A REPORT ON INTERNATIONAL

BUSINESS OPERATIONS OF ONGC &

OVL
 OBJECTIVES

The objectives of our study are multi pronged. In this dynamic

world of business where companies are no longer local players but
are global entities we plan to show how an Indian company has
made the right moves and carved out a niche for itself. We also
intend to show what factors fuel a companies growth while what
are the roadblocks to success. In short the objectives of our project
can be stated down as follows:

(1) To study the various business processes of the Indian MNC and
to see how the processes at home are different from processes
abroad.
(2) To study the expansion of its market territory beyond the
boundaries of the country due to its international image.
(3) To study what all adjustments the company has to make when
it moves abroad.
(4) To study the various environmental differences like cultural,
legal and political between home and foreign country.
(5) To study the various advantages that the company is gaining as
a result of its operations abroad.

SCOPE OF STUDY

Our study will basically focus on studying an Indian company

which has made a foray into the international markets recently and
is emerging as a global MNC. The project would focus on the
various strategies that the company is following to gain a
competitive advantage in the foreign country and what all
problems the company in facing in the foreign country and how
these problems can be overcome and to study the company’s
multinational central management.
 METHODOLOGY OF STUDY

The methodology that we would be following would include:

(1) Collecting information about the company from various

resources like company’s website, books, journals, databases and
from few company officials, if possible.

(2) Analyzing the data collected using qualitative as well

quantitative techniques.

(3) Presenting the various findings of the project.

(4) Making certain recommendations to the company.

RATIONALE BEHIND CHOOSING COMPANY

Oil & Natural Gas Commission is a company, which has not only
stood the test of time but has successfully dealt with the pressures
of intense competition and globalization. ONGC has increasingly
focused towards becoming a true global company. For this
particular reason we decided to study ONGC as it will give a clear
insight on what exactly are the challenges faced by emerging
Indian MNC’s.
 INTRODUCTION

During the pre-independence period, the Assam Oil Company in

the northeastern and Attock Oil company in northwestern part of
the undivided India were the only oil companies producing oil in
the country, with minimal exploration input. The major part of
Indian sedimentary basins was deemed to be unfit for development
of oil and gas resources.
After independence, the national Government realized the
importance oil and gas for rapid industrial development and its
strategic role in defense. Consequently, while framing the
Industrial Policy Statement of 1948, the development of petroleum
industry in the country was considered to be of utmost necessity.
Until 1955, private oil companies mainly carried out exploration of
hydrocarbon resources of India.
In Assam, the Assam Oil Company was producing oil at Digboi
(discovered in 1889) and the Oil India Ltd. (a 50% joint venture
between Government of India and Burmah Oil Company) was
engaged in developing two newly discovered large fields
Naharkatiya and Moran in Assam.
In 1955, Government of India decided to develop the oil and
natural gas resources in the various regions of the country as part
of the Public Sector development. With this objective, an Oil and
Natural Gas Directorate was set up towards the end of 1955.
In August, 1956, the Directorate was raised to the status of a
commission with enhanced powers.
Since its inception, ONGC has been instrumental in transforming
the country's limited upstream sector into a large viable playing
field, with its activities spread throughout India and significantly in
overseas territories. In the inland areas, ONGC not only found new
resources in Assam but also established new oil province in
Cambay basin (Gujarat), while adding new petroliferous areas in
the Assam-Arakan Fold Belt and East coast basins (both inland and
offshore).
The perceptions about ONGC began to change for the better after
it was given a status of Corporation in 1994 under the Companies'
Act. Now the sentiment has peaked in its favour to new heights. R.
Kanan, general manager, Oil & Petrochemicals, ICICI Ltd, enlists
the factors that have contributed to this change. "The dismantling
of APM in April this year, ONGC's recent successes in acquisition
of stake in Sakhalin I in Russia, gas prospects in Vietnam - where
it has 45 per cent stake in the joint venture (JV) and most
importantly its launch of Mumbai High redevelopment plan are the
positive developments favouring ONGC's prospects in near
future," he says.

