Description
This is a documentation is about company analysis of ONGC.
INDUSTRY & COMPANY ANALYSI OF ONGC A. Industry Analysis Content of Industry Analysis 1. Evolution of oil & gas industry 2. Industry trends: Indian and Global perspectives, recent happenings 3. PEST Analysis: Political, economic, social and technical aspects related to the industry 4. Competitor Analysis: Analyse pricing, quality, distribution and partnerships of the nearest competitor of the company 5. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry 1. Evolution of oil & gas industry In late 19th century, when oil was first struck at at Makum, near Margherita in Assam in 1889 the industry evolution started from there. At independence time oil exploration and production was done mostly in North-Eastern region, particularly Assam. At that time India's domestic oil production was just 250,000 tonnes per annum. Considering the importance of oil & gas, the Indian government under its Industrial Policy Resolution of 1954, announced that petroleum would be considered as a core sector in the country. E&P activities were controlled by the government-owned National Oil Companies (NOCs), like Oil & Natural Gas Corporation (ONGC) and Oil India Private Ltd (OIL). E&P Industry growth i. 1889-1947 - Birth and Pre-Independence era In 1889 commercial discovery of crude oil made. In 1891 systematic drilling began. A small refinery built in Margherita in 1893 shifted to Digboi in 1901. Over the next 50 years industry showed modest growth. ii. 1947-1990 - Emergence and Growth of National Oil Companies In 1959 Oil India Private Limited formed. It became a joint venture company between the Indian Government and Burmah Oil Company Limited, UK. In 1981 it became a fully Govt. owned entity. Creation of State owned refineries started thereafter, in 1958 Indian Refineries Limited formed, in 1959 Indian Oil Company Limited, and then in 1964 both merged to form Indian Oil Corporation In 70s Petroleum Sector was largely nationalized as Government took over the operations of IBP, Esso, Caltex and Burma-Shell
iii.
1990-till date In this era petroleum sector started forming. New Exploration Licensing Policy formulated by Government in 1997-98. The aim of this was to give force to exploration in India by providing help to both public and private companies. 100% FDI allowed in refinery sector in July, 2000. FDI limit increased from 26% to 49% in new refinery projects by PSUs in Jan’08. Oil and Natural Gas Commission becomes Oil and Natural Gas Corporation in Feb’94. In 1997 ONGC is declared as one of the Navratna PSU. ONGC becomes a Maharatna PSU in 2010
2. Industry trends: Indian and Global perspectives, recent happenings Up to 1990s, there were three rounds of exploration bidding but there was no success in finding new oil/gas deposits by any foreign companies who only allowed participating in the bidding process. Which led the Indian government to initiate Petroleum Sector Reforms (PSR) in 1990, under which the fourth, fifth, sixth, seventh and eighth rounds of exploration bidding were announced during 1991-94. For the first time, Indian companies with or without prior experience in E&P activities were allowed to participate in the bidding process during these rounds. In 1995, the Government announced the Joint Venture Exploration Programme. But this was viewed as a deterrent by some major private sector oil companies. This, led the Indian government to announce New Exploration Licensing Policy (NELP) in 1997 (operationalized from 1999) as part of its Hydrocarbon Vision 2025, a landmark 25-year planning document. Under this policy, licenses for exploration are awarded only through a competitive bidding system and NOCs are required to compete with Indian and foreign companies to secure Petroleum Exploration Licenses. Other than NELP, some more efforts were made to address the need for achieving energy security. These include: a) Acquisition of Oil and Gas assets in foreign countries. b) To develop strategic storage facilities at identified locations; c) Finding alternate sources of Energy, like Coal Bed Methane, gas hydrates, etc. d) Improved recovery of oil and gas from existing fields by using methods such as Enhanced Oil Recovery and Increased Oil Recovery. With these initiatives taken by the government, currently the area under exploration has increased fourfold. Before implementation of NELP, 11% of Indian sedimentary basins area was under exploration but now with the seven rounds of NELP, the area under exploration has increased to about 50%. Recently in 2002, Reliance Industries Ltd made one of the world’s largest gas discoveries in Jamnagar (about 5 trillion cubic metres). Also the entry of foreign companies like Hardy Oil & Gas, Santo, Geo Global Resources Inc, Newbury, Petronas, Niko Resources and Cairn Energy into India has helped to boost the growth of the industry.
