Oil and Natural Gas Corporation ltd.

Oil and Natural Gas Corporation (ONGC) is an

Indian Multinational oil and Gas Corporation. Its registered office is now
at New Delhi, India. It is a state-owned enterprise of the Government of India,
under the administrative control of the Ministry of Petroleum and Natural Gas.
It is India's largest oil and gas exploration and production company. It produces
around 70% of India's crude oil (equivalent to around 30% of the country's total
demand) and around 62% of its natural gas.
In a government survey for fiscal year 2016-17, it was ranked as the largest
profit making PSU in India. It is ranked 11th among the Top 250 Global Energy
Companies by Platts.
ONGC was founded on 14 August 1956 by Government of India.It is involved
in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India,
and owns and operates over 11,000 kilometers of pipelines in the country. Its
international subsidiary ONGC Videsh currently has projects in 17 countries.
ONGC has discovered 6 of the 7 commercially producing Indian Basins, in the
last 50 years, adding over 7.1 billion tonnes of In-place Oil & Gas volume of
hydrocarbons in Indian basins. Against a global decline of production from
matured fields, ONGC has maintained production from its brownfields like
Mumbai High, with the help of aggressive investments in various IOR
(Improved Oil Recovery) and EOR (Enhanced Oil Recovery) schemes. ONGC
has many matured fields with a current recovery factor of 25–33%. Its Reserve
Replacement Ratio for between 2005 and 2013, has been more than one. During
FY 2012–13, ONGC had to share the highest ever under-recovery of INR
8993.78 billion (an increase of INR 567.89 million over the previous financial
year) towards the under-recoveries of Oil Marketing Companies
(IOC, BPCL and HPCL).[5] On 1 November 2017, the Union Cabinet approved
ONGC for acquiring majority 51.11% stake in HPCL (Hindustan Petroleum
Corporation Limited). On Jan 30th 2018, Oil & Natural Gas
Corporation acquired the entire 51.11% stake of Hindustan Petroleum
Corporation.
SWOT Analysis of ONGC:
Strengths             

Brand Equity

ONGC has invested in building a strong brand portfolio and has ensured to create

an environment that is conducive to the growth of the Indian economy. It has
played a proactive role in India’s development process and has CSR programs that
have worked on several under-developed regions of the country. It was also the
winner of best employer award and has a reputable image in the Indian as well as
foreign market.

Technology

ONCG ensures quality in its products through automation of activities which has

also helped the company scale up and down its capabilities depending on
the demand conditions. The company has set up EPINET which is alive E&P
information network. ONGC also has 3D reality centers known as the “Third Eye”
for real-time information transformation of offshore and onshore application. The
company has Memorandum of Collaboration (MOC)with seven IITs to undertake
advanced R&D projects.

Focus on Sustainability

ONGC has ensured that it protects and cares for the environment and has an
integrated Health, Safety & Environment (HSE) program has proactively managed
the environment. The company aims to reduce the environmental impact it may
cause due to activities like drilling, exploration, and production by investing in
effective solid waste management, environmental monitoring and reporting, and
environmental management systems.

Strong Dealer Community

ONGC has a strong dealer community by building a culture among the dealers and

distributors by asking them not only to promote the company’s products but also
invest in educating and training the sales team to explain and create the
relationship with the customer and help them extract the maximum benefits out of
the products.
Weaknesses

Competition

Tata Petrodyne which is a subsidiary company of the TATA brand is considered to

be one of the leading Oil and Gas companies with a turnover of around $200
billion. Oil India Limited (OIL) is also considered to be the second highest
hydrocarbon E&P (Exploration & Production) company and has more than 11,000
employees with a business turnover of 35 Billion Dollar.

Bharat Petroleum has major refineries in Cochin and Mumbai and was ranked in
the Fortune 500 companies. These companies have been investing in various R&D
activities and ONGC has to make strategic decisions to stay ahead of the
competition.

Cost of production

In the fiscal year that ended on March 31, 2018, ONGC logged 4000 crore loss on
natural gas output as the government mandated the price for fuel was less than the
average cost of production. The company claims that there is no more profitable
business in natural gas because the cost of the production is very much higher than
the gas prices.

