Hindustan Oil Exploration Company Ltd Management Discussions

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

1.1. INDIA: GROWING DEMAND, DECLINING DOMESTIC SUPPLY

India enters FY 2026-27 with a structural energy challenge that has become progressively more pronounce; energy demand continues to grow with the economy, while domestic oil and gas production has not kept pace. Crude oil import dependence reached approximately 88.7% in FY 2025-26, while do mestic crude production declined to around 28 MMT. Natural gas production remained broadly range-bound despite continued demand growth.

The result is an increasingly significant gap between domestic consumption and domestic production. That gap assumed greater strategic importance during FY 2025-26 as two simultaneous geopolitical conflicts materially reshaped global oil and gas trade - the continuing Russia-Ukraine war and, from 28 February 2026, the U.S.-Israel conflict with Iran.

For India, these events demonstrated that energy security is no longer determined solely by access to adequate global resources. It increasingly depends upon diversification of supply, security of shipping routes, availability of strategic and commercial inventories, refining flexibility and, ultimately, increasing domestic production.

1.2. Geopolitics Reshaping Indias Oil and Gas Sourcing

Russia-Ukraine: A Structural Change in Indias Crude Baske

The Russia-Ukraine war has fundamentally altered international crude-trade flows. Western sanctions and the redirection of Russian crude away from traditional European markets created an opportunity for Asian refiners, including India, to source significant volumes of Russian crude at commercially attractive differentials.

Russia subsequently emerged as Indias largest crude supplier, materially changing a crude basket that had historically been dominated by the Middle East. This diversification provided India with an additional source of competitively priced crude and demonstrated the value of maintaining refinery flexibility and multiple sourcing options.

At the same time, continued sanctions, restrictions affecting Russian companies, shipping and insurance, and geopolitical pressure on purchasers demonstrated that even commercially attractive supply routes can carry policy and logistics risks.

By FY 2025-26, crude sourcing had, therefore, become an increasingly dynamic optimization exercise between price, sanctions exposure, shipping availability, crude compatibility and security of supply.

The Iran Conflict: From Price Risk to Physical Supply Risk

The escalation in West Asia from 28^th February 2026, following U.S. and Israeli strikes on Iran and the subsequent regional conflict, created a materially different challenge.The Strait of Hormuz is the principal energy artery connecting Gulf producers with Asian consumers. Prior to the conflict, approximately 20 million barrels per day of crude and petroleum products moved through the Strait. Following the outbreak of hostilities, tanker movements through Hormuz fell dramatically. This was one of the largest supply disruption in the history of the global oil market, with Gulf production curtailments exceeding 10 million barrels per day at points during March. Brent futures briefly approached USD 120/bbl before easing as markets adjusted.

For India, the consequences extended beyond crude oil.

India had also been dependent upon Gulf countries for substantial volumes of LNG and LPG. Disruptions to Gulf gas facilities and shipping therefore required rapid diversification of procurement. Alternative LNG cargoes were consequently sourced and gas allocation was prioritized towards households, CNG, fertilizer and other essential sectors.

Similarly, around 60% of Indias LPG requirements had historically been imported from Gulf countries. During the disruption, additional procurement was pursued from the United States, Norway, Canada, Algeria and Russia, while Indian refineries were directed to maximize domestic LPG output.

The resilience of Indias diversified supply and refining system helped the country tide over this very critical phase of oil and gas supply chain insecurity. However, the lesson was significant:

Strategic Petroleum Reserves are a demonstration of the value of keeping a buffer but with about 5.33 million tonnes reserves, it may last less than a week depending upon the disruption. Commercial storage held by refiners also help to avert short term disruption, but more work will be needed to increase the SPR facilities for the country - on the lines of US and Japan. China with over 1b barrels of SPR may not be role model for India.

1.3. The Strategic Case for Domestic Production

The geopolitical events of FY 2025-26 reinforce an important distinction. India can - and should - diversify crude, LNG and LPG sourcing across the Middle East, Russia, the Americas, Africa and other regions. It can increase strategic inventories, create alternative logistics and maximise the flexibility of its refining system.

Diversification reduces risks but it cannot eliminate the vulnerability created by very high import dependence. None of these measures substitute for domestic production.

Every barrel produced domestically:

• reduces exposure to international shipping disruptions; • reduces foreign-exchange exposure; • improves resilience to sanctions and geopolitical realignment; • reduces dependence on strategic inventories during a crisis; and • strengthens Indias ability to manage sudden global supply shocks.

The strategic imperative is therefore increasingly clear: India needs to explore more - but equally importantly, it needs to develop what it has already discovered much faster.

This is directly aligned with HOECs strategy of accelerating the conversion of discovered resources into reserves and production.

1.4. From Field Development to Energy Security

The changing geopolitical environment also places initiatives such as Samudra Manthan in a broader national context. The economic case for common infrastructure, subsea tie-backs, shared pipelines, offshore hubs and aggregation of stranded discoveries is important in its own right.

This is why HOECs engagement with DGH and MoP&NG on Samudra Manthan is strategically relevant. The objective is to support the creation of development models capable of unlocking smaller, stranded and infrastructure-constrained resources faster and at lower unit cost.

2. HOECS BUSINESS - AN OVERVIEW

HOEC is one of the pioneers of Indias private-sector Exploration & Production industry. Today, the Company has a diversified portfolio comprising 10 oil and gas blocks with discovered resources and one exploratory block, spread across four of Indias seven producing basins.