Currently demand for oil in India is high and to meet this demand, government is investing heavily in oil fields abroad. Some of India's state-owned oil firms already have stakes in oil and gas fields in Russia, Iraq, Sudan, Egypt, Libya, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. This Industry has a major role to play in India's energy security and in sustaining high economic growth rate. Reliance Industries owns Krishan Godavari Basin (KG-D6) one of the world’s largest natural gas reserves. It is in between Krishna River and Godavari River spread acroos 50,000 square kilometre. Recently they are investing in shale gas fields in the United States, including a joint venture with Atlas Energy to drill in the Marcellus Shale. In 2011, The British oil company BP showed interest by paying $7.2 billion to buy India’s fast-growing oil and gas industry. It will be BP’s second big deal in two months. BP will take a 30% stake in 23 oil and gas fields operated by Reliance Industries. If they find more oil and gas than expected then Reliance will receive an additional $1.8 billion. For Reliance this deal is important, this deal provides a large hoard of cash and, more important, oil and gas expertise that it needs as it explores and produces in fields that cover about 50,000 square kilometre. The output from Reliance’s most productive gas field in the Bay of Bengal has declined in recent months; with this expertise they might increase the production. This declined production worried analysts and policy makers, who are counting on the field to fuel power plants and fertilizer factories. India approximately imports more than 70% of its energy supplies, in recent years it has opened large areas of territory to oil and gas development. The Indian government estimates shows that it has large reserves of oil (8.8 billion barrels) and gas (50.7 trillion cubic feet). But this is only a small fraction of the oil and gas reserves of Russia — which has an estimated 1,680 trillion cubic feet of natural gas and 60 billion barrels of oil. India’s estimated reserves are still significant, as global demand continues to rise. And the country has tapped only a small fraction of its potential supplies. A lot of those resources lie deep under the seabed around the Indian peninsula and are hard to reach safely but not impossible to reach. 3. PEST Analysis: Political, economic, social and technical aspects related to the industry 1) Political – Crude oil is most important required commodity everywhere. Slight changes in crude oil prices make big difference in the economy. Oil and Gas is not completely de-regulated in India. Studies shows that $10 in the crude oil price decreases the economic growth by 0.5% in OPEC countries. For a developing country like India rise in oil prices makes more influence. India imports 80% of required crude oil, so fluctuation in this makes changes in stock market also. Stock market keeps close eye on crude oil prices. Also the Oil and Gas drives majority of the lives, since they are widely being used everywhere. From Industry to household, oil and gas usage is indispensible. Government regulates them by loosening the policies and defining standards for obeying. 2) Economical – oil industry is in two parties one is oil exploration and second is production industry upstream and refinery industry downstream. India exports
refinery products, net export is around 10% of production. It imports around threequarters of the crude it refines. Indian government work out some set of crosssubsidies to isolate domestic from international prices, such cross-subsidies have serious effects on the Indian companies finances and influences competition amongst them. But government has to bring domestic prices closer to international prices because both public and private oil companies are large part of Indian economy and so cross-subsidy regime will not work. 3) Social – everyday lifestyle depends mostly on oil and gas. Lot of things that we need have to use by any means oil and gas for production or travel purposes. Anything can be hurt by overuse. A population cannot be stable if it destroys the life support systems on which it depends. But today we have options of microwave electric cookers, so these industries have to think before changing prices. 4) Technology – oil and gas are extremely flammable chemicals and highly unstable they need trained labour to handle and highly sophisticated instruments to sore and process. Today’s technology improved a lot which is very effective for this industry. They can have control on environmental impact. India’s world class R&D centre has developed new brands like SERVO brand of Indian Oil.
4. Competitor Analysis: Analyse pricing, quality, distribution and partnerships of the nearest competitor of the company The major players in the industry are the PSUs operating under the Ministry. These PSUs are involved in operations ranging, from exploration to production, refining, marketing, infrastructure and diverse multi-sector operations. Some of the leading players in this industry are – I. Gas Authority of India Ltd. (GAIL) - GAIL is India’s flagship natural gas company, which does operations like E&P, processing, transmission, distribution and marketing. GAIL becoming leader in clean fuel industrialisation and is also expanding its business to become a player in the international market. GAIL’s infrastructure comprises of – ? 5,800 kilometres of high pressure trunk pipeline of natural gas, with capacity of 130 Million Metric Standard Cubic Metres per Day (MMSCMD) to transfer natural gas across the country. ? 1.2 Million Metric Tonnes per Annum (MMTPA) of LPG production with 7 LPG producing units. ? 3 coal bed methane blocks and 30 oil & gas exploration blocks. Oil India Limited (OIL) - OIL has more than 100,000 square kilometres of licence area, where this is engaged in the business of E&P and development of crude oil and natural gas, transportation of crude oil and production of LPG. Today, it is an integrated upstream petroleum company. Bharat Petroleum Corporation Limited (BPCL) – It is India’s one of largest PSU companies, which is involved in the refining and retailing of petroleum products, like
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Speed brand of petrol, high speed diesel, auto lubricants, LPG and aviation turbine fuel. BPCL has a lot of refineries in India. Some of these include the Mumbai Refinery (12 MMT capacity), Kochi Refinery (7.5 MMT capacity) and Numaligarh Refinery (3 MMT capacity). It is also a Fortune Global 500 company ranked at 225th with revenues $44582 million. Hindustan Petroleum Corporation Limited (HPCL) – It is 2nd largest company involved in refining and retailing of petroleum products. HPCL has a number of refineries, some of which are located at Mumbai (5.5 MMTPA capacity) and its Visakhapatnam (7.5 MMTPA capacity). HPCL is also a Fortune 500 company ranked 267th position with $38885 million revenue. Indian Oil Corporation Limited (IOCL) - IOCL was formed in 1964 with the merger of Indian Oil Company Ltd and Indian Refineries Ltd. It is India’s largest oil company and involved in refining and retailing of petroleum products (petrol, diesel, lubricants, LPG, auto LPG, aviation turbine fuel, naphtha, bitumen, paraffin, kerosene and mineral turpentine oil). IOCL has number of refineries located at Haldia, Panipat, Digboi, Barauni, Guwahati, Mathura and Bongaigaon are some of it. It also has controlling stake in CPCL Limited, which located at Chennai. IOCL’s total capacity is about 55.20 MMTPA with approximately 16,000 petrol stations. This is the highest ranking Indian company in the Fortune Global 500 listing (83rd ranking with revenues $86016 millions) and 20th largest petroleum company in the world; it also ranks at 1st for petroleum trading the NOCs in the Asia-Pacific region.
