Hardy Oil & Gas PLC Annual Report 2016

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FY2016 Annual Report · Hardy Oil & Gas PLC

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Cooperation
Progress
Value

Hardy Oil and Gas plc
Annual Report and Accounts
FY2016

Who we are

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 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.

Index of contents

Strategic Report

Summary FY2016
Chairman’s Statement
Chief Executive Officer’s Review
Market Overview
Business Model
Key Performance Indicators
Operations
Financial Review
Principal Risks and Uncertainties
Corporate Responsibility Summary
Board of Directors
Management Committee

Governance

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

Financial Statements

Independent Auditor’s 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

Additional Information

Reserve and Resources
Asset Description
Definitions and Glossary of Terms
Directors and Advisors

01
02
04
06
08
10
12
16
18
20
22
23

24
30
34
43
45

52
53

73
74

80
81
82
84

Hardy Oil and Gas plc Annual Report and Accounts FY2016“ Our main objectives remain
to secure Key Stakeholders’
approvals and initiate activity
that will take us closer to
realising production from
our portfolio of assets.”

Alasdair Locke
Chairman

Summary FY2016

• PY-3 – A Management Committee meeting was held in June 2015. However,

the minutes of meeting documenting the matters agreed is pending ratification.
Recent GOI (Government of India) fiscal and PSC (Production Service Contract)
policies have not facilitated the uJV’s (Unincorporated Joint Venture) proposed
Full Field Development Project (FFDP). The proposed FFDP remained under
consideration by MOPNG (Ministry of Petroleum and Natural Gas).

• Well monitoring has been proposed to the uJV and the sanctioning of such

activity is pending.

• GS-01 – Resolution of the quantification of liquidated damages associated

with the Unfinished Minimum Work Programme (UMWP) is awaited, the GOI’s
agreement with the uJV’s proposal would facilitate the Company’s plans
going forward.

• CY-OS/2 – The GOI’s appeal of the international arbitration award (the CY-OS/2
Award) was dismissed due to withdrawal by the GOI. The GOI subsequently
filed a second appeal in the Delhi High Court (HC), and the Company’s
execution petition in the same court has been adjourned four times and
most recently (in February 2016) until July 2016.

• To avoid statute of limitation constraints, the Company initiated the process

of having the international award confirmed by a court in the US.

• Financial – Due to the prevailing adverse market conditions the Company
provided for the write-down of the PY-3, GS-01 and deferred tax assets
amounting to $12.9 million resulting in a total comprehensive loss of
$16.8 million.

• Cash and short-term investments at 31 March 2016 amounted to $17.6 million;

Hardy has no debt.

Outlook

• PY-3 – The future of PY-3 is solely dependent on the GOI and its Nominee/

Licensee agreeing to honour the PSC in full. Well monitoring activity has been
proposed and failing the timely adoption of a FFDP and past budgets, planning
for abandonment will be initiated.

• GS-01 – It is expected that the resolution of penalties associated with UMWP
will continue through the remainder of the year. Further capital investment
decision will be dependent upon gas pricing under the GOI’s pricing policies.

• CY-OS/2 – Enforcement of the arbitration award within the Indian judicial

system is our priority.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationChairman’s Statement

Alasdair Locke
Chairman

The Group remains
in a strong financial
position

Introduction
FY2016 did not deliver several of our
primary objectives for the year. Early in
the year we had built a consensus with
stakeholders of the PY-3 field. However, this
was subsequently side-tracked by parties to
this consensus linking unrelated issues and
reneging on commitments. The GOI
demonstrated its intent to take decisions
and move quickly with several key policy
announcements. Policies such as the
marketing and pricing freedom for deep
water and high temperature, high pressure
discoveries, dated 21 March 2016, are a
positive step towards effective free market
pricing of gas. However, the new policies on
levies and extensions of PSCs are unlikely
to be effective in facilitating new investment
and enhancing recovery.

Strategy
The Company’s strategy for its Indian
portfolio remains largely unchanged.
Having considered the low price
environment, we believe that the PY-3 field
offers the earliest opportunity for the Group
to create value within our current portfolio.
Upon a successful conclusion to the
enforcement of the CY-OS/2 Award
process, the Company may be well
positioned to participate in the opportunities
generated as a result of present market
conditions. The practices adopted by the
GOI that have frustrated our efforts to
achieve the timely conclusion of the
enforcement process have been in stark
contrast to Prime Minister Modi’s stated
objectives to improve the “Ease of Doing
Business“ in India and will continue to
compromise our way forward in India if
not changed.

We will, of course, continue our open and
transparent discussion with shareholders
regarding the strategic direction of the
Company.

Market overview
Commodity markets continued to
experience a high level of volatility
throughout the year and into FY2017.
The volatility has been driven by a number
of factors, including the resilience of US
unconventional supply, the Organization
of the Petroleum Exporting Countries’
(OPEC’s) strategy of pursuing market share
over price, the return of Iran to the global
oil market and concerns around global
economic growth. We remain optimistic on
the long-term pricing profile for oil, as future

Hardy Oil and Gas plc Annual Report and Accounts FY2016“ We can achieve
tangible value
creation provided we
have the constructive
collaboration of all
stakeholders.”

I would like to express my thanks to
Hardy’s staff for the hard work and effort
put into the business. Their continued
dedication and enthusiasm, in what are
trying times for Hardy and the industry,
is welcome and appreciated.

Objectives and outlook
We have in place clear plans for all
our assets. Considering the recent
upward trend in commodity prices,
our main objectives remain to secure
key stakeholders’ approvals and initiate
activity that will take us closer to realising
production from our portfolio of assets
for the benefit of our shareholders. The
enforcement of the CY-OS/2 Award would
present new resources to expand our
portfolio. Through the down cycle in
commodity prices we can achieve
tangible value creation provided we
have the constructive collaboration of all
stakeholders of our Indian-based assets.
The actions of our joint arrangement
partners and sovereign authorities will
shape our future in India.

Alasdair Locke
Chairman
8 June 2016

supply should be impacted by the
significant reduction in capital investment
we are observing today. Current market
conditions have resulted in an industry
focus on reducing its cost base which
presents an opportunity to potentially
implement our development plans at
much lower costs.

As a net importer of energy, India has
benefited more than most from the price
collapse. However, recent incremental
rises in energy prices coupled with Prime
Minister Modi’s objective to increase
domestic production and improve energy
security has resulted in more proactive
measures being taken by the GOI.

Performance
As at 31 March 2016, the Company had
over $17.6 million of cash and short-term
investments with no debt. The Group
remains in a strong financial position
from which to either fund its planned work
activity for the Indian asset portfolio or to
implement a change of geographical focus.
The Group maintains robust internal control
and risk management systems appropriate
for a Company of our size and resources.

Governance
The composition of the Board remained
constant throughout the year. Hardy
complies with all aspects of the UK
Corporate Governance Code (the UK Code)
with one exception which is explained later
in the report. Further details of the Board’s
activities this year can be found in the
Corporate Governance section of this
Annual Report. In accordance with
provision C.2.2 of the 2014 revision of the
UK Code, the Directors have assessed the
prospects of the Company over a longer
period than the 12 months required for the
“Going Concern” statement. The Board
conducted this review for a period of three
years to 31 March 2019.

The Group’s near-term principal
risks remain: the timing or execution
of activities may not commence as
forecast and delays may be experienced;
the possible relinquishment of appraisal
acreage; and liabilities related to
ongoing disputes.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationChief Executive Officer’s Review

Ian MacKenzie
Chief Executive Officer

Committed to the
enforcement of the
CY‑OS/2 Award

Introduction
Achieving meaningful progress in India
remained a challenge throughout the year.
We had made good progress with the
PY-3 FFDP early in FY2016 but further
deterioration in oil prices and new GOI
policies side-tracked our momentum with
field stakeholders. More recently we are
encouraged by the improved pace of the
CY-OS/2 legal process in India and the
more broadly renewed impetus of GOI
officials to address specific constraints on
the smaller independents operating in India.

Implementing our strategy
The sustained depression of global
commodity prices and policy changes
in India prompted a reordering of our
strategic priorities. Under current
assumptions the prescribed non free
market gas price environment in India
is not at a level to support the GS-01
development. Our plans for the
recommencement of production in the
PY-3 field remain viable but will likely
require an equitable arrangement between
the GOI and ONGC (Oil and Natural Gas
Corporation Limited – a state owned
company) to be in place for Hardy to
achieve its objectives in a timely manner.
Enforcement of the CY-OS/2 Award
is our primary focus. Successful
implementation of the CY-OS/2 Award
will create a robust platform for Hardy to
opportunistically acquire assets in the
current market environment.

Health, safety and environment (HSE)
As an offshore operator, the Company
is committed to excellent health and safety
practices which are at the forefront in all
of our activities. Although all offshore
activities were suspended in 2012,
our intention to initiate activities in the
future means that we will continue our
commitment to maintain high HSE
standards throughout the organisation.
Our HSE policy stresses leadership and
accountability and our commitment to
HSE, operational integrity and business
ethics will be cornerstones of future
personnel recruitment as well as the
conduct of our business.

Operations
Realising value from our Indian portfolio
remains largely in the hands of the GOI. In
the near term our focus has shifted to the
enforcement of the CY-OS/2 Award.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Outlook
We are committed to achieving the
enforcement of the CY-OS/2 Award. A
successful outcome in this regard will leave
the Company well positioned to participate
in opportunities that the current down cycle
in commodity prices presents. In the interim
we will continue to support the GOI in
achieving our mutual goal to recommence
production from the PY-3 field.

Ian MacKenzie
Chief Executive Officer
8 June 2016

The GOI’s appeal, filed in the Delhi HC,
challenging the Award, continued. There
was some progress with respect to the
dismissal of the appeal by the Hon’able HC
judge but the GOI has subsequently filed a
second appeal petition which has been
heard and the HC Division Bench ruling is
expected later in the year. In our opinion:
• The arbitration award, issued by a

tribunal, comprising of three former
Chief Justices of India, was unanimous
and well reasoned.

• The dispute resolution articles of the
PSC clearly state that an arbitration
award is to be final and binding on all
Parties. Therefore the GOI’s HC appeal
is in contravention of the PSC.
• The HC appeal and the systematic

request for adjournments (13 out of 22
hearings) could be considered an abuse
of the legal process.

More recently we have observed an
improved rate of progress with the HC
Division Bench due to the shortening of the
duration between scheduled hearings.

India is a signatory to the United Nations
Convention on the Recognition and
Enforcement of Foreign Arbitral Awards
1958 (New York Convention). This allows
entities/nation states the right to enforce
foreign arbitral awards in any jurisdiction
which is a signatory to the New York
Convention. Statute of limitation
constraints prompted Hardy to initiate
legal proceedings in early 2016 in the US to
preserve our rights to enforce the CY-OS/2
Award. Our preference remains to conclude
the process within the framework of India’s
judicial system.

The resumption of production from
our PY-3 asset remains a priority.
However, due to new GOI policies relating
to contract extension and levies (Cess
rates), an equitable way forward needs to
be agreed between the GOI and the state
owned company, ONGC, which holds a
40 per cent participating interest in the PY-3
field. We are currently providing all possible
support to these stakeholders to facilitate a
timely conclusion. Should these Parties not
be able to reach an agreement then we will
be required to consider well abandonment
which will result in the stranding of reserves
and a significant loss of direct and indirect
revenue to the GOI.

We remain committed to see through our
plan to acquire a further interest in, and
operatorship of, our GS-01 asset. The
acquisition process is largely dependent
on settlement of payments due to the GOI
relating to UMWP. The GOI current gas
pricing policy currently prescribes a price
of $3.08 per mmbtu which does not
support the proposed development plan
for Dhirubhai 33 that was submitted in
2012. In the event that we can conclude
the acquisition process we will need to
explore alternative development plans or
observe a change in the GOI policy to
allow pricing closer to free market levels.

Financial
The Group is reporting a total
comprehensive loss of $16.7 million for
the 12 months ended 31 March 2016
compared to a loss of $25.0 million for
the 12 months ended 31 March 2015.
The loss is attributable to the write-down
of intangible assets – exploration associated
with GS-01 ($5.0 million), property, plant
and equipment associated with the PY-3 oil
field ($2.8 million) and associated deferred
tax asset ($5.2 million). In FY2015, the
Company’s comprehensive loss was
primarily attributed to a $22.6 million
write-down of intangible assets –
exploration due to the relinquishment of the
D3 exploration licence. During the year the
Company took further steps to reduce our
administrative expenditure, including the
reduction of staff, although total general
and administrative expenditure increased
to $4.0 million. The increase is primarily due
to non-recurring expenditures amounting
to $1.6 million. The Group expects
administrative expenses for FY2017 to
remain at around this level due to legal
expenditures of approximately $1.0 million.

Cash used in operating activities amounted
to $3.7 million for the 12 months ended
31 March 2016 compared to a cash
outflow of $3.5 million for the 12 months
ended 31 March 2015. The Group’s capital
expenditure and investment income was
nominal at $0.3 million. With cash and
short-term investments of $17.6 million as
at 31 March 2016, and no debt, the Group
is well funded to meet its current work
commitments on the Indian asset portfolio.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationMarket Overview

Economic and political overview
The overall global economy continued to
experience volatility but has continued
to show improvement driven by US
Gross Domestic Production (GDP) growth.
European, South American and Asian
economic growth slowed or stagnated.
Global geopolitical tensions continued in
the Middle East and Eastern European
regions. Overall energy demand continues
to grow, albeit at reduced rates.

Oil price – Oil prices continue to show a
high level of volatility ranging from a high of
$60 to below $30 per bbl. Demand growth
remains relatively steady. The Dated Brent
ICE Forward curve suggests prices will
trade between $50 and $60 per bbl for the
foreseeable future.

Industry costs – The sustained fall in
oil prices has resulted in a reduction in
planned capital expenditures and many
development projects being indefinitely
postponed. As a result, the market rates
for services have fallen significantly with
redundancies announced across the
sector. Of note is the materially reduced
daily rate for drillships as the services
sector has reacted to the fall in demand
with significant cost cutting measures.

Natural gas – India’s demand for natural
gas is expected to grow by about 19 per
cent per annum (from 194 mmscmd in
2013 to 466 mmscmd in 2017) to meet the
ever increasing requirements of the power,
fertiliser and other industries. The

Hardy share closing price data

Since April 2015

Compressed Natural Gas (CNG) and
city gas sector are also projected to see
a quantum growth in natural gas use.
Furthermore, it is expected that by 2017,
300 cities will have infrastructure for gas
distribution. Domestic supply by 2017 is
projected to be 231 mmscmd, falling well
short of expected demand.

In 2014, the GOI issued the New Domestic
Natural Gas Guidelines (the Guidelines),
prices benchmarked to Canadian and
Russian market prices. Both of these
countries are net exporters of gas. As a
result, prices are much lower than the
cost of replacement fuels in India. Current
prices are $3.1 per mmbtu based on the
net calorific value (NCV) of the sales gas
and are projected to fall further in the near
term. In its current form the pricing policy
is unlikely to facilitate the significant
investment required to offset the projected
shortfall in supply. The GOI’s recent policies
regarding the auction of Small Discovered
Fields and HELP, which provided for
freedom to market gas, and a more market
aligned benchmark criteria for deep water,
high pressure and temperature discoveries
are possible indications of an intention to
migrate to full marketing freedom.

Equity markets – The upstream oil and
gas sector generally underperformed the
market due in part to the fall in commodity
prices. It is our observation that mainstream
institutional investors’ appetite for mid to
small cap exploration and production
companies has diminished in the past

18 months due to a perception of better
returns in other sectors and to a lesser
extent to poor exploration results. Hardy’s
share price underperformed the market
which was primarily the result of the lack of
identifiable progress in the advancement of
the Company’s stated goals and objectives.

India oversight – The upstream oil
and gas industry’s more coordinated voice
through the AOGO, an oil and gas operator
association, of which Hardy is an active
member, proved effective in FY2016.
The federal government (which was
elected in 2014) implemented several new
policies aimed at providing better clarity to
participants, addressing ongoing disputes
and facilitating new investment in the
sector. Some of the policies may not
have been as constructive as they could
have been and other critical reforms are
pending. However, the GOI’s actions this
past year clearly illustrate its intent to
implement change through timely decision
making and implementation. The GOI’s
continued pursuit of retrospective taxation
claims and an enthusiastic application of
the judicial system are areas of concern
for the industry and Hardy. The continued
frustration of the enforcement of the
CY-OS/2 Award is a particular impediment
to achieving our objectives in India. The
fall in commodity prices has quieted the
energy security narrative and the
overarching targets to reduce import
dependence remain the MOPNG’s
key objectives.

100

-25

-50

-75

-100

A pr 1 5

M ar 1 5

J u n 1 5

J ul 1 5

A u g 1 5

S e p 1 5

O ct 1 5

N o v 1 5

D e c 1 5

J a n 1 6

F e b 1 6

M ar 1 6

Hardy equity

FTSE All Share Index

FTSE 350 – Oil & Gas Producers

Source: London Stock Exchange

Hardy Oil and Gas plc Annual Report and Accounts FY2016Industry specific
• Competitive fiscal platform: PSCs
provide for fiscal stability; full cost
recovery of investment; seven-year tax
holiday on mineral oil; and free market
pricing provisions.

• Domestic upstream technical expertise:
As a result of the success of ONGC
(majority owned by the GOI), there is a
strong community of upstream
technical, operating and commercial
professionals based in India. An
established services industry is present
with some degree of competition.
• Maturing oversight: Experience of

regulator and Ministerial oversight is
improving. Lack of clear mandate
(long-term ultimate recovery of
hydrocarbons vs short-term
maximisation of revenue) has resulted
in inconsistent decision making and
compounded uncertainty.

India has more than 22 million legal
cases pending, 6 million of which have
been stuck in the courts for five years or
longer. This is due, in large part, to a
lack of resources (working judges –
14 per million people compared with
107 in the US).

• Media – The press are free and

independent which provides lively and
diverse discussion and debate. There
are around 12,000 newspaper titles in
India. India has more than 150 million
homes with a TV. In 2014, there were
more than 243 million internet users and
there is no systematic filtering of
the internet.

• Executive – The executive have sole
responsibility for managing the daily
administration of the country. The civil
servants implement the decisions of the
executive. In 2015, India was ranked
76th (2013: 94th) out of 175 countries in
Transparency International’s Corruption
Perceptions Index. The causes of
corruption in India include excessive
regulations, complicated taxation and
licensing systems, numerous
government departments each with
discretionary powers, monopoly by
government controlled institutions on
certain goods and services delivery,
and the lack of transparent laws
and processes.

India appeal
India’s political, legal and upstream
regulatory policies combined with globally
competitive fiscal terms provide a positive
foreign investment environment.

Growing economy – The Indian economy
realised GDP growth of over 8 per cent per
annum in the past decade and continues
to enjoy a substantial rate of over 7.0 per
cent in FY2016. Annual inflation rates
remain relatively high, ranging from 4.5 to
5.5 per cent but this has come down
markedly from 13.0 per cent in 2013.

Improving infrastructure – Infrastructure
has struggled to keep pace with economic
and population growth. The GOI has
identified infrastructure improvement as
an area of focus and meaningful progress
is observed, particularly in areas of
transportation and distribution. The FY2017
budget provided for approximately $35
billion of investment in infrastructure.

Democratic pillars – India represents
the world’s largest democracy with a
population of over 1 billion. The country
has an active electorate with the 2014
national election enjoying a participation
rate of 65 per cent.
• Legislative – Law-making institutions

comprising of publicly elected
members.

• Judicial – India’s independent union
judicial system is based on common
law providing protection of contractual
rights and enforcement of obligations.

India economy

GDP vs inflation

Mar 12

Jun 12

Sep 12

Dec 12 Mar 13

Jun 13

Sep 13

Dec 13 Mar 14

Jun 14

Sep 14

Dec 14 Mar 15

Jun 15

Sep 15

Dec 15 Mar 16

Inflation

GDP

Source: Trading Economics

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationBusiness Model

“ Realising value from our Indian
portfolio remains largely in the hands
of the GOI.”

Obtaining exploration
rights (1–3 years)

Acquire directly through
national authorities or
indirectly via purchase or
farm‑in

Obtaining hydrocarbon exploration
rights is accomplished through:
a. The granting of exploration licences
by the government of the countries
in which we choose to invest. In
India this is accomplished via the
New Exploration Licensing Policy
(NELP), a periodic competitive
closed bid process.

b. The acquisition of exploration

licences from third parties. This can
be accomplished via direct farm-in,
purchase or corporate mergers.

