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Introduction Objective and Scope of the Study Research Methodology Mission & Vision of ONGC ONGC in the Global Scenario ONGC in the Indian Scenario Oil Production of World Distribution of Shareholding of ONGC ONGC Tripura Asset Know about Tripura Asset Overview of the different activities of ONGC Tripura Asset Finance Working Capital Management Ratio Analysis Sales SWOT Analysis of ONGC Recommendations Conclusion Reference 02 03 04 05 07 08 09 11 13 14 16 21 23 31 41 48 50 51 52
Oil and Natural Gas Corporation (ONGC) Ltd is considered as the biggest profit making company of the country. ONGC is the only fully-integrated E&P Company in India, operating along the entire hydrocarbon value chain. It contributes over 80 per cent of Indian’s oil and gas production. Finance is considered to be the lifeblood of every organization and in an organization like ONGC where operation is enormous, nature of the business is complex and expenditure involvement is huge, the role of Finance is of very special significance. The financial performance is reflected in the effective deployment of funds in fixed assets and in current assets. It also helps in estimating the shortterm and long-term requirement of funds to assess the financial position of the company. So, the study is conducted at ONGC and is purely based on the financial statements of the organization during the last 5 years. This financial analysis throws light on the different activities such as drilling, production, transportation, distribution as well as working capital management of ONGC thereby identifying the strengths and weaknesses of the organization.
Objective & Scope of the study
1. To get myself acquainted with the Finance department of an Organization and gaining some practical knowledge.
2. Understanding the various activities in an organization concentrating mainly on financial performance of the company for the last few years, the various problems faced and whether the company has moved out of it.
3. Learning entire procedure of Marketing of Natural Gas and fixation of Price.
My entire study is related and limited only to ONGC Tripura Asset, which is an important asset of the ONGC as a whole, in terms of Natural Gas. The various Data and marketing policies are related only to ONGC Tripura asset and the Tripura Government Rules and Regulations.
The Research is totally based on financial statements of ONGC Tripura Asset. I have tried to study the Balance Sheet and Profit & Loss Account for the last 5 years to complete my project. Besides I have obtained various other information directly from the Marketing and Finance department. Annual Reports, In house Journals and Magazines, study material from Library, circulars and hand outs were also a great source of information for me. I tried to analyze the financial statements through Ratio Analysis and studying individual items of Working Capital.
I have tried to gather various information regarding gas pricing, supply and demand of gas, government rules and regulations to be followed, various policies of the company, selling procedure from the marketing department.
MISSION OF ONGC: Dedicated to excellence by leveraging competitive advantages in R&D and technology with involved people. Imbibe high standards of business ethics and organizational values. Abiding commitment to safety, health and environment to enrich quality of community life. Foster a culture of trust, openness and mutual concern to make working a stimulating and challenging experience for our people. Strive for customer delight through quality products and services. Integrated In Energy Business Focus on domestic and international oil and gas exploration and production business opportunities. Provide value linkages in other sectors of energy business. Create growth opportunities and maximize shareholder value.
VISION OF ONGC
To be a world-class Oil and Gas Company integrated in energy business with dominant Indian leadership and global presence. Retain dominant position in Indian petroleum sector and enhance India's energy availability. Doubling reserves (i.e. accreting 6 billion tonnes of O+OEG). Improving average recovery from 28 per cent to 40 per cent. Tie-up 20 MMTPA of equity Hydrocarbon from abroad.
ONGC in the Global Scenario: ONGC ranks as the Numero Uno Oil & Gas Exploration & Production (E&P) Company in the world, as per Platts 250 Global Energy
Companies List for the year 2008 based on assets, revenues, profits and return on invested capital (ROIC)
ONGC ranks 20th among the Global publicly-listed Energy companies as per “PFC Energy 50” (Jan 2008)
ONGC is the only Company from India in the Fortune Magazine’s list of the World’s Most Admired Companies 2007
Occupies 152nd rank in “Forbes Global 2000” 2009 list (up 46 notches than last year) of the elite companies across the world; based on sales, profits, assets and market valuation during the last fiscal. In terms profits, ONGC maintains its top rank from India. ONGC ranked 335th position as per Fortune Global 500 2008 list; up from 369th rank last year, based revenues, profits, assets and shareholder’s equity. ONGC maintains top rank in terms of profits among seven companies from India in the list.
