Market Trends Analysis of Indian Oil and Gas Industry

OBJECTIVE OF THE STUDY

1. This study provides an insight into the oil and gas industry.
2. Analyze market trends for oil and gas industry in the global arena.
3. To understand financial performance and financial position of oil and natural gas companies like ONGC, Petro china, Chevron and Exxon Mobil.
4. To analyse the financial statements of 2009-2010, so as to understand about the key factors like Profitability and Solvency for decision making and ultimate business solvency.
5. To find out the ratios of the company and carry out a comparative study.
6. To understand the current position of these companies.
7. To analyze the Indian oil market.
8. To see the international scenario.
9. To analyze the oil prices in India and other countries.

BROAD APPROACH AND METHODOLOGY

Type

The study carried out will be more like a Descriptive Research. For analyzing the financial statement, methodology to be used is financial ratio analysis and comparative study.

Purpose

The study mainly focuses on giving knowledge about the importance of annual reports.

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Data collection

The data collection has been made in two ways:

1. Primary source: Data has been collected with the help of constant interaction with my mentor Ms. Uma Rajamani – Manager (F&A).
2. Secondary source: Data has been collected with the help of :
1. Annual report of ONGC.
2. ONGC reports.
3. Internet.

This source helped me in collecting information about the company as a whole, financial performance.

Before making use of secondary data both the data and its source were evaluated. Particular attention was paid to definitions used, measurement error, source bias, reliability and the time span of the secondary data.

HIGHLIGHTS OF THE INDIAN OIL AND NATURAL GAS SECTOR

HIGHLIGHTS IN THE PETROLEUM & NATURAL GAS SECTOR DURING 2009-10

• India has total reserves (proved & indicated) of 1201 million metric tonnes of crude oiland1437 billion cubic metres of natural gas as on 1.4.2010.
• The total number of exploratory and development wells and metreage drilled in onshoreand offshore areas during 2009-10 was 428 and 1019 thousand metres respectively.
• Crude oil production during 2009-10 at 33.69 million metric tonnes is 0.55% higher than33.51 million metric tonnes produced during 2008-09.
• Gross Production of Natural Gas in the country at 47.51 billion cubic metres during 2009-10 is 44.63% higher than the production of 32.85 billion cubic metres during 2008-09.
• The production of Natural Gas at 44.94% and 0.08% of the total were highest and lowestin JVC/Private and West Bengal respectively during 2009-10.
• The flaring of Natural Gas in 2009-10 at 2.09% of gross production is lower than at 3.29% in 2008-09.
• The refining capacity in the country increased to 184.386 million tonnes per annum(MTPA) as on 1.4.2010 from 177.968 MTPA as on 1.4.2009.
• The total refinery crude throughput during 2009-10 at 160.03 million metric tonnes is0.46% lower than 160.77 million metric tonnes crude processed in 2008-09 and the prorate capacity utilisation in 2009-10 was 89.92% as compared to 107.43% in 2008-09.
• The production of petroleum products during 2009-10 was 151.898 million metric tones (including 2.244 million metric tonnes of LPG production from natural gas) registering adecrease of 0.51% over last year’s production at 152.678 million metric tonnes (including2.162 million metric tonnes of LPG production from natural gas).
• The country exported 50.974 million metric tonnes of petroleum products against theimports of 23.49 million metric tonnes (including 8.828 million metric tonnes of LNG) during 2009-10.
• The consumption of petroleum products during 2009-10 were 138.196 million metrictonnes (including sales through private imports) which is 3.60% higher than the sales of133.400 million metric tonnes during 2008-09.
• The total number of retail outlets of Public Sector Oil Marketing Companies as on1.4.2010 has gone upto 36462 from 34948 on 1.4.2009.
• The total number of LPG consumers of Public Sector Oil Marketing Companies as on1.4.2010 were 114.952 million against 105.632 million as on 1.4.2009.
• The number of persons employed (including contract employees) in petroleum industryas on 1.04.2010 and 1.04.2009 are 129988 & 138973 respectively.

