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COMPANY ANAlYSIS

About ONGC:
Oil and Natural Gas Corporation Limited (ONGC)
(incorporated on June 23, 1993) is an Indian public sector
petroleum company. It is a Fortune Global 500 company ranked
335th, and contributes 77% of India's crude oil production and
81% of India's natural gas production. It is the highest profit
making corporation in India. It was set up as a commission on
August 14, 1956. Indian government holds 74.14% equity stake in
this company.
ONGC is the flagship company of India; and making this possible
is a dedicated team of nearly 40,000 professionals who toil
round the clock. It is this toil which amply reflects in the
performance figures and aspirations of ONGC. The company has
adapted progressive policies in scientific planning, acquisition,
utilization, training and motivation of the team. At ONGC
everybody matters, every soul counts. Over 18,000 experienced
and technically competent executives mostly scientists and
engineers from distinguished Universities / Institutions of India
and abroad form the core of our manpower. They include
geologists, geophysicists, geochemists, drilling engineers,
reservoir engineers, petroleum engineers, production engineers,
engineering & technical service providers, financial and human
resource experts, IT professionals and so on.

ONGC PERFORMANCE IN LAST TWO YEARS

theCompany has been the first and only Indian company to be


enlisted in Fortunes Most Admired Companies 2008. The Fortune
Global 500, 2008 list has ranked your Company at 335, 34
notches higher than the previous year.
The fiscal 2008-09 was yet another year of growth and success
for your Company, which along with other group companies,
excelled in all its endeavours; particularly in the core activity of
Exploration and Production (E&P) of Crude Oil and Natural Gas.
the Company maintained
a Reserve Replacement Ratio (RRR) of more than one, for the
fourth consecutive year. During the year, your Company
registered RRR at 1.32, with Ultimate reserve accretion (3P
reserves) of 63.82 Million Metric Tonnes (MMT) against production
of 48.28 MMT of Oil & Oil Equivalent
Gas (0+OEG).

ONGC has accreted 182.23 MMT of Initial In-place reserves, the


highest in last decade and 7% more than the last years accretion
of169.52 MMT, with 33 discoveries (Oil: 13, Gas: 20) spread
across Indian sedimentary basins against 22 discoveries during
2006-07. Exploratory performance during ensuing fiscal 2008-09
also started on a high note with 11 discoveries in the first quarter
of current fiscal.

During the year, O+OEG production of the Company, including


the production from domestic joint ventures and overseas assets,
was the highest-ever at 61.85 MMT, 1.84% more than the
previous year. ONGC maintained the O+OEG production level at
48.28 MMT, marginally (0.4%)
lower than last year, against the natural decline of mature fields.
However, the oil and gas production from overseas assets
increased by 10.7% and O+OEG production from domestic joint
ventures also increased by 11.2%.

The augmenting and enhancing efforts taken up by the Company,


through Improved Oil Recovery and Enhanced Oil Recovery
(IOR/EOR) schemes, implemented since 2001, have helped to
arrest production decline in the mature fields. Twelve IOR/ EOR
schemes have been completed and six projects are under
implementation with an investment of Rs. 85,630 million. Out of
the 165 marginal fields, 143 are either monetized or under
delineation or under monetization on service contract.
Remaining22 fields will be put on production by offer under new
marginal field policy. The new field Vasai East discovered in
Western Offshore has commenced production from 7th July, 2008.

ongc is setting up a 50 MW Wind Farm in Gujarat consisting of 34


wheeling units with an investment of Rs. 3,070 million. Power will
be utilized in nearby ONGC installations. All 34 units have been
erected, 10 have started wheeling power. The first CBM
development well for CBM was spudded in Parbatpur pilot area on
1st December, 2007 near Bokaro Steel City of Jharkhand;
production has commence from April 2009.

PORTERS 5 FORCE MODEL

Threat of new entrants:

Due mostly to the industry that ONGC is in, it’s hard for there to
be many new entrants. The only real threat that might arise
would be another government funded Oil and Gas company. The
reason for this is that a government would not have as hard a
time raising funds and gaining access to resources. This is
assuming that the company would be researching and developing
on domestic soil. The only other threat may not be from new
entrants but from smaller competitors who already have access
to resources and distribution channels. There is really not much
of a threat because there are two main barriers to entry that
would be stopping potential threats. These would be very high
capital requirements as well as access to Cost
disadvantages independent of scale.
Even though this industry if very attractive because of the high
profits it would be very hard for a company to have enough
capital to get in the market. Every part of Oil and Gas Exploration
and Development is costly and not something that would be
worth the costs as a new entrant into the industry. Going along
with the high cost of capital are the cost disadvantages. The
companies already in the industry already have the access to raw
materials as well as desirable locations. This is something that
would be very difficult for a new entrant to try and gain.

Bargaining Power of Suppliers:

ONGC is a vertically integrated company that really deals in all


areas from finding the product to refining the product to selling
the product. With this being said there is not much to worry
about the bargaining power of the suppliers. Supplier power is
high as the net margins are strongly dependent on the price of
the crude. Due to crude price volatility and supply risks, a lot of
the Indian companies are integrating backwards into E&P
activities

Bargaining Power of Buyers:


Not too critical for most companies as refining operations are a
part of the complete supply chain, with the refining operations
supplying the product to the marketing company. However in
case of standalone companies (which may no longer apply) long
term contracts have to be signed with the marketing companies.
The margins in such cases are dependent on such long term
contracts.

The industry that ONGC is a part of is different than many other


industries. It is different in the fact that people really cannot go
without their product. While over a long period of time it may be
possible to find other fuels it is not really feasible in the short
term. This has been seen in the US in the last few years. Gas
companies can keep the prices high and consumers will still pay
the high prices. When looking at the individual buyer they have
almost no bargaining power because they are only buying such
an extremely small portion of the industries total output. Another
reason for this lack of bargaining power is that as of right now
there is not a real alternative to Oil. All of these reasons make it
very hard for the buyer to have much bargaining power at all.

Threat of Substitutable Products:

Although gas, solar power etc exist as substitiutes , none of them


are big enough to impact the demand of the petroleum products.

As stated above there is not a real alternative to oil at this time.


There is research being done to try and find substitutes. With the
price of oil as high as it is at this time, it is only giving more
reason to try and find other fuel sources. This is where the main
players in this market must be careful. The prices are staying
fairly high now because people really don’t have a choice and
must pay. If other fuel sources do come out that are less costly,
many people will go towards those alternatives. It does not seem
that at this time there is a huge threat of this happening but it is
definitely a possibility that any player in the market must be
aware of.

Intensity of Rivalry among Competitors:

The rivalry in the industry was low till as the industry was tighlty
regulated by the government. However, the level competition has
increased with Reliance and other MNC becoming more
aggressive.

The largest competitors in this industry for ONGC are Exxon


Mobile and Royal Dutch Shell. ONGC is currently in 14 different
companies whereas Exxon Mobile is in 20 different countries.
While Exxon may be a larger company now ONGC is growing and
is becoming a very important global player.

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