INTRODUCTION
? To determine the extent to which the advanced and modern techniques of
working capital management are being applied in ONGC LTD
? To anal!"e the pattern and si"e of investment in current assets
? To stud! the ratio of short term and long term financing
? To anal!"e the working capital and its structure and suggest optimum
level of working capital keeping in view of risks and imponderables
associated with exploration
? Discuss how to determine the optimal level of current assets
? Describe the relationship between profitabilit!# liquidit!# and risk in the
management of working capital
? $xplain how to classif! working capital according to its %components&
and according to %time& 'ie# either permanent or temporar!(
? Describe the hedging 'maturit! matching( approach to financing and the
advantages)disadvantages of short*versus long*term financing
? $xplain how the finance manager combines the current asset decision
with the liabilit! structure decision
? To suggest measures to improve the current assets structure of ON
understand the two fundamental decision issues in working capital
management*and the trade*offs involved in making these decisions
+
COMPANY PROFILE
OIL AND NATURAL GAS CORPORATION LTD (ONGC LTD.),
one of the Navaratana ,ublic -ector Companies# is .ndia/s natural Oil
$xploration and ,roduction Compan! .t was established in +012 as an
immediate consequence of the .ndustrial ,olic! 3esolution of +012# which laid
the basis for .ndustrial Development in free .ndia with emphasis on public led
growth
.nspired b! the spirit of -elf 3eliance and backed b! the government
policies the ONGC LTD enabled .ndia to break the shackles of the .nternational
Oil 4a5ors whose exploration and production goals in .ndia were determined b!
their global interest rather than b! an! interest in finding# developing and
producing from oilfields in .ndia
.n .ndia# oil was first discovered in Digboi# 6ssam# in the late +0
th
centur! .n +07+# 8nited 9ingdom based :urmah Oil Compan! took over the
6ssam Oil Compan!# which control the oilfields and the onl! refiner! in .ndia#
which was situated in the area .n +0;+# about 71 lakhs tones of oil were
produced from the fields there 6fter .ndependence# multinational companies
such as 3o!al Dutch -hell -tandard Oil and :urmah Oil were invited to explore
for oil but the! insisted that there was no oil available outside the 6ssam tracts
The ONGC LTD/s first discover! was in the Cam ba! basin in +01<
.n+02= it struck oil in 6nkleshwar in Gu5arat Through the +02=s# the ONGC
LTD made the string of oil discoveries in 6ssam The then 8nion 4inister for
Natural 3esources -hri 9D 4alavi!a# who also headed the ONGC LTD#
provided the political clout to counter the foreign oil companies .n earl! +02=s
7
when Caltex# :urmah -hell and -tandard* >acuum Oil Compan! stated that
the! would rather invest in Oil 3efining 4alavi!a insisted since the profits
were concentrated on crude suppl! chain# .ndia/s priorit! should be the
establishment of indigenous oil production
6n important aspect of the ONGC LTD programme was the use of
-oviet and 3omanian assistance in Oil $xploration ,ro5ects 6n agreement with
the -oviet 8nion for an offshore seismic enabled the collection of data from the
Gulf of Camba!# the 6rabian -ea and the $ast Coast Oil was struck in
mba!
?igh stabili"ed in +0@2*@@ and increased rapidl! until +0alue 6dded ,roducts*L,G# Naptha# -9O# $thaneK
,ropane etc
e 3esearch and Development
REGIONS AND WORK CENTRES OF O.N.G.C. LTD.
+ ?eadquarter with ?eadquarter at Dehradun
• Dehra Dun
• New Delhi
7 4umbai Offshore ,ro5ect with ?eadquarter at 4umbai
• 3egional Office # 4umbai
• Other $stablishment in 4aharashtra Coast
• 8ran ,ro5ect
• ?a"ira ,lant
; Central 3egion with ?eadquarter at 9oalkata
+7
• 3egional Office # 9olkata@io@io
• Hest :engal ,ro5ect
• 4ahanadi :engal ,urnia ,ro5ect '4:,(
• Coal :ed 4ethane 'C:4(
A $astern 3egion with ?eadquarter at Na"ira
• -ilchar
• -ivasagar
• Na"ira
• Corhat
• 6gartala
1 Northern 3egion with headquarter at Dehradun
• Hestern Ganga >alle! other than Dehradun
2 -outhern 3egion with 3egional Office at Chennai
• Chennai
• 3a5amundar!
