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INTRODUCTION:

The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian econo-

my. It contributes about 45 per cent of the total energy consumption of the country, which is

the fifth largest energy consumer in the world.

Petroleum exports have also emerged as the single largest foreign exchange earner, accounting

for 11 per cent and 15 per cent of the total exports in 2005-06 and 2006-07, and growing at the

rate of 67 per cent and 58 per cent, respectively. The growth continues in the new fiscal with

the export of petroleum products touching US$ 19.7 billion during April-December 2007.

Simultaneously, domestic production of crude oil has been increasing steadily. While produc-

tion grew by 5.6 per cent in 2006-07 to 33.98 million tone (mt) from 32.19 mt in 2005-06, it

has increased to 34.11 mt during 2007-08.

Strategically located en route of Middle East crude for East Asian and Pacific-rim markets, In-

dia is emerging as the global hub for oil refining. It also enjoys competitive cost advantage,

with capital costs lower by as much as 25 to 50 per cent over other Asian countries.

Already, the fifth largest country in the world in terms of refining capacity (up from 19thin1995), with a share of 3 per cent of the global capacity, India is well placed to take advantage

of the expected global refining capacity deficit of around 112 mtpa by 2010 with its planned

expansion plans.

Indian companies plan to increase their refining capacity to 242 mtpa by 2011-12 from about

149 mtpa in 2007. This is well above the projected domestic demand of 196 million tones,

leaving the rest to be exported.

Oil & Gas Industry in India- HISTORY

The origin of oil & gas industry in India can be traced back to 1867 when oil was struck at

Makum near Margherita in Assam. At the time of Independence in 1947, the Oil & Gas indus-

try was controlled by international companies. India's domestic oil production was just 250,000

tones per annum and the entire production was from one state - Assam.

The foundation of the Oil & Gas Industry in India was laid by the Industrial Policy Resolution,

1954, when the government announced that petroleum would be the core sector industry. In

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pursuance of the Industrial Policy Resolution, 1954, Government-owned National Oil Compa-

nies ONGC (Oil & Natural Gas Commission), IOC (Indian Oil Corporation), and OIL (Oil In-

dia Ltd.) were formed. ONGC was formed as a Directorate in 1955, and became a Commission

in 1956. In 1958, Indian Refineries Ltd, a government company was set up. In 1959, for mar-

keting of petroleum products, the government set up another company called Indian Refineries

Ltd. In 1964, Indian Refineries Ltd was merged with Indian Oil Company Ltd. to form Indian

Oil Corporation Ltd.

During 1960s, a number of oil and gas-bearing structures were discovered by ONGC in Gujarat

and Assam. Discovery of oil in significant quantities in Bombay High in February, 1974

opened up new avenues of oil exploration in offshore areas. During 1970s and till mid 1980s

exploratory efforts by ONGC and OIL India yielded discoveries of oil and gas in a number of

structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins, Cachar (Assam), Nagaland, and

Tripura. In 1984-85, India achieved a self-sufficiency level of 70% in petroleum products.

In 1984, Gas Authority of India Ltd. (GAIL) was set up to look after transportation, processing

and marketing of natural gas and natural gas liquids. GAIL has been instrumental in the laying

of a 1700 km-long gas pipeline (HBJ pipeline) from Hazira in Gujarat to Jagdishpur in Uttar

Pradesh, passing through Rajasthan and Madhya Pradesh.

After Independence, India also made significant additions to its refining capacity. In the first

decade after independence, three coastal refineries were established by multinational oil com-

panies operating in India at that time. These included refineries by Burma Shell, and Esso Stan-

vac at Mumbai, and by Caltex at Visakhapatnam. Today, there are a total of 18 refineries in the

country comprising 17 in the Public Sector, one in the private sector. The 17 Public sector re-

fineries are located at Guwahati, Barauni, Koyali, Haldia, Mathura, Digboi, Panipat, Vishakap-

atnam, Chennai, Nagapatinam, Kochi, Bongaigaon, Numaligarh, Mangalore, Tatipaka, and two

refineries in Mumbai. The private sector refinery built by Reliance Petroleum Ltd is in Jamna-

gar. It is the biggest oil refinery in Asia.

By the end of 1980s, the petroleum sector was in the doldrums. Oil production had begun to de-

cline whereas there was a steady increase in consumption and domestic oil production was able

to meet only about 35% of the domestic requirement. The situation was further compounded by

the resource crunch in early 1990s. The Government had no money for the development of

some of the then newly discovered fields (Gandhar, Heera Phase-II and III, Neelam, Ravva,

Panna, Mukta, Tapti, Lakwa Phase-II, Geleki, Bombay High Final Development schemes etc.

This forced the Government to go for the petroleum sector reforms which had become in-

evitable if India had to attract funds and technology from abroad into the petroleum sector.

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The government in order to increase exploration activity, approved the New Exploration Li-

censing Policy (NELP) in March 1997 to ensure level playing field in the upstream sector be-

tween private and public sector companies in all fiscal, financial and contractual matters. This

ensured there was no mandatory state participation through ONGC/OIL nor there was any car-

ried interest of the government.

To meet its growing petroleum demand, India is investing heavily in oil fields abroad. India's

state-owned oil firms already have stakes in oil and gas fields in Russia, Sudan, Iraq, Libya,

Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. Oil and Gas Industry has a vital

role to play in India's energy security and if India has to sustain its high economic growth rate.

GLOBAL OIL PRICES:

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Energy consumption:

Primary Energy Consump-tion(MTOE)

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USA 2361

China 1863

Russia 692

Japan 518

India 404

Canada 322

Germany 311

France 255

Southkorea 234

UK 216

India: the 5th largest primary energy consumer

MAJOR PLAYERS

ONGC

It is a public sector petroleum company in India, contributing 77% of Indias crude oil

production.

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Revenue (2006): $ 10.5 billion

Employees: 41000

Recent news:

India's ONGC lags in global oil race. ONGC's setbacks in acquiring major oil resources

are made worse by the Indian government's order to help shoulder the burden of sub-

sidised fuels earlier this year, which pushed the country's biggest refiners into the red.

ONGC has gained junior shares in a host of projects, from Russia's Sakhalin-1, Iran's

Yadavaran Field and Sudanese properties abandoned by Western investors.

But it has yet to take a lead role that would give it more say and a bigger share of future

production. The race is gaining urgency both for India and ONGC as Chinese and other

Asian competitors snap up plum properties in the face of stagnating domestic produc-

tion.

The 50-year-old firm has acquired interests in 16 overseas projects since it started look-

ing abroad in 2001.

ONGC has not met the most basic measure of an explorer's success: finding more oil

than it pumps out. For three years in a row, the firm has failed to replace the reserves it

produced. Its last major oil discovery was in 1974.

Government officials say ONGC must boost its reserve-to-production ratio - the number

of years its reserves will last with the current level of output - by improving its drilling

technology and management practices. ONGC's ratio is 22 years. In some onland areas

the ratio is 57 years.

ONGC lost a major offshore platform at Bombay High, India's largest oilfield, reducing

the company's output by 123,000 barrels per day (bpd) after an errant rig crashed into the

facility during the monsoon, setting it on fire. It has since restored half that production.

Oil Minister Mr Aiyar has pushed for Indian and Chinese firms to cooperate not com-

pete, for overseas assets, but his efforts appear to have met with little interest in Beijing,

where the oil majors are gaining ground abroad, despite some hiccups.

IOCL

It is India's largest commercial enterprise, with a sales turnover of US $36.537 billion.

A wholly owned subsidiary company, Indian Oil Technologies Ltd. is the 19 th largest

petroleum company in the world

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IndianOil's world-class R&D Centre has developed over 2,100 formulations of SERVO

brand lubricants and greases for virtually all conceivable applications meeting stringent

international standards and bearing the stamp of approval of all major original equip-

ment manufacturers. IndianOil is also strengthening its existing overseas marketing ventures and simultane-

ously scouting new opportunities for marketing and export of petroleum products to

new energy markets in Asia and Africa.

BPCL

It is the 3rd largest oil company in India owned by the Government of India.

Revenue (2005): $17.613 billion

Employees: 12400

In 1976, the Burmah Shell Group of Companies was taken over by the Government of

India to form Bharat Refineries Limited.

In 1977, it was renamed Bharat Petroleum Corporation Limited.

It was the first refinery to process newly found indigenous crude (Bombay High), in the

country.

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Oil & Gas composition -India: 41%; global average 60%

HOW IS INDIA COMBATING PRICE HIKE?

The oil price is increased without which the Oil companies would suffer a revenue loss

of Rs 73,512 crore in 2006-07 fiscal.