There are many others who share his optimism. For example, an
encouraging trend in ONGC'S crude and gas production in the
current year has not escaped analysts' notice. "Production of oil
and gas for the first quarter in this year, encouragingly, increased
year-on-year by an estimated 8.5 per cent and 6.1 per cent,
respectively," reports Equity Master, a website. After going
through a decade of uncertainty, this reassessment must come as a
great relief to all concerned in ONGC.

ONGC spent the latter half of the '90s in introspection. The

government had appointed a Mumbai High Review Committee in
1996 to examine ONGC'S claims to its competence in managing
Mumbai High problems. The committee headed by DGH
chairman, K Narayanan, submitted its report, which accepted the
Corporation's claim of inhouse capabilities. Nonetheless, it
recommended that ONGC should take technical assistance from
the consultants. ONGC commissioned Gaffne, Cline & Associate -
stalwarts with experience of having worked at over 200 different
sites spanning the globe - as its consultants to study and
recommend enhanced oil recovery plan. As far as Neelam was
concerned, the Corporation decided to set up its own
multidisciplinary team under Singh.
The Consultant's mandate was to:
- Revalidate the existing seismic and other data
- Acquire fresh 3D (three dimension) seismic data for further
evaluation of Mumbai High field
- Prepare maps of oil pools
- Drill wells to locate by passed oil
- Use seismic data and well logs for making forecast of exploitable
reserves
- Using these forecasts suggest Mumbai High redevelopment plan

Acknowledging the in-house capabilities of ONGC scientists and

engineers, GCA, constituted a multi-disciplinary team made up of
ONGC personnel. It limited itself to a role of facilitator. Both the
teams submitted their report in 2001 to the ONGC board. This is as
far as what it did concerning its malfunctioning assets. But, the
Corporation was also suffering from the organisational atrophy. To
correct this ONGC appointed McKinsey in 1997.

McKinsey's mandate was to evolve an organisational structure that

was far more responsive to its business needs than that based on
business groups. "Almost every proposal originating in the field
required 15 to 20 signatures. The files shifted too and fro in the
earlier system between functional heads at the headquarters," says
Raha. It often meant delays exceeding a year in matters requiring
urgent decisions on fields. Also, since responsibilities were shared
at production platforms between different business groups, the
system degenerated into wrangling over responsibilities. Similarly,
group loyalties often took precedence over the requirements of
tasks. But, most importantly, it was found that the performance
evaluation criteria based on business group yardstick were
completely at loggerheads with requirements on fields. Mckinsey
recommended an asset-based approach with clearly-defined
responsibilities in its presentation titled 'Organisation
Transformation Project'.
When Raha took charge in May 2001, it was time to act and take
things forward. All of the reports were in. Pilots at Neelam and
Mumbai High had proved successful. Besides, 'Navratna' status
earned in April 1999 had given the management substantial leeway
to evolve and put together its own strategies. However, several
inconsistencies in Mckinsey recommendations needed ironing-out
before the experience acquired from the pilots in Neelam and
Western offshore could be moulded into a larger strategic plan.

Though Mckinsey recommendations were broadly accepted,

coordination issues concerning commonly-shared services (such as
who should drilling personnel working at asset site report to? A
functional or an asset head?) needed to be sorted out.