• 9araikal
• ?!derabad Liaison Office
@ Hestern 3egion with 3egional Office at >adodara
• >adodara
• 6nkleshwar
• 6hmedabad
• Camba!
• 4ehsana
• Codhpur
+;
ORGANISATIONAL SET UP
ONGC LTD is having a vast set up within the countr! as well as
abroad This is apparent from the location structure of the organi"ation within
the countr! as shown in the map belowJ
M'( )* O+,'-./'0.)-'1 230 4(
The
above set up in
accordance with the C3C structure is as followsJ
+A
ASSET % 6--64 6sset ' it includes offices and pro5ects at Corhat#
-ibsagar #Na"ira # -ilchar(G:assien D-atellite in 4umbai OffshoreG Neelam
and ?eera in 4umbai Offshore GTripura 6sset G3a5amundar! 6ssetG 9raikal
6ssetG 4umbai high 6ssetG 6nkleshwar 6ssetG 6hmedabad 6sset and 4ehsana
6sset
BASIN% Hestern offshore basin 'it includes 4umbai offshore
block#9uch -aurashtra block#9erala# 9onkan block a deep water area in
south of 4umbai offshore ( Hestern onshore basin 'it includes Camba! #
Codhpur # 6nkleshwar # 4ehsana D 6hmedabad(GCauver! :asinG 9rishna
Godavari :asin G6ssam and 6rrakan :asin G Brontier :asin in ?imala!an
foothills of CammuG C:4):,4)4:, 'Coal belt 4ethane in :engal ,urnia
4ahanadi belt(
PLANT% One at ?a"ira near -urat where gas is produced -econd one is
at 836N# which is an oil and gas producing plant 4ore than 7= downstream
companies including refineries# power plant and fertili"er industries are
dependent upon its supplies
SERVICES J Corporate ?-$ '?ealth -afet! and $nvironment(GDrilling
services G$ngineering services GGeoph!sical services G .nfocom servicesG
Logging servicesG 4edical services G Offshore logisticG -ecurit! -ervices
Technical services D Hell services 6part from the above ONGC LTD is also
having its presence through its subsidiaries namel! 4angalore 3efiner! and
petrochemical Limited '43,L( D ONGC LTD >idesh Limited 'O>L( and
Coint >entures also ONGC LTD has @+27E ownership 43,L has made a
turnaround performance since ONGC LTD has acquired it
OVL% O>L is the wholl! owned subsidiar! of ONGC LTD and it has
been mandated to perform .nternational ,etroleum :usiness to accrete
overseas reserves and bring the reserves replacement ratio close to + .ts has
nine overseas assets and it has activel! seeking more opportunities across the
+1
world Hith the long term target of acquiring 2= 44T,6 of $quit! Oil D Gas
overseas b! 7=71# O>L is currentl! working towards a goal of 7= 44T,6
b! 7=+= O>L/s efforts have been supported wholeheartedl! b! the
Government of .ndia# which has allowed O>L exclusive empowerment 2.-,13
5.-6)5 713'+'-73 for the overseas upstream pro5ects irrespective of
investment involved O>L has been designated as the I-6.'- N)6'1 A,3-78
for overseas petroleum business and is maintained as a permanent participant
in all concerned bilateral interactions and Coint Horking Groups of the
Government of .ndia The sub5ect of external polic! and oil securit! states the
achievement of self reliance through increased indigenous production and
investment in oil abroad
+2
ORGANISATIONAL STRUCTURE
ONGC LTD is aboard managed compan! with Chairman cum 4anaging
Director 'CD4D( at the top and functional directors# nominated independent
directors D government nominated directors below him The present
organi"ational structure of ONGC LTD is shown in the chart below
+@
The hierarch! in the organi"ation structure below the level of functional
directors has been defined under the C3C structure has been organi"ed as
underJ
6ssets ,roducing fields
:asins $xplorator! blocks
-ervices Drilling cementing and mud etc
3egional Offices To provide the common support function
.nstitutes Bor research D development and training
The >irtual Corporate have been entrusted with substantial powers and
shoulder responsibilit! for achievement of the set targets The concept of
>irtual Corporate has been conceptuali"ed so that the asset)basin is a self
contained enterprise# with clear accountabilit! and commensurate authorit!
