OIL AND GAS INDUSTRY

Management Research Project -I

Submitted
In the partial fulfillment of the Degree of
Master of Business Administration
Semester-III
By
Name

Exam No.

Patel Ashish P. (13044311055)

Patel Hitesh R. (13044311073)
Patel Kuntal J . (13044311088)
Patel Jignesh D. (13044311080)
Patel Mihir B. (13044311091)
Patel Shruti K. (13044311107)
Under the Guidance of:
Prof. (Dr.) Mahendra Sharma
Prof. & Head,
V. M. Patel Institute of Management.
&
Dr. HarshaJariwala
Dr. Abhishek Parikh
Faculty Members
V. M. Patel Institute of Management.
Submitted To:
V. M. Patel Institute of Management,
Ganpat University,Kherva.

(December, 2014)

CERTIFICATE BY THE GUIDE

This is to certify that the contents of this report entitled A study on Oil and Gas industry by
Patel Hitesh (13044311073), Patel Kuntal (13044311088),Patel Ashish (13044311055), Patel
Mihir (13044311091), Patel Jignesh (13044311080), Patel Shruti (13044311107) Submitted to
V. M. Patel Institute of Management for the Award of Master of Business Administration (MBA
Semester - III) is original research work carried out by them under my supervision.

This report has not been submitted either partly or fully to any other University or Institute for
award of any degree or diploma.

Prof. (Dr.) Mahendra Sharma

Professor& Head,

V. M. Patel Institute Of
Management,
Ganpat University.
Kherva
Date:

Place: KHERVA

CANDIDATES STATEMENT

We hereby declare that the work incorporated in this report entitled A study on Oil and
Gas industry in partial fulfillment of the requirements for the award of Master of
Business

Administration (Semester - III) is the outcome of original study undertaken by us and it

has not been submitted earlier to any other University or Institution for the award of any
Degree or Diploma.

Patel Hitesh(13044311073)
Patel Kuntal(13044311088)
Patel Ashish(13044311055)
Patel Mihir(13044311091)
Patel Jignesh(13044311080)
Patel Shruti(13044311107)

Date:

Place: KHERVA

ii

PERFACE

One can deny for the importance of the practical exposure of the problem for its better
understanding and better grip of coming out with an industrially acceptable solution.

Being the Management student and performing small practical even is in itself an experience of
responsibility on our head. The project is certainly the best chance to work in the Management
field and have practical understanding of Management Strategic Planning and his
implementation. This exposure has really added a supplement and nourishment to our growing
tree of management knowledge- just like the fertilizer does to the plants.

In view of above, this report has been completed as a part of syllabus prescribed for the master of
business administration. This had been made in order to know Oil and gas industry overview and
its strategic tools and its planning. This will help us to understand How Made Strategic Tools for
particular industry, which factor affected to Oil and Gas industry. We also know the Strengths,
Weakness, Opportunities, and Threats. This will help to understand financial overview of Oil and
Gas industry. We also know the Political, Economical, Social, Technology factor which affected
to the Oil and Gas Industry.

iii

ACKNOWLEDGEMENT

It is indeed of great moment to pleasure to express our sense of per found gratitude and ineptness
to all the people who have been instrumental in making our learning a rich experience. We got
the opportunity to do a challenging project in Management Research Project. The project is the
important part of our study and gives us a practical exposure to Strategic Tools its
implementation and it is almost impossible to do the same without the guidance of people in and
around us.

It gives me immense pleasure to acknowledge Strategic Tools which has been nice enough to
give our chance to do our Report and providing us support throughout our Report period and
afterward.

We hereby take the pleasure of thanking all who have contributed to the making of this report.
Firstly we would like to thank Ms. HarshaZariwala Asst. Professor and Mr. Abhishek
Parikh, Asst.Professor , Who has provided us full liberty, cooperation during our Report and
sharing knowledge of his field with us always with a smile.

iv

EXECUTIVE SUMMARY

India has one of the fastest growing economies in the world, and the demand for oil and gas is
rising at a matching rate. Not only is Indias market potential huge, but in recent years India has
emerged as one of the most prospective regions in the world with major oil and gas discoveries,
both onshore and offshore.

India has total reserves (proved & indicated) of 1,201 million metric tonnes (MMT) of crude oil
and 1,437 billion cubic metres (BCM) of natural gas as on April 1, 2010, according to the basic
statistics released by the Ministry of Petroleum and Natural Gas. Against a crude oil production
of about 37 million tonnes per annum (MTPA), Indias consumption currently exceeds 138
million tonnes. In

2010, 194 MMT of crude oil was refined and actual natural gas production was 31.0 BCM. By
the end of 2012, the refinery capacity is expected to reach 240.96 million metric tonnes per
annum (MMTPA). The refining capacity of the oil refineries in India has undergone nearly a
three-fold increase in 2012. The country exported 50.974 MMT of petroleum products during
2011-12. To provide energy security, the Government of India is seeking private and foreign
investments in excess of $250 billion in both the upstream and the downstream sectors during the
next 10 years. Indias petroleum product consumption has grown by 4-5% over the past 10 years
and the oil demand in India is expected to rise to 368 MMTPA by 2025. With widening gap
between demand and supply, both for oil and gas, the outlook for the upstream sector is
extremely positive. While oil and gas will continue to play a substantial role in the total energy
mix, the need for harnessing alternate energy sources like Coal Bed Methane (CBM),
Underground Coal Gasification (UCG) and Shale Gas (gas locked in sedimentary rocks) will
become crucial to balance the demand and supply.

The Government of India approved the New Exploration Licensing Policy (NELP) on April 9,
2009, to tackle the increasing demand supply gap of energy in India. In the eighth round of the
NELP-VIII, 1.62 km2areas will be covered comprising of 70 oil and gas blocks and 10 areas for
the extraction of coal bed methane (CBM) gas from below the coal fields under CBM-IV.
v

Petroleum & Natural Gas Ministry launched the ninth round of NELP (NELP-IX) in New Delhi
on October 15, 2010. NELP-IX offered34 exploration blocks comprising of 8 deepwater blocks,
7 shallow water blocks and 19 on land
blocks. Moreover, the government is planning its first ever offer of shale gas exploration permits
2012. Shale gas (gas locked in sedimentary rocks) is an emerging area and has become an
important source of energy in a few countries which have been able to commercially exploit this
resource.

In this report an attempt has been made to provide the broad understanding of the oil and gas
sector in India across the industries. The upstream and downstream processing sectors, key
players, key market, transportation and distribution network, fuel retailing, Indian taxation
systems have been presented. The Western Australian capability/ level of interest in the market
have also been described.

vi

LIST OF TABLES
TABLE NO

PARTICULARS

3.1

Strategic group mapping

3.2

Competitive profile matrix

3.3

External factor evaluation

4.1.1

Total expense

4.1.2

Total income

4.1.3

Total assets

4.1.4

Total liability

4.1.5

Investment

4.1.6

Share capital

4.2.1

Current ratio

4.2.2

Operating profit ratio

4.2.3

Investment current ratio

4.2.4

Common size statement

5.1

Fixed assets

5.2

Source of Finance at Starting Time

5.3

Sales of product

5.4

Job role salary

5.5

Projected profit & loss account

5.6

Projected balance sheet

5.7

Cash flow

7.1

ONGC balancesheet

7.2

ONGC profit and loss account

7.3

Oil indiabalancesheet

7.4

Oil india profit and loss account

vii

7.5

Hindustan oil exploration limited balancesheet

7.6

Hindustan oil exploration limited profit and loss account

LIST OF GRAPHS

GRAPH NO

PARTICULARS

1.1

Types of oil and gas

3.1

Pest analysis

3.2

Strategic group mapping

3.6

Five force model

4.1.1

Total Expense

4.1.2

Total Income

4.1.3

Total Assets

4.1.4

Total liability

4.1.5

Investment

4.1.6

Share capital

4.2.1

Current ratio

4.2.2

Operating profit ratio

4.2.3

Interest coverage ratio

5.5

Organization structure

viii

SR NO.

CONTENT

PG NO.

Certificate by the guide

Candidates statement

ii

Preface

iii

Acknowledgement

iv

Executive summary

List of tables

vii

List of graphs

viii

Introduction

1.1

History of oil and gas industry

1.2

Oil and gas industry in india

1.3

Gas industry in india

1.4

Investments in indian oil and gas sector

1.5

Indian senario: history of oil and gas industry

1.6

Types of oil and gas

10

1.7

Brief introduction

12

1.8

Economic features

15

Major player

16

2.1

Oil india limited

19

2.2

Oil and natural gas corporation

20

2.3

Hindustan oil exploration company limited

21

2.4

Market analysis

22

Macro analysis

24

3.1

PEST analysis

25

3.2

Key success factors

29

3.3

31

3.4

Strategic group mapping

Competing and Factors affecting the strength of
rivalry

3.5

External factor evaluation

34

3.6

Porters five force

39

3.7

SWOT

48

Financial analysis

57

Trend analysis

58

4
4.1

33

4.1.1 Total expense

58

4.1.2 Total income

59

4.1.3 Total assets

4.1.4 Total liability

60
61

4.1.5 Investment

62

4.1.6 Share capital

63

Ratio analysis

64

4.2.1 Current ratio

65

4.2.2 Operating profit ratio

66

4.2.3 Interest coverage ratio

68

4.2.4 Common size statement

69

Business planning

73

5.1

Company profile

74

5.2

Vision

76

5.3

Mission

76

5.4

Product

76

5.5

Organisation structure

78

Conclusion and Limitations

84

Biblogaphy

86

Annexure

88

4.2

CHAPTER-1
INTRODUCTION

1.1 HISTORY OF OIL AND GAS INDUSTRY:-

Indian Oil and Gas Industry have been successful in fuelling the rapid growth of the Indian
economy. As India's largest company by sales, the highest ranked Indian company in the
Fortune "Global 500" listing and the 18th largest petroleum company in the world, Indian Oil
deals with a lot of information on an ongoing basis through its network of over 5,000
distributors of liquefied petroleum gas (LPG), has more than 2,000 gas stations or
transactions from its 70 million customers all over India. The origin of Indian Oil & Gas
Industry can be traced back to 1867 when oil was struck at Makum near Margherita in
Assam.

In 1947 at the time of Independence the Oil & Gas industry was controlled by international
companies. India's domestic oil production was just 250,000 tonnes per annum and the entire
production was from one state - Assam. The foundation of the Indian Oil & Gas Industry was
laid by the 1954 Industrial Policy Resolution when the government announced that petroleum
would be since then the core sector industry. In pursuance of the 1954 Industrial Policy
Resolution, Government-owned National Oil Companies ONGC (Oil & Natural Gas
Commission), IOC (Indian Oil Corporation), and OIL (Oil India Ltd.) were formed.

In 1955, ONGC was formed as a Directorate and then in 1956 became a Commission. Indian
Refineries Ltd, a government company was set up in 1958. Later In 1959, for marketing of
petroleum products, the government set up another company called Indian Refineries Ltd.
Then in 1964, Indian Refineries Ltd was merged with Indian Oil Company Ltd. to form
Indian Oil Corporation Ltd.

1.2 OIL AND GAS INDUSTRY IN INDIA:Availability of natural gas, including imported LNG, is expected to intensify in the country
by over 52 per cent to 271.92 million cubic meters a day by 2013-14. The Union Minister of
Petroleum & Natural Gas has stated that at present, total availability of natural gas in India,
including liquidities natural gas (LNG) is around 167.80 mmcmd, which is likely to be
around 202.97 mmcmd, 256.6 mmcmd and 271.92 mmcmd during 2011-12, 2012-13 and
2013-14 respectively. To take the advantage of prospect presented by the alarming gas surge
in India, the Gas Authority of India Ltd (GAIL) is spending substantially in its pipeline
network. Over the next three years, it will invest US$ 660.7 million-US$ 770.8 million,
enlarging its transmission capacity from the current 150 MSCMD to 300 MSCMD (million
standard cubic metres per day ).

Moreover, GAIL which has signed a Memorandum of Understanding (MoU) with the
Karnataka government, which will spend US$ 423.6 million this year to lay an 800kmpipeline to transport gas from the LNG terminal in Dabhol to Bidadi near Bangalore.
GAIL expects the project to be completed by March 2012. Currently, Punj Lloyd Group has
secured a US$ 87.57 million deal from GAIL India for laying a natural gas pipeline from
Dabhol to Bangalore. Further, GAIL has commenced construction of its Karanpur
MoradabadKashipur Rudrapur/Pant Nagar natural gas pipeline at Kashipur, Uttarakhand.
The assessed expenditure on the project is US$ 40.22 million.

The State-owned Oil and Natural Gas Corp (ONGC) has said that its natural gas production
will go up by over 58 per cent to 100 million cubic metres a day by 2015-16 after it puts its
eastern offshore fields into production, said R S Sharma, Chairman and Managing Director,
ONGC. Natural gas production will climb to 72 million standard cubic metres per day
(MSCMD) in 2012-13 from 63 MMSCMD in 2009-10.The US Overseas Private Investment
Corporation (OPIC) will provide US$100 million in financing for the US$ 300 million South
Asia Energy Fund, part of the Global Environment Fund (GEF). The South Asia Energy Fund
will spend in solar, wind, hydropower, advanced bio-fuels and natural gas projects, with
focus on Indian investment. GSPC Gas Company Ltd, a gas distribution arm of state-run
Gujarat State Petroleum Corporation (GSPC), has put the target of attaining 300,000 piped
natural gas (PNG) connections by 2012. The company presently has 192,000 PNG
connections across Gujarat.
3

1.3 GAS INDUSTRY IN INDIA:Availability of natural gas, including imported LNG, is expected to intensify in the country
by over 52 per cent to 271.92 million cubic meters a day by 2013-14. The Union Minister of
Petroleum & Natural Gas has stated that at present, total availability of natural gas in India,
including liquidities natural gas (LNG) is around 167.80 mmcmd, which is likely to be
around 202.97 mmcmd, 256.6 mmcmd and 271.92 mmcmd during 2011-12, 2012-13 and
2013-14 respectively. To take the advantage of prospect presented by the alarming gas surge
in India, the Gas Authority of India Ltd (GAIL) is spending substantially in its pipeline
network. Over the next three years, it will invest US$ 660.7 million-US$ 770.8 million,
enlarging its transmission capacity from the current 150 MSCMD to 300 MSCMD.

Moreover, GAIL which has signed a Memorandum of Understanding (MoU) with the
Karnataka government, which will spend US$ 423.6 million this year to lay an 800kmpipeline to transport gas from the LNG terminal in Dabhol to Bidadi near Bangalore.
GAIL expects the project to be completed by March 2012. Currently, Punj Lloyd Group has
secured a US$ 87.57 million deal from GAIL India for laying a natural gas pipeline from
Dabhol to Bangalore. Further, GAIL has commenced construction of its Karanpur
MoradabadKashipur Rudrapur/Pant Nagar natural gas pipeline at Kashipur, Uttarakhand.
The assessed expenditure on the project is US$ 40.22 million.