Besides, these public sector companies in the oil and gas sector, India have some private sector including Indian as well as foreign/transnational companies. Key private sectors are Reliance Industries, British Gas and Cairn Energy. Some of major developments in the oil and gas industry by private sectors include? ? Reliance Industries finding of Natural Gas at KG basin (offshore) which is world’s biggest finding ever. Cairn Energy discovered oil in 2004 at Rajasthan (onshore), with estimated production capacity of 100,000 barrels per day and since then invested more than $1 billion in that state. Shell, a transnational company and Fortune 500 company, has Shell LNG project at Hazira, which is 2nd LNG project in India with investment of $650 million. In future three more LNG terminals are expected to come. British Gas with interest in natural gas, E&P and city gas projects has primary operation in India, mainly focusing on E&P and city gas distribution. They have invested more than $800 million in its upstream and downstream activities. BG India also has 30% stakes in Panna Mukta Tapti fields with total investment of $900 million. British Petroleum (BP) has signed a Memorandum of Understanding with HPCL, to set up 9MMTPA refinery in Bhatinda with investment of $444 million. And also they have partnered with RIL for deep-water exploration.
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5. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry I. Strength - Strong economic growth Alternative options Enhanced international presence Scope of conservation Industry can use India’s growing economic strength and International presence to enhance our supply set-ups through sea routes or the pipelines, both in quantity and quality. Money should be invested in either buying or extending better technologies to produce more energy. Use growing international presence to create regional bodies to enhance not only co-operation in securing energy but also to control terrorism. Invest more in environmental friendly energy. II. Weakness - Highly dependent on import Started late in acquisition Geo-political disturbance Policy which defeats self Invest more in finding crude oil and natural gas. Obtain new sources through more practical policies and re-design policies to increase supply chains, sense of interdependence, enhancing technology. III. Opportunities - New resources Technology improvement Interdependence on nations Increasing supply channels IV. Threats - Production stagnation Increasing demand Lack of regional institutions Threat from terrorists Impact on Environment
B. Company Analysis: 1. Company description (a brief introduction regarding what businesses the company is into) Oil and Natural Gas Corporation Limited (ONGC) was incorporated on June 23, 1993. It’s an Indian public sector petroleum company. It is ranked 357th in Fortune Company ranking with $30746 million revenue, and contributes more than 77% of India's crude oil production and 81% of India's natural gas production. It is one of the highest profitmaking corporations in India. It was set up commission on August 14, 1956. Indian government holds 74.14% equity stake in this company. ONGC is one of the flagship company of India and approximately 40,000 professionals made this flagship company. The company is ?Maharatna? company mostly engaged in the oil and gas exploration and production activities. ONGC has two segments- 1) exploration & production 2) Refining. The refining segment of the company is based on its 71.62% stake in MRPL (Mangalore Refinery and Petrochemicals Ltd.). ONGC mainly operates in India; however it also has global presence (13% of revenue) through its 100% subsidiary ONGC Videsh Limited (OVL). 2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Location of headquarters - Tel Bhavan, Dehradun - 248 003. Year of founding - August 14, 1956 Number of employees – 32862 employees Top management - Sudhir Vasudeva (Chairman and MD) The Company is managed by the Board of Directors, who formulates strategies, policies and reviews its performance periodically. The Chairman & Managing Director (CMD) along with six whole-time Directors manages the business of the Company under supervision, control and guidance of the Board. The Board of Directors comprises of Executive (Functional) and Non-executive Directors. The Board has 14 members, of which 7 are Functional Directors including the Chairman & Managing Director. The CMD is holds additional charge of Director (Finance, w.e.f 4th July, 2007), on adhoc basis, pending appointment of regular incumbent for which Government of India has initiated action. Other 6 members are Non-executive Directors of which 2 part-time official Directors and 4 part-time non-official Directors, all are nominated by the Government of India. IOC nominee Director ceases w.e.f 31st July, 2007. Sometimes to get the experience and business strategies, C&MD, Oil India Limited and Managing Director, ONGC Videsh Ltd. are invited to the meetings of the Board. Mr R. S. Sharma, Director (Finance w.e.f 4th July, 2007). Padma Bhushan, Dr. R.K. Pachauri, Director General, The Energy Research Institute (TERI),
