DECLARATIONI, Sameer Shah, student Of M.M.S. from Pillai’s Institute of Management Studies and Research (PIMSR) hereby declare that the project work, which is undertaken, is an original and authentic work done by me. The contents of this report is based on the information collected by me during my tenure at Oil and Natural Gas Corporation, Mumbai, during the two months of my training period. SIGNATURE OF THE STUDENT ACKNOWLEDGEMENT I am glad to inform that I have successfully completed my summer internship in Oil and Natural Gas Corporation (ONGC) INDIA as a part of our curriculum in Master in Management Studies (M.M.S.) It is rightly said that every end has a new beginning. This project has helped me to gain useful knowledge and I also hope, that the readers will find it useful in their work. I would like to take this opportunity to thank my mentor Mr. Abhay Dongre who helped me in completing this project successfully. I am also thankful to all those especially, my Family as well as my Colleagues for being so kind and co-operative during the course of the project. I am indebted to my college Pillai’s Institute of Management Studies and Research (PIMSR) for giving me such an awesome opportunity. Thank you! Executive Summary Oil And Natural Gas Corporation (ONGC) is a core company in the OIL SECTOR . It holds a large share of hydrocarbon acreages in India. It contributes over 80 per cent of India’s oil and gas production. ONGC posted a net profit of Rs. 167.016 billion, the Highest by any Indian Company. It has a Net worth of Rs. 699 billion and Contributed over Rs. 300 billion to the exchequer. In this project we would be studying following chapters. Chapter 1: - This chapter deals with the overview of the Oil and Gas Industry and ONGC in brief. It also states the objective of the project and the Research Methodology used. Chapter 2: - This chapter deals with the Background, operation of ONGC and it’s subsidiaries. Chapter 3: - In this chapter, analysis of Financial Data is done in order to study the financial stability of the company Chapter 4: - This chapter is based on ERP and SAP implementation. It also deals with project ICE of the company. Chapter 5: - Fixed Asset Accounting under ERP environment is explained in this chapter. It states the function carried out by Asset accounting Department in SAP. It includes the depreciation method, which is also carried out by the company. It also generates important reports, which helps the department to take accurate decisions. 3 2.1 2. Organisation chart Office Chart ONGC Operation Issues or problems Page No. Introduction 1.3 Implementation of SAP 2.2 Financial Data Analysis of ONGC 2.1 Oil and Gas Industry 1.4 Asset Accounting procedure under the Environment of ERP i. SAP Finding and Conclusion Appendix Bibliography 5 6 .2 2.6 Background ONGC Videsh Ltd.5 2.2 ONGC 2. SAP 3.4 2.1 ONGC as a case 2. Research Methodology ONGC as a Case 2. Objectives 2. 1 2 3 4 Financial Data Analysis from 2004-2008 ERP and SAP implementation 4.1 Project ICE Asset Accounting procedure under Environment of ERP i.e.e.Table of Contents Chapter TOPIC 1. with dismantling of Administered Pricing Scheme (APS). So. wef.1 Introduction Oil & Gas Industry Crude oil is the second most important source of energy in India after coal. April 2002. As fuel. since India depends on imports for nearly 70% of its crude requirements. 1. power light & lubricants have a weight age of 14. Further. share of PSU’s in domestic refining capacity is 68% and presence of private sector in distribution is negligible. . But. the oil companies do not enjoy full rights to set the prices.Chapter 1 1. 2. the industry prices have a high impact on inflation. • Background The Oil & Gas industry was a highly regulated industry under the control of Ministry of Petroleum & Natural Gas (MoPNG). The country has less than 1% share in the global crude oil production. But the size of the Indian industry is very small when compared with global levels of production and consumption. Marketing and Distribution). efforts are being made to adjust domestic prices at more frequent intervals with international prices. Crude oil and its products account for about 35% of the energy supply as against nearly 50% by coal. there is long way to go for this Industry. the input prices are volatile.1% in natural gas production. Further. Although.1 1. This is inevitable as the industry is dominated by a collection of public sector companies. Both the upstream (exploration and Production) and downstream (Refining. dependence of other industries on this industry is high as the fuel and freight charges are a critical component of cost for most of the industries. PSUs like ONGC & OIL INDIA LIMITED account for 90% of domestic production of crude oil & natural gas.1.8% in crude oil consumption and 1% in natural gas consumption.23% in the Whole sale Price Index. geophysicists.2 Overview of ONGC Oil and natural gas corporation (ONGC). engineering & technical service providers.1. production engineers. which amply reflects in the performance figures and aspirations of ONGC. financial and human resource experts. . IT professionals VISION To be a world class Oil and Gas Company integrated in energy business with dominant Indian leadership and global presence MISSION World Class Dedicated to excellence by leveraging competitive advantages in R&D and technology with involved people. At ONGC everybody matters. It is this toil. ONGC is the flagship company of India. drilling engineers. reservoir engineers. It is the only fully integrated petroleum company in India. They include geologists. acquisition. petroleum engineers. It holds the largest share (about 57 per cent) of hydrocarbon acreages in India contributes over 78 per cent of India’s oil & gas production and also possesses about one-tenth of India’s refining capacity. formed in 1959. 6 out of the 7 producing basins in the country have been discovered by ONGC. utilization. geochemists. every soul counts.1.000 experienced and technically competent executives mostly scientists and engineers from distinguished Universities / Institutions of India and abroad form t he core of our manpower. and making this possible is a dedicated team of nearly 40. The company has adapted progressive policies in scientific planning.000 professionals who toil round the clock. Over 18. operating along the entire hydrocarbon value chain. is the largest oil exploration company in India and it is the largest Company among all “Nav ratna” PSUs. training and motivation of the team. Imbibe high standards of business ethics and organizational values. Abiding commitment to health. focuses on relational enterprise through: . etc). openness. ONGC today. pipelines. C2C3 plant at Dahej and Hazira) Offshore • Well Platforms: 149 • Well-cum-Process Platforms: 5 • Process Platforms: 27 • Drilling Rigs: 9 • Pipeline Networks (km): 4. Presently. ONGC is involved in exploratory & development drilling in various water depths (including deep sea) and has created an extensive production-related offshore infrastructure (platforms.500 • Offshore Supply Vessels: 30 • Special Application Vessels: 2 • Seismic Vessels: 1 ONGC is primarily an exploration company that has grown to become India’s most valuable PSU on the basis of its performance over an increasingly larger area of business. and mutual concern to make working a stimulating and challenging experience for our people. Strive for customer delight through quality for our people. safety. and environment to enrich quality of community life. ONGC has the following assets: Onshore •Production Installations: 240 • Pipeline Network (km): 17. Foster a culture trust.500 • Drilling Rigs: 70 • Work Over rigs: 60 • Seismic Units: 29 • Logging Units: 32 • Processing Plants: 3 (Uran. power generation (gas-based). Under NELP. This is a step to basically exploit the core competence of the .• • • • Partnerships & strategic alliances Joint ventures with preferred partners Business strategy based on corporate skills and positional assets Opportunity specific diversification ONGC’s principal objective is consolidation of its core business areas that led to the need to expand its business by identifying and developing new business opportunities. out of 44 blocks awarded. petrochemical manufacturing. etc. ONGC has been awarded a total of 85 blocks either in sole-risk basis or in consortium with other companies. ONGC intends to achieve this objective through strategic alliances and sustained relationships.VII. it is also looking at the future and promoting research in the fields of alternate fuels. as well as crude & gas shipping. Out of 162 blocks awarded by the Government under NELP-I to NELP-VI. While remaining focused on its core business (E&P). ONGC’s strategic new ventures cover: • Deep water exploration and drilling • Exploration in frontier basins • Marginal field development • Optimization of field development • Plan field recovery • Other allied areas of service Success in these highly specialized areas would require the best technology. ONGC got 20 blocks. To that extent ONGC is forming profitable joint ventures related to the petroleum and energy sectors with both Indian and foreign companies. processes and practices and the maximum use of R&D. ONGC has also entered new areas such as Liquefied Natural Gas (LNG) re-gasification. 1 ONGC as a case •To study the overview of the company and the functioning of its subsidiaries.2.2. 1.3 ERP and SAP implementation •To Study the Implementation Of SAP •To study the Project ICE of ONGC 1. 1.2 Financial Data Analysis of ONGC • To study the performance of the company. To know how the reports are generated in SAP. • To study the trend analysis of the company in last 5 years (20042008) with the help of financial data. •To get the knowledge about finance and accounts departments in ONGC.2 Objective of the Project 1.e. SAP To understand the transactions of additions / deletions/ movement Of Fixed asset like transfer in and transfer out made in SAP To study the depreciation policies on fixed assets in SAP. which is knowledge of hydrocarbons.organization. • To understand the overall financial stability of the company. gained over five decades.2.2. • • . 