OpenOil Online Curriculum: Companies
and Markets: IOCs and NOCs
This module looks at the power struggle between International Oil Companies (IOCs)
and National Oil Companies (NOCs), seeing how the balance of power and control of
the world's oil reserves has changed from being on the side of International Oil
Companies in the 1950s, to NOCs in recent years.
Source: Article: The Seven Sisters
Providing a historical perspective to the topic, this article looks at the initial domination
by International Oil Companies, through the Seven Sisters, a term first used in the1950s
to describe the then-dominant international oil companies.
Source: Article: The World's Biggest Oil Companies, by Christopher Helman,
07.09.10 in Forbes Magazine
This article looks at the differences between the International Oil Companies, which are
commonly referred to as “Big Oil”, and the National Oil Companies, which have now
overtaken the IOCs by a long way in terms of bookable oil reserves. We see how recent
Public Relations disasters, such as the Gulf of Mexico BP oil spill, can be beneficial for
NOCs, as well rumours that NOCs are looking to expand and buy into IOCs.
Source: Article: National Oil Companies The Economist, Aug 10th 2006
Taken from The Economist, this article takes a closer look at the way that NOCs
manage their huge oil reserves, concluding that their management styles and structures
are inefficient and would be better off being privatized. It considers the influence of
bureaucrats within NOCs as negatively impacting the efficiency of their companies.
Source: Article: The Top 5 Oil Super Majors, from OilVoice, August 2011
This article takes a closer look at the top 5 oil super majors, all of which are stateowned oil companies: Saudi Arabian Oil Company (Saudi Aramco), National Iranian
Oil Company, Qatar Petroleum, Iraq National Oil Company, and Petroleos de Venezuela
(PdVSA).
Source: Graph: World's Largest Oil and Gas Companies
Basic statistical analysis skills are practised here with a graph of the World's Largest Oil
and Gas Companies in terms of their bookable reserves. The large difference between
the reserves of IOCs and those of the largest state-owned oil companies is clearly
highlighted in the graph.
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
OpenOil Online Curriculum: Companies and Markets:
International and National Oil Companies
Source: The Seven Sisters article
The "Seven Sisters" was a term coined in the 1950s by businessman Enrico Mattei, the then
head of the Italian state oil company Eni, to describe the seven oil companies which formed
the "Consortium for Iran" and dominated the global petroleum industry from the mid-1940s to
the 1970s. The group comprised Standard Oil of New Jersey and Standard Oil Company of
New York (now ExxonMobil); Standard Oil of California, Gulf Oil and Texaco (now
Chevron); Royal Dutch Shell; and Anglo-Persian Oil Company (now BP).
In 1973 the members of the Seven Sisters controlled 85% of the world's petroleum reserves
but in recent decades the dominance of them and their successor companies has been
challenged by the increasing influence of the OPEC cartel and of state-owned oil companies
in emerging-market economies.
Composition and history
In 1951 Iran nationalised its oil industry, then controlled by the Anglo-Iranian Oil Company
(now BP), and Iranian oil was subjected to an international embargo. In an effort to bring
Iranian oil production back to international markets, the U.S. State Department suggested the
creation of a "Consortium" of major oil companies. The "Consortium for Iran" was
subsequently formed by the following companies:
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Anglo-Persian Oil Company (United Kingdom). This subsequently became AngloIranian Oil Company and then British Petroleum. Following the acquisition of Amoco
(which in turn was formerly Standard Oil of Indiana) and Atlantic Richfield it
shortened its name to BP in 2000.
Gulf Oil (United States) In 1985 most of Gulf was acquired by Chevron, with smaller
parts acquired by BP and Cumberland Farms. A network of service stations in the
northeastern United States still bears the Gulf name.
Royal Dutch Shell (Netherlands/United Kingdom)
Standard Oil of California ("Socal") (United States) This subsequently became
Chevron.
Standard Oil of New Jersey (Esso) (United States) This subsequently became Exxon,
which renamed itself ExxonMobil following the acquisition of Mobil in 1999.
Standard Oil Co. of New York ("Socony") (United States) This subsequently became
Mobil, which was acquired by Exxon in 1999.
Texaco (United States). This was acquired by Chevron in 2001.
The head of the Italian state oil company, Enrico Mattei sought membership for the Italian oil
company AGIP, but was rejected by what he dubbed the "Seven Sisters" to describe the
Anglo-Saxon companies that controlled the Middle East’s oil production after World War II.