Our vision: Transform Resources into Producing Assets, Generate Sustainable Value and Grow Responsibly.

We pursue this vision by: a. exploring oil and gas and selectively expanding our resource base; b. accelerating the conversion of resources into reserves; c. converting reserves into production and cash flow; d. maximizing recovery and value from existing assets; and

e. pursuing opportunities where HOECs technical, operating and commercial capabilities provide a competitive advantage.

Our Core Values: Our values define how we work, how we make decisions and how we conduct ourselves - with our people, partners, communities and stakeholders.

a. Integrity

We do what is right, even when no one is watching. We conduct our business honestly, transparently and ethically, comply with applicable laws and regulations, and hold ourselves to the highest standards of professional conduct.

b. Ownership

We take responsibility for our decisions, actions and outcomes. We empower our people to act, solve problems and deliver - with accountability for safety, performance, cost and commitments.

c. Entrepreneurship and Innovation

We challenge conventional thinking and continuously seek better ways to unlock resources and create value. We encourage innovation, agility and calculated risk-taking while maintaining technical and financial discipline.

d. Duty of Care

We have a fundamental responsibility to protect our people, contractors, communities, assets and the environment. Safety and asset integrity are non-negotiable. We believe that everyone who comes to work for us should go back safe to his/her friends and families. Commercial considerations will never take precedence over our duty to operate safely and responsibly. A Visible Safety Culture will be key to the success of execution of HOEC.

e. Diversity, Equity & Inclusion

We believe different backgrounds, experiences and perspectives make HOEC stronger. We are committed to an inclusive workplace where people are respected, treated fairly, encouraged to speak up and provided equitable opportunities to contribute, develop and grow. The Company seeks wherever practicable to develop local talent, services and supply chains, thereby ensuring that the economic benefits of our operations extend to the communities and regions in which we operate.

Together, these values underpin our commitment to Grow Responsibly - creating value with integrity, operating safely, respecting people and communities, and contributing responsibly to Indias energy security. Our social license to operate is fundamental to our business.

3. STRENGTHS, OPPORTUNITIES AND THREATS

3.1. Strengths

HOECs principal strength is the quality and maturity of its resource portfolio. Every block contains discoveries that are either producing or capable of progressing towards development. The portfolio spans four producing basins, reducing geographical and geological concentration.

Exploration and development upside is supported by existing infrastructure that can enable faster and lower-cost monetization. Operatorship across the majority of the portfolio provides greater control over pace, technical choices, capital allocation and cost.

The Company combines an experienced leadership team with strengthening capabilities across reservoir engineering, subsurface, offshore operations, project execution, commercial and finance functions. This is supported by a long-standing record of fast-track and cost-conscious development.

HOEC also enters its next phase of growth with a conservative balance sheet. Gearing stood at 0.04 as at 31 March 2026, with the $ 20 crore outstanding long-term loan being repaid from internally generated cash flows.

3.2. Opportunities

Substantial Resources Already Discovered

The Companys largest opportunity lies within its existing portfolio. At B-80, only approximately 1 million barrels have been produced against 2P oil reserves of around 26 million barrels. The immediate challenge is, therefore, not finding resources - it is accelerating execution and recovery. Firm drilling and intervention programmes are being progressed across B-80, Kharsang, Dirok, PY-1 and Cambay, while B-15 has moved into field development planning.

PY1 field potential remains in place with a targeted production of 15-20 mmscfd from 2 new wells and remediation of existing wells.

North-east Gas Monetisation

The Northeast represents another significant opportunity. Dirok has historically produced at approximately one-third of its deliverable potential because of evacuation constraints. Integration with expanding regional and national gas infrastructure, including DNPL and the IGGL network, can unlock existing productive capacity and support development of additional discovered resources. This provides an opportunity to increase production without proportionately increasing upstream capital expenditure.

An Enabling Policy Environment

The evolving policy and regulatory framework provides greater flexibility to accelerate exploration and development. HOEC has been actively engaging with the Directorate General of Hydrocarbons (DGH) and the Ministry of Petroleum and Natural Gas (MoP&NG) and contributing industry perspectives towards the evolving Samudra Manthan initiative.

Samudra Manthan has the potential to address structural challenges that have historically slowed offshore development, including the monetisation of smaller and stranded discoveries, access to and creation of common infrastructure, aggregation of resources and faster conversion of discoveries into production.

As an experienced Indian operator with both offshore and onshore assets, HOEC intends to continue working constructively with Government and industry stakeholders to help shape practical solutions that can reduce development costs, shorten project cycles and unlock domestic hydrocarbon resources.

3.3. Threats and Concerns

The principal risks to execution remain:

a. Commodity-price volatility affects revenue realizations and development economics through its impact on Rig rates, Diesel prices, Equipment costs etc.

b. Evacuation and offtake infrastructure dependency, particularly in the North East;

c. Crude storage, offtake and counterparty risk, including working capital tied up in inventory;

d. Joint venture and regulatory dependency, including PSC extensions, cost-recovery approvals and Government assignments whose timing is not within the Companys sole control. There have been instances where the Company had to carry a JV partner for long periods because of the default in cash call payments by the partner.

e. Operational, marine and asset-integrity risk, particularly in offshore operations and floating storage and offloading facilities.

These risks are actively managed through portfolio diversification, disciplined capital allocation, strengthened asset-integrity management, development of strong working relationships with the JV partners and the development of alternative evacuation and monetization routes.

