Technology

ONGC today is one of the most established and well renowned companies in the field of oil exploration and production in India. The core activities which are involved in oil exploration and production are to develop ,operate fields to extract crude oil and natural gas and to continue exploring and searching for new reserves of oil.

In order to accomplish this the following activities are carried out which include the following

1. Exploration 2. Development 3. Drilling 4. Production

. The primary work starts with exploring and looking for oil reserves in areas which are suggested by

the Geology department. Once the survey is done, an accurate estimation is done based on the data

available. On the basis of estimation a production facilities and other installation is made at that

particular field. After installation of production facilities drilling process start. They do drilling by

two ways:

1. Vertical Oil Well Drilling

2. Directional Oil Well Drilling

At the bottom of the Rig, One cutting machine is there which is called the BIT. It is used to cut the

heavy stones while drilling. The bit is made up of diamonds which is helpful in the cutting of the

stones. Once the drilling is completed, tubing pipes is used to extract crude oil and other hydro

carbon from the earth. Along with Tubing pipes, Casing pipes are also attached with it to provide

support to it.The crude oil extract from well is transferred to GGS (Group Gathering Section) for

separation of Natural Gas from Crude Oil. GGS is a separator which have dome like structure from

which Natural Gas is separated from upper side of machine as it is light as compared to Crude Oil.

The Natural Gas separated is transfer to GAIL. The Crude Oil that remains is the mixture of Crude

oil and Water. The mixture of Crude oil and water is transfer to CPF (Central Processing

Facilities). CPF is Heater-Treater machine water is burnt without allowing oxygen to enter in

process in order to convert water into gas so that water can be separated from crude oil.The crude

oil after processing in CPF is ready for sale which is transferred to Refineries such as IOCL, BPCL

& HPCL through pipelines.The extraction work is to be done in the ONGC but it does not work for

the purification and the bifurcation. It directly sells the crude oil to the IOCL, Baroda. The further

work is to be done at the IOCL.The ONGC is working at both On-shore and Off-shore. Onshore

means the production is on the land. It is to be done by at-

Gujarat

Ankleshwar Mehsana Ahmadabad Surat

Assam Chennai

The biggest off-shore is at MUMBAI (Bombay high) in India

ANKLESHWAR SECTOR:-

Ankleshwar sector is divided into ankleshwar field and satellite fields. Ankleshwar and motwan-

sisodra is the major field and kosamba, Kim and olpad are satellite fiels. Surface facilities for ankleshwar

field comprises of central tank farm (CTF) complex, production installation namely GGS-I, GGS-II, GGS-III,

GGS-IV, GGS-V, GGS-VI, GGS-motwan, GCS-motwan, EPS-anadada and other installation namely main

pump house, water treatment plant and intake well at kathor on tapti river. The ankleshwar installations are

located within distance of 30 kms from ankleshwar city. Surface facilities of satellite field include GGS-

kosamba, GGS-kim and GCS-olpad which are as far as 50 kms away from ankleshwar.

Ankleshwar CTF has facility for processing of crude oil to meet refinery specifications, one LPG

plane based on cryogenic technology, gas compressor plant and one effluent treatment plant. Typical

ankleshwar GGS has facility for receiving oil and gas from wells. High pressure (above 6kg/cm2) oil and

natural gas is directly sent to CTF after separation. Low pressure oil is stored in the tank and pumped to

CTF. The processing of crude oil to meet refinery specification can be done only at CTF. Some CTF has

low pressure gas compressors. Low pressure gas is either compressed and sent to CTF through low

pressure gas line and is compressed in gas compressor plant at CTF. GGS also has headers for

distribution of gas to gas lift wells, demulsifier injection facility etc.

As oil is processed centrally and low pressure gas compressed at CTF so the rich high pressure

gas available centrally at CTF from which LPG and naphtha is produced. GGS operation thus remains

simple. Water from intake water well is treated at kathor water treatment plant and sent to main pump

house for water injection into the reservoir for its pressure maintenance. Water for main pump house is

also used at ankleshwar colony for house hold purpose. High pressure lean gas is received at GCS

motwan from Hazira plant for use in gas lift wells.

GANDHAR SECTOR:-

This divided into gandhar field and north gandhar fields. Gandhar is the main field and other

satellite fields are dahej, pakhajan, dabka, nada, sarbhan, kural-gajera and jambusar. Surface facilities for

gandhar field comprises of central processing facility named CPF-gandhar, production installation namely

GGS-I,GGS-II, GGS-III, GGS-IV, GGS-V, GGS-VI, GGS-VII, GGS-VIII, GGS-dahej, GGS-jolwa, one EPS

253, and water intake and treatment plant at zanore where water is lifted from river narmada. Gandhar

installations are more or less 75 kms away from Ankleshwar city.

