A PROJECT REPORT

ON
“COST STRUCTURE ANALYSIS,
ALLOCATION OF COST
AND
PRICE MECHANISM OF CRUDE OIL AND
NATURAL GAS”

SUBMITTED BY: SUBMITTED TO:

PRANAV A. SHAH
HARDIK K. SURATI
 PREFACE

Industrial Training refers to work experience that is relevant to professional development

as an essential component in the development of the practical and professional skill required of a
manger and an aid to prospective employment.

The summer training is an ideal opportunity for the student to have a firsthand experience
with the different function of the industry/corporate sector. It is famous saying that the “person
who has read 1000’s of pages is not worth than the person who has travelled for 100’s of
meters.”
Teaching gives the knowledge of theoretical aspects of management but implementation
of theory gives practical knowledge of management field. The aim of this training is to introduce
the fundamentals and the basic principles of financial management and business accounting in
real life day to day application of business transition.

Practical Knowledge of theory is of grater important for a finance student. We are thankful to our
NAVANITLAL RANCHODLAL INSTITUTE OF BUSIESS MANAGEMENT (NRIBM) for
arranging summer training before entering into the specialization field of MBA (FINANCE)
program. This project report is an outline of what we have learnt during our training period at Oil
& Natural Gas Corporation Limited (ONGC), one of the prestigious public sector companies
running with strategy values and time management.

We are thankful to Oil & Natural Gas Corporation Limited for giving us such a valuable
opportunity to work with them.
 ACKNOWLLEDGEMENT
It has been rightly said, “Whenever people are willing but unable to perform
particular task, they need cooperation and guidance of experienced people which is quite
imperative in achieving the desired goals.”

We sincere acknowledgement to oil and natural gas corporation ltd. for giving us a
valuable opportunity to work with them. This project report is dedicated to all the people, whom
we met, took guidance, talked and gained knowledge from them.

We are indebted and whole-heatedly thankful for the assistance received from
various individuals in making this project a success. We have no words to express our gratitude
towards those who were constantly involved with us throughout our wonderful experience
working with the project on “Cost structure analysis and allocation of cost”.

We would like to express my gratitude to my college Navanitlal Ranchodlal

Institute of Business Management(NRIBM) & my faculty guider for giving me the golden
opportunity of making project report on the “Cost structure analysis, allocation of cost and
pricing of crude oil and natural gas” at ONGC as a part of summer internship so as to learn
the various aspects on practical basis.

We Pranav shah and Hardik surati are highly thankful and deeply indebted to Mr.
Shailendra and Mr. Mohanty Who incessantly guided us till last word of this project report and
provided an estimable guidance. They made numerous valuable suggestions and corrections,
which greatly improved the quality of our work. In spite of being busy with their routing work
they spend quality time with us and never hesitated to cooperate and help us out with our
problems as and when required. The practical and the theoretical knowledge that we have gained
from them will help us in enhancing our career and managing things in a better way.
 EXECUTIVE SUMMERY

In modern economy finance is one of the basic foundations of all kinds of economic
activities. Within it proper management of finance is regarded as the lifeblood of business. And
to achieve monetary goal of organization, Costing is very important financial tool, as cost
accounting is the process of tracking, recording and analyzing cost associated with the products
of activities of an organization.

We have got an opportunity to do my summer project in ONGC. It was established as a

commission on August 14, 1956 and was change into corporation on June 23, 1993. We have
worked with the corporate and had good experience learning with them. We have prepared this
project report on “Cost structure analysis and allocation of cost” at ONGC.

ONGC is the flagship company of India in areas of exploration & production of oil & gas
and related oil field services. The company has adopted progressive policies in scientific
planning, acquisition, utilization, training and motivation of the team. In ONGC’s context, cost
accounting include tracking, recording and analyzing costs associated with activates like
acquisition, exploration, development, production etc.

Objective of preparing summer internship project on “Cost Structure Analysis and proper
allocation of Cost” at ONGC Ankleshwar Asset will give complete Review and Analysis of
current trend acquainted in the cost structure. The initial part of this report contains the brief
information about the organization, its organization structure, type & different activates involved
in formulation of cost structure and information about cost accounting process.

This report has been prepared under the guidance of cost accounting department, with
properly following the guidance note on accounting for Oil & Gas Producing Activities, issued
by the Council of the Institute of Chartered Accountants of India.
 TABLE OF CONTENT
S.R.No. PARTICULARS PAGE No.
1 INRODUTION TO OIL INDUSTRY

1.1 Evolution of oil and gas industry in india

1.2 Major players

1.3 PEST analysis

1.4 Porter 5 forces model

2 INRODUCTION TO THE ONGC

2.1 ONGC History

2.2 Asset/Basins/Plants/Institute

2.3 SWOT analysis

2.4 Subsidiary and joint venture

2.5 Board of director

2.6 ONGC structure

2.7 Financial performance

2.8 Project ICE

2.9 About Ankleshwar asset

3 BRIEF OVERVIEW OF FINANCE DEPARTMENT

3.1 Ankleshwar finance department structure

3.2 Introdution to various finance department

3.2.1 Budget section

3.2.2 Cash and bank section

3.2.3 Pre audit section

3.2.4 Personal claim section

 4 COSTING SECTION

4.1 Costing structure

4.2 CRC structure

4.3 Cost component

4.4 Cost object

4.5 Accounting process

4.6 Costing in SAP

4.7 Costing allocation

4.8 Hypothetical costing of well

4.9 Various cases that affect costing of well

5 SALES SECTION

5.1 Sales component

5.2 Price mechanism of oil and gas

5.2.1 Oil pricing

5.2.2 Gas pricing

6 CONCLUSION

TABLE OF CONTENT FOR FIGURES

S.R.No PARTICULARS PAGE No.
 2.3.1 ONGC office in india

2.4.1 ONGC group of companies

2.7.1 Net sales turnover

2.7.2 Financial performance

2.7.3 Net profit

2.7.4 Oil and natural gas production

2.7.5 Dividend

2.7.6 Share holder pattern

2.9.2.1 Ankleshwar asset

TABLE OF CONTENT OF TABLES

S.R.No. PARTICULARS PAGE No
2.7.1 Net sales turnover

2.7.2 Financial performance

2.7.3 Net profit

2.7.4 Oil and natural gas production

2.7.5 Dividend

2.7.6 Share holding pattern

4.7.1 Cost allocation

4.8 Hypothetical costing of well

5.2 Oil and gas pricing table

 RESEARCH METHODOLOGY

OBJECTIVES:-

• To study the process of cost structure and to understand it at ONGC.

• To understand the Allocation of cost towards various activities done by ONGC.
• To project the costing of WELL at Ankleshwar.
• To analyze the price mechanism of crude oil and natural gas of india.
SCOPE:-

• Analyzing cost structure of ONGC.

• Understand the Allocation of cost at ONGC.
• Cost component.
• Projecting the cost for WELL at Ankleshwar ONGC.
• Price mechanism used by government of india.

SHORT LITERATURE SURVEY:-

Cost Accounting is the process of accounting for cost. Cost accounting is concerned with
cost determination of something which may be a product, a service, a process Or an operation.
Author- paresh shah, book of management accounting.

Cost accounting helps the management to have a clear indication of their economic
performance; and the direction in which they must move in order to improve their economic
efficiency; and be helpful in solution of complex management problems, such as determination
of most profitable mix, make or buy decision, replacement of equipments, introduction of new
product and discontinuance of non profitable products. Author- paresh shah, book of
management accounting.

Cost accounting systems are part of an enterprise’s information system and refer to the
internal cost tracking and allocation systems to track costs and expenditures. These are internal
rather than external accounting systems. cost accounting measures are the predominant financial
drivers in day to day business decision making affecting every aspect of the firm’s activities.
Good cost accounting is vital to understanding the profitability of current activities and to
predicting the profitability of future activities. Noellette Conway-Schempf, Ph.D.Carnegie
Mellon University Pittsburgh, PA 15213

RESEARCH DESIGN:-

• Descriptive research.

RESEARCH METHODOLOGY:-

• Secondary sources :-
o Annual report
o Industrial publications
o Costing manuals
o Internet etc.

TIME BUDGET:-

First Week – study about the oil industries and ONGC company
Second week – study the annual report.
Third week – prepare research proposal and finalize the main objectives
Forth week – understand the costing concept of ONGC
Fifth week – analyses the cost structure and allocation of cost towards various
activities.
Sixth week – projecting the manual costing of particular well.
Seventh week – conclusion.

BENEFICIARIES:-
  To us (Hardik surati, Pranav shah.)
 To classmates
 To company (ONGC)

A SHORT WRITE-UP ON THE RESEARCHER:-

We Pranav shah and Hardik surati student of MBA (FINANCE), NRIBM (GLS),
AHMEDABAD. Doing a project on cost structure analyses and allocation of cost at ONGC
Ankleshwar. to understand the practicality of real world organization and how they work on
particular system to run effective and efficient business.

BIBLIOGRAPHY:-

 Paresh shah book of “management accounting”

 Noellette Conway-Schempf, Ph.D.Carnegie Mellon University Pittsburgh,PA 15213\

1. INRODUCTION TO OIL INDUSTRY

1.1 EVOLUTION OF OIL AND GAS INDUSTRY IN INDIA:-

 At Independence, India's domestic oil production was just 250,000 tones per annum. The entire
production was from one state-Assam. Most foreign experts had written off India as far as
discovery of new petroleum reserves was concerned. The Government announced, under
Industrial Policy Resolution, 1954, that petroleum would be the core sector industry.

Preamble

Petroleum exploration & production was controlled by the Government-owned National Oil
Companies (NOCs), ONGC and OIL, in pursuance of the Industrial Policy Resolution, 1954. In
the early 70s, they supplied nearly 70% of the domestic requirement. However, by the end of the
80s, they had reached the stage of diminishing returns. Oil production had begun to decline
whereas there was a steady increase in consumption and today the two NOCs are able to meet
only about 35% of the domestic requirement. This was further compounded by the resource
crunch in the beginning of the 90s. The Government had no money (FE) to give to the NOCs for
the development of some of the then newly discovered fields. While some of these fields could
be developed by ONGC (Gandhar, Neelam, Bombay High, Lakwa, Heera, Geleki etc.), for
others there was no money available for indigenously developing the fields. The problem had
elements such as the administered oil price, non-availability of appropriate technology, logistics
etc.

Petroleum Sector Reforms, 1990

The Government launched the Petroleum Sector Reforms (PSR) in 1990. Till then, three rounds
of exploration bidding had been gone through with no success in finding new oil/gas deposits by
the foreign companies who only were allowed to bid. Under the PSR, the Fourth, Fifth, Sixth,
 Seventh and Eighth Rounds of exploration bidding were announced between 1991 and 1994. For
the first time Indian companies with or without previous experience in E&P activities were
permitted to bid starting with the Fourth Round.
The Government then announced the Joint Venture Exploration Program in 1995. The
exploration blocks were in those areas for which the Petroleum Exploration License was with the
NOCs and they were required to have a 25% to 40% Participating Interest from day one.

Foreign Companies in Exploration in India

Foreign companies entered the Indian E&P scene since early fifties (Indo Stanvac Project- A
Joint Venture between Government of India and Standard Vacuum oil Company for West
Bengal onland in early fifties, Carlsbons Natomas for Bengal offshore in early seventies,
Assamerc for Cauvery offshore and Reading and bates for Kutch offshore also in early seventies
and later since the first round in 1980; Shell for Kerala offshore and Chevronn- Texaco in
Krishna - Godavery Offshore). This was certainly not as much as elsewhere in the world.

Indian E&P Companies

Most of the Indian companies barring HOEC have been riding piggyback on the foreign
companies for exploration and development ventures in India. In this regard, Reliance Petroleum
Ltd. has taken the first step by joining up with ONGC in bidding for exploration as well as
development ventures in India and abroad. Some of the downstream companies like IOC, GAIL
has entered also upstream in consort with ONGC and OIL.