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
Being well-organized and able to negotiate as a cartel, the Seven Sisters were initially able to
exert considerable power over Third World oil producers. In recent decades the dominance of
the Seven Sisters and their successor companies has been challenged by the increasing
influence of the OPEC cartel (formed in 1960), OECD countries' share of world oil
production declining, and the emergence of powerful state-owned oil companies in emergingmarket economies. As of 2010, the surviving companies from the Seven Sisters are BP,
Chevron, ExxonMobil and Royal Dutch Shell, which form four members of the
"supermajors" group.
Source: Forbes Magazine, “The World’s Biggest Oil Companies, by
Christopher Helman, 07/09/10
Publicly traded giants like Royal Dutch Shell, Chevron, ConocoPhillips and Total may be
Big Oil, but they are not Biggest Oil.
Houston -- What springs to mind when you think of the World's Biggest Oil Companies? BP
probably, because these days you couldn't get BP out of your head if you tried. ExxonMobil,
definitely, because for so many years before the Deepwater Horizon blowout Exxon was
(rightly or wrongly) the embodiment of Big Oil.
Yet you might be surprised that in a list of the top 10 oil producers, none of the other usual
suspects made the cut. Publicly traded giants like Royal Dutch Shell, Chevron,
ConocoPhillips and Total may be Big Oil, but they are not Biggest Oil.
That moniker goes to the state-owned national oil companies, NOCs for short, that sit on 77%
of the world's oil--accumulations so big they make even Exxon's 12 billion barrels of proven
oil reserves look meager.
The biggest by far is Saudi Aramco, with the ability to pump 12.5 million bpd and boasting
more than 260 billion barrels of proven reserves, much of it easily recovered for less than $3
per barrel. Aramco doesn't venture outside its borders; it doesn't need to. But there are other
breeds of NOCs, like China's trio of CNPC, Cnooc and Sinopec that actively reach out to buy
assets around the globe, and have already been named as eager acquirers of BP assets.
In the wake of BP's oil spill, it's worth thinking about the differences between Big Oil and
Biggest Oil. Ironically, in as much as the spill hurts the publicly traded international oil
companies with deepwater prospects in the gulf, it helps many of the NOCs.
How? First, every barrel of oil not pulled out of the U.S. deepwater is one more barrel of
market share (and profits) for OPEC--which has dialed back its output since the boom times a
couple years ago.
Second, drillers have already been scared out of the Gulf of Mexico, by the post-spill
moratorium and the realization that drilling there will be more costly and complicated. Once
these big deepwater rigs have left, it will be years before they return. That is good news for
NOCs like Angola's Sonangol (1.8 million bpd gross), India's ONGC (550,000 bpd) and
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
Brazil's Petrobras (1.9 million bpd), which have promising deepwater prospects they would
like to see developed.
Third--and most interesting to us--with a wounded BP looking around for billions in assets it
can sell to cover its spill bills, some NOCs are already circling the carcass looking for tasty
morsels to acquire.
On July 7 BP Chief Executive Tony Hayward visited the crown prince of Abu Dhabi to talk
about a possible investment. Days earlier came the news that Libya and Kuwait were thinking
of buying slugs of BP stock. The NOCs of Abu Dhabi and Kuwait each control roughly 100
billion barrels of reserves. Libya's NOC has contracted BP to drill offshore.
Discussions have been hot and heavy with China's Cnooc, named in early July as likely to pay
$9 billion for BP's 60% stake in Argentinian outfit Pan-American Energy. Cnooc's big brother
CNPC is BP's partner in redeveloping Iraq's Rumaila field.
Then there's Russia. BP Chief Executive Tony Hayward met with Russia's energy minister,
Igor Sechin, in late June. BP has already borrowed $2 billion against its 1.4% stake in
Russia's state-controlled Rosneft, and might be looking for buyers for part of its 50% stake in
privately owned Russian oil giant TNK-BP.
The Kremlin-controlled Gazprom has also shown interest in BP's 25% stake in the Shah
Deniz natural gas field in Azerbaijan--though Hayward on July 6 assured the Azeri state oil
company Socar that BP was dedicated to sticking around.
At this point there's little telling what BP will end up selling and to whom. Charley Maxwell,
long-time oil analyst at Weeden & Co. thinks BP should take this opportunity to shed nearly
all of its North American and European assets--especially big fields like Alaska's Prudeau
Bay and in the U.K.'s North Sea that are well past their peak output and in markets with
declining gasoline demand.
