Oil and gas
The Different Types of Oil Company
09/09/2010
There are a wide variety of companies of different sizes and status in the world of hydrocarbons. The major multinationals exist side-by-side with large state-run companies and companies in developing countries, that play an increasingly important role on the world stage. There are also a number of small or medium-sized independent companies, some which are established in a particular region. Some of these are specialized in one area of activity.
Which Are the Main Private Companies?
The best-known private oil companies are very powerful. They have an international presence and high turnover, placing them among the largest multinational companies or majors. There are currently five major oil companies1.
• Royal Dutch / Shell is an Anglo-Dutch company formed after the merger of Shell and Royal Dutch (2008 turnover: $458 million).
• Exxon Mobil is an American company formed after the merger of Exxon and Mobil (2008 turnover: $442 million).
• BP is a British company formed after the merger of British Petroleum (formerly the Anglo-Iranian Oil Company) and Amoco (2008 turnover: $367 million).
• Chevron is an American company formed after the merger of Chevron (formerly Socal) and Texaco (2008 turnover: $263 million).
• Total is a French company formed after the merger of Elf, Fina, and Total (2008 turnover: $234 million).
How the Major Oil Companies Were Created
The two oldest major oil companies were founded in the 19th century.
• Standard Oil was founded by Rockefeller, an American.
•Shell was founded by the British businessman Marcus Samuel.
By 1911, Standard Oil had become so powerful that the US Congress passed an anti-trust law banning the creation of very large corporations whose monopolistic position was likely to distort competition. This legislation forced the corporation to split into three companies: Standard Oil of New Jersey (later Exxon), Standard Oil of New York (later Mobil), and Standard Oil of California (Socal). From their inception, these three new companies were among the seven largest oil companies in the world - a group known as the Seven Sisters (Exxon, Mobil, Socal, Texaco, Gulf, BP, and Shell). An eighth company is usually added to this list - CFP (Compagnie Française des Pétroles), later known as Total.
In the 1920s, the US majors started investing in the Middle East. The oil produced there was more profitable than oil produced in Venezuela or Texas, where extraction costs were higher. In July 1928, five corporations (BP, Shell, Exxon, Mobil, and CFP) signed the Red Line Agreement, which established the following:
• The pooling of prospecting facilities
• The sharing of existing or potential oil resources in the former Ottoman Empire (i.e. the area from Palestine to North Iraq and the Arabian peninsula).
This led to the creation of a number of large consortia. They were:
• IPC (Iraq Petroleum Company)
• ADPC (Abu Dhabi Petroleum Company, in the United Arab Emirates)
• QPC (Qatar Petroleum Company)
• KOC (Kuwait Oil Company)
• ARAMCO (Arabian American Oil Company, in Saudi Arabia)
In the 1950s, there was a considerable rise in the share of oil revenue that the countries where the deposits were located recieved from the consortia. However, big oil company revenue remained as high as ever, because of tax incentives granted by the countries where they were headquartered. Between 1958 and 1972, the Seven Sisters increased their profits threefold even as the price per barrel of oil was falling; reaching a total of $8 billion in 1973. After the first oil crisis-which drove the price per barrel upwards- they made $17.5 billion in profit on production in OPEC countries in 1974.
Major Oil Companies and Changes since the First Oil Crisis
The 1980s and 1990s were a time of great change or the major oil companies.
• The share of oil revenue paid to oil-producing countries continued to rise. Indeed, these countries wanted to use state-run companies to control the extraction of their oil resources. Private companies were forced to relinquish their rights to extract deposits and the large consortia they founded were gradually nationalized.
• Meanwhile, areas with rich hydrocarbon potential were becoming rarer. The costs of oil exploration and production increased constantly while the size of newly discovered deposits fell. Finally, oil started to cost more to produce and brought in less revenue than before. With the increasing scarcity of available resources, competition between the companies intensified. This is why states involved began hiking up the price of the permits they granted, adding several hundred million dollars to the original price.