Opening of the Oil/Gas Fields for Development by Private Companies

The Indian oil/gas fields discovered by the two NOCs, were first offered in 1992 under the First
Offer. The second such offer was made in 1993. Development of fields is characterized by a
 comparative lack of business risk but is a cost intensive venture. Only those companies who have
previous experience of field development can undertake such ventures. Unlike the Exploration
blocks, field development contracts have upfront payments to be made to the NOCs for past
costs as well as in the form of signature bonus. At the stage of oil/gas production, companies are
also required to make production bonus payments. Lack of previous experience forces the Indian
companies to seek foreign partners not only to work as Operator but also to share costs. It would
help Indian cause if the government were to introduce the practice of Pure Service Contract like
in some of the other producing countries.
Today 74 Exploration Contracts and 28 Development Contracts are in operation. There are a
total of 103 PSCs in operation. This is a sizable number but unfortunately this is not made known
to a large number of people/enterprises. The Development Contracts are likely to add about
150,000 barrels of oil per day (or about 7.5 MMT per year) and about 7 million cubic meters per
day of gas production. In terms of money about 4 billion dollars are expected to be pumped into
these ventures over the next 10 to 15 years.

1.2 MAJOR PLAYERS:-

ONGC

It is a public sector petroleum company in India, contributing 77% of India’s crude oil
production.
Revenue (2008-09): 161263 million
Employees: 41000

Recent news:

• ONGC achieve highest Reserve accretion in last two decades.

• ONGC conferred with two SCOPE meritorious awards on the PSU day.
 • India's ONGC lags in global oil race. ONGC's setbacks in acquiring major oil resources are
made worse by the Indian government's order to help shoulder the burden of subsidised
fuels earlier this year, which pushed the country's biggest refiners into the red.
• ONGC has gained junior shares in a host of projects, from Russia's Sakhalin-1, Iran's
Yadavaran Field and Sudanese properties abandoned by Western investors.
• But it has yet to take a lead role that would give it more say and a bigger share of future
production. The race is gaining urgency both for India and ONGC as Chinese and other
Asian competitors snap up plum properties in the face of stagnating domestic production.
• Government officials say ONGC must boost its reserve-to-production ratio - the number
of years its reserves will last with the current level of output - by improving its drilling
technology and management practices. ONGC's ratio is 22 years. In some onland areas
the ratio is 57 years.
• ONGC lost a major offshore platform at Bombay High, India's largest oilfield, reducing
the company's output by 123,000 barrels per day (bpd) after an errant rig crashed into the
facility during the monsoon, setting it on fire. It has since restored half that production.
• Oil Minister Mr Aiyar has pushed for Indian and Chinese firms to cooperate not
compete, for overseas assets, but his efforts appear to have met with little interest in
Beijing, where the oil majors are gaining ground abroad, despite some hiccups.
IOCL

It is India's largest commercial enterprise, with a sales turnover of US $36.537 billion.

• A wholly owned subsidiary company, IndianOil Technologies Ltd. is the 19th largest
petroleum company in the world
• IndianOil's world-class R&D Centre has developed over 2,100 formulations of SERVO
brand lubricants and greases for virtually all conceivable applications meeting stringent
international standards and bearing the stamp of approval of all major original equipment
manufacturers.
• IndianOil is also strengthening its existing overseas marketing ventures and simultaneously
scouting new opportunities for marketing and export of petroleum products to new energy
markets in Asia and Africa.
BPCL

It is the 3rd largest oil company in India owned by the Government of India.
Revenue (2005): $17.613 billion
Employees: 12400

• In 1976, the Burmah Shell Group of Companies was taken over by the Government of
India to form Bharat Refineries Limited.
• In 1977, it was renamed Bharat Petroleum Corporation Limited.
• It was the first refinery to process newly found indigenous crude (Bombay High), in the
country.

1.3 P.E.S.T Analysis

Political Environment
The political environment in India is one of a federal republic. ONGC is state-
owned but this does not mean that the GoI is good for ONGC or doing things in the
best interest of ONGC right now. The proposed mergers of HPCL, BPCL with
ONGC, and Oil India with IOC were the GoI’s ideas. This produced uproar and
the mergers we set aside, but not without the GoI stating that the government will
have to restrict the respective companies to their core businesses. ONGC is also
being made by the GoI to focus on exploration and production (E&P) of oil and
gas. ONGC had been starting to move downstream and diversify its business by
going into the refining and retailing business but the GoI put a halt to this. The
positive side of having the political backbone of ONGC is that it gives the
company stability and some security. When ONGC started they had multiply
protection policies in place that kept them safe from global competition. As the
years went by, the GoI deregulated the industry and took away the state protection
policy that kept ONGC safe. This has lead to new opportunities but it has also
opened the door to a lot more threats.
With the GoI focusing so much on oil and gas E&P and forcing ONGC to focus on it as well, it
is seemingly making E&P a core rigidity for the company. September 25, 2007 has found the
GoI saying to ONGC that they need to “produce or perish” and that they will become a marginal
player in the industry if they don’t comply. These are harsh words by the government and could
be a fatal blow to ONGC for future business ventures and success. The GoI also recently blocked
ONGC from bidding on a Nigerian oil field that would’ve helped increase their gas and oil assets
outside of India. The GoI did not feel this was a good choice and blocked the decision. Through
all this it shows a highly influential “owner” of ONGC who is commanding them to do things
and not do things and not really knowing what’s best for the company. This is a huge hindrance
to ONGC.

Economical Environment
India is one of the largest and fastest growing countries in the world right now. India’s
population has already reached over one billion people and continues to grow rapidly. India is a
part of the B.R.I.C., which stands for Brazil, Russia, India and China, which are four of the
fastest emerging and rapidly growing countries. With all these economic developments have also
brought about a huge demand for energy, in which ONGC is the main player in India. This gives
them a great advantage because there is a huge economic demand for oil and gas.

Sociological Environment
Sociologically the environment in India is one of growth and advancing intellectually. As
mentioned before, the country has over one billion people and continues to grow. This creates a
huge pool to pull from. India has been a major country for companies in other countries to
outsource to. This is not only due to cost advantage, but also to an education advantage. The
Indian people are emerging as a learning people and the potential for success in this kind of
environment creates a strong foothold for any company. It’s interesting to note that ONGC
employs approximately 40,000 workers in India. Compared to the amount of people that India
has this number is not staggering. But this is still a large workforce under one company and
could be used for leverage when making decisions with the government. This does not mean the
company has been good to work for though. The company was recently scrutinized by the GoI
because “attrition over the last one year has been the highest in the past five years and 328
professionals have left the organization.” And that “the main reason for this was the inability of
ONGC to meet compensation packages being offered by the industry.” This is not a good spot
for ONGC to be, not only because they are losing valuable workers, but also because it is getting
them into even more trouble with the government.

Technological Environment
The technological environment in India is rapidly increasing. As the country continues to grow,
so also is the technology. With respect to the oil industry, ONGC was behind technologically,
but has since put much needed money and focus on technology. ONGC realized that they were
behind in the technological environment and this was creating a huge weakness with respect to
their competitors. ONGC has turned what once was a weakness into strength though. One such
example was the acquisition of technology to meet Euro II standards through the purchasing of
MRPL. ONGC also implemented advanced technologies such as Increased Oil Recovery,
Enhanced Oil Recovery and Supervisory Control and Data Acquisition. Another great
technology that they implemented, that really gives them a competitive advantage is the Virtual
Reality Interpretation Center, which is regarded as “one of the ten bests such systems in the
world for applications in exploration.” This greatly enhances their ability for oil recovery and
also for a competitive advantage. Other great technological advances were the implementation of
an ERP, MIS and inventory control system. ONGC also implemented a completely digitized
magnetic media seismic library, which is considered the one of the best in the world. This was a
much needed improvement in technology over all their previous years to help compete on the
world market. It cannot be emphasized enough how important technology is in a large
corporation like this battling in a market that is very tough and depleting.
Global Environment
The global environment is a very competitive environment with respect to oil and gas
exploration. With the continued depletion of these non-renewable fossil fuels the competition to
secure oil and gas reserves is very intense. In 2005, ONGC lost a bid to the Chinese company
China National Petroleum Corporation to secure oil reserves in Canada and has since lost more
battles such as this. On the world market ONGC is not the biggest player. Globally, the giant oil
companies have seen integration into other downstream elements of the oil industry to create a
competitive advantage. ONGC not only faces competition from the global market. They also are
in a race with each other with regards to integration and the way these major oil companies are
run.

1.4 PORTERS 5 FORCE MODEL

Threat of new entrants:

Due mostly to the industry that ONGC is in, it’s hard for there to be many new entrants. The
only real threat that might arise would be another government funded Oil and Gas company. The
reason for this is that a government would not have as hard a time raising funds and gaining
access to resources. This is assuming that the company would be researching and developing on
domestic soil. The only other threat may not be from new entrants but from smaller competitors
who already have access to resources and distribution channels. There is really not much of a
threat because there are two main barriers to entry that would be stopping potential threats. These
would be very high capital requirements as well as access to Cost disadvantages independent of
scale.
Even though this industry if very attractive because of the high profits it would be very hard for a
company to have enough capital to get in the market. Every part of Oil and Gas Exploration and
Development is costly and not something that would be worth the costs as a new entrant into the
industry. Going along with the high cost of capital are the cost disadvantages. The companies
already in the industry already have the access to raw materials as well as desirable locations.
This is something that would be very difficult for a new entrant to try and gain.

Bargaining Power of Suppliers:

ONGC is a vertically integrated company that really deals in all areas from finding the product to
refining the product to selling the product. With this being said there is not much to worry about
the bargaining power of the suppliers. Supplier power is high as the net margins are strongly
dependent on the price of the crude. Due to crude price volatility and supply risks, a lot of the
Indian companies are integrating backwards into E&P activities

Bargaining Power of Buyers:

Not too critical for most companies as refining operations are a part of the complete supply
chain, with the refining operations supplying the product to the marketing company. However in
case of standalone companies (which may no longer apply) long term contracts have to be signed
with the marketing companies. The margins in such cases are dependent on such long term
contracts.
The industry that ONGC is a part of is different than many other industries. It is different in the
fact that people really cannot go without their product. While over a long period of time it may
be possible to find other fuels it is not really feasible in the short term. This has been seen in the
US in the last few years. Gas companies can keep the prices high and consumers will still pay the
high prices. When looking at the individual buyer they have almost no bargaining power because
they are only buying such an extremely small portion of the industrial output. Another reason for
this lack of bargaining power is that as of right now there is not a real alternative to Oil. All of
these reasons make it very hard for the buyer to have much bargaining power at all.

Threat of Substitutable Products:

Although gas, solar power etc exist as substitutes, none of them are big enough to impact the
demand of the petroleum products. As stated above there is not a real alternative to oil at this
time. There is research being done to try and find substitutes. With the price of oil as high as it is
at this time, it is only giving more reason to try and find other fuel sources. This is where the
main players in this market must be careful. The prices are staying fairly high now because
people really don’t have a choice and must pay. If other fuel sources do come out that are less
costly, many people will go towards those alternatives. It does not seem that at this time there is
a huge threat of this happening but it is definitely a possibility that any player in the market must
be aware of.
Intensity of Rivalry among Competitors:

The rivalry in the industry was low till as the industry was tightly regulated by the government.
However, the level competition has increased with Reliance and other MNC becoming more
aggressive. The largest competitors in this industry for ONGC are Exxon Mobile and Royal
Dutch Shell. ONGC is currently in 14 different companies whereas Exxon Mobile is in 20
different countries. While Exxon may be a larger company now ONGC is growing and is
becoming a very important global player

2. INTRODUCTION TO THE ONGC.

2.1 ONGC HISTORY
1947-1960
During the pre-independence period, the Assam Oil Company in the northeastern and Attack
Oil company in northwestern part of the undivided India were the only oil companies
producing oil in the country, with minimal exploration input. The major part of Indian
sedimentary basins was deemed to be unfit for development of oil and gas resources.

After independence, the national Government realized the importance oil and gas for rapid
industrial development and its strategic role in defense. Consequently, while framing the
Industrial Policy Statement of 1948, the development of petroleum industry in the country
was considered to be of utmost necessity.

Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of
India. In Assam, the Assam Oil Company was producing oil at Digboi (discovered in 1889)
and the Oil India Ltd. (a 50% joint venture between Government of India and Burmah Oil
Company) was engaged in developing two newly discovered large fields Naharkatiya and
Moran in Assam. In West Bengal, the Indo-Stanvac Petroleum project (a joint venture
between Government of India and Standard Vacuum Oil Company of USA) was engaged in
exploration work. The vast sedimentary tract in other parts of India and adjoining offshore
remained largely unexplored.

In 1955, Government of India decided to develop the oil and natural gas resources in the
various regions of the country as part of the Public Sector development. With this objective,
an Oil and Natural Gas Directorate was set up towards the end of 1955, as a subordinate
office under the then Ministry of Natural Resources and Scientific Research. The department
was constituted with a nucleus of geoscientists from the Geological survey of India.

A delegation under the leadership of Mr. K D Malviya, the then Minister of Natural
Resources, visited several European countries to study the status of oil industry in those
countries and to facilitate the training of Indian professionals for exploring potential oil and
gas reserves. Foreign experts from USA, West Germany, Romania and erstwhile U.S.S.R
visited India and helped the government with their expertise. Finally, the visiting Soviet
experts drew up a detailed plan for geological and geophysical surveys and drilling
operations to be carried out in the 2nd Five Year Plan (1956-57 to 1960-61).

In October 1959, the Commission was converted into a statutory body by an act of the Indian
Parliament, which enhanced powers of the commission further. The main functions of the Oil
and Natural Gas Commission subject to the provisions of the Act, were "to plan, promote,
organize and implement programs for development of Petroleum Resources and the
production and sale of petroleum and petroleum products produced by it, and to perform such
other functions as the Central Government may, from time to time, assign to it ". The act
further outlined the activities and steps to be taken by ONGC in fulfilling its mandate.

1961-1990
Since its inception, ONGC has been instrumental in transforming the country's limited
upstream sector into a large viable playing field, with its activities spread throughout India
and significantly in overseas territories. In the inland areas, ONGC not only found new
resources in Assam but also established new oil province in Cambay basin (Gujarat), while
adding new petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both
inland and offshore).

ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay
High, now known as Mumbai High. This discovery, along with subsequent discoveries of
huge oil and gas fields in Western offshore changed the oil scenario of the country.
Subsequently, over 5 billion tonnes of hydrocarbons, which were present in the country, were
discovered. The most important contribution of ONGC, however, is its self-reliance and
development of core competence in E&P activities at a globally competitive level.

After 1990

The liberalized economic policy, adopted by the Government of India in July 1991, sought to
deregulate and de-license the core sectors (including petroleum sector) with partial
disinvestments of government equity in Public Sector Undertakings and other measures. As a
consequence thereof, ONGC was re-organized as a limited Company under the Company's
Act, 1956 in February 1994.

After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of
Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its
shares through competitive bidding. Subsequently, ONGC expanded its equity by another 2
per cent by offering shares to its employees.

During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas
Authority of India Limited (GAIL) - the only gas marketing company, agreed to have cross
holding in each other's stock. This paved the way for long-term strategic alliances both for
the domestic and overseas business opportunities in the energy value chain, amongst
themselves. Consequent to this the Government sold off 10 per cent of its share holding in
ONGC to IOC and 2.5 per cent to GAIL. With this, the Government holding in ONGC came
down to 84.11 per cent.

In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified
into the downstream sector. ONGC will soon be entering into the retailing business. ONGC
has also entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC
has made major investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon
revenue from its investment in Vietnam.

ABOUT ONGC

The search for oil in India began way back in 1866 in Upper Assam. While oil was struck at
Digboi in 1889 marking the beginning of oil production in India, discoveries were made in
Nahorkatiya and Moran oilfields in the late 1950s and early 60s in the northeastern region. In
view of the growing demand of crude oil, the Government formed Oil & Natural Gas
Commission (ONGC) in 1956 to boost the exploration of oil and gas in the country. ONGC
made the first discovery in 1958 in the Cambay onshore basin in Gujarat. During the 1960s, oil
production in the country was confined to only Assam and Gujarat.

The discovery of oil and gas in the offshore region was made by ONGC in 1974 in Mumbai
High which opened up a new vista for oil and gas exploration and production in India.
Subsequently, more discoveries were made in the Krishna-Godavari, Cauvery and Rajasthan
sedimentary basins. While the responsibility of carrying out exploration and production
activities in the country was entrusted to the national oil companies (NOC’s) almost till the
beginning of 1990’s, wherein they used to be granted the Petroleum Exploration License (PEL)
on nomination basis, the Center’s liberalized economic measures opened up a few acreages to
private and joint venture companies through various exploration bidding rounds for
development of discovered fields.

The seeking and production of the crude oil and natural gas are generally referred to as
exploration and production phase of the total grant of function of the petroleum industry. A
divide has thus been made in the petroleum industry between the function relating to
exploration and production of crude oil and natural gas which is referred to as “up-stream”, and
refining transportation and marketing to the end consumer which are referred to as “down-
stream”.

Oil and Natural Gas Corporation Limited (ONGC) (incorporated on June 23, 1993) is an
Indian public sector petroleum company. It is a Fortune Global 500 company ranked 335th, and
contributes 77% of India's crude oil production and 81% of India's natural gas production. It is
the highest profit making corporation in India. It was set up as a commission on August 14,
1956. Indian government holds 74.14% equity stake in this company.

ONGC is one of Asia's largest and most active companies involved in exploration and
production of oil. It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary
basins of India. It produces about 30% of India's crude oil requirement. It owns and operates
more than 11,000 kilometers of pipelines in India.
Oil and Natural Gas Corporation Limited (ONGC) was set up as a Commission on August 14,
1956 at Dehradun - with strategic national objective to explore and exploit hydrocarbon
resources of the country. ONGC which is India’s number one corporate with significant
contribution in industrial and economic growth of the country, has been a leading National oil
company of India engaged mainly in exploration, development and production of crude oil,
natural gas and some value added products. ONGC explores and produces oil and natural gas,
both on land and offshore in diverse logistic condition, from rugged mountains to deserts and
deep oceans.

The company became a corporate on June 23, 1993 and now it has grown into a full-fledged
horizontally integrated petroleum company. Today, ONGC is a flagship public sector enterprise
and India’s highest profit making corporate, achieving the record of being the first Indian
corporate to register a five digit profit figure of Rs. 10,529 Crores in the year 2002-03. Since its
inception, ONGC has produced more than 600 million metric tonnes of crude oil and supplied
more than 200 billion cubic metres of gas. Currently, ONGC is the most valuable company in
India, contributing 77 percent of India’s crude oil production and 81 per cent of India’s natural
gas production.

ONGC today, is endeavoring to become a world-class oil and gas company in pursuit of E&P
business in both domestic and international arena and related opportunity specific energy
business.

ONGC is India’s largest producer of crude oil, natural gas and LPG. The principal activities of
ONGC include acquisition of mineral interests in properties, exploration (including prospecting),
development, production, transportation and marketing crude oil and natural gas. It also produces
several value added products (VAP) like Liquefied Petroleum Gas (LPG), Natural Gas Liquid
(NGL), Naphtha (including Aromatic Rich Naphtha), Superior Kerosene Oil (SKO), Ethane-
Propane (C2-C3), High Speed Diesel (HSD), Sulphur, Low Sulphur Heavy Stock (LSHS) at their
crude & gas processing facilities

To sustain its growth, ONGC has drawn up ambitious strategic objectives, which include
doubling the oil and gas reserves. Having accreted six billion tonnes oil and oil equivalent
reserves in its first 45 years of operation, ONGC now aims to double these reserves by 2020. The
second strategic objective is to augment the global recovery factor from the existing 28 per cent
to the global norm of 40 per cent in next 20 years.

Out of the six billion tonnes of oil and gas reserve accretion, four billion tonnes is expected to
come from Offshore and Deep Waters. To improve the recovery factor from the existing fields,
ONGC is investing Rs. 2,000 crores in 15 re-development schemes.
ONGC is an organization which has joint ventures domestic as well International like:-

a. Domestic Joint Venture: - ONGC Tripura Power Company (P) Ltd. (OTPC)

Petronet LNG Limited

Petronet MHB Limited

Pawan Hans Helicopters Limited

b. Overseas Joint Venture: - ONGC - Mittal Energy Ltd.(OMEL)

ONGC - Mittal Energy Services Ltd. (OMSEL)

BASIC INFORMATION

Company name : Oil & Natural Gas Corporation Limited.

ROC registration number : 55-54155

Incorporation year : 1959

Ownership : Central Govt. – Commercial Enterprises.

Main Activity : Exploration & Production of Oil and Gas

Subsidiary/is : Mangalore Refinery & Petrochemical Ltd.

ONGC Bonny Brahmaputra Ltd.

ONGC Narmada Ltd.

ONGC Videsh Ltd.

ONGC VISION AND MISSION STATEMENT

COMPANY’S VISION

“To be a world class Oil & Gas Company Integrated in energy business with
dominant Indian leadership and global presence.”

Motto

“Provide quality services with efficiency and transparency.”

MISSION

World Class

• Dedication towards leveraging competitive advantages in R&D and technology with

involved people.
• Imbibing high standards of business ethics and organizational values.

• Abiding commitment to health, safety and environment to enrich quality of

community life.

• Fostering a culture of trust, openness and mutual concern to make working a

stimulating & challenging experience for our people.

• Striving for customer delight through quality products and services

INTEGRATED IN ENERGY BUSINESS

• Focus on domestic and international oil & 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.

STRATEGIC VISION: 2001-2020

To focus on core business of E&P, ONGC has set strategic objectives of:

• Doubling reserves (i.e. accreting 6 billion tones of O+OEG).

• Improving average recovery from 28 per cent to 40 per cent.
• Tie-up 20 MMTPA of equity Hydrocarbon from abroad.
• The focus of management will be to monetize the money.

GLOBAL RANKING

• It is Asia’s best Oil & Gas Company, as per a recent survey conducted by US-based
magazine ‘Global Finance’.
• It is placed at the top of all Indian Corporate listed in Forbes 400 Global Corporate (rank
133rd) and Financial Times Global 500 (rank 326th), by Market Capitalization.

• It is recognized as the Most Valuable Indian Corporate, by Market Capitalization, Net Worth
and Net Profits, in current listings of Economic Times 500 (4th time in a row), Business
Today 500, Business Baron 500 and Business Week.

• It is targeting to have all its installations (offshore and onshore) accredited (certified) by
March 2005. This will make ONGC the only company in the world in this regard.

• It owns and operates more than 11000 kilometers of pipelines in India, including nearly 3200
kilometers of sub-sea pipelines. No other company in India operates even 50 per cent of this
route length.

• Crossed the landmark of earning Net Profit exceeding Rs.10, 000 Core, and the first to do so
among all Indian Corporate, and a remarkable Net Profit to Revenue ratio of 29.8 per cent.
The growth in ONGC's profits is not solely due to deregulation in crude prices in India, as
deregulation has affected all the oil companies, upstream as well as downstream, but it is
only ONGC which has exhibited such a performance (of doubling turnover and profits).

• Has paid the highest-ever dividend in the Indian corporate history.

• Its 10 per cent equity sale (India's highest-ever equity offer) received unprecedented Global
Investor recognition. This was a landmark in Indian equity market, establishing beyond
doubt, the respect ONGC's professional management commands among the global investor
community. According to a report published in 'The Asian Wall Street Journal (Hong Kong)',
ONGC's Public Issue brought in 20 Foreign Institutional Investors (FII’s) to India, as (it was
reported), 'they could not ignore the company representing India's energy security'.

ONGC’s pioneering efforts

ONGC is the only fully integrated petroleum company in India, operating along the entire
hydrocarbon value chain:
  Holds largest share (57.2%) of hydrocarbon acreages in India.
 Contributes over 84% of India’s oil &gas production.
 Every sixth LPG cylinder comes from ONGC.
 About one-tenth of Indian refining capacity.
 Created a record of sorts by turning Mangalore Refinery in petrochemicals limited around
from being a stretcher case for referral to BIFR to among the BSE top 30, within year.
 Owns 23% OF Mangalore-Hasan-Banglore product pipeline (MHBPL), connecting
MRPL to the Karnataka hinterland.