ONGC : CHANGING WITH TIMES

• ONGC is India’s Most Valuable Company, having a market

capitalisation of Rs. 1 trillion and continues to retain its
position as the most valuable company of India.
• Was the biggest wealth creator for the period 1998-2003.(Rs.
226.3 billion)
• Only Indian company to have earned a net profit of over
10,000 crore.
• Added 49.96 MMT of ultimate reserves and kept up the trend
of positive accretion for the third consecutive year.
• ONGC has a vertically oriented organizational structure.
• Is Asia’s best Oil & Gas company, as per a recent survey
conducted by US-based magazine ‘Global Finance’.
• Ranks as the 2nd biggest E&P company (and 1st in terms of
profits), as per the Platts Energy Business Technology (EBT)
Survey 2004
• Ranks 24th among Global Energy Companies by Market
Capitalization in PFC Energy 50 (December 2004). [ONGC
 was ranked 17th till March 2004, before the shares prices
dropped marginally for external reasons.
• Is placed at the top of all Indian Corporates listed in Forbes
400 Global Corporates (rank 133rd) and Financial Times
Global 500 (rank 326th), by Market Capitalization.
• Is recognized as the Most Valuable Indian Corporate, by
Market Capitalization, Net Worth and Net Profits, in current
listings of Economic Times 500 (4th time in a row), Business
Today 500, Business Baron 500 and Business Week.
• Has created the highest-ever Market Value-Added (MVA) of
Rs. 24,258 Crore and the fourth-highest Economic Value-
Added (EVA) of Rs. 596 Crore, as assessed in the 5th
Business Today-Stern Stewart study (April 2003), ahead of
private sector leaders like Reliance and Infosys. ONGC is the
only Public Sector Enterprise to achieve a positive MVA as
well as EVA.
• Is targeting to have all its installations (offshore and onshore)
accredited (certified) by March 2005. This will make ONGC
the only company in the world in this regard.
• Owns and operates more than 11000 kilometers of pipelines
in India, including nearly 3200 kilometers of sub-sea
pipelines. No other company in India operates even 50 per
cent of this route length.
• Crossed the landmark of earning Net Profit exceeding
Rs.10,000 Crore, the first to do so among all Indian
Corporates, and a remarkable Net Profit to Revenue ratio of
29.8 per cent. The growth in ONGC's profits is not solely due
to deregulation in crude prices in India, as deregulation has
affected all the oil companies, upstream as well as
downstream, but it is only ONGC which has exhibited such a
performance (of doubling turnover and profits).
• Has paid the highest-ever dividend in the Indian corporate
history.
• Its 10 per cent equity sale (India's highest-ever equity offer)
received unprecedented Global Investor recognition. This
was a landmark in Indian equity market, establishing beyond
doubt, the respect ONGC's professional management
commands among the global investor community. According
to a report published in 'The Asian Wall Street Journal (Hong
Kong) , ONGC's Public Issue brought in 20 Foreign
Institutional Investors (FIls) to India, as (it was reported),
'they could not ignore the company representing India's
energy security'.
• The Market Capitalization of the ONGC Group (ONGC &
MRPL) constitutes 10 per cent of the total market
capitalization on the Bombay Stock Exchange (BSE). ONGC
has an equity weightage of 5 per cent in Sensex; 15 per cent
in the Nifty (the only Indian corporate with a two-digit
presence there); ONGC commands a 7 per cent weightage in
the Morgan Stanley Capital International (MSCI) Index.
• The growth in ONGC's Market Capitalization (from Rs.
18,500 Crore before May 2001 to Rs. 1,25,000 Crore in
January 2004) is unprecedented and except Wipro (who had a
higher market capitalization temporarily), no other Indian
company (either in public or private sector) has seen such a
phenomenal growth.
• ONGC has come a long way from the day (a few years back)
when India and ONGC did not figure on the global oil and
gas map. Today, ONGC Group has 14 properties in 10
foreign countries. Going by the investments (Committed:
USD 2.708 billion, and Actual: USD 1.919 billion), ONGC is
the biggest Indian Multinational Corporation (MNC).
• ONGC ended the sectoral regime in the Indian hydrocarbon
industry and benchmarked the globally- established
integrated business model; it took up 71.6 per cent equity in
the Mangalore Refinery & Petrochemicals Limited (MRPL),
and also took up a 23 per cent stake in the 364-km-long
 Mangalore-Hasan-Bangalore product Pipeline, connecting
the refinery to the Karnataka hinterland. By turning around
MRPL in 368 days, ONGC has set standards of public sector
companies reviving joint (or private) sector companies,
proving that in business, professionalism matters, not
ownership.

ONGC has announced the investment outlay of Rs 33,OOO

crore for the tenth five-year plan (2007). Rs13, 000 crore of this
has been earmarked for acquisition of oil equity abroad. It is
putting its legacy systems on a common SAP platform. It has
also installed a virtual reality centre, Third Eye, at its Mumbai
office. In offshore areas, by infield drilling, it is reducing the
well spacings in order to draw out undrained oil between the
existing wells. As the parameters on which older wells were
designed have changed, these wells are being redesigned and
revitalised.

