A Report

On

Analysis of Financial Statements of ONGC

By

AMIT RAWAT

10280003912

Gitarattan International Business School

Guru Gobind Singh Indraprastha University

(Oil and Natural Gas Corporation)

Report of Summer Training Conducted at ONGC LTD.

Submitted in partial fulfillment of the requirements

For the award of the degree of

Master of Business Administration (MBA)

To

ONGC, Scope Minar,

New Delhi

A Report

On

Analysis of Financial Statements of ONGC

Company Guide Faculty Guide

Mr. ARUP GUHARAJA Assistant Prof. Timcy Sachdeva

(Chief Manager, F&A) (Faculty)

ONGC, Delhi GIBS, IPU

Gitarattan International Business School

New Delhi – 110085

Batch 2012-14

Certificate

I Amit Rawat, Roll No. 10280003912 certify that the Summer Training Report (Paper Code

MS-201 entitled “Analysis of Financial Statements of ONGC.” is done by me and it is an

authentic work carried out by me at OIL AND NATURAL GAS LIMITED (ONGC LTD.). The

matter embodied in this Report has not been submitted earlier for the award of any degree

or diploma to the best of my knowledge and belief.

Signature of the Student

Date:

Certified that the Summer Training Report (Paper Code MS-201) entitled “Analysis of

Financial Statements of ONGC.” done by Mr Amit Rawat Roll No. 10280003912 is

completed under my guidance.

Signature of the Guide

Date:

Name of the Guide:

Designation:

Countersigned

Director/Project Coordinator

AUTHORIZATION

This report is submitted as partial fulfillment of the requirement of MBA (2012-2014) of Gitarattan International Business School (GIBS) affiliated from Guru Gobind Singh Indraprastha University. I got authorization for preparation of this project report from Mr. Arup Guharaja (Chief Manager, F&A), ONGC, New Delhi.

ACKNOWLEDGEMENT

In this highly complex society no work can be accomplished by a single individual but needs

inspiration and sincere guidance of intellectuals.

With an overwhelming sense of obligations, I emphatically express my profound thanks and

heartfelt gratitude to my guide Mr. Arup Guharaja for his valuable guidance, timely

suggestions and constant encouragement during the entire course of my training.

It is my privilege to express my profound thanks and gratitude to Asst. Prof. Timcy Sachdeva

faculty of GIBS IP University for their kind encouragement and benevolent guidance at every

step during the course of my training.

Finally, I thank all those who helped me directly and indirectly during the course of my summer

training.

CONTENTS

S No. TOPIC Page No.

1 Certificate(s) -

2 Acknowledgement -

3 List of Tables -

4 List of Figures -

5 List of Symbols -

6 List of Abbreviations -

7 Executive Summary -

8 Chapter-1 : Profile of the Company

9 Chapter-2 : SWOT Analysis of the Company

10 Chapter-3 : Data Collection & Presentation

11 Chapter-4 : Functional Analysis of the Company

12 Chapter-5 : Summary & Conclusions

13 References/Bibliography

14 Appendices

Executive Summary

I, Amit Rawat, a student of Gitarattan International Business School Rohini, got an opportunity

to carry out my internship project in ONGC, Delhi as a part of the curriculum. This prestigious

organization is one of the nine Navratnas recognized by the Indian Govt.

During my internship tenure at ONGC, I had a vast exposure to the oil industry, its working and

was assigned with a small part i.e. Analysis of Financial Statement of ONGC. The objective of

my project is to analyse the accounts and the all financial statement of ONGC and to compare

the current year data with the previous data.

In order to achieve this objective, I started with the study and analysis of annual report of

ONGC. And comparing its financial statements that is cash flow statement, profit and loss

accounts and balance sheet for the year 2013 with the year 2012.

Chapter-1

Profile of the Company:

1. History

The Indian Petroleum industry is one of the oldest in the world, with oil being struck at Makum near Margherita in Assam in 1867 nine years after Col. Drake's discovery in Titusville. The industry has come a long way since then. The Industrial Policy Resolution, 1954, laid the foundation of the Oil & Gas Industry in India and Petroleum was given the status of the core

sector industry. Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889) and the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil Company) was engaged in developing two newly discovered large fields Naharkatiya and Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint venture between Government of India and Standard Vacuum Oil Company of USA) was engaged in exploration work. Then ONGC was founded on 14 August 1956 by the Indian state, which currently holds a 74.14% equity stake. Later in 1964, Indian Refineries Ltd merged with Indian Oil Company Ltd. to form Indian Oil Corporation Ltd.

The grand discovery of oil in significant quantities in Bombay High in February, 1974 started new era of oil exploration in offshore areas. Bombay High is an offshore oilfield 160 kilometers (99 mi) off the coast of Mumbai (Bombay), India. The oil operations are run by India's Oil and

Natural Gas Corporation (ONGC). As of 2004, it supplied 14% of India's oil requirement and accounted for about 38% of all domestic production.

During 1970s and till mid 1980s a number of Oil & Gas bearing structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins, Cachar (Assam), Nagaland, and Tripura were discovered by ONGC & OIL . By mid 80s India achieved a self-sufficiency level of 70% in petroleum products. In order to look after transportation, processing and marketing of natural gas and natural gas liquids, the government set up Gas Authority of India Ltd. (GAIL) in the year 1984. GAIL has been instrumental in the laying of a gas pipelines (HBJ pipeline) from Hazira in Gujarat to Jagdishpur in Uttar Pradesh, passing through Rajasthan and Madhya Pradesh

To meet the growing demand of petroleum products, the refining capacity in the country has gradually increased over the years by setting up of new refineries in the country as well as by

expanding the refining capacity of the existing refineries. As of June, 2011 there are a total of 21 refineries in the country comprising 17 (seventeen) in the Public Sector, 3 (three) in the Private Sector and 1 (one) as a joint venture of BPCL & Oman Oil Company. . The Public sector refineries are located at Guwahati, Barauni, Koyali, Haldia, Mathura, Digboi, Panipat, Vishakapatnam, Chennai, Nagapatinam, Kochi, Bongaigaon, Numaligarh, Mangalore, Tatipaka, and two refineries in Mumbai. The private sector refinery in Jamnagar ,built by Reliance Petroleum Ltd. is the biggest oil refinery in Asia. By the end of 1980s, Oil production had begun to decline while there was a steady increase in domestic consumption. National oil production was able to meet only about 35% of the domestic requirement. The resource crunch in early 1990s aggravated the problems. Some of the then newly discovered fields (Gandhar, Heera Phase-II and III, Neelam, Ravva, Panna, Mukta, Tapti, Lakwa Phase-II, Geleki, Bombay High Final Development schemes etc. suffered due to lack of money at Government‘s disposal for investment in developmental activities. The Government was hence forced to go for the

petroleum sector reforms which had become necessary to attract funds and technology from abroad into the domestic petroleum sector.

The government in order to increase exploration activity, approved the New Exploration Licensing Policy (NELP) in March 1997 which would level the playing field in the upstrem sector between private and public sector companies in all fiscal, financial and contractual matters. Since then licenses for exploration are being awarded only through a competitive bidding system and National Oil Companies (NOCs) are required to compete on an equal footing with Indian and foreign companies to secure Petroleum Exploration Licences (PELs). Five rounds of bids have so far been invited under NELP, in which, Production Sharing Contracts (PSCs) for 110 exploration blocks have been signed. In addition, 28 exploration blocks were signed prior to NELP. Under NELP, 37 discoveries have already been made in Cambay

onland, North East Coast and Krishna-Godaveri deepwater areas, for which, development plans by the operators, viz., Cairn, RIL and Niko are in progress.

ONGC Represents India's Energy Security through its Pioneering Efforts

ONGC is the only fully–integrated petroleum company in India, operating along the entire

hydrocarbon value chain. It has single-handedly scripted India's hydrocarbon saga. Some key

pointers:

ONGC has discovered 6 out of the 7 producing basins in India:

It has 7.59 billion tonnes of In-place hydrocarbon reserves. It has to its credit more than

320 discoveries of oil and gas with Ultimate Reserves of 2.69 Billion Metric tonnes

(BMT) of Oil Plus Oil Equivalent Gas (O+OEG) from domestic acreages.

It has cumulatively produced 851 Million Metric Tonnes (MMT) of crude and 532

Billion Cubic Meters (BCM) of Natural Gas, from 111 fields.

ONGC has won 121 out of a total 235 Blocks (more than 50%) in the 8 rounds of

bidding, under the New Exploration Licensing Policy (NELP) of the Indian Government.

ONGC's wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian

multinational, with 30 Oil & Gas projects (9 of them producing) in 15 countries.

Produces over 1.24 million barrels of oil equivalent per day, contributing over 64% of

India's domestic production. Of this, over 75% of crude oil produced is Light & Sweet.

The Company holds the largest share of hydrocarbon acreages in India (51% in PEL

Areas & 67% in ML Areas).

ONGC possesses about one tenth of the total Indian refining capacity.

ONGC has a well-integrated Hydrocarbon Value Chain structure with interests in LNG

and product transportation business as well.

A unique organization in world to have all operative offshore and onshore installations

(403) accredited with globally recognized certifications.

ONGC OFFICES ALL OVER INDIA

1.1 Basic Information. (Full Address of the Following Locations)

Head Quarters:

Frontier Basin

Dr. D N Singh, GM (Geol) - Basin Manager

ONGC, IDT Campus, Kaulagarh Road, Dehradun-248195

Telephone: 0135-2758778 (Office), 0135-2753639 (Fax)

Registered Office:

Mr. SSC Parthiban, GM-Head Coordination

ONGC, Jeevan Bharti, Tower-II, 124-Indira Chowk, New Delhi – 110001

Telephone: 011-23317213 (Office), 011-23310729 (Fax)

1.2. Nature of Organization:

Production of crude oil in India

India is not among the major producers of crude oil, as it doesn’t have much oil reserves. That is why it generally depends on imports of crude oil from other countries. However, the production of oil and as a result the production of its by-products in India has increased in the recent past due to exploration and findings of new oil reserves. India currently has an estimated quantity of 5.4 billion barrels of oil reserves out of which it produces around 0.8 million barrels per day. At this production level, the oil reserves in India would last for around 29 years. The major oil reserves of the country are situated at

Mumbai high (Mumbai) Upper Assam (Assam) Cambay (Gujarat) Krishna-Godavari basin (Andhara Pradesh) Cauvery basin (Tamil Nadu)

Nagaland Arunachal Pradesh

The largest crude oil producing oilfield is the Mumbai high field that produces around 260000 barrels per day. Among these production centers, major share of production i.e. 2/3rd share is bagged by the offshore reserves as compared to onshore reserves. The refining capacity of crude oil in India is over 2.1 million barrels per day. The refining sector in India is held by both public and private sector, public sector being the dominating one. 