ONGC in the Indian Scenario
Ranked as the most respected Public Enterprise in India in 2007 “Business World Survey, with 19th position in the league of the most-respected Indian Corporate(s). Rated ‘Excellent’ in MOU Performance Rating for 200607 by the Department of Public Enterprises, Ministry of Heavy Industries in Public Enterprises, GOI. Oil Industry Safety Directorate (OISD) has selected Ahmadabad Asset and MRPL for the year 2006-07 (as number one in Group-4 category (Oil & Gas Assets) and Second in Group-1 Refinery category respectively). “Golden Peacock Global Award 2007 for Excellence in Corporate Governance 2007”, for the 3rd consecutive time, conferred by World Council for Corporate Governance. Bagged the coveted winner’s trophy of the maiden “Earth Care Award for excellence in climate change mitigation and adoption” under the category of GHG mitigation in the small/medium and large enterprises.
Bestowed with “Amity Award for Excellence” in Cost Management.
OIL PRODUCTION OF WORLD
Oil Producing Regions North America South & Central America Europe & Eurasia Middle East Africa Asia Pacific Total INDIA’s Share ONGC’s Share Thousand Barrel Daily 14150 6764 Share of Total (%)
17583 24571 9264 7928 80620 819 640
22.0 30.7 11.4 9.8 100 1.0 0.8
Oil Producing Countries of the World
Distribution of Shareholding of ONGC as on Quarter Ending on March 31 2009
ONGC TRIPURA ASSET
The Tripura Asset is one of the main work centers of ONGC in the North-Eastern Region. It is based at Agartala with manpower of 990 (approx) as on 30.06.2009. The workforce represents not only the northeastern states but also every corner of the country-North, South, East & West. Exploration in Tripura dates back to 1939 when Barmura Oil Company and its subsidiaries carried out photogeographical mapping. The exploration activities of ONGC effectively commenced in 1962. ONGC established its projects in 1970 in Tripura and drilling started in1972. Gas was struck first time in Barmura in 1975. Since inception 113 wells have been drilled out of which 54 wells are gas bearing, the success ratio being 50%, which is one of the highest in the world. A total investment of Rs 1524 crores has been made by ONGC since its inception and it contributes gas royalty @ 10% & sales tax & 12% to the state government.
Know About Tripura Asset
(As on April 1, 2009)
Geological Survey Project Established Drilling Commenced Seismic Survey Commenced Seismic Data Acquired 2D (GLK) 3D (sq.km) Structures Mapped Structures Probed Gas Bearing Structures Petroleum Mining License area(sq.km) Exploratory Meterage (M) Development Meterage (M) Exploratory Wells Drilled Development Wells Drilled Gas Wells Daily Production (MMSCMD) 5404.02 235.0992 19 12 9 1297.768 3,54,584 26,479 126 12 71 1.5 – 1.6 1962 1970 1972 1977
GAS PRODUCTION AND SUPPLY OF ONGC, TRIPURA ASSET DURING LAST 8 YEARS
GAS PRODUC TION 376.9 415.8 446.1 507.6 496.4 479.8 254.9 533.53 552.66
20002001 20012002 20022003 20032004 20042005 20052006 20062007 20072008 20082009
GAS SUPPLY ACHIVEM SUPPLY TARGET ENT FROM MOU 375.0 327.0 114% 415.2 445.3 506.8 495.8 479.2 254.6 532.8 4 551.1 7 350.0 350.0 422.0 449.0 439.0 219.8 469.0 490.0 118% 127% 120% 110% 109% 115% 113% 112%
Overview of the different activities of ONGC Tripura Asset
Survey: This is mainly done to find out the probable sites where natural gas can be found out. This survey is carried out by the exploration group consisting of Geologist & Geophysicist personnel based Jorhat. There are different methods of survey and data collected are sent to HQ for processing and interpretation based on which decision are being taken to drill probable locations.
2)Drilling:From Dehradun the decision is taken regarding the details of the wells to be drilled for the next 3 years. The drilling is again of two types:-
a) Exploratory Drilling: This type of drilling is carried out in sites which have never been explored before and hence the chance of finding gas is also less. But at Agartala centre, there is a 50% success rate which is highly commendable in the present scenario in the other parts of India.
b)Development Drilling: This type of drilling is carried out in sites which have already been drilled before to test the presence of the gas in them. Hence the chance of finding gas in them is as high as 99.99%.
