23rd annual report · 2020-01-24 · report on corporate governance 16 accounts with auditors’...

2006-200723rd Annual Repor t

23RD

AN

NUA

L REPORT 2006-2007

Hindustan Oil Exploration Company Limitedvakils

Hin

du

stan O

il Exp

loratio

n C

om

pany L

imited

Hindustan Oil Exploration Company Limited Website: www.hoec.com

Date : September28,2007

Day : Friday

Time : 10:30A.M.

Place : “Chandarva”WelcomHotelVadodaraR.C.DuttRoad,AlkapuriVadodara-390007

Contents

Highlightsof2006-07 1

OperationalHighlightsAtAGlance 2

BoardofDirectors 4

Directors’Report 5

ManagementDiscussionandAnalysisReport 9

ReportonCorporateGovernance 16

AccountswithAuditors’Report 24

InformationpertainingtoHOECBardahlIndiaLimited(Subsidiary) 50

ConsolidatedAccountswithAuditors’Report 67

Glossary 89

Disclaimer Note:CertainsectionsofthisAnnualReport,inparticulartheManagementDiscussionandAnalysis,may contain forward-looking statements concerning the financial condition and results ofoperationsofHOEC.Forward-lookingstatementsarestatementsof futureexpectationsthatare based on management’s current expectations and assumptions and involve known andunknownrisksanduncertaintiesthatcouldcauseactualresults,performanceoreventstodiffermateriallyfromthoseexpressedorimpliedinthesestatements.Noassurancescanbegivenasto future results, levels of activity and achievements and actual results, levels of activity andachievements may differ materially from those expressed or implied by any forward-lookingstatements contained in this report. HOEC does not undertake any obligation to publiclyupdateor reviseany forward-lookingstatementasa resultofnew information, futureeventsorotherinformation.

AUDITORSDeloitte Haskins & Sells Chartered Accountants

COMPANY SECRETARY Mr. Vikash Jain

PRINCIPAl BANKERS

HDFC Bank LimitedIDBI Bank LimitedState Bank of IndiaThe Hong Kong and Shanghai Banking Corporation LimitedUTI Bank Limited (since renamed as Axis Bank Limited)

REGISTERED OFFICE

‘HOEC House’, Tandalja RoadVadodara – 390 020 (India)E-mail: [email protected]: www.hoec.com

CHENNAI OFFICE

Lakshmi Chambers192, St. Mary’s RoadAlwarpet Chennai – 600 018 (India)

REGISTRARS AND SHARE TRANSFER AGENT

Intime Spectrum Registry Limited1st Floor, 308, Jaldhara ComplexOpp. Manisha SocietyVasna Road, Off Old Padra RoadVadodara – 390 015 (India)E-mail: [email protected]

23rd Annual General Meeting

Highlights of 2006-07

FINANCIAL HIGHLIGHTS

• RevenueofRs.1,261million(FY2005-06:Rs.1,024million),up23%

• TurnoverofRs.1,112million(FY2005-06:Rs.970million),up15%

• Operating Cash Flow1ofRs.913Million(FY2005-06:Rs.732million),up25%

OPERATIONAL HIGHLIGHTS

• Average Production21,379boepd(FY2005-06:1,262boepd),up9%

• Sales Agreement for supply of first tranche of Gas from PY-1 Field executed

1 Operating Cash Flow is before Working Capital Changes and Taxes.2 Average Production is on working interest basis.

Cambay Basin

CB-ON-7 HOEC (O) PI: 50% (E)/35% (D) (P)

• Production:451bopd• Drilled2ExplorationWellsinFY2006-07• CommercialDiscoveryReporttoDGH

CB-OS/1 HOEC PI: 57.11% (E)

• GulfA:CommercialDiscoverydeclaredbyJV

• DevelopmentPlanpreparationbyONGC

Asjol HOEC (O) PI: 50% (P)

• Production:46bopd

North Balol HOEC (O) PI: 25% (P)

• Production:15,219scmd• DrilledNB-9Wellin2006-07

PY -1

PY -3

CY -OSN-97/1

Chennai

Pondicherry

Karaikal

Digboi

Tinsukia

AAP-ON-94/1

Ahmedabad

NORTH BALOL

ASJOL

CB-OS/1

CB-ON/7PALEJ

INDIA

ASSAM

HOEC’s oil and gas assets consist of operated & non-operated acreages in Cauvery, Cambay and Assam-Arakan basins in India

Assam-Arakan Basin

AAP-ON-94/1 HOEC (O) PI: 40.32% (E)

• DrillingRigcontracted• Plantodrill2ExplorationWellscommencing

October2007

PY -1

PY -3

CY -OSN-97/1

Chennai

Pondicherry

Karaikal

Digboi

Tinsukia

AAP-ON-94/1

Ahmedabad

NORTH BALOL

ASJOL

CB-OS/1

CB-ON/7PALEJ

INDIA

ASSAM

Legend(D) = DevelopmentPhase(E) = ExplorationPhase(O) = Operator(P) = Production(PI) = ParticipatingInterest

PY -1

PY -3

CY -OSN-97/1

Chennai

Pondicherry

Karaikal

Digboi

Tinsukia

AAP-ON-94/1

Ahmedabad

NORTH BALOL

ASJOL

CB-OS/1

CB-ON/7PALEJ

INDIA

ASSAM

GUJARAT

MAHARASHTRA

ANDHRA

PRADESH

TAM

IL N

ADU

GN-ON-90/3GN-ON-90/3

• UnderArbitration

Cauvery Offshore Basin

PY-1 HOEC (O) PI: 100% (D)

• Drilledandtested1stProducerWell(Earth)• DetailedEngineeringforOffshoreFacilities

completed• AwardedcontractforOnshoreGasTerminal

CY-0S-90/1(PY-3 Field) HOEC PI: 21% (P)

• Production:5,592bopd

CY-OSN-97/1 HOEC (O) PI: 80% (E)

• Drilled2ExplorationWells,NoDiscovery,Wellspluggedandabandoned.

Operational Highlights At A Glance

Note: Productionfiguresaregrossforrespectivefields.

Mr. R. VasudevanNon-Executive Chairman

Mr. R. Vasudevan holds a B.A. (Hons.) (Economics) degree from the University of Madras, an M.A. (Economic Statistics) degree from the University of Delhi and has also completed M.P.A. (Development Economics) from Harvard University, Boston, U.S.A. He has held various senior level positions in

the ministries of the GoI including in the Prime Minister’s Office, Ministry of Steel and Ministry of Petroleum and Natural Gas. He retired as Secretary to the GoI, Ministry of Power. He was also a founder director of Small Industries Development Bank of India.

Mr. Deepak S. ParekhNon-Executive Director

Mr. Deepak S. Parekh is a Fellow of the Institute of Chartered Accountants (England and Wales). He has been a member of various committees set up by the Government of India, especially in the field of Finance and Capital Markets. He is the Executive Chairman of Housing Development Finance Corporation Limited

and Non-executive Chairman of Infrastructure Development Finance Company Limited, Siemens Limited, & Glaxo SmithKline Pharmaceuticals Limited. He is recipient of Padma Bhushan award from the Government.

Mr. Finian O’SullivanNon-Executive Director

Mr. Finian O’Sullivan holds a degree in geology and geophysics from the University College Galway and pursued an international career spanning 17 years in geophysics and seismic acquisition with organizations such as Chevron, Geophysical Systems and Olympic Oil and Gas. He is currently the President of Burren

Energy Plc. and is a director of Burren Energy India Limited and Burren Shakti Limited.

Mr. Rahul BhasinNon-Executive Director

Mr. Rahul Bhasin holds a Post-Graduate Diploma in Management from the Indian Institute of Management, Ahmedabad. He is the Managing Partner of Baring Private Equity Partners (India) Private Limited, a Senior Partner of Baring Private Equity Partners International and is also a member of the Investment Committee of the Baring

Vostok Private Equity Fund. He is a member of the “CEO Forum” at the Economist Corporate Network.

Mr. Atul GuptaManaging Director

Mr. Atul Gupta holds degrees in Chemical Engineering from Cambridge University and Petroleum Engineering from Heriot-Watt University. Besides Managing Director of Hindustan Oil Exploration Company Limited, he is currently the Chief Executive Officer of Burren Energy

Plc. and is a director of Burren Energy India Limited and Burren Shakti Limited.

Mr. Manish MaheshwariJoint Managing Director

Mr. Manish Maheshwari holds B.E. (Hons.) in Chemical Engineering, and Masters in Business Administration from SGBS, U.K. He has been with the Company for about four years. Prior to Hindustan Oil Exploration Company Limited, he has worked with a Danish Development

Financial Institution and Tata Group including upstream oil and gas ventures.

Board of Directors

23rd Annual Report 2006-2007HINDUSTAN OIL EXPLORATION COMPANY LIMITED

�

DIRECTORS’ REPORT

To The MeMbers of hINDUsTAN oIL eXPLorATIoN CoMPANY LIMITeD

Your Directors have pleasure in placing before you the 23rd Annual Report and Audited Statement of Accounts for the year ended March 31, 2007.

FINANCIAL HIGHLIGHTS (Rs. million)

2006-2007 2005-2006

Sales 1111.69 969.53Other Income 148.99 54.69

Gross Profit before Depreciation/ Depletion/Amortisation/Write Offs/ Taxation 1008.80 757.27

Less : Depreciation/Depletion/Amortisation 76.49 77.95

Less : Provisions & Write Offs 930.37 418.64Profit Before Tax 1.94 260.68

Less : Provision for Current Income Tax 286.00 168.00

Less/(Add) : Provision for Deferred Tax (311.00) (85.00)

Less : Provision for Wealth Tax 0.20 0.16Less : Fringe Benefit Tax 2.00 2.60Profit After Tax 24.74 174.92Profit/(Loss) brought forward 818.43 710.50Profit available for Appropriation 843.17 885.42

Less : Proposed Dividend on Equity Shares 0.00 58.74

Less : Dividend Tax 0.00 8.24Balance carried to the Balance Sheet 843.17 818.43

During the year the Gross Profit of the Company before Depreciation / Depletion / Amortisation / Write Offs / Taxation increased from INR 757.27 million to INR 1,008.80 million representing an increase of 33%. However, the Profit After Tax is lower at INR 24.74 million as compared to INR 174.92 million for the previous year. This is mainly on account of the write offs of unsuccessful exploration expenditure of Vinayaka-1 and Subhan-1 wells drilled in Block CY-OSN-97/1 aggregating to INR 943.49 million.

DIVIDENDConsidering the financial results of the Company, your Directors do not recommend dividend for the Financial Year 2006-07.

OPERATIONAL HIGHLIGHTSOperational Highlights are provided in Management Discussion and Analysis Report.

MANAGEMENT DISCUSSION AND ANALYSIS REPORTIn terms of Clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis Report is appended to this Report.

CORPORATE GOVERNANCEA separate report on Corporate Governance, along with a Certificate of Compliance from a Company Secretary in Practice, forms part of this report.

COST ACCOUNTING RECORDSThe Company has maintained cost records as required by Cost Accounting Records (Petroleum Industry) Rules, 2002 vide notification dated October 8, 2002.

NATURAL GAS SALES AND PURCHASE AGREEMENTThe Company has executed an agreement with PPN Power Generating Company Pvt. Limited, an independent power plant in the State of Tamil Nadu, operating a 330.5 MW Power Plant, for the supply of upto 51,000 mmbtu per day of natural gas from the Company’s PY-1 Gas Field. The Gas price is USD 3.75/mmbtu for year 1 and 2, increasing to USD 3.85/mmbtu in year 3 and 4, USD 3.95/mmbtu for year 5 and 6 and to be negotiated thereafter. The Company has commenced the full field development of the PY-1 field which inter alia includes the construction and installation of offshore platform, offshore sub sea pipeline and an onshore gas terminal. The commercial production from the said gas field shall commence from Q1 2009.

LOAN AGAINST CHARGE OF PY-1 ASSETSThe Company has executed a project recourse loan agreement with a consortium of domestic Banks for borrowing an amount of US Dollar 100 million. The said amount is intended to be utilized for the PY-1 Gas Field development expenditure. The loan would bear a charge on participating interest, receivables and all present and future assets of PY-1.

PREVIOUS RIGHTS ISSUEThe Company had completed the Rights Issue process and made an allotment of 19,567,733 shares. The shares are traded on the National Stock Exchange of India and the Bombay Stock Exchange Limited. Accordingly, the present subscribed and paid up share capital comprises of 78,312,668 equity shares of INR 10 each.

PROPOSED RIGHTS ISSUEThe Company is in the process of coming out with a Rights Issue for an amount not exceeding INR 6,150 million for financing projects and related expenditures.


6


HOEC BARDAHL INDIA LIMITED [HBIL] (WHOLLY OWNED SUBSIDIARY OF HOEC)Turnover and Profit Before Tax (PBT) of HBIL have registered a growth of 76% and 63% respectively to reach a level of INR 112.27 million and INR 31.18 million. The revenue and earning growth has been primarily on account of HBIL products endorsement by OEMs including Tata Motors. The audited accounts of HBIL, together with the report of the directors and auditors thereof, forms part of this Annual Report.

CONSOLIDATED FINANCIAL STATEMENTS Pursuant to Accounting Standard AS-21 issued by the Institute of Chartered Accountants of India and the Listing Agreement entered into with the Stock Exchanges, Consolidated Financial Statements are part of this Annual Report.

AUDITORS’ REPORTWith reference to the observation made in Auditors’ Report regarding unaudited Joint Ventures’ accounts, we have to state that as per Production Sharing Contracts signed with the Government of India, the Operators have been allowed time up to September 30 of the immediately succeeding year to submit audited accounts. Considering this, some of the operators have not submitted audited accounts till the Company’s accounts are audited. In lieu of same, the statements of expenditure/unaudited accounts submitted by those Operators have been incorporated.

FIXED DEPOSITSYour Company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as at the balance sheet date.

DIRECTORS In accordance with the provisions of the Companies Act, 1956 and Articles of Association of the Company, Mr. R. Vasudevan and Mr. Deepak S. Parekh will retire by rotation at the ensuing Annual General Meeting and being eligible offer themselves for re-appointment.

The Board recommends their appointment.

PROMOTERSBurren Shakti Limited and Burren Energy India Limited, the promoters of the Company continued to provide valuable management and technical support as the Company develops its PY-1 Gas Field and explore its other acreages.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGOA. Conservation of energy: (a) energy conservation measures taken : Nil. (b) additional investments and proposals, if any, being

implemented for reduction of consumption of energy : Nil.

(c) impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods : Not applicable.

(d) total energy consumption and energy consumption per unit of production as per Form A of the annexure in respect of industries specified in the schedule thereto : Not applicable.

B. Technology absorption:

Efforts made in technology absorption as per Form B of the annexure:

(a) Research and development (R & D)

1. Specific areas in which R & D carried out by the company

Nil

2. Benefits derived as a result of the above R & D

N.A.

3. Future plan of action N.A.4. Expenditure on R & D a. Capital Nil b. Recurring Nil c. Total Nil d. Total R & D expenditure as a

percentage of total turnoverN.A.

(b) Technology absorption, adaptation and innovation

1. Efforts, in brief, made towards technology absorption, adaptation and innovation

: Nil

2. Benefits derived as a result of the above efforts, e.g., product improvement, cost reduction, product development, import substitution, etc.

: Not Applicable

3. In case of imported technology (imported during the last 5 years reckoned from the beginning of the financial year), following information may be furnished

a. Technology imported : Not Applicableb. Year of import : Not Applicablec. Has technology been fully

absorbed: Not Applicable

23rd Annual Report 2006-2007HINDUSTAN OIL EXPLORATION COMPANY LIMITED 23rd Annual Report 2006-2007HINDUSTAN OIL EXPLORATION COMPANY LIMITED

7

d. If not fully absorbed, areas where this has not taken place, reasons therefore and future plans of action

: Not Applicable

C. Foreign exchange earnings and outgo:

(a) activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services; and export plans

: Nil

(b) total foreign exchange used and earned

Particulars Rs. Million

A. Foreign Exchange Earnings Nil

B. Foreign Exchange Used

• Cash Call Payment to Joint Ventures

127.33

• Expenditure in Foreign Currency 0.23 • Dividend 20.58

Total Foreign Exchange used 148.14

PARTICULARS OF EMPLOYEESThe particulars of employees required to be furnished pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 are attached hereto and form part of this Report.

AUDITORSThe Auditors, M/s. Deloitte Haskins & Sells, will retire at the forthcoming Annual General Meeting. As recommended by the Audit Committee, the Board has at its meeting held on May 14, 2007 recommended their appointment as Statutory Auditors to hold office from the conclusion of the ensuing annual general meeting to the conclusion of the next annual general meeting. The Board recommends their appointment.

MANAGERIAL REMUNERATIONThe Company has paid managerial remuneration to Mr. Rakesh Jain, erstwhile Managing Director and Mr. Manish Maheshwari, Joint Managing Director of the Company. Due to inadequate profits during the year the same has been rendered in excess of the limits prescribed under the Companies Act, 1956. The said remuneration requires the approval of the Shareholders and has

been included in the agenda for the Annual General Meeting. The Board recommends the said approval.

The various disclosures as required by Schedule XIII of the Companies Act, 1956 in this regard is given in the Annexure to the Notice of the Annual General Meeting.

DIRECTORS’ RESPONSIBILITY STATEMENTIn accordance with the provisions of Section 217(2AA) of the Companies Act, 1956, with respect to Directors’ Responsibility Statement, it is hereby confirmed:i. that in the preparation of the annual accounts for the financial

year ended March 31, 2007, the applicable accounting standards had been followed along with proper explanation relating to material departures;

ii. that the directors have selected such accounting policies and applied them consistently unless otherwise stated and made judgements and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for the year under review;

iii. that the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

iv. that the directors have prepared the accounts for the financial year ended March 31, 2007 on a ‘going concern’ basis.

CONCLUSION AND ACKNOWLEDGEMENTYour Directors place on record their gratitude for the support and co-operation received from Government of India’s agencies namely, Ministry of Petroleum & Natural Gas and Directorate General of Hydrocarbons, Government of Gujarat, Government of Tamil Nadu, Tamil Nadu Electricity Board, Consortium Partners and Bankers. We express our sincere appreciation to our dedicated and committed team of employees who have contributed to the growth of the organization.

For and on behalf of the Board

r. Vasudevan

Date : July 20, 2007 Chairman


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.


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INDUSTRY STRUCTURE, DEVELOPMENT AND OPPORTUNITIESHOEC operates in the Oil & Gas Exploration and Production (E&P) Industry, with its current portfolio of assets located in India. The E&P industry in India operates under a Production Sharing regime, wherein the Company enters into a Production Sharing Contract with the Government of India for exploration and development of hydrocarbon resources. Typically, players form an unincorporated joint venture consortium to address specific opportunity with flexibility to farm-out or farm down its participating interest subject to customary government approvals. This structure allows the E&P players to, not only diversify risk, but also helps bringing in collaborative and varied expertise.

Over the years, the Government, in its endeavour to promote E&P activities to help in bridging the increasing supply-demand gap in oil and gas, has been offering exploration tracts – onshore and offshore – to companies on an international competitive bidding basis as per the New Exploration Licensing Policy (NELP). Besides participation in Indian basins, there are opportunities in several international provinces to participate in exploration and if successful production of hydrocarbons.

COMPANY’S BUSINESS AND STRATEGYThe Company’s core business is to explore, develop and produce hydrocarbons. The key elements of our Company’s strategy are as follows:• To grow our production by development of discoveries in existing assets/licenses;• To grow our reserve base by exploring for and establishing upside potential in these assets/licenses; • To constrain our exposure to exploration risk within prudent limits;• To seek new investment opportunities within India or outside wherein HOEC can leverage its position as a low cost operator; and • To monetise assets with a view to value realization or risk sharing.

From implementation perspective, we have defined our objectives for 2007-08 as under:• Drill 2 exploratory wells in Block AAP-ON-94/1;• Continue with the development of PY-1 Gas Field by progressing design and construction of onshore gas processing terminal and

awarding contracts for offshore facilities;• Appraise and develop the discoveries in Block CB-ON-7 for production hook-up to existing infrastructure;• Facilitate development initiative of discovery in Block CB-OS-1 operated by ONGC;• Facilitate next phase of development drilling in PY-3 Field; and• To seek new opportunities which provide strategic fit to our existing portfolio/competencies.

OPERATIONS REVIEWOverviewThe Company’s activities relate to exploration and production (based on exploration success) of hydrocarbons - crude oil and gas, which are natural resources. The Company’s aggregate production during the FY 2006-07 was 503,408 barrels of oil equivalent (boe) (crude oil: 494,622 bbls; gas: 1,548,788 scm) as against 460,172 boe during the previous year. Crude oil from PY-3 Field located in Cauvery Basin continues to be the predominant source of the Company’s production.

ReservesAs of March 31, 2007, the internal estimates of Proved and Probable (P+P) reserves on working interest basis for the Company is 50.5 mmboe, previous year estimates being 39.59 mmboe. The Company has been able to replace the production during the year due to revision in reserve estimation of PY-1, PY-3 and Cambay Fields based on drilling results.

Cauvery Basin PY-1 Gas FieldThe first horizontal development well, namely ‘Earth’, drilled in the PY-1 Gas Field tested successfully confirming initial reservoir productivity sufficient to meet contractual commitments and merit drilling producer wells of similar profile. Company has executed a Natural Gas Sales and Purchase Agreement with PPN Power Generating Company Pvt. Limited, an existing Independent Power Plant located in Tamil Nadu, for sale and purchase of gas of up to 51,000 mmbtu per day on a take-or-pay basis.

Management Discussion and Analysis Report


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Forward PlanThe Company is proceeding with the full field development which will inter-alia involve the construction of an offshore production cum wellhead platform ‘Sun’, a 56 kms sub sea pipeline, an onshore gas processing terminal and drilling of additional producer wells.

PY-3 FieldThe average gross production from the PY-3 Field decreased to 5,592 bopd in FY 2006-07 from 5671 bopd in the previous year on account of natural decline and delay in drilling of additional producer wells. Production on net entitlement basis to HOEC averaged 923 bopd in FY 2006-07, as against 977 bopd in FY 2005-06, a decline of 5.53% on account of higher share of Government Profit Petroleum as per the terms of the Production Sharing Contract.

PY-1 Earth Well : Production Testing ( January 2007)

PY-1 Field Development : Proposed Location of Offshore Platform and Onshore Gas Processing Terminal


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Forward PlanOperator has re-assessed balance P+P reserve estimates in the PY-3 field to be of the order of 19.28 mmboe, which has been duly approved by the Directorate General of Hydrocarbons in the Management Committee. The forward plan includes drilling of additional producer well/s and water injector well.

Block CY-OSN-97/1 Two exploration wells, Vinayaka-1 and Shubhan-1 drilled in this block during the year were dry and were plugged and abandoned.

Forward PlanThe Company is re-evaluating the prospectivity and risks associated with the remaining leads in this exploration acreage and would determine the forward plan based on this assessment.

Cambay BasinBlock CB-ON-7The production from the Pramoda Field averaged 451 bopd. Production on net entitlement basis to HOEC averaged 158 bopd during the year, a 96% increase over previous year. The Company also entered into agreement with an industrial consumer for supply of associated gas from this field.

During the year, the Company, in its capacity as Operator, drilled two exploration wells in Block CB-ON-7, namely SPD-1 and Deva-1.

Forward PlanFollowing the results of exploratory drilling, the Company is preparing plan of development for submission to the Directorate General of Hydrocarbons for approval. The plan is to utilise existing production facilities at Pramoda Field to hook up SPD-1 discovery. Further, the Joint Venture partners comprising of GSPCL, ONGC and HOEC have requested the Government for retention of certain block area in accordance with the Government guidelines for further exploration.

North Balol Gas FieldThe North Balol field produced 5,554,975 scm during the year with an average production rate of 15,219 scmd, up by 86% over the previous year. During the year 2006-07, as Operator, the Company has drilled one producer well NB-9, which shall be tested, completed and hooked up for production in 2007-08.

Pramoda Field : (CB-ON-7)

Crude Oil Storage Tanks


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Asjol FieldThe field produced at an average rate of 46 bopd during the year with an aggregate production of 16851 bbls. The Company is reassessing the production potential from this field.

Block CB-OS-1ONGC, as Operator, has declared commerciality of Gulf “A” Discovery, which has been approved by all the Consortium Partners.

Operator has drilled North Harinagar well to a target depth of 3,288 meters. While the DST showed presence of oil, however the well could not be activated.

Forward PlanThe Gulf “A” Field Development Plan, which envisages drilling from a land based platform, is under preparation. Operator is also initiating processes for securing environmental approvals for the same.

Assam-Arakan Basin

Block AAP-ON-94/1During the year, HOEC received Government approval for operatorship and revised participating interest of 40.323%. All the Consortium Partners (HOEC, IOC and OIL) exercised option to enter Exploration Phase III. HOEC, as Operator, has secured environmental approvals and is preparing to drill two exploration wells in October 2007. The future programme in this block will be dependent on the results of the aforesaid exploration campaign.

RISKS, THREATS AND UNCERTAINTIESThe principal risks and uncertainties facing the Company, and the action taken to mitigate these risks, are as follows:

Oil Price VolatilityHOEC is exposed to volatility in the oil price since we do not have any oil price hedge. The impact of a falling oil price is however partly mitigated via the production sharing formula in the PSCs, whereby our share of gross production increases in a falling oil price environment due to cost recovery mechanism. We believe that our shareholders as a body prefer to retain exposure to the oil price, so our policy is not to hedge against a fall in oil prices.

Century Rig : Contracted for drilling in AAP-ON-94/1 Block


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The PY-1 gas price being fixed under term contracts entered by the Company coupled with take-or-pay provision provide HOEC with more certainty in terms of cash inflows from sale of gas.

Cost Inflation impacting both Goods and Services

The current inflationary environment for oil field goods and services, and for skilled human resources, has been described herein below (see ‘Outlook’). Under the terms of the PSCs, operating expenditure and capital costs are recoverable through cost recovery mechanism, and so the effect of cost increase is cushioned to certain degree, subject always to approval of expenditure by the Management Committees under the PSCs. The retention of key staff at an acceptable cost is addressed through our remuneration and incentive plan to give key staff a longer term stake in the Company’s performance.

Geological RiskExploration is inherently a risky business, with statistically only a relatively small proportion of exploration wells resulting in commercial discovery. It is not possible to insure against the risk of failure. HOEC policy shall be to contain this exposure within prudent limits.

Health, Safety and EnvironmentOil and gas operations carry a potentially high level of attendant risk, and the impact of an accident can be significant in terms of human, environmental and financial cost. HOEC carries out HAZOP, HAZID and maintains risk register covering risks specific to various operations. The Company has standard insurance policies, including control-of-well cover, in place covering all its operated and non-operated assets.

FINANCIAL REVIEWPerformanceRevenueRevenue grew by 23% to INR 1,261 million due to higher price realization and higher production: the average sale price rose by 9% to USD 62/bbl (2005-06: 57/bbl).

Production on working interest basis during the year was 503,408 boe, 9% higher than in previous year. The net entitlement volume was 1122 boepd, 3.5% higher than the previous year.

Sales volumes at 513,431 boe were 12.1% higher than in previous year. The inventory during the year was 34% lower than the previous year.

Operating ProfitCost of sales fell from INR 240.5 million to INR 238.6 million, due to a reduction of 1.7% in field operating expenses. The Company’s production cost, inclusive of depletion of producing properties, per working interest barrel, was INR 474/boe (USD 10.53/boe), a reduction of 10.3% over the previous year.

Administrative expenses, without considering the recovery of expenses, decreased by 11% from INR 148.1 million to INR 131.9 million.