BP could get in good with a vital growth partner by selling some of those assets to China's
Cnooc. The smallest of China's three NOCs (after CNPC and Sinopec) has been looking for a
way to gain entry to the U.S. market ever since the politically charged failure of its 2004 bid
for Unocal. It would welcome the chance to pick up U.S. deepwater stakes. Could the U.S.
trust the Chinese to not have a deepwater blowout of their own? After BP's blowout Cnooc
announced it would upgrade the blowout preventers on all its deepwater rigs.
After settling oil spill liabilities, BP should reinvest what's left in markets with ramping oil
demand, like Asia and India, says Maxwell. "Even if the Macondo spill never occurred they
should give up on Europe," he says. "It's hard to see petroleum demand growth in Europe ever
again." Thus, BP has good incentive to sell older assets to NOCs that could grease BP's future
investment.
Even among NOCs there are haves and have nots. Cnooc, backed by China's horde of dollars,
can afford whatever is politically feasible to buy. Mexico's Pemex, on the other hand, would
be an ideal buyer of some deepwater stakes, but is too cash-strapped to consider it. In recent
years Pemex has suffered the precipitous decline of its mighty Cantarell offshore megafield.
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
Though its 3.9 million bpd of production still ranks it just below Iran in output, Pemex'
revenues support the Mexican government, leaving scant cash for new investment in Mexico's
own deepwater prospects.
Kenneth Medlock, oil scholar at Rice University's Baker Institute, says acquiring smaller,
non-operating stakes in some of BP's deepwater projects could give Pemex much needed
experience that it could someday use in its own fields. It could also pave the way for BP to
someday enter Mexico under contract with Pemex.
All of this talk of national oil companies leads to the question: Should the U.S. have one? And
if it did, how big would it be relative to those OPEC giants? In the weeks after the Deepwater
Horizon exploded some political observers, like former Clinton administration Secretary of
Labor Robert Reich, suggested that President Obama should move to nationalize BP's U.S.
operations as collateral for the debt it owes America. That would have, in effect, created
America's own national oil company.
BP's subsequent $20 billion escrow fund kowtow removed any pressure for nationalization.
But given the president's proclivities, it would wouldn't seem that far fetched if his
reorganization of the Minerals Management Service into separate divisions eventually
included the creation of a federal entity that directed the development of federally owned oil
and gas acreage rather than just leasing it and collecting royalties.
How big? Well the U.S. already produces more than 8 million barrels of oil a day, trailing
only Saudi Arabia and Russia in output. A report released earlier this year by the National
Association of Regulatory Utility Commissioners and conducted by Science Applications
International Corp. (SAIC) finds that federally owned lands and waters probably hold more
than 2,000 trillion cubic feet of natural gas and 229 billion barrels of oil. If proved out, that
could be more oil than any nation but Saudi Arabia.
Though the feds already control General Motors, A.I.G., Fannie Mae ( FNM - news - people )
and Freddie Mac ( FRE - news - people ), those companies already have more-or-less capable
managers in place. It would be a nightmare to put novice bureaucrats in charge of a new U.S.
National Oil Company. A better alternative that might be politically palatable when the next
oil price spike comes: Open more easily drillable federal lands to oil exploration but at higher
rates than the one-sixth royalty currently charged.
In this, the U.S. can take some lessons from the likes of the National Oil Company of Libya,
where in some fields Occidental Petroleum ( OXY - news - people ) and Marathon Oil ( MRO
- news - people ) are happy to keep 5 out of every 100 barrels they produce. Terms like that
are why the future of the industry belongs to Biggest Oil.
Source: The Economist, “National Oil Companies”, Aug 10th
2006
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
WHEN activists, journalists and others speak of “Big Oil”, you know exactly what they mean:
companies such as Exxon Mobil, Chevron, BP and Royal Dutch Shell. These titans have been
making lots of money for their shareholders; their bosses enjoy vast pay packets; and their
actions affect us all. BP's decision to shut down Prudhoe Bay, America's biggest oilfield, to
repair leaking pipes is a case in point, outraging many and pushing petrol prices even higher.
Yet Big Oil is pretty small next to the industry's true giants: the national oil companies
(NOCs) owned or controlled by the governments of oil-rich countries, which manage over
90% of the world's oil, depending on how you count. Of the 20 biggest oil firms, in terms of
reserves of oil and gas, 16 are NOCs. Saudi Aramco, the biggest, has more than ten times the
reserves that Exxon does. Those with misgivings about oil—that its price is too high, that
reserves are running out, that it damages the environment, that it is more a curse than an asset
for countries that produce it—must look to NOCs for reassurance.
