Case Study on the International Business Expansion Strategy

ONGC’s Mission & VisionTo be global leader in integrated

energy business through sustainable growth, knowledge excellence and exemplary governance practices.

Introduction of ONGCIt was established in the year 1956.Its Head quarter is in Dehradun.The chairman of ONGC is Mr. Sudhir VasudevaIts revenue is $30.745 billion in the year 2012Currently there are 32862 employees.ONGC is business organization involved in the

exploration and production of hydrocarbons in India and abroad.

Cont…It is one of the largest Asia-based oil and gas

exploration and production companies, and produces around 77% of India's crude oil  (equivalent to around 30% of the country's total demand) and around 81% of its natural gas.

ONGC has been ranked 357th in the Fortune Global 500 list of the world's biggest corporations for the year 2012

ONGC set up OVL in 1996 as a wholly owned subsidiary. It is the largest Oil exploration and production (E&P) company in India.

OVL currently has presence in 31 E&P projects in 15 countries, namely ; Vietnam, Iraq, Libya, Syria, Sudan, South Sudan, Iran, Cuba, Brazil, Venezuela, Russia, Myanmar, Colombia, Nigeria and Kazakhstan.

Reason for Expansion ONGC businessLicensing Policy:- by this private sector can also

participate in the exploration and production.Demand of crude oil:- demand was increasing

day by day.Oil Prices:- The trend of international prices was

volatile and rising. Competition:- Domestic competition was

increasing.Burden:- Increasing burden on the country due

to the rising oil import bill. Dependency:- The bottom-line was crude oil

prices.

Major strategic decisions taken…ONGC changed from a Commission to a company.ONGC appointed MC kinsey as a consultant for

complete revamping and restructuring of the organization.

ONGC expanded its global operation through its subsidiary OVL.

ONGC bought 71% stake in the MRPL refinery. ONGC decided to acquire equity oil abroad

through the endeavors of the OVL.Human resource development.

Objectives of ONGC…Doubling reserves to 6 billion tones by 2020.

Improving average recovery from 28% to 40%.

Tying 20 MMT per annum of equity of hydrocarbon from abroad.

Internationalization Strategy of ONGCCarried out in house studies of various moderate and semi-major, major offshore and onshore fields. Came up with about 400 Oil and Gas blocks. Evaluated these fields with available data came up with the

priority list for foreign foray

Combination of marketing entry strategyJoint venture with equity participation in producing

oil/gas fields.Joint venture with equity participation for

exploration and development blocks.Consortium approach, pooling other Indian oil

companies, such as IOC Ltd, GAIL, etc.Operator ship contracts (management contracts)Turkey engineering Contracts.

Countries where OVL has its producing assets Producing assets of OVL :a. Having 20 percent holding in Sakhalin(Russia)b. Having 45 percent stake in partnership with British

Petroleum.c. Having 25 percent equity in the Greater Nile Oil Project in

Sudan.

Countries where OVL having discoveries and exploration

OVL assets with discoveries & exploration :a. Having 100 percent interest in Appraisal & Development

in Qatar.b. Having 70 percent interest in Exploration & Appraisal in

Egypt.c. 15 percent interest in Development Phase in Brazil.d. 20 percent participation interest in Myanmar.

OVL OperationsVietnam Sudan

Myanmar Sakhalin-I

SWOT analysis

Strengths:• O.N.G.C LTD is perceived to be the leader in

oil production industry. • O.N.G.C being an international company has

sufficient resources and capital to invest. • It has a very efficient and professional

management team.• Being an international company has

sufficient resources and capital to invest.

WEAKNESS :• O.N.G.C facing difficulties to produce

oil from aging reservoirs.

OPPORTUNITY: • Energy utilization of buried coal

resource (700 -1700M), estimated 63BT – Equivalent to15000 BCM.

THREATS

THREATS:•Security of personnel & property especially crude oil continues to be a cause of concern in certain area.•Some exploration Campaign Company involves high technology, high technology, high investment and high risks.

Current Scenario

ONGC – The only Indian energy major in Fortune’s Most Admired List 2012 under 'Mining, Crude Oil Production' category

ONGC is ranked at 171st position in Forbes Global 2000 list of the world's biggest companies for 2012 of the world's biggest public companies released on April 18, 2012.

Total 23 Discoveries made in FY’12 which include 15 New Prospects (9 offshore, 6 Onshore) and 8 New pools (1 offshore, 7 onshore).

ONGC declares an impressive Annual Performance while notifying two more discoveries : 29 May, 2012

(OVL) is the biggest Indian multinational, with 30 Oil & Gas projects (9 of them producing) in 15 countries

PP2030 aims to double ONGC’s production over the plan period with 4-5 per cent growth

ONGC intends to maintain its position as the dominant energy player in India as well as abroad.

OVL signs definitive agreements to acquire an interest in the Azeri, Chirag and the Deep Water Portion of the Guneshli Fields in the Azerbaijan sector of the Caspian Sea and an interest in the Baku-Tbilisi-Ceyhan Pipeline. Dated: 8th September, 2012 .

The acquisition would mark ONGC Videsh’s entry into oil rich Azerbaijan and is consistent with its stated strategic objective of adding high quality international assets to its existing E&P portfolio

"ONGC is close to announcing a significant discovery near the Mumbai High fields, which may increase output in the region by 25,000 barrels per day," ET reported. "The discovery awaits formal scrutiny and assessment by the Directorate General of Hydrocarbons (DGH) and the company will make an announcement only after regulatory approval."

The basin is the largest in India and includes Mumbai High, Bassein and Heera and Neelam producing fields. ONGC had made the oil discovery in this basin in 1974.

QUESTIONS

Critically evaluate the reasons influencing ONGC’s international expansion?

Factors influencing expansion -New exploration licensing policy

Lack of new discoveries

Domestic competition

Identify the key factors affecting OVL’s country selection.

Opportunity in the area of oil exploration.

Future relationship with the countries.

Size of the other company or its growth

OVL made use of strategic alliances and joint ventures for its international expansion ventures rather than opting for complete ownership. Do you agree with such a kind of approach?

Reasons for Joint Ventures and Alliances

Gain Access to a Particular Resource

Risk and Cost Sharing

Learning

Speed to Market