The Rise of National Oil Companies
A common misperception in the oil and gas industry revolves around the myth of ‘Big Oil’. This myth, perpetuated by the media and politicians, narrates the tale of supermajor oil companies controlling global oil supplies, setting oil prices on a whim, and wrestling away the supply of resources from foreign countries. When these statements are examined at face value, however, all three of these ‘facts’ couldn’t be farther from the truth.
Forty years ago, the vast majority of oil reserves were controlled by publicly traded Western multinational oil companies. Today, however, only 6% of oil reserves are owned by investor owned companies, with almost 80% under exclusive control of government-owned oil companies, called National Oil Companies (NOCs). Saudi Arabia’s Aramco, a state-owned NOC, is the world most valuable company, with a valuation between $3-7 trillion USD. Government controlled NOCs operate significantly differently than publicly traded international oil companies (IOCs). Rather than being accountable to shareholders, NOCs often report directly to the Ministry of Energy or Finance and frequently have a board of directors that is politically appointed, rather than elected by shareholders.
NOCs are vulnerable to the political decisions of the government, and revenues accruing from production can either be re-invested into the company, or used to pay for unrelated, non-energy government expenses and programs. While some NOCs, such as Petrobras (Brazil) and Petronas (Malaysia) have proven to be efficient and strategic companies, many NOCs are mismanaged and lack sufficient technology, resources and expertise to maximize resource extraction.
There has been a trend over the past two decades for governments to privatize their NOCs in order to raise revenues, boost production, and bring in valuable foreign investment into the country. Colombia’s Ecopetrol and Norway’s Statoil have floated ownership on the stock markets in the 2000s; however, their respective governments still maintain significant ownership control. Many of the current supermajors, such as BP (UK), Repsol (Spain) and Eni (Italy), were formerly national oil companies privatized by their governments.
While a common myth persists that Western oil companies are taking away control of resources from foreign countries, the chart above demonstrates that the world’s largest oil companies, are in fact state-owned NOCs, and, in most cases, control 100% of production and revenues generated from oil reserves in-country. As access to reserves becomes more difficult for IOCs, greater technological developments are required to replenish reserves pushing a move toward unconventional sources such as the Canadian oil sands and ultra-deepwater offshore drilling in friendly jurisdictions.
