State-Owned Energy Companies

8/6/2019 State-Owned Energy Companies

1/13

NOCs 1 IOCs 0 (April 2005)

State-owned energy companies have oil and gas reserves and, increasingly, their owntechnology and funds for producing them. What does big oil have? Tom Nicholls writes[Petroleum Economist April 2005].WHOEVER coined the term supermajor should have kept some superlatives in reserve.Certainly, following a highly profitable period, oil companies rank as some of the biggest private-

sector corporations. The world's largest oil firm, ExxonMobil, recently leapfrogged GeneralElectric to become the US' biggest company by market value. BP, the second-largest oilcompany in the world, is the UK's biggest stock by market capitalisation. Together, they arevalued at over $0.6 trillion.

Yet when it comes to oil reserves the lifeblood of an oil company these industrial giants aredwarfed by the heavyweight national oil companies (NOCs). Saudi Aramco towers above allcomers (see Figure 1). It is followed by Iraq National Oil Company (INOC) and Kuwait PetroleumCorporation (KPC). ExxonMobil and BP trail in 12th and 18th place respectively, their reservesregistering as barely more than blips on the chart. The situation is similar in gas (see Figure 2).

Petroleum Economist April 2005 Issue 1 of 13


2/13


Who needs a catchy slogan?

Where BP once toyed with the idea of referring to itself as Beyond Petroleum a marketing ployto publicise its involvement in activities outside the oil sector the names of most of the NOCsare tellingly unimaginative. Petrleos de Venezuela (PdV), National Iranian Oil Company (NIOC),Libya's National Oil Corporation (NOC), Petrleo Brasileiro (Petrobras), Petrleos Mexicanos

(Pemex) none needs a catchy slogan or an image make-over because they have whateveryone wants and cannot easily get: oil reserves.

Half of the biggest 50 oil companies are fully or majority state-owned. Ranked by oil reserves,nine out of the top 10 are NOCs. It is eight in the case of gas reserves. Five of the world's biggest10 oil producers are state-controlled corporations.

For international oil companies (IOCs), there is not much chance of the situation improving.Undeveloped reserves to which they have full access make up a mere 7% of the world total, whiletwo-thirds of the world's reserves are off-limits to IOCs, according to ConocoPhillips.

That NOCs are the custodians of the vast bulk of the world's oil is nothing new, but this hasbecome more relevant as the problem of reserves replenishment has turned into a crisis for bigoil. Until a few years ago, there were sufficient resources in regions fully open to privateinvestment to keep the majors busy and growing. Mature areas such as the US onshore and theUK North Sea still offer viable growth opportunities for small and medium-sized companies, butthey are of limited use to the largest firms. ExxonMobil pumped 1.6bn barrels of oil equivalent(boe) out of the ground last year and needs to fry bigger fish to maintain the growth the stockmarket demands.

In any case, it hardly used to matter that the NOCs owned the oil. They had little else to offer andneeded the IOCs' financial muscle, technical capabilities and market savvy what VahanZanoyan, chief executive of Washington-based consultancy PFC Energy, refers to as "above-ground resources". But that advantage has been eroded. NOCs have narrowed the gap on theirillustrious private-sector counterparts in operational terms (often, ironically, because of longexperience working alongside IOCs).

"Several NOCs have spent enormous amounts of money in the last few years developing above-ground resources, mostly in the crude oil upstream sector," says Zanoyan. "IOCs no longermonopolise above-ground resources."

Petrobras, for example, can lay reasonable claim to being the most successful developer of deep-water oil-production technology in the world. Its generous, $200m annual research anddevelopment (R&D) budget signals its intention to remain at the forefront of innovation.Malaysia's Petronas and Norway's Statoil debunk the obsolete perception that a state-runcompany must be inefficient. Few companies if any can match Saudi Aramco's technicalcapabilities in the management of complex onshore oil projects.

Catching up

Even NOCs that have, so far, failed to modernise, will be able to catch up. "It's not difficult for acompany with the most important part of the business chain oil reserves to enter other partsof the chain," says Claudio Castejon, an executive manager in Petrobras' international division."You don't need any special technology to sell gasoline."