OIL INDUSTRY INTRODUCTION TO THE OIL INDUSTRY

Energy in all its forms is critical to economic growth, development, and social welfare. The world’s need for reliable and affordable energy supplies is growing. Energy is a critical input for economic growth and its availability determines the quality of both, the national economy and the life of citizens. Sustainable economic progress hinges crucially around the supply of stable and competitively priced energy.

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Oil is a fungible, international commodity whose ownership and ultimate destination is determined by market forces once it leaves the producing country. No country can effectively isolate itself from changes elsewhere in the market, nor is it likely that any nation can take actions that do not indirectly affect other nations.

Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture. OIL industry is considered to be the back bone of an economy because this is the main source of energy till date. Any economy around the world would fail to precede a single step in the absence of petroleum industry. Thus, before using this energy source, the crude petroleum is required to be refined in the petroleum refineries for extracting various fractions for energy generation namely, petrol, natural gas, kerosene, asphalt and many more.

The processes that are involved in the petroleum industry are:

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• Drilling at the site of petroleum for making well so that the crude oil could be extracted.
• Refining of the crude oil
• Storing of the extracted oil in a secured place.
• Transportation of the stored crude oil is required to be done to the different refineries.
• Processing of the crude oil needs to be done in the processing units of refineries for converting it into usable fuel form along with the other important derivative products.

Core activities of oil and natural gas sector

Exploration and Production

India is heavily import dependent for its oil and gas requirements. Our total imports of crude oiland petroleum products in the year 2008-09 amounted to 146.441 million metric tones (MMT), worth about Rs. 4,01,631 crore. The country also exported petroleum products amounting to 36.414 MMT, earning foreign exchange worth nearly Rs. 1,15,987 crore. The gap between demand and availability of crude oil from indigenous sources is likely to increase over the years. In case of gas, this gap is expected to decrease with production of gas from KG basin. The growing gap in demand and supply of oil and the shortfall in supply of gas requires greater emphasis to be placed on exploration and production.

Objectives of Exploration and Production activities

1. To undertake a complete appraisal of the Indian Sedimentary basin area for tapping thehydrocarbon potential.
2. To optimize production of crude oil and natural gas in the most efficient manner.
3. To keep pace with the technological advancements and remain at the technological forefront in the global exploration and production industry.
4. To achieve a near zero impact on environment.

Refining and Marketing

The development of refining and marketing activities is crucial for achieving self sufficiency inpetroleum products and in moving towards a competitive and consumer oriented market.

Objective of Refining and Marketing Activities

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1. Maintain self-sufficiency in all petroleum products by appropriate enhancement in refiningcapacities by National Oil Companies & private players including international oil companies.
2. Develop export capability in petroleum products so that the refining industry becomes globally competitive and oil security is enhanced.
3. To develop corresponding infrastructure including ports, pipelines and depots, etc. for anefficient oil industry.
4. To make available quality fuels at affordable prices while continuing subsidies for sensitivepetroleum products.
5. To improve consumer services through better retailing practices and competition.

Tariff and Pricing

A rational tariff and pricing policy is vital to ensure healthy growth of the hydrocarbonsector and to protect the consumers as well.

Objectives of Tariff and Pricing Policy

1. To provide incentives for cleaner, greener and quality fuels so as to promote an environment friendly hydrocarbon sector.
2. To balance the need to boost Government revenue with the need to align taxes and duties with Asia- Pacific countries and the prices to international levels.
3. To promote new investments, by ensuring adequate protection to domestic producers

The industry is usually divided into three major components: upstream, midstream and downstream.

• The upstream oil sector is known as exploration and production sector. It includes the searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring the crude oil.
• The midstream processes, stores, markets and transports the crude oil.
• The downstream oil sector is used to refer to the refining of crude oil, selling and distribution.

Oil companies measure oil production in the unit of barrels (bbl).

