DECLARATION

I, Sameer Shah, student Of M.M.S. from Pillais Institute of Management Studies and Research (PIMSR) hereby declare that the project work, which is undertaken, is an original and authentic work done by me. The contents of this report is based on the information collected by me during my tenure at Oil and Natural Gas Corporation, Mumbai, during the two months of my training period.

SIGNATURE OF THE STUDENT

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 Pillais 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 Indias 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 its 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.

Table of Contents
Chapter TOPIC 1. Introduction 1.1 Oil and Gas Industry 1.2 ONGC 2. Objectives 2.1 ONGC as a case 2.2 Financial Data Analysis of ONGC 2.3 Implementation of SAP 2.4 Asset Accounting procedure under the Environment of ERP i.e. SAP 3. Research Methodology ONGC as a Case 2.1 2.2 2.3 2.4 2.5 2.6 Background ONGC Videsh Ltd. Organisation chart Office Chart ONGC Operation Issues or problems Page No.

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. SAP Finding and Conclusion Appendix Bibliography

5 6

Chapter 1
1.1 1.1.1

Introduction Oil & Gas Industry

Crude oil is the second most important source of energy in India after coal. Crude oil and its products account for about 35% of the energy supply as against nearly 50% by coal. But the size of the Indian industry is very small when compared with global levels of production and consumption. The country has less than 1% share in the global crude oil production, 1.1% in natural gas production, 2.8% in crude oil consumption and 1% in natural gas consumption. So, there is long way to go for this Industry. Background The Oil & Gas industry was a highly regulated industry under the control of Ministry of Petroleum & Natural Gas (MoPNG). Although, with dismantling of Administered Pricing Scheme (APS), wef. April 2002, efforts are being made to adjust domestic prices at more frequent intervals with international prices; the oil companies do not enjoy full rights to set the prices. This is inevitable as the industry is dominated by a collection of public sector companies. Both the upstream (exploration and Production) and downstream (Refining, Marketing and Distribution). PSUs like ONGC & OIL INDIA LIMITED account for 90% of domestic production of crude oil & natural gas. Further, share of PSUs in domestic refining capacity is 68% and presence of private sector in distribution is negligible. But, since India depends on imports for nearly 70% of its crude requirements, the input prices are volatile. As fuel, power light & lubricants have a weight age of 14.23% in the Whole sale Price Index; the industry prices have a high impact on inflation. Further, dependence of other industries on this industry is high as the fuel and freight charges are a critical component of cost for most of the industries.

1.1.2

Overview of ONGC Oil and natural gas corporation (ONGC), formed in 1959, is the
largest oil exploration company in India and it is the largest Company among all Nav ratna PSUs. It is the only fully integrated petroleum company in India, operating along the entire hydrocarbon value chain. It holds the largest share (about 57 per cent) of hydrocarbon acreages in India contributes over 78 per cent of Indias oil & gas production and also possesses about one-tenth of Indias refining capacity. 6 out of the 7 producing basins in the country have been discovered by ONGC. ONGC is the flagship company of India; and making this possible is a dedicated team of nearly 40,000 professionals who toil round the clock. It is this toil, which amply reflects in the performance figures and aspirations of ONGC. The company has adapted progressive policies in scientific planning, acquisition, utilization, training and motivation of the team. At ONGC everybody matters, every soul counts. Over 18,000 experienced and technically competent executives mostly scientists and engineers from distinguished Universities / Institutions of India and abroad form t he core of our manpower. They include geologists, geophysicists, geochemists, drilling engineers, reservoir engineers, petroleum engineers, production engineers, engineering & technical service providers, financial and human resource experts, IT professionals

VISION To be a world class Oil and Gas Company integrated in energy business with dominant Indian leadership and global presence

MISSION World Class

Dedicated to excellence by leveraging competitive advantages in R&D and technology with involved people. Imbibe high standards of business ethics and organizational values.

Abiding commitment to health, safety, and environment to enrich quality of community life. Foster a culture trust, openness, and mutual concern to make working a stimulating and challenging experience for our people. Strive for customer delight through quality for our people. ONGC is involved in exploratory & development drilling in various water depths (including deep sea) and has created an extensive production-related offshore infrastructure (platforms, pipelines, etc). Presently, ONGC has the following assets:

Onshore Production Installations: 240 Pipeline Network (km): 17,500 Drilling Rigs: 70 Work Over rigs: 60 Seismic Units: 29 Logging Units: 32 Processing Plants: 3 (Uran, C2C3 plant at Dahej and Hazira)

Offshore Well Platforms: 149 Well-cum-Process Platforms: 5 Process Platforms: 27 Drilling Rigs: 9 Pipeline Networks (km): 4,500 Offshore Supply Vessels: 30 Special Application Vessels: 2 Seismic Vessels: 1 ONGC is primarily an exploration company that has grown to become Indias most valuable PSU on the basis of its performance over an increasingly larger area of business. ONGC today, focuses on relational enterprise through:

Partnerships & strategic alliances Joint ventures with preferred partners Business strategy based on corporate skills and positional assets Opportunity specific diversification

ONGCs 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. To that extent ONGC is forming profitable joint ventures related to the petroleum and energy sectors with both Indian and foreign companies. ONGCs 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, processes and practices and the maximum use of R&D. ONGC intends to achieve this objective through strategic alliances and sustained relationships. Out of 162 blocks awarded by the Government under NELP-I to NELP-VI, ONGC has been awarded a total of 85 blocks either in sole-risk basis or in consortium with other companies. Under NELP- VII, out of 44 blocks awarded, ONGC got 20 blocks. ONGC has also entered new areas such as Liquefied Natural Gas (LNG) re-gasification, petrochemical manufacturing, power generation (gas-based), as well as crude & gas shipping, etc. While remaining focused on its core business (E&P), it is also looking at the future and promoting research in the fields of alternate fuels. This is a step to basically exploit the core competence of the

organization, which is knowledge of hydrocarbons, gained over five decades. 1.2

Objective of the Project

1.2.1 ONGC as a case To study the overview of the company and the functioning of its subsidiaries. To get the knowledge about finance and accounts departments in ONGC. 1.2.2

Financial Data Analysis of ONGC

To study the performance of the company. To study the trend analysis of the company in last 5 years (20042008) with the help of financial data. To understand the overall financial stability of the company.

1.2.3 ERP and SAP implementation To Study the Implementation Of SAP To study the Project ICE of ONGC 1.2.4

Asset Accounting procedure under the Environment of ERP i.e. SAP

To understand the transactions of additions / deletions/ movement Of Fixed asset like transfer in and transfer out made in SAP To study the depreciation policies on fixed assets in SAP. To know how the reports are generated in SAP.