2.2 ASSETS/BASINS/PLANTS/INSTITUTES:
Assets/Plants

Mumbai High Asset, Mumbai

Neelam & Heera Asset Mumbai

Bassein & Satellite Asset, Mumbai

Uran Plant, Uran

Hazira Plant, Hazira

Ahmedabad Asset, Ahmedabad

Ankleshwar Asset, Ankleshwar

Mehsana Asset, Mehsana

Rajamundry Asset, Rajamundry

Karaikal Asset, Karaikal

Assam Asset, Assam

Tripura Asset, Agartala

Basins

Western Offshore Basin, Mumbai

Western Onshore Basin, Baroda

 KG Basin, Rajamundry

Cauvery Basin, Chennai

Assam & Assam Arakan Basin, Jorhat

CBM-BPM Basin, Kolkata

Frontier Basin, Dehradun

Regions

Mumbai Region, Mumbai

Western Region, Baroda

Eastern Region, Nazira

Southern Region, Chennai

Central Region, kolkat.

Plants

Uran plant, Uran.

Hazira plant, Hazira.

Institutes

Keshava Deva Malaviya Insitute of Petroleum Exploration, Dehradun

Institute of Drilling Technology, Dehradun

Insititute of Reservior Studies, Ahmedabad

Institute of Oil & Gas Production Technology, Navi Mumbai

Institute of Engineering & Ocean Technology, Navi Mumbai

Geo-Data processing & Interpretation centre, Dehradun

Institute of Management development, Dehradun

Institute of Petroleum Safety, Health & Environment Mangment, Goa

Institute of biotechnology & Geotectonics studies (INBIGS),Jorhat

 School of Maintenance Practices (SMP), Vadodara.

Centre for excellence in Well Logging (CEWL), Vadodara.

Regional Training Institutes, Navi Mumbai, Channai, Sivasagar & Vadodara.

Services

Drilling Services, Mumbai

Well Services, Mumbai

Geo-Physical, Dehradun

Logging Services, Baroda

Engineering Services, Mumbai

2.3 SWOT ANALYSIS OF ONGC

1) STRENGTHS

• O.N.G.C LTD is perceived to be the leader in oil production industry.

• It has a very efficient and professional management team.
• Being an international company has sufficient resources and capital to invest.
• O.N.G.C has ISO-9001 & ISO 14001 registration.

2) WEAKNESS

• O.N.G.C is facing difficulties to produce oil from aging reservoirs.

3) OPPURTUNITY

• Energy utilization of buried coal resource (700 -1700M), estimated 63BT – Equivalent to
15000 BCM.
4) 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.

2.3.1 ONGC OFFICE ALL OVER INDIA

The Road Ahead

ONGC is entering LNG (re-gasification), Petrochemicals, power generation, as well as crude
and gas shipping, to have presence along the entire hydrocarbon value chain. While remaining
focused on the core business of Oil & Gas E&P, it is also looking at the future promoting and
applied R&D in alternate fuels (which can be commercially brought to market). These efforts in
integration are basically to exploit the core competency of the organization-knowledge of
hydrocarbons, gained over the five decades.

New Business
ONGC has also ventured in Coal Bed Methane (CBM) and Underground Coal Gasification
(UCG); CBM production would commence in 2006-07 and UCG in 2008-09.

ONGC is also looking at Gas Hydrates, as it is one possible source that could make India self
sufficient in energy, on a sustained basis.

2.4 SUBSIDIARIES AND JOINT VENTURE

1. ONGC Videsh Ltd.(OVL)

ONGC Videsh ltd is the wholly subsidiary of ONGC.”OVL is the first Indian
company to produce oil & gas overseas.”

OVL today is the “Second largest E&P Company in India”, second only to ONGC in
terms of Oil & Gas reserves. It has 12 overseas assets and is actively seeking more
opportunities. OVL’s efforts have been supported wholeheartedly by the Govt. of India,
which has allowed OVL single window clearance for overseas upstream projects irrespective
of investments involved.

OVL has been designated as the Indian Nodal Agency for overseas petroleum business
and is maintained as a permanent participant in all concerned bilateral interaction and joint
working groups of Govt. of India. The strategic objective of parent company ONGC and the
Govt. of India provide the basis for the strategic direction of OVL. Taking into account the
industry environment and other influencing factors, both internal and external, strategic
direction has been formulated, which is re-evaluated on a continuous basis given the rapidly
changing nature of the global petroleum industry to better adapt to the scenario.
 The functional directors of ONGC serve as the directors on the OVL board as well, thus
inducing cohesion of the corporate objectives and goal congruence in both organizations.

OVL follows meritocracy and draws its human resource from the parent company,
were the functional directors are consulted for selection. The finance for the operation is
provided by ONGC in form of loans, interest free advances and equity.

2. Mangalore Refinery and Petrochemicals Ltd(MRPL).

MRPL, a subsidiary of ONGC has turned back to a profit making company just in
the 3rd quarter after ONGC management control. ONGC’s shareholding has increased from
51% to 71.62% in June –July 2003 through the buy-back of lenders equity at par, under the
mutually agreed Debt Restructuring Package.

MRPL has showed excellent performance in the very first year of its operation as a
subsidiary of ONGC. The performance in 2003-04 under all parameters was better than the
projection made at the time of the acquisition. It earned net profit of Rs,4594.15 million as
against a net loss of Rs.4118.06 million in previous year. MRPL is no longer a potentially
sick company as its accumulated losses have gone down below 50% of the net worth on 31st
March 2004. MRPL was awarded highest ‘Five Star’ rating the British Safety Council. It is
the third refinery in India to get this prestigious certification.

Equity shares of MRPL are now traded under’ A’ category of Mumbai Stock
Exchange (BSE) from 1st March 2004. The Market capitalization of MRPL on the BSE
touched Rs.100 billion mark on 7th January, 2004.

MRPL exported products (Motor Spirit, Naphtha, Reformate, HSD, ATF, FO,
LSHS) worth Rs.44720 million during the year (up 133.77% from Rs.19130 million) and has
emerged as the second largest export of petroleum products.
 MRPL has entered in MOU with ONGC for purchase of Mumbai High Crude at
arms length price.

JOINT VENTURES

Petro net LNG Ltd.(PIL)

Petro net LNG Ltd, a joint venture co-promoted by ONGC completed the
construction of India first LNG terminal at Dahej on time, and the facility was dedicated to
the nation on 9th February, 2004. Commercial sale of re-gasified LNG from Dahej terminal
has already commenced. PLL also achieved financial closure.

Petro net MHB Limited

ONGC has acquired 23% equity in Petro net MHB Ltd, which is successfully operating
the 362.3km product pipeline from Mangalore (MRPL) to Bangalore via Hassan.

ONGC International Private Limited (ONGIO)

This 50-50 JV with Indian Oil Corporation Ltd (IOCL), incorporated on 8th June 2001 has
incurred cumulative loss of Rs. 30.1 million till 31st March, 2004. Given Lukewarm co-
promoter support, it was decided by the ONGC Board of Director to withdraw from the JV
which is to be dissolved. However, the Department of Company Affair has not accepted
application to wind up the ONGIO under section 560 of the Companies Act 1956, on the
ground that it had carried on business during the year 2003-04. Hence, it will continue to exit
without any activities till it is finally wound up.

Pawan Hans Helicopters Ltd. (PHHL)

ONGC invested in 21.5% of equity capital of PHHL which provides Helicopter services
primarily to ONGC.

2.4.1 ONGC GROUP OF COMPANIES

2.5 BOARD OF DIRECTORS

Mr. R.S.Sharma
 Chairman & Managing Director

Mr.D.K.Sharaf

Director (Finance)

Dr.A.K.Balyan

Director (HR)

Mr.A.K.Hazarika

Director (Onshore)

Mr.N.K.Mitra

Director (Offshore)

Mr.P.K.Deb

Director

Mr. Sunjoy Joshi

Director

Mr.M.M.Chitale

Director

Mr.Rajesh V. Shah

Director

Mr. U. Sundararajan

Director

Mr.N.K.Nayyar

Director

Mr.P.K.Sinha

Director

2.6 ONGC ORGANOGRAM

(CRC STRUCTURE)
2.6.1

2.7 FINANCIAL PERFORMANCE OF ONGC

2.7.1 NET SALES TURNOVER OF ONGC FROM THE YEAR 2005-09

 salesturover
700000 639493
601370
600000 569123
482443
500000

400000
le
a
s

300000
sales turover
200000

100000

0
2005-06 2006-07 2007-08 2008-09

years

2.7.2 FINANCIAL PERFORMANCE

Particulars 2008-07 2008-09

Turnover 60,1373.02 639493

Profit After Tax (PAT) 167016.59 161263

Dividend 6844.39 6844.39

2.7.3 NET PROFIT OF ONGC FROM THE YEAR 2005-09

2.7.4 OIL AND NATUTAL GAS PRODUCTION:

2.7.5 Dividend
 Dividend
6844.39 6844.39
6900
6800
6700 6630.51

6600
6500 6416.71
Dividend
6400
6300
6200
2005-06 2006-07 2007-08 2008-09

years

2.7.6 SHAREHOLDING PATTERN OF ONGC

2.8.1 PROJECT ICE: A BRIEF

The IT mission of ONGC is to develop integrated, flexible and standardized Information
Technology architecture to position ONGC towards fundamental competitive.

The project ICE (Information Consolidation for Efficiency) was conceived, with the aim to
provide a comprehensive IT solution encompassing end-to-end business process requirements
through a globally reputed ERP (Enterprise Resource Planning) package in which all the
previous decentralized IT solutions were to be merged. It planned to address the expectations of
the total Business transaction needs of ONGC ,enabling tactical and strategic decision making
based on Online information, henceforth accessible from a single platform.

The objectives of project ICE are:-

 Optimization and standardization of business processes.

 moving up the value chain.

 Higher productivity.

 Cost reduction.

 Strengthening efficiencies.

 Lowering of inventories.

 Increasing customer service and satisfaction.

SELECTION OF ERP PLATFORM

Selection of the ERP software was of utmost importance. Keeping the requirements and overall
World wide performance SAP was selected as the ERP package for this project and M/s SAP,
India as the implementation partners. M/s SAP, AG is the 3rd largest independent software vendor
in the world and is market leader in inter-enterprise software solutions. Most of the top
petroleum companies in the world use SAP. The contract was signed with M/s SAP, India on 9th
July 2002.
PROJECT ICE: BUSINESS AREAS

The following are the modules implemented for western onshore:-

 Production Planning (PP)

 Plant Maintenance (PM)

 Financial Accounting (FI)

 Controlling (CO)

 Joint Venture Accounting (JVA)

 Sales & Distribution (SD)

 Project System (PS)

 Material Management (MM)

 Quality Management (QM)

 ABAP (Advanced Business Application Programming)

 Business Information Warehouse (BW)

PROJECT ICE : INTEGRATION

This project ICE integrates the whole gamut of activities of ONGC on a single ERP system. This
system becomes the integrated source of online, on time, validated source of information for the
whole of the organization. All the modules are integrated and interdependent for carrying out the
activities/business processes. An example of procurement of materials for ONGC is replicated
below in the form of a cycle:

These integrated scenarios do not require the same data to be keyed in multiple times. All the
data is captured during the transactions that are carried out on the system. All these processes are
carried out online in the ERP system and are independent activities. These transactions result in a
data related to this particular activity which is available form a single data source. All the
processes have single data center. The cost of all the activities, inventory and production of
various products at the organizations level is available on daily, monthly and year to date basis,
on the touch of a button.

The envisaged gains from this implementation are:-

• Online monitoring and analysis of ONGC’s activities and performance.

• To track and eliminate redundant activities, resulting in cost reduction.

• Optimization of inventory holding and working capital.

• Aid in tracking key performance indicators to further enhance the performance of the
company.

• Effective utilization of available resources.

• Benchmarking of ONGC’s activities to integration business and practices.

• Enabling online review of activities for strategic decisions.

The project ICE went live at Western Onshore on 1st April, 2004. Project ICE has been one of the
biggest implementations of SAP in Asia.

