An Efficiency Analysis of Selected Indian Oil and Gas Companies: A Window DEA Approach

Abstract

The present study examines the Overall Technical Efficiency (OTE), Pure Technical Efficiency (PTE) and Scale Efficiency (SE) of six sample companies – Bharat Petroleum Corporation Ltd. (BPCL), Hindustan Petroleum Corporation Ltd. (HPCL), Indian Oil Corporation Ltd. (IOCL), Oil and Natural Gas Corporation of India Ltd. (ONGC), Oil India Limited (OIL) and Reliance Industries Ltd. (RIL) – selected from the oil and gas sector. These companies account for the major portion of India's total oil and gas production. The data have been collected from the Prowess database and annual reports of the selected companies. The study covers a period of 27 years, i.e., from 1991 to 2017. The Data Envelopment Analysis (DEA)-based Window DEA Approach has been applied by conceptualizing one output and three inputs to analyze the technical and scale efficiency of the selected oil and gas companies. The empirical results show that the highest OTE, PTE and SE are recorded by ONGC and OIL, while the lowest OTE, PTE and SE are recorded by BPCL and HPCL. None of the companies is operating at most productive scale size. The inefficiency is attributed to managerial inefficiency and inappropriate choice of the scale size. The study highlights the need for concrete steps on the part of policy makers to choose the appropriate scale size and to eliminate managerial inefficiency.

Keywords: Window DEA, Technical and scale efficiency, Indian oil & gas companies

JEL Classification: C5, L7, L25