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Interest and finance charges were INR 55.9 million, up from previous year due to interest costs associated with secured term loan by way of PY-3 and Palej participating interest and receivables.

Other expenses include write-off of two unsuccessful exploration wells drilled in Block CY-OSN-97/1 with a net charge to the P&L equivalent to INR 930.3 million.

The operating profit was INR 57.8 million compared to INR 282.1 million against the previous year, decline being primarily on account of the write-off of the aforesaid exploration expenses to the extent of INR 930.3 million.

Net Profit

The total Tax charge was negative for the year due to deferred tax asset created for the write off the exploration expenses.

Profit after tax decreased to INR 24.7 million (2005-06: INR 174.9 million).

Cash Flow and Capital Expenditure

During FY 2006-07, Operating Cash Flow, before Working Capital changes and Taxes, was INR 913 million, an increase of 24.7% over previous fiscal.

Net cash flow from operations, after deduction of INR 272.1 million of tax and working capital decrease of INR 166.4 million, was INR 807.7 million, an increase of 171% over 2005-06.

Investment expenditure totaled INR 2,328.8 million (2005-06: INR 655.8 million). Of this total exploration expenditure accounted for INR 856 million, development expenditure INR 1461.6 million and others INR 11.2 million.

During the year, the Company raised an amount of INR 1488.2 million by issuance of 19.56 million equity shares to the existing shareholders of the Company in the ratio of 1:3.

Long term debt increased by INR 1,157.9 million to INR 1,320.9 million.

The above elements resulted in a net increase in cash balance of INR 1,031.9 million during the year.

FINANCIAL POSITION

Liquidity

At the year end, HOEC had cash and cash equivalent balances of INR 1,503.37 million and outstanding debt of INR 1,320.95 million.

Cash surplus to immediate requirements is placed in Liquid Funds and Bank Deposits as approved by the Board.

In 2006-07, the Company has executed loan facility agreement for USD 100 million towards PY-1 Field development on a project recourse basis with a consortium of domestic banks co-led by IDBI Bank Limited and UTI Bank Limited. As of the Balance Sheet date, the Company has not drawn down any amount against this facility.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

A comprehensive review of risks and internal controls was carried out during the year 2006-07 by the Internal Auditors on behalf of the Audit Committee. Potential risks were assessed and policies and measures in place were reviewed by the Internal Auditors and any necessary actions recommended to the Audit Committee and the Board. Any control failures or weaknesses are reported to the Audit Committee and the Board. No significant control failings were reported during the year.

OUTLOOK

Based on the forward plan in various assets and more specifically development of PY-1 Gas Field, our outlook remains positive. On certain macro economic factors which impact the business, we share the following views:


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Oil and Gas Markets

We have noticed that the oil price continued to strengthen in FY 2006-07 with dated Brent averaging USD 64.25/bbl compared with USD 57.77/bbl in the previous fiscal year. Ignoring seasonal variations, we expect oil prices to remain above USD 50/bbl over the next few years.

Gas prices in India have been evolving over the years from an administered price regime of sub USD 2.0/mmbtu and eventually would become market determined. With the gas transmission infrastructure spanning the country, the gap in producer gas prices can be expected to steadily close.

Price Inflation

Fuelled by the continued strength of the oil prices and the demand on finite oil service resources have caused rig day rates, marine spread cost and costs of the attendant services to rise. HOEC is not insulated against some of these market pressures. There is pressure on human resources which gives rise to salary inflation and certain sectors of the industry have experienced higher staff turnover.

MATERIAL DEVELOPMENT IN HUMAN RESOURCE FRONT

Human ware is your Company’s key resource. Our ability to continuously enhance value of our core E&P assets depends largely on our ability to attract, train, motivate and retain the best professionals. We believe that there is significant domestic competition for E&P professionals with skill sets necessary to conceptualize and deliver success. Your company is also exposed to the inherent risk associated with our ability to hire and retain skilled and experienced E&P professionals.

Your Company has over the year taken concrete steps to create a favourable work environment that creates and promotes culture of performance. In this direction, the Company has implemented a long-term incentive plan (LTIP), which has been approved by the shareholders, to provide incentives by way of cash and employee stock options, the latter to act as a retention tool.

The number of employees as at March 31, 2007 was 41. Your Company has strengthened Geoscientist and Project Management team by recruiting key managerial personnel.


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RepoRt on CoRpoRate GoveRnanCeCompany’s philosophy on Code of CoRpoRate GoveRnanCe

HOEC has always been committed to the principles of good Corporate Governance to promote the effective functioning of the Board and its Committees and to assist it in the exercise of its responsibilities. The Board of Directors, the Company’s highest policymaking body, is committed in its responsibility for all constituents including investors, regulatory authorities and employees. The Company believes that the essence of Corporate Governance is transparency, accountability, investor protection, better compliance with statutory laws and regulations, value creation for shareholders/stakeholders.

The Company further believes that all its operations and actions must serve the underlying goal of enhancing overall shareholders’ value over a sustained period of time and at the same time protect the interest of stakeholders.

HOEC is compliant with the provisions of Clause 49 of the Listing Agreement as amended from time to time.

investors protection

HOEC’s core goal is to maintain the shareholders’ trust, faith and has been trying to enhance the value of their investments. HOEC, during execution of all its operations and actions, evaluates the risk factors involved therein and attempts to protect the interest of the shareholders.

statutory Compliance

In pursuit of its goals, the Company will make no compromise in complying with applicable laws and regulations at all levels and at all times.

Code of Conduct

An important element of the revised Clause 49 relates to adoption of Code of Conduct for the Board of Directors and Senior Management. HOEC has adopted separate codes viz. Code of Conduct of Board of Directors of the Company and Code of Conduct for the Senior Management of the Company. All Board Members, Senior Management inter alia including employees who are below the Senior Management level but instrumental in the critical operations/functions are also covered under the said code. The said codes have been posted on the Company’s web site: www.hoec.com

insider trading

Pursuant to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, the Company has also adopted the Code of Conduct for Prevention of Insider Trading.

The Company observes a closed period for trading in securities of the Company by Directors/Officers and Designated Employees of the Company for the period of atleast 7 days prior to the consideration of quarterly/yearly results. The closed period is also applicable prior to disclosure of price sensitive information, if any.

secretarial audit

A Secretarial Audit was carried out by a qualified Practicing Company Secretary for reconciling the total capital with National Securities Depositories Limited (NSDL) and Central Depository Services (India) Limited (CDSL) and the total issued and listed capital. The audit confirms that the total issued/paid up capital is in accordance with the total number of shares held in physical form and the total number of dematerialized shares held with NSDL and CDSL.

The audit is carried out every quarter and the report thereon is submitted to the stock exchanges. The report is also placed before the Board of Directors.

The requirements of Corporate Governance adhered to during the year has been given under the relevant parameters as set out below.

BoaRd of diReCtoRs

The strength of the Board of Directors is six (6). The Board has an optimum combination of executive and non-executive directors. The Company has a Non-Executive Chairman and the number of Independent Directors is not less than one- third of the total number of Directors. The number of Non-Executive Directors is at least half of the total number of Directors.

The term of the erstwhile Managing Director, Mr. Rakesh Jain expired on July 31, 2006 and he had not sought renewal of his term. With effect from August 01, 2006, Mr. Atul Gupta has been appointed as the Managing Director of the Company. Additionally, Mr. Manish Maheshwari, erstwhile Chief Financial Officer of the Company, has been appointed as the Joint Managing Director with effect from August 01, 2006. Mr. Rahul Bhasin, with effect from April 20, 2006, has been appointed as Director in casual vacancy caused due to the resignation of Mr. Vimal Bhandari. These appointments formed part of the Notice convening the 22nd Annual General Meeting held on September 28, 2006, at which the members had approved the same.

The Company has not paid any remuneration, other than sitting fees, to any Director except the Joint Managing Director.


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Name of Directors Category No. of attendanceat the Board

Meeting

Whetherlast AGMattended

Memberships on Board of other

Companies

Committee Chairmanship/Membership of

other Companies@

No. of Shares & % held in the

Company

Mr. R. Vasudevan Independent Director (Chairman)

7 Yes 5 Membership – 2 Nil

Mr. Deepak S. Parekh

Non Executive and Non-Independent Director

Nil* No 16# Chairmanship – 5Membership – 3

Nil

Mr. Rahul Bhasin Independent Director 6 No 2 Nil Nil

Mr. Finian O’Sullivan** Non-Executive, Promoter nominee Director

5 Yes Nil Nil Nil

Mr. Atul Gupta** Executive Director (Managing Director)

5 Yes Nil Nil Nil

Mr. Manish Maheshwari$ Executive Director (Joint Managing Director)

3 Yes 1 Nil Nil

Mr. Rakesh Jain • Managing Director 3 N.A. 1 Nil 1000(0.001%)

* Leave of absence from attending the meetings were granted.** Nominee Director of Burren Shakti Limited (Promoter).• Ceased to be Managing Director due to completion of term w.e.f. July 31, 2006. Shareholding as on July 31, 2006.# Including alternate directorship in four companies.@ Represents Memberships/Chairmanships of Audit Committee and Shareholders/Investors Grievance Committee across all public limited companies, whether listed

on the stock exchange(s) or not.$ Mr. Manish Maheshwari is also the Chairman of HOEC Bardahl India Limited, 100% subsidiary of the Company.

aUdit Committee

terms of Reference

The terms of reference of the Audit Committee are to review financial reporting process, reports of the Internal Auditors, internal control systems and quarterly/annual financial statements. The Audit Committee also meets Statutory Auditors and Internal Auditors to discuss their findings, suggestions and other matters and hold discussion with them periodically. The Audit Committee also reviews the financial statements of the Subsidiary Company. The scope of the activities of the Audit Committee is as prescribed by Section 292A of the Companies Act, 1956 as well as Clause 49.II of the Listing Agreement entered into with the Stock Exchanges.

Composition of audit Committee

Majority of the Members of the Committee are non-executive–independent directors. During the year, Mr. Rahul Bhasin has been appointed as the Chairman of the Committee.

Sr. No.

Name of Members and their Position No. of Committee Meetings attended

1 Mr. Rahul Bhasin, Chairman 6

2 Mr. R. Vasudevan, Member 6

3 Mr. Atul Gupta, Member 4

BoaRd meetinGs

The Board shall have four regularly scheduled meetings per year. During the year under review, seven (7) Board meetings were held and the gap between any two meetings did not exceed four months.

The dates on which the Board Meetings were held are as follows:

April 20, 2006, May 03, 2006, May 23, 2006, July 29, 2006, September 28, 2006, October 27, 2006 and January 29, 2007.

The Company did not have any pecuniary relationship with Non Executive Directors during the year under review, except for the Directors’ sitting fees.

diReCtoRs seeKinG Re-appointment

Directors seeking reappointment are Mr. R. Vasudevan and Mr. Deepak S. Parekh.

Their brief resume and nature of expertise in specific areas, their directorships and memberships of Committees is given in the Notes to the Notice of the Annual General Meeting.


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All the members possess good knowledge of finance, accounts and basic elements of Company Law.

The Company Secretary is the Secretary to the Committee.

date of audit Committee meetings

During the year under review, six (6) Audit Committee Meetings were held on:

April 20, 2006, May 23, 2006, July 29, 2006, September 07, 2006, October 27, 2006 and January 29, 2007.

Compensation & RemUneRation Committee

terms of Reference

The terms of reference of the Compensation & Remuneration Committee are to decide the term of services and compensation payable to Whole-time/Managing Director/Joint Managing Director and to discharge such other functions as may be referred by the Board. Additionally, the Committee also considers the compensation payable to senior executives of the Company.

Composition of Committee

The Committee comprises of three directors. Mr. R. Vasudevan, an independent director, is the Chairman of the Committee. During the year under review, Mr. Rahul Bhasin was appointed as Member of the Committee. The composition of the Compensation & Remuneration Committee and the details of meetings attended by the Directors are given below.

During the year under review, three (3) Compensation & Remuneration Committee meetings were held on April 20, 2006, July 29, 2006 and January 29, 2007.

Sr. No.

Name of Member and their Position No. of Committee Meetings attended

1 Mr. R. Vasudevan, Chairman 3

2 Mr. Rahul Bhasin, Member 3


The Board has at its Meeing held on July 20, 2007 appointed Mr. Finian O’Sullivan as a Member of the Committee.

RemUneRation poliCy

The Company while deciding the remuneration package takes into consideration, the following:(A) Employment scenario. (B) Remuneration package of the industry/other industries for

the requisite managerial talent.(C) The qualification and experience held by the appointee.

The Managing Director of the Company is appointed as per the terms and conditions decided by the Board of Directors of the

Company. Mr. Atul Gupta, Managing Director of the Company does not draw any remuneration from the Company, except sitting fee for attending the Board/Committee meetings.

The remuneration package of the Joint Managing Director comprises of salary, allowances, perquisites and bonuses as approved by the shareholders at the Annual General Meeting held on September 28, 2006.

During the year, the remuneration paid to the Mr. Manish Maheshwari, Joint Managing Director amounted to Rs. 2,932,050. This does not include value of stock options approved to be granted to him under the ESOP Scheme of the Company, in relation to the financial year 2005-06 or the remuneration paid upto July 31, 2006, in his capacity as the Chief Financial Officer of the Company.

During the year, the Company has not paid any commission to its Directors.

RemUneRation paid to the manaGinG diReCtoRs dURinG the yeaR 2006-07.

Sr. No.

Name Salaries (Rs.)

Contribution to Provident Fund & Super annuation

fund (Rs.)

OtherPerquisites

(Rs.)

Total (Rs.)

1 Mr. Atul Gupta Nil Nil Nil Nil*

2 Mr. Manish Maheshwari 2,614,400 317,650 Nil 2,932,050**

3 Mr. Rakesh Jain 5,228,694 216,000 224,424 5,669,118***

* This does not include sitting fee for attending the Board/Committee meetings. ** This does not include value of stock options approved to be granted to him under the ESOP Scheme of

the Company, in relation to the financial year 2005-2006 or the remuneration paid upto July 31, 2006, in his capacity as the Chief Financial Officer of the Company.

*** Remuneration paid from April 01, 2006 to July 31, 2006 as term expired on July 31, 2006 and he had not sought renewal of his term.

Period of Contract with Managing Director and Joint Managing Director

• From August 01, 2006 till the conclusion of 24th Annual General Meeting (2008).

• The Contract may be terminated by either party, by giving the other party three months' notice in writing to the effect.

Directors of the Company, other than Joint Managing Director, are paid remuneration by way of sitting fees only for attending the meetings of the Board of Directors and its Committees. The details of sitting fees paid during the financial year 2006-07 to Directors is given below:

Sr. No. Name of Director Amount in Rs.

1 Mr. R. Vasudevan 120,000

2 Mr. Deepak S. Parekh Nil

3 Mr. Rahul Bhasin 95,000

4 Mr. Finian O’Sullivan 30,000

5 Mr. Atul Gupta 80,000


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The Employee Stock Option Scheme shall not be applicable to the Promoter Director(s) or Director(s) who either by himself/themselves or through his/their relative or through any body corporate, directly or indirectly hold(s) more than 10% of the outstanding equity shares of the Company.

RiGhts issUe and allotment Committee

During the year, the Board had constituted this Committee comprising of the following members.

Sr. No.

Name of Member and their Position No. of Committee Meetings attended


2 Mr. Rahul Bhasin, Member 2

3 Mr. Manish Maheshwari, Member 2

The Committee was constituted specifically to look into timely completion of the functions, procedures and processes with respect to the allotment and issue of equity shares under rights basis and its enlistment with the stock exchanges as well as connectivity with depositories.

Considering, the fact that the activities relating to the Rights Issue were fulfilled, the Board had, at its meeting held on January 29, 2007, due to completion of Rights Issue process, dissolved the said Committee with immediate effect.

shaReholdeRs /investoRs GRievanCe Committee (siGC)

The SIGC was constituted specifically to look into the shareholders/investors complaints pertaining to transfer and transmission of shares, issue of duplicate shares, non-receipt of balance sheet, dividends etc.

To facilitate prompt services to the shareholders of the Company, Mr. Vikash Jain, Company Secretary, Chief-Tax & Legal and Mr. Minesh Bhatt, Assistant Company Secretary are authorised to approve the Share Transfer and its relating processes/procedures/activities viz., splitting, consolidation, replacement, issue of duplicate share certificate, dematerialisation and rematerialisation of equity shares etc., The frequency of meeting is twice a month. This Committee presents its reports to the Shareholders/Investors Grievance Committee from time to time.

During the year under review, four (4) SIGC meetings were held on April 20, 2006, July 29, 2006, October 27, 2006 and January 29, 2007.

Sr. No.

Name of Members and their Position No. of Committee Meetings attended



3 Mr. Manish Maheshwari, Member 2

4 Mr. Rakesh Jain, Member 1*

*Since ceased to be Member.

The SIGC meetings are attended by the Company Secretary & Compliance Officer.

name, desiGnation & addRess of Company seCRetaRy & ComplianCe offiCeR

Mr. Vikash JainCompany Secretary, Chief-Tax & LegalHindustan Oil Exploration Company Limited“Lakshmi Chambers”192, St. Mary’s Road, AlwarpetChennai-600 018 (Tamil Nadu) IndiaTel : +91-(044) 66229000Fax : +91-(044) 66229011/12E-mail : [email protected]

Details of number of grievances received and resolved during the year are as under:

Particulars Total Grievances/Complaints received

Total Grievances/Complaints resolved

Pending Grievances/Complaints as on 31.03.2007

Received from Investors

136 136* NIL

Referred by SEBI 80 80* NIL

Referred by Stock Exchanges/ Depositories

08 08 NIL

RBI/Govt. Authorities 01 01 NIL

* Nine (9) complaints have been replied back seeking additional information necessary for the purpose.

There are no grievance/complaints from shareholders remaining unresolved except disputed court cases etc. as every effort is maintained to immediately redress investors’ grievances/complaints without loss of time. There was one pending share transfer request for transfer as on March 31, 2007, which was effected in April 2007.


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details of GeneRal Body meetinGs

Location and Time where last three Annual General Meetings were held

Year Location Date Time

2003-2004 “Tropicana Hall” Taj Residency Vadodara, Akota Gardens, Vadodara – 390 020.

September 17, 2004

11:30 a.m.

2004-2005 “Chandarva”, WelcomHotel Vadodara, R.C.Dutt Road, Alkapuri, Vadodara – 390 007.

September 22, 2005

11:30 a.m.

2005-2006 “Tropicana Hall” Taj Residency Vadodara, Akota Gardens, Vadodara – 390 020.

September 28, 2006

10:30 a.m.

NOTES

1. The details of the Special Resolutions passed at the Annual General Meeting (AGM)for the last 3 years are as under:

(a) Delisting of equity shares from all or any of stock exchanges namely; The Stock Exchange Ahmedabad, Bangalore Stock Exchange Limited, The Calcutta Stock Exchange Association Limited, The Delhi Stock Exchange Association Limited and Madras Stock Exchange Limited (20th AGM held on September 17, 2004).

(b) Approval of Company’s Employees Stock Option Scheme – 2005. (21st AGM held on September 22, 2005).

(c) Appointment of Mr. Atul Gupta as the Managing Director of the Company w.e.f. August 01, 2006 upto the Conclusion of the 24th Annual General Meeting of the Company. (22nd AGM held on September 28, 2006).

(d) Appointment of Mr. Manish Maheshwari, as the Joint Managing Director of the Company w.e.f. August 01, 2006 upto the Conclusion of the 24th Annual General Meeting of the Company. (22nd AGM held on September 28, 2006).

2. No special Resolution was passed through the postal ballot during the last year

The Company is not anticipating any Special Resolution to be passed through Postal Ballot and hence procedure for postal ballot has not been provided for.

disClosURes

1. Related Party Transactions are disclosed in the Notes to Accounts forming part of the Annual Report. None of the transactions with any of the related parties were in conflict with the interest of the Company.

2. There are no penalties, strictures imposed on the Company by Stock Exchange or SEBI or any statutory authority for non-compliance by the Company, on any matter related to capital markets, during the last three years.

3. Though Whistle Blower Policy is non mandatory, the Company has adopted the same, which has been approved by the Board. No personnel has been denied access to the Audit Committee.

4. All the mandatory requirements under Clause 49 of Listing Agreement in respect of Corporate Governance have been complied with. The Company is compliance with the non-mandatory requirements relating the Remuneration Committee and Whistle Blower Policy. In respect of adoption of other non-mandatory requirements, the Company will implement the same, as and when required.

means of CommUniCation

The quarterly, half yearly and annual financial results are normally published in the Economic Times, Ahmedabad edition and Vadodara Samachar, Vadodara edition. Apart from this the Company has been also publishing its Audited Annual Accounts in the leading news papers of Mumbai. The results along with official news release are promptly displayed on the Company’s web site at www.hoec.com. Half-yearly reports are not sent to the shareholders. As the Company publishes the audited annual results within the stipulated period of three months as required by the listing agreement with the Stock Exchanges hence the unaudited results for the last quarter of the financial year are not published. The Company has also posted information relating to its financial results, shareholding patterns, corporate governance report etc., on Electronic Data Information Filing and Retrieval System (EDIFAR) at www.sebiedifar.nic.in. No presentations were made to institutional investors or to the analysts during the year under review.

Management Discussion & Analysis Report is forming part of the Annual Report.


21

GeneRal shaReholdeRs infoRmation

1 Day, Date, Time and Venue of 23rd Annual General Meeting.

Friday, September 28, 2007 at 10:30 a.m. at “Chandarva”, WelcomHotel Vadodara, R.C. Dutt Road, Alkapuri, Vadodara – 390 007.

2 Financial Year Calendar Results for the quarter ending on:June 30, 2007 : July 2007September 30, 2007 : October 2007December 31, 2007 : January 2008March 31, 2008 : June 2008

3 Book Closure Dates Tuesday, August 14, 2007 to Tuesday, August 21, 2007 (both days inclusive).

4 Dividend Payment Date Not Applicable (The Board has not recommended any dividend for the year).

Equity Shares of the Company at present are listed at following Stock Exchanges

1. Bombay Stock Exchange Limited (BSE)

2. National Stock Exchange of India Limited (NSE)

The Company has paid annual listing fees for the Financial Year 2007-08 to the said Stock Exchanges and annual maintenance/custodial charges/fees paid to the National Securities and Depositories Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

Stock Code:

Bombay Stock Exchange Limited (BSE) : 500186

National Stock Exchange of India Limited (NSE) : HINDOILEXP Series : Eq

Trading of equity shares in the depository system with both depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). International Security Identification Number (ISIN) of the Company’s equity shares with NSDL and CDSL is INE345A01011.

Stock Market Data: BSE

Period BSE Share Price BSE Sensex (High)

High Rs. Low Rs.

April-2006 188.90 151.00 12,102.00

May-2006 196.00 120.00 12,671.11

June-2006 140.00 90.10 10,626.84

July-2006 124.85 95.05 10,940.45

August-2006 138.80 110.15 11,794.43

September-2006 124.70 107.00 12,485.17

October-2006 116.70 96.20 13,075.85

November-2006 109.55 92.70 13,799.08

December-2006 97.95 80.05 14,035.30

January-2007 110.50 87.60 14,325.92

February-2007 99.90 76.10 14,723.88

March-2007 80.75 62.05 13,386.95


22


ReGistRaR and tRansfeR aGents

Intime Spectrum Registry Limited Unit: Hindustan Oil Exploration Company Limited308, Jaldhara Complex, 1st Floor,Opp. Manisha Society, Vasna RoadVadodara - 390 015 (Gujarat) IndiaEmail : [email protected] : +91 (0265) 2250241,3249857Fax : +91 (0265) 2250246

shaRe tRansfeR & demat system

• Share Transfer in physical form requests are presently registered and returned within a period of 21 days from the date of receipt and request for dematerialisation, rematerialisation generally confirmed within a period of 21 days from the date of its receipt, if documents are complete in all respect.

• As on March 31, 2007 Company has dematerialized 54,127,344 equity shares, which is 69.12 % of the total equity shares.

distRiBUtion of shaReholdinG as on maRCh 31, 2007

CATEGORY PHYSICAL NSDL CDSL TOTAL

No. ofShareholders

No. of Shares

No. ofShareholders

No. ofShares

No. ofShareholders

Nos. of Shares

No. ofShareholders

No. ofShares

1 to 5,000 14,455 2,812,080 32,478 10,946,368 8,420 25,25,621 55,353 16,284,069

5,001 to 10,000 3 18,096 200 1,406,477 49 340,919 252 1,765,492

10,001 to 20,000 0 0 102 1,424,518 24 328,769 126 1,753,287

20,001 to 30,000 1 20,600 32 802,457 5 116,760 38 939,817

30,001 to 40,000 0 0 15 523,682 3 112,113 18 635,795

40,001 to 50,000 0 0 10 448,705 1 50,000 11 498,705

50,001 to 1,00,000 1 70,000 17 1,093,633 1 52,537 19 1,216,170

Above 1,00,000 1 21,264,548 39 33,758,142 1 196,643 41 55,219,333

TOTAL 14,461 24,185,324 32,893 50,403,982 8,504 3,723,362 55,858 78,312,668

oUtstandinG adR / GdR / WaRRants etC. Not Applicable

plant loCation

The Company is not in the business of manufacturing activity and hence does not have any plant. The Company is in the business of Oil and Gas exploration, development & production and at present operating at various fields as mentioned in section Areas of Operations in the Annual Report.

addRess foR CoRRespondenCe

Secretarial DepartmentHindustan Oil Exploration Company Limited“Lakshmi Chambers”, 192, St. Mary’s Road, AlwarpetChennai – 600 018 (Tamilnadu) IndiaTel: +91-(044) 66229000 • Fax: +91-(044) 66229011/12E-mail: [email protected]

With reference to recent amendment to the Clause 47 (f ) of Equity Listing Agreement and to comply with the same, the Company has exclusively designated an email id: [email protected]. The Shareholders may use this email id for registering their grievance/complaint.


R. VasudevanDate: July 20, 2007 Chairman


23

deClaRation

I hereby declare that all the members of the Board and the senior management personnel of the Company have affirmed compliance with the HOEC Code of Conduct.

It is further, declared that the Board of Directors of the Company had at its meeting held on May 14, 2007 taken note of the CEO/CFO Certificate.


R. VasudevanDate: July 20, 2007 Chairman

CoRpoRate GoveRnanCe CeRtifiCate

To,The MembersHindustan Oil Exploration Company Limited

I have examined the compliance of conditions of Corporate Governance by M/s. Hindustan Oil Exploration Company Limited, for the financial year ended 31st March, 2007 as stipulated in Clause 49 of the Listing Agreement of the said Company with the stock exchanges in India.

The compliance of conditions of Corporate Governance is the responsibility of the management. My examination was limited to procedures and implementation thereof adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statement of the Company.

In my opinion and to the best of my information and according to the explanations given to me, I certify that the Company complied with the conditions of Corporate Governance as stipulated in the Listing Agreement.

I state that as per the records maintained, no investor grievances against the Company are pending for a period exceeding one month, except to the extent of those under dispute.

I further state that such compliance is neither an assurance as to the future viability of the Company nor efficiency or effectiveness with which the management has conducted the affairs of the Company.

Niraj Trivedi Company SecretaryDated: July 20, 2007 CP. No. 3123


24


AUDITORS’ REPORT

TO THE MEMBERS OF HINDUSTAN OIL EXPLORATION COMPANY LIMITED

1. WehaveauditedtheattachedBalanceSheetofHINDUSTAN OIL EXPLORATION COMPANY LIMITED (“theCompany”) asatMarch31,2007,theProfitandLossAccountand the Cash Flow Statement of the Company for the yearended on that date, both annexed thereto. These financialstatementsaretheresponsibilityoftheCompany’sManagement.Our responsibility is to express an opinion on these financialstatementsbasedonouraudit.

