1.  We have audited the attached Balance Sheet of OIL AND NATURAL GAS
 CORPORATION LIMITED (the Company) as at 31st March, 2011, the Profit
 and Loss Account and the Cash Flow Statement for the year ended on that
 date, annexed thereto in which are incorporated the Company’s share in
 the total value of assets, liabilities, expenditure and income of 135
 blocks under New Exploration Licensing Policy (NELPs)/ Joint Venture
 (JVs) accounts for exploration and production out of which 12 NELPs
 /JVs accounts have been certified by other firms of Chartered
 Accountants and 7 NELP/JVs are as certified by the management in
 respect of NELPs/ JVs operated by other operators (Refer Note 20.3.1
 and 20.3.2 of Schedule 27 of the financial statements).  These
 financial statements are the responsibility of the Company’s
 management. Our responsibility is to express an opinion on these
 financial statements based on our audit.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement.  An audit
 includes examining, on a test basis, evidence supporting the amount and
 disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by the management, as well as evaluating the overall financial
 statement presentation.  We believe that our audit provides a
 reasonable basis for our opinion.
 
 3.  We have placed reliance on technical/ commercial evaluation by the
 management in respect of categorization of wells as exploratory,
 development and producing, allocation of cost incurred on them,
 depletion of producing properties / impairment on the basis of the
 proved developed hydrocarbon reserves, liability for abandonment costs,
 liability under NELP and nominated blocks for under performance against
 agreed Minimum Work Programme and allocation of depreciation on process
 platforms to transportation and facilities.
 
 4.  As required by the Companies (Auditor’s Report) Order, 2003 (as
 amended) issued by the Central Government of India in terms of Section
 227(4A) of the Companies Act, 1956, we enclose in the Annexure (read
 with paragraph 1 above) a statement on the matters specified in
 paragraph 4 and 5 of the said Order.
 
 5.  Further to our comments referred to in paragraph 4 above we report
 as follows:
 
 5.1. We have obtained all the information and explanations which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit;
 
 5.2. In our opinion, proper books of account as required by law have
 been kept by the Company so far as appears from our examination of
 those books;
 
 5.3. The Balance Sheet, the Profit and Loss Account and the Cash Flow
 Statement dealt with by this report are in agreement with the books of
 account;
 
 5.4. In our opinion, the Balance Sheet, the Profit and Loss Account and
 the Cash Flow Statement comply with the accounting standards referred
 to in sub-section (3C) of Section 211 of the Companies Act, 1956.
 
 5.5. Disclosure in terms of clause (g) of sub-section (1) of section
 274 of the Companies Act, 1956 is not required as per notification
 number GSR 829(E) dated October 21, 2003 issued by the Department of
 Company Affairs.
 
 5.6. Without qualifying our opinion we invite attention to Note no. 2.1
 of Schedule 27 of financial statement in respect of recognition of
 sales revenue of crude oil and natural gas, in our opinion and to the
 best of our information and according to the explanations given to us,
 the said accounts read with notes to account, give the information
 required by the Companies Act, 1956 in the manner so required and give
 a true and fair view in conformity with the accounting principles
 generally accepted in India:
 
 a) In the case of the Balance Sheet, of the state of affairs of the
 Company as at 31st March, 2011;
 
 b) In the case of the Profit & Loss Account, of the profit of the
 Company for the year ended on that date; and
 
 c) In the case of the Cash Flow Statement of the cash flows of the
 Company for the year ended on that date.
 
 Annexure to The Audditors '' Report (Referred to in paragraph 4 of
 our report of even date)
 
 1.  a) The Company has generally maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 b) As per information and explanations given to us, the fixed assets
 having substantial value, other than those which are underground/
 submerged/ under joint venture/assets held by employees have been
 physically verified by the management in phased manner, which in our
 opinion is reasonable, having regard to the size of the Company and
 nature of its business. The reconciliation of physically verified
 assets with the book records is in progress. Discrepancies noticed on
 physical verification and consequential adjustments are carried out on
 completion of reconciliation. According to the information and
 explanations given by the management and in our opinion, the same is
 not material.
 
 c) The Company has not disposed off a substantial part of fixed assets
 during the year.
 
 2.  a) The inventory has been physically verified in a phased manner
 (excluding inventory lying with third parties, at some of the site-
 locations, inventory with joint ventures and material in transit)
 during the year by the management. In our opinion, the frequency of
 verification is reasonable.
 
 b) In our opinion, the procedures of physical verification of inventory
 followed by the management were generally reasonable and adequate in
 relation to the size of the Company and nature of its business.
 
 c) The Company has generally maintained proper records of inventory
 except for recording of consumption at a few of its site- locations. In
 our opinion the discrepancies noticed on physical verification between
 the physical stock and book records were not material having regard to
 the size of the Company and nature of its business. In case where
 discrepancies noticed on physical verification have been identified
 with inventory records, necessary adjustments have been carried out in
 the books. In respect of cases where the reconciliation is not
 complete, the management has stated that the same would be adjusted in
 due course.
 
