Companies & Industry »Directors' Report
Oil & Natural Gas Corpn Ltd - Directors' Report

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Code: ONGC
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DIRECTORS




Dear Shareholders,

On behalf of the Board of Directors of your company it is my privilege to present before you the, 20th Annual Report on the business and operations of Oil And Natural Gas Corporation Ltd. (ONGC) and its Audited Statements of Accounts for the year ended March 31, 2013, together with the Auditors` Report and Comments on the Accounts by the Comptroller and Auditor General (CAG) of India. The fiscal 2012-13 has been yet another year of sustained performance, success and growth for your Company, which along with the other group companies, excelled in its endeavours; particularly in its core activities of Exploration and Production (E&P) of crude oil and natural gas. Your company scaled new heights and created a world record by drilling the well NA7-1 in KG-DWN-2004/1 block in the East Coast at a water depth of 3,165 meters (10,385 feet); the deepest in the world. The significant milestones achieved by your Company during the year are:

• Your Company accreted 84.84 Mtoe of ultimate reserves in the domestic fields (ONGC operated); the highest in the last twenty two years.

• For the 8th consecutive year your company maintained the Reserve Replacement Ratio (RRR) of more than 1. RRR during the year has been 1.84.

• The Turnover of the Company stood at Rs.833,090 million, the highest-ever. The turnover of the ONGC Group at Rs. 1,658,488 million has also been the highest-ever.

• Your Company recorded a net profit of Rs.209,257 million during the year under review.

• During 2012-13. ONGC had to share the highest-ever under-recovery of Rs. 494,207 million (an increase of Rs. 49, 550 million over the previous year) towards the under-recoveries of Oil Marketing Companies (OMCs). Further, there has been increase in Cess by

Rs. 42,140 million during the year. This trend of high under-recoveries and burden of Cess, if continued, is likely to draw down the cash reserves of the Company and impact the exploration, production and acquisition plans of ONGC and OVL apart from affecting the bottom line in near future.

• ONGC Videsh Limited (OVL), wholly owned subsidiary of your Company, recorded highest-ever Net Profit of Rs. 39,291 million.

• Mangalore Refinery and Petrochemicals Limited (MRPL), a subsidiary of your Company, recorded highest-ever thru`put of 14.40 MMT.

• Your Company received `Excellent` MoU performance rating for the year 2011-12 with a score of 1.222; the highest since adoption of the MoU system in 1988.

These achievements reflect your Company`s proven commitment towards sustained growth and performance excellence. Consistently driven by well-defined growth strategies, your company delivers and improves performance year-on-year basis. Our performance is the benchmark of excellence in various facets of our activities and has been well recognized through peer-and-public evaluations.

Global Recognition

Your Company moved up 16 positions to be ranked 155th in the 2013 Forbes Global 2000 list of world`s biggest companies and is ranked 23rd among global oil and gas companies based on sales, profits, Assets and market value. It is my privilege to bring to your kind notice that the `2012 EU Industrial R&D Scoreboard` listed ONGC at the 36th position in the list of oil and gas companies based on Research and Development (R&D) expenditure. You will be pleased to know that ONGC is the only company in this list from India. As per the Platts 2012 rankings, your Company is ranked as the 3rd largest listed E&P Company in the world.

As a fitting acknowledgment of your Company`s motto to `Grow GREEN` and a testament of its green credentials, ONGC has been ranked at 386 by the Newsweek Green Ranking 2012 and 15th among the energy companies, above global energy majors like

Chevron, Lukoil, ConocoPhillips, Gazprom, Sinopec, Exxon Mobil and Petro China. Top rankers in the list are mostly the companies from retail, IT or Banking sectors which have minimal carbon footprints due to the inherent nature of their businesses.

Performance: 2012-13 Exploration

During the year, your company made 22 oil and gas discoveries in domestic fields (operated by ONGC). Out of these, 12 discoveries were made in the new prospects whereas 10 were new pool discoveries. Nine discoveries were made in NELP blocks and thirteen in the nomination blocks.

The 12 new discoveries made during the year are:

Phulani-1 (Oil) in Assam & Assam Arakan basin,

Vadatal-5 (Oil & Gas) in Cambay basin,

Koravaka-1 (Oil & Gas),Bantumilli South-1 (Gas), Mukkamala-1 (Gas)and Vanadurru South-1 (Oil & Gas) in onlandKrishna- Godavari basin,

KGOSN041NASA-1(Saveri#1, Gas) in KG Offshore,

KGD051NAA-1 (Gas) in KG deep-water offshore,

Pandanallur-8 (Oil & Gas), Madanam-3 (Oil & Gas) and Pandanallur-7 (Gas) in onland Cauvery basin and

MBS051NBA-A (Gas) in Western Offshore basin.

The 10 new pool discoveries made during the year are:

Agartala Dome-37 (Gas) in Assam & Assam-Arakan Fold belt,

Mandapeta West-12 (Gas) in onland KG basin,

KG-DWN-98/2-A-2 (Oil &Gas) in KG deep-water offshore,

C-39-14 (Oil & Gas), BH-68 (Oil &Gas), D1-D-1 (Oil) in Mumbai Offshore

Aliabet-4 (Gas)in Gulf of Cambay, &

Anklav-9 (Oil), Motera-36 (Oil) and Mansa-36 (Oil) in Western onland.

Discoveries in Bantumilli South-1 (Gas) and Vanadurru South-1 (Oil & Gas) have strengthened the prospectivity of the area and have opened up the entire adjoining tract for hydrocarbon exploration. Basement oil and gas discoveries in Madanam-3 (the first hydrocarbon strike in ONGC operated NELP blocks in Cauvery onshore Basin) and Pandanallur-8 (Oil & Gas) discovery in Cauvery onshore Basin and BH-68 (Oil & Gas) in Mumbai offshore has given huge impetus towards basement being a prolific play. KG-DWN-98/2-A-2 (Oil & Gas) discovery in NELP deep-water block KG-DWN-98/2 has given a definite positive fillip to ONGC`s efforts towards monetizing discoveries in the Northern Discovery Area (NDA) of this block. This is the first time that a substantial amount of oil has been established in the block. At the same time, the well DWN-U-3 has given the highest quantity of commercial gas i.e., 7 LCMD.

New pool discovery (D1-D-1) in N.B. Prasad (D-1) field has been a significant discovery and with this, oil and gas in-place volume of the field has increased to 149 MMT of oil and oil equivalent gas (O+OEG); making it the third largest field after Mumbai High and Neelam-Heera fields. This discovery has already been put on production. In addition to these discoveries, 23 more exploratory wells drilled for delineation/ appraisal of known pays in existing fields proved to be hydrocarbon bearing and have resulted in field growth. Out of 14 onshore discoveries made during 2012-13, four discoveries (Anklav-9, Motera-36, Mandapeta West-12 & Phulani-1) have already been put on production and one discovery (Mansa-36) is under trial production. Efforts are on for bringing the other discoveries on production at the earliest. One discovery in offshore sector (D1-D-1) has also been put on production.

Reserve accretion & RRR

Your Company accreted 265.65 million metric tonnes of oil equivalent (MMtoe) of In-place volume of hydrocarbon in the domestic basins (operated by ONGC). The ultimate reserves accretion of 84.84 MMtoe is the highest in last 22 years. Total reserve accretion in domestic basins including ONGC`s share in PSC JVs stands at 89.08 MMtoe. With a Reserve Replacement Ratio (RRR) of 1.84 (with 3P Reserves), it was the 8th consecutive that your Company has maintained a RRR of more than one.

Voluntary disclosures in respect of Oil & Gas Reserves, conforming to SPE classification 1994 and US Financial Accounting Standards Board (FASB-69) were also made by your Company. The Ultimate Reserve accretion during the year (84.84 MMtoe) has surpassed the record breaking performance of previous fiscal (84.13 MMtoe).

A snapshot of ONGC`s Reserve Accretion Profile:

Ultimate Reserve (3P) accretion O+OEG (in MMtoe)
Year Domestic Assets (1) ONGC`s share in Domestic JVs (2) Total Domestic Reserve (3)=(1)+(2) OVL`s Share in Foreign Assets (4) Total (5)=(3)+(4)
2008-09 68.90 2.82 71.72 135.08 206.80
2009-10 82.98 4.39 87.37 0.35 87.72
2010-11 83.56 0.29 83.85 46.23 130.08
2011-12 84.13 1.31 85.44 - 0.31 85.13
2012-13 84.84 4.24 89.08 14.16 103.24

Statement of Reserve Recognition Accounting

The concept of Reserve Recognition Accounting attempts to recognize income at the point of discovery of reserves and seeks to demonstrate the intrinsic strength of an organization engaged with exploration and production of hydrocarbons with reference to its future earning capacity in terms of current prices for income as well as expenditure. This information is based on the estimated net proved reserves (developed and undeveloped) as determined by the Reserves Estimates Committee.