4. STRATEGIC DIRECTION

HOECs strategy is increasingly focused on one overriding objective:

4.1. CONVERT RESOURCES INTO PRODUCTION - FASTER

After more than four decades in Indian E&P, HOEC has built a portfolio containing substantial discovered resources and established infrastructure.The next phase is therefore centred on execution, production growth, reserve monetisation and cash generation.

Compress the cycle from discovery to development and production through focused subsurface work, faster decision-making, fit-for-purpose facilities and disciplined project execution. The emphasis is increasingly on wells, facilities and production rather than prolonged development cycles.

4.2. Maximize Recovery from Producing Assets

Increase recovery through infill drilling, workovers, reservoir surveillance and management, debottlenecking and targeted infrastructure investment.

The objective is to extract materially greater value from resources already discovered and capital already invested.

4.3. Unlock Infrastructure-Constrained Production

Develop alternative evacuation and monetization solutions, particularly in the North East, where infrastructure rather than subsurface deliverability has constrained production.

Existing and emerging pipeline networks, together with alternative monetization solutions, can materially expand the addressable market for HOECs gas and accelerate cash generation from discovered resources.

4.4. Digitalise the Business

Digitalisation will be a key enabler of HOECs next phase of growth. The Company is progressively embedding data-driven decision-making across subsurface (using AI/ML models for reservoir modelling), production, maintenance, projects, procurement, records management and corporate functions.

The objective is not digitalization for its own sake, but measurable improvement in production, uptime, recovery, operating cost, project delivery and decision speed. Greater use of integrated data, predictive analytics, remote monitoring, digital workflows and AI-enabled tools will enable a relatively lean organization to manage a growing and geographically dispersed portfolio more effectively.

4.5. Attract, Develop and Retain the Best Talent

People remain HOECs most important capability. As the portfolio expands and the pace of development accelerates, attracting and retaining high-quality technical, operational, commercial and leadership talent will be critical.The Company strengthens capabilities in key disciplines while creating opportunities for experienced professionals and younger talent to work directly on producing assets and new developments.

HOEC seeks to create an entrepreneurial working environment characterised by ownership, accountability, technical excellence, rapid decision-making and meaningful responsibility. Our objective is not simply to recruit talent, but to develop and retain it through challenging assignments, continuous learning, merit-based growth and the opportunity to participate directly in building the next generation of an Indian E&P company.

4.6. Use Infrastructure Intelligently

HOEC will maximize existing infrastructure, collaborate with neighbouring operators and pursue common infrastructure where aggregation can improve project economics and accelerate development.This philosophy is also reflected in the Companys engagement with DGH and MoP&NG on Samudra Manthan.

4.7. Maintain Capital Discipline

To fast-track development of new fields (B15, R2, North Dirok etc.) and carry out infill drilling and workovers in its existing fields, HOEC intends to raise debts / bring in investments, while continuing to preserve its low-cost self-funding operating model as much as is possible. Capital will be directed towards opportunities where the Company can establish a clear pathway to production, sustainable cash generation and attractive risk-adjusted returns. Existing infrastructure will be leveraged wherever possible, and development concepts will be challenged continuously for cost, schedule and complexity.

4.8. Replace and Grow Reserves

Reserve replacement is fundamental to sustaining long-term production growth.HOEC will pursue reserve additions through organic exploration (PY1, B19 etc) and appraisal, development of existing discoveries and selective inorganic opportunities where the Company can apply its technical and operating capabilities to create value.

4.9. Grow Responsibly

Growth will not come at the expense of safety, asset integrity, environmental stewardship or our responsibilities to communities. These remain fundamental to maintaining HOECs social license to operate and creating sustainable long-term stakeholder value.

5. KEY OPERATIONAL HIGHLIGHTS OF FY 2025-26

Production-wise performance:

The Companys aggregate production on consolidated basis during FY 2025-26 was 1.92 million barrels of oil equivalent (MMBOE) (Crude oil: 0.52 million barrels; Gas: 7.26 BCF) as against 1.08 million barrels of oil equivalent (MMBOE) (Crude oil: 0.36 million barrels; Gas: 3.80 BCF) during the previous year.

Block-wise operations and performance: i. Dirok: Following are some of the key developments in the block: a. Average Production: Gas - 15.06 mmscfd & Condensate - 270 bopd b. Revised FDP approved by MoPNG, securing the block for 10 years till 2035. c. Land acquisition for three Development wells are in progress.

d. Exploration Well North Dirok-1: Civil work for rig site land filling and access route to drill site completed.

e. Drilling Rig and long lead items and associated drilling requirements are getting finalized shortly.

f. Exploration well ND-1 likely to be spud in Q4FY27.

g. Discussion underway with Oil India Limited for IGGL hook-up and sharing upcoming facilities at Madhuban, Duliajan is in progress.

h. Discussion also underway for additional supply of gas through Duliajan Numaligarh Pipeline (DNPL).

ii. B-80:

a. Participating interest increased to 100% following completion of the acquisition of the 40% interest previously held by Adbhoot Estates Private Limited.

b. Both existing subsea wells (D-1 and D-2) remained operational through the year. Average production for FY 2025-26 was 1,103 BOEPD.

c. Gas is sold partly under a contract priced at 12.05% of dated Brent, with the balance sold on the Indian Gas Exchange (IGX) at higher realisations.

d. Development programme: Workover of the two existing subsea wells is targeted for Q3 FY 2026-27, following which drilling of three new wells is planned to commence in Q4 FY 2026-27. Estimated capital expenditure in FY 2026-27 is USD 30.5 million.

