OGDCL-Final Turn Around Strategies

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OGDCL


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Internship Report

Submitted By:

Sibte Hassan

MBA- 7B

Submitted to:

Mr. Hafiz Mushtaq


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Executive Summary

I did internship at OGDCL as a compulsion for my MBA degree from Bahria University. It is

a necessity for every student to do internship with any organization relevant to their subject

of studies. This stipulation is a way of familiarizing the students with the practical world

which they intend to enter after completion of their education. During the tenure of my

internship I got an opportunity to understand the organization and apply my knowledge and

theoretical concepts in a better manner. This report precisely states my experience

The following report has been written on the format provided by the university

administration. It initiates with an introduction of the companys background and proceeds

with its contribution to Pakistans economy.OGDCL forms the industrial base of our country

and plays a dominant role in energy generation activities to support the nation on the whole.

This sector dates back to the creation of Pakistan and ever since owing to its importance it

has been pampered by all sectors of production

I interned in the production department of OGDCL and this report elaborates my experience

and understanding of the production soft wares, marketing issues and human resource

requirements of the company. I have also talked about the financial standing and progress of

the industry. Operational, HR and market analysis all show positive results and bright future

of the company in the following industry of our country. Other than a few pits that I

discovered which include lack of use of modern technology, bureaucratic, hierarchical

structure and nepotism the overall analysis of the company depicts a very positive andinfluential picture which is why it has been profitable over the years.


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Table of Contents

Vision ................................................................................................................................. 1Mission ............................................................................................................................... 1OGDCL Core Values ......................................................................................................... 1

Corporate......................................................................................................................... 3 Exploration & Production (E& P)................................................................................... 3 Technical Services. ......................................................................................................... 3The Executive Director Exploration: ..................................................................................... 3Executive Director Drilling: .................................................................................................. 3Executive Director Admin: .................................................................................................... 3Executive Director Corporate Affairs: ................................................................................... 3

Financial Goals .................................................................................................................. 6Customers .......................................................................................................................... 6Learning and Growth ......................................................................................................... 6

Internal Processing Goals ...................................................................................................... 7o Accelerate Production Growth:....................................................................................... 7o Exploit Exploration Opportunities: ................................................................................. 7o Maintain Low Cost Operations: ...................................................................................... 7o Pursue Selective International Expansion:...................................................................... 8o Implementing International Best Practice:...................................................................... 8Decentralized Organization Structure .................................................................................. 13Technological advancement ................................................................................................. 13

Planning and forecasting .......................................................................................................... 13Recruitment policy ................................................................................................................... 14Training and Empowerment .................................................................................................... 14Less governmental influence ................................................................................................... 14Marketing ................................................................................................................................. 14Bibliography .......................................................................................................................... 15


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CompanysIntroduction

OGDCL is the national oil & gas company of Pakistan and the flagship of the countrys E&P

sector. The Company is the local market leader in terms of reserves, production and acreage,and is listed on all three stock exchanges in Pakistan and also on the London Stock Exchange

since December 2006. The Company is all set to ride the wave of E&P activity, equipped

with its Vision & Mission, Business and Strategic Plan, a debt-free and robust balance sheet

and healthy cash reserves. The Company is ready to take on the challenges of a volatile E&P

industry.

Vision

To be a leading multinational Exploration & Production company

Mission

To become the leading provider of oil and gas to the country by increasing

exploration and production both domestically and internationally, utilizing all options

including strategic alliances.

To continuously realign ourselves to meet the expectations of our stakeholders

through best management practices, the use of latest technology, and innovation for

sustainable growth, while being socially responsible.

OGDCL Core Values

Core Values

Merit

Integrity

Team Work

Safety

Dedication


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Organizational Structure

All policy related issues are dealt by the board of Directors that is headed by a non-executive

Chairman and a full time Managing director. The general direction, policies and affairs of the

Company vests in a Board of Directors, which consists of 01 Chairman, 10 Directors and 1

managing director (MD). The OGDCL has been re-organized during the last few years; it

now operates much purely as Oil Company does. Emphasis is on Professional Competence

and getting things done. OGDCL can broadly be divided in to following three companies:


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Corporate Exploration & Production (E& P). Technical Services.

