FINANCIAL ANALYSIS OFOIL & NATURAL GAS CORPORATION LTD. : FINANCIAL ANALYSIS OFOIL & NATURAL GAS CORPORATION LTD. FLOW OF PRESENTATION : FLOW OF PRESENTATION FOUNDATION & INTRODUCTION
BALANCE SHEET ANALYSIS
P & L ANALYSIS
ONGC Videsh Ltd.
BIG PICTURE FOUNDATION : FOUNDATION In August 1960, the Oil and Natural Gas Commission was formed.
ONGC found resources in Assam and established the new oil province in Cambay basin (Gujarat). In 1970 with the discovery of Bombay High (now known as Mumbai High), ONGC went offshore.
Post 1990, the liberalized economic policy was brought into effect. As a result, ONGC was re-organized as a limited company. INTRODUCTION : INTRODUCTION ONGC was incorporated on 23 June 1993 and is a state-owned oil and gas company in India.
It is a Fortune Global 500 company ranked 152ND.
It contributes 77% of India's crude oil production and 81% of India's natural gas production.
At present government holds 74.14% equity stake in this company & the remaining is Public Equity.
In 2002-03 ONGC took over MRPL from Birla Group and announced its entrance into retailing business. ONGC also went to global fields through its subsidiary, ONGC Videsh Ltd. (OVL). SHARE HOLDING PATTERN : SHARE HOLDING PATTERN ONGC INDIA OPERATIONS : ONGC INDIA OPERATIONS E&P INFRASTRUCTURE : E&P INFRASTRUCTURE 240 Onshore Installations 30 offshore Supply vessels >22,000 km of pipelines 194 Offshore Installations 32826 Employees 3rd E&P company of the world INDIA-OIL & GAS PRODUCTION : INDIA-OIL & GAS PRODUCTION CRUDE OIL PRODN. NATURAL GAS PRODN GROWTH PERSPECTIVE OF ONGC : GROWTH PERSPECTIVE OF ONGC During last 5 yrs. CAPEX of US$ 25.54 bn
Attracting and collaborating with a lot of Foreign and Domestic Partners for the purpose of E&P
Venturing into downstream business of refining e.g. Mangalore Refinery
Also eyeing the Petrochemicals industry e.g. Mangalore SEZ is being set up for this very purpose
Amount of dry oil write offs has decreased by over 60% during the last fiscal. BALANCE SHEET ANALYSIS : BALANCE SHEET ANALYSIS MARCH 2006 IS TAKEN AS BASE YEAR SOURCES OF FUND : SOURCES OF FUND Owner’s Fund (Equity) increased by 712.96 Cr in March 2007 as compared to base year in 2006.
Reserves & Surpluses increased by 32610 Cr as compared to March 2006. It is 82.12% of Total Liabilities.
Debt has increased by 3683.03 Cr in March 2010 as compared to base year. Debt is 15.82% of TL. APPLICATION OF FUNDS : APPLICATION OF FUNDS Total Fixed Assets has also increased by 37005.97 Cr w.r.t Base year.
Total Current Asset as a % of Total Assets is decreasing which is not good. Slide 13: In 2009, Investment had decreased due to Recession
but in 2010- It has shown a positive trend.
Investment as a % of TA had decreased during FY 07-08. This may be because of High Dividend Pay out ratio in 2008. TREND ANALYSIS : TREND ANALYSIS DEBT Slide 15: RESERVES Slide 16: INVESTMENTS PROFIT & LOSS A/C ANALYSIS : PROFIT & LOSS A/C ANALYSIS SALES TURNOVER : SALES TURNOVER Sales turnover has kept on increasing till 2009 but in 2010, it decreased by 3872 Cr.
This is due to Termination of Sales generated by MRPL (Mangalore Refinery & Petrochemicals Ltd.) due to expiry of MoU. TOTAL EXPENSES : TOTAL EXPENSES In 2010, there was sudden decrease in the Total Expenses due to decline of dry-well write-off.
There has been a 63% Q-o-Q decline in dry-well write-off in 2010 Q1. PBDIT : PBDIT Due to Renovation of Mumbai High Fields, Less costs are incurred to produce Crude Oil.
