Oil India Ltd

TO THE SHAREHOLDERS OF OIL INDIA LIMITED

1. We have audited the attached Balance Sheet of Oil India Limited, as at 31^stMarch, 2010 and the Profit and Loss Account and also the Cash Flow Statement for the yearended on that date annexed thereto in which are incorporated the Company’s share inthe total value of assets, liabilities, expenditure and income of thirty nine JointVentures for exploration and production based on eighteen nos. audited and twenty-one nos.unaudited financial statements (Refer Note 7(H) of Schedule 28). These financialstatements are the responsibility of the Company’s management. Our responsibility isto express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally acceptedin India. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amount and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 issued by theCentral Government of India in terms of subsection (4A) of Section 227 of the CompaniesAct, 1956 and on the basis of such checks as we considered appropriate and according tothe information and explanations given to us, we set out in the Annexure a statement onthe matters specified in paragraphs 4 and 5 of the aforesaid Order.

4. Attention is invited to the following:

(a) Accounting Policy No.2 of Schedule-27 relating to treatment of exploration costs,development expenditure and abandonment costs and Accounting Policy No. 4.1(b) ofSchedule-27 relating to capitalization of depreciation to exploration and developmentwells are significant to the oil and gas exploration and production industry under the"Successful Efforts Method".

(b) Categorization of wells as exploratory (whether successful in discovery ofcommercial hydrocarbons and producing properties or otherwise) or development anddepletion of producing properties on the basis of proved and developed hydrocarbonreserves are based on management’s evaluation whether technical or otherwise, whichwe have relied upon. (c) Accounting Policy No.6 of Schedule-27 and Note No. 4(iii) ofSchedule-28 relating to impairment of assets are based on management’s evaluation /estimates, whether technical or otherwise, which we have relied upon.

5. Further to our comments in the Annexure referred under Para(3) above, we reportthat:

a) We have obtained all the information and explanations, which to the best of ourknowledge and belief were necessary for the purposes of our audit; b) In our opinion,proper books of account as required by law have been kept by the Company, so far as appearfrom our examination of those books;

c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account;

d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in sub-section(3C) of Section 211 of the Companies Act, 1956;

e) On the basis of written representations received from the directors, as on 31^stMarch, 2010 and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on 31^st March, 2010 from being appointed as adirector in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act,1956; and

f) In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts read with the Significant Accounting Policies (Schedule 27)and the Notes to Accounts (Schedule 28) give the information required by the CompaniesAct, 1956, in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:

(i) In the case of the Balance Sheet, of the state of affairs of the Company as at 31^stMarch, 2010;

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

(iii) In the case of the Cash Flow Statement, of the cash flow of the Company for theyear ended on that date.

ANNEXURE TO THE AUDITORS’ REPORT OF OIL INDIA LIMITED

(Referred to in our report of even date attached)

1 (a) The Company has generally maintained proper records showing full particularsincluding quantitative details and situation of fixed assets.

(b) The fixed assets, other than those which are underground/under joint venture, havebeen physically verified by the Management in phased manner designed to cover all itemsover a period of five years.

Land records along with documents and Fixed Assets register are pending reconciliation.

As per information and explanations available, no material discrepancies have beenobserved on such verification.

Adjustment, if any, required for such discrepancies is carried out on finalreconciliation with books of account.

(c) According to the information and explanations provided to us, a substantial part ofthe fixed assets have not been disposed off during the year, which might affect the goingconcern concept.

2. (a) As explained to us, stocks of Crude Oil and Liquefied Petroleum Gas (LPG) havebeen physically verified by the management at reasonable intervals and stock of stores andspare parts (excluding stock in transit and/or under inspection withsuppliers/contractors) have been physically verified by the management in accordance withthe phased programme.

(b) In our opinion and according to the information and explanations given to us, theprocedures of physical verification of inventory followed by the management appears to bereasonable and adequate in relation to the size of the Company and the nature of itsbusiness.

(c) In our opinion, the Company has maintained proper records in respect of stocks ofcrude oil and LPG and in respect of stock of stores and spare parts. No materialdiscrepancies have been noticed between physical and book stocks of crude oil and LPG. Inrespect of stores and spare parts, the discrepancies on physical verification noticed bythe management between physical stock and book records are not material considering thesize of the Company and the nature of its business and the same have been properlyadjusted in the accounts to the extent reconciliations have been completed.