Indian Crude Oil Market

India is one of the non-OPEC countries much dependent on its imports to fulfill the domestic consumption demand as it has a much lower level of production. India is a developing country

and the requirement for the oil as a primary energy constituent from the industries in the country is at its peak. The country has much depended on coal to satisfy its energy needs in the earlier times but the use of crude oil and gas is taking over the dominance of coal with the change in time. Oil and gas contribute to around 45% of the country’s total energy consumption.

India has around 5.4 billion barrels of oil reserves with it and the domestic production has increased in the recent past to reach the 0.8 million barrels per day mark. Mumbai high is the largest oil-producing oilfield in India with a production of 2.6 lakh barrels per day. The refining capacity of crude oil in India is estimated at around 2.1 million barrels per day. Regarding the consumption pattern of oil in India, it is the 6th largest consumer country in the world having a consumption of 2.2 million barrels per day. This leaves the country with a huge deficit in the demand-supply scenario and thus 70% of the consumption is met through imports.

India generally imports Oman-Dubai sour grade crude, Brent dated sweet crude and Bonny light crude. The country imports over 1.5 million barrels per day that place it at the 9th position among the largest importers of the world. Though the Indian production has increased in the recent times, the imports were raised by 5% making due to the raised Indian demand of around 4.2%. The countries from which India imports crude oil are

Saudi Arabia Iran Nigeria Sudan Iran Kuwait United Arab Emirates

The Indian oil-refining sector has been regulated by the government historically and is still dominated. A new private sector has emerged after the loosening of control by the government. The major units pertaining to the oil sector in India are

Indian Oil Corporation (Public sector) Oil and Natural Gas Corporation (Public sector) Reliance India Ltd (Private sector) Essar Oil Refinery (Private sector) Bharat Petroleum Corporation Ltd (Public sector) Hindustan Petroleum Corporation Ltd (Public sector) Manglore Refineries and Petrochemicals Ltd (Public sector)

Position of India with regard to Crude Oil?

India ranks among the top 10 largest oil-consuming countries.  Oil accounts for about 30 per cent of India's total energy consumption. The country's total

oil consumption is about 2.2 million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports. 

India faces a large supply deficit, as domestic oil production is unlikely to keep pace with demand. India's rough production was only 0.8 million barrels per day. 

The oil reserves of the country (about 5.4 billion barrels) are located primarily in Mumbai High, Upper Assam, Cambay, Krishna-Godavari and Cauvery basins. 

Balance recoverable reserve was about 733 million tonnes (in 2003) of which offshore was 394 million tones and on shore was 339 million tonnes. 

India had a total of 2.1 million barrels per day in refining capacity. 1 US barrel = 158.98 litres.

SUBSIDIARIES

1. ONGC Videsh Limited (OVL)

ONGC Videsh Ltd. Is the wholly subsidiary of ONGC. “OVL is the first Indian company to produce oil & gas overseas.”

OVL today is the “Second largest E&P Company in India”, second only to ONGC in terms of OIL & Gas reserves. It has 12 overseas assets and is actively seeking more opportunities. OVL’s efforts have been supported wholeheartedly by the Govt. of India, which has allowed OVL single window clearance for overseas upstream projects irrespective of investments involved.

OVL has been designated as the Indian Nodal Agency for overseas petroleum business and is maintained as a permanent participant in all concerned bilateral interaction and joint working

groups of government of India. The strategic of parent company ONGC and the govt. of India provides the basis for strategic direction of OVL. Taking into account the industrial environment and other influencing factors, both internal and external, strategic direction has been formulated, which is re-evaluated on a continuous basis given the rapidly changing nature of global petroleum industry to better adapt to the scenario.

The functional directors of ONGC served as the directors on the OVL board as well, thus including cohesion of the corporate objectives and goal congruence in both organizations.

OVL follows meritocracy and draws human resource from parent company, where the functional directors are consulted for selection. The finance for the operations is provided by ONGC in form of loans, interest free advances and equity.

2. Mangalore Refinery & Petrochemical Limited (MRPL)

MRPL, a subsidiary of ONGC has turned back to a profit making company just in t h e 3 rd quarter after ONGC management control. ONGC’s shareholding has increased from51% to 71.62% in June –July 2003 through the buy-back of lenders equity at par, under the mutually agreed Debt Restructuring Package.

MRPL has showed excellent performance in the very first year of its operation as a subsidiary of ONGC. The performance in 2003-04 under all parameters was better than the projection made at the time of the acquisition. It earned net profit of Rs. 4594.15 million as against a net loss of Rs.4118.06 million in previous year. MRPL is no longer a potentially sick company as its accumulated losses have gone down below 50% of the net worth on 31st March 2004. MRPL was awarded highest ‘Five Star’ rating the British Safety Council. It is the third refinery in India to get this prestigious certification.

Equity shares of MRPL are now traded under’ A’ category of Mumbai Stock Exchange (BSE) from 1st March 2004. The Market capitalization o f M R P L o n t h e B S E touched Rs.100 billion mark on 7th January, 2004.

MRPL exported products (Motor Spirit, Naphtha, Reformate, HSD, ATF, FO, LSHS) worth Rs.44720 million during the year (up 133.77% from Rs.19130 million) and has emerged as the second largest export of petroleum products.

MRPL has entered into MOU with ONGC for purchase of Mumbai High Crude at arm’s length price.

3. Company’s Vision & Mission.

Vision

To be world class Oil & Gas Company integrated in energy business with dominant leadership

and global presence.

Mission

World Class

Dedication towards leveraging competitive advantages in R&D and technology with

involved people.

Imbibing high standards of business ethics and organizational values.

Abiding commitment to health, safety and environment to enrich quality of community

life.

Fostering a culture of trust, openness and mutual concern to make working astimulating

& challenging experience for our people.

Striving for customer delight through quality products and services

INTEGRATED IN ENERGY BUSINESS

Focus on domestic and international oil & gas exploration and production business

opportunities.

Provide value linkages in other sectors of energy business.

Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership

Retain dominant position in Indian Petroleum sector and enhance India's  energy

availability.

4. Product Range of the Company

Crude Oil –

Crude oil is a surprisingly abundant commodity. The world has produced some 650

billion barrels of oil, but another trillion barrels of proved reserves have yet to be

produced. An additional 10 trillion barrels of oil resources await development, assuming

the price of oil someday justifies production. These resources include bitumen, shale oil

and oil in existing fields that might be produced through enhanced recovery.

Natural Gas-

Natural gas is a naturally occurring hydrocarbon gas mixture consisting primarily

of methane, with up to 20 % of other hydrocarbons as well as impurities in varying

amounts such as carbon dioxide. Natural gas is widely used as an important energy

source in many applications including heating buildings, generating electricity, providing

heat and power to industry, as fuel for vehicles and as a chemical feedstock in the

manufacture of products such as plastics and other commercially important organic

chemicals.

LPG-

Liquefied petroleum gas, also called LPG, GPL, LP Gas, liquid petroleum gas or

simply propane, is a flammable mixture of hydrocarbon gases used as a fuel in heating

appliances and vehicles. It is increasingly used as an aerosol propellant and a refrigerant,

replacing chlorofluorocarbons in an effort to reduce damage to the ozone layer. When

specifically used as a vehicle fuel it is often referred to as auto gas.

LPG evaporates quickly at normal temperatures and pressures and is usually supplied in

pressurised steel gas cylinders. They are typically filled to between 80% and 85% of their

capacity to allow for thermal expansion of the contained liquid. The ratio between the

volumes of the vaporized gas and the liquefied gas varies depending on composition,

pressure, and temperature, but is typically around 250:1. 

NGL/ Naphtha-

Recovery of natural gas liquids (NGL) from gas field can bring significant additional

value to operations. Depending on the available market distribution routes and the actual

concentration of hydrocarbons in the feed, may face a wide range of processing options.

Naphtha is a group of various volatile flammable liquid hydrocarbon mixtures used

primarily as feedstock in refineries for the reforming process and in the petrochemical

industry for the production of olefins in the steam crackers. It is also used in solvent

applications in the chemical industry.

Ethane/ Propane-

Ethane is a chemical component with chemical formula C2H6. It is the only two-carbon

alkane, that is, an aliphatic hydrocarbon. At standard temperature and pressure, ethane is

a colourless, odourless gas.

Ethane is isolated on an industrial scale from natural gas, and as a by-product of

petroleum refining. Its chief use is as petrochemical feedstock for ethylene production.

Propane is a three-carbon alkane, normally a gas, but compressible to a liquid with

inexpensive containers. It is derived from other petroleum products during oil or natural

gas processing. It is commonly used as a heat source for engines, barbecues, and homes.

Its name was derived from propionic acid.

When commonly sold as fuel it is also known as LPG and can be a mixture of propane

with smaller amounts of propylene, butane and butylenes, plus an odorant to allow the

normally odourless propane to be smelled.

5. Size (in terms of manpower & Turnover) of organization:

Financials (2011-12)

ONGC group's turnover during 2011-12 has been Rs. 150,185 Crore with net profit of Rs. 28,144

Crore. ONGC paid the highest-ever dividend of Rs. 8,342 Crore. The Net Worth of ONGC

Group of companies is Rs. 135,266 Crore.

During 2011-12, the turnover of ONGC (on standalone basis) has been Rs. 76,887 Crore with

net profit of Rs.25,123 Crore; the highest-ever despite sharing under-recovery of Rs.44,466

Crore to the Oil Marketing Companies (OMCs) as per the instructions of the Government of

India. Net worth of ONGC (on standalone basis) has been Rs.1,11,784 Crore.

OVL's consolidated gross revenue increased by 21% from Rs. 18,671 Crore during 2010-11 to

Rs.22,637 Crore during 2011-12 and consolidated net profit increased by 1% from Rs. 2,621

Crore during 2010-11 to Rs. 2,721 Crore during 2011-12.

The turnover of MRPL has been Rs.52,207 Crore, up 19% from Rs.43,800 Crore and net profit

has been Rs.909 Crore during 2011-12.

ONGC in Fortune's Most Admired List 2012

Highlights:

i. Highest reserve accretion of 84.13 million tonnes of oil and oil equivalent gas

(MMtoe) in last two decades

ii. Reserve replacement ratio of 1.79; 7th consecutive year with RRR more than one.

iii. The highest-ever Gross Revenue of   76,887 Crore

iv. The highest-ever Profit After Tax of   25,123 Crore.

v. The highest-ever Dividend payment of   8,342 Crore (excluding tax on Dividend).

vi. Standalone ONGC’s Net worth crossed  1,00,000 Crore benchmark (  1,11,784

Crore)

vii. The highest-ever thru ‘put of 12.82 MMTPA recorded by MRPL.

viii. The highest-ever Turnover of   57,207 Crore recorded by MRPL.

ix. The highest-ever total revenue of   22,637 Crore achieved by ONGC Videsh Ltd.

