McKinsey & Co has recommended sweeping changes in the functioning, outlook and objectives of upstream oil navaratna Oil and Natural Gas Corporation (ONGC).
In the first part of its report, McKinsey has suggested that ONGC should have four clearly defined goals for its future. To enable it to leverage its strengths, ONGC should focus on reserve accretion and increasing output, promote organisational and individual accountability and function with commercial goals uppermost in mind.
The report titled Organisation Transformation Project, has identified four thrust areas reserve accretion, commercial accountability, multi-disciplinary approaches and overseas opportunities essential for ONGC to maintain its dominant position in the Indian oil sector.
The report is a part of McKinseys 18-month study on the reorganisation of ONGC. Some of the reports recommendations like commercial accountability and reserve accretion have come at an opportune time. ONGCs oil production has been falling and not many large new discoveries are being made.
Also, the government last week unshackled the navaratnas by giving them greater operating freedom. Implementing the report is expected to enable ONGC to handle the emerging competitive environment better.
Presented last week to senior management in Delhi, ONGC has already started work on the report. It plans to embark on the transformation project at two pilot sites Assam onshore and Bombay offshore.
Different sites will help McKinsey group the exploration and production (E&P), assets. It will also throw light on performance measure of each asset in different environment, ONGC sources said. The oil major has also started upgrading its financial systems and is holding multi-disciplinary team meetings at some centres.
The report lays a lot of stress on reserve accretion. The declining oil production had forced ONGC to take a look at its reserves which have plunged by 10 per cent to its production ratio. ONGCs balance recoverable reserves is placed at 1,217 million tonnes. With a reserves to production ratio of 23 per cent, ONGC, on an average, produces 30 million tonnes of crude annually.
ONGC sources claim that the corporation till 1994-95 was able to balance its recoverable reserves. We have been able to maintain the status quo in case of reserves till 1994. However, during the last two years, the corporation has not been able to find more oil reserves, sources indicated. Oil reserves have plunged by 10 per cent in the last two years.
ONGC must recreate its frontier mentality of the 70s when reserve accretion was the mantra and the best organisational resources were deployed on the most important areas, states the report.
The report also focuses on commercial accountability of ONGCs assets like exploratory areas, production fields, support services, research utilities and logistic department.
In a major shift, ONGC is planning to appoint asset managers at all E&P centres, who will assume the overall responsibility for operations. The asset managers will be sufficiently empowered and will be responsible for productivity and profitability in their particular fields.
At present, such functions are being handled by the different regional heads.
McKinsey is working on a system to bill support services provided by different units of ONGC. Though the billing would essentially be a book transaction, it is expected to instill a commercial attitude and empower the business units.
From a functional, individual approach, McKinsey has suggested that different departments function in a cross-functional manner, pooling talent and expertise from other departments. At present, ONGC has four departments drilling, operation/production, technical, and personal & accounts which often leads to fragmentation of efforts.
Instead of working in isolation, each department is expected to work together to tackle issues. It is expected to help implement projects at a quicker pace.
McKinsey is working on a detailed plan to change the organisational structure, work practices and procedures in ONGC. It will also look into growth opportunities, including overseas E&P operations of ONGC.