Exploration
(2–5 years)

Geoscience surveys and
studies, high‑grade prospects,
verify via drilling

Exploration campaigns are planned to
try to discover oil and gas fields within
under-explored sedimentary basins.
Initial activity will typically involve
investment in extensive geotechnical
analysis which will typically include
geological modelling of sedimentary
basins, and the acquisition of
seismic and other data, which is then
integrated to facilitate the identification
of possible subsurface hydrocarbons
accumulations (prospects). Drilling
of exploration wells commences if a
prospect has a reasonable chance of
success and meaningful size estimate.

Appraisal (2–5 years)

Geotechnical and
engineering studies to
assess commerciality
of discoveries

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. Initial development
concepts are also formulated at this
time to facilitate the determination of
commerciality. Markets to monetise
the discovered hydrocarbons are also
identified at this time.

Expenditure

Revenue

Hardy Oil and Gas plc Annual Report and Accounts FY2016H A R D Y F O C U S

Production
optimisation and
enhanced recovery

Monitor production
and performance, identify
viable enhanced recovery
techniques

Once a discovery is in production we
use our expertise and knowledge to
ensure strategies optimise recovery in
a safe and cost effective manner. Later
in a field’s life we create value through
the implementation of enhanced
production strategies to optimise the
value of recoverable hydrocarbons
from existing producing fields.

Development
(3–10 years)

Finalise optimal development
plan, implement plan and
commence production

If the appraisal programme
confirms that the development of a
discovery will be commercially and
financially viable, we begin work on a
development plan. The plan will map
out the optimal process to extract
the hydrocarbons in a cost effective
manner and identify which markets
the production may be sold into. Field
developments are complex, require
significant capital investment and may
take many years to implement.

Return profits to
shareholders

Establish sustainable
business, return capital to
shareholders

After retaining sufficient profit
to reinvest in the business, we
return profits to our shareholders.
Divestment and farm-downs,
throughout the investment cycle
described above, may also accelerate
the return of profits to shareholders.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationKey Performance Indicators (KPIs)

KPIs provide an illustration of management’s ability to successfully
deliver against the Company’s strategic objectives. The Board
periodically reviews the KPIs of the Group taking into account the
strategic objectives and the challenges facing implementation of
such. The Board has identified two financial and three non-
financial measures as KPIs for Hardy.

The measures reflect the Company’s development focused
strategy, the importance of a positive cash position and our
underlying commitment to ensuring safe operations. A summary
is provided in the table below:

Category

KPI

Definition

Relevance

Progress

FY2017 outlook/target

Operational

Financial

HSE

Approval of PY-3 FFDP

Resolution of litigation

Enforcement of the Award

Control of overhead cash flow

Total recordable injuries (TRIs)

Management Committee (MC) approval
of a FFDP including all technical aspects
of the implementation plan and required
capital and operating budgets.

Approval of an FFDP will provide a
tangible milestone for creating value and
mitigate ongoing or pending disputes
between stakeholders.

The Company is involved in a number
of litigation proceedings initiated by
third parties and the Company. Where
reasonably feasible the Company may
seek the conclusion of disputes in a
timely manner.

Litigation proceedings heavily detract
management from focusing on value
creation activities.

Enforcement of the CY-OS/2 Award

Cash administrative expense in India and

TRIs include fatalities, lost time injuries,

which provides for the reinstatement

UK less partner recharges.

of the exploration licence and payment

of compensation.

cases restricted for work, cases of

substitute work due to injury and

medical treatment cases by medical

professionals. It does not include any

first aid injury.

Reinstatement of the exploration block

Preservation of capital is an important

This metric is used to provide guidance

will permit the recommencement of

consideration of the Board. Net cash

as to the Group’s HSE performance.

appraisal of the Ganesha discovery.

from operating activities provides a good

measure of the level of capital erosion or

Mitigation of costs and liabilities.

Compensation of approximately

accretion experienced by the Group.

Management and independent partners
successful in conveying required action
to achieve recommencement of
production.

Reach consensus on fiscal framework
and secure MC approval of FFDP.

A number of disputed matters have
been progressed or resolved.

Timely resolution or avoidance
of matters largely dependent on
PY-3 results.

Initial GOI appeal dismissed in Delhi HC.

Reduced underlying cost base of

Absence of field activity and diligent

business. Further reductions may be

onshore procedures have maintained

Initiation of enforcement in the US.

counterproductive.

no recordable injuries.

Maintain current levels.

No TRIs.

$52.9 million to significantly improve

the Company’s financial position.

Conclusion of the GOI appeal and

progress enforcement proceedings

in India.

Confirmation of award in the US.

Key activity

Facilitate discussion between GOI and
ONGC to establish an equitable
distribution of combined cash flow.

Where practical, approach counterparts
to reach mutually equitable conclusion
to proceedings.

Preparation and delivery of robust

Close monitoring of all expenditures.

Prior to recommencement of field

representations in Indian and US courts.

operations, management will undertake

a comprehensive review and roll-out of

HSE policy and practice to staff and

contractors.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Category

KPI

Definition

Relevance

Management Committee (MC) approval

The Company is involved in a number

of a FFDP including all technical aspects

of litigation proceedings initiated by

of the implementation plan and required

third parties and the Company. Where

capital and operating budgets.

reasonably feasible the Company may

seek the conclusion of disputes in a

timely manner.

Approval of an FFDP will provide a

Litigation proceedings heavily detract

tangible milestone for creating value and

management from focusing on value

mitigate ongoing or pending disputes

creation activities.

between stakeholders.

Mitigation of costs and liabilities.

Progress

Management and independent partners

A number of disputed matters have

successful in conveying required action

been progressed or resolved.

to achieve recommencement of

production.

FY2017 outlook/target

Reach consensus on fiscal framework

Timely resolution or avoidance

and secure MC approval of FFDP.

of matters largely dependent on

PY-3 results.

Key activity

Facilitate discussion between GOI and

Where practical, approach counterparts

ONGC to establish an equitable

to reach mutually equitable conclusion

distribution of combined cash flow.

to proceedings.

Operational

Financial

HSE

Approval of PY-3 FFDP

Resolution of litigation

Enforcement of the Award

Control of overhead cash flow

Total recordable injuries (TRIs)

Enforcement of the CY-OS/2 Award
which provides for the reinstatement
of the exploration licence and payment
of compensation.

Cash administrative expense in India and
UK less partner recharges.

TRIs include fatalities, lost time injuries,
cases restricted for work, cases of
substitute work due to injury and
medical treatment cases by medical
professionals. It does not include any
first aid injury.

This metric is used to provide guidance
as to the Group’s HSE performance.

Preservation of capital is an important
consideration of the Board. Net cash
from operating activities provides a good
measure of the level of capital erosion or
accretion experienced by the Group.

Reinstatement of the exploration block
will permit the recommencement of
appraisal of the Ganesha discovery.

Compensation of approximately
$52.9 million to significantly improve
the Company’s financial position.

Initial GOI appeal dismissed in Delhi HC.

Initiation of enforcement in the US.

Conclusion of the GOI appeal and
progress enforcement proceedings
in India.

Confirmation of award in the US.

Preparation and delivery of robust
representations in Indian and US courts.

Reduced underlying cost base of
business. Further reductions may be
counterproductive.

Absence of field activity and diligent
onshore procedures have maintained
no recordable injuries.

Maintain current levels.

No TRIs.

Close monitoring of all expenditures.

Prior to recommencement of field
operations, management will undertake
a comprehensive review and roll-out of
HSE policy and practice to staff and
contractors.

Million
$8.0

$6.0

$4.0

$2.0

TRI
2

2011

2012

2014*

2015

2016

2011

2012

2014*

2015

2016

* 15 months ended 31 March

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationOn 29 February 2016, the GOI announced a
policy change to calculation of Cess from a
fixed rate per weight to an ad valorem basis
at a rate of 20 per cent of gross revenue.
Analysis indicates that the change in policy
was of benefit to ONGC (the Licensee) only
at oil prices lower than $45 per barrel. At an
expected price below $45 per barrel the
PY-3 consortium would not be able to
sanction the proposed FFDP. As a result
the policy change has compounded
the projected loss to be realised by
the Licensee.

On 28 March 2016, the GOI announced
a PSC extension policy to be applied to
pre-NELP PSCs including PY-3. The GOI
policy provided for many new terms and
conditions upon the Contractor. Some key
conditions are: the Contractor is to agree
to pay levies (Cess and royalty) at prevailing
rates and in proportion to each party’s
participating interest (for the duration of the
extended period); and the GOI will also be
entitled to an additional 10 per cent share
of Profit Oil. The policy appears to have
created an incentive for the GOI nominated
Licensee to defer investment until the
beginning of the extension period as its
economic position is significantly
enhanced. In relation to PY-3 this would
mean activity being delayed until 2020.

In May 2016, the Hon’ble Minister
of State, Sri Pradhan, Hardy and other
senior representatives of stakeholders met
to discuss matters which have prolonged
deliberation regarding the proposed FFDP
and to identify a viable way forward. It
was stressed that the proposed FFDP is
projected to generate considerable value
directly to the GOI via levies, profit
petroleum and taxes which would be
several times larger than the projected
losses to the GOI owned Licensee and
as a result should be supported by the
GOI nominee.

Operations

Chennai

Ganesha-1 well

CY-OS/2

ARIYALUR-PONDICH ERRY
SUB-BASIN

L-XI

NEYVELI

Villupuram

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

TRAN QUE BAR
SUB-B ASIN

30 km

PY-3

Block CY-OS-90/1 (PY-3):

Oil Field (Hardy 18 per cent interest – Operator)

The Company’s exploration and production
assets are based in India and are held
through its wholly owned subsidiary Hardy
Exploration & Production (India) Inc. (HEPI).

HSE
The Company is committed to excellent
health and safety practices which are at the
forefront of all of our activities. Although all
offshore activities are currently suspended,
maintaining high HSE standards throughout
the organisation remains core to all our
undertakings. The Company’s HSE policy
document is regularly reviewed
and amended.

Block CY-OS-90/1 (PY-3)
Oil Field (Hardy 18 per cent interest –
Operator)
Operations – A PY-3 MC meeting was
convened in June 2015 to consider the
OC’s (Operating Committee) recommended
FFDP and budgets. Several agenda items
were agreed but finalisation of the minutes
of meeting remain pending. The FFDP
envisages a resumption of production
from one well at the rate of around 3,000
bbld and subsequently to drill two new
producers and undertake the side-tracking
of a third well. Production is estimated to
peak at around 8,000 bbld. The FFDP
remained under consideration while the
GOI representatives consulted with higher
authority regarding the necessary PSC
extension, and Cess and Royalty treatment.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Enforcement – In November 2013, Hardy
had filed an execution petition with the HC
of Delhi and this has run in parallel with the
GOI appeal. The HC has continually
adjourned the matter due to the ongoing
GOI appeal. The next execution hearing is
scheduled for 29 July 2016.

The CY-OS/2 Award is an international
award and may be enforced within a
number of judicial jurisdictions. Most
jurisdictions have statute of limitations and
as a result in February 2016 the Company
was compelled to initiate Confirmation
proceedings in the Federal Court of
Washington DC, United States of America.
This action has been initiated to maintain
the option to enforce the Award in the
US. However, our primary objective is
to conclude the appeal and enforcement
processes within the Indian judicial system.
The timely conclusion of the dispute
resolution process within Indian institutions
will validate our long-standing commitment
to India and facilitate our future participation
in meeting the country’s growing
energy requirements.

Hardy has proposed to initiate well
monitoring activity to provide the PY-3 JV
and MOPNG more time to conclude
discussions and identify a mutually
beneficial way forward. In the absence of
support from stakeholders for monitoring
activity, Hardy will need to consider the
initiation of decommissioning activity.

Objectives – Secure timely approval of
the FFDP from the GOI after which we
intend to target the recommencement
of production in FY2018. This may be
achieved by securing the appropriate
offshore production and storage facilities
while simultaneously initiating planning for
a development drilling programme. This
may require funding in excess of the
Company’s current resources.

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° gravity
American Petroleum Institute (API)). The
field has produced over 24.8 mmbbl and
was shut-in in July 2011 due to the expiry
of the production facilities’ marine
classification and the refusal by the GOI
to allow the extension of the contract.

Block CY-OS/2
Appraisal (Hardy 75 per cent interest –
Operator)
The GOI’s appeal in the Delhi HC, against
the unanimous award, passed by three
former Chief Justices of India, to restore
the block to the joint venture continued.
The GOI is appealing against the
jurisdiction of the tribunal and merit of the
award. We are disappointed that the GOI
has chosen not to comply with the tribunal
award and pursued an appeal in the HC. In
our opinion:
• The arbitration award, issued by a

tribunal, comprising of three former
Chief Justices of India, was unanimous
and well reasoned.

• The dispute resolution articles of the
PSC clearly state that an arbitration
award is to be final and binding on all
Parties. Therefore the GOI’s HC appeal
is in contravention of the PSC.

Appeal – On 9 July 2015, the Delhi HC
questioned its territorial jurisdiction and
the appeal petition was dismissed due to
the GOI’s withdrawal of the appeal. On
4 August 2015, the GOI filed a review
petition which was heard on 20 January
2016. The Hon’ble Judge dismissed the
GOI review petition on the basis that no
error had been proved and that the GOI
had voluntarily withdrawn the appeal
petition in July 2015. On 19 February 2016,
the GOI filed a further appeal (under
section 37 of the Arbitration Act) with the
Delhi HC Division Bench which was heard
on 16 April 2016. The Hon’ble HC Division
Bench ruling is expected shortly.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationAward summary – The Hon’ble tribunal
has awarded and directed as follows:
a. The Ganesha-1 discovery made by
Hardy and GAIL is non-associated
natural gas.

b. The order of relinquishment by the

MOPNG of the GOI 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.

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 9 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 of
the award.

f. From the date of award interest will
accrue at a rate of 18 per cent per
annum on the amount of Rs. 5.0 billion
until such time as the block is restored
to the Parties (as at 31 March 2016 –
$52.9 million net to Hardy).

Operations continued

Contingent asset – As at 31 March 2016,
Hardy’s 75 per cent share of the interest
awarded by the Hon’ble Arbitration Tribunal
amounted to approximately $52.9 million.

Objective – We will continue to
seek the restoration of the block to the
CY-OS/2 joint venture in a timely manner.
The appeal and enforcement process in
India is likely to continue throughout 2016.
The Company believes that it has a strong
position as the unanimous international
award is well reasoned. Hardy will
recommence work on the appraisal
of the Ganesha-1 natural gas discovery
once the block has been restored to the
CY-OS/2 joint venture.

Background – Hardy is the operator of the
CY-OS/2 exploration block and holds a 75
per cent participating interest, through its
wholly owned subsidiary HEPI and Gas
Authority of India Limited (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 two retained areas
with the Ganesha-1 natural gas discovery
located in the northern area of
approximately 300 km2.

Ganesha‑1 – The natural gas discovery,
announced in January 2007, was drilled
to a depth of 4,089 m, encountering a
sandstone reservoir within the Cretaceous
section. The well flow tested at a peak rate
of 10.7 mmscfd.

A dispute between the GOI and Hardy
was referred to arbitration under the PSC
to a Hon’ble Tribunal consisting of three
Arbitrators who were former Chief Justices
of India. The Hon’ble Tribunal passed the
arbitral award on 2 February 2013 at Kuala
Lumpur, Malaysia.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Block GS-OSN-2000/1 (GS-01)
Appraisal (Hardy 10 per cent interest)
Operations – A number of meetings were
held with Directorate General of
Hydrocarbons (DGH) and MOPNG
representatives to facilitate the timely
conclusion to Hardy’s acquisition of
Reliance’s 90 per cent interest and
Operatorship. General commercial terms
have been agreed and a draft farm-out
agreement is under review by both parties.
However, both parties have advised the
GOI that the matter of possible liquidated
damages associated with UMWP, being
considered by the GOI since 2009, needs to
be closed out prior to the conclusion of the
acquisition process. In March 2015, both
Parties made a constructive proposal to the
GOI, to fulfil the UMWP liabilities, but we
continue to await a response from the GOI.

An Field Development Plan (GS-O1 FDP),
for the Dhirubhai 33 natural gas discovery,
was submitted to the GOI for review and
approval in 2012. The GS-O1 FDP plan
provides for several dry tree wells, an
unmanned platform, multiphase pipeline to
shore and onshore processing and export
facilities. As noted earlier, the GOI Natural
Gas Pricing Policy, announced in 2014,
benchmarks against a basket of markets
which are predominantly net exporters of
natural gas. As a result current gas prices
have fallen substantially to $3.08 per mcf
and projected to fall further through 2016.
The proposed GS-O1 FDP was based on
an assumption of realised natural gas and
condensate prices being higher than
current rates. We have noted that the GOI’s
recent marketing of Small Discovered
Fields and HELP auctions, which provided
for freedom to market gas and recent gas
pricing policies indicate a possible intent to
progressively migrate to full marketing
freedom.

GS-01

Block GS-OSN-2000/1 (GS-01):

Appraisal (Hardy 10 per cent interest)

Kodinar

AR ABIAN SEA

N. TAPTI

MID. TAPTI

S. TAPTI

Dahanu

Mumbai

BOMBAY
HIGH 1

Dhirobhai 33

MUKTA

PANNA

B-18
ONGC

OIL FIELD

GAS FIELD

SUB-SEA PIPELINE

BASSEIN

HEERA

RATNA

100 km

Objective – Finalise the quantum of
liquidated damages outstanding prior to
concluding discussions with Reliance to
acquire its participating interest and the
Operatorship of the block. Following this,
a priority will be to revisit the proposed
GS-O1 FDP and establish a consensus
amongst stakeholders regarding a viable
FDP. As noted above, due to current GOI
gas pricing policy the prevailing prices do
not support the previously proposed FDP
development plan and as a result the plan
may need to be modified. A change in the
GOI natural gas pricing policy would also
facilitate development of the Dhirubhai
33 discovery.

Background – In 2011, the GS-01 joint
venture secured the GOI’s agreement for
the declaration of commerciality (DOC)
proposal for the Dhirubhai 33 discovery
GS01-B1 (drilled in 2007) which flow-tested
at a rate of 18.6 mmscfd gas with 415 bbld
of condensate through a 56/64 inch choke
at flowing tubing head pressure of 1,346
psi. The GS-01 licence is located in the
Gujarat-Saurashtra offshore basin off the
west coast of India, north west 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 FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationFinancial Review

Overview
In the 12 months ended 31 March 2016, the Group recorded a total comprehensive loss of $16.8 million and at year end had total cash
and short-term investments of $17.6 million with no debt.

Summary statement of comprehensive income

Operating expense
The Company has considered the fall in offshore services and made an adjustment to the
underlying cost assumptions associated with decommissioning. As a result a write-back to the
Decommissioning Provision of $0.4 million was credited.

The Company has provided for $0.6 million due to an award issued against Hardy, as operator,
in regard to a claim made by a former service provider to the PY-3 field. The Company is currently
appealing the award in the Madras High Court (MHC).

Unsuccessful exploration write-down
The GOI’s natural gas pricing policy benchmarks against prices in gas exporting countries. As a
result, despite continued growth in demand in India pricing is well below replacement fuel alternatives
and has recently fallen from $4.8 per mcf to $3.1 per mcf. Providing for current pricing, the GS-01
development is not considered viable and the Group has fully impaired exploration costs associated
with the Dhirubhai 33 discovery in the block. This amounted to a provision of $5.0 million being
made. In the previous year the Company had expensed $22.1 million of exploration costs incurred
in association with the drilling of gas discoveries on the relinquished D3 block. These expenses had
previously been capitalised and recorded under intangible asset – exploration.

Impairment of PY-3
The PY-3 asset was partially impaired resulting in a write-down of property, plant and equipment
of $2.7 million. Management has considered the prevailing oil price, new GOI policies (outlining an
increase in levy rates and additional terms and conditions required for the extension of the PSC)
and recent dialogue amongst stakeholders. It was concluded that the proposed PY-3 development
plan remains viable but an impairment in value has occurred. The Company remains committed
to implementing the proposed plan, provided the GOI and the state owned company ONGC can
establish an equitable framework to distribute their collective cash flows.

