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Efficiency evaluation of Indian oil and gas sector: data envelopment analysis

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DOI: 10.1108/IJoEM-01-2018-0016

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 International Journal of Emerging Markets
Efficiency evaluation of Indian oil and gas sector: data envelopment analysis
Vikas, Rohit Bansal,
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Indian oil and

Efficiency evaluation of gas sector
Indian oil and gas sector:
data envelopment analysis
Vikas
Department of Management Studies,
Received 12 January 2018
Rajiv Gandhi Institute of Petroleum Technology, Rae Bareli, India, and Revised 17 June 2018
Downloaded by Rajiv Gandhi Institute of Petroleum Technology At 01:33 01 March 2019 (PT)

Rohit Bansal 7 September 2018

Accepted 1 November 2018
Rajiv Gandhi Institute of Petroleum Technology, Rae Bareli, India

Abstract
Purpose – Data envelopment analysis (DEA), a non-parametric technique is used to assess the efficiency of
decision-making units which are producing identical set of outputs using identical set of inputs. The purpose
of this paper is to find the technical efficiency (TE), pure technical efficiency and scale efficiency (SE) levels of
Indian oil and gas sector companies and to provide benchmark targets to the inefficient companies in order to
achieve efficiency level.
Design/methodology/approach – In the present study, a group of 22 oil and gas companies which are listed
on the National Stock Exchange for which the data were available for the period 2013–2017 has been considered.
DEA has been performed to compare the efficiency levels of all companies. To measure efficiency, three input
variables, namely, combined materials consumed and manufacturing expenses, employee benefit expenses and
capital investment and two output variables – operating revenues and profit after tax (PAT) have been considered.
On the basis of performance for the financial year ending 2017, benchmark targets based on DEA–CCR (Charnes,
Cooper and Rhodes) model have been provided to the inefficient companies that should be focused upon by them
to attain the efficiency level. The performance of the companies for the past five years has been examined to check
the fluctuations in the various efficiency scores of the companies considered in the study over the years.
Findings – From the results obtained, it is observed that 59 percent, i.e. 13 out of 22 companies are
technically efficient. By considering DEA BCC (Banker, Charnes and Cooper) model, 16 companies are
observed to be pure technically efficient. In terms of SE, there are 14 such companies. The inefficient units
need to improve in terms of input and output variables and for this motive, specified targets are assigned to
them. Some of these companies need to upgrade significantly and the managers must take the concern
earnestly. The study has also thrown light on the performance of the companies over last five years which
shows Oil India Ltd, Gujarat State Petronet Ltd, Petronet LNG Ltd, IGL Ltd, Mahanagar Gas, Chennai
Petroleum Corporation Ltd and BPCL Ltd as consistently efficient companies.
Research limitations/implications – The present study has made an attempt to evaluate the efficiency of
Indian oil and gas sector. The results of the study have significant inferences for the policy makers and
managers of the companies operating in the sector. The results of the study provide benchmark target level to
the companies of Oil and Gas sector which can help the managers of the relatively less efficient companies to
focus on the ways to improve efficiency. The improvement in efficiency of a company would not only benefit
the shareholders, but also the investors and other stakeholders of the company.
Originality/value – In the context of Indian economy, very limited number of studies have focused to
measure the efficiency of oil and gas sector in the context of Indian economy. The present study aims to
provide the latest insight to the efficiency of the companies especially operating in the Indian oil and gas
sector. Further, as per our knowledge, this study is distinctive in terms of analyzing the efficiency of Indian oil
and gas sector for a period of five years. The longitudinal study of the sector efficiency provides a bird eye
view of the average efficiency level and changes in the efficiency levels of the companies over the years.
Keywords Technical efficiency, Scale efficiency, Benchmarking, Data envelopment analysis,
Oil and gas sector of India, Pure technical efficiency
Paper type Research paper

1. Introduction
The Indian oil and gas sector is one of the eight core industries in India. It has a considerable International Journal of Emerging
Markets
impact on the decision making of all other important sections of the economy. The economic © Emerald Publishing Limited
1746-8809
growth is closely linked to energy demand; therefore, the demand for oil and gas is projected DOI 10.1108/IJoEM-01-2018-0016
 IJOEM to grow more in coming years. As per IBEF (2017) report[1], India’s oil consumption
experienced a growth of 8.3 percent on yearly basis to 21.27 crores tonnes in 2016, as against
the global growth of only 1.5 percent. India is the third largest oil consuming nation in the
world and second largest refiner in Asia. Exports of petroleum accounted for 17 percent of
the total exports. Also, Indian oil and gas sector comprising refining, transportation and
marketing of these products contributes approximately 15 percent to India’s GDP. Oil and
gas sector contributes about 34.4 percent to primary energy consumption in India. As on
March 31, 2016, oil and gas sector Central Public Sector Enterprises (CPSEs) employed a
total manpower of 110,675 employees.
The Indian oil and gas sector consists of the companies operated by the government and
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private operators. In the recent years, the fluctuations in crude oil prices and other political
changes have reshaped the environment for these companies. The regular efficiency
evaluation of the companies has become indispensable for financial managers as well as
other stakeholders.
The improved productivity in the oil and gas sector will have a snowball effect on other
sectors of the economy. The energy sector has a major role to play in developing economy like
India. The outputs of the oil and gas companies are used by households and as inputs in other
sectors. The efficient oil and gas companies are expected to competitively price their products
and pass on the benefits of reduced costs and increased productivity to their customers.
This would help other sectors in reducing their input costs and increase in profitability and
benefit the end consumers also. Further, Indian oil and gas sector is dominated by public
sector undertakings (PSUs) in terms of market share, revenue, etc. The satisfactory and
consistent performance of these companies yields a positive return on the huge investment
made and ultimately benefits the shareholders. However, the inefficiency of such companies is
an indication of improper utilization of the tax-payers money and would need more attention
of the managers and policy makers. In our study, we have included Oil and Gas PSU
companies, namely, Oil India Ltd, Chennai Petroleum Corporation Ltd, Bharat Petroleum
Corporation Ltd, GAIL, Hindustan Petroleum Corporation Ltd, Indian Oil Corporation (IOC),
Mangalore Refinery and Petrochemicals, Oil and Natural Gas Corporation.
Referring to the above-mentioned need and importance of the oil and gas sector, assessing
the efficiencies of the companies in oil and gas sector is a worthwhile exercise. In view of this,
the present study has been undertaken with three objectives. The first objective is to evaluate
technical, pure technical and scale efficiencies of Indian oil and gas sector companies listed on
the National Stock Exchange (NSE). The technical efficiency (TE) of a company composes of
two mutually exclusive and non-additive components, namely, pure technical efficiency (PTE)
and scale efficiency (SE). Thus, overall technical efficiency ¼ pure technical efficiency × Scale
efficiency. While the PTE depicts the managerial performance of the company, the SE
represents the efficiency of a company in terms of the scale of operation of the company and
suggests whether the scale of operation should be increased or decreased in order to increase
the efficiency score. The second objective of the study is to provide input and output targets to
the inefficient companies which can aid them in improving their efficiency levels. At the end,
the study aims to compare the performance of the companies for the past five years to check
the fluctuations in the various efficiency scores.
From the research point of view, it is imperative to measure the efficiency of the
companies that are listed and traded on the stock exchange so that it could provide acumen
into the performance of the companies to various stakeholders. The efficiency of the listed
companies can be evaluated through various parametric and non-parametric techniques
available. The present study has made use of one of the non-parametric techniques, data
envelopment analysis (DEA) to analyze the Indian gas and oil sector companies.
This rest of the paper is parted into five sections. Section 2 provides the literature review.
Section 3 provides the theoretical explanation of the DEA model, describes the research
 methodology and the variables that have been considered in the present model for analysis. Indian oil and
Section 4 deliberates the results obtained and analysis and also provides benchmarks to the gas sector
inefficient units. Section 5 shows the performance of the all the companies considered in the
study over the past five years. In the end, Section 6 summarizes the paper and presents the
scope and future implications of the study.

