Summer Internship Project

A study on Consolidation Of ONGC Ltd.& Group and the Pricing Mechanism at

ONGC Ltd.Submitted in partial fulfillment of PGDM program

2014-16

Submitted by

ATUL CHANDRAN

22/038

Corporate Mentor Faculty Mentor

Name Name

Designation, Company Designation

Apeejay School of Management

New DelhiJune 2015

CONTENTS

1. Certificate

2. Acknowledgement

3. Executive Summary

4. Chapter1(Area of internship and learning objective)

5. Chapter2(Company Profile)

6. Chapter3(Job Description and Functional Profile)

7. Chapter4(Learning Experience and Insight Gained)

8. Chapter5(Recommendations and Conclusion)

9. Bibliography

10. Annexure

CERTIFICATE

This is to certify that I Atul Chandran Roll No. 21/112 have carried out my Summer internship in Edu comp Solutions Ltd in the area Business HR. It is also certified that the work done by me is original with due references of sources, and has not been submitted elsewhere for the award of any diploma or degree.

_____________________Signature Name of the Student

Date : _________________________Countersigned by Faculty Mentor

ACKNOWLEDGEMENTWords put on paper are mere ink marks, but when they have a purpose there exist a thought behind them. I too have a purpose to express my gratitude towards those individuals without whose guidance this project would not have been possible

The submission of this project report gives me an opportunity to convey my heartfelt thanks to Oil and Natural Gas Corporation Ltd. and all those who have helped me to reach a stage where I have immense confidence to launch my carrier.

I take this opportunity to express my gratitude to MrNiraj N Kumarfor guiding me throughout the project and making me learn several new concepts, which would have been impossible otherwise.

I would also like to thank every person who have contributed to this project and have encouraged me at all levels during the project.

PREFACEAs a part of my MBA programme, I was asked to undergo 60 days summer training in

any organization, to give the exposure to practical management and to get familiar with the various activities taking place in the organization.

I got an opportunity to undergo my summer training in the Delhi Office of a most reputed organization – A Maharatna Company, “ONGC”, where I was allowed to work on the project titled “A CRITICAL STUDY ONANALYSIS AND INTERPRETATION OF CONSOLIDATION OF FINANCIAL STATEMENTS (SUBSIDIARIES)”.

The main activity of ONGC LTD. is exploration and exploitation of hydrocarbons and it requires the technical expertise of experts and various equipments required to do the same.

In this project, an attempt has been made to study the working capital of ONGC LTD., which constitutes working capital management, debtor’s management, cash management and inventory management. At the end, recommendations have been given to improve the working capital position. The salient features of this report are the comprehensive coverage and latest information about the topic of the study. Financial data of last five years have been taken and the Cost is evaluated and interpreted.

EXECUTIVE SUMMARY

The project undertaken at ONGCLtd entitles the work done during training period. The work includes Consolidation of financial statements of ONGC and Its Subsidiaries for the year ending 2014 and the study of Pricing Mechanism of ONGC ltd

During training was associated with the Corporate department of ONGC Ltd. The corporate department of ONGC Ltd handles the consolidation of financial statements of ONGC &Group.It also monitors the Sales revenue pattern of crude oil , natural gas and other products.

Traininghere was full of learning experiences and exposure. I gained practical knowledge of what we studied in theory; my corporate mentor helped me gain both subject and general life related knowledge. At the beginning I studied the background of the company and then I was been enlightened about the pricing mechanism of ONGC Ltd and how this mechanism is affected by various factors in the economy and also how pricing affects the economy. I was been given the financial data to study the pattern of pricing from past 10 years , the formulas used to calculate the price of crude oil and the impact of factors affecting crude pricing

The pricing of crude oil depends on various factors such as:

Offshore crude and Onshore crude (based on their distribution channel )

OPEC

OPEC can affect the price of crude oil, by increasing or reducing production among its member countries

Supply & Demand

Global oil inventories balance supply and demand. If production exceeds demand, excess supplies can be stored. When consumption exceeds demand, inventories can be tapped to meet the incremental demand, and the relationship between oil prices and oil inventories allows for corrections in either direction.

Restrictive legislation

As the majority of the world’s oil reserves and production are controlled by government-run companies, the global oil market is heavily politicized and its functioning is far from that of a competitive market.

Exchange value of dollar

Oil is traded and sold internationally in US dollars. Dollar depreciation generally tends to increase oil demand and raise the price of oil.

Subsidies &Under recoveries

All these factors affect the pricing mechanism of crude oil supplied by ONGC and thereby affecting the price of petroleum in our country. It is very important to study the pattern of each of these factors to set the present petrol prices and as well as to observe the future pricing trend.

I worked on this mechanism for 4 weeks and made the 1st half portion of my report in the respective duration. In the next 4 weeks I was briefed about the Consolidation process of ONGC LTD & Group. I was been told about the various subsidiaries , associates and JV’s ( Joint Ventures), their proportionate share in ONGC and how their financial statements are being complied into the financial statements of ONGC Ltd. In the last two weeks of my training I was briefed about the trend of financial performance ratios .

My learning here enlightened my knowledge, and gave me a reality check of corporate world. My learning’s at here in brief includes, in-depth understanding of the pricing mechanism of crude oil, how this mechanism affect our economy, work under pressure, importance of record keeping, meeting challenges , understanding of consolidation process of ONGC & Group.

Chapter-1

Area of Internship and Learning Objectives

Area of internship

I was been assigned with two projects during my internship program.

1- Pricing mechanism of ONGC Ltd – in this I was briefed about the how prices of crude oil were set

2- Consolidation of financial statements of ONGC Ltd & Group in which I had to consolidate the financial data of the various subsidiaries of Ongcltd .

Research papers

Learning objective

The project objective is to study the consolidation of financial statements of Ongc’ group and to study the pricing mechanism at Ongc. The content of the project was very wide and versatile and it helped me gain the knowledge of the working of the financial department of ongc

Chapter -2

Profile of the organisation

OIL AND NATURAL GAS Industry - An Overview

OIL AND NATURAL GAS CORPORATION LTD, (ONGC) today is the premier Indian industry effectively participating in efficient implementation of both the economic as well as the social mission of a national industry. Its growth has been one of consistent stability and ascending productivity, matching international performance makers, through innovative approach and participative management.

ONGC operates in the upstream sector of the petroleum industry on the unstructured premises of accepting the intellectual software’s, geological thoughts and perceptions of the petroleum geoscientists, as its basic raw materials until today, there has been no tool or technique that can directly oil with in the earth crust, consequently, oil exploration has over been a highly probabilistic cannot be defined within the confine of the scales and measures of the conventional engineering. Input & Output ratios. In oil explorations activity, inputs are deterministic, but output is probabilistic. It is a high reward business.

Further , oil exploration and production activities are multi-disciplinary, and the industrial constantly operates under a syndrome of high-value high technology(of high rate of obsolescence ) that mostly create compulsions for massive investment in exploration increases exponentially because the ‘New Finds’ of oil deposits progressively become more and more scarce and recovery from old fields become costlier.

Impressions often are focused in the form that ONGC is an Island of prosperity, and thus is, expected to provide high measures of various subsidies to all in various types of industries in the nationals as well as the private sector. Willing or otherwise ONGC has been providing such ‘support’ services to many Indian Industries, often at the cost of depletions of its logically earned income & profits.

ONGC is a performing national industry constantly achieving commanding heights of performance its attitudinal orientation in TO DO BETTERTHE THINGS BEING DONE WELL. In this document, its structural fabrics management perceptions practices and performance have been briefly profited .ONGC assures the nation than it business –like support of the govt. its main aim is to accelerate the progress of the Indian petroleum industry that would lead to the consolidation of the Indian Energy Security.

Exploration and Production (E&P)

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

Government of India towards increased E&P activity, have given a great impetus to the

Indian E&P industry raising hopes of increased exploration.