In Tripura, ONGC already has 47 billion cubic metres (bcm) of

in place gas reserves. While the field has a capacity to produce
4.5 bcm gas per day it is producing only 1.192 bcm for meeting
the demand in the area. For the balance, it has still has to find
the solution to evacuating gas through the difficult terrain to
other parts of India. In deep waters, ONGC has 21 petroleum
exploration licences, of which 12 have come on nomination
basis and the rest through NELP bids. In the IX plan it drilled
five prospective wells. Two of these have shown encouraging
accumulation of hydrocarbons. It has now prioritised four deep-
water projects for drilling in Kutch, Kerala-Konkan, Krishna-
Godavary and Cauvery basins. It will be drilling in all 47 wells
in these basins. Overall, the drilling activity has risen sharply in
recent years (see chart). Meanwhile a sizable gas discovery has
been made in Daman. Initial estimates suggest reserves in the
range of 30 to 50 million cubic feet. This could grow as new
exploratory data comes in.
However, the most exciting of recent developments in ONGC is
its recent acquisition of MRPL. This is being viewed by its avid
observers as a first step that Raha has taken towards making it
an integrated oil company that is in line with the global giants
like Exxon Mobil or Shell. ONGC also has retail marketing
rights in areas where it operates. But, its progress in this domain
also hinges on whether or not it is allowed to bid for HPCL and
BPCL. If the government gives it the nod it may change from
being simply an exploration and oil production company to a
full-fledged oil major in no time.

ONGC VIDESH LIMITED

• OVL is a wholly owned subsidiary of ONGC , India’s largest

integrated oil and gas company. OVL operates solely in
foreign markets.
• OVL today is the second largest E&P company in India by
reserves, second only to ONGC. It has eight overseas assets
and is actively seeking more opportunities across the world.
• OVL's efforts have been supported wholeheartedly by the
Government of India, which has allowed OVL exclusive
empowerment vide Office Order No. DPE ii (32)/96-Fin.
dated January 17, 2000, which provides OVL single window
clearance for overseas upstream projects irrespective of
investments involved.
• OVL’s concerns is on the following :
1. Focused Approach
2. Strong relations
3. Leverage “buyer’s powers”
4. Total deregulation of overseas business.
5. Provision of fiscal & tax benefits.
• Vision of the company: “To be a world class E&P company
providing security oil to the country.”
• Mission of the company : “By 2025, contribute 60 MMTPA
of equity oil and gas.”
• Currently has 8 foreign assets & is on the lookout for more.
• Investments of $1.7 billion in Sakhalin, Russia.
• A one time investment of $690 million in Sudan, biggest by
any corporate in India
• Have had profits to the tune of 23 cr, 59cr & 429 cr for the
yrs 2002, 2003, and 2004.
• Has tie ups some of the biggest names: Petronas, British
petroleum, Exxon etc.
The above diagram shows the various parts of the world where
OVL operates. Most are oil exploration blocks but OVL produces
oil at their Vietnam and Sudan projects. Their production has been
on an increase.
CORPORATE SOCIAL RESPONSIBILITY

 Successfully handled safety & environmental issues at all

sites.
 Proper treatment of affluent before releasing it in the
environment.
 A minimum of 500 mts from high tide point must be kept
clear of all structures so that beaches are open to public.
 At Sakhalin a $1 million micro-finance project with Exxon
Mobil.
 Park Beautification Programmes.
 Over $200 million for public infrastructure like roads &
bridges both in Russia and Sudan.
 Have regulations in place to ensure that the laws of the land
are followed.

NEW BUSINESSES

 ONGC has also ventured into Coal Bed Methane (CBM) and
Underground Coal Gasification (UCG);
 CBM production would commence in 2006-07 and UCG in
2008-09
 ONGC is also looking at Gas Hydrates, as it is one possible
source that could make India self-sufficient in energy.
 Started the Sagar Sammriddhi project, a deep water oil
extraction project, at par with the best in the world.
 The new project has a daily cost of $0.75 million.
 Aims to dig wells, some as deep as 3 kms.
FACTORS FOR THE SUCCESS OF ONGC &
OVL

The success of ONGC & OVL can be explained with the help of
the following diagram:
The business of ONGC features high on almost all the parameters.