The State-owned Oil and Natural Gas Corp (ONGC) has said that its natural gas production
will go up by over 58 per cent to 100 million cubic metres a day by 2015-16 after it puts its
eastern offshore fields into production, said R S Sharma, Chairman and Managing Director,
ONGC. Natural gas production will climb to 72 million standard cubic metres per day
(MMSCMD) in 2012-13 from 63 MMSCMD in 2009-10.The US Overseas Private
Investment Corporation (OPIC) will provide US$100 million in financing for the US$ 300
million South Asia Energy Fund, part of the Global Environment Fund (GEF). The South
Asia Energy Fund will spend in solar, wind, hydropower, advanced bio fuels and natural gas
projects, with focus on Indian investment. GSPC Gas Company Ltd, a gas distribution arm of
state-run Gujarat State Petroleum Corporation (GSPC), has put the target of attaining 300,000
piped natural gas (PNG) connections by 2012. The company presently has 192,000 PNG
connections across Gujarat.
4

Coal Bed Methane (CBM)

The Government evolved a Policy for Coal Bed Methane in 1997 so as to utilize the countrys
enormous coal reserves and the methane gas trapped in coal seams The MoPNG was to be the
administrative ministry with the Directorate General of Hydrocarbon (DGH) as the
implementing agency and accordingly, a MoU was signed between the MoPNG and Ministry
of Coal in September 1997. The first meeting on CBM was held in 2001, on the lines of
NELP, with competitive bidding deciding the award of acreages. So far 3 rounds of bidding
have been concluded and 26 blocks have been awarded. The fourth round of CBM has been
declared along with the latest round of NELP. The CBM reserves of 6 trillion cubic feet (tcf)
have been established. Major players in this sector are Arrow Energy, Gas Authority of India
Ltd. (GAIL), ONGC, Great Eastern Energy Corporation, BP Exploration, Reliance Energy
Ltd, Reliance Natural Resources Ltd, GeoPetrol and others.

Gas Transportation and Distribution

The transmission and distribution sector of the natural gas stays comparatively immature, but
this is expected to alter in the medium term.

Gas Transportation
For a lengthy period in India, there was only one major long distance gas transportation
pipeline, joining ONGC delivery point near Hazira in Gujarat to demand centres in the northwest corridor of the country including Jagdishpur in Uttar Pradesh and Vijaipur in Madhya
Pradesh. This pipeline, 3187 kms long and with a capacity of around 34 mmscmd was run by
the former public sector monopoly GAIL India Ltd and persists to serve a number of large
power and fertilizer plants, besides smaller industrial units lying along its route. In recent
times, GAIL has constructed a few other pipelines, connecting the LNG terminal at Dahej to
Vijaipur and Uran and the power plant at Dabhol to Panvel.

Furthermore, major pipeline expansions have also been commenced by the private sector,
particular Reliance Gas Transportation India Ltd (RGTIL), which has constructed the 1,386
km long East-West pipeline connecting RIL's fields in Kakinada to centres of demand and
ending at Bharuch in Gujarat. RGTIL also proposes to connect the KG Basin fields to Haldia
in West Bengal and Chennai and Bangalore. The map in Appendix II illustrates the major
existing pipelines and the ones planned as part of the 'National Gas Grid'.

Trans-national Pipelines

The Government has been examining the possibility of bringing in gas from countries such as
Iran, Turkmenistan, Bangladesh and Myanmar through pipelines. Various initiatives are
under scrutiny, which include:

City Gas Distribution

The boost in gas supplies and gas transmission infrastructure is also liable to provide stimulus
to City Gas Distribution (CGD) players. So far, only a small number of major players are
present in the market: these are Indraprastha Gas, MahanagarGas, Gujarat Gas and GSPC
Gas which distributes Piped Natural Gas and Compressed Natural Gas to cities in Delhi,
Mumbai and Gujarat respectively. Recent years have noticed some activity, with a number of
players registering their presence. In particular, GAIL has formed Joint Ventures with other
PSU firms to distribute gas in a number of cities.

With the importance being laid on a cleaner environment and lower pollution levels in cities,
CGD is likely to get a push in the future. Thus, apart from GAIL, handful players have drawn
up grand plans to roll out city gas infrastructure across a number of cities in the country.
States which are likely to see further activity include UttarPradesh, Maharashtra, Andhra
Pradesh, Rajasthan, Karnataka, Kerala, MadhyaPradesh and West Bengal. The establishment
of the Petroleum and Natural Gas Regulatory Board (PNGRB) following the passage of the
PNGRB Act is likely to help in the further development of the sector. The Board shall
regulate existing players, and promote the development of CGD networks in new cities. In
fact, the Chairman of the PNGRB was quoted stating that natural gas would be available in
84 cities by 2011 and 250 cities by 2018.

The PNGRB has begun the process of inviting applications for CGD licences in the country.
Licenses are to be awarded through an open competitive bidding process, with their being a
level playing field for both domestic and foreign units. Lately, requests were received for six
cities put up for bidding. The main driver for the development of gas transmission and CGD
will be the availability of essential volumes of gas. With the development of RIL's KG Basin
and other fields, the opening could be available; what now matters is whether the CGD
license-holders can obtain gas supplies and develop gas distribution infrastructure.

Liquefied Natural Gas (LNG)

At present India has two operational LNG terminals, both situated in Gujarat, one by Petronet
LNG Ltd. (PLL) at Dahej and the other at Hazira instituted as a Joint Venture between Shell
and Total. While the size of the Dahej plant is being extended from 5 to 7.5 and later to 10
mtpa de-bottlenecking operations have resulted in the merchant Hazira terminal being able to
process around 3.6-4 mtpa of LNG. A couple of other terminals are also being planned, at
Kochi in Kerala (also by PLL) and Mundra in Gujarat. Meanwhile, some progress is also
being made to bring the partially constructed terminal at Dabhol into operation in which
GAIL and National Thermal Power Corporation (NTPC) have a majority stake. Besides the
gas meant for the Ratnagiri (the erstwhile Dabhol) plant, it appears that other parties may be
allowed to use this terminal to re-gassify LNG obtained from various sources in return for a
fee. India is in discussions with various companies in the Middle East, particularly Qatar, and
Australia to source LNG for the terminals currently under operations or planned for the
future.

Petroleum Product Pipelines

India has a network of petroleum product pipelines connecting sources of supply /refineries
to sources of demand. IOC has the largest network, with pipelines such as the HaldiaBarauni, Barauni-Kanpur product lines and the Mundra-Panipat crude oil pipeline. GAIL has
established two LPG pipelines, from Jamnagar to Loni and Vishakhapatnam to Secunderabad
respectively. Appendix III provides a map of the existing and proposed Product Pipelines.

1.4 INVESTMENTS IN INDIAN OIL AND GAS SECTOR:-

The Ministry of Chemicals and Fertilisers, Government of India has approved a scheme of
investments worth US$ 25.25 billion in three areas under its flagship petroleum, chemicals
and petrochemicals investment regions (PCPIR) policy. The investment consist of US$ 7.32
billion for physical infrastructure development, and the rest is project-specific investments
committed by various public and private companies in three PCPIRs Visakhapatnam and
East Godavari districts in Andhra Pradesh, Bharuch in Gujarat and East Midnapore in West
Bengal. US-based industrial gases company Praxair has decided to invest about US$ 370.74
million into its India operations, said GajananNabar, Managing Director, Praxair India.
Chennai Petroleum Corporation Limited (CPCL) plans to invest around US$ 3.39 billion for
the next five years for capacity expansion including a Brownfield refinery project at Manali
near Chennai with an expenditure of US$ 1.69 billion.

Essar Oil proposes to enlarge its refinery capability by 2 million tonnes a year at Vadinar in
Gujarat with an investment of US$ 278.46 million. The company will increase its volume to
20 million tonnes by 2012. According to Mr S. Sundareshan, Secretary, Petroleum and
Natural Gas, public sector oil companies are going to be the major investors in Kerala over
the next two years as they have allocated over US$ 1.61 billion money in the State. Stateowned refinery and marketing firm, Hindustan Petroleum plans to spend US$ 4.87 billion
into a new refinery with a capacity of 18 million tonnes per year in Maharashtra.

1.5 INDIAN SENARIO: HISTORY OF OIL AND GAS INDUSTRY :-

Oil struck at Makum near Margherita in Assam in 1867

First commercial oil discovery in digboi in 1889

Systematic E $ P in 1889 after Assam oil company formed

1947 Indias domestic oil production just 2,50,000 tonnes per annum

1954 IRR petroleum to core sector

1955 ONGC set up

1958 First gas $ oil pool discovered in jwalamukhi (Punjab) and cambay. Oil India
limited (OIL) was set up.

Discovery of giant Bombay high field in 1974 western offshore highest producer.

1991- liberalized petroleum exploitation $ exploration policy

1991-1994- 4 ,5 ,6 , 7 and 8 rounds of exploration biading

1999- new exploration licensing policy (NELP)

2000 - NELP II

2002- NELP III

2003- NELP IV

2004 NELP V

2006 NELP VI

2007 NELP VII

th

th

th

th

th

1.6 TYPES OF OIL AND GAS:-

Fig-1.1

LIGHTEEST
-

Methane

Ethane

Propane

Butane

Gasoline
Kerosene
Gas Oil
Diesel Oil
Lubricating Oil
Lubricants and Greas
fuel oil

Natural gas

Crude oil

HEAVIEST

Asphalt

During 1960's, a number of oil and gas-bearing companies were discovered by ONGC in
Gujarat and Assam. Discovery of oil in February 1974 of significant quantities in Bombay
High opened up new avenues of oil exploration in offshore areas. During 1970's and till mid
1980's exploratory efforts were made by ONGC and OIL India to yield discoveries of oil and
gas in a number of structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins,
Cachar(Assam), Nagaland, and Tripura. In the year 1984-85, India achieved a selfsufficiency level of 70% in petroleum products. Gas Authority of India Ltd. (GAIL) was set
up in the year 1984 to look after transportation, processing and marketing of natural gas and
natural gas liquids. GAIL has been successful in the laying 1700 km-long gas pipeline (HBJ
pipeline) from Hazira in Gujarat to Jagdishpur in Uttar Pradesh, passing through Rajasthan
and Madhya Pradesh.
10

After Independence, India made significant efforts for its refining capacity. In the first decade
immediately after independence, three coastal refineries were established by multinational oil
companies operating in India at that time. This included refineries by Burma Shell, and Esso
Stanvac at Mumbai, and by Caltex at Visakhapatnam. Indian government in order to increase
exploration activity approved the New Exploration Licensing Policy (NELP) in March 1997
to ensure level playing field in the upstream sector between private and public sector
companies in all fiscal, financial and contractual matters. The policy ensued that there was no
mandatory state participation through ONGC/OIL nor there was any carried interest of the
government.

Today to meet its growing petroleum demand, India is investing heavily in oil fields abroad.
India's state-owned oil firms have stakes in oil and gas fields in Russia, Sudan, Iraq, Libya,
Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. Indian Oil and Gas Industry has
a vital role to play in India's energy security and if India has to sustain its high economic
growth rate.
Why is Oil so Important in Todays World?

The answer to this question may already be obvious to you but let's try and see how big a role
oil plays in Your daily life.

When you got out of bed this morning, the electricity you used to cook breakfast may have
been generated from an oil-burning generating station; or perhaps your family uses a natural
gas-burning stove. You were able to enjoy breakfast in comfort and warmth because of the
oil-burning furnace in your basement. Next you may have taken a gasoline or diesel powered
car (or bus) to school. So, as you can see, before you even started your school day you
already used a certain amount of petroleum. Many of us tend to take these conveniences for
granted. Try and imagine how your life might change if we suddenly lost our supply of oil.

A Source of Energy

Primary importance lies in the fact that it is a very versatile and powerful source of energy.
There are many other energy sources that we routinely use, including firewood, coal, and
hydroelectric and nuclear generating stations. All of these sources have their advantages and
11

disadvantages. A clean and renewable source of energy would certainly be the most
desirable. What this means is that our natural sources of oil are finite; there will come a time
when we have used them up. One of the exercises at the end of this chapter will ask you to
calculate how long our present known supplies of oil will last at today's consumption rates.
The reason that oil has such importance is that it provides the fuel that runs the internal
combustion engine. The internal combustion engine was invented by Karl Benz in 1885-86.
Gotlieb Daimler improved on this invention and eight years later Rudolph Diesel created the
engine that bears his name. These types of engines are still used today in all kinds of
machinery including automobiles, ships, tractors, generators and tanks. Oil is also the raw
material for the fuels that are used in jet engines and in some cases to fuel rocket engines to
propel spacecraft into outer space. It should now be obvious why oil plays such a dominant
role in today's world. If oil supplies were to be cut off, cars, boats and planes would grind to a
halt. We would have to find alternate means of heating many of our homes and generating
sufficient electricity. Our personal security would also be threatened because our military
forces and police forces would be largely immobilized.

1.7 BRIFE INTRODUCTION:The Oil that is produced by the Oil Industry in India provides more than 35% of the energy
that is primarily consumed by the people of India. This amount is expected to grow further
with both economic and overall growth in terms of production as well as percentage. The
demand for oil is predicted to go higher and higher with every passing decade and is expected
to reach an amount of nearly 250 million metric tone by the year 2024.

Most of India's crude oil reserves in India are located offshore, in the west and onshore in the
northeast. Substantial reserves, however, are located offshore in the Bay of Bengal and in
Rajasthan state. India's largest oil field is the offshore Mumbai High field, located north-west
of Mumbai and operated by ONGC. Another effort is India's large oil fields are the KrishnaGodavari basin which is located in the Bay of Bengal.

NELP framework is the primary mechanism through which the Indian government has
promoted new E&P projects. The latest round of auctions, NELP VIII, was launched in April
2009 and attracted nearly $1.1 billion in investment.
12

According to Oil & Gas Journal (OGJ), India has approximately 5.6 billion barrels of proven oil
reserves as of January 2010, the second-largest amount in the Asia-Pacific region after China.
India's crude oil reserves tend to be light and sweet, with specific gravity varying from 38 API in
the offshore Mumbai High field to 32 API at other onshore basins. India produced roughly 880
thousand barrels per day (bbl/d) of total oil in 2009 from over 3,600 operating oil wells.
Approximately there are 680 thousand bbl/d was crude oil; the remainder was other liquids and
refinery gain. In 2009, India consumed nearly 3 million bbl/d, making it the fourth largest

consumer of oil in the world. EIA expects and predicts approximately 100 thousand bbl/d
annual consumption growth through 2011.

Market capitalization

In January 2012, Gas Authority of India Ltd (GAIL) said that gas availability in India is
expected to grow at 23% compounded annual growth rate (CAGR) to 312 mscmd by 201314, buoyed by trebling of domestic production to 254 mscmd and doubling of regasified
liquefied natural gas imports to 58 mscmd.

Size of the industry

India has total reserves of 775 million metric tonnes (MMT) of crude oil and 1074 billion
cubic metres (BCM) of natural gas accordingly as on April 1, 2009, as per the basic statistics
released by the Ministry of Petroleum and Natural Gas. Petroleum exports during 2009-10
were US$ 26.2 billion. In the eighth round of the NELP (NELP-VIII), 1.62 sq km area will be
covered comprising 70 blocks. Out of 70 blocks, 36 blocks have been awarded under NELPVIII, according to the Economic Survey 2011-12.

Today, there are about total of 18 refineries in the country comprising 17 in the Public Sector,
one in the private sector. There are 17 Public sector refineries are located at Guwahati,
Barauni, Haldia, Mathura, Digboi, Koyali, Panipat, Visakhapatnam, Chennai, Nagapatinam,
Kochi, Bongaigaon, Numaligarh, Mangalore, Tatipaka, and two refineries in Mumbai. The
private sector refinery built by Reliance Petroleum Ltd is in Jamnagar is the biggest oil
refinery in Asia.