e. Production enhancement: Various opportunities to debottleneck the MOPU process and create local storage in the MOPU for short term disruptions in SBM operations is in process.

f. Floating storage and offtake: The chafe chain and hawser on the FSO were replaced and production recommenced on 31 July 2025 following a 44-day shutdown. An in-situ diving inspection of hull, machinery and propellers was carried out.

iii. PY-1:

The only offshore production platform in the Cauvery offshore area, producing from a fractured granitic basement reservoir - a reservoir type unique among Indias offshore producing assets.

a. Only one well is on production. Average Production: Gas - 3.034 MMSCM Condensate - 2254.812 BBL

b. The Production Sharing Contract stands extended to 5 October 2030.

c. Seismic reprocessing and an in-house study were completed, on the basis of which three prospective well locations were released. An independent review of the geological model by fractured-basement specialists (PVEP-ITC, Vietnam) confirmed the Companys G&G findings and recommended two directional wells targeting the fractured basement. Drilling preparation is under way, with drilling expected to commence by Q2FY 2027-28.

d. One well is on production. A coiled tubing intervention is planned on a second well, with incremental production targeted in H1 FY 2026-27.

e. Engineering work for a booster compressor to mitigate the effect of downstream pipeline back pressure on offtake is in progress with installation targeted for October / November 2026.

iv. Kharsang:

a. Average Production: Gas - 0.49 mmscfd & Oil - 650 bopd

b. Drilled of 09 development wells was successfully completed. KSG#71 to KSG# 75 (05 wells) tested and hooked up for oil production. Remaining 04 newly drilled wells yet to tested and completed.

c. Oil production increased from 340 bopd to pick production of 940 bopd and average oil production was 650 bopd.

d. Carried out workover jobs in 39 wells out of 26 planned for Production Maintenance with a production gain of 63 bopd .

e. Carried out various project like repairing and refurbishing of badminton club, construction of toilet at GB Hall & kharsang lower market, hanararium for badminton coach, setting up coaching classes at Kharsang, Road from village Longtom II to agrifield Longtom II, boundary wall with gate at Govt Primary school Injan and primary school Longtom I, financial aid to conduct super football league 2025 under CSR / CER.

v. Cambay Blocks - Asjol, Palej & North Balol: a. Average Production: Gas - 0.384 mmscfd & Oil - 72 bopd. b. EC obtained for drilling two wells each in North Balol and Asjol. c. Drilling of two wells in North Balol Block has been completed

d. In the North Balol Block, the newly drilled well was tested and confirmed to have significant crude oil reservoir potential.

e. North Balol Well NB#1, thermal stimulation and pneumatic compressor jobs were successfully carried out, resulting in a total gas production of 5.89 MMSCF.

f. Bottom-hole survey and multi-beam study were successfully carried out for the wells in the North Balol Block.

g. Ring-Fenced PSC for Palej has been submitted to MoP&NG for approval.

vi. Block AA-ONHP-2017/19:

a. Paid extension for Initial Exploration Phase (IEP) has been obtained. Validity until Dec 2027

b. Petroleum Exploration License (PEL) will be converted to Petroleum Lease (PL) granting flexibility in operation & production (as per New Rules 2025) and is under progress.

c. Identified land for the drill site for the exploration well (along with access route), acquisition to be initiated soon.

d. Consolidated Consent Authorization (CCA) to be initiated after acquiring the land for drill site. e. Well prognosis and Geo-Technical Order (GTO) completed for drilling exploration well. f. Drilling Rigs and tangibles scouting are ongoing. g. Plan to drill first Exploration Well in the block by Q4 FY 2026-27 / Q1 FY 2027-28.

vii. Umatara:

a. First Development well UTR-IOCL-1-ST was drilled and completed in Jan 2026. Due to downhole complications, well was sidetracked as UTR-IOCL-1-ST. The final drilled depth is 4,500m MD. This well encountered hydrocarbon in Tipam & Barail Formation.

b. Perforation was done in Baral Formation and suspended pending activation job. The Second Development well SRJ-IOCL-1 is drilled up to 4,400m MD, encountering hydrocarbon in Barail formation. However, due to downhole completion during logging, it was sidetracked.

c. Application process for paid extension under MoPNG / DGH policy for a quarter to complete both the wells and put on production is in progress.

d. After completion of 2nd development well, well testing, activation and EPS will be carried out in both the well by December 2026.

Key Performance Indicators related to HSE:

KPIs statistics	FY 2025-26	FY 2024-25
Fatalities Accident Rate (FAR)	0.00	0.00
Lost Time Injury Rate (LTIR)	0.00	0.01
LTI Severity Rating	0.00	0.00
No. of LTIs	0	1
Days since last LTI	488	123
Oil Spill Incidents	0.00	0.00

6. RESERVES

As of March 31, 2026, our in-house estimates of proved and probable table (P+P) reserves, on a working interest basis, stand at 62.32 MMBOE.

7. FINANCIAL PERFORMANCE

Your Company achieved a consolidated turnover of $ 26,315.45 lakhs in the financial year 2025-26. The net profit after tax was $ 6,274.53 lakhs. On a standalone basis, revenue for the current year has decreased to

$ 24,986.28 lakhs from $ 30,606.90 lakhs during the previous year, mainly due to oil in stock in Block B-80.