NOCs are no longer financial weaklings. High oil prices mean that every oil producer is swimmingin cash and can afford to develop above-ground capabilities. If they no longer need foreign



3/13


capital, if they can produce their own technology, manage their own operations and market theirown products then, wonders Zanoyan, "why do they need IOCs at all?"

Peter Roberts, a partner specialising in oil and gas atthe Jones Day law firm, agrees: "You are going to seethe ascendancy of the well-organised NOC and it's

going to change the shape of the industry goingforward. They are going to want to see a bigger sliceof a finite pie."

Access to reserves is being made more problematicfor IOCs by another trend the expansion of NOCsoutside their home markets. Usually with the fallbackof a virtual monopoly on oil reserves in their homemarket, cash-rich NOCs are providing stiff competitionfor IOCs in a growing number of licensingopportunities and energy projects around the world although, for now, they remain a long way behind(see Figure 3).

"NOCs woke up to the fact that they were making somuch money from oil and gas, even after pumpingloads into national infrastructure, that they could goout and behave like an IOC," says Roberts, who hasworked closely with Petronas and CNOOC.

Unfettered by shareholder pressure to deliver largeprofits and dividends, NOCs are prepared to acceptlower rates of return than IOC shareholders willtolerate. "[China's] Sinopec is not in it for its shareprice next quarter," says Zanoyan. "This is theirstrongest competitive position against IOCs. The chief

executive of an IOC can't stand up and say a 6%return is acceptable."

Shareholder pressures

In addition, IOCs are subject to other shareholder pressures that generally do not bothergovernments and their NOCs. Canada's Talisman Energy eventually pulled out of Sudanbecause of the unrelenting backlash from human-rights groups. India's Oil and Natural GasCorporation (ONGC) quickly filled the gap.

The Chinese state-owned oil companies have been particularly active internationally in recentyears, racking up an estimated $40bn of acquisitions outside China (PE 3/05 p9). ONGC, a late

starter, is said to have spent $3.5bn abroad, but its overseas drive seems to be accelerating. Andwhile CNPC, Sinopec, CNOOC and ONGC do not possess large indigenous reserves, they havesomething else of enormous value they are the gatekeepers of the fastest-growing and, bysome measures, the biggest markets on earth.

That has proved an extremely effective bargaining chip for CNOOC, which has acquiredupstream stakes in Australia's North West Shelf liquefied natural gas (LNG) venture and inIndonesia's Tangguh LNG project in exchange for access to the LNG-import terminals it isbuilding at Guangdong and Fujian, on the Chinese coast.



4/13


5/13


Russia's Gazprom is also catching up with the leading NOCs. It is in the enviable position ofhaving straightforward access to a lucrative market (the European Union) and owning prodigiousreserves (its gas resources are as awesome as Saudi Arabia's oil). It has made no secret of itsinternational ambitions and its influence outside Russia will grow rapidly in the coming years as itbrings North American and east Asian markets into its orbit.

Playing from the strength of huge indigenous gas reserves, pipeline links to southern Europe andlarge, well established LNG business, the international standing of Sonatrach will also strengthenin the next few years. It is setting its sights on the US LNG market, tightening its grip on gassupply to Europe and accelerating investment in overseas upstream markets.

An impregnable position

Libya's NOC is a step behind Sonatrach, but is capable of catching up quickly. It has hugeunderdeveloped oil and gas resources and an impregnable position in its home market. Althoughdeficient in technology and capital, NOC will become a more effective operator as oil investmentflows into Libya and is likely to take on a greater number of developments itself.

Iraq's INOC has suffered because of sanctions, wars, terrorism, sabotage and the loss of crucialpersonnel (that it has kept going at all with the limited cash and resources available isremarkable). Once physical security in Iraq is established and the government has decided howto structure the oil industry, INOC could have a bright future, given its position in the league tableof corporate oil reserves.

Yet while the influence of IOCs is being checked by resurgent NOCs, big oil is not about todisappear. Stewart Johnston head of the oil and gas division of the Charles River Associatesconsultancy, says IOCs retain considerable clout in resource-rich areas. In the Middle East, hesays, NOCs need IOCs as much as IOCs need access to the NOCs' resources. "NOCs needIOCs to help them develop more complex reservoirs and with secondary and tertiary recovery,and, importantly, to help them create employment opportunities."

