oil petrolium

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SYNOPSIS

TOPIC: The Business strategies of Oil sector companies in India.

OBJECTIVE: To determine and analyze the business policies and strategies of the oil

companies in fulfilling the proper supply and distribution for the customers benefit.

RESEARCH METHODOLOGY:

Type of Research: Analytical Research

Method of Data Collection : Secondary Data

Source of Data: Internet, Magazine, Journal and Newspapers.

Internal Guide: Dr.Taruna Gautam.

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INTRODUCTION

The Republic of India (India), the world's sixth largest energy consumer, plans major

energy infrastructure investments to keep up with increasing demand--particularly for

electric power. India also is the world's third-largest producer of coal, and relies on coal

for more than half of its total energy needs.

Background:

India's economic growth is continuing its recovery from a slowdown

that took place in

2002, which was mainly attributable to weak demand for

manufactured exports and the

effects of a drought on agricultural output.

Real growth in the country's gross domestic product (GDP) was 4.0%

for 2002, surging

to 8.2% in 2003 and a projected 6.4% for2004 and 6.2% for 2005 (the

Indian fiscal

year for economic statistics begins on April1.

In addition to strong economic growth, India has made substantial

progress toward a

reduction of political tensions with Pakistan restoring trade and travel

links, and

resuming high-level contacts between the two governments.

After many years of pursuing economic policies based on import

substitution and

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state ownership of key industries, India's government embarked on a

series of economic reforms in the mid-1990s. The reforms included a

relaxation of restrictions on foreign ownership in some sectors, and

privatization of some industrial enterprises. After the most recent

parliamentary elections, which took place in April and May 2004, a new

government led by the Congress party was sworn in under the

leadership of Prime Minister Manmohan Singh.

While the new government has taken some symbolic steps away from

the economic policies of the previous Bharatiya Janata Party (BJP)-led

government, such as abolishing

the Ministry of Disinvestment, the process of economic reforms is

expected to continue,

but possibly at a slower pace. In the energy sector, the largest impact

has been the abandonment of full privatization of the state-owned

petroleum sector while reforms in the electric utilities sector under the

Electricity Act of 2003 are continuing.

India has implemented a series of policy changes since the mid-1990s to encourage

foreign investment. Tariffs on imported capital goods have been lowered, and in some

cases eliminated. Restrictions on foreign ownership have been relaxed, though there has

been discussion of reinstating a few of them in key sectors.

Previously, foreign ownership usually had been limited to a minority

ownership stake. Annual foreign direct investment (FDI) in India has

hovered in the range of $3-$5 billion

over the last several years, compared to roughly $40-$50 billion per

year of FDI in China.

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India has had a longstanding territorial dispute with Pakistan over the

ownership of Kashmir, which has led to a tense relationship between

the two countries since the partition of British India in 1947.

After a large-scale mobilization of military forces along their border

during most of 2002, tensions eased somewhat late in the year, and

both sides pulled back most of their forces

from the border in phased withdrawals during 2003. Further

confidence-building

measures on both sides have taken place since then, and a nuclear

"hotline" between the

two governments is planned. India's rivalry with Pakistan has direct

relevance to the

country's energy sector, as it impedes plans for regional natural gas

and pipelines(i.e, from ran or Central Asia).

Oil:

Oil accounts for about 30% of India's total energy consumption. The

majority of India's roughly 5.4 billion barrels in oil reserves are located

in the Mumbai High,Upper Assam,

Cambay, Krishna- Godavari, and Cauvery basins The offshore Mumbai

High field is by far India's largest producing field with current output of

around 260,000 barrels per day.

India's average oil production level (total liquids) for 2003 was

819,000 bbl/d, of which

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660,000 bbl/d was crude oil. India had net oil imports of over 1.4

million bbl/d in 2003.

Future oil consumption in India is expected to grow rapidly, to 2.8

million bbl/d by 2010 from2.2 million bbl/d in 2003. India is attempting

to limit its dependence on oil imports

somewhat by expanding domestic exploration and production. To this

end, the Indian government is pursuing the New Exploration Licensing

Policy (NELP), first announced in 1997 which permits foreign involment

in exploration an activity long restricted to Indian state-owned firms.

While the initial response to the 1999 tender was disappointing, with

no bids received from the major multinational oil companies (causing

an extension

of the deadline for submission of bids), India proceeded with the

award of 25 oil

exploration blocks in early January 2000. The largest winner in the

bidding round was

India's domestic Reliance Industries, in partnership with independent

Niko Resources of Canada, which received 12 blocks. British

independent Cairn Energy, Russia's Gazprom,

the U.S. firm Mosbacher Energy, and Geopetrol of France were all

awarded single blocks in partnership with Indian firms. India's state-

owned Oil and Natural Gas Corporation(ONGC) was awarded eight

blocks, three of which it will hold in partnership

with other public-sector Indian firms. A second round of bidding, with a

total of 25 blocks offered, concluded in March 2001.

Sixteen of the blocks have been awarded to ONGC, and four blocks to

Hardy Oil of the United Kingdom, in partnership with India's Reliance

Petroleum. The others were either

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awarded to smaller independent firms or failed to receive bids. As with

the first round,

no bids were received from major international oil companies. Bids for

the third round

were received in August 2002, with a total of 27 blocks offered. Awards

under this third round were made in February 2003, with domestic

Indian firms receiving most of the

blocks. Reliance Industries received nine offshore blocks, one adjacent

to the

Krishna-Godavari Basin. ONGC was awarded 13 blocks, five offshore

and eight onshore.

The Gujarat State Petroleum Corporation received one. Blocks offered

during

the fourth round in 2003 received relatively little foreign interest.

Awards for 15 blocks were made in February 2004, with 14 going to

ONGC a one going to Reliance Industries.

A sixth round of bidding opened in August 2004. Low drilling recovery

rates are a major of the oil supply problem for India. Historically,

recovery rates have averaged only around30% in currently producing

Indian oilfields, well below the world average.

It is hoped that allowing foreign investment will bring in technology

that is not

available to Indian state firms, thereby increasing overall recovery

rates. ONGC currently is undertaking a project to increase recovery

rates in the Bombay High offshore field and several others as well,

aiming to boost the overall recovery rate for its production assets from

28% to 40%.

One area which has shown promise is western Rajasthan. Cairn Energy

(UK) has been drilling the area since 2001, and has reported several

successful wells in 2004. The Mangala field has been estimated to

contain as much as 320 million barrels of recoverable reserves, and

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the N-A field has estimated recoverable reserves of 80 million

barrels.Cairn is planning to bring the field into production by 2007, with

an

expected volume of 60,000 to 100,000bbl/d.

In February 2002, BG purchased a 30% stake in the Panna, Mukta, and

Tapti offshore oil and gas fields, which had previously been held by

Enron. A dispute between BG and ONGC which owns a 40% interest in

the fields. over which firm would operate them was resolved in

February 2003 with a "joint operatorship agreement." Reliance

Industries holds the other 30% stake.

Downstream/Refining:

For most of the 1990s, India imported a large quantity of refined

products, lacking the refining capacity to keep up with growing

demand. In 1999, refinery construction allowed India to close the gap.

At the end of 2003, India had a total of 2.1 million bbl/d in refining

capacity, an increase of970,000 bbl/d since 1998. The largest single

addition was Reliance Petroleum's huge

Jamnagar refinery, which began operation in 1999. It has since reached

its full capacity

of 540,000 bbl/d. Jamnagar sells its products through three of the

state-owned firms, and

is in the process of building a retail network of its own, which is

expected to include 2000

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retail outlets by the end of 2005.

Another major downstream infrastructure development is the

construction of pipelines being undertaken by Petronet India, a

company created by an agreement in 1998 between India's state

owned refineries. This construction is expected to add 500,000 bbl/d to

Indias current 325,000 bbl/d capacity for pipeline transportation of

refined products.

Pipelines between refineries and major urban centers are replacing rail

cars as the main mode of transportation in India.

While state firms still control retail gasoline sales, severalmultinationals have entered the Indian lubricants market, which was

deregulated five years ago. Firms such as Shell,

ExxonMobil, and Caltex currently hold over one-third of the market.

While these operations are relatively small, they are seen as allowing

the majors to study th Indian market, establish brand recognition, and

prepare for the eventual deregulation of the

Indian retail petroleum products sector. Still, a requirement that

foreign firms invest at

least $400 million before entering the downstream market has served

to limit their entry

into petroleum products retailing. Shell met this requirement in early

2004, and intends

to open a few retail outlets beginning in 2005.

Industry Restructuring and PriceDeregulation:

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The Indian government officially ended the Administered Pricing

Mechanism (APM) for petroleum product prices in April 2002. Prior to

this deregulation, the Indian government

had tried to offset the effects of price changes in crude oil by

maintaining an Oil Pool Account, which was to build financial reserves

when crude oil prices fell and release them back as increased subsidies

when crude oil prices rose. In practice, though, the April 2002 reforms

have not completely removed government influence on petroleum

product prices. Subsidies have been maintained on some products,

such as kerosene,

which is commonly used as a cooking fuel by low-income households inIndia.