These companies are certainly sitting on a reassuring amount of oil. Saudi Aramco's proved
reserves alone could keep the world supplied for several decades. But it is only exploiting ten
of its 80 or so fields, so will be able to pump at the present rate for about 70 years even if it
never discovers another drop of oil. In fact, Aramco and other NOCs are likely to find plenty
more if they look, since their territory has not been very thoroughly explored. Only 2,000
wildcat wells have ever been dug in the countries around the Gulf, according to Leonardo
Maugeri, an Italian oilman, compared with more than 1m wells in the United States.
But if the amount of oil at state oil companies' disposal is not much of a worry, the way they
manage it certainly is. Few of the princes, politicians and strongmen who wield ultimate
authority over these firms can resist the urge to meddle. At best, that leads to the sort of
inefficiencies found at most state-owned firms: overstaffing, underinvestment and so on. At
worst, the business of pumping and selling oil is entirely subsumed by politics, as in the case
of Petróleos de Venezuela, one of the biggest NOCs. In either case, NOCs produce less oil,
more expensively, than they should.
The people's oil, not the bureaucrats'
That is bad for consumers, of course, in so far as it pushes up the price of oil. But it is also bad
for oil-producing countries, which could be squeezing more profit from each barrel if their
NOCs were more efficient. Moreover, there are several NOCs not bound by OPEC quotas,
such as Mexico's Pemex and Russia's Rosneft, which would love to boost production to take
advantage of the current high price, but are struggling to do so.
The easiest way to improve state oil firms' performance would be to privatise them. The
authorities, no longer torn between nurturing their NOCs and milking them for all they are
worth, could concentrate on maximising their oil revenue through taxes and royalties. Failing
that, governments could instil a little market discipline by subjecting their NOCs to
competition, either by encouraging them to expand abroad or by allowing foreign firms some
access to their home territory. At least, they should grant NOCs operational autonomy, and
allow them to retain and invest some portion of their earnings. The less bureaucrats interfere,
after all, the more money their oil companies will generate for them to spend.
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
Source: OilVoice, “The Top 5 Oil Super Majors”, August
2011
Some of the biggest economies in the world hinge on revenues generated by oil and gas
companies. The industry also dictates our growing dependency on energy. Some of the
biggest oil companies in the world even underpin the political and socio-economic dynamics
within a country and its place and role on the world stage. This begs the question, what is it
about these companies that tilts the power equation in their favour? Is it the money play?
Their monopoly over a resource that has seeped in to every aspect of our life? The
employment opportunities these companies offer, the almost gamble like nature that lures
many a player into raising, winning or losing stakes. We would say it's all of the above.
This week, OilVoice lists the top five oil super majors and interestingly they all happen to be
national oil companies.
1. Saudi Arabian Oil Company (Saudi Aramco)
Leading the oil giants of the world is Saudi Aramco, a company run by Saudi Arabian
government. The company owns and operates one fifth of the world's total oil reserves that is
roughly equivalent to 260 billion barrels of oil. Its estimated net production for the year 2010
was 2.887 billion barrels of oil, which amounts to 7.91 million barrels of oil per day. If the
figures aren't awe inspiring enough, the company's natural gas annual output is pegged at
9.388 billions of standard cubic feet per day (2010). The company employs 55,000 workers
and controls and manages 112 oil and gas fields in Saudi Arabia (2010).
The initial foundation of the company was laid as far back as the 1930's when oil exploration
was rapidly gaining momentum in the Gulf triggered by oil finds in the neighbouring states
Persia, Iraq and Bahrain. It was an American company called the Standard Oil Company of
California that first saw promise in the land and signed the first concession. The company
then went from strength to strength bolstered by the resource rich fields and Saudis slowly
replacing the board and taking over the reins completely. Today, Saudi Aramco supplies more
than 10% of global oil demand and owns and operates oil refineries. It is positioned strongly
in the global market and has monopolised the domestic space. It has the kingdom's best fleet
of oil tankers and its investments are in many countries including China, Japan, South Korea
and the US.
2. National Iranian Oil Company (NIOC)
The history of NIOC can be traced back to 28 May 1901, when the first concession was
signed by Liam Knox D'arcy and Mozaffarol din- Shah of Qajar for exploration and
production of oil across Iran. However, the establishment of National Iranian Oil Company, a
nationalised oil giant was realised in the year 1951 marked by the hoisting of the Iranian flag
on the company's Khorramshahr headquarters.
