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The Role of National and International Oil Companies in the Petroleum Industry

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This paper provides a review of the evolving role and characteristics of the oil and gas companies, which increasingly come in a variety of flavors. It also surveys the different types of oil and gas companies that include national oil companies (NOCs), international oil companies (IOCs), independents, and oilfield services companies (OFSCs). The continued rise of NOCs, accelerated by high oil prices, has seen the balance of control over most of the world's hydrocarbon resources shift decisively in their favor. Their ability to access capital, human resources and technical services directly from oil field service companies, and to build in-house competencies, allows them to operate independently of Investor Owned Companies in most instances. The demand on NOCs continues to evolve with the global energy landscape to reflect variations in demand, discovery of new ultra-deep water oil deposits, and national and geopolitical developments. NOCs, traditionally viewed as the custodians of their country's natural resources, have generally owned and managed the complete national oil and gas supply chain from upstream to downstream activities. Having secured their home base, NOCs have emerged as joint venture partners with the IOCs and increasingly as their competitors, seeking international upstream and downstream acquisition and asset targets. The key question is whether this emerging landscape will undermine the sustainability of the IOC resource-ownership business model. Are the challenges of declining production in existing oil fields replacing oil and gas reserves in restricted access or higher cost areas, and the declining of the operating profit margins yet sufficient to reach a tipping point? NOCs and OFSCs have increasing power and influence in global oil markets. In parallel, IOCs' significance and role in the oil markets has been in decline due to shrinking technical skills and expertise, reduced access to low cost reserves, and lower operating profit margins. As a result, IOCs have tended to focus on more challenging and less profitable domains, shale gas, unconventional oil, and deep-water operations. OFSCs have been offering NOCs more services and specialized operations with high technical experience at a lower cost than IOCs offer. As these trends continue, IOCs are likely to adopt a new business model that may require changes in collaborative efforts and cooperative relationships. Partnering with IOCs and OFSCs is a good step for NOCs that undertake a globalization strategy. In fact, this is a win-win strategy for all parties, as it will enable IOCs to gain more access to NOCs' resources. Further, IOCs and OFSCs in partnership with NOCs should contribute to the socioeconomic development of the countries in which they operate.
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The Role of National and International Oil Companies in the Petroleum Industry*
Saud M. Al-Fattah
P.O. Box 8349, Dhahran 31311, Saudi Arabia; Email: saud.fattah@aramco.com
(January 2013)
ABSTRACT
This paper provides a review of the evolving role and characteristics of the oil and gas companies, which
increasingly come in a variety of flavors. It also surveys the different types of oil and gas companies that
include national oil companies (NOCs), international oil companies (IOCs), independents, and oilfield
services companies (OFSCs).
The continued rise of NOCs, accelerated by high oil prices, has seen the balance of control over
most of the world’s hydrocarbon resources shift decisively in their favor. Their ability to access capital,
human resources and technical services directly from oil field service companies, and to build in-house
competencies, allows them to operate independently of Investor Owned Companies in most instances.
The demand on NOCs continues to evolve with the global energy landscape to reflect variations in
demand, discovery of new ultra-deep water oil deposits, and national and geopolitical developments.
NOCs, traditionally viewed as the custodians of their country's natural resources, have generally owned and
managed the complete national oil and gas supply chain from upstream to downstream activities. Having
secured their home base, NOCs have emerged as joint venture partners with the IOCs and increasingly as
their competitors, seeking international upstream and downstream acquisition and asset targets.
The key question is whether this emerging landscape will undermine the sustainability of the IOC
resource-ownership business model. Are the challenges of declining production in existing oil fields
replacing oil and gas reserves in restricted access or higher cost areas, and the declining of the operating
profit margins yet sufficient to reach a tipping point?
