NOCs 1 – IOCs 0 (April 2005

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State-owned energy companies have oil and gas reserves and, increasingly, their own technology 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 privatesector corporations. The world's largest oil firm, ExxonMobil, recently leapfrogged General Electric to become the US' biggest company by market value. BP, the second-largest oil company in the world, is the UK's biggest stock by market capitalisation. Together, they are valued at over $0.6 trillion. Yet when it comes to oil reserves – the lifeblood of an oil company – these industrial giants are dwarfed by the heavyweight national oil companies (NOCs). Saudi Aramco towers above all comers (see Figure 1). It is followed by Iraq National Oil Company (INOC) and Kuwait Petroleum Corporation (KPC). ExxonMobil and BP trail in 12th and 18th place respectively, their reserves registering as barely more than blips on the chart. The situation is similar in gas (see Figure 2).

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so far. according to ConocoPhillips. But that advantage has been eroded. National Iranian Oil Company (NIOC). nine out of the top 10 are NOCs. Few companies – if any – can match Saudi Aramco's technical capabilities in the management of complex onshore oil projects.NOCs 1 – IOCs 0 (April 2005) Who needs a catchy slogan? Where BP once toyed with the idea of referring to itself as Beyond Petroleum – a marketing ploy to publicise its involvement in activities outside the oil sector – the names of most of the NOCs are tellingly unimaginative. Five of the world's biggest 10 oil producers are state-controlled corporations. "IOCs no longer monopolise above-ground resources. Petróleos Mexicanos (Pemex) – none needs a catchy slogan or an image make-over because they have what everyone wants and cannot easily get: oil reserves. High oil prices mean that every oil producer is swimming in cash and can afford to develop above-ground capabilities. If they no longer need foreign Petroleum Economist April 2005 Issue 2 of 13 . because of long experience working alongside IOCs). Its generous. chief executive of Washington-based consultancy PFC Energy. there were sufficient resources in regions fully open to private investment to keep the majors busy and growing. In any case.6bn barrels of oil equivalent (boe) out of the ground last year and needs to fry bigger fish to maintain the growth the stock market demands. Mature areas such as the US onshore and the UK North Sea still offer viable growth opportunities for small and medium-sized companies. $200m annual research and development (R&D) budget signals its intention to remain at the forefront of innovation. failed to modernise. refers to as "aboveground resources". Half of the biggest 50 oil companies are fully or majority state-owned. for example. For international oil companies (IOCs). Undeveloped reserves to which they have full access make up a mere 7% of the world total. NOCs have narrowed the gap on their illustrious private-sector counterparts in operational terms (often." says Claudio Castejon. can lay reasonable claim to being the most successful developer of deepwater oil-production technology in the world. ExxonMobil pumped 1." Petrobras. an executive manager in Petrobras' international division. Petróleo Brasileiro (Petrobras). but they are of limited use to the largest firms. it hardly used to matter that the NOCs owned the oil. Libya's National Oil Corporation (NOC). there is not much chance of the situation improving. "You don't need any special technology to sell gasoline. but this has become more relevant as the problem of reserves replenishment has turned into a crisis for big oil." NOCs are no longer financial weaklings. That NOCs are the custodians of the vast bulk of the world's oil is nothing new. Ranked by oil reserves. while two-thirds of the world's reserves are off-limits to IOCs. It is eight in the case of gas reserves. ironically. technical capabilities and market savvy – what Vahan Zanoyan. "Several NOCs have spent enormous amounts of money in the last few years developing aboveground resources." says Zanoyan. will be able to catch up. They had little else to offer and needed the IOCs' financial muscle. Malaysia's Petronas and Norway's Statoil debunk the obsolete perception that a state-run company must be inefficient. "It's not difficult for a company with the most important part of the business chain – oil reserves – to enter other parts of the chain. mostly in the crude oil upstream sector. Until a few years ago. Catching up Even NOCs that have. Petróleos de Venezuela (PdV).