1.4 • Asset Accounting procedure under the Environment of ERP i. Source: The data collected from few Internet sites for balance sheet and revenue statement. For studying the procedures of fixed asset accounting under ERP environment i. • Analysing the Revenue Statement and Balance Sheet Analysis of the financial data of the company from 20042008 and applying the ratio analysis techniques to understand the financial stability of the company.1.3 Research Methodology • Analyzing few functions of the organisation and their processes. • To Study the Asset Accounting procedure under ERP environment. • The analysis done would pertain only to present set of years . manuals are provided which state the procedures and processes of accounting. so some of the concepts are explained with general examples. • The confidential data of the company cannot be used in the project. The collection of the data for the study is done through discussion and reference manuals provided. LIMITATIONS OF THE STUDY:. SAP.e. 1 ONGC as a Case Background 1947 – 1960 During the pre-independence period.• It deals only in domestic transactions of the company . The major part of Indian sedimentary basins was deemed to be unfit for development of oil and gas resources. the Assam Oil Company in the northeastern and Attock Oil Company in northwestern part of the undivided India were the only oil companies producing oil in the country. 2. with minimal exploration input. while framing the Industrial Policy Statement of 1948. In 1955. Chapter 2 2. an Oil and Natural Gas Directorate was set up towards the end of 1955. With this objective. it became apparent that it would not be possible for the Directorate with its limited financial and administrative powers as subordinate . private oil companies mainly carried out exploration of hydrocarbon resources of India. Until 1955. the national Government realized the importance oil and gas for rapid industrial development and its strategic role in defence. Consequently. as a subordinate office under the then Ministry of Natural Resources and Scientific Research. the development of petroleum industry in the country was considered to be of utmost necessity. After independence. after the formation of the Oil and Natural Gas Directorate. Government of India decided to develop the oil and natural gas resources in the various regions of the country as part of the Public Sector development. Soon. now known as Mumbai-High. In the inland areas. ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay High. ONGC has been instrumental in transforming the country's limited upstream sector into a large viable playing field. This paved the way for long-term . ONGC was re-organized as a limited Company under the Company's Act. with its activities spread throughout India and significantly in overseas territories. After 1990 The liberalized economic policy. the Government disinvested 2 per cent of its shares through competitive bidding. Indian Oil Corporation (IOC) . adopted by the Government of India in July 1991. sought to deregulate and de-license the core sectors (including petroleum sector) with partial disinvestments of government equity in Public Sector Undertakings and other measures. In October 1959. the Directorate was raised to the status of a commission with enhanced powers. ONGC not only found new resources in Assam but also established new oil province in Cambay basin (Gujarat). As a consequence thereof. along with subsequent discoveries of huge oil and gas fields in Western offshore changed the oil scenario of the country. while adding new petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both inland and offshore). ONGC expanded its equity by another 2 per cent by offering shares to its employees. which enhanced powers of the commission further 1961 – 1990 Since its inception. the Commission was converted into a statutory body by an act of the Indian Parliament. ONGC. So in August 1956. 1956 in February 1994. During March 1999. This discovery.office of the Government.After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil & Natural Gas Corporation Limited in 1993. Subsequently. to function efficiently.the only gas marketing company.a downstream giant and Gas Authority of India Limited (GAIL) . agreed to have cross holding in each other's stock. although it continued to be under the government. 11 per cent. etc FII 74% Indian Oil Corporation Ltd.strategic alliances both for the domestic and overseas business opportunities in the energy value chain. In the year 2002-03. ONGC Videsh Ltd. ONGC has also entered the global field through its subsidiary. S hareholdingpatternason 31st March2009 4% 8% 2% 5% 2% 5% Inidan Promoter (Government) Mutal Funds and UTI Banks. (OVL). ONGC has made major investments in Vietnam. Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment in Vietnam. ONGC diversified into the downstream sector. Gas Authority of India Ltd Indian Public . ONGC will soon be entering into the retailing business. With this. Consequent to this the Government sold off 10 per cent of its share holding in ONGC to IOC and 2.5 per cent to GAIL. Insurance Comapanies. amongst themselves. after taking over MRPL from the A V Birla Group. the Government holding in ONGC came down to 84. Objectives • To support India's energy security • To build balanced portfolio of exploration. Brazil. i. Colombia. Myanmar. Iran. Incorporated as Hydrocarbons India Private Limited on March 5.the flagship national oil company of India. Vietnam. exploration. OVL has a committed overseas investment of over 5 billion US dollars. ONGC’s wholly owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian multinational. OVL. Russia. 1989.2 ONGC VIDESH LTD. Syria. Libya. Nigeria Sao Tome JDZ. over a period of time has grown to become the second-largest E&P . Turkmenistan. development. Venezuela and United Kingdom. Sudan. production.e.2. Congo. with 44 Oil & Gas projects (7 of them producing) in 18 countries. Cuba. Iraq. The primary business of OVL is to prospect for oil and gas acreages abroad including acquisition of oil and gas fields. discovered and producing assets in focus countries • To build a team that excels in performance through assimilation of best practices and technologies • To be at par with the best international oil and gas companies • Be the strongest Indian Player in the international E&P • Build collaborative relations with partners • ONGC Videsh: Accreting hydrocarbon resources abroad ONGC Videsh Limited (OVL) is a wholly owned subsidiary of Oil and Natural Gas Corporation Limited (ONGC) . transportation and export of oil and gas. 1965 and rechristened as ONGC Videsh Limited on June 15. Nigeria. Egypt. OVL’s cumulative investment overseas has crossed USD 7.Company in India both in terms of oil production and oil and gas reserve holdings. • Starting with the exploration and development of the Rostam and Raksh oil fields in Iran and undertaking a service contract in Iraq. OVL produces hydrocarbons from its 7 assets.802 MMT of O+OEG in 2007-08 as against 0.5 billion. Balance 5 projects are in development phase and 25 are in the exploration phase. maintains a combination of producing. in partnership with British Petroleum and PetroVietnam. The success carried on thereafter. a major breakthrough was achieved by OVL in 1992 in Vietnam with the discovery of two major free gas fields.1 billion – the single largest Foreign Direct Investment made by an Indian company at that time. it is committed to the highest standards of Occupational Health. working as operator in 18 projects and joint operator in 2 projects. Vietnam (Block 06. Today. Syria (Al-Furat Project). namely.1). discovered and exploration assets. Colombia (Mansarover Energy Project). adopting a balanced portfolio approach. • While OVL participates and operates in varied environments – both political and geographical. namely LanTay and LanDo. Safety and Environment protection and compliance to all applicable local laws and . Sudan (Greater Nile Oil Project and Block 5A) and Venezuela (San Cristobal Project). • OVL’s international oil and gas operations produced 8. Russia (Sakhalin-I). In 2001. OVL acquired 20% stake in Sakhalin-1 project in the far east of Russia with an investment of over USD 2.252 MMT of O+OEG in 200203. • The company. ENI. improving employment opportunities for nationals.Some of the leading alliance partners of OVL are BP. Petrobras. besides payment of tax revenues to local governments. Ecopetrol.regulations. CNPC. PDVSA. . Norsk Hydro. sports and/or agricultural facilities. Understanding well its Corporate Social Responsibility. Exxon. and providing medical. OVL makes valuable contributions to the communities and economies in which it operates by investing in education and training. 3 Organisation Chart .2. 4 ONGC OFFICES .2. 4 ONGC Operations .2. • Well logs play an indispensable role in the exploration and exploitation of hydrocarbons. Engineering Services was visualized as Provider of Engineering Services to Assets. Mumbai that was established in1970's for planned development of India's oil fields in Western Offshore. location and quantification of hydrocarbon reserves. Facility Renewal/Revamp.4. To adopt best-in-class practices in design and project management.1 Engineering Services Engineering Services has its roots in the erstwhile Engineering & Construction Division. The group comprises of officers drawn from all disciplines to extend project services related to Basic/Detailed Engineering. RIG/OSV Repair. Contract Administration. Maintenance. . Project Management. To track and adopt technological innovations in project implementation to crash time for first oil.4. 2.2 Well logging Role of well logging in E&P industry: • Well logs form the 'eyes' of the Hydrocarbon Exploration & Production industry. • Well logs are also used in monitoring of reserves and physical well conditions in the production stage. Marine Survey and Technology scouting. To gradually reduce the dependence on external consultants. Role of Engineering Services: • • • • To provide specialized service for detailed engineering and management of offshore and onshore construction projects for surface installations.2. • Well logs are used for prediction. Geophysical Services is the overall functional in-charge of these Regional Geophysical Services. Regional Electronics Labs ensures hassle free operations of electronic equipments used in the field operations. At present. Offices of Regional Geophysical Services are established at Baroda. Besides this. Mumbai. Chief. • Well logs provide invaluable information for exploration and production during and after the useful life of the well. INTEG is the interpretation arm of GEOPIC and is equipped with state-ofthe-art hardware and software. there are 32 on-land seismic crews at Jorhat. Kolkata and Dehradun that are headed by Heads of Geophysical Services. The headquarter of Geophysical Services is at Dehradun. Kolkata. Chennai & Dehradun and one marine survey vessel MV Sagar Sandhani stationed at Mumbai. Mumbai) and Regional Computer Centers (RCCs) at Chennai. to diagnose problems and also for repair and maintenance of wells for sustained production & injection. Geophysical Services has six state-of-the-art data processing centres located in different parts of the country viz GEOPIC (Dehradun). Baroda. .3 Geophysical Services As a part of Corporate Rejuvenation Campaign (CRC). Baroda. Jorhat and Kolkata. Processing Operation Units are responsible for processing of the seismic data acquired by the Field Operation Units and the contractual seismic crews. Chennai. 