2. Literature review
Thompson et al. (1992) analyzed the productive efficiencies of 45 US oil/gas firms for the
year 1980–1986 using DEA methods. The DEA/Assurance Reason (AR) evaluation
exhibited falling TE of the industry from period 1980–1982 to 1983–1986.
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Jung et al. (2001) made an attempt to measure the corporate environmental performance
using “GScore” framework which consisted of five categories, namely, general
environmental management, input, process, output and outcome and the impact of such
performance on the efficiency of ten petroleum firms that belonged to Fortune 500 in the
year 1999 using DEA. Assets and the number of employees representing capital and labor,
respectively, were taken as the input variables while three years average profit and GScore
were incorporated as output variables. Out of ten firms, four were found as efficient.
The relative efficiency of firms was found to be considerably influenced in the order of
number of employees, then GScore, profits and assets in sequence.
Easton et al. (2002) examined the efficiency of purchasing departments of 18 US firms
using DEA for the year 1991. Total purchase amount in dollars by the purchasing
department and the percent of total company purchase dollars handled by the purchasing
department were the two output variables considered in the study. Four input variables, i.e.
total purchasing operating expenses, total number of professional employees involved in
purchasing, total number of administrative purchasing employees and total number of
active suppliers were taken for the analysis. Six firms out of 18 firms in the study were
found to be efficient with a score of 1. The efficiency score of inefficient firms lied in the
range of 0.12 to 0.77.
Bevilacqua and Braglia (2002) applied DEA to evaluate the environmental efficiency of
seven AgipPetroli (Eni Group Company) oil refineries, namely, Gela, Livorno, Milazzo, Priolo,
Sannazzano, Taranto and Venezia operating in Italy for four years period of 1993–1996.
In terms of environmental performance, they found Gela oil refinery exhibiting the worst
performance and Sannazzaro plant showing greatest environmental values. The authors
suggested the oil refineries for the adoption of Environmental Management System.
Barros and Assaf (2009) examined the TE of Angola (a major African country) oil blocks
for the period 2002 to 2007. A two-stage DEA double bootstrap model was adopted for
analyzing the efficiency. In the first stage, a bootstrapped DEA–VRS model was estimated
while in the second stage, a bootstrapped truncated regression was estimated to identify the
causes of productivity differentials. Though on average, the results showed a fluctuation in
the TE over the study period, but the deep and ultradeep oil blocks maintained consistent
efficiency levels.
In an endeavor to evaluate the TE of 113 oil refineries of US for the year 2006 and 2007,
including undesirable output in the production process, Mekaroonreung and Johnson (2010)
made disposability assumptions between desirable and undesirable outputs and implemented
several DEA approaches to find the impact of such assumptions. Further, to examine the
probable output loss of each refinery pertaining to environmental problems, a hyperbolic
efficiency measure was used. From the obtained results, they found refineries in PADD4
(Rocky Mountain) region as the best performers in the benchmark analysis. Further, the study
suggested that the efficiency of 60 percent inefficient refineries could be improved by
increasing an amount of distillate and gasoline while minimizing overall emission. There was
a reduction in desirable outputs noticed because of pollution abatement, which implied that
 IJOEM the environmental regulation had affected some refineries. However, the findings of the study
showed that the environmental regulations have less effect on efficient companies.
Eller et al. (2011) presented empirical evidence on the operational efficiency of private
international oil companies (IOCs) and National Oil Companies (NOCs) by applying DEA and
SFA to a panel of 78 firms of different countries for the year 2004. In general, they found NOCs to
be less efficient than IOCs. The reason for such efficiency was attributed to differences in the
institutional and structural features of the firms, which may arise due to diverse firms’ objectives.
The relationship between economic efficiency and oil consumption in 42 countries for the
period 1986–2006 was identified by Halkos and Tzeremes (2011). The countries’ economic
efficiencies were obtained by using DEA window analysis. The generalized method of
moments (GMM) econometric analysis revealed an inverted U-shape relationship between
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economic efficiency and oil consumption. The results showed that oil consumption increases
countries’ economic efficiency and indicated that oil consumption in an economy as the main
driver of industrialization and urbanization.
Al-Najjar and Al-Jaybajy (2012) studied the relative efficiency of 12 oil refineries of Iraq
using DEA–CCR model for a period of two years, 2009 and 2010. Four input variables
specifically crude oil (m3), land (hectares), workforce and electricity (Kw/h) were considered;
while for output variables, naptha (m3), kerosene (m3), gasoline (m3) and fuel oil (m3) were
taken into account. Out of 12 refineries, 50 and 58 percent were found efficient in the year
2009 and 2010, respectively. The overall efficiency score of the refineries was approximately
82 and 87 percent, respectively for these two years.
Ike and Lee (2014) assessed the relative efficiency and productivity of 38 out of 50 world’s
largest NOCs and IOCs for the period 2003–2010 using DEA. In addition, random-effects
regression model was applied in the second stage analysis on the environmental factors
which had an impact on the productivity and efficiency level. The results found OPEC NOCs
as low performers and big IOCs as the high performers.
To analyze technical, pure technical and SE of Indian Oil, Gas and Power Sector, Saxena
et al. (2016) used DEA on 24 companies operating in the OGP sector which are present in the
CNX-500 index. The study found 37.5 percent of the companies to be technically as well as
scale efficient and 62.5 percent of the companies as pure technically efficient.
Ohene-Asare et al. (2017) selected the data of 50 firms each year as per Energy
Intelligence’s Petroleum Intelligence Weekly ranking from 2000 to 2010 and divided these
firms into four classes on the basis of ownership and location – state locals (LNOC), state
multinationals (MNOC), private locals (LIOC) and private multinationals (MIOC). In order to
analyze the relative efficiency, the authors applied DEA estimation along with bootstrap
approach. The results obtained showed private firms (IOCs) to be more efficient than state
firms (NOCs) in terms of technical and SE at 1 percent significance level. Further, the
multinationals, irrespective of ownership, were found to be significantly more effective than
local firms on all aspects of efficiency.
The present study has exclusively focused on Indian oil and gas companies for a period
of five years from 2013 to 2017. In previous years, no significant work has been found
especially analyzing the efficiency of Indian oil and gas sector. Further, efficiency in a
particular year can be influenced by various factors and efficiency score of any company in
a particular year can be an outlier. In pursuit of it, the paper uniquely evaluates the
efficiency for the period of five year to examine the average efficiency score and the changes
in the efficiency scores over the period considered in the study.