2.8.2 SAP INTRODUCTION

SAP stands for “Systems, Applications and Product”. SAP AG – a little company that started
back in 1972, in Mannheim, Germany by three engineer’s with the idea to produce and market
standard software for integrated business solutions.

Toady SAP AG is the world leader in providing ERP software. Its flagship product is R/3. The
software consists of four major modules: -

1. Financial Accounting

2. Human Resources

3. Manufacturing & Logistics

4. Sales & Distribution.

The R/3 applications are fully integrated so that data is shared between all applications. R/3 is
built around a comprehensive set of application modules that can be used either alone or in
combination. The figure below shows the modules of R/3.

The modules can be used to support processes that span different functional areas in the firm.
Because the modules are integrated and use a common database, transactions processed in one
area immediately update all other areas.

R/3 is written in a unique computer language known as ABAP / 4.

SAP R/3 & ONGC

In one of the largest ever SAP go-lives in Asia, Oil and Natural Gas Corporation Limited
(ONGC) had rolled out SAP for Oil & Gas solutions at more than 100 operative locations across
its Western Offshore and Western Onshore operations in India. Now serving more than 5,200
users, the integrated ERP suite provides a single company wide platform to integrate and
optimize all business processes. SAP was chosen for its ability to cover the company’s end-to-
end business process needs.
SAP got a US$19 million contract from ONGC. It was the largest contracts in Asia for SAP in
terms of the size of the project. Under the agreement, SAP was supposed to help ONGC
implement "Project ICE" (Information Consolidation for Efficiency), which required nearly two
years to complete. Once completed, ONGC was able to obtain almost real-time information
about the state of its oil wells and pipeline network that is available throughout the country.
ONGC had allocated an IT budget of more than US$120 million over the next two years for
similar enterprise wide projects to bring about efficiencies in its operations.

Business Need

ONGC decided to implement SAP R/3 and mySAP.com solution components to enable them to
work seamlessly across boundaries as a single entity and integrate their sales and manufacturing
processes, project related activities and maintain their assets to gain a competitive advantage. To
maintain all the documents and document versions, ONGC has decided to implement SAP–
Lifecycle Data Management module. My SAP Business Suite with tailored functionality helps
the company across the globe to lower costs, increase profitability and improve competitiveness.

Vision
An Integrated, Flexible and
Standardised Information Systems
architecture to position towards
fundamental competitive advantage

SAP
For Enterprise - wide
4.1
Current Reality transformation.

Function based Organisation, Multiple stand

alone packages,

Time lag between market realities and decision

Benefits
 The user can plan and request changes to manuals / drawings and these can be accessed
across the organization.

 Availability and accessibility to latest version of documents/drawings at the organization at

any point of time.

 viewing capability of documents across the organization.

As the drawings / specification can be viewed by many users, their comments / suggestions can
be taken and saved into versions The documents can be searched quickly with respect to the
‘technical parameters’ Linking of documents, drawings, specification sheets, charts to other SAP
objects.

2.9 ABOUT ANKLESHWAR ASSET

Ankleshwar asset or plant is mother of ONGC started in 1960.It comes under Baroda regional
office of ONGC. Production of Oil & Gas was commenced in 1961. It is the largest onshore
asset or plant on ONGC. It makes second highest profit after MUMBAI HIGH.

2.9.1 MAJOR OIL & GAS FIELDS:-

• Ankleshwar field (found in 1960)

• Gandhar field (found in 1984)

In addition 21 satellite oil and gas fields have been discovered around the main fields.

Ankleshwar Sector is divided in to Ankleshwar field and satellite fields. Ankleshwar &
Motwan-Sisodara are the major fields & Kosamba, Kim & Olpad are satellite fields. 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, Andada
and other installations namely Main Pump House, Water Treatment Plant and Intake well at
Kathor on Tapi river. The Ankleshwar installations are located within distance of 30 kms from
Ankleshwar city. Surface facilities of satellite fields include GGS Kosamba, GGS Kim, and
Olpad which are as far as 50 kms away from Ankleshwar city.

Ankleshawar CTF has facility for processing of crude oil to meet refinery specification,
one LPG Plant, Gas compressor plant and one effluent treatment plant. Typical Anleshwar GGS
has facility for receiving oil and gas from the wells.

High pressure oil & gas is directly sent to CTF after separation. Low pressure oil is stored
in the tanks &pumped to CTF. The processing of crude oil to meet refinery specification can be
done only at CTF. Some GGS has low pressure gas compressors. Low pressure gas is either
compressed & sent to CTF or sent to CTF through low pressure gas lines & is compressed in Gas
compressor plant at CTF.

2.9.2 ORGANISATION STRUCTURE OF ANKLESHWAR ASSET:

 3. BRIEF OVERVIEW OF FINANCE DEPARTMENT

3.1 ANKLESHWAR FINANCE DEPARTMENT STRUCTURE:

GENERAL
MANAGE
R

(F&A)

CHIEF
MANAGE
R

(F&A)

INCHARG
INCHARG INCHARG INCHARG
INCHARG E INCHARG
E E E INCHARG
E ASSET COSTING/ E
CENTRAL CASH/BA PREAUDI E PCS
A/C WELLS/ BUDGET
A/C NK T
IUT

DESIGNATION NAME OF PERSON

(F&A)

GENERAL MANAGER MR. A.K.BHATTACHARYA

CHIEF MANAGER MR. IQBAAL AHMED

CENTRAL A/C MR. KUNAL SENGUPTA

ASSET A/C MR. SHEKHAR MOHANTY ,MR. RAAMBABU,

MR. JOY

SALES/COSTING/WELL MR. SHAILENDRA, MR. SEKHAR MOHANTY,

S/IUT MR. JOY
 CASH/BANK MR. MEENA

PREAUDIT MR. JOGLEKAR

BUDGET MR. VISHAL

PERSONAL CLAIM MR. MULE

SERVICE

3.2 INTRODUCTION OF VARIOUS FINANCE SECTIONS

3.2.1BUDGET SECTION:

Introduction
Under the guidance of Mr. Vishal sir. we came to realize the importance of budgeting. In ONGC,
the budget section plays a very important and crucial role. The reason is that whenever there is
requirement of any kind of material or service, proper arrangement of fund is required and for
that purpose budgeting is done.Due to restriction on number of pages for project report, every
detail of budget is not covered.
Budgetary controls – definition
Budgetary control is a technique whereby actual utilization is compared with budgets to make
the budget an effective financial control tool. Any differences/ variances are the responsibility of
key individuals who can either exercise control action or revise the original budgets after
providing necessary justifications to the top management.
Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as:
The establishment of budgets relating the responsibilities of executives to the requirements of a
policy, and the continuous comparison of actual results with budgeted results, either to secure by
individual action the objective of that policy, or to provide a basis for its revision.

Budgeting Process in ONGC

General Functioning or System or working of F&A department (especially in respect of

Budgeting)
5.3.1

ED �ANKLESHWAR ASSET

GENERAL MANAGER [F&A]

BUDGET INCHARGE

ASSET TEAM

SERVICE TEAM

Before moving forward it is important to know about the Budget Software known as Budget
Manual which is used for the budget data entry prior uploading of final data into SAP
• The method use by ONGC is ACTIVITY BASE BUDGET. This budget done by the
various departments like drilling department, surface department, MM department,
logging department etc. according their future needs and at last the club it in to the actual
budget.

3.2.2 CASH AND BANK SECTION:

This section is responsible for the receipts and payments either in cash or cheque or by
any other form. This section is also responsible for the custody of cash, documents in respect of
investments of corporation money and other important documents.

Major activities perform by cash & bank section:

• Cash withdrawal from bank.

• Cash payments and receipts.

• Payments and receipts(other than cash)

• Cheque management
 • Regular payments on behalf of employees.

• Remittance of tax deducted at source.

• Dispatch of released payments.

• Liquidity forcast and fund management.

• MIS activities.

 In ONGC the vendors payments are done by the Mumbai headquarter

 And employees salaries are done by the Dehradun headquarter.

Various fees for issuing tender forms to our suppliers are collected by cash and bank section.

 Earnest money deposit(EMD)

 Security deposit (SD)

3.2.3 PRE AUDIT SECTION:

This section is also known as accounts payable section. The section is divided in
to two parts – one is pre-audit supply cell and other is pre-audit service contract cell.

Pre-audit is also known as voucher-audit or administrative audit and denotes scrutiny &
examination, before releasing the payments.

Types of Bills:

 Supplier’s Bills
  Contractor’s Bills

 Miscellaneous payments

The scope of Pre-audit also includes scrutiny of receipts of the corporation. Activities
normally regarded as pre-audit receipt-accounting for incoming cash, such as:

 Initial public offering (IPO)

 Bank drafts/banker’s cheque

 Bank guarantees.

 Receipts of FDR kept as security deposits with GEB, irrigation department.

Logistics invoice verification (LIV) with the integrated network of SAP being
used during verification find out any error in the documents before payments are
made and deal with it.

3.2.4. PERSONAL CLAIM SECTION:

This section deals with policies, procedures, controls, roles and responsibilities related to
accounting for employee related payments, recoveries, corresponding statutory payments &
compliances. The process explained in this section covers payments to/recoveries from:
• Regular employees of ONGC;
• Graduate Engineering Trainees (GET)/Management Trainees (MT)
• Retired employees; and
• Term based employees, (for example employees on deputation)
Payments to regular employees include monthly salary payments, off-cycle payments (for
example holiday home, briefcase payments etc.), loans & advances. GET/MT are paid as per
their terms of employment. Retired employees are paid medical expense reimbursements as per
HR policy. Recoveries from regular employees include House Rent Recovery (HRR),
Association of Scientific and Technical Officers (ASTO) union recoveries, recoveries of loans &
advances etc.

Main Role of PCS Section

• Updating employee payroll data at the time of joining.

• Accounting of various employee related payments.
• Accounting for full & final settlement on separation of employees.
• Payment to retired employees.
• Inter unit transfers and deputations to/from the Company.
• Tax Deducted at Source deductions and deposits.
• Accounting for retirement benefits and related employee benefits.

4.COSTING SECTION:

4.1 COSTING STRUCTURE OF ONGC:

4.1.1 INTRODUCTION

Activities undertaken by the Company

The principal activities of the Company includes acquisition of mineral interests in oil
and gas properties, exploration (including prospecting), development, production,
 transportation and marketing of crude oil and natural gas. It also produces several value
added products (VAPs) like Liquefied Petroleum Gas (LPG), Naphtha, Superior
Kerosene Oil (SKO), Ethane-Propane (C2-C3), Aviation Turbine Fuel (ATF), High
Speed Diesel (HSD), Low Sulphur Heavy Stock (LSHS) and Sulphur at their crude &
gas processing facilities.

The Company has also entered into joint ventures in the nature of production sharing
contracts (PSC) with Govt. of India along with various corporate bodies for executing
exploration, development and production activities in India. The PSC prescribes
Participating Interest (PI) of each partner and the share of Govt. in profit petroleum.
Production of crude oil and natural gas is shared among JV partners as per the provisions
of PSC. Some of these properties are operated by the Company and some by JV partners.

The aforementioned activities, excluding extraction of VAPs are collectively referred to

as upstream operations and form part of the Upstream Petroleum Industry. The industry
is commonly referred to as the Exploration & Production (E&P) industry. To execute its
E&P activities, the Company incurs expenditure on the following activities:

a) Acquisition of mineral rights: covers acquisition of right(s) to explore, develop and

produce oil and gas.

b) Exploration activities: cover prospecting activities conducted in the search for oil and gas.
These activities include but are not limited to surveys, test drilling, drilling of exploration
and appraisal wells etc.

c) Development activities: include, but are not limited to, completion of successful
exploration wells, drilling / completion / re-completion / testing of development and
service wells, laying of pipelines, construction of platforms and installations, installation
of facilities required to produce, process and transport oil or gas.

d) Production activities: consist of pre-wellhead activities e.g. operation and maintenance of

wells, lifting the oil and gas to the surface etc. and post wellhead activities e.g. gathering,
treating, field transportation etc. of oil and gas.

e) Extracting activities: cover extraction of value-added products (VAPs) e.g. LPG, Naphtha,
SKO, C2-C3, HSD, ATF etc. from crude oil and natural gas.
f) Selling and distribution activities: consists of transportation and distribution of Crude Oil,
Natural Gas and VAPs.