Also, the prices of Crude Oil has increased.
So, PBDIT as a % of Total Revenue has increased to 64.57% in 2010. PBT : PBT PBT as a % of Total Revenue has declined over the years till Mar’09 but gained after that to around 38.75% of Total Revenue.
The reason being the increase in Interest paid on debt which is as shown below TREND ANALYSIS : TREND ANALYSIS PBDIT, PBT & PAT Slide 23: PBT as a % of Total Revenue has decreased over the years. This is due to the interest paid on debt.
But in 2010, PBT has increased in spite of increase in Interest. This is due the fact that PBDIT as a % of Total Revenue had increased a lot in that year.
The trend analysis of PBT and PAT are nearly the same, and so there is no concerns of any abnormalities in tax payments. IMPACT OF SUBSIDY ON PAT : IMPACT OF SUBSIDY ON PAT In 2009, the subsidy to state owned refineries was the highest because of high crude oil prices in the global market. RATIO ANALYSIS : RATIO ANALYSIS RESERVE REPLACEMENT RATIO : RESERVE REPLACEMENT RATIO An Important ratio for a Oil & Gas Exploration Company. It Judges the Operating Performance of the Company.
A company with RRR < 1 will not sustain in the long term.
For 5 consecutive year, ONGC has RRR>1. RECOVERY FACTOR : RECOVERY FACTOR Ratio of recoverable oil reserves to the oil in place in a reservoir.
Improved Oil Recovery (IOR) through Enhanced Oil Recovery (EOR) techniques are getting in place since 2001
Some old oil fields has very low Recovery factor of around 14%, where renovation is costly and risky. CURENT RATIO : CURENT RATIO Generally, current ratio greater than 1.5 is deemed to be safe. So, we can say that ONGC is safe but in recent years the ratio is decreasing sue to increase in the Company’s Current Liabilities. QUICK RATIO : QUICK RATIO As ONGC has the ratio more than 1 consistently, it can pay off current obligations immediately.
But the ratio is declining & will further decline due to its increasing Liabilities. DEBT EQUITY RATIO : DEBT EQUITY RATIO ONGC uses its Reserves to meet its Liabilities so the Debt is low.
DE Ratio is very good due to this.
But it is expected that the ratio will increase to 2 in the next decade. OPERATING PROFIT MARGIN (%) : OPERATING PROFIT MARGIN (%) ONGC enjoys a very high Operating Profit Margin which assures that the company has less Financial Risk. DIVIDEND PER SHARE : DIVIDEND PER SHARE Comparing with 2006, the Dividend pay out has been less as in 2007, ONGC has taken a Equity of 712.96 Cr from market.
Also, ONGC was the highest Dividend payer in India in 2008. PE RATIO : PE RATIO A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E EARNING PER SHARE : EARNING PER SHARE EPS is often considered the single most important metric to determine a company’s profitability.
The higher the earnings per share with all else equal, the higher each share should be worth. DIVIDEND PAY OUT RATIO : DIVIDEND PAY OUT RATIO The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings. ONGC VIDESH LTD. : ONGC VIDESH LTD. ONGC VIDESH LTD. : ONGC VIDESH LTD. To sustain a long term economic growth for a rapidly growing economy like India, energy security is a critical issue.
ONGC realized the issue that E&P in India is not meeting out the requirements and so they have to venture into oil assets abroad for securing the nation’s needs.
Thus OVL came into force on 15th June 1989.
OVL is a fully owned subsidiary of ONGC ABOUT OVL : ABOUT OVL Over the period of time OVL became the 2nd largest E&P company in India both in terms of oil production and oil and gas reserves.
OVL has acquired assets in Asia, Middle East, Africa and Latin America
Its latest acquisition was of Imperial Energy Corp. in Jan 2009, and investment is still going on to operate all the 17 oil wells. PERFORMANCE OF OVL : PERFORMANCE OF OVL Many Oil wells reached their maturity and need to be upgraded to increase the production Slide 40: In spite of a 1.2% increase in production, there is a decrease of 25% in PAT due to decline in crude oil prices OVL’s CHALLENGES &OPPORTUNITIES : OVL’s CHALLENGES &OPPORTUNITIES ONGC Videsh Ltd. (OVL) a subsidiary is going to take loan of around 4000 Cr for its Imperial Energy Corp.