The average price realised on sale of crude oil for financial year 2025-26 is US$ 66.06 / bbl and for gas is US$ 8.08 per mmbtu, against US$ 75.97 /bbl for crude oil and US$ 9.80 per mmbtu for gas during the previous year. The Companys production on working interest basis during the year is 849930 boe (2,329 boepd) and for the previous year was 10,78,687 boe (2,955 boepd). The decrease is mainly due to HPCL sale reversal. Other income for the current year stood at $ 2,475.89 lakhs as against $ 7,891.10 lakhs in the previous year, which includes interest income (Refer Note no. 28 of Standalone Financial Statements) and income from financial investments

7.1 Operating Costs

During the year, the cost towards production expenses decreased to $ 22.925.33 lakhs compared to $ 26,327.94 lakhs in the previous year. This decrease is due to reduction in plant hire charges. Other expenses have increased to $ 2,617.52 lakhs from $ 1,043.52 lakhs in the previous year. This is mainly on account of bad debts written off & increased legal expenses & rates & taxes.

7.2 Finance Cost

The Company incurred finance costs of $ 331.80 lakhs during financial year 2025-26, in addition to the finance cost on unwinding of decommissioning liability of $ 1,137.62 lakhs, compared to $ 597.88 lakhs and $ 1,073.81 lakhs respectively in the previous year. This decrease is on account of repayment of loans during the year.

7.3 Net Profit / Loss

On a standalone basis, the Profit-After-Tax is $ 7,709.19 lakhs as against $ 14,747.29 lakhs in the previous year. The decrease in profits is mainly due to HPCL sale reversal. On a consolidated basis, the Profit-After-Tax is $ 6.274.53 lakhs as against $ 14,720.77 lakhs in the previous year. The decrease is mainly on account of HPCL sale reversal & low production B80.

7.4 Cash Flow

The Operating profit before working capital changes is $ 14,187.64 lakhs in the current financial year compared to $ 11,619.32 lakhs in the previous year. The effective cash and cash equivalents of the Company at the end of the financial year is $ 1,457.42 lakhs, as against $ 763.65 lakhs in the previous year. The Company is having a Bank deposit of $ 1,420.33 lakhs (Refer Note no. 15 of Standalone financial statements).

7.5 Ratio Analysis:

The key financial ratios on a standalone basis are as follows:

Particulars	FY 25-26	FY 24-25
Trade Receivable Turnover Ratio	2.46 times	2.63 times
Inventory Turnover Ratio	1.04 times	2.57 times
Current Ratio	1.24 times	2.35 times
Debt-Equity Ratio	0.02 times	0.04 times
Operating Profit margin	37%	34%
Return on Net Worth	9.02%	13%

7.6 Companies (Indian Accounting Standards), Rules 2015

In accordance with the Companies (Indian Accounting Standards), Rules 2015 of the Companies Act, 2013, the Company has followed the Indian Accounting Standards (Ind AS) for preparation of its financial statements.

7.7 Critical Accounting Policies and Estimates

The preparation of the financial statements requires the Companys management to make several estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the period. When alternatives exist among various accounting methods, the choice of the adopted accounting method can have a significant impact on reported amounts. The following is a discussion of the accounting policies, estimates and judgments which the management believes are most significant in the preparation of the financial statements.

7.8 Oil and Gas Properties

The Company accounts for crude oil and natural gas properties under the Successful Efforts Method (SEM). Under SEM, costs incurred to

(i) acquire mineral interests in crude oil and natural gas properties,

(ii) drill and equip exploratory wells that find commercial quantities of proved reserves, and

(iii) drill and equip development wells, are capitalised. Proved property acquisition costs are amortised by the Unit of Production Method on a field-by-field basis, based on total proved developed crude oil and natural gas reserves as approved by the Management Committees of the respective Unincorporated Joint Ventures. Costs associated with drilling successful exploratory wells and with drilling development wells are amortised by the Unit of Production Method on a field-by-field basis; these costs, together with support equipment and facilities, are amortised on proved developed reserves. Survey and seismic acquisition costs are expensed.

Besides being the recommended method under the Guidance Note issued by the Institute of Chartered Accountants of India, the Company believes SEM provides the more faithful representation of operational results for a company of its size.

7.9 Site Restoration Liability

The Companys Site Restoration Liability consists of estimated costs of dismantling and abandoning producing well sites and facilities, site reclamation and similar activities associated with our oil and gas properties. The recognition of Site Restoration Liability requires that the management makes estimates, assumptions, and judgments regarding such factors as estimated probabilities, amounts and timings of obligation. The corresponding amount is added to the cost of the producing property and is expensed in proportion to the production for the year and the remaining estimated proved reserves of hydrocarbons based on latest technical assessment available with the Company. Any change in the value of the estimated liability is dealt with prospectively and reflected as an adjustment to the provision and the corresponding producing property.

7.10 Liquidity

As at the year-end, HOEC had cash and cash equivalents amounting to $ 1,457.42 lakhs. The available cash position reflects the Companys adequate liquidity and provides sufficient financial flexibility to meet its ongoing operational requirements, working capital needs and other short-term obligations. The Company continues to monitor its cash flows and liquidity position closely to ensure that adequate funds are available for its business operations and commitments.

7.11 Capital Requirements

Your Company has adequate working capital and discretionary capital required for the development of existing oil and gas blocks. The capital required for exploration activities would be met by the internal accruals of the Company. Additionally, the Company is actively seeking inorganic growth opportunities, which will be risk-weighted before making any capital commitments, and the Company may raise additional capital and debt as and when necessary.