2. We conducted our audit in accordance with the auditingstandardsgenerallyaccepted inIndia.ThoseStandardsrequirethat we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessingthe accounting principles used and significant estimates madeby the Management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides areasonablebasisforouropinion.

3. As required by the Companies (Auditor’s Report) Order,2003, (CARO) issuedby theGovernment in termsofSection227(4A)oftheCompaniesAct,1956,wegiveintheAnnexurea statement on the matters specified in paragraphs 4 and 5 ofthe said Order, to the extent applicable to the Company. Ourcomments in the Annexure exclude matters relating to theCompany’s jointventures,whicharenotsubjecttoauditundertheCompaniesAct,1956.

4. Without qualifying our report, we invite attention to Note 10of Schedule 14 regarding Managerial Remuneration which issubjecttotheapprovaloftheShareholders/CentralGovernmentasstatedtherein.

5. (a) TheAccountshavebeendrawnupinaccordancewiththestatementofSignificantAccountingPolicies(Schedule13).AccountingPolicy3relatingto“SuccessfulEffortsMethod”andthetreatmentofexplorationanddevelopmentcostsaresignificant to the oil and gas exploration and productionindustry.

(b) Categorisation of the wells as exploratory and producingand the depletion of producing wells on the basis ofproved developed hydrocarbon reserves and expensing ofthe estimated site restoration liability on the basis of provedhydrocarbonreservesaremadeaccordingtotechnicalevaluationbytheManagement,onwhichwehaveplacedreliance.

6. (a) TheaccountsincludeassetsaggregatingRs.4,549,403,216,liabilitiesaggregatingRs.616,492,568,incomeaggregatingRs.772,255andexpenditureaggregatingRs.167,759,884relating to the Company’s share in seven joint ventures,which have been incorporated on the basis of accountsauditedbyotherauditors.

(b) In respect of two non-producing joint ventures, exploration expenditure aggregating Rs. 85,389,349, other assets

aggregating Rs. 109,331 and liabilities aggregating Rs. 2,936,859 have been incorporated on the basis of the information available, in the absence of audited accounts. The accounts of one of the two joint ventures has been audited upto March 31, 2006.

7. Further to our comments in the Annexure referred to inparagraph3above,wereportthat:

a. we have obtained all the information and explanationswhich, to the best of our knowledge and belief werenecessary for the purposes of our audit, except for theaudited financial information relating to the two joint ventures for the year ended March 31, 2007 referred to in paragraph 6(b) above.

b. inouropinion,properbooksofaccountasrequiredbylawhavebeenkeptby theCompany so far as it appears fromourexaminationofthosebooks;

c. the Balance Sheet, the Profit and Loss Account and theCash Flow Statement dealt with by this report are inagreementwiththebooksofaccount;

d. in our opinion, the Balance Sheet, the Profit and LossAccount and the Cash Flow Statement dealt with by thisreport are in compliance with the Accounting Standardsreferred to in Section 211(3C) of the Companies Act,1956;

e. in our opinion and to the best of our information andaccordingtotheexplanationsgiventous,thesaidaccounts,givetheinformationrequiredbytheCompaniesAct,1956,in the manner so required and subject to our comments in paragraph 6(b) above to the extent of the unaudited amounts stated therein, givea trueand fairview inconformitywiththeaccountingprinciplesgenerallyacceptedinIndia:

(i) inthecaseoftheBalanceSheet,ofthestateofaffairsoftheCompanyasatMarch31,2007;

(ii) in the case of the Profit and Loss Account, of theprofit of the Company for the year ended on thatdate;and

(iii) in the case of the Cash Flow Statement, of the cashflows of the Company for the year ended on thatdate.

8. On the basis of the written representations/ declarationsreceived fromtheDirectors and takenon recordby theBoardand according to the information and explanations given tous, we report that none of the Directors of the Company isdisqualified as at March 31, 2007 from being appointed as aDirectorunderSection274(1)(g)oftheCompaniesAct,1956onthesaiddate.

For Deloitte Haskins & SellsCharteredAccountants

K. Sai RamPlace :Gurgaon, PartnerDate :May14,2007 (MembershipNo.022360)


25

(i) Considering the nature of the Company’s business/activitiesduringtheyearandreadtogetherwithourcommentrelatingto jointventures inpara3ofourreport,clauses4(ii),4(viii),4(xii), 4(xiii), 4(xiv), 4(xviii), 4(xix) and 4(xx) of CARO arenotapplicable.

(ii) Inrespectofitsfixedassets: (a) TheCompanyhasmaintainedproperrecordsshowingfull

particulars,includingquantitativedetailsandsituation offixedassets.

(b) Some of the fixed assets were physically verified duringthe year by the Management in accordance with aprogrammeofverificationwhich,inouropinion,providesforphysicalverificationofallthefixedassetsatreasonableintervals having regard to the size of the Company andthenatureofitsassets.Accordingtotheinformationandexplanations given to us, no material discrepancies werenoticedonsuchverification.

(c) The fixed assets disposed off during the year, in ouropinion,donotconstitutea substantialpartof thefixedassets of the Company and such disposal has, in ouropinion, not affected the going concern status of theCompany.

(iii) According to the information and explanations given to us,theCompanyhasnotgrantedor takenany loans, securedorunsecured,to/fromcompanies,firmsorotherpartiescoveredintheregistermaintainedinpursuanceofSection301oftheCompaniesAct,1956.

(iv) In our opinion and according to the information andexplanationsgiventous,thereisanadequateinternalcontrolsystemcommensuratewith thesizeof theCompanyand thenature of its business for the purchase of fixed assets andfor the sale of goods. We have not observed any significantcontinuingfailuretocorrectmajorweaknessesinsuchinternalcontrols.

(v) To the best of our knowledge and belief and according tothe information and explanations given to us, there are nocontractsorarrangementstheparticularsofwhichneedtobeenteredintheregistermaintainedinpursuanceofSection301oftheCompaniesAct,1956.

(vi) TheCompanyhasnotacceptedanydepositsfromthepublic.

(vii) Inouropinion,theinternalauditfunctionscarriedoutduringtheyearbyanexternalagencyappointedbytheManagementhave been commensurate with the size of the Company andthenatureofitsbusiness.

(viii) Inrespectofstatutorydues: (a) According to information and explanations given to us,

the Company has been generally regular in depositingundisputed statutory dues, including Provident Fund,Investor Education and Protection Fund, Income Tax,FringeBenefitTax,SalesTax,ValueAddedTax,WealthTax, Customs Duty, Cess and other material statutorydueswiththeappropriateauthoritiesduringtheyear.

(b) According to information and explanations given to us,no undisputed amounts in respect of Provident Fund,Investor Education and Protection Fund, Income Tax,FringeBenefitTax,SalesTax,ValueAddedTax,WealthTax, Customs Duty, Cess and other material statutorydues applicable to the Company was in arrears as ofMarch 31, 2007 for a period of more than six monthsfromthedatetheybecamepayable.

(c) According to the information and explanations given tous,detailsofdisputeddueswhichhavenotbeendepositedasonMarch31,2007areasfollows:

Name of Statute

Nature of the Dues

Assessment Year

Amount (Rs.)

Forum where Dispute is Pending

Income Tax Act, 1961

Tax and Interest

1994 - 1995 213,412

Income Tax Appellate Tribunal

1998 - 1999 1,238,5991999 - 2000 3,865,8912000 - 2001 133,7092001 - 2002 10,853,6362002 - 2003 51,9132003 - 2004 115,599,3902004 - 2005 121,456,846 Commissioner of

Income Tax (Appeals)

(ix) The Company does not have any accumulated losses asat March 31, 2007. The Company has not incurred cashlosses during the financial year covered by our audit and theimmediatelyprecedingfinancialyear.

(x) In our opinion and according to the information andexplanations given to us, the Company has not defaulted intherepaymentofduestobanks.TheCompanyhasnottakenanyloansfromfinancialinstitutions.

(xi) In our opinion and according to the information andexplanations given to us, the terms and conditions of theguarantees given by the Company for loans taken by othersfrom a financial institution, are prima facie not prejudicial totheinterestsoftheCompany.

(xii) Tothebestofourknowledgeandbeliefandaccordingtotheinformationandexplanationsgiventous,inouropinion,termloansavailedbytheCompanywere,prima facie,appliedbytheCompanyduringtheyearforthepurposesforwhichtheloanswere obtained, other than temporary deployment pendingapplication.

(xiii) According to the information and explanations given to us,and on an overall examination of the Balance Sheet of theCompany, the Company has not raised funds on short-termbasis.

(xiv) Tothebestofourknowledgeandbeliefandaccordingtotheinformation and explanations given to us, no fraud on or bytheCompanywasnoticedorreportedduringtheyear.


K. Sai RamPlace :Gurgaon, PartnerDate :May14,2007 (MembershipNo.022360)

ANNEXURE TO THE AUDITORS’ REPORT(Referredtoinparagraph3ofourreportofevendate)


26


Balance Sheet as at March 31, 2007

in Rupees

Schedule March 31, 2007As at

March 31, 2006SOURCES OF FUNDS

SHAREHOLDERS’ FUNDSShare Capital 1 783,286,795 587,609,465 Reserves and Surplus 2 3,120,052,923 1,824,068,359 LOAN FUNDSSecured Loans 3 1,320,948,396 163,000,000

5,224,288,114 2,574,677,824

APPLICATION OF FUNDS

FIXED ASSETS 4 Gross Block 4,342,641,801 2,928,949,772 Less : Depreciation, Depletion and Amortisation 1,167,445,185 1,075,174,411NET BLOCK 3,175,196,616 1,853,775,361 INVESTMENTS 5 694,284,163 5,050,154 DEFERRED TAX ASSET (NET) (See Note 19 of Schedule 14) 487,478,090 176,231,000 CURRENT ASSETS, LOANS AND ADVANCES 6 a. Inventories 243,932,700 192,970,196 b. Sundry Debtors 196,553,969 106,786,874 c. Cash and Bank Balances 1,108,634,312 731,082,404 d. Other Current Assets 9,758,715 3,701,211 e. Loans and Advances 325,778,303 105,414,287

1,884,657,999 1,139,954,972Less : CURRENT LIABILITIES AND PROVISIONS 7 a. Current Liabilities 718,071,832 244,813,051 b. Provisions 299,256,922 355,808,112

1,017,328,754 600,621,163NET CURRENT ASSETS 867,329,245 539,333,809 MISCELLANEOUS EXPENDITURE (to the extent not written off or adjusted) Share Issue Expenses of Prior Years 0 287,500

5,224,288,114 2,574,677,824

Accounting Policies 13 Notes to the Accounts 14 Schedules 1 to 14 annexed hereto form part of the Accounts.

In terms of our report of even date attached. On behalf of the Board of Directors

For Deloitte Haskins & Sells R. Vasudevan Atul GuptaChartered Accountants Chairman Managing Director

K. Sai RamPartnerMembership No: 022360

Rahul Bhasin Manish MaheshwariDirector Joint Managing Director

Vikash Jain Company Secretary, Tax and Legal Coordinator

Place : Gurgaon Place : GurgaonDate : May 14, 2007 Date : May 14, 2007


27

Profit and Loss Account for the year ended March 31, 2007

in Rupees

ScheduleYear ended

March 31, 2007Year ended

March 31, 2006INCOME

Sales 8 1,145,144,612 942,442,081

(Decrease)/Increase in Stock of Crude Oil (See Note 22(a)(ii) of Schedule 14) (33,451,129) 27,086,408 Other Income 9 148,991,744 54,686,616

1,260,685,227 1,024,215,105

EXPENDITURE AND CHARGES

Field Operating Expenses 10 167,759,885 170,623,662 Corporate Expenses 11 28,273,154 75,207,926 Depreciation/Amortisation on Fixed Assets 4 5,646,818 8,118,180 Depletion of Producing Properties 4 70,845,642 69,832,624 Provisions and Write Offs (Net) (See Item 3 of Schedule 13 & Note 2 of Schedule 14)

930,368,696 418,347,620

Interest and Finance Charges 12 55,853,845 21,405,650 1,258,748,040 763,535,662

PROFIT BEFORE TAX 1,937,187 260,679,443 Less : Provision for Current Income Tax 286,000,000 168,000,000 Less/(Add) : Provision for Deferred Tax (Note 19 of Schedule 14) (311,000,000) (85,000,000)Less : Provision for Wealth Tax 200,000 160,000 Less : Provision for Fringe Benefit Tax 2,000,000 2,600,000

PROFIT AFTER TAX 24,737,187 174,919,443 Profit Brought Forward 818,433,321 710,497,791

PROFIT AVAILABLE FOR APPROPRIATION 843,170,508 885,417,234

APPROPRIATIONS :Proposed Dividend 0 58,744,935 Dividend Tax 0 8,238,978 Balance Carried to Balance Sheet 843,170,508 818,433,321 843,170,508 885,417,234 Earning per Share of Rs.10 Face Value (Basic and Diluted)(Refer Note 18 of Schedule 14) Rs. 0.35 Rs. 2.74Schedules 1 to 14 annexed hereto form part of the Accounts.








28


In Rupees

Year ended March 31, 2007


A. CASH FLOW FROM OPERATING ACTIVITIES Net Profit Before Tax 1,937,187 260,679,443 Adjustments for : Leave Encashment (319,900) (106,000) Depreciation/Amortisation and Depletion 76,492,460 77,950,804 Exploration Expenses Written Off (Net) 930,368,696 418,347,620 Other Miscellaneous Expenses Written Off 287,500 287,500 Dividend/Interest Income (132,552,057) (48,614,999) Loss on Sale of/Discarded Assets (Net) 173,912 268,615 Profit on Sale of Current Investments 0 (375,863) Unrealized Exchange (Gain)/Loss (18,829,295) 1,347,192 Interest and Finance Charges 55,853,845 21,405,650 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 913,412,348 731,189,962

Adjustments for: Trade and Other Receivables (253,520,269) (130,505,291) Inventories (50,962,504) (112,101,938) Payables 470,914,436 (40,851,138) CASH FROM OPERATIONS 1,079,844,011 447,731,595

Taxes Paid (272,125,253) (149,773,398)

NET CASH FROM OPERATING ACTIVITIES 807,718,758 297,958,197

B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets * (1,472,888,048) (509,670,507) Proceeds from Sale of Fixed Assets 123,926 1,675,742 Exploration Expenses Incurred (855,995,993) (297,762,657) Proceeds from Sale of Current Investments 911 375,863 Loan Repaid by Subsidiary 0 5,012,500 Dividend/Interest Received 126,494,553 49,559,696 Decrease in Inter Corporate Deposits 0 95,000,000 NET CASH USED IN INVESTING ACTIVITIES (2,202,264,651) (655,809,363)

C. CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Issue of Share Capital @ 1,487,892,759 0 Secured Loans Taken - Long Term 1,706,716,998 0 Secured Loans Repaid - Long Term (535,661,807) (112,000,000) Interest and Finance Charges Paid * (146,668,889) (33,858,250) Dividend Paid (including Dividend Tax) (66,118,708) (65,968,484) Rights Issue Expenses (19,736,001) 0 NET CASH FROM/(USED IN) FINANCING ACTIVITIES 2,426,424,352 (211,826,734) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) 1,031,878,459 (569,677,900)

Cash, Cash Equivalents : Opening Balance 471,491,786 1,041,169,686 Closing Balance 1,503,370,245 471,491,786

1,031,878,459 (569,677,900)

Cash and Bank Balance as per Schedule 6 1,108,634,312 731,082,404 Current Investment as per Schedule 5 689,234,920 0 Adjustment for Site Restoration Deposit (179,417,650) (166,559,032) Adjustment for Lien Marked Deposits (115,081,337) (93,031,586) Total Cash and Cash Equivalents as at Year End 1,503,370,245 471,491,786 * Interest and Finance Charges Paid includes and Purchase of Fixed Assets excludes Borrowing Cost capitalised amounting to Rs. 27,487,279 (Previous Year: Rs. 12,452,600)@ Proceeds from Issue of Share Capital includes Rs. 745,051 of Unclaimed / Unpaid Share Application Money.Schedules 1 to 14 annexed hereto form part of the Accounts.

Cash Flow Statement for the year ended March 31, 2007







AUDITORS’ CERTIFICATEWe have verified the Cash Flow Statement of HINDUSTAN OIL EXPLORATION COMPANY LIMITED for the year ended March 31, 2007, which has been derived from the audited accounts of the Company for the years ended March 31, 2006 and March 31, 2007 and have found the same to have been drawn up in accordance therewith and with the requirements of Clause 32 of the listing agreement with the stock exchanges.

For Deloitte Haskins & SellsChartered Accountants

K. Sai RamPlace : Gurgaon PartnerDate : May 14, 2007 (Membership No. 022360)


29

in Rupees

As at March 31, 2007


SCHEDULE 1SHARE CAPITALAUTHORISED200,000,000 Equity Shares of Rs.10 each 2,000,000,000 2,000,000,000

ISSUED78,345,643 (Previous Year 58,777,910) Equity Shares of Rs. 10 each 783,456,430 587,779,100 SUBSCRIBED AND PAID-UP78,312,668 (Previous Year 58,744,935) Equity Shares of Rs. 10 each fully paid 783,126,680 587,449,350 Add : Amount Paid-up on Shares Forfeited 160,115 160,115

783,286,795 587,609,465

Note:On October 27, 2006, an allotment of 19,567,733 Equity Shares was made consequent to the Rights Issue of 19,581,645 Equity Shares of Rs. 10 each at a premium of Rs. 66 per Share to the existing Shareholders of the Company in the ratio of One Equity Share for Every Three Equity Shares held.

SCHEDULE 2RESERVES AND SURPLUSSecurities Premium Opening Balance 1,001,765,038 1,001,765,038 Additions (See Note 1 below) 1,291,470,378 0 Rights Issue Expenses (See Note 2 below) (19,736,001) 0 Closing Balance 2,273,499,415 1,001,765,038

General Reserve Opening Balance 3,870,000 3,870,000 Transitional Adjustments (See Note 3 below) (487,000) 0

Closing Balance 3,383,000 3,870,000 Balance in Profit and Loss Account 843,170,508 818,433,321

3,120,052,923 1,824,068,359

Notes:1. Represents premium on allotment of 19,567,733 Equity Shares on October 27, 2006 at a

premium of Rs. 66 each consequent to the Rights Issue.2. The Rights Issue Expenses incurred during the year have been adjusted against the Securities

Premium balance in accordance with Section 78 of the Companies Act, 1956.3. Effective April 01, 2006, the Company adopted the revised Accounting Standard (AS-15)

on Employee Benefits issued by the Institute of Chartered Accountants of India, though not yet mandatory in nature. Pursuant to this, employee benefit obligations of the Company amounting to Rs. 487,000 (net of deferred tax of Rs. 247,090) as at March 31, 2006 has been adjusted against the opening balance of General Reserve in line with the transitional provisions of the said Standard.(Also see Note 1 of Schedule 14).

SCHEDULE 3SECURED LOANSLoans from Banks (See Note 3 of Schedule 14) Foreign Currency Loan 384,948,396 0 Rupee Term Loan 936,000,000 163,000,000

1,320,948,396 163,000,000

Schedules Forming Part of the Accounts for the Year Ended March 31, 2007


30


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31

in Rupees



SCHEDULE 5

INVESTMENTS (FULLY PAID) – At Cost

LONG TERM

IN SUBSIDIARY COMPANY

50,002 Equity Shares of Rs.100 each of HOEC Bardahl India Ltd. 5,000,200 5,000,200

QUOTED (TRADE)

318 Equity Shares of Rs.10 each of Reliance Industries Ltd. 25,975 25,975

318 Equity Shares of Rs. 5 each of Reliance Communication Ventures Ltd.# 19,332 19,332

Nil (Previous Year 318) Equity Shares of Rs.10 each of Reliance Energy Ventures Ltd.# 0 3,647

Nil (Previous Year 318) Equity Shares of Rs.10 each of Reliance Capital Ventures Ltd.# 0 649

318 Equity Shares of Rs. 5 each of Reliance Natural Resources Ltd.# 350 350

23 Equity Shares of Rs.10 each of Reliance Energy Ltd.* 3,219 0

15 Equity Shares of Rs.10 each of Reliance Capital Ltd.** 166 0

UNQUOTED (NON TRADE)

100,000 Equity Shares of Rs.10 each of Gujarat Securities Ltd. 1,000,000 1,000,000

CURRENT

UNQUOTED (NON TRADE)

UNITS OF MUTUAL FUNDS (See Note 7 of Schedule 14)

1,396,049 (Previous Year Nil) Units of Rs. 10 each of HDFC Cash Management Fund – Saving Plan – Daily Dividend 14,848,938 0

30,485,613 (Previous Year Nil) Units of Rs. 10 each of Prudential ICICI Liquid Plan – Daily Dividend Option 304,856,126 0

17,894,243 (Previous Year Nil) Units of Rs. 10 each of SBI Magnum Insta Cash Fund – Daily Dividend Option 299,733,932 0

64,800 (Previous Year Nil) Units of Rs. 1000 each of UTI Liquid Cash Plan Institutional – Daily Income Option – Reinvestment 66,059,927 0

3,735 (Previous Year Nil) Units of Rs. 1000 each of Templeton India TMA Super Institutional Plan – Daily Dividend Reinvestment 3,735,997 0

695,284,162 6,050,153

Less : Provision for Diminution in Value of Investments 999,999 999,999

694,284,163 5,050,154

Aggregate Cost of Quoted Investments 49,042 49,953

Market Value of Quoted Investments 598,059 383,412

Aggregate Cost of Unquoted Investments 695,235,120 6,000,200

# Received on Split of Equity Shares of Reliance Industries Limited during the Previous Year * Received on Amalgamation and Arrangement of Reliance Energy Ventures Ltd. during the Year ** Received on Amalgamation and Arrangement of Reliance Capital Ventures Ltd. during the Year



32


in Rupees



SCHEDULE 6CURRENT ASSETS, LOANS AND ADVANCESINVENTORIES Crude Oil 50,246,759 83,697,888 Stores and Spares 193,685,941 109,272,308

243,932,700 192,970,196 SUNDRY DEBTORS(Unsecured, Considered Good) Outstanding for a Period Exceeding Six Months 0 9,598 Other Debts 196,553,969 106,777,276

196,553,969 106,786,874CASH AND BANK BALANCES Cash on Hand 76,804 178,502 With Scheduled Banks Current Accounts (See Note 5 of Schedule 14) 68,374,893 94,300,262 Unclaimed/Unpaid Dividend Accounts 6,270,257 5,405,052 Unclaimed/Unpaid Share Application Money 745,051 0 Deposit Accounts (See Notes 4 & 5 of Schedule 14) 1,029,507,311 629,096,859 With Non-Scheduled Banks Current Accounts (See Note 6 of Schedule 14) 3,659,996 2,101,729

1,108,634,312 731,082,404OTHER CURRENT ASSETS Interest Accrued on Deposits 9,758,715 3,701,211

LOANS AND ADVANCES (See Note 1 below) Advances Recoverable in Cash or in Kind or For Value to be Received (See Note 2 below) 280,384,812 60,421,172 Advance Income Tax [Net of Provision for Taxation of Rs. 430,000,000 (Previous Year Rs. 430,000,000)] 60,549,971 60,549,971 Advance Fringe Benefit Tax [Net of Provision for Taxation of Rs. 2,000,000 (Previous Year Rs. Nil)] 400,376 0

341,335,159 120,971,143 Less : Provision for Doubtful Advances (See Notes 1 & 2 below) 15,556,856 15,556,856

325,778,303 105,414,287

TOTAL 1,884,657,999 1,139,954,972

Notes:

1. Of the above :

Secured, Considered Good 0 104,036

Unsecured, Considered Good 325,778,303 105,310,251

Unsecured, Considered Doubtful (See Note 2 below) 15,556,856 15,556,856

341,335,159 120,971,143

2. Includes Capital Advance Rs. 1,354,621 (Previous Year Rs. 1,354,621)



33


in Rupees



SCHEDULE 7CURRENT LIABILITIES AND PROVISIONSCURRENT LIABILITIES Sundry Creditors (See Note 8 of Schedule 14) 706,294,400 216,410,683 Investor Education and Protection Fund Unclaimed/Unpaid Dividend# 6,270,257 5,405,052 Unclaimed/Unpaid Share Application Money# 745,051 0 Other Liabilities 4,762,124 22,997,316 718,071,832 244,813,051 PROVISIONS Provision for Leave Encashment 1,537,100 1,857,000 Provision for Site Restoration (See Note 21 of Schedule 14) 244,392,500 250,115,000 Provision for Taxation – Income Tax [Net of Advance Tax of Rs. 669,650,638

(Previous Year: Rs. 400,068,791)] 52,915,254 36,497,101 – Wealth Tax [Net of Advance Tax of Rs.203,248 (Previous Year: Rs. 60,218)] 234,752 177,782

– Fringe Benefit Tax [Net of Advance Tax of Rs. 2,422,684 (Previous Year: Rs. 2,422,684)] 177,316 177,316

Proposed Dividend 0 58,744,935 Dividend Tax 0 8,238,978

299,256,922 355,808,112

TOTAL 1,017,328,754 600,621,163 # This does not include any amount due and outstanding, to be credited to the

Investor Education and Protection Fund.

in Rupees



SCHEDULE 8SALES Sale of Crude Oil and Gas 1,411,653,755 1,148,529,893 Less : Profit Petroleum to Government of India 266,509,143 206,087,812

1,145,144,612 942,442,081 SCHEDULE 9OTHER INCOMEInterest Income (Gross) (See Note 9 of Schedule 14)[Tax Deducted at Source Rs. 13,081,847 (Previous Year: Rs. 10,290,499)] 71,265,714 45,967,334 Dividend from Subsidiary 18,750,750 0Dividend from Long Term – Trade Investments 6,678 2,385 Dividend from Current – Non Trade Investments 42,528,915 2,645,280 Profit on Sale of Current Investments 0 375,863 Gain on Foreign Exchange Fluctuation (Net) 15,347,008 5,116,965 Miscellaneous Income 1,092,679 578,789

148,991,744 54,686,616


34


in Rupees



SCHEDULE 10

FIELD OPERATING EXPENSES

Hire Charges 120,752,634 128,340,160

Insurance 5,212,292 9,194,840

Fuel, Water and Others 7,785,448 442,076

Production Expenses 21,350,279 20,131,254

Other Expenses 8,140,698 8,013,627

Royalty, Cess & Processing Charges 4,518,534 4,501,705

167,759,885 170,623,662

SCHEDULE 11

CORPORATE EXPENSES

(A) STAFF EXPENSES

Salaries, Allowances and Bonus 38,972,185 56,164,947

Voluntary Retirement Compensation 6,052,862 2,762,705

Contribution to Provident and Other Funds 5,566,108 4,948,811

Welfare Expenses 2,536,812 2,891,998

53,127,967 66,768,461

(B) ESTABLISHMENT EXPENSES

Office and Guest House Rent 7,826,364 5,969,693

Electricity 2,591,909 2,665,279

Rates and Taxes 292,071 175,516

Repairs and Maintenance – Others 7,598,701 8,074,717

General Office Expenses 399,974 691,921

18,709,019 17,577,126

(C) OTHER EXPENSES

Travelling and Conveyance 6,470,284 8,210,972

Communication Expenses 4,151,684 4,386,410

Printing and Stationery 2,816,173 3,563,757

Legal and Professional Expenses 30,274,619 34,667,740

Insurance 220,362 193,891

Directors' Siting Fees 325,000 280,090



35


in Rupees



SCHEDULE 11

CORPORATE EXPENSES (Contd.)