As per FASB-69 on disclosure about Oil and Gas producing activities, publicly traded enterprises that have significant Oil and Gas producing activities, are to disclose with complete set of annual financial statements, the following supplemental information:

a) Proved Oil and Gas reserve quantities

b) Capitalized costs relating to Oil and Gas producing activities

c) Cost incurred for property acquisition, exploration and development activities

d) Results of operations for Oil and Gas producing activities

e) A standardized measure of discounted future net cash flows relating to proved Oil and Gas reserve quantities

Your Company has disclosed information in respect of (a) to (d) above in the Annual Financial Statements.

Your Company has also made voluntary disclosure on standardized measure of discounted future net cash flows relating to proved oil and gas reserve at Annexure-A to this report as statement of Reserve Recognition Accounting (RRA).

Oil & Gas production

It is my pleasure to inform you that during FY`13, your Company has been the largest producer of oil and gas in the country (from its domestic operations) contributing 69 per cent of oil and 62.28 per cent of natural gas production.

Oil & Gas production of ONGC Group, including PSC-JVs and from overseas Assets has been 58.71 MMtoe (against 61.18 MMtoe during FY`12). The major reason for this relative drop in production during FY`13 is the geopolitical situation and unrest in Sudan, South Sudan and Syria which direclty affected production from our Assets in these countries. At the same time, natural decline in domestic fields has also been a contributing factor to this year`s lower production figures.

Out of the total production of 30.46 MMT of crude oil, 74 per cent production came from the ONGC operated domestic fields, 14 per cent from the overseas Assets and balance 12 percent from domestic joint ventures. As far as natural gas production is concerned majority of production (84 per cent) came from ONGC operated domestic fields and of the remaining, 10 per cent came from overseas Assets and 6 per cent from domestic joint ventures.

Production from overseas Assets

ONGC Videsh Limited (OVL), the wholly owned subsidiary of your Company, has eleven producing Assets in eight countries - Venezuela (1), Brazil (1), Colombia (1), Sudan (1), South Sudan (2), Syria (1), Vietnam (1), Russia (2) and Azerbaijan (1). Total production from these overseas Assets during FY`13 has been 7.26 MMtoe of O+OEG (Crude oil: 4.34 MMT & Gas: 2.92 BCM). 74 percent of the production was contributed by the Assets in Russia (36.5 per cent), Vietnam (29.5 per cent), Sudan & South Sudan (8.3 per cent), and the remaining 26 per cent from the Assets in Syria, Colombia, Venezuela, Brazil and Azerbaijan.

New projects

The Board of your Company approved redevelopment of Western Periphery of Mumbai High South and Integrated development of Bassein field during the year with an investment of Rs. 41,132 million. Besides this, pipeline replacement Phase-III project in the west coast was also approved with an investment of Rs. 25,473 million.

During the year, your Company completed four major projects - Construction of new MHN Platform, Revamping of WIN Platform, Low pressure gas processing and compression at Rajahmundry and Additional gas processing facility at Hazira Plant.

Overall Production and Sales Performance

Presented below are the highlights of production and sales of Crude Oil, Natural Gas and Value Added Products (VAP):

Production Qty Sales Qty Value

(Rs. in million)

Unit FY` 13 FY` 12 FY` 13 FY` 12 FY` 13 FY` 12
Direct
Crude Oil (MMT) 26.13 26.93 23.69 23.09 533,268 507,873
Natural Gas (BCM) 25.34 25.51 20.16 20.20 165,400 141,396
Ethane/Propane 000 MT 428 463 425 461 13,440 12,741
LPG 000 MT 1,006 1,037 1,005 1,033 31,484 23,711
Naphtha 000 MT 1,534 1,557 1,520 1,557 76,804 72,167
SKO 000 MT 108 79 106 79 3,686 1,520
Others 1,589 1,850
Sub Total 825,671 761,258
Trading
Motor Spirit 000 KL 0.56 0.43 42 30
HSD 000 KL 0.02 0.07 1 3
Others 0 0
Sub Total 43 33
Total 825,714 761,291

1. Financial Results

Despite volatile markets and sharing of highest-ever under-recoveries of Rs. 494,207 million during the year, your Company has earned a Profit After Tax (PAT) of Rs. 209,257 million (Rs. 251,229 million in 2011-12), down 16.70 per cent. During the year under review, your Company registered Gross revenue of Rs. 833,090 million (Rs. 768,871 million in 2011-12), up 8.35 per cent.

Highlights

Gross Revenue Rs.833,090 million
Profit After Tax (PAT) Rs.209,257 million
Contribution to Exchequer Rs.408,806 million
Return on Capital Employed 38.27%
Debt-Equity Ratio 0.00
Earnings Per Share (Rs.) : 24.46
Book Value Per Share (Rs.) : 144

(Rs. in million)

Particulars 2012-13 2011-12
Revenue from operations 833,090 768,871
Other Income 54,367 44,529
Total Revenues 887,457 813,400
Profit Before Interest Depreciation & Tax (PBIDT) 389,455 410,327
Profit Before Tax (PBT) 305,443 366,425
Profit After Tax (PAT) 209,257 251,229
APPROPRIATION
Interim Dividend 76,999 66,305
Proposed Final Dividend 4,278 17,111
Tax on Dividend 13,012 13,286
Transfer to General Reserve 114,968 154,527
TOTAL 209,257 251,229

Previous year figures have been regrouped wherever necessary.

Reduction in FY 12 -13 profit as compared to FY 11-12 is primarily due to increase in share of under recoveries (Rs.49,550 Million), additional Cess (Rs.42,140 Million) and exceptional income accounted for in FY 11-12 on account of Royalty adjustment for JV Block with M/s Cairn in Rajasthan, partly offset by increase in gross revenue. It would also be pertinent to mention that the stand-alone PAT of ONGC for 2012-13 contribute more than 86% of the Group’s PAT whereas ONGC (stand alone) accounts for just 50.2% of the Group’s revenues. However, if the present trend of under-recoveries and Cess burden on ONGC continues, the profitability and surplus generating capacity of the Company would be affected adversely; thereby may have impact on future growth of the group.

2. Dividend

Your Company paid interim dividend of Rs. 9.00 per share (180 per cent) in two phases (Rs. 5.00 and Rs. 4.00). The Board of Directors have recommended a final dividend of Rs. 0.50 per share (10 per cent) making the aggregate dividend at Rs. 9.50 per share (190 per cent) as compared to Rs. 9.75 per share (195 per cent) paid in 2011-12. The total dividend will absorb Rs. 81,277 million, besides Rs. 13,012 million as tax on dividend and works out to 45.06 percent of PAT against 38.49 percent in 2011-12

3. Management Discussion and Analysis Report

As per the terms of Clause 49(IV) (F) of the Listing Agreement with the Stock Exchanges, a Management Discussion and Analysis Report (MDAR) has been included and forms part of the Annual Report of the Company.

4. Financial Accounting

The Financial Statements have been prepared in accordance with the Generally Accepted Accounting Principles (GAAP) and in compliance with all applicable Accounting Standards (AS-1 to AS-29) and Successful Efforts Method as per the Guidance Note on Accounting for Oil & Gas Producing Activities issued by The Institute of Chartered Accountants of India (ICAI) and provisions of the Companies Act, 1956. Further, as per Ministry of Corporate Affairs (MCA) notification, the financial statements have been prepared under the Revised Schedule VI format of the Companies Act, 1956.

5. Subsidiaries

I. ONGC Videsh Limited (OVL)

ONGC Videsh Limited (OVL), the wholly-owned subsidiary of your Company for E&P activities outside India, achieved the highest-ever profit (PAT) of Rs.39,291 Million during FY` 13, an increase of 44.4 per cent as compared to the PAT of Rs.27,211

Million during FY`12. OVL`s share in production of oil and oil equivalent gas (O+OEG), together with its wholly-owned subsidiaries ONGC Nile Ganga B.V., ONGC Amazon Alaknanda Limited, Imperial Energy Limited and Carabobo One AB, was 7.260 MMtoe during FY`13 as compared to 8.753MMote during FY` 12. The oil production decreased from 6.214 MMT during FY`12 to 4.341 MMT during FY`13 primarily due to the geopolitical situation in Sudan, South Sudan and Syria and the natural decline in different matured fields in Sakhalin-1, Russia, San Cristobal Project, Venezuela and BC-10, Brazil. OVL has resumed its production from Block 5A, South Sudan on April 6, 2013 and from Blocks 1, 2 & 4, South Sudan on April 13, 2013. However, the operations of Al Furat Project (AFPC), Syria would resume only after improvement in geopolitical situations and softening of sanctions. OVL Furat Project presently has participation in 32 Assets in 16 countries out of which 11 are producing Assets, 5 discovered/ under-development Assets, 14 exploratory Assets and 2 pipelines. Significant highlights of OVL during FY`13 are:

i. Acquisition of Hess Corporation`s 2.7213 per cent participating interest in the Azeri, Chirag and the Deep Water Portion of Guneshli Fields in the Azerbaijan sector of the Caspian Sea ("ACG") and 2.36 per cent interest in the Baku-Tbilisi-Ceyhan ("BTC") Pipeline was completed on March 28, 2013. The acquisition would bring about 9 per cent additional proved reserves to the portfolio of OVL and daily oil production of about 19,000 barrels (about 0.9 MMT per annum.

