ONGC as Per Sachdeva Final

8/6/2019 ONGC as Per Sachdeva Final

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DECLARATION

I, Sameer Shah, student Of M.M.S. from Pillais Institute of Management

Studies and Research (PIMSR) hereby declare that the project work, which is

undertaken, is an original and authentic work done by me.

The contents of this report is based on the information collected by me during

my tenure at Oil and Natural Gas Corporation, Mumbai, during the two months

of my training period.

SIGNATURE OF THE STUDENT


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Table of ContentsChapter TOPIC Page No.

1

1. Introduction1.1 Oil and Gas Industry1.2 ONGC

2. Objectives2.1 ONGC as a case2.2 Financial Data Analysis of ONGC2.3 Implementation of SAP2.4 Asset Accounting procedure under the

Environment of ERP i.e. SAP3. Research Methodology

2

ONGC as a Case

2.1 Background2.2 ONGC Videsh Ltd.2.3 Organisation chart2.4 Office Chart

2.5 ONGC Operation2.6 Issues or problems

3 Financial Data Analysis from 2004-2008

4

ERP and SAP implementation

4.1 Project ICE

5Asset Accounting procedure under

Environment of ERP i.e. SAP

6 Finding and Conclusion

Appendix

Bibliography


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Chapter 1

1.1 Introduction

1.1.1 Oil & Gas Industry

Crude oil is the second most important source of energy in India after

coal. Crude oil and its products account for about 35% of the

energy supply as against nearly 50% by coal. But the size of the

Indian industry is very small when compared with global levels of

production and consumption. The country has less than 1% share in

the global crude oil production, 1.1% in natural gas production,

2.8% in crude oil consumption and 1% in natural gas consumption.So, there is long way to go for this Industry.

Background

The Oil & Gas industry was a highly regulated industry under the control

of Ministry of Petroleum & Natural Gas (MoPNG). Although, with

dismantling of Administered Pricing Scheme (APS), wef. April

2002, efforts are being made to adjust domestic prices at more

frequent intervals with international prices; the oil companies donot enjoy full rights to set the prices. This is inevitable as the

industry is dominated by a collection of public sector companies.

Both the upstream (exploration and Production) and downstream

(Refining, Marketing and Distribution). PSUs like ONGC & OIL

INDIA LIMITED account for 90% of domestic production of

crude oil & natural gas.

Further, share of PSUs in domestic refining capacity is 68% and

presence of private sector in distribution is negligible. But, sinceIndia depends on imports for nearly 70% of its crude requirements,

the input prices are volatile. As fuel, power light & lubricants have

a weight age of 14.23% in the Whole sale Price Index; the industry

prices have a high impact on inflation.

Further, dependence of other industries on this industry is high as the

fuel and freight charges are a critical component of cost for most of

the industries.


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1.1.2 Overview of ONGC

Oil and natural gas corporation (ONGC), formed in 1959, is the

largest oil exploration company in India and it is the largest

Company among all Nav ratna PSUs. It is the only fully

integrated petroleum company in India, operating along the entire

hydrocarbon value chain. It holds the largest share (about 57 per

cent) of hydrocarbon acreages in India contributes over 78 per cent

of Indias oil & gas production and also possesses about one-tenth

of Indias refining capacity. 6 out of the 7 producing basins in the

country have been discovered by ONGC.

ONGC is the flagship company of India; and making this possible is adedicated team of nearly 40,000 professionals who toil round the

clock. It is this toil, which amply reflects in the performance

figures and aspirations of ONGC. The company has adapted

progressive policies in scientific planning, acquisition, utilization,

training and motivation of the team. At ONGC everybody matters,

every soul counts. Over 18,000 experienced and technically

competent executives mostly scientists and engineers from

distinguished Universities / Institutions of India and abroad form the core of our manpower. They include geologists, geophysicists,

geochemists, drilling engineers, reservoir engineers, petroleum

engineers, production engineers, engineering & technical service

providers, financial and human resource experts, IT professionals

VISION

To be a world class Oil and Gas Company integrated in energy

business with dominant Indian leadership and global presence

MISSION

World Class

Dedicated to excellence by leveraging competitive advantages in

R&D and technology with involved people.

Imbibe high standards of business ethics and organizational values.


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Abiding commitment to health, safety, and environment to enrich

quality of community life.

Foster a culture trust, openness, and mutual concern to make

working a stimulating and challenging experience for our people.

Strive for customer delight through quality for our people.

ONGC is involved in exploratory & development drilling in

various water depths (including deep sea) and has created an

extensive production-related offshore infrastructure (platforms,

pipelines, etc). Presently, ONGC has the following assets:

Onshore

Production Installations: 240

Pipeline Network (km): 17,500

Drilling Rigs: 70

Work Over rigs: 60

Seismic Units: 29

Logging Units: 32

Processing Plants: 3 (Uran, C2C3 plant at Dahej and Hazira)

Offshore

Well Platforms: 149

Well-cum-Process Platforms: 5

Process Platforms: 27

Drilling Rigs: 9

Pipeline Networks (km): 4,500

Offshore Supply Vessels: 30 Special Application Vessels: 2

Seismic Vessels: 1

ONGC is primarily an exploration company that has grown to

become Indias most valuable PSU on the basis of its performance

over an increasingly larger area of business. ONGC today, focuses

on relational enterprise through:


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organization, which is knowledge of hydrocarbons, gained over

five decades.

1.2 Objective of the Project

1.2.1 ONGC as a case

To study the overview of the company and the functioning of itssubsidiaries.

To get the knowledge about finance and accounts departments in ONGC.

1.2.2 Financial Data Analysis of ONGC

To study the performance of the company.

To study the trend analysis of the company in last 5 years (2004-2008) with the help of financial data.

To understand the overall financial stability of the company.

1.2.3 ERP and SAP implementation

To Study the Implementation Of SAP

To study the Project ICE of ONGC

1.2.4 Asset Accounting procedure under the Environment of

ERP i.e. SAP

To understand the transactions of additions / deletions/movement

Of Fixed asset like transfer in and transfer out made in SAP

To study the depreciation policies on fixed assets in SAP.

