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Oil Titans

Oil Titans: National Oil Companies in the Middle East

John V. Mitchell contributor
Copyright Date: 2006
Pages: 322
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  • Book Info
    Oil Titans
    Book Description:

    Ninety percent of the world's oil reserves are entrusted to state-owned companies. Originally created as political instruments, these so-called national oil companies (NOCs) face new demands amid today's dwindling oil reserves and simmering social pressures. Increasingly, state-owned oil firms -particularly in the Middle East -are having to balance the political demands of their governments with the need to be commercially competitive. In this ground-breaking new volume, Valerie Marcel draws on unprecedented access to the politicians, engineers; and businessmen directing five Middle Eastern state oil companies to shed light on one of the most secretive segments of the international oil industry. The author tells the stories of Saudi Aramco, Kuwait Petroleum Corp., the National Iranian Oil Co., Sonatrach of Algeria, and the Abu Dhabi National Oil Co. -oil titans which together produce one quarter of the world's oil and hold half of the world's known oil and gas reserves. Dr. Marcel explains the complex bond between each state and its oil company, tracing the relationship's evolution from the politically charged days of foreign concessions to today's world of profit-driven decisionmaking. Drawn from over 120 interviews with company executives, middle managers, and oil-ministry officials, the author identifies a number of surprising new trends in these companies' strategy, and she paints a picture of their nascent sense of corporate identity. The book provides rare, up-to-date insight into how state-owned companies are striking a balance between their national mission and their commercial needs. The book also provides an insider's guide to these companies' unique culture. Executives and researchers in the region -both inside and outside the oil industry -will find it a valuable tool for understanding business in the Middle East.

    eISBN: 978-0-8157-5472-5
    Subjects: Technology, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. Acknowledgments
    (pp. ix-xii)
  4. Introduction
    (pp. 1-13)

    In most important oil-producing regions of the world, the oil industry has been nationalized. Ninety percent of the world’s oil reserves are entrusted to state-owned companies. The five national oil companies (NOCs) that are the focus of this book together produce one quarter of the world’s oil and hold one half of the world’s oil and gas reserves. What do we know about these oil titans? Do we understand how they operate and what drives them? Do they emphasize politics over profits? Do they have the technical and business skills to develop responsibly the immense petroleum resources entrusted to them?...

  5. one How It All Started
    (pp. 14-36)
    Valérie Marcel and John V. Mitchell

    Oil has played a seminal role in the historical emergence of the modern state in the Middle East and North Africa. For some countries, such as Iran and Algeria, this emergence is a story of colonial control by foreign oil companies supported diplomatically and militarily by imperial powers which needed oil to fuel their industrial economies. Conversely, it is a story of national emancipation in which the oil was taken back from the foreigners and used to support national economic development and to purchase allegiance to the new state. For other countries, such as Saudi Arabia, throwing off the direct...

  6. two How History Is Viewed by the National Oil Companies
    (pp. 37-53)

    History for many of today’s oil professionals in the Middle East and Algeria is the history of their countrysinceits emancipation from foreign interests. The managers who started their careers in the national companies can tell the story of how they took over the industry, but usually they do not look back. As a result, the next generation, which joined the company when it was well established, does not know the story. And although students across the region learn the fundamentals of resource nationalism, important lessons about why their industry was nationalized are not taught sufficiently in schoolbooks, in...

  7. three Corporate Culture and Identity
    (pp. 54-75)

    This chapter introduces the five main characters of the book, the national oil companies of Iran, Saudi Arabia, Kuwait, Abu Dhabi and Algeria, by examining how they identify themselves, their values, their management processes and their assets. Established companies have an identity and a specific culture that fashion the way employees operate and think about their business. Corporate culture is shaped by factors such as a company’s structure and history and the culture of its country. This is all the more true for national oil companies, which are often a source of national pride because they embody aspirations of independence...

  8. four Who Is Driving This Train?
    (pp. 76-105)

    Producing countries seek what often seems to be an elusive balance between government and national oil company. The former needs control; the latter needs autonomy. Governments control the NOC through policymaking, which includes setting targets and industry rules. They must also develop institutions able to hold the NOC accountable for its performance. National oil companies want sufficient autonomy to devise a strategy and conduct their operations. They need a clear mandate and unobstructed management processes in order to deal with industry challenges effectively and to rise to the challenge of competition. Difficulties arise in areas where decisionmaking responsibilities are shared...

  9. five New Generations, Changing Expectations
    (pp. 106-121)

    As we saw in Chapter 1, the Third World producers’ realization of the power of their resources and the parallel weakening of their rivals the Seven Sisters led to the emergence of a new world oil market. There evolved a progressive challenge to the privileges of the foreign oil companies through the creation of OPEC and the wave of nationalization of oil companies in the early 1970s. In these ways, the Middle Eastern oil producers were taking back and developing their resources and establishing their importance on the regional and international scenes.