Overall distribution of Costs in the whole process of Drilling
Here at the Agartala centre, ONGC possesses 3 owned rigs and 1 hired rig.
Wells are dug at depths of around 2500 – 3500 meters. It takes around 4-5 months for the completion of drilling of a well. So, in a year around 9-10 wells are drilled by the rigs in total.
WELL COST: It consists of the followings:-
Site Preparation Cost- Civil related:
Due to the remote location of Tripura in the far northeastern region of India in the lap of the Himalayas, most of the sites (like Baramura, Gajalia) are not easily accessible due to absence of approach roads. So, a lot of time and money is spent to overcome these barriers by making roads, clearing the jungles etc. Thus, cost of site
preparation is an important element in the finance of ONGC as making the civil site is a prerequisite for the drilling process.
b)Drilling Cost: The drilling cost can be divided into the following subheads:-
iii) Mud iv) Logging
c) Support Services:i) ii)
Finance Material Management
iii) Human Resource (HR)
d) Cost of Production & Distribution of Gas
• Once the drilling process is over there can be two possible fates: Well is dry Well is Gas bearing • If the well is dry, then the survey cost is regarded as loss and put in the P/L statement but if it is Gas bearing, it is considered as an investment for the company as it finally turns out to be an asset.
As the demand of gas is very less compared to the amount of production, most of the gas bearing wells is plugged for future use.
• Gas is transported from well to group collection stations.
Various Sections of the Finance Department
Procure ment Section
Personal Claim Section
Cash & Bank Section
Central Account Section
Working Capital Management
Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital.
Working Capital = Current Assets – Current Liabilities
If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
WORKING CAPITAL MANAGEMENT
Decisions relating to working capital and short term financing are referred to as WORKING CAPITAL MANAGEMENT. These
involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.
CURRENT ASSETS & CURRENT LIABILITIES
during the 5 years (2005-09)
Different Components of
80 00 0 00 00 70 00 0 00 00 60 00 0 00 00 50 00 0 00 00 40 00 0 00 00 30 00 0 00 00 20 00 0 00 00 10 00 0 00 00 0 -10 00 0 00 00
Inv entories D ebtors Cash & B ank L oans& Advances 2 008- 2 7- 20 - 2005 2004 00 06 09 0 8 07 0 6 0 5
Different Components of
600000000 500000000 400000000 300000000 200000000 100000000 0 20 20 20 20 20 08- 07- 06- 05- 0409 08 07 06 05
Outstanding Dues Statutory Payments Deposits Other Liabilities
Divisions of Working Capital
On the basis of Concept
On the basis of Time
Gross Working Capital
Net Working Capital
Temporary Working Capital
Permanent Working Capital
Working Capital Cycle
Equity & Loans
Cash Payables Overheads etc
FINANCIAL STATEMENT S ANALYSIS
A powerful tool of financial analysis.
A benchmark for evaluating the financial position and performance of a firm. Absolute accounting figures do not provide a meaningful understanding of the performance and financial position of a firm. A ratio reflecting quantitative relationship helps to form a qualitative judgment.
Types of Ratios: Liquidity Leverage Activity Ratio Ratio Ratio
Here, the study is mainly carried out the Liquidity and Profitability ratios
Current Ratio = Current Assets / Current Liabilities
A measure of the firm’s short-term solvency
It indicates availability of current assets in rupees for every one rupee of current liability Higher the current ratio, greater the margin of safety
Current Ratio of ONGC Tripura Asset for the last 5 years (2005-2009)
The main reason for such decrease in the values of current ratio is the drastic increase in the liabilities in the years 2007-09 in comparison to 2004-07, as the assets were more or less the same. The sundry creditors for both imported and indigenous material shows an increase of 4000-5000 % change -Similarly in case of GR-Indigenous-Stores & Spares -Statutory Liability for Service Tax – Services -TDS on Personnel Income Statutory liabilities increased by 61% from 2004 to 2009. Rise in total deposits – 183% from 2004 to 2007 and 65% from 2007 to 2009 giving an overall rise of 368 % in 5 years. The other liabilities (other than employees) also showed such increasing trend in the last 5 years.