3. DEA model and research methodology

DEA is a non-parametric technique used to compute the efficiency of homogeneous
decision-making units which are using an identical set of inputs to produce an identical set
of outputs. It also suggests how to improve the efficiency level by benchmarking a unit
 against the most efficient unit. DEA is an admired way to judge the efficiency because it Indian oil and
can measure the efficiency level even in the case of multiple inputs and multiple outputs. gas sector
The efficient units are assigned efficiency score of 1. In DEA, inefficiency is defined as a
distance from the benchmark frontier by making use of linear programming (LP).
The concept of DEA was developed by Farrell (1957) and was extended by Charnes et al.
(1978) and Banker et al. (1984). This concept was initially used to evaluate the efficiencies of
non-profit organizations. The two commonly used models in DEA are CCR (Charnes, Cooper
and Rhodes) model and BCC (Banker, Charnes and Cooper) model. In the case of CCR model,
constant returns to scale (CRS) is assumed and the scores obtained are termed as technical
efficiencies (TE). The efficient frontier is characterized by a straight line. The units whose
scores are less than 1 are considered inefficient and it is possible to increase the efficiency
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levels using two approaches. The two approaches are input-oriented model and
output-oriented model. In and input-oriented model, the existing inputs can be minimized
while maintaining at least the given output levels while in the case of output-oriented model,
the outputs can be increased without increasing the existing level of inputs.
In BCC model, variable returns to scale is assumed. The variable returns to scale can
either be increasing or decreasing for a decision-making unit. In the case of increasing
returns to scale (IRS), the percentage increase in output is more than the percentage increase
in input while in decreasing returns to scale (DRS), the percentage increase in output is less
than the percentage increase in input. By applying BCC model, we obtain PTE scores of
units. The ratio of TE to that of PTE gives SE score of a unit.
Mathematically, the output-oriented CCR model can be expressed as:
!
X m

X s
þ
maxyþe Si þ Sr : (1)
i¼1 r¼1

Subject to:
X
n
lj xij þS 
i ¼ xi0 ;
j¼1

X
n
lj yrj S rþ ¼ yyr0 ;
j¼1

lj X0;

i ¼ 1; 2; . . .; m; r ¼ 1; 2; . . .; s; j ¼ 1; 2; . . .; n;
where S  þ
i is slack in the ith input of the target unit, S r is slack in the rth output of the target
firm, λj are non-negative dual variables, θ is the simultaneous adjustment applied to all
outputs of the target unit which leads in a radial movement toward the envelopment surface.
The BCC model is the dual of CCR model along with an added convexity constraint of:
X
n
l j ¼ 1:
j¼1

