National Oil Companies (NOCs)

5. Domestic and international policies

NOCs are often used an instrument for government control and policy making, both domestically and internationally.

Domestically, most NOCs find themselves seeking both commercial and non-commercial objectives. NOC management in most countries are accountable to politicians rather than profit-driven shareholders. NOCs goals therefore often diverge from those of profit making and operational efficiency characteristic of private companies.

Due to their different risk profiles, government owned companies like NOCs often act as a buffer between large risk-averse multinationals and small and/or privately owned companies, which tend to be risk-takers. Through farm-outs, for instance, NRCs can create space for junior miners to enter the market.

International policies

Internationally, the reach of NOCs has grown over the years, and several NOCs have adopted strategies and policies of diversifying internationally into upstream investments abroad. Examples include Statoil of Norway, Petrobras in Brazil; the Chinese National Petroleum Corporation (CNPC) and Sinopec in China; Oil and Natural Gas Corporation Limited (ONGC) in India; Gazprom, LukOil, and Rosneft in Russia; and Petronas in Malaysia. For the Chinese and Indian companies, one of the drivers behind such expansion is to gain access to energy production that can meet the home state’s growing economic demands. However, NOCs have achieved very diverse results in their internationalization strategies, some achieving no success at all.    

Saudi Aramco is the largest of the NOCs which announced in October 2016 that they are preparing to make the world’s largest initial public offering (IPO) by selling shares in its entire business and to list the company in Riyadh with a dual listing on an Asian exchange. The shares that will be opened to investors are expected to be worth $2 trillion. This planning comes as a response to the low oil prices and discussion over peak consumption.

As an indicator of NOCs international reach, among Standard & Poor’s list of the top 2,000 corporate capital spenders in the financial year 2012, energy or mining companies make up 13 of the top 20. Five of them can be classed as SOEs, including China’s PetroChina and Brazil’s Petrobras.

According to data obtained from UNCTAD by Chatham House:

“The bulk of foreign direct investment (FDI) by SOEs has gone to the mining, quarrying and petroleum sectors. SOEs from China accounted for 27 per cent of total outflows in 2010, up from just 13 per cent in 2003, predominantly in oil, iron ore, aluminium and uranium. Developing countries’ SOEs have also increased the scale of their investments: they completed four of the six FDIs valued at more than $10 billion in 2005–10.”

The rise of state backed investment in the extractives sector (source: Conflict and Coexistence in the Extractive Industries A Chatham House Report)