is said to have spent $3. Unfettered by shareholder pressure to deliver large profits and dividends. That has proved an extremely effective bargaining chip for CNOOC." says Zanoyan. but its overseas drive seems to be accelerating. The chief executive of an IOC can't stand up and say a 6% return is acceptable. the biggest markets on earth. on the Chinese coast." Access to reserves is being made more problematic for IOCs by another trend – the expansion of NOCs outside their home markets. "This is their strongest competitive position against IOCs. even after pumping loads into national infrastructure. agrees: "You are going to see the ascendancy of the well-organised NOC and it's going to change the shape of the industry going forward. India's Oil and Natural Gas Corporation (ONGC) quickly filled the gap. manage their own operations and market their own products then. cash-rich NOCs are providing stiff competition for IOCs in a growing number of licensing opportunities and energy projects around the world – although. Usually with the fallback of a virtual monopoly on oil reserves in their home market. if they can produce their own technology. by some measures. NOCs are prepared to accept lower rates of return than IOC shareholders will tolerate. "NOCs woke up to the fact that they were making so much money from oil and gas. Sinopec. Canada's Talisman Energy eventually pulled out of Sudan because of the unrelenting backlash from human-rights groups. "why do they need IOCs at all?" Peter Roberts. IOCs are subject to other shareholder pressures that generally do not bother governments and their NOCs. wonders Zanoyan." says Roberts. a partner specialising in oil and gas at the Jones Day law firm. who has worked closely with Petronas and CNOOC. "[China's] Sinopec is not in it for its share price next quarter. The Chinese state-owned oil companies have been particularly active internationally in recent years. And while CNPC. that they could go out and behave like an IOC. they remain a long way behind (see Figure 3). They are going to want to see a bigger slice of a finite pie. racking up an estimated $40bn of acquisitions outside China (PE 3/05 p9).NOCs 1 – IOCs 0 (April 2005) capital. a late starter. for now. ONGC. CNOOC and ONGC do not possess large indigenous reserves. they have something else of enormous value – they are the gatekeepers of the fastest-growing and. which has acquired upstream stakes in Australia's North West Shelf liquefied natural gas (LNG) venture and in Indonesia's Tangguh LNG project in exchange for access to the LNG-import terminals it is building at Guangdong and Fujian.5bn abroad." Shareholder pressures In addition. Petroleum Economist April 2005 Issue 3 of 13 .

they lack project experience and technology." Commercial relationships between NOCs are enhanced by good relations at the government level (and. Japan National Oil Corporation was dismantled because it had precious little to show after spending trillions of yen on upstream projects outside Japan." he says. however. the trend of internationalisation is a sign of the growing sophistication and ambition of the NOCs and of the competitive threat they pose to IOCs. the successful development of above-ground resources remains limited to a handful of companies." says Peter Mellbye. There is increased dialogue between. CNOOC and Sinopec have expanded at an astonishing rate overseas. in itself. But the same cannot be said of many other NOCs. executive vice-president and head of international E&P at Statoil. and their Chinese and Indian counterparts. In what would constitute the boldest move yet. Petrobras is proficient in deep-water production and running a large downstream business.NOCs 1 – IOCs 0 (April 2005) NOCs build international businesses for different reasons. for example. Whatever the motivation. successful collaboration between NOCs can result in improved relations between governments). conversely. But while the long-term future is bright for many NOCs because of their reserves. reducing financing costs and increasing access to hard currency. while rich in ambition and cash. Petronas and Algeria's Sonatrach are world leaders in LNG supply. Whereas IOCs may sometimes be at risk from problems such as expropriation of assets or changes in the law. commercial considerations are often of secondary importance. Russia's state-owned oil companies and government agencies. CNPC. is driven by the need to grow.) Petrobras. And there is a compelling case for more NOC collaboration. says Roberts. by contrast. sophisticated oil companies. a rising share price and a credit rating higher than the sovereign rating are marks of success. simplifies contact and provides an open atmosphere for discussion. The Chinese and Indian companies are predominantly interested in securing access to oil supplies because domestic production is rapidly falling behind the needs of their fast-expanding economies. As a result. host governments are less likely to