2.4. SPIC (Panvel. Each Regional Geophysical Services consists of Field Operation Units and Regional Electronics Labs (RELs). Field Operation Units look after the seismic data acquisition and are responsible for completion of physical targets and for ensuring / maintaining the quality of data acquired. Jorhat. Geophysical Services came into existence as the nodal agency responsible for acquisition and processing of seismic data that in turn becomes an important source after interpretation to discover the hydrocarbons from the sub-surface strata.• Well logging services are used in facilitating hydrocarbon production. 2. of state-of-the-art telemetry recording units in the field crews Induction of PC based field processing and mobile processing units for in-field monitoring of data quality Induction of state-of-the-art 3D survey design and modeling software Induction of pre-stack time & depth imaging technology in GEOPIC. Some of the recent initiatives / achievements are: • • • • • • Induction of 10 nos. . even exporting. Chennai and On-board MV Sagar Sandhani. Geophysical Services has made significant progress in achieving global standards in data acquisition and processing. naphtha on its own after the failure of the PSU companies in effectively marketing its products. A new 6 streamer dual source seismic survey vessel is likely to be commissioned by early 2006 Induction of time-lapse 3D seismic technology in Balol aera of western Onshore Basin through departmental efforts. only through public sector marketing companies. MV Sagar Sandhani became the first marine survey vessel in the world with on-board pre-stack depth imaging capabilities.4 MARKETING The ONGC has obtained approval from the Centre for marketing aviation turbine fuel (ATF) and refueling at airports and started marketing products in 2006-07.4. especially naphtha. RCC. SPIC. The 1st repeat survey was completed in Dec04 and data is under processing.During the last couple of years. OIL and Natural Gas Corporation Ltd (ONGC) is selling all its value-added products. ONGC has been selling. 5 (ARN) HUMAN RESOURCES HR Strategy • To meet challenging demands of the business environment • Building quality culture and resources • Re-engineering and redeployment for maximizing utilisation of HR potential • To build and upgrade competencies through virtual learning and also opportunities for growth and providing challenges in the job .4.000 crore every year. As a result. the company set up its own marketing cell that carried out independent sale and exports of naphtha for ONGC. leaving the company with no other choice but to export.Value-added products including naphtha. 2. Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Ltd (HPCL). LPG. Following this. According to sources. ONGC is also shelving marketing of natural gas liquid (NGL) or naphtha-equivalent and aromatic naphtha on its own initiative. These products will have to be sold through PSUs despite the sector decontrol as the products continue to attract subsidies. ONGC's product has remained low on the priority list of PSUs trying to push their own stocks. add about Rs 3. Naphtha being a deregulated commodity. kerosene and heavy-cut. ONGC discovered "steep price differences costing almost Rs 200 crore each year because of dependence on IOC and HPCL" when it sold naphtha through these PSUs. ONGC had begun selling naphtha on its own after delays in lifting its product by PSU marketing companies. a Government notification circulated are selling kerosene and liquefied petroleum gas (LPG) to private players.000 crore to ONGC's turnover of about Rs 24. inculcating involvement and exposure to benchmarking in performance. The Company cares for each & every employee and has in-built systems to recognise & reward them periodically.• Re-strengthening mutual faith. Grievance Handling Scheme and Suggestion Scheme. • • • • • • Incentive Schemes to Enhance Productivity Productivity Honorarium Scheme Job Incentive Quarterly Incentive Reserve Establishment Honorarium Roll out of Succession Planning Model for identified key positions . In order to keep its employees motivated the company has incorporated schemes such as Reward and ` Recognition Scheme. vibrant & self-driven team. Motivation plays an important role in HR Development. Role Of HR • • • • Alignment of HR vision with corporate vision Shift from support group to strategic partner in business operations HR as a change agent Enhance productivity and performance by developing employee competency and potential • Developing professional attitude and approach • Developing ‘Global Managers’ for tomorrow to ensure the role of global players A Motivated Team HR policies at ONGC revolve around the basic tenet of creating a highly motivated. trust and respect • Inculcating a spirit of learning & enjoying challenges • Developing Human Resource through virtual learning. providing opportunities for growth. and beyond. ONGC is also into the extraction of coal-bed methane (CBM). high-speed diesel. The Keshav Dev Malaviya Institute of Petroleum Exploration in Dehra Dun. which was established in 1962. KDMIPE deals with the research needs of the various ONGC regions in the areas of basin analysis. Instead of confining itself to exploration for and production of crude oil and gas.6 RESEARCH AND DEVELOPMENT ONGC. the Ain-Zalah oilfield . it will have its own refineries to process crude into petrol. having pioneered the technology in the country. OVL's Tuba field in Iraq. with a view to enhance productivity 2. kerosene. is ONGC's nodal agency for formulating oil and gas production schemes. But its extraction involves a tough.4. India's most valuable and profit-making corporate today. geosciences and developing alternative sources of energy. India is estimated to have the potential to produce around 1. is set to invest further in high-technology exploration and production . ONGC has nine R&D institutes that are being independently managed. and so on. The Institute of Reservoir Studies (IRS).5 trillion cubic metres of CBM. naphtha. Methane extracted from coal beds is supplied through pipelines to be used as fuel in industries and to generate electricity. petroleum economics. technology-intensive process. set up in 1978 in Ahmedabad. ONGC's decisions on hydrocarbon exploitation are based on IRS' recommendations.• Group Incentives for cohesive team working. The major projects it has completed include development plans for OIL's Kharsang oilfield. is the premier centre for basic and applied research in petroleum exploration. as without it businesses would not be able to start or survive. sources of finance are needed such as grants or loans. both in Mumbai. which are used to buy essential items such as vehicles. one can track the progress of the business in terms of profit and cash surpluses.4. Indonesia. Also. The other centres include the Institute of Oil and Gas Production Technology. financial documents allow us to see when we have enough retained profits to expand and improve our business . the Institute of Petroleum Safety and Environment Management in Goa. and the Institute of Biotechnology and Geotectonics Studies at Jorhat. 2. the Institute of Management Development at Dehra Dun. Accurate financial documents allow to keep track of your cash flow and also monitor how much of your loans have been paid off by you. One can measure the success through accurate financial planning. Assam. premises and other equipment. the Institute of Engineering and Ocean Technology. If the planning of the financial side of a business is done accurately. Finance is needed for any business to continue running. Russia. as money is needed to cover running costs such as electricity and rent as well as towards expanding it. China. In order to start a business. and techno-economic studies of potential fields in Vietnam.for the Iraq National Oil Company. and so on.7 FINANCE Finance is very important for any business. -: Finance Organogram :Director (Finance) ED .CCF Head Corporate Internal Audit Head Commercial & Treasury Regional Audit Heads HQ/ER/SR/Western Offshore/Western Onshore Head Corporate Accounts ED – Chief PM&BG Heads of Finance – Assets/Basins/Services/ Institutes & Plants Head Risk Management Cell Head Corporate Tax Division Head Corporate Budget & PAS Head Integrated Trading Desk CRC Reporting Administrative Reporting Functional reporting . It consists of different sections such as: Budgeting Inter Unit transfer Pre-Audit Cost accounting Material accounting Sales accounting Cash and Bank Asset accounting Financial concurrence Budgeting: Budgeting is a technique whereby actual utilization is compared with budgets in order to make the budget an effective financial control tool. Facilitate the company in monitoring actual performance against the planned budget. budget estimates and commitment budgets. In the same way the finance department in ONGC is very important department. Adhering to statutory requirements with regard to declaring the Company’s plans to be included in the GOI’s five year plans • • .Objective • Facilitate the company in the preparation of its revised budgets.Finance is the crux of any organisation. Any differences/ variances are the responsibility of key individuals who can either exercise control action or revise the original budgets after providing necessary justifications to the top management A. For any organisation it is very important to utilise its monetary resources aptly. services. In line with the internationally accepted accounting methods followed by the Company. The assets/basins. The process of activity cost build up is done at each asset / basin by accepting the allocation cost from various services within the work centre and transfer of cost from one work centre to another to depict the activities in the geographical location where the physical activities are accounted as per requirement. institutes and service chiefs have operational flexibility to provide for the budget items and reappropriation within the budget items. besides capital expenditure. At the corporate level. survey. budget allocations to the assets. Budgeting process The budgetary process provides flexibility