· FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE COMPANY ONLY LETTER OF OFFER ISSUE OF 52,217,720 EQUITY SHARES OF Rs. 10 EACH AT A PREMIUM OF Rs. 107 PER EQUITY SHARE

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE COMPANY ONLY

LETTER OF OFFER

ISSUE OF 52,217,720 EQUITY SHARES OF Rs. 10 EACH AT A PREMIUM OF Rs. 107 PER EQUITY SHARE AGGREGATING TOAN AMOUNT OF Rs. 6,109.47 MILLION TO THE EQUITY SHAREHOLDERS ON RIGHTS BASIS IN THE RATIO OF 2 EQUITYSHARES FOR EVERY 3 EQUITY SHARES HELD ON THE BOOK CLOSURE DATE I. E. NOVEMBER 22, 2007 ("ISSUE"). THEISSUE PRICE IS 11.7 TIMES OF THE FACE VALUE OF THE EQUITY SHARE

GENERAL RISKS

Investments in equity and equity related securities involve a degree of risk and investors should not invest any funds in this Issueunless they can afford to take the risk of losing their investment. Investors are advised to read the section titled "Risk Factors"beginning on page VIII of this Letter of Offer before making an investment in this Issue. For taking an investment decision, investorsmust rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommendedor approved by the Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document.Investors are advised to refer to "Risk Factors" on page VIII of this Letter of Offer before making investments.

ISSUER'S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all informationwith regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Letter ofOffer is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressedherein are honestly held and that there are no other facts, the omission of which makes this Letter of Offer as a whole or any suchinformation or the expression of any such opinions or intentions misleading in any material respect.

LISTING

The existing Equity Shares of the Company are listed on the Bombay Stock Exchange Limited ("BSE") and the National Stock Exchangeof India Limited ("NSE"). The Company has received "in-principle" approvals from the BSE and the NSE for listing the Equity Sharesarising from this Issue vide letters dated October 3, 2007 and October 5, 2007 respectively. For the purpose of this Issue, the DesignatedStock Exchange is the BSE.

LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

HINDUSTAN OIL EXPLORATION COMPANY LIMITED(Incorporated under the Companies Act, 1956 on September 22, 1983, at Maharashtra, as a public limited company).

Registered Office: 'HOEC House', Tandalja Road, Vadodara, Gujarat -390 020, India; For details of changes in the registered officeof the Company, see the section titled "History and Certain Corporate Matters" beginning on page 46 of this Letter of Offer.

Tel: +91 265 233 0766; Fax: +91 265 233 3567;

Website: www.hoec.com; Email: [email protected]

Contact Person: Mr. Vikash Jain, Company Secretary, Chief - Tax & Legal;Tel: +91 44 6622 9000; Fax: +91 44 2499 3222.

JM FINANCIAL CONSULTANTS PRIVATE LIMITED141, Maker Chambers III,Nariman Point,Mumbai- 400 021, IndiaContact Person: Ms. Poonam KarandeTel: +91 22 6630 3030Fax: +91 22 2204 7185Email: [email protected]: www.jmfinancial.inRegistration No : INM000010361

INTIME SPECTRUM REGISTRY LIMITEDC-13, Pannalal Silk Mills Compound,L.B.S. Marg, Bhandup (West),Mumbai - 400 078, India.Contact Person: Ms. Awani ThakkarTel: + 91 22 2596 0320-7Fax: + 91 22 2596 0328-9Email: [email protected]: www.intimespectrum.comRegistration No: INR000003761

ISSUE PROGRAMME

ISSUE OPENS ON LAST DATE FOR RECEIVING REQUEST FOR ISSUE CLOSES ONSPLIT APPLICATION FORMS

DECEMBER 7, 2007 DECEMBER 21, 2007 JANUARY 7, 2008

C M Y K

C M Y K

Letter of OfferFor Equity Shareholders of the Company Only

TABLE OF CONTENTS

ABBREVIATIONS & TECHNICAL TERMS....................................................................................................................... i

PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ..................................................... vi

FORWARD-LOOKING STATEMENTS .......................................................................................................................... vii

RISK FACTORS ..............................................................................................................................................................viii

SUMMARY ........................................................................................................................................................................ 1

THE ISSUE ....................................................................................................................................................................... 4

SUMMARY FINANCIAL INFORMATION ......................................................................................................................... 5

GENERAL INFORMATION .............................................................................................................................................. 7

CAPITAL STRUCTURE ................................................................................................................................................. 12

OBJECTS OF THE ISSUE .............................................................................................................................................. 20

BASIS FOR ISSUE PRICE ............................................................................................................................................. 24

STATEMENT OF TAX BENEFITS .................................................................................................................................. 26

INDUSTRY OVERVIEW ................................................................................................................................................. 31

OUR BUSINESS ............................................................................................................................................................. 34

HISTORY AND CERTAIN CORPORATE MATTERS ................................................................................................... 46

REGULATORY ENVIRONMENT OF EXPLORATION & PRODUCTION IN THE OIL & GAS INDUSTRY ................ 53

OUR MANAGEMENT ..................................................................................................................................................... 56

PROMOTERS AND PROMOTER GROUP ................................................................................................................... 65

DIVIDEND POLICY ......................................................................................................................................................... 69

FINANCIAL STATEMENTS ............................................................................................................................................ 70

FINANCIAL INDEBTEDNESS ..................................................................................................................................... 120

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS ....................................................................................................................................... 124

OUTSTANDING LITIGATIONS AND MATERIAL DEVELOPEMENTS ...................................................................... 138

GOVERNMENT AND OTHER APPROVALS .............................................................................................................. 145

STATUTORY AND OTHER INFORMATION ............................................................................................................... 154

TERMS AND PROCEDURE OF THE ISSUE .............................................................................................................. 165

MAIN PROVISIONS OF ARTICLES OF ASSOCIATION ............................................................................................. 182

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION .......................................................................... 191

DECLARATION ............................................................................................................................................................ 193

i

ABBREVIATIONS & TECHNICAL TERMS

In this Letter of Offer, the terms "we", "us", "our", "the Company", "our Company", "the Issuer" or "HOEC",unless the context otherwise implies, refers to Hindustan Oil Exploration Company Limited, a company incorporatedunder the Companies Act, 1956 having its registered office at 'HOEC House', Tandalja Road, Vadodara- 390 020,Gujarat, India. All references to the singular also refers to the plural and one gender also refers to any othergender, wherever applicable.

Conventional and General Terms

AGM Annual General Meeting

Articles of Association / AoA Articles of Association of our Company

AS Accounting Standard as issued by the Institute of Chartered Accountantsof India

Auditor Refers to Deloitte Haskins & Sells for the Fiscal 2007

"Board" or "Board of Board of Directors of our Company which term shall include a committeeDirectors" or "Directors" thereof

BSE Bombay Stock Exchange Limited

Capital or Share Capital Share Capital of our Company

CDSL Central Depository Services (India) Limited

Companies Act The Companies Act, 1956, and any amendments thereto

DP Depository Participant

DIN Directors Identification Number

Draft Letter of Offer The Draft Letter of Offer dated September 19, 2007 as filed with theSEBI

Director(s) Director(s) of our Company, unless otherwise specified

EPS Earnings per share

ESOS The Employees Stock Option Scheme of our Company as approved byshareholders resolution dated September 22, 2005

Equity Share(s) or Share(s) means the Equity Share of our Company having a face value of Rs. 10unless otherwise specified in the context thereof

Equity Shareholder Means a holder of Equity Shares as on the Book Closure Date, i.e.November 22, 2007

FEMA Foreign Exchange Management Act, 1999

FERA Foreign Exchange Regulation Act, 1973

FII(s) Foreign Institutional Investors registered with SEBI under applicable laws/ regulations

Financial year / FY / Fiscal Period of twelve months ended March 31 of that particular year unlessotherwise stated

ii

HINDUSTAN OIL EXPLORATION COMPANY LIMITED

Indian GAAP Generally Accepted Accounting Principles in India

GoI Government of India

HUF Hindu Undivided Family

IT Act The Income Tax Act, 1961 and any amendments thereto

ITAT Income Tax Appellate Tribunal

MoA or Memorandum of Association Memorandum of Association of our Company

MoU Memorandum of Understanding

NEFT National Electronic Fund Transfer

NRI(s) Non Resident Indian(s)

NSE National Stock Exchange of India Limited

NSDL National Securities Depository Limited

OCB(s) Overseas Corporate Bodies

p.a. per annum

P/E ratio or P/E Price/Earnings Ratio

PAN Permanent Account Number

RBI The Reserve Bank of India

RoC Registrar of Companies, Gujarat, Dadra and Nagar Haveli

Registered Office The registered office of our Company located at 'HOEC House', TandaljaRoad, Vadodara, Gujarat - 390 020, India

SAT Securities Appellate Tribunal

SEBI Securities and Exchange Board of India

SEBI Act, 1992 Securities and Exchange Board of India Act, 1992 and any amendmentsthereto

SEBI Guidelines The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issuedby SEBI on January 19, 2000 and any amendments thereto

Subsidiary HOEC Bardahl India Limited

Takeover Code The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,1997 and any amendments thereto

Issue Related Terms

Allottee(s) The successful Applicant(s) to whom the Equity Shares are issuedpursuant to this Issue

Applicant(s) Any Equity Shareholder(s) and / or Renouncee who makes an applicationpursuant to the terms of the Letter of Offer and the CAF

Banker to the Issue HDFC Bank Limited

Book Closure Date November 22, 2007

iii

CAF Composite Application Form

Consolidated Certificate In case of physical certificates, our Company would issue one certificatefor the fully paid up Equity Shares allotted to one folio

Designated Stock Exchange The designated stock exchange for the Issue, shall be the BombayStock Exchange Limited

ECS Electronic Clearing Services

Eligible NRI An NRI resident in a jurisdiction outside India where it is not unlawful tomake an offer or invitation under the Issue and in relation to whom theLetter of Offer constitutes an invitation to subscribe for Equity Shares.

Investor(s) Shall mean the holder(s) of Equity Shares of our Company as on theBook Closure Date, i.e. November 22, 2007 and Renouncees

Issue Issue of 52,217,720 Equity Shares of Rs. 10 each for cash at a premiumof Rs. 107 per share aggregating to an amount of Rs. 6,109.47 millionto the Equity Shareholders of our Company on rights basis in the ratioof 2 Equity Shares for every 3 Equity Shares held on the Book ClosureDate

Issue Closing Date January 7, 2008

Issue Opening Date December 7, 2007

Issue Price Rs. 117 per Equity Share

Lead Manager JM Financial Consultants Private Limited, the Lead Manager to the Issuehaving its office at 141, Maker Chambers III, Nariman Point,Mumbai- 400 021, India

Letter of Offer / LOF Letter of Offer dated November 23, 2007 as filed with the StockExchanges after incorporating SEBI comments therein.

Promoters Burren Energy India Limited, a company incorporated under the laws ofEngland and Wales, and Burren Shakti Limited, a company incorporatedunder the laws of Bermuda.

Promoter Group Promoters and their holding company, Burren Energy Plc, a companyincorporated under the laws of England and Wales.

RTGS Real Time Gross Settlement

Refund Bank HDFC Bank Limited

Registrar to the Issue or Registrar Intime Spectrum Registry Limited, having its office at C-13, PannalalSilk Mills Compound, L.B.S. Marg, Bhandup (West), Mumbai - 400 078,India

Renouncees Shall mean the persons who have acquired Rights Entitlements fromEquity Shareholder/(s)

Rights Entitlement The number of Equity Shares that a Equity Shareholder is entitled to inproportion to his / her / its shareholding in our Company as on the BookClosure Date

iv


SAF(s) Split Application Form(s)

Stock Exchange(s) Shall refer to the BSE and the NSE where the Equity Shares of ourCompany are presently listed

Company / Technical and Industry Related Terms and Abbreviations

2P Reserves Proved plus Probable Reserves

BOE Barrels of Oil Equivalent

BOEPD Barrels of Oil Equivalent per day

BOPD Barrels of Oil per day

Contractor means contracting parties as defined in the PSC(s) (as definedhereinafter)

COSA Crude Oil Sales Agreement

CPCL Chennai Petroleum Corporation Limited

DGH Directorate General of Hydrocarbons

DIOG Deephaven International Oil and Gas Limited

DIPP Department of Industrial Policy and Promotion

E&P Exploration & Production

G&G Geological & Geophysical

GSA Gas Sales Agreement

GSPCL Gujarat State Petroleum Corporation Limited

HEPI Hardy Exploration and Production (India) Inc.

Heramac Heramac Limited

IOC Indian Oil Corporation Limited

JOA(s) Joint Operating Agreement(s)

JV Joint Venture

Licensee licensee as defined in the PSC(s)

MMBOE Million Barrels of Oil Equivalent

MMBTU Million British Thermal Units

MMSCFD Million Standard Cubic Feet per Day

ML or PML Mining Lease

MoEF Ministry of Environment and Forest

MoI Ministry of Industry

MoPNG Ministry of Petroleum and Natural Gas

Mosbacher Mosbacher India LLC

v

NELP New Exploration Licensing Policy

OIL Oil India Limited

ONGC Oil & Natural Gas Corporation Limited

P&NG Rules Petroleum and Natural Gas Rules, 1959 and any amendments thereto

PEL Petroleum Exploration License

PPN PPN Power Generating Company Private Limited

Petroleum means crude oil and natural gas existing in their natural condition

Probable Reserves means probable reserves as defined in guidelines for uniform system ofclassification of hydrocarbon reserves dated May 30, 2006 issued byDGH

Proved Reserves means proved reserves as defined in guidelines for uniform system ofclassification of hydrocarbon reserves dated May 30, 2006 issued byDGH

PSC(s) Production Sharing Contract(s)

SCM Standard Cubic Meters

SCMD Standard Cubic Meters per Day

TPL Tata Petrodyne Limited

vi


PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

Unless stated otherwise, the financial information used in this Letter of Offer is derived from our Company'sunconsolidated adjusted financial statements as of quarter ended June 30, 2007 and March 31 for the yearsended 2007, 2006, 2005, 2004 and 2003 prepared in accordance with Indian GAAP and the Companies Act andadjusted in accordance with SEBI Guidelines, as stated in the report of our Auditors, included in the sectiontitled "Financial Statements" beginning on page 70 of this Letter of Offer.

Our fiscal year commences on April 1 and ends on March 31 of the particular year. Unless stated otherwise,references herein to a fiscal year (eg. Fiscal 2007), is to the fiscal year ended March 31 of that particular year.

Unless stated otherwise, throughout this Letter of Offer, all figures have been expressed in millions.

In this Letter of Offer, any discrepancies in any table between the total and the sum of the amounts listed aredue to rounding off.

All references to "Rs." or "INR" refer to Rupees, the lawful currency of India, "USD" or "US$" refer to the UnitedStates Dollar, the lawful currency of the United States of America, "GBP" refers to the Great Britain Pounds, thelawful currency of the United Kingdom.

Translations from USD to Rupees in the section titled "Objects of the Issue", beginning on page 20 of this Letterof Offer have been made at the exchange rate of 1 USD = Rs. 41. In the section titled "Promoters and PromoterGroup" beginning on page 65 of this Letter of Offer, foreign currency amounts have been translated into Rupeesat the rates mentioned therein for which period and presented solely to comply with the requirements of SEBIGuidelines. Investors are cautioned not to rely on such translated amounts. The translations should not beconsidered as a representation that such foreign currency could have been, or could be, converted into Rupees,as the case may be, at any particular rate mentioned in this Letter of Offer.

Any percentage amounts, as set forth in the sections titled "Risk Factors", "Our Business" and "Management'sDiscussion and Analysis of Financial Condition and Results of Operations" beginning on pages VIII, 34 and 124,respectively of this Letter of Offer, unless otherwise indicated, have been calculated on the basis of our financialstatements, as adjusted, under Indian GAAP prepared in accordance with SEBI Guidelines.

References to 'sales' in this Letter of Offer means sale of petroleum by our Company. References to 'turnover' inthis Letter of Offer means sales and adjustments for changes in stocks. References to 'revenue' in this Letter ofOffer refers to the aggregate of turnover and other income. In addition, we have converted our data for naturalgas into oil equivalent and hence, data for volumes of natural gas have been converted into oil equivalent andare presented in BOE.

Market and industry data used in this Letter of Offer, has been obtained from industry publications and governmentsources. Industry publications generally state that the information contained in those publications have beenobtained from sources believed to be reliable and that their accuracy and completeness are not guaranteed andtheir reliability cannot be assured. Although we believe that the market data used in this Letter of Offer isreliable, it has not been independently verified.

vii

FORWARD-LOOKING STATEMENTS

We have included statements in this Letter of Offer which contain words or phrases such as "will", "aim", "islikely to result", "believe", "expect", "will continue", "anticipate", "estimate", "intend", "plan", "contemplate", "seekto", "future", "objective", "goal", "project", "should", "will pursue" and similar expressions or variations of suchexpressions, that are "forward-looking statements".

All forward looking statements are subject to risks, uncertainties and assumptions about us that could causeactual results to differ materially from those contemplated by the relevant forward-looking statement. Importantfactors that could cause actual results to differ materially from our expectations include but are not limited to:

� General economic and business conditions in the markets in which we operate and in the local, regionaland national economies;

� Increasing competition in or other factors affecting the industry segments in which our Company operates;

� Amounts that our Company is able to realise from the customers;

� Changes in laws and regulations relating to the industry in which we operate;

� Our ability to successfully implement our growth strategy and expansion plans, and to successfully implementvarious projects in a timely manner for which funds are being raised through this Issue;

� Our ability to meet our capital expenditure requirements and / or increase in capital expenditure;

� Fluctuations in operating costs and impact on the financial results;

� Our ability to attract and retain qualified personnel;

� Changes in technology in future;

� Changes in political and social conditions in India or in countries that we may enter, the monetary policiesof India and other countries, inflation, deflation, unanticipated fluctuation in interest rates, foreign exchangerates, equity prices or other rates or prices;

� The performance of the financial markets in India and globally; and

� Any adverse outcome in the legal proceedings in which we are involved.

For a further discussion of the factors that could cause our actual results to differ, see the sections titled "RiskFactors", "Our Business" and "Management's Discussion and Analysis of Financial Condition and Results ofOperations" beginning on pages VIII, 34 and 124 respectively of this Letter of Offer. By their nature, certainmarket risk disclosures are only estimates and could be materially different from what actually occurs in thefuture. As a result, actual future gains or losses could materially differ from those that have been estimated.Neither our Company nor the Lead Manager nor any of their respective affiliates have any obligation to update orotherwise revise any statement reflecting circumstances arising after the date hereof or to reflect the occurrenceof underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBIrequirements, our Company and Lead Manager will ensure that investors in India are informed of materialdevelopments until the time of the grant of listing and trading permission by the Stock Exchanges.

viii


RISK FACTORS

An investment in equity shares involves a high degree of risk. You should carefully consider all of the informationin this Letter of Offer, including the risks and uncertainties described below, before making an investment in ourEquity Shares. If any of the following risks actually occur, our business, financial condition and results of operationscould suffer, the trading price of our Equity Shares could decline, and you may lose all or part of your investment.

This Letter of Offer also contains forward-looking statements that involve risks and uncertainties described belowand in the sections titled "Our Business" and "Management's Discussion and Analysis of Financial Condition andResults of Operations" beginning on pages 34 and 124 respectively of this Letter of Offer. Our Company's actualresults could differ materially from those anticipated in these forward-looking statements as a result of certainfactors, including the considerations described below. The financial and other implications of material impact ofrisks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However wherethe impact of the risk factors is not quantifiable the same has not been disclosed.

This Letter of Offer also includes statistical and other data regarding the Indian oil and gas exploration andproduction industry. This data was obtained from industry publications, reports and other sources that we and theLead Manager believe to be reliable. Neither we nor the Lead Manager have independently verified such data.

Internal Risk Factors

(i) Our Promoters are currently involved in litigation for alleged violation of the Takeover Code, whichif determined against them, could have a material adverse impact on us.

There are three cases pending before the Supreme Court of India against our Promoters, for alleged violationof the provisions of the Takeover Code. Hardy Oil & Gas Plc ("Hardy Oil") has filed an appeal before theSupreme Court against the SEBI and our Promoters being aggreived by an order passed by the SecuritiesAppellate Tribunal ("SAT"), dismissing the appeal filed by Hardy Oil challenging the acquisition of control ofour Company by our Promoters in alleged violation of the Takeover Code. Hardy Oil moved an applicationfor interim relief praying inter alia for restraining our Promoters from taking any further steps to consolidate/ increase their shareholding in our Company, from exercising voting rights in respect of 26% stake thenheld by our Promoters and restraining our Promoters from alienating any portion of 26% stake then held bythem or creating in any way third rights in respect of such stake. The Supreme Court has admitted theappeal. Our Promoters have also received a showcause notice from the SEBI seeking explanation as towhy a penalty under the Takeover Code should not be imposed on them in relation to alleged violation ofcertain provisions of the Takeover Code with respect to appointment of Directors of the acquirer and personsacting in concert on the Board. The SEBI imposed penalty on our Promoters, to which our Promoters filedan appeal with the SAT. The SAT vide an order dated November 7, 2006 allowed the appeal. Two appeals,one by SEBI and the other by Hardy Oil, have been filed in the Supreme Court of India against the SATorder.

For further information, see the section titled "Outstanding Litigations and Material Developments" beginningon page 138 of this Letter of Offer.

(ii) We are presently dependant on one of our assets, PY-3, for a predominant share of our income andthe revenues therefrom can be attributed to a single customer. In the event production of crude oilfrom this asset declines, is suspended or stopped for any reason or if our customer ceases to dobusiness with us, it will have a material adverse effect on our financial condition and results ofoperations.

We currently have interest in eight assets of which four including PY-3 are in the production phase. For thequarter ended June 30, 2007 and for Fiscal 2007, 2006 and 2005, our revenue from our asset PY-3, located

ix

in the Cauvery basin, constituted 69.15%, 86.65%, 94.99% and 98.23% of our sales respectively. Theremainder was contributed by our other producing assets namely Asjol, Pramoda (CB-ON-7) and North Balolin the Cambay basin. Thus, the predominant share of our revenue is from the sale of crude oil producedfrom PY-3.

Further, all the oil crude produced from PY-3 has is being sold to Chennai Petroleum Corporation Limitedonly ("CPCL"). In the event of some dispute between us and our customer , we might not be able toreplace the revenue lost from CPCL by revenue generated through sales to other customers, and this couldresult in a material adverse effect on our business, results of operations, financial condition and cash flows.

Our operations in PY-3 and its future field performance involves significant risks including environmental,geological and infrastructural risks. Any adverse change in these conditions may affect our production andmay lead to delays in our execution schedule, cost overruns and the need to secure additional financing,which may be significant. As our current principal strategic objective is to focus on production from PY-3,any delays or significant costs overruns, including any increased costs associated with additional financingrequirements, if any, could have a material adverse effect on our business, results of operations andfinancial condition.

More recently, Hardy Exploration and Production (India) Inc. ("HEPI"), the operator of the PY-3 field, hasinformed our Company that due to excessive water entering in one well (PY3-3RL well) in the PY-3 field, theoperator has shut-in the well resulting in reduction in output from the field to the order of 1,100 Barrels ofOil per day ("BOPD"). Any prolonged disruption in the production may have an adverse effect on ourrevenues.

Further, we have entered into a financing arrangement by securing a charge on all the moveable andimmovable assets relating to PY-3 oil field. In the event of a default under the facility, the lenders may beentitled to proceed against the asset charged.

In the event the production of crude oil from PY-3 either declines, is suspended, discontinued, stopped orthe profitability of this asset is adversely affected for any reasons whatsoever, the same will have amaterial adverse effect on our present financial condition and the results of our operations, as our othersources of income may not be able to compensate for such an adverse impact. Further, we may not beable to obtain financing necessary to compensate such an adverse impact. For a more detailed analysis ofthe impact of PY-3 on our results of operations and financial condition, see the section titled "Management'sDiscussion and Analysis of Financial Condition and Results of Operations" beginning on page 124 of thisLetter of Offer.

(iii) We are in the hydrocarbon exploration, development and production business which has certaininherent risks.

Finding oil and gas is an uncertainty in any exploration venture. Generally, only a few of the properties thatare explored are ultimately developed into producing hydrocarbon fields. Substantial expenditure is requiredto discover hydrocarbon reserves through seismic surveys and drilling. There is no assurance that hydrocarbonwill be discovered from our existing or future fields and blocks or, even if it is, that economically viable andcommercial quantities of hydrocarbons can be recovered.

The business of hydrocarbon exploration involves a high degree of risk which even a combination ofexperience, knowledge, and careful evaluation may not be able to prevent. These risks include, but are notlimited to, encountering unusual or unexpected geological formations or pressures, seismic shifts, unexpectedreservoir behaviour, premature decline of reservoir, uncontrollable flow of oil, natural gas or well fluids,equipment failures, extended interruptions due to, inter alia, inclement or adverse weather conditions,environmental hazards, industrial accidents, occupational and health hazards, technical failures, explosions,pollution and oil seepage. These risks and hazards could also result in damage to, or in the destruction of,

x


production facilities, personal injury, environmental damage, business interruption, monetary losses, andpossible legal liability. Losses and liabilities arising from such events may have a material adverse affect onour revenues or increase our costs and thus have a material adverse effect on our results of operations andfinancial condition.

(iv) If we fail to discover or acquire and develop additional reserves, or if we fail to redevelop existingfields, our reserves, production and profitability may decline materially from their current levels overtime.

We are presently dependant on the production of one of our assets, i.e. PY-3 for a predominant share of ourincome. In Fiscal 2007, our revenue from our asset PY-3, located in the Cauvery basin, constituted 86.65%of our sales. Our future production will be highly dependent upon our success in exploration initiatives and/ or developing reserves and / or acquiring additional reserves.

Our Company is in the process of the full field development of PY-1 field and has executed a natural gassale and purchase agreement with PPN Power Generating Company Private Limited ("PPN") for the saleand purchase of gas of upto 51,000 Million British Thermal Units ("MMBTU") per day on take or pay basis.We are currently undertaking exploration activities in AAP-ON-94/1 in addition to exploration upsides inexisting producing properties. While we believe that commercial production, in the PY-1 field will decreaseour dependency on PY-3; as environmental, geological and infrastructural conditions in many of these areasare challenging and costs can be high, there can be no assurance that commercial production from PY-1will commence. Further, the cost of drilling, completing and operating wells is often uncertain. As a result,we may incur cost overruns or may be required to curtail, delay or cancel drilling operations due to manyfactors, including unexpected drilling conditions, pressure or irregularities in geological formations, equipmentfailures or accidents, adverse weather conditions, compliance with environmental regulations, governmentalrequirements and shortages or delays in the availability of drilling rigs and the delivery of equipment.

If we fail to conduct successful exploration activities or acquire additional assets holding commerciallyexploitable hydrocarbon reserves, we may not be able to expand or replace our current production at PY-3with new reserves in an amount sufficient to sustain beyond the current life of reserves. Without reserveadditions through acquisition or exploration and development activities in existing assets, the production willdecline over time as reserves deplete naturally. Our future success depends on our ability to discover,acquire and develop additional oil and gas reserves that are economically recoverable. If we are unsuccessful,we may not meet our production targets, and the total Proved plus Probable Reserves ("2P Reserves") inthe fields in which we have an interest, and production from these fields, would decline, which couldadversely affect our results of operations and financial condition.

(v) Volatility of crude oil prices could have a material adverse effect on our business.

As our crude oil prices are linked with international crude oil prices, our results of operations and financialcondition depend substantially upon the prevailing prices of crude oil. Historically, crude oil prices havefluctuated widely and are affected by numerous factors, as summarised below, over which we have nocontrol:

� international economic conditions;

� global and regional economic and political developments in resource-producing regions;

� global and regional supply and demand;

� the ability of the Organisation of Petroleum Exporting Countries and other oil and gas producing nationsto set and maintain global production levels and prices;

� expectations for inflation;

xi

� currency exchange rate fluctuations;

� discoveries and commercial availability of alternative fuels;

� governmental regulations and actions, fiscal or otherwise;

� price and availability of new technology; and

� adverse weather conditions.

The aggregate effect of these factors is difficult to predict. The production estimates for our oil fields willvary depending on the oil prices. Lower crude oil prices may reduce the amount of oil that we can produceeconomically from an existing field or reduce the economic viability of projects planned or in development.Substantial or extended decline in crude oil prices will have a material adverse effect on our results ofoperations, financial condition and liquidity. We do not enter into oil price hedging contracts to reduce ourexposure to fluctuations in oil prices. For a more detailed analysis of the impact of fluctuation of crude oilprices on our results of operations and financial condition, see the section titled "Management's Discussionand Analysis of Financial Condition and Results of Operations" beginning on page 124 of this Letter ofOffer.

Generally, we enter into term contracts with defined prices, for sale of gas in India. This eliminates uncertainityin terms of commodity price variation in the international market. However as the gas prices are not indexedto crude oil and / or fuel basket, the upsides are not realised in an environment wherein the crude pricesare increasing or vice versa.

(vi) We rely on third parties to provide essential contracting services. Any delay or failure by these thirdparties to provide us with such services would have an adverse impact on our business.

We rely upon third parties to provide essential contracting services, including but not limited to drilling unitand associated drilling services, construction engineering, fabrication and installation of production facilities.Equipment and incidental services in relation to drilling units, construction yards, commissioning infrastructure,etc. which are critical for the timely implementation of our programmes may not be available in a timelymanner. There can be no assurance that these third parties will be able to provide us with services contractedfor in a timely manner, or at all. Further there can be no assurance that we will be able to enter intoagreements or relationships with such third parties in the future, in the areas we currently operate in or inareas we intend to expand, on financially acceptable terms. If we are unable to maintain our relationshipswith these third parties, it may have a material adverse effect on our operations and financial condition.

(vii) We have significant planned capital expenditures for implementation of our programmes. Our capitalexpenditure may not yield the benefits intended in time or at all, which may have a material adverseeffect on our business and operations.

Our operations require significant capital expenditure for our exploration and development activities. However,the results of our exploration initiatives may be infructuous. Our development plans and capital expenditurebudgets are based upon certain assumptions, particularly geological and geophysical analysis, our reservesand resources data and cost inflation. Many of the assumptions used in determining our capital expendtureare beyond our control and may be materially inaccurate as a result of global or regional macroeconomicconditions.

Additionally, the time involved for drilling, completing and operating wells is often uncertain, more so incase of drilling in unconventional reservoirs such as PY-1 and challenging environmental conditions. Wemay be required to curtail, delay or terminate drilling operations because of a variety of factors, includingaccidents, unexpected drilling conditions, pressure or variations in geological formations, equipment failures,adverse weather conditions, compliance with government requirements and shortages or delays in the

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availability of drilling rigs and the delivery of equipment. The occurrence of any of these incidents can resultin our current or future project schedules for drilling or production being delayed or interrupted or meetingour production estimates, resulting in delays to the recovery of our capital expenditure associated with thesaid activities and leading to materially increased financing needs or costs. We cannot assure you that wewill be able to execute our capital expenditure plans in a timely manner or at all. Additionally, if there aresignificant cost overruns, then the overall benefit of such plans to our revenues and profitability may decline.

(viii) Hydrocarbon exploration is capital-intensive and may involve cost overruns and we may encounterfinancing risk.

Hydrocarbon exploration is capital intensive and we have limited financial resources. Exploration anddevelopment of our existing assets and / or acqusition of new assets may be dependent upon our ability toobtain suitable financing. There can be no assurance that such funding required by us will be made available,and if such funding is available, that it will be offered on reasonable and acceptable terms. If we are unableto raise finances or enter into Joint Ventures ("JVs") in a timely manner or at all, we may be unable toimplement our business plan, which may have a material adverse effect on our business and financialcondition.

(ix) Our Auditors have made certain qualifications in their statutory audit report stating that certain itemsin the financial statements relating to our Company's share in JV's have been incorporated on thebasis of information available.

Our Auditors have made certain qualifications in their statutory report stating that certain items in thefinancial statements relating to our Company's share in JV's have been incorporated on the basis of accountsaudited by other auditors and on the basis of information available with our Company, in the absence ofaudited accounts. The financial statements may undergo revisions subsequent to audit, to the extent theyare based on unaudited accounts, which may have an impact on our financial statement. For further detailssee the section titled "Financial Statements" beginning on page 70 of this Letter of Offer.

(x) The objects of the Issue for which funds are being raised have not been appraised by any bank,financial institution or an independent organisation. As such our estimates for the projects mayexceed fair market value or the value that would have been determined by third party appraisals.

The requirement of funds as stated in the section titled 'Objects of the Issue' beginning on page 20 of thisLetter of Offer is based on our current business plan and internal estimates and have not been appraisedindependently by any bank, financial institution or any independent organisation. In addition, our capitalexpenditure plans are subject to a number of variables including possible cost and time overuns, receipt ofapprovals, changes in our Board's view of the desirability of current plans. We may require additional financingdepending upon the outcome of the current planned programmes.

(xi) Our current business is dependent on the continuing contractual relationships with our JV partnersand the terms thereof. Any adverse development in our relationships with our JV partners may havean adverse effect on our operations.

We enter into Production Sharing Contract ("PSC") and Joint Operating Agreement ("JOA") with theGovernment of India ("GoI") and our other partners in connection with each oil and gas block awarded andare currently a party to eight such agreements. In addition, the continued validity of Production ExplorationLicenses ("PELs") / Mining Leases("MLs") issued for our fields is also critical for the continuation of ouroperations. Further, we also rely on relationships with other entities in the Indian oil and gas industry suchas our JV partners, operating partners, farm-in partners, and also certain regulatory and governmentaldepartments.

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We are currently involved in an arbitration in relation to CY-OSN-97/1 for restraining our Company frominvoking any provision of the JOA. Any adverse ruling in respect of the same, will have an adverse effecton the business of our Company. In the event we are unable to maintain the enforceability of such agreements/ licenses or if the agreements are terminated in accordance with the terms and conditions set out thereinor if we are unable to continue to maintain amicable relationships with our partners, the same may adverselyaffect our business.

(xii) We may not be able to arrange suitable infrastructure for the transportation of oil and gas producedby us.

Our ability to exploit any reserves discovered in a cost-effective manner will be dependent upon, amongother things, the availability of the necessary infrastructure to transport oil and gas to potential buyers at acommercially acceptable price. Oil is usually transported by tankers, pipelines and ocean tankers to refineries,and gas is usually transported by pipelines to processing plants and end users. In the event, we are notable to arrange suitable infrastructure for cost-effective transportation of our potential production, in a timelymanner or at all it may have an adverse effect on our results of operations and financial condition.

(xiii) Our exploration, development and production operations are subject to various risks and naturaldisasters, and resulting losses may cause material liabilities that are not covered by insurance.

Exploration for and production of oil and natural gas is inherently hazardous, and natural disasters, operatorerror or other accidents can result in oil spills, blowouts, cratering, fires, equipment failure, and loss of wellcontrol, which can injure or kill people, damage or destroy wells and production facilities, damage propertyand the environment. Offshore operations are subject to marine perils, including severe storms and otheradverse weather conditions, vessel collisions and governmental regulations as well as interruptions ortermination by governmental authorities based on environmental and other considerations. While we maintaininsurance within ranges of coverage consistent with industry practice, some of the risks we face are non-insurable. No assurance can be given that we will be able to obtain such insurance coverage at reasonablerates or at all, or that any coverage we obtain will be adequate and available to cover any claims in timesof eventualities. Losses and liabilities arising from any such events may significantly reduce our revenuesor increase our costs and have a material adverse effect on our results of operations or financial condition.

(xiv) Our development projects involve many uncertainties and operating risks that can prevent us fromrealising profits and may cause substantial losses.

Our development projects may be delayed or may not be entirely successful for many reasons, includinggeological uncertainties, operational constraints, financial constraints, cost overruns, lower commodity prices,equipment shortages, mechanical and technical difficulties, failure to obtain necessary governmental approvals,and industrial action. These projects may also sometimes require the use of new additional and advancedtechnologies, which can be expensive to purchase and implement, and / or may not function as expectedby us. In addition, some of our development projects may be located in logistically difficult environments, orwill involve challenging reservoirs, which can exacerbate such problems.

In case of block AAP-ON-94/1, our Company as the operator, on the basis of the Operating Committeeresolution of the Joint Venture, has notified the Ministry of Petroleum and Natural Gas ("MoPNG"), GoI thatthe bridge on national highway no. 34 had collapsed on August 22, 2007, which being the only supply linkto transport heavy equipment to Assam, has caused the suspension of transportation of drilling equipmentto the drilling site in Assam. The event may lead to a delay in drilling of exploration wells in Assam andmay require term extension of exploration phase.

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(xv) The hydrocarbon reserves data disclosed in this Letter of Offer are estimates and are inherentlyuncertain, and our actual size of deposits and production may differ materially from these estimates.

Many of the factors, assumptions and variables involved in estimating hydrocarbon reserves disclosed inthis Letter of Offer are based internal technical analysis of data that are currently available and are subjectto variations over time. Results of drilling, testing and production after the date of the estimates may requireupward or downward revisions in our reserve data, which could be significant. Any downward adjustmentcould lead to lower future production and thus adversely affect our financial condition, future prospects andmarket value.

Our reported hydrocarbon reserves are only estimates. No assurance can be given that the estimatedhydrocarbon reserves will be recovered. Future production and the quantity of recoverable hydrocarbonreserves depend on technical factors like exploration success and economic factors like future commodityprices, costs and taxes and the same may vary significantly from the estimated quantity.

(xvi) We are dependent on our Directors and senior management team. The loss of the services of any ofour Directors or personnels consituting the senior management team or failure to attract skilledpersonnel / suitable replacements may adversely affect our business.

We rely on the expertise and services of our Directors and senior management team. The loss of theservices of any of these persons or our inability to attract suitable replacements could have an adverseaffect on our business, results of operations and financial condition. Further, we do not have any keymaninsurance policies covering any of our Directors or senior management team. In addition, attracting andretaining talented professionals is key to our business growth. Any inability to attract talented professionalsmay adversely affect our business and results of operations.

(xvii) Some of our assets are located in politically and economically sensitive areas which create securityrisk.

One of our assets namely AAP-ON-94/1 is located in the North Eastern part of India, in Assam, which isa politically and economically sensitive area. Additionally Assam has in the recent past experienced unrestdue to terrorist activities. While such instances have not effected our operations until date, any political orother unrest or ability to continuously source and maintain skilled and unskilled labour may severely affectour business and operations.

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(xviii) We have certain contingent liabilities, which may adversely affect our financial position.

Our contingent liabilities / claims not acknowledged as debt as of June 30, 2007 are as follows:

Rs. millions

Contingent Liabilities Amount

(i) Counter guarantees on account of bank guarantees 139.98

(ii) Corporate guarantee for housing loan to employees 0.61

(iii) Estimated amount of contracts remaining to be executed on capital account 132.80and not provided for (excluding Company's share of JVs' commitments).*

(iv) Claims against the Company not acknowledged as debt **

- Dispute with contractors under arbitration 3.21

- Income tax demands under appeal 298.15

(v) The Government had encashed the performance bank guarantee of Rs 10.15 million 265.69for the PG Block abandoned by the consortium under the force majeure clause ofthe PSC.The Government has also raised an additional demand on which interest hasbeen compounded . The Company has been legally advised that the said actions ofthe Government are not justified. The Company has initiated legal proceeding as perthe provisions of the PSC in the matter. Pending the outcome of this, a provision wasmade during the financial year 1996-97 in this regard to the extent of Rs. 10.15 millionin the books of account.**

Total 840.44

* Includes 125.14 millions for the quarter ended June 30, 2007 in respect of farm-in consideration foracquisition of participating right in one JV.

** The Management is of the opinion that the claims under items (iv) and (v) above are not sustainable.

In the event that any of these contingent liabilities materialise, our financial condition may be adverselyaffected. For further details, see the section titled "Financial Statements" beginning on page 70 of thisLetter of Offer.

(xix) We are involved in a number of legal proceedings which if determined against us, could have amaterial adverse impact on our results of operations and financial condition.

We are contesting claims for deductions in relation to various assessment years with the Income TaxDepartment. The amount involved in such cases is approximately Rs. 593.93 million. There is one case(relating to a share transfer) pending before the enforcement directorate in relation to an alleged violationunder the provisions of the Foreign Exchange Management Act ("FEMA"). Further, there are three civil suits/ arbitrations pending before various courts / tribunals to which our Company is a party. Further, we areinvolved in an arbitration with Oil and Natural Gas Company ("ONGC") and the GoI in relation to a disputeon account of non performance of the obligations by our Company under the PSC, and consequentialinvocation of a performance bank guarantee of approximately Rs. 10.15 million by the GoI. The GoI andONGC have also raised a counter claim of approximately Rs. 123.93 million against us.

We are also involved in an arbitration with GAIL, in relation to non performance by GAIL under a gas salesand transportation agreement entered into between GAIL and us. Additionally, we are also involved in anarbitration with Deephaven International Oil and Gas Limited ("DIOG").

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There are 36 cases relating to disputes of title / ownership of our Equity Shares pending before variouscourts / arbitral tribunals / forums and other authorities in India. A labour case is also pending before theLabour Court, Vadodara. In the event of any adverse development in any of the cases or in the event anyof these cases are determined against us, we may be required to make substantial payments or modify orrestrict our operations, which could have an material adverse impact on our results of operation and financialcondition. Further, in the event there may be any enquiries or investigations instituted by government orother statutory bodies our project may be delayed. Our Company has various creditors from time to time.Our Company has not been able to identify which of these creditors are small scale undertakings andhence is not able to provide names of creditors to whom it owes a sum exceeding Rs. 0.10 million.

Further, as disclosed above, there are three cases pending before the Supreme Court of India against ourPromoters, for alleged violation of the provisions of the Takeover Code.

Our Subsidiary is contesting claims for deduction in relation to various assessment years with the IncomeTax Department. The amount involved in such cases is approximately Rs. 5.08 million.

For further information, see the section titled "Outstanding Litigations and Material Developments" beginningon page 138 of this Letter of Offer.

(xx) We are yet to receive or renew certain approvals or licenses required in the ordinary course ofbusiness. The failure to obtain them in a timely manner or at all may adversely affect our operations.

We require statutory and regulatory approvals and permits to execute our projects in the ordinary course ofour business. Further some of our applications for such approvals and permits are currently pending. Wecannot assure you that the relevant authorities will issue such permits or approvals in the time frameanticipated by us or at all. Further, two of our Directors, Mr Finian O'Sullivan and Mr.Atul Gupta have filedtheir DIN application with the Ministry of Company Affairs and have been allotted provisional DIN . Theconfirmation of the same may not be granted by the Ministry of Company Affairs. The delay or failure toobtain, renew or maintain government or regulatory approvals in respect to any of our assets may have amaterial adverse effect on our business, results or operations and financial condition.

Under our existing PSCs / JOAs, we are severally liable to procure all necessary approvals in relation to allblocks in which we have participating interest. However, in relation to certain blocks where we are not thelicensee or the operator we cannot make any assurance that the operator or licensee, as the case may be,of these assets have obtained all necessary approvals. In the event of operator or licensee are eitheroperating without such approvals or are unable to renew such approvals under applicable laws, we may beliable for the same.

Further, the PEL for block AAP-ON-94/1 held by Oil India Limited ("OIL") (licensee) has expired on December31, 2006. OIL has vide its letter (no. PLN/1-7/36-510) dated December 19, 2006 applied for the extension ofthe aforesaid PEL and has deposited the annual PEL fee. We cannot assure that the renewal will begranted by the relevant authorities in the time frame anticipated by us or at all.

For further information, see section titled "Government and Other Approvals" beginning on page 145 of theLetter of Offer.

(xxi) Our existing indebtedness and the conditions and restrictions imposed by our financing agreementscould adversely affect our ability to conduct business and operations.

As of June 30, 2007, we have outstanding term loans of Rs. 1,515.07 million. Our Company has executeda dollar facility agreement dated November 8, 2006 for USD 100 million (approximately Rs. 4,100 million)from a consortium of domestic banks. The said amount is intended to be utilised for the PY-1 gas fielddevelopment expenditure. The loan would bear a charge on participating interest, receivables and all present

xvii

and future assets of PY-1. In addition, we may incur additional indebtedness in the future. Our indebtednesscould have several consequences, including but not limited to the following:

� A portion of our cash flow may be used towards repayment of our existing debt, which will reduce theavailability of our cash flow to fund working capital, capital expenditure, acquisitions, other generalcorporate requirements and pay dividends;

� Our ability to obtain additional financing in the future at reasonable terms may be restricted; and

� There could be a material adverse effect on our business, financial condition and results of operationsif we are unable to service our existing indebtedness or otherwise comply with financial and othercovenants specified in the financing agreements.

Our financing agreements are secured by charge by way of hypothecation of specified rights, title, interest,benefits, claims and demands of our Company and charge on specified moveable and immovable assets.Specifically under certain circumstances, we require and may be unable to obtain lender consents to, effectany scheme of amalgamation or reconstitution, pay any commission to our Promoters or Directors, sell, orlease, transfer or otherwise dispose off specified assets. For further details see the section titled "FinancialIndebtedness" beginning on page 120 of this Letter of Offer. There can be no assurance that our lenders willgrant us required consents on time or at all. Any failure to comply with the requirement to obtain consents,or other condition or covenant under our financing agreements that is not waived by our lenders or otherwisecured by us, could lead to a termination of our credit facilities, and could adversely affect our ability toconduct our business and operations or implement our business plans.

(xxii) We had a negative net cash flow for the quarter ended June 30, 2007 and Fiscal 2006. In the eventwe have negative cash flows in the future, it may have an adverse affect on our results of operations.

On account of net cash outflow in operating activities and investment in business activities includingexploration activities and net cash inflow in financing activities, we had negative cash flow during thequarter ended June 30, 2007 amounting to Rs. 150.56 million. Similarly, on account of net cash inflow inoperating activities and net cash outflow in investment in business activities including exploration activitiesand in financing activities, we had a negative net cash flow during Fiscal 2006 amounting to Rs.569.68million. While, the net cash flow during Fiscal 2007 was Rs. 1,031.88 million, in the event we have negativecash flows in the future, it may have an adverse affect on our results of operations.

(xxiii)Our Promoters and Promoter Group operate in and have equity interests in companies that areengaged in businesses of exploration and production of oil and gas which may create a conflict ofinterest.

Our Promoters are promoted by Burren Energy Plc., UK, which is also engaged in the business of explorationand production of oil and gas. In addition, one of our promoters Burren Shakti Limited is incorporated withthe objects iner alia to carry on the business of procurers, suppliers, distributors, explorers, developers,producers, transporters, processors, refiners of and dealers in crude oil, natural gas and hydrocarbon fuelsincluding liquified natural gas and liquid petroleum facilities in connection therewith. Further, many of thecompanies forming part of the group entities of our Promoters and Promoter Group have interest in or areassociated with or are in the same line of business as that of our Company. However, none of them haveoperations in India.

There may be conflicts of interest in addressing business opportunities and strategies in circumstanceswhere our interests differ from other companies in which one or more of members of our Promoter Grouphave an interest in. While, our Promoters and our Promoter Group do not currently have any Exploration andProduction ("E&P") operations in India i.e. the geographical region where our Company operates, they havenot undertaken to refrain from competing with our business.

xviii


(xxiv) One of our promoters has incurred losses in the past.

One of our promoters, Burren Energy India Limited, being an investment company, incurred a loss ofRs. 3,863 million in relation to the financial year ending December 31, 2006.

(xxv) There have been delays in the completion of projects as targeted in our previous rights issue.

On October 27, 2006, our Company allotted 19,567,733 Equity Shares at a premium of Rs. 66 each forcash aggregating to Rs.1,487.15 million on a rights basis pursuant to Letter of Offer dated August 25, 2006filed with the Stock Exchanges. The objects of the issue were to fund the exploration costs, developmentcosts for certain projects of our Company and for general corporate purposes. There have been delays inthe completion of projects on the targeted date of completion of projects as disclosed in the table below, onaccount of various factors including delay in receipt of required approvals, adverse weather conditions,delay by third parties to provide contracted services.

Sr. No. Name of Block Targetted date of Actual date ofcompletion of the project completion of the project

1. PY-1 December, 2006 January, 2007

2. CY-OSN-97/1 October, 2006 February, 2007

3. PY-3 March, 2007 March, 2007

4. Palej March, 2007 April, 2007

5. CB-OS-1 December, 2006 August, 2007

6. North Balol March, 2007 March, 2007

7. AAP-ON-94/1 November, 2006 September, 2007

There can be no assurance that similar time overruns will not occur in relation to the estimated time ofcompletion of the projects detailed in the section titled "Objects of the Issue" beginning on page 20 of thisLetter of Offer.

(xxvi)Significant assets in which we have invested are in the exploratory phase and we have written offsignificant amounts in the past relating of unsuccessful exploration cost. There can be no assurancethat oil and / or natural gas will be discovered in these assets.

Out of the eight assets in which we have participating interest, two namely CY-OSN-97/1, and AAP-ON-94/1 are currently in the exploratory phase and the amount of hydrocarbon reserves in these blocks have notyet been ascertained. There can neither be any assurance that there are any oil and gas reserves nor thatthere are enough oil and gas reserves in these assets for commercial exploitation. We generally follow the"Successful Efforts" method of accounting for our exploration and production activities and write off expensesrelating to unsuccessful exploration wells as per our accounting policy. For further details, see the sectiontitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginningon page 124 of this Letter of Offer. This has in the past impacted our profitability. For example, ouradjusted net profit margin to the total adjusted revenue changed from 41.67% in Fiscal 2005 to 16.98% inFiscal 2006 and 1.99% in Fiscal 2007 primarily on account of writing off of Rs. 418.35 million and Rs.930.37 million in Fiscal 2006 and Fiscal 2007 respectively, corresponding to unsuccessful exploration cost.

Further, the investments in the exploration activities in our blocks depends on the results of tests conductedand cannot be forecasted till the exploration is complete. If any of these assets do not have any oil andgas reserves or have reserves which are not commercially exploitable, then the investments made by us inthe same may not yield any returns and this may materially adversely affect our financial condition andresults of our operations.

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External Risk Factors

(xxvii) The oil and natural gas industry in India is facing increasing competition in India, which may havean adverse effect on our competitive position and results of operation

The oil and gas industry in India is highly competitive, particularly as it pertains to the acqusition anddevelopment of new sources of oil and gas reserves. Fuelled by robust free cash flow positions, spate ofrecent discoveries, major oil companies, independent oil and gas companies, and local players are allactively seeking oil and gas properties in India. The domestic industry is therefore experiencing rapid changesincluding intense competition for new acreages entailing significant upfront risk capital commitment.

We compete with several government controlled and private companies in our activities including in relationto acquisition of exploration and production licenses at the NELP rounds, purchase capital equipment thatmay be scarce, engagement of third party service providers whose capacity to provide services may belimited, recruitment and retention of qualified personnel. Many of our competitors have greater financialresources than we do, and some of them have greater influence in our highly regulated industry because ofgovernment shareholding in them. Any failure by us to compete effectively, may have a material adverseeffect on our business, results of operations and financial condition.

(xxviii) The regulatory framework in India is evolving, and regulatory changes could have a materialadverse effect on our business, results of operations and financial condition.

The oil and natural gas business is subject to regulation and intervention by the GoI in matters includingbut not limited to compliance of work programme obligations, control over the development and abandonmentof fields, environmental protection controls, imposition of taxes. Following the exploration phase, exploitationof discovered oil and gas reserves will involve the need to obtain licenses and clearances from the relevantauthorities and approval of development plan by the Directorate General of Hydrocarbons ("DGH").

All the assets in which we have interest are subject to PSCs with the GoI. If for any reason these PSCsare found to be void or are challenged, we may suffer significant damages through loss of the opportunityto develop and discover any resources on that asset.

(xxix) Changes in regulatory framework in India, specifically in relation to tax benefits could have amaterial adverse affect on our business, results of operations and financial condition.

We are subject to various taxes, including income tax, sales tax, duties, royalties, fees, levies, cess,imposts, service tax, excise, value added tax, national calamity contingent duty. Under the existing IT Act,we avail various deductions as well as fiscal benefits such as a seven-year tax holiday from the year ofcommercial production. Any change in the interpretation of the existing tax laws or revision to the applicabletax rates or introduction of new taxes, may affect the exploration and production industry and could have amaterial adverse affect on our financial results. Future changes in the income tax provisions applicable tous could have a material adverse impact on our results of operations and financial condition. For furtherdetails on the benefits available to us, see the section titled "Statement of Tax Benefits" beginning on page26 of this Letter of Offer.

(xxx) After the Issue, the price of our Equity Shares may be highly volatile and may fluctuate significantlydue to many factors, including variations in our operations and changes to the regulatory environment.

The prices of our Equity Shares on the Indian stock exchanges have fluctuated in the past and maycontinue to fluctuate after the Issue as a result of several factors, including:

� volatility in the Indian and global securities markets;

� our results of operations and performance in terms of market share;

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� changes in factors affecting general market valuations of companies in the oil and gas industry,including changes in the price of oil and gas;

� announcements by us or others of significant new oil and gas discoveries, technological developments,contracts, acquisitions, strategic partnerships, JVs or capital commitments;

� the performance of our competitors, the Indian oil and gas industry, and the perception in the marketabout investments in the oil and gas sector;

� media reports about the GoI's process of selling a part of its stake in other companies in which theGoI has an equity participation;

� changes in the estimates of our performance or recommendations by financial analysts;

� significant developments in India's economic liberalisation and deregulation policies;

� significant developments in India's fiscal and environmental regulations; and

� significant developments in India's oil and gas policy.

There is a risk that you will not be able to sell your Equity Shares at a price equal to or above the IssuePrice.

(xxxi) Any future equity offerings by us may lead to dilution of your shareholding in us or adversely affectthe market price of our equity shares.

If we do not have sufficient internal resources to fund our working capital or capital expenditure needs inthe future, we may need to raise funds through debt or equity financing. As a purchaser of our EquityShares in this Issue, you may experience dilution to your shareholding to the extent that we conduct anyfuture equity offerings.

(xxxii) We are subject to risks arising from exchange rate fluctuations as a majority of our sales revenuesare denominated in USD.

Crude oil sales which account for the majority of our sales revenues is denominated in USD. Additionally,majority of our expenditure is denominated in USD. For instance, in Fiscal 2007 and quarter ended June 30,2007, 99.51% and 98.79% of the total value of our sales invoices, respectively was denominated in USD.Our accounts as a whole, are denominated in Indian rupees. As a result, fluctuations in foreign exchangerates, in particular the exchange rate of USD for Indian rupees, may materially affect our revenues andresults of operations. We do not currently hedge our foreign currency exchange rate exposure. For furtherinformation, see section titled "Management's Discussion and Analysis of Financial Condition and Resultsof Operations" beginning on page 124 of this Letter of Offer.

(xxxiii) Terrorist attacks and other acts of violence or war involving India, and other countries couldadversely affect the financial markets, result in loss of customer confidence, and adversely affect ourbusiness, results of operations and financial condition.

Terrorist attacks, other acts of violence or war, including those involving India, or other countries, mayadversely affect Indian and worldwide financial markets. These acts may also result in a loss of businessconfidence and have other consequences that could adversely affect our business, results of operationsand financial condition.

More generally, any of these events could adversely affect fuel prices, cause consumer spending to decrease,cause increased volatility in the financial markets and have an adverse impact on the economies of Indiaand other countries, including economic recession.

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Notes To Risk Factors

� The average cost of acquisition of equity shares held by our Promoters is Rs 74.96 per Equity Share.

� The book value (net asset value), according to our adjusted financial statements as of June 30, 2007 wasRs. 51.32 per Equity Share.

� Our net worth, according to our adjusted financial statements as of June 30, 2007 was Rs. 4,019.26 million.

� Rights Issue of 52,217,720 Equity Shares at the Issue Price of Rs. 117 for cash aggregating an amount ofRs. 6,109.47 million.

� For information on interests of our Promoters, Directors and key managerial personnel, see the sectionstitled "Our Management" and "Promoters and Promoter Group" beginning on page 56 and 65 of this Letterof Offer respectively.

� For details on the common pursuits of our Promoters see risk factor no. xxiii above.

� None of our Promoters, Promoter Group and Directors have consummated any transactions in the EquityShares during the last six months.

� Investors are advised to refer to the section titled "Basis for Issue Price" beginning on page 24 of thisLetter of Offer.

� Our Company has not made any loans or advance to any person(s)/companies in which directors areinterested.

� Investors are advised to refer to the section titled "Terms and Procedure of the Issue-Basis of Allotment"beginning on page 173 of this Letter of Offer.

� The related party transactions as per Accounting Standard (AS-18) on Related Party Disclosures are detailedin the section titled "Financial Statements" beginning on page 70 of this Letter of Offer.

� Any clarification or information relating to the Issue shall be made available by the Lead Manager and ourCompany to the Investors at large and no selective or additional information would be available in anymanner whatsoever.

� Trading in Equity Shares of our Company for all the Investors shall be in dematerialised form only.

1

SUMMARY

We engage primarily in the exploration, development and production of crude oil and natural gas in India, both onshoreand offshore. As of March 31, 2007, our proved and probable crude oil natural gas reserves were approximately 50.50MMBOE on a working interest basis (i.e. our Company's share of production calculated by reference to the participatinginterest under the respective PSCs). For the year ended March 31, 2007, our production amounted to 494,622 barrels ofcrude oil and 1,548,788 SCM of gas, excluding loss / internal consumption, on a working interest basis.

We have a portfolio of onshore and offshore blocks in India. Our onshore blocks are located in Cambay basin in the stateof Gujarat and Assam Arakan basin in state of Assam. We have four offshore assets of which three assets are located inthe Cauvery basin on the east coast of India, and one in Gulf of Cambay on the west coast of India. As on the date offiling this Letter of Offer, we have a participating interest in eight oil and gas assets in India, which are in the variousphases of exploration, development and production and of which we operate six assets. The details of these assets andthe participating interest held by our Company in each of these assets and the operatorship position is summarisedbelow:

Production Offshore/ Partners Operator Current HOEC's Participating InterestSharing Onshore PhaseContracts *

Exploration Development &Phase Production Phase

Cauvery BusinessUnit

CY-OS-90/1 (PY-3) Offshore ONGC; HEPI; TPL HEPI Production - 21.00%

PY-1 Offshore - HOEC Development - 100.00%

CY-OSN-97/1 Offshore Mosbacher HOEC Exploration 80.00% 80.00%

Cambay BusinessUnit

Asjol Onshore GSPCL HOEC Production(1) - 50.00%

CB-ON-7 (Palej) Onshore ONGC; GSPCL HOEC Production(2) 50.00% 35.00%**

North Balol Onshore GSPCL; Heramec HOEC Production - 25.00%

CB-OS-1 Offshore ONGC; TPL ONGC Development/ 57.11% 31.58%**Appriasal

Assam BusinessUnit

AAP-ON-94/1 Onshore IOC; OIL HOEC Exploration 40.32% 25.90%**(Assam)

(1) Exploration upside under evaluation.

(2) Pramoda field on production and two discoveries are under appraisal / development.

*Block GN-ON-90/3 has been abandoned by the consortium under the force majeure clause of the PSC and hence notincluded in the asset summary; the matter is under arbitration.

** In accordance with the provisions of the respective PSCs, the licensee has a right to acquire an additional 30%participating interest in the development and production phase as compared to its participating interest in the explorationphase. As a result the participating interest of the non licensee partners decreases in the development and productionphase. The said right has been exercised by the licensee in respect of the block CB-ON-7 (Palej).

We conduct our exploration, development and production activities pursuant to and under the terms of the PSCs throughunincorporated JVs with other oil companies (except in relation to PY-1) such as ONGC, IOC, OIL, GSPCL, TPL,Mosbacher, Heramec and HEPI.

2


Our Competitive Strengths

The following are the competitive strengths of our Company:

We have experience and knowledge in the Cauvery, Cambay and Assam basins. Over the years we have assimilatedexperience and knowledge in these three basins in India. These three basins have been classified by the DGH asCategory 1 Basins signifying established commercial production from these provinces. Our personnel have been extensivelyinvolved in the G&G activities and interpretation of acreages in these basins for more than a decade.

Our oil and gas assets are diversified. We have a portfolio of assets which we believe are quite diversified. Our assetsspan over the entire E&P life cycle i.e. exploration, appraisal, development, production, and redevelopment. We currentlyhave two assets in the exploration phase, two assets in the developmental phase and four assets in the productionphase. Further, our assets have a mix of oil and gas potential.

We have a track record of partnerships with a number of leading industry players. We have a number of partnershipswith leading players in the oil and gas exploration and development industry through JVs and PSCs including withcompanies like ONGC, IOC, OIL, GSPCL, TPL, Mosbacher, HEPI and Heramec. We have developed professionalrelationships with most of our partners. We believe our partners recognise the value we bring to a project and this isdemonstrated by the willingness of our partners to collaborate with us in multiple oil and gas blocks. This enables us toinvest in and gain access to oil and gas blocks which otherwise we may not be able to do on our own. It also enablesus to keep abreast with the latest technology being used by these leading players in our industry.

Some of our oil and gas blocks are in the process of being explored and exploited commercially. Two of our blocks,CY-OSN-97/1 and AAP-ON-94/1 are in the exploration phase, in addition to exploration upsides in existing producingproperties, which could potentially provide new reserves and replenish production. Additionally, based on our initialexploration effort we are investing in developing the PY-1 field and expect it to start commercial production operations byMarch 2009.

We have a low fixed cost structure. Our model of operation is based on low fixed costs. We operate on a modelwherein we concentrate on core disciplines and outsource the other services including providing of drilling units andassociated drilling services, construction engineering, fabrication and installation of production facilities, based on ourrequirements. This enables us to be competitive with respect to our fixed costs. For example, as on date we haveemployed only 41 employees.

Our Strategy

The key elements of our Company's strategy are as follows:

To increase our production by development of discoveries in existing assets / licenses. We intend to focus onoptimising our production by the development of discoveries in existing licenses. For instance, we are engaged in thedevelopment of PY-1 gas field by progressing design and construction of onshore gas processing terminal and awardingcontracts for offshore facilities. Further, we are pursuing appraisal and development of the discoveries in block CB-ON-7for production. Additionally, we propose to facilitate development initiative of discovery in Block CB-OS-1 and the nextphase of development drilling in PY-3 field.

To increase our reserve base by exploring and establishing upside potential in our existing licenses. We intend tofocus on increasing our reserve base by establishing upside potential in our existing assets. We expect to drill explorationwells in AAP-ON-94/1 in the immediate term.

To constrain our exposure to exploration risks within prudent limits. Exploration risks are inherent in our business.However, we intend to have exposure to exploration risks within limits commensurate to our size and resources.

To seek new domestic and international investment opportunities. We currently have presence in three basins inIndia, namely Cauvery, Cambay and Assam and have gained significant experience in these locations. These threebasins have been classified by the DGH on the basis of prospectivity as Category 1 basins, which signifies establishedcommercial production from these basins. We believe India has significant exploration potential, and we intend to seek

3

new investment oppurtunities through organic growth, acquisition opportunities and our participation in future NELProunds, including NELP VII, expected to be announced in the end of 2007. We intend to leverage our position as a lowcost operator and explore hydrocarbon basins domestically and internationally. We expect that participation in suchopportunites, if successful, may enable us to gain access to additional reserves in the event of a success.

Monetise assets with a view to value realisation or risk sharing. We prefer to have high participating interest withoperatorship position in E&P ventures. We evaluate risks across the assets and may consider monetisation with a viewto risk sharing or enhanced value realisation for asset.

For details on the risks associated with the Issue, see the section titled "Risk Factors" beginning on page VIII of this Letterof Offer.

4


THE ISSUE

Equity Shares to be issued by our Company on rights basis 52,217,720

Rights Entitlement In the ratio of 2 Equity Share for every 3 Equity Sharesheld on the Book Closure Date

Book Closure Date November 22, 2007

Issue Price per Equity Share Rs.117

Equity Shares outstanding prior to the Issue 78,312,668 Equity Shares

Equity Shares outstanding after the Issue 130,530,388 Equity Shares

Terms of the Issue For more information, see the section titled "Terms andProcedure of the Issue" beginning on page 165 of thisLetter of Offer.

Terms of Payment For more information, see the section titled "Terms andProcedure of the Issue" beginning on page 165 of thisLetter of Offer.