ii. OVL has won two exploration blocks in Colombia under Colombian Bid Round 2012 (i) Offshore block Guaoff-2 in Guajira Basin with 100 per cent Participative Interest (PI) and (ii) Onshore Llanos-69 (LLA-69) block in prolific llanos basin of Colombia was won by Mansarovar Energy Colombia Limited (MECL); a 50:50 joint venture between OVL and Sinopec of China.

iii. OVL discovered Oil in the first well of the onshore exploration block CPO-5 in Colombia in which it is the Operator with 70 per cent participating interest. The first of the two commitment wells i.e. Kamal-1 was spudded on October 29, 2012 and drilled up to the target depth of 10,500 feet with oil discovery. The second well is currently under testing with encouraging results.

iv. The development of Lan-Do field in Block 06.1, Vietnam, where OVL has 45 per cent PI, has been completed and the field was put to production on October 7, 2012. The completion of Lan-Do field enhanced the production capacity of the Block 06.1 by 0.20 BCM.

v. OVL has relinquished/ surrendered its interest from three non-operated exploration blocks namely N-25 to 29 & N-36 in Cuba; BM-S-74 and BM-BAR-1, both in Brazil due to unsuccessful exploratory wells.

vi. Project Carabobo-1 in Venezuela is under development and had started early production in January 2013.

vii. OVL made an inaugural US$ bond offering in international capital market with a duel tranche US$ 800 million Notes in April, 2013 to part finance the ACG and BTC acquisition. The offering was well received with the order book closing at about US$ 3 billion. The 5 year tranche of US$ 300 million was priced at a spread of 190 basis point above the 5 year US treasury at yield of 2.574 per cent per annum and the 10 year tranche of US$ 500 million was priced at a spread of 210 basis point above the 10 year US treasury at yield of 3.756 per cent per annum. This inaugural bond offering, guaranteed by the parent company ONGC, represents the largest REG-S only issuance by an Indian issuer in the US$ bond markets at the lowest coupon rates and has set a benchmark in pricing by Indian issuer.

Direct Subsidiaries and Joint Ventures of OVL i. ONGC Nile Ganga B.V. (ONGBV)

ONGBV, a subsidiary of OVL, is engaged in E&P activities in Sudan, South Sudan, Syria, Venezuela, Brazil and Myanmar. ONGBV holds 25 per cent Participating Interest (PI) in Greater Nile Oil Project (GNOP), Sudan with its share of oil production of about 0.596 MMT during 2012-13. ONGBV holds 25 per cent Participating Interest (PI) in Greater Pioneer Operating Company (GPOC), South Sudan but due to adverse geo-political conditions, OVL could not produce any oil in GPOC, South Sudan during FY`13. ONGBV holds 16.66 per cent to 18.75 per cent PI in four Production Sharing Contracts in Al Furat Project (AFPC), Syria with its share of oil and gas production of about 0.126 MMtoe during FY` 13. ONGBV holds 40 per cent PI in San Cristobal Project in Venezuela through its wholly owned subsidiary ONGC Nile Ganga (San Cristobal) BV with its share of oil production of about 0.800 MMT during FY` 13. ONGBV holds 15 per cent PI in BC-10 Project in Brazil through its wholly owned subsidiary ONGC Campos Ltda with its share of oil and gas production of about 0.303 MMtoe during FY` 13. ONGBV held 43.5 per cent PI in exploratory block BM-S-74 and 25 per cent PI in exploratory block BM-BAR-1 and holds Block BM-SEAL-4 all located in deep-water offshore, Brazil through its wholly owned subsidiary ONGC Campos Ltda. ONGBV also holds 8.347 per cent PI in South East Asia Gas Pipeline Co. Ltd., (SEAGP) Myanmar for Pipeline project, through its wholly owned subsidiary ONGC Caspian E&P B.V.

ii. ONGC Narmada Limited (ONL)

ONL has been retained for acquisition of future E&P projects in Nigeria.

iii. ONGCAmazonAlaknanda Limited (OAAL)

OAAL, a wholly-owned subsidiary of OVL, holds stake in E&P projects in Colombia, through Mansarovar Energy Colombia Limited (MECL), a 50:50 joint venture company with Sinopec of China. During FY` 13, OVL`s share of oil production in MECL was about 0.552 MMT.

iv. Imperial Energy Limited (Erstwhile Jarpeno Limited)

Imperial Energy Limited (Name changed from Jarpeno Limited with effect from April 19, 2013), a wholly-owned subsidiary of OVL incorporated in Cyprus, holds Operatorship with 100 per cent PI in Imperial Energy having its main activities in the Tomsk region of Western Siberia,

Russia. During FY` 13, Imperial Energy`s oil production was about 0.560 MMT.

v. Carabobo One AB

Carabobo One AB, a wholly-owned subsidiary of OVL incorporated in Sweden, holds 11 per cent PI in Carabobo-1 Project, Venezuela. The early production has already started from first well (CGO005) on 27th December 2012 @ 300 bopd.

vi. ONGC (BTC) Limited

ONGC (BTC) Limited holding 2.36 per cent interest in the Baku-Tbilisi-Ceyhan Pipeline ("BTC") with effect from 28th March, 2013 owns and operates 1,768 km oil pipeline running through Azerbaijan, Georgia and Turkey. The pipeline mainly carries crude from the ACG fields from Azerbaijan to Mediterranean Sea.

vii. ONGC Mittal Energy Limited (OMEL)

OVL along with Mittal Investments Sarl (MIS) promoted OMEL, a joint venture company incorporated in Cyprus. OVL and MIS together hold 98 per cent equity shares of OMEL in the ratio of 49.98 per cent (OVL) and 48.02 per cent (MIS) with the balance 2 per cent shares held by SBI Capital Markets Ltd. OMEL held 45.5 per cent PI in exploration Block OPL 279, Nigeria and holds 64.33 per cent PI in exploration Block OPL 285, Nigeria. OMEL also holds 1.11 per cent of the issued share capital of ONGBV by way of Class-C shares issued by ONGBV exclusively for AFPC Syrian Assets; such investment being financed by Class-C Preference Shares issued by OMEL in the ratio of 51:49 to OVL and MIS respectively.

II. Mangalore Refinery and Petrochemicals Limited (MRPL)

Your Company continues to hold 71.62 per cent equity stake in MRPL, a Schedule A Mini Ratna, which is a single location 15 MMTPA Refinery on the west coast.

Performance Highlights FY 2012-13

• MRPL achieved the highest-ever thru`put of 14.40 MMT and it produced 13.4 MMT of petroleum products, the highest-ever.

• MRPL exported 6.82 MMT of products against 5.59 MMT in the previous year.

• Crude sourcing: 14.2 MMT; Iran (28.8 per cent), Saudi Arabia (19.4 per cent), ADNOC (15.9 per cent), Kuwait (8.9 per cent), Mumbai High (12.3 per cent), Azeri (4.2 per cent) & Spot (10.6 per cent).

• MRPL achieved all its MOU targets.

MRPL incurred a net loss of Rs. 7,569.10 million during FY`13 mainly on account of reduced gross margins and foreign exchange fluctuation loss of Rs. 5,364.9 million. Accordingly, no dividend has been declared for the FY`13.

Marketing

In view of the continued under recoveries in retail marketing of Auto fuels, the Company operated in a limited way, thereby keeping the under recoveries to the minimum. The Company is in all readiness to take up retail marketing within a short time,if the under recoveries are eliminated.

Retail Operations

Govt. has announced complete decontrol of HSD prices for bulk consumers and MRPL has already made inroads in the bulk HSD market. In line with the Govt. policy towards eventual decontrol of HSD in retail segment, MRPL has taken cautious steps to set up few retail outlets in select markets and the advertisement for the same has been released. MS prices remain decontrolled and market determined and sales from existing retail outlets continue to grow.

Phase III - Brownfield expansion Project & SPM

Under Phase-III expansion of MRPL, Hydrogen generation unit and Diesel Hydro-Treater Unit have been commissioned along with Amine Treating Unit and Stripped sour water units. At the same time, SBM/SPM trial run was also undertaken. Commissioning of SRU-3 will be done after the replacement of the gaskets. The Phase-III project is expected to be complete by this year end.