Recent news like that of the failed exploration attempt in Rajasthan has caused a major

scare within Indian Government. The hope was that enough oil will be found so that the

artificial subsidy that the Government provides for domestic Petroleum products can be

maintained.

India's ONGC Videsh has teamed up with Spanish Oil Company Repsol YPF and Nor-

ways Norsk Hydro to explore six offshore blocks in Cuba.

India's ONGC Videsh Ltd and GAIL together hold 30 per cent stake in A-1 field operat-

ed by Daewoo of South Korea. Myanmar has agreed to sell gas from offshore A-1 field

to India through a land route bypassing Bangladesh.

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India is considering joining a Central Asian gas pipeline that originates from Turk-

menistan.

China National Petroleum Corporation

(CNPC) and India's Oil and Natural GasCorporation (ONGC), the two largest oil

companies in the respective countries,

jointly won a bid to acquire 37% of

Petro-Canada's stake in Syrian oilfields

for US$573 million. ONGC and CNPC,

both state-owned, will have equal stakes

in the al-Furat oil and gas fields.

India is seeking the revival of Iran-Pak-

istan-India pipeline deal which reached a

setback on July 16, 2006 when Iran de-

manded a price of 7.2 dollars per MBTU of gas against India's offer of 4.2 dollars per

MBTU.

Reliance Petroleum Ltd.( an 80-per cent subsidiary of Reliance Industries) is working

on a new 29-million-tonne (5,80,000 barrels-a-day) refinery which will be housed in a

special economic zone adjacent to the existing Jamnagar refinery of Reliance Industries

and supply exclusively to the export market, specifically the United States and Europe.

This project is designed to capitalize on the twin aspects of rising demand in the West

for high quality fuels that meet stringent emission standards and the widening price gulf

between heavy and light crude oils.

RECENT MOVES IN THE INDUSTRY:

The business of oil can be strange indeed. In the last week of July, ExxonMobil, the

biggest of Big Oil, reported bumper profits of $10.36 billion for the April-June quarter,
http://www.sourcewatch.org/index.php?title=China_National_Petroleum_Corporation&action=edithttp://www.sourcewatch.org/index.php?title=Oil_and_Natural_Gas_Corporation&action=edithttp://www.sourcewatch.org/index.php?title=Oil_and_Natural_Gas_Corporation&action=edithttp://www.sourcewatch.org/index.php?title=Syriahttp://www.sourcewatch.org/index.php?title=Syriahttp://www.sourcewatch.org/index.php?title=Syriahttp://www.sourcewatch.org/index.php?title=Oil_and_Natural_Gas_Corporation&action=edithttp://www.sourcewatch.org/index.php?title=Oil_and_Natural_Gas_Corporation&action=edithttp://www.sourcewatch.org/index.php?title=Syriahttp://www.sourcewatch.org/index.php?title=China_National_Petroleum_Corporation&action=edit

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its second highest ever. The biggest oil company in the world had just added an entire

ONGC to its profits, in just one quarter!

Around the same time, half way across the world, India's oil biggies were putting out

miserable report cards showing record losses for the same period

Bond(ed) with losses

The April-June quarter should rank as the worst for the industry, excluding ONGC, till date.

Though the three refining and marketing companies Indian Oil, Bharat Petroleum and Hin-

dustan Petroleum made losses in the same period last fiscal as well, the quantum was far

greater this year.

One reason for the heavy losses posted by these companies is that the Government failed to is-

sue oil bonds, as per the package sanctioned in June. The Government had announced a pack-

age of measures while increasing the prices of petrol and diesel in June, whereby the oil com-

panies were to receive bonds worth Rs 28,000 crore as part-compensation for the subsidy they

shared on cooking gas and kerosene. The bonds were also meant to cover a part of the under-

recoveries on petrol and diesel.

These bonds were to be issued in four equal instalments at the end of each quarter. However,the first instalment was not issued by the end of the first quarter; in fact, it has still not been is-

sued now, almost half-way into the second quarter. These bonds are accounted as income by

the oil companies and, had they been issued on time, the red ink now splashed across the oil

companies' financial statements could have been avoided.

Healthy refining margins

While the marketing margins turned negative because of under-recoveries, the refining margins

were quite healthy, at $8-9 a barrel for most refineries. This was despite the shift to trade parity

from import parity pricing as part of the package devised by the Government, which had the ef-

fect of reducing prices of petrol and diesel at the refinery level.

Indian Oil managed to show a net profit, thanks to the one-time gain of Rs 3,225 crore from the

sale of a part of its holding in ONGC. However, no such luxury was available to Hindustan Pe-

troleum and Bharat Petroleum to make up their losses.

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Interestingly, Indian Oil also had to dispose of a part of the bonds issued to it last fiscal by the

Government to boost its troubled cash flows.

The pure refining companies Chennai Petroleum, Kochi Refineries, Mangalore Refinery and

Bongaigaon Refinery had a relatively better time, given that the refining margins were

strong and these companies have no exposure to marketing losses. However, the current quarter

may prove to be different because refining margins have been sliding the last few weeks due to

a fall in global product prices. This, along with the shift to trade parity pricing and the reduc-

tion in import duties on petrol and diesel affected in June, will likely lead to pressure on refin-

ery margins in the second quarter.

Unlike their refining and marketing peers, the pure refining companies do not get the cover ofoil bonds; on the contrary, they are required to offer "discounts" to the marketing companies to

share their subsidies on kerosene and cooking gas. Therefore, the earnings of pure refining

companies are likely to be subdued during the second quarter.

Bounty for ONGC

Even as the rising crude prices laid low the refining and marketing companies, ONGC reaped

the full benefits of the same. Earnings at the pre-tax level would have been a record Rs 11,000

crore but for the Rs 4,676 crore that it had to share with the refining and marketing companies

as its share of subsidy. The reported post-tax earnings of Rs 4,119 crore were still 24 per cent

higher than in the same period the previous year.

With crude prices averaging $65-70 a barrel during the first quarter, ONGC benefited the most,

with a realization of $45 a barrel, after accounting for the subsidy given to the refining compa-

nies. But the interesting part is that the buoyancy in ONGC's revenues and earnings was be-

cause of higher realisations and not due to increased output, which was stagnant at 6.48 million

tones over the quarter.

This is something that should bother the company and its long-term investors as it points to ba-

sic problems in the company's oil-fields, the majority of which are past their prime. While the

devastating fire in the Bombay High North platform a year ago is one cause for the stagnant

output now, this is only a continuation of the trend in recent years of either stagnant or falling

output from the company.

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Irrespective of this, ONGC will continue to report bountiful revenues and earnings in the near

future as oil prices are unlikely to fall back significantly from current levels. The current quar-

ter, and the current fiscal will continue to be excellent for ONGC as crude prices are likely to

remain above $70 a barrel. The only uncertainty is how much more will its main shareholder,

the government, dig into the company's kitty to fund its subsidy scheme; at present, the compa-

ny shares a third of the subsidy burden. It parted with almost Rs 12,000 crore last fiscal and,

going by present trends, this figure is like to cross Rs 20,000 crore this fiscal.

Outlook for oil stocks

Oil stocks, save for ONGC, are unlikely to be the stars of any bull run in the market. Even dur-

ing the peak of the bull market, these stocks under-performed the Sensex. There is unlikely to

be a sea-change in the operating dynamics of refining and marketing companies and things can

only get worse if oil prices move further up, as they are projected to.

Given the Government's compulsions to hold retail prices of petroleum products, it is unrealis-

tic to expect it to grant the marketing companies total freedom to manage prices. Unless this

happens, the phenomenon of "under-recovery" is not going to go away and the earnings of the

refining and marketing companies will remain subdued.

Given the host of imponderables, ranging from the West Asian conflicts to the shut-down of

production from a major Alaskan oilfield and the inexorable rise in demand, particularly from

China and India, oil prices are likely to harden further over the rest of this calendar year.

This only means more trouble for the refining and marketing companies, which will be called

upon to bear an increasing subsidy burden. Oil bonds may perk up the financials of these com-

panies in the second quarter, but if crude prices rise further from current levels of around $75 a

barrel, these companies could be staring down another kind of barrel!

Price controls are not going to be relaxed in a hurry and the refining and marketing companies

have to learn to live with this constraint in the medium term. The industry is only going to be

stuck in a complex web of subsidies, under-recoveries, discounts and duty reductions as the

Government grapples with the conflicting objectives of keeping retail prices of petroleum prod-

ucts under check while ensuring that the finances of the oil companies do not tip over the edge.