5

SUMMARY FINANCIAL INFORMATION


STATEMENT OF ADJUSTED PROFITS AND LOSSES

Rs. millions

Particulars For the Years Ended March 31, For theQuarter Ended

2003 2004 2005 2006 2007 June 30, 2007

Income

Sales 515.82 383.40 855.35 942.44 1,145.14 135.65

(Decrease) / Increase in Stock of Crude Oil (32.55) 35.26 2.88 27.09 (33.45) 75.89

Other Income 95.03 77.81 69.19 54.69 149.00 49.24

TOTAL INCOME 578.30 496.47 927.42 1,024.22 1,260.69 260.78

Expenditure

Field Operating Expenses 177.39 156.83 168.10 170.62 167.76 36.98

Corporate Expenses 39.34 62.54 59.98 75.21 28.27 14.40

Depreciation on Fixed Assets 4.96 11.48 10.24 8.12 5.65 0.84

Depletion of Producing Properties 150.73 38.10 77.82 69.83 70.85 16.44

Provisions and Write offs / (Write back) 153.08 5.26 (16.20) 418.35 930.37 -

Interest and Finance Charges 1.32 1.67 17.37 21.41 55.85 22.46

TOTAL EXPENDITURE 526.82 275.88 317.31 763.54 1,258.75 91.12

Prior Period Items - (5.25) - - - -

Profit before Tax 51.48 215.34 610.11 260.68 1.94 169.66

Provision for Taxation:

Current Tax 19.00 16.00 195.00 168.00 286.00 45.00

Deferred Tax (83.67) (21.96) 30.20 (85.00) (311.00) 8.20

Wealth Tax 0.07 0.08 0.08 0.16 0.20 0.05

Fringe Benefit Tax - - - 2.60 2.00 0.50

Profit after Tax 116.08 221.22 384.83 174.92 24.74 115.91

Adjustments Due to Changes inAccounting Policies / Prior Period Items

Inventory Valuation (24.81) (6.79) - - - -

Employee Benefits (0.83) 1.29 2.02 (1.90) - -

Prior Period Items (2.64) 5.25 - - - -

Share Issue Expenses 0.29 0.29 0.29 0.29 0.29 -

Tax effect of the above adjustments 10.38 0.09 (0.71) 0.64 - -

Total of Adjustments (17.61) 0.13 1.60 (0.97) 0.29 -

Net Profit as Adjusted 98.47 221.35 386.43 173.95 25.03 115.91

6


STATEMENT OF ADJUSTED ASSETS AND LIABILITIES

Rs. millions

Particulars As at

March March March March March June31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007

A. Fixed Assets :

Gross Block 1,436.30 1,726.03 2,340.23 2,928.95 4,342.64 4,454.47

Less: Depreciation and Depletion 855.77 890.74 982.04 1,075.17 1,167.44 1,188.37

Net Block 580.53 835.29 1,358.19 1,853.78 3,175.20 3,266.10

B. Investments 35.81 184.30 54.30 5.05 694.28 903.08

C. Deferred Tax Asset (Net) 99.69 121.74 90.84 176.48 487.48 479.28

D. Current Assets, Loans and Advances:

Inventories 37.73 61.06 80.87 192.97 243.93 325.75

Sundry Debtors 36.99 1.50 107.52 106.79 196.55 215.61

Cash and Bank Balances 309.41 717.73 927.12 731.08 1,108.63 692.28

Other Current Assets 11.47 6.85 4.65 3.70 9.77 7.22

Loans and Advances 953.10 424.01 398.66 105.41 325.78 367.49

Total 1,348.70 1,211.15 1,518.82 1,139.95 1,884.66 1,608.35

E. Liabilities and Provisions :

Secured Loans - - 275.00 163.00 1,320.95 1,515.07

Current Liabilities and Provisions 235.74 368.20 443.21 601.36 1,017.33 722.48

Total 235.74 368.20 718.21 764.36 2,338.28 2,237.55

Net Worth(A+B+C+D-E) 1,828.99 1,984.28 2,303.94 2,410.90 3,903.34 4,019.26

F. Represented by :

Share Capital 587.61 587.61 587.61 587.61 783.29 783.29

Reserves and Surplus 1,241.80 1,396.88 1,716.33 1,823.29 3,120.05 3,235.97

G. Total 1,829.41 1,984.49 2,303.94 2,410.90 3,903.34 4019.26

H. Miscellaneous Expenditure to the extent 0.42 0.21 - - - -Not written off or adjusted

Net Worth (G-H) 1,828.99 1,984.28 2,303.94 2,410.90 3,903.34 4,019.26

7

GENERAL INFORMATION

Dear Shareholder(s),

Pursuant to the resolution passed by the Board of Directors of our Company at its meeting held on July 20, 2007, it hasbeen decided to make the following offer to the Equity Shareholders of our Company, with a right to renounce:

ISSUE OF 52,217,720 EQUITY SHARES OF RS. 10 EACH AT A PREMIUM OF RS. 107 PER EQUITY SHAREAGGREGATING TO AN AMOUNT OF RS. 6,109.47 MILLION TO THE EQUITY SHAREHOLDERS ON RIGHTS BASIS INTHE RATIO OF 2 EQUITY SHARES FOR EVERY 3 EQUITY SHARES HELD ON THE BOOK CLOSURE DATE I.E.NOVEMBER 22, 2007 ("ISSUE"). THE ISSUE PRICE IS 11.7 TIMES OF THE FACE VALUE OF THE EQUITY SHARE.

Registered Office of the Company

Hindustan Oil Exploration Company Limited'HOEC House',Tandalja Road,Vadodara - 390 020, India.Original Registration No. 30926 of 1983New Registration No. 04-029880CIN: L11100GJ1996PLC029880

We are registered with the Registrar of Companies for Gujarat, Dadara and Nagar Haveli situated at ROC Bhavan,Opposite Rupal Park, Near Ankur Char Rasta, Naranpura, Ahmedabad - 380 013, Gujarat India.

Board of Directors

The following persons constitute our Board of Directors:

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

(b) Mr. Deepak S Parekh - Non-Executive, Non Independent Director;

(c) Mr. Rahul Bhasin - Non-Executive Director Independent Director;

(d) Mr. Finian O' Sullivan - Non- Executive Director, Promoter Nominee;

(e) Mr. Atul Gupta - (Managing Director), Promoter Nominee; and

(f) Mr. Manish Maheshwari - (Joint Managing Director)

For further details see the section titled "Our Management" beginning on page 56 of this Letter of Offer.

Company Secretary and Compliance Officer

Mr. Vikash JainCompany Secretary, Chief - Tax & LegalHindustan Oil Exploration Company Limited'Lakshmi Chambers',192, St. Mary's Road,Alwarpet, Chennai - 600 018, India.Tel: +91 44 6622 9000Fax: +91 44 2499 3222Email: [email protected]: www.hoec.com

Investors may contact the Compliance Officer for any pre-Issue / post-Issue related matter.

8


Issue Management Team

Lead Manager to the Issue

JM Financial Consultants Private Limited141, Maker Chambers III, Nariman Point,Mumbai - 400 021, India.Contact Person: Ms. Poonam KarandeTel: +91 22 6630 3030, Fax: +91 22 2204 7185Email: [email protected], Website: www.jmfinancial.inRegistration No: INM000010361

The statement of responsibilities of Lead Manager for this Issue is as follows :

Legal Advisor for the Issue

Amarchand & Mangaldas & Suresh A. Shroff & Co.Amarchand Towers, 216, Okhla Industrial Estate, Phase III,New Delhi - 110 020, India.Tel: +91 11 2692 0500, Fax: +91 11 2692 4900Email: [email protected]

Auditors of the CompanyDeloitte Haskins & Sells,'Temple Towers', II floor, 672 Anna Salai, Nandanam,Chennai - 600 035, India.Tel: +91 44 4213 1124 - 28, Fax: +91 44 4213 1130Email: [email protected]

1. Capital structuring with the relative components and formalities such ascomposition of debt and equity type of instruments.

2. Drafting of offer document and of advertisement / publicity material includingnewspaper advertisements and brochure / memorandum containing salientfeatures of the offer document.The Lead Manager shall ensure compliance with SEBI DIP Guidelines and otherstipulated requirements and completion of prescribed formalities with the StockExchanges and SEBI.

3. Retail / Non-Institutional marketing strategy which will cover inter alia, preparationof publicity budget, arrangement for selection of (i) ad-media, (ii) centres ofholding conferences of brokers, investors etc., (iii) bankers to the issue, (iv)collection centres, (v) distribution of publicity and Issue materials includingapplication form and letter of offer.

4. Institutional marketing strategy5. Selection of various agencies connected with the Issue, namely Registrars

to the Issue, printers, monitoring agency and advertisement agencies.6. Follow up with Bankers to the Issue to get quick estimates of collection

and advising the Issuer about closure of the Issue based on the correct figures.7. The post issue activities will involve essential follow up steps which must

include finalization of basis of allotment/weeding out of multiple applications,listing of instruments and despatch of certificates and refunds, with the variousagencies connected with the activities such as Registrars to the Issue, Bankersto the Issue. Whilst, many of the post issue activities will be handled by otherintermediaries, the Lead Manager shall be responsible for ensuring that theseagencies fulfill their functions and enable them to discharge this responsibilitythrough suitable agreements with the Issuer Company.

No. Activities Responsibility

JM Financial

JM Financial

JM Financial

JM Financial

JM Financial

JM Financial

JM Financial

9

Monitoring Agency

Industrial Development Bank of India Limited9th floor, IDBI Tower, WTC Complex, Cuffe Parade,Mumbai - 400 005, India.Tel: +91 22 2218 9111, Fax: +91 22 2218 1195Email: [email protected]

Banker to the Issue

HDFC Bank LimitedL Wing, 4th floor,26-A, Narayan Properties, Off Saki Vihar Road,Chandivali, Andheri (East), Mumbai - 400 072, IndiaTel: +91-22-28569228, Fax: +91-22-28569256Email: [email protected], Website: www.hdfcbank.comRegistration No:INBI 00000063Contact Person: Mr. Deepak Rane

Registrar to the Issue

Intime Spectrum Registry LimitedC-13, Pannalal Silk Mills Compound,L.B.S. Marg, Bhandup (West), Mumbai - 400 078, India.Tel: + 91 22 2596 0320-7, Fax: + 91 22 2596 0328-9Email: [email protected]: www.intimespectrum.comRegistration No: INR000003761Contact Person: Ms. Awani Thakkar

Bankers to the Company

Axis Bank Limited82, Dr. Radhakrishnan Salai, Chennai - 600 004, India.Tel: +91 44 2811 1086, Fax: +91 44 2811 1084Email: [email protected]

HDFC Bank LimitedMariam Center, III Floor, 751-B, Anna Salai,Chennai- 600 002, India.Tel: +91 44 2842 0870, Fax: +91 44 2851 3547Email: [email protected]

Industrial Development Bank of India Limited9th floor, IDBI Tower, WTC Complex, Cuffe Parade,Mumbai - 400 005, India.Tel: +91 22 2218 9111, Fax: +91 22 2218 1195Email: [email protected]

State Bank of India Limited86, Rajaji Salai, Chennai - 600 001, India.Tel: +91 44 2526 7293 Fax: +91 44 2526 7293Email: [email protected]

The Hongkong and Shanghai Banking Corporation Limited76, Cathedral Road, Chennai - 600 086, India.Tel: +91 44 4391 2003, Fax: +91 44 2811 1845Email: [email protected]

Credit rating

This being an issue of Equity Shares, no credit rating is required.

10


Listing of Equity Shares

The existing Equity Shares are listed on the BSE and the NSE. Our Company shall make applications to the BSE and theNSE for permission to deal in and for an official quotation in respect of the Equity Shares being offered in the terms ofthis Letter of Offer. Our Company has received in-principle approvals from the BSE and the NSE by letters dated October3, 2007 and October 5, 2007 respectively. Our Company will apply to the BSE and the NSE for listing of the EquityShares to be issued pursuant to this Issue.

Issue Schedule

The subscription will open upon the commencement of the banking hours and will close upon the close of banking hourson the dates mentioned below:

Issue Opening Date: December 7, 2007

Last date for receiving requests for SAF(s): December 21, 2007

Issue Closing Date: January 7, 2008

Impersonation

As a matter of abundant caution, attention of the Applicants is specifically drawn to the provisions of sub-section (1) ofSection 68A of the Companies Act which is reproduced below:

"Any person who makes in a fictitious name an application to a company for acquiring, or subscribing for, any sharestherein, or otherwise induces a company to allot, or register any transfer of shares therein to him, or any other person ina fictitious name, shall be punishable with imprisonment for a term which may extend to five years."

Allotment Letters / Refund Orders

Our Company will issue and dispatch letters of allotment / share certificates / demat credit and / or letters of regret alongwith refund order or credit the allotted Equity Shares to the respective beneficiary accounts, if any, within a period of 42days from the date of the Issue Closing Date. If such money is not repaid within eight days from the day our Companybecomes liable to pay it, our Company shall pay that money with interest for the delayed period as prescribed underSection 73 of the Companies Act.

Except where Applicants are otherwise disclosed as applicable / eligible to get refunds through direct credit / NEFT /RTGS, Applicants residing at 15 centers i.e. Ahmedabad, Bangalore, Bhubaneshwar, Kolkata, Chandigarh, Chennai,Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram, where clearinghouses are managed by the RBI, will get refunds through ECS only. For further details see the section titled "Terms andProcedure of the Issue - Mode of making refunds" beginning on page 175 of the Letter of Offer.

In case of those Applicants who have opted to receive their Rights Entitlement in dematerialised form using electroniccredit under the depository system, advice regarding their credit of the Equity Shares shall be given separately. Applicantsto whom refunds are made through electronic transfer of funds will be sent a letter through ordinary post intimating themabout the mode of credit of refund within 42 working days of the Issue Closing Date.

In case of those Applicants who have opted to receive their Rights Entitlement in physical form and our Company issuesletter of allotment, the corresponding share certificates will be kept ready within three months from the date of allotmentthereof or such extended time as may be approved by the Company Law Board under Section 113 of the Companies Actor other applicable provisions, if any. Allottees are requested to preserve such letters of allotment, which would beexchanged later for the share certificates. For more information see the section titled "Terms and Procedure of the Issue"beginning on page 165 of this Letter of Offer.

Letter of allotments / refund orders exceeding Rs.1,500 would be sent by registered post / speed post to the sole / firstApplicant's registered address. Refund orders up to the value of Rs. 1,500 would be sent under certificate of posting.Such refund orders would be payable at par at all places where the applications were originally accepted. The samewould be marked 'Account Payee only' and would be drawn in favour of the sole / first Applicant. Adequate funds wouldbe made available to the Registrar to the Issue for the despatch of the letter of allotment / refund order.

11

Declaration by Board on creation of separate account

The Board of Directors declares that funds received against this Issue will be transferred to a separate bank accountother than the bank account referred to sub-section (3) of Section 73 of the Companies Act.

Underwriting Agreement/ Standby Arrangement

In the event of undersubscription, our Promoters confirm that they shall apply for additional Equity Shares in the Issuesuch that 90% of the Issue is subscribed. Our Company has not entered into any underwriting agreement or standbyarrangment for the purchase of Equity Shares.

Minimum Subscription

If our Company does not receive the minimum subscription of 90% of the Issue the entire subscription shall be refundedto the Applicants within 42 days from the date of the Issue Closing Date. If there is a delay in refund of subscriptionbeyond eight days after the date from which our Company becomes liable to pay the amount (42 days after the IssueClosing Date), our Company shall pay interest for the delayed period as prescribed under Section 73 of the CompaniesAct.

The Issue will become undersubscribed after considering the number of Equity Shares applied as per entitlement plusadditional Equity Shares. The undersubscribed portion shall be applied for only after the Issue Closing Date. In the eventof undersubscription, the Promoters shall, apply for additional Equity Shares in the Issue such that atleast 90% of theIssue is subscribed. As a result of such subscription and consequent allotment, the Promoters may acquire Equity Sharesover and above their Rights Entitlement, which may result in an increase of their shareholding being above the currentshareholding with the Rights Entitlement of Equity Shares under the Issue. Such subscription and acquisition of additionalEquity Shares by the Promoters, if any, will not result in change of control of the management of our Company and shallbe exempted in terms of proviso to Regulation 3(1)(b)(ii) of the Takeover Code. The Promoters shall subscribe to suchunsubscribed portion as per the relevant provisions of the law. Allotment to the Promoters of any unsubscribed portionover and above their Rights Entitlement shall be done in compliance with the Listing Agreement including conditionsrelating to minimum public holding requirement and other applicable laws prevailing at that time relating to continuouslisting requirements.

12


CAPITAL STRUCTURE

Our Share Capital as on the date of this Letter of Offer is set forth below:

Rs. millions

Aggregate nominal Aggregate valuevalue at Issue Price

Authorised Share Capital1

200,000,000 Equity Shares of Rs. 10 each2 2,000.00

Issued Capital

78,345,643 Equity Shares of Rs. 10 each3 783.46

Forfeited Capital4

32,975 Equity Shares of Rs. 10 each 0.33

Subscribed and Paid-up Capital

78,312,668 Equity Shares of Rs. 10 each 783.13

Amount paid up on Equity Shares forfeited 0.16

Total 783.29

Present Issue pursuant to this Letter of Offer

52,217,720 Equity Shares of Rs. 10 each at a premium 522.18 6,109.47of Rs. 107 i.e. at a price of Rs. 117

Issued / Subscribed and Paid up Capital post the Issue

130,530,388 Equity Shares of Rs. 10 each 1,305.30

Share Premium Account

Share Premium Account prior to the Issue 2,273.50

Share Premium Account post the Issue 7,860.80

1 The authorised capital of our Company was increased from Rs. 10 million to Rs. 100 million pursuant to shareholders resolution dated March 13,1985. Subsequently, the authorised capital of our Company was increased from Rs. 100 million to Rs. 250 million pursuant to shareholders resolutiondated August 1, 1989. Pursuant to shareholders resolution dated July 15, 1992, the authorised capital of our Company was increased from Rs. 250million to Rs. 1,000 million. On September 23, 2003 the authorised capital of our Company was increased from Rs. 1,000 million to Rs. 2,000 millionpursuant to a shareholders resolution.

2 Each equity share of Rs. 100 was subdivided into 10 Equity Shares of Rs. 10 each pursuant to a special resolution passed at a meeting ofshareholders of our Company held on December 28, 1989.

3 There are 13,912 shares which are held in abeyance, pending disputes resolution.

4 The difference between the issued Capital and the subscribed and paid up Capital represents 32,975 Equity Shares that were forfeited on accountof non payment of allotment money.

13

Notes to the Capital Structure

1. Equity Share capital history of our Company

Date of allotment No. of Face Issue Cumulative Consideration Reasons forequity shares value price paid-up allotment

allotted (Rs.)* (Rs.) capital (Rs.)

September 20, 1983 190 100 100 19,000 Cash Initial subscribers to theMoA

June 25, 1984 49,810 100 100 5,000,000 Cash Private placementApril 28, 1986 73,020 100 100 12,302,000 Cash Rights issueNovember 19, 1986 20,000 100 100 14,302,000 Cash Rights issueDecember 18, 1986 5,000 100 100 14,802,000 Cash Rights issueFebruary 18, 1987 1,980 100 100 15,000,000 Cash Rights issueApril 23, 1987 20,000 100 100 17,000,000 Cash Private placementMay 15, 1987 25,000 100 100 19,500,000 Cash Private placementJune 9, 1987 10,000 100 100 20,500,000 Cash Private placementJune 29, 1987 10,000 100 100 21,500,000 Cash Private placementJuly 17, 1987 10,000 100 100 22,500,000 Cash Private placementJuly 21, 1987 2,500 100 100 22,750,000 Cash Private placementJuly 31, 1987 2,500 100 100 23,000,000 Cash Private placement1987 - 1988 20,000 100 100 25,000,000 Cash Private placementMay 4, 1988 5,000 100 100 25,500,000 Cash Private placementMay 19, 1988 15,075 100 100 27,007,500 Cash Private placementJuly 21, 1988 5,000 100 100 27,507,500 Cash Private placementAugust 22, 1988 5,000 100 100 28,007,500 Cash Private placementAugust 29, 1988 3,000 100 100 28,307,500 Cash Private placementJanuary 2, 1989 15,000 100 100 29,807,500 Cash Private placementJanuary 3, 1989 10,000 100 100 30,807,500 Cash Private placementJanuary 10, 1989 10,000 100 100 31,807,500 Cash Private placementJanuary 23, 1989 10,000 100 100 32,807,500 Cash Private placementFebruary 18, 1989 10,000 100 100 33,807,500 Cash Private placementFebruary 24, 1989 10,000 100 100 34,807,500 Cash Private placementMarch 7, 1989 10,000 100 100 35,807,500 Cash Private placementMarch 15, 1989 10,000 100 100 36,807,500 Cash Private placementMarch 16, 1989 10,000 100 100 37,807,500 Cash Private placementMay 20, 1989 25,000 100 100 40,307,500 Cash Private placementJune 8, 1989 5,000 100 100 40,807,500 Cash Private placementJune 30, 1989 20,000 100 100 42,807,500 Cash Private placementAugust 29, 1989 25,000 100 100 45,307,500 Cash Private placementDecember 12, 1989 26,000 100 100 47,907,500 Cash Private placement

14


Date of allotment No. of Face Issue Cumulative Consideration Reasons forequity shares value price paid-up allotment

allotted (Rs.)* (Rs.) capital (Rs.)

December 28, 1989 Sub-division of 479,075 equity shares of Rs. 100 each into 4,790,750 Equity Shares ofRs. 10 each.*

March 8, 1990 210,000 10 10 50,007,500 Cash Private placementMarch 28, 1990 9,900,000 10 10 149,007,500 Cash Equity Shares allotted

pursuant to a publicissue

November 21, 1990 2,300 10 10 149,030,500 Cash Private placementMarch 27, 1991 96,500 10 10 149,995,500 Cash Private placementApril 18, 1991 1,200 10 10 150,007,500 Cash Equity Shares allotted to

employees of ourCompany

December 21, 1992 14,963,142 10 20 299,638,920 Cash Rights issueDecember 21, 1992 1,500 10 20 299,653,920 Cash Equity Shares allotted to

employees of ourCompany

February 24, 1993 23,000 10 20 299,883,920 Cash Rights issueJune 4, 1993 6,185 10 20 299,945,770 Cash Rights issueOctober 1, 1993 300 10 20 299,948,770 Cash Rights issue1994 - 1995 700 10 20 299,955,770 Cash Rights issueApril 7, 1995 700 10 20 299,962,770 Cash Rights issueJune 23, 1995 (2,600) 10 10 299,936,770 Cash Shares forfeitedNovember 21, 1995 200 10 10 299,938,770 Cash Forfeiture of Equity

Shares annulledJuly 2, 1997 13,500,000 10 25 434,938,770 Cash Preferential allotment of

Equity Shares to:Hardy Oil and Gas(Nederland) B.V.;Housing DevelopmentFinance CorporationLimited; andInfrastructure Leasingand Finance ServicesLimited**

October 17, 1998 15,281,633 10 52.5 587,755,100 Cash Preferential allotment ofEquity Shares to UnocalBharat Limited (nowknown as Burren ShaktiLimited)***

February 4, 1999 (30,575) 10 10 587,449,350 Cash Shares forfeitedOctober 27, 2006 19,567,733 10 76 783,126,680 Cash Rights issue

* Each equity share of Rs. 100 was subdivided into 10 Equity Shares of Rs. 10 each pursuant to a special resolution passed by our Company at ameeting of shareholders of our Company held on December 28, 1989.

** The Company has obtained a certificate from a chartered accountant vide letter (ref:NMS/8517) dated December 15, 1998 who has certified that thePreferential allotment is in compliance with the SEBI Preferential Issue Guidelines, 1994.

*** The Company has obtained a chartered accountant vide letter (ref:NMS/7488) dated June 10, 1998 who has certified that the Preferential allotmentis in compliance with the SEBI Preferential Issue Guidelines, 1994.

15

2. Promoter Share capital of our Company

Name of Promoter Date on which the Reasons for Consideration No. of Equity Acquisition PriceEquity Shares were Allotment Shares (per EquityAllotted / Transferred Share)

Burren Shakti Limited October 17, 1998 Preferential Rs. 802,285,733 15,281,633 Rs. 52.50*(then Unocal Bharat AllotmentLimited) October 27, 2006 Rights Issue Rs.454,701,540 5,982,915 Rs.76.00

Burren Energy India November 14, 2005 Transfer Rs.530,895 5,745 Rs. 92.41Limited October 27, 2006 Rights Issue Rs.145,540 1,915 Rs.76.00

Total Rs.1,257,663,708 21,272,208

* Burren Shakti Limited was taken over by Burren Energy India Limited on February 14, 2005 at a consideration of Rs. 1,139,265,000 for 15,281,633equity shares of Hindustan Oil Exploration Company Limited.

3. Our Promoters confirm that they intend to subscribe to the full extent of their Rights Entitlement. Our Promoters alsoreserve their right to subscribe to their Rights Entitlement in this Issue, either by themselves or a combination ofentities controlled by them. Our Promoters shall apply for additional Equity Shares in the Issue such that at least90% of the Issue is subscribed. As a result of such subscription and consequent allotment, our Promoters mayacquire Equity Shares over and above their Rights Entitlement, which may result in an increase of their shareholdingbeing above the current shareholding with the Rights Entitlement of Equity Shares under the Issue. Such subscriptionand acquisition of additional equity shares by our Promoter, if any, will not result in change of control of themanagement of our Company and shall be exempted in terms of proviso to Regulation 3(1)(b)(ii) of the TakeoverCode.

As such, other than meeting the requirements indicated in the section titled "Objects of the Issue" beginning onpage 20 of this Letter of Offer, there is no other intention / purpose for this Issue, including any intention to delistour Company, even if, as a result of allotments to the Promoters, in this Issue, the Promoters' shareholding in ourCompany exceeds their current shareholding. The Promoters shall subscribe to such unsubscribed portion as perthe relevant provisions of the law. Allotment to the Promoters of any unsubscribed portion, over and above theirRights Entitlement shall be done in compliance with the Listing Agreement including conditions relating to minimumpublic holding requirement and other applicable laws prevailing at that time relating to continuous listing requirements.

4. There has been no allotment of Equity Shares to our Promoters and / or our Promoter Group during a period of sixmonths prior to filing of this Letter of Offer with the SEBI.

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5. Shareholding pattern of our Company as on September 30, 2007 before and after the Issue is as under:

Sr. No. Shareholders Pre Issue Post Issue*

No. of Equity % of pre- No. of Equity % of post-Shares Issue capital Shares Issue capital

A PROMOTER / PROMOTER GROUPBurren Shakti Limited 21,264,548 27.15 35,440,910 27.15Burren Energy India Limited 7,660 0.01 12,767 0.01

Total shareholding of Promoter / 21,272,208 27.16 35,453,677 27.16 Promoter Group

B INSTITUTIONAL INVESTORSMutual Funds and UTI 6,852,489 8.75 11,420,815 8.75Banks, Financial Institutions,Insurance Companies (Central /State Government Institutions /Non-Government Institutions) 875,214 1.12 1,458,690 1.12Insurance companies 1,403,314 1.79 2,338,857 1.79FIIs 900,058 1.15 1,500,097 1.15Foreign Mutual Funds 2,298,088 2.94 3,830,147 2.94

Total shareholding of Institutional 12,329,163 15.75 20,548,606 15.75Investors

C OTHERSIndividuals 2,580,806 28.84 37,634,677 28.84Private Corporate Bodies 4,131,026 18.04 23,551,710 18.04NRIs 1,056,875 1.35 1,761,459 1.35Director Nil Nil Nil NilForeign Companies 6,657,694 8.50 11,096,157 8.50Clearing Member 284,896 0.36 474,827 0.36Total of shareholding of Others 44,711,297 57.09 74,518,830 57.096

GRAND TOTAL** 78,312,668 100.00 130,521,113 100.00

* Post Issue shareholding is based on the assumption that all the shareholders (including the Promoters) will subscribe to the full extent oftheir Rights Entitlement in this Issue.

** Grand total excludes 32,975 Equity Shares, which have been forfeited through resolutions dated June 23, 1995 and January 18, 1999.

6. Our Directors, Promoters, Promoter Group and directors of our Promoters have not purchased or sold any EquityShares, directly or indirectly, during the last six months..

7. Our Company, our Directors and the Lead Manager have not entered into any buy-back and / or standbyarrangements for purchase of Equity Shares from any person.

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8. Top ten shareholders

(i) Our top 10 shareholders as on November 16, 2007 is as follows:

Sr. No. Name of Shareholder No. of Equity Shares % of Shareholding

1. Burren Shakti Limited 21,264,548 27.152. Housing Development Finance Corporation 8,382,962 10.703. Hardy Oil and Gas Limited 6,657,694 8.504. Franklin Templeton Mutual Fund A/C Franklin 2,691,715 3.44

India High Growth Companies Fund5. HSBC Global Investment Funds A/C HSBC Global 2,126,480 2.72

Investment Funds Bric Freestyle6. Ms. Jhunjhunwala Rekha Rakesh 2,021,355 2.587. HDFC Trustee Company Ltd HDFC Premier 1,945,000 2.488. General Insurance Corporation of India 1,264,163 1.619. Mr. Jhunjhunwala Rakesh Radheshyam 1,035,250 1.3210. Prudential ICICI Trust Limited -Prudential ICICI 1,000,000 1.28

Infrastructure Fund

Total 48,389,167 61.79

(ii) Our top 10 shareholders as on November 9, 2007 (i.e. 10 days prior to the date of filing of this Letter of Offer)was as follows:


1. Burren Shakti Limited 21,264,548 27.152. Housing Development Finance Corporation 8,382,962 10.703. Hardy Oil and Gas Limited 6,657,694 8.504. Franklin Templeton Mutual Fund A/C Franklin 2,606,927 3.33

India High Growth Companies Fund5. HSBC Global Investment Funds A/C HSBC Global 2,126,480 2.72

Investment Funds Bric Freestyle6. HDFC Trustee Company Ltd HDFC Premier 2,100,000 2.687. Ms. Jhunjhunwala Rekha Rakesh 2,021,355 2.588. General Insurance Corporation of India 1,264,163 1.619. Mr. Jhunjhunwala Rakesh Radheshyam 1,035,250 1.3210. Prudential ICICI Trust Limited -Prudential ICICI 1,000,000 1.28

Infrastructure Fund

Total 49,459,379 61.87

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(iii) Our top 10 shareholders as on November 30, 2005 (i.e. two years prior to the date of filing of this Letter ofOffer) were as follows:


1. Unocal Bharat Limited (now known as 15,281,633 26.01Burren Shakti Limited)

2. Housing Development Finance Corporation 6,287,222 10.70Limited

3. Hardy Oil and Gas Limited 4,993,271 8.504 HDFC Trustee Company Limited-HDFC Premier 2,100,000 3.575. Ms. Jhunjhunwala Rekha Rakesh 1,608,060 2.746. Standard Chartered Trust Company Private Limited 1,506,705 2.567. Infrastructure Leasing & Financial Services Limited 1,249,299 2.138. UTI - Growth Sector Fund - Petro 769,979 1.319. General Insurance Corporation of India 500,000 0.8510. Mr. Jhunjhunwala Rakesh Radheshyam 493,976 0.84

Total 34,790,145 59.21

9. Except as disclosed in the section titled "Our Management" beginning on page 56 of this Letter of Offer, none of ourDirectors hold any Equity Shares.

10. The present Issue being a Rights Issue, as per clause 4.10.1(c) of the SEBI Guidelines, the requirement of promoters'contribution and lock-in are not applicable. In accordance with clause 2.4.1(iv) of the SEBI Guidelines, the Companyis exempted from the eligibility norms as stated in the SEBI Guidelines.

11. Our Company has through a shareholders resolution dated September 22, 2005 instituted an Employees StockOption Scheme ("ESOS"). The ESOS is administered by the Compensation and Remuneration Committee of ourBoard of Directors. The Compensation and Remuneration Committee has formulated the detailed terms andconditions of the ESOS. Key terms of the ESOS are set out below:

(i) The eligibility criteria of persons / employees covered under ESOS will be determined by the Compensationand Remuneration Committee based on past and present performance, technical knowledge, professionalism,period of service, designation, responsibility, other qualities and traits or such other basis as the committeemay deem fit. The maximum number of options granted to any one employee in a year will not exceed 1% ofthe issued equity capital of our Company (excluding outstanding warrants and conversions) at the time ofgranting the option.

(ii) Options not exceeding 5% of the issued share capital of our Company as on March 31, 2005, can be grantedunder the ESOS. The options may be offered to our Directors including Chairman, Whole Time Directors,Independent Directors, Managing Director but excluding the Directors nominated by our Promoters, Director(s)who either by himself / themselves or through his / their relative or through any body corporate, directly orindirectly hold(s) more than 10% of the outstanding Equity Shares and all employees of our Company.

(iii) The options shall be vested with the eligible persons / employees proposed to be covered under the ESOSon expiry of three years from the end of the scheme year to which such option relates or such other periodas may be determined by the Compensation and Remuneration Committee.

(iv) The exercise period shall commence from the date of vesting. The allotment of Equity Shares on exercise ofoptions by eligible persons / employees on satisfying the required conditions of ESOS shall be in accordancewith the terms and conditions framed by the Compensation and Remuneration Committee.

(v) The Board shall have powers to amend, vary, or modify any of the terms and conditions of the ESOSpertaining to the grant of options, pricing of options, allotment of letters of offer, or warrants or equity sharespursuant to the options, without being required to seek any further consent or approval of the shareholders.

The Board pursuant to resolution dated July 29, 2006 approved the grant of 15,069 Equity Shares under the ESOS.We are yet to grant any option under the ESOS.

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12. There are no outstanding warrants, options or rights to convert debentures, loans or other instruments convertibleinto Equity Shares.

13. There would be no further issue of capital whether by way of issue of bonus shares, preferential allotment, rightsissue or in any other manner during the period commencing from submission of this Letter of Offer with SEBI untilthe Equity Shares to be issued pursuant to the Issue have been listed.

14. We presently do not intend or propose to alter our capital structure for a period of six months from the date ofopening of the Issue, by way of split or consolidation of the denomination of Equity Shares or further issue of EquityShares (including issue of securities convertible into or exchangeable, directly or indirectly for Equity Shares)whether preferential or issue of bonus or rights or pubic issue of shares or any other securities, except that if weenter into acquisitions / expansion / exploration / development of new / existing projects, we may, subject tonecessary approvals, if any, consider raising additional capital to fund such activity or use Equity Shares ascurrency for acquisition or participation in such ventures within a period of six months from the Issue Opening Date.

15. We shall comply with such disclosure and accounting norms as may be specified by SEBI from time to time.

16. The total number of members of our Company as on November 16, 2007 was 52,565.

17. Our Company has not availed of "bridge loans" to be repaid from the proceeds of the Issue for incurring expendituredetailed in the section titled "Objects of the Issue" beginning on page 20 of this Letter of Offer.

18. The terms of issue to Non-Resident Applicants have been presented under the section titled "Terms and Procedureof the Issue" beginning on page 165 of this Letter of Offer.

19. At any given time, there shall be only one denomination of the Equity Shares.

20. Our Company has not issued Equity Shares for consideration other than cash or out of revaluation reserves.

21. The Issue will remain open for atleast 30 days. However, our Board will have the right to extend the Issue periodas it may determine from time to time but not exceeding 60 days from the Issue Opening Date.

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OBJECTS OF THE ISSUE

Development and exploration activities in the oil and gas industry require significant amounts of capital expenditure. Theobjects of this Issue are to; (a) part-finance the contribution towards cash calls for the development of the basement gasfield in PY-1, (b) part-finance the contribution towards cash calls for the development programme in CB-OS-1, (c) part-finance the contribution towards cash calls for the development of Phase III drilling programme in PY-3 field (blockCY-OS-90/1); and (d) meet general corporate purposes.

The main objects in the memorandum of association of our Company enable our Company to undertake its existingactivities and other activities for which the funds are being raised by our Company through the Issue.

Funds Requirement

The details of proceeds of the Issue are summarised in the following table:

Rs. millions

S. No. Description Amount

(a) Gross proceeds of the Issue 6,109.47(b) Issue expenses 32.44(c) Net proceeds of the Issue 6,077.03

The intended use of the net proceeds of the Issue are summarised in the table below:

Rs. millions

S. No. Proposed Expenditure Program Estimated totalcost of project

(a) Contribution towards cash calls for the development of PY-1 basement gas field 10,621.13(b) Contribution towards cash calls for the development of Gulf A Discovery in Block CB-OS-1 1,312.34(c) Contribution towards cash calls for the development of Phase III Drilling Programme in 774.47

PY-3 (CY-OS-90/1)(d) General corporate purposes 359.34

Total 13,067.28

The fund requirements described above are based on our current business plan and internal estimates and have notbeen appraised by any bank or financial institution. In view of the competitive and dynamic nature of the industry inwhich we operate, we may have to revise our business plan and capital expenditure requirements from time to time asa result of variations in the cost structure, changes in estimates, exchange rate fluctuations and external factors, whichmay not be within the control of our Company. This may entail rescheduling or revising the planned capital expenditureand increasing or decreasing the capital expenditure for a particular project from its planned expenditure at the discretionof our management. We may deploy / allocate funds between the projects mentioned above, should business andenvironmental reasons require so.

The programme cost indicated above reflects our share of the total fund requirement for the defined programmescorresponding to our participating interest in the respective block and represents amounts estimated to be incurred forthe projects. The total fund requirements for the defined programmes could vary in the course of implementationnecessitated due to operational reasons or change in the market conditions. Accordingly, our share of the total fundrequirement could also vary.

Budgets and estimates for each of the JV's are prepared in USD. Further, most of our expenditure are denominated inUSD.

In the event of any shortfall in the net proceeds of the Issue, our Company may allocate internal accruals or raise capitalthrough other financial instruments. In the event of any decrease in the Issue expenses, we intend to utilise suchamounts towards general corporate purposes.

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I. Means of Finance

The aforementioned objects are proposed to be financed as under:

Rs. millions

Particulars Amounts

Issue Proceeds 6,077.03

Debt 4,031.64

Internal Accruals 2,958.61

Total 13,067.28

With reference to para 2.8 of the SEBI Guidelines, we confirm that firm arrangements for 75% of the stated means offinance, excluding net proceeds of the Issue, have been made.

II. Details of the Objects of the Issue.

(a) Contribution towards cash calls for the development of a basement gas reservoir in PY-1

Our Company has 100% participating interest alongwith operatorship rights in PY-1 field. Following the successfuldrilling and testing of the first producer well (Earth) to the basement gas reservoir in PY-1 field in Fiscal 2007, ourCompany commenced the implementation of the full field development of PY-1 field for commercial production. Thedevelopment plan is targeted to produce, process and sell non-associated natural gas from granitic fracturedbasement reservoir. We expect the commercial production of gas to commence around mid 2009.

The current project cost is estimated to be approximately Rs. 10,621.13 million which is to be borne by ourCompany. We intend to finance the total project cost from a combination of the net proceeds of the Issue, internalaccruals and debt. With respect to the same, our Company has entered into a dollar facility agreement datedNovember 8, 2006 for USD 100 million (approximately Rs. 4,100 million) with a consortium of banks co-led by IDBILimited and UTI Bank Limited (now Axis Bank Limited) to part-finance the PY-1 block costs. For details see thesection titled "Financial Indebtedness" beginning on page 120 of this Letter of Offer. As on date, the Company hasdrawn USD 8 million from the said loan.

The full field development of PY-1 will include procurement and fabrication of an offshore platform, installation ofsub-sea pipeline and engineering and commissioning of an onshore gas processing terminal. These costs couldundergo variation on account of change in scope after detailed engineering or change in environmental / marketconditions. Our Company has executed a natural gas sale and purchase agreement dated April 28, 2007 with PPNfor the sale of upto 51,000 MMBTU of natural gas per day from the PY-1 basement gas field to PPN for generatingpower. For details of the agreement, see the section titled "History and Certain Corporate Matters” beginning onpage 46 of this Letter of Offer. Further, the DGH has pursuant to letter dated June 14, 2007 (No. DGH/HOEC/PY-1/WPB/2007) approved the budget of USD 68.627 million (approximately Rs. 2,813.71 million) for Fiscal 2008.

(b) Contribution towards cash calls for the development of Gulf "A" Discovery in CB-OS-1

Our Company will have 31.58% share in the development and production phase of block CB-OS-1 presumingONGC, the licencee, exercises its back in right, pursuant to provisions of the PSC. For details, see the section titled"Our Business" beginging on page 34 of this Letter of Offer. ONGC, as the operator of the Block has declared Gulf-'A' as a commercial discovery which has been approved by the operating committee of the JV. Further, the operatingcommittee of the JV has proposed to develop the Gulf "A" discovery using a land based drilling platform. The planis for a four well drilling programme as part of Phase I Development.

The operator, ONGC has estimated the total development expenditure for development of Gulf "A" Discovery to beapproximately Rs. 4,155.60 million. The planned facilities include construction of road / jetty, drilling of developmentwells, crude evacuation pipeline from and to the crude gathering station (CGS). In accordance with the terms of thePSC, our share of the total cost is approximately Rs. 1,312.34 million, which is intended to be financed from acombination of net proceeds of the Issue and internal accruals.

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(c) Contribution towards cash calls for the development Phase III Drilling Programme in CY-OS-90/1 (PY-3 Field)

Our Company has 21% participating interest in PY-3 field (Block CY-OS-90/1). HEPI, the operator, has proposedthe Phase III development drilling programme in PY-3 which includes drilling of one producer well and one waterinjector well.

HEPI has estimated development drilling expenditure to be approximately Rs. 3,687.95 million, which has beenapproved by the JV, subject to certain conditions. In accordance with the terms of the PSC in relation to PY-3, ourshare of the total cost is approximately Rs. 774.47 million, which we intend to finance from a combination of netproceeds of the Issue and internal accruals.

(d) General Corporate Purposes

We intend to use approximately Rs. 359.34 million (subject to determination of Issue Price) from the net proceedsof the Issue towards general corporate purposes. Our Board of Directors will have the flexibility in sanctioning theutilisation of these proceeds by the management for general corporate purpose including assessment of newopportunities under NELP Rounds and other strategic initiatives.

III. Issue Related Expenses

The estimated Issue expenses are as follows:

Rs. millions

S.No. Particulars Amount % of Total % of IssueExpenditure Size

1. Fees of the Lead Manager, Registrar to the Issue, 22.22 68.50 0.36legal advisor and other advisors and consultants

2. Printing and stationery, distribution, postage etc. 6.86 21.15 0.11

3. Advertising expenses 1.01 3.11 0.02

4. Others 2.35 7.24 0.04

IV. Schedule of Implementation and Deployment of Funds

Our Company proposes to deploy the net proceeds of the Issue for the aforesaid programmes spread over the next threeFiscals. The total amount to be deployed in Fiscal 2008, 2009 and 2010 are Rs. 3,198.98 million, Rs. 5,742.61 millionand Rs. 3,766.35 million respectively. The following are the details of the estimated schedule of deployment of funds:

Rs. millions

S. No. Object Schedule of Deployment of funds Expected date ofcompletion of thedefined programme

Fiscal 2008 Fiscal 2009 Fiscal 2010

1. Contribution towards cash calls for 2,770.99 4,698.19 3,151.95 March, 2010the development of basement gasreservoir in PY-1

2. Contribution towards cash calls for 4.38 693.56 614.40 March, 2010the development of Gulf "A" Discoveryin CB-OS-1

3. Contribution towards cash calls for 423.61 350.86 Nil March, 2009the development of Phase III drillingprogramme in PY-3

Total 3,198.98 5,742.61 3,766.35

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V. Working Capital requirement

The net proceeds of this Issue will not be used to meet our working capital requirements as we expect to have internalaccruals to meet our existing working capital requirements.

VI. Interim Use of Proceeds

Our management, in accordance with the policies set up by the Board, will have flexibility in deploying proceeds receivedfrom the Issue. Pending utilisation of funds for the purposes described above, we intend to temporarily invest the fundsin interest or dividend bearing liquid instruments including deposits with banks, for the necessary duration or for reducingoverdraft. Such investments would be in accordance with investment policies approved by our Board of Directors fromtime to time.

VII. Appraisal Report

None of the projects for which the net proceeds of the Issue will be utilised has been financially appraised.

VIII. Monitoring of Utilisation of Funds

Our Board and the monitoring agency, appointed for this purpose, Industrial Development Bank of India Limited, willmonitor the utilisation of the proceeds of the Issue. We will disclose the utilisation of the Issue proceeds under a separatehead in our annual report for Fiscal 2008, 2009 and 2010 clearly specifying the purposes for which such proceeds havebeen utilised. We will also, in our annual report for Fiscal 2008, Fiscal 2009 and Fiscal 2010 provide details, if any, inrelation to such Issue proceeds that have not been utilised thereby also indicating investments, if any, of such unutilisedIssue proceeds. We undertake to ensure compliance with Clause 49 of the Listing Agreement with respect to themonitoring of utilisation of funds. As per clause 49 of the Listing Agreement, we undertake to disclose to the AuditCommittee, the uses / applications of funds by major category (capital expenditure, sals and marketing, working capital,etc), on a quarterly basis as a part of our quarterly declaration of financial resuls. Further, on an annual basis, we shallprepare a statement of funds utilized for purposes other than those stated in the Letter of Offer and place it before theAudit Committee. Such disclosure shall be made only till such time that the full money raised through the Issue has beenfully spent and we shall ensure that such disclosure is certified by the statutory auditors of our Company, as required.The Audit Committee shall make appropriate recommendations to the Board of Directors to take up steps in the matter.

No part of the proceeds of the Issue will be paid by us as consideration to our Promoters, our Directors, key managerialemployees or companies promoted by our Promoters except in the course of normal business.

Given the context that exploration and production business is capital intensive, our Company may require additionalfinancial resources in future, which would be raised by our Company using financial instruments available in the Indianor international capital markets, as the case may be.

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BASIS FOR ISSUE PRICE

The Issue Price has been determined by our Rights Issue and Allotment Committee of Board of Directors at their meetingdated November 7, 2007. Investors are also advised to refer to the sections titled "Risk Factors" and "Financial Statements"beginning on pages VIII and 70 respectively of this Letter of Offer to get a more informed view before making theinvestment decision.

Qualitative Factors

� Experience and knowledge in the Cauvery, Cambay and Assam basins. Over the years we have assimilatedexperience and knowledge in these three Category I basins in India. This gives us an edge in evaluating existingand new E&P assets in these areas.

� Well diversified portfolio of assets. Our portfolio of assets span over the entire E&P life cycle i.e. exploration,appraisal, development, production, and redevelopment.

� Our assets are a mix of oil and gas as the potential products which will help us enhance our production base andalso replace the same from our success in exploration assets.

� Track record of partnerships with leading players in the oil and gas exploration and development industry throughJVs and PSCs with companies like ONGC, IOC, OIL, GSPC and HEPI.

� Professional relationships and collaborations with most of our partners in multiple oil and gas blocks. This enablesus to invest in and gain access to oil and gas blocks which otherwise we may not be able to do on our own.

� Some of our oil and gas blocks are in the process of being explored and exploited commercially. Two of our blocksare in the exploration phase, which provide us the ability to replenish, add new reserves and strengthen orfinancial position.

� Low fixed cost model - We operate on a model wherein we concentrate on core disciplines and outsource the otherservices based on our requirements. This enables us to be competitive with respect to our fixed costs.

Quantitative factors

Information presented in this section is derived from our unconsolidated financial statements, as adjusted, under IndianGAAP and reported upon by the Auditors in their report dated November 16, 2007.

1. Earnings Per Share (EPS) (as adjusted for changes in capital)

Face value per share(Rs. 10 per share)

Rupees Weights

Year ended March 31, 2005 6.06 1



Weighted average 2.10

Note:

(i) Net Profit, as adjusted as appearing in the summary statements of profits and losses, has been considered forcomputing the above ratios.

(ii) Earnings per share calculations have been done in accordance with Accounting Standard 20 - "Earnings pershare" issued by the Institute of Chartered Accountants of India.

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2. Price / Earnings (P/E) ratio in relation to the Issue Price of Rs. 117, is 334.29

� Based on the year ended March 31, 2007 EPS of Rs. 0.35

� Industry P/E

Particulars Oil Exploration Industry

Highest 120.3

Lowest 13.0

Industry Composite 17.1

Source: "Capital Market" Vol. XXII/17, dated October 22 - November 04, 2007.

3. Return on Net Worth as per unconsolidated financial statements, as adjusted, under Indian GAAP which have beenreported upon by the Auditors in their report dated November 7, 2007:

Year Return on Net Worth % Weight




Weighted average 5.52

4. Minimum return on increased net worth required to be maintained pre-Issue EPS is 0.46%.

Net asset value per Equity Share of Rs. 10 each

� As at March 31, 2007: Rs. 49.84

� After the Issue: Rs. 76.71

� Issue Price: Rs. 117

5. Comparison of accounting ratios*

Company Name Year ending EPS Net Asset Value P/E(Rs.) (Rs.) Ratio ****

Hindustan Oil Exploration March 31, 2007 0.35 49.84 307.71Company Limited

Company Name* Year ending EPS*** Net Asset Value P/E(Rs.) (Rs.) Ratio ****

Jindal Drilling ** March 31, 2007 19.6 68.4 60.1

ONGC March 31, 2007 73.9 289.5 16.1

Selan Explorations Technology Ltd March 31, 2007 7.6 30.8 19.9

* Source: Peer set data as per "Capital Market" Vol. XXII/17, dated October 22 - November 04, 2007.** Engaged in providing services to E&P sector and thus not directly comparable.*** The EPS is twelve month trailing for the period ended June 30, 2007**** Based on share price data as of October 15, 2007

The closing price was Rs. 126.85 on the BSE on November 15, 2007, the day on which the shares started tradingon an ex-rights basis.

The closing price was Rs. 127.20 on the NSE on November 15, 2007 the day on which the shares started tradingon an ex-rights basis.

The face value of the Equity Shares is Rs. 10 and the Issue Price is 11.7 times the face value.

The Issue Price of Rs. 117 has been determined by our Board of Directors, on the basis of assessment of marketdemand for the Equity Shares and the same is justified on the basis of the above factors.

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STATEMENT OF TAX BENEFITS

The information provided below sets out the possible tax benefits available to our Company and our shareholders underthe current tax laws presently in force in India. Several of these benefits are dependent on our Company or ourshareholders fulfilling the conditions prescribed under the relevant tax laws. Hence, the ability of our Company or ourshareholders to derive the tax benefits is dependent upon fulfilling such conditions, which based on business imperativesour Company faces in the future, our Company may or may not choose to fulfill. The benefits discussed below are notexhaustive. This statement has been prepared based on a certificate dated October 13, 2007, received from M/s RajeshModi & Co., Chartered Accountants. This statement is only intended to provide general information to the investors andis neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the taxconsequences and the changing tax laws, each investor is advised to consult his or her own tax consultant with respectto the specific tax implications arising out of their participation in the Issue.

The Board of Directors,Hindustan Oil Exploration Company Limited,'HOEC House' Tandalja Road,Off Old Padra Road,Vadodara - 390020

Tax benefit certificate in respect of the proposed right issue of the Equity Shares available.

I. Specific benefits under the Income Tax Act, 1961 (hereinafter referred to as the 'Act')

1. To the Company

1.1 Under Section 42 of the Act and subject to the provisions therein read with Production Sharing Contracts(PSCs) entered into with the Government of India in respect of the blocks where the Company has a participatinginterest, the Company would be entitled for deduction in respect of drilling or exploration activities or servicesor physical assets used in that connection relating to its business, as provided in the PSCs.

1.2 Under Section 80-IB of the Act and subject to the provisions therein, an undertaking of the Company, whichbegins commercial production of mineral oil would be entitled for deduction of 100% of the profits of theundertaking for a period of seven consecutive assessment years including the initial assessment year.

2. To the members of the Company

There are no specific benefits under the act available to the members of the Company.

II. General benefits under the Act

1. To the Company

1.1 The Company will be entitled to claim depreciation allowance at the prescribed rates on Fixed Assets underSection 32 of the Income Tax Act, 1961.

1.2 The Company will be entitled to claim expenditure incurred in respect of Voluntary Retirement Scheme underSection 35DDA of the Act in five equal annual instalments.

1.3 In accordance with the provisions of Section 10(38) of the Act, the long term capital gains arising on thetransfer of securities / units in a transaction entered into in a recognized stock exchange in India, (suchtransaction is chargeable to Securities Transaction Tax under Chapter VII of the Finance (No.2) Act, 2004),shall be exempt from income tax.

1.4 The long term capital gains accruing to the Company otherwise than as mentioned in 1.5 above, shall bechargeable to tax in accordance with and subject to the provisions of Section 112 of the Act as follows:

� If long term capital gain is computed after indexation @ 20% (plus applicable surcharge and educationcess including secondary and higher education cess).

� If long term capital gain is computed without indexation @ 10% (plus applicable surcharge and educationcess including secondary and higher education cess).

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1.5 The short term capital gains accruing to the Company, from the transfer of a short term capital asset, beingsecurities, in a transaction entered into in a recognized stock exchange in India, (such transaction is chargeableto Securities Transaction Tax under Chapter VII of the Finance (No.2) Act, 2004), shall be chargeable to taxat the rate of 10% [plus applicable surcharge and education cess including secondary and higher educationcess] as per the provisions of Section 111A of the Act.

1.6 The Company is eligible to claim exemption in respect of tax on long term capital gains under Sections 54ECand 54ED of the Act, if the amount of capital gains is invested in certain specified bonds / securities subjectto the fulfillment of the conditions specified in those sections.

1.7 The Company is eligible to exemption under Section 10(34) of the Act in respect of income by way ofdividend received from other Domestic Companies.

1.8 The Company is eligible to exemption under Section 10(35) of the Act in respect of income by way ofdividend received from mutual fund specified under Section 10(23D) of the Act and other specified undertakings/ companies.

1.9 The Company is eligible for brought forward tax credit u/s 115JAA for set-off against tax payable on the totalincome in the future years under the provisions of the Income Tax Act, 1961 other than Section 115JB.

1.10 As per the provisions of Section 88E of the Act, where the income chargeable under the head ''Profits andgains of business or profession'' includes profits and gains from purchase or sale of securities liable to STT,a rebate is allowable from the amount of income tax on such business income to the extent of the STT paidon such transactions. The amount of rebate shall, however, be limited to the amount of income tax arrived atby applying the average rate of income tax on such business income.

2. To the members of the Company

2.1 Residents

(a) Members of the Company will be entitled to exemption, under Section 10(34) of the Act in respect of theincome by way of dividend received from the Company.

(b) The long term Capital gains accruing to the members of the Company on sale of the Company's shares in atransaction entered into in a recognized stock exchange in India, (such transaction is chargeable to SecuritiesTransaction Tax under Chapter VII of the Finance (No.2) Act, 2004), shall be exempt from tax as per theprovisions of Section 10(38) of the Act.

(c) The long term capital gains otherwise than as mentioned above, shall be chargeable to tax in accordancewith and subject to the provisions of Section 112 of the Act as follows:

� If long term capital gain is computed after indexation @ 20% (plus applicable surcharge and educationcess including secondary and higher education cess).

� If long term capital gain is computed without indexation @ 10% (plus applicable surcharge and educationcess including secondary and higher education cess).

(d) The short term capital gains accruing to the members of the Company on sale of the Company's shares in atransaction entered into in a recognized stock exchange in India, (such transaction is chargeable to SecuritiesTransaction Tax under Chapter VII of the Finance (No.2) Act, 2004), shall be chargeable to tax @ 10% [plusapplicable surcharge and education cess including secondary and higher education cess] as per the provisionsof Section 111A of the Act.

(e) The members of the Company are entitled to claim exemption in respect of tax on long term capital gainsunder Sections 54EC and 54ED of the Act, if the amount of capital gains is invested in certain specifiedbonds / securities subject to the fulfillment of the conditions specified in those sections.

(f) Individuals or HUF members of the Company can avail exemption under Section 54F of the Act by utilizationof the sales consideration for purchase/construction of a residential house within the specified time periodand subject to the fulfillment of the conditions specified therein.

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(g) Where the income of the shareholder chargeable under the head ''Profits and gains of business or profession''includes profits and gains from purchase or sale of securities liable to STT, a rebate is allowable from theamount of income tax on such income to the extent of the STT paid on such transactions. The amount ofrebate shall, however, be limited to the amount of income tax arrived at by applying the average rate ofincome tax on such business income. No deduction, however is available in computing the income chargeableto tax as ''capital gains'' or under the head ''Profits and gains of Business or Profession'' for such amount paidon account of STT (section 88E of the Act).

2.2 Non-Resident

(a) Non-resident members of the Company will be entitled to exemption, under Section 10(34) of the Act inrespect of the income by way of dividend received from the Company.

(b) The long-term Capital gains accruing to the members of the Company on sale of the Company's shares in atransaction entered into in a recognized stock exchange in India, (such transaction is chargeable to SecuritiesTransaction Tax under Chapter VII of the Finance (No.2) Act, 2004), shall be exempt from tax as per theprovisions of Section 10(38) of the Act.

(c) The long term capital gains accruing otherwise than as mentioned in (b) above shall be chargeable to tax inaccordance with and subject to the provisions of Section 112 of the Act.

(d) Under the first proviso to Section 48 of the Act, in the case of a non-resident, in computing the capital gainsarising from transfer of shares of the Company acquired in convertible foreign exchange (as per exchangecontrol regulations) protection is provided from fluctuation in the value of rupee in terms of foreign currency inwhich the original investment was made. Cost indexation benefits will not be available in such a case.

(e) The short-term Capital gains accruing to the members of the Company on sale of the Company's shares in atransaction entered into in a recognized stock exchange in India (such transaction is chargeable to SecuritiesTransaction Tax under Chapter VII of the Finance (No.2) Act, 2004) shall be chargeable to tax @ 10% [plusapplicable surcharge and education cess including secondary and higher education cess] as per the provisionsof Section 111A of the Act.

(f) The members of the Company are entitled to claim exemption in respect of tax on long term capital gainsunder Sections 54EC and 54ED of the Act, if the amount of capital gains is invested in certain specifiedbonds / securities subject to the fulfillment of the conditions specified in those sections.

(g) Individuals or HUF members of the Company can avail exemption under section 54F of the Act by utilizationof the sales consideration for purchase / construction of a residential house within the specified time periodand subject to the fulfilment of the conditions specified therein.

(h) Where the income of the shareholder chargeable under the head ''Profits and gains of business or profession''includes profits and gains from purchase or sale of securities liable to STT, a rebate is allowable from theamount of income tax on such income to the extent of the STT paid on such transactions. The amount ofrebate shall, however, be limited to the amount of income tax arrived at by applying the average rate ofincome tax on such business income. No deduction, however is available in computing the income chargeableto tax as ''capital gains'' or under the head ''Profits and gains of Business or Profession'' for such amount paidon account of STT (section 88E of the Act).

(i) Under the provisions of Section 90(2) of the Act, if the provisions of the Double Taxation Avoidance Agreement[DTAA] between India and the country of residence of the non-resident are more beneficial than the provisionsof Income Tax Act, 1961, then the provisions of the DTAA shall be applicable.

(j) Non-resident Indians (as defined in Section 115C(e) of the Act), being shareholders of an Indian Company,have the option of being governed by the provisions of Chapter XII-A of the Act, which inter-alia entitles themto the following benefits in respect of income from shares of an Indian Company acquired, purchased orsubscribed to in convertible foreign exchange:

� As per the provisions of Section 115E of the Act, and subject to the conditions specified therein, long-term capital gains arising on the transfer of Company's shares will be charged to Income Tax @ 10%(plus applicable surcharge and education cess including secondary and higher education cess). As per

29

the provisions of Section 115F of the Act and subject to the fulfillment of the conditions specified therein,the long term capital gains arising on the transfer of Company's shares shall be exempted from incometax entirely / proportionately if all or a portion of the net consideration is invested within 6 months of thedate of transfer in specified assets as defined in Section 115C(f) or any savings certificates referred toin Section 10(4B) of the Act. The amount so exempted shall, however, be chargeable to tax as longterm capital gains under the provisions of Section 115F(2) if the specified assets are transferred orconverted into money within three years from the date of acquisition thereof as specified in the saidsection.

� As per the provisions of Section 115G of the Act, Non-resident Indians are not obliged to file a return ofincome under Section 139(1) of the Act, if their only source of income is income from investments orlong term capital gains earned on transfer of such investments or both, provided tax has been deductedat source from such income as per the provisions of Chapter XVII-A of the Act.

� Under Section 115H of the Act, where a Non-Resident Indian, in relation to any previous year, becomesassessable as a resident in India in respect of the total income of any subsequent year, he / she mayfurnish to the Assessing Officer a declaration in writing, along with his / her return of income underSection 139 of the Act for the assessment year for which he / she is so assessable, to the effect that theprovisions of the Chapter XII-A shall continue to apply to him / her in relation to investment incomederived from any foreign exchange asset, being an asset of the nature referred to in sub-clause (ii) toclause (v) of clause (f) of Section 115C, in which case, the provisions of Chapter XII-A shall continue toapply to him/her in relation to such income for that assessment year until the transfer or conversion(otherwise than by transfer) into money of such assets.

� As per the provision of Section 115-I of the Act, when a Non Resident Indian, elects not to be governedby the provision of Chapter XII-A of the Act, then his / her total income shall be computed and chargedin accordance with other provisions of the Act.

2.3 Foreign Institutional Investors

(a) Income by way of dividend received on shares of the Company is exempt under Section 10(34) of the Act.

(b) The long-term Capital gains accruing to the members of the Company on sale of the Company's shares in atransaction entered into in a recognized stock exchange in India, (such transaction is chargeable to SecuritiesTransaction Tax under Chapter VII of the Finance (No.2) Act, 2004), would be exempt from tax as per theprovisions of section 10(38).

(c) The short-term Capital gains accruing to the members of the Company on sale of the Company's shares in atransaction entered into in a recognized stock exchange in India, (such transaction is chargeable to SecuritiesTransaction Tax under Chapter VII of the Finance (No.2) Act, 2004), would be chargeable to tax @ 10% [plusapplicable surcharge and education cess including secondary and higher education cess] as per the provisionsof Section 111A.

(d) Under Section 115AD(1)(b)(ii) of the Act, Income by way of Short Term Capital Gain arising from the transferof shares (otherwise than as mentioned in (c) above) held in the Company for a period of less than 12months will be taxable @ 30% (plus applicable surcharge and education cess including secondary andhigher education cess).

(e) Under Section 115AD(1)(b)(iii) of the Act, Income by way of Long Term Capital gain arising from the transferof shares (otherwise than as mentioned in (b) above) held in the Company will be taxable @ 10% (plusapplicable surcharge and education cess including secondary and higher education cess). It is to be notedhere that the benefits of indexation and foreign currency fluctuation protection as provided by Section 48 ofthe Act are not available to Foreign Institutional Investors.

(f) Long term Capital Gains on sale of shares of the Company by the members of the Company shall be exemptfrom Income tax if such gains are invested in bonds / equity shares specified in Section 54EC or section54ED of the Act respectively subject to the fulfilment of the conditions specified in those sections.

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(g) Under the provisions of Section 90(2) of the Act, if the provisions of the Double Taxation Avoidance Agreement(DTAA) between India and the country of residence of the non-resident are more beneficial than the provisionof Income Tax Act, 1961, then the provisions of the DTAA shall be applicable.

2.4 MUTUAL FUNDS

As per the provisions of Section 10(23D) of the Act, any income of Mutual Funds registered under the Securitiesand Exchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by public sectorbanks or public financial institutions or authorized by the Reserve Bank of India would be exempt from income tax.However, the Mutual Funds shall be liable to pay tax on distributed income to unit holders under Section 115R ofthe Act.

2.5 VENTURE CAPITAL COMPANIES / FUNDS

In terms of Section 10(23FB) of the Act, all Venture capital companies/funds registered with Securities and ExchangeBoard of India, subject to the conditions specified, are eligible for exemption from income tax on all their income,including profit on sale of shares of the Company.

BENEFITS UNDER THE WEALTH TAX ACT, 1957

'Asset' as defined under section 2(ea) of the Wealth Tax Act, 1957, does not include shares in Companies and hence,shares are not liable to wealth tax.

NOTES

a) All the above benefits are as per the current tax law as amended by the provisions of Finance Act, 2007 and willbe available only to the first holder in case the shares are jointly held. The benefits discussed in the statement willbe dependent on the Company or its Shareholders fulfilling the conditions prescribed under the relevant provisionsof the Statute. Hence, the ability of the Company or its shareholders to derive the tax benefit will be dependentupon such conditions being fulfilled.

b) The current position of tax benefits available to the Company and to its shareholders is provided for generalpurpose only. In view of the individual nature of tax consequences, each investor is advised to consult his / herown tax advisor with respect to specific tax consequences of his / her participation in the issue.

c) The benefits listed above are not exhaustive and are based on information, explanations and representationsobtained from the company and on the basis of our understanding of the business activities and operations of theCompany. While all reasonable care has been taken in the preparation of this opinion, Rajesh Modi & Co., acceptsno responsibility for any errors or omissions therein or any loss sustained by any person who relies on it.

d) Unless otherwise specified, sections referred to are sections of the Income Tax Act, 1961 (the Act).

For RAJESH MODI & Co.,Chartered Accountants,

Rajesh Modi(Proprietor)M No. 27425.

13th October, 2007

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INDUSTRY OVERVIEW

The information regarding Indian oil and gas industry set forth in this section has not been independently verified by ourCompany, the Lead Manager or their legal or financial advisors, and no representation is made as to the accuracy of thisinformation, which may be inconsistent with information available or compiled from other sources.

The Indian Oil and Gas Industry

The origins of the Indian oil industry can be traced back to the 19th century when the first crude oil discoveries weremade in Assam, in the north east of India. After independence in 1947, the development of the Indian oil and gasindustry was viewed by the GoI as critical to India's progress, particularly in light of the industry's strategic importance interms of industrial growth and defence. In 1955, the GoI entered the oil and gas sector with the establishment of the Oiland Gas Directorate (the predecessor to ONGC), and entered into JV agreements with domestic and foreign operators.

The oil and gas industry became increasingly dominated by state owned entities, in the 1960's when the industryexperienced growth. In 1974, ONGC discovered a large Mumbai High offshore oil field prompting large-scale expansionin the Indian oil and gas sector. In the 1970s, the GoI implemented policies of nationalisation which led to the governmenttaking over the operations of a number of private players, for example, Esso, Caltex, and Burmah-Shell. The period alsowitnessed regulation in all aspects of the industry from production to pricing.

However, in the early 1990s, as India's reliance on oil imports increased, the GoI embarked on a series of reforms aimedat reducing India's dependence on imports, de-regulating the industry, improving efficiency and encouraging private andforeign investment.