13

Employment opportunities

Oil & gas industry jobs onshore or offshore, are most preferred career option for people due
to its vast employment potential as well as high rate of wages. The oil & gas industry job
vacancies exist in fields as well as rigs. Onshore and offshore jobs are mostly available for
Petroleum engineers, Geoscientists, Pipeline engineers, Reservoir engineers, Design
engineers, Shipping officers, Geologists, Drilling supervisors, Pipe stress engineers,
Reservoir managers and many more categories. The general categories those can find
employment vacancies in the oil and gas industry are mainly finance, sales, health, safety,
refinery professionals and environment engineers.

Pollution

In the classification of Pollution, the Indian Oil and Gas Industry comes under the category
"Red" which represents highly polluting industries.

Latest developments

To support India's energy security the country is constructing a strategic petroleum

reserve (SPR).
o

The first storage facility at Visakhapatnam will hold approximately 1.33

million tons of crude and is scheduled for completion by the end of 2011.

Then the second facility at Mangalore would have a capacity of nearly 1.5
million tons and is scheduled for completion by the end of 2012.

The third facility of Padur is also scheduled to be completed by the end of

2012, which will have capacity of nearly 2.5 million tons.

The selection of coastal storage facilities are accordingly so that the reserves could be easily
transported to refineries during a supply disruption. The Strategic Petroleum Reserves(SPR)
project is managed by the Indian Strategic Petroleum Reserves Limited (ISPRL), which is
part of Oil Industry Development Board (OIDB), a state-controlled organization. India does
not have any strategic crude oil stocks at this time.
14

The government is planning for its first ever offer of shale gas exploration in 2012.
Shale gas (gas locked in sedimentary rocks) is an emerging area. It has become an
important source of energy in a few countries that have been able to commercially
exploit this resource.

1.8 ECONOMIC FEATURES :Oil and gas management systems

Petroleum production graphing

Oil and gas data maintenance

Complete oilfield operations software

System for recording production history

Gas and oil production analysis

Production database system

Production management software

Daily production tracking

Production curve fit analysis

Information management for daily field production

Oil and gas production engineering

15

CHAPTER-2
MAJOR PLAYERS

16

Major players
1. Indian Oil Corporation

2. ONGC

3. Bharat Petroleum

4. Reliance Petroleum Limited

5. Essar Oil Limited

6. Gas Authority of India

7. Hindustan Petroleum Corporation

8. Aban

9. Oil India Limited

10. Tata Petrodyne

11. Bongaigaon Refinery

12. Gas Projects (India) Private Limited

13. Hindustan Oil Exploration Company Limited

14. India LPG

15. IBP Co. Limited

16. Lubricants India

17

17. Oil Gas India

18. Petrosil Group

19. Shiv-Vani Universal

20. Kochi Refineries Limited

21. Niko Resources Limited

22. Assam Oil Company Limited

23. Balmer&Lawrie& Co.

24. Bombay High

25. Mangalore Refinery and Petrochemicals

26. Petronet LNG Limited

18

2.1 OIL INDIA LIMITED (OIL) :Oil India Ltd is the second largest national oil and gas company in India as measured by total
proved plus probable oil and natural gas reserves and production. The company is engaged in
the business of Exploration, Development and Production of Crude Oil and Natural Gas,
Transportation of Crude oil and Production of LPG. They own and operate a range of
facilities and services required for the above business in the existing and new concessions in
an environment-friendly and financially-efficient manner.

The company holds interests in various oil and gas projects located in India, Libya, Gabon,
Iran, Nigeria, and Sudan. In addition, the company offers various technical services related to
pipeline construction; specialized services, such as hot tapping, stapling, and pipe cutting and
shearing off services; and various operation and maintenance services. They also own and
operate crude oil pumping stations and repeater stations.

In the year 2009, the company entered into a MoU with Advanced Well Technologies Pty
Limited to form a joint venture for identifying acquisition opportunities for upstream
petroleum assets in Australia and elsewhere. Also, they entered into MoU with BPCL and
DNP Ltd for mutual cooperation in gas related business in India & overseas and for leasing
of the company's right of way through the DuliajanNumaligarh Pipeline respectively.

The company was awarded 'Best overall performance in upstream sector' by Petroleum
Conservation Research Association. Also, they received Certificate of merit for being one of
the 'PSU with Highest Book Value' from Dalal Street Investment Journal.

19

2.2 OIL AND NATURAL GAS CORPORATION (ONGC) :More than half century survival in oil and gas industry is a record of work by Oil and Natural
Gas Corporation Limited (ONGC). It was originated in the year of 1956 as a private sector
company. Later, in the year 1993 the company was came to known as Public Sector
Company.

In March 2005 ONGC launched its retail marketing business with commissioning of its first
auto fuels outlet at Mangalore under the brand 'ONGC Values' and 'Shopp'njoy' for fuel and
non-fuel business respectively. Tripura Power Development Company Pvt Ltd (TPDCL) was
incorporated to set up a gas-based power-generating project in Tripura. TPDCL has been
renamed as ONGC Tripura Power Company Pvt Ltd after the domination. In the same year
the company has entered into various alliances in form of execution of Memorandum of
Understanding with Kakinada Seaport & IL&FS with 26% equity stake for development of
Port based SEZ at Kakinada, Andhra Pradesh. During the year 2006 the company was
awarded 60 out of 110 exploration blocks by the Government in the five NELP rounds.

In December 2009, the company entered into two broad enabling agreements with Iranian
authorities for participation in development of gas fields and liquefaction facilities in Iran, in
return for assured minimum 6 million tonne LNG per annum on long term basis. Also,
ONGC Videsh entered into a non exclusive memorandum of understanding (MOU) to
explore the possibilities of jointly studying and if mutually agreed, to participate in attractive
oil and gas assets in Russia and third countries. In June 2010, Stealth Ventures Ltd entered
into a Joint Study Agreement (JSA) with the company to evaluate emerging Unconventional
Resource plays and opportunities in India. The objective of the JSA is to identify the
unconventional resource plays within India, and a high priority has been given by both
parties, to identify high growth profile shale gas and CBM prospects, on the basis of the large
database available within ONGC. In December 2010, the company's subsidiary, ONGC
Videsh Ltd signed a Framework Agreement on Cooperation in Hydrocarbon Sector in Delhi
with Sistema, a public financial corporation in Russia and CIS.

The Government of India has decided to disinvest 5% paid up equity capital of ONGC out
of Government shareholding.
20

2.3 HINDUSTAN OIL EXPLORATION COMPANY LIMITED (HOEC) :HOEC was incorporated in 1983 for taking up Exploration and Production (E&P) activities
inter-alia by Late Shri. H T Parekh. HOEC was the first private company in India to enter
into field of oil and gas exploration. HOECs operational activities commenced in 1991 with
the Government of India announcing the fourth round of exploration bidding for private
Sector participation.

The Company has been under professional management since inception consisting of eminent
industrialists, professionals and technocrats like Late Shri B.K Nehru, Late Dr. I. G. Patel,
Shri Deepak Parekh and the current Chairman Shri R. Vasudevan.

In 2005, Burren Shakti Ltd (BSL) and Burren Energy India Ltd (BEIL), wholly owned
subsidiary of Burren Energy plc (Burren), acquired 26% controlling stake in the Company
from Unocal. BSL and BEIL declared themselves the promoters of the Company in
September 2005. Burren is a London based exploration and production company, having core
producing assets in the Caspian state of Turkmenistan, the Republic of Congo and Egypt. In
February 2008, Burren was acquired by ENI UK Holding plc (ENI UK) which is a subsidiary
of ENI spa, Italy. ENI UK made a mandatory open offer to the shareholders of the Company,
thereby acquiring an additional 20% shares taking the combined shareholding of the
Promoters to 47.18% of the paid up share capital of the Company.

The Company has a wholly owned subsidiary, HOEC Bardahl India Ltd, engaged in
marketing of high performance fuel / engine additives.

21

2.4 MARKET ANALYSIS:Oil

Global oil reserves rose by 31 billion barrels to 1,653 billion barrels in 2011, according to
BP. Iraq added 28 billion bbl and Russia, Brazil, and Saudi Arabia all increased reserves
by 1 billion bbl. Proved reserves remain concentrated in OPEC, which controls 72% of
the worlds oil reserves, the highest proportion since 1998. Overall, the long-term trend is
that globally reserves are increasing in proportion to the amount being used. Global
proved oil reserves at the end of 2011 reached 1652.6 billion bbl, sufficient to meet 54.2
years of global production.

Annual global oil production in 2011 increased by 1.1 million bpd, or 1.3%. Nearly all the net
growth was in OPEC, with large increases in Saudi Arabia, the UAE, Kuwait, and Iraq more
than offsetting the loss of the Libyan supply. Output reached record levels in Saudi Arabia,
the UAE, and Qatar. Non-OPEC output was broadly flat, with increases in the United States,
Canada, Russia, and Colombia offsetting continued declines in mature provinces such as the
United Kingdom and Norway, as well as unexpected outages in a number of other countries.

Gas

Global natural gas reserves increased by 12.3 trillion m3 to 208.4 trillion m3 in 2011,
according to BP. Meanwhile, global natural gas production grew by 3.1%. The United
States recorded the largest volumetric increase despite lower gas prices, and remained the
worlds largest producer. Consumption growth was below average in all regions except
North America, where low prices drove robust growth. Outside North America, the
largest volumetric gains in consumption were in China, Saudi Arabia, and Japan these
increases were partly offset by the largest decline on record in EU gas consumption.

Analysts expect global gas demand to grow rapidly over the coming decades. The key
drivers of this growth are likely to be:

Aggressive gas usage plans in China and India;

The emergence of domestic shale gas as a preferred fuel source in the United
22

States;

The discovery and utilization of gas resources in Latin America;

The move away from nuclear power in Japan and some European countries in
response to the Fukushima Dai-ichi nuclear accident;

Europes continued reduction of greenhouse gas emissions;

Russian plans to search for gas in its Far Eastern region.

23

CHEPTER 3
MACRO ANALYSIS

24

3.1 PEST ANALYSIS :-

Fig.3.1

The first framework from the strategic analysis is at the macro level and is going to help us
assess the external environment of the company, how it can impact the development of the
industry and how its ultimately influencing the value of companies operating within it. The
PEST analysis consists of six aspects;
25

Political factor

The Political aspects have rather significant influence on the petroleum industry. Countries
around the world have a great impact on the industrys players, since primarily they are the
owners of hydrocarbon (i.e. oil and gas) resources. Controlling hydrocarbon reserves allows
governments to sell concessions to different companies, which grant an exclusive right for
exploration and production of oil within a specified geographical area at a given time
horizon. This also allows governments to favour national oil companies and exclude foreign
ones from the process, which can terminate operations of these companies. In addition to
individual countries, a very influential inter-governmental organization in the world
petroleum scene is OPEC (the Organization of the Petroleum Exporting Countries). OPEC
controls 75.5% of the worlds oil resources (and that is one of the cheapest-to-produce oil on
the planet). OPEC will be discussed further in this paper. Internal political and broader
geopolitical risks may hold back upstream investment in many countries in spite of
favourable policies and strong economic incentives. Instability, changes in the regulatory
environment, expropriation or nationalization of property, terrorism, civil conflicts, strikes
and acts of war, can all cause discouragement and disruption of investments and operations.
These are indeed very common among oil-rich-countries around the world. For instance, no
major oil company has yet decided to invest in Iraq; geopolitical tensions in the Middle East
has since always discouraged foreign investments; political resistance in Mexico that would
give private companies a bigger role in exploration and development is also the reason for
diverting investors. All of these political aspects eventually negatively affect the value
creation of oil companies.

Political decisions among world leaders to stimulate other cleaner sources of energy due to
climate changes are also going to greatly impact the petroleum industry. Passing
environmental treaties such as the Kyoto protocol, which establishes legally binding
commitments for countries to reduce greenhouse gases, is only going to result in substantial
reductions in profitability and strategic growth opportunities being adversely affected.

26

Economic factor

There is no other industry so much interdependent with the world Economy as the oil
industry. Not only is the global economy dependent on continual supply of oil at reasonable
prices, but also, the progress of the international economy is crucial for the oil industrys
development. This is understandable as the demand for energy is largely driven by economic
growth, prosperity and rising population. Whenever there is a downturn in the economy, the
demand for energy, and especially the one for crude oil decreases. This is due to the fact that
most industries and transportation run on oil. The current financial and economic crisis,
which is the worst and deepest since the great depression, has had a remarkable effect on oil
markets. Global demand in general is currently on a downhill. This is largely driven by
plummeting demand in developed OECD countries, whose economies entered recession. The
outlook is not positive for the rest of the year, as it doesnt only mean lower oil demand, but
also plunging prices (prices have fallen from $147 at the peak in 2008, to around $50/barrel
in 2009). Demand has been however increasing and is expected to increase in the coming
decades in developing countries, especially in countries experiencing rather high growth in
GDP, such as China and India. A good feature of oil demand is the fact its inelastic. Namely,
it takes long time for businesses and consumers to respond to oil price changes, which is a
positive aspect for oil companies.

In addition to GDP and the market demand, another important economic aspect affecting
petroleum and the industry is the value of the dollar, the currency in which oil is traded
internationally. When the oil price was soaring in 2008, for example, the value of the dollar
was down substantially. This occurs due to exchange rates. Oil producers (which sell oil in
dollars) are regularly exposed to changes in the exchange rate between their national
currencies and the dollar. Thus, when the US dollar weakens, for instance, crude oil market
participants push the price of oil higher as oil producers are entitled to at least the same price
of oil as before in their own currencies, after exchanging USD into their currencies. This is
why a good management of the US economy (and the dollar) should provide greater stability
for oil prices and profitability of oil companies.

27

Socio-cultural factor

Socio-cultural forces determine the values, beliefs and lifestyles of societies (and the world in
general) where oil companies operate. These forces have been also shaping the preferences of
societies for different energy types. Even though the world demand for energy has been
increasing, especially the one for oil, the share of oil in the total energy consumption has been
decreasing in the last decades (its share stood at around 45% in the early 80s and its at 35%

today). This trend is expected to continue, where greener sources of energy are likely to
increase their share (EIA, 2008, pg.1). After fears of global warming proved to be founded,
social considerations and responsibility of societies and governments resulted in increased
focus on alternative energies (wind, solar energy, bio fuels, hydro, etc.). People in general
started putting greater value to healthy living surroundings and are showing more concern
about the environment. As new and more environment-friendly fuels are developed and the
cost of their production is reduced, the picture is going to get less favourable for oil
producers.
Companies social responsibility is yet another factor affecting companies operations in this
industry, mainly through their image. Therefore, many big oil corporations claim in their
annual statements that they are actively playing a dedicated role in supporting sustainable
human development in societies they operate. Petro bras for instance, invest in different
social, cultural and environmental activities and admit that it depletes natural resources that
are part of everyones heritage, hence its duty to render accounts to society. Similar to Petro
bras, BP too, states that it also contributes to local communities development either through
investments in education (which creates skilled labour), or through training and financing
programs that stimulate local suppliers.