To know how the reports are generated in SAP.


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1.3 Research Methodology

Analyzing few functions of the organisation and their

processes.

The collection of the data for the study is done through discussion

and reference manuals provided.

Analysing the Revenue Statement and Balance Sheet

Analysis of the financial data of the company from 2004-

2008 and applying the rat io analysis techniques to

understand the financial stability of the company.

Source: The data collected from few Internet sites for

balance sheet and revenue statement.

To Study the Asset Accounting procedure under ERP

environment,

For studying the procedures of fixed asset accounting

under ERP environment i.e. SAP, manuals are provided

which state the procedures and processes of accounting.

LIMITATIONS OF THE STUDY:.

The confidential data of the company cannot be used in

the project, so some of the concepts are explained with

general examples.

The analysis done would pertain only to present set of

years


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office of the Government, to function efficiently. So in August

1956, the Directorate was raised to the status of a commission with

enhanced powers, although it continued to be under the

government. 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

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 inCambay 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.

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


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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.

74%

2%

5%5%

8%2% 4%

Shareholding pattern as on 31st March 2009

Inidan Promoter(Government)

Mutal Funds and UTI

Banks, InsuranceComapanies, etc

FII

Indian Oil CorporationLtd.

Gas Authority of Ind ia Ltd

Indian Public


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2.2 ONGC VIDESH LTD.

ONGCs wholly owned subsidiary ONGC Videsh Ltd. (OVL) is

the biggest Indian multinational, with 44 Oil & Gas projects (7 of

them producing) in 18 countries, i.e. Vietnam, Sudan, Russia, Iraq,

Iran, Myanmar, Libya, Cuba, Colombia, Nigeria, Nigeria Sao

Tome JDZ, Egypt, Brazil, Congo, Turkmenistan, Syria, Venezuela

and United Kingdom. OVL has a committed overseas investmentof over 5 billion US dollars.

Objectives

To support India's energy security

To build balanced portfolio of exploration, discovered and

producing assets in focus countries

To build a team that excels in performance through

assimilation of best practices and technologies To be at par with the best international oil and gas

companies

Be the strongest Indian Player in the international E&P

Build collaborative relations with partners

ONGC Videsh: Accreting hydrocarbon resources

abroad

ONGC Videsh Limited (OVL) is a wholly owned subsidiary of Oiland Natural Gas Corporation Limited (ONGC) - the flagship

national oil company of India. The primary business of OVL is to

prospect for oil and gas acreages abroad including acquisition of

oil and gas fields, exploration, development, production,

transportation and export of oil and gas. Incorporated as

Hydrocarbons India Private Limited on March 5, 1965 and

rechristened as ONGC Videsh Limited on June 15, 1989, OVL,

over a period of time has grown to become the second-largest E&P


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Company in India both in terms of oil production and oil and gas

reserve holdings.

Starting with the exploration and development of the Rostam and

Raksh oil fields in Iran and undertaking a service contract in Iraq, a

major breakthrough was achieved by OVL in 1992 in Vietnam

with the discovery of two major free gas fields, namely LanTay

and LanDo, in partnership with British Petroleum and Petro-

Vietnam. The success carried on thereafter. In 2001, OVL acquired

20% stake in Sakhalin-1 project in the far east of Russia with an

investment of over USD 2.1 billion the single largest Foreign

Direct Investment made by an Indian company at that time.

The company, adopting a balanced portfolio approach, maintains a

combination of producing, discovered and exploration assets,

working as operator in 18 projects and joint operator in 2

projects. OVL produces hydrocarbons from its 7 assets, namely,Russia (Sakhalin-I), Syria (Al-Furat Project), Vietnam (Block

06.1), Colombia (Mansarover Energy Project), Sudan (Greater Nile

Oil Project and Block 5A) and Venezuela (San Cristobal Project).

Balance 5 projects are in development phase and 25 are in the

exploration phase.

OVLs international oil and gas operations produced 8.802 MMTof O+OEG in 2007-08 as against 0.252 MMT of O+OEG in 2002-

03. Today, OVLs cumulative investment overseas has crossed

USD 7.5 billion.

While OVL participates and operates in varied environments

both political and geographical, it is committed to the highest

standards of Occupational Health, Safety and Environment protection and compliance to all applicable local laws and


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regulations. Understanding well its Corporate Social

Responsibility, OVL makes valuable contributions to the

communities and economies in which it operates by investing in

education and training, improving employment opportunities for

nationals, and providing medical, sports and/or agricultural

facilities, besides payment of tax revenues to local

governments.Some of the leading alliance partners of OVL are BP,

CNPC, Ecopetrol, ENI, Exxon, Norsk Hydro, PDVSA, Petrobras.


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2.3 Organisation Chart


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2.4 ONGC OFFICES


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2.4 ONGC Operations


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2.4.1 Engineering Services

Engineering Services has its roots in the erstwhile Engineering &

Construction Division; Mumbai that was established in1970's for

planned development of India's oil fields in Western Offshore.

Engineering Services was visualized as Provider of Engineering

Services to Assets. The group comprises of officers drawn

from all disciplines to extend project services related to

Basic/Detailed Engineering, Maintenance, Project Management,

Contract Administration, Facility Renewal/Revamp, RIG/OSVRepair, Marine Survey and Technology scouting.

Role of Engineering Services:

To provide specialized service for detailed engineering and

management of offshore and onshore construction projects for

surface installations.

To gradually reduce the dependence on external consultants.

To adopt best-in-class practices in design and project management.

To track and adopt technological innovations in project implementation to

crash time for first oil.

2.4.2 Well logging

Role of well logging in E&P industry:

Well logs form the 'eyes' of the Hydrocarbon Exploration &

Production industry.

Well logs play an indispensable role in the exploration and

exploitation of hydrocarbons.

Well logs are used for prediction, location and quantification of

hydrocarbon reserves.

Well logs are also used in monitoring of reserves and physical well

conditions in the production stage.


