SUMMER TRANING PROJECT REPORT

Oil and Natural Gas Corporation Ltd.

A project

On

Budgeting System in Frontier Basin, Dehradun

DEPARTMENT OF MANAGEMENT

BIRLA INSTITUTE OF TECHNOLOGY

MESRA, RANCHI

Submitted by,

Pallavi Singh

MBA/1081/2009

B.I.T. Mesra, Ranchi.

1

Evaluated By,

Mrs. Promila Bisht

Sr. F & A Officer

ONGC, FB, IDT Campus

Dehradun.

ACKNOWLEDGEMENT

The pleasure that follows the successful completion of an assignment would remain incomplete without a word of gratitude for the people without whose co-operation the achievement would have remained a distant dream. So I would like to intend my immense indebtness to all of them who have guided and motivated me through my research project. I sincerely thank to all for their valuable contribution without which this project report would have not reached its goal.

I do express my sincere gratitude to Oil and Natural Gas Corporation (ONGC) Ltd., Dehradun for giving me a wonderful and exciting opportunity to work in their esteemed organization

.

My sincere thanks go to my supervisor Mrs. Promila Bisht, Sr. F & A Officer, ONGC, FB, IDT, Dehradun, under whose help and guidance I could successfully complete my project.

I would also like to thank my faculty of management studies B.I.T. Mesra, Ranchi, Jharkhand , for grooming me to with stand the challenges of professional career and permitted me to undergo a professional training at Frontier Basin, IDT, ONGC ,DEHRADUN

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PREFACE

This project is an integral part of our curriculum for the fulfillment of MBA programme.

The project entitled “A project on the Budgeting System in Frontier Basin, ONGC” was undertaken to know and understand the budgetary control system prevalent in Frontier Basin, ONGC. The objective of the study was to know and understand the budgetary control system presently prevalent in Frontier Basin, ONGC.

The study was conducted with the help of secondary data that was systematically arranged and interpreted to draw meaningful conclusions.

The study will help the Company to know the key areas that need management’s attention. The analysis will be of great help to the Company in improving its budgetary control system.

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Index

Acknowledgement - 2 Preface - 3 Index - 4 Company Profile - 5 History of ONGC - 5 Management - 8 ONGC Group of Companies - 9 FRONTIER BASIN – an overview - 10 Objectives - 11 Research Methodology - 12 Limitations - 12 Budgeting – definition - 13 Budgeting control process – an overview - 14 Importance of Budgetary control - 17 Objective and Scope - 19 Budget Terminology - 20 Salient features of budget software - 22 Budget Formulation - 27 Budget timelines - 27 Budgeting process in detail - 29 Execution of approved budget - 40 Budget Monitoring - 50 Budget data analysis - 51

Frontier Basin : whole budgetUtilization chart

Analysis and Interpretation - 54 Recommendations - 55 Summery - 57 Acronyms - 58 Bibliography - 60

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Company Profile

Oil & Natural Gas Corporation or ONGC, as popularly known is the largest oil exploration

company in India and it is the largest Company among all “Navratna” PSUs. ONGC was

established for the first time as Oil And Natural Gas Directorate, a delegation under the

leadership of Mr. Keshava Deva Malviya, the then Minister of Natural Resources, in April 1956.

ONGC was re-organized as a limited Company under the Company's Act, 1956 in February

1994.

Mr. K D Malviya

Brief History of ONGC

1955 Oil and Gas Directorate, GOI

After independence, the National Government realized the importance of oil and gas for rapid

industrial development and its strategic role in defence. Consequently, while framing the

Industrial Policy Statement of 1948, the development of petroleum industry in the country was

considered to be of utmost necessity. In 1955 a Petroleum Division was formed within the

Geological Survey of India to take up oil exploration ourselves. This resulted in formation of the

Oil and Natural Gas Directorate by end of 1955 at Dehradun. This Directorate later became Oil

& Natural Gas Commission (ONGC).

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1956 Oil and Natural Gas Commission

Keshava Deva Malaviya, Minister of Natural Resource and Scientific Research (NR&SR)

realized the importance of an indigenous petroleum industry in India and laid the foundation of

ONGC in August 1956.

1959 Autonomous Statutory Body

Raised from mere Directorate status to Commission, it had enhanced powers. In 1959, these

powers were further enhanced by converting the commission into a statutory body by an act of

Indian Parliament.

1994 Public Limited Company

The liberalized economic policy, adopted by the Government of India in July 1991, sought to

deregulate and de-license the core sectors (including petroleum sector) with partial

disinvestments of government equity in Public Sector Undertakings and other measures. As a

consequence thereof, ONGC was re-organized as a limited Company under the Company's Act,

1956 in February 1994.

1999 Strategic Alliance

During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas

Authority of India Limited (GAIL) - the only gas marketing company, agreed to have cross

holding in each other's stock. This paved the way for long-term strategic alliances both for the

domestic and overseas business opportunities in the energy value chain, amongst themselves.

2003 Entering New Horizon

In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified into

the downstream sector. ONGC will soon be entering into the retailing business. ONGC has also

entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made

major investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue

from its investment in Vietnam.

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2005 ONGC Golden Jubilee

On August 14, 2005 ONGC stepped into its 50th year. During these 50 years ONGC witnessed a

rapid rise to become the most valuable “NAVARATNA” company of independent India.Since

its inception, ONGC has transformed the country’s upstream sector. Its activities are spread

throughout India and significantly in overseas territories, the hallmark of ONGC is its self-

reliance and development of core competence in Exploration, Drilling & Production activities at

globally competitive level.

It holds the largest share (about 57 per cent) of hydrocarbon acreages in India, contributes over

78 per cent of India’s oil & gas production and also possesses about one-tenth of India’s refining

capacity. 6 out of the 7 producing basins in the country have been discovered by ONGC.

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Management

The Board of ONGC has 17 members, as given below, comprising 7 functional directors

including the Chairman & Managing Director and 10 non-executive directors comprising 2

Government Nominees directors and 8 Navaratna directors, all nominated by Government of

India.

Chairman & Managing Director- Shri R.S. Sharma

Other Functional Directors;

Dr. A.K. Balyan, Director (Human Resources)

Shri A.K. Hazarika, Director (Onshore)

Shri D.K. Pande, Director (Exploration)

Shri U.N. Bose, Director (Technology and Field Services)

Shri D.K. Sarraf, Director (Finance)

Shri Sudhir Vasudeva, Director (Offshore)

Other Part time Directors-

Shri S. Sundareshan, Addl. Secretary, MOPNG Dr. Bakul H. Dholakia

Smt. Sindhushree Khullar, Addl. Secretary, MOF Shri P.K.Choudhury

Dr. R.K. Pachauri Ms. Chanda Kochhar

Shri V.P.Singh Shri Santosh Nautiyal

Shri S. S. Rajsekar Shri S. Balachandran

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ONGC over the years has undertaken many physical activities. These activities can be divided

into Upstream and Downstream Activities.