cause problems if the counterparty is an NOC. you are no longer looking over your shoulder at IOCs. Petroleum Economist April 2005 Issue 4 of 13 . Petrobras. NOCs have another advantage. to satisfy its shareholders. Petronas and Statoil (see profiles p7-9) can consider themselves modern. It's the NOCs you need to worry about. Caracas is reported to be giving China discounts on crude and fuel oil purchases. but are still adrift of this elite group because. The semi-sovereign card As government representatives." says Roberts. CNOOC is even said to be considering trying to buy the US' Unocal. An inevitable side-effect of greater co-operation between NOCs is that there is less of a role for IOCs. For instance. though. "They can play the semi-sovereign card. Aramco. "If you're an IOC. while CNPC has formed a joint venture with PdV to develop Venezuelan oilfields. NOCs are also working together more closely. "This. and to diversify its portfolio. capable of operating energy projects to the standards of an IOC. (Governments are not always a soft touch on commercial matters. Each NOC tends to have expertise in different fields. Record profits. "NOCs have a great deal in common through their background.

INOC could have a bright future. Whereas oil can be sold easily on the world market. Stewart Johnston head of the oil and gas division of the Charles River Associates consultancy. The logic of those agreements from Doha's point of view is buttressed by the need to gain market access. he says. "NOCs need IOCs to help them develop more complex reservoirs and with secondary and tertiary recovery. and. NOCs need IOCs as much as IOCs need access to the NOCs' resources. With obvious exceptions. wars. the present phase of share buy-backs. technology and marketaccess risks in exchange for rapid project development involving little up-front investment for QP is worth the sacrifice of a small slice of equity. such as Sonatrach and Statoil. as well as various proposals for gas-to-liquids and petrochemicals plants. the sophisticated and expensive technology needed to launch LNG projects means IOC participation suits Qatar Petroleum (QP). sabotage and the loss of crucial personnel (that it has kept going at all with the limited cash and resources available is remarkable). the international standing of Sonatrach will also strengthen in the next few years. NOC will become a more effective operator as oil investment flows into Libya and is likely to take on a greater number of developments itself. adding to multi-billion-dollar deals with ExxonMobil and ConocoPhillips. given its position in the league table of corporate oil reserves. Playing from the strength of huge indigenous gas reserves. says IOCs retain considerable clout in resource-rich areas." says Zanoyan. Also of comfort to IOCs is that NOC expertise generally tends to concern oil projects. they are less adept at handling gas ventures. Iraq's INOC has suffered because of sanctions. Once physical security in Iraq is established and the government has decided how to structure the oil industry. An impregnable position Libya's NOC is a step behind Sonatrach. Petroleum Economist April 2005 Issue 5 of 13 . he says. although popular with the City. but the government still ends up with 85-90% of the revenue. but is capable of catching up quickly. It is setting its sights on the US LNG market. which signed a $7bn deal for an LNG venture with Shell in February (see p13). In the Middle East. big oil is not about to disappear. Although deficient in technology and capital.NOCs 1 – IOCs 0 (April 2005) Russia's Gazprom is also catching up with the leading NOCs. It's an excellent model for them. is. pipeline links to southern Europe and large. long-term sales agreements are needed. terrorism. It is in the enviable position of having straightforward access to a lucrative market (the European Union) and owning prodigious reserves (its gas resources are as awesome as Saudi Arabia's oil). gas cannot – large-scale. Overall. "Qatar doesn't want the market or technological risk. "to a certain extent" an admission of defeat by the IOCs – symptomatic of the shortage of investment options open to them. well established LNG business." Admitting defeat Nonetheless. It has huge underdeveloped oil and gas resources and an impregnable position in its home market. Yet while the influence of IOCs is being checked by resurgent NOCs. For example. importantly. It has made no secret of its international ambitions and its influence outside Russia will grow rapidly in the coming years as it brings North American and east Asian markets into its orbit. Offloading cost. to help them create employment opportunities. as well as large infrastructure developments and an expert knowledge of and familiarity with end-user markets. some $90bn is being sucked into various oil and gas infrastructure projects in Qatar. tightening its grip on gas supply to Europe and accelerating investment in overseas upstream markets.