Crude Oil & Gas Production

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

National Oil Companies (NOCs) and private and joint-venture companies are engaged

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

Crude oil production for the period April-January 2009 stood at 28.090 Million Metric

Tones (MMT) (Provisional) with an achievement percentage of 94.6 per cent. Natural

gas production for the period April-January 2009 stood at 27577 Million Cubic Meters

(MCM) (Provisional) with an achievement percentage of 92.5 per cent.

Consequent upon liberalization in petroleum sector, Govt. of India is encouraging

participation of foreign and Indian companies in the exploration and development

activities to supplement the efforts of national oil companies to narrow the gap

betweensupply and demand. A number of contracts have been awarded to both foreign

and Indian companies for exploration and development of fields on production sharing

basis.

Domestic Oil and Gas Production

Crude oil production from the deepwater block D6 in KG Basin began in the month of

September 2008. The block promises to yield a peak production of around 34,000

barrels per day next year and its life is projected to be 11 years.

The Improved Oil Recovery and Enhanced Oil Recovery projects of ONGC are under

operation in its 15 largest fields. The cumulative incremental oil gain up to March 2008

has been of the order of 39.8 million tones. ONGC expects to extract additional

production of 14 million tones of oil and 16 BCM of gas from its marginal fields during

the current Plan period.

Natural Gas

Natural Gas has emerged as one of the most preferred fuel due to its environmentally

benign nature, greater efficiency and cost effectiveness. At present, the main producers

of natural gas are Oil and Natural Gas Corporation Limited (ONGC), Oil India Limited

(OIL) and the Joint Ventures of PannaMukta& Tapti, and Ravva. Out of the total

production of around 96 MMSCMD, after internal consumption, LPG extraction and

unavoidable flaring, around 73 MMSCMD is available for sale to various consumers. In

addition, around 7 MMTPA of re-gasified LNG (about 23 MMSCMD) is also being

supplied to domestic consumers.

Gas produced by ONGC and OIL from the existing nominated blocks is sold at

administered prices fixed by the Government. As against a total allocation of 150

MMSCMD of gas, actual supply under APM is presently around 53 MMSCMD.

New Exploration Licensing Policy (NELP)

Exploration and Production (E&P) activities in the country have been intensified with the

New Exploration Licensing Policy (NELP). NELP provides an international class fiscal

and contract framework for Exploration and Production of Hydrocarbons. Six bidding

rounds have been successfully undertaken spanning 2000-2007. A total of 162 blocks

have been awarded. Under NELP, 58 oil and gas discoveries have been made in 17

exploration blocks. Under the NELP-VII Round, the Ministry had received 181 bids for

45 exploration blocks. During 2008, the government decided to award 44 blocks to the

winning bidders. With this, the total number of blocks brought under exploration

exceeded 200.

General Information About The CompanyName Of The Company Oil And Natural Gas Corporation Ltd.

Company Logo

Chairman & Managing Director D K SarrafType Public Sector Undertaking

Website www.ongcindia.comSector(S) That The Company Is Engaged In Exploration And Production

Infrastructure And Facilities

Operates with 27 Seismic crews, manages 240 onshore production installations, 202 offshore installations, 77 drilling (plus 44 hired) and 58 work-over rigs (plus 30 hired), owns and operates more than 26,598 kilometers of pipeline in India, including 4,500 kilometers of sub-sea pipelines.Adopted Best-in-class business practices for modernization, expansion and integration of all Infocom systems

Frontiers of Technology

State-of-the-art seismic data acquisition, processing and interpretation facilities

Uses one of the Top Ten Virtual Reality Interpretation facilities in the world

Alliances with Transocean, Schlumberger, Halliburton, Baker Hughes, IPR, Petrobras, Norsk, ENI and Shell One of the biggest ERP implementations in the Asia

Human Resources 33,911 ONGCians (as on 31st March, 2014)

Competitors Reliance Industries Cairn energy

Profile of the Company

Women Employees About 6.37 % of ONGC's workforce

ONGC LEGACY

The dream of Pandit Jawaharlal Nehru, the first Prime Minister of independent India, to create an indigenous explorationand production organization in the country was a reflection of his faith in the nation’s scientific and technical community.Ongc’s scientists and engineers have lived up to that faith, making it one of the leading exploration and production ofhydrocarbon companies in the world today

VISION AND MISSION

ONGC is on a mission to find more energy and to deliver energy for National growth

To be global leader in integrated energy business through sustainable growth, knowledge excellence and exemplary governance practices.

World Class Dedicated to excellence by leveraging competitive advantages in R&D and technology

with involved people. Imbibe high standards of business ethics and organizational values. Abiding commitment to safety, health and environment to enrich quality of community

life. Foster a culture of trust, openness and mutual concern to make working a stimulating

and challenging experience for our people. Strive for customer delight through quality products and services.

Integrated In Energy Business Focus on domestic and international oil and gas exploration and production business

opportunities. Provide value linkages in other sectors of energy business. Create growth opportunities and maximize shareholder value.

Dominant Indian Leadership Retain dominant position in Indian petroleum sector and enhance India's energy

availability.

Organization Chart

LIST OF PRODUCTS BY ONGC

1) CRUDE OIL

2) GAS

3) LPG

4) C2-C3

5) SKO

6) NAPTHA

7) LSHS

8) ATF

9) SULPHUR

10) HSD

11) MOTOR SPIRITS

12) OTHERS(LDO/MTO)

GLOBAL RANKING

ONGC is ranked as the Top Energy Company in India, Fifth in Asia and 21st globally as per Platts Top 250 Global Energy Rankings; Maintains place as World's Third ranked E&P Company in the list.

Ranked 21st among global Oil and Gas Operations industry in Forbes Global 2000 list of the World's biggest companies for 2014; Ranked 176 in the overall list - based on Sales (US$ 29.6 billion), Profits (US$ 4.5 billion), Assets (US$ 53.8 billion) and Market Value (US$ 46.4 billion).

Ranked 26 in 'Transparency in Corporate Reporting' among the world's 124 largest listed companies published by Transparency International (Up from 39 in 2012)

Ranked 217 in the Newsweek Green Rankings World's Greenest Companies 2014 (up from 386 in 2012)

STP

Segment Corporates, countries, individuals looking to fulfill energy needs

Target GroupEnterprises looking for energy for production, people for petrol diesel for vehicles and domestic uses

Positioning The future of India's energy

SWOT

Strength

1.Indias largest crude oil and natural gas producer 2.Strong brand name 3.High profit making4.Has over 40,000 employees5.It produces about 30% of India's crude oil requirement6.Contributes 77% of India's crude oil production and 81% of India's natural gas production7.Commemorative Coin set was released to mark 50 Years of ONGC

Weakness

1.Legal issues 2.Employee management 3.Bureaucracy4.Human rights and rehabilitation issues

Opportunity

1.Increasing fuel/oil prices 2.Increasing natural gas market 3.More oil well discoveries 4.Expand export market

Threats

1.Government regulations 2.High Competition3.Hybrid and electric cars in the market

Competition

Competitors

1.Bharat Petroleum 2.Hindustan Petroleum 3.Reliance Industries 

Competitive Strength

All crudes are sweet and most (76%) are light, with sulphur percentage ranging from 0.02-0.10, API gravity range 26°-46° and hence attract a premium in the market.

Strong intellectual property base, information, knowledge, skills and experience

Maximum number of Exploration Licenses, including competitive NELP rounds. ONGC has bagged 121 of the 235 Blocks (more than 50%) awarded in the 8 rounds of NELP.

ONGC owns and operates more than 26,600 kilometers of pipelines in India, including sub-sea pipelines. No other company in India operates even 50 per cent of this route length.

Key Players

Indian Oil

Reliance

Bharat Petroleum

HP

ONGC

BP

BG Group

Gaz de France

Chevron

Financial & Profitability position

Human Resources

ONGC has vast pool of skilled and talented professionals – the most valuable asset for the company. 32,909 ONGCians (as on 31st March, 2012) dedicate themselves for the excellent performance of the company. ONGC extends several welfare benefits to the employees and their families by way of comprehensive medical care, education, housing and social security.