The objective function (1) is calculated in a two-way process with maximum optimization of
outputs is being achieved first by ignoring the slacks and then in the second stage,
movement on to the efficient frontier is achieved via optimizing the slack variables.
 IJOEM The presence of non-Archimedean ε specifies the model to be a two-way process. To obtain
the optimal values of λ1, λ2, …, λn, S  þ
i , S r , the above-mentioned CCR and BCC models are
solved as LP problems. The SE scores can be obtained by taking the ratio of CCR scores to
BCC scores.
A DMU is efficient if θ ¼ 1 and S  þ
i ¼ S r ¼ 0 for all i and r. DMUo is weakly efficient if
 þ
θ ¼ 1 and S i ≠ 0 and (or) S r ≠ 0 for some i and r. The input targets for a unit can be
obtained by subtracting the input slacks from existing input levels. For determining output
targets, the output slacks are to be added to the existing output levels.
In the present study, DEA has been preferred over other efficiency measurement techniques
like stochastic frontier analysis, performance ratios, regression analysis, etc. because of some of
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the in-built benefits allied with it. DEA, being a deterministic approach of measuring efficiency
does not assume the presence of the error term and the distance of a firm from the common
frontier is considered as the level of inefficiency. Meanwhile, the stochastic approach agrees to
the existence of error term. In case of stochastic approach, the deviation of a firm from the
common frontier is composed of random error and inefficiency but there is no way to expound
whether the deviation is due to inefficiency or random error. Also, the stochastic method
provides only an estimate of mean efficiency over the sample. Thus, we have preferred DEA
methodology in our study. DEA measures the relative efficiency of units which are using an
identical set of outputs and inputs. It also provides target levels that the inefficient units should
try to achieve in order to attain efficiency score of one. Further, there is no requirement to make
any assumption of a functional form relating inputs to outputs. However, like any other
analysis, DEA also has some limitations. Being a non-parametric technique, statistical
hypothesis tests are difficult in the case of DEA. Mathematically, DEA standard formulation
requires creating a separate linear program for each decision-making unit because of which
large problems can be computationally intensive. Previously, DEA had been used to study the
efficiency of various areas such as banking, textile, OGP sector, etc., as discussed herewith.
In an endeavor to measure the TE of Indian banking sector, Kumar and Gulati (2009)
considered 51 banks and analyzed cross-sectional data for the financial year 2006–2007.
Out of 51 banks, they found only 9 banks to be efficient. Additionally, they established that
private sector banks subjugated in the creation of the efficient frontier. However, the
differences in the efficiency of private and public sector banks were not found to be
statistically significant.
Using Hicks–Moorsteen (HM) total factor productivity (TFP) index on pooled data of
15 years from 1997–1998 to 2010–2011, Sharma and Dalip (2014) examined the efficiency of
59 Indian banks. They concluded that the banks experienced poor TE with SE change
exercising dominant factors, whereas banks with major contributions from technical change
components experienced better productivity growth. Using DEA-based Malmquist Index,
the study found relatively underestimated productivity levels and efficiency.
Gambhir and Sharma (2015) evaluated the productivity performance of the Indian textile
industry comprising 160 textile companies using firm-level panel data for the period of six
years from 2007–2008 to 2012–2013 using DEA Malmquist productivity index (MPI).
They concluded that during the aforesaid period, moderately large firms exhibited better
productivity performance.
Sahoo et al. (1999) applied frontier translog production function and DEA on the Indian
steel industry involving 60 companies for the period of eight years from 1989 to 1996.
They concluded DEA to be advantageous over the translog method in terms of providing
information concerning to the returns to scale possibilities for each individual production
units. Both these models showed the presence of variable returns to scale in the steel industry.
Debnath and Sebastian (2014) considered 22 companies to measure the efficiency in
the Indian iron and steel industry for the period 2008–2009. The companies with annual
income of more than 50 crores and the units manufacturing steel, pig iron and sponge iron
 were included in the study. Taking four input and four output variables in an account for Indian oil and
measuring efficiency, they confirmed the existence of economies of scale in the Indian iron gas sector
and steel industry and found the PSUs to have scale inefficiency as compared to the private
manufacturing units.
Gandhi and Shankar (2014) analyzed the economic efficiencies of 18 Indian retailers for
the year 2008–2010 using DEA, MPI and Bootstrapped Tobit Regression. DEA–CCR model
and BCC model showed six firms and seven firms, respectively, as efficient firms. MPI
results indicated that out of total firms, 61 percent improved during the period. Using
bootstrapped Tobit regression, the number of retail outlets and mergers and acquisitions
were found to be the driving forces influencing the efficiency of retailers in India. Similarly,
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Yu and Ramanathan (2008) measured the operational efficiency of UK retail sector. In Spain,
Moreno and Sanz‐Triguero (2011) analyzed efficiency and productivity of 12 sectors in retail
trade for the year 1997–2007.
Sanjeev (2007) studied the efficiency of Indian hotel and restaurant sector using DEA for
the year 2004–2005 and found 16 out of 68 companies as fully technically efficient.
These companies in the sector obtained an average TE score of 0.756. The correlation
between the size of the companies and the efficiency was found positive at 0.238.
In an attempt to measure the TFP of Indian garment industry, Joshi and Singh (2010)
applied DEA-based MPI approach on data collected for the years 2002–2007. The TFP growth
rate was found to be 1.7 percent per annum for the aforesaid mentioned period. Additionally,
the small-scale firms were found to be more productive than the medium- and large-scale firms.
The present analysis has considered the companies operating in the Indian oil and gas
sector and which are listed on NSE. The sector comprises of 26 companies emphasizing
either on drilling and exploration activities or on refinery activities. To examine the TE,
PTE and SE scores of the companies, two output variables (operating revenues and PAT)
and three input variables (employee benefits expenses, capital investment and combined
materials consumed and manufacturing expenses) have been considered in the study.
The data of the mentioned variables have been extracted from NSE website. However, due
to unavailability of certain input/output variables for some companies, the number of
companies studied had to be reduced from 26 companies to 22 for which the data for the
period 2013–2017 was available in totality. The four companies excluded were Gujarat Gas
Limited, Interlink Petroleum Limited, Cals Refineries and Nagarjuna Oil Refinery Limited.
Technically, the input variables should comprise both labor and capital elements. Owing
to this, manufacturing expenses and materials consumed, employee benefit expenses (labor)
and capital investments were given due consideration. The employee benefit expenses and
materials consumed along with manufacturing expenses being the prime disbursement for
companies in oil and gas sector were undeniably selected. Manufacturing expenses imply
the sum total of direct labor cost, direct materials cost and manufacturing overhead. As per
Ind AS 19, employee benefit expenses include short terms benefits (wages and salaries,
annual leave), post-employment benefits such as retirement benefits, other long-term
benefits and termination benefits. Furthermore, capital investment got the nod as an input
element in light of huge investment needed to be in the functioning of this sector and to
determine the efficient use of investment by the companies. The capital investment or
capital employed by a company is denoted as total assets minus current liabilities and thus
serves the purpose of showing the extent of assets employed in the company. In an
organization, profit maximization is a predominant objective and higher profits symbolize
improvised performance. Considerably, PAT was incorporated as an output variable. Also,
revenue generation is an important component for any business. Thus, total operating
revenues were selected as another output variable. Further, we have considered absolute
figures for output variables in form of operating revenues and PAT and provided specific
targets to the firms in form of same because using any relative figure in form of ratios like
 IJOEM total assets turnover, return on assets, etc., do not serve the exact purpose of providing
target to the inefficient companies. This is because recommending any company to increase
a ratio, for example, return on assets can imply two things – either to increase the earnings
or to lower the amount of assets used which can create ambiguity.
For the sample size, Cooper et al. (2007) presented two rules that should be considered while
performing DEA. The rules can be denoted mathematically as n ⩾ max{m × s; 3(m + s)},
where n is the number of decision-making units, m is the number of input variables and s is the
number of output variables. As specified by the first rule of thumb, the number of observations
should be at least greater than or equal to the product of the number of input and output
variables. The second rule states that the number of observations in the data set should be at
least thrice the sum of the number of input and output variables. As per the data into
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consideration, the selected size of 22 companies fulfils both the mentioned rules conditions.
The descriptive statistics of the input and output variables are shown in Table I. It shows
the maximum, minimum and average value of the input and output variables for the
companies taken in the study. For instance, for the input variables among all the companies,
IOC accounts for the maximum value of Rs 289,292.95 crores for materials consumed for the
year ending March 31, 2017. Similarly, ONGC has the highest employee benefit expenses of
Rs 11,550.77 and Reliance has the maximum capital investment worth Rs 393,920 crores.
In the case of output variables, IOC has the highest operating revenues of Rs 359,873.16
crores while Reliance has the maximum PAT of Rs 31,425 crores. Also in Table I, in order to
show the deviations in the value of the variables from the average value, standard deviation
and coefficient of variation have been shown to represent the absolute and relative
deviations respectively. The high value of both these deviations shows the heterogeneity in
the size of the companies present in the Indian oil and gas sector.
Pragmatically, it is onerous for companies to shrink employee benefit expenses because of
stringent laws and labor union roles. Further, minimizing the existent capital investment is also
not feasible. Thus, the output maximizing models of DEA are used for efficiency valuation.