Upstream Activities Downstream Activities

Exploration Refineries

Production SEZ

Survey (Seismic Survey) Services

Drilling (Exploratory) Power

Development

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ONGC Group of Companies

ONGC has entered into different activities through its subsidairy companies. Following chart

shows the group companies of ONGC

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Frontier Basin – an overview

India is bestowed with 26 sedimentary basins; spread over 1.78 million square kilometres

offshore areas, with a prognosticated hydrocarbon resource base of 21 billion tonnes that has

been established as proven reserves. Seven basins are presently producing, rest being

exploration, awaiting listing on the hydrocarbon map of India. Of the nineteen onland, seventeen

are categorized under Frontier Basins, which either have indication of non shows or have

perceived prospectively by analogy with other similar petroliferous basin and these basins are

least explored and in the knowledge building stage of exploration.

These frontier areas hold the potential to contain vast hydrocarbon accumulations and

discoveries that could make the difference between self-sufficiency in energy sector area.

The frontier basins of yesteryears are the producing basins of today and the frontier basins to be

converted as producing basins of the future.

The history of frontier basins, erstwhile NRBC, dates back to the inception of ONGC entrusted

with the stupendous task of carrying out exploration for both hydrocarbons and the hereto non-

producing onland sedimentary basins of India a spectrum that reveals in the geographical

disposition (from the northern state of Jammu and Kashmir to the southern) or geomorphology

(from the high mountainous areas of Spiti to the plains of Ganges extensional basins like

Gondwanas to compressive regimes like Himalayan Foothills as young as the Karewa Basin to as

old as the Proterozoic Vindhyan Basin) or logistics(the populated areas of the Zanskars to the

densely populated and well connected areas of civilization in northern India).

It is such diversity of challenges that the frontier basins thrives in its pursuit of hydrocarbons

difference between India’s self-sufficient in energy sector and economic bankruptcy.

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Objectives :

The project on budgeting systems has been undertaken while keeping the following objectives in

consideration:

To learn and understand the budget forecast, activity planning, preparation of budget,

monitoring and controlling of budget.

To analyze variance of actual performance with the target set.

To highlight the key areas where action needs to be taken.

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Research Methodology

1. Research Design : Exploratory Research

2. Data Collection Method : Secondary Data Collection Method

3. Operational Area of Study : Frontier Basin, ONGC

4. Data Processing Method : By calculating the utilization ratios of capital

and revenue (Actual Target) *100 %

5. Web searching

Limitations

1. Time Limitations.

2. Lack in production exposure.

3. Unable to visit store location due to far off location.

4. No physical record generated by the company.

5. Limited exposure to SAP.

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Budgeting – Definition

Budgetary control is defined by The Chartered Institute of Management Accountants (CIMA) as:

The establishment of budgets relating the responsibilities of executives to the requirements of a

policy, and the continuous comparison of actual results with budgeted results, either to secure by

individual action the objective of that policy, or to provide a basis for its revision. Budget is a

formal statement of the financial resources set aside for executing specific activities in a given

period of time. It helps to coordinate the activities of the organization.

A good budget is characterised by the following:

a) Participation: Involve as many people as possible in drawing up a budget.

b) Comprehensiveness: Embrace the whole organisation.

c) Standards: Base it on established standards of performance.

d) Flexibility: Consider changing circumstances.

e) Feedback: Constantly monitor performance.

f) Analysis of costs and revenues: This can be done on the basis of product lines, sections or cost

centres.

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Budgeting control process – an overview

Process

The process of budget formulation, in ONGC is a detailed, exhaustive and voluminous exercise

but it provides flexibility to the managers in their operations and at the same time makes them

accountable for cost of operations. The exercise normally starts after completion of Annual

Accounts in order to have actual utilization of budget and actual cost of various activities. It is

envisaged to have the Board approval for the Budget Outlays of RE of the current period and BE

for the next Financial Year by the end of September/ October of every year.

In line with the internationally accepted accounting methods followed by the Company,

expenditure is booked to various activities viz. survey, exploratory drilling and development

drilling and budget is presented in terms of these activities, besides capital expenditure. The

process of activity cost build up is done at each asset / basin by accepting the allocation cost

from various services within the work centre and transfer of cost from one work centre to another

to depict the activities in the geographical location where the physical activities are accounted as

per requirement.

At the corporate level, budget allocations to the assets, basins, services, institutes and corporate

functions are made on the basis of physical work programme and overall resource generations.

The assets/basins, institutes and service chiefs have operational flexibility to provide for the

budget items and re-appropriation within the budget items.

The budget is prepared initially based on the resources requirements under natural heads and

correspondingly financial outlays under various activities are prepared using the budget software,

separated into planned and non-planned expenditure. Financial Outlays corresponding to the

approved Physical Targets are prepared based on per unit cost of the inputs required to be used in

accomplishing the activities.The following chart in following figure would make the overview of

the working clear.

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ONGC

ASSETS BASINS PLANT JV SERVICES

PLANNEDNON

PLANNED

SURVEY EXPLORATORYDRILLING

DEVELOPMENTDRILLING

RESEARCH & DEVELOPMENTOTHERS

CAPITAL

STORES

SPARES

MANPOWER

CONTRACTUAL

Natural Heads

Activities

Figure 1

The chart shown the general outlay of the budget exercise i.e the parameters considered in its

formulation. Figure 2 below depicts the flow of information and the functions/ personnel

involved in the exercise of budgetary control.

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Figure 2

Importance of budgetary controls

The budgetary process is a significant tool of financial control vested with the management of a

commercial entity. This control mechanism becomes more prominent for a flagship Navratna

Public Sector Undertaking (PSU) like ONGC. The budget exercise incorporates the entire gamut

of plan and non-plan activities during the budget year. Since the Company is a Government of

India (GOI) undertaking, plan budget of the Company forms part of the plan budget of GOI

through its administrative ministry i.e. Ministry of Petroleum and Natural Gas (MoP&NG). The

importance of budgetary controls has increased in the present context when most of the

producing fields in the Company have entered the maturity phase. As a result, while the

production levels are under pressure, the intensified secondary method of production tends to be

accompanied by rising recovery costs. This poses a bigger challenge with regard to establishing

effective cost control mechanism in the entire spectrum of activities. Another area of major

concern is increase in rates of all oil field services and equipments with increase in Exploration

and Production (E & P) activities by all E & P operators across the globe due to prevailing high

prices of crude oil.

Advantages of budgetary controls

Key advantages of budgetary controls are given below:

a) Facilitates management to think about the future and forces management to draft detailed

plans for achieving the targets of each section and operation;

b) Promotes coordination and communication within the organization;

c) Clearly defines areas of responsibility and ensures that in-charges/ managers of work centres

are responsible for the achievement of budget targets for the operations under their control;

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d) Provides a basis for assessing the performance of the organization at various levels through a

variance analysis. Budget is a yardstick against which actual performance is measured and

assessed;

e) Deviations from budget can be investigated thereby enabling remedial action to be taken on an

ongoing basis based on the variances observed;

f) Motivates employees by participating in the setting of budgets; and

g) Improves the allocation of scarce resources.

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Objectives

a) Facilitate the company in the preparation of Physical and Financial Targets for Budget

Estimates and revision of approved targets as Revised Estimates.;

b) Facilitate the company in monitoring actual performance against the planned budget;

c) The approved Budget Targets form part of Annual Plan under Administrative Ministry

which in turn gets included in the Annual plan of GOI.