To compensate for the substantial losses caused by these changes, the major oil companies benefitted from rising oil prices and stepped up their trading activities (i.e. selling crude oil and petroleum products). However, a large number of small and medium-sized oil companies did not have enough capital to finance oil exploration, which was becoming increasingly costly. Consequently, they were taken over by larger companies. This wave of takeovers cooincided with the merger of several big oil companies between 1984 and the 1990s. This resulted in the formation of the five large corporations we have today.
For example, BP has been building solar plants in 160 countries since the 1980s, and Shell is developing biomass, solar, and wind energies. Finally, Total designs and markets photovoltaic systems, and invests in other renewable energy sources (wind and wave energy) and nuclear energy.
The Main State-Run Companies
Most major oil-producing countries now have their own oil and gas company, which manages production and defends national interests in the field of hydrocarbons. States control at least 50% of these companies.
In OPEC countries and some non-OPEC member states, state-run companies have exclusive or almost exclusive control of oil production. This is the case in the following cases:
• Sonatrach in Algeria
• Aramco in Saudi Arabia
• ADNOC (Abu Dhabi National Oil Company) and DPC (Dubai Petroleum Company) in the United Arab Emirates
• NIOC (National Iranian Oil Company) in Iran
• INOC (Iraq National Oil Company) in Iraq
• KPC (Kuwait Petroleum Corporation) in Kuwait
• NOC (National Oil Corporation) in Libya
• NNPC (Nigerian National Petroleum Corporation)
• QGPC (Qatar General Petroleum Corporation)
• PDVSA (Petróleos de Venezuela SA) in Venezuela
• PEMEX (Petróleos Mexicanos) in Mexico.
State-run companies in other countries control access to oil reserves. These companies set up partnerships with private companies that want to extract deposits on their national territory. There are a number of scenarios.
• Foreign companies can be granted concessions (Cameroon), which give them permission to produce oil in the country. They become the owners of the mineral resources in a given region for a predetermined period, and can explore it at will. The foreign companies holding these oil concessions also retain ownership of the facilities in which they invest to extract oil in the region. Furthermore, they share revenue from the sale of petroleum products with the
state-run company. Finally, they pay royalties, taxes, and specific duties according to the amount of oil they produce.
• Some state-run companies partially outsource production to foreign companies by entering into oil production-sharing agreements (Vietnam, Equatorial Guinea, and Indonesia). According to these agreements, the state retains control of the country's oil reserves and of the extraction infrastructure in which the private companies invest.
The private companies share a proportion of the oil produced with the state-run company, as specified by agreement. They also have to pay taxes to the state that holds the reserves.
For historical and political reasons, production-sharing agreements are more common nowadays than concession agreements. This trend reflects states' desire to exercise more control over access to their oil reserves.
Other Oil Sector Companies
Apart from the major private corporations and state-run companies, other stakeholders in the hydrocarbon sector are:
• Large companies in developing countries that have gained influence in the worldwide oil sector. They compete against the majors (Lukoil in Russia, Indian Oil in India, and Sinopec in China).
• Medium-sized independent companies in a specific region or country. The French company Maurel & Prom is an example. Sometimes they are taken over by the majors because of the oil industry's consolidation since the 1980s.
• Small independent oil companies that take over end-of-life deposits or develop deposits that larger companies (e.g. Anadarko in the US) ahve abandoned.
• Oilfield service companies provide exploration and production services to oil companies (Schlumberger, Halliburton, Géophysique, Géoservices, etc.). They operate in specific technical domains (such as geophysical measuring and drilling) and rent equipment to oil companies that they do not own for cost reasons.
• Finally, consulting firms and independent consultants carry out surveys and technical audits for oil companies. Some organizations such as the IFP (French Petroleum Institute) provide training and do innovative research, the results of which are often used and applied by oil companies.
[1] Source: Fortune, Global 500 ranking (2009)