The whole organization has been streamlined on the functional basis and it has emerged as an

efficient unit, while speed and competence are its Hall Mark. It is now divided into separatedepartments and each department is in a position to work independent business unit.

For effective operational activities, different Executive Directors

performs followingactivities in consultation with General Managers, who are assisted by the

concerned Departmental Managers:

The Executive Director Exploration:

Supervises all the geophysical and geological and exploration activities and is assisted by

different Manager.

Executive Director Drilling:

When a potential oil or gas field has been identified through seismic surveys, it is then drilled

to assess the quality and quantity of the deposits. This process is achieved through drilling.

ED (Drilling) is responsible for all the drilling activities carried out by OGDCL in the

country.

Executive Director Admin:

It is responsible for management of personnel. The administration department manages all

the activities from recruitment to training and development.

Executive Director Corporate Affairs:

Looked after the activities of planning of different development program and monitor the

implementation of that program. It coordinates with all the department of OGDCL

and prepares a strategic plan for the activities of OGDCL. This department is also liaison

between OGDCL different Ministries.

Company History

Prior to OGDCL

Prior to OGDCL's emergence, exploration activities in the country were carried out by

Pakistan Petroleum Ltd. (PPL) and Pakistan Oilfields Ltd. (POL). In 1952, PPL discovered a

giant gas field at Sui in Baluchistan. This discovery generated immense interest in

exploration and five major foreign oil companies entered into concession agreements with the

Government.


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During the 1950s, these companies carried out extensive geological and geophysical surveys

and drilled 47 exploratory wells. As a result, a few small gas fields were discovered. Despite

these gas discoveries, exploration activity after having reached its peak in mid-1950s,

declined in the late fifties. Private Companies whose main objective was to earn profit were

not interested in developing the gas discoveries especially when infrastructure and demandfor gas was non-existent. With exploration activity at its lowest ebb several foreign

exploration contracting companies terminated their operation and either reduced or

relinquished land holdings in 1961.

Establishment of OGDC

To revive exploration in the energy sector the Government of Pakistan signed a long-term

loan Agreement on 04 March 1961 with the USSR, whereby Pakistan received 27 million

Rubles to finance equipment and services of Soviet experts for exploration. Pursuant to the

Agreement, OGDC was created under an Ordinance dated 20th September 1961. TheCorporation was charged with responsibility to undertake a well thought out and systematic

exploratory program and to plan and promote Pakistan's oil and gas prospects.

As an instrument of policy in the oil and gas sector, the Corporation followed the

Government instructions in matters of exploration and development. The day to day

management was however, vested in a five-member Board of Directors appointed by the

Government. In the initial stages the financial resources were arranged by the GOP as the

OGDC lacked the ways and means to raise the risk capital. The first 10 to 15 years were

devoted to development of manpower and building of infrastructure to undertake much larger

exploration programs.

Initial Successes

A number of donor agencies such as the World Bank, Canadian International Development

Agency (CIDA) and the Asian Development Bank provided the impetus through assistance

for major development projects in the form of loans and grants. OGDC's concerted efforts

were very successful as they resulted in a number of major oil and gas discoveries between

1968 and 1982. Toot oil field was discovered in 1968 which paved the way for furtherexploratory work in the North. During the period 1970-75, the Company reformed the

strategy for updating its equipment base and undertook a very aggressive work program. This

resulted in discovery of a number of oil and gas fields in the Eighties, thus giving the

Company a measure of financial independence. These include the Thora, Sono, Lashari,

Bobi, Tando Alam & Dhodak oil condensate fields and Pirkoh, Uch, Loti, Nandpur and

Panjpir gas fields which are commercial discoveries that testify to the professional

capabilities of the Corporation.