GGS-dabka, GGS-north gandhar have facility to process oil to refinery specifications and other

typical GGS facility. Processed oil is pumped from CTF, CTF to koyali refinery. Gas from the field is sold to

consumers, main one is GAIL.

DRILLING SERVICES:-

The drilling of oil well in Ankleshwar started by Russian rig (uralmarsh-sd) in the year 1960 at well

no Ankleshwar -1 later on christened as “VASUDHARA” by pandit Javaharlal Nehru, first prime minister of

India. This rig had drilled well nos. 1, 2, 5, and 6 successfully in Ankleshwar field during the drilling of

Ankleshwar 7.

During the year 1993-94, Ankleshwar project was operating maximum 22 numbers of drilling rigs

both own and charter hired. Deeper wells were drilling with deep drilling rig with dual completion and well

having longer horizontal drill of 300-400 meters were drill directionally. Some rigs are equipped with hi-tech

equipments such as IRD (independent rotary drive units) and top drive system.

RIG e-1400-7 was installed with the state of the art top drive drilling system for the first time on

ONGC’s on land rig in gandhar. The rig has also been equipped with “drill watch” which is an advanced

drill digital instrumentation and is compatible for transmission of data to head quarters though SCADA

satellite connectivity for on-line display and monitoring of rig operation.

1.  ONGC is having core competency in oil exploration and production and they enjoys 84% market share in India crude oil gas production. ONGC invested in MRPL and became first integrated oil company in India. But in 1990s and onwards company faces many problems and to overcome different problems they have used different strategies. In early 1990s GoI’s policy of liberalization reorganized company and family distribution in company changes from

to fall government holding to public sector investment. Table 1 ONGC’s Equity Distribution (April 2004) Major Stakeholder Share % Government 74.1 Public 13.9 IOC 9.6 GAIL 2.4 Source: www.ongcindia.com Table 1 shows equity distribution of ONGC which helped government to raise fund and disinvestment their fund from ONGC. In late 1990s, ONGC felt problem of obsolete technology and due to this their sales has declining in that time overcome this problem that have adopted two strategies on different time. Firstly they started investing into MRPL in different proportion but when MRPL failed to performed they acquired MRPL for their advance technology so that they can achieve Euro II standards. Second strategy was in early 2000s they employed Increased Oil Recovery (IOR), Enhances Oil Recovery (EOR) an SCADA. They also adopted modern technology like virtual reality Interpretation centers and ERP system which covered all aspects of MIS.

2. 7. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 7 They also acquired bets possible system for data exploration, compilation, monitoring, and processing. Analysts claimed that ONGC was over-exploiting reserves and from suggestion of consultants ONGC cut down sales by 25% of Bombay High Oil Wells. ONGC’s strategy of vertical integration by acquiring MRPL has given them advantage of technological development MRPL has given several advantages like retail business, tax concessions, savings in investment, etc. After technological upgrades vertical integration ONGC plans for growth through new domestic production enhancement programme. For year 2004-2005 approximately Rs.100 billion were planned to invest in capital expenditure and they also planned to redevelop north and south projects of Bombay High. ONGC invested in Capital Vietnam, Sachalin (Russia) and in Sudan to expand its global operations through OVL. In growth plan ONGC Considered development of Human Resource and for that they have planned several incentive schemes and for skill development they have established institute called ONGC Academy. ONGC considered financial restructuring for cost reduction and operation efficiency. They paid their foreign loans through idle reserves and invested in better technology which reduced their tax burden. These measures resulted into efficient operations and increase in production in year 2001. Table 2 ONGC Production ONGC Crude Oil Production 2001-2003 (millions of barrels) Year Type 2001 2002 2003 Onshore 137 132 36 Offshore 63 65 144 Overseas - - 1 Total 200 197 208 Source: www.ongcindia.com government of deregulating oil industry in 2002 has given independency of price decision making to ONGC, but simultaneously it increased competition as the international players are entering into the market. ONGC has planned to establish new plants at Dahej, Gujarat and Mangalore, Karnataka and agreement of establishing Special Economic Zone was entered by ONGC With respective State Governments. ONGC has planned relative diversification into areas such as LNG marketing, diesel, naphtha and kerosene. And they have also planned unrelated diversification by investing in Insurance and shipping industry. Petroleum Ministry had formerly draft order that ONGC should focus on its core that is Exploration and Production business. These decision of Petroleum Ministry vanished ONGC’s decision of diversification in to unrelated sectors to reduce dependency on one business.