Auditors’ Remuneration # @

Audit Fees 1,050,000 765,000

Tax Matters 375,000 1,060,000

Other Matters 145,000 9,000

Reimbursement of Expenses 318,970 214,575

Service Tax 226,782 104,040

2,115,752 2,152,615

Loss on Sale of/Discarded Assets 173,912 268,615

Share Issue Expenses 287,500 287,500

Miscellaneous Expenses 13,304,675 9,792,314

60,139,961 63,803,904

(D) TOTAL CORPORATE EXPENSES (A + B + C) 131,976,947 148,149,491

(E) Less : RECOVERY OF EXPENSES 103,703,793 72,941,565

28,273,154 75,207,926

# Auditors’ Remuneration for the current year excludes Rs. 1,060,668 paid to the Auditors in relation to the Rights Issue, adjusted against Securities Premium.

@ Auditors’ Remuneration for the previous year excludes Rs. 150,000 paid to a firm in which some partners of the audit firm are partners.

SCHEDULE 12

INTEREST AND FINANCE CHARGES

Interest on Fixed Loans 48,757,586 18,186,919

Bank Charges and Commission 6,181,042 3,218,731

Other Finance Charges 915,217 0

55,853,845 21,405,650



36


SCHEDULE 13

SIGNIFICANT ACCOUNTING POLICIES

1. Accounting Convention

ThefinancialstatementsarepreparedunderhistoricalcostconventioninaccordancewiththegenerallyacceptedaccountingprinciplesinIndia.

2. Use of Estimates

The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts ofassetsandliabilities(includingcontingentliabilities)asofthedateofthefinancialstatementsandthereportedincomeandexpensesduringthereportingperiod likedepletionofproducingproperties,estimateofsiterestoration liability,expensingof theestimatedsiterestoration liability,provisionforemployeebenefits,usefullivesoffixedassets,provisionfortaxetc.Managementbelievesthattheestimatesusedinpreparationofthefinancialstatementsareprudentandreasonable.Futureresultsmayvaryfromtheseestimates.

3. Exploration and Development Costs

TheCompanygenerallyfollowsthe“SuccessfulEffortsMethod”ofaccountingforitsexplorationandproductionactivitiesasexplainedbelow:

(i) Cost of exploratory wells, including survey costs, is expensed in the year when determined to be dry/abandoned or is transferred to theproducingpropertiesonattainmentofcommercialproduction.

(ii) Costoftemporaryoccupationofland,successfulexploratorywells,developmentwellsandallrelateddevelopmentcosts,includingdepreciationonsupportequipmentandfacilities,areconsideredasdevelopmentexpenditure.Theseexpensesarecapitalisedasproducingpropertiesonattainmentofcommercialproduction.

(iii) Producingproperties,includingthecostincurredondrywellsindevelopmentareas,aredepletedusing“UnitofProduction’’methodbasedonestimatedproveddevelopedreserves.AnychangesinReservesand/orCostaredealtwithprospectively.Hydrocarbonreservesareestimatedand/orapprovedbytheManagementCommitteesoftheJointVentures,whichfollowtheInternationalReservoirEngineeringPrinciples.

Explanatory Note 1. Allexplorationcostsincludingacquisitionofgeologicalandgeophysicalseismicinformation,licenseandacquisitioncostsareinitially

capitalizedas“CapitalWork inProgress–ExplorationExpenditure”,until suchtimeaseitherexplorationwell(s) inthefirstdrillingcampaignisdeterminedtobesuccessful,atwhichpointthecostsaretransferredto“ProducingProperties”,oritisunsuccessfulinwhichcasesuchcostsarewrittenoffconsistentwithpara2below.

2. Explorationcostsassociatedwithdrilling,testingandequippingexploratorywellandappraisalwellareinitiallycapitalizedas“CapitalWorkinProgress–ExplorationExpenditure”,untilsuchtimeassuchcostsaretransferredto“ProducingProperties”onattainmentofcommercialproductionorchargedtotheProfitandLossAccountunless:

(a) suchwellhasfoundpotentialcommercialreserves;or

(b) suchwelltestresultisinconclusiveandissubjecttofurtherexplorationorappraisalactivitylikeacquisitionofseismic,orre-entryofsuchwell,ordrillingofadditionalexploratory/stepoutwellintheareaofinterest,suchactivitytobecarriedoutnolaterthan2yearsfromthedateofcompletionofsuchwelltesting;

Managementmakesquarterlyassessmentoftheamountsincludedin“CapitalWorkinProgress-ExplorationExpenditure”todeterminewhethercapitalizationisappropriateandcancontinue.Explorationwell(s)capitalizedbeyond2yearsaresubjecttoadditionaljudgmentastowhetherfactsandcircumstanceshavechangedandthereforetheconditionsdescribedin(a)and(b)nolongerapply.

4. Site Restoration

Estimated future liability relating todismantlingandabandoningproducingwell sitesand facilitieswhoseestimatedproducing life is expectedtoendduringnexttenyearsisexpensedinproportiontotheproductionfortheyearandremainingestimatedprovedreservesofhydrocarbonsbasedonlatesttechnicalassessmentavailablewiththeCompany.

5. Impairment

AteachBalanceSheetdate,theCompanyreviewsthecarryingamountofitsassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.Ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentofimpairmentloss.

Wheretheimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(cashgeneratingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognizedfortheassetinprioraccountingperiods.


37


6. Joint Ventures

ThefinancialstatementsoftheCompanyreflectitsshareofassets,liabilities,incomeandexpenditureoftheJointVentureoperationswhichareaccountedonthebasisofavailableinformationonlinebylinebasiswithsimilaritemsintheCompany’saccountstotheextentoftheparticipatinginterestoftheCompanyasperthevariousjointventureagreements.

7. Fixed Assets

FixedAssetsarestatedatcostinclusiveofallincidentalexpenses.

8. Depreciation

(i) Depreciationisprovidedonthe“WrittenDownValue’’methodattheratesspecifiedinScheduleXIVoftheCompaniesAct,1956.

(ii) Incaseofadditionsduringtheyear,depreciationisprovidedforthefullyearirrespectiveofthedateofinstallationandnodepreciationisprovidedintheyearofsale/disposal.

(iii) ImprovementstoLeaseholdpremisesareamortisedovertheremainingprimaryleaseperiod.

(iv) Computersoftwareisamortisedonthe“WrittenDownValue”methodat40%perannum.

9. Investments

Investmentsarecapitalisedatcostplusbrokerageandstampcharges.Long-terminvestmentsarevaluedatcost.Provisionismadeforotherthantemporarydiminutioninthevalueoflong-terminvestments.Currentinvestmentsarevaluedatthelowerofcostandfairvalueonindividualscripbasis.

10. Inventories

(i) ClosingstockofcrudeoilinsaleableconditionisvaluedatNetRealisableValue.

(ii) StoresandsparesarevaluedatcostonFIFObasisormarketprice,whicheverislower.

11. Miscellaneous Expenditure

(i) Shareissueexpensesincurredinprioryearsarewrittenoffoveraperiodoftenyearscommencingfromtheyearofissue.

(ii) “SignatureBonus”paiduponsigningofProductionSharingContractisconsideredasdeferredrevenueexpensetobewrittenoffoverthreetofiveyearscommencingfromtheyearofpayment,dependingonthesizeofthefield.

12. Revenue Recognition

(i) RevenuefromthesaleofcrudeoilandgasnetofGovernment’sshareofProfitoilandValueAddedTaxisrecognisedontransferofcustodytorefineries/others.

(ii) Saleisrecordedattheinvoicedprice,whichissubjecttotheapprovaloftheGovernmentofIndia,MinistryofPetroleum&NaturalGas(MOP&NG).Thedifferencebetweentheinvoicedpriceandthefinalapprovedprice, ifany, isadjustedintheyearinwhichtheaforesaidapprovalisreceived.

13. Retirement Benefits

(a) Defined Contribution Plan

(i) Provident Fund:ContributionstowardsEmployees’ProvidentFundaremadetotheEmployeesProvidentFundSchemeinaccordancewiththestatutoryprovisions.

(ii) Superannuation: The Company contributes a sum equivalent to 15% of eligible employees basic salary to a Superannuation Fundadministeredby trustees.TheCompanyhasno liability for futureSuperannuationFundbenefitsother than its annual contributionandrecognizessuchcontributionsasanexpenseintheyearincurred.

(b) Defined Benefit Plan

TheCompanymakesannual contribution toaGratuityFundadministeredby trusteesandmanagedbyLIC.TheCompanyaccounts itsliabilityforfuturegratuitybenefitsbasedonactuarialvaluation,asatthebalancesheetdate,determinedeveryyearbyanActuaryappointedbytheCompanyusingtheProjectedUnitCreditmethod.

(c) Short Term Employee Benefit

Short-term employee benefit includes accumulated compensated absences and is recognized based on the eligible leave at credit on thebalancesheetdateandisestimatedbasedonthetermsoftheemploymentcontract.

SCHEDULE 13 — SIGNIFICANT ACCOUNTING POLICIES (Contd.)



38


14. Borrowing Cost BorrowingCostspecificallyidentifiedtotheacquisitionorconstructionofqualifyingassetsiscapitalizedaspartofsuchasset.Aqualifyingasset

isone thatnecessarily takes substantialperiodof time toget ready for intendeduse.Allotherborrowingcostsarecharged toProfitandLossAccount.

15. Foreign Currency Transactions (i) Transactionsdenominatedinforeigncurrenciesarerecordedattheexchangerateprevailingatthetimeofthetransaction. (ii) Monetaryitemsdenominatedinforeigncurrenciesattheyearendandnotcoveredbyforwardexchangecontractsaretranslatedattheyear

endratesandthosecoveredbyforwardexchangecontractsaretranslatedattheraterulingatthedateoftransactionasincreasedordecreasedbytheproportionatedifferencebetweentheforwardrateandexchangerateonthedateoftransaction,suchdifferencehavingbeenrecognisedoverthelifeofthecontract.

(iii)AnygainorlossarisingonaccountofexchangedifferenceonsettlementortranslationisrecognisedintheProfitandLossAccountexceptincaseswheretheyrelatetotheacquisitionoffixedassetsfromoutsideIndiainwhichcasetheyareadjustedtothecarryingcostsofsuchassets.

16. Taxation The Company adopts full provision basis for deferred tax, in accordance with theAccounting Standard 22“Accounting forTaxes on Income”.

Provision for deferred tax asset/liability is made for timing differences which have arisen but not reversed at the balance sheet date and areexpectedtoreverseintheforeseeablefuture.DeferredTaxassetisrecognisedwhenthereisareasonablecertaintyoffuturetaxableincomeexceptfor deferred tax assets in respect of unabsorbed loss or depreciation where it is recognised only if there is a virtual certainty with convincingevidence.

SCHEDULE 14

NOTES TO THE ACCOUNTS

1. Change in Accounting Policy EffectiveApril01,2006, theCompanyadopted therevisedAccountingStandard15(AS-15)onEmployeeBenefits, issuedby theInstituteof

CharteredAccountantsofIndia(ICAI),thoughnotyetmandatoryinnature.Consequentuponthechange,ProfitbeforeTaxfortheyearendedMarch 31, 2007 is higher by Rs. 831,294. In accordance with the transitional provision contained in the said Standard, the difference of Rs.487,000(netofDeferredTaxofRs.247,090)betweentheliabilityinrespectofcertainemployeebenefitsexistingonthedateofadoptionofthesaidStandardandtheliabilitythatwouldhavebeenrecognisedatthesamedateunderthepreviousaccountingpolicyhasbeenadjustedagainsttheopeningbalanceintheGeneralReserve.

2. Provisions and Write – Offs (Net) During the year ended March 31, 2007, Exploratory Wells Vinayaka-1 and Subhan-1 drilled in Block CY-OSN-97/1 did not encounter

hydrocarbonsofcommercialinterestandthesewellshavebeenpluggedandabandoned.ConsistentwiththeCompany’sAccountingPolicies,theCompanyhaswrittenofftheexplorationexpenditureofRs.9,434.87Lacsassociatedwiththedrillingofthesetwowells.

DuringtheyearendedMarch31,2006,theCompanyhadwrittenofftheexplorationcostofRs.3,140.01LacsforLakhi-1ExploratoryWellinAAP-ON-94/1BlockbasedonOperator’scostestimates.However,duringthecurrentyear, theCompanyhadreceivedtheAuditedAccountsoftheBlockasperwhichthecostofLakhi-1ExploratoryWellisRs.3,052.65Lacs.Hence,thedifferentialamountofRs.87.36Lacshasbeenwrittenbackduringthecurrentyear.

During the year ended March 31, 2006, the Company had written off exploration cost of Rs. 396.57 Lacs for PRS-4 Exploratory Well inCB-ON-7.However,theCompanyhadwrittenbackInventoryCostofRs.43.82LacsduringthecurrentyearbasedontheauditedaccountsoftheCB-ON-7JointVenture.

ProvisionsandWrite-OffsfortheyearendedMarch31,2006includeswrite-offofexplorationcostofRs.396.57LacsforPRS-4ExploratoryWellinCB-ON-7Block,Rs.3,140.01LacsforLakhi-1ExploratoryWellinAAP-ON-94/1BlockandRs.646.89LacsforCB-OS-1Block.

3. Secured Loans (a) TheTermLoansfromStateBankofIndia,UTIBankandHDFCBankamountingtoRs.1,320,948,396asatMarch31,2007,aresecured

bywayofchargeonCompany’sParticipatingInterest inPY-3andPalejFields,firstchargeonCompany’sshareofCrudeOilReceivablesfromPY-3andPalejFieldsandchargeonDebtServiceReserveAccount.

(b) TheTermLoanfromINGVysyaBankofRs.163,000,000asatMarch31,2006,hasbeenfullyrepaidduringtheyear.TheTermLoanwassecuredbywayofchargeonCompany’sParticipatingInterestinPY-3Field,firstchargeonCompany’sshareofCrudeOilReceivablesfromPY-3 Field and charge on Debt Service Reserve Account. Consequent to the repayment of the Term Loan, the aforesaid charges werereleased.

SCHEDULE 13 — SIGNIFICANT ACCOUNTING POLICIES (Contd.)


39


4. Issue of Equity Shares

OnOctober27,2006,anallotmentof19,567,733EquitySharesofRs.10eachwasmadeconsequenttotheRightsIssueof19,581,645EquitySharesofRs.10eachatapremiumofRs.66perSharetotheexistingShareholdersoftheCompanyintheratioofOneEquityShareforEveryThree Equity Shares held aggregating to Rs. 1,487,147,708. In terms of Clause No. 6.13.2.28 of SEBI (Disclosure and Investor Protection)Guidelines,2000(asamendedtillApril30,2007),thedetailsoftheutilisationoftheproceedsoftheRightsIssueareasunder:

in Rupees

Block Defined Programme Utilisation up to March 31, 2007PY-1 Drilling of Development Well (Earth) 750,000,000CY-OSN-97/1 Exploration Drilling Programme 122,690,116

Total 872,690,116 ThebalanceamountofRs.614,457,592hasbeeninvestedinthefollowingformsofinvestmentasatMarch31,2007.

in Rupees

Form of Investment Schedule Reference AmountBank Fixed Deposit Cash and Bank Balances – Schedule 6 598,361,942Mutual Fund Investment - Schedule 5 16,095,650

Total 614,457,592

5. Bank Balances – Scheduled Bank (a) CurrentAccountswithScheduledBanksincludeLienMarkedAccountsRs.1,111,086(PreviousYear:Rs.59,547,475) (b) DepositswithScheduledBanksinclude − LienMarkedDepositsRs.113,970,251(PreviousYear:Rs.33,484,111) − DepositamountingtoRs.179,417,650(PreviousYear:Rs.166,559,032)placedas“SiteRestorationFund”underSection33ABAof

theIncomeTaxAct,1961.

6. Bank Balances – Non-Scheduled Banks The balance with Non-Scheduled Bank represents the balance with Barclays Bank, London. The maximum amount outstanding at any time

duringtheyearinrespectofthisaccountisRs.30,725,401(PreviousYear:Rs.19,148,478).

7. Purchase and Sale of Investments ThedetailsofpurchaseandsaleofInvestmentsareasunder:

A. Year 2006 – 2007 in Rupees

Name of the Funds Purchase Sales

Units Amount Units Amount

DSPML Liquidity fund – Regular Daily Dividend 1,854,467 18,563,216 1,854,467 18,563,216DSPML Liquidity fund – Institutional Plus 209,377 190,855,538 209,377 190,855,538SBI Magnum Insta Cash Fund – Daily Dividend Option 17,894,243 299,733,932 0 0SBI Debt Fund Series 90 Days FMP 60,666,921 606,669,206 60,666,921 606,669,206Prudential ICICI Liquid Plan – Daily Dividend Option 58,105,613 581,056,126 27,620,000 276,200,000Templeton India TMA Regular Plan – Daily Dividend Reinvestment 5,527 8,359,288 5,527 8,359,288Templeton India TMA Super Institutional Plan – Daily Dividend Reinvestment 823,725 823,930,871 819,990 820,194,874UTI Liquid Cash Plan Institutional – Daily Income Option-Reinvestment 295,906 301,659,927 231,106 235,600,000Standard Chartered Liquidity Manager Plus – Daily Dividend 301,132 301,162,579 301,132 301,162,579HDFC Cash Management Fund – Saving Plan – Daily Dividend 89,757,713 954,698,938 88,361,664 939,850,000

Total 229,914,624 4,086,689,621 180,070,184 3,397,454,701

SCHEDULE 14 — NOTES TO THE ACCOUNTS (Contd.)



40


B. Year 2005 – 2006 in Rupees

Name of the Funds Purchase Sales

Units Amount Units Amount

HDFC Liquid Fund – Dividend Reinvest 10,176 103,571 373,012 3,820,169

HDFC Liquid Fund – Premium Plus Plan Dividend Reinvest

5,950,523 72,208,236 6,987,127 85,077,746

ICICI Liquid Plan Daily Dividend 9,382 111,190 2,797,560 33,155,005

ICICI Liquid Plan Institutional Plus Daily Dividend 23,540,357 278,988,540 23,540,357 278,988,540

Standard Chartered Liquidity Manager – Daily Dividend

14,041,970 140,433,742 14,041,970 140,433,743

Total 43,552,408 491,845,279 47,740,026 541,475,203

8. Sundry Creditors

(a) SundryCreditors includeRs.Nil (PreviousYearRs.Nil)due to small-scale industrialundertakings to theextent suchpartieshavebeenidentifiedbytheManagementfromavailableinformation.ThisdoesnotincludeinformationofJointVentures,asthesameisnotapplicabletotheJointVentures.

(b) The Company has not received any intimation from“suppliers” regarding their status under the Micro Small and Medium EnterprisesDevelopmentAct,2006and,hence,disclosures,ifany,relatingtoamountsunpaidasatMarch31,2007togetherwithinterestpaid/payableasrequiredunderthesaidActhavenotbeengiven.ThisdoesnotincludeinformationofJointVentures,asthesameisnotapplicabletotheJointVentures.

9. Interest Income

InterestIncomeincludesintereston:

in Rupees

Particulars Year ended March 31,

2007 2006

Deposits 71,262,083 45,790,307

Loan to Subsidiary 0 165,452

Others 3,631 11,575

Total 71,265,714 45,967,334

10. Managerial Remuneration

DetailsofManagerialRemunerationPaid

in Rupees


2007 2006

Salary 7,843,094 6,580,080

Contribution to Provident and Superannuation Funds 533,650 648,000

Perquisites 224,424 396,863

Total 8,601,168 7,624,943

Note:

1. TheManagerialRemunerationpaidfortheyearendedMarch31,2007pertainstotheerstwhileManagingDirectorfortheperiodApril01,2006toJuly31,2006andtheJointManagingDirectorfortheperiodAugust01,2006toMarch31,2007.



41


The Managerial Remuneration does not include an amount of Rs. 80,000 paid to the current Managing Director as sitting fee for attendingBoard/Committeemeetings.ThecurrentManagingDirectordoesnotdrawanyotherremunerationfromtheCompany.

2. IncomputingManagerialRemuneration,perquisiteshavebeenvaluedintermsofactualexpenditureincurredbythecompanyinprovidingthebenefits except in case of certain expenses where the actual amount of expenditure cannot be ascertained with reasonable accuracy, notionalamountasperIncomeTaxRuleshasbeenadded.Actuarialvaluationbasedcontribution/provisionwithrespecttogratuityandleaveencashmenthave not been included as these are for the Company as a whole.Annual variable pay and long term incentive benefits have been included asremunerationoncashbasis.

3. TheManagementbelievesthattheExplorationExpenseswrittenoffduringtheyearendedMarch31,2007anddebitedtotheProfitandLossAccountamountingtoRs.9,434.87LacsshouldbeaddedbacktocomputeprofitsunderSection198/349oftheCompaniesAct,1956whichwouldmeanthattheremunerationpaidtotheerstwhileManagingDirector/JointManagingDirectorwouldbewithinthelimitsstipulatedunderSection198/349oftheCompaniesAct,1956.However,asamatterofabundantcaution,theCompanyhasoptedtocomplywiththeprovisionsofScheduleXIIIoftheCompaniesAct,1956asdescribedbelow.

IntheabsenceofadequateprofitsfortheyearendedMarch31,2007,theremunerationpayabletotheerstwhileManagingDirectorandtheJointManagingDirectorshouldbewithinthelimitsspecifiedinSectionIIofPartIIofScheduleXIIIoftheCompaniesAct,1956.

InthecaseoftheerstwhileManagingDirector,theremunerationpaidfortheperiodApril01,2006toJuly31,2006whichiscurrentlycoveredunderclause(A)ofSectionIIofPartIIofScheduleXIIIisnowproposedtobecoveredunderclause(C)ofSectionIIofPartIIofScheduleXIIIand,hence,wouldbesubjecttotheapprovaloftheShareholdersandtheCentralGovernment.TheapplicationtotheCentralGovernmentforapprovaloftheremunerationpaidwillbemadebytheCompanyonobtainingtheapprovaloftheShareholders.Pendingsuchapprovals,norecoveryhasbeenmadefortheexcessremunerationofRs.4,869,118paidtohimvis-à-vistheremunerationpayableunderclause(A)ofSectionIIofPartIIofScheduleXIIIoftheCompaniesAct,1956.

InthecaseoftheJointManagingDirector,theremunerationpaidfortheperiodAugust01,2006toMarch31,2007whichiscurrentlycoveredunderclause(A)ofSectionIIofPartIIofScheduleXIIIisnowproposedtobecoveredunderclause(B)ofSectionIIofPartIIofScheduleXIIIand,hence,wouldbesubjecttotheapprovaloftheShareholders.Pendingsuchapproval,norecoveryhasbeenmadefortheexcessremunerationofRs.1,332,050paidtohimvis-à-vistheremunerationpayableunderclause(A)ofSectionIIofPartIIofScheduleXIIIoftheCompaniesAct,1956.

11. Expenditure in Foreign Currency(oncashbasis,excludingshareinJointVentures)in Rupees


2007 2006

Travelling 105,331 315,453Membership & Subscription 39,711 34,816Consultancy Services 0 4,578,530Insurance 0 9,194,840Others 91,109 1,787,987

12. Dividend paid in Foreign Currency to Non-Resident Shareholders

ParticularsofDividendpaidtoNonResidentShareholders(includingForeignInstitutionalInvestors)areasunder:

Particulars 2006-2007 2005-2006

Financial Year to which the Dividend relates 2005-2006 2004-2005

Number of Non-Resident Shareholders 489 570Number of Equity Shares held by them 20,581,379 20,645,454Gross Amount of Dividend 20,581,379 20,645,454

13. Long Term Incentive Plan, 2005

TheCompanyhas institutedaLongTermIncentivePlan(“LTIPScheme”) for thebenefitof theemployeesof theCompany.Under theplan,theCompanyisauthorizedtodistribute5%ofCompany’sprofitonordinaryactivitieswitheligibleemployeesintheformofCashandDeferredBonus. After meeting the Cash Bonus component as per the LTIP Scheme, the surplus is distributed as Deferred Bonus (Stock Options).




42


Thenumberofsharestobe issuedundertheLTIPSchemeisdeterminedbydividingtheDeferredBonusfortheSchemeYearbytheaveragemarketpriceof theCompany’sShares(asquotedat theNSE)30dayspriortothedateonwhichtheBoardofDirectorsapprovetheauditedaccountsinrelationtotheSchemeYearorsuchotherdateasmaybeapprovedbytheBoard.

Atrusthasbeenformedtopurchasethesharesfromthemarket.TheCompanyfundsthetrusttobuytherequisitenumberofshares,grantedunderESOP.ThetotalBonusincludingCashandDeferredisexpensedduringtheSchemeYeartowhichitpertains.

TheRemunerationandCompensationCommitteeoftheBoardofDirectorsoftheCompanyadministertheLTIPScheme.OnMay23,2006,the Company approved grant of 15,069 options, pertaining to Financial Year 2005-2006, at NIL exercise price. These options vest with theeligibleemployeesafteraperiodof3yearsfromApril01,2006.FortheFinancialYear2006-2007,theCompanyhasnotdistributedanyCashorDeferredBonus.

Particulars 2006-2007

Shares Arising Out of Options

Exercise Price Rs.

Outstanding at the beginning of the year 15,069 Nil

Vested during the year 0 Nil

Forfeited during the year 0 Nil

Exercised during the year 0 Nil

Outstanding at the end of the year 15,069 Nil

Exercisable at the end of the year 0 Nil

14. The Company’s Obligation towards the Gratuity Fund is a Defined Benefit Plan.

DetailsofActuarialValuationasatMarch31,2007in Rupees

Particulars

Projected Benefit Obligation as at April 01, 2006 5,247,923Service Cost 797,389Interest Cost 438,202Actuarial Losses/(Gains) (160,498)Benefits Paid (1,803,164)Projected Benefit Obligation as at March 31, 2007 4,519,852Change in Plan AssetsFair Value of Plan Assets as at April 01, 2006 2,529,129Expected Returns on Plan Assets 141,444Employer’s Contribution 173,850Benefits Paid (1,803,164)Actuarial Gain/(Loss) 9,492Fair Value of Plan Assets as at March 31, 2007 1,050,751Cost of the Defined Benefit Plan for the YearCurrent Service Cost 797,389Interest on Obligation 438,202Expected Return on Plan Assets (141,444)Net Actuarial Losses/(Gains) Recognised in the Year (169,990)Net Cost recognised in the Profit and Loss Account 924,157AssumptionsDiscount Rate 8.35%Future Salary Increase (%) 10%Expected Rate of Return on Plan Assets 8.25%



43


Note: TheCompanyhasadoptedtheAccountingStandard(AS-15)RevisedwitheffectfromApril01,2006andhence,thecorrespondingfiguresfor

thepreviousyearhavenotbeenfurnished. TheexpectedreturnonplanassetsisasfurnishedbytheActuaryappointedbytheCompany.

15. Segmental Reporting

The Company is primarily engaged in a single business segment of Hydrocarbons.All the activities of the Company revolve around the mainbusiness. Further, the Company does not have any separate geographic segments other than India. As such there are no separate reportablesegmentsasperAS-17“SegmentalReporting”issuedbytheInstituteofCharteredAccountantsofIndia.