Perspective Plan 2030 (PP2030)

PP2030 charts the roadmap for ONGC's growth over the next two decades. It aims to double ONGC's production over the plan period with 4-5 per cent growth against the present growth rate of 2 percent. In physical terms the aspirations under Perspective Plan 2030 aims for -

Production of 130 mmtoe of oil and oil equivalent gas (O + OEG) per year and accretion of over 1,300 mmtoe of proven reserves.

Grow ONGC Videsh Limited (OVL) six fold to 60 mmtoe of international O+OEG production per year by 2030.

More than 20 mmtoe of O+OEG production per year in India coming from new unconventional sources such as shale gas, CBM, deepwater and HPHT (High Pressure & High Temperature) reservoirs.

Over 6.5 GW power generation from nuclear, solar and wind and 9 MTPA of LNG.

Scaling up refining capacity to over 20 MMTPA and targeted investments to capture downstream integration in petrochemicals.

Corporate Social Responsibility

In recognition of its role as a 'responsible leader', ONGC continues its quest to make positive, tangible difference in the lives of the vulnerable and disadvantaged. With a business paradigm that is based on an interconnected vision - of people's welfare, societal growth and environmental conservation, ONGC in 2011-12 continued to cater to the developmental needs across the following focus areas:

Education including vocational courses;

Health Care;

Entrepreneurship (self-help & livelihood generation) schemes;

Infrastructure support roads, bridges, Schools, hospitals in around our operational areas

Environment protection, ecological conservation, promotion;

Protection of heritage sites, UNESCO heritage monuments etc.;

Promotion of artisans, craftsman, musicians, artists etc. for preservation of heritage, art & culture;

Women's empowerment, girl child development, gender sensitive projects;

Water management including ground water recharge;

Initiatives for physically and mentally challenged;

Sponsorship of seminars, conferences, workshops etc. and

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

The Oil and Natural Gas Corporation Ltd, Rajahmundry Asset, has roped in Tata Institute of Social Sciences (TISS) to help formulate and facilitate composite corporate social responsibility initiatives.

ONGC adopts JantarMantar under Swachh Bharat Abhiyan ... Under the mission, ONGC has plans to take up various initiatives ... over 13 states during the current financial year at a cost of Rs 100 crores

The Oil and Natural Gas Corporation (ONGC), launched a major cleaning campaign in all its work centres on Gandhi Jayanti under the Swachh Bharat Abhiyan.

The ONGC has allocated Rs 100 crore for this programme, which has been named as SwachhVidyalayaAbhiyan by ONGC officials.

Achievement & Awards

ONGC improves Transparency ranking to 26th, up 13 notches

November 11,2014

ONGC is Top Energy Company of India; 5th in Asia, 21st globally: Platts

October 29,2014

ONGC climbs up to Second position on the BT-500 India's Most Valuable Companies list

October 28,2014

ONGC adjudged Exploration & Production Company of the year – PetroFed Awards

September 09,2014

Highest sports award to ONGC – receives “RashtriyaKhelProtsahanPuruskar” from President of India

August 30,2014

ONGC is India’s “Most Valuable” PSU

August 26,2014

ONGC Videsh is Most Internationalized Indian Firm second time in a row

August 07,2014

ONGC amongst world’s greenest companies

June 12,2014

ONGC bags Dun & Bradstreet Corporate Excellence Award - 2014

May 30,2014

ONGC Academy conferred with Golden Peacock National Training Award - 2014

May 28,2014

Chapter -3

Job and functional profile

Reporting relationships:

As an intern I was reporting to Mr. Rakesh(Sr F&AO) and MrVikas(Sr F&AO) who very patiently guided and generously shared some of his knowledge of both subject and managerial skills related with me and also catered to any quarries related to the processes or of the information regarding subjects. Mr. Rakesh(Sr F&AO) also briefed me regarding the information sources and also helped me in maintaining good relations with other finance team members.I was also helped by Mr. Vikas (Sr F&AO) in order to gain some important extra knowledge about the working culture of corporate importance of practical exposure and experience. Mr. Rakesh (Sr F&AO) also suggested some more career enhancing courses and shared his experience which helped to understand work better.

Work environment:

The work environment was very friendly and positive. Employees were very supportive and guided very nicely in solving any relevant problem whenever asked. They were friendly and also professional and employees here gave adequate opportunity to discuss any query or any industry related question or future prospects in the concerned area.

Job challenges:

It was all new for me and the employees around me were the ones who have touched the highest points of this field i.e. almost all of them were Chartered Accountants and Company secretary who were technically and experience wise very superior to me so sometimes I felt like a “fish out of water”.

The second challenge was retrieval of relevant data regarding the analysis part. Since I was an intern here so management not always felt comfortable to give me the confidential data of the organization such as balance sheet, financial statements etc. so I had to every time run for approvals form my superiors as well as always had to convince the respective person to hand over me a copy of data which would be as safe as it would have been with them.

Chapter -4

Learning Experience and the Insights Gained

Crude Oil Pricing Mechanism In IndiaPricing in the energy sector have long been under the administered regime so as to keep prices of final goods low. There has been great resistance towards price increases due to economic and political reasons. However, over a period of time, continuing with this practice seemed unsustainable as the burden of energy subsidies was not only undermining India’s fiscal sustainability but also reducing energy security through investment shortfalls. It also has led to distortion and inefficiency in the use of different sources of energy. The government has taken serious steps to deregulate the energy price from an Administered Price Mechanism (APM) regime.

Petroleum subsidies have become a major component of Government expenditure in the

recent past. During the year 2012-13, the total under recovery on Petroleum products

reached a level of Rs.161,029crore. Even though the Government has taken various

measures such as capping of subsidized domestic LPG cylinders to 12 per annum. With

significant increase in refining capacity in India in the recent years, the country’s

dependence on imported petroleum products has come down significantly and the country

has gradually become a net exporter of petroleum products including exports of Petrol

and Diesel mainly by private and standalone refineries. Nonetheless, the country’s

dependence on imports continues to grow as almost 77% of crude oil in India, on

consumption basis, is imported. It is in this context that the rationale for continuing to fix

refinery gate price (RGP) of sensitive petroleum products on Import Parity Price (IPP)/

Trade Parity Price (TPP) basis, which assumes that the product is imported, needed a

review.

THE PRESENT CONTEXT

Fossil fuels, especially petroleum products, occupy a pre-eminent position in all

economies of the world. As a key primary source of energy, they necessitate involvement

of the Government in pricing, production and distribution. Energy security continues to

be of concern to India as thecountry faces huge challenges in meeting its energy needs.

The country depends on imports of crude oil to meet more than 77% of its petroleum

products requirement. It is therefore subject to the vagaries of a volatile international

market for crude and petroleum products. Subsidies on petroleum products have become

a major component of government’s expenditure in the recent past. During the year 2013-

14 the this subsidy at Rs. 96,880 crore accounted for 38% of the aggregate

governmentsubsidies of Rs. 2,57,654 crore. This did not include the contribution of Rs.

60,000 crore for the same period provided to the oil marketing companies (OMCs) by the

upstream oil companies. The overall energy subsidy was therefore even larger.With the

objective of moving towards market determined prices for petroleum products,

government announced dis-mantling of APM effective 01.04.2002 (except for providing

a fixed subsidy on PDS Kerosene and domestic LPG during the next 3 – 5 years).

However, the same could not be implemented and post May 2004, the government re-

started controlling the prices of major petroleum products i.e. Petrol, Diesel, PDS

Kerosene and Domestic LPG.