NOCs and OFSCs have increasing power and influence in global oil markets. In parallel, IOCs’
significance and role in the oil markets has been in decline due to shrinking technical skills and expertise,
reduced access to low cost reserves, and lower operating profit margins. As a result, IOCs have tended to
focus on more challenging and less profitable domains, shale gas, unconventional oil, and deep-water
operations. OFSCs have been offering NOCs more services and specialized operations with high technical
experience at a lower cost than IOCs offer. As these trends continue, IOCs are likely to adopt a new
business model that may require changes in collaborative efforts and cooperative relationships. Partnering
with IOCs and OFSCs is a good step for NOCs that undertake a globalization strategy. In fact, this is a win-
win strategy for all parties, as it will enable IOCs to gain more access to NOCs’ resources. Further, IOCs
and OFSCs in partnership with NOCs should contribute to the socioeconomic development of the
countries in which they operate.
Keywords: National oil companies, International oil companies, Petroleum, Operating Models
* Citation: Al-Fattah, Saud M., The Role of National and International Oil Companies in the Petroleum Industry
(January 27, 2013). USAEE Working Paper No. 13-137. Available at SSRN: http://ssrn.com/abstract=2299878 or
http://dx.doi.org/10.2139/ssrn.2299878.
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INTRODUCTION
Upstream oil and gas companies can be grouped into four categories, namely international oil companies
(IOCs), national oil companies (NOCs), independents, and oilfield service companies (OFSCs). Table 1
ranks the 2012 world’s ten largest oil and gas companies in terms of total petroleum liquids production.
Saudi Aramco stands out as the largest integrated oil and gas company in the world. It can also be classified
as an integrated energy company as it has recently widened its scope of business to include petrochemicals.
In the following section, the business model of each grouping will be briefly discussed, including its
characteristics and challenges.
Table 1- Ranking of the 2012 World’s Largest Oil Companies by Petroleum Liquids Production.
Rank
Company Name
Production
(MM B/D)
Type
1
Saudi Aramco
12.5
NOC
2
Gazprom
9.7
IOC
3
National Iranian Oil Co.
6.4
NOC
4
ExxonMobil
5.3
IOC
5
PetroChina
4.4
NOC
6
BP
4.1
IOC
7
Shell
3.9
IOC
8
Pemex
3.6
NOC
9
Chevron
3.5
IOC
10
Kuwait Petroleum Corp.
3.2
NOC
Source: Helman, Christopher. (July 16 2012). The World’s Biggest Oil Companies. Forbes, Accessed Dec. 23 2012,
http://www.forbes.com/
NATIONAL OIL COMPANIES (NOCs)
NOCs are organizations that have the largest shares of their value held by their parent governments. Most
NOCs have both upstream and downstream business operations and, until recently, their business was
focused in their home countries, rather than extending internationally. Examples of NOCs include Saudi
Aramco (the largest integrated oil and gas company in the world), Kuwait Petroleum Corporation (KPC),
Petrobras, Petronas, PetroChina, Sinopec, StatOil, and Malaysian NOC.
In-house NOCs typically are chartered to work toward the interest of their home countries.
Consequently, NOCs pay revenues, taxes, and royalties to their parent government to drive the country’s
economic development. Under the protective cover and influence of government, NOCs often take on both
political and social responsibilities. These responsibilities may include being welfare provider within the
country, contributor to employment and jobs creation, provider of non-energy services such as financing
and constructing hospitals, schools and roads, and role player in some political activities.
Some NOCs’ have recently focused on expanding their scope of business through mergers and
acquisitions. As the world demand for oil and gas continues to grow, cross-border M&A involving NOCs is
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seen as a quick way to get access to raw materials, rather than making large investments in exploration
projects. Due to the pressure exerted by, and influence of, the parent governments, NOCs have shifted
from just being allowed to access their country’s hydrocarbon resources to embracing various collaborative
models. These partnership types include: IOCs-NOCs partnerships, NOCs-NOCs partnerships, and
consortia and operating companies led by NOCs. The following section briefly discusses each type of
partnership.
IOC-NOC Partnership
IOC-NOC partnership is the most common type of M&A activity, though not literally an M&A. Both
companies hold shares in projects ranging from joint ventures and international consortia to production
sharing agreements (PSA). NOCs gain great benefits from this type of collaboration by gaining specialized
skills, cutting-edge technology, and expertise in project management, while sharing risk and accessing
technical capabilities that IOCs offer. IOCs in return gain access to NOCs’ oil and gas resources, and
investment opportunities. It was reported that M&A deals by NOCs reached a record $33 billion in 2005
(Deloitte, 2007). In brief, potential areas of NOC-IOC partnership includes human resource development,
cross-training and capacity building, and collaborative research projects.
