National Oil Companies (NOCs)

1. The history of the National Oil Company

National Oil Companies (NOCs) are oil and gas companies which are fully or primarily owned and controlled by a State (state owned companies). NOCs play a powerful, and often controversial, role in extractive industry sector management in many states. They serve both commercial and non-commercial objectives by a government, and have often been used as instruments of political control.
It is believed that the first NOC was established in Austria-Hungary in 1908. There was an excess supply of crude oil to private importers, Emperor Franz Joseph approved the building of a topping plant owned and operated by the government. Other governments followed suit, as oil developed to be an important strategic commodity.

Foundation of National Oil Companies (NOCs) in chronological order

A table which can be accessed here provides a list of the foundation of various national oil companies (NOCs) in chronological order.

From 1970s to 2010s

In the 1970s in the Middle East and North Africa, as a result of post-colonial resource nationalisation by states, and gradual exclusion of international oil companies (IOCs) from key producing areas, NOCs in these countries started gaining prominence. NOCs have to date grown in prominence in both resource rich and resource poor countries, and as at 2011, they controlled approximately 90% of the world’s oil reserves and 75% of production, as well as many of the major oil infrastructure systems. As at 2013, NOCs controlled 90% of production and over 95% of reserves.

The NOC began as an entity of producer states, although there are now many which are based in consumer states.  There is a difference in the model for those NOCs which are intended to promote the state into the international petroleum business and those (such as those of China and India) which are charged more with acquiring petroleum and petroleum interests around the world in order to bring petroleum back to those host states.

NOCs are responsible for commercial operations and the development of a shared national capacity in the extractives sector. In sharing competence between public and private obligations, NOCs often have difficulty in separating these obligations. Since NOCs are charged with responsibilities going far beyond commercial operations and may ‘capture’ local managerial and technical sector expertise, they often bypass the EI sector ministry to which they usually nominally report.

How are NOCs formulated?

NOCs may be the subject of separate legislation, such as the Nigerian National Petroleum Corporation Act (No. 33 of 1977), which created Nigeria’s Nigeria National Petroleum Corporation (NNPC), or Presidential Decree No. 1017 / PR / MMPH which created the Gabon Oil Company (GOC). They may also emerge from a merger of existing domestic companies, as was the case of Pertamina in Indonesia, which was formed in 1968 as a merger of Pertamin and Permina. NOCs may also emerge as a result of nationalization, as was the case in: Saudi Aramco of Saudi Arabia, which was a 1970s nationalisation of Arabian-American Oil Co, previously owned by Standard Oil of California and Texaco; and Petroleos de Venezuela S.A (PDVSA) in Venezuela, which was nationalised in 1976.

Links to the host state

Controversy tends to be sharpest in relation to the NOCs’ links to the host state, where management and budgetary interference is common, or when there are different views about the kinds of relationships that lead to optimal outcomes in a particular country context.

Where a new NOC is envisaged, capacity building is inevitably an important issue.

Private sector participation

Participation of the private sector is one of the most important issues to be addressed in any sector policy statement. This is more so in resource-poor countries or frontier countries with an under-developed extractives sector that is still in the exploration days. Under such production sharing contracts (PSCs), there are extensive provisions on involvement of NOCs (or other state organs such as energy ministries) in joint management, and provision for carried interest or participating interest in development operations by the state through its NOC. For instance, the Tanzania Petroleum Development Corporation (Tanzania’s NOC), can elect to have a participating interest in an IOC’s petroleum development operations under the PSC.

Among resource-rich states such private sector participation is not uncommon, with notable exceptions being the petroleum sector in Mexico, which after 75 years of NOC monopoly by PEMEX (the state NOC) sweeping legal reforms were approved in August 2014 to allow private sector participation in the oil & gas industry. Private sector involvement is also present in a number of Middle Eastern states. Norway had a very public debate on whether or not to open its petroleum sector to foreign investors and eventually decided to permit foreign involvement in 2001/2002, for many of the reasons just given.

For policymakers in many former colonial states, the historical memory of unhappy private sector involvements – even if they occurred decades ago - will play a significant role in shaping the legal and contractual frameworks.

Looking to the future, NOCs will need to adjust to, and improve on matters such as: corporate governance and anti-corruption; state control and balancing commercial and non-commercial interests; and business adjustments which will be caused by their states’ carbon emission reduction commitments under the Paris Agreement on Climate Change 2015.