th Annual General Meeting · including Hyundai and Tata Motors and introduction of new auto care...

Date : September 30, 2008

Day : Tuesday

Time : 10:30 A.M.

Place : “Tropicana Hall” Taj Residency Vadodara Akota Gardens, Akota Vadodara-390 020

Contents

Highlights of 2007-08 1

Operational Highlights At A Glance 2

Board of Directors 4

Directors’ Report 5

Management Discussion and Analysis Report 9

Report on Corporate Governance 14

Accounts with Auditors’ Report 24

Information pertaining to HOEC Bardahl India Limited (Subsidiary) 56

Consolidated Accounts with Auditors’ Report 73

Glossary 95

Disclaimer Note:Certain sections of this Annual Report, in particular the Management Discussion and Analysis, and Operational Highlights may contain forward-looking statements concerning the financial condition and results of operations of HOEC. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. HOEC does not undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information.

AUDITORSDeloitte Haskins & Sells Chartered Accountants

COMPANY SECRETARY Mr. Vikash Jain

PRINCIPAl BANKERS

• Axis Bank Limited • Bank of Baroda • Bank of India • Canara Bank• Corporation Bank• Export-Import Bank of India • HDFC Bank Limited

• Indian Overseas Bank Limited• State Bank of India• Syndicate Bank• The Federal Bank Limited• The Hongkong and Shanghai

Banking Corporation Limited• Union Bank of India

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]

24th Annual General Meeting

hoec_cover_inside_08.indd 1 8/26/2008 7:56:58 PM

24th Annual Report 2007-2008HINDUSTAN OIL EXPLORATION COMPANY LIMITED

5

DIRECTORS’ REPORT

To The MeMbers of hINDUsTAN oIL eXPLorATIoN CoMPANY LIMITeD

Your Directors have pleasure in placing before you the 24th Annual Report and Audited Statement of Accounts for the year ended March 31, 2008.

FINANCIAL HIGHLIGHTS (Rs. million)

Particulars Standalone Consolidated

2007-2008 2006-2007 2007-2008 2006-2007

Turnover 835 1,112 968 1,222

Other Income 202 149 205 132

Profit before Depreciation/Depletion/Amortisation/ Write Offs/Taxation 610 1,009 636 1,022

Less : Depreciation/Depletion/Amortisation 53 77 53 77

Less : Provisions & Write Offs 166 930 167 931

Profit Before Tax 391 2 416 14

Less : Provision for Tax 150 (23) 158 (12)

Profit After Tax 241 25 258 26

Profit/(Loss) brought forward 843 818 853 832

Profit available for Appropriation 1,084 843 1,111 858

Less : Proposed Dividend on Equity Shares 130 0 130 0

Less : Dividend Tax 22 0 22 0

Balance carried to the Balance Sheet 932 843 959 858

The Turnover of the Company during the year as compared with previous year was lower on account of lower production in PY-3 Block since HEPI, the PY-3 Operator, has temporarily shut-in PY-3-3RL Well due to excessive water entering the Well and increase in the Government share of Profit Oil from 25% to 40% in PY-3 Block as per terms of the Production Sharing Contract (PSC). The Profit before Depreciation, Depletion, Amortisation and Write offs of the Company during the year has been affected due to higher Field Operating Expenses on account of increased charter hire charges of the offshore production facilities in PY-3 Block on renewal of charter hire contract by the Operator.

During the year ended March 31, 2008, Exploratory Well North Ledo-1 drilled in Block AAP-ON-94/1 did not encounter hydrocarbons of commercial interest and accordingly North Ledo-1 well has been plugged and abandoned. Consistent with the Company’s Accounting Policies, the Company has written off the exploration expenditure of Rs. 158.03 million associated with the drilling of the said well.

As per the terms of the PSC for CY-OSN-97/1 Block, if no Commercial Discovery is made in the Contract Area by end of the Exploration Period, the Contract Area shall be relinquished. In the absence of any discovery during the Exploration Period the Contract Area stands relinquished. Hence exploration expenditure pertaining to the CY-OSN-97/1 Block of Rs. 8.36 million has been written off during the year ended March 31, 2008.

DIVIDENDConsidering the performance during the year under review, your Directors recommend dividend @ 10% (Rs. 1.00 per equity share of Rs. 10/- each) on the equity shares of the Company for the year ended March 31, 2008. The proposed dividend will amount to an aggregate of Rs. 152.67 million (including dividend tax of Rs. 22.18 million).

OPERATIONAL HIGHLIGHTSOperations review has been provided in the 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.

RIGHTS ISSUEThe Company completed the Rights Issue and made an allotment of 52,180,621 equity shares. The equity shares are traded on the National Stock Exchange of India and the Bombay Stock Exchange Limited. Accordingly, the present paid up share capital comprises of 130,493,289 equity shares of Rs. 10 each.

The Company has, in terms of the SEBI (DIP) Guidelines, appointed IDBI Bank Limited as the monitoring agency to monitor the utilization of the proceeds of the aforesaid Rights Issue amounting to Rs. 6,105 million.

HOEC BARDAHL INDIA LIMITED [HBIL] (WHOLLY OWNED SUBSIDIARY OF HOEC)During the year Sales and other income has increased by 42% and 89% over previous year, to Rs. 156.47 million & Rs. 3.45 million respectively. The revenue and earning growth has been primarily on account of HBIL products endorsement by OEMs including Hyundai and Tata Motors and introduction of new auto care products. The audited accounts of HBIL, together with the report of the directors and auditors thereof, form part of this Annual Report.

Director Report Main.indd 5 8/26/2008 5:08:20 AM


6


CONSOLIDATED FINANCIAL STATEMENTSPursuant 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 form part of this Annual Report.

AUDITORS’ REPORTWith reference to the observations made in the Auditor’s Report regarding one non-producing unincorporated Joint Venture’s accounts for the FY 2007-08, we have to state that the Company has not received the Audited Accounts of Block GN-ON-90/3 (Pranhita-Godavari) being under arbitration. As the above joint venture has not entered the production phase there is no effect on the profit for the quarter/year.

With reference to the observations made in the Auditor’s Report for the FY 2007-08 regarding the accounting for foreign exchange differences in respect of the Company’s share of the assets and liabilities in the Unincorporated Joint Ventures based on unaudited information relating to such foreign exchange differences, we have to state that since the audited financial statements of the Unincorporated Joint Ventures, which are prepared in accordance with the requirements of the Production Sharing Contract, do not separately reflect the details of the foreign exchange differences, the same have been obtained from the Operator of the respective Unincorporated Joint Ventures.

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.

DIRECTORIn accordance with the provisions of the Companies Act, 1956 and Articles of Association of the Company, Mr. Manish Maheshwari, will retire by rotation at the ensuing Annual General Meeting and being eligible has offered himself for re-appointment.

The Board recommends his appointment.

OPEN OFFER BY ENIDuring the year, ENI UK Holdings plc (Eni UK) has taken over Burren Energy plc, (the holding Company of our promoters viz. Burren Shakti Limited and Burren Energy India Limited). Following completion of the golbal acquisition of Burren Energy plc by Eni UK, 100% subsidiary of Eni S.p.A., both Burren Shakti Limited and Burren Energy India Limited are indirect subsidiaries of Eni UK and Eni S.p.A. and form part of the Eni group of Companies. This transastion has resulted in Eni UK acquiring indirect control over 35,453,679 equity shares of

the Company constituting 27.17% of the paid up capital of the Company. Eni UK has made the mandatory open offer to acquire upto 26,115,455 equity shares of the Company constituting 20% of the issued capital of the Company. The open offer closed on July 21, 2008 and post open offer formalities are in progress as on the date of this Report.

EMPLOYEES STOCK OPTION SCHEMEMembers’ approval was obtained at the Annual General Meeting held on September 22, 2005 for introduction of Employees Stock Option Scheme (ESOS). ESOS was approved and implemented by the Company and options were granted to employees in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 (‘the SEBI Guidelines’). The Compensation and Remuneration Committee of the Board had constituted ESOS Trust having independent Trustees to monitor and administer the Scheme.The applicable disclosures as stipulated under the SEBI Guidelines as at March 31, 2008 are given below:

(a) Option Granted : 15,069

(b) Pricing Formula : Nil

(c) Options Vested : Nil

(d) Options Exercised : Nil

(e) The total number of shares arising upon/after exercise of Option

: 15,069

(f ) Options Lapsed : Nil

(g) Variation in terms of Options : Not Applicable

(h) Money realized by exercise of Options : Nil

(i) Total number of Options in force : 15,069

(j) Employee wise details of Options granted to:

Senior Management Personnel

Mr. Manish Maheshwari : 6,197

Any other employee who received a grant in any one year of Options amount to 5% or more of Options granted during that year

Mr. Sagar Mehta : 2,610

Mr. Sudhanshu Chugh (Resigned after March 31, 2008) : 1,457

Identified employees who were granted Options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding equity share) of the Company at the time of grant.

: None

(k) Diluted Earnings Per Share (EPS) before exceptional items pursuant to issue of shares on exercise of Options calculated in accordance with Accounting Standard (AS) 20 ‘Earning Per Share’.

: Rs. 2.47


24th Annual Report 2007-2008HINDUSTAN OIL EXPLORATION COMPANY LIMITED 24th Annual Report 2007-2008HINDUSTAN OIL EXPLORATION COMPANY LIMITED

7

As the amount charged to the Profit and Loss Account (i.e. Rs. 170.89 per stock option) is higher than the fair value (i.e. Rs. 147.15 per stock option), had compensation cost for the stock options granted under the Scheme been determined based on fair value approach, the Company’s net profit and earnings per share for the FY 2005-06, would have been higher than reported.Other details as required by the SEBI Guidelines are as under:Weighted-average exercise price: Nil.Weighted-average fair values of options, separately for options, whose exercise price either equal or exceed or is less than the market price of the stock on the grant date: Nil.A description of the significant assumptions used to estimate the fair values of options as on the date of grant, were as follows:

• risk-free interest rate : 6.25% p.a.

• expected life : 3 to 4 years

• expected volatility : 58%

• expected dividends : Nil

• the price of the underlying share in market at the time of option grant : Rs. 147.15

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGOA. Conservation of energy: (a) energy conservation measures taken : Our focus on the

impact of our operations on climate change leads to our energy conservation strategy. To give effect to energy conservation efforts in our operations, we have taken initiatives beginning from the design phase for e.g. an efficient process flow has been designed in PY-1 Gas Field Development Project. Further, to reduce emission of Green House Gases (GHGs), high efficiency flares are proposed to be installed in PY-1 Field.

(b) additional investments and proposals, if any, being implemented for reduction of consumption of energy : Not applicable

(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 : Minimization of volume of gas flared during conditions of plant upsets and emergency trips.

(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: Nil

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 (See note 1)

B. Foreign Exchange Used

• Cash Call Payment to JointVentures

207.62

• ExpenditureinForeignCurrency(See note 2)

0.34

Total Foreign Exchange used 207.96

Note: 1. The above excludes Interest received in foreign currency amounting to Rs. 6.08 million (Previous Year Rs. Nil) netted off against Borrowing Cost in accordance with the Accounting Standard 16.

Note: 2. The above excludes Interest paid in foreign currency amounting to Rs. 22.64 million (Previous Year Rs. Nil) capitalised as Borrowing Cost in accordance with the Accounting Standard 16.

HUMAN RESOURCESThe Company’s industrial relations continued to be harmonious during the period under review.

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 forms part of this Report. However as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956 read with rules framed there under, the report and accounts are being sent to the shareholders of the Company excluding particulars of employees under Section 217(2A) of the Companies Act, 1956. Any shareholder interested in obtaining a copy of the said statement may write to the Company Secretary at the registered office of the Company.

AUDITORSThe Auditors, M/s. Deloitte Haskins & Sells, will retire at the forthcoming Annual General Meeting. Based on the recommendation of the Audit Committee, the Board has at its meeting held on June 06, 2008 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.



8

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, 2008, 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, 2008 on a ‘going concern’ basis.

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, Directorate General of Hydrocarbons, Government of Gujarat, Government of Tamil Nadu and Government of Assam. Your directors express their gratitude to the Company’s stakeholders, shareholders, business partners, and bankers for their understanding and support. 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 28, 2008 Chairman



9

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. India’s demand for oil and natural gas far exceeds domestic supply. HOEC is dedicated to contribute in meeting the energy needs of India and in this endeavour, the Company works in close collaboration with the Government of India through Production Sharing Contracts (PSCs) to explore, develop and produce hydrocarbons to meet the energy demands.

COMPANY’S BUSINESS AND STRATEGYThe Company’s core business is to explore, develop and produce hydrocarbons. The key elements of our Company’s strategy continue as follows:• Toincreaseourproductionbydevelopmentofdiscoveriesinexistingassets/licenses;• Toincreaseourreservebasebyexploringandestablishingupsidepotentialinourexistinglicenses;• Toconstrainourexposuretoexplorationriskwithinprudentlimits;• ToseeknewinvestmentopportunitieswithinIndiaoroutsidewhereinHOECcanleverageitspositionasalowcostoperator;and• Tomonetiseassetswithaviewtovaluerealizationorrisksharing.

TheresultsachievedbytheCompanyagainsttheobjectivessetfortheFY2007-08aresummarizedbelow:• Drilled 2 exploratory wells in BlockAAP-ON-94/1; one of the exploration wells Dirok-1 led to a discovery, which has been

declaredtobeofpotentialcommercialinterest;• Awarded major contracts for construction of PY-1 onshore gas processing terminal and fabrication & installation of offshore

facilitiesincludingpipeline;• Postappraisal,hookedupSPDDiscoveryinBlockCB-ON-7forproductiontoexistinginfrastructureatPramodaFieldlocated

atPalej;• OilandNaturalGasCorporationLimited(“ONGC”),theOperator,haspreparedPlanofDevelopmentforGulf“A”Discoveryin

BlockCB-OS/1whichhasbeensubmittedtoDGHforapproval;• PY-3PhaseIIIDevelopmentsanctionedbyallJVPartners;HardyExplorationandProduction(India)Inc.(“HEPI”),theOperator,

hastenderedoutfordrillingrigandevaluatingproductionfacilitiesoptionforperiodbeyondJuly2009.

Buildingupontheoutcomeoftheobjectivessetforlastyear,wehavedefinedthefollowingobjectivesfortheFY2008-09:• Appraisethe“Dirok”discoveryinAAP-ON-94/1Block;• BuildandinstallthePY-1OffshoreandOnshoreFacilitiessoastoestablishinfrastructureforcommencementoffirstgasproduction

bymid2009;• CommenceproductionfromSPDandexplore/appraisethepotentialofremainingCB-ON-07area;• ContinuetofacilitatedevelopmentinitiativeofGulf“A”discoveryinBlockCB-OS/1operatedbyONGC;• FacilitatePhaseIIIDevelopmentdrillinginPY-3FieldoperatedbyHEPI;and• Continuetoseeknewopportunitieswhichprovidestrategicfittoourexistingportfolio/competencies.

OPERATIONS REVIEWOverviewThe Company’s activities relate to exploration and production (based on exploration success) of hydrocarbons crude oil and natural gas, whicharenaturalresources.TheCompany’saggregateproductionduringtheFY2007-08was344,475barrelsofoilequivalent(boe)(crudeoil:329,286bbls;gas:2,677,570scm)asagainst503,408barrelsofoilequivalent(boe)(crudeoil:494,622bbls;gas:1,548,788scm) during the previous year. Production of crude oil fromPY-3Field located inCauveryBasin continues to be the predominantsource of the Company’s production.

ReservesAsofMarch31, 2008, the internal estimates ofProved andProbable (P+P) reserves onworking interest basis for theCompany is 53.4mmboe,previousyearestimatesbeing50.5mmboe,therebytheCompanyhasbeenabletomorethanoffsettheproductionduringthe year.

Cauvery BasinPY-1 Gas FieldTheCompanyhasawardedallmajorcontractsincludingconstructionandinstallationofanoffshoreproductioncumwellheadplatform,56kms sub seapipeline andonshore gas processing terminal.The constructionof gas terminal and fabricationof offshoreplatformactivitiesareprogressingatPillaiPerumalNallurvillageinTamilNaduandLaemChabangyardatThailandrespectively.

Management Discussion and Analysis Report

MDA.indd 9 8/26/2008 5:11:21 AM


10


Forward PlanThe Company continues to be actively engaged in execution and project management so as to deliver the project in a safe, cost efficient and timely manner. Further, pursuant to international competitive bidding, the Company is in discussions with drilling service provider for securing a suitable jack up rig so as to tie-back the Earth Well to the Platform and drill development wells as planned.

PY-3 FieldThe average gross production from the PY-3 Field decreased to 3,573 bopd in FY 2007-08 from 5,592 bopd in the previous yearsinceHEPI,theOperatorhastemporarilyshut-inPY-3-3RLWell,duetoexcessivewaterentering, inadditiontothenaturaldeclineanddelayindrillingofadditionalproducerwellspursuanttoPhaseIIIDevelopment.ProductiononnetentitlementbasistoHOECaveraged557bopdinFY2007-08,asagainst923bopdinFY2006-07,adeclineof39.6%onaccountoftheaboveandhighershareofGovernmentProfitPetroleumasperthetermsofthePSC.

Forward PlanJVPartnershaveapprovedPhaseIIIDevelopmentwhichenvisagesdrillingofadditionalproductionwell(s)andwaterinjectorwell.HEPI,theOperator,hastenderedoutfortangiblesanddrillingrigandisevaluatingproductionfacilitiesoptionforperiodbeyondJuly2009.

Block CY-OSN-97/1In the absence of any discovery during the Exploration Period, as per the terms of the PSC with the Government of India, the Contract Areahasbeenrelinquished/surrendered.

Cambay BasinBlock CB-ON-7Pramoda FieldThe production from the Pramoda Field averaged 400 boepd. Production on net entitlement basis toHOEC averaged 140 boepdduringtheyear,thedecreaseof11%beingduetonaturaldecline.

SPD Discovery:Postappraisal,SPDDiscoverywashookedupforproductiontoexistinginfrastructureatPramodaFieldlocatedatPalej.

Forward PlanSPDDiscoveryshallbeputoncommercialproductionimmediatelyuponONGC,initscapacityastheLicenceefortheBlock,receivingmininglease(ML)fromtheStateGovernment.TheJointVenturepartnerscomprisingofGSPCL,ONGCandHOEChaverequestedtheGovernmentforretentionofcertainblockarea in accordance with the Government guidelines for further exploration, which is being considered by the Government. Going forward,theJVshallacquire3Dseismicdataanddrilladditionalwellsintheunexploredarea.

North Balol Gas FieldNorthBalolFieldproduced9,190,633scmofnaturalgasduringtheyearwithanaverageproductionrateof25,111scmd,upby65%over the previous year.

Asjol FieldThefieldproducedatanaveragerateof31bopdduringtheyearwithanaggregateproductionof11,430bbls.TheconsortiumandDGHhas approved Phase II development, which envisages drilling of additional development well(s) in the area. HOEC is in discussions advance stage of securing a drilling rig for this activity.

Block CB-OS /1TheManagementCommitteeoftheBlockhasdeclaredandapprovedcommercialityofGulf“A”Discovery.ONGC,theOperator,hassubmittedPlanofDevelopmentforGulf“A”DiscoverytotheDirectorateGeneralofHydrocarbonsforapproval.CommercialDiscoveryReport for“HarinagarArea”hasbeenalsosubmittedbyONGC,theOperator, totheDirectorateGeneralofHydrocarbonsandJVPartnersforreview.

Assam-Arakan BasinBlock AAP-ON-94/1Duringtheyear,theCompany,asOperator,hasdrilledtwoexplorationwells,oneofwhichnamelyDirok-1encounteredhydrocarbons.Duringdrilling,thelogsandModularDynamicsTest(MDT)samplestakeninthe1000to1500meterssectionshowedgasbearing

MDA.indd 10 8/26/2008 5:11:21 AM


11

sands of approximately 45meters thickness.ADrill StemTest (DST)was carried out covering only 17meters (in three reservoirzones)outofatotalofapproximately45meters(eightgasbearingreservoirzones)inDirok-1well.TheDSThasresultedinflowofnaturalgasataninitialrateofapproximately6millionstandardcubicfeetperday(mmscfd)inaggregatefromthethreetestedzonesalongwithcondensateataninitialrateofapproximately75barrelsperdaythrough6.35mmbean.Basedonthewelltestresults,theJVConsortiumhasdeclaredDirok-1discoveryasofpotentialcommercialinterest.TheconsortiumhasproposedtoappraisetheDirokdiscoverybyacquiring3DSeismicdataanddrillingappraisal/delineationwell(s).

RISKS, THREATS, UNCERTAINTIES AND CONCERNSThe 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 undertake 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.ThePY-1gaspricebeingfixedundertermcontractsenteredbytheCompanycoupledwithtake-or-payprovisionprovidetheCompanywithcertaintyintermsofcashinflowsfromsaleofgas.

Cost Inflation impacting both Goods and ServicesThecurrentinflationaryenvironmentforoilfieldgoodsandservices,andforskilledhumanresources,hasbeendescribedhereinbelow(see ‘Outlook’). Under the terms of the PSCs, operating expenditure and capital costs are recoverable through cost recovery mechanism, andsotheeffectofcostincreaseiscushionedtocertaindegree,subjectalwaystoapprovalofexpenditurebytheManagementCommitteesunderthePSCs.TheretentionofkeystaffatanacceptablecostisaddressedthroughourremunerationandincentiveplantogivekeystaffalongertermstakeintheCompany’sperformance.

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 exploration failure. HOEC’s policy is to contain this exposure within prudent limits.

Risk on account of adverse outcome of LitigationsTheCompanyispartytovariousongoinglitigations/arbitrations(alsorefer“NotestoAccounts”),whichifdecidedagainsttheCompany,mayhaveanadverseimpactontheoperationsand/orfinancialpositionoftheCompany.

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 ofhuman,environmentalandfinancialcost.HOECcarriesoutHAZOP,HAZIDandmaintainsriskregistercoveringrisksspecific tovarious operations. The Company has standard insurance policies, including control-of-well cover, in place covering all its operated and non-operated assets.

FINANCIAL REVIEWPerformanceRevenueRevenue was lower by 18% to Rs. 1,036 million due to lower production in PY-3 Block since HEPI, the PY-3 field Operator has temporarilyshut-inPY-3-3RLWellduetoexcessivewaterenteringthewellandincreaseintheGovernmentshareofProfitOilfrom25%to40%inPY-3BlockaspertermsofthePSC.Theaforesaidimpactwaspartiallyoffsetbyhigherpricerealization:theaveragesalepriceroseby24%toUSD77/bbl(2006-07:62/bbl).Productiononworkinginterestbasisduringtheyearwas344,475boe,31.5%lowerthanthepreviousyear.Thenetentitlementvolumewas745boepd,33%lowerthanthepreviousyear.Salesvolumeat347,276boewas32%lowerthaninpreviousyear.Theinventoryattheyearendwas15%lowerthanthepreviousyear.

Operating ProfitCost of sales increased from Rs. 238.6 million to Rs. 360 million, primarily due to increased charter hire charges of the offshoreproductionfacilitiesinPY-3BlockonrenewalofcharterhirecontractbyHEPI,theOperator.

MDA.indd 11 8/26/2008 5:11:21 AM


12


Administrativeexpenses,withoutconsideringtherecoveryofexpenses,increasedby11%fromRs.131.9milliontoRs.145.8million.InterestandfinancechargeswereRs.75.6million,upfrompreviousyearduetointerestcostsassociatedwithsecuredtermloan.Otherexpensesincludewrite-offofunsuccessfulexplorationcostpertainingtoNorthLedo-1welldrilledinBlockAAP-ON-94/1andresidualcostrelatingtoCY-OSN-97/1(Blockrelinquished)withtotalchargetotheP&LequivalenttoRs.166.39million.TheoperatingprofitwasRs.466.6millioncomparedtoRs.57.8millionagainstthepreviousyear.

Net ProfitThe total tax charge was Rs. 150 million for the year compared to negative tax charge of Rs. 22.8 million (due to deferredtax asset created for the write off the exploration expenses in the previous year). Profit after tax increased to Rs. 241 million (2006-07:Rs.24.7million).

Cash Flow and Capital ExpenditureDuringFY2007-08,OperatingCashFlow,beforeWorkingCapitalchangesandTaxes,wasRs.484million.Net cash flow from operations, after deduction of Rs. 143.1million of tax andworking capital decrease of Rs. 216.7million, was Rs.558.5million,adecreaseof31%over2006-07.InvestmentexpendituretotaledRs.1,419.3million(2006-07:Rs.2,328.8million).Ofthis,theexplorationexpenditureaccountedforRs.447.9million,developmentexpenditureRs.961.9millionandothersRs.9.5million.During the year, theCompany raised an amount ofRs. 6,105.13million by issuance of 52.18million equity shares to the existingshareholdersoftheCompanyintheratioof2:3.TermDebtincreasedbyRs.151.2milliontoRs.1,472.1million.NetincreaseincashbalancewasRs.5,447.2millionduringtheyear.

FINANCIAL POSITIONLiquidityAttheyearend,HOEChadcashandcashequivalentbalancesofRs.6,950.5millionandoutstandingdebtofRs.1,472.1million.Cash surplus to immediate requirements isplaced indebtorientedLiquidFunds,LiquidPlusFunds andFixedMaturityPlans andBankDepositsasapprovedbytheBoard.Duringtheyear2007-08,theCompanyhasdrawndownfirsttrancheagainsttheloanfacilityofUSD100milliontowardsPY-1Fielddevelopmentfromaconsortiumofdomesticbanksco-ledbyIDBIBankLimitedandAxisBankLimited.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACYAcomprehensivereviewofrisksandinternalcontrolswascarriedoutbytheCompanyonbehalfoftheAuditCommittee.ThepoliciesinternalcontrolsystemsandmeasuresinplacewerereviewedbytheInternalAuditorsandnecessaryactionswererecommendedtotheAuditCommitteeandtheBoard.Nosignificantcontrolfailingswerereportedduringtheyear.During theyear theCompanyhas taken steps to further strengthen itsprocurement-to-payment functionby implementingMaximoERPsystem.

OUTLOOKBasedon the forwardplan invariousassets andmore specificallydevelopmentofPY-1GasField,ouroutlook remainspositive.Oncertain macro economic factors which impact the business, we share the following views:

Oil and Gas MarketsTheoilpricecontinuedtostrengthenduringtheFY2007-08withdatedBrentaveragingUSD82.05/bblcomparedtoUSD64.25/bblinthepreviousfiscalyear.Ignoringseasonalvariations,weexpectoilpricestoremainintherangeofUSD75/bbloverthenextfewyears.GaspricesinIndiahavebeenevolvingovertheyearsfromanadministeredpriceregimeofsubUSD2/mmbtuandeventuallywouldbecomelinkedtoenergyequivalentpricingmechanism.WiththeGovernmentfinalizingthegasallocationpolicyanddevelopmentofregulatoryframeworkto establish gas transmission infrastructure spanning the country, the gap in producer gas prices can be expected to progressively close.

Price InflationFuelledbythecontinuedstrengthoftheoilpricesandthedemandonfiniteoilserviceresourceshavecausedrigdayrates,marinespreadcost and costs of the attendant services to rise. HOEC is not insulated against some of these market pressures. There is pressure on humanresourceswhichgivesrisetosalaryinflationandcertainsectorsoftheindustryhaveexperiencedhigherstaffturnover.

MDA.indd 12 8/26/2008 5:11:21 AM


13

MATERIAL DEVELOPMENT IN HUMAN RESOURCE FRONTHuman ware is your Company’s key resource. Our ability to continuously enhance value of our core E&P assets depends largely on our abilitytoattract,train,motivateandretainthebestprofessionals.Wecontinuetobelievethatthereissignificantdomesticcompetitionfor E&P professionals with skill sets necessary to deliver success. Your company is exposed to the inherent risk associated with our ability to hire and retain skilled and experienced professionals.Your Company has over the years evolved a favourable work environment that creates and promotes culture of performance for teams to maximizetheirpotential.Asyouareawareof,theCompanyhasalong-termincentiveplan(LTIP),dulyapprovedbytheshareholders,to provide incentives byway of cash and employee stock options, to act as a retention tool.The employees are beneficiaries, for thefinancialyear2007-08,undertheLTIPscheme,thoughnoLTIPwasawardedinthepreviousfiscal.ThenumberofemployeesasatMarch31,2008was43(previousyear:41).