State-owned downstream companies also still must submit proposed

price changes to the

Ministry of Petroleum and Natural Gas for approval. This has, in

practice, limited movements in retail prices in response to fluctuations

in world oil prices.

The previously planned sell off of government stakes in Hindustan

Petroleum (HPCL) and Bharat Petroleum (BPCL) appear unlikely to

move forward in the near future.

The policy of the new Congress-led government is to avoid most

further privatizations

of public companies which are making a profit. The new Congress-led

government has reportedly been considering a restructuring of state

owned assets in the petroleum sector,

which would consolidate IOC, ONGC, HPCL, and BPCL into two

vertically-integrated

major oil companies. No final decision has yet been made on such a

restructuring.

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India is planning to set up a strategic petroleum reserve equal to 15

days of the country's oil consumption. The state-owned refiner Indian

Oil Corporation (IOC) is likely to take

the lead in the central government by means of a tax on petroleum

product sales.

Natural Gas:

Indian consumption of natural gas has risen faster than any other fuel

in recent years. From only 0.6 trillion cubic feet (Tcf) per year in 1995,

natural gas use was nearly 0.9 Tcf in 2002 and is projected to reach

1.2 Tcf in 2010 and 1.6 Tcf in 2015. A major

development in December 2002 was the announcement by RelianceIndustries of its

discovery of a large amount of natural gas in the Krishna-Godavari

Basin offshore

from Andhra Pradesh along India's southeast coast. New reserves from

this find are estimated at about 7 Tcf. Reliance reported another find

offshore from Orissa in June 2004 with estimated reserves of 1 Tcf.

Cairn Energy also reported natural gas finds in late

2002 offshore from Andhra Pradesh as well as Gujarat, which contain

reserves estimated at nearly 2 Tcf. The main market impacts from the

new finds will be on India's east

coast, which currently lacks extensive natural gas infrastructure.

.

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Even with these new reserves, India's domestic natural gas supply is

not likely to keep pace with demand, and the country will have to

import much of its natural gas, either via pipeline or as liquefied

natural gas (LNG). While EIA's current forecast in the International

Energy Outlook 2004 predicts a 4.8% annual growth rate in natural gas

consumption, this reflects a substantial downward revision from

previous forecasts, which had projected consumption of as much as

2.7 Tcf per yearby 2010.Problems with

financing LNG import projects have dimmed some of the previous

prospects for explosive growth in naturalgas consumption in India, and

helped to revive interest in

pipeline import options. Financial problems in the power sector, the

main consumer of natural gas, also have a negative effect.

Most of India's current natural gas production takes place in the

Mumbai High basin and the state of Gujarat. Current projects include

enhancing natural gas production at the Tapti fields in Gujarat and

recovering previously flared natural gas at the Mumbai High oil field.

India is investing heavily in the infrastructure required to support

increased use of natural gas. Gas Authority of India Limited (GAIL), a

government-owned entity, is in

the process of doubling the throughput capacity on its main Hazira-

Bijaipur -Jagdishpur (HBJ) Pipeline. Work on the capacity expansion

began in 2002, and will eventually raise the capacity of the line from

about 1.1 billion cubic feet per day (Bcf/d) to 2.1 Bcf/d.

GAIL also plans a new distribution network in West Bengal and a

pipeline which would connect Calcutta with Chennai. Shell has signed a

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memorandum of understanding with the state government of Uttar

Pradesh in northern India for the development of a

natural gas distribution infrastructure. India's Foreign Investment

Promotion Board (FIPB) had approved 12 prospective LNG import

terminal projects in the mid-to-late-

1990s, but it was never considered likely that all would be built in the

near future, as

their combined capacity would have exceeded even the most

optimistic demand projections. The Indian government froze approvals

of new LNG terminals in 2001, and

payment problems at the Enron-backed Dabhol Power Plant in

Maharashtra led many to question the financial viability of some of the

LNG import projects. Reforms currently

being undertaken in the electric power sector may eventually change

this situation.

The largest state sector projects are to be conducted by Petronet, a

joint venture between ONGC, IOC, the Gas Authority of India Ltd.

(GAIL), the National Thermal Power

Corporation (NTPC), and Gaz de France. Each of the state firms owns a

12.5% stake,

the Gujarat state government owns a 5% stake, and the rest is owned

by private investors,

including a 10% stake held by Gaz de France Petronet plans two import

terminals, one at

Dahej and the other at Cochin. The import terminal at Dahej began

operation earlier this year, receiving India's first cargo of LNG on

January 30, 2004.

The Dahej terminal had major advantages over some of the other

proposed projects, because it is tied in with the main state-owned

natural gas company, GAIL, and the existing HBJ pipeline network.

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Petronet is scheduled to start construction on its second terminal, at

Kochi in Kerala state,in late 2005.Shell also has began construction of

its LNG import terminal at Hazira in Gujarat, and has contracted for

LNG supplies from Oman.

The facility is scheduled to begin operation in November 2004. Like the

Petronet Dahej terminal, it is to be linked into existing natural gas

pipelines.

The Dabhol LNG terminal was nearly finished at the time construction

was halted in June 2001, and it will likely be completed eventually,

since construction was about 90%

completed. Two American firms involved in the project, General

Electric and Bechtel,

purchased Enron's 65% stake in the project. At present, international

arbitration is still pending over the financial terms of the project,

mainly involving the government guarantees, and it is unclear when

work on completing the facility will begin.

In the wake of the problems with Dabhol, firms backing several other

LNG projects pulled out of India in the second half of 2001. Dhaksin

Bharat Energy, a consortium including CMS Energy and Unocal, also

announced the cancellation of its planned

LNG project at Ennore. Total has suspended further action on its

planned LNG import

terminal at Trombay. These LNG projects were cancelled largely in

response to the Indian government's decision not to extend sovereign

payment guarantees to power

projects which were to have been among the import terminals largest

customers. Another proposed project in Andhra Pradesh on India's east

coast may be jeopardized by

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cheaper natural gas supplies which will become available once

Reliance Industries new

offshore finds are developed.

The BP-led consortium backing the project has switched the proposed

location from Kakinada to Krishnapatnam, about 250 miles to the

south.

Aside from LNG imports, imports of natural gas by pipeline may

eventually play a role in satisfying India's gas needs. One possibility

would supply India with natural gas from Irans huge South Pars field

via a pipeline, either subsea or through Pakistan. Iran has

discussed the proposal with India and Pakistan. Australia's Broken HillProprietary (BHP) is the main foreign backer of the idea. An offshore

route bypassing Pakistan also has been studied. Pakistan had said in

early 2001 that it would allow supplies to cross its

territory, and Iran would bear the contractual responsibility for assuring

gas supplies to India. With the thaw in India-Pakistan relations over

the last year, the idea is again gaining some interest.

Supplies of LNG from Iran might also be an option in the future, and

IOC has opened

discussions with the National Iranian Oil Company (NIOC) on a possible

LNG export deal.

Another possible import route would link the natural gas reserves of

Bangladesh into the Indian gas grid. Current proven reserves of natural

gas in Bangladesh are at least 14 Tcf,

but the foreign firms involved in natural gas exploration in Bangladesh,

which includes

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Unocal, believe that reserves are higher. Shell, which backs exports to

India, has estimated Bangladeshi natural gas reserves at 38 Tcf, and a

study by the U.S. Geological

Survey put the country's probable reserves at 32 Tcf.

Bangladesh has been reluctant to approve exports to India, however,

until all questions about reserves and its domestic supply have been

resolved. After years of delays, Unocol

effectivelyshelved the project in March 2004.

Finally, a new natural gas find in Burma also has attracted interest as a

potential source of supply for India. Indian companies ONGC and GAIL

own a total of 30% equity in the

reserves, and Bangladeshi officials stated in June 2004 that they would

be willing to consider a pipeline running across Bangladeshi territory

from Burma to West Bengal in India, provided agreement could be

reached on terms and transit fees.

India's government has been considering reforms in its natural gas

pricing mechanism, which is currently set by the government.

Deregulation has been delayed several times,

and buyers of natural gas from private sources such as the LNG

terminal at Dahej pay

prices much higher than those purchasing from the state-owned

suppliers. With the shortage of natural gas and willingness of some

consumers to pay more, deregulation

would likely lead to higher prices if implemented.

Petroleum and Energy overview:

Energy-Related Ministries:

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CoalManmohan Singh (held by Prime Minister)

Petroleum and Natural GasMani Shankar Aiyar;

Electric PowerP.M. Sayeed

Proven Oil Reserves (1/1/04E): 5.4 billion barrels

Oil Production (2003E): 819,000 barrels per day (bbl/d), of which 660,000 bbl/d was

crude oil

Oil Consumption (2003E): 2.2 million bbl/d

Net Oil Imports (2003E): 1.4 million bbl/d

Crude Oil Refining Capacity (1/1/04E): 2.1 million bbl/d

Natural Gas Reserves (1/1/04E): 30.1 trillion cubic feet (Tcf)

Natural Gas Production (2002E): 883 BcfNatural Gas Consumption (2002E): 883 Bcf

Recoverable Coal Reserves (2001E): 93.0 billion short tons

Coal Production (2002E): 393 million short tons (Mmst)

Coal Consumption (2002E): 421 Mmst

Net Coal Imports (2002E): 28 Mmst

Petroleum and Energy Industry:

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Organization:

Petroleum - Oil and Natural Gas Corporation (ONGC), Oil India Ltd.