6. Exemption in respect of Annual Report of Subsidiaries and Consolidated Financial Statement

Ministry of Corporate Affairs (MCA) vide circular dated February 8, 2011 and clarification dated February 21, 2011 decided to grant a general exemption from the applicability of Section 212 of the Companies Act, 1956 from attaching the Balance Sheet and Profit & Loss Account prepared regarding the financial year ending on or after March 31, 2011, in relation to subsidiaries of those companies which fulfil various conditions including inter-alia approval of the Board of Directors for not attaching the balance sheet and profit & loss account of the subsidiary concerned. Your Board has accorded necessary approval in this regard for not attaching the Balance Sheet and Profit & Loss Account of its subsidiaries (i) ONGC Videsh Limited (OVL) and (ii) Mangalore Refinery and Petrochemicals Ltd. (MRPL). All the conditions mentioned in the circular are being complied with by ONGC. Full Annual Report of ONGC including its subsidiaries will be made available to any shareholder, if he/she desires. Further, Annual Reports of MRPL and OVL are also available on website www.mrpl.co.in and www.ongcvidesh.com respectively. In accordance with the Accounting Standard (AS)-21 on "Consolidated Financial Statements" read with AS-23 on "Accounting for Investments in Associates" and AS-27 on "Financial Reporting of Interests in Joint Ventures", audited Consolidated Financial Statements for the year ended March 31, 2013 of the Company and its subsidiaries form part of the Annual Report.

7. Joint Ventures/ Associates i. ONGC Petro-additions Limited (OPaL)

Your Company has promoted OPaL, a Joint Venture (JV) Company, with envisaged equity stake of 26% along with GAIL (15.5%) and GSPC (5%); the balance equity is to be tied up from Strategic Partners / FIs / IPO. It is a mega downstream petrochemical integrated project at Dahej SEZ put in place for utilizing the in-house production of C2-C3 and Naphtha from various units of ONGC. It is scheduled to be completed by Q1 2014.

Present status

• Overall Cumulative progress is 77.65 per cent as on March 31, 2013.

• Total cumulative expenditure as on March 31, 2013 is Rs. 137,081 million. Approved project cost is Rs. 213,960 million.

• Debt closure has been attained with the execution of Rupee Term Loan agreement, for Rs. 149,770 million on 29.01.2013.

ii. ONGC Mangalore Petrochemicals Limited (OMPL)

OMPL is a value-chain integration project for manufacturing Para-Xylene and Benzene from the Aromatic streams of MRPL promoted by ONGC with an envisaged equity participation of 46% along with MRPL (3%) with balance equity being tied up.

Present status

• Overall cumulative progress is 91.83 per cent as on March 31, 2013.

• Total cumulative expenditure on the project is Rs. 40,170 million. Approved project cost is Rs. 57,500 million.

• The scheduled completion of the project is slated for Q3 of FY 2013-14.

iii. Dahej SEZ Ltd (DSL)

It is envisioned as a multi-product SEZ at Dahej in coastal Gujarat for setting up world-class mega infrastructure facilities which would anchor ONGC`s upcoming C2-C3 Extraction Plant and a value-chain integration project (OPaL).

Paid up capital: ONGC: 49.99% & GIDC: 49.99%

Envisaged equity structure: ONGC: 23%; GIDC: 26%; balance equity is being tied up.

Present status

• SEZ is already operational and units in SEZ have clocked export of Rs. 8,640 million in the FY`12 and Rs. 14,200 million in FY`13.

• 92 per cent of the leasable land has already been allotted and the remaining land is expected to be leased in the next two years.

iv. ONGC Tripura Power Company Ltd (OTPC)

OTPC is setting up a 726.6 MW (2 X 363.3 MW) gas based Combined Cycle Power Plant at Palatana, Tripura. The basic objective of the project has been to monetize idle gas Assets of ONGC in land-locked Tripura state and to give further boost to exploratory efforts in the region. Your Company has promoted OTPC with an envisaged stake of 50% along with Govt. of Tripura (0.5%) and IL&FS Energy Development Co. Ltd. (IEDCL - an IL&FS subsidiary) (24.5%); the balance is proposed to be tied up through IPO.

Present status

• The total expenditure incurred on the project till March 31, 2013 is Rs. 28,353 million against approved project cost of Rs.34,180 million.

• Entire debt for the project has been tied up with Power Finance Corporation at a Debt: Equity ratio of 3:1.

• Physical Progress: In Unit-I, unforeseen technical problems had arisen since first full-load trial operations in early Jan 2013. The same have been attended and the Unit-I has been restarted to commence trial operations to achieve commercial operations by July 2013. Unit-II commissioning is now scheduled in August 2013.

• The Palatana-Bongaigaon transmission line being implemented by NETC is now commissioned up to Byrnihat. This would facilitate full evacuation of power generated from Unit-I. For complete evacuation of Unit-II power, the Byrnihat-Bongaigaon section of the line needs to be completed by December 2013 subject to resolution of certain issues related to forest clearance in Assam state.

v. Mangalore Special Economic Zone Limited (MSEZ)

With an envisaged equity stake of 26% along with KIADB (23%), IL&FS (50%), OMPL (0.96%) and KCCI (0.04%), ONGC has proposed to set up MSEZ to serve as site for development of necessary infrastructure to facilitate and locate ONGC / MRPL`s Aromatic complex being promoted by ONGC.

Present status

• In respect of Pipeline Corridor development, Ministry of Environment & Forest (MoEF) clearance is awaited for construction works at Reach 2 (about 1.8 km). Pursuant to the presentation made by MSEZ to Expert Committee of MoEF on Feb 18-19, 2013, the committee has favourably recommended the case to MoEF.

• As far as land acquisition issues at Reach 3 (about 1.5 km) is concerned, Gazette notification has already been issued by the Government of Karnataka; however, land price fixation is yet to be done by the Government.

• Required work for river water infrastructure has been completed. Trial runs to MRPL and OMPL have also been conducted successfully. Facilities are ready for supply of water. Water supply agreement is under finalization.

vi. ONGC TERI Biotech Limited (OTBL)

OTBL is a Joint Venture company of ONGC which was incorporated on March 26, 2007, in association with `The Energy Research Institute` (TERI) with shareholding of 49 per cent each. Balance 2 per cent equity is held by the Financial Institutions. The JV has been promoted for addressing the requirement of Bioremediation of oily sludge, Microbial Enhanced Oil Recovery, prevention of wax deposition in tubulars and solution for other oil field problems. The turnover of OTBL in FY`13 is Rs. 136.61 million and Profit after Tax is Rs. 40.05 million as against turnover of Rs. 129.96 million and Profit after Tax is Rs. 32.78 million in FY`12.

vii. Petronet MHB Limited (PMHBL)

PMHBL is a JV company where in ONGC (28.766%), HPCL (28.7%) and PIL (7.898%)have equity stakes. Balance 34.57 per cent of equity is held by leading banks. It owns and operates a multi-product pipeline to transport MRPL`s products to hinterland of Karnataka. Throughput in FY`13 is 2.816 MMT against 2.771 MMT during the last year. As per audited results for the year 2012-13, the turnover and PAT of PMHBL are Rs. 834.53 million and Rs. 273.09 million, respectively.

viii. Petronet LNG Limited (PLL)

ONGC has 12.5 per cent equity stake in PLL, identical to stakes held by other Oil PSU co-promoters viz., IOCL, GAIL and BPCL. Dahej LNG terminal of PLL having a capacity of 10 MMTPA is currently meeting around 20 per cent of the total gas demand of the country. A new LNG terminal of 5 MMTPA capacity is under construction at Kochi and is expected to be completed by the 2nd quarter of FY`13. The turnover of PLL during 2012-13 is Rs.314,674 million (previous year Rs. 226,959 million) and net profit is Rs.11,493 million (previous year Rs.10,575 million).

ix. Pawan Hans Limited (PHL)

ONGC has 49 per cent equity stake in PHL (previously known as Pawan Hans Helicopters Limited). Balance 51 per cent equity is held by the Government of India. PHL is one of Asia`s largest helicopter operators having a well-balanced operational fleet of 40 helicopters. It provides helicopter support for ONGC`s offshore operations. PHL was successful in providing all the 12 Dauphin N and N3 helicopters fully compliant with AS-4 as per the new contract with ONGC. The accounts of PHL for 2012-13 are under finalisation.

8. Other Projects/ Business initiatives a. C2-C3-C4 Extraction Plant

Your company has set up a C2-C3-C4 extraction plant at Dahej with LNG from Petronet LNG Limited (PLL) as the feed stock. This plant will be supplying C2-C3-C4 extracts as feedstock to OPaL. Presently, the plant systems are under preservation and periodic inspection of static and rotary equipment is continuing as per Preservation Plan.

b. Urea Fertilizer Business

ONGC signed a Memorandum of Understanding (MoU) with M/s Chambal Fertilizers and Chemicals Ltd. (CFCL) and the Government of Tripura for setting up a 1.3 MMTPA capacity urea fertilizer plant in Tripura. MoU was signed on April 9, 2013 at Agartala in presence of Shri Manik Sarkar, Hon`ble Chief Minister of Tripura. Feedstock for the proposed plant (Natural gas) will be supplied from Khubal field in AA-ONN-2001/1 block where substantial gas reserves have been established. Gas requirement for the plant is estimated to be 2.4 mmscmd. The project cost is estimated to be Rs. 50,000 million. Government of Tripura will have 10 per cent equity in the venture.

c. LNG terminal

ONGC along with its consortium partners BPCL and Japanese conglomerate Mitsui signed an MoU with the New Mangalore Port Trust (NMPT) on March 18, 2013. The MoU documents the Port`s No-Objection to carry out the feasibility studies and intention to extend all cooperation to the consortium in this regard. The MoU was executed in presence of Hon`ble Minister of Petroleum & Natural Gas Dr. M. Veerappa Moily and the erstwhile Chief Minister of Karnataka Shri Jagadish Shettar. The consortium expects to commission the facility by 2018.