4. Results, discussions and benchmarking

To measure the relationship, the correlation was found amongst the input and output
variables which is shown in Table II. It depicts that the input and output variables are
positively correlated, especially there is a high correlation of materials consumed with
operating revenues and of capital investment with PAT.

Materials Employee benefit Capital Operating

Variables → consumed expenses investment revenues PAT

Max 289,292.95 11,550.77 393,920 359,873.16 31,425

Table I. Min 2.07 0.89 24 6.77 −33.63
Descriptive statistics Average 43,517.31 1,646.47 45,710.88 55,950.34 4,360.37
of the variables SD 79,719.04 3,102.50 93,589.64 96,950.88 7,950.38
(in Rs. Crores) Coefficient of variance 183.19 188.43 204.74 173.28 182.33

Inputs
Materials consumed Employee benefit expenses Capital investment
Table II.
Correlation among Outputs
output and Operating revenues 0.99 0.72 0.67
input variables PAT 0.73 0.79 0.97
 The total efficiency scores for all 22 decision-making units are found using CCR model, PTE Indian oil and
scores using BCC model and SE scores. The efficiency scores summary is shown is gas sector
exhibited in Table III.

4.1 Technical and PTE

Technical efficiency (TE) scores are found using CCR model and PTE scores are computed
using BCC model. Out of the total 22 units, 13 units (59 percent) are found to be technically
efficient, whereas 16 units (73 percent) are pure technically efficient. The summary statistics
are presented in Table IV.
Table V contains the data showing the contribution of efficient and inefficient firms in
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input and output variables. In terms of output measures, the technically efficient units
represent 47.07 percent of the total operating revenues of all the units and 43.47 percent of

Sl. No. Decision-making units CCR scores BCC scores SE scores

1 Deep Industries Ltd 1.00 1.00 1.00

2 Selan Exploration Technology Ltd 0.41 0.44 0.94
3 Dolphin Offshore Enterprises Ltd 0.82 0.84 0.97
4 Oil India Ltd 1.00 1.00 1.00
5 Gujarat State Petronet Ltd 1.00 1.00 1.00
6 Aban Offshore Ltd 0.90 0.90 1.00
7 Asian Oilfield Services Ltd 0.82 0.86 0.95
8 Jindal Drilling 0.60 0.60 0.99
9 Duke Offshore 0.75 1.00 0.75
10 Petronet LNG Ltd 1.00 1.00 1.00
11 Hindustan Oil Exploration Ltd (HOEC) 1.00 1.00 1.00
12 GAIL 0.79 0.95 0.83
13 Indraprastha Gas Ltd (IGL) 1.00 1.00 1.00
14 Oil & Natural Gas Corporation Ltd (ONGC) 1.00 1.00 1.00
15 Alphageo Ltd 1.00 1.00 1.00
16 Reliance Industries Ltd (RIL) 0.86 1.00 0.86
17 Mangalore Refinery & Petrochemicals Ltd (MRPL) 1.00 1.00 1.00
18 Mahanagar Gas 1.00 1.00 1.00
19 Chennai Petroleum Corporation Ltd 1.00 1.00 1.00
20 Indian Oil Corporation (IOC) 0.96 1.00 0.96 Table III.
21 Bharat Petroleum Corporation Ltd (BPCL) 1.00 1.00 1.00 Summary of
22 Hindustan Petroleum Corporation Ltd (HPCL) 1.00 1.00 1.00 efficiency scores

Scores No. of efficient units % of total Minimum Maximum Average SD

Table IV.
TE 13 0.59 0.41 1 0.91 0.15 Summary statistics of
PTE 16 0.73 0.44 1 0.94 0.14 TE and PTE scores

Materials Employee benefit Capital Operating

consumed expenses investment revenues PAT Table V.
Summary of variables
Efficient 46.60 57.17 40.45 47.07 43.47 in percentage for
Inefficient 53.40 42.83 59.55 52.93 56.53 technical efficiencies
 IJOEM PAT whereas in the case of input measures, these units represent 46.60 percent of the
materials consumed, 57.17 percent of the employee benefits expenses and 40.45 percent of
the capital investment.
However, there is a radical change in this data when we take into account the BCC model
in which variable returns to scale is assumed. Table VI recapitulates the measures as
per BCC model which depicts that on an average, 95.54 percent of the input measures and
96.19 percent of the output measures are solely represented by pure technically efficient
units. Duke Offshore, Reliance Industries Ltd (RIL) and IOC are efficient as per BCC model
but not technically efficient as per CCR model. This implies that these companies are scale
inefficient. These eight companies account for approximately 51.81 percent of the total
output measures.
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4.2 Scale efficiency

The SE scores are computed by dividing the TE scores with PTE scores. The results
obtained in Table VII convey that there are 7 out of 22 companies which are scale efficient.
Table VII obtained by employing BCC model further demarcates the returns to scale at
which the companies are operating. The companies operating at IRS should try to increase
their size to reach the efficient frontier and vice versa.