(OIL), Indian

Oil Corporation (IOC); Bharat Petroleum Company Ltd (BPCL) and

Hindustan Petroleum Company Ltd.

Natural Gas- Gas Authority of India Limited (GAIL)

Coal - Coal India Limited (CIL)

Electric Power- National Thermal Power Corporation (NTPC), National

Hydroelectric Power Corporation, State Electricity Boards.

Major Oil Terminals: Bombay, Cochin, Haldia, Kandla, Madras, Vizag

Major Oil Refineries (1/1/04 capacity): Reliance-Jamnagar ,540,000 bbl/d, Koyali-Gujarat,185,100 bbl/d; Mangalore, 180,000 bbl/d,

Mathura-Uttar Pradesh, 156,000 bbl/d; Mahul-Bombay(Bharat

Petroleum), 120,000 bbl/d; Madras, 130,660 bbl/d, Mahul-Bombay

(Hindustan Petroleum),111,700 bbl/d

Major Pipelines:

Oil--Salaya-New Delhi, Barauni-Digboi, Kandla-Bhatindu (products).

NaturalGas--Hazira-Bijapur-Jagdishpur (HBJ).

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Global Oil hunt in India:

For the past five years, ever since it was set up, ONGC Videsh Ltd (OVL) has been

slugging it out with its Chinese counterparts, bidding for equity in oilfields abroad.

Not very successfully, admittedly, with China National Offshore Oil Corporation

(CNOOC) and China National Petroleum Corporation (CNPC) snatching up the best

fields and deals almost every time.

But now, Indian delegations have visited China, exploring areas where information,

research findings and strategies can be shared. India's Petroleum and Natural Gas

Minister Mani Shankar Aiyar's visit to Beijing next month is likely to result in an

overarching agreement of cooperation in the energy sector, with at least four or five

memoranda of understanding being signed between Indian and Chinese companies.

2006 will be the year of friendship between India and China, based on the five principles

of cooperation," emphasises the minister, referring to the panchsheel agreement between

the two countries.

Clearly, the rules of the game have changed. Why? The short answer lies in another

catchphrase: energy security. Both countries consume far more oil than they produce,leaving them heavily dependent on imports.

According to Petrol World, at present, China imports over 30 per cent of its oil supplies,

consuming 5.46 mi llion barrels a day (mbd); that's 7 per cent of world demand. India

imports a frightening 75 per cent of its oil, using up 2 mbd.

Figures from the International Energy Agency place world oil demand in 2030 at 121.3

mbd, with China and India accounting for 12 per cent and 5.6 per cent, respectively. By

then, it predicts, India's oil import dependency will climb to 94 per cent.

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Meanwhile, oil prices have been on the up and up, too: from $34.69 a barrel in October

1990 (source: www.petroleumbazaar.com), to an all-time high of $70 a barrel (September

2005), to just over $57 on December 1, 2005.

In its April 2005 issue, the McKinsey Quarterly warned grimly: "Asia has limited

strategic reserves which can soften the impact on prices in the event of a sudden supply

shortage."

How are India and China responding to their common problem?

Given how this story has been explained so far with buzzwords, allow us one more for

the answer - increasing resource nationalism.

In plain English, that means both countries are trying to gain as much control as possible

over the source of the scarce resource, oil. But the gameplans of both countries have been

hugely different - although that looks set to change now.

"One is a hungry dragon and the other, a dancing elephant," says an industry observer.

"China has gone more aggressively in terms of pricing and risk-taking," agrees Subir

Raha, chairman and managing director, ONGC (the parent company of OVL) and OVL.

Money matters:

Both countries started their global conquest at different times. China began looking

outward back in the 1990s, a decade before OVL, and according to energy sector

analysts, has acquired 60 million metric tonnes (mmt) of crude through overseas

investments. The corresponding figure for OVL in 2004-05: 5.07 mmt.

According to the petroleum ministry, OVL has a target to acquire 20 mmt of oil and oil

equivalent gas a year by 2010 - a fraction of what China's decade-old headstart hasproduced.

That's because you get what you pay for. "China is like a European family on holiday in

India. It can afford to splurge," says Abhay Mehta, a Mumbai-based energy expert.

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"India's plight is that of a middle class family out on a picnic to Europe; it has to make do

within its tiny budget." The budgets? OVL has an investment commitment of just over $3

billion, compared to China's $35-40 billion. More money helps China muscle its way into

any deal - sometimes even after it's been struck.

Consider the Petrokazakh (the third largest oil field in Kazakhstan) sale in August 2005.

Aiyar had then alleged that India's $ 3.98 billion bid was the highest when bids closed on

Friday, August 19. But when the announcement was made before offices opened after the

weekend - on a Monday - CNPC had revised its bid to $ 4.18 billion and the sale was

announced.

India's lost other deals to China, in the past: EnCana's oilfield in Ecuador; stakes in five

Indonesian oilfields; and an exploration deal in Angola (although that was tied in with aid

- more on that later).

Brand Ambassadors :

Could Shah Rukh Khan and Amitabh Bachchan have helped swing the deal for India?

Bollywood has a huge fan following in the regions where India is pitching for oil -

Central Asia and the Caspian Sea region, and Africa. So much so that, says a senior oil

PSU executive, a proposal is being seriously considered to include these superstars in a

future Indian delegation to these places.

The go-ahead on that is still awaited. Meanwhile, India has roped in celebrity NRI for

future oil deals. OVL's parent ONGC tied up with billionaire steel magnate Lakshmi N

Mittal's. Mittal Investment Sarl in October, to form ONGC Mittal Energy (OMEL) and

ONGC Mittal Energy Services (OMESL).

Both companies have invested $100 million in these ventures. OMEL has already swung

into action: it has bagged a deal with Nigeria to produce an average 650,000 barrels a day

of oil and oil equivalent gas over 25 years, from deepwater exploration blocks to be

allocated by the Nigerian government.

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"The Nigerian deal is a healthy mix between a private organisation - which brings

nimbleness with it - and a PSU, which brings national interest and expertise" says Arvind

Mahajan, partner, IBM Business Consulting Services.

State support:

The bigger West Asian oilfields were cornered years ago by the Western oil giants. That's

left India and China scrambling for a piece of the action in the Caspian Sea, West Africa

and Central Asia. Unfortunately, these regions aren't exactly known for their political

stability, which makes business here fraught with uncertainty.

That's where, more than the company's clout, it is the country's power that matters. "The

Nigeria deal happened mostly because of government to government influence," points

out IBM's Mahajan.

For its part, China certainly protects its own. In 2004, when the United Nations toyed

with imposing restrictions on Sudan for human-rights abuse, China - a permanent

member of the UN security council - threatened to veto the sanctions. It had a powerful

reason: China has invested $15 billion in Sudanese oil projects and the country supplies

about 7 per cent of China's oil imports (source: Time).

"The bids put in by Chinese companies are strongly backed by their government," agrees

Raha.

That may mean sweetening oil deals with much more than money. In Angola, Shell

wanted to sell its stake to OVL, but China swept the deal by offering aid of about $2

billion for several projects in Angola, while India offered only $200 million for

developing that country's railways."China has used more than pure financial muscle to acquire petroleum interests. It has

also bundled oil investments with several economic and other packages outside the

purview of the oil sector," says Partho Bardhan, head, energy and natural resources,

KPMG.

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Whats ahead?

So, is that the way ahead for India? OVL is a minnow compared to CNOOC and CNPC,

but for a five-year-old, its track record isn't too bad: turnover of Rs 1,081.5 crore and a

presence in 13 countries.

Granted, the size of its acquisitions is small, but consultants believe that may be the

preferred option. "Strategically India should try and buy off smaller oil companies,

instead of just acquiring reserves," advises IBM's Mahajan.

Buying integrated companies will give India access to experience across the entire value

chain, besides bringing it more level with China. After all, that's also the strategy China

follows (not always successfully; witness the recent failed attempt by CNOOC to buy the

US-based Unocal).

Other public sector oil companies like Indian Oil, HPCL and GAIL are also exploring the

possibility of expanding their overseas presence, as are private companies like Reliance

and Videocon. The Indian oil story is only just beginning, say consultants. But the lack of

coordination between themselves and with other players will take its toll, they warn.

That's where the new mantra of cooperation assumes greater importance. Sino-Indian

collaborations in oil have already taken off. There is the Yadavaran gas field in Iran,where OVL has a 20 per cent stake and China has 50 per cent; the estimated production is

300,000 barrels a day. The Sudan Greater Nile Oil Project is also a joint venture between

CNPC (40 per cent equity) and OVL (25 per cent).