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Oil & Natural Gas Commission was established on 14th August, 1956 as a statutory body under Oil & Natural Gas Commission Act (The ONGC Act), for the development of petroleum resources and sale of petroleum products. ONGC was converted into a Public Limited Company under the Companies Act, 1956 and named as “Oil and Natural Gas Corporation Limited” with effect from 1st February, 1994. The Government disinvested around 10% of the equity shares of ONGC in March 2004 through a public offer in the domestic capital market at Rs. 750 per share. After the above disinvestment, the shareholding of the Government in ONGC came down to around 74.15%.

HIGHLIGHTS FOR THE YEAR 2009-10.

• ONGC has made 15 oil & gas discoveries in the areas under its operative control.
• State-of-the-art technologies inducted in hardware & software for seismic data acquisition, processing & interpretation, and in well logging.
• Advanced drilling techniques for sidetracks, multilateral and extended reach wells absorbed and implemented on fast track. Engineering design audit introduced with significant cost savings.
• ONGC registered its fifth Clean Development Mechanism (CDM) project with the United Nations Framework Convention on Climate Change (UNFCCC) on September 22, 2009. The project, ‘Energy Efficiency of Amine Circulation Pumps at Hazira’ involves enhancing energy efficiency achieved in the Amine Circulation Pumps of Hazira Plant. The project will fetch an estimated Certified Emission Reduction (CER) of 4043 per year for a period of 10 years. With this, ONGC achieves a total annual CER of about 1.24 lakh.
• National Safety Awards in Oil Mines Category: ONGC has bagged four National Safety Awards in Oil Mines Category for year 2007. This is fourth consecutive years that ONGC has bagged these awards, instituted by the Ministry of Labour & Employment, Government of India to motivate, appreciate and recognize the extraordinary performance in the area of mines safety. These awards were given by the Hon’ble Vice President of India in New Delhi on October 23, 2009. These awards are based on Longest Accident Free Period (LAFP) and Lowest Injury Frequency Rate (LIFR) and were judged by jury of Director General of Mines Safety, Management Representatives and Trade Union Representatives.
• PCRA Award for Oil and Gas Conservation: ONGC bagged the Best Overall Performance PCRA Award amongst the Upstream Oil Companies for the Oil and Gas Conservation Programmes during the year 2009.

The National Stock Exchange of India Ltd, Mumbai The Company has the following

ASSETS /PLANTS/ BASINS/ REGIONS :

A. ASSETS/ PLANTS:

1. Mumbai High Asset, Mumbai
2. Neelam & Heera Asset, Mumbai
3. Bassein & Satellite Asset, Mumbai
4. Uran Plant, Uran
5. Hazira Plant, Hazira
6. Ahmedabad Asset, Ahmedabad
7. Ankleshwar Asset, Mehsana
8. Mehsana Asset, Mehsana
9. Rajamundry Asset, Rajamundry
10. Karaikal Asset, Karaikal
11. Assam Asset, Nazira
12. Tripura Asset, Agartala

B. BASINS:

1. Western Offshore Basin, Mumbai
2. Western Onshore Basin Vadodara
3. KG Basin, Rajamundry
4. Cauvery Basin , Chennai
5. Assam & Assam-Arakan Basin , Jorhat
6. CBM- BPM Basin , Kolkata
7. Frontier Basin , Dehradun

C. REGIONS:

1. Mumbai Region, Mumbai
2. Western Region, Baroda
3. Eastern Region, Nazira
4. Southern Region, Chennai
5. Central Region, Kolkata

