ONGC Company Snapshot ONGC is Indias leading oil and gas exploration company and has contributed significantly

by developing core competence in exploration and production activities at a globally competitive level. Today it is a self reliant organization and enjoys the Navratna status conferred upon by the government of India. The company is the highest profit making corporate with the annual profits of around Rs.167 Bn. The second largest company in India in terms of market capitalization, its annual sales turnover in the Indian market is Rs.600 Bn. The company has been a dominant player in the oil and gas industry with a share of 77% in Indias crude oil production, and 81% in natural gas production. The major products in its offerings include petroleum, crude natural gas, liquefied petroleum gas, kerosene and petrochemical stock. Through its subsidiary ONGC Videsh Ltd, it has created a significant presence in 19 locations worldwide; Africa, Middle East, South America and Russia being the most important markets. The main objective with which the company expanded globally was to support Indias energy security and to emerge as the strongest Indian player in the international exploration and production. It also sits on a huge fleet of 30 offshore vessels and 29 oil rigs which are used in the exploration of oil and in the transportation of oil from the rigs to the mainland. The enormous size of rigs reduces dependencies on leasing and also ensures greater control throughout the operations model. Presently, the company has 33,000 employees on its rolls out of which 24,000 work across various offices and the rest are employed in the rigs. Due to an arrest in the recruitment process two decades back, the average age of the employees has climbed to 50 years. However, recently some activities in recruitments have been recorded and the company plans to take the average age to 44 years by the end of 2009. The organizations structure comprises of various divisions each headed by a director. The companys overseas subsidiary, ONGC Videsh Ltd is headed by the managing director who directly reports to the chairman of the parent company. To be able to sustain the global competition, the company has adopted best in class technology practices which include state-of-the-art seismic data acquisition, processing and interpretation facilities. The ERP implementation of the company has been one of the largest across Asia. Since its inception, ONGC has come a long way to become the fully integrated petroleum company in India, operating along the entire hydrocarbon value chain.

Winning Strategies: 1. International assets adding more to the reserves. ONGCs international arm OVL has been extremely successful in exploration activities at international oil fields. OVL has added 114.24 MTOE out of ONGCs total reserve of 185.96 MTOE for the last year. OVL does not bring in the oil from overseas assets to India. Instead, it is able to realize the actual price of crude oil without having to sell it at discounted rates to OMCs. Table: Price realized by selling crude oil in international market Gross Price ONGC Domestic retention price 2007-08 85.54 52.90 2006-07 66.33 44.22 2005-06 59.65 42.33 2004-05 43.24 37.83

Thus with the increase in the international reserves the company can realize more profits from its overseas subsidiary. 2. Excellent replacement and success ratio comparable to global average. The company has maintained a replacement ratio of more than 1 in the last 4 years which indicates its success in replacing production of its oil reserves. Reserve Replacement Ratio of ONGC in comparison with global majors RRR ONGC 1.32 Exxon Mobil 0.76 BP 1.09 Petrobras 1.31

Since the reserves can be replaced by discoveries, it shows that the companys exploration activity has been quite successful. It has a success ratio of 1:2.4 which is comparable to the global average for exploration. In India, the reserves added for ONGC in comparison to all the private players is almost the same. ONGC Private Players 2007-08 182 152 2006-07 170 194 2005-06 137 66 2004-05 137 180

3. Collaboration with other companies ONGCs investment in oil blocks Wholly Owned Partneship 10 32

ONGC has been very aggressive in acquiring oil fields both in India and abroad. However oil exploration which typically is search of hydrocarbon deposits beneath the earths surface is a very expensive and high risk operation. Offshore or remote area explorations are usually undertaken by large corporations or national governments. Due to risk in operations, bidding for these resources in collaboration with other companies helps them to mitigate the risk to a major extent. Considering this, the company followed a prudent strategy and relied heavily on partnership with other players. This helped in sharing the capital expenditure and divided the risks of expansion. Cautions: 1. Subsidy sharing mechanism dampens profits As per the subsidy sharing mechanism, the upstream companies like ONGC bear one third of under realization on sale of petroleum products suffered by Oil Marketing Companies (OMC) due to high crude prices. With the petroleum products being heavily subsidised in India, it leads to massive under recoveries for OMCs. Further on account of discounts given to the OMC, the profits of ONGC is also impacted Table: Discounts towards under recoveries of OMCs and its impact on PAT (Rs in Bn) Discounts Impact 2007-08 220 132.4 2006-07 170.2 103.3 2005-06 119.5 72 2004-05 41 25.5

2. Aggressive Growth Strategy by Chinese competitors ONGC in recent times have lost many bids due to the aggressive growth strategy pursued by the Chinese National Oil Companies. These companies have been actively supported by the government during the process of bidding. Subsidized loans and aid packages are rolled out while they acquire oil fields abroad. Passive participation of the Indian government and insignificant cooperation has handicapped ONGCs success outside. Even though both the countries are dependent on imports for oil, there has been very little collaboration when it comes to acquiring oil fields. There are a few instances where both have cooperated in acquiring foreign oil assets but these have been limited to small projects and they remain competitive in bidding for larger projects. Conclusion: With the growing demand for petroleum products in India, the oil and petroleum industry will be in focus in the coming years. ONGC being Indias largest oil exploration company will have to satisfy Indias future energy demands. Its overseas subsidiary has done remarkably well and its performance is comparable to the global oil exploration companies. The total reserves of the company has

been constantly increasing on account of its success oil fields abroad.Since China is also scouting for oil fields across the world has resulted in ONGC facing strong competition from Chinese oil exploration companies. Further its profitability suffers on account of subsidy sharing mechanism adopted by the government.