to the managers in their operations and at the same time makes them accountable for cost of operations. institutes and corporate functions are made on the basis of physical work programme and overall resource generations.B. exploratory drilling and development drilling and budget is presented in terms of these activities. expenditure is booked to various activities viz. . basins. Board of Dierctors Project Appraisal Committee Executive Committee Corporate Budget Regional Budget Coordinator Locational Budget Coordinator (Asset ) Locational Budget Coordinator (Basins) Locational Budget Coordinator (Plants) Locational Budget Coordinator (Institutes) Locational Budget Coordinator (JV’s) Director (Asset ) Director (Basin) Director (Plant) Functional Heads Functional Heads Functional Heads Functional Heads Functional Heads Locational Budget Coordinator (Services) Service Heads Section Head . from where it is ultimately settled to relevant GL code (fixed asset or expense head) f) Allocation/apportionment of costs recorded in CC of surface team and sub-surface team to producing wells/platforms under a producing asset and allocation of transportation costs to plants where crude/ gas processing facilities are located g) Allocation/apportionment of cost booked to producing well/platform/processing facilities to process orders executed in PP module against which production of Finished Goods (FG) has been booked during a particular month. c) Allocation/apportionment of cost of operational and other support services recorded in various CC to relevant cost objects. This helps to determine the total cost of production for each asset and facilitates inventory valuation. well services etc. . expenditure on Diwali gifts for employee etc. For example. b) Segregation of allocable and non-allocable expenses booked in various CC in CO module. Cost cycles Cost cycles are allocation cycle designed in CO module. For example VRS expenditure. Two types of cost cycles are designed in CO module. drilling services. marketing expenditure. Cost Accounting: Overall cost accounting methodology at ONGC can be summarized in the following manner: a) Recording of expenditure in different cost objects at the time of initial booking of expenditure in FI module. Settlement of expenditure booked in various WBS elements to relevant GL code (fixed asset or expense head) d) e) Raising of debits to assets/plants/basins from workshop for respective PMO and PO. Execution of cost cycle results in allocation of costs from sender cost center to the receiver cost center. Accounting for Inter Unit Transaction: . Different cost cycles have been designed in CO module for various locations of ONGC depending on the activities undertaken at each location as per the existing CRC structure. workshops etc. Cost elements are numeric codes through which CC are linked to GL in FI module. plants. Costing Cell at various locations in the organization. if any. this cycle is used as a primary activity of the period-end procedures to capture all nonallocable costs including impairment provision. The cycles are run in a particular sequence as per the business processes in order to determine the activity price for the respective processes. Various Statistical Key Figures (SKF) have been defined in Logistics Information System (LIS) in CO module and they determine the basis of allocation of costs from one cost center to other cost center each time a particular assessment cycle is executed. b) Assessment cost cycle: In assessment cycle. For example assets. costs from sender CC are allocated to the receiver CC without losing the identity of the original cost element. institutes. In assessment the identity of the original cost element from sender to receiver is lost. costs from sender cost center are allocated to the receiver cost center using secondary cost element or allocation structure. This tool is widely used in ONGC for allocating all support/operation support costs to the receivers. In ONGC’s context. Allocation structure is logical grouping of cost elements wherein the costs of sender cost center are allocated to the receiver cost center as per the group defined for reporting purposes.a) Distribution cost cycle: In distribution cycle. Distribution is done at the beginning of the month/ fiscal year by the central team/ or the designated officer. basins. . However. In case of certain materials. which operate as individual profit. These materials are procured from both international and domestic markets. services. the actual usage (capital or revenue) is not known at the time of procurement and therefore all materials are recorded as normal inventory at the time of receipt. Imported materials are generally procured against 100% advance payment through Letter of Credit (LC). centres. Materials Accounting: Overview • • • This deals with accounting processes for the following three types of materials: Stores items Spares Capital items. Different inter unit transfer (IUT) account codes are opened in SAP representing different type transactions: • • To properly account for these transactions To give true and fair view of the accounts of the independent locations. Objective To ensure that IUTs are accurately recorded and reported in the respective period so as to give a true and fair view of the independent locations. IUTs take place through cross company code transactions where in an IUT generated at one location is responded to by the other location in their respective company codes.Overview The Company’s locations are spread all over the country and transactions in the form of transfer of materials. assets and expenditures take place at these locations. EthanePropane etc. roles & responsibilities related to accounting for sales and collections from debtors. billing and finally collections. The major sources of revenue for the Company are sale of: a) Crude oil. b) Gas. transfer of materials. distribution and collections are: . delivery of goods. plants. Sales to collection cycle consist of pre. sales order (SO) preparation. and •Applicable statutory compliances with respect to material accounting are duly complied with. control. issue. Objective •Accurate recording and control over receipt. d) Services. f) ONGC’s share in sales made by Joint Ventures. inventory sourcing. LPG. Sales Accounting: Overview It describes policies. •Invoices are processed as per agreed terms. SKO. procedures. agreements). sales offices etc.. the material is booked as capital expenditure or revenue expenditure depending on the use of the material as specified by the user.sales activities (like negotiations on price and quantities. •Liabilities are fully recorded and distributed correctly. Sale of these products takes place from different billing locations like assets. c) Value Added Products (VAP) like Naphtha. The major sections involved in the process of sales.at the time of issue from Main Store. and e) Scrap. revaluation of liabilities in foreign exchange and GR/IR & SR/IR account clearing. Facilitates Letter of Credit LC payments/Letter of Short Credit (LSC) payments through bank to foreign and domestic vendors Verification and accounting of vendor invoices after making contractual deductions Statutory deductions from vendor invoices Refund of Tender Fees (TF). Materials Management (MM): Creating scrap inventory in case of scrap sales and creating release order/ SO order in SAP. statutory compliances.• • • • • • • Marketing: Finalization of SOs including sales quantities and delivery schedules Commercial: Fixation of product prices Operations: Supply planning. a) b) c) d) Objectives . raising of invoices. To ensure effective debtor monitoring and timely collection. dispatch of goods. Pre-Audit Overview Pre-Audit section is an integral part of Finance & Accounts (F&A) function at ONGC (from here on ONGC will be referred to as the Company). Earnest Money Deposit (EMD) & SD Period-end activities consisting of accounting for materials in transit. Indenting Group: Inter unit transfer of material Objectives • • • To ensure that sales are recorded accurately and are reported in the correct period To ensure that all statutory liabilities on sales are complied with. debtor management Cash & Bank (C&B): Collections and payment of statutory levies. Pre-Audit section performs following activities. details of services rendered Sales Accounts: Maintaining product prices in system. • Liabilities are fully recorded and distributed correctly • Invoices are processed as per agreed terms. Real Time Gross Settlement/ Core to core Real Time Gross Settlement (RTGS) is a system managed by RBI through which the transfer of payment is carried out electronically between banks. roles and responsibilities related to accounting for Cash & Bank (C&B) transactions and cover the following: a) Bank receipts b) Cash receipts c) Bank payments d) Cash payments Objectives • Accurate and timely recording of C&B section transactions. . The process involves giving of RTGS fund transfer application by the customer at bank's branch to remit the amount by debiting their bank account & crediting beneficiary’s bank account. controls. the money is transferred from the bank account of the remitter to the bank account of the beneficiary on the same day. procedures. Successful execution of RTGS transfer by the remitting bank at bank’s system generates a unique transaction reference number (referred as UTR number). • Timely preparation of BRS to facilitate smooth closure of financial reports. Cash & Bank Overview This section deals with policies. Under this mode. Depreciation key determines the rate at which asset is depreciated. For capitalization of any asset. procedures. Fixed assets capitalized in the books of ONGC are classified into following broad categories: a) Land (leasehold and freehold) b) Buildings and bunk houses c) Plant & Machinery (P&M) d) Furniture & Fittings (F&F) e) Vehicles. Asset Accounting Overview This section deals with policies. For controlling purposes. Objectives - All additions to/ deletions from/ movement of FA are properly recorded in the books of accounts. an asset master is created in FA module. roles and responsibilities related to fixed asset accounting. For each capital item. . Asset master has a General Ledger (GL) account assignment based on the asset class for posting of asset value to GL. controls. indentor-wise asset details are maintained in FA module. crew boats and helicopter f) Railway sidings g) Software (intangibles) Fixed asset accounting is facilitated by Fixed Assets (FA) module in SAP wherein different asset class have been defined based on broader categories of asset like production installations. buildings