Technological factor
The oil and gas industry is extremely Technology-driven, as research and technology play a
critical role in addressing the worlds energy needs and challenges. Technology is the key
element from fundamental exploration all the way to refinement of oil. Innovations and
improvements of technologies in the upstream processes have made it possible to extract
bigger volumes or improve the recovery of oil and gas, and to extract maintaining reserves in
some fields which were previously considered exhausted. This has allowed for increasing
profitability and gains from existing oilfields.
28

Technological advances, however, have made breakthroughs especially in the exploration

and extraction of ultra-deep-water reservoirs. These are indeed the hardest to reach, for some
of which technology is still being developed. As an example of such oil fields are the recently
discovered ones off the Brazilian shore, Tupi being the most important. Petro bras has been
dedicated in developing appropriate technologies during the last year and managed to lift the
first oil from the Tupi reservoir on 1stMay, 2009-10. By deploying advanced technologies in
locating fields and exploration, companies can secure competitive advantage.

Technology is also an important development-driver in the midstream and downstream

sectors. In the midstream, for e.g. for underwater oil-transporting pipelines at significant
depths and pressure; in the downstream, for optimizing refining processes of petroleum of
varying quality, which can ultimately improve companies margins.

The general impression is that technology will have a profound impact on the future
development of the oil industry, and especially on its long-term sustainability. This comes as
a logical reasoning, as hydrocarbon reserves are increasingly depleting and new discoveries
are showing at extreme depths, which so far, had not been profitably or technologically
feasible to exploit.

3.2 KEY SUCCESS FACTORS (KSFS) :Technology related:

Most high-tech industries Expertise in oil and gas technology or in
scientific research such as internet application software

Proven ability to improve production processes of oil and gas through

advancing technology opens the way for higher manufacturing efficiency
and lower production cost

29

Manufacturing related:
Ability to achieve economies scale and capturing learning curve effects

Quality control know-how is important in industries where customer

insist on product reliability.

High utilization of fixed assets of the industry

Access to attractive supplies of skilled labour.

Achieve a high labour productivity for items with high labour content.

For reducing manufacturing costs by low cost product design and

engineering.
Distributions related:
Create a strong network of wholesale distributors/dealers of oil and gas
and also create strong direct sales capabilities via the internet or having a
industry owned retail outlets.
Marketing related
A well know and well respected brand name in a market.

A fast accurate technical assistance for marketing of oil and gas and also
accurate for feeling of buyer orders.
Clever advertising for increase the sales of oil and gas.
30

3.3 STATEGIC GROUP MAPPING:-

Understanding which companies are strongly positioned and which are weekly positioned is
an integral part of analyzing an industries competitive structure. The best technique for
revealing the market position of the industry competitors is strategic group mapping. A
strategic group consist member with similar competitive approaches and position in the
market.

The procedure for constructing strategic group map is straight forward:

1. Indentify the competitive characteristics that differentiate firms in an industry, typical

variable are number of products and profit.

2. Plot the firms on a two-variable map using pairs of differentiating characteristics.

3. Assign firms that fall in about the same strategy space to same strategic group.
4. Draw a circle around each group, making a circle proportional to size of a groups
respective share of total industry sales

Table-3.1

Company name

Profit

No. of products

ONGC

88429.81

22

OIL

11483.69

11

120.42

18

HOEC

31

Fig.3.2

In above diagram show the company name according to the following manner (x-axis: profit
and y-axis: no. Of products)

Interpretation:-

From the above strategic group mapping graph, we take all products and services on
the Y-axis and market share on the X-axis.

No. of products are different type in oil and gas.

From the above chart we can interpret that the ONGC provides the highest no of

While IOCL come second after into the industry after ONGC in profit and providing
product and services.

Profit consist of that how much profit a particular company is making in industry.

products & services with the highest profit.

HOEC have a lowest profit as compared to OIL but provide large no. Of products.

32

3.4 Weapons for Competing and Factors affecting the strength of rivalry.

Typical "Weapons" for

betting Rivals and
Attracting Buyers
-Lower Price
-Performance
-Higher quality
-stronger Brand
-Low interest

Rivailry among
Competing sellers
-How strong are the
competitive
pressures
streming from the efforts of
rivals to gain better market
position,
Higher
sales
market
shares,
and
competitive advantages?

Rivalry is genrally stronger

when.
-Competing sellers active in
marketing fres moves to
improve
their
market
standing
and
business
performance
-Buyer demand is growing
slowly.
Buyer cost to switch rands
are low.

rivalry is generlly
Weaker when.
-Buyer

demand
is
growing rapidiy.
-buyer cost to switch
brand are high.

Rivalry among competing sellers intensifies the more frequently and more
aggressively that industry members undertake fresh action to boost their market
standing and performance perhaps at the expense of rivals. Rivalry tends to be fairly
intense whenever sellers actively engage in vigorous price competition Lively price
competition pressure rival companies to aggressively Ways to drive cost out of the
business; high cost companies are hard pressed to survive. Other indicators of the
intensity of rivalry among industry members include:
-The frequency with which rivals introduce and improved product (and
expertise and on the basis of their product innovation capabilities).

Rivalry is usually stronger in slow-growing markets and weaker in fast-growing

markets. Rapidly expanding buyer demand product enough new business for all
industry members to grow. Indeed, in afast-growing market, a company may find
33

itself stretched just to keep abreast of incoming or-dears, let along devote resources to
stealing customer away from rivals.

Rivalry is intensifies as the number of competitors increases and as compretitoer

increases and as competitor become more equal in size and capability. The greeted the
numbers of competitors, the higher the probability that one or more companies will be
busily engaged in a strategic offensive intended to enhance their marketing standing,
thereby heating up competition and putting new pressures on rivals to respond with
offensive or defensive moves of their own.

Revelry increases when one or more competitor become dissatisfaction with their
market position and launch moves to bolster their standing at the expense of rivals.
Firms that are losing ground or in financial trouble often react aggressively by
acquiring smaller rivals, introducing new products, boosting advertising, discounting
prices, and so on.

A powerful, successful competitive strategy employed by one company greatly

intensifies the competitive pressures on its rivals to develop effecting strategic
responses or be relegated to also-ran status.

3.5 EXTERNAL FACTOR EVALUATION MATRIX (EFE) :-

EFE method is a strategic-management tool often used for assessment of current

businessconditions. The EFE matrix is a good tool to visualize and prioritize the
opportunities and threats that a business is facing.

The EFE matrix is very similar to the IFE matrix. The major difference between the EFE
matrix and the IFE matrix is the type of factors that are included in the model. While the IFE
matrix deals with internal factors, the EFE matrix is concerned solely with external factors.

External factors assessed in the EFE matrix are the ones that are subjected to the will of
social, economic, political, legal, and other external forces.

How to create the EFE matrix?

Developing an EFE matrix is an intuitive process which works conceptually very much the
34

same way like creating the IFE matrix. The EFE matrix process uses the same five steps as
the IFE matrix.

List factors: The first step is to gather a list of external factors. Divide factors into
twogroups: opportunities and threats.

Assign weights: Assign a weight to each factor. The value of each weight should be
between0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale). Zero
means the factor is not important. One or hundred means that the factor is the most influential
and critical one. The total value of all weights together should equal 1 or 100.

Rate factors: Assign a rating to each factor. Rating should be between 1 and 4.
Ratingindicates how effective the firms current strategies respond to the factor. 1 = the
response is poor. 2 = the response is below average. 3 = above average. 4 = superior. Weights
are industry-specific. Ratings are company-specific.

Multiply weights by ratings: Multiply each factor weight with its rating. This will
calculatethe weighted score for each factor.

Total all weighted scores: Add all weighted scores for each factor. This will calculatethe
total weighted score for the company.

You can find more details about this approach as well as about possible values that the EFE

Matrix can take on the IFE matrix.

35

EFE matrix

Table-3.3

Opportunities

weight

rating

Weighted score

1. Industry consolidation

20%

0.80

2. Growth of low- cost sector

15%

0.45

3. Strengthening position trough acquisition

20%

0.40

1. Declining margin

20%

0.20

2. New security tax

10%

0.20

3. Economic condition

15%

0.15

Threats

Poor(1),below average(2),above average(3),superior(4)

TOTAL WEIGHT SCORE

100%

2.20

Total weighted score of 2.2 indicates that the business has slightly less than average ability
to respond to external factors.

Justification for factors selected for EFE Matrix

Now that we know how to construct or create the EFE matrix, let's focus on factors.
External factors can be grouped into the following groups:

Social, cultural, demographic, and environmental variables:

Economic variables

Political, government, business trends, and legal variables

36

Below you can find examples of some factors that capture aspects external to your
business. These factors may not all apply to your business, but you can use this listing as a
starting point.

Social, cultural, demographic, and environmental factors

- Percentage or one race to other races

- Per-capita income

- Widening gap between rich & poor

- Trends in housing, shopping, careers, and business

Economic factors

- Growth of the economy

- Level of savings, investments, and capital spending

- Inflation

- Foreign exchange rates

- Stock market trends

- Level of disposable income

- Import and export factors and barriers

- Product life cycle ( the Product life cycle )

- Government spending

37

- Industry properties

- Economies of scale

- Barriers to market entry

- Product differentiation

- Level of competitiveness ( the Michael Porter's Five Forces model)

Political, government, business trends & legal factors

- Globalization trends

- Government regulations and policies

- Internet and communication technologies (e-commerce)

- Protection of rights (patents, trademarks, antitrust legislation)

- Level of government subsidies

- International trade regulations

- Taxation

38

3.6 INDUSTRY COMPETITION ANALYSIS (PORTERS FIVE FORCES) :-

Fig 3.6

Industry Competition Forces

In order to create a profitable competitive strategy, a firm must first examine the basic
competitive structure of its industry through the competitive forces, because the potential
profitability of the firm is heavily influenced by the profitability of its industry. For this
purpose, corporate strategists advise the use of the Porters Industry Analysis framework,
39

which describes the competitive environment in terms of five basic competitive forces.
Based on Porters framework, for instance, competition in an industry arises not only from
established producers, producing same or similar products, but also from suppliers of
substitutes and from potential new entrants into the market.

This analysis will allow us to investigate how the competitive situation in the petroleum
Industry influences the ability of oil companies to sustain profitability now and in the future.

Threat of New Entrants

- Huge capital requirements (e.g. $2-50bn for oil fields development)

- Government policies that favour state oil company

Threat of new entrants insignificant

The threat of new entrants refers to the force of new potential competitors in the industry that
can attack companies profits. Undoubtedly, the threat of new entities entering the oil
industry is insignificant, despite the attractiveness of the industry.

First, there are huge capital requirements associated with the activities performed by major
oil companies, most of which are vertically positioned in almost all upstream, midstream and
downstream activities of the industry. Enormous fixed up-front investments are required for
the development of oil fields or setting-up production facilities. The costs incurred here
simply cannot be supported by everyone. Developing oil fields, for example, can cost from
couple of billions of dollars for relatively easily accessible reserves (in the Middle East)12, to
some $50bn, for such as the Brazilian offshore Tupi field13, which is found 4000 meters
below the seabed, in a pre-salt layer, requiring very sophisticated technologies for extraction.
The International Energy Agency (IEA, 2008) reports that the unit costs in the upstream oil
industry have increased considerably, in the last decade (average rise of 90% between 2000
and 2007). This does not only include costs for exploration of new fields, but also for drilling,
oilfield services, skilled labour, scientific research, materials and energy, all of which create
substantial barriers for potential entrants.
40

Another barrier prevalent here are economies of scale. Due to the increased unit costs in the
exploration and production of oil, only big oil companies and refineries that are able to take
advantage of economies of scale (and scope) can survive. This makes things very difficult
and risky for new players, since they usually dont have access to a big number of oil
reserves, and sometimes they cant even own these in a foreign country. The latter is the case
for many oil-rich-countries, apart from the US, Canada, Brazil, Norway (IEA, 2008).

The need to secure access to distribution channels can also create barriers to entry. Usually
only major oil companies (both national and international) possess well established channels
of distribution, whether its in the upstream, downstream or both segments. Oil pipelines for
some companies, and gas stations and distribution stores for others, or both, as means of
distribution, are costly and require time to build. This creates obstacles for new entrants.

However, some of the greatest impediments for potential entrants come from disadvantages
independent of economic factors, i.e. from different government policies that favour national
companies in different ways. Oil and gas are state owned resources and governments tend to
give access to these raw materials to national companies. Most of the oil-rich countries also
allow other companies to engage in the exploitation of oil fields, but in partnership with the
national company. Experience and know-how are essential, as cutting edge technology is
increasingly required in reaching more and more inaccessible reserves. In the case of the
newly discovered oil fields offshore Brazil, for instance, specialized drilling technologies are
needed that not even major international oil companies possess. Petrobras has been engaging
in such exploration throughout its lifetime and thus has acquired competitive advantage over
other oil companies in the field. All this can only divert potential new entries in the industry.

There is no product differentiation, as oil is a commodity product; and there are no

switching costs that buyers face when having to turn to a different supplier. However, this
doesnt change the fact that new entrants in the industry face rather tough obstacles
preventing them to endanger established companies and their profits.

41

Bargaining Power of Buyers

- Given world oil price

Buyers bargaining power low

- Big-country consumers may affect global demand > price

Buyers bargaining power increases

Suggest that buyers can influence the profitability of an industry because they can bid down
prices or demand higher quality or more services by bargaining among competitors.
However, the petroleum industry is a specific one where the price of crude oil is determined
on a global level, based on the economic relationship between global demand and supply of
oil. This unique world price of oil usually refers to the spot price of light crude as traded on
the New York Mercantile Exchange (NYMEX). Opposed to this, it is also very common that
oil is traded over-the counter between two parties, but again, at the global price. Based on
this, the willingness to pay is more or less the only bargaining power that buyers possess.

Among buyers of oil usually turn up refiners, major international companies, national oil
companies, marketers, distributors and traders. Countries themselves can also appear as
buyers. Large consumers such as the US, the EU, China and Japan, which account for more
than half of the world consumption of oil, may indeed be in position to exert some degree of
bargaining power, through different volumes of demand.

So far, empirical evidence suggests that only the largest buyers, through the oil quantity
demanded, can exert some bargaining power in the market. Contributing to buyers
bargaining power is the standard and undifferentiated product, and again, buyers who do
not face switching costs. These two conditions are not sufficient to put power in the hands of
buyers, since the industrys product is extremely important for the buyers products or
services; and, it doesnt seem that individual buyers are any threat when it comes to the
volumes they purchase.

42

Bargaining Power of Suppliers

Suppliers:- Mean suppliers of oil fields

Suppliers bargaining power significant

- Many conventional suppliers from supporting industries

Suppliers bargaining power lows

the Big oil companies, like Petrobras or ExxonMobil, have a complex chain of suppliers,
ranging from suppliers of oil (fields), to suppliers of engineering, field development
management, pipeline installations, specific equipment and materials, or even scientific
researchers and engineers.