The result is that upstream returns are likely to come under increasing pressure. Last month.NOCs 1 – IOCs 0 (April 2005) It is in areas such as this that IOCs are likely to remain dominant for the foreseeable future. In a bitter attack on Western investors. To keep up they must "develop new above-ground competencies. has slashed returns for foreign investors in recent years. Praising the stiffer terms Chávez brought in. therefore. it has shrewdly retained a majority of the voting rights – and. IOCs that communicate effectively with NOCs (France's Total being a prime example) are likely to outperform rivals that do not. Venezuela. and alternative energies. But forward-thinking IOCs can still do well. Rodríguez. Russia and Iran – reflects the shortage of investment opportunities on offer. Libya's licensing round in January produced extremely competitive bidding. The emirate accounted for around 95% of the equity reserves ExxonMobil booked last year and the intense interest in the country – more stable and attractive than the other huge gas-resource nations. another highly attractive resource base. he told IOCs to "overcome" their "colonialist past" and "acknowledge the right to sovereign natural resource management of the exporting countries". IOCs can also diversify more easily. "We are a company with two faces – a private face and a government face. says Zanoyan.7bn a year on R&D. the firm released a press statement acknowledging that the "energy market is changing" and said the changes are "playing to" its strengths. Hugo Chávez. control. As one NOC executive puts it: "Saudi Aramco and Petronas have a great long-term future. such as power generation and supply. "We can operate with both Petroleum Economist April 2005 Issue 6 of 13 . technology and commercial and technical expertise is still essential in many areas and their wealth means that they can attract the best employees – development prospects are limited by the overriding problem of access to oil and gas reserves. assumed the presidency – was effectively duped by consuming countries and IOCs into offering investment terms that short-changed Venezuela. Can you say the same about Shell? I'm not sure. Qatar's crumbs are a year's worth of hot meals for even the biggest Western oil company. The principal explanation offered by CEO Lee Raymond for this claim was that the firm has good technology. As long as Opec is careful to keep oil prices at a low enough level to discourage the growth of other forms of energy that advantage will only grow." It can happen – ExxonMobil spends some $0. IOCs need to widen the gap again. Duped by consuming countries The point that access to good-quality oil reserves will carry a heftier price tag in future was rammed home in a blunt speech to Opec leaders late last year by Alí Rodríguez. In the national and government psyche. But while IOCs still have some room for manoeuvre – their capital. Yet Petrobras itself – while proud of its role and identity as a national champion – thinks and behaves like an IOC and continues to enjoy the operational autonomy it needs to be successful. as Western oil companies fought hard to win exploration rights." says Claudio Castejon. then head of PdV. an executive manager of the firm's international division. The problem is intensified by competition from NOCs that are not constrained by the demanding investment criteria IOCs must meet. said the company's management in the 1990s – before his boss. moving into other business areas. the company remains very much an NOC." Brazil ALTHOUGH the Brazilian state holds only around 30% of Petrobras' shares. now the country's foreign minister.

