ngc India : Growth Strategy

1. ONGC India : In search of a New Growth Strategy Arnab Chakraborty MBA Oil&Gas 3rd Sem
UPES
2. ONGC : A brief history 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
3. Subir Raha : The man involved 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
4. Weakness @ ONGC : When Subir Raha joined 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%.
5. 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
6. Raha’s New Impetus to ONGC 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
7. 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
8. OVL before RAHA and after RAHA 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
9. OVL : Competition from CHINA 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.
10. ONGC : Downstream Integration 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.”
11. Detractors Against ONGC 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
12. Conflicts between RAHA and the MINISTRY 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”
13. Scenario @ ONGC Just After RAHA Left 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)
14. Present Scenario @ ONGC 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

The case discusses two important themes within the context of the oil
and gas industry. First, it sheds light on the context of the oil and gas
industry in India, the prospects and potential pitfalls, and paints a
broad-brush picture of the key players currently operating in the
market. Second, it discusses the theme of transformation of India's
largest national oil company (NOC), the Oil and Natural Gas
Corporation (ONGC). While the industry structure discussion dwells
on the business performance drivers in the exploration and production
segment, as well as the refining and marketing segment, the
transformation discussion focuses largely on the challenges facing
leaders who are attempting to infuse state-owned companies with
market discipline.

Learning Objectives

1. Provide a snapshot of the prospects for oil and gas companies in