The concept of ,erformance agreement 'between the management and
virtual corporate( and the services legal agreement '-L6*between the provider
of the service and the user( has also been introduced for rationali"ing the
services and better performance
+<
THEORY OF WORKING CAPITAL
Horking capital management involves management of different
components of working capital such as cash# inventories# accounts receivables#
creditors etc 6 brief description follows regarding various issues involves in the
management if each of the above components of working capital
M'-',393-0 )* 7'2:
The term cash with reference to cash management is used in low senses
.n a narrower sense it includes coins# currenc! notes# cheques# bank draft held
b! a compan! with it and the demands deposits held b! it in banks .n the
broader sense it includes %near cash assets& such as marketable securities and
time deposits with banks
6 distinguishing feature of cash as an asset# irrespective of the firm in
which it is held# is that it does not earn an! substantial return for the business .n
spite of this fact cash is held b! the firm with the following motives
? T+'-2'70.)- 9)0.;3
6 firm enters into variet! of business transaction resulting in both inflows
and outflows .n order to meet the business obligation in such situation# it is
necessar! to maintain adequate cash balance
? P+37'40.)-'+8 9)0.;3
6 firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies such as floods# strikes presentation of bills for
pa!ment earlier than the expected date# sharp increase in the price of raw
material etc
+0
? S(3741'0.;3 9)0.;3
6 firm keeps cash to take advantage of unexpected opportunities#
t!picall! outside the normal course of the business Bor eg the firm ma! make
some profit b! bu!ing securities when their prices all on account of tight mone!
condition etc
? C)9(3-2'0.)- 9)0.;3
:anks provide certain services to their clients free of charge The!
therefore usuall! require clients to keep minimum cash balance with them#
which helps them to earn interest and thus compensate them for the free
services so provided
O
? To determine the extent to which the advanced and modern techniques of
working capital management are being applied in ONGC LTD
? To anal!"e the pattern and si"e of investment in current assets
? To stud! the ratio of short term and long term financing
? To anal!"e the working capital and its structure and suggest optimum
level of working capital keeping in view of risks and imponderables
associated with exploration
? Discuss how to determine the optimal level of current assets
? Describe the relationship between profitabilit!# liquidit!# and risk in the
management of working capital
? $xplain how to classif! working capital according to its %components&
and according to %time& 'ie# either permanent or temporar!(
? Describe the hedging 'maturit! matching( approach to financing and the
advantages)disadvantages of short*versus long*term financing
? $xplain how the finance manager combines the current asset decision
with the liabilit! structure decision
? To suggest measures to improve the current assets structure of ON
understand the two fundamental decision issues in working capital
management*and the trade*offs involved in making these decisions
+
COMPANY PROFILE
OIL AND NATURAL GAS CORPORATION LTD (ONGC LTD.),
one of the Navaratana ,ublic -ector Companies# is .ndia/s natural Oil
$xploration and ,roduction Compan! .t was established in +012 as an
immediate consequence of the .ndustrial ,olic! 3esolution of +012# which laid
the basis for .ndustrial Development in free .ndia with emphasis on public led
growth
.nspired b! the spirit of -elf 3eliance and backed b! the government
policies the ONGC LTD enabled .ndia to break the shackles of the .nternational
Oil 4a5ors whose exploration and production goals in .ndia were determined b!