4.1 Process objective:

Cost accounting is the process of tracking, recording and analyzing costs associated with
the products or activities of an organization. Therefore, in Company’s context, cost
accounting includes tracking, recording, allocating and analyzing costs associated with
activities mentioned in Para 1.1.

Cost accounting assumes relevance due to following reasons:

• Cost accounting helps in determination of cost per unit of crude oil, natural gas and
VAPs in conformity with the cost accounting principles wherein all directly
attributable costs are aggregated at Product cost centre (CC) and common costs are
allocated and/or apportioned on a reasonable basis to Product CC for the purpose of
determining the total product cost.

• It helps in determination of cost per unit of various activities namely survey,

exploratory drilling and development drilling, etc.

• It facilitates location-wise comparison of the cost per unit of crude oil, natural gas,
VAPs and various activities.

• It facilitates profit center accounting.

• It is also the backbone for preparation of financial statements.

• It enables maintenance of cost records for products and activities in compliance with
Cost Accounting Records (Petroleum Industry) Rules, 2002.

• It generates information for meeting the requirements of Cost Audit Report Rules
2001.

4.2 CORPORATE REJUVENATION (CRC) STRUCTURE

 CRC structure determines how acquisition, exploration, production, development, support
activities are undertaken at ONGC. Existing CRC structure at ONGC consist of:

1. Asset
An asset represents a producing field. It could be an offshore and onshore asset.
Each asset has a surface team and sub-surface team. Production and/or development
activities are executed from assets For Example Mumbai High is an offshore asset producing
crude oil.

2. Basins
A basin represents an exploration field where exploration activities are
undertaken. For example Cauvery Basin.

3. Plants
Plants represents on shore processing facilities. They execute crude oil
stabilization and gas processing activities for ultimate sale to customers. VAP like LPG,
Naphtha are also produce from these plants. For example, Hazira, Uran Plant.

4. Institute
An institute primarily executes Research & Development (R&D) activities and
conduct in house trainings. For example Institute of Drilling Technologies (IDT), Dehradhun,
Institute of Reservoir Studies, Ahmedabad, Institute of Oil & Gas Production Technology,
Mumbai etc.

5. Workshop
Central workshop has been established at Baroda and Shivsagar to execute repairs,
maintenance and fabrication of material & equipment. Workshops have also been established at
certain locations like Mumbai for executing general repairs and maintenance activities.

6 Operational Support Services

It includes specialized operation support services like drilling services, well
services, logging services and engineering services.
 7 Other Support Services

Other support service includes F&A section, Material Management (MM)

section, Treasury Management Group (TMG), Forex section, HR section/Employee
relations/Medical, Onshore/Offshore Logistic Section, Corporate Budget cell (CBC) and project
appraisal section, Corporate Accounts (CA) section, Commercial Group etc.

4.3 COST COMPONENT

After obtaining understanding on types of activities undertaken and the existing CRC structure to
execute this activity, it is important to get an overview on cost incurred in this activity in the
existing CRC structure. Costs incurred can be classified into five broad categories

1. Acquisition Costs
Acquisition cost covered all cost incurred towards the acquisition of rights to
explore, develop and produce oil and gas. These cost include cost of obtaining the petroleum
exploration license (PEL) pr Letter of Authority (LOA) in order to undertake survey and
exploration activities, cost of obtaining a Mining License (ML) in order to undertake
development and production activities, lease bonus, broker’s fees, legal cost, cost of temporary
occupation of the land including crop compensation paid to farmer’s and all other cost incurred
in acquiring this rights. Annual License fees are excluded.

2. Exploration Costs
Exploration Costs cover all cosrs relates to exploration activities which include
prospecting activities conducted in the search for oil and gas. In the course of an appraisal
programmed these activities include but are not limited to aerial, geological, geophysical,
geochemical, topographical and seismic surveys, analysis, studies and their interpretation,
investigations relating to sub surface geology including structural test drilling, exploratory type
stratigraphic test drilling,
Drilling of exploration and appraisal wells and other related activities such as surveying, drilling
site preparation and all work necessarily connected therewith for the purpose of oil and gas
exploration.

3. Development Costs
These costs cover all cost related to development activities for extraction of oil
and gas which include, but are boot limited to the purchase, shipment or storage of equipment
and material used in developing oil and gas accumulation, completion of successful exploration
wells, the drilling, completion, re-completion and testing of development wells, the drilling,
completion and re-completion of service wells, the laying of gathering lines, the construction of
offshore platforms and installations, the installation of separators, tanks, pumps, artificial lift and
other producing and injection facilities required to produce, process and transport oil and gas into
main oil storage or gas processing facilities, wither inshore or offshore, including laying of
infield pipelines, the installation of the said storage or gas processing facilities.

4. Production Costs
Production cost consist of direct and indirect cost incurred to operate and
maintain an enterprise’s wells and related equipments and facilities, including depreciation and
applicable operation costs of support equipment and facilities. Example of production costs are:

Lifting cost: Costs of labour, repairs and maintenance, materials, supplies, fuel and power,
property taxes, insurance, severance taxes, royalty and etc, in respect of lifting oil and gas to the
surface, operation and maintenance including servicing and work-over of wells.

Conveying treatment transportation costs: Costs of labour, repairs and maintenance,

materials, supplies, fuel and power, property tax, insurance and etc, in respect of conveying,
gathering, treating, field transportation, field processing, including cess up to the outlet valve on
the lease or field production storage tank etc.

5. Support functions costs/common costs:

Support functions costs/common costs consist of expenditure related to marketing and
other support function that includes CA section, DDN, Legal & Secretarial section, HR
section, TMG, MM section etc. This includes employee related expenditure, light, electricity
etc.
4.4 COST OBJECTS

Cost object is a logical sub-unit for collection of cost. Various type of cost incurred in
executing E&P activities are collected in the different cost objects defined in different module in
SAP.

Cost accounting at ONGC in facilitated by Controlling (CO) module in SAP. The CO

module is not a stand-alone system and it envisages integration with all the other module in SAP.
Other modules include Financial Accounting (FI) module, MM module, Offshore Logistic
Module (OLM), HR module, Project System (PS) module, Production Planning (PP) module,
Plant Maintenance (PM) module, Sales & distribution (S&D) module etc.

At the time of booking of any expenditure in SAP, costs are initially recorded in assigned
General Ledger (GL) account code in FI module and a corresponding amount is booked to
associated cost object. Cost objects have been created in different modules in SAP for capturing
expenditure incurred in acquisition, exploration, development, production and support activities.
Understanding of this cost object is important before a period-end cost cycle run is executed in
CO module.

Name of cost objects, brief description and process of capturing expenditure to these cost
objects is given as mentioned below:

1. Work Breakdown Structure (WBS) in PS module

A WBS is a results-oriented family tree that capture all the work of a project in an
organized way. WBS elements are created in PS module in SAP for capturing expenditure
related to project activities like construction of facilities, surveys, expenditure on drilling of
exploration/development wells etc and finally setting them to relevant asset or expenditure head
in general ledger.
 Material and services cost incurred on a particular project, exploratory, development well
etc. are generally captured directly in the WBS elements created for that project/well etc.
Material cost is captured on posting of reservation for issue of materials from main stores and
cost of services on posting of service entry sheet in the MM module. The other cost allocable to a
particular project activity like payroll costs and other employee costs, depreciation etc are
allocated to WBS element through a cost cycle run in CO module.

Once all direct and indirect cost related to construction, survey, exploration, development
activities are captured in the respective WBS elements, these are settled to relevant assets or
expenditure head.

2. Plant Maintenance Order (PMO) in PM module

PMO is created in PM module for executing repairs and maintenance activities
on a particular equipment/material. Major repairs & Maintenance jobs are executed at central
workshops located at Baroda and Shivsagar.

At the time of initial General Ledger (GL) booking of expenditure, cost of

materials/services used directly in relation to repairs and maintenance of activities gets captured
in PMO. The other costs allocable to a particular PMO like payroll & other employee costs,
depreciation etc are allocated to PMO through a cost cycle run in CO module.

3. Production Orders (PO) In PM module

PO is created in PM module in SAP for fabrication of material/equipment for internal
use on the basis of requirement received from the projects. This activities are primarily
executed at central workshop located at Baroda, Gujarat and Shivnagar.

At the time of initial GL booking of expenditure, cost of material/services used directly in the
relation to fabrication of asset/material gets captured in the relevant PO. The other cost
allocable to particular PO like payroll and other employee costs, depreciation, etc, allocated
to PO through a cost cycle run in CO module.

4. Cost Centre in CO module

 CC si a unit identified to capture costs based on suitable criteria such as
geographical or geological factors. CC has been defined in CO module on the basis of existing
organization structure. Cost centre created under the existing organization/CRC structure can be
viewed in SAP.

AT the time initial GL booking of expenditure, all costs other than costs required to be
recorded directly in above cost object gets captured in relevant CCs. Different costs are captured
in relevant cost centre at the time of expenditure booking from different modules in SAP. Payroll
and other employee related cost are captured from HR module, depreciation is captured from FA
module, and cost of material and services used for production activity is captured from MM
module. Certain expenditure is booked directly in FI module. For example for third party
services costing less than INR 5,000 individually.

After initial booking of cost, monthly cost cycle run is executed in CO module that results in
allocation/apportionment of costs booked in different cost centre to various cost objects.

4.5 OVERVIEW OF COST ACCOUNTING PROCESS AT ONGC

Overall cost accounting methodology at ONGC can be summarized below in the following
manner:

1. Recording of expenditure in different cost object at the time of initial booking of

expenditure in FI module.
2. Segregation of allocable and non-allocable expenses booked in various CC in CO
module. For example VRS module, marketing expenditure, expenditure on Diwali gifts
for employee etc.
3. Allocation/apportionment of cost of operational and other support services recorded in
various CC to relevant cost objects. For example, Drilling services, well services etc
 4. Settlement of expenditure booked in various WBS elements to relevant GL code ( fixed
asset or expenses head)
5. Raising of debits to assets, plants, basins from workshops for respective PMO and PO,
from where it is ultimately settled to relevant GL code ( fixed asset or expense head)
6. Allocation/apportionment of costs recorded in CC of surface team and sub-surface team
to producing wells/platforms under a producing asset and allocation of transportation
costs to plants where crude/gas processing facilities are located.
7. Allocation/apportionment of cost booked to producing wells/platforms/processing
facilities to process orders executed in PP module against which production of finished
goods (FG) has been booked during the particular month.

This helps to determine the total cost of production for each asset and facilitates
inventory valuation.

COST ACCOUNTING PROCESS

a) Tools used for allocation/apportionment of costs

Cost accounting is facilitated by CO module in SAP. Cost
allocation/apportionment happens on the basis of sender./receiver concept. Sender of cost is
always a cost centre and receiver are other cost objects like WBS, PMO, PO or other CC. Tools
used in CO module for sending/receiving cost are explained below.

b) Direct activity allocation

 Direct activity allocation involves measuring, recording and allocating of
business services perform by cost centre to the receivers cost objects like cost centre, PO, PMO
etc. Activity allocation occurs, for example, when business transaction like Pos are confirmed in
PP module or on manual posting of activity quantities to receive cost objects, For example rig
cost is allocated to CC created for exploratory wells, development wells, and production
platform on the basis of rig hours, which is the activity quantity.

The system multiplies the activity quantity produced by the periodic plan price of the activity
type maintained in CC planning for the CC/activity type combination. The receiver of the
activity allocation is coast object like CC, PMO, PO or WBS. The original plan price is
revaluated after the Activity Price Calculation (APC) by a separate period-end closing. The plan
price is the actual price for immediately preceding financial year that is automatically updated in
the CO module at the beginning of the next financial year for each location.

c) Cost Cycles:
Cost cycles are allocation cycle designed in CO module. Execution of cost
cycle results in allocation of costs from sender cost centre to the receiver cost centre. Two types
of cost cycles are designed in CO module.

