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Oil and natural gas corporation limited

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ACKNOWLEDGEMENT

As we know that for reward, effort is necessary and for effort, motivation is necessary, same is with the success of this project. It would not have been possible without motivation and proper guidance. So I take the opportunity to thank all those who have motivated me and guided me throughout the entire project. I extend my thanks to my college ICFAI Business school of Management for providing me the opportunity to understand and explore the corporate world. I take the opportunity to thank people who have helped me in my project, my company project guide - Ms. Uma Rajamani (MH ASSET - MANAGER) and faculty project guide - Ms.Prema Chandran.

OBJECTIVE OF THE STUDY

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

BROAD APPROACH AND METHODOLOGY

Type

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

Purpose

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

Data collection

The data collection has been made in two ways:
  1. Primary source: Data has been collected with the help of constant interaction with my mentor Ms. Uma Rajamani - Manager (F&A).
  2. Secondary source: Data has been collected with the help of :
    1. Annual report of ONGC.
    2. ONGC reports.
    3. Internet.
This source helped me in collecting information about the company as a whole, financial performance. Before making use of secondary data both the data and its source were evaluated. Particular attention was paid to definitions used, measurement error, source bias, reliability and the time span of the secondary data.

HIGHLIGHTS OF THE INDIAN OIL AND NATURAL GAS SECTOR

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

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

OIL INDUSTRY INTRODUCTION TO THE OIL INDUSTRY

Energy in all its forms is critical to economic growth, development, and social welfare. The world's need for reliable and affordable energy supplies is growing. Energy is a critical input for economic growth and its availability determines the quality of both, the national economy and the life of citizens. Sustainable economic progress hinges crucially around the supply of stable and competitively priced energy. Oil is a fungible, international commodity whose ownership and ultimate destination is determined by market forces once it leaves the producing country. No country can effectively isolate itself from changes elsewhere in the market, nor is it likely that any nation can take actions that do not indirectly affect other nations. Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture. OIL industry is considered to be the back bone of an economy because this is the main source of energy till date. Any economy around the world would fail to precede a single step in the absence of petroleum industry. Thus, before using this energy source, the crude petroleum is required to be refined in the petroleum refineries for extracting various fractions for energy generation namely, petrol, natural gas, kerosene, asphalt and many more. The processes that are involved in the petroleum industry are:
  • Drilling at the site of petroleum for making well so that the crude oil could be extracted.
  • Refining of the crude oil
  • Storing of the extracted oil in a secured place.
  • Transportation of the stored crude oil is required to be done to the different refineries.
  • Processing of the crude oil needs to be done in the processing units of refineries for converting it into usable fuel form along with the other important derivative products.

Core activities of oil and natural gas sector

Exploration and Production

India is heavily import dependent for its oil and gas requirements. Our total imports of crude oiland petroleum products in the year 2008-09 amounted to 146.441 million metric tones (MMT), worth about Rs. 4,01,631 crore. The country also exported petroleum products amounting to 36.414 MMT, earning foreign exchange worth nearly Rs. 1,15,987 crore. The gap between demand and availability of crude oil from indigenous sources is likely to increase over the years. In case of gas, this gap is expected to decrease with production of gas from KG basin. The growing gap in demand and supply of oil and the shortfall in supply of gas requires greater emphasis to be placed on exploration and production. Objectives of Exploration and Production activities
  1. To undertake a complete appraisal of the Indian Sedimentary basin area for tapping thehydrocarbon potential.
  2. To optimize production of crude oil and natural gas in the most efficient manner.
  3. To keep pace with the technological advancements and remain at the technological forefront in the global exploration and production industry.
  4. To achieve a near zero impact on environment.

Refining and Marketing

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

Tariff and Pricing

A rational tariff and pricing policy is vital to ensure healthy growth of the hydrocarbonsector and to protect the consumers as well. Objectives of Tariff and Pricing Policy
  1. To provide incentives for cleaner, greener and quality fuels so as to promote an environment friendly hydrocarbon sector.
  2. To balance the need to boost Government revenue with the need to align taxes and duties with Asia- Pacific countries and the prices to international levels.
  3. To promote new investments, by ensuring adequate protection to domestic producers
The industry is usually divided into three major components: upstream, midstream and downstream.
  • The upstream oil sector is known as exploration and production sector. It includes the searching for potential underground or underwater oil and gas fields, drilling of exploratory wells, and subsequently operating the wells that recover and bring the crude oil.
  • The midstream processes, stores, markets and transports the crude oil.
  • The downstream oil sector is used to refer to the refining of crude oil, selling and distribution.
Oil companies measure oil production in the unit of barrels (bbl). Oil & Natural Gas Commission was established on 14th August, 1956 as a statutory body under Oil & Natural Gas Commission Act (The ONGC Act), for the development of petroleum resources and sale of petroleum products. ONGC was converted into a Public Limited Company under the Companies Act, 1956 and named as “Oil and Natural Gas Corporation Limited” with effect from 1st February, 1994. The Government disinvested around 10% of the equity shares of ONGC in March 2004 through a public offer in the domestic capital market at Rs. 750 per share. After the above disinvestment, the shareholding of the Government in ONGC came down to around 74.15%.

HIGHLIGHTS FOR THE YEAR 2009-10.

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

ASSETS /PLANTS/ BASINS/ REGIONS :

A. ASSETS/ PLANTS:

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

B. BASINS:

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

C. REGIONS:

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

PHYSICAL PERFORMANCE DURING 2008-09 & 2009-10

UNIT 2008-09 ACTUAL 2009-10 BE TARGET 2009-10 ACTUAL APR-DEC 09 PROJECTIONS JAN-MAR 2010
SEISMIC SURVEY
ON-LAND 2D (GLK/LK) 3D (SQ. KMS) 2275.51 5526.86 1502 5090 2004.58 2898.28 3045.42 1009.72
OFFSHORE 2D (GLK/LK) 3D (SQ. KMS) 74850.89 21258.14 26628 24276 16146.40 9066.29 9471.60 11862.71
DRILLING
EXPLORATORY DEVELOPMENT TOTAL (EXPL + DEV) METERAGE (‘000M) WELLS (NOS.) METERAGE (‘000M) WELLS (NOS.) METERAGE (‘000M) WELLS (NOS.) 298.95 106 477.15 218 776.10 324 458.55 148 491.45 225 950.00 373 258.25 78 391.56 186 649.81 264 182.18 72 71.76 39 254.14 111
PRODUCTION
CRUDE OIL MMT 25.367 26.950 18.639 7.125
NATURAL GAS MMM3 22486.42 22248.23 17467.34 4826.66
VALUE ADDED PRODUCTS (VAP)
LPG 000'T 1026.32 1072.0 815.84 237.16
C2-C3 000'T 496.66 510.0 398.25 111.75
SKO 000'T 177.76 160.54 124.07 32.17
ARN/LAN 000'T 1553.01 1511.46 1196.07 297.39
OTHERS 000'T 59.7 55.0 45.59 8.15
TOTAL VAP 000'T 3313.45 3309.0 2579.82 686.62

FINANCIAL PERFORMANCE DURING 2008-09 & 2009-10

PARAMETERS 2008-09 ACTUAL 2009-10 BE 2009-10 ACTUAL APR-DEC ‘09 PROJECTIONS JAN - MAR ‘10 ESTIMATES
PLAN OUTLAY 21820.11 20867.58 14959.82 9760.39
TOTAL INCOME (INC. INTEREST INCOME) 60252.54 64731.06 47743.54 14917.04
NET PROFIT 16126.32 17556.23 12991.14 2550.48

