INDEX

Introduction 02
Objective and Scope of the Study 03
Research Methodology 04
Mission & Vision of ONGC 05
ONGC in the Global Scenario 07
ONGC in the Indian Scenario 08
Oil Production of World 09
Distribution of Shareholding of ONGC 11
ONGC Tripura Asset 13
Know about Tripura Asset 14
Overview of the different activities of ONGC Tripura 16
Asset
Finance 21
Working Capital Management 23
Ratio Analysis 31
Sales 41
SWOT Analysis of ONGC 48
Recommendations 50
Conclusion 51
Reference 52

Introduction
1
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 short-
term 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.

2
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.

3
Research Methodology

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.

4
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.

5
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.

6
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.

7
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 2006-
07 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.

8
OIL PRODUCTION OF WORLD
Oil Producing Thousand Share of Total (%)
Barrel Daily
Regions

North America 14150 17.3

South & Central 6764 8.8

America

Europe & Eurasia 17583 22.0

Middle East 24571 30.7

Africa 9264 11.4

Asia Pacific 7928 9.8

Total 80620 100

INDIA’s Share 819 1.0

ONGC’s Share 640 0.8

Oil Producing Countries of

the World
9
10
Distribution of Shareholding of ONGC
as on Quarter Ending on March 31
2009

11
12
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 north-
eastern 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 photo-
geographical 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.

13
Know About Tripura Asset
(As on April 1, 2009)
Geological Survey 1962
Project Established 1970
Drilling Commenced 1972
Seismic Survey Commenced 1977
Seismic Data Acquired
2D (GLK) 5404.02
3D (sq.km) 235.0992
Structures Mapped 19
Structures Probed 12
Gas Bearing Structures 9
Petroleum Mining License area(sq.km) 1297.768
Exploratory Meterage (M) 3,54,584
Development Meterage (M) 26,479
Exploratory Wells Drilled 126
Development Wells Drilled 12
Gas Wells 71
Daily Production (MMSCMD) 1.5 – 1.6

14
GAS PRODUCTION AND SUPPLY
OF ONGC, TRIPURA ASSET
DURING LAST 8 YEARS
YEAR GAS GAS SUPPLY ACHIVEM
PRODUC SUPPLY TARGET ENT
TION FROM
MOU
2000- 376.9 375.0 327.0 114%
2001
2001- 415.8 415.2 350.0 118%
2002
2002- 446.1 445.3 350.0 127%
2003
2003- 507.6 506.8 422.0 120%
2004
2004- 496.4 495.8 449.0 110%
2005
2005- 479.8 479.2 439.0 109%
2006
2006- 254.9 254.6 219.8 115%
2007
2007- 533.53 532.8 469.0 113%
2008 4
2008- 552.66 551.1 490.0 112%
2009 7

15
 Overview of the different
activities of ONGC
Tripura Asset

1) 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:-

16
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%.
17
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:-

a) Site Preparation Cost- Civil related:

Due to the remote location of Tripura in the far north-
eastern 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
18
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:-

i) Drilling
ii) Cementing
iii) Mud
iv) Logging
v) Production Testing

c) Support Services:-
i) Finance
ii) Material Management
iii) Human Resource (HR)

19
 iv) Fire
v) Medical

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.

20
• 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.

21
FINANCE

22
 Various Sections of the Finance Department

Finance

Procure Personal Cash & Central

Budget Sales
ment Claim Bank Account
Section Section
Section Section Section Section

Contractua
Suppliers
l

23
Working Capital Management

Working Capital:
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
24
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.

25
26
Trend of

CURRENT ASSETS &

CURRENT LIABILITIES
during the 5 years (2005-09)

27
 Different Components
of

Current Assets

800000000
700000000
600000000 Inventories
500000000
400000000 Debtors
300000000
200000000 Cash & Bank
100000000
0 Loans&
-100000000 Advances
2008- 2007- 2006- 2005- 2004-
09 08 07 06 05

28
 Different Components
of

Current Liabilities

600000000
500000000
Outstanding Dues
400000000
Statutory Payments
300000000
Deposits
200000000
Other Liabilities
100000000
0
20 20 20 20 20
08- 07- 06- 05- 04-
09 08 07 06 05

29
 Divisions of Working Capital

Working
Capital

On the basis of On the basis of

Concept Time

Temporary Permanent
Gross Working Net Working
Working Working
Capital Capital
Capital Capital

30
 Working Capital Cycle

Equity &
Loans

Cash
Payables

Overheads
Receivables etc Inventory

Sales

31
FINANCIAL
STATEMENT
S ANALYSIS

32
Ratio 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 Ratio
Leverage Ratio
Activity Ratio
Profitability Ratio

Here, the study is mainly carried out the Liquidity and

Profitability ratios

33
Current Ratio
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)

34
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.

35
 Quick Ratio
 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
36
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

37
  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.

DebtorsTurnoverRatio
25

20

15

10

0
2005 2006 2007 2008 2009

From the figures we see that the average Debtors

Turnover Ratio stood at 15.4, which is quite satisfactory.
38
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:

39
 ROTA
120
100
80
60
40
20
0
-20 2005 2006 2007 2008 2009
-40
-60
-80
-100

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

40
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:

41
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.

ROCE
2
1.5
1
0.5
0
-0.5 2005 2006 2007 2008 2009

-1
-1.5
-2
-2.5

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

42
times which is not a good show. Overall the company is not
able to utilize its Capital properly.

43
Sales
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.

44
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

45
 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.

46
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 CONSUMER THROUGH

GAIL
Baramura TSECL Baramura
Manikya nagar (Rokhia) TSECL Rokhia, TNGC Brick
Kiln
ADB NEEPCO,TSECL

Konaban NEEPCO,TSECL

47
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.

48
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.

49
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.

50
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
51
 • 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
52
 • 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.

Recommendations

 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%.
53
 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.

54
CONCLUSION

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.

55
References:

Books
1.Financial Management .By I M Pandey
2.Financial Management .By Khan & Jain.

Websites
www.ongcindia.com
www.ongc.net
www.wikipedia.com
www.investopedia.com
www.earthtimes.com
www.tripurainfo.com
www.indiaprwire.com

56
57