Oil & Gas

Topics: Petroleum, Costs, Cost Pages: 21 (3741 words) Published: September 8, 2014


Oil & Gas
Sector Analysis

Submitted to
Dr. Atmanand

In partial fulfilment of the requirements of the course
Managerial Economics

Submitted By
GROUP 2

Ankita Chokraborty (13PGHR06)
Arjun Parekh (13PGHR07)
Ashim Gupta (13PGHR08)
Atul Kohli (13PGHR10)
B Vishnu Vardhan (13PGHR11)
Tanya Mehta (13PGHR58)

Acknowledgement

Of the many people who have been enormously helpful in the preparation of this project, we are especially thankful to Dr. Atmanand, Professor, Economics, Management Development Institute, Gurgaon, for his help and support in guiding us through to its successful completion. The project has provided us with understanding of practical implications in Managerial Economics. In addition, we would like to specially thank Sanket Doshi, Employee in Indian Oil Corporation Ltd for his patience, cooperation and guidance. We would also like to thank Hitesh Gupta and Srishti Chauhan for providing us with the HR perspective.

Table of Contents

Executive Summary:
The Managerial Economics project was our first opportunity to apply the concepts we have learnt to the real world. For our analysis we have taken IOCL, a Maharatna Oil Sector company which extracts, refines and distributes oil and gas. We received continuous encouragement from Prof. Atmanand, who showed unwavering faith in our abilities. The course familiarised us to a lot of novel economic concepts. The primary objective of this project is to analyse a company using these concepts. Hence, the project is mainly to identify the various concepts of Managerial Economics that can be used in this regard. The project begins with an introduction about the sector of Oil and Gas. Thereafter, the project describes the company, IOCL. This description deals with the history and background of the company, its products, the operating unit and its location as well as its competitors. Next we showcase the data that we have collected followed by our analysis of the same. We have studied the company’s cost structure, its fixed and variable costs, as well as the employee costs. We have then discussed the company’s net income and net profit. We have then used the data to apply various concepts of Managerial Economics. We have calculated the values for various parameters such as economic profit, the opportunity cost and the price elasticity of labour. We have also computed the output elasticity and labour elasticity. The average product and marginal product of labour as well as capital have also been calculated. We have then discussed the marginal cost and marginal revenue, as well as the average revenue and average cost. Our findings have also provided the economic viability of the company and the economic value added. The next section deals with the break-even analysis for IOCL. Following that, we have performed the market analysis and competitor analysis, as well as a SWOT analysis of IOCL. Lastly, we have discussed the future plans of IOCL and our recommendations, especially in the HR context, for the company followed by the conclusion and our list of references.

Sector Overview:

The Oil & Gas sector includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The major volume products of the industry are crude oil. Crude Oil is also the raw material for many chemical products, such as pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Upstream:

The upstream oil sector is a term commonly used to refer to the searching for and the recovery and production of crude oil and natural gas. It drilling of exploratory wells, and subsequently operating the wells that recover and bring the crude oil and/or raw natural gas to the surface.

Midstream:
The midstream sector is primarily concerned with the...

References: Managerial Economics by Dr. Atmanand
The marketplace forces of supply and demand determine the price of fuel. If demand grows or if a disruption in supply occurs, there will be upward pressure on prices. By the same token, if demand falls or there is an oversupply of product in the market, there will be downward pressure on prices.
Those principles apply at the service station level as well. If a retailer prices its gasoline too high, and without regard to competition, the retailer 's customers may take their business to another station with lower prices. If a retailer loses enough volume, the retailer may then reduce prices in order to retain its customers.
Competition among retail outlets thus affects pricing. You may notice that sometimes there are price differences between two gasoline stations on a busy street corner and between those outlets and the only station on a long stretch of highway. More choices generally mean more competition for business.
And although retail outlets may sell gasoline carrying the brand of a major oil company, most dealerships are owned and operated by independent business people who are free to set the prices for their products and services.
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