Scope

The procedures and guidelines provided in this manual are applicable to all the locations within

the Company.

The following topics have been covered in this chapter:

a) Budget formulation;

b) Execution and operation of approved budget;

c) Budget monitoring; and

d) MIS of Budget Section

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Budget terminology

a) Plan expenditure (Capex): Plan expenditure includes capital expenditure and new schemes in

a Financial Year (FY). Plan expenditure adds to the existing capacities and includes the

following:

Schemes/ Lump Sum Turn Key (LSTK) projects;

Fixed assets to be acquired (other than intangible assets);

Survey expenditure;

Exploratory drilling expenditure;

Developmental drilling expenditure;

Activities related to Joint Venture (JV), capital expenditure; and

Research & Development (R & D) expenditure.

b) Non-plan expenditure (Opex): Non-plan expenditure is operating expenditure arising out of

schemes/ projects implemented and fixed assets acquired in the previous years so as to

maintain the existing capacities. Non- plan expenditure includes the following:

Staff expenditure;

Manpower cost;

Consumption of stores, spares and consumables;

Power & fuel;

Repairs & maintenance;

Workover operations;

Other production expenditure;

Transportation and freight;

Idle rigs;

Overheads (project, regional & headquarters); and

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Other expenditure.

c) Natural head-wise budget: This budget includes the total plan and non-plan expenditure for

all assets, basins, institutes, JVs and corporate functions together, each divided into natural

heads, viz, capital, stores & spares, contractual payments, manpower and other charges.

Capital expenditure in case of non-plan expenditure includes only replacement capital items

charged off to revenue.

d) Activity budget: This budget represents the total plan and non-plan expenditure for all assets,

basins, institutes, JVs and corporate functions together. The plan expenditure is further

divided activity-wise, viz, survey, exploratory drilling, developmental drilling, capital, R &

D expenditure, JVs plan expenditure, etc. The non-plan expenditure is divided into operating

expenses (for the Company and JVs) and purchases of condensate, gas and other products.

e) Commitment budget: This budget represents provision for long lead procurements and

contracts including long term supply orders where delivery of material/ utilisation of services

are expected after two years from the end of the current financial year (FY). For example:

commitment budget for FY 09-10 prepared in FY 07-08 will include anticipated deliveries/

utilisation of services during FY 09-10 and beyond.

f) Operations budget: This budget represents operating expenditure for the current FY, next FY

and the FY subsequent to the next FY.

g) Fund Centre (FC): FC is a structure in the Funds Management (FM) module in SAP that

shows the responsibility for managing the application of funds associated with it. It is also

used to budget and perform budget availability checking. Under the CRC structure each CRC

entity has been identified as a FC in SAP.

h) Commitment Item (CI): Budgets are stored in Commitment Items (CI) in SAP. The

commitment items in FM module have been mapped with the relevant general ledger codes

in the FI module to facilitate checking of fund availability at the time of budgeting.

Equipment is an example of a CI.

i) Foreign exchange budget: Estimated expenditure in foreign currency is converted in INR at

rates given by the Corporate Budget cell and included in the RE, BE and CBE.

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Salient features of the Budget Software

To facilitate derivation of activity-wise costs during preparation of budget, the budget software

has an integrated model with line item-wise natural heads incorporated. Detailed guidelines and

salient features of the software are as under.

a) Budget is prepared at the cost centre level under the CRC structure as defined in SAP.

Cost centre hierarchy as per SAP has been considered for creation of cost centre master;

b) The budget is allocated to work centres where the budget has to be utilized rather than to

the work centres from where payments will be made;

c) The cost centre is linked directly to the activity to facilitate determination of activity-wise

financial outlays by the LBC/ RBC of the virtual corporate. The user identifies the

activity for which budget provisions are made while creating the cost centre master in the

budget software. The software provides flexibility to be able to change activity codes for

activities at a later stage;

d) The work centres feed details of opening stock, planned consumption, planned closing

stock (including buffer stock). The difference between procurement and consumption is

reflected for as inventory variations and shown as working capital changes; and

e) The activities are classified into two categories:

i. Final activities

The final budget is segregated into the activities in the following manner:

Survey;

Exploratory drilling;

Development drilling;

Capital;

R & D;

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JVs;

Operating expenditure;

ii. Intermediate activities

Intermediate activities are classified in the budget software in the following manner:

Drilling services;

Cementing services;

Mud services;

Work over services;

WSS services;

Well completion services;

Logging services;

Engineering service;

Logistics services;

Geophysical services;

Project over heads; and

Regional & headquarter overheads.

Budget for services is captured in the intermediate services and then allocated to the final

budget.

f) Main activities and sub-activities

Each final activity and intermediate activity is further classified into sub-activities to

capture further details of the activity-wise expenditure. These activities are mainly

offshore deep water, offshore shallow water and onshore. In case of operating

expenditure, sub-activity codes are defined in line with Schedule 21 in the balance sheet

under opex. Role of LBC

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Responsibility for running of cost allocation cycles;

Interaction with technical representatives of various groups to determine budgeted

costs and determine the basis/ weights for allocation of budgeted costs;

Generation of section-cost centre master, linking of cost centres with the activities

and creation of scheme code master in the budget software; and

Inter-unit allocation of costs within units.

g) Role of RBC

Facilitate inter-unit allocation of costs;

Inter-regional allocation of budgeted costs with the approval of corporate budget cell.

Note:

Inter location and inter region allocations of costs should be resorted to only in

exceptional cases and as far as possible. It is ensured that the budget is kept at the

consuming work centres only, so that the costs of activities are determined to the realistic

levels.

h) Cost allocations as per accounting policy( MENTION THIS AT A LATER STAGE)

While deciding the allocations of overheads and cost of intermediate activities, the

relevant accounting guidelines are to be kept in mind. As per present accounting policy,

non plan replacement capital expenditure is charged to the Profit & Loss (P & L)

account. Accordingly, while updating the budget data, the users should feed the non-plan

and replacement of operational assets codes under respective fields, for all such capital

items which are to be charged to P & L account as per accounting policy. The system

directly updates such non-plan replacement of operational assets to P & L account.

i) Stages of cost allocation cycles

The cost allocation cycles in the budget software are designed in such a manner that

revised activity outlays can be determined after each round of revision. The stages of cost

allocation cycles are executed in a sequential order, as follows:

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Stage 1 - Creation of summary data table from line item budget for determining

activity budget

The budget software summarizes the budget data entered and creates a separate

summarized table which is used in subsequent stages of execution of cost allocation

cycles

Stage 2 - Allocation of directly identified amounts from one activity to another

This stage is designed to facilitate allocation of directly identified amounts from one

activity to another. These allocations can be made within the same locations and to

other locations also. However, allocation of costs from final expenditure to

intermediate expenditure is not allowed.

Stage 3 - Allocation of logistics services, engineering services and project overheads

of the other locations to other activities

This stage provides for allocation of logistics services, engineering services and

project overheads to other activities. The features available are the same as those

available in stage 2 except that at this stage allocations are not made for identified

amounts but are made proportionately on the basis of activity parameters. Activity

parameters can be flying hours for air logistics, vehicle days for passenger vehicles or

tonnage carried for trucks or trailers.

