1. PROJECT REPORT ON ANALYSIS OFOIL & NATURAL GAS SECTOR

2. Group Members OMKAR ADKAR (01) PRANJAL CHOPDA (10) PRATIK KUMBLE (17) MAHEK MADHAVI (18) MANISH NANDAL (19) MANDAR ULE (29) KAMLESH VAVDARA (30) 3. About the company Oil and Natural Gas CorporationLimited (ONGC)is anIndian multinational oil and gas companyheadquartered in Dehradun, India. It is one of the largest Asia-based oil and gasexploration and production companies. produces around 77% of Indias crudeoil(equivalent to around 30% of the countrys totaldemand) and around 81% of its natural gas. 4. ONGC has been ranked 357th in the FortuneGlobal 500 list of the worlds biggest corporationsfor the year 2012. It is also among the Top 250 Global EnergyCompany by Platts. ONGC was founded on 14 August 1956 by theIndian state, which currently holds a 69.23%equity stake. . Its international subsidiary ONGC Videshcurrently has projects in 15 countries. 5. Industries Analysis 6. The oil and gas industry has been instrumental infuelling the rapid growth of the Indian economy. The petroleum and natural gas sector whichincludes transportation, refining and marketing ofpetroleum products and gas constitutes over 15per cent of the GDP. Growth continued in 2008-09 with the export ofpetroleum products touching US$ 23.63 billionduring April-December 2008. 7. Production Domestic production of crude oil fell from 34.11MT in 2007-08 to from 33.50 MT in 2008-09. Refinery production in terms of crude throughputincreased to 160.77 MT in 2008-09 as comparedto 156.10 MT in 2007-08. The production of natural gas went up to 32.84billion cubic metres tonnes (BCM) in 2008-09,from 32.40 BCM in 2007-08. The projected production of crude oil during the11th Five-Year Plan (2007-2012) is 206.76 MMT,while that of natural gas is 255.27 BCM. 8. Consumption Indias domestic demand for oil and gas is on therise. As per the Ministry of Petroleum, demand foroil and gas is likely to increase from 176.40million tonnes of oil equivalent (mm tone) in 2007-08 to 233.58 mm tone in 2011-12. India is the fifth largest country in the world interms of refining capacity, with a share of 3 percent of the global capacity. Indian companies plan to increase their refiningcapacity to 242 mtpa by 2011-12 from about 149mtpa in 2007. 9. Policy 100% FDI is allowed in petroleum refining, petroleumproduct and gas pipelines and marketing/retailthrough the automatic route. For entry into petroleum product marketing/retail, aninvestment in an upstream venture of over $450million is required. Virtual administrative price control of government overmost petroleum products. Petroleum and Natural Gas Regulatory Board Bill tobe enacted shortly will result in the setting up of anIndependent Regulator for Oil & Gas.Natural Gas Pipeline Policy to be enacted shortly. 10. Outlook High GDP growth rate, rapidly growing vehiclepopulation and better road infrastructure will driveconsumption of petroleum products. Industry is expected to grow at a CAGR of about8% to 10% . Over 190 MMT of refining capacity required by2010. Over 120MMSCMD of additional demand forNatural Gas in the next five years. Recent gas finds and increased use of gas forpower generation, petrochemicals, fertilisers andcity gas distribution 11. SWOT Analysis 12. Strength State-owned: One of the biggest advantages & strength of the company is that it is state owned. This led the company have great infrastructure with the governments support. The policy making also becomes easier due to the same reason. Moreover any undue and sustained pressure creates due impact on the government as well. Efficient and Professional management Team: The management team of ONGC comprises of some eminent figures of the industry who has got wealth lot of experience in running the Business and some of them has been successful entrepreneur as well. These people are at the helm of any decision making regarding the policy of the company. 13. Good Quality of Product: All crudes are sweet and most(76%) are light, with sulphur percentage ranging from 0.02-0.10, API gravity range 26-46 and hence attract apremium in the market. Maximum number of Exploration Licenses, includingcompetitive NELP rounds: ONGC has bagged 85 of the162 Blocks (more than 50%) awarded in the 6 rounds ofbidding, under the New Exploration Licensing Policy(NELP) of the Indian Government. This enables thecompany to stay ahead of its competitors. Strong Infrastructure: ONGC owns and operates morethan 15000 kilometers of pipelines in India, includingnearly 3800 kilometers of sub-sea pipelines. No othercompany in India operates even 50 per cent of this routelength. 14. Weakness State-owned: The control of state sometimes proves to be a weakness for company as well. Because of Huge govt. of India control on ONGC many important decisions are being taken by govt. of India and sometime it proved to be fatal for companys profit and growth prospects. For example, the governments decision to provide certain amount of money to the huge loss making petroleum companies from ONGC has an adverse impact on the net profit of the company. Low Production from aging Reservoirs: ONGC is facing difficulties to produce oil from aging reservoirs. 