state participation in the oil and gas sector

7/28/2019 State Participation in the Oil and Gas Sector

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February 2010

THEME 3 State ParticipationIn The Oil and Gas sector


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Oil and Gas Workshop for Ugandan Legislature February 2010

Objectives

Understand different options for state participation in

the oil sector


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Agenda The national context

Different options for state participation

NOC models and how they evolve

Relationship of NOC to state

NOC Mission narrow or wide

The role of the NOC v IOC

Capital structure

NOC Governance


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Four Key Governance Functions

Source: Chatham House Good Governance Report


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Demarcation of GovernanceFunctions

Source: Chatham House Good Governance Report


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90% of the top 60 per capitaproducers have some form of NOC

Producers without NOCs tend to be the

larger economiesless dependent on oil revenues


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NOCs hold thekeys to growth

Control nearly 3/4of global oil

reserves . . .

. . . and more

than 60 per cent

of global gasreserves

0 50 100 150 200 250 300

Saudi Aramco

NIOC

Gazprom

Iraqi NOC

PDVSA

KPC

ExxonMobil

RD/Shell

Qatar Petroleum

TotalFinaElf

Abu Dhabi NOC

Sonatrach

ENI SpA

PEMEX

BP

Oil (bn bbl)

Condensate (bn bbl)

Gas (bn boe)

Source: Marcel and Castelani


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Why have an NOC?

Questions to Ask

1. What is the national development agenda?2. What is the role of the oil and gas sector in the

national development agenda?

Direct state participation, typically via a National OilCompany, is the norm when the oil and gas sector is

believed to be key to national development


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Pros and Cons of NOCs Safeguard against dependence on

IOCs

Optimize resource development

National control

Allows sole risk

Develop management and technicalexpertise

Source of foreign currency

Support of local service sector

Control over operational decisions

Direct country access to rent

Could be catalyst for cost reduction

Control reservoir management

Help implement OPEC policies

State within a state

Development of oil and gas industry

slowed by bureaucratic processes

Discourage IOC activity

Becomes a drain on resources by

investing in un-economic/riskyprojects

Protects an inefficient support of

private sector

Lower exposure to global industry

trends and technology Conservative strategy and

investment

Source Marcel and Castellani

Chatham House Good Governance Project


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KEY NOC ChoicesNOC Choice OptionsMineral Rights Exclusive Shared

Upstream RegulatoryResponsibility

None Some All

State Ownership 100% Majority Minority

Number of NOCs Single Multiple

Mission Narrow Commercial WideNational

Value Chain Upstream Midstream Downstream

Geography National Regional International

Capital Budget Government Budget Balance Sheet

Corporate Debt

Corporate Debt and

Public Equity

Risk Tolerance Low carried interestsonly

Development Risk High - exploration &development Risk


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NOC Governance the BoardUnitary Board Non-ExecutiveBoard Executive Board Two-Tier Board

KPCSaudi AramcoSonatrachPDVSAPetronasONGCNNPC?

StatoilPemexPetrobras

Sonangol PertaminaNIOC

StrengthsExecutives superviseoperations and non-executives guide policyand ensure accountability.

StrengthsAlignment of NOC withshareholder/stakeholderinterests. Ensuresaccountability of NOCexecutives.

StrengthsStrong on knowing what isgoing on inside thebusiness.

StrengthsSeparation of policy andstrategy in supervisoryboard from operationalperformance which is theconcern of the operationalboard.

WeaknessesPerformance of the boarddependant on thedynamics of the executive-non-executive directorsrelationship

WeaknessesCEO can becomeoverpowerful if alsoChairman. Board can bedetached from operationalrealities

WeaknessesChances of delivery offiduciary duty throughindependent, criticalthought is low. Can beweak on monitoring theoutside world.

WeaknessesPotential for conflict andcompetition between thetwo tiers of board.

Supervisory Board

Operational Board

Managing DirectorExecutive Directors

ChairmanNon ExecutiveBoard

Chairman

CEO

ChairmanIndependent

DirectorsManaging DirectorExecutive Directors

Range ofPractice

Who is on theboard?

How are theyappointed?


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How is the NOC held to Account?

Regulators

Tax

HSE

Licensing

Procurement

Audit

NOC

SPCSupreme Petroleum

Council or equiv.

IOCs

LocalComm-unities

CitizensJudiciary

President/Sovereign

Prime Minister/Cabinet

Reports &Accounts

$

$

MinistriesEnergy, Finance etc.

Budget

&

Accounts

NGOs

Unions

Media

CivilSociety

Executive

Parliament/Congress

Legislature

OperatorsData

Disclosure&

Access

PublicDisclosure& Scrutiny

Accountability ModelInternal External

Shareholders

&Creditors

National context controls

on how accountability works in practice


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Working Groups

Review the profiles of the NOCs provided

consider the mission of the NOC, theimplications for Governance and the

strengths and weaknesses of each choice


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Statoil - NorwayNOC Options Options ChosenMineral Rights Shared


None

State Ownership Majority

Number of NOCs Multiple (StatoilHydro and Petoro)

Mission Narrow Commercial


Gas

Geography National Regional International

Capital Budget Corporate Debt and Public Equity

Risk Tolerance High - exploration & development Risk


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Sonangol - AngolaNOC Choice OptionsMineral Rights Exclusive

Upstream RegulatoryResponsibility Some (Licensing)

State Ownership 100%

Number of NOCs Single

Mission WideNational

Value Chain Upstream Midstream Down-stream

Gas

Geography National (but has some internationl activity)

Capital Budget Balance Sheet Corporate Debt

Risk Tolerance Development risk primarily but some exploration risk occasionally


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NNPC - NigeriaNOC Choice OptionsMineral Rights Shared


Some

State Ownership 100%

Number of NOCs Single

Mission WideNational


Gas

Geography National

Capital Budget Government Budget

Risk Tolerance High - exploration & development Risk(In practice tended to low risk activity)

state participation in the oil and gas sector

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