PHYSICAL PERFORMANCE DURING 2008-09 & 2009-10

FINANCIAL PERFORMANCE DURING 2008-09 & 2009-10

PROGRESS OF PROJECTS : MAJOR PROJECTS COMPLETED DURING THE YEAR

MAJOR PROJECTS APPROVED DURING THE YEAR

MAJOR INITIATIVES

1. Strategic goals set for two decades 2001-2020
1. Doubling Reserve Accretion to 12 Billion MTO+OEG
2. Improving Recovery Factor to the order of 40%
3. Production of 20 MMTPA O+OEG equity oil and gas from acquisitions abroad.
2. Short-term Strategy
1. Time scheduled exploration activities for prospect recognition and drilling.
2. Prioritisation of exploration activities on fast track basis for enhancing reserves accretion.
3. Pre-drill 3D seismic in deepwater and blanket 3D in key growth areas.
4. Knowledge building in new sectors of producing as well as frontier basins.
3. Medium-long-term Strategy
1. Further intensification of exploration in the producing basins to realise the hydrocarbon resources to in-place volume conversion.
2. Exploration spread in non-producing basins and yet to be explored basins to establish their potential and knowledge building.
3. Major shift to deep offshore as the major thrust and contributing sector.
4. Strategic Initiatives
1. Major development projects including IOR/ EOR schemes with an approved cost of Rs. 30,000 crore are under various stages of implementation to enhance crude oil and natural gas production.
2. A new and dedicated business unit viz. Eastern Offshore Asset has been constituted with an aim to put east coast discoveries on a fast track development through an integrated east coast hub.
3. Substantive decentralization of administrative authorities together with delegation of financial authorities carried out to empower the field executives.
4. Induction of new technologies in core areas of E&P activities like:
5. Acquisition, processing and interpretation of seismic data
6. Drilling and production technology
7. IT and communication.
5. Materials Management
1. Inventory Management and codification procedure have been implemented and computerized to track and identify the materials efficiently.

NON-CONVENTIONAL SOURCES OF ENERGY

(i) Wind Power Project:

Wind Farm Project of 50 MW at Motisindoli in Kutch district of Gujarat is an initiative of ONGC towards its commitment for environment-friendly and pollution-free energy production. The power generated from this wind power project is being wheeled to 101 locations of ONGC’s oil field installations/ offices/ residential quarters in the state of Gujarat. ONGC shall be saving about Rs. 30 crore per year on electricity charges in Gujarat, considering the present purchase price of electricity.

(ii) Installations of Solar thermal plants:

Solar thermal plants in ONGC guest house, hospital, academy hostel, officers’ club, central workshop, Baroda and colony are already installed. Initiatives have been taken to install the solar water heating system at other locations of ONGC also. Solar panels were installed at well heads of (Bokaro) Jharkhand. 9600 lakhs per day (LPD) capacity of solar water heating system is added in this year and total capacity installed is 38100 LPD.

HEALTH, SAFETY AND ENVIRONMENT (HSE)

Environmental initiatives encompassed solid waste, liquid effluent, air emission monitoring mechanism for proactive planning to manage waste through environment-friendly technologies like bio-remediation, reduction and recycling options and environmental reporting based on global reporting initiative principles. Several initiatives of long-term and continuous nature like bio-remediation of oily sludge, effluent management, ISO certification of installations on international benchmark standards, Mangroove and Hingal plantations etc. are also being carried out in ONGC.

CONSERVATION OF ENERGY AND PETROLEUM PRODUCTS

ONGC is actively pursuing energy conservation measures. The conservation of petroleum products namely HSD, Lube oil and natural gas are important activities. These measures include:

• Phasing out of old diesel engines more than 15 years old.
• Awareness campaign on use of bio-diesel as alternate fuel.
• Use of small DG sets during lean periods in rigs, proper capacity utilization, rationalization and efficiency improvement of equipments, use of energy efficient devices.
• Substitution of diesel engines with gas engines at installations where gas is available.
• Increase in lube oil change period resulting in substantial saving.
• Natural gas flaring has been reduced and the same is being supplied to consumers.
• Use of small DG sets and waste heat recovery equipment at offshore platforms, rigs, LPG plants at Hazira and Uran.
• Use of energy efficient equipment and devices such as top drives, linear motion shale shakers, electronic diesel engines, soft start systems and energy efficient lamps etc.
• Use of gas engines in place of diesel ones for power generation.
• Thermal energy cost reduction achieved by maintenance of steam traps at processing plants.
• Conducting energy audit on regular basis and Petroleum Products Conservation Opportunities (PPCOs) are identified.
• Harnessing solar energy by using solar water heaters/ photo-voltaic panels at various locations.