In 1997, the NELP was implemented. According to the DGH, the NELP was designed as a means of allowing participantsin the Indian oil and gas industry to compete on equal terms for exploration acreage. Successful bidders are required toenter into PSCs with the GoI. In an effort to promote licensing rounds and encourage potential bidders, PSCs havecontained comparatively favourable terms, including, for example, 100% costs recovery, and a seven year income taxholiday beginning from the tax year during which first commercial production begins.

While deregulation and other government initiatives have increased the level of private sector participation in the domesticproduction sector, the oil and gas industry in India is still dominated by two government-owned entities, ONGC and OIL.However, certain private-sector participants such as Reliance Industries, British Gas, Cairn Energy and Essar Oil areproviding significant competition.

Demand & Supply Dynamics

India is the second most populous country in the world with a population of approximately 1.12 billion as on September8, 2007. Rapid economic growth in India has led to a significant increase in demand for crude oil and natural gas. Indiais currently the sixth largest consumer of oil and gas (Source: IMF Country Report No.06/56, February 2006). In 2006,India's world share of crude oil and natural gas consumption was 3.1% and 1.4% respectively (Source: BP StatisticalReview of World Energy, June 2007).

By 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the UnitedStates, China and Japan (Source: India Brand Equity Foundation www.ibef.org/industry/oilandgas.aspx). The followingtable sets out the increase in Indian crude oil consumption between 1996 and 2006:

Indian Crude Oil Consumption 1996-2006

(million tonnes)

Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Consumption 81.1 86.5 92.5 100.3 106.1 107.0 111.3 113.1 120.1 115.7 120.3

Source: BP Statistical Review of World Energy, June 2007

India is a net importer of crude oil and natural gas. In 2005, India consumed 115.7 million tonnes of crude oil, yet itproduced only 36.2 million. Similarly, in 2006 India consumed 39.7 billion cubic meters of natural gas, but produced only

32


31.8 billion cubic meters (Source: BP Statistical Review of World Energy, June 2007). The graphs below show theproduction and consumption historically and the amount of import of crude oil:

Source: BP Statistical Review of World Energy, June 2007

Source: Ministry of Petroleum and Natural Gas - Annual Report 2006-2007

Since India is dependent on imports for nearly 70% of its petroleum requirements, energy security has become a majorconcern of the GoI. In recent years this has taken the form of trying to obtain a stake in oil and gas fields in Myanmar,Central Asia and Africa. However, the major thrust still lies in searching for hydrocarbons in onshore and offshore blocksin India. Recent discoveries have caused oil majors to take note of the potential in prospective basins.

Key GoI Initiatives

Detailed below are certain measures taken to enhance hydrocarbon reserves and increase production (Ministry ofPetroleum and Natural Gas, Annual Report 2006-2007):

� Major thrust on exploration in the new frontier areas like deep water and other geologically and logistically difficultareas while ensuring continuation of exploration in the existing fields and new areas;

� Development of new fields and additional development of existing fields through implementation of Improved OilRecovery ("IOR") and Enhanced Oil Recovery ("EOR") projects in major fields and medium size fields. Theseprojects are being implemented by ONGC and OIL;

� Implementation of specialised technologies like extended reach drilling, horizontal drilling and drain hole drilling;

� Engaging the services of international experts whenever considered necessary;

Indian Crude Oil Production v. Consumption (million tonnes)

0

20

40

60

80

100

120

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Production Consumption

Indian Crude Oil Imports (million tonnes)

0

20

40

60

80

100

120

2001 2002 2003 2004 2005 2006

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� Maintenance of reservoir health through work-over operations and pressure maintenance methods;

� Better reservoir delineation through three dimensional (3D) seismic survey of old fields;

� Optimisation and redistribution of water injection; and

� Infill drilling in the unswept areas of the reservoirs.

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OUR BUSINESS

Overview

We engage primarily in the exploration, development and production of crude oil and natural gas in India, both onshoreand offshore. As of March 31, 2007, our proved and probable crude oil natural gas reserves were approximately 50.50MMBOE on a working interest basis (i.e, our Company's share of production calculated by reference to the participatinginterest under the respective PSCs). For the year ended March 31, 2007, our production amounted to 494,622 barrels ofcrude oil and 1,548,788 SCM of gas, excluding loss / internal consumption, on a working interest basis.

We have a portfolio of onshore and offshore blocks in India. Our onshore blocks are located in Cambay basin in the stateof Gujarat and Assam Arakan basin in state of Assam. We have four offshore assets of which three assets are located inthe Cauvery basin on the east coast of India, and one in Gulf of Cambay on the west coast of India. As on the date offiling this Letter of Offer, we have participating interest in eight oil and gas assets in India, which are in the variousphases of exploration, development and production and of which we operate six assets. The details of these assets andthe participating interest held by our Company in each of these assets and the operatorship position is summarizedbelow:

Production Sharing Offshore/ Partners Operator CurrentContracts * Onshore Phase HOEC's Participating Interest

Exploration Development &Phase Production

Phase

Cauvery Business Unit

CY-OS-90/1 (PY-3) Offshore ONGC; HEPI Production - 21.00%HEPI;TPL

PY-1 Offshore - HOEC Development - 100.00%

CY-OSN-97/1 Offshore Mosbacher HOEC Exploration 80.00% 80.00%

Cambay Business Unit

Asjol Onshore GSPCL HOEC Production(1) - 50.00%

CB-ON-7 (Palej) Onshore ONGC; HOEC Production(2) 50.00% 35.00%**

GSPCL

North Balol Onshore GSPCL; HOEC Production - 25.00%

Heramec

CB-OS-1 Offshore ONGC; ONGC Development/ 57.11% 31.58%**

TPL Appriasal

Assam Business Unit

AAP-ON-94/1 (Assam) Onshore IOC; HOEC Exploration 40.32% 25.90%**

OIL

(1) Exploration upside under evaluation.(2) Pramoda field on production and two discoveries are under appraisal / development.*Block GN-ON-90/3 has been abandoned by the consortium under the force majeure clause of the PSC and hence not included in the asset summary; thematter is under arbitration.

** In accordance with the provisions of the respective PSCs, the licensee has a right to acquire an additional 30% participating interest in the developmentand production phase as compared to its participating interest in the exploration phase. As a result the participating interest of the non licensee partnersdecreases in the development and production phase. The said right has been exercised by the licensee in respect of the block CB-ON-7 (Palej).

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We conduct our exploration, development and production activities pursuant to and under the terms of the PSCs throughunincorporated JVs with other oil companies (except in relation to PY-1) such as ONGC, IOC, OIL, GSPCL, TPL,Mosbacher, Heramec and HEPI.

Our Competitive Strengths

The following are the competitive strengths of our Company:

We have experience and knowledge in the Cauvery, Cambay and Assam basins. Over the years we have assimilatedexperience and knowledge in these three basins in India. These three basins have been classified by the DGH asCategory 1 Basins signifying established commercial production from these provinces. Our personnel have been extensivelyinvolved in the G&G activities and interpretation of acreages in these basins for more than a decade.

Our oil and gas assets are diversified. We have a portfolio of assets which we believe are quite diversified. Our assetsspan over the entire E&P life cycle i.e. exploration, appraisal, development, production, and redevelopment. We currentlyhave two assets in the exploration phase, two assets in the developmental phase and four assets in the productionphase. Further, our assets have a mix of oil and gas potential.

We have a track record of partnerships with a number of leading industry players. We have a number of partnershipswith leading players in the oil and gas exploration and development industry through JVs and PSCs including withcompanies like ONGC, IOC, OIL, GSPCL, TPL, Mosbacher, HEPI and Heramec. We have developed professionalrelationships with most of our partners. We believe our partners recognise the value we bring to a project and this isdemonstrated by the willingness of our partners to collaborate with us in multiple oil and gas blocks. This enables us toinvest in and gain access to oil and gas blocks which otherwise we may not be able to do on our own. It also enablesus to keep abreast with the latest technology being used by these leading players in our industry.

Some of our oil and gas blocks are in the process of being explored and exploited commercially. Two of our blocks,CY-OSN-97/1 and AAP-ON-94/1 are in the exploration phase, in addition to exploration upsides in existing producingproperties, which could potentially provide new reserves and replenish production. Additionally, based on our initialexploration effort we are investing in developing the PY-1 field and expect it to start commercial production operations byMarch 2009.

We have a low fixed cost structure. Our model of operation is based on low fixed costs. We operate on a modelwherein we concentrate on core disciplines and outsource the other services including providing of drilling units andassociated drilling services, construction engineering, fabrication and installation of production facilities, based on ourrequirements. This enables us to be competitive with respect to our fixed costs. For example, as on date we haveemployed only 41 employees.

Our Strategy

The key elements of our Company's strategy are as follows:

To increase our production by development of discoveries in existing assets / licences. We intend to focus onoptimising our production by the development of discoveries in existing licenses. For instance, we are engaged in thedevelopment of PY-1 gas field by progressing design and construction of onshore gas processing terminal and awardingcontracts for offshore facilities. Further, we are pursuing appraisal and development of the discoveries in block CB-ON-7for production. Additionally, we propose to facilitate development initiative of discovery in Block CB-OS-1 and the nextphase of development drilling in PY-3 field.

To increase our reserve base by exploring and establishing upside potential in our existing licenses. We intend tofocus on increasing our reserve base by establishing upside potential in our existing assets. We expect to drill explorationwells in AAP-ON-94/1 in the immediate term.

To constrain our exposure to exploration risks within prudent limits. Exploration risks are inherent in our business.However, we intend to have exposure to exploration risks within limits commensurate to our size and resources.

To seek new domestic and international investment opportunities. We currently have presence in three basins inIndia, namely, Cauvery, Cambay and Assam and have gained significant experience in theselocations. These threebasins have been classified by the DGH on the basis of prospectivity as Category 1 basins, which signifies establishedcommercial production from these basins. We believe India has significant exploration potential, and we intend to seek

36


new investment oppurtunities through organic growth, acquisition oppurtunities and our participation in future NELProunds, including NELP VII, expected to be announced in the end of 2007. We intend to leverage our position as a lowcost operator and explore hydrocarbon basins domestically and internationally. We expect that participation in suchopportunites, if successful, may enable us to gain access to additional reserves in the event of a success.

Monetise assets with a view to value realisation or risk sharing. We prefer to have high participating interest withoperatorship position in E&P ventures. We evaluate risks across the assets and may consider monetisation with a viewto risk sharing or enhanced value realisation for asset.

Crude Oil and Natural Gas Reserves

As on March 31, 2007, our management estimates of the proved and probable crude oil and natural gas reserves ("2P")on a working interest basis (i.e., our Company's share of production calculated by reference to the participating interestunder the respective PSCs) to be approximately 50.50 MMBOE.

These estimates are based on internal assessments by our Company and the actual results may vary from the estimates.An evaluation of proved oil and natural gas reserves naturally involves multiple uncertainties. The accuracy of anyreserves evaluation depends on the quality of available information and engineering and geological interpretation. Basedon the results of drilling, testing and production after the review date, reserves may be significantly restated upwards ordownwards. Changes in the price of crude oil, natural gas or gas-condensate may also affect our proved reservesestimates because the reserves are evaluated based on prices and costs as of a specified date.

For further information regarding our reserves, see the section titled "Risk Factors" beginning on page VIII of this Letter ofOffer.

Our Business Process

Our business process is aimed at effectively addressing the following key aspects:

a) assessment of exploration risk;

b) evaluation of reward potential; and

c) risk mitigation through partnerships.

In India, generally, the GoI invites bids for exploration in an area, which may be onshore or offshore. Oil and gasexploration and development companies such as ours evaluate the possibility of a hydrocarbon reserve based on theseismic and geological data available for a particular area. The techno commercial bid submitted includes inter alia, theminimum work programme commitment and fiscal terms covering percentage cost recovery as well as sharing of profitpetroleum with the GoI. In the event, the proposal is accepted by the GoI, the GoI awards the PSC to the bidder whosebid has been accepted.

By virtue of being operated through unincorporated joint ventures, this industry provides opportunities to farm in and farmout the participating interest at any stage of the block.

Regulations and policies for exploration, development and production of oil and gas in India.

Petroleum Exploration Licenses("PELs") are required to explore for hydrocarbons onshore in India or in its offshoreexclusive economic zone. We engage in the exploration for crude oil and natural gas under PELs granted by the MoPNGfor offshore areas, and for onshore areas by the relevant state government with the prior approval of the GoI. PELs aregenerally granted on a block-by-block basis for an initial period of four years, extendable for a one-year period or twosuccessive one-year periods depending on the type of license.

NELP

The GoI began taking steps to encourage private sector investment in the oil and gas sector in the 1970s and continuedthese efforts intermittently through the 1980s. Beginning in 1991, the GoI intensified its promotion of private sectorinvolvement, which resulted in, among other things, the initiation in 1994 of production-sharing arrangements among theGoI and various domestic and foreign partners in the oil and gas field. Between 1991 and 1995 the GoI offered fiverounds of exploration licences and offered to operate several small to medium size producing fields.

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In order to further induce domestic and foreign investment in India's oil and gas sector, the MoPNG significantly overhauledthe procedures for allocating exploration licences as well as the terms and conditions offered to prospective licences. Thisnew programme, referred to as the NELP, was announced in 1997. It provided for competitive bidding, more attractive taxbenefits, abolition of certain tariffs and duties, and other improvements on previous licensing terms. The announcement ofNELP coincided with the announcement of a phased deregulation of crude oil and natural gas prices. Under NELP, theGoI has held six rounds of competitive bidding for oil and gas exploration licences. See the section titled "RegulatoryEnvironment of Exploration & Production in the Oil & Gas Industry" beginning on page 53 of this Letter of Offer for afurther description of the regime under the NELP.

Operating Mechanism

Our operating mechanism is in accordance with the PSCs and JOAs executed by us. While there are variations in eachof such agreements executed for various oil and gas fields, the following discussion summarises the general nature ofthe rights and obligations under these agreements.

Production Sharing Contracts

We enter into PSCs with the GoI and our other partners in connection with each oil and gas block awarded. Currently,we are a party to eight PSCs.

Exploration Period: During the exploration period, exploratory and appraisal work on the exploration block is conductedin order to discover hydrocarbons and to enable the parties to determine the commercial viability of any hydrocarbondiscovery. The parties to the PSC, working together, have an obligation to complete a minimum work programme duringthe exploration period. As on the date of this Letter of Offer, the status of our exploration assets with respect to thephases of exploration period under the PSCs is summarised below:

Block Current Exploration Phase*

CY-OSN-97/1 Phase III

AAP-ON-94/1 Phase III

* Under the PSCs the total exploration period is seven years which is divided into three phases.

At the end of each exploration phase, if the contractors (i.e., the parties to the PSC other than the GoI) have completedthe minimum work programme for that phase, they can either proceed to the next exploration phase or relinquish theentire contract area, other than any discovery and / or development areas. The contractors are required to bear allexploration costs during the exploration period, but these costs can be recovered out of cost petroleum only aftercommercial discoveries are made and production begins. If no commercial discovery has been made in the contract areaby the end of the exploration period the PSC terminates.

Management Committee: For the purposes of proper performance of petroleum operations, a Management Committee isestablished under each PSC consisting of representatives of each of the parties to the PSC (including the GoI). TheManagement Committee has various functions including setting and modification of the annual work programme andbudget for production and development operations, declaration of a commercial discovery, approval of developmentplans, etc.

Development Plan: Upon declaration of a commercial discovery, the JV is required to submit to the Management Committee,a development plan outlining inter alia the recoverable reserves and the schedule for the development and production ofthe discovered hydrocarbon reserves which is approved by the Management Committee. On the submission of adevelopment plan pertaining to a commercial discovery and after receipt of regulatory approval, the contractors apply tothe Government for a ML in respect of the proposed development area. Once the designs, construction, installation,drilling and related research work for the realisation of hydrocarbon production have been completed, the developmentperiod comes to an end.

Production Bonus: With regard to some of our PSCs, namely, the PSCs entered in relation to block CY-OS-90/1, Asjol andNorth Balol, the contractor is required to pay to the GoI a production bonus, which is generally linked to the achievementof a milestone in production.

Operator: Under each PSC, one of the contractors is designated the 'operator' and is designated to execute the PSC,including preparing work programmes and budgets, procuring equipment and material relating to operations, establishing

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insurance programmes, issuing notices to parties to the PSC to raise funds, and additional activities relevant to thedevelopment and production of crude oil and natural gas on behalf of the contractor. Provided however, as per each ofthe non NELP PSCs (other than the PSCs entered in relation to North Balol, Asjol and PY-1 blocks), after 10 years haveelapsed since the date commencement of commercial production from any development area, the GoI nominee has theoption of becoming the operator of any such development area in which it is participating at that time. Such provisiondoes not exist for the PSCs entered in relation to North Balol, Asjol and PY-1 blocks.

Cost Petroleum: Contractors can recover contract costs (including exploration costs, development costs and productioncosts) based upon a percentage of the total value of the petroleum produced in one year (the "Cost Petroleum").Contractors recover their costs in the following order: first, recovery of production costs; second, recovery of explorationcosts; and finally, recovery of development costs. Any unrecovered contract costs is carried forward and recovered insubsequent years.

Profit Petroleum: Profit petroleum is petroleum generated after all the contract costs have been recovered in a given yearand is shared between the Government and other constituents of the PSC based on an investment multiple achieved bythe contractors on an annual basis. The investment multiple is the ratio of contractors' accumulated net cash income tothe accumulated investment. As the investment multiple increases, the Government's share of the profit petroleum typicallyincreases, however the profit petroleum entitlement to the contractor is divided among the various contracting parties inproportion to their respective participating interests under the PSC.

The overview of the fiscal terms under a typical NELP PSC for a given fiscal year is summarized below through thefollowing equations:

Gross Revenues = Total Oil and Gas Revenues

Cost Petroleum = Exploration Costs + Development Costs + Production Costs + Unrecovered Costs Carried Forward, ifany

Cost Recovery = up to 100% of Cost Petroleum (Note 1)

Profit Petroleum = Gross Revenues - Cost Recovery

Contractor Profit Petroleum = Profit Petroleum x Contractor % share (determined based on Investment Multiple (Note 1))

Government Profit Petroleum = Profit Petroleum - Contractor Profit Petroleum

Contractors' Net Cash Income = Cost Petroleum + Contractors' Profit Petroleum - Production Costs - Notional Income Tax

Investment = Exploration Costs + Development Costs

Investment Multiple (IM) = Contractors' Accumulated Net Cash Income / Accumulated Investment

Annual Net Cash Flow (pre-tax) = Gross Revenue - Government Profit Petroleum - Cess (Note 2) - Royalty (Note 2) - ProductionCosts

Note 1: Biddable term and thus may vary for each PSC.

Note 2: In certain pre-NELP PSCs, Cess and Royalty are borne 100% by the Licensee (Government Company).

Each party comprising the contractor shall have the right to separately take and dispose of its share of the cost petroleumand profit petroleum under the PSC. The terms of commodity sale and off take arrangement are agreed amongst thecontracting parties in the COSA / GSA as the case may be.

Pricing of oil and natural gas: Until India's overall domestic production of crude oil and condensate satisfies its nationaldemand for such products, contractors under the PSCs are required to sell all their crude oil and condensate to the GoIat a price benchmarked to international crude prices, in accordance with the terms of the relevant PSC.

With respect to natural gas, however, the Indian domestic market (and not the GoI) has the first right of utilisation.Accordingly, the contractor is free to market the natural gas to any buyer in the Indian domestic market.

JOAs

In accordance with the requirements of each of our PSCs, we also enter into JOAs with our partners for regulating ouractivities in relation to the operations to be undertaken in each block.

Each JOA lists out the participating interest of the parties. The parties bear all costs of joint operations in proportion oftheir respective participating interest. Under each JOA, one of the parties thereto is designated the operator and is given

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the task to exercise control and exclusively manage and undertake the "joint operations" including exploration, development,exploitation and related activities with respect to the PSC, representing the parties before the government, procuringrelevant insurances, carrying out operations within limit of approved work programmes and budget. An operating committeeis set up under each JOA to perform supervisory functions, and act as the coordinating body for the direction, control andadministration of the joint operations. Typically, the operating committee consists of one representative of each of theparties, with the operator's representative being the chairman of the committee. The operating committee considers andapproves all work programmes and budgets and establishes policies from time to time governing various aspects oractivities of joint operations.

As per our JOAs, each party therein directly owns, receives in kind and separately disposes its participating interestshare of contractor's entitlement of petroleum. Some of our JOAs, such as the JOA for the PY-1 and CY-OSN-97/1 blocks,however, provide for a joint sale by the contractors of their collective entitlement of petroleum and the operator negotiatesand enters into joint sale contract on behalf of all the contractor parties.

Crude Oil and Natural Gas Production

The following tables set forth our annual crude oil production and natural gas production for the three years ended March31, 2005, 2006 and 2007.

Year ended March 31,

2005 2006 2007

Crude oil production (in barrel) Excludes loss/ internal consumption 489,503 458,539 494,622

Natural gas production (in scm)

Excludes loss/ internal consumption - 287,930 1,548,788

Principal Producing and Exploration Areas

The location of our principal crude oil and natural gas producing and exploration basins and assets is demonstrated inthe map below:

Cambay Basin

Cauvery Basin

Assam Basin

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Cauvery Basin

The Cauvery Basin extends along the coast of the south eastern Indian state of Tamil Nadu roughly from Chennai(Madras) to the east of Cape Camorin at the southern tip of the Indian sub-continent. Covering approximately 55,000 sq.kms. in total, 25,000 sq. kms. of the basin are located onshore while the remaining 30,000 sq. kms. reach into theshallow southern waters of the Bay of Bengal between India and Sri Lanka.

We currently have three assets in the Cauvery basin, namely:

� CY-OS-90/1 (PY-3) in which we have 21.00% participating interest and where HEPI is the operator;

� PY-1, in which we are the operator and have 100.00% participating interest; and

� CY-OSN-97/1, in which we are the operator and have participating interest of 80.00%.

The details of each of these assets is as follows:

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

PY-3 was discovered by ONGC in 1988. This field was offered by the Government under the 4th Exploration Round in1991 for private participation. The PSC was executed on December 30, 1994 and the PY-3 consortium developed thefield and commenced commercial production in July 1997.

PY-3 is located off the east coast of India at a distance of approximately 80 kms. from Pondicherry in water depths of 40meters to less than 400 meters. The block area is approximately 81 sq. kms. The field was developed using floatingproduction facilities and sub-sea well heads, one of the first for an offshore field in India. The crude produced fromPY-3 is of high quality having 49-50oF (American Petroleum Institute).

Oil production from PY-3 in Fiscal 2007 averaged 5,592 BOPD (1,174 BOPD being our share). The total production of oilfrom PY-3 in Fiscal 2007, 2006 and 2005 was 2,040,917, 2,069,822 and 2,288,334 barrels, respectively.

PY-3 came on stream at the end of November 1997 with four sub sea wells, namely PY-3-2, PY-3-3, PD-3 and PD-4. Thefacility at PY-3 consists of the floating production unit, "Tahara" and a 65,000 deadweight tanker, "Endeavor", which actsas a floating storage and off loading unit. "Tahara" has three stage crude oil separation system with the first two stagesbeing three phase separators and the third stage, a two phase separator. The liquid processing capacity of Tahara is20,000 BOPD.

The associated gas produced is partially used as fuel gas and the excess gas is presently being flared in the absenceof any evacuation infrastructure. Stabilised crude oil is pumped from "Tahara" to "Endeavor" for storage and off loading toshuttle tankers. The offshore production facilities i.e. floating production unit "Tahara" and floating storage vessel "Endeavor"are on a charter hire contract, current term of which expires in July 2009. Crude oil from this field is sold to CPCL.

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The price is determined under the terms of the COSA dated September 26, 2003, which is effective for all sales sinceOctober 1, 2001, which stipulates a price linked to the price of Brent. For details of the COSA, see the section titled"History and Certain Corporate Matters" beginning on page 46 of this Letter of Offer.

PY-1:

PY-1 is located at a distance of 18 kms from the coast line of Tamil Nadu. This block extends over an area of 75 sq. kms.We hold 100% participating interest along with operatorship rights in PY-1.

The first horizontal development well, namely 'Earth', drilled in the PY-1 fractured granatic basement reservoir testedsuccessfully in the first quarter of 2007. The production test result of Earth Well is summarized below:

Choke Setting Gas Flow Rate Condensate Water(inches) (MMSCFD) (BOPD) (BOPD)

72/64" 47.7 213.4 47.0

64/64" 39.0 170.8 40.1

48/64" 26.5 166.1 31.7

The test results confirm initial reservoir productivity sufficient to meet contractual commitments and merit drilling producerwells of similar profile.

Our Company has executed a Natural Gas Sale and Purchase Agreement with PPN, an existing independent powerplant located in Tamil Nadu, for sale and purchase of first tranche of gas up to 51,000 MMBTU per day on a take-or-paybasis.

Our Company is proceeding with the full field development which will inter-alia involve the construction of an offshoreproduction cum wellhead platform 'Sun', a 56 kms. sub-sea pipeline, an onshore gas processing terminal and drilling ofadditional producer wells.

CY-OSN-97/1:

Two exploration wells, Vinayaka-1 and Shubhan-1 drilled in this block during the Fiscal 2007 were dry and were pluggedand abandoned.

Our Company is re-evaluating the prospectivity and risks associated with the remaining leads in this exploration acreageand would determine the forward plan based on this assessment. In relation to the above field, an interim injunction hasbeen issued against our Company, restraining our Company from invoking the provisions of the JOA to the detriment ofDIOG. For further information, see the section titled "Outstanding Litigations and Material Developments" beginning onpage 138 of this Letter of Offer.

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Cambay Basin

The Cambay basin is a narrow, elongated rift graben, extending from Surat in the south to Sanchor in the north. Thebasin has more than 50 years of active hydrocarbon exploration history. The total area of the basin is about 53,500 sq.kms. including 6,880 sq. kms. in the shallow waters (Gulf of Cambay). The basin is flanked by the Saurashtra-Kutch uplifton the west and rock exposures of the Aravalli-Delhi system and Deccan Plateau basalt on the east. In the north, thebasin narrows, but tectonically continues beyond Sanchor to pass into the Barmer Basin of Rajasthan. On the southernside, the basin merges with the Bombay Offshore Basin in the Arabian Sea.

We have four assets in the Cambay basin. These are as follows:

� CB-ON-7 (Palej) in which we have 50% participating interest in the exploration phase and 35% interest in thedevelopment and production phase;

� Asjol in which we have 50% participating interest;

� North Balol in which we have 25% participating interest; and

� CB-OS-1 in which we have 57.11% participating interest in exploration / appraisal phase. In the event of a commercialdiscovery, ONGC has the right to back-in for additional 30% participating interest thereby reducing our workinginterest during development and production phase to 31.58%.

The details of each of these assets is as follows:

CB-ON-7 (Palej):

This block located is in south Gujarat, about 60 kms. south of Vadodara. We are the operator in this block and hold 50%participating interest in the exploration phase and 35% of the participating interest in the development and productionphase.

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As a result of Phase I exploration activities, we have made a commercial discovery in this Block named as "Pramoda" oilfield. The production for Fiscal 2007 from the field was approximately 451 BOPD.

After completing the Phase II programme, we were engaged in additional exploration initiatives to evaluate prospectivityof the balance CB-ON-7 area alongwith the JV partners. We drilled two exploration wells as part of the Phase IIIprogramme during Fiscal 2007, and the commercial discovery report has been submitted to the DGH.

As the JV partners have fulfilled their minimum commitment work programme, they have requested the Government forretention of the block area for further exploration intiatives.

Asjol:

The Asjol Block is located about 25 kms. South-West of Mehsana town in the state of Gujarat. The field is located in theMehsana - Ahmedabad tectonic block of Cambay Basin.

Asjol field produced 16,790 barrels of oil during Fiscal 2007 at an average daily production of 46 BOPD.

North Balol:

North Balol Block is located 16 kms. west of Mehsana town. Tectonically North Balol Block is located on the crestal partof Mehsana Horst feature in North Cambay basin.

The North Balol field produced 5,554,975 SCM during the year with an average production rate of 15,219 SCMD. Theaverage production of gas from the field during August 2007 was approximately 21,871 SCMD. During Fiscal 2007, ourCompany, as operator, has drilled one producer well NB-9, which is expected to be tested, completed and hooked up forproduction in Fiscal 2008.

CB-OS-1:

We have a participating interest of 57.11% in this field. ONGC, as the operator, has declared the commerciality of Gulf "A"Discovery, which has been approved by all the partners of the JV. The operator has drilled North Harinagar well to atarget depth of 3,288 meters. While the drill stem testing (DST) showed presence of oil, the well could not be activated.

The Gulf "A" Field Development Plan, which envisages drilling from a land based platform, is under preparation. Theoperator is also initiating processes for securing environmental approvals for the same.

Upper Assam and Assam-Arakan Basin

During the year, HOEC received Government approval for operatorship and revised participating interest of 40.32%. Allthe JV partners (HOEC, IOC and OIL) exercised the option to enter Exploration Phase III. Our Company, as the operator,has secured environmental approvals and is preparing to drill two exploration wells in October 2007. The future programmein this block will be dependent on the results of the aforesaid exploration campaign.

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Employees

As on March 31, 2005, 2006, 2007 and September 30, 2007, the number of employees in our Company was 66, 57, 41and 40 respectively.

There have been no employee unrests in our Company that has had material adverse effect on the operations andbusiness of our Company. We believe we enjoy good relations with our employees. There has not been any materialclaim of unfair labour practices, with respect to the emloyees / workers at any of our facilities till date.

Details of incentive schemes

We have a long term incentive plan for our employees which was introduced in 2006. The plan outlines the amountavailable for payment as bonus in a specific year. The bonus for individuals working in senior positions is to be decidedby the Compensation and Remuneration Committee and for other employees the Managing Director has been vestedwith the responsibility of determining the bonus. For details, see the section titled "Financial Statements" beginning onpage 70 of this Letter of Offer.

Details of employee welfare schemes

Our Company has initiated an Employee Stock Option Scheme. No Equity Shares have been granted as of date. Fordetails see the section titled "Capital Structure" beginning on page 12 of this Letter of Offer.

Insurance

We maintain a comprehensive energy insurance package policy for our assets during the exploration phase and thedevelopment and production phase. Our liability and coverage under these energy insurance package policies is to theextent of our participating interest in the particular block of oil and gas.

The details of the energy insurance package policies are as follows:

Name of Asset under Name of Insurer Risks insured Period of insurancecoverage

CB - ON-7 (Palej) The Oriental Insurance Physical damage, control April 1, 2007 to March 31, 2008.Company Limited of well, third party liability,

terrorism and businessinterruption

North Balol The Oriental Insurance Physical damage, April 1, 2007 to March 31, 2008.Company Limited control of well, third party

liability and terrorism

Asjol The Oriental Insurance Physical damage and April 1, 2007 to March 31, 2008.Company Limited third party liability

PY-3 The Oriental Insurance Physical damage, September 17, 2007 toCompany Limited control of well, third party September 16, 2008

liability and seepage andpollution

PY-1 The Oriental Insurance Marine transit, burglary, September 17, 2007 toCompany Limited standard fire and special September 16, 2008

perils

CY-OSN-97/1 The Oriental Insurance Marine transit, burglary, September 17, 2007 toCompany Limited standard fire and special September 16, 2008

perils

We also have two corporate cover policies from ICICI Lombard General Insuance which is valid till October 28, 2008 andOctober 18, 2008, respectively. The policies covers liability on account of standard fire and peril, burgulary, cash in safe,terrorism and laptops and other office appliances

We believe that our insurance coverage is sufficient to cover all normal risks associated with our operations and is inaccordance with the industry standards.

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Health, Safety and Environment

Our Company is committed to avoid injury and to preserve the health and safety of our employees and any other personswho at any point of time may be affected by our activities and to conduct our operations in a manner that providesoptimum protection to the environment in which these operations are conducted. The salient terms of the Health Safetyand Environment Policy of our Company ("HSE Policy") are set out below:

� The HSE Policy is an essential part of the individual objectives of each employee.

� The HSE Policy is communicated to all employees, suppliers and to all others that our Company may be associatedwith.

� The HSE Policy is that working safely and protecting the environment is a condition of employment. No employeewill start, or knowingly be a part of, any unsafe act or violation of the HSE Policy.

� Each employee has the responsibility to ensure compliance with the HSE Policy and procedures therein. Eachindividual will conduct himself in a manner so as to protect himself, others who may be affected by his actions andthe environment.

� The client, contractors, sub-contractors, suppliers and any third party personnel working with our Company arerequired to conduct themselves in a manner which is in compliance with the HSE Policy, as well as the policies oftheir respective companies and the laws and regulations of the countries where the tasks are being conducted.

� Our Company will support employees to care for their own health however the ultimate responsibility for personalhealth lies with each employee.

� Managing Director carries the ultimate responsibility for Health, Safety and Environment and expects each andevery employee to be as equally committed to achieving this objective.

Our Immoveable Property

A summary of our principal properties in India is given below.

Sr. No. Location Ownership and other details Purpose

1. HOEC House, � Sale Deed dated October 12, 1998 � Registered OfficeRevenue Survey 127/4, � Commercial building consisting ofWard F, Block No. 19, basement, ground floor, first floorTandalja Road, and second floor.Village Akota, Vadodara.

2. Anand House, � Agreement of Sale dated October 21, � VacantPlot No. E/359, 199413th Road, Khar � Ground floor and basement(Village Danda), Mumbai

3. Lakshmi Chambers � Lease deed dated January 1, 2005 � Corporate / Project officeNo: 192, St. Mary's Road, � Stilt and four floors.Alwarpet, Chennai � Lease is valid for a period of 33

months, effective October 6, 2007.

4. Land at No.33, � Freehold Land admeasuring about � Proposed to be leased to PY-1Pillai Perumal 42 acres. consortium on long term basis forNallur Village, its gas processing plantTharangampady Taluk,Nagapattinam District

5. Land at No.33, Pillai � Freehold Land admeasuring about � Proposed to be used for buildingPerumal Nallur Village, 168 acres. hydrocarbon transmissionTharangampady Taluk, infrastructureNagapattinam District

In addition, we also hold lease of certain other properties, such as land temporarily acquired for drill site or operationalpurposes, buildings for residential purpose, buildings that are part of plants and installations and temporary structures.

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HISTORY AND CERTAIN CORPORATE MATTERS

Incorporation

Our Company (Original Registration No. 30926 of 1983) was incorporated on September 22, 1983 as Hindustan OilExploration Company Limited under the provisions of the Companies Act, 1956 with its registered office at 169, BackbayReclamation, Mumbai 400 020, India. We received the certificate for commencement of business from the Registrar ofCompanies, Maharashtra on February 23, 1984.

Changes in registered office

Since incorporation, the registered office of our Company has changed to the present address at 'HOEC House', TandaljaRoad, Vadodara - 390 020, Gujarat, India. Except as stated below, there has been no change in our registered office.

Date of change Change in address of the registered office

November 1, 1983 906, Raheja Chambers, 213, Nariman Point, Bombay - 400 021, India.

December 1, 1986 Ramon House, 169, Backbay Reclamation, Bombay - 400 020, India

October 17, 1991 143, Mittal Court, 'A' Wing, 14th Floor, Nariman Point, Bombay - 400 021, India

December 1, 1994 Anand House, 13th Road, Off Linking Road, Khar (West), Bombay - 400 052, India

June 11, 1996* 'HOEC House', Tandalja Road, Vadodara - 390 020, Gujarat, India

*Pursuant to a special resolution passed at a general meeting of shareholders on September 5, 1995 and the order of the CompanyLaw Board, Western Region, Bombay dated April 8, 1996 (Company petition number 129/17/clb/wr/96) and the subsequent issuance ofthe certificate under Section 18 (3) of the Companies Act by the RoC the registered office of our Company was shifted to the stateof Gujarat.

Changes in the main objects

There has been no change in the main objects of our Company since its incorporation.

Major Events

Year Event

1983 Incorporation of our Company.

1990 Equity Shares allotted pursuant to a public issue.

1992 Rights issue of Equity Shares at a premium of Rs. 10 each.

1997 Preferential allotment of 13,500,000 Equity Shares to Hardy Oil and Gas (Nederland) B.V., HousingDevelopment Finance Corporation Limited and Infrastructure Leasing and Finance Services Limitedat a premium of Rs. 15 per Equity Share.

1998 Preferential allotment of 15,281,633 Equity Shares to Burren Shakti Limited (then Unocal BharatLimited) at a premium of Rs. 42.50 per Equity Share.

2006 Rights issue of Equity Shares at a premium of Rs. 66 per Equity Share.

Listing and delisting of our Equity Shares from certain Stock Exchanges

The Equity Shares of our Company are presently listed and traded only on the BSE and the NSE. The Equity Shares ofour Company were previously listed on the Stock Exchange Ahmedabad, Bangalore Stock Exchange Limited, MadrasStock Exchange Limited, Delhi Stock Exchange Association Limited and the Calcutta Stock Exchange Association Limited*but these have now been voluntarily delisted from the said exchanges in accordance with the provisions of the SEBI(Delisting of Securities) Guidelines, 2003. The table set out below provides further details in relation to delisting of ourEquity Shares.

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Date of delisting Name of Stock Exchange

January 28, 2005 The Stock Exchange Ahmedabad

February 16, 2005 Madras Stock Exchange Limited

January 10, 2005 Bangalore Stock Exchange Limited

March 1, 2005 The Delhi Stock Exchange Association

April 25, 2005 The Calcutta Stock Exchange Association Limited*

*The Calcutta Stock Exchange Association Limited has in the interest of general investors of securities stated in its letter dated June 28, 2005 that the"Equity Shares of the Company will henceforth be traded under the 'permitted category', on the exchange".

Open offer by Burren Energy India Limited in relation to our Equity Shares

Burren Energy India Limited, a subsidiary of Burren Energy Plc, UK, acquired the entire share capital of Burren ShaktiLimited, a company registered in Bermuda which then held 26.01% of the paid up share capital of our Company, from itsparent company Unocal International Corporation pursuant to a share purchase agreement dated February 14, 2005.

As a result of the said acquisition, under the provisions of the Takeover Code, Burren Energy India Limited was requiredto make an open offer to our shareholders to acquire 11,748,990 Equity Shares representing 20% of the paid up sharecapital of our Company. A public announcement in relation to the open offer was made on February 15, 2005 and theoffer was kept open from August 16, 2005 to September 5, 2005. Pursuant thereto Burren Energy India Limited acquired5,745 Equity Shares which has resulted in Burren Energy India Limited holding directly and / or indirectly acquiring26.02% of the then paid up share capital of our Company.

Burren Shakti Limited has through its letter addressed to the Board of Directors informed our Company that subsequentto the closure of the open offer, Burren Energy India Limited along with Burren Shakti Limited assumed the status ofpromoter(s) of our Company in terms of the Takeover Code.

As on the date of filing this Letter of Offer, our Promoters hold 21,272,208 Equity Shares representing 27.16% of ourpre-Issue paid up equity. As on the date of filing this Letter of Offer, out of the six Directors on our Board, two Directorsare nominated by the Promoters.

Objects of our Company

Our main objects as contained in our Memorandum of Association are:

� to engage in exploration of oil and gas, onshore and offshore, in India and elsewhere and to tap oil and gasreserves and other similar or allied substances, wherever found, particularly in India's vast sedimentary basins; and

� to organise production, processing and marketing of oil, gas and other similar or allied substances in India andelsewhere.

The objects clause of our Memorandum of Association enables our Company to undertake our existing activities and theactivities for which the funds are being raised through this Issue.

Changes in our Memorandum of Association

Except as stated below, there has been no change in our Memorandum of Association.

Date of shareholder approval Changes

March 13, 1985 The authorised capital of our Company was increased from Rs. 10 million toRs. 100 million.

August 1, 1989 The authorised capital of our Company was increased from Rs. 100 million toRs. 250 million.

July 15, 1992 The authorised capital of our Company was increased from Rs. 250 million toRs. 1,000 million.

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Date of shareholder approval Changes

September 5, 1995 The objects clause was altered to include sub-clauses (25), (26), (27) and (28)in Part C of Clause III. The new clauses are set out below:

(25) To produce, generate, accumulate, distribute, transmit and supply electricityand electromotive force, whether by our Company itself or in collaboration/ association with other person, for process of light, heat, motive andother power and for all other purposes for which electric energy can beemployed and to manufacture, put up, use and deal in all relatedmachinery apparatus, equipment and things required for or capable ofbeing used in connection with the production, generation, accumulation,distribution, supply and employment of electricity including the setting upof necessary exchanges and power station with conventional and / ornon conventional energy sources.

(26) To carry on in all their respective disciplines all or any of the business ofproducing, cracking, treating (including refining crude oil) storing,transporting marketing and generally dealing in or with any petroleumproducts, other crude oil, liquefied petroleum gas, liquefied natural gasand compressed natural gas.

(27) To purchase, take on lease or otherwise acquire any mining rights, minesand lands in India and elsewhere believed to contain metallic ores orminerals or chemical substances including coal, lignite or other substanceswhich may seem useful or suitable for any of our Company's objects andany interest therein and to explore, work, exercise, develop and turn toaccount the same as also their value added products.

(28) To establish and maintain a computer centre for the purpose of renderingservices in the field of seismic and reservoir data processing andinterpretation and in other technical application areas of oil explorationand production industry.

September 5, 1995 The registered office of our Company was changed from Maharasthra to itspresent registered office located at HOEC House, Tandalja Road, Vadodara -390 020, Gujarat, India.

September 23, 2003 The authorised capital of our Company was increased from Rs. 1,000 millionto Rs. 2,000 million.

Subsidiary

Our Company has one subsidiary i.e., HOEC Bardahl India Limited ("HOEC Bardahl").

HOEC Bardahl was incorporated on November 24, 1988 as Hindage Oil Field Services Private Limited under theCompanies Act, 1956. On March 30, 1992 HOEC Bardahl became a deemed public company by virtue of Section 43A(1)of the Companies Act, 1956 pursuant to which its name was changed to Hindage Oilfield Services Limited. Subsequently,on January 18, 1996, the name was changed to its present name pursuant to a special resolution passed by theshareholders of our Company at a general meeting held on December 4, 1995 and the approval of the RoC datedJanuary 18, 1996. The articles of association of HOEC Bardahl were substituted by the present articles of associationthrough a special resolution passed by the shareholders at an extraordinary general meeting held on April 1, 1996. Theregistered office of HOEC Bardahl is located at HOEC House, Tandalja Road, Vadodara - 390 020, Gujarat, India.

HOEC Bardahl at present is engaged in trading of automotive additives, lubricants, speciality oils and chemicals.

Board of Directors

The board of directors of HOEC Bardahl currently comprises Mr. Manish Maheshwari (Chairman), Mr. Sagar Mehta,Mr. Vikash Jain, Mr. Sandeep Khamesra and Mr. Minesh Bhatt.

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Shareholding

The shareholding pattern of HOEC Bardahl as on October 31, 2007 is as follows:

Name of shareholder Number of shares % of issued capital

Hindustan Oil Exploration Company Limited 49,996 99.99

Six nominees of Hindustan Oil Exploration Company 6 0.01Limited along with Hindustan Oil Exploration CompanyLimited as the first holder

Total 50,002 100.00

The equity shares of HOEC Bardahl are not listed on any stock exchange.

Financial performance

The financial results of HOEC Bardahl for the Fiscal 2005, 2006, 2007 and quarter ended June 2007 are set forth below:

(Rs. in million, unless otherwise stated)

Fiscal 2005 Fiscal 2006 Fiscal 2007 Quarter endedJune 2007

Total Income 42.73 63.70 112.27 33.49

Profit / (Loss) after tax 6.85 12.24 19.95 7.00

Equity Capital of face value of Rs.100 each 5.00 5.00 5.00 5.00

Reserves and Surplus (excluding revaluation 1.35 13.49 12.04 19.04reserves)

Earnings / (Loss) per share (diluted) (Rs.) 136.92 244.13 398.92 140.06

Book Value per share of face value of Rs.100 127.08 369.86 340.87 480.93each (Rs.)

Other Material Agreements

Our Company for the purposes of implementation of the various projects primarily enters into the following types ofagreements:

PSCs

We enter into PSCs with the GoI and our other partners in connection with each oil and gas asset awarded. Presently wehave entered into the following PSCs for the following exploration and production assets:

S. No. Asset Current Parties to the Agreement Date of execution

Cauvery Basin

1. CY-OS-90/1 (PY-3) GoI; December 30, 1994ONGC;HEPI;TPL; andHOEC

2. PY-1 GoI and October 6,1995HOEC

3. CY-OSN-97/1 GoI; January 8, 2001Mosbacher; andHOEC

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S. No. Asset Current Parties to the Agreement Date of execution

Cambay Basin

4. CB-ON-7 GoI; April 12, 2000ONGC;GSPCL; andHOEC

5. Asjol GoI; February 3, 1995GSPCL andHOEC.

6. North Balol GoI; February 23, 2001GSPCL;Heramec; andHOEC

7. CB-OS-1 GoI; November 19, 1996ONGC;TPL; andHOEC

Assam Basin

8 AAP-ON-94/1 GoI; June 30, 1998OIL;IOC andHOEC

For further details regarding these agreements, see section titled "Our Business" beginning on page 34 of this Letter ofOffer.

Except as stated in this Letter of Offer in the section titled "Our Business" beginning on page 34 of this Letter of Offer,wherein details of our partners in our unicorporated JVs have been described, we do not have any other strategic partneror a JV.

COSA for PY-3 Field in Block CY-OS-90/1

HEPI for and on behalf of itself, ONGC, TPL and HOEC (collectively, the "Sellers"), has, on September 26, 2003, enteredinto a COSA for the sale and purchase of crude oil (PY-3 field in block CY-OS-90/1) with CPCL (nominated by the GoI).

The salient terms of this agreement are as follows:

� Crude oil from the PY-3 field shall be delivered and sold by the Sellers to CPCL at the specified delivery point(being the upstream face of the flange connecting the export hose from the Sellers' offshore storage tanker to theflange on board the off take vessel). CPCL shall accept delivery, purchase and pay for all such crude oil.

� Delivery shall be on a ship-to-ship transfer basis. Transfer of custody, title, risk and delivery shall take place at thedelivery point.

� Delivery in cargo sizes of 100,000 to 300,000 barrels. Number and sizes of cargo is subject to nomination.

� The price is indexed to brent crude.

� The agreement will remain in force till the PY-3 development area is abandoned.

Natural Gas Sale and Purchase Agreement - PY-1

We entered into a natural gas sale and purchase agreement dated April 28, 2007 with PPN for the sale and purchaseof gas of upto 51,000 MMBTU per day from the PY-1 gas field to PPN for the purpose of power generation.

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Pursuant to the agreement, the gas shall be sold and delivered by us and purchased and received by PPN at thecustody transfer point in accordance with the terms of the agreement. The title, control and risk in the gas shall pass fromus to PPN at the custody transfer point.

The gas will be sold for a fixed price for the period specified in the agreement and can be mutually agreed by the partiesfor the period thereafter.

We are required to intimate PPN of the daily contract quantity of gas, by reference to which PPN shall make nominationsfor delivery by us.

The agreement is valid for a period of 10 consecutive Fiscals after the end of the period ending April from the date ofcommencement of supply of gas and for such additional periods as notified by us and accepted by PPN, unlessterminated earlier in accordance with the agreement.

COSA - Asjol Field

Our Company, along with GSPCL (collectively, the "Contractor") have entered into a COSA dated August 6, 2004 withONGC and IOC, under which: (i) IOC (nominated by GoI) has agreed to purchase from the Contractor all the crude oilproduced from the Asjol field; and (ii) ONGC has agreed to offer its available facilities to the Contractor for receiving theContractor's crude oil and transporting the same, after treatment and processing, to IOC. The principal terms of theagreement are as follows:

" The Contractor has agreed to deliver the total crude oil produced from the Asjol field to ONGC. The crude oil shallthereafter be co-mingled with ONGC's related crude oil and after necessary treatment and processing (so as tomeet the quality requirements as agreed between IOC and ONGC), ONGC shall transport such crude oil, subject todeduction of processing transportation loss, to the custody transfer point (i.e. the tanks at IOC's Gujarat refinery).

" Contractor shall pay to ONGC (i) handling charges, estimated on the type of ONGC's facilities utilised by theContractor; (ii) effluent disposal charges; (iii) charges for laboratory evaluation of crude oil sample; and (iv) sediments,charges of which will be reviewed / revised every year on the basis of additional facilities created, if any, by ONGCand additional expenditure incurred by ONGC.

" IOC shall pay ONGC transportation charges for crude oil as per the rates approved by MoPNG for the pipelinetransportation of Gujarat crude to Gujarat refinery.

" The price payable by IOC to Contractor for the net dry crude oil delivered at the custody transfer point is linked toArdjuna, Bonny Light and Duri prices.

" The agreement shall come into force with effect from the date on which the PSC is signed unless terminated inaccordance with the PSC.

Gas Sale and Purchase Agreement - North Balol Gas Field

We, along with GSPCL and Heramec (collectively the "Sellers") have, on November 10, 2004, entered into a gas saleand purchase agreement with GSPCL (the "Buyer") for sale of the aggregate of each of the seller's participating interestof the gas produced from the North Balol gas field, Mehsana, Gujarat ("Sales Gas") to feed into the Buyer's pipeline atVillage Palej, Dist. Mehsana, Gujarat for further supplying to its users in nearby area.

Some of the salient aspects are summarised hereunder:

� The title, control and risk in the Sales Gas shall pass from the sellers to the buyer at the delivery point The buyershall make all proper and adequate arrangements for receiving the Sales Gas at the buyer's facility at its own riskand expense.

� Sellers' representative: Our Company, in its capacity as operator of the field, shall act as the sellers' representative.In the event of a change in operatorship of the field, the new operator shall act as the Sellers' representative for thepurposes of this agreement.

� For each year there shall be a daily contract quantity (DCQ) with reference to which the buyer shall make nominationsfor delivery by the Sellers. The DCQ in the primary term shall be 30,000 SCMD. Buyer shall pay for gas taken (ifgas taken is equal to or more than the DCQ. However, if the gas taken is less than the DCQ, then the Buyer shall

52


pay for both (i) gas taken; and (ii) gas not taken. On a reciprocal basis, if the Seller fails to deliver nominatedquantities of gas for reasons other than (a) force majeure, (b) planned maintenance; and (c) buyer's failure toaccept gas, then such makeup quantity shall be made available to the Buyer at a discount price in subsequentperiod.

� This primary term of the agreement is five years from commencement date and thereafter for successive secondaryterms of two years, unless terminated by either party.

On December 14, 2005, the parties have inter alia amended the DCQ, whereby parties have agreed to increase the DCQin a phased manner from a level of 5,000 SCMD to 30,000 SCMD from the date of the agreement till April 2, 2006.Subsequently on November 30, 2006, the parties have entered into an agreement for the sale and purchase of additionalgas whereby the Sellers have agreed to supply additional volumes of gas beyond 30,000 SCMD upto 45,000 SCMD.

On December 14, 2005, the Sellers have entered into gas marketing agreement with the Buyer, whereby the Buyer hasbeen inter alia granted marketing rights for gas produced from North Balol field on the payment of a specified marketingfee of Rs. 0.787 per SCM for DCQ. The marketing right under the agreement is co-terminus with the duration of the gassales and purchase agreement. Subsequently, on December 1, 2006, the parties entered into another agreement,increasing the marketing fee to Rs. 1.537 per SCM for gas sale volume greater than 18,000 SCMD and upto 30,000SCMD.

Gas Sale and Purchase Agreement-CB-ON-7

We, along with GSPCL and ONGC (collectively the "Sellers") have, on January 23, 2007, entered into a gas sale andpurchase agreement with Bell Ceramics Limited (the "Buyer") for sale of the aggregate of each of the seller's participatinginterest, net of internal consumption and any take in kind by the GoI from the Pramoda oilfield of CB-ON-7 ("Sales Gas").The principal terms of the agreement are as follows.

� The title, control and risk in the Sales Gas shall pass from the Sellers to the Buyer at the delivery point. The Buyershall make all proper and adequate arrangements for receiving the Sales Gas at the Buyer's facility at its own riskand expense.

� Our Company, in its capacity as operator of the field, shall act as Seller's representative. In the event of a changein the operatorship of the field, the new operator shall act as Seller's representative.

� Upto December 31, 2008, the Buyer shall pay to the Sellers the price of Rupees equivalent of US$ 0.14/SCM atdelivery point. The price of gas post December 31, 2006 shall be mutually agreed by the parties.

� The term of the agreement is three years from the commencement date (one week from the execution of thecontract), and for such additional period as notified by the Seller, unless terminated by either party.

Subsequently, we have entered into an agreement with the Buyer, amending certain clauses of the Gas Sale andPurchase Agreement. The revised price of the gas upto December 31, 2008 shall be the Rupees equivalent of US$ 3.55/MMBTU on the NCV basis of 10,000 Kcal/m3.

Shareholders' Agreement

There are no Shareholders' Agreement.

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REGULATORY ENVIRONMENT OF EXPLORATION & PRODUCTION IN THE OIL & GASINDUSTRY

This section gives a brief overview of the regulatory framework governing the upstream activities of exploration andproduction in the oil and gas industry in India.

Regulation of Exploration and Production

The Ministry of Petroleum and Natural Gas ("MoPNG") is the principal regulator of exploration and production of oil andnatural gas in India. MoPNG has set up the Directorate General of Hydrocarbons ("DGH") in 1993 with an objective ofpromoting sound management of the Indian petroleum and natural gas resources having a balanced regard to theenvironment, safety, technological and economic aspects of the petroleum activity. The DGH is responsible for ensuringcorrect reservoir management practices, reviewing and monitoring exploratory programmes, development plans for nationaloil companies as well as private companies, monitoring production and optimum utilisation of gas fields.

The main functions of DGH include, in respect of the discovered fields, to ensure optimum exploitation, to review andapprove development plans, work programmes, budgets, reservoir evaluations and to advise on mid-course correctionsand, in respect of the exploration assets, appraising work programmes and monitoring exploration activities on behalf ofMoPNG.

Other bodies under the control of the MoPNG include the Oil Industry Safety Directorate, which develops standards andcodes for safety and fire fighting, training programmes, information dissemination and conducts periodic safety audits ofall the petroleum handling facilities; and the Oil Industry Development Board which provides financial and other assistancefor conducive development of the oil industry. The safety standards prescribed by the Oil Industry Safety Directorate andthe safety regulations prescribed by the Directorate General of Mines Safety in respect of on shore petroleum mininginstallation have to be complied with.

Oilfields (Regulation and Development) Act, 1948 ("Oilfields Act")

Oil and natural gas exploration activities are governed by the Oilfields Act which provides for regulation of oilfields andfor the development of mineral fuel oil resources. Under the Oilfields Act, any lease for the purpose of searching for,winning, working, getting, making merchantable, carrying away or disposing of mineral oils, including natural gas andpetroleum, or an exploring or prospecting licences shall not be granted otherwise than in accordance with the rulesmade under the Oilfields Act. Further, the Central Government is empowered, under the Oilfields Act, to frame rules withrespect to regulating the grant of MLs or for prohibiting the grant of such lease and the conservation and development ofmineral oils, production of oil and regulation of oilfields. The Oilfields Act also provides for payment of royalties in respectof any mineral oil mined, quarried, excavated or collected from the leased area.

On September 1, 2006, pursuant to its powers under section 8 of the Oilfields Act, the GoI designated the DGH as theauthority or agency to exercise the powers and functions of the Government with a view to promoting sound managementof the hydrocarbon resources in India. The DGH shall (i) monitor upstream petroleum operations in India; (ii) review andmonitor the exploration programme and development plans for commercial discoveries of hydrocarbon reserves proposedby licences or lessees; (iii) review the management of petroleum reservoirs by a licences or a lessee; (iv) ask for andmaintain all geo-scientific data, reports and information from a licences or a lessee; (v) review the reserves discovered bythe licensee or lessee in accordance with generally accepted international petroleum industry practices; (vi) lay downnorms for the declaration or announcement of discoveries by a licensee or a lessee; (vii) exercise the powers of theGovernment; and (viii) monitor oil and gas production and the payment of royalties or any other charges, fees or leviesdue to the Government.

Where the Government has executed a PSC, the DGH shall discharge its duties in accordance with, and in a mannerconsistent with, such PSC.

PEL and PML under the Petroleum and Natural Gas Rules, 1959 ("P&NG Rules")

The P&NG Rules provides the framework for grant of petroleum exploration licences and MLs. Rule 4 of the P&NG Rulesprohibits the prospecting or exploitation of any oil or gas unless with a license or lease granted under the P&NG Rules.A PEL entitles the licences to an exclusive right to a lease for extracting the oil and gas from the contract area. PELs and

54


PMLs are granted by MoPNG for offshore areas and by the relevant state governments, with the prior approval of GoI, foronshore areas.

The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 ("TerritorialWaters Act")

The Territorial Waters Act empowers the GoI to extend the application of any Central Government legislation to theTerritorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones of India.

The Essential Commodities Act, 1955 ("EC Act")

The EC Act makes provisions controlling the production, supply and distribution of certain essential commodities, whichinclude petroleum and petroleum products.

Environmental Regulations

The Environmental Protection Act, 1986, Water (Prevention and Control of Pollution) Act, 1974 and the Air (Preventionand Control of Pollution) Act, 1981 provide for the prevention, control and abatement of pollution. Pollution ControlBoards have been set up to exercise the powers under these statutes for the purpose of preventing and controllingpollution. Companies have to obtain clearance of the Pollution Control Boards for emissions and discharge of effluentsinto the environment. In case the project value exceeds Rs. 1,000 million for a new project or Rs. 500 million for theexpansion of an existing oil and gas exploration and production project, the project would also require the approval ofthe MoEF.

Hazardous Waste (Management and Handling) Rules, 1989 provides that waste oil and oil emulsions are hazardouswastes and imposes an obligation on every occupier and operator of the facility generating hazardous waste to disposehazardous wastes properly including proper collection, treatment, storage and disposal. Every occupier and operator ofthe facility generating hazardous waste is required to obtain an approval from the Pollution Control Board for collecting,storing and treating the hazardous waste.

New Exploration Licensing Policy ("NELP")

To encourage investment in the oil and gas sector, licences are being offered under the NELP. NELP was formulated bythe GoI in 1997-98 to provide a level playing field in which all the parties compete on equal terms for the award ofexploration acreage. The salient features of the NELP are as follows:*

General

(a) Fiscal stability provision in the contract;

(b) Finalisation of contract on the basis of Model Production Sharing Contract;

(c) Petroleum tax guide is in place to facilitate investors.

Fiscal and Contractual Terms

(a) No payment of signature, discovery or production bonus;

(b) No customs duty on imports required for petroleum operations;

(c) No mandatory state participation / carried interest by National Oil Companies;

(d) Freedom to contractor for marketing of oil and gas in the domestic market;

(e) Biddable cost recovery limit up to 100%;

(f) Sharing of profit petroleum based on investment multiple achieved by the contractor and is biddable;

(g) Royalty for onland areas payable at the rate of 12.5% for crude oil and 10% for natural gas. For offshore areas,royalty payable at the rate of 10% for oil and natural gas. Royalty for discoveries in deep water areas beyond 400m iso-bath chargeable at half the applicable rate for offshore areas for the first seven years of commercial production.

* As per the information available on DGH website www.dghindia.org/about%20nelp6.pdf as on May 11, 2006.

55

(h) Option to amortise exploration and drilling expenditures over a period of 10 years from first commercial production;

(i) Income tax holiday for seven years from start of commercial production;

(j) Provision for assignment;

(k) Arbitration and Conciliation Act, 1996, which is based on UNCITRAL model shall be applicable.

The bidding for NELP VII is expected to start post the winter session of the Parliament after December 7, 2007.

Petroleum Act, 1934 read with Petroleum and Natural Gas Rules, 2002 ("P&NG Rules, 2002")

The provisions of the Petroleum Act, 1934 inter alia provide that no person shall produce, refine, blend, store or transportpetroleum unless in accordance with the provisions of this Act and the provisions of P&NG Rules, 2002 which, inter aliaprovides for permission of Chief Controller of Explosives for the purpose to refine, crack, store, reform or blend petroleum.

The Petroleum and Natural Gas Regulatory Board Act, 2006 ("PNGRB Act")

The PNGRB Act provides for the establishment of Petroleum and Natural Gas Regulatory Board ("PNGRB") to regulaterefining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and naturalgas excluding production of crude oil and natural gas so as to protect the interests of consumers and entities engagedin specified activities relating to petroleum, petroleum products and natural gas and to ensure uninterrupted and adequatesupply of petroleum, petroleum products and natural gas in all parts of the country and to promote competitive markets.The Government has invited applications for selecting members to the PNGRB.

Petroleum Pipeline Guidelines

The Petroleum Product Pipeline Policy, announced by the GoI in December 2002, provides a mechanism for commoncarriage of petroleum products transportation. Pursuant to the policy, any company planning to lay a pipeline originatingfrom a port or a pipeline exceeding 300 kms. in length originating from a refinery must publish its intention and allowother interested companies to take a capacity in the pipeline on a "take or pay" or other mutually agreed basis. Companieslaying new pipelines would be required to provide at least 25% extra capacity beyond that needed by itself and interestedcompanies for other users.

The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962

The Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 provides the framework governingthe acquisition of right of user in land for laying pipelines for the transportation of petroleum and minerals and othermatters connected therewith. This law is limited to the acquisition procedure, restrictions on use of land and compensationpayable to the persons interested in the land.

Coastal Regulation Zone Notifications

The Notifications have been issued by the MoPNG on February 19, 1991, August 16, 1994, July 9, 1997 and August 12,2001 for declaration of coastal stretches of seas, bays, estuaries, creeks, rivers and backwaters which are influenced bytidal action (in the landward side) upto 500 meters from high tide line and the land between the low tide line and hightide line as "Coastal Regulation Zone" ("CRZ") and imposes restrictions on setting up and expansion of industries,operations or processes, etc., in the said CRZ.

Government Policy for Foreign Direct Investment in Petroleum Sector

Petroleum and Natural Gas sector

Petroleum (Other than Refining and including FDI upto 100% is allowed under the automatic route, subject tomarket study and formulation; investment / sectoral regulations issued by MoPNG; and in the case of actualfinancing; setting up infrastructure for marketing trading and marketing of petroleum products; divestment of 26%in Petroleum and Natural Gas sector). equity in favour of Indian partner / public within five years.

FDI up to 100% under the automatic route is allowed in oilexploration for both small and medium sized fields, subject to andunder the policy of the GoI on private participation in (a) explorationfor oil; and (b) the discovered fields of national oil companies.

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OUR MANAGEMENT

Board of Directors

Under our Articles of Association we cannot have less than three Directors or more than 15 Directors. We currentlyhave six Directors.

The following table sets forth details regarding our Board of Directors as on date of filing of this Letter of Offer.

Name, Father's Name, Occupation, Age Address Other DirectorshipsDesignation, DIN and Term (years)

Mr. R. Vasudevan 70 E-262, Ground Floor, � Conzerv Systems Private Limited;S/o. Mr. S. Rangarajan Greater Kailash-I, � Cosmo Films Limited;Occupation: New Delhi - 110 048 � Haldia Petrochemicals Limited;Management Consultant � Hindustan Motors Limited;Designation: � Purearth Infrastructure Limited;Non - Executive Chairman � Vestas Wind Technology India Private(Independent) Limited; andDIN : 00025334 � Transindia Aviation Private LimitedTerm:Liable to retire by rotation

Mr. Deepak S. Parekh 63 9, Darbhanga Manson, � Castrol India Limited;S/o Mr. Shantilal Parekh 12, Carmichael Road, � GlaxoSmithKline PharmaceuticalsOccupation: Mumbai - 400 026 Limited;Professional � HDFC Asset Management CompanyDesignation: Limited;Non - Executive Director � HDFC Chubb General Insurance(Non Independent Director) Company Limited;DIN : 00009078 � HDFC Standard Life InsuranceTerm: Company Limited;Liable to retire by rotation � Hindustan Unilever Limited;

� Housing Development and FinanceCorporation Limited;

� Infrastructure Development & FinanceCompany Limited;

� Lafarge India Private Limited;� Mahindra and Mahindra Limited;� Siemens Limited; and� The Indian Hotels Company Limited;Alternate Directorship� Bharat Bijlee Limited;� Borax Moraji Limited;� Exide Industries Limited; and� Zodiac Clothing Company Limited.

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Mr. Finian O'Sullivan 53 Tangley House, � Astrakhan Gas and Oil CompanyS/o Mr. John Joseph O' Sullivan Southdown Road, � Burren (Cyprus) Holdings Limited;Occupation: Shawford Havits, � Burren Energy (Egypt) Limited;Professional 50212BY, � Burren Energy (Oman) Limited;Designation: United Kingdom � Burren Energy (Yemen) Limited;Non - Executive Director � Burren Energy Bermuda Limited;(Non Independent) � Burren Energy Congo Limited;Provisional DIN: 01897791 � Burren Energy Drilling Services Limited;Term: � Burren Energy India Limited;Not liable to retire by rotation. � Burren Energy New Ventures Limited;Appointed as 'Special Director' in � Burren Energy Plc;terms of the AoA. � Burren Energy Services Limited;

� Burren Energy Ship ManagementLimited;

� Burren Energy Shipping andTransportation Limited;

� Burren Energy Shipping andTransportation Samara;

� Burren Resources Petroleum Limited;and

� Burren Shakti Limited

Mr. Atul Gupta 48 43, Loveday Road, � Burren Energy India Limited;S/o Mr. Satya Pal Gupta London - W 13 9 JT - � Burren Energy (Oman) Limited;Occupation: United Kingdom � Burren Energy (Egypt) Limited;Professional � Burren Energy (Yemen) Limited;Designation: � Burren Energy Congo Limited;Managing Director � Burren Energy Drilling Services Limited;(Non Independent) � Burren Energy New Ventures Limited;Provisional DIN: 01897737 � Burren Energy Plc;Term: � Burren Energy Services Limited;From August 1, 2006 up to the � Burren Shakti Limited; andconclusion of 24th AGM. � Villiers Limited.Not liable to retire by rotationappointed as 'Special Director' interms of AoA.