Mr V.P.Singh, former C&MD, IFCI, P.K.Choudhury, Vice Chairman and Group CEO, ICRA Ltd. and Padma Shree Dr. Bakul H. Dholakia, Director, IIM Ahmedabad were appointed as part-time independent Directors on the Board from 26th June, 2006. Share holding pattern Holder's Name Promoters Other Companies Financial Institutions Foreign Institutions General Public N Banks Mutual Funds Foreign/NRI Others Foreign Industries No of Shares 5922546522 1021747363 861017219 452285205 153718081 137290245 4117530 2766259 1696 % Share Holding 69.23% 11.94% 10.06% 5.29% 1.80% 1.60% 0.05% 0.03% 0.00%
ps- data from http://economictimes.indiatimes.com/oil-and-natural-gas-corporationltd/shareholding/companyid-11599.cms 3. Financial performance of the company: Sales, net profit, segment wise performance of the past 1 year ONGC: Sales Performance Q4 - FY’12 Crude oil ONGC Crude oil-JVs Total Crude oil Gas -ONGC Gas -JVs Total Gas LPG Naphtha C2-C3 SKO Total VAPs MMT MMT MMT BCM BCM BCM ’000 MT ’000 MT ’000 MT ’000 MT MMT 4.843 1.091 5.934 4.750 0.746 5.226 266 403 117 26 812 FY’12 19.682 3.397 23.079 18.203 1.971 20.174 1033 1557 461 79 3130 FY’11 20.379 2.548 22.927 18.224 2.025 20.249 1057 1600 387 118 3162 Rs Billion
ONGC: Financial Performance – Q4 - FY’12 FY’12 FY’11 % increase in FY’12 over FY’11 15.083
Sales Turnover Less: Trade Purchase Less: Statutory Levies Operating Revenue net of Levies Add: Other Income Add: Exceptional Item Less: Operating Exp. (incl Provisions & Write off) Less: Variation in Stock PBDIT DD&A Interest & Extra-ordinary Item Profit Before Tax Provision for Tax Profit After Tax ONGC: Revenue –
189.76 0.01 45.21 144.54 15.13 (0.02) 33.65 0.34 125.66 49.07 0.22 76.37 19.93 56.44
761.30 0.02 169.90 591.38 52.36 31.41 140.91 (0.92) 535.16 168.39 0.35 366.42 115.19 251.23
661.52 0.14 142.35 519.03 58.89 -142.17 (0.12) 435.87 159.43 0.25 276.19 86.95 189.24
32.66 32.47 32.75 Rs Billion
Q4 - FY’12 Crude oil Gas LPG Naphtha C2C3 SKO Others Profit Petroleum Retail Outlet Total Sales Nominated Blocks Joint Venture Share Crude Oil - Total 124.03 40.85 6.65 21.36 3.78 0.01 0.60 (7.73) 0.01 189.76 86.18 38.05 124.23
FY’12 530.20 146.97 23.71 72.17 12.74 1.52 1.85 (27.89) 0.03 761.30 399.90 130.30 530.20
FY’11 461.02 130.51 18.37 56.34 8.80 0.68 0.97 (15.34) 0.17 661.52 390.11 70.91 461.02 Rs Billion
4. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strengths 1) Only company in India involved in offshore construction activities related to oil and gas project for more than two decades. 2) ONGC has established network in India. Have experience in both offshore and onshore oil exploration. 3) High profit making. 4) Strong and renowned brand name in India. 5) Contributes in producing 77% of India's crude oil and 81% of India's natural gas. 6) Produces about 30% of India's crude oil requirement. 7) Large skilled manpower. Weakness 1) Legal issues as it is controlled by petroleum ministry. 2) Employee management issue because huge number of employees. 3) No major discovery in the past; there is lower realization per barrels compared to international prices. 4) Human rights and rehabilitation issues. Opportunities 1) 2) 3) 4) Threats 1) Security of personal working because some issues in some aeras. 2) In some areas exploration campaign, company involves high technology, high investment which attracts high risk. 3) High Competition. 4) Hybrid and electric cars in the market 5. Various strategies employed by the company in the course of conducting ONGC has two subsidiaries ONGC VIDESH LTD (OVL) and MANGALORE REFINERY AND PETROCHEMICAL LTD (MRPL). ONGC VIDESH LTD (OVL) OVL is the wholly-owned subsidiary of ONGC for overseas E&P activities, registered significant performance during 2008-09.OVL acquired 7 E&P projects in 5 countries during the year. The joint company presently has participation in 40 projects in 16 countries. Among Increasing in fuel/oil prices. Increasing natural gas market for more sales. More discoveries in oil well. Expanding market to abroad with help of ONGC VIDESH LTD (OVL)
new project, San Cristobal Project in Venezuela and Imperial Energy in Russia, are under production phase. And at some countries in like Brazil, Colombia it is at exploration phase. Direct Subsidiaries of OVL are a) ONGC Nile Ganga B.V. (ONGBV) b) ONGC Narmada Limited (ONL) c) ONGC Amazon Alaknanda Limited (OAAL) d) Jarpeno Limited Joint Venture of OVL is ONGC Mittal Energy Limited (OMEL). MANGALORE REFINERY AND PETROCHEMICAL LTD (MRPL) ONGC holds 71% stakes in MRPL. ONGC and MRPL have achieved new heights in excellence in both financial and operational performance. MRPL is major exporter of petroleum products. The joint venture of MRPL and Shell Gas B.V. with Netherland 'Shell MRPL Aviation Fuel and Services Private Limited' for marketing of Aviation Turbine Fuel (ATF) to both Domestic and International airlines at Indian Airports commenced its operations in August 2008 at Bengaluru Airport and it is progressing satisfactorily.
Online Resources 1. 2. 3. 4.
http://www.dnb.co.in http://en.wikipedia.org/wiki/Oil_and_Natural_Gas_Corporation http://www.ongcindia.com/history.asp http://www.ongcindia.com/Investor_Info_Results.asp
doc_894527812.docx
This is a documentation is about company analysis of ONGC.