Admitting defeat

Nonetheless, the present phase of share buy-backs, although popular with the City, is, he says,"to a certain extent" an admission of defeat by the IOCs symptomatic of the shortage ofinvestment options open to them.

Also of comfort to IOCs is that NOC expertise generally tends to concern oil projects. Withobvious exceptions, such as Sonatrach and Statoil, they are less adept at handling gas ventures.For example, the sophisticated and expensive technology needed to launch LNG projects meansIOC participation suits Qatar Petroleum (QP), which signed a $7bn deal for an LNG venture withShell in February (see p13), adding to multi-billion-dollar deals with ExxonMobil andConocoPhillips, as well as various proposals for gas-to-liquids and petrochemicals plants.Overall, some $90bn is being sucked into various oil and gas infrastructure projects in Qatar.

The logic of those agreements from Doha's point of view is buttressed by the need to gain marketaccess. Whereas oil can be sold easily on the world market, gas cannot large-scale, long-termsales agreements are needed, as well as large infrastructure developments and an expertknowledge of and familiarity with end-user markets. Offloading cost, technology and market-access risks in exchange for rapid project development involving little up-front investment for QPis worth the sacrifice of a small slice of equity. "Qatar doesn't want the market or technologicalrisk, but the government still ends up with 85-90% of the revenue. It's an excellent model forthem," says Zanoyan.



6/13


It is in areas such as this that IOCs are likely to remain dominant for the foreseeable future.Qatar's crumbs are a year's worth of hot meals for even the biggest Western oil company. Theemirate accounted for around 95% of the equity reserves ExxonMobil booked last year and theintense interest in the country more stable and attractive than the other huge gas-resourcenations, Russia and Iran reflects the shortage of investment opportunities on offer.

The result is that upstream returns are likely to come under increasing pressure. Libya's licensinground in January produced extremely competitive bidding, as Western oil companies fought hardto win exploration rights. Venezuela, another highly attractive resource base, has slashed returnsfor foreign investors in recent years. The problem is intensified by competition from NOCs thatare not constrained by the demanding investment criteria IOCs must meet.

Duped by consuming countries

The point that access to good-quality oil reserves will carry a heftier price tag in future wasrammed home in a blunt speech to Opec leaders late last year by Al Rodrguez, then head ofPdV. In a bitter attack on Western investors, Rodrguez, now the country's foreign minister, saidthe company's management in the 1990s before his boss, Hugo Chvez, assumed thepresidency was effectively duped by consuming countries and IOCs into offering investment

terms that short-changed Venezuela. Praising the stiffer terms Chvez brought in, he told IOCs to"overcome" their "colonialist past" and "acknowledge the right to sovereign natural resourcemanagement of the exporting countries".

But forward-thinking IOCs can still do well, says Zanoyan. To keep up they must "develop newabove-ground competencies. IOCs need to widen the gap again." It can happen ExxonMobilspends some $0.7bn a year on R&D. Last month, the firm released a press statementacknowledging that the "energy market is changing" and said the changes are "playing to" itsstrengths. The principal explanation offered by CEO Lee Raymond for this claim was that the firmhas good technology.

IOCs that communicate effectively with NOCs (France's Total being a prime example) are likelyto outperform rivals that do not. IOCs can also diversify more easily, moving into other business

areas, such as power generation and supply, and alternative energies.

But while IOCs still have some room for manoeuvre their capital, technology and commercialand technical expertise is still essential in many areas and their wealth means that they canattract the best employees development prospects are limited by the overriding problem ofaccess to oil and gas reserves. As long as Opec is careful to keep oil prices at a low enough levelto discourage the growth of other forms of energy that advantage will only grow. As one NOCexecutive puts it: "Saudi Aramco and Petronas have a great long-term future. Can you say thesame about Shell? I'm not sure."