etc. Each asset has a unique number assigned to it. a census class has been created in SAP that is mandatory for assigning a depreciation key to the asset.Core to core can also be used as a mode of payment wherein both parties have an account with the same bank. survey ships. - Depreciation is charged to Profit & Loss (P&L) account/capitalized in accordance with the accounting policy of the Company. Financial concurrence facilitates achievement of transparency in decision making for procurement within the Company which is subject to government audits. Central Vigilance Commission (CVC) reviews etc. sufficient funds availability for the same. Preparation and maintenance of this file helps resolve disagreements at a later date. The whole process of financial concurrence is recorded in a file for reference where complete documentation for all cases is maintained. all correspondence between approving authority and concurring authority during the financial concurrence process is maintained on the file. - - Financial concurrence Overview Financial concurrence is an endorsement of proposals initiated prior to approval of Competent Purchasing Authority (CPA). etc. CPA as per BDP finally approves the PR. After the concurring officer in Finance & Accounts (F&A) section releases the PR in SAP. Intangibles are capitalized and amortized in accordance with the accounting policy of the Company. Objectives . if any. Also. Financial concurrence is required to be obtained for procurement of material or procurement of a service or for any other kind of expenditure (including capital expenditure). To help ensure judicious use of resources. Fixed assets capitalized in the books of accounts actually exist on the reporting date. the concurring officer is responsible for ensuring financial prudence during procurement by checking the requirement of the material or service. GOI has not give it a right to market its project.6 Issues or problems at ONGC 1) ONGC being a PSU. the control of government of India is more. hence ensuring prudent decision making in the interest of the Company. and provision of budgets. IOC does the marketing for crude oil and GAIL for natural gas. 2. Hence ONGC cannot diversify. The internal control is exercised through concurrence by F&A section so that decision making is in accordance with the policies. guidelines.The objective of financial concurrence is to protect financial interests in decision making while ensuring financial propriety as a part of internal control system. Chapter 3 . rules. regulations. 2) Delay in decision making since the approval procedure is done through the GOI 3) Since ONGC being forced to concentrate on E & P. 00 127.87 597.67 2006 478.001.3.87 Liabilities Share Capital Reserves & Surplus Net Worth (1) Secured Loans (2) Unsecure d Loans (3) Total Liabilities (1+2+3) Assets Fixed Assets Gross Block 2008 574.00 99.11 666.173.076.87 468.09 831.388.226.239.39 539.508.00 151.337.0 3.39 619.30 525.850.388.66 405.76 2007 520.823.827.69 0.49 2004 410.80 2005 14.28 454.077.171.19 567.596.94 519.838.93 0.194.430.822.162.15 0.27 391.259.45 2005 429.08 2007 21.616.329.66 770.259.12 706.87 684.99 0.00 124.785.26 0.92 2006 14.637.1 Financial Data Analysis from 2004-2008 Balance Sheet 2008 21.34 2004 14.380.00 114.090.259.454.23 . 80 241.80 145.87 3.26 120.849.76 88.08 5.40 192.64 400.421.80 5.53 88.938.87 837.34 5.401.97 333.406.189.94 587.23 165.311.042.47 40.691.99 6.281.157.51 (C) Current Assets.720.37 30.29 Advances (i) 691.02 831.89 23.001.616.400.79 198.074.63 245.829.28 553.329.87 Current Liab.87 44.69 202.540.835.739.21 522.065.176.93 476.27 353.64 770.68 431.102. Expenses (E) Total Assets (A+B+C+D+E ) 248.85 397.128.73 30.490.994.ii) (D) Misc.211.107. Assets (i .111.806.99 87.359.79 519.941.663. Current 224.603.08 Capital Work in Prgs.14 377.07 94.684.020.651.2 Revenue Statement 2008 2007 2006 2005 2004 .29 Investments 58.223.739.822.112. (B) 411.381.056.177.337.885.98 57.93 Net Block (A) 105. Depreciation 469.876.94 37.807.216.494.61 56.16 Net Curr.350.63 567.66 25.48 78.668.847.416.651.391.59 175.76 311.(-) Acc.391.180.011.33 161.96 378.508.383.45 171.92 3.74 (ii) 443.473.177.61 395.546.293.58 Sundry Debtors 43.32 678.62 251.21 48.54 371.35 666.55 Bank Loans And 389.66 24.457. & Provs.66 Cash And 224.366. Inventories 34.365. Loans & Advs.384.42 Liabilities Provisions 218.93 306.140.90 37.528.594.71 27.53 25.95 596.18 58.31 288.989.86 132.747. 527.47 67.33 37.443.969.46 476.767.05 144.84 38.36 89.168.449.594.809.12 66.63 569.410.716.46 18.89 18.37 151.03 129.54 129.623.305.402.61 73.281.722.530.877.83 39.29 140.881.126.429.25 479.650.037.306.17 135.72 86.61 212.84 54.87 281.45 2.84 216.01 14.067.15 83.830.466.509.890.858.20 12.32 202.228.36 17.157.680.134.65 251.587.08 244.40 232.99 248.47 68.19 5.909.932.Sales Other Income Total Income Raw Material Cost Excise Other Expenses Operating Profit Interest Name Gross Profit Depreciati on Profit Bef.04 606.91 630.34 139.52 162.496.455.36 86.663.242.42 Ratio .927.016.20 235.305.587.44 329.63 49.013.17 66.23 123.307.930.897.37 81.59 50.351.66 80.233.51 461. Tax Tax Net Profit Other NonRecurring Income Reported Profit Equity Dividend 3.42 -11.84 4.69 37.486.184.3 600.61 32.102.66 6.167.16 269.78 35.339.76 247.93 156.18 644.58 563.97 43.222.214.948.824.38 167.806.426.87 150.466.42 297.744.248.266.483.24 168.418.061.859.07 167.217.89 199.29 34.27 4.12 4.24 37.650.439.88 316.601.65 27.46 57.644.78 64.132.25 9.23 196.38 498.013.64 14.960.410. ProfitabilityRatio 26.30 % in 2004 to 25.79% 25. So many oil companies have suffered losses in the Q4. The major reason behind this was due to global crude price touching $145 a barrel.93% 2004 2005 2006 2007 2008 Over a period of time we can see that profitability ratio has gone down from 26. Return on Investment .30% 27.26% 28.93 % in 2008.93% 25. 31 % to 35.e a return of 135.Equity Ratio .It is a performance measure. which is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. graph indicates that the ROI has increased from 32.in the business you will earn Rs 135. Debt. the benefit (return) of an investment is divided by the cost of the investment. the result is expressed in percentage or in ratio.100/.78 i. To calculate ROI. This shows that if you invest Rs.78% during the year 2008.78 %. The above. 82/.e.is borrowed fund and Rs. .is owned.100/.28% to 0. It indicates what proportion of equity and debt the company is using to finance its assets.18% in 2008 i.in the business. The above graph indicates that the debt/equity ratio has declined substantially from 0.Debt – equity ratio is a measure of a company’s financial leverage calculated by dividing its total liabilities by stockholders' equity. if you invest Rs. the proportion of borrowed fund and owned fund would be Rs 18/. 96% 49. The operating profit ratio has increased from 49% in 2004 to 53% in 2008.15% 53 .51% 49. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. .S ales 56.04% 5 0.47% 2004 2005 2006 2007 2008 The profit earned from a firm's normal core business operations. 00% 80.00% 50.00% Gros Profit s 200 4 42.4 5% A company's revenue minus its cost of goods sold.00% 60. .00% 10.00% 20.00% 90. The above graph indicates that the profit after bearing the cost has increased from 40% in 2004 to approx 45% in 2008.69% 2006 48.00% 40.00% 0.00% 30.00% 70. Gross profit is a company's residual profit after selling a product or service and deducting the cost associated with its production and sale.99% 2005 43.Gross Profit 1 00.12% 2007 47% 2008 47. .Debtor T urnover Ratio 25 0 20 0 15 0 S E M I T 10 0 50 0 2004 2005 20 06 2007 2008 The above graph indicates that the collection period from the debtors has increased from 110 times in 2004 to 200 times in 2008. Which is a good sign for the business. in order to achieve integration.0 ERP and SAP implementation ERP stands for Enterprise Resource Planning.Chapter 4 4. In the past. ERP systems will have many components including hardware and software. However. most ERP systems cover several functions. no matter what industry it falls in. Usually. Supply Chain Management. most ERP systems use a unified database to store data for various functions found throughout the organization. it must provide an organization with functionality for two or more systems. functions such as Human Resources. the use of ERP has changed and is extremely comprehensive. In order for a software system to be considered ERP. For instance.the ERP system. Financials. Today. Today's ERP systems cover a wide range of functions and integrate them into one unified database. Customer Relations Management. today the term can refer to any type of company. The term ERP originally referred to how a large organization planned to use organizational wide resources. In fact. While some ERP packages exist that only covers two functions for an organization (QuickBooks: Payroll & Accounting). ERP systems were used in larger more industrial types of companies. ERP is a way to integrate the data and processes of an organization into one single system. ERP systems are used in almost any type of organization . usually housed with one’s own database and network. Manufacturing functions and Warehouse Management functions were all once stand alone software applications. they can all fit under one umbrella .large or small. . commissions. accounts receivable. capacity. this is a module that can be accessed by an organizations customer. etc. etc. activity management. manufacturing process etc. etc. time and attendance. billing. calls center support. supply chain planning. general ledger and cash management. bills of material. Data Warehouse: Usually. suppliers and employees. These software modules can include: Manufacturing: Some of the functions include: engineering. claim processing. workflow management. training. purchasing. fixed assets. etc Supply Chain Management: Inventory. Advantages of ERP Systems There are many advantages of implementing an EPR system. service.The Ideal ERP System An ideal ERP system is when a single database is utilized and contains all data for various software modules. here are a few of them: • • • • • • • A totally integrated system The ability to streamline different processes and workflows The ability to easily share data across various departments in an organization Improved efficiency and productivity levels Better tracking and forecasting Lower costs Improved customer service . Human Resources: Benefits. Customer Relationship Management: Sales and marketing. Projects: Costing. Financials: Accounts payable. payroll. order entry. supplier scheduling. etc. quality control. customer contact. time and expense. however. • • • • • Customization