Investment in R&D

The company’s investment in Research and Development is said to be below the

leading players in the industry. Even though ONGC is spending a good amount on
the R&D aspect, however, the company has not been able to compete with the
leading players in the industry when it comes to innovation. The company has
come across as a company that chooses to bring out products that are based on
tested features.

Opportunities

Increasing Fuel Prices

When the oil prices go up that means that the prices of the crude oil go up and for
companies like ONGC which are upstream companies, crude oil is the
final product and thus crude oil can be sold at higher prices.
The government announced a 10% higher price for natural gas at $ 3.36 per million
British thermal unit for 6 months this year that helped the company get significant
profit which would help the company break even after the new gas price.

Research

The company established Gas Hydrate Research & Technology Center (GHRTC).

This center contributes to Government of India’s plan to commercialize Gas
Hydrates as an energy resource. This center by ONGC has been successful in
identifying the gas hydrate reserves in the deep sea of the coasts of India and fresh
reserves are estimated to be 134 trillion cubic feet. Research activities conducted
like this will help the company find better opportunities. 

Threats in the SWOT

Government regulations

There are always threats on the profit of the company by the changing government
regulations. There have been instances where the government has asked ONGC to
help cut petrol and diesel prices. There are instances where it was reported that the
government had asked the company to absorb the rise of crude prices at Rs 1 per
liter. These regulations by the government directly affect the profits of ONGC.

Electric Vehicles

According to International Energy Agency, more efficient fuel technology and

electric vehicles are expected to cut transportation demand for oil by 2040 but it is
also said that the world will face a supply crunch without good investment in new
production. The efficiency of EV and also ride sharing trends is said to reduce oil
consumptions and the demand for oil will grow slower in the next decade.

Fluctuating crude oil prices

The depreciation of rupee even though in small amount is said to be adding to the
rising cost of the oil. The international crude prices jumped 45% in terms of dollar
and the spike was 49% in the rupee. The increment in oil prices will lead to
inflation pressures and will force the RBI to hike the interest rates.
ONGC PESTEL Analysis :
Political Factors that Impact ONGC
 The level of political stability that the country has in recent years.
 The integrity of the politicians and their likelihood to take part in acts of
corruption, as the resulting repercussions may lead to possible
impeachments or resignations of high level government employees.
 The laws that the country enforces, especially with regards to business,
such as contract law, as they dictate what ONGC is and is not allowed to
do. Some countries, for example, prohibit alcohol or have certain
conditions that must be fulfilled, while some government systems have
inefficient amounts of red tape that discourage business.
 Whether or not a company’s intellectual property (IP) is protected. For
example, a country that has no policies for IP protection would mean that
entrepreneurs may find it too risky to invest in ONGC
 The trade barriers that the host country has would protect ONGC;
however, trade barriers that countries with potential trade partners would
harm companies by preventing potential exports.
 A high level of taxation would demotivate companies like ONGC from
maximizing their profits.
 The risk of military invasion by hostile countries may cause divestment
from ventures.
 A low minimum wage would mean higher profits and, thus, higher
chances of survival for ONGC

Economic Factors that Impact ONGC

 The economic system that is currently operational in the sector in
question- whether it is a monopoly, an oligopoly, or something similar to
a perfect competition economic system.
 The rate of GDP growth in the country will affect how fast ONGC is
expected to grow in the near future.
 The interest rates in the country would affect how much individuals are
willing to borrow and invest. Higher rates would result in greater
investments that would mean more growth for ONGC
 However efficiently the financial markets operate also impact how well
ONGC can raise capital at a fair price, keeping in mind the demand and
supply.
 The exchange rate of the country ONGC operates in would impact the
profitability of ONGC, particularly if ONGC engages in international
 trade. The stability of the currency is also important- an unstable currency
discourages international investors.
 A high level of unemployment in the country would mean there is a
greater supply of jobs than demand, meaning people would be willing to
work for a lower wage, which would lower the costs of ONGC

Social Factors that Impact ONGC

 The demographics of the population, meaning their respective ages and
genders, vastly impact whether or not a certain product may be marketed
to them. Makeup is mostly catered to women, so targeting a majority
male population would be less population than targeting a population that
is mostly female.
 The class distribution among the population is of paramount importance:
ONGC would be unable to promote a premium product to the general
public if the majority of the population was a lower class; rather, they
would have to rely on very niche marketing.
 To some extent, the differences in educational background between the
marketers and the target market may make it difficult to relate to and
draw in the target market effectively. ONGC should be very careful not to
lose the connection to the target market's interests and priorities.
 ONGC needs to be fully aware of what level of health standards,
reactions to harassment claims and importance of environmental
protection prevail in the industry as a whole, and thus are expected from
any company as they are seen as the norm.