3. 9. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 9 Issues: » Examine the growth strategy of a public sectoroil exploration and production company. First, ONGC exists, just as with NOCs in many other countries, because of a legacy of suspicion about outsiders. It performed well when it was tasked with things that were not that difficult and when it had help for the more difficult ventures, such as frontier E&P and development. Two factors were critical in the Indian government’s decision to put a state‐owned company (ONGC) in charge of India’s O&G exploration and production (E&P) efforts: the government’s socialist bent; and fears of opportunism of the international oil companies (IOCs). In the years following India’s independence in 1947 a large fraction of India’s production was under government ownership, reflecting the strong bias of the GoI for a Socialist‐like development of India. Additionally, by the mid 1960s GoI’s fears of possible opportunistic behavior of the IOCs seemed to be justified, as there was increasing evidence of unfair products pricing

internationally by the IOCs. The past baggage of imperial control and fears of opportunistic behavior of the IOCs convinced GoI to have government ownership of oil and gas E&P. The subsequent years, from 1975 and 1990, were ONGC’s golden era. Production went up from 4.5 MMT (O+OEG) in 1974‐75 to nearly 48 MMT (O+OEG) in 1989‐90. Starting barely from 450 employees at formation in 1956, ONGC swelled to over 47,000 employees by 1990. Second, ONGC has run into trouble as it matured, and the roots of its troubles are mainly in its interactions with the goal and secondarily in its management. The years of expanding production masked severe and growing performance problems emerged at ONGC. Among other problems, financial profligacy, organizational and planning difficulties, declining reserves, and the deteriorating health of producing fields brought much flak and negative attention to ONGC in the 1990.

4. 10. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 10 Third, a slew of reforms instituted since the mid 1990s have fundamentally changed the landscape of the E&P sector in India and the dynamic of government‐ONGC relationship. Targeted at improving corporate governance, enhancing competition in E&P, and eliminating price controls, those reforms have had a mixed impact on ONGC’s performance and strategy. They also highlight the difficulties the GoI has had in encouraging higher efficiencies in ONGC and the oil and gas sector.. ONGC’s production: Figure shows that, ONGC’s major exploration areas (basins) and producing areas (assets). In 2007‐08, about 70% of ONGC’s crude oil and 75% of natural gas production came from offshore areas, mostly off the western coast of India. The GoI set up ONGC in 1956 to lead India’s indigenous E&P efforts, but the breakthrough for India’s indigenous oil plans and ONGC came from Russia. Russia transferred technology and equipment to kick start ONGC’s exploration work. In the 1970s ONGC and its Russian partners began exploration in offshore areas and soon found the giant Mumbai High field in February 1974.

5. 11. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 11 » Study the internal and external factors that contributed to the growth of ONGC. The main three internal factors contributing to the growth of ONGC are 1. Technology Upgrades 2. Human Resources Development 3. Financial restructuring 1. Technology Upgrades: ONGC realized during the late 1990s that outdated and obsolete technologies were not only leading to high operation and maintenance costs but also was acting as an impediment to its high growth plans. To enhance the recovery quantities from basins which were near their maturity phase, they employed technology-enabled measures such as Increased Oil Recovery (IOR) and Enhanced Oil Recovery (EOR). Enhanced Oil Recovery is a generic term for techniques for increasing the amount of oil that can be extracted from an oil field. Using EOR, 30-60 %, or more, of the reservoir's original oil can be extracted compared with 20- 40% using primary and secondary recovery. Another modern technology used was SCADA (Supervisory Control & data Acquisition), which facilitated around-the-clock monitoring and an automated sensory system for each oil well. ONGC also invested in developing Virtual Reality Interpretation Centers with applications in exploration, drilling and engineering. Other measures included horizontal drilling, side- tracks, in-fill drilling, water injection, chemical & thermal methods to enhance oil recovery. Extensive investments were also made in IT, covering Enterprise Resource Planning (ERP), Control Systems and Communication Networks. 2. Human Resources Development: As part of ONGC’s Vision & Mission statement, the HR policy was aimed to “Foster a culture of trust, openness and mutual concern to make working a stimulating and challenging experience for our people”. To overcome the problem of overstaffing and procedural delays, ONGC revamped all internal processes to facilitate faster file processing. It also redesigned its appraisal system by introducing a new result oriented incentive and reward scheme like