Mr. Rahul Bhasin 42 A-2/16, Safdarjung � Auro Mira Energy Company PrivateS/o Mr. S M Bhasin Enclave, Limited;Occupation: New Delhi - 110 029 � GI Terminal I-Tech Private Limited;Professional � Integra Software Services PrivateDesignation: Limited;Non-Executive Director (Independent) � Maples ESM Technologies PrivateDIN : 00236867 Limited;Term: � Mphasis BFL Limited;Liable to retire by rotation � Pharmarc Analytical Solutions Private

Limited;� Secova eServices Limited; and� Barings International

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Mr. Manish Maheshwari 40 New no. 21, � HOEC Bardahl India LimitedS/o Mr. Ghanshyam Das Old no. 11,Maheshwari 3rd Street,Occupation: Abhirampuram,Professional Chennai - 600 018Designation:Joint Managing Director(Non Independent)DIN : 01791004Term:From August 1, 2006 up to theconclusion of 24th AGM.Liable to retire by rotation.

Brief profile of our Directors

Mr. R. Vasudevan was appointed the Chairman of our Company on February 14, 2005 and has been a Director in ourCompany since June 11, 1997. He holds a B.A. (Hons) (Economics) degree from the University of Madras, an M.A.(Economic Statistics) degree from the University of Delhi and has also completed his M.P.A. (Development Economics)from Harvard University, Boston, U.S.A. He has held various senior level positions in the ministries of the GoI includingin the Prime Minister's Office, Ministry of Steel and MoPNG. He retired as Secretary to the GoI, Ministry of Power.Additionally, he was also a founder director of Small Industries Development Bank of India.

Mr. Deepak S. Parekh is a Fellow of the Institute of Chartered Accountants (England and Wales). He joined HousingDevelopment and Finance Corporation Limited ("HDFCL") in 1978 and was inducted as a 'whole time director' in 1985.Subsequently, in 1993 he was appointed as the Executive Chairman of HDFCL. He has been a member of variouscommittees established by the GoI, specially in the field of finance and capital markets. Further, he is non executivechairman of Infrastructure Development & Finance Company Limited, Siemens Limited and Glaxo SmithklinePharmaceuticals Limited. He is a recipient of the Padma Bhushan award.

Mr. Finian O'Sullivan holds a degree in geology and geophysics from the University College Galway and pursued aninternational career spanning 17 years in geophysics and seismic acquisition with organisations such as Chevron,Geophysical Systems and Olympic Oil and Gas. He is currently the President of Burren Energy Plc and is a director ofBurren Energy India Limited and Burren Shakti Limited.

Mr. Atul Gupta holds degrees in chemical engineering from Cambridge University and Petroleum Engineering fromHeriot-Watt University. He has aproximately 21 years of experience in the industry and has previously worked fororganisations such as Charterhouse Petroleum, Petrofina and Monument involved in oil and gas production operations.He joined our Company as a Non-Executive Director on February 14, 2005 and became the Managing Director of ourCompany on August 1, 2006. Presently, he is the Chief Operating Officer of Burren Energy Plc and is a director of BurrenEnergy India Limited and Burren Shakti Limited.

Mr. Rahul Bhasin holds a Post-Graduate Diploma in Management from the Indian Institute of Management, Ahmedabad.He is the Managing Partner of Baring Private Equity Partners (India) Private Limited, a Senior Partner of Baring PrivateEquity Partners International and is also a member of the Investment Committee of the Baring Vostok Private EquityFund. He has served as the Chairman of Mphasis Limited. He worked for eight years with Citicorp, ending his tenure asVice President - Global Asset Management. He is a member of the "CEO Forum" at the Economist Corporate Network.

Mr. Manish Maheshwari holds a Bachelors (Hons) in Chemical Engineering and Masters in Business Administration fromSGBS, U.K. and joined our Company on October 1, 2003 and became a Joint Managing Director on August 1, 2006.Prior to joining our Company he has worked with Danish Development Financial Institution and TATA Group includingupstream oil and gas and new ventures. He has over 17 years of experience in the industry.

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None of our Directors are related to each other.

Compensation of our Director(s)

Joint Managing Director

The Board of our Company has passed a resolution dated July 29, 2006 appointing Mr. Manish Maheshwari, JointManaging Director w.e.f August 1, 2006 and specifying the salary and perquisites payable to him.

The salary and perquisites payable are set out below:

Basic Salary Rs. 0.25 million per month

Perquisite / Allowances Allowances such as house rent allowance, leave travel concession,children education allowance, reimbursement of medical expenses notexceeding 122.23% of annual basic salary.*Additionally, Mr. Maheshwari is entitled to medical insurance, personalaccident insurance, club fees (subject to a maximum of two clubs).

Performance Bonus Incentives by way of bonus including stock options as may be applicableunder Long Term Incentive Plan 2005.

Other Benefits Gratuity payable under the Payment of Gratuity Act.Leave Entitlement as may be applicable under the rules of our Companyencashable on retirement or separation.Contribution to provident fund, superannuation fund or annuity fund asper policy of our Company

*Does not include provision of chauffer driven car, telephone and other necessary communication facilities at residence.

The total remuneration (inlcuding salary, contribution to provident fund / superanuation fund and other perquisites)received by Mr. Manish Maheshwari* in Fiscal 2007 was Rs. 2,932,050 (excluding stock options approved to be grantedto him under the long term incentive plan, in relation to Fiscal 2006 or the remuneration paid to him upto July 31, 2006in his capacity as Chief Financial Officer of our Company).

The remuneration paid to Mr. Manish Maheshwari for the period August 1, 2006 to March 31, 2007 was covered underclause (A) of Section II of Part II of Schedule XIII of the Companies Act is now proposed to be covered under clause (B)of Section II of Part II of Schedule XIII of the Companies Act and, hence, was subject to the approval of the shareholdersof our Company, which was obtained vide a special resolution at 23rd Annual General Meeting of the Company datedSeptember 28, 2007.

Our Company does not pay remuneration, other than sitting fees, to any Director except the Joint Managing Director. Forfurther details relating to the remuneration paid to our Directors in the last five Fiscals, see the section titled "FinancialStatements" beginning on page 70 of this Letter of Offer.

Directors Sitting Fee

We pay our Directors sitting fees of Rs. 5,000 for every meeting of our Board or a Committee thereof, as authorised byBoard resolution dated September 28, 2004. Details of sitting fees paid to our Directors in Fiscal 2007 is as follows:

Name of Director Amount (in Rupees)

Mr. R. Vasudevan 120,000

Mr. Deepak S. Parekh Nil

Mr. Rahul Bhasin 95,000

Mr. Finian O'Sullivan 30,000

Mr. Atul Gupta 80,000

Further, our Company has through a shareholders’ resolution dated September 22, 2005 instituted an Employees StockOption Scheme. The options under the said scheme may be offered to Directors including Chairman, Whole Time

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Directors, Independent Directors, Managing Director excluding the Directors nominated by our Promoters, Director(s) whoeither 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 our Company. See the section titled "Capital Structure" beginning onpage 12 of this Letter of Offer for details of the Employees Stock Option Scheme. Further, we have a long term incentiveplan for our employees (including any Executive Director, Independent Director as identified by the Board, but excludingany person engaged on contract / consultancy basis) of our Company (not including our Subsidiary) for a continuousperiod of three months or more as on the last date of the scheme year and is not under notice or subject to anydisciplinary action at the time of declaration of bonuses.

Borrowing Powers of the Board in our Company

Pursuant to a resolution passed by our shareholders in accordance with provisions of the Companies Act, our Board hasbeen authorised to borrow sums of money for the purpose of our Company upon such terms and conditions as the Boardmay think fit, provided that the money or monies to be borrowed together with the monies already borrowed by ourCompany shall not exceed, at any time, a sum of Rs. 10,000 million or three times the paid up capital and free reserves,exclusive of interest which ever is higher vide shareholders’ resolution dated September 28, 2006.

Corporate Governance

Our Company has complied with SEBI guidelines in respect of corporate governance. Corporate governance isadministered through our Board and the Committees of the Board. We have three committees constituted by our Board,these are: (i) Audit Committee; (ii) Compensation and Remuneration Committee; and (iii) Shareholders / Investor GrievanceCommittee. The Board of Directors, our Company's highest policymaking body, is committed in its responsibility for allconstituents including investors, regulatory authorities and employees. Our Company believes that the essence of corporategovernance is transparency, accountability, investor protection, better compliance with statutory laws and regulations,value creation for shareholders / stakeholders. Our Company further believes that all its operations and actions mustserve the underlying goal of enhancing overall shareholders' value over a sustained period of time and at the same timeprotect the interest of stakeholders.

An important element of the revised Clause 49 of the Listing Agreement relates to adoption of Code of Conduct for theBoard of Directors and senior management. We have adopted separate codes viz. 'Code of Conduct of Board of Directorsof the Company' and 'Code of Conduct for the Senior Management of the Company'. The Board of Directors, seniormanagement inter alia including employees who are below the senior management level but instrumental in the criticaloperations / functions are also covered under the said code. The said codes have been posted on our Company's website: www.hoec.com

Pursuant to the SEBI (Prohibition of Insider Trading) Regulations, 1992, our Company has also adopted the Code ofConduct for Prevention of Insider Trading.

We are compliant with the provisions of Clause 49 of the Listing Agreement with the Stock Exchanges as amended fromtime to time.

A brief description of each the above committees of our Board is as follows:

(i) Audit Committee

The Audit Committee comprises Mr. Rahul Bhasin (Chairman), Mr. R. Vasudevan and Mr. Atul Gupta. Mr. Vikash Jain,Company Secratary, Chief - Tax & Legal, is the secretary to the Audit Committee in terms of Clause 49 of the ListingAgreement.

The Audit Committee has met six times during the course of Fiscal 2007 and three times upto October 2007 in Fiscal2008. The details of attendance of members of the Audit Committee in the meetings held in Fiscal 2007 and uptoOctober 2007 in Fiscal 2008 are:

Fiscal 2008 (upto Oct.07) Fiscal 2007

Meetings held 3 6

Mr. Atul Gupta 3 4

Mr. R. Vasudevan 3 6

Mr. Rahul Bhasin 3 6

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Scope and terms of reference

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

(ii) Compensation and Remuneration Committee

Compensation and Remuneration Committee comprises Mr. R. Vasudevan (Chairman), Mr. Rahul Bhasin, Mr. FinianO'Sullivan and Mr. Atul Gupta.

The committee has met three times during the course of Fiscal 2007.

Scope and terms of reference

The committee has been set up to review the overall compensation structure and related policies of our Company witha view to attract, motivate and retain employees. The committee determines our Company's policies on remunerationpackages payable to Whole Time / Managing Directors including performance bonus and perquisites and also reviewsthe compensation levels vis-à-vis other companies and the industry.

(iii) Shareholders / Investor Grievance Committee ("SIGC")

Shareholders / Investor Grievance Committee comprises Mr. R. Vasudevan (Chairman), Mr. Atul Gupta and Mr. ManishMaheshwari.

The Shareholders / Investor Grievance Committee has met four times during the course of Fiscal 2007 and three timesupto October 2007 in Fiscal 2008. The details of attendance of members of the Shareholders/ Investor GrievanceCommittee in the meetings held in Fiscal 2007 and upto October 2007 in Fiscal 2008 are:

Fiscal 2008 (upto Oct. 07) Fiscal 2007

Meetings held 3 4

Mr. Atul Gupta 3 3

Mr. Manish Maheshwari 3 2**

Mr. R. Vasudevan 3 4

Mr. Rakesh Jain N.A 1*

* member upto July 31, 2006

** member w.e.f. August 1, 2006

Scope and Terms of Reference

In terms of the requirement of Clause 49 of the Listing Agreement, the SIGC was constituted specifically to look into theshareholders / 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 our 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 relatingprocesses / procedures / activities viz., splitting, consolidation, replacement, issue of duplicate share certificate,dematerialisation and rematerialisation of Equity Shares etc. The sub-committee meets approximately twice a month. Thissub-committee presents its reports to the SIGC from time to time.

During Fiscal 2007, our Company received 225 complaints from shareholders (including those referred by SEBI / StockExchanges / RBI). All complaints have been resolved as on the March 31, 2007 (in relation nine complaints, ourCompany has replied seeking additional information). There are no grievance / complaints from shareholders remainingunresolved except disputed court cases and our Company seeks to make efforts to immediately redress complaints.There was one pending share transfer request as on March 31, 2007 which was effected in April 2007.

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Interest of our Director(s) in our Company

None of the Directors of our Company hold any Equity Shares in their personal capacity or either as sole or first holder,as on the date of this Letter of Offer.

All our Directors may be deemed to be interested to the extent of fees, if any, payable to them for attending meetings ofthe Board or a committee thereof and to the extent of reimbursement of expenses payable to them as detailed in sectiontitled "Our Management-Compensation of our Director(s)" above. In addition, all our Directors except the Directors nominatedby our Promoters or Director(s) who either by himself / themselves or through his / their relative or through any bodycorporate, directly or indirectly hold(s) more than 10% of the outstanding Equity Shares of our Company are eligible forbenefits under the ESOS. Mr. Manish Maheshwari is interested to the extent of remuneration paid to him for servicesrendered as Joint Managing Director of our Company and any benefits that he may be entitled to under the long termincentive plan.

All our Directors may be interested in the Equity Shares already held by them or that may be allotted to them pursuantto the Issue and / or that may be allotted to companies, firms and trusts in which they are directors, members, partnersor trustees, as the case may be. Our Director(s) may have further interest to the extent of any dividend payable to themand other distributions in respect of the Equity Shares held by them.

Our Directors confirm that they have no interest in any property acquired by our Company during the last two years fromthe date of filing of this Letter of Offer.

Changes in our Board of Directors during the last three years

Name Date of Appointment Date of Cessation Reason

Mr. Manish Maheshwari August 1, 2006 - Appointed as an additionaldector.*

Mr. Rakesh Jain July 29, 2003 July 31, 2006 Completion of term ofappointment

Mr. Vimal Bhandari June 14, 1996 January 25, 2006 Resigned

Mr. Rahul Bhasin April 20, 2006 - Appointed

Mr. Finian O'Sullivan February 14, 2005 - Appointed

Mr. Atul Gupta February 14, 2005 - Appointed**

Mr. I.G. Patel February 9, 1991 February 14, 2005 Resigned

Mr. Hasmukh Shah November 27, 1992 February 14, 2005 Resigned

Mr. Manu Shroff March 29, 2001 February 14, 2005 Resigned

Mr. C.K. Mehta February 2, 1988 February 14, 2005 Resigned

Mr. Ronald Somers January 29, 2004 February 14, 2005 Resigned

Mr. Andrew Fawthrop January 22, 2003 February 14, 2005 Resigned

Mr. M.N. Khan April 28, 2004 February 14, 2005 Resigned

Mr. Rasesh N. Mafatlal September 22, 1983 June 15, 2004 Death

* appointed as Joint Managing Director pursuant to shareholders’ resolution dated September 28, 2006 with effect from August 1, 2006

** appointed as Managing Director pursuant to shareholders resolution dated September 28, 2006 with effect from August 1, 2006

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Organizational Structure

The organization structure of the senior management of our Company is given below:

Consistent with the industry practice, our Company has engaged certain personnel / experts who are responsible forspecific assignments on a term contract basis and who are not in permanent employment of our Company. Hence,certain persons in the designation disclosed in the Management Organisation Structure are not in permanent employmentof our Company.

Key Managerial Personnels

Except Mr. Manish Maheshwari, our Company does not have any key managerial personnel. Mr. Manish Maheshwari isa permanent employee of our Company. For details relating to his profile, see "Brief profile of our Directors" above.

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Changes in our key managerial personnels during the last three years

The changes in our key managerial personnels during the last three years are as follows:

Name of Key Managerial Date of appointment Date of change ReasonPersonnel

Mr. Rakesh Jain August 1, 2003 July 31, 2006 Completion of term

Dr. Udayan Das Gupta January 10, 1994 January 31, 2007 Superannuation

Mr. Ramesh Bhatia October 1, 1992 January 29, 2007 Resignation

Mr. Sagar Mehta July 1, 1989 - Reclassification of the keymanagerial personnels byour Company

Employees Share Purchase or Stock Option Scheme

Our Company has through a shareholders’ resolution dated September 22, 2005 instituted an ESOS. The options underthe said scheme may be offered to Directors including our Chairman, whole time Directors, Independent Directors,Managing Director, excluding Directors nominated by the Promoters, Director(s) who either by himself / themselves orthrough his / their relative or thorough any body corporate, directly or indirectly hold(s) more than 10% of the outstandingEquity Shares of our Company and to employees. See the section titled "Capital Structure" beginning on page 12 of thisDraft Letter of Offer for details of the Employees Stock Option Scheme.

Payment of benefit to officers of our Company

Except as stated otherwise in this Draft Letter of Offer, no amount or benefit has been paid or given or is intended to bepaid or given to any of our officers except the normal remuneration for services rendered as Directors, officers oremployees, since incorporation of our Company.

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PROMOTERS AND PROMOTER GROUP

Promoters

The promoters of our Company are:

(a) Burren Shakti Limited (earlier called 'Unocal Bharat Limited'); and

(b) Burren Energy India Limited.

(a) Burren Shakti Limited ("BSL")

BSL was earlier called Unocal Bharat Limited ("UBL"). UBL was initially incorporated in Mauritius on July 19, 1996. Thedomicile of UBL was subsequently migrated from Mauritius to Bermuda with effect from January 16, 2004. The name ofUBL was changed to BSL with effect from October 19, 2005. BSL was incorporated with the object inter alia to carry onthe business of procurers, suppliers, distributors, explorers, developers, producers, transporters, processors, refiners ofand dealers in crude oil, natural gas and hydrocarbon fuels including liquified natural gas and liquid petroleum facilitiesin connection therewith. Its registered office is located at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

The equity shares of the BSL are not listed on any stock exchange. BSL is promoted by Burren Energy India Limited.

Shareholding Pattern

The shareholding pattern of BSL as on the date of filing of this Letter of Offer are set forth below :

Name of Shareholder Number of Shares % of Issued Capital

Burren Energy India Limited 653,000 100.00

Total 653,000 100.00

Change in control and management of BSL

There has been no change in the capital structure of BSL in the last six months. The entire equity share capital of UBLwas acquired by Burren Energy India Limited on February 14, 2005 from Unocal International Corporation. As a result ofthe same, Burren Energy India Limited along with BSL as person acting in concert, made an open offer in 2005 underthe Takeover Code. For further details, see the section titled "History and Certain Corporate Matters" beginning on page46 of this Letter of Offer.

Board of Directors

The board of directors of BSL comprises Mr. Finian O'Sullivan, Mr. Atul Gupta and Mr. Andrew Rose.

Financial Performance

The unaudited financial results of BSL for the years ended December 31, 2004, 2005 and 2006 are set forth below:

(Rs. in million unless stated otherwise*)

December 31, 2004 December 31, 2005 December 31, 2006

Equity Capital 2,911 2,935 2,656

Reserves (excluding revaluation reserves) (2,061) (1,751) (1,570)

Income from Operations 94 15 15

Profit after Tax 86 15 14

Earning Per Share (in Rs.) 132 23 7

Net Asset Value 851 1,184 1,086

Asset value per share (in Rs.) 1,303 813 543

* The aforesaid amounts have been derived from USD based financials using the exchange rate applicable at each reporting date. The rateat December 31, 2004, 2005 and January 2, 2007 (December 31, 2006 being a holiday, hence January 2, 2007 rate has been used) was1 USD = Rs. 43.58, Rs. 45 and Rs. 44.20.

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The details of BSL's registration number, bank account number and the registered address are as follows:

Registration Number EC 34726

Bank Account Number BURSAH USDA

Registered address The Registrar of Companies, Parliament Street, Hamilton HM 12, Bermuda

(b) Burren Energy India Limited ("BEIL")

BEIL was incorporated on December 22, 2004 under the laws of England and Wales with the object inter alia to carry onthe business of a holding company. Its registered office is located at 2nd floor, Kierran Cross, 11 Strand, London, WC2N5HR.

The equity shares of the BEIL are not listed on any stock exchange. BEIL is promoted by Burren Energy Plc.


The shareholding pattern of BEIL as on the date of the filing of this Letter of Offer are set forth below:


Burren Energy Plc 2 100.00

Total 2 100.00

Change in control and management of BEIL

There has been no change in control or management of BEIL.

Board of Directors

The board of directors of BEIL comprises Mr. Finian O'Sullivan, Mr. Atul Gupta and Mr. Andrew Rose.


The unaudited financial results of BEIL for the period ended December 31, 2005 and 2006 are set forth below:


December 31, 2005 December 31, 2006

Equity Capital - 0.16

Reserves (excluding revaluation reserves) (34) (35,049)

Sales - 5

Loss After Tax 34 (3,863)

Loss Per Share (in Rs.) 17 (1,932)

Net Asset Value (34) (35,013)

Asset value per share (in Rs.) (17) (17,506)

* The aforesaid amounts have been derived from USD based financials using the exchange rate applicable at each reporting date. The rate at December

31, 2005 and January 2, 2007 (December 31, 2006 being a holiday, hence January 2, 2007 rate has been used) was 1 USD = Rs. 45 and Rs. 44.20.

There has been no change in the capital structure of BEIL in the last six months.

BEIL's registration number, bank account number and its registered address are as follows:

Registration Number 5319270

Bank Account Number BURENIEN USDA

Registered address Companies House, Crown Way, Maindy, Cardiff CF14 3UZ, United Kingdom

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Interest in promotion of our Company

Our Company is promoted by BSL and BEIL. As on the date of filing this Letter of Offer, BSL and BEIL hold 21,264,548and 7,660 Equity Shares respectively.

Our Promoters and Promoter Group entities confirm that they have no interest in any property acquired by our Companyduring the last two years from the date of filing of this Letter of Offer.

Other Confirmations

We confirm that the details of the company registration number and address of the Registrar of Companies of BSL andBEIL will be submitted to the Stock Exchanges at the time of filing this Letter of Offer with the Stock Exchanges, wherethe listing is proposed.

Further, our Promoters and Promoter Group entities have confirmed that they have not been detained as wilful defaultersby the RBI or any other governmental authority and there are no violations of securities laws committed by them in thepast or are pending against them. Additionally, none of the Promoters nor any members of the Promoter Group havebeen restrained from accessing the capital markets for any reason by the SEBI or any other authorities.

Payment of benefits to our Promoters during the last two years

Except as stated in the section titled "Financial Statements" beginning on page 70 of this Letter of Offer, there has beenno payment of benefits to our Promoters during the last two years from the date of filing of this Letter of Offer.

Promoter Group

In addition to the Promoters named above, Burren Energy Plc is a member of our promoter group as it is the holdingcompany of our Promoters.

Burren Energy Plc ("BEP")

BEP was incorporated on January 14, 1998 under the laws of the United Kingdom with the object inter alia to carry onthe business of a holding company. Its registered office is located at 2nd Floor, Kierran Cross, 11, Strand, London, WC2N5HR.

BEP's shares are listed on the Official List of the UK Listing Authority and have been traded on the London StockExchange since December 2003 and on September 6, 2007, its market capitalisation was GBP 1,205 million. At close ofbusiness on September 6, 2007 the share price was GBP 8.54.

The board of Burren has received a number of approaches in relation to possible offers for Burren Energy plc. For furtherdetails, please refer to the website of Burren Energy plc www.burren.co.uk.


Details of shareholders of BEP as on the date of this Letter of Offer is as follows:


Tacoma E&P Limited 10,595,000 7.51

Barclays Global Investors 9,663,769 6.85

Sunfloat Shipping Limited 6,542,307 4.64

Morgan Fund Management 5,971,309 4.23

Legal & General Investment Management Ltd 5,645,530 4.00

Others 102,664,026 72.77

Total 141,081,941 100.00

During the last six months, BEP has issued 379,950 ordinary shares in relation to the exercise of rights subsisting underexecutive incentive schemes.

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Board of Directors

The board of directors of BEP comprises Mr. Keith Henry, Mr. Finian O'Sullivan, Mr. Atul Gupta, Mr. Andrew Rose, Mr.Alan Cole, Mr. Andrei Pannikov, Mr. Pierre Lasry, Mr. Michael Calvey and Mr. Brian Lavers.


The audited financial results of BEP for the years ended December 31, 2004, 2005 and 2006 are set forth below:


December 31, 2004 December 31, 2005 December 31, 2006

Equity Capital 5,808.57 6,200.75 5,635.00

Reserves (excluding revaluation reserves) 4,488.32 13,978.95 21,465.00

Sales 8,423.50 17,219.69 16,924.00

Profit After Tax 3,101.54 9,746.37 10,124.00

Earning Per Share (in Rs.) 23.00 70.00 72.00

Net Asset Value 11,490.50 21,348.67 28,077.00

Asset value per share (in Rs.) 8,381.00 15,263.00 19,901.00

* The aforesaid amounts have been derived from USD based financials using the exchange rate applicable at eachreporting date. The rate at December 31, 2004, 2005 and January 2, 2007 (December 31, 2006 being a holiday,hence January 2, 2007 rate has been used) was 1 USD = Rs. 43.58, Rs. 45 and Rs. 44.20.

Related Party Transactions

For details of the related party transactions, see the section titled "Financial Statements" beginning on page 70 of thisLetter of Offer.

Common Pursuits

Our Promoters are promoted by Burren Energy Plc., UK, which is also engaged in the business of exploration andproduction of oil and gas. BSL was incorporated with the object inter alia to carry on the business of procurers, suppliers,distributors, explorers, developers, producers, transporters, processors, refiners of and dealers in crude oil, natural gasand hydrocarbon fuels including liquified natural gas and liquid petroleum facilities in connection therewith. Many of thecompanies forming part of the group entities of our Promoters and Promoter Group have interest in or associated with orare in the same line of business as that of our Company. However, none of them have operations in India.

Companies with which the Promoters have disassociated with in the last three years

Our Promoters have not disassociated themselves from any Company in India in the last three years.

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DIVIDEND POLICY

The declaration and payment of dividends on our Equity Shares will be recommended by our Board of Directors andapproved by our Shareholders, at their discretion, and will depend on a number of factors, including but not limited to ourprofits and overall financial condition. The dividends paid by our Company during the last five Fiscals is presented below.

Rs. millions

Particulars Fiscal 2003 Fiscal 2004 Fiscal 2005 Fiscal 2006

Number of Equity Shares (million shares) 58.74 58.74 58.74 58.74Rate of Dividend (%) 8% 10% 10% 10%Interim (%) Nil Nil Nil NilFinal (%) 8% 10% 10% 10%Amount of Dividend on Equity Shares (Rs. million) 47.00 58.74 58.74 58.74(Excludes Dividend Distribution Tax)Interim (Rs. million) Nil Nil Nil NilFinal (Rs. million) 47.00 58.74 58.74 58.74

Our Board has not recommended any dividend for Fiscal 2007.

The amounts paid as dividends in the past are not necessarily indicative of our dividend policy or dividend amounts, ifany, in the future.

Pursuant to the terms of some of our existing loan agreements, we cannot declare or pay any dividend to our Shareholdersduring any financial year if we are in default of payment. For further details, see the section titled "Financial Indebtedness"beginning on page 120 of this Letter of Offer.

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FINANCIAL STATEMENTS

AUDITORS' REPORT

November 16, 2007

The Board of DirectorsHindustan Oil Exploration Company Limited"HOEC" HouseTandalja RoadVadodara 390 020

Dear Sirs,

1. As required by Part II of Schedule II of the Companies Act, 1956, the Securities and Exchange Board of India(Disclosure and Investor Protection) Guidelines, 2000 ('the Guidelines') issued by the Securities and ExchangeBoard of India (SEBI) in pursuance of Section 11 of the Securities and Exchange Board of India Act, 1992 andrelated clarifications and in accordance with the request dated August 14, 2007 received from Hindustan OilExploration Company Limited ("the Company"), we have examined the financial information contained in theStatements annexed to this report which is to be included in the Offer Document for the Proposed Rights Issue ofEquity Shares.

The Company's Management is responsible for the preparation of the aforesaid financial information contained inthe Statements annexed to this report. Our responsibility is to report based on the work done. We report thereon asfollows.

2. We have examined the Statement of Adjusted Profits and Losses of the Company for each of the five financialyears ended March 31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007 and theStatement of Adjusted Assets and Liabilities as at those dates enclosed as Annexure I and II, respectively, to thisreport and confirm that:

(a) These Statements reflect the profits and losses, and the assets and liabilities of the Company for each of thefinancial periods as extracted from the:

� Profit and Loss Account for the financial years ended March 31, 2003, 2004, 2005 and 2006, and theBalance Sheet as at March 31, 2003, 2004, 2005 and 2006 which have been audited and reportedupon by M/s S.B. Billimoria & Co., Chartered Accountants, and which have been adopted by the members;

� Profit and Loss Account for the financial year ended March 31, 2007, and the Balance Sheet as atMarch 31, 2007 which have been audited and reported upon by us and adopted by the members;

� Profit and Loss Account for the quarter ended June 30, 2007, and the Balance Sheet as at June 30,2007 which have been audited and reported upon by us and approved by the Board of Directorsthrough a circular resolution dated November 14, 2007.

after making therein the disclosures and adjustments required to be made in accordance with the provisionsof paragraph 6.10.2.7 of the Guidelines and such regroupings as we considered necessary. In this regard, thefollowing may be noted:

(i) The financial statements have been drawn up in accordance with the statement of Significant AccountingPolicies (Annexure III). Accounting Policy 3 relating to "Successful Efforts Method" and the treatment ofexploration and development costs are significant to the oil and gas exploration and production industry.

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

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(iii) As stated in the Auditors' Report issued by us on the financial statements of the Company for the yearended March 31, 2007 and the interim financial statements of the Company for the quarter ended June30, 2007, and the Auditors' Report issued by M/s S.B. Billimoria & Co., Chartered Accountants, on thefinancial statements of the Company for the years ended March 31, 2003, 2004, 2005 and 2006, thefollowing items in the financial statements relating to the Company's share in joint ventures have beenincorporated on the basis of information available in the accounts audited by other auditors:

For the years ended March 31, For the quarterended June 30,

2003 2004 2005 2006 2007 2007

Nos. Nos. Nos. Nos. Nos. Nos.

No. of Joint Ventures 5 4 6 6 7 6

Particulars Rs. Rs. Rs. Rs. Rs. Rs.millions millions millions millions millions millions

Expenditure 316.63 145.06 154.27 161.43 167.76 2.98Assets 170.58 85.19 662.37 2,912.40 4,549.40 3,263.41Liabilities 48.35 77.59 133.58 122.96 616.49 280.36Income 0.02 10.29 21.68 0.14 0.77 1.58

The details of the name and membership numbers of the aforesaid other auditors are provided inExhibit A to this Report.

(iv) As stated in the Auditors' Report issued by us on the financial statements of the Company for the yearended March 31, 2007 and the interim financial statements of the Company for the quarter ended June30, 2007, and the Auditors' Report issued by M/s S.B. Billimoria & Co., Chartered Accountants, on thefinancial statements of the Company for the years ended March 31, 2003, 2004, 2005 and 2006, thefollowing items in the financial statements relating to the Company's share in non-producing joint ventureshave been incorporated on the basis of the information available with the Company, in the absence ofaudited accounts:

For the years ended March 31, For the quarterended June 30,

2003 2004 2005 2006 2007 2007

Nos. Nos. Nos. Nos. Nos. Nos.

No. of Joint Ventures 4 5 3 3 2 2

Particulars Rs. Rs. Rs. Rs. Rs. Rs.millions millions millions millions millions millions

Exploration Expenditure 5.90 147.03 214.77 422.34 85.39 120.13

Development Expenditure 193.33 304.62 - - - -

Other Assets 20.82 10.14 19.06 17.14 0.11 15.76

Liabilities 6.53 129.48 1.56 12.36 2.94 6.86

Income - - 0.01 - - -

(v) As stated in the Auditors' Report issued by us on the interim financial statements of the Company for thequarter ended June 30, 2007, the following items in the interim financial statements for the quarterended June 30, 2007 relating to the Company's share in one producing joint venture has beenincorporated on the basis of the information available with the Company, in the absence of auditedaccounts:

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Particulars Rs. millions

Producing Property 125.85

Other Fixed Assets 4.45

Other Assets 119.79

Production Expenditure 34.00

Increase in Stock 72.77

Depreciation and Depletion 10.37

(vi) We invite attention to Note 6 of Annexure IV regarding Managerial Remuneration for the year endedMarch 31, 2007, which is subject to the approval of the Central Government as stated therein.

(b) The Significant Accounting Policies adopted by the Company are enclosed as Annexure III to thisreport.

(c) The Notes to the Adjusted Financial Statements are enclosed as Annexure IV to this report.

(d) In our opinion, subject to our comments in paragraphs 2(a)(iv) and 2(a)(v) above to the extent ofunaudited amounts stated therein, the above financial statements have been drawn up by theCompany in compliance with the Guidelines and in accordance with the requirements of clause Bof Part II of Schedule II of the Companies Act, 1956 as amended from time to time.

3. We have examined the Statement of Adjusted Cash Flows of the Company for each of the financial years endedMarch 31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007 enclosed as Annexure V tothis report and confirm that it has been prepared by the Company in accordance with the requirements of AccountingStandard 3 on Cash Flow Statement issued by the Institute of Chartered Accountants of India from the Statement ofAdjusted Profits and Losses and the Statement of Assets and Liabilities as given in Annexures I and II, respectively.

4. We have examined the Statement of Secured Loans of the Company outstanding as at March 31, 2003, 2004,2005, 2006 and 2007 and as at June 2007 and the terms relating to the Secured Loans outstanding as at June 30,2007 enclosed as Annexure VI to this report and report that it correctly records the matters stated therein.

5. We have examined the Statement of Investments held by the Company as at March 31, 2003, 2004, 2005, 2006and 2007 and as at June 30, 2007 enclosed as Annexure VII to this report and report that it correctly records thematters stated therein.

6. We have examined the Statement of Debtors Ageing and Breakup of Loans and Advances as at March 31, 2003,2004, 2005, 2006 and 2007 and as at June 30, 2007 enclosed as Annexure VIII and Annexure IX, respectively, tothis report and report that it correctly records the matters stated therein.

7. We have examined the Statement of Other Income of the Company for each of the five financial years ended March31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007 enclosed as Annexure X to thisreport and report that it correctly records the matters stated therein.

8. We have examined the Statement of Related Party Transactions in respect of each of the five financial years endedMarch 31, 2003, 2004, 2005, 2006 and 2007 and the quarter ended June 30, 2007 enclosed as Annexure XI tothis report, duly extracted from the audited financial statements of the respective periods and confirm that therelationship and transactions between the Company and its related parties, as identified by the Management andrelied upon by us, have been appropriately reported in accordance with Accounting Standard 18 on Related PartyDisclosures issued by the Institute of Chartered Accountants of India.

9. We have examined the Capitalisation Statement of the Company as at June 30, 2007 enclosed as Annexure XII tothis report and report that it correctly records the matters stated therein.

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10. We have examined the Statement of Dividend Paid by the Company in respect of each of the five financial yearsended March 31, 2003, 2004, 2005, 2006 and 2007 and the quarter ended June 30, 2007 on Equity Shares of theCompany enclosed as Annexure XIII to this report and confirm that it correctly reflects the dividend paid in respectof each of those periods.

11. We have examined the Statement of Accounting and Other Ratios of the Company for each of the five financialyears ended March 31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007 enclosed asAnnexure XIV to this report and confirm that these have been correctly computed from the figures stated in theStatement of Adjusted Profits and Losses and Statement of Adjusted Assets and Liabilities as given in Annexure Iand II, respectively.

12. We have examined the Statement of Tax Shelter of the Company for each of the five financial years ended March31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007 enclosed as Annexure XV to thisreport. This Statement of Tax Shelter reconciles the Company's book profits and its taxable profits for each of thefive financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007.The reconciling items included in this Statement of Tax Shelter are reflective of Management's estimates andjudgment exercised and tax laws prevalent at the time of finalisation of the respective financial statements. Theseitems have not been updated to reflect any subsequent changes in tax law and additional information/facts obtainedby the Company. In our opinion, it correctly reflects the 'Tax Shelter' for the Company for each of those periods.

13. We have examined the Statement of Adjusted Consolidated Profits and Losses of the Company and its Subsidiary,HOEC Bardahl India Limited, ("the Group") for each of the five the financial years ended March 31, 2003, 2004,2005, 2006 and 2007 and for the quarter ended June 30, 2007 and the Statement of Adjusted Consolidated Assetsand Liabilities as at those dates enclosed as Annexure XVI and XVII, respectively, to this report and confirm that:

(a) These Statements reflect the profits and losses, and the assets and liabilities of the Group for each of thefinancials periods as extracted from the:

� Consolidated Profit and Loss Account for the financial years ended March 31, 2003, 2004, 2005 and2006, and the Consolidated Balance Sheet as at March 31, 2003, 2004, 2005 and 2006 which havebeen audited and reported upon by M/s S.B. Billimoria & Co., Chartered Accountants.

� Consolidated Profit and Loss Account for the financial year ended March 31, 2007 and the ConsolidatedBalance Sheet as at March 31, 2007 which have been audited and reported upon by us and approvedby the Board of Directors at its meeting held on May 14, 2007.

� Consolidated Profit and Loss Account for the quarter ended June 30, 2007, and the ConsolidatedBalance Sheet as at June 30, 2007 which have been audited and reported upon by us and approvedby the Board of Directors through a circular resolution dated November 14, 2007.

after making therein the adjustments required to be made in accordance with the provisions of paragraph6.10.2.7 of the Guidelines and such regroupings as we considered necessary. In this regard, the followingmay be noted:

(i) Reference is invited to paragraph 2(a)(iii) above with respect to items in the financial statements relatingto the Company's share in joint ventures which have been incorporated on the basis of informationavailable in the accounts audited by other auditors; and paragraphs 2(a)(iv) and 2(a)(v) above withrespect to items in the financial statements relating to the Company's share in joint ventures which havebeen incorporated on the basis of the information available with the Company, in the absence ofaudited accounts.

(ii) With respect to the Consolidated Profit and Loss Account for the financial years ended March 31, 2003,2004, 2005 and 2006 and the Consolidated Balance Sheet as at March 31, 2003, 2004, 2005 and2006 which have been audited by M/s S.B. Billimoria & Co., Chartered Accountants, they have reportedthat:

� they have not audited the financial statements of the Subsidiary, whose financial statements reflecttotal assets of Rs. 11.30 millions, Rs. 10.32 millions, Rs. 11.35 millions and Rs. 18.49 millions asat March 31, 2003, 2004, 2005 and 2006 respectively, total revenues of Rs. 26.88 millions,

74


Rs. 33.11 millions, Rs. 42.73 millions and Rs. 63.70 millions for the financial years ended onMarch 31, 2003, 2004, 2005 and 2006, respectively, and net cash flows of Rs. 5.63 millions, (Rs.3.60 millions), (Rs. 0.04 millions) and Rs. 7.98 millions for the financial years ended on March 31,2003, 2004, 2005 and 2006, respectively, and that these financial statements have been auditedby another auditor whose reports have been furnished to M/s S.B. Billimoria & Co., and theiropinion, insofar as it relates to the amounts included in respect of the Subsidiary, is based solelyon the report of the other auditor.

� the Consolidated Financial Statements have been prepared by the Company in accordance withthe requirements of Accounting Standard 21, Consolidated Financial Statements, issued by theInstitute of Chartered Accountants of India and on the basis of the separate audited financialstatements of the Company and its Subsidiary included in the Consolidated Financial Statements.

(iii) With respect to the Consolidated Profit and Loss Account for the financial year ended March 31, 2007and the Consolidated Balance Sheet as at that date which have been audited by us, we have reportedthat:

" we did not audit the financial statements of the Subsidiary, whose financial statements reflect totalassets (net) of Rs. 17.04 millions as at March 31, 2007, total revenue of Rs. 112.27 millions for theyear ended March 31, 2007 and net cash outflow of Rs.10.67 millions for the year ended onMarch 31, 2007. The financial statements of the Subsidiary have been audited by another auditorwhose report has been furnished to us, and our opinion, insofar as it relates to the amountsincluded in respect of the Subsidiary, is based solely on the report of the other auditor.

" the Consolidated Financial Statements have been prepared by the Company's Management inaccordance with the requirements of Accounting Standard 21 Consolidated Financial Statementsissued by the Institute of Chartered Accountants of India and on the basis of the separate auditedfinancial statements of the Company and its Subsidiary included in the Consolidated FinancialStatements.

(iv) With respect to the Consolidated Profit and Loss Account for the quarter ended June 30, 2007 and theConsolidated Balance Sheet as at that date which have been audited by us, we have reported that:

" we did not audit the financial statements of the Subsidiary, whose financial statements reflect totalassets (net) of Rs. 24.05 millions as at June 30, 2007, total revenue of Rs. 33.49 millions for thequarter ended June 30, 2007 and net cash outflow of Rs. 1.26 millions for the quarter ended June30, 2007. The financial statements of the Subsidiary have been audited by another auditor whosereport has been furnished to us, and our opinion, insofar as it relates to the amounts included inrespect of the Subsidiary, is based solely on the report of the other auditor.

" the Consolidated Interim Financial Statements have been prepared by the Company's Managementin accordance with the requirements of Accounting Standard 21 Consolidated Financial Statementsissued by the Institute of Chartered Accountants of India and on the basis of the separate auditedfinancial statements of the Company and its Subsidiary included in the Consolidated FinancialStatements.

(v) The financial statements of the Subsidiary have been audited by Mr. Hiren Lalka (Membership Number- 40242), Proprietor, H.R. Lalka & Co. for each of the five financial years ended March 31, 2003, 2004,2005, 2006 and 2007 and for the quarter ended June 30, 2007.

(b) The Significant Accounting Policies adopted by the Group are enclosed as Annexure XVIII to this report.

(c) The Notes to the Adjusted Consolidated Financial Statements are enclosed as Annexure XIX to this report.

14. We have examined the Statement of Adjusted Consolidated Cash Flows of the Group for each of the five financialyears ended March 31, 2003, 2004, 2005, 2006 and 2007 and for the quarter ended June 30, 2007 enclosed asAnnexure XX to this report and confirm that this has been prepared from the Statement of Adjusted ConsolidatedProfits and Losses and the Statement of Adjusted Consolidated Assets and Liabilities as given in Annexure XVIand XVII, respectively.

75

15. We further report that the information mentioned in items 4 to 10 have been correctly presented based on theStatement of Adjusted Profits and Losses and Statement of Adjusted Assets and Liabilities as given in Annexure Iand II, respectively.

16. This report is intended solely for your information and for inclusion in the Offer Document in connection with theProposed Rights Issue of Equity Shares and is not to be used, referred to, or distributed for any other purposewithout our prior written consent.

Yours faithfully,

For Deloitte Haskins & SellsChartered Accountants

K. Sai RamPartner

Membership No. 022360

Place : ChennaiDate : November 16, 2007

QE

Ju

ne

30,

2007

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arch

31,

2006

Details of other Auditors referred to in paragraph 2(a)(iii) of our Report dated November 16, 2007

Exhibit A

Peirod Name of theJoint Venture Name of the Audit Firm Partner of the Audit Firm who

signed the Accounts

Name Membership No.

Asjol Paresh & Jatin Paresh H Sanghvi 208342North Balol Pankaj R. Shah & Associates Nilesh Shah 107414Palej Pankaj R. Shah & Associates Nilesh Shah 107414PY-1 Paresh & Jatin Paresh H Sanghvi 208342CY-OSN-97/1 Pankaj R. Shah & Associates Nilesh Shah 107414Assam Paresh & Jatin Paresh H Sanghvi 208342

Asjol Paresh & Jatin Paresh H Sanghvi 208342PY-3 BSR & Co. S. Sethuraman 203491North Balol Pankaj R. Shah & Associates Nilesh Shah 107414Palej Pankaj R. Shah & Associates Nilesh Shah 107414PY-1 S. R. Batliboi & Co Mahendra Jain 205839CY-OSN-97/1 Pankaj R. Shah & Associates Nilesh Shah 107414Assam S. R. Batliboi & Co Baharat Vardachari 205076

Asjol Pankaj R. Shah & Associates Nilesh Shah 107414PY-3 BSR & Co. S. Balasubrahmanyam 53315North Balol Pankaj R. Shah & Associates Nilesh Shah 107414Palej Pankaj R. Shah & Associates Nilesh Shah 107414PY-1 S. R. Batliboi & Co Mahendra Jain 205839CY-OSN-97/1 Pankaj R. Shah & Associates Nilesh Shah 107414

76


Exhibit A (Contd.)

Peirod Name of theJoint Venture Name of the Audit Firm Partner of the Audit Firm who

signed the Accounts

Name Membership No.

Asjol Pankaj R. Shah & Associates Nilesh Shah 107414PY-3 Deloitte Haskins & Sells Bhavani Balasubramanian 22156North Balol Shah Mehta & Bakshi Bhavna Patel 113147Palej Pankaj R. Shah & Associates Nilesh Shah 107414PY-1 S. R. Batliboi & Co Mahendra Jain 205839CY-OSN-97/1 Pankaj R. Shah & Associates Dr. Pankaj R. Shah 30683

Asjol Pankaj R. Shah & Associates Dr. Pankaj R. Shah 30683PY-3 Deloitte Haskins & Sells Bhavani Balasubramanian 22156North Balol Shah Mehta & Bakshi Bhavna Patel 113147Palej Shah Mehta & Bakshi Bhavna Patel 113147

Asjol Haribhakti & Co. Hitesh J. Desai 37569PY-3 Deloitte Haskins & Sells Bhavani Balasubramanian 22156North Balol Shah Mehta & Bakshi J.P.Shah 33115Palej Shah Mehta & Bakshi J.P.Shah 33115CB-OS-1 Price Waterhouse Vasant Gujarathi 17866

YE

Mar

ch 3

1,20

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arch

31,

2004

YE

Mar

ch 3

1,20

03

77


Annexure I

STATEMENT OF ADJUSTED PROFITS AND LOSSES

Rs. millions


2003 2004 2005 2006 2007 June 30, 2007

IncomeSales 515.82 383.40 855.35 942.44 1,145.14 135.65(Decrease) / Increase in Stock of Crude Oil (32.55) 35.26 2.88 27.09 (33.45) 75.89Other Income (See Annexure X) 95.03 77.81 69.19 54.69 149.00 49.24

TOTAL INCOME 578.30 496.47 927.42 1,024.22 1,260.69 260.78

ExpenditureField Operating Expenses 177.39 156.83 168.10 170.62 167.76 36.98Corporate Expenses 39.34 62.54 59.98 75.21 28.27 14.40Depreciation on Fixed Assets 4.96 11.48 10.24 8.12 5.65 0.84Depletion of Producing Properties 150.73 38.10 77.82 69.83 70.85 16.44(See Note 1(d) below)Provisions and Write offs / (Write back) 153.08 5.26 (16.20) 418.35 930.37 -(See Note 1(d) below)Interest and Finance Charges 1.32 1.67 17.37 21.41 55.85 22.46


Prior Period Items - (5.25) - - - -Profit before Tax 51.48 215.34 610.11 260.68 1.94 169.66Provision for Taxation:Current Tax 19.00 16.00 195.00 168.00 286.00 45.00Deferred Tax (83.67) (21.96) 30.20 (85.00) (311.00) 8.20Wealth Tax 0.07 0.08 0.08 0.16 0.20 0.05Fringe Benefit Tax - - - 2.60 2.00 0.50Profit after Tax 116.08 221.22 384.83 174.92 24.74 115.91

Adjustments Due to Changes inAccounting Policies / Prior Period ItemsInventory Valuation (See Note 1(a) below) (24.81) (6.79) - - - -Employee Benefits (See Note 1(b) below) (0.83) 1.29 2.02 (1.90) - -Prior Period Items (See Note 1 (c) below) (2.64) 5.25 - - - -Share Issue Expenses (See Note 1 (e) below) 0.29 0.29 0.29 0.29 0.29 -Tax effect of the above adjustments 10.38 0.09 (0.71) 0.64 - -(See Note 1 (f) below)Total of Adjustments (17.61) 0.13 1.60 (0.97) 0.29 -Net Profit as Adjusted 98.47 221.35 386.43 173.95 25.03 115.91

78


Annexure I (Contd.)

NOTES TO STATEMENT OF ADJUSTED PROFITS AND LOSSES

1 Adjustments to the Financial Statements

(a) Inventory Valuation

During the financial year 2003-04, the Company had changed the accounting policy in respect of valuation ofClosing Stock of crude oil in saleable condition from cost or net realisable value, whichever is lower, to netrealisable value. In order to bring about consistency in the accounting policy for all reporting periods, closing stockfor the financial year 2002-03 has been restated, along with opening stock as on April 1, 2002.

(b) 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, though not mandatory in nature for that year. Applicationof this policy for the previous years has resulted in restatement of profits for the years ended March 31, 2003, 2004,2005 and 2006.

(c) Prior Period Items

During the financial year 2003-04, the Company had identified certain expenditure relating to depletion of producingproperties amounting to Rs. 3.29 million and provision for site restoration amounting to Rs. 1.96 million as expenditurerelating to prior periods. For the purpose of this statement, these expenses have been appropriately adjusted in theyears to which they relate.

(d) Site Restoration

In accordance with Accounting Standard 29 (AS 29) effective from April 1, 2004 issued by the Institute of CharteredAccountants of India, the Company had capitalised the undiscounted estimated future Site Restoration cost of theproducing fields in the financial year 2004-05. This change in the method of accounting has been applied for theyears ended March 31, 2003 and March 31, 2004 to ensure consistency, resulting in the restatement of the FixedAssets and Current Liabilities and Provision for these years. However, there is no impact on the Profits and Lossesof these years. The provision for site restoration made in these years, included as part of Provisions and Writeoffsin the Profit and Loss account for these years has been regrouped to Depletion of Producing Properties.

(e) Share Issue Expenses

The Share Issue Expenses incurred in the prior years had been amoritsed over a period of 10 years. However, theShare Issue Expenses incurred in the year 2006-07 has been adjusted against the Share Premium. For thepurpose of consistency in the accounting policy for all reporting periods, the Share Issue Expenses not written offas on March 31, 2002 has been adjusted against the Share Premium account including in the Opening Reserves.No additional Share Issue expenditure has been incurred during these reporting periods, other than the expensesincurred in 2006-07.

(f) Tax Effect of Adjustments

Tax effect of adjustments comprises of the tax impact of the restatement adjustments provided at the rates applicablefor the respective periods.

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Annexure II

STATEMENT OF ADJUSTED ASSETS AND LIABILITIES

Rs. millions

Particulars As at


A. Fixed Assets :

Gross Block 1,436.30 1,726.03 2,340.23 2,928.95 4,342.64 4,454.47


Net Block 580.53 835.29 1,358.19 1,853.78 3,175.20 3,266.10

B. Investments (See Annexure VII) 35.81 184.30 54.30 5.05 694.28 903.08

C. Deferred Tax Asset (Net) 99.69 121.74 90.84 176.48 487.48 479.28(See Note 1 below)


Inventories 37.73 61.06 80.87 192.97 243.93 325.75

Sundry Debtors (See Annexure VIII) 36.99 1.50 107.52 106.79 196.55 215.61



Loans and Advances (See Annexure IX) 953.10 424.01 398.66 105.41 325.78 367.49

Total 1,348.70 1,211.15 1,518.82 1,139.95 1,884.66 1,608.35

E. Liabilities and Provisions :

Secured Loans (See Annexure VI) - - 275.00 163.00 1,320.95 1,515.07

Current Liabilities and Provisions

(See Note 2 below) 235.74 368.20 443.21 601.36 1,017.33 722.48

Total 235.74 368.20 718.21 764.36 2,338.28 2,237.55

Net Worth (A+B+C+D-E) 1,828.99 1,984.28 2,303.94 2,410.90 3,903.34 4,019.26

F. Represented by :

Share Capital 587.61 587.61 587.61 587.61 783.29 783.29


G. Total 1,829.41 1,984.49 2,303.94 2,410.90 3,903.34 4019.26

H. Miscellaneous Expenditure to the extent 0.42 0.21 - - - -Not written off or adjusted

Net Worth (G-H) 1,828.99 1,984.28 2,303.94 2,410.90 3,903.34 4,019.26

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Annexure II (Contd.)

NOTES TO STATEMENT OF ADJUSTED ASSETS AND LIABILITIES

1 Deferred Tax Asset (Net)

Components of Deferred Tax Assets and Liabilities are given as under:

Rs. millions

Particulars As at


Deferred Tax Asset:

Exploration Expenses 155.11 155.08 145.51 273.00 566.89 556.35

Doubtful Advances 8.40 6.71 5.24 5.20 5.30 5.30

Site Restoration 6.29 7.79 10.16 - - -

Employee Related Costs 0.36 0.19 0.65 1.46 3.89 4.69

Sub - Total (A) 170.16 169.77 161.56 279.66 576.08 566.34

Deferred Tax Liability:



Site Restoration - - - 15.00 10.50 8.70

Sub - Total (B) 70.68 48.34 70.33 103.43 88.60 87.06

Net Deferred Tax Asset before 99.48 121.43 91.23 176.23 487.48 479.28Adjustment (A B)

Deferred Tax Asset / (Liability) relating 0.21 0.31 (0.39) 0.25 - -to adjustments

Net Deferred Tax Asset after Adjustments 99.69 121.74 90.84 176.48 487.48 479.28

2 Provision for Site Restoration

Current Liabilities and Provisions include the amount of provision created for the Site Restoration liabilities.In accordance with Accounting Standard 29, the movement in Provision for Site Restoration is as follows:

Rs. millions


2003 2004 2005 2006 2007 June 30, 2007

Provision at the Beginning of the Period 80.57 80.57 75.20 74.83 250.12 244.39

Provision for the Period - - - 173.94 - -

Effect of Change in Foreign Exchange Rate - (5.37) (0.37) 1.35 (5.73) (14.39)

Provision at the End of the Period 80.57 75.20 74.83 250.12 244.39 230.00

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

81

Annexure III

SIGNIFICANT ACCOUNTING POLICIES - COMPANY

1. Accounting Convention

The financial statements are prepared under historical cost convention in accordance with the generally acceptedaccounting principles in India.

2. Use of Estimates

The preparation of financial statements requires the Management to make estimates and assumptions consideredin the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financialstatements 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 employeebenefits, useful lives of fixed assets, provision for tax etc. Management believes that the estimates used in preparationof 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 productionactivities as explained below:

(i) Cost of exploratory wells, including survey costs, is expensed in the period 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 relateddevelopment costs, including depreciation on support equipment and facilities, are considered as developmentexpenditure. These expenses are capitalised as producing properties on attainment of commercial production.

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

Explanatory Note

1. All exploration costs including acquisition of geological and geophysical seismic information, license and acquisitioncosts are initially capitalized as "Capital Work in Progress - Exploration Expenditure", until such time as eitherexploration well(s) in the first drilling campaign is determined to be successful, at which point the costs aretransferred to "Producing Properties", or it is unsuccessful in which case such costs are written off consistent withpara 2 below.

2. Exploration costs associated with drilling, testing and equipping exploratory well and appraisal well are initiallycapitalized 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 ofseismic, or re-entry of such well, or drilling of additional exploratory / step out well in the area of interest, suchactivity 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 -ExplorationExpenditure" to determine whether capitalization is appropriate and can continue. Exploration well(s) capitalizedbeyond 2 years are subject to additional judgment as to whether facts and circumstances have changed andtherefore the conditions described in (a) and (b) no longer apply.

4. Site Restoration

Estimated future liability relating to dismantling and abandoning producing well sites and facilities whose estimatedproducing life is expected to end during next ten years is expensed in proportion to the production for the year and

82


remaining estimated proved reserves of hydrocarbons based on latest technical assessment available with theCompany.

5. Impairment

At each Balance Sheet date, the Company reviews the carrying amount of its assets to determine whether there isany indication that those assets have suffered an impairment loss. If any such indication exists, the recoverableamount 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) isincreased to the revised estimate of its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairment loss been recognized for theasset in prior accounting periods.

6. Joint Ventures

The financial statements of the Company reflect its share of assets, liabilities, income and expenditure of the JointVenture operations which are accounted on the basis of available information on line by line basis with similaritems in the Company's accounts to the extent of the participating interest of the Company as per the various jointventure agreements.

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 theCompanies Act, 1956.

(ii) In case of additions during the period, depreciation is provided for the full period irrespective of the date ofinstallation and no depreciation is provided in the period 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.

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 investmentsare 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.

(ii) Stores and spares are valued at cost on FIFO basis or market price, whichever is lower.

11. Miscellaneous Expenditure

(i) Share issue expenses incurred in prior years are written off over a period of 10 years commencing from theyear of issue.

(ii) "Signature Bonus" paid upon signing of Production Sharing Contract is considered as deferred revenueexpense to be written off over three to five years commencing from the year of payment, depending on thesize of the field.

12. Revenue Recognition

(i) Revenue from the sale of crude oil and gas net of Government's share of Profit oil and Value Added Tax isrecognised on transfer of custody to refineries / others.

83

(ii) Sale is recorded at the invoiced price, which is subject to the approval of the Government of India, Ministry ofPetroleum & 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.

13. Retirement Benefits

(a) Defined Contribution Plan

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

(ii) Superannuation: The Company contributes a sum equivalent to 15% of eligible employees basic salaryto a Superannuation Fund administered by trustees. The Company has no liability for futureSuperannuation Fund benefits other than its annual contribution and recognizes such contributions asan expense in the period 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 balancesheet date, determined by an Actuary appointed by the Company using the Projected Unit Credit method.

(c) Short Term Employee Benefit

Short-term employee benefit includes accumulated compensated absences and is recognized based on theeligible leave at credit on the balance sheet date and is estimated based on the terms of the employmentcontract.

14. Borrowing Cost

Borrowing Cost specifically identified to the acquisition or construction of qualifying assets is capitalized as part ofsuch asset. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use.All other borrowing costs are charged to Profit and Loss Account.

15. Foreign Currency Transactions

(i) Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the time ofthe transaction.

(ii) Monetary items denominated in foreign currencies at the period end and not covered by forward exchangecontracts are translated at the period end rates and those covered by forward exchange contracts are translatedat the rate ruling at the date of transaction as increased or decreased by the proportionate difference betweenthe forward rate and exchange rate on the date of transaction, such difference having been recognised overthe life of the contract.

(iii) Upto March 31, 2007, any gain or loss arising on account of exchange difference on settlement or translationwas recognised in the Profit and Loss Account except in cases where they relate to the acquisition of fixedassets from outside India in which case they were adjusted to the carrying costs of such assets. From April 1,2007, all gains or losses arising on account of exchange difference on settlement or translation is beingrecognised in the Profit and Loss Account

Also refer Note 7 of Annexure IV

16. Taxation

The Company adopts full provision basis for deferred tax, in accordance with the Accounting Standard 22 "Accountingfor Taxes on Income". Provision for deferred tax asset / liability is made for timing differences which have arisen butnot reversed at the balance sheet date and are expected to reverse in the foreseeable future. Deferred Tax asset isrecognised when there is a reasonable certainty of future taxable income except for deferred tax assets in respectof unabsorbed loss or depreciation where it is recognised only if there is a virtual certainty with convincing evidence.

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Annexure IV

NOTES TO THE ADJUSTED FINANCIAL STATEMENTS

1 Commitments and Contingencies

Rs. millions

Particulars As at


(i) Counter Guarantees on account of 25.52 43.35 49.91 133.94 284.98 139.98Bank Guarantees

(ii) Corporate Guarantee for Housing 6.30 5.84 3.80 3.12 0.61 0.61Loan to Employees

(iii) Estimated amount of contracts remaining 3.11 469.60 377.16 139.85 141.16 132.80to be executed on capital account andnot provided for (excluding Company'sshare of Joint Ventures' commitments).*

(iv) Claims against the Company Notacknowledged as Debt **

- Royalty payments for a Joint Venture 0.11 0.11 - - - -

- Dispute with Contractors under 40.74 37.96 37.77 23.79 3.23 3.21 Arbitration

- Income Tax Demands under Appeal 71.66 87.77 88.44 126.89 298.15 298.15

(v) The Government had encashed the 170.88 193.18 215.49 237.80 260.11 265.69Performance Bank Guarantee ofRs 10.15 million for the PG Blockabandoned by the consortium under theforce majeure clause of the ProductionSharing Contract (PSC).The Governmenthas also raised an additional demandon which interest has been compounded.The Company has been legally advisedthat the said actions of the Governmentare not justified. The Company hasinitiated legal proceeding as per theprovisions of the PSC in the matter.Pending the outcome of this, a provisionwas made during the financial year1996-97 in this regard to the extent ofRs. 10.15 million in the books ofaccount.**

(vi) Others 1.30 - - - - -

Total 319.62 837.81 772.57 665.39 988.24 840.44

* Includes Rs. 464.31 millions, Rs. 373.83 millions, Rs. 136.82 millions and Rs. 133.50 millions for the financial years endedMarch 31, 2004, 2005, 2006 and 2007 respectively and Rs. 125.14 millions for the quarter ended June 30, 2007 in respect ofFarm-in consideration for acquisition of Participating Right in one Joint Venture.

** The Management is of the opinion that the claims under items (iv) and (v) above are not sustainable.

85

Annexure IV (Contd.)


2 The Company has entered into Production Sharing Contracts and Joint Ventures in respect of certain propertieswith the Government of India and some bodies corporate. Details of these PSCs/JVs are as follows

Joint Ventures / Partners # Share (%)

For the Years Ended March 31, For theQuarter Ended

2003 2004 2005 2006 2007 June 30, 2007

(a) Licensed Production Sharing Contracts:

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

Hardy Exploration & Production (India) Inc. 18.00 18.00 18.00 18.00 18.00 18.00

Oil and Natural Gas Corporation Ltd. 40.00 40.00 40.00 40.00 40.00 40.00

Hindustan Oil Exploration Company Ltd. 21.00 21.00 21.00 21.00 21.00 21.00

Tata Petrodyne Ltd. 21.00 21.00 21.00 21.00 21.00 21.00

Asjol


Gujarat State Petroleum Corporation Ltd. 50.00 50.00 50.00 50.00 50.00 50.00

PY -1


Mosbacher (India) LLC 53.85 - - - - -

CB-OS-1 (Cambay)

BG Exploration & Production (India) Inc. 62.64 - - - - -


Tata Petrodyne Ltd 10.00 10.00 10.00 10.00 10.00 10.00

Oil and Natural Gas Corporation Ltd. 10.00 32.89 32.89 32.89 32.89 32.89

Pranhita Godavari **


Mafatlal Industries Ltd. 25.00 25.00 25.00 25.00 25.00 25.00

AAP-ON-94/1 ***

Premier Oil North East India BV 38.00 38.00 38.00 - - -

Indian Oil Corporation Ltd. 27.00 27.00 27.00 43.548 43.548 43.548


Oil India Ltd. 10.00 10.00 10.00 16.129 16.129 16.129

CB-ON-7 (Palej)

Exploration



Pramoda Development ****

Hindustan Oil Exploration Company Ltd. - - 35.00 35.00 35.00 35.00

Gujarat State Petroleum Corporation Ltd. - - 35.00 35.00 35.00 35.00

Oil and Natural Gas Corporation Ltd. - - 30.00 30.00 30.00 30.00

86




Joint Ventures / Partners # Share (%)

For the Years Ended March 31, For theQuarter Ended

2003 2004 2005 2006 2007 June 30, 2007

CY-OSN-97/1


Mosbacher (India) LLC 30.00 20.00 20.00 20.00 20.00 20.00

North Balol



Heramec Ltd. 30.00 30.00 30.00 30.00 30.00 30.00

(b) Production Sharing Contracts awaiting MiningLease License *****

Unawa

Hindustan Oil Exploration Company Ltd. 25.00 - - - - -

Gujarat State Petroleum Corporation Ltd. 45.00 - - - - -

Heramec Limited 30.00 - - - - -

Kanwara




Allora




Dholasan




North Kathana




# All the Joint Ventures are for the blocks awarded within the territorial limit of India.** As discussed in Note 1(v) above, the arbitration award is awaited for closure of this joint venture.*** The Company has become the operator of the Block with effect from January 1, 2006 and has enhanced its ParticipatingInterest (PI) from the existing 25% to 40.323% (without compensation). The same has been approved by the Central Governmentduring the year ended March 31, 2007.**** Oil and Natural Gas Corporation Ltd., has exercised its option to acquire 30% participating interest in the Pramodadevelopment area of the said Field w.e.f. January 8, 2005.***** Participating interest in respect of these are not appearing after the year ended March 31, 2003 since these were farmedout.

87



3 Segmental Reporting

The Company is primarily engaged in a single business segment of Hydrocarbons. All the activities of the Companyrevolve around the main business. Further, the Company does not have any separate geographic segments otherthan India. As such there are no separate reportable segments as per AS-17 "Segmental Reporting" issued by theInstitute of Chartered Accountants of India.