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Well logging services are used in facilitating hydrocarbon

production; to diagnose problems and also for repair and

maintenance of wells for sustained production & injection.

Well logs provide invaluable information for exploration andproduction during and after the useful life of the well.

2.4.3 Geophysical Services

As a part of Corporate Rejuvenation Campaign (CRC),

Geophysical Services came into existence as the nodal agency

responsible for acquisition and processing of seismic data that in

turn becomes an important source after interpretation to discover

the hydrocarbons from the sub-surface strata. Offices of Regional

Geophysical Services are established at Baroda, Jorhat, Mumbai,

Chennai, Kolkata and Dehradun that are headed by Heads of

Geophysical Services. Chief, Geophysical Services is the overall

functional in-charge of these Regional Geophysical Services. The

headquarter of Geophysical Services is at Dehradun.

Each Regional Geophysical Services consists of Field Operation

Units and Regional Electronics Labs (RELs). Besides this,

Geophysical Services has six state-of-the-art data processing

centres located in different parts of the country viz GEOPIC

(Dehradun), SPIC (Panvel, Mumbai) and Regional Computer

Centers (RCCs) at Chennai, Baroda, Jorhat and Kolkata. INTEG is

the interpretation arm of GEOPIC and is equipped with state-of-

the-art hardware and software. Field Operation Units look after the

seismic data acquisition and are responsible for completion of

physical targets and for ensuring / maintaining the quality of data

acquired. Processing Operation Units are responsible for

processing of the seismic data acquired by the Field Operation

Units and the contractual seismic crews. Regional Electronics Labs

ensures hassle free operations of electronic equipments used in the

field operations. At present, there are 32 on-land seismic crews at

Jorhat, Baroda, Kolkata, Chennai & Dehradun and one marine

survey vessel MV Sagar Sandhani stationed at Mumbai.


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During the last couple of years, Geophysical Services has made

significant progress in achieving global standards in data

acquisition and processing. Some of the recent initiatives /

achievements are:

Induction of 10 nos. of state-of-the-art telemetry recording units in

the field crews

Induction of PC based field processing and mobile processing units

for in-field monitoring of data quality

Induction of state-of-the-art 3D survey design and modeling

software Induction of pre-stack time & depth imaging technology in

GEOPIC, SPIC, RCC, Chennai and On-board MV Sagar Sandhani.

MV Sagar Sandhani became the first marine survey vessel in the

world with on-board pre-stack depth imaging capabilities.

A new 6 streamer dual source seismic survey vessel is likely to be

commissioned by early 2006

Induction of time-lapse 3D seismic technology in Balol aera of

western Onshore Basin through departmental efforts. The 1st

repeatsurvey was completed in Dec04 and data is under processing.

2.4.4 MARKETING

The ONGC has obtained approval from the Centre for marketing

aviation turbine fuel (ATF) and refueling at airports and started

marketing products in 2006-07.

OIL and Natural Gas Corporation Ltd (ONGC) is selling all its

value-added products, especially naphtha, only through public

sector marketing companies. ONGC has been selling, even

exporting, naphtha on its own after the failure of the PSU

companies in effectively marketing its products.


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Value-added products including naphtha, LPG, kerosene and

heavy-cut, add about Rs 3,000 crore to ONGC's turnover of about

Rs 24,000 crore every year.

According to sources, a Government notification circulated are

selling kerosene and liquefied petroleum gas (LPG) to private

players. These products will have to be sold through PSUs despite

the sector decontrol as the products continue to attract subsidies.

Following this, ONGC is also shelving marketing of natural gas

liquid (NGL) or naphtha-equivalent and aromatic naphtha

(ARN) on its own initiative.

ONGC had begun selling naphtha on its own after delays in lifting

its product by PSU marketing companies, Indian Oil Corporation

(IOC) and Hindustan Petroleum Corporation Ltd (HPCL).

ONGC discovered "steep price differences costing almost Rs 200

crore each year because of dependence on IOC and HPCL" when it

sold naphtha through these PSUs.

Naphtha being a deregulated commodity, ONGC's product has

remained low on the priority list of PSUs trying to push their own

stocks, leaving the company with no other choice but to export. As

a result, the company set up its own marketing cell that carried

out independent sale and exports of naphtha for ONGC.

2.4.5 HUMAN RESOURCES

HR Strategy

To meet challenging demands of the business environment

Building quality culture and resources

Re-engineering and redeployment for maximizing utilisation of HR

potential

To build and upgrade competencies through virtual learning andalso opportunities for growth and providing challenges in the job


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Group Incentives for cohesive team working, with a view to

enhance productivity

2.4.6 RESEARCH AND DEVELOPMENT

ONGC, India's most valuable and profit-making corporate today,

is set to invest further in high-technology exploration and

production - and beyond.

Instead of confining itself to exploration for and production ofcrude oil and gas, it will have its own refineries to process crude

into petrol, kerosene, high-speed diesel, naphtha, and so on.

ONGC is also into the extraction of coal-bed methane (CBM),

having pioneered the technology in the country. Methane extracted

from coal beds is supplied through pipelines to be used as fuel in

industries and to generate electricity. But its extraction involves a

tough, technology-intensive process. India is estimated to have the

potential to produce around 1.5 trillion cubic metres of CBM.

ONGC has nine R&D institutes that are being independently

managed. The Keshav Dev Malaviya Institute of Petroleum

Exploration in Dehra Dun, which was established in 1962, is the

premier centre for basic and applied research in petroleum

exploration. KDMIPE deals with the research needs of the various

ONGC regions in the areas of basin analysis, petroleum

economics, geosciences and developing alternative sources ofenergy.

The Institute of Reservoir Studies (IRS), set up in 1978 in

Ahmedabad, is ONGC's nodal agency for formulating oil and gas

production schemes. ONGC's decisions on hydrocarbon

exploitation are based on IRS' recommendations. The major

projects it has completed include development plans for OIL's

Kharsang oilfield; OVL's Tuba field in Iraq; the Ain-Zalah oilfield


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for the Iraq National Oil Company; and techno-economic studies

of potential fields in Vietnam, Indonesia, Russia, China, and so on.