in many situations is limited The need to reengineer business processes ERP systems can be cost prohibitive to install and run Technical support can be shoddy ERP's may be too rigid for specific organizations that are either new or want to move in a new direction in the near future SAP stands for Systems. SAP AG. The purpose of positioning it as ECC is to enable SAP to build and develop an environment of other products that can function upon the foundation of the central component.Disadvantages of ERP Systems While advantages usually outweigh disadvantages for most organizations implementing an ERP system. success does depend on skills and the experience of the workforce to quickly adapt to the new system.some of them are • • • SAP ERP Financials SAP ERP Logistics SAP ERP Human Resource Management Advantages: • Vendors have past knowledge and expertise on how to best build and implement a system . It uses the concept of modules ("individual programs that can be purchased. Applications and Products. and run separately. ECC stands for Enterprise Central Component. but that all extract data from the common database"). here are some of the most common obstacles experienced: Usually many obstacles can be prevented if adequate investment is made and adequate training is involved. the company that provides the enterprise resource planning solution has upgraded the package and launched it as SAP ECC 6.0 in 2005. installed. Sap’s ERP solution includes several modules that support key functional areas . . Project ICE is one of the world’s biggest ERP (Enterprise Resource Planning) packages. different in many ways from other businesses of manufacturing.vendor packages may not fit a company's business model exactly and customization can be very expensive Return on Investment may take too long to be profitable Most SAP ERP implementations have a very high risk of project failure. lowering of inventories and increasing customer service and satisfaction.000 end-users spread over all locations of ONGC). strengthening efficiencies. across its 400 locations. cost reduction. The ERP package will enable availability of information on real time basis and elimination of duplication of activities across business process by capturing data at source point. Apart. trading and services. This project will also facilitate moving up the value chain. higher productivity. This is the first major ERP exercise in the Indian Oil & Gas industry. 4. the project was very challenging in terms of complexity also. Objective of the Project ICE: The main objective of the ICE project is to optimize and standardize the business processes for integrated information availability.1 Project ICE (Information Consolidation for Efficiency) at ONGC Project ICE is aimed at consolidating the IT efforts in the implementation of Enterprise Resource Planning (ERP) package on SAP.• • No hardware purchase or maintenance costs No developer training costs and the vendor would train the users Disadvantages: • • • • Locked into relationship by contract and manageability with vendor a contract can hold a company to the vendor until it expires and it can be unprofitable to switch vendors if switching costs are too high Inflexibility. ONGC’s Exploration and Production (E&P) business is unique. from being one of the largest size in the world (with around 10. like online availability of equipment manuals was invoked through LDM functionality. monitors real time production environment with online availability of Information related to Materials & Products. as well as customized report generation for faster decision making. Business Blueprint (Design for all Business modules for all Stages and phases) 3. Final Preparation (phase wise) 5. Project Preparation (Design for all Business modules for all Stages and phases) 2. It facilitates real time updating of data. Natural Gas and VAP. (2) Plant Maintenance (PM): The PM module provides a system for the management and maintenance of technical systems including the cost incurred in the planned and breakdown maintenance. Realization (phase wise) 4. Accounts Receivable with all the sub ledgers synchronized with the G/L in an on-line. Accounts Payable. real-time manner. The following are the modules implemented in ONGC: (1) Production and Planning (PP): The primary objective of the PP module is to track planned and actual costs of production processing of Crude Oil. It will also track various audit activities and their 9 follow up actions in ONGC. The existing UFSO (KUBER) is a standalone module with only FI . (3) Financial Accounting: This module Integrates General Ledger. By being integrated with other modules it gives the cost of each maintenance activity. New feature. Go-live and Support (phase wise).There were five major steps in the implementation of the Project: 1. helps in calculating actual & standard costs at any stage in the product cycle. Work over. it will generate statutory documents. Work Programs. Cash Calls. Many customized developments have been made in PS module for Engg. Equity equations. material management and production planning for real time stock updating and quality management for 10-quality analysis and reporting. Drydocking and consultancy/ R&D operations. It enables the treatment . Fully compliant with Indian taxation requirement including VAT. OLM. e. starting from Joint operating agreements. Recovery. It is integrated with financial accounting for account receivable management. NELP.g. Billing and Accounting (as operator and non-operator). Drilling. planning of costs and resources and approval of Estimates to Execution. (6) Sales & Distribution (SD): SD module comprises of entire Sales & Distribution activities starting from sales agreements to delivery and generation & printing of invoice in integrated sales process for all products of ONGC including scrap and services. (7) Project System (PS): This module encompasses all phases of a project from Project Conceptualization. Plant Maintenance. Excise invoice and sales registers and maintain audit trail of transactions through document flow. Budgeting.functions. (5) Joint Venture Accounting (JVA): This module is to cover the Joint Venture activities. Profit Centre Accounting and Product Costing for wide range of Management reporting. Material Management. Survey. Expenditure. FI function have been suitably updated and up linked to this integrated system to seamlessly interact with all other modules for comprehensive transaction tracking and reporting facilities in all the areas of Financial Management System. Production Planning. In ICE FI function is integrated with all the adopted R/3 modules starting from supply to the sales. Services. Controlling features are integrated to the operational modules such as Sales & Distribution. payment and Completion of the project in an integrated scenario. (4) Controlling (CO): Controlling (CO) covers the functionalities of Cost Centre Accounting. Project System and Financial Accounting. ICE. Among many features. shall be available through this system. invoice verification. enhancements. re- . integrated. (9) Quality Management (QM): QM module covers inspection of procured material.of a project as an Enterprise with links to other functional modules and the project can be analyzed in its entirety. MIS System for ONGC. in the standard SAP R/3 system so as to configure as per ONGC's business process pertaining to MIS reports. inventory management. data migration etc. (8) Material Management (MM): This module integrates all transactions and functions necessary for material requirement planning. and generation of Quality certificate for issuing finished products to the Customers. The inputs will come from all finance and logistics SAP modules as well as from non-SAP systems like Excel files also. This would become the single. Additional feature of mapping Service Contracts and Works has been done in this module. In addition to handling special stock types for Crude oil and other product materials transported by pipeline. Vendor/Material complaints processing. inspection of in-house products. has components of business process reengineering. quality clearance certificate for incoming material and for the products. like any ERP implementation. (11) Business Information Warehouse (BW): This module shall generate analytical and strategic reports for Business Analysis and performance tracking including the Corporate Key Performance Indicators. Existing IMMS system have been seamlessly updated into this system. (10) ABAP: The ABAP (Advanced Business Application Programming) development team provides support to functional module team pertaining to any new developments. and material valuation. failure analysis etc. These reports would be available online and on the web. this will monitor stocks and automatically generate purchase order proposals for the purchasing department. procurement. feasibility. optimization of business process. strategic decision making reports. . During the post go live scenarios close rapport was achieved amongst the hand holding team of core team members. This was achieved through multiple scoping exercises.definition of role and responsibilities. This necessitated a careful and deliberate strategy of change management. SAP consultants and the users. presentations. which helped in a smooth transition. discussions and structured training. Intangibles Costs incurred on intangible assets. SAP The integrated fixed asset accounting module in ERP is used to manage fixed assets on an inventory basis. All costs relating to acquisition of fixed assets till the time of commissioning of such assets are capitalized. Included in this are all yearend closing evaluations. deprecation calculation and transfer of fixed asset in or out of the company Accounting policies Fixed assets FA is stated at historical cost.Chapter 5 5. such as the asset history sheet. resulting in future economic benefits are capitalized as intangible assets and amortized on Written down Value (WDV) method beginning from the date of capitalization. FA received as donations/gifts are capitalized at assessed values with corresponding credit transferred to Capital Reserve. It enables both a qualitative and quantitative overview of the available fixed assets. 