The emergence of national oil companies

The current strategies, policies and requirements of national oil companies (NOCs) are having a substantial impact on the direction and dynamics of the present-day petroleum sector. The 60+ NOCs are rapidly emerging as major factors in today’s demand driven environment, with sovereign control over considerable resources yet to be developed and produced. International Oil companies (IOCs) control less than 10 percent of the world’s proved oil and gas resource base. Indeed the super-majors themselves account for only 3% of oil reserves and 2% of gas reserves, although they have 20% of production, through contractual arrangement with the NOCs. When ranked on the basis of proved oil and gas reserves, 17 of the top 20 oil and gas companies in the world are NOCs. Nearly 75% of the oil reserves are held by OPEC members.

As the world's appetite for energy continues to grow, fuelled by increasing demand from rapidly developing economies, such as in China and India, the fundamentals have changed. With supply constrained and demand ascendant, the traditional roles of NOCs and IOCs are changing. Many of the national oil companies are moving away from their previous more nationalistic role as licensing agency and passive partner to the international oil companies. They are becoming active in developing and acquiring equity positions and resources in the international arena, both upstream and downstream. They are winning blocks and taking over companies. Several NOCs are now present in 20-30 countries. They are taking more of the economic rent in their own countries. They are dealing more with one another on a government to government basis and are actively competing with IOCs in bidding situations outside their own borders. They are, in effect, becoming international national oil companies, a challenge in itself.

NOCs are not a homogeneous group. They can lie anywhere along a continuum of capability that extends from still being a political instrument or government department to a near IOC clone. They are rapidly learning more about the markets and competition and are looking to forge new types of alliances and relationships with IOCs. Many of them, however, have operations that are not commercially efficient, and they are still struggling with the social versus commercial role. Social objectives, such as job creation, supplying public infrastructure, and providing employment opportunities, vie with commercial objectives of efficient operations and profit. Access to capital is an issue for some of the NOCs. Risk management policies and processes often lag those of the IOCs. Many NOCs are the engines of economic growth in their respective countries, acting as the main source of national revenue. They all have their own distinct challenges to participate in the modern hydrocarbon sector that has characterised this high commodity price environment.

How PwC can help you

While all NOCs have a strategic and important role as operators of a majority of the world’s production, many now face increasing pressure from their governments to strengthen their financial and operational performance, just as the IOCs did in the last two decades from their shareholders. PwC's clients include some of the largest and most prominent NOCs. Our skilled practitioners can help all NOCs through the provision of advisory services to improve performance, processes and policies. We can assist with financial or operational effectiveness, governance structures, control design, management information and reporting. Through our assurance practice, we regularly provide independent audits and other assurance services. Our global reach allows us to advise NOCs on desired acquisitions outside their borders, and provide tax and transaction services to enable NOCs to achieve their investment objectives.