(OVL).

Performance 2011-12

Company maintained its production levels from domestic as well as overseas fields through

innovative solutions. The total oil and gas production during FY’12 has been 61.18 MMtoe;

marginally lower than FY’11 (62.05 MMtoe); mainly on account of lower production from

Sudan, South Sudan and Syria fields due to geo-political reasons. Company, on standalone basis,

made 23 discoveries in domestic acreages and accreted 84.13 MMToe of ultimate reserves.

Financial Appraisal

a) ONGC

During FY’12, Company recorded the highest-ever Gross Revenue of 76,887 Crore; 12% more

than the previous year. Net Profit of 25,123 Crore has also been the highest-ever and 33% more

than the previous year despite sharing highest-ever under-recoveries of OMCs.

b) ONGC Videsh Limited (OVL)

OVL registered the highest-ever gross revenue of 22,637 Crore during FY’12; 21% higher than

the previous year. Net Profit of OVL has been 2,721 Crore; 1% more than the previous year.

c) Mangalore Refinery & Petrochemicals Limited (MRPL)

MRPL registered highest-ever gross revenue of 57,207 Crore; 31% higher than previous year.

Net Profit of 908 Crore has been 23% less compared to the previous year mainly due to

volatility in oil prices and depreciation of Rupee against dollar.

d) ONGC Consolidated

Total revenue from operations of ONGC Group of Companies, in FY’12, has been 151,121

Crore; 21% more than the previous year. Consolidated Net Profit of the Group has been 25%

higher at 28,144 Crore.

Dividend

Company had paid an interim dividend of 7.75 per share of 5 each (155%) in two phases (6.25

and 1.50) in January and March 2012 respectively. Total dividend payout will be 8,342 Crore,

besides 1,329 Crore payable as tax on dividend; the highest-ever dividend payout by any Indian

Company.

Disinvestment

One of the major highlights of the concluding fiscal year was that the Government of India

divested 420,416,170 number of equity shares (4.91%) of ONGC on 1st March, 2012 using the

Offer For Sale through Stock Exchange mechanism. With this the Government’s holding of

ONGC has come down from 74.14% to 69.23%. In the process Govt. has raised a sum of 12,767

Crore resulting in an average price of 303.67 per share against the floor price of 290 per share.

Strategy & Pursuits: mid-term

Company’s strategic pursuits focus on emerging priorities with renewed vigor. True to long-term

strategy, your Company remains focused on strengthening its core activities i.e., Exploration and

Production (E&P) of oil & gas. At the same time, it has prioritized opening up new growth

avenues through exploration of new sources of energy and meaningful integration in the entire

hydrocarbon value chain. Five priority areas for the mid-term.

a) Conversion of PELs into MLs

Presently exploratory efforts of Company focus on expeditious conversion of Petroleum

Exploration Licenses (PEL) to Mining Lease (ML). As on 01.06.2012 Company’s exploration

activities are spread in 28 nomination blocks and 77 NELP blocks. Besides that Company holds

participative interest in 13 blocks awarded in consortium during various NELP rounds.

b) Expeditious development of discoveries

Company has taken up 12 major projects for development of 36 new fields and one project for

additional development of D-1 field with an estimated investment of more than 30,000 Crore.

Cumulatively, these projects will be monetizing more than 280 MMtoe of reserves. Out of these

development projects, GS-15, in the East Coast is already on stream since 31st August 2011.

During the course of D-1 field development, in Western Offshore, a significant discovery has

been made which will substantially improve the potential of the field.

As far as the discoveries made in the deep water blocks are concerned, document of

commerciality in respect of discoveries made in blocks KG-DWN-98/2, MN-OSN-2000/2

(MDW-2A) & MN-DWN-98/3 (MDW-4, 5) have been submitted. As per the request of

Company the Government of India has extended the timelines for appraisal of these discoveries

to November, 2013 and December, 2013 respectively.

c) Prudent reservoir management

Enhancing the field life through prudent reservoir management has always been a constant

Endeavour of Company. The Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR)

schemes implemented in 15 major fields have helped in sustaining production levels from the

major brown fields.

The major fields undergoing IOR/EOR programmes have witnessed continuous growth in In-

place volumes and all efforts are made to translate the same to reserves. Out of 22 IOR/EOR and

redevelopment schemes, 16 schemes have already been completed and six are under

implementation.

d) Intensifying exploration for new sources of energy

Company has prioritized suitable actions for exploration and exploitation of unconventional and

alternate sources of energy.

I. Coal Bed Methane (CBM)

Company is presently operating in four CBM blocks viz., Jharia, Bokaro, North Karanpura and

Raniganj. Field Development Plan (FDP) for all the blocks has been submitted. Company has

established more than 75,000 MMm3 of CIIP and 124 MMm3 of Ultimate Reserves (ONGC

share).

II. Underground Coal Gasification (UCG)

All the ground work and inputs for construction have been finalized for implementation of UCG

pilot at Vastan, Gujarat. On receiving approval for Mining Lease from the Ministry of Coal, the

project shall be taken up. Company along with the Neyveli Lignite Corporation Limited (NLC)

has also identified Tadkeshwar in Gujarat and Hodu-Sindhari and East Kurla in Rajasthan for

UCG exploration. One more site Surkha in Gujarat has been identified in association with

Gujarat Mineral Development Corporation Ltd (GMDC).

III. Shale Gas Exploration

Company had taken up a pilot project for Shale gas in exploration in Raniganj, West Bengal and

North Karanpura in Jharkhand. All the seven phases of the project have already been completed.

In the Raniganj sub-basin the Gas in Place (GIP) is estimated to be 48 trillion cubic feet (TCF).

Company is planning to explore Cambay, Krishna-Godavari, Cauvery and Vindhyan

sedimentary basins for shale gas in alliance with ConocoPhillips, US oil major and one of the

industry leaders in the area of shale gas deepwater exploration.

IV. Alternate sources of energy

A special Trust set up by Company, “ONGC Energy Centre (OEC)”, has partnered with

Talboom, a Belgium engineering group, for a power project in the geothermal energy domain.

Further, OEC has signed a collaborative agreement with M/s Natural Power Concepts (Hawaii,

USA) for Kinetic Hydro Power generation from small rivers, rivulets and tail races of dams.

OEC is also focusing on exploitation of rich database of ONGC drilled wells for locating

commercial deposits of Uranium.

e) Commissioning of ongoing integration projects

I. Refining

MRPL commissioned its 3 MMTPA Crude Distillation & Vacuum Distillation Units

(CDU/CPU) and required offsite facilities in March, 2012, which enhanced its nameplate

capacity from 11.83 MMTPA to 15 MMTPA. The balance units are expected to be progressively

commissioned by October, 2012. MRPL is further considering upgrading capacity to 18

MMTPA.

II. Petrochemicals

The two petrochemical plants ONGC Petro-additions Limited (OPaL) and ONGC Mangalore

Petrochemicals Limited (OMPL) promoted by Company are progressing well and are expected

to become operational in FY’14. These projects have basically been promoted for value-

multiplication of in-house feedstock (Naphtha at Uran, Hazira, and Mangalore and C2-C3

components of C2-C3 extraction plant at Dahej).

III. Gas based power plant

726.6 MW (363.3 x 2) gas based Combined Cycle Power Plant (CCPP) is being set up by ONGC

Tripura Power Company Ltd. (OTPC), an SPV promoted by Company, at Palatana, Tripura. The

generation project is in advanced stage of implementation and the first unit is expected to be

commissioned by end September/ early October, 2012.

IV. Nuclear power plant

Company in association with Nuclear Power Corporation of India Limited (NPCIL) is studying

the feasibility for setting up nuclear power plants.

V. CGD Project

Company is evaluating the feasibility to venture into City Gas Distribution (CGD) projects in

collaboration with reputed companies.

Strategy & Pursuits: Long-term (Perspective Plan 2030)

Keeping in view sustained growth and factoring emerging business scenario, Company has

prepared ‘Perspective Plan 2030’. The plan envisages doubling its production over the next 18

years at 4-5 per cent annual production growth rate. It also focuses on building sustainable

portfolio to transform ONGC to a major global energy company with selective participation in

the energy value chain beyond E&P.

The mapped aspirations under PP2030 are:

1. Two fold production growth in E&P.

2. Three fold growth in revenue and EBITDA.

3. Four fold growth in Market Capitalization.

4. Five shaping moves to achieve PP2030 aspirations and

5. Six fold growth in international E&P production.

Company has chalked out the following five shaping moves to meet the PP2030 aspirations:

1. Grow overseas E&P to source 60 mmtoe/year by 2030

ONGC decided to invest and explore opportunities in 4-5 international hubs where OVL can

attain growth of sufficient scale. Potential growth hubs include heavy oil, conventional plays,

shale and deepwater.

2. Secure alliances to develop new resource types

Company plans to forge alliances for development of new resources like - shale gas, CBM,

deeper plays and HP/HT (High Pressure & High Temperature) reservoirs.

Company signed a MoU with ConocoPhillips, a US oil major and pioneers in shale gas and

deepwater exploration, in March, 2012 for cooperation in the areas of shale gas exploration in

India, USA and elsewhere in the world; and also Deepwater in India.

Further, signed a MoU with Colombia's national oil company Ecopetrol SA in May, 2012 for

jointly studying the fan-belt traps of the Cachar Region in India and for cooperation in

developing EOR/IOR technologies.

Company also signed a MoU with China National Petroleum Corporation (CNPC), a world-

leading integrated international energy company, in June, 2012 to have cooperation in

hydrocarbon sector including midstream and downstream.

3. Unlock more than 400 mmtoe from domestic YTF (yet-to-find) reserves

Considerable potential exist in Indian basins. Much of the remaining potential is expected to be

in new resource types. To bring together necessary expertise, ONGC is launching four Centers of

Delivery (COD) for shale gas, CBM, deeper plays and HP/HT.

4. Accelerate (re)development of discovered domestic reserves

ONGC’s existing portfolio contains yet-to-develop discoveries that can add more than 300

mmtoe of production by 2030. A number of fields have been identified for priority accelerated

development. To ensure on-budget and on-time delivery Company has started a programme to

install a rigorous Stage Gate Process for project evaluation, implementation and monitoring.

