About ONGC Videsh

ONGC Videsh is a wholly owned subsidiary of the Oil and Natural Gas Corporation of
India (ONGC). It is a Public sector undertaking (PSU) of the Government of India. It is
Indias largest oil and gas exploration and production company. It produces around
69% of India's crude oil (equivalent to around 30% of the country's total demand)
and around 62% of its natural gas.

ONGC features at 357th rank in Fortune 500 and is the highest profit making PSU in
India

ONGC was founded on 14 August 1956 by Government of India; it is involved in

exploring for and exploiting hydrocarbons in 26 sedimentary basins of India, and
owns and operates over 11,000 kilometers of pipelines in the country.

Reason for selecting ONGC Videsh

Oil and Gas industries have been instrumental in fuelling Indias growth and shaping
its economy.

ONGC Videsh is a company with global aspirations. The company grew its global
footprints worldwide with acquisition of oil and gas assets; it now has 33 oil and gas
projects in 16 countries. It has adopted a balanced portfolio approach and maintains
a combination of exploring, drilling facilities and pipelines assets

ONGC Videsh made successfully new acquisitions in last one and half year by
investing more than USD 4 billion. Revenues earned from foreign operations stood
at Rs. 22700 crores in 2013-14. ONGC has a plan to invest further USD 20 billion
overseas.

However, this expansion has not been smooth and it still needs some in-depth
thinking. ONGC therefore forms a good case to study and understand its global
business strategy and globalization. It gives a nuanced perspective on why cultural
differences matter in an increasingly globalized world.

Globalization prospects of ONGC Videsh

NGC Videsh Ltd. has signed an agreement to expand its oil and gas exploration
in offshore Vietnam. The Indian flagship firm will consider exploring in 2-3
blocks out of the 5 areas in South China Sea.
Russias biggest integrated oil and gas producer Rosneft have signed a deal to
jointly scout for hydrocarbon opportunities in the offshore Arctic. This will be
OVLs third venture in Russia since 2001 when the company made an entry into
the challenging sedimentary basins of the country by acquiring a stake in the
Sakhalin1 field.
 The Indian government controlled ONGC Videsh Ltd has made its first foray into
New Zealand with one offshore exploration permit in the Taranaki Basin. New
Zealand awarded 15 oil and gas exploration licenses on Tuesday, with U.S.
giant Chevron and India's ONGC Videsh joining the hunt in the South Pacific
country for the first time.

Path making - A Framework for thinking about strategic options

Strategic measures offer benefits beyond mere financial returns, or at least offer
financial benefits disproportionate to their costs, potentially by leveraging other
forms of influence to expand such returns. In the context of energy security,
investments may meet strategic goals in one (or more) of four ways:

Securing deposits: to secure a reserve of petroleum resources that was

hitherto unavailable or inaccessible, so as to directly increase fuel available
to or in India, which reduces dependence on imports correspondingly
Securing extractors: to secure a fuel supplier, so as to assure India of a
reliable supply of fuel in times of shock, or at rates more advantageous than
market price (through a long-term supply contract, or any other arrangement)
Securing supply routes: to secure the pipelines or sea routes along which
India must transport such fuel, whether OVL-produced, discounted or
purchased at market price overlaps directly with territorial and maritime
security concerns
Technology: to access, acquire or develop the technology necessary to access
deposits that are otherwise unreachable due to geological or ecological
constraints. This includes not only physical equipment and intellectual
property, but also training and expertise in the use of such equipment or
techniques.

Getting Started
Build Technological Competencies - In India and globally, reservoirs are
ageing. New reserves are tight geologically and technically difficult to
access. Technological solutions to the problems of declining yields and tight
reserves represent the future of extraction. With shale touted as a game
changer and a bridge fuel in India, it would be worth seeking out
technological competencies to access shale reserves or other forms of hard-
to-access oil and gas. ONGC has invested in R&D efforts; this is an
advantageous position from which to suggest an exchange of skills, trainers
or technical expertise, especially where it relates to extraction of shale oil or
gas.