Last month was the turn of Al-Furat in Syria, where OVL and CNPC have submitted a

joint bid for Petro-Canada's 38 per cent stake. "India and China are significant players

and will combine scale. When we go out aggressively, the seller is at an advantage," says

Aiyar.

This way, then, seems like a win-win.

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OBJECTIVE OF THE RESEARCH

The objectives of this dissertation project are:

To determine the business strategies and policies of the oil companies.

The oil companies must achieve their business policies within the set time so that

they can give proper supply to the end consumers and withdraw the subsidies that

the companies have been paying for long time.

To provide quality and quick service to the consumers during the high demand

period.

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RESEARCH METHODOLOGY

The research methodology applied here in this project is analytical i.e. it takes into

consideration all the use facts or information already available and analyze these to make

a critical evaluation of the material. The secondary data was collected from different

Magazines, Newspapers, Journals and Internet.

Type of Research : Analytical Research.

Methods of Data Collection : Secondary Data.

Sources of Data : Magazines, Newspapers, Journals and Internet.

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OIL AND NATURAL GAS CORPORATION

Is Asias best Oil & Gas Company, as per a recent survey conducted by US-based

magazine Global Finance. Ranks as the 2nd biggest E&P company (and 1st in terms of

profits), as per the Platts Energy Business Technology (EBT) Survey 2004.

Ranks 24th among Global Energy Companies by Market Capitalization in PFC Energy

50 (December 2004). [ONGC was ranked 17th till March 2004, before the shares prices

dropped marginally for external reason.

Is placed at the top of all Indian Corporates listed in Forbes 400 Global Corporates (rank

133rd) and Financial Times Global 500 (rank 326th), by Market Capitalization.

Is recognized as the Most Valuable Indian Corporate, by Market Capitalization, Net

Worth and Net Profits, in current listings of Economic Times 500 (4th time in a row),

Business Today 500, Business Baron 500 and Business Week.

Has created the highest-ever Market Value-Added (MVA) of Rs. 24,258 Crore and the

fourth-highest Economic Value-Added (EVA) of Rs. 596 Crore, as assessed in the 5th

Business Today-Stern Stewart study (April 2003), ahead of private sector leaders like

Reliance and Infosys. ONGC is the only Public Sector Enterprise to achieve a positive

MV A as well as EVA.

Is targeting to have all its installations (offshore and onshore) accredited (certified) by

March 2005. This will make ONGC the only company in the world in this regard.

Owns and operates more than 11000 kilometers of pipelines in India, including nearly

3200 kilometers of sub-sea pipelines. No other company in India operates even 50 per

cent of this route length. Crossed the landmark of earning Net Profit exceeding

Rs.10,000 Crore, the first to do so among all Indian Corporates, and a remarkable Net

Profit to Revenue ratio of 29.8 per cent. The growth in ONGC's profits is not solely due

to deregulation in crude prices in India, as deregulation has affected all the oil companies,

upstream as well as downstream, but it is only ONGC which has exhibited such a

performance (of doubling turnover and profits).

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ONGC Represents Indias Energy Security:

ONGC has single-handedly scripted Indias hydrocarbon saga by :

Establishing 6 billion tonnes of In-place hydrocarbon reserves with more than 300

discoveries of oil and gas; in fact, 5 out of the 6 producing basins have been discovered

by ONGC: out of these In-place hydrocarbons in domestic acreage, Ultimate Reserves

are 2.1 Billion Metric Tonnes (BMT) of Oil Plus Oil Equivalent Gas (O+OEG).

Cumulatively producing 685 Million Metric Tonnes (MMT) of crude and 375 Billion

Cubic Meters (BCM) of Natural Gas, from 115 fields. Indias Most Valuable Company

With a market capitalization having exceeded Rs 1 trillion, ONGC retains its position as

the most valuable company in India in various listings.

As per 5th Business Today Stern-Stewart study, ONGC was the biggest Wealth Creator

during 1998-2003 (Rs 226.30 billion). It was again the highest wealth creator during

1999-2004, as per Motilal Oswal Securities.

ONGCs mega Public Offer (Indias biggest-ever equity offer worth more than Rs 100

billion was over subscribed 5.88 times.

ONGC is the only Indian company to have earned a Net Profit of over Rs 10,000 crores

(2002-03). The market capitalization of the ONGC group constitutes 8% of the marketcapitalization of BSE.

ONGC added 49.06 MMT of ultimate reserves of O+OEG during 2003-04 (including

overseas acquisitions), maintaining the trend of positive accretion for the third

consecutive year.

ONGCs Pioneering Efforts:

ONGC is the only fullyintegrated petroleum company in India, operating along the

entire hydrocarbon value chain :

Holds largest share (57.2 per cent) of hydrocarbon acreages in India.

Contributes over 84 per cent of Indians oil and gas production.

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Every sixth LPG cylinder comes from ONGC. About one-tenth of Indian refining

capacity.

Created a record of sorts by turning Mangalore Refinery and Petrochemicals Limited

around from being a stretcher case for referral to BIFR to among the BSE Top 30, within

a year.

Owns 23% of Mangalore-Hasan-Bangalore Product Pipeline (MHBPL), connecting

MRPL to the Karnataka hinterland.

Competitive Strength:

All crudes are sweet and most (76%) are light, with sulphur percentage ranging from0.02-0.10, API gravity ranging from 26-46 and hence attracts a premium in the market.

Strong intellectual property base, information, knowledge, skills and experience.

Maximum number of Exploration Licenses, including competitive NELP rounds.

ONGC owns and operates more than 11000 kilometers of pipelines in India, including

nearly 3200 kilometers of sub-sea pipelines. No other company in India operates even 50

per cent of this route length.

Strategic Vision: 2001-2020

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

Doubling reserves (i.e. accreting 6 billion tonnes of O+OEG) by 2020; out of this 4

billion tonnes are targeted from the Deep-waters.

Improving average recovery from 28 per cent to 40 per cent.

Tie-up 20 MMTPA of equity Hydrocarbon from abroad.

The focus of management will be to monetize the assets as well as to assetise the money.

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Sagar Sammriddhi: Biggest Global Deepwater Campaign

ONGC launched Sagar Sammriddhi, the biggest deep-water exploration campaign ever

undertaken by a single operator, anywhere in the world.

Strategic plan to accrete 4 billion tones of reserves by 2020. US$0.75 million per day

investment. Integrated Well Completion approach.

Plans to drill 47 deepwater wells up to water depths of 3 kms.

Leveraging Technology :

To attain the strategic objective of improving the Recovery Factor from 28 per cent to 40

per cent, ONGC has focused on prudent reservoir management as well as effective

implementation of technologies for incremental recovery to maximize production over

the entire life cycle of existing fields

Improved Oil Recovery (IOR) and Enhanced Oil Recovery (EOR) schemes are being

implemented:

In 15 fields including Mumbai offshore. At a total investment exceeding US $2.5 billion.

Yielding incremental 120 MMT of O+OEG over 20 years.

Sourcing Equity Oil Abroad :

ONGC's overseas arm ONGC Videsh Limited (OVL), has laid strong foothold in a

number of lucrative acreages, some of them against stiff competition from international

oil majors.

OVL has so far, acquired 15 properties in 14 foreign countries, and striving to reach out

further. OVLs projects are spread out in Vietnam, Russia, Sudan, Iraq, Iran, Lybia,

Syria, Myanmar, Australia, and Ivory Coast. It is further pursuing Oil and gas exploration

blocks in Algeria, Australia, Indonesia, Nepal, Iran, Russia, UAE and Venezuela.

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Production Sharing Contract in Vietnam for gas field having reserves of 2.04 TCF, with

45 per cent stake in partnership with BP and Petro Vietnam. Gas production has

commenced from January 2003.

20 per cent holding in the Sakhalin1 Production Sharing Agreement. The US $ 1.77

billion investment in Sakhalin offshore field is the single largest foreign investment by

India in any overseas venture and the single largest foreign investment in Russia. It is

scheduled to go on production during 2005-06.

Acquired 25 per cent of equity in the Greater Nile Oil Project in Sudan, the first

producing oil property. ONGC Nile Ganga BV, a wholly-owned subsidiary, has been set

up in the Netherlands to manage this property. Around 3 Million Tonnes of crude oil is

coming to India annually from this project. This is the first time that equity crude of a

group of companies in India is being imported into India for refining by the group.

Discovered a world-class giant gas field Shwe in Block A-1(where OVL has 20 per

cent share) in Myanmar, with estimated recoverable reserve of 4 to 6 trillion cubic feet of

gas.

Besides taking equity in oil & gas blocks and looking for stakes in E&P companies, OVL

is also bagging prospective contracts (like the refinery upgradation and pipeline contracts

in Sudan, awarded to OVL on nomination basis due to its performance in that country),

which will increase ONGCs equity oil basket. ONGCs strategic objective of sourcing

20 million tones of equity oil abroad per year is likely to be fulfilled much before 2020.