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Transition to a self financing entity

Noting the Company's success, due to major oil and gas discoveries in the eighties, the

Government in July 1989, off-loaded the Company from the Federal Budget and allowed it to

manage its activities with self generated funds.

The financial year 1989-90, was OGDC's first year of self-financing. It was a great challenge

for OGDC. The obvious initial target during the first year of self-financing was to generate

sufficient resources to maintain the momentum of exploration and development at a pace

envisaged in the Public Sector Development Program (PSDP) as well as to meet its debt

servicing obligations. OGDC not only generated enough internal funds to meet its debt

obligations but also invested enough resources in exploration and development to increase the

country's reserves and production.

Conversion into Public Limited Company

Prior to 23 October 1997, OGDCL was a statutory Corporation, and was known as OGDC

(Oil & Gas Development Corporation). It has been incorporated as a Public Limited

Company w.e.f. 23 October 1997 and is now known as OGDCL (Oil & Gas Development

Company Ltd.).

Financial Analysis

During the period under review, OGDCL continued to deliver strong financial results in line

with its business strategy to enhance oil & gas production and create value for the

shareholders. Financials for the reporting period exhibit growth of 19% and 9.3% in the

Company's Sales Revenue and Profit after Taxation surging to Rs 169.091 billion

(9M 2011-12: Rs 142.035 billion) and Rs 75.671 billion (9M 2011-12: Rs 69.245 billion)

respectively. These improved results led the Company to report an Earnings per Share of Rs

17.59 (9M 2011-12: Rs 16.10) indicating business sustainable growth and sound financialposition.


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OGDCL's robust financial performance witnessed during the nine months ended 31 March

2013, has been substantially driven by increased production in the Company's major product

mix. In addition, increase in realized prices of gas and LPG, averaging at Rs 264.40/Mcf and

Rs 81,018.49/M.Ton compared with Rs 222.44/Mcf and Rs 77,467.49/M.Ton respectively

during the preceding period last year, also contributed positively in the Company's financialgrowth. Furthermore, higher other income owing to increase in interest income on

investments & bank deposits, mainly accrued interest on investment in Privately Placed Term

Finance Certificates, and exchange gain is another prime factor assisting the Company's

improved financial performance. However, the Company's profitability was adversely

impacted by decrease in the realized price of crude oil and increase in the Company's

exploration & prospecting expenditure on account of three (3) wells declared dry &

abandoned in addition to unsuccessful drilling (including side tracks) in the current period

against no dry wells in the corresponding period.

Dividend

The Board of Directors has recommended a third interim cash dividend of Rs 1.75 per share

(17.5%) for the financial year 2012-13. This is in addition to the first and second cumulative

interim cash dividend of Rs 3.75 per share (37.5%) already declared during the year.

Goals of OGDCL

Financial Goals

Build strategic reserves for future growth/expansion

Growth and superior returns to all stakeholders

Double the value of the company in the next five years.

Make investment decisions by ranking projects on the basis of best economic

indicators

Maximize profits by investing surplus funds in profitable avenues

Reduce cost and time overruns to improve performance results.

Customers

Continuously improve quality of service to maintain a satisfied customer base.

Improve reliability and efficiency of supply to the customer

Be a responsible corporate citizen

Learning and Growth

Motivate our work force, and enhance their technical, managerial and business

skills through modern HR practices.Acquire, learn and apply state-of-the-art technology.


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Emphasize organizational learning and research through effective use of

knowledge management systems.

Fill the competency gap within the organization by attracting and retaining best

professionals.

Attain full autonomy in financial and decision making matters.

Internal Processing Goals

Evolve consensus through consultative process inter-linking activities of all

departments

Excel in exploration, development and commercialization

Be transparent in all business transactions

Synergize through effective business practices and teamwork

Have well-defined SOPs with specific ownerships and accountabilities

Improve internal business decision making and strategic planning through state-of-the-art MIS

Improve internal controls

Periodic business process reengineering.