Countries rich with oil (also referred as oil producing countries), which in this context appear
as suppliers of the basic ingredient of the industry, own significant bargaining power. Oil is
a scarce resource and without countries openness in allowing corporations to exploit it, the
latter have simply no reasons to operate in the industry. Todays OPEC nations were the ones
to actually nationalize oil production in their countries and take over most of the business
from big oil corporations. As OPEC nations own 2/3 of the worlds proven reserves, with oil
that is one of the cheapest to produce, they in fact possess significant bargaining power to oil
corporations. Thus, OPECs bargaining power is rather evident when it comes to granting oilfields-concession rights to international companies.
Oil-rich-countries (especially ones belonging to OPEC) were especially mean to foreign oil
companies when the oil price was skyrocketing last year. However, this bargaining power

Misbalance have somewhat changed since the beginning of 2009, when the oil price dropped
almost threefold from its peak in 2008. Namely, as oil prices decreased substantially (to
around $50/barrel), countries found many fields not to be economical to develop (by
themselves and their national oil companies), and are now turning to major international oil
43

companies for help14. The latter are in advantage due to the fact that: they possess
specialized know-how and expertise in developing fields with different accessibility; They
have stockpiled cash when profits were high (i.e. cheaper capital) and can shift operations to
any corner of the globe, all of which allows them to strike deals with state controlled
producers on very favourable terms. Unlike the distribution of power in favour of supplying
countries, power is distributed more in favour of oil companies when it comes to the other
types of suppliers in the industry. This is due to the fact that the oil industry has a wide range
of small sub-suppliers coming from various industries. Most of these are not consolidated,
and given the fact that big oil corporations represent large-volume buyers with high profits
for them, it diminishes their bargaining power. The oil companies are in fact in position to
choose preferred suppliers, providing their business with high quality supplies of materials
and services.
Another important category in the industry is engineers and scientific researches, whom oil
companies, owe their know-how and technological advancement. Here, oil companies are
facing great supply shortages of these qualified labour categories. Due to the cyclical nature
of the petroleum business and its lost glamour, university graduates are simply not
interested in the industry15, which gives them bargaining power to oil companies.

The general picture of the power distribution between oil companies and their suppliers is
that it all depends on the type of the supplier. When looking at the more conventional
suppliers of materials and services, the impression is that big oil companies can exert power
due to their position. However, the picture is totally different when looking at the suppliers
of oil fields, with OPEC countries as a specific example, which hold most of the easy-to
access oil reserves in the world. These countries policies can in fact make firms to go out of
business as companies present oil reserves dry out.

Threat of Substitute Products and Services

- Oil irreplaceable in industry and transportation now and in future

- Renewable represent a threat in the longer run

Threat of substitutes currently low, but likely to change

44

Substitute products and services limit the profit potential of firms and their source of value
creation. This is mostly due to the fact that oil is cheaper compared to other fuel types. As drilling
and exploitation technology is getting ever more sophisticated, which is going to outpace rising
depletion costs, oil is likely to stay one of the cheapest sources of energy in the following years.
Substitutes of oil, though, become a threat once the crude oil price increases significantly. The
most used substitute fuels are in the following order: coal, natural gas, renewable (wind, solar
energy, bio-fuels, hydro power, tidal energy, etc.), and nuclear energy.

Governments around the world are also changing their attitude towards fossil fuels and the
harm they cause to the planet. This should be considered as a serious threat to petroleum
products, as the world is more than ever determined to change its energy habits in favour of
green energies.

From the substitutes, based on the Energy Information Administration, natural gas is
expected to have a higher growth rate than oil. The projections are that gas is going to gain
significant market share in the industrial, residential and commercial sectors. This is, by any
means, good news for companies such as Petrobras and other oil companies, as most of them
produce gas along with oil, (due to the fact that oil and gas are often found together). These
trends are also occurring since natural gas emits a lot less greenhouse gases, which doesnt
add much of carbon dioxide taxes to its price. For comparison, natural gas emits 40% less
carbon dioxide than by burning oil, and 78% less CO2 than by burning coal16.

The world coalconsumption is expected to face a slight fall in the share of total energy
consumption, primarily because resources are mainly concentrated in few countries and are
becoming increasingly complex and distant from major markets. The costs of exploiting and
using coal are only going to rise in the upcoming years, due to environmental regulations,
such as the Kyoto Protocol.

Renewable energies, like wind-, hydro- power or hydrogen are expected to slowly but
surelyincrease their market share in the future. However, without major proactive
governmental policies aimed at reducing the impacts of carbon dioxide emissions in the
atmosphere, the process of adopting renewable energies on a large scale is going to be rather
slow. So long as these sources of energy have relatively high production costs, they will not
be economically competitive to fossil fuels. Nonetheless, oil companies should not
45

underestimate the potential of these energies, especially after many world governments have
been actively supporting the use of green sources of energy.

Nuclear energy expansion has stalled in OECD countries due to being a relatively
expensiveoption for electricity generation compared to sources as natural gas or coal.

Petroleum is still going to lead the energy industry in the following decades, but as the
intensive search for alternative energy resources continues, more environmental friendly
energy sources may constitute a threat in the long run. Thus, oil companies already need to
put greater focus on renewable energies. Petrobras is one of these examples of oil companies
that is steadily increasing the research and production of bio-fuels. More on this will be
discussed in the companys strategic approach chapter.

Intensity of Rivalry among Competitors in the Industry

- Significant pressure to replace drying reserves

- Slow growth, homogenous product

Rivalry among competitors high

There are several conditions that determine the extent of rivalry in the industry;

First, the competitive environment in the oil industry can be described as having few major
and strong players and several smaller players with less power. The bigger competitors
though differ in that some of them represent the major international companies with limited
proprietary control of oil but rather sophisticated technological know-how, and the national
oil companies on the other hand, which own the oil reserves (controlled 88% of worlds
proven oil reserves in 2007-(EIA, 2008)), but have put less focus on technology17.Most of
these national oil companies are under the OPEC umbrella, meaning they operate as a single
entity, the cartel, thus reducing rivalry or competition among these companies. However, the
rivalry is getting increasingly fierce among big producers, as the need to replace drying fields
puts significant pressure, having the fact that new discoveries are ever harder to get to.
Second, the slow industry growth also intensifies rivalry among competitors. Recent
46

research6 shows that oil and gas exploration are increasingly fruitless and easily accessible
supplies of oil and gas will no longer keep up with demand. Since the beginning of this
century the five largest oil corporations have replaced only 82% of the reserves they have
consumed. Additionally, hardly any new refineries have been opening in the US in the last
two decades.
Theoretically, high exit barriers keep the firms in the industry fighting in spite of below
average or negative rates of return. High exit barriers are present in the refinery
business18(i.e. the downstream segment of the industry), but are much lower in the upstream
segment of the industry, where relinquishment of field-concession-rights is easily done due to
the interest of competitors to always strengthen their portfolios with new fields.

Other factors contributing to rivalry among competitors in the oil industry are: the high fixed
(and storage costs) and the lack of product differentiation (oil & gas are commodity
products). The high fixed costs, as already mentioned, can be tolerated only by bigger
companies taking advantage of economies of scale. In this respect, the industry saw a
consolidation (during 1998-2001), which increased the industry concentration significantly in
the given period (Weston et al., 2001).

So what is the general conclusion? How is the competitive situation in the

industryinfluencing the ability of companies to sustain profitability?

The impression is that the rivalry among competitors in the industry is high, which mainly
finds it explanation in the fact that the majority of companies are in the race to replace their
drying oil resources. This task is not easy, as new oil fields become more difficult to exploit
and require more sophisticated and expensive technologies. On top of this, oil producing
countries practice protectionist and restrictive policies towards their fields exploitation. This
is the general picture of the global oil industry, which suggests a negative trend incompanies
sustainable profitability. This however, does not fully apply for the company ofinterest in
this study- Petrobras. Petrobras is, first of all, a Brazilian state oil company with privileged
access to oil resources in the country. It is also the dominant company in the home market,
engaging in production of other alternative fuels (bio-fuels) in addition to oil, and is one of
the leaders in deep-water petroleum extraction. All of this ensures competitive advantage
over its competitors and sustainable value for shareholders. However, being an
47

international player, Petrobras profits are too, vulnerable to the threats and bargaining power
coming from the other entities in the industry.

3.7 SWOT (Strengths, Weaknesses, Opportunities and Threats) :After analyzing the companys strategic approach and value chain, we can finally determine
Petrobras SWOT, which will help depicting important determinants for value creation. The
companys strengths, weaknesses, opportunities and threats will reveal relevant aspects as to
the ability of the firm to create value.

Strengths

- advanced

technological

know-how

for

deepwater

and

ultra-deep

exploration -significant and growing reserve base

-domestic market dominance

- diversifying portfolio of products

- Significant and cheap production of bio-fuels

- Prominent reputation

- R&D in bio-fuels

One of the principal competitive advantages, the company has, is the technological knowhow for deepwater and ultra-deep exploration. Compared to other global corporations,
Petrobras is undoubtedly the market leader, with 23% of the global deepwater production in
2007.Due to the depth of the offshore oil fields the company operates, it has been able to
develop technologies that can exploit hydrocarbons from such depths, which hasnt been
done before. This capability not only enables Petrobras to exploit the Brazilian offshore
fields, but the company can also benefit in applying this know-how elsewhere in the world.
Another very important strength, from which Petrobras sources most of its returns, is the fact
48

that Petrobras has domestic market dominance. The hydrocarbons production averaged 2.4
mmboe/d in 2008, it is expected to pass 2.5mn in 2009, and is strategically projected to rise
to around 3.3mn and over 5mn in 2013 and 2020, respectively.

One of the basic strengths, which secure the business and value for an oil company, is the
reserve base. Thanks to its discoveries made in the last couple of years, Petrobras has secured
itself a Reserve Replacement Index of 18.2 years as of December 31, 2008, or proved
reserves of 15.08 billion barrels of oil equivalent. These are definitely going to provide for
lasting and sustainable growth in production, and are going to allow for scale economies and
better control of future expenses.
What is also important and appears as a particular strength is the fact that Petrobras engages
proactively in the development and production of bio-fuels. Having the fact that renewable
energies are going to play a significant role in the fuel transportation market in the future on a
global level, Petrobras engagement in this field is especially important. It is already
producing a third of the worlds output of ethanol and is more competitive than the American
one, for instance. Petrobras strengths also come from the companys strong R&D activity
within the field, where its H-Bio (Vegetable oil hydrogenation) process represents a
technological breakthrough, yielding biodiesel.
Finally, the companys prominent reputation due to its social and environmental
responsibility can hold as a particular strength and can provide for the companys long run
value creation.

Weakness
- Higher marginal costs in deep-water production

- No sufficient internal funds to finance exploration projects

- Not sufficient number of drilling rigs

- Natural gas transportation infrastructure not interconnected

- Aging workforce, difficulties in attracting new workers and shortage of specialized

candidates
49

The companys internal disabilities constitute its weaknesses. They mainly relate to the
financial incapability of Petrobras to finance expensive exploration projects on its own.
Petrobras investment plan of $174.4 billion for the period 2009-201380 is rather massive,
and thus requires foreign investors involvement. In times of financial/credit crisis when its
become more difficult to raise funds, and where the companys debt rating has been lowered
to a grade of BBB- from BBB as of recently (by S&P), it is going to be challenging for
Petrobras to achieve its investment goals and boost hydrocarbons output as initially planned.
So far however, the company has managed to make agreements with few Chinese banks and
energy companies, which are going to finance the development of Petrobras offshore
oilfields in exchange for future guaranteed supplies of oil, as a response to the rising Chinese
demand for energy. Some of these entities are the China Development Bank, the China
National Offshore Oil Corp. and SINOPEC Shanghai Petrochemical Company81. Petrobras
is also seeking foreign investments elsewhere in the world, such as in the US and the Middle
East.
Another internal weakness facing Petrobras is the fact that deepwater and ultra-deep water
extraction requires higher marginal costs, when compared to oil produced from conventional
fields, for instance. This is especially critical when oil prices are down, as then the
companys margins decrease substantially. Petrobras, on the other hand, expects cost of oil
production from the pre-salt layer to be relatively cheap, even though as seen in the Petrobras
Strategic Plan (2009-2013) these costs are higher than the production of conventional oil, but
cheaper than the oil produced from heavy oil and bitumen sources, or from oil shales.

Yet another weakness that impedes the company to create profit and value is the fact that the
natural gas transportation infrastructure is not interconnected within Brazil. This has disabled
the deployment of the Brazilian inland gas reserves and thus Petrobras natural gas
profitability. Of course, it is to Petrobras to build and develop this network, as the company is
nearly a monopoly in the supply of gas in the country.

Petrobras also does not possess a sufficient number of drilling rigs needed to support future
exploration, production and development activities. Availability of existing rigs is finite and
so is shipyard capacity to build new ones. Thus, the insufficient size of the drilling rig fleet
that the company currently has is a weakness for future oil exploitation.
50

Finally, issues concerning Petrobras workforce may impede the realization of projects and
strategic plans, which also represent a weakness for the company. Namely, the situation is
that the current workforce is aging, there appear to exist difficulties in attracting new workers
and especially specialized/educated ones.

Opportunities

- Huge new oil reserves from undeveloped oil fields in the Atlantic Ocean

- Becoming a major exporter of oil

- Leveraging deep-water expertise internationally (e.g. Gulf of Mexico and West Africa)

- Forming partnerships with other oil companies for new exploration opportunities

- Main operations in a fast growing, emerging economy

- Generate electricity from natural gas, oil products and biomass

- Natural gas infrastructure connection and expansion

- Strengthening position through acquisitions

External conditions that can increase the value of the company in the long run represent its
opportunities. Naturally, the main and most significant opportunities for Petrobras arise from
the huge new oil reserves still not fully developed in the Atlantic Ocean, which can turn
Brazil into a major oil exporter. Out of the projected $174.4 billion of investment spending
for the period until 2013, around 60% (or $104.6bn) is planned for the Exploration and
Production segment, which speaks of Petrobras determination to seize these opportunities
for a significant oil production expansion. In fact, the company is determined to become one
of the top five oil producers in the world82.
51

Leveraging deepwater expertise (developed in Brazil) internationally can open sound

opportunities for Petrobras. As the leader in this field, the company can benefit from further
engagement in oil extraction from the biggest offshore oil areas, such as the Gulf of Mexico
and West Africa. The West African subsea salt layer is identical to Brazils, so even though
already present there, Petrobras has the opportunity to advance its opportunities in these
regions.

New opportunities can also arise from partnerships with other oil companies worldwide in the
exploration of oil. Not only is this a unique opportunity for Petrobras to participate in oil
exploiting in some regions, such as the Middle East, but with presently more restrictive credit
markets, this may be the only opportunity for participation in most projects.

By expanding and interconnecting natural gas infrastructure, and by increasing domestic

electricity generation from natural gas and biomass, the company expands its opportunities in
the wider energy sector and may even change the negative profitability trend in this business
sector (Gas & Energy).

Threat

- Volatility of oil and gas prices

- Exchange rate risk

- Global economic crisis/recession

- Economic conditions

- Possible price controls by government

- Political stability elsewhere, as well as nationalization of property abroad, imposition of

restrictions on hydrocarbon exports, fluctuation of local currencies, unilateral institutional
contractual changes

- Domestic and foreign environmental and health regulations/restrictions

52

- Dependent on Brazilian government for concession rights to develop and operate oil fields

- pending litigations and arbitrations

- Increases in prevailing market interest rates

- Debt rating cut (by S&P)

A special attention should be put on the companys external forces that continuously threat its
growth and profits. It must be noted that there is a significant number of aspects which can be
considered threats in the oil industry.