Administrative expense
Administrative expense increased by $0.2 million. Having consideration for the depressed macro
environment and uncertainty regarding the sanctioning of development projects, management
took steps to further reduce the underlying overhead of the Company with a reduction of staff and
contracted services in India.

The net increase was primarily due to various provisions and non-recurring costs amounting
to $1.6 million. FY2017 administrative expenses are expected to remain at current levels due a
budgeted increase in legal costs associated with the enforcement of CY-OS/2 Award and other
ongoing litigation.

Investment income and finance cost
The Company realised interest income of $0.3 million (FY2015: $0.4 million) and no finance costs.
The Company had incurred finance costs of $0.2 million associated with bank guarantee charges
and the unwinding of future value discounting of the PY-3 decommissioning provision.

Taxation
No current tax is payable for the 12 months ended 31 March 2016. Having consideration for the
medium-term outlook for the oil price and continued delay of sanctioning of the PY-3 asset, the
projected tax payable that may be offset by the Group’s carried forward losses is reduced. As a
result a write-down of the deferred tax asset of $5.2 million was provided for.

FY2016
(audited)
US$ million

(0.2)

FY2015
(audited)
US$ million

–

(5.0)

(22.6)

(2.7)

–

(4.0)

(3.8)

0.3

0.2

(5.2)

1.7

Total comprehensive loss
The Group’s significant total comprehensive loss is largely attributable to the write-downs associated
with PY-3 and GS-01 and the deferred tax assets.

(16.8)

(24.5)

Hardy Oil and Gas plc Annual Report and Accounts FY2016Summary statement of financial position

31 March 2016
(audited)
US$ million

31 March 2015
(audited)
US$ million

Non-current assets
Non-current assets primarily represent successful or work-in-progress exploration expenditure.
The $13.0 million decrease is the result of the $5.0 million write off of GS-01, a $2.8 million impairment
charge against PY-3 and a write-down of the deferred tax asset by $5.2 million. The downward
revision of values for PY-3 and the deferred tax asset is due to the medium-term outlook for oil
prices and management’s assessment of the impact of changes to GOI policy.

The assessment of GS-01 impairment was based on the current low gas price. Management plan to
conclude the acquisition of GS-01 and subsequently evaluate alternative development concepts. For
the Dhirubhai 33 discovery, should the GOI gas pricing policy change to allow free market pricing, the
current proposal could become viable.

Current assets
The Group’s cash and short-term investments reduced by $3.4 million to $17.6 million. This is
essentially due to the payment of general and administrative expenses. The Group incurred an
inventory write-down of $0.2 million following a third-party inspection of well tubing and casing, and
other equipment. Trade and other receivables of $3.2 million represent amounts due to be recovered
from joint arrangements operated by Hardy.

Non-current liabilities
The Group’s non-current liabilities represent a provision for the decommissioning of the PY-3 field.
The provision has been estimated based on observed long-term industry cost trends. Management
also considered the current depressed cost environment and uncertainty regarding the timing of
decommissioning. As a result, the provision was reduced in the current year. Management will
continue to evaluate its underlying assumptions.

Current liabilities
Trade and other accounts payable comprises of amounts due to vendors and other provisions
associated with various joint arrangements.

Summary statement of cash flows

Cash flow (used in) operating activities
Cash used in operating activities comprised $4.4 million of administrative costs. Net debtor and
creditor movement was $0.5 million and there was a decrease in inventory of $0.2 million.

Capital expenditure
The Company did not incur any material capital expenditures in the year.

Financing activity
Interest and investment income realised predominantly from its Indian rupee deposits amounted to
$0.3 million.

Cash and short-term investments
Sufficient resources are available to meet ongoing capital, operating and administrative expenditure.
The Group has no debt.

63.0

76.0

21.8

23.0

5.3

7.8

5.6

5.0

FY2016
(audited)
$ million

FY2015
(audited)
$ million

(3.7)

0.0

(3.5)

(0.2)

0.3

0.4

17.6

21.0

Liquidity risk management and going concern and long-term viability
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 activity. At 31 March 2016, the Company had liquid
resources of approximately $17.6 million, in the form of cash and short-term investments, which is available to meet ongoing capital,
operating and administrative expenditure. The Company’s forecasts, taking into account 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 Preliminary Results
Statement and Accounts for the 12 months ended 31 March 2017. At the present time, the Group does not have any debt.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationPrincipal 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.

Board
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. Risks are identified, assessed for
materiality, documented, and monitored through a risk register
with senior management involved in the process. Risks that are
identified as high and/or trending upwards are noted and assigned
to the Executive Director to monitor and, if possible, proactively
mitigate. The risk register is a part of a dynamic database in which
new risks may be added when identified or removed as they are
eliminated or become immaterial. The Board has formed a
sub-committee on risk which reports periodically to the Audit
Committee. The Board is provided with regular updates of the
identified principal risks at scheduled Board meetings.

Viability Statement
In accordance with the provision of section C.2.2 of the 2014
revision of the UK Code, the Directors have assessed the viability
of the Group over a three-year period to March 2019, taking into
account the Group’s current position and the potential impact
of the principal risks documented in this report. Based on this
assessment, the Directors have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities
as they fall due over the period to March 2019.

Risk or uncertainty

Mitigation action

In making this statement, the Directors have considered the
resilience of the Group, taking into account its current position,
the principal risks facing the business in severe but reasonable
scenarios and the effectiveness of any mitigating actions. This
assessment has considered the potential impacts of these risks
on the business model, future performance, solvency and liquidity
over the period.

The Directors have determined that the three-year period to March
2019 is an appropriate period over which to provide its Viability
Statement. This covers the period when the Group hopes to have
established clear development plans for PY-3, CY-OS/2 and
GS-01. The PY-3 development is the only asset that could require
additional funding during this period. In making their assessment,
the Directors have taken into account the Group’s current cash
position and that no capital is committed at this time.

The Group has considered that additional funding needs may be
met, as appropriate, by access to the debt and capital markets,
although there are no immediate plans to do so, along with the
possible divestment of assets in which the Company holds a
significant working interest.

Principal risks and uncertainties
The underlying risks and uncertainties inherent in Hardy’s current
business model have been grouped into four categories; strategic,
financial, operational and compliance. The Board has identified
principal risks and uncertainties for FY2017 and established clear
policies and responsibilities to mitigate their possible negative
impact on the business, a summary of which is provided below:

Strategic

The Group’s strategy is predominantly driven by the appraisal, development and
production of its existing assets in India. There are risks inherent in the appraisal,
development and production of oil and gas reserves and resources.

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

2. Asset portfolio exclusively
in one geopolitical region

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

Convey business constraints to accomplishing our objective via direct and open dialogue with
government officials, active participation in industry lobby groups including the Association of Oil
and Gas Operators. Further additions to the India portfolio will not be considered until tangible
progress in our existing portfolio. Screening of acquisition opportunities to be focused in other
geographical locations wherein most likely management have direct experience.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Risk or uncertainty

Mitigation action

Financial

Volatility and decreases in international crude oil prices and Indian natural gas prices
has adversely affected some of the Group’s prospects and projected results from
future operations. Other major financial risks facing the Company could be: financing
constraints for further appraisal and development; cost overruns; and adverse results
from ongoing or pending litigation.

1. Prolonged delay in

enforcement of CY-OS/2
Award

Secure high quality and reputable legal counsel. Management of stakeholder expectation.
Settlement unlikely without court order for enforcement. Preserve right to enforce in other
jurisdictions including the US and UK.

2. Litigation – the Company
is involved in a number
of disputes with service
providers, uJV partners
and Indian tax authorities

3. Cost of litigation

Sanctioning of the PY-3 FFDP could mitigate a number of outstanding or pending disputes.
The Company has secured high quality reputable legal counsel in India and other jurisdictions.
Proactive and constructive engagement with uJV partners. In some instances security may be
required to avoid business disruption.

Budget for litigation has increased substantially. Effective management and monitoring
of advisory costs. Explore timely resolution of disputes not strategic in nature.

4. Liquidated damages

started (LD), unfinished
Minimum Work Programme
(MWP) (GS-01 and D9)

Monitor through media and dialogue with operator, prepare for dispute. The operator is
expected to initiate arbitration. Provision made based on management’s view on likely outcome.
Contingent liability assigned for D9. Risk of uJV partners trading favour with GOI by “trading” LD
from other blocks to D9 and GS-01.

Operational

Offshore exploration and production activities by their nature involve significant risks.
Risks such as delays in executing work programmes, 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.

1. Securing timely final

approval for the PY-3 FFDP

Proactive communication with partners to address individual interests and agendas. Clearly
formulate and articulate mutual beneficial proposals. Articulate that total combined benefit to the
GOI several multiples of ONGC projected loss. Mitigate expenditures prior to budget approvals.

2. PY-3 HSE – status of

PY-3 wells

Three subsea wells were securely shut-in on March 2012. The shut-in of wells has been longer
than expected and, in the absence of timely sanctioning of the FFDP, monitoring of wells or full
abandonment of the PY-3 field will be initiated.

3. Contractual dispute with

uJV partners

Maintain communication with senior members of PY-3 uJV partners. Written MC approval of
budgets for FY2012 to present remain outstanding. To minimise statute of limitation risk, dispute
resolution process will be initiated in FY2017. Highly reputable law firm secured to facilitate
initiation of dispute.

Compliance

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.

1. Regulatory and political
environment in India

Develop sustainable relationships with governments and communities. Actively collaborate with
industry groups to formulate and communicate interests to government authorities. Ensure full
compliance of all laws, regulations and provision of contracts.

2. Taxation and third-party

claims

Secured the services of leading professional and legal service providers. Proactive
communication with taxation authorities to ensure queries are addressed and assessments
are agreed or challenged as required.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional Information“ We conduct our
business safely and
in a fair, honest and
ethical manner.”

Corporate Responsibility Summary

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 members of 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
does not tolerate retaliation against an
individual reporting in good faith.

HSE
The Company is committed to excellent
health and safety practices which are
at the forefront of all of our activities.
Although all offshore activities are
currently suspended, maintaining
high HSE standards throughout the
organisation remains core to all
our undertakings.

Hardy is committed to applying high
ethical standards to maintain and
enhance its reputation as an employer
and operator of choice
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
We have a comprehensive Code of
Business Conduct that was adopted in
2013 (the Code) which details the levels
of behaviour we expect all employees
to adhere to when representing Hardy.
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. Full details of the policy are
available on our website www.hardyoil.com.

Compliance awareness
The Chief Executive Officer personally
introduces the Code to all employees and
the Board and executive are committed to
ensure that the Code is embedded
throughout the business.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Greenhouse gas (GHG) emissions
Hardy Oil and Gas plc’s total GHG emissions for the period 1 April 2015 to 31 March 2016
have been calculated as 153 tCO2e which equates to 10.2 tCO2e/FTE. Calculations have
been carried out in accordance with the Defra Environmental Reporting Guidelines (2013)
and emissions factors have been sourced from the Defra 2013 UK Government Conversion
Factors for Company Reporting. The figure presented includes all material Scope 1 and
Scope 2 emissions from all assets under Hardy Oil and Gas plc’s operational control.

Reporting period

2015/16
2014/15
2013/14

Scope 1
emissions
tCO2e

25
77
76

Scope 2
emissions
tCO2e

128
138
160

Total carbon
footprint
tCO2e

Intensity
metric
tCO2e/FTE

153
216
236

10.2
10.3
11.2

Total GHG emissions and the intensity metric for the reporting period 01/04/2015–
31/03/2016. Department for Environment Food & Rural Affairs (2013) Environmental
Reporting Guidelines: Including mandatory GHG emissions reporting guidance.

Our people – being a rewarding, challenging and pleasant place to work
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 staffing of our India-based
professionals and staff.

Development
We recognise that our success is clearly linked to the knowledge, skills, experience and
motivation of our team, and their ability to develop innovative and creative solutions to our
opportunities and challenges. Management have set ambitious targets which will require
Hardy employees to maintain their high level of proficiency and to 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.

Employees*

UK 5

India 13

Female 1

Male 17

* including Non-Executive Directors

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationBoard of Directors

Alasdair Locke (aged 62)

Ian MacKenzie (aged 59)

Peter Milne (aged 62)

Pradip Shah (aged 63)

Non-Executive Chairman

Chief Executive Officer

Senior Non-Executive Director

Non-Executive Director

Terms of appointment

Mr Locke was appointed to Hardy’s
Board as Non-Executive Chairman in
January 2012.

Mr MacKenzie was appointed to
Hardy’s Board as Chief Executive
Officer in February 2012.

Mr Milne was appointed to Hardy’s
Board as Senior Non-Executive
Director in March 2012.

Mr Shah was appointed to Hardy’s
Board as Non-Executive Director
in 1999.

Background and experience

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 20 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.

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 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 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
and 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.

External appointments

Mr Locke is also chairman of Argenta
Holdings plc, an unlisted holding
company which trades in Lloyds
of London, and chairman of Motor
Fuel Group.

None.

Member of the audit committee of the
University of Aberdeen.

Mr Shah is founder and chairman of
IndAsia Fund Advisors, chairman of
Kansai Nerolac, Grindwell Norton Ltd,
Sonata Software and a director of
BASF (India), Godrej & Boyce, Pfizer
and Tata Investment Corporation
amongst other companies.

Committee membership

Chairman of the Nomination
Committee, a member of the Risk
Sub-Committee and Remuneration
Committee.

Chairman of the Risk Sub-Committee.

Chairman of the Audit Committee,
a member of the Remuneration
Committee, Nomination Committee
and Risk Committee.

Chairman of the Remuneration
Committee, a member of the Audit
Committee and Nomination
Committee.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Management Committee

T.K. Ananth Kumar

Richard Galvin

Sankalpa Mitra

CH. V. Satya Sai

Non-Executive Director of HEPI

Treasurer and Corporate
Affairs Executive

Senior Vice President Production
of HEPI

Vice President Geoscience of HEPI

Terms of appointment

Mr Ananth Kumar was appointed to
HEPI’s board as non-executive
director in 2014.

Mr Galvin joined Hardy in 2005
and was appointed to HEPI’s Board
in 2013.

Mr Mitra joined HEPI in 2006 and was
appointed senior vice president
in 2014.

Mr Satya Sai joined HEPI in 2006 and
was appointed vice president in 2014.

Background and experience

Mr Galvin has over 20 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. Mr Galvin is a director of HEPI.

Mr Ananth Kumar has over 30 years of
experience in the oil and gas sector in
financial, accounts, treasury, strategic
and business development initiatives.
He recently superannuated as director
finance of Oil India Limited a $5 billion
Navratna company and India’s second
largest exploration and production
state enterprise. Mr Ananth Kumar is
a qualified chartered accountant, a
member of the Institute of Chartered
Accountants of India and has a
bachelors degree in Commerce from
Osmania University, India. Mr Ananth
Kumar’s recent achievements include
leading the GOI’s successful $590
million Offer for Sale in Oil India;
the $2.5 billion joint acquisition of
Videocon’s stake in Mozambique
gas fields in 2013, and in 2009 the
landmark $550 million Initial Public
Offering (IPO) for Oil India.

Mr Mitra has over 30 years of
experience in the oil and gas industry.
He previously worked for ONGC over
23 years holding a position of chief
engineer – production having
experience in both onshore and
offshore operations and project
implementation. Mr Mitra joined HEPI
in 2006 as manager of special
projects and has been heading the
operations team as general manager
– PY-3 since 2010. He holds a BE
(Mechanical) from Calcutta University.

Mr Satya Sai has over 30 years of
Geological and Geophysical (G&G)
experience in the oil and gas industry.
Mr Satya Sai previously worked at
ONGC for over 21 years, holding
a position of superintending
geophysicist prior to leaving.
He holds a master’s degree in
Geophysics and a bachelor degree
in Science from Andhra University.
Mr Satya Sai joined Hardy in 2006 as
Chief Geophysicist and has been the
Head of G&G since 2012.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationGovernance Report

The UK Corporate Governance Code
The Company maintains a listing on the London Stock Exchange
and under the UK Listing Rules, is required to comply with the UK
Corporate Governance Code published in September 2014 (the
UK Code). The UK Code is publicly available on the Financial
Reporting Council’s website at www.frc.org.uk.

Introduction
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 Board remains focused on effective risk
management and strong corporate governance.

This Corporate Governance Report describes the manner in
which the Group has applied the main principles of governance
set out in the UK Code throughout the year. The Company is also
required to disclose whether it has complied with the provisions of
the UK Code during the year and, to the extent it has not done so,
to explain any deviations from them.

The Company is a small cap upstream oil and gas company with
a modest resource base. The Board has outlined a clear mandate
to optimise the allocation of limited resources to support its 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 12 months ended 31 March 2016. Disclosures below include
matters where Hardy has not fully complied with the provision of
the UK Code during the reporting period.

Leadership
The Company is headed by a 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
both strong, sustainable financial performance and long-term
shareholder value. To achieve this, the Board directs and monitors
the Group’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 Group. 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 Group’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
the 12 months ended 31 March 2016, the Board met on five
occasions. Outside the scheduled meetings of the Board, the
Chairman and Chief Executive Officer make frequent contact
with each other and the other Directors to discuss any issues
of concern they may have relating to the Group or their areas
of responsibility, and to keep them fully briefed on the
Group’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 disposals, material contracts,

major capital expenditure projects and budgets;

• capital structure, debt and equity financing, and other

related matters;

• risk management and internal controls (supported by the

Audit and Risk Committees);

• the Company’s corporate governance and compliance

arrangements; and
• corporate policies.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Subject to those reserved matters, the Board delegates authority
for the management of the business primarily to the Executive
Director and members of the Group’s Management Committee.
Certain other matters are delegated to the Board Committees,
namely the Audit, Remuneration and Nomination Committees.

Summary of the Board’s work in the period
For the 12 months ended 31 March 2016, 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 Group’s Indian focused portfolio;

• financial management;
• regulatory/compliance;
• environment, health and safety;
• stakeholder relations.

Attendance at meetings

Member

Alasdair Locke (Chairman)
Ian MacKenzie
Peter Milne
Pradip Shah

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 periodically meet without the Executive
Director present. Separately, the Chairman and Chief Executive
Officer hold informal discussions with the Non-Executive Directors
in respect of current issues affecting the Group.

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
and/or Chief Executive Officer or where such contact is
considered inappropriate.

Meetings
attended

5 of 5
5 of 5
5 of 5
5 of 5

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 has been a member of the Board for over nine years.
As a result he is subject to re-election on an annual basis.

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
The Chairman sets the Board agenda and ensures adequate
time for discussion. On appointment as Chairman on 16 January
2012, Alasdair Locke met the independence criteria set out in the
UK Code.

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 30 to 33, the
Remuneration Committee on pages 34 to 42, and the Nomination
Committee on pages 43 to 44. Each Committee reports to the
Board and the issues considered at meetings of the Committees
are tabled by the respective Committee Chairmen. The terms
of reference of each Committee are reviewed by the Board
every other year.

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.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional Information
Governance Report continued

The Company Secretary
The Company Secretary is Richard Vanderplank who is
retained on a consultancy basis. He is available to Directors and is
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 two Non-Executive Directors.
Biographical details of the Board members are set out on
page 22 to 23 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.

At the Company’s Annual General Meeting held on 3 September
2015, shareholders re-elected Pradip Shah and Alasdair Locke
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. Mr Shah is based in India 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. The Board
considers that Mr Shah is independent of management
because the Chief Executive Officer was appointed in 2012
with whom Mr Shah has had no previous professional interaction.
Notwithstanding Mr Shah’s tenure, 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.

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. The Committee is also concerned with succession
planning which includes assessment of senior management
capabilities and development requirements to compliment the
Group’s requirements.

Commitments
All Directors have disclosed to the Board any significant
commitments outside their respective duties as Non-Executive
Directors and confirmed that they have sufficient time to discharge
their duties.

Induction
All new Directors receive an induction as soon as practical on
joining the Board. This includes meetings with the Management
Committee members and other senior management, and visits
to the Group’s principal office of operation. New Directors are
also provided an overview of their duties as a Director, corporate
governance policies and established Board procedures as part
of the induction process.

Training
The Chairman reviews the training and development needs with
each Director. During the reporting period 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 Group. The Board has
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 Group. The
Board requires Directors to declare all appointments and other
situations which could result in a possible conflict of interest.