INDUSTRY & COMPANY ANALYSI OF ONGC A. Industry Analysis Content of Industry Analysis 1. Evolution of oil & gas industry 2. Industry trends: Indian and Global perspectives, recent happenings 3. PEST Analysis: Political, economic, social and technical aspects related to the industry 4. Competitor Analysis: Analyse pricing, quality, distribution and partnerships of the nearest competitor of the company 5. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry 1. Evolution of oil & gas industry In late 19th century, when oil was first struck at at Makum, near Margherita in Assam in 1889 the industry evolution started from there. At independence time oil exploration and production was done mostly in North-Eastern region, particularly Assam. At that time India's domestic oil production was just 250,000 tonnes per annum. Considering the importance of oil & gas, the Indian government under its Industrial Policy Resolution of 1954, announced that petroleum would be considered as a core sector in the country. E&P activities were controlled by the government-owned National Oil Companies (NOCs), like Oil & Natural Gas Corporation (ONGC) and Oil India Private Ltd (OIL). E&P Industry growth i. 1889-1947 - Birth and Pre-Independence era In 1889 commercial discovery of crude oil made. In 1891 systematic drilling began. A small refinery built in Margherita in 1893 shifted to Digboi in 1901. Over the next 50 years industry showed modest growth. ii. 1947-1990 - Emergence and Growth of National Oil Companies In 1959 Oil India Private Limited formed. It became a joint venture company between the Indian Government and Burmah Oil Company Limited, UK. In 1981 it became a fully Govt. owned entity. Creation of State owned refineries started thereafter, in 1958 Indian Refineries Limited formed, in 1959 Indian Oil Company Limited, and then in 1964 both merged to form Indian Oil Corporation In 70s Petroleum Sector was largely nationalized as Government took over the operations of IBP, Esso, Caltex and Burma-Shell
iii.
1990-till date In this era petroleum sector started forming. New Exploration Licensing Policy formulated by Government in 1997-98. The aim of this was to give force to exploration in India by providing help to both public and private companies. 100% FDI allowed in refinery sector in July, 2000. FDI limit increased from 26% to 49% in new refinery projects by PSUs in Jan’08. Oil and Natural Gas Commission becomes Oil and Natural Gas Corporation in Feb’94. In 1997 ONGC is declared as one of the Navratna PSU. ONGC becomes a Maharatna PSU in 2010
2. Industry trends: Indian and Global perspectives, recent happenings Up to 1990s, there were three rounds of exploration bidding but there was no success in finding new oil/gas deposits by any foreign companies who only allowed participating in the bidding process. Which led the Indian government to initiate Petroleum Sector Reforms (PSR) in 1990, under which the fourth, fifth, sixth, seventh and eighth rounds of exploration bidding were announced during 1991-94. For the first time, Indian companies with or without prior experience in E&P activities were allowed to participate in the bidding process during these rounds. In 1995, the Government announced the Joint Venture Exploration Programme. But this was viewed as a deterrent by some major private sector oil companies. This, led the Indian government to announce New Exploration Licensing Policy (NELP) in 1997 (operationalized from 1999) as part of its Hydrocarbon Vision 2025, a landmark 25-year planning document. Under this policy, licenses for exploration are awarded only through a competitive bidding system and NOCs are required to compete with Indian and foreign companies to secure Petroleum Exploration Licenses. Other than NELP, some more efforts were made to address the need for achieving energy security. These include: a) Acquisition of Oil and Gas assets in foreign countries. b) To develop strategic storage facilities at identified locations; c) Finding alternate sources of Energy, like Coal Bed Methane, gas hydrates, etc. d) Improved recovery of oil and gas from existing fields by using methods such as Enhanced Oil Recovery and Increased Oil Recovery. With these initiatives taken by the government, currently the area under exploration has increased fourfold. Before implementation of NELP, 11% of Indian sedimentary basins area was under exploration but now with the seven rounds of NELP, the area under exploration has increased to about 50%. Recently in 2002, Reliance Industries Ltd made one of the world’s largest gas discoveries in Jamnagar (about 5 trillion cubic metres). Also the entry of foreign companies like Hardy Oil & Gas, Santo, Geo Global Resources Inc, Newbury, Petronas, Niko Resources and Cairn Energy into India has helped to boost the growth of the industry.