High levels of under-recoveries of OMCs in the face of unprecedented, sharp increases

in international oil prices coupled with ad-hoc and inadequate increases in the domestic

prices of Petrol (decontrolled with effect from 26.6.10), Diesel, PDS Kerosene and

Domestic LPG have put considerable pressure on the finances of the OMCs, the upstream

oil companies and the Government

Major marker/benchmark crude to which crude price of various other

crude are linked:

• Brent from North Sea

• WTI from USA

• Dubai from Arab Gulf

• Tapis from Malaysia

• Bonny Light from Nigeria

OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent

intergovernmental organization, currently consisting of 12 oil producing and exporting countries,

spread across three continents America, Asia and Africa. The members are Algeria, Angola,

Ecuador, the Islamic Republic of Iran, Iraq, Kuwait, the Socialist People’s Libyan Arab

Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates & Venezuela.

These countries have a population of more than 380 million and for nearly all of them, oil is the

main marketable commodity and foreign exchange earner. Thus, for these countries, oil is the

vital key to development – economic, social and political. Their oil revenues are used not only to

expand their economic and industrial base, but also to provide their people with jobs, education,

health care and a decent standard of living.

The organization’s principal objectives are:

1. To co-ordinate and unify the petroleum policies of the Member Countries and to determine the

best means for safeguarding their individual and collective interests;

2. To seek ways and means of ensuring the stabilization of prices in international oil markets,

with a view to eliminating harmful and unnecessary fluctuations; and

3. To provide an efficient economic and regular supply of petroleum to consuming nations and a

fair return on capital to those investing in the petroleum industry.

How does OPEC oil production affect oil prices?

In today's complex global markets, the price of crude oil is set by movements on the three major

international petroleum exchanges, all of which have their own Web sites featuring information

about oil prices. They are the New York Mercantile Exchange (NYMEX,

http://www.nymex.com), the International Petroleum Exchange in London (IPE,

http://www.ipe.uk.com) and the Singapore International Monetary Exchange (SIMEX,

http://www.simex.com.sg).

The Oil and Energy Ministers of the OPEC Member Countries meet at least twice a year to co-

ordinate their oil production policies in light of the market fundamentals, ie, the likely future

balance between supply and demand.

.The impact of OPEC output decisions on crude oil prices should be considered separately from

the issue of changes in the final prices of oil products, such as gasoline or heating oil. There are

many factors that influence the prices paid by end consumers for oil products. In some countries

taxes comprise over 60 per cent of the final gasoline price paid by consumers, so even a major

change in the price of crude oil might have only a minor impact on consumer prices.

OPEC PRICE BASKET

Currently, the retail selling prices of only 3 products i.e. Diesel (retail sales), PDS

Kerosene and Subsidized Domestic LPG are regulated by the Government. The prices of

all other petroleum products including Petrol, are market determined. It was decided ‘in

principle’ to deregulate the price of Diesel also in June 2010 which could not be

implemented except that effective 18th January 2013, the government has allowed the

OMCs to (i) increase the retail selling price of Diesel by 40-50 paisa per litre per month,

& (ii) sale Diesel to bulk consumers at non-subsidized market determined price.

However, due to high crude oil prices prevailing in the international market

PRICE TREND OF INDIAN BASKET OF CRUDE OIL

In this scenario, even after the measures taken by the Government (such as capping of

Subsidized Domestic LPG cylinders to 9 per annum, deregulation of Diesel price for bulk

consumers and small monthly increases in retail price of Diesel), the under-recoveries

may again reach very high levels

Crude oil pricing mechanism in India is segregated into following time periods :admi

Administered Price Mechanism (APM) period which prevailed in March 1998 . According to APM crude price were fixed by Government on cost plus basis.

In Nov’97 Govt. decided to dismantle APM and Introduced Market Driven Pricing Mechanism (MDPM).According to which the crude price linked to FOB price of imported crude.

As per Govt. Notification of Nov’97 Crude price to be fully deregulated from 01st Apr’02

As per Govt. Notification of Mar’02 the price of indigenous crude oil produced by ONGC and OIL was market determined effective from 1st Apr’02. The MDPM was followed

Crude Oil was sold to refineries on the basis of negotiated pricing principles.

ONGC signed MoUs with Public Sector Refining companies namely - IOCL, BPCL, HPCL and MRPL for two years till Mar’04.

Due to the differences persisting, MoUs could not be extended/COSA not yet signed, though prices are being determined as per terms of expired MoUs.

Crude oil pricing was divided ito two components

Offshore crude & onshore crude based on its distribution channels

Pricing of offshore crude was further based on :

FOB price Ocean Freight Sharing of Custom Duty & Sales tax NCCD Octroi- wherever applicable Facilities charges

Pricing of onshore crude is based on :

FOB price Crude pipeline charges Sales tax Specific discount viz. on N.G. crude

FOB Price of Crude Oil consists of:

Base price - International price of Sweet Nigerian Crude Bonny Light to which ONGC's Crude is benchmarked.

Premium /Discount compared to marker crude - based on Gross Product Worth (GPW) differential.

BS&W adjustment - Discount for excess Basic Sediments & Water (BS&W) over prescribed level in the contract.

FOB Price = Price of Marker Crude minus/plus GPW differential.

Calculation of GPW Differential

Four cuts/yields of Marker Crude and ONGC Crude is taken. For each of the Cut/yield, various products are taken as follows:

I. UPTO C4 - LPG (Saudi Aramco)II. C5-C175 - Naphtha (Singapore)

III. C175-C350 - Gas Oil (Singapore)IV. C350+ - Average of FO 2% and Low Sulphur Waxy Residue (LSWR) of

Singapore Market.

Other Calculations

Let,

Inward freight = $0.75/bbl

Outward freight = $0.30/bbl

Net freight = (0.75/2 – 0.30)

= $0.075/bbl

Custom Duty = 5% (Shared by ONGC and refinery in equal proportion)

Therefore, CD= FOB * 5% * 50%

= 69.32*.05*.5

= $1.733/bbl

Sales Tax = 4% (Shared by ONGC and refinery in equal proportion)

Therefore, ST = FOB * 4% * 50%

= 69.32*.04*.5

= 1.3864

Foreign Exchange Rate = Rs 45/$

BS&W Adjustment

Sr. No. Percentage Amount Deducted

1 Less than 0.2% NIL

2 More than 0.2% but less than 0.5% $0.10/bbl

3 More than 0.5% but less than 1% $0.15/bbl

4 Any additional increase of 0.5% or

part thereof

$0.05/bbl

Special Discount

Since the crude produced in North Gujarat (NG) is heavy, an additional discount of $0.75/bbl is

given to the refineries who consume NG crude.

SUBSIDY SHARING MECHANISM AT ONGC

The government’s practice of forcing state-owned ONGC Ltd to shell out

a part of its oil subsidy burden is depleting its cash reserves at an alarming

rate and is threatening to push this PSU cash cow into losses.

ONGC is left with only about `13,000 crore in cash and if they continue to

subsidise at this rate, their cash reserves will go down to zero in the next

two years.

Oil and Natural Gas Corporation (ONGC) realised only $47 a barrel on the

crude oil it sold during the first quarter, marginally lower than $49

realisedin the same quarter last year even as its cost has moved up due to a

production cess imposed in the union budget. This may show on the

company’s first quarter result that is scheduled to be declared during the

weekend though substantial relief may come from the weaker Rupee.

ONGC billed its crude at $110 per barrel during the quarter but got only

$47 per barrel after giving the oil marketing companies (OMCs) a discount

of $63 per barrel. Under the government’s oil subsidy sharing mechanism,

ONGC and Oil India are required to give discounts on their crude oil sale

to government OMCs- IndianOil, Bharat Petroleum and Hindustan

Petroleum. In the first quarter of last fiscal, ONGC had given discounts of

$72.53 per barrel amounting to a total of around Rs 12,046 crore. The

discount for Q1 ended June 30 this fiscal is Rs 12,345 crore.

ONGC’s cost of production is $47 per barrel of crude. Given the cost, the

company’s margin on crude oil is certainly under pressure during the first

quarter. Even though the Q1 realisation may be lower than last year’s

corresponding quarter, the 24 per cent depreciation in Indian Rupee vis a

vis US Dollar, will still help ONGC post decent profits. ONGC had made

net profit of Rs 4,095 crore in the first quarter of last fiscal.