Strategic Objectives

As the leading exploration and Production Company in Pakistan, OGDCLs primary

objective is to enhance its reserves and production profile and ultimately maximize value for

shareholders. In order to achieve this goal, the Company seeks to execute the following

strategies:

o Accelerate Production Growth:by continuing to accelerate production growththrough utilizing cutting edge technologies, allowing the Company to utilize its

significant reserves base and capitalize on the strong economic growth and

accelerating energy demand in Pakistan.

o Exploit Exploration Opportunities:by building the Companys future reservesportfolio through its large onshore exploration acreage. During the fiscal year 2008-09target of drilling is 52 wells.

o Maintain Low Cost Operations: OGDCLs operating environment, namely thegeographic concentration of its reserves base within Pakistan, will be a major factor in

allowing it to control its low cost structure. Within Pakistan, the Companys leading

position also enables it to access economies of scale across its significant reserves

base and operations.


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o Pursue Selective International Expansion: while domestic expansion remainsOGDCLs core focus, the Company intends to grow and diversify its portfolio

through selective international expansion in the medium to long-term.

o Implementing International Best Practice: by ensuring an efficientorganizational structure and business processes that are focused on core production.As part of our restructuring plan, OGDCL has established an in-house technical

services division, the Petroserv Directorate, which separates technical support

services from core E&P activities.

Technology

Technology is the making, modification, usage, and knowledge of tools, machines,

techniques, crafts, systems, methods of organization, in order to solve a problem, improve a

preexisting solution to a problem, achieve a goal, handle an applied input/output relation or

perform a specific function. It can also refer to the collection of such tools, machinery,

modifications, arrangements and procedures. Technologies significantly affect human as well

as other animal species' ability to control and adapt to their natural environments.

Sectors OGDCL is working in

Oil exploration

Gas exploration

Drilling Operation Services

Process & Plants

Reservoir management

Management of non operated joint ventures

Construction & Engineering Support Services

Over hauling of large equipments in house and outhouse

Strategies of OGDCL

Business strategy


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OGDCL being a government organization has a monopoly in the energy and production

sector in Pakistan. It was one of the first organizations of its kind established in the 1980s in

Pakistan. Because of its vast and rich background the company has a monopoly in the

industry in Pakistan. Even its competitors are bound to collaborate with OGDCL in certain

areas or projects as per the laws and regulations of government of Pakistan. How ever sincethe company has transformed itself into a public limited company they are using a multiple

approach business strategy for the success of their business operation. The main aim of any

public limited company is to maximize wealth for their shareholders so in order to achieve

this objective the new management and board of directors are more aggressively pursuing the

multi approach business strategy.

Differentiation Strategy

The acceleration of production growth strategy is not as simple as it sounds. However the

company wishes to continue to accelerate production growth through utilizing its cutting edgetechnologies, allowing the Company to utilize its significant financial and non financial

reserves. The company also aims to capitalize on the strong economic growth and demand for

energy in Pakistan. An energy crisis is one of the major business opportunities where the

business can earn abnormal profits if catered for on time.

The company also aims to target the offshore drilling sites which it currently is not doing. Its

competitors and foreign firms with their advance technology are already exploiting these

offshore sites for oil and gas exploration.

Cost Leadership Strategy

The business strategy of maintain low cost operations in the company is the vision of the new

management director. Due to the economic crises and rise in dollar prices the operational cost

and raw material cost of the company is touching the sky. This leads to a rise in the final

price of the product. Even though the demand for their product is intangible but it still

negatively affects the demand for the product. However OGDCLs operating environment,

namely the geographic concentration of its reserves base within Pakistan, will be a major

factor in allowing it to control its low cost structure. Within Pakistan, the Companys leading

position also enables it to access economies of scale across its significant reserves base and

operations.