1.3

Research Methodology
Analyzing few functions of the organisation and their processes. The collection of the data for the study is done through discussion and reference manuals provided. Analysing the Revenue Statement and Balance Sheet Analysis of the financial data of the company from 20042008 and applying the ratio analysis techniques to understand the financial stability of the company. Source: The data collected from few Internet sites for balance sheet and revenue statement.

To Study the Asset Accounting procedure under ERP environment,

For studying the procedures of fixed asset accounting under ERP environment i.e. SAP, manuals are provided which state the procedures and processes of accounting.

LIMITATIONS OF THE STUDY:.

The confidential data of the company cannot be used in the project, so some of the concepts are explained with general examples. The analysis done would pertain only to present set of years

 It deals only in domestic transactions of the company .

Chapter 2
2. 2.1

ONGC as a Case
Background
1947 1960 During the pre-independence period, 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, with minimal exploration input. The major part of Indian sedimentary basins was deemed to be unfit for development of oil and gas resources. After independence, the national Government realized the importance oil and gas for rapid industrial development and its strategic role in defence. Consequently, while framing the Industrial Policy Statement of 1948, the development of petroleum industry in the country was considered to be of utmost necessity. Until 1955, private oil companies mainly carried out exploration of hydrocarbon resources of India. In 1955, 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. With this objective, an Oil and Natural Gas Directorate was set up towards the end of 1955, as a subordinate office under the then Ministry of Natural Resources and Scientific Research. Soon, after the formation of the Oil and Natural Gas Directorate, it became apparent that it would not be possible for the Directorate with its limited financial and administrative powers as subordinate

office of the Government, to function efficiently. So in August 1956, the Directorate was raised to the status of a commission with enhanced powers, although it continued to be under the government. In October 1959, the Commission was converted into a statutory body by an act of the Indian Parliament, which enhanced powers of the commission further 1961 1990 Since its inception, ONGC has been instrumental in transforming the country's limited upstream sector into a large viable playing field, with its activities spread throughout India and significantly in overseas territories. In the inland areas, ONGC not only found new resources in Assam but also established new oil province in Cambay basin (Gujarat), while adding new petroliferous areas in the Assam-Arakan Fold Belt and East coast basins (both inland and offshore). ONGC went offshore in early 70's and discovered a giant oil field in the form of Bombay High, now known as Mumbai-High. This discovery, along with subsequent discoveries of huge oil and gas fields in Western offshore changed the oil scenario of the country. After 1990 The liberalized economic policy, adopted by the Government of India in July 1991, sought to deregulate and de-license the core sectors (including petroleum sector) with partial disinvestments of government equity in Public Sector Undertakings and other measures. As a consequence thereof, ONGC was re-organized as a limited Company under the Company's Act, 1956 in February 1994.After the conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil & Natural Gas Corporation Limited in 1993, the Government disinvested 2 per cent of its shares through competitive bidding. Subsequently, ONGC expanded its equity by another 2 per cent by offering shares to its employees. During March 1999, ONGC, Indian Oil Corporation (IOC) - a downstream giant and Gas Authority of India Limited (GAIL) - the only gas marketing company, agreed to have cross holding in each other's stock. This paved the way for long-term

strategic alliances both for the domestic and overseas business opportunities in the energy value chain, amongst themselves. Consequent to this the Government sold off 10 per cent of its share holding in ONGC to IOC and 2.5 per cent to GAIL. With this, the Government holding in ONGC came down to 84.11 per cent. In the year 2002-03, after taking over MRPL from the A V Birla Group, ONGC diversified into the downstream sector. ONGC will soon be entering into the retailing business. ONGC has also entered the global field through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major investments in Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment in Vietnam.
S hareholdingpatternason 31st March2009

4% 8% 2% 5% 2% 5%

Inidan Promoter (Government) Mutal Funds and UTI Banks, Insurance Comapanies, etc FII

74%
Indian Oil Corporation Ltd. Gas Authority of India Ltd Indian Public

2.2

ONGC VIDESH LTD.

ONGCs wholly owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian multinational, with 44 Oil & Gas projects (7 of them producing) in 18 countries, i.e. Vietnam, Sudan, Russia, Iraq, Iran, Myanmar, Libya, Cuba, Colombia, Nigeria, Nigeria Sao Tome JDZ, Egypt, Brazil, Congo, Turkmenistan, Syria, Venezuela and United Kingdom. OVL has a committed overseas investment of over 5 billion US dollars.

Objectives
To support India's energy security To build balanced portfolio of exploration, discovered and producing assets in focus countries To build a team that excels in performance through assimilation of best practices and technologies To be at par with the best international oil and gas companies Be the strongest Indian Player in the international E&P Build collaborative relations with partners

ONGC Videsh: Accreting hydrocarbon resources abroad

ONGC Videsh Limited (OVL) is a wholly owned subsidiary of Oil and Natural Gas Corporation Limited (ONGC) - the flagship national oil company of India. The primary business of OVL is to prospect for oil and gas acreages abroad including acquisition of oil and gas fields, exploration, development, production, transportation and export of oil and gas. Incorporated as Hydrocarbons India Private Limited on March 5, 1965 and rechristened as ONGC Videsh Limited on June 15, 1989, OVL, over a period of time has grown to become the second-largest E&P

Company in India both in terms of oil production and oil and gas reserve holdings.

Starting with the exploration and development of the Rostam and Raksh oil fields in Iran and undertaking a service contract in Iraq, a major breakthrough was achieved by OVL in 1992 in Vietnam with the discovery of two major free gas fields, namely LanTay and LanDo, in partnership with British Petroleum and PetroVietnam. The success carried on thereafter. In 2001, OVL acquired 20% stake in Sakhalin-1 project in the far east of Russia with an investment of over USD 2.1 billion the single largest Foreign Direct Investment made by an Indian company at that time.

The company, adopting a balanced portfolio approach, maintains a combination of producing, discovered and exploration assets, working as operator in 18 projects and joint operator in 2 projects. OVL produces hydrocarbons from its 7 assets, namely, Russia (Sakhalin-I), Syria (Al-Furat Project), Vietnam (Block 06.1), Colombia (Mansarover Energy Project), Sudan (Greater Nile Oil Project and Block 5A) and Venezuela (San Cristobal Project). Balance 5 projects are in development phase and 25 are in the exploration phase.