The other centres include the Institute of Oil and Gas ProductionTechnology, the Institute of Engineering and Ocean Technology,

both in Mumbai; the Institute of Petroleum Safety and

Environment Management in Goa, the Institute of Management

Development at Dehra Dun, and the Institute of Biotechnology

and Geotectonics Studies at Jorhat, Assam.

2.4.7 FINANCE

Finance is very important for any business, as without itbusinesses would not be able to start or survive. In order to start abusiness, sources of finance are needed such as grants or loans,which are used to buy essential items such as vehicles, premisesand other equipment. Finance is needed for any business tocontinue running, as money is needed to cover running costs suchas electricity and rent as well as towards expanding it.

If the planning of the financial side of a business is done

accurately, one can track the progress of the business in terms of

profit and cash surpluses. Accurate financial documents allow to

keep track of your cash flow and also monitor how much of your

loans have been paid off by you. One can measure the success

through accurate financial planning. Also, financial documents

allow us to see when we have enough retained profits to expand

and improve our business


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-: Finance Organogram :-

Director(Finance)

ED - CCF

Head Commercial &

Treasury

Regional Audit Heads

HQ/ER/SR/Western

Offshore/Western

Onshore

Head Corporate

Internal Audit

ED Chief PM&BG

Head Corporate

Accounts

Head Risk Management

Cell

Head Corporate Tax

Division

Heads of Finance

Assets/Basins/Services/

Institutes & Plants

Head Corporate Budget

& PAS

Head Integrated Trading

Desk

CRC Reporting Administrative Reporting Functional reporting


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Finance is the crux of any organisation. For any organisation it is

very important to utilise its monetary resources aptly. In the same

way the finance department in ONGC is very important

department. It consists of different sections such as:-

Budgeting

Inter Unit transfer

Pre-Audit

Cost accounting

Material accounting

Sales accounting

Cash and Bank

Asset accounting

Financial concurrence

Budgeting:

Budgeting is a technique whereby actual utilization is compared

with budgets in order 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

A.Objective

Facilitate the company in the preparation of its revised budgets,

budget estimates and commitment budgets;

Facilitate the company in monitoring actual performance against

the planned budget;

Adhering to statutory requirements with regard to declaring the

Companys plans to be included in the GOIs five year plans


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B. Budgeting process

The budgetary process provides flexibility to the managers in their

operations and at the same time makes them accountable for cost of

operations. At the corporate level, budget allocations to the assets,

basins, services, institutes and corporate functions are made on the

basis of physical work programme and overall resource

generations. The assets/basins, institutes and service chiefs have

operational flexibility to provide for the budget items and re-

appropriation within the budget items. In line with theinternationally accepted accounting methods followed by the

Company, expenditure is booked to various activities viz. survey,

exploratory drilling and development drilling and budget is

presented in terms of these activities, besides capital

expenditure. The process of activity cost build up is done at each

asset / basin by accepting the allocation cost from various services

within the work centre and transfer of cost from one work centre to

another to depict the activities in the geographical location wherethe physical activities are accounted as per requirement.


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Board of Dierctors

Project Appraisal Committee

Corporate Budget

Regional Budget Coordinator

Locational Budget Coordinator

(Asset)


(Institutes)

Functional Heads

Locational Budget Coordinator(Services)

Section Head


(Plants)

Functional Heads


(Basins)

Functional Heads Functional Heads

Locational Budget Coordinator(JVs)

Functional Heads

Executive Committee

Director (Plant)Director (Basin)Director (Asset)

Service Heads


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a) Distribution cost cycle:

In distribution cycle, 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 toGL in FI module. In ONGCs context, this cycle is used as a

primary activity of the period-end procedures to capture all non-

allocable costs including impairment provision, if any. Distribution is done at

the beginning of the month/ fiscal year by the central team/ or the designated

officer, Costing Cell at various locations in the organization.

b) Assessment cost cycle:

In assessment cycle, costs from sender cost center are allocated tothe receiver cost center using secondary cost element or allocation

structure. Allocation structure is logical grouping of cost elements

wherein the costs of sender cost center are allocated to the receiver

cost center 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 allocating all

support/operation support costs to the receivers. The cycles are run

in a particular sequence as per the business processes in order todetermine the activity price for the respective processes. Various

Statistical Key Figures (SKF) have been defined in Logistics

Information System (LIS) in CO module and they determine the

basis of allocation of costs from one cost center to other cost center

each time a particular assessment cycle is executed. Different cost

cycles 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 assets, basins, plants,institutes, workshops etc.

Accounting for Inter Unit Transaction:


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Overview

The Companys locations are spread all over the country and

transactions in the form of transfer of materials, services, assets

and expenditures take place at these locations. Different inter unittransfer (IUT) account codes are opened in SAP representing

different type transactions:

To properly account for these transactions

To give true and fair view of the accounts of the independent

locations, which operate as individual profit, centres.

IUTs take place through cross company code transactions where inan IUT generated at one location is responded to by the other

location in their respective company codes.

Objective

To ensure that IUTs are accurately recorded and reported in the

respective period so as to give a true and fair view of the

independent locations.

Materials Accounting:

Overview

This deals with accounting processes for the following three types

of materials:

Stores items Spares

Capital items.

These materials are procured from both international and domestic

markets. Imported materials are generally procured against 100%

advance payment through Letter of Credit (LC).

In case of certain materials, the actual usage (capital or revenue) is

not known at the time of procurement and therefore all materials

are recorded as normal inventory at the time of receipt. However,


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at the time of issue from Main Store, the material is booked as

capital expenditure or revenue expenditure depending on the use of

the material as specified by the user.

Objective

Accurate recording and control over receipt, issue, transfer of

materials;

Liabilities are fully recorded and distributed correctly;

Invoices are processed as per agreed terms; and

Applicable statutory compliances with respect to materialaccounting are duly complied with.