4 Long Term Incentive Plan, 2005

The Company has instituted a Long Term Incentive Plan ("LTIP Scheme") for the benefit of the employees of theCompany. Under the plan, the Company is authorized to distribute 5% of Company's profit on ordinary activities toeligible employees in the form of Cash and Deferred Bonus. After meeting the Cash Bonus component as per theLTIP Scheme, the surplus is distributed as Deferred Bonus (Stock Options). The number of shares to be issuedunder the LTIP Scheme is determined by dividing the Deferred Bonus for the Scheme Year by the average marketprice of the Company's Shares (as quoted at the NSE) 30 days prior to the date on which the Board of Directorsapprove the audited accounts in relation to the Scheme Year or such other date as may be approved by the Board.

A trust has been formed to purchase the shares from the market. The Company funds the trust to buy the requisitenumber of shares, granted under ESOP. The total Bonus including Cash and Deferred is expensed during theScheme Year to which it pertains.

The Remuneration and Compensation Committee of the Board of Directors of the Company administer the LTIPScheme. On May 23, 2006, the Company approved grant of 15,069 options, pertaining to Financial Year 2005-2006,at NIL exercise price. These options vest with the eligible employees after a period of 3 years from April 1, 2006.The Company has neither approved any grant nor distributed any Cash or Deferred Bonus for the financial year2006-07 and for the quarter ended June 30, 2007.

Particulars For the Year Ended For the Quarter EndedMarch 31, 2007 June 30, 2007

Shares Arising Exercise Shares Arising ExerciseOut Of Options Price Out Of Options Price

Outstanding at the beginning of the year / quarter 15,069 Nil 15,069 Nil

Vested during the year / quarter - Nil - Nil

Forfeited during the year / quarter - Nil - Nil

Exercised during the year / quarter - Nil - Nil

Outstanding at the end of the year / quarter 15,069 Nil 15,069 Nil

Exercisable at the end of the year / quarter - Nil - Nil

88




5 The Company's obligation towards the Gratuity Fund is a Defined Benefit Plan.

Details of Actuarial Valuation are as follows :


2003 2004 2005 2006 2007 June 30, 2007

Projected Benefit Obligation at the Beginning 2.25 3.14 3.14 3.58 5.25 4.52of the Period

Service Cost 0.33 0.39 0.50 0.77 0.79 0.32

Interest Cost 0.13 0.20 0.22 0.30 0.44 0.09

Actuarial Losses / (Gains) 0.45 (0.06) 0.28 0.83 (0.16) 1.64

Benefits Paid (0.02) (0.53) (0.56) (0.23) (1.80) (0.02)

Projected Benefit Obligation at the End of 3.14 3.14 3.58 5.25 4.52 6.55the Period

Change in Plan Assets

Fair Value of Plan Assets at the Beginning of the 1.77 2.17 2.29 2.35 2.53 1.05Period

Expected Returns on Plan Assets 0.15 0.18 0.18 0.21 0.14 0.02

Employer's Contribution 0.26 0.46 0.45 0.22 0.17 0.28

Benefits Paid (0.02) (0.53) (0.56) (0.23) (1.80) (0.03)

Actuarial Gain / (Loss) 0.01 0.01 (0.01) (0.02) 0.01 (0.02)

Fair Value of Plan Assets at the End of the Period 2.17 2.29 2.35 2.53 1.05 1.30

Cost of the Defined Benefit Plan for the Period

Current Service Cost 0.33 0.39 0.50 0.77 0.79 0.32

Interest on Obligation 0.13 0.20 0.22 0.30 0.44 0.09

Expected Return on Plan Assets (0.15) (0.18) (0.18) (0.21) (0.14) (0.02)

Net Actuarial Losses / (Gains) Recognised in the 0.44 (0.07) 0.29 0.85 (0.17) 1.66Period

Net Cost recognised in the Profit and 0.75 0.34 0.83 1.71 0.92 2.05Loss Account

Assumptions

Discount Rate 6.00% 6.00% 7.00% 8.35% 8.35% 8.35%

Future Salary Increase 7.75% 7.55% 7.40% 8.25% 10.00% 10.00%

Expected Rate of Return on Plan Assets 7.40% 7.75% 8.75% 10.00% 8.25% 8.25%

89



6 Managerial Remuneration

Details of Managerial Remuneration Paid

Rs. millions

Particulars For the For theYear Ended Quarter Ended

March 31, 2007 June 30, 2007

Salary 7.84 1.66

Contribution to Provident and Superannuation Funds 0.53 0.20

Perquisites 0.23 -

Total 8.60 1.86

Notes:

1 The Managerial Remuneration paid for the year ended March 31, 2007 pertains to the erstwhile ManagingDirector for the period April 1, 2006 to July 31, 2006 and the Joint Managing Director for the period August1, 2006 to March 31, 2007.

The Managerial Remuneration does not include an amount of Rs. 80,000 paid to the current ManagingDirector as sitting fee for attending Board / Committee meetings. The current Managing Director does not drawany other remuneration from the Company.

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

3 The Management believes that the Exploration Expenses written off during the year ended March 31, 2007and debited to the Profit and Loss Account amounting to Rs. 943.49 millions should be added back tocompute profits under Section 198 / 349 of the Companies Act, 1956 which would mean that the remunerationpaid to the erstwhile Managing Director / Joint Managing Director would be within the limits stipulated underSection 198 / 349 of the Companies Act, 1956. However, as a matter of abundant caution, the Company hasopted to comply with the provisions of Schedule XIII of the Companies Act, 1956 as described below.

In the absence of adequate profits for the year ended March 31, 2007, the remuneration payable to theerstwhile Managing Director and the Joint Managing Director should be within the limits specified in SectionII of Part II of Schedule XIII of the Companies Act, 1956.

In the case of the erstwhile Managing Director, the remuneration paid for the period April 01, 2006 to July 31,2006 which is currently covered under clause (A) of Section II of Part II of Schedule XIII is now proposed tobe covered under clause (C) of Section II of Part II of Schedule XIII and, hence, requiring the approval of theShareholders and the Central Government. The shareholders have approved such excess remuneration at theGeneral Meeting of the Company held on September 28, 2007. The Company is in the process of making theapplication to the Central Government for approval of the same. Pending such approval, no recovery hasbeen made for the excess remuneration of Rs. 4.87 millions paid to him vis-à-vis the remuneration payableunder Clause (A) of Section II of Part II of Schedule XIII of the Companies Act, 1956.

90


In the case of the Joint Managing Director, the remuneration paid for the period August 01, 2006 to March 31,2007 which was covered under clause (A) of Section II of Part II of Schedule XIII is now covered under clause(B) of Section II of Part II of Schedule XIII and, hence, requiring the approval of the shareholders. Theshareholders have approved such excess remuneration at the General Meeting of the Company held onSeptember 28, 2007.

7 Change in Accounting Policy

Hitherto, the Company followed a policy of adjusting the exchange difference relating to the acquisition of fixedassets from outside India to the cost of the fixed assets. Consequent to Accounting Standard 11, Effects of Changesin Foreign Exchange Rates, becoming mandatory for all accounting periods commencing on or after December 7,2006, the Company has changed its accounting policy. From April 1, 2007, all gains or losses arising on account ofexchange differences are recognised in the Profit and Loss Account. However, there is no effect on the profit or lossduring the reporting periods on account of such change in accounting policy.

8 Subsequent Event

Subsequent to June 30, 2007, the production from PY-3-3RL well in PY-3 field has been stopped since the well hasbeen temporarily shut down due to excessive water entering the well. Consequent to the same, the production fromthe PY-3 field has come down by about 231 bopd on working interest basis to the Company.

91

Annexure V

STATEMENT OF ADJUSTED CASH FLOWS

Rs. millions


2003 2004 2005 2006 2007 June 30, 2007

A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit Before Tax as per Audited Accounts 51.48 215.34 610.11 260.68 1.94 169.66

Adjustments affecting Cash Flow:





Adjusted Net Profit before Tax 23.49 215.38 612.42 259.07 2.23 169.66

Adjustments for :

Provision for:

Loss/(Gain) on Revaluation of Current Investments (5.04) 8.27 (8.28) - - -

Leave Encashment 1.49 (1.48) (2.52) 1.78 (0.32) 0.56

Provision for Contingencies - - (0.40) - - -

Provision for Doubtful Claims / Loans (4.30) (4.52) (2.73) - - -

Provision for Diminution of Value of Investment - - (5.00) - - -

Depreciation and Depletion 158.33 49.58 88.06 77.95 76.50 17.28

Exploration Expenses Written Off (Net) 162.22 1.29 - 418.35 930.37 -

Other Miscellaneous Expenses Written Off 0.21 0.21 0.21 - - -

Dividend / Interest Income (85.69) (77.62) (59.39) (48.61) (132.56) (28.63)

(Profit) / Loss on Sale of / Discarded Assets (Net) (0.34) 0.27 (0.08) 0.27 0.17 -

(Profit) / Loss on Sale of Current Investments (3.30) 0.04 2.81 (0.38) - -

Unrealized Exchange Loss / (Gain) - - - 1.35 (18.83) (21.12)


Operating Profit Before Working Capital Changes 248.39 193.09 642.47 731.19 913.41 160.21

Adjustments for:

Trade and Other Receivables 2.57 50.75 (212.45) (130.51) (253.52) (5.72)

Inventories 61.80 (23.33) (19.81) (112.10) (50.96) (81.82)

Payables (71.60) 135.14 71.41 (40.85) 470.94 (319.92)

Cash (used in)/from Operations 241.16 355.65 481.62 447.73 1,079.87 (247.25)

Taxes Paid (28.74) 28.31 (194.04) (149.77) (272.13) (6.65)

Miscellaneous Expenses Incurred (0.63) - - - - -

Net Cash (Used In)/From Operating Activities 211.79 383.96 287.58 297.96 807.74 (253.90)

92


B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets * (82.11) (255.57) (406.69) (509.67) (1,472.89) (41.31)

Insurance Claim on Replacement Well - - 64.14 - - -

Proceeds from Sale of Fixed Assets 1.02 29.48 3.01 1.68 0.12 -

Exploration Expenses Incurred # (113.64) (85.16) (271.72) (297.76) (856.00) (74.46)

Proceeds from Sale of Current Investments 8.34 (8.31) 5.47 0.38 - -

Loan Repaid by Subsidiary - - - 5.01 - -

Dividend/Interest Received 86.87 82.43 61.61 49.55 126.49 31.16

(Increase) / Decrease in Inter Corporate Deposits (187.50) 687.50 (45.00) 95.00 - -

Net Cash (Used In) / From Investing Activities (287.02) 450.37 (589.18) (655.81) (2,202.28) (84.61)

C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from Issue of Share Capital @ - - - - 1,487.89 -

Secured Loans Taken - Long Term - - 350.00 - 1,706.72 324.96

Secured Loans Repaid - Long Term - - (75.00) (112.00) (535.66) (109.72)

Interest and Finance Charges Paid * # (1.32) (1.67) (17.37) (33.86) (146.67) (27.29)

Dividend Paid (including Dividend Tax) (68.99) (52.05) (65.10) (65.97) (66.12) -

Rights Issue Expenses - - - - (19.74) -

Net Cash (Used In) / From Financing Activities (70.31) (53.72) 192.53 (211.83) 2,426.42 187.95

NET (DECREASE) / INCREASE IN CASH OR (145.54) 780.61 (109.07) (569.68) 1,031.88 (150.56)CASH EQUIVALENTS

Cash, Cash Equivalents :Opening Balance 515.17 369.63 1,150.24 1,041.17 471.49 1503.37Closing Balance 369.63 1,150.24 1,041.17 471.49 1,503.37 1352.81

(145.54) 780.61 (109.07) (569.68) 1,031.88 (150.56)

Cash and Bank Balance as per Annexure II 309.41 717.73 927.12 731.08 1,108.63 692.28Inter Corporate Deposits for less than 90 days 50.00 280.00 130.00 - - -Current Investments 35.76 184.25 49.25 - 689.23 898.03Adjustment for Site Restoration Deposit (19.16) (20.90) (22.01) (166.56) (179.41) (179.42)Adjustment for Lien Marked Deposits (6.38) (10.84) (43.19) (93.03) (115.08) (58.08)

Closing Cash, Cash Equivalents 369.63 1,150.24 1,041.17 471.49 1,503.37 1,352.81

* Interest and Finance Charges Paid includes and Purchase - - - 12.45 27.49 5.33of Fixed Assets excludes Borrowing Cost capitalised

@Proceeds from Issue of Share Capital includes Unclaimed - - - - 0.75 -/ Unpaid Share Application Money.

# Interest and Finance Charges Paid includes and ExplorationExpenditure Incurred excludes Borrowing Cost capitalised - - - - - 0.33

Annexure V (Contd.)

STATEMENT OF ADJUSTED CASH FLOWS

Rs. millions


2003 2004 2005 2006 2007 June 30, 2007

93

Annexure VI

STATEMENT OF SECURED LOANS

Rs. millions

Particulars As at


Term Loans

Rupee Term Loan - - 275.00 163.00 936.00 876.00

Foreign Currency Loan - - - - 384.95 638.20

Interest Accrued and Due - - - - - 0.87

Total - - 275.00 163.00 1,320.95 1,515.07

Details, Terms and Conditions of Secured Loans Outstanding as at June 30, 2007

Borrowings are secured by way of charge on Company's Participating Interest in PY-1, PY-3 and Palej Fields, first chargeon Company's share of Crude Oil receivables from PY-3 and Palej Fields, charge on the immoveable and movableproperties of the PY-1 Field and charge on Debt Service Reserves Account

Rs. millions / USD millions

Name of the Lender Amount Repayment Schedule Interest RateOutstanding as at

June 30, 2007 Financial AmountYear/Period

UTI Bank 365.00 July 2007 to 75.00March 2008

2008-09 90.00 8.5% (Note 1)

2009-10 60.00

2010-11 50.00

2011-12 35.00

2012-13 30.00

2013-14 25.00

HDFC Bank 511.00 July 2007 to 105.00 8.5% (Note 1)March 2008

2008-09 126.00

2009-10 84.00

2010-11 70.00

2011-12 49.20

2012-13 42.00

2013-14 34.80

94


SBI Bank (Note 2) USD 7.55 July 2007 to USD 1.02 LIBOR+250 Basis Points(Equivalent March 2008 (Reset at six-monthly

INR 309.96) 2008-09 USD 2.03 Intervals)

2009-10 USD 1.35

2010-11 USD 1.13

2011-12 USD 0.39

UTI Bank (Note 3) USD 8.00 2009-2010 USD 0.38

(Equivalent 2010-2011 USD 1.52 LIBOR+250 Basis Points

INR 328.24) 2011-2012 USD 1.52 (Monthly Reset)

2012-2013 USD 1.52

2013-2014 USD 1.52

2014-2015 USD 1.54

Notes:

1. The Interest Rate is reset at the end of two years from the date of first drawdown date.

2. The balance of USD 1.63 million outstanding at the end of 5 years shall be converted into a 3 year Rupee TermLoan or a Fresh FCNRB term Loan of tenor 3 years.

3. The Company has drawndown an amount of USD 8.00 million as at June 30, 2007 out of the USD 100 millionfacility with a consortium of 11 Banks headed by UTI Bank.

Rs. millions / USD millions

Name of the Lender Amount Repayment Schedule Interest RateOutstanding as at

June 30, 2007 Financial AmountYear/Period

95

Annexure VII

STATEMENT OF INVESTMENTS

Rs. millions

Particulars As at March 31,As at June

2003 2004 2005 2006 2007 30, 2007

Quoted

Equity Shares 0.05 0.05 0.05 0.05 0.05 0.05

Unquoted

Equity Shares (net of provision for diminution in - - 5.00 5.00 5.00 5.00value of investments)

Others24,446,092 Units of Rs. 10 each of HDFC CashManagement Fund - Saving Plan - Daily Dividend 260.0229,755,718 Units of Rs. 10 each of Prudential ICICILiquid Plan - Daily Dividend Option 297.569,816,266 Units of Rs. 10 each of SBI Magnum InstaCash Fund - Daily Dividend Option 164.42175,984 Units of Rs. 1000 each of Templeton IndiaTMA Super Institutional Plan - Daily Dividend Reinvestment 176.031,396,049 Units of Rs. 10 each of HDFC CashManagement Fund - Saving Plan - Daily Dividend 14.8530,485,613 Units of Rs. 10 each of Prudential ICICILiquid Plan - Daily Dividend Option 304.8617,894,243 Units of Rs. 10 each of SBI Magnum InstaCash Fund - Daily Dividend Option 299.7364,800 Units of Rs. 1000 each of UTI Liquid Cash PlanInstitutional - Daily Income Option - Reinvestment 66.063,735 Units of Rs. 1000 each of Templeton India TMASuper Institutional Plan - Daily Dividend Reinvestment 3.73

362,836.084 Units of Rs. 10 each of HDFC-Liquid Fund 3.671,036,604.025 Units of Rs. 10 each of HDFC-LiquidFund Premium Plus Plan 12.542,788,178.125 Units of Rs. 10 each of Prudential ICICILiquid Plan 33.049,842,150.798 Units of Rs.10 each of HDFC IncomeFund Premium Plan 105.891,220,591.377 Units of Rs.10 each of IL&FS BondFund Institutional Plan 13.533,392,352.933 Units of Rs. 10 each of JM Short Term Fund 36.622,801,707.620 Units of Rs. 10 each of HDFC-Liquid Fund 28.211,888,404.96 Units of Rs. 10 each of HDFC-Liquid Fund 19.141,584,067.36 Units of Rs. 10 each of JM Short Term Fund 16.62

Total 35.81 184.30 54.30 5.05 694.28 903.08

Note:

Market Value of Quoted Equity Shares 0.09 0.17 0 .17 0 .38 0.60 0.75

96


Annexure VIII

STATEMENT OF DEBTORS AGEING

Rs. millions

Particulars As at


Unsecured, considered good

Debts outstanding for a period exceeding

six months 2.08 - - 0.01 - -

Other Debts 34.91 1.50 107.52 106.78 196.55 215.61

Total 36.99 1.50 107.52 106.79 196.55 215.61

Note:

Debtors include amounts receivable fromRelated Parties

- Indian Oil Corporation Limited 4.24 1.50 2.64 41.21 29.25 27.87

97

Annexure IX

BREAK UP OF LOANS AND ADVANCES

Rs. millions

Particulars As at


CONSIDERED GOOD

Advance Recoverable in Cash or in Kind

or For Value to be Received 53.10 26.49 108.01 44.86 264.83 306.54

Loans and Advances to the Subsidiary 11.50 10.85 5 .01 - - -

Inter-Corporate Deposit 787.50 330.00 225.00 - - -

Advance Taxes 101.00 56.67 60.64 60.55 60.55 60.55

Advance Fringe Benefit Tax - - - - 0 .40 0.40

Sub - Total (A) 953.10 424.01 398.66 105.41 325.78 367.49

CONSIDERED DOUBTFUL 12.71 18.30 15.56 15.56 15.56 15.56

Less: Provision for Doubtful Advances 12.71 18.30 15.56 15.56 15.56 15.56

Sub - Total (B) - - - - - -

Total (A) + (B) 953.10 424.01 398.66 105.41 325.78 367.49

Note:

For details of amounts receivable from Related Parties, refer Annexure XI

98


Annexure X

STATEMENT OF OTHER INCOME

Rs. millions


2003 2004 2005 2006 2007 June 30, 2007

Interest Income (Gross) 77.77 61.32 54.67 45.96 71.27 15.28

Dividend from Subsidiary - - - - 18.75 -

Dividend from Long Term - Trade Investments 0.13 - - - 0.01 -

Dividend from Current - Non Trade Investments 7.79 16.30 4.72 2.65 42.53 13.36

Profit on Sale of Current Investments 3.30 - - 0.38 - -

Gain on Foreign Exchange Fluctuation (Net) - - - 5.12 15.35 19.03

Profit on Sale of Assets 0.34 - 0.08 - - -

Miscellaneous Income* 5.70 0.19 9.72 0.58 1.09 1.57

Total Other Income 95.03 77.81 69.19 54.69 149.00 49.24

* Includes non recurring income of Rs. 5.50 million pertaining to partial Farm-out of Participating Interest in Block AAP-ON-94/1 in Financial Year 2002-03 and Rs. 9.38 million pertaining to sale of Comapny's share in five small fields inCambay Basin during the financial year 2004-05.

99

Annexure XI

STATEMENT OF RELATED PARTY TRANSACTIONS

As per the Accounting Standard on 'Related Party Disclosure' (AS 18) issued by the Institute of Chartered Accountants ofIndia, the related parties as identified by the Management are as follows:

As stated in item 6 of Significant Accounting Policies (Annexure III), the financial statements of the Joint Ventures areincorporated in the Company's accounts. Hence, particulars of transactions with the Joint Ventures have not been separatelydisclosed.


2003 2004 2005 2006 2007 June 30, 2007

Joint Ventures

Hardy Exploration & Production (India) Inc. � � � � � �

Oil and Natural Gas Corporation Ltd. � � � � � �

Tata Petrodyne Ltd. � � � � � �

Gujarat State Petroleum Corporation Ltd. � � � � � �

Mafatlal Industries Ltd. � � � � � �

Premier Oil North East India BV � � � � � �

Indian Oil Corporation Ltd. � � � � � �

Oil India Ltd. � � � � � �

Mosbacher (India) LLC � � � � � �

Heramec Ltd. � � � � � �

BG Exploration & Production (India) Inc. � - - - - -

Subsidiary Company

HOEC Bardahl India Ltd. � � � � � �

Entity with Substantial Interest/Promoters Group

Burren Shakti Limited (Formerly known as - - � � � �

Unocal Bharat Limited)

Burren Energy (India) Ltd - - - � � �

Key Management Personnel

Mr. Ajit C. Kapadia � � - - - -

Mr. Rakesh Jain (upto July 31, 2006) - � � � � -

Mr. Atul Gupta (from August 1, 2006) - - - - � �

Mr. Manish Maheshwari (from August 1, 2006) - - - - � �

100


Annexure XI (Contd.)

STATEMENT OF RELATED PARTY TRANSACTIONS

The nature and volume of transactions for the quarter ended June 30, 2007 and years ended March 31, 2003, 2004,2005, 2006 and 2007 with the related parties mentioned are as follows:

Rs. millions


2003 2004 2005 2006 2007 June 30, 2007

SUBSIDIARY COMPANY

Income

- Interest 1.01 0.61 0.56 0.17 - -

- Dividend - - - - 18.75 -

Expenditure

- Office Premises Usage Charges - 0.08 0.14 0.08 - -

- Salaries - - 0.10 0.10 - -

- Repairs and Maintenance - 0.05 - - - -

Others

- Unsecured Loan Repaid - 9.24 5.70 5.01 - -

- Write back of Provision for Doubtful Claim / Loans - 8.64 - - - -

Net Amount Due as at Period End

- Unsecured Loan Outstanding 20.14 10.70 5.00 - - -

- Current Account Balance - 0.15 0.01 - - -

JOINT VENTURES' PARTNERS

Income

- Recovery of Expenses 12.01 6.10 10.00 16.90 27.57 9.44

ENTITY WITH SUBSTANTIALINTEREST / PROMOTERS GROUP

Dividend Paid - - - 15.28 15.29 -

KEY MANAGEMENT PERSONNEL

Expenditure

- Remuneration 1.60 4.08 7.09 7.63 8.60 1.87

- Sitting Fees - - - - 0.08 0.06

Net Amount Due as at Period End - - - 0.17 0.12 -

101

Annexure XII

CAPITALISATION STATEMENT

Rs. millions

Particulars Pre Issue as at Adjusted ForJune 30, 2007 Rights Issue

Borrowings

Long Term Debt 1,515.07 1,515.07

Total Debt 1,515.07 1,515.07

Shareholders' Funds

Share Capital 783.29 1,305.47

Reserves (Adjusted) 3,235.97 8,823.27

Total Shareholders' Fund (Net Worth) 4,019.26 10,128.74

Long Term Debt / Equity Share Capital 1.93 : 1 1.16 : 1

Long Term Debt / Shareholders' Funds (Net Worth) 0.38 : 1 0.15 : 1

Note:

The Capitalisation Statement has been prepared based on the Management's assumption that the proposed Rights Issueof Equity Shares to the shareholders of the Company consisting of 52,217,720 Equity Shares of Rs. 10 each to be issuedat the rate of Rs. 117 per Equity Share will be subscribed fully.

102


Annexure XIII

STATEMENT OF DIVIDEND PAID


2003 2004 2005 2006 2007 June 30, 2007

Equity Share Capital (Rs.) * 587,449,350 587,449,350 587,449,350 587,449,350 783,126,680 783,126,680

Number of Equity Shares 58,744,935 58,744,935 58,744,935 58,744,935 78,312,668 78,312,668of Rs.10 each

Rate of Dividend (%) 8 10 10 10 - -

Dividend (Rs.) # 46,995,948 58,744,935 58,744,935 58,744,935 - -

* Excludes amount paid-up on shares forfeited Rs. 160,115

# Excludes Dividend Distribution Tax, where applicable.

103

Annexure XIV

STATEMENT OF ACCOUNTING AND OTHER RATIOS

Particulars For the Years Ended March 31, For the QuarterEnded June 30,

2003 2004 2005 2006 2007 2007

Basic/Diluted Earnings Per 1.54 3.47 6.06 2.73 0.35 1.48Share (Rs.)

Return on Net Worth ( % ) 5.38% 11.16% 16.77% 7.21% 0.64% 2.88%

As at Period End

Net Asset Value per Share (Rs.) 31.13 33.78 39.22 41.04 49.84 51.32

Number of Equity Shares (Nos.) 58,744,935 58,744,935 58,744,935 58,744,935 78,312,668 78,312,668

Definition of Ratios

Net Profit after Tax attributable to Equity Shareholders(i) Basic/ Diluted Earnings Per Share (Rs.) =

Weighted Average Number of Equity Shares outstandingduring the period

Net Profit after Tax attributable to Equity Shareholders(ii) Return on Net Worth (%) =

Net Worth as per Statement of Adjusted Assets and Liabilities

Net Worth as per Statement of Adjusted Assets and Liabilities(iii) Net Asset Value per Share (Rs.) =

Number of Equity Shares Outstanding at the end of the period

Notes:

1. Ratios have been computed on the basis of adjusted profits for the respective periods.

2. Earnings per Share calculations are done in accordance with Accounting Standard 20 "Earnings per Share" issuedby the Institute of Chartered Accountants of India.

3. Net Worth at the end of the period represents Shareholders' Equity less Miscellaneous Expenditure to the extentnot written off.

104


Annexure XVSTATEMENT OF TAX SHELTER

Rs. millions


2003 2004 2005 2006 2007 2007

Profit before Tax as per Annexure I 51.48 215.34 610.11 260.68 1.94 169.66

Tax Rate 36.75% 35.88% 36.59% 33.66% 33.66% 33.99%

Tax at Notional Rate 18.92 77.26 223.24 87.74 0.65 57.67

Permanent Differences:

Deduction u/s 80IB (234.26) (257.08) - - - -

Dividend from Units of Mutual Fundu/s 10(35) - (16.30) (4.72) (2.65) (42.53) (13.36)

Dividend from Equity Shares u/s 10(34) - - - - (18.76) -

Others 0.37 5.36 0.31 0.29 - -

Total Permanent Differences (A) (233.89) (268.02) (4.41) (2.36) (61.29) (13.36)

Timing Differences:

Depreciation and Depletion 92.36 43.83 (68.37) (254.72) (28.09) (27.98)

Provision for Doubtful Loans / Contingencies (4.30) (4.52) (3.12) - - -

Exploration Exp. Written Off 150.72 - - 418.35 930.37 -

Items Allowed on Payment Basis (Net) 0.65 0.41 (0.51) 0.37 1.09 2.66

Short Term Capital (Loss) / Gains (0.34) 20.01 (0.08) 64.78 - -

Investments (8.34) 8.33 (10.47) (0.38) - -

Others - 7.87 - 2.21 4.29 (0.44)

Total Timing Differences (B) 230.75 75.93 (82.55) 230.61 907.66 (25.76)

Net Adjustment (A+B) (3.14) (192.09) (86.96) 228.25 846.37 (39.12)

Tax (Saving) / Expense thereon (1.15) (68.92) (31.82) 76.83 284.89 (13.30)

Tax on Long Term Capital Gains 0.35 - - - - -

TOTAL TAX (C) 18.12 8.34 191.42 164.57 285.54 44.37

Taxable Income u/s 115JB under MAT 41.95 203.17 597.27 260.24 - 156.31

Tax Payable under MAT (D) 3.30 15.62 46.83 21.90 - 17.71

TAX EXPENSE (MAXIMUM OF C AND D) 18.12 15.62 191.42 164.57 285.54 44.37

Interest on Tax Payable u/s 234B/234C 0.25 0.35 3.60 2.80 - -

TOTAL TAX EXPENSE 18.37 15.97 195.02 167.37 285.54 44.37

Tax Provision in Books of Account 19.00 16.00 195.00 168.00 286.00 45.00

Notes:

1) The tax shelter is worked out on the basis of profits as per the audited accounts and is not based on profits as perthe Statement of Adjusted Profits and Losses attached as Annexure I.

2) For the financial year 2004-05, 2005-06 and 2006-07, the Company has claimed deduction under Section 80 IBamounting to Rs 524.96 millions, Rs. 425.84 millions and Rs. 848.71 millions, respectively in the return of incomefiled with the Income Tax Department under Section 139(1) which has not been considered for tax provision in thebooks of account taking a conservative view on the claim.

105

Annexure XVI

STATEMENT OF ADJUSTED CONSOLIDATED PROFITS AND LOSSESRs. millions


2003 2004 2005 2006 2007 2007

Income

Sales 542.37 414.56 897.42 1,005.13 1,255.59 168.13

(Decrease) / Increase in Stock of Crude Oil (32.55) 35.26 2.88 27.09 (33.45) 75.89

Other Income (See Note 2 below) 94.25 77.59 68.83 55.07 131.86 50.26

TOTAL INCOME 604.07 527.41 969.13 1,087.29 1,354.00 294.28

Expenditure

Field Operating Expenses 177.39 156.83 168.10 170.62 167.76 36.98

Cost of Goods for Resale 10.77 10.60 13.68 20.48 38.33 10.36

Corporate Expenses 43.92 67.90 66.13 82.83 38.90 18.91


Depletion of Producing Properties 150.73 38.10 77.82 69.83 70.85 16.44(See Note1(d) below)

Marketing and Distribution Cost 6.54 8.68 10.88 15.39 31.05 7.93

Provisions and Write offs / (Write back) 157.40 13.67 (11.26) 418.45 930.54 -(See Note 1(d) below)



Prior Period Items - (5.25) - - - -

Profit before Tax 50.87 213.09 615.90 279.77 14.37 180.22

Provision for Taxation:

Current Tax 19.31 16.40 197.54 174.44 296.80 48.70

Deferred Tax (83.67) (24.22) 31.71 (84.95) (311.22) 7.98

Wealth Tax 0.07 0.08 0.08 0.16 0.20 0.05

Fringe Benefit Tax - - - 3.06 2.66 0.57

Profit after Tax 115.16 220.83 386.57 187.06 25.93 122.92

Adjustments Due to Changes in AccountingPolicies / Prior Period Items

Inventory Valuation (See Note 1(a) below) (24.81) (6.79) - - - -

Employee Benefits (See Note 1(b) below) (0.83) 1.29 2.02 (1.90) - -

Prior Period Items (See Note 1(c) below) (2.64) 5.25 - - - -

Share Issue Expenses (See Note 1(e) below) 0.29 0.29 0.29 0.29 0.29 -

Tax effect of the above adjustments 10.38 0.09 (0.71) 0.64 - -

(See Note 1(f) below)

Total of Adjustments (17.61) 0.13 1.60 (0.97) 0.29 -

Net Profit as Adjusted 97.55 220.96 388.17 186.09 26.22 122.92

106


Annexure XVI (Contd.)

NOTES TO THE STATEMENT OF ADJUSTED CONSOLIDATED PROFITS AND LOSSES

1 Adjustments to the Consolidated Financial Statements

(a) Inventory Valuation

During the financial year 2003-04, the Company had changed the accounting policy in respect of valuation ofClosing Stock of crude oil in saleable condition from cost or net realisable value, whichever is lower, to netrealisable value. In order to bring about consistency in the accounting policy for reporting periods, closingstock for the financial year 2002-03 has been restated, along with opening stock as on April 1, 2002.

(b) Employee Benefits

Effective April 1, 2006, the Company and its subsidiary adopted the revised Accounting Standard 15 (AS 15)on Employee Benefits, issued by the Institute of Chartered Accountants of India, though not mandatory innature for that year. Application of this policy for the previous years has resulted in restatement of profits forall the years ended March 31, 2003, 2004, 2005 and 2006.

(c) Prior Period Items

During the financial year 2003-04, the Company had classified certain expenditure relating to depletion ofproducing properties amounting to Rs. 3.29 million and provision for site restoration amounting to Rs. 1.96million as expenditure relating to prior periods. For the purpose of this statement, these expenses have beenappropriately adjusted in the years to which they relate.

(d) Site Restoration

In accordance with Accounting Standard 29 (AS 29) effective from April 1, 2004 issued by the Institute ofChartered Accountants of India, the Company had capitalised the undiscounted estimated future SiteRestoration cost of the producing fields in the financial year 2004-05. This change in the method of accountinghas been applied for the years ended March 31, 2003 and March 31, 2004 to ensure consistency, resultingin the restatement of the Fixed Assets and Current Liabilities and Provision for these years. However, there isno impact on the Profits and Losses of these years. The provision for site restoration made in these years,included as part of Provisions and Writeoffs in the Profit and Loss account for these years has been regroupedto Depletion of Producing Properties.

(e) Share Issue Expenses

The Share Issue Expenses incurred in the prior years had been amoritsed over a period of 10 years.However, the Share Issue Expenses incurred in the year 2006-07 has been adjusted against the SharePremium. For the purpose of consistency in the accounting policy for reporting periods, the Share IssueExpenses to the extent not written off as on March 31, 2002 has been adjusted against the Share Premiumaccount included in the Opening Reserves. No additional Share Issue expenditure has been incurred duringthe reporting periods, other than the expenses incurred in 2006-07.

(f) Tax Effect of Adjustments

Tax effect of adjustments comprises of the tax impact of the restatement adjustments provided at the ratesapplicable for the respective periods.

107

Annexure XVI (Contd.)

2 Details of Other Income :

Rs. millions


2003 2004 2005 2006 2007 2007

Interest Income 76.98 61.06 54.41 46.19 71.54 15.28

Dividend Income from Current Investments 7.79 16.30 4.72 2.65 42.90 13.65

Dividend Income from Long Term 0.14 - - - 0.01 -Investments

Profit on Sale of Assets 0.34 - 0.05 - - -

Profit on Sale of Investments 3.30 - - 0.42 0.52 -

Gain on Foreign Exchange Fluctuation - - - 5.11 15.58 19.65

Excess Provision Written Back - - - - - 0.01

Miscellaneous Income * 5.70 0.23 9.65 0.70 1.31 1.67

Total 94.25 77.59 68.83 55.07 131.86 50.26

* Includes non recurring income of Rs. 5.50 million pertaining to partial Farm-out of Participating Interest in BlockAAP-ON-94/1 in Financial Year 2002-03 and Rs. 9.38 million pertaining to sale of Company's share in five smallfields in Cambay Basin during the financial year 2004-05.

108


Annexure XVII

STATEMENT OF ADJUSTED CONSOLIDATED ASSETS AND LIABILITIES

Rs. millions

Particulars As at


A. Fixed Assets :

Gross Block 1,437.06 1,726.82 2,341.26 2,930.64 4,345.55 4,457.42


Net Block 580.85 835.58 1,358.63 1,854.64 3,176.74 3,267.60

B. Investments 35.81 184.30 49.30 0.05 704.15 922.38

C. Deferred Tax Asset (Net) 99.69 124.01 91.59 177.19 488.42 480.44(See Note 1 below)


Inventories 42.77 64.68 87.50 203.50 257.72 340.54

Sundry Debtors 40.23 3.71 111.00 111.12 205.44 222.76



Loans and Advances 942.22 413.75 396.61 107.43 328.90 374.12

Total 1,353.33 1,212.85 1,532.64 1,170.56 1,913.48 1,638.69

E. Liabilities and Provisions:

Secured Loans - - 275.00 163.00 1,320.95 1,515.07

Current Liabilities and Provisions

(See Note 2 below) 240.70 372.85 451.88 615.05 1,046.45 755.74

Total 240.70 372.85 726.88 778.05 2,367.40 2,270.81

Net Worth (A+B+C+D-E) 1,828.98 1,983.89 2,305.28 2,424.39 3,915.39 4,038.30

F. Represented by :

Share Capital 587.61 587.61 587.61 587.61 783.29 783.29


G. Total 1,829.40 1,984.10 2,305.28 2,424.39 3,915.39 4,038.30

H. Miscellaneous Expenditure to the 99.69 124.01 91.59 177.19 488.42 480.44extent Not written off or adjusted

Net Worth (G-H) 1,828.98 1,983.89 2,305.28 2,424.39 3,915.39 4,038.30

109

Annexure XVII (Contd.)

NOTES TO THE STATEMENT OF ADJUSTED CONSOLIDATED ASSETS AND LIABILITIES

1 Deferred Tax Asset (Net)

Components of Deferred Tax Assets and Liabilities are given as under:

Rs. millions

Particulars As at


Deferred Tax Asset:

Exploration Expenses 155.11 155.08 145.51 273.00 566.89 556.35

Doubtful Debts / Advances 8.40 7.37 5.88 5.68 5.73 5.74

Site Restoration 6.29 7.79 10.16 - - -

Expenditure Allowed on Payment Basis - 0.01 0.01 - - -

Unabsorbed Losses and Depreciation - 1.57 - - - -

Employee Related Costs 0.36 0.24 0.77 1.66 4.27 5.29

Sub - Total (A) 170.16 172.06 162.33 280.34 576.89 567.38

Deferred Tax Liability:


Site Restoration - - - 15.00 10.50 74.70


Sub - Total (B) 70.68 48.36 70.35 103.40 88.47 86.94

Net Deferred Tax Asset before 99.48 123.70 91.98 176.94 488.42 480.44Adjustment (A - B)

Deferred Tax Asset / (Liability) relating 0.21 0.31 (0.39) 0.25 - -to Adjustments

Net Deferred Tax Asset after 99.69 124.01 91.59 177.19 488.42 480.44Adjustments

2 Provision for Site Restoration

Current Liabilities and Provisions include the amount of provision created for the Site Restoration liabilities.

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

Rs. millions


2003 2004 2005 2006 2007 2007

Provision at the Beginning of the Period 80.57 80.57 75.20 74.83 250.12 244.39

Provision for the Period - - - 173.94 - -

Effect of Change in Foreign Exchange Rate - (5.37) (0.37) 1.35 (5.73) (14.39)

Provision at the End of the Period 80.57 75.20 74.83 250.12 244.39 230.00

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

110


Annexure XVIII

SIGNIFICANT ACCOUNTING POLICIES - GROUP

1 Accounting Convention

The financial statements of the Company and its wholly owned subsidiary ("the Group") have been prepared usingthe accrual concept on a going concern basis consistently.

2 Use of Estimates

The preparation of financial statements requires the Management to make estimates and assumptions consideredin the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financialstatements 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 employeebenefits, useful lives of fixed assets, provision for tax etc. Management believes that the estimates used in preparationof 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 significantintra-group transactions in accordance with the Accounting Standard 21 'Consolidated Financial Statements' issuedby The Institute of Chartered Accountants of India (ICAI).

4 Exploration and Development Costs

The Company generally follows the "Successful Efforts" method of accounting for its exploration and productionactivities 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 relateddevelopment costs, including depreciation on support equipment and facilities, are considered as developmentexpenses, which are capitalised as producing properties on attainment of commercial production.

(iii) Producing properties, including the cost incurred on dry wells in development areas, are depleted using "Unitof Production" method based on estimated proven developed reserves. Any changes in Reserves and / orCost are dealt with prospectively. Hydrocarbon reserves are estimated and/or approved by the ManagementCommittee of the joint ventures, which follow the International Reservoir Engineering Principles.

Explanatory Note

1. All exploration costs including acquisition of geological and geophysical seismic information, license andacquisition costs are initially capitalized as "Capital Work in Progress-Exploration Expenditure", until such timeas either exploration well(s) in the first drilling campaign is determined to be successful, at which point thecosts are transferred to "Producing Properties", or it is unsuccessful in which case such costs are written offconsistent with para 2 below.

2. Exploration costs associated with drilling, testing and equipping exploratory well and appraisal well areinitially capitalized as "Capital Work in Progress - Exploration Expenditure", until such time as such costs aretransferred to "Producing Properties" on attainment of commercial production or charged to the Profit andLoss 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 acquisitionof seismic, or re-entry of such well, or drilling of additional exploratory / step out well in the area ofinterest, such activity to be carried out no later than 2 years from the date of completion of such welltesting;

111

Management makes quarterly assessment of the amounts included in "Capital Work in Progress -ExplorationExpenditure" to determine whether capitalisation is appropriate and can continue. Exploration well(s) capitalisedbeyond 2 years are subject to additional judgment as to whether facts and circumstances have changed andtherefore the conditions described in (a) and (b) no longer apply.

5 Site Restoration

Estimated future liability relating to dismantling and abandoning producing well sites and facilities whose estimatedproducing life is expected to end during next ten years is expensed in proportion to the production for the year andremaining estimated proved reserves of hydrocarbons based on latest technical assessment available with theCompany.

6 Impairment

At each Balance Sheet date, the Group reviews the carrying amount of its assets to determine whether there is anyindication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amountof 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) isincreased to the revised estimate of its recoverable amount, but so that the increased carrying amount does notexceed the carrying amount that would have been determined had no impairment loss been recognised for theasset in prior accounting periods.

7 Joint Ventures

The financial statements of the Group reflect the Holding Company's share of assets, liabilities, income and expenditureof the Joint Venture operations, which are accounted on the basis of available information on line-by-line basis withsimilar items in the Group's accounts to the extent of the participating interest of the Company as per the variousjoint venture agreements.

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 theCompanies Act, 1956.

(ii) In case of additions during the period, depreciation is provided for the full period irrespective of the date ofinstallation and no depreciation is provided in the period 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.

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 investmentsare 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. Oil additives are valued atcost or market price whichever is lower on FIFO basis.

(ii) Stores and spares are valued at cost on FIFO basis or market price, whichever is lower.

(iii) Cost of unpacked materials includes freight, customs duty, insurance and clearing charges. Cost of packedmaterials includes repacking charges, packing materials etc.

112


12 Miscellaneous Expenditure

(i) Share issue expenses incurred in prior years are written off over a period of ten years commencing from theyear of issue.

(ii) "Signature Bonus" paid upon signing of Production Sharing Contract is considered as deferred revenueexpense to be written off over three to five years commencing from the year of payment, depending on thesize of the field.

13 Revenue Recognition

(i) Revenue from the sale of crude oil and gas net of Government's share of Profit oil, is recognised on transferof custody to refineries / others.

(ii) Sale of crude oil and gas is recorded at the invoiced price, which is subject to the approval of the Governmentof India, Ministry of Petroleum & Natural Gas (MoP&NG). The difference between the invoiced price and thefinal 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

(a) Defined Contribution Plan

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

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

(b) Defined Benefit Plan

The Group makes annual contribution to a Gratuity Fund administered by trustees and managed by LIC. TheGroup accounts its liability for future gratuity benefits based on actuarial valuation, as at the balance sheetdate, determined 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 theeligible leave at credit on the balance sheet date and is estimated based on the terms of the employmentcontract.

15 Borrowing Costs

Borrowing Costs specifically identified to the acquisition or construction of qualifying assets are capitalised as partof such asset. A qualifying asset is one that necessarily takes substantial period of time to get ready for intendeduse. All other borrowing costs are charged to the Profit and Loss Account.

16 Foreign Currency Transactions

(i) Transactions denominated in foreign currencies are recorded at the exchange rate prevailing at the time ofthe transaction.

(ii) Monetary items denominated in foreign currencies at the period end and not covered by forward exchangecontracts are translated at the period end rates and those covered by forward exchange contracts are translatedat the rate ruling at the date of transaction as increased or decreased by the proportionate difference betweenthe forward rate and exchange rate on the date of transaction, such difference having been recognised overthe life of the contract.

113

(iii) Upto March 31, 2007, any gain or loss arising on account of exchange difference on settlement or translationwas recognised in the Profit and Loss Account except in cases where they relate to the acquisition of fixedassets from outside India in which case they were adjusted to the carrying costs of such assets. From April 1,2007, all gains or losses arising on account of exchange difference on settlement or translation is beingrecognised in the Profit and Loss Account.

Also refer Note 4 of Annexure XIX

17 Taxation

The Group adopts full provision basis for deferred tax, in accordance with the Accounting Standard 22 "Accountingfor Taxes on Income". Provision for deferred tax asset / liability is made for timing differences which have arisen butnot reversed at the balance sheet date and are expected to reverse in the foreseeable future. Deferred Tax assetis recognised when there is a reasonable certainty of future taxable income except for deferred tax assets inrespect of unabsorbed loss or depreciation where it is recognised only if there is a virtual certainty with convincingevidence.

114


Annexure XIX

NOTES TO THE ADJUSTED CONSOLIDATED FINANCIAL STATEMENTS

1 Commitments and Contingencies Rs. millions

Particulars As at


(i) Counter Guarantees on account 25.56 43.39 49.91 133.94 284.98 139.98of Bank Guarantees

(ii) Corporate Guarantee for Housing 6.30 5.84 3.80 3.12 0.61 0.61Loan to Employees

(iii) Estimated amount of contracts 3.11 469.60 377.16 139.85 141.16 132.85remaining to be executed oncapital account and not providedfor (excluding Company's share ofJoint Ventures' commitments) *

(iv) Claims against the group Notacknowledged as Debt **

- Royalty payments for a Joint 0.11 0.11 - - - -Venture

- Dispute with Contractors 40.74 37.96 37.77 23.79 3.23 3.21under Arbitration

- Income Tax Demands under 71.69 87.80 88.70 127.15 298.15 298.29Appeal

- Customs Duty under Appeal 0.54 0.54 0.54 0.54 0.54 0.54

(v) The Government had encashed the 170.88 193.18 215.49 237.80 260.11 265.69Performance Bank Guarantee ofRs 10.15 millions for the PG Blockabandoned by the consortium underthe force majeure clause of theProduction Sharing Contract (PSC).The Government has also raisedan additional demand on whichinterest has been compounded .The Parent Company has beenlegally advised that the said actionsof the Government are not justified.The Parent Company has initiatedlegal proceeding as per theprovisions of the PSC in the matter.Pending the outcome of this, aprovision was made during thefinancial year 1996-97 in thisregard to the extent of Rs. 10.15millions in the books of account.**

(vi) Others 1.30 - - - - -

Total 320.23 838.42 773.37 666.19 988.78 841.17

115

*Includes Rs. 125.14 millions for the quarter ended June 30, 2007 and Rs. 464.31 million, Rs. 373.83 million,Rs. 136.82 millions and Rs 133.50 millions for the financial years ended March 31 2004, 2005, 2006 and2007 respectively in respect of farm-in consideration for acquistion of Participating Right in one Joint Venture.

**The Management is of the opinion that the claims under items (iv) and (v) above are not sustainable.

2 Related Party Transactions

As per the Accounting Standard on 'Related Party Disclosure' (AS 18) issued by the Institute of Chartered Accountantsof India, the related parties as identified by the Management are as follows:

As stated in item 7 of Significant Accounting Policies (Annexure XVIII), the financial statemements of the JointVentures are incorporated in the Group's accounts. Hence, particulars of transactions with the Joint Ventures havenot been disclosed.


2003 2004 2005 2006 2007 2007

Joint Ventures

Hardy Exploration & Production (India) Inc. � � � � � �

Oil and Natural Gas Corporation Ltd. � � � � � �

Tata Petrodyne Ltd. � � � � � �

Gujarat State Petroleum Corporation Ltd. � � � � � �

Mafatlal Industries Ltd. � � � � � �

Premier Oil North East India BV � � � � � �

Indian Oil Corporation Ltd. � � � � � �

Oil India Ltd. � � � � � �

Mosbacher (India) LLC � � � � � �

Heramec Ltd. � � � � � �

BG Exploration & Production (India) Inc. � - - - - -

Entity with Substantial Interest /Promoters Group

Burren Shakti Limited (Formerly known as - - � � � �

Unocal Bharat Limited)

Burren Energy (India) Ltd - - - � � �

Key Management Personnel

Mr. Ajit C. Kapadia � � - - - -

Mr. Rakesh Jain (upto July 31, 2006) - � � � � -

Mr. Atul Gupta (from August 1, 2006) - - - - � �

Mr. Manish Maheshwari (from August 1, 2006) - - - - � �

116


The nature and volume of transactions for the years ended March 31, 2003, 2004, 2005, 2006 and 2007 and forthe quarter ended June 30, 2007 with the related parties mentioned are as follows:

Rs. millions


2003 2004 2005 2006 2007 2007

JOINT VENTURES' PARTNERS

Income

- Recovery of Expenses 12.01 6.10 10.00 16.90 27.57 9.44

ENTITY WITH SUBSTANTIALINTEREST / PROMOTERS GROUP

Dividend Paid - - - 15.28 15.29 -

KEY MANAGEMENT PERSONNEL

Expenditure

- Remuneration 1.60 4.08 7.09 7.63 8.60 1.87

- Sitting Fees - - - - 0.08 0.06

Net Amount Due as at Period End - - - 0.17 0.12 -

3 The Company's obligation towards the Gratuity Fund is a Defined Benefit Plan.

Details of Actuarial Valuation are as follows :

Rs. millions


2003 2004 2005 2006 2007 2007

Projected Benefit Obligation at theBeginning of the Period

- Holding Company 2.25 3.14 3.14 3.58 5.25 4.52

- Subsidiary - - - - - 0.72

Service Cost 0.33 0.39 0.50 0.77 0.79 0.36

Interest Cost 0.13 0.20 0.22 0.30 0.44 0.11

Actuarial Losses / (Gains) 0.45 (0.06) 0.28 0.83 (0.16) 1.91

Benefits Paid (0.02) (0.53) (0.56) (0.23) (1.80) (0.03)

Projected Benefit Obligation at the 3.14 3.14 3.58 5.25 4.52 7.59End of the Period

Change in Plan Assets

Fair Value of Plan Assets at the 1.77 2.17 2.29 2.35 2.53 0.50Beginning of the Period

- Holding Company - - - - - 1.05

Expected Returns on Plan Assets 0.15 0.18 0.18 0.21 0.14 0.04

Employer's Contribution 0.26 0.46 0.45 0.22 0.17 0.37

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Benefits Paid (0.02) (0.53) (0.56) (0.23) (1.80) (0.03)

Actuarial Gain / (Loss) 0.01 0.01 (0.01) (0.02) 0.01 (0.03)

Fair Value of Plan Assets at the End 2.17 2.29 2.35 2.53 1.05 1.90of the Period

Cost of the Defined Benefit Plan forthe Period

Current Service Cost 0.33 0.39 0.50 0.77 0.79 0.36

Interest on Obligation 0.13 0.20 0.22 0.30 0.44 0.11

Expected Return on Plan Assets (0.15) (0.18) (0.18) (0.21) (0.14) (0.04)

Net Actuarial Losses / (Gains) 0.44 (0.07) 0.29 0.85 (0.17) 1.94Recognised in the Period

Net Cost recognised in the Profit and 0.75 0.34 0.83 1.71 0.92 2.37Loss Account

Assumptions

Discount Rate 6.00% 6.00% 7.00% 8.35% 8.35% 8.35%

Future Salary Increase 7.75% 7.55% 7.40% 8.25% 10.00% 10.00%

Expected Rate of Return on Plan Assets 7.40% 7.75% 8.75% 10.00% 8.25% 8.25%

Note:

The above details, other than for the quarter ended June 30, 2007, relate to the Holding Company only. The detailsregarding the subsidiary for the years ended March 31, 2003, 2004, 2005, 2006 and 2007 is not furnished sincethe same has not been disclosed in the audited financial statements of the Subsidiary. However, the Managementhas certified that the same is not material.

4 Change in Accounting Policy

Hitherto, the Group followed a policy of adjusting the exchange difference relating to the acquisition of fixed assetsfrom outside India to the cost of the fixed assets. Consequent to Accounting Standard 11, Effects of Changes inForeign Exchange Rates, becoming mandatory for all accounting periods commencing on or after December 7,2006, the group has changed its accounting policy. From April 1, 2007, all gains or losses arising on account ofexchange differences are recognised in the Profit and Loss Account. However, there is no effect on the profit orloss during the reporting periods on account of such change in accounting policy.

5 Subsequent Event

Subsequent to June 30, 2007, the production from PY-3-3RL well in PY-3 field has been stopped since the wellhas been temporarily shutdown due to excessive water entering the well. Consequent to the same, the productionfrom the PY-3 field has come down by about 231 bopd on working interest basis to the Company.


2003 2004 2005 2006 2007 2007

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Annexure XXSTATEMENT OF ADJUSTED CONSOLIDATED CASH FLOWS

Rs. millions

For the Years Ended March 31, For the QuarterEnded June 30,

2003 2004 2005 2006 2007 2007

A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit Before Tax as per Audited Accounts 50.87 213.09 615.90 279.77 14.37 180.22

Adjustments affecting Cash Flow:





Adjusted Net Profit before Tax 22.88 213.13 618.21 278.16 14.66 180.22

Adjustments for :

Provision for:

Loss / (Gain) on Revaluation of Current (5.04) 8.28 (8.28) - - -Investments

Leave Encashment & Gratuity 1.63 (1.41) (2.45) 2.04 0.31 0.99

Provision for Contingencies - - (0.40) - - -

Provision for Doubtful Debtors / Loans 0.02 4.13 (2.60) - - -

Depreciation and Depletion 158.41 49.66 88.22 78.24 77.04 17.37

Exploration Expenses Written Off (Net) 162.22 1.29 - 418.35 930.37 -

Other Miscellaneous Expenses Written Off 0.21 0.21 0.21 - - -

Dividend / Interest Income (84.91) (77.36) (59.13) (48.84) (114.45) (28.63)

Bad Debts (Write back) (Net) - (1.23) (0.10) (0.23) (0.12) -

(Profit) / Loss on Sale of / Discarded (0.34) 0.27 (0.05) 0.29 0.17 -Assets (Net)

(Profit) / Loss on Sale of Current Investments (3.30) 0.05 2.81 (0.42) - -


Excess Provisions Written Back - (1.46) (0.28) (0.47) (0.21) (0.01)

Recovery of Doubtful Debts - (0.20) (0.13) (0.10) - -

Unrealized Exchange Loss / (Gain) - - - 1.35 (18.83) (21.74)

Operating Profit Before Working Capital 253.17 197.09 653.51 749.88 944.95 170.71Changes

Adjustments for:

Trade and Other Receivables 1.74 43.92 (219.07) (129.68) (259.10) (7.49)

Inventories 62.04 (21.91) (22.81) (116.01) (54.21) (82.82)

Payables (69.12) 134.73 72.90 (33.70) 484.41 (317.29)

Cash (used in) / from Operations 247.83 353.83 484.53 470.49 1,116.05 (236.89)

Taxes Paid (28.90) 28.03 (196.82) (159.34) (282.17) (8.73)

Excess Provision Written Back - 1.46 0.28 0.47 0.21 0.01

Miscellaneous Expenses Incurred (0.63) - - - - -

Net Cash (Used In) / From Operating Activities 218.30 383.32 287.99 311.62 834.09 (245.61)

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For the Years Ended March 31, For theQuarter

Ended June2003 2004 2005 2006 2007 30, 2007

B. CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets * (82.19) (255.62) (407.02) (510.42) (1,474.11) (41.36)Insurance Claim on Replacement Well - - 64.14 - - -Proceeds from Sale of Fixed Assets 1.20 29.49 3.01 1.68 0.12Exploration Expenses Incurred # (113.64) (85.16) (271.72) (297.76) (856.00) (74.46)Proceeds from Sale of Current Investments 8.34 (8.33) 5.47 0.42 -Dividend / Interest Received 86.04 82.09 61.28 49.70 108.33 31.16(Increase) / Decrease in Inter Corporate (187.50) 687.50 (45.00) 95.00 - -Deposits

Net Cash (Used In) / From Investing (287.75) 449.97 (589.84) (661.38) (2,221.66) (84.66)Activities

C. CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from Issue of Share Capital @ - - - - 1,487.89 -

Secured Loans Taken - Long Term - - 350.00 - 1,706.72 324.96

Secured Loans Repaid - Long Term (0.08) - (75.00) (112.00) (535.66) (109.72)

Interest and Finance Charges Paid * # (1.39) (1.73) (17.48) (33.96) (146.82) (27.34)

Dividend Paid (including Dividend Tax) (68.99) (52.05) (65.10) (65.97) (68.75) -

Rights Issue Expenses - - - - (19.74) -

Net Cash (Used In) / From Financing (70.46) (53.78) 192.42 (211.93) 2,423.64 187.90Activities

NET INCREASE / (DECREASE) IN CASH (139.91) 779.51 (109.43) (561.69) (1036.07) (142.37)OR CASH EQUIVALENTS

Cash, Cash Equivalents :Opening Balance 516.71 376.80 1,156.31 1,046.88 485.19 1,521.26Closing Balance 376.80 1,156.31 1,046.88 485.19 1,521.26 1,378.89

(139.91) 779.51 (109.43) (561.69) 1,036.07 (142.37)Cash and Bank Balance as per Annexure XVII 316.58 723.80 932.83 744.78 1,111.66 694.05Inter Corporate Deposits for less than 90 days 50.00 280.00 130.00 - - -Current Investments 35.76 184.25 49.25 - 704.10 922.33Adjustment for Site Restoration Deposit (19.16) (20.90) (22.01) (166.56) (179.42) (179.41)Adjustment for Lien Marked Deposits (6.38) (10.84) (43.19) (93.03) (115.08) (58.08)

Closing Cash and Cash Equivalents 376.80 1,156.31 1,046.88 485.19 1,521.26 1,378.89* Interest and Finance Charges Paid

includes and Purchase of Fixed Assetsexcludes Borrowing Cost capitalised - - - 12.45 27.49 5.33

@ Proceeds from Issue of Share Capitalincludes Unclaimed / Unpaid ShareApplication Money. - - - - 0.75 -

# Interest and Finance Charges Paidincludes and Exploration ExpenditureIncurred excludes Borrowing Costcapitalised - - - - - 0.33

Rs. millions

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FINANCIAL INDEBTEDNESS

Set forth below is a brief summary of our outstanding secured borrowings of Rs. 1,515.07 millions as of June 30, 2007together with a brief description of certain significant terms of such financing arrangements.

Facility and LoanDocumentation

Interest Rate RepaymentSchedule

Security Created

Term loan facility agreementdated April 4, 2006 for Rs. 1,000million from UTI Bank Limited, asamended by the term loanagreement dated October 12,2006, and assignmentagreement dated November 24,2006, whereby Rs. 500 millionwas assigned to SBI. (1)

8.50% per annumpayable monthly forthe first two yearsand thereafter (andevery two yearsthereafter) ourCompany has theoption to reset theinterest rate to thethen prevailing yieldon a 2-year G-Sec,maintaining aspread of 175 basispoints.

Repayable in30 quarterlypayments aftera moratorium ofsix months

Secured by way of:

First charge by way of hypothecation of allrights, title, interest, benefits, claims anddemands whatsoever of our Company inrespect of the project documents (being thePSC and the JOA entered in by ourCompany in relation to blocks CY-OSN-90/1 and CB-ON-7).

First charge by way of hypothecation of allrights, title, interest, benefits, claims anddemands whatsoever of our Company in,to, under and in respect of the crude oilreceivables, i.e., the aggregate of (a) allamounts due and payable by (i) CPCLunder the COSA dated September 26,2003 entered between CPCL and HEPI(on behalf of itself, ONGC, TPL andHOEC); and (ii) ONGC and IOC under theCOSA entered between ONGC and IOCand HOEC (on behalf of itself, ONGC andGSPCL), pursuant to or in connection withor arising out of the PY-3 and Palejbusiness respectively; (b) hedgingproceeds, if any accruing to our Company;and (c) proceeds from insurance claims inrelation to blocks CY-OS-90/1 andCB-ON-7.

First charge by way hypothecation of theescrow account.

Additionally, our Company is also requiredto provide an agreement to assign infavour of the lenders participating in thetotal facility on pari passu basis of theinterest of our Company under the JOAs,COSAs, insurance policies, etc. in respectof the PY-3 and Pramoda oil fields.

Term loan facility agreementdated April 4, 2006 for Rs. 700million from HDFC Bank Limited.(1)

8.50% per annumpayable monthly forthe first two yearsand thereafter (andevery two yearsthereafter) ourCompany has the

Repayable in30 quarterlypayments aftera moratorium ofsix months

Secured by way of:

First charge by way of hypothecation of allright, title, interest, benefit, claims anddemands whatsoever of our Company inrespect of the project documents (being thePSC and the JOA entered in by ourCompany in relation to blocks CY-OSN-90/1 and CB-ON-7).

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Security Created

option to reset theinterest rate to thethen prevailing yieldon a 2-year G-Sec,maintaining aspread of 175 basispoints.

First charge by way of hypothecation of allrights, title, interest, benefits, claims anddemands whatsoever of our Company in,to, under and in respect of the crude oilreceivables, i.e., the aggregate of (a) allamounts due and payable by (i) CPCLunder the COSA dated September 26,2003 entered between CPCL and HEPI(on behalf of itself, ONGC, TPL andHOEC); and (ii) ONGC and IOC under theCOSA entered between ONGC and IOCand HOEC (on behalf of itself, ONGC andGSPCL), pursuant to or in connection withor arising out of the PY-3 and Palejbusiness respectively; (b) hedgingproceeds, if any accruing to our Company;and (c) proceeds from insurance claims inrelation to field CY-OS-90/1 block andCB-ON-7 block.

First charge by way hypothecation of theescrow account.

Additionally, our Company is also requiredto provide an agreement to assign infavour of the lenders participating in thetotal facility on pari passu basis of theinterest of our Company under the JOAs,COSAs, insurance policies, etc. in respectof the PY-3 and Pramoda oil fields.

Term loan facility agreementdated October 12, 2006 for Rs.500 million from State Bank ofIndia.(2)(3)

LIBOR six monthsplus 2.50% atmonthly rests.

Interest reset rate-The interest is resetto the thenprevailing yield onsix months LIBORmaintaining aspread of 250 basispoints over LIBORsix months

Repayable in20 quarterlyp a y m e n t sb e g i n n i n gDecember 31,2006

First charge on all the moveable andimmovable assets relating to PY-3 oil fieldand Palej oil field (proportionate to theparticipating interest of our Company in thesaid projects)

First charge by way of hypothecation of allrights, title, interest, benefits, claims anddemands whatsoever of our Company, in,to, under and/or in respect of the projectdocuments

First charge by way of hypothecation of allright, title, interest, benefits, claims anddemands whatsoever of our Company in,to, under and in respect of the crude oilreceviables.

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Security Created

Dollar facility agreement datedNovember 8, 2006 for USD 100million from a consortium of:Bank of Baroda, Bank of India,Bharat Overseas Bank Limited,Canara Bank, Corporation Bank,Export- Import Bank of India,IDBI Limited, Syndicate Bank,Federal Bank, Union Bank ofIndia, UTI Bank Limited) co-ledby IDBI Limited and UTI BankLimited.(4)

Six months USDLIBOR+ Spread of250 basis points.Incase the Dollarfacility amounts isconverted intoRupee Term Loan,the reset rateapplicable from therelevant reset dateshall be the sum ofrelevant ResetBenchmark Rate;and Spread of 175basis points.

P r i n c i p a la m o u n trepayable in 20q u a t e r l yp a y m e n t s(except inrelation to UTIBank Limited,where therepayment hasbeen allowed in21 payments)b e g i n n i n gMarch 31, 2009

To be secured by way of the followingcharge:

First mortgage and charge of all theimmovable property of our Companypertaining to PY-1 block, both present andfuture.

First charge by way of hypothecation of allmoveable properties of our Companypertaining to PY-1 block, both present andfuture.

Assignment by our Company of:

� right, title and interest by way of firstcharge over our Company'sreceivables, accounts and book debtspertaining only to PY-1 block, presentand future.

� right, title and interest by way of firstcharge into and under all (a) of thePY-1 block project documentsincluding participating interest, and(b) the guarantee, other performancewarranties, indemnities and securitiesthat may be furnished in favour of ourCompany by various contractorsunder the PY-1 block projectdocuments, after obtaining the writtenconsent of the parties thereto.

� right, title and interest by way of firstcharge in, to and under all thegovernment approvals, insurancepolicies of our Company pertaining toPY-1 block, to the extent the samecan be assigned.

(1) Under the terms of the loan agreements, the proceeds of each disbursement shall be utilised for inter alia (i)meeting our Company's share of capital expenditure for exploration, appraisal, developments, additional development,redevelopment, production and related activities; strategic E&P initiatives and for performing the obligations underthe PSCs; (ii) for general corporate purposes; and/or (iii) for augmentation of long term working capital.

(2) Under the terms of the loan agreement, the lender may, in the event of default by our Company, inter alia appointa nominee of the lender on the Board of Directors. Additionally, our Company is required not to, till such time asthe secured obligations are repaid in full, without prior consent of the lender in writing, do the following:

(a) declare or pay dividend to its shareholders during any financial year provided that no consent shall berequired if there is no outstanding event of default and which has not been remedied;

(b) effect, undertake or permit any merger or scheme of amalgamation, or consolidation or reorganisation;

(c) pay any commission to its Promoters, managers, Directors or other persons for furnishing guarantees orindemnities of for undertaking any other liability in connection with any financial assistance obtained by our

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Company or in connection with any other obligation undertaken for or by our Company for the purpose of thebusiness of our Company, except in the normal course of business;

(d) repay or allow withdrawing monies brought in by the principal shareholders or Directors;

Further under the terms of the loan agreement, our Company is required not to, without first informing thelender in writing in advance:

(a) sell, transfer, lend or otherwise dispose of the whole or any substantial part of its PY-3 and / or Palejbusiness or assets;

(b) amend our MoA or articles of AoA;

(c) grant any loan or financial assistance to any person, or undertake any guarantee obligations on behalfof any other person, except in the normal course of business.