3. The Company has neither granted nor taken any loans, secured or unsecured to/fromcompanies, firms or other parties covered in the register maintained under Section 301 ofthe Companies Act, 1956. Accordingly, the provisions regarding rate of interest, paymentof principal and interest and overdue amount as per sub clauses (b) to (g) of this clauseare not applicable.

4. According to the information and explanations given to us, there is an adequateinternal control system commensurate with the size of the Company and the nature of itsbusiness with regard to purchases of inventory, fixed assets and for the sale of goods andservices and we have not observed any continuing failure to correct major weaknesses ininternal control system.

5. (a) Based on the audit procedures applied by us and according to the information andexplanations provided by the management, we are of the opinion that the particulars ofcontracts or arrangement referred to in Section 301 of the Companies Act, 1956 have beenso entered.

(b) According to the information and explanations given to us, the transactions made inpursuance of such contracts or arrangements have been made at prices, which are reasonablehaving regard to the prevailing market prices at the relevant time.

6. According to the information and explanations given to us, the Company has notaccepted deposits from the public. Hence, the provisions of Sections 58A, 58AA or anyother relevant provisions of the Companies Act, 1956 and the Companies (Acceptance ofDeposits) Rules, 1975 are not applicable to the Company.

7. The Company has its internal audit system, which appears to be commensurate with itssize and nature of its business.

8. The Central Government of India has prescribed maintenance of cost records underSection 209(1)(d) of the Companies Act for the activities of manufacturing of crude oiland gases. We have broadly reviewed the books of account relating to materials, labour andother items of cost maintained by the Company pursuant to the rules made by the CentralGovernment for the maintenance of cost records under section 209(1)(d) of the CompaniesAct, 1956 and we are of the opinion that prima facie the prescribed accounts and recordshave been made and maintained.

9. (a) According to the records of the Company and information and explanations givento us, the Company is regular in depositing undisputed statutory dues including providentfund, investor education and protection fund, employees’ state insurance (notapplicable to the Company), income tax, sales tax, wealth tax, fringe benefit tax, servicetax, customs duty, excise duty, cess and any other statutory dues with the appropriateauthorities. There are no outstanding dues as of the last date of financial year concernedfor a period more than six months from the date they became payable.

(b) According to the records of the Company and the information and explanations givento us, as at 31^st March 2010, details of disputed dues in respect of incometax, sales tax, wealth tax, fringe benefit tax, service tax, customs duty, excise duty andcess are given below:-

10. The Company has no accumulated losses as at the end of the financial year and ithas not incurred any cash losses during the financial year and in the immediatelypreceding financial year.

11. Based on our audit procedures and the information and explanations given by themanagement, the Company has not defaulted in repayment of dues to any financialinstitution or bank. The Company has not issued debentures.

12. Based on our examination of documents and records, we are of the opinion that theCompany has not granted any loans and advances on the basis of security by way of pledgeof shares, debentures and other securities.

13. In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund /society. Therefore the provision of paragraph 4 (xiii) of the Order is not applicable tothe Company.

14. According to the records of the Company, the Company is not dealing or trading inshares, securities, debentures and other investments. Therefore, the provisions of Clause4 (xiv) of the Order are not applicable to the Company.

15. According to the information and explanations given to us, the Company has notgiven any guarantee for loans taken by others from banks or financial institutions.Therefore, the provisions of clause 4 (xv) of the Order are not applicable to the Company.16. According to the records of the Company and information and explanations given to us,the term loans have been applied for the purpose for which the loans were obtained.

17. On an overall examination of the Balance Sheet of the Company and according toinformation and explanations given to us, the Company did not raise any funds on shortterm basis which have been used for long term investment. No long-term funds have beenused to finance short-term assets.

18. The Company has not made preferential allotment of shares to parties and companiescovered in the register maintained under section 301 of the Companies Act, 1956. 19. TheCompany has not issued any debentures. Therefore, the provisions of clause 4 (xix) of theOrder are not applicable to the Company.

20. The Management has disclosed the end-use of the money raised by the public issue ofshares (Refer Note 3 of Schedule 28 to the Financial Statement). The same has beenverified by us.

21. During the course of our examination of books of account carried out in accordancewith the generally accepted auditing practices in India and according to the informationand explanations given to us, we have neither come across any instance of fraud on or bythe Company nor have we been informed of such case by the management.