Brazil

ALTHOUGH the Brazilian state holds only around 30% of Petrobras' shares, it has shrewdlyretained a majority of the voting rights and, therefore, control. In the national and governmentpsyche, the company remains very much an NOC. Yet Petrobras itself while proud of its roleand identity as a national champion thinks and behaves like an IOC and continues to enjoy theoperational autonomy it needs to be successful.

"We are a company with two faces a private face and a government face," says ClaudioCastejon, an executive manager of the firm's international division. "We can operate with both



7/13


without a problem. That is not a common achievement." Investors think so. Petrobras ADRs onthe New York Stock Exchange have risen in value from about $28 to nearly $50 since mid-2000.

Petrobras has already established itself as one of the world's most effective deep-wateroperators, building up a large offshore industry at home and generating much of the technologyrequired itself.

Another mark of the firm's ambition is the way it has stepped up the pace of overseasinvestments in recent years. The shifting motivation for Petrobras' expansion outside Brazilillustrates the transformation of its strategic priorities in recent years. When Petrobras firstinvested outside its home market, in 1972, it did so to secure oil supplies for import-dependentBrazil. Now the country is virtually self-sufficient in oil, so that rationale no longer exists. But itcontinues to build abroad because, explains Joo Figueira, an executive manager of theinternational division, it enables "growth, the diversification of the portfolio and access to hardcurrency". Ultimately, that means cheaper access to capital.

A level-headed approach to its international business in the face of opposition from somepoliticians and some sections of the public, who would prefer to see the cash reinvested in Brazil

is one of the reasons why the ex-monopoly has won over private investors.

Compared with around 40,000 boe/d 10 years ago,production from overseas ventures is now 263,000boe/d. Argentina is the single-largest contributor, with44% of the total, following the acquisition of PerezCompanc (now Petrobras Energia) in 2002. The aim isto reach 300,000 boe/d by the end of this year andabout 0.6m boe/d by 2010. All growth will comeorganically.

Petrobras' main areas of focus are South America,where it sees itself as a regional leader, and playingto its technical strengths the deep waters of westAfrica and the US Gulf of Mexico (G0M). The companywill soon reap the rewards of investments in Nigeria'sAgbami and Akpo fields. First oil is expected in 2007,reaching a 100,000 b/d peak net to Petrobras a yearor two later. Meanwhile, several discoveries are underappraisal offshore the US that should result in a "big

jump" in Petrobras' GoM reserves.

Its international horizons seem to expand frequently.Petrobras is trying to eke value out of frontier areas,such as Tanzania. And, with contracts singed in Iranand Libya, there is a growing focus on the Middle East,where it may be able to exploit good relations with otherNOCs and healthy government-level relations.

It has a lot to offer other NOCs. As well as its deep-water skills, expertise in handling a big market Petrobras retains a virtual monopoly on the refiningindustry of a country with consumption in the region of1.8m b/d is another bargaining chip for Petrobras as itforms relationships with other NOCs.



8/13


At home its contribution is beyond doubt. Through taxes, employment, infrastructure andeconomic development and the supply of oil products nationally, Petrobras is a mainstay of theBrazilian economy. With continued exploration success offshore in oil and, more recently, gas, itis the engine room of Brazil's upstream sector.

Petrobras is also an example to many other NOCs (and indeed IOCs) in its attitude to social

responsibility, which forms part of its mission statement, and the environment. A few years ago,the firm had a poor environmental record, but has spent heavily on improving it and has set itssights on being included in the Dow Jones Sustainability Index.

Malaysia

PETRONAS' description of itself on its website is telling "an integrated international oil and gas company withbusiness interests in 35 countries". There is significantlyless emphasis on the fact that it is a state-run firm. Once anineffectual NOC without the luxury of an impregnable oil-reserves position to fall back on at home, Petronas is widely

rated by industry experts as the NOC that has been mostsuccessful at diversifying beyond its national boundaries.

And, although the workforce may be bloated by IOCstandards, it is generally considered to provide compellingevidence that the perception of state-owned companies asinefficient enterprises is an obsolete one.

Says PFC Energy's Zanoyan: "Petronas is a great NOC thathas learned the game of business development outside itshome borders. In common with Petrobras and Statoil,Petronas can compete successfully with IOCs on a levelplaying field outside its home market."