In fact, OVL is now eyeing a long-term target of 60 MMT of Oil equivalent per year by

2025.

Going by the investments (Committed: US $ 4.3 billion, and Actual: US $ 2.75 billion),

ONGC is the biggest Indian Multinational Corporation (MNC).

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Frontiers of Technology:

Uses one of the Top Ten virtual Reality Interpretation facilities in the world.

Rolled out ICE, one of the biggest ERP implementation facilities in the world

Best In Class Infrastructure And Facilities

ONGCs success rate is at par with the global norm and is elevating its operations to the

best-in-class level, with the modernization of its fleet of drilling rigs and related

equipment, at an investment of around US $ 400 million.

ONGC has adopted Best-in-class business practices for modernization, expansion and

integration of all Info-com systems with investment of around US $ 125 million.

Onshore

Production Installation: - 225

Pipeline Network (km) :- 7900

Major Offshore Terminals (including CFU, LPG, Gas, Sweetening plants, Storage Tanks):-2

Drilling Rigs: - 75

Work Over rigs: - 66

Seismic Units: - 33

Logging Units: - 35

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Offshore

Well Platforms: - 131

Well-cum-Process Platforms: - 5

Process Platforms: - 28

Drilling/ Jack-up-Rigs: - 18

Pipeline Networks (km):- 3200

Offshore Supply Vessels: - 32

Special Application Vessels: - 4

Financial (2003-04):

Highest-ever dividend paid to shareholders (US$ 930 million)

Practically zero debt Corporate.

Contributed over US $ 20 billion to the exchequer.

The Road Ahead:

ONGC is entering LNG (regasification), Petrochemicals, Power Generation, as well as

Crude & Gas shipping, to have presence along the entire hydrocarbon value-chain. While

remaining focused on its core business of oil & gas E&P, it is also looking at the future

and promoting an applied R&D in alternate fuels (which can be commercially brought to

market). These efforts in integration is basically to exploit the core competency of the

organization knowledge of hydrocarbons, gained over the five decades.

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New Business:

ONGC has also ventured into Coal Bed Methane (CBM) and Underground Coal

Gasification (UCG); CBM production would commence in 2006-07 and UCG in 2008-

09. ONGC is also looking at Gas Hydrates, as it is one possible source that could make

India self-sufficient in energy, on a sustained basis.

Continuing On the Growth Trajectory:

The ONGC Group has doubled its turnover from 5 billion US dollars to 10 billion US

dollars (from Rs 23,238 Crore to Rs 48,368 Crore) in the last 3 years (2001- 2004); and it

aims to go to 50 billion US dollars in the next 5 years. As this implies a commendable

annual growth rate (compounded) of 40-50 per cent, this objective of ONGC, when

realized, would be an outstanding achievement, by any standards.

ONGC Is Now Geared To Meet Its Vision:

To be an Indian Integrated Energy Multinational (PSU); Target: A Turnover of 50 Billion

US dollars in 5 years.

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ONGC in todays context:

ONGC today, is repositioning itself to foster the principle of relational enterprise through

partnerships/ strategic alliances / joint ventures with preferred partners and adopt a

business strategy which relies on company skills and positional assets with focus on core

business. .

The Corporation, both in medium and long term, will continue to access E&P business

both in the domestic and international sectors.

Strive to reach out to opportunities specific related business of downstream sector, core

competence services business, energy and other sectors in general.

Joint Venture Groups:

ONGC has recognized the need to expand its business through profitable ventures related

to petroleum and energy sectors by entering into joint ventures with other Indian and

foreign companies. ONGC-Joint venture group (ONGC-JVG) has been formed to give

impetus to joint venture activities in areas other than E&P.

ONGC-JVG is responsible for identification and developing new business opportunities in

IndiIndian and foreign companies in following areas:

Par participation in downstream projects like refining/ gas processing /LNG/ power projects.

Par participation in construction projects, pipelines, process plants etc.

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LNG Import & Marketing:

A joint venture company, PETRONET LNG LIMITED is in place with ONGC having12.5% equity interest for import and marketing of LNG in India. Other partners in this

venture are IOC, GAIL and BPCL each with 12.5% equity. The remaining 50% equity willll

be offered to strategic partners, financial institutions and public.The Company is planning t t

install two LNG terminals (Dahej in Gujarat and Cochin in Kerala) on western coast of

India with total capacity of 7.5 MMTPA.

The EXPLORATION CONTRACT MONITORING (EXCOM) Group is the exclusive

business face of ONGC for jointly operated oil & gas exploration and production

ventures within India. It is the nodal agency of ONGC for single window E&P business

communication with companies and the government. Its functions include:

Evaluation and negotiations of bids pertaining to exploration acreages and development

of discovered fields under joint venture.

Negotiations, of production sharing contracts (PCS) and joint operation agreements

(JOA) with parties to the contract.

Providing opportunities to companies for assessment of prospectively of Indian basins

and investment decisions through its New Delhi office.

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Strategic / Business Alliances:

Oil and Natural Gas Corporation Ltd. (ONGC) is engaged in E&P activities both in

Onshore and Offshore. The Corporation is now venturing out to new areas i.e.

deepwater exploration and drilling, exploration in frontier basins, marginal field

development, optimization of field evelopment plan field recovery and other allied

areas of service sector. Engagements in these areas will require best-in-class

technology, processes and practices and savvy use of the R&D assets to their fullest

advantage.

ONGC is looking towards companies / service providers established in the industry

for technology transfer and absorption, and technological collaboration and support.

We intend to achieve this objective through alliances and sustained relationship.

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INDIAN OIL CORPORATION LIMITED

Indian Oil Corporation Limited (IOCL) is the

country's largest commercial enterprise, with a

sales turnover of Rs. 1, 30,203 crore (US$ 29.8

billion) and profits of Rs. 7,005 crore (US$ 1,603

million)for fiscal 2003.

Indian Oil is Indias No.1 Company in Fortune's

prestigious listing of the world's 500 largest

corporations, ranked 189 for the year 2004 based on fiscal 2003 performance. It is also

the 19th largest petroleum company in the world.

Indian Oil has also been adjudged No.1 in

petroleum trading among the national oil

companies in the Asia-Pacific region.

India's Flagship National Oil Company

Beginning in 1959 as Indian Oil Company Ltd., Indian Oil Corporation Ltd. was formed

in 1964 with the merger of Indian Refineries Ltd. (Estd. 1958).

As India's flagship national oil company, IndianOil accounts for 56% petroleum products

market share among PSU companies, 42% national refining capacity and 69%

downstream pipeline throughput capacity.

The IndianOil group of companies owns and operates 10 of India's 18 refineries with a

current combined rated capacity of 54.20 million metric tonnes per annum (MMTPA) or

one million barrels per day (bpd). These include two refineries of subsidiary Chennai

Petroleum Corporation Ltd and one of Bongaigaon Refinery and Petrochemicals Limited.

IndianOil owns and operates the countrys largest network of cross-country crude oil and

product pipelines of nearly 8,0000 km, with a combined capacity of 56.85 MMTPA.

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VISION & MISSION:

Vision

A major diversified, transnational, integrated energy company, with national leadership and a

strong environment conscience, playing a national role in oil security& public distribution.

Mission

To achieve international standards of excellence in all aspects of energy and diversified business

with focus on customer

delight through value of products and services, and cost reduction.

To maximise creation of wealth, value and satisfaction for the stakeholders.

To attain leadership in developing, adopting and assimilating state-of- the-art technology for

competitive advantage.

To provide technology and services through sustained Research and Development.

To foster a culture of participation and innovation for employee growth and contribution.

To cultivate high standards of business ethics and Total Quality Management for a strong

corporate identity and brand equity.

To help enrich the quality of life of the community and preserve ecological balance and heritage

through a strong environment conscience.

PERFORMANCE AT A GLANCE:

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PERFORMANCE GRAPHS 2003-04:

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SALES

Product wise For FY 2002-04 (provisional)

PRODUCT 2003-04 2002-03

Figures in TMT

LPG 4036.0 4390.0

NAPHTHA/NGL 4051.0 3646.0

MOTOR SPIRIT (Gasoline / Petrol) 2744.0 2828.0

OTHERS Light Ends (includes Benzene,RPC and CBFS)

17.0 27.0

SUB-TOTAL L.E. 10848.0 10891.0

ATF (Jet Fuel) / JPS 1534.0 1663.0

SKO 5792.0 5634.0

HIGH SPEED DIESEL (Gas Oil) 17528.0 17366.0

LIGHT DIESEL OIL / MLO 910.0 721.0

OTHERS M.D 245.0 205.0

SUB-TOTAL (Middle Distillates) 26009.0 25589.0

LUBES / GREASES 386.0 431.0

FURNACE OIL / LSHS 7203.0 7421.0

BITUMEN 1661.0 2137.0

RPC 159.0 161.0

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OTHERS H.E 196.0 168.0

SUB-TOTAL Heavy Ends 9605.0 10318.0

ALL PRODUCTS 46462.0 46798.0

The above figures include sales of IndianOil and Assam Oil Division.Sales of subsidiaries were as under:

2003-04 2002-03

IBP 3768.8 4164.7

CPCL 607 343.1

BRPL 88.8 82.7

Total 4464.6 4590.5

MARKETING:

THE MARKETING NETWORK

Indian Oils Marketing Network is spread throughout the country with over 22,000 sales

points (the largest in the country). These include petrol / diesel stations, consumer outlets,

lube distributors, SERVO SHOPS, SKO/LDO dealers, LPG distributors, etc. The

Regional offices look after the North, East, West and Southern Regions of India, and

Assam Oil Division supplements operations in the NorthEast. A number of State Level,Divisional and Indane Area offices have been established in each Region.