5. Grow non-E&P business to 30 per cent of revenue by 2030

Company has plans to selectively invest in the non-E&P sector, leveraging integration benefits

from its existing portfolio. These investments will include expansion and further petrochemical

integration at the MRPL refinery, additional LNG re-gasification, commercialization of stranded

gas and capacity in alternative energy generation including solar, wind and potentially nuclear.

We have signed a MoU with Mitsui & Co Limited, a large Japanese conglomerate, in August,

2012 for cooperation in gas/ LNG ventures the world over.

Commitment towards sustainable development

On 1st August 2012 Company submitted request to the United Nations Framework Convention

on Climate Change (UNFCCC) for registration of OTPC’s gas based power plant at Palatana,

Tripura as Clean Development Mechanism (CDM) project. Once approved, this will generate an

annual CER (Certified Emission Reduction) of 1,605,006. On registration, this will be one of the

largest CDM projects globally.

Sustainability Report

Company is in the process of publishing ONGC’s third successive Sustainability Report for

FY’12. This report covers our organizational performance across the triple bottom-line of

Economic, Environmental and Community dimensions.

Corporate Social Responsibility (CSR)

Company ONGC has always been committed towards inclusive growth of the society. It

earmark two percent of our profit towards CSR activities. It focus on 12 identified focus areas –

education, health care, entrepreneurship development, environment protection, ecological

conservation, protection of heritage sites, promotion of artisans, craftsman, musicians, artists,

etc.

People - our strength

Organization has always valued its human resources as the most important resource. Company

has prioritized induction of new talent and further competence building of its employees. This

year ONGC has been bestowed with “Most Attractive Employer” Award instituted by Ma Foi

Randstad, a globally renowned HR service provider.

Financial Performance of ONGC

PAT, Dividend, net worth during the last five years

Year Net Profit Dividend Net worth Turnover

 Rs. in crore % Rs. in

croreRs. in crore Rs. in crore

2006-07 15,643 310 6,631 61,410 56,904

2007-08 16,702 320 6,844 69,943 60,137

2008-09 16,126 320 6,844 78,085 63,950

2009-10 16,768 330 7,058 86,441 60,206

2010-11 18,924 350 7,486 96,708 66,152

Annual net profit of ONGC increases 13%, from Rs. 16,768 Crore in 2009-10 to Rs. 18,924 Crore in 2010-11.

Net worth increases 12% from 86,441 Crore in 2009-10 to 96,708 Crore in 2010-11.

Turnover increases 10% from Rs. 60,206 Crore in 2009-10 to Rs. 66,152 Crore in 2010-11.

1. NET PROFIT

FY'07 FY'08 FY'09 FY'10 FY'110

2000400060008000

100001200014000160001800020000

1564316702 16126 16768

18924

Net Profit (in crore)

Net Profit (in crore)

2. DIVIDENDS

FY'07 FY'08 FY'09 FY'10 FY'116200

6400

6600

6800

7000

7200

7400

7600

6631

6844 6844

7058

7486

Dividends (in crore)

Dividends (in crore)

3. NET WORTH

FY'07 FY'08 FY'09 FY'10 FY'110

20000

40000

60000

80000

100000

120000

6141069943

7808586441

96708

Net Worth (in crore)

Net Worth (in crore)

6. Organization Structure of the Company.

Structure of Oil and Gas Sector

The oil and petroleum sector was given the status of Core sector Industry with the Industrial

Policy Resolution, 1954. The Indian oil sector has historically been a regulated one dominated by

Government undertakings. However, with the Government loosening its control, new private

sector players are now gaining presence. The Indian oil sector has companies operating in three

distinct sub-segments:

Oil & Gas Exploration and Production (E&P),

Oil Refining and marketing of refined products (R&M) and,

Distribution of Natural Gas.

Exploration and Production (E&P)

The growing demand for crude oil and gas in the country and policy initiative of Government of

India towards increased E&P activity, have given a great impetus to the Indian E&P industry

raising hopes of increased exploration. Exploration and production (E&P) companies focus on

finding hydrocarbon reservoirs, drilling oil and gas wells and producing and selling these

materials to be later refined into products such as gasoline. This activity is usually referred to

as upstream oil and gas activity. Exploration and production companies measure oil production

in terms of barrels.

Oil and Natural Gas Corporation Limited (ONGC) and Oil India Ltd. (OIL), the two National Oil

Companies (NOCs) and private and joint-venture companies are engaged in the exploration and

production (E&P) of oil and natural gas in the country.

Petroleum Industry

The oil and gas industry is usually divided into three major components: Upstream, midstream

and downstream.

1. UPSTREAM

The upstream oil sector is a term commonly used to refer to the searching for and the recovery

and production of crude oil and natural gas. The upstream oil sector is also known as

the exploration and production (E&P) sector.

The upstream sector includes the searching for potential underground or underwater oil and gas

fields, drilling of exploratory wells, and subsequently drilling and operating the wells that

recover and bring the crude oil and/or raw natural gas to the surface.

2. MIDSTREAM

The midstream gas business starts at the gathering system. The gathering system is collecting

wet natural gas from the well heads and transports it to a gas processing plant. A gathering

system can range from a small system where gas is processed close to the well head, to a system

that consists of thousands of miles of small-diameter, low pressure pipes collecting from many

hundred wells. At the gas processing plant methane (a.k.a. dry natural gas) is separated from the

wet natural gas, leaving natural gas liquids as a by-product.

3. DOWNSTREAM

The downstream oil sector is a term commonly used to refer to the refining of crude oil and the

selling and distribution of natural gas and products derived from crude oil. Such products

include liquified petroleum gas (LPG), gasoline or petrol, jet fuel, diesel oil, other fuel oils,

asphalt and petroleum coke.

The downstream sector includes oil refineries, petrochemical plants, petroleum product

distribution, retail outlets and natural gas distribution companies. The downstream industry

touches consumers through thousands of products such as petrol, diesel, jet fuel, heating oil,

asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, pharmaceuticals,

natural gas, and propane.

1.6.1 Activities Involved In Production Process:

Desk study: Identifies area with favourable

Aerial survey: If favourable features revealed, then

Seismic survey: provides detailed information on geology with the help of various instruments if it’s feasible

Exploratory drilling: verifies the presence or absence of Access for drilling unit and supply units a hydrocarbon reservoir and quantifies the reserves

. Appraisal: determines if the reservoir is economically.

Development and production: produces oil and gas from improved access, storage and waste disposal facilities the reservoir through formation pressure, artificial lift, Wellheads and possibly advanced recovery techniques, until Flow lines economically feasible reserves are depleted.

7. Market Share & Position of the Company in the Industry:

Global Ranking

Only Indian energy major in Fortune's Most Admired List 2012 under 'Mining, Crude Oil

Production' category.

It is ranked 171th in Forbes Global 2000 list of the World's biggest companies for 2012

based on Sales (US$ 26.3 billion), Profits (US$ 5 billion), Assets (US$ 51 billion) and

Market Capitalization (US$ 46.6 billion).

ONGC has been ranked 39th among the world's 105 largest listed companies in

'transparency in corporate reporting' by Transparency International making it the most

transparent company in India.

ONGC

MUMBAI DEHRADUN

DELHI

OTHERS

Role Of Corporate Accounts

1) As per the listing requirement of SEBI, listed companies have to publish quarterly result. For this, the accounts for various units are accumulated at Corporate Accounts section for final consolidation. Similarly annual accounts are also finalised at Corporate Accounts section.

COMMERCIAL INTERNALAUDIT

CORPORATEACCOUNTS

INDIRECT TAXES

TREASURY DELHI FINANCE

BUDGET

2) At the end of the year annual accounts of group companies are also consolidated with the accounts of ONGC.

3) MIS reporting at various levels of management is also supported.

4) While finalising the accounts corporate accounts has also to look for all the guidance notes issued by the ICAI in regards to oil extraction companies.

5) To make and amend accounting policies for formation of final result.

6) To help the units (working officers) in solving accounting issues.

7) To interact with auditors and assist them in finalise annual and quarter accounts.

8) Integration of ERP system with information module like BI and BPC. Making efforts in putting info on online system with real time updating.

8. PRESENT LEADERSHIP.

NAME DESIGNATION LEVELALOK SAHA GM(F&A)-HEAD CORPORATE ACCOUNTS E-7B BISWAS DGM(F&A) E-6ARUP GUHARAJA CM(F&A) E-5

SOHAIL KHALID M(F&A) E-4JASBINDER SINGH M(F&A) E-4ANANDARUP CHAKRABORTY

M(F&A) E-4

ALOK NAUTIYAL M(F&A) E-4NIRAJ NAYAN KUMAR DM(F&A) E-3GURMEET SINGH DM(F&A) E-3HARJEET S SAPPAL SR (F&A) E-2ASHOK K NONIA SR (F&A) E-2VIKASH C SINGH SR (F&A) E-2RAKESH K GUPTA SR (F&A) E-2MS JYOTI PRASAD SR (F&A) E-2BHASKAR PUROHIT (F&A) E-1

VERAL AGARWAL (F&A) E-1

CHAPTER-2:

SWOT ANALYSIS

McKinsey 7S framework Model.

2.1 Strengths

Structure: ONGC is a well establish organization with a good track record endowed with a large

pool of highly qualified and experience technical personnel. Its Structure is flexible to future

demand. One of the biggest advantages & strength of the company is that it is state owned.

This led the company have great infrastructure with the governments support. The policy

making also becomes easier due to the same reason. Moreover any undue and sustained

pressure creates due impact on the government as well.

Staff: ONGC believes that in order to sustain its edge, it needs to win the war of talent continuously as it cannot afford to lose its rare talent pool to competition. Accordingly, various measures pertaining to compensation and welfare of employees are undertaken and the same are revised / modified periodically according to changing circumstances and requirements. Needless to mention that all statutory benefits are duly provided.

Skills: ONGC implement personality development programs: To explore the current managerial situation for women and develop a strategic

Perspective for the demands of the working environment. To enhance managerial skills in them to perform skilfully. To enhance managerial skills for effective performance To develop communication skills

To reflect, discuss and overcome shortcomings, if any, in personal development.

Shared value: ONGC has very good aspect of shared value such as, Technical expertise, specialized domain knowledge and strong financial position.

Strong Infrastructure: The Company implemented some well needed improvements to the infrastructure and created strength for the company.

Top Technology: ONGC is the technological advancements that were implemented over the last few years. The advancements were substantial and improved the company's ability to extract the greatest amount of oil and gas.

2.1 Weakness

System: ONGC System is dependable to government approval; Dependence on government and PSU clients, limitation in recruiting desired competencies strains the performance and development of business.

Skills: Limiting skills or experience in managing mega-projects is another area that requires strengthening.