(3) The proceeds of each disbursement shall be utilised for inter alia meeting our Company's share capital expenditurefor exploration, appraisal, development, additional development, redevelopment, production and related activitiesand for performing the obligations under the PSCs.

(4) Under the terms of the agreement our Company shall use the proceeds of the loan to meet- the PY-1 block costs.Further, our Company is prohibited to pay any commission to our Promoters, Directors, managers, or other personsfor furnishing guarantees, counter guarantees or indemnities or for undertaking any other liability in connection withany finicial assistance obtained for or by our Company or in connection with any other obligation undertaken for orby our Company for the purpose of PY-1 block. Further, our Company has undertaken not to declare dividend incase of default and the lenders may, in the event of default, inter alia appoint concurrent auditors and a nomineeof the lender on the Board of Directors. Additionally, our Company is required to obtain prior consent from theconsortium:

(a) for taking any action of merger, consolidation, reorganisation, capital restructuring or amalgamation;

(b) to sell, lease, transfer or otherwise dispose off the PY-1 gas project asset, including the transfer of participatinginterest from mining lease and change in operatorship;

(c) to change the nature of our business, change the location of the registered office;

(d) amend, modify or supplement our MoA and AoA;

(e) change or remove any person, by whatever name called, exercising substantial powers of management ofaffairs of the PY- 1 block at the time of execution of the agreement;

(f) create any security interest on or in any if the secured property or grant or create lease or tenancy or anythird party right, title or interest or grant license or sub- license or sublet in respect of the PY-1 block or anypart thereof except in the ordinary course of business or with prior permission in writing from the consortium.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our adjustedunconsolidated financial statements including the notes thereto and the reports thereon, which are included in the sectiontitled "Financial Statements" beginning on page 70 of this Letter of Offer. These financial statements have been preparedin accordance with Indian GAAP, the Companies Act and the SEBI Guidelines and adjusted as described in the report ofour statutory Auditors dated November 16, 2007 included in the section titled "Financial Statements" beginning on page70 of this Letter of Offer.

Our fiscal year ends on March 31 of each year; all references to a particular fiscal year are to the twelve-month periodended March 31 of that year. As used in this discussion, the term "revenues" refers to the term "total income" in ouradjusted unconsolidated financial statements.

This discussion contains forward-looking statements concerning the financial condition and results of operations of ourCompany.Forward looking statements are statements of future expectations that are based on management's currentexpectations and assumptions and involve known and unknown risks and uncertainities that could cause actual results,performance or events to differ materially from those expressed or implied in these statements. No assurances can begiven as to future results, levels of activity and achievements and actual results, levels of activity and acheivements maydiffer materially from those expressed or implied by any forward looking statements as a result of certain factors such asthose set forth in the section titled "Risk Factors" beginning on page VIII of this Letter of Offer. We do not undertake anyobligation to publicly update or revise any forward-looking statement as a reuslt of new information future events or otherinformation.

Overview

We conduct our exploration, development and production activities through unincorporated JVs pursuant to PSCs withother oil companies (except in relation to PY-1) both domestic and foreign.

We have a portfolio of onshore and offshore assets in India held by us through our JVs. Our onshore assets are locatedin the north eastern State of Assam and in Cambay basin in the State of Gujarat and our offshore assets are located inthe Cauvery basin along the south eastern coast of India. As of date, we have a participating interest in eight oil and gasfields in India, which are in the various phases of exploration, development and production.

In quarter ended June 30, 2007, out total income was Rs. 260.78 million, of which Rs. 135.65 million was from the saleof crude oil and natural gas which comprising 52.02% of our total income. In Fiscal 2007, our total income wereRs. 1,260.69 million, of which Rs. 1,145.14 million was from the sale of crude oil and natural gas, which comprises90.83% of our total income. In Fiscal 2006, our total income were Rs. 1,024.22 million, of which Rs. 942.44 million wasfrom sale of crude oil and natural gas, which comprises 92.02% of our total income. In Fiscal 2005, our total income wereRs. 927.42 million, of which Rs. 855.35 million was from sale of crude oil and natural gas, which comprises 92.23% ofour total income.

In Fiscal 2007, we produced approximately 503,408 BOE or 1,379 BOEPD. In Fiscal 2006, we produced approximately460,172 BOE or 1,261 BOEPD. In Fiscal 2005, we produced approximately 489,503 BOE or 1,341 BOPD. In Fiscal 2007,2006 and 2005, 85.14%, 94.46% and 98.17%, respectively of our crude oil production was produced from our offshorefields, and the remainder was from produced from our onshore fields.

Our Critical Accounting Policies

Preparation of financial statements in accordance with Indian GAAP, the applicable accounting standards issued by theICAI and the relevant provisions of the Companies Act require our management to make judgments, estimates andassumptions regarding uncertainties that affect the reported amounts of our assets and liabilities, disclosures of contingentliabilities and the reported amounts of revenues and expenses.

Some of our accounting policies are particularly important to the portrayal of our financial position and results of operations.We refer to these accounting policies as our "critical accounting policies". For further details on our significant accountingpolicies, see the section titled "Financial Statements" beginning on page 70 of this Letter of Offer.

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The preparation of financial statements requires our management to make estimates and assumptions considered in thereported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements andthe reported income and expenses during the reporting period like depletion of producing properties, estimate of siterestoration liability, expensing of the estimated site restoration liability, provision for employee benefits, useful lives offixed assets, provision for tax etc. We believe that the estimates used in preparation of the financial statements areprudent and reasonable. Future results may vary from these estimates.

Our financial statements are prepared under the historical cost conventions (without adjustments for inflation) in accordancewith generally accepted accounting principles in India, or Indian GAAP, and the relevant provisions of the CompaniesAct. We generally follow the "Successful Efforts Method" of accounting for our oil and gas exploration and productionactivities. We have disclosed in this Letter of Offer, our adjusted unconsolidated financial statements for each of Fiscal2003, 2004, 2005, 2006 and 2007 in the section titled "Financial Statements" beginning on page 70 of this Letter of Offerto reflect certain other changes and adjustments, as well as the requirements of the SEBI Guidelines. Set forth below isa summary of our most significant critical accounting policies under Indian GAAP.

Revenue Recognition

Revenue from the sale of crude oil and gas, net of GoI's share of Profit Petroleum, is recognised on transfer of custodyto refineries / buyers. Sale is recorded at the invoiced price as per terms of crude oil sales agreement(s) or gas salesagreement(s), as the case may be.

Exploration and Development Costs

We generally follow the "Successful Efforts Method" of accounting for our oil and gas exploration and production activitiesas explained below:

(i) Cost of exploratory wells, including survey costs, is expensed in the year when determined to be dry/aban donedor 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 developmentcosts, 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 wells in development areas, are depleted using "Unit ofProduction" method based on estimated proved developed reserves. Any changes in reserves and/or cost are dealtwith prospectively. Hydrocarbon reserves are estimated and/or approved by the management committees of theJVs, which follow the International Reservoir Engineering Principles.

To elaborate, all exploration costs including acquisition of geological and geophysical seismic information, license andacquisition costs are initially capitalised as "Capital Work in Progress - Exploration Expenditure", until such time as eitherexploration 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 as explained hereinbelow.

Exploration costs associated with drilling, testing and equipping exploratory well and appraisal well are initially capitalisedas "Capital Work in Progress - Exploration Expenditure", until such time as such costs are transferred to "ProducingProperties" on attainment of commercial production or charged to the Profit and Loss Account unless: (a) such well hasfound potential commercial reserves; or (b) such well test result is inconclusive and is subject to further exploration orappraisal activity like acquisition of seismic, or re-entry of such well, or drilling of additional exploratory / step out well inthe area of interest, such activity to be carried out no later than two years from the date of completion of such well testing.

The management makes quarterly assessment of the amounts included in "Capital Work in Progress - ExplorationExpenditure" to determine whether capitalisation is appropriate and can continue. Exploration well(s) capitalised beyondtwo years are subject to additional judgment as to whether facts and circumstances have changed and therefore theconditions above no longer apply.

Site Restoration

Estimated future liability relating to dismantling and abandoning producing well sites and facilities whose estimatedproducing life is expected to end during next ten years is expensed in proportion to the production for the year andremaining estimated proved reserves of hydrocarbons based on latest technical assessment available with us.

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JVs

The financial statements of our Company reflect our share of assets, liabilities, income and expenditure of the JVoperations which are accounted on the basis of available information on line by line basis with similar items in ouraccounts to the extent of the participating interest of our Company as per the various PSCs.

Factors Affecting Our Results of Operations

Various factors have affected our results of operations in the past and may continue to do so in the future, including:

International Prices of Crude Oil

Our profitability is primarily determined by the difference between prices received for crude oil and natural gas producedby us and the costs of finding, developing and producing these hydrocarbons. The sales prices of our crude oil areprimarily determined by the prevailing international prices of crude oil. Prices for crude oil have been volatile andunpredictable for several years, and we expect this volatility to continue. International prices of crude oil thereforesignificantly affect our revenues and profitability. For example, international prices of crude oil increased significantly inFiscal 2006 as compared to Fiscal 2005, which had a positive impact on our revenues.

While higher international trading prices of crude oil increase our revenues, lower prices of crude oil may reduce thequantity of crude oil that we can produce economically or reduce the economic viability of projects planned or indevelopment.

Production Volumes

Our oil and gas production volumes, which depend on the yield from our producing fields and our expertise in recoveringoil and gas from such fields, have a significant impact on our results of operations. Our production volumes, were324,520 BOE, 489,503 BOE, 460,233 BOE and 503,408 BOE in Fiscal 2004, Fiscal 2005, Fiscal 2006 and Fiscal 2007,respectively.

Foreign Exchange Rate Fluctuations

The internationally traded prices of crude oil, which accounts for the substantial majority of our sales revenues, aredenominated in U.S. Dollars. As a result, fluctuations in foreign exchange rates, in particular the exchange rate of U.S.Dollars for Indian Rupees, may materially affect our revenues and results of operations. We do not currently hedge ourforeign currency exchange rate exposure. Our crude sales revenue are USD denominated and based on the crude oilsales agreement(s) executed with the nominees and/or other buyers. At the same time a significant portion of ourexpenses are in USD, thereby having a natural hedge against all USD accounts. The exchange rate of Rupees vis-à-visUSD as on April 2, 2004 and July 31, 2007 was 43.77 and 40.44 respectively. The Rupee has appreciated by 8.23%during the said period.

Fiscal Regulation

Cess, royalty on crude oil and national calamity contingent duty that are levied on our products are a component of ourtotal expenditure. Changes in royalty, cess and other fiscal levies affect the cost of producing hydrocarbons and thereforeaffect our operating results. These statutory levies in Fiscal 2007, Fiscal 2006 and Fiscal 2005 were Rs. 4.52 million,Rs. 4.50 million and Rs. 5.06 million respectively.

In common with most jurisdictions, India imposes certain special taxes and levies on the production of hydrocarbonswhile also granting certain tax advantages to encourage exploration and development. We utilise various tax deductionsas well as fiscal benefits, including certain tax holidays. For details, see the section titled "Statement of Tax Benefits"beginning on page 26 of this Letter of Offer.

Our Results of Operations

Revenues

Our income consist of the following:

� Sale of crude oil and natural gas, which are net of profit petroleum share of the GoI as per the terms of the PSCs.However, sales are presented before deduction of statutory levies which are shown as an item of expenditure.

� Other income, which primarily include interest income and dividends on investments.

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Expenditure

Our expenditure consists of the following:

� Field operating expenses consist of expenditure incurred towards the production of the crude oil and gas, whichinclude expenses such as lease rental charges of floating production unit, consumption of stores and spares, powerand fuel, repairs and maintenance, transportation and freight, water injection, desalting and demulsification expenses,pollution control expenses and insurance, and statutory levies such as cess, royalty and national calamity contingentduty. For details, see the section titled "Factors Affecting Our Results of Operations-Fiscal Regulation" above.

� Recouped costs, which includes depreciation, depletion and amortisation expenses, write-offs of dry wells anddepletion of producing fields.

� Expenses on account of interest and exchange rate fluctuations.

� Provisions and write-offs, which include provisions for abandonment, doubtful claims and advances.

The table below sets forth certain information with respect to our revenues, expenditure and profits for Fiscal 2004, 2005,2006 and 2007 and quarter ended June 30, 2007 and also presents certain line items as a percentage of total revenuesfor the respective periods.

Particulars 2004 % of 2005 % of 2006 % of Fiscal % of Quarter % oftotal total total 2007 total Ended total

Income Income Income Income June 30, Income2007

Income

Sales 383.40 78.30% 855.35 92.23% 942.44 92.02% 1,145.14 90.83% 135.65 52.02%

Other Income 77.81 15.89% 69.19 7.46% 54.69 5.34% 149.00 11.82% 49.24 18.88%

Increase / (Decrease) in 28.47 5.81% 2.88 0.31% 27.09 2.64% (33.45) -2.65% 75.89 29.10%Inventory

TOTAL INCOME 489.68 100.00% 927.42 100.00% 1,024.22 100.00% 1,260.69 100.00% 260.78 100.00%

Expenditure

Field Operating Expenses 156.83 32.03% 168.10 18.13% 170.62 16.66% 167.76 13.31% 36.98 14.18%

Depletion of Producing 38.10 7.78% 77.82 8.39% 69.83 6.82% 70.85 5.62% 16.44 6.31%Properties

Corporate Expenses 60.96 12.45% 57.67 6.22% 76.82 7.50% 27.98 2.22% 14.40 5.52%

Depreciation on fixed assets 11.48 2.34% 10.24 1.10% 8.12 0.79% 5.65 0.45% 0.84 0.32%

Interest and finance charges 1.67 0.34% 17.37 1.87% 21.41 2.09% 55.85 4.43% 22.46 8.61%

Provisions and write offs/ 5.26 1.07% (16.20) (1.75)% 418.35 40.85% 930.37 73.80% - -(write back)

TOTAL EXPENDITURE 274.30 56.02% 315.00 33.97% 765.15 74.71% 1,258.46 99.82% 91.12 34.94%

Profit before Tax 215.38 43.98% 612.42 66.03% 259.07 25.29% 2.23 0.18% 169.66 65.06%

Provision for taxation :

Current Tax 16.00 3.27% 195.00 21.03% 168.00 16.40% 286.00 22.69% 45.00 17.26%

Deferred Tax (22.05) (4.50)% 30.91 3.33% (85.64) (8.36)% (311.00) (24.67)% 8.20 3.14%

Wealth Tax 0.08 0.02% 0.08 0.01% 0.16 0.02% 0.20 0.02% 0.05 0.02%

Fringe Benefit Tax - 0.00% - 0.00% 2.60 0.25% 2.00 0.16% 0.50 0.19%

Net Profit as adjusted 221.35 45.20% 386.43 41.67% 173.95 16.98% 25.03 1.99% 115.91 44.45%

Quarter ended June 30, 2007

Total Income

For the quarter ended June 30, 2007, the Company had net sales of Rs. 135.65 million and total income was Rs.260.78million. In addition to net sales, for the quarter ended June 30, 2007, the Company also had other income of Rs. 49.24

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million, which includes interest and dividend income earned on surplus funds. Our increase in stock of crude oil was Rs.75.89 million which was mainly on account of the increase in closing stock of crude oil.

Expenditure

Field Operating Expenditure

The Company's field operating expenditure for the quarter ended June 30, 2007 was Rs. 36.98 million. As a percentageof total income, field operating expenditure was 14.18% of the total income.

Depletion of producing properties

Depletion expenses accounted for Rs. 16.44 million for the quarter ended June 30, 2007. As a percentage of totalincome, depletion expenses were 6.31% of the total income.

Corporate Expenses

Corporate expenses accounted for Rs. 14.40 million for the quarter ended June 30, 2007. As a percentage of totalincome, corporate expenses were 5.52% of the total income.

Depreciation on Fixed Assets

Depreciation expenses accounted for Rs. 0.84 million for the quarter ended June 30, 2007. As a percentage of totalincome, depreciation expenses were 0.32% of the total income.

Interest and finance charges

Interest and finance charges were Rs. 22.46 million for the quarter ended June 30, 2007. As a percentage of totalincome, interest and finance charges were 8.61% of the total income.

Provision for Taxation

Provision for taxation was Rs. 53.75 million for the quarter ended June 30, 2007. As a percentage of total income,provision for taxation for the quarter ended June 30, 2007 was 20.61%.

Net Profit after Tax

As a result of the factors set forth above, the Company's profit after taxes for the quarter ended June 30, 2007 wasRs. 115.91 million.

Fiscal 2007 compared to Fiscal 2006

Income

Our total revenue was Rs. 1,260.69 million in Fiscal 2007 as compared to Rs.1,024.22 million in Fiscal 2006, which is anincrease of 23.09%.

Sales Income

Our Company's share in sale of crude oil from PY-3 asset continued to be the primary source of income. Our salesrevenues increased by 21.51% to Rs. 1,145.14 million in Fiscal 2007 from Rs. 942.44 million in Fiscal 2006. This wasprimarily due to:

� An increase of 7.98% in the average annual sales price realisation for crude oil to USD 62.05 per barrel in Fiscal2007 from USD 57.46 per barrel in Fiscal 2006 primarily due to an increase in international crude oil prices.

� An increase in the total quantity of crude oil sold by us by 10.60% in Fiscal 2007 (504,644 Barrels) as comparedto Fiscal 2006 (456,279 Barrels).

Other Income

Our other revenues increased by 172.44% to Rs. 149.00 million in Fiscal 2007 from Rs. 54.69 million in Fiscal 2006,primarily due to:

� An increase of of 134.11% in interest income and dividends on current investments to Rs. 113.80 million in Fiscal2007 from Rs. 48.61 million in Fiscal 2006. This is primarily attributed to an increase in the funds deployed by us

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in view of interim deployment of funds received pursuant to the rights issue completed in the year 2006.

� Declaration of dividend by our wholly owned Subsidiary for the first time of an amount of Rs. 18.75 million.

Increase / decrease in stock

Our increase in stock of crude oil decreased from Rs. 27.09 million in Fiscal 2006 to Rs. (33.45) million in Fiscal 2007which is a decrease of 223.48% due to the increase in quantity of sale of crude oil.

Expenditure

Field Operating Expenses

Our field operating expenses was Rs. 167.76 million in Fiscal 2007 as compared to Rs.170.62 million in Fiscal 2006.This is a marginal decrease of 1.68%.


Our depletion of producing properties has increased by 1.46% from Rs. 69.83 million in Fiscal 2006 to Rs. 70.85 millionin Fiscal 2007. This is primarily attributable to a full year production in Palej and North Balol fields in Fiscal 2007. Thiswas partly off set by a change in the estimate of reserves in PY-3 from 28.80 MMBOE in Fiscal 2006 to 30.78 MMBOEin Fiscal 2007.

Corporate Expenses

Our corporate expenses have decreased by 63.58% from Rs. 76.82 million in Fiscal 2006 to Rs.27.98 million in Fiscal2007. This is primarily on account of increase in recovery of expenses from JV's from Rs. 72.94 million in Fiscal 2006 toRs.103.70 million in Fiscal 2007.


As there have not been any significant additions in our assets, our depreciation and amortisation expenses decreasedfrom Rs. 8.12 million in Fiscal 2006 to Rs. 5.65 million in Fiscal 2007, which is a decrease of 30.42%.


The interest and finance charges for the Fiscal 2007 has increased to Rs. 55.85 million from Rs. 21.41 million in Fiscal2006, which is an increase of 160.86%. Such increase is primarily on account of interest costs associated with theadditional loans availed during Fiscal 2007.

Provisions and write offs / (write back)

The provisions and write offs in Fiscal 2007, which was Rs. 930.37 million has increased by 122.39% as compared toRs. 418.35 million in Fiscal 2006. The same is primarily due to write off of exploration costs of unsuccesful explorationcost pertaining to CY-OSN-97/1. In Fiscal 2006 the Company has written off exploration cost of well PRS-4, Lakhi-1 andpast exploration costs in respect of CB-OS-1, which was Rs. 39.66 million, Rs.314.00 million and Rs.64.69 million,respectively as per our accounting policy.

Profit Before Tax

Our profit before tax as adjusted decreased by 99.14% to Rs. 2.23 million in Fiscal 2007 from Rs. 259.07 million in Fiscal2006 primarily due to the increase in the provisions and write off expenses by Rs. 512.02 million which has been off setpartially by increase in sales revenue by Rs. 202.70 million.


Our provision for taxation decreased by 126.79% to Rs. (22.80) million in Fiscal 2007 from Rs. 85.12 million in Fiscal2006, primarily due to the decrease in income before taxes and increase in the provisions and write off expenses.

Net Profit After Tax

Our adjusted net profit after tax decreased by 85.61% to Rs. 25.03 million in Fiscal 2007 from Rs.173.95 million in Fiscal2006, primarily due to the decrease in profit before taxes and increase in provisions and write offs. Our adjusted net profitafter tax was 1.99% of our total revenues in Fiscal 2007, compared to 16.98% in Fiscal 2006.

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Fiscal 2006 Compared to Fiscal 2005

Income

Our total revenue was Rs.1,024.22 million in Fiscal 2006 as compared to Rs.927.42 million in Fiscal 2005, which is anincrease of 10.44%.

Sales Income

Company's share in sale of crude oil from PY-3 JV continued to be the primary source of income. Our sales revenuesincreased by 10.18% to Rs. 942.44 million in Fiscal 2006 from Rs.855.35 million in Fiscal 2005. This was primarily dueto:

� An increase of 37.43% in the average annual sales price realisation for crude oil to USD 57.46 per barrel in Fiscal2006 from USD 41.81 per barrel in Fiscal 2005 primarily because of increase in international crude oil prices.

� This was despite the fact that there was a decrease in the total quantity of crude oil sold by us by 8.55% in Fiscal2006 (456,279 barrels) as compared to Fiscal 2005 (498,964 barrels).

� In addition, the commercial production from two of our fields, namely, Palej and North Balol was commenced inFiscal 2006. The total revenue generated from Palej was Rs. 27.90 million and Rs.1.38 million from North Balol, inFiscal 2006. There was no production or generation of revenue from these projects in Fiscal 2005. This waspartially offset by the increase in the amount payable by us to the GoI. In accordance with the PSC the percentagepayable by us to the GoI increased from 10% profit petroleum in Fiscal 2005 to 25% profit petroleum in Fiscal 2006in PY-3.

Other Income

Our other revenues decreased by 20.96% to Rs. 54.69 million in Fiscal 2006 as compared to Rs.69.19 million in Fiscal2005, primarily due to:

� A decrease of 18.15% in interest income and dividends on investments to Rs. 48.61 million in Fiscal 2006 fromRs. 59.39 million in Fiscal 2005, primarily due to decrease in the funds deployed by us and lower rates of interestfor deposits in Fiscal 2006 as compared to Fiscal 2005.

� In Fiscal 2005, we sold our participating interest in five small fields in Cambay basin which generated revenue ofRs.9.38 million.


Our increase in stock of crude oil was increased from Rs.2.88 million in Fiscal 2005 to Rs.27.09 million in Fiscal 2006which is an increase of 840.63% due to the increase in net realisable value of crude oil produced by us from USD 41.81per barrel in Fiscal 2005 to USD 57.46 per barrel in Fiscal 2006.

Expenditure


Our field operating expenses were Rs.170.62 million in Fiscal 2006 as compared to Rs.168.10 million in Fiscal 2005.This is a marginal increase of 1.50%. It may be noted that predominant share of the operating expenditure in PY-3 fieldrelates to charter hire of floating production unit and offshore storage vessel, for which the consortium had a contractwhich was valid upto June 2007.


Our depletion of producing properties has decreased by 10.27% from Rs. 77.82 million in Fiscal 2005 to Rs. 69.83million in Fiscal 2006. This is primarily due to change in the estimate of reserves in PY-3 from 21.20 MMBOE in Fiscal2005 to 28.80 MMBOE in Fiscal 2006. This was partly off set by an increase in the abandonment cost from USD 7.29million in Fiscal 2005 to USD 25.00 million in Fiscal 2006.

Corporate Expenses

Our corporate expenses have increased by 24.93% from Rs. 57.67 million in Fiscal 2005 to Rs. 76.82 million in Fiscal

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2006. This is primarily on account of increase in personnel expenses, as there was a revision in the wages payable toemployees keeping in mind the market conditions. In addition, we have also commenced a scheme of long term incentivesfor employees.


Our depreciation and amortisation expense decreased from Rs.10.24 million in Fiscal 2005 to Rs.8.12 million in Fiscal2006, which is a decrease of 20.70%.


The interest and finance charges for the Fiscal 2006 has increased to Rs.21.41 million from Rs. 17.37 million in Fiscal2005, which is an increase of 23.26%. The same is primarily due to the fact that the interest for loan was payable onlyfor a part of Fiscal 2005 as we availed the loan in September 2005 whereas in Fiscal 2006 it was payable for the entireFiscal.


The provisions and write offs in Fiscal 2006, which was Rs. 418.35 million has increased by 2,682.41% as compared toRs. (16.20) million in Fiscal 2005. The same is primarily due to write off of exploration costs of PRS-4, Lakhi-1 and pastexploration costs in respect of CB-OS-1, which was Rs. 39.66 million, Rs.314.00 million and Rs.64.69 million, respectivelyas per our accounting policy. However, in Fiscal 2005 there were certain provisions for diminution / revaluation in thevalue of investments which had been reversed by us. This reversal amounted to Rs.13.28 million.

Profit Before Tax

Our profit before tax as adjusted decreased by 57.70% to Rs. 259.07 million in Fiscal 2006 from Rs. 612.42 million inFiscal 2005 primarily due to the increase in the provisions and write off expenses by Rs. 434.55 million which has beenoff set partially by increase in sales revenue by Rs.87.09 million.


Our provision for taxation decreased by 62.33% to Rs. 85.12 million in Fiscal 2006 from Rs. 225.99 million in Fiscal2005, primarily due to the decrease in income before taxes and increase in the provisions and write off expenses.


Our adjusted net profit after tax decreased by 54.99% to Rs.173.95 million in Fiscal 2006 from Rs. 386.43 million inFiscal 2005, primarily due to the decrease in profit before taxes and increase in provisions and write offs. Our adjustednet profit after tax was 16.98% of our total revenues in Fiscal 2006, compared to 41.67% in Fiscal 2005.

Fiscal 2005 Compared to Fiscal 2004

Income

Our total revenue was Rs. 927.42 million in Fiscal 2005 as compared to Rs. 489.68 million in Fiscal 2004, which is anincrease of 89.39%.

Sales Income

Our sales revenues increased by 123.10% to Rs. 855.35 million in Fiscal 2005 from Rs. 383.40 million in Fiscal 2004.This was primarily due to:

� An increase of 48.37% in the average annual prices obtained for crude oil to USD 41.81per barrel in Fiscal 2005from USD 28.18 per barrel in Fiscal 2004 primarily because of increase in international crude oil prices. In addition,the total sales of crude oil by us increased from 309,819 barrels in Fiscal 2004 to 498,964 barrels in Fiscal 2005on account of drilling and bringing the replacement well PD-3S located in PY-3 field, on production. There was anincrease in the amount of Profit Petroleum payable by us to the GoI by 424.49% in accordance with the PSCswhich has partially offset the increase in gross sales.

Other Revenues

Our other revenues decreased by 11.08% to Rs. 69.19 million in Fiscal 2005 as compared to Rs.77.81 million in Fiscal

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2004, primarily due to:

� Decrease of 23.49% in interest income and dividends on investments to Rs.59.39 million in Fiscal 2005 fromRs. 77.62 million in Fiscal 2004, primarily due to decrease in the funds deployed by us in Fiscal 2005 as comparedto Fiscal 2004 and lower interest rates.

In Fiscal 2005, we sold our participating interest in five small fields in Cambay basin and thus we generated Rs.9.38million in Fiscal 2005.


Value of stock decreased from Rs. 28.47 million in Fiscal 2004 to Rs. 2.88 million in Fiscal 2005 which is a decrease of89.88% on account of lower closing stock of crude oil.

Expenditure


Our field operating expenses were Rs.168.10 million in Fiscal 2005 as compared to Rs. 156.83 million in Fiscal 2004.This is an increase of 7.19%. This is mainly attributable to the umbilical repairs works carried out in PY-3.


Our depletion has increased by 104.25% from Rs. 38.10 million in Fiscal 2004 to Rs. 77.82 million in Fiscal 2005. Thisis primarily due to addition of the PD-3S well cost to the producing properties combined with increase in the production.

Corporate Expenses

Our corporate expenses have marginally decreased by 5.40% from Rs.60.96 million in Fiscal 2004 to Rs.57.67 million inFiscal 2005.


Our depreciation and amortisation expense decreased from Rs.11.48 million in Fiscal 2004 to Rs.10.24 million in Fiscal2005, which is a decrease of 10.80%.


The interest and finance charges for the Fiscal 2005 has increased to Rs.17.37 million in Fiscal 2005 from 1.67 in Fiscal2004. The same is primarily due to the fact that we have drawn down a loan of Rs. 350.00 million in Fiscal 2005.


The provisions and write offs in Fiscal 2005, which was Rs.(16.20) million has decreased by 407.98% as compared toRs. 5.26 million in Fiscal 2004. The same is primarily due to the fact that in Fiscal 2005 certain provisions for diminution/ revaluation in the value of investments had been reversed. This reversal amounted to Rs.13.28 million.

Profit Before Tax

Our adjusted profit before tax increased by 184.34% to Rs. 612.42 million in Fiscal 2005 from Rs. 215.38 million in Fiscal2004 primarily due to the increase in total revenues by Rs. 437.74 million.


Our provision for taxation increased by 3,885.43% to Rs.225.99 million in Fiscal 2005 from Rs.(5.97) million in Fiscal2004.


Our adjusted net profit after tax increased by 74.58% to Rs.386.43 million in Fiscal 2005 from Rs.221.35 million in Fiscal2004, primarily due to the increase in profit before taxes by Rs.397.04 million compared to Fiscal 2004.

Liquidity and Capital Resources

Historically, our primary liquidity requirements have been to finance our working capital needs and our capital expenditure.To fund these costs, we have relied on cash flows from operations and short-term and long-term borrowings.

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Dividends

Dividends are declared at the annual general meeting of the shareholders based on the recommendation by the Board.The Board may recommend dividends, at its discretion, to be paid to our shareholders. The Board may also declareinterim dividends.

The Board considers a number of factors in making a recommendation to pay dividend, including but not limited to, futurecapital expenditure plans, profits earned during the financial year, cost of raising funds from alternate sources, cash flowsituation and applicable taxes such as tax on dividend.

The dividend pay-out ratios in Fiscal 2006 and 2005 was 10%. Our Board has not recommended any dividend for Fiscal2007. The amounts paid as dividends in the past are not necessarily indicative of our dividend policy in the future. Formore information on our dividend policy, see the section titled "Dividend Policy" beginning on page 69 of this Letter ofOffer.

Cash Flows

The following table summarises our cash flows as adjusted for the periods indicated:

(Rs. In million)

Particulars Fiscal Fiscal Fiscal Fiscal Quarter Ended2004 2005 2006 2007 June 30, 2007

Net cash from / (used in) operating activities 383.96 287.58 297.96 807.74 (253.90)

Net cash(used in) / from investing activities 450.37 (589.18) (655.81) (2,202.28) (84.61)

Net cash used in financing activities (53.72) 192.53 (211.83) 2,426.42 187.95

Net increase / (decrease) in cash or cash equivalents 780.61 (109.07) (569.68) 1,031.88 (150.56)

Cash flow from operating activities

Our cash flow from operating activities is primarily determined by sale of crude oil and gas produced by us.

Cash flow from investing activities

Our cash flow from investing activities is determined by purchase of fixed assets, exploration expenses incurred andpurchase and sale of current investment. In tune with our growth objective, we are increasingly investing for purchase offixed assets over the years. For quarter ended June 30, 2007, Fiscal 2007, 2006 and 2005, we spent Rs. 41.31 million,Rs.1,472.89 million, Rs. 509.67 million and Rs. 406.69 million, respectively for procurement of fixed assets excludingborrowing cost capitalised. Further, we have also increased our spending on exploration activities over the years in orderto attain our growth objective. For quarter ended June 30, 2007, Fiscal 2007, 2006 and 2005, we spent Rs. 74.46 million,Rs. 856.00 million, Rs. 297.76 million and Rs. 271.72 million, respectively. In Fiscal 2007, Rs. 856.00 million was spentprimarily on account of exploration activities in AAP-ON-94/1, CB-ON-7 and CY-OSN-97/1.

Cash flow from financing activities

Our cash flow from financing activities is determined by the level of secured loan taken and repaid by us, interest andfinance charge paid by us, dividend paid by us and exchange gain, if any. In Fiscal 2005, we availed a secured loan ofRs. 350.00 million from ING Vysya Bank for financing our business activities. During the same period, we repaid Rs.75.00 million against principal amount of the said loan. In Fiscal 2006, we repaid principal amount of Rs. 112.00 millionfor the said loan. In Fiscal 2007, our Company raised an amount including unclaimed and unpaid share applicationmoney of Rs. 1487.89 million by issuance of 19.57 million equity shares to the existing shareholders of our Company inthe ratio of 1:3. in Fiscal 2007. In Fiscal 2007, long term debt increased by Rs. 1,157.95 million. Our interest and financecharges, paid including borrowing cost capitalised, increased from Rs.33.86 million in Fiscal 2006 to Rs. 146.67 millionin Fiscal 2007. This is due to interest costs associated with PY-3 and Palej securitisation deal. In Fiscal 2005 and Fiscal2006, we paid dividend (including dividend tax thereon) of Rs. 65.10 million and Rs. 65.97 million at a rate of 10%. OurBoard has not recommended any dividend for Fiscal 2007. Our overall cash flow from financing activities turned positivein Fiscal 2007 on account of raising of equity capital and availing new loan facilities. During the quarter ended June 30,

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2007 we availed a secured loan of Rs. 324.96 million. We repaid principal amount of Rs. 109.72 million. Our interest andfinance charges, paid including borrowing cost capitalised were Rs.27.29 million during the quarter.

Net Cash flow

In Fiscal 2007, our investment expenditure totaled Rs. 2,328.89 million, which was funded through proceeds of a rightsissue of equity shares / internal accruals, secured loans and cash reserves. Further, we repaid Rs. 535.66 million againstprincipal amount of secured loan in Fiscal 2007 and availed a new loan by PY-3 and Palej securitisation. Further ourCompany has raised an amount of Rs. 1,487.89 million by issuance of 19.57 million equity shares to the existingshareholders of our Company in the ratio of 1:3. In Fiscal 2007, our net cash flow was Rs. 1,031.88 million in comparisonof a negative net cash flow of Rs. (569.68) million in Fiscal 2006. The cash and cash equivalent balance as of March 31,2007 was Rs. 1,503.37 million. In quarter ended June 30, 2007, our investment expenditure totalled Rs. 115.77 million.For the quarter ended June 30, 2007, our net cash flow was Rs. (150.56) million. The cash and cash equivalent balanceas of June 30, 2007 was Rs. 1,352.81 million.

Quantitative and Qualitative Disclosures about Market Risk

Commodity Price Risk

The prices of our products, in particular, crude oil is linked to the international prices of such products. Our revenues areexposed to the risk of fluctuation in prices in the international markets. We do not currently have in place any hedgingmechanisms.

Operating Risk

We are exposed to operating risks, including reservoir risk, risk of loss of oil and gas and natural calamities risk inrespect of all our installations and facilities. We are also exposed to revision in charter hire prices for floating productionunit and offshore storage vessel deployed in PY-3 field beyond the term of the existing contract which expires in July2009.

We are also not covered for losses in profits.

Exchange Rate Risk

We make substantial purchases of services and equipment in foreign currencies and the prices of crude oil are linked tothe international prices of crude oil, which are traditionally denominated in USD. We are exposed to risks relating toexchange rate fluctuations. We have no hedging or derivative programme to cover these risks. However, the risk involvedin our required payments in foreign currencies is offset to some degree by our revenues from sales of crude oil which arelinked to the USD currency exchange rates.

Interest Rate Risk

Changes / reset in interest rates with respect to our borrowings may affect our financial expenses. As of March 31, 2007and as of June 30, 2007, we had outstanding loans amounting to Rs.1,320.95 million and Rs. 1,515.07 million respectively.

We are exposed to interest rate risk on our other income. We make short-term investments with banks and other financialinstitutions and a decrease in the interest rates in the domestic market will result in lower interest earnings on short-termdeposits.

Related Party Transactions

We have certain related party transactions with our JV partners in accordance with PSCs executed by us. For details, seethe section titled "Financial Statements" beginning on page 70 of this Letter of Offer.

Unusual and Infrequent Events or Transactions

There have been no other events, to our knowledge, other than as described in this Letter of Offer, which may be called"unusual" or "infrequent."

Further in the opinion of our Directors, there has not arisen any circumstance since the last financial statements asdisclosed in this Letter of Offer and which may adversely affect or is likely to affect the trading and profitability of ourCompany, or the value of its assets or its ability to pay its liabilities within the next twelve months.

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Material Developments

Auditor's Report on Limited Review of unaudited financial results for the quarter and six months ended September 30,2007 is as under:

AUDITORS' REPORT

TO THE BOARD OF DIRECTORS OFHINDUSTAN OIL EXPLORATION COMPANY LIMITED

ON LIMITED REVIEW OF UNAUDITED FINANCIAL RESULTS

1. We have reviewed the accompanying statement of unaudited financial results of HINDUSTAN OIL EXPLORATIONCOMPANY LIMITED ("the Company") for the quarter and six months ended September 30, 2007. This statement isthe responsibility of the Company's Management and has been approved by the Board of Directors. Our responsibilityis to issue a report on these financial results based on our review.

2. We conducted our review in accordance with the Auditing and Assurance Standard (AAS) 33 Engagements toReview Financial Statements, issued by the Institute of Chartered Accountants of India. This Standard requires thatwe plan and perform the review to obtain moderate assurance as to whether the financial statements are free ofmaterial misstatement.

3. A review of interim financial information consists principally of applying analytical procedures for financial data andmaking inquiries of persons responsible for financial and accounting matters. It is substantially less in scope thanan audit conducted in accordance with the generally accepted auditing standards, the objective of which is theexpression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express suchan opinion.

4. Based on our review conducted as stated above, nothing has come to our attention that causes us to believe thatthe accompanying statement of unaudited financial results, together with the notes thereon, prepared in accordancewith the Accounting Standards referred to in Section 211 (3C) of the Companies Act, 1956 and other recognizedaccounting practices and policies, has not disclosed the information required to be disclosed in terms of Clause 41of the Listing Agreements with Stock Exchanges including the manner in which it is to be disclosed, or that itcontains any material misstatement.

5. Further, we also report that we have also verified the number of shares as well as the percentage of shareholdingsin respect of aggregate amount of public shareholdings in terms of Clause 35 of the Listing Agreements (Item 18of the statement) from the details furnished by the Management and the particulars relating to undisputed investorcomplaints (Note 9 of the statement) from the details furnished by the Registrar and found the same to be correct.

For Deloitte Haskins & SellsChartered Accountants

K. Sai RamPartner

Place: Chennai (Membership No. 022360)Date: October 23, 2007

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UNAUDITED FINANCIAL RESULTS (PROVISIONAL) FOR THE QUARTER AND SIX MONTHS ENDED ON SEPTEMBER30, 2007

Rs. in millions

Sr. Particulars Unaudited for the Quarter Unaudited for Six months Audited for theNo. Previous Year

Ended on Ended on Ended on Ended on Ended on30.09.2007 30.09.2006 30.09.2007 30.09.2006 31.03.2007

1 Net Sales / Income from Operations 291.13 257.45 426.79 568.39 1,145.15(See Note 2)

2 Other Income 36.86 13.93 85.21 25.38 148.99

3 Increase / (Decrease) in Stock of (83.89) 47.29 (7.99) 45.60 (33.45)Crude Oil

4 Total Income 244.11 318.68 504.00 639.37 1,260.69

5 Total Expenditure

a) Field Operating Expenses 87.61 41.02 124.65 88.45 167.76(See Note 3)

b) Corporate Expenses

- Staff Expenses 18.29 7.02 37.26 33.91 53.13

- Legal and Professional 9.79 7.83 16.41 14.36 30.28Expenses

- Other Expenses 14.09 12.74 23.24 33.58 48.57

- Recovery of Expenses (26.46) (20.47) (48.53) (40.53) (103.70)

103.31 48.15 153.04 129.77 196.03

6 Interest and Financing Charges 20.34 10.64 42.80 22.26 55.85

7 Depreciation, Depletion and 13.48 22.18 30.77 46.08 76.49Amortisation

8 Provisions and Write offs (Net) - 377.51 - 377.51 930.37(See Note 4)

9 Profit before Taxation

( 4-5-6-7-8) 106.97 (139.80) 277.40 63.74 1.94

10 Provision for Current Income Tax 37.00 82.00 82.00 159.00 286.00

11 Provision for Deferred Tax (5.10) (131.80) 3.10 (137.30) (311.00)

12 Provision for Wealth Tax 0.05 - 0.10 - 0.20

13 Fringe Benefit Tax 0.40 0.50 0.90 1.00 2.00

14 Net Profit ( 9-10-11-12-13 ) 74.62 (90.50) 191.30 41.04 24.74

15 Paid up Equity Share Capital 783.29 587.61 783.29 587.61 783.29(Face Value of Rs. 10/- each)

16 Reserves excluding RevaluationReserve 3,120.05

17 Basic and Diluted EPS (Rs.) 0.95 (1.42) 2.44 0.64 0.35

- Not Annualised (See Note 7)

18 Aggregate of Public Shareholding

Number of Shares 57,040,460 43,457,557 57,040,460 43,457,557 57,040,460

Percentage of Shareholding 72.84% 73.98% 72.84% 73.98% 72.84%

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Notes :

1 The Company is primarily engaged in a single business segment of Hydrocarbons. All the activities of the Companyrevolve around the main business. Further, the Company does not have any separate geographic segment otherthan India. As such there are no reportable segments as per AS-17 "Segmental Reporting" issued by the Instituteof Chartered Accountants of India.

2 Decrease in turnover is primarily on account of:

A Lower production in PY-3 Block; Operator has temporarily shut-in PY-3-3RL Well due to excessive waterentering in the Well.

B Increase in the Government Share of Profit Oil from 25% to 40% in PY-3 Block with effect from April 1, 2007.

3 Field Operating Expenditure has increased on account of increased charter hire charges of the offshore productionfacilities in PY-3 block i.e. floating production unit "Tahara" and floating storage vessel "Endeavor" on renewal ofcharter hire contract by the Operator.

4 A Provisions and write-offs for the quarter and six months ended September 30, 2006 includes write-off ofexploration cost of Rs. 3,775.10 lacs for Vinayaka-1 Exploratory Well in CY-OSN-97/1 Block.

B Provisions and write-offs for the year ended March 31, 2007 includes write-off of exploration cost ofRs. 943.48 millions for Vinayaka-1 and Subhan-1 Exploratory Wells in CY-OSN-97/1 Block, a write back ofRs. 4.38 millions in CB-ON-7 Block and a write back of Rs. 8.73 millions in AAP-ON-94/1 Block.

5 The Board of Directors at their meeting held on July 20, 2007 decided to raise funds not exceeding Rs. 6,150millions through issue of Equity Shares to the Shareholders on rights basis for financing the Company's developmentcosts. The Company has filed the Draft Letter of Offer with SEBI for the same on September 19, 2007.

6 With reference to the observations made in the Auditors' Report for the FY 2006-07 regarding two unaudited jointventures' accounts, the Company has subsequently received Audited Accounts of one of them. The Company hasnot received the Audited Accounts of Block GN-ON-90/3 (Pranhita-Godavari) being under arbitration. As none of theabove joint ventures has entered the production phase there is no effect on the profit for the quarter.

7 EPS for the quarter and six months ended September 30, 2006 has been restated as per Accounting Standard 20"Earnings Per Share" to reflect the effect of the previous Rights Issue in the financial year 2006-2007.

8 Figures for the previous periods have been recast / regrouped to make them comparable with the current period,wherever necessary.

9 Details of Investors' Complaints for the quarter ended on September 30, 2007.

Unresolved at the beginning of the quarter Nil

Received during the quarter 68

Resolved during the quarter 68

Unresolved at the end of the quarter Nil

10 The above results were reviewed by the Audit Committee and approved by the Board at its meeting held onOctober 23, 2007 and the same have been subjected to a limited review by the Auditors.

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OUTSTANDING LITIGATIONS AND MATERIAL DEVELOPMENTS

Except as described below, there are no outstanding litigations, suits or criminal or civil prosecutions, proceedings or taxliabilities involving our Company, our Directors, our Promoters, and our Promoter Group companies that would have anadverse effect on our business or affect the operations and finances of our Company and there are no defaults, nonpayment or overdue of statutory dues, institutional / bank dues and dues payable to holders of debentures, bonds andfixed deposits that would have a material adverse effect on our business other than unclaimed liabilities against ourCompany or Directors or Promoters or our Promoter Group as of the date of this Letter of Offer.

1. Litigation

1.1 Contingent liabilities not provided for as of June 30, 2007

Our contingent liabilities / claims not acknowledged as debt as of June 30, 2007 are as follows:

Contingent Liabilities Amount

(i) Counter guarantees on account of bank guarantees 139.98

(ii) Corporate Guarantee for housing loan to employees 0.61

(iii) Estimated amount of contracts remaining to be executed on capital account 132.80and not provided for (excluding Company's share of JVs' commitments).*

(iv) Claims against the Company not acknowledged as debt **

- Dispute with contractors under arbitration 3.21

- Income tax demands under appeal 298.15

(v) The Government had encashed the performance bank guarantee of Rs 10.15 million 265.69for the PG Block abandoned by the consortium under the force majeure clauseof the PSC.The Government has also raised an additional demand on whichinterest has been compounded . The Company has been legally advised that thesaid actions of the Government are not justified. The Company has initiated legalproceeding as per the provisions of the PSC in the matter. Pending the outcomeof this, a provision was made during the financial year 1996-97 in this regard tothe extent of Rs. 10.15 million in the books of account.**

Total 840.44

* Includes Rs. 125.14 millions for the quarter ended June 30, 2007 in respect of farm-in consideration foracquisition of participating right in one JV.

** The management is of the opinion that the claims under items (iv) and (v) above are not sustainable.

1.2 Litigation involving our Company

Pending litigation and disputes involving our Company are set forth below.

(a) Income Tax

There are disputes relating to the income tax assessment of our Company. The total amount ofassessable income disputed in appeals filed by / against our Company, relating to the income taxliability for various assessment years ("AY") is as per details set out below. The primary issues, whichform the principal points of dispute between our Company and the revenue department have beendescribed below.

Disallowance of deduction under Section 80-IB (9) of the IT Act

Under Section 80-IB-(9) of the IT Act, an entity which is engaged in the business of commercial productionof mineral oil (includes both crude oil and natural gas) can claim a deduction for an amount equal to

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100% of the profits for a period of seven consecutive years including the initial assessment year. OurCompany has in various assessment years claimed benefit under the said Section and the revenuedepartment has allowed deduction in terms of the aforesaid Section. However, in assessment year2003-2004 and the assesment year 2004-2005, the assessing officer has disallowed the deductionclaimed by our Company under the said provision. The disallowance is primarily on account of theassessing officer's claim that our Company has not manufactured / produced any mineral oil andthereby is not entitled to claim any benefit under the Section.

Disallowance of exploration expenses

Our Company has been claiming deduction on account of exploration expenses under the provisions ofSection 42 of the IT Act. In some of the assessment years the assessing officer has disallowed deductionon account of exploration expenses and imposed liability primarily on the following grounds: i.e. theassessing officer has contended that the surrender of the block has not been accepted by the governmentand / or the commercial production from the block has not commenced. Our Company has challengedthe said disallowance before various forums details of which are as follows:

AY 2004-2005:

The assessing officer has through an order dated December 22, 2006 inter-alia disallowed the claim ofour Company for deduction under Section 80-IB(9) of the IT Act amounting to Rs. 257.08 million. Theassessing officer has further disallowed expenditure amounting to Rs. 2.16 million under Section 14A ofthe IT Act. The assessing officer has further disallowed expenditure amounting to Rs. 11.88 milliontowards short recovery of expenses. Our Company has preferred an appeal with the Commissioner ofIncome Tax- Appeals ("CIT-A") in January 2007 against the order and the matter is pending adjudication.

AY 2003-2004:

The assessing officer has through an order dated November 2, 2005 disallowed the claim of ourCompany for deduction under Section 80-IB(9) of the IT Act amounting to Rs. 234.26 million. OurCompany has preferred an appeal with the CIT-A on December 21, 2005 against the said order. TheCIT-A vide his order dated October 31, 2006 disallowed the claim of our Company for deduction underSection 80-IB(9) of the IT Act. Our Company has preferred an appeal before the ITAT in December2006 and the mater is pending adjudication.

AY 2001-2002:

The assessing officer has through an order dated March 31, 2004 disallowed the claim of our Companyfor certain deduction. Our Company filed an appeal on April 30, 2004 before the CIT-A which waspartially allowed vide order dated November 21, 2005. Our Company has on January, 2006 preferredan appeal before the ITAT against the order of CIT-A. The current disputed income is Rs. 0.31 million,which is on account of disallowance of interest income related to the eligible undertaking under Section80-IB of the IT Act.

In addition to the above, our Company is also claiming a deduction of Rs. 23.14 million as explorationexpenses. The claim for such deduction was not made in the body of the computation but the same wasclaimed by way of a note thereto. The assessing officer as well as the CIT-A have disallowed the claimof our Company. Our Company has preferred an appeal before the ITAT and the matter is pendingadjudication.

AY 2000-2001:

The assessing officer has through an order dated March 20, 2003 disallowed the claim of our Companyfor deduction. Our Company filed an appeal before the CIT-A in April, 2003 who vide order datedNovember 21, 2005 partly allowed the appeal. Our Company has on January, 2006 preferred anappeal before the ITAT against the order of CIT-A. The current disputed amount is Rs. 6.37 million.

Our Company is also claiming a deduction of Rs. 1.18 million as exploration expenses. The claim forsuch deduction was not made in the body of the computation but the same was claimed by way of a

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note thereto. The matter is pending adjudication at the ITAT.

AY 1999-2000:

The assessing officer has through an order dated March 28, 2002 disallowed the claim of our Companyfor certain deduction. Our Company filed an appeal before the CIT-A on April 16, 2002 who partiallyallowed the appeal vide order dated August 26, 2004. The assessing officer has passed an order datedJuly 28, 2005 giving effect to the order of the CIT-A. Our Company has filed an appeal with the CIT-Ain November, 2004 against the said order on certain grounds including levy of excess interest. Seperately,the revenue department has on December 7, 2004 preferred an appeal to the ITAT against the CIT-Aorder dated August 26, 2004. The matter is pending adjudication at the ITAT. The current disputedamount is Rs. 6.71 million.

AY 1998-1999:

The assessing officer has through an order dated February 22, 2001 disallowed the claim of ourCompany for certain deduction. Our Company filed an appeal before the CIT-A in March 3, 2001 whopartially allowed the appeal through its order dated August 26, 2004. The assessing officer has passedan order dated July 28, 2005 giving effect to the order of the CIT-A. Our Company has filed an appealwith the ITAT in November, 2004 against the said order disputing disallowance of deduction of Rs. 7.88million. Separately, the revenue department has on December 7, 2004 preferred an appeal to the ITATagainst the CIT-A order dated August 26, 2004. The matter is pending adjudication at the ITAT.

AY 1997-1998:

The assessing officer has through an order dated February 28, 2000 disallowed the claim of ourCompany for certain deduction. Our Company filed an appeal before the CIT-A on April 26, 2000 whichwas partially through order dated June 10, 2003. Our Company has on August 5, 2003 preferred anappeal with the ITAT against the aforesaid order of the CIT-A disputing disallowance of deduction of Rs.6.54 million. The matter is pending adjudication at ITAT.

AY 1996-1997:

The assessing officer has through an order dated December 8, 1998 disallowed the claim of ourCompany for deduction. Our Company filed an appeal before the CIT-A on March 26, 1999 which waspartially allowed vide order dated September 13, 2002. Our Company has filed an appeal with the ITATon December 10, 2002 against the said order disputing disallowance of deduction of Rs. 22.16 million.Our Company has also claimed a capital loss of Rs. 25.38 million, which has not been allowed andhence is disputed. The matter is pending adjudication at ITAT.

AY 1995-1996:

The assessing officer has through an order dated January 27, 1998 disallowed the claim of our Companyfor deduction. Our Company filed an appeal before the CIT-A in February, 1998 which was partiallyallowed vide order dated September 13, 2002. Our Company has filed an appeal with the ITAT onDecember 10, 2002 against the said order disputing disallowance of deduction of Rs. 13.19 million. Thematter is pending adjudication at ITAT.

(b) Enforcement Directorate

Ms. Sheela Bhatia (a NRI) held shares (share certificates no. 304,573 to 304,579 and 73,984 to 73,990)of our Company. The complainant, Mr. Ashok Kriplani was the power of attorney holder for Ms. SheelaBhatia. Mr. Kriplani pledged the said shares with Annamalai Finance Limited ("AFL"), who subsequentlyenforced the pledge and got the shares transferred in its own name. Mr. Kriplani filed a complaintagainst our Company and the transferee with the Enforcement Directorate, FEMA, on the grounds thatthe said shares were held by Ms. Sheela R Bhatia were transferred in the name of AFL, a residentIndian, without RBI approval and in contravention of Section 19 (1) (d) read with Section 49 of theFEMA.

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Enforcement Directorate, FEMA, notified our Company through a letter dated July 02, 2003 (T-4/460/DZ/2002/AD (DLV) / Call Notice / EO (BJ) 2013), that adjudication proceedings were being initiated againstour Company. Thereafter, through a letter dated April 27, 2004 our Company was informed that theadjudication proceedings had been initiated and personal hearing had been fixed for May 10, 2004.AFL filed its response on April 20, 2004 and our Company filed its response on August 19, 2004.Thereafter, our Company received a notice dated April 13, 2005 from the Assistant Director of Enforcementrequiring our Company to appear before the Enforcement Directorate on April 26, 2005. Our Companyhas appeared before the relevant authority and made its oral submissions. The matter is pendingadjudication.

(c) Civil Suits / Arbitration

(i) A dispute arose in relation to block GN-ON-90/1 granted to our Company vide PSC dated March29, 1993, on the issue of inter alia, the acquisition, processing and interpretation of seismic dataover a period of three years. Our Company (acting as the operator) furnished a performance bankguarantee of Rs. 10,149,000 dated October 20, 1996 in favour of the GoI.

Our Company could not perform its obligations under the said PSC as 'force majeure' conditionsprevailed in the areas of operation being the districts of Karimnagar, Warrangal and Adilabad inthe State of Andhra Pradesh. In addition, certain statutory licenses, which were required forperformance of obligations under the PSC, were not made available to our Company withinreasonable time from the "Effective Date" under the PSC. The GoI invoked the said performancebank guarantee, on grounds of non-performance.

Our Company initiated arbitration proceedings against the GoI and ONGC as the licensee underthe PSC in accordance with the arbitration clause contained therein. In the arbitration, our Companyhas contended that since 'force majuere' conditions continued to exist in the area of performanceof the PSC, our Company was excused from performance of its obligations under the PSC inaccordance with its provisions. A consequential relief of declaration, that the PSC was null andvoid due to the existence of 'force majuere' conditions, has also been sought by our Company.Further, our Company has sought recovery of the amounts covered under the performance bankguarantee that was encashed by the GoI.

The GoI and ONGC have resisted the claims of our Company essentially on the ground that theconditions existing in the areas of operation under the PSC did not amount to 'force majeure'under the terms of the PSC. In addition, the GoI and ONGC have also raised a counter claim ofRs. 123,934,140 along with interest at the rate of 24% thereon against our Company. The counterclaim made by the GoI and ONGC has been disputed by our Company inter alia, on the groundthat the counter claims are time barred besides being without any merit. The seat of the arbitrationproceedings is Delhi and the arbitration has been conducted under the provisions of the Arbitrationand Conciliation Act, 1996. The hearing to the arbitration has been concluded and award isawaited.

(ii) We had received a notice dated April 14, 2005 from GAIL (India) Limited ("GAIL") in relation toperformance of a Gas Sales and Transportation Agreement ("GSTA") dated July 7, 2003 betweenour Company and GAIL. The GSTA had expired on September 28, 2004 due to non-satisfaction ofthe conditions precedent by GAIL within the requisite timeframe.

Subsequently, in July 2005 GAIL filed a petition against our Company, (Arbitration Application No.161 of 2005) under Section 11(6) of the Arbitration and Conciliation Act, 1996 before the DelhiHigh Court for appointment of arbitral tribunal without giving notice of arbitration to our Company.The Delhi High Court vide order dated July 29, 2005 disposed of the said petition of GAILobserving that both parties shall appoint their respective nominee arbitrators.

GAIL and our Company nominated their respective arbitrators and both the arbitrators haveappointed the chairman. The arbitral tribunal passed an order dated June 7, 2006 disposing theapplication filed by GAIL for interim measures. The arbitral tribunal deferred the decision on meritsof the application of GAIL. However, the arbitral tribunal passed an interim order inter alia that our

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Company is not prevented from proceeding ahead in completion of the PY-1 project but whateverour Company does pending the arbitration proceedings, would be subject to the ultimate award tobe passed by the arbitral tribunal. Our Company has been ordered to keep third parties informedof the aforesaid order. The written pleadings before the tribunal have been completed by both theparties and the oral submissions of the parties were concluded on March 26, 2007 and March 27,2007. Our Company has also filed written submissions before the arbitral tribunal. The hearing tothe arbitration has been concluded and award is awaited.

(iii) DIOG has filed applications before the High Court of Madras for restraining our Company, frominvoking any provision of the JOA dated August 29, 2001 executed between our Company andMosbacher to the detriment of DIOG, in furtherance of the letters dated February 9, 2007 andMarch 14, 2007 for cash calls payable by Mosbacher issued by our Company till the conclusionof the arbitration proceedings. The High Court of Madras vide its order dated March 27, 2007,granted an ex-parte ad-interim injunction for a period of two weeks i.e. till April 10, 2007 in favourof DIOG, restraining our Company from invoking any provisions of the JOA.

During the pendency of the applications before the High Court of Madras, DIOG issued a noticedated June 11, 2007 to our Company invoking the arbitration under the JOA and also appointedits nominee arbitrator. Our Company has vide a reply dated July 11, 2007 appointed its nomineearbitrator.

At the hearing on July 21, 2007 before the High Court of Madras, the application for interim relieffiled by DIOG was disposed off with observations that DIOG may approach the arbitral tribunal forthe interim relief and the interim injunction granted vide order dated March 27, 2007 shall continuefor six weeks from the date of constitution of the arbitral tribunal.

The arbitral tribunal has been constituted on September 25, 2007 and DIOG made an applicationfor interim measures before the arbitral tribunal on October 16, 2007. The arbitral tribunal has videan order dated November 7, 2007 extended the order passed by High Court of Madras until 30days after the final award in the arbitration. The procedural timetable would be finalised by thearbitral tribunal and the arbitration proceedings would be conducted accordingly.

(d) Share transfer related litigation

There are 36 cases relating to disputes of title / ownership of our Equity Shares pending before variouscourts / arbitral tribunal / forums authorities in India. The cases inter alia relate to instances wherein thetitle of our Equity Shares is under dispute and the transferor or the transferee has either: (a) intimatedour Company about loss of share certificates; (b) approached appropriate authorities for a declarationthat the plaintiffs are the bona fide owners of the Equity Shares and sought injunction (permanent orinterim) against transfer of such share certificates and sought damages and costs in certain instances;or (c) filed complaint before the relevant authority. Further, we have issued 'Stop Transfer' directions inall instances where the courts have issued injunction orders against transfer of the disputed EquityShares. Our Company has not received communication / correspondence from the courts / authorities orcounter parties in relation to the above mentioned cases for a considerable period of time. Hence, weare unable to provide the updated status of these cases.

(e) Labour

There is one labour case pending before the Labour Court, Vadodara in relation to claims of backwages and reinstatement.

1.3 Litigation involving our Promoters and Promoter Group

Except as disclosed below, there are no outstanding litigations, suits, prosecution or default with respect toour Promoter and Promoter Group

(i) Hardy Oil & Gas Plc ("Hardy Oil") has filed an appeal being Civil Appeal No. 2057 of 2006 underSection 15Z of the SEBI Act, 1992 before the Supreme Court against the SEBI and our Promoters beingaggreived by the order dated March 8, 2006 passed by the Securities Appellate Tribunal ("SAT"),

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dismissing appeal no. 132/2005 filed by Hardy Oil challenging the acquisition of control of our Companyby our Promoters in alleged violation of the Takeover Code. Hardy Oil moved an application for interimreleif praying inter alia for restraining our Promoters from taking any further steps to consolidate/ increasetheir shareholding in our Company, from exercising voting rights in respect of 26% stake then held byour Promoters and restraining our Promoters from alienating any portion of 26% stake then held bythem or creating in any way third rights in respect of such stake. The Supreme Court has admitted theappeal and no interim relief has been granted in favour of Hardy Oil. The Appeal is pending before theSupreme Court for final hearing.

(ii) Our Promoters have received a showcause notice dated May 26, 2006 from the SEBI seeking explanationas to why a penalty under the SEBI Act, 1992 should not be imposed on them in relation to allegedviolation of Regulation 22(7) of the Takeover Code with respect to appointment of Directors on theBoard of our Company. The SEBI vide an order dated August 25, 2006 has imposed penalty on ourPromotors. Our Promotors filed an appeal before the SAT challanging the order of the SEBI. The SATvide its order dated November 7, 2006 allowed the appeal filed by our Promotors and set aside theorder of SEBI imposing penalty against our Promoters. Two appeals under Section 15Z of the SEBI Act,1992 have been filed in the Supreme Court of India against the said order of the SAT.

Hardy has filed an appeal against SEBI and Promoters (Civil Appeal No. 242 of 2007). Since Hardy Oilwas not a party before the SAT, an application seeking permission to file the Appeal was made alongwith the appeal. The Supreme Court vide an order dated January 15, 2007 has granted permission tofile the appeal to Hardy Oil and issued notice and tagged with the Appeal No. 2057 of 2006 filed byHardy Oil pending before the Supreme Court.

SEBI has also filed a separate appeal before the Supreme Court against the Promoters (Civil AppealNo. 361 of 2007). Hardy Oil filed an application for impleadment to the said appeal filed by SEBI. TheSupreme Court has vide order dated February 9, 2007 admitted the appeal and allowed the impleadmentof Hardy Oil and tagged with the Civil Appeal No. 242 of 2007 already pending before the SupremeCourt.

Both the above appeals are pending before the Supreme Court for final hearing.

1.4 Litigation involving our Directors

Our Directors are currently not involved in any outstanding litigation

1.5 Litigation involving our Subsidiary

Income tax related cases

AY 2004 - 2005

The assessing officer has through an assessment order dated October 31, 2006 has inter alia disallowedgratuity of Rs. 0.28 million. The Subsidiary has preferred an appeal with the CIT-A on December 7, 2006against the assessment order. The matter is pending adjudication.

AY 2002 -2003

The assessing officer has through its assessment order dated December 31, 2004 disallowed certainexpenditures to the tune of Rs. 0.13 million. Subsidiary has filed an appeal on March 4, 2005 before the CIT-A against the assessment order. CIT-A vide an order dated August 1, 2006 decided the case in the favour ofthe Subsidiary. The income tax department has preferred an appeal before the ITAT. The matter is pendingadjudication.

AY 1996 - 1997

The assessing officer has through its assessment order dated January 28, 1999 disallowed certain expenditures.The Subsidiary had appealed against the order before the CIT-A which disposed of the said appeal videorder dated May 8, 2002. The Subsidiary has appealed against the said order before the ITAT. The currentdisputed income is Rs. 4.67 million. The matter is pending adjudication

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2. Material Developments

Since the date of the last financial statement as at June 30, 2007, there have arisen no circumstances thatmaterially or adversely affect the profitability of our Company or the value of our assets or our ability to pay ourliabilities within the next 12 months, save and except to the extent of disclosures made in this Letter of Offer,including but not limited to the following:

� HEPI, the operator of the PY-3 field has informed our Company that due to excessive water entering the PY-3-3RL well in PY-3 field, the operator has temporary shut-in the well resulting in a reduction in output fromthe field to the order of 1100 bopd. Our Company has 21% participating interest in the said field.

� Our Company has executed a Natural Gas Sales & Purchase Agreement with PPN, for the sale of upto51,000 MMBTU per day of natural gas from its PY-1 gas field. The gas price is USD 3.75 MMBTU for the firsttwo years increasing to USD 3.85 MMBTU in next two consecutive years, USD 3.95 MMBTU for two yearsthereafter and negotiated price thereafter. Our Company is the operator of the Block PY-1 and holds 100%participating interest in the said Block.

� Our Company has drilled one producer well NB-9, which is proposed to be tested, completed and hooked upfor production in 2007-08.