Petroleum products are essential inputs to the industrial, transportation, commercial and

household sectors. Our marketing share is about 53.2% among oil Public Sector

UndertakingsinIndia.The extensive network of sales points is made of:

UnitNumber /

Quantity

Divisional Offices 44

LPG Area Offices 35

State Offices 15

Terminals and Depots 162

Aviation Fuel Stations 94

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Total Product Tankage 68.74 Lakh kl.

LPG (Indane) Bottling Plants 87

LPG Bottling Capacity3674 Tonnes

p.a.

Petrol / Diesel Stations 9138

SKO/LDO Dealers 3521

Indane Distributors 4350

SERVO Stockists 204

Bulk Consumer Outlets 4858

The Marketing Mantra for IndianOil is to continuously provide the best products and

services at the most reasonable cost. The "New Look" petrol / diesel service stations

selectively have "ConveniO" shopping stores, snap services, quick Lube change,

automatic car wash and multi-product dispensing pumps. To facilitate

easy transaction, many of our stations accept major credit cards. In fact,

IndianOil and Citibankhave launched a special co-brand card, the

"IndianOil Citibank Card" which is not only accepted at IndianOil

petrol stations but at many restaurants, shops, airlines, etc. Also,

IndianOil's tie-up with Coca-Cola ensures that selects petrol stations

stock and dispenses "Coke" - thus quenching the thirst of the vehicles

and the motorists!

A new concept of "Jubilee Retail Outlets" has also been launched to set up petrol /

diesel stations on highways with comprehensive value added facilities for various

customer segments, namely truckers, farmers, tourists and passenger transport. These

include motels, restaurants, parking lots, weighbridges, sale of tyres, batteries, acessories,

agricultural machinery repairs and recreational facilities provided selectively. The first

such retail outlet was commissioned at Ongole, District Prakasam, Andhra Pradesh in

August 1998.

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IndianOil's "INDANE LPG" is being marketed in as many as 2064 towns with a

customer population of 349 lakh served by a network of 4120 distributors - one of the

largest networks in the world.

SERVO lubricant range is the largest selling lubricant brand in India. IndianOil's

Aviation Service continues to be the market leader in the aviation fuel business with a

market share of nearly 67.7%. IndianOil was the first to introduce Hydrant Refueling

System in India. IndianOil is also bunkering all types of marine fuels and lubricants

required by the Shipping Industry in India.

THE MARKETING SERVICES:

Technical Services

Marketing Planning, Coordination, Scheduling & Facilities

Planning

Concept to Commissioning of Modern Automated Terminals

with State-of-the-art Technology

Designing of State-of-the-art Retail Outlets

Setting Up of LPG Bottling Plants

Development of State-of-the-art LPG Import Storage Facilities and Mobile LPG

Marketing Unit

Design of Mounted Storage at LPG Bottling Plants

Development of LPG Import and Storage Facilities with Refrigeration System, Mounted

Pressure Vessels fully Automated for Receipt, Storage and Despatches, On-line Blending

of Propane and Butane, Automated Sprinkler Systems and Foam Generation

Up gradation of Lube Blending plants

Technical assistance in aviation refueling and construction of hydrant refueling system

Supply of Indair package for aviation operation documentation

Pre-sales and post sales technical services in lubes and fuel

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Lubrication survey for new equipment, plants and energy audit

Assistance in obtaining ISO 9002 accreditation

Operation And Maintenance

Operation of Storage Terminals and Depots for Receipt, Storage and Distribution of

Petroleum Products

Stock Loss Management

Tanker Operations

Transport Management

Safety Aspects

Bunker Operation

Techno-Economic Feasibility / Special Studies

Up gradation / Automation of Existing Oil Terminals

Setting Up and Operation of Hydrant Refueling System

Setting Up and Operation of Lube Blending Plants

Setting Up and Operation of Marketing Terminals

Lubrication Survey for Recommending Lubricants in Existing Plants

Development of New Grades for Specific Applications

Quality Control

Setting Up Quality Control Systems through Manualised Procedures

Provide Testing Facilities for Quality Assessment and Customers Confidence

Shipping and Commercial

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Import and Export of Petroleum Products

Handling of Import / Export Tankers and Upliftments / Loading

Lighter age Operation of Import of C&F Cargoes in Addition to FOB Cargoes

Virtual Jetty Projects

RECOGNITION:

Fortune RankingAs per Fortunes Global 500 listing of the worlds largest Corporations for the year

2004 :

Ranking improved to 189, based on fiscal 2003 performance, from 191 in the previous

year and 226 the year before.

Ranked 144 among the Global 500 in terms of profits.

Among the 32 petroleum companies in the 'Global 500'

19th largest company.

16th in terms of profits.

14th in terms of profits as percentage of revenues (6%).

5th in terms of profits as percentage of assets (12%).

No. 1 Company in Oil Trading in Asia Pacific Region

IndianOil emerged as the top company in oil trading amongst national oil companies in

the Asia Pacific region, as per the annual survey conducted by Applied Trading Systems

(ATS), Singapore for the year 2003.

In the latest survey, IOC is placed at the top of the list followed by Petronas of

Malaysia, ENOC of United Arab Emirates, KPC of Kuwait and Saudi Petroleum of Saudi

Arabia.

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The survey covered 80 major petroleum trading companies in the Asia Pacific region.

IndianOil among top global stock picks: Deutsche Bank

In a recent oil strategy report, the prestigious Deutsche Bank has chosen IndianOil as

one of the top global stock picks in the oil & gas sector.

IndianOil is also the only Asian company to be featured in the list of top global stocks

by Deutsche Bank.

In the report titled 'Global Oil 2005: Unforgettable Fire', IndianOil has also been

included as one of the top five recommendations of Deutsche Bank for the Indian market

for the year 2005.

GROUP COMPANIES:

Indian Oil Blending Ltd (IOBL)

Indian Oil Blending Ltd (IOBL) is a fully-owned subsidiary of IndianOil,

engaged in the manufacturing of lubricants and greases and catering to the

defense, railways, state transport among others.

During 2001-02, IOBL earned a net profit of US $ 1.40 million on a total income of

US $ 10 million. In the same year, it achieved a production of 3400 barrels per day

(170,00 MT) and a capacity utilisation of 101%.

Lanka IOC Private Limited (LIOC)

LIOC, IndianOils wholly owned subsidiary in Sri Lanka, is the only private oil company

other than the state-owned Ceylon Petroleum Corporation (CPC) that operates retail

petrol stations in Sri Lanka.

It has been incorporated to carry out retail marketing of petroleum products, bulk supply

to industrial consumers, building and operating storage facilities at the Trincomalee Tankfarm, etc., thereby not only providing energy security and supply stability for Sri Lanka

but also upgrading the overall standards of service, particularly in the retail sector.

LIOC is making phased investments to the tune of Rs 172 crore (US $ 100 million) to

provide world-class quality petroleum products and services at the most competitive

prices to the Sri Lankan customers.

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IndianOil Mauritius Ltd.

IndianOil Mauritius Ltd. (IOML) is IndianOils wholly owned subsidiary in

Mauritius. IndianOil is investing US$ 18 million in Mauritius to set up a range of

marketing infrastructure.

A state-of-the-art petroleum storage terminal with 15,500 metric tonnes capacity

has already been commissioned at Mer Rouge to serve as the supply base of petroleum

products. This microprocessor-controlled facility is the first-of-its-kind in Mauritius with

automated product level monitoring, truck loading and computerised access control. As

part of this project, separate import lines for Motor Gasoline (petrol), Gas Oil (Diesel),

Jet Fuel (Aviation Fuel) and Fuel Oil have also been laid.

IndianOil Technologies Limited

IndianOil Technologies Limited (ITL) is a wholly owned subsidiary of Indian Oil

Corporation. ITL is the technology-marketing arm for the entire range of technologies

developed at IndianOils R&D Centre. The Centre, which was set up over three decades

ago, has developed several technologies and technical expertise both in refining and

lubricant sector.

IndianOil has nurtured technology by nurturing human talent. This approach has worked

well since the hydrocarbon sector is both technology and knowledge intensive. As a

result, the Corporation is now in a position to offer a bouquet of technologies, products,

processes and solutions that are aimed at improving performance and profitability.