1. The impetus for international business is high in the company

2. The company is totally internally managed i.e., without the
help of outsiders hence is high on this scale as well
3. The company has customized itself according to the countries
it operates in and hence can be said to have high operation
standards.
4. OVL operates in 12 countries which is a fairly big number
hence can be said that is quiet wide spread.
5. The countries vary from Russia to Iran to Myanmar. The
religious sentiments differ so do the type of governments.
Hence OVL scores highly again on the diversification front.

ONGC’s PIONEERING EFFORTS

• ONGC is the only fully–integrated petroleum company in

India, operating along the entire hydrocarbon value chain :
• Holds largest share (57.2 per cent) of hydrocarbon acreages
in India.
• Contributes over 84 per cent of Indian’s oil and gas
production.
• Every sixth LPG cylinder comes from ONGC.
• About one-tenth of Indian refining capacity.
• Created a record of sorts by turning Mangalore Refinery and
Petrochemicals Limited around from being a stretcher case
for referral to BIFR to among the BSE Top 30, within a year.
• Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline
(MHBPL), connecting MRPL to the Karnataka hinterland.
 COMPTETIVE STRENGTH

• All crudes are sweet and most (76%) are light, with sulphur
percentage ranging from 0.02-0.10, API gravity ranging from
26°-46° and hence attracts a premium in the market.
• Strong intellectual property base, information, knowledge,
skills and experience.
• Maximum number of Exploration Licenses, including
competitive NELP rounds.
• ONGC owns and operates more than 11000 kilometers of
pipelines in India, including nearly 3200 kilometers of sub-
sea pipelines. No other company in India, operates even 50
per cent of this route length.

LEVERAGING TECHNOLOGY

To attain the strategic objective of improving the Recovery Factor

from 28 per cent to 40 per cent, ONGC has focused on prudent
reservoir management as well as effective implementation of
technologies for incremental recovery to maximize production
over the entire life cycle of existing field
• Improved Oil Recovery (IOR) and Enhanced Oil Recovery
(EOR) schemes are being implemented:
• In 15 fields including Mumbai offshore
• At a total investment exceeding US $2.5 billion.
• Yielding incremental 120 MMT of O+OEG over 20 years
 SOURCING EQUITY OIL ABROAD

ONGC's overseas arm ONGC Videsh Limited (OVL), has laid

strong foothold in a number of lucrative acreages, some of them
against stiff competition from international oil majors.
OVL has so far, acquired 15 properties in 14 foreign countries, and
striving to reach out further

OVL’s projects are spread out in Vietnam, Russia, Sudan, Iraq,

Iran, Lybia, Syria, Myanmar, Australia, and Ivory Coast. It is
further pursuing Oil and gas exploration blocks in Algeria,
Australia, Indonesia, Nepal, Iran, Russia, UAE and Venezuela.
• Production Sharing Contract in Vietnam for gas field having
reserves of 2.04 TCF, with 45 per cent stake in partnership
with BP and Petro Vietnam. Gas production has commenced
from January 2003.
• 20 per cent holding in the Sakhalin–1 Production Sharing
Agreement. The US $ 1.77 billion investment in Sakhalin
offshore field is the single largest foreign investment by India
in any overseas venture and the single largest foreign
investment in Russia. It is scheduled to go on production
during 2005-06
• Acquired 25 per cent of equity in the Greater Nile Oil Project
in Sudan, the first producing oil property. ONGC Nile Ganga
BV, a wholly-owned subsidiary, has been set up in the
Netherlands to manage this property. Around 3 Million
Tonnes of crude oil is coming to India annually from this
project. This is the first time that equity crude of a group of
companies in India is being imported into India for refining
by the group
• Discovered a world-class giant gas field ‘Shwe” in Block A-
1(where OVL has 20 per cent share) in Myanmar, with
 estimated recoverable reserve of 4 to 6 trillion cubic feet of
gas.
• Besides taking equity in oil & gas blocks and looking for
stakes in E&P companies, OVL is also bagging prospective
contracts (like the refinery upgradation and pipeline contracts
in Sudan, awarded to OVL on nomination basis due to its
performance in that country), which will increase ONGC’s
equity oil basket. ONGC’s strategic objective of sourcing 20
million tones of equity oil abroad per year is likely to be
fulfilled much before 2020. In fact, OVL is now eyeing a
long-term target of 60 MMT of Oil equivalent per year by
2025.
• Going by the investments (Committed: US $ 4.3 billion, and
Actual: US $ 2.75 billion), ONGC is the biggest Indian
Multinational Corporation (MNC).