It should be noted that some NOCs, for example in China and India, have little or no domestic
hydrocarbon resources. Rather, they are, in effect, geopolitical means to acquire crude oil for their energy-
hungry countries. Their success rests on access to the treasury of their own countries, as well as, in some
instances, the political muscle and other complementary resources of their nations’ governments.
NOC-NOC Partnership
The recent trend of NOCs has been toward going international. This model of collaboration involves the
NOC in one country partnering with a NOC in another country. This partnership may lead to doing
businesses in a third country, different from either of the partnering NOCs. A good example is the
landmark agreement between India and China where companies from both countries successfully bid $800
million for a 50% share in a Colombian oil company. This emerging trend has many implications.
NOC-NOC partnership now has the financial capability to bid and complete M&A. This seems
primarily from increased oil prices, improved management techniques, and access to capital markets.
Western companies may be anxious about investing in some regions of the world that are unstable
politically. This paves the way for NOC-NOC partnerships that are less averse to accepting
geopolitical risk.
NOC-NOC partnership can also lead to a better handle on overseas political risks through their
government-to-government relationships and negotiation strategies.
NOC-NOC partnership has less inherent risk because their domestic operations are likely to be
unaffected by political risk and, thus, can offset their international operations.
NOC Consortia and Operating Companies
Another emerging collaborative model is the establishment of consortia that are solely led by NOCs and
that will greatly impact the world oil and gas industry. It was estimated that by 2012 about 90% of the
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world’s oil and gas reserves were controlled by NOCs, an indication that future consortia will be controlled
by NOCs. One example of this emerging trend is the consortium that was formed by NOCs from Malaysia,
China, Korea, Iran, and Uzbekistan to develop fields in Russia. Another example is the Sudanese operating
company that involves NOC ownership from China (40%), Malaysia (30%), India (25%), and Sudan (5%).
INTERNATIONAL OIL COMPANIES (IOCs)
The business operations of the IOCs usually cover the full cycle from exploration through production,
transport and storage to marketing and sales of refined products. As a result of their scope of business and
expanded operations, some international oil companies can also be called integrated oil companies (IOCs).
Examples include ExxonMobil, Shell, Total, BP, and Chevron. These five largest IOCs, also called the
global majors or super majors, accounted for 17% of the world oil market in 2004. Table 2 shows the top
ten global energy companies. This annual survey of 2012 global energy companies by Platts measures
companies' financial performance using four key metrics: asset worth, revenues, profits, and return on
invested capital.
Vertical integration is a characteristic of companies that operate in all stages of their supply chain.
For example, in the oil industry, vertically integrated companies operate in both upstream and downstream
markets. Vertical integration has led to greater horizontal consolidation. Many mergers and acquisitions
helped the global majors or IOCs broaden their global business from exploration to trading. Exxon merged
with Mobil, Chevron with Texaco, and BP with Amoco and Arco. The primary concerns for the IOCs’
business models are market access, risk aversion, coordination, and more cost-effective staff utilization.
These components will be briefly discussed next.
Table 2- Ranking of the Top 10 Global Oil and Gas Companies in 2012.