16. Joint Venture Operations

TheCompanyhasenteredintoProductionSharingContractsandJointVenturesinrespectofcertainpropertieswiththeGovernmentofIndiaandsomebodiescorporate.DetailsofthesePSCs/JVsareasfollows:

Joint Ventures # Partners Share (%)



Licensed Production Sharing Contracts:

CY-OS-90/1 (PY–3) Hardy Exploration & Production (India) Inc. 18.00 18.00Oil and Natural Gas Corporation Limited 40.00 40.00Hindustan Oil Exploration Company Limited 21.00 21.00Tata Petrodyne Limited 21.00 21.00

Asjol Block Hindustan Oil Exploration Company Limited 50.00 50.00Gujarat State Petroleum Corporation Limited 50.00 50.00

PY–1 Hindustan Oil Exploration Company Limited 100.00 100.00CB-OS-1 (Cambay) Oil and Natural Gas Corporation Limited 32.89 32.89

Hindustan Oil Exploration Company Limited 57.11 57.11Tata Petrodyne Limited 10.00 10.00

GN-NO-90/3 (Pranhita Godavari)**

Hindustan Oil Exploration Company Limited 75.00 75.00

Mafatlal Industries Limited 25.00 25.00AAP-ON-94/1@ Hindustan Oil Exploration Company Limited 40.323 40.323

Indian Oil Corporation Limited 43.548 43.548Oil India Limited 16.129 16.129

CB-ON-7 (Palej) ExplorationHindustan Oil Exploration Company Limited 50.00 50.00Gujarat State Petroleum Corporation Limited 50.00 50.00Development Hindustan Oil Exploration Company Limited 35.00 35.00Gujarat State Petroleum Corporation Limited 35.00 35.00Oil and Natural Gas Corporation Limited 30.00 30.00

CY-OSN-97/1 Hindustan Oil Exploration Company Limited 80.00 80.00Mosbacher (India) LLC 20.00 20.00

North Balol Hindustan Oil Exploration Company Limited 25.00 25.00Gujarat State Petroleum Corporation Limited 45.00 45.00Heramec Limited 30.00 30.00

# AlltheJointventuresarefortheblocksawardedwithintheterritoriallimitofIndia. ** AsdiscussedinNote20below,thearbitrationawardisawaitedforclosureofthisjointventure. @ TheCompanyhasbecometheOperatorof theBlockwitheffect fromJanuary01,2006andhasenhanced itsParticipatingInterest from

25%to40.323%(withoutcompensation).ThesamehasbeenapprovedbytheCentralGovernmentduringthecurrentyear.




44


17. Related Party Disclosures

(i) As per the Accounting Standard on‘Related Party Disclosures’ (AS-18) issued by the Institute of Chartered Accountants of India, therelatedpartiesoftheCompanyareasfollows:

(A) SubsidiaryCompany: HOECBardahlIndiaLimited

(B) PromoterGroup: BurrenShaktiLimited(FormerlyknownasUnocalBharatLimited) BurrenEnergy(India)Limited

(C) JointVentures: AsperdetailsgiveninNote16. AsstatedinItem6ofSignificantAccountingPolicies(Schedule13),thefinancialstatementsoftheJointVenturesareincorporatedin

theCompany’saccountstotheextentoftheCompany’sshare.Hence,particularsoftransactionswiththeJointVentureshavenotbeenseparatelydisclosed.

(D) KeyManagementPersonnel: Mr.RakeshJain–ManagingDirector–uptoJuly31,2006 Mr.AtulGupta–ManagingDirector–fromAugust01,2006 Mr.ManishMaheshwari–JointManagingDirector–fromAugust01,2006 Note: RelatedpartyrelationshipsareasidentifiedbytheManagementandrelieduponbytheAuditors.

(ii) ThenatureandvolumeoftransactionsoftheCompanyduringtheyearwiththeabovepartieswereasfollows:in Rupees

Particulars Subsidiary Company

Promoter Group

Joint Ventures’ Partners

Key Management Personnel

INCOME – Dividend Received 18,750,750

(Nil) 0

(0)0

(0)0

(0) – Interest Nil

(165,452)0

(0)0

(0)0

(0)EXPENDITURE – Remuneration (See Note 10 above)

0(0)

0(0)

0(0)

8,601,168(7,624,943)

– Sitting Fees 0(0)

0(0)

0(0)

80,000(Nil)

– Recovery of Expenses 0(0)

0(0)

27,571,885(16,897,088)

0(0)

– Office Premises Usage Charges Nil(76,558)

0(0)

0(0)

0(0)

– Salaries Nil(96,250)

0(0)

0(0)

0(0)

– Dividends Paid 0(0)

15,287,378(15,281,633)

0(0)

0(0)

ASSETSUnsecured Loan Repaid Nil

(5,012,500)0

(0)0

(0)0

(0)Net Amounts Due as at Year End 0

(0)0

(0)0

(0)117,754

(173,815)

Note:FiguresinthebracketsrelatetothePreviousYear.



45


18. Earning Per Share (EPS)

Thebasic/dilutedearningperequityshareiscalculatedasstatedbelow:

Particulars 2006–2007 2005–2006

Net Profit after Tax Rs. 24,737,187 Rs. 174,919,443

Weighted Average Numbers of Equity Shares 70,784,640 63,774,413

Basic/Diluted Earnings per Share (EPS) Rs. 0.35 Rs. 2.74

Nominal Value per Share Rs. 10 Rs. 10

Note:

EarningsperSharecalculationsaredoneinaccordancewithAccountingStandard20“EarningsperShare”issuedbytheInstituteofCharteredAccountantsofIndia.

19. Deferred Tax Asset (Net)

ThenetDeferredTaxAssetofRs.487,478,090asatMarch31,2007hasarisenonaccountofthefollowing:

in Rupees

Particulars 2006–2007 2005–2006

Deferred Tax Asset

Exploration Expenses 566,887,000 273,000,000Doubtful Advances 5,300,000 5,200,000Employee Related Costs 3,891,090 1,460,000

Sub total (A) 576,078,090 279,660,000

Deferred Tax Liability

Depreciation on Fixed Assets 3,700,000 3,900,000

Depletion of Producing Properties 74,400,000 84,529,000

Site Restoration 10,500,000 15,000,000

Sub total (B) 88,600,000 103,429,000

Net Deferred Tax Asset before Transitional Adjustment (A – B) 487,478,090 176,231,000

Deferred Tax Asset relating to AS – 15 Transitional Adjustment (Refer Note 1 above) 0 247,090

Net Deferred Tax Asset after Transitional Adjustment 487,478,090 176,478,090

20. Commitments and Contingencies

in Rupees

Particulars 2006–2007 2005–2006

(i) Counter Guarantees of Bank Guarantees 284,976,510 133,936,443

(ii) Corporate Guarantee for Housing Loan to Employees 609,746 3,115,705

(iii) Estimated amount of Contracts remaining to be Executed on Capital Account and Not Provided For (Excluding Company’s share of Joint Ventures’ Commitments and including Rs. 133,498,500 (Previous Year : Rs. 136,823,000) in respect of a farm-in consideration for acquisition of participating right, in one of the Joint Ventures) 141,157,927 139,851,359




46


in RupeesParticulars 2006–2007 2005–2006

(iv) Claims against the Company Not Acknowledged as Debt*

– Dispute with Contractors under Arbitration 3,232,488 23,788,903

– Income Tax Demands under Appeal 298,149,494 126,889,428

(v) The Government had encashed the Performance Bank Guarantee of Rs. 10,149,000 for Block GN-ON-90/3 (Pranhita Godavari) abandoned by the consortium under the force majeure clause of the Production Sharing Contract (PSC). The Government has also raised an additional demand of Rs. 260,108,897 (including interest) (Previous Year Rs. 237,800,752). The Company has been legally advised that the said actions of the Government are not justified. The Company has initiated legal proceeding as per the provisions of the PSC in the matter. Pending the outcome of this, provision has been made in this regard to the extent of Rs. 10,149,000 (Previous Year Rs. 10,149,000).* 260,108,897 237,800,752

Note:

* TheManagementisoftheopinionthattheclaimsunderitems(iv)and(v)abovearenotsustainable.

21. Provision for Site Restoration

InaccordancewithAccountingStandard29,themovementinProvisionforSiteRestorationisasfollows.

in Rupees

Particulars 2006–2007 2005–2006

Opening Balance 250,115,000 74,828,982

Add : Provision for the Year 0 173,938,826

Effect of Change in Exchange Rate (5,722,500) 1,347,192

Closing Balance 244,392,500 250,115,000

AsperthetermsofProductionSharingContractthisliabilitywillariseatthetimeofabandonmentofthefield.

22. Quantitative and Other Related Disclosures

(a) TheCompanyisnotamanufacturingcompanybutisapartnerinvariousconsortiumsengagedintheprospecting,exploringandproducingofoilandgas.Theinformationgivenbelowasrequiredunder items4-Cand4-DofpartIIofScheduleVItotheCompaniesAct,1956representstheCompany’sshareinthejointventures.

(i) Sales Turnover

Description Unit Quantity Value (Rs.)

Crude Oil Bbl. 504,644 1,403,682,050

(456,279) (1,147,106,936)

Gas M3 1,548,788 7,971,705

(287,930) (1,422,957)

Less: Profit Petroleum to Government of India 266,509,143

(206,087,812)

Net 1,145,144,612

(942,442,081)



47


(ii) Opening and Closing Stock of Goods Produced

Description Unit Quantity Value (Rs.)

Opening Stock Crude Oil Bbl. 29,158 83,697,888

(26,898) (56,611,480)Closing StockCrude Oil Bbl. 19,136 50,246,759

(29,158) (83,697,888)Decrease/(Increase) in Stock of Crude Oil Bbl. 10,022 33,451,129

(2,260) ((27,086,408))

(iii) Licensed Capacity, Installed Capacity and Actual Production

Description Unit Licensed Capacity Per

Annum

Installed Capacity Per

Annum

Actual Production for

the Year

Crude Oil Bbl. N.A. N.A. 494,622*

(458,539)*Gas M3 N.A. N.A. 1,548,788

(287,930)

* Excludesloss/internalconsumptionof42Bbl(PreviousYear:43Bbl)

FiguresinthebracketsrelatetothePreviousYear.

(b) ParticularsrelatingtoconsumptionofstoresandspareshavenotbeengivenintheabsenceofinformationintheJointVentures’accounts.

23. Previous Year Figures

Previousyear’sfigureshavebeenregroupedwherevernecessary.



48


NAME OF THE SUBSIDIARY HOEC BARDAHL INDIA LIMITED

1. The Financial year of the subsidiary ended on March 31, 2007

2. (a) Number of Shares held by Hindustan Oil Exploration Company Limited (holding company) as on March 31, 2007 50,002 Equity Shares of Rs. 100/- each fully paid

(b) Extent of interest of the holding company at the end of the financial year of the subsidiary 100%

3. Date from which it became a subsidiary March 30, 1992

4. The net aggregate amount of Profit/ (Loss) and reserves of the subsidiary so far as it concerns the members of the holding company:

(a) dealt with in the holding company' s accounts by way of dividend on the shares held in subsudiary

(i) for the financial year of the subsidiary company Rs. 18,750,750

(ii) for the previous financial year of the subsidiary since it became the holding company' s subsidiary NIL

(b) not dealt with in the holding company' s accounts:

(i) for the financial year of the subsidiary (Rs. 1,433,983)

(ii) for the previous financial years of the subsidiary since it became the holding company' s subsidiary Rs. 13,478,203

Statement pursuant to Section 212 of the Companies Act, 1956, relating to Subsidiary


49

(I) Registration Details

Registration No. 29880 State Code 04

Balance Sheet Date 31.03.2007

(II) Capital raised during the year (Rs. in Thousand)

Public Issue Nil Rights Issue 195,677 Bonus Issue Nil Private Placement Nil

(III) Position of Mobilisation and Deployment of Funds (Rs. in Thousand)

Total Liabilities 6,241,617 Total Assets 6,241,617

Sources of Funds Paid-up Capital 783,287

Reserves and Surplus 3,120,053 Secured Loans 1,320,948

Application of Funds Net Fixed Assets 3,175,197 Investments 694,284 Deferred Tax Assets 487,478 Net Current Assets 867,329 Miscellaneous Expenditure Nil Accumulated Losses Nil

(IV) Performance of the Company (Rs. in Thousand)

Turnover 1,260,685 Total Expenditure 1,258,748 Profit Before Tax 1,937 Profit After Tax 24,737 Earning Per Share Rs. 0.35 Dividend Rate % Nil

(V) Generic Names of Principal Products/Services of the Company (as per monetary terms)

Item Code No. (ITC Code) 27090000 Product Description CRUDE OIL Item Code No. (ITC Code) 27112100 Product Description NATURAL GAS

Balance Sheet Abstract and Company‘s General Business Profile

HOEC BARDAHL INDIA LIMITEDHOEC BARDAHL INDIA LIMITED

50


BOARD OF DIRECTORS Mr. Manish Maheshwari

Mr. Vikash Jain

Mr. Sagar Mehta

Mr. Sandeep Khamesra

Mr. Minesh Bhatt

Chairman AUDITORS M/s. H. R. Lalka & CompanyChartered Accountants

BANKERS HDFC Bank LimitedUTI Bank Limited (Since renamed as Axis Bank Limited)

SENIOR MANAGEMENT Mr. Hashit Rawal Vice President REGISTERED OFFICE

“HOEC HOUSE”Tandalja Road,Vadodara – 390 020 (India)

CORPORATE OFFICE

C-101, 1st Floor, The Platinum,C. D. Barfiwala Marg, Juhu Lane,Andheri (W), Mumbai – 400 058.Tel. No.: 022-26704415/55Fax No.: 022-26704453Email : [email protected]

DIRECTORS’ REPORT

TO THE MEMBERS OF HOEC BARDAHL INDIA LIMITED

Your Directors have pleasure in presenting the Annual Report and the Audited Accounts for the Financial Year ended on March 31, 2007.

FINANCIAL HIGHLIGHTS(Rs. in Lacs)

2006-2007 2005-2006Sales 1,104.42 626.86Other Income 18.27 10.18Gross Profit before Depreciation, Provisions & Write Offs and Taxation 321.01 200.06Less : Depreciation 5.39 2.96Less : Provisions & Write Offs 3.83 5.68Gross Profit before Taxation and prior period Adjustments 311.79 191.42Less : Prior Period Adjustments 0 0.68Less : Provision for Current

Taxation 107.99 64.28Add/(Less) : Provision for Deferred Taxation 2.22 (0.47)Less : Provision for Fringe

Benefit Tax 6.55 4.60Profit After Tax 199.47 121.40Add : Profit brought forward

from previous year 134.78 13.54Less : Dividend Declared 187.51 0Less : Dividend Tax 26.30 0Less : Transfer to General

Transfer 20.00 0Profit carried forward to Balance Sheet 100.44 134.94

OPERATIONS REVIEW

Your Company’s Turnover and Profit Before Tax (PBT) have registered a growth of 76% and 63% respectively to reach a level of Rs. 1,122.69 lakhs and Rs. 311.79 lakhs.

BUSINESS OVERVIEW

Your Company’s overall performance improved during the financial year 2006-07. The growth contributors have been the Tata Motors approval of select Bardahl products as well as the growth in the sales of 2-wheeler products. This added with the existing customer base of Hyundai Motors and other OEM’s has given a major thrust to the sales.

Your Company has successfully introduced some new products in the Car Care segment during the year, which has generated encouraging responses. This has created a new platform for the Company to add some more products in the same segment during the new fiscal.

DIVIDEND

The Board of Directors of your Company have declared and paid 1st interim dividend of Rs. 125/- per share @ 125% per share and 2nd interim dividend of Rs. 250/- per share @ 250% per share. The Board of Directors recommend the same i.e. Rs. 375/- per share as the final dividend for the approval of the members.

DIRECTORS

Mr. Sandeep Khamesra and Dr. Udayan Dasgupta were appointed on the Board of the Company during the year.

During the year Mr. Rakesh Jain and Dr. Udayan Dasgupta have ceased to be Directors. The Board places on record its appreciation for the guidance and valued contribution received during their tenure.

Mr. Sandeep Khamesra will retire at the ensuing Annual General Meeting and being eligible offer himself for reappointment. Mr. Vikash Jain will retire by rotation at the ensuing Annual General Meeting and being eligible offer himself for reappointment. The Board has on June 21, 2007 appointed Mr. Minesh Bhatt as an additional director. Mr. Minesh Bhatt retires at the ensuing Annual General Meeting. The

HOEC BARDAHL INDIA LIMITEDHOEC BARDAHL INDIA LIMITED HOEC BARDAHL INDIA LIMITEDHOEC BARDAHL INDIA LIMITED

51

Company has received a proposal along with a deposit of Rs. 500/- each from a member signifying the candidature of Mr. Vikash Jain, Mr. Sandeep Khamesra and Mr. Minesh Bhatt for the office of the Directors. The Board recommends their appointment.

EMPLOYEES

During the year, there was no employee in respect of whom information as per Section 217(2A) of the Companies Act 1956, is required to be given in the Director’s Report.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors confirm:

(a) that in the preparation of the annual accounts for the financial year ended March 31, 2007 the applicable accounting standards have been followed and that no material departures have been made from the same;

(b) that the directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for that period;

(c) that the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) that the directors have prepared the annual accounts on a going concern basis.

AGREEMENT WITH BARDAHL MANUFACTURING CORPORATION

The Company has an agreement with Bardahl Manufacturing Corporation, USA up to November 2007.

COMPLIANCE CERTIFICATE

As per the requirements of Section 383A of the Companies Act, 1956, the Company has obtained a certificate from a Secretary in the whole time practice confirming that the Company has complied with all the provisions of the Companies Act, 1956. The certificate is attached herewith.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUT GO.

Since the Company has no manufacturing facility, the requirements of Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are not applicable. Particulars with respect to foreign exchange appear in Schedule 11 of the annual accounts.

AUDITORS

The Statutory Auditors of the Company, M/s. H. R. Lalka & Co., Chartered Accountants, will retire at the forthcoming Annual General Meeting and being eligible have offered themselves for re-appointment.

ACKNOWLEDGEMENT

Directors are pleased to place on record their appreciation for the hard work and dedication of all the employees. Directors would also like to thank Hindustan Oil Exploration Company Ltd., the Customers, Bankers and Bardahl Manufacturing Corporation for the support given by them to the Company.

On behalf of the Board of Directors

Place : Chennai Manish MaheshwariDate : June 21, 2007 Chairman


52


ANNEXURE TO DIRECTORS’ REPORTRegistration No. of the Company 04-11536Nominal Capital Rs. 1,00,00,000/-

ToThe MembersHOEC Bardahl India Limited

I have examined the registers, records, books, forms and papers of HOEC Bardahl India Limited (the Company) as required to be maintained under the Companies Act, 1956, (“the Act”) and the rules made thereunder and also the provisions contained in the Memorandum and Articles of Association of the Company for the financial year ended on 31st March, 2007 (“financial year”). In my opinion and to the best of my information and according to the examinations carried out by me and explanations furnished to me by the Company, its officers and agents, I certify that in respect of the aforesaid financial year:

1. The Company has kept and maintained all registers as stated in Annexure ‘A’ to this certificate as per the provisions of the Companies Act, 1956 and the rules made thereunder and entries therein have been duly recorded.

2. The Company has duly filed the forms and returns as stated in Annexure ‘B’ to this certificate with the Registrar of Companies, generally within the time prescribed under the Companies Act, 1956 and the rules made thereunder. However, no forms or returns were required to be filed with the Regional Director, Central Government, Company Law Board or other authorities.

3. The Company, being a public limited company, the restriction clauses as provided in Section 3(1)(iii) of the Companies Act, 1956 is not applicable.

4. The Board of Directors duly met six times on May 16, 2006, August 28, 2006, September 27, 2006, December 22, 2006, January 20, 2007 and March 15, 2007 in respect of which meetings proper notices were given and the proceedings were properly recorded and signed in the Minutes Book maintained for the purpose.

5. The Company has closed its Register of Members during the financial year under review for the purpose of declaration of Interim and Final Dividends.

6. The Annual General Meeting for the financial year ended on 31st March, 2006 was held on 27th September, 2006 after giving due notice to the members of the Company and the resolutions passed thereat were duly recorded in Minutes Book maintained for the purpose.

7. No Extraordinary General Meeting was held during the financial year.

8. The Company had not advanced any loans to its directors or persons or firms or companies referred to under Section 295 of the Companies Act, 1956.

9. The Company had not entered into any contracts to which the provisions of Section 297 of the Companies Act, 1956 applies.

10. No entries have been required to be made in the register under Section 301 of the Companies Act, 1956.

11. The provisions of Section 314 of the Companies Act, 1956 have not been attracted and therefore no approvals were required to be taken.

12. The Company has not issued any duplicate share certificates during the financial year under review.

13. The Company has:

(i) Delivered all the certificates on lodgment thereof for transfer in accordance with the provisions of the Companies Act, 1956.

(ii) Declared Interim Dividend during the financial year under review.

(iii) Duly complied with the requirements of Section 217 of the Companies Act, 1956.

14. The Board of Directors of the Company is duly constituted and the appointment of directors has been duly made.

15. The Company’s paid up capital being less than the prescribed Rs. 5 crores, it is not required to appoint a Managing Director/Whole-Time Director/Manager and accordingly the provisions of Section 269 of the Companies Act, 1956 to that extent are not applicable.

16. The Company has not appointed any sole-selling agents during the financial year under review.

17. During the said financial year, no approvals have been required from the specified authorities under the Companies Act, 1956.

18. The Directors have disclosed their interest in other firms/companies to the Board of Directors pursuant to the provisions of the Companies Act, 1956 and the rules made thereunder.

19. The Company has not issued any shares, debentures or other securities during the financial year.

20. The Company has not bought back any shares during the financial year.

21. The Company has not issued any redeemable preference shares/debentures.

22. During the year under review the Company has not declared rights shares & bonus shares and hence the question of keeping in abeyance right to dividend, rights shares and bonus shares pending registration of transfer of shares does not arise.

23. The Company has not invited/accepted any deposits including any unsecured loans falling within the purview of Section 58A of the Companies Act, 1956, during the financial year.


53

24. The Company has not made any borrowing during the financial year ended 31st March, 2007.

25. The Company has not made any loans or advances or given guarantees or provided securities to other bodies corporate and consequently no entries have been made in the register kept for the purpose.

26. The Company has not altered the provisions of the memorandum with respect to situation of the Company’s registered office from one state to another during the year under scrutiny.

27. The Company has not altered the provisions of the memorandum with respect to the objects of the Company during the year under scrutiny.

28. The Company has not altered the provisions of the memorandum with respect to name of the Company during the year under scrutiny.

29. The Company has not altered the provisions of the memorandum with respect to share capital of the Company during the year under scrutiny.

30. The Company has not altered its articles of association during the financial year.

31. There was no prosecution initiated against or show cause notices received by the Company during the financial year, for offences under the Companies Act, 1956.

32. The provisions of Section 417 (1) of the Companies Act, 1956 is not applicable.

33. The Company has deposited both employees’ and employer’s contribution to Provident Fund with prescribed authorities pursuant to Section 418 of the Act.

KANU M. GANDHIPlace : Vadodara Practising Company SecretaryDate : May 08, 2007 CP No. 3089

ANNEXURE - ARegisters as maintained by the Company

1. Register of Members u/s. 150 of the Companies Act, 1956

2. Register of transfers.

3. Register of Directors u/s. 303

4. Register of Directors’ shareholders u/s. 307

5. Register of Contracts, Companies and Firms in which Directors of the Company are interested u/s. 297, 299, 301 and 301(3).

6. Minutes of the Annual General Meeting/Extraordinary General Meeting & Board Meetings u/s. 193 along with the Attendance Register.

ANNEXURE - BForms and Returns as filed by the Company during the financial year ended March 31, 2007.

1. Form 32 in respect of ;

Cessation of Mr. Rakesh Jain as Director filed on August 28, 2006.

Appointment of Dr. Udayan DasGupta as Director filed on June 29, 2006.

Appointment of Mr. Sandeep Khamesra filed on November 23, 2006.

2. Balance sheet as at March 31, 2006 and Profit/Loss Account for the year ending March 31, 2006 was filed on November 27, 2006.

3. Annual Return for the financial year was filed on November 27, 2006.

4. Form 66 submission of Compliance Certificate with the Registrar on November 23, 2006.

KANU M. GANDHIPlace : Vadodara Practising Company SecretaryDate : May 08, 2007 CP No. 3089


54


To the members of HOEC BARDAHL INDIA LIMITED

We have audited the attached Balance Sheet of HOEC BARDAHL INDIA LTD, as at March 31, 2007 and also the Profit and Loss Account and the Cash Flow statement for the year on that date. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

1. We conducted our audit in accordance with auditing standards generally accepted in India. These standards require that we planned and performed the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes an examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

2. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Government in terms of Section 227(4A) of the Companies Act, 1956, we annex hereto a statement on the matters specified in paragraph 4 and 5 of the said Order.

3. Further to our comments referred to in paragraph 2 above, we report that:

(i) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of audit;

(ii) In our opinion, proper Books of Account as required by law have been kept by the Company so far as appears from our examination of those books;

(iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the Books of Account;

(iv) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report comply with the requirements of the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956;

(v) On the basis of the written representations received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

(vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts and read together with the notes to accounts thereon, give

AUDITOR’S REPORT the information required by the Companies Act, 1956 in the manner so required and also give a true and fair view, in conformity with the accounting principles generally accepted in India:

(a) in the case of the Balance sheet, of the state of affairs of the Company as at March 31, 2007,

(b) in the case of the Profit and Loss Account, of the Profit for the year ended on that date, and

(c) in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.

For H. R. LALKA & CO. Chartered Accountants Place : Chennai Hiren LalkaDate : May 8, 2007 Proprietor

Membership No 40242

ANNEXURE TO THE AUDITOR’S REPORT(Refered to in paragraph 2 of our report of even date)

(i) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets;

(b) As explained to us, the assets have been physically verified by the management, which in our opinion is reasonable, considering the size and the nature of its business. No material discrepancies have been noticed on such physical verification.

(ii) (a) The inventories have been physically verified by the management during the year at reasonable intervals, except materials lying with third parties, where confirmations are obtained ;

(b) The procedures of physical verification of the inventories followed by the management are reasonable and adequate in relation to the size of the Company and nature of its business;

(c) The Company has maintained proper records of inventories; however discrepancies noticed on physical verification of inventories as compared to book records were reconciled.

(iii) (a) The Company has neither granted nor taken any loans to and from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956;

(b) The rate of interest and other terms and conditions in respect of unsecured loans given by the Company to its employees and others, are in our opinion, prima facie not prejudicial to the interest of the Company;


55

(c) In respect of such loans given by the Company, where stipulations have been made, they have repaid the principal amounts as stipulated and have been regular in payment of interest, where applicable;

(d) In respect of such loans given by the Company, there are no overdue amounts more than Rs. 1,00,000.

(iv) In our opinion and according to the information and explanation given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of inventories, fixed assets and for the sale of goods.

(v) (a) According to the information and explanations given to us, there are no transactions made in pursuance of contracts or arrangements, that need to be entered into the register maintained under Section 301 of the Companies Act, 1956.

(b) There are no transactions of purchase and sale of goods, materials and services made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956 aggregating during the year to Rs. 500,000/- or more in respect of each party.

(vi) The Company has not accepted any deposit from the public during the year.

(vii) The internal audit is done by a firm of Chartered Accountants appointed by the Management is commensurate with the size of the Company and nature of its business.

(viii) We are informed that the Central Government has not prescribed the maintenance of cost records under Section 209 (1)(d) of the Companies Act, 1956.

(ix) (a) According to the records of Company, the Company has generally been regular in depositing undisputed statutory dues including Provident Fund, Employees’ State Insurance, Income tax, Sales tax, Customs Duty, Cess and other statutory dues with appropriate authorities. According to the information and explanations given to us, there are no undisputed amounts payable in respect of such statutory dues, which have remained outstanding as at March 31, 2007 for a period more than six months from the date they became payable;

(b) According to information and explanation given to us the details of disputed dues which are not deposited as on March 31, 2007 are as follows:

Nature of Statue

Nature of Dues

Amount (Rs.)

Forumwhere dispute ispending

Customs Act, 1962

Classifi-cation of Chapter

540,464/- Appellate Tribunal

(x) The Company has no accumulated losses in the current financial year and in the immediately preceding financial year.

