Strategies of a large oil Company

The economy:

The year 2008-09 will go down in the history for one of the worst global recessions, which witnessed crumbling of established institutions bankruptcy of major investment banks closure of companies, liquidity crunch, job cuts etc all extremely painful. Crash of the financial giants sent an economic shock wave all across the world. The advanced economies started shrinking and many entered into the negative territories. The world now describes it as the worst economic recession post World War II.

However, during this depressive phase, China and India demonstrated remarkable resilience. These economies did slip down from the pedestal of 9 – 11 % GDP growth rate, but still managed to register growth rates much better than the major economies in pre-downturn period. As for India, the International Monetary Fund (IMF) survey, World Economic Outlook, in its update on July 8, 2009 has projected India’s growth rate at a healthy 6.5% in 2010, second only to China amongst the major economies.

The Indian economy could valiantly withstand the global meltdown mainly due to admirable resilience from some of the companies, particularly PSUs, which is personalized by ONGC the company of the title of this article. Amidst global trend of shelving and stalling of projects, the Board of the Company decided to go ahead with its planned investments in core E&P activities and in other major projects. This was in keeping with their resolve to lay strong foundation for sustainable future growth and value creation from the shareholders.

Industry Scenario:

Responding to the economic meltdown, oil prices nose dived from the peak of USD 147 per barrel in July 2008 to USD 33 per barrel in December 2008. The prices crashed down not because of any supply glut but due to sudden slump in demand which increased the spare capacity and in turn the sentiments got depressed in the oil markets.

However, it must be realized that this spare capacity cushion is bound to erode once the economies recover which seems to be happening faster than expected. We apprehend this again bring uncertainty and volatility in the markets. Steep decline in crude oil prices and the crunching credit squeeze already had a telling effect on investments in development projects. Consequently future supply growth is bound to suffer, with pressures on oil prices. The crude prices have already moved up steadily and are currently hovering around USD 70 per barrel.

Even otherwise on supply all mature producing fields across the world are now in a phase of natural decline. Some reports suggest that many of them are declining at a very alarming rate of over 9%. Consequently oil production has dipped or at best remained flat in almost all this regions except OPEC and FSU countries in the year 2008.

However, there are few silver linings like the recent BP discovery, Tiber, in the Gulf of Mexico which augurs well for the future. We know that most of recent discoveries are highly capital and technology intensive and therefore would require a favorable crude oil price regime. Thus, resources like the oil sands, heavy oil, pre-salt discoveries in deep and ultra deep water locales etc may be economically viable only above a price of USD 60 – 70 per barrel.

These predicaments haven’t been allowed to dampen company’s spirit which is reflected in the Capital Expenditure (CAPEX) of Rs 21,820 Crore, the highest ever for domestic activities in 2008-09, more than 94% being on the core activity Exploration and Production (E&P) of hydro carbons. OVL invested Rs 16,105 Crore, again the highest ever towards overseas projects during FY’09. These investments were guided by the strategic pursuits of ONGC and the listed priorities which have been mapped for sustained growth.

Strategic Pursuits & Performance:

Intensified exploration

During FY’09 ONGC accreted 284.81 million metric tones of oil equivalent (MToE) of in-place volume of hydrocarbons; the highest in the two decades. Ultimate reserve accretion of 68.90 MToE from domestic operated fields is, again the highest in 18 years. This is the result of the first strategic pursuit of ONGC i.e. intensified exploration which aims to create new oil and gas assets on continuous basis.

Improving factor:

The second strategic pursuit of ONGC has been improving recovery factor. The Company has systematically been implementing improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) schemes is 15 major fields since 2001. These schemes have helped in improving recovery factor in these fields from 28% in 2000-01 to 33% in 2008-09. During this period the Company invested Rs 14,000 Crore in fourteen IOR / EOR schemes, which have already been completed. Seven schemes are under implementation with envisaged investments of over Rs 16,000 crore.

Overseas production:

OVL, which acquired Imperial Energy in FY’09 has raised production from Imperial fields, situated in the Western Siberian province of Tomsk, from 6,000 barrels of oil per day (bpd) to 11,500 bpd in just 6-7 months of taking over. In addition, production from BC – 10 blocks in Brazil commenced production from 13th July 2009.


Another subsidiary of the Company, Mangalore Refinery and Petrochemical Limited (MRPL) achieve the highest ever throughput of 130%. MRPL’s capacity expansion project from 9.69 MMTPA to 15 MMPTA is progressing well.

E&P Infrastructure:

ONGC has been systematically investing in technology; production systems; renewal & revamping of old infrastructure with the objective to sustain production levels.

New & Alternate sources of energy:

Developing new sources of energy, beyond hydrocarbons is your Company’s yet another priority. Your company made a significant Coal Bed Methane (CBM) discovery in Bokaro during FY’09 Production from the earlier discovery in Parbatpur is expected to commence this year.

Exploration and Exploitation of Underground Coal Gasification (UCG) has been given a renewed impetus. Environmental clearance for the first UCH Pilot site at Vastan, Gujarat has already been obtained and its design has been firmed up. Pilot project is expected to commence production next year.

Corporate Social Responsibility (CSR)

ONGC has also enhanced its commitment towards Corporate social Responsibility (CSR). It has resolved to earmark 2% of the net profit (compared to 0.75% earlier) for the various CSR projects which will be looked after by a dedicated group at the corporate level.