HEALTH, SAFETY, ENVIRONMENT & SOCIAL RESPONSIBILITYYour Company has taken account of the significance of health, safety, environment and corporate social responsibility (HSEC). FY 2007-08 has seen a focus on implementing HSEC standards across areas of operations.In linewith theCompanyHSEManagementSystem, site specificHSEProcedures for theproducingassetshavebeenput inplace.EmergencyResponsePlansforproductionoperations,drillingcampaignsandconstructionsiteactivitieshavebeendevelopedtoensuretimely response in times of emergency.HSEManagement System Interface (Bridging) Plans are developed for alignment ofHSEsystemsbetween theCompany and itsContractors.RiskAssessment&Management studieshavebeen carriedout foronshore andoffshoreoperations.SpecialskillstrainingonJobSafetyAwareness( JSA)andRiskAssessmentandHSEawarenesscampaignshavebeenconductedandbestpracticeshavebeenfelicitatedbyHSEAwardsProgram.During the year under review, therewere no fatalities, lost time incidents (LTI) and environmental incidents.The key performanceindicators (KPIs) related to HSE tracked by the Company are as below:

KPIs: Statistics 2007-08 2006-07

• TotalMan-hours 1,073,861 1,015,249

• Fatalities 0 0

• No.ofLTIincidents 0 2

• DayssincelastLTI 578 212

• OilSpillIncident 0 0

2007-08 Result Industry Statistics OGP May 2008

• FatalAccidentRate 0 2.99

• LTIFrequency 0 0.27

• LTISeverity 0 21.98

Thus,youwouldnoticethattheCompanycrossedonemillionman-hoursmarkwithnoLTIorfatalityaccident.TheCompany,aspartofitsCorporateSocialResponsibility(CSR)measure,hasparticipatedin“SelfHelpPrograms”atpanchayatlevelinareasof itsoperations to facilitatedevelopmentof rural infrastructureandpromotingruralemployment.Topromote thecauseofeducation,theCompanyhasdistributedschoolbooks,stationaryanduniformstostudentsinlocalschools.Additionally,theCompanyhas announced schemes for scholarship to local students forhigher education in thefieldof petroleumengineering and geosciences,whichschemeshallbeimplementedthroughengagementoflocal/panchayatadministration.

MDA.indd 13 8/26/2008 5:11:22 AM


14


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

Hindustan Oil Exploration Company Limited (hereinafter ‘HOEC’/‘the Company’) 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 policy making 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 integrity, transparency, accountability, investor protection, better compliance with statutory laws and regulations and value creation for stakeholders.

HOEC 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 our goals, we 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 Director 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 inter-alia observes a closed period for trading in securities of the Company for Directors/Officers and Designated Employees of the Company for the period of atleast seven days prior to the consideration of quarterly/yearly results extending upto atleast 24 hours after the disclosure of the said results to the Stock Exchanges. The closed period is also applicable prior to disclosure of price sensitive information, if any.

secretarial audit

A Secretarial Audit is 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 paid up capital is in accordance with the total number of shares held in physical form listed with the stock exchanges 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 Board has an optimum combination of Executive and Non-executive Directors. The strength of the Board of Directors is 6 out of which 2 are Independent Directors i.e. not less than one-third of the total number of Directors. The Company has a Non-Executive Chairman. The number of Non-Executive Directors is 4 i.e. not less than two-third of the total number of Directors.

Mr. Atul Gupta and Mr. Manish Maheshwari are the Managing Director and the Joint Managing Director of the Company respectively. The Managing Director and the Joint Managing Director shall retire at the ensuing Annual General Meeting.

The Company has not paid any remuneration, other than sitting fees, to any Director except the Joint Managing Director. None of the Directors are inter se related to each other.

Corporate Governance BK.indd 14 8/26/2008 6:37:01 AM


15

name of directors Category no. of attendanceat the Board

meeting

Whetherlast aGmattended

memberships on Board of other public Companies

Board Committee Chairmanship/membership of

Board Committees of other public Companies@

no. of shares & % held in the

Company

Mr. R. Vasudevan Non-Executive, Independent Director (Chairman)

6 of 6 Yes 4 Membership – 4 Nil

Mr. Deepak S. Parekh Non-Executive Non-Independent Director

3 of 6 No 15# Chairmanship – 5 Membership – 2

Nil

Mr. Rahul Bhasin Non-Executive, Independent Director

6 of 6 Yes 2 Nil Nil

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

4 of 6 Yes Nil Nil Nil

Mr. Atul Gupta* Managing Director (Promoter Nominee Director)

6 of 6 Yes Nil Nil Nil

Mr. Manish Maheshwari$ Joint Managing Director 6 of 6 Yes 1 Nil Nil

* Nominee Director of Burren Shakti Limited (Promoter).# 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, wholly owned subsidiary of the Company.

aUdit Committee

terms of Reference

The terms of reference of the Audit Committee are inter-alia 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 including investments 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 CommitteeMajority of the members of the Committee are non-executive independent directors. Mr. Rahul Bhasin, an independent director, is Chairman of the Committee.

sr. no.

name of members and their position no. of Committee meetings attended

1 Mr. Rahul Bhasin, Chairman 4 of 4

2 Mr. R. Vasudevan, Member 4 of 4

3 Mr. Atul Gupta, Member 4 of 4

BoaRd meetinGsThe Board shall have four regularly scheduled meetings per year. During the year under review, six (6) 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 on May 14, 2007, July 20, 2007, September 28, 2007, October 23, 2007, January 28, 2008 (Adjourned to January 29, 2008) and March 03, 2008.

The Company did not have any pecuniary relationship with the Non-executive directors during the year under review, except for the payment of sitting fees.

diReCtoR seeKinG Re-appointmentMr. Manish Maheshwari retires as a Director by rotation and being eligible has offered himself for reappointment. Mr. Manish Maheshwari, Joint Managing Director shall retire at the ensuing Annual General Meeting due to expiry of his term of office as the Joint Managing Director. The Board has at its meeting dated July 28, 2008, recommended his reappointment to the members.

The brief resume and nature of expertise of Mr. Manish Maheshwari in specific areas, his directorships in the Companies and memberships of Board Committees is given in the Notes to the Notice of the Annual General Meeting and hence not provided here.



16


All the members of this Committee possess good knowledge of finance, accounts and basic elements of Corporate Laws.

The Company Secretary is also the Secretary to the Audit Committee.

date of audit Committee meetingsDuring the year under review, four (4) Audit Committee Meetings were held on May 14, 2007, July 20, 2007, October 23, 2007 and January 29, 2008.

Compensation & RemUneRation Committeeterms of ReferenceThe terms of reference of the Compensation & Remuneration Committee inter-alia 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 from time to time. Additionally, the Committee also considers the compensation payable to senior executives of the Company. It is also entrusted with the duty to administer the Long Term Incentive Plan of the Company.

Composition of CommitteeThe Committee comprises of four directors. Mr. R. Vasudevan, an independent director, is the Chairman of the Committee. During the year under review, Mr. Finian O’Sullivan 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.

sr. no.

name of member and their position no. of Committee meetings attended

1 Mr. R. Vasudevan, Chairman 3 of 32 Mr. Rahul Bhasin, Member 3 of 33 Mr. Finian O’Sullivan, Member 1 of 14 Mr. Atul Gupta, Member 3 of 3

During the year under review, three (3) Compensation & Remuneration Committee meetings were held on May 14, 2007, July 20, 2007 and January 29, 2008.

RemUneRation poliCyThe 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 and as revised by the Board from time to time.

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

RemUneRation paid to the manaGinG diReCtoR/Joint manaGinG diReCtoR dURinG the yeaR 2007-08.

sr. no.

name salaries (Rs.)

Contribution to provident fund & superannuation

fund (Rs.)

otherallowances/perquisites

(Rs.)

total (Rs.)

1 Mr. Atul Gupta Nil Nil Nil Nil*

2 Mr. Manish Maheshwari 6,959,140 847,350 Nil 7,806,490**

* This does not include sitting fee amounting to Rs. 85,000 paid to him for attending the Board/ Committee meetings.

** This does not include value of stock options, if any, granted to him under the ESOP Scheme of the Company, in relation to the financial year 2007-2008, which shall be included in the year of grant i.e. FY 2008-09.

In computing Managerial Remuneration, perquisites have been valued in terms of actual expenditure incurred by the Company in providing the benefits except in case of certain expenses where the actual amount of expenditure cannot be ascertained with reasonable accuracy, notional amount as per Income Tax Rules has been added. Actuarial valuation based contribution/provision with respect to gratuity and provision for compensated absences have not been included as these are for the Company as a whole. Annual variable pay and long term incentive benefits have been included as remuneration on cash basis.

Period of Contract with the Managing Director and the Joint Managing Director

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

• From August 01, 2006 till the conclusion of 24th Annual General Meeting (i.e. September 30, 2008).

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 detail of sitting fees paid during the financial year 2007-08 is given below:

sr. no. name of director amount in Rs.

1 Mr. R. Vasudevan 100,000

2 Mr. Deepak S. Parekh 15,000

3 Mr. Rahul Bhasin 80,000

4 Mr. Finian O’Sullivan 25,000

5 Mr. Atul Gupta 85,000



17

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 CommitteeDuring the year, the Board had constituted this Committee at its meeting held on July 20, 2007 comprising of the following members.

sr. no.

name of member and their position no. of Committee meetings attended

1 Mr. Rahul Bhasin, Chairman 3 of 3

2 Mr. R. Vasudevan, Member 3 of 3

3 Mr. Manish Maheshwari, Member 3 of 3

The Committee was constituted specifically to oversee the Rights Issue of the Company including the timely completion of the functions, procedures and processes with respect to the issue and allotment 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 recent Rights Issue were fulfilled, the Board had, at its meeting held on March 03, 2008, dissolved the said Committee with immediate effect.

shaReholdeRs/investoRs GRievanCe CommitteeThe terms of reference of the Shareholders/Investors Grievance Committee inter-alia are 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) Shareholders/Investors Grievance Committee meetings were held on May 14, 2007, July 20, 2007, October 23, 2007 and January 29, 2008. The composition of the Shareholders/Investors Grievance Committee

and the details of meetings attended by the Directors are given below.

sr. no.

name of members and their position no. of Committee meetings attended

1 Mr. R. Vasudevan, Chairman 4 of 4

2 Mr. Atul Gupta, Member 4 of 4

3 Mr. Manish Maheshwari, Member 4 of 4

The Shareholders/Investors Grievance Committee meetings are also attended by the Company Secretary & Compliance Officer.

name, desiGnation & addRess of Company seCRetaRy & ComplianCe offiCeRMr. 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 replied/resolved during the year are as under:

particulars total Grievances/Complaints received

totalGrievances/Complaints resolved/replied

pending Grievances/Complaints as on 31.03.2008

Received from Investors

81 81 NIL

Referred by SEBI 70 70 NIL

Referred by Stock Exchanges /Depositories

11 11 NIL

RBI/Govt. Authorities NIL NIL NIL

Total 162 162* NIL

* During the year, 24 (twenty-four) complaints have been replied with a request to provide additional information to the Company for further action.

There are no grievance/complaints from shareholders remaining unreplied/unresolved except disputed court cases etc. as every effort is maintained to immediately redress investors’ grievances/complaints without loss of time. There were 12 pending share transfer requests for 1,240 equity shares for transfer as on March 31, 2008, which have been since effected.



18


details of GeneRal Body meetinGsLocation and Time where last three Annual General Meetings were held

year location date time

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, Akota, Vadodara – 390 020.

September 28, 2006

10:30 a.m.

2006-2007 “Chandarva”, WelcomHotel Vadodara, R. C. Dutt Road, Alkapuri, Vadodara – 390 007.

September 28, 2007

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

(b) 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).

(c) 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).

(d) Ratification and approval of Remuneration paid to Mr. Rakesh Jain, erstwhile Managing Director of the Company, being in excess of the limits specified in Schedule XIII. (23rd AGM held on September 28, 2007).

(e) Ratification and approval of Remuneration paid to Mr. Manish Maheshwari, Joint Managing Director of

the Company, being in excess of the limits specified in Schedule XIII. (23rd AGM held on September 28, 2007).

2. No special Resolution was passed through 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.

disClosURes1. 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 in 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 CommUniCationThe quarterly, half yearly, 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. No presentations were made to institutional investors or to the analysts during the year under review.

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



19

GeneRal shaReholdeRs infoRmation1 Day, Date, Time and

Venue of 24th Annual General Meeting.

Tuesday, 30th day of September, 2008 at 10:30 a.m. at ‘Tropicana Hall’, Taj Residency Vadodara, Akota Gardens, Akota, Vadodara – 390 020.

2 Financial Year Calendar Results for the quarter ending on:30th June, 2008 : July 200830th September, 2008 : October 200831st December, 2008 : January 200931st March, 2009 : June 2009

3 Book Closure Dates August 13, 2008 to August 18, 2008 (both days inclusive).

4 Dividend Payment Date Dividend, if declared by the members shall be paid within stipulated time period from the date of approval according to the applicable provisions of the Companies Act, 1956 i.e. after September 30, 2008.

Equity Shares of the Company at present are listed at following Stock Exchanges1. Bombay Stock Exchange Limited (BSE)2. National Stock Exchange of India Limited (NSE)

The Company has paid annual listing fees for the Financial Year 2008-09 to the said Stock Exchanges and annual maintenance/custodial charges/fees to the National Securities and Depositories Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

Stock Code:Bombay Stock Exchange Limited (BSE) : 500186National 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. During the year, the equity shares of the Company have been permitted to trade in Future and Option by both BSE and NSE.

Stock Market Data: BSE

period Bse share price Bse sensex (high)

high Rs. low Rs.

April 2007 104.65 65.10 14,383.72

May 2007 120.40 84.75 14,576.37

June 2007 124.85 110.65 14,683.36

July 2007 151.40 112.50 15,868.85

August 2007 115.00 90.00 15,542.40

September 2007 121.00 100.50 17,361.47

October 2007 124.40 95.15 20,238.16

November 2007 150.80 105.55 20,204.21

December 2007 176.90 139.65 20,498.11

January 2008 166.00 65.10 21,206.77

February 2008 118.00 89.55 18,895.34

March 2008 110.90 87.85 17,227.56



20


ReGistRaR and tRansfeR aGentsIntime Spectrum Registry Limited Unit: Hindustan Oil Exploration Company Limited308, Jaldhara Complex, 1st Floor,Opp. Manisha Society, Vasna Road,Vadodara - 390 015 (Gujarat) India.Email : [email protected] : +91 (0265) 2250241,3249857Fax : +91 (0265) 2250246

shaRe tRansfeR & demat system• Share Transfer in physical form requests are generally 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, 2008 Company has dematerialized 92,019,740 equity shares, which is 70.52% of the total equity shares.

distRiBUtion of shaReholdinG as on maRCh 31, 2008

CateGoRy physiCal nsdl Cdsl total

no. ofshareholders

no. of shares

no. ofshareholders

no. ofshares

no. ofshareholders

no. of shares

no. ofshareholders

no. ofshares

1 to 5,000 12,616 1,827,775 40,431 6,454,331 17,833 2,528,828 70,880 10,811,222

5,001 to 10,000 719 521,982 4,433 3,335,122 1,349 1,044,969 6,501 4,902,073

10,001 to 20,000 256 349,128 2,362 3,414,192 627 930,501 3,245 4,693,821

20,001 to 30,000 43 105,915 773 1,929,523 187 472,945 1,003 2,508,383

30,001 to 40,000 8 28,099 328 1,148,167 84 293,756 420 1,470,022

40,001 to 50,000 8 35,467 244 1,138,639 81 377,933 333 1,552,039

50,001 to 1,00,000 2 13,950 373 2,708,239 96 701,242 471 3,423,431

Above 1,00,000 4 35,590,945 375 60,948,874 86 4,592,479 465 101,132,298

TOTAL 13,656 38,473,261 49,319 81,077,087 20,343 10,942,653 83,318 130,493,289



21

shaReholdinG patteRn as on maRCh 31, 2008

Category Code

Category of shareholders number of shareholders

total number of shares

number of shares held in

dematerialized form

total shareholding as a percentage of

(a+B)

(a) shareholding of promoter and promoter Group

1 indian

2 foreign (Foreign Companies) 2 35,453,679 — 27.17

total shareholding of promoter and promoter Group (a) 2 35,453,679 — 27.17

(B) public shareholding

1 institutions

(a) Mutual Funds / UTI 17 6,959,097 6,955,897 5.33

(b) Financial Institutions / Banks 16 178,072 174,212 0.14

(c) Central Government / State Government(s) / Insurance Companies 2 2,338,856 2,338,856 1.79

(d) Foreign Institutional Investors 12 8,308,403 8,307,403 6.37

(e) Any Other (specify) – Foreign Mutual Fund 7 2,547,684 2,547,684 1.95

sub-total (B)(1) 54 20,332,112 20,324,052 15.58

B 2 non-institutions

(a) Bodies Corporate 1,558 25,777,584 25,613,315 19.75

(b) Individuals including Office Bearers

i Individual shareholders holding nominal share capital up to Rs. 1 lakh. 79,546 25,821,131 23,388,136 19.79

ii Individual shareholders holding nominal share capital in excess of Rs. 1 lakh. 257 14,563,420 14,563,420 11.16

(c) Any Other (specify)

i Clearing Member 460 999,747 999,747 0.77

ii Non Resident Shareholders 1,439 1,430,371 1,016,246 1.09

iii Foreign Company 2 6,115,245 6,114,745 4.69

sub-total (B)(2) 83,262 74,707,498 71,695,609 57.25

(B) total public shareholding (B) = (B) (1)+ (B) (2) 83,316 95,039,610 92,019,661 72.83

GRand total (a)+(B) 83,318 130,493,289 92,019,661 100.00

NOTE1 The classification of the shareholders as provided by the depositories has been relied upon, except for correction of prima facie

errors.



22


statement showing shareholding of persons belonging to the category “promoter and promoter Group”

sr. no.

name of the shareholder number of shares

shares as a percentage of total number of shares [i.e.,

Grand total (a)+(B) indicated in statement at para (i)(a) above]

1 Burren Shakti Limited 35,440,913 27.16

2 Burren Energy (India) Limited 12,766 0.01

total 35,453,679 27.17

statement showing shareholding of persons belonging to the category “public” and holding more than 1% of the total number of shares

sr. no.

name of the shareholder number of shares

shares as a percentage of total number of shares [i.e.,

Grand total (a)+(B) indicated in statement at para (i)(a) above]

1 Housing Development Finance Corporation Limited 14,826,303 11.36

2 Hardy Oil and Gas Limited 6,114,745 4.69

3 Matterhorn Ventures 5,165,866 3.96

4 Franklin Templeton Mutual Fund 3,511,091 2.69

5 Jhunjhunwala Rakesh Radheshyam 2,397,643 1.84

6 General Insurance Corporation of India 2,106,938 1.61

7 Rekha Jhunjhunwala 1,781,475 1.37

8 India Investment Partners Limited 1,773,937 1.36

9 Sundaram BNP Paribas Mutual Fund 1,565,369 1.20

10 Merrill Lynch Capital Markets Espana S. A. 1,475,335 1.13

total 40,718,702 31.21

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 Operational Highlights in the Annual Report.

addRess foR CoRRespondenCeSecretarial 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]


R. VasudevanDate: July 28, 2008 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 June 6, 2008 taken note of the CEO/CFO Certificate.


R. VasudevanDate: July 28, 2008 Chairman

CeRtifiCate on CoRpoRate GoveRnanCeTo,The MembersHindustan Oil Exploration Company Limited

I have examined the compliance of the conditions of Corporate Governance by Hindustan Oil Exploration Company Limited, for the financial year ended 31st March, 2008 as stipulated in Clause 49, as amended, 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 has 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 before Shareholders/Investors Grievance Committee.

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 TrivediPlace : Vadodara Company SecretaryDated : July 28, 2008 CP. No. 3123



24


AUDITORS’ REPORT

TO THE MEMBERS OF HINDUSTAN OIL EXPLORATION COMPANY LIMITED

1. We have audited the attached Balance Sheet of HINDUSTAN OIL EXPLORATION COMPANY LIMITED (“the Company”) as at March 31, 2008, the Profit and Loss Account and the Cash Flow Statement of the Company for the year ended on that date, both annexed thereto. 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.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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.

3. As required by the Companies (Auditor’s Report) Order, 2003, (CARO) issued by the Government in terms of Section 227(4A) of the Companies Act, 1956, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order, to the extent applicable to the Company. Our comments in the Annexure are restricted to the activities of the Company only and exclude matters relating to the Company’s interest in the unincorporated joint ventures, which are not subject to audit under the Companies Act, 1956.

4. Without qualifying our report, we invite attention to Note 9 of Schedule 15 regarding Managerial Remuneration pertaining to the year 2006-2007 paid to the erstwhile Managing Director which is subject to the approval of the Central Government as stated therein.

5. (a) The Accounts have been drawn up in accordance with the statement of Significant Accounting Policies (Schedule 14). Accounting Policy 3 relating to “Successful Efforts Method”, Accounting Policy 4 relating to “Site Restoration” and the treatment of exploration and development costs are significant to the oil and gas exploration and production industry.

(b) Categorisation of the wells as exploratory and producing and the depletion of producing wells on the basis of proved developed hydrocarbon reserves and expensing of the estimated site restoration liability on the basis of proved hydrocarbon reserves are made according to technical evaluation by the Management, on which we have placed reliance.

(c) As stated in Accounting Policy 6 of the statement of Significant Accounting Policies (Schedule 14), the financial statements of the unincorporated joint ventures are prepared in accordance with the requirements prescribed by the respective Production Sharing Contracts of the unincorporated joint ventures. Hence, certain adjustments/disclosures required under the mandatory accounting standards and the Companies Act, 1956 have been made in these accounts to the extent of information available with the Company.

6. (a) The accounts for the year ended March 31, 2008 include assets aggregating Rs. 5,760,394,765, liabilities aggregating Rs. 818,894,242 and expenditure aggregating Rs. 471,918,154 relating to the Company’s share in eight unincorporated joint ventures, which have been incorporated on the basis of accounts audited by other auditors.

(b) In respect of one non-producing unincorporated joint venture, assets aggregating Rs. 87,875 and liabilities aggregating Rs. 2,936,859 as at March 31, 2008 have been incorporated on the basis of the unaudited information available, in the absence of audited accounts.

(c) The Company has accounted for foreign exchange differences amounting to Rs. 13,572,465 (net gain) in accordance with Accounting Standard (AS) 11 – The Effects of Changes in Foreign Exchange Rates, with respect to its proportionate share of the assets and liabilities of the unincorporated joint ventures based on the unaudited details obtained from the Operator of the respective unincorporated joint ventures, in the absence of such information in the audited financial statements of the unincorporated joint ventures for the reasons stated in Note 22(i) of Schedule 15.

7. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:

a. we have obtained all the information and explanations which, to the best of our knowledge and belief were necessary for the purposes of our audit, except for the audited financial information relating to one unincorporated

Auditors (main).indd 24 8/26/2008 6:38:49 AM


25

joint venture for the year ended March 31, 2008 referred to in paragraph 6(b) above and unaudited details relating to foreign exchange differences per AS 11 pertaining to the Company’s share in the unincorporated joint ventures referred to in paragraph 6(c) above and certain information relating to the Company’s share in the unincorporated joint ventures referred to in paragraph 5(c) above.

b. in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;

c. the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account;

d. in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956;

e. Subject to our comments with respect to the unincorporated joint ventures in paragraphs 6(b) and 6(c) above to the extent of the unaudited amounts stated therein, in our opinion and to the best of our information and according to the explanations given to us, the said accounts, read with the notes thereon and our comments in paragraph 5 above, give the information required by the Companies Act, 1956, in the manner so required and give a true and

fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2008;

(ii) in the case of the Profit and Loss Account, of the profit of the Company for the year ended on that date; and

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

8. On the basis of the written representations/declarations received from the Directors and taken on record by the Board and according to the information and explanations given to us, we report that none of the Directors of the Company is disqualified as at March 31, 2008 from being appointed as a Director under Section 274(1)(g) of the Companies Act, 1956 on the said date.

For Deloitte Haskins & SellsChartered Accountants

K. Sai RamPlace : New Delhi PartnerDate : June 6, 2008 (Membership No. 022360)



26


(i) Considering the nature of the Company’s business/activities during the year and read together with our comment relating to unincorporated joint ventures in para 3 of our report, clauses 4(ii), 4(viii), 4(xii), 4(xiii), 4(xiv), 4(xviii) and 4(xix) of CARO are not applicable.

(ii) In respect of its fixed assets:

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

(b) Some of the fixed assets were physically verified during the year by the Management in accordance with a programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals having regard to the size of the Company and the nature of its assets. According to the information and explanations given to us, no material discrepancies were noticed on such verification.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company.

(iii) According to the information and explanations given to us, the Company has not granted or taken any loans, secured or unsecured, to/from companies, firms or other parties covered in the register maintained in pursuance of Section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business for the purchase of fixed assets and for the sale of goods and rendering of services. We have not observed any significant continuing failure to correct major weaknesses in such internal controls.

(v) In respect of contracts or arrangements entered in the register maintained in pursuance of Section 301 of the Companies Act, 1956, to the best of our knowledge and belief and according to the information and explanations given to us:

(a) The particulars of contracts or arrangements referred to in Section 301 that needed to be entered into the register, maintained under the said Section, have been so entered.

(b) Where the transactions are in excess of Rs. 5 lakhs in respect of any party during the year, the transactions have been made at prices which are prima facie reasonable having regard to the prevailing market prices at the relevant time.

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

(vii) In our opinion, the internal audit functions carried out during the year by an external agency appointed by the Management have been commensurate with the size of the Company and the nature of its business.

(viii) In respect of statutory dues:

(a) According to information and explanations given to us, the Company has been regular in depositing undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Income Tax, Fringe Benefit Tax, Sales Tax, Value Added Tax, Service Tax, Wealth Tax, Customs Duty, Cess and other material statutory dues with the appropriate authorities during the year.

(b) According to information and explanations given to us, no undisputed amounts in respect of Provident Fund, Investor Education and Protection Fund, Income Tax, Fringe Benefit Tax, Sales Tax, Value Added Tax, Service Tax, Wealth Tax, Customs Duty, Cess and other material statutory dues applicable to the Company was in arrears as on March 31, 2008 for a period of more than six months from the date they became payable.

(c) According to the information and explanations given to us, details of disputed dues which have not been deposited as on March 31, 2008 are as follows:

Name of Statute

Nature of the Dues

Assessment Year

Amount (Rs.)

Forum where Dispute is Pending

Income Tax Act, 1961

Tax and Interest

2003 – 2004 85,853,636 Income Tax Appellate Tribunal

2006 – 2007 2,976,044 Commissioner of Income Tax (Appeals)

(ix) The Company does not have any accumulated losses as at March 31, 2008. The Company has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

ANNEXURE TO THE AUDITORS’ REPORT(Referred to in paragraph 3 of our report of even date)



27

(x) In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of dues to banks and financial institutions.

(xi) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by others from a financial institution are, prima facie, not prejudicial to the interests of the Company.

(xii) To the best of our knowledge and belief and according to the information and explanations given to us, in our opinion, term loans availed by the Company were, prima facie, applied by the Company during the year for the purposes for which the loans were obtained, other than temporary deployment pending application.

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

(xiv) During the period covered by our audit report, the Company has not raised any money by public issues as defined in the Securities and Exchange Board of India (Disclosure And Investor Protection) Guidelines, 2000. The details of the Rights Issue of Equity Shares and the utilisation of the proceeds thereof are given in Note 3 of Schedule 15.