An indicator of a company's short-term liquidity
The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets
The higher the quick ratio, the better the position of the company
QuickRatio The quick ratio is calculated as:
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009 2008 2007 2006 2005
The ideal quick ratio is 1:1, which the company has almost maintained in the financial years from 2004-07.However the ratio gradually decrease in the year 2008 and 2009 to almost 50% of the standard. This is not a good sign as it implies that the company those not have enough current assets excluding stock to meet its current liabilities.
Debtors Turnover Ratio
It is determined by dividing the net credit sales by average debtors outstanding during the year. It signifies the liquidity of debtors i.e. how fast the receivables are collected. A high ratio indicates shorter time lag between credit sales and cash collection.
DbosT r o e R to e t r un v r ai
2 5 2 0 1 5 1 0 5 0 20 05 20 06 20 07 20 08 20 09
From the figures we see that the average Debtors Turnover Ratio stood at 15.4, which is quite satisfactory.
It implies that, in a year there is 15.4 times realization from Debtors or the customers takes place. Again the Debt collection period stood at 23 days, which is less than a month and quite satisfactory. Here we have considered the entire Net sales as credit sales.
Return on Total Assets
A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.
To calculate ROTA:
10 2 10 0 8 0 6 0 4 0 2 0 0 -2 0 -4 0 -6 0 -8 0 -1 0 0
Since ONGC is an E & P company, it has to invest a lot on Fixed Assets. Procurement and Maintenance cost of such Assets are very high. Whatever may be the chances of finding Gas, but for exploration purpose ONGC has to invest on Fixed Assets viz. Rig. The company incurred losses in FY 2005-06 and 08.In FY 07 company’s assets increased by amt Rs 30 crore as compared to FY 06and
profit appeared. The same case happened in the FY 09.The effects of Total Net Assets upon EBIT is quiet abnormal.
Return on Capital Employed
A ratio that indicates the efficiency and profitability of a company's capital investments Calculated as:
ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings. ROCE reflects a company’s ability to earn a return on all of the capital that the company employs. ROCE is calculated by determining what percentage of a company's utilized capital it made in pre-tax profits, before borrowing costs.
2 1 .5 1 0 .5 0 -0 .5 -1 -1 .5 -2 -2 .5 20 05 20 06 20 07 20 08 20 09
This Ratio is higher the better. ROCE should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce share holder’s earnings. Since the company’s source of capital comes directly from headquarter there is minimal chances of taking loan from financial market. In last 5 financial years it went negative 3 times insignificant positive performance 2
times which is not a good show. Overall the company is not able to utilize its Capital properly.
As we know that in each and every organization Finance section is a very important one. If there is no Finance then the organization cannot run properly. In production organization sales is an important element of the finance. Sales help to take various types of decision and also take a major part in the profit earning of the organization if there is no sales then it does not require finance because the motto of every organization is to increase sales.
IMPORTANCE OF SALES ACCOUNTING
Sale accounting helps to production department because depending upon the sales the production manager can decide what will be the demand of the product in the succeeding year. In this basis production department can produce the product.
Sales accounting helps in taking different types of decisions like budget. Through the sales accounting we can know the net profit of the company. ONGC TRIPURA ASSET DOES NOT HAVE ANY OIL SO THIS SECTOR DEALS ONLY WITH NATURAL GAS
CONSUMER OF ONGC (NATUTAL GAS)
ONGC Tripura Assets has only one consumer named GAIL
THE GAS MARKETING PHILISOPHY BY GAIL
Gas sales invoice are raised by ONGC to Gail on fortnightly basis. GAIL execute gas supply contract with various customers namely TSECL, NEEPCO, TNGC etc. ONGC supply gas to various customers through GAIL with the framework of a contract signed between GAIL and the customer. MOU signed between GAIL and ONGC govern the gas business between ONGC and GAIL. The contract is called as GSA or gas sales agreement. As per the clause in the agreement in case any customer can not lift the gas up to 80% of the contracted quantity minimum guaranteed off take (MGO) has to be paid up to 80% of the contract quantity. MGO is paid by GAIL on back basis. Issue related to allocation of gas to new consumer or requirement of additional gas are not decided by the Tripura Assets or GAIL. It is to be decided jointly by ONGC corporate marketing group, Mumbai and GAIL.