IBP Co. Limited (IBP)

IBP Co. Limited, a subsidiary of IndianOil, is a stand-alone petroleum marketing

company with exclusive business groups for Petroleum, Explosives and Cryogenics.

As an enduring petroleum retailing company, IBPs marketing efforts are fully focused

on improving its retail market share in petrol and diesel, which has continued to grow and

reached a new high during 2004-05. The Company achieved a growth of 12.3 % in MS

(retail) with a market share of 8.89%, and 12% in HSD (retail) with a market share of

10.7%. The growth is nearly three times the Industry growth.

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Chennai Petroleum Corporation Limited (CPCL)

Chennai Petroleum Corporation Limited (CPCL), a group company of IndianOil, has a

refining capacity of 10.5 Million Metric Tons Per Annum (MMTPA), making it the

largest refinery in South India. The year 2004-05 was a landmark year in the growth of

CPCL.

CPCLs 3MMTPA Refinery Expansion cum Modernization Project, which went on

stream in March04, was completely operationalized and the refining capacity at Manali

now stands at 9.5 MMTPA. The second refinery at Nagapattinam, Tamil Nadu, has a

refining capacity of 1.0 MMTPA.

Bongaigaon Refineries and Petrochemicals Limited (BRPL)

Bongaigaon Refinery & Petrochemicals Ltd. (BRPL) was incorporated on 20th February,

1974 as a Govt. Company fully owned by the Central Government.

The Company was registered with an authorised equity share capital of Rs. 50 crore,

which was subsequently increased to Rs. 200 crore by December 1983. As on

31.03.2005, the total paid up capital of the company stood at Rs. 199.82 crore.

Lubes and Greases:

Automotive Lubricating Oils

Two Stroke Engine Oils For Petrol Engines

SERVO 2T SUPREME

Largest selling, easy mixing, easy starting

Specially designed for two stroke engines

Keeps oil costs low, increases engine life

Proven product under Indian driving conditions

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Use at 2% dosage. Meets API TC - JASO FC level

Recommended For:

All makers of Two Stroke two- and three-wheelers with "petroil" system; new

generation scooters and motorcycles.

Available Packing:

20ml, 40ml and 60ml pouches, 1/2 ltr, 1ltr, and 5 ltr sealed containers and 210 ltr steel

drums.

BAJAJ SERVO GENUINE 2T ZOOM

Exclusively developed for Bajaj vehicles

Easy start and and smooth ride, reduces deposits

Better cleaning and lubricity extends engine life

Higher mileage reduces oil consumption and low smoke

2% dosage, meets API TC, JASO FC levels

Recommended For:

All makers of Two Stroke two- and three-wheelers with "petroil" system; new generation

vehicles with separate oil injection systems.

Available Packing:

40ml and 60ml pouches, 1/2 ltr containers and 210 ltr steel drums.

KINETIC HONDA GENUINE 2T OIL

Approved by Honda

Superior performance compared to conventional 2Toils

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Better cleaning and reduces deposits, reduces smoke

Enhances engine life and gives maximum power output

Meets API TC, JASO FC levels

Recommended For:

Two stroke vehicles with oil injection lubrication system; all makes of two- and three-

wheelers with "Petroil" system.

Available Packing:

1/2 ltr sealed containers and 210 ltr steel drums.

KINETIC SERVO GENUINE 2T ZOOM

Specially formulated for Kinetic mopeds

Easy mixing with petrol, simple starting and better cleaning

Extends engine life

Higher mileage and low oil consumption; low smoke

3% dosage, meets API TC, JASO FC levels

Recommended For:

All makers of Two Stroke two- and three-wheelers with "Petroil" and oil-injection

lubrication system.

Available Packing:

30ml and 60ml pouches, 1/2 ltr sealed containers and 210 ltr steel drums.

Four Stroke Engine Oils For Petrol Engines

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SERVO SUPER MULTIGRADE 20W - 40

All-weather performance oil

Fuel Economy and low oil top up

THE LUBRICANT INDUSTRY

The lube industry market in India is worth Rs 5,500 crore approximately. Though it is

dwarfed by the fuel market (petrol, diesel etc.), nevertheless it comprises a sizeable chunk

of the sales volume. India constitutes the 6 th largest market for lubricating oil world-wide.

The major Indian companies having a strong presence in this lubricating oil market are

Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited

(HPCL), Bharat Petroleum Corporation Limited (BPCL) & Balmer Lawrie & Co. Other

companies like Shell, Castrol & Caltex are crossing swords with the Indian companies for

capturing market share. Exxon Mobil has been a new entrant in the Indian market in the

last 6-7 years & is equally keen on capturing market share. Compared to the average

world consumption of 35 million tonnes per annum & Asia-Pacific region consumptionof 7.5 million tonnes, the Indian lubricating oil industry have an annual demand of 1

million tonnes. Prior to liberalization, the Indian Public Sector Undertakings IOCL,

HPCL, BPCL used to have a market share of more than 90 % of the lubricating oil

market. Among these, IOCL alone used to command a market share of 54 % of the total

90 %. The Government policy of deregulation, followed be the entry of multinationals

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through joint ventures, altered the prevailing scenario. Though the Indian PSUs, led by

IOCL, collectively continued to enjoy the largest market share, the market turned more

volatile.

The lubricant market can be divided into 2 major segments retail & institutional. The

retail category refers to the automotive & other industrial buyers, who buy lubricants

from the retail outlets like roadside filling stations & the lube-shops of the market. The

institutional category refers to the market of the major clients like the Defence, Railways,

State Transport Undertakings, Steel Plants, Power Plants, Chemical, Fertilizers, Heavy

Engineering Industries, industries in the private sector like car makers & shipping

companies. Of these, the largest institutional buyer happens to be the Indian Railways.

Brands of Indian Oil Corporation:

SERVO:

SERVOis India's largest selling lubricant brand. SERVO range of lubricants enjoyapprovals from major Original Equipment Manufacturers (OEMs) including new

generation cars. 9,000 Retail Outlets and a countrywide network ofSERVO SSls and

SSAs Bazaar traders offerSERVOrange of lubricants to customers.The SERVOrange of lubricants is used in almost every application covering automotive,industrial and marine sectors. SERVOrange of lubricants is fast emerging as a GlobalBrand with wide acceptance in UAE, Malaysra, Mauritius, Bangladesh, Bahrain, Sri

Lanka, Nepal, Yemen, Kenya, Kuwait, Burkina Faso, Reunion Islands and other markets.

SERVO has been designated as a SUPERBRAND. SERVO has genuine oil tie ups with

a wide range of companies like Hyundai, Maruti, Bajaj, Lancer. Anil Kumble, the ever

dependable sporting icon is SERVO Brand Ambassador.

Developed exclusively at IndianOil's world-class R&D Centre at Faridabad, there is a

SERVO lubricant for virtually every single application. With over 42% market share and

450 grades, the country's leading SERVO brand lubricants from IndianOil are sold

through over 8,100 IndianOil petrol/diesel stations, over 1,300 SERVO Shops and acountrywide network of bazaar traders.

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INDANE LP GAS:

IndianOil Indane LPGas is used in 40 Million homes as cooking fuel and commands over

48% market share in India. Indane LPGas is marketed through a network of 4350 Indane

distributors. Widely used in commercial sectors like industries, hotels & restaurants,

medical labs, etc. 87 Indane Bottling Plants are spread across the country with a

combined bottling capacity of 3.77 MMTPA. New and convenient 5 kg Indane LPGas

cylinders introduced in rural and hilly regions for wider use by economically weaker

sections. IndianOil's auto LPG brand Autogas is the leader in the segment. Marketed

through a network 48 stations out of an industry total of 103 Auto LPG Dispensing

Stations.

INDIAN OIL AVIATION SERVICE:

Meets complete Aviation Fuel requirements of the Defence Services and for over 75

Domestic and International airlines besides private aircraft operators. IndianOilAviation

Servicess is ISO 9002 certified and entrusted with WIP refueling for national and

overseas dignitaries. IndianOil's prompt, courteous and 'No-Delay' Aviation Fuel Service

has received accolades from major customers. Always on call for providing services in

exigencies of war and peace.

IndianOil Aviation Services has a market share of 65% with a network of 95 Aviation

Fuel Stations (AFS) IndianOil Aviation Services is not only the largest aviation fuel

marketer in the country but also the most preferred supplier of jet fuel for customers in

India and abroad. IndianOil Aviation Services serves over 71 International airlines

besides the domestic airlines in India. From Thiruvananthapuram in the South, to Leh in

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the North. From Porbandar in the West to Ziro in the East.

IndianOil Aviation Services covers India like no one else. In fact, every 1.6 minutes, an

aircraft is being refuelled by IndianOil Aviation Services, somewhere in the country. Italso caters to over 90% demand of the Indian Defence services, besides the sensitive

requirements of WIP flights at all the airports and at remote helipads/helibases across the

Indian subcontinent. IndianOil Aviation Services not only maintains world-class

standards in operations and safety but also conforms to the stringent global quality

requirements of Aviation Fuel storage and handling.