Set up in 1974, Malaysia's state-owned energy corporationis involved in a wide range of activities, from exploration andproduction (E&P) to refining, marketing and distribution, andfrom gas processing and transmission to petrochemicals.

In the early 1990s, having organised Malaysia's upstream

The results speak for themselves. While Malaysia's

Diversified assets portfolio

industry effectively creating a transparent regime that hasbeen successful in attracting foreign investment Petronasturned its sights on overseas operations in order tocompensate for Malaysia's weak reserves position in oilreserves.

reserves amount to about 4.84bn barrels of oil and 87trillion cf of gas, Petronas Carigali, the firm's overseas E&Pdivision, has built up non-Malaysia reserves of some 6.3bnboe.



9/13


Staff are well trained and employees are given as wide an operational experience as possible.Carigali is always keen to assume operatorship of projects, allowing it to enhance project-management skills and technical expertise as quickly as possible. Its wide range of investmentsreflect an open mind to E&P it seems prepared to consider investments almost anywhere. Thatphilosophy means the company now has a diversified portfolio of assets, reducing credit risk andimproving its ability to raise financing.

Like other NOCs, it has the stomach for investments that are too much for IOCs whileshareholder pressure saw Canada's Talisman Energy pull out of Sudan, selling its 25% stake inthe Greater Nile Oil production and pipeline project to ONGC, Petronas and Talisman's otheroreign partner, CNPC, stayed on.

Norway

SET UP in 1972 to develop the country's hydrocarbonsresources, Statoil has evolved into a fully commercialcompany that competes on equal terms with othercompanies in Norway. While the state retains 70.9% of the

firm, the government does not get involved in running thebusiness and is not represented on the board or theexecutive committee. Statoil says it has no obligations to thestate.

Commercial freedom, says Peter Mellbye, executive vice-president and head of international E&P, is essentialbecause it allows the company to take decisions that are inits own long-term interests enabling business growth. Likemany of its NOC counterparts, Statoil is growing byexpanding internationally, because investment opportunitiesin the maturing Norwegian North Sea are limited for acompany of its size.

Achievable target

Production in 2004 averaged 1.106m boe/d. Of this, 115mboe about 10% came from international operations. Thetarget for 2007 is to produce 1.4m boe/d, which wouldinvolve an average annual increase of 8%. But growth overthat period will be skewed towards international operations.In 2007, Statoil expects to be producing 300m boe/d outsideNorway an annual increase of 40%, raising thecontribution of international operations to total production toover 20%. This target will be difficult to reach, admitsMellbye, but it is "achievable", because it is based on

projects already sanctioned.

Managerial and financial independence aside, Statoil willcontinue to benefit from the sophisticated technology it hasdeveloped in the inhospitable operating environment of theNorth Sea.

Its technology, says Mellbye, makes it "an attractive and reliable partner for IOCs in majorprojects in Norway and internationally." Statoil has wide-ranging experience in the fast-growinggas business, including production, transmission and marketing. Mellbye identifies expertise in



10/13


enhanced oil-recovery and subsea developments as other strengths. In addition, it will leverageits identity as a state-owned firm to develop partnerships with other NOCs, he says.

Russia

WHEN Boris Yeltsin was President, in the 1990s, much ofthe oil industry fell into private hands, although the statehung onto ultimate control by retaining ownership of crudeand oil products pipelines.

Under President Vladimir Putin steps have been taken tostrengthen the state-owned oil company, Rosneft, which,during the Yeltsin era, looked something of a lame duckamong its burgeoning, private-sector competitors.

Efforts to beef up Rosneft have aroused controversy fromthe start. Envious majors cried foul when it won juicyacreage at an allegedly rigged auction in northwestRussia. Public criticism abated after a Kremlin reminderthat leading corporations had themselves bagged assetsthrough dubious privatisation schemes.

In September, the government announced plans to mergeRosneft with Gazprom, creating a huge state-owned oiland gas company. Once integrated Rosneft/Gazpromwould have gas output to dwarf all others but would lag farbehind in fifth place among Russian oil producers.