Currently demand for oil in India is high and to meet this demand, government is investing heavily in oil fields abroad. Some of India's state-owned oil firms already have stakes in oil and gas fields in Russia, Iraq, Sudan, Egypt, Libya, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. This Industry has a major role to play in India's energy security and in sustaining high economic growth rate. Reliance Industries owns Krishan Godavari Basin (KG-D6) one of the world’s largest natural gas reserves. It is in between Krishna River and Godavari River spread acroos 50,000 square kilometre. Recently they are investing in shale gas fields in the United States, including a joint venture with Atlas Energy to drill in the Marcellus Shale. In 2011, The British oil company BP showed interest by paying $7.2 billion to buy India’s fast-growing oil and gas industry. It will be BP’s second big deal in two months. BP will take a 30% stake in 23 oil and gas fields operated by Reliance Industries. If they find more oil and gas than expected then Reliance will receive an additional $1.8 billion. For Reliance this deal is important, this deal provides a large hoard of cash and, more important, oil and gas expertise that it needs as it explores and produces in fields that cover about 50,000 square kilometre. The output from Reliance’s most productive gas field in the Bay of Bengal has declined in recent months; with this expertise they might increase the production. This declined production worried analysts and policy makers, who are counting on the field to fuel power plants and fertilizer factories. India approximately imports more than 70% of its energy supplies, in recent years it has opened large areas of territory to oil and gas development. The Indian government estimates shows that it has large reserves of oil (8.8 billion barrels) and gas (50.7 trillion cubic feet). But this is only a small fraction of the oil and gas reserves of Russia — which has an estimated 1,680 trillion cubic feet of natural gas and 60 billion barrels of oil. India’s estimated reserves are still significant, as global demand continues to rise. And the country has tapped only a small fraction of its potential supplies. A lot of those resources lie deep under the seabed around the Indian peninsula and are hard to reach safely but not impossible to reach. 3. PEST Analysis: Political, economic, social and technical aspects related to the industry 1) Political – Crude oil is most important required commodity everywhere. Slight changes in crude oil prices make big difference in the economy. Oil and Gas is not completely de-regulated in India. Studies shows that $10 in the crude oil price decreases the economic growth by 0.5% in OPEC countries. For a developing country like India rise in oil prices makes more influence. India imports 80% of required crude oil, so fluctuation in this makes changes in stock market also. Stock market keeps close eye on crude oil prices. Also the Oil and Gas drives majority of the lives, since they are widely being used everywhere. From Industry to household, oil and gas usage is indispensible. Government regulates them by loosening the policies and defining standards for obeying. 2) Economical – oil industry is in two parties one is oil exploration and second is production industry upstream and refinery industry downstream. India exports
refinery products, net export is around 10% of production. It imports around threequarters of the crude it refines. Indian government work out some set of crosssubsidies to isolate domestic from international prices, such cross-subsidies have serious effects on the Indian companies finances and influences competition amongst them. But government has to bring domestic prices closer to international prices because both public and private oil companies are large part of Indian economy and so cross-subsidy regime will not work. 3) Social – everyday lifestyle depends mostly on oil and gas. Lot of things that we need have to use by any means oil and gas for production or travel purposes. Anything can be hurt by overuse. A population cannot be stable if it destroys the life support systems on which it depends. But today we have options of microwave electric cookers, so these industries have to think before changing prices. 4) Technology – oil and gas are extremely flammable chemicals and highly unstable they need trained labour to handle and highly sophisticated instruments to sore and process. Today’s technology improved a lot which is very effective for this industry. They can have control on environmental impact. India’s world class R&D centre has developed new brands like SERVO brand of Indian Oil.
4. Competitor Analysis: Analyse pricing, quality, distribution and partnerships of the nearest competitor of the company The major players in the industry are the PSUs operating under the Ministry. These PSUs are involved in operations ranging, from exploration to production, refining, marketing, infrastructure and diverse multi-sector operations. Some of the leading players in this industry are – I. Gas Authority of India Ltd. (GAIL) - GAIL is India’s flagship natural gas company, which does operations like E&P, processing, transmission, distribution and marketing. GAIL becoming leader in clean fuel industrialisation and is also expanding its business to become a player in the international market. GAIL’s infrastructure comprises of – ? 5,800 kilometres of high pressure trunk pipeline of natural gas, with capacity of 130 Million Metric Standard Cubic Metres per Day (MMSCMD) to transfer natural gas across the country. ? 1.2 Million Metric Tonnes per Annum (MMTPA) of LPG production with 7 LPG producing units. ? 3 coal bed methane blocks and 30 oil & gas exploration blocks. Oil India Limited (OIL) - OIL has more than 100,000 square kilometres of licence area, where this is engaged in the business of E&P and development of crude oil and natural gas, transportation of crude oil and production of LPG. Today, it is an integrated upstream petroleum company. Bharat Petroleum Corporation Limited (BPCL) – It is India’s one of largest PSU companies, which is involved in the refining and retailing of petroleum products, like
II.
III.
IV.
V.
Speed brand of petrol, high speed diesel, auto lubricants, LPG and aviation turbine fuel. BPCL has a lot of refineries in India. Some of these include the Mumbai Refinery (12 MMT capacity), Kochi Refinery (7.5 MMT capacity) and Numaligarh Refinery (3 MMT capacity). It is also a Fortune Global 500 company ranked at 225th with revenues $44582 million. Hindustan Petroleum Corporation Limited (HPCL) – It is 2nd largest company involved in refining and retailing of petroleum products. HPCL has a number of refineries, some of which are located at Mumbai (5.5 MMTPA capacity) and its Visakhapatnam (7.5 MMTPA capacity). HPCL is also a Fortune 500 company ranked 267th position with $38885 million revenue. Indian Oil Corporation Limited (IOCL) - IOCL was formed in 1964 with the merger of Indian Oil Company Ltd and Indian Refineries Ltd. It is India’s largest oil company and involved in refining and retailing of petroleum products (petrol, diesel, lubricants, LPG, auto LPG, aviation turbine fuel, naphtha, bitumen, paraffin, kerosene and mineral turpentine oil). IOCL has number of refineries located at Haldia, Panipat, Digboi, Barauni, Guwahati, Mathura and Bongaigaon are some of it. It also has controlling stake in CPCL Limited, which located at Chennai. IOCL’s total capacity is about 55.20 MMTPA with approximately 16,000 petrol stations. This is the highest ranking Indian company in the Fortune Global 500 listing (83rd ranking with revenues $86016 millions) and 20th largest petroleum company in the world; it also ranks at 1st for petroleum trading the NOCs in the Asia-Pacific region.