Board performance and evaluation
Hardy undertakes an internal appraisal of the Board’s
performance on an annual basis. This process comprises of
a confidential questionnaire submitted by each Director. The
questionnaire provides members with a platform to comment on
the effectiveness of the Board and performance of each Director.

The Senior Independent Non-Executive Director is responsible
for overseeing the reporting of the review. 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 2016. The evaluation resulted in constructive
feedback which has resulted in actionable items primarily regarding
enhancement of communication between Non-Executive Directors
and the executive. Overall, it was felt that the Board was
functioning well.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Viability Statement
The Financial Reporting Council (FRC) has revised the UK Code
to include a Viability Statement and the Company’s full statement
can be found on page 18 of the Strategic Report.

Internal controls
The Board of Directors reviews the effectiveness of the Group’s
system of internal controls in line with the requirement of the UK
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 Group had the necessary procedures in place
for the period under review and up to the date of approval of the
Annual Report and Accounts. The Directors acknowledge their
responsibility for the Groups’ 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 Group and has formed a Risk
Committee which reports to the Audit Committee. A risk
assessment for each project is carried out by a team consisting
of the Executive Director and senior management, and report to
the Risk Committee before making any material commitments.
This team meets as and when required to consider internal and
external risks, including operational, compliance, financial and
strategic risks are continuously assessed.

The Audit Committee regularly reviews and reports to the Board
on the effectiveness of the internal control systems. Given the size
of the Group, 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.

Re-election
The Board has agreed that Peter Milne and Pradip Shah will
stand for re-election at the Company’s 2016 Annual General
Meeting. The Director’s 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 18 to 19. The Board has delegated to the Audit Committee
oversight of the relationship with the Company’s auditor as
outlined in the Audit Committee report on page 30.

Going concern
The Group’s business activities, together with factors likely
to affect its future operations, financial position, and liquidity
position are set out in the Strategic Report section of the
Annual Report. In addition, note 24 to the consolidated financial
statements discloses the Group’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 Group and the Company have adequate working
capital to execute their operations and have 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 these financial statements, that there is a
reasonable expectation that the Group and the Company have
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.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationGovernance Report continued

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

Business model
Hardy strives to create value through participating in the
full exploration and production cycle. The cycle requires
first the acquisition of permits to explore which are issued by
government authorities 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 under-explored
sedimentary basins. When we have made a significant discovery
of hydrocarbons we undertake appraisal programmes which
may include the drilling of wells and further geotechnical analysis
to determine the size and quality of the discovery. Once the
appraisal programme confirms that the development of a discovery
is commercially viable, we begin work on a development plan.
This maps out how we will realise the production of the discovered
hydrocarbon to achieve the ultimate objective to generate revenue
and cash flow. Beyond this further value may be create through the
implementation of enhanced production strategies to optimise the
value of recoverable hydrocarbons from existing producing fields.

release of the annual and interim results. All Directors are kept
aware of changes to major shareholdings in the Company and are
available to meet with shareholders who have specific interests or
concerns. The Group issues its annual results promptly to individual
shareholders and also publishes interim and annual results on the
Company’s website: www.hardyoil.com. Regular updates to record
news in relation to the Group and the status of its development
programmes are included on the Company’s website. Shareholders
and other interested parties can subscribe to receive these news
updates by email free of charge.

The Chairman and Executive Director are available to meet with
institutional shareholders to assist them in gaining an understanding
of the Group’s business, its strategies and governance. At the 2015
Annual General Meeting of shareholders, the Chairman was present
and the Committee Chairs participated via conference call. 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.

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 34 to 42 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

Annual General Meeting
At every Annual General Meeting individual shareholders
are given the opportunity to put questions to the Chairman,
Committee Chairs and other members of the Board. Notice of
the Annual General Meeting 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.

At the Company’s 2015 Annual General Meeting six resolutions
were presented. Below is a summary of the voting results:

Type

Ordinary

For

Against

Withheld

Total

Votes for %

59,049,033

–

59,049,033

100.0

Ordinary

54,798,207

4,250,676

150

59,049,033

Ordinary

52,725,903

5,576,373

746,757

59,049,033

Ordinary

52,754,315

1,333,376

4,961,342

59,049,033

Ordinary

59,012,136

36,897

Special

59,046,666

2,367

–

59,049,033

92.8

89.3

99.9

59,049,033

100.0

73,331,342
59,049,033

Description

Adopt annual accounts for year
ended 31 March 2015
To receive and consider the
Directors’ Remuneration Report
To re-elect Pradip Shah as a
Director of the Company
To re-elect Alasdair Locke as a
Director of the Company
Reappointment of Crowe Clark
Whitehill LLP as auditor
Disapplication 5% of issued
share capital

Total shares issued
Total instructed

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Non-compliance with the UK Code
The Company did not comply with the UK Code in the following matters during the 12 months ended 31 March 2016:

Code provision

Subject matter

Discussion

B.1.1

Non-Executive
Directors
meeting
independence
requirements

Pradip Shah has served on the Board for more than nine years. Notwithstanding the Board considers
Mr Shah to be independent of management as the Chief Executive Officer was appointed in 2012 with
whom Mr Shah has had no previous professional interaction. Furthermore Mr Shah contributes relevant
skills, expertise and insight towards the Company’s stated strategic objectives and provides valuable
advice as to the business and political environment in India.

The Board believes all of the Non-Executive Directors provide valuable advice and counsel in furthering the business objectives of
the Group.

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 Group has a
clear mandate to optimise the allocation of limited resources to support its appraisal and development programmes. As such, the
Group 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 considering the size and maturity and complexity of the organisation.

Alasdair Locke
Chairman
8 June 2016

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationAudit Committee Report

The Committee’s focus in FY2016 was the evaluation of the
Group’s asset values in light of volatile market conditions and the
assessment of the updated UK Code and the new guidelines on
Risk Management, Internal Control, and Related Financial and
Business Reporting published in 2014 by the FRC and which
apply to the Group for the first time this year. The Audit Committee
has assessed the implications of the new requirements to ensure
that the Group complies as is practical for a Group of our size
and resources and that the Committee will continue to oversee
the implementation of internal control and risk management
process enhancements.

Peter Milne
Chairman of the Audit Committee
8 June 2016

Governance
The Audit Committee comprises of two Non-Executive Directors
and oversees the Group’s financial reporting and internal control
procedures as well as providing a formal reporting link with the
external auditor. Mr Milne, who has been the Chairman of the
Audit Committee since 2012, is a chartered accountant with over
30 years of oil and gas sector experience. Pradip Shah, who was
a member of the Audit Committee throughout the year, is also a
chartered accountant. The Committee is satisfied that Mr Milne
and Mr Shah’s membership of the Committee satisfy the UK Code
requirements regarding recent and relevant financial experience.

The Chief Executive Officer and Treasurer were invited to attend
all meetings and other senior management and representatives
of the external auditor were invited as appropriate. The external
auditor has unrestricted access to the Audit Committee Chairman.

The Committee has noted the updated UK Code and the new
guidelines on Risk Management, Internal Control, and Related
Financial and Business Reporting published in 2014 by the FRC.
The Audit Committee continue to monitor the implications of
the new requirements particularly in regard remuneration, risk
management and long-term viability, in order to ensure that
the Group is compliant as is practical for a Group of our size
and resources.

Summary of responsibilities
The ultimate responsibility for reviewing and approving the Annual
Report and Accounts and the half-yearly reports remains with the
Board. The Audit Committee met four times in the 12 months
ended 31 March 2016 and the attendance of members at the
Audit Committee meetings held in the current reporting period
were as follows:

Committee member

Peter Milne (Chairman)
Pradip Shah

Meetings
attended

4 of 4
4 of 4

Hardy Oil and Gas plc Annual Report and Accounts FY2016Main 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 accounting policies, significant financial reporting

issues and relevant 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;

• considering the Company’s internal audit requirements and

make recommendations to the Board;

• overseeing the Board’s relationship with the external auditor
and, where appropriate, the selection of new external auditor;
• approving non-audit services provided by the external auditor
and ensuring the independence and objectivity of the external
auditor is safeguarded when appointing them to conduct
non-audit services; and

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

The Audit Committee terms of reference can be accessed via
the Company’s website www.hardyoil.com. The Committee fully
discharged its responsibilities during the year.

Consideration and review of six-month interim statements
and results for the 12 months ended 31 March 2016
• The Audit Committee monitored the current business and

geopolitical environment in India and in particular the continuing
commodity price volatility in the oil and gas markets while
considering the appropriateness of the Group’s statements.
• The Audit Committee met with the external auditor as part of
both the six-month interim statements and annual accounts
approval processes.

• The Audit Committee considered the most appropriate

treatment and disclosure of any new or judgemental matters
identified during the audit of the 12-month accounts or interim
statement review, as well as any other recommendation or
observation made by the external auditor.

The Audit Committee audit planning and update on
relevant accounting developments
• The Company prepares financial statements under International

Financial Reporting Standards (IFRS) as adopted by the
European Union.

• 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 auditor for the interim review and
year-end statutory audit.

• Considered and adopted new requirements provided for in the
2014 updated UK Code, EU’s Transparency and Accounting
Directives, and other IFRS.

Review of risk management systems and internal control
process and procedures
• The management via the Risk Committee and Board meetings
provided the Audit Committee with clear updates of risk and
uncertainties facing the Company and accompanying actions
to mitigate such risk.

• Following a review the Audit Committee was satisfied with the
appropriateness of the risk management framework which
provides for a systematic approach to risk identification and
management which combines both the Board’s assessment
of risk with risk factors originating from and identified by the
Group’s senior management.

• The Audit Committee mandated several internal control

enhancements following observations made by the external
auditor. The Audit Committee also oversaw the implementation
of other improvements including the successful upgrading of
accounting software leading to better functionality and
reporting capabilities.

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 Treasurer with
oversight by the Senior Non-Executive Director. As a result the
Audit Committee was considered to be operating effectively
and in accordance with the UK Code.

Review of the requirement for an internal audit function
• The Committee considered the requirement for an internal
audit function. The Audit Committee considered the size of
the Group, the relative simplicity of the systems and the close
involvement of senior management. Following the Committee’s
review it was recommend to the Board that an internal audit
function is not appropriate at this time.

Financial reporting
The Committee monitored the integrity of the financial
statements and the Group’s other financial reports and reviewed
the significant financial reporting issues and accounting policies
and disclosures in the financial reports. The Committee met with
the external auditor as part of the full year and interim accounts
approval processes. The process included the consideration of
key audit risks identified as being significant to the 2016 accounts.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional Information
Audit Committee Report continued

Significant issues considered in relation to the financial statements
The primary areas of judgement considered by the Audit Committee in relation to the 2016 accounts and how these were addressed
are detailed below:

Issue

Action taken by the Committee

Intangible assets – exploration CY-OS/2
There is continuing uncertainty over the status of the block due to
the ongoing legal dispute with the GOI. The value of the intangible
asset in relation to CY-OS/2 is material to the Group balance
sheet. Details of the dispute and arbitration award are provided
for on note 16 on page 65.

The Audit Committee reviewed and considered the external legal
advice obtained by management concerning the enforcement
of the CY-OS/2 Award in favour of Hardy and is satisfied to
continue to recognise CY-OS/2 as an intangible asset, valued at
$51.0 million in the Group balance sheet and that the disclosures
concerning the dispute are fair and balanced.

PY-3 field and deferred tax asset
The PY-3 field has been shut-in since July 2011 and had a
carrying value of $5.8 million. In order to assess whether any
impairment in value has taken place the financial viability of the
field has to be assessed in light of current circumstances and
market conditions. The deferred tax asset carrying value of
$9.7 million is recoverable only if sufficient profits are generated
after the restart of production on PY-3.

The Committee reviewed the progress made by management
in seeking to achieve Management Committee approval of
the proposed FDP. In light of the sustained fall in oil price and
new GOI policies the Committee challenged management’s
assumptions provided for in the field’s financial model including
revenue and cost estimates, fiscal structure and production
profiles. The Committee is satisfied that management’s conclusion
that impairment has occurred and the level of write-down in the
value of these assets is appropriate.

GS-01 field
The GS-01 had a carrying value of $5.0 million. The GOI
gas pricing policy has resulted in current pricing levels being
lower than that required to allow for the development of GS-01.
Management intend however to continue its efforts to acquire its
partners interest in the field.

The Committee reviewed management’s proposed development
plan for GS-01 and the underlying cost estimates and production
profiles. The Committee considered the status of the Group’s
efforts to acquire the operator’s interest and longer-term pricing
projections. As a result the Committee is satisfied that the write-off
of GS-01 is appropriate.

Provisions for decommissioning costs
Estimates of the cost of future decommissioning and restoration
of the PY-3 field are based on current legal and constructive
requirements, technology and price levels, while estimates of
when decommissioning will occur depend on assumptions made
regarding the economic life of fields which in turn depend on such
factors as oil prices and operating costs.

The Committee discussed with management the estimation
process and the basis for the principal assumptions underlying
the cost estimates, noting in particular the reasons for any major
changes in estimates as compared with the previous year. The
Committee was satisfied that the approach applied was fair and
reasonable. Further information on decommissioning provisions is
provided in note 22 on page 67.

Legal matters
The Group is currently involved in a number of disputes with third
parties and taxation authorities which in the event of adverse
findings could result in an unexpected material cash outflow.

The Committee reviewed with management and its professional
advisors the current status of various disputed matters and
their likely outcomes. Taking into account the range of possible
outcomes and their probabilities the Committee is satisfied that
sufficient provisions or contingent liabilities have been recognised
in the financial statements where necessary.

Hardy Oil and Gas plc Annual Report and Accounts FY2016The UK Code states that the Audit Committee should have
primary responsibility for making a recommendation on the
appointment, reappointment or removal of the external auditor.
On the basis of the Audit Committee’s review of the external
auditor’s performance, effectiveness and independence, the
Committee recommends to the Board that it recommends to
shareholders the reappointment of the auditor at the Company’s
2016 Annual General Meeting.

Peter Milne
Chairman of the Audit Committee
8 June 2016

Viability Statement
One of the principal requirements of UK Code is to include a
Viability Statement requiring the Board to state whether it has a
reasonable expectation that the Company will be able to continue
in operation and meet its liabilities. In making this statement the
Directors are expected to look forward significantly longer than
12 months. The Company’s Viability Statement can be found on
page 18 of the Strategic Report. The Committee has reviewed
and concurred with the basis on which the Viability Statement
has been prepared.

External auditor
The Company’s external auditor is Crowe Clark Whitehill LLP.
Authorisation of non-audit services provided to the Group is a
matter reserved for the Audit Committee. In the 12 months ended
31 March 2016 Crowe Clark Whitehill LLP did not provide any
non-audit related services to the Company. Crowe Clark Whitehill
did undertake a review of the Company’s Interim Statement and
Accounts for the six months ended 30 September 2015.

The external auditor has unrestricted access to the Audit
Committee Chairman. During the current audit process, the Audit
Committee Chairman met with the audit engagement partner from
Crowe Clark Whitehill LLP, without the presence of management.

The Committee is satisfied that Crowe Clark Whitehill LLP
has adequate policies and safeguards in place to ensure that
auditor objectivity and independence are maintained. The
external auditor’s report to the Audit Committee annually on
their independence from the Company. In accordance with
professional standards, the partner responsible for the audit is
changed every five years, and last changed in December 2012.
The current auditor, Crowe Clark Whitehill LLP, was first appointed
by the Company in 1999 and the current partner is due to rotate
off the engagement after completing the March 2017 audit. Taking
into consideration the transitional rules issued by the Competition
Commission as an indication of best practice, the Company would
intend to put the audit out to tender after the end of the 2019 audit
at the latest.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationDirectors’ Remuneration Report

The Remuneration Committee’s Report for the 12 months
ended 31 March 2016 comprises of two sections:
• The Directors’ Remuneration Policy Report, which sets out the
three-year Directors’ remuneration policy for the Company
which commenced on 1 April 2014. This section has been
included in line with best practice.

• An annual statement providing a summary of the Committee’s

activities in the 12 months ended 31 March 2016 and its
intention going forward.

Following open and constructive dialogue with major shareholders
the Non-Executive Directors have voluntarily agreed indefinitely to
forego the equity award entitlement of 25 per cent of the Director’s
annual fee. Further Mr Locke has agreed to a reduction in his
annual fee from £115,000 to £90,000.

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 ir@hardyoil.com.

Pradip Shah
Chairman of the Remuneration Committee
8 June 2016

Directors’ remuneration policy (voluntary disclosure)
This part of the Directors’ Remuneration Report sets out Hardy’s
remuneration policy for the Company which commenced 1 April
2014. This section further outlines how the remuneration policy
will be operated during the 12 months ended 31 March 2017.

Policy overview
The principles of the remuneration policy are to ensure that
remuneration promotes the attraction, motivation and retention
of the highest-quality executives who are key to executing our
strategy and delivering substantial returns to shareholders. A
meaningful proportion of executive remuneration is structured to
link rewards to corporate and individual performance, conservation
of limited capital resources, and an alignment of interests with
those of shareholders and to incentivise them to perform at the
highest levels.

The remuneration package for the executive and senior
management will comprise of base salary, annual bonus, taxable
benefits, pension contributions and participation in the Company’s
share incentive arrangements.

Consideration of shareholders’ views
The Remuneration Committee considers shareholder feedback
received at the Annual General Meeting each year and, more
generally, guidance from shareholder representative bodies.
This feedback, plus any additional feedback received from time
to time, is considered as part of the Company’s review of
remuneration policy.

Employment conditions elsewhere in the Group
In setting the remuneration policy and remuneration level
for the Executive Director, the Committee is cognisant of the
approach to rewarding employees in the Group and levels of
pay increases generally.

Operation of share plans
The Committee will operate the Unapproved Share Option
Plan, Executive Share Option Plan and Restricted Share awards
according to their respective rules and in accordance with the
Listing Rules and HMRC rules where relevant. The Committee
retains discretion over a number of areas relating to the operation
and administration of the plans in relation to senior management
including the Executive Directors. These include (but are not
limited to) the following:
• who participates;
• the timing of grant of awards and/or payment;
• the size of awards and/or payment;
• discretion relating to the measurement of performance in

the event of a change of control or reconstruction;

• determination of a good leaver (in addition to any specified
categories) for incentive plan purposes and a good leaver’s
treatment;

• adjustments to awards required in certain circumstances
(eg rights issues, corporate restructuring and special
dividends); and

• the ability to adjust existing performance conditions
for exceptional events so that they can still fulfil their
original purpose.

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Non-executive remuneration
Policy
The main goals of the Company’s remuneration policy for the
Chairman and Non-Executive Directors is designed to assure
alignment with shareholders, maintain independence, recognise
time commitments, and attract and retain outstanding candidates.

Remuneration scenarios for the Executive Director
The chart below shows how the composition of the Executive
Director’s remuneration package varies at different levels of
performance under the remuneration policy, as a percentage
of total remuneration opportunity and as a total value.

Remuneration potential

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 Group’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 a basic annual
fee of £50,000. Effective 1 April 2016, the Chairman of the Board
will receive an additional annual fee of £40,000 (FY2016: £65,000)
to reflect his additional responsibilities as Chairman of the Board.
The Audit Committee Chairman will receive an additional annual
fee of £10,000 to reflect additional responsibilities. Each Non-
Executive Director is also entitled to the reimbursement of
necessary travel and other expenses. In certain circumstances
a Non-Executive Director may receive additional fees to
compensate for time spent in excess of what would normally
be expected in the execution of their roles and responsibilities.

Non-Executive Directors are entitled to an annual restricted shares
award equivalent to 25 per cent of their basic 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 basic 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.
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, for a good leaver (defined
as death, injury or disability, redundancy, retirement, his office or
employment being either with a company which ceases to be in
the Group or relating to a business or part of a business which is
transferred to a person who is not a party to the Group or any other
reason the Committee so decides) the Board has discretion to
accelerate vesting on a date determined by it.

Chairman’s additional remuneration
Alasdair Locke’s terms of agreement provide for a 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.

£’000

1,000

750

500

250

165

100
21

250

Threshold

Expected

Maximum

Salary
Annual bonus – cash

Pension and benefits
Annual LTI award

Service agreement
All of the service contracts with Directors are on an evergreen
basis, subject to termination provisions. The Company may, in
lieu of notice, terminate the 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. The appointment of the Executive Director is
subject to termination by no greater than 12 months by either
party. The appointments of Non-Executive Directors are subject
to termination upon at least three months’ notice.