Net realisation for Oil India Ltd, however, was higher at $53.85 per barrel

for the quarter after it gave the OMCs a discount of Rs $56 per barrel.

OIL’s net realisation fell from $59.55 to $53.85 but in rupee terms rose by

9.42 per cent due to rupee depreciation and helped the company report

higher profit.

An ONGC official explained that the higher subsidy burden of $63 per

barrel on the company vis a vis OIL’s $56 is due to the inclusion of

condensates in the government’s subsidy calculation mechanism. In the

last fiscal, ONGC is estimated to have taken an additional subsidy burden

of Rs 4,500 crore on account of condensates. FY12 was the first year when

the government calculated ONGC’s share of subsidy based on its

production. Earlier, the share of ONGC and OIL used to be calculated in

the ratio of net profits.

ONGC'S SUBSIDY GENEROSITY , ITS AILING

SISTERS AND THE ANGRY WIFE:

State-owned Oil and Natural Gas Corporation (ONGC) is one of the most

valuable companies in the country, with annual revenue of Rs 83,889 crore and

net profit of Rs 22,094 crore.

Those numbers do not present the full picture. To insulate consumers from the full

impact of high international crude oil prices, the government controls the retail

selling prices ofdiesel, kerosene and liquefied petroleum gas. It uses the cash

generated by ONGC and other upstream (exploration and production) companies

to compensate the under recoveries for oil marketing companies, also

government-owned.

As ONGC, like a benevolent brother, kept digging into his pockets to support the

ailing sisters at the instance of their common parent, the Government of India, the

minority investors of ONGC were left grumbling like an angry, helpless wife.

As early as in March 2009, US investment bank Goldman Sachs said it had

“serious” concerns about ONGC’s corporate governance standards after these

cash withdrawals spurred repeated objections from investors and independent

directors. “Issues with corporate governance at ONGC are among the more

serious for companies in our coverage universe.”

ONGC and the government did not pay much heed. Often when the government

went on a roadshow to sell shares, the wife created a scene but was bullied away.

Now, however, on the eve of another sale, things are very different. The angry

wife has also become powerful. Significant changes have been made to the rules

governing related party transactions (RPTs) under the new companies law and

Clause 49 of the listing agreement. Under the new rules, the company has to get

all ‘material’ related party transactions approved from the majority of minority

investors. Any transaction valuing more than five per cent of annual turnover or

20 per cent of net worth is considered material.

At Rs 56,384 crore, ONGC’s subsidy bill for FY13-14 was over 2.5 times its net

profit, over half its revenue and 43 per cent of net worth of Rs 1.24 lakh crore,

says its latest annual report. Under Clause 49, the exemption of the move being

“in the normal course of business” is also not available. There seems no escape

from a resolution of ‘special majority’.

As Institutional Investor Advisory Services pointed out in a June report, minority

is the majority when it comes to RPTs. Counter-intuitively, the higher the

‘promoters’ shareholding, the more vulnerable they are. For example, if the

‘promoters’ own 75 per cent of the shares in a listed company and the public 25

per cent, this 25 per cent will account for 100 per cent of the voting power for

RPT. This gives one share a voting power of 4x.

So, what is the voting multiplier of one ONGC minority vote? Though the

government has 69 per cent stake in ONGC, it will be worth nothing if the

subsidy payout goes to vote. Of the remaining 31 per cent, Indian Oil

Corporation, one of the sister concerns receiving the subsidy, owns 7.69 per cent.

It also can’t vote.Life Insurance Corporation (7.79 per cent) and GAIL (2.4 per

cent) will also be disqualified, as they are under the control of the government.

That leaves about 13 per cent – a voting multiplier of a whopping 7.7. Some 610

foreign institutional investors which hold 6.92 per cent will have a 53 per cent

vote share if such a resolution comes up. If the father plays by the rule, the wife

will have the last laugh. But will he?

PETROLEUM PRICES AND UNDER-RECOVERIES

1. Average International FOB Price & Exchange rate:

Particulars Unit Pricing Fortnight for

16th July 2014(27-Jun-14 to 11-

Jul14)

24-Jul-14 Next Pricing Fortnight for 1st Aug

2014(12-Jul-14 to date i.e.

24Jul-14)

Crude Oil (Indian Basket)

- In US Dollar ($/bbl) 108.05 105.93 105.27

- In Indian Rupees (`/bbl) 6476.52 6355.80 6334.10

Exchange Rate (`/$) 59.94 60.00 60.17

2. Product-wise Under-recovery of Public Sector Oil Marketing

Companies (OMCs):

Product Unit Under-recovery(eff. 16th July 14)

Diesel (`/Litre) 2.49

PDS Kerosene* (`/Litre) 33.07

Domestic LPG* (`/Cylinder) 449.17

*Additionally, a subsidy of ` 0.82/Litre on PDS Kerosene &`22.58/Cylinder on Domestic LPG is provided by the Government.

IMPACT OF SUBSIDIES ON ONGC PROFIT:

State-run ONGC Ltd has posted a 34 per cent fall in net profit for the first quarter of FY14 at Rs 4,016 crore, down from Rs 6,078 crore in the year-ago period. The company ascribed the drop in profit to dwindling sales revenue and swelling subsidy. The oil major’s sales revenue for the first quarter fell 4.3 per cent to Rs 19,283 crore, compared to Rs 20,149 crore during the first quarter of FY13.

The Sales revenue has come down by Rs 866 crore, while subsidy burden has also increased by 2.24 per cent. Apart from this, operating expenditure has gone up and we also included a one-time charge towards employee pension benefits.

The under-recovery for the April-June quarter of the current financial year rose to Rs 12,622 crore from Rs 12,346 crore in the year-ago period. The impact of under recovery on net profit stood at Rs 7,131 crore for the quarter under review.

“Subsidy had a huge impact in our cash balance. While we started 2012-13 with Rs 15,500 crore, it came down to Rs 13,200 crore during the beginning of this financial year. The average crude oil price for the first quarter was around $102, but our net realisation was just $40.17 per barrel after subsidy cuts. The net realisation for the first quarter of the last financial year was $45.91 a barrel.

The overall petroleum subsidy jumped from Rs 138,000 crore in 2011-12 to Rs 161,000 crore in 2012-13, before falling to Rs 139,000 crore in 2013-14. However, ONGC’s share of the underrecoveries has increased 27 per cent — from Rs 44,466 crore in 2011-12 to Rs 56,384 crore in 2013-14, taking a toll on price realisations from nominated fields. In 2013-14, ONGC’s net retention crude price was only $41 a barrel. The company has been requesting the ministry to review the existing subsidy-sharing mechanism to ensure a realisation of at least $65 a barrel to generate sufficient cash.

Oil and Natural Gas Corp (ONGC) has paid a whopping Rs 272,721 crore in fuel subsidy over the past 11 years, denting its profitability

As part of the government’s fuel subsidy-sharing mechanism, ONGC had to give discounts of R12,622 crore to state-owned oil marketing companies (IOC, HPCL and BPCL) in the first quarter of 2013-14, up from `12,346 crore in the previous corresponding quarter.

The company, which ranks No. 4 among India’s most valuable companies — after TCS, Reliance Industries and ITC — with a market capitalisation of Rs 2.47 lakh crore, had a cash pile of more than `25,000 crore in 2010-11. But if the current trend continues, it will have to borrow to sustain its day-to-day operations. ONGC shares, which have traded in the Rs240 to Rs340 band since April 1, closed `289.15 on Friday. It hit a 52-week high of Rs354.10 on January 18 this year.

Consider this: even as the global oil prices have touched a high of $110/barrel, ONGC’s net realisation is only $40.17/barrel against its net production cost of $40/barrel.