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The refining and marketing companies are adopting different strategies to cope with this situa-

tion. Indian Oil, for instance, has declared its intention of foraying into the non-fuel retail busi-

ness through a subsidiary company. Plans are at a preliminary stage yet and it remains to be

seen how the Government reacts to this idea. The company's entry into the petrochemicals busi-

ness is also a part of the strategy to increase non-fuel revenues and earnings.

Indian Oil, Bharat Petroleum and Hindustan Petroleum have also entered the exploration busi-

ness by bidding for blocks offered by the government. But these are long-term strategies that

may help these companies if they discover oil or gas. In the near to medium term, though, the

prospects for these companies appear none too bright.

FUTURE ROLE:

Demand for the oil and gas will continue to increase as they

expected to remain leading energy sources for some time to come.Hope to seecontinued

increase in exploration success and production as additional areas are opened for

exploration and as the technology evolve.

There is no way to predict price companies must push ahead

to keep production costs low by developing new technologies that can be controlled.

Another trand is much cleare than price.Its getting harderand harder to find Oil and gas. Environmental fears have already led to restrictions to

explore.Concerns over potential climate change have led to demands for greater control of

energy use and ability to produce adequate amounts of energy.

Furthers new suppliers are located at increasing distances

from consuming markets.Finding economic ways to solve this problems is part of

challenge.

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OIL AND GAS SOLUTION:1. Strategies for protecting margins:

Reduce lifting cost.

In- dustry leaders are working hard to tightly integrate their key

exploration and production processes. The goal is near-real-time

forecasting of production needs and highly accurate explo-

ration planning.

2. Preserving assets helps to protect margins:

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Streamline supply chain information flow:

Protecting margins begins with minimizing the costs of crude sourcing, refined productsproduction, and natural gas development. But if oil and gas companies cannot accurately

estimate their production and sourcing needs, they are less likely to be able to negotiate

long-term contracts for cost efficient supplies. The result: they have to balance their supply

chain with

costly distress spot trades.

3. Strategies to prepare for the future:

Maximize business transparencyBuild a collaborative Business model

4. Strategies for adding consumer value:

Strengthen retail marketing

Deliver value through shared knowledge

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Courage to Explore, Knowledge to Exceed, Technology to Excel

INTRODUCTION:

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Oil and Natural Gas Corporation Limited is the Top most leading company of India has scat-

tered its scope of achievement around the world. ONGC is doing its own

1. Exploration Work.

2. Development Work

3. Drilling work

4. Production work

ONGC is not manufacturing the goods by the raw material but it is doing its own drilling work.

The ONGC is searching the land by its Geology department where there is possibility of pre-

vailing Oil and the Exploration function is to be started to justify whether there is oil availabili-

ty in the land or not so, the primary function is started with the Exploration work. After the suc-

cessful signal of the Exploration department the work of the development is begun where the

area is developed with the pipes, mud, chemicals etc. The drilling work is started with the end

of the development work. The drilling result has its own contingencies. Where the oil is not to

be found then it is to be closed down and that well is to be known as Dry well. If the oil is to be

found out then the production work of extracting the developed area is to be started .the extrac-

tion work is to be done in the ONGC but it does not work for the purification and the bifurca-

tion. It directly sells the crude oil to the IOCL, Baroda. The further work is to be done at the

IOCL.

The ONGC is working at both On-shore and off-shore. Onshore means the production is run on

the land. It is to be done at-

Gujarat

Ankleshwar

Mehsana

Ahmedabad Surat

Assam

Chennai

The biggest off-shore is at MUMBAI (Bombay high) in India.

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ONGC: Business Scenario:

THE LOCATION SCENARIO OF ONGC IN INDIA.

Challen

getosu

pplyen

ergyat

afford

ablecos

t

Enhancedlevel Of

E&PActivities

GrowthTurnpikeBoomingEnergy

Demand

Scarcity ofResources&Increasing

cost

RegulatoryFramework

&

Taxationpolicies

Oil & Gas at Premium

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HISTORY:

1947-1960

During the pre-independence period, the Assam Oil Company in the northeastern and Attock

Oil company in northwestern part of the undivided India were the only oil companies

producing oil in the country, with minimal exploration input. The major part of Indian

sedimentary basins was deemed to be unfit for development of oil and gas resources.

After independence, the national Government realized the importance oil and gas for rapid

industrial development and its strategic role in defense. Consequently, while framing the

Industrial Policy Statement of 1948, the development of petroleum industry in the country was

considered to be of utmost necessity.

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Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of

India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) and

the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil

Company) was engaged in developing two newly discovered large fields Naharkatiya and

Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint venture between

Government of India and Standard Vacuum Oil Company of USA) was engaged in exploration

work. The vast sedimentary tract in other parts of India and adjoining offshore remained largely

unexplored.

In 1955, Government of India decided to develop the oil and natural gas resources in the

various regions of the country as part of the Public Sector development. With this objective, an

Oil and Natural Gas Directorate was set up towards the end of 1955, as a subordinate office

under the then Ministry of Natural Resources and Scientific Research. The department was

constituted with a nucleus of geoscientists from the Geological survey of India.

A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural Resources,

visited several European countries to study the status of oil industry in those countries and to

facilitate the training of Indian professionals for exploring potential oil and gas reserves.

Foreign experts from USA, West Germany, Romania and erstwhile U.S.S.R visited India and

helped the government with their expertise. Finally, the visiting Soviet experts drew up a

detailed plan for geological and geophysical surveys and drilling operations to be carried out in

the 2nd Five Year Plan (1956-57 to 1960-61).

In April 1956, the Government of India adopted the Industrial Policy Resolution, which placed

mineral oil industry among the schedule 'A' industries, the future development of which was to

be the sole and exclusive responsibility of the state.

Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent that it

would not be possible for the Directorate with its limited financial and administrative powers as

subordinate office of the Government, to function efficiently. So in August, 1956, the

Directorate was raised to the status of a commission with enhanced powers, although it

continued to be under the government. In October 1959, the Commission was converted into a

statutory body by an act of the Indian Parliament, which enhanced powers of the commission

further. The main functions of the Oil and Natural Gas Commission subject to the provisions of

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the Act, were "to plan, promote, organize and implement programmes for development of

Petroleum Resources and the production and sale of petroleum and petroleum products

produced by it, and to perform such other functions as the Central Government may, from time

to time, assign to it ". The act further outlined the activities and steps to be taken by ONGC in

fulfilling its mandate.

1961 1990

Since its inception, ONGC has been instrumental in transforming the country's limited

upstream sector into a large viable playing field, with its activities spread throughout India and

significantly in overseas territories. In the inland areas, ONGC not only found new resources in

Assam but also established new oil province in Cambay basin (Gujarat), while adding new

petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both inland and

offshore).

ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay

High, now known as Mumbai High. This discovery, along with subsequent discoveries of huge

oil and gas fields in Western offshore changed the oil scenario of the country. Subsequently,

over 5 billion tonnes of hydrocarbons, which were present in the country, were discovered. The

most important contribution of ONGC, however, is its self-reliance and development of core

competence in E&P activities at a globally competitive level.

After 1990

The liberalized economic policy, adopted by the Government of India in July 1991, sought to

deregulate and de-license the core sectors (including petroleum sector) with partial

disinvestments of government equity in Public Sector Undertakings and other measures. As a

consequence thereof, ONGC was re-organized as a limited Company under the Company's Act,

1956 in February 1994.After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil

& Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its

shares through competitive bidding. Subsequently, ONGC expanded its equity by another 2 per

cent by offering shares to its employees.

During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas

Authority of India Limited (GAIL) - the only gas marketing company, agreed to have cross

holding in each other's stock. This paved the way for long-term strategic alliances both for the

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domestic and overseas business opportunities in the energy value chain, amongst themselves.

Consequent to this the Government sold off 10 per cent of its share holding in ONGC to IOC

and 2.5 per cent to GAIL. With this, the Government holding in ONGC came down to 84.11

per cent.

In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified into

the downstream sector. ONGC will soon be entering into the retailing business. ONGC has also

entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made

major investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue

from its investment in Vietnam.

REGISTERED OFFICE

Jeevan Bharti Bldg.,

124, Indira Chowk,

New Delhi 110 001.

CORPORATE OFFICE

Tel Bhavan, Dehradun-1480 003

Uttarakand.