CONSUMER OF ONGC THROUGH GAIL:The main consumer of ONGC is GAIL, as per the contract the entire gas produced by ONGC is sold to GAIL and the entire gas is marketed by Gail to the end customers.
LIST OF END CONSUMER THROUGH GAIL SECTOR/FIELD
Baramura Manikya nagar (Rokhia) ADB Konaban
CONSUMER THROUGH GAIL
TSECL Baramura TSECL Rokhia, TNGC Brick Kiln NEEPCO,TSECL NEEPCO,TSECL
ROLE OF GAIL
GAIL has started its function in the state in the year 1987 when gas thermal plant at Baramura under Tripura State Electricity Department (TSEP) which is now TSECL Ltd. Started generating electricity. At present GAIL is supplying 0.20 MMSCMD gas to TSED at Baramura which is generating around 21 MV of electricity. Around 0.50 generation is supplied to TSECL at Rokhia for its 69 MV of power generation which is likely to be increased up to 82 MV of power with0.75MMSCMD. GAIL executes gas supply contract with end consumer namely TSECL<NEEPCO, TNGC etc as per the contract executed between GAIL and end consumers.
Pricing of Gas
There are two types of pricing prevailing in the market.
The Administered Pricing Mechanism (APM) & The Non-Administered Pricing Mechanism (Non-APM)
APM:It is a mechanism in which Government decides the quantity of gas allocation and its price.
Non-APM:It is the market driven price and supposed to be determined by gas producer and not by the Government.
Gas Pricing of ONGC Tripura Asset
APM price for North East:
Rs 1920/1000SCM/10000KCal (Rs 3200 for rest of India) Effective Gas price: Rs 1590/1000SCM with NCV around 8300Kcal/cubic meter Royalty @ 10% & VAT @ 12.5 % Billing is based on APM price for total gas with rider for market driven price for Non-APM gas.
Gas Pricing Strategies of ONGC
The price for North-Eastern region will be pledged at 60% of the revised price for general consumers. Thus the consumer price for the North-Eastern region will increase from existing price of 1700 to 1920 / SCM.
ONGC will not subsidize the prices of gas produced by joint venture and other private operators, which would be sold at market price in terms of respective production sharing contract.
SWOT Analysis of ONGC
Strength:• Oldest in the business • Brand Name • Remote-wide spread activities in the country and abroad
• Government Support • Financially Secure • Latest Technology
Weakness:• • • • • Transportation Problem Government interference in pricing policy Unstable Economic conditions of Tripura Abundance of Employee Political Condition
Opportunities:• New Companies coming to Tripura to establish Industries like fertilizer, carbon black, Tyre & Tube manufacturing units & Glass manufacturing unit. • Use of CNG by vehicles • Implementation of Palatana power plant • Fuel for industries heating
• Domestic/commercial use • Supply of Natural gas to the tea gardens and brick clines • Railway Connectivity will act as a blessing
Threats:• Political Condition • Natural Gas pipelines coming from Myanmar • New companies coming up seeing the prospects in Tripura • High amount of investment is needed in security issues.
Reduce the operating exp.
Explore the market to sell gas to different parties other than GAIL at Non-APM price.
Increase the liquidity ratio Proper R&D and survey can increase success Rate from 50% to 100%.
Competitive prices of alternate goods should be taken care of.
Focus on upcoming OTPC power plant project in future with the hope that ONGC get more profit from its operations.
In this time of Economic slowdown and recession ONGC needs more competitive attitude and Reduction in costs.
The study helped me to gain in depth knowledge regarding the different financial activities going in a vast and reputed organization like ONGC. Two months is not enough to get acquainted with all the practical matters related with Finance of ONGC. Still, I have learnt a lot of basic ideas about working of Finance department in an organization and I hope this type of training will be very much beneficial for me in future in my career.
Books 1.Financial Management .By I M Pandey 2.Financial Management .By Khan & Jain.
www.ongcindia.com www.ongc.net www.wikipedia.com www.investopedia.com www.earthtimes.com www.tripurainfo.com www.indiaprwire.com
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