9. Alliances & Partnerships for Business Growth a MoU with Ecopetrol

ONGC signed a MoU with Ecopetrol, Ecuador for collaboration on jointly studying the fan belt traps of the Cachar Region in India and cooperating on studying and developing EOR and IOR technologies during 7th National Oil Companies (NOC) Forum held during May 25-27, 2012 at Istanbul.

b CollaborationAgreements with GAIL

ONGC signed the following four agreements with GAIL on July 21, 2012:

1. Gas Cooperation Agreement,

2. Gas Swap Agreement for C2-C3 Plant,

3. OPaL Shareholders` Agreement,

4. Side Letter for polymer marketing rights for GAIL.

While the Gas Cooperation agreement bestows rights on GAIL to market gas produced from ONGC fields on a case-by-case basis, the gas swap agreement is of importance for C2+ extraction plant at Dahej as it facilitates swapping of domestic non-APM gas for shrinkage due to extraction of C2+ components from PLL`s LNG. The Shareholders` Agreement spells out the ownership pattern in the OPaL project wherein ONGC and GAIL are inter-alia sponsors and the Side Letter bestows marketing rights on GAIL, which is running/expanding petrochemical plant at Pata and is in the process of setting up another one in Assam, for partial quantity of polymers produced by OPaL facility.

c. Farm-out agreement with M/s INPEX for block KG-DWN-2004/6

ONGC entered into a strategic partnership with M/s INPEX CORPORATION (INPEX), Japan`s largest national oil company. ONGC signed a Farm-Out Agreement (FOA) on November 5, 2012, at New Delhi for handing over 26 per cent participating interest to M/s INPEX in the deep water exploration Block KG-DWN-2004/6 of Krishna-Godavari Basin, which was awarded to ONGC-led consortium under the NELP-VI licensing round. ONGC continues to remain as the operator with 34 per cent participating interest. The existing consortium partners GAIL (India) Limited (10%), Gujarat State Petroleum Corporation Limited (10%), Hindustan Petroleum Corporation Limited (10%) and Oil India Limited (10%) have given their consent to this farm out.

10. Information Technology

ONGC has strived to be at the forefront with regard to adoption, deployment and integration of Information Technology in the organisation, with special reference to its needs. In a knowledge-driven and technology-intensive industry such as oil & gas E&P, information technology establishes the vital links across the company`s many locations and varied workforce, essentially serving as its operation`s lifeline. Many of the IT achievements of the Company are regarded as benchmarks in the industry in terms of implementation of widespread systems integration and process automation. Some of the highlights for the FY`13 are:

• Achieved over 99 per cent IT system availability.

• Under "IT Skill & Proficiency Development Programme through Project Chetna", 8,100 training man-days were achieved.

• "Lotus notes e-Mail System" was upgraded.

• Optimization of ONGC domain architecture along with up-gradation of "Enterprise Active Directory Services", with new hardware and software was also completed.

• "Online Complaints Portal" for Corporate Vigilance was launched.

• Deployment of standardized corporate version of Health Information System (HIS) at all the locations (except at Delhi),completed.

• Surveillance audit of "ISO 20000 Certification" for ITIL based IT services and acquisition of "ISO 27000 Certification" for Infocom Data centers completed.

• A Point-to-Multipoint "Broadband Wireless Access (BWA) Radio System" Project covering Western Onshore and Neelam Offshore completed which resulted in adequate bandwidth availability at remote field locations.

• Point-to-Multipoint "Broadband Wireless Access (BWA) Radio System" for remaining sites of North East & Southern Assets of ONGC is under execution.

• An LSTK project for the revamping of existing Info-com Datacenter in Chennai was completed at a cost of Rs. 20,320 million with seamless shifting of critical operational equipment to the new center in the same area and without any disruption to the existing services.

• Project "Augmentation of Communication Infrastructure of Western Offshore on Turnkey basis" completed at Mumbai.

• New 8 Mbps Lease line connectivity established between 11 High and Priyadarshini at Mumbai for Logging applications and 2 Mbps Lease line for 24x7 Medical control rooms at Poonam Nagar Colony, Mumbai.

11. Health, Safety and Environment (HSE) accreditations

ONGC attaches the highest priority to safety, occupational health and protection of environment in and around its working areas and affirms strict adherence to globally recognized and industry accredited best practices in its domain. In accordance with this commitment, ONGC has implemented globally recognized QHSE Management System conforming to the requirements of QHSE Certifications ISO 9001, ISO 14001 and ISO 18001 (OHSAS) at ONGC facilities.

Corporate guidelines on incident reporting, investigation and monitoring of recommendations was developed and implemented for maintaining uniformity throughout the organization in line with international practices. Some of the standout features of the Company`s exemplary HSE practices are - Regular QHSE internal audits, Fire safety measures, regular fire and earthquake mock drills, Health Awareness programs, water and electricity conservation, Material Safety Data Sheets (MSDS), Personal Protective Equipment (PPE), and identification and implementation of Environment Management Programmes (EMP) and Occupation Health & Safety (OHS) programs as per need of the units, near miss and Governance, Risk & Compliance (GRC) reporting.

12. Sustainability Development

The world today has only two options, either to stop generating GHGs (Green House Gases) and stop development as a corollary or synergise development with environment. ONGC, similar to the leading energy majors of the world, is striving to position itself as a leading organisation in sustainable management and is aiming to achieve sustainable development through a holistic approach to carbon management. Carbon Management Group synergises ONGC`s all business activities in terms of sustainable development.

All the six Sustainability Development (SD) projects undertaken as per the MoU with MoP&NG have been completed ahead of the schedule. All these SD projects have been assessed by an External agency (Ramky Enviro Engineers Ltd), which has submitted its report on April 15, 2013. As per the assessment, ONGC has achieved excellent grades in all the six SD projects. As a part of its Sustainability Development agenda, the following efforts have been undertaken by ONGC.

a. Water Management

Sustainable water management: Water foot printing is being implemented at two locations (Tripura & Cauvery Assets) and an amount of Rs. 0.5 million was expended towards water mapping during the year.

Rainwater Harvesting Programme (RWH): The programme is being actively undertaken in Vadodara and at Tripura Asset. Additionally, a number of wells have been planned for recharging ground water table in Agartala.

b. Global Methane Initiative (GMI)

Global Methane Initiative (GMI) program activities have been carried as per the ONGC-USEPA ongoing MoU. Leak survey and estimation of fugitive emission was carried out at 13 installations across ONGC. This initiative has helped in recovery of around 3.88 MMSCM of fugitive methane which was added back to the production main stream.

c. Carbon Dioxide mitigation and low carbon initiatives

ONGC is in the process of finding an R&D solution to the vent CO at Hazira Plant with a view to mitigating emission of CO to 2 2 the environment.

d. Clean Development Mechanism (CDM)

ONGC has registered 10 CDM projects with UNFCCC (United Nations Framework Convention on Climate Change). This is probably the highest number of projects registered by any single entity in India. During the year, around 1,28,000 Certified Emission Reductions (CERs) (Carbon credits) have been issued, taking the overall CER tally to more than 1,40,000. Issuances being an annual activity after annual verification, more issuances are in the offing as four of the registered projects have already been successfully verified during the year under consideration.

The ten registered CDM projects with UNFCCC are:

• Waste heat recovery from Process Gas Compressors (PGCs), of Mumbai High South (offshore platform) and using the recovered heat to heat process oil (Regn Ref No 0814).

• Upgradation of Gas Turbine 1 (GT 1) and Gas Turbine 2 (GT 2) at co-generation plant of Hazira Gas Processing Complex (HGPC) (Regn. Ref No 0847)

• Flare Gas Recovery project at Uran Plant(Regn. Ref No 1220) and Hazira Plant (HGPC) (Regn. Ref No 1354)

• Energy Efficiency of Amine Circulation Pumps at Hazira plant (Regn. No 2648).

• 51 MW wind power project at Bhuj, Gujarat.

• Green Building projects at Mumbai and Dehradun

• Gas Flaring Reduction at Neelam & Heera Asset

• ONGC Tripura Power Company Ltd. (726 MW natural gas based power plant)

e. Carbon footprint

Your Company has initiated an organization wide carbon footprint activity in the year 2011-12 as a part of carbon and energy management. The carbon footprint is ready and eight types of mitigation possibilities have been identified, which may reduce the emission significantly (almost 34%).

Business Responsibility Report

Securities &Exchange Board of India has introduced Clause 55 to the Listing Agreement with the Stock Exchanges, which states that Listed entities shall submit, as part of their Annual Report, Business Responsibility Report, describing the initiatives taken by them from an environmental, social and governance perspective. Accordingly, the first Business Responsibility Report - 2012-13 has been drawn up and forms part of the Annual Report for 2012-13.