First, there is the significant volatility of oil and gas prices in the world markets, as was the
case in the previous year, when the global oil price dropped from $147 in the middle of 2008
to only $35/barrel by the end of the year83. Substantial declines in crude oil price will
certainly have negative effect on Petrobras business, operations and financial condition, as
well as the value of its proved reserves. Moreover, low oil prices have the potential of
reducing Petrobras exploration efforts and hurting its investment plans, because deepwater
oilfields require rather expensive technology. This is a serious threat, as Petrobras deepwater
fields are the greatest asset and value creation opportunity the company has.82 Petrobras
Strategic Plan 2009-201383 World oil price fluctuates as a result of many factors, i.e. global
and regional economic and geopolitical developments in crude oil producing regions,
particularly in the Middle East; the ability of the Organization of Petroleum Exporting
Countries (OPEC) to set and maintain crude oil production levels and defend prices; global
and regional supply and demand for crude oil and oil products; competition from other
energy sources; domestic and foreign government regulations; and weather conditions.
Second, exchange rate risk or currency fluctuations can also pose a threat towards Petrobras
financial condition and operational results. This is due to the fact that most of Petrobras
revenues are in reais (the main market for the companys products is Brazil around 74% of
revenues) and a big part of its liabilities are in foreign currencies (mostly in US dollars).
Thus, the impact of the exchange rate of the real vs. the dollar in particular, is significant and
any appreciation of the dollar against the real will have an adverse effect for the company. In
53

the last few years, before the financial crisis (until 2007), the real had been appreciating
against the dollar due to improvements of the macroeconomic conditions and the reduction of
political risk in Brazil, and this was a positive trend for Petrobras84. However, a significant
reversal in this trend followed starting 2008, which has posed a significant threat for
Petrobras profitability85.

Third, the global economic crisis/recession, which also had its impact on Brazil, as already
mentioned previously had a negative influence on the company due to decreased demand for
energy sources and difficulties in obtaining loans.

Forth, Brazilian political and economic conditions, in general, have an immense direct
significance on the companys business. The federal governments policies condition markets
and prices of securities, and may negatively affect different economic parameters or aspects
of the society, which Petrobras is dependent on, i.e. inflation, exchange control policies,
social and price (in)stability, energy shortages, interest rates, liquidity of domestic capital and
lending markets, tax policies and other political, social and economic factors. Specifically,
Petrobras may suffer by certain initiatives that advise the increase in taxation on the upstream
oil activities86.
Furthermore, in case the Brazilian government were to decide to reinstate control over oil
prices due to market instability or conditions alike, these are likely to adversely affect
Petrobras results of operations. These controls were the practice until January 2002, where
not rarely were domestic oil prices below prevailing prices in the world market87.

Sixth, political instability in the regions of operation, as well as nationalization of property,

imposition of restrictions on hydrocarbon exports, fluctuation of local currencies, unilateral
institutional contractual changes, can all threaten the companys profitability and value
creation. Substantial risks, related to the companys international operations, can

Particularly occur in Latin America, West Africa and the Middle East, which are considered
politically, economically and socially unstable. If any of the risks listed above materializes,
Petrobras may not be in position to achieve its strategic goals in these countries and its
financial outlook will certainly suffer. Among its international operations, Argentina
54

accounts for the largest share with 43.3% of the total international crude oil & gas production
and a third of the international proved oil & gas reserves (December 2007). The Argentine
government has established export tax rates for crude oil, natural gas and oil products, which
have adversely impacted Petrobras results, for instance. Operations and proven reserves in

Bolivia and Venezuela have also suffered due to nationalization measures in the oil and gas
sector taken by these countries authorities88.

Seventh, domestic and foreign environmental and health regulations/restrictions have become
more stringent in the recent past and may result in increased liabilities and increased capital
expenditures. New laws and regulations, some of which relate to climate change as well, are
very likely to eat up part of the companys other strategic investments. Any substantial
increase in expenditures for compliance with environmental regulations and the reduction in
strategic investments are likely to have an adverse material effect on Petrobras financial
position.

Eighth, Petrobras is also dependent on the Brazilian government for concession rights for
developing and operating oilfields. Brazilian laws do not allow companies to own oilfield
reserves, but instead grant concession rights for their operation and exploitation. Therefore, if
the Brazilian government were to restrict or prevent Petrobras from exploiting the crude oil
and natural gas reserves, the companys ability to generate income will be negatively
impacted.

Yet another threat for oil and gas appears to be the pending litigations and arbitration
processes against it, which may cost the company much time and money spent. Currently,
Petrobras is a party in numerous legal proceedings relating to civil, administrative,
environmental, labour and tax claims that are filed against it. All these claims may involve
substantial amounts of money and other remedies.

Finally, increases in market interest rates and the recent debt-rating cut of the company by the
Standard & Poor's, leaves oil and gas industry vulnerable when it comes to financing its
operations89. The companys total debt consists of structured finance, export credits,
tradefinancing and other similar financing methods, whose funding depends on floating rate
instruments. Furthermore, the company is not part of any derivative contracts or other
55

arrangements to hedge against the risk of an increase in interest rates, meaning in case of
market interest rates rise (the LIBOR) its financial expenses will inevitably increase.
In conclusion, apart from the companys numerous threats which can derail Petrobras
strategic investment plans and value creation prospects, it is apparent that the company
possesses significant advantages found in the advanced technological know-how in
deepwater exploration, exceptionally growing reserve base, Brazilian market dominance, a
diversifying portfolio of products with accent on renewable energies, and profound
opportunities that can be harnessed in the domestic market and internationally, with the
possibility of becoming a major exporter of oil. This makes us confident to assert that
Petrobras enormous value potential is likely to be materializing in the future.

56

CHAPTER 4
FINANCIAL
ANALYSIS

57

4.1 TREND ANALYSIS:4.1.1 Total Expense:

Table-4.1.1
Company/year

2010

2011

2012

2013

2014

ONGC

38,052.42

41,854.73

39,999.58

49,494.36

47,095.83

HOEC

38.6

84.69

58.47

616.31

83.71

OIL

6,278.97

7,349.21

5,292.25

5,381.93

5,577.23

Total

48,169.86

44,369.99

49,423.85

51,431.15

62,315.61

Average

16056.62

14790

16474.62

17143.72

20771.87

100

135.85

159.00

114.50

115.97

TOTAL EXP.

Fig.4.1.1
Interpretation:Above graph show the industry fluctuating of expenses over the 5 year. The industry has not
able to decrease their expenses. The expenses of last 5 years are continually increased. In
2010-11 Hindustan oil total expenses decrease and then after increase.
58

4.1.2 Total Income:

Table-4.1.2

Company/year

2010

2011

2013

2014

84,172.88

88,439.89

90,454.01

337.27

169.02

120.41

62.74

OIL

10,397.98 12,495.21

11,288.72

11,505.39

11,233.47

Total

74,825.38

84,568.41

95,630.62

Average

24,941.79

28,189.47

31,876.87

100

96.72

109.31

ONGC
HOEC

TOTAL EXP.

64,268.51 71,735.93

2012

158.89

1,00,065.69 1,01,750.22
33,355.23
123.6

33,916.74
129.28

Fig.4.1.2

Interpretation:-

The Industry has a fluctuating flow of income over the 5 years. The industry has been able to
improve its sell much but not able in 2010-11. After 2010 to 2011 the income decreases in
ONGC and Hindustan oil at decreasing rate. But ONGC and Hindustan oil income continues
increase in 2014. This is a good sign for the industry having such a reputed name in the
market.

59

4.1.3 Total Assets:

Table-4.1.3

Company/year
ONGC

2010

2011

2012

2013

2014

103,688.25 118,910.40 139,331.78 147,764.83 163,630.00

1,754.16

1,843.50

1,888.83

1,638.67

1,581.58

OIL

13,803.18

16,953.76

18,143.98

20,717.42

31,246.00

Total

119,245.59

137,707.66

159,364.59

170,120.92

196,457.58

Average

39,748.53

45,902.55

53,121.53

56,706.97

65,485.86

100

113.18

151.25

1784.46

1904.9

HOEC

TOTAL EXP.

Fig.4.1.3

Interpretation:From the above trend of total assets of the company we can say that company has a good
growth rate in 2013. It has increased in all four year the reason is ONGC and Hindustan oil
and oil India assets are more increase compare to other company. It is because of company
overvalued its fixed assets and investments.
60

4.1.4 Total liability

Table-4.1.4
Company/year
ONGC

2010

2011

2012

2013

2014

103,688.25 118,910.40 139,331.78 147,764.83 163,629.99

HOEC

1,754.16

1,843.50

1,888.83

1,638.67

1,581.58

OIL

13,803.18

16,953.76

18,143.98

20,717.42

31,246.00

Total

119,245.59 137,707.66 159,364.59 170,120.92 196,457.57

Average

39,748.53

45,902.55

53,121.53

56,706.97

65,485.86

100

113.18

151.25

1784.46

1904.9

TOTAL EXP.

Fig.4.1.4
Interpretation:Above graph show that the industry total liability continually over the 5 year. The industry
liability is continues increase in all 5 year the reason is all four company increase the liability
but in a year 2013. Hindustan Oil Company is the total liability is decrease.

61

4.1.5 Investment:
Table-4.1.5
Company/year

2010

2011

2012

2013

2014

ONGC

5,772.03

5,182.79

5,216.24

9,173.05

17,204.31

HOEC

2.91

110.29

71.79

27.6

27.21

859.44

890.41

2,614.19

1,857.07

11,456.61

Total

6,634.38

6,183.49

7,902.22

11,057.72

28,688.13

Average

2,211.46

2,061.16

2,634.07

3,685.91

9,562.71

100

118.67

110.6

OIL

Investment

141.34

197.79

Fig4.1.5

Interpretation:At the initial level the industry is very poor in making investments at the year
2014.industry sold its investments but in 2012 and 2013 industry had done good business
and the year 2010 and 2014 industry had decrease their investment the reason is Hindustan
oil and oil India sold his investment.

62

4.1.6 Share capital:

Table-4.1.6

Company/year

2010

2011

2012

2013

2014

ONGC

2,138.89

4,277.76

4,277.76

4,277.76

4,277.76

HOEC

130.51

130.51

130.51

130.51

130.51

OIL

240.45

240.45

240.45

601.14

601.14

Total
Average

2,509.85

4,648.72

4,648.72

5,009.41

5,009.41

836.62

1,549.57

1,549.57

1,669.80

1,669.80

Trend analysis

100

101.06

187.18

187.18

201.7

Fig.4.1.6

Interpretation:-

Above graph show the industry fluctuating of Total share capital over the 5 year. In first
three year the total share capital of the industry is near to equal, but in 2013 the share
capital is decrease the reason is ONGC company share capital is decrease. This is not a
good sign for the industry having such a reputed name in the market. Also it affects the
industry volume and profit.
63

4.2 RATIO ANALYSIS:-

Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick
indication of a firm's financial performance in several key areas. The ratios are categorized as
Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios,
Profitability Ratios, and Market Value Ratios.

Ratio Analysis as a tool possesses several important features. The data, which are provided
by financial statements, are readily available. The computation of ratios facilitates the
comparison of firms which differ in size. Ratios can be used to compare a firm's financial
performance with industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or deteriorated over time.

Because Ratio Analysis is based upon accounting information, its effectiveness is limited by
the distortions which arise in financial statements due to such things as Historical Cost
Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in
financial analysis, to obtain a quick indication of a firm's performance and to identify areas
which need to be investigated further.

The pages below present the most widely used ratios in each of the categories given above.
Please keep in mind that there is not universal agreement as to how many of these ratios
should be calculated. You may find that different books use slightly different formulas for
the computation of many ratios. Therefore, if you are comparing a ratio that you calculated
with a published ratio or an industry average, make sure that you use the same formula as
used in the calculation of the published ratio.

64

4.2.1 CURRENT RATIO

Meaning & Importance:-

This most widely used ratio shows the proportion of current assets to current liabilities. It is
also known as working capital ratio as it is a measure of working capital available of a
particular time.

Table-4.2.1

(Rs in Cr)

PARTICULAR

2010

2011

2012

2013

2014

ONGC

1.73

1.31

0.95

0.99

0.93

HOEC

1.18

1.08

0.88

0.9

0.64

OIL

2.43

2.73

2.76

2.87

1.77

Fig.4.2.1

Interpretation:-

Current assets include cash and those assets that can be converted in to cash within a year.
All obligations maturing within a year are included in current liabilities.
65

Form the above graph we can say that, in past three years performance oil India
continuously showing higher trend compares to other companies. And showing increasing
ratio also. All Companys current ratio shows very good result but while comparing year
wise individual performance of every company we can say that, ONGC, HOEC, OIL
shows increasing trend so they try to hold their position and increasing their current ratio to
gain competitive advantage. And pay their short term obligation from their current assets
only. ONGC and Hindustan oil shows mixed trend so they try to hold their position and
increase their efficiency to pay their obligations.

LIQUIDITY RATIO
4.2.2 Current Ratio:Current ratio is a financial ratio that measures whether or not a company has enough
resources to pay its debt over the next business cycle (usually 12 months) by comparing
firm's current assets to its current liabilities. Acceptable current ratio values vary from
industry to industry. Generally, a current ratio of 2:1 is considered to be acceptable. The
higher the current ratio is, the more capable the company is to pay its obligations. Current
ratio is also affected by seasonality.
This most widely used ratio shows the proportion of current assets to current liabilities. It is
also known as working capital ratio as it is a measure of working spatial available of a
particular time.
The Current Ratio formula is:
CURRENT RATIO = Current Assest / Current liabilities
(Rs in
Cr)

Table-4.2.2
PARTICULAR
ONGC
HOEC
OIL

2010
1.73
1.18
2.43

2011
1.31
1.08
2.73

2012
0.95
0.88
2.76

2013
0.99
0.9
2.87

2014
0.93
0.64
1.77

66

CURRENT RATIO
3.5
3
2.5
2

ONGC

1.5

HOEC
OIL

1
0.5
0
2010

2011

2012

2013

2014

Fig.4.2.2

INTERPRETATION:-

From the year 2013, oil India continuously showing higher trend compares to other
companies. Current Ratio is continuously decreasing over a period of time. If current ratio is
bellow 1 (current liabilities exceed current assets), then the company may have problems
paying its bills on time. However, low values do not indicate a critical problem but should
concern the management. Current ratio gives an idea of company's operating efficiency. A
high ratio indicates "safe" liquidity, but also it can be a signal that the company has problems
getting paid on its receivable or have long inventory turnover, both symptoms that the
company may not be efficiently using its current assets. So, we can conclude that the industry
is moderate for the investment purpose.

67

4.2.3 Interest Coverage Ratio

This ratio indicates as to how many times the profit covers the payment of interest on debentures and
other long- term loans. Hence, it is also known as times-interest earned ratio it measures the debt
service capacity of the firm in respect of fixed interest on long- term debts. This ratio is obtained by
dividing profit of the firm before interest and taxes by fixed interest charges.

Interest Coverage Ratio =

Profit before Interest & Taxes

Interest

Table-4.2.3

(Rs in Cr)

PARTICULAR
2010
2011
2012
2013
2014
1,733.43 1,100.82 1,053.04 1,106.08 90,089.72
ONGC
9.09
10.52
5.05
-44.54
-9.09
HOEC
1,068.14
329.5
545.49 2,033.01
65.12
OIL

100,000.00
90,000.00
80,000.00
70,000.00
60,000.00
ONGC

50,000.00

HOEC

40,000.00

OIL

30,000.00
20,000.00
10,000.00
0.00
-10,000.00

2010

2011

2012

2013

2014

Fig.4.2.3
Interpretation:-The interest coverage ratio used to test the firm sdebtservicing capacity.
It shows the number of times the interest charges covered by funds that are ordinarily
available. Current ratio is higher to last five year.
68

4.2.4 Common size Statement

A company financial statement that displays all items as percentage of a common base figure. These
types of financial statement allows for easy analysis between companies and between time periods
of company.

