Posted on 06/07/2011 7:09:49 AM PDT by Arman Z. Calbay
The management theory is not applicable to the oil industry. This business is peculiar.
Of course, if one talks about Western oil companies, then here it is alright. Management theorems and models work in them successfully as in any other corporations like General Motors and Microsoft. However what share of oil does western Big Oil produce? The answer is only 10%. It controls still less – about 6% of all world reserves.
The rest is controlled by national oil companies. By the way there are not so many of them – usually one for each petrostate. And as you see, the government and the company in these countries are very close. Even too much.
It is not so simple to look at national companies on the inside because usually these are very secretive organizations; however, if you have succeeded, then you will see a politicized business, overstaffing, and bureaucratic red tape.
According to economic theory if a company is too unwieldy and sluggish then it should lose to more effective competitors with optimal structures and advanced business practices. But not in the case of oil.
We can observe the picture when unwieldy national companies are living in clover and one cannot see even a sign that they are leaving the business. Rather, it is vice versa.
There is only one reason for it – the scarcity of oil reserves. Oil's non-renewability factor pares down the economic competition. And when politics forces out economics, then the structure of a national company obeys not economic rules, but political expediency.
I do not have a desire to seek positive moments in the current practice of the national oil business. However, one also should not be terrified. Perhaps one should regard this situation as most oilmen do, namely as an objective factor which does not depend on us. You know oilmen regard such things like severe frost in Alaska or the presence of toxic hydrogen sulphide in oil as absolutely objective factors. These are phenomena from the same mold. Therefore, national oil companies will always differ from the more effective Western companies. And nothing can be done about it.
Though, of course, there are exceptions. Norwegian Statoil is a national company, too; however, it is quite close in parameters to other oil majors like ExxonMobil or Shell. But Norway is a country with a stable democracy and the wheels of state work so that gains from oil are distributed evenly among the population.
But one cannot say the same about countries where the situation is the opposite. The state machinery in them creaks along and sometimes nearly stops, and oil revenues get stuck somewhere on high, in the hands of the ruling circles. However, it is paradoxical, but human nature has contrived a mechanism which gets to evade this even if partly. The name for it is the overstaffing of oil companies. Because in these countries interrelations among relatives are closer than in Europe and America, it often happens that an employee in a national oil company feeds not only his own family, but also 5-10 more remote relatives. Thus oil revenues are distributed among a larger number of people than it might be supposed.
It is interesting that such a situation is convenient for all – both the ruling group and the population. If so, can external influences really change something inside these companies? It is unlikely and it is better not to try. They will change only if they themselves will want it.
So, there is a difference on how to produce oil. And speaking realistically, the unwieldy national companies will be there always. Until the oil is gone.
And the USA remains one of the few places on earth that the property owner can own mineral rights and become rich from oil or gas. Regular notes everywhere else gets the finger.
This is another reason Obama hates domestic drilling. It creates wealth for people he didnt approve of.
There is a difference between national oil companies developing their own assets and siezing them after oil companies who came in found and developed the assets for profit.
Many of the nationalized