13. Internal Control System

Your Company has a well-established and efficient internal control system and procedures. The Company has a well-defined delegation of the financial powers to its various executives through Book of Delegated Powers (BDP). The Integrated BDP is updated from time-to-time in line with the needs of the organisation as well as to bring further delegation. The Company has in-house Internal Audit Department commensurate with its size of operations. Audit observations are periodically reviewed by the Audit & Ethics Committee of the Board and necessary directions are issued whenever required.

14. Human Resources

ONGC cares and values for its human resource which is the bedrock of ONGC`s success story. To keep the employees` morale high, your Company extends several welfare benefits to them and their families by way of comprehensive medical care, education, housing and social security. During the year 2012-13, your Company implemented various new and revised welfare policies for its employees.

15. Human Resource Development

32,923 ONGCians (as on March 31, 2013) dedicated themselves and contributed their efforts towards the excellent performance of your company. In response to the highly knowledge-driven and extremely competitive industry that your Company operates in, it has devised an effective and progressive workforce intake strategy that is suited well to counter the varied complexities and uncertainties of the business environment as well as aligned to overarching business plans of the organization. During the year, adequate number of people with requisite skill-sets were inducted to meet the requirements of the Company as well as replenish the manpower loss on account of high superannuation.

Your company believes that continuous development of its human resource fosters engagement and drives competitive advantage. One such initiative towards that end was the innovatively designed and highly popular `Business Games`, an organization wide contest that puts to test the managerial and business acumen of the executives. During the year 2012-13, a total of 200 teams and 800 executives participated in the event. Fun Team Games (FTGs) were organized for E0 and staff level employees to inculcate MDT (Multi-disciplinary Team) concept and a spirit of camaraderie and belongingness to the organization, which was very well received by the participants. During the year, 129 teams and 516 employees participated in FTGs. Your Company also conducted the Assessment Development Centre (ADC) for approximately 300 E-6 (DGM) level executives and provided them developmental inputs. During the year, Mentoring Initiative was launched in a big way in your Company. Mentoring has been initiated for the motivation of the senior employees as well as to provide guidance and support to the younger employees. Your Company has partnered with global HR consulting firms to create a pool of accredited mentors in the organization. These mentors will support organization`s effort to hone young minds to successfully respond to the emerging business needs of your Company. As part of this Initiative, in the year 2012-13, over 900 senior level executives (E5 & E6) were selected and trained to be mentors for young mentees. During the year, your Company launched a Suggestion Scheme, ESSENCE (Employees Suggestion Scheme for Engagement, Commitment and Efficiency) aimed at facilitating achievement of Organisational excellence by encouraging employees to put forth suggestions for improvement in various functional areas of the Corporation`s business and operations.

Training

Skill up-gradation is a vital component for driving excellence through Human Resource. Your Company has recently branded the spectrum of its training activities as EXPONENT- a comprehensive programme which nurtures the energy leaders of tomorrow.The program is facilitated by the ONGC Academy, Regional Training Institutes (RTIs), other in-house Institutes and through tie-ups with globally recognized trainers.

During the year, your Company continued its endeavour of equipping the employees with the latest knowledge in the specialized fields of upstream oil and gas sector by organizing training programs with the best of faculty from both India and abroad. A total of 16,255 executives and 3,712 non-executives were imparted appropriate training, spanning 207,447 training man-days, during 2012-13. During 2012-13, five batches of Graduate Trainees, totalling 691 in all, were imparted induction training. In order to keep the executives abreast of the latest advancements in cutting edge concepts and technologies in oil and gas exploration and production, 84 programmes were organized during 2012-13, including foreign faculty programmes. Around 250 senior level officers were exposed to Advanced Management Programmes with overseas learning component through tie-ups with leading B-schools of the country.

16. Employee Welfare

Your Company continues to extend welfare benefits to the employees and their dependants by way of comprehensive medical care, education, housing and social security. Your Company continues to align company policies with the changing economy and business environment. Some of the key facets of ONGC`s Employee Welfare model are mentioned herein -

(i) Employee Welfare Trusts

Your Company has established the following major Trusts for welfare of employees:

Employees Contributory Provident Fund (ECPF) Trust: Manages Provident Fund accounts of employees of your Company.

The Post Retirement Benefit Scheme(PRBS) Trust: Manages the pension fund of employees of your company and settled 1,333 cases of withdrawal benefits during the year

The Composite Social Security Scheme (CSSS): It provides an assured ex-gratia payment in the event of unfortunate death or permanent disability of an employee in service. During the year, assistance to families of deceased employees under this scheme was revised to between Rs.3 to 5 million. Under the Composite Social Security Scheme, 1,249 Cases were settled during the year 2012-13. Support to parent has been extended in case of Death/ Disability - 25 per cent of the admissible support amount shall be paid to surviving parents of the deceased employee. The balance 75 per cent amount shall be released as per the nominations recorded by the employee.

Gratuity Fund Trust: This has been created to take care of payment of gratuity as per the provisions of the Gratuity Act.

Sahayog Trust: Your Company`s `Sahayog Yojana` instituted under this Trust provides ex-gratia financial grant for sustenance, medical assistance, treatment, rehabilitation, education, marriage of female dependent and alleviation of any hardship or distress to secure the welfare of the secondary workforce and their kin, who do not have adequate means of support. Under the scheme, an amount of Rs.19 million was disbursed by the Trust during the year.

Extension of Benefits under the Agrani Samman Scheme to retired employees: During the year, your Company relaxed the provisions of the Agrani Samman Scheme to cover those ex-employees who separated from the service of ONGC on account of premature retirement due to disability or medical deficiency suffered while on duty.

(ii) Implementation of Govt. Directives for Priority Section

Your Company complies with the Government directives for Priority Section of the society. The percentage of Scheduled Castes (SC) and Scheduled Tribe (ST) employees were 15.68 percent and 8.98 percent respectively as on 31st March, 2013. Your Company is fully committed for the welfare of SC and ST communities. The following welfare activities are carried out by your Company for their upliftment in and around its operational areas:-

Annual Component Plan

Under Annual Component Plan for SC/ST, every year an allocation of Rs.200 million is made. The amount under component plan is utilised for taking up various welfare measures for the welfare and upliftment of the needy people of SC/ST communities. This fund is especially meant for providing help and support in Education and Training, Community Development & Medical and Health Care.

Scholarship to SC/ST meritorious students for pursuing higher professional courses at different Institutes and Universities in the country.

Your Company has recently enhanced scholarships for meritorious SC & ST students from 100 to 500 for pursuing higher professional courses at different Institutes and Universities across the country in Graduate, Engineering, MBBS, PG courses of Geo-Sciences and MBA. The major feature of the scheme is that the scholarships have been divided equally for both male and female students and the allotted amount of scholarship per student is Rs.4,000/- per month subject to the conditions of the scheme. The annual budget for the scheme, considering its total implementation, is Rs.76 million per annum.

17. Industrial Relations

Your company has maintained harmonious industrial relations throughout the Corporation. During the year, no man days were lost due to internal industrial action. During the illegal strike of the contract labourers in Hazira Plant, from July 18, 2012 to October, 2012, operations were continued uninterrupted and production was maintained without any adverse effect on the Company`s performance.

Your Company has evolved cutting edge industrial relations policies in addressing the aspirations of the contract labour deployed by contractors performing jobs and services for ONGC. During the year, your Company extended several benefits to its secondary workforce such as:

• Your Company adopted the "Fair Wage Policy". The policy enjoins the Contractors to pay 35% higher wages as compared to minimum wage. This will also have a salutary effect on all statutory liabilities towards various social security schemes. The policy also provides that the contractors will obtain Group Gratuity cover and Group Insurance cover from LIC for the labour deployed in ONGC operations. The policy was rolled out during the year with your Company facilitating the signing of tripartite settlements between contractors and unions representing the contract labour in the presence of Labour Authorities on July 18, 2012.

• During the year, your Company effected upward revision of the daily wages, house rent subsidy (Rs.1,000 to Rs.3,000 per month) and education support for children of contingent workers (Rs.1,000 per month). Besides, an ex-gratia amount of Rs. 24,000/- each year has also been extended to the contingent workers.

18. Women Empowerment

Women employees constitute approximately 6.37 per cent of your Company`s workforce. During the year, programmes on women empowerment and development, including programmes on gender sensitization were organized. Your Company actively supported and nominated its lady employees for programmes organized by "Women in Public Sector (WIPS) and "Women in Leadership Roles". Also, a new award, `Woman Executive of The Year`, was introduced by the Company during the year, as part of itsAnnualAward Scheme.

19. Grievance Management System (GMS)

Your Company provides an easily accessible machinery to the employees for redressal of their grievances, either through an informal channel (open hearing day) or through a formal channel. In this regard, a new GMS has been introduced in the Company, during the year.

Public Grievance Management System

All Key Executives of your Company have designated a publicized time slot thrice in a week to meet public representatives in order to speedily redress their grievances.