PROGRESS OF PROJECTS : MAJOR PROJECTS COMPLETED DURING THE YEAR

SI. NO PROJECT DATE OF COMPLETION APPROVED COST (RS)
1. ADDITIONAL DEVELOPMENT OF BASSEIN FIELD & INSTALLATION OF 2ND STAGE BOOSTER COMPRESSOR 26.07.09 2937.01
2. DEVELPOMENT OF VASAI EAST 30.09.09 1688.38

MAJOR PROJECTS APPROVED DURING THE YEAR

SI. NO PROJECT APPROVED COST (RS) STATUS/ ANTICIPATED COMPLETION
1. HEERA RE-CONSTRUCTION 706.70 APRIL 2010
2. NEELAM RE-CONSTRUCTION 305.08 APRIL 2011
3. ADDL. GAS PROCESSING FACILITY AT HAZIRA 370.11 APRIL 2011
4. ADDL. PROCESSING UNITS AT URAN 1797.35 DEC 2011
5. ASSAM RENEWAL PROJECT (GROUP A: LAKWA-LAKHMANI & MORAN CTF) 2465.15 MARCH 2013
6. MHN RE-DEVELOPMENT PH-II 6855.93 SEPT 2010

MAJOR INITIATIVES

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

NON-CONVENTIONAL SOURCES OF ENERGY

(i) Wind Power Project:

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

(ii) Installations of Solar thermal plants:

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

HEALTH, SAFETY AND ENVIRONMENT (HSE)

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

CONSERVATION OF ENERGY AND PETROLEUM PRODUCTS

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

ONGC VIDESH LIMITED (OVL)

ONGC Videsh Limited (OVL), a wholly-owned subsidiary of ONGC, was incorporated as Hydrocarbons India Private Limited on 5th March, 1965 with an initial authorised capital of Rs. 5 lakh, for the business of international exploration and production. Its name was changed to ONGC Videsh Limited on 15th June, 1989. The authorised and paid-up share capital of OVL as on 31st March, 2007 was Rs. 1,000 crore. The primary business of the company is to prospect for oil and gas acreages abroad. These include acquisition of oil and gas fields in foreign countries as well as exploration, production, transportation and sale of oil and gas. OVL currently has participation in 39 projects in 15 countries namely, Vietnam (3 projects), Russia (2 projects), Sudan (3 projects), Iran (1 project), Iraq (1 project), Libya (3 projects), Myanmar (5 projects), Syria (2 projects), Egypt (2 projects), Cuba (2 projects), Nigeria Sao Tome Principe JDZ (1 project), Brazil (5 projects), Nigeria (2 projects), Colombia (6 projects), and Venezuela (1 project). OVL's share of crude oil and natural gas production is currently from 9 projects in seven countries, viz., Russia, Sudan, Vietnam, Syria, Colombia, Venezuela and Brazil. OVL's share of crude oil and natural gas production in 2009-10 is expected to be 8.142 Million. Metric Tonne of oil equivalent (MMTOE) including of 2.017 BCM of natural gas. The other 30 projects being implemented by OVL are at various stages of exploration and appraisal. The gross revenue of Rs.13,444 crore is estimated by OVL during the financial year 2009-10 with net profit of Rs.412 crore. Further, OVL is pursuing acquisition of various oil and gas exploration and production opportunities in Russia, Central Asia, Latin America, Africa, and Middle East, which are at different stages.
  • Established as a joint stock company with limited liabilities on November 5,1999, as part of the restructuring of China National Petroleum Corporation (CNPC).
  • It was respectively listed on the NYSE (ADS code: PTR) and the HKSE (stock code: 00857) in April 2000 and on the Shanghai Stock Exchange (stock code:601857) in November 2007.
  • As at end of 2010, CNPC holds 86.292% shares of Petro China.
  • Ranked 7th by Platts in the “Top 250 Global Energy Companies” published by Platts Energy in 2010, which was the top ranking among enterprises in the Asia Pacific region for eight consecutive years.
  • Included as a constituent stock of the SSE Social Responsibility index and the Hang Seng Corporate Sustainability Index.
  • Adheres to the corporate policy of “Caring for Energy, Caring for You” and core business management principles of “Honesty, Innovation, Performance, Harmony and Safety”.
  • Perseveres in carrying out business in a more effective, safe and environmentally friendly manner; pursues the balance among the economy, environment and society; provides sustainable energy for economic and social development; and creates a better life for people.

CORE BUSINESSES

Engaged in a broad range of businesses related to oil and natural gas, which mainly include the exploration, development and production of crude oil and natural gas, the refining, transportation, storage and marketing of crude oil and refined products, the production and marketing of primary petrochemical products, their derivatives and other chemicals, and the transportation and marketing of natural gas.
YEAR TOTAL ASSETS (RMB)
2010 16565
2009 14503
2008 11962
2007 10696
2006 8803
YEAR TURNOVER (RMB)
2010 14654
2009 10193
2008 10726
2007 8375
2006 6914
YEAR TAXES (RMB)
2010 2870
2009 2045
2008 2227
2007 1722
2006 1614
YEAR NET PROFIT (RMB)
2010 1400
2009 1034
2008 1145
2007 1468
2006 1435
  • Chevron is an American multinationalenergycorporation. Headquartered inSan Ramon, California, and active in more than 180 countries.
  • It is engaged in every aspect of theoil,gas, andgeothermalenergy industries, includingexplorationandproduction, refining, marketing and transport; chemicals manufacturing and sales; andpower generation.
  • Chevron is one of the world's six "super major" oil companies. For the past five years, Chevron has been continuously ranked as one of America's 5 largest corporations byFortune 500.

Global Snapshot

  • Second-largest integrated energy company in the United States and among the largest corporations in the world, based on market capitalization.
  • Business activities around the world.
  • Diverse and highly skilled global workforce consists of approximately 58,000 employees and about 4,000 service station employees.
  • Capital and exploratory expenditures - Invested $21.8 billion in 2010; announced 2011 projected outlays of $26 billion, with continued focus on exploration and production

Financial Highlights - 2010

  • Sales and other operating revenues - $198 billion
  • Net income attributable to Chevron Corporation - $19 billion, or $9.48 per share - diluted
  • Return on capital employed - 17.4 percent
  • Return on average stockholders' equity - 19.3 percent
  • Cash dividends - $2.84 per share

Accomplishments - 2010

Upstream

  • Exploration - Achieved an exploration drilling success rate of 57 percent. Results included several natural gas discoveries offshore Western Australia. Additionally, acquired offshore exploration leases in China, Liberia, Turkey and the United States and captured shale gas acreage in Canada, Poland and Romania.
  • Production - Produced 2.763 million net oil-equivalent barrels per day, approximately a 2 percent increase over 2009, with about 75 percent of the volume outside the United States in more than 20 different countries.
  • Acquisition - Announced plans to acquire Atlas Energy, Inc., providing a shale gas acreage position in the Marcellus Shale, primarily in southwestern Pennsylvania. (Acquisition completed in February 2011.)

Major projects

  • Continued progress on the company's development projects to deliver future production growth.
  • Achieved first production at the deepwater Perdido Regional Development Project and the Athabasca Oil Sands Project Expansion and continued to increase production at the Tengizchevroil Sour Gas Injection/ Second Generation Plant project in Kazakhstan.
  • The company also reached final investment decision on a number of major capital projects, including Jack/St. Malo, Big Foot and Tahiti 2 in the Gulf of Mexico; Papa-Terra in Brazil; and expansion of the Caspian pipeline in Kazakhstan and Russia.