Chief Executive Officer
The service contract of Ian MacKenzie is on an evergreen basis
until terminated by not less than 12 months’ written notice by
either party. 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 contract until the end
of the notice period.

External appointment
The Board has not introduced a formal policy in relation to the
number of external directorships that an Executive Director may
hold. Currently the Executive Director does not hold any other
external appointment.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationDirectors’ Remuneration Report continued

Policy for new appointments
Executive
Base salary levels will take into account market data for the
relevant role, internal relativities, the individual’s experience and
their current base salary. Where an individual is recruited at below
market norms, they may be realigned over time (eg two to three
years), subject to performance in the role. Benefits will generally
be in accordance with the approved policy.

The Committee may consider buying out incentive awards which
an individual would forfeit upon leaving their current employer
although any compensation would, where possible, be consistent
with respect to currency (ie cash for cash, equity for equity),
vesting periods (ie there would be no acceleration of payments),
expected values and the use of performance targets.

For external and internal appointments, the Committee may agree
that the Company will meet certain relocation and/or incidental
expenses as appropriate.

Non-executive
A one-time restricted share award will be made to a new Non-
Executive Director on joining the Board under the same terms
and conditions outlined for non-executive annual restricted share
award. The market value of the one-time award of Hardy Ordinary
Shares will not be greater than 100 per cent of the annual fee
entitlement. In exceptional circumstance this amount may be
revised as deemed appropriate by the Remuneration Committee
with Board approval.

Summary of Directors’ remuneration policy
EXECUTIVE DIRECTOR

Policy for loss of office
The Chief Executive Officer’s service contract is terminable by
him or the Company on 12 months’ notice. There are no specific
provisions under which the Executive Directors are entitled to
receive compensation upon early termination, other than in
accordance with the notice period. On termination of the Executive
Director’s service contract, the Committee will take into account
the departing Director’s duty to mitigate his loss when determining
the amount of any compensation. Disbursements such as legal
and outplacement costs and incidental expenses may be payable
where appropriate.

Any unvested awards held under the Unapproved Share Option
Plan, ExSOP (a structured option plan) plan or restricted shares
awards will lapse at cessation unless the individual is a good
leaver in which case the Board may permit the extension of
unvested options to a later date not to exceed 12 months
from date of cessation.

The appointments of any Non-Executive Director may be
terminated by either party on three months’ written notice.

Summary Directors’ remuneration policy
The table below sets out a summary of each element of the
Directors’ remuneration packages, their link to the Company’s
strategy, the policy for how these are operated, the maximum
opportunity and the performance framework.

Base salary

Purpose and link to strategy

Operation

Opportunity

To provide an appropriate level of fixed cash income to attract and retain individuals with the
personal attributes, skills and experience required to deliver our strategy.

Generally reviewed annually with increases effective from 1 January. Base salaries will be set by
the Committee taking into account the:
• scale, scope and responsibility of the role;
• skills, experience and performance of the individual;
• retention risk; and
• base salary of other individual undertaking similar roles in companies of comparable size

and complexity.

Increases to the current Executive Director salary, presented in the “Application of policy
in 2016/17” row below, will not normally exceed the average increase awarded to other UK-
based employees. Increases may be above this level in certain circumstances, for instance
if there is an increase in the scale, scope or responsibility of the role or to allow the base
salary of newly appointed executives to move towards market norms as their experience and
contribution increase.

Framework for recovery

None.

Application of policy in FY2017 1

Executive Director Base salary £250,000 (may be reviewed annually by the Committee effective
1 January).

1 Not part of the policy report.

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Pension and benefits

Purpose and link to strategy

Operation

Opportunity

To attract and retain individuals with the personal attributes, skills and experience required to
deliver our strategy.

Salary supplement contribution to personal pension plan. Membership of a medical scheme, life
and long-term disability assurance cover, and professional dues and other professional services.

Pension: 7.5 per cent of base salary. Benefits: the range of benefits that may be provided is set by
the Committee after taking into account local market practice in the country where the executive
is based. Additional benefits may be provided, as appropriate.

Framework for recovery

None.

Application of policy in FY2017 1

No change.

Incentives

Purpose and link to strategy

Operation

Opportunity

To provide a simple, competitive, incentive plan that: will attract, retain and motivate individuals
with the required personal attributes, skills and experience; provide a real incentive to achieve our
strategic objectives; and align the interests of management to shareholders.

Annual bonus plan – personal performance targets are set for the executive which the Committee
deem appropriate and effective in aligning and motivating the executive toward the achievement
of the Company’s short-term objective:
• Annual award of cash bonus based on personal target linked performance ranging from nil up

to the equivalent of 100 per cent of the executive base salary.

Annual long-term equity-based award will be made in line with the Committee’s assessment of
the strategic targets:
• Unapproved Share Option Plan, ExSOP (a structured option plan) or restricted shares;
• annual long-term equity-based award based on performance of the Company and personal

performance; and

• option and restricted share awards will normally vest after three years, subject to certain

performance conditions and continued service.

Annual bonus plan – the maximum annual level of award is 100 per cent of salary for the
Executive Director.
Annual long-term share or option award – the maximum face value for an annual award of
option or share-based Long-term Incentives (LTIs) is equivalent to 100 per cent of the executive’s
base salary. Face value is the product of market value at time of award and number of options/
shares awarded.

Framework for recovery

Claw back: unvested restricted shares and options can be terminated by the Board in instances
of material misstatement or serious misconduct.

Application of policy in FY2017 1

Award will be based on the Boards assessment of performance in meeting strategic targets.

Threshold
Target
Cap

Bonus

20%
40%
100%

LTI (option-based
award)

nil%
65%
100%

LTI – option vesting will be conditional on the Company’s share price appreciating at an average
compounded rate of 5 per cent over three to five years from the date of grant. At the time of
award the Board may apply additional vesting conditions as it deems appropriate.

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 create additional value leading
to a higher share price for all shareholders, subject to general market conditions.

1 Not part of the policy report.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationDirectors’ Remuneration Report continued

NON-EXECUTIVE DIRECTOR

Purpose and link to strategy

Operation

Opportunity

To provide an appropriate fee level to attract individuals with the necessary experience and ability
to make a significant contribution to the effectiveness of the Board and to the Group’s activities
while also reflecting the time commitment and responsibility of the role.

The Chairman and the Non-Executive Directors are paid a basic annual fee with additional
responsibility fees for the chairing of the Audit Committee. Fees are normally reviewed annually.
Each Non-Executive Director is also entitled to a reimbursement of necessary travel and other
expenses, and when applicable extra fees for additional work beyond the normal Non-Executive
Director responsibilities. Restricted shares are issued to the Chairman and each Non-Executive
Director on an annual basis equivalent to 25 per cent of their basic annual fee.

There is no maximum prescribed fee increase although fee increases for Non-Executive Directors
will not normally exceed the average increase awarded to the Executive Director. Increases may
be above this level if there is an increase in the scale, scope or responsibility of the role.

Framework for recovery

None.

Application of policy in FY2017 1

Current Non-Executive Director fees:
Basic annual non-executive
Additional fees
Chairman of the Board
Chairman Audit Committee
The Chairman fee reduced from £65,000 to £40,000.
Other fees to remain at the same level as FY2016.

£50,000

£40,000
£10,000

1 Not part of the policy report.

Non-Executive Director terms of appointment
The services of Alasdair Locke, Peter Milne and Pradip Shah are,
as Non-Executive Directors, provided under the terms of
agreements with the Company dated as follows:

Hardy’s Remuneration Committee operates within the terms of
reference approved by the Board. A copy of the Remuneration
Committee’s terms of reference can be found on the Company’s
website www.hardyoil.com.

Non-Executive Director

Alasdair Locke
Peter Milne
Pradip Shah

Year of
appointment

Number
of years
completed

Date of current
engagement
letter

2012
2012
1999

4
4
17

12 January 2012
29 February 2012
2 June 2005

Annual Report on Remuneration
This part of the report provides details of the operation of the
Remuneration Committee, how the remuneration policy was
implemented in the 12 months ended 31 March 2016 (including
payment and awards in respect of incentive arrangements) and
how shareholders voted at the 2016 Annual General Meeting. This
part of the report is to include a summary of how the policy will be
operated for the next financial year however, for ease of reference,
this is presented within the Remuneration Policy Report on pages
36 to 37.

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

Committee’s main responsibilities
• The Remuneration Committee considers remuneration policy,
employment terms and remuneration of the Executive Director
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 the Executive Director 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 FY2016
The Remuneration Committee met three times in the 12 months ended 31 March 2016 and all Committee members served in office
throughout the year. The attendance of members at the Remuneration Committee meetings was as follows:

Committee member

Pradip Shah (Chairman)
Alasdair Locke
Peter Milne

Number of
meetings
attended

3 of 3
3 of 3
3 of 3

Committee evaluation
The performance of the Remuneration Committee was evaluated as part of the Board evaluation which was completed in early 2016.
The review was coordinated by the Senior Non-Executive Director and the Treasurer. As a result the Remuneration Committee was
considered to be operating effectively.

Committee advisors
No remuneration advisors were retained by the Remuneration Committee during the 12 months ended 31 March 2016.

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 own remuneration. The Company Chairman also absents himself during discussion relating to
his own fees.

Remuneration review
Executive
The Chief Executive Officer’s base salary remained unchanged at £250,000. The base salary is below industry average. The Chief
Executive Officer’s remuneration was last revised in 2013.

Non-Executive
The Non-Executive Director fees remained unchanged.

Single total figure of remuneration for each Director (audited)
Set out below are the emoluments of the Directors for the years indicated ($):

Executive

Name of Director

Ian MacKenzie1

Non-Executive

Name of Director

Alasdair Locke

Peter Milne2

Pradip Shah3

Fixed

Long term

Salaries/fees

Benefits

Bonuses

LTI vesting

FY2016
FY2015
FY20144

(a)
376,968
403,703
469,145

(b)
2,911
2,915
5,415

(d)
–
–
–

Pension
contribution

(e)
32,103
34,341
42,722

Other

Total

(f)
–
–
–

411,982
440,959
517,282

Fixed

Long term

Salaries/fees

Benefits

Bonuses

Share awards

Pension
contribution

Other

Total

FY2016
FY2015
FY20144

(a)
176,354
183,540
204,698

91,652
95,760
120,018

75,189
79,800
83,087

(b)
–
–
–

–
–
–

(d)
40,959
43,102
79,347

21,370
22,488
36,525

17,808
18,740
28,565

(e)
–
–
–

–
–
–

(f)
–
–
–

–
–
–

217,313
226,642
284,045

113,022
118,248
156,543

92,997
98,540
111,652

Ian Mackenzie’s benefits included life and medical insurance.

1
2 Peter Milne was awarded an extra fee of $16,546 due to extraordinary services provided to the Company in FY2013/14.
3 Pradip Shah was awarded an extra fee of $5,820 due to extraordinary services provided to the Company in FY2013/14.
4 Remuneration figures for FY2013/14 comprised of 15 months ended 31 March.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional Information

Directors’ Remuneration Report continued

Long-term incentive plans
Unapproved Share options
The Committee did not recommend an award under this scheme FY2016.

The last award provided under this scheme was on 11 April 2014 wherein the Committee recommended the award of 250,000 options to
the Chief Executive Officer. The options awarded will 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 5 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 are to 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 Committee did not recommend any awards under the ExSOP scheme.

Directors’ share options
Set out below is certain information pertaining to share options granted to Directors who held office at 31 March 2016:

Director

Ian MacKenzie1

Total

As at
31 March
2015

750,000
250,000

1,000,000

Granted
during
FY2016

Forfeited
during
FY2016

As at
31 March
2016

Date
of grant

Vested at
end of 2014

Expiry date

–
–

–

–
–

–

750,000
250,000

14–Mar–12
11–Apr–14

– 13–Mar–22
10–Apr–24
–

1,000,000

Exercise price
per share
(£)

1.55
0.65

1 Mr MacKenzie’s options awarded in 2012 and 2014 are subject to the conditions outlined above.

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.

Material contract
There have been no other contracts or arrangements during the financial year in which a Director of the Company was materially
interested and/or which were significant in relation to the Group’s business.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Performance graph
Ordinary Shares of the Company were listed 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 Producers Index.

Shareholders return and index performance
5 June 2005–31 March 2016

Hardy share closing price data

Since June 2005

500%

400%

300%

200%

100%

-100%

J u n 0 5

O ct 0 5

F e b 0 6

J u n 0 6

O ct 0 6

F e b 0 7

J u n 0 7

O ct 0 7

F e b 0 8

J u n 0 8

O ct 0 8

F e b 0 9

J u n 0 9

O ct 0 9

F e b 1 0

J u n 1 0

O ct 1 0

F e b 1 1

J u n 1 1

O ct 1 1

F e b 1 2

J u n 1 2

O ct 1 2

F e b 1 3

J u n 1 3

O ct 1 3

F e b 1 4

J u n 1 4

O ct 1 4

F e b 1 5

J u n 1 5

O ct 1 5

F e b 1 6

Hardy equity

FTSE All-Share Index

FTSE 350 – Oil & Gas Producers

Source: London Stock Exchange

Chief Executive Officer’s remuneration

Total remuneration ($)
Months of service
Total remuneration ($/mth)
Annual bonus (%)2
Option vesting

2010

347,113
12
28,926
Nil
Nil

2011

20121

FY2014

FY2015

399,350
12
33,279
Nil
Nil

359,077
11
32,646
Nil
Nil

508,954
15
33,930
Nil
Nil

440,636
12
36,720
Nil
Nil

FY2016

411,982
12
34,332
Nil
Nil

1 Chief Executive Officer’s remuneration figure includes Mr MacKenzie’s total remuneration in 2012, he was appointed Chief Executive Officer designate effective

1 February 2012.

2 The Chief Executive Officer was entitled to a bonus of nil to 100 per cent of annual salary equivalent. No bonus has been awarded by the Board.

On 31 March 2016, the market price of an Ordinary Share of Hardy was £0.14 per share. The highest and lowest market price of an
Ordinary Share of Hardy during the 12 months ended 31 March 2016 was £0.42 and £0.09 respectively.

Percentage change in Chief Executive Officer’s remuneration
The table below shows the percentage change in the Chief Executive Officer’s total remuneration between the financial period ended
31 March 2015 and financial year 31 March 2016 compared to that of the average for all employees of the Group.

Salary

Benefits

Bonus

Chief Executive Officer
Average employees

0
0

Note: Percentage figures provided in the table above are determined based on the currency in which individuals are paid.

Relative importance of spend on pay
The following table shows the Company’s actual spend on pay for all employees relative to dividends.

Total employee remuneration ($ million)
Dividend and share buyback

1 Weighted average change.

2014/15

2015/16

1.5
0

1.4
0

0
0

(6)
0

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationDirectors’ Remuneration Report continued

Shareholder voting at the last Annual General Meeting
At last year’s Annual General Meeting (3 September 2015) the Company’s Remuneration Report received the following votes
from shareholders:

For

Against

Votes withheld

Total issued
share capital
instructed

Report

Total number of votes
% of votes cast

54,798,207
92.8

4,250,676
7.2

150

59,049,033

Directors’ interests in the share capital of the Company
The Directors who held office at 31 March 2016 and who had beneficial interests in the Ordinary Shares of the Company are
summarised in the table below. There are no minimum shareholding requirements for Directors:

Name of Director

Alasdair Locke
Peter Milne
Ian MacKenzie
Pradip Shah

Position

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

As at
31 March
2016

1,198,153
319,595
352,969
835,690

As at
31 March
2015

976,999
204,210
352,969
739,536

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.

Other matters
The Company does not manage any pension scheme 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
8 June 2016

Hardy Oil and Gas plc Annual Report and Accounts FY2016Nomination Committee Report

The main role of the Nomination Committee is to ensure that
the Board has the necessary skills and expertise to support
the Company’s current and future activities. Further we work
to ensure that the Company’s senior management have the
necessary competencies to execute the organisation’s
strategic objectives.

The Hardy Board comprises of four members including
three Non-Executive Directors and one Executive Director. The
Committee reviewed the composition of the Board and concluded
that the current membership is sufficient to guide the Company to
achieve its strategic objectives. The Nomination Committee will
continue to assess the Group’s leadership requirements and the
overall effectiveness and composition of the Board.

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
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

• make 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 three
Non-Executive Directors with Alasdair Locke as Chairman of the
Committee. The Nomination Committee met three times in the 12
months ended 31 March 2016. The membership and attendance
of members at Committee meetings held are provided below:

Committee member

Meetings attended

Alasdair Locke (Chairman)
Peter Milne
Pradip Shah

3 of 3
3 of 3
3 of 3

Committee activities
The principal activities of the Committee during the 12 months
ended 31 March 2016 and subsequent to year end.

Board composition – The structure, size and composition of the
Board was assessed. It was agreed that the current composition
of the Board is adequate and provides the appropriate balance of
experience and expertise to effectively fulfil its obligations to
stakeholders.

Management resources – The Committee members arrange
a site visit of the Company’s India project office to facilitate the
ongoing assessment of the Company’s senior management
capabilities and expertise. The Committee is satisfied that the
Company currently has sufficient human resources to achieve
the Company’s short-term objectives and has identified areas
of enhancement to be put in place as our projects mature.

Board Committee membership – The Committee recommended
membership of Board Committees remains unchanged. A copy of
the Committee’s 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 early 2016. The review was coordinated by the
Senior Non-Executive Director with the assistance of management.
The review showed that the Nomination Committee was considered
to be operating effectively.

UK Code compliance – The Committee has noted shareholder
feedback regarding independence of non-executives.

Independence – Mr Shah, a Non-Executive Director, does
not meet the requirements for independence within the framework
of the UK Code, primarily due to term of service. The Committee
considers that Mr Shah is independent of management as the Chief
Executive Officer was appointed in 2012 and with whom Mr Shah
has had no previous professional interaction. Furthermore
Mr Shah’s contributes relevant skills, expertise and insight towards
the Company’s stated strategic objectives and provides valuable
advice as to the business and political environment in India.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNomination Committee Report continued

The Committee have concluded that the current Board members
are the most appropriate for the needs of the organisation. We will
continue to closely monitor the composition of the Board in this
regard and take action when appropriate.

Gender diversity – All of the Executive and Non-Executive
Directors are male reflecting the relatively low level of gender
diversity at senior levels in the upstream oil and gas industry
generally. The Committee recognises the benefit of gender diversity
however with due consideration for current circumstances there
is no immediate plan to change the composition of the Board.
The Board is diverse in respect to skills, experience and
cultural background.

Alasdair Locke
Chairman of the Nomination Committee
8 June 2016

Hardy Oil and Gas plc Annual Report and Accounts FY2016Directors’ Report

The Directors of Hardy Oil and Gas plc present their annual report
together with the audited financial statements for the 12 months
ended 31 March 2016. These will be presented before the
shareholders at the Annual General Meeting scheduled to be
held on 8 September 2016.

Messrs Locke, Milne and Shah 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.

Business review and future developments
Hardy is an international upstream oil and gas company
holding exploration and production rights 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 Group’s activities during the 12 months ended
31 March 2016 and plans for the year ended 31 March 2017 can be
found in the Strategic Report section on pages 1 to 21 of the
Annual Report, which are incorporated herein by reference.

Directors
The Directors that served in office throughout the 12 months
ended 31 March 2016 were:

Board member

Position

Committee member

Alasdair Locke Non-Executive Chairman Remuneration,

Nomination
(Chairman), Risk

Ian MacKenzie Chief Executive Officer

Risk (Chairman)

Executive Director

Peter Milne

Non-Executive Director

Pradip Shah

Non-Executive Director

Audit (Chairman),
Remuneration,
Nomination, Risk

Remuneration
(Chairman), 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 Group
has a Directors’ and officers’ liability insurance policy in place.

Results and dividends
The Group is reporting a total comprehensive loss of $16,757,159 for
the 12 months ended 31 March 2016 compared to a comprehensive
loss of $24,494,385 for the 12 months ended 31 March 2015. The
Directors do not recommend the payment of a dividend.

Election and re-election of Directors
At the next Annual General Meeting of the Company, to be held
on 8 September 2016, Peter Milne and Pradip Shah will offer
themselves for re-election as Non-Executive Directors. Biographical
details for Mr Milne and Mr Shah are set out on page 22.

