ONGC India : In search of a New Growth Strategy

Arnab ChakrabortyMBA Oil&Gas 3rd Sem

UPES

Evolved from the Oil and Natural Gas Directorate set up by the government of India in 1955

“Plan, promote, organize, and implement programs for development of Petroleum Resources and the production and sale of petroleum and petroleum products produced by it, and to perform such other functions as the Central Government may, from time to time, assign to it.”

57% of exploration licenses covering more than 588 thousand sq km

ONGC : A brief history

Joined Indian Oil Corporation (IOCL)as a management trainee in 1970

India’s first convenience store concept

sales at ONGC rose from Rs. 22,841 crores to Rs. 50,900 crores

In 2007, the company was ranked as the best E&P company in Asia, third among global E&P companies, and 23rd among global energy companies by Platts Top 250 Global Energy Companies. profits rose from Rs. 6,197 crores to Rs. 14,175 crores to Rs. 50,900

Subir Raha : The man involved

Plodding along solely on the basis of its past performance In 1999, McKinsey, the U.S. consulting company, had

predicted that ONGC would soon become a sick company, insolvent and beyond repair should it continue on the same trajectory.

crippling systems of government control over its strategy competent group of technical personnel with flagging

motivation serious problem with overstaffing Mumbai High alone accounting for roughly 40% & 14

fields contributing 35%.

Weakness @ ONGC : When Subir Raha joined

Workforce : Sense of entitlement rather than performance

Obsolete labor laws bureaucratic delays in critical project

approvals Long tendering processes very heavy interest and tax burden

locating reserves worldwide CBM project in the state of West Bengal Deepwater exploration projects in the KG basin redoubling of efforts by ONGC subsidiary ONGC

Videsh Ltd. (OVL) to bid for acreage outside India A voluntary retirement program was announced

fairly early in Raha’s tenure, and the offer had the positive effect of reducing the ranks by 10%, an uphill accomplishment

Internal systems were revamped

Raha’s New Impetus to ONGC

entire decision-making structure of the company restructured by eliminating bureaucratic layers of staff approvals

resulted in significant improvement with respect to the tendering process

incentive plans targeting innovation and productivity redesign of the entire performance appraisal process Four new performance reward schemes ONGC Academy idle cash reserves to pay off its foreign debt In 2004, the government decided to sell off a portion of its

holdings as a move to attract private capital to ONGC

Before RAHA : one property in Vietnam

After RAHA : invested $4 billion out of its investment budget

of $5.1 billion controlled 25 properties in 18 countries reported reserves of 206,109 MMTOE production of 6.34 MMTOE in 2006 JV with MITTAL Group

OVL before RAHA and after RAHA

China’s Financial Strength Vs Indian’s Goodwill and Diplomatic stand

OVL and China National Petroleum Company (CNPC) bid for PetroKazakhstan

India- China Bilateral Partnership Agreement OVL and CNPC won a bid for 38% of Al Furat

Production Company, Syria’s largest oil producer, and later with Sinopec for 50% of Omimex de Colombia.

OVL : Competition from CHINA

Refining capacity from 2.6 million bpd to 4.84 million bpd by 2012

Opportunity presented by MRPL Moved into retail wider flexibility in monetizing its assets “Integration along the hydrocarbon value chain is not a

matter of choice for a company with a global footprint; it is an imperative—we have to squeeze every available paise out of every molecule of crude. We have to become a part of the crude cycle, the refining cycle, and the product cycle to tide over any downturn in any one of them.”

ONGC : Downstream Integration

Entering areas never chartered by ONGC ONGC has lost its focus from E&P

Major finds of competitors are in areas where ONGC had been previously active

Influential decision making Onshore exploration ratio 1:4/1:5 Offshore 1:10

inefficient data analysis structure Focused on Rig Utilization Maximising By 2006, ONGC had spent Rs. 3000 crores (roughly $616 million)

in three years and had drilled an embarrassing 20 dry wells 200 engineers, geologists, and geoscientists to Reliance

Detractors Against ONGC

Raha’s View characterized India’s prospects as “limited.”

Cairn India CEO’s View “I’ve always said for years that India is hugely unexplored”

Ministry View “We have 26 sedimentary basins, which in absolute terms is

huge. But ONGC, far from being a failed company, is a company with lots of potential. I want ONGC to focus on its core competence. Instead of trying to make up its perceived losses in exploration by opening up petrol pumps—and worse, fertilizer plants and power plants—I want ONGC to prove to me that its spending on exploration has reached optimal level and the next rupee spent would be a waste”

Conflicts between RAHA and the MINISTRY

signed technology deals with global giants like Schlumberger and Baker Hughes to obtain critical insights into redeveloping its mature fields

44 of its 165 marginal fields were ready to commence regular production and that 96% of these assets would be brought back into production over the next five years

Its alternative energy projects in coal-bed methane and coal gasification had moved from the drawing board to an exploratory phase

Two global scale petrochemical complexes were being set up in Dahej (Gujarat State) and Mangalore (Karnataka State)

Scenario @ ONGC Just After RAHA Left

JVs OTPC : (ONGC Tripura Power Company Limited) ONGC, IL&FS

Energy Development Co. Ltd. and Govt. of Tripura, is setting up a 726.6 MW capacity combined cycle gas turbine based Mega Power Project in the state of Tripura with the objective of monetization of gas, which had been lying idle for want of adequate market in the region

OPaL : ( ONGC Petro Addition Limited)ONGC + GSPC (26 : 5) in 2006 . Gail 19 % later. To be Commissioned by A2014

Mangalore Special Economic Zone Limited (MSEZ) with KIADB

ONGC Mangalore Petrochemicals Limited (OMPL) : feedstock, mainly naphtha and aromatic streams from the MRPL refinery, for which it shall enter into a feedstock sourcing arrangement with MRPL for continuous supply of naphtha and other streams

Dahej SEZ Limited (DSL) with GIDC

Present Scenario @ ONGC

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