ongc india

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Presented By : Group 11 , Sec A


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INTRODUCTION

Founded: 14 Aug 1956

Industry: Oil & gas E &P company

Products: Petroleum,Natural gas & other

petrochemicals

Subsidiaries: MRPL,

ONGC Videsh

- Owns & operates 1000

km of pipeline;

- Exploits 26

sedimentary basins of

India

Ranked 357for Yr 2012

Subir Raha(2001-2006)

R.S. Sharma(2006-2011)

SudhirVasudeva(2011- )

CMD of ONGC

Friction between ex-CMD & Government

Focusing chiefly onexploring & exploiting

Indian reserves Creating global assets portfolioin exploration & refining

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Exploration and Production - India

India is forth largest consumer of petroleum and currently imports 70% of

its oil needs

India's total oil production is 8,83,510 barrels per day. The total oil reserves

amount to 5.625 billion barrels.

Economy projected growth rate is around 7-8% and soon demand will

outstrip supply. Thus E&P of oil and gas is critical for India's energy securityand economic growth.

ONGC accounts for 57% of the petroleum licenses which accounts for 80%

of both Indias domestic petroleum and natural gas reserves

Some of the major players in E&P segment in India are:

Govt. Owned- Oil India(OIL), Indian Oil Corporation (IOCL)Private Players - Reliance, Cairn Energy, BG Exploration

These players have been pursuing exploration & production activities both

within and outside the country in collaboration with consortium partners.3


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Current Market Demand and Government Policies

Governments Plans:

1. Increase Refining Capacity to 4.84 million bpd from 2.6 million bpd and alreadyhad a small excess of capacity since only 2.2 million bpd consumed

2. State owned companies entered into JVs with overseas competitors to

commission the capacity expansion

3. This underscored Indias potential as an exporter of refined products

Current Condition of Refining and Marketing Industry in India

The Indian Refining Industry consisted of 3 major players. They are

1. Indian Oil Corporation Limited (IOCL)

2. Hindustan Petroleum Corporation Limited (HPCL)

3. Bharat Petroleum Corporation Limited (BPCL)

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The Indian Refining Industry as of FY2006

Downside of the State-controlled refiners was that it Did not have the ability to

handle complex crude

No. of Refineries Annual Turnover

Retail Gasoline Outlets

(in Km)

IOCL 10 $ 51 billion 11739

HPCL 2 $ 19.56 billion N/A

BPCL 2 $ 18.21 billion 2123

Major challenges

1. Expand Capacity

2. Explore New Horizons in Upstream and

Downstream operations 5


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Rise of RPL (Reliance Petroleum Limited)

Had installed the worlds third largest refinery of 30 million tons per year capacity.

Ability to process heavier, sour crudes that are traded at a discount compared to the

light sweet variety

It was expected that RPL would export 40% of its refined output developed markets,

especially US.

Highlights of the global downstream refining :

1. U.S super majors reluctant to invest due to serious losses in 1980s-1990s

2. Environment regulations and Mandates in U.S

3. Particularly adept at debottlenecking and technology improvements to increase yieldfrom the historical refining investments

4. Overcapacity in the Middle east and Singapore

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Indian Governments APM( Administered Price mechanism) :

to insulate local prices from the vagaries of the international market fluctuations

resulted in upstream exploration

In 2002, the APM approach was dismantled

In 2004, the government intervened to keep prices low, when the crude pricesstarted to move upward quickly.

For Example,

5% custom duty for imported crude

10% duty was charged for refined product imports

By 2006, ONGC alone was subsidizing consumers to the tune of $ 1 billion annually,

and marketing companies were losing $ 51 million a day.

Government Intervention

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Winds of change

Challenges

(1999)

Crippling systems of governmental

control over strategy

Low employee motivation due to

sense of entitlement rather thanperformance based mentality

Overstaffing

Skewed production portfolio of

assets

Highly bureaucratic decisionmaking mechanism

Lagging on technology front

Initiatives

New Vision : To ensure Indias

energy security by locating reserves

worldwide

Voluntary retirement plan to reduce10% workforce

Revamp of decision-making

structure by eliminating bureaucratic

layers of staff approvals

Revamp of organizational structure

ensuring flatter structure Performance oriented appraisal

mechanism

Maximise use of idle cash

IPO to infuse more capital for

expansion

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International Foray

Reasons for internationalization

15% world population but only

0.5% of energy reserves

Role of ONGC Videsh

Ltd

Given greater power as Indias nodal

agency to negotiate energy related issues

Given flexibility to recruit quality talent

By 2006, $4 billion investment acquiring

25 properties in 18 countries

Able to develop relationship with globalindustry leaders like Exxon Mobil,

Petronas and BP for various projects

worldwide

Foreign Market entry strategy

Joint Venture route Strategic alliance with Mittal

group to use their business

relationship built over time

Bilateral relationship agreement

with Chinese oil companies

(CNPC & Sinopec) for joint

bidding of global projects

Managed to win bids jointly with

Chinese companies in Syria and

Columbia

Challenges

Stiff competition from Chinese

national oil companies

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Current Status of production assets worldwide

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International Strategy

Import oriented rather than Export oriented: Sourcing to meet

local country energy requirements

Shift from confrontational attitude to mutually beneficial

Strategic alliance

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Vertical Integration Strategy

Vertical Integration strategy Downstream segmentMagalore Refinery and Petrochemicals Ltd (MRPL)

Entrance into Refining and Retailing

ONGC acquired 71.6% stake in MRPL, a privately held refining complex

Move into retail end through petrol pumps when the govt. opened fuel marketingactivities to new entrants

Vertical integration offered ONGC a wider flexibility in monetizing its assets

ONGC diversified and became part of Crude cycle, Refining cycle and the product cycle.Unlike Cairn India, it gained control over the entire hydrocarbon chain.