their global interest rather than b! an! interest in finding# developing and
producing from oilfields in .ndia
.n .ndia# oil was first discovered in Digboi# 6ssam# in the late +0
th
centur! .n +07+# 8nited 9ingdom based :urmah Oil Compan! took over the
6ssam Oil Compan!# which control the oilfields and the onl! refiner! in .ndia#
which was situated in the area .n +0;+# about 71 lakhs tones of oil were
produced from the fields there 6fter .ndependence# multinational companies
such as 3o!al Dutch -hell -tandard Oil and :urmah Oil were invited to explore
for oil but the! insisted that there was no oil available outside the 6ssam tracts
The ONGC LTD/s first discover! was in the Cam ba! basin in +01<
.n+02= it struck oil in 6nkleshwar in Gu5arat Through the +02=s# the ONGC
LTD made the string of oil discoveries in 6ssam The then 8nion 4inister for
Natural 3esources -hri 9D 4alavi!a# who also headed the ONGC LTD#
provided the political clout to counter the foreign oil companies .n earl! +02=s
7
when Caltex# :urmah -hell and -tandard* >acuum Oil Compan! stated that
the! would rather invest in Oil 3efining 4alavi!a insisted since the profits
were concentrated on crude suppl! chain# .ndia/s priorit! should be the
establishment of indigenous oil production
6n important aspect of the ONGC LTD programme was the use of
-oviet and 3omanian assistance in Oil $xploration ,ro5ects 6n agreement with
the -oviet 8nion for an offshore seismic enabled the collection of data from the
Gulf of Camba!# the 6rabian -ea and the $ast Coast Oil was struck in
mba!?igh stabili"ed in +0@2*@@ and increased rapidl! until +0alue 6dded ,roducts*L,G# Naptha# -9O# $thaneK
,ropane etc
e 3esearch and Development
REGIONS AND WORK CENTRES OF O.N.G.C. LTD.
+ ?eadquarter with ?eadquarter at Dehradun
• Dehra Dun
• New Delhi
7 4umbai Offshore ,ro5ect with ?eadquarter at 4umbai
• 3egional Office # 4umbai
• Other $stablishment in 4aharashtra Coast
• 8ran ,ro5ect
• ?a"ira ,lant
; Central 3egion with ?eadquarter at 9oalkata
+7
• 3egional Office # 9olkata@io@io
• Hest :engal ,ro5ect
• 4ahanadi :engal ,urnia ,ro5ect '4:,(
• Coal :ed 4ethane 'C:4(
A $astern 3egion with ?eadquarter at Na"ira
• -ilchar
• -ivasagar
• Na"ira
• Corhat
• 6gartala
1 Northern 3egion with headquarter at Dehradun
• Hestern Ganga >alle! other than Dehradun
2 -outhern 3egion with 3egional Office at Chennai
• Chennai
• 3a5amundar!
• 9araikal
• ?!derabad Liaison Office
@ Hestern 3egion with 3egional Office at >adodara
• >adodara
• 6nkleshwar
• 6hmedabad
• Camba!
• 4ehsana
• Codhpur
+;
ORGANISATIONAL SET UP
ONGC LTD is having a vast set up within the countr! as well as
abroad This is apparent from the location structure of the organi"ation within
the countr! as shown in the map belowJ
M'( )* O+,'-./'0.)-'1 230 4(
The
above set up in
accordance with the C3C structure is as followsJ
+A
ASSET % 6--64 6sset ' it includes offices and pro5ects at Corhat#
-ibsagar #Na"ira # -ilchar(G:assien D-atellite in 4umbai OffshoreG Neelam
and ?eera in 4umbai Offshore GTripura 6sset G3a5amundar! 6ssetG 9raikal
6ssetG 4umbai high 6ssetG 6nkleshwar 6ssetG 6hmedabad 6sset and 4ehsana
6sset
BASIN% Hestern offshore basin 'it includes 4umbai offshore
block#9uch -aurashtra block#9erala# 9onkan block a deep water area in
south of 4umbai offshore ( Hestern onshore basin 'it includes Camba! #
Codhpur # 6nkleshwar # 4ehsana D 6hmedabad(GCauver! :asinG 9rishna
Godavari :asin G6ssam and 6rrakan :asin G Brontier :asin in ?imala!an
foothills of CammuG C:4):,4)4:, 'Coal belt 4ethane in :engal ,urnia
4ahanadi belt(
PLANT% One at ?a"ira near -urat where gas is produced -econd one is
at 836N# which is an oil and gas producing plant 4ore than 7= downstream
companies including refineries# power plant and fertili"er industries are
dependent upon its supplies
SERVICES J Corporate ?-$ '?ealth -afet! and $nvironment(GDrilling
services G$ngineering services GGeoph!sical services G .nfocom servicesG
Logging servicesG 4edical services G Offshore logisticG -ecurit! -ervices
Technical services D Hell services 6part from the above ONGC LTD is also
having its presence through its subsidiaries namel! 4angalore 3efiner! and
petrochemical Limited '43,L( D ONGC LTD >idesh Limited 'O>L( and