Rank
Company Name
Region of Operations
Industry
1
ExxonMobil
Americas
Integrated Oil & Gas
2
Shell
EMEA*
Integrated Oil & Gas
3
Chevron
Americas
Integrated Oil & Gas
4
BP
EMEA
Integrated Oil & Gas
5
Gazprom
EMEA
Integrated Oil & Gas
6
StatOil
EMEA
Integrated Oil & Gas
7
Total
EMEA
Integrated Oil & Gas
8
ConocoPhillips
Americas
Oil & Gas E&P
9
PetroChina
Asia-Pacific
Integrated Oil & Gas
10
Rosneft
EMEA
Integrated Oil & Gas
*EMEA: Europe/Middle East/Africa and Americas
Source: Platts, Accessed Dec. 23 2012, http://top250.platts.com/Top250Rankings
First, global production growth had exceeded reserves replacement growth for the period 2000 to
2011, and development costs have risen. In addition, IOCs require large investments for new product
markets such as gas-to-liquids and liquefied natural gas (LNG) to oil sands and heavy oils. Further, the
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majority of the world’s remaining conventional reserves are located in technically challenging and expensive-
to-recover regions (e.g., the Arctic and Asia-Pacific), or in unstable countries politically (e.g., Nigeria, Russia
or Sudan). Figure 1 shows that the liquid reserves replacement ratio (RRR) for the super majors is about
75%; the key is that it is less than 100% in the last 10 years. Figure 2 shows the increased costs of the
reserves additions for different types of hydrocarbon environments for ExxonMobil in 2004 and in 2011.
Simply put, IOCs are challenged by the decline of the reserves replacement ratios of their existing oil fields.
New reserves are more likely to be found in challenging environments such as the Arctic, in deep water or
lying within complex geology, which result in higher recovery costs. Consequently, IOCs have a tendency to
be risk averse about operating or investing in highly unstable or sensitive regions. Figure 3 also indicates that
as more of the IOCs’ reserves are drawn from challenging environments, their production costs rise, leading
to declining operating profit margins, as shown in Figure 4. The operating profit margin averaged at 16% in
2005 while in 2011-2012 it declined to 11.6%. (Bain & Company, 2012)
Figure 1 Liquid reserves replacement ratio for super majors.
Source: Bain & Company, 2012.
75%
100%
0
10
20
30
40
50
60
70
80
90
100
last 10 years (02-11) last 4 years (08-11)
Reserves Replacement Ratio, RRR <100% in last 10 years
%
Supermajors (including ConocoPhillips) Liquid RRR
6
Figure 2 Reserves additions by type for ExxonMobil.
Source: Bain & Company, 2012.
Figure 3 IOCs’ average production costs.
Source: Bain & Company, 2012.
0
10
20
30
40
50
60
70
80
90
100
2004 2011
Reserve additions' higher cost
LNG
Conventional
Unconentional gas
Deepwater
Heavy oil
%
ExxonMobil reserves
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Average production cost per BOE
Production costs increasing
$
7
Figure 4 Average operating profit margins for IOCs.
Source: Bain & Company, 2012.
Second, to address the reserves replacement shortfall, IOCs have engaged in M&A to increase the
growth of reserves replacement at low costs and to expand exploration operations with low risk. However,
expanding their scale of operations increased the need of IOCs for mega projects (i.e., operating relatively
large fields) to meet future demand and to make a sound profit.
Third, increases in oil prices and the value of an exploration upside require IOCs to look for secured
exploration opportunities and to favorably collaborate or partner with highly focused exploration
companies. Furthermore, IOCs have found it necessary to increase their R&D budgets and to boost their
in-house investments and cooperate with companies that are technologically more advanced.
Finally, comprehensive supervision systems are required for remote operations that involve
significant technological, political and economic risk as well as public scrutiny. Nevertheless, there is a fear
that paying too much attention to governance concerns may increase bureaucracy at the expense of market
receptiveness and stakeholders’ benefits. Therefore, IOCs are required to maintain major and key
operations, address stakeholder demands and avoid red tape, which is a difficult balancing act.
INDEPENDENTS
This type of oil and gas company operates exclusively in the upstream (exploration and production) with no
downstream refining or marketing operations. Examples of independent companies include Spinnaker,
Anadarko, Apache and Toreador. A typical U.S. independent is a largely U.S.-focused relatively small
business that has been established for many years. International projects involve only onshore E&P and
production enhancement. The main hindrances to taking on international operations are the capital
16%
11.60%
0%
5%
10%
15%
20%
2005 2011-2012*
Operating margins declining
Average operating profit margin
* July 1, 2011 to June 30, 2012
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requirements and unacceptable political risk. The primary five components of an independent’s business
model involve heritage, funding, market choice, decision making, and risk taking. These are discussed next.