� During the year 2006-07, our Company, in its capacity as operator, drilled two exploration wells in Block CB-ON-7, namely SPD-1 and Deva-1. Following the results of exploratory drilling, our Company is preparing adevelopment plan for submission to the DGH for approval. The plan is to utilise existing production facilitiesat Pramoda Field to hook up SPD-1 discovery. Further, the JV partners comprising of GSPCL, ONGC andHOEC have requested the Government for retention of certain block area in accordance with the Governmentguidelines for further exploration.

� ONGC, as the operator, has declared commerciality of Gulf "A" Discovery, which has been approved by allthe JV partners. The operator has drilled North Harinagar well to a target depth of 3,288 meters. While theDST showed presence of oil, however the well could not be activated. The Gulf "A" Field Development Plan,which envisages drilling from a land based platform, is under preparation.

� Our Company ,the operator of the AAP-ON-94 Field has spudded the exploration well North Ledo-1 in theblock.

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GOVERNMENT AND OTHER APPROVALS

In view of the approvals listed below, we can undertake this Issue and our current business activities and except asdisclosed in this Letter of Offer no further major approvals from any governmental or regulatory authority or any otherentity are required to undertake the Issue or continue our business activities. Unless otherwise stated, these approvalsare all valid as of the date of this Letter of Offer.

I. Approvals for the Issue:

The Board of Directors has, pursuant to resolution passed at its meeting held on July 20, 2007, authorised theIssue of our Company under Section 81(1) of the Companies Act.

II. Approvals for our assets:

(a) Approvals for our asset at CY-OSN-97/1

Description Reference Date of Issue Date of Expiry

PEL to Mosbacher, Energy O-12012/57/2000- June 13, 2001 Conditional license effectiveEquity India Petroleum Pty. ONG/D.IV March 16, 2001 valid for aLtd and our Company under period of seven years fromthe P&NG Rules the date of issue.

No objection certificate from PPCC/NOC/KKL/EE/ March 29, 2006, Not applicablethe Pondicherry Pollution 2006/509Control Committee.

No objection certificate from DGH/EC/Expls_ April 4, 2006 Not applicablethe DGH to import explosives Import/NOC/HOEC/for oil exploration 01/04/2006

(b) Approvals for our asset at CB-ON- 7


PEL by Energy and PCR-1497-3945E November 23, 2000 November 22, 2007^Petrochemical Department,Government of Gujarat underthe P&NG Rules to ONGC

PML (confirm whether lease PML - 2005 - September 21, Valid for a period of 20 yearsand then PML) by the 1391 - E 2005 from the date of license,MoPNG under the P&NG subject to compliance withRules to ONGC. conditions stipulated.

Approval for commissioning No: DD(E)NZ/2887 August 31, 2005 Subject to compliance withof transformers at Palej conditions stipulated.under Rule 63 of IndianElectricity Rules, 1956.

Approval for MV electrical No: DD(E)NZ/2778 August 23, 2005 Subject to compliance withinstallation Palej under conditions stipulated.Rule 111(2) of the IndianElectricity Rules, 1956.

Approval for Gas engine No: DD(E)NZ/2771 August 22, 2005 Subject to compliance withGenerator Set under conditions stipulated.Rule 47-A of the IndianElectricity Rules, 1956 atPalej Oil mine.

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Permission under Regulation UR/2956 August 22, 2005 Not applicable61, 62 and 63 of Oil MinesRegulations, 1984, from theDirectorate General of MinesSafety, Udaipur zone forlaying pipeline fromPramoda Well # 2

No objection certificate GPCB/NOC-VRD- April 16, 2005 Valid for a period of fiveissued by Gujarat Pollution 2591-11188 years.Control Board for setting upfacilities at Palej well site,Palej road, near vill. Makan,at PO Makan TA, KarjaDist. Vadodara, for themanufacture of crude oiland associated gas.

Permission under UR/840 March 1, 2005 Not applicableRegulation 61, 62 and 63of Oil Mines Regulations,1984, from the DirectorateGeneral of Mines Safety,Udaipur zone for layingpipeline from PramodaWell # 1

No objection certificate GPCB/NOC/VRD- June 16, 2003 Conditional license for fiveissued by Gujarat Pollution 2594/9243 years, subject to complianceControl Board to with conditions stipulated.commencement of drillingwork for exploration, in newwell No. PRD # 1

No objection certificate GPCB/CE/BRCH/ March 21, 2007 Five years from the date ofissued by the Gujarat NOC-3418/8319 issue.Pollution Control Boardunder the Air (Preventionand Control of Pollution)Act, 1981 and the Water(Prevention and Control ofPollution) Act, 1974 andEnvironment (Protection)Act, 1986 for locationclearance for drillingactivities of crude oil fromwell SPD-1* #

No objection certificate GPCB/CE/BRCH/ March 21, 2007 Five years from the date ofissued by the Gujarat NOC-3418/8321 issue.Pollution Control Boardunder the Air (Preventionand Control of Pollution)Act, 1981 and the Water


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(Prevention and Control ofPollution) Act, 1974 andEnvironment (Protection)Act, 1986 for locationclearance for drillingactivities of crude oil fromwell Deva -1*

Environmental clearance J-11011/419/ July 9, 2007 Not applicablefrom the MoEF for drilling 2006-IA-II-Iactivities of crude oil fromtwo additional wells**

^ We are in the process of applying for an extension of the PEL.

* Under the terms of the no objection certificateour Company is required to obtain necessary permission from the JointChief Controller of Explosives, Nagpur before commissioning the plant.

# Additionally, if discovered production quantity shall not exceed 50 cubic meters/day of crude oil and 1,500 cubic meters/ day of associated gas.

** Drilling will be for a period of one or two months only.

(c) Approvals for our asset at AAP-ON-94/1


Permission from office of Letter No. B/G-1 / June 26, 2002 Not applicablethe Divisional Forest Officer, Seismic survey /Govt. of Assam, Digboi 4312-13division Digboi, for seismicsurvey with part in Assam

No objection certificate from WB/Z-IV/T-605/06 June 25, 2007 Not applicablethe Pollution Control Board, -07/35/216Assam

Environmental clearance for J-11011/50/2006 August 6, 2007 Not applicabledrilling of two onshore -IA-II (I)exploratory wells*

*The environmental clearance is subject to obtaining clearance under the Wildlife (Protection) Act, 1972. Further amongother conditions, the clearance stipulates that drilling will be only for a period of three to four months and actual drilling willbe for one month for each well. In the event the wells are commercially viable, the same shall be tapped for productionpurposes (subject to a fresh environment clearance being obtained) or else will be abandoned.

Applications made but not received:

� The PEL for block AAP-ON-94/1 held by OIL (licensee) has expired on December 31, 2006. OIL hasvide its letter (no. PLN/1-7/36-510) dated December 19, 2006 applied for the extension of the aforesaidPEL and has deposited the annual PEL fee.

� Our Company has made an application dated August 10, 2007 to the MoEF stating that the Wildlife(Protection) Act, 1972 does not apply to the drill site as the site is outside the wildlife sanctuary. TheConservator of Forests, Jorbat, Assam vide letter dated July 27, 2007 informed our Company thatdestructions of natural habitat etc. are totally not desired and that we are required to ensure thesafeguard of natural habitat during the construction and operation phase of the project.


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Note:

We have received a letter no. GM(O):20/1:22 dated February 12, 2000 from OIL as per which the PELs forJaipur, Deomali, Deomali Extension, Margherita and Dihing for a total area of 870 sq. kms. in relation to AAP-ON-94/1 have expired. OIL, the licensee, vide its letter dated May 15, 2006 has applied for renewal of thePELs and has deposited the annual PEL fee.

(d) Approvals for our assets at Asjol


Approval of DG Sets, under NZE/2020 March 22, 2006 Not applicableRule 47A of Indian ElectricityRules, 1956 at EPS-Asjol

No objection certificate under Rule NZE/4470 December 1, 2004 Not applicable111(2) of the Indian ElectricityRules, 1956 for medium voltageequipments.

Approval of DG Sets, under Rule NZE/4471 December 1, 2004 Not applicable47A of Indian Electricity Rules,1956 at EPS-Asjol

Permission under Regulation 61 UR/4824 October 19, 2004 Not applicableof Oil Mines Regulations, 1984,from the Directorate General ofMines Safety, Udaipur zone forlaying pipeline.

No objection certificate issued by UR/4828 October 19, 2004 Not applicablethe Directorate General of MinesSafety, Udaipur Zone underRegulation 51 of OMR 1984 foralteration at Asjol EPS Oil Mine.

No objection certificate issued by PC/NOC/MH- June 16, 2003 License is subject toGujarat Pollution Control Board for 1741/17100 compliance withsetting up of an industrial plant in conditions stipulated.Dist. Mehsana for the manufacturenatural gas, crude oil andcondensate.

PML by the Government of Gujarat PCR-1495-567-E April 9, 1996 Valid for a period of 20under the P&NG Rules years from the date of

license, subject tocompliance withconditions stipulated.

No objection certificate issued by PC/MH/NOC- September 7, 1995 Not applicablethe Gujarat Pollution Control 1169/17677Board for setting up of anindustrial plant at Block No.716,Sr.no. 541, Village: Katosan,Dist. Mehsana for themanufacturing of crude oil andnatural gas.

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(e) Approvals for our assets at North Balol


Permission from the Directorate UR/ Tirupati October 18, 2005 Not applicableGeneral of Mines Safety, UdaipurZone, under provision ofRegulation 51 of OMR, 1984, foralteration in existing North-BalolGas Collecting Station (GCS) atNorth-Cambay Oil Mine.

No objection certificate from PC/NOC/NH May 13, 2005 Valid for five years.Gujarat Pollution Control Board fordrilling to produce gas.

Permission under Regulation 61,62 U.R./4007 August 20, 2004 Not applicableand 63 of Oil Mines Regulations, North Balol1984 issued by Ministry of Labour,Directorate General of Mines Safety,Udaipur for laying a new pipeline.

Approval from the Ministry of Labour, NZE/2466 June 17, 2004 Not applicableDirectorate General of Mines Safety,North Zone, GoI, under Rule 47A ofthe Indian Electricity Rules, 1956 forinstallation and commissioning ofgenerator sets at North Balol.

No objection certificate from the, NZE/2465 June 17, 2004 Not applicableMinistry of Labour, DirectorateGeneral of Mines Safety, NorthZone, GoI under Rule 11(2) of theIndian Electricity Rules, 1956 formedium voltage installation of GasCollecting Station.

No objection certificate from UR/1953 June 17, 2003 Not applicableDirectorate General of Mines Safety,Udaipur Zone for construction ofGCS of North Balol/HOEC-GSPCL-Heramec Consortium.

Permission from the Directorate UR/1953 June 17, 2003 Not applicableGeneral of Mines Safety, UdaipurZone under the OMR, 1984, forlaying a new pipeline.

PML by the Government of Gujarat PCR-2001- March 21, 2002 Valid for a period of 25under the P&NG Rules. 1731-E years from the date of

license, subject tocompliance withconditions stipulated.

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(f) Approvals for our Asset at PY-1


Environmental clearance from F.NO.J-11011/ May 29, 2006 Not applicableMoEF for offshore drilling three 368/2005-IA II (I)development wells and twoexploratory wells for oil and gasin PY-1.

License from the Directorate 01/53/8/520/AM May 3, 2006 Approval is subject toGeneral of Foreign Trade, Ministry 06/H.20/ILS/106 terms and conditions.of Commerce and Industry, GoI,for the import of explosives.

No objection certificate from the DGH/EC/Expls_ April 4, 2006 Not applicableDGH to import explosives for oil Import/NOC/exploration HOEC/01/04/2006

Possession and use of explosives No:A/E/SC/TN/ February 1, 2006 Not applicablefrom proposed magazine situated 22/520(E34290)at Panruti Kandigal Vill,Kanchipuram Tamilnadu fromMinistry of Commerce & Industry,Petroleum & Explosive SafetyOrganisation, Chennai.

Letter from the Tamil Nadu T5/TNPCBD/ September 12, Not applicablePollution Control Board stating C-27921/PET/05 2005that no consent or no objectioncertificate was required.

PML by the MoPNG under the O-12012/58/ August 6, 2002 Valid for a period of 20P&NG Rules to Mosbacher, 2000-ONG/D.IV years from the date ofEnergy Equity India Petroleum license i.e. October 6,Pty. Ltd and our Company 1995, subject to

compliance withconditions stipulated.

Approval of the budget of US DGH/HOEC/PY June 14, 2007 Not applicable$ 68.627 million for the -1/WPB/2007Fiscal 2008*

Environmental clearance for J-11011/98/ July 6, 2007 Not applicabledevelopment and production of 2007-IA II(I)hydrocarbon (90 MMSCFD gas)and 1,600 bpd oil/condensate) atonshore processing plant

Consent from the Tamil Nadu 3917 August 6, 2007 August 5, 2009Pollution Control Board under theAir (Prevention and Control andPollution) Act, 1981 **

Consent from the Tamil Nadu 3973 August 6, 2007 August 5, 2009Pollution Control Board under theWater (Prevention and Controland Pollution) Act, 1974**^

* Subject to the condition that the cost recoverability of the parent company overheads of US$ 679,000 would be subjectto relevant provisions of PSC.

151

** The consent is valid for the manufacture of natural gas, condensate oil, produced water at the rate of 90 mmscf, 1,600barrels and 2,560 barrels respectively. In the event of any change in the quantity or quality of products, notice has to beprovided to the Tamil Nadu Pollution Control Board. Further our Company is required to obtain consent to operate atleast60 days before the comissioning of trial production.

^ The unit is required to obtain and furnish clearance obtained under CRZ Notification, 1991 and the Hazardous Wastes(Management and Handling)Rules, 1989 for disposal of hazardous wastes.

(g) Approvals for our Asset at CB OS/1


Letter of authority from the GoI to Nil December 30, 1994 Valid for a period of 25ONGC to explore and carry out yearsany search or excavation or drillor construct or maintain or operateany artificial island, offshoreterminal, structure or any device.

(h) Approvals for our Asset at CY OS 90/1


License from the Directorate 01/53/8/520/AM May 3, 2006 Approval is subject toGeneral of Foreign Trade, Ministry 06/H.20/ILS/106 terms and conditions.of Commerce and Industry, GoI,for the import of explosives.

Possession and use of explosives No:A/E/SC/TN/22 February 1, 2006 Not applicablefrom proposed magazine situated /520(E34290)at Panruti Kandigal Vill,Kanchipuram Tamil Nadu fromMinistry of Commerce & IndustryPetroleum & Explosive SafetyOrganisation, Chennai.

III. Other Approvals:

(a) Approvals for investment by non residents in our Company

Description Reference Date of Issue Date of Expiry/Conditions

Approval from the RBI under EC.CO.FID (II) August 29, 1990 Not applicablesection 19 (1) (d) of FERA for the NIRC/1148/2703issuance of 600 Equity Shares to /90-91Mr. Awad Bin Awood, anon-resident Indian withrepatriation benefits, out of thepublic issue of Rs. 10 millionthrough a prospectus in terms ofconsent order no.R.676/9/CCI/89dated November 28, 1989, subjectto the conditions stipulated inparagraph 2 of letter EC.CO.FID(II)NIRC/6490 /2703/89/90 ofJune 27, 1990.

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Description Reference Date of Issue Date of Expiry/Conditions

Approval from the RBI under section EC.CO.FID (II) June 27, 1990 The approval is subject19 (1) (d) of FERA for the issuance NIRC/6490/2703/ to certain terms andof 2,499,400 Equity Shares to the 89/90 conditions.**4,294 non-resident Indian, withrepatriation benefits, out of the publicissue of Rs. 10 million EquityShares, through a prospectus interms of consent order no.R.676/9/CCI/89 dated November 28, 1989.

Approval from the RBI under EC.CO.FID (II) June 29, 1993 The approval is subjectsection 19 (1) (d) of FERA for the NIRC/8175/2703/ to certain terms andissuance of 1,027,345 Equity 92-93 conditions.**Shares to 1,856 non-resident Indian,with repatriation benefits, out of therights issue, through a letter of offer.

Approval from the RBI under section C.BY.50/ July 3, 1997 The approval is subject19 (1) (d) of the FERA for the E04.02.01/H-30/ to certain terms andissuance of 6,750,000 Equity Shares 97/98 conditions.*to M/s Hardy Oil & Gas (Nederland)B. V. a 100% subsidiary of HardyOil & Gas Plc, UK.

Approval from the DIPP, MoI, GoI, No. FC II.270 June 18, 1997 Not applicablefor foreign equity participation of (97)/176(97)-15.52% in the new joint venture Amendcompany by Hardy Oil & Gas(Nederland) BV, a wholly ownedsubsidiary of Hardy Oil & Gas Plc.,UK.

Approval from the DIPP, MoI, GoI, No. FC II.270 March 31, 1999 Not applicablefor foreign equity participation of (97)/176(97)-41.52% in the new joint venture Amendcompany by Hardy Oil & Gas Plc.,UK and Burren Shakti Limited.

Acknowledgement of filing of form EC.MUMBAI.ISD and issuance of 15,281,633 FID(II)/2717/Equity Shares to Burren Shakti 04.02.01(H-30)/Limited pursuant to FERA.182/98- 98/99RB February 10, 1998 by the RBI. January 4, 1999 Not applicable

* The RBI approval is subject to the following terms and conditions:

a. Equity Shares / debentures so issued shall not be sold or transferred without the prior permission of RBI;b. distinctive number of shares issued shall be intimated to the RBI;c. equity participation of Hardy Oil & Gas (Nederland) B.V. shall not exceed beyond 15.52% of the paid-up

capital of our Company;d. compliance with terms and conditions stipulated by GoI vide letter No. FCII.270 (97) 176/97 dated May 15,

1997 and as amended dated 18th June 1997; ande. compliance to SEBI Guidelines.

153

** Under the terms of the RBI approval, our Company has undertaken:

a. not to sell or transfer Equity Shares issued by way of gift or otherwise without the prior permission of RBI, except where the said EquityShares are sold in a recognised stock exchange in India and the sale proceeds are credited to the transferor's non-resident ordinary accountby a bank authorised to deal in foreign exchange in India with no rights of repatriation outside India;

b. that it shall continue to remain engaged in manufacture / industrial activity and our annual turnover from these activities is not less than 60%of our total annual turnover;

c. that it shall not engage in agricultural / plantation activities / real estate business; and

d. that the interest of the non-resident shareholder, carrying repatriation benefits, shall not exceed beyond 40% of the total paid-up capital ofour Company, without the prior approval of the RBI.

(b) Approvals in relation to our business: Tax and human resource related approvals


PAN AAACH1407P June 5, 1996 Not applicable

Registration under the Bombay Shops B - 26/355 December 7, 2004 December 7, 2007and Establishment Act, 1948 for ouroffice in Gujarat

Registration under Central Excise AAACH1407PXM001 May 10, 2004 Not applicableRules, 2002

Registration under the Gujarat Value 24190200334 June 20, 2002 Not applicableAdded Tax Act, 2003

Registration under the Contract Labour ALB/ADI/46R(20)/97 November 18, 1997 Not applicable(Regulation and Abolition) Act, 1970

Registration under the Employee Provident GJ/BD/21041 July 1, 1991 Not applicableFunds and Miscellaneous Provisions Act,1952.

Approval from the Income Tax, Bombay B.C.NO.T.IV/256/ March 9, 1995 Not applicableCity- I, Bombay for the HOEC Employees 20/92-93 effective fromGratuity Fund April 1, 1991

Approval from the Income Tax, Bombay B.C.NO.T.IV/261/15/ February 18, Not applicableCity- I, Bombay for the HOEC 92-93 1994 effectiveSuperannuation Fund from April 1,

1991

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STATUTORY AND OTHER INFORMATION

Authority for the Issue

Pursuant to the resolution passed by the Board of Directors of our Company at its meeting held on July 20, 2007 it hasbeen decided to make the following offer to the Equity Shareholders of our Company with a right to renounce. The RightsIssue and Allotment Committee passed a resolution on November 7, 2007 authorising Issue Price and entitlement ratio.

Prohibition by SEBI

Neither we, nor our Directors or the Promoter Group companies, or companies with which our Directors are associatedwith as directors or promoters, have been prohibited from accessing or operating in the capital markets under any orderor direction passed by SEBI. Further, none of our Directors or person(s) in control of the Promoters (as applicable) havebeen prohibited from accessing the capital market under any order or directon passed by SEBI.

Eligibility for the Issue

Our Company is an existing company registered under the Companies Act whose Equity Shares are listed on the BSEand the NSE. It is eligible to offer this Issue in terms of Clause 2.4.1(iv) of the SEBI Guidelines. Further neither we, norour Promoters, Promoter Group companies, associate companies are detained as wilful defaulters by RBI / Governmentauthorities.

Disclaimer Clause

AS REQUIRED, A COPY OF THIS DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO THE SECURITIES ANDEXCHANGE BOARD OF INDIA (SEBI). IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THISDRAFT LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED / CONSTRUED THAT THE SAME HASBEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPOSIBILITY EITHER FOR THE FINANCIALSOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FORTHE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THIS DRAFT LETTER OF OFFER.THE LEAD MANAGER HAS CERTIFIED THAT THE DISCLOSURES MADE IN THIS DRAFT LETTER OF OFFER AREGENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FOR DISCLOSURE AND INVESTORPROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE ANINFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLYUNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS,ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE DRAFT LETTER OF OFFER, THE LEADMANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITSRESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGER, JMFINANCIAL CONSULTANTS PRIVATE LIMITED HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATEDSEPTEMBER 19, 2007 WHICH READS AS FOLLOWS:

1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIALDISPUTES, PATENT DISPUTES, DISPUTES WITH COLLABORATORS, ETC. AND OTHER MATERIALS MOREPARTICULARLY REFERRED TO IN THE ANNEXURE HERETO IN CONNECTION WITH THE FINALISATION OFTHIS DRAFT LETTER OF OFFER PERTAINING TO THE SAID ISSUE;

2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS ANDOTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNINGTHE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OFTHE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY;

WE CONFIRM THAT:

a) THIS DRAFT LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS,MATERIALS AND PAPERS RELEVANT TO THE ISSUE;

b) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES,INSTRUCTIONS, ETC., ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITYIN THIS BEHALF HAVE BEEN DULY COMPLIED WITH;

155

c) THE DISCLOSURES MADE IN THIS DRAFT LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TOENABLE THE INVESTORS TO MAKE A WELL-INFORMED DECISION AS TO INVESTMENT IN THEPROPOSED ISSUE;

3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THIS DRAFT LETTER OFOFFER ARE REGISTERED WITH SEBI AND TILL DATE SUCH REGISTRATION IS VALID;

4. WE CERTIFY THAT WRITTEN CONSENT FROM SHAREHOLDERS HAS BEEN OBTAINED FOR INCLUSION OFTHEIR SECURITIES AS PART OF PROMOTERS' CONTRIBUTION SUBJECT TO LOCK-IN AND THE SECURITIESPROPOSED TO FORM PART OF PROMOTERS' CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/ SOLD / TRANSFERRED BY THE PROMOTER DURING THE PERIOD STARTING FROM THE DATE OF FILINGTHE DRAFT LETTER OF OFFER WITH THE BOARD TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIODAS STATED IN THE DRAFT LETTER OF OFFER- NOT APPLICABLE

5. IF UNDERWRITTEN, WE SHALL SATISFY OURSELVES ABOUT THE WORTH OF THE UNDERWRITERS TOFULFIL THEIR UNDERWRITING COMMITMENTS.-NOT APPLICABLE.

The filing of this Draft Letter of Offer does not, however, absolve the Company from any liabilities under Section 63 orSection 68 of the Companies Act or from the requirement of obtaining such statutory or other clearance as may berequired for the purpose of the proposed Issue. SEBI further reserves the right to take up, at any point of time, with theLead Manager any irregularities or lapses in this Draft Letter of Offer.

Caution

Our Company and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of Offeror in any advertisement or other material issued by our Company or by any other persons at the instance of ourCompany and anyone placing reliance on any other source of information would be doing so at his own risk.

The Lead Manager and our Company shall make all information available to the Equity Shareholders and no selectiveor additional information would be available for a section of the Equity Shareholders in any manner whatsoever includingat presentations, in research or sales reports etc. after filing of this Letter of Offer with SEBI.

Disclaimer with respect to jurisdiction

This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulationsthereunder. Any disputes arising out of this Issue will be subject to the jurisdiction of the appropriate court(s) in Vadodara,India only.

This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulationsthereunder. The distribution of the Letter of Offer and the Issue of Equity Shares on a Rights basis to persons in certainjurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons in whosepossession this Letter of Offer may come are required to inform themselves about and observe such restrictions. Anydisputes arising out of this issue will be subject to the jurisdiction of the appropriate court(s) in Vadodara, India only.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for thatpurpose, except that this Letter of Offer has been filed with SEBI for observations and SEBI has given its observations.Accordingly, the Equity Shares represented thereby may not be offered or sold, directly or indirectly, and this Letter ofOffer may not be distributed in any jurisdiction, except in accordance with the legal requirements applicable in suchjurisdiction. Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create anyimplication that there has been no change in our affairs from the date hereof or that the information contained herein iscorrect as of any time subsequent to this date.

The Letter of Offer has been filed with SEBI, SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East),Mumbai- 400 051, India for its observations. After SEBI gives its observations, the Letter of Offer will be filed with theDesignated Stock Exchange as per the provisions of the SEBI Regulations.

Designated Stock Exchange

The Designated Stock Exchange for the purposes of this Issue will be the Bombay Stock Exchange Limited.

156


Disclaimer Clause of the BSE

The BSE has given vide its letter dated October 3, 2007 permission to our Company to use its name in the Letter of Offeras one of the Stock Exchanges on which this Company's securities are proposed to be listed. The BSE has scrutinisedthis Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to thisCompany. The BSE does not in any manner:

(i) warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer;

(ii) warrant that this Company's securities will be listed or will continue to be listed on the BSE; or

(iii) take any responsibility for the financial or other soundness of this Company, its Promoters, its management or anyscheme or project of this Company;

and it should not for any reason be deemed or construed that this Letter of Offer has been cleared or approved by theBSE. Every person who desires to apply for or otherwise acquires any securities of this Company may do so pursuant toindependent inquiry, investigation and analysis and shall not have any claim against the BSE whatsoever by reason ofany loss which may be suffered by such person consequent to or in connection with such subscription / acquisitionwhether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.

Disclaimer Clause of the NSE

As required, a copy of this Letter of Offer has been submitted to the NSE. The NSE has given vide its letter dated October5, 2007, permission to the Issuer to use the its name in the Letter of Offer as one of the Stock Exchanges on which thisIssuer's securities are proposed to be listed. The NSE has scrutinised this Letter of Offer for its limited internal purposeof deciding on the matter of granting the aforesaid permission to the Issuer. It is to be distinctly understood that theaforesaid permission given by the NSE should not in any way be deemed or construed that this Letter of Offer has beencleared or approved by the NSE; nor does it in any manner warrant, certify or endorse the correctness or completenessof any of the contents of this Letter of Offer; nor does it warrant that the Issuer's securities will be listed or will continueto be listed on the NSE; nor does it take any responsibility for the financial or other soundness of this Issuer, itsPromoters, its management or any scheme or project of this Issuer.

Every person who desires to apply for or otherwise acquire any securities of the Issuer may do so pursuant to independentinquiry, investigation and analysis and shall not have any claim against the NSE whatsoever by reason of any loss whichmay be suffered by such person consequent to or in connection with such subscription / acquisition whether by reasonof anything stated or omitted to be stated herein or any other reason whatsoever.

Filing

This Letter of Offer was filed with SEBI, SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East),Mumbai - 400 051, India. All the legal requirements applicable till the date of filing this Letter of Offer with the StockExchanges have been complied with.

A copy of the Letter of Offer, required to be filed under SEBI Guidelines would be filed with the Designated StockExchange.

Impersonation

As a matter of abundant caution, attention of the Applicants is specifically drawn to the provisions of sub section (1) ofSection 68A of the Companies Act which is reproduced below:

"Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing for, any sharestherein, or otherwise induces a company to allot, or register any transfer of shares therein to him, or any other person ina fictitious name, shall be punishable with imprisonment for a term which may extend to five years."

Dematerialised dealing

Our Company has agreements with National Securities Depository Limited (NSDL) and the Central Depository Services(India) Limited and its Equity Shares bear the ISIN. INE345A01011.

157

Listing

The existing Equity Shares are listed on the BSE and the NSE. Our Company has made applications to the BSE and theNSE for permission to deal in and for an official quotation in respect of the Equity Shares being offered in terms of thisLetter of Offer. Our Company has received in-principle approvals from the BSE and the NSE by letters dated October 3,2007 and October 5, 2007, respectively. Our Company will apply to the BSE and the NSE for listing of the Equity Sharesto be issued pursuant to this Issue.

If the permission to deal in and for an official quotation of the securities is not granted by any of the Stock Exchangesmentioned above, within 42 days from the Issue Closing Date, our Company shall forthwith repay, without interest, allmonies received from Applicants in pursuance of this Letter of Offer. If such money is not paid within eight days after ourCompany becomes liable to repay it, then our Company and every Director of our Company who is an officer in defaultshall, on and from expiry of eight days, be jointly and severally liable to repay the money with interest as prescribedunder the Section 73 of the Act.

Consents

Consents in writing of the Auditors, Lead Manager, Legal Advisors, Registrar to the Issue, Monitoring Agency, Bankers toour Company and Banker to the Issue to act in their respective capacities have been obtained and filed with SEBI, alongwith a copy of the Letter of Offer and such consents have not been withdrawn up to the time of delivery of this Letter ofOffer to SEBI.

M/s Deloitte Haskins & Sells, the Auditors of our Company have given their written consent for the inclusion of theirReport in the form and content as appearing in this Letter of Offer and such consents and reports have not beenwithdrawn up to the time of delivery of this Letter of Offer to SEBI.

M/s Rajesh Modi & Co., Chartered Accountants, have given their written consent for inclusion of tax benefits in the formand content as appearing in this Letter of Offer, accruing to our Company and its members.

To the best of our knowledge there are no other consents required for making this Issue. However, should the needarise, necessary consents shall be obtained by us.

Expert Opinion, if any

Except in the sections titled "Financial Statements" and "Statement of Tax Benefits" beginning on pages 70 and 26,respectively of this Letter of Offer, no expert opinion has been obtained by our Company in relation to this Letter of Offer.

Expenses of the Issue

The estimated Issue expenses are as follows and will be met out of the proceeds of the Issue.

Rs. millions

S. No. Particulars Amount % of Total % of IssueExpenditure Size

1. Fees of the Lead Manager, Registrar to the Issue, 22.22 68.50 0.36legal advisor and other advisors and consultants

2. Printing and stationery, distribution, postage etc 6.86 21.15 0.11

3. Advertising expenses 1.01 3.11 0.02

4. Others 2.35 7.24 0.04

Fees Payable to the Lead Manager to the Issue

The fees payable to the Lead Manager to the Issue are set out in the engagement letters issued by our Company to theLead Manager and the MoU entered into by our Company with the Lead Manager, copies of which are available forinspection at the Registered Office of our Company.

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Fees Payable to the Registrar to the Issue.

The fee payable to the Registrar to the Issue is as set out in the relevant documents, copies of which are kept open forinspection at the Registered Office of our Company.

Previous Issues by our Company

On October 27, 2006, our Company allotted 19,567,733 Equity Shares at a premium of Rs. 66 each for cash aggregatingto Rs. 1,487.15 million on a rights basis in the ratio of one Equity Share for every three Equity Shares held pursuant toLetter of Offer dated August 25, 2006 filed with the Stock Exchanges. The said rights issue closed on October 6, 2006.

The objects of the issue were to fund the exploration costs, development costs for the following projects of our Companyand for general corporate purposes

Sr. No. Name of Block Targetted date of completion Actual date of completionof the project of the project

1. PY-1 December, 2006 January, 2007

2. CY-OSN-97/1 October, 2006 February, 2007

3. PY-3 March, 2007 March, 2007

4. Palej March, 2007 April, 2007

5. CB-OS-1 December, 2006 August, 2007

6. North Balol March, 2007 March, 2007

7. AAP-ON-94/1 November, 2006 September, 2007

The Board of Directors have not declared any dividend for Fiscal 2007.

Date of listing on the Stock Exchange

The Equity Shares of our Company were listed on April 30, 1990 on the BSE. Thereafter, the Equity Shares were listedon the NSE on September 23, 2003. The Equity Shares of our Company were also listed on The Stock Exchange,Ahmedabad, Bangalore Stock Exchange Limited, Madras Stock Exchange Limited, Delhi Stock Exchange AssociationLimited and the Calcutta Stock Exchange Association Limited.

We have voluntarily delisted from all stock exchanges except the BSE and the NSE in accordance with the provisions ofthe SEBI (Delisting of Securities) Guidelines, 2003.

Issues for consideration other than cash

Our Company has not issued Equity Shares for consideration other than cash or out of revaluation reserves.

Preference Shares

Our Company has not issued any preference shares.

Option to Subscribe

Other than the present Issue, our Company has not given any person any option to subscribe to the Equity Shares of ourCompany.

Stock market data for Equity Shares

As our Company's shares are actively traded on the BSE and the NSE, our Company's stock market data have beengiven separately for each of these Stock Exchanges.

The stock high and low closing prices recorded on the BSE and the NSE for the preceding three years and the numberof Equity Shares traded on the days the high and low prices were recorded are stated below:

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BSE

Year ending High Date of High Volume on Low (Rs.) Date of low Volume on AverageMarch 31 (Rs.) date of high date of low price for

(no. of (no. of the year*shares) shares) (Rs.)

2005 105.95 March 31, 2005 2,409,008 30.35 May 17, 2004 80,383 67.08

2006 188.90 July 26, 2005 4,365,541 106.35 April 1, 2005 1,363,448 157.42

April 1, 2006 - 188.15 May 03, 2006 1,249,163 91.65 June 14, 2006 62,069 134.93August 17, 2006

August 18, 2006 - 121.00 August 18, 2006 109,332 62.50 March 28, 494,377 95.67March 31, 2007 2007

Note: The stock market data for the Fiscal 2007 has been split in two parts to reflect the change in capital structure as a result of the rights issuecompleted by our Company. The first period is from April 1, 2007 to August 17, 2007 and the second period commences from August 18, 2006 (when theEquity Shares became ex-rights) till March 31, 2007.* The average price has been computed based on the average of the daily closing prices.

NSE

Year ending High Date of High Volume on Low (Rs.) Date of low Volume on AverageMarch 31 (Rs.) date of high date of low price for


2005 106.45 March 31, 2005 3,693,704 29.65 May 17, 2004 191,088 67.13

2006 189.35 July 26, 2005 8,855,328 107.05 April 1, 2005 2,409,599 157.58

April 1, 2006 - 188.45 May 03, 2006 1,683,816 91.95 June 14, 2006 85,937 135.07August 17, 2006

August 18, 2006 - 121.40 August 18, 2006 253,179 62.50 March 28, 106,859 95.76March 31, 2007 2007

Note: The stock market data for the Fiscal 2007 has been split in two parts to to reflect the change in capital structure as a result of the rights issuecompleted by our Company. The first period is from April 1, 2007 to August 17, 2007 and the second period commences from August 18, 2006 (when theEquity Shares became ex-rights) till March 31, 2007.

* The average price has been computed based on the average of the daily closing prices.

The high and low prices and volume of Equity Shares traded on the respective dates during the last six months is asfollows:

BSE

Month, Year High Date of High Volume on Low (Rs.) Date of low Volume on Average(Rs.) date of high date of price for

(no. of low (no. the year*shares) of shares) (Rs.)

May, 2007 115.60 May 31, 2007 2,100,777 86.05 May 16, 2007 489,547 16,023,832June, 2007 122.15 June 1, 2007 2,625,118 112.00 June 5, 2007 382,954 8,576,491July, 2007 147.25 July 12, 2007 1,358,794 114.30 July 27, 2007 226,069 9,148,145August, 2007 109.70 August 1, 2007 122,095 90.85 August 23, 90,022 2,493,086

2007September 2007 116.15 September 26, 306,418 101.55 September 5, 57,240 3,002,637

2007 2007October 2007 117.00 October 23, 2007 195,972 98.75 October 9, 95,693 4,242,230

2007

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* In the event the high and low price of the Equity Shares are the same on more than one day, the day on which there has been higher volume oftrading has been considered for the purposes of this section.

NSE

Month, Year High Date of High Volume on Low (Rs.) Date of low Volume on Average(Rs.) date of high date of low price for


May, 2007 115.90 May 31, 2007 2,315,197 86.35 May 16, 2007 654,487 22,136,003

June, 2007 122.70 June 1, 2007 3,194,343 112.15 June 5, 2007 543,051 11,227,550

July, 2007 147.30 July 12, 2007 1,241,592 114.50 July 30, 2007 94,264 11,301,464

August, 2007 109.95 August 1, 2007 129,502 91.10 August 23, 129,431 3,261,5162007

September 2007 116.40 September 26, 418,993 101.85 September 05, 68,184 4,414,2682007 2007

October 2007 117.80 October 23, 2007 548,126 98.65 October 9, 2007 127,457 6,072,359

* In the event the high and low price of the Equity Shares are the same on more than one day, the day on which there has been higher volume of tradinghas been considered for the purposes of this section.

The closing market price was Rs. 126.55 on the BSE on July 23, 2007, the trading day immediately following the day onwhich Board meeting was held to finalise the Issue.

The closing market price was Rs. 126.95 on the NSE on July 23, 2007, the trading day immediately following the day onwhich Board meeting was held to finalise the Issue.

The closing price was Rs. 126.85 on the BSE on November 15, 2007, the day on which the shares started trading on aex-rights basis.

The closing price was Rs. 127.20 on the NSE on November 15, 2007 the day on which the shares started trading on aex-rights basis

There have not been any transactions in Equity Shares by the Promoters, the Promoter Group and Directors of ourCompany during the last six months from the date of this Letter of Offer.

Important

� This Issue is pursuant to the resolution passed by the Board of Directors at its meetings held on July 20, 2007.

� This Issue is applicable to those Equity Shareholders whose names appear as beneficial owners as per the list tobe furnished by the depositories in respect of the shares held in the electronic form and on the Register ofMembers of our Company as on the Book Closure Date i.e. November 22, 2007 after giving effect to the validshare transfers lodged with our Company upto the commencement of Book Closure.

� Your attention is drawn to the section titled 'Risk Factors' beginning on page VIII of this Letter of Offer.

� Please ensure that you have received the CAF with the Letter of Offer.

� Please read the Letter of Offer and the instructions contained therein and in the CAF carefully before filling in theCAF. The instructions contained in the CAF are an integral part of the Letter of Offer and must be carefully followed.An application is liable to be rejected for any non-compliance of the provisions contained in the Letter of Offer orthe CAF.

� All enquiries in connection with the Letter of Offer or CAF should be addressed to the Registrar to the Issue,quoting the Registered Folio number / DP and Client ID number and the CAF numbers as mentioned in the CAF.

� All information shall be made available to the Investors by the Lead Manager and the Issuer, and no selective oradditional information would be available by them for any section of the Investors in any manner whatsoeverincluding at road shows, presentations, in research or sales reports, etc.

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� The Lead Manager and our Company shall update the Letter of Offer and keep the public informed of any materialchanges till the listing and trading commences.

Issue Schedule

Issue Opening Date: December 7, 2007

Last date for receiving requests for SAF(s): December 21, 2007

Issue Closing Date: January 7, 2008

Allotment Letters / Refund Orders

Our Company will issue and dispatch letters of allotment / share certificates / demat credit and / or letters of regret alongwith refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of 42 daysfrom the date of closure of the Issue. If such money is not repaid within eight days from the day our Company becomesliable to pay it, our Company shall pay that money with interest as stipulated under Section 73 of the Companies Act.

Applicants residing at 15 centers where clearing houses are managed by the RBI will get refunds through ECS only(Electronic Clearing Service) except where Applicants are otherwise disclosed as applicable / eligible to get refundsthrough direct credit and RTGS.

In case of those Applicants who have opted to receive their Rights Entitlement in dematerialised form using electroniccredit under the depository system, and advice regarding their credit of the Equity Shares shall be given separately.Applicants to whom refunds are made through electronic transfer of funds will be sent a letter through ordinary postintimating them about the mode of credit of refund within 42 working days of closure of Issue.

In case of those Applicants who have opted to receive their Rights Entitlement in physical form and our Company issuesletter of allotment, the corresponding share certificates will be kept ready within three months from the date of allotmentthereof or such extended time as may be approved by the Company Law Board under Section 113 of the Companies Actor other applicable provisions, if any. Allottees are requested to preserve such letters of allotment, which would beexchanged later for the share certificates. For more information see the section titled 'Letters of Allotment / ShareCertificates / Demat Credit' below.

The letter of allotment / refund order exceeding Rs.1,500 would be sent by registered post / speed post to the sole / firstApplicant's registered address. Refund orders up to the value of Rs.1,500 would be sent under certificate of posting.Such refund orders would be payable at par at all places where the applications were originally accepted. The samewould be marked 'Account Payee only' and would be drawn in favour of the sole / first Applicant. Adequate funds wouldbe made available to the Registrar to the Issue for this purpose.

Promise v. Performance

Initial Public Issue:

We made an initial public issue of equity shares to NRIs and the Indian public in 1990. The object of the issue was toaugment the long term resources of our Company and strengthen its capital base and to meet the expenses of the issue.

The details of which are as hereunder:

For Non residents:

Initial Public issue opened on February 05, 1990

Initial Public issue closed on February 22, 1990

For Indian Public

Initial Public issue opened on February 12, 1990

Initial Public issue closed on February 22, 1990

There were no projections in the Prospectus issued by our Company.

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Rights issue:

We made a rights issue of equity shares to our equity shareholders in 1992.


Rights issue opened on October 12, 1992

Rights issue closed on November 11, 1992

The objects of the issue for our earlier rights issue were as hereunder:

� To meet the normal capital expenditure for all future oil exploration and developmental programmes.

� To strengthen the equity base of our Company.

� To enhance the borrowing capacity of our Company.

� To augment long term resources of our Company for increased working capital requirements.

The capital raised from the issue had not been earmarked for any specific project. There were no projections in the Letterof Offer issued by our Company.

Rights issue:

We made a rights issue of equity shares to our equity shareholders in 2006.


Rights issue opened on September 7, 2006

Rights issue closed on October 6, 2006

The objects of the issue for our earlier rights issue were to fund our exploration costs, development costs for the followingprojects and general corporate purposes.

Project Activity

PY-1 Drilling of development well (Earth)

CY-OSN-97/1 Exploration drilling programme

CY-OS-90/1 (PY-3 field) Phase - III studies

CB-ON-7 Exploration drilling programme

CB-OS-1 Appriasal drilling programme

North Balol Development well drilling programme

AAP-ON-94/1 Seismic data processing and interpretation

There were no projections in the Letter of Offer issued by our Company.

We have complied with Clause 49 of the Listing Agreement with regard to monitoring of utilization of funds raised in theissue.

Investor Grievances and Redressal System

Our Company has adequate arrangements for redressal of Investor complaints. Well-arranged correspondence systemdeveloped for letters of routine nature. The share transfer and dematerialisation for our Company is being handled byIntime Spetrum Registry Limited, Share Transfer Agents. Letters are filed category wise after being attended to. Redressalnorm for response time for all correspondence including shareholders complaints is 15 days.

A Shareholders / Investors Grievances Committee was constituted on January 30, 2001. The Committee consists ofMr. R. Vasudevan, Mr. Atul Gupta and Mr. Manish Maheshwari. Mr. R. Vasudevan is the Chairperson of the Committee.The role of the Committee is to review investor grievances. Mr. Vikash Jain, is the Compliance Officer of our Company.

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Status of Complaints

(a) Number of shareholders complaints as of September 30, 2007: Nil

(b) Total number of complaints received during last financial year (2006-2007): 225

(c) Total number of complaints received during current financial year (April 2007- June 2007): 20

(d) Status of the complaints: Out of the 225 complaints received our Company in Fiscal 2007, we have resolved all ason date.

(e) Time normally taken for disposal of various types of Investor grievances: 15 days

Investor Grievances arising out of this Issue

Our Company's investor grievances arising out of the Issue will be handled by Mr. Vikash Jain, Company Secretary,Chief - Tax and Legal of our Company and Intime Spectrum Registry Limited, who are the Registrar to the Issue. TheRegistrar will have a separate team of personnel handling only our post-Issue correspondence.

The agreement between us and the Registrar provides for retention of records with the Registrar for a reasonable periodafter the last date of dispatch of Letter of Allotment / share certificate / warrant / refund order to enable the Registrar toredress grievances of Investors.

All grievances relating to the Issue may be addressed to the Registrar to the Issue giving full details such as folionumber, name and address, contact telephone / cell numbers, email address of the first Applicant, number and type ofshares applied for, CAF serial number, amount paid on application and the name of the bank and the branch where theapplication was deposited, along with a photocopy of the acknowledgement slip. In case of renunciation, the samedetails of the Renouncee should be furnished.

The average time taken by the Registrar for attending to routine grievances will be 15 days from the date of receipt. Incase of non-routine grievances where verification at other agencies is involved, it would be the endeavour of theRegistrar to attend to them as expeditiously as possible. We undertake to resolve the Investor grievances in a time boundmanner.

Investors may contact the Compliance Officer / Company Secretary in case of any pre-Issue / post -Issue relatedproblems such as non-receipt of letters of allotment / share certificates / demat credit / refund orders etc. Hisaddress is as follows:

Mr. Vikash Jain,Company Secretary, Chief - Tax and Legal,Lakshmi Chambers,192, St. Mary's Road, Alwarpet,Chennai, 600 018.Tel: + 91 44 6622 9000Fax: + 91 44 2499 3222.E-mail: [email protected]

Changes in Auditors during the last three years

Pursuant to shareholders resolution dated September 28, 2006, Deloitte Haskins & Sells were appointed as our statutoryauditors in place of S. B. Billimoria & Co, as S. B. Billimoria & Co had expressed their unwillingness for re-appointmentas the stautory auditors of our Company. Except as stated above, there have been no changes in our Statutory Auditorsin the last three years.

Capitalisation of Reserves or Profits

Our Company has not capitalised any of its reserves or profits for the last five years.

Revaluation of Fixed Assets

There has been no revaluation of our Company's fixed assets for the last five years.

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If our Company does not receive the minimum subscription of 90% of the Issue the entire subscription shall be refundedto the Applicants within 42 days from the date of closure of the Issue. If there is a delay in refund of subscription beyondeight days after the date from which our Company becomes liable to pay the amount (42 days after closure of the Issue),our Company shall pay interest for the delayed period as prescribed under Section 73 of the Companies Act.

The Issue will become undersubscribed after considering the number of Equity Shares applied as per entitlement plusadditional Equity Shares. The undersubscribed portion shall be applied for only after the Issue Closing Date. In the eventof undersubscription, the Promoters shall, apply for additional Equity Shares in the Issue such that atleast 90% of theIssue is subscribed. As a result of such subscription and consequent allotment, the Promoters may acquire Equity Sharesover and above their Rights Entitlement, which may result in an increase of their shareholding being above the currentshareholding with the Rights Entitlement of Equity Shares under the Issue. Such subscription and acquisition of additionalEquity Shares by the Promoters, if any, will not result in change of control of the management of our Company and shallbe exempted in terms of proviso to Regulation 3(1)(b)(ii) of the Takeover Code. The Promoters shall subscribe to suchunsubcribed portion as per the relevant provisions of the law. Allotment to the Promoters of any unsubscribed portionover and above their Rights Entitlement shall be done in complaince with the Listing Agreement inclulding conditionsrelating to minimum public holding requirement and other applicable laws prevailing at that time relating to continuouslisting requirements.

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TERMS AND PROCEDURE OF THE ISSUE

The Equity Shares, now being issued, are subject to the terms and conditions contained in the Letter of Offer, theenclosed CAF, the Memorandum of Association and Articles of Association of our Company, approvals from the RBI, theprovisions of the Companies Act, guidelines issued by SEBI, guidelines, notifications and regulations for issue of capitaland for listing of securities issued by GoI and / or other statutory authorities and bodies from time to time, terms andconditions as stipulated in the allotment advice or letter of allotment or security certificate and rules as may be applicableand introduced from time to time.

Authority for the Issue

This Issue is being made pursuant to the resolution passed by the Board of Directors of our Company under Section81(1) of the Companies Act at its meeting held on July 20, 2007.

Basis for the Issue

The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders whose names appearas beneficial owners as per the list to be furnished by the depositories in respect of the Equity Shares held in theelectronic form and on the register of members of our Company in respect of Equity Shares held in the physical form ason the Book Closure Date, i.e., November 22, 2007 fixed in consultation with the Stock Exchanges.

The Equity Shares are being offered for subscription in the ratio of 2 Equity Shares for every 3 Equity Shares held on theBook Closure Date.

Ranking of Equity Shares

The Equity Shares allotted pursuant to this Issue shall be subject the Memorandum of Association and Articles ofAssociation of our Company and shall rank pari-passu in all respects with the existing Equity Shares of our Company,including dividend payment.

Mode of Payment of Dividend

We shall pay dividend to our shareholders as per the provisions of the Companies Act.

Principal Terms and Conditions of the Issue

Face Value

Each Equity Share shall have the face value of Rs. 10.

Issue Price

Each Equity Share is being offered at a price of Rs. 117.

Rights Entitlement Ratio

As your name appears as beneficial owner in respect of Equity Shares held in the electronic form or appears in theregister of members as an Equity Shareholder of our Company as on November 22, 2007 i.e. Book Closure Date you areentitled to the number of Equity Shares as set out in the enclosed CAF.

The Equity Share are being offered on a rights basis to the existing Equity Shareholders of our Company in the ratio of2 Equity Shares for every 3 Equity Shares held as on the Book Closure Date.

Rights Entitlement on Equity Shares held in the pool account of the clearing members on the Book Closure Date shall beconsidered, and such claimants are requested to:

1. approach the concerned depository through the clearing member of the Stock Exchange with requisite details; and

2. depository in turn should furnish details of the transaction to the Registrar.

Only upon receipt of the aforesaid details, Rights Entitlement of the claimants shall be determined.

Rights of the Equity Shareholder

Subject to applicable laws, the equity shareholders shall have the following rights:

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� Right to receive dividend, if declared;

� Right to attend general meetings and exercise voting powers, unless prohibited by law;

� Right to vote on a poll either in person or by proxy;

� Right to receive offers for rights shares and be allotted bonus shares, if announced;

� Right to receive surplus on liquidation;

� Right of free transferability of shares; and

� Such other rights, as may be available to a shareholder of a listed public company under the Companies Act andour Memorandum of Association and Articles of Association.

For a detailed description of the main provisions of our Articles of Association dealing with voting rights, dividend,forfeiture and lien, transfer and transmission and / or consolidation / splitting, see section titled "Main Provisions ofArticles of Association" beginning on page 182 of this Letter of Offer.

Market Lot

The market lot for the Equity Shares in dematerialised mode is one. In case of physical certificates, our Company wouldissue one certificate for the Equity Shares allotted to one folio ("Consolidated Certificate").

Joint Holders

Where two or more persons are registered as holders of any Equity Shares, they shall be deemed to hold the same asjoint tenants with the benefit of survivorship subject to provisions contained in the Articles of Association.


If our Company does not receive the minimum subscription of 90% of the Issue the entire subscription amount shall berefunded to the Applicants within 42 days from the date of closure of the Issue. If there is a delay in refund of subscriptionbeyond eight days after the date from which our Company becomes liable to pay the amount (42 days after closure ofthe Issue), our Company shall pay interest for the delayed period as prescribed under Section 73 of the Companies Act.

The Issue will become undersubscribed after considering the number of Equity Shares applied as per entitlement plusadditional Equity Shares. The undersubscribed portion shall be applied for only after the Issue Closing Date. In the eventof undersubscription, the Promoters shall, apply for additional Equity Shares in the Issue such that atleast 90% of theIssue is subscribed. As a result of such subscription and consequent allotment, the Promoters may acquire Equity Sharesover and above their Rights Entitlement, which may result in an increase of their shareholding being above the currentshareholding with the Rights Entitlement of Equity Shares under the Issue. Such subscription and acquisition of additionalEquity Shares by the Promoters, if any, will not result in change of control of the management of our Company and shallbe exempted in terms of proviso to Regulation 3(1)(b)(ii) of the Takeover Code. The Promoters, shall subscribe to suchunsubscribed portion as per the relevant provisions of the law. Allotment to the Promoters of any unsubscribed portionover and above their Rights Entitlement shall be done in compliance with the Listing Agreement including conditionsrelating to minimum public holding requirement and other applicable laws prevailing at that time relating to continuouslisting requirements.

Fractional entitlements

If the shareholding of any of the Equity Shareholders is less than three or not in multiples of three, then the fractionalportion of the entitlement of such holders shall be ignored. Shareholders whose fractional entitlements are being ignoredwould be given preferential allotment of one additional share each if they apply for additional share(s).

Those Equity shareholders having holding less than two Equity shares and therefore entitled to zero Equity Shares underthe Rights Issue shall be despatched a CAF with zero entitlement. Such equity shareholders are entitled to apply foradditional Equity Shares, however, they cannot renounce the same to third parties. CAF with zero entitlement will be non-negotiable / non-renunciable.

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Terms of payment

Full amount of Rs. 117 per Equity Share shall be payable on application.

The payment towards Equity Shares will be applied as under:

� Re 10 per share - Towards Share Capital;

� Rs 107 per share- Towards Share Premium Account

Where an Applicant has applied for additional shares and is allotted lesser number of Equity Shares than applied for, theexcess application money paid shall be refunded. The monies would be refunded within 42 days from the closure of theIssue, and if there is a delay beyond eight days from the stipulated period, our Company will pay interest on the moniesin terms of Section 73 of the Companies Act.

Nomination facility

In terms of Section 109A of the Companies Act, nomination facility is available in case of Equity Shares. The Applicantcan nominate any person by filling the relevant details in the CAF in the space provided for this purpose.

A sole Equity Shareholder or first Equity Shareholder, along with other joint Equity Shareholders being individual(s) maynominate any person(s) who, in the event of the death of the sole holder or all the joint-holders, as the case may be,shall become entitled to the Equity Shares. A person, being a nominee, becoming entitled to the Equity Shares by reasonof the death of the original Equity Shareholder(s), shall be entitled to the same advantages to which he would be entitledif he were the registered holder of the Equity Shares. Where the nominee is a minor, the Equity Shareholder(s) may alsomake a nomination to appoint, in the prescribed manner, any person to become entitled to the Equity Share(s), in theevent of death of the said holder, during the minority of the nominee. A nomination shall stand rescinded upon the saleof the Equity Share by the person nominating. A transferee will be entitled to make a fresh nomination in the mannerprescribed. When the Equity Share is held by two or more persons, the nominee shall become entitled to receive theamount only on the demise of all the holders. The Applicant can make the nomination by filling in the relevant portion ofthe CAF.

Only one nomination would be applicable for one folio. Hence, in case the Shareholder(s) has already registered thenomination with our Company, no further nomination needs to be made for Equity Shares to be allotted in this Issueunder the same folio. However, new nominations, if any, by the Equity Shareholder(s) shall operate in supercession ofthe previous nomination, if any.

In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate nomination for theEquity Shares to be allotted in this Issue. Nominations registered with the respective DP of the Applicant would prevail.If the Applicant requires to change the nomination, they are requested to inform their respective DP.

Notices

All notices to the Equity Shareholder(s) required to be given by the Company shall be published in one English nationaldaily with wide circulation, one Hindi national daily with wide circulation and one regional language daily newspaperwith wide circulation and/or, will be sent by ordinary post / registered post / speed post to the registered holders of theEquity Share from time to time.

Listing and trading of Equity Shares proposed to be Issued

The Company's existing Equity Shares are currently traded on the BSE and the NSE under the ISIN INE345A01011. Thefully paid up Equity Shares proposed to be issued on a rights basis shall be listed and admitted for trading on the BSEand the NSE under the existing ISIN for fully paid Equity Shares of the Company. The fully paid up Equity Shares allottedpursuant to this Issue will be listed as soon as practicable but in no case later than 10 days from the date of allotment.The Company has received in-principle approval pursuant to clause 24(a) of the Listing Agreement from the BSE onOctober 3, 2007 and from the NSE on October 5, 2007.

Offer to Non-Resident Equity Shareholders / Applicants

Applications received from NRIs and non-residents for allotment of Equity Shares shall be inter alia, subject to theconditions imposed from time to time by the RBI under the FEMA in the matter of receipt and refund of applicationmoney, allotment of Equity Shares, issue of letter of allotment / share certificates, payment of interest, dividends, etc.

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General permission has been granted to any person resident outside India to purchase shares offered on a rights basisby an Indian company in terms of FEMA and regulation 6 of notification No. FEMA 20/2000-RB dated May 3, 2000. TheBoard of Directors may in its absolute discretion, agree to such terms and conditions as may be stipulated by RBI whileapproving the allotment of Equity Shares, payment of dividend etc. to the non-resident Shareholders. The equity sharespurchased on a rights basis by non-residents shall be subject to the same conditions including restrictions in regard tothe repatriability as are applicable to the original equity shares against which equity shares are issued on a right basis.

By virtue of Circular No. 14 dated September 16, 2003 issued by the RBI, overseas corporate bodies ("OCBs") havebeen derecognised as an eligible class of investors and the RBI has subsequently issued the Foreign ExchangeManagement (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly,OCBs shall not be eligible to subscribe to the Equity Shares. The RBI has however clarified in its circular, A.P. (DIRSeries) Circular No. 44, dated December 8, 2003 that OCBs which are incorporated and are not under the adversenotice of the RBI are permitted to undertake fresh investments as incorporated non-resident entities. Thus, OCBs desiringto participate in this Issue must obtain prior approval from the RBI. Such approval shall be submitted along with the CAF.The Letter of Offer and CAF shall only be dispatched to non-resident Equity Shareholders with registered address inIndia / outside India.

Utilisation of Issue Proceeds

The Board declares that:

(a) The funds received against this Issue will be transferred to a separate bank account other than the bank accountreferred to sub-section (3) of Section 73 of the Companies Act.

(b) Details of all monies utilised out of the Issue shall be disclosed under an appropriate separate head in the balancesheet of our Company indicating the purpose for which such moneis has been utilised.

(c) Details of all such unutilised moneys out of the Issue, if any, shall be disclosed under an appropriate separatehead in the balance sheet of our Company indicating the form in which such unutilised monies have been invested.

The funds received against this Issue will be kept in a separate bank account and our Company will not have any accessto such funds unless it satisfies the Designated Stock Exchange with suitable documentary evidence that the minimumsubscription of 90% of the Issue has been received by our Company.

Undertakings by our Company

(a) The complaints received in respect of the Issue shall be attended to by our Company expeditiously and satisfactorily.

(b) The funds required for dispatch of refund orders / allotment letters / certificates by registered post or any othermode disclosed in the Letter of Offer shall be made available to the Registrar to the Issue.

(c) The certificates of the securities / refund orders to the NRI shall be dispatched within the specified time.

(d) No further issue of securities affecting equity capital of our Company shall be made till the securities issued /offered through the Issue are listed or till the application money are refunded on account of non-listing, under-subscription etc.

(e) Our Company accepts full responsibility for the accuracy of information given in the Letter of Offer and confirms thatto best of its knowledge and belief, there are no other facts the omission of which makes any statement made inthe Letter of Offer misleading and further confirms that it has made all reasonable enquiries to ascertain such facts.

(f) All information shall be made available by the Lead Manager and the Issuer to the Investors at large and noselective or additional information would be available for a section of the Investors in any manner whatsoeverincluding at road shows, presentations, in research or sales reports etc.

How to Apply?

Resident Equity Shareholders

Applications should be made only on the enclosed CAF provided by our Company. The enclosed CAF should becompleted in all respects, as explained in the instructions indicated in the CAF. Applications will not be accepted by theLead Manager or by the Registrar to the Issue or by our Company at any offices except in the case of postal applications

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as per instructions given in the Letter of Offer.

Non-resident Equity Shareholders

Applications received from the non-resident Equity Shareholders for the allotment of Equity Shares shall, inter alia, besubject to the conditions as may be imposed from time to time by the RBI, in the matter of refund of application money,allotment of Equity Shares, issue of letters of allotment / certificates / payment of dividends etc.

Procedure for Application

The CAF for Equity Shares would be printed in ink. In case the original CAF is not received by the applicant or ismisplaced by the applicant, the applicant may request the Registrars to the Issue, for issue of a duplicate CAF, byfurnishing the registered folio number, DP ID Number, Client ID Number and their full name and address.

The CAF consists of four parts:

Part A: Form for accepting the Equity Shares offered and for applying for additional Equity Shares

Part B: Form for renunciation

Part C: Form for application for renouncees

Part D: Form for request for SAF(s)

Option available to the Equity Shareholders

The Equity Shareholders will have the following five options:

(a) Apply for his entitlement in part

(b) Apply for his entitlement in part and renounce the other part

(c) Renounce his entire entitlement

(d) Apply for his entitlement in full

(e) Apply for his entitlement in full and apply for additional Equity Shares

Renouncees for Equity Shares can apply for the Equity Shares renounced to them and also apply for additional EquityShares.

Also note, Application by HUF shall be treated as Application by individual and the same procedure shall apply.

Acceptance of the Issue

You may accept the Issue and apply for the Equity Shares offered, either in full or in part by filling Part A of the enclosedCAF and submit the same along with the application money payable to the Banker to the Issue at any of the branchesas mentioned on the reverse of the CAF before the close of the banking hours on or before the Issue Closing Date orsuch extended time as may be specified by the Board thereof in this regard. Applicants at centers not covered by thebranches of collecting banks can send their CAF together with the cheque drawn on a local bank at Mumbai or demanddraft / pay order payable at Mumbai to the Registrar to the Issue by registered post. Such applications sent to anyoneother than the Registrar to the Issue are liable to be rejected.

Renunciation

As an Equity Shareholder, you have the right to renounce your entitlement for the Equity Shares in full or in part in favourof one or more person(s). Your attention is drawn to the fact that our Company shall not allot and / or register any EquityShares in favour of:

� More than three persons including joint holders

� Partnership firm(s) or their nominee(s)

� Minors, unless through their natural / legal guardian

� HUF

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� Any trust or society (unless the same is registered under the Societies Registration Act, 1860 or any other applicabletrust laws and is authorised under its constitutions to hold Equity Shares of a Company)

The right of renunciation is subject to the express condition that the Board / committee of Directors shall be entitled in itsabsolute discretion to reject the request for allotment to renouncee(s) without assigning any reason thereof.

Any renunciation from Resident Indian Shareholder(s) to Non-resident Indian(s) or from Non-resident Indian Shareholder(s)to Resident Indian(s) or from Non-resident Indian shareholder(s) to other Non-resident Indian(s) is subject to therenouncer(s)/renounce(s) obtaining the approval of the FIPB and/or necessary permission of the RBI under the FEMAand such permissions should be attached to the CAF. Applications not accompanied by the aforesaid approvals areliable to be rejected.

By virtue of the Circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate Bodies ("OCBs") havebeen derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign ExchangeManagement (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly,the existing Equity Shareholders of the Company who do not wish to subscribe to the Equity Shares being offered butwish to renounce the same in favour of renouncees shall not renounce the same (whether for consideration or otherwise)in favour of OCB(s).

Part 'A' of the CAF must not be used by any person(s) other than those in whose favour this offer has been made. Ifused, this will render the application invalid. Submission of the enclosed CAF to the Banker to the Issue at its collectingbranches specified on the reverse of the CAF with the form of renunciation (Part 'B' of the CAF) duly filled in shall beconclusive evidence for the Company of the person(s) applying for Equity Shares in Part 'C' of the CAF to receiveallotment of such Equity Shares. The renouncees applying for all the Equity Shares renounced in their favour may alsoapply for additional Equity Shares. Part 'A' of the CAF must not be used by the renouncee(s) as this will render theapplication invalid. Renouncee(s) will have no further right to renounce any Equity Shares in favour of any other person.

Procedure for renunciation

To renounce the whole offer in favour of one renouncee

If you wish to renounce the offer indicated in Part A, in whole, please complete Part B of the CAF. In case of jointholding, all joint holders must sign Part B of the CAF. The person in whose favour renunciation has been made shouldcomplete and sign Part C of the CAF. In case of joint renouncees, all joint renouncees must sign Part C of the CAF.

Renouncee(s) shall not be entitled to further renounce the entitlement in favour of any other person.

To renounce in part / or renounce the whole to more than one person(s)

If you wish to either accept this offer in part and renounce the balance or renounce the entire offer in favour of two ormore renouncees, the CAF must be first split into requisite number of forms.

Please indicate your requirement of SAF(s) in the space provided for this purpose in Part D of the CAF and return theentire CAF to the Registrar to the Issue so as to reach them latest by the close of business hours on the last date ofreceiving requests for SAF(s). On receipt of the required number of SAF(s) from the Registrar, the procedure as mentionedin paragraph above shall have to be followed.

In case the signature of the Equity Shareholder(s), who has renounced the Equity Shares, does not match with thespecimen registered with our Company, the application is liable to be rejected.

Renouncee(s)

The person(s) in whose favour the Equity Shares are renounced should fill in and sign Part C of the CAF and submit thecompleted CAF to the Banker to the Issue on or before the Issue Closing Date along with the application money in full.

Change and / or introduction of additional holders

If you wish to apply for Equity Shares jointly with any other person(s), not more than three, who is / are not already a jointholder with you, it shall amount to renunciation and the procedure as stated above for renunciation shall have to befollowed. Even a change in the sequence of the name of joint holders shall amount to renunciation and the procedure,as stated above shall have to be followed.