Coint >entures also ONGC LTD has @+27E ownership 43,L has made a
turnaround performance since ONGC LTD has acquired it
OVL% O>L is the wholl! owned subsidiar! of ONGC LTD and it has
been mandated to perform .nternational ,etroleum :usiness to accrete
overseas reserves and bring the reserves replacement ratio close to + .ts has
nine overseas assets and it has activel! seeking more opportunities across the
+1
world Hith the long term target of acquiring 2= 44T,6 of $quit! Oil D Gas
overseas b! 7=71# O>L is currentl! working towards a goal of 7= 44T,6
b! 7=+= O>L/s efforts have been supported wholeheartedl! b! the
Government of .ndia# which has allowed O>L exclusive empowerment 2.-,13
5.-6)5 713'+'-73 for the overseas upstream pro5ects irrespective of
investment involved O>L has been designated as the I-6.'- N)6'1 A,3-78
for overseas petroleum business and is maintained as a permanent participant
in all concerned bilateral interactions and Coint Horking Groups of the
Government of .ndia The sub5ect of external polic! and oil securit! states the
achievement of self reliance through increased indigenous production and
investment in oil abroad
+2
ORGANISATIONAL STRUCTURE
ONGC LTD is aboard managed compan! with Chairman cum 4anaging
Director 'CD4D( at the top and functional directors# nominated independent
directors D government nominated directors below him The present
organi"ational structure of ONGC LTD is shown in the chart below
+@
The hierarch! in the organi"ation structure below the level of functional
directors has been defined under the C3C structure has been organi"ed as
underJ
6ssets ,roducing fields
:asins $xplorator! blocks
-ervices Drilling cementing and mud etc
3egional Offices To provide the common support function
.nstitutes Bor research D development and training
The >irtual Corporate have been entrusted with substantial powers and
shoulder responsibilit! for achievement of the set targets The concept of
>irtual Corporate has been conceptuali"ed so that the asset)basin is a self
contained enterprise# with clear accountabilit! and commensurate authorit!
The concept of ,erformance agreement 'between the management and
virtual corporate( and the services legal agreement '-L6*between the provider
of the service and the user( has also been introduced for rationali"ing the
services and better performance
+<
THEORY OF WORKING CAPITAL
Horking capital management involves management of different
components of working capital such as cash# inventories# accounts receivables#
creditors etc 6 brief description follows regarding various issues involves in the
management if each of the above components of working capital
M'-',393-0 )* 7'2:
The term cash with reference to cash management is used in low senses
.n a narrower sense it includes coins# currenc! notes# cheques# bank draft held
b! a compan! with it and the demands deposits held b! it in banks .n the
broader sense it includes %near cash assets& such as marketable securities and
time deposits with banks
6 distinguishing feature of cash as an asset# irrespective of the firm in
which it is held# is that it does not earn an! substantial return for the business .n
spite of this fact cash is held b! the firm with the following motives
? T+'-2'70.)- 9)0.;3
6 firm enters into variet! of business transaction resulting in both inflows
and outflows .n order to meet the business obligation in such situation# it is
necessar! to maintain adequate cash balance
? P+37'40.)-'+8 9)0.;3
6 firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies such as floods# strikes presentation of bills for
pa!ment earlier than the expected date# sharp increase in the price of raw
material etc
+0
? S(3741'0.;3 9)0.;3
6 firm keeps cash to take advantage of unexpected opportunities#
t!picall! outside the normal course of the business Bor eg the firm ma! make
some profit b! bu!ing securities when their prices all on account of tight mone!
condition etc
? C)9(3-2'0.)- 9)0.;3
:anks provide certain services to their clients free of charge The!
therefore usuall! require clients to keep minimum cash balance with them#
which helps them to earn interest and thus compensate them for the free
services so provided
O