Stage 4 - Allocation of other intermediate activities to final activities

This stage provides for allocation of other intermediate activities to final activities. In

case direct activity parameters are not available, allocations can be carried out on the

basis of the weights considering last year actual allocations in accounts change in

activity levels, technical weights, etc. regional & headquarter overheads are charged

to P & L account as per applicable accounting guidelines.

Stage 5 - Incorporation of allocations received from other locations and change of

activity codes if required

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After the location budget coordinator of the transferee location merges the allocations

received from other locations through restore inter unit allocation in the budget

software, the allocations received from other locations.

Stage 6 - Physical targets for final activities to derive cost of activities

The physical targets are updated in to the system for final activities survey, final

activities survey, exploratory drilling, development drilling, production, finding cost,

etc and for intermediate services like drilling services, work over services, etc for RE

current year and BE subsequent year. Accordingly, the physical targets data are used

by the system to determine the budgeted per unit cost of activities.

j) Costing reports

The costing module in the budget software provides the following reports:

Summary of allocations made at stage 2, 3 and 4;

Summary of allocations received from other locations;

IUT reconciliation;

Service level outlays and costs;

Final activity outlays and costs;

Schedule 21 details of operating expenditure; and

Detailed cost sheet.

These reports can be generated at the location level, regional level, and corporate level.

However data needs to be merged at regional/corporate level before generating any report

at the regional/corporate level. At the regional/corporate level the report provides details

of the entire region.

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Budget Formulation

Budget timelines

The budgets are compiled as per the existing structure i.e. separately for

Assets,

Basins,

Services,

Plants,

Institutes,

and Regional Offices

And subsequently consolidated for the company as a whole . Budget comprises of three different

components:

• Revised Estimates (RE) for the current year;

• Budget Estimates (BE) for the subsequent year;

• Commitment Budget Estimates (CBE) for the year following the subsequent year.

Stage Activity Description of activity Time schedule

Stage 1 Determination of

physical targets

Determination of physical

targets

15th June of each

financial year

Stage 2 Formulation of

activity-wise indicative

financial outlays

corresponding to

approved physical

targets

Formulation of activity-wise

indicative financial outlays

15th June of each

financial year

Examination of activity outlays

by CBC, and communication of

indicative financial outlays to

virtual corporates.

30th June of each

financial year

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Stage Activity Description of activity Time schedule

Stage 3 Determination of

financial outlays based

on approved indicative

financial outlays

Determination of financial

outlays based on approved

indicative financial outlays

20th July of each

financial year

Presentation of draft budget

proposals by CBC to the EC

14th August of each

financial year

Submission of budget

proposals by virtual corporate

based on EC’s approval.

31st August of each

financial year

Submission of budget agenda

by CBC for consideration of

PAC and BoD.

15th September of

each financial year

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Budget Process In Detail

Determination of physical targets

The physical targets are framed by the Assets and Basins in consultation with the respective

heads of Services and approved by the concerned Directors in line with the overall corporate

objective, MoU targets and five year plan projections. The physical targets form the basis for

budget estimates and annual plan.

Process Flowchart

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Formulation of Activity-wise Indicative Financial Outlays Corresponding To Approved Physical Targets

Each budget consuming work centre in the Company is considered as a Virtual Corporate.

Virtual corporate determine activity-wise indicative financial outlays (the amount of money

required) corresponding to approved physical targets based on per unit cost of input. Actual cost

as per finalised financial statements of the previous year is the basis for determining the

indicative financial outlays in RE and BE. Formulation of activity-wise indicative financial

outlays are a manual exercise.

Process Narrative

Calculation of the indicative operating expenses: The exercise of formulating the

activity-wise indicative financial outlays is initiated with the calculation of the indicative

operating expenses. Actual cost as per finalized accounts for the previous year forms the

basis for calculating the RE and the BE operating expenses. Allowance of 5% for RE and

10% for BE over the actual cost of the previous year is permitted towards inflation, etc .

Where, there is an increase in expenditure rates and the contracts have already been

finalised, such increased rates are considered. Detailed reasons for the same are furnished

for such increase in the specified format.

Determine activity-wise indicative financial outlays: The next step is to determine

activity-wise indicative financial outlays giving a natural head-wise break up of direct

costs and allocations received from services. This format is prepared separately for each

activity and within each activity for each sub-activity as cleared in figure 1. Activities

comprise of survey, exploratory drilling, development drilling and production, while the

sub-activities include onshore, offshore, deep water and coal bed methane.

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Once the activity-wise indicative financial outlays are prepared, these are consolidated in

the summary of activity wise indicative outlays as per format.

The activity-wise financial outlays are finalized after due deliberations between service

providers and service users, and after obtaining approvals of the respective assets/ basins

managers.

Approved activity-wise indicative financial outlays are then forwarded to the RBC for

consolidation at regional level.

The RBC then consolidates the location-wise approved activity-wise indicative financial

outlays and forwards the same to the CBC within timelines specified above.

The activity-wise indicative financial outlays consolidated at regional level are reviewed

and further consolidated by CBC to derive overall companywide activity-wise indicative

financial outlays. While reviewing factors such as approved physical targets, cost of

resources, availability of resources etc. are considered and explanations are obtained from

the LBCs/ heads of services/ asset managers/ basin managers.

The CBC then forwards the indicative financial outlays to Director Finance for approval

of the same.

Upon approval of Director Finance, CBC forwards the activity-wise indicative financial

outlays to virtual corporate.

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Process Flowchart

Details of physical achievement of targets for

each activity are obtained from technical departments

Approved BE for current year are obtained to help determine

the RE for the current year

Details of operating expenditure are prepared

based on actual expenditure for previous year

Details of actual cost per unit for each activity in the

previous year are obtained from CA section, DDN & SAP

Activity-wise indicative financial outlays forwarded to

RBC for consolidation at regional level

Activity-wise financial outlays are finalized after obtaining approvals from respective assets/basnis managers

CBC forwards activity-wise financial outlays to Director

Finance for approval

CBC forwards approved indicative financial outlays to

virtual corporates

Activity-wise indicative financial outlays are prepared

separately for each activity and sub-activity

Activity-wise financial outlays consolidated at region level and forwarded to CBC for

review and final consolidation

Consolidated indicative financial outlays at regional

level

Proforma for determining activity wise indicative

financial outlays

Details of indicative operating expenditure

Summary of activity wise indicative financial outlays

Preparation of summary of activity wise indicative

financial outlays

Consolidated indicative financial outlays at company

level

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Determination of Financial Outlays based on approved Indicative Financial Outlays

Once the indicative financial outlays are approved, the next step is to determine commitment

item-wise budget requirements manually, under the respective natural heads within the approved

activity-wise financial outlays. The commitment item-wise budgets under the natural heads are

converted into activity-wise budgets using the budget software. Apart from the detailed

guidelines for budget preparation, the CBC also circulates the updated version of the budget

software along with the operating guidelines for the budget software each year to all the virtual

corporate to facilitate the activity-wise budget preparation. Uploading the updated version of the

budget software is a pre-requisite for starting the exercise of determination of the financial

outlays.