Structure: ONGC structure is dependent of government regulation; any change in the government policy may result in to consequential change in its business.

State owned: regulatory environment, government determines the retail pricing.

2.2 Opportunities

System: ONGC has an opportunity for growth in overseas market through subsidiary ONGC Videsh Ltd. (OVL). The company has entered into strategic alliance with IOC to form a national oil entity for domestic and global operations.

Strategy: It is capital intensive calls for huge investment for drill equipment. And Collaboration with UCIL for exploration of uranium will leverage ONGCs expertise.

Shared value: Major investment expected to be made in retail outlets marketing and distribution of petrol, direct supply to the industries and retail distribution of fuel.

Structure: Geographical Advantage- to emerge as a refinery hub of the world. Off the 26 sedimentary segments only 6 have been explored and the deep water basin area of the east and west coast has been unexplored.

2.2 Threats

Staff: Security of personnel & property especially crude oil continues to be a cause of concern in certain area.

System: Some exploration Campaign Company involves high technology, high investment and high risks.

Structure: The intrusion of fishing boats near the oil field development areas could pose threat to safety of field installations.

Shared value: The Company is a favoured company by the GOI and in the decontrolled scenario; it could face greater challenges from private player.

Exploration of new resources by the private sector participant would raise a threat of exploitation of such resources for their profit making motives.

Threat of Alternative Fuels: The Company may be facing some real threat from alternative fuels in the next decade or so uranium mining and wind energy are the substitutes.

2.3 Best Practices / USPs of ONGC

Best practices of ONGC can be differentiated with respect to its functional area such as

HR. Finance. Inventory management. Use of IT’s. Marketing.

2.31 BEST PRACTICES OF ONGC IN HUMAN RESOURCE MANAGEMENT.

A Motivated Team

HR policies at ONGC revolve around the basic tenet of creating a highly motivated, vibrant & self-driven team. The Company cares for each & every employee and has in-built systems to recognise & reward them periodically. Motivation plays an important role in HR Development. In order to keep its employees motivated the company has incorporated schemes such as Reward and Recognition Scheme, Grievance Handling Scheme and Suggestion Scheme.

Incentive Schemes to Enhance Productivity

Productivity Honorarium Scheme Job Incentive Quarterly Incentive Reserve Establishment Honorarium Roll out of Succession Planning Model for identified key positions Group Incentives for cohesive team working, with a view to enhance productivity

Training & Development

An integral part of ONGC’s employee-centred policies is its thrust on their knowledge upgradation and development. ONGC Academy, previously known as Institute of Management Development (IMD), which has an ISO 9001 certification, along with 7 other training institutes, play a key role in keeping our workforce at pace with global standards.

ONGC Academy is the premier nodal agency responsible for developing the human resource of ONGC. It also focuses on marketing its HRD expertise in the field of Exploration & Production of Hydrocarbons. ONGC’s Sports Promotion Board, the Apex body, has a Comprehensive Sports Policy through which top honours in sports at national and international levels have been achieved.

Transforming the Organization

ONGC has undertaken an organization transformation exercise in which HR has taken a lead role as a change agent by evolving a communication strategy to ensure involvement and participation among employees in various work centers. Exclusive workshops and interactions/brainstorming sessions are organized to facilitate involvement of employees in this project.

Participative Culture

Policies and policy makers at ONGC have always had the interests of the large and multi-disciplined workforce at heart and have been aware of the nuances and significance of cordial Industrial Relations. By enabling workers to participate in management, they are provided with an Informative, Consultative, Associative and Administrative forum for interactive participation and for fostering an innovative culture.

In fact, ONGC has been one of the few organizations where this method has been implemented. It has had a positive impact on the overall operations since it has led to enhanced efficiency and productivity and reduced wastages and costs.

2.32 BEST PRACTICES BY ONGC IN FINANCE:

Maintain the association’s funds, including the replacement fund (commonly called reserves) and operating fund, in separate accounts in the association’s name and ensure that the board has direct access to the account.

Maintain an operating cash balance of approximately two months expenses.

Reconcile the association’s bank statements and investments monthly (or at least quarterly) with the statements going directly to the board member reviewing them. The

board member charged with reviewing the bank statements should not be responsible for payment of bills and/or signing checks.

Require the full board to review copies of bank statements and investments on a quarterly basis.

Require at least two board members’ signatures to gain access to reserves.

Require at least two authorized signatures on all checks over a predetermined amount as established by the board of directors.

Establish a long-term financial plan for the association’s assets (cash, accounts

receivable, replacement fund, investments, etc.) that is reviewed and revised annually.

Develop written, board-approved investment policies and procedures.

Commission a reserve study and/or update current reserve study at least every three years and review the report annually.

Prepare a long-term operating budget covering the next three to five years. Include reasonable reserves for future major repairs and replacement of common facilities in assessments as determined by the association’s most recent reserve study.

Develop a written, board-approved collection policy for enforcing owners’ assessment obligations. Be sure to follow applicable state statutes regarding development and

enforcement of the policy.

Establish that the board must approve all write-offs of delinquencies in a timely manner.

Solicit competitive bids for services and require board authorization for all expenditures over a predetermined amount.

Request timely updates and reports from the association’s manager and accountant.

Require approval of invoices, by a board member other than the check signers, prior to payment.

Require board approval for checks in payment of non-budgeted, non-recurring expenses

in excess of an established limit.

2.33 BEST PRACTICES BY ONGC IN INVENTORY MANAGEMENT.

ONGC fixes stock levels for different categories of stores and spares taking in to account consumption pattern, lead time, storage space, market trends, carrying cost, ordering cost etc.

ONGC takes steps expeditiously to dispose the nonmoving/ surplus stores and spares.

ONGC adhere to the norms fixed for holding the inventory.

ONGC applies appropriate marketing strategy to reduce the finished goods inventory holding.

Company takes appropriate action expeditiously to investigate the reasons for shortages and prevent such shortages.

2.34 BEST PRACTICES BY ONGC IN INFORMATION SYSTEM.

ENTERPRISE RESOURCE PLANNING

Enterprise Resource Planning”. An integrated software solution used to manage a company’s

resources. Integrates all business functions, of the organization including HR, Finance, P&A,

purchasing, IT, Business functions of SBUs (BD, Contract securing and signing, project planning,

resource management, hiring of consultants/ sub-consultants, execution of project

milestones, approvals, deliverables, invoicing, receipts, client interactions, financial and physical

closure etc) and management of data. Integrates all departments and functions across a

company onto a single computer system that can serve all those different departments'

particular needs.

ERP combines the various processes and functions all together into a single, integrated software

program that runs off a single database so that the various departments can more easily share

information and communicate with each other

BENEFITS OF AN ERP SYSTEM

A single integrated system

Reduce redundant data entry and processes

Establish uniform processes that are based on recognized best business practices

Information sharing across departments

Improved access to information

Improved efficiency due to streamlining of processes

Improved customer satisfaction based on improved on-time delivery, increased quality,

shortened delivery times

Reduced inventory costs resulting from better planning, tracking and forecasting of

requirements

Better tracking of vendor performance

Track actual costs of activities and perform activity based costing

Provide a consolidated picture of sales, inventory and receivables

SAP

SAP AG corporation founded in 1972, One of the most important software companies in

the world.

A collection of software for nearly all business applications in middle and large sized

companies.

Systems, Applications and Products.

Can literally run an entire enterprise.

Companies can run SAP's transactions to support their Order to Cash, Procure to Pay,

Plan to Produce, Hire to retire business processes.

Latest version of SAP is ECC or Enterprise Core Component, and the most recent release:

ECC 6.0.

Objective of implementation of SAP ERP Systems in ONGC

Enable streamlining and automation of business processes

Seamless integration between business functions on real time basis

Ensure one-time data entry ensuring data consistency and reliability.

Eliminate errors by improved checks and validations.

Implementing SAP enabled Best business practices & processes

MIS Reports on Real Time Basis.

2.35 BEST PRACTICES FOLLOWED BY ONGC IN MARKETING.

Corporate Social Responsibility in ONGC

As a public sector enterprise, ONGC has a long and cherished tradition of commendable

initiatives, institutionalized programmes and practices of Corporate Social Responsibility which

have played a laudable role in the development of several underdeveloped regions of the

country. The vision of sustainable growth drives both business decisions as well as our

Corporate Social Responsibility works. Our CSR activities are essentially guided by project based

approach in line with the guidelines issued by the Department of Public Enterprises and

Ministry of Corporate Affairs of the Government of India. The CSR initiatives of ONGC were

marked by unrelenting commitment to several large – scale key projects as well as initiation of

several new projects identified under the 12 focus areas of ONGC i.e.

Education including vocational courses,

Health Care,

Entrepreneurship (self-help & livelihood generation) schemes,

Infrastructure support near ONGC operational areas,

Environment protection, ecological conservation, promotion,

Protection of heritage sites, UNESCO heritage monuments etc.

Promotion of artisans, craftsman, musicians, artists etc. for preservation of heritage, Art

& Culture,

Women’s Empowerment, Girl Child Development, Gender sensitive projects,

Water Management including ground water recharge,

Initiatives for Physically and Mentally challenged,

Sponsorship of seminars, conferences, workshops etc.

Promoting Sports/sports persons; supporting agencies promoting sports / sports

persons.

ONGC, in its quest for oil and gas, charters remote rural locations and is in a constant interface

with underprivileged local communities which results in better understanding of the community

and consequently an enhanced sense of responsibility and accountability to the communities

whose lives we touch.A well-defined set of objectives, clearly delineated beneficiaries, strategy

and project activities characterize CSR projects undertaken to yield discernible, long-term,

sustainable benefits for the communities in question Major CSR projects undertaken during the

year are enlisted below.

1.VaristhajanaSwasthyaSewaAbhiyan: ONGC along with Help Age India continues its efforts to

take healthcare to the doorsteps of the elderly through Mobile Medicare Units. In 2011-12, all

the 20 MMUs were launched and almost 1.9 lakh treatments were provided across the eight

States and one Union Territory.

2. ONGC-GICEIT Computer Centre: Under this initiative, implementing partner

BharatiyaVidyaBhavan operates five computer centre’s providing employment-related

computer training to underprivileged youth across different operational areas of ONGC. In

2011-12, more than 1400 students have received free employability training through these

centres.

3. Project Utkarsh- Livelihood Project in Sibasagar: Initiated in 2011-12, this project seeks to

expand livelihood opportunities for 400 households in one year through training of women in

skills like tailoring, soft toy making etc. with linkages for income generation as well as training

the elderly in vocations like goatery, piggery, mushroom cultivation etc. while establishing

adequate forward and backward linkages.