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However, this right of renunciation is subject to the express condition that the Board of Directors of our Company shall beentitled in its absolute discretion to reject the request for allotment from the renouncee(s) without assigning any reasonthereof.

Instructions for Options

Please note that:

� Part A of the CAF must not be used by any person(s) other than those in whose favour this Offer has been made.If used, this will render the application invalid.

� Request by the Equity Shareholder(s) for the SAF should reach our Company on or before December 21, 2007.

� Only the person to whom the Letter of Offer has been addressed to and not the renouncee(s) shall be entitled torenounce and to apply for SAF. Forms once split cannot be split further.

� SAF(s) will be sent to the Applicant(s) by ordinary post at the Applicant's risk.

Additional Equity Shares

You are eligible to apply for additional Equity Shares over and above the number of Equity Shares you are entitled to,provided that you have applied for all the Equity Shares offered without renouncing them in whole or in part in favor ofany other person(s). Applications for additional Equity Shares shall be considered and allotment shall be in the mannerprescribed under "Basis of Allotment" below. The renouncees applying for all the Equity Shares renounced in their favourmay also apply for additional Equity Shares.

In case of application for additional Equity Shares by non-resident Equity Shareholders, the allotment of additionalsecurities will be subject to the permission of the RBI.

Where the number of additional Equity Shares applied for exceeds the number available for allotment, the allotmentwould be made on a fair and equitable basis in consultation with the Designated Stock Exchange.

The summary of options available to the Equity Shareholder is presented below. You may exercise any of the followingoptions with regard to the Equity Shares offered, using the enclosed CAF:

Option Available Action Required

Accept whole or part of your entitlement without Fill in and sign Part A (All joint holders must sign)renouncing the balance.

Accept your entitlement in full and apply for Fill in and sign Part A including Block III relating to theadditional Equity Shares acceptance of entitlement and Block IV relating to additional

Equity Shares (All joint holders must sign)

Renounce your entitlement in full to one person Fill in and sign Part B (all joint holders must sign) indicating(Joint renouncees are considered as one). the number of Equity Shares renounced and hand it over to

the renouncee. The renouncees must fill in and sign Part C(All joint renouncees must sign)

Accept a part of your entitlement and renounce Fill in and sign Part D (all joint holders must sign) requestingthe balance to one or more renouncee(s) for SAF(s). Send the CAF to the Registrar tothe Issue so as

to reach them on or before the last date for receiving OR requests for SAF(s).Splitting will be permitted only once.

Renounce your entitlement to all the EquityShares offered to you to more than one On receipt of the SAF(s) take action as indicated below.renouncee

For the Equity Shares you wish to accept, if any, fill in andsign Part A.

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For the Equity Shares you wish to renounce, fill in andsign Part B indicating the number of Equity Sharesrenounced and hand it over to the renouncees. Each of therenouncees should fill in and sign Part C for the EquityShares accepted by them.

Introduce a joint holder or change the sequence This will be treated as a renunciation. Fill in and sign Partof joint holders B and the renouncees must fill in and sign Part C.

For Applicants residing at places other than designated bank collecting branches

Resident investors residing at places other than the cities where the bank collection centers have been opened and non-resident Applicants applying on a non-repatriation basis should send their completed CAF by registered post / speedpost to the Registrar to the Issue, Intime Spectrum Registry Limited alongwith demand drafts, net of bank and postalcharges, payable at Mumbai in favour of the Banker to the Issue, crossed account payee only and marked "HOEC-RightsIssue" so that the same are received on or before the Issue Closing Date i.e. January 7, 2008.

Non-resident investors applying on a repatriation basis should send their completed CAF by registered post / speed postto the Registrar to the Issue, Intime Spectrum Registry Limited alongwith demand drafts for the full application amount,payable at Mumbai in favour of the Banker to the Issue, crossed account payee only and marked "HOEC-Rights IssueNR" so that the same are received on or before Issue Closing Date i.e. January 7, 2008.

Our Company will not be liable for any postal delays and applications received through mail after the closure of the Issueare liable to be rejected and returned to the Applicants. Applications by mail should not be sent in any other mannerexcept as mentioned below.

Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the Applicant, the Registrar to the Issue will issue a duplicateCAF on the request of the Applicant who should furnish the registered folio number / DP and Client ID number and his/ her full name and address to the Registrar to the Issue. Please note that the request for duplicate CAF should reach theRegistrar to the Issue within 15 days from the Issue Opening Date. Please note that those who are making the applicationin the duplicate form should not utilise the original CAF for any purpose including renunciation, even if it is received /found subsequently. If the Applicant violates any of these requirements, he / she shall face the risk of rejection of both theapplications.

Application on Plain Paper

A resident Equity Shareholder or a non-resident Equity Shareholder applying on a non-repatriation basis who has neitherreceived the original CAF nor is in a position to obtain the duplicate CAF may make an application to subscribe to theIssue on plain paper, along with an account payee cheque drawn on a local bank at Mumbai or demand draft / pay orderpayable at Mumbai in favour of the Banker to the Issue, crossed account payee only and marked "HOEC-Rights Issue"and send the same by registered post directly to the Registrar to the Issue.

A non-resident Equity Shareholder applying on a repatriation basis who has neither received the original CAF nor is ina position to obtain the duplicate CAF may make an application to subscribe to the Issue on plain paper, along with anAccount Payee Cheque drawn on a local bank at Mumbai or demand draft / pay order payable at Mumbai in favour ofthe Banker to the Issue, crossed account payee only and marked "HOEC-Rights Issue NR" and send the same byregistered post directly to the Registrar to the Issue.

The application on plain paper, duly signed by the Applicants including joint holders, in the same order as per specimenrecorded with our Company, must reach the office of the Registrar to the Issue before the Issue Closing Date and shouldcontain the following particulars:

� Name of Issuer, being Hindustan Oil Exploration Company Limited;

� Name and address of the Equity Shareholder including joint holders;

� Registered Folio Number / DP and Client ID No.;

� Number of shares held as on Book Closure Date;

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� Number of Rights Equity Shares entitled;

� Number of Rights Equity Shares applied for;

� Number of additional Equity Shares applied for, if any;

� Total number of Equity Shares applied for;

� Total amount paid at the rate of Rs. 117 per Equity Share;

� Particulars of cheque / draft;

� Savings / current account number and name and address of the bank where the Equity Shareholder will bedepositing the refund order;

� PAN photocopy / PAN allotment letter / Form 60 or Form 61 has to be submitted with the CAF where the applicationis for Equity Shares of a total value of Rs. 50,000 or more and for each Applicant in case of joint names; and

� Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records of ourCompany.

Please note that those who are making the application otherwise than on original CAF shall not be entitled to renouncetheir rights and should not utilise the original CAF for any purpose including renunciation even if it is received subsequently.If the Applicant violates any of these requirements, he / she shall face the risk of rejection of both the applications as wellas forfeiture of amounts remitted along with the applications. The Company shall refund such application amount to theapplicant without any interest theron.

For Applicants residing at places where the bank collection centers have been opened, application forms dulycompleted together with cash / cheque / demand draft for the application money must be submitted before theclose of the subscription list to the Banker to the Issue named herein or to any of its branches mentioned on thereverse of the CAF. The CAF alongwith application money must not be sent to our Company or the Lead Managerto the Issue or the Registrar to the Issue.

Only for Applicants residing at places other than the cities where the bank collection centers have been opened,CAFs duly completed together with cash / cheque / demand draft for the application money net of bank charges fordemand draft and postal charges must reach Registrar to the Issue before the Issue Closure Date. Despite existenceof bank collection center at his / her place, should the Applicant send a demand draft to the Registrar, suchapplication shall be rejected.

The Applicants are requested to strictly adhere to these instructions. Failure to do so could result in the applicationbeing liable to be rejected by our Company, the Lead Manager and the Registrar not having any liabilities to suchApplicants.

Last date of Application

The last date for submission of the duly filled in CAF is January 7, 2008. The Board or any committee thereof will havethe right to extend the said date for such period as it may determine from time to time but not exceeding 60 days fromthe Issue Opening Date.

If the CAF together with the amount payable is not received by the Banker to the Issue / Registrar to the Issue, as thecase may be, on or before the close of banking hours on the aforesaid last date or such date as may be extended by theBoard / committee of Directors, the offer contained in the Letter of Offer shall be deemed to have been declined and theBoard / committee of Directors shall be at liberty to dispose off the Equity Shares hereby offered, as provided under"Basis of Allotment" below.

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INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR COMPANY CAN BE TRADED ON THESTOCK EXCHANGES ONLY IN DEMATERIALISED FORM.

Basis of Allotment

Subject to the provisions contained in the Letter of Offer, the Articles of Association of our Company and the approval ofthe Designated Stock Exchange, the Board will proceed to allot the Equity Shares in the following order of priority:

(a) Full allotment to those Equity Shareholders who have applied for their Rights Entitlement either in full or in part andalso to the Renouncee(s) who has / have applied for Equity Shares renounced in their favour, in full or in part.

(b) If the shareholding of any of the Equity Shareholders is less than three or not in multiples of three, then thefractional portion of the entitlement of such holders for Equity Shares shall be ignored. Shareholders whose fractionalentitlements are being ignored would be considered for allotment of one additional share each if they apply foradditional share(s). Allotment under this head shall be considered if there are any unsubscribed equity shares afterallotment under (a) above. If number of Equity Shares required for allotment under for this head are more thannumber of shares available after allotment under (a) above, the allotment would be made on a fair and equitablebasis in consultation with the Designated Stock Exchange. (For further details please see the section titled "Termsand Procedure of the Issue - Fractional Entitlements" beginning on page 166 of this Letter of Offer)

(c) Allotment to the Equity Shareholders who having applied for all the Equity Shares offered to them as part of theIssue and have also applied for additional Equity Shares. The allotment of such additional Equity Shares will bemade as far as possible on an equitable basis having due regard to the number of Equity Shares held by them onthe Book Closure Date, provided there is an under-subscribed portion after making full allotment in (a)and (b)above. The allotment of such Equity Shares will be at the sole discretion of the Board / committee of Directors inconsultation with the Designated Stock Exchange, as a part of the Issue and not as a preferential allotment.

(d) Allotment to the Renouncees who having applied for the Equity Shares renounced in their favour have also appliedfor additional Equity Shares, provided there is an under-subscribed portion after making full allotment in (a), (b) and(c) above. The allotment of such additional Equity Shares will be made on a proportionate basis at the solediscretion of the Board / committee of Directors but in consultation with the Designated Stock Exchange, as a partof the Issue and not as a preferential allotment.

After taking into account allotment to be made under (a) and (b) above, if there is any unsubscribed portion, the sameshall be deemed to be 'unsubscribed' for the purpose of regulation 3(1)(b)(ii) of the Takeover Code which would beavailable for allocation under (c) and (d) above. After considering the above allotment, any additional Equity Shares shallbe disposed off by the Board or committee of Directors authorised in this behalf by the Board of Directors of ourCompany, in such manner as they think most beneficial to our Company and the decision of the Board or committee ofDirectors of our Company in this regard shall be final and binding. In the event of oversubscription, allotment will bemade within the overall size of the issue.

Allotment to Promoters of any unsubscribed portion, over and above their entitlement shall be done in compliance withClause 40A of the Listing Agreement and the other applicable laws prevailing at that time.

In accordance with the current regulations, the following restrictions are applicable for investment by FIIs:

The Issue of Equity Shares under this Issue to a single FII should not exceed 10% of the post-issue paid up capital of theCompany. In respect of an FII investing in the Equity Shares on behalf of its sub-accounts the investment on behalf ofeach sub-account shall not exceed 5% of the total paid up capital of the Company. In accordance with foreign investmentlimits applicable to the Company, the total FII investment cannot exceed 24% of the total paid up capital of the Company.

Our Company expects to complete the allotment of Equity Shares within a period of 42 days from the Issue Closing Datein accordance with the Listing Agreement with the BSE and the NSE. Our Company shall retain no oversubscription.

Underwriting

The present Issue is not underwritten.

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Allotment / Refund

Our Company will issue and dispatch letters of allotment / share certificates / demat credit and / or letters of regret alongwith refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of 42 daysfrom the date of closure of the Issue. If such money is not repaid within eight days from the day our Company becomesliable to pay it, our Company shall pay that money with interest as stipulated under Section 73 of the Companies Act.

Applicants residing at those centers where clearing houses are managed by the RBI will get refunds through ECS onlyexcept where Applicants are otherwise disclosed as applicable / eligible to get refunds through direct credit and RTGS.

In case of those Applicants who have opted to receive their Rights Entitlement in dematerialised form using electroniccredit under the depository system, and advice regarding their credit of the Equity Shares shall be given separately.Applicants to whom refunds are made through electronic transfer of funds will be sent a letter through ordinary postintimating them about the mode of credit of refund within 42 working days of the Issue Closing Date.

In case of those Applicants who have opted to receive their Rights Entitlement in physical form, our Company will issuethe corresponding share certificate under section 113 of the Companies Act or other applicable provisions if any. Allotteesare requested to preserve such letters of allotment, which would be exchanged later for the share certificates. For moreinformation see 'Letters of Allotment / Share Certificates / Demat Credit' below.

The letter of allotment / refund order exceeding Rs.1,500 would be sent by registered post / speed post to the sole / firstApplicant's registered address. Refund orders up to the value of Rs.1,500 would be sent under certificate of posting.Such refund orders would be payable at par at all places where the applications were originally accepted. The samewould be marked 'Account Payee only' and would be drawn in favour of the sole / first Applicant. Adequate funds wouldbe made available to the Registrar to the Issue for this purpose.

Payment of Refund

Mode of making refunds

The payment of refund, if any, would be done through various modes in the following order of preference:

1. ECS - Payment of refund would be done through ECS for Applicants having an account at any of the followingfifteen centers: Ahmedabad, Bangalore, Bhubaneshwar, Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur,Kanpur, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram. This mode of payment of refunds would besubject to availability of complete bank account details including the MICR code as appearing on a cheque leaf,from the depositories. The payment of refunds is mandatory for Applicants having a bank account at any of theabovementioned fifteen centers, except where the Applicant, being eligible, opts to receive refund through NEFT,direct credit or RTGS.

2. NEFT - Payment of refund shall be undertaken through NEFT wherever the Applicants' bank has been assigned theIndian Financial System Code (IFSC), which can be linked to a Magnetic Ink Character Recognition (MICR), if any,available to that particular bank branch. IFSC Code will be obtained from the website of RBI as on a dateimmediately prior to the date of payment of refund, duly mapped with MICR numbers. Wherever the Applicantshave registered their nine digit MICR number and their bank account number while opening and operating thedemat account, the same will be duly mapped with the IFSC Code of that particular bank branch and the paymentof refund will be made to the Applicants through this method.

3. Direct Credit - Applicants having bank accounts with the Refund Bank, in this case being, HDFC Bank shall beeligible to receive refunds through direct credit. Charges, if any, levied by the Refund Bank(s) for the same wouldbe borne by our Company.

4. RTGS - Applicants having a bank account at any center where clearing houses are managed by the RBI andwhose refund amount exceeds Rs. 2 million, have the option to receive refund through RTGS. Such eligibleApplicants who indicate their preference to receive refund through RTGS are required to provide the IFSC code inthe CAF. In the event the same is not provided, refund shall be made through ECS. Charges, if any, levied by theRefund Bank(s) for the same would be borne by our Company. Charges, if any, levied by the Applicant's bankreceiving the credit would be borne by the Applicant.

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5. For all other Applicants, including those who have not updated their bank particulars with the MICR code, therefund orders will be despatched under certificate of posting for value up to Rs. 1,500 and through speed post /registered post for refund orders of Rs. 1,500 and above. Such refunds will be made by cheques, pay orders ordemand drafts drawn on the HDFC Bank and payable at par.

Letters of Allotment / Share Certificates / Demat Credit

Letter(s) of allotment / share certificates / demat credit or letters of regret along with refund orders will be dispatched tothe registered address of the first named Applicant or respective beneficiary accounts will be credited within six weeks,from the date of closure of the subscription list. In case our Company issues letters of allotment, the relative sharecertificates will be dispatched within three months from the date of allotment. Allottees are requested to preserve suchletters of allotment (if any) to be exchanged later for share certificates. Export of letters of allotment (if any) / sharecertificates / demat credit to non-resident Allottees will be subject to the approval of RBI.

Option to receive Equity Shares in Dematerialised Form

Applicants to the Equity Shares of our Company issued through this Issue shall be allotted the securities in dematerialised(electronic) form at the option of the Applicant. Our Company signed a tripartite agreement with NSDL on February 25,1999 and with CDSL on December 28, 1999, which enables the Investors to hold and trade in securities in a dematerialisedform, instead of holding the securities in the form of physical certificates.

In this Issue, the Allottees who have opted for Equity Shares in dematerialised form will receive their Equity Shares in theform of an electronic credit to their beneficiary account with a DP. Investor will have to give the relevant particulars forthis purpose in the appropriate place in the CAF. Applications, which do not accurately contain this information, will begiven the securities in physical form. No separate applications for securities in physical and /or dematerialised formshould be made. If such applications are made, the application for physical securities will be treated as multiple applicationsand is liable to be rejected. In case of partial allotment, allotment will be done in demat option for the shares sought indemat and balance, if any, may be allotted in physical shares.

The Equity Shares of our Company will be listed on the BSE and the NSE.

Procedure for availing the facility for allotment of Equity Shares in this Issue in the electronic form is as under:

1. Open a beneficiary account with any DP (care should be taken that the beneficiary account should carry the nameof the holder in the same manner as is exhibited in the records of our Company. In the case of joint holding, thebeneficiary account should be opened carrying the names of the holders in the same order as with our Company).In case of investors having various folios in our Company with different joint holders, the investors will have to openseparate accounts for such holdings. Those Equity Shareholders who have already opened such beneficiaryaccount(s) need not adhere to this step.

2. For Equity Shareholders already holding Equity Shares of our Company in dematerialised form as on the BookClosure Date, the beneficial account number shall be printed on the CAF. For those who open accounts later orthose who change their accounts and wish to receive their Equity Shares pursuant to this Issue by way of credit tosuch account, the necessary details of their beneficiary account should be filled in the space provided in the CAF.It may be noted that the allotment of securities arising out of this Issue may be made in dematerialised form evenif the original Equity Shares of our Company are not dematerialized. Nonetheless, it should be ensured that thedepository account is in the name(s) of the Equity Shareholders and the names are in the same order as in therecords of our Company.

3. Responsibility for correctness of information (including Applicant's age and other details) filled in the CAF vis-à-vissuch information with the Applicant's DP, would rest with the Applicant. Applicants should ensure that the names ofthe Applicants and the order in which they appear in CAF should be the same as registered with the Applicant'sDP.

4. Applicants must necessarily fill in the details (including the beneficiary account number or client ID number) appearingin the CAF under the heading 'Request for Shares in Electronic Form'.

5. Equity Share allotted to an Applicant in the electronic account form will be credited directly to the Applicant'srespective beneficiary account(s) with the DP.

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6. Applicants should ensure that the names of the Applicants and the order in which they appear in the CAF shouldbe the same as registered with the Applicant's DP.

7. Non-transferable allotment advice / refund orders will be directly sent to the Applicant by the Registrar to this Issue.

8. If incomplete / incorrect details are given under the heading 'Request for Shares in Electronic Form' in the CAF, theApplicant will get Equity Shares in physical form.

9. Renouncees can also exercise the option to receive Equity Shares in the demat form by providing the necessarydetails about their beneficiary account in the relevant portion of the CAF.

10. It may be noted that Equity Share arising out of this Issue can be received in demat form even if the existing EquityShares are held in physical form. Nonetheless, it should be ensured that the DP account is in the name of theApplicant(s) in the same order as per specimen signatures appearing in the records of the DP / Company.

11. It may be noted that shares in electronic form can be traded only on the Stock Exchanges having electronicconnectivity with NSDL or CDSL.

12. Dividend or other benefits with respect to the shares held in dematerialised form would be paid to those EquityShareholders whose names appear in the list of beneficial owners given by the DP to our Company as on theBook Closure Date.

13. If incomplete / incorrect beneficiary account details are given in the CAF the Applicant will get Equity Shares inphysical form.

14. The Equity Shares pursuant to this Issue allotted to investors opting for dematerialised form would be directlycredited to the beneficiary account as given in the CAF after verification. Allotment advice, refund order (if any)would be sent directly to the Applicant by the Registrar to the Issue but the Applicant's DP will provide to him theconfirmation of the credit of such Equity Shares to the Applicant's depository account.

15. Renouncees will also have to provide the necessary details about their beneficiary account for allotment of securitiesin this Issue. In case these details are incomplete or incorrect, the Renouncees will get Equity Shares in physicalform.

General instructions for Applicants

a) Please read the instructions printed on the enclosed CAF carefully.

b) Application should be made on the printed CAF, provided by our Company and should be completed in allrespects. The CAF found incomplete with regard to any of the particulars required to be given therein, and / orwhich are not completed in conformity with the terms of the Letter of Offer are liable to be rejected and the moneypaid, if any, in respect thereof will be refunded without interest and after deduction of bank commission and othercharges, if any. The CAF must be filled in English and the names of all the applicants, details of occupation,address, father's / husband's name must be filled in block letters.

c) The CAF together with cheque / demand draft should be sent to the Banker to the Issue / collecting bank or to theRegistrar to the Issue, as the case may be, and not to our Company and the Lead Manager to the Issue. Applicantsresiding at places other than cities where the branches of the Banker to the Issue have been authorised by ourCompany for collecting applications, will have to make payment by account payee cheque drawn on a local bankat Mumbai or demand draft / pay order payable at Mumbai in favour of the Banker to the Issue, crossed accountpayee only and marked "HOEC-Rights Issue" and send their application forms to the Registrar to the Issue byregistered post. If any portion of the CAF is / are detached or separated, such application is liable to be rejected

d) Pursuant to the Circular (MRD/DoP/Cir 05- 2007) dated April 27, 2007, SEBI has mandated PAN to be the soleidentification number for all participants in the securities market with effect from July 2, 2007. Where the total valueof Equity Shares applied for is, Rs. 50,000 or more, the Applicant or in the case of an application in joint names,each of the applicants, should mention his/her PAN allotted under the I.T. Act. The copy of the PAN card or PANallotment letter is required to be submitted with the CAF. Applications without this information and documentswill be considered incomplete and are liable to be rejected. It is to be specifically noted that Applicant should notsubmit the GIR number instead of the PAN as the application is liable to be rejected on this ground. In the

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event that the sole Applicant and/or the joint Applicant(s) have applied for PAN which has not yet been allottedeach of the Applicant(s) should mention "Applied for" in the CAF. Further, where the Applicant(s) has mentioned"Applied for", the Sole/First Applicant and each of the Joint Applicant(s), as the case may be, would be required tosubmit Form 60 (form of declaration to be filed by a person who does not have a permanent account number andwho enters into any transaction specified in rule 114B), or, Form 61 (form of declaration to be filed by a person whohas agricultural income and is not in receipt of any other income chargeable to income tax in respect of transactionsspecified in rule 114B), as may be applicable, duly filled along with a copy of any one of the following documentsin support of the address: (a) Ration Card (b) Passport (c) Driving License (d) Identity Card issued by any institution(e) Copy of the electricity bill or telephone bill showing residential address (f) Any document or communicationissued by any authority of the Central Government, State Government or local bodies showing residential address(g) Any other documentary evidence in support of address given in the declaration. It may be noted that Form 60and Form 61 have been amended vide a notification issued on December 1, 2004 by the Ministry of Finance,Department of Revenue, Central Board of Direct Taxes. All Applicants are requested to furnish, where applicable,the revised Form 60 or 61, as the case may be.

e) Pursuant to the Circular (MRD/DoP/Cir 08- 2007) dated June 25, 2007, SEBI has discontinued with the requirementof UIN under the SEBI (Central Database of Market Participants) Regulations, 2003 and the Circular (MAPIN/Cir-13/2005) dated July 1, 2005.

f) Applicants are advised to provide information as to their savings / current account number, nine digit MICR numberand the name of the bank, branch with whom such account is held in the CAF to enable the Registrar to the Issueto print the said details in the refund orders, if any, after the names of the payees. Applications not containing suchdetails is liable to be rejected.

g) The payment against the application should not be effected in cash if the amount to be paid is Rs. 20,000 or more.In case payment is effected in contravention of this, the application may be deemed invalid and the applicationmoney will be refunded and no interest will be paid thereon. Payment against the application if made in cash,subject to conditions as mentioned above, should be made only to the Banker to the Issue.

h) Signatures should be either in English, Hindi or Gujarati or in any other language specified in the VIIIth Scheduleto the Constitution of India. Signatures other than in English or Hindi and thumb impression must be attested by aNotary Public or a Special Executive Magistrate under his / her official seal. The Equity Shareholders must sign theCAF as per the specimen signature recorded with our Company / or depositories.

i) In case of an application under power of attorney or by a body corporate or by a society, a certified true copy of therelevant power of attorney or relevant resolution or authority to the signatory to make the relevant investment underthis Offer and to sign the application and a copy of the Memorandum of Association and Articles of Association and/ or bye laws of such body corporate or society must be lodged with the Registrar to the Issue giving reference ofthe serial number of the CAF. In case the above referred documents are already registered with the Company, thesame need not be furnished again. In case these papers are sent to any other entity besides the Registrar to theIssue or are sent after the Issue Closing Date, then the application is liable to be rejected.In no case should thesepapers be attached to the application submitted to the Bankers to the Issue.

j) In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per thespecimen signature(s) recorded with our Company. Further, in case of joint Applicants who are renouncees, thenumber of Applicants should not exceed three. In case of joint Applicants, reference, if any, will be made in the firstApplicant's name and all communication will be addressed to the first Applicant.

k) Application(s) received from non-resident / NRIs, or persons of Indian origin residing abroad for allotment of EquityShares shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA inthe matter of refund of application money, allotment of Equity Shares, subsequent issue and allotment of EquityShares, interest, export of share certificates, etc. In case a non-resident or NRI Equity Shareholder has specificapproval from the RBI, in connection with his shareholding, he should enclose a copy of such approval with theCAF.

l) All communication in connection with application for the Equity Shares, including any change in address of theEquity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment in this Issuequoting the name of the first / sole Applicant Equity Shareholder, folio numbers and CAF number. Please note that

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any intimation for change of address of Equity Shareholders, after the date of allotment, should be sent to theRegistrar and Transfer Agents of our Company - Intime Specturm Registry Limited in the case of Equity Sharesheld in physical form and to the respective DP, in case of Equity Shares held in dematerialised form.

m) SAF(s) cannot be re-split.

n) Only the person or persons to whom Equity Shares have been offered and not renouncee(s) shall be entitled toobtain SAF(s).

o) Applicants must write their CAF number at the back of the cheque / demand draft.

p) Only one mode of payment per application should be used. The payment must be either in cash or by cheque /demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member ora sub member of the Bankers Clearing House located at the center indicated on the reverse of the CAF where theapplication is to be submitted.

q) A separate cheque / draft must accompany each CAF. Outstation cheques / demand drafts or post-dated chequesand postal / money orders will not be accepted and applications accompanied by such cheques / demand drafts /money orders or postal orders will be rejected. The Registrar will not accept payment against application if madein cash. (For payment against application in cash please refer point (g) above)

r) No receipt will be issued for application money received. The Banker to the Issue / collecting bank / Registrar willacknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

Grounds For Technical Rejections

Applicants are advised to note that applications are liable to be rejected on technical grounds, including the following:

� Amount paid does not tally with the amount payable for;

� Bank account details (for refund) are not given;

� Age of first Applicant not given;

� PAN photocopy / PAN allotment letter / Form 60 or Form 61 and a copy of address proof is not submitted with theCAF, if the application is for Rs, 50,000 or more.;

� In case of application under power of attorney or by limited companies, corporate, trust, etc., relevant documentsare not submitted;

� If the signature of the existing shareholder on the Application Form does not match with the records available withthe Company and / or depository and for renouncees if the signature does not match with the records availablewith their depositories;

� If the Applicant desires to have shares in electronic form, but the CAF does not have the Applicant's depositoryaccount details;

� CAFs are not submitted by the Applicants within the time prescribed as per the CAF and the Letter of Offer;

� Applications not duly signed by the sole / joint Applicants;

� Applications by OCBs unless accompanied by specific approval from the RBI permitting the OCBs to invest in theIssue;

� Applications accompanied by stockinvest;

� In case no corresponding record is available with the depositories that matches three parameters, namely, namesof the Applicants (including the order of names of joint holders), the Depositary Participant's identity (DP ID) and thebeneficiary's identity;

� Applications by persons in the United States of America;

� Applications which have evidence of being dispatched from the United States of America;

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� Applications by ineligible non-residents (including on account of restriction or prohibition under applicable locallaws) and where registered address in India has not been provided;

� Duplicate Applications.

Mode of payment for resident Equity Shareholders / Applicants

� Applicants who are resident in centers with the bank collection centers shall draw cheques / drafts accompanyingthe CAF in favour of the Banker to the Issue, crossed account payee only and marked "HOEC-Rights Issue".

� Applicants residing at places other than places where the bank collection centers have been opened by ourCompany for collecting applications, are requested to send their applications together with demand draft / pay orderpayable at Mumbai in favour of the Banker to the Issue, crossed account payee only and marked "HOEC-RightsIssue" directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue ClosingDate. Our Company or the Registrar to the Issue will not be responsible for postal delays or loss of applications intransit, if any.

Mode of payment for non-resident Equity Shareholders / Applicants

As regards the application by non-resident equity shareholders, the following further conditions shall apply:

Payment by non-residents must be made by demand draft payable at Mumbai / cheque payable drawn on a bankaccount maintained at Mumbai or funds remitted from abroad in any of the following ways:

Application with repatriation benefits

� By Indian Rupee drafts purchased from abroad and payable at Mumbai or funds remitted from abroad (submittedalong with foreign inward remittance certificate); or

� By cheque / draft on a Non-Resident External Account (NRE) or Foreign Currency Non Resident (FCNR) Accountmaintained in Mumbai; or

� By Rupee draft purchased by debit to NRE / FCNR Account maintained elsewhere in India and payable in Mumbai;or FIIs registered with SEBI must remit funds from special non-resident rupee deposit account.

� Non-resident investors applying with repatriation benefits should draw cheques / drafts in favour of the Banker tothe Issue and marked 'HOEC-Rights Issue NR' payable at Mumbai and must be crossed 'account payee only' forthe full application amount

Application without repatriation benefits

As far as non-residents holding shares on non-repatriation basis is concerned, in addition to the modes specified above,payment may also be made by way of cheque drawn on Non-Resident (Ordinary) Account maintained in Mumbai orRupee Draft purchased out of Non Resident Ordinary ("NRO") account maintained elsewhere in India but payable atMumbai. In such cases, the allotment of Equity Shares will be on non-repatriation basis.

All cheques / drafts submitted by non-residents applying on a non-repatriation basis should be drawn in favour of theBanker to the Issue and marked 'HOEC-Rights Issue' payable at Mumbai and must be crossed 'account payee only' forthe full application amount. The CAF duly completed together with the amount payable on application must be depositedwith the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the IssueClosing Date.

Applicants may note that where payment is made by drafts purchased from NRE / FCNR / NRO accounts as the casemay be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has been issued by debitingthe NRE / FCNR / NRO account should be enclosed with the CAF. Otherwise the application shall be consideredincomplete and is liable to be rejected.

New demat account shall be opened for holders who have had a change in status from resident Indian to NRI.

Note:

� In case where repatriation benefit is available, interest, dividend, sales proceeds derived from the investment inEquity Shares can be remitted outside India, subject to tax, as applicable according to IT Act.

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� In case Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the Equity Sharescannot be remitted outside India.

� The CAF duly completed together with the amount payable on application must be deposited with the CollectingBank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date.A separate cheque or bank draft must accompany each CAF.

� In case of an application received from non-residents, allotment, refunds and other distribution, if any, will be madein accordance with the guidelines / rules prescribed by RBI as applicable at the time of making such allotment,remittance and subject to necessary approvals.

Payment by stockinvest

In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the stockinvest scheme hasbeen withdrawn with immediate effect. Hence, payment through stockinvest would not be accepted in this Issue.

Disposal of application and application money

No acknowledgment will be issued for the application monies received by our Company. However, the Banker to theIssue / Registrar to the Issue receiving the CAF will acknowledge its receipt by stamping and returning the acknowledgmentslip at the bottom of each CAF.

The Board reserves its full, unqualified and absolute right to accept or reject any application, in whole or in part, and ineither case without assigning any reason thereto.

In case an application is rejected in full, the whole of the application money received will be refunded. Wherever anapplication is rejected in part, the balance of application money, if any, after adjusting any money due on Equity Sharesallotted, will be refunded to the Applicant within six weeks from the close of the Issue.

For further instruction, please read the CAF carefully.

Important

� Please read the Letter of Offer carefully before taking any action. The instructions contained in the accompanyingCAF are an integral part of the conditions of the Letter of Offer and must be carefully followed; otherwise theapplication is liable to be rejected.

� All enquiries in connection with the Letter of Offer or accompanying CAF and requests for SAF(s) must be addressed(quoting the Registered Folio Number / DP and Client ID number, the CAF number and the name of the first EquityShareholder as mentioned on the CAF and superscribed 'HOEC-Rights Issue' on the envelope) to the Registrar tothe Issue at the following address:Intime Spectrum Registry LimitedC-13, Pannalal Silk Mills Compound, L.B.S. Marg, Bhandup (West)Mumbai - 400 078, IndiaContact Person: Ms. Awani ThakkarTel: + 91 22 2596 0320-7Fax: + 91 22 2596 0328-9Email: [email protected]: www.intimespectrum.com

It is to be specifically noted that this Issue of Equity Shares is subject to section titled "Risk Factors" beginning on pageVIII of this Letter of Offer.

The Issue will be kept open for atleast 30 days unless extended, in which case it will be kept open for a maximum of 60days.

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MAIN PROVISIONS OF ARTICLES OF ASSOCIATION

Pursuant to Schedule II of the Companies Act and SEBI Guidelines, the main provisions of the Articles of Associationinter alia relating to alteration of capital, voting rights, dividend, lien, forfeiture, restrictions on transfer and transmission ofEquity Shares or debentures and / or on their consolidation / splitting are detailed hereinbelow.

Please note that each provisions detailed hereinbelow is numbered as per the corresponding article number in theArticles of Association and that capitalised terms used in this section have the meaning that has been given to suchterms in the Articles of Association.

CALLS

24. The Directors may, from time to time by resolution passed at a meeting of the Directors and not by a circularresolution, make such calls as they think fit upon the members in respect of all monies unpaid on the shares heldby them (whether on account of the nominal value of the shares or by way of premium) and not by the conditionsof allotment thereof made payable affixed times. Each member shall pay the amount of every call so made on himto the persons and at the time and place appointed by the Directors. A call may be made payable by installmentsand shall be deemed to have been made when the resolution of the Directors authorising such calls was passed.

25. At least 15 days notice of any call shall be given by the Company specifying the time and place of payment andto whom such call shall be paid, provided that before the time for payment of such call, the Directors may, by noticein writing to the members, revoke the same or extend the time for payment thereof.

26. If by the terms of issue of any share or otherwise any amount is or becomes payable on allotment or at any fixeddate or by installments at fixed times whether on account of the nominal amount of the share or by way of premium,every such amount or installment shall be payable as if it were a call duly made by the Directors and payable onthe date on which by the terms of issue or otherwise such sum becomes payable and on which due notice hasbeen given. In case of non-payment of such sum, all the relevant provisions herein contained as to payment ofinterest and expenses, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a callduly made and notified.

27. If the sum payable in respect of any call or installment be not paid on or before the day appointed for paymentthereof, the holder for the time being of the share in respect of which the call shall have been made or theinstallment shall be due, shall pay interest for the same at the rate of twelve per cent per annum from the dateappointed for the payment thereof to the time of the actual payment or at such other rate as the Directors maydetermine. The Directors may, however, in their absolute discretion waive payment of any interest.

28. On the trial or hearing of any action for the recovery of any money due for any call, it shall be sufficient to provethat the name of the member sued is entered in the register as the holder or one of the holders, of the shares inrespect of which such debt accrued, that the resolution making the call is duly recorded in the minute book and thatnotice of such call was duly given to the member sued, in pursuance of these presents and it shall not benecessary to prove the appointment of the Directors who made such call nor that a quorum of Directors waspresent at the Board at which any call was made nor any other matters whatsoever and the proof of the mattersaforesaid shall be conclusive evidence of the debt.

29. Neither a judgment nor a decree in favour of the Company for calls or other monies due in respect of any sharesnor the receipt by the Company of a portion of any money which shall from time to time be due from any memberin respect of any shares either by way of principal or interest nor any indulgence granted by the Company inrespect of payment of any such money shall preclude the Company from thereafter proceeding to enforce aforfeiture of such shares as herein provided.

30. The Directors may, if they think fit, receive from any member willing to advance the same, all or any part of the sumdue upon the shares held by him beyond the sums actually called for; and upon the monies so paid in advance orso much thereof as from time to time exceeds the amount of calls then made upon the shares in respect of whichsuch advance has been made, the Company may (until the same would but for such advance become presentlypayable) pay interest at such rate not exceeding nine per cent per annum as the member paying such sum inadvance and the Directors may agree upon and the Directors may at any time repay the amount so advanced upongiving to such member three months notice in writing. The member making such advance payment shall not,

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however, be entitled to dividend or to participate in profits of the Company or at any voting, rights in respect of themoney so paid by him until the same would, but for such payment, become presently payable.

31. No member shall be entitled to receive any dividend or to exercise any privilege as a member until he shall havepaid all calls for the time being due and payable on every share held by him, whether alone or jointly with anyother person together with interest and expenses, if any.

31(A).Save as herein otherwise provided, the Company shall be entitled to treat the person whose name appears on theRegister of Members as the holder of any share or whose name appears as the beneficial owner of shares in therecords of the Depository, as the absolute owner thereof and accordingly shall not, except as ordered by a Courtof competent jurisdiction or as by law required, be bound to recognise any equity or benami trust or equitable,contingent, future or partial or other claim or claims or right to or interest in such share on part of any other personwhether or not it shall have express or implied notice thereof.

32. The Company shall have a first and paramount lien upon all the shares, other than fully paid-up shares, registeredin the name of each member (whether solely or jointly with others) and upon the proceeds of the sale thereof forall monies called or payable at a fixed time in respect of such shares and such lien shall extend to all dividendsfrom time to time declared in respect of such shares. Unless otherwise agreed, the registration of a transfer of suchshares shall operate as a waiver of the Company's lien, if any, thereon. The Directors may at any time declare anyclass of shares wholly or in part to be exempt from the provisions of this clause.

33. For the purpose of enforcing such lien, the Company may sell, in such manner as the Directors think fit, the sharessubject to such lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payableor until the expiration of fourteen days after a notice in writing, stating and demanding payment of such sum, shallhave been served on such member, his executors, or administrators, or other person recognised by the Company,as the owner thereof, and default shall have been made by him or them in payment thereof.

34. The net proceeds of any such sale shall be received by the Company and applied in payment of such part of theamount in respect of which the lien exists as is presently payable, and the residue, if any, shall be paid to suchmember, his executors, administrators or assigns.

34A. No notice of any trust, express, implied or constructive shall be entered in the Register of Members or of debentureholders.

TRANSFER OF SHARES

47. No transfer of shares in or debentures of the Company shall be registered unless in accordance with the provisionsof Section 108 of the Act and Article 48 hereof a proper instrument of transfer duly stamped and executed by or onbehalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, ifany, of the transferee has been delivered to the Company along with the certificates relating to the shares ofdebentures or if no such certificates is in existence, along with the letter of allotment of the shares or debenturesprovided the transferor shall be deemed to remain the holder of such share until the name of the transferee isentered in the Register in respect thereof.

48. The instrument of transfer of any share shall be in writing in the prescribed form and in accordance with Section108 of the Act.

49. If the Company refuses to register any such transfer or transmission of shares, the Company shall, within onemonth from the date on which the instrument of transfer or the intimation of such transmission as the case may bewas delivered to the Company, send notice of the refusal to the transferee and the transferor or to the persongiving intimation of such transmission, as the case may be.

50. No transfer shall be made to a minor, an infant or person of unsound mind.

51. Every instrument of transfer duly executed and stamped shall be left at the office of the Company for registrationaccompanied by the certificate of the shares to be transferred and such other evidence as the Company mayrequire to prove the title of the transferor or his right to transfer the shares. All instruments of transfer which shall beregistered shall be retained by the Company, but any instrument of transfer which the Directors may decline toregister shall on demand, be returned to the person depositing the same.

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52. No fee shall be charged for registration of transfers, consolidation, subdivision of share certificates or for issue ofnew certificates in replacement of those which are old, decrepit, worn Out or where the cages on the reverse forrecording transfers have been fully utilised.

No fee shall be charged for transmission of shares or for registration of any power of attorney, probate, letter ofadministration or other similar documents.

53. The Directors, may after giving not less than seven days prior notice by advertisement as required by Section 154of the Act, close the Register of Members or the Register of Debenture holders for any period or periods notexceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time.

54. The executors or administrators of a deceased member shall be the only persons recognised by the Company ashaving any title to his share except in case of joint holders, in which case the surviving holder or holders or theexecutors or administrators of the last surviving holder shall be the only person entitled to be so recognised; butnothing herein contained shall release the estate of a deceased joint holder from any liability in respect of anyshare jointly held by him. The Company shall not be bound to recognise such executor, administrator unless heshall have obtained probate or letters of administration or other legal representation, as the case may be, from aduly constituted Court in India to grant such probate or letter of administration provided nevertheless that in case,which the Board in its discretion consider to be special cases and in such cases only, it shall be lawful for theBoard of Directors to dispense with the production of probate or letters of administration or such other legalrepresentation upon such terms as to indemnity or otherwise as the Board of Directors may deem fit. The holder ofsuccession certificate relating to the share of a deceased member and operative in the State of Maharashtra shallbe deemed to be an administrator for the purposes of this Article.

55. The Board of Directors shall have absolute and uncontrolled discretion and power to decline to register anyproposed transfer or transmission of any shares without assigning any reasons whatsoever. This Article shall applynotwithstanding that the proposed transferee or the proposed holder under transmission may already be a memberof the Company. Registration of a transfer shall not be refused on the ground of the transferor being either aloneor jointly with any person or persons indebted to the Company on any account whatsoever except a lien on theshares.

It is hereby expressly declared that the power conferred under this Article shall be subject to the provisions ofSection 22 A of the Securities Contract (Regulation) Act, 1956 or any statutory modifications thereof.

56. Subject to the provisions of the Act and these presents, any person of becoming entitled to a share in consequenceof death, bankruptcy or insolvency person entitled of any member or by any lawful means other than by a transferin accordance with these presents, may with the consent of the Directors (which they shall not by transfer be underany obligation to give), upon producing such evidence as the Board thinks sufficient either register himself as theholder of the share or elect to have or some person nominated by him and approved by the Board, registered assuch holder; provided nevertheless, that if such person shall elect to have his nominee registered, he shall testifythe election by executing to his nominee an instrument of transfer of the share in accordance with the provisionsherein contained and until he does so, he shall not be freed from any liability in respect of the share.

57. A person entitled to a share by transmission shall, subject to the right of the Directors to retain such dividends ormoneys as hereinafter provided, be entitled to receive, and may give a discharge for, any dividends or othermoneys payable in respect of the share.

58. Every transmission of share shall be verified in such manner as the Directors may require and the Company mayrefuse to register any such transmission until the same be so verified or until and unless an indemnity be given tothe Company with regard to such registration which the Directors in their discretion shall consider sufficient, providednevertheless that there shall not be any obligation on the Company or the Directors to accept any indemnity.

59. A transfer of the share in the Company of a deceased member thereof made by his legal representative shall,although the legal representative is not himself a member, be as valid as if he had been a member at the time ofthe execution of the instrument of transfer.

60. The certification by the Company of any instrument of transfer of shares in or debentures of the Company, shall betaken as a representation by the Company to any person acting on the faith of the certification that there have beenproduced to the Company such documents as on the face of them show a prima facie title to the shares or

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debentures in the transferor named in the instrument of transfer but not as a representation that the transferor hasany title to the shares or debentures.

60A. In the case of transfer or transmission of shares or other marketable securities where the Company has not issuedany certificates and where such share or securities are being held in an electronic and fungible form in a Depository,the provisions of the Depositories Act, 1996 shall apply.

61. The provisions of these Articles shall mutatis mutandis apply to the transfer of or the transmission by operation oflaw of the right to Debentures of the Company.

61A. Notwithstanding anything contained in any other provisions of the Articles of Association of the Company, whereany instrument of transfer of shares has been delivered to the Company for registration and the transfer of suchshares has not been registered by the Company, the provisions of Section 206A of the Companies Act, 1956regarding dividend, any offer of right shares and any issue of fully paid-up bonus shares in relation to such sharesshall apply.

ALTERATIONS OF CAPITAL

64. The Company in General Meeting may:

(i) Consolidate and divide all or any of its share capital into shares of larger amount than its existing shares.

65. Cancel any shares which, at the date of the passing of the resolution have not been taken, or agreed to be taken,by any person, and diminish the amount, of its capital by the amount of the shares so cancelled.

66. Subdivide its shares, or any of them into shares of smaller amount than is fixed by the Memorandum of Association(subject, nevertheless, to the provisions of the Act.)

67. (a) Reduce its share capital, any capital redemption reserve fund or any share premium account in any mannerauthorised by law.

(b) The powers conferred by this Article may be exercised by an ordinary resolution except in the case ofreduction of capital when the exercise of the power in that behalf shall be by special resolution. The Companyshall give due notice to the Registrar of any such alteration in Capital.

MODIFICATION OF RIGHTS

72. Whenever the capital by reason of the issue of preference shares or otherwise is divided into different classes ofshares, all or any of the rights and privileges attached to each class shall not be modified, commuted, affected,abrogated or dealt with, neither shall any preference shares ranking in priority to or pan passu with the CumulativeRedeemable Preference Shares referred to in Article 3 hereof be created or issued except with the consent inwriting of the holders of at least three-fourths of the issued shares of that class and / or of the holders of the saidCumulative Redeemable Preference Shares or unless sanctioned by a special resolution passed at a separateGeneral Meeting of the holders of shares of that class and / or of the holders of the said Cumulative RedeemablePreference Shares in accordance with Section 106 of the Act and all the provisions hereinafter contained as toGeneral Meetings shall mutatis mutandis apply to every such meeting except that the quorum thereof shall be twomembers entitled to vote and present in person or by proxy. This Article is not by implication to curtail the power ofmodification which the Company would have if this Article were omitted.

GENERAL MEETING

80. In addition to any other meetings, General Meetings of the Company shall be held within such intervals as arespecified in Section 166(1) of the Act, and subject to the provisions of Section 166(2) of the Act, at such times andplaces as may be determined by the Directors. Each such General Meeting shall be held within the period of sixmonths specified in Section 210 of the Act or such period as may be extended by the Registrar pursuant to theprovisions of Section 166(1) of the Act and shall be called an "Annual General Meeting" and shall be specified assuch in the notice calling the meeting; all other meetings shall be called "Extraordinary General Meetings".

81. (a) The Directors may, whenever they think fit, convene an Extraordinary General Meeting and ExtraordinaryGeneral Meetings shall also be convened on such requisition, or in default may be convened by suchrequisitionists, as provided by Section 169 of the Act.

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(b) If at any time there are not within India, Directors capable of acting who are sufficient in number to form aquorum, any Director or Directors may call an Extraordinary General Meeting in the same manner as nearlyas possible as that in which such a meeting may be called by the Board.

82. In the case of an Extraordinary General Meeting called in pursuance of a requisition, no business other than thatstated in the requisition as the objects of the meeting shall be transacted.

83. Subject as hereinafter mentioned in this Article, General Meetings shall be convened on not less than twentyonedays' notice to the members and every other person entitled to receive such notice specifying the place, day andhour of meeting with a statement of the business to be transacted at the meeting and in every such notice thereshall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled toappoint a proxy to attend and vote instead of himself and that a proxy need not be a member and such notice shallbe given in manner as hereinafter provided. Provided that in the case of an Annual General Meeting, with theconsent in writing of all the members entitled to vote thereat and in the case of any other meeting, with the consentin writing of members of the Company holding not less than 95 per cent of the paid-up share capital of theCompany as gives a right to vote at the meeting, a meeting may be convened by a shorter notice. In the case ofa meeting convened to pass a special resolution, such notice shall specify the intention to propose the resolutionas a special resolution. No business may be transacted at any General Meeting which is beyond the scope of thenotice convening the meeting or of the statement of business accompanying such notice.

84. The accidental omission to give a notice of any meeting to or the non-receipt of any such notice by any member orother persons to whom it should be given shall not invalidate the proceedings at any General Meeting or anyresolution passed thereat.

PROCEEDINGS AT MEETINGS

85. (a) The business of an Annual General Meeting shall be to receive and consider the Profit and Loss Account, theBalance Sheet and the Report of the Directors and of the Auditors, to elect Directors and other officers in theplace of those retiring by rotation or otherwise, to appoint and fix the remuneration of Auditors, to declaredividends and to transact any other business which under these Articles ought to be transacted at an AnnualGeneral Meeting. All other business transacted at an Annual General Meeting and all business transacted atan Extraordinary General Meeting shall be deemed special.

(b) Where any items of business to be transacted at a General Meeting are deemed to be special as aforesaid,there shall be annexed to the notice of the meeting a statement setting out all material facts concerning eachsuch item of business, including in particular the nature and extent of the interest, if any, therein, of everyDirector, the managing agent, if any, the secretaries and treasurers, if any, and the manager, if any.

(c) Where any item of business consists of the according of approval to any document by the meeting, the timeand place where the document can be inspected shall be specified in the statement aforesaid.

86. No business except the choice of a Chairman or the adjournment of the meeting shall be transacted or discussedat any General Meeting while the Chair is vacant.

87. No business shall be transacted at any General meeting unless quorum requisite is present at the commencementof the business.

88. Five members present in person shall be the quorum for a General Meeting for all purposes.

89. If within half an hour from the time appointed for the meeting a quorum be not present, the meeting, if convenedupon the requisition of members as aforesaid, shall be dissolved. In any other case, it shall stand adjourned to thesame day in the next week at the same time and place (unless the same shall be a public holiday when themeeting shall stand adjourned to the next working day after such public holiday at the same time and place) or tosuch other day and at such other time and place as the Directors may determine and, if at such adjourned meeting,a quorum be not present within half an hour from the time appointed for holding the meeting, two members presentin person or by proxy shall be deemed to be quorum and may do all business which a full quorum might havedone.

90. The Chairman of the Directors shall be entitled to take the Chair at every General Meeting. If there be no Chairmanof the Directors, or if at any meeting he shall not be present within fifteen minutes after the time appointed for

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holding such meeting, or is unwilling to act, the Directors present may choose a Chairman from among theirnumber, and in default of their so doing, the members present in person or by proxy shall choose one of theDirectors to be Chairman, and if no Director be present or if no Director be present who is willing to take the Chair,such members shall choose one of their number present who is registered as a member of the Company to beChairman. The Chairman of a General Meeting shall be a member of the Company or a duly constituted attorneyor authorised representative of a member.

91. The Chairman of a General Meeting may with the consent of the meeting adjourn the same from time to time andfrom place to place, but no business shall be transacted at any adjourned meeting other than the business leftunfinished at the meeting from which the adjournment took place. It shall not be necessary to give any notice of anadjournment or of the business to be transacted at an adjourned meeting.

92. Every question submitted to any General Meeting shall be decided in the first instance by a show of hands and inthe case of an equality of votes the Chairman shall, both on a show of hands and at a poll, have a casting vote inaddition to the vote or votes to which he may be entitled as member or as a duly constituted attorney or authorisedrepresentative of a member.

93. In respect of any resolution proposed at any General Meeting, a declaration by the Chairman that a resolution hasbeen carried or carried unanimously or carried by a particular majority or lost, or not carried by a particular majorityor lost, and an entry to that effect in the minutes of the proceedings of the meeting shall be conclusive evidence ofthe fact without proof of the number or proportion of the votes given for or against such resolution.

93A. At any General Meeting before or on the declaration of the result on a show of hands, a poll may be ordered to betaken by the Chairman of the meeting on his own motion and shall be ordered to be taken by him on a demandmade in that behalf by any member or members present in person or by proxy and holding shares in the Companywhich confer a power to vote on the resolution not being less than one-tenth of the total voting powers in respectof the resolution, or on which an aggregate sum of not less than rupees fifty thousand has been paid up. Thedemand for a poll may be withdrawn at any time by the person or persons who made the demand.

94. Subject to the provisions of the Act and of these Articles, the Chairman shall have power to regulate the manner inwhich a poll shall be taken and the result of the poll shall be deemed to be the resolution of the meeting at whichthe poll was demanded.

95. A poll demanded on the election of the Chairman of a meeting and a poll demanded on a question of adjournmentshall be taken at the meeting without adjournment. In any other case, the poll shall be taken at such time (notbeing later than forty-eight hours from the time when the demand was made) as the Chairman may direct.

96. The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other thanthe business on which a poll has been demanded.

97. (a) Where a poll is to be taken, the Chairman of the meeting shall appoint two scrutineers to scrutinize the votesgiven on the poll and to report thereon to him.

(b) The Chairman shall have power, at any time before the result of the poll is declared, to remove a scrutineerfrom office and to fill vacancies in the office of a scrutineer arising from such removal or from any other cause.

(c) Of the two scrutineers appointed under this Article, one shall always be a member (not being an officer oremployee of the Company) present at the meeting, provided such a member is available and willing to beappointed.

98. Minutes shall be kept in books provided for the purpose of all proceedings at General Meetings and the pagesthereof shall be signed and initialled as provided for by Section 193 of the Act. Such books shall be kept at theOffice and be open to inspection by any member without charge at such times as the Directors may from time totime decide. Provided that not less than two hours in each day shall be allowed for inspection.

VOTES OF MEMBERS

99. Subject to any special rights or restrictions as to voting affecting any shares, on a show of hands every memberspresent in person and entitled to vote shall have one vote only. Upon a poll, every member present in person orby proxy or by a duly authorised representative and entitled to vote shall have one vote for each Ordinary Share of

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Rs.10 held by him. No member not personally present shall be entitled to vote on a show of hands unless suchmember is present by a duly constituted attorney or is a corporation present by a duly authorised representative inwhich case such attorney or representative if not himself a member may vote on behalf of the member whoseattorney or representative he is on show of hands as if he were a member.

100. If any member be of unsound mind or in respect of whom an order has been made by any Court having jurisdictionin lunacy, he may vote by his legally appointed committee or guardian and such committee or guardian may on apoll vote by proxy.

101. Where there are joint registered holders of any share, any one of such persons may vote at any meeting eitherpersonally or by proxy or by attorney in respect of such share as if he were solely entitled thereto, and if more thanone of such joint holders be present at any meeting personally or by proxy, or by attorney, then that one of the saidpersons so present whose name stands first in order in the Register in respect of such shares shall alone beentitled to vote in respect thereof.

102. On a poll, votes may be given either personally or by proxy or by attorney or in the case of a corporation by arepresentative duly authorised.

103. A person may be appointed a proxy or attorney who is not a member of the Company. A body corporate (whethera company within the meaning of the Act or not) which is a member of the Company may by resolution of its Boardof Directors or other governing body authorise any person (whether a member of the Company or not) to act as itsrepresentative at any meeting of the Company, or at any meeting of any class of members of the Company, and theperson so authorised shall be entitled to exercise the same powers on behalf of the body corporate which herepresents as if he were an individual member of the Company, including the power to appoint a proxy and anysuch authority may be either general, unless or until revoked, or special for a particular meeting.

104. The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed ora notarially certified copy of that power or authority, shall be deposited at the registered office of the Company notless than twenty-four hours before the time of holding the meeting or adjourned meeting at which the personnamed proposes to vote.

105. A vote given in accordance with the terms of a power of attorney or of an instrument of proxy, shall be validnotwithstanding the previous death of the principal or revocation of the power of instrument or the transfer of theshare in respect of which the vote is given, provided no intimation in writing of the death, revocation or transfershall have been received at the office before the meeting, or by the Chairman of the meeting before the vote isgiven.

106. Every instrument of proxy, whether for a specified meeting or otherwise shall as nearly as circumstances will admit,be in the form specified in Schedule IX of the Act.

107. No member shall be entitled to be present or to vote on any question either personally or otherwise or as a proxyor attorney at any General Meeting or upon a poll or be reckoned in the quorum whilst any call or other moneyshall be due and presently payable to the Company in respect of any of the shares of such member.

108. No objection shall be taken to the validity of any vote except at the meeting or poll at which such vote shall betendered and every vote not disallowed at such meeting or poll and whether given personally or by proxy orotherwise shall be deemed valid for all purposes.

DIVIDENDS

187. The profits of the Company, subject to any special rights relating thereto created or authorised to be created bythese presents and subject to the provisions of these present as to the Reserve Fund or other special fund orfunds, shall be divisible among the members in proportion to the amount of capital paid up on the shares held bythem respectively. Provided always that (subject as aforesaid) any capital paid upon a share during the period inrespect of which a dividend is declared shall unless the Directors otherwise determine entitle and shall be deemedalways to have entitled the holders of such share only to an apportioned amount of such dividend as from the dateof payment.

188. Provided that where capital is paid up on any shares in advance of calls upon the footing that the same shall carryinterest, such capital shall not whilst carrying interest, confer a right to participate in profit.

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189. The Company in General Meeting may declare a dividend to be paid to the members according to their rights andinterests in the profits and may fix the time for payment. No larger dividend shall be declared than is recommendedby the Directors, but the Company in General Meeting may declare a smaller dividend.

190. No dividend shall be paid otherwise than out of the profits of the year or any other undistributed profits of theCompany and no dividend shall carry interest as against the Company.

191. The declaration of the Directors as to the amount of net profits of the Company shall be conclusive.

192. The Company shall pay dividends in proportion to the amount paid up or credited as paid up on each share, wherea larger amount is paid up or credited as paid up on some shares than on others.

193. The Directors may from time to time pay to the members such interim dividends as in their judgement, the positionof the Company justifies.

194. The Directors may retain any dividends payable on shares on which the Company has alien and may apply thesame in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists.

195. Any General Meeting declaring a dividend may make a call on the members of such amount as the meeting fixes,but so that the call on each member shall not exceed the dividend payable to him and so that the call be madepayable at the same time as the dividend and the dividend may, if so arranged between the Company and themember; be setoff against the call. The making of a call under this Article shall be deemed ordinary business of airAnnual General Meeting which declares a dividend.

196. A transfer of shams shall not pass the right to any dividend declared thereon after such transfer and before theregistration of the transfer.

197. The Directors may retain the dividends payable upon shares in respect of which any person is under the TransmissionClause entitled to become a member or which any person under that Article is entitled to transfer, until such personshall become a member in respect of such shares or shall duly transfer the same.

198. No member shall be entitled to receive payment of any interest or dividend in respect of his share or shares whilstany money may be due or owing from him to the Company in respect of such share or shares. or otherwisehowsoever, either alone or jointly with any other person or persons; and the Directors may deduct from the interestor dividend payable to any member all sums of money so due from him to the Company.

199. Any one of several persons who are registered as the joint holders of any share may give effectual receipts for alldividends and payments on accounts of dividends in respect of such shares.

200. Unless otherwise directed any dividend may be paid by cheque or warrant sent through the post to the registeredaddress of the member or person entitled or in the case of joint holders, to the registered address of that onewhose name stands first on the register in respect of the joint holding; and every cheque or warrant so sent shallbe made payable to the order of the person to whom it is sent. Several executors or administrators of a deceasedmember in whose sole name any share stands, shall for the purposes of this Article be deemed to be joint holdersthereof.The Company shall not be responsible or liable for any cheque or warrant lost in transit or for any dividend lost tothe member or person entitled thereto by the forged endorsement of any cheque or warrant or the fraudulentrecovery thereof by any other means.

201. The Company shall pay the dividend or send warrant in respect thereof to the Shareholder entitled to the paymentof the dividend, within fortytwo days from the date of the declaration of the dividend unless:

(a) Where the dividend could not be paid by reason of the operation of any law.

(b) Where a shareholder has given directions regarding the payment of dividend and those directions cannot becomplied with.

(c) Where there is a dispute regarding the right to receive the dividend.

(d) Where the dividend has been lawfully adjusted by the Company against any sum due to it from theshareholders

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OR

(e) Where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaidwas not due to any default on the part of the Company.

202. (a) Unclaimed / unpaid, dividends shall be dealt with in accordance with the provisions of Section 205A of theCompanies Act, 1956.

(b) Any money transferred to the unpaid dividend account of the Company which remains unpaid or unclaimedfor a period of three years from the date of such transfer, shall be transferred by the Company to the GeneralRevenue account of the Central Government; A claim to any money so transferred to the general revenueaccount may be preferred to the Central Government by the Shareholders to whom the money is due. Nounclaimed dividend shall be forfeited till the claim thereto becomes barred by law.

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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The following contracts (not being contracts entered into in the ordinary course of business carried on by us) which areor may be deemed material have been entered or are to be entered into by us. These contracts and also the documentsfor inspection referred to hereunder, may be inspected at the Registered Office of our Company situated at 'HOECHouse',Tandalja Road, Vadodara - 390 020, India from 10 a.m. to 4 p.m. from the date of this Letter of Offer until the dateof closure of the Book Closure Date on working days.

A. Material Contracts

1. Memorandum of Understanding dated September 12, 2007 amongst our Company and the Lead Manager.

2. Memorandum of Understanding dated July 27, 2007 amongst our Company and the Registrar to the Issue.

3. Letter of engagement dated September 12, 2007 from JM Financial Consultants Private Limited offering theirservices to act as Lead Manager to the Issue and Company's acceptance thereto.

4. Letter of engagement dated November 15, 2007 amongst our Company and the Monitoring Agency.

5. PSC for CY-OS-90/1 (PY-3) executed on December 30, 1994.

6. PSC for PY-1 executed on October 6, 1995.

7. PSC for CY-OSN-97/1 executed on January 8, 2001.

8. PSC for CB-ON-7 executed on April 12, 2000.

9. PSC for Asjol executed on February 3, 1995.

10. PSC for North Balol executed on February 23, 2001.

11. PSC for CB-OS-1 executed on November 19, 1996.

12. PSC for AAP-ON-94/1 executed on June 30, 1998.

13. COSA for CY-OS-90/1 (PY-3) entered into on September 26, 2003.

14. COSA for Asjol entered into on August 6, 2004.

15. Gas Sale and Purchase Agreement for North Balol dated November 10, 2004 as amended and relatedagreements.

16. Natural Gas Sale and Purchase Agreement for PY-1 dated April 28, 2007.

17. Gas Sale and Purchase Agreement for CB-ON-7 dated January 23, 2007

B. Documents

1. Memorandum of Association and Articles of Association of our Company.

2. Certificate of incorporation of our Company dated September 22, 1983.

3. Shareholders resolution passed at the Annual General Meeting held on September 28, 2007 appointingDeloitte Haskins & Sells as statutory auditors for the financial year 2007-2008.

4. Copy of the Board resolution dated July 20, 2007 authorising this Issue.

5. Copy of the resolution of the Rights Issue and Allotment Committee dated November 7, 2007 authorisingIssue Price and entitlement ratio.

6. Consents of the Directors, Auditors, Lead Manager to the Issue, Legal Counsel to the Issue, Banker to theIssue, Bankers to the Company, Tax Advisor to the Issue, Monitoring Agency and Registrar to the Issue, toinclude their names in the Letter of Offer to act in their respective capacities.

7. Appointment of Company Secretary as Compliance Officer

8. Letter dated October 13, 2007 from M/s Rajesh Modi & Co., confirming Statement of Tax Benefits as mentionedin this Letter of Offer.

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9. The Auditors report as set out herein dated November 16, 2007 in relation to the adjusted standalonefinancial statements of our Company for the last five Fiscals and quarter ended June 30, 2007. The Auditorsreport as set out herein dated November 16, 2007 in relation to the adjusted consolidated financial statementsof our Company for the last five financial years and quarter ended June 30, 2007.

10. Annual Reports of our Company for the last five Fiscals.

11. Application made for in-principle listing approval dated September 19, 2007 to the BSE and the NSE.

12. In-principle listing approval dated October 3, 2007 and October 5, 2007 from the BSE and the NSE respectively.

13. Letter No. CFD/DIL/NB/NB/105451/2007 dated October 5, 2007 and Letter No. CFD/DIL/NB/NB/108019/2007dated November 5, 2007 issued by SEBI for the Issue.

14. Due Diligence Certificate dated September 19, 2007 from JM Financial Consultants Private Limited.

15. Tripartite Agreement dated February 25, 1999 between our Company, Intime Spectrum Registry Limited andNSDL to establish direct connectivity with the depository.

16. Tripartite Agreement dated December 28, 1999 between our Company, Intime Spectrum Registry Limited andCDSL to establish direct connectivity with the depository.

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DECLARATION

No statement made in this Letter of Offer contravenes any of the provisions of the Companies Act, 1956 and the rulesmade thereunder. All the legal requirements connected with the said Issue as also the guidelines, instructions etc. issuedby SEBI, Government and any other competent authority in this behalf have been duly complied with.

Yours faithfullyOn behalf of the Board of Directors of Hindustan Oil Exploration Company Limited

R. Vasudevan Deepak S. Parekh Rahul Bhasin Finian O' SullivanChairman Director Director Director

Atul Gupta Manish MaheshwariManaging Director / Joint Managing Director /Chief Executive Officer Chief Financial Officer (Acting)

Date: November 23, 2007

Enclosure: Composite Application Form