LISTED AT

Delhi Stock Exchange

Mumbai Stock Exchange

National Stock Exchange

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BOARD OF DIRECTORS:

MR. R S SHARMA

(Chairman and Managing director)

MR. A K HAZARIKA MR. N K MITRA

(Director, onshore) (Director, offshore)

MR. D K PANDE DR. A K BALYAN

(Director, exploration) (Director, HR)

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MR. U N BOSE MR. U SUNDARARAJAN

(Director, T&FS) (Director)

MR. RAJESH V SHAH MR. M M CHITALE

(Director) (Director)

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ONGC GROUP

ONGC VIDESH Ltd. (OVL):-

ONGC Videsh Ltd is a wholly-owned

subsidiary of ONGC. This has

been mandated to carry out international E & P business operation of the parent company.

ONGC 100% equity share in OVL.

OVL is the first and only Indian Company to produce oil and gas overseas. With investment

commitment overseas totaling to USD 4.3 billion. Of which about 64% has already been in-

vested up to March 2005, OVL has emerged as biggest Indian multination.

MANGALORE REFINERY & PETROCHEMICALS LTD. (MRPL):-

ONGC GROUP

OVL MRPL PLL, PHLL

ONG BV OMEL

KRPL RPL KSEZL

OTPCL OMESL DSEZL

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Mangalore refinery and petrochemicals Ltd.(MRPL).a71.6% subsidiary of ONGC taken over in

march 2003 on the verge of being referred to the Board for industrial and financial reconstruc-

tion (BIFR) as a sick company with accumulated losses about to wipe out the entire net worth.

ONGC NILE GANGA BV (ONG BV):-

ONGC Nile Ganga BV (OVG BV) is the wholly owned subsidiary of ONGC Videsh Ltd. OVL

which in turn is 100% owned by ONGC.

ONG-BV is incorporated in the Netherlands and has a 25% participation interest in the Greater

Nile project (GNOP) in Sudan producing crude oil from onshore blocks earmarked for the pur-

pose. The other partners in the consortium are Chinas China National petroleum Company

(CNPC) (40% PI) and Malaysias petronas (30% PI).

ONGC MITTAL ENERGY LTD. (OMEL):-

ONGC Mittal Energy Ltd. (OMEL) is a joint venture between ONGC Videsh Ltd. And Mittal

Investments Sarl in the ratio of 49.98% and 48.02%, with SBI capital holding the remaining

2%. The joint venture aims to source equity oil and gas from abroad for securing Indias energy

independence.

ONGC MITTAL ENERGY SERVICE LTD. (OMESL):-

ONGC Mittal Energy Service Ltd. (OMSEL) is a joint venture between ONGC and Mittal In-

vestment Sarl with the same ownership structure as that of OMEL. The Venture will be in-

volved in trading and shipping of oil and gas (including) sourced by OMEL from abroad.

ONGC TRIPURA POWER COMPANY PVT. LTD. (OTPCL):-

ONGC Tripura Power Company Pvt. Ltd.(OTPCL) was incorporated with the objective of set-

ting up a gas-based power generating project in Tripura. ONGC acquired 26% equity at par on

18th February, 2005 to facilitate monetization of ONGCs idling gas reserves in Tripura.

PETRONET LNG LTD. (PLL):-

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ONGC has 12.5% equity stake in PLL which started commercial operation on 01.04.2004. PLL

Board has decided to enhance capacity of the Dahej terminal from 5 to 10 MMTPA, and set up

another terminal at Kochi of 2.5 MMTPA.

PETRONET MHB LTD. (PMHBL):-

ONGC holds 23% equity stake in this product pipeline company linking MRPL to Bangalore.

PMHBL is incurring losses due to low capacity utilization and sub-optimal financial structure.

PAWAN HANS HELICOPTERS LTD. (PHHL):-

ONGC has 21.5% equity in PHHL, which provides helicopter service primarily to ONGC.

PHHL learned a net profit of Rs. 385 million during 2004-05.

ONGC VALUES (OVAL):-

First auto fuel outlet in Mangalore coupled with the brand Shoppnjoy for the non-fuel busi-

ness. This particular brand receiving a well enthusiastic customer response with in a short span

of time.

VISION:To be a world-class Oil and Gas Company integrated in energy business with dominant Indian

leadership and global presence

MISION:

1. World Class:

o Dedicated to excellence by leveraging competitive advantages in R&D and

technology with involved people.

o Imbibe high standards of business ethics and organizational values.

o Abiding commitment to safety, health and environment to enrich quality of

community life.

o Foster a culture of trust, openness and mutual concern to make working a

stimulating and challenging experience for our people.

o Strive for customer delight through quality products and services.

2. Integrated In Energy Business:

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o Focus on domestic and international oil and gas exploration and

production business opportunities.

o Provide value linkages in other sectors of energy business.

o Create growth opportunities and maximize shareholder value.

3. Dominant Indian Leadership:

o Retain dominant position in Indian petroleum sector and enhance India's

energy availability.

GLOBAL RANKING

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o ONGC ranks as the Number one Oil & Gas Exploration & Production (E&P)

Company in Asia, as per Platts 250 Global Energy Companies List for the year

2007.

o ONGC ranks 23rd Leading Global Energy Major amongst the Top 250 Energy

Majors of the World in the Platts List based on outstanding performance in re-

spect of Assets, Revenues, Profits and Return on Invested Capital (RIOC) for

the year 2007.

o ONGC is the only Company from India in the Fortune Magazines list of the

Worlds Most Admired Companies 2007. ONGC is 9th position in the Industry

of Mining, crude oil production.

o ONGC ranks 239th position in the prestigious Forbes Global 2000 and Number

one ranking amongst Indian Companies.

o ONGC ranks 369th position in Fortune Global 500 list for the year 2006 based

on Revenues.

o ONGC retains Number one position from India in terms of Profits with overall

global ranking of 121st.

o ONGC ranks 21st among the top 50 publicly traded Companies in Oil & Gas In-

dustry, based on the year-end (2007) market Capitalization by PFC Energy.

NATIONAL RANKINGS

ONGC bagged the business standard star Public Sector Company Award for 2004 for

its dominating performance in 2004 (based on Net Profit, Market Capitalization and Net

Worth)

Topped the FE-500 (Financial Express) list based on Net Profit, Market Capitalization

and Net Worth.

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Adjusted as the biggest Wealth creator among all compnies on Indian Stock Exchanges

by Motilal Oswal Securities

Ranked no. 1 company in business World Real 500

Ranked no. 1 in Business India Super 100 Ranked as 17th on the Business World Most Respected Companies list based on a

nationwide peer-perception survey conducted on 382 selected companies

Awarded the Best Corporate Initiative in Sports in 2003-04, instituted by Federation

of Indian Chambers of Commerce and Industry (FICCI)

ONGC bagged the Innovative Brand Stretegies Public Sector award at the India Brand

Summit.

Declared as Indias Greenest Company 2004 by a survey conducted by AC Nielsen-ORG Marg and published in Business Today.

COMPETITIVE STRENGTH

Strong intellectual property base, information, knowledge, skills and experience

Maximum number of Exploration Licenses, including competitive NELP rounds.

ONGC owns and operates more than 15000 kilometers of pipelines in India, including

nearly 3800 kilometers of sub-sea pipelines. No other company in India operates even

50 per cent of this route length.

SOURCING EQUITY OIL ABROAD

ONGCs overseas arm ONGC Videsh Limited (OVL), has laid strong foothold in a number of

lucrative acreages, some of them against stiff competition from international oil majors OVLs

projects are spread out in Vietnam, Russia, Sudan, Iraq, Iran, Libya, Myanmar, Syria, Qatar,

Egypt, Cuba, Nigeria Sao Tome Principe, Brazil, Nigeria and Columbia. It is further pursuingOil and gas exploration blocks in various oil and gas rich countries.

During 2006-07, OVL has acquired stakes in 9 Projects in 6 Countries, out of which 6 Projects

were acquired through participation in bidding rounds and 3 from the existing concession

holders.

Sakhlalin-1 project in Russia commenced export of crude oil from September 2006 and peak

production of 250,000 bopd was achieved in March 2007.

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Crude Oil production from Block 5A in Sudan commenced in May 2006.

Consortium of Blocks A-1 and A-3 in Myanmar made gas discoveries.

Consortium of North Ramadan Block in Egypt made Oil discovery.

OVL Currently has participation in 29 E&P Projects in 15 Countries. Out of the existing 29

Projects, OVL is Operator in 14 Projects and Joint Operator in 2 Projects in 9 Countries.

OVLs share in production of oil and oil-equivalent gas (O+OEG), together with its wholly

owned subsidiaries ONGC Nile Ganga BV and ONGC Amazon Alaknanda Ltd, is 7.952

MMT.