The values on the common size statement are expressed as percentages of a statement component
such as revenue. While most firms don't report their statements in common size, it is beneficial to
compute if you want to analyze two or more companies of differing size against each other.

Formatting financial statements in this way reduces the bias that can occur when
analyzing companies of differing sizes. It also allows for the analysis of a company over
various time periods, revealing, for example, what percentage of sales is cost of goods
sold and how that value has changed over time.

Common size
Table.4.2.4
Balance Sheet
Industry OilExplr/Allied
Year

Latest

2014

2013

2012

2011

2010

Share Capital

4.51

3.04

5.02

3.71

3.83

3.16

Reserves Total

68.46

78.46

69.75

69.67

69.29

71.39

Equity Share Warrants

0.01

0.02

Equity Application

0.17

0.15

0.02

0.23

0.09

73.15

81.52

74.92

73.4

73.36

74.64

Secured Loans

3.95

2.51

4.11

5.91

4.45

4.97

Unsecured Loans

12.58

3.98

11.01

10.89

11.75

20.39

SOURCES OF
FUNDS :

Money
Total Shareholders
Funds

69

Total Debt

16.52

6.5

15.12

16.81

16.2

25.36

Other Liabilities

10.33

11.99

9.95

9.79

10.44

Total Liabilities

100

100

100

100

100

100

Gross Block

44.26

49.95

44.55

43.28

44.92

43.94

Less : Accumulated

29.59

34.13

29.47

31.59

32.58

32.2

0.07

0.09

0.08

0.07

0.07

Net Block

14.6

15.74

15

11.62

12.27

11.73

Lease Adjustment

Capital Work in

19.01

12.68

20.62

20.4

16.69

14.43

24.51

24.81

19.87

23.64

25.79

29.57

Inventories

2.72

3.29

2.79

2.76

2.58

3.01

Sundry Debtors

4.34

4.63

4.4

3.85

3.23

2.6

Cash and Bank

7.77

9.26

9.76

13.05

12.68

14.17

Loans and Advances

4.08

3.64

4.48

3.88

4.5

17.96

Total Current Assets

18.91

20.82

21.44

23.54

23

37.75

Current Liabilities

8.97

9.3

9.22

10.7

10.82

9.14

Provisions

1.37

1.63

1.69

1.82

1.21

4.9

Total Current

10.35

10.93

10.91

12.51

12.03

14.04

Net Current Assets

8.56

9.89

10.53

11.03

10.97

23.71

Miscellaneous

0.01

0.47

APPLICATION OF
FUNDS :

Depreciation
Less:Impairment of
Assets

Progress
Investments
Current Assets, Loans
& Advances

Less : Current
Liabilities and
Provisions

Liabilities

Expenses not written

off
70

Deferred Tax Assets

3.88

4.17

3.83

3.25

3.63

3.76

Deferred Tax Liability

10.05

11.68

9.31

8.44

8.93

9.1

Net Deferred Tax

-6.17

-7.51

-5.48

-5.19

-5.29

-5.34

Other Assets

12.38

14.68

14.36

15.36

15.3

Total Assets

100

100

100

100

100

100

Profit and Loss

Industry OilExplr/Allied
Year

Latest

2014

2013

2012

2011

2010

Sales Turnover

100

100

100

100

100

100

Excise Duty

0.29

0.34

0.28

0.38

0.4

0.39

Net Sales

99.71

99.66

99.72

99.62

99.6

99.61

Other Income

8.77

9.8

6.89

9.53

5.05

6.96

Stock Adjustments

-0.27

-0.1

-0.12

0.15

0.18

0.14

Total Income

108.2

109.36

106.49

109.3

104.84

106.71

Raw Materials

6.62

0.19

6.79

6.64

4.77

4.16

Power & Fuel Cost

0.9

0.44

0.88

0.67

0.5

0.51

Employee Cost

10.42

12.08

9.52

7.84

8.15

8.2

Other Manufacturing

13.31

14.18

11.08

10.92

23.87

22.78

34.84

40.27

32.81

29.97

31.52

34.63

10.64

10.54

14.75

15.86

19.87

20.81

19.98

23.5

17.01

15.6

27.92

27.88

56.74

54.21

58.81

56.31

60.76

63.21

INCOME :

EXPENDITURE :

Expenses
Selling and
Administration
Expenses
Miscellaneous
Expenses
Less: Pre-operative
Expenses Capitalised
Total Expenditure

71

Operating Profit

51.46

55.16

47.68

53

44.08

43.49

Interest

0.85

0.66

0.91

1.08

1.18

1.5

Gross Profit

50.61

54.5

46.77

51.91

42.9

41.99

Depreciation

11.22

12.89

8.72

8.55

5.4

Profit Before Tax

39.39

41.61

38.06

43.37

37.5

38.99

Tax

7.67

7.56

9.17

12.76

10.26

11.33

Fringe Benefit tax

-0.01

-0.01

-0.01

Deferred Tax

3.23

3.79

1.46

1.19

1.28

1.64

Reported Net Profit

28.5

30.26

27.43

29.42

25.98

26.04

Extraordinary Items

0.4

0.32

0.15

2.43

Adjusted Net Profit

28.1

29.94

27.28

26.99

25.99

26.03

72

CHAPTER-5
BUSINESS PLAN

73

BUSINESS PLAN ON DEALERSHIP OF

RELIANCE OIL AND GAS

5.1 COMPANY PROFILE

JASMAS OIL & GAS

Dealership Name

:-

Address

:- A/111 Kadi GIDC, near kalol,

Mehsana- Ahmadabad highway

Contact Detail
Partners

Patel Hitesh

Patel Kuntal

Patel Ashish

Patel Mihir

Patel Jignesh

Patel Shruti

74

Authorized dealer: related Oil and gas dealer

Company Summary

Reliance Company Limited (RCL) is a conglomerate with business in the energy and
materials value chain.

The Company operates in three segments:

The petrochemicals segment includes production and marketing operations of

petrochemical products which include, polyethylene, polypropylene, polyvinyl
chloride, poly butadiene rubber, polyester yarn, polyester fibre, purified terephthalic
acid, paraxylene, ethylene glycol, olefins, aromatics, linear alkyl benzene, butadiene,
acrylonitrile, caustic soda and polyethylene terephthalate.

The refining segment includes production and marketing operations of the petroleum
products.

The oil and gas segment includes exploration, development and production of crude
oil and natural gas. Its others segment includes textile, retail business, special
economic zone (SEZ) development.

Dealers introduction

JASMAS has start its activity of oil and gas distribution of Reliance oil and gas on 1/1/2014
with the name of "JASMAS dealership" and distribute more number of oil and gas related
products including L.P.G. Gasoline, Gas oil, Kerosene, aviation fuels, Light fuel, Heavy jet
fuel, Heavy fuel oil

JASMAS distribute its products according to the NIOPDC (NATIONAL INDIAN

OILREFINING AND DISTRIBUTION CO.) standards, and is competent to export some

oilproducts after consultation with NIOPDC authorities and receiving the necessary
decretory. To improve the level of retailers technical knowledge and to prepare optimum
utilization of updated technology and resources, JASMAS has set up a close relation with
75

company who are involved and are specialist in advanced oil and gas technologies and other
manufacturers of refinery equipments and takes advantage of so called dealers' innovations.

5.2 VISION :

Affordable and secure oil and gas energy for fuelling India's growth

5.3 MISSION :

To develop the oil and gas distribution through technology up-gradation and
transportation and marketing sectors.

To enhance service standards and to maximize customer satisfaction.

5.4 PRODUCTS :The company will initially in market nine distinct products. These products have been
produced based on the standards and their quality is continuously controlled by quality
control laboratory of the refinery which can be transferred to the Distribution Depot upon
issuing of the quality certificate. The quality of the products is permanently under control of
the related departments. In the following, use of some refinery products has been described.

1. LPG (Liquid Petroleum Gas)

Use: this product can be used as fuel in household consumers and some industries and also
can be used as an alternative fuel in vehicles. It also can be used as Freon alternative in
aerosols containers.

2. Motor gasoline

Use: this product is used as motor fuel in gasoline combustion engines.

3. Kerosene

Use: it can be used as fuel in household consumers, industries and lighting.

76

4. Gasoil

Use: it can be used as fuel in diesel internal combustion engines and in household and
industrial burners.

5. Light Fuel Oil

Use: it is used as fuel in stationary and mobile diesel and capable industries.

6. Heavy fuel oil

Use: it is used as fuel in industries and power plants capable of using heavy liquid fuel.

7. ATK (Heavy Jet fuel)

Use: it is a proper fuel which can be used in all turbine engines of airplanes and some jet
fighters thanks to its high flash point.

8. Light Jet fuel

Use: this fuel is used in turbine engine of jet fighters and helicopters due to its special
properties.

Objectives:

To further enhance marketing infrastructure and reseller network for providing

assured service to customers throughout the country..

To maximize utilization of the existing facilities for improving efficiency and

increasing productivity.

To achieve higher growth through mergers, acquisitions, integration and

diversification by harnessing new business opportunities in oil and gas distribution.

To inculcate strong core values among the employees and continuously update skill
sets for full exploitation of the new business opportunities.

77

5.5 ORGANISATION STRUCTURE:-

RISKS:
Political situation,
Economical Stability,
Market opportunities,
Private sector,
Tax System,
Funding & Frameworks.

Fixed Assets
Table 5.1

FIXED ASSESTS

Amount

Plant

70000

Machinery

50000

Total Fixed Assets

120000
78

Source of Finance at Starting Time

Table 5.2

Partners Capital

20,00,000

SBI Loan

30,00,000

Total

50,00,000

Note.1- sales of product

Table 5.3

Product

Unit/ Leter

Rs.

total

LPG

3000

50

1,50,000

Motor gas line

3000

40

1,20,000

Gas oil

3000

60

1,80,000

Kerosene

3000

30

90,000

Light fuel oil

3000

70

2,10,000

Heavy fuel oil

3000

50

1,50,000

Heavy jet fuel

3000

40

1,20,000

Light jet fuel

3000

57

1,71,000

Total

11,91,000

79

Job role salary

Table 5.4

Department

Salary (rs.)

Operational manager

25000

Finance manger\

25000

Stock and material department

25000

Security department

25000

Daily operation department

25000

Technical and engineering department

25000

Repairing department

40,000

Partners salary

50,000

Shieepers salary
Total

5000
3,35,000

80

Projected profit & loss a/c

Table 5.5
Particular

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

Sales

11,91,000

10,00,000

12,00,000

15,00,000

16,00,000

Total Income (A)

11,91,000

10,00,000

12,00,000

15,00,000

16,00,000

15,00,000

12,00,000

11,00,000

12,00,000

13,00,000

15000

20000

30000

40000

50000

1,40,000

1,50,000

1,60,000

1,80,000

Income

Expense
Rent
Training
Electricity(500unit)

1,20,000

Municipal Tax

10000

10000

15000

20000

10000

Advertisement

50000

30000

20000

30000

50000

3,35,000

3,35,000

3,35,000

3,35,000

3,35,000

Telephone

20000

50000

40000

40000

40000

Bank Charges

10000

10000

10000

10000

10000

Insurance

90000

90000

80000

85000

85000

Misc. Expense

25000

25000

25000

25000

25000

Professional Tax

3000

3000

3000

3000

3000

Repair Expense

1500

2000

2500

3500

4500

21,79,500

19,15,000

18,10,500

19,51,500

20,92,500

81000

81000

81000

81000

81000

20,98,500

18,34,000

17,29,500

18,70,500

20,11,500

6,28,550

5,50,200

5,18,850

5,61,150

6,03,450

14,69,950

12,83,800

12,10,650

13,09,350

14,08,050

Salary

Income before Interest& Tax

Less: Interest
Income Before Tax
less: Tax (30%)
Net Profit (AfterTax)

81

Projected balance sheet

Table 5.6
PARTICULAR

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

Partners Capital
Total Partners Capital

20,00,000

20,00,000

20,00,000

20,00,000

20,00,000

Secured Loan(sbi)

30,00,000

30,00,000

30,00,000

30,00,000

30,00,000

Share capital

20,00,000

20,00,000

20,00,000

20,00,000

20,00,000

2313778

2494008

21313778

21494008

Reserves and Surplus

Total Liabilities

2910748

3347990

3906984

21910748

22347990

22906984

Assets
Fixed Assets
Computers

40000

50000

55000

60000

61000

Water purifier

10000

12000

13000

15000

17000

Plant

70,000

70000

70000

70000

70000

Machinery

50000

50000

50000

50000

50000

TOTAL FIXED ASSETS

1,70,000

1,82,000

1,88,000

1,95,000

1,98,000

TOTAL

1,53,000

1,63,800

1,69,200

1,75,500

1,78,200

Current Assets
Cash & Bank

5125000

4505463

6354751

4351420

TOTAL CURRENT ASSETS 5125000

450463

6354751

4351420

4556560

Dep

18200

18800

19500

19800

17000

82

Cash flow
Table 5.7
PARTICULAR

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

Cash received fromcustomer

11,91,000

10,00,000

12,00,000

15,00,000

16,00,000

Cash paid to employers

(3,35,000)

(3,35,000)

(3,35,000)

(3,35,000)

(3,35,000)

Total

856000

665000

856000

1165000

1265000

70,000

70000

70000

70000

70000

50000

50000

50000

50000

50000

120000

120000

120000

120000

Cash flow from investing

Purchase from plant

Purchase machinery

Net cash in investing activates 120000

Cash flow financing
Share capital

2000000 2000000 2000000 2000000 2000000

Loan payment

Total cash flow

2120000 2120000 2120000 2120000 2120000

83

CHAPTER-6
CONCLUSION &
LIMITATIONS

84

6.1 CONCLUSION :The oil and gas market is highly fragmented. India has one of the fastest growing
economies in the world, and the demand for oil and gas is rising at a matching rate.
There has been a president gap between demand and domestic availability of oil and
gas. India has emerged the worlds largest importer of oil and gas. Now india has
entered this cut-throat competitive market by the import contract of oil and gas.
According to SGM model ONGC is leading indicator in oil and gas industry with
highest profit and provide highest number of products compare to other two players.
According to analysis of five force model threats of new entrants is low because of
requirement of investment is in very lager amount of money and threat of substitute
products is very high because other competitive firm also provide more number of
products. According to trend analysis the trend of operating income of oil and gas
industry is increase readily except ONGC. The net profit of oil and gas industry is
very good and it increases year by year.

6.2 LIMITATION :-

We take only those companys data which are available in market.

We are not considering all analytical models.

85

CHAPTER 7
BIBLOGRAPHY

86

BOOKS:

By,
Thomsan Arthur, A. J Strickland, Gamble E John, Arun K. Jain

Crafting and Executing Strategy( Special Indian Edition), 14

th

Edition, TMH Production.