All growth will come organically. The company will soon reap the rewards of investments in Nigeria's Agbami and Akpo fields. an executive manager of the international division. The aim is to reach 300. who would prefer to see the cash reinvested in Brazil – is one of the reasons why the ex-monopoly has won over private investors. that means cheaper access to capital.000 b/d peak – net to Petrobras – a year or two later. As well as its deepwater skills. the diversification of the portfolio and access to hard currency". production from overseas ventures is now 263. Petrobras is trying to eke value out of frontier areas." Investors think so. Petrobras' main areas of focus are South America. there is a growing focus on the Middle East. Another mark of the firm's ambition is the way it has stepped up the pace of overseas investments in recent years. Meanwhile. The shifting motivation for Petrobras' expansion outside Brazil illustrates the transformation of its strategic priorities in recent years.NOCs 1 – IOCs 0 (April 2005) without a problem. following the acquisition of Perez Companc (now Petrobras Energia) in 2002. First oil is expected in 2007.000 boe/d by the end of this year and about 0. When Petrobras first invested outside its home market. But it continues to build abroad because. several discoveries are under appraisal offshore the US that should result in a "big jump" in Petrobras' GoM reserves. explains João Figueira. with contracts singed in Iran and Libya. That is not a common achievement. Compared with around 40. Petrobras ADRs on the New York Stock Exchange have risen in value from about $28 to nearly $50 since mid-2000.6m boe/d by 2010.8m b/d – is another bargaining chip for Petrobras as it forms relationships with other NOCs.000 boe/d 10 years ago. it did so to secure oil supplies for import-dependent Brazil. so that rationale no longer exists. reaching a 100. A level-headed approach to its international business – in the face of opposition from some politicians and some sections of the public. Now the country is virtually self-sufficient in oil. such as Tanzania.000 boe/d. expertise in handling a big market – Petrobras retains a virtual monopoly on the refining industry of a country with consumption in the region of 1. where it sees itself as a regional leader. It has a lot to offer other NOCs. Argentina is the single-largest contributor. Petrobras has already established itself as one of the world's most effective deep-water operators. Its international horizons seem to expand frequently. Petroleum Economist April 2005 Issue 7 of 13 . it enables "growth. where it may be able to exploit good relations with other NOCs and healthy government-level relations. building up a large offshore industry at home and generating much of the technology required itself. in 1972. with 44% of the total. And. Ultimately. and – playing to its technical strengths – the deep waters of west Africa and the US Gulf of Mexico (G0M).

marketing and distribution. and from gas processing and transmission to petrochemicals. the firm had a poor environmental record.3bn boe. A few years ago. and the environment. While Malaysia's reserves amount to about 4. Petrobras is a mainstay of the Brazilian economy. Once an ineffectual NOC without the luxury of an impregnable oilreserves position to fall back on at home. With continued exploration success offshore in oil and.84bn barrels of oil and 87 trillion cf of gas. Says PFC Energy's Zanoyan: "Petronas is a great NOC that has learned the game of business development outside its home borders. having organised Malaysia's upstream industry effectively – creating a transparent regime that has been successful in attracting foreign investment – Petronas turned its sights on overseas operations in order to compensate for Malaysia's weak reserves position in oil reserves. it is the engine room of Brazil's upstream sector. In the early 1990s. Petronas is widely rated by industry experts as the NOC that has been most successful at diversifying beyond its national boundaries. infrastructure and economic development and the supply of oil products nationally. gas. Diversified assets portfolio Petroleum Economist April 2005 Issue 8 of 13 . Malaysia PETRONAS' description of itself on its website is telling – "an integrated international oil and gas company with business interests in 35 countries". it is generally considered to provide compelling evidence that the perception of state-owned companies as inefficient enterprises is an obsolete one. Through taxes. employment." Set up in 1974. Petrobras is also an example to many other NOCs (and indeed IOCs) in its attitude to social responsibility. from exploration and production (E&P) to refining. the firm's overseas E&P division. In common with Petrobras and Statoil. Petronas can compete successfully with IOCs on a level playing field outside its home market. which forms part of its mission statement. although the workforce may be bloated by IOC standards. There is significantly less emphasis on the fact that it is a state-run firm. more recently.NOCs 1 – IOCs 0 (April 2005) At home its contribution is beyond doubt. The results speak for themselves. but has spent heavily on improving it and has set its sights on being included in the Dow Jones Sustainability Index. Petronas Carigali. has built up non-Malaysia reserves of some 6. And. Malaysia's state-owned energy corporation is involved in a wide range of activities.