The compilation of commitment item-wise budget starts at the services sections since the service

cost allocations are transferred to the respective asset/ basin after which a similar exercise is

initiated at the assets/ basins by incorporating the allocations received from services. That is why

the services section initiates this exercise well in advance considering the time required to

allocate service cost to the assets/ basins.

Financial outlays are prepared on the basis of commitment item-wise budgets prepared, in the

specified formats as circulated by the CBC and are submitted within timelines.

Process Narrative

Assets and basins are supported by the service sections, namely:

Geophysical services;

Drilling;

Well services;

Logging;

Engineering;

Offshore logistics (this service is unique to the offshore assets).

Designated officer, Service location prepares the commitment item-wise budget (RE, BE and

CBE) in an MS Excel spreadsheet. The designated officer, Service location also prepares a

statement detailing the physical data, to facilitate allocation of service cost to assets/ basins.

34

Above mentioned details along with the justifications for each CI for deviations in the RE

vis-à-vis the BE approved in the previous year (either resulting into additional

requirement or reduction in the requirement), BE and CBE are forwarded to the service

heads for review and approval. Justifications specify the basis on which the costs have

been estimated, such as work planned in that year for which Purchase Orders (PO) are yet

to be raised, POs already raised and work yet to be executed, past experience, etc.

The service head reviews and approves the commitment item-wise budget and physical

data, and forwards the same to the LBC and the designated officer, Service location.

Simultaneously, the designated officer, Service location also enters the commitment item-

wise budget in the budget software. The completed data file is then forwarded to the LBC

through SAP mail.

On receiving the data file in soft copy and the commitment item-wise budget including

justifications and physical data in hard copy form, the LBC performs the following

review/ activities:

Ensures that the CI number and name are correct;

Ensures that the costs considered in a particular CI are of the nature corresponding to

that CI;

Ensures that proposed budgets are in line with the justifications given;

Ensures that proposed budgets are in line with the approved indicative financial

outlays;

Verifies budget consumption in current FY against the previous years RE, thereby

ensuring that budgets sought for are being utilised to the maximum extent;

Identifies each CI against the respective natural heads (contractual, capital, stores,

spares, manpower and other charges) for the purpose of consolidation; and

Downloads the data file received from different sections within his service section

from SAP mail for consolidation.

The LBC consolidates the commitment item-wise budget data files received from

different sections in the budget software as well as in MS Excel spreadsheet. Next, the

35

MS Excel spreadsheets of the commitment item- wise budgets for different sections are

also consolidated. The consolidated MS Excel spreadsheet is segregated natural head-

wise.

Before finalizing the budget for the Service location a meeting is held between the

section heads within that service and the Finance & Accounts (F & A) section. The

service heads, designated officers in the Service location, LBC and Head - F & A section

participate in this meeting wherein substantial variations between previous year’s actual

financial utilization and current year’s proposed budget or any other issues observed by

the LBC during the review of the proposed budget are discussed. These issues are finally

agreed upon and changes to the proposed budget are decided.

At this stage the commitment item-wise budget is complete with respect to contractual,

capital, stores and spares. However, the manpower cost and other charges are required to

be compiled/ completed by the LBC.

To derive the manpower cost the details with respect to number of personnel is obtained

from the Personnel Claim Section (PCS).

Other charges include insurance, lease, rent, license fees, light & power, maintenance of

parks & platforms, etc

The agreed changes along with the manpower costs and other charges are approved by

the Head – F & A section.

LBC incorporates the approved changes, manpower costs and other charges to the

proposed budget in the consolidated MS Excel spreadsheet as well as in the budget

software.

Based on the physical data obtained from the different sections the LBC allocates the

costs to the respective asset/ basin/ other service section.

36

LBC first allocates the cost allocable to another service section, to the asset/ basin on a

reasonable basis (For example: rig months). Next, the cost directly allocable to the asset/

basin is allocated.

On completion of the consolidation and allocation exercise the LBC forwards the data

files from the budget software and the consolidated MS Excel spreadsheet to the RBC,

duly approved by Head, Services and Head, F & A section. The data file from the budget

software is also forwarded to the respective assets/ basins to which service cost has been

allocated.

Assets/ basins/ plants commence the process of compilation of the commitment item-

wise budget on receipt of the circular and updated version of the budget software from

the CBC.

On receipt of data files in budget software and MS Excel spreadsheets from all work

centres/ locations, the respective RBC consolidates the data at the regional level in an MS

Excel spreadsheet.

Finally, the commitment item-wise financial budgets under natural heads, corresponding

activity outlays and budgeted cost of activities as approved by the heads/chiefs of virtual

corporate, are forwarded to CBC in an MS Excel spreadsheet.

Budget for operated and non-operated JVs is prepared by the respective JV, duly

approved by Head- JVs. These are consolidated at the regional level and forwarded to the

CBC in MS Excel spreadsheet.

CBC consolidates the budget proposals received from all regions/ locations and prepares

a draft budget proposal. Thereafter, CBC forwards the draft budget proposal to the EC.

The EC reviews the budget proposal and makes recommendations. Assets/basin

managers and service heads justify their budget requirements in detail in case of

37

substantial variation over the previous year’s actual utilization along with procurement

status of cases processed. The budget proposal is then forwarded to the CBC.

CBC obtains approval of Director, Finance and forwards the financial outlays to virtual

corporates.

Virtual corporate revise the budget proposals in accordance with the recommendations of

the EC and submit them to the CBC.

CBC then finalizes the budget agenda and submits the same for approval of the PAC and

BoD. The BoD has the full powers to approve the budget estimates as per BDP clause

B1.

Budget agenda is prepared on the basis of details submitted by all virtual corporate and

on the basis of certain additional analysis complied by the CBC such as direct taxes,

royalty, cess, sales tax, etc. The budget agenda comprises of analytical information to

facilitate the PAC and BoD for approving the proposed budgets.

Budget finally approved by the BoD is forwarded by the CBC to the virtual corporate for

uploading on SAP. The virtual corporate have been given the flexibility to provide for the

commitment items and re-appropriation within the approved limits.