(xv) To the best of our knowledge and belief and according to the information and explanations given to us, no material fraud on or by the Company was noticed or reported during the year.





28


Balance Sheet as at March 31, 2008

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

For Deloitte Haskins & Sells R. Vasudevan Manish MaheshwariChartered Accountants Chairman Joint Managing Director

K. Sai RamPartnerMembership No: 022360

Vikash Jain Company Secretary, Chief Tax and Legal

Place : New Delhi Place : New DelhiDate : June 6, 2008 Date : June 6, 2008

in Rupees

ScheduleAs at

March 31, 2008As at

March 31, 2007SOURCES OF FUNDS SHAREHOLDERS’ FUNDSShare Capital 1 1,305,093,005 783,286,795 Reserves and Surplus 2 8,776,409,756 3,120,052,923 LOAN FUNDSSecured Loans 3 1,472,198,692 1,320,948,396

11,553,701,453 5,224,288,114

APPLICATION OF FUNDSFIXED ASSETS 4

Gross Block 1,612,771,578 1,598,021,142 Less : Depreciation, Depletion and

Amortisation 1,232,899,406 1,167,445,185 Net Block 379,872,172 430,575,957 Capital Work in Progress 4,021,871,328 2,744,620,659

4,401,743,500 3,175,196,616 INVESTMENTS 5 5,682,525,412 694,284,163 DEFERRED TAX ASSET (NET) (See Note 18 of Schedule 15)

374,478,090 487,478,090

CURRENT ASSETS, LOANS AND ADVANCES

6

a. Inventories 238,215,358 243,932,700 b. Sundry Debtors 136,686,853 196,553,969 c. Cash and Bank Balances 1,571,965,784 1,108,612,856 d. Other Current Assets 7,394,535 9,758,715 e. Loans and Advances 555,265,832 325,799,759

2,509,528,362 1,884,657,999 Less : CURRENT LIABILITIES AND

PROVISIONS7

a. Current Liabilities 980,839,416 718,071,832 b. Provisions 433,734,495 299,256,922

1,414,573,911 1,017,328,754 NET CURRENT ASSETS 1,094,954,451 867,329,245

11,553,701,453 5,224,288,114 Significant Accounting Policies 14

Notes to the Accounts 15 Schedules 1 to 15 annexed hereto form part of the Accounts.

Account.indd 28 8/26/2008 6:41:40 AM


29

Profit and Loss Account for the year ended March 31, 2008

in Rupees

ScheduleYear ended

March 31, 2008Year ended

March 31, 2007INCOME

Sales and Services 8 833,469,169 1,155,313,171 Increase/(Decrease) in Stock of Crude Oil 9 1,306,409 (43,619,688)Other Income 10 201,534,791 148,991,744

1,036,310,369 1,260,685,227

EXPENDITURE AND CHARGES

Field Operating Expenses 11 310,835,347 167,759,885 Corporate Expenses 12 39,851,422 28,273,154 Depreciation/Amortisation on Fixed Assets 4 3,434,762 5,646,818 Depletion of Producing Properties 4 49,178,835 70,845,642 Provisions and Write Offs (Net) (See Item 3 of Schedule 14 & Note 1 of Schedule 15)

166,392,861 930,368,696

Interest and Finance Charges 13 75,611,744 55,853,845 645,304,971 1,258,748,040

PROFIT BEFORE TAX 391,005,398 1,937,187 Provision for Current Income Tax 35,000,000 286,000,000 Provision for Deferred Tax (Note 18 of Schedule 15) 113,000,000 (311,000,000)Provision for Wealth Tax 200,000 200,000 Provision for Fringe Benefit Tax 1,800,000 2,000,000

PROFIT AFTER TAX 241,005,398 24,737,187 Profit Brought Forward 843,170,508 818,433,321

PROFIT AVAILABLE FOR APPROPRIATION 1,084,175,906 843,170,508

APPROPRIATIONS :Proposed Dividend 130,493,289 0Dividend Tax 22,177,334 0 Balance Carried to Balance Sheet 931,505,283 843,170,508 1,084,175,906 843,170,508

Earnings Per Share of Rs.10 Face Value (Basic and Diluted)(Refer Note 17 of Schedule 15) Rs. 2.47 Rs. 0.31Significant Accounting Policies 14

Notes to the Accounts 15

Schedules 1 to 15 annexed hereto form part of the Accounts.






Account.indd 29 8/26/2008 6:41:40 AM


30


in Rupees

Year ended March 31, 2008


A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit Before Tax 391,005,398 1,937,187

Adjustments for: Compensated Absences 962,900 (319,900) Depreciation, Depletion and Amortisation 52,613,597 76,492,460 Exploration Expenses Written Off (Net) 166,392,861 930,368,696 Other Miscellaneous Expenses Written Off 0 287,500 Dividend/Interest Income (168,985,321) (132,552,057) (Profit)/Loss on Sale of/Discarded Assets (Net) (16,602) 173,912 Unrealized Exchange Gain (32,699,821) (18,829,295) Interest and Finance Charges 75,611,744 55,853,845 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 484,884,756 913,412,348

Adjustments for: Trade and Other Receivables# (48,773,748) (253,520,269) Inventories 5,717,342 (50,962,504) Payables 259,760,616 470,914,436

CASH FROM OPERATIONS 701,588,966 1,079,844,011

Taxes Paid (143,134,859) (272,125,253)

NET CASH FROM OPERATING ACTIVITIES 558,454,107 807,718,758

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets # (9,544,498) (22,156,601) Proceeds from Sale of Fixed Assets 46,040 123,926 Development Expenditure * (961,934,531) (1,450,731,447) Exploration Expenditure (447,880,536) (855,995,993) Dividend/Interest Received 171,349,501 126,495,464

NET CASH USED IN INVESTING ACTIVITIES (1,247,964,024) (2,202,264,651)

C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from Issue of Share Capital @ 6,108,508,150 1,487,892,759 Secured Loans Taken - Long Term 515,463,791 1,706,716,998 Secured Loans Repaid - Long Term (331,513,674) (535,661,807) Interest and Finance Charges Paid * (140,046,165) (146,668,889) Dividend Paid (including Dividend Tax) (368,525) (66,118,708) Rights Issue Expenses (Net) (15,304,389) (19,736,001)

NET CASH FROM FINANCING ACTIVITIES 6,136,739,188 2,426,424,352

NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C) 5,447,229,271 1,031,878,459

Cash, Cash Equivalents: Opening Balance 1,503,348,789 471,470,330 Closing Balance 6,950,578,060 1,503,348,789

5,447,229,271 1,031,878,459

Cash and Bank Balance as per Schedule 6 1,571,965,784 1,108,612,856 Current Investment as per Schedule 5 5,677,476,169 689,234,920 Adjustment for Site Restoration Deposit (192,978,180) (179,417,650) Adjustment for Lien Marked Deposits/Accounts (105,885,713) (115,081,337) Total Cash and Cash Equivalents as at Year End 6,950,578,060 1,503,348,789 * Interest and Finance Charges Paid includes and Development Expenditure excludes Borrowing Cost capitalised amounting to Rs.47,131,621 (Previous Year: Rs.27,487,279).# Purchase of Fixed Assets includes and Trade and Other Receivables excludes Capital Advances paid Rs.1,693,406 (Previous Year: Rs. Nil)@ Proceeds from Issue of Share Capital includes Rs.4,120,544 (Previous Year: Rs.745,051) of Unclaimed/Unpaid Share Application Money.Schedules 1 to 15 annexed hereto form part of the Accounts.

Cash Flow Statement for the year ended March 31, 2008






Account.indd 30 8/26/2008 6:41:41 AM


31

in Rupees

As at March 31, 2008


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

ISSUED130,563,363 (Previous Year 78,345,643) Equity Shares of Rs. 10 each 1,305,633,630 783,456,430

SUBSCRIBED AND PAID-UP130,493,289 (Previous Year 78,312,668) Equity Shares of Rs. 10 each fully paid 1,304,932,890 783,126,680 Add : Amount Paid-up on Shares Forfeited 160,115 160,115

1,305,093,005 783,286,795 Notes:1. On January 24, 2008, an allotment of 52,180,621 Equity Shares was made consequent to

the Rights Issue of 52,217,720 Equity Shares of Rs. 10 each at a premium of Rs. 107 per Share to the then existing Shareholders of the Company in the ratio of Two Equity Shares for Every Three Equity Shares held.

2. 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 then 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 2,273,499,415 1,001,765,038 Additions (See Note 1 below) 5,583,326,447 1,291,470,378 Rights Issue Expenses (Net) (See Note 2 below) (15,304,389) (19,736,001) Closing Balance 7,841,521,473 2,273,499,415 General Reserve Opening Balance 3,383,000 3,870,000 Transitional Adjustments (See Note 22(ii) of Schedule 15) 0 (487,000) Closing Balance 3,383,000 3,383,000 Balance in Profit and Loss Account 931,505,283 843,170,508

8,776,409,756 3,120,052,923 Notes:1. Represents premium on allotment of 52,180,621 Equity Shares on January 24, 2008 at a

premium of Rs.107 each consequent to the Rights Issue during the current year and 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 during the previous year.

2. The Net Rights Issue Expenses incurred during the current year and previous year have been adjusted against the Securities Premium balance in accordance with Section 78 of the Companies Act, 1956.

SCHEDULE 3SECURED LOANS(See Note 2 of Schedule 15)Loans from Banks Foreign Currency Loan 747,424,139 384,948,396 Rupee Term Loan 696,000,000 936,000,000 Loans from Financial Institution Foreign Currency Loan 28,774,553 0

1,472,198,692 1,320,948,396

Schedules Forming Part of the Accounts for the Year Ended March 31, 2008

Account.indd 31 8/26/2008 6:41:41 AM


32


Sche

dul

es F

orm

ing

Par

t of

the

Acc

ount

s fo

r th

e Ye

ar E

nded

Mar

ch 3

1, 2

008

SCH

ED

ULE

4FI

XE

D A

SSE

TS

in R

upee

s

Nam

e of

the

Ass

ets

GR

OSS

BLO

CK

DE

PRE

CIA

TIO

N,

DE

PLE

TIO

N a

nd A

MO

RTIS

ATI

ON

NE

T B

LOC

K

As

at

Ap

ril 0

1,

2007

Ad

dit

ions

/ A

dju

stm

ents

Ded

ucti

ons/

A

dju

stm

ents

As

at

Mar

ch 3

1,

2008

As

at

Ap

ril 0

1,

2007

For

the

Year

Ded

ucti

ons

As

at

Mar

ch 3

1,

2008

As

at

Mar

ch 3

1,

2008

As

at

Mar

ch 3

1,

2007

Prod

ucin

g P

rop

erti

es1,

339,

496,

045

26,8

31,8

01

19,2

15,0

00#

1,34

7,11

2,84

6 1,

001,

642,

203

49,1

78,8

35

0 1,

050,

821,

038

296,

291,

808

337,

853,

842

OTH

ER

FIX

ED

ASS

ETS

:

Land

-Fre

ehol

d17

,133

,222

5,

853,

340

2,74

1 22

,983

,821

0

0 0

0 22

,983

,821

17

,133

,222

Bui

ldin

gs

44,5

51,3

24

508,

526

0 45

,059

,850

22

,384

,664

1,

133,

760

0 23

,518

,424

21

,541

,426

22

,166

,660

Offi

ce E

qui

pm

ents

22,8

95,7

12

90,9

02

178,

510

22,8

08,1

04

12,1

28,7

15

1,54

2,72

0 17

5,87

0 13

,495

,565

9,

312,

539

10,7

66,9

97

Com

put

ers

13,2

32,0

19

217,

156

447,

589

13,0

01,5

86

9,68

6,83

3 1,

496,

864

427,

409

10,7

56,2

88

2,24

5,29

8 3,

545,

186

Offi

ce F

urni

ture

15,8

69,1

21

289,

389

91,3

58

16,0

67,1

52

11,4

29,6

28

854,

730

84,7

40

12,1

99,6

18

3,86

7,53

4 4,

439,

493

Imp

rove

men

ts t

o Le

aseh

old

Pre

mis

es

8,03

2,48

5 0

0 8,

032,

485

6,5

72,0

34

1,4

60,4

51

0 8,

032,

485

0 1

,460

,451

Plan

t &

Mac

hine

ry10

1,69

4,96

6 89

4,52

0 0

102,

589,

486

75,4

48,4

04

8,14

2,32

5 0

83,5

90,7

29

18,9

98,7

57

26,2

46,5

62

Vehi

cles

8,90

2,94

3 0

0 8,

902,

943

5,69

3,42

0 83

0,94

6 0

6,52

4,36

6 2,

378,

577

3,20

9,52

3

Inta

ngib

le A

sset

s –

Soft

war

e26

,213

,305

0

0 26

,213

,305

22

,459

,284

1,

501,

609

0 23

,960

,893

2,

252,

412

3,75

4,02

1

Tota

l (A

):1,

598,

021,

142

34,6

85,6

34

19,9

35,1

98

1,61

2,77

1,57

8 1,

167,

445,

185

66,1

42,2

40*

688,

019

1,23

2,89

9,40

6 37

9,87

2,17

2@

430,

575,

957@

Prev

ious

Yea

r1,

561,

054,

926

72,0

40,5

46

35,0

74,3

30

1,59

8,02

1,14

2 1,

075,

174,

411

96,6

94,6

48*

4,42

3,87

4 1,

167,

445,

185

430,

575,

957@

48

5,88

0,51

5@

Cap

ital

Wor

k in

Pro

gre

ss

Dev

elop

men

t E

xpen

dit

ure

2,51

3,47

7,99

4 1,

019,

145,

078$

26,8

31,8

01

3,50

5,79

1,27

1 0

0 0

0 3,

505,

791,

271

2,51

3,47

7,99

4

Exp

lora

tion

Exp

end

itur

e(S

ee N

ote

1 of

Sch

edul

e 15

)23

1,14

2,66

5 45

1,33

0,25

3$16

6,39

2,86

1 51

6,08

0,05

7 0

0 0

0 51

6,08

0,05

7+

231,

142,

665

Tota

l (B

):2,

744,

620,

659

1,47

0,47

5,33

1 19

3,22

4,66

2 4,

021,

871,

328

0 0

0 0

4,02

1,87

1,32

8 2,

744,

620,

659

Prev

ious

Yea

r1,

367,

894,

846

2,34

3,63

1,30

8 96

6,90

5,49

5 2,

744,

620,

659

0 0

0 0

2,74

4,62

0,65

9 1,

367,

894,

846

GR

AN

D T

OTA

L (A

+ B

):4,

342,

641,

801

1,50

5,16

0,96

5 21

3,15

9,86

05,

634,

642,

906

1,16

7,44

5,18

5 66

,142

,240

68

8,01

9 1,

232,

899,

406

4,40

1,74

3,50

0 3,

175,

196,

616

Prev

ious

Yea

r2,

928,

949,

772

2,41

5,67

1,85

4 1,

001,

979,

825

4,34

2,64

1,80

1 1,

075,

174,

411

96,6

94,6

48

4,42

3,87

4 1,

167,

445,

185

3,17

5,19

6,61

6 1,

853,

775,

361

Fixe

d A

sset

s in

clud

e th

e C

omp

any’

s sh

are

in

Uni

ncor

por

ated

Joi

nt

Vent

ure

Ass

ets

4,22

9,95

7,93

7 1,

499,

160,

025

212,

439,

662

5,51

6,67

8,30

0 1,

102,

668,

786

62,7

07,4

78

0 1,

165,

376,

264

4,35

1,30

2,03

6 3,

127,

289,

151

* in

clud

ing

Rs.

7,89

2,35

4 (P

revi

ous

Year

: R

s.10

,785

,599

) ch

arg

ed t

o Pr

oduc

ing

Pro

per

ties

and

Rs.

5,53

9,87

7 (P

revi

ous

Year

Rs.

8,69

3,56

2) c

harg

ed t

o D

evel

opm

ent

Exp

end

itur

e, a

nd R

s.96

,412

(P

revi

ous

Year

: R

s.72

3,02

7) c

harg

ed t

o E

xplo

rati

on E

xpen

dit

ure.

@ i

nclu

din

g R

s.19

,970

,008

(Pr

evio

us Y

ear:

Rs.

26,4

06,6

94)

cons

ider

ed f

or d

eple

tion

of

Prod

ucin

g P

rop

erti

es.

# in

clud

es R

s.19

,215

,000

(Pr

evio

us Y

ear:

Rs.

Nil)

dec

reas

e in

und

isco

unte

d e

stim

ated

fut

ure

Site

Res

tora

tion

cos

t of

pro

duc

ing

fiel

d c

apit

alis

ed.

$ in

clud

ing

Bor

row

ing

Cos

t R

s.43

,778

,316

(Pr

evio

us Y

ear:

Rs.

10,9

17,3

28)

char

ged

to

Dev

elop

men

t E

xpen

dit

ure

and

Rs.

3,35

3,30

5 (P

revi

ous

Year

: R

s.16

,569

,951

) ch

arg

ed t

o E

xplo

rati

on

Exp

end

itur

e.

+ S

ee N

ote

23 o

f Sc

hed

ule

15.

Account.indd 32 8/26/2008 6:41:41 AM


33

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 Limited 5,000,200 5,000,200

QUOTED (TRADE)

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

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

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

23 Equity Shares of Rs.10 each of Reliance Energy Limited 3,219 3,219

15 Equity Shares of Rs.10 each of Reliance Capital Limited 166 166

UNQUOTED (NON TRADE)

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

CURRENT

UNQUOTED (NON TRADE)

UNITS OF MUTUAL FUNDS (See Notes 3 & 6 of Schedule 15)

12,784 (Previous Year 64,800) Units of Rs.1,000 each of UTI Liquid Cash Plan Institutional – Daily Income Option – Reinvestment 13,033,015 66,059,927

58,637,655 (Previous Year Nil) Units of Rs.10 each of UTI Fixed Maturity Plan – QFMP – (02/08-I) – Institutional Dividend Plan – Reinvestment 586,376,552 0

68,402,101 (Previous Year Nil) Units of Rs.10 each of Tata Fixed Horizon Fund – Series 17 scheme D – Institutional Plan – Periodic Dividend 684,021,011 0

68,397,607 (Previous Year Nil) Units of Rs.10 each of Reliance Fixed Horizon Fund – VI-Series 2 – Institutional Dividend Plan 683,976,071 0

68,169,937 (Previous Year Nil) Units of Rs.10 each of ICICI Prudential FMP 42 – 3 Months – Plan A – Retail Dividend – Pay Dividend 681,699,370 0

35,092,865 (Previous Year Nil) Units of Rs.10 each of SBI – Debt Fund Series – 90 Days – 20 – (26-Feb-08) – Dividend 350,935,900 0

35,000,000 (Previous Year Nil) Units of Rs.10 each of Principal PNB – Fixed Maturity Plan (FMP-43) 91 Days – Series XIII – Feb. 08 350,000,000 0

68,877,000 (Previous Year Nil) Units of Rs.10 each of BSL – Quarterly Interval Fund – Series 2 – Dividend – Reinvestment 688,770,993 0

30,178,387 (Previous Year Nil) Units of Rs.10 each of ABN AMRO – Flexible Short Term Plan – Series D – Calender Quarterly Dividend 301,785,423 0


Contd.

Account.indd 33 8/26/2008 6:41:41 AM


34


15,036,603 (Previous Year Nil) Units of Rs.10 each of ABN AMRO – Flexible Short Term Plan – Series D – Quarterly Dividend Reinvestment 150,366,868 0

10,000,000 (Previous Year Nil) Units of Rs.10 each of Standard Chartered FMP – Quarterly Series 27 – Dividend 100,000,000 0

10,028,237 (Previous Year Nil) Units of Rs.10 each of HSBC Interval Fund Plan 2 Institutional Dividend 100,346,334 0

33,553,573 (Previous Year Nil) Units of Rs.10 each of HDFC FMP 90 Days March 2008 VII (2) 335,535,726 0

35,000,000 (Previous Year Nil) Units of Rs.10 each of UTI Fixed Maturity Plan – HFMP 03/08-I – Institutional Plan – Reinvestment 350,000,000 0

29,727,509 (Previous Year Nil) Units of Rs.10 each of TATA Floating Rate Fund Long Term – Income/Bonus 300,628,906 0

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

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

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

0 (Previous Year 3,735) Units of Rs.1,000 each of Templeton India TMA Super Institutional Plan – Daily Dividend Reinvestment 0 3,735,997

5,683,525,411 695,284,162

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

5,682,525,412 694,284,163

Aggregate Cost of Quoted Investments 49,042 49,042

Market Value of Quoted Investments 960,674 598,059

Aggregate Cost of Unquoted Investments 5,683,476,369 695,235,120

in Rupees



Schedule 5 Investments (Fully Paid) At Cost (Contd.)


Account.indd 34 8/26/2008 6:41:42 AM


35

in Rupees



SCHEDULE 6CURRENT ASSETS, LOANS AND ADVANCESINVENTORIES Crude Oil (See Note 21 (a)(ii) of Schedule 15) 72,024,219 50,246,759 Stores and Spares 166,191,139 193,685,941

238,215,358 243,932,700 SUNDRY DEBTORS(Unsecured, Considered Good) Outstanding for a Period Less than Six Months

Receivable from Subsidiary – HOEC Bardahl India Limited (See Note 1 below) 23,383,442 0 Other Receivables 113,303,411 196,553,969

136,686,853 196,553,969 CASH AND BANK BALANCES Cash on Hand 157,316 75,064 With Scheduled Banks Current Accounts (See Notes 3 & 4 of Schedule 15) 974,883,290 68,355,177 Unclaimed/Unpaid Dividend Accounts 5,901,732 6,270,257 Unclaimed/Unpaid Share Application Money 4,120,544 745,051 Deposit Accounts (See Note 4 of Schedule 15) 583,358,946 1,029,507,311 With Non-Scheduled Bank Current Account (See Note 5 of Schedule 15) 3,543,956 3,659,996

1,571,965,784 1,108,612,856 OTHER CURRENT ASSETS Interest Accrued on Deposits 7,394,535 9,758,715

7,394,535 9,758,715 LOANS AND ADVANCES (See Note 2 below) Advances Recoverable in Cash or in Kind or For Value to be Received (See Notes 3 & 4 below) 402,273,861 280,406,268 Service Tax Input Credit 1,404,571 0 Advance Income Tax [Net of Provision for Taxation of Rs.78,000,000 (Previous Year Rs.43,000,000)] 166,658,880 60,549,971 Advance Fringe Benefit Tax

[Net of Provision for Fringe Benefit Taxation of Rs.3,800,000 (Previous Year Rs.2,000,000)] 485,376 400,376

570,822,688 341,356,615 Less : Provision for Doubtful Advances (See Notes 2 & 3 below) 15,556,856 15,556,856

555,265,832 325,799,759

TOTAL 2,509,528,362 1,884,657,999

Notes:1. Maximum Amount Due from HOEC Bardahl India Limited at any time during the year 23,383,442 0 2. Of the above : Unsecured, Considered Good 555,265,832 325,799,759 Unsecured, Considered Doubtful (See Note 3 below) 15,556,856 15,556,856

570,822,688 341,356,615 3. Includes Capital Advance Rs.3,048,027 (Previous Year Rs.1,354,621) for which a provision

of Rs.1,354,621 (Previous Year Rs.1,354,621) has been made.4. Includes Unamortised Borrowing Cost of Rs.69,781,407 (Previous Year Rs.63,327,765)


Account.indd 35 8/26/2008 6:41:42 AM


36



in Rupees



SCHEDULE 7CURRENT LIABILITIES AND PROVISIONSCURRENT LIABILITIES Sundry Creditors (See Note 7 of Schedule 15) – Outstanding Dues to Micro Small and Medium Enterprises 0 0 – Outstanding Dues to Creditors other than Micro Small and Medium Enterprises 964,282,634 706,291,484 Investor Education and Protection Fund Unclaimed/Unpaid Dividend# 5,901,732 6,270,257 Unclaimed/Unpaid Share Application Money# 4,120,544 745,051 Other Liabilities 6,534,506 4,765,040 980,839,416 718,071,832 PROVISIONS Provision for Compensated Absences 2,500,000 1,537,100 Provision for Site Restoration (See Note 20 of Schedule 15) 225,177,500 244,392,500 Provision for Taxation – Income Tax [Net of Advance Tax of Rs.669,650,638 (Previous Year: Rs.669,650,638)] 52,915,254 52,915,254 – Wealth Tax [Net of Advance Tax of Rs.344,198 (Previous Year: Rs.203,248)] 293,802 234,752 – Fringe Benefit Tax [Net of Advance Tax of Rs.2,422,684 (Previous Year: Rs.2,422,684)] 177,316 177,316 Proposed Dividend 130,493,289 0 Dividend Tax 22,177,334 0

433,734,495 299,256,922

TOTAL 1,414,573,911 1,017,328,754 # This does not include any amount due and outstanding, to be credited to the

Investor Education and Protection Fund.

in Rupees



SCHEDULE 8SALES AND SERVICESA) SALES Sale of Crude Oil and Gas (See Note 21(a)(i) of Schedule 15) 1,040,272,662 1,411,653,755 Less : Profit Petroleum to Government of India 230,273,866 256,340,584

809,998,796 1,155,313,171 B) SERVICES Management Fee (Tax Deducted at Source Rs.2,659,193 (Previous Year Rs. Nil) 23,470,373 0

23,470,373 0

(A) + (B) 833,469,169 1,155,313,171

SCHEDULE 9INCREASE / (DECREASE) IN STOCK OF CRUDE OILIncrease/(Decrease) in Gross Stock of Crude Oil (See Note 21(a)(ii) of Schedule 15) 21,777,460 (33,451,129)Less : Profit Petroleum to Government of India 20,471,051 10,168,559

1,306,409 (43,619,688)

Account.indd 36 8/26/2008 6:41:42 AM


37

in Rupees



SCHEDULE 10

OTHER INCOME

Interest Income (Gross) (See Note 8 of Schedule 15)[Tax Deducted at Source Rs.6,484,992 (Previous Year: Rs.13,081,847)] 43,137,046 71,265,714

Dividend from Subsidiary 0 18,750,750

Dividend from Long Term – Trade Investments 281 6,678

Dividend from Current – Non Trade Investments 125,847,994 42,528,915

Net Profit on Sale of Assets 16,602 0

Gain on Foreign Exchange Fluctuation (Net) (See Note 22(i) of Schedule 15) 32,386,153 15,347,008

Miscellaneous Income 146,715 1,092,679

201,534,791 148,991,744

SCHEDULE 11

FIELD OPERATING EXPENSES

Hire Charges 270,942,825 120,752,634

Insurance 3,375,127 5,212,292

Fuel, Water and Others 10,790,024 7,785,448

Production Expenses 13,745,589 18,451,592

Other Expenses 7,687,897 8,140,698

Royalty, Cess & Other Duties 4,293,885 7,417,221

310,835,347 167,759,885

SCHEDULE 12

CORPORATE EXPENSES

(A) STAFF EXPENSES

Salaries, Allowances and Bonus 55,457,252 38,972,185

Voluntary Retirement Compensation 0 6,052,862

Contribution to Provident and Other Funds 7,492,721 5,566,108

Welfare Expenses 2,160,127 2,536,812

65,110,100 53,127,967

(B) ESTABLISHMENT EXPENSES

Office and Guest House Rent 9,091,926 7,826,364

Electricity 2,151,744 2,591,909

Rates and Taxes 414,995 292,071

Repairs and Maintenance – Others 8,191,961 7,598,701

General Office Expenses 450,325 399,974

20,300,951 18,709,019


Account.indd 37 8/26/2008 6:41:42 AM


38


in Rupees



SCHEDULE 12

CORPORATE EXPENSES (Contd.)