First, an independent usually follows three types of operations: exploration leg-work, farm-ins, or
consolidation. Exploration leg-work involves small firms carrying out geologic and seismic studies and
government negotiations, and then formulating consortia of larger companies for undertaking the actual
exploration activities. In farm-ins operations, an independent takes over acreage or an asset from a larger oil
company in a small or marginal field considered less viable by the big company; companies operating in
such businesses are called gleaners. Consolidation involves financing, acquiring, and combining operations
to share costs and diversify portfolios of businesses.
Second, at the beginning of a new business venture, an independent normally requires funding from
private capital funds, vendor participation or a joint venture with industry partners. Nonetheless, taking over
operatorship within a partnership reduces operational and financing costs, as well as risk.
Third, the most important aspects for independents in choosing their market are the relative size
and growth of projects and effectiveness of the operations. Independents in the U.S. and U.K. usually
follow five types of approaches in choosing their markets: 1) seek to leverage local knowledge and goodwill,
2) focus on reviving small or marginal fields, 3) focus on regional operations with low global activities, 4)
hold international licensing for the most geographically dispersed operations, and 5) make sure that 90% of
licenses in their portfolios are as non-operators.
Fourth, independents have the advantage over the IOCs in being able to make quick decisions, the
authority to commit, and the ability to establish personal relationships between senior IOCs leaders and
their clients. These factors make it easier for independents to be successful in winning international bids,
and targeting nonconventional and underexplored overseas regions.
Finally, small independents exploit the low risk tolerance of integrated companies because they do
not have to address consumer and investor brand issues. At the same time, super independents are
becoming more risk averse as they increasingly grow similar to their IOCs. All independents follow the same
non-integrated business model, but most importantly their decisions and strategies differ depending on size,
maturity and asset growth.
OILFIELD SERVICE COMPANIES
OFSCs provide services and outsourcing needs for the oil and gas companies. Their services cover virtually
all areas of E&P and a variety of technical performance and financial contracts. OFSCs provide primarily
facilities-related services and reservoir-related services. The world’s largest (big four) OFSCs are
Schlumberger, Halliburton, Baker Hughes, and Weatherford.
OFSCs are under pressure from IOCs to control costs as the latter seek to maximize their profits. In
2002, when BP increased its return on capital employed (ROCE) by 23%, Shell by 17.2%, and Total by
36.1%, the ROCE of Schlumberger, Smith International, and Baker Hughes had fallen by 22%, 6%, and 2%
respectively. This caused service companies to seek efficiencies and other means, such as M&A, to gain
profits. M&A affected oilfield service companies positively; Halliburton merged with Dresser, Schlumberger
with Camco, and Baker Hughes with Western Atlas. This consolidation led service firms to undertake the
lion’s share of the industry’s R&D innovation. In 2002, service companies were granted 400 patents on the
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upstream while the IOCs were granted only 30 patents. This led the contractor and service companies to
develop technology, expand their businesses, and more aggressively access the upstream market. This also
caused them to find ways to incentivize performance that led to reduced barriers to market entry for new oil
competitors.
CONCLUSIONS
This paper reviewed and discussed the evolution of NOCs’, including new roles, opportunities, and
emerging challenges faced in the upstream oil and gas industry. The business models and characteristics for
the different classes of oil and gas companies were also discussed. It also discussed the rise in NOCs
international activities and the consequences for future supply, security, and pricing of oil.
NOCs will continue to aggressively track new opportunities for growth in terms of reserves and
revenue stemming from growing access to capital markets, increasing profits, greater participation in
technology advancements, and increasingly effective project management and other technical capabilities.
NOCs and OFSCs have increasing power and influence in global oil markets. In parallel, IOCs’ significance
and role in the oil markets has been in decline due to shrinking technical skills and expertise, reduced access
to low cost reserves, and lower operating profit margins. As a result, IOCs have tended to focus on more
challenging and less profitable domains, shale gas, unconventional oil, and deep-water operations. OFSCs
have been offering NOCs more services and specialized operations with high technical experience at a lower
cost than IOCs offer. As these trends continue, IOCs are likely to adopt a new business model that may
require changes in collaborative efforts and cooperative relationships. Partnering with IOCs and OFSCs is a
good step for NOCs that undertake a globalization strategy. In fact, this is a win-win strategy for all parties,
as it will enable IOCs to gain more access to NOCs resources. In addition, IOCs and OFSCs in partnership
with NOCs should contribute to the socioeconomic development of the countries in which they operate.