Natural gas projects

  • Delivered first gas from the Escravos Gas Project Phase 3A in Nigeria.
  • In Australia, continued construction on Barrow Island and awarded approximately $25 billion of contracts for materials and services for the Gorgon Project.
  • The company also executed additional binding and nonbinding agreements with Asian customers for the delivery of liquefied natural gas from the Gorgon and Wheatstone projects.

Downstream

  • Refinery upgrades - Completed project startups, including the Pascagoula, Mississippi, refinery continuous catalytic reformer and the Yeosu, South Korea, gas-oil hydrocracker. Construction also began on a processing unit designed to further improve the El Segundo, California, refinery's reliability, high-value product yield and flexibility to process a range of crude slates.
  • Chemical - Commenced operations on the ethylene cracker and polyethylene/normal alpha olefins plants in Qatar. Continued construction on a petrochemical project in Saudi Arabia with startup expected in late 2011.
  • Sales of nonstrategic assets - Sold a 23.4 percent ownership interest in Colonial Pipeline in the United States. Additionally, concluded the sales of businesses in Malawi, Réunion and Zambia and 21 product terminals.

Corporate Strategies

  • Financial-return objective - Create stockholder value and achieve sustained financial returns from operations that will enable Chevron to outperform competitors.
  • Enterprise strategies - Invest in people to strengthen organizational capability and develop a talented global workforce that gets results the right way. Execute with excellence through rigorous application of the company's operational excellence and capital stewardship systems and disciplined cost management. Grow profitably by using our competitive advantages to maximize value from existing assets and capture new opportunities.
  • Major business strategies - Upstream - grow profitably in core areas, build new legacy positions and commercialize the company's equity natural gas resource base while growing a high-impact global gas business. Downstream - improve returns and grow earnings across the value chain. The company also continues to utilize technology across all its businesses to differentiate performance and to invest in profitable renewable energy and energy efficiency solutions.
  • TheExxon Mobil Corporation, orExxonMobil, is anAmericanmultinationaloilandgascorporation.
  • It is a direct descendant ofRockefeller's StandardCompany,and was formed on November 30, 1999, by the merger ofExxonandMobil. Its headquarters are inIrving, Texas.
  • ExxonMobil is one of thelargest publicly traded companiesin the world, having been ranked either #1 or #2 for the past 5 years. However they are currently 6th according to Forbes Global 2000.
  • Exxon Mobil's reserves were 72 billion oil-equivalent barrels at the end of 2007 and, at then (2007) rates of production are expected to last over 14 years.
  • With 37oil refineriesin 21 countries constituting a combined daily refining capacity of 6.3 million barrels, Exxon Mobil is the largest refiner in the world,a title that was also associated with Standard Oil since its incorporation in1870.

2010 RESULTS AND HIGHLIGHTS

  • Record performance in workforce safety that continues to lead industry.
  • Strong earnings of $19.3 billion in a challenging business environment.
  • Total shareholder distributions of $26 billion.
  • Industry-leading return in average capital employed of 16 percent.
  • Start-up of eight major upstrwam projects.
  • Total net production of liquids and natural gas available for sale of 3.9 million oil-equivalent barrels per day.
  • Proved oil and gas reserve additions of 2.0 billion oil-equivalent barrels, replacing 134 percent of production excluding asset sales and determined on ExxonMobil's basis.
  • Start-up of a world-scale, fully integrated refining and petrochemical complex in Fujian Province, China.

Strategies

Upstream

  • Identify and selectively pursue the highest-quality exploration opportunities.
  • Invest in project that deliver superior returns.
  • Maximize profitability of existing oil and gas production.
  • Capitalize on growing natural gas and power markets.

Downstream

  • Maintain best-in-class operations, in all respects.
  • Provide quality, value products and services to our customers.
  • Lead industry in efficiency and effectiveness.
  • Capitalize on integration with other ExxonMobil businesses.
  • Selectively invest for resilient, advantaged returns.
  • Maximize value from leading-edge technologies.

Chemical

  • Focus on businesses that capitalize on core competencies.
  • Consistently deliver best-in-class performance.
  • Build proprietary technology positions.
  • Capture full benefits of integration across ExxonMobil operations.
  • Selectively invest in advantaged projects.

FINANCIAL STATEMENT

INTRODUCTION TO BALANCESHEET

A balance sheet is a list of assets and liabilities and claims of a business at some specific point of time and is prepared from an adjusted Trial Balance. It shows the financial position of a business by detailing the source of funds and utilization of these funds. A Balance Sheet shows the assets and liabilities grouped, properly classified and arranged in a specific manner.

USES OF BALANCE SHEET

  • It enables us to ascertain the proprietary interest of a person

Or business organization.

  • It enables us to calculate the actual capital employed in the business.
  • The lender can ascertain the financial position of the business.
  • It may serve as the basis for determining purchase consideration of the business.

LIMITATION OF BALANCE SHEET

  • The balance sheet can not reflect the value of certain factors

Such as skill and loyalty of staff.

  • A conventional balance sheet may mislead untrained readers
In inflationary situations.

INTRODUCTION TO PROFIT AND LOSS

ACCOUNT

The Profit & Loss account is also known as the income statement. It can be defined as a report that summaries the revenues and expenses of an accounting period to reflect the changes in various critical areas of firm's operation. It is of greatest interest and import and importance to end-users of accounting statements because it enables them to ascertain whether the business operations have been profitable or not during that particular period. The important destination between the balance sheet and income statement is for a period of one year. The two broad categories of item shown in the income statement are revenue and expenses. Revenues derived from a company's operation say manufacturing and selling products. During transaction business has also incurred revenues other than main business operation. Expenses are occurred in day-to-day transactions. Here, expenses regarding manufacturing activities, office and administrative expenses are considered. By deducting total expenses from total revenue we get profit and by deducting total revenue from total expenses we get total loss. Income tax amount is also decided by profit that incurred in business with help of this statement.

INTRODUCTION TO CASH FLOW STATEMENT

Cash is the nerve center around which business activity flow. The profit figure is shown in the profit & loss statement in the book profit. It does not represent cash profit. For knowing the cash profit we prepare cash flow statement in the business. This statement provides information about the cash flows of an enterprise. This statement is also useful in taking economic decisions that are taken by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents. The cash flow statement deals with the provision of information about the historical changes in cash. Cash flow statement which classifies cash flows during the period among (i) Operating (ii) investing (iii) financing activities.

FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis will help business owners and other interested people to analyse the data in financial statements to provide them with better information about such key factors for decision making and ultimate business survival. Purpose: To use financial statements to evaluate an organisation's - Financial performance - Financial position. To have a means of comparative analysis across time in terms of: - Intracompany basis (within the company itself) - Intercompany basis (between companies) - Industry Averages (against that particular industry's averages) To apply analytical tools and techniques to financial statements to obtain useful information to aid decision making. Financial statement analysis involves analysing the information provided in the financial statements to: - Provide information about the organisation's:
  • Past performance
  • Present condition
  • Future performance
- Assess the organisation's: Earnings in terms of power, persistence, quality and growthSolvency Effective Financial Statement Analysis To perform an effective financial statement analysis, you need to be aware of the organisation's: - business strategy - objectives - Annual report and other documents like articles about the organisation in newspapers and business reviews. These are called individual organisational factors. Requires that you:
  • Understand the nature of the industry in which the organisation works. This is an industry factor.
  • Understand that the overall state of the economy may also have an impact on the performance of the organisation.
? Financial statement analysis is more than just “crunching numbers”; it involves obtaining a broader picture of the organisation in order to evaluate appropriately how that organisation is performing Tools of financial statement analysis The commonly used tools for financial statement analysis are:
  • Financial Ratio Analysis
  • Comparative financial statements analysis:
- Horizontal analysis/Trend analysis - Vertical analysis/Common size analysis/ Component Percentages

FINANCIAL RATIO ANALYSIS

Financial ratio analysis involves calculating and analysing ratios that use data from one, two or more financial statements. Ratio analysis also expresses relationships between different financial statements. Financial Ratios can be classified into 4 main categories: a. Profitability Ratios 3 elements of the profitability analysis: Analysing on sales and trading margin - focus on gross profit Analysing on the control of expenses - focus on net profit Assessing the return on assets and return on equity Gross Profit % = Gross Profit * 100 Net Sales Gross profit ratio indicates to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. Net Profit % = Net Profit after tax * 100 Net Sales Net profit ratio is used to measure the overall profitability. This ratio indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Operating profit % = net profit before tax *100 Net sales Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit. b. Liquidity or Short-Term Solvency ratios Working capital management is important as it signals the firm's ability to meet short term debt obligations. Working Capital = Current assets - Current Liabilities Working capital is an amount of money borrowed from a bank or other lender and used by a new business for money to keep operations going and pay business bills during the startup period, when income is usually less than expenses. Some companies can generate cash so quickly they actually have a negative working capital like petro china and Exxon Mobil. A negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable or in some cases it means that the company is facing bankruptcy. Current Ratio = Current Assets Current Liabilities The objective of current ratio is to measure the margin of safety available for short term creditors. The higher the ratio, the more capable the company is of paying its obligations. The current ratio of ONGC gives a sense of the efficiency of its operating cycle. CHEVRON is also on the growing stage while PETROCHINA and EXXON MOBIL's current ratio suggests that the company is not in good financial health, not necessarily bankrupt, but it's not a good sign. Quick Ratio = Current Assets - Inventory - Prepayments Current Liabilities - Bank Overdraft The objective of computing this ratio is to measure the ability of the firm to meet its short term obligations as and when due without depending upon the realization of stock. c. Asset Management or Activity Ratios How well assets are used to generate revenues (income) will impact on the overall profitability of the business. Asset Turnover = Net Sales Average Total Assets This ratio determines the amount of sales that is generated from each dollar of assets. Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Inventory Turnover = Cost of Goods Sold Average Ending Inventory A low turnover is a bad sign because products tend to deteriorate as they sit in the warehouse. Higher inventory means factor of higher demand. Average Collection Period = Average accounts Receivable Average daily net credit sales* * Average daily net credit sales = net credit sales / 365 The approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients. Possessing a lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash. d. Financial Structure or Capitalisation Ratios Measures the riskiness of business in terms of debt gearing. Debt/Equity ratio = Debt / Equity Debt Equity ratio indicates what proportion of equity and debt the company is using to finance its assets. A low ratio of 0.0005 means the company is exposing itself to a large amount of equity. This is certainly better than a high ratio since this would expose the company to risk such as interest rate increases and creditor nervousness. Debt/Total Assets ratio = Debt *100 Total Assets A metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. A higher percentage indicates more leverage and more risk. If the ratio is less than one, the company's assets are financed through equity. Equity ratio = Equity *100 Total Assets The equity ratio is a good indicator of the level of leverage used by a company. The equity ratio measures the proportion of the total assets that are financed by stockholders and not creditors.
ONGC PETROCHINA CHEVRON EXXON MOBIL
LIQUIDITY
CURRENT 2.3778 0.6664 1.683 0.4683
WORKING CAPITAL 7711.056 -21915.8641 19829 -62696
QUICK 0.7121 0.211 0.5883 0.3265
PROFITABILITY
GROSS PROFIT 100.3643 12.8139 96.7159 97.0745
NET PROFIT 27.9523 10.29 9.3379 16.0651
OPERATING PROFIT 41.649 12.8191 15.642 11.1972
FINANCIAL STRUCTURE
DEBT EQUITY 0.00057 13.003 10.618 6.178
DEBT TOTAL ASSET 0.01242 45.8644 5.9706 3.0554
EQUITY 217.97 352.7085 57.266 49.4559
ASSET MANAGEMENT
ASSET TURNOVER 0.093356 3.897 0.577 0.658
INVENTORY TURNOVER 14.96287 18.921 0.032 14.962
AVERAGE COLLECTION PERIOD 9.3054 36.659 0.138 16.244

COMPARATIVE FINANCIAL STATEMENT ANALYSIS

  1. Horizontal analysis/Trend analysis
    • Trend percentage
    • Line-by-line item analysis
    • Items are expressed as a percentage of a base year
    • This is a time series analysis
  2. Vertical analysis/Common size analysis/ Component Percentages
    • All items are expressed as a percentage of a common base item within a financial statement
    • e.g. Financial Performance - sales is the base
    • e.g. Financial Position - total assets is the base
    • Important analysis for comparative purposes
- Over time and - For different sized enterprises

HORIZONTAL/ TREND ANALYSIS OF ONGC

2010 2009 increase/decrease % increase/decrease
fixed assets 5825.2176 4974.93675 850.28085 17.09128965
investments 1488.003525 3634.9434 -2146.939875 -59.06391486
working capital
current assets 12098.54768 12284.9901 -186.442425 -1.51764408
current liabilities 4387.492125 4748.64705 -361.154925 -7.605427845
7711.05555 7536.34305 174.7125 2.318266284
capital employed 19639.70483 17721.48375 1918.221075 10.82426902
less :debentures 1.119375 6.015375 -4.896 -81.39143445
shareholders fund 19638.58545 17715.46838 1923.117075 10.85558
equity share capital 481.249575 481.249575 0 0
plus : reserves 19157.33588 17234.2188 1923.117075 11.15871336
19638.58545 17715.46838 1923.117075 10.85558132

HORIZONTAL/ TREND ANALYSIS OF PETROCHINA

2010 2009 increase/decrease % increase/decrease
fixed assets 195199.7084 169409.153 25790.55543 15.22382645
investments 40471.35901 33548.8056 6922.55342 20.63427683
working capital
current assets 43786.47288 45008.2169 -1221.74399 -2.714490986
current liabilities 65702.33704 59405.8682 6296.46887 10.59906885
-21915.86416 -14397.651 -7518.21286 52.21832855
capital employed 213755.2032 188560.307 25194.89599 13.36171772
less :debentures 20082.40728 13067.6612 7014.74609 53.68019562
shareholders fund 193672.7959 175492.646 18180.1499 10.35949
equity share capital 154438.6228 138778.406 15660.21692 11.28433262
plus : reserves 39234.17313 36714.2402 2519.93298 6.863639203
193672.7959 175492.646 18180.1499 10.35949386

HORIZONTAL/ TREND ANALYSIS OF CHEVRON

2010 2009 increase/decrease % increase/decrease
fixed assets 104504 96468 8036 8.330223494
investments 7724 9587 -1863 -19.43256493
working capital
current assets 48841 37216 11625 31.23656492
current liabilities 29012 26211 2801 10.68635306
19829 11005 8824 80.18173557
capital employed 112793 99670 13123 13.16644928
less :debentures 286 301 -15 -4.9833
shareholders fund 112507 99369 13138 13.22142721
equity share capital 105811 92561 13250 14.31488424
plus : reserves 6696 6808 -112 -1.645123384
112507 99369 13138 13.22142721

HORIZONTAL/ TREND ANALYSIS OF EXXONMOBIL

2010 2009 increase/decrease % increase/decrease
fixed assets 139116 121346 17770 14.6440756
investments 39085 42361 -3276 -7.7335285
working capital
current assets 55235 72266 -17031 -23.567099
current liabilities 52061 49100 2961 6.0305499
3174 23166 -19992 -86.298886
capital employed 140463 145277 -4814 -3.3136697
less :debentures 7129 7025 104 1.48042705
shareholders fund 133334 138252 -4918 -3.5572722
equity share capital 115392 117523 -2131 -1.8132621
plus : reserves 17942 20729 -2787 -13.444932
133334 138252 -4918 -3.5572722

Current scenario

The Ministry of Petroleum & Natural Gas is concerned with exploration and production of oil and natural gas (including import of Liquefied Natural Gas), refining, distribution & marketing, import, export and conservation of petroleum products.