Under the low cost operations OGDCL plans to take certain steps to achieve it. They are

explained as the following;

1. Reduce cost on sites:The company plans to reduce cost on its drilling sites by an effective and efficient local

partnership. As to where ever the rigs are and the drilling operations are being conducted the


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food and other related supplies should be available locally rather than transportation of those

supplies from the central warehouse which will reduce a lot of cost.

2. Lean management system:Under the lean management system the company has lay off a number of employees from

permanent pay roll and converted some jobs into contractual nature in order to reduce the

fixed expense of the company.

3. Acquiring of high technology:The company plans to acquire high technology drilling systems and equipment which is

available to its foreign competitors in Pakistan. By the adoption of cutting edge technology

the company would be able reduce is average costs and hence have a greater profit margin;

Though it is understandable that the initial cost of high technology would be a lot.

4. Buying of new rigs rather than leasing:The company at certain stages has to make a tradeoff between purchasing an oil or gas

drilling site or leasing it for a certain period of time for drilling and exploration. Usually the

drilling of the site and exploration is a process of years. Since the company is government

owned so it has an edge of purchasing land at lower price than market which the foreign

companies dont. The advantage of buying the rigs would be tremendous to the company as

one time cost of the land would be paid and then future profits will be earned at minimal

operational costs until the life of the well which is on average 20-30 years.

Failure of Achieving Rewards

The portfolio that OGDCL has and the future prospects available to the company along with

its existing vast and efficient infrastructure the organization is not achieving the heights that a

company of its standards and market position that is monopoly should achieve.

There are a number of internal and external reasons due to which the company has not been

able to transform its vision and business strategies from paper to reality. On paper the

strategies are commendable but on ground reality the story is different.

Internal reasons:

.

Internal corruption

o When it comes to procurement of material or machinery for a certain projector otherwise the procurement is not transparent. Which leads to hundreds of

thousands of rupees corruption since the equipment is expensive.

Merit

o The employees hired even at the lower level are all political appointmentssince its government organization. The hiring process in majorly based on


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reference (unofficially) which leads to induction of employees who are below

merit for the job leading to less efficient work force.

Check and balance

o Internally in the organization the check and balance system is below averagedue to which the employee or employees do not get the adequate punishmentthey deserve for any malicious activity conducted. Along with that the rewards

issued to people are also on the basis of favoritism which lowers the moral of

the people who work hard and honestly.

Inadequate equipment

o As far as safety equipment is concerned the company lacks far behind ofinternational standards for safety of their engineers and workers on the rig

while they are involved in the drilling activities. This causes many accidents in

a year.

Pay scale / perks

o Salaries to the top management are unaudited and some of them are paid morethan they deserve along with the lavish privileges. Whereas the honest and

hardworking sometimes do not get adequate pay this leads to de motivation

and hence low efficiency.

Ignorance to work fast

o The pace of administrational and clerical staff in the organization is extremelyslow due to which the whole process gets delayed if an approval is requested

from the site. This delay is not only in times it has a trickledown effect on per

day wages, rig rent and other resources which are in millions.

External reasons:

Government politics

o The government is not stable in Pakistan. Due to frequent changes over thelast two decades in the government system of the country every government

wants to appoint their representative as the head of OGDCL, even though it is

an autonomous body. A frequent change in administration reduces efficiency.

Rise in crude oil prices

o The rise in crude oil prices means a drop in the profit margin of the company.Hence the operational costs of the company rise and it finds it difficult to

achieve its cost leadership and differentiation strategy.

Security reasons

o Most of the trained engineers are highly paid foreign professionals or evenlocal. They have to be taken to the rig sites for drilling purposes. The wells are

located in unsettled areas of Pakistan where security is at threat all times.

Security being a major reason due to which engineers hesitate to go or dont

go. Even the company has to close its operations in certain areas due to these

things.


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Corruption

o Corruption not only exists internally in the company but due to its weakmanagement its joint ventures with other companies is also a set back with the

company. The work that is outsourced is granted on under the table kick backs

to the top management without merit. Resulting in poor performance.International pressures

o Since oil and gas are referred as black gold its one of the worlds mostdesirable natural resources. So the company faces international pressure from

Iran, India and Dubai being direct competitors in the similar industry, to

reduce Pakistans oil and gas exploration and production.