WEB SITES:

www.way2wealth.com
www.indiainfoline.com
www.atmaindia.com

WEB LINKS:

http://www.atmaindia.org/Export.htm
http://www.atmaindia.org/Radialisation.htm
http://www.atmaindia.org/Redreadin

87

CHAPTER-8
ANNEXURE

88

ONGC BALANCESHEET:Table 7.1

(Rs in Crs)
Year

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10

SOURCES OF FUNDS :
Share Capital

4,277.76

4,277.76

4,277.76

4,277.76

2,138.89

1,32,447.25

1,20,175.46

1,08,678.97

93,226.67

85,143.71

Equity Share Warrants

Equity Application Money

1,36,725.01 1,24,453.22

1,12,956.73

97,504.43

87,282.60

Reserves Total

Total Shareholders Funds

Secured Loans

4,500.00

Unsecured Loans

16,405.65

4,500.00

16,405.65

26,904.98

23,311.61

21,875.05

21,405.97

1,63,629.99 1,47,764.83

1,39,331.78

1,18,910.40

1,03,688.25

Total Debt
Other Liabilities
Total Liabilities
APPLICATION OF FUNDS :
Gross Block

1,08,504.44

97,014.14

90,512.34

80,938.59

71,553.78

78,013.26

69,321.75

68,656.70

62,137.55

55,900.09

211.93

208.91

175.49

161.5

5.18

30,279.25

27,483.48

21,680.15

18,639.54

15,648.51

Capital Work in Progress

25,557.79

24,891.24

26,879.28

21,724.12

15,791.03

Investments

17,204.31

9,173.05

5,216.24

5,182.79

5,772.03

Inventories

6,423.65

6,158.74

5,533.59

4,477.95

5,052.02

Sundry Debtors

8,165.67

6,863.72

6,194.82

3,994.68

3,058.64

Cash and Bank

10,798.88

13,218.59

20,124.56

14,481.09

18,231.04

4,996.21

4,640.16

4,247.69

3,328.76

27,803.07

30,384.41

30,881.20

36,100.66

26,282.48

54,144.77

Less : Accumulated Depreciation

Less:Impairment of Assets
Net Block
Lease Adjustment

Current Assets, Loans & Advances

Loans and Advances

Total Current Assets
Less : Current Liabilities and

89

Provisions
Current Liabilities

18,298.64

16,563.66

18,955.36

18,230.83

12,087.56

1,322.23

1,364.53

2,610.74

1,284.76

7,785.85

Total Current Liabilities

19,620.87

17,928.19

21,566.10

19,515.59

19,873.41

Net Current Assets

10,763.54

12,953.01

14,534.56

6,766.89

34,271.36

841.32

Deferred Tax Assets

9,705.38

8,470.05

6,481.81

6,619.03

6,238.76

Deferred Tax Liability

26,284.06

21,358.03

17,679.68

16,569.42

15,156.97

-16,578.68

-12,887.98

-11,197.87

-9,950.39

-8,918.21

30,620.52

33,711.32

35,842.59

32,971.79

1,63,630.00 1,47,764.83

1,39,331.78

1,18,910.40

1,03,688.25

23,963.37

18,338.43

16,463.94

Provisions

Miscellaneous Expenses
not written off

Net Deferred Tax

Other Assets
Total Assets
Contingent Liabilities

67,871.33

34,993.33

90

ONGC PROFIT AND LOSS ACCOUNT:Table 7.2

(Rs in Crs)
Year

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10

84,202.78

83,308.96

76,887.06

68,648.80

60,204.82

356.39

338.91

399.04

332.63

241.04

83,846.39

82,970.05

76,488.02

68,316.17

59,963.78

6,711.90

5,446.82

7,593.52

3,406.85

4,186.69

-104.28

23.02

91.34

12.91

118.04

90,454.01

88,439.89

84,172.88

71,735.93

64,268.51

92.15

190.95

283.58

294.4

290.53

380.77

334.96

316.18

285.6

260.38

9,667.20

9,043.22

6,041.58

5,838.84

5,268.50

Other Manufacturing Expenses

12,638.87

10,059.95

8,664.41

20,087.11

15,093.71

Selling and Administration Expenses

37,525.02

34,775.15

28,249.40

25,323.36

23,374.38

Miscellaneous Expenses

10,095.11

14,978.12

12,461.69

16,014.58

15,270.35

Less: Pre-operative Expenses Capitalised

23,303.28

19,888.00

16,017.26

25,989.16

21,505.43

Total Expenditure

47,095.83

49,494.36

39,999.58

41,854.73

38,052.42

Operating Profit

43,358.18

38,945.54

44,173.31

29,881.20

26,216.09

0.36

27.64

34.83

25.11

14.42

Gross Profit

43,357.82

38,917.90

44,138.48

29,856.09

26,201.67

Depreciation

10,925.89

8,373.57

7,495.92

2,239.72

1,220.07

Profit Before Tax

32,431.93

30,544.33

36,642.56

27,616.37

24,981.60

6,484.59

7,928.52

10,277.58

7,668.21

7,098.06

-5.41

-8.02

3,852.54

1,690.11

1,247.47

1,032.18

1,115.98

Reported Net Profit

22,094.81

20,925.70

25,122.92

18,924.00

16,767.56

Extraordinary Items

171.54

-35.19

2,106.23

Adjusted Net Profit

21,923.27

20,960.89

23,016.69

18,924.00

16,767.56

INCOME :
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Employee Cost

Interest

Tax
Fringe Benefit tax
Deferred Tax

Adjst. below Net Profit

91

P & L Balance brought forward

0.03

0.01

Statutory Appropriations

22,094.81

20,925.70

25,122.92

18,924.03

16,767.54

0.03

8,127.72

8,127.72

8,341.61

7,486.05

7,058.28

190

190

195

175

330

24.21

22.94

27.81

20.7

72.96

159.81

145.47

132.03

113.97

408.07

Appropriations
P & L Balance carried down
Dividend
Preference Dividend
Equity Dividend %
Earnings Per Share-Unit Curr
Earnings Per Share(Adj)-Unit Curr
Book Value-Unit Curr

92

OIL INDIA BALANCE SHEET:Table 7.3

(Rs in Crs)
Year

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10

601.14

601.14

240.45

240.45

240.45

20,107.04

18,610.34

17,480.89

15,361.42

13,525.23

20,708.18

19,211.48

17,721.34

15,601.87

13,765.68

Secured Loans

1,971.78

1,021.86

10.13

1,005.54

Unsecured Loans

7,810.91

35.95

8.75

21.25

37.5

9,782.69

1,057.81

18.88

1,026.79

37.5

Other Liabilities

755.13

448.13

403.76

325.1

Total Liabilities

31,246.00

20,717.42

18,143.98

16,953.76

13,803.18

3,346.06

3,123.43

3,534.03

3,320.24

3,211.05

2,196.41

1,920.97

2,475.68

2,330.54

2,135.83

1,149.65

1,202.46

1,058.35

989.7

1,075.22

Progress

2,077.16

1,769.01

1,131.50

1,218.24

328.66

Investments

11,456.61

1,857.07

2,614.19

890.41

859.44

SOURCES OF FUNDS :
Share Capital
Reserves Total
Equity Share Warrants
Equity Application
Money
Total Shareholders
Funds

Total Debt

APPLICATION OF
FUNDS :
Gross Block
Less : Accumulated
Depreciation
Less:Impairment of
Assets
Net Block
Lease Adjustment
Capital Work in

93

Current Assets, Loans

& Advances
Inventories

1,022.91

691.88

581.14

555.5

490.37

Sundry Debtors

465.67

902.67

1,051.81

932.2

659.67

Cash and Bank

11,543.68

12,132.93

10,935.48

11,767.45

8,542.91

Loans and Advances

2,263.80

1,850.43

2,014.76

1,295.32

2,613.58

15,296.06

15,577.91

14,583.19

14,550.47

12,306.53

1,520.59

1,708.55

2,304.83

2,135.88

1,804.53

847.89

1,185.03

1,621.52

1,047.57

1,501.75

2,368.48

2,893.58

3,926.35

3,183.45

3,306.28

12,927.58

12,684.33

10,656.84

11,367.02

9,000.25

18.38

Deferred Tax Assets

402.94

307.18

162.99

125.79

151.09

Deferred Tax Liability

1,717.13

1,525.81

1,239.72

1,274.84

1,171.99

Net Deferred Tax

-1,314.19

-1,218.63

-1,076.73

-1,149.05

-1,020.90

Other Assets

620.11

630.77

324.65

378.85

Total Assets

31,246.00

20,717.42

18,143.98

16,953.76

13,803.18

1,614.02

1,436.83

1,005.35

1,111.24

1,024.07

Total Current Assets

Less : Current
Liabilities and
Provisions
Current Liabilities
Provisions
Total Current
Liabilities
Net Current Assets
Miscellaneous
Expenses not written
off

Contingent Liabilities

94

OIL INDIA LIMITITED PROFIT AND LOSS ACCOUNT:Table 7.4

(Rs in Crs)
Year

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10

INCOME :
Sales Turnover

9,612.70

9,947.57

9,863.23

11,613.68

9,470.54

16.17

Net Sales

9,612.70

9,947.57

9,863.23

11,613.68

9,454.37

Other Income

1,628.64

1,530.45

1,416.67

873.89

954.18

-7.87

27.37

8.82

7.64

-10.57

11,233.47

11,505.39

11,288.72

12,495.21

10,397.98

5.7

32.94

27.98

38.02

24.52

51.52

1,956.42

1,751.26

1,904.60

1,510.92

1,178.71

865.58

725.32

529.52

544.42

1,550.71

2,913.68

3,077.33

2,419.05

3,314.33

4,030.43

Miscellaneous Expenses

291.85

240.67

814.45

2,261.04

489.45

Less: Pre-operative Expenses Capitalised

483.24

440.63

413.39

306.02

1,027.55

Total Expenditure

5,577.23

5,381.93

5,292.25

7,349.21

6,278.97

Operating Profit

5,656.24

6,123.46

5,996.47

5,146.00

4,119.01

68.78

2.6

9.37

13.13

3.65

Gross Profit

5,587.46

6,120.86

5,987.10

5,132.87

4,115.36

Depreciation

1,177.02

837.63

885.24

819.67

220.31

Profit Before Tax

4,410.44

5,283.23

5,101.86

4,313.20

3,895.05

Tax

1,333.58

1,551.99

1,727.26

1,297.32

1,163.46

95.56

141.9

-72.32

128.15

121.07

Reported Net Profit

2,981.30

3,589.34

3,446.92

2,887.73

2,610.52

Extraordinary Items

0.17

Adjusted Net Profit

2,981.30

3,589.34

3,446.92

2,887.73

2,610.35

Excise Duty

Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Administration Expenses

Interest

Fringe Benefit tax

Deferred Tax

Adjst. below Net Profit

95

P & L Balance brought forward

Statutory Appropriations

2,981.30

3,589.34

3,446.92

2,887.73

2,610.52

1,292.45

1,803.41

1,142.15

901.7

817.55

215

300

475

375

340

45.94

54.79

135.65

113.94

102.85

344.48

319.58

737.01

648.86

572.5

Appropriations
P & L Balance carried down
Dividend
Preference Dividend
Equity Dividend %
Earnings Per Share-Unit Curr
Earnings Per Share(Adj)-Unit Curr
Book Value-Unit Curr

96

HINDUSTAAN OIL EXPLORATION LIMITED BALANCESHEET :Table 7.5

(Rs in Crs)
Year

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10

Share Capital

130.51

130.51

130.51

130.51

130.51

Reserves Total

398.05

525.93

1,076.82

1,043.74

971.14

0.04

528.56

656.44

1,207.33

1,174.25

1,101.69

Secured Loans

9.22

22.69

36.74

39.82

82.72

Unsecured Loans

937.6

863.1

553.95

549.61

569.75

Total Debt

946.82

885.79

590.69

589.43

652.47

Other Liabilities

106.21

96.44

90.81

79.82

Total Liabilities

1,581.59

1,638.67

1,888.83

1,843.50

1,754.16

17.92

17.92

17.84

17.89

18.34

9.21

8.8

8.3

8.13

8.14

8.71

9.12

9.54

9.76

10.2

337.1

339.18

123.88

101.09

65.43

SOURCES OF
FUNDS :

Equity Share
Warrants
Equity Application
Money
Total Shareholders
Funds

APPLICATION OF
FUNDS :
Gross Block
Less : Accumulated
Depreciation
Less:Impairment of
Assets
Net Block
Lease Adjustment
Capital Work in
Progress

97

Investments

27.21

27.6

71.79

110.29

2.91

Inventories

36.87

39.18

46.89

44.04

43.25

Sundry Debtors

6.36

14.89

19.96

47.4

41.23

Cash and Bank

12.72

87.27

42.37

16.37

79.98

Loans and Advances

8.88

16.9

10.61

10.53

59.7

64.83

158.23

119.83

118.34

224.16

Current Liabilities

69.91

108.98

59.64

54.05

67.58

Provisions

0.06

0.14

0.17

0.33

80.82

69.97

109.11

59.81

54.38

148.4

-5.14

49.12

60.02

63.96

75.76

130.74

117.4

207.91

179.06

135.94

130.74

117.4

251

211.45

130.63

-43.09

-32.39

5.31

Other Assets

164.75

144.21

141.55

110.84

Total Assets

1,581.58

1,638.67

1,888.83

1,843.50

1,754.16

105.93

70.32

73.75

116.62

135.02

Current Assets,
Loans & Advances

Total Current
Assets
Less : Current
Liabilities and
Provisions

Total Current
Liabilities
Net Current Assets
Miscellaneous
Expenses not written
off
Deferred Tax
Assets
Deferred Tax
Liability
Net Deferred Tax

Contingent
Liabilities

98

HINDUSTAN OIL EXPLORATION LIMITED PROFIT AND LOSS

ACCOUNT:Table 7.6

(Rs in Crs)
Year

Mar 14

Mar 13

Mar 12

Mar 11

Mar 10

INCOME :
Sales Turnover

59.85

108.61

151.4

329.85

140.06

59.85

108.61

151.4

329.85

140.06

5.78

11.63

25.01

8.81

13.86

-2.89

0.17

-7.39

-1.39

4.97

62.74

120.41

169.02

337.27

158.89

0.22

0.23

0.19

1.23

0.86

Employee Cost

10.06

9.94

10.83

10.36

13.05

Other Manufacturing Expenses

65.47

17.14

34.86

34.81

12.23

Selling and Administration Expenses

15.28

24.42

24.78

55.34

30.58

Miscellaneous Expenses

-7.33

564.58

2.53

-17.05

-18.12

14.72

83.71

616.31

58.47

84.69

38.6

-20.97

-495.9

110.55

252.58

120.29

13.65

10.57

10.9

12.39

8.04

Gross Profit

-34.62

-506.47

99.65

240.19

112.25

Depreciation

103.05

87.45

55.46

122.29

47.19

-137.67

-593.92

44.19

117.9

65.06

-12.86

0.37

Fringe Benefit tax

Deferred Tax

-43.09

10.7

37.7

23.1

Reported Net Profit

-124.81

-550.83

33.49

80.2

41.59

Extraordinary Items

1.98

-112.58

0.02

0.05

Adjusted Net Profit

-126.79

-438.25

33.47

80.15

41.59

Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost

Less: Pre-operative Expenses Capitalised

Total Expenditure
Operating Profit
Interest

Profit Before Tax

Tax

99

Adjst. below Net Profit

-257.75

293.08

259.59

186.99

145.4

Statutory Appropriations

Appropriations

7.6

-382.56

-257.75

293.08

259.59

186.99

Dividend

6.52

Preference Dividend

Equity Dividend %

Earnings Per Share-Unit Curr

2.57

6.06

3.19

40.5

50.3

92.51

89.97

84.41

P & L Balance brought forward

P & L Balance carried down

Earnings Per Share(Adj)-Unit Curr

Book Value-Unit Curr

100