Materials Employee benefit Capital Operating

Table VI. consumed expenses investment revenues PAT
Summary of variables
in percentage for pure Efficient 95.92 96.08 94.61 95.97 96.41
technical efficiencies Inefficient 4.08 3.92 5.39 4.03 3.86

Sl. No. DMU SE Scores RTS

1 Deep Industries Ltd 1 Constant

2 Selan Exploration Technology Ltd 0.94 Increasing
3 Dolphin Offshore Enterprises Ltd 0.97 Increasing
4 Oil India Ltd 1 Constant
5 Gujarat State Petronet Ltd 1 Constant
6 Aban Offshore Ltd 1 Increasing
7 Asian Oilfield Services Ltd 0.95 Increasing
8 Jindal Drilling 0.99 Decreasing
9 Duke Offshore 0.75 Increasing
10 Petronet LNG Ltd 1 Constant
11 Hindustan Oil Exploration Ltd (HOEC) 1 Constant
12 GAIL 0.83 Decreasing
13 Indraprastha Gas Ltd (IGL) 1 Constant
14 Oil & Natural Gas Corporation Ltd (ONGC) 1 Constant
15 Alphageo Ltd 1 Constant
16 Reliance Industries Ltd (RIL) 0.86 Decreasing
17 Mangalore Refinery & Petrochemicals Ltd (MRPL) 1 Constant
18 Mahanagar Gas 1 Constant
19 Chennai Petroleum Corporation Ltd 1 Constant
Table VII. 20 Indian Oil Corporation (IOC) 0.96 Decreasing
Scale efficiency scores 21 Bharat Petroleum Corporation Ltd (HPCL) 1 Constant
and returns to scale 22 Hindustan Petroleum Corporation Ltd (HPCL) 1 Constant
 The results obtained through DEA models provide definite values of the slack variables. Indian oil and
These slack variables exemplify the residual portions of inefficiencies after proportionate gas sector
diminutions in inputs and outputs. The companies can reach efficient frontier by managing
the slacks appropriately. The input slacks denote the portion of inputs which are not utilized
efficiently and the output slacks symbolize the under-produced outputs. In the short run,
companies may operate in IRS or DRS. However, in the long run, the companies will try to
function in CRS by expanding or contracting their sizes, as CRS signifies the maximum
average output and minimum average input consumption. Table VIII and Table IX below
provide the present and target inputs and outputs derived from CCR model for all nine
inefficient companies.
The outcomes from the model provide valuable insights to the companies regarding the
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operating, financing and investing policies. From the TE scores, we can recognize that
the companies whose score is less than 1 have the potential and scope to perform better. The TE
of the oil and gas companies was found in the range of score of 0.41 to 1. The efficiency score of
x implies the company is producing (1–x) percent less than the efficient production level.
The oil and gas sector appears to have effectively utilized the capital invested. None of
the companies are suggested to reduce the capital investment. As far as employee benefit
expenses are concerned, the actual level and target level for the companies have been shown
in Tables VIII and IX, respectively along with other input and output variables.
Revenue enhancement is one of the main objectives of the companies as it positively
affects the overall performance of the company. All the technically inefficient companies are
required to increase the operating revenues. IOC, Aban Offshore and RIL have to increase

Materials Employee benefit Capital Operating

Sl. No. consumed expenses investment revenues PAT

Selan Explore 54.54 3.77 352.27 55.84 8.65

Dolphin
Offshore 32.08 11.09 113.48 62.21 −33.63
Aban Offshore 48.9 95.47 4,843.81 886.86 211.14
Asian Oilfield 17.2 10.79 106.48 43.42 −5.53
Jindal Drilling 276.9 43 880.64 371.6 16.97 Table VIII.
Duke Offshore 2.07 0.89 24 6.77 0.86 Present input and
GAIL 38,645.06 1,257.53 47,895.77 48,148.85 3,502.91 output levels of
Reliance 182,827 4,434 393,920 242,025 31,425 inefficient companies
IOC 289,293 9,657.89 150,690.5 359,873.2 19,106.4 (in Crores)

Materials Employee benefit Capital Operating

Sl. No. consumed expenses investment revenues PAT

Selan Explore 54.54 3.77 352.27 134.65 37.37

Dolphin
Offshore 32.08 7.13 113.48 76.01 14.39
Aban Offshore 48.90 95.47 4,843.81 983.46 333.81
Asian Oilfield 17.20 6.01 106.48 53.02 10.82
Jindal Drilling 276.90 43.00 880.64 624.40 133.41 Table IX.
Duke Offshore 2.07 0.89 24.00 8.98 2.40 Target input and
GAIL 38,645.06 1,257.53 47,895.77 60,786.88 8,412.68 output levels of
Reliance 182,827.00 4,434.00 393,920.00 281,527.24 46,344.48 inefficient companies
IOC 289,292.95 9,657.89 150,690.49 373,746.82 31,118.90 (in Crores)
 IJOEM the revenues by 3.86, 10.89 and 16.32 percent, respectively, which is an achievable target.
Along with increasing revenues, IOC, Aban Offshore and RIL have to focus on ways to
increase PAT by 62.87 percent, 58.09 percent and 47.47 percent, respectively.

5. Performance over the years

An attempt has been made to analyze the performance of all companies over past five years
through computation of the technical, pure technical and SE scores. Over the years, it can be
found out that some companies have consistently maintained their efficiency levels while
others have improved or declined. Oil India Ltd, Gujarat State Petronet Ltd, Petronet LNG
Ltd, IGL Ltd, Mahanagar Gas, Chennai Petroleum Corporation Ltd and BPCL Ltd have a
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score of 1 for all the efficiency levels throughout five years. In terms of PTE, apart from the
above-mentioned five companies, Duke Offshore, ONGC, Reliance, MRPL and IOC have a
score of 1 which signifies better performance of these companies in terms of managerial
competence and suggests improvement in terms of the scale of operation. The average
efficiency score of the companies has been computed using Geometric Mean.
The performance of other companies over the years can be examined from Table X–XII
given below. Charts have also been drawn for better graphical representation. The X-axis
denotes year and the Y-axis denotes efficiency scores.