ONGC is facing tough challenge from Chinese and South Korean oil companies for acquisition of oil assets abroad.
OVL has increased its production of crude oil by a meager 1.025%. SWOT ANALYSIS : SWOT ANALYSIS STRENGTHS
O.N.G.C LTD is perceived to be the leader in oil production industry.
O.N.G.C being an international company has sufficient resources and capital to invest. WEAKNESS
O.N.G.C facing difficulties to produce oil from aging reservoirs. OPPURTUNITY
Energy utilization of buried coal resource (700 -1700M), estimated 63BT – Equivalent to 15000 BCM.
Producing large volumes of oil from aging reservoirs using Newer Technologies. THREATS
Security of personnel & property especially crude oil continues to be a cause of concern in certain area.
In some exploration Campaign, Company involves high technology, High investment and high risks. BIG PICTURE : BIG PICTURE FINANCIAL STRATEGY : FINANCIAL STRATEGY ONGC’s reserves and surpluses much exceeds its debt, so leverage and risk is low.
ONGC ventured into downstream business (refinery and finished goods). This lowers the risk of too much influence of ups and downs of one sector on the overall health.
But the low leverage status is going to change in future due to a lot of investment to be incurred and less funds available. Slide 45: So, ONGC is planning to raise its Debt-Equity ratio to 2 in the next decade span.
ONGC posted a 13.2 % Y-o-Y decline in revenue in 2Q FY2010 due to termination of MRPL sales due to expiry of MoU.
ONGC is currently implementing redevelopment projects in major fields of Western offshore at an estimated cost of Rs. 182 billion Slide 46: Sales income excluding MRPL sales have actually increased because of better prices of crude oil in the global market and lesser subsidy.
Renovation in all the oil wells offshore and onshore is still going on and it has not yet given much positive results in production.
Petroleum major ONGC is planning a capital expenditure of about Rs 26,000 cr for financial year 2011, up from Rs 24,000 cr programmed for this fiscal, for expansion, exploration and modernization, according to its Chairman and Managing Director, Mr. R. S. Sharma. Slide 47: ONGC’s future investments require debt financing and according to CRISIL, its credit rating is AAA which is very safe.
Moody’s gave them a rating of A2 (i.e overall stable) which will help them in international debt financing.
The government plans to divest 5% of its stake in ONGC between Jan’11 to Mar’11. The current govt. holding is 74.14%. OPERATIONAL SCENARIO : OPERATIONAL SCENARIO There has been a Y-o-Y decline of crude oil production from 25.37 MMT to 24.67 MMT from 2008-09 to 2009-10.
Though for 2009-2010, the expenses were less but it is going to elevate because of ONGC’s exploration in Hydrocarbon Reserves.
ONGC made a mistake in the acquisition of Imperial Energy Corp. by mentioning the average daily production at 80,000 barrels while only 45000 barrels can be achieved by 2015 Slide 49: The target of IOR/EOR technology is to increase the Recovery factor from the current level to above 40% by 2020.
To double reserve accretion from 6 to 12 BTOE by 2020.
ONGC is in talks to buy a stake in Advent Energy of Australia. RESEARCH & ENVIRONMENT : RESEARCH & ENVIRONMENT 12 institutes located throughout India are engaged in research e.g. exploration, drilling
ONGC-Teri Biotech Ltd. – research in area of bio fuel
ONGC also runs research projects in collaboration with reputed institutes
ONGC is maintaining bio diversity in fragile areas e.g. by plantation of mangrove, bamboo etc.
ONGC has 6 Clean Development Mechanism Project FUTURE SCENARIO FOR ONGC : FUTURE SCENARIO FOR ONGC Demand for all forms of energy is increasing
ONGC has to keep contributing towards ensuring uninterrupted supply of petroleum products in India.
The oil reserves are drying up and cannot meet the needs, so alternative energy sources has to be tapped. E.g. solar, thermal, uranium etc.
ONGC Energy Centre Trust set up for big research in non conventional energy sources Slide 52: THE END