Positioned strategically in one of the world's largest oil and natural gas reserves, the NIOC
fields hold an estimated 137 billion barrels of liquid hydrocarbons and 29 trillion cubic feet of
natural gas. The company is comprised of 17 production companies, eight technical service
companies, seven managements, and five organisational units.
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
Its production capacity of over 4 million barrels of crude oil per day helps sustain the supply
for an extensive international market it has created for itself. It was anticipated that the
company's production ratio would slip to 12% in the next 20 years.
However, in the year ending March 2008, with the discovery and development of five new oil
fields the company ramped up its in place reserves by 2,840 million barrels of crude oil, 1,045
billion cubic meters of gas and 898 million barrels of NGL.
Today the National Iranian Oil Company stands as Iran oil industry's watch dog with the
responsibility of drafting policies and regulations impacting domestic markets and world trade
alike. The company has created a place for itself in playing a vital role in the political
dynamics of modern day industrialised nations.
3. Qatar Petroleum
Qatar Petroleum is the third largest oil firm in the world. It is state owned and is led by the
country's Ministry of Energy and Industry. As a result, the company has political clout and the
advantage of harnessing the nation's most precious and abundant resource - oil. The company
contributes to 60% of Qatar's GDP and its operations are branched in to exploration,
production, refining, transport and storage for crude oil, natural gas and liquefied natural gas
(LNG).
The company's onshore crude oil reserves are 1,842 million barrels and onshore gas reserves
are approximately 8 trillion cu. ft, making it the third largest in the world in terms of reserves
in place. QP's Dukhan oil field alone produces 335,000 barrels per day. The company's reach
to the international markets is extensive with exports extending to North America, Asia and
Europe, thanks to its partnerships with oil conglomerates like ExxonMobil, Total and
Occidental.
The initial concessions in Qatar were granted to British and US oil giants, it wasn't until 1973
that the government initiated a progressive take over of stakes in onshore concessions of
Qatar Petroleum Company and interest in offshore concessions of Shell Company Qatar.
Qatar Petroleum as a unified state run company emerged in the year 1974 after the
government nationalised the oil sector.
4. Iraq National Oil Company (INOC)
Iraq National Oil Company (INOC) is a group of regional units linked together that look into
exploration, production, refining, storage and transport of oil. The basis for the formation of
this company was Iraq Petroleum Company, which was made to transfer its concessions to the
Iraqi government on grounds that the company was catering to the west. The Public Law 80
that was passed in 1961 compelled the management of the company to surrender 95% of its
concessions to the government. On June 1st, 1972, Iraq's Ba'athist regime nationalised the
company on grounds that IPC was unwilling to concede to the government's demands paving
way to the present day Iraq National Oil Company.
The initial years under the government rule saw the production rise significantly from 1.4
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs
million barrels a day to over 3 million barrels a day in 1980. However the war with Iran
adversely impacted the country's production capacity.
INOC comes directly under Iraq's oil ministry and hence it also acts as a regulator of the oil
production and market. The company's combined reserves in place are estimated at 115
billion barrels and worldwide natural gas reserves are 119,940 billion cubic feet (2007).
5. Petroleos de Venezuela (PDVSA)
Petroleos de Venezuela is a state run company and the world's fifth largest in terms of
reserves in place and exports. The company manages both upstream (exploration, production
and processing) and downstream (refining, marketing, transport) operations. PDVSA
represents Venezuela's oil industry. It emerged in the year 1976 with the nationalisation of the
country's oil sector.
A major chunk of the oil rich fields in the Americas are owned and operated by Venezuela,
constituting almost half of the lands combined total. Conventional oil reserves of the company
are estimated at 77.5 billion barrels along with natural gas reserves that are pegged at 150
trillion cubic feet.
One of the most important events in the history of the company is the Venezuelan general
strike of 2002-2003 that led to a halt in production for two months. Thousands of employees
were fired in a bid to suppress the protest against the then ruling president, Hugo Chavez. The
strike also had a ripple effect on the country's economy with unemployment reaching its peak
of over 20% in March 2003. Today the company boasts of its own army to safeguard its
autonomy and socialist doctrine from a government 'coup'.
Source: World's Largest Oil and Gas Companies graph
OpenOil Online Curriculum: Companies and Markets: IOCs and NOCs