(C) OTHER EXPENSES

Travelling and Conveyance 4,186,485 6,470,284

Communication Expenses 3,801,528 4,151,684 Printing and Stationery 3,104,282 2,816,173 Legal and Professional Expenses 32,079,232 30,499,619 Insurance 325,074 220,362 Directors’ Sitting Fees 305,000 325,000

Auditors’ Remuneration # @

As Statutory Auditors 1,200,000 1,050,000 For Tax Matters 150,000 150,000 For Other Matters 60,000 145,000 Reimbursement of Expenses 10,993 318,970

Service Tax (Net of Service Tax Input Credit of Rs.174,252 (Previous Year Rs. Nil) 0 226,782

1,420,993 1,890,752 Loss on Sale of/Discarded Assets 0 173,912 Share Issue Expenses 0 287,500

Miscellaneous Expenses 15,212,988 13,304,675

60,435,582 60,139,961

(D) TOTAL CORPORATE EXPENSES (A + B + C) 145,846,633 131,976,947

(E) Less : RECOVERY OF EXPENSES 105,995,211 103,703,793

39,851,422 28,273,154

# Auditors’ Remuneration for the current year excludes Rs.2,031,777 (Previous Year Rs.1,060,668) paid to the Auditors for attest services rendered in relation to the Rights Issue, which is included as part of Rights Issue expenses adjusted against Securities Premium.

@ Auditors’ Remuneration for the current year excludes Rs.1,340,462 (Previous Year Rs.225,000) paid towards tax matters to a firm in which some partners of the audit firm are partners.

SCHEDULE 13

INTEREST AND FINANCE CHARGES

Interest on Fixed Loans 70,533,415 48,757,586

Bank Charges and Commission 2,521,137 6,181,042

Other Finance Charges 2,557,192 915,217

75,611,744 55,853,845

Account.indd 38 8/26/2008 6:41:42 AM


39


SCHEDULE 14

SIGNIFICANT ACCOUNTING POLICIES

1. Accounting Convention

The financial statements are prepared under historical cost convention in accordance with the generally accepted accounting principles in India and the provisions of the Companies Act, 1956.

2. Use of Estimates

The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period like depletion of producing properties, estimate of site restoration liability, expensing of the estimated site restoration liability, provision for employee benefits, useful lives of fixed assets, provision for doubtful advances, provision for tax etc. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results may vary from these estimates.

3. Exploration and Development Costs

The Company generally follows the “Successful Efforts Method” of accounting for its exploration and production activities as explained below:

(i) Cost of exploratory wells, including survey costs, is expensed in the year when determined to be dry/abandoned or is transferred to the producing properties on attainment of commercial production.

(ii) Cost of temporary occupation of land, successful exploratory wells, development wells and all related development costs, including depreciation on support equipment and facilities, are considered as development expenditure. These expenses are capitalised as producing properties on attainment of commercial production.

(iii) Producing properties, including the cost incurred on dry/abandoned wells in development areas, are depleted using “Unit of Production’’ method based on estimated proved developed reserves. Any changes in Reserves and/or Cost are dealt with prospectively. Hydrocarbon reserves are estimated and/or approved by the Management Committees of the Unincorporated Joint Ventures, which follow the International Reservoir Engineering Principles.

(iv) If the Company/unincorporated joint venture were to relinquish a Block or part thereof, the accumulated acquisition and exploration costs carried in the books related to the Block or part thereof, as the case may be, are written off as a charge to the profit and loss account in the year of relinquishment.

Explanatory Note 1. All exploration costs including acquisition of geological and geophysical seismic information, license and acquisition costs are initially

capitalized as “Capital Work in Progress – Exploration Expenditure”, until such time as either exploration well(s) in the first drilling campaign is determined to be successful, at which point the costs are transferred to “Producing Properties”, or it is unsuccessful in which case such costs are written off consistent with para 2 below.

2. Exploration costs associated with drilling, testing and equipping exploratory well and appraisal well are initially capitalized as “Capital Work in Progress – Exploration Expenditure”, until such time as such costs are transferred to “Producing Properties” on attainment of commercial production or charged to the Profit and Loss Account unless:

(a) such well has found potential commercial reserves; or

(b) such well test result is inconclusive and is subject to further exploration or appraisal activity like acquisition of seismic, or re-entry of such well, or drilling of additional exploratory/step out well in the area of interest, such activity to be carried out no later than 2 years from the date of completion of such well testing;

Management makes quarterly assessment of the amounts included in “Capital Work in Progress - Exploration Expenditure” to determine whether capitalization is appropriate and can continue. Exploration well(s) capitalized beyond 2 years are subject to additional judgment as to whether facts and circumstances have changed and therefore the conditions described in 2(a) and (b) no longer apply.

4. Site Restoration

Estimated future liability relating to dismantling and abandoning producing well sites and facilities whose estimated producing life is expected to end during next ten years is recognised based on the estimated future expenditure determined by the Management in accordance with the local conditions and requirements. The corresponding amount is added to the cost of the producing property and is expensed in proportion to the production for the year and remaining estimated proved reserves of hydrocarbons based on latest technical assessment available with the Company. Any change in the value of the estimated liability is reflected as an adjustment to the provision and the corresponding producing property.

Notes.indd 39 8/26/2008 6:47:19 AM



40


SCHEDULE 14 — SIGNIFICANT ACCOUNTING POLICIES (Contd.)

5. Impairment At each Balance Sheet date, the Company reviews the carrying amount of its assets to determine whether there is any indication that those assets

have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss.

Where the impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior accounting periods.

6. Unincorporated Joint Ventures The financial statements of the Company reflect its share of assets, liabilities, income and expenditure of the Joint Venture operations which are

accounted on the basis of available information on line by line basis with similar items in the Company’s accounts to the extent of the participating interest of the Company as per the various joint venture agreements. The financial statements of the unincorporated joint ventures are prepared by the respective Operators in accordance with the requirements prescribed by the respective Production Sharing Contracts of the unincorporated joint ventures. Hence, certain adjustments/disclosures required under the mandatory Accounting Standards and the Companies Act, 1956 have been made in the financial statements of the Company only to the extent of information available with the Company. Such information include information relating to foreign exchange differences, information relating to micro small and medium enterprises, particulars of expenditure in foreign currency, particulars of earnings in foreign currency, particulars of CIF value of imports, transactions with related parties, details of commitments and contingencies and information relating to consumption of stores and spares.

7. Fixed Assets Fixed Assets are stated at cost inclusive of all incidental expenses.

8. Depreciation (i) Depreciation is provided on the “ Written Down Value’’ method at the rates specified in Schedule XIV of the Companies Act, 1956. (ii) 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. (iii) Improvements to Leasehold premises are amortised over the remaining primary lease period. (iv) Computer software is amortised on the “Written Down Value” method at 40% per annum. (v) Assets individually costing less than Rs. 5,000 are fully depreciated in the year of acquisition.

9. Investments Investments 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.

10. Inventories (i) Closing stock of crude oil in saleable condition is valued at Net Realisable Value less estimated selling costs. (ii) Stores and spares are valued at cost on FIFO basis or estimated net realisable value, whichever is lower.

11. Miscellaneous Expenditure (i) Share issue expenses are either debited to the profit and loss account or adjusted against the securities premium account in accordance with

Section 78 of the Companies Act, 1956, based on Management’s decision. (ii) “Signature Bonus” paid upon signing of Production Sharing Contract is considered as deferred revenue expense to be written off over three

to five years commencing from the year of payment, depending on the size of the field.

12. Revenue Recognition (i) Revenue from the sale of crude oil and gas, net of Government’s share of Profit Petroleum and Value Added Tax, is recognised on transfer

of custody to refineries/others. (ii) Sale is recorded at the invoiced price, which is subject to the approval of the Government of India, Ministry of Petroleum & Natural Gas

(MoP&NG). The difference between the invoiced price and the final approved price, if any, is adjusted in the year in which the aforesaid approval is received.

(iii) Management Fee Income is recognised on accrual basis as per the contractual terms and when there is no uncertainty in receiving the same.

Notes.indd 40 8/26/2008 6:47:19 AM


41


SCHEDULE 14 — SIGNIFICANT ACCOUNTING POLICIES (Contd.)

13. Retirement Benefits (Also See Note 22(ii) of Schedule 15)

(a) Defined Contribution Plan

(i) Provident Fund: Contributions towards Employees’ Provident Fund are made to the Employees Provident Fund Scheme in accordance with the statutory provisions.

(ii) Superannuation: The Company contributes a sum equivalent to 15% of eligible employees basic salary to a Superannuation Fund administered by trustees. The Company has no liability for future Superannuation Fund benefits other than its annual contribution and recognizes such contributions as an expense in the year incurred.

(b) 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 Actuary appointed by the Company using the Projected Unit Credit method.

(c) Short Term Employee Benefits 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.

14. Borrowing Cost Borrowing Cost (including amortisation of ancillary costs) specifically identified to the acquisition or construction of qualifying assets is capitalized

as part of such asset. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the Profit and Loss Account.

15. Foreign Currency Transactions

Foreign Currency Transactions are accounted at the exchange rates ruling on the date of the transactions. Foreign currency monetary items as at the Balance Sheet date are restated at the closing exchange rates. Exchange differences arising on actual payments/realisations and year-end restatements are dealt with in the Profit and Loss Account.

Also See Note 22(i) of Schedule 15.

16. Taxation Income Tax: Current tax is the amount of tax payable on the taxable income for the year and is provided with reference to the provisions of the

Income Tax Act, 1961.

Deferred Tax: Deferred tax is recognised, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred Tax asset is recognised when there is a reasonable certainty of future taxable income except for deferred tax assets in respect of unabsorbed loss or depreciation where it is recognised only if there is a virtual certainty with convincing evidence.

MAT Credit: Minimum Alternate Tax (MAT) Credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which the MAT Credit becomes eligible to be recognised as an asset, the said asset is created by way of a credit to the Profit and Loss Account and shown as MAT Credit Entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that the Company will pay normal income tax during the specified period.

SCHEDULE 15

NOTES TO THE ACCOUNTS

1. Provisions and Write – Offs (Net)

During the year ended March 31, 2008, Exploratory Well North Ledo-1 drilled in Block AAP-ON-94/1 did not encounter hydrocarbons of commercial interest and the same has been plugged and abandoned. Consistent with the Company’s Accounting Policies, the Company has written off the Exploration Cost of Rs. 158,033,311 associated with the drilling of the said well.

As per the terms of the Production Sharing Contract for CY-OSN-97/1 Block, if no Commercial Discovery is made in the Contract Area by end of the Exploration Period, the Contract Area shall be relinquished. In the absence of any discovery during the Exploration Period the Contract Area stands relinquished. Hence, Exploration Cost pertaining to the CY-OSN-97/1 Block of Rs. 8,359,550 has been written off.

Notes.indd 41 8/26/2008 6:47:19 AM



42


SCHEDULE 15 — NOTES TO THE ACCOUNTS (Contd.)

Provisions and Write-offs for the year ended March 31, 2007 includes write-off of exploration cost of Rs. 943,486,556 for Vinayaka-1 and Subhan-1 Exploratory Wells in CY-OSN-97/1 Block, a write back of Rs. 4,381,364 in CB-ON-7 Block and a write back of Rs. 8,736,496 in AAP-ON-94/1 Block based on audited Accounts of the respective Joint Ventures.

2. Secured Loans (Foreign Currency and Rupee Term Loans) (a) The Term Loans from State Bank of India, Axis Bank Limited and HDFC Bank Limited amounting to Rs. 957,758,261 as at March 31,

2008, are secured by way of charge on the Company’s Participating Interest in PY-3 and Palej Fields, first charge on the Company’s share of Crude Oil Receivables from PY-3 and Palej Fields and charge on the Debt Service Reserve Account. Refer Note 4 below.

(b) The Term Loans from Axis Bank Limited, Bank of India, Canara Bank, Export-Import Bank of India, Indian Overseas Bank, Industrial Development Bank of India Limited, Syndicate Bank, The Federal Bank Limited and Union Bank of India amounting to Rs. 514,440,431 as at March 31, 2008 are secured by way of charge on all movable properties pertaining to PY-1 Gas Project, the Company’s Participating Interest in PY-1 Field and on the PY-1 Trust and Retention Accounts. Refer Note 4 below.

3. Rights Issue of Equity Shares A : FY 2007-08 On January 24, 2008, an allotment of 52,180,621 Equity Shares of Rs. 10 each was made consequent to the Rights Issue of 52,217,720 Equity

Shares of Rs. 10 each at a premium of Rs. 107 per Share to the then existing Shareholders of the Company in the ratio of Two Equity Shares for every Three Equity Shares held aggregating to Rs. 6,105,132,657. In terms of Clause No. 6.13.2.28 of SEBI (Disclosure and Investor Protection) Guidelines, 2000, as amended, the details of the utilisation of the proceeds of the Rights Issue are as under:

in Rupees

Block Defined Programme Utilisation up to March 31, 2008

PY-1 Contribution towards Cash Calls for Development of Basement Gas Reservoir in PY-1 Field

61,807,122

Rights Issue Expenses Rights Issue Expenses (Net) 15,304,389Total 77,111,511

The balance amount of Rs. 6,028,021,146 has been invested in the following forms of investment as at March 31, 2008.in Rupees

Form of Investment Schedule Reference AmountBank Account Cash and Bank Balances – Schedule 6 900,000,000Mutual Funds Investments – Schedule 5 5,128,021,146

Total 6,028,021,146

B: FY 2006-07 On October 27, 2006, an allotment of 19,567,733 Equity Shares of Rs. 10 each 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 then existing Shareholders of the Company in the ratio of One Equity Share for every Three 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, as amended, the details of the utilisation of the proceeds of the Rights Issue are as under:

in Rupees

Block Defined Programme Utilisation up to March 31, 2008

PY-1 Drilling of Development Well (Earth) 994,500,000CY-OSN-97/1 Exploration Drilling Programme 284,500,000PY-3 Phase-III Studies 1,000,000CB-ON-7 Exploration Drilling Programme 81,000,000CB-OS/1 Appraisal Drilling Programme 80,000,000North Balol Development Well Drilling

Programme 16,000,000AAP-ON-94/1 Seismic Data Processing and

Interpretation 30,147,708

Total 1,487,147,708

Notes.indd 42 8/26/2008 6:47:19 AM


43



4. Bank Balances – Scheduled Banks

(a) Current Accounts with Scheduled Banks include Lien Marked Accounts Rs. 3,294,327 (Previous Year Rs. 1,111,086). Refer Note 2 above.

(b) Deposits with Scheduled Banks include

– Lien Marked Deposits Rs. 102,591,386 (Previous Year Rs. 113,970,251). Refer Note 2 above.

– Deposit amounting to Rs. 192,978,180 (Previous Year Rs. 179,417,650) placed as “Site Restoration Fund” under Section 33ABA of the Income Tax Act, 1961.

5. Bank Balances – Non-Scheduled Bank

The balance with Non-Scheduled Bank represents the balance with Barclays Bank, London. The maximum amount outstanding at any time during the year in respect of this account was Rs. 34,090,109 (Previous Year Rs. 30,725,401).

6. Purchase and Sale of Investments

The details of purchase and sale of Investments are as under:

A. Year 2007– 2008in Rupees

Name of the FundPurchase Sales

Units Amount Units Amount

SBI Magnum Insta Cash Fund – Institutional Plus – Daily Dividend 14,060,330 235,514,748 31,954,573 535,248,680

SBI Premier Liquid Fund – Institutional Plus – Daily Dividend 67,808,972 680,293,517 67,808,972 680,293,517

SBI SHF Liquid Plus – Institutional Plan – Daily Dividend 68,437,527 684,717,453 68,437,527 684,717,453

ICICI Prudential Institutional Liquid Plan – Super Institutional Daily Dividend – Reinvestment 117,724,303 1,177,312,132 148,209,916 1,482,168,258

ICICI Prudential Flexible Income Plan – Daily Dividend – Reinvestment 129,595,373 1,370,276,672 129,595,373 1,370,276,672

Templeton India TMA Super Institutional Plan Daily Dividend Reinvestment 1,061,099 1,061,364,721 1,064,834 1,065,100,717

Templeton Floating Rate Income Fund Long Term Plan Super Institutional Option – Daily Dividend Reinvestment 67,594,837 676,678,395 67,594,837 676,678,395

Templeton Ultra Short Bond Fund – Super Institutional Option – Daily Dividend Reinvestment 67,794,279 679,217,323 67,794,279 679,217,323

HDFC Cash Management Fund – Savings Plan Daily Dividend 73,419,031 780,914,186 74,815,080 795,763,124

HDFC Cash Management Fund – Savings Plus Plan – Wholesale – Daily Dividend 68,338,307 685,535,726 68,338,307 685,535,726

UTI Liquid Cash Plan Institutional – Daily Income Option – Reinvestment 1,251,367 1,275,700,843 1,303,383 1,328,727,754

Kotak Liquid (Institutional Premium) – Daily Dividend 55,618,702 680,111,052 55,618,702 680,111,052

Kotak Flexi Debt Scheme – Daily Dividend 68,256,165 684,684,412 68,256,165 684,684,412

HSBC Cash Fund Institutional Plus – Daily Dividend 100,527,329 1,005,836,239 100,527,329 1,005,836,239

HSBC Liquid Plus Institutional Plus – Daily Dividend 75,961,211 760,569,223 75,961,211 760,569,223

(Contd.)

Notes.indd 43 8/26/2008 6:47:20 AM



44



in Rupees

Name of the FundPurchase Sales


Birla Cash Plus – Institutional Premium – Daily Dividend – Reinvestment 99,822,767 1,000,174,216 99,822,767 1,000,174,216

Birla Sun Life Liquid Plus – Institutional – Daily Dividend – Reinvestment 100,628,067 1,006,964,940 100,628,067 1,006,964,940

Reliance Liquidity Fund – Daily Dividend Reinvestment Option 67,990,577 680,116,543 67,990,577 680,116,543

Reliance Liquid Plus Fund – Institutional Option Daily Dividend 683,200 683,976,071 683,200 683,976,071

TATA Liquid Super High Investment Fund – Daily Dividend 610,339 680,235,408 610,339 680,235,408

TATA Floater Fund – Daily Dividend 68,159,453 684,021,010 68,159,453 684,021,010

Principal Cash Management Fund – Liquid Option Institutional Plan – Daily Reinvestment 8,035,250 80,370,177 8,035,250 80,370,177

UTI Fixed Maturity Plan – QFMP – (02/08-I)Institutional Dividend Plan – Reinvestment 58,637,655 586,376,552 0 0

Tata Fixed Horizon Fund – Series 17 Scheme D Institutional Plan – Periodic Dividend 68,402,101 684,021,011 0 0

Reliance Fixed Horizon Fund – VI-Series 2 – Institutional Dividend Plan 68,397,607 683,976,071 0 0

ICICI Prudential FMP 42 – 3 Months – Plan A – Retail Dividend- Pay Dividend 68,169,937 681,699,370 0 0

SBI – Debt Fund Series – 90 Days – 20 (26-Feb-08) – Dividend 35,092,865 350,935,900 0 0

Principal PNB – Fixed Maturity Plan (FMP-43) 91 Days – Series XIII-Feb. 08 35,000,000 350,000,000 0 0

BSL-Quarterly Interval Fund – Series 2 – Dividend Reinvestment 68,877,000 688,770,993 0 0

ABN AMRO-Flexible Short Term Plan – Series D – Calender Quarterly Dividend 30,178,387 301,785,423 0 0

ABN AMRO-Flexible Short Term Plan – Series D – Quarterly Dividend Reinvestment 15,036,603 150,366,868 0 0

Standard Chartered FMP-Quarterly Series 27 – Dividend 10,000,000 100,000,000 0 0

HSBC Interval Fund Plan 2 Institutional Dividend 10,028,237 100,346,334 0 0

HDFC FMP 90 Days March 2008 VII (2) 33,553,573 335,535,726 0 0

UTI Fixed Maturity Plan – HFMP 03/08-I – Institutional Plan – Re-Investment 35,000,000 350,000,000 0 0

TATA Floating Rate Fund Long Term – Income/Bonus 29,727,509 300,628,904 0 0

Total 1,889,479,959 22,919,028,159 1,373,210,141 17,930,786,910

Notes.indd 44 8/26/2008 6:47:20 AM


45



B. Year 2006-2007 in Rupees

Name of the Fund Purchase Sales


DSPML Liquidity Fund – Regular Daily Dividend 1,854,467 18,563,216 1,854,467 18,563,216

DSPML Liquidity Fund – Institutional Plus 209,377 190,855,538 209,377 190,855,538

SBI Magnum Insta Cash Fund – Daily Dividend Option 17,894,243 299,733,932 0 0

SBI Debt Fund Series 90 Days FMP 60,666,921 606,669,206 60,666,921 606,669,206

Prudential ICICI Liquid Plan – Daily Dividend Option 58,105,613 581,056,126 27,620,000 276,200,000

Templeton India TMA Regular Plan – Daily Dividend Reinvestment 5,527 8,359,288 5,527 8,359,288

Templeton India TMA Super Institutional Plan – Daily Dividend Reinvestment 823,725 823,930,871 819,990 820,194,874

UTI Liquid Cash Plan Institutional – Daily Income Option – Reinvestment 295,906 301,659,927 231,106 235,600,000

Standard Chartered Liquidity Manager Plus – Daily Dividend 301,132 301,162,579 301,132 301,162,579

HDFC 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

7. Sundry Creditors

The Company has received an intimation from one supplier as being registered under the Micro Small and Medium Enterprises Development Act, 2006 (MSMED Act) and no amount was payable/overdue to the said supplier at any time during the year. Accordingly, as at March 31, 2008, the Company did not have any outstanding amounts payable to Micro Small and Medium Enterprises. The information relating to dues to Micro Small and Medium Enterprises has not been provided in respect of the Unincorporated Joint Ventures as the details with respect to the same are not available.

As at March 31, 2007, in the absence of necessary information relating to the suppliers registered as Micro Small and Medium Enterprises under the MSMED Act, the Company was not in a position to identify such suppliers and hence did not disclose the information relating to them as at March 31, 2007.

8. Interest Income

Interest Income includes interest on:in Rupees

Particulars 2007-2008 2006-2007

Deposits 43,137,046 71,262,083

Others 0 3,631

Total 43,137,046 71,265,714

Notes.indd 45 8/26/2008 6:47:20 AM



46



9. Managerial Remuneration

Details of Managerial Remuneration Paidin Rupees

Particulars 2007-2008 2006-2007

Salary 6,959,140 7,843,094

Contribution to Provident and Superannuation Funds 847,350 533,650

Perquisites 0 224,424

Total 7,806,490 8,601,168

Notes:

1. The Managerial Remuneration does not include an amount of Rs. 85,000 (Previous Year Rs. 80,000) paid to the Managing Director as sitting fee for attending Board/Committee meetings. The Managing Director does not draw any other remuneration from the Company.

2. In computing Managerial Remuneration, perquisites have been valued in terms of actual expenditure incurred by the Company in providing the benefits except in case of certain expenses where the actual amount of expenditure cannot be ascertained with reasonable accuracy, notional amount as per Income Tax Rules has been added. Actuarial valuation based contribution/provision with respect to gratuity and provision for compensated absences have not been included as these are for the Company as a whole. Annual variable pay and long term incentive benefits have been included as remuneration on cash basis.

3. FY 2006-2007 – Joint Managing Director The Company had made an excess payment of Rs. 1,332,050 to the Joint Managing Director during the financial year 2006-2007 which has

been subsequently approved by the Shareholders of the Company at the Annual General Meeting held on September 28, 2007 pursuant to clause 1(B) of Section II of Part II of Schedule XIII of the Companies Act, 1956.

4. FY 2006-2007 – Erstwhile Managing Director The Company, after obtaining the necessary approval from the Shareholders, has made an application to the Central Government for

approval under Clause 1(C) of Section II of Part II of Schedule XIII of the Companies Act, 1956 for the remuneration paid to the erstwhile Managing Director during the financial year 2006-07 in excess of the limits prescribed under Schedule XIII of the Companies Act, 1956. Pending such approval, no recovery has been made for the excess remuneration paid to him amounting to Rs. 4,426,451 (net of Rs. 216,000 relating to Contribution to Provident and Superannuation Funds to the extent not taxable under the Income Tax Act, 1961 and Rs. 226,667 relating to encashment of leave at the end of the tenure)


(i) Expenditure in Foreign Currency (on cash basis, excluding share in Unincorporated Joint Ventures)

in Rupees

Particulars 2007-2008 2006-2007

Travelling 57,607 105,331

Membership & Subscription 247,959 39,711

Others 34,119 91,109

Note: The above excludes Interest paid in foreign currency amounting to Rs. 22,641,685 (Previous Year Rs. Nil) capitalised as Borrowing Cost in accordance with Accounting Standard 16 and Cash Calls advances paid in foreign currency to the Operator of the Unincorporated Joint Ventures.

(ii) Earnings in Foreign Currency (on cash basis, excluding share in Unincorporated Joint Ventures) Rs. Nil (Previous Year Rs. Nil)

Note: The above excludes Interest received in foreign currency amounting to Rs. 6,083,787 (Previous Year Rs. Nil) netted off against Borrowing Cost in accordance with Accounting Standard 16.

(iii) CIF Value of Imports (on cash basis, excluding share in Unincorporated Joint Ventures) Rs. Nil (Previous Year Rs. Nil)

Notes.indd 46 8/26/2008 6:47:20 AM


47



11. Dividend Paid in Foreign Currency to Non-Resident Shareholders

Particulars of Dividend Paid to Non Resident Shareholders (including Foreign Institutional Investors) are as under:

in Rupees

Particulars 2007-2008 2006-2007

Financial Year to which the Dividend relates

Nil

2005-2006

Number of Non-Resident Shareholders 489

Number of Equity Shares Held by Them 20,581,379

Gross Amount of Dividend 20,581,379

12. Long Term Incentive Plan, 2005

Under the HOEC Limited Employee Stock Option Scheme – 2005 (ESOS Scheme) approved by the Shareholders, the Board had on May 23, 2006 approved grant of 15,069 options to the eligible employees at nil exercise price as part of the Long Term Incentive Plan (LTIP) for the financial year 2005-06. In terms of the ESOS Scheme, the options would vest at the third anniversary of the end of the financial year for which the grant corresponds to. Except as stated above, no stock options were granted during the financial year 2006-07 and financial year 2007-08. For the financial year 2007-2008 an aggregate amount of Rs. 9,400,000 has been provided towards cash bonus and ESOS (deferred bonus) as per the LTIP.

Method used for Accounting for Share Based Payment Plan:

Under the LTIP, the eligible employees are granted options in the succeeding year after adoption of Annual Audited Accounts for the given year. The Company charges the entire amount provided towards cash bonus and ESOS (deferred bonus) to the Profit and Loss Account for the year for which the grant corresponds to. Any upward variation in the market price/acquisition price of the ESOS stocks, as may be applicable, as on the date of Balance Sheet, is charged to Profit and Loss Account for the period.

Particulars 2007-2008

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

Fair Value Methodology:

The fair value of stock option has been estimated on the date of the grants using Black-Scholes model.

The key assumptions used in Black-Scholes model for calculating fair value as on the date of the grant viz. May 23, 2006, are:

(a) risk-free interest rate – 6.25% p.a

(b) expected life – 3 to 4 years

(c) expected volatility of share price: 58%

(d) expected growth in dividend: Nil

The fair value of the option, as on the date of grant, works out to Rs. 147.15 per stock option.

As the amount charged to the Profit and Loss Account (i.e. Rs. 170.89 per stock option) is higher than the fair value (i.e. Rs. 147.15 per stock option), had compensation cost for the stock options granted under the Scheme been determined based on fair value approach, the Company’s net profit and earnings per share would have been higher than reported.