Peter Milne is the Senior Non-Executive Director of the Board and
Chairs the Company’s Audit Committee and is a member of the
Remuneration Committee and Nomination. Mr Milne has been a
member of Hardy’s Board and served as the Non-Executive
Director for more than four years.

Pradip Shah Chairs the Company’s Remuneration Committee and
is a member of the Audit and Nomination Committees. Mr Shah
has served as a Director for more than 17 years.

The Board of Directors believe that the contribution being made
by these Directors continue to be invaluable and is 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 20 to the consolidated
financial statements. Disclosures with respect to share options are
provided in note 9 to the consolidated financial statements and in
the Directors’ Remuneration Report.

At 31 March 2016 and at the date of this report, there were
73,764,035 Ordinary Shares of Hardy issued and fully paid. Major
interests in share capital of the Company, in excess of 3 per cent1,
as of the date of this report are as follows:

Richard Griffiths and controlled

undertaking

21,931,218

29.91%

Universities Superannuation

Scheme Limited

Aberforth Partners LLP
Robert Quested
Henderson Global Investors
NFU Mutual Insurance Society

Limited

Yogeshwar Sharma
John Grahame Whateley
Legal & General Group Plc (L&G)

9,243,931
8,161,830
5,279,354
3,277,403

2,713,479
2,662,438
2,438,169
2,245,667

12.61%
11.13%
7.20%
4.47%

3.70%
3.63%
3.32%
3.06%

Total

57,953,489

79.03%

1 The Company relies on TR-1 notifications to track major shareholdings. Such

notification is to be issued by the shareholder to the Company and appropriate
authority following which the Company is required to disclose via an Regulatory
News Service (RNS). There is no mechanism in place for the Company to verify
the accuracy of such disclosures.

GHG emissions
The disclosure concerning GHG emissions is included in the
Strategic Report on page 21.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationDirectors’ Report continued

Diversity
The disclosures concerning Director, management and employee
gender diversity as required by law are included in the Strategic
Report on page 21.

b) the Annual Report and statement of accounts 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.

Annual General Meeting
The Company’s next Annual General Meeting will be held at Skene
House, Rosemount Viaduct, Aberdeen AB25 1NX, Scotland on
8 September 2016 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 IFRS 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 12 months ended
31 March 2016, 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 ensuring that proper accounting
records are kept and which 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.

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.

Charitable and political donations
During the 12 months ended 31 March 2016, the Group 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 auditor
Crowe Clark Whitehill LLP have expressed their willingness
to continue as auditor. In accordance with the Isle of Man
Companies Acts 1931 to 2004, a resolution reappointing Crowe
Clark Whitehill LLP as auditor of the Company will be proposed at
the next Annual General Meeting.

Going concern
The Group’s business activities, together with factors likely to
affect its future operations, financial position and liquidity position
are set out in the Strategic Report section of the Annual Report. In
addition, note 24 to the financial statements disclosed the Group’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 Group 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.

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.

Events subsequent to 31 March 2016
There have not been any material events that have occurred since
31 March 2016 to the date of this report.

Approved by the Board of Directors.

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 IFRS 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

Alasdair Locke
Chairman
8 June 2016

Hardy Oil and Gas plc Annual Report and Accounts FY2016Independent Auditor’s Report to the Shareholders of Hardy Oil and Gas plc

Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the Group’s
and of the Parent Company’s state of affairs as at 31 March
2016 and of the Group’s loss for the period then ended;

• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(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 (International Accounting Standards) Regulation.

The financial statements of Hardy Oil and Gas plc 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 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.

Going concern
As required by the Listing Rules we have reviewed the Directors’
statement on page 27 regarding the appropriateness of the going

concern basis and the Directors’ Viability Statement of the Group
contained within the Strategic Report on page 18. We have
nothing material to add or draw attention to in relation to:
• the Directors’ confirmation on page 46 that they have carried

out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity and the disclosures on
pages 18 to 19 that describe those risks and explain how they
are being managed or mitigated;

• the Directors’ statement in note 1 of the accounting policies

about whether they consider it appropriate to adopt the going
concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s ability
to continue to do so over a period of at least 12 months from
the date of approval of the financial statements; and

• the Directors’ explanation within the Strategic Report on page
18 as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.

We have concluded that the Director’s use of the going concern
basis of accounting for the preparation of the financial statements
to be appropriate and have not identified any material
uncertainties. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to the
Group’s ability to continue as a going concern.

Overview of our audit approach

Risks of material misstatement

Changes in our risk assessment – risks reported
for the first time this year

Changes in our risk assessment – areas where
our assessment of the risk has increased since
the prior year

Audit scope

Materiality

• Carrying value of the PY-3 field included within property, plant and equipment.
• Carrying value of the GS-OS1 exploration costs included within

intangible assets.

• Estimation of the future liability in respect of the decommissioning liability.
• Recoverability of the deferred tax asset.
• Status of the legal dispute in respect of CY-OS2.
• Status of ongoing legal disputes.

Due to the decline in daily rig hire charges, a key input into the estimate of the
decommissioning provision, we also considered that the risk concerning the
valuation of the decommissioning provision had increased. We did not report
on this risk last year.

Due to the decline in the oil and gas price since the prior year we considered
that the risk concerning the carrying value of the PY-3 and GS-01 fields has
increased. Given that the recovery of the deferred tax asset is linked to the
resumption of production from the PY-3 field this risk has also increased.

The Parent Company and its subsidiary are accounted for from one central
operating location in Chennai, India. Our audit was conducted from the central
operating location which the Responsible Individual visited during the course of
the audit work.

Overall Group materiality of US$800,000 which represents 1% of the Group’s
total assets.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationIndependent Auditor’s Report to the Shareholders of Hardy Oil and Gas plc continued

Auditor commentary
Our assessment of risks significant to the audit
We identified the following risks which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and
directing the efforts of the engagement team:

Risk

How the scope addressed the assessed risk

Carrying value of the PY-3 field included within property,
plant and equipment
The carrying value of the field at 31 March 2016 is US$3.0 million
and the Group has recognised a charge in respect of this asset of
US$2.8 million. As outlined within the “Critical accounting estimates and
judgements section” the carrying value of property, plant and equipment
by management is a critical accounting judgement and key source of
estimate uncertainty.
The PY-3 field has been shut in since July 2011. Since the previous year
end global oil prices have continued to decline. In addition the GOI has
issued new policies outlining an increase in the levy rates. The combination
of these factors has increased our assessment of the risk of overstatement
to the carrying value of the assets in comparison to the previous year.

Status of the legal dispute in respect of CY-OS2
The carrying value of the field at 31 March 2016 is US$51.1 million. As
outlined within the “Critical accounting estimates and judgements section”
whilst the Group has been awarded costs and interest after arbitration the
dispute with the GOI remains ongoing.
If the block is relinquished it would be an indication of impairment as per
the criteria of IFRS 6: Exploration for and Evaluation of Mineral Resources
and a test would subsequently be required which could have a material
impact on the Group.

Carrying value of the GS-OS1 exploration costs included within
intangible assets
The Group has fully impaired the carrying value of the GS-OS1 exploration
costs resulting in a charge of US$5.05 million to the Statement of
Comprehensive Income.
There has been a decline in the Indian gas price, which is determined by
the GOI which is set every six months at a discount to the open market
price. There is a risk at the current level of prices the assets may not
be recoverable.

Recoverability of the deferred tax assets
The carrying value of deferred tax assets as at 31 March 2016 is
US$4.5 million and relate to historical losses made by the Group.
US$5.2 million of the brought forward assets have been released in the year.
The recoverability of the deferred tax assets is dependent on the future
profitability of the Group and the period for which these losses may be
used is limited by statute. The decline in the global oil and gas prices as
well as delays to recommencing production increased the risk the assets
may not be recovered in comparison to the previous year.

We have discussed the plans for the recommencement of production from
the field with management and have reviewed the FDP.
We reviewed the underlying economic models challenging the key
assumptions made by management. This included:
• comparison of oil prices assumptions to futures prices; and
• performing of scenario analysis of the various underlying assumptions.
We assessed the potential impairment by considering a number of
scenarios modelling different oil prices, costs and fiscal terms. We then
assessed impairment by considering the range of valuations indicated by
the different scenarios.

We have reviewed the Award, made in Hardy’s favour, in February 2013
and considered the legal advice received by the Group in respect of the
enforcement of the Award.
We have discussed the matter directly with the Group’s legal advisors.
We reviewed the disclosure made concerning this matter in note
16 to ensure that it is consistent with our understanding of the
current legal position.

We have obtained the underlying economic models challenging the key
assumptions made by management.
We have discussed with management and relevant personnel, the status
on the block and the likelihood of future development based on the current
gas price environment.

We have obtained and reviewed the calculation of deferred tax assets and
assessed the likelihood considering the adequacy of future profits enabling
the utilisation of the losses and the timing for recommencing production
taking into account the expiry of the losses.
We have assessed the competence of the Group’s external tax specialists.
We communicated with the tax specialists and analysed their reports
ensuring these were consistent with the calculation of deferred tax.

Status of ongoing legal disputes
The Group is involved in a number of legal disputes with taxation
authorities and third parties. In the event of adverse findings there could be
a material cash outflow from the Group.

We have reviewed management’s assessment of the likely outcome
of ongoing disputes. This included:
• assessment of the progress of the outstanding cases;
• considered for any evidence of additional legal disputes which we were

•

not previously made aware; and
reviewing the legal advice received and discussing matters directly with
Hardy’s legal and professional advisors.

We have considered the adequacy of liabilities recognised and disclosures
made within the financial statements.

Estimation of the future liability in respect of the
decommissioning liability
The carrying value of the decommissioning provision, relating to the
PY-3 field, is US$5.3 million which has been revised downward from the
previous year by US$0.4 million.

We reviewed the underlying economic models challenging the key
assumptions made by management. This included:
• comparison of rig rate assumptions to available market data;
• considering the appropriateness of the assumption concerning the

timing of the cash flows; and

• performing of scenario analysis of the various underlying assumptions.

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Our audit procedures in relation to these matters were designed in
the context of our audit opinion as a whole, they were not designed
to enable us to express an opinion on these matters individually and
we express no such opinion.

The Audit Committee’s consideration of these matters is set out
on page 32.

Our assessment of materiality
In planning and performing our audit we applied the concept
of materiality. An item is considered material if it could reasonably
be expected to change the economic decisions of a user of the
financial statements. We used the concept of materiality to
both focus our testing and to evaluate the impact of
misstatements identified.

We determined materiality of the Group to be US$800,000 (2015:
US$900,000) which is 1% of the Group’s total assets and 1% of
the Group’s net assets. The reduction in materiality reflects the
decrease in the Group’s assets following the impairments
during the year.

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, set out on page 27, in relation to

going concern and longer-term viability;

• the part of the Corporate Governance Report on page 29

relating to the Company’s compliance with the 11 provisions
of the 2014 UK Code specified for our review; and

• certain elements of the Board of Directors’ Remuneration

Report to shareholders.

We conducted our audit of particular groups of balances or
transactions at a level of materiality less than overall materiality
(performance materiality). We agreed with the Audit Committee to
report all errors identified to the Committee in excess of US$20,000.
Errors below that threshold would be reported to the Committee
if, in our opinion as auditor, disclosure was required on
qualitative grounds.

Respective responsibilities of Directors and auditor
Responsibility of Directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view.

Basis for opinions
We have audited the consolidated financial statements in
accordance with applicable law and International Standards on
Auditing (ISAs) (UK and Ireland). Our responsibilities under those
standards are further described under respective responsibilities of
Directors and auditor. In performing our audit, as required by those
standards, we complied with the FRC Ethical Standards for Auditors
including those requiring us to be independent and objective.

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, Strategic Report, Directors’ Report,
Governance Report, Audit Committee Report, Nomination
Committee Report and the unaudited sections of the Directors’
Remuneration Report to identify material inconsistencies with the
audited financial statements or with knowledge acquired by us in
the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider
the implications for our report.

Auditor’s responsibility
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and ISA
(UK and Ireland). Those standards require us to comply with the
FRC Ethical Standards for Auditors.

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 auditor’s 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.

Matthew Stallabrass
Responsible Individual
For and on behalf of
Crowe Clark Whitehill LLP
Statutory Auditor
London
8 June 2016

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationConsolidated Statement of Comprehensive Income
For the year ended 31 March 2016

Continuing operations
Revenue
Cost of sales
Production costs
Unsuccessful exploration costs

Year ending
31 March
2016
US$

Year ending
31 March
2015
US$

–

(179,386)
(4,935,149)

–
(22,560,297)

Notes

4
5

Impairment of Block CY-OS-90/1 (PY-3)

(2,754,273)

–

Gross profit/(loss)
Administrative expenses

Operating loss
Interest and investment income
Finance costs

Loss before taxation
Taxation

Loss after taxation
Total other comprehensive income
Total comprehensive loss for the period attributable to owners of the parent

Loss per share
Basic and diluted

6
11
12

(7,868,808)
(4,037,221)

(22,560,297)
(3,831,445)

(11,906,029)
336,197
–

(11,569,832)
(5,187,327)

(16,757,159)
–
(16,757,159)

(26,391,742)
393,131
(171,230)

(26,169,841)
1,675,456

(24,494,385)
–
(24,494,385)

(0.23)

(0.33)

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Consolidated Statement of Changes in Equity
For the year ended 31 March 2016

At 31 March 2014
Total comprehensive loss for the year
Share-based payment
Share-based payment – Forex adjustment
Restricted shares issued

Share
capital
US$

731,484
–
–
–
1,830

Share
premium
US$

120,778,131
–
–
–
82,500

Shares
option
reserve
US$

3,702,603
–
355,904
(389,441)
–

Retained
earnings/(loss)
US$

(12,475,951)
(24,494,385)
–
–
–

Total
US$

112,736,267
(24,494,385)
355,904
(389,441)
84,330

At 31 March 2015

733,314

120,860,631

3,669,066

(36,970,336)

88,292,675

Total comprehensive loss for the year
Share-based payment
Adjustment of lapsed vested options
Restricted shares issued

–
–
–
4,327

–
–
–
75,810

–
84,814
(1,899,531)
–

(16,757,159)
–
1,899,531
–

(16,757,159)
84,814
–
80,137

At 31 March 2016

737,641

120,936,441

1,854,349

(51,827,964)

71,700,467

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional Information
Consolidated Statement of Financial Position
As at 31 March 2016

Assets
Non-current assets
Property, plant and equipment
Intangible assets
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 option reserve
Retained loss

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 8 June 2016.

Notes

31 March
2016
US$

31 March
2015
US$

15
16
22
13

17
18
19
24

20
21
21

3,062,290
51,132,228
4,311,198
4,485,662

5,820,048
56,175,450
4,285,515
9,672,992

62,991,378

75,954,005

942,365
3,250,236
16,767,941
828,379

1,164,988
829,600
17,763,245
3,267,097

21,788,921

23,024,930

84,780,299

98,978,935

737,641
120,936,441
1,854,349
(51,827,964)

733,314
120,860,631
3,669,066
(36,970,336)

71,700,467

88,292,675

5,256,097

5,644,478

7,823,735

5,041,782

7,823,735

5,041,782

13,079,832

10,686,260

84,780,299

98,978,935

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Consolidated Statement of Cash Flows
For the year ended 31 March 2016

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

Net cash (used in) operating activities
Investing activities
Expenditure on intangible assets – exploration
Expenditure on intangible assets – others
Expenditure on other fixed assets
Site restoration deposit
Realised from short-term investments

Net cash from investing activities
Financing activities
Interest and investment income
Bank guarantee charges

Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year

Notes

Year ending
31 March
2016
US$

Year ending
31 March
2015
US$

(3,738,079)
21,023

(3,537,113)
1,635

(3,717,056)

(3,535,478)

–
(5,182)
(22,294)
(25,683)
995,304

(223,584)
–
(20,820)
(201,739)
2,889,135

942,145

2,442,992

336,197
–

336,197
(2,438,714)
3,267,093

394,355
(39,446)

354,909
(737,577)
4,004,674

Cash and cash equivalents at the end of the year

828,379

3,267,097

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional Information
Notes to the Consolidated Financial Statements
For the year ended 31 March 2016

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

These financial statements are for the year ending 31 March 2016.

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 have reviewed the Group’s ongoing activities including
its future intentions in respect of the drilling of exploration wells and having regard to the Group’s existing working capital position and its
ability to potentially raise finance, if required, the Directors 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 (in coming to this opinion the Directors have not included the receipt of any funds from the CY-OS/2 Award).

c) Basis of preparation
Hardy prepares its financial statements in accordance with applicable IFRS 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, there are a number of standards and interpretations that are in issue but not yet
effective. 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 statements include the results of Hardy Oil and Gas plc and its subsidiary undertaking. The Group comprises
of 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.

The Group participates in several unincorporated joint arrangements which involve the joint control of assets used in the Group’s oil and
gas exploration and production activities. The Group accounts for all its joint arrangements as joint operations by recognising its share
of assets, liabilities, income and expenditure of joint arrangement in the Consolidated Statement of Financial Position and Consolidated
Statement of Comprehensive Income as appropriate.

f) Revenue
Revenue represents the sale value of the Group’s share of oil (which excludes the profit oil sold and paid to the GOI as a part of profit
sharing). Revenues are recognised when crude oil has been lifted and title has been passed to the buyer.

g) 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 and are held within intangible exploration assets and not depleted.

Hardy Oil and Gas plc Annual Report and Accounts FY2016
1. Accounting policies continued
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 such wells, 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 into 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 acquired for 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.

h) 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 is
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.

i) 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

Depreciation expenses are included within administrative expenses.

Annual rate (%)

over lease period
20
33
20

Depreciation
method

Straight line
Straight line
Straight line
Straight line

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Consolidated Financial Statements continued
For the year ended 31 March 2016

1. Accounting policies continued
j) Intangible assets
Intangible assets, other than oil and gas assets, are measured at cost and depreciated over their expected useful economic lives
as follows:

Annual rate
(%)

Depreciation
method

Computer software

Straight line

Amortisation charges are included within administrative expenses.

k) Investments
Investments by the Parent Company in its subsidiaries are stated at cost.

l) 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 all income is remitted and recognised as interest and investment income and 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.

m) Inventory
Inventory of crude oil is valued at the lower of average cost or 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.

n) 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.

o) Equity
Equity instruments issued by Hardy are recorded at net proceeds after direct issue costs.

p) 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 items 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 in the future against which deductible temporary differences can be utilised.

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.

Hardy Oil and Gas plc Annual Report and Accounts FY20161. Accounting policies continued
q) 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 difference arising out of actual
payments/realisations and from the year end restatement are reflected in the Statement of Comprehensive Income.

Rate of exchanges were as follows:

£ to US$
US$ to Indian rupees

31 March
2016

1.42
66.35

31 March
2015

1.49
62.12

r) Leasing commitments
Rental charges payable under operating leases are charged to the Statement of Comprehensive Income as part of general and
administration costs over the lease term.

s) 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 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 option reserve is adjusted to
retained earnings as a reserve movement.

t) 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 recognised in the year when 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 US$52.9 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 16 to these financial statements.

ii) Decommissioning
The liability for decommissioning is reviewed based on cost estimates which are predominated by the charter hire charges of drillships
and supply boats. Accordingly, the provision made in the books will reflect the risk free discounted estimated future cost for
decommissioning. Further details are contained in note 22.

iii) Deferred tax asset
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that future taxable profits will be available
against which the losses can be utilised. Judgement is required to determine the value of the deferred tax asset, based upon timing
and level of future taxable profits. Should production not recommence from the PY-3 field or should production from the field be less
profitable than expected due to further declines in the global oil price or technical issues with the field an assessment of the carrying
value of the deferred tax asset would be made which could result in a derecognition of all or part of the asset. Further details are
contained in note 13.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Consolidated Financial Statements continued
For the year ended 31 March 2016

2. Critical accounting estimates and judgements continued
iv) Carrying value of oil and gas, and exploration assets
Management has performed impairment tests on the Group’s oil and gas assets due to the volatility in oil and gas prices. The
calculation of the recoverable amount requires estimation of future cash flows. Key assumptions and estimates in the impairment
models relate to: commodity prices that are based on forward commodity price estimates; fiscal structuring specific to individual assets;
commercial reserves; and the related cost profiles. Further deterioration of market prices will require further assessment and may result
in an impairment. Further details are contained in notes 15 and 16.