6. Conclusion and future implications

Performance measurement methods can assist the organizations in evaluating their
resource allocation and manage such resources for value-adding activities. DEA method
helps in identifying the areas where resources need more careful allocation. The present
study has endeavored to find the technical, pure technical and scale efficiencies of the
companies operating in the Indian oil and gas sector and which are listed on NSE using
DEA. In order to evaluate the efficiency level, three input variables namely materials
consumed, employee benefit expenses and capital investment have been considered and for

Sl. No. Decision-making units 2013 2014 2015 2016 2017 GM

1 Deep Industries Ltd 0.63 0.77 0.77 1 1 0.82

2 Selan Exploration Technology Ltd 1 1 0.69 0.43 0.41 0.66
3 Dolphin Offshore Enterprises Ltd 0.86 0.76 0.55 0.46 0.82 0.67
4 Oil India Ltd 1 1 1 1 1 1
5 Gujarat State Petronet Ltd 1 1 1 1 1 1
6 Aban Offshore Ltd 0.73 0.86 0.75 1 0.9 0.84
7 Asian Oilfield Services Ltd 1 0.61 0.14 1 0.82 0.59
8 Jindal Drilling 0.79 0.72 0.59 0.6 0.6 0.66
9 Duke Offshore 1 1 1 1 0.75 0.94
10 Petronet LNG Ltd 1 1 1 1 1 1
11 Hindustan Oil Exploration Ltd (HOEC) 0.26 0.17 0.31 0.38 1 0.35
12 GAIL 0.87 0.89 0.88 0.85 0.79 0.86
13 Indraprastha Gas Ltd (IGL) 1 1 1 1 1 1
14 Oil & Natural Gas Corporation Ltd (ONGC) 0.85 0.83 0.86 0.96 1 0.90
15 Alphageo Ltd 0.3 1 1 0.85 1 0.76
16 Reliance Industries Ltd (RIL) 0.89 0.91 0.9 0.89 0.86 0.89
17 Mangalore Refinery & Petrochemicals Ltd (MRPL) 1 0.96 0.93 1 1 0.98
18 Mahanagar Gas 1 1 1 1 1 1
19 Chennai Petroleum Corporation Ltd 1 1 1 1 1 1
Table X. 20 Indian Oil Corporation (IOC) 0.96 0.96 0.94 0.97 0.96 0.96
Technical efficiency 21 Bharat Petroleum Corporation Ltd (BPCL) 1 1 1 1 1 1
over five years 22 Hindustan Petroleum Corporation Ltd (HPCL) 0.95 0.96 0.94 0.97 1 0.96
 Sl. No. Decision-making units 2013 2014 2015 2016 2017 GM
Indian oil and
gas sector
1 Deep Industries Ltd. 0.63 0.8 0.84 1 1 0.84
2 Selan Exploration Technology Ltd. 1 1 0.7 0.44 0.44 0.67
3 Dolphin Offshore Enterprises Ltd. 0.87 0.81 0.65 0.48 0.84 0.71
4 Oil India Ltd. 1 1 1 1 1 1
5 Gujarat State Petronet Ltd. 1 1 1 1 1 1
6 Aban Offshore Ltd 0.73 0.87 0.75 1 0.9 0.84
7 Asian Oilfield Services Ltd. 1 0.62 1 1 0.86 0.88
8 Jindal Drilling 0.8 0.77 0.69 0.62 0.6 0.69
9 Duke Offshore 1 1 1 1 1 1
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10 Petronet LNG Ltd. 1 1 1 1 1 1

11 Hindustan Oil Exploration Ltd (HOEC) 0.26 0.17 0.33 0.5 1 0.37
12 GAIL 1 1 1 0.94 0.95 0.98
13 Indraprastha Gas Ltd (IGL) 1 1 1 1 1 1
14 Oil & Natural Gas Corporation Ltd (ONGC) 1 1 1 1 1 1
15 Alphageo Ltd. 0.31 1 1 0.88 1 0.77
16 Reliance Industries Ltd (RIL) 1 1 1 1 1 1
17 Mangalore Refinery & Petrochemicals Ltd (MRPL) 1 1 1 1 1 1
18 Mahanagar Gas 1 1 1 1 1 1
19 Chennai Petroleum Corporation Ltd. 1 1 1 1 1 1 Table XI.
20 Indian Oil Corporation (IOC) 1 1 1 1 1 1 Pure technical
21 Bharat Petroleum Corporation Ltd (BPCL) 1 1 1 1 1 1 efficiency over
22 Hindustan Petroleum Corporation Ltd (HPCL) 0.97 1 0.95 1 1 0.98 five years

Sl. No. Decision-making units 2013 2014 2015 2016 2017 GM

1 Deep Industries Ltd 1 0.96 0.92 1 1 0.98

2 Selan Exploration Technology Ltd 1 1 0.99 0.98 0.94 0.98
3 Dolphin Offshore Enterprises Ltd 0.99 0.94 0.85 0.96 0.99 0.94
4 Oil India Ltd 1 1 1 1 1 1
5 Gujarat State Petronet Ltd 1 1 1 1 1 1
6 Aban Offshore Ltd 1 0.99 1 1 1 1
7 Asian Oilfield Services Ltd 1 0.98 0.14 1 0.95 0.67
8 Jindal Drilling 0.99 0.94 0.86 0.97 0.99 0.95
9 Duke Offshore 1 1 1 1 0.75 0.94
10 Petronet LNG Ltd 1 1 1 1 1 1
11 Hindustan Oil Exploration Ltd (HOEC) 1 1 0.94 0.76 1 0.93
12 GAIL 0.87 0.89 0.88 0.9 0.83 0.87
13 Indraprastha Gas Ltd (IGL) 1 1 1 1 1 1
14 Oil & Natural Gas Corporation Ltd (ONGC) 0.85 0.83 0.86 0.96 1 0.90
15 Alphageo Ltd 0.97 1 1 0.97 1 0.99
16 Reliance Industries Ltd (RIL) 0.89 0.91 0.9 0.89 0.86 0.89
17 Mangalore Refinery & Petrochemicals Ltd (MRPL) 1 0.96 0.93 1 1 0.98
18 Mahanagar Gas 1 1 1 1 1 1
19 Chennai Petroleum Corporation Ltd 1 1 1 1 1 1
20 Indian Oil Corporation (IOC) 0.96 0.96 0.94 0.97 0.96 0.96 Table XII.
21 Bharat Petroleum Corporation Ltd (BPCL) 1 1 1 1 1 1 Scale efficiency over
22 Hindustan Petroleum Corporation Ltd (HPCL) 0.98 0.96 0.99 0.97 1 0.98 five years