4. Harit Moksha: This unique CSR venture with Mokshda ParyavaranEvam Van Suraksha Samiti

(Mokshda PEVSS) has led to the development of an energy-efficient and environment friendly

wood based crematorium with a system called Mokshda Green Cremation System (MGCS)

which is capable of reducing wood consumption by 60% besides minimizing air and water

pollution in a significant manner. Now, there are 10 such MGCS units across the cities of

Vadodara, Cambay, Ahmedabad and Delhi.

5. ONGC-NSTFDC HathkarghaPrashikshan: The CSR project was aimed at economically

empowering the women tribal handloom artisans in Assam to facilitate cluster development for

economically marginalized tribal populations. In 2011-12, around 100 tribal handloom artisans

were provided on-the-job training in the improvised looms by master craftsmen that included

training in intricate designs for catering to wider markets.

6. ONGC-Eastern Swamp Deer Conservation Project in Kaziranga National Park: The project

aims at successfully conserving the species of the Eastern Swamp Deer. Understanding the

species and the habitat, developing stringent conservation action initiatives that could prevent

extinction and examining the possibility of translocation of the species to additional areas to

conserve species and habitat will be important project activities. The project is in the first phase

which consists of gathering information on the species.

7. ONGC Hospitals: ONGC will be setting up multispecialty hospitals at Sibsagar, Assam and

Ankleshwar, Gujarat and a Community Hospital at Lakhimpur-Kheri, Uttar Pradesh.

2.4 Variations/Deviations in practice followed by ONGC & Concepts taught in Classroom.

a) ONGC follow more procedure oriented approach than Hire and Fire policy. For everything

there is system & procedure.

b) No gorilla strategy is followed in marketing.

c) As per Company Act all rules are followed. The Financial Statement are prepared and

audited accordingly with following all Accounting Standards and Notes to Accounts and

timeline guidelines of Institute of Chartered Accounts of India (ICAI).

d) For Cost Auditing all guidelines of Institute of Cost Accounts (ICWAI) are followed.

e) Internal control system compared to taught in class is totally different form internal control

system of ONGC. ONGC control system includes followings:

Book of delegated power form board of directors.

Well established material and work’s manual.

Material management system.

Disposal procedure.

Marketing procedure.

f) Direct tax and Indirect tax is more followed and implemented in ONGC reason being they

need to comply with all rules and regulation of law.

g) ONGC use well established highly appreciated Human Resource manual which includes CDA

rules i.e. Conduct Discipline Rules.

h) As compare to other product ONGC’s products are highly flammable and hazardous which

require proper authorization from ministry of oil and natural gas and the petroleum and

natural gas regulatory board.

i) As we have learnt that product can be sold or marketed without any proper infrastructure

also but ONGC products are highly flammable and have a unique property which requires

proper infrastructure to deliver product to the end user.

j) ONGC has separate budgeting system it maintain budget according to that system where

many aspects considered such as RE,BE,CPE and as taught in class it is not only calculation

of Govt. expenditure and Revenues it consider all aspects such proper utilization of budget

etc.

CHAPTER 3:

DATA COLLECTION AND PRESENTATION

CASH FLOW STATEMENT

In financial accounting, a cash flow statement, also known as statement of cash flow. It is a financial statement that shows how changes imbalance accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the Standard that deals with cash flow statements.

The cash flow statement organizes and reports the cash generated and used in the following categories:

1. Operating activities

– Converts the items reported on the income statement from the accrual basis of accounting to cash.

2. Investing activities

– Reports the purchase and sale of long-term investments and property, plant and equipment.

3. Financing

activities– Reports the issuance and repurchase of the company's own bonds and

stock and the payment of dividends.

Its main advantages are as follows:1. Planning and Co-ordination of Financial Operations. Cash Flow Statement is useful is evaluating Financial policies and current cash position. Since cash is the basis for carrying on operations, the Cash Flow Statement prepared on an estimated basis for the next accounting period will enable the management to plan and co-ordinate the financial operations probably. The management comes to know how much cash is needed in the future and at what time and how can it be arranged-how much internally and how much from outside. It is especially useful in preparing cash budgets. 2. A Control Device. Cash Flow statement is also a control device for the management. A comparison of cash flow statement of previous year with the budget for that year would indicate to what extent the resources of the enterprise were raised an applied according to the plan. Thus a comparison of original forecast with actual results may highlights trends of movement that might otherwise go undetected. 3. Profit and Cash Positions. It enables the management to account for situation when business has earned huge profits yet run without money or when it has suffered a loss and still has plenty of money at the bank. 

4. Short-term Financial Decisions. Cash Flow Statement helps the management in taking short-term financial decisions. Suppose, if firm wants to know its state of solvency after one month from to date, it is possible only from Cash Flow analysis and not from Fund Flow Statement. Shorter the period, greater is the importance of Cash Flow Statement. 

Limitations of cash Flow Statement:1)  Ignore Accounting Concept of Accrual Basis: As CFS is based on cash basis of accounting, it ignores the basic accounting concept of accrual basis.

(2)  Not Suitable for judging the profitability: CFS is not suitable for judging the profitability of a firm as non-cash charges are ignored while calculating cash flows from operating activities.

(3)  Based on Secondary Data: CFS is based on secondary data. It merely rearranges the primary data already appearing in other statements i.e., Balance Sheet and Income Statement.

(Rupees in million)

Year Ended Year Ended31st March, 2013 31st March, 2012

A. CASH FLOW FROM OPERATING ACTIVITIES:

Net Profit before tax and extraordinary items 3,05,443.33 3,66,425.67 Adjustments For: - Prior Period Items 531.49 -95.48 - Depreciation, Depletion, Amortisation & Impairment 83,735.71 74,959.15 -Exploratory Well Costs Written off 84,763.24 80,924.97 -Interest on Borrowings 276.36 348.30 - Unrealized Foreign Exchange Loss/(Gain) (103.02) 1,070.59 -Provision for Leave Encashment 1,998.87 1,661.05 -Provision for other Employee benefits 7,509.95 2,801.10 -Other Provision and Write offs (Net) 13,539.63 2,739.57 -Interest Income (31,428.20) (31,115.56) -Excess Liability written Back (5,522.81) (1,961.63) -Amortization of Government Grant (3.28) (3.92) -Dividend Income (4,614.75) 1,50,683.19 (5,265.84) 1,26,062.30

Operating Profit before Working Capital Changes 4,56,126.52 4,92,487.97 Adjustments for:- -Receivables (18,667.58) (23,933.68) -Loans and Advances (12,007.98) (6,598.19) -Other Current Assets (3,709.17) (3,759.23) -Inventories (6,336.33) (10,603.96) -Trade Payable and Other Liabilities 1,711.89 (39,009.17) 1,755.48 (43,139.58)

Cash generated from Operations 4,17,117.35 4,49,348.39

Direct Taxes Paid (Net of tax refund) (94,677.46) (98,937.37)

Cash Flow before prior period 3,22,439.89 3,50,411.02

Prior period items (Cash items) (522.50) 102.06

Net Cash Flow from Operating Activities 'A' 3,21,917.39 3,50,513.08

OIL AND NATURAL GAS CORPORATION LIMITEDCASH FLOW STATEMENT FOR YEAR ENDED 31ST MARCH, 2013

B. CASH FLOW FROM INVESTING ACTIVITIES:

Purchase of Fixed Assets (1,15,789.59) (1,37,088.73) Sale of Fixed Assets 140.00 1,212.53 Exploratory and Development Drilling (1,66,340.67) (1,21,159.97) Sale of Investments 8,519.07 0.50 Advance/Investment in Joint Controlled Entities (40,103.32) (230.00) Loan to Associates 263.07 (533.52) Loan and advances to Subsidiary 45,566.41 (18,399.70) Loans to Public Sector Undertakings and Other Bodies Corporate 83.03 360.94 Deposit in Site Restoration Fund (9,505.49) (10,670.66) Dividend Received from Subsidiary 1,255.35 1,506.43 Dividend Received from Others 3,359.40 3,759.41 Interest Received 36,053.05 26,752.91 Net Cash Flow from Investing Activities 'B' (2,36,499.69) (2,54,489.86)

C. CASH FLOW FROM FINANCING ACTIVITIES:

Short Term Borrowings - 45,000.00 Repayment of Short Term Borrowings (45,000.00) - Dividend Paid (94,140.71) (72,688.85) Tax on Dividend (15,060.43) (11,551.31) Interest Paid (276.36) (348.30)

Net Cash Flow from Financing Activities 'C' (1,54,477.50) (39,588.46)

Net increase/(decrease) in Cash and -69,059.80 56,434.76Cash Equivalents (A+B+C)

Cash and Cash Equivalents as at 1st April, 2012 2,01,245.65 1,44,810.89(Opening Balance)Cash and Cash Equivalents as at 31st March, 2013* Note 24 1,32,185.86 2,01,245.65(Closing Balance)

(69,059.79) 56,434.76

Notes:

1. The above Cash Flow Statement has been prepared under the 'Indirect Method' as set out in the Accounting Standard (AS) 3 on Cash Flow Statements issued by The Institute of Chartered Accountants of India.

2.

3. Brackets indicate cash outflow/ deduction.

4 Previous year figures have been re-grouped/re-classified wherever necessary to confirm to the current years prsentation.

BALANCE SHEET:

A balance sheet is a list of assets and liabilities and claims of a business at some specific point of time and is prepared from an adjusted Trial Balance. It shows the financial position of a business

by detailing the source of funds and utilization of these funds. Balance Sheet shows the assets and liabilities grouped, properly classified and arranged in a specific manner.

USES OF BALANCE SHEET:

It enables us to ascertain the proprietary interest of a person or business organization.

It enables us to calculate the actual capital employed in the business.

The lender can ascertain the financial position of the business.

It may serve as the basis for determining purchase consideration of the business.

Different ratio can be calculated from the Balance Sheet and these ratios can be utilized for better management of the business.

LIMITATION OF BALANCE SHEET:

1. Fixed assets are shown in the Balance Sheet as historical costless depreciation up-to-date. A conventional Balance Sheet cannot reflect the true value of these assets. Again intangible assets are shown in the Balance Sheet at book values which may bear no relationship to the market values.

2. Sometimes, balance sheet contains some assets which command no market value such as expense, debenture discount etc. the inclusion of these assets unduly inflate the total value of assets.

3. The balance sheet cannot reflect the value of certain factors such as skill and loyalty of staff.

INTERPRETATION OF BALANCE SHEET:-

The balance sheet is the statement showing the increase or decrease in the assets and liabilities. This indicates the change in capital structure as well as increase or decrease in assets.