PERFORMANCE OF PETROLEUM & NATURAL GAS SECTOR

Efficient and reliable energy supplies are a precondition for accelerating the growth of the Indian economy. While the energy needs of the country are going to increase at a rapid rate in the coming decades, the energy resources that are indigenously available are limited and may not be sufficient in the long run to sustain the process of economic development. The Ministry of Petroleum and Natural Gas is mandated to take measures for exploration and exploitation of petroleum resources including natural gas and coal bed methane, and also distribution, marketing and pricing of petroleum products. During the current year 2009-10, crude oil production is expected to be around 35.954 Million Metric Tonnes (MMT) (7.3% increase from previous year) and natural gas production at 50.237 Billion Cubic Metre (BCM). This is against crude oil production of 33.51 MMT and natural gas production of 32.85 BCM during financial year 2008-09. Refinery production (crude throughput) during 2008-09 has been of the order of 160.77 MMT. This is against the refinery production of 156.103 MMT during the financial year 2007-08. ONGC Videsh Limited (OVL) is likely to produce about 8.14 MMT of oil and equivalent gas during the year 2009-10 from its assets abroad in Sudan, Vietnam, Venezuela, Russia, Syria, Brazil and Colombia.

Natural Gas Production

During the year 2009-10, natural gas production is expected to be around 50.237 BCM, which is 53% higher than the previous year.

New Exploration Licensing Policy (NELP)

New Exploration Licensing Policy (NELP) provides an international class fiscal and contract framework for exploration and production of hydrocarbons. In the first seven rounds of NELP spanning 2000-2009, Production Sharing Contracts (PSCs) for 203 exploration blocks have been signed. Under NELP, 77 oil and gas discoveries have already been made by private/joint venture (JV) companies in 23 blocks. The largest natural gas discovery in the country has been made in KG deepwater, from where production has commenced in April 2009, which is currently at 60 Million Metric Standard Cubic Metre Per Day (MMSCMD). Investment commitment under NELP is about US$ 10 billion on exploration, against which actual expenditure so far under NELP is about US$ 5.53 billion. In addition, US$ 6.95 billion investment has been made on development of discoveries. With a view to accelerate the pace of exploration further, in the eighth round of NELP (NELP-VIII), 70 exploration blocks were offered, against which 76 bids were received for 36 exploration blocks. In NELP-VIII, expected investment commitment on exploration is about US$ 1.3 billion.

IMPORTS AND EXPORTS OF CRUDE OIL

The quantity of crude oil imported during 2009-10 was 109.3 Million Metric Tonne (MMT), valued at Rs. 248226 crore. During the same period in 2008-09, the imports were 97.7 MMT, valued at Rs. 294056 crore. There was thus an increase in the import of crude oil by 11.9% in quantity terms but a decrease by 15.6% in value terms during 2009-10 over the same period in the preceding year.
Crude oil is a mixture of hydrocarbons that exists in a liquid phase in natural underground reservoirs. Oil and gas account for about 60 per cent of the total world's primary energy consumption. Almost all industries including agriculture are dependent on oil in one way or other. Oil & lubricants, transportation, petrochemicals, pesticides and insecticides, paints, perfumes, etc. are largely and directly affected. Aviation gasoline, motor gasoline, naphtha, kerosene, jet fuel, distillate fuel oil, residual fuel oil, liquefied petroleum gas, lubricants, paraffin wax, petroleum coke, asphalt and other products are obtained from the processing of crude and other hydrocarbon compounds. The prices of crude are highly volatile. High oil prices lead to inflation that in turn increases input costs; reduces non-oil demand and lower investment in net oil importing countries.

Crude Oil Classifications

Oil is generally classified based on it'sdensityand sulfur content. The density of oil is normally reported according to it'sAPI Gravityin conformance with standards set by the American Petroleum Institute (API). API Gravity is a type ofdimensionless numberand therefore, does not have any specific units, although gradations on the API density scale are commonly referred to as "degrees" in oilfield vernacular. Since the scientific difference between density and it's more commonly understood "cousin," weight, is not widely understood, oil density is often mistakenly referred to as weight, and instead of discussing "low density" and "high density" oil, the accepted practice is to talk about "light" or "heavy" oil.

Light vs Heavy Crude

§ Lightcrude has low density making it easier to transport and refine. Light crude is chemically "closer" to many desired finished products such as gasoline and diesel fuel and as such usually requires less refining and processing and therefore is typically more valuable and more expensive than "heavy" oil. § Heavycrude has high density, making it more difficult to transport and refine. Heavy crude is cheaper to buy and usually cheaper to extract, though heavy crude produced fromtar sandscan cost twice as much as conventional drilling. Heavy crude oil is typically defined as having a specific gravity greater than .933; however the distinction is often more functional than empirical, with any crude being labeled "heavy" that does not flow as well as its light counterpart.

Sweet vs Sour Crude

§ Sweetcrude oil is oil with a low sulfur content (typically < 0.5%) which results in lower refinery costs and fewer impurities. § Sourcrude has a sulfur content above 0.5% by weight, making it more expensive to refine, and therefore worth less per barrel. While sweet crude is generally the crude oil refined into gasoline, some refining companies, notablyValero Energy (VLO), have developed refining processes that allow them to refine more challenging, but cheaper, higher-sulfur petroleum.