38

Process Flow Chart

RE, BE & CBE are forwarded to the service heads for review

& approval along with justifications

Head, Service location forwards approved commitme- nt item-wise budget & physical data to LBC & Service location

Services section compiles the physical data to facilitate

allocation of service cost to assets/ basins

Commitment item-wise budget is uploaded in the budget

software by the designated officer in Service location

LBC consolidates commitment item-wise data MS Excel

spreadsheets are received from different sections

LBC performs reviewing activities on reciept of data file, commitment item-wise budget & physical data in hard copy

Commitment item-wise budgets in MS Excel

spreadsheets consolidated & segregated natural head-wise

Meeting is held between service heads, designated officers, LBC & Head F&A

section to discuss variations

When commitment item wise budget is complete, manpower

cost & other charges are compiled by the LBC

Commitment item wise budge is prepared in an MS Excel spreadsheet by designated

officer in each Service location

Head – F&A section approves the agreed upon changes

along with manpower costs & other charges

LBC incorporates approved changes to the budget in MS Excel spreadsheet and in the

budget software

LBC allocates costs allocable to another service section &

allocates the directly allocable costs to virtual corporates

Head, Service location & Head- F&A section

approve the consolidated commitment item-wise budget

Approved commitment item-wise budget in hard copy form and data files are forwarded to the RBC & virtual corporates

LBCs of assets incorporate allocations received from Services and finalise the

commitment item-wise budget

RBC consolidates commitment item-wise budget for each

location in budget software & MS Excel spreadsheet

Commitment item-wise budgets are approved by

heads of virtual corporates and forwarded to RBCs

Approved commitment item-wise budgets are forwarded to CBC in MS Excel spreadsheet

A

Assets/basins/plants/ services/ institutes/ JV’s commence compilation of commitment

item-wise budget

Specified formats (FIN 1 – FIN 15

Consolidated budget at regional level

MS Excel spreadsheet

39

40

Execution/Operation of Approved Budget

The execution/ operation of approved budgets are through the interface of Funds Management

(FM) module and Investment Management (IM) module in SAP. These modules contain

monetary balances and budgets for fund centers (in FM module) and projects (in IM module)

respectively. The fund centre contains budgets at the CI level while the projects have budgets at

work break down structure (WBS) level. Projects/ schemes uploaded and rolled up in IM module

is also uploaded in FM module under one fund centre for the purpose of fund management. Thus,

every time a PO is released fund availability is automatically checked by the system in FM as

well as in IM.

Budget Structure in SAP

The budget structure in FM module is aligned to the CRC structure as defined in the Finance (FI)

module in SAP. The FM module interfaces with the FI module and checks for fund availability

in the respective commitment through the mapping of CIs with the GL codes.

Procedure for creating new fund centre and new commitment item:

For creating a new fund centre and new commitment item, a request is forwarded to the CBC

with relevant justification by the user/ LBC. On review and approval by the CBC, the request is

forwarded to the designated officer in ICE team for creating the fund centre/ commitment item in

SAP. Once created, the same is intimated to the user/ LBC and the CBC.

Once the approved overall budget is obtained from CBC, the LBC of each location is responsible

for uploading the commitment item-wise budget within the overall approved limit in SAP.

Loading of approved budget is done to facilitate year-wise capturing of committed POs.

41

Budget for Schemes in Investment Management module

The IM module is a module used for management of LSTK projects which include projects/

schemes such as erection of platforms, development of fields, installation of large facilities,

development of plant, etc. These projects are long term projects in the range of one to three years

or more. LSTK projects need not necessarily be large projects monetarily but may be of high

strategic importance. Approval of these projects is either obtained from the respective asset head

or the BoD and subsequently from the GOI, depending on the nature and value of the project.

The IM module facilitates review of associated actual costs vis-à-vis budgeted costs at WBS

level, status and progress of the projects. Fund centres are created according to the existing CRC

structure (use T -code IM23 for obtaining the structure/ IM hierarchy from SAP). For instance,

there are separate fund centres for surface teams at Assets that are involved in activities such as

enhancement of facilities, constructions etc and separate fund centres for sub-surface teams that

are involved in well services, reservoir activities etc.

The budget for all projects/ schemes is rolled up at the IM Position ID level i.e. at respective

work centre/ asset level. The assets give details of cost calculations of the related activities

pertaining to the respective projects/ schemes, after which approvals are obtained from

competent authority. The approved plan is then converted to budget at various IM position ID

level. Further, the budget is distributed to various projects within an IM position ID level after

which the budgets are available for utilisation. Budgets in IM get utilised when a service entry

sheet (SES) is made in SAP. For detailed process on creation of service entry

Uploading of Token Budget

Commitment item wise budget prepared within overall budget duly approved by the BoD is

termed as the token budget. The budget values are uploaded to the relevant fund centre in FM

module by the LBC.

42

Next, an appropriation request (AR) is created by the Project Coordinator (PC)/ Project Engineer

(PE) to capture the token budget. At this stage a new variant is created to capture these values.

This variant is not required to be assigned to any plan version since it is used mainly for

information purposes only. The budget values entered here are the same as in FM.

Release of PRs in finance and fund availability checking mechanism in SAP

Designated officers in F & A review the PR at the time of PR release and check for fund

availability using SAP report ZFIFMREP7. In case of exigencies, PR can be approved by the

designated officers in F & A even if budget is not available. However, in such cases, the indenter

arranges for the budget before PO release. (For detailed process of re-appropriation, refer Para

2.2.4.10 mentioned below). Non-availability of budget in the system cannot be a constraint for

creating PR in the system.

Out of the various critical elements in a PR, there are four elements which impact fund

management and therefore require close scrutiny by the LBC at the PR release stage. These are

detailed below:

Plant: Plants pertaining to the respective business area are allowed. Multiple line items

can be indicated for fund utilization from fund centers of different business area /

company code.

Fund centre: Relevant fund centre is indicated. Multiple line items can be indicated for

different fund centre within the same business area.

Account assignment category: With regard to account assignment category the following

is ensured:

Field should be blank for procurement of material / capital items except for purchase

of medicine / stationary.

Assign K for contractual payment and procurement of medicine and stationery with

relevant GL / commitment items.

43

Assign A and ensure the asset number for installation and commissioning of assets is

indicated (accounted as contractual payments).

Assign P for projects and ensure WBS elements for the contractual payments only if

the item of contractual payment is in nature of Capital Work In Progress (CWIP).

Based on material code, capital census code relevant commitment items / GL is derived.

Procurement budget control for all stores / spares / capital items is at the inventory level only.

Material consumption accounts do not have any budgetary control. Only for contractual services

procurement budget control exists at consumption accounts.

CI: CIs not relevant for budgeting, like MCON_STORE, MCON_SPARE, OUTSIDE_FM etc.

are being allowed. Fund centre together with GL account determines the commitment item from

which budget is consumed.

Delivery date in PR important for Fixing the Budget Period

Delivery date needs to be considered by the designated officer in F & A section at the time of PR

release, as the fund allocation happens on the basis of delivery dates. PR’s is created in the

relevant fiscal year only, since PR gets reflected in the FM module for the year in which the PR

delivery date falls.

For example in case the PR is made before 31st March and the PR delivery date is after

31st March the budget of next year will get used. Thus, in case of LSTK contracts or rate

contracts or any other contracts which are expected to be executed in a span of more than

one year, the concerned work centre breaks the PO year wise and the load necessary

budget in the relevant future years on the basis of PR.

Importance of Using Correct Commitment Item for Proper Booking of Expenditure

44

The booking of expenses is made for the particular commitment item only. For example, if cars

have been hired for transportation, then expenses is booked under the respective commitment

item only.

Funds Commitment Process for Non - Procurement Cases

With respect to the funds commitment process for non-procurement cases, sufficient earmarked

funds are required to be created. Earmarked funds can be created by the respective LBCs on need

basis.

There is a provision in the system whereby budget can be loaded at one work centre and actual

utilization of the budget can happen at other work centers against the funds of the budget holder.