Besides, these public sector companies in the oil and gas sector, India have some private sector including Indian as well as foreign/transnational companies. Key private sectors are Reliance Industries, British Gas and Cairn Energy. Some of major developments in the oil and gas industry by private sectors include? ? Reliance Industries finding of Natural Gas at KG basin (offshore) which is world’s biggest finding ever. Cairn Energy discovered oil in 2004 at Rajasthan (onshore), with estimated production capacity of 100,000 barrels per day and since then invested more than $1 billion in that state. Shell, a transnational company and Fortune 500 company, has Shell LNG project at Hazira, which is 2nd LNG project in India with investment of $650 million. In future three more LNG terminals are expected to come. British Gas with interest in natural gas, E&P and city gas projects has primary operation in India, mainly focusing on E&P and city gas distribution. They have invested more than $800 million in its upstream and downstream activities. BG India also has 30% stakes in Panna Mukta Tapti fields with total investment of $900 million. British Petroleum (BP) has signed a Memorandum of Understanding with HPCL, to set up 9MMTPA refinery in Bhatinda with investment of $444 million. And also they have partnered with RIL for deep-water exploration.
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5. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry I. Strength - Strong economic growth Alternative options Enhanced international presence Scope of conservation Industry can use India’s growing economic strength and International presence to enhance our supply set-ups through sea routes or the pipelines, both in quantity and quality. Money should be invested in either buying or extending better technologies to produce more energy. Use growing international presence to create regional bodies to enhance not only co-operation in securing energy but also to control terrorism. Invest more in environmental friendly energy. II. Weakness - Highly dependent on import Started late in acquisition Geo-political disturbance Policy which defeats self Invest more in finding crude oil and natural gas. Obtain new sources through more practical policies and re-design policies to increase supply chains, sense of interdependence, enhancing technology. III. Opportunities - New resources Technology improvement Interdependence on nations Increasing supply channels IV. Threats - Production stagnation Increasing demand Lack of regional institutions Threat from terrorists Impact on Environment
B. Company Analysis: 1. Company description (a brief introduction regarding what businesses the company is into) Oil and Natural Gas Corporation Limited (ONGC) was incorporated on June 23, 1993. It’s an Indian public sector petroleum company. It is ranked 357th in Fortune Company ranking with $30746 million revenue, and contributes more than 77% of India's crude oil production and 81% of India's natural gas production. It is one of the highest profitmaking corporations in India. It was set up commission on August 14, 1956. Indian government holds 74.14% equity stake in this company. ONGC is one of the flagship company of India and approximately 40,000 professionals made this flagship company. The company is ?Maharatna? company mostly engaged in the oil and gas exploration and production activities. ONGC has two segments- 1) exploration & production 2) Refining. The refining segment of the company is based on its 71.62% stake in MRPL (Mangalore Refinery and Petrochemicals Ltd.). ONGC mainly operates in India; however it also has global presence (13% of revenue) through its 100% subsidiary ONGC Videsh Limited (OVL). 2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Location of headquarters - Tel Bhavan, Dehradun - 248 003. Year of founding - August 14, 1956 Number of employees – 32862 employees Top management - Sudhir Vasudeva (Chairman and MD) The Company is managed by the Board of Directors, who formulates strategies, policies and reviews its performance periodically. The Chairman & Managing Director (CMD) along with six whole-time Directors manages the business of the Company under supervision, control and guidance of the Board. The Board of Directors comprises of Executive (Functional) and Non-executive Directors. The Board has 14 members, of which 7 are Functional Directors including the Chairman & Managing Director. The CMD is holds additional charge of Director (Finance, w.e.f 4th July, 2007), on adhoc basis, pending appointment of regular incumbent for which Government of India has initiated action. Other 6 members are Non-executive Directors of which 2 part-time official Directors and 4 part-time non-official Directors, all are nominated by the Government of India. IOC nominee Director ceases w.e.f 31st July, 2007. Sometimes to get the experience and business strategies, C&MD, Oil India Limited and Managing Director, ONGC Videsh Ltd. are invited to the meetings of the Board. Mr R. S. Sharma, Director (Finance w.e.f 4th July, 2007). Padma Bhushan, Dr. R.K. Pachauri, Director General, The Energy Research Institute (TERI),