Disadvantages of the strategy:

ONGC entering areas where it had no expertise- Coal bed methane, underground

gasification of coal, power generation Lost focus on exploration which was its primary goal

ONGC was lagging behind on the discoveries following liberalization

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Reasons for poor record of ONGC

Quality of ONGCs geoscientists

Management framework of ONGC- several layers of checks weremissing as compared to the multilayered system of evaluation,appraisal and decision making of the other oil majors

Exploration ratio averaged 1:4 or 1:5 as compared to 1:2 as a

benchmark of the industry to drilling performance Inefficient data analysis structure: Done in a piecemeal manner,

reducing the flexibility and speed

As the expense of hiring drilling rigs were high, ONGC did not takemuch time to evaluate data methodically and focused on maximizing

rig utilization Competitors like Reliance signed contracts on a job charter basis

Leadership: Raha did not believe in the potential for oil and gas,however the others in the industry believed India to be hugelyunexplored

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Internal analysis

Operations:

ONGCs core business is E&R. The company produces more

than 1 Million barrels a day, contributing to 80% of all India

gas and oil production. It also engages in exploiting .The

acquisition of MRPL,ONGC became a truly integrated oil andgas corporation. MRPL was undergoing loss when it was

acquired it but was turned around to make a profit making

company within a year.

Through OVL, ONGC has equity participation of 26 E&P

companies across 15 companies which is beneficial in 2 ways:

1. Diversification will keep financial portfolio profitable

2. A global presence makes the company known and gives the

company alternatives in terms of growth14


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Marketing and Sales:

Lacks in this field, does not have much of presence in marketing and fuelretail, dependent on companies to distribute its refined products.

To be truly integrated global actor, it must develop this section in future

Human resource management

Problem: Lost more than 200 engineers, geologists and geoscientists toReliance and is the attrition rate is expected to increase

Improve productivity and financial performance, ONGC shouldconcentrate on human resources development

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Core Competencies

Experience in technology with the awareness about

importance of technology

Experience in oil exploration and available assets

MRPL : a subsidiary of ONGC has the most efficient refineries

Diversification on international platform

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Future Path: International

Expansion Lack of new discoveries : balance out the diminishing products

from the domestic wells

Domestic competition

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Strategic alliances and joint ventures

for its international expansion

ventures rather than opting for

complete ownership

Gain Access to a Particular Resource

Risk and Cost SharingLearning

Penetration into the market

Country selection criteria:

Opportunity in the area of oil

exploration

Future relationship with thecountries

Size of the other company or its

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Future Path : Penetration

Domestic Market penetration

Acquire HPCL and BPCL or stakes in them

Will results in strong presence in retail and distribution

Exploration in domestic area on the high scale

ONGC has oil and gas exploration as its core competency , this

option will utilize the same

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Future Path : Diversification

Entrance into related industries

Import of Energy

Import / export of minerals

Knowledge transfer

Investment in foreign assets

Buying Stakes in foreign and domestic oil & gas companies

Buying Shares of foreign Coal and Oil reserves

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What strategy did ONGC undertake?

Combination of marketing entry strategy of:

Joint venture with equity participation in producing oil/gas fields.

Joint venture with equity participation for exploration and

development blocks

Consortium approach, pooling other Indian oil companies, suchas IOC Ltd, GAIL, etc.

Operator ship contracts (management contracts)

Turkey engineering Contracts

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ONGC at present

2000 to present

ONGC Videsh Limited (OVL) is the international arm of ONGC

Producing assets of OVL

Having 20 percent holding in Sakhalin(Russia)

Having 45 percent stake in partnership with Britissh Petroleum

In 2003 OVL acquired Talishmans 25% stake in the Greater Nile Oil project:Having 25 percent equity in the Greater Nile Oil Project in Sudan

OVL along with Statoil ASA (Norway) and Repsol SA (Spain), has beenengaged in deepwater drilling off the northern coast of Cuba in 2012

OVL assets with discoveries & exploration

Having 100 percent interest in Appraisal & Development in Qatar.

Having 70 percent interest in Exploration & Appraisal in Egypt.

15 percent interest in Development Phase in Brazil.

20 percent participation interest in Myanmar.

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ONGC at present..(contd)

ONGC Tripura Power Company

ONGC Tripura Power Company Ltd. (OTPC) is a joint venture

which was formed in September 2008 between ONGC,

Infrastructure Leasing and Financial Services Limited and the

Government of Tripura

It is developing a 726.6 MW CCGT thermal power generation

project at Palatana in Tripura which will supply electricity to the

power deficit areas of the north eastern states of the country

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Questions

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