Crude Oil Benchmark Blends

Crude oil is priced in terms of regional blends, each with different characteristics. Of these, certain blends are followed by traders, as they most reflect the overall value of oil, and therefore affect the way different blends are priced. These are essentially like a Consumer Price Index for different types of oil. There are about 161 different types of crude that are traded around the world; the four primary benchmarks, of which these are priced internationally, are Brent Crude, West Texas Intermediate, Dubai, and the OPEC Basket. § Brent Blend: Based on the prices ofBrent crude, which is a light, sweet crude, from 15 different oil fields in the North Sea. § West Texas Intermediate (WTI): The benchmark for oil prices in the US based on light, low sulfur WTI crude. WTI remains the benchmark for oil prices in the US despite the fact that its production has been falling for years. § Dubai: Dubai crude, from Dubai, is a benchmark for Persian Gulf crudes, and is light yet sour. § OPECBasket: The OPEC crude basket is OPEC's benchmark, and is made up of 13 different regional oils: Algeria's Saharan Blend, Angola's Girassol Ecuador's Oriente, Indonesia's Minas, Iran's Iran Heavy, Iraq's Basra Light, Kuwait's Kuwait Export, Libya's Es Sider, Nigeria's Bonny Light, Qatar's Qatar Marine, Saudi Arabia's Arab Light, the United Arab Emirates' Murban, and Venezuela's BCF 17. In 2010, according to the US Energy Information Administration, the top five oil suppliers to the United States were (from highest to lowest) Canada, Mexico, Venezuela, Saudi Arabia and Nigeria, this represented 59% of all imports.Canada is rising and Mexico and Venezuala are falling. In Canada the Athabasca oil sands reportedly hold 1.7 trillion barrels of oil. Currently 1.25 million barrels are extracted daily from the Canadian oil sands and one million goes directly to the US. 16% of US oil imports come from Alberta and it will only continue to grow. The oil majorsBP (BP),Royal Dutch Shell (RDS'A), andExxon Mobil (XOM)have commited $125 billion to production in Alberta over the next 20 years. Total US imports from Alberta are expected to reach 5 million bbd, according to the National Resource Defense Council, by 2020. This means big opportunities for Canadian oil companies and others with a strong presence in oil sands. With the US trying to ween itself off of OPEC countries, its own supplies slowing and its neighbor to the sounth drying up, watch out for Canada to reap the benefits. Companies like TransCanada are already investing heavily with a $7 billion pipeline expansion that would run 1,800 miles of pipe into the US and double its exports to the US to 1.1 million barrels per day.
India is very much reliant on oil from the Middle East (High Sulphur). The OPEC has identified China & India as their main buyers of oil in Asia for several years to come.
Crude Oil Units (average gravity)
  • 1 US barrel = 42 US gallons.
  • 1 US barrel = 158.98 litres.
  • 1 tonne = 7.33 barrels .
  • 1 short ton = 6.65 barrels .
Global Scenario
Oil accounts for 40 per cent of the world's total energy demand. The world consumes about 76 million bbl/day of oil. United States (20 million bbl/d), followed by China (5.6 million bbl/d) and Japan (5.4 million bbl/d) are the top oil consuming countries. Balance recoverable reserve was estimated at about 142.7 billion tones, of which OPEC was 112 billion tones.
Indian Scenario
India ranks among the top 10 largest oil-consuming countries. Oil accounts for about 30 per cent of India's total energy consumption. The country's total oil consumption is about 2.2 million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports. India faces a large supply deficit, as domestic oil production is unlikely to keep pace with demand. India's rough production was only 0.8 million barrels per day. The oil reserves of the country (about 5.4 billion barrels) are located primarily in Mumbai High, Upper Assam, Cambay, Krishna-Godavari and Cauvery basins. Balance recoverable reserve was about 733 million tones of which offshore was 394 million tones and on shore was 339 million tones. India had a total of 2.1 million barrels per day in refining capacity. Government has permitted foreign participation in oil exploration, an activity restricted earlier to state owned entities. Indian government in 2002 officially ended the Administered Pricing Mechanism (APM). Now crude price is having a high correlation with the international market price. As on date, even the prices of crude bi-products are allowed to vary +/- 10% keeping in line with international crude price, subject to certain government laid down norms/ formulae. Disinvestment/restructuring of public sector units and complete deregulation of Indian retail petroleum products sector is under way.
Market Influencing Factors
OPEC output and supply . Terrorism, Weather/storms, War and any other unforeseen geopolitical factors that causes supply disruptions. Global demand particularly from emerging nations. Dollar fluctuations. DOE / API imports and stocks. Refinery fires & funds buying.

Production Cuts

The global oil supply is dependent on the ability of oil companies to produce and the willingness of oil-exporting countries to export. Historically, periods of oil price spikes have been caused by oil-exporting countries placing embargoes on certain countries. In 1973, for example, the world's largest oilcartel,OPEC, placed an embargo on oil exports to the Netherlands and the United States, in response to the countries' support of Israel in the Yom Kippur War; the price of oil acquired by refiners increased by approximately 100%, and the U.S. experienced widespread shortages.In 2007, however, despite a 57% increase in prices, the amount of oil exported by the world's top exporters fell 2.5%. Demand for oil in the world's six largest exporters (Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar) increased by more than 300,000 barrels, while their exports fell by over half a million barrels.In this case, growing demand in each company acted as a natural embargo, forcing them to meet their own needs before exporting to the rest of the world.

Violence Against Producers

Violence in unstable regions can cause oil prices to be volatile because of geopolitical events affecting the ability ofupstreamoil companies to produce.Terroristandpoliticalattacks can damage drilling rigs or the transportation and refining networks -- including pipelines, shipping facilities, and refineries -- that bring oil from where it is extracted to the consumer. During the spring of 2008, for example, Nigerian rebels initiated attacks on theoil majors' pipelines anddeepwaterdrilling rigs in the country. Despite the fact that OPEC's lead producer, Saudi Arabia, announced it would increase production by 2%, a rebel attack on one ofShell's deepwater rigs sent prices to $136.

Weather

Strong hurricane seasonscan damage offshore oil platforms, reducing the amount of oil produced. Supply can also be artificially reduced or increased by government taxes or subsidies on oil production. When there are problems with the pipelines that transport oil, it can't get to market; this effectively reduces the supply of crude oil to the world's refiners, causing the supply of refined products to fall. When supplies fall, prices rise. On March 28th, 2008, the day after the bombing of one of Iraq's primary export charges, Brent crude rose on the London exchange by $1.01.

Peak Oil and Declining Production

Peak oil refers to the "peak" on the graph of global oil production. Oil must first be discovered, then produced, and will eventually be depleted. Peak Oil is not a theory. It is a fact. Oil has already peaked in the USA and more than 50 other oil producing countries. Oil has a finite supply, so, just the same as the production of any geological commodity, oil production will graphically (mathematically) "peak" and then irreversibly decline. Once the halfway point, or "peak", has been passed, production begins an irreversible decline (the production profile of the remaining oil is similar to the inverse of the first half of the production curve). Peak Oil is sometimes misunderstood to mean that "we are running out." of oil. However, the peak only means half of the oil has been extracted, while the other half still remains to be extracted. Many have speculated that as supplies decline, prices for oil will rise unless there are successful conservation efforts and/or new technologies developed that would mitigate the decline in oil supplies projected by peak oil theory. The timing of the peak in global oil production is highly controversial because of the political and economic impacts expected from Peak Oil including the impact on the stocks of all companies in the global marketplace dependent upon oil for it's main source of energy. Many analysts believe Peak Oil is imminent, even though estimates of the exact year of the peak vary widely from 2010 to 2050 or beyond. However, some analysts, such asMatthew Simmons, have concluded that global oil production has already peaked. Currently being analyzed and discussed is the issue of whether Peak Oil is being "masked" by the drop in demand due to the global economic crisis and that maybe the Peak is being shaped into more of a plateau. This would be similar to the Peak in US oil production that was predicted as early as 1956 and subsequently actually occurred in 1971, but was not confirmed until about 1974. The fact that the actual Peak cannot be accurately predicted, but will only be confirmed years later suggests that aggressive action should be taken to alleviate the economic and political impacts of Peak Oil well before the Peak. Unfortunately, it may already be too late to plan intelligently for Peak Oil impacts and the world now faces extreme distress, in securities markets and otherwise. Theories that opening the Arctic National Wildlife Refuge and offshore drilling sites in the U.S. to development would alleviate gasoline prices are likely misguided; Jim Sweeney, director of the Precourt Institute for Energy Efficiency at Stanford University, says that offshore U.S. reserves would account for just 1% of worldwide consumption, but wouldn't be productive for 10-15 years

U.S. Dollar Value Fluctuations Cause Positive Feedback on the Price of Oil

The United States imports much of its oil, and that oil is purchased abroad in U.S. dollars. The price of oil, in fact, is pegged to the dollar. The changing value of the dollar in comparison to other currencies impacts the price paid by end users. A strong dollar means a lower price, in dollars, for oil, and a weak dollar means more dollars must be spent to purchase the same amount of oil. Currency fluctuations are complex (for a more complete discussion seecurrency fluctuations) but the value of a currency is impacted by the relative value of goods imported and exported by an economy (known as thetrade balance), itsinterest rates, the size of itsnational debt, and its economic growth.