Enter into Swap Deals and Reciprocal Arrangements Recent rounds of the
National Exploration and Licensing Policy (NELP) auctions, where firms bid for
permits to explore and develop various acreages in India, have seen very
limited international participation. Swap deals would be one avenue to
 stimulate international investment in Indian oilfields. OVLs side of the swap
the acreage it invests in internationally could also be used to increase the
portfolio of profitable prospects available to the potential oil investor.

Invest in markets where India has comparative advantage NOCs often face
criticism from IOCs for bringing political leverage to bear. While all NOCs do
enjoy advantages that IOCs do not, OVL is yet to win a bid where it was not
the highest bidder. Where, for instance, OVL and Chinese NOCs have
submitted competing bids, Chinese offers of developmental assistance
(unrelated, of course) have tended to tip the scales. The lesson from these
experiences is that OVL should play to Indian strengths, or at least capitalize
on competitors weaknesses. The most plausible approach would be to
approach nations historically unfriendly to competitors, but amenable to
Indian participation.

Make better use of bidding consortia and similar arrangements States or

companies auctioning off acreage or stakes in oilfields have been known to
encourage competition between NOCs in an effort to push up bidding prices.
Unofficial or leaked knowledge of highest bids received can be an effective
tack to generate higher offers. The nature of competition makes this
approach focus on Chinese NOCs. OVLs strategy in Iran may be replicated to
take advantage of Chinas vast leverage where possible: picking up stakes
left over after the Chinese bid on the same terms as the Chinese, which
secures for OVL bids the softer terms the Chinese NOCs ensure through offers
of Chinese development assistance.

Cultivating Alliances - Investing in oil and natural gas involves managing

diverse risks. Constructing a diversified set of consortia enables joint
participation at varying levels of associated risk. India has various energy
cooperation agreements, including inter-governmental agreements with
Russia and Brazil, as also with the EU and the USA. Any of these could be
leveraged through joint ventures, cooperative bidding, farm-in/farm-out
arrangements, swap deals, shared pipeline or port development, etc.

Incorporate Political Risk Factors - The impact of political risk on production is

typically addressed by insuring oilfields and pipelines, which may include
some coverage for loss of production. Given the political scenario in various
states where OVL seeks to invest, however, the severity of potential
disruption tends to be underestimated. Beyond insuring investments against
damage or disruption, comprehensive assessment involves considering the
economic impact of reduced supply, or finding alternate suppliers.

SWOT Analysis

Strengths
 1) State owned The Company has great infrastructure because of this and
policy making also becomes easier.
2) Negligible Competition - The oil sector is an industry wherein not many
competitors can enter owing to the scale and government intervention.
3) Research and Technology - ONGC has made a huge step in field of technology
and research in past 2 decades. This advancements been useful in improving
the company's ability to extract and explore more of oil and gas.

Weaknesses
1) State owned Because of huge government control on ONGC, many
important decisions are being taken by the government and sometimes it
proves to be a fatal for companys profit and growth prospects.
2) Stringent environmental standards - Environment degradation takes place
while mining and during certain step of refining oil & gas.
3) Huge investment required - Investments are done after long term planning as
there is no private sector but government (i.e. peoples money).

Opportunities
1) Increased economic activity The economies all over the world is showing
signs of recovery and because of that the crude oil prices will appreciate in
the coming months. This will help the company to gain the lost ground due to
huge decrease in the crude oil prices.
2) Geographical advantage- To emerge as a refinery hub of the world the
position of India geographically plays a major role with a long costal area and
availability of natural resources
3) Expansion of offshore operations The oil reserves in some African countries
are still unexplored and ONGC has a great opportunity to tap these markets
to meet growing petroleum needs in India

Threats
1) Threat of Alternative Fuels - The Company will surely face problem if they
certainly dont develop in using alternatives such as uranium mining and
wind energy
2) Ever changing government policy The policy of the government keeps
changing over the period of time and any unfavorable change from the
companys perspective may be damaging for the company.
3) Chinas growing demand The Chinese companies are directly competing
with ONGC in several parts of the world. Their aggressive bidding policy
might result either a huge escalation in the cost or the company might even
loose the bid altogether.