OVLs international oil and gas operations produced 8.802 MMT of O+OEG in 2007-08 as against 0.252 MMT of O+OEG in 200203. Today, OVLs cumulative investment overseas has crossed USD 7.5 billion.

While OVL participates and operates in varied environments both political and geographical, it is committed to the highest standards of Occupational Health, Safety and Environment protection and compliance to all applicable local laws and

regulations. Understanding well its Corporate Social Responsibility, OVL makes valuable contributions to the communities and economies in which it operates by investing in education and training, improving employment opportunities for nationals, and providing medical, sports and/or agricultural facilities, besides payment of tax revenues to local governments.Some of the leading alliance partners of OVL are BP, CNPC, Ecopetrol, ENI, Exxon, Norsk Hydro, PDVSA, Petrobras.

2.3

Organisation Chart

2.4

ONGC OFFICES

2.4

ONGC Operations

2.4.1

Engineering Services
Engineering Services has its roots in the erstwhile Engineering & Construction Division; Mumbai that was established in1970's for planned development of India's oil fields in Western Offshore. Engineering Services was visualized as Provider of Engineering Services to Assets. The group comprises of officers drawn from all disciplines to extend project services related to Basic/Detailed Engineering, Maintenance, Project Management, Contract Administration, Facility Renewal/Revamp, RIG/OSV Repair, Marine Survey and Technology scouting.

Role of Engineering Services:

To provide specialized service for detailed engineering and management of offshore and onshore construction projects for surface installations. To gradually reduce the dependence on external consultants. To adopt best-in-class practices in design and project management. To track and adopt technological innovations in project implementation to crash time for first oil. 2.4.2

Well logging
Role of well logging in E&P industry: Well logs form the 'eyes' of the Hydrocarbon Exploration & Production industry. Well logs play an indispensable role in the exploration and exploitation of hydrocarbons. Well logs are used for prediction, location and quantification of hydrocarbon reserves. Well logs are also used in monitoring of reserves and physical well conditions in the production stage.

 Well logging services are used in facilitating hydrocarbon production; to diagnose problems and also for repair and maintenance of wells for sustained production & injection.

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

2.4.3

Geophysical Services
As a part of Corporate Rejuvenation Campaign (CRC), Geophysical Services came into existence as the nodal agency responsible for acquisition and processing of seismic data that in turn becomes an important source after interpretation to discover the hydrocarbons from the sub-surface strata. Offices of Regional Geophysical Services are established at Baroda, Jorhat, Mumbai, Chennai, Kolkata and Dehradun that are headed by Heads of Geophysical Services. Chief, Geophysical Services is the overall functional in-charge of these Regional Geophysical Services. The headquarter of Geophysical Services is at Dehradun. Each Regional Geophysical Services consists of Field Operation Units and Regional Electronics Labs (RELs). Besides this, Geophysical Services has six state-of-the-art data processing centres located in different parts of the country viz GEOPIC (Dehradun), SPIC (Panvel, Mumbai) and Regional Computer Centers (RCCs) at Chennai, Baroda, Jorhat and Kolkata. INTEG is the interpretation arm of GEOPIC and is equipped with state-ofthe-art hardware and software. Field Operation Units look after the seismic data acquisition and are responsible for completion of physical targets and for ensuring / maintaining the quality of data acquired. Processing Operation Units are responsible for processing of the seismic data acquired by the Field Operation Units and the contractual seismic crews. Regional Electronics Labs ensures hassle free operations of electronic equipments used in the field operations. At present, there are 32 on-land seismic crews at Jorhat, Baroda, Kolkata, Chennai & Dehradun and one marine survey vessel MV Sagar Sandhani stationed at Mumbai.

During the last couple of years, Geophysical Services has made significant progress in achieving global standards in data acquisition and processing. Some of the recent initiatives / achievements are:

Induction of 10 nos. of state-of-the-art telemetry recording units in the field crews Induction of PC based field processing and mobile processing units for in-field monitoring of data quality Induction of state-of-the-art 3D survey design and modeling software Induction of pre-stack time & depth imaging technology in GEOPIC, SPIC, RCC, Chennai and On-board MV Sagar Sandhani. MV Sagar Sandhani became the first marine survey vessel in the world with on-board pre-stack depth imaging capabilities. A new 6 streamer dual source seismic survey vessel is likely to be commissioned by early 2006 Induction of time-lapse 3D seismic technology in Balol aera of western Onshore Basin through departmental efforts. The 1st repeat survey was completed in Dec04 and data is under processing.

2.4.4

MARKETING
The ONGC has obtained approval from the Centre for marketing aviation turbine fuel (ATF) and refueling at airports and started marketing products in 2006-07. OIL and Natural Gas Corporation Ltd (ONGC) is selling all its value-added products, especially naphtha, only through public sector marketing companies. ONGC has been selling, even exporting, naphtha on its own after the failure of the PSU companies in effectively marketing its products.

Value-added products including naphtha, LPG, kerosene and heavy-cut, add about Rs 3,000 crore to ONGC's turnover of about Rs 24,000 crore every year. According to sources, a Government notification circulated are selling kerosene and liquefied petroleum gas (LPG) to private players. These products will have to be sold through PSUs despite the sector decontrol as the products continue to attract subsidies. Following this, ONGC is also shelving marketing of natural gas liquid (NGL) or naphtha-equivalent and aromatic naphtha on its own initiative. ONGC had begun selling naphtha on its own after delays in lifting its product by PSU marketing companies, Indian Oil Corporation (IOC) and Hindustan Petroleum Corporation Ltd (HPCL). ONGC discovered "steep price differences costing almost Rs 200 crore each year because of dependence on IOC and HPCL" when it sold naphtha through these PSUs. Naphtha being a deregulated commodity, ONGC's product has remained low on the priority list of PSUs trying to push their own stocks, leaving the company with no other choice but to export. As a result, the company set up its own marketing cell that carried out independent sale and exports of naphtha for ONGC. 2.4.5

(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

 Re-strengthening mutual faith, trust and respect Inculcating a spirit of learning & enjoying challenges Developing Human Resource through virtual learning, providing opportunities for growth, inculcating involvement and exposure to benchmarking in performance.