ONGCs strategic objective of sourcing 20 million tones of equity oil abroad per year is likely

to be fulfilled well before 2020.

PRODUCTION AREA IN ANKLESHWAR

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SALES OF LAST FIVE YEARS:

YEAR SALES QTY IN MILLION

2002 228412

2003 346907

2004 325496

2005 467098

2006 479715

2007 566413

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DIVIDEND OF LAST 10 YEARS:

year Dividend

1998 3565

1999 7842

2000 9268

2001 15685

2002 19963

2003 42778

2004 34222

2005 57037

2006 64167

200766305

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PROFIT OF LAST 10 YEARS:

year Profit

1998 26778

1999 27545

2000 36295

2001 52288

2002 61979

2003 105293

2004 86644

2005 129830

2006 1443082007 156429

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SHARE HOLDING PATTERN OF O.N.G.C

SHARE HOLDERS PERCENTAGE OF SHARE

Government 74.14%Mutual Funds & UTI 1.28%

Banks, Financial Institution and Insur-

ance3.34%

FIIs 8.67%

Private Corporation Bodies 10.54%NRIS/OCBS/Foreign Other 0.04%

Others 0.04%

General Public 1.95%

TOTAL 100%

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LPG & NATURAL GAS& COMPRESSORLPG:

1. IOCL CRUDE OIL

2. HPCL IOCL,Baroda ELECTRICITYNatural Gas 1.Captiveconsumption NAPTHA1.GAIL 2.ONGC HINDALCO

2. 11 OTHERS 3.G.E.B

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DEPARTMENTS OF ONGC:-

CENTRAL A/CSECTION

CASH & BANKSEC.

BUDGET SEC.)2(

PRODUCTIONDEPT

EXPLORATIONDEVELOP.

PRODUCTION

(3)PURCHASE &

STORESTENDERING

&MATERIALsManagement

COST A/C SEC

CAPITAL AS-SETS A/C SEC

CENTRAL PAY-MENT SEC

)4(

SALES DEPTPRODUCT AND

SERVICES

(5)H.R.DEPT

I.R. & LEGAL ISSUES

(6)DISPATCH &LOGISTICS

(1) FI-NANCE

DEPT.

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PRESENT PRODUCT MIX:

ONGC is mainly dealing with five types of product such as:

1. Crude oil:-

The first product that is pump out from the well of ONGC is Crude Oil mud, Water and

Gas. The crude that is come out then went to the refinery for further processing to

produce finished products like Petrol, Heroine naphtha, Gasoline etc. which are used in

various domestic and industrial purposes.

Billing Centre RO Baroda

Billing Frequency Weekly

Realization at New Delhi

2. Natural gas:-

Second major product of ONGC is Natural gas, which is pumped out along with crude

oil. Crude oil and Natural Gas are separated at GGS and then it is directly sent to the

customers both domestic as well as industrial like IPCL, GNFC, and GAIL etc.

The Natural Gas Liquids are separated from Natural Gas, which include Ethane,

Propane, Butane and Gasoline.

Billing Centre- Ankleshwar Asset

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Billing Frequency Fortnightly

Realization at Ankleshwar Asset

3. Liquefied petroleum gas:-

LPG is the combination of light gases such as Butane and Propane that can be

maintained as liquids under pressure.



Realization at Mumbai

4. Naphtha:-

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These are heavier Hydrocarbons obtained in fractional unit of Kerosene recovery

process. NGL is processed to yield Aromatic Rich Naphtha and superior Kerosene.



Realization at Mumbai

5. Liquefied Natural gas:-

Gas that is liquefied under extremely cold temperature and high pressure to facilitate

storage and transportation in specially designed vessels.

SWOT ANALYSIS:

STRENGTHS AND OPPORTUNITIES:

One of the core strengths and core competencies of ONGC is that they have the leading

market share in India. They also have the majority of the oil fields in India and they

own the largest oil field in India, Bombay High. Bombay High accounts for about 38

percent of all domestic production and is one of the most-prolific producers of

"Sweet and Light" crude in the world.1 This is a very strong asset to ONGC and one

that is a core competency.

The ONGC infrastructure is also a strength for the company. The company implement-

ed some well needed improvements to the infrastructure and created a strength for the

company. Along with this were the HR development that occurred and the improve-

ments in the HR department. Both of these substantial and costly improvements gaveONGC a strength for the company.

Another strength for ONGC is the technological advancements that were implemented

over the last few years. The advancements were substantial and improved the com-

panys ability to extract the greatest amount of oil and gas.

1

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The addition of HPCL and their state of the art refinery is another strength and great as-

set to ONGC. Not only did this add new technological advancements, it also added di-

versification into the downstream businesses. This was a great addition to ONGC and

helped diversify the company and give it a competitive advantage. It also gives them

opportunities in the future because all their eggs wont be in one basket

WEAKNESSES AND THREATS:

One large weakness for ONGC is that they are not differentiated enough and diversified

enough. All their focus is on one industry right now and if that industry goes down then

the whole company goes down. They are also focused so much on the productivity of

Bombay High. This oil field will not sustain them forever. The oil field is also aging

and this is one of the reasons why the production levels have been down2. ONGC needs

to get other oil fields but have lost almost every bid that they have put up. This is dueeither to losing out to other competition or due to the GoI blocking the bids.

This leads to ONGC biggest weakness and the reason for ONGC biggest external

threat, the GoI. Even though the GoI initially helped the ONGC, they are the biggest

source for concern right now. The GoI continually forces ONGC to focus just on one

industry and do not let them diversify. They also are stopping ONGC from bidding on

other outside sources of oil fields.

2

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ORGANISATION STRUCTURE OF FINANCE DEPT.

DGMFINANCE

CHIFEMANAGER

CENTRAL CONTRACTUAL SUPPLY

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MOTTO OF FINANCE DEPARTMENT:

1. Service with smile to external and internal venders.

2. Perfect accounts for stakeholders.

3. Companion to follow challenges for making tomorrow brighter.

SR.OFFICER

SR.OFFICER

PERSONALCLAIMS MGR

CASH&BANKMGR

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a) SALES ACCOUNTING SECTION:

The main activities of this section are as follows:-

1. Billing activities

2. Realization for receivables and bad debts

3. Reporting function.

4. Annual quarter accounts preparation.

5. Payment of statutory liabilities.

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6. Receipts from sales activities.

7. Raising bills on delayed receipts

1) CRUDE OIL:-

Crude oil is sold to INDIAN OIL CORPORATION LIMITED at BARODA. The supply of

the product as well as the billing is done by Baroda office. The realization of the bill is

done by Delhi Asset of ONGC.

STATUTORY CHARGES:

Basic amount.

Royalty (collected from IOCL paid to Gujarat Government, in case of offshore it is paid

to Central Government)

Excise CESS

National higher secondary education excise.

2) NATURAL GAS:-

The main customers arc GAIL & GSPCL.

Billing is done from Ankleshwar while realization of bill is done at Delhi.

There are also 10 more small customers of Natural Gas n which billing and realizing of bill

is done at Ankleshwar. The customers are:

Welspun

Welsuit

Vishwa Traders

Grow more

Pavit Ceramic

Cromoton Greaves

Philips

Shree Krishna

Prime Ceramic

Mayur Dyes & Chemicals Ltd.

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STATUTORY CHARGES:-

Basic amount

Royalty

Value Added Tax (Minister decides the rates of Crude air and Natural Gas).

3) LPG (LIQUIFIED PETROLEUM GAS):

It is a value added product. As by adding some value to the raw material then it is produced. It

is divided into two Parts:

a) Non Domestic:-

It is used for Industrial purpose and the rates for using it will also be higher comparedto domestic. The rates are decided by the Government.

b) Domestic:-

It is used for cooking purpose. In these the rates are lower than non domestic purpose.

The main customers are:

1. HPCL (Hindustan Petroleum Corporation Ltd. Ankleshwar.)

2. IOCL (Indian Oil Corporation Ltd. Gandhar.)

STATUTORY CHARGES:-1. VAT

2. Excise duty (earlier it was 16%, then 8% and now it is nil).

Billing and realization of bill is done at same place Ankleshwar.

4) NAPHTHA:-

The main customers of Naphtha are:

Birla copper (Hindalco) Ltd.

BPCL (Bharat Petroleum Corporation Ltd).

HPCL (Hindustan Petroleum Corporation Ltd).

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Advance payment is received in case of Naphtha and therefore there are no chances of Bad

Debts or Late Payment. The Billing and realization of the bill are done at same place at

Ankleshwar.