Technological Factors that Impact ONGC

 The recent technological developments and breakthroughs made by
competitors, as mentioned above. If ONGC encounters a new technology
that is gaining popularity in the industry in question, it is important to
monitor the level of popularity and how quickly it is growing and
disrupting its competitors’ revenues. This would translate to the level of
urgency required to adequately respond to the innovation, either by
matching the technology or finding an innovative alternative.
 How easy, and thus quickly, will the technology be diffused to other
firms in the industry, leading to other firms copying the technological
processes/ features of ONGC
  How much an improvement of technology would improve/ transform
what the product initially offers. If this improvement is drastic, then other
firms in the industry suffer more heavily.
 The impact of the technology on the costs that most companies in the
industry are subject to have the potential to increase or reduce the
resulting profits greatly. If these profits are great in number, they may be
reinvested into the research and development department, where future
technological innovations would further raise the level of profits, and so
on, ensuring sustainable profits over a long period of time.

Environmental Factors that Impact ONGC

 The current weather conditions may significantly impact the ability of
ONGC to manage the transportation of both the resources and the
finished product. This, in turn, would affect the delivery dates of the final
product in the case of, say, an unexpected monsoon.
 Climate change would also render some products useless. For example, in
the case of textiles, in countries where the winter has become very mild
due to Global Warming, warm winter clothes have much less of a market.
 Those companies that produce extremely large amounts of waste may be
required by law to manage their environmental habits. This may include
pollution fines and quotas, which may place a financial strain on ONGC
 If ONGC should (knowingly or unknowingly) contribute to the further
endangerment of an already endangered species may face not only the
consequences from the law but also face a backlash from the general
public who may then boycott ONGC in retaliation.
 While relying, in any percentage, on renewable energy may be expensive,
it often receives support not only from the government but also from its
customer base, who may be willing to pay a premium price for the
products that ONGC may produce.

Legal Factors that Impact ONGC

 Intellectual property laws and other data protection laws are, as
mentioned earlier, in place to protect the ideas and patents of companies
who are only profiting because of that information. If there is a likelihood
that the data is stolen, then ONGC will lose its competitive edge and have
a high chance of failure.
 Discrimination laws are placed by the government to protect the
employees and ensure that everyone in ONGC is treated fairly and given
 the same opportunities, regardless of gender, age, disability, ethnicity,
religion or sexual orientation.
 Health and safety laws were created after witnessing the horrible
conditions that employees were forced to work in during and directly
after the industrial revolution. Implementing the proper regulations may
be expensive, but ONGC has to engage in it, not only due to the law but
also out of ONGC's personal feeling of ethical and social responsibility to
other human beings.

ONGC Porter Five Forces Analysis:

Threat of New Entrants
 The economies of scale is fairly difficult to achieve in the industry in
which ONGC operates. This makes it easier for those producing large
capacitates to have a cost advantage. It also makes production costlier for new
entrants. This makes the threats of new entrants a weaker force.
 The product differentiation is strong within the industry, where firms in
the industry sell differentiated products rather a standardised product.
Customers also look for differentiated products. There is a strong emphasis on
advertising and customer services as well. All of these factors make the threat of
new entrants a weak force within this industry.
 The capital requirements within the industry are high, therefore, making it
difficult for new entrants to set up businesses as high expenditures need to be
incurred. Capital expenditure is also high because of high Research and
Development costs. All of these factors make the threat of new entrants a
weaker force within this industry.

How ONGC can tackle the Threat of New Entrants?

 ONGC can take advantage of the economies of scale it has within the
industry, fighting off new entrants through its cost advantage.
 ONGC can focus on innovation to differentiate its products from that of
new entrants. It can spend on marketing to build strong brand
identification. This will help it retain its customers rather than losing
them to new entrants.

