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ONGC Vs Exxon Mobil

Mar 12, 2004

Today, when the Government has allowed capital account convertibility (although in a limited sense), investors can now invest their money in the stock markets in almost any part of the world. Although this amount has been capped to the tune of US$ 25,000, it is still a significant leap. As a leading research house, we thought of guiding our investors through a series of comparisons of stocks abroad vis-a-vis stocks in the Indian markets. We start with a comparison of India's flagship oil giant Oil and Natural Gas Corporation with the world's leading oil company Exxon-Mobil.

Oil and Natural Gas Corporation:

This India's oil giant accounts for nearly 83% domestic crude supply and 85% of natural gas production. ONGC's global proved crude oil reserves as per FY03 numbers stood at 3,979 m barrels and proved natural gas reserves stood at 463 BCM (billion cubic meters). ONGC's independent exploration license covers an area of 6,80,000 sq. kms in India and 75,000 kms abroad. ONGC has also entered into oil equity and exploration activities abroad with its overseas subsidiary ONGC Videsh (OVL). The company further plans to invest Rs 35 bn (approx.10% of FY03 revenues) in exploration and development activities of OVL. Based on FY03 stats, the Reserves/Production ratio for the company stand at 16 years for crude and 14 years for natural gas. Reserves/Production Ratio indicates as to at the current rate of production, how long would the reserves last. ONGC and its subsidiary, Mangalore Refinery and Petrochemicals Limited (MRPL) have been granted license to set up 1,600 retail outlets in the country. It does not have its own major refining base other than MRPL.

Exxon Mobil:

Exxon-Mobil is the world's leading integrated oil major with a presence in more than 40 countries spanning across six of the seven continents in the world thereby geographically diversifying its operations. It has a total resource base of 72 BOEB (billion oil equivalent barrels), total proved reserves of 22 BOEB and a total production of 4.2 MOEB/D (million oil equivalent barrels per day). It further has refining operations in more than 26 countries with a total capacity of 6.3 million barrels per day, 42,000 retail outlets in across 100 countries catering to 1 m industrial and wholesale customers and lubricating marketing activities in almost 200 countries. It also provides aviation fuel at more than 700 airports and marine fuel at 300 marine ports.

(US$ m) - FY03 ExxonMobil ONGC
Net sales 178,909 7,315
Operating profit (EBDITA) 22,661 3,877
Operating profit margin (%) 12.7% 53.0%
Interest 398 31
Depreciation 8,310 869
Profit before tax 17,510 3,395
Profit after tax/(loss) 11,460 2,217
Net profit margin (%) 6.4% 30.3%
No. of shares (m) 6,821.4 1,426.0
Diluted earnings per share (US$)* 1.7 1.6
P/E ratio (x) 20.8 4.8
(* annualised)    
US$ as on 31/03/03 = Rs 47.49

The above table indicates that Exxon-Mobil's revenues are almost 24 times that of ONGC, while the diluted price to earnings comes to 4 times. Although ONGC is moving towards becoming fully integrated oil major in India, it has a lot of catching up to do to become a global player. We believe that the company is on the right track with its continuous aspiration to acquire oil fields abroad and also to venture into more productive areas for exploration. The company is all set to take on the competition into the retail foray with its entry in FY05.

The above figures just give a perspective of the quantum of operations of the two companies and therefore do not actually resemble the absolute performance. It should be remembered that although ONGC does negotiate crude at international prices with its customers, allocation is done by the Ministry of Petroleum and Natural Gas (MOPNG), thereby depriving ONGC of competitive negotiations. Going forward, we feel with deregulation of the petroleum sector, ONGC shall be better placed to derive internationally competitive prices from its customers

However, we feel that operating margins of ONGC is likely to move towards the Exxon-Mobil levels over the long-term considering the fact that the Indian major is entering into downstream and petrochemical businesses. It has to be remembered that Exxon has presence throughout the value chain of the energy sector.


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