STATUTORY CHARGES:

VAT

Basic amounts

CESS (education)

5) ELECTRICITY:-

The power generation plant is situated at Gandhar which is known as CPEP Power

Generation Plant. Electricity is produced for internal use of the organization and the extra

electricity is transmitted to GEB, Ankleshwar & it is used by Mehsana Asset through

Power wheeling. Extra electricity is sold to GEB. The revenue earned from selling

electricity is 31crore. The billing and realization of bill is done at Ankleshwar.

6) SERVICES:-

Other than these products there are also some services which ONGC provides, which are

as follows:

CRUDE OIL TRANSPORTATION SERVICES:-

The main customers are Nicho Resources Ltd. (Canadian) & Hindustan oil &

Exploration Ltd. Such company's are paying for the services of pipelines. They use

the pipelines of ONGC as they don't have other supportive facilities.

GAS COMPRESSOR:-

Some low pressurized Gas is compressed by ONGC.

The charges on Gas Compressor are decided by GAIL.

b) PERSONAL CLAIM SECTION:

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In this section payments related to employees are n1ade and if any claim is there from the

employees side they are to be looked into. The following chart shows the different

payments to the employees in different ways:

1) SALARY/ PAY SCALES:-

There are different pay scales for different officers as per their levels/post. It includes

basic salary, dearness allowance, bonus & commission.

2) ANNUAL INCREMENT:-

The rate of annual increment in the revised scales of pay will be 4% of basic pay. On

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promotion rate of increment wilt be 6% on basic pay.

3) OFFSHORE ALLOWANCE:-

The offshore compensation shall be admissible on percentage basis. The rate for

offshore compensation will be 8% of revised basic pay.

4) ADVANCES:-

Advances are given for House building, for purchasing vehicles, for furnishing of house

as per the levels of employees and interest is to be paid thereon. Generally the rate of

interest is 5.5% on first Rs.30000.

5) LFA (LEAVE FARE ASSISTANCE):-

Employees and dependent members of their families are eligible for leave fare

assistance after putting in one year of services. 95%' of the cost of fare for both outward

and inward journey is paid in advance.

6) EDUCATIONAL FACILITIES:-

The following facilities are provided to the children of ONGC employees which are as

follows:

Children education allowance.

Merit scholarship.

Journey fare

Special award scheme

Hostel subsidy

Child transport facility

These facilities are provided on basis of standard in which children studies.

7) MEDICAL FACILITIES:-

Free medical facilities are provided through dispensaries and hospitals of the

corporation and also through authorized medical attendants, Government Recognized

dispensaries and hospitals. For medical treatment abroad expenses are reimbursable up

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to Rs. 3lakhs.

8) GRATUITY:

The gratuity is granted for good, efficient & faithful service to all whole time employees

of the corporation including chief executive and full time functional Directors. For

every Completed year of service or part there of in excess of six months, the corporation

shall pay gratuity to an employee at the rate of 15days wages based on last pay drawn

by the en1ployee concerned. The amount of gratuity payable shall not exceed Rs 3.50

lakhs.

9) SOCIAL SECURITY SCHEME:-

Rs. 10. 000/- is payable in case of death of the employees to the deceased for cremation

and balance thereafter.

10) PRBS(POST RETIREMENT BENEFIT SCHEME):

The scheme shall be compulsory for all the executives. Basic pay, personal pay and DAactually drawn by a member and compounded annually at the rate of 8%.

11) VOLUNTARY RETIREMENT SCHEME:-

All employees of corporation who have completed 10 years of service and completed 40

years of age may seek VRS by a written request.

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DESCRIPTION OF ELIGIBILITY CONDITIONS OF VRS-2007:-

(1) The VRS-2007 was open from 15-march to 14-may, 2007. Viz-2months(2) Employees are coming under the bonds are not covered in the scheme for VRS-2007

(3) The minimum age criteria for VRS are 40years and 15 years of continuous service.

NO YEAR RETIREMENTAGE

VRS AGE

1 2006-07 60 YEARS 40 YEARS

2 2005-06 58 YEARS 55 YEARS

(4) The employees are taking the training in the abroad for the period then that time is not

Considered when we are calculating the time duration of 15 years.

(5) Employees against whom the legal proceeding or the penalty is going are not eligible for

VRS-2007

(6) The conditions applied are-

a) EX-GRATIA equals to 60 days salary for each completed years service.

b) The months considered for the remaining years of service.

*Whichever is less is taken as base as total number of months.

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*The salary is considered the preceding months of the salary of the application for

-VRS

(7) The salary will include BASIC +D.A

(8) Gratuity is to be paid as per the Gratuity Rules-1995.

(9) Traveling Expenses to settle after the VRS is to be paid to the employees.

(10) The corporation house or the leased house should be used for 2 months on release under

VRS-2007

(11) The telephone should be used for 1 year with depicted maximum permissible limit after

the release on VRS-2007.

(12) The official transport will not be provided after the release on VRS-2007.

(13) The employees are provided with the medical facilities after VRS-2007.

(14) The application are to be scrutinized by the following authority.

(15)VRS-2007 application, once submitted can not be withdrawn.

C) COST ACCOUNTING SECTION:

Cost Accounting is considered as more as technique of cost control' rather than as a

technique of merely for cost ascertainment. Cost Accounting is concerned with:

Ascertaining the costs.

Controlling the costs.

Reducing the costs.

NO LEVELS AUTHORITIES

1 E-6 &ABOVE EXECUTIVE COMMOTTEE

2 E-4 &E-5 C &MD

3 E-1 & E-3 DIRECTOR -HR

4 UPTO E-0(INC-WORKMAN)

CHIEF ER

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The most important constituent of cost accounting is cost. Oil and Gas producing industry

which is extractive in nature, involves activities relating to acquisition of mineral interests in

properties, exploration, development and production of oil and gas. The industry is commonly

referred to &s the E&P industry.

CLASSIFICATION OF E&P ACTIVITIES AND RELATED COSTS:-

1) Acquisition activities:

Acquisition cost cover all costs incurred to purchase, lease or otherwise acquire a

property or mineral right. These include lease bonus, broker's fees, legal costs, cost of

temporary occupation of the land including crop compensation paid to farmers and all

other costs incurred in acquiring these rights. These are costs incurred in acquiring the

right to explore, drill and produce oil and gas.

2) Exploration activities:

Exploration activities cover the prospecting activities conducted in the search for oil

and gas. Principle type of exploration costs cover all direct and allocated indirectexpenditure which include depreciation and applicable operating costs of related

support equipment and facilities and other costs of exploration activities such as cost of

drilling and equipping exploratory and appraisal wells, dry hole contribution etc.

3) Development costs:

It covers all the direct and allocated indirect expenditure incurred in respect of the

development activities such as:

Drill and equip development wells.

Cost of platforms.

Cost of well equipn1ent such as casing, tubing, pumping equipment and wellhead

assembly.

Gain access to and prepare well locations for drilling, including surveying well

locations, clearing well ground, draining, road building etc.

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Provide advanced recovery system.

4) Production Costs:

Production costs covers lifting of oil and gas to the surface, operation and maintenance

of wells, extraction rights, field transportation, gathering, field processing etc.

COST ACCOUNTING METHODS:-

1. SUCCESSFUL EFFORT METHOD:

Under the successful efforts method, generally only those that lead directly to the

discovery, acquisition or development of specific, discrete oil and gas reserves are

capitalized and becon1e part of the capitalized costs of the cost centre. Costs that are

known at the time of incurrence to fail to meet this criterion arc generally charged to

expense in the period they are incurred. When the outcome of such costs is unknown at

the time they are incurred, they are recorded as capital work-in-progress and written off

when the costs are determined to be non-productive.

2. FULL COST METHOD:

Under this method, all costs incurred in prospecting, acquiring mineral interests,

exploration and development is accumulated in large cost centre that may not be related

to Geological factors. The cost centre is normally smaller than a countryexcept where

warranted by major difference economic, fiscal or other factors in the country. The

capitalized cost of each cost centre is depreciated as the reserves in each cost centre are

produced.

As ONGC is following the successful effort method of costing so it does not capitalizes

the asset with the cost of those efforts which do not result in the future generation of

inC0111e to the company or unsuccessful efforts and charges and all the unsuccessful

efforts to the P&L A/C. On the other hand it capitalizes the asst with the cost incurred in

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the successful generation of reserves. Generally the expenses are classified on the basis

of various products and it is allocated in main four types of products such as OIL,

NATURAL GAS, LPG & NAPHTHA.

D) CASH & BANK SECTION:

The Cash and Bank section is responsible for making the final payments after it has been

passed for payments by the pre-audit section of finance department.