By the end of the year, Rosneft had won the former Yukosproducer, Yuganskneftegaz, which was sold at auction to

help the government recover billions of dollars worth ofback taxes allegedly dodged by its parent company.Yuganskneftegaz produces some 1m b/d far more thanRosneft's 400,000 b/d. But the acquisition came ladenwith risk. Yukos owners threatened Rosneft with a"lifetime of litigation" to protest what they saw asexpropriation of their property by the state. Even someKremlin insiders complained that the Yuganskneftegazsale looked like daylight robbery.

Indicating a growing split in government, Moscow's relatively reformist economy ministry said oiland gas assets were usually more efficient in private rather than state hands.

In an attempt to quarantine Gazprom from attack by litigators, the government has decided toleave Yuganskneftegaz out of the gas giant's merger with Rosneft. India's ONGC and China'sCNPC have been invited to buy stakes in Yuganskneftegaz. But both have hesitated for fear ofinviting charges of collusion in the Yukos affair.

By March, the Yuganskneftegaz scandal was turning into a fiasco. Behind the scenes, bickeringin the Kremlin broke out into an open scrap between rival Gazprom and Rosneft chiefs about whoshould head which company. But even if implementation of the Rosneft/Gazprom merger looksbotched, there seems little doubt that the overall strategy to ensure a state-owned companydominates the oil and gas sector remains intact.



11/13


The property of the state

Rosneft and Gazprom are expected to win the best acreage in eastern Siberia and the far eastwhere a large number of blocks are to be parcelled out in 2005 and 2006. Putin has said that oiland gas pipelines must remain the property of the state. Gazprom has always owned thesprawling gas-transportation network. It remains to be seen whether the crude pipeline operator,

Transneft, will be drafted into the Rosneft Gazprom merger.

Having witnessed the slaughtering of Yukos by federal taxmen and the imprisonment of itsfounder, Mikhail Khodorkovsky, the leaders of other privately owned Russian oil companies areunlikely to challenge the government's state-oriented oil policy until there is a stronger scent ofpolitical opposition in the air.

Once enlarged into an oil company, Gazprom, already perceived partially as ambassador forRussia on the international stage, will be empowered to play a stronger geopolitical role forMoscow. With 28.8 trillion cubic metres (cm) of reserves and annual production of over 0.54trillion cm, Gazprom is the biggest gas company on the planet. Already a major force onEuropean gas markets, where it accounts for over a quarter of the region's imports, Gazprom isplanning to expand internationally, setting its sights on the US and Asian LNG markets.

As part of its strategy to globalise, Gazprom is moving into foreign upstream projects. Thecompany is already involved in Iran's South Pars gas development and is planning to explore inIndia. Such investments are intended to bring both economic and political dividends to Russia.

Rosneft is much smaller, with just 2.39bn barrels of proved oil reserves. That is untilYuganskneftegaz' figures are included they would add some 1.5bn barrels of reserves toRosneft's total. But while bagging the Yukos unit may have brought operational benefits, its legalrepercussions may haunt Rosneft for years.

Russian contribution by Isabel Gorst

Saudi Arabia

CUSTODIAN of 260bn barrels of proved oil reserves, Saudi Aramco is the undisputedheavyweight champion of the world's upstream industry. Its natural advantages are not only itsembarrassment of riches in oil reserves, but also that the resources are predominantly onshore,the fields are large and wells have high productivity rates.

Oil industry experts say the company is well run and efficient few, if any, IOCs are thoughtcapable of doing a better job than Aramco when it comes to complex onshore oil projects. Thatthe ministry has the flexibility to act as the world's only swing oil producer, turning the taps on andoff at will, is down to Aramco's technical proficiency.

The oil minister, Ali al-Naimi attributes Aramco's success to the way the Saudi oil industry isstructured. The oil ministry is responsible for policy and regulation, while the firm focuses purelyon the business of producing oil. With independent financial and managerial structures and plentyof funding, this has led to a high degree of efficiency, he says. Flush with cash, capable ofgenerating its own technology and staffed with properly trained professionals, Aramco has noneed for private help in the development of its hallowed oil sector.