3. Segment analysis
The Group is organised into two business units as at end of the year: India and United Kingdom. The Indian 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.

2016
US$

Revenue
Other income

Operating loss
Interest income
Interest income on inter-corporate loan
Interest expense on inter-corporate loan

Loss before taxation
Taxation

Loss for the period
Segment assets
Inter-corporate loan
Segment liabilities
Inter-corporate borrowings
Capital expenditure
Unsuccessful exploration costs
Impairment of Block CY-OS-90/1 (PY-3)
Depreciation, depletion and amortisation

India

–

(9,926,411)
308,692
–
(1,218,911)

(10,836,630)
(5,311,032)

(16,147,662)
68,653,438
–
(12,922,688)
(107,151,962)
22,523
(4,935,149)
(2,754,273)
(4,789)

–

Inter-segment
eliminations

–

Total

–

(1,979,618)
27,505
1,218,911
–

(733,202)
123,705

(609,497)
16,126,861
107,151,962
(157,143)
–
4,953
–
–
(22,216)

–
–
(1,218,911)
1,218,911

(11,906,029)
336,197
–
–

–
–

(11,569,832)
(5,187,327)

–
–
(107,151,962)
–
107,151,962
–
–
–
–

(16,757,159)
84,780,299
–
(13,079,831)
–
27,476
(4,935,149)
(2,754,273)
(27,005)

Hardy Oil and Gas plc Annual Report and Accounts FY2016
3. Segment analysis continued

Revenue
Other income

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

Loss before taxation
Taxation

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

2015
US$

–

(2,455,146)
10,866
1,117,150
–
–

(1,327,130)
295,386

Inter-segment
eliminations

–

–
–
(1,117,150)
–
1,117,150

–
–

(1,031,744)
17,108,311
106,682,121
(171,564)
–
17,317
–
(38,538)

–
–
(106,682,121)
–
106,682,121
–
–
–

India

–

(23,936,596)
382,265
–
(171,230)
(1,117,150)

(24,842,711)
1,380,070

(23,462,641)
81,870,624
–
(10,514,696)
(106,682,121)
227,087
(22,560,297)
(2,262)

Total

–

(26,391,742)
393,131
–
(171,230)
–

(26,169,841)
1,675,456

(24,494,385)
98,978,935
–
(10,686,260)
–
244,404
(22,560,297)
(40,800)

The Group is engaged in one business activity, the exploration, development, and production of oil and gas. Other income relates to
technical services to third parties, overhead recovery from joint arrangement operations and miscellaneous receipts, if any. Revenue
arises from the sale of oil produced from the contract area PY-3 India and the revenue by destination is not materially different from the
revenue by origin.

4. Cost of sales
Production cost, related to PY-3, included in the cost of sales consists of:

Production costs
Change in decommissioning estimate
Cost of sales

2016
US$

567,767
(388,381)
179,386

2015
US$

–
–
–

Production cost for FY2016 includes a provision in respect of an arbitration award which is made in favour of a service provider for
Block PY-3.

5. Unsuccessful exploration costs
Unsuccessful exploration costs consist of:

Impairment/(reversal) of Block D3
Impairment/(reversal) of Block D9
Impairment of Block GS-OS1
Other liquidated damages accrual

2016
US$

(9,492)
(102,537)
5,047,178
–

2015
US$

22,097,640
–
–
462,657

4,935,149

22,560,297

6. Operating loss
Operating loss is stated after charging:

Unsuccessful exploration costs
Depreciation and amortisation
Operating lease costs – land and buildings
External auditor’s remuneration
– Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
– Audit related assurance services
Exchange loss/(gain)

2016
US$

2015
US$

4,935,149
27,004
167,220

22,560,297
40,800
159,663

94,754
12,754
372,050

82,456
13,287
(189,331)

The Group has a policy in place which requires approval of the Audit Committee for the award of non-audit services to be provided by
the auditor. No non-audit services were provided during the year.

7. Reconciliation of operating loss to operating cash flows

Operating loss
Unsuccessful exploration costs
Impairment of Block PY-3
Depletion, amortisation and depreciation
Share-based payment expense

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

Cash (used in) operating activities

8. Staff costs

Wages and salaries
Social security costs
Share-based payments charge

2016
US$

2015
US$

(11,906,029)
4,935,149
2,754,273
27,005
164,951

(4,024,653)
222,623
(2,441,647)
2,505,598

(26,391,742)
22,560,297
–
40,800
211,247

(3,579,398)
524,959
(77,651)
(405,023)

(3,738,079)

(3,537,113)

2016
US$

1,156,633
206,496
84,814

2015
US$

1,231,738
222,473
139,803

1,447,943

1,594,014

Staffs costs, including the Executive Director’s salary, fees, benefits and share-based payments, are shown gross before amounts
recharged to joint arrangements.

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

Management and administration
Operations

The number of permanent employees on the rolls of Company as on 31 March 2016 is 15 (2015: 21).

2016

11
10

2015

10
11

Hardy Oil and Gas plc Annual Report and Accounts FY20169. 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 2016 and 2025 at prices of £0.65 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, subject to compounded share price growth. 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
Lapsed during the year
Outstanding at the end of the year

Exercisable at the end of the year

2016

2015

Number of
options

3,419,933
–
1,704,933
1,715,000

200,000

Weighted
average
price

£1.98
–
£2.18
£0.90

£5.38

Number of
options

3,169,933
250,000
–
3,419,933

2,094,933

The inputs into the binomial model for computation of value of options granted during the period are as follows:

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

2016

–
–
–
–
–
–
–

Weighted
average
price

£1.98
£0.66
–
£1.98

£2.48

2015

£0.65
£0.65
5
40%
–
2.2%
£0.28

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 (WAEP) price as follows:

1 April 2015

Lapsed FY2016

31 March 2016

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

Total

Number

1,140,933
115,000
300,000
120,000
–
419,000
750,000
50,000
275,000
250,000
–

3,419,933

WAEP

1.52
3.07
4.31
7.69
–
2.12
1.55
1.19
0.66
0.65
–

1.98

Number

1,140,933
15,000
300,000
20,000
–
229,000
–
–
–
–
–

1,704,933

WAEP

1.52
3.08
4.31
7.69
–
2.12
–
–
–
–
–

2.18

Number

–
100,000
–
100,000
–
190,000
750,000
50,000
275,000
250,000
–

1,715,000

The weighted average contractual life of options outstanding is 5.9 years (2015: 4.6 years).

WAEP

–
3.07
–
7.69
–
2.12
1.55
1.19
0.66
0.65
–

0.90

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Consolidated Financial Statements continued
For the year ended 31 March 2016

9. Share-based payments continued
Restricted Ordinary Shares are issued to Non-Executive Directors in consideration for services rendered in 2015 at a price of 13p per
Ordinary Share, being the closing price on the day prior to issue. The cost of issuing such shares is charged to the Statement of
Comprehensive Income for the year ending 31 March 2016.

On 21 March 2016, the Company issued 432,693 restricted Ordinary Shares having an aggregate market value of US$80,137 (£56,250)
to its Non-Executive Directors and Chairman in the following manner:

Number of
Ordinary
Shares
issued

221,154
115,385
96,154

432,693

Name

Alasdair Locke (Chairman)
Peter Milne
Pradip Shah

Total

The Group has expensed a net amount of US$164,951 in the current period (2015: US$211,247) towards equity-settled share-based
payments. The value of shares option reserve as at 31 March 2016 is US$1,854,349 (2015: US$3,669,066).

10. 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. Directors’ emoluments are included within the remuneration of the key management personnel in note 28.

11. Interest and investment income

Bank interest
Other interest income
Dividend

12. Finance costs

Bank guarantee charges
Other finance cost

2016
US$

298,896
9,796
27,505

336,197

2016
US$

–
–

–

2015
US$

382,265
–
10,866

393,131

2015
US$

39,446
131,784

171,230

Other finance cost is a charge incurred as a result of the unwinding of the discount to the decommissioning provision.

13. Taxation
a) Analysis of taxation charge/(credit) for the year

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

Total current tax charge/(credit)
Deferred tax charge/(credit)

Taxation charge/(credit)

2016
US$

2015
US$

–
–
–
–

–
5,187,327

–
(1,675,456)

5,187,327

(1,675,456)

Hardy Oil and Gas plc Annual Report and Accounts FY201613. Taxation continued

Charge in respect of change in tax rates

Losses incurred during the year

Origination and reversal of temporary differences

Derecognition due to potential non-reversal of deferred tax asset

Deferred tax charge/(credit)

Deferred tax analysis:

Difference between accumulated depletion, depreciation, and amortisation and capital allowances
Carried forward losses

Deferred tax asset

b) Factors affecting tax charge for the year

2016
US$

–

2015
US$

2,251,461

(4,124,085)

(6,958,713)

2,555,458

3,031,796

6,755,954

–

5,187,327

(1,675,456)

2016
US$

2015
US$

(1,373,481)
5,859,143

(1,562,789)
11,235,781

4,485,662

9,672,992

2016
US$

2015
US$

Loss before taxation from continuing operations
Loss before taxation multiplied by the appropriate rate of tax in respective countries (2015: 42.23%)

(11,569,832)
(4,611,931)

(26,169,841)
(10,343,979)

Adjustment for expired carried forward losses

Others

Effect of change in tax rates

Derecognition due to potential non-reversal of deferred tax asset

Foreign tax on overseas income – current year

Total tax charge/(credit)

2,555,455

6,484,019

487,849

(66,958)

–

2,251,462

6,755,954

–

5,187,327

(1,675,456)

Indian operations of the Group are subject to a tax rate of 41.2 per cent which is higher than UK and US corporation 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. When considering deferred tax assets the Group considers the highest and best
use of the losses available, this is considered to be in India. 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.

Write-back of deferred tax asset
The deferred tax asset will be realised upon production from the PY-3 field which management expect to recommence during 2018.
The assumptions considered to determine future tax liability that may be offset from the Group’s carried forward tax losses has been
consistent with those assumptions provided for in note 15. As a result an adjustment of US$5,187,327 has been calculated.

14. Loss per share
Loss per share is calculated on a loss of US$16,757,159 for the year ended 31 March 2016 (2015: US$24,494,385) on a weighted
average of 73,343,164 Ordinary Shares for the year ended 31 March 2016 (2015: 73,158,941). No diluted loss per share is calculated.

Diluted loss per share on loss attributable to the Parent Company for the year ended 31 March 2016 and 31 March 2015 have not
been calculated.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Consolidated Financial Statements continued
For the year ended 31 March 2016

15. Property, plant and equipment
Oil and gas assets represent 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.

Oil and gas assets
US$

Other fixed assets
US$

Total
US$

Cost
At 1 April 2014
Additions
Disposals

At 1 April 2015

Additions
Disposals

At 31 March 2016

Depletion, depreciation and amortisation
At 1 April 2014
Charge for the year
Disposals

At 1 April 2015

Charge for the year
Impairment of Block PY-3 asset
Disposals

At 31 March 2016

Net book value at 31 March 2016

Net book value at 31 March 2015

35,465,279
–
–

1,780,255
20,820
(714)

37,245,534
20,820
(714)

35,465,279

1,800,361

37,265,640

–
–

22,294
(42,485)

35,465,279

1,780,170

37,245,449

29,684,318
–
–

1,721,188
40,800
(714)

31,405,506
40,800
(714)

29,684,318

1,761,274

31,445,592

–
2,754,273
–

25,779
–
(42,485)

25,779
2,754,273
(42,485)

32,438,591

1,744,568

34,183,159

3,026,688

5,780,961

35,602

39,087

3,062,290

5,820,048

Impairment
The impairment charge of US$2,754,273 million against the PY-3 oil field was calculated by comparing the future discounted cash flows
expected to be delivered from the production of commercial reserves (the value-in-use) with the carrying value of the asset.

The future cash flows were estimated using an oil price assumption of approximately US$50 to US$55 per bbl which is comparable to
an average price per barrel of Dated Brent forward contract against the projected production profile provided for in the proposed FFDP.
These projected cash flows were discounted at a rate of 10 per cent. Other assumptions involved in the impairment measurement included
estimates of commercial reserves and production volumes, and the level and of timing of expenditures all of which are inherently uncertain.
The principal cause of the impairment charge recognised in the year is a reduction in the medium-term oil price assumption and changes
to GOI policies in regard to calculation of levies and the criteria for extension of the PSC.

Sensitivity
A 1 per cent increase in the discount rates used when determining the value-in-use for each asset would result in a further impairment
charge of approximately US$0.4 million and a US$1 per bbl reduction to the oil price for the life of the field would trigger an increase in
the impairment charge of approximately US$0.6 million.

16. Intangible assets

Costs and net book value
At 1 April 2014
Additions
Unsuccessful exploration cost

At 1 April 2015

Additions
Unsuccessful exploration cost
Amortisation for the year

At 31 March 2016

Exploration
US$

Others
US$

Total
US$

78,049,506
223,584
(22,097,640)

56,175,450

–
(5,047,178)
–

–
–
–

–

5,182
–
(1,226)

78,049,506
223,584
(22,097,640)

56,175,450

5,182
(5,047,178)
(1,226)

51,128,272

3,956

51,132,228

Hardy Oil and Gas plc Annual Report and Accounts FY2016
16. Intangible assets continued
The details of the exploration assets stated above are as follows:

Exploration expenditure – Block CY-OS/2

Total

US$

51,128,272

Impairment of Block GS-01
The write-off of US$5.0 million against the GS-01 exploration licence was calculated by comparing the future discounted cash flows
projected to be delivered from the production of resources provided for in an unapproved FDP submitted by the Group (the value-in-
use) with the carrying value of the asset.

The future cash flows were estimated using a gas price equal to US$3.1 per MMBTU, which is the comparable to the current notified
price by the GOI, against the production profile provided for in a proposed FDP. These projected cash flows were discounted at a rate
of 10 per cent. Other assumptions involved in impairment measurement included the estimates of resources and production volumes,
and the level and of timing of expenditures all of which are inherently uncertain. The principal cause of the full impairment charge
recognised in the year is that the low gas price prescribed under the GOI’s policy does not provide reasonable level of return to justify
the sanctioning of development. Should the GOI policy on gas pricing change, to allow free market pricing which is estimated to be
between US$6 to US$8 per MMBTU, then the unapproved FDP for the Dhirubhai 33 gas discovery may be viable.

Legal proceedings concerning Block CY-OS/2
In March 2009, Hardy were informed by the GOI 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 GOI 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 US$0.2
million and interest on the exploration expenditure incurred to date. As at 31 March 2015, Hardy’s 75 per cent share of the interest
awarded is approximately US$52.9 million. On 2 August 2013, the GOI filed an appeal, against the Award, with the HC Delhi, and the
Company subsequently filed an execution petition before the HC Delhi. 17 hearings have been scheduled and adjourned, and the next
hearing is scheduled in July 2016.

The Company believes that the unanimous international tribunal award is well reasoned and based upon external legal advice, that the
award may not be subject to appeal in the Indian courts as per the India Arbitration and Conciliation Act 1996.

Impairment of Block D3 in prior year
On 23 December 2014, the Management Committee of Block D3 approved a proposal from the operator of the D3 block, in
which the Group holds 10 per cent interest, for the relinquishment of the block. The proposal set out that as per the GOI Notification
O-22013/27/2012-ONG-D-V dated 10 November 2014, access restrictions have been imposed by the GOI and the Operator recommended
the relinquishment of the block with immediate effect under clause 3.1 (a), and (e) and 3.2, of the referenced Government Policy.

The relinquishment of the block has released Hardy from any further work programme liability including any further financial liability
related to unfinished Minimum Work Programme penalties. US$22,097,640 of the Group’s intangible assets, which were attributable to
the D3 block, have been written off in the previous financial year.

17. Inventories

Drilling and production stores and spares

2016
US$

942,365

2015
US$

1,164,988

An amount of US$222,623 (2015:US$524,959) has been recognised as an expense in the year relating to an impairment in the carrying
value of inventory.

18. Trade and other receivables

Other receivables
Prepayments

19. Short-term investments

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

2016
US$

3,238,846
11,390

3,250,236

2015
US$

822,309
7,291

829,600

2016
US$

2015
US$

16,743,300
24,641

17,763,242
3

16,767,941

17,763,245

The above investments are in liquid funds which can be converted into cash at short notice. The book value of these investments
approximates to their fair values. The fair value is determined based on quoted market prices and is considered to be a Level 1 valuation
under IFRS 13.

Income will increase or decrease by US$167,680 (2015: US$177,632) for every 1 per cent change in interest rates.

20. Share capital

Authorised Ordinary Shares
At 1 April 2015

At 31 March 2016

Allotted, issued and fully paid Ordinary Shares
At 1 April 2014
Restricted shares issued during the period

At 1 April 2015

Restricted shares issued during the period

At 31 March 2016

Number
$0.01
Ordinary
Shares

US$

200,000,000

2,000,000

200,000,000

2,000,000

73,148,416
182,926

73,331,342

432,693

73,764,035

731,484
1,830

733,314

4,327

737,641

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

Included within Ordinary Shares are 943,671 restricted shares in issue (2015: 510,978 restricted shares) with a value of US$859,290
(2015: US$779,153). The restricted shares have been issued to certain Directors and will unconditionally vest three years from the date
of issue provided the individual is still a Director of Hardy. During the period of restriction, while Directors are eligible for voting rights and
dividend, they are not allowed to dispose these shares.

21. 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.

Share option reserve
The share option reserve represents the fair value of share options issued to Directors and employees.

Hardy Oil and Gas plc Annual Report and Accounts FY2016

22. Provision for decommissioning

At 1 April 2014
Change in decommissioning estimate

At 1 April 2015

Change in decommissioning estimate

At 31 March 2016

US$

5,512,694
131,784

5,644,478

(388,381)

5,256,097

A provision for the decommissioning of the PY-3 field has been made by estimating the cost of abandonment of existing wells and
any required reclamation of the area at current prices using existing technology. The projected costs comprise primarily of the cost of a
drillship to abandon the field’s existing wells. The abandonment of the PY-3 field is expected to be undertaken between 2020 and 2025.
These underlying assumptions are reviewed on a regular basis.

Having considered the fall in drillship rates the Company has reduced the projected decommissioning cost by US$388,381. A 5 per
cent change in the underlying assumption for the drillship rate would result in an adjustment of approximately US$0.2 million to the
decommissioning provision.

An amount of Rs. 286,047,976 (US$4,311,198) (2015: Rs. 266,216,197 (US$4,285,515)) has been deposited with the 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.

23. Trade and other payables

Trade payables
Accruals and other payables

2016
US$

2015
US$

6,381,696
1,442,038

3,811,799
1,229,983

7,823,734

5,041,782

Trade and other payables are unsecured and payable on demand.

24. 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, interest rate 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 the majority of costs except a portion of expenses for overhead 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 period.

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
period end dates.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Consolidated Financial Statements continued
For the year ended 31 March 2016

24. Financial risk management continued
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 competitive interest rates.

Commodity price risks
The Group’s share of production of crude oil from PY-3 field is sold to the GOI’s nominee Chennai Petroleum Corporation Limited. The
sale price is arrived at based on an average price of Brent crude for the 30-day 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 GOI nominee for the purchase
of crude oil, the credit risk is considered negligible.

Where the Group is the operator of, or is the largest owner in, a field it recovers a percentage of the costs incurred from its joint
arrangement partners in accordance with the levels of participating interests. Partners may either be Indian state owned companies
or private enterprises. Cash calls on partners are usually made in advance of incurring field expenditure.

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 the period 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 financial assets as on the period 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 its 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. No significant changes were made
in the objectives, policies or processes during the year ended 31 March 2016.

Maturity of non-current financial liabilities
The maturity of non-current financial liabilities, which consist of the decommissioning provision as at 31 March 2016 and 31 March 2015
are as follows:

2016
US$

2015
US$

In more than two years but not more than five years
In more than five years

–
5,256,097

–
5,644,478

The Group does not have any fixed maturity or interest bearing financial liabilities as at 31 March 2016 or 31 March 2015.