Contango Causes Some Oil Price Volatility

In early March, 2009, an April 2009 oil delivery contract traded for $38.10, while an April 2010 contract traded for $50.26, making it $12.16 more profitable for oil companies to hold onto their oil until April 2010.When the future price of a commodity (e.g. oil) is higher than its present price, a situation known as "contango", it is more profitable for a commodities producer (e.g.XOM) to store the commodity and sell it at a later date. This causes oil price volatility through various channels: for example, storage of a commodity causes supply to be reduced in the present, raising spot prices, while expectations regarding future supply increase - thereby reversing the cycle, which then causes contango all over again. The wider the spread between the present price and a future price, the heavier the contango and the heavier the volatility.
Exchanges dealing in Crude Futures
  • The New York Mercantile Exchange (NYMEX).
  • The International Petroleum Exchange of London (IPE).
  • The Tokyo Commodity Exchange (TOCOM).

Why Oil Prices Rise or Fall

IEA outlook stresses increased output

According to the IEA, global output of crude needs to increase significantly in 2011 in order to meet faster-than-expected oil demand growth.In its January report, the IEA increased estimated demand for 2010 and 2011 by 320,00 barrels/day.As of January 2011, the IEA predicts a rise in demand of 1.4 million barrels a day in 2011 compared to estimated 2010 levels. The direct consequence of tighter oil supplies is higher crude prices; a consequence the IEA believes will stymie the global economy.According to the IEA, if oil prices reach and remain at $100/barrel in 2011, global expenditures have the potential of rising to 5% of GDP, a level associated with economic problems in the past. The IEA plans to pressure OPEC to lift its production ceiling as a result of these findings, but OPEC has disagreed with the IEA's predictions. While the IEA believes that global inventories are not sufficient to meet demand without an increase in production levels, OPEC believes the IEA's estimates of inventories are incorrect and does not expect as drastic an increase in demand relative to supply as the IEA does. Nevertheless, global production levels have the potential of being crucial to the price stability of crude oil in 2011

INTERNATIONAL SCENARIO

China

In China, it is understood that the Government agency called the National Reform and Development Commission (NRDC) announces benchmark (Intermediate) prices of petrol and diesel and the oil companies have the freedom to vary retail prices by +/- 8% over the benchmark prices. It is also understood that theoretically the benchmark prices are linked to international prices at markets in New York, Singapore and Rotterdam and also movement in the prices at these markets over a certain percentage should result in corresponding adjustment in the benchmark prices. China, it seems, is everywhere. In what has become a routine, not a day passes without a mention of China in the news, in everyday conversations and predictions. As the next superpower, the country is wielding clout in every sphere possible. The growing influence is felt even in the oil market where the Asian giant is one of the biggest players. Iraq's oil field is just emerging from the ravages of oil, but China is already there.PetroChina Co.has already got development projects for Halfaya and Rumaila Oilfield in Iraq. The company has also signed agreements for co-cooperation in the oil field with companies in Turkmenistan, Kazakhstan, Uzbekistan and Russia. Last year Chinese companies spent more than $32 billion to secure oil, metal, coal fields in Asia, Africa and Australia. The Chairman of PetroChina Co. has said that the company was planning to invest at least $60 billion for foreign acquisitions in the next decade. Seemingly, at present,China is the fourth largest oil producer in the world. Last year oil output was put at 189.49 million tons, (3.79 million barrels a day) a fall by .04 percent than expected. According to the National bureau of statistics, China produced about 15.11 million tons of oil in the month of February. But, the country consumes oil many times more. As a result of which imports contribute to as high as 52 percent of the oil consumed. Indeed, China became an oil importer only in 1993 but has come a long way since. China's oil imports could reach a record 210 million tonnes this year, up by 5.5 %.

Thailand

In Thailand, petroleum industry was fully deregulated in August, 1991. Prior to deregulation, the system prevalent was similar to that in India. Retail prices of fuels like diesel, kerosene and LPG were kept at artificially low levels with subsidies and an Oil Price Stabilisation Fund (OPSF) was used to shield the customers from direct impact of oil price fluctuations. Subsidies continued to be given through Oil Fund and as per available details, the level of subsidy that was being compensated from the oil fund on diesel was about 40% towards the end of 2004. Government also has the freedom to freeze prices in unusual situations. In times of high prices, oil companies operate at lower margins while increasing retail prices marginally and vice versa.

Philippines

In Philippines, petroleum industry was fully deregulated in 1997 and oil companies are making regular adjustments in the selling prices. Profits are allowed to be market dependent. But this deregulation was done in a phased manner with rationalization of duties and taxes and the Government continued to maintain an Oil Price Stabilisation Fund till 1997.

Korea

The pricing for petrol and diesel is deregulated in Korea and oil companies have been making regular adjustments in their selling prices. However, as per policy, the Government makes the following interventions when prices of crude oil cross a certain threshold limit to ease the impact on the consumers:-
  • Corrections in import duties and domestic taxes, like excise tax
  • Impose price ceiling, release Strategic reserves and compensate loss to oil companies from Price Buffering Fund.
  • Implement energy conservation measures and enlargement of incentives on voluntary energy conservation.

Malaysia

Since 1970s, the Malaysian petroleum industry had been dominated by the national oil and gas corporation Petronas as well as Shell along with ESSO, Mobil, BP and Caltex. The sector had been deregulated in 1983, except for automatic pricing mechanism to regulate retail selling prices for MS, HSD for transportation and LPG for domestic use. Lowest Singapore posted prices on the first day of the month determines pricing. Government fixes maximum selling prices for the products and the subsidies are provided on domestic LPG from the fiscal budget.

CRUDE OIL PRICES :

Year Indian basket china USA ONGC TOTAL RS/TONNE REVENUE PER BARREL IN USD
2002-03 26.65 27.27 27.62 8483.48 23.69
2003-04 27.94 30.57 32.82 10069.82 28.12
2004-05 39.21 39.61 43.42 14469.32 41.28
2005-06 55.72 55.64 55.80 15196.53 43.35
2006-07 62.46 63.33 63.02 17178.89 49.01
2007-08 79.25 71.23 67.37 18231.60 52.01
2008-09 83.57 96.96 92.31 19342.91 55.18
2009-10 69.76 72.16 83.57 20892.82 59.61

PROGRESS REPORT

PHASE 1: Week 1 (15th Feb. - 22nd Feb.)
  • Reading the annual report of ONGC 2009-2010.
  • Choosing the other three to companies for the project.
PHASE 2: Week 2 - 5 (23rd Feb. - 22nd March)
  • Reading the annual reports of other three companies
PHASE 3: Week 6 -8 (23rd March - 12th April)
  • Analysis of their financial statements (ratios)
PHASE 4: Week 9 - 11 (13th April - 3rd May)
  • Comparative financial statements.
  • Oil pricing strategies.
Week 12 (4th May - 12th May) Report making and Presentation.

