Download NOCs Conclusions and Implications

OIL AND
GOVERNANCE
NOCs
Conclusions and Implications
GEMBA 11
Strategy
NOC strategy and performance might simply reflect the
quality of the state institution
The associated mechanisms that states use to control
their NOC
NOC managers have a role to play. Actual performance
and strategy depends mainly on their host government
May indeed reflect the nature of resources at hand
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Framework
Common Framework – Diversity across
• State goals
• Quality of institutions
• Complexity of geological resources
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Importance
15 NOCs covers (at 2012/13)
• 46% of all world oil production
• 56% of all worlds oil reserves
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Existence of NOCs
• NOCs exist most importantly due to desire of
government to control through direct ownership the
most lucrative source of revenue
• There is a wide variation in the performance of NOCs
(NOCs in general perform worse than IOCs)
• Governments have organized in very different ways but
consistency is most important
• The future will not look like the past
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Why do NOCs Exist?
• Fear by host government that private enterprise
not delivering adequate revenues
• Nationalism – oldest NOC – Pemex 1938
• Role of geology and risk – 14 of 15 created
after the riskiest part was completed – Brazil
an exception.
• The NOC is a contribution to the nations
industrial base through “forward linkages”
(Supply of cheap fuel)
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Performance
How do NOCs perform?
• Many NOCs cloaked in secrecy – Saudi Arabia,
Abu Dhabi
• Some required to perform outside oil and gas
• Depletion rates very low
• These 15 appear to be less efficient than IOCs
vast differences in uncertainties and capital
required (figure 20.3a)
• Pemex and Gazprom both score low
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Performance
• State goals – set by state for NOC
• Production revenues
• Management of resources and revenues –
depletion
• Regulatory
• Broad collection of non-hydrocarbon functions
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Depletion Rates
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NOCs have depletion rates half of IOCs
These 15 NOCs – about 1.5%
3 largest NOCs – 3%
Low depletion rates cited as a major driving force for oil sector
policy
Could depend on OPEC – Saudi and Abu Dhabi lower due to pricing
policy
8 of 15 NOCs are OPEC members
Most NOCs do not have independently audited data on booked
reserves
Could also reflect poor skills
PEMEX-SEC cut estimate to raise
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Geology
• Largely determines existence of NOC
• Most NOCs work in home market
• 5 have moved abroad – Petrobras, CNPC,
ONGC, StatOil and Petronas
• Geology works as a sorting mechanism
• Most NOCs governance systems do not fit into
public administrations
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Interactions
• Importance of unified governance helps explain
existence of highly competent NOCs in both
authoritarian and democratic governments
• Most governments have struggled with questions
of how to elicit information about behavior of
NOC
• Have learned why most policy advice failed to
help governments improve performance
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More Interactions
Major difference is that mangers of Western Oil
Companies spend most of their time focused on
company operations
NOC managers spend an inordinate amount of
time managing political relationships
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In-House Expertise
• Most important long term function – building
“in-house” expertise
• Reasons of value
– Must know how to manage any outside contracts
– Explains why geology is of such importance
– Highly competent NOCs have interesting projects
to focus energies on, otherwise become sclerotic
• Not surprising
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Strategy Implementation
• 4 Dimensions
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Operatorship
Type of resource that NOC pursues
Question as to focus entirely within domestic market
Political
• Both strategy and performance respond to the
same underlying forces
• Goals of the state
• Type of geology
• State – NOC relationship
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Author’s Speculation
• Expect little left to nationalize
• No swing back to NOCs
• Most all of worlds oil already in NOC hands-has
been for 5+ decades
• Do not prophecy end of NOCs – foresee looking
outward – not inward
• Opportunities in Abu Dhabi and Angola where
NOCs work alongside with most competitive
IOCs
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Speculation (cont.)
• Most interesting could be dominance of NOCs
with tenuous in gas
• Saudi turned to outside firms for expertise as
well as Iran and Quatar
Price of Oil
Supply and demand
Charts 922-923 are good
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Geopolitics
• Russia – Gazprom – turned off gas in Europe
2006, 2009
• Found little evidence that NOCs are effective
geopolitical instruments
• Largest political impact of host governments on
NOCs is not using them as tools for foreign
policy. Venezuela is an exception which may
change.
• Authors found this striking
• It is the adverse impact on these NOCs to find and
produce oil
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Concluding
Managers of these NOCs are usually highly
aware of impact on worlds energy supply and
global economy. They are usually trying to fix it
by putting some governments at distances from
NOC operation.
Has proved very challenging.
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