Mr V.P.Singh, former C&MD, IFCI, P.K.Choudhury, Vice Chairman and Group CEO, ICRA Ltd. and Padma Shree Dr. Bakul H. Dholakia, Director, IIM Ahmedabad were appointed as part-time independent Directors on the Board from 26th June, 2006. Share holding pattern Holder's Name Promoters Other Companies Financial Institutions Foreign Institutions General Public N Banks Mutual Funds Foreign/NRI Others Foreign Industries No of Shares 5922546522 1021747363 861017219 452285205 153718081 137290245 4117530 2766259 1696 % Share Holding 69.23% 11.94% 10.06% 5.29% 1.80% 1.60% 0.05% 0.03% 0.00%
ps- data from http://economictimes.indiatimes.com/oil-and-natural-gas-corporationltd/shareholding/companyid-11599.cms 3. Financial performance of the company: Sales, net profit, segment wise performance of the past 1 year ONGC: Sales Performance Q4 - FY’12 Crude oil ONGC Crude oil-JVs Total Crude oil Gas -ONGC Gas -JVs Total Gas LPG Naphtha C2-C3 SKO Total VAPs MMT MMT MMT BCM BCM BCM ’000 MT ’000 MT ’000 MT ’000 MT MMT 4.843 1.091 5.934 4.750 0.746 5.226 266 403 117 26 812 FY’12 19.682 3.397 23.079 18.203 1.971 20.174 1033 1557 461 79 3130 FY’11 20.379 2.548 22.927 18.224 2.025 20.249 1057 1600 387 118 3162 Rs Billion
ONGC: Financial Performance – Q4 - FY’12 FY’12 FY’11 % increase in FY’12 over FY’11 15.083
Sales Turnover Less: Trade Purchase Less: Statutory Levies Operating Revenue net of Levies Add: Other Income Add: Exceptional Item Less: Operating Exp. (incl Provisions & Write off) Less: Variation in Stock PBDIT DD&A Interest & Extra-ordinary Item Profit Before Tax Provision for Tax Profit After Tax ONGC: Revenue –
189.76 0.01 45.21 144.54 15.13 (0.02) 33.65 0.34 125.66 49.07 0.22 76.37 19.93 56.44
761.30 0.02 169.90 591.38 52.36 31.41 140.91 (0.92) 535.16 168.39 0.35 366.42 115.19 251.23
661.52 0.14 142.35 519.03 58.89 -142.17 (0.12) 435.87 159.43 0.25 276.19 86.95 189.24
32.66 32.47 32.75 Rs Billion
Q4 - FY’12 Crude oil Gas LPG Naphtha C2C3 SKO Others Profit Petroleum Retail Outlet Total Sales Nominated Blocks Joint Venture Share Crude Oil - Total 124.03 40.85 6.65 21.36 3.78 0.01 0.60 (7.73) 0.01 189.76 86.18 38.05 124.23
FY’12 530.20 146.97 23.71 72.17 12.74 1.52 1.85 (27.89) 0.03 761.30 399.90 130.30 530.20
FY’11 461.02 130.51 18.37 56.34 8.80 0.68 0.97 (15.34) 0.17 661.52 390.11 70.91 461.02 Rs Billion
4. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strengths 1) Only company in India involved in offshore construction activities related to oil and gas project for more than two decades. 2) ONGC has established network in India. Have experience in both offshore and onshore oil exploration. 3) High profit making. 4) Strong and renowned brand name in India. 5) Contributes in producing 77% of India's crude oil and 81% of India's natural gas. 6) Produces about 30% of India's crude oil requirement. 7) Large skilled manpower. Weakness 1) Legal issues as it is controlled by petroleum ministry. 2) Employee management issue because huge number of employees. 3) No major discovery in the past; there is lower realization per barrels compared to international prices. 4) Human rights and rehabilitation issues. Opportunities 1) 2) 3) 4) Threats 1) Security of personal working because some issues in some aeras. 2) In some areas exploration campaign, company involves high technology, high investment which attracts high risk. 3) High Competition. 4) Hybrid and electric cars in the market 5. Various strategies employed by the company in the course of conducting ONGC has two subsidiaries ONGC VIDESH LTD (OVL) and MANGALORE REFINERY AND PETROCHEMICAL LTD (MRPL). ONGC VIDESH LTD (OVL) OVL is the wholly-owned subsidiary of ONGC for overseas E&P activities, registered significant performance during 2008-09.OVL acquired 7 E&P projects in 5 countries during the year. The joint company presently has participation in 40 projects in 16 countries. Among Increasing in fuel/oil prices. Increasing natural gas market for more sales. More discoveries in oil well. Expanding market to abroad with help of ONGC VIDESH LTD (OVL)
new project, San Cristobal Project in Venezuela and Imperial Energy in Russia, are under production phase. And at some countries in like Brazil, Colombia it is at exploration phase. Direct Subsidiaries of OVL are a) ONGC Nile Ganga B.V. (ONGBV) b) ONGC Narmada Limited (ONL) c) ONGC Amazon Alaknanda Limited (OAAL) d) Jarpeno Limited Joint Venture of OVL is ONGC Mittal Energy Limited (OMEL). MANGALORE REFINERY AND PETROCHEMICAL LTD (MRPL) ONGC holds 71% stakes in MRPL. ONGC and MRPL have achieved new heights in excellence in both financial and operational performance. MRPL is major exporter of petroleum products. The joint venture of MRPL and Shell Gas B.V. with Netherland 'Shell MRPL Aviation Fuel and Services Private Limited' for marketing of Aviation Turbine Fuel (ATF) to both Domestic and International airlines at Indian Airports commenced its operations in August 2008 at Bengaluru Airport and it is progressing satisfactorily.
Online Resources 1. 2. 3. 4.
http://www.dnb.co.in http://en.wikipedia.org/wiki/Oil_and_Natural_Gas_Corporation http://www.ongcindia.com/history.asp http://www.ongcindia.com/Investor_Info_Results.asp
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