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, vibrant & self-driven team. The Company cares for each & every employee and has in-built systems to recognise & reward them periodically. Motivation plays an important role in HR Development. In order to keep its employees motivated the company has incorporated schemes such as Reward and ` Recognition Scheme, 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

 Group Incentives for cohesive team working, with a view to enhance productivity

2.4.6

RESEARCH AND DEVELOPMENT

ONGC, India's most valuable and profit-making corporate today, is set to invest further in high-technology exploration and production - and beyond. Instead of confining itself to exploration for and production of crude oil and gas, it will have its own refineries to process crude into petrol, kerosene, high-speed diesel, naphtha, and so on. ONGC is also into the extraction of coal-bed methane (CBM), having pioneered the technology in the country. Methane extracted from coal beds is supplied through pipelines to be used as fuel in industries and to generate electricity. But its extraction involves a tough, technology-intensive process. India is estimated to have the potential to produce around 1.5 trillion cubic metres of CBM. ONGC has nine R&D institutes that are being independently managed. The Keshav Dev Malaviya Institute of Petroleum Exploration in Dehra Dun, which was established in 1962, is the premier centre for basic and applied research in petroleum exploration. KDMIPE deals with the research needs of the various ONGC regions in the areas of basin analysis, petroleum economics, geosciences and developing alternative sources of energy. The Institute of Reservoir Studies (IRS), set up in 1978 in Ahmedabad, is ONGC's nodal agency for formulating oil and gas production schemes. ONGC's decisions on hydrocarbon exploitation are based on IRS' recommendations. The major projects it has completed include development plans for OIL's Kharsang oilfield; OVL's Tuba field in Iraq; the Ain-Zalah oilfield

for the Iraq National Oil Company; and techno-economic studies of potential fields in Vietnam, Indonesia, Russia, China, and so on. The other centres include the Institute of Oil and Gas Production Technology, the Institute of Engineering and Ocean Technology, both in Mumbai; the Institute of Petroleum Safety and Environment Management in Goa, the Institute of Management Development at Dehra Dun, and the Institute of Biotechnology and Geotectonics Studies at Jorhat, Assam. 2.4.7

FINANCE
Finance is very important for any business, as without it businesses would not be able to start or survive. In order to start a business, sources of finance are needed such as grants or loans, which are used to buy essential items such as vehicles, premises and other equipment. Finance is needed for any business to continue running, as money is needed to cover running costs such as electricity and rent as well as towards expanding it. If the planning of the financial side of a business is done accurately, one can track the progress of the business in terms of profit and cash surpluses. Accurate financial documents allow to keep track of your cash flow and also monitor how much of your loans have been paid off by you. One can measure the success through accurate financial planning. Also, financial documents allow us to see when we have enough retained profits to expand and improve our business

-: 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

Finance is the crux of any organisation. For any organisation it is very important to utilise its monetary resources aptly. In the same way the finance department in ONGC is very important department. It consists of different sections such as: Budgeting Inter Unit transfer Pre-Audit Cost accounting Material accounting Sales accounting Cash and Bank Asset accounting Financial concurrence

Budgeting:

Budgeting is a technique whereby actual utilization is compared with budgets in order to make the budget an effective financial control tool. Any differences/ variances are the responsibility of key individuals who can either exercise control action or revise the original budgets after providing necessary justifications to the top management A.Objective

Facilitate the company in the preparation of its revised budgets, budget estimates and commitment budgets; Facilitate the company in monitoring actual performance against the planned budget; Adhering to statutory requirements with regard to declaring the Companys plans to be included in the GOIs five year plans

B. Budgeting process The budgetary process provides flexibility to the managers in their operations and at the same time makes them accountable for cost of operations. At the corporate level, budget allocations to the assets, basins, services, institutes and corporate functions are made on the basis of physical work programme and overall resource generations. The assets/basins, institutes and service chiefs have operational flexibility to provide for the budget items and reappropriation within the budget items. In line with the internationally accepted accounting methods followed by the Company, expenditure is booked to various activities viz. survey, exploratory drilling and development drilling and budget is presented in terms of these activities, besides capital expenditure. The process of activity cost build up is done at each asset / basin by accepting the allocation cost from various services within the work centre and transfer of cost from one work centre to another to depict the activities in the geographical location where the physical activities are accounted as per requirement.

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 (JVs)

Director (Asset )

Director (Basin)

Director (Plant)

Functional Heads

Functional Heads

Functional Heads

Functional Heads

Functional Heads

Locational Budget Coordinator (Services)

Service Heads

Section Head

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. b) Segregation of allocable and non-allocable expenses booked in various CC in CO module. For example VRS expenditure, marketing expenditure, expenditure on Diwali gifts for employee etc. c) Allocation/apportionment of cost of operational and other support services recorded in various CC to relevant cost objects. For example, drilling services, well services etc. 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, 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. This helps to determine the total cost of production for each asset and facilitates inventory valuation. Cost cycles Cost cycles are allocation cycle designed in CO module. Execution of cost cycle results in allocation of costs from sender cost center to the receiver cost center. Two types of cost cycles are designed in CO module.

a) Distribution cost cycle:

In distribution cycle, costs from sender CC are allocated to the receiver CC without losing the identity of the original cost element. Cost elements are numeric codes through which CC are linked to GL in FI module. In ONGCs context, this cycle is used as a primary activity of the period-end procedures to capture all nonallocable costs including impairment provision, if any. Distribution is done at the beginning of the month/ fiscal year by the central team/ or the designated officer, Costing Cell at various locations in the organization.

b) Assessment cost cycle:

In assessment cycle, costs from sender cost center are allocated to the receiver cost center using secondary cost element or allocation structure. Allocation structure is logical grouping of cost elements wherein the costs of sender cost center are allocated to the receiver cost center as per the group defined for reporting purposes. In assessment the identity of the original cost element from sender to receiver is lost. This tool is widely used in ONGC for allocating all support/operation support costs to the receivers. The cycles are run in a particular sequence as per the business processes in order 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. Different cost cycles have been designed in CO module for various locations of ONGC depending on the activities undertaken at each location as per the existing CRC structure. For example assets, basins, plants, institutes, workshops etc.

Accounting for Inter Unit Transaction:

Overview
The Companys locations are spread all over the country and transactions in the form of transfer of materials, services, assets and expenditures take place at these locations. Different inter 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, which operate as individual profit, centres. 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.

Objective
To ensure that IUTs are accurately recorded and reported in the respective period so as to give a true and fair view of the independent locations.

Materials Accounting:
Overview

This deals with accounting processes for the following three types of materials: Stores items Spares Capital items. These materials are procured from both international and domestic markets. Imported materials are generally procured against 100% advance payment through Letter of Credit (LC). In case of certain materials, the actual usage (capital or revenue) is not known at the time of procurement and therefore all materials are recorded as normal inventory at the time of receipt. However,

at the time of issue from Main Store, the material is booked as capital expenditure or revenue expenditure depending on the use of the material as specified by the user.