1956 Depreciation on additions/deletions during the year is provided on pro-rata basis with reference to the date of . regardless of any industry it is. Depreciation Depreciation on FA is provided for under the WDV method in accordance with the rates specified in Schedule XIV to the Companies Act.e.0 Asset Accounting procedure Under Environment of ERP i. is initially capitalized as exploration costs. Depletion of Producing Properties PP is depleted using the Unit of Production method. Process narratives & flow charts Additions to fixed assets . Leasehold land is amortized over the lease period. considering the Proved Reserves depletes cost of producing properties. successful exploratory wells. The rate of depletion is computed with reference to the area covered by individual lease/ licence/ asset/ amortization base by considering the proved developed reserves and related capital costs incurred including estimated future abandonment costs. Cost of temporary occupation of land.additions/deletions except for items of Plant and Machinery (P&M) used in wells with 100% rate of depreciation and low value items not exceeding INR Five Thousand that are fully depreciated at the time of addition. Depreciation on adjustments to FA on account of exchange difference and price variation is provided for prospectively over the remaining useful life of such assets. Depreciation on FA (including support equipment and facilities) used for exploration and drilling activities and on related equipments and facilities. all development wells and all related development costs including depreciation on support equipment and facilities and estimated future abandonment costs are capitalised and reflected as PP. In case of acquisition. development costs or producing properties and expensed/depleted. when the well in the area/ field is ready to commence commercial production. Producing Properties Producing Properties (PP) are created in respect of an area/ field having proved developed oil and gas reserves. Assets that require installation and/or commissioning (other than those capitalized through WBS (work breakdown structure) route in Project Systems (PS) module in SAP). Well materials (like casing pipes. Capitalization of forex fluctuations. crew boats. buildings and other capital projects). P&M. of asset fabricated in central b) c) d) e) f) g) h) i) j) Creation of new capital item in SAP on first purchase. This paragraph explains the processes.Fixed assets capitalized in the books of the Company are classified into land (leasehold and freehold). railway sidings and software (as intangibles). crew boats. well heads etc. Capitalization of land (leasehold and freehold). Dry well assets. helicopters and certain P&M that are ready to use. FA capitalized through WBS route in PS module (for example PP). buildings and bunkhouses. Capitalization of insurance spares. if any. For example Air conditioning unit. Intangibles (software). vehicles. These . Capitalization workshop. on purchase of capital items.). helicopters. by which different types of fixed assets are capitalized in the books of accounts: a) Capitalization of ready to use assets (other than land). k) Flow Charts Ready to use assets (excluding land) Ready to use assets include F&F. survey ships. vehicles. F&F. tubular. Capitalization process commences when the indenter/ requisitioned creates a reservation in the system for issue of capital item from stores. Competent authority creates reservation in SAP for issue of asset & forward copy to Main s Store/Site store SAP Report pending reservations for assets reviewed by Asset Accounting Section Asset Accounting section allots asset number to capital item in SAP Main Store issues material after receiving signed copy of reservation & posts goods issue in SAP Asset under installation Assets that require installation and/or commissioning before they are ready for use are capitalized through Asset under Installation (AUI) route. For example air conditioning units.capital items are procured through Purchase Requisition (PR)/Purchase Order (PO) route and received in main stores. This process commences before a Purchase Requisition . This does not include fixed assets capitalized through WBS route in PS module in SAP. (PR) for the indentor in SAP installation/commissioning charges creates asset with . In e t or in rm As t dn fo s s e Ac o n gs c n c u tin e tio toc a re te A I inF md le U A ou As t se Ac o n gs c n c u tin e tio c a sA I re te U inS P A in a timte s A I n me to U u br in e t dn or & In e t or c a sP inS P dn re te R A w as t ith s e & in ta tio s lla n / c m is io in o ms n g a s p ra s e a te lin ite s e m Co p te t me n Au o th rity c a s re te re e a ninS s rv tio A P fo is u r se as t se & fo a s rw rd it toMin a S re /S s re to ite to o f In e t or in a sAs t dn timte s e Ac o n gs c n c u tin e tio &p v e ro id s d ta e ils o re e a n f s rv tio As t se Ac o n gs c n c u tin e tio a tsa s t n me toc p l llo s e u b r a ita ite m inS P A Min Sto is u a re s e s c p l ite a ita m a r re e in fte c iv g s n dc p o ig e o y f re e a n s rv tio & ps o ts gos od is u inS P se A In e t or c a s dn re te SS E in ta tio s lla n /c m is io in o ms n g c a e inS P h rg s A fo r In e to fo a s d n r rw rd ‘c m is io in n te o ms n g o Ac o n gs c n c u tin e tio ’ toAs t se In e te in a s d n r timte as t se n me u b rs lin e toA I kd U n me toAs t u b rs se Ac o n g c u tin sc n e tio n As t A se c o n gs c n c u tin e tio s ttle e s in ta tio s lla n / c m is io in o ms n g c a e to h rg s m ina s t a se . Capitalization by work breakdown structure route in Projects Systems module FA capitalized through WBS route in PS module includes capitalization of PP. as the case may be. with settlement of expenditure with a monthly WBS run Where a particular asset is ready for use. the process of capitalization commences (before WBS run is done) with the creation of new asset master in FA module. The process for issue of materials from stores and allocation of services to different WBS elements in PS module Relevant overhead costs are allocated to different WBS by cost cycle run Once all relevant costs are captured in different WBS elements in PS module. Asset Accounting section creates new asset master in SAP on receipt of commissioning certificate Asset Accounting section forwards new asset number to indentor & Costing Cell Costing Cell does WBS settlement in SAP . these costs are either capitalized or taken to Capital Work In Progress (CWIP) or Exploration Work In Progress (EWIP) or Development Work In Progress (DWIP). buildings and other capital projects. C petent authority om c reates res ation in S P erv A & forw ards c opy to M ain S tores /S S ite tore M ain Store is ue s w s ell m aterials after rec ing eiv copy of res ation erv & pos goods ts is ue in S P s A As s et Ac ounting s tion c ec dow nloads c um ons ption of w m ell aterials in S P A As s et Ac ounting s tion c ec c reates new as et m ters for s as w m ell aterials us in ed ex ploration & dev elopm ent As s et Ac ounting s tion c ec pas es direc FI entry for s t c apitali zation of w m ell aterials in S P A . tubular etc There are various materials used for drilling of exploration or development wells like casing pipes. drill pipes. tubular. X-mas tree etc. Depreciation on well materials is initially posted to internal order 1ZZ in SAP. From the internal order it is finally posted to EWIP or DWIP as the case may be. well heads. Well materials are issued from stores on a daily basis to WBS element and capitalized as one single asset at the month end. These materials are capitalized as P&M and depreciated at 100% (except for well heads & X-mas tree which are depreciated at 30%). Capitalization of well materials like casing pipes. Acquisition of land (leasehold and freehold) Land acquisition costs include purchase cost, registration charges, legal charges etc. Land can be acquired either directly from the landowner or through Special Land Acquisition Officer (SPLAO). Designated officer, Land Acquisition section forwards a demand note to designated officer in Pre-Audit section for making the payment for land acquisition. Pre-Audit section forwards a request for creation of an asset to Asset Accounting section (manual request giving the well name, area, tax office number etc). Asset accounting section creates an asset in the FA Pre-Audit section makes the payment and passes a direct FI entry in SAP. Different accounting entries are passed by Pre-Audit where land is purchased directly from the landowner and where these are acquired through SPLAO. Capitalization of forex fluctuation Depreciation on adjustments to FA on account of exchange difference and price variation is provided for prospectively over the remaining useful life of such assets. Dry well asset If the exploratory well is declared to be dry or of no further use, the costs incurred on are expensed off in the year in which such determination is made. The detailed process is give below. i. The designated officers obtain well status report at every period end, Corporate Accounts section from the authorized officers in Basin division. All exploratory wells determined to be dry are identified from the report. ii. Designated officer, Corporate Accounts Section sends the details of dry well to designated officer, Asset accounting section of the unit. Designated officers in Asset accounting by specifying the relevant cost centre (P&L) create dry well asset(s).Asset section intimates asset number(s) to the designated officer in Corporate accounts section after its creation on SAP mail. iii. Corporate Accounts section transfers the expenditure incurred on dry well to the relevant asset created in asset module in SAP iv. When depreciation run is done in the FA module, 100% of the amount transferred to dry well asset is charged off to profit & loss account in the same year in which the asset is capitalised v. When the well is declared dry, the well material capitalized against the well is removed from gross block. For detailed process and accounting entries on deletion of fixed asset well heads and X-mas tree are reused in the next well by incorporating the cost centre of next well. Note: As per circular no 291 issued by corporate accounts, exploratory dry well used for water injection of effluent disposal should be charged off to Profit and loss account. Transfer of fixed assets This section details the process of transfer of FA a) Transfer from one unit to other unit (cross company code transaction) The process commences with identification of asset to be transferred between the sending and receiving units Indenter creates ATN & changes status of asset from FA to FAIT in SAP Asset Accounting section reviews pending ATNs on daily basis & posts transaction in SAP Receiving indentor creates ARN in SAP Receiving indentor forwards signed copy of ARN to Asset Accounting section Asset Accounting section reviews report & changes status of asset from FAIT to FA in SAP Within the same unit (inter indentor transfer) Indentor