7.12 Internal Control Systems and their Adequacy

The Company maintains a comprehensive system of internal control. This comprises the management systems, organizational structures, processes, and standards that are implemented to conduct our business operations. The Company has a proper and adequate system of internal control commensurate with the size and nature of business. These systems provide reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the Company, and ensuring compliance with corporate policies.

The Company also conducts periodic evaluations, mainly through its Internal Audit and Statutory Audit teams to determine the adequacy of its internal controls system.

The Company has appointed M/s Guru & Ram LLP, Chartered Accountants, an independent firm with expertise in internal audit and assurance, which inter-alia ensures the adequacy of the procedures of recognizing and managing risks applied by the Management, the effectiveness of the internal controls system and the quality and reliability of the information given to the Management with regards to the System of Internal Controls. The adequacy of the internal controls system is monitored by the Audit Committee, through reports submitted to it. Reports by the Management and the Internal Auditors include assessments of the major risks and the effectiveness of the internal controls system in addressing them.

Systemic weaknesses identified, if any, are incorporated in the reports, including the impact they had or could have had, as well as the actions of Management to correct them. No significant control failures were reported during the year.

As part of the Companys internal control process, any transactions with related parties are approved by the Audit Committee and Board of Directors and appropriately disclosed in the financial statements.

The Companys Information Technology (IT) Department provides the required tools and solutions to all employees to manage the operations with support of IT systems and applications efficiently using internal and external resources.

The Company has internal controls regarding fixed assets, inventories, cash and bank checks, etc., such as physical security, inventory counts and reconciliations of physically counted quantities with the recorded ones. Further, the Company has a schedule of quarterly inventory verification to confirm inventory levels as per accounting records. The Company also has a list of delegated authorities and responsibilities, which depicts assigned authorities to various Company executives, to conduct certain transactions or actions (e.g., payments, receipts, contracts, etc.).

8. RISK MANAGEMENT

As an upstream oil and gas company operating across both onshore and offshore contract areas, we are inherently exposed to wide spectrum of risks at both surface and subsurface levels. In addition to these operational challenges, the Company faces various external factors, including fluctuations in foreign exchange rates, insurance-related risks, complexities associated with joint ventures, competitive pressures, credit risks, transportation, infrastructure challenges, general safety concerns, and legal & regulatory hurdles.

These risks and uncertainties, many of which lie beyond our control, have the potential to impact our business operations, financial stability, and overall reputation. To address these challenges proactively, we are committed to the continuous identification and monitoring of key risks and uncertainties, with the aim of minimizing their impact on our operations.

Our Senior Management team, the Risk Management Committee, and the Board of Directors conduct periodic reviews and deliberations of the Companys risk profile and mitigation strategies. This collaborative approach ensures that we operate in a manner that effectively mitigates potential risks.

8.1 Risk and Response

The key risks which may significantly impact our operational and financial stability and profitability, and the corresponding mitigation strategies are outlined below:

Strategic and Operational Risks:

Risk	Mitigation
Business Model	Our Risk Management Committee along with the Management team and Board Members regularly assess the Companys business model to make necessary adjustments in response to changing economic conditions.
Portfolio Mix	In order to mitigate potential risks, our Company strategically manages a diverse portfolio of oil and gas assets. Maintaining a well-balanced portfolio mix spread across various sedimentary basins and at different stages of the project life cycle, helps us minimize our exposure to geographical, geological, and commodity market risks.
Risk	Mitigation
Exploration, Geological and Reservoir Risk	Exploration is a high-risk endeavor, as only a small percentage of exploration wells lead to commercial discoveries. At HOEC, we follow a systematic geo-scientific workflow under internal technical guidance, which is then peer-reviewed by third- party experts. This approach helps us develop a clearer understanding of the assets potential and make informed decisions moving forward, thereby minimizing geological and reservoir risks while maximizing opportunities for success.
Reserves Estimation and Recovery Risk	The process of estimating underground accumulations of crude oil and natural gas involves a high level of technical judgment and relies heavily on the quality of geological and reservoir data. Due to the inherent uncertainties in this process, actual recoverable reserves often differ significantly from initial estimates. Reservoir engineering plays a key role in navigating these uncertainties and ensuring accurate estimations. The Company carefully considers these factors when making decisions regarding resource development and production.
Community Relationship	We have implemented a robust local content policy to ensure that we are actively engaging with our stakeholders. We prioritize hiring local personnel whenever possible and provide support for their skill development. This commitment to the community not only benefits our operations but also fosters a positive and collaborative environment for all involved.

Economic / Financial Risks:

Risk	Mitigation
Commodity Price Volatility	HOEC does not currently use any hedging instruments to manage our oil and gas revenue. By remaining vigilant and proactive in our cost optimization efforts, we aim to mitigate the potential negative impacts of commodity price fluctuations on our Companys financial performance. Additionally, the impact of a declining oil/gas price is partially offset by the production sharing formula in the Production Sharing Contracts (PSCs), which results in an increased share of gross production for the company in a falling oil price scenario due to the cost recovery mechanism in place.
Foreign Exchange Exposure and Interest Rate Risk	HOEC benefits from a natural hedge to a certain extent. This is because a large portion of its receivables and expenditures are denominated in United States Dollars (US$). This helps to reduce the Companys vulnerability to fluctuations in foreign exchange rates and interest rates.
Cost Inflation impacting both Goods and Services	HOEC implements structured planning processes that provide ample time for procuring services and tracking critical path activities. The Company also maintains historical procurement cost data and consistently monitors market changes to stay ahead of potential cost increases.
Health, Safety and Environmental Risks:
Risk	Mitigation
Health, Safety and Environment	Prior to the commissioning of production installations, HOEC conducts HAZOP (Hazard and Operability Study), HAZID (Hazard Identification), SIMOPS(Simultaneous Operations), and Safety Integrity Level (SIL) studies to identify and mitigate process hazards related to safety and environmental impact. The Company maintains a risk register and an Emergency Response Plan for all operating installations.
Risk	Mitigation
	HOEC has established a robust policy on Health, Safety, and Environment, outlining the organizations commitment and structured approach to managing workplace safety, health, and environmental responsibilities. The Company adheres to the guidelines set forth by regulatory authorities at both the Central and State levels, and conducts compliance audits regularly.
	Operations are commenced only after Environmental Impact Assessments are prepared and approvals from authorities are obtained. A well-defined and integrated HSE Management System is consistently implemented across all HOEC installations to ensure operational excellence and risk control.To effectively manage potential emergencies, HOEC has developed a comprehensive Crisis Management Plan (CMP) and established a dedicated Crisis Management Team (CMT). These frameworks are designed to ensure preparedness, coordinated response, and safe continuity of operations, particularly in challenging offshore environments.
Natural catastrophes	HOEC diligently conducts pre-monsoon preparations and consistently maintains its facilities to withstand normal weather variations. Furthermore, the Company conducts regular mock drills and has a strong crisis management system in place to effectively respond to any emergencies.
	HOEC also ensures that appropriate insurance coverage is in place to protect its properties.
Industrial Accidents, Oil spill	Increased focus on health and safety measures, inspections and process assessments, communication assessments and proper emergency response preparation are the key components of mitigating the impact of industrial accidents and oil spills.

Compliance, Ethical and Governance Risks:

Risk	Mitigation
Legal, Regulatory and Litigation	HOECs operations are governed by various laws and regulations. Any changes in regulations could potentially affect the Companys overall value. To mitigate these risks, we conduct proactive assessments and ensure strict compliance with all applicable laws. The Company is currently involved in several ongoing litigations. Adverse rulings in these cases could significantly impact the Companys financial standing.
Ethical Conduct	At HOEC, we place a high value on ethical conduct and strive to maintain transparent and responsible relationships with all our stakeholders. To ensure accountability and integrity within our organization, we have implemented a robust Whistleblower Policy. This policy allows employees to report any unethical behavior directly to the Chairman of the Board, providing a safe and confidential channel for addressing concerns. By fostering a culture of transparency and accountability, we are committed to upholding the highest ethical standards in all aspects of our operations.
Corporate Governance	HOEC acknowledges the critical importance of upholding strong corporate governance procedures and processes. The Company has implemented a robust governance framework to ensure compliance with regulatory guidelines and best practices. The Board regularly reviews and monitors compliance with applicable regulatory guidelines.

8.2 Insurance Coverage

Our business operates in an environment characterized by diverse risks. To safeguard against potential financial losses arising from operational hazards such as physical damage, seepage and pollution, employer liability, third-party liability, goods in transit, and comprehensive general liability, we maintain insurance coverage for both our operated and non-operated assets.

This coverage is subject to standard deductibles and recovery limits. We ensure that our insurance levels are not only adequate but also aligned with industry standards. To achieve this, we conduct regular assessments of our risk exposure and evaluate the cost and availability of insurance options. Based on these evaluations, we adjust our insurance program as necessary to provide optimal protection for our business. Additionally, the Company obtains Directors and Officers Liability Insurance to cover expenses related to legal representation.

Overall, HOEC takes a proactive approach to managing the risks that impact its operational and financial performance. We have established comprehensive strategies to mitigate these risks and effectively navigate potential challenges.

9. TALENT DEVELOPMENT

At HOEC, our primary business objective is to drive transformation through the strategic integration of talent and technology. We are focused on cultivating a pool of exceptionally skilled individuals in our core areas of expertise: Exploration, Drilling, and Development. To enhance our operational efficiency, we have established partnerships with reputed oilfield service providers that possess the scale, resources, and systems necessary to support our initiatives.

Our Company offers a robust platform for talented individuals to nurture their ideas, collaborate effectively, and deliver value that resonates with all stakeholders. Our commitment to creating sustainable stakeholder value is linked to our ability to attract, motivate, and retain top-tier talent. To this end, we continuously strengthen our technical talent pool by engaging experienced professionals on both full-time and part-time basis.

We are dedicated to fostering a supportive and dynamic work environment where employee engagement thrives. We value work-life balance and actively embrace gender diversity within our workforce. Our unwavering commitment to developing and deploying individuals with the requisite skills, capabilities, and determination is essential in achieving our business objectives. Advancement opportunities are based on performance and aptitude, ensuring a fair and equitable playing field for all employees.

10. BUSINESS OUTLOOK

HOEC is entering a period in which the principal opportunity is to translate the depth of its portfolio into materially higher production and earnings. Over the past several years, the Company has assembled a combination of producing fields, discovered hydrocarbons and exploration upside across several of Indias established petroleum basins. The focus now shifts decisively towards delivery at the wellhead, faster development cycles and stronger cash generation.