ABBREVIATIONS

ADB : Asian Development Bank AGCL : Assam Gas Company Limited AIDA : All India Distillers' Association APDRP : Accelerated Power Development Reform Programme APM : AdministeredPrice Mechanism AREP : Accelarated Rural Electrical Programme ARN : Aeromatic Rich Naptha ATF : Aviation Turbine Fuel AVU : Atmospheric Vacuum Unit BCM : Billion Cubic Meter BE : Budget Estimate BGL : Bhagynagar Gas Ltd. BHN : Bombay High North BIS : Bureau of Indian Standards BKPL : Barauni-Kanpur Product Pipeline BLIL : Balmer Lawrie Investment Ltd. BPCL : Bharat Petroleum Corporation Limited BPL : Below Poverty Line BRPL : Bongaigaon Refinery and Petrochemicals Limited BS : Bharat Stage BSES : Bombay Suburban Electricity Supply CBM : Coal Bed Methane CCR : Continuous Catalytic Reformer CDU/VDU : Crude/Vaccum Distillation Unit CFCL : Chambal fertilizers & Chemicalsw Ltd. CFS : Container Freight Station 7CHT : Centre for High Technology CIDCO : City & Industrial Development Corporation of Maharastra Ltd. CORF : Crude Oil Receipt Facilities CNG : Compressed Natural Gas COT : Crude Oil Terminal CPCl : Chennai Petroleum Corporation Limited CPP : Captive Power Plant CRU : Catalytic Reforming Unit DCS : Digital Control System DFR : Detailed Feasibility Report DGH : Directorate General of Hydrocarbons DHDS : Diesel Hydro Desulphurisation Unit DHDT : Diesel Hydro Treating DME : Di-Methyl Ether DMT : Di Methy 1 Terephlate DOD : Department of Ocean Development DUPL : Dahej Uran Pipeline Project DVPL : Dehaj Vijaipur Pipeline Project EBP : Ethanol-Blended Petrol EIL : Engineers India Limited E&P : Exploration & Production EMP : Environment Management Plan ERP : Enterprise Resource Planning ETP : Effluent Treatment Plant FCCU : Fludised Catalytic Cracking Unit FDI : Foreign Direct Investment GACL : Gujarat Alkali & Chemicals Ltd GAIL : Gas Authority of India Limited GCU : Gas Cracker Unit GIPCL : Gujarat Industrial Power Company Limited GLKM : Gas Oil Hydro Deisel GNOP : Greater Nile Oil Project GSECL : Gujarat State Electricity Corporation Limited GSFC : Gujarat State Fertilizer Corporation GSPL : Gujarat State Petronet Ltd HCU : Hydro-cracker Unit HDPE : High Density Poly Ethylene HP : Himachal Pradesh HPCL : Hindustan Petroleum Corporation Limited HPL : Haldia Petrochemicals Ltd. HSD : High Speed Diesel IBP : Indo-Burma Petroleum ICMA : Indian Chemicals Manufacturers Association IEA : International Energy Agency IEBR : Internal and Extra Budgetary Resources IEFS : International Energy Forum Secretariat IFFCO : India Farmers Fertiliser Cooperative Limited IGIA-II : Indira Gandhi International Airport-II IOCL : Indian Oil Corporation Limited IOR : Improved Oil Recovery IPCL : Indian Petrochemicals Ltd. ISMA : Indian Sugar Mills Accociation ISOM : Isomerisation ISPRL : Indian Strategic Petroleum Reserves Limited JLPL : Jamnagar Loni Pipeline JNPT : Jawaharlal Nehru Port Trust JV : Joint Venture JWGs : Joint Working Groups KBPL : Kandla Bhatinda Pipeline KCJP - GVK : Kakinanda Cheruvu Junction Point - GVK KL : Kilo Metre KRL : Kochi Refinery Limited KTA : Kilo Tonner Per Annum KVSSPL : Koyali-Viramgaon-Siliguri-Sanganer Pipeline LAN : Low Aromatic Naphtha LDPE : Low Density Polyethylene LKM : Line Oil Base Stocks LNG : Liquefied Natural Gas LPG : Liquefied Petroleum Gas MDG : Marketing Discipline Guidelines MGD : Million Gallons per day MJPL : Mathura-Jallandar Product Pipeline MMC : Ministry Monitoring Cell MMSCMD : Million Standard Cubic Metre per Day MMT : Million Metric Tonne MMTOE : Million Metric Tonne of Equivalent MMTPA : Million Metric Tonne per Annum MNCs : Multi National Companies MNES : Non-conventional Energy Sources MOP&NG : Ministry of Petroleum & Natural Gas MoU : Memorandum of Understanding MP : Madhya Pradesh MPCL : Mundra Panipat Crude Oil Pipeline MR : Mumbai Refinery MRPL : Mangalore Refinery and Petrochemicals Limited MS : Motor Spirit MSCM : Thousand Standard Cubic Metre NCR : National Capital Region NELP : New Exploration Licensing Policy NGHP : National Gas Hydrate Programme NGL : Natural Gas Liquids NGRI : National Geophysical Research Institute NHDT : Naphtha Hydro-treater NIO : National Institute of Oceanography NOCs : National Oil Companies NRL : Numaligarh Refinery Limited NTPC : National Thermal Power Corporation ODJP : Oduro junction Point OEMs : Original Equipment Manufacturers OGL : Open General Licence OIDB : Oil Industry Development Board OIL : Oil India Limited OISD : Oil Industry Safety Directorate OMCs : Oil Marketing Companies ONGC : Oil and Natural Gas Corporation Limited OPEC : Organization of Petroleum Exporting Countries OVL : ONGC Videsh Limited PAT : Profit After Tax PBT : Profit Before Tax PCRA : Petroleum Conservation Research Association PDS : Public Distribution System PELs : Petroleum Exploration Licences PLL : Petronet LNG Ltd PMS : Parallel Marketing Scheme PNG : Piped Natural Gas PPAC : Petroleum Planning and Analysis Cell PRAEP : Panipat Refinery Additional Expansion Project PREP : Panipat Refinery Expansion Project PSCs : Producation Sharing Contracts PSUs : Public Sector Undertakings PTA : Purified Thaleic Acid Q&Q : Quantity and Quality QPR : Quarterly Performance Review R&D : Research and Development RE : Revised Estimate RIL : Reliance Industries Limited ROs : Retail Outlets ROU : Right of Use RoW : Right of Way RRA : Rapid Risk Analysis RSP : Retail Selling Price SBE : Statement of Budget Estimate SBM : Single Buoy Mooring SEZ : Special Economic Zone SJWG : Special JWG SKM : Square Kilometre SKO : Kerosene SPM : Single Point Mooring SMPL : Salaya-Mathura Crude Pipeline SMS : Site Mixed Slurry Explosives SPA : Sale Purchase Agreement SQKM : Square Kilometers STUs : StateTransport Undertakings TCWC : Techno-Commercial Working Committee Teri : The Energy and Resources Institute TEU's : Twenty Feet Equivalent Unit TMT : Thousand Tonnes TNEB : Tamil Nadu Electricity Board TOP : Tap of Plant TPA : Tonne Per Annum VAT : Value Added Tax VGO : Vacuum Gas Oil VIEL : Vie Trans Pvt. Ltd VLCC : Very Large Crude Carrier VPT : Visakhapatnam Port Trust VR : Visakh Refinery VRS : Voluntary Retirement SchemE
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