Notes.indd 47 8/26/2008 6:47:20 AM



48



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

Details of Actuarial Valuation as at March 31, 2008

in Rupees

Particulars 2007-2008 2006-2007

Projected Benefit Obligation as at the Beginning of the Year 4,519,852 5,247,923

Service Cost 1,178,717 797,389

Interest Cost 377,407 438,202

Actuarial Losses/(Gains) 979,387 (160,498)

Benefits Paid (358,480) (1,803,164)

Projected Benefit Obligation at the End of the Year 6,696,883 4,519,852

Change in Plan Assets

Fair Value of Plan Assets as at the Beginning of the Year 1,050,751 2,529,129

Expected Returns on Plan Assets 84,705 141,444

Employer’s Contribution 250,046 173,850

Benefits Paid (358,480) (1,803,164)

Actuarial Gains 14,626 9,492

Fair Value of Plan Assets as at the End of the Year 1,041,648 1,050,751

Cost of the Defined Benefit Plan for the Year

Current Service Cost 1,178,717 797,389

Interest on Obligation 377,407 438,202

Expected Return on Plan Assets (84,705) (141,444)

Net Actuarial Losses/(Gains) Recognised in the Year 964,761 (169,990)

Net Cost Recognised in the Profit and Loss Account 2,436,180 924,157

Assumptions

Discount Rate 8.35% 8.35%

Future Salary Increase (%) 10% 10%

Expected Rate of Return on Plan Assets 8.50% 8.25%

Note:

The expected return on plan assets is as furnished by the Actuary appointed by the Company.

14. Segmental Reporting

The Company is primarily engaged in a single business segment of Hydrocarbons. All the activities of the Company revolve around the main business. Further, the Company does not have any separate geographic segments other than India. There are no separate reportable segments as per AS-17 “Segmental Reporting”.

Notes.indd 48 8/26/2008 6:47:21 AM


49



15. Unincorporated Joint Venture Operations The Company has entered into Production Sharing Contracts (PSC) and Unincorporated Joint Ventures (UJV) in respect of certain properties

with the Government of India and some bodies corporate. Details of these PSCs/UJVs are as follows:

Unincorporated 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 Ltd. 40.00 40.00Hindustan Oil Exploration Company Ltd. 21.00 21.00Tata Petrodyne Ltd. 21.00 21.00

Asjol Block Hindustan Oil Exploration Company Ltd. 50.00 50.00Gujarat State Petroleum Corporation Ltd. 50.00 50.00

PY–1 Hindustan Oil Exploration Company Ltd. 100.00 100.00

CB-OS/1 (Cambay) Exploration AreaOil and Natural Gas Corporation Ltd. 32.89 32.89Hindustan Oil Exploration Company Ltd. 57.11 57.11Tata Petrodyne Ltd. 10.00 10.00Development Area*Oil and Natural Gas Corporation Ltd. 55.26 N/AHindustan Oil Exploration Company Ltd. 38.07 N/A Tata Petrodyne Ltd. 6.67 N/A

GN-ON-90/3(Pranhita Godavari**)

Hindustan Oil Exploration Company Ltd. 75.00 75.00Mafatlal Industries Ltd. 25.00 25.00

AAP-ON-94/1 Hindustan Oil Exploration Company Ltd. 40.323 40.323Indian Oil Corporation Ltd. 43.548 43.548Oil India Ltd. 16.129 16.129

CB-ON-7 (Palej) Exploration Area

Hindustan Oil Exploration Company Ltd. 50.00 50.00Gujarat State Petroleum Corporation Ltd. 50.00 50.00Development AreaHindustan Oil Exploration Company Ltd. 35.00 35.00Gujarat State Petroleum Corporation Ltd. 35.00 35.00Oil and Natural Gas Corporation Ltd. 30.00 30.00

CY-OSN-97/1 @ Hindustan Oil Exploration Company Ltd. 0 80.00Mosbacher (India) LLC 0 20.00

North Balol Hindustan Oil Exploration Company Ltd. 25.00 25.00

Gujarat State Petroleum Corporation Ltd. 45.00 45.00

Heramec Ltd. 30.00 30.00

# All the Unincorporated Joint ventures are for the blocks awarded within the territorial limits of India. * Oil and Natural Gas Corporation Ltd., has exercised its option to acquire 30% Participating Interest in the Gulf “A” Development Area of

the said Field w.e.f. 13th February 2008. ** As discussed in Note 19(v) below, the arbitration award is awaited for closure of this Unincorporated Joint Venture. @ As per the terms of the Production Sharing Contract for CY-OSN-97/1 Block, if no Commercial Discovery is made in the Contract Area

by end of the Exploration Period, the Contract Area shall be relinquished. As no discovery was made during the Exploration Period, the Contract Area stands relinquished as at March 31, 2008.

Notes.indd 49 8/26/2008 6:47:21 AM



50



16. Related Party Disclosures

(i) As per the Accounting Standard on ‘Related Party Disclosures’ (AS 18), the related parties of the Company as at March 31, 2008 are as follows:

(A) Subsidiary Company: HOEC Bardahl India Limited

(B) Promoter Group:

Burren Shakti Limited (Formerly known as Unocal Bharat Limited)

Burren Energy (India) Limited

(C) Unincorporated Joint Ventures: As per details given in Note 15 above.

As stated in Item 6 of Significant Accounting Policies (Schedule 14), the financial statements of the Unincorporated Joint Ventures are incorporated in the Company’s accounts to the extent of the Company’s share. Hence, particulars of transactions with the Unincorporated Joint Ventures have not been separately disclosed.

(D) Key Management Personnel:

Mr. Atul Gupta – Managing Director Mr. Manish Maheshwari – Joint Managing Director

Notes:

Related party relationships are as identified by the Management and relied upon by the Auditors.

(ii) The nature and volume of transactions of the Company during the year with the above parties were as follows:

in Rupees

Particulars Subsidiary Company

Promoter Group

Unincorporated Joint Ventures’

Partners

Key Management

Personnel

INCOME

– Management Fee 23,470,373(0)

0(0)

0(0)

0(0)

– Dividend Received 0(18,750,750)

0(0)

0(0)

0(0)

EXPENDITURE

– Remuneration (See Note 9 above)

0(0)

0(0)

0(0)

7,806,490(8,601,168)

– Sitting Fees (See Note 9 above)

0(0)

0(0)

0(0)

85,000(80,000)

– Recovery of Expenses 0(0)

0(0)

37,545,357(23,187,362)

0(0)

– Dividends Paid 0(0)

0(15,287,378)

0(0)

0(0)

As at Year End

Net Amounts Receivable/(Payable) as at Year End

23,383,442(0)

0(0)

0(0)

0((117,754))

Notes: (a) Figures in brackets relate to the Previous Year.

(b) The above excludes transactions, if any, entered into between the Unincorporated Joint Ventures and the related parties mentioned in (i) above in the absence of necessary information.

Notes.indd 50 8/26/2008 6:47:21 AM


51


17. Earnings Per Share (EPS)

The basic/diluted earnings per equity share is calculated as stated below:

Particulars 2007-2008 2006-2007(Restated)

Net Profit after Tax Rs. 241,005,398 Rs. 24,737,187

Weighted Average Numbers of Equity Shares 97,546,759 79,299,345

Basic/Diluted Earnings Per Share (EPS) Rs. 2.47 Rs. 0.31

Nominal Value per Share Rs. 10 Rs. 10

Note: Earnings Per Share calculations are done in accordance with Accounting Standard 20 “Earnings Per Share”.

18. Deferred Tax Asset (Net) The net Deferred Tax Asset of Rs. 374,478,090 as at March 31, 2008 has arisen on account of the following:

in Rupees

Particulars 2007-2008 2006-2007

Deferred Tax Asset

Exploration Expenses 290,500,000 566,887,000

Doubtful Advances 5,300,000 5,300,000

Employee Related Costs 4,438,090 3,891,090

Unabsorbed Business Losses 164,500,000 0

Sub total (A) 464,738,090 576,078,090

Deferred Tax Liability

Depreciation on Fixed Assets 4,800,000 3,700,000

Depletion of Producing Properties 70,060,000 74,400,000

Site Restoration 15,400,000 10,500,000

Sub total (B) 90,260,000 88,600,000

Net Deferred Tax Asset (A – B) 374,478,090 487,478,090

19. Commitments and Contingencies (Excluding commitments and contingencies of the Unincorporated Joint Ventures)

in Rupees

Particulars 2007-2008 2006-2007

(i) Counter Guarantees on account of Bank Guarantees 137,788,741 284,976,510

(ii) Corporate Guarantee for Housing Loans to Employees 235,523 609,746

(iii) Estimated amount of Contracts remaining to be Executed on Capital Account and Not Provided For:

(Including Rs. 122,335,500 (Previous Year Rs. 133,498,500) in respect of a farm-in consideration for acquisition of participating right, in one of the Unincorporated Joint Ventures)

130,833,217 141,157,927

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

– Dispute with Contractors under Arbitration 3,206,685 3,232,488

– Income Tax Demands under Appeal 399,502,024 298,149,494


Notes.indd 51 8/26/2008 6:47:21 AM



52


in Rupees

Particulars 2007-2008 2006-2007

(v) The Government had encashed the Performance Bank Guarantee of Rs. 10,149,000 for PG Block 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. 282,417,042 (including interest) (Previous Year Rs. 260,108,897). The Company has been 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) only.*

282,417,042 260,108,897

* The Company is contesting the claim and demand and the Management including its tax / legal advisors believe that its position will quite likely be upheld in the appellate process /court of law.

20. Provision for Site Restoration In accordance with Accounting Standard 29, the movement in Provision for Site Restoration is as follows.

in Rupees

Provision for Site Restoration 2007-2008 2006-2007Opening Balance 244,392,500 250,115,000Effect of Change in Exchange Rate (19,215,000) (5,722,500)Closing Balance 225,177,500 244,392,500

As per the terms of Production Sharing Contract this liability will arise at the time of abandonment of the field.

21. Quantitative and Other Related Disclosures (a) The Company is not a manufacturing company but is a partner in various consortiums engaged in the prospecting, exploring and producing

oil and gas. The information given below as required under items 4-C and 4-D of Part II of Schedule VI to the Companies Act, 1956 represents the Company’s share in the Unincorporated Joint Ventures.

(i) Sales Turnoverin Rupees

Description Unit Quantity Value Crude Oil Bbl. 332,087

(504,644)1,026,493,810

(1,403,682,050)Gas M3 2,677,570

(1,548,788)13,778,852(7,971,705)

Less: Profit Petroleum to Government of India 230,273,866(256,340,584)

Net 809,998,796(1,155,313,171)

(ii) Opening and Closing Stock of Goods Produced in Rupees

Description Unit Quantity Value* Opening StockCrude Oil Bbl. 19,136

(29,158)50,246,759

(83,697,888)Closing StockCrude Oil Bbl. 16,335

(19,136)72,024,219

(50,246,759)Decrease/(Increase) in Stock of Crude Oil Bbl. 2,801

(10,022) 21,777,460(33,451,129)

* Excluding adjustment for Profit Petroleum to Government of India


Notes.indd 52 8/26/2008 6:47:21 AM


53


(iii) Licensed Capacity, Installed Capacity and Actual Production

Description UnitLicensed Capacity

Per AnnumInstalled Capacity

Per AnnumActual Production

for the Year

Crude Oil Bbl. N.A. N.A. 329,286 *(494,622) *

Gas M3 N.A. N.A. 2,677,570 (1,548,788)

* Excludes loss/internal consumption of 84 Bbl (Previous Year 42 Bbl) Figures in the brackets relate to the Previous Year.

(b) Particulars relating to consumption of stores and spares have not been given in the absence of information in the Unincorporated Joint Ventures’ accounts.

22. Changes in Accounting Policy

(i) Accounting Standard 11 – The Effects of Changes in Foreign Exchange Rates

Upto March 31, 2007, the Company had capitalised the exchange differences arising from foreign currency liabilities relating to fixed assets acquired from outside India. Effective April 1, 2007, consequent to the applicability of Accounting Standard (AS) 11 – The Effects of Changes in Foreign Exchange Rates, notified by the Government of India, the Company has accounted for such exchange differences amounting to a net gain of Rs. 13,612,540 (including share in Unincorporated Joint Ventures) in the Profit and Loss Account for the current year.

With respect to such transactions/liabilities, had the Company not changed the Accounting Policy the profit before tax would have been lower by Rs. 13,612,540.

With respect to the effect of such change in policy in respect of the Company’s share of the assets and liabilities in the Unincorporated Joint Ventures, the required information relating to foreign exchange differences are not available in the audited financial statements of the Unincorporated Joint Ventures which are prepared in accordance with the requirements of the Production Sharing Contract. Hence, the details of such foreign exchange differences have been obtained from the Operators of the respective Unincorporated Joint Ventures.

(ii) Accounting Standard 15 – Employee Benefits Effective April 1, 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 mandatory in nature as of that date. Consequent upon the change, Profit before Tax for the year ended March 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 (net of Deferred Tax of Rs. 247,090) between the liability in respect of certain employee benefits existing on the date of adoption of the said 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 General Reserve.

23. CB-ON-7 Exploration Area

The Operator of the Unincorporated Joint Venture CB-ON-7 has sought extension for conducting additional exploration in certain areas of Block and the programme for the same has been decided by the Directorate General of Hydrocarbons. The exploration expenses amounting to Rs. 55,049,484, included under “Exploration Expenditure” (Schedule 4), will be appropriately dealt with based on final regulatory consents in line with the Company’s Accounting Policy.

24. GAIL Arbitration

On February 15, 2008, the Arbitral Tribunal has passed Final Award in the Arbitration Proceedings between GAIL India Ltd. (“GAIL”) and Hindustan Oil Exploration Company Limited (“HOEC”) concerning the Gas Sale and Transportation Agreement (“GSTA”) dated July 1, 2003 executed between GAIL and HOEC in relation to the PY-1 Gas. In the said proceeding GAIL had sought specific performance of the GSTA. By way of the majority award the Arbitral Tribunal has granted the relief of specific performance of GSTA in favour of GAIL and against HOEC. The Company has initiated legal proceedings for setting aside the majority award.

25. Previous Year Figures Previous year’s figures have been regrouped wherever necessary, to conform to the current year’s presentation.


Notes.indd 53 8/26/2008 6:47:22 AM


54


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

NAME OF THE SUBSIDIARY HOEC BARDAHL INDIA LIMITED

1. The Financial year of the subsidiary ended on March 31, 2008

2. (a) Number of Shares held by Hindustan Oil Exploration Company Limited (holding company) as on March 31, 2008 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

(i) for the financial year of the subsidiary company NIL*

(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. 16,827,221

(ii) for the previous financial years of the subsidiary since it became the holding company's subsidiary Rs. 12,044,220

* The subisidiary has paid an amount of Rs. 23,470,373 (excluding Service Tax of Rs. 2,900,939) towards management fee to the holding company.

Notes.indd 54 8/26/2008 6:47:22 AM


55

Balance Sheet Abstract and Company‘s General Business Profile

(I) Registration Details

Registration No. 29880 State Code 04

Balance Sheet Date 31.03.2008

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

Public Issue Nil Rights Issue 6,105,133 Bonus Issue Nil Private Placement Nil

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

Total Liabilities 12,968,275 Total Assets 12,968,275

Sources of Funds Paid-up Capital 1,305,093

Reserves and Surplus 8,776,410 Secured Loans 1,472,199

Application of Funds Net Fixed Assets 4,401,744 Investments 5,682,525 Deferred Tax Assets 374,478 Net Current Assets 2,509,528 Miscellaneous Expenditure Nil Accumulated Losses Nil

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

Turnover 1,036,310 Total Expenditure 645,305 Profit / (Loss) Before Tax 391,005 Profit / (Loss) After Tax 241,005 Earning Per Share Rs. 2.47 Dividend Rate (%) 10%

(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

Notes.indd 55 8/26/2008 6:47:22 AM

56

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

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 Axis Bank LimitedHDFC Bank Limited

SENIOR MANAGEMENT Mr. Hashit Rawal Vice President – Operations

REGISTERED OFFICE

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

CORPORATE OFFICE

The Platinum, C-101, 1st Floor, C. D. Barfiwala Marg, Juhu Lane,Andheri (W), Mumbai – 400 058.Tel. No.: 022-26704415, 26704155Fax No.: 022-26704453Email : [email protected]

DIRECTORS’ REPORT

TO THE MEMBERS OF HOEC BARDAHL INDIA LIMITED

Your Directors have pleasure in placing before you the Annual Report and the Audited Statement of Accounts for the financial year ended on March 31, 2008.

FINANCIAL HIGHLIGHTS(Rs. in Lacs)

2007-2008 2006-2007

Turnover 1,564.69 1,104.42

Less: Cost of Goods Sold 484.51 383.32

Profit 1,080.18 721.10

Less: Operational Expenses 856.96 418.36

Add: Other Income 34.47 18.27

Profit before Depreciation, Provisions & Write Offs and Taxation 257.69 321.01

Less: Depreciation 4.41 5.39

Less: Provisions & Write Offs 5.47 3.83

Profit Before Taxation 247.81 311.79

Less: Provision for Taxation 83.36 112.32

Profit After Tax 164.45 199.47

Add: Profit brought forward from previous year 100.44 134.78

Less: Dividend 0 187.51

Less: Dividend Tax 0 26.30

Less: Transferred to General Reserve 0 20.00

Profit carried forward to Balance Sheet 264.89 100.44

OPERATIONS REVIEW

PERFORMANCEDuring the year Sales and other income has increased by 42% and 89% over previous year, to Rs. 1,564.69 lacs & Rs. 34.47 lacs respectively. Gross profit has increased by 3.74% over previous year to Rs. 1,080.18 lacs.

During the year the Company has paid a management fee amounting to Rs. 234.70 lacs to Hindustan Oil Exploration Company Limited (Holding Company) for their valued advice, guidance and support received from them and their nominees. The Profit after tax has decreased by 18% to Rs. 164.45 lacs over previous year mainly due to the above management fee.

BUSINESS OVERVIEWYour Company’s overall performance improved during the fiscal 2007-08. This can be attributed greatly to our increased share of business in dealers of TATA Motors, Hyundai Motors and two wheelers segment. In addition, our efforts to increase area coverage across the country has also generated positive results.

Your Company’s presence in the Car Care products segment has also generated encouraging growth which has created a new demand for introduction of more such products to supplement our existing line of products. Our efforts on acquiring more approvals /endorsements of both four and two wheeler OEM’s continue, to support our future growth.

During the year, Company has renewed its agreement with Bardahl Manufacturing Corporation, USA up to November 2012.

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.

DIRECTORSIn accordance with the provisions of the Companies Act, 1956 and Articles of Association of the Company, Mr. Manish Maheshwari and Mr. Sagar Mehta will retire by rotation at the ensuring Annual General Meeting and being eligible offer themselves for re-appointment.

The Board recommends their reappointment.

Bardahl-Secre.indd 56 8/26/2008 6:50:23 AM

HOEC BARDAHL INDIA LIMITEDHOEC BARDAHL INDIA LIMITED

57


EMPLOYEES

The 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 forms part of this Report. However as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956 read with rules framed there under, the report and accounts are being sent to the shareholders of the Company excluding particulars of employees under Section 217(2A) of the Companies Act, 1956. Any shareholder interested in obtaining a copy of the said statement may write to the Company.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors confirm:

(a) that in the preparation of the annual accounts for the financial year ended 31st March, 2008 the applicable accounting standards had been followed and that no material departures have been made from the same;

(b) that the directors had 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 had 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 had prepared the annual accounts on a going concern basis.

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 in relation to conservation of energy and technology absorption.

FOREIGN EXCHANGE EARNINGS AND OUTGO(a) Activities relating to exports, initiatives taken to increase : Nil

exports, development of new export market for products and services, and export plans.

(b) Total foreign exchange used and earned

Particulars Amount in Lacs

A. On import of raw materials 387.18

B. For business travel 1.14

AUDITORS

The Statutory Auditors of the Company, M/s. H. R. Lalka & Co., Chartered Accountants, will retire at the ensuing 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 Limited (Holding Company), the Distributors, Dealers, Customers, Suppliers, 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 : July 09, 2008 Chairman


58


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 March 31, 2008 (“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 08, 2007, June 21, 2007, September 26, 2007, October 30, 2007, December 24, 2007 and March 21, 2008 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 March 31, 2007 was held on September 26, 2007 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. The Company has agreed to pay a Management Fee at the rate decided by the Board to its holding Company. The transaction has been entered into the register maintained 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) 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.

24. The Company has not made any borrowing during the financial year ended 31st March 2008.

25. The Company has not made any loans or advances or given guarantees or provided securities to other bodies corporate and



59


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, 2008 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 Dr. Udayan DasGupta as Director filed on April 12, 2007.

2. Balance sheet as at March 31, 2007 and Profit/Loss Account for the year ending March 31, 2007 was filed on October 27, 2007.

3. Annual Return for the financial year was filed on February 07, 2008.

4. Form 66 submission of Compliance Certificate with the Registrar on October 27, 2007.

KANU M. GANDHIPlace : Vadodara Practising Company SecretaryDate : May 08, 2008 CP No. 3089


60


To the members of HOEC BARDAHL INDIA LIMITED

1. We have audited the attached Balance Sheet of HOEC BARDAHL INDIA LTD, as at 31st March, 2008 and also the Profit and Loss Account and the Cash Flow statement for the year on that date, both annexed thereto. 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.

2. 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.

3. 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.

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

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

(b) 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;

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

(d) 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;

(e) 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 31st March, 2008 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;

(f ) 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 the information required by the Companies Act, 1956 in the manner so required and also give a true and fair view,

AUDITOR’S REPORT in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance sheet, of the state of affairs of the Company as at 31st March, 2008,

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

(iii) 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 : Mumbai Hiren LalkaDate : May 8, 2008 Proprietor

Membership No. 40242

ANNEXURE REFERRED TO IN PARAGRAPH 3 OF THE AUDITORS REPORT ON THE ACCOUNTS OF HOEC BARDAHL INDIA LIMITED

1. In respect of its fixed assets

(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.

(c) Although some of the fixed assets have being disposed off during the year, in our opinion and according to the information and explanations given to us, the ability of the Company to continue as a going concern is not affected.

2. In respect of its inventories

(a) The inventories have been physically verified by the management during the year at reasonable intervals.

(b) In our opinion and according to the information and explanations given to us, 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) In our opinion and according to the information and explanations given to us, the Company has maintained proper records of inventories and the discrepancies noticed on physical verification between physical stock and book records were not material and have been adequately dealt with in the books of account.

3. According to the information and explanations given to us, the Company has neither granted nor taken any loan secured or



61


unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956;

4. In our opinion and according to the information and explanation given to us, having regard to the explanation that certain items purchased are of special nature for which suitable alternative sources do not exist for obtaining comparative quotations, there is an adequate internal control systems commensurate with the size of the Company and the nature of its business with regard to purchase of inventory, fixed assets and for the sale of goods. There were no transactions in respect of sale of services. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal controls.

5. (a) In our opinion and according to the information and explanations given to us, the particulars of arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section.

(b) In our opinion and according to the information and explanations given to us, for purchase of services made in pursuance of contracts or arrangements entered into the Register in pursuance of Section 301 of Act and exceeding the value of Rupees Five Lakhs in respect of each party during the year, no comparison of prices could be made available as the services are of special nature. There were no purchase of goods and materials, and sale of goods, materials and services during the year.

6. In our opinion and according to the information and explanation given to us, the Company has not accepted any deposits within the meaning of Section 58A, 58AA or any other relevant provisions of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules, 1975 with regard to the deposits accepted from the public.

7. In our opinion, the internal audit functions carried out during the year by an external entity appointed by the Management have been commensurate with the size of the Company and nature of its business.

8. 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.

9. In respect of statutory dues:

(a) According to the information and explanation given to us, the Company has been regular in depositing undisputed statutory dues including Provident Fund, Employees’ State Insurance, Income tax, Sales tax, Customs Duty, Central Excise, Municipal Cess and other material 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 31st March, 2008 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, 2008 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

10. The Company does not have any accumulated losses as at the end of the financial year. The Company has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

11. In our opinion and according to the information and explanation given to us, the Company has not obtained any borrowings from any banks or financial institutions or by way of Debentures.

12. In our opinion, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures or other securities.

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

14. In our opinion and according to the information and explanation given to us, the Company is not a dealer or trader in shares, securities, debentures or other investments and hence the requirements of Para 4 (xiv) are not applicable to the Company.

15. In our opinion and 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.

16. The Company has not obtained any term loans.

17. According to the information and explanation given to us, and on an overall examination of the Balance Sheet of the Company, in our opinion, there are no funds raised on a short-term basis, which has been used for long term purposes and vice versa.

18. 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.

19. The Company has not issued any debentures.

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

21. To the best of our knowledge and belief and according to the information and explanations given to us, no fraud, on or by the Company, was noticed or reported during the year.