Hardy Oil and Gas plc Annual Report and Accounts FY201624. Financial risk management continued
Interest rate risk profile of financial assets
The interest rate risk profile of the financial assets of the Group as at 31 March 2016 is as follows:

2016

US dollars
Pound sterling
Indian rupees

Cash and cash equivalents

2015

US dollars
Pound sterling
Indian rupees

Cash and cash equivalents

Fixed rate
financial
assets
US$

Floating rate
financial
assets
US$

Financial assets
no interest
is earned
US$

–
–
–

–

Fixed rate
financial
assets
US$

1,855,500
–
–

1,855,500

516,935
131
–

517,066

Floating rate
financial
assets
US$

948,909
157
–

949,066

115,790
99,534
95,989

311,313

Financial assets
no interest
is earned
US$

176,903
112,425
173,203

462,531

Total
US$

632,725
99,665
95,989

828,379

Total
US$

2,981,312
112,582
173,203

3,267,097

An amount of Rs. 286,047,976 (US$4,311,198) (2015: Rs. 266,216,197 (US$4,285,515)) deposited with the 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$5,417 (2015: US$28,046) for every 1 per cent change in interest rates.

Currency exposures
The currency exposures of the monetary assets denominated in currencies other than US dollars of the Group as at 31 March 2016 are
as follows:

2016

US$

2015

US$

Indian
rupees
US$

Pound
sterling
US$

Total
US$

4,407,187

124,299

4,531,486

Indian
rupees
US$

Pound
sterling
US$

Total
US$

4,458,718

112,582

4,571,300

An amount of US$284,392 (2015: US$158,583) was recognised as foreign exchange loss on account of exchange rate fluctuations on
bank balances and investments made in currencies other than US dollars.

Exchange gains will increase by US$45,768 (2015: US$46,170) for every 1 per cent appreciation of Indian rupee and sterling, and loss of
US$44,862 (2015: US$45,256) for 1 per cent depreciation of Indian rupee and sterling.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Consolidated Financial Statements continued
For the year ended 31 March 2016

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

Financial assets

Financial assets at fair value through profit or loss

Short-term investments
Financial assets – loans and receivables
Cash and short-term deposits
Trade and other receivables
Site restoration deposit

Financial liabilities

Financial liabilities measured at amortised cost

Accounts payable

Book value
2016
US$

Fair value
2016
US$

Book value
2015
US$

Fair value
2015
US$

16,767,941

17,763,245

828,379
3,250,236
4,311,198

3,267,097
829,600
4,285,515

25,157,754

26,145,457

Book value
2016
US$

Fair value
2016
US$

Book value
2015
US$

Fair value
2015
US$

(7,823,734)

(5,041,782)

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

26. 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:

2016
US$

2015
US$

155,053
82,882
–

–
–
–

28,989
–
–

4,117
–
–

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

Hardy Oil and Gas plc Annual Report and Accounts FY201627. Contingent liabilities
Liquidated damages
The Group has minimum work commitments in associated with various exploration licences granted by sovereign authorities through
joint arrangements. A number of these commitments have not been fulfilled and as a consequence the Group is liable to pay liquidated
damages. When a liquidated damage payment is probable a provision is created based on management’s best judgement. In some
instances there may be a high degree of uncertainty. In such instances an additional contingent liability is recognised. Currently
a contingent liability estimated at US$1.7 million associated with unfinished minimum work programme liquidated damages.
Management do not expect this to be resolved in the next 12 months.

Litigation
In the normal course of business the Group may be involved in legal disputes which may give rise to claims. Provision is made in the
financial statements for all claims where a cash outflow is considered probable. No separate disclosure is made of the detail of claims
as to do so could seriously prejudice the position of the Group.

Others
In addition, the Parent Company guarantees the Group’s obligations under various PSCs to the GOI. These guarantees are deemed to
have negligible fair value and are therefore accounted for as contingent liabilities.

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

2016
US$

2015
US$

Short-term employee benefits
Share-based payments

1,181,975
103,417

1,266,168
107,610

1,285,392

1,373,778

Key management personnel include the Directors and members of the Management Committee of the Group as set out in the overview
of the Board of Directors in the Strategic Report. Further information about the remuneration of individual Directors is provided in the
Directors’ Remuneration Report which forms part of the Group’s 2016 Annual Report.

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationParent Company Statement of Changes in Equity
For the year ended 31 March 2016

At 1 April 2014
Total comprehensive loss for the year
Share-based payment
Share-based payment – Forex adjustment
Adjustment of lapsed vested options
Restricted shares issued

Share
capital
US$

731,484
–
–
–
–
1,830

Share
premium
US$

120,778,131
–
–
–
–
82,500

Shares
to be
issued
US$

3,702,603
–
355,904
(389,441)
–
–

Retained
earnings
US$

3,958,053
(1,031,743)
–
–
–
–

Total
US$

129,170,271
(1,031,743)
355,904
(389,441)
–
84,330

At 31 March 2015

733,314

120,860,631

3,669,066

2,926,310

128,189,321

Total comprehensive loss for the year
Share-based payment
Adjustment of lapsed vested options
Restricted shares issued

–
–
–
4,327

–
–
–
75,810

–
84,814
(1,899,530)
–

(609,497)
–
1,899,530
–

(609,497)
84,814
–
80,137

At 31 March 2016

737,641

120,936,441

1,854,350

4,216,343

127,744,775

Hardy Oil and Gas plc Annual Report and Accounts FY2016
Parent Company Statement of Financial Position
As at 31 March 2016

Assets
Non-current assets
Property, plant and equipment
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 current liabilities

Total liabilities

Total equity and liabilities

Approved and authorised for issue by the Board of Directors on 8 June 2016.

Notes

31 March
2016
US$

31 March
2015
US$

9
10

11
12
16

17,821
111,745,695

35,085
111,252,574

111,763,516

111,287,659

73,541
16,767,941
133,148

11,409
17,763,245
258,507

16,974,630

18,033,161

128,738,146

129,320,820

737,641
120,936,441
1,854,350
4,216,343

733,314
120,860,631
3,669,066
2,926,310

127,744,775

128,189,321

836,229

959,934

157,142

171,565

993,371

1,131,499

128,738,146

129,320,820

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationParent Company Statement of Cash Flows
For the year ended 31 March 2016

Operating activities
Cash flow (used in) operating activities

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

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

Year ending
31 March
2016
US$

Year ending
31 March
2015
US$

Notes

(1,892,285)

(2,179,161)

(1,892,285)

(2,179,161)

(4,953)
995,304

(17,316)
2,889,135

990,351

2,871,819

1,246,416
(469,841)

1,128,016
(2,075,912)

776,575

(125,359)
258,507

(947,896)

(255,238)
513,745

258,507

Cash and cash equivalent at the end of the year

133,148

Hardy Oil and Gas plc Annual Report and Accounts FY2016Notes to the Parent Company Financial Statements continued
For the year ended 31 March 2016

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

2. Revenue

Overhead recovery
Management fees from subsidiary

2016
US$

–
–

–

2015
US$

–
–

–

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$609,497 (2015: US$1,031,743).

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

2016
US$

2015
US$

(1,979,618)
22,216
141,671

(2,455,145)
38,540
27,512

(1,815,731)

(2,389,093)

(62,132)
(14,422)

211,860
(1,928)

(1,892,285)

(2,179,161)

2016
US$

698,999
180,370
61,534

940,903

2015
US$

805,126
197,094
(56,817)

945,403

Staff costs include the Executive Director’s salary, 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 the Executive Director and individuals employed by the Company, are
as follows:

Management and administration

6. Share-based payments
Share-based payments are disclosed in note 9 to the consolidated financial statements.

2016

2015

7. Audit fees
Audit fees payable to the Company’s auditor for the audit of the Parent Company financial statements for the year ended 31 March 2016
is US$10,000 (2015: US$10,000).

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationNotes to the Parent Company Financial Statements continued
For the year ended 31 March 2016

8. Interest and investment income

Interest on inter-corporate loan
Dividend

9. Property, plant and equipment

Cost
At 1 April 2014
Additions
Deletion

At 31 March 2015

Additions
Deletion

At 31 March 2016

Depreciation
At 1 April 2014
Charge for the year
Deletion

At 31 March 2015

Charge for the year
Deletion

At 31 March 2016

Net book value at 31 March 2016

Net book value at 31 March 2015

10. Investments

Carrying value at 1 April 2014
Additional investment during the year

Carrying value at 31 March 2015

Additional investment during the year

Carrying value at 31 March 2016

2016
US$

1,218,911
27,505

2015
US$

1,117,150
10,866

1,246,416

1,128,016

Total
US$

214,792
17,318
–

232,110

4,952
(42,485)

194,577

158,485
38,540
–

197,025

22,216
(42,485)

176,756

17,821

35,085

Shares in
subsidiary
US$

Loan to
subsidiary
US$

4,547,173
23,280

104,606,209
2,075,912

4,570,453

106,682,121

23,280

469,841

4,593,733

107,151,962

Shares in subsidiary represent the investment made as at 31 March 2016 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 1(e) of the consolidated financial statements.

Loan to subsidiary at 31 March 2016 consists of US$107,151,962 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 1 per cent.

Hardy Oil and Gas plc Annual Report and Accounts FY201611. Trade and other receivables

Other receivables
Prepayments and accrued income

12. Short-term investments

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

2016
US$

3,127
70,414

73,541

2015
US$

4,663
6,746

11,409

2016
US$

2015
US$

16,743,307
24,634

17,763,242
3

16,767,941

17,763,245

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 March 2016 and 31 March 2015.

13. Share capital

Authorised Ordinary Shares
At 1 April 2014
At 31 March 2015

At 31 March 2016

Allotted, issued and fully paid ordinary shares
At 1 April 2014
Restricted shares issued

At 31 March 2015

Restricted shares issued

At 31 March 2016

Number $0.01
Ordinary Shares
‘000

US$

200,000
200,000

2,000,000
2,000,000

200,000

2,000,000

73,148,416
182,926

73,331,342

432,693

73,764,035

731,484
1,830

733,314

4,327

737,641

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

14. Deferred taxation
Deferred tax analysis:

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

Deferred tax (liability)

15. Trade and other payables

Trade payables
Accruals

2016
US$

2015
US$

63,382
1,405,511
(2,305,122)

56,579
1,288,610
(2,305,122)

(836,229)

(959,933)

2016
US$

51,066
106,076

157,142

2015
US$

68,151
103,414

171,565

16. Financial risk management
The Company follows the risk management policy stipulated in note 24 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 March 2016 is as follows:

2016

US dollars
Pound sterling

Cash and cash equivalents

Fixed rate
financial
assets
US$

Floating rate
financial
asset
US$

Financial asset
no interest
is earned
US$

–
–

–

–
131

131

42,261
90,756

133,017

The interest rate risk profile of the financial assets of the Company as at 31 March 2015 is as follows:

2015

US dollars
Pound sterling

Cash and cash equivalents

Fixed rate
financial
assets
US$

Floating rate
financial
asset
US$

–
–

–

–
155

155

Financial asset
no interest
is earned
US$

152,699
105,653

258,352

Total
US$

42,261
90,887

133,148

Total
US$

152,699
105,808

258,507

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$ of the Company are as follows:

US$

Pound sterling in equivalent US$

2016

2015

115,521

105,808

Foreign exchange loss recognised on account of exchange rate for the year ended 31 March 2016 is US$4,171 (2015: US$36,162).

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

Financial assets

Primary financial instruments

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

Book value
2016
US$

Fair value
2016
US$

Book value
2015
US$

Fair value
2015
US$

16,767,941
133,148
73,541

17,763,245
258,507
11,409

16,974,630

18,033,161

All of the above financial assets are current and unimpaired as at 31 March 2016.

Financial liabilities

Primary financial instruments

Accounts payable

Book value
2016
US$

(157,142)

Fair value
2016
US$

Book value
2015
US$

Fair value
2015
US$

(157,142)

(171,565)

All of the above financial liabilities are current as at 31 March 2016.

Hardy Oil and Gas plc Annual Report and Accounts FY201618. 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:

2016
US$

2015
US$

Land and buildings
One year
Two to five years

38,466
53,252

15,041
–

19. 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 owed from subsidiary undertaking

2016
US$

2015
US$

107,151,962

106,682,121

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:

Inter-company interest income

2016
US$

2015
US$

1,218,911

1,117,150

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationReserves 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 until further data is acquired. The estimates
provided in the Company’s 2011 CPR are provided below.

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

Reserves (Proven plus Probable)1,3

PY-32

Total Reserves (Proven plus Probable)

Producing

Oil

mmbbl

31 December 2010

Gross

15.1

Net4

2.1

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

GOI (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 bcf.

GS-01

CY-OS/22, 3

GS-01

Total Contingent Resources1 (2C)

B1 (Dhirubhai 33)

Ganesha-1

B1 (Dhirubhai 33)

Gas

Oil

Gas

Oil

bcf

mmbbl

bcf

mmbbl

31 December 2010

Gross

83.0

130.0

1.9

213.0

1.9

Net

8.3

97.5

0.2

105.8

0.19

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.
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.

Prospective Resources
Net Best Estimate Risked Prospective Resources are 494 bcf.

Risked Prospective Resources (Best Estimate)1, 2

CY-OS/23, 4
GS-01
Total Risked Prospective Resources (Best Estimate)1, 2

Prospects
Prospects

Gas
Gas
Gas

bcf
bcf
bcf

31 December 2010

Gross

113
142
255

Net

84
14
98

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

Hardy Oil and Gas plc Annual Report and Accounts FY2016

Asset Description

Block CY-OS 90/1 (PY-3): Oil Field (HEPI 18 per cent interest – Operator)
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).

Block GS-OSN-2000/1 (GS-01): Appraisal (HEPI 10 per cent interest)
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 mmscfd gas with 415 bbld of condensate through a 56/64 inch choke at flowing tubing head
pressure of 1,346 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.

Block CY-OS/2: Appraisal (HEPI 75 per cent interest – Operator)
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 Gas Authority of India Limited (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
a sandstone reservoir within the Cretaceous section. The well flow tested at a peak rate of 10.7 mmscfd. The Company published
a competent person report, prepared by Gaffney, Cline & Associates, dated March 2011, which estimates gross 2C Contingent
Resources of approximately 130 BCF.

A brief summary of the Hon’ble Tribunal’s award is provided below:

Dispute – Hardy along with GAIL and ONGC are a party and operator to a PSC for the CY-OS/2 block. Hardy holds 75 per cent
participating interest 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, 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 3 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:
• The Ganesha-1 discovery made by Hardy and GAIL is NANG:
• The order of relinquishment by the MOPNG was illegal, being on the erroneous impression that the discovery was oil.
• 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 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.
• MOPNG shall pay to Hardy and GAIL interest at the simple rate of 9 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 of the award (as at 31 December 2013 – US$22.2 million net
to Hardy).

• From the date of award interest will accrue at a rate of 18 per cent per annum on the amount of Rs. 5.0 billion until such time as the

block is restored to the parties.

In the event of a declaration of commerciality, the GOI’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 FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationDefinitions and Glossary of Terms

Per cent
United States dollars
Tonnes of carbon dioxide equivalent
Tonnes of carbon dioxide equivalent for full time equivalent
Two dimensional/three dimensional
Proven plus probable
Annual General Meeting
Alternative Investment Market of the LSE
Association of oil and gas operators
American Petroleum Institute gravity
CY-OS/2 international arbitration award as described on page 81
Barrel
Barrel per day
Billion cubic feet
The Board of Directors of Hardy Oil and Gas plc
Hardy’s Code of Business Conduct
Hardy Oil and Gas plc
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:
Compressed natural gas
Competent persons report
Offshore exploration licence CY-OS/2 located on the east coast of India
Offshore Licence KG-DWN-2003/1 awarded in NELP V
Offshore Licence KG-DWN-2000/1 awarded in NELP III
Declaration of commerciality
Directorate General of Hydrocarbons of the Ministry of Petroleum and Natural Gas
Gas discovery on GS01-B1 on pages 15 and 81
A structured option plan
Field development plan
Full field development plan
Financial Reporting Council
Financial year ended 31 March
Gas Authority of India Limited
Gas discovery on Fan-A1 well located in CY-OS/2
Gaffney, Cline & Associates Ltd
Gross Domestic Product
Government of India
The Company and its subsidiaries
Offshore Licence GS-OSN-2000/1 awarded under NELP II
Hardy Oil and Gas plc
High Court
LSE trading symbol for the Company
Hardy Exploration & Production (India) Inc.
Health, safety and environment
International Financial Reporting Standards
Initial public offering
International accounting standard
International Standards on Auditing
Joint Arrangement
Krishna Godavari sedimentary basin comprising an area on the south east India continental shelf
Kilometre
Kilometre squared
Key performance indicator
London Stock Exchange plc

%:
$:
tCO2e:
tCO2e/FTE:
2D/3D:
2P:
AGM:
AIM:
AOGO:
API°:
the CY-OS/2 Award:
bbl:
bbld:
bcf:
Board:
the Code:
the Company:
Contingent Resources:

CNG:
CPR:
CY-OS/2:
D3:
D9:
DOC:
DGH:
Dhirubhai 33:
ExSOP:
FDP:
FFDP:
FRC
FY:
GAIL:
Ganesha:
GCA:
GDP:
GOI:
the Group:
GS-01:
Hardy:
HC:
HDY:
HEPI:
HSE:
IFRS:
IPO:
IAS:
ISA:
JA:
KG Basin:
km:
km2:
KPI:
LSE:

Hardy Oil and Gas plc Annual Report and Accounts FY2016LNG:
LTI:
m:
Management Committee:

MC:
mmscfd:
mmscmd:
mmbbl:
mmbtu
MOPNG:
MWP:
NANG:
NCV:
NELP:
OC:
ONGC:
OPEC:
Operating Committee:

Ordinary Share:
Prospective Resources:

PSC:
psi:
PY-3:
Reliance:
Rs.:
RNS:
scf:
scfd:
TRI:
UK:
The UK Code:
UMWP:
uJV:
US:
US$:
WAEP:

Liquefied natural gas
Long-term incentives
Metre
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
Management Committee
Million standard cubic feet per day
Million standard cubic metres per day
Million stock tank barrels per day
Million British thermal units
Ministry of Petroleum and Natural Gas
Minimum work programme
Non-associated natural gas
Net calorific value
New Exploration Licensing Policy of the Ministry of Petroleum and Natural Gas of India
Operating Committee
Oil and Natural Gas Corporation Limited
Organization of the Petroleum Expanding Countries
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
Those quantities of petroleum which are estimated, on a given date, to be potentially recoverable
from undiscovered accumulations
Production sharing contract
Pounds per square inch
Offshore Licence CY-OS-90/1
Reliance Industries Limited
Indian rupee
Regulatory news service
Standard cubic feet
Standard cubic feet per day
Total recordable injuries
United Kingdom
UK Corporate Governance Code 2014
Unfinished minimum work programme
Unincorporated joint venture
United States of America
United States dollars
Weighted average exercise price

Hardy Oil and Gas plc Annual Report and Accounts FY2016Strategic ReportGovernanceFinancial StatementsAdditional InformationCompany Information
Directors and Advisors

Hardy Oil and Gas plc
16 North Silver Street
Aberdeen AB10 1RL
Tel: +44 (0)1224 612900
Fax: +44 (0)1224 633995
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)

Executive Officer
Richard Galvin (Treasurer & Corporate Affairs Executive)

Hardy Exploration & Production (India) Inc.
5th Floor, Westminster 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)
Richard Galvin (treasurer)
T.K. Ananth Kumar (non-executive director)

Executive Officers
Sankalpa Mitra (senior vice president production of HEPI)
Satya Sai (vice president geoscience of HEPI)

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

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

Financial PR
Tavistock Communications
131 Finsbury Pavement
London EC2A 1NT

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

Principal bankers
HSBC Holdings plc
8 Canada Square
London E14 5HQ

Barclays Bank plc
54 Lombard Street
London EC3P 3AH

UK solicitors
Wragge Lawrence Graham & Co
4 More London Riverside
London SE1 2AU

Memery Crystal LLP
44 Southampton Buildings
London WC2A 1AP

Brodies LLP
31–33 Union Grove
Aberdeen AB10 6SD

USA solicitors
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York 10004-1482
USA

Indian solicitors
J Sagar Associates
29 Bannari Amman Towers
2nd Floor, Block A
Dr Radhakrishnan Salai
Chennai, India, 600 004

Naik Naik & Co
116-8 Mittal Towers
Nairman Point
Mumbai, India, 400 021

Isle of Man legal advisor
Cains Advocates Limited
Fort Anne
Douglas, Isle of Man IM1 5PD

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 FY201616 North Silver Street
Aberdeen AB10 1RL
www.hardyoil.com