20. Implementation under the Right to Information Act

An elaborate mechanism has been set up throughout the organization to deal with the requests received under the RTI Act, 2005. Central Assistant Public Information Officer (CAPIO) have been appointed at every work centre to redress the issues under RTI Act. 40 applications received in March, 2012 were carried forwarded to the year 2012-13. 1,552 applications were received during the year; making a total of 1,592 applications. In addition to 6 first appeals received in March, 2012, 320 were received during the year.

21. Implementation of Official Language Policy

Your Company makes concerted efforts to spread and promote the Official Language. Some of the important steps taken in this regard during the year were:

• Introduction of new Unicode Hindi software in all the offices,

• Hindi workshops conducted at regular intervals,

• Two International Hindi seminars and `Kavi Gosthies` were organized in Dehradun and Delhi,

• ONGC actively contributed in publishing bilingual Petroleum Terminology, initiated by MoP&NG, and

• Hindi Teaching Scheme of the Government of India is effectively implemented at all regional work centres

22. Improvement in Living and Working Conditions

As a testimony to its commitment for a cleaner tomorrow, your Company has undertaken the `Green Building` initiative for its upcoming offices at Chennai, Dehradun, Delhi, Hyderabad, Kolkata and Mumbai.. During the year, the `Green Building` at Dehradun was inaugurated.

Bachelor Accommodation facilities in Nazira, Sivasagar, Jorhat, Mumbai and renovation of existing offices, colonies and guest houses was successfully completed at many work-centres to make the facilities more in synchronization with present day requirements thus making the infrastructure energy efficient. Energy supply through alternate sources of energy - wind energy and solar panels - has been commenced in some of the townships.

Work-Life Balance

Your Company continued in its endeavours to ensure a desirable work-life balance for its employees. The townships at many work-centres were provided facilities like gymnasiums, music rooms etc.

The newly launched executive rejuvenation programme, called "Nav-Utsah" aims at educating the senior executives on stress management, conflict resolution, good parenting, besides Yoga, and Ayurvedic therapies. Some outbound team-building programmes like - family events at work centres and cultural programmes involving employees and their families - are routinely conducted for work-life balance. Mahila Samitis and Resident Welfare Associations (RWAs) play an active role in organizing these social and cultural events.

Your Company has a dedicated adventure wing named ONGC Himalayan Association which organizes adventure programme like mountaineering, trekking, white water rafting, snow skiing, desert safari, aero sports, etc. which adds towards moral engagement, team spirit, stress management, etc., among the employees.

23. Sports

Your Company continues to extend support to the sportspersons under its fold by way of extensive assistance towards training and participation in tournaments within the country and overseas for deserving performers. The scope for benefits to aspiring and promising sportspersons under the scholarship scheme has been further widened with the inclusion of games like squash, archery, ice-skating and equestrian sports. The total number of disciplines supported by ONGC by way of jobs or scholarship is 23 as on date.

Your Company has also sponsored many prestigious sporting events during the year. ONGC was the "Principal Sponsor" of the Indian Contingent for the Olympic Games 2012. ONGC`s contribution for Team India was not only restricted to the monetary support of Rs. 10 million but also the 15 ONGCians making the qualifying mark and getting selected to represent India at this most prestigious event. Mr. Sudhir Vasudeva, CMD, ONGC & Mr. K S Jamestin, Director-HR took over the charge as President and Vice President respectively of All India Public Sector Sports Promotion Board (AIPSSPB), the largest conglomerate of public sector undertakings, in July 2012. It is a pleasure to inform you that two more ONGCians were conferred with National Awards - Arjuna Award to Ms. Kavita Raut (Athletics) and Ms. Aswini Ponnappa (Badminton). Today your Company boasts for fifteen Arjuna Awardees besides one Khel Ratna and two Padmashrees. Sports achievements during the year are detailed in Annexure-B.

24. Corporate Social Responsibility (CSR)

ONGC`s vision of sustainable growth drives both business decisions as well as Corporate Social Responsibility (CSR) initiatives. The CSR activities are essentially guided by project based approach in line with the guidelines issued by the Department of Public Enterprises (DPE) and Ministry of Corporate Affairs (MCA) of the Government of India. Seeking to herald an inclusive business paradigm, ONGC has CSR interventions that are based on social, environmental, and economic considerations and are well-integrated into the decision-making structures and processes of the organization.

The CSR efforts are primarily focused on protection of environment; providing infrastructure support in our operation al areas, water management, women empowerment, initiatives for physically and mentally challenged people, protection and preservation of our heritage, arts and culture, promotion of sports, entrepreneurship building and sponsorship of seminars, conferences, workshops etc.

During 2012-13, some of the landmark CSR initiatives undertaken by your Company include:

1. ONGC Specialist Palliative and Geriatric Care Out-patient Clinic: Initiated in 2012-13 in association with Dean Foundation, this project intends to help the terminally ill cancer patients in Chennai by providing palliative care. It supports patients by comforting them and relieving them of pain during the final stage of their life. It also provides counselling to the patients and their families. The targeted beneficiaries are selected by the implementing agency in association with various Medical centres providing oncological treatment based on their socio-economic criteria.

2. ONGC Hope Foundation: This CSR project was initiated with the intent to "Bandage the ulcers of 96 leprosy patients every day" for one year in the Village of Hope, (VOH). This is situated in the leprosy complex, Tahirpur, adjacent to Leprosy Mission Hospital at Nandnagri in the outskirts of Delhi.

3. ONGC The Akshaya Patra Foundation: This unique CSR initiative aims at setting up of a centralized fully automated mechanized kitchen with a capacity to provide mid-day meals to two lakh school going children (enrolled in Govt. schools) per day in the District of Surat, Gujarat. The Kitchen has already started feeding about 75,000 students from an interim kitchen. It will become operational in phases and intends to reach its full capacity of two lakh children per day within two years.

4. Aantyodaya Prakalp: The project implemented through Bhartiya Kushtha Niwarak Sangh (BKNS) and Adivasi Development Initiative (ADI) aims to undertake eradication of malnutrition, especially among children. It will conduct sick cell disease detection, counseling and prevention, with appropriate treatment. Medical treatment will be provided through a resource centre/ hospital and surgical centre. The project will also provide education to 20 students from the tribal populations of Western & Eastern Melghat in the Amravati District of Maharashtra, Betul District of Madhya Pradesh and Bastar District of Chhattisgarh at Halbras.

5. Aids & Appliances to the physically challenged: This is a pan India project in collaboration with Artificial Limbs Manufacturing Corporation of India (ALIMCO). The objective is to cater the needs of Orthopaedic, Hearing and visually challenged people by providing aids and appliances. 750 people have already benefitted from this project in Hazira, Gujarat and Karaikal, Puducherry in 2012-13.

6. ONGC Adharshila Entrepreneurship and Skill Development Initiative: The CSR project initiated in 2012-13 aims at providing vocational training for 360 students. These students are from the slums of New Delhi. The training will be in the fields of beauty and healthcare, cutting and tailoring, and computer education.

7. Udaan: This is a special Initiative taken up by the Ministry of Home Affairs, Govt. of India for the educated youth of Jammu & Kashmir in association with National Skill Development Corporation (NSDC). The project aims to train Graduates/ Post Graduates from J&K to improve their technical knowledge and soft skills and enhance their scope for employability.

8. UTKARSH An ONGC AROH effort for Economic Upliftment of People in Sibasagar: The project aims to create sustainable livelihood opportunities through training and skill development. It targets different sections and age-groups in 18 villages in ONGC operational area in Geleki field.

9. Preservation of heritage monuments: Your Company has also dedicated itself towards preservation of Heritage Monuments. Six monuments - Taj Mahal at Agra, Red Fort at Delhi, Ellora & Eliphanta Caves in Maharashtra, Golkonda Fort at Hyderabad and Shore Temple in Mahabalipuram near Chennai - have been taken up under Clean India Campaign of Ministry of Tourism with the help of Archaeological Survey of India (ASI).

10. Other notable CSR Initiatives: Hortoki Water Supply Scheme (aimed at creating a sustainable source of safe drinking water to the people of Hortoki Village, Kolasib District, Mizoram); Assistance to St Joseph of Annecy (India) Society, Tripura (infrastructure support for residential hostel for tribal girls - St Joseph of Annecy (India) Society is running a residential hostel for more than 125 Tribal girls of Kamalpur Dhalia) and Support to Adoration Charitable Trust, Cochin (financial assistance to Cochin to cover educational & health expenses of 100 school children of sex workers/HIV/AIDS affected, drug users etc.) Tailoring machines and candle mould dice were provided to underprivileged women to provide livelihood to them.

In addition to the above new CSR initiatives undertaken in 2012-13, ONGC continued to support the major CSR interventions initiated in previous years. Some of the continued CSR initiatives are Varishtajana Swasthya Sewa Abhiyan (provision of healthcare support to elderly through Mobile Medicare units); ONGC-GICEIT Computer Centre (Employment-related computer training to underprivileged youth); Harit Moksha (green cremation systems to reduce wood consumption during traditional cremations) and ONGC-Eastern Swamp Deer Conservation Project in Kaziranga National Park.