1. Distribution Cost cycle

In distribution cycles, costs from sender CC are allocated to the receiver CC

without losing the identity of the original cost element. Cost elements are numeric codes through
which CC are linked to GL code in FI module. In ONGC’s context, this cycle is used as the
primary activity of a period-end procedure to capture all non-allocable cost including impairment
provision, if any. Distribution is done at the beginning of the month/fiscal year by the central
team. or the designed officer, Costing cell at various location in the organization.

2. Assessment cost cycle

 In assessment cycle, costs from sender cost centre are allocated to the receiver cost
centre using secondary cost elements or allocation structure. Allocation structure is logical
grouping of cost elements wherein the costs of sender cost centre are allocated to the receiver
cost centre as per the group defined for reporting purposes. In assessment the identity of the
original cost element from sender to receiver is lost. This tool is widely used in ONGC for
allocation all support/operation support cost to receivers. The cycles are run in a particular
sequences as per the business process in order to determine the activity price for the respective
processes.

Various Statistical Key Figure (SKF) have been defined in Logistics Information System
(LIS) in CO module and they determine the basis of allocation of costs from one cost centre to
other cost centre each time a particular assessment cycle is executed.

Different cost cycle have been designed in CO module for various locations of ONGC
depending on the activities undertaken at each location as per the existing CRC structure. For
example asset, basin, plants, institutes, workshop etc

4.6 COSTING IN SAP

SAP CO (Controlling) Module provides supporting information to Management for the purpose
of planning, reporting, as well as monitoring the operations of their business. Management
decision-making can be achieved with the level of information provided by this module.
Some of the components of the CO (Controlling) Module are as follows:
• Cost Element Accounting
• Cost Centre Accounting
• Internal Orders
• Activity-Based Costing ( ABC)
• Product Cost Controlling
• Profit Centre Accounting
• Profitability Analysis
Cost Element Accounting component provides information which includes the costs and revenue
for an organization. These postings are automatically updated from FI (Financial Accounting) to
CO (Controlling). The cost elements are the basis for cost accounting and enable the User the
ability to display costs for each of the accounts that have been assigned to the cost element.
Examples of accounts that can be assigned are Cost Centres, Internal Orders, WBS(work
breakdown structures).
Cost Centre Accounting provides information on the costs incurred by your business. Within
SAP, you have the ability to assign Cost Centres to departments and /or Managers responsible
for certain areas of the business as well as functional areas within your organization. Cost Centre
can be created for such functional areas as Marketing, Purchasing, Human Resources, Finance,
Facilities, Information Systems, Administrative Support, Legal, Shipping/Receiving, or even
Quality.
Some of the benefits of Cost Centre Accounting
• Managers can set Budget /Cost Centre targets
• Cost Centre visibility of functional departments/areas of your business
• Planning
• Availability of Cost allocation methods
• Assessments/Distribution of costs to other cost objects
Internal Orders provide a means of tracking costs of a specific job, service, or task. Internal
Orders are used as a method to collect those costs and business transactions related to the task.
This level of monitoring can be very detailed but allows management the ability to review
Internal Order activity for better-decision making purposes.

Activity-Based Costing allows a better definition of the source of costs to the process driving the
cost. Activity-Based Costing enhances Cost Centre Accounting in that it allows for a process-
oriented and cross-functional view of your cost centre. It can also be used with Product Costing
and Profitability Analysis.
Product Cost Controlling allows management the ability to analyze their product costs and to
make decisions on the optimal price(s) to market their products. It is within this module of CO
(Controlling) that planned, actual and target values are analyzed.
Cost Object Controlling includes Product Cost by Period, Product Cost by Order, Product Costs
by Sales Orders, Intangible Goods and Services, and CRM Service Processes.
Profitability Analysis allows Management the ability to review information with respect to the
company’s profit or contribution margin by business segment.

Profit Centre Accounting provides visibility of an organization’s profit and losses by profit
centre. The methods which can be utilized for EC-PCA (Profit Centre Accounting) are period
accounting or by the cost-of-sales approach. Profit Centre can be set-up to identify product lines,
divisions, geographical regions, offices, production sites or by functions. Profit Centre are used
for Internal Control purposes enabling management the ability to review areas of responsibility
within their organization. The difference between a Cost Centre and a Profit Centre is that the
Cost Centre represents individual costs incurred during a given period and Profit Centre contain
the balances of costs and revenues.

Cost flow overview

It gives an overview of cost flow from CC to other cost objects after the cost cycle run is
executed. Cost flows have been given for operational support services (like drilling services,
well services, logging services, and engineering services), basin & geophysical services,
workshops, institutes, asset for enhanced understanding. Cost flows have been given in a
diagrammatic form.

A) Drilling services
Drilling services include well drilling, cementing operations and mud operations
services. Cost flows from cost centers of drilling services section to different cost objects
is given below:
 Head , drilling services
(CC )

Drilling rigs Cementing operations Mud operations

(CC ) (CC ) (CC )

Exploratory &
Exploratory wells and development wells (WBS ),
development wells (WBS )
producing wells (CC )

B) Well services
Well services include work over services, Well Stimulation Services (WSS) and Well
Completion & Testing Services (WCT).
Well work over or re-completions are required when the producing oil sands become
clogged and production declines or other physical or mechanical problems arises. Oil
well stimulation is the general term that describes a variety of operations performed on a
well to improve its productivity. Once the designed well depth is reached, the formation
is tested and evaluated to determine whether the well can be completed for production, or
whether it should be abandoned.
Cost flow from cost centers of well services department to different cost objects is
mentioned below:

Head well services

(CC)

Workover rigs WSS operations WCT operations

(CC) (CC) (CC )

Exploratory and development

Workover wells Exploratory and
wells WBS
(CC) development wells (WBS )
and workover (CC )

C) Logging services
 Logging services involve obtaining information about oil / gas fields. This is done by
sending an electronic device to check conduction properties of the materials within the
earth’s bed. A high rate of conduction is associated with water where as a lower
conduction rate is associated with oil and gives a more detailed picture of where the oil
can be found. Cost flow from cost centres of logging services department to different
cost objects is given below,
Well logging support
(CC )

Well logging operations

(CC )

Exploratory well Development well Workover well

(WBS ) (WBS ) (CC )

1. Logging Base – To Logging Operations -100 %

2. Logging Operations –To Exp /Dev /Workover
Wells based On Logging Hrs .

D) Engineering services
Engineering services department at ONGC provides specialised services for detailed
engineering and management of onshore/offshore construction projects for surface
installations. Cost flow from cost centres of engineering services department to different
cost objects is given below,
Engineering Services
Support
(CC )

Works
Maintenance

Flow line &

Civil works Project works Workshop
installations
(WBS ) (WBS ) (CC )
(CC )

1. New wells
Asset /Services
2. Civil projects Major projects Revenue jobs (P&L) Capital jobs
Support
3. Civil maintenance

E) Basin & geophysical services

 Cost flow from cost centres of basin & geophysical services department to different cost
objects is given below
Basin &
Geophysical
Support (CC)

Base Support &

Bid monitoring Specialist group Database group RGL
Logistics
(CC) (CC) (CC) (CC)
(CC)

Geophysical
PEL blocks Processing
operation
(WBS) (WBS)
(CC)

2D/3D surveys
(WBS)

Survey cost
(WBS)

F) F) Workshop

Central Workshops have been established at Baroda and Shivsagar for executing repairs,
maintenance and fabrication of material & equipments. Locations like Mumbai also have
workshop for executing general repairs & maintenance activities. Cost flow diagram for
costs incurred at workshops is given below,

Workshopservices

Mechanical workshop Electrical workshop

(CC ) (CC )

PMorders

CCutilizing services

G) Institutes
Institutes primarily execute R&D activities and conducts in-house trainings. Some
examples of institute established by ONGC are Institute of Drilling Technology (IDT),
Dehradun, Institute of Reservoir Studies, Ahmedabad, Institute of Oil & Gas Production
 Technology, Navi Mumbai etc. Cost flow diagram for cost incurred at institute is given
below,

Institute support
(CC)

Institute operations
(CC)

Research Projects Training

(WBS ) (CC)

H) Assets
Assets represent producing field executing production & development activities. It could
be an offshore or onshore asset. Each asset has a surface team and sub-surface team. For
example Mumbai High is an offshore asset producing crude oil. Cost flow for
expenditure in case of an asset is given below:
 Asset Support
(CC )

Sub -surface cost Surface cost

(CC ) (CC )

Producing wellsand Complex /GGS /GGS -Cum

Trunklinescost
developing wells CTF
(CC )
(CC ) (CC )

Logical transportation cost

Logical lifting cost center
center (CC )

Logical processing cost

center

ProcessOrder oil ProcessOrder gas

Material - Oil Material - Gas

Period-end cost cycle run

Monthly cost run is executed in CO module by Costing Cell at each location for
allocation/apportionment of costs booked in different CC to relevant cost objects. From these
cost objects expenditures are ultimately capitalized or charged off to profit & loss (P&L)
account in the GL. Completion of this activity at each location facilitates
a) Period-end closing;
b) Finished goods inventory valuation;
c) Preparation of financial statements;
d) Preparation of cost records in compliance with applicable statutory requirements;
and
e) Profit centre accounting by determining cost attributable to each profit centre
(Profit centre have been determined by the management).
Period-end closing involves certain mandatory activities in different modules in SAP before
monthly cost cycle run is executed in CO module. Monthly cost cycle run is only executed after
all other modules have been closed (except FICO).
Cost allocations/apportionments are made by direct activity allocations or with execution of cost
cycles in CO module. Distribution and assessment cost cycles have been designed in CO module
for different locations depending on the activities undertaken and costs incurred at each location.
For e.g. different cost cycles have been designed for different assets, basins, workshops,
institutes and plants.

4.7 Costing Allocations

Stages of Cost Allocation Cycles

The Cost Allocation Cycles for preparation of Activity wise outlays and activity wise costs have
been placed under a separate menu in the budget software as stages of Cost Allocation.

The cost allocation cycles in the budget software have been designed in such a manner so that
revised activity outlays can be worked out after each round of moderation/ revisions in the
budget outlays and also that cyclical iterations of cost allocations are avoided. Accordingly, it is
imperative that various stages of cost allocation cycles are run in sequential order for working
out activity budgets and budgeted cost of activities. The various stages of cost allocation cycles
are as under:-

Stage-1

Creation of Summary data table from line item budget for working out Activity Budget

By executing stage one, the budget software will summaries the budget data entered in
indigenous, Import and DRE Sheets and create a separate summarized table which will be used
for working in subsequent stages of cost allocation cycles. Accordingly, it is imperative that after
any correction/ modification in budget data, and after incorporating cost allocations received
from other locations, Stage 1 execution is repeated before subsequent stages of cost allocation
cycles are followed.
 EXECUTE

After executing stage 1 the software will keep the costing tables ready. A Message will pop up
that proceed to stage 2.

Stage-2

Allocation of Directly identified amounts from one activity to another

This stage has been designed primarily to facilitate allocation of directly identified amounts from
one activity to another, as allocations in all subsequent stages are proportionate based on
parameters / weights. These allocations can be within the same locations and if needed amounts
can be allocated to other locations also. However, allocations of Costs from Final Activities to
Intermediate Activities are not allowed. Allocation of budget from one final activity to the other
final activity is to be resorted to only in exceptional cases.

The system has been designed to show the total amount identified with each of the activity after
data entry for each budget unit (in Ind. / Imp. and DRE files after summation at Stage 1) on
screen itself. On the top part of the screen of Stage 2, the user can select the activities (both final
and intermediate) one by one and correspondingly original budget received from Stage 1 for RE
and BE and balance available after allocations at Stage 1 are displayed.