Sales Accounting:

Overview

It describes policies, procedures, control, roles & responsibilities

related to accounting for sales and collections from debtors. Sales

to collection cycle consist of pre- sales activities (like negotiations

on price and quantities, agreements), sales order (SO) preparation,

inventory sourcing, delivery of goods, billing and finally

collections.

The major sources of revenue for the Company are sale of:

a) Crude oil;

b) Gas;c) Value Added Products (VAP) like Naphtha, SKO, LPG, Ethane-

Propane etc.;

d) Services; and

e) Scrap.

f) ONGCs share in sales made by Joint Ventures.

Sale of these products takes place from different billing locations

like assets, plants, sales offices etc. The major sections involved inthe process of sales, distribution and collections are:


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Marketing: Finalization of SOs including sales quantities and

delivery schedules

Commercial: Fixation of product prices

Operations: Supply planning, dispatch of goods, details of services

rendered

Sales Accounts: Maintaining product prices in system, raising of

invoices, statutory compliances, debtor management

Cash & Bank (C&B): Collections and payment of statutory levies;

Materials Management (MM): Creating scrap inventory in case of

scrap sales and creating release order/ SO order in SAP.

Indenting Group: Inter unit transfer of material

Objectives

To ensure that sales are recorded accurately and are reported in the

correct period

To ensure that all statutory liabilities on sales are complied with;

To ensure effective debtor monitoring and timely collection.

Pre-Audit

Overview

Pre-Audit section is an integral part of Finance & Accounts (F&A)

function at ONGC (from here on ONGC will be referred to as the

Company). Pre-Audit section performs following activities,

a) Facilitates Letter of Credit LC payments/Letter of Short Credit

(LSC) payments through bank to foreign and domestic vendors

b) Verification and accounting of vendor invoices after makingcontractual deductions

c) Statutory deductions from vendor invoices

d) Refund of Tender Fees (TF), Earnest Money Deposit (EMD) & SD

Period-end activities consisting of accounting for materials in

transit, revaluation of liabilities in foreign exchange and GR/IR &

SR/IR account clearing.

Objectives


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Core to core can also be used as a mode of payment wherein both

parties have an account with the same bank.

Asset AccountingOverview

This section deals with policies, procedures, controls, roles

and responsibilities related to fixed asset accounting. Fixed

assets capitalized in the books of ONGC are classified into

following broad categories:

a) Land (leasehold and freehold)

b) Buildings and bunk houses

c) Plant & Machinery (P&M)

d) Furniture & Fittings (F&F)

e) Vehicles, survey ships, crew boats and helicopter

f) Railway sidings

g) Software (intangibles)

Fixed asset accounting is facilitated by Fixed Assets (FA)

module in SAP wherein different asset class have been

defined based on broader categories of asset like production

installations, buildings etc. For capitalization of any asset; an

asset master is created in FA module. Each asset has a

unique number assigned to it. Asset master has a General

Ledger (GL) account assignment based on the asset class for

posting of asset value to GL. For each capital item, a census

class has been created in SAP that is mandatory for

assigning a depreciation key to the asset. Depreciation key

determines the rate at which asset is depreciated. For

controlling purposes, indentor-wise asset details are

maintained in FA module.

Objectives

- All additions to/ deletions from/ movement of FA are

properly recorded in the books of accounts.


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- Depreciation is charged to Profit & Loss (P&L)

account/capitalized in accordance with the accounting policy

of the Company.

-

Fixed assets capitalized in the books of accounts actuallyexist on the reporting date.

- Intangibles are capitalized and amortized in accordance with

the accounting policy of the Company.

Financial concurrence

Overview

Financial concurrence is an endorsement of proposals initiated priorto approval of Competent Purchasing Authority (CPA). Financial

concurrence is required to be obtained for procurement of material

or procurement of a service or for any other kind of expenditure

(including capital expenditure).

Financial concurrence facilitates achievement of transparency in

decision making for procurement within the Company which is

subject to government audits; Central Vigilance Commission

(CVC) reviews etc.To help ensure judicious use of resources, the concurring officer is

responsible for ensuring financial prudence during procurement by

checking the requirement of the material or service, sufficient funds

availability for the same, etc. The whole process of financial

concurrence is recorded in a file for reference where complete

documentation for all cases is maintained. Also, all correspondence

between approving authority and concurring authority during the

financial concurrence process is maintained on the file. Preparationand maintenance of this file helps resolve disagreements at a later

date, if any. After the concurring officer in Finance & Accounts

(F&A) section releases the PR in SAP, CPA as per BDP finally

approves the PR.

Objectives


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The objective of financial concurrence is to protect financial

interests in decision making while ensuring financial propriety as

a part of internal control system. The internal control is exercised

through concurrence by F&A section so that decision making is in

accordance with the policies, guidelines, rules, regulations, and

provision of budgets, hence ensuring prudent decision making in

the interest of the Company.

2.6 Issues or problems at ONGC

1) ONGC being a PSU, the control of government of India is more.

2) Delay in decision making since the approval procedure is done through the GOI

3) Since ONGC being forced to concentrate on E & P, GOI has not give it a right

to market its project. IOC does the marketing for crude oil and GAIL for natural

gas. Hence ONGC cannot diversify.

Chapter 3


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3.0 Financial Data Analysis from 2004-2008

3.1 Balance Sheet

Liabilities 2008 2007 2006 2005 2004

Share

Capital21,388.87 21,388.87 14,259.30 14,259.28 14,259.27

Reserves

& Surplus684,785.12 597,850.39 525,337.39 454,194.87 391,171.66

Net

Worth (1)706,173.99 619,239.26 539,596.69 468,454.15 405,430.93

SecuredLoans (2)

0.00 0.00 0.00 0.00 0.00

Unsecure

d Loans (3)124,827.09 151,090.66 127,226.11 99,162.19 114,077.94

Total

Liabilities

(1+2+3)

831,001.08 770,329.92 666,822.80 567,616.34 519,508.87

Assets 2008 2007 2006 2005 2004

Fixed Assets

Gross Block 574,637.76 520,380.67 478,823.45 429,838.49 410,076.23


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It is a performance measure, which is used to evaluate the efficiency of an

investment or to compare the efficiency of a number of different investments.