(xi) The Company has not taken any loans from any financial institutions nor defaulted for repayments of Bank dues and has not issued any Debentures.

(xii) The Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures or other securities.

(xiii) The provisions of any Special Statute applicable to Chit Fund, Nidhi or Mutual Benefit Fund/ Societies are not applicable to the Company.

(xiv) The Company is not dealing or trading in shares, securities, debentures or other investments and hence the requirements of Para 4 (xiv) are not applicable to the Company.

(xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks and financial institutions.

(xvi) The Company has not availed any term loan during the year.

(xvii) On the basis of our examination of the Cash Flow statement, the Company has not raised funds on short term basis hence use of such funds for long term investments, does not arise.

The Company has not raised long-term funds during the year and hence the use of such funds for short-term investments does not arise.

(xviii) The Company has not made any preferential allotment of shares to parties and companies covered in the register maintained under Section 301 of the Companies Act, 1956 during the year.

(xix) The Company has not issued any debentures.

(xx) The Company has not raised any money by way of Public issues during the year.

(xxi) On the basis of our examination and according to the information and explanations given to us, no fraud, on or by the Company, has been noticed or reported during the year.

For H. R. LALKA & CO. Chartered Accountants Place : Chennai Hiren LalkaDate : May 8, 2007 Proprietor

Membership No 40242


56


Balance Sheet as at March 31,

in Rupees

Schedule 2007 2006

FUNDS EMPLOYED

SHAREHOLDERS’ FUNDS

Share Capital 1 5,000,200 5,000,200

Reserves & Surplus 2 12,044,220 13,493,610

17,044,420 18,493,810


FIXED ASSETS 3

Gross block 2,912,286 1,693,094

Less: Depreciation 1,366,934 830,543

NET BLOCK 1,545,352 862,551

INVESTMENTS 4 14,865,067 0

DEFERRED TAX ASSETS 939,859 710,356

CURRENT ASSETS, LOANS & ADVANCES 5 45,866,782 37,479,677

Less: CURRENT LIABILITIES AND PROVISIONS 6 46,172,640 20,558,774

NET CURRENT ASSETS (305,858) 16,920,903

17,044,420 18,493,810

Accounting Policies 14

Notes Forming Part of Accounts 15

Schedule 1 to 15 annexed hereto form part of the Balance Sheet and Profit and Loss Account

In terms of our report of even date attached.

For H. R. LALKA & CO. Manish Maheshwari Chartered Accountants Chairman

Vikash Jain Hiren Lalka Sagar Mehta (Proprietor) Sandeep Khamesra

Directors

Place : Chennai Place : ChennaiDate : May 8, 2007 Date : May 8, 2007


57

Profit and Loss Account for the year ended March 31,

in Rupees

Schedule 2007 2006

INCOME

Sales 110,442,426 62,686,072

Other Income 7 1,826,522 1,017,859

112,268,948 63,703,931

EXPENDITURE AND CHARGES

Cost of goods for resale 8 38,332,157 20,566,839

Staff Expenses 9 7,498,148 5,421,665

Establishment Expenses 10 1,771,133 957,977

Other Expenses 11 1,470,725 1,313,271

Marketing & Distribution Expenses 12 31,045,965 15,241,386

Provisions and Write offs 13 383,482 567,515

Interest 49,721 197,113

Depreciation 538,800 296,259

81,090,131 44,562,025

Profit for the year before tax 31,178,817 19,141,906

Less: Taxation for the year – Current Income Tax (10,798,943) (6,427,792)

Fringe Benefit Tax (655,000) (460,000)

Deferred Tax Assets 221,686 (46,892)

Profit for the year after tax 19,946,560 12,207,222

Add: Profit brought forward 13,478,203 1,353,907

Less: Prior Period Adjustments 0 (67,519)

Profit available for Appropriation 33,424,763 13,493,610

APPROPRIATIONS

Less: Dividend (1st Interim) (6,250,250) 0

Less: Dividend (2nd Interim) (12,500,500) 0

Less: Tax on Dividend (2,629,793) 0

Less: Transfer to General Reserves (2,000,000) 0

Balance carried to Balance Sheet 10,044,220 13,493,610

Schedule 1 to 15 annexed hereto form part of the Balance Sheet and Profit and Loss Account

In terms of our report of even date attached.

For H. R. LALKA & CO. Manish Maheshwari Chartered Accountants Chairman


Directors



58


Cash Flow Statement for the year ended March 31,

in Rupees

2007 2006

A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit Before Tax 31,178,817 19,141,906

Adjustments for:

Depreciation 538,800 296,259

Interest Expense 49,721 197,113

Bad Debts Written off (123,600) (225,640)

Loss on Sale / discard of assets 677 19,442

Exchange (Gain) / Loss 0 3,947

Provision for Leave Encashment & Gratuity 631,508 257,000

Interest Income (277,197) (393,168)

Excess Provisions written back (211,431) (469,145)

Recovery of doubtful debts 0 (103,000)

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 31,787,295 18,724,714

Adjustment for:

Trade Debtors (4,429,968) (523,161)

Other Receivables (1,147,901) 1,347,957

Inventories (3,249,272) (3,908,158)

Payables 13,503,628 7,150,625

CASH FROM OPERATIONS 36,463,782 22,791,977

Income Tax paid (10,047,000) (7,105,000)

Excess Provisions written back 211,431 469,145

Income Tax Adjustments 0 (2,459,792)

Prior Period Item 0 (67,519)


B. CASH FLOW FROM INVESTING ACTIVITIES

Fixed Assets purchased (1,222,278) (743,053)

Fixed Assets sold 0 3,100

Purchase of investments (14,865,067) 0

Interest received 216,144 307,400

NET CASH (USED) / RAISED FROM INVESTING ACTIVITIES (15,871,201) (432,553)

C. CASH FLOW FROM FINANCING ACTIVITIES

Interest paid (49,721) (197,113)

Unsecured Loan repaid 0 (5,012,500)

Exchange Gain / (Loss) 0 (3,947)

Dividend Paid (including tax thereon) (21,378,980) 0

NET CASH (USED) / RAISED FROM FINANCING ACTIVITIES (21,428,701) (5,213,560)

NET (DECREASE) / INCREASE IN CASH OR CASH EQUIVALENTS (10,671,689) 7,982,698

Cash Equivalents:

Opening Balance 13,692,846 5,710,148

Closing Balance 3,021,157 13,692,846

(10,671,689) 7,982,698

In terms of our report of even date attached.For H. R. LALKA & CO. Manish Maheshwari Chartered Accountants Chairman


Directors



59

Schedules to the Balance Sheet as at March 31,

in Rupees

2007 2006

SCHEDULE 1

SHARE CAPITAL

AUTHORISED

1,00,000 Equity Shares of Rs. 100 each 10,000,000 10,000,000

ISSUED SUBSCRIBED AND PAID-UP

50,002 Equity Shares of Rs. 100 each 5,000,200 5,000,200

(All the above Shares are held by Hindustan Oil Exploration Co. Ltd , Holding Co., & its nominees)

5,000,200 5,000,200

in Rupees

Transfer from Profit & Loss

Account

2007 Transitional Adjustment (Note

No. 2)

2006

SCHEDULE 2

RESERVES AND SURPLUS

General Reserve 2,000,000 2,000,000 0 0

Profit and Loss Account Balance (3,433,983) 10,044,220 (15,407) 13,493,610

(1,433,983) 12,044,220 (15,407) 13,493,610

SCHEDULE 3

FIXED ASSETS in Rupees

G R O S S B L O C K D E P R E C I A T I O N N E T B L O C K

Name of the Assets As atMarch 31,

2006

Additions Deductions As atMarch 31,

2007

As atMarch 31,

2006

For theyear

Deductions As atMarch 31,

2007

As atMarch 31,

2007

As atMarch 31,

2006

Office Equipments 119,011 113,775 3,086 229,700 70,940 78,330 2,409 146,861 82,839 48,071

Computers 162,384 89,283 0 251,667 110,769 56,359 0 167,128 84,539 51,615

Office Furniture 143,206 455,114 0 598,320 69,828 117,495 0 187,323 410,997 73,378

Plant & Machinery 502,772 74,200 0 576,972 265,250 43,363 0 308,613 268,359 237,522

Dies & Moulds 337,885 0 0 337,885 212,975 37,474 0 250,449 87,436 124,910

Electrical Equipment 0 24,337 0 24,337 0 24,337 0 24,337 0 0

Vehicles 389,266 231,569 0 620,835 100,781 134,642 0 235,423 385,412 288,485

Improvement to Lease Hold Premises 0 234,000 0 234,000 0 46,800 0 46,800 187,200 0

Capital work in progress 38,570 0 0 38,570 0 0 0 0 38,570 38,570

TOTAL 1,693,094 1,222,278 3,086 2,912,286 830,543 538,800 2,409 1,366,934 1,545,352 862,551

PREVIOUS YEAR 1,028,868 743,053 78,827 1,693,094 590,569 296,259 56,285 830,543 862,551 438,299


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in Rupees

2007 2006

SCHEDULE 4

INVESTMENTS

CURRENT

UNQUOTED

Investment in Mutual Funds (Refer note 5 of Schedule 15 for details of mutual funds purchased and sold during the year) 1,397,565.626 (31.03.06 - nil) Units of HDFC Liquid Fund - Daily Dividend Plan 14,865,067 0

14,865,067 0

in Rupees

2007 2006

SCHEDULE 5

CURRENT ASSETS, LOANS AND ADVANCES

CURRENT ASSETS

Interest accrued on Deposits 0 30,955

INVENTORIES

Materials unpacked 3,387,505 2,891,605

Materials packed 3,401,270 4,201,852

Packing Material 807,816 434,508

GOODS IN TRANSIT 6,191,602 3,010,956

SUNDRY DEBTORS

Due for more than six months

Considered Good 59,263 319,642

Considered Doubtful 1,307,852 1,431,452

Others

Considered Good 8,824,725 4,010,778

10,191,840 5,761,872

Less: Provision for doubtful debts 1,307,852 1,431,452

8,883,988 4,330,420

CASH & BANK BALANCES

Cash on hand 30,294 38,429

With Scheduled Banks

Current Accounts 2,990,863 4,854,417

Deposit Account 0 8,800,000

3,021,157 13,692,846

LOANS AND ADVANCES

(Unsecured, considered good )

Advances recoverable in cash or in kind or for value to be received 2,833,551 1,565,438

Insurance Claims Receivable 0 3,772

Advance Taxes 17,339,893 7,317,325

20,173,444 8,886,535

45,866,782 37,479,677


61


in Rupees

2007 2006

SCHEDULE 6

CURRENT LIABILITIES & PROVISIONS

CURRENT LIABILITIES

Sundry Creditors 23,940,300 11,759,900

Other Liabilities 2,679,665 1,354,874

PROVISIONS

Provision for Leave Encashment & Gratuity 1,238,732 584,000

Provision for Taxation 17,198,943 6,400,000

Provision for Fringe Benefit Tax 1,115,000 460,000

46,172,640 20,558,774

Schedules to the Profit & Loss Account for the year ended March 31,

in Rupees

2007 2006

SCHEDULE 7

OTHER INCOME

Interest Income (Gross) Tax deducted at source Rs. 61,053 (Previous Year Rs. 85,768)

277,197 393,168

Excess Provision written back 211,431 469,145

Dividend from Current Investments 374,059 0

Profit on sale of Current Investments 520,884 45,108

Gain on foreign exchange fluctuation 235,081 0

Miscellaneous Income 207,870 110,438

1,826,522 1,017,859

SCHEDULE 8

COST OF GOODS FOR RESALE:

MATERIALS PACKED & UNPACKED

Opening stock 7,093,457 6,334,780

Add: Purchases 24,621,614 13,424,161

Sub-Total 31,715,071 19,758,941

Less: Closing Stock 6,788,775 7,093,457

24,926,296 12,665,484

PACKING MATERIALS

Opening stock 434,508 295,983

Add: Purchases 7,936,648 4,238,387

Sub-Total 8,371,156 4,534,370

Less: Closing Stock 807,816 434,508

7,563,340 4,099,862

Excise Duty 5,446,846 2,987,085

Repacking Expenses 1,972,029 1,133,519

Cost of Samples & Replacements (1,577,195) (318,333)

Cost of Damaged Goods 841 (778)

38,332,157 20,566,839


62


in Rupees

2007 2006

SCHEDULE 9

STAFF EXPENSES

Salaries & Bonus 6,130,361 4,614,599

Contribution to Provident and Other Funds 497,053 330,912

Welfare Expenses(including provision for leave encashment Rs. 594,985) (Previous Year Rs. 263,094)

870,734 476,154

7,498,148 5,421,665

SCHEDULE 10

ESTABLISHMENT EXPENSES

Rent 1,477,645 611,500

Rates and Taxes 0 81,232

Repairs and Maintenance 74,154 103,157


Electricity 89,260 83,641

1,771,133 957,977

SCHEDULE 11

OTHER EXPENSES

Auditor’s Remuneration

Audit Fees 60,000 25,000



Service Tax 514 3,693

87,725 36,817

Bank Charges 102,810 72,436

Books and Periodicals 1,070 1,383

Computer Expenses 11,088 4,953

Insurance 119,576 111,814

Travelling & Conveyance 182,601 157,984

Postage and Telephone 332,622 282,685

Printing and Stationery 142,152 103,607

Professional and Consultancy Fees 126,658 240,861

Loss on sale/discard of assets 677 19,442

Loss on foreign exchange fluctuation 0 3,947

Miscellaneous Expenses 363,746 277,342

1,470,725 1,313,271



63


in Rupees

2007 2006

SCHEDULE 12

MARKETING & DISTRIBUTION EXPENSES

Distribution Expenses

Freight 2,304,979 1,295,509

Others 534,652 390,280

2,839,631 1,685,789

Marketing Expenses

Incentives 4,020,531 2,053,648

Product Promotion Expenses 6,671,148 1,359,727

Advertisement 425,169 449,752

Rebates and Discounts 7,510,332 3,619,765

Sales Promotion 3,727,453 2,003,174

Samples & Replacement 1,592,656 318,175

Others 560,019 231,137

24,507,308 10,035,378

Selling Expenses

Commission 2,237,435 2,196,626

Field Staff Expenses 1,461,591 1,323,593

3,699,026 3,520,219

31,045,965 15,241,386

SCHEDULE 13

PROVISIONS AND WRITE OFFS

Bad Debts 383,482 567,515

383,482 567,515

SCHEDULE 14


1. Accounting ConventionThe Accounts of the Company have been prepared using the accrual concept on a going concern basis consistently.

2. Fixed AssetsFixed Assets are capitalised at cost inclusive of legal and/or installation expenses.

3. DepreciationDepreciation has been provided on written down value method at the rates and the manner prescribed in schedule XIV to the Companies Act, 1956.In case of additions during the year, depreciation is provided for the full year irrespective of the date of installation and no depreciation is provided in the year of sale/disposal.

4. Revenue RecognitionSales turnover includes sale value of goods (net of Trade Discount) and excludes Value Added Tax and Central Sales Tax.

5. InvestmentsInvestments are capitalised at cost plus brokerage and stamp charges. Long term investments are valued at cost. Provision is made for other than temporary diminution in the value of long term investments. Current investments are valued at the lower of cost and fair value on individual scrip basis.

6. InventoriesInventories are valued at cost or market price whichever is lower, on first in first out basis. Cost of Unpacked Materials includes Freight, Custom Duty, Insurance and Clearing charges. Cost of Packed Materials includes repacking charges, packing materials etc.

7. Retirement and Other Benefitsa. Defined Benefit Plan : The Company makes annual contribution to a Gratuity Fund administered by trustees and managed by LIC. The Company accounts its liability for future

gratuity benefits based on actuarial valuation, as at the balance sheet date, determined every year by an actuarial valuer using the Projected Unit Credit method.b. Short Term Employee Benefit : Short-term employee benefit includes accumulated compensated absences and is recognized based on the eligible leave at credit on the balance sheet

date and is estimated based on the terms of the employment contract.8. Foreign Currency Transactions

Foreign currency transactions are recorded at the rate of exchange in force at the time of occurrence of transactions. Gains and losses arising out of subsequent fluctuations are accounted for upon actual payment. The Foreign Currency payables are converted at the exchange rates prevailing on the last working day of the accounting period. The net loss or gain arising out of such fluctuation / conversion is adjusted to the Profit & Loss Account.

9. TaxationThe Company adopts full provision basis for deferred tax without discounting, in accordance with the Accounting Standard 22 on Accounting for Taxes on Income. Provision for deferred tax asset / liability is made for timing differences which have arisen but not reversed at the balance sheet date and are expected to reverse in the foreseeable future.


64


SCHEDULE 15

NOTES FORMING PART OF THE ACCOUNTS

1. Interest Income includes interest on:

in Rupees

Year ended March 31,

2007 2006

Deposits 272,072 388,644

Others 4,611 3,355

Staff Loans 514 1,169

277,197 393,168

2. Effective April 01, 2006, the Company adopted the revised Accounting Standard 15 (AS 15) on Employee Benefits, issued by the Institute of Chartered Accountants of India (ICAI), though not yet mandatory in nature. Consequent upon the change, Profit before Tax for the year ended March 31, 2007 is higher by Rs. 28,119. In accordance with the transitional provision contained in the said Standard, the difference of Rs. 15,407 (net of Deferred Tax of Rs 7,817) between the liability in respect of certain employee benefits existing on the date of adoption of the Standard and the liability that would have been recognised at the same date under the previous accounting policy has been adjusted against the opening balance in the Profit & Loss Account.

3. Contingent LiabilitiesEstimated amount of contracts remaining to be executed on capital account and not provided for, net of advances, Rs. 8,000/- (Previous year – NIL)

4. Claims against the Company not acknowledged as debt:

in Rupees

Year ended March 31,

2007 2006

Income tax demand where the matter is in appeal 142,004 259,691

Custom demand where the matter is in appeal 540,464 540,464

5. Details of units in Mutual Funds purchased and sold during the year

2007 2006

Name of the Fund No. of units purchased including

accumulated

No. of units sold No. of units purchased including

accumulated

No. of units sold

HDFC Cash Management – Savings Plan – Daily Dividend Reinvestment 1,771,658.363 374,092.737 0 0

HDFC Liquid Fund –Growth 409,502.084 409,502.084 369,022.195 369,022.195

ICICI Prudential Liquid Plan – Daily Dividend Reinvestment 466,610.901 466,610.901 0 0

ICICI Prudential Liquid Plan – Growth 324,505.397 324,505.397 315,947.278 315,947.278

6. As stated in item no. 9 of the Significant Accounting Policies (Schedule 14), deferred tax asset and liability has been calculated as under :

in Rupees

Year ended March 31

2007 2006

Deferred Tax Assets

Provision for Doubtful Debts 440,224 481,826

Leave Encashment & Gratuity 385,717 197,323

Bonus 0 3,226

Depreciation on Fixed Assets 113,918 27,980

Sub total (A) 939,859 710,355

Deferred Tax Liability (B) 0 0

Net Deferred Tax Assets before Transitional Adjustment (A-B) 939,859 710,355

Deferred Tax Asset relating to AS-15 Transitional Adjustment (Refer Note 2 above) 0 7,817

Net Deferred Tax Assets after Transitional Adjustment 939,859 718,172


65

7. The Company has during the year written off a sum of Rs. 123,600/- as bad debts. Provision for which were made in prior years till 31.03.2005 and the effect of write off is credited to Excess Provision written back.

8. Sundry Creditors include Rs. 1,050,750/- (Previous Year Rs. 666,493/-) due to small scale and ancillary undertakings to the extent such parties have been identified by the management from available information. Amounts due to Small Scale Industrial Undertakings for outstanding of more than 30 days is “Indian Extrusions” & “Raghuvir Packaging Industries”.

9. As per the Accounting Standard on ‘Related Party Disclosures’ (AS 18) issued by the Institute of Chartered Accountants of India, the related parties of the Company are as follows :

Name of the Holding Company : Hindustan Oil Exploration Company Limited

The Nature and volume of transactions of the Company during the year with the above party are as follows :

Particulars Amount (Rs.)

Dividend

1st Interim Dividend 6,250,250

2nd Interim Dividend 12,500,250

10. The balances of creditors are subject to their confirmations.

11. Additional Information pursuant to provisions of paragraph, 3, 4C & 4D of Schedule VI- part II of the Companies Act, 1956.

(A) Turnover Current Year Previous Year

Product Unit Quantity Value (Rs.) Quantity Value (Rs.)

Additives Litres 212,482.085 109,733,416 125,013.33 62,395,979

Grease Kgs. 0 0 27.860 20,516

Cream Nos. 2,171 607,582 324 137,496

Spares Nos. 106 101,428 115 132,081

(B) RAW MATERIAL CONSUMED : Not Applicable

(C) STOCKS OPENING STOCK CLOSING STOCK

Product Unit Quantity Value (Rs.) Quantity Value (Rs.)

Additives Litres 53,769.79 6,963,658 50,222.808 6,600,529

Grease Kgs. 398.59 151 418.89 202

Cream Nos. 475 55,817 804 81,202

Spares Nos. 161 73,831 105 106,842

(D) Capacity and production:

Capacity – Licensed N. A.

Capacity – Installed N. A.

Production N. A.

(E) Value of Imports on CIF basis in respect of:

Current Year Previous Year

i) Materials Rs 23,868,308 Rs 13,856,592

ii) Components & Spare parts Rs. Nil Rs. Nil

iii) Capital goods Rs. Nil Rs. Nil

(F) Expenditure in foreign currency :

i) Business Travelling Rs. Nil Rs. Nil

ii) Others Rs. Nil Rs. 17,714

(G) The amount remitted in foreign currency during the year on account of dividends

Rs. Nil Rs. Nil

(H) Earnings in foreign exchange Rs. Nil Rs. Nil 12. Figures of the previous year have been regrouped and rearranged wherever necessary.

66

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration Details

Registration No 11536

State Code 04

Balance Sheet Date 31.03.2007

II. Capital Raised During The Year

Public Issue NIL

Rights Issue NIL

Bonus Issue NIL

Private Placement NIL

III. Position of Mobilisation and Deployment of Funds (In Rupees)

Total Liabilities 63,217,060

Total Assets 63,217,060

Sources Of Funds

Paid - up Capital 5,000,200

Reserves & Surplus 12,044,220

Secured Loans NIL

Unsecured Loans NIL

Application Of Funds

Net Fixed Assets 1,545,352

Investments NIL

Net Current Assets (305,858)

Miscellaneous Expenditure NIL

Accumulated Losses NIL

IV. Performance of Company (In Rupees)

Turnover 110,442,426

Total Expenditure 81,090,131

Profit Before Tax 31,178,817

Profit After Tax 19,946,560

Earning per Share 398.92

Dividend Rate % 375%

V. Generic Names of Three Principal Products/Services of Company (as per monetary terms)

Item Code No. (ITC Code) 38112900

Product Description Oil Additives

Item Code No. (ITC Code) 38112900

Product Description Fuel Additives



67

1. We have examined the attached Consolidated Balance Sheetof HINDUSTAN OIL EXPLORATION COMPANY LIMITED(“theCompany”)anditssubsidiary(“theGroup”)asatMarch31,2007, theConsolidatedProfitandLossAccountand the Consolidated Cash Flow Statement of the Groupfor the year ended on that date, both annexed thereto. Thesefinancial statements are the responsibility of the Company’sManagement. Our responsibility is to express an opinion onthesefinancialstatementsbasedonouraudit.

2. We conducted our audit in accordance with the auditingstandardsgenerallyaccepted inIndia.ThoseStandardsrequirethat we plan and perform the audit to obtain reasonableassurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing theaccounting principles used and significant estimates made bythe Management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides areasonablebasisforouropinion.

3. (a) TheAccountshavebeendrawnupinaccordancewiththestatementofSignificantAccountingPolicies(Schedule15).AccountingPolicy4relatingto“SuccessfulEffortsMethod”andthetreatmentofexplorationanddevelopmentcostsaresignificant to the oil and gas exploration and productionindustry.

(b) Categorisation of the wells as exploratory and producingandthedepletionofproducingwellsonthebasisofproveddeveloped hydrocarbon reserves and expensing of theestimated site restoration liability on the basis of provedhydrocarbon reserves are made according to technicalevaluation by the Management, on which we have placedreliance.

4. Without qualifying our report, we invite attention to Note 8of Schedule 16 regarding Managerial Remuneration which issubjecttotheapprovaloftheShareholders/CentralGovernmentasstatedtherein.

5. The accounts include assets aggregating Rs. 4,549,403,216,liabilities aggregating Rs. 616,492,568, income aggregatingRs. 772,255 and expenditure aggregating Rs. 167,759,884relating to the Company’s share in seven joint ventures, whichhave been incorporated on the basis of accounts audited byotherauditors.Wedidnotauditthefinancialstatementsofthesubsidiary, whose financial statements reflect net total assetsof Rs. 17,044,420 as at March 31, 2007, total revenues ofRs. 112,268,948 and net decrease in cash flows amounting toRs.10,671,689fortheyearendedonthatdate.Thesefinancialstatementshavebeenauditedbyanotherauditorwhosereporthasbeenfurnishedtous,andouropinion,insofarasitrelatesto

theamountsincludedinrespectofthesubsidiary,isbasedsolelyonthereportoftheotherauditor.

6. In respect of two non-producing joint ventures, exploration expenditure aggregating Rs. 85,389,349, other assets aggregating Rs. 109,331, and liabilities aggregating Rs. 2,936,859 have been incorporated on the basis of the information available, in the absence of audited accounts. The accounts of one of the two joint ventures has been audited upto March 31, 2006.

7. As stated in Note 10 of Schedule 16, the disclosures to be made pursuant to the early adoption of Accounting Standard (AS) 15 on Employee Benefits issued by the Institute of Chartered Accountants of India have been made only with respect to the Company since the same has not been furnished by the subsidiary.

8. Wereportthattheconsolidatedfinancialstatementshavebeenprepared by the Company’s Management in accordance withthe requirements of Accounting Standard 21 (ConsolidatedFinancial Statements), issued by the Institute of CharteredAccountants of India and on the basis of the separate auditedfinancialstatementsoftheCompanyanditssubsidiaryincludedintheconsolidatedfinancialstatements.

9. Based on our audit and on consideration of the reports ofthe other auditors on the separate financial statements of thesubsidiaryandtothebestofourinformationandaccordingtotheexplanationsgiventous,weareoftheopinionthattheaforesaidconsolidated financial statements, subject to our comments in paragraph 6 above to the extent of unaudited accounts relating to the joint ventures referred to therein and paragraph 7 above relating to the non-disclosure of the required information mandated by AS 15 on Employee Benefits relating to the subsidiary, giveatrueandfairviewinconformitywiththeaccountingprinciplesgenerallyacceptedinIndia:

(i) in the case of the Consolidated Balance Sheet, of theconsolidatedstateofaffairsof theGroupasatMarch31,2007;

(ii) inthecaseoftheConsolidatedProfitandLossAccount,oftheconsolidatedprofitoftheGroupfortheyearendedonthatdate;and

(iii) in the case of the Consolidated Cash Flow Statement, ofthe cash flows of the Group for the year ended on thatdate.