raising the contribution of international operations to total production to over 20%. transmission and marketing. selling its 25% stake in the Greater Nile Oil production and pipeline project to ONGC. makes it "an attractive and reliable partner for IOCs in major projects in Norway and internationally. because it is based on projects already sanctioned. Like other NOCs. reducing credit risk and improving its ability to raise financing. Norway SET UP in 1972 to develop the country's hydrocarbons resources. Carigali is always keen to assume operatorship of projects. which would involve an average annual increase of 8%. Its wide range of investments reflect an open mind to E&P – it seems prepared to consider investments almost anywhere. Its technology. but it is "achievable". Like many of its NOC counterparts. it has the stomach for investments that are too much for IOCs – while shareholder pressure saw Canada's Talisman Energy pull out of Sudan. In 2007.NOCs 1 – IOCs 0 (April 2005) Staff are well trained and employees are given as wide an operational experience as possible. Commercial freedom.4m boe/d. including production. says Mellbye. admits Mellbye. Statoil says it has no obligations to the state. Mellbye identifies expertise in Petroleum Economist April 2005 Issue 9 of 13 .9% of the firm. stayed on. executive vicepresident and head of international E&P. 115m boe – about 10% – came from international operations. Statoil expects to be producing 300m boe/d outside Norway – an annual increase of 40%. Achievable target Production in 2004 averaged 1. Statoil will continue to benefit from the sophisticated technology it has developed in the inhospitable operating environment of the North Sea. CNPC. Petronas and Talisman's other oreign partner. But growth over that period will be skewed towards international operations. allowing it to enhance projectmanagement skills and technical expertise as quickly as possible. That philosophy means the company now has a diversified portfolio of assets. Statoil is growing by expanding internationally.106m boe/d. because investment opportunities in the maturing Norwegian North Sea are limited for a company of its size." Statoil has wide-ranging experience in the fast-growing gas business. Managerial and financial independence aside. This target will be difficult to reach. Statoil has evolved into a fully commercial company that competes on equal terms with other companies in Norway. is essential because it allows the company to take decisions that are in its own long-term interests – enabling business growth. While the state retains 70. Of this. says Peter Mellbye. the government does not get involved in running the business and is not represented on the board or the executive committee. The target for 2007 is to produce 1.

private-sector competitors. Yuganskneftegaz produces some 1m b/d – far more than Rosneft's 400. during the Yeltsin era. much of the oil industry fell into private hands. Petroleum Economist April 2005 Issue 10 of 13 . Behind the scenes. Moscow's relatively reformist economy ministry said oil and gas assets were usually more efficient in private rather than state hands. By March. bickering in the Kremlin broke out into an open scrap between rival Gazprom and Rosneft chiefs about who should head which company. India's ONGC and China's CNPC have been invited to buy stakes in Yuganskneftegaz. in the 1990s. although the state hung onto ultimate control by retaining ownership of crude and oil products pipelines. But the acquisition came laden with risk. In September. Efforts to beef up Rosneft have aroused controversy from the start. Envious majors cried foul when it won juicy acreage at an allegedly rigged auction in northwest Russia. Yuganskneftegaz. In an attempt to quarantine Gazprom from attack by litigators. the government has decided to leave Yuganskneftegaz out of the gas giant's merger with Rosneft. he says. which. Rosneft. Rosneft had won the former Yukos producer. Even some Kremlin insiders complained that the Yuganskneftegaz sale looked like daylight robbery. In addition. which was sold at auction to help the government recover billions of dollars worth of back taxes allegedly dodged by its parent company. it will leverage its identity as a state-owned firm to develop partnerships with other NOCs. But both have hesitated for fear of inviting charges of collusion in the Yukos affair. Public criticism abated after a Kremlin reminder that leading corporations had themselves bagged assets through dubious privatisation schemes. looked something of a lame duck among its burgeoning. But even if implementation of the Rosneft/Gazprom merger looks botched. the Yuganskneftegaz scandal was turning into a fiasco.000 b/d. Indicating a growing split in government. Yukos owners threatened Rosneft with a "lifetime of litigation" to protest what they saw as expropriation of their property by the state. there seems little doubt that the overall strategy to ensure a state-owned company dominates the oil and gas sector remains intact. Under President Vladimir Putin steps have been taken to strengthen the state-owned oil company. the government announced plans to merge Rosneft with Gazprom. creating a huge state-owned oil and gas company. Russia WHEN Boris Yeltsin was President. By the end of the year. Once integrated Rosneft/Gazprom would have gas output to dwarf all others but would lag far behind in fifth place among Russian oil producers.NOCs 1 – IOCs 0 (April 2005) enhanced oil-recovery and subsea developments as other strengths.