Presently, IndianOil has earned this accreditation for thirteen major Aviation Fuel

Stations including at all international airports. Eleven of the fourteen quality control

laboratories have also earned this accreditation. IndianOil is also the first in India to have

adopted a Quality Control Index System based on a quality audit. Fourteen DGCA

approved IndianOil laboratories spread across the country carry out full specification

tests for Aviation Fuels.

IndianOil's Aviation Services, with 68% market share, meets the fuel and lubricants

needs of domestic and international flag carriers, Defence Services and private aircraft

operators through 93 aviation fuelling stations. Between one sunrise and the next,

IndianOil refuels over 900 aircrafts. In fact, the refueling never stops and neither does our

customer service, which is round the clock. The wings foreign exchange earnings during

the year 2002-03 touched Rs. 898 crore.

AUTO GAS:

Autogas (LPG) has been introduced in Hyderabad, Bangalore and Mumbai markets. This

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alternative fuel is a good business proposition in the long term, and IndianOil intends to

further expand its marketing in a big way.

PREMIUM FUELS:

IndianOil offers XtraPemium Petrol and XtraMile Diesel, which are the best your vehicle

can get. India's first 91 Octane petrol, XtraPremium is reinforced with multifunctional

additives including 'Friction Buster'. Available at nearly 2000 Retail Outlets nationwide.

XtraPremiumoffers :

Super Mileage and Super Pick-up.

Enhances cleaning of engines.

Minimizes exhaust emissions.

Restores peak engine power and acceleration.

Reduces maintenance cost.

XtraMile, IndianOil's new generation High Speed Diesel with world-class additives has

taken a leadership position in the market. Available at nearly 4400 Retail Outlets

nationwide

XtraMileoffers :

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opportunity to translate all your dreams into a reality.

Swagat Highway Flagship Retail Outlets:

To cater the high growth areas of National Highways forming a part of Golden

Quadrilateral and N-S, E-W corridors, IndianOil has launched Flagship Outlets, which

have been branded as Swagat Retail Outlets.

The facilities in the Swagat outlets is designed for, Best Q&Q standards in the industry

through Retail Outlet site and tank truck automation Third party certification through

Bureau Veritas Fortnight sampling thru Quality Audit Officers Training through a

professional agency for the Dealer

Incentives available on fuel purchases in the form of loyalty points redeemable against

fuel/lubes and other rewards.

Non-fueling offering through Best-in-class alliance on exclusive basis wherever

possible (communication, food/rest, healthcare, parking, vehicle care.)

There are 111 such Swagat Flagship ROs planned across the country of which 45

Swagat Flagships have already been commissioned with a complement of fuel and non-

fuel.

XTRA CARE:

The launch of XtraCare was the culmination of a series of plans in retail design, product

and service upgradation, capability training, automation, loyalty programme, retail site

management techniques all benchmarked to global standards. While the industry standard

is to take samples on a quarterly basis, IndianOil has moved several steps ahead by

introducing fortnightly random sampling with specific importance given to RON

(Research Octane Number) sampling which is truly the definitive test for quality and

quantity. The surveillance audits by BV are being done on a more comprehensive basis.

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In another pioneering move, the third party certification, by BV, is also being done, for

the first time, on a range of parameters that include hygiene, service, efficiency of fore

court, allied services and customer satisfaction.

The non-fuel services are being given a major fillip in the IndianOil XtraCare plan with a

wide range of loyalty programme with -XtraRewards, XtraPower and co-branded cards

like IndianOil-Citibank credit cards. The automation project of XtraCare is by far the

most state-of-the-art in the country. The cutting edge technology includes automatic tank

level gauges, temperature sensors, density measurement sensors, back-office server with

DU controls, automatic bill printing facility, customer database, etc.

The Tank Truck automation - Sealed Parcel Delivery System (SPDS) - will also include

electronic locking of TTs carrying loads to these ROs. The real time density sensors and

the sealed parcel delivery system is superior to mere GPS-based tracking systems because

it not only tracks where the Tank Truck is but what is happening to the Tank Truck

consignments. SPDS ensures that the quality of the fuel would be ensured from Supply

point to the Customers.

As a precursor to the IndianOil XtraCare launch, IndianOil had recently introduced the

Platinum Circle and Gold Circle - top of the line, exclusive clubs for high selling retail

outlet dealers. These elite IndianOil dealers have emerged as peer leaders and are an

integral part of the XtraCare dealer sensitisation strategy.

During the year, IndianOil has already introduced modern and dedicated networked

highway outlets with multifarious offerings, under the brand name Swagat which are

IndianOils flagship Retail Outlets. So far over 400 XtraCare ROs have been set up;

around 1500 XtraCare ROs will be ready by end 2006.

Rest and Refreshment Dhaba

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Communications STD/ Fax facilities

Health care Health checkup for STD thru a tie-up with

Gates Foundation

Security Secured Parking Space

Vehicle Care OEM Service Station in alliance with Tata

Motors Limited

C-Store Convenience store thru alliance partners of

choice

HINDUSTAN PETROLEUM CORPORATION LIMITED

The major impact faced by the oil industry was huge rise in the crude oil prices from a

level of around $32 per barrel to $49 per barrel between March 2004 and March 2005.

The trend continued during the current year with the crude oil prices breaching the level

of $70 and even hovering around $60 plus. The government has taken several steps to

compensate the oil companies by revising the product prices, changing the duty structure

as well as implementing schemes for sharing the burden by upstream companies.

Companys physical and financial performance:

The turnover during 2004-05 is Rs 64690 crores as compared to 56333 crores in

2003-04 recording an increase of 14.8%.

The marketing volumes achieved were the highest ever at 20.09 MMT as

compared to 19.53 MMT for the previous year.

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The growth trend in MS/HSD has been successively increasing. It have registered

highest growth rates in industry in MS 4.5% against 3.7% of industry and in HSD

4.5% against 3.6% of industry.

Aviation and lubes business lines have also made distinct impact in terms of value

and growth in the market. In both these business lines HPCL has recorded the

highest growth rates in the industry.

- In ATF it has grown at 48.7% during the year against industry growth of 13.5%.

- In Lubes the growth has been 3.1% against 1.6% of the industry.

Mumbai Refinery and Visakh Refinery together recorded the highest ever

throughput of 13.94 MMT as compared to 13.70 MMT for the previous year.

GRMs of both the refineries have also been the highest ever. Mumbai Refinery

has recorded a GRM of $5.6/bbl and Visakh Refinery $5.06/bbl as against 4.26

&4.61 of last year. The combined margins for the year have gone up to $5.30/bbl

from the earlier of $4.45 /bbl easing the pressures of reduced marketing margins.

The company has registered a gross profit of Rs2382 crores as against Rs3643

crores in 2003-04. The profit after tax was of Rs1277 crores as compared to

Rs1904 crores in the previous year a decline of 33%.

The corporation has borne a total subsidy impact of Rs2533 crores on account of

SKO/LPG and lower marketing margin of Rs 466 crores for the year 2004-05.

Rural Segment:

The number of low cost retail rural outlets during the year for supply of quality diesel

which are called HamaraPumps. This has been improvised asa multipurpose Kisan

Vikas Kendras offering a Single window supply point for the farmers to source their

fuels, seeds and pesticides. Rasoi Ghar the community kitchen has made a deep

impact in the rural market by making LPG available at an affordable price. During the

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year HPCL opened additional Rasoi Ghars all over the country bringing the total to close

to 1400.

Refining:

There are several plans on the anvil for improving the refinery performance such as

improving the capability of refinery to process the low cost high sulfer crudes, production

of value added products such as propylene, xylenes, wax. The production of high value

light distillates LPG has increased by about an average of 20% from earlier levels and

that of motor spirit by 10%.

The new auto-fuel policy announced by the government of India mandated Euro III

norms for eleven major cities with effect from April 2005, requiring changes in petrol

and diesel quality including reduction in sulphur limits. The refineries are currently

implementing the Green Fuel projects at a total cost of around Rs.3500 crores which

when completed would enable them to produce Motor Spirit and high Speed Diesel to

meet the new Euro Specifications. Visakh Refinery and Mumbai refinery are also

Debottlenecking the existing facilities and adding certain new facilities whereby the

crude processing capacities would be enhanced by about 3MMT per annum.The two major product pipeline projects connecting Mundra and Delhi and Loni and

Solapur at an estimated cost of Rs 1960 crores which when completed will enhance the

supply capabilities to meet the consumer demand and reduce the logistic costs. The

company also spends Rs 1400 crores towards upgradation, automation and modernization

of retail outlets and other facilities.

Exploration and Production:

It is collaborating with upstream companies like Oil and ONGC as well as through

building expertise in Prize Petroleum. The company has tasted early success through the

bidding process in NELP IV and V blocks. Similar efforts are on for entry into gas .It

already has a JV company with GAIL and others for marketing CNG in Andhra Pradesh.

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In the downstream of the Grass root refinery project at Bathinda has received a major

fill

oil petrolium

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