25. Accolades

Consistent with the trend in preceding years your Company, its various operating units and its senior management officials have been recipients of various awards and recognitions. Details of such accolades are placed at Annexure - B.

26. Directors` Responsibility Statement

Pursuant to the requirement under Section 217 (2AA) of the Companies Act, 1956, with respect to Directors` Responsibility Statement, it is hereby confirmed that:

(i) In the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures from the same;

(ii) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2013 and of the profit of the Company for the year ended on that date;

(iii) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the Assets of the Company and for preventing and detecting fraud and other irregularities; and

(iv) The Directors have prepared the annual accounts of the Company on a `going concern` basis.

27. Corporate Governance

Your Company has taken structured initiatives towards Corporate Governance and its practices are valued by the various stakeholders. The practices evolve around multi-layered checks and balances to ensure transparency.

In terms of Clause 49 of the Listing Agreement, a report on Corporate Governance for the year ended March 31, 2013, supported by a certificate from the Company`s Statutory Auditors confirming compliance of conditions, forms part of this Report. Guidelines of Department of Public Enterprises (DPE), Government of India, on Corporate Governance have been made mandatory from May, 2010. ONGC has implemented the DPE guidelines to the maximum extent possible.

Your Company has voluntarily got its Secretarial Compliance Audit conducted for the financial year ended 31st March, 2013 from M/s A.N. Kukreja & Co., Company Secretaries in whole-time practice; their report forms part of this Annual Report.

In line with global practices, your Company has made available all information, required by investors, on the Company`s corporate website www.ongcindia.com

Apart from the mandatory measures required to be implemented as a part of Corporate Governance, ONGC has gone the extra mile in this regard for the benefit of the stakeholders:

i. Whistle Blower Policy: A Whistle Blower Policy has been implemented and is functional from December 01, 2009. The policy ensures that a genuine Whistle Blower is granted due protection from any victimization. The Policy is applicable to all employees of the Company and has been uploaded on the intranet of the Company.

ii. Annual Report on working of the Audit & Ethics Committee: With a view to apprise the Board of the working of the Audit & Ethics Committee annual report on the working of the Audit & Ethics Committee for FY`12 and FY`13 are under finalisation.

iii. MCA Voluntary Guidelines on Corporate Governance: ONGC has implemented the voluntary guidelines on Corporate Governance issued by Ministry of Corporate Affairs to the extent feasible and within the competency domain of the management.

iv. Enterprise-wide Risk Management (ERM) framework: In line with the requirements of Clause 49 (of the Listing Agreement) your Company has developed a comprehensive Enterprise-wide Risk Management (ERM) framework. Under the framework Risk Register portfolio has been compiled and an ERM Policy has been firmed up. The Risk Register and the Risk Management policy of ONGC has been reviewed by the Audit and Ethics Committee and approved by the Board of Directors. The ERM framework has been rolled throughout the organization and the risk policy adopted by the company is being displayed at all the Assets/Basins/Plants/Institutes across all the locations of ONGC. The risk policy of ONGC is stated below:

"ONGC shall identify the possible risks associated with its business and commits itself to put in place a Risk Management Framework to address the risks involved on an ongoing basis to ensure achievement of the business objectives without any interruptions.

ONGC shall optimize the risks involved by managing their exposure and bringing them in line with the acceptable risk appetite of the company".

The risk reporting structure has already been put in place and all the stake holders are being trained to enumerate risks in their functional area. The Risk Management Cell is receiving reports from the various functional areas. The Risk Management Committee is reviewing the same on a periodical basis.

v. Board Charter: In line with the requirements of mandatory Guidelines of Department of Public Enterprises (DPE),

Government of India, on Corporate Governance a detailed charter of the Board has been firmed up. The same has been finalised by the Independent Directors and will be implemented shortly.

vi. Evaluation of Performance of the Board: A draft policy on evaluation of performance of the Board / Committees / Independent Directors is being drawn up.

vii. Lead Independent Director: Mr. Arun Ramanathan has been elected as the Lead Independent Director. viii. Meeting of Independent Directors: The Independent Directors met three times during the FY 2012-13.

28. Statutory Disclosures

Section 274(1)(g) of the Companies Act, 1956, is not applicable to the Government Companies. Your Directors have made necessary disclosures, as required under various provisions of the Act and Clause 49 of the Listing Agreement.

Particulars of Employees

As per Notification No. GSR 289(E) dated March 31, 2011 issued by the Ministry of Corporate Affairs, amending the provisions of the Companies (Particulars of Employees) Rules, 1975 issued in terms of Section 217(2A) of the Companies Act, 1956, it is not necessary for Government companies to include the particulars of employees drawing salaries of Rs.6 million or more per annum, employed throughout the financial year or, Rs. 0.5 million per month, if employed for part of the financial year. As your company being a Government company, the information has not been included as a part of the Directors` Report.

29. Energy Conservation

The information required under section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, is annexed as Annexure - `C`.

30. Auditors

The Statutory Auditors of your Company are appointed by the Comptroller & Auditor General of India (C&AG). M/s Mehra Goel & Co., M/s S. Bhandari & Co, M/s Ray & Ray, M/s Varma & Varma and M/s G D Apte & Co., Chartered Accountants were appointed as joint Statutory Auditors for the financial year 2012-13. The Statutory Auditors have been paid a remuneration of Rs. 20.21 million (previous year Rs.16.20 million) towards audit fee and certification of Corporate Governance Report.The above fees are exclusive of applicable service tax and reimbursement of reasonable travelling and out of pocket expenses actually incurred.

31. Auditors` Report on the Accounts

The Comments of Comptroller & Auditor General of India (C&AG) form part of this Report as per Annexure-D. There is no qualification in the Auditors Report and there are no supplementary comments by C&AG under section 619(4) of the Companies Act, 1956. Notes to the Accounts referred to in the Auditors Report are self-explanatory and therefore do not call for any further comments.

You would be pleased to know that your Company has received Nil comments from C&AG and Statutory Auditors for the year 2012-13. This is the seventh time in a row that the organization has received Nil comments

32. Cost Audit

Pursuant to the directions of the Central Government for audit of Cost Accounts, the proposal for appointment of 7 firms of Cost Accountants as Cost Auditors for auditing the cost accounts of your Company for the year ended 31st March, 2013 was approved by the Central Government and they have accordingly been appointed. The Cost Audit Report for the year 2011-12 has been filed under XBRL mode for the first time on January 15, 2013 i.e. within the due date of filing.

33. Directors

During the year under report, Shri A K Hazarika, ex-Director (Onshore) superannuated on September 30, 2012. Shri P K Borthakur was appointed as Director (Offshore) on October 30, 2012. Shri Shashi Shanker assumed charge as Director (T&FS) on December 01, 2012 in place of Shri U N Bose who superannuated on November 30, 2012. Smt. Sushama Nath resigned from the Board with effect from January 21, 2013. Shri K Narasimha Murthy was appointed as Non-official part-time Director (Independent Director) on March 21, 2013. Shri N K Verma took over as Director (Exploration) on April 01, 2013 in place of Shri S V Rao who superannuated on March 31, 2013. The Board places on record its deep appreciation for the excellent contributions made by Shri A K Hazarika, Shri U N Bose, Smt. Sushama Nath and Shri S V Rao.

The strength of the Board of Directors of ONGC as on August 01, 2013 is 14, comprising 6 Executive Directors (Functional Directors including CMD) and 8 Non-Executive Directors, two Government nominees and six Independent Directors. Ministry of Petroleum & Natural Gas has been requested to appoint requisite number of independent Directors to comply with the Listing Agreement. Pursuant to the provisions of Section 255 and 256 of the Companies Act, 1956 and Clause 104(l) of the Articles of Association of the Company, Dr. D Chandrasekharam and Shri K S Jamestin retire by rotation at the 20th Annual General Meeting (AGM) and being eligible, offer themselves for reappointment. Shri P K Borthakur, Shri Shashi Shanker, Shri K Narasimha Murthy and Shri N K Verma who were appointed as Additional Directors after the last AGM, hold office up to the 20th AGM. The Company has received notice in writing from a member pursuant to the provisions of Section 257 of the Companies Act, 1956, proposing their candidature for appointment as Directors of the Company liable to retire by rotation.

34. Acknowledgement

Your Directors are highly grateful for all the help, guidance and support received from the Ministry of Petroleum and Natural Gas, Ministry of Finance, DPE, MCA, MEA, and other agencies in Central and State Governments. Your Directors acknowledge the constructive suggestions received from Statutory Auditors and Comptroller & Auditor General of India and are grateful for their continued support and cooperation. Your Directors thank all share-owners, business partners and members of the ONGC Family for their faith, trust and confidence reposed in ONGC. Your Directors wish to place on record their sincere appreciation for the unstinting efforts and dedicated contributions put in by the ONGCians at all levels, to ensure that the Company continues to grow and excel.

On behalf of the Board of Directors

(Sudhir Vasudeva)

Chairman and Managing Director

Place: New Delhi

Date: 12.08.2013

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