ONGC VIDESH LIMITED (OVL)

ONGC Videsh Limited (OVL), a wholly-owned subsidiary of ONGC, was incorporated as Hydrocarbons India Private Limited on 5th March, 1965 with an initial authorised capital of Rs. 5 lakh, for the business of international exploration and production. Its name was changed to ONGC Videsh Limited on 15th June, 1989. The authorised and paid-up share capital of OVL as on 31st March, 2007 was Rs. 1,000 crore. The primary business of the company is to prospect for oil and gas acreages abroad. These include acquisition of oil and gas fields in foreign countries as well as exploration, production, transportation and sale of oil and gas.

OVL currently has participation in 39 projects in 15 countries namely, Vietnam (3 projects), Russia (2 projects), Sudan (3 projects), Iran (1 project), Iraq (1 project), Libya (3 projects), Myanmar (5 projects), Syria (2 projects), Egypt (2 projects), Cuba (2 projects), Nigeria Sao Tome Principe JDZ (1 project), Brazil (5 projects), Nigeria (2 projects), Colombia (6 projects), and Venezuela (1 project).

OVL’s share of crude oil and natural gas production is currently from 9 projects in seven countries, viz., Russia, Sudan, Vietnam, Syria, Colombia, Venezuela and Brazil. OVL’s share of crude oil and natural gas production in 2009-10 is expected to be 8.142 Million. Metric Tonne of oil equivalent (MMTOE) including of 2.017 BCM of natural gas. The other 30 projects being implemented by OVL are at various stages of exploration and appraisal. The gross revenue of Rs.13,444 crore is estimated by OVL during the financial year 2009-10 with net profit of Rs.412 crore. Further, OVL is pursuing acquisition of various oil and gas exploration and production opportunities in Russia, Central Asia, Latin America, Africa, and Middle East, which are at different stages.

• Established as a joint stock company with limited liabilities on November 5,1999, as part of the restructuring of China National Petroleum Corporation (CNPC).
• It was respectively listed on the NYSE (ADS code: PTR) and the HKSE (stock code: 00857) in April 2000 and on the Shanghai Stock Exchange (stock code:601857) in November 2007.
• As at end of 2010, CNPC holds 86.292% shares of Petro China.
• Ranked 7th by Platts in the “Top 250 Global Energy Companies” published by Platts Energy in 2010, which was the top ranking among enterprises in the Asia Pacific region for eight consecutive years.
• Included as a constituent stock of the SSE Social Responsibility index and the Hang Seng Corporate Sustainability Index.
• Adheres to the corporate policy of “Caring for Energy, Caring for You” and core business management principles of “Honesty, Innovation, Performance, Harmony and Safety”.
• Perseveres in carrying out business in a more effective, safe and environmentally friendly manner; pursues the balance among the economy, environment and society; provides sustainable energy for economic and social development; and creates a better life for people.

CORE BUSINESSES

Engaged in a broad range of businesses related to oil and natural gas, which mainly include the exploration, development and production of crude oil and natural gas, the refining, transportation, storage and marketing of crude oil and refined products, the production and marketing of primary petrochemical products, their derivatives and other chemicals, and the transportation and marketing of natural gas.

• Chevron is an American multinationalenergycorporation. Headquartered inSan Ramon, California, and active in more than 180 countries.
• It is engaged in every aspect of theoil,gas, andgeothermalenergy industries, includingexplorationandproduction, refining, marketing and transport; chemicals manufacturing and sales; andpower generation.
• Chevron is one of the world’s six “super major” oil companies. For the past five years, Chevron has been continuously ranked as one of America’s 5 largest corporations byFortune 500.