Al-Naimi points to Aramco's ability to retain a production capacity cushion of 1.5m-2m b/d asproof of operational excellence. That has involved the funding and implementation of a raft ofcapital-intensive and technically complex projects. They include: the development of the 0.5m b/d



12/13


Shaybah field in the Empty Quarter, in 1998; theconstruction of a combined 3.2bn cubic feet a day (cf/d)gas-processing facilities at Hawiyah and Haradh, in 2001and 2003; and the recent capacity expansion of 0.8m b/dof the Qatif and Abu Safa fields. "All these projects wereexecuted months ahead of schedule and at lower costs

than budgeted," the minister says.

Gas co-operation

Success is not restricted to oil, although that is Aramco'sclear fort. It has added 54 trillion cf to non-associatedgas reserves in the past decade, bringing total proved gasreserves to 235 trillion cf, 40% of it non-associated. Overthat time, it has more than doubled its marketed gascapacity from 3.5bn cf/d to 7.5bn cf/d. Nonetheless,natural gas is the only area where co-operation withforeign oil companies is likely to occur. Shell, Total,Russia's Lukoil, Italy's Eni and China's Sinopec are

already involved in preliminary gas-exploration work in thehitherto closed kingdom and the government isconsidering a further gas licensing round in the next fewyears.

Aramco has never made a concerted move abroad there is too much on offer at home to bother. If it did, itwould be a formidable force.



13/13


The secret of NOC success

WHILE national oil companies (NOCs) have one thing in common being state-owned or state-controlled the grounds for comparison more or less end there.

Oil and gas reserves differ widely from country to country. Each NOC has a different role to actout within the national economy. Petrobras has to supply a country with a surface area of 8.5msquare km and a population of 185 million consuming 1.8m barrels a day (b/d). Qatar Petroleumhas to contend with a population of under 1 million consuming around 40,000 b/d in an area of11,400 square km.

Some, such as Statoil, are allowed a large degree of financial and managerial autonomy. Oslohas built up a Petroleum Fund, which will see oil revenues reinvested in the future across thewhole economy, while ploughing enough cash back into Statoil to let it expand as a competitiveenergy business. Things are different at Pemex, which has not been allowed the freedom to

develop its above-ground resources. Cash in a company already strained by a bloated workforceof 150,000 is siphoned back into state coffers. The inability to reinvest in new projects severelylimits the company's prospects and both Pemex and national oil production could start to shrinkwithin a few years.

Similarly, Venezuelan President Hugo Chvez' predilection for using petrodollars to fundambitious social projects limits PdV's ability to grow as an oil company bad in the long term forthe firm's revenues and therefore the taxes it pays, the employment it generates and, probably,for national energy supply. In addition, the 18,000 of PdV's employees sacked in 2003 after theoil strike included many senior managers and skilled workers, who cannot be replaced quickly.Meanwhile, PdV's chief executive, Rafael Ramrez, is also the energy minister, blurring the linebetween the company's corporate identity and its role as a state agency, undermining its ability tofunction in a commercially minded way.

It is exactly that operational independence that successful NOCs pinpoint as the secret oftheir success. State ownership in itself need not undermine a company's independence if it has aclearly defined mandate, says the Saudi Arabian oil minister, Ali al-Naimi, but "clear separationbetween policymaking, regulation and operations is essential". If political interference is kept incheck and the company is given autonomy, he says, an NOC can be efficient.

Political influence does not always impinge in a disastrous way. Petrobras, for example, hascontinued to function effectively despite its chief executive, Jos Eduardo Dutra, being a politicalappointee. Political influence can also help to build a business Statoil's overseas expansionwas instigated on government orders.

Yet political meddling is usually a recipe for failure it has derailed, at least temporarily, the

development of the one industry that could drag Bolivia out of extreme poverty and limits growthprospects for Nigeria National Petroleum Corporation and Angola's Sonangol.

http://www.petroleum-economist.com/April 2005 Issue

http://www.petroleum-economist.com/http://www.petroleum-economist.com/

Date post:	07-Apr-2018
Category:	Documents
Upload:	prisantiputri
View:	214 times
Download:	0 times

State-Owned Energy Companies

Documents