output variables; operating revenues and PAT have been taken. The relative efficiency
score of the companies is based on how optimally input variables are used to generate
output variables. The low-efficiency score implies either more use of input variables than the
target level, or low generation of output variables than the target level or both. Based on
 IJOEM the analysis, it is found that 59 percent of all companies are technically as well as scale
efficient whereas 73 percent are pure technically efficient (refer Table IV ). There are eight
companies which represent approximately 54 percent of the output have scale inefficiencies.
In accordance with the second objective of the study, the study also attempted to provide
the benchmark in terms of input and output variables targets to the companies which
are not relatively efficient. Out of the inefficient companies, some of the companies have
challenging targets to achieve. For instance, Jindal Drilling and Selan Explore need to
increase their PAT by 686 and 332 percent respectively which is a strenuous task for the
companies. The company managers must try to explore the possible solutions to cater to the
problems and the ways to substantially increase the efficiency levels. These companies can
follow the practices adopted by the companies like Oil India Ltd, Gujarat State Petronet Ltd,
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etc. which are constantly performing well over the years.

In the end, the study evaluated the performance of the companies for five years period
2013 to 2017 in order to check the fluctuations in various efficiency scores. The companies
Oil India Ltd, Gujarat State Petronet Ltd, Petronet LNG Ltd, IGL Ltd, Mahanagar Gas,
Chennai Petroleum Corporation Ltd and BPCL Ltd have scored 1 for all the efficiency levels
throughout five years.
The findings of the study have important implications for the policy makers and
managers of the companies. As mentioned in the beginning, out of 22 companies considered
in our study, the government-owned Oil and Gas PSU companies namely Oil India Ltd,
Chennai Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd, GAIL, Hindustan
Petroleum Corporation Ltd, IOC, Mangalore Refinery and Petrochemicals, Oil and
Natural Gas Corporation have also been included. The careful analysis of the efficiency
scores of the companies for five years depicts these PSU companies to be much more
efficient and consistent. For the companies which are relatively less efficient, the problems
pertaining to the input and output variables have been identified and shown in form of
targets which need to be carefully considered by the management. The companies can gain
benefits if the targets provided in the study are tried to be achieved. The future research
may be carried from this point and the solutions to solve the inefficiency from individual
company’s point of view in form of the better mix of operating, investing and financing
decisions should be tried to found out. The ways to achieve efficiency and to perform better
would vary from company to company and would depend on various internal factors of
the company which should be undertaken by the company managers. In further research,
the Indian oil and gas sector can be compared with other countries oil and gas sector to have
broader analysis of efficiency. As done in our study, the efficiency of the sector should be
reviewed periodically and for a span of time to have a check on the level of performance.

Note
1. www.ibef.org/industry/oil-gas-india.aspx

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Web Reference
https://nseindia.com
 Appendix Indian oil and
gas sector
Selan Exploration Dolphin Offshore Gujarat State
Deep Industries Ltd. Technology Ltd. Enterprises Ltd. Oil India Ltd. Petronet Ltd.
1.2 1.2 1.2 1.2 1.2

1 1 1 1 1

0.8 0.8 0.8 0.8 0.8

0.6 0.6 0.6 0.6 0.6

0.4 0.4 0.4 0.4 0.4

0.2 0.2 0.2 0.2 0.2

0 0 0 0 0

13

14

15

16

17

13

14

15

16

17

13
16

17

13

14

15

16

17

14

15

16

17
13

14

15

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
20

20

20

20

20

20

20

20

20

20

Asian Oilfield
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Aban Offshore Ltd. Services Ltd. Jindal Drilling Duke Offshore Petronet LNG Ltd.
1.2 1.2 1.2 1.2 1.2

1 1 1 1 1

0.8 0.8 0.8 0.8 0.8

0.6 0.6 0.6 0.6 0.6

0.4 0.4 0.4 0.4 0.4

0.2 0.2 0.2 0.2 0.2

0 0 0 0 0

13

14

15

16

17

13

14

15

16

17
13

14

15

16

17

13

14

15

16

17

13

14

15

16

17

20

20

20

20

20

20

20

20

20

20
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

Hindustan Oil Indraprastha Gas Oil and Natural Gas

Exploration Ltd. (HOEC) GAIL Ltd. (IGL) Corporation Ltd. (ONGC) Alphageo Ltd.
1.2 1.2 1.2 1.2 1.2

1 1 1 1 1

0.8 0.8 0.8 0.8 0.8

0.6 0.6 0.6 0.6 0.6

0.4 0.4 0.4 0.4 0.4

0.2 0.2 0.2 0.2 0.2

0 0 0 0 0
14
13

14

15

16

17

13

15

16

17

13

14

15

16

17
13

14

15

16

17

13

14

15

16

17
20

20

20

20

20

20

20

20

20

20
20

20

20

20

20
20

20

20

20

20

20

20

20

20

20

Mangalore Refinery and Chennai Petroleum Indian Oil

Reliance Industries Ltd. (RIL) Petrochemicals Ltd. (MRPL) Mahanagar Gas Corporation Ltd. Corporation (IOC)
1.02 1.2 1.2
1.05 1.02
1 1 1
1 1
0.98 0.8
0.95 0.8 0.98
0.96
0.9 0.6 0.6 0.96
0.94
0.85 0.4 0.4 0.94
0.92
0.8 0.9 0.2 0.2 0.92

0.75 0.88 0 0 0.9

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Bharat Petroleum Hindustan Petroleum

Corporation Ltd. (BPCL) Corporation Ltd. (HPCL)
1.2 1.02
1 1
Technical Efficiency
0.8
Figure A1.
0.98
Pure Technical Efficiency
0.6 0.96

0.4 0.94 Scale Efficiency

TE, PTE and SE
0.2 0.92 scores of DMUs for
0 0.9 the year 2013–2017
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Corresponding author
Rohit Bansal can be contacted at: rbansal@rgipt.ac.in

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