Owner’s fund increases by 2138.87 Crore in 2011 as compared to base year 2007. The reserves & surplus is also get increase in last four years very rapidly. It increases by 33441.63 Crore in 2011 as compared to base year 2007.

Proportion of the debt in capital structure is decrease that is in 2007 borrowing debt is 15,109.07 Crore and in 2008 debt is 12,482.71 Crore. So, it is decrease by 96.43.after next three year continues increase.

The balance sheet also shows the balance of assets and other investment made by the company. The gross fixed assets are increased in 2008 by 1678.90 Crore as compared to previous year 2007.

The investment is also increase in 2008 by 197.45 Crore as compared to previous year. After the investment is also decreases in 2009 by 800.18 crore as compared to previous year. And in 2010

it is increase than 2009 after than it is a decrease in 2011 by439.19 crore. The overall inventory turnover ratio shows the good position of the company is good.

We also conclude that the liquid position of the company is good because Current Assets are increase year by year.

( ̀in million)

As at As at31st March, 31st March,

2013 2012I.

1

(a) 3 42,777.60 42,777.60

(b) 4 12,01,754.64 10,86,789.71

2

(a) 5 1,28,879.81 1,11,978.68

(b) 6 11,241.67 5,619.93

(c) 7 2,21,874.45 2,13,130.60

3

(a) 8 - 45,000.00

(b) 9 53,410.06 47,599.33

(c) 10 1,12,226.56 1,41,954.28

(d) 11 9,101.88 22,425.93

17,81,266.67 17,17,276.06

II.1

(a)

(i) 12 2,74,036.80 2,15,678.15

(ii) 13 5,24,407.11 4,63,768.28

(iii) 14 797.95 1,123.28

(iv) 15 1,44,153.69 1,82,980.56

(v) 16 1,04,758.75 85,812.34

(b) 17 91,730.54 43,643.37

(c) 18 2,19,984.17 2,54,498.08

(d) 1,01,331.21 91,825.72

(e) 20 14,053.53 12,102.14

2

(a) 21 - 8,519.07

(b) 22 57,043.94 51,654.35

(c) 23 68,637.21 61,948.16

(d) 24 1,32,185.86 2,01,245.65

(e) 25 38,765.53 31,237.09

(f) 26 9,380.38 11,239.82

17,81,266.67 17,17,276.06

Notes to Finacial Statements 1 to 53

Other Long term liabilities

Long-term provisions

Current liabilities

Reserves and surplus

Non-current liabilities

Deferred tax liabilities (Net)

EQUITY AND LIABILITIESShareholders’ funds

Share capital

OIL AND NATURAL GAS CORPORATION LIMITEDBALANCE SHEET AS AT 31ST MARCH, 2013

ParticularsNote No.

PROFIT AND LOSS ACCOUNT:

The Profit & Loss account is also known as the income statement. It can be defined as a report that summaries the revenues and expenses of an accounting period to reflect the changes in various critical areas of firm’s operation. It is of greatest interest and import and importance to end-users of accounting statements because it enables them to ascertain whether the business operations have been profitable or not during that particular period.

The important destination between the balance sheet and income statement is for a period of one year. The two broad categories of item shown in the income statement are revenue and expenses. Revenues derived from a company’s operation say manufacturing and selling products. During transaction business has also incurred revenues other than main business operation. Expenses are occurred in day-to-day transactions.

Here, expenses regarding manufacturing activities, office and administrative expenses are considered. By deducting total expenses from total revenue we get profit and by deducting total revenue from total expenses we get total loss.

Income tax amount is also decided by profit that incurred in business with help of this statement.

Uses of Profit And Loss Account:

1. Profit and loss account is the base of analysing the performance of company.2. We can find net profit or net loss from profit and loss account. This will be useful for taking the decision of payment of dividend.3. Employees may demand reward on the basis good performance in profit and loss account.4. Bank can take decision for providing more loan to company, if bank sees good net profit in profit and loss account.5. Company can calculate different profitability ratio on the basis of items of profit and loss account.6. Current year profit and loss account is the base of comparing its figure with past year profit and loss

account.7. Current year profit and loss account is the base of comparing its figure with other competitor's profit and loss account.8. After making profit and loss account, company can create its relationship with company's balance sheet for deep insight. Company can calculate return on investment, return on total assets and inventory turnover ratio. Limitations of Profit And Loss Account:

A. Cost allocations are based on estimates which makes the data subjective.B. The various choices of accounting methods (for inventory valuation, depreciation methods, etc.) make evaluation and comparison of different companies difficult.C. Different companies may have different fiscal year ends also making comparisons difficult.D. Financial data is not adjusted for price changes, replacement cost values, inflation/deflation issues,

etc.

INTERPRETATION OF PROFIT AND LOSS ACCOUNT:-

The profit and loss account of the company shows the overall income and expenditure, made by the company in a particular time period. The difference between the debit and credit side of the P&L account, shows the net profit or net loss.

Here, the profit and loss account of the company shows the satisfactory level but as compared to previous year the expenses of the company is increases. Here the sales turnover is increase year by year. The operating income in 2010 is 60,470.18 and now it is increase by 6017.01 Crore Rs. in 2011. So, by this way the net profit of the company is increase by 2156.44 in 2011 as compared to previous year.

While on the other side the expenditure shows the expenses meet by the company in a particular period. The expenditure met by the company is highest in 2009, while in other year the expenditure of the company are increases. The overall analysis of the expenditure side of the company shows the average increase in expenses of the company.

After analyzing the income and expenditure side of the company, there is difference between both sides which is known as the net profit / loss. The net profit of the company shows an overall increase year by year. In 2007 it is 15,642.92Crore Rs. and now its increasing and in 2011 it is 18,924.00 Cr.

( ̀in million)

Particulars Note No.

2012-13 2011-12

I INCOME

Revenue from operations (Gross) 27 8,33,089.58 7,68,870.59

Less: Excise Duty 3,036.25 3,719.65

Revenue from operations (Net) 8,30,053.33 7,65,150.94

Other Income 28 54,367.42 44,529.77

Total Revenue 8,84,420.75 8,09,680.71

II EXPENDITURE

(Increase)/ Decrease in inventories 29 (230.22) (913.44)

Purchases of Stock-in-Trade 31.04 24.82

Production, Transportation, Selling and Distribution Expenditure 30 3,75,338.89 3,03,906.04

Exploration Costs written off

-Survey Costs 15,667.71 12,409.39

-Exploratory well Costs 84,763.24 80,924.97

Depreciation, Depletion, Amortisation and Impairment 31 83,735.71 74,959.15

Financing Costs 32 276.36 348.30

Provisions and Write-offs 33 18,863.20 3,096.76

Adjustments relating to Prior Period (Net) 34 531.49 (95.48)

Total Expenses 5,78,977.42 4,74,660.51

Profit before Exceptional, Extraordinary items and Tax 3,05,443.33 3,35,020.20

Exceptional items - 31,405.47

Profit before Extraordinary items and Tax 3,05,443.33 3,66,425.67

Extraordinary items - -

Profit before Tax 3,05,443.33 3,66,425.67

Tax Expense

- Current Tax 86,300.00 1,08,950.00

- Earlier years (7,014.76) (6,174.20)

- Deferred Tax 16,901.13 12,474.74

- Fringe Benefit Tax - (54.09)

Profit after Tax 2,09,256.96 2,51,229.22

Earnings per Equity Share - Basic and Diluted ( )̀ 35 24.46 29.36(Face Value ̀5/-Per Share)

OIL AND NATURAL GAS CORPORATION LIMITED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH, 2013

CHAPTER-4:

FUNCTIONAL ANALYSIS OF THE COMPANY

Notes to Financial Statements for the year ended 31 st March 2013

1. Corporate information

Oil and Natural Gas Corporation Limited (‘ONGC’ or ‘the Company’) is a public limited company domiciled in India and incorporated under the provisions of Companies Act, 1956. Its Shares are listed and traded on Stock exchanges in India. The Company is engaged in exploration, development and production of crude oil and natural gas.

2. Significant Accounting Policiesa. Basis of preparation

The financial statements are prepared under the historical cost convention on accrual basis in accordance with Generally Accepted Accounting Principles (GAAP), applying the Successful Efforts Method as per the Guidance Note on Accounting for Oil and Gas Producing Activities issued by the Institute of Chartered Accountants of India and Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 and provisions of the Companies Act, 1956. The financial statements are presented in Indian Rupees and all values are rounded to the nearest million except when otherwise indicated. Since the Operating cycle cannot be identified in normal course due to the special nature of industry, the same has been assumed to have duration of 12 months.

b. Use of Estimates

The preparation of financial statements requires estimates and assumptions which affect the reported amount of assets, liabilities, revenues and expenses of the reporting period. The

difference between the actual results and estimates are recognized in the period in which the results are known or materialized.

c. Government Grant

Government Grant related to acquisition of Fixed Assets is treated as deferred income under ‘Deferred Government Grant’ and an amount equal to proportionate depreciation of such assets is credited to Statement of Profit & Loss.

d. Fixed Assets

d.1 Tangible Assets

d.1.1

Fixed assets are stated at historical cost less accumulated depreciation and impairment. Fixed assets received as donations/gifts are capitalized at assessed values with corresponding credit

taken to Capital Reserve.

d.1.2

All costs, net of applicable tax credits, relating to acquisition of fixed assets till the time of bringing the assets to working condition for intended use are capitalised.

d.2 Intangible Assets

Intangible assets are stated at cost of acquisition, net of applicable tax credits, less accumulated amortization and impairment.

e. Exploration, Development and Production Costs

e.1 Acquisition Cost

Acquisition cost of an oil and gas property in exploration and development stage is taken to acquisition cost under the respective category. Such costs are capitalized by transferring to Producing Property when it is ready to commence commercial production. In case of abandonment, such costs are expensed. Acquisition cost of a producing oil and gas property is capitalized as Producing Property.

e.2 Survey Cost

Cost of Survey and prospecting activities conducted in the search of oil and gas are expensed as exploration cost in the year in which these are incurred.

e.3 Exploratory/ Development Wells in Progresse.3.1

All acquisition costs, exploration costs incurred in drilling and equipping exploratory and appraisal wells, cost of drilling exploratory type stratigraphic test wells are initially capitalised as Exploratory Wells in Progress till the time these are either transferred to Producing Properties on completion as per Note no. 2.f.4.1 or expensed as exploration cost (including allocated depreciation) as and when determined to be dry or of no further use, as the case may be.

e.3. All wells under ‘Exploratory Wells in Progress’ which are more than two years old from the date