15. Opportunity Expansion of offshore operations: The oilreserves in some African countries are stillunexplored and ONGC has a great opportunity totap these markets to meet growing needspetroleum in India. This will definitely add to theproduction capacity of the company in a long way. Increased Economic Activity: The economy allover the world is showing signs of recovery andbecause of that the crude oil prices willappreciate in the coming months. This will helpthe company to gain the lost ground due to hugedecrease in the crude oil price last year. 16. Threat Ever Changing Government Policy: The policy of the government keeps changing over the period of time and any unfavourable change from the companys perspective may be damaging for the company. For example, if the government decides to subsidise the diesel further, this will put an extra pressure to the profit of the company. Chinas Growing Demand: The Chinese company are directly competing with ONGC in several parts of the world. The aggressive bidding policy adopted by the Chinese companies might result in either huge escalation in the cost or the company might even loose the bid altogether. So this is going to be a great concern for the company as far as securing the energy needs of the country is concerned. 17. Threat Rapid Change in Technology: The Company could fallbehind technology with everything changing so quickly thisday and age. The company is required to do a lot ofinvestment in this area. Threat of Alternative Fuel: The Company may face somereal threat from alternative fuels in the next decade or so.But this is not going to be realised in the near future andthe replacement of oil & natural gas. Change in Policy by Foreign Governments: The foreignpolicy of different governments keep changing over theperiod of time and this does have a significant impact onthe bidding policy or the tender invited by the governmentin that particular country. Therefore, an unfavourable policychange vis-a-vis Indian government might adverselyimpact the future prospects of the company. 18. Company Analysis 19. Brief overview (ONGC) (incorporated on June 23, 1993) isIndias most valuable public sector (petroleum)company. It is also one of the Navratna Company in India. It is a Fortune Global 500 company ranked 335th,and contributes 77% of Indias crude oilproduction and 81% of Indias natural gasproduction. It is the highest profit making corporation in India. It was set up as a commission on August 14,1956. Indian government holds 74.14% equitystake in this company. 20. Financial Highlight 21. ONGC posted a net profit of Rs. 161.26 billiondespite volatile oil markets and crude prices. Net worth Rs. 781 billion. Practically Zero Debt Corporate Contributed over Rs. 280 billion to the exchequer 22. Global Ranking ONGC ranks as the Numero Uno Oil & GasExploration & Production (E&P) Company in theworld, as per Platts 250 Global Energy CompaniesList for the year 2008 based on assets, revenues,profits and return on invested capital (ROIC). ONGC is the only Company from India in the FortuneMagazines list of the Worlds Most AdmiredCompanies 2007. Occupies 152nd rank in Forbes Global 2000 2009list (up 46 notches than last year) of the elitecompanies across the world; based on sales, profits,assets and market valuation during the last fiscal. Interms of profits, ONGC maintains its top rank fromIndia 23. Ratio Analysis 24. Earnings per Share (EPS): EPS means the portion of a companys profitallocated to each outstanding share of commonstock. Earnings per share serve as an indicatorof a companys profitability. It is calculated by theformula: EPS = (NI Dividend on Preferred Stocks) /Average outstanding Shares 25. P/E Ratio:P/E ratio is a valuation ratio of a companys currentshare price compared to its per-share earnings. Itis calculated as: P/E ratio = Market price per share / EPS In general, a high P/E suggests that investors areexpecting higher earnings growth in the futurecompared to companies with a lower P/E. 26. The following graph shows the EPSand P/E Ratio of ONGC for the last 5years. 