6. 12. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 12 the Productivity Honorarium Scheme, Quarterly Incentive Scheme, Group incentives for Cohesive team working and reward and recognition scheme. ONGC also established the Institute of Management Development (IMD), later named ONGC academy. It had an ISO 9001

certification for designing parameters to measure the performance of human resources, succession planning, work climate and work culture analysis, managing change and other areas of research related to management development. Seminars, Conventions, Workshops, interactive brain-storming sessions were introduced to involve all the employees at regular intervals. In 2001, ONGC launched the SHRAMIK Project (Integrated System of Human Resource Automated management Information). This was an integrated, online HR system where all transactions were done through computers. This new system was expected to help streamline systems and procedures, minimizing processing time and administrative costs, improving level of employee satisfaction and enhancing the quality of decision making. 3. Financial Restructuring: Here again, ONGC strived to improve its operational efficiencies and reduce costs. ONGC had huge cash reserves on the one hand and huge interest outgo due to foreign debt on the other hand. ONGC thus took steps to make itself a zero-debt company. The excess cash was then employed to acquire better technology which would support its growth momentum. ONGC was also entitled to huge tax-concessions after its takeover of loss making MRPL, which was a strategic move to acquire assets which would not only have taken years for ONGC to develop otherwise but also reduce the overall cost for acquisition of such assets. Related functions such as Treasury management, Budget Control, Expenditure Monitoring and Reporting were also streamlined. As a result of all these steps by ONGC and the resultant streamlined operations, production output increased from 24.7 million tons in 2001 to 26 million metric tons in 2003. The main external factor that contributed to growth of ONGC was Deregulation of the Indian oil industry. 1. Deregulation: After the Government of India (GoI) deregulated the Indian Oil industry from April 1, 2002 by doing away with APM, ONGC was in a very strategic position where it could leverage on

7. 13. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 13 its strong investment base, superior infrastructure and extended distribution network. As a result of tyhis deregulation, ONGC reported a 70% jump in net profits over the previous year and an increase in revenue by 53.4% in 2002-03 over the previous year. 2. Strengths and Opportunities. The company is cash rich, and has very low levels of debt. It has more than Rs 22000 crores in cash, as per its latest Balance Sheet. This means that it can go on an acquisition spree. Its foreign arm, ONGC Videsh (OVL) is acquiring energy assets in foreign countries in the Middle East, Latin America, Asia and Africa. This cash is a significant asset; it means that it can obtain cheap financing from lenders to fund its acquisitions. Having financial resources also means that it can foray into renewable sources of energy such as solar and wind. The company obviously does not want to put all its eggs in the exhaustible fuel basket, and wishes to diversify and thus ensure long term relevance. The company is a financial behemoth and can afford to throw its weight around. Witness the recent acquisition of UK based Imperial Energy Ltd. ONGC outbid companies from many other countries, including China. The case under analysis mentions that ONGC has implemented a slew of technological improvements, adding high technology assets and processes to increase productivity. A marked improvement in the financial situation of the company has enabled it to invest wisely in improving and streamlining processes and enhancing capability. The company also needs to manage its talent effectively and stem attrition to private companies. Towards this end the company has instituted several measures to increase employee satisfaction and improve talent (as detailed in the case). The company is also providing perks and other benefits to the employees in an attempt to curb attrition. In the wake of the finalization of the nuclear deal between India and the US, ONGC has announced that it will start surveying for uranium deposits in India, to fuel the nuclear energy boom that is surely to come in the near future. ONGC also is the country’s biggest Oil (77%) and Natural gas (81%) producer. The company has licenses to explore huge swathes of India’s surface for oil and gas deposits. It also owns and operates more than 19,000 kms of pipelines in the country (both offshore and sub-sea). Until recently the company was the largest corporation in India, in terms of market cap. The company controls Bombay High oilfields, which produce more than 38% of all domestic crude.