For H. R. LALKA & CO. Chartered Accountants Place : Mumbai Hiren LalkaDate : May 8, 2008 Proprietor

Membership No. 40242



62


Balance Sheet as at March 31,

in Rupees

Schedule 2008 2007

FUNDS EMPLOYED

SHAREHOLDERS’ FUNDS

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

Reserves & Surplus 2 28,871,441 12,044,220

33,871,641 17,044,420

APPLICATION OF FUNDS

FIXED ASSETS 3

Gross block 3,248,406 2,912,286

Less: Depreciation 1,755,989 1,366,934

NET BLOCK 1,492,417 1,545,352

INVESTMENTS 4 45,210,850 14,865,067

DEFERRED TAX ASSETS 1,353,869 939,859

CURRENT ASSETS, LOANS & ADVANCES 5

Inventories 15,648,338 13,788,193

Sundry Debtors 7,415,898 8,883,988

Cash & Bank Balances 4,983,459 3,021,157

Loans & Advances 10,814,538 3,126,448

Total 38,862,233 28,819,786

Less: CURRENT LIABILITIES AND PROVISIONS 6

Current Liabilities 50,690,743 26,619,965

Provisions 2,356,985 2,505,679

Total 53,047,728 29,125,644

NET CURRENT ASSETS (14,185,495) (305,858)

33,871,641 17,044,420

Accounting Policies 15

Notes Forming Part of Accounts 16

Schedule 1 to 16 annexed hereto form part of the Balance Sheet and Profit and Loss Account


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

Hiren Lalka (Proprietor) Minesh BhattMembership No. 40242 Director

Place : Mumbai Place : MumbaiDate : May 8, 2008 Date : May 8, 2008

Bardahl-Account.indd 62 8/26/2008 7:06:32 AM


63

Profit and Loss Account for the year ended March 31,

in Rupees

Schedule 2008 2007

INCOME

Sales 156,469,151 110,442,426

Other Income 7 3,446,255 1,826,522

159,915,406 112,268,948

EXPENDITURE AND CHARGES

Cost of goods for resale 8 48,451,089 38,332,157

Staff Expenses 9 13,063,028 7,498,148

Establishment Expenses 10 2,679,387 1,771,133

Management & Professional Fees 23,744,845 126,658

Other Expenses 11 1,632,156 1,241,257

Marketing & Distribution Expenses 12 44,392,284 31,045,965

Provisions and Write offs 13 546,654 383,482

Interest 14 262,243 152,531

Depreciation 3 440,509 538,800

135,212,195 81,090,131

Profit for the year before tax 24,703,211 31,178,817

Less: Taxation for the year – Current Income Tax (8,325,000) (10,798,943)

Deferred Tax Assets 414,010 221,686

Fringe Benefit Tax (425,000) (655,000)

Prior year FBT Provision 460,000 0

Profit for the year after tax 16,827,221 19,946,560

Add: Profit brought forward 10,044,220 13,478,203

Profit available for Appropriation 26,871,441 33,424,763

APPROPRIATIONS

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

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

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

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

Balance carried to Balance Sheet 26,871,441 10,044,220

Schedule 1 to 16 annexed hereto form part of the Balance Sheet and Profit and Loss Account







64


Cash Flow Statement for the year ended March 31,

in Rupees

2008 2007



Adjustments for:

Depreciation 440,509 538,800

Interest Expense 262,243 152,531

Provision for Doubtful Debts 394,615 0

Bad Debts Written off 0 (123,600)

Unrealised Exchange (Gain) / Loss 829 0

Loss on Sale / discard of assets 87,539 677

Provision for Leave Encashment & Gratuity 943,416 631,508

Interest Income (21,835) (277,197)

Dividend Income (1,895,783) (374,059)

Provisions written back (135,274) (211,431)

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 24,779,470 31,516,046

Adjustment for:

(Increase) / Decrease in Trade Debtors 1,073,475 (4,429,968)

(Increase) / Decrease in Other Receivables (3,080,361) (1,233,386)

(Increase) / Decrease in Inventories (1,860,145) (3,249,272)

Increase / (Decrease) in Payables 24,069,949 13,503,628

CASH FROM OPERATIONS 44,982,388 36,107,048

Income Tax paid (13,989,839) (10,022,568)

Excess Provisions written back 135,274 211,431



Fixed Assets purchased (475,113) (1,222,278)

Interest received 21,835 277,197

Dividend Income 1,895,783 374,059

NET CASH (USED) / RAISED FROM INVESTING ACTIVITIES 1,442,505 (571,022)


Interest paid (262,243) (152,531)

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

NET CASH (USED) / RAISED FROM FINANCING ACTIVITIES (262,243) (21,531,511)

NET (DECREASE) / INCREASE IN CASH OR CASH EQUIVALENTS 32,308,085 4,193,378

Cash Equivalents:

Opening Balance 17,886,224 13,692,846

Closing Balance 50,194,309 17,886,224

32,308,085 4,193,378

Cash & Bank Balance (As per Schedule 5) 4,983,459 3,021,157

Current Investments (As per Schedule 4) 45,210,850 14,865,067

Total Cash and Cash Equivalents at the Year End 50,194,309 17,886,224







65

Schedules to the Balance Sheet as at March 31,

in Rupees

2008 2007

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

SCHEDULE 2

RESERVES AND SURPLUS General Reserve Opening Balance 2,000,000 0 Add : Transfer from Profit and Loss Account 0 2,000,000 Balance Carried Forward 2,000,000 2,000,000 Balance in Profit and Loss Account 26,871,441 10,044,220

Total 28,871,441 12,044,220

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,

2007

Additions Deductions As atMarch 31,

2008

As atMarch 31,

2007

For theperiod

Deductions As atMarch 31,

2008

As atMarch 31,

2008

As atMarch 31,

2007

Office Equipments 229,700 122,550 17,470 334,780 146,861 50,914 4,522 193,253 141,527 82,839

Computers 251,667 89,806 0 341,473 167,128 69,739 0 236,867 104,606 84,539

Office Furniture 598,320 44,467 0 642,787 187,323 88,081 0 275,404 367,383 410,997

Plant & Machinery 576,972 183,290 82,953 677,309 308,613 57,822 46,932 319,503 357,806 268,359

Dies & Moulds 337,885 35,000 0 372,885 250,449 36,730 0 287,179 85,706 87,436

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

Vehicles 620,835 0 0 620,835 235,423 99,783 0 335,206 285,629 385,412

Improvement to Lease Hold Premises 234,000 0 0 234,000 46,800 37,440 0 84,240 149,760 187,200

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

TOTAL 2,912,286 475,113 138,993 3,248,406 1,366,934 440,509 51,454 1,755,989 1,492,417 1,545,352

PREVIOUS YEAR 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

in Rupees

2008 2007

SCHEDULE 4

INVESTMENTS

CURRENT

UNQUOTED

Investment in Mutual Funds (Refer note 3 of Schedule 16 for details of mutual funds purchased and sold during the year) 3,761,316.426 (31.03.07 - 1,397,565.626) Units of HDFC Liquid Fund - Daily Dividend Plan 40,006,866 14,865,067

439,102.876 (31.03.07 - Nil) Units of Prudential ICICI - Daily Dividend Plan 5,203,984 0

45,210,850 14,865,067



66


Schedules to the Balance Sheet as at March 31,

in Rupees

2008 2007

SCHEDULE 5

CURRENT ASSETS, LOANS AND ADVANCES

INVENTORIES

Materials unpacked 690,500 3,387,505

Materials packed 7,581,746 3,401,270

Packing Material 1,433,574 807,816

GOODS IN TRANSIT 5,942,518 6,191,602

SUNDRY DEBTORS

Due for more than six months

Considered Good 738 59,263

Considered Doubtful 1,702,467 1,307,852

Others

Considered Good 7,415,160 8,824,725

9,118,365 10,191,840

Less: Provision for doubtful debts 1,702,467 1,307,852

7,415,898 8,883,988

CASH & BANK BALANCES

Cash on hand 17,697 30,294

With Scheduled Banks

Current Accounts 4,965,762 2,990,863

4,983,459 3,021,157

LOANS AND ADVANCES

(Unsecured, considered good)

Advances recoverable in cash or in kind or for value to be received 5,913,912 2,833,551

Advance Taxes 4,900,626 292,897

10,814,538 3,126,448

38,862,233 28,819,786

in Rupees

2008 2007

SCHEDULE 6

CURRENT LIABILITIES & PROVISIONS

CURRENT LIABILITIES

Sundry Creditors 19,376,408 23,940,300

Hindustan Oil Exploration Company Limited 23,383,441 0

Other Liabilities 7,930,894 2,679,665

PROVISIONS

Provision for Leave Encashment & Gratuity 2,182,148 1,238,732

Provision for Taxation 158,837 1,158,947

Provision for Fringe Benefit Tax 16,000 108,000

53,047,728 29,125,644



67

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

in Rupees

2008 2007

SCHEDULE 7

OTHER INCOME

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

21,835 277,197

Excess Provision written back 73,188 211,431 Balance written off 62,086 0 Dividend from Current Investments 1,895,783 374,059

Profit on sale of Current Investments 0 520,884 Gain on foreign exchange fluctuation 902,761 235,081 Miscellaneous Income 490,602 207,870

3,446,255 1,826,522

SCHEDULE 8

COST OF GOODS FOR RESALE:

MATERIALS PACKED & UNPACKED Opening stock 6,788,775 7,093,457 Add: Purchases 30,186,159 21,905,640 Add : Customs Duty 3,130,272 2,715,974

Sub-Total 40,105,206 31,715,071

Less: Closing Stock 8,272,246 6,788,775 31,832,960 24,926,296

PACKING MATERIALS Opening stock 807,816 434,508 Add: Purchases 14,350,461 7,936,648

Sub-Total 15,158,277 8,371,156

Less: Closing Stock 1,433,574 807,816

13,724,703 7,563,340

Excise Duty 0 5,446,846 Repacking Expenses 3,779,786 1,972,029 Cost of Samples & Replacements (885,066) (1,577,195) Cost of Damaged Goods (1,294) 841

48,451,089 38,332,157

SCHEDULE 9

STAFF EXPENSES

Salaries & Bonus 7,812,505 5,186,861 Performance Bonus 3,241,000 943,500 Contribution to Provident and Other Funds 989,649 497,053 Welfare Expenses(including provision for leave encashment Rs. 598,427) (Previous Year Rs. 594,985)

1,019,874 870,734

13,063,028 7,498,148

SCHEDULE 10

ESTABLISHMENT EXPENSES

Rent 2,324,253 1,477,645 Repairs and Maintenance 68,936 74,154 General Office Expenses 115,534 130,074 Electricity 170,664 89,260

2,679,387 1,771,133



68

in Rupees

2008 2007

SCHEDULE 11

OTHER EXPENSES

Auditor’s RemunerationAudit Fees 75,000 60,000 Other Matters 14,800 24,200 Reimbursement of Expenses 14,057 3,011 Service Tax 0 514

103,857 87,725 Books and Periodicals 1,971 1,070 Computer Expenses 26,550 11,088 Insurance 177,216 119,576 Travelling & Conveyance 446,447 182,601 Postage and Telephone 368,318 332,622 Printing and Stationery 178,720 142,152 Loss on sale/discard of assets 87,539 677 Miscellaneous Expenses 241,538 363,746

1,632,156 1,241,257

SCHEDULE 12

MARKETING & DISTRIBUTION EXPENSES

Distribution Expenses

Freight 3,264,854 2,304,979

Others 562,509 534,652

3,827,363 2,839,631

Marketing Expenses

Incentives 4,968,680 4,020,531

Product Promotion Expenses 13,875,203 6,671,148

Advertisement 200,004 425,169

Rebates and Discounts 11,059,449 7,510,332

Sales Promotion 2,702,387 3,727,453

Samples & Replacement 894,007 1,592,656

Others 629,659 560,019

34,329,389 24,507,308

Selling Expenses

Commission 4,317,224 2,237,435

Field Staff Expenses 1,918,308 1,461,591

6,235,532 3,699,026

44,392,284 31,045,965

SCHEDULE 13

PROVISIONS AND WRITE OFFS

Provision for doubtful debts 394,615 0

Bad Debts 152,039 383,482

546,654 383,482

SCHEDULE 14

INTEREST COST

Distributors Deposits 93,901 49,721

Others 1,506 0

Bank Charges 166,836 102,810

262,243 152,531

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



69

SCHEDULE 15


The financial statements are prepared to comply in all material aspects with the applicable accounting principles in India, the accounting standards issued by the Institute of Chartered Accountants of India and the relevant provisions of The Companies Act, 1956. The Significant Accounting Policies are as follows:

1. Basis of Preparation of Financial Statements The accounts have been prepared under the historical cost convention on the basis of going concern and comply in all material aspects with applicable accounting principles in India and

relevant provisions of the Companies Act, 1956.

2. Use of Accounting Estimates The preparation and presentation of financial statements in conformity with the generally accepted accounting principles requires estimates and assumptions to be made that affect the

reported amount of assets and liabilities on that date of the financial statements and the reported amount of revenues and expenses during the reporting period. Differences between the actual results and estimates are recognised in the period in which the results are known / materialised.

3. Fixed Assets Fixed Assets are stated at cost (Net of VAT, wherever applicable) less accumulated depreciation and impairment loss.

4. Depreciation Depreciation has been provided on written down value method at the rates and the manner prescribed in schedule XIV of 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. Improvements to Leasehold premises are amortised over the remaining primary lease period. Assets individually costing less than Rs. 5,000/- are fully depreciated in the year of

acquisition.

5. Impairment of Assets The Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. An impairment loss is charged to the Profit and Loss account in the year

in which an asset is identified as impaired. The impairment loss recognised in prior accounting periods is reversed, if there has been a change in the estimate or recoverable amount.

6. Investments Investments 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.

7. Inventories Inventories are valued at lower of cost or net realisable value. Cost is determined on First-in-First-Out basis. Cost of Unpacked Materials includes Freight, Custom Duty, Insurance and

Clearing charges. Cost of Packed Materials includes material and repacking cost. Due allowance is made for slow moving items.

8. Revenue Recognition Sales are recognised when the risk and reward of ownership is passed on to the customers, which is generally on despatch of goods. Sales are stated exclusive of Excise Duty, Value Added

Tax, Central Sales Tax and are net of Sales return and Trade Discount.

9. Retirement and Other Benefits a. Defined Contribution Plan : Provident Fund: Contributions towards Employees Provident Fund are made to the Employees Provident Fund Scheme in accordance with the statutory provisions.

b. Defined Benefit Plan : Funded Plan: The Company has Defined Benefit Plan for post employment benefits in the form of Gratuity for all employees administered through trust, funded with Life Insurance

Corporation of India. Liability for the above Defined Benefit Plans is provided on the basis of actuarial valuation, as at the Balance Sheet date, carried out by independent actuary. The actuarial method

used for measuring the liability is the Projected Unit Credit Method. Unfunded Plan: The Company has unfunded Defined Benefit Plans in the form of Compensated Absences and is recognised based on the eligible leave at credit on the balance

sheet date and is estimated based on the term of the employment contract.

10. Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the exchange rates prevailing at the date of Transaction. Monetary items denominated in foreign currencies at the year end

are translated at year end rates. The exchange differences arising on settlement/transaction are recognised in the revenue accounts.

11. Leases Lease rentals in respect of assets under Operating Lease are charged to Profit and Loss Account, as incurred.

12. Taxation The provision for income tax is made at the rate of tax as applicable for the income of the previous year as defined under the Income Tax Act, 1961. Deferred tax resulting from timing differences between book and tax profits is accounted for at the current rate of tax/substantively enacted tax rates, as applicable, to the extent that the

timing differences are expected to be crystalised. Fringe Benefit Tax has been calculated in accordance with the provisions of the Income Tax Act, 1961 and Guidance Note on Fringe Benefit Tax issued by the Institute of Chartered

Accountants of India.

13. Provisions and Contingencies Provisions are recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, and

in respect of which a reliable estimate can be made. Provisions are not discontinued and are determined based on best estimate required to settle the obligation at each Balance Sheet date. Provisions are reviewed at each Balance Sheet date

and are adjusted to effect the current best estimation. A contingent liability is disclosed where the possibility of an outflow of resources embodying the economic benefits is remote.

Bardahl-Notes.indd 69 8/26/2008 7:16:09 AM


70


SCHEDULE 16

NOTES FORMING PART OF THE ACCOUNTS

1. Contingent LiabilitiesEstimated amount of contracts remaining to be executed on capital account and not provided for, net of advances, Rs. 47,000/- (Previous year – 8,000/-)

2. Claims against the Company not acknowledged as debt:

in Rupees

Year ended March 31,

2008 2007

Income tax demand where the matter is in appeal 324,545 142,004

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

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

2007-2008 2006-2007

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 2,537,681.796 173,931.029 1,771,658.363 374,092.737

HDFC Liquid Fund – Growth 0 0 409,502.084 409,502.084ICICI Prudential Liquid Plan – Daily Dividend Reinvestment 3,662,350.792 3,223,247.886 466,610.901 466,610.901ICICI Prudential Liquid Plan – Growth 0 0 324,505.397 324,505.397

4. Sundry Creditors include Rs. 2,523,943/- (Previous Year Rs. 1,050,750/-) 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”.

The Company has not received any intimation from “suppliers” regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence, disclosures, if any, relating to amounts unpaid as at March 31, 2008 together with interest paid / payable as required under the said Act have not been given.

5. Employees Benefits

The Accounting Standard-15 (Revised 2005) Employees Benefits issued by The Institute of Chartered Accountants of India has been adopted by the Company. The Company’s obligation towards the Gratuity Fund is a Defined Benefit Plan. Details of Actuarial Valuation as at March 31, 2008.

in Rupees

As at March 31

2008 2007

Defined Benefit Obligation as at April 1, 2007 724,562 552,455

Service Cost for the year 167,387 100,455

Interest Cost for the year 59,994 44,196

Actuarial Losses / (Gains) 279,705 36,172

Benefits paid 0 (8,716)

Defined benefit obligation as at March 31, 2008 1,231,648 724,562

Change in Plan Assets

Opening fair value of plan assets as on 01-04-07 499,655 397,240

Expected Return on Plan Assets 46,510 35,345

Actuarial Gains / (Losses) 6,895 4,094

Employers Contributions 95,034 71,692

Benefits paid 0 (8,716)

Fair Value of Plan Assets as at March 31, 2008 648,094 499,655

Cost of Defined Benefit Plan for the Year

Current Service Cost 167,387 100,455

Interest on Obligation 59,994 44,196

Expected Return on Plan Assets (46,510) (35,345)

Net Actuarial Losses (Gains) recognised in year 272,810 32,078

Net Cost recognised in the Profit and Loss Account 453,681 141,384

Assumptions

Discount Rate 8.28% 8.00%

Future Salary Increase (%) 6.50% 6.00%

Expected Rate of Return on Plan Assets 8.50% 8.25%



71

6. Interest Income includes interest on: in Rupees


2008 2007Deposits 0 272,072Staff Loans 2,835 514Others 19,000 4,611Total 21,835 277,197

7. Deferred tax assets arising due to timing differences has been arrived as follows: in Rupees


2007 Current year charge 2008Deferred Tax AssetsProvision for Doubtful Debts 440,224 138,444 578,668Leave Encashment & Gratuity 385,717 227,156 612,873Depreciation on Fixed Assets 113,918 48,410 162,328Sub total (A) 939,859 414,010 1,353,869Deferred Tax Liability (B) 0 0 0

Net Deferred Tax Assets (A-B) 939,859 414,010 1,353,869

8. 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 :

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 : in Rupees

For the Year ended March 31,

2008 2007Dividend 0 18,750,750Management Fees 23,470,373 0

Note:


9. The Company has obtained office and warehouse under operative lease or leave and license agreements. They are generally not non-cancellable and range between 33 months to 55 months under leave and licence. The Company has given refundable interest free security deposits in accordance with the agreed terms.

Lease payments are recognised in the Profit and Loss Account under “Rent” in Schedule 10.

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 299,285.415 155,269,030 212,482.085 109,733,416

Car Care Litres 2,111.000 587,101 1,050.000 254,760

Grease Kgs. 0 0 0 0

Cream Nos. 1,227 502,188 961 352,822

Spares Nos. 96 110,832 106 101,428

(B) RAW MATERIAL CONSUMED : Not Applicable

(C) STOCKS OPENING STOCK CLOSING STOCK

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

Additives Litres 50,222.808 6,600,529 50,924.188 8,100,636

Car Care Litres 115.000 30,188 773.000 104,914

Grease Kgs. 418.890 202 418.890 202

Cream Nos. 269 51,014 482 63,581

Spares Nos. 105 106,842 9 2,913

(D) Capacity and production:

Capacity – Licensed N. A.

Capacity – Installed N. A.

Production N. A.



72

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration Details

Registration No 11536

State Code 04 Balance Sheet Date 31.03.2008

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 86,919,369

Total Assets 86,919,369

Sources Of Funds

Paid - up Capital 5,000,200

Reserves & Surplus 28,871,441

Secured Loans NIL

Unsecured Loans NIL

Application Of Funds

Net Fixed Assets 1,492,417

Investments 45,210,850

Net Current Assets (14,185,495)

Miscellaneous Expenditure NIL

Accumulated Losses NIL

IV. Performance of Company

Turnover 156,469,151

Total Expenditure 135,212,195

Profit Before Tax 24,703,211

Profit After Tax 16,827,221

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

Item Code No. (ITC Code) 38112900

Product Description Oil Additives


Product Description Fuel Additives


Product Description Car Care Products

in Rupees

(E) Value of Imports on CIF basis in respect of: Current Year Previous Year

i) Materials 28,188,113 23,868,308ii) Components & Spare parts 0 0iii) Capital goods 0 0

(F) Expenditure in foreign currency :i) Business Travelling 111,411 0 ii) Others 0 0

(G) The amount remitted in foreign currency during the year on account of dividends

0 0

(H) Earnings in foreign exchange 0 0

12. Figures of the previous year have been regrouped and rearranged wherever necessary.



73

1. We have examined the attached Consolidated Balance Sheet of HINDUSTAN OIL EXPLORATION COMPANY LIMITED (“the Company”) and its subsidiary (“the Group”) as at March 31, 2008, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement of the Group for the year ended on that date, both annexed thereto. 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.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes 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.

3. Without qualifying our report, we invite attention to Note 7 of Schedule 17 regarding Managerial Remuneration pertaining to the year 2006-2007 paid to the erstwhile Managing Director which is subject to the approval of the Central Government as stated therein.

4. (a) The Accounts have been drawn up in accordance with the statement of Significant Accounting Policies (Schedule 16). Accounting Policy 4 relating to “Successful Efforts Method” and the treatment of exploration and development costs are significant to the oil and gas exploration and production industry.

(b) Categorisation of the wells as exploratory and producing and the depletion of producing wells on the basis of proved developed hydrocarbon reserves and expensing of the estimated site restoration liability on the basis of proved hydrocarbon reserves are made according to technical evaluation by the Management, on which we have placed reliance.

(c) As stated in Accounting Policy 7 of the statement of Significant Accounting Policies (Schedule 16), the financial statements of the unincorporated joint ventures are prepared in accordance with the requirements prescribed by the respective Production Sharing Contracts of the unincorporated joint ventures. Hence, certain adjustments/disclosures required under the mandatory accounting standards have been made in these accounts to the extent of information available with the Company.

5. The accounts for the year ended March 31, 2008 include assets aggregating Rs. 5,760,394,765, liabilities aggregating Rs. 818,894,242 and expenditure aggregating Rs. 471,918,154 relating to the Company’s share in eight unincorporated joint ventures, which have been incorporated on the basis of accounts audited by other auditors. We did not audit the financial

statements of the subsidiary, whose financial statements reflect net total assets of Rs. 33,871,641 as at March 31, 2008, total revenues of Rs. 159,915,406 and net increase in cash flows amounting to Rs. 32,308,085 for the year ended on that date. These financial statements have been audited by another auditor whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included in respect of the subsidiary, is based solely on the report of the other auditor.

6. In respect of one non-producing unincorporated joint venture, assets aggregating Rs. 87,875 and liabilities aggregating Rs. 2,936,859 as at March 31, 2008 have been incorporated on the basis of the unaudited information available, in the absence of audited accounts.

7. The Company has accounted for foreign exchange differences amounting to Rs. 13,572,465 (net gain) in accordance with Accounting Standard (AS) 11 – The Effects of Changes in Foreign Exchange Rates, with respect to its proportionate share of the assets and liabilities of the unincorporated joint ventures based on the unaudited details obtained from the Operator of the respective unincorporated joint ventures, in the absence of such information in the audited financial statements of the unincorporated joint ventures for the reasons stated in Note 16(i) of Schedule 17.

8. We report that the consolidated financial statements have been prepared by the Company’s Management in accordance with the requirements of Accounting Standard 21 (Consolidated Financial Statements), and on the basis of the separate audited financial statements of the Company and its subsidiary included in the consolidated financial statements.

9. Subject to our comments with respect to the unincorporated joint ventures in paragraph 6 and 7 above to the extent of the unaudited amounts stated therein and based on our audit and on consideration of the report of the other auditor on the separate financial statements of the subsidiary and to the best of our information and according to the explanations given to us, we are of the opinion that the aforesaid consolidated financial statements, read with the notes thereon and our comments in paragraph 4 above, give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of the Group as at March 31, 2008;

(ii) in the case of the Consolidated Profit and Loss Account, of the consolidated profit of the Group for the year ended on that date; and

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



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

Consolidated.indd 73 8/26/2008 7:21:03 AM


74


Consolidated Balance Sheet as at March 31, 2008

in Rupees

Schedule As at March 31, 2008


SOURCES OF FUNDS

SHAREHOLDERS’ FUNDSShare Capital 1 1,305,093,005 783,286,795 Reserves and Surplus 2 8,805,281,197 3,132,097,143 LOAN FUNDSSecured Loans 3 1,472,198,692 1,320,948,396

11,582,572,894 5,236,332,334

APPLICATION OF FUNDS

FIXED ASSETS 4 Gross Block 1,616,019,983 1,600,894,857 Less: Depreciation, Depletion

and Amortisation 1,234,655,394 1,168,812,118 Net Block 381,364,589 432,082,739 Capital Work in Progress 4,021,871,328 2,744,659,229

4,403,235,917 3,176,741,968 INVESTMENTS 5 5,722,736,062 704,149,030 DEFERRED TAX ASSET (NET) (Refer Note 13 of Schedule 17) 375,831,959 488,417,949 CURRENT ASSETS, LOANS AND ADVANCES 6 a. Inventories 253,863,696 257,720,893 b. Sundry Debtors 120,719,309 205,437,957 c. Cash and Bank Balances 1,576,949,243 1,111,634,013 d. Other Current Assets 7,394,535 9,758,715 e. Loans and Advances 566,080,370 328,926,207

2,525,007,153 1,913,477,785 Less: CURRENT LIABILITIES AND

PROVISIONS 7 a. Current Liabilities 1,008,146,717 744,691,797 b. Provisions 436,091,480 301,762,601

1,444,238,197 1,046,454,398 NET CURRENT ASSETS 1,080,768,956 867,023,387

11,582,572,894 5,236,332,334 Significant Accounting Policies 16Notes to the Accounts 17Schedules 1 to 17 annexed hereto form part of the Accounts.








75

Consolidated Profit and Loss Account for the year ended March 31, 2008

in Rupees

Schedule Year ended March 31, 2008


INCOME

Sales 8 966,467,947 1,265,755,597 Increase/(Decrease) in Stock of Crude Oil 9 1,306,409 (43,619,688)Other Income 10 204,964,444 131,856,085

1,172,738,800 1,353,991,994

EXPENDITURE AND CHARGESField Operating Expenses 11 310,835,347 167,759,885 Cost of Goods for Resale 12 48,451,089 38,332,157 Corporate Expenses 13 57,483,863 38,910,350 Depreciation/Amortisation on Fixed Assets 4 3,875,271 6,185,618 Depletion of Producing Properties 4 49,178,835 70,845,642 Marketing & Distribution Expenses 14 44,392,284 31,045,965 Provisions and Write Offs (Net) 166,939,515 930,540,747 (See Item 4 of Schedule 16 & Note 2 of Schedule 17)Interest and Finance Charges 15 75,873,987 56,006,376

757,030,191 1,339,626,740 PROFIT BEFORE TAX 415,708,609 14,365,254 Provision for Current Income Tax 43,325,000 296,798,943 Provision for Deferred Tax (See Note 13 of Schedule 17) 112,585,990 (311,221,686)Provision for Wealth Tax 200,000 200,000 Provision for Fringe Benefit Tax 1,765,000 2,655,000 PROFIT AFTER TAX 257,832,619 25,932,997 Profit Brought Forward 853,214,728 831,926,931 Less: Transitional Adjustment (AS-15) 0 (15,407)(See Note 16(ii) of Schedule 17)PROFIT AVAILABLE FOR APPROPRIATION 1,111,047,347 857,844,521

APPROPRIATIONS:Proposed Dividend 130,493,289 0Dividend Tax 22,177,334 2,629,793 Transfer to General Reserve 0 2,000,000 Balance Carried to Balance Sheet 958,376,724 853,214,728 1,111,047,347 857,844,521

Earnings Per Share of Rs. 10 Face Value (Basic and Diluted) Rs. 2.64 Rs. 0.33 (See Note 12 of Schedule 17)Significant Accounting Policies 16Notes to the Accounts 17Schedules 1 to 17 annexed hereto form part of the Accounts.








76


Consolidated Cash Flow Statement for the year ended March 31, 2008






in Rupees





Adjustments for:

Compensated Absences 1,906,316 311,608

Provision for Doubtful Debtors 394,615 0

Depreciation, Depletion and Amortisation 53,054,106 77,031,260

Exploration Expenses Written Off (Net) 166,392,861 930,368,696

Other Miscellaneous Expenses Written Off 0 287,500

Dividend/Interest Income (170,902,939) (114,452,563)

Bad Debts (Write back) (Net) 0 (123,600)

Loss on Sale of/Discarded Assets (Net) 70,937 174,589

Excess Provisions Written Back (135,274) (211,431)

Unrealized Exchange Gain (32,698,992) (18,829,295)

Interest and Finance Charges 75,873,987 56,006,376

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 509,664,226 944,928,394

Adjustments for:

Trade and Other Receivables # (27,310,261) (259,098,138)

Inventories 3,857,197 (54,211,776)

Payables 260,360,192 484,418,064

CASH FROM OPERATIONS 746,571,354 1,116,036,544

Taxes Paid (157,124,698) (282,172,253)

Excess Provision Written Back 135,274 211,431



Purchase of Fixed Assets # (10,019,611) (23,378,879)

Proceeds from Sale of Fixed Assets 46,040 123,926

Development Expenditure * (961,934,531) (1,450,731,447)

Exploration Expenditure (447,880,536) (855,995,993)

Dividend/Interest Received 173,267,119 108,334,917

NET CASH USED IN INVESTING ACTIVITIES (1,246,521,519) (2,221,647,476)


Proceeds from Issue of Share Capital @ 6,108,508,150 1,487,892,759

Secured Loans Taken - Long Term 515,463,791 1,706,716,998

Secured Loans Repaid - Long Term (331,513,674) (535,661,807)

Interest and Finance Charges Paid * (140,308,408) (146,821,420)

Dividend Paid (including Dividend Tax) (368,525) (68,746,938)

Rights Issue Expenses (Net) (15,304,389) (19,736,001)

NET CASH FROM FINANCING ACTIVITIES 6,136,476,945 2,423,643,591

NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C) 5,479,537,356 1,036,071,837

Cash, Cash Equivalents:

Opening Balance 1,521,235,013 485,163,176

Closing Balance 7,000,772,369 1,521,235,013

5,479,537,356 1,036,071,837

Cash and Bank Balance as per Schedule 6 1,576,949,243 1,111,634,013

Current Investment as per Schedule 5 5,722,687,019 704,099,987

Adjustment for Site Restoration Deposit (192,978,180) (179,417,650)

Adjustment for Lien Marked Deposits/Accounts (105,885,713) (115,081,337)

Total Cash and Cash Equivalents as at Year End 7,000,772,369 1,521,235,013

* Interest and Finance Charges Paid includes and Development Expenditure excludes Borrowing Cost capitalised amounting to Rs. 47,131,621 (Previous Year: Rs. 27,487,279).