“ONGC earns only a few cents on each barrel of oil… Can it survive with this much?” asked the former chairman Vasudeva, adding that the company’s operational costs are going up and it needs to generate sufficient funds to finance its future growth. Vasudeva’s take: ONGC should get at least $65/barrel against the global oil price of $100/barrel.

IMPACT ON PROFITABILITY

Years Gross discount Impact on Statutories Levies

Impact on Profit Before tax

Impact on Profit AfterTax

2014-15 36,300 5,340 30,960 20,4372013-14 56,384 8,628 47,756 31,5242012-13 49,421 7,362 42,059 28,4132011-12 44,466 6,667 37,799 25,5352010-11 24,892 3,558 21,334 14,2472009-10 11,554 1,629 9,925 6,5512008-09 28,285 4,292 23,933 15,7982007-08 22,001 1,942 20,059 13,2412006-07 17,024 1,448 15,576 10,3332005-06 11,956 1,089 10,868 7,2102004-05 4,104 255 3,849 2,5532003-04 2,690 203 2,488 1,596

2014-1

5

2012-1

3

2010-1

1

2008-0

9

2006-0

7

2004-0

5 0

10,000

20,000

30,000

40,000

50,000

60,000

Gross discountImpact on Statutories Levies Impact on Profit before tax Impact on Profit Af-terTax

Rs.

in c

rore

2014-15

2013-14

2012-13

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

0

10000

20000

30000

40000

50000

60000

Chart Title

Gross discount Impact on Profit AfterTax

Rs.

in c

rore

s

1.Net Crude Price is calculated considering whole discount on crude oil.

2. Based on directives of MoP&NG, refineries have started making deductions for Octroi and VAT/ CST on discount w.e.f. 01.04.2012. Gross Crude prices for the year 2012-13 are without considering deduction made by refineries on such account. However, Gross crude prices from 2013-14 onwards are after considering deductions being made by refineries towards Octroi and VAT/ CST on discount.

GRAPH 2003-2015

3. Gross prices for Q3 FY'15 and 9M FY'15 are provisional, as these would get reduced on account of deduction of VAT/CST and octroi on discount.

SUBSIDY DISCOUNT ENTRY ISSUE

The main issue is accounting for VAT. VAT as per Guidance Note on the subject is being

accounted for between ‘debtors’ and ‘VAT Payable’. Hence, accounting for VAT has no

impact in P&L A/c.

Subsidy discount results in the following :

(a) reduction in sales

(b) reduction in debtors

(c) reduction in VAT Liability, as selling price goes down

(d) reduction in Royalty (in case of MUM & RJY-Off), Octroi (MUM) & Sales Tax

(on VAPs).

Therefore, consequent to reduction in sales, debtors is also reduced to the same extent.

Further the impact of reduction in selling price leads to reduction in VAT Liability, this

reduction also leads to reduction in debtors. Hence Debtors are reduced by reduction in

Sales Revenue + Consequent Reduction in VAT Liability.

WHEN DISCOUNT IS ACCOUNTED FOR IN HEADQUATORS

BOOKS:

When discount is accounted for at HQ, entire credit is given to a single customer say,

‘IOCL’. This entry is reversed in the next period.

Since the entry at HQ does not cover/include the impact of VAT on VAPs (due to non-

availability of details), there would remain a difference in Pre & Post Discount Balance

Sheets, if Subsidy-Discount entry is made at Hqrs..

At HQ, Impact on Royalty, Octroi and Sales Tax is also calculated proportionally on the

basis of previous period actuals. In actual, the same may be different when accounted for

by the respective Projects.

WHEN DISCOUNT IS ACCOUNTED FOR IN PROJECT BOOKS:

When Projects carry out accounting for subsidy-discount, respective Debtors are credited.

It may so happen that a particular debtor having debit balance prior to subsidy- discount

may end up with a credit balance post subsidy-discount entry.

Under above circumstances, debtors’ having credit balance are transferred to Other

Deposits – Liabilities. This will result in change in Balance Sheet between submitted by

Project before and after Subsidy Discount .

Secondly, Discount on VAPs is on RTP which is equivalent to Basic Price. All levies and

taxes are over and above RTP. Thus consequent upon subsidy-discount, as RTP changes,

VAT will also change. Change in VAT for VAPs will be reflected in Debtors’ A/c and

VAT Payable A/c. Again, this will result in change in Balance Sheet between submitted

by Project before and after Subsidy Discount as far as these two B/Sheet A/cs are

concerned.

ONGC Sales Pattern

CUSTOMER BASE

OFFSHORE CRUDE

Mumbai High Crude is supplied from the following refineries:

IOC- Vadinar CPCL – Chennai BPCL – Mumbai BPCL- Kochi Refinery HPCL – Mumbai HPCL – Vishak MRPL – Mangalore

ONSHORE CRUDE

For north Gujarat & South Gujarat Crude :

IOC – Koyali

For Assam Crude :

IOC – Guwahati IOC – Bongaigaon NRL(Numaligarh refineries limited)

For Cauvery Crude:

CPCL –Panangudi

For KG Crude:

HPCL – Vishak/IOC

Ongc and Group of Companies

SUBSIDIARIES

I. ONGC Videsh Limited - Working globally for the energy security of India

ONGC Videsh, a Miniratna Schedule “A” Central Public Sector Enterprise (CPSE) of the Government of India under the administrative control of the Ministry of Petroleum & Natural Gas is the wholly owned subsidiary and overseas arm of Oil and Natural Gas Corporation Limited (ONGC), the flagship national oil company (NOC) of India. The primary business of ONGC Videsh is to prospect for oil and gas acreages outside India, including exploration, development and production of oil and gas.ONGC Videsh was incorporated as Hydrocarbons India Pvt. Ltd. on 5 March 1965 to carry out exploration and development of the Rostam and Raksh oil fields in Iran and undertaking a service contract in Iraq. The company was rechristened as ONGC Videsh Limited on 15th June, 1989 with the prime objective of marketing the expertise of ONGC abroad. The nineties saw the Company engaged in limited exploration activities in Egypt, Yemen, Tunisia and Vietnam.In its new avatar as ONGC Videsh, the company from mid-nineties re-oriented its focus on acquiring quality overseas oil and gas assets. ONGC Videsh, which had one asset in year 2000, gradually succeeded in competing with the best in the international arena and could conclude many large transactions across the world in subsequent years. Presently, ONGC Videsh owns Participating Interests in 33 oil and gas assets in 16 countries and contributes to 14.5% and 8% of oil and natural gas production of India respectively. In terms of reserves and production, ONGC Videsh is the second largest petroleum Company of India, next only to its parent ONGC.ONGC Videsh’s oil and gas operations produced 8.36 MMT of oil and oil equivalent gas in 2013-14 as against 0.252 MMT of O+OEG in 2002-03. ONGC Videsh’s overseas cumulative investment up to 31st March, 2014 has crossed USD 22 billion.

II. Mangalore Refinery and Petrochemicals Ltd

Mangalore Refinery and Petrochemicals Ltd. (MRPL) an ONGC group company, and a ‘Mini Ratna 1’ is nestled in the lush green glades of Dakshina Kannada District in Mangalore,

strategically located on the West Coast of South India, close to Middle East & Far East crude and product markets.Originally started as a joint venture company promoted by Hindustan Petroleum Corporation Ltd. (HPCL) and the Aditya Birla Group (ABG), MRPL got its lifeline once the ABG share holding was taken over by Oil and Natural Gas Corporation Ltd. (ONGC) in 2003. The company turned around and has not looked back since notching benchmarks in the Indian Oil Industry, on production, turnover, capacity utilization, safety

performance, energy consumption, environment, project implementation and quality management processes.MRPL’s Refining Capacity is around 8 % of India’s total Refining capacity as on 1-04-2012. Equipped with state-of-art technologies, a motivated task force and enhanced capacity of 15 MMTPA with a Refinery complexity of around 9.5, MRPL is well placed globally, to compete with the peers in the Refining Industry. With addition of value added products to its product portfolio post commissioning of the expansion project, MRPL is now focused on setting global benchmarks.