8. 14. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 14 Having acquired MRPL, the company is in a good position to diversify into downstream activities. In fact ONGC has set up a test retail outlet in Mangalore under its Retail arm OVaL (ONGC Values). The company will sell finished petroleum products under the brand name RelaxTop. This means that the company is secure from the cyclical nature of oil prices. 3. Weaknesses and Threats: ONGC is owned by the Indian government. The government decides where the company can diversify and controls its sphere of influence and control. Witness the government vetoing ONGC’s intention to venture into shipping and insurance. The government is the owner and the decision maker in most matters. The company has tried its best to professionalize and has succeeded to a large extent. However, the government has placed restrictions as to what areas the company can operate in. ONGC is pretty much dependant on one industry, and its oil fields are giving declining yields of oil. The company needs more flexibility in terms of its areas of operations and needs to diversify. ONGC is affected by the ups and downs of the international prices of oil. Indian oil companies like HPCL and BPCL have to sell finished petroleum products at subsidized rates, i.e. they have to bear losses (under recovery). ONGC has to compensate them for the under recoveries. (ONGC gives these companies discounts in the purchase of crude oil, LPG etc). If international prices of oil rise, then under recoveries are high. The price of crude oil touched nearly USD 150 per barrel in the past few months, and the under recoveries hit the roof. Because of increase under recoveries, ONGC had to put its retail venture OVaL on the back burner for the time being. ONGC is also prone to having its employees being poached by private companies.

9. 15. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 15 » Critically analyze the vertical integrationstrategyof ONGC by entering into refining and retailing businesses One cannot be against "core competence", especially during periods when crude oil prices are skyrocketing. For, it's during this time that upstream oil companies can make huge profits by doing what they know and do best, that is, exploring and prospecting for oil and gas, and producing them. But that, at best, is a short-term approach. In the long run, it is better for an oil company to vertically integrate upstream, midstream and downstream sectors — i.e., oil and gas exploration, refining of crude to derive various petroleum products, and marketing them. And for success stories, one needn't look too far. The world's seven largest oil companies known as the Seven Sisters were vertically integrated. This made corporate sense and provided sustained profits over a long-term period. The strength of vertical integration lies in sustained profitability of the company. For example, when crude prices are high, the upstream wing makes the highest profit, while the refining wing has more or less fixed margins on which they operate. The other profit centre is, of course, constituted by the retail marketing outlets. When crude prices are low, then the growth of the upstream wing is stunted, the refineries make the usual margins of profit, but the retail outlets become the most important profit centres. This kind of flexibility is available only in a vertically-integrated company. In my view, companies should concentrate and develop expertise in all three of the above areas. The reason being that the oil and gas produced by a company can only be used after it undergoes value-addition through refining. Subsequent value-addition to refined products can be made through an efficient marketing network. Thus, there is a natural synergy between these three activities. However, it may not be possible to support vertical integration to the extent that an oil company decides to diversify into power generation, civil aviation, shipping, etc. One oil company in Indonesia tried this and failed miserably.

10. 16. S.R.LUTHRA INSTITUTE OF MANAGEMENT-SURAT(750) 16 » Examine the latestdiversification plans of ONGC to enter insurance, powergenerationand shipping businesses andidentify synergies, if any, with its core businesses The case describes the growth strategy and diversification plans of the Government owned Oil and Natural Gas Corporation Limited (ONGC), the largest oil exploration and production (E&P) company in India. ONGC has near monopoly in India's oil E&P industry producing nearly 90 percent of the country's crude oil and natural gas. Till the late 1990s, the company was mainly confined to upstream activities of E&P. In order to reduce risks inherent in confining to one activity and

to achieve financial stability and steady growth, ONGC acquired a major equity stake in Mangalore Refinery and Petrochemicals Limited so as to enter the down stream activities of refining. With this, ONGC became the first integrated oil company in India. The case examines the benefits and drawbacks of oil E&P Company entering into refining and retailing businesses. The case also discusses the possible benefits and disadvantages of ONGC's plans in 2004 to enter insurance, power generation and shipping businesses as part of its diversification program.

11. 17.  ONGC also implemented Enterprise Resource Planning (ERP) system which covered all aspects of management information system. It also redeveloped in 2001 under name ‘Promise’. ONGC adopted some technologies namely Increased Oil Recovery (IOR), Enhanced Oil Recovery (EOR) and SCADA (Supervisory Control and Data Acquisition). Major decision of government affected ONG must is of no diversification in unrelated sector and continuing with their core business by ONGC. Government of India plans to merge with HPCL and BPCL and IOC with oil India, but because of refusal of HPCL and BPCL plan were gets delayed. ONGC planned to enter into areas like LNG marketing, diesel, naphtha and key resources. They also announced entering into insurance and shipping business. ONGC had planned for forward integration in gas petrochemicals and in power sector. ONGC announced new plants set up in Dahej, Gujarat and Mangalore, Karnataka.