# Purchase of Fixed Assets includes and Trade and Other Receivables excludes Capital Advances paid Rs. 1,693,406 (Previous Year: Rs. Nil).

@ Proceeds from Issue of Share Capital includes Rs. 4,120,544 (Previous Year: Rs. 745,051) of Unclaimed/Unpaid Share Application Money.

Schedules 1 to 17 annexed hereto form part of the Accounts.



77

Schedules Forming Part of the Consolidated Accounts for the Year Ended March 31, 2008

in RupeesAs at As at

March 31, 2008 March 31, 2007SCHEDULE 1SHARE CAPITALAUTHORISED200,000,000 Equity Shares of Rs. 10 each

2,000,000,000 2,000,000,000 ISSUED130,563,363 (Previous Year 78,345,643) Equity Shares of Rs. 10 each 1,305,633,630 783,456,430 SUBSCRIBED AND PAID-UP130,493,289 (Previous Year 78,312,668) Equity Shares of Rs. 10 each fully paid 1,304,932,890 783,126,680 Add: Amount Paid-up on Shares Forfeited 160,115 160,115

1,305,093,005 783,286,795 Notes:1. On January 24, 2008, an allotment of 52,180,621 Equity Shares was made

consequent to the Rights Issue of 52,217,720 Equity Shares of Rs. 10 each at a premium of Rs. 107 per Share to the then existing Shareholders of the Company in the ratio of Two Equity Shares for Every Three Equity Shares held.

2. 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 then 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 2,273,499,415 1,001,765,038 Additions (Refer Note 1 below) 5,583,326,447 1,291,470,378 Rights Issue Expenses (Net) (Refer Note 2 below) (15,304,389) (19,736,001) Closing Balance 7,841,521,473 2,273,499,415 General Reserve Opening Balance 5,383,000 3,870,000 Additions 0 2,000,000 Transitional Adjustments (Refer Note 16(ii) of Schedule 17) 0 (487,000) Closing Balance 5,383,000 5,383,000 Balance in Profit and Loss Account 958,376,724 853,214,728

8,805,281,197 3,132,097,143 Note:1. Represents premium on allotment of 52,180,621 Equity Shares on January 24,

2008 at a premium of Rs. 107 each consequent to the Rights Issue during the current year and 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 during the previous year.

2. The Net 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.

SCHEDULE 3SECURED LOANS(Refer Note 3 of Schedule 17)Loan from Banks Foreign Currency Loan 747,424,139 384,948,396 Rupee Term Loan 696,000,000 936,000,000 Loans from Financial Institution Foreign Currency Loan 28,774,553 0

1,472,198,692 1,320,948,396



78


SCH

ED

ULE

4

FIX

ED

ASS

ETS

in R

upee

s

GR

OSS

BLO

CK

DE

PRE

CIA

TIO

N,

DE

PLE

TIO

N A

ND

AM

ORT

ISA

TIO

NN

ET

BLO

CK

Nam

e of

the

Ass

ets

As

at

Ap

ril 0

1, 2

007

Ad

dit

ions

/A

dju

stm

ents

Ded

ucti

ons/

A

dju

stm

ents

As

at

Mar

ch 3

1,

2008

As

at

Ap

ril 0

1, 2

007

For

the

Year

Ded

ucti

ons

As

at

Mar

ch 3

1,

2008

As

at

Mar

ch 3

1,

2008

As

at

Mar

ch 3

1,20

07

Prod

ucin

g P

rop

erti

es 1

,339

,496

,045

2

6,83

1,80

1 1

9,21

5,00

0#

1,3

47,1

12,8

46

1,0

01,6

42,2

03

49,1

78,8

35

0 1

,050

,821

,038

2

96,2

91,8

08

337

,853

,842

OTH

ER

FIX

ED

ASS

ETS

Land

-Fre

ehol

d17

,133

,222

5

,853

,340

2

,741

22

,983

,821

0

00

022

,983

,821

1

7,13

3,22

2

Bui

ldin

gs

44,5

51,3

24

508

,526

0

45,0

59,8

50

22,

384,

664

1,1

33,7

60

0 2

3,51

8,42

4 21

,541

,426

2

2,16

6,66

0

Offi

ce E

qui

pm

ents

23,1

49,7

48

213

,452

1

95,9

80

23,1

67,2

20

12,

299,

913

1,5

93,6

34

180

,392

1

3,71

3,15

5 9,

454,

065

10,

849,

835

Com

put

ers

13,4

83,6

86

306

,962

4

47,5

89

13,3

43,0

59

9,8

53,9

61

1,5

66,6

03

427

,409

1

0,99

3,15

5 2,

349,

904

3,6

29,7

25

Offi

ce F

urni

ture

16,4

67,4

41

333

,856

9

1,35

8 16

,709

,939

1

1,61

6,95

0 9

42,8

11

84,

740

12,

475,

021

4,23

4,91

8 4

,850

,491

Imp

rove

men

ts t

o Le

aseh

old

Pre

mis

es 8

,266

,485

0

08,

266,

485

6,6

18,8

34

1,4

97,8

91

0 8

,116

,725

14

9,76

0 1

,647

,651

Plan

t &

Mac

hine

ry10

2,60

9,82

3 1

,112

,810

8

2,95

3 10

3,63

9,68

0 7

6,00

7,46

6 8

,236

,877

4

6,93

2 8

4,19

7,41

1 19

,442

,269

2

6,60

2,35

7

Vehi

cles

9,52

3,77

8 0

09,

523,

778

5,9

28,8

43

930

,729

0

6,8

59,5

72

2,66

4,20

6 3

,594

,935

Inta

ngib

le A

sset

s –

Soft

war

e26

,213

,305

0

026

,213

,305

2

2,45

9,28

4 1

,501

,609

0

23,

960,

893

2,25

2,41

2 3

,754

,021

Tota

l (A

) 1,

600,

894,

857

35,1

60,7

47

20,0

35,6

21

1,61

6,01

9,98

3 1,

168,

812,

118

66,5

82,7

49*

739,

473

1,23

4,65

5,39

4 38

1,36

4,58

9@

432,

082,

739@

Prev

ious

Yea

r1,

562,

709,

449

73,2

62,8

24

35,0

77,4

16

1,60

0,89

4,85

7 1,

076,

004,

953

97,2

33,4

48*

4,42

6,28

3 1,

168,

812,

118

432,

082,

739@

48

6,70

4,49

6@

Cap

ital

Wor

k in

Pro

gre

ss

Dev

elop

men

t E

xpen

dit

ure

2,5

13,4

77,9

94

1,0

19,1

45,0

78$

26,

831,

801

3,50

5,79

1,27

1 0

00

03,

505,

791,

271

2,51

3,47

7,99

4

Exp

lora

tion

Exp

end

itur

e

(Ref

er N

ote

2 of

Sc

hed

ule

17)

231

,142

,665

4

51,3

30,2

53$

166

,392

,861

51

6,08

0,05

7 0

00

051

6,08

0,05

7+

231,

142,

665

Oth

ers

38,

570

0 3

8,57

0 0

00

00

0 38

,570

Tota

l (B

) 2,

744,

659,

229

1,47

0,47

5,33

1 19

3,26

3,23

2 4,

021,

871,

328

00

00

4,02

1,87

1,32

8 2,

744,

659,

229

Prev

ious

Yea

r1,

367,

933,

416

2,34

3,63

1,30

8 96

6,90

5,49

5 2,

744,

659,

229

00

00

2,74

4,65

9,22

9 1,

367,

933,

416

GR

AN

D T

OTA

L (A

+ B

) 4,

345,

554,

086

1,50

5,63

6,07

8 21

3,29

8,85

3 5,

637,

891,

311

1,16

8,81

2,11

8 66

,582

,749

73

9,47

3 1,

234,

655,

394

4,40

3,23

5,91

7 3,

176,

741,

968

Prev

ious

Yea

r2,

930,

642,

865

2,41

6,89

4,13

2 1,

001,

982,

911

4,34

5,55

4,08

6 1,

076,

004,

953

97,2

33,4

48

4,42

6,28

3 1,

168,

812,

118

3,17

6,74

1,96

8 1,

854,

637,

912

Fixe

d A

sset

s in

clud

e th

e G

roup

’s s

hare

in J

oint

Ve

ntur

e A

sset

s 4,

229,

957,

937

1,49

9,16

0,02

5 21

2,43

9,66

2 5,

516,

678,

300

1,10

2,66

8,78

6 62

,707

,478

0

1,16

5,37

6,26

4 4,

351,

302,

036

3,12

7,28

9,15

1

* in

clud

ing

Rs.

7,8

92,3

54 (

Prev

ious

Yea

r: R

s. 1

0,78

5,59

9) c

harg

ed t

o Pr

oduc

ing

Pro

per

ties

and

Rs.

5,5

39,8

77 (

Prev

ious

Yea

r R

s. 8

,693

,562

) ch

arg

ed t

o D

evel

opm

ent

Exp

end

itur

e, a

nd R

s. 9

6,41

2 (P

revi

ous

Year

: R

s. 7

23,0

27)

char

ged

to

Exp

lora

tion

Exp

end

itur

e.@

in

clud

ing

Rs.

19,

970,

008

(Pre

viou

s Ye

ar:

Rs.

26,

406,

694)

con

sid

ered

for

dep

leti

on o

f Pr

oduc

ing

Pro

per

ties

.#

incl

udes

Rs.

19,

215,

000

(Pre

viou

s Ye

ar R

s. N

il) d

ecre

ase

in u

ndis

coun

ted

est

imat

ed f

utur

e Si

te R

esto

rati

on c

ost

of p

rod

ucin

g fi

eld

cap

ital

ised

.$

incl

udin

g B

orro

win

g C

ost

Rs.

43,

778,

316

(Pre

viou

s Ye

ar: R

s. 1

0,91

7,32

8) c

harg

ed t

o D

evel

opm

ent

Exp

end

itur

e an

d R

s. 3

,353

,305

(Pre

viou

s Ye

ar R

s.16

,569

,951

) cha

rged

to

Exp

lora

tion

Exp

end

itur

e.+

R

efer

Not

e 17

of

Sche

dul

e 17

.

Sche

dul

es F

orm

ing

Par

t of

the

Con

solid

ated

Acc

ount

s fo

r th

e Ye

ar E

nded

Mar

ch 3

1, 2

008



79



March 31, 2008 March 31, 2007SCHEDULE 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 19,332 318 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 3,219 15 Equity Shares of Rs. 10 each of Reliance Capital Ltd. 166 166UNQUOTED (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 3,761,316 (Previous Year – 2,793,615) Units of Rs. 10 each of HDFC Cash

Management Fund – Saving Plan – Daily Dividend 40,006,866 29,714,005 439,103 (Previous Year – 17,894,243) Units of Rs. 10 each of Prudential ICICI

Liquid Plan – Daily Dividend Option 5,203,984 304,856,126 12,784 (Previous Year – 64,800) Units of Rs. 1,000 each of UTI Liquid Cash Plan

Institutional – Daily Income Option – Reinvestment 13,033,015 66,059,927 58,637,655 (Previous Year Nil) Units of Rs. 10 each of UTI Fixed Maturity Plan –

QFMP – (02/08-I) – Institutional Dividend Plan – Reinvestment 586,376,552 0 68,402,101 (Previous Year Nil) Units of Rs. 10 each of Tata Fixed Horizon Fund –

Series 17 scheme D – Institutional Plan – Periodic Dividend 684,021,011 0 68,397,607 (Previous Year Nil) Units of Rs. 10 each of Reliance Fixed Horizon Fund –

VI-Series 2 – Institutional Dividend Plan 683,976,071 0 68,169,937 (Previous Year Nil) Units of Rs. 10 each of ICICI Prudential FMP 42 –

3 Months – Plan A – Retail Dividend – Pay Dividend 681,699,370 0 35,092,865 (Previous Year Nil) Units of Rs. 10 each of SBI – Debt Fund Series –

90 Days – 20 – (26-Feb-08) – Dividend 350,935,900 0 35,000,000 (Previous Year Nil) Units of Rs. 10 each of Principal PNB – Fixed Maturity

Plan (FMP-43) 91 Days-Series XIII-Feb-08 350,000,000 0 68,877,000 (Previous Year Nil) Units of Rs. 10 each of BSL – Quarterly Interval Fund –

Series 2 – Dividend – Reinvestment 688,770,993 0 30,178,387 (Previous Year Nil) Units of Rs. 10 each of ABN AMRO – Flexible Short

Term Plan – Series D Calender Quarterly Dividend 301,785,423 0 15,036,603 (Previous Year Nil) Units of Rs. 10 each of ABN AMRO – Flexible Short

Term Plan- Series D – Quarterly Dividend Reinvestment 150,366,868 0 10,000,000 (Previous Year Nil) Units of Rs. 10 each of Standard Chartered FMP –

Quarterly Series 27 – Dividend 100,000,000 0 10,028,237 (Previous Year Nil) Units of Rs. 10 each of HSBC Interval Fund Plan 2

Institutional Dividend 100,346,334 0 33,553,573 (Previous Year Nil) Units of Rs. 10 each of HDFC FMP 90 Days

March 2008 VII (2) 335,535,726 0 35,000,000 (Previous Year Nil) Units of Rs. 10 each of UTI Fixed Maturity Plan –

HFMP 03/08-I – Institutional Plan – Reinvestment 350,000,000 0 29,727,509 (Previous Year Nil) Units of Rs. 10 each of TATA Floating Rate Fund

Long Term – Income/Bonus 300,628,906 0 0 (Previous Year – 17,894,243) Units of Rs. 10 each of SBI Magnum Insta

Cash Fund – Daily Dividend Option 0 299,733,932 0 (Previous Year – 3,735) Units of Rs. 1,000 each of Templeton India TMA

Super Institutional Plan – Daily Dividend Reinvestment 0 3,735,997 5,723,736,061 705,149,029

Less: Provision for Diminution in Value of Investments 999,999 999,999 5,722,736,062 704,149,030

Aggregate Cost of Quoted Investments 49,042 49,042 Market Value of Quoted Investments 960,674 598,059 Aggregate Cost of Unquoted Investments 5,723,687,019 705,099,987



80




March 31, 2008 March 31, 2007SCHEDULE 6CURRENT ASSETS, LOANS AND ADVANCESINVENTORIES Crude Oil 72,024,219 50,246,759 Stores and Spares 166,191,139 193,685,941 Goods in Transit 5,942,518 6,191,602 Materials Unpacked 690,500 3,387,505 Materials Packed 7,581,746 3,401,270 Packing Material 1,433,574 807,816

253,863,696 257,720,893 SUNDRY DEBTORS(Unsecured) Outstanding for a Period Less Than Six Months Considered Good 738 59,263 Considered Doubtful 1,702,467 1,307,852 Other Receivables Considered Good 120,718,571 205,378,694

122,421,776 206,745,809 Less: Provision for Doubtful Debts 1,702,467 1,307,852

120,719,309 205,437,957 CASH AND BANK BALANCES Cash on Hand 175,013 105,358 With Scheduled Banks Current Accounts (Refer Note 5 of Schedule 17) 979,849,052 71,346,040 Unclaimed/Unpaid Dividend Accounts 5,901,732 6,270,257 Unclaimed/Unpaid Application Money 4,120,544 745,051 Deposit Accounts (Refer Note 5 of Schedule 17) 583,358,946 1,029,507,311 With Non-scheduled Banks Current Accounts 3,543,956 3,659,996

1,576,949,243 1,111,634,013 OTHER CURRENT ASSETS Interest Accrued on Deposits 7,394,535 9,758,715

7,394,535 9,758,715 LOANS AND ADVANCES(Refer Note 1 below) Advances Recoverable in Cash or in Kind or For Value to be Received

(Refer Notes 2 & 3 below) 408,187,773 283,239,968 Service Tax Input Credit 1,404,571 0 Advance Income Tax [Net of Provision for Taxation of Rs. 92,803,943

(Previous Year Rs. 49,478,943)] 171,537,506 60,822,719 Advance Fringe Benefit Tax [Net of Provision for Taxation of Rs. 4,685,000

(Previous Year Rs. 2,460,000)] 507,376 420,376 581,637,226 344,483,063

Less: Provision for Doubtful Advances (Refer Notes 1 & 2 below) 15,556,856 15,556,856 566,080,370 328,926,207

TOTAL 2,525,007,153 1,913,477,785 Notes:1. Of the above: Unsecured, Considered Good 566,080,370 328,926,207 Unsecured, Considered Doubtful (Refer Note 2 below) 15,556,856 15,556,856

581,637,226 344,483,063 2. Includes Capital Advance Rs. 3,048,027 (Previous Year Rs. 1,354,621) for which a

provision of Rs. 1,354,621 (Previous Year Rs. 1,354,621) has been made.3. Includes Unamortised Borrowing Cost of Rs.69,781,407 (Previous Year Rs.63,327,765)



81


in Rupees

As at As at March 31, 2008 March 31, 2007

SCHEDULE 7CURRENT LIABILITIES AND PROVISIONSCURRENT LIABILITIESSundry Creditors – Outstanding Dues to Micro Enterprises and Small Enterprises 0 0 – Outstanding Dues to Creditors other than Micro Enterprises and Small Enterprises 983,659,041 730,234,700 Investor Education and Protection Fund Unclaimed/Unpaid Dividend# 5,901,732 6,270,257 Unclaimed/Unpaid Application Money# 4,120,544 745,051 Other Liabilities 14,465,400 7,441,789 1,008,146,717 744,691,797 PROVISIONSProvision for Compensated Absences 4,682,148 2,775,832 Provision for Site Restoration (Refer Note 15 of Schedule 17) 225,177,500 244,392,500 Provision for Taxation Income Tax [(Net of Advance Tax of Rs. 680,211,801 (Previous Year

Rs. 679,211,691)] 53,074,091 54,074,201 Wealth Tax [Net of Advance Tax of Rs. 344,198 (Previous Year Rs. 203,248)] 293,802 234,752 Fringe Benefit Tax [Net of Advance Tax of Rs. 3,061,684 (Previous Year

Rs. 2,969,684)] 193,316 285,316 Proposed Dividend 130,493,289 0Dividend Tax 22,177,334 0

436,091,480 301,762,601

TOTAL 1,444,238,197 1,046,454,398 # 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, 2008 March 31, 2007

SCHEDULE 8SALESSale of Crude Oil and Gas 1,040,272,662 1,411,653,755 Less: Profit Petroleum to Government of India 230,273,866 256,340,584

809,998,796 1,155,313,171 Sale of Oil Additives 156,469,151 110,442,426

966,467,947 1,265,755,597 SCHEDULE 9INCREASE/(DECREASE) IN STOCK OF CRUDE OIL Increase/(Decrease) in Gross Stock of Crude Oil 21,777,460 (33,451,129)Less: Profit Petroleum to Government of India 20,471,051 10,168,559

1,306,409 (43,619,688)SCHEDULE 10OTHER INCOMEInterest Income (Gross) (Refer Note 6 of Schedule 17) 43,158,881 71,542,911 Dividend from Long Term – Trade Investments 281 6,678 Dividend from Current – Non Trade Investments 127,743,777 42,902,974 Net Profit on Sale of Current Investments 0 520,884 Gain on Foreign Exchange Fluctuation (Net) (Refer Note 16(i) of Schedule 17) 33,288,914 15,582,089 Excess Provision Written Back 135,274 0 Miscellaneous Income 637,317 1,300,549

204,964,444 131,856,085



82



in Rupees


SCHEDULE 11FIELD OPERATING EXPENSES

Hire Charges 270,942,825 120,752,634 Insurance 3,375,127 5,212,292 Fuel, Water and Others 10,790,024 7,785,448 Production Expenses 13,745,589 18,451,592 Other Expenses 7,687,897 8,140,698 Royalty, Cess & Other Duties 4,293,885 7,417,221

310,835,347 167,759,885

SCHEDULE 12COST OF GOODS FOR RESALE

Materials Packed & UnpackedOpening Stock 6,788,775 7,093,457 Add: Purchases 33,316,431 24,621,614

40,105,206 31,715,071 Less: Closing Stock 8,272,246 6,788,775

31,832,960 24,926,296 Packing MaterialsOpening Stock 807,816 434,508 Add: Purchases 14,350,461 7,936,648

15,158,277 8,371,156 Less: Closing Stock 1,433,574 807,816

13,724,703 7,563,340 Packing CostExcise Duty 0 5,446,846 Repacking Cost 3,779,786 1,972,029 Cost of Samples & Replacements (885,066) (1,577,195)Cost of Damaged Goods (1,294) 841

2,893,426 5,842,521

48,451,089 38,332,157

SCHEDULE 13CORPORATE EXPENSES

(A) STAFF EXPENSES Salaries, Allowances and Bonus 67,109,184 45,102,546 Voluntary Retirement Compensation 0 6,052,862 Contribution to Provident and Other Funds 8,482,370 6,063,161 Welfare Expenses 2,581,574 3,407,546

78,173,128 60,626,115



83


in Rupees


SCHEDULE 13

CORPORATE EXPENSES (Contd.)

(B) ESTABLISHMENT EXPENSES

Office and Guest House Rent 11,416,179 9,304,009

Electricity 2,322,408 2,681,169

Rates and Taxes 414,995 292,071

Repairs and Maintenance – Others 8,260,897 7,672,855

General Office Expenses 565,859 530,048

22,980,338 20,480,152

(C) OTHER EXPENSES

Travelling and Conveyance 4,632,932 6,652,885

Communication Expenses 4,169,846 4,484,306

Printing and Stationery 3,283,002 2,958,325

Legal and Professional Expenses 32,353,704 30,626,277

Insurance 502,290 339,938

Directors’ Sitting Fees 305,000 325,000

Auditors’ Remuneration (including for Subsidiary) # @

As Statutory Auditors 1,275,000 1,110,000

Tax Matters 150,000 150,000

Other Matters 74,800 169,200

Reimbursement of Expenses 25,050 321,981

Service Tax 0 227,296

[Net of Service Tax Input Credit of Rs. 174,252 (Previous Year Rs. Nil)]

1,524,850 1,978,477

Loss on Sale of / Discarded Assets (Net) 70,937 174,589

Share Issue Expenses 0 287,500

Miscellaneous Expenses 15,483,047 13,680,579

62,325,608 61,507,876

(D) TOTAL CORPORATE EXPENSES (A+B+C) 163,479,074 142,614,143

(E) Less: RECOVERY OF EXPENSES 105,995,211 103,703,793

57,483,863 38,910,350

# Auditors’ Remuneration for the current year excludes Rs. 2,031,777 (Previous Year Rs. 1,060,668) paid to the Auditors of the Company for attest services rendered in relation to the Rights Issue, which is included as part of Rights Issue expenses adjusted against Securities Premium.

@ Auditors’ Remuneration for the current year excludes Rs. 1,340,462 (Previous Year Rs. 225,000) paid to a firm in which some partners of the audit firm appointed as Auditors of the Company are partners.



84


in Rupees


SCHEDULE 14

MARKETING & DISTRIBUTION EXPENSES

Distribution Expenses

Freight 3,264,854 2,304,979

Others 562,509 534,652

3,827,363 2,839,631

Marketing Expenses

Incentives 4,968,680 4,020,531

Product Promotion Expenses 13,875,203 6,671,148

Advertisement 200,004 425,169

Rebates and Discount 11,059,449 7,510,332

Sales Promotion 2,702,387 3,727,453

Others 1,523,666 2,152,675

34,329,389 24,507,308

Selling Expenses

Commission 4,317,224 2,237,435

Field Staff Expenses 1,918,308 1,461,591

6,235,532 3,699,026

44,392,284 31,045,965

SCHEDULE 15

INTEREST AND FINANCE CHARGES

Interest on Fixed Loans 70,533,415 48,757,586

Bank Charges and Commission 2,687,973 6,283,852

Other Finance Charges 2,652,599 964,938

75,873,987 56,006,376



85


SCHEDULE 16


1. Accounting Convention The financial statements of the Company and its wholly owned subsidiary (“the Group”) have been prepared under historical cost convention in

accordance with the generally accepted accounting principles in India and the provisions of the Companies Act, 1956.

2. Use of Estimates The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of

assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period like depletion of producing properties, estimate of site restoration liability, expensing of the estimated site restoration liability, provision for employee benefits, useful lives of fixed assets, provision for doubtful advances, provision for tax etc. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results may vary from these estimates.

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 transactions in

accordance with the Accounting Standard 21 ‘Consolidated Financial Statements’.

4. Exploration and Development Costs The Company generally follows the “Successful Efforts Method” of accounting for its exploration and production activities as explained below:

(i) Cost of exploratory wells, including survey costs, is expensed in the year when determined to be dry/abandoned or is transferred to the producing properties on attainment of commercial production.

(ii) Cost of temporary occupation of land, successful exploratory wells, development wells and all related development costs, including depreciation on support equipment and facilities, are considered as development expenditure. These expenses are capitalised as producing properties on attainment of commercial production.

(iii) Producing properties, including the cost incurred on dry/abandoned wells in development areas, are depleted using “ Unit of Production’’ method based on estimated proved developed reserves. Any changes in Reserves and/or Cost are dealt with prospectively. Hydrocarbon reserves are estimated and/or approved by the Management Committees of the Unincorporated Joint Ventures, which follow the International Reservoir Engineering Principles.

(iv) If the Company/unincorporated joint venture were to relinquish a Block or part thereof, the accumulated acquisition and exploration costs carried in the books related to the Block or part thereof, as the case may be, are written off as a charge to the profit and loss account in the year of relinquishment.

Explanatory Note

1. All exploration costs including acquisition of geological and geophysical seismic information, license and acquisition costs are initially capitalized as “Capital Work in Progress - Exploration Expenditure”, until such time as either exploration well(s) in the first drilling campaign is determined to be successful, at which point the costs are transferred to “Producing Properties”, or it is unsuccessful in which case such costs are written off consistent with para 2 below.

2. Exploration costs associated with drilling, testing and equipping exploratory well and appraisal well are initially capitalized as “Capital Work in Progress - Exploration Expenditure”, until such time as such costs are transferred to “Producing Properties” on attainment of commercial production or charged to the Profit and Loss Account unless:

(a) such well has found potential commercial reserves; or

(b) such well test result is inconclusive and is subject to further exploration or appraisal activity like acquisition of seismic, or re-entry of such well, or drilling of additional exploratory/step out well in the area of interest, such activity to be carried out no later than 2 years from the date of completion of such well testing;

Management makes quarterly assessment of the amounts included in “Capital Work in Progress - Exploration Expenditure” to determine whether capitalization is appropriate and can continue. Exploration well(s) capitalized beyond 2 years are subject to additional judgment as to whether facts and circumstances have changed and therefore the conditions described in 2(a) and (b) no longer apply.

5. Site Restoration Estimated future liability relating to dismantling and abandoning producing well sites and facilities whose estimated producing life is expected to

end during next ten years is recognised based on the estimated future expenditure determined by the Management in accordance with the local conditions and requirements. The corresponding amount is added to the cost of the producing property and is expensed in proportion to the production for the year and remaining estimated proved reserves of hydrocarbons based on latest technical assessment available with the Company. Any change in the value of the estimated liability is reflected as an adjustment to the provision and the corresponding producing property.

Consolidated-Notes.indd 85 8/26/2008 7:31:42 AM


86


6. Impairment

At each Balance Sheet date, the Group reviews the carrying amount of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss.

Where the impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior accounting periods.