Objective
Accurate recording and control over receipt, issue, transfer of materials; Liabilities are fully recorded and distributed correctly; Invoices are processed as per agreed terms; and Applicable statutory compliances with respect to material accounting are duly complied with.

Sales Accounting:
Overview
It describes policies, procedures, control, roles & responsibilities related to accounting for sales and collections from debtors. Sales to collection cycle consist of pre- sales activities (like negotiations on price and quantities, agreements), sales order (SO) preparation, inventory sourcing, delivery of goods, billing and finally collections.

The major sources of revenue for the Company are sale of: a) Crude oil; b) Gas; c) Value Added Products (VAP) like Naphtha, SKO, LPG, EthanePropane etc.; d) Services; and e) Scrap. f) ONGCs share in sales made by Joint Ventures. Sale of these products takes place from different billing locations like assets, plants, sales offices etc. The major sections involved in the process of sales, distribution and collections are:

Marketing: Finalization of SOs including sales quantities and delivery schedules Commercial: Fixation of product prices Operations: Supply planning, dispatch of goods, details of services rendered Sales Accounts: Maintaining product prices in system, raising of invoices, statutory compliances, debtor management Cash & Bank (C&B): Collections and payment of statutory levies; Materials Management (MM): Creating scrap inventory in case of scrap sales and creating release order/ SO order in SAP. Indenting Group: Inter unit transfer of material

Objectives

To ensure that sales are recorded accurately and are reported in the correct period To ensure that all statutory liabilities on sales are complied with; To ensure effective debtor monitoring and timely collection.

Pre-Audit
Overview
Pre-Audit section is an integral part of Finance & Accounts (F&A) function at ONGC (from here on ONGC will be referred to as the Company). Pre-Audit section performs following activities, 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), Earnest Money Deposit (EMD) & SD Period-end activities consisting of accounting for materials in transit, revaluation of liabilities in foreign exchange and GR/IR & SR/IR account clearing.

a) b) c) d)

Objectives

 Liabilities are fully recorded and distributed correctly Invoices are processed as per agreed terms.

Cash & Bank

Overview
This section deals with policies; procedures, controls, 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. Timely preparation of BRS to facilitate smooth closure of financial reports. 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. 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 beneficiarys bank account. Successful execution of RTGS transfer by the remitting bank at banks system generates a unique transaction reference number (referred as UTR number). Under this mode, the money is transferred from the bank account of the remitter to the bank account of the beneficiary on the same day.

Core to core can also be used as a mode of payment wherein both parties have an account with the same bank.

Asset Accounting
Overview
This section deals with policies, procedures, controls, roles and responsibilities related to fixed asset accounting. Fixed assets capitalized in the books of ONGC are classified into following broad categories: a) Land (leasehold and freehold) b) Buildings and bunk houses c) Plant & Machinery (P&M) d) Furniture & Fittings (F&F) e) Vehicles, survey ships, crew boats and helicopter f) Railway sidings g) Software (intangibles) Fixed asset accounting is facilitated by Fixed Assets (FA) module in SAP wherein different asset class have been defined based on broader categories of asset like production installations, buildings etc. For capitalization of any asset; an asset master is created in FA module. Each asset has a unique number assigned to it. Asset master has a General Ledger (GL) account assignment based on the asset class for posting of asset value to GL. For each capital item, a census class has been created in SAP that is mandatory for assigning a depreciation key to the asset. Depreciation key determines the rate at which asset is depreciated. For controlling purposes, indentor-wise asset details are maintained in FA module.

Objectives
-

All additions to/ deletions from/ movement of FA are properly recorded in the books of accounts.

Depreciation is charged to Profit & Loss (P&L) account/capitalized in accordance with the accounting policy of the Company. Fixed assets capitalized in the books of accounts actually exist on the reporting date. Intangibles are capitalized and amortized in accordance with the accounting policy of the Company.

Financial concurrence
Overview
Financial concurrence is an endorsement of proposals initiated prior to approval of Competent Purchasing Authority (CPA). Financial concurrence is required to be obtained for procurement of material or procurement of a service or for any other kind of expenditure (including capital expenditure). Financial concurrence facilitates achievement of transparency in decision making for procurement within the Company which is subject to government audits; Central Vigilance Commission (CVC) reviews etc. To help ensure judicious use of resources, the concurring officer is responsible for ensuring financial prudence during procurement by checking the requirement of the material or service, sufficient funds availability for the same, etc. The whole process of financial concurrence is recorded in a file for reference where complete documentation for all cases is maintained. Also, all correspondence between approving authority and concurring authority during the financial concurrence process is maintained on the file. Preparation and maintenance of this file helps resolve disagreements at a later date, if any. After the concurring officer in Finance & Accounts (F&A) section releases the PR in SAP, CPA as per BDP finally approves the PR.

Objectives

The objective of financial concurrence is to protect financial interests in decision making while ensuring financial propriety as a part of internal control system. The internal control is exercised through concurrence by F&A section so that decision making is in accordance with the policies, guidelines, rules, regulations, and provision of budgets, hence ensuring prudent decision making in the interest of the Company.

2.6

Issues or problems at ONGC

1) ONGC being a PSU, the control of government of India is more. 2) Delay in decision making since the approval procedure is done through the GOI 3) Since ONGC being forced to concentrate on E & P, GOI has not give it a right to market its project. IOC does the marketing for crude oil and GAIL for natural gas. Hence ONGC cannot diversify.

Chapter 3

3.0 3.1

Financial Data Analysis from 2004-2008 Balance Sheet

2008 21,388.87 684,785.12 706,173.99 0.00 124,827.09 831,001.08 2007 21,388.87 597,850.39 619,239.26 0.00 151,090.66 770,329.92 2006 14,259.30 525,337.39 539,596.69 0.00 127,226.11 666,822.80 2005 14,259.28 454,194.87 468,454.15 0.00 99,162.19 567,616.34 2004 14,259.27 391,171.66 405,430.93 0.00 114,077.94 519,508.87

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 574,637.76

2007 520,380.67

2006 478,823.45

2005 429,838.49

2004 410,076.23

(-) Acc. Depreciation

469,457.68

431,989.53 88,391.14 377,941.64

400,401.48 78,421.97 333,739.21 48,885.73 30,384.94 37,042.76 88,128.21 522,938.32 678,494.23 165,157.76 311,223.93 476,381.69 202,112.54

371,473.18 58,365.31 288,383.47 40,366.66 25,691.90 37,293.07 94,668.61 395,747.28 553,400.86 132,490.63 245,720.96 378,211.59 175,189.27