2 of completion of drilling are expensed as exploration cost (including allocated depreciation)

except those wells where it could be reasonably demonstrated that the well has proved reserves and the development of the field in which the wells are located has been planned.

e.3.3

All costs relating to Development Wells are initially capitalized as ‘Development Wells in Progress’ and transferred to ‘Producing Properties’ on completion as per Note no. 2.f.4.1 and 2.f.4.2.

f. Producing Properties

f.4.1 Producing Properties are created in respect of an area/field having proved developed oil and gas reserves, when the well in the area/field is ready to commence commercial production.

f.4.2 Cost of temporary occupation of land, successful exploratory wells which are used for production of oil & gas, all development wells, depreciation on related equipment, facilities and estimated future abandonment costs are capitalised and reflected as Producing Properties.

g. Depletion of Producing Properties

Producing Properties are depleted using the “Unit of Production Method”. The rate of depletion is computed with reference to an area covered by individual lease/license/asset/amortization base by considering the proved developed reserves and related capital costs incurred including estimated future abandonment costs. In case of acquisition, cost of Producing Properties is depleted by considering the proved reserves. These reserves are estimated annually by the Reserve Estimates Committee of the Company, which

follows the International Reservoir Engineering Procedures.

h. Production Costs

Production costs include pre-well head and post-well head expenses including depreciation and applicable operating costs of support equipment and facilities.

i. Side trackingi.1 The cost of abandoned portion of side tracked exploratory wells is expensed as

‘Exploratory Well Cost’.i.2 The cost of abandoned portion of side tracked development wells is considered

as part of cost of development wells.

i.3 The cost of sidetracking in respect of existing producing wells is capitalized if it

increases the proved developed reserves otherwise, expensed as ‘Work over Expenditure’

j. ImpairmentProducing Properties, Development Wells in Progress (DWIP) and Fixed Assets (including Capital Works in Progress) of a “Cash Generating Unit” (CGU) are reviewed for impairment at each Balance Sheet date. In case, events and circumstances indicate any impairment, recoverable amount of these assets is determined. An impairment loss is recognized, whenever the carrying amount of such assets exceeds the recoverable amount. The recoverable amount is its ‘value in use’ or ‘net selling price’ (if determinable) whichever is higher. In assessing value in use, the estimated future cash flows from the use of assets and from its disposal at the end of its useful life are discounted to their present value at appropriate rate.An impairment loss is reversed if there is change in the recoverable amount and

such loss either no longer exists or has decreased. Impairment loss / reversal thereof is adjusted to the carrying value of the respective assets, which in case of CGU, is allocated to its assets on a pro-rata basis. Subsequent to impairment, depreciation is provided on the revised carrying value of the assets over the remaining useful life.

k. Abandonment Costk.1 The full eventual estimated liability towards costs relating to dismantling,

abandoning and restoring offshore well sites and allied facilities are recognized in respective assets when the well is complete / facilities are installed.

k.2 The full eventual estimated liability towards costs relating to dismantling, abandoning and restoring onshore well sites are recognized when the well is complete. Cost relating to dismantling, abandoning and restoring its allied facilities are accounted for in the year in which such costs are incurred as the salvage value is expected to take care of the abandonment costs. The

abandonment cost on dry well is expensed as exploratory well cost.

k.3 Provision for abandonment cost is updated based on the technical assessment at current costs.

l.

l.1

Joint Ventures

The Company has Joint Ventures in the nature of Production Sharing Contracts (PSC) with the Government of India and various bodies corporate for exploration, development and production activities.

The company’s share in the assets and liabilities along with attributable income and expenditure of the Jointly Controlled Assets is merged on line by line basis with the similar items in the

Financial Statements of the Company and adjusted for depreciation, depletion, survey, dry wells, abandonment, impairment and side-tracking in accordance with the accounting policies of the Company.

l.2 Consideration for the right to participate in operations recoverable from new Joint Venture Partners are :

i) Reduced from respective capitalized cost wherever applicableii) Reduced from current expenditure to the extent it relates to current year.iii) Balance is considered as miscellaneous receipts.

l.3 The hydrocarbon reserves in such areas are taken in proportion to the participating interest of

the Company.

m. InvestmentsLong-term investments are valued at cost. Provision is made for any diminution, other than temporary, in the value of such investments.

Current Investments are valued at lower of cost and fair value.

n. Inventoriesn.1 Finished goods (other than Sulphur) and stock in pipelines/tanks and carbon credits are valued

at Cost or net realizable value whichever is lower. Cost of Finished goods is determined on

absorption costing method. Sulphur is valued at net realizable value. The value of inventories includes excise duty, royalty (wherever applicable) but excludes Cess.

n.2 Crude oil in unfinished condition in flow lines up to Group Gathering Stations/platform and Natural Gas in Pipelines are not valued.

n.3 Inventory of stores and spare parts is valued at Weighted Average Cost or net realisable value, whichever is lower. Provisions are made for obsolete and non-moving inventories.

n.4 Unserviceable and scrap items, when determined, are valued at estimated net realizable value.

o. Revenue Recognitiono.1 Revenue from sale of products is recognized on transfer of custody to customers.

o.2 Sale of crude oil and gas (net of levies) produced from Exploratory Wells in Progress is deducted from expenditure on such wells.

o.3 Sales are inclusive of all statutory levies except Value Added Tax (VAT). Any retrospective revision in prices is accounted for in the year of such revision.

o.4 Revenue in respect of the following is recognized when there is reasonable certainty regarding ultimate collection:

a. Short lifted quantity of gasb. Gas pipeline transportation chargesc. Reimbursable subsidies and grantsd. Surplus from Gas Pool Accounte. Interest on delayed realization from customers

f. Liquidated damages from contractors/suppliers

p. Depreciation and Amortization

p.1 Depreciation on fixed assets is provided for under the written down value method in accordance with the rates specified in Schedule XIV to the Companies Act, 1956.

p.2 Depreciation on additions/deletions during the year is provided on pro rata basis with reference to the date of additions/deletions except items of Plant and Machinery used in wells with 100% rate of depreciation and low value items not exceeding ` 5,000/- which are fully depreciated at the time of addition.

p.3 Depreciation on subsequent expenditure on fixed assets arising on account of capital improvement or other factors is provided for prospectively.Depreciation on refurbished/revamped assets which are capitalized separately is provided for over the reassessed useful life at rates which are not less than the rates specified in Schedule XIV to the Companies Act, 1956.

p.4 Depreciation on fixed assets (including support equipment and facilities) used for exploratory/ development drilling and on production facilities is initially capitalised as part of drilling cost or producing properties and expensed/depleted as stated in Note no. 2.f and 2.g above. Depreciation on equipment/ assets deployed for survey activities is charged to Statement of Profit and Loss.

p.5 Leasehold land is amortized over the lease period except perpetual leases.p.6 Intangible assets are amortized on Straight Line Method (SLM) over the useful

life not exceeding five years from the date of capitalization.

q. Foreign Exchange TransactionsTransactions in foreign currencies are accounted for at the exchange rate prevailing on the date of the transaction. Foreign currency monetary assets and liabilities at the year-end are translated using mean exchange rate prevailing on the last day of the financial year. The loss or gain thereon and also the exchange differences on settlement of the foreign currency transactions during the year are recognized as income or expense and adjusted to the Statement of Profit & Loss except where such liabilities and /or transactions relate to fixed assets/ projects and these were incurred/ entered into before 1.4.2004 in which case, these are adjusted to the cost of respective fixed assets.

r. Employee Benefitsr.1 All short term employee benefits are recognized at their undiscounted amount in the

accounting period in which they are incurred.

r.2 Employee Benefit under defined contribution plans comprising provident fund etc. is recognized

based on the undiscounted amount of obligations of the company to contribute to the plan. The same is paid to a fund administered through a separate trust.

r.3 Employee benefits under defined benefit plans comprising of gratuity, leave encashment, compensated absences, post-retirement medical benefits and other terminal benefits are recognized based on the present value of defined benefit obligation, which is computed on the basis of actuarial valuation using the Projected Unit Credit Method. Actuarial Liability in excess of respective plan assets is recognized during the year. Actuarial gains and losses in respect of post-employment and other long-term benefits are recognized during the year.

s. Voluntary Retirement Scheme

Expenditure on Voluntary Retirement Scheme (VRS) is charged to Statement of Profit & Loss when incurred.

t. General Administrative Expenses

General administrative expenses of Assets, Basins & Services which are identifiable are allocated to activities and the balance is charged to Statement of Profit & Loss. Such expenses relating to Headquarter is charged to Statement of Profit & Loss.

u. Insurance claims

The company accounts for insurance claims as under :-

u.1 In case of total loss of asset, by transferring either the carrying cost of the relevant asset or insurance value (subject to deductibles), whichever is lower under the head “Claims Recoverable-Insurance” on intimation to Insurer. In case insurance claim is less than carrying cost, the difference is charged to Statement of Profit & Loss.

u.2 In case of partial or other losses, expenditure incurred/payments made to put such assets back into use, to meet third party or other liabilities (less policy deductibles) if any, are accounted for as “Claims Recoverable-Insurance”. Insurance Policy deductibles are expensed in the year the corresponding expenditure is incurred.

u.3 As and when claims are finally received from insurer, the difference, if any, between Claims Recoverable-Insurance and claims received is adjusted to Statement of Profit & Loss.

v. Research Expenditure

Revenue expenses on Research are charged to Statement of Profit & Loss, when incurred.

w. Taxes on Income

Provision for current tax is made as per the provisions of the Income Tax Act, 1961. Deferred Tax Liability / Asset resulting from ‘timing difference’ between book profit and taxable profit is accounted for considering the tax rate and laws that have been enacted or substantively enacted as on the Balance Sheet date. Deferred Tax Asset is recognized and carried forward only to the extent that there is reasonable certainty that the asset will be realized in future.

x. Borrowing Costs

Borrowing Cost specifically identified to the acquisition or construction of qualifying assets is capitalized as part of such assets. A qualifying asset is one that necessarily takes substantial period of time to get ready for intended use. All other borrowing costs are charged to Statement of Profit & Loss.

y. Rig Days Costs

Rig movement costs are booked to the next location drilled/planned for drilling. Abnormal Rig days’ costs are considered as unallocable and charged to Statement of Profit & Loss.

z. Unamortized Expenditure

Dry docking charges of Rigs/ Multipurpose Supply Vessels (MSVs), Geo Technical Vessels (GTVs), Well Stimulation Vessels, Offshore Supply Vessels (OSVs), Rig/equipment mobilization expenses

and other related expenditure amortized over the period of use not exceeding five years and the balance is carried under head “Unamortized Expenditure" in the balance sheet.

Za. Provisions, Contingent Liabilities and Contingent Assets