To calculate ROI, the benefit (return) of an investment is divided by the cost of

the investment; the result is expressed in percentage or in ratio. The above,

graph indicates that the ROI has increased from 32.31 % to 35.78% during the

year 2008. This shows that if you invest Rs.100/- in the business you will earn

Rs 135.78 i.e a return of 135.78 %.

Debt- Equity Ratio


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Debt equity ratio is a measure of a companys financial leverage calculated

by dividing its total liabilities by stockholders' equity. It indicates what

proportion of equity and debt the company is using to finance its assets. Theabove graph indicates that the debt/equity ratio has declined substantially

from 0.28% to 0.18% in 2008 i.e. if you invest Rs.100/- in the business, the

proportion of borrowed fund and owned fund would be Rs 18/- is borrowed

fund and Rs.82/- is owned.


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2004 2005 2006 2007 2008

49.51% 49.47%

56.15%

50.96%

53.04%

Sales

The profit earned from a firm's normal core business operations. This value

does not include any profit earned from the firm's investments (such as

earnings from firms in which the company has partial interest) and the

effects of interest and taxes. The operating profit ratio has increased from

49% in 2004 to 53% in 2008.


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Gross Profit

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

2004 2005 2006 2007 2008Gross Profit 42.99% 43.69% 48.12% 47% 47.45%

A company's revenue minus its cost of goods sold. Gross profit is a

company's residual profit after selling a product or service and deducting the

cost associated with its production and sale. The above graph indicates that

the profit after bearing the cost has increased from 40% in 2004 to approx

45% in 2008.


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0

50

100

150

200

250

2004 2005 2006 2007 2008

TIMES

Debtor Turnover Ratio

The above graph indicates that the collection period from the debtors has

increased from 110 times in 2004 to 200 times in 2008. Which is a good sign for

the business.


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There were five major steps in the implementation of the

Project:

1. Project Preparation (Design for all Business modules for all Stages

and phases)

2. Business Blueprint (Design for all Business modules for all Stages

and phases)

3. Realization (phase wise)

4. Final Preparation (phase wise)

5. Go-live and Support (phase wise).

The following are the modules implemented in ONGC:

(1) Production and Planning (PP): The primary objective of the PP

module is to track planned and actual costs of production

processing of Crude Oil, Natural Gas and VAP. It facilitates real

time updating of data, helps in calculating actual & standard costs

at any stage in the product cycle, monitors real time production

environment with online availability of Information related to

Materials & Products, as well as customized report generation for

faster decision making.

(2) Plant Maintenance (PM): The PM module provides a system for

the management and maintenance of technical systems including

the cost incurred in the planned and breakdown maintenance. By

being integrated with other modules it gives the cost of eachmaintenance activity. It will also track various audit activities and

their 9 follow up actions in ONGC. New feature, like online

availability of equipment manuals was invoked through LDM

functionality.

(3) Financial Accounting: This module Integrates General Ledger,

Accounts Payable, Accounts Receivable with all the sub ledgers

synchronized with the G/L in an on-line, real-time manner. Theexisting UFSO (KUBER) is a standalone module with only FI


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functions. In ICE FI function is integrated with all the adopted R/3

modules starting from supply to the sales. FI function have been

suitably updated and up linked to this integrated system to

seamlessly interact with all other modules for comprehensive

transaction tracking and reporting facilities in all the areas of

Financial Management System.

(4) Controlling (CO): Controlling (CO) covers the functionalities of

Cost Centre Accounting, Profit Centre Accounting and Product

Costing for wide range of Management reporting. Controlling

features are integrated to the operational modules such as Sales &

Distribution, Material Management, Production Planning, Plant

Maintenance, OLM, Project System and Financial Accounting.

(5) Joint Venture Accounting (JVA): This module is to cover the

Joint Venture activities, starting from Joint operating agreements,

Work Programs, Equity equations, Expenditure, Cash Calls,

Recovery, Billing and Accounting (as operator and non-operator).

(6) Sales & Distribution (SD): SD module comprises of entire Sales

& Distribution activities starting from sales agreements to

delivery and generation & printing of invoice in integrated sales

process for all products of ONGC including scrap and services. It

is integrated with financial accounting for account receivable

management; material management and production planning for

real time stock updating and quality management for 10-quality

analysis and reporting. Fully compliant with Indian taxation

requirement including VAT, it will generate statutory documents,

e.g. Excise invoice and sales registers and maintain audit trail of

transactions through document flow.

(7) Project System (PS): This module encompasses all phases of a

project from Project Conceptualization, Budgeting, planning of

costs and resources and approval of Estimates to Execution,

payment and Completion of the project in an integrated scenario.

Many customized developments have been made in PS module

for Engg. Services, Drilling, Work over, Survey, NELP, Dry-

docking and consultancy/ R&D operations. It enables the treatment


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of a project as an Enterprise with links to other functional modules

and the project can be analyzed in its entirety.

(8) Material Management (MM): This module integrates all

transactions and functions necessary for material requirement planning, procurement, inventory management, invoice

verification, and material valuation. In addition to handling

special stock types for Crude oil and other product materials

transported by pipeline, this will monitor stocks and automatically

generate purchase order proposals for the purchasing department.

Existing IMMS system have been seamlessly updated into this

system. Additional feature of mapping Service Contracts and

Works has been done in this module.

(9) Quality Management (QM): QM module covers inspection of

procured material, inspection of in-house products, and generation

of Quality certificate for issuing finished products to the

Customers. Among many features, Vendor/Material complaints

processing, quality clearance certificate for incoming material and

for the products, failure analysis etc. shall be available through

this system.

(10) ABAP: The ABAP (Advanced Business Application

Programming) development team provides support to functional

module team pertaining to any new developments, enhancements,

feasibility, data migration etc. in the standard SAP R/3 system so

as to configure as per ONGC's business process pertaining to MIS

reports, strategic decision making reports.

