
HON:
HSE:
IFRS:
IPO:
KG Basin:
London Stock Exchange:
LTA:
Main Market:
Management Committee:

MOPNG:
NELP:
ONGC:
Operating Committee:

Ordinary Share:
OSV:
PSC:
PY-3:
Reliance:
UK:
The UK Code:
US:

Hardy Oil and Gas plc Annual Report and Accounts 2012Company InformationDefinitions and Glossary of TermsOverview
Business Review
Governance
Financial Statement
Company Information

$:
2D/3D:
2P:
API°:
AVO:
bcf:
BOP:
bwpd:
Contingent Resources:

Prospective Resources:

DOC:
DST:
JOA:
km:
km2:
lkm:
m:
MDT:
mmcfd:
mmcmd:
mmbbl:
MWP:
NANG:
PSDM:
psi:
scf:
scfd:
TCF:
TVD:
TVDRT:

United States dollars
Two dimensional/three dimensional
Proven plus probable
American Petroleum Institute gravity
Amplitude variations with offset
billion cubic feet
Blow-out preventer
Barrels of water per day
Those quantities of petroleum estimates, as of a given date, to be potentially recoverable from
known accumulations by application of development projects, but which are not currently
considered to be commercially recoverable due to one or more contingencies
Those quantities of petroleum which are estimated, on a given date, to be potentially recoverable
from undiscovered accumulations
declaration of commerciality
Drill stem test
joint operating agreement
Kilometre
Kilometre squared
Line kilometre
Metre
Modular formation dynamics tester
Million standard cubic feet per day
Million standard cubic metres per day
Million stock tank barrels per day
minimum work programme
non-associated natural gas
Pre-stack depth migration
Pounds per square inch
Standard cubic feet
Standard cubic feet per day
Trillion cubic feet
Total vertical depth
Total vertical depth from rotary table

Hardy Oil and Gas plc Annual Report and Accounts 2012Company Information
Directors and Advisors

Hardy Oil and Gas plc
16 North Silver Street
Aberdeen AB10 1RL
Tel: +44 (0) 12 2461 2900
Fax: +44 (0) 12 2463 3995
Email: ir@hardyoil.com
Website: www.hardyoil.com

Board of Directors
Alasdair Locke (Chairman)
Ian MacKenzie (Chief Executive Officer)
Peter Milne (Senior Non-Executive)
Pradip Shah (Non-Executive)
Yogeshwar Sharma (Non-Executive)

Executive Officers
Ramasamy Jeevanandam (Chief Financial Officer – HEPI)
Richard Galvin (Treasurer & Corporate Affairs Executive)

Hardy Exploration & Production (India) Inc.
5th Floor, Westminister Building
108, Dr Radhakrishnan Salai
Chennai, India, 600 004
Phone: +91 44 284 71990
Fax: +91 44 284 71064
Email: info@hardyoil.co.in

Directors of HEPI
Ian MacKenzie (President and Chief Executive Officer)
Ramasamy Jeevanandam (Chief Financial Officer)

Broker
Arden Partners plc
125 Old Broad Street
London, EC2N 1AR

Company Secretary
Richard Vanderplank LLB
Registered Office
Fort Anne
Douglas, Isle of Man, IM1 5PD

UK Solicitors
Pinsent Masons LLP
30 Crown Place
Earl Street
London EC2A 4ES

Lawrence Graham LLP
4 More London Riverside
London, SE1 2AU

Isle of Man Legal Advisers
Cains Advocates Limited
Fort Anne
Douglas, Isle of Man, IM1 5PD

Auditors
Crowe Clark Whitehill LLP
St Bride’s House
10 Salisbury Square
London, EC4Y 8EH

Financial PR
Tavistock Communications
131 Finsbury Pavement
London, EC2A 1NT

Principal Bankers
HSBC Holdings Plc
8 Canada Square
London, E14 5HQ

Barclays Bank Plc
54 Lombard Street
London, EC3P 3AH

Registrars
Cains Fiduciaries Limited
Fort Anne
Douglas, Isle of Man, IM1 5PD

CREST Agent
Computershare Investor Services (Channel Islands) Limited
Ordnance House
31 Pier Road, St. Helier
Jersey, JE4 8PW

Hardy Oil and Gas plc Annual Report and Accounts 2012Hardy Oil and Gas plc
16 North Silver Street
Aberdeen
AB10 1RL