NOCs are now addressing new challenges that require a more comprehensive approach to risk than
in the past. The successful rise of NOCs depends on their responses to new challenges that include more
effective corporate governance and transparency, financial risk management, talent development and
retention, and greater effort to address externalities including climate change.
To sum up, the message of this paper is that NOCs are on the rise because they have a number of
advantages relative to IOCs. At the same time, these NOCs can do still better if they can learn a variety of
practices that the IOCs have perfected, namely in dealing with different international financing and taxing
authorities, cooperating with one another to utilize their most advantageous skills, finding ways to mitigate
risks, and acquiring and retaining the best intellectual capital in the most cost-effective ways.
ACKNOWLEDGEMENTS
The author would like to greatly thank Dr. Stephen Rattien for his invaluable comments and comprehensive
review of this paper. Thanks also extended to Coby van der Linde, and Leila Bin Ali for their comments.
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Leis, J., McCreery, J., and Gay, J. (Oct. 10, 2012). National Oil Companies Reshape the Playing Field. Bain &
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... The tender award was known in January 2017, three companies being awarded the right to develop 129 Independent oil companies operate exclusively upstream. These companies are not involved in the downstream operations, such as refining or marketing (for further understanding of the categories of upstream oil and gas companies, seeAl-Fattah, 2013).130 Eni (2017, December 17), Eni completes sale of 25% interest in Mozambique Area 4 to ExxonMobil. ...
... Finally, we recall that we define independent companies by their lower risk aversion (when compared to other companies) in chapter two, disregarding IOCs and NOCs since they are absent from the Barnett shale. According to Al-Fattah (2013), the classification among these firms incorporates several dimensions being, one of them, their risk aversion. In these circumstances, the definition of a company as independent, IOC or NOC also reveal their risk' aversion, shaping a profile of the companies involved in the technological adaptation in the area. ...
Thesis
The oil and natural gas production in the United States (US) has increased sharply since the early 2000s on the basis of unconventional reservoirs’ development and, in particular those of shale. Given the huge scale of this development, it has been called a ‘revolution’, substantially influencing the O&G market. This remarkable increase in shale production allows the US to position itself today as the world's leading producer of natural gas. The determinants of this rapid growth have been the subject of numerous studies aimed at determining the main variables allowing large-scale commercial exploitation of unconventional reservoirs. These are in particular the factors that could reproduce this ‘revolution’ in other countries. These questions are essential for the future dynamics of natural gas markets. The development of unconventional reservoirs also sheds light on the possibilities of developing hydrocarbons in areas qualified as frontier zones beyond unconventional ones. The commercial exploitation of shale reservoirs fits into this category.
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The last two decades have seen a shift in market interest in favor of national oil companies (NOCs) to replace the dominance of international oil companies (IOCs). Since approximately 90% of the oil reserves and 75% of oil production is under the control of NOCs, it is imperative to analyze and understand their performance and efficiency in comparison to the successful business and governance model of IOCs in order to have enhanced forecasts in highly fluctuating market conditions. In the past, some studies attempted to understand the influence of different ownership models, i.e., public or private, but these studies are constrained by their assumptions and limitations. Moreover, the previous studies fail to reach a consensus with regards to the effectiveness of a given ownership model in comparison to the other. The present work is an effort to fill this gap by estimating the operational and financial efficiency differentials of NOCs and IOCs. A comprehensive literature review is carried out as a first step, which helped in identifying the relevant performance measures and the statistical methods that should be employed to obtain conclusive results. Overall, 10 indicators (3 financial and 7 operational) are used in this study to perform four analyses: (i) financial analysis; (ii) operational analysis; (iii) Stochastic Frontier Analysis (SFA); and (iv) Data Envelopment Analysis (DEA). The sample consists of 50 firms (composed of 16 NOCs and 34 IOCs), and our temporal interest is in fifteen years (2002–2016). The results suggest that, in general, IOCs perform better than NOCs but the role of privatization on the performance and efficiency of NOCs remains contentious since some NOCs perform as good as the best IOCs. Nevertheless, on average, it is safe to imply that privatization may lead to improved performance and efficiency since shareholder-owned firms, generally, perform better than the national players. For that matter, even some partially privatized firms show evidence of better performance in comparison to NOCs. However, since NOCs are mandated to fulfil the non-commercial objectives of the state as well, in addition to commercial obligations, it would be interesting to establish the comparison between NOCs and IOCs based on commercial and non-commercial performance.