The structure of the cash & bank section is as follows:

There are four major types of activities which are performed by Cash & Bank section, which is

shown as below:

1. PAYMENTS: Payments of different sections are to be made by cash and bank section.

The original documents of the contracts to be held with cash and bank section. It in-

cludes payments of three different types such as.

MANAGER C&B

Mr. K.R. SHANKAR

Mr. AMIT BHARTIMr. D. J. KHANA

OPERATIONS

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Payments to raw material supplier is to be made, salaries are paid and if any contract is

there with third party then their payment is done by this section.

2. RECEIPTS: The revenue which is received fron1 selling the product such as crude oil,

natural gas, LPG, electricity, naphtha are received by the cash and bank section.

3. FEE & DEPOSITS: Several fees are received for issuing of tender forms to our

suppliers that are collected by Cash & Bank Section. Deposits include EMD (Earnest Money

Deposit) and SD (Security Deposit). EMD is taken from the supplier so' that they can't

withdraw from the work after the allotment of work is made. SD is kept so that the supplierperforms efficiently, otherwise the SD will be forfeited by ONGC and if the performance is

satisfactory, the SD is returned to the suppliers.

4. MANAGEMENT INFORMATION SYSTEM (MIS):

The work of MIS is divided into four main activities which are shown below:

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BRS (BANK RECONCILIATION STATEMENT):

BRS is a statement which compares bank balance as per pass book and bank balance as

per cash book. It is prepared to check frauds and errors. The SAP system of ONGC has

helped in detection of errors with much case.

CASH FORECAST:

Cash forecasting is done in order to estimate the future requirements of cash. Although

there is no cash problem for ONGC as it is a cash rich company.

BALANCE SHEET:

The closing balance of cash and bank is found out and that will be transferred to

Balance Sheet. For this, calculation of various receipts and payments and payments is

done and thereafter closing balance of cash is found out.

MIS:

The information system of cash and bank section is to check any discrepancies.

Information is provided to various sections as per their requirements.

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E) BUDGET SECTION:

A budgetary control system secures control

over cost and performance in various parts of the

company by:

Establishing targets

Comparing actual results with budget-

ed ones.

Taking corrective actions by revising

the budget.

BUDGET STEPS:

Every year budget is prepared for two years-

1. The current year budget - Revised Estimate (RE)

2. Next year budget - Budgeted Estimate (BE)

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For major schemes, the commitment budget (CB) is also prepared for the third

year.

BASIS OF PREPARAION OF BUDGET:

The budget exercise starts from the month of May every year.

Every project finalizes their physical program by the end of June.

The financial budget is prepared based on the physical program

Physical plan of Activities, Item wise budget, activity budget & budget-

ed cost of activities by V.C.

Approval from the concerned directors

Physical & Financial budget approved by concerned Director

Submission of financial budget, activity budget & budgeted cost to Cor-

porate Budget Section (CBS)

CBS compiles the budget & present the consolidated budget before EC

(Executive Committee). Asset /Basin manager, Service chiefs are required to

justify the budget requirements to the EC

EC approves the budget

CBS prepares the budget agenda for approval by PAC & Board.

f) SUPPLIERS PAYMENT SECTION:

There is no direct payment to the supplier's; it is paid through bank only. As and when or-

dered goods are received it should be checked and the original documents are lying with the

bank. After that, the payment is made by ONGC to the bank and will collect the original

documents. Thereafter, the bank will pay the same amount to the suppliers in their account.

Generally all this procedures are carried out with the help of SAP system.

While payment is made, following points are taken into consideration:

Check that any discounts are given on the quantity then that should be properly.

Inspection of the material is to be done.

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Credit time period, if any.

Whether the Bank Guarantee is provided by the supplier or not.

Liquidated Damages- if any loss is incurred to the material, it is to be borne by the

supplier.

Materials are to be received within the stipulated time period as predetermined at the

time of placing the order.

G) Central accounting section:

Under this section, Trading A/C, P&L A/C and Balance Sheet are prepared. The main

activity of this section is to go through each and every transaction and accounts. This

section faces audits like Internal Audit, External Audit, Statutory Audit, Tax Audit, etc.

Some of the activities performed by this section are as follows:

Maintenance of commissions as a whole at headquarter and at respective Assets.

Preparation and submission of monthly trial balance and periodical statement of

Accounts, returns, etc.

Maintenance of cost element sub-ledger and their verification with the general

ledger accounts.

Submission of data for preparation of income tax return.

Area wise accounts.

Producing property accounts.

Inter-unit transactions.

Contribution to provident funds accounts.

H) ASSET ACCOUNTING SECTION:

Account of Fixed Assets / Capital Assets is called Asset Accounting. Asset Accounting

is a part of Asset Management of Organization.

The main activities of this section are as follows:-

1) Maintain the Gross Block of the Balance Sheet.

2) Prepare following schedule tor B/S.

Schedule of Fixed Assets.

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Schedule of Capital Inventory on stock.

Schedule of Depreciation.

3) Pricing of GRV or issue voucher etc. for Capital Assets.

4) Acquisitions of Assets through GRV. This process executed by MM depart-ment, Finance Department and indenter.

5) Issue of Asset from MM department to indenter for final use of the assets.

Transfer- in of Capital items (maintain accounts of capital assets transfer from other

project to this project).

Transfer-out of capital items (maintain accounts of capital assets transfer from our

project to other project).

I) PRE-AUDIT SECTION:

Pre-audit also known as Voucher-audit or Administrative Audit and denotes scrutiny and

examination, before releasing the payments.

Types of bills:

1. Suppliers bills.

2. Contractors bills.

3. Miscellaneous Payments.

The scope of Pre-audit also includes scrutiny of receipts of the Corporation. Activities nor-

mally regards as Pre-audit receipt accounting for incoming cash, such as:

Bank Drafts! Banker's cheque

IPOs

Bank Guarantees

Receipt as FDR kept as security deposits with GEB, Irrigation dept.

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CONCEPT OF WORKING CAPITAL MANAGEMENT:-

Working capital means the funds available for day to day operations of the firm. It also indicates

the excess of the current assets over the current liabilities including short term loans. In short we

can say that we can say that the working capital is the capital which is required to meet the day to

day transactions of firm.

There are generally two concept of working capital.

Gross Working Capital.

Net Working Capital.

Gross Working Capital:Gross Working Capital Simply called working capital refers to the firms investment in current as-

sets. Current assets are those that are usually converted into cash within an accounting year.

This Gross Working Capital concept focuses attention on two aspects of current assets manage-

ment, Optimum investment in current assets and financing the current assets.

Net Working Capital:-

Net Working Capital is the access of current assets over the current liabilities. It is also defined asthe difference between current assets and current liabilities. It indicates the liquidity position of

the firm and suggests the extent to which Working Capital may be financed by permanent sources

of funds.

Net Working Capital concept also covers the question of long term and short term sources for fi-

nancing current assets. Management must decide the extent to which current assets should be fi-

nanced with equity capital or borrowed capital.

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Operating Cycle:

In general terms, the Operating Cycle means the time gap between the sales and their actual real-

ization in cash. In case of manufacturing company the operating cycle is as follow:

Conversion of Cash into Raw Material.

Conversion of Raw Material into Work in Progress.

Conversion of Work in Progress into Final goods.

Conversion of Final goods into Account receivable.

Conversion of Account receivable into cash.

A/C Receivables

Cash Finished goods

Raw Materials Work in Process

The time gap between the purchase of raw materials and the collection of cash for sales is referred

to as the operating cycle, whereas the time gap between the payment for raw materials purchasesand the collection of cash for sales is referred as the cash cycle. The operating cycle is the sum of

the inventory period and the accounts receivable period.

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RESEARCH METHODOLOGY:

Objectives:

Working Capital Management is concerned with the problems that arise in attempting to managethe Current Assets, Current Liabilities and the interrelationship between them. Its operational goal

is to manage in such a way that a satisfactory level of working capital is maintained.

Primary Objectives:

The report aims at projecting the capital requirement of the company.

Specific Objectives:

To study changes in Assets and Liabilities structure of the company during the period of

study.

To study the profitability and turnover of the company.

To analyses of various factors determining working capital requirement.

To find out working capital turnover of the company.

To evaluate overall financial performance of the company.

Scope:

This study is conducted at ONGC, Ankleshwar. This topic selected was working capital manage-

ment and financial analysis such as Trend analysis has been used. On the basis on analysis, some

findings and suggestions are also given.

Research Design:

The researcher had to use facts and information already available through financial statement of

earlier years and had to analyze these to make critical evaluation of the available material. Hence,

the type of research is analytical in nature.