Business Challenges and Risks

OGDCL is exposed to the following operational and non-operational risks that can

unfavorably affect its operations and financial performance.

o Crude oil priceo Environmental riskso Exploration and drilling riskso Exchange rateo Law and ordero Legislationo Reserve Depletiono Under performance of oil and gas field

Future Prospects of OGDCL

Future prospects are always green and great in oil and gas sector because the drilling and

rigging on shore and offshore never stop. As per the website of OGDCL following are the

future development projects they will pursue. This information is on the website for their

existing shareholders and potential investors.

Nur/Bagla development project

Nur/bagla gas condensation field

Maru and Reti gas field

Jakhro gas condensation field

Sara west gas fields


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Recommendations

We put forward following suggestions and practicable remedies to improve the existingperformance.

Transparency and Corporate Governance

There has been an initiative to inculcate transparency and accountability as well as

CSR (corporate social responsibility) activities like funding education and healthcare.

There should be a proper monitoring and control system in the organization.

Corporate governance is manipulated with political pressure OGDCL should improve

transparency to and eliminate or reduce corruption, funds fraud and money laundering

Doing so would improve stakeholder image of the firm and also encourageinternational investments and interest in the company resulting in appreciation of its

share price

Decentralized Organization Structure

At the moment the organization is very centralized the decision making takes a lot of

time. Approvals, Project evaluations stay a long while in the tube to be approved and

worked upon. We recommend that efficiency of the organization can be improved if

they adopt decentralized approach in organizational structure where there is autonomy

to managers to solve and suggest ways to solve a problem this will inculcate creativityand speed in operations. To control and govern the decision making and undue

deviation of employees a clear rule book should be devised which shows the policy

and guidelines regarding all aspects exploration and resource management.

Technological advancement

The most dangerous threat to a capital and fixed asset based organization is the

speedily changing international trends and advancement in technology. The old

technology and methods become obsolete and newer faster more efficient ways are

discovered which not only improve the processes but also reduces the cost of

production adding to the profit margins.

Modern technologies adoption has taken take place in oil and gas industry as well,

OGDCL must take necessary action to acquire modern technologies such as

automation, computerized distribution channels, laser technology to detect oil fields

so that they can compete with international level organization and. Also reduce cost of

extraction and exploration.

Planning and forecasting


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We think that the industry has huge potential to grow and the future demand exceeds

the projected future production levels. The BODs and Management should device

strategies to develop more effective techniques and methods to extract and process

sufficient to meet demand.

Recruitment policy

The companys management should ensure that people they hire are not politically

connected people rather they are the industry and market specialized individuals who

have all the knowledge, skill and expertise regarding the field. They should hand pick

the best students and experts from the world, this would exponentially increase

company internal efficiency and productivity. Favoritism and nepotism should be

avoided.

Training and Empowerment

Although OGDCL has developed its own training and development it should try to

train and invoke creativity in all the employees from semi skilled labor who extracts

to managers related fields. The focus should be innovation, effective utilization of

resources and keeping up with fast paced changing technology .Its not only the

machines the human resource needs to be developed and equipped skill wise to use

and manage technology and innovate for sustainable successes.

Less governmental influence

Government skills and expertise lie in making policies and running the economy.

whereas Oil and Gas technology and industry requires expertise of its related field of

Chemical Engineering, Explorative Technology IT Solutions, Geology And

Geophysics to name a few. The company should distant itself from political affairs

and political pressures and influence and focus more on the future prospects of

growth and development in the sector irrespective of the political power plays and

excessive indulgence.

Marketing

The products services and channels, future potential need to be properly conveyed to

local and international markets In order to compete effectively in the industry. We

analyzed that OGDCL needs to improve its marketing strategy to be a more

aggressive approach.


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OGDCL-Final Turn Around Strategies

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