    Regionally, the windfall of oil revenues that followed...

  10. six Changing Mission of the National Oil Companies
    (pp. 122-144)

    With high oil prices in 2003–05, the governments of Middle Eastern exporting countries are not under immediate pressure to introduce economic reform, stimulate the private sector and reduce public services. However, in view of the demographic trends in the producing countries discussed in Chapter 5, governments will need to foster economic conditions for greater employment opportunities. Short of effective policies to meet these challenges, they may come to rely increasingly on their NOCs to raise their hydrocarbon revenues in line with the growing needs of their populations and their non-hydrocarbon economies. The needs of a society and economy dependent...

  11. seven Industry Challenges
    (pp. 145-169)

    National oil companies face two types of industry challenges, domestic and international; they have some control over the former but little over the latter. At home, NOCs deal essentially with capacity and operational challenges; that is, with improving their management processes, increasing their access to technology, acquiring greater experience and securing capital. In this respect, each NOC is unique and faces different challenges. Externally, the companies face similar industry threats, which are also common to international oil companies. These pertain to maintaining market share, competition from other producers, establishing new markets, protecting future demand for hydrocarbons and responding to new...

  12. eight The Home-Front Strategy
    (pp. 170-189)

    Strategic thinking is a new imperative for the national oil companies of the Middle East and Algeria. It is the result of pressure on available resources, the need to do more with less, and their new drive to succeed as commercial organizations. The NOCs’ strategy focuses on optimizing oil and also gas resource development, pushing the integration of their activities further, supporting the national economy and moving toward greater internationalization. This chapter will examine the domestic strategic focus of the five NOCs under study and their ability to deliver on the above objectives. Their plans for internationalization will be addressed...

  13. nine Going International?
    (pp. 190-208)

    The scope of national oil companies’ activities is becoming more international. As we saw in chapter 3, this change is affecting their corporate identity. As a result, there is a great deal of curiosity about, and admiration of, national oil industry leaders such as Petronas that have succeeded in ventures abroad. This Malaysian NOC, like its Chinese and Indian counterparts, is pursuing an aggressive internationalization strategy in an effort to secure new oil reserves. A Petronas executive explained that “Now we are a little bit of a hybrid. We are in more than 30 countries. And 25 percent of our...

  14. ten Partnerships
    (pp. 209-227)

    As we saw in the previous chapter, new trends are shaping the oil and gas industry, notably an increased blurring of differences between NOCs and IOCs. Public ownership is also becoming an elastic concept: NOCs such as the Norwegian Statoil and the Brazilian Petrobras are partially privatized but maintain a majority government stake. Nor can “national oil companies” be confined any longer to their national borders. The political frontier niche is getting crowded: in politically unstable countries IOCs are encountering more competition from developing world NOCs, notably from the Chinese groups Sinopec and CNPC, willing to take bigger political risks...

  15. conclusion: National Oil Companies on the Rise
    (pp. 228-234)

    In the two years since research for this book began in 2003, the oil industry’s perspective on national oil companies has changed substantially. Privatesector executives and the financial press now recognize these companies as one of the most dynamic forces shaping the future direction of the industry. In some cases, NOCs are now competing directly with IOCs for projects and investment opportunities overseas, long the preserves of the super-majors. Companies from China, India, Malaysia and Brazil have won concessions to explore for and develop petroleum resources overseas. In today’s high oil price environment, they have also been able to leverage...

  16. economic background: The Challenges Faced by Petroleum-Dependent Economies
    (pp. 235-266)

    Unlike international oil companies, which can choose where to invest or disinvest, national oil companies are bound to their national operating environment. In their turn, the economies of major petroleum exporting countries are bound to their NOCs. There are two structural faults in this interdependence: petroleum production will inevitably flatten and then decline, and petroleum revenues are unstable. To manage these two problems, countries require a strategy for the development of the non-hydrocarbon economy (to generate tax revenue, employment and exports) and a buffer between hydrocarbon revenues and the continuing and more stable revenue needs of the government. If these...

  17. appendix one Questionnaire
    (pp. 267-276)
  18. appendix two National Oil Company Structures
    (pp. 277-282)
  19. appendix three The Challenges of a Petroleum-Dependent Economy: Simulations of the Future
    (pp. 283-294)
  20. Bibliography
    (pp. 295-304)
  21. About the Authors
    (pp. 305-306)
  22. Index
    (pp. 307-322)
  23. Back Matter
    (pp. 323-324)