353,391.61 56,684.62 251,849.87 44,216.66 24,056.89 23,177.99 87,416.45 171,876.93 306,528.26 120,074.53 25,102.80 145,177.33 161,350.93

Net Block (A) 105,180.08 Capital Work in Prgs. (B) 411,546.29

Investments 58,994.98 57,020.51 (C) Current Assets, Loans & Advs. Inventories 34,806.37 30,337.58 Sundry Debtors 43,603.66 Cash And 224,176.55 Bank Loans And 389,065.29 Advances (i) 691,651.87 Current Liab. & Provs. Current 224,829.42 Liabilities Provisions 218,281.74 (ii) 443,111.16 Net Curr. Assets (i - ii) (D) Misc. Expenses (E) Total Assets (A+B+C+D+E ) 248,540.71 27,594.40 192,807.94 587,107.87 837,847.79 198,359.85 397,651.95 596,011.80 241,835.99

6,739.02 831,001.08

5,140.64 770,329.92

3,663.35 666,822.80

5,311.63 567,616.34

5,406.79 519,508.87

3.2

Revenue Statement
2008 2007 2006 2005 2004

Sales Other Income Total Income Raw Material Cost Excise Other Expenses Operating Profit Interest Name Gross Profit Depreciati on Profit Bef. Tax Tax Net Profit Other NonRecurring Income Reported Profit Equity Dividend 3.3

600,650.97 43,410.18 644,061.15 83,102.12 4,013.84 216,132.42 297,402.59 50,168.76 247,233.83 39,157.65 251,486.36 89,418.52 162,067.84 4,948.63

569,134.33 37,305.04 606,439.37 81,969.45 2,767.32 202,809.87 281,587.69 37,248.08 244,339.61 32,927.99 248,716.66 80,410.24 168,306.42 -11,877.25

479,897.46 18,909.38 498,806.84 54,509.19 5,466.87 150,455.16 269,466.24 37,184.40 232,281.84 38,527.61 212,663.61 73,214.34 139,449.27 4,858.51

461,594.01 14,623.46 476,217.47 67,824.66 6,890.37 151,650.20 235,228.78 35,483.89 199,744.89 18,242.23 196,126.12 66,859.54 129,266.58 563.88

316,496.20 12,930.44 329,426.64 14,932.25 9,960.23 123,722.07 167,881.65 27,530.29 140,351.36 17,680.17 135,601.63 49,587.72 86,013.91 630.38

167,016.47 68,443.93

156,429.17 66,305.05

144,307.78 64,167.03

129,830.46 57,037.36

86,644.29 34,222.42

Ratio

ProfitabilityRatio

26.30%

27.26%

28.93%

25.79%

25.93%

2004

2005

2006

2007

2008

Over a period of time we can see that profitability ratio has gone down from 26.30 % in 2004 to 25.93 % in 2008. The major reason behind this was due to global crude price touching $145 a barrel. So many oil companies have suffered losses in the Q4.

Return on Investment

It is a performance measure, which is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed in percentage or in ratio. The above, graph indicates that the ROI has increased from 32.31 % to 35.78% during the year 2008. This shows that if you invest Rs.100/- in the business you will earn Rs 135.78 i.e a return of 135.78 %.

Debt- Equity Ratio

Debt equity ratio is a measure of a companys financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. The above graph indicates that the debt/equity ratio has declined substantially from 0.28% to 0.18% in 2008 i.e. if you invest Rs.100/- in the business, the proportion of borrowed fund and owned fund would be Rs 18/- is borrowed fund and Rs.82/- is owned.

S ales

56.15%

53 .04% 5 0.96% 49.51% 49.47%

2004

2005

2006

2007

2008

The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. The operating profit ratio has increased from 49% in 2004 to 53% in 2008.

Gross Profit

1 00.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Gros Profit s

200 4 42.99%

2005 43.69%

2006 48.12%

2007 47%

2008 47.4 5%

A company's revenue minus its cost of goods sold. Gross profit is a company's residual profit after selling a product or service and deducting the cost associated with its production and sale. The above graph indicates that the profit after bearing the cost has increased from 40% in 2004 to approx 45% in 2008.

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.

Chapter 4
4.0

ERP and SAP implementation

ERP

stands for Enterprise Resource Planning. ERP is a way to integrate the data and processes of an organization into one single system. Usually, ERP systems will have many components including hardware and software, in order to achieve integration, most ERP systems use a unified database to store data for various functions found throughout the organization. The term ERP originally referred to how a large organization planned to use organizational wide resources. In the past, ERP systems were used in larger more industrial types of companies. However, the use of ERP has changed and is extremely comprehensive, today the term can refer to any type of company, no matter what industry it falls in. In fact, ERP systems are used in almost any type of organization - large or small. In order for a software system to be considered ERP, it must provide an organization with functionality for two or more systems. While some ERP packages exist that only covers two functions for an organization (QuickBooks: Payroll & Accounting), most ERP systems cover several functions. Today's ERP systems cover a wide range of functions and integrate them into one unified database. For instance, functions such as Human Resources, Supply Chain Management, Customer Relations Management, Financials, Manufacturing functions and Warehouse Management functions were all once stand alone software applications, usually housed with ones own database and network, Today, they can all fit under one umbrella - the ERP system.

The Ideal ERP System An ideal ERP system is when a single database is utilized and contains all data for various software modules. These software modules can include:
Manufacturing: Some of the functions include: engineering, capacity,

workflow management, quality control, bills of material, manufacturing process etc. Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc. Human Resources: Benefits, training, payroll, time and attendance, etc Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry, purchasing, etc. Projects: Costing, billing, activity management, time and expense, etc. Customer Relationship Management: Sales and marketing, service, commissions, customer contact, calls center support, etc. Data Warehouse: Usually, this is a module that can be accessed by an organizations customer, suppliers and employees. Advantages of ERP Systems There are many advantages of implementing an EPR system; 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

Disadvantages of ERP Systems While advantages usually outweigh disadvantages for most organizations implementing an ERP system, 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, however, success does depend on skills and the experience of the workforce to quickly adapt to the new system.

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, Applications and Products. It uses the concept of modules ("individual programs that can be purchased, installed, and run separately, but that all extract data from the common database"). SAP AG, the company that provides the enterprise resource planning solution has upgraded the package and launched it as SAP ECC 6.0 in 2005. ECC stands for Enterprise Central Component. 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. Saps ERP solution includes several modules that support key functional areas - 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

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- 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.