7. Unincorporated Joint Ventures

The financial statements of the Group reflect the Company’s share of assets, liabilities, income and expenditure of the Joint Venture operations which are accounted on the basis of available information on line by line basis with similar items in the Group’s accounts to the extent of the participating interest of the Company as per the various joint venture agreements. The financial statements of the unincorporated joint ventures are prepared by the respective Operators in accordance with the requirements prescribed by the respective Production Sharing Contracts of the unincorporated joint ventures. Hence, certain adjustments/disclosures required under the mandatory Accounting Standards have been made in these financial statements only to the extent of information available with the Company. Such information include information relating to foreign exchange differences, transactions with related parties and details of commitments and contingencies.

8. Fixed Assets

Fixed Assets are stated at cost inclusive of all incidental expenses.

9. Depreciation

(i) Depreciation is provided on the “Written Down Value’’ method at the rates specified in Schedule XIV of the Companies Act, 1956.

(ii) 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.

(iii) Improvements to Leasehold premises are amortised over the remaining primary lease period.

(iv) Computer software is amortised on the “Written Down Value” method at 40% per annum.

(v) Assets individually costing less than Rs. 5,000 are fully depreciated in the year of acquisition.

10. Investments

Investments 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.

11. Inventories

(i) Closing stock of crude oil in saleable condition is valued at Net Realisable Value less estimated selling costs. Oil additives are valued at lower of Cost or Net Realisable Value on FIFO basis.

(ii) Stores and spares are valued at cost on FIFO basis or estimated net realisable value, whichever is lower.

(iii) Cost of unpacked materials includes freight, customs duty, insurance and clearing charges. Cost of packed materials includes repacking charges, packing materials etc.

12. Miscellaneous Expenditure

(i) Share issue expenses are either debited to the profit and loss account or adjusted against the securities premium account in accordance with Section 78 of the Companies Act, 1956, based on Management’s decision.

(ii) “Signature Bonus” paid upon signing of Production Sharing Contract is considered as deferred revenue expense to be written off over three to five years commencing from the year of payment, depending on the size of the field.

13. Revenue Recognition

(i) Revenue from the sale of crude oil and gas, net of Government’s share of Profit Petroleum and Value Added Tax, is recognised on transfer of custody to refineries/others.


SCHEDULE 16 — SIGNIFICANT ACCOUNTING POLICIES (Contd...)



87

(ii) Sale is recorded at the invoiced price, which is subject to the approval of the Government of India, Ministry of Petroleum & Natural Gas (MoP&NG). The difference between the invoiced price and the final approved price, if any, is adjusted in the year in which the aforesaid approval is received.

(iii) Sales turnover of oil additives includes sale value of goods (net of trade discount) and excludes Sales Tax/Value Added Tax.

14. Retirement Benefits (Also See Note 16(ii) of Schedule 17)

(a) Defined Contribution Plan

(i) Provident Fund: Contributions towards Employees’ Provident Fund are made to the Employees Provident Fund Scheme in accordance with the statutory provisions.

(ii) Superannuation: The Company contributes a sum equivalent to 15% of eligible employees basic salary to a Superannuation Fund administered by trustees. The Company has no liability for future Superannuation Fund benefits other than its annual contribution and recognizes such contributions as an expense in the year incurred.

(b) Defined Benefit Plan

The Group makes annual contribution to a Gratuity Fund administered by trustees and managed by LIC. The Group accounts its liability for future gratuity benefits based on actuarial valuation, as at the balance sheet date, determined every year by an Actuary appointed by the Group using the Projected Unit Credit method.

(c) 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.

15. Borrowing Costs

Borrowing Cost (including amortisation of ancillary costs) specifically identified to the acquisition or construction of qualifying assets is capitalized as part of such asset. A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended use. All other borrowing costs are charged to the Profit and Loss Account.


Foreign Currency Transactions are accounted at the exchange rates ruling on the date of the transactions. Foreign currency monetary items as at the Balance Sheet date are restated at the closing exchange rates. Exchange differences arising on actual payments/realisations and year-end restatements are dealt with in the Profit and Loss Account.

Also See Note 16(i) of Schedule 17.

17. Taxation

Income Tax: Current tax is the amount of tax payable on the taxable income for the year and is provided with reference to the provisions of the Income Tax Act, 1961.

Deferred Tax: Deferred tax is recognised, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred Tax asset is recognised when there is a reasonable certainty of future taxable income except for deferred tax assets in respect of unabsorbed loss or depreciation where it is recognised only if there is a virtual certainty with convincing evidence.

MAT Credit: Minimum Alternate Tax (MAT) Credit is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal income tax during the specified period. In the year in which the MAT Credit becomes eligible to be recognised as an asset, the said asset is created by way of a credit to the Profit and Loss Account and shown as MAT Credit Entitlement. The Group reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that the Group will pay normal income tax during the specified period.


SCHEDULE 16 — SIGNIFICANT ACCOUNTING POLICIES (Contd...)



88


SCHEDULE 17

NOTES TO THE CONSOLIDATED ACCOUNTS

1. Consolidated Financial Statements The Group’s consolidated financial statements include those of HOEC Bardahl India Limited, a wholly owned subsidiary, incorporated in India.

2. Provisions and Write-Offs (Net) During the year ended March 31, 2008, Exploratory Well North Ledo-1 drilled in Block AAP-ON-94/1 did not encounter hydrocarbons of

commercial interest and the same has been plugged and abandoned. Consistent with the Company’s Accounting Policies, the Company has written off the Exploration Cost of Rs. 158,033,311 associated with the drilling of the said well.

As per the terms of the Production Sharing Contract for CY-OSN-97/1 Block, if no Commercial Discovery is made in the Contract Area by end of the Exploration Period, the Contract Area shall be relinquished. In the absence of any discovery during the Exploration Period the Contract Area stands relinquished. Hence Exploration Cost pertaining to the CY-OSN-97/1 Block of Rs. 8,359,550 has been written off.

Provisions and Write-offs for the year ended March 31, 2007 includes write-off of exploration cost of Rs. 943,486,556 for Vinayaka-1 and Subhan-1 Exploratory Wells in CY-OSN-97/1 Block, a write back of Rs. 4,381,364 in CB-ON-7 Block and a write back of Rs. 8,736,496 in AAP-ON-94/1 Block based on audited Accounts of the respective Joint Ventures.

Provisions and Write-offs also includes Bad Debts of the subsidiary written off amounting to Rs. 152,039 (Previous Year Rs. 172,051) and Provision for Doubtful Debts amounting to Rs. 394,615 (Previous Year Rs. Nil).

3. Secured Loans (Foreign Currency and Rupee Term Loans) (a) The Term Loans from State Bank of India, Axis Bank Limited and HDFC Bank Limited amounting to Rs. 957,758,261 as at March 31,

2008, are secured by way of charge on the Company’s Participating Interest in PY-3 and Palej Fields, first charge on the Company’s share of Crude Oil Receivables from PY-3 and Palej Fields and charge on the Debt Service Reserve Account. Refer Note 5 below.

(b) The Term Loans from Axis Bank Limited, Bank of India, Canara Bank, Export-Import Bank of India, Indian Overseas Bank, Industrial Development Bank of India Limited, Syndicate Bank, The Federal Bank Limited and Union Bank of India amounting to Rs. 514,440,431 as at March 31, 2008 are secured by way of charge on all movable properties pertaining to PY-1 Gas Project, the Company’s Participating Interest in PY-1 Field and on the PY-1 Trust and Retention Accounts. Refer Note 5 below.

4. Rights Issue of Equity Shares A : FY 2007-08 On January 24, 2008, an allotment of 52,180,621 Equity Shares of Rs. 10 each was made consequent to the Rights Issue of 52,217,720

Equity Shares of Rs. 10 each at a premium of Rs. 107 per Share to the then existing Shareholders of the Company in the ratio of Two Equity Shares for every Three Equity Shares held aggregating to Rs. 6,105,132,657.

B : FY 2006-07 On October 27, 2006, an allotment of 19,567,733 Equity Shares of Rs. 10 each 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 then existing Shareholders of the Company in the ratio of One Equity Share for every Three Equity Shares held aggregating to Rs. 1,487,147,708.

5. Bank Balances – Scheduled Bank (a) Current Accounts with Scheduled Banks include Lien Marked Accounts Rs. 3,294,327 (Previous Year Rs. 1,111,086). Refer Note 3 above. (b) Deposits with Scheduled Banks include — Lien Marked Deposits Rs. 102,591,386 (Previous Year Rs. 113,970,251). Refer Note 3 above. — Deposit amounting to Rs. 192,978,180 (Previous Year Rs. 179,417,650) placed as “Site Restoration Fund” under Section 33ABA of

the Income Tax Act, 1961.

6. Interest Income Interest Income includes interest on:

in Rupees

Particulars 2007-2008 2006-2007Deposits 43,137,046 71,534,155Staff Loans 2,835 514Others 19,000 8,242

Total 43,158,881 71,542,911




89

7. Managerial Remuneration Details of Managerial Remuneration Paid

in Rupees

Particulars 2007-2008 2006-2007Salary 6,959,140 7,843,094Contribution to Provident and Superannuation Funds 847,350 533,650Perquisites 0 224,424

Total 7,806,490 8,601,168

Note:

1. The Managerial Remuneration does not include an amount of Rs. 85,000 (Previous Year Rs. 80,000) paid to the Managing Director as sitting fee for attending Board/Committee meetings. The Managing Director does not draw any other remuneration from the Company.

2. In computing Managerial Remuneration, perquisites have been valued in terms of actual expenditure incurred by the Company in providing the benefits except in case of certain expenses where the actual amount of expenditure cannot be ascertained with reasonable accuracy, notional amount as per Income Tax Rules has been added. Actuarial valuation based contribution/provision with respect to gratuity and provision for compensated absences have not been included as these are for the Company as a whole. Annual variable pay and long term incentive benefits have been included as remuneration on cash basis.

3. FY 2006-2007 – Joint Managing Director The Company had made an excess payment of Rs. 1,332,050 to the Joint Managing Director during the financial year 2006-2007 which has

been subsequently approved by the Shareholders of the Company at the Annual General Meeting held on September 28, 2007 pursuant to clause 1(B) of Section II of Part II of Schedule XIII of the Companies Act, 1956.

4. FY 2006-2007 – Erstwhile Managing Director The Company, after obtaining the necessary approval from the Shareholders, has made an application to the Central Government for

approval under Clause 1(C) of Section II of Part II of Schedule XIII of the Companies Act, 1956 for the remuneration paid to the erstwhile Managing Director during the financial year 2006-07 in excess of the limits prescribed under Schedule XIII of the Companies Act, 1956. Pending such approval, no recovery has been made for the excess remuneration paid to him amounting to Rs. 4,426,451 (net of Rs. 216,000 relating to Contribution to Provident and Superannuation Funds to the extent not taxable under the Income Tax Act, 1961 and Rs. 226,667 relating to encashment of leave at the end of the tenure).

8. Long Term Incentive Plan, 2005 Under the HOEC Limited Employee Stock Option Scheme – 2005 (ESOS Scheme) approved by the Shareholders, the Board had on May 23,

2006 approved grant of 15,069 options to the eligible employees at nil exercise price as part of the Long Term Incentive Plan (LTIP) for the financial year 2005-06. In terms of the ESOS Scheme, the options would vest at the third anniversary of the end of the financial year for which the grant corresponds to. Except as stated above, no stock options were granted during the financial year 2006-07 and financial year 2007-08. For the financial year 2007-2008 an aggregate amount of Rs. 9,400,000 has been provided towards cash bonus and ESOS (deferred bonus) as per the LTIP.

Method used for accounting for Share Based Payment Plan: Under the LTIP, the eligible employees are granted options in the succeeding year after adoption of Annual Audited Accounts for the given year.

The Company charges the entire amount provided towards cash bonus and ESOS (deferred bonus) to the Profit and Loss Account for the year for which the grant corresponds to. Any upward variation in the market price/acquisition price of the ESOS stocks, as may be applicable, as on the date of Balance Sheet, is charged to Profit and Loss Account for the period.

Particulars 2007-2008Shares 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


SCHEDULE 17 — NOTES TO THE CONSOLIDATED ACCOUNTS (Contd...)



90


Fair Value Methodology: The fair value of stock option has been estimated on the date of the grants using Black-Scholes model. The key assumptions used in Black-Scholes model for calculating fair value as on the date of the grant viz. May 23, 2006, are: (a) risk-free interest rate – 6.25% p.a. (b) expected life – 3 to 4 years (c) expected volatility of share price: 58 % (d) expected growth in dividend: Nil The fair value of the option, as on the date of grant, works out to Rs. 147.15 per stock option. As the amount charged to the Profit and Loss Account (i.e. Rs. 170.89 per stock option) is higher than the fair value (i.e. Rs. 147.15 per stock

option), had compensation cost for the stock options granted under the Scheme been determined based on fair value approach, the Company’s net profit and earnings per share would have been higher than reported.

9. The Group’s Obligation towards the Gratuity Fund is a Defined Benefit Plan. Details of Actuarial Valuation as at March 31, 2008

in Rupees

Particulars 2007-2008 2006-2007Projected Benefit Obligation as at the Beginning of the Year 5,244,414 5,800,378 Service Cost 1,346,104 897,844Interest Cost 437,401 482,398Actuarial Losses/(Gains) 1,259,092 (124,326)Benefits Paid (358,480) (1,811,880)Projected Benefit Obligation at the End of the Year 7,928,531 5,244,414

Change in Plan AssetsFair Value of Plan Assets as at the Beginning of the Year 1,550,406 2,926,369 Expected Returns on Plan Assets 131,215 176,789 Employer’s Contribution 345,080 245,542 Benefits Paid (358,480) (1,811,880) Actuarial Gains 21,521 13,586 Fair Value of Plan Assets as at the End of the Year 1,689,742 1,550,406

Cost of the Defined Benefit Plan for the YearCurrent Service Cost 1,346,104 897,844 Interest on Obligation 437,401 482,398Expected Return on Plan Assets (131,215) (176,789)Net Actuarial Losses/(Gains) Recognised in the Year 1,237,571 (137,912)Net Cost recognised in the Profit and Loss Account 2,889,861 1,065,541

AssumptionsDiscount Rate 8.28% – 8.35% 8.00% – 8.35%Future Salary Increase 6.50 % – 10% 6.00% – 10%Expected Rate of Return on Plan Assets 8.50% 8.25%

Note:

1. The figures for the previous year 2006-2007 has been restated to include the details relating to the subsidiary, which was not included in the previous year since the same was not disclosed in the audited financial statements of the subsidiary for the previous year.

2. The expected return on plan assets is as furnished by the Actuary appointed by the Group.





91

10. Segmental Reporting

Segment reporting in terms of Accounting Standard 17 is as under:in Rupees

Particulars Year ended March 31,2008 2007

1. Segment Revenue — Hydrocarbon 867,308,446 1,128,133,170 — Oil Additives 157,997,788 110,885,377 — Inter-Company Elimination (23,470,373) 0 — Unallocated 170,902,939 114,973,447 Gross Sales/Income From Operations 1,172,738,800 1,353,991,994

2. Segment Results — Hydrocarbon 274,161,448 (74,587,113) — Oil Additives 46,518,209 30,159,208 — Unallocated 95,028,952 58,793,159 Total Profit Before Tax 415,708,609 14,365,254

3. Segment Assets — Hydrocarbon 6,119,968,407 3,952,622,934 — Oil Additives 35,454,024 30,072,390 — Unallocated 6,871,388,660 2,300,091,408 Total Assets 13,026,811,091 6,282,786,732

4. Segment Liabilities — Hydrocarbon (1,351,165,263) (956,986,124) — Oil Additives (29,489,449) (27,858,697) — Unallocated (1,535,782,177) (1,382,557,973) Total Liabilities (2,916,436,889) (2,367,402,794)

5. Additions to Tangible and Intangible Fixed Assets (Including Capital Work in Progress) — Hydrocarbon 1,505,160,965 2,415,671,854 — Oil Additives 475,113 1,222,278 — Unallocated 0 0 Total Additions to Tangible and Intangible Fixed Assets (Including Capital Work in Progress)

1,505,636,078 2,416,894,132

6. Depreciation/Amortisation and Depletion — Hydrocarbon 52,613,597 76,492,460 — Oil Additives 440,509 538,800 — Unallocated 0 0 Total Depreciation/Amortisation and Depletion 53,054,106 77,031,260

7. Non-Cash Expenses other than Depreciation and Amortisation — Hydrocarbon 166,392,861 930,656,196 — Oil Additives 546,654 172,051 — Unallocated 0 0 Total Non-Cash Expenses other than Depreciation and Amortisation 166,939,515 930,828,247

Note:

The Group’s operations are carried out only in India and the Group does not have any geographical segments other than India.





92


11. Related Party Disclosures

(i) As per the Accounting Standard on ‘Related Party Disclosures’ (AS 18), the related parties of the Group as at March 31, 2008 are as follows:

(A) Promoter Group:

Burren Shakti Limited (Formerly known as Unocal Bharat Limited) Burren Energy (India) Limited

(B) Unincorporated Joint Venture Partners of the Company:

Gujarat State Petroleum Corporation Limited Hardy Exploration & Production (India) Inc. Heramec Limited Indian Oil Corporation Limited Mafatlal Industries Limited Mosbacher (India) LLC Oil and Natural Gas Corporation Limited Oil India Limited Tata Petrodyne Limited

As stated in Item 7 of Significant Accounting Policies (Schedule 16), the financial statements of the Unincorporated Joint Ventures are incorporated in the Group’s accounts to the extent of the Group’s share. Hence, particulars of transactions with the Unincorporated Joint Ventures have not been separately disclosed.

(C) Key Management Personnel:

Mr. Atul Gupta – Managing Director Mr. Manish Maheshwari – Joint Managing Director

Note:


(ii) The nature and volume of transactions of the Group during the year with the above parties were as follows:in Rupees

Particulars Promoter Group

Joint Ventures’ Partners

Key Management

Personnel

EXPENDITURE

– Remuneration (See Note 7 above) 0(0)

0(0)

7,806,490(8,601,168)

– Sitting Fees 0(0)

0(0)

85,000(80,000)

– Recovery of Expenses 0(0)

37,545,357(23,187,362)

0(0)

– Dividends Paid 0(15,287,378)

0(0)

0(0)

As at Year End

Net Amounts Payable as at Year End 0(0)

0(0)

0(117,754)

Notes:

1. Figures in brackets relate to the Previous Year.

2. The above excludes transactions, if any, entered into between the Unincorporated Joint Ventures and the related parties mentioned in (i) above in the absence of necessary information.





93

12. Earnings Per Share The basic/diluted earnings per equity share is calculated as stated below:

Particulars 2007-2008 2006-2007 (Restated)

Net Profit after Tax Rs. 257,832,619 Rs. 25,932,997Weighted Average Number of Equity Shares 97,546,759 79,299,345Basic/Diluted Earnings Per Share (EPS) Rs. 2.64 Rs. 0.33Nominal Value per Share Rs.10 Rs.10

Note: Earnings Per Share calculations are done in accordance with Accounting Standard 20 “Earnings Per Share”.

13. Deferred Tax Asset (Net) The net Deferred Tax Asset of Rs. 375,831,959 as at March 31, 2008 has arisen on account of the following:

in RupeesParticulars 2007-2008 2006-2007Deferred Tax AssetExploration Expenses 290,500,000 566,887,000Doubtful Debts/Advances 5,878,668 5,740,224Employee Related Costs 5,050,963 4,276,807Unabsorbed Business Losses 164,500,000 0

Sub total (A) 465,929,631 576,904,031Deferred Tax LiabilityDepreciation on Fixed Assets (Net) 4,637,672 3,586,082Depletion of Producing Properties 70,060,000 74,400,000Site Restoration 15,400,000 10,500,000

Sub total (B) 90,097,672 88,486,082Net Deferred Tax Asset (A – B) 375,831,959 488,417,949

14. Commitments and Contingencies (Excluding commitments and contingencies of the Unincorporated Joint Ventures)in Rupees

Particulars 2007-2008 2006-2007(i) Counter Guarantees on account of Bank Guarantees 137,788,741 284,976,510(ii) Corporate Guarantee for Housing Loans to Employees 235,523 609,746(iii) Estimated amount of Contracts remaining to be Executed on Capital

Account and Not Provided For (Including Rs. 122,335,500 (Previous Year Rs. 133,498,500) in respect of a farm-in consideration for acquisition of participating right, in one of the Unincorporated Joint Ventures)

130,880,217 141,165,927

(iv) Claims against the Group Not Acknowledged as Debt * — Dispute with Contractors under Arbitration 3,206,685 3,232,488 — Income Tax Demands under Appeal 399,826,569 298,291,498 — Customs Duty under Appeal 540,464 540,464(v) The Government had encashed the Performance Bank Guarantee of

Rs. 10,149,000 for PG Block 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. 282,417,042 (including interest) (Previous Year Rs. 260,108,897). The Company has been 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) only.*

282,417,042 260,108,897

Note: *The Management is contesting the claim and demand and the Management including its tax/legal advisors believe that its position will quite

likely be upheld in the appellate process/court of law.





94


15. Provision for Site Restoration In accordance with Accounting Standard 29, the movement in Provision for Site Restoration is as follows.

in Rupees

Provision for Site Restoration 2007-2008 2006-2007

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

Add: Provision for the Year 0 0

Effect of Change in Exchange Rate (19,215,000) (5,722,500)

Closing Balance 225,177,500 244,392,500

As per the terms of Production Sharing Contract this liability will arise at the time of abandonment of the field.

16. Changes in Accounting Policy (i) Accounting Standard 11 – The Effects of Changes in Foreign Exchange Rates Upto March 31, 2007, the Company had capitalised the exchange differences arising from foreign currency liabilities relating to fixed assets

acquired from outside India. Effective April 1, 2007, consequent to the applicability of Accounting Standard (AS) 11 – The Effects of Changes in Foreign Exchange Rates, notified by the Government of India, the Company has accounted for such exchange differences amounting to a net gain of Rs. 13,612,540 (including share in Unincorporated Joint Ventures) in the Profit and Loss Account for the current year.

With respect to such transactions/liabilities, had the Company not changed the Accounting Policy the profit before tax would have been lower by Rs. 13,612,540.

With respect to the effect of such change in policy in respect of the Company’s share of the assets and liabilities in the Unincorporated Joint Ventures, the required information relating to foreign exchange differences are not available in the audited financial statements of the Unincorporated Joint Ventures which are prepared in accordance with the requirements of the Production Sharing Contract. Hence, the details of such foreign exchange differences have been obtained from the Operators of the respective Unincorporated Joint Ventures.

(ii) Accounting Standard 15 – Employee Benefits Effective April 1, 2006, the Group adopted the revised Accounting Standard 15 (AS 15) on Employee Benefits, issued by the Institute of

Chartered Accountants of India (ICAI), though not mandatory in nature as of that date. Consequent upon the change, Profit before Tax for the year ended March 31, 2007 was higher by Rs. 859,413. In accordance with the transitional provision contained in the said Standard, the difference of Rs. 502,407 (net of Deferred Tax of Rs. 254,907) between the liability in respect of certain employee benefits existing on the date of adoption of the said Standard and the liability that would have been recognised at the same date under the previous accounting policy was adjusted against the opening balance in the General Reserve (Rs. 487,000) in the case of the Company and against the opening balance in the Profit and Loss Account (Rs. 15,407) in the case of the subsidiary, as at April 1, 2006.

17. CB-ON-7 Exploration Area The Operator of the Unincorporated Joint Venture CB-ON-7 has sought extension of the exploration period for conducting additional exploration

in certain areas of the Block. In the meantime, the work programme for the same has been decided and approved by the Directorate General of Hydrocarbons. Hence, pending receipt of such extension, the total amount of Rs. 55,049,484 has been included under “Exploration Expenditure” (Schedule 4) which will be appropriately dealt with based on final regulatory consents.

18. GAIL Arbitration On February 15, 2008, the Arbitral Tribunal has passed Final Award in the Arbitration Proceedings between GAIL India Ltd. (“GAIL”) and

Hindustan Oil Exploration Company Limited (“HOEC”) concerning the Gas Sale and Transportation Agreement (“GSTA”) dated July 1, 2003 executed between GAIL and HOEC in relation to the PY-1 Gas. In the said proceeding GAIL had sought specific performance of the GSTA. By way of the majority award the Arbitral Tribunal has granted the relief of specific performance of GSTA in favour of GAIL and against HOEC. The Company has initiated legal proceedings for setting aside the majority award.

19. Previous Year Figures Previous year’s figures have been regrouped wherever necessary, to conform to the current year’s presentation.




95

2D Seismic – Two Dimensional Seismic3D Seismic – Three Dimensional Seismic2P/P+P Reserves – Proven and Probable Reserves Proven 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 proven plus probable reserves.

bbl – barrelboe – barrels of oil equivalentbopd – barrels of oil per dayboepd – barrels of oil equivalent per dayDP – Depository ParticipantDevelopment 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 HydrocarbonsDST – Drill Stem TestExploratory 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 ProductionFIFO – First in First outGHG – Green House GasGSPCL – Gujarat State Petroleum Corporation Ltd.HAZID – Hazard Identification (Risk Analysis)HAZOP – Hazard and Operability AnalysisHEPI – Hardy Exploration and Production (India) Inc.HOEC – Hindustan Oil Exploration Company LimitedJOA – Joint Operating AgreementJV – Joint VentureLTIP – Long Term Incentive PlanMDT – Modular Dynamics Testmmboe – Million barrels of oil equivalantmmscfd – Million standard cubic feet per daymmscm – Million standard cubic metersML – Mining LeaseNELP – New Exploration Licensing PolicyOEM – Original Equipment ManufacturerOGP – International Association of Oil & Gas ProducersONGC – Oil & Natural Gas Corporation LimitedPI – Participating InterestPSC – Production Sharing Contract Revenue – Sales+Increase/(Decrease) in stock of crude oil+Other Incomescmd – standard cubic meters per dayscm – standard cubic metersSEBI – Securities and Exchange Board of IndiaWorking interest basis – Field Production x Participating InterestEntitlement basis – Working interest basis less Government of India Profit Petroleum takeTurnover – Sales + Increase/(Decrease) in Stock of Crude Oil

Glossary

Glosary & Proxy.indd 95 8/26/2008 7:35:00 AM

NoTEs

Glosary & Proxy.indd 96 8/26/2008 7:35:00 AM

Date : September 30, 2008

Day : Tuesday

Time : 10:30 A.M.

Place : “Tropicana Hall” Taj Residency Vadodara Akota Gardens, Akota Vadodara-390 020

Contents

Highlights of 2007-08 1

Operational Highlights At A Glance 2

Board of Directors 4

Directors’ Report 5

Management Discussion and Analysis Report 9

Report on Corporate Governance 14

Accounts with Auditors’ Report 24

Information pertaining to HOEC Bardahl India Limited (Subsidiary) 56

Consolidated Accounts with Auditors’ Report 73

Glossary 95

Disclaimer Note:Certain sections of this Annual Report, in particular the Management Discussion and Analysis, and Operational Highlights may contain forward-looking statements concerning the financial condition and results of operations of HOEC. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. HOEC does not undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information.

AUDITORSDeloitte Haskins & Sells Chartered Accountants

COMPANY SECRETARY Mr. Vikash Jain

PRINCIPAl BANKERS

• Axis Bank Limited • Bank of Baroda • Bank of India • Canara Bank• Corporation Bank• Export-Import Bank of India • HDFC Bank Limited

• Indian Overseas Bank Limited• State Bank of India• Syndicate Bank• The Federal Bank Limited• The Hongkong and Shanghai

Banking Corporation Limited• Union Bank of India

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]

24th Annual General Meeting

hoec_cover_inside_08.indd 1 8/26/2008 7:56:58 PM

24

th AN

NU

AL R

EPO

RT 2

00

7-2

00

8

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

24th Annual Report 2007-2008

hoec_cover_08_3R2.indd 1 8/26/2008 6:39:13 PM

Date post:	20-Apr-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

th Annual General Meeting · including Hyundai and Tata Motors and introduction of new auto care...

Documents