Conference Paper
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Historically, oilfield services companies seemed to be financially more sensitive to crude oil price volatility compared to companies doing exploration and production. This was evident both in times of rising and falling price, imposing serious challenges to them. The year 2014 marked, after a 40 percent drop in the price of oil, the agreement for one of the largest acquisitions in the industry between two of the biggest international oilfield service providers; that of Baker Hughes, Inc. by Halliburton Co. The implications of these price fluctuations significantly influence this sector of the industry shaping the narrative around it. This paper evaluates the extent to which crude oil price variations affect the service companies in the stock market compared to exploration and production (E&P) companies. Regression analysis is performed on two sample groups; one consisting of service companies and the other of E&Ps. Daily data from the beginning of 1986 until early 2015 is used for both stock and crude oil prices. When compared to the E&Ps group, the service companies group is more oil price sensitive throughout the whole period by a factor of almost six and a half. In particular, from 1986 to 2007 this factor is 6.3. For the post 2008 period, a reverse causality effect is observed for both groups with changes in the oil price, with the service companies group slightly less sensitive, yielding a factor of 0.9. The factors responsible for the observed phenomena are evaluated, backed with data analysis. The higher economic limits of unconventional compared to conventional energy resources, make the service companies specializing in unconventional play development struggle as these are the first to become uneconomic in times of falling price. The downstream operations most E&Ps have unlike service providers, enables them to buffer losses in their upstream sectors when price drops and vice versa. Also, the decreasing dependence of the E&Ps on service companies as they grow bigger makes the latter less adroit to price variations than the former. Finally, the rise of the national oil companies in recent decades in terms of production and reserves control, has led to additional competition against service companies by international oil companies for providing specialized technical assistance.
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The future for the oil and gas industry has changed. For over 100 years the story was one of growth in production to supply a largely Western-driven market, and of competition between private companies for access to reserves. Since 2005, oil prices have moved to a permanently high level. The industry cannot develop its strategies independently of governments. The report shows increasing and changing intervention by governments, driven by climate change policies and economic and physical security. Government policies are generated by political processes that cannot necessarily be expected to produce coherent or rational results. The international oil market will continue to be dominated by economics, but the role of OPEC will change. Future weaknesses in short-term demand will be balanced not only by OPEC's regulation of its members' production when prices are weak, but by the response of producers of non-conventional oil, whose high variable costs will drive them to slow drilling and delay new projects.
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On the basis of application of both data envelopment analysis and stochastic frontier estimation applied to a panel of 78 firms, we present empirical evidence on the revenue efficiency of National Oil Companies (NOCs) and private international oil companies (IOCs). We find that with few exceptions, NOCs are less efficient than IOCs. In addition, much of the inefficiency can be explained by differences in the structural and institutional features of the firms, which may arise due to different firms’ objectives. KeywordsNational Oil Companies–Data envelopment–Stochastic frontier
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We present a model of the exploration and development activities of a National Oil Company (NOC), which uses similar technology to a private firm to extract a depletable resource. However, unlike the private firm, the NOC may have a wider range of objectives than maximizing the present value of profits. Specifically, we assume an objective function that balances firm profitability against a political desire to favor domestic consumer surplus and domestic employment. We find that the non-commercial objectives faced by a NOC tend to reinforce each other in their effects on profitability, the timing of cash flows and employment.
The World's Biggest Oil Companies
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