the fields are large and wells have high productivity rates. The company is already involved in Iran's South Pars gas development and is planning to explore in India. with just 2.8 trillion cubic metres (cm) of reserves and annual production of over 0. Gazprom is planning to expand internationally.5bn barrels of reserves to Rosneft's total. That has involved the funding and implementation of a raft of capital-intensive and technically complex projects. With 28. Saudi Aramco is the undisputed heavyweight champion of the world's upstream industry. Flush with cash. Such investments are intended to bring both economic and political dividends to Russia. Mikhail Khodorkovsky. The oil ministry is responsible for policy and regulation. Gazprom is moving into foreign upstream projects. Already a major force on European gas markets.54 trillion cm. Putin has said that oil and gas pipelines must remain the property of the state. But while bagging the Yukos unit may have brought operational benefits. Gazprom has always owned the sprawling gas-transportation network. Gazprom. its legal repercussions may haunt Rosneft for years. The oil minister. It remains to be seen whether the crude pipeline operator. As part of its strategy to globalise. the leaders of other privately owned Russian oil companies are unlikely to challenge the government's state-oriented oil policy until there is a stronger scent of political opposition in the air. will be drafted into the Rosneft Gazprom merger. where it accounts for over a quarter of the region's imports. Gazprom is the biggest gas company on the planet. but also that the resources are predominantly onshore. Oil industry experts say the company is well run and efficient – few. he says. Rosneft is much smaller. Aramco has no need for private help in the development of its hallowed oil sector. while the firm focuses purely on the business of producing oil.NOCs 1 – IOCs 0 (April 2005) The property of the state Rosneft and Gazprom are expected to win the best acreage in eastern Siberia and the far east where a large number of blocks are to be parcelled out in 2005 and 2006. That is until Yuganskneftegaz' figures are included – they would add some 1. They include: the development of the 0. Its natural advantages are not only its embarrassment of riches in oil reserves. Ali al-Naimi attributes Aramco's success to the way the Saudi oil industry is structured. already perceived partially as ambassador for Russia on the international stage. IOCs are thought capable of doing a better job than Aramco when it comes to complex onshore oil projects.5m-2m b/d as proof of operational excellence. turning the taps on and off at will. is down to Aramco's technical proficiency. will be empowered to play a stronger geopolitical role for Moscow.5m b/d Petroleum Economist April 2005 Issue 11 of 13 . this has led to a high degree of efficiency. if any. That the ministry has the flexibility to act as the world's only swing oil producer. capable of generating its own technology and staffed with properly trained professionals. Having witnessed the slaughtering of Yukos by federal taxmen and the imprisonment of its founder. With independent financial and managerial structures and plenty of funding. Once enlarged into an oil company. Al-Naimi points to Aramco's ability to retain a production capacity cushion of 1. Transneft.39bn barrels of proved oil reserves. Russian contribution by Isabel Gorst Saudi Arabia CUSTODIAN of 260bn barrels of proved oil reserves. setting its sights on the US and Asian LNG markets.