The user may select the Transferee location and transferee Activity and Sub Activity and feed
the amounts to be allocated for RE and BE in the respective columns. After saving the allocation
entry, the same appears in the separate box given at the bottom of the screen. The user has the
option of editing/deleting a particular allocation entry if required by selecting the particular
record and pressing the edit/delete key. This is illustrated in the following manner:

EXECUTE
 SAVE

EDIT DELETE

Stage-3

Allocation of Logistics Services, Engineering Services and Project Overheads of the location to
other activities

This stage provides for allocation of Logistics Services, Engineering Services and Project
Overheads to other activities. The features available on the screen are the same as available in
screen of Stage 2 except for that at this stage allocations are not for the identified amounts but
are proportionate on the basis of activity parameters / weights. Activity parameters may be flying
hours for air logistics, vehicle days for passenger vehicles or tonnage carried for OSVs, Trucks /
Trailers. In case direct activity parameters are not available, allocations can be carried out on the
basis of the weights considering last years actual allocations in accounts change in activity
levels, technical weights, etc. Project Overheads will be charged to P&L A/c as per applicable
accounting guidelines. A list of activity parameters defined in the software is as follows:
 4.7.1 Activities for cost allocation

Activities Cost Allocation Base

Drilling Services Rig Days

Cementing Services Cementing Hours, Cementing Jobs

Mud Services Drilling Rig Days/Work over Rig Days

Work over Services Rig Days

WSS Services Jobs, Weights

Well Completion Service Wells Completed

Logging Services Logging Hours

Engineering Services Weights, Man hours

Logistics Services Tonnage Carried, Vehicle Days, etc.

Project Over heads Budget outlays of various activities

Regional/Hqr. OH Budget outlays of various activities

Wherever, these parameters are not applicable, users may feed their own parameters in
unit/weight column.

Final Activities

Activities Cost Allocation Base

Survey Line Kilometers (LK)

Exploratory Drilling Meters

Development Drilling Meters

Operating Expenditure MMT (Oil+OEG)

 UNIT

SAVE

DELETE
EDIT

Stage-4

Allocation of other Intermediate Activities to Final activities

This stage provides for allocation of all other intermediate activities to the final activities. The
features available on the screen are the same as available in screen of Stage 3. Activity
parameters may be Rig Days for Drilling, Work Over Rigs, Logging Hours for Logging
Services, etc. In case direct activity parameters are not available, allocations can be carried out
on the basis of the weights considering last year actual allocations in accounts change in activity
levels, technical weights, etc. Regional & Headquarter Overheads will be charged to P&L A/c as
per applicable accounting guidelines.

To avoid cyclical iterations, at this stage, intermediate activities can be allocated only to final
activities and not to the other intermediate activities. In the top side of the screen, in the amount
available for allocation fields, the final amount available after allocations at Stage 2 and Stage 3
for all intermediated activities of the locations will be displayed. After allocation of Stage 4, the
balance available under all intermediate services will be NIL.

EXECUTE
 UNIT SAVE

DELETE
EDIT

Stage-5

Incorporation of allocations received from other locations and change of activity codes if
required

EXECUTE
In order to facilitate for the running of allocations cycles for different locations independently,
the software has been designed to allow the inter location allocations only to the final activities.
Accordingly, while making cost allocations to other locations at Stage 2,3 and 4 the software
allows the allocations only to the final activities and not to the intermediate activities.

Allows the budget coordinator of the transferee location to view the allocations received from
other locations on the screen and if required to change the allocation from one final activity to
another. However, the software does not allow him to change the total amount of the allocations
received from the other locations, and if required, the budget coordinator of the transferee
location will interact with the budget coordinator of the transferor location for re allocation of
the amounts.

In case, transferor location had earlier sent some allocation to a particular transferee location,
and it subsequently decides that no allocations are to be sent to that transferee location, the
transferee location budget coordinator will delete the earlier received allocations received from
that location by running “delete IUT received” option in the “Utilities” Menu. (This has already
been explained above under ‘Utilities’)

Step I

Execute ‘stage 5’ of the costing cycle for Incorporation of allocations received from other
locations.
 EXECUTE

Step II

A pop up message will ask for restoring the allocations received from other locations before
running Stage 5 of the Costing Allocations. Execute Ok if the restoration has been done.
Otherwise Restore the Allocations and then again come to Stage 5.

Step III

Fill all the fields and Save the data. Allocation is Complete.
 SAVE

Stage-6

Physical targets for final activities to work out cost of activities

This stage provides a screen to feed the Physical Targets for final activities Survey, Exploratory
Drilling, Development Drilling, Production, Finding Cost, etc and for Intermediate services like
Drilling Services, Work over services, etc. for RE and BE. Accordingly, the physical targets data
will be used by the system to work out the budgeted per unit cost of activities.
 PHYSICAL RE PHYSICAL BE

6.9 HYPOTHETICAL COSTING OF WELL

Hypothetical cost per

cost elements well
Mining lease 80476.92076
hire/lease-rigs onshore 78613219.88
hire/lease-LWD 5918690.236
logging contractual 2462124.978
apprch road const-pm 44706.54641
Pmt-site prepration 207261.2017
Rig positioning & towing 305848.0859
civil contract (works) 38475.27037
NDT services 13822.98839
other contractual payments 76190.86429
con-ind-st-drillpipe 0
con-imp-st-casing pi 0
con-ind-st-casing pi 0
con-imp-st-drill bit 2432982.96
con-ind-st-drill bit 82052.55129
con-ind-st-oth-drill 185931.4662
con-ind-st-oilwelcem 344242.9932
con-imp-st-chemicals 124202.3753
con-ind-st-chemicals 192953.7703
con-ind-st-P.O.L 2752.614631
con-ind-st-mis. St 7120.122753
con-ind-st-tube&pipe 0
mat consumed-stores-well heads 0
con-ind-sp-prodn eqp 850023.534
con-ind-sp-BOP Elev 21597.91183
Less alloc – expenses -600782.138
CWPS-OB Load-exp 600782.138
DS Drilling Flluid base- exp 580678.3959
ES Civil works expenses 1365.408209
WCT Opearation Expenses 1068424.077
Dv Drl monitor exp 456372.5892
reservoir montr-exp 17044.32661
open hole logging-exp 519876.2159
production logging-expenses 822286.5431
Cementing machine Hr-exp 439716.816
Rig operation-exp 1542041.878
Rig Move/bldg-exp 1071373.753
Coil Tube oper-exp 17450.15413
stimulation services-exp 15449.6192
DEPN EXP-P&M-drilling strings 1215427.138
DEPN EXP-P&M-Well heads 275613.0087
DEPN EXP-P&M-Casing pipes 8200601.557
DEPN-EXP-P&M-Production Tubing 1349290.166
DS Drilling Flud dep 5850.888941
WCT Opearation Dep 30598.91129
Dv Drl monitor dep 1354.95462
reservoir montr dep 59654.89397
Open hole logging dep 912802.4137
Production logging dep 52507.52115
Cementing machine Hr-dep 120164.3367
RIG Drilling oprs-dep 521064.0509
Coil tube oprs-dep 3527.769386
Stimulation services-dep 172.9549981
Cost Elements 110540366.4
 4.9 Various cases which can be affect cost of a well

Case 1:

Suppose ONGC hire some of the rigs on contract bases. If those rigs are suppose on 2
years contract and that contract is approved at 7.86 crores and because of certain difficulties
are arise and because of that the contract is extended for several months suppose 2 months
than at the last it will increase the cost of the particular well.

Actual cost

Particular Amount

Hire/lease rigs-onshore 78613219.88

Revise cost of rigs: because of that increase in a time period the cost is increase.

Particular Amount

Hire/lease rigs-onshore 85164381.46

Case 2:

In case 2 if the casing pipe is require according to the requirement and because of the
certain calamity there are more requirement of that pipe which is mainly imported from the
other countries and their cost is increase. And it is directly depreciated to those costs.

Actual cost

Particular Amount

DEPN EXP-P&M-Casing pipes 8200601.55

Revise cost

Particular Amount
DEPN EXP-P&M-Casing pipes 8315423.24

CASE 3: Example of activity base costing.

Colum
Particulars well well2 well3 well4 n5
1 2 3 4
Total time (in
hours) 300 350 330 400 1430
Total cost
( assumed) 100
Total activity 20.97 24.47 23.07 27.97
based cost 902 552 692 203
Manpower cost 13.636 15.909 18.181
65% 36 09 15 82
Repairs & 1.0489 1.2237 1.1538 1.3986
Spares 5% 51 76 46 01
Raw material 2.0979 2.4475 2.3076 2.7972
10% 02 52 92 03
Inventory cost 4.1958 4.8951 4.6153 5.5944
20% 04 05 85 06

5. SALES ACCOUNTIG SECTION:

5.1. SALES COMPONENT:

Customers:

For crude oil - IOCL, Koyali

HPCL

Other refineries.

For natural gas- GAIL

Other direct marketing customers (e.g Wellspun, prima, janta glass etc.)

For LPG - IOCL

HPCL

For Naphtha - RELIANCE

HINDALCO

For Electricity – GUJARAT ELECTRICITY BOARD

 For services - Crude processing

Crude transportation

• Cairn

• NIKO

• HOEC

5.2. PRICE MECHANISM OF CRUDE OIL AND NATURAL GAS:

5.2.1 PRICE OF CRUDE OIL:

Component of crude oil

• FOB price

• Ocean freight

• Sharing of custom duty

• Octroi – whenever applicable

• Facilities charges

Component of FOB price

FOB price for crude oil:-

Base price + premium/discount compare to marker crude.

ONGC crude is benchmarked to Bonny Light which is a Nigerian Sweet Crude.

Premium / discount compared to marker crude is arrived at based on Gross Product Worth
(GPW) differential.

FOB Price = price of marker crude (+.-) GPW differential.

Now suppose the price of Bonny Light crude is $70/bbl and GPW differential is $0.68/bbl, the
FOB price of Mumbai high crude will be:

FOB price = 70-0.68=$69.32/bbl

In India the Selling price is pre decided by Central Government of india for E&P companies to
sell to marketers. Govt. of India use Administrative price mechanism(APM) to decide the crude
oil price. In APM, govt. firstly collect data regarding E&P costing from different E&P
companies and after analyzing the data govt. decide the price.

AFFECTING FACTORS ON CRUDE OIL PRICE DECIDING:-

-F.O.B (FRIGHT OF BOARD) PRICE

-RBI conversion rate

-BS &W (Basic sediments and water) that shows impurity of crude.

COMPONENT:-

BASIC PRICE OF CRUDE XXXXXX

OIL INDUSTRY DEVELOPMENT Rs.2500/MT

TAX

VAT 4%

OCTROI 3%

NATURAL CALAMITY Rs.50/MT

CONTINGENCY DUTY

EDUCATION CESS+HIGHER 2%+1%=3%

EDUC.CESS

ROYALTY Rs.3300/MT

TOTAL XXXXXXX

-credit period is 18 days.

-billing is done on weekly bases.

5.2.2 PRICING OF GAS:

The Gas price can decide by two way. 1. APM.

2. NON-APM (Market price)

AFFACTING FACTORS OF GAS PRICE:-

o FOB PRICE

o C.V.(CALARICE VALUE)

o PRESSURE

o NON APM PRICE

COMPONENT:-

NATURAL GAS

BASIC PRICE XXXXXX

ROYALTY 10% On basic

VAT 12.5%+2.5%=15%

TOTAL XXXXXX

-credit period is 10 days to private customer and 7 days to GAIL.

-the billing is done on the weekly basis.

LPG :-

BASIC PRICE XXXXXX

EXCISE DUTY 8% OF BASIC

EDUCATION CESS 3%

VAT 12.5%+2.5%=15%

TOTAL XXXXXX

-The credit period is 20 days. And billing is done on weekly basis

NAPHTHA:-

BASIC PRICE XXXXXX

EXCISES DUTY 16% OF BASIC

EDUCATION CESS 3%

VAT 12.5%+2.5%=15%

TOTAL XXXXXX

In case of naphtha, ONGC can fix the price and it can be vary from customer to customer.

The billing is done on weekly basis and advance payment is done.

SALE CYCLE:-

Firstly, the purchasers send the purchase order. Purchase order content the quantity what the
customer require and such documentation.

Then ONGC create sales order that content what would be their dispatch quantity, approximately
pricing and other terms and condition.

Then delivery document is prepared and oil dispatching work is start.

Then invoice is creation is done, in which billing is done for every week.

Then invoice printing is done.

Finally, Release the invoice to accounting.