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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
growth
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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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