10514.00 10013.00959012.00 EPS (Rs.)8511.0080P/E Ratio7510.00709.0065608.00 FY05 FY06 FY 07 FY08 FY09 EPSP/E Ratio 27. Operating Profit Margin:A ratio of profitability calculated as net incomedivided by revenues, or net profits divided bysales. It measures how much out of every dollarof sales a company actually keeps in earnings.Profit margin is very useful when comparingcompanies in similar industries. Return on Capital Employed:ROCE indicates the efficiency and profitability of acompanys capital investments. It i calculated as: ROCE = EBIT / (Total Assets CurrentLiabilities) 28. Book Value per Share:It is a financial measure that represents a per share assessment of the minimum value of a companys equity. Book value per share is one factor that investors can use to determine whether a stock is undervalued or overvalued.It is calculated as: BVPS = Value of Common Equity / No. of shares outstanding 29. The graphical depiction of the above three ratios are given below: 65 400 60350 55OPM, ROCE (in %) 50 300BVPS(Rs.) 45250 40 35 200 30150 25 20 100FY05 FY06FY 07 FY08 FY09OPM ROCE(%) Book Value 30. Future Projects 31. ONGC is planning to jointly invest 4 billion(Rs 20,000 crore) to scale up the production capacity of their oil fields at Barmer in Rajasthan by 25,000 barrels of oil per day (bopd) to two lakh bopd. They had earlier revised their production target from 1.50 lakh bopd to 1.75 lakh bopd. The commercial production at the Mangla filed in the Barmer basin began in August 2009 with an initial capacity of 30,000 bopd. The production will be increased by a further 100,000 barrels per day in the first half of next year. This is quite a significant development as oil from Rajasthan will account for over 20% of Indias domestic oil production. ONGC holds 30% participating interest in this project 32. Oil and Natural Gas Corporation (ONGC) willinvest Rs 8,554 crore in producing crude oil fromtwo clusters of marginal fields in the westernoffshore by 2012. The board also approved procurement of secondgeneration stimulation Vessel equipped withstate-of-the-art technology for the Mumbaioffshore at an estimated cost of Rs 764.1 crore. . At present, well stimulation jobs are done bySamudra Nidhi, the only stimulation Besselowned by ONGC. The new vessel will not onlyaugment the stimulation job but will graduallyreplace Samudra Nidhi. 33. According to a press release dated July 23, 2009 ONGC Board approved setting up of Polypropylene Unit by MRPL integrated with its Phase-3 refinery project at a total project cost of Rs 1803.78 Crore to be executed in 39 months (38 months for mechanical completion and 1 month for commissioning). The capacity of the plant is 440,000 TPA of Polymer grade Propylene product. 34. Compararive Analysis 35. ONGC v/s RIL 36. The above figure gives a comparative performance of RIL and ONGC for the last five years. Clearly, despite the strong fundamentals ONGC has not been able to outperform RIL in terms of providing the shareholders a better return on their investment. This is mainly because RIL is more responsive towards the Nifty and during the period of July 2006 to December 2008, ONGC could not march with the market and hence was outperformed by RIL. 37. However, the scrip did perform better than PSUs in the same sector viz. GAIL, HPCL, IOC over the last five years. This shows that in order to diversify the portfolio, one should go for ONGC rather than its PSU counterparts as the return are higher in this scrip with almost same level of risk. 38. Technical Analysis 39. 1,600.00Primary Bull Trend 12000000 Primary Bull Trend1,400.00 100000001,200.00 80000001,000.00 800.006000000 600.00 4000000 400.00 Primary Bear Trend 2000000 200.000.00 001/09/200401/09/200501/09/200601/09/200701/09/2008Closing Price of ONGCVolume 40. Analysis On Chart Pattern1,600.0012000000 Neck Line Double Top PatternH1,400.0010000000SS1,200.0080000001,000.00 800.00 6000000Trend of Relatively High Volume 600.00 A Possible Making of Another Head & Shoulder 4000000 400.002000000 200.00 0.00 001/09/2004 01/09/2005 01/09/200601/09/2007 01/09/2008Closing Price of ONGC Volume 41. The two chart patterns that are shown here arevery prominent reversal patterns for the stockmarket. The first pattern that is, Head andShoulder Pattern appeared after a long Bull trendin the scrip since it was listed on the stockexchange. The formation of left shoulder started onDecember 5, 2005 and it ended on February13, 2006. . Then a fresh spurt in the volume level drove theprices again and the Head was formed and theperiod of formation was from February 14, 2006to June 12, 2006 that means a period of 6months. 42. The next pattern that is quite visible in the graph is double top pattern that was developed during October 15, 2007 to January 14, 2008 just before the stock market crash. . This resulted in the formation of a bubble thatcouldnt sustain and finally burst and that resultedin a bearish trend for more than a year. In the right most part of the a pattern is indicatedwhich is taking the shape of Head and Shoulderand might just well be another sign of reversal. 43. Use Of technical Indicator 44. The following graph shows the share price movement of ONGC from Sep. 6, 2004 to August 31, 2009. 