Aramco has never made a concerted move abroad – there is too much on offer at home to bother.5bn cf/d to 7.2bn cubic feet a day (cf/d) gas-processing facilities at Hawiyah and Haradh. Nonetheless.5bn cf/d. 40% of it non-associated. natural gas is the only area where co-operation with foreign oil companies is likely to occur. Italy's Eni and China's Sinopec are already involved in preliminary gas-exploration work in the hitherto closed kingdom and the government is considering a further gas licensing round in the next few years. Russia's Lukoil. Petroleum Economist April 2005 Issue 12 of 13 . it has more than doubled its marketed gas capacity from 3. Total. It has added 54 trillion cf to non-associated gas reserves in the past decade. Gas co-operation Success is not restricted to oil. it would be a formidable force. although that is Aramco's clear forté. If it did. in 1998. in 2001 and 2003. Over that time. "All these projects were executed months ahead of schedule and at lower costs than budgeted." the minister says.8m b/d of the Qatif and Abu Safa fields.NOCs 1 – IOCs 0 (April 2005) Shaybah field in the Empty Quarter. Shell. bringing total proved gas reserves to 235 trillion cf. the construction of a combined 3. and the recent capacity expansion of 0.

Cash in a company already strained by a bloated workforce of 150. which will see oil revenues reinvested in the future across the whole economy. for national energy supply. says the Saudi Arabian oil minister. Oil and gas reserves differ widely from country to country. at least temporarily. are allowed a large degree of financial and managerial autonomy.000 of PdV's employees sacked in 2003 after the oil strike included many senior managers and skilled workers. It is exactly that – operational independence – that successful NOCs pinpoint as the secret of their success. Qatar Petroleum has to contend with a population of under 1 million consuming around 40. is also the energy minister. Similarly. In addition. while ploughing enough cash back into Statoil to let it expand as a competitive energy business. José Eduardo Dutra. http://www. the 18. PdV's chief executive.8m barrels a day (b/d). Meanwhile.com/ April 2005 Issue Petroleum Economist April 2005 Issue 13 of 13 . such as Statoil. If political interference is kept in check and the company is given autonomy. the employment it generates and.petroleum-economist. Political influence can also help to build a business – Statoil's overseas expansion was instigated on government orders. Each NOC has a different role to act out within the national economy. Political influence does not always impinge in a disastrous way. Rafael Ramírez. The inability to reinvest in new projects severely limits the company's prospects and both Pemex and national oil production could start to shrink within a few years. State ownership in itself need not undermine a company's independence if it has a clearly defined mandate. Some. has continued to function effectively despite its chief executive. Oslo has built up a Petroleum Fund. Venezuelan President Hugo Chávez' predilection for using petrodollars to fund ambitious social projects limits PdV's ability to grow as an oil company – bad in the long term for the firm's revenues and therefore the taxes it pays. Petrobras.000 is siphoned back into state coffers. he says. Ali al-Naimi. who cannot be replaced quickly. regulation and operations is essential". being a political appointee. Yet political meddling is usually a recipe for failure – it has derailed.NOCs 1 – IOCs 0 (April 2005) The secret of NOC success WHILE national oil companies (NOCs) have one thing in common – being stateowned or state-controlled – the grounds for comparison more or less end there. an NOC can be efficient.000 b/d in an area of 11. the development of the one industry that could drag Bolivia out of extreme poverty and limits growth prospects for Nigeria National Petroleum Corporation and Angola's Sonangol. Petrobras has to supply a country with a surface area of 8. which has not been allowed the freedom to develop its above-ground resources. for example. undermining its ability to function in a commercially minded way. Things are different at Pemex.400 square km. probably. blurring the line between the company's corporate identity and its role as a state agency. but "clear separation between policymaking.5m square km and a population of 185 million consuming 1.

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