Examples of such cases are centralized offshore survey contracts of Mumbai, central

procurement cases of Head quarters, expenses incurred by one location on behalf of another

location, etc. In such cases though the PO is raised centrally the budget provision and actual

utilization/ LIV happens at the location where material is received/ services are utilized. System

facilitates fund management in such cases through generation of inter unit transactions (IUT).

Budget Utilization at LIV/ Down Payment Stage

Budget utilization for procurement of materials and services takes place at the LIV/ down

payment stage. Unless LIV is done or down payment against the supply order is created in the

system, budget is not utilized and is considered as carry forward budget which consumes funds

from subsequent year’s budget. Hence, during closing of accounts, it is ensured that wherever

materials have been received/ services have been utilized before the end of the FY, LIV is

completed.

Budget Supplement

45

Budget supplements are used to add funding to existing budgets. This can be done only once

during the year align the previously budgeted amount (BE) with the RE. The supplement is for

the additive amount only, when posted, the cumulative fund totals (original budget plus

supplements) are reflected in the system.

The LBC can add supplement to the respective fund centre and commitment item by executing

the T–code FR21. Supplement can also be done via batch mode using the T–code ZFISR. Before

executing these T-codes the LBC ensures that the following information is available:

Fund;

FC;

Commitment item; and

Budget supplement amount.

Budget Transfer

Budget transfer can take place when funds are transferred from one asset/ basin/ service to

another asset/ basin/ service. The LBC of the transferor asset/ basin/ service executes the T–code

FR 14 for transferring funds only after obtaining the authorized document for transfer of funds.

On executing the T-code the fund totals in the transferor asset/ basin/ service get reduced and are

then reflected in the fund totals of the transferee asset/ basin/ service. Before executing the T-

code the LBC ensures the availability of the following information:

Budget subtype;

Fiscal year;

Fund centre;

Commitment item; and

Amount for each item.

Budget Return

46

Budget return procedure is used to return or reduce a previously budgeted amount.  This can be

done only once during the year align the previously budgeted amount (BE) with the RE. The

LBC executes T–code FR29 for return of funds. Before executing the T-code the LBC ensures

the availability of the following information:

Budget subtype;

Fiscal year;

Fund centre;

Commitment item; and

Amount of budget return.

Re-Appropriation of Funds

Re-appropriation of funds can take place at the time of PR release stage the concurring officer

approves the PR subject to availability of funds. At that stage, it is the indenter’s responsibility to

make funds available before the PO release for which a requisition is made to the LBC. The

requisition duly authorized by the Head of the indenting section clearly specifies the following:

Amount of fund requirement;

Commitment item against which funds are required; and

Commitment items (giving three to four options) from which funds can be re-appropriated.

Based on the above information the LBC re-appropriates funds, considering that re-appropriation

can take place within commitment items under plan budget and within commitment items under

non-plan budget. However, re-appropriation of funds from one commitment item in plan budget

to another commitment item in non-plan budget and vice versa is not allowed.

Process for Negative release of Funds

47

Once funds start getting utilized against approved budgets in the system on LIV/ down payment,

at times the available budget becomes negative due to insufficiency of funds. The system stops

further processing of PO’s in respect for such commitment items with negative available budget.

For centralised PO cases which cannot be created because of insufficient budget the negative

(over) posting of utilization is done through earmarked funds. This can be authorised only by the

attached Finance officer in Corporate MM and can be posted using T-code FMW1. Once the

negative utilisation of budget is posted the available budget increases and the PO can then be

further processed.

Monthly report of negative (over) earmarked fund is generated by designated officer in Finance

of Head MM and is circulated to respective work centres. Respective projects initiate action to

ensure that necessary budget re appropriations are posted. The negative earmarking of funds are

monitored and removed from the system by designated officer in Finance, Corporate MM using

T-code FMW2. Removal of negative earmarking of funds can be done only after necessary re-

appropriations have been made.

Year end processes in SAP in Funds Management and Investment Management modules

A-Year end processes in SAP for Funds Management module

Closing of All earmarked Funds

All earmarked funds are closed centrally in the FM module using the T-code FMRE_SERLK

immediately after FY close. If there is a request for revalidating the earmarked funds, LBC issue

new earmarked funds. This activity is done immediately after closing of the current fiscal year.

Provisions for New earmarked Funds

New earmarked funds are furnished in the current year. This is done by the respective LBC on a

need basis.

Uploading of Approved Budget

48

Follow up with MM section and/or indenters for old POs/ PR’s .

In cases of open PO’s and PR’s, PR/PO wise details of all ongoing cases are down loaded from

the system and reviewed with reference to status of case, lag in delivery schedules, if any.

All LBCs follow-up with MM section and/or indenters for old PO’s i.e. PO’s that are due for

more than six months at the end of each fiscal year. The T-code ME2M is used to open the list of

old PO’s. The report can be generated for a range of work centres and commitment items. The

list can be generated in such a way that POs are ordered as per specific delivery dates. This

exercise also includes cases where only a small quantity of the PO has not been received. In such

cases the MM officer or indenter can cancel such PO’s on a case to case basis.

Similarly, existing PRs, which have not matured into supply orders, are required to be reviewed.

If required, action is taken by the indenter for closure/ amendment in delivery dates to release the

funds blocked.

The follow up activity is done at FY close as well as throughout the year by the respective LBCs.

Follow up with Pre-Audit section /MM section to ensure that LIVs are processed

LBC’s follow up with Pre-Audit/ MM section to ensure that LIV is done to the maximum extent

possible against all down payments made against respective PO’s before end of current fiscal

year

Deletion of all parked FI documents consuming budget .

Carry forward of commitments on account of all open POs

Reconstruction of distributed and assigned values

The T – codes FM9P and FMBV are executed for both the current fiscal year as well as the

subsequent fiscal year. This exercise is done centrally immediately after the carry-forward

exercise is completed.

49

Removal of Budget Deficits from the System

The report S_ALR_87012621 is generated to view the budget deficits. LBCs remove budget

deficits from fund centres by making the required budget transfer postings using the T–code

FR14. This exercise is done by the respective LBC’s immediately after FY close.

Year End Processes in SAP for Investment Management Module

The IM program structure is copied from the current fiscal year to the subsequent fiscal year by

the LBC.

Carry forward of commitment items i.e. outstanding PR’s or PO’s is executed.

The current IM program structure is subsequently locked by the LBC. The assignments are

locked to the current IM structure by the project coordinator (PC), LBC and the CBC.

50

Budget Monitoring

Utilization of the budget as per plan is monitored by the BoD and the GOI on a periodic basis

through submission of the quarterly reports, namely, statement of actual expenditure against

central plan outlay and statement of plan expenditure, on a monthly basis. Monitoring of the

budget is done with the aim of having 100% planned budget utilization. Variations between both

physical and financial parameters in the budget and actual utilization are reviewed and required

corrective actions are taken after obtaining required clarifications from the virtual corporate.

Virtual corporate review variations between budgeted targets and actual utilization, and progress

of ongoing projects on a quarterly basis on budget utilization is prepared on a quarterly basis

recommending corrective actions to be taken and detailing the reasons for variations as per

format specified by the CBC.

A monthly expenditure report, monthly sales expenditure report and monthly sales receipts

report is prepared by each LBC and forwarded to the RBC for consolidation at regional level.