Bargaining Power of Suppliers

 The number of suppliers in the industry in which ONGC operates is a lot
compared to the buyers. This means that the suppliers have less control
 over prices and this makes the bargaining power of suppliers a weak
force.
 The product that these suppliers provide are fairly standardised, less
differentiated and have low switching costs. This makes it easier for
buyers like ONGC to switch suppliers. This makes the bargaining power
of suppliers a weaker force.
 The suppliers do not contend with other products within this industry.
This means that there are no other substitutes for the product other than
the ones that the suppliers provide. This makes the bargaining power of
suppliers a stronger force within the industry.

How ONGC can tackle the Bargaining Power of Suppliers?

 ONGC can purchase raw materials from its suppliers at a low cost. If the
costs or products are not suitable for ONGC, it can then switch its
suppliers because switching costs are low.
 It can have multiple suppliers within its supply chain. For example,
ONGC can have different suppliers for its different geographic locations.
This way it can ensure efficiency within its supply chain.
 As the industry is an important customer for its suppliers, ONGC can
benefit from developing close relationships with its suppliers where both
of them benefit.

Bargaining Power of Buyers

 The number of suppliers in the industry in which ONGC operates is a lot
more than the number of firms producing the products. This means that
the buyers have a few firms to choose from, and therefore, do not have
much control over prices. This makes the bargaining power of buyers a
weaker force within the industry.
 The product differentiation within the industry is high, which means that
the buyers are not able to find alternative firms producing a particular
product. This difficulty in switching makes the bargaining power of
buyers a weaker force within the industry.
 The income of the buyers within the industry is low. This means that
there is pressure to purchase at low prices, making the buyers more price
sensitive. This makes the buying power of buyers a weaker force within
the industry.
How ONGC can tackle the Bargaining Power of Buyers?

 ONGC can focus on innovation and differentiation to attract more buyers.

Product differentiation and quality of products are important to buyers within
the industry, and ONGC can attract a large number of customers by focusing on
these.
 ONGC needs to build a large customer base, as the bargaining power of
buyers is weak. It can do this through marketing efforts aimed at building brand
loyalty.

Threat of Substitute Products or Services

 There are very few substitutes available for the products that are
produced in the industry in which ONGC operates. The very few
substitutes that are available are also produced by low profit earning
industries. This means that there is no ceiling on the maximum profit that
firms can earn in the industry in which ONGC operates. All of these
factors make the threat of substitute products a weaker force within the
industry.
 The very few substitutes available are of high quality but are way more
expensive. Comparatively, firms producing within the industry in which
ONGC operates sell at a lower price than substitutes, with adequate
quality. This means that buyers are less likely to switch to substitute
products. This means that the threat of substitute products is weak within
the industry.

How ONGC can tackle the Threat of Substitute Products?

 ONGC can focus on providing greater quality in its products. As a result,

buyers would choose its products, which provide greater quality at a lower price
as compared to substitute products that provide greater quality but at a higher
price.

Rivalry Among Existing Firms

 The number of competitors in the industry in which ONGC operates are
very few. Most of these are also large in size. This means that firms in the
industry will not make moves without being unnoticed. This makes the rivalry
among existing firms a weaker force within the industry.
 The very few competitors have a large market share. This means that
these will engage in competitive actions to gain position and become market
leaders. This makes the rivalry among existing firms a stronger force within the
industry.
 The industry in which ONGC is growing every year and is expected to
continue to do this for a few years ahead. A positive Industry growth means that
competitors are less likely to engage in completive actions because they do not
need to capture market share from each other. This makes the rivalry among
existing firms a weaker force within the industry.
 The fixed costs are high within the industry in which ONGC operates.
This makes the companies within the industry to push to full capacity. This also
means these companies to reduce their prices when demand slackens. This
makes the rivalry among existing firms a stronger force within the industry.

How ONGC can tackle the Rivalry Among Existing Firms?

 ONGC needs to focus on differentiating its products so that the actions of

competitors will have less effect on its customers that seek its unique
products.
 As the industry is growing, ONGC can focus on new customers rather
than winning the ones from existing companies.
 ONGC can conduct market research to understand the supply-demand
situation within the industry and prevent overproduction.