45. The scrip has shown a very interesting movementright from the beginning of the graph. Wheneverthe scrip has touched the upper Band, it hasshown downward movement and whenever thescrip has touched the lower Band. It has shown upward movement in most of thecases; though the duration of the movement hasbeen varying over the period of time. This is quite significant pattern and going by thishistorical evidence, it is looking quite probablethat the scrip is poised to show a downwardcorrection in its price as the Bands are closing atthe rightmost end of the graph and the scrip hasalready touched the upper Band. 46. The downward movement might not be too much because the Gap between the two bands is relatively narrower. But the scrip, most probably, is going to shed some points in the coming days. 47. Moving Average ConvergenceDivergence Analysis Shows the relationship between two movingaverages of prices. The default MACD is represented as thedifference between a 26-day and 12-day EMA ofthe price. Divergence, the difference between the MACDand the signal, is also plotted as a histogram. 48. Going by the basic MACD trading rule, one caneasily make out form this graph that the indicatoris giving the sell signal to the investor. The MACD line has fallen below the Signal Line(see the rightmost part in the lower panel of thegraph) and this indicates a future downwardcorrection in the price of the scrip. 49. Exponential Moving AverageAnalysis An EMA differs slightly from a Simple MovingAverage (SMA) in that it gives extra weight tomore recent price data. This allows investors totrack and respond quickly to recent price trendsthat might take more time to appear in an SMA.The formula for an EMA is: EMA = price today * K + EMA yesterday * (1-K)where K = 2 / (N+1). 50. Like an SMA, it smooths out a data series, making it easier to spot trends. 51. In the above graph, the exponential movingaverage has been taken for 50 days i.e, 10 weeksas it shows the behaviour of the scrip over thelast 5 years more precisely than 200 days movingaverage. The red line in the graph represents the EMA line. The catching up phase in upward movement issupported by a significant rise in the volume whileduring the catch up phase in downwardmovement the volumes has come down quitesignificantly. While the scrip is trying to catch the EMA linewhich is on the lower side, the volumes are dryingup for the scrip. 52. Relative Strength Index (RSI): The Relative Strength Index (RSI) measures theprice of a security against its past performance inorder to determine its internal strength (in anattempt to quantify the securitys pricemomentum). Relative Strength Indexes have also gainedpopularity. The Relative Strength Index is a price-following oscillator that ranges between 0 and100. 53. The scrip has got a history of trading in the rangeof 30 to 75 (RSI) for the last five years and it hascorrected itself each time the movement isbeyond 75 or below 30. when the scrip crossed the upper boundary of 75on RSI this May, it corrected its upwardmovement and finally the movement is settledaround 50 on RSI. The scrip crossed 60 a fortnight ago when itreached to a 52 week high figure and then thereis a clear evident of secondary movement in theprice of the scrip. 54. Recommendation and suggestion 55. The Indian stock market has recovered from theimpact of recession and the confidence of theinvestors and FIIs is restoring in the marketagain. Though the market is looking a bit exhausted forthe past one week because of the volatility it hasshown in the past one week, it needs just onepush from the global market to set the IndianStock Market on a high trajectory yet again. The positive Global cues that are expected tocome from various quarters will help the economyrevive in a big way and the market is going toreact in the same enthusiastic manner. 56. Therefore, for the investors who missed the opportunity toinvest in the market when it was in the bottom inMarch, the coming weeks will set the one for them. The other thing that can be recommended here is thatdespite correlations (whether positive or negative) the scriphas got a particular pattern of movement of its own which itfollows continuously therefore sometimes the trend in themarket doesnt necessarily reflect the trend in thatparticular scrip. Finally, ONGC is a kind of share which gives a decentreturn to the investors without putting them into too muchof a risk. The scrip doesnt show any sudden upward ordownward movement and either movement use to begradual in nature for this scrip, therefore, it can berecommended to add to the portfolio to reduce the risk asthe market price of the share will appreciate in the comingtimes. 57. Conclusion 58. The scrip is definitely poised for a downward movementfrom this level and the correction is definitely on the cards. But the correction will not be too much and the scrip will beable to regain its position after going through a short phaseof correction. However, the investors who are willing toinvest in the scrip should wait till the next big movement inthe scrip and then only they should go for either Long orshort position for the scrip. A very interesting pattern is being seen in the stock marketfor the Last three months. While in the previous threemonths, the FIIs have been net sellers in the equity marketworth Rs. 85.14 crore, 1,364.60 crore and Rs. 3767.03crore for the months of June, July and August 2009, theFIIs have been investing in the market in a big way. 59. Thank You