NS4960
Spring Term 2017
Handbook of Oil Politics
Jean-Francois Seznec –
NOCs/IOCs
NOCs/IOCs I
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Wants to compare actions of
National Oil Companies (NOCs) – stated owned with
International Oil Companies (IOCs) – privately owned
Point:
In energy business the concept of companies held in
private hands verses state owned companies can be
misleading
• Differences are not always clear
• Some NOCs act as if they were large IOCs and some
NOCs work very closely with IOCs
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NOCs/IOCs II
• Logically NOCs should be focused on maximizing the
long-term rate of return of oil to the country – yearly rate
of return should be of no importance
• Takes into account the incomes of future generations
and maps out optimal use of resources to keep income
flows balanced between the present and the future
• Unfortunately this has been more the exception than the
rule
• Many countries use the NOCs revenues for other
purposes than to create wealth for the country.
• For their part, IOCs main concern is should be to
maximize the return to their shareholders – maximize the
return on investment (RoI)
• Financial markets provide a check on IOC operations.
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NOCs/IOCs III
• To maximize ROI IOCs have to focus not on whether their
production will benefit future generations of a state, but
whether their annual return will met expectations of the
market.
• More complicated because many IOC projects take ten
years or more to develop
• Point of chapter – shows that there is a spectrum of
companies across NOCs and IOCs from complete state
domination to primarily driven by market forces
• Main NOC problem – preserve independence from state
• Main IOC problem –
• Often do not own their oil and gas reserves in a strict sense – at
mercy of whoever controls the land where they operate
• Often have to work with “bad” retimes to maintain production.
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NOCs/IOCs IV
• Distinctions between NOCs and IOCs not always as clear
cut as might appear at first
• Many IOCs are not “private” – many are corporations with
sometimes millions of shareholders, individuals, mutual
funds etc.
• IOCS have operations which cover numerous countries
and their shareholders come from many different
financial centers
• Also many IOCs are “mixed” – have a large shareholding
from the state and a large number from the public at large
• Are these companies NOCs or IOCs?
• Some NOCs can only operate if they are well supported
by foreign firms
• Can be fully professional like Saudi Aramco or
• Have to turn to IOCs to catch up.
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NOCs/IOCs V
• On other hand as IOCs lose their ability to find reserves,
may become more involved in some of the NOCs
business – a meshing of interests in the long-run
• One could also speculate even if NOCs from countries
with large oil and gas reserves may begin to see decline
in their easy oil and gas and could start eying
investments abroad, becoming much closer to the IOCs.
• In sum while IOCs may join forces with NOCs, we may
see the latter become more like former.
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NOCs/IOCs VI
Chapter summary
• Major drawback of NOCs lies in propensity to become
overwhelmed by government control
• Some governments under huge pressure to increase
income rapidly without investing in necessary, but very
expensive technologies and maintenance programs
• Iran and Venezuela good examples – the case with Iraq
under Saddam
• The governments of these companies want their oil
companies to maximize income
• Thus in OPEC meetings they usually ask for larger
quotas and demand higher prices
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NOCs/IOCs VII
• However even with higher quotas they tend to be unable
to increase production reliably and when able will not cut
production when needed to maintain prices to maximize
income.
• They will tend to freeload on the cuts made by Saudis
and other gulf producers.
• Huge investments needed to maintain and develop
upstream and downstream facilities just do not get made
as governments find higher priorities
• The lack of investment slowly strangles the company and
production falls secularly
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NOCs/IOCs VIII
• In contrast the IOCs like ExxonMobil, Chevron, Shell, BP
or Total appear often to be more disciplined and better
able to promote the proper management of the fields
• They rely on the most advanced technology to extract the
best of the geology and will develop technology to
maximize their activities downstream
• As a result many NOCs have come to rely on the IOCs to
develop their resources
• Many NOCs and their governments watching to see if Iraq
will be successful in increasing its production from
2.3mbpd to almost 10mbpd within the next 10 to 15 years
with very aggressive management of the production
agreements signed with the major IOCs
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NOCs/IOCs IX
• NOCs like Saudi Aramco, Statoil (Norway) or Petrobras
(Brazil), while being closely monitored by their
governments have managed to keep their distance from
state interference
• Some of these firms are as technologically advanced as
the major IOCs and in some cases even more advanced
than most IOCs
• Seems NOCs by and large should be the companies that
will be more likely to succeed
• They do control most of the world oil and gas reserves
• If they could ensure a certain financial independence they would
be able to increase their influence worldwide
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NOCs/IOCs X
• In cases where the NOCs do not have enough local crude
oil reserves to draw from they have started going
international
• Particularly case of Chinese companies who compete
directly with IOCs in Africa and Iraq and try to take
advantage of the political tensions between the IOCs
home countries and Iran
• In sum – NOCs and IOCs are much closer than often
perceived
• Ultimately the goals of NOCs and IOCs may be differ net
in that NOCs are thinking more to maximize their long
term impact to their country while IOCs tend to seek
maximization of income to their shareholders
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NOCs/IOCs XI
• In both cases the result may end up being the same.
• The NOCs need to maximize income in the long run while
the IOCs require long term thinking as they do have a ten
year lead time from decision to refining
• Not surprising many NOCs are moving to privatize
portions of their shareholding and like Total (France),
Sinopec (China), Rosneft (Russia) or Lukoil (Russia) did
some years back may become increasingly owned by the
pubic at large, both in their home country and
internationally
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