Best In Class Infrastructure And Facilities

ONGC’s success rate is at par with the global norm and is

elevating its operations to the best-in-class level, with the
modernization of its fleet of drilling rigs and related equipment, at
an investment of around US $ 400 million.
ONGC has adopted Best-in-class business practices for
modernization, expansion and integration of all Info-com systems
with investment of around US $ 125 million.

Onshore

Production Installation :- 225

Pipeline Network (km) :- 7900
Major Offshore Terminals (including CFU, LPG, Gas, Sweetening
plants, Storage Tanks) :- 2
Drilling Rigs :- 75
Work Over rigs :- 66
Seismic Units :- 33
Logging Units :- 35

Offshore

Well Platforms :- 131

Well-cum-Process Platforms :- 5
Process Platforms :- 28
Drilling/ Jack-up-Rigs :- 18
Pipeline Networks (km) :- 3200
Offshore Supply Vessels :- 32
Special Application Vessels :- 4

OPPORTUNITIES

 New oil blocks in the Cuba & other Latin American

Companies.
 Contribute 60 MMTPA by the year 2025 by using state of the
art technology and soliciting tenders in new regions to
explore oil and gas.
 Foray into retailing by launching OVal, fuel dispensing
stations at Mangalore.
 Tie up with SHELL Bitumen co. for manufacturing
petroleum products in India.
 Launched Mangalore SEZ to envisage an investment of
35000 cr.
 Under the Mangalore SEZ plan it aims to build a Gasification
plant, oil refinery, development of part of the Mangalore
port etc.
 Foster tie ups with other Indian companies like GAIL, OIL
etc. to jointly explore and extract oil & gas in India & abroad.

ISSUES AND THREATS

 The US-Iraq war has left the Iraq Block 8 exploration

project in the lurch.
 The dwindling petroleum reserves.
 Faces stiff competition from other regional players
like China National Petroleum corp., Korea Gas corp.,
Daewoo Intnl. Corp. etc
 As the world moves towards clean fuels or eco-
friendly fuels there is a threat in the long run to the oil
business.
 OVL has expertise over land based exploration and
extraction of oil while majority of the crude oil is
deposited in the sedimentary layers deep beneath the
sea, hence technological expertise must be
improved.
 A latest threat has emerged from the proximity of the
Russian Energy Ministry, which controls the Yugansk
oil fields, with the Chinese National Petroleum Corp.
meaning that OVL will suffer in terms of profit
sharing.
 The dictator style regimen in countries like Myanmar,
Sudan & Libya and strict government regulations in
Iran can hamper the interest of the company in the
long run. Hence it is important that the government of
 India maintains cordial relationship with these
governments.

RECOMMENDATIONS

• Aggressively lookout for new oil blocks so that

Reserve Replacement to Production Ratio stays high.
• Affect an overall organisational restructuring i.e.,
vertical to horizontal to facilitate faster
communication
• Pick up stakes in regional oil blocks like the Yugansk
oil fields in Russia.
• Keep upgrading technology to have an edge over
regional players.
• Increase recovery from a low 28% to 40-50%.
• Increase presence in the fuel retailing business by
opening more pumps all over India
• Form joint ventures with local companies to explore
oil in India.
 KEY LEARNINGS

1. Think global act local. ONGC has embodied this as

their mantra over the years. They have ventured far
and wide but have always made sure that wherever
they go they keep in mind the culture , ethics and the
laws of the land.

2. That to keep ahead of your competitors you must

continuously innovate and follow up by keeping
abreast with the latest technology.

3. That even Indian companies can beat global standards.

ONGC & OVL have proved this by being the first
Indian company to figure in double digits in Fortune
500 list.

4. That Corporate Social Responsibility is an important

tool to be used by companies in the race against
competitors where small things and gestures matter.

5. If a company cannot adapt and adjust to the local

environment by being one of them the company might
not last long and will perish eventually.