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Sources of data collection:

The required data for the study are basically secondary in nature. The data are collected from the

annual reports of the company and from the financial reports.

Periods:

The research study covers a period of five years commencing from 2003 to 2007.

Analytical tools applied:

Trend analysis.

Comparative Analysis.

Least Squares Method.

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Data Analysis:

WORKING CAPITAL ANALYSIS 2003-2004.

(Rs. in Million)

PARTICULARS 2003 2004

CURRENT ASSETS:

Inventories 15,710 24,057

Sundry Debtors 39,359 23,178

Cash & Bank Balance 36,309 55,735

Deposit with Bank 24,781 31,682Loans & Advances and Others 98,811 145,963

TOTAL CURRENT ASSETS 214,970 280,615

CURRENT LIABILITIES:

Current Liabilities and Provisions 87,838 89,080

TOTAL CURRENT LIABILITIES 87,838 89,080

NET WORKING CAPITAL 127,132 191,535

Increase in working capital 64,403

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The Working Capital of 2004 is higher than the year of 2003. So, it shows the increase in working

capital of 64,403.

This increase is mainly due to increase in Inventory, Cash & Bank Balance, Deposits with Banks

& Loans & Advances and Others.

The inventory was also increase from 15,710 to 24,057. Whereas Cash & Bank Balances in-

creased from 36,309 to 55,735. The Deposit with Bank increased from 24,781 to 31,682. Finally

Loans & Advances and Others increased from 98,811 to 145,963. This was the major reason for

boost in working capital.

The current liabilities also increased as compared to previous year by a small amount.


(Rs. in Million)

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PARTICULARS 2004 2005

CURRENT ASSETS:




Deposit with Bank 31,682 36,181

Loans & Advances and Others 145,963 164,004







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The Working Capital of 2004 is higher than the year of 2003. So, it shows the increase in working

capital of 64,403.

This increase is mainly due to increase in Inventory, Cash & Bank Balance, Deposits with Banks

& Loans & Advances and Others.

The inventory was also increase from 15,710 to 24,057. Whereas Cash & Bank Balances in-

creased from 36,309 to 55,735. The Deposit with Bank increased from 24,781 to 31,682. Finally

Loans & Advances and Others increased from 98,811 to 145,963. This was the major reason for

boost in working capital.

The current liabilities also increased as compared to previous year by a small amount.


(Rs. in Million)

PARTICULARS 2005 2006CURRENT ASSETS:




Deposit with Bank 36,181 45,336

Loans & Advances and Others 164,004 216,059







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Here, the working capital of 2006 is higher than the previous year 2005. So, it shows the increase

in working capital but it is still lower increase than earlier proceeding years like 2003-2004.

This increase is mainly due to Inventories, bank deposits and Loans & advances.

The Inventories increased from 25,692 to 30,385. The loan & advances also increase from

164,004 to 216,059. This was the major reasons behind increase in working capital as compared to

previous year. The bank deposit increase from 36,181 to 45,336.

Here the Current Liabilities also decreased compared to previous year from 108,763 to 105,951 but

by small margin.

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(Rs. in Million)PARTICULARS 2006 2007

CURRENT ASSETS:

Inventories 30,385 30338

Sundry Debtors 37,043 27594

Cash & Bank Balance 42,792 136705

Deposit with Bank 45,336 56102

Loans & Advances and Others 216,059 193214

TOTAL CURRENT ASSETS 371,615 443953


Current Liabilities and Provisions 105,951 136890

TOTAL CURRENT LIABILITIES 105,951 136890



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Here, the working capital of 2007 is higher than the previous year 2006. So, it shows the increase

in working capital but it is still lower increase than earlier proceeding years like 2003-2004. The

increase is 41,399, which was 52,769 in 2005-06.

This increase is mainly due to cash and bank balance, bank deposits and current liabilities & provi-

sions.

The cash and bank balance increased from 42,792 to 136705. This was the major reasons behind

increase in working capital as compared to previous year. The bank deposit increase from 45,336

to 56102.

There is a minor decrease in inventories from 30,385 to 30338. The decrease in debtors is around

10000.Loans and advances has also decreased from 216,059 to 193214

YEARS CURRENT ASSETS

2003 214,970

2004 280,615

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2005 321,658

2006 371,615

2007 443,953

YEARS CURRENT LIABILITIES

2003 87,838

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2004 89,080

2005 108,763

2006 105,951

2007 136,890

YEARS WORKING CAPITAL

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2003 127,132

2004 191,5352005 212,895

2006 265,664

2007 307,063

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YEARS INCREASE/DECREASE IN

WORKING CAPITAL

2003 17,883

2004 64,403

2005 21,360

2006 52,769

2007 41,399

FORECASTING THE WORKING CAPITAL

REQUIREMENT FOR THE YEAR

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2008-2009 BY USING LEAST SQUARE METHOD

YEARS WORKING CAPITAL (Y) X X2 XY

2003 127,132 -2 4 -254264

2004 191,535 -1 1 -191535

2005 212,895 0 0 0

2006 265,664 1 1 265664

2007 307,063 2 4 614126

TOTAL 1,104,289 0 10 433991

A = y

----------

n

= 1,104,289

---------------5

= 220,858

B = xy

------------x2

= 433991---------------

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10

= 43,399

Y = A + BX

= 220,858 + (43,399) * 3

= 220,858 + 130,197

= 351,055 /- million

Limitations:

The analysis and interpretation is based on secondary data taken from financial reports.

Working Capital is annually made. Hence, figures at the year ending are considered. Any

change is middle is not considered.

The research study is based on result of limited period i.e. 5 years.

Hence the result obtained can be applied selected period.

FINDINGS:

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Increase in working capital was maintained in the year 2003 as compared to previous year.

The rise in working capital in 2003 was mainly due to rise in inventory, debtors, bank de-

posits, Loans & Advances. Also the major reason for maintaining of increase in w/c was

rise in Bank deposit & debtors compared to previous year. And similar rise in current lia-

bilities by low margin.

Increase in w/c in the year 2004 was much higher than the previous year. This was mainly

due to inventory, cash & bank balance, bank deposits and loans & advances. Specially

loans & Advances increased by huge margin. There was minor increase in current liabili-

ties compared to previous year.

Here, in 2005 the increase in w/c decreased as compared to previous year of 2004. The ma-

jor reasons for decrease in w/c was that although loans & Advances increased by 18,041 &

debtors increased by 14,115. The current liabilities also increased by 19,683.

Here, in 2006 the increase in w/c was higher than that of previous years like 2002, 2003,

2005 etc. This was mainly due to increase in inventories, bank deposits, & huge rise in

Loans & Advances by 52,055. Also, there was a fall in current liabilities by 2,812.

In 2007 there is increase in the working capital but it is less as compared to 2006.In 2006

the increase is 52769 and in 2007 the increase is of 41399. So 11370 less increase than

2006.

CONCLUSION:

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The study was undertaken with the main objective of analyzing financial statement and working

capital management of ONGC. Various aspects related to working capital such as financial state-

ment analysis were also included for the study. The study covers a period of five year commenc-

ing from 2003 to 2007. After analyzing the data collected from the firm it was found that the

ONGC is having a liquidity position. The debtors are managed properly and investments on inven-

tories are also to its optimum level. ONGC is having a sound position. But still the ONGC needs to

carefully plan regarding its investment in current assets.

The management can make used of this project while deciding the future courses of operations of

the firm. The study is also expected to benefit those who are associated with development of the

firm.

SUGGESTIONS:

The investment in the inventory must be kept in optimum. So as to meet all requirements of

the production, sales and demand pattern of firm.

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Working capital should be raised and increased to meet with the projected working capital

requirement.

Inventory should be managed in such a way as to reduce the blockage of funds in invento-

ries.

If the working capital position of the company is favorable. Then the firm should focus on

improving the efficiency of working capital and operational results. This will lead to the

improvement of profit earnings capacity.

Operating expenses should be reduced and sales should be increased since it is a monopo-

listic market so far as oil is concerned.

Day to day working should not be disturbed due to shortage of funds.

BIBLIOGRAPHY:

REFERENCE BOOKS:-

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I. M. Pandey, Financial Management, Ninth Edition, Vikas Publishing House Pvt.

Ltd., New Delhi.

REFERENCE REPORTS:-

Annual Report, Oil & Natural Gas Corporation LTD. 2003 2007.

REFERENCE WEBSITE:-

www.ongcreports.net

www.ongcindia.com
http://www.ongcreports.net/http://www.ongcindia.com/http://www.ongcreports.net/http://www.ongcindia.com/

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