 3.  a) The Company has granted secured loans to 3 parties covered in
 the register maintained under section 301 of the Companies Act, 1956.
 The amount outstanding at the year end is Rs. 0.26 million and the
 maximum amount outstanding at any time during the year was Rs. 0.56
 million.
 
 b) The rate of interest and other terms and conditions of the loans
 granted are not prima facie prejudicial to the interest of the Company.
 
 c) The payment of principal amount and interest are regular.
 
 d) There is no overdue amount in respect of loans granted to the
 parties listed in the register maintained under Section 301 of the
 Companies Act, 1956.
 
 e) The Company has not taken any loans, secured or unsecured, from
 companies, firms or other parties covered in the register maintained
 under section 301 of the Companies Act, 1956. And consequently, the
 requirement of clause (iii) (f) and (iii) (g) of paragraph 4 of the
 Companies (AuditorRs.s Report) Order, 2003 are not applicable.
 
 4.  In our opinion, and according to the information and explanations
 given to us, the internal control procedures are generally adequate and
 commensurate with the size of the Company and the nature of its
 business with regard to purchases of inventory, fixed assets and sale
 of goods and services. During the course of our audit we have not
 observed any continuing failure to correct major weaknesses in internal
 controls.
 
 5.  a) In our opinion and according to the information and explanations
 given to us, there is no contract or arrangement that needs to be
 entered in the register required to be maintained in pursuance of
 section 301 of the Companies Act, 1956.
 
 b) Accordingly, the provisions of clause 4 (v) (b) of the Companies
 (Auditor’s Report) Order, 2003 is not applicable to the Company.
 
 6.  The Company has not accepted any deposits from the public.
 
 7.  In our opinion, the Company has an internal audit system
 commensurate with the size and nature of its business.
 
 8.  We have broadly reviewed the books of account relating to
 materials, labour and other items of costs maintained by the Company
 pursuant to the Rule made by the Central Government for the maintenance
 of cost records under section 209 (1)(d) of the Companies Act, 1956 and
 we are of the opinion that prima facie the prescribed accounts and
 records have been made and maintained.
 
 9.  a) The Company is generally regular in depositing with appropriate
 authorities undisputed statutory dues including Provident Fund,
 Investor Education and Protection Fund, Employees’ State Insurance,
 Income Tax, Sales Tax, Service Tax, Wealth Tax, Custom Duty, Excise
 Duty, Cess and other statutory dues applicable to it. There are no such
 material outstanding statutory dues accrued in accounts as of the last
 date of the financial year concerned for a period of more than six
 months from the date they became payable.
 
 Further, since the Central Government has till date not prescribed the
 amount of cess payable under section 441A of the Companies Act, 1956,
 we are not in position to comment upon regularity or otherwise of the
 Company in depositing the same.
 
 b) According to the information and explanations given to us, the
 disputed statutory dues are as under:
 
 Nature of the      Nature of    Amount    Period 
                                           to which     Forum where
 Statute            the dues     (Rs. In 
                                Million)   the amount
                                           relates      dispute is 
                                                        pending
                                           (financial 
                                           year)
 
 Income tax Act, 
 1961              Income Tax /  8,506.95  1991-2011    Revisionary 
                                                        Authority
 
                   Penalty /     1,873.46  2004-2011    Appellate 
                                                        Authority
 
                   Interest        147.61  1995-2011    High Court
 
                                   673.60  1984-2011    Supreme Court
 
                   Total        11,201.62
 
 Central Excise 
 Act 1944         Central Excise 
                  duty /           850.27  2002-2011    Commissioner
                                                        of Central
                  Service Tax /                         Excise, Customs 
                                                        & Service Tax
 
                  Interest /
                  Penalty          957.85  2005-2011    Central Board
                                                  of Excise & Customs
 
                                 1,882.69  2007-2011    Custom, Excise
                                                        and Service
                                                        Tax Appellate
                                                        Tribunal
 
                                 1,233.30  1984-2011    Supreme Court
 
                  Total          4,924.11
 
 The Customs Act, 
 1962            Customs Duty    4,895.28  1995-2011    Asst. Commissi
                                                        -oner of
                                                        Central Excise,
                 Penalty / 
                 Interest                               Customs & 
                                                        Service Tax
 
                                    10.00  2007-2011    Custom Excise
                                                        and Service
                                                        Tax Appellate
                                                        Tribunal
 