51

Budget Data Analysis

Frontier Basin : whole budget

Physical Target Achievement of FY 2008-09 (in crores)

(Table 1)

Particulars RE08-09 Actual Achievement

(%)

2D data acquisition- in

house (GLK)

2875 1168 40.58

2D Data acquisition-

outsource (GLK)

200 Target has been

dropped after approval

of D(E)

0

3D Data Acquisition (Sq

KM)

120 --- 0

2D API –Non-operator

block (GLK)

1050 1082 103.04

Drilling meterage (meter) 10,061 2012 20

Approved Final Budget (in crores)

52

(Table 2)

Particulars Actual 2007-08 Approved BE

2008-09

Approved RE

2008-09

Approved BE

2009-10

Capital 28.57 3.21 4.85 9.02

Store 3.18 15.00 22.83 15.04

Spares 0.67 9.08 2.86 1.97

Contractual 15.56 64.68 63.25 132.12

Manpower 36.10 42.00 43.57 50.50

Other charges 4.90 15.88 7.03 6.38

Cash call-Non

operator block

2.66 10.00 31.06 9.11

Total 91.64 159.85 175.45 224.14

53

Final Budget Utilization (Caper Budget Format)

Budget Utilization – Procurement Budget (in Rs.Crores)

(Table 3)

Particulars RE 09-10 Net Budget after

Trfd in/out

Actual 09-10 % Utilization

Capital 9.00 11.00 9.86 89.64

Stores and

Spares

29.56 29.56 29.50 99.80

Contractual 109.46 90.76 101.27 111.58

Manpower 47.27 47.27 47.00 99.43

Other charges 6.05 6.05 5.41 89.42

Cash call 5.50 5.50 3.00 54.55

Total 206.84 190.14 196.04 103.10

54

Analysis And Interpretations

Oil & Natural Gas Corporation Ltd is a Government of India undertaking as previously stated

and hence the preparation of budget is synchronized with the 5 year plans prepared by the

government and further budget targets decided with the approval from the ministry of Petroleum

and Gas. Presently the annual budgets are prepared in accordance with the 11 th five year plan

from 2007-2012.

Now, starting from the revised budget 2008-09:

- In 2D data acquisition in house the actual figure was 1168 cr. with 40.58% of

achievement.

- But also in 2D data acquisition outsource the target has been dropped after the approval.

- And also the 2ADI-non operator block the achievement of budget was 103.04%.

This all over shows that the achievement of budget was quite fluctuating with a large gap.

Finally, from the budget utilization and procurement of the budget table, ie. table 3,we can

see that after the revised budget, from the net budget of 190.14 cr. the actualization is of

196.04 cr. that shows the budget utilization of 103.10%.

55

Recommendations

1) Proper review of monthly and quarterly budgets-It has been witnessed that the actual targets achieved year on year basis ,vary widely from the budgeted estimates and revised estimates. In lieu of this anomaly ,it can be said that the month and quarter wise physical targets breakups and corresponding budget allocations need to be fixed with a clear vision and proper planning.

2) Use of SAP-Budget is meant more for controlling than for meeting financial needs as and when they arise. Therefore proper control mechanism needs to be installed which can minimize deviations in practicality. The budget software presently being used at ONGC just fixes the initial outlays and targets. These targets are then fed into the SAP software in order to monitor the achieved progress. This creates duplicity in the budget preparation. Hence a better option would be to channelize the whole process of budget preparation and operation through SAP only as this software provides lesser room for deviations and hence better monitoring.

3) More realistic preparation of Budgeted estimates-The Budgeted estimates that are prepared for the next year allocations need to made on more realistic assumption through proper forecasting of the future market trends and availability of R&D and technology during the period for which the estimates are being made.

4)Accountability of the fund centre-Much of the underachievement of physical targets in a given year are due to the late release or stacked up funds at various fund centres.thus for faster achievement of targets smooth flow of funds is required which can only be implemented when the various fund centre are held accountable.

5)Greater autonomy of the organization-the overall budget of ONGC is prepared while bearing in mind the terms of MoU that the company has signed with the GoI.This in a way paralyses the organization while fixing the annual targets and corresponding allocations. This restricts the vision of the company to stipulated targets and further reallocation or cancellation of funds becomes more complicated and also makes it more bureaucratic. Though government monitoring and reporting is necessary but required freedom for performance should be given.

6) Proper monitoring of all services-In order to have micro monitoring in place, proper supervision of each services can be helpful. The overall achievement ,overachievement or underachievement records of the organization help ,but if proper achievement has to be monitored then performance of each service type needs to be done.

56

7) Better response towards market volatility-The recent spate of fluctuating crude oil prices indicate that expecting a hundred percent accuracy in line with the estimates is harsh on the company. However if predetermined response system is in place then market volatility won’t remain a deterrent and the company would be better prepared to achieve its projected aggressive guidance.

57

Summery

This summer training project “Budgeting System in Frontier Basin of ONGC” gives an insight of the various elements covered in budgetary control system.

The main objective of the study is to gain familiarity with the present control system being practiced in ONGC Ltd. Another objective of the study is to analyze the budget performance of the past five years. For this purpose, comparison of the planned and the actual performance has been done. The study tries to highlight the important areas which require attention.

The research design is exploratory. All the data gathered are secondary data. The data have been collected from internal sources.

The brief finding of the study is that in Frontier Basin, ONGC, the Budgeted Estimate made by

the company is always greater than that of the Revised Estimate in most of the cases. The

Company could achieve 90% or more of the target only in few cases.

The recommendations of this research are that corrective actions should be taken to keep the

budget within the realisable target. The management must focus more on controlling of budget

for maximum utilisation of plan budget in terms of financial as well as physical budgets.

58

Acronyms

Acronym Expansion of the Acronym

BDP Book of Delegated Powers

BoD Board of Directors

BPV Bank Payment Voucher

CA Corporate Accounts

CFM Corporate Funds Management

C&MD Chairman & Managing Director

CS Company Secretary

D (F) Director Finance

D (HR) Director Human Resources

DDN Dehradun

DGM Deputy General Manager

DPE Department of Public Enterprises

F&A Finance & Accounts

FEMA Foreign Exchange Management Act

FI Financial Integration

FDR Fixed Deposit Receipts

GGM Group General Manager

59

Acronym Expansion of the Acronym

GM General Manager

GOI Government of India

IAN Investment Authority Note

IC Investment Committee

IN Instruction Note

OVL ONGC Videsh Limited

PL Pipeline

PO Purchase Order

PR Purchase Requisition

PSU Public Sector Undertaking

R&D Research & Development

RBC Regional Budget Coordinator

RE Revised Estimate

WBS Work Breakdown Structure

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Bibliography

Publications:

ONGC Ltd. Budget Outlay;

ONGC Ltd. Annual Report;

Various Documents and Presentation of the Company.

Research Methodology – C.R. Kothari

Financial Management – I. M. Pandey

Financial Management

Principle & Practice - Dr. S.N.Maheshwari

Websites:

www.ongcindia.com

www.ongcreports.com

www.google.com

www.wikipedia.com

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