4.1 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. Project ICE is one of the worlds biggest ERP (Enterprise Resource Planning) packages, across its 400 locations. This is the first major ERP exercise in the Indian Oil & Gas industry. Apart, from being one of the largest size in the world (with around 10,000 end-users spread over all locations of ONGC), the project was very challenging in terms of complexity also. ONGCs Exploration and Production (E&P) business is unique, different in many ways from other businesses of manufacturing, trading and services. Objective of the Project ICE: The main objective of the ICE project is to optimize and standardize the business processes for integrated information availability. 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. This project will also facilitate moving up the value chain, higher productivity, cost reduction, strengthening efficiencies, lowering of inventories and increasing customer service and satisfaction.

There were five major steps in the implementation of the Project: 1. Project Preparation (Design for all Business modules for all Stages and phases) 2. Business Blueprint (Design for all Business modules for all Stages and phases) 3. Realization (phase wise) 4. Final Preparation (phase wise) 5. Go-live and Support (phase wise). The following are the modules implemented in ONGC: (1) Production and Planning (PP): The primary objective of the PP module is to track planned and actual costs of production processing of Crude Oil, Natural Gas and VAP. It facilitates real time updating of data, helps in calculating actual & standard costs at any stage in the product cycle, monitors real time production environment with online availability of Information related to Materials & Products, as well as customized report generation for faster decision making. (2) Plant Maintenance (PM): The PM module provides a system for the management and maintenance of technical systems including the cost incurred in the planned and breakdown maintenance. By being integrated with other modules it gives the cost of each maintenance activity. It will also track various audit activities and their 9 follow up actions in ONGC. New feature, like online availability of equipment manuals was invoked through LDM functionality. (3) Financial Accounting: This module Integrates General Ledger, Accounts Payable, Accounts Receivable with all the sub ledgers synchronized with the G/L in an on-line, real-time manner. The existing UFSO (KUBER) is a standalone module with only FI

functions. In ICE FI function is integrated with all the adopted R/3 modules starting from supply to the sales. FI function have been suitably updated and up linked to this integrated system to seamlessly interact with all other modules for comprehensive transaction tracking and reporting facilities in all the areas of Financial Management System. (4) Controlling (CO): Controlling (CO) covers the functionalities of Cost Centre Accounting, Profit Centre Accounting and Product Costing for wide range of Management reporting. Controlling features are integrated to the operational modules such as Sales & Distribution, Material Management, Production Planning, Plant Maintenance, OLM, Project System and Financial Accounting. (5) Joint Venture Accounting (JVA): This module is to cover the Joint Venture activities, starting from Joint operating agreements, Work Programs, Equity equations, Expenditure, Cash Calls, Recovery, Billing and Accounting (as operator and non-operator). (6) Sales & Distribution (SD): SD module comprises of entire Sales & Distribution activities starting from sales agreements to delivery and generation & printing of invoice in integrated sales process for all products of ONGC including scrap and services. It is integrated with financial accounting for account receivable management; material management and production planning for real time stock updating and quality management for 10-quality analysis and reporting. Fully compliant with Indian taxation requirement including VAT, it will generate statutory documents, e.g. Excise invoice and sales registers and maintain audit trail of transactions through document flow. (7) Project System (PS): This module encompasses all phases of a project from Project Conceptualization, Budgeting, planning of costs and resources and approval of Estimates to Execution, payment and Completion of the project in an integrated scenario. Many customized developments have been made in PS module for Engg. Services, Drilling, Work over, Survey, NELP, Drydocking and consultancy/ R&D operations. It enables the treatment

of a project as an Enterprise with links to other functional modules and the project can be analyzed in its entirety. (8) Material Management (MM): This module integrates all transactions and functions necessary for material requirement planning, procurement, inventory management, invoice verification, and material valuation. In addition to handling special stock types for Crude oil and other product materials transported by pipeline, this will monitor stocks and automatically generate purchase order proposals for the purchasing department. Existing IMMS system have been seamlessly updated into this system. Additional feature of mapping Service Contracts and Works has been done in this module. (9) Quality Management (QM): QM module covers inspection of procured material, inspection of in-house products, and generation of Quality certificate for issuing finished products to the Customers. Among many features, Vendor/Material complaints processing, quality clearance certificate for incoming material and for the products, failure analysis etc. shall be available through this system. (10) ABAP: The ABAP (Advanced Business Application Programming) development team provides support to functional module team pertaining to any new developments, enhancements, feasibility, data migration etc. in the standard SAP R/3 system so as to configure as per ONGC's business process pertaining to MIS reports, strategic decision making reports. (11) Business Information Warehouse (BW): This module shall generate analytical and strategic reports for Business Analysis and performance tracking including the Corporate Key Performance Indicators. The inputs will come from all finance and logistics SAP modules as well as from non-SAP systems like Excel files also. This would become the single, integrated, MIS System for ONGC. These reports would be available online and on the web. ICE, like any ERP implementation, has components of business process reengineering, optimization of business process, re-

definition of role and responsibilities. This necessitated a careful and deliberate strategy of change management. This was achieved through multiple scoping exercises, presentations, discussions and structured training. During the post go live scenarios close rapport was achieved amongst the hand holding team of core team members, SAP consultants and the users, which helped in a smooth transition.

Chapter 5
5.0

Asset Accounting procedure Under Environment of ERP i.e. SAP

The integrated fixed asset accounting module in ERP is used to manage fixed assets on an inventory basis, regardless of any industry it is. It enables both a qualitative and quantitative overview of the available fixed assets. Included in this are all yearend closing evaluations, such as the asset history sheet, deprecation calculation and transfer of fixed asset in or out of the company Accounting policies Fixed assets FA is stated at historical cost. FA received as donations/gifts are capitalized at assessed values with corresponding credit transferred to Capital Reserve. All costs relating to acquisition of fixed assets till the time of commissioning of such assets are capitalized. Intangibles Costs incurred on intangible assets, resulting in future economic benefits are capitalized as intangible assets and amortized on Written down Value (WDV) method beginning from the date of capitalization. Depreciation Depreciation on FA is provided for under the WDV method in accordance with the rates specified in Schedule XIV to the Companies Act, 1956 Depreciation on additions/deletions during the year is provided on pro-rata basis with reference to the date of

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. Leasehold land is amortized over the lease period.