(11) Business Information Warehouse (BW): This module shallgenerate analytical and strategic reports for Business Analysis and

performance tracking including the Corporate Key Performance

Indicators. The inputs will come from all finance and logistics

SAP modules as well as from non-SAP systems like Excel files

also. This would become the single, integrated, MIS System for

ONGC. These reports would be available online and on the web.

ICE, like any ERP implementation, has components of business

process reengineering, optimization of business process, re-


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Chapter 55.0 Asset Accounting procedure Under

Environment of ERP i.e. SAP

The integrated fixed asset accounting module in ERP is used to

manage fixed assets on an inventory basis, regardless of any

industry it is. It enables both a qualitative and quantitative

overview of the available fixed assets. Included in this are all year-end closing evaluations, such as the asset history sheet,

deprecation calculation and transfer of fixed asset in or out of the

company

Accounting policies

Fixed assets

FA is stated at historical cost. FA received as

donations/gifts are capitalized at assessed values with

corresponding credit transferred to Capital Reserve.

All costs relating to acquisition of fixed assets till the

time of commissioning of such assets are capitalized.

Intangibles

Costs incurred on intangible assets, resulting in future

economic benefits are capitalized as intangible assets and

amortized on Written down Value (WDV) method beginning from

the date of capitalization.

Depreciation

Depreciation on FA is provided for under the WDV

method in accordance with the rates specified in Schedule XIV to

the Companies Act, 1956

Depreciation on additions/deletions during the year is

provided on pro-rata basis with reference to the date of


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Fixed assets capitalized in the books of the Company are

classified into land (leasehold and freehold), buildings and

bunkhouses, P&M, F&F, vehicles, survey ships, crew boats,

helicopters, railway sidings and software (as intangibles).

This paragraph explains the processes, by which different

types of fixed assets are capitalized in the books of

accounts:

a) Capitalization of ready to use assets (other than

land).

b) Assets that require installation and/or commissioning

(other than those capitalized through WBS (work

breakdown structure) route in Project Systems (PS) modulein SAP). For example Air conditioning unit.

c) FA capitalized through WBS route in PS module (for

example PP), buildings and other capital projects).

d) Well materials (like casing pipes, tubular, well heads

etc.).

e) Capitalization of land (leasehold and freehold).

f) Intangibles (software).

g) Capitalization of insurance spares.

h) Capitalization of forex fluctuations, if any, on

purchase of capital items.

i) Capitalization of asset fabricated in central

workshop.

j) Creation of new capital item in SAP on firstpurchase.

k) Dry well assets.

Flow Charts

Ready to use assets (excluding land)

Ready to use assets include F&F, vehicles, crew boats,

helicopters and certain P&M that are ready to use. These


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capital items are procured through Purchase Requisition

(PR)/Purchase Order (PO) route and received in main

stores. Capitalization process commences when the

indenter/ requisitioned creates a reservation in the system

for issue of capital item from stores.

Main Store issues material

after receiving signed copy of

reservation & posts goodsissue in SAP

Competent authority createsreservation in SAP for issue of

asset & forwards copy to Main

Store/Site store

SAP Report pendingreservations for assets

reviewed by Asset Accounting

Section

Asset Accounting sectionallots asset number to capital

item in SAP

Asset under installation

Assets that require installation and/or commissioning before they

are ready for use are capitalized through Asset under Installation

(AUI) route. For example air conditioning units. This does not

include fixed assets capitalized through WBS route in PS modulein SAP. This process commences before a Purchase Requisition


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Asset Accounting sectioncreates AUI in SAP &

intimate s AUI number toindent or

Indent or creates PRin SAPwith asset & installation /

commissioning as separateline items

Indent or informs AssetAccounting section to create

AUI in FAmodule

Competent Authority createsreservation in SA P for issue of

asset & forwards it to MainStore /Site store

Indent or intimates Asset Accounting section & provides

details of reservation

Asset Accounting sectionallots asset number to capital

item in SAP

Main Store issue s capital itemafter receiving signed copy of

reservation & posts goodsissue in SAP

Indent or creates SES for

installation /commissioningcharges in SAP

Indenter intimates assetnumbers linked to AUI

numbers to Asset Accountingsection n

Asset A ccounting sectionsettles installation /

commissioning charges tomain asset

Indentor forwardscommissioning note to Asset

Accounting section


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Capitalization of well materials like casing

pipes, tubular etc

There are various materials used for drilling of exploration

or development wells like casing pipes, tubular, well heads,

drill pipes, X-mas tree etc. These materials are capitalized

as P&M and depreciated at 100% (except for well heads &

X-mas tree which are depreciated at 30%). Depreciation on

well materials is initially posted to internal order 1ZZ in

SAP. From the internal order it is finally posted to EWIP or

DWIP as the case may be. Well materials are issued from

stores on a daily basis to WBS element and capitalized as

one single asset at the month end.

Competent authority creates

reservation in SAP & forwards

copy to Main Stores /Site Store

Asset Accounting section

downloads consumption of

well materials in SAP

Main Store issue s well

materials after receiving copyof reservation & posts goods

issue in SAP


creates new asset masters forwell materials used in

exploration & development


passes direct FI entry for

capitali zation of well materials

in SAP


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Indenter creates ATN &

changes status of asset from

FA to FAIT in SAP


reviews pending ATNs ondaily basis & posts transaction

in SAP

Receiving indentor forwards

signed copy of ARN to Asset

Accounting section

Receiving indentor creates

ARN in SAP


reviews report & changesstatus of asset from FAIT to

FA in SAP

Within the same unit (inter indentor transfer)

Indentor wise asset registers are maintained in FA

module and there can be situations where asset in custody

of one indentor is transferred to other indentor within the

same unit. This entails the following under activitiesmentioned below:

a) Change in indentor code in the asset master

b) Updating of CC

c) Reclassification of asset if required.