Explaining State Capitalism using PESTLE framework

 Background:
The disputes involve both maritime boundaries and islands. There are several
disputes, each of which involved a different collection of countries:

The nine-dash line area claimed by China which covers most of the South China sea
and overlaps Exclusive Economic Zone claims of Brunei, Indonesia, Malaysia, the
Philippines, Singapore, Taiwan, and Vietnam.

As of 1996, Vietnam, the Philippines, Brunei, Malaysia and other countries asserted
claims within the Chinese nine-dotted line. The United Nations Convention on the
Law of the Sea, which came into effect on 16 November 1994, resulted in more
intense territorial disputes between the parties.

As of 2012, all of the Paracel Islands are under Chinese control. Eight of the Spratly
Islands are under Chinese control; Vietnamese troops control the greatest number
of Spratly islands, 29. Eight islands are controlled by the Philippines, five by
Malaysia, two by Brunei and one by Taiwan.

The interests of different nations include acquiring fishing areas around the two
archipelagos; the potential exploitation of suspected crude oil and natural gas
under the waters of various parts of the South China Sea; and the strategic control
of important shipping lanes.
Political
In September 2011, shortly after China and Vietnam signed an agreement seeking
to contain a dispute over the South China Sea, India's state-run explorer, Oil and
Natural Gas Corporation (ONGC) said that its overseas investment arm, ONGC
Videsh Limited, had signed a three-year agreement with PetroVietnam for
developing long-term co-operation in the oil sector, and that it had accepted
Vietnam's offer of exploration in certain specified blocks in the South China Sea
In response, Chinese Foreign Ministry spokesperson Jiang Yu, without referring to
India by name, stated as follows:" As for oil and gas exploration activities, our
consistent position is that we are opposed to any country engaging in oil and gas
exploration and development activities in waters under China's jurisdiction. We
hope the foreign countries do not get involved in South China Sea dispute."
An Indian foreign ministry spokesman responded, "The Chinese had concerns, but
we are going by what the Vietnamese authorities have told us and have conveyed
this to the Chinese. The Indo-Vietnamese deal was also denounced by the Chinese
state-run newspaper

Economic
The Ministry of Geological Resources and Mining of the People's Republic of
China estimate that the South China Sea may contain 17.7 billion tons of crude oil
(compared to Kuwait with 13 billion tons). Indias state-owned ONGC Videsh
Ltd(OVL) plans to continue exploration in its oil block in south China sea.
OVL is the overseas arm of state-owned Oil and Natural Gas Corp. Ltd(ONGC)
and has a presence in Vietnam through 45% and 100% stakes in blocks 06.1 and
128, respectively. OVL has invested around $46 million in block 128.

Social & Environmental

Whenever oil is recovered from the ocean floor, other chemicals and toxic
substances come up too -- things like mercury, lead and arsenic that are often
released back into the ocean. In addition, seismic waves used to locate oil can harm
sea mammals and disorient whales. ExxonMobil recently had to suspend exploration
efforts near Madagascar after more than 100 whales beached themselves.

Technology

OVL produced 8.36 million tons (MT) of oil and oil equivalent in 2013-14, a 15%
increase over the 7.26 MT productions in 2012-13. Till now, OVL has invested
Rs.78,000 crores in overseas energy assets. So, it has to use highly advanced
technology used in Oil Drilling.

Legal
In 2012 the Indian Ambassador to Vietnam, while expressing concern over rising
tension in the area, said that 50 per cent of its trade passes through the area and
called for peaceful resolution of the disputes in accordance with international law.
Conclusion

To be said to truly contribute to Indias energy security, OVL cannot only earn
foreign exchange to offset import payments, but must act strategically by securing
deposits, extractors, supply routes and technology. To this end, OVL can gain
technological competencies through joint ventures with market leaders. To hold
down overall fixed costs on acquisitions, OVL must avoid being lured into bidding
wars against other NOCs; rather, it can consolidate resources and risk appetites by
forming bidding consortia with these NOCs, as also with private sector players, both
domestically and internationally. Finally, OVL can ensure that political risk is
comprehensively accounted for through contingency planning, including salvaging
training or equipment when production is disrupted.