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, is initially capitalized as exploration costs, development costs or producing properties and expensed/depleted. Producing Properties Producing Properties (PP) are created in respect of an area/ field having proved developed oil and gas reserves, when the well in the area/ field is ready to commence commercial production. Cost of temporary occupation of land, successful exploratory wells, 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. Depletion of Producing Properties PP is depleted using the Unit of Production method. 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. In case of acquisition, considering the Proved Reserves depletes cost of producing properties. Process narratives & flow charts Additions to fixed assets

Fixed assets capitalized in the books of the Company are classified into land (leasehold and freehold), buildings and bunkhouses, P&M, F&F, vehicles, survey ships, crew boats, helicopters, railway sidings and software (as intangibles). This paragraph explains the processes, by which different types of fixed assets are capitalized in the books of accounts:
a)

Capitalization of ready to use assets (other than land). Assets that require installation and/or commissioning (other than those capitalized through WBS (work breakdown structure) route in Project Systems (PS) module in SAP). For example Air conditioning unit. FA capitalized through WBS route in PS module (for example PP), buildings and other capital projects). Well materials (like casing pipes, tubular, well heads etc.). Capitalization of land (leasehold and freehold). Intangibles (software). Capitalization of insurance spares. Capitalization of forex fluctuations, if any, on purchase of capital items. Capitalization workshop. of asset fabricated in central

b)

c)

d)

e) f) g) h)

i)

j)

Creation of new capital item in SAP on first purchase. Dry well assets.

k)

Flow Charts

Ready to use assets (excluding land)

Ready to use assets include F&F, vehicles, crew boats, helicopters and certain P&M that are ready to use. These

capital items are procured through Purchase Requisition (PR)/Purchase Order (PO) route and received in main stores. Capitalization process commences when the indenter/ requisitioned creates a reservation in the system for issue of capital item from stores.

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. This does not include fixed assets capitalized through WBS route in PS module in SAP. This process commences before a Purchase Requisition

(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, buildings and other capital projects. 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, 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), 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.

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

 Capitalization of well materials like casing pipes, tubular etc There are various materials used for drilling of exploration or development wells like casing pipes, tubular, well heads, drill pipes, X-mas tree etc. These materials are capitalized as P&M and depreciated at 100% (except for well heads & X-mas tree which are depreciated at 30%). Depreciation on well materials is initially posted to internal order 1ZZ in SAP. From the internal order it is finally posted to EWIP or DWIP as the case may be. Well materials are issued from stores on a daily basis to WBS element and capitalized as one single asset at the month end.
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

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.

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, 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

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

Replacement of fixed asset

Replacement of FA would involve discarding of original asset as a first step and then creation of new asset Accounting for depreciation/depletion

FA is depreciated whereas PP is depleted based on oil & gas production and oil & gas equivalent reserve estimates. This section has been divided into following three sections:
a)

Accounting for depreciation on FA

Depreciation is accounted for in books of accounts in accordance with the following accounting policies:
I.

Depreciation on FA is provided for under the WDV method in accordance with the rates specified in Schedule XIV to the Companies Act, 1956 except items of P&M used in wells with 100% rate of depreciation and low value items not exceeding INR Five Thousand that are fully depreciated at the time of addition. Leasehold land is amortized over the lease period. 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. Depreciation key is defined for each asset in the asset master. Depreciation key determines the rate of depreciation of the asset. Depreciation on each asset is computed on daily basis in the system and posted at the time of depreciation run in SAP. There are certain items for which special rates of depreciation have been prescribed under Schedule XIV of the Companies Act, 1956 and the detailed list of these items is available on SAP. Depreciation run is done on a monthly basis.

II. III.

IV.

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, if any, 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.

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. For the purpose of depletion computation and posting, group asset is created corresponding to creation of PP asset in SAP. Since, PP asset is created separately for expenditure, depreciation and abandonment cost, corresponding group asset is also created separately for these three items. A different depreciation key 70 is assigned to group asset that facilitates depletion computation on depreciation run.

Asset Accounting section at units executes repeat deprun in SAP for computation & posting of depletion

Depletion recomputed by CA,DDN manually and communicated to Asset Accounting section at units

Asset Accounting section at units posts the shortfall or reverse excess depletion, 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. Policy specifies the frequency and criteria for conducting physical verification: In case of FA, coverage & frequency is based on the classification of assets into category A, B, C for self verification by indenter
a)

Category A includes individual asset with gross book value greater than INR One Crore. These items are physically verified annually. Category B includes individual asset with gross book value between INR Ten Lakh to INR One Crore. These items are physically verified annually. Category C includes individual asset with gross book value less than INR Ten Lakh. These are further divided into subcategories i.e. C1, C2 and C3 for the purpose of verification. C1 - Asset with gross book value greater than INR One lac but less than INR ten Lakh

b)

c)

C2 - Asset with gross book value greater than INR Fifty Thousand but less than equal to INR One Lakh. C3 - Asset with gross book value greater than INR Ten Thousand but less than equal to INR Fifty 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.

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.

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.

On receipt of approval Asset Accounting section posts adjustment in SAP & creates the asset

On approval, 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. In ONGC all the reports are generated under SAP. They are, Report S. No Report Name Frequency generation process Asset history sheet (Provides details of additions, Quarterly/ deletions, movement, any Annual other adjustments to fixed assets & accumulated depreciation) CA section, 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

Carrying value for impairment working

Quarterly

T-code OARP*

CA section, 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

Depreciation on facility

Quarterly

T-code ZFINBVFCLT

Findings and Conclusions

Findings
The implementation of the Project ICE has resulted in the following benefits: Optimization and standardization of re-engineered business processes to enable integrated information availability; Availability of single source management information that is accurate and on time to facilitate decision making; Elimination of duplication of activities across business processes by capturing data at source point itself Facilitate information consolidation at all levels resulting in decentralization of decision-making leading to better business governance through the information system; Availability of information at the right time, at the right place, thereby, is enhancing managerial effectiveness leading to higher productivity; Integrating all business applications like Production and Planning (PP), Joint Venture Accounting (JVA), Sales & Distribution (SD) under single ERP platform Improved responsiveness to changing global market scenario by adopting new and improved technology solutions; Improved stakeholder relationship management, providing better services to the society, shareholders, partners, Government etc; Integrated Supply Chain Management, optimization of inventory holding achieving better working capital utilization.

Asset accounting has following advantages done on SAP

It becomes easier to generate important reports like Asset history sheet, Carrying value for fixed assets and its depreciation.

avoided.

Due to integrated systems, duplication of entry is

Since, asset accounting procedure is in SAP, human errors and omissions are reduced, adding more accuracy to the procedure.

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. More Govt. interference Opportunities To venture into downstream activities like Marketing of oil in India. 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. and PPAC regarding price fixation Decreasing market price of crude oil Govts decision regarding fixation of price band on import of Crude Oil Frequent changes in technology

Conclusion