                  Total          4,905.28
 
 Oilfields 
 (Regulation &    Royalty /     19,484.60  1992-2011    Dept. of
                                                        Geology and
 Development 
 Act, 1948) /     Surface rent /                        Mining. AP
                                                        High Court
 AP Mines and 
 Geology Act      Interest / 
                  Penalty
 
 AP Mineral 
 Bearing Lands    Cess           1,470.22  2005-2011    Dept. of
                                                        Geology and
 (Infrastructure)
  Cell                                                  Mining. AP
                                                        High Court
 
 Oil Industries   Cess / Interest    6.57  2005-2011    Commissioner
                                                        of Central
                                                        Excise,
 (Development) 
 Act,1974                                               Customs &
                                                        Service Tax
 
 Central Sales 
 Tax Act 1956    Sales tax /     2,959.04  2002-2011    Demand Notice
 and respective 
 States''         Turnover Tax/   1,900.52  2001-2011    Deputy 
                                                        Commissioner
 
 Sales Tax Act   Penalty / 
                 Interest        7,934.40  1999-2011    Joint Commiss
                                                   ioner CT - Appeals
 
                                19,359.75  1994-2011    Appellate
                                                        Tribunal
 
                                   270.75  1977-2011    High Court
 
                 Total          32,424.46
 
 Municipal 
 Corporation     Octroi Duty        66.89  1978-79 to 
                                           2010-11      Supreme Court
 of Mumbai Act
 (Octroi Rules,
 1956)
 
 Assam Specified 
 Land            Tax on Crude oil
                 and            2,526.40   2004-2011    Guwahati High
                                                        Court
 Taxation Act    Natural Gas
 
 Service Tax     Service Tax / 
                 Cess           1,197.33   2004-2011    Commissioner
                                                      of Central Excise,
                                                        Customs &
                                                        Service Tax
 
 10.  The Company does not have accumulated losses at the end of the
 current financial year and has not incurred cash losses either during
 the year or during the immediately preceding financial year.
 
 11.  The Company has not issued any debentures and has not defaulted in
 repayment of dues to financial institutions or banks.
 
 12.  In our opinion and according to the information and explanations
 given to us, the Company has not granted loans and advances on the
 basis of security by way of pledge of shares, debentures and other
 securities.
 
 13.  The Company is not a chit fund or a nidhi, mutual benefit fund/
 society. Accordingly, the provisions of clause (xiii) of paragraph 4 of
 the Companies (Auditor’s Report) Order, 2003 are not applicable to the
 Company
 
 14.  In our opinion and according to the information and explanations
 given to us, the Company is not dealing or trading in shares,
 securities, debentures and other investments.
 
 15.  In our opinion and according to the information and explanations
 given to us, the terms and conditions on which the Company has given
 guarantees for loans taken by others from banks or financial
 institutions are not prima facie prejudicial to the interest of the
 Company since these guarantees are given for the subsidiary/ company
 promoted by the Company.
 
 16.  In our opinion, the term loans have been applied for the purpose
 for which they were raised.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the balance sheet of the Company, we report
 that no funds raised on short terms basis have been used for long term
 investment.
 
 18.  The Company has not made any preferential allotment of shares
 during the year.
 
 19.  The Company has not issued any debentures.
 
 20.  The Company has not raised any money by way of public issue during
 the year.
 
 21.  According to the information and explanations given to us, there
 was a fraud on the Company by way of theft of pipelines reported during
 the year. The same is under investigation and the amount involved on
 account of theft has been ascertained by the Company atRs.119.44 million.
 Other than this there was no fraud on or by the Company noticed or
 reported during the year.
 
 
 For M/s Kalyaniwalla & Mistry 
 
 Chartered Accountants 
 
 Firm Reg No. 104607W
 
 (Ermin K. Irani)
 
 Partner (Mem. No. 035646)
 
 For M/s Arun K Agarwal & Associates 
 Chartered Accountants 
 Firm Reg No. 003917N
 
 (Vimal Kumar Jain)
 
 Partner (Mem. No. 086657)
 
 For M/s S Bhandari & Co.
 Chartered Accountants
 Firm Reg No.000560C
 
 (P.P.Pareek)
 
 Partner (Mem. No. 071213)
 
 For M/s Ray & Ray
 Chartered Accountants
 Firm Reg No.301072E
 
 (B.K. Ghosh)
 
 Partner (Mem. No. 051028)
 
 For M/s M Kuppuswamy P S G & Co.
 Chartered Accountants
 Firm Reg No.001616S
 
 (M.K. Krishnan)
 
 Partner (Mem. No.020116)
 
 New Delhi
 May 30th, 2011