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Replacement of fixed asset

Replacement of FA would involve discarding of original

asset as a first step and then creation of new asset

Accounting for depreciation/depletion

FA is depreciated whereas PP is depleted based on oil & gas

production and oil & gas equivalent reserve estimates. This

section has been divided into following three sections:

a) Accounting for depreciation on FA

Depreciation is accounted for in books of accounts in accordance

with the following accounting policies:

I. Depreciation on FA is provided for under the WDV method

in accordance with the rates specified in Schedule XIV to the

Companies Act, 1956 except items of P&M used in wells with

100% rate of depreciation and low value items not exceeding INR

Five Thousand that are fully depreciated at the time of addition.

II. Leasehold land is amortized over the lease period.

III. Depreciation on adjustments to FA on account of exchange

difference and price variation is provided for prospectively over

the remaining useful life of such assets.

IV. Depreciation on FA (including support equipment and

facilities) used for exploration and drilling activities and on

facilities is initially capitalized as part of exploration or

development costs.

Depreciation key is defined for each asset in the asset master.

Depreciation key determines the rate of depreciation of the asset.Depreciation on each asset is computed on daily basis in the

system and posted at the time of depreciation run in SAP. There

are certain items for which special rates of depreciation have been

prescribed under Schedule XIV of the Companies Act, 1956 and

the detailed list of these items is available on SAP. Depreciation

run is done on a monthly basis.


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again executes deprun in testmode & generates deprun

report in SAP


verifies report forabnormalities & changes, if

any, are made


executes deprun in update

mode in SAP


posts depreciation in SAP

Asset Accounting sectioninitially executes deprun in

SAP for assets less than equal

to INR Five Thousand

b) Accounting for depletion on PP.

PP are depleted on Unit Of Production method under whichdepletion is calculated on the basis of the number of production or

similar units expected to be obtained from the asset by the

enterprise. For the purpose of depletion computation and posting,

group asset is created corresponding to creation of PP asset in

SAP. Since, PP asset is created separately for expenditure,

depreciation and abandonment cost, corresponding group asset is

also created separately for these three items. A different

depreciation key 70 is assigned to group asset that facilitatesdepletion computation on depreciation run.


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Depletion recomputed by

CA,DDN manually andcommunicated to Asset

Accounting section at units

Asset Accounting section atunits posts the shortfall or

reverse excess depletion, as

unplanned depletion in SAP

Asset Accounting section atunits executes repeat deprun

in SAP for computation &

posting of depletion

Physical verification procedures

Physical verification policy

A separate stock verification team at each location in accordance

with the physical verification policy of the Company conductsphysical verification of FA. Policy specifies the frequency and

criteria for conducting physical verification:

In case of FA, coverage & frequency is based on the classification

of assets into category A, B, C for self verification by indenter

a) Category A includes individual asset with gross book value

greater than INR One Crore. These items are physically verified

annually.

b) Category B includes individual asset with gross book

value between INR Ten Lakh to INR One Crore. These items are

physically verified annually.

c) Category C includes individual asset with gross book

value less than INR Ten Lakh. These are further divided into sub-

categories i.e. C1, C2 and C3 for the purpose of verification.

C1 - Asset with gross book value greater than INR One lac but

less than INR ten Lakh


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C2 - Asset with gross book value greater than INR Fifty Thousand

but less than equal to INR One Lakh.

C3 - Asset with gross book value greater than INR Ten Thousand

but less than equal to INR Fifty ThousandThese items are physically verified every third year.

d) Self verification by indentor includes:

Verification of FA with gross book value less than equal to

INR Ten Thousand that are verified every year and

All F&F items irrespective of their value are verified once in

two years.

Generation of discrepancy report and settlement of

discrepancies

This section describes the process flow for physical verification

including generation of discrepancy reports if any deficit or

surplus is identified and finally settlement of discrepancy.


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Stock verification teamgenerates item wise report of

assets by indentor

Stock verification teamconducts verification &

updates status of each assetin SAP

Indentor forwards proposal for

write off to competentauthority.

Stock verification team

generates discrepancy reportin SAP & forwards a copy to

respective indentor

Indentor obtains approval ofcompetent authority

DeficitSurplus

On approval, indentorforwards a copy of approval

note to stock verification team

& Asset Accounting section

Stock verification teamexecutes BDC in SAP to

update status in asset master

Asset Accounting sectionprocesses approval note in

SAP & removes asset record

On receipt of approval AssetAccounting section posts

adjustment in SAP & creates

the asset


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Findings

The implementation of the Project ICE has resulted in the

following benefits:

Optimization and standardization of re-engineered business

processes to enable integrated information availability;

Availability of single source management information that is

accurate and on time to facilitate decision making;

Elimination of duplication of activities across business processes

by capturing data at source point itself

Facilitate information consolidation at all levels resulting in

decentralization of decision-making leading to better business

governance through the information system;

Availability of information at the right time, at the right place,

thereby, is enhancing managerial effectiveness leading to higherproductivity;

Integrating all business applications like Production and

Planning (PP), Joint Venture Accounting (JVA), Sales &

Distribution (SD) under single ERP platform

Improved responsiveness to changing global market scenario by

adopting new and improved technology solutions;

Improved stakeholder relationship management, providing better

services to the society, shareholders, partners, Government etc;

Integrated Supply Chain Management, optimization of inventory

holding achieving better working capital utilization.

Asset accounting has following advantages done on SAP


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SWOT ANALYSIS OF ONGC

Strengths

Efficient & trained ManpowerSound TechnologyLarge number of crude oil wellsHighest market capitalizationLarge asset structureBig and global business empire

Financial soundnessLeading in oil & gas sectorEffective seismic surveyGood liquidity positionAvailability of geological data

Weakness

Lack of Indian vendors for new technology

Different geographical culture.More Govt. interference

Opportunities

To venture into downstream activities like Marketing of oil inIndia.To spread business global under OVLTo explore alternate energy sources.To make expansion in petrochemicals & value added products

Threats

Continuous decrease in oil & gas resourcesControl of Govt. and PPAC regarding price fixationDecreasing market price of crude oilGovts decision regarding fixation of price band on import ofCrude OilFrequent changes in technology


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ONGC as Per Sachdeva Final

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