The Refinery’s Expansion and up gradation project with an investment of around Rs 15,000 Cr (USD 3 Billion) will improve the Refining margins significantly, bringing value to all its stake holder

Process of ONGC Group Consolidated Accounts:-

The Consolidated financial statements relate to the Company, its Subsidiaries, Joint Venture entities and Associate. ONGC has various strategic investments to diversify the business objective through special purpose vehicle (SPVs) entities like subsidiary companies, Mangalore Refinery & Petrochemical Limited (MRPL-71.62 %-refinery business) and ONGC Videsh Limited ( OVL-100%-OIL & GAS ), Joint venture companies like Petronet LNG Limited (PLL-12.5%-LNG import and supply), Petronet MHB limited (PMHBL-28.77%-pipe line transportation), Mangalore SEZ limited (MSEZ-26%-SEZ development), Dahej SEZ Limited (DSEZ-50%-SEZ development), ONGC Teri Biotech Limited (OTBL-49.98%-Bio remedial), ONGC Tripura Power Company Ltd. (OTPC-49.52%-Gas Power Plant) , ONGC Mangalore Petrochemical Limited (OMPL-46% -Petrochemical), ONGC Petro Additions Ltd (OPaL-49.36%-value added Product) and Associates Company Pawan Hans Limited (PHL-49% -Helicopter).

Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and Notes to accounts, Consolidated cash flow statement, Consolidated Segment result other statements and explanatory material that form an integral part thereof. The consolidated financial statements incorporate all domestic as wells as foreign subsidiaries and joint ventures as per AS 21, consolidated financial statements (CFS) are presented, to the extent possible, in the same format as that adopted by the Company for its standalone financial statements.

The consolidated financial statements relate to the Company, its subsidiaries, joint venture entities and associates. ONGC Corporate account circulate prescribed format in excel to it group companies for submission of their Audited account and notes to account, Cash flow statement and segment result for consolidation by ONGC within the timeline. The consolidated financial statements are prepared on the following basis: -

The financial statements of the Company and its subsidiary companies are consolidated on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses after fully eliminating intra-group balances and intra-group transactions including unrealized profits or losses, if any, in accordance with AS – 21 on ‘Consolidated financial statements’ issued by the ICAI.

The financial statements of joint venture entities are consolidated by applying

proportionate consolidation method on a line-by-line basis on items of assets, liabilities, income and expenses after eliminating proportionate share of unrealized profits or losses in accordance with AS – 27 on ‘Financial reporting of interests in joint ventures’ issued by ICAI.

In case of foreign subsidiaries and joint ventures, foreign currency transactions are translated as per the provisions of AS-11 on ‘Accounting for effects of changes in foreign exchange rates’ issued by the ICAI in the consolidated financial statements.

In case of associates, where the company directly or indirectly through subsidiaries holds more than 20% of equity, investments in Associates are accounted for using equity method in accordance with AS 23 on ‘Accounting for investments in associates in consolidated financial statements’ issued by the ICAI. Under equity method, share of the profit/loss of the associate is shown in Profit & Loss Account and is adjusted with the ‘Investment in Associates’ in the Balance Sheet.

The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as the company’s standalone financial statements except as otherwise stated in the notes to the accounts.

The difference between the costs of investment in the subsidiaries/associates, over the net assets at the time of acquisition of shares in the subsidiaries/associates is recognized in the financial statements as goodwill or capital reserve as the case may be.

Minority interest’s share of consolidated net profit/loss of subsidiaries (consolidated accounts of subsidiary with its subsidiaries) for the year is worked out and adjusted against the income of the group in order to arrive at the net income attributable to the shareholders of the company.

Minority interest’s share of consolidated net assets of subsidiaries (consolidated accounts of subsidiary with its subsidiaries) is worked out and presented in theIntergroup transactions within the group companies being eliminated as per AS-21, AS-23 & AS-27.

Joint Ventures

1. ONGC Tripura Power Company Limited (OTPC), Tripura

2. ONGC Petro-additions Limited (OPaL), Gujarat

3. Mangalore Special Economic Limited (MSEZ), Karnataka

4. ONGC Mangalore Petrochemicals Limited (OMPL),Karnataka

5. ONGC TERI Biotech Limited (OTBL),New Delhi

6. Petronet MHB Limited (PMHBL),Mangalore

7. Petronet LNG Limited (PLL),New Delhi

8. Dahez SEZ Limited, Dahej ,Gujarat

ASSOCIATES

Pawan Hans Limited (PHL),New Delhi

Joint Ventures/ Associates

ONGC Petro-additions Limited (OPaL)

ONGC Petro-additions Limited (OPaL), has been promoted by your company as a J o i n t Ve n t u r e ( J V ) C o m p a n y , w i t h envisaged equity stake of 26% along with GAIL (15.5%) and GSPC (5%). The balance equity of 53.5% is to be tied up with Strategic Partners/ FIs / IPO. OPaL is a mega downstreampetrochemicalintegrated project at Dahej SEZ for utilizing in-house production of C2-C3 and Naphtha from various units of ONGC. Recently on August 23rd, 2013, your company signed a Product Sale Agreements with OPaL for supply of feed-stocks, thereby enabling OPal's lenders to release funds for implementation of the project.

Present status

Overall Cumulative progress is 89.84 %.

Total cumulative expenditure as on 31st March 2014 is

`181,557 million. Approved project cost is `213,960 million.

Debt closure has been at tained for approved project

cost of `213,960 million with the execution of Rupee Term Loan agreement, for ` 149,770 million, including ECB of USD 300 million.

Based on the current project progress, expected

completion schedule of the Project is Jan, 2015

ONGC Tripura Power Company Ltd (OTPC)

Your Company has promoted OTPC with an envisaged stake of 50% along with Gov t. of Tripura (0.5%) and IL&FS Energy Development Co. Ltd. (IEDCL - an IL&FS subsidiary) (26%); the balance 23.5% is proposed to be tied up through IPO / Strategic / Financial Investor. OTPC is set ting up a 726.6 MW (2 X 363.3 MW) gas based Combined Cycle Power Plant (CCCP) at Palatana, Tripura. The basic objective of the project has been to monetize idle gas assets of ONGC in land- locked Tripura state and to boost exploratory ef forts in the region.

Present Status

OTPC's first unit (Unit-1) was dedicated to the Nation by the Hon'ble President of India on 21st June, 2013. However, commercial operation of its first unit (363.3 MW) effectively got started from 4th January 2014 in presence of representatives of beneficiary states. The second unit is expected to be commissioned in the second quarter of financial year 2014-15.

The unit has been granted provisional tarif f by Central Electricity Regulatory Commission (CERC). The Ministry of Power has allocated more than 86% of power from the project (two units) to the NER beneficiary states while 98 MW is allocated to OTPC for merchant sales. The OTPC has already signed a gas sale and purchase agreement (GSPA) with ONGC for supplying Daily contracted Quantity of 2.65 MMSCMD of gas.

The 663 KM long 400 K V double circuit transmission net workPalatana-Bongaigaon transmission has been commissioned up to Byrnihat by North-East Transmission Company Limited (NETCL), a joint venture of Power Grid Corporation, OTPC and Governments of the North-Eastern states. This development is helping in evacuating power from Unit-1 and enables partial evacuation from unit II. For complete evacuation of Unit-II power, the remaining Byrnihat-Bongaigaon section of the line requires to be completed and its completion is expected to coincide with Unit II commissioning, subject to timely resolution of certain forest clearance issues.

The total expenditure incurred on the project till 31st March, 2014 is `34,560 million against the total estimated cost of `40,470 million.

State Bank of India is funding the entire debt for the project at a Debt: Equity ratio of 75:25.

ONGC Mangalore Petrochemicals Limited (OMPL)

Your company has promoted OMPL as a value-chain integration project for manufacturing Para-Xylene and Benzene from the Aromatic streams of MRPL with an envisaged equity participation of 46% along with MRPL (3%), with balance 51% to be tied up through IPO / Strategic / Financial Investor.