K. Sai RamPlace : Gurgaon PartnerDate : May14,2007 (MembershipNo.022360)

AUDITORS’ REPORT

TO THE BOARD OF DIRECTORS OF HINDUSTAN OIL EXPLORATION COMPANY LIMITED ON THE CONSOLIDATED FINANCIAL STATEMENTS OF HINDUSTAN OIL EXPLORATION COMPANY LIMITED AND ITS SUBSIDIARY


68


Consolidated Balance Sheet as at March 31, 2007

in Rupees

Schedule As at March 31, 2007


SOURCES OF FUNDS

SHAREHOLDERS’ FUNDSShare Capital 1 783,286,795 587,609,465 Reserves and Surplus 2 3,132,097,143 1,837,561,969 LOAN FUNDSSecured Loans 3 1,320,948,396 163,000,000

5,236,332,334 2,588,171,434


FIXED ASSETS 4 Gross Block 4,345,554,086 2,930,642,865 Less: Depreciation, Depletion

and Amortisation 1,168,812,118 1,076,004,953 NET BLOCK 3,176,741,968 1,854,637,912 INVESTMENTS 5 704,149,030 49,954 DEFERRED TAX ASSET (NET) (See Note 14 of Schedule 16) 488,417,949 176,941,356 CURRENT ASSETS, LOANS AND ADVANCES 6 a. Inventories 257,720,893 203,509,117 b. Sundry Debtors 205,437,957 111,117,294 c. Cash and Bank Balances 1,111,655,469 744,775,250 d. Other Current Assets 9,758,715 3,732,166 e. Loans and Advances 328,904,751 107,440,822

1,913,477,785 1,170,574,649Less: CURRENT LIABILITIES AND

PROVISIONS 7 a. Current Liabilities 744,691,797 257,927,825 b. Provisions 301,762,601 356,392,112

1,046,454,398 614,319,937NET CURRENT ASSETS 867,023,387 556,254,712 MISCELLANEOUS EXPENDITURE (to the extent not written off or adjusted) Share Issue Expenses of Prior Years 0 287,500

5,236,332,334 2,588,171,434 Accounting Policies 15Notes to the Accounts 16Schedules 1 to 16 annexed hereto form part of the Accounts.

Intermsofourreportofevendateattached. OnbehalfoftheBoardofDirectors

ForDeloitteHaskins&Sells R.Vasudevan AtulGuptaCharteredAccountants Chairman ManagingDirector

RahulBhasin ManishMaheshwari

K.SaiRamPartnerMembershipNo:022360

Director JointManagingDirector

VikashJainCompanySecretary,TaxandLegalCoordinator

Place:Gurgaon Place:GurgaonDate:May14,2007 Date:May14,2007


69

Consolidated Profit and Loss Account for the year ended March 31, 2007

in Rupees

Schedule Year ended March 31, 2007


INCOME

Sales 8 1,255,587,038 1,005,128,153 (Decrease) / Increase in Stock of Crude Oil (33,451,129) 27,086,408 Other Income 9 131,856,085 55,065,931

1,353,991,994 1,087,280,492

EXPENDITURE AND CHARGESField Operating Expenses 10 167,759,885 170,623,662 Cost of Goods for Resale 11 38,332,157 20,482,044 Corporate Expenses 12 38,910,350 82,824,456 Depreciation / Amortisation on Fixed Assets 4 6,185,618 8,414,439 Depletion of Producing Properties 4 70,845,642 69,832,624 Marketing & Distribution Costs 13 31,045,965 15,393,700 Provisions and Write Offs (Net) 930,540,747 418,445,990 (See Item 4 of Schedule 15 & Note 3 of Schedule 16)Interest and Finance Charges 14 56,006,376 21,509,747

1,339,626,740 807,526,662 PROFIT BEFORE TAX 14,365,254 279,753,830 Less: Provision for Current Income Tax 296,798,943 174,427,792 [Includes Rs. Nil (Previous Year: Rs. 27,792) in respect of Prior Years]Less / (Add): Provision for Deferred Tax (311,221,686) (84,953,108)Less: Provision for Wealth Tax 200,000 160,000 Less: Provision for Fringe Benefit Tax 2,655,000 3,060,000 PROFIT AFTER TAX 25,932,997 187,059,146 Profit Brought Forward 831,926,931 711,851,698 Less: Transitional Adjustment (AS-15) (15,407) 0 (Note 2 of Schedule 16)PROFIT AVAILABLE FOR APPROPRIATION 857,844,521 898,910,844

APPROPRIATIONS:Proposed Dividend 0 58,744,935 Dividend Tax 2,629,793 8,238,978 Transfer to General Reserve 2,000,000 0 Balance Carried to Balance Sheet 853,214,728 831,926,931 857,844,521 898,910,844

Earning per Share of Rs. 10 Face Value (basic and diluted) Rs. 0.37 Rs. 2.93(See Note 13 of Schedule 16)Schedules 1 to 16 annexed hereto form part of the Accounts.



RahulBhasin ManishMaheshwari

K.SaiRamPartnerMembershipNo:022360

Director JointManagingDirector




70


Consolidated Cash Flow Statement for the year ended March 31, 2007



K.SaiRam

RahulBhasin ManishMaheshwariDirector JointManagingDirector

PartnerMembershipNo:022360



in Rupees



A. CASH FLOW FROM OPERATING ACTIVITIESNet Profit Before Tax 14,365,254 279,753,830 Adjustments for:

Leave Encashment 311,608 151,000 Depreciation / Amortisation and Depletion 77,031,260 78,247,063 Exploration Expenses Written Off (Net) 930,368,696 418,347,620 Other Miscellaneous Expenses Written Off 287,500 287,500 Dividend / Interest Income (114,452,563) (48,842,714)Bad Debts (Write back) (Net) (123,600) (225,640)Loss on Sale of / Discarded Assets (Net) 174,589 288,057 Excess Provisions Written Back (211,431) (469,145)Profit on Sale of Current Investments 0 (420,971)Recovery of Doubtful Debts 0 (103,000)Unrealised Exchange (Gain) / Loss (18,829,295) 1,351,139 Interest and Finance Charges 56,006,376 21,509,747

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 944,928,394 749,874,486

Adjustments for:Trade and Other Receivables (259,098,138) (129,680,496)Inventories (54,211,776) (116,010,096)Payables 484,418,064 (33,700,513)

CASH FROM OPERATIONS 1,116,036,544 470,483,381

Taxes Paid (282,172,253) (159,338,190)Excess Provision Written Back 211,431 469,145


B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets * (1,474,110,326) (510,413,560) Proceeds from Sale of Fixed Assets 123,926 1,678,842 Exploration Expenses Incurred (855,995,993) (297,762,657) Proceeds from Sale of Current Investments 911 420,971 Dividend / Interest Received 108,334,006 49,701,644 Decrease in Inter Corporate Deposits 0 95,000,000

NET CASH USED IN INVESTING ACTIVITIES (2,221,647,476) (661,374,760)

C. CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Issue of Share Capital @ 1,487,892,759 0 Secured Loans Taken – Long Term 1,706,716,998 0 Secured Loans Repaid – Long Term (535,661,807) (112,000,000) Interest and Finance Charges Paid * (146,821,420) (33,962,347) Dividend Paid (including Dividend Tax) (68,746,938) (65,968,484) Rights Issue Expenses (19,736,001) 0 Foreign Exchange Loss 0 (3,947)NET CASH FROM / (USED IN) FINANCING ACTIVITIES 2,423,643,591 (211,934,778)

NET INCREASE / (DECREASE) IN CASH OR CASH EQUIVALENTS (A+B+C) 1,036,071,837 (561,695,202)Cash, Cash Equivalents:

Opening Balance 485,184,632 1,046,879,834 Closing Balance 1,521,256,469 485,184,632

1,036,071,837 (561,695,202)Cash and Bank Balance as per Schedule 6 1,111,655,469 744,775,250 Current Investment as per Schedule 5 704,099,987 0 Adjustment for Site Restoration Deposit (179,417,650) (166,559,032)Adjustment for Lien Marked Deposits (115,081,337) (93,031,586)

Total Cash and Cash Equivalents as at Year End 1,521,256,469 485,184,632

* Interest and Finance Charges Paid includes and Purchase of Fixed Assets excludes Borrowing Cost capitalised amounting to Rs. 27,487,279 (Previous Year Rs. 12,452,600).

@ Proceeds from Issue of Share Capital includes Rs. 745,051 of Unclaimed / Unpaid Share Application Money.

Schedules 1 to 16 annexed hereto form part of the Accounts.


71

Schedules Forming Part of the Consolidated Accounts for the Year Ended March 31, 2007

in Rupees

As at As atMarch 31, 2007 March 31, 2006

SCHEDULE 1SHARE CAPITAL

AUTHORISED200,000,000 Equity Shares of Rs.10 each

2,000,000,000 2,000,000,000 ISSUED78,345,643 (Previous Year 58,777,910) Equity Shares of Rs.10 each 783,456,430 587,779,100 SUBSCRIBED AND PAID-UP78,312,668 (Previous Year 58,744,935) Equity Shares of Rs.10 each fully paid 783,126,680 587,449,350 Add : Amount Paid-up on Shares Forfeited 160,115 160,115

783,286,795 587,609,465 Note:On October 27, 2006, an allotment of 19,567,733 Equity Shares was made consequent to the Rights Issue of 19,581,645 Equity Shares of Rs. 10 each at a premium of Rs. 66 per Share to the existing Shareholders of the Company in the ratio of One Equity Share for Every Three Equity Shares held.

SCHEDULE 2RESERVES AND SURPLUSSecurities Premium Opening Balance 1,001,765,038 1,001,765,038 Additions (See Note 1 below) 1,291,470,378 0 Rights Issue Expenses (See Note 2 below) (19,736,001) 0 Closing Balance 2,273,499,415 1,001,765,038General Reserve Opening Balance 3,870,000 3,870,000 Transitional Adjustments (See Note 3 below) (487,000) 0 Additions 2,000,000 0 Closing Balance 5,383,000 3,870,000Balance in Profit and Loss Account 853,214,728 831,926,931

3,132,097,143 1,837,561,969 Note:1. Represents premium on allotment of 19,567,733 Equity Shares on October 27,

2006 at a premium of Rs. 66 each consequent to the Rights Issue.2. The Rights Issue Expenses incurred during the year have been adjusted against

the Securities Premium balance in accordance with Section 78 of the Companies Act, 1956.

3. Effective April 1, 2006, the Company and its subsidiary adopted the revised Accounting Standard (AS-15) on Employee Benefits issued by the Institute of Chartered Accountants of India, though not yet mandatory in nature. Pursuant to this, employee benefit obligations of the Company amounting to Rs. 487,000 (net of deferred tax of Rs. 247,090) as at March 31, 2006 has been adjusted against the opening balance of General Reserve in line with the transitional provisions of the said Standard. (Also see Note 2 of Schedule 16).

SCHEDULE 3SECURED LOANSLoan from Banks (See Note 4 of Schedule 16) Foreign Currency Loan 384,948,396 0 Rupee Term Loan 936,000,000 163,000,000

1,320,948,396 163,000,000


72


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73


in Rupees


SCHEDULE 5INVESTMENTS (FULLY PAID) – At CostLONG TERM QUOTED (TRADE) 318 Equity Shares of Rs. 10 each of Reliance Industries Ltd. 25,975 25,975 318 Equity Shares of Rs. 5 each of Reliance Communication Ventures Ltd.# 19,332 19,332 Nil (Previous Year 318) Equity Shares of Rs. 10 each of Reliance Energy

Ventures Ltd.# 0 3,647

Nil (Previous Year 318) Equity Shares of Rs. 10 each of Reliance Capital Ventures Ltd.#

0 649

318 Equity Shares of Rs. 5 each of Reliance Natural Resources Ltd. # 350 350 23 Equity Shares of Rs. 10 each of Reliance Energy Ltd.* 3,219 0 15 Equity Shares of Rs. 10 each of Reliance Capital Ltd.** 166 0 UNQUOTED (NON TRADE) 100,000 Equity Shares of Rs. 10 each of Gujarat Securities Ltd. 1,000,000 1,000,000 CURRENTUNQUOTED (NON TRADE)UNITS OF MUTUAL FUNDS 2,793,615 (Previous Year Nil) Units of Rs. 10 each of HDFC Cash Management

Fund – Saving Plan – Daily Dividend 29,714,005 0 30,485,613 (Previous Year Nil) Units of Rs. 10 each of Prudential ICICI Liquid Plan

– Daily Dividend Option 304,856,126 0 17,894,243 (Previous Year Nil) Units of Rs. 10 each of SBI Magnum Insta Cash Fund

– Daily Dividend Option 299,733,932 0 64,800 (Previous Year Nil) Units of Rs. 1,000 each of UTI Liquid Cash Plan

Institutional - Daily Income Option - Reinvestment 66,059,927 0 3,735 (Previous Year Nil) Units of Rs. 1,000 each of Templeton India TMA Super

Institutional Plan - Daily Dividend Reinvestment 3,735,997 0 705,149,029 1,049,953

Less: Provision for Diminution in value of Investments 999,999 999,999704,149,030 49,954

Aggregate cost of quoted investments 49,042 49,953

Market Value of quoted investments 598,059 383,412

Aggregate cost of unquoted investments 705,099,987 1,000,000

Notes# Received on Split of Equity Shares of Reliance Industries Limited during the

Previous Year * Received on Amalgamation and Arrangement of Reliance Energy Ventures

Limited during the Year ** Received on Amalgamation and Arrangement of Reliance Capital Ventures

Limited during the Year SCHEDULE 6CURRENT ASSETS, LOANS AND ADVANCESINVENTORIES Crude Oil 50,246,759 83,697,888 Stores and Spares 193,685,941 109,272,308 Goods in Transit 6,191,602 3,010,956 Materials Unpacked 3,387,505 2,891,605 Materials Packed 3,401,270 4,201,852 Packing Material 807,816 434,508

257,720,893 203,509,117


74



in Rupees


SCHEDULE 6

CURRENT ASSETS, LOANS AND ADVANCES (Contd.)

SUNDRY DEBTORS (Unsecured)

Outstanding for a Period Exceeding Six Months

Considered Good 59,263 329,240

Considered Doubtful 1,307,852 1,431,452

Others (Considered Good) 205,378,694 110,788,054

206,745,809 112,548,746 Less: Provision for Doubtful Debts 1,307,852 1,431,452

205,437,957 111,117,294 CASH AND BANK BALANCES

Cash on Hand 107,098 216,931

With Scheduled Banks

Current Accounts (See Note 6 of Schedule 16) 71,365,756 99,154,679

Unclaimed/Unpaid Dividend Accounts 6,270,257 5,405,052

Unclaimed/Unpaid Application Money 745,051 0

Deposit Accounts (See Notes 5 & 6 of Schedule 16) 1,029,507,311 637,896,859

With Non-scheduled Banks

Current Accounts 3,659,996 2,101,729

1,111,655,469 744,775,250 OTHER CURRENT ASSETS Interest Accrued on Deposits 9,758,715 3,732,166

LOANS AND ADVANCES(See Note 1 below) Advances recoverable in Cash or in Kind or For Value to be Received (See Note 2

below) 283,218,512 61,990,531 Advance Income Tax [Net of Provision for Taxation of Rs. 436,478,943 (Previous

Year Rs. 436,400,000)] 60,822,719 60,987,147 Advance Fringe Benefit Tax [Net of Provision for Taxation of Rs. 2,460,000

(Previous Year Rs. 460,000)] 420,376 20,000 344,461,607 122,997,678

Less: Provision for Doubtful Advances (See Note 2 below) 15,556,856 15,556,856 328,904,751 107,440,822

TOTAL 1,913,477,785 1,170,574,649

Notes:

1. Of the above:

Secured, Considered Good 0 104,036

Unsecured, Considered Good 328,904,751 107,336,786

Unsecured, Considered Doubtful (See Note 2 below) 15,556,856 15,556,856 344,461,607 122,997,678

2. Includes Capital Advance Rs. 1,354,621 (Previous Year Rs. 1,354,621)


75


in Rupees

As at As at March 31, 2007 March 31, 2006

SCHEDULE 7CURRENT LIABILITIES AND PROVISIONS

CURRENT LIABILITIESSundry Creditors 730,234,700 228,170,583 Investor Education and Protection Fund Unclaimed/Unpaid Dividend# 6,270,257 5,405,052 Unclaimed/Unpaid Application Money# 745,051 0 Other Liabilities 7,441,789 24,352,190 744,691,797 257,927,825 PROVISIONSProvision for Leave Encashment 2,775,832 2,441,000 Provision for Site Restoration (See Note 16 of Schedule 16) 244,392,500 250,115,000 Provision for Taxation Income Tax [Net of Advance Tax of Rs. 679,211,691 (Previous Year

Rs. 400,068,791)] 54,074,201 36,497,101 Wealth Tax [Net of Advance Tax of Rs. 203,248 (Previous Year

Rs. 60,218)] 234,752 177,782 Fringe Benefit Tax [Net of Advance Tax of Rs. 2,969,684 (Previous Year

Rs. 2,422,684)] 285,316 177,316 Proposed Dividend 0 58,744,935 Dividend Tax 0 8,238,978

301,762,601 356,392,112

1,046,454,398 614,319,937 # This does not include any amount due and outstanding, to be credited to the

Investor Education and Protection Fund.

in Rupees

Year ended Year endedMarch 31, 2007 March 31, 2006

SCHEDULE 8SALESSale of Crude Oil and Gas 1,411,653,755 1,148,529,893 Less: Profit Petroleum surrendered to Government of India 266,509,143 206,087,812

1,145,144,612 942,442,081 Sale of Oil Additives 110,442,426 62,686,072

1,255,587,038 1,005,128,153

SCHEDULE 9OTHER INCOMEInterest Income (Gross) (See Note 7 of Schedule 16) 71,542,911 46,195,050 Dividend from Long Term – Trade Investments 6,678 2,385 Dividend from Current – Non Trade Investments 42,902,974 2,645,280 Profit on Sale of Current Investments 520,884 420,971 Gain on Foreign Exchange Fluctuation (Net) 15,582,089 5,113,018 Miscellaneous Income 1,300,549 689,227

131,856,085 55,065,931


76



in Rupees


SCHEDULE 10FIELD OPERATING EXPENSES

Hire Charges 120,752,634 128,340,160 Insurance 5,212,292 9,194,840 Fuel, Water and Others 7,785,448 442,076 Production Expenses 21,350,279 20,131,254 Other Expenses 8,140,698 8,013,627 Royalty, Cess & Processing Charges 4,518,534 4,501,705

167,759,885 170,623,662

SCHEDULE 11COST OF GOODS FOR RESALE

Materials Packed & UnpackedOpening Stock 7,093,457 6,334,780 Add: Purchases 24,621,614 13,424,161

31,715,071 19,758,941 Less: Closing Stock 6,788,775 7,093,457

24,926,296 12,665,484 Packing MaterialsOpening Stock 434,508 295,983 Add: Purchases 7,936,648 4,238,387

8,371,156 4,534,370 Less: Closing Stock 807,816 434,508

7,563,340 4,099,862 Packing CostExcise Duty 5,446,846 2,987,085 Repacking Cost 1,972,029 1,048,724 Cost of Samples & Replacements (1,577,195) (318,333)Cost of Damaged Goods 841 (778)

5,842,521 3,716,698

38,332,157 20,482,044

SCHEDULE 12CORPORATE EXPENSES

(A) STAFF EXPENSES Salaries, Allowances and Bonus 45,102,546 60,779,546 Voluntary Retirement Compensation 6,052,862 2,762,705 Contribution to Provident and Other Funds 6,063,161 5,279,723 Welfare Expenses 3,407,546 3,368,152

60,626,115 72,190,126


77


in Rupees


SCHEDULE 12

CORPORATE EXPENSES (Contd.)

(B) ESTABLISHMENT EXPENSES

Office and Guest House Rent 9,304,009 6,581,193

Electricity 2,681,169 2,748,920

Rates and Taxes 292,071 256,748

Repairs and Maintenance – Others 7,672,855 8,177,874


20,480,152 18,535,103

(C) OTHER EXPENSES

Travelling and Conveyance 6,652,885 8,368,956

Communication Expenses 4,484,306 4,669,095

Printing and Stationery 2,958,325 3,667,364

Legal and Professional Expenses 30,401,277 34,908,601

Insurance 339,938 305,705

Directors’ Sitting Fees 325,000 280,090

Auditors’ Remuneration# @

Audit Fees 1,110,000 790,000

Tax Matters 375,000 1,060,000



Service Tax 227,296 107,733

2,203,477 2,189,432

Loss on Sale of/Discarded Assets 174,589 288,057

Share Issue Expenses 287,500 287,500

Miscellaneous Expenses 13,680,579 10,075,992

61,507,876 65,040,792

(D) TOTAL CORPORATE EXPENSES (A+B+C) 142,614,143 155,766,021

Less: RECOVERY OF EXPENSES 103,703,793 72,941,565

38,910,350 82,824,456

# Auditors’ Remuneration for the current year excludes Rs. 1,060,668 paid to the Auditors in relation to the Rights Issue, adjusted against Securities Premium.

@ Auditors’ Remuneration for the previous year excludes Rs. 150,000 paid to a firm in which some partners of the audit firm are partners.


78


in Rupees


SCHEDULE 13

MARKETING & DISTRIBUTION COSTS

Distribution Expenses

Freight 2,304,979 1,295,509

Others 534,652 475,075

2,839,631 1,770,584

Marketing Expenses

Incentives 4,020,531 2,053,648

Product Promotion Expenses 6,671,148 1,427,246

Advertisement 425,169 449,752

Rebates and Discount 7,510,332 3,619,765

Sales Promotion 3,727,453 2,003,174

Others 2,152,675 549,312

24,507,308 10,102,897

Selling Expenses

Commission 2,237,435 2,196,626

Field Staff Expenses 1,461,591 1,323,593

3,699,026 3,520,219

31,045,965 15,393,700

SCHEDULE 14

INTEREST AND FINANCE CHARGES

Interest on Fixed Loans 48,757,586 18,186,919

Bank Charges and Commission 6,283,852 3,291,167

Other Finance Charges 964,938 31,661

56,006,376 21,509,747


79


SCHEDULE 15


1. Accounting Convention

ThefinancialstatementsoftheCompanyanditswhollyownedsubsidiary(“theGroup”)havebeenpreparedusingtheaccrualconceptonagoingconcernbasisconsistently.

2. Use of Estimates

The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts ofassetsandliabilities(includingcontingentliabilities)asofthedateofthefinancialstatementsandthereportedincomeandexpensesduringthereportingperiod likedepletionofproducingproperties,estimateofsiterestoration liability,expensingof theestimatedsiterestoration liability,provisionforemployeebenefits,usefullivesoffixedassets,provisionfortaxetc.Managementbelievesthattheestimatesusedinpreparationofthefinancialstatementsareprudentandreasonable.Futureresultsmayvaryfromtheseestimates.

3. Basis of Consolidation

The financial statements of the Group have been consolidated on a line by line basis after eliminating all significant intra-group transactionsinaccordancewiththeAccountingStandard21‘ConsolidatedFinancialStatements’ issuedbyTheInstituteofCharteredAccountantsofIndia(ICAI).

4. Exploration and Development Costs

TheCompanygenerallyfollowsthe“SuccessfulEfforts’’methodofaccountingforitsexplorationandproductionactivitiesasexplainedbelow:

(i) Cost of exploratory wells, including survey costs, is expensed in the year when determined to be dry/abandoned or is transferred to theproducingpropertiesonattainmentofcommercialproduction.

(ii) Costoftemporaryoccupationofland,successfulexploratorywells,developmentwellsandallrelateddevelopmentcosts,includingdepreciationonsupportequipmentandfacilities,areconsideredasdevelopmentexpenses,whicharecapitalisedasproducingpropertiesonattainmentofcommercialproduction.

(iii) Producingproperties,includingthecostincurredondrywellsindevelopmentareas,aredepletedusing“UnitofProduction’’methodbasedonestimatedprovendevelopedreserves.AnychangesinReservesand/orCostaredealtwithprospectively.Hydrocarbonreservesareestimatedand/orapprovedbytheManagementCommitteeofthejointventures,whichfollowtheInternationalReservoirEngineeringPrinciples.

Explanatory Note

1. All exploration costs including acquisition of geological and geophysical seismic information, license and acquisition costs are initiallycapitalizedas“CapitalWorkinProgress–ExplorationExpenditure”,untilsuchtimeaseitherexplorationwell(s)inthefirstdrillingcampaignisdeterminedtobesuccessful,atwhichpointthecostsaretransferredto“ProducingProperties”,oritisunsuccessfulinwhichcasesuchcostsarewrittenoffconsistentwithpara2below.

2. Explorationcostsassociatedwithdrilling,testingandequippingexploratorywellandappraisalwellareinitiallycapitalizedas“CapitalWorkinProgress–ExplorationExpenditure”,untilsuchtimeassuchcostsaretransferredto“ProducingProperties”onattainmentofcommercialproductionorchargedtotheProfitandLossAccountunless:

(a) suchwellhasfoundpotentialcommercialreserves;or

(b) suchwelltestresultisinconclusiveandissubjecttofurtherexplorationorappraisalactivitylikeacquisitionofseismic,orre-entryofsuchwell,ordrillingofadditionalexploratory/stepoutwellintheareaofinterest,suchactivitytobecarriedoutnolaterthan2yearsfromthedateofcompletionofsuchwelltesting;

Managementmakesquarterlyassessmentoftheamountsincludedin“CapitalWorkinProgress–ExplorationExpenditure”todeterminewhethercapitalisation isappropriateandcancontinue.Explorationwell(s)capitalisedbeyond2yearsaresubjecttoadditional judgementastowhetherfactsandcircumstanceshavechangedandthereforetheconditionsdescribedin(a)and(b)nolongerapply.

5. Site Restoration

Estimated future liability relating todismantlingandabandoningproducingwell sitesand facilitieswhoseestimatedproducing life is expectedtoendduringnexttenyearsisexpensedinproportiontotheproductionfortheyearandremainingestimatedprovedreservesofhydrocarbonsbasedonlatesttechnicalassessmentavailablewiththeCompany.


80


6. Impairment

AteachBalanceSheetdate,theGroupreviewsthecarryingamountof itsassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.Ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentofimpairmentloss.

Wheretheimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(cashgeneratingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheassetinprioraccountingperiods.

7. Joint Ventures

Thefinancial statementsof theGroup reflect its shareof assets, liabilities, incomeandexpenditureof the JointVentureoperations,whichareaccountedonthebasisofavailableinformationonline-by-linebasiswithsimilaritemsintheGroup’saccountstotheextentoftheparticipatinginterestoftheCompanyasperthevariousjointventureagreements.

8. Fixed Assets

FixedAssetsarestatedatcostinclusiveofallincidentalexpenses.

9. Depreciation

(i) Depreciationisprovidedonthe“WrittenDownValue’’methodattheratesspecifiedinScheduleXIVoftheCompaniesAct,1956.

(ii) Incaseofadditionsduringtheyear,depreciationisprovidedforthefullyearirrespectiveofthedateofinstallationandnodepreciationisprovidedintheyearofsale/disposal.

(iii) ImprovementstoLeaseholdpremisesareamortisedovertheremainingprimaryleaseperiod.

(iv) Computersoftwareisamortisedonthe“WrittenDownValue”methodat40%perannum.

10. Investments

Investmentsarecapitalisedatcostplusbrokerageandstampcharges.Long-terminvestmentsarevaluedatcost.Provisionismadeforotherthantemporarydiminutioninthevalueoflong-terminvestments.Currentinvestmentsarevaluedatthelowerofcostandfairvalueonindividualscripbasis.

11. Inventories

(i) ClosingstockofcrudeoilinsaleableconditionisvaluedatNetRealisableValue.OiladditivesarevaluedatcostormarketpricewhicheverisloweronFIFObasis.

(ii) StoresandsparesarevaluedatcostonFIFObasisormarketprice,whicheverislower.

(iii) Cost of unpacked materials includes freight, customs duty, insurance and clearing charges. Cost of packed materials includes repackingcharges,packingmaterialsetc.

12. Miscellaneous Expenditure

(i) Shareissueexpensesincurredinprioryearsarewrittenoffoveraperiodoftenyearscommencingfromtheyearofissue.