This opportunity is reinforced by Indias energy fundamentals. Oil and gas demand continues to grow while domestic production meets only a part of the countrys requirements. Reducing import dependence therefore remains an important national priority. Recent policy initiatives are also increasingly directed towards improving the ease of exploration and development, encouraging investment and finding commercial solutions for discoveries that have remained undeveloped. For companies such as HOEC, this creates a favourable backdrop for investment in domestic production.

a. Building Scale in the Western Offshore

HOEC sees the Western Offshore becoming a larger contributor to the Companys production portfolio. At B-80, the emphasis is moving beyond maintaining current operations towards improving recovery from a reservoir that still contains considerable remaining potential. Well interventions, further drilling and improvements to the production and evacuation arrangement are being evaluated as part of a broader programme to increase field performance and operating resilience.

The addition of B-15 provides a second development platform for growth in the region. Rather than approaching B-15 as an isolated project, HOEC intends to examine how the development can benefit from its existing offshore capabilities and from infrastructure available in the wider Mumbai Offshore area. Development concepts will therefore be assessed not only on ultimate recovery but also on time to first production, capital intensity and opportunities to avoid unnecessary duplication of facilities.

Over time, this approach can allow HOEC to establish a more integrated Western Offshore business with shared marine logistics, operating resources and infrastructure.

b. Rejuvenating PY-1

PY-1 offers a different type of opportunity. Much of the infrastructure required to produce and deliver gas from the field already exists. The economic proposition is therefore primarily about re-establishing reservoir deliverability and making better use of installed infrastructure.

Additional wells and intervention in the existing well stock are being progressed with this objective. If successful, incremental gas can be brought through an established offshore-to-onshore production system, potentially providing one of the shorter pathways from investment to additional revenue within HOECs portfolio.

The Company recognises the importance of maintaining constructive engagement with all stakeholders around PY-1. Future activity will continue to be undertaken with appropriate environmental safeguards and in accordance with applicable statutory and regulatory approvals.

c. Creating a Larger North-East Business

The North-East represents perhaps the most significant opportunity to change the scale of HOEC over the medium term.

Dirok provides an operating foundation, infrastructure and an established gas business. The next stage is to extract greater value from the field through additional wells and improved reservoir management while progressively opening up the larger resource opportunity surrounding it.

In particular, North Dirok and Block-19 provide material exploration and appraisal upside. Successful appraisal of these resources could create the basis for a substantially larger gas development centred around the existing Dirok operating footprint.

Kharsang provides another route to near-term production growth. Here, drilling and evacuation need to progress together. Increasing the number of producing wells without adequate transportation capacity would simply move the constraint elsewhere in the system. HOEC is therefore working towards a coordinated programme of new wells and improved evacuation capability.

Umatara and other opportunities within the North-East portfolio provide further optionality. Taken together, these assets give HOEC the possibility of creating a regional hydrocarbon business of significantly greater scale, supported progressively by common processing, transportation and monetisation solutions.

d. Extracting More From Existing Assets

The Companys mature Gujarat assets remain relevant to this strategy. Their value lies less in large greenfield developments and more in disciplined reservoir and production management. Workovers, selective infill drilling, artificial-lift optimisation and other recovery-enhancement measures can extend field life and improve recovery. Because existing facilities can often accommodate incremental volumes, successful interventions can deliver attractive economics even where the absolute production increase from an individual well is relatively modest.

This philosophy-getting more from infrastructure and reservoirs already paid for before committing to new facilities-will increasingly influence capital allocation across HOEC.

e. Moving From Field-by-Field Development to Infrastructure-Led Development

One of the more important changes taking place in the Indian upstream sector is the recognition that every discovery cannot economically support its own production infrastructure. HOEC believes the next generation of offshore development in India will increasingly require aggregation-multiple discoveries feeding common processing, transportation, compression, storage or evacuation systems.

f. An Organisation Built for Execution

The next phase of HOECs growth will require the organisation to evolve alongside its asset base. The Company is strengthening capability in subsurface, drilling, projects, operations, commercial and contracting functions. Particular emphasis is being placed on attracting and retaining experienced professionals while developing younger technical talent capable of supporting a larger operating portfolio.

Technology and digitalisation will increasingly be embedded into day-to-day operations rather than treated as separate initiatives. Better reservoir surveillance, integrated production data, predictive maintenance, digital project controls and faster technical decision-making can collectively improve recovery, uptime and capital efficiency.

As the operating footprint expands, safety, process safety and asset integrity will remain fundamental to every investment and operating decision. Production growth will not be pursued at the expense of safe and responsible operations.

g. Capital Must Follow the Barrels

HOECs investment philosophy will remain disciplined. Exercising prudence in raising funds and achieving financial close on its projects will remain key to funding growth. Projects will compete for capital based on their ability to create value rather than simply on the size of the underlying resource. Preference will be given to investments that can access existing infrastructure, shorten the period between capital deployment and production and generate competitive returns across commodity-price cycles.

Larger developments will be staged wherever practical. Partnerships, project financing and shared infrastructure will also be considered where they can reduce capital concentration and improve returns without compromising operating control or strategic value.

This discipline is particularly important as HOEC simultaneously advances opportunities across offshore India, the Cauvery Basin, the North-East and Gujarat.

h. The Road Ahead

HOEC, therefore, enters its next phase from a position that is different from the past. The central question is no longer simply how much resource exists within the portfolio; it is how quickly and efficiently that resource can be converted into producing barrels and molecules.

The team is ready and able to cease this opportunity and create value for the company and its shareholders!