Present Status

Overall Cumulative progress is 98.5% as on 31st March 2014 Total cumulative expenditure on the project is `51700 million. Approved project cost is

`57500 million. The commercial operation date (COD) is August 2014.

Dahej SEZ Ltd (DSL)

Your company as Lead Promoter is developing a multi-product SEZ at Dahej in coastal Gujarat to facilitate your company's endeavours at C2- C3 Ex traction and value-chain integration project - OPaL. Your company has 23% equity in the project with GIDC having 26% and balance 51% is proposed to be tied up through IPO / Strategic / Financial Investor.

Present Status

SEZ is already operational and units in SEZ have clocked export of `14,200 million in FY 2012-13 and `19,740 million in FY 2013-14.

92% of the leasable land has already been allot ted and the remaining land is expected to be leased in the nex t two years.

Expert Appraisal Commit te e of Ministr y of Environment and Forest (MoEF) has recommended CRZ clearance for 123.42 ha of land in Dahej SEZ. Formal approval is awaited.

Mangalore Special Economic Zone Limited (MSEZ)

With an envisaged equity stake of 26% along with KIADB (23%), IL&FS (50%), OMPL (0.96%) and KCCI (0.04%), ONGC is set ting up MSEZ to serve as site for development of necessary infrastructure to facilitate and locate ONGC/MRPL's Aromatic complex being promoted by ONGC.

Present status:

65% of the leasable land has already been allot ted.

Pipeline Corridor development - MoEF clearance is awaited for construction works at Reach 2 (~ 1.8 km). Pursuant to presentations to Expert Commit tee of MoEF and clarifications, recommendations have been submit ted to MoEF, Delhi. Final clearance is awaited. However, interim arrangement for laying of OMPL pipelines in this reach has been made, thereby facilitating OMPL to utilize the corridor.

Land acquisition issues at Reach 3 (~1.5 kms) - Gazette notification has been issued. Price fixation meeting was held on 23rd Oct'13 although resolution would take one more round of discussions. However, due to LokSabha elections and the model code of conduct, further discussions could not take place. Interim arrangement for laying of OMPL pipelines in this reach has also been made, thereby facilitating OMPL to utilize the corridor.

River Water infrastructure: Supply to MRPL and OMPL has commenced. Water Agreement has been initialled with OMPL and is under finalization with MRPL.

ONGC TERI Biotech Limited (OTBL)

ONGC TERI Biotech Limited (OTBL) which was incorporated on 26th March, 2007 is a Joint-venture Company of ONGC in association with The Energy Research Institute (TERI), with shareholding of 49.98% & 48.02%, respectively. Balance 2% is held by FIs. Through the ef forts of joint research of ONGC &TERI over the years, OTBL is of fering below mentioned technologies and providing variousBiotechnical Solutions to Oil and Gas Industry, both in India and abroad:

I. Oilzapper Technology (Bioremediation)- used to eliminate & tackle Oil Spills, Oily Sludge, and hazardous hydro carbon waste;

II. Paraf fin Degrading Bacteria (PDB)- used to prevent Paraf fin Deposition in Oil well Tubing; III. Wax Deposition Prevention (WDP)- used to prevent Paraf fin Deposition in surface and sub-

surface flow lines; IV. Microbial Enhanced Oil Recovery (MeOR)- used for Enhanced Oil Recovery by mobilizing

crude oil trapped in pores of Oil Reservoirs.

During 2013-14 the turnover of OTBL was `154.4 Million with Profit after Ta x of `44.8 Million as against turnover of `136.61 Million and Profit after Ta x of `40.05 Million in the previous year.

Petronet MHB Limited (PMHBL) PMHBL is a JV company wherein your company has an equity stake of 28.766% along with HPCL (28.7%) and PIL (7.898%) with balance 34.57 per cent of equity being held by leading banks. PMHBL owns and operates a multi-product pipeline to transport MRPL's products to the hinterland of KarnatakaIn FY'14 PMHBL pipeline has transported a throughput of 3.07 MMT against total throughput of 2.82 MMT last year. As per un-audited results for the year 2013-14, the turnover and PAT of PMHBL are `1295 million and `510 million respectively.

Petronet LNG Limited (PLL) ONGC has 12.5 per cent equity stake in PLL, identical to stakes held by other Oil PSUcopromoters viz., IOCL, GAIL and BPCL. Dahej LNG terminal of PLL having a capacity of 10 MMTPA is currently meeting nearly 20 per cent of the total gas demand of the country. A new LNG terminal of capacity 5 MMTPA has been set up at Kochi and was dedicated to the Nation by Hon'ble Prime Minister of India on 4th January, 2014. The Company is also planning to set up an LNG terminal of capacity 5 MMTPA at Gangavaram, Andhra Pradesh. The turnover of PLL during 2013-14 is `377,476 million (previous year `314,674 million) and net profit is `7,119 million (previous year `11,493 million).

Associates

Pawan Hans Limited (PHL) ONGC has 49 per cent equitystake in PHL (previously known as Pawan Hans Helicopters Limited). Balance 51 per cent equity is held by the Government of India. PHL is one of Asia's largest helicopter operators having a well- balanced operational fleet of 40 helicopters. It provides helicopter support for ONGC's of fshore operations. PHL was successful in providing all the 12 Dauphin N and N3 helicopters fully compliant with AS- 4 as per the new contract with ONGC. The accounts of PHL for 2013-14 are under finalisation

RATIOSFINANCIAL PERFORMANCE RATIO’S

2013-14

2012-13

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

PBIDT to Turnover (%)

29.74 35.26 36.81 43.78 39.2 40.7 42.0 43.0 45.6 44.5

PBDT To Turnover (%)

29.45 34.98 36.46 45.29 42.2 43.3 44.2 44.6 47.3 46.1

Profit Margin(%) – incl. exceptional items

14.60 18.63 17.92 17.87 17.9 19.2 19.8 20.4 22.7 20.2

ROCE(PBIDT to Capital Employed)(%)

41.64 53.11 50.72 54.70 57.6 60.8 61.1 63.4 66.8 51.0

Net Profit to Equity (%)- incl. exceptional items

16.04 20.81 19.61 19.29 21.6 25.7 26.8 27.3 29.8 23.0

BALANCE SHEET RATIO”S

2013-14

2012-13

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

2003-04

Current Ratios

1.14:1

1.21:1 1.21:1 1.38:1 1.31:1 1.75:1 1.79:1 1.97:1 1.74:1 1.67:1

Debt Equity ratio

0.06 0.04 0.03 0.05 0.01 0.01 0.02 0.04 0.05 0.07

Debtors Turnover Ratio (Days)

34 28 29 24 24 25 20 21 27 23

Chapter - 5

RECOMMENDATIONS & CONCLUSION

The current approach to fuel pricing in India has resulted in large fuel subsidies.

Thesesubsidies increased sharply from around 0.8 percent of GDP in 2009/10 to 1.9

percent ofGDP in 2011/12. As well as being fiscally costly, these subsidies are both

inefficient andinequitable. However, eliminating them will have substantial negative

impact on the realincomes of households, estimated to range from 4 percent for the

lowest income groups to5 percent for higher income groups. About three-quarters of the

impact arises fromsubstantially higher prices for kerosene and LPG.

Although the government has expressed its commitment to controlling fuel subsidies

andrecently undertaken measures to lower these subsidies, it has not as yet set out a

mediumtermreform agenda for subsidy reform, including measures to ensure large

subsidies do notrecur. However, a number of commissions have recommended options

for subsidy reform.

These commissions have recommended:

The use of international fuel prices as the appropriate reference for setting prices;

The elimination of diesel subsidies over the short term followed by full diesel

price liberalization;

The gradual removal of kerosene andLPG subsidies; and

The replacement of in-kind subsidies with targeted cash transfers