(ii) “SignatureBonus”paiduponsigningofProductionSharingContractisconsideredasdeferredrevenueexpensetobewrittenoffoverthreetofiveyearscommencingfromtheyearofpayment,dependingonthesizeofthefield.

13. Revenue Recognition

(i) Revenue from the sale of crude oil and gas net of Government’s share of Profit oil, is recognised on transfer of custody to refineries/others.

(ii) Saleofcrudeoilandgasisrecordedattheinvoicedprice,whichissubjecttotheapprovaloftheGovernmentofIndia,MinistryofPetroleum&NaturalGas(MoP&NG).Thedifferencebetweentheinvoicedpriceandthefinalapprovedprice,ifany,isadjustedintheyearinwhichtheaforesaidapprovalisreceived.

(iii) Salesturnoverofoiladditivesincludessalevalueofgoods(netoftradediscount)andexcludesSalesTax/ValueAddedTax.


SCHEDULE 15 – SIGNIFICANT ACCOUNTING POLICIES (Contd...)


81

14. Retirement Benefits

(a) Defined Contribution Plan

(i) ProvidentFund:ContributionstowardsEmployees’ProvidentFundaremadetotheEmployeesProvidentFundSchemeinaccordancewiththestatutoryprovisions.

(ii) Superannuation: The Company contributes a sum equivalent to 15% of eligible employees basic salary to a Superannuation Fundadministeredby trustees.TheCompanyhasno liability for futureSuperannuationFundbenefitsother than its annual contributionandrecognizessuchcontributionsasanexpenseintheyearincurred.

(b) Defined Benefit Plan

TheGroupmakesannualcontributiontoaGratuityFundadministeredbytrusteesandmanagedbyLIC.TheGroupaccountsitsliabilityforfuturegratuitybenefitsbasedonactuarialvaluation,asatthebalancesheetdate,determinedeveryyearbyanActuaryappointedbytheGroupusingtheProjectedUnitCreditmethod.

(c) Short Term Employee Benefit

Short-term employee benefit includes accumulated compensated absences and is recognized based on the eligible leave at credit on thebalancesheetdateandisestimatedbasedonthetermsoftheemploymentcontract.

15. Borrowing Costs

BorrowingCosts specifically identified to theacquisitionor constructionofqualifyingassets are capitalisedaspartof suchasset.Aqualifyingassetisonethatnecessarilytakessubstantialperiodoftimetogetreadyforintendeduse.AllotherborrowingcostsarechargedtotheProfitandLossAccount.

16. Foreign Currency Transactions

(i) Transactionsdenominatedinforeigncurrenciesarerecordedattheexchangerateprevailingatthetimeofthetransaction.

(ii) Monetaryitemsdenominatedinforeigncurrenciesattheyearendandnotcoveredbyforwardexchangecontractsaretranslatedattheyearendratesandthosecoveredbyforwardexchangecontractsaretranslatedattheraterulingatthedateoftransactionasincreasedordecreasedbytheproportionatedifferencebetweentheforwardrateandexchangerateonthedateoftransaction,suchdifferencehavingbeenrecognisedoverthelifeofthecontract.

(iii) AnygainorlossarisingonaccountofexchangedifferenceonsettlementortranslationisrecognisedintheProfitandLossAccountexceptincaseswheretheyrelatetotheacquisitionoffixedassetsfromoutsideIndiainwhichcasetheyareadjustedtothecarryingcostsofsuchassets.

17. Taxation

The Group adopts full provision basis for deferred tax, in accordance with the Accounting Standard 22“Accounting for Taxes on Income”.Provision for deferred tax asset/liability is made for timing differences which have arisen but not reversed at the balance sheet date and areexpectedtoreverseintheforeseeablefuture.DeferredTaxassetisrecognisedwhenthereisareasonablecertaintyoffuturetaxableincomeexceptfor deferred tax assets in respect of unabsorbed loss or depreciation where it is recognised only if there is a virtual certainty with convincingevidence.

SCHEDULE 16

NOTES TO THE CONSOLIDATED ACCOUNTS

1. Consolidated Financial Statements

TheGroup’sconsolidatedfinancialstatementsincludethoseofHOECBardahlIndiaLimited,awhollyownedsubsidiary,incorporatedinIndia.

2. Change in Accounting Policy

Effective April 01, 2006, the Group adopted the revised Accounting Standard 15 (AS 15) on Employee Benefits, issued by the Institute ofChartered Accountants of India (ICAI), though not yet mandatory in nature. Consequent upon the change, Profit before Tax for the yearendedMarch31,2007ishigherbyRs.859,413.InaccordancewiththetransitionalprovisioncontainedinthesaidStandard,thedifferenceofRs.502,407(netofDeferredTaxofRs.254,907)betweentheliability inrespectofcertainemployeebenefitsexistingonthedateofadoptionofthesaidStandardandtheliabilitythatwouldhavebeenrecognisedatthesamedateunderthepreviousaccountingpolicyhasbeenadjustedagainsttheopeningbalanceintheGeneralReserve(Rs.487,000)inthecaseoftheCompanyandagainsttheopeningbalanceintheProfitandLossAccount(Rs.15,407)inthecaseofthesubsidiary.


SCHEDULE 15 – SIGNIFICANT ACCOUNTING POLICIES (Contd...)


82


3. Provisions and Write – Offs (Net)

During the year ended March 31, 2007, Exploratory Wells Vinayaka-1 and Subhan-1 drilled in Block CY-OSN-97/1 did not encounterhydrocarbonsofcommercialinterestandthesewellshavebeenpluggedandabandoned.ConsistentwiththeCompany’sAccountingPolicies,theCompanyhaswrittenofftheexplorationexpenditureofRs.9,434.87Lacsassociatedwiththedrillingofthesetwowells.

DuringtheyearendedMarch31,2006,theCompanyhadwrittenofftheexplorationcostofRs.3,140.01LacsforLakhi-1ExploratoryWellinAAP-ON-94/1BlockbasedonOperator’s costestimates.However,during thecurrentyear theCompanyhadreceived theAuditedAccountsoftheBlockasperwhichthecostofLakhi-1ExploratoryWellisRs.3,052.65Lacs.Hence,thedifferentialamountofRs.87.36Lacshasbeenwrittenbackduringthecurrentyear.

During the year ended March 31, 2006, the Company had written off exploration cost of Rs. 396.57 Lacs for PRS-4 Exploratory Well inCB-ON-7.However,theCompanyhadwrittenbackInventoryCostofRs.43.82LacsduringthecurrentyearbasedontheauditedaccountsoftheCB-ON-7JointVenture.

ProvisionsandWrite–OffsfortheyearendedMarch31,2006includeswrite–offofexplorationcostofRs.396.57LacsforPRS-4ExploratoryWellinCB-ON-7BlockRs.3,140.01LacsforLakhi-1ExploratoryWellinAAP-ON-94/1BlockandRs.646.89LacsforCB-OS-1Block.

ProvisionsandWrite–OffsalsoincludesBadDebtsofthesubsidiarywrittenoffamountingtoRs.1.72lacs(Previousyear–Rs.0.99lacs).

4. Secured Loans

(a) TheTermLoansfromStateBankofIndia,UTIBankandHDFCBankamountingtoRs.1,320,948,396asatMarch31,2007,aresecuredbywayofchargeonCompany’sParticipatingInterest inPY-3andPalejFields,firstchargeonCompany’sshareofCrudeOilReceivablesfromPY-3andPalejFieldsandchargeonDebtServiceReserveAccount.

(b) TheTermLoan fromINGVysyaBankofRs.163,000,000asatMarch31,2006,hasbeen fully repaidduring theyear.TheTermLoanwassecuredbywayofchargeonCompany’sParticipatingInterestinPY-3Field,firstchargeonCompany’sshareofCrudeOilReceivablesfromPY-3FieldandchargeonDebtServiceReserveAccount.ConsequenttotherepaymentoftheTermLoan,theaforesaidchargeswerereleased.

5. Issue of Equity Shares

OnOctober27,2006,anallotmentof19,567,733EquitySharesofRs.10eachwasmadeconsequenttotheRightsIssueof19,581,645EquitySharesofRs.10eachatapremiumofRs.66perSharetotheexistingShareholdersoftheCompanyintheratioofOneEquityShareforEveryThree Equity Shares held aggregating to Rs. 1,487,147,708. In terms of Clause No. 6.13.2.28 of SEBI (Disclosure and Investor Protection)Guidelines,2000(asamendedtillApril30,2007),thedetailsoftheutilisationoftheproceedsoftheRightsIssueareasunder:

in Rupees

Block Defined Programme Utilisation upto March 31, 2007

PY-1 Drilling of Development Well (Earth) 750,000,000CY-OSN-97/1 Exploration Drilling Programme 122,690,116

Total 872,690,116

ThebalanceamountofRs.614,457,592hasbeeninvestedinthefollowingformsofinvestmentasatMarch31,2007.in Rupees

Form of Investment Schedule Reference AmountBank Fixed Deposit Cash and Bank Balances-Schedule 6 598,361,942Mutual Fund Investment – Schedule 5 16,095,650 Total 614,457,592

6. Bank Balances – Scheduled Bank

(a) CurrentAccountswithScheduledBanksincludeLienMarkedAccountsRs.1,111,086(PreviousYearRs.59,547,475).

(b) DepositswithScheduledBanksinclude

— LienMarkedDepositsRs.113,970,251(PreviousYearRs.33,484,111).

— DepositamountingtoRs.179,417,650(PreviousYearRs.166,559,032)placedas“SiteRestorationFund”underSection33ABAoftheIncomeTaxAct,1961.


SCHEDULE 16 – NOTES TO THE CONSOLIDATED ACCOUNTS (Contd...)


83

7. Interest Income

InterestIncomeincludesintereston:in Rupees

Particulars 2006-2007 2005-2006

Deposits 71,534,155 46,178,951

Staff Loans 514 12,744

Others 8,242 3,355

Total 71,542,911 46,195,050

8. Managerial Remuneration

Details of Managerial Remuneration Paidin Rupees

Particulars 2006-2007 2005-2006

Salary 7,843,094 6,580,080

Contribution to Provident and Superannuation Funds 533,650 648,000

Perquisites 224,424 396,863

Total 8,601,168 7,624,943

Note:

1. TheManagerialRemunerationpaidfortheyearendedMarch31,2007pertainstotheerstwhileManagingDirectorof theCompanyfortheperiodApril01,2006toJuly31,2006andtheJointManagingDirectoroftheCompanyfortheperiodAugust01,2006toMarch31,2007.

TheManagerialRemunerationdoesnotincludeanamountofRs.80,000paidtothecurrentManagingDirectoroftheCompanyassittingfeeforattendingBoard/Committeemeetings.ThecurrentManagingDirectordoesnotdrawanyotherremunerationfromtheCompany.

2. IncomputingManagerialRemuneration,perquisiteshavebeenvaluedintermsofactualexpenditureincurredbythecompanyinprovidingthe benefits except in case of certain expenses where the actual amount of expenditure cannot be ascertained with reasonable accuracy,notional amountasper IncomeTaxRuleshasbeenadded.Actuarial valuationbasedcontribution/provisionwith respect togratuityandleaveencashmenthavenotbeenincludedasthesearefortheCompanyasawhole.Annualvariablepayandlongtermincentivebenefitshavebeenincludedasremunerationoncashbasis.

3. TheManagementbelievesthattheExplorationExpenseswrittenoffduringtheyearendedMarch31,2007anddebitedtotheProfitandLossAccount amounting to Rs. 9,434.87 Lacs should be added back to compute profits under Section 198/349 of the CompaniesAct,1956 which would mean that the remuneration paid to the erstwhile Managing Director/Joint Managing Director would be within thelimitsstipulatedunderSection198/349oftheCompaniesAct,1956.However,asamatterofabundantcaution,theCompanyhasoptedtocomplywiththeprovisionsofScheduleXIIIoftheCompaniesAct,1956asdescribedbelow.

IntheabsenceofadequateprofitsfortheyearendedMarch31,2007,theremunerationpayabletotheerstwhileManagingDirectorandtheJointManagingDirectorshouldbewithinthelimitsspecifiedinSectionIIofPartIIofScheduleXIIIoftheCompaniesAct,1956.

In the caseof the erstwhileManagingDirector, the remunerationpaid for theperiodApril01,2006 to July31,2006which is currentlycoveredunderclause(A)ofSectionIIofPartIIofScheduleXIII isnowproposedtobecoveredunderclause(C)ofSectionIIofPartIIofScheduleXIIIand,hence,wouldbesubjecttotheapprovaloftheShareholdersandtheCentralGovernment.TheapplicationtotheCentralGovernmentforapprovaloftheremunerationpaidwillbemadebytheCompanyonobtainingtheapprovaloftheShareholders.Pendingsuchapprovals,norecoveryhasbeenmade for theexcess remunerationofRs.4,869,118paid tohimvis-à-vis the remunerationpayableunderclause(A)ofSectionIIofPartIIofScheduleXIIIoftheCompaniesAct,1956.

In thecaseof the JointManagingDirector, theremunerationpaid for theperiodAugust01,2006toMarch31,2007which is currentlycoveredunderclause(A)ofSectionIIofPartIIofScheduleXIIIisnowproposedtobecoveredunderclause(B)ofSectionIIofPartIIofScheduleXIIIand,hence,wouldbesubjecttotheapprovaloftheShareholders.Pendingsuchapproval,norecoveryhasbeenmadefortheexcessremunerationofRs.1,332,050paidtohimvis-à-vistheremunerationpayableunderclause(A)ofSectionIIofPartIIofScheduleXIIIoftheCompaniesAct,1956.




84


9. Long Term Incentive Plan, 2005 TheCompanyhas institutedaLongTermIncentivePlan(“LTIPScheme”) for thebenefitof theemployeesof theCompany.Under theplan,

theCompanyisauthorizedtodistribute5%ofCompany’sprofitonordinaryactivitieswitheligibleemployeesintheformofCashandDeferredBonus.AftermeetingtheCashBonuscomponentaspertheLTIPScheme,thesurplusisdistributedasDeferredBonus(StockOptions).ThenumberofsharestobeissuedundertheLTIPSchemeisdeterminedbydividingtheDeferredBonusfortheSchemeYearbytheaveragemarketpriceoftheCompany’sShares(asquotedattheNSE)30dayspriortothedateonwhichtheBoardofDirectorsapprovetheauditedaccountsinrelationtotheSchemeYearorsuchotherdateasmaybeapprovedbytheBoard.

Atrusthasbeenformedtopurchasethesharesfromthemarket.TheCompanyfundsthetrusttobuytherequisitenumberofshares,grantedunderESOP.ThetotalBonusincludingCashandDeferredisexpensedduringtheSchemeYeartowhichitpertains.

TheRemunerationandCompensationCommitteeoftheBoardofDirectorsoftheCompanyadministertheLTIPScheme.OnMay23,2006,the Company approved grant of 15,069 options, pertaining to Financial Year 2005-2006, at NIL exercise price. These options vest with theeligibleemployeesafteraperiodof3yearsfromApril01,2006.FortheFinancialYear2006-2007,theCompanyhasnotdistributedanyCashorDeferredBonus.

Particulars 2006-2007Shares Arising Out of Options

Exercise Price Rs.

Outstanding at the beginning of the year 15,069 NilVested during the year 0 NilForfeited during the year 0 NilExercised during the year 0 NilOutstanding at the end of the year 15,069 NilExercisable at the end of the year 0 Nil

10. The Company’s Obligation towards the Gratuity Fund is a Defined Benefit Plan. DetailsofActuarialValuationasatMarch31,2007

in Rupees

Particulars AmountProjected Benefit Obligation as at April 01, 2006 5,247,923Service Cost 797,389Interest Cost 438,202Actuarial Losses/(Gains) (160,498)Benefits Paid (1,803,164)Projected Benefit Obligation as at March 31, 2007 4,519,852

Change in Plan AssetsFair Value of Plan Assets as at April 01, 2006 2,529,129Expected Returns on Plan Assets 141,444Employer’s Contribution 173,850Benefits Paid (1,803,164)Actuarial Gain/(Loss) 9,492Fair Value of Plan Assets as at March 31, 2007 1,050,751

Cost of the Defined Benefit Plan for the YearCurrent Service Cost 797,389Interest on Obligation 438,202Expected Return on Plan Assets (141,444)Net Actuarial Losses/(Gains) Recognised in the Year (169,990)Net Cost recognised in the Profit and Loss Account 924,157




85

AssumptionsDiscount Rate 8.35%Future Salary Increase (%) 10%Expected Rate of Return on Plan Assets 8.25%

Note:

TheabovedetailsrelatetotheHoldingCompanyonly.Thedetailsregardingthesubsidiaryisnotfurnishedsincethesamehasnotbeendisclosedintheauditedfinancialstatementsofthesubsidiary.

TheGrouphasadoptedtheAccountingStandard(AS-15)RevisedwitheffectfromApril01,2006and,hence,thecorrespondingfiguresforthepreviousyearhavenotbeenfurnished.

TheexpectedreturnonplanassetsisasfurnishedbytheActuaryappointedbytheCompany.

11. Segmental Reporting

SegmentreportingintermsofAccountingStandard17isasunder:

in Rupees


2007 2006

1. Segment Revenue

— Hydrocarbon 1,128,133,170 975,224,243

— Oil Additives 110,885,377 62,792,563

— Unallocated 114,973,447 49,263,686

Gross Sales/Income From Operations 1,353,991,994 1,087,280,492

2. Segment Results

— Hydrocarbon (74,587,113) 229,875,500

— Oil Additives 30,159,208 18,833,224

— Unallocated 58,793,159 31,045,106

Total Profit Before Tax 14,365,254 279,753,830

3. Segment Assets

— Hydrocarbon 3,952,622,934 2,294,938,669

— Oil Additives 23,880,788 22,232,518

— Unallocated 2,306,283,010 885,032,684

Total Assets 6,282,786,732 3,202,203,871

4. Segment Liabilities

— Hydrocarbon (956,986,124) (558,363,912)

— Oil Additives (27,858,697) (13,698,774)

— Unallocated (1,382,557,973) (205,257,251)

Total Liabilities (2,367,402,794) (777,319,937)

5. Additions to Tangible and Intangible Fixed Assets

— Hydrocarbon 2,415,671,854 1,157,203,837

— Oil Additives 1,222,278 743,053

— Unallocated 0 0

Total Additions to Tangible and Intangible Fixed Assets 2,416,894,132 1,157,946,890



in Rupees


86



2007 2006

6. Depreciation/Amortisation and Depletion

— Hydrocarbon 76,492,460 77,950,804

— Oil Additives 538,800 296,259

— Unallocated 0 0

Total Depreciation/Amortisation and Depletion 77,031,260 78,247,063

7. Non-Cash Expenses other than Depreciation and Amortisation

— Hydrocarbon 930,656,196 418,635,120

— Oil Additives 172,051 98,370

— Unallocated 0 0

Total Non-Cash Expenses other than Depreciation and Amortisation 930,828,247 418,733,490

12. Related Party Disclosures

(i) As per the Accounting Standard on‘Related Party Disclosures’ (AS 18) issued by the Institute of Chartered Accountants of India, therelatedpartiesoftheGroupareasfollows:

(A) PromoterGroup:

BurrenShaktiLimited(FormerlyknownasUnocalBharatLimited) BurrenEnergy(India)Limited

(B) JointVenturePartners

GujaratStatePetroleumCorporationLimited HardyExploration&Production(India)Inc. HeramecLimited IndianOilCorporationLimited MafatlalIndustriesLimited Mosbacher(India)LLC OilandNaturalGasCorporationLimited OilIndiaLimited PremierOilNorthEastIndiaBV(uptoDecember31,2005) TataPetrodyneLimited

Asstated inItem7ofSignificantAccountingPolicies(Schedule15), thefinancialstatementsof theJointVenturesare incorporatedin theGroup’saccounts to theextentof theGroup’s share.Hence,particularsof transactionswith the JointVentureshavenotbeenseparatelydisclosed.

(C) KeyManagementPersonnel:

Mr.RakeshJain–ManagingDirector–uptoJuly31,2006 Mr.AtulGupta–ManagingDirector–fromAugust01,2006 Mr.ManishMaheshwari–JointManagingDirector–fromAugust01,2006

Note:

RelatedpartyrelationshipsareidentifiedbytheManagementandrelieduponbytheAuditors.



in Rupees


87

(ii) ThenatureandvolumeoftransactionsoftheGroupduringtheyearwiththeabovepartieswereasfollows:in Rupees

Particulars Promoter Group

Joint Ventures’ Partners

Key Management

PersonnelEXPENDITURE – Remuneration 0

(0)0

(0)8,601,168

(7,624,943) – Recovery of Expenses 0

(0)27,571,885

(16,897,088)0

(0) – Sitting Fees 0

(0)0

(0)80,000

(Nil) – Dividends Paid 15,287,378

(15,281,633)0

(0)0

(0) Net Amounts Due as at Year End 0

(0)0

(0)117,754

(173,815)

Note:FiguresinthebracketsrelatetothePreviousYear.

13. Earnings Per Share

Thebasic/dilutedearningsperequityshareiscalculatedasstatedbelow:

Particulars 2006-2007 2005-2006Net Profit after Tax Rs. 25,932,997 Rs. 187,059,146Weighted Average Number of Equity Shares 70,784,640 63,774,413Basic/Diluted Earnings per Share (EPS) Rs. 0.37 Rs. 2.93Nominal Value per Share Rs. 10 Rs. 10

Note: EarningsperSharecalculationsaredoneinaccordancewithAccountingStandard20“EarningsperShare”issuedbytheInstituteofChartered

AccountantsofIndia.

14. Deferred Tax Asset (Net)

ThenetDeferredTaxAssetofRs.488,417,949asatMarch31,2007hasarisenonaccountofthefollowing:in Rupees

Particulars 2006-2007 2005-2006Deferred Tax AssetExploration Expenses 566,887,000 273,000,000Doubtful Debts/Advances 5,740,224 5,681,826Employee Related Costs 4,276,807 1,660,550

Sub total (A) 576,904,031 280,342,376Deferred Tax LiabilityDepreciation on Fixed Assets (Net) 3,586,082 3,872,020Depletion of Producing Properties 74,400,000 84,529,000Site Restoration 10,500,000 15,000,000

Sub total (B) 88,486,082 103,401,020Net Deferred Tax Asset before Transitional Adjustment (A – B) 488,417,949 176,941,356Deferred Tax Asset relating to AS – 15 Transitional Adjustment (See Note 2 above) 0 254,907Net Deferred Tax Asset after Transitional Adjustment 488,417,949 177,196,263




88


15. Commitments and Contingenciesin Rupees

Particulars 2006-2007 2005-2006

(i) Counter Guarantees of Bank Guarantees 284,976,510 133,936,443

(ii) Corporate Guarantee for Housing Loan to Employees 609,746 3,115,705

(iii) Estimated amount of Contracts remaining to be Executed on Capital Account and Not Provided For (Excluding Company’s share of Joint Ventures’ Commitments and including Rs. 133,498,500 (Previous Year Rs. 136,823,000) in respect of a farm-in consideration for acquisition of participating right, in one of the Joint Ventures)

141,165,927 139,851,359

(iv) Claims against the Group Not Acknowledged as Debt *

– Dispute with Contractors under Arbitration 3,232,488 23,788,903

– Income Tax Demands under Appeal 298,291,498 127,149,119

– Customs Duty under Appeal 540,464 540,464

(v) The Government had encashed the Performance Bank Guarantee of Rs. 10,149,000 for Block GN-ON-90/3 (Pranhita Godavari) abandoned by the consortium under the force majeure clause of the Production Sharing Contract (PSC). The Government has also raised an additional demand of Rs. 260,108,897 (including interest) (Previous Year Rs. 237,800,752). The Company has been legally advised that the said actions of the Government are not justified. The Company has initiated legal proceeding as per the provisions of the PSC in the matter. Pending the outcome of this, provision has been made in this regard to the extent of Rs. 10,149,000 (Previous Year Rs. 10,149,000).*

260,108,897 237,800,752

Note:

*TheManagementisoftheopinionthatthesamearenotsustainable.

16. Provision for Site Restoration

InaccordancewithAccountingStandard29,themovementinProvisionforSiteRestorationisasfollows:in Rupees

Particulars 2006-2007 2005-2006

Opening Balance 250,115,000 74,828,982

Add: Provision for the Year 0 173,938,826

Effect of Change in Exchange Rate (5,722,500) 1,347,192

Closing Balance 244,392,500 250,115,000

AsperthetermsofProductionSharingContractthisliabilitywillariseatthetimeofabandonmentofthefield.

17. Previous Year Figures

Previousyear’sfigureshavebeenregroupedwherevernecessary.



89

Glossary

2D Seismic – Two Dimensional Seismic

3D Seismic – Three Dimensional Seismic

2P/P+P Reserves – Proven and Probable Reserves

Proved Reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. If probabilistic methods are used, there should be at least 90% probability that the quantities actually recovered will equal or exceed the estimate.

Probable Reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.

boe – barrels of oil equivalent

bopd – barrels of oil per day

boepd – barrels of oil equivalent per day

DP – Depository Participant

Development well – A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

DGH – Directorate General of Hydrocarbons

DST – Drill Stem Test

Exploratory well – A well drilled to find oil or gas in an unproved area, to find a new reservoir in an existing field or to extend a known reservoir.

E&P – Exploration and Production

FIFO – First in first out

HAZID – Hazard Identification (Risk Analysis)

HAZOP – Hazard and Operability Analysis

JOA – Joint Operating Agreement

mmscfd – Million standard cubic feet per day

mmscm – Million standard cubic meters

MoP&NG – Ministry of Petroleum and Natural Gas

NELP – New Exploration Licensing Policy

HEPI – Hardy Exploration and Production (India) Inc.

HOEC – Hindustan Oil Exploration Company Limited

PSC – Production Sharing Contract

scmd – standard cubic meters per day

SEBI – Securities and Exchange Board of India

Working interest basis = Field Production x Participating Interest

Entitlement basis = Working interest basis less Govt. of India Profit Petroleum take

Turnover = Sales + Increase/(Decrease) in Stock of Crude Oil (Other Income is excluded)

HINDUSTAN OIL EXPLORATION COMPANY LIMITEDRegd. Office: ‘HOEC House’, Tandalja Road, Vadodara - 390 020

I hereby record my presence at the 23rd ANNUAL GENERAL MEETING of the Company held on

Friday, September 28, 2007 at 10:30 A.M. at ‘Chandarva’, WelcomHotel Vadodara, R. C. Dutt Road, Alkapuri,

Vadodara–390 007.

Folio No. DP ID No. Client ID No.

Name of the Shareholder/Proxy :

No. of Shares :

Date: September 28, 2007 Signature of the Shareholder/Proxy

HINDUSTAN OIL EXPLORATION COMPANY LIMITEDRegd. Office: ‘HOEC House’, Tandalja Road, Vadodara - 390 020

Folio No. DP ID No. Client ID No.

No. of Shares :

I/We of in the district

of being a Member(s) of Hindustan Oil Exploration Company Limited hereby

appoint of or failing him/her

of as my/our proxy to

attend and vote for me/us and on my/our behalf at the 23rd Annual General Meeting of the Company to be held on Friday,

September 28, 2007 at 10:30 A.M. and at any adjournment thereof.

Signed this day of 2007.

Note: The Proxy Form must be deposited at the Registered Office of the Company not less than 48 hours before the time for holding the Meeting.

hea

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affix re. 1

revenue Stamp

(.....Signature....)

PROXY FORM

ATTENDANCE SLIP

[To be presented at the entrance]

2006-200723rd Annual Repor t

23RD

AN

NUA

L REPORT 2006-2007

Hindustan Oil Exploration Company Limitedvakils

Hin

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imited

Hindustan Oil Exploration Company Limited Website: www.hoec.com

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