wise asset registers are maintained in FA module and there can be situations where asset in custody of one indentor is transferred to other indentor within the same unit. This entails the following under activities mentioned below: a) b) c) Change in indentor code in the asset master Updating of CC Reclassification of asset if required. damage etc. Condemnation process commences when the indentor identifies a particular asset that needs to be discarded and forwards a proposal to the Condemnation Committee .Sending indentor creates IIT in SAP Receiving indentor acknowledges receipt in SAP after physical delivery of asset Sending and receiving indenters forward signed copy of IIT to Asset Accounting section Asset Accounting section updates asset records in SAP Deletions from fixed assets Discarding (condemnation & disposal) of FA Replacement of FA. Deletions of FA are on account of: a) b) Discarding (condemnation & disposal) of fixed assets FA can be discarded for different reasons that include retirement from use. Indenter identifies asset to be discarded & forwards proposal to Condemnation Committee No Asset to be discarded Yes Condemnation Committee forwards ‘approval note’ to indentor Condemnation Committee forwards rejection note with reasons to indentor Indentor prepares ACN in SAP & intimates Asset Accounting section Asset Accounting section processes ACN in SAP wherein BDC document is created & executed Indentor transfers discarded assets & ‘condemnation note’ to Main Stores Main Store creates disposable inventory in SAP . . This section has been divided into following three sections: a) Accounting for depreciation on FA Depreciation is accounted for in books of accounts in accordance with the following accounting policies: I. III. Depreciation on adjustments to FA on account of exchange difference and price variation is provided for prospectively over the remaining useful life of such assets. Depreciation on FA (including support equipment and facilities) used for exploration and drilling activities and on facilities is initially capitalized as part of exploration or development costs. 1956 and the detailed list of these items is available on SAP. Leasehold land is amortized over the lease period. Depreciation on each asset is computed on daily basis in the system and posted at the time of depreciation run in SAP. 1956 except items of P&M used in wells with 100% rate of depreciation and low value items not exceeding INR Five Thousand that are fully depreciated at the time of addition. There are certain items for which special rates of depreciation have been prescribed under Schedule XIV of the Companies Act. Depreciation run is done on a monthly basis. IV. II. Depreciation key is defined for each asset in the asset master. Depreciation on FA is provided for under the WDV method in accordance with the rates specified in Schedule XIV to the Companies Act. Replacement of fixed asset Replacement of FA would involve discarding of original asset as a first step and then creation of new asset Accounting for depreciation/depletion FA is depreciated whereas PP is depleted based on oil & gas production and oil & gas equivalent reserve estimates. Depreciation key determines the rate of depreciation of the asset. group asset is created corresponding to creation of PP asset in SAP. PP asset is created separately for expenditure. are made Asset Accounting section executes deprun in update mode in SAP Asset Accounting section posts depreciation in SAP b) Accounting for depletion on PP. corresponding group asset is also created separately for these three items. PP are depleted on Unit Of Production method under which depletion is calculated on the basis of the number of production or similar units expected to be obtained from the asset by the enterprise. depreciation and abandonment cost. if any.Asset Accounting section initially executes deprun in SAP for assets less than equal to INR Five Thousand Asset Accounting section again executes deprun in test mode & generates deprun report in SAP Asset Accounting section verifies report for abnormalities & changes. . Since. For the purpose of depletion computation and posting. A different depreciation key 70 is assigned to group asset that facilitates depletion computation on depreciation run. C1. Category B includes individual asset with gross book value between INR Ten Lakh to INR One Crore. as unplanned depletion in SAP Physical verification procedures Physical verification policy A separate stock verification team at each location in accordance with the physical verification policy of the Company conducts physical verification of FA. These items are physically verified annually. C2 and C3 for the purpose of verification.e. coverage & frequency is based on the classification of assets into category A.DDN manually and communicated to Asset Accounting section at units Asset Accounting section at units posts the shortfall or reverse excess depletion. These items are physically verified annually. C for self verification by indenter a) Category A includes individual asset with gross book value greater than INR One Crore. Policy specifies the frequency and criteria for conducting physical verification: In case of FA. B. C1 .Asset with gross book value greater than INR One lac but less than INR ten Lakh b) c) . These are further divided into subcategories i.Asset Accounting section at units executes repeat deprun in SAP for computation & posting of depletion Depletion recomputed by CA. Category C includes individual asset with gross book value less than INR Ten Lakh. .C2 . • Generation of discrepancy report and settlement of discrepancies This section describes the process flow for physical verification including generation of discrepancy reports if any deficit or surplus is identified and finally settlement of discrepancy.Asset with gross book value greater than INR Fifty Thousand but less than equal to INR One Lakh.Asset with gross book value greater than INR Ten Thousand but less than equal to INR Fifty Thousand These items are physically verified every third year. d) • Self verification by indentor includes: Verification of FA with gross book value less than equal to INR Ten Thousand that are verified every year and All F&F items irrespective of their value are verified once in two years. C3 . On receipt of approval Asset Accounting section posts adjustment in SAP & creates the asset On approval.Stock verification team generates item wise report of assets by indentor Stock verification team conducts verification & updates status of each asset in SAP Stock verification team generates discrepancy report in SAP & forwards a copy to respective indentor Stock verification team executes BDC in SAP to update status in asset master Surplus Deficit Indentor obtains approval of competent authority Indentor forwards proposal for write off to competent authority. indentor forwards a copy of ‘approval note’ to stock verification team & Asset Accounting section Asset Accounting section processes ‘approval note’ in SAP & removes asset record . Information system and reporting Reports are used for making Quick decisions and managing the financial stability of the company. DDN for impairment Select business area wise details provisioning Prepared by asset accounting for central accounts Refer format for un-codified statements prepared at unit level Refer format for un-codified statements prepared at unit level 3 Depreciation on facility Quarterly T-code ZFINBVFCLT Findings and Conclusions . In ONGC all the reports are generated under SAP. movement. Quarterly/ deletions. any Annual other adjustments to fixed assets & accumulated depreciation) CA section. Report S. They are. DDN for preparation Separate report of Fixed for movement in Asset gross block and schedule for accumulated financial depreciation reporting T-code – OARP* Refer format for un-codified statements prepared at unit level Report used by/ circulated to Appendix reference 1 2 Carrying value for impairment working Quarterly T-code – OARP* CA section. No Report Name Frequency generation process Asset history sheet (Provides details of additions. Asset accounting has following advantages done on SAP . partners. shareholders. Joint Venture Accounting (JVA). Sales & Distribution (SD) under single ERP platform · Improved responsiveness to changing global market scenario by adopting new and improved technology solutions. · Integrating all business applications like Production and Planning (PP). optimization of inventory holding achieving better working capital utilization. · Improved stakeholder relationship management. · Integrated Supply Chain Management. Government etc.Findings The implementation of the Project ICE has resulted in the following benefits: · Optimization and standardization of re-engineered business processes to enable integrated information availability. is enhancing managerial effectiveness leading to higher productivity. · Elimination of duplication of activities across business processes by capturing data at source point itself · Facilitate information consolidation at all levels resulting in decentralization of decision-making leading to better business governance through the information system. · Availability of information at the right time. · Availability of single source management information that is accurate and on time to facilitate decision making. thereby. at the right place. providing better services to the society. Carrying value for fixed assets and its depreciation. . asset accounting procedure is in SAP. adding more accuracy to the procedure. Due to integrated systems.It becomes easier to generate important reports like Asset history sheet. avoided. human errors and omissions are reduced. duplication of entry is Since. SWOT ANALYSIS OF ONGC Strengths Efficient & trained Manpower Sound Technology Large number of crude oil wells Highest market capitalization Large asset structure Big and global business empire Financial soundness Leading in oil & gas sector Effective seismic survey Good liquidity position Availability of geological data Weakness •Lack of Indian vendors for new technology Different geographical culture. interference Opportunities To venture into downstream activities like Marketing of oil in India. and PPAC regarding price fixation Decreasing market price of crude oil Govt’s decision regarding fixation of price band on import of Crude Oil Frequent changes in technology . More Govt. To spread business global under OVL To explore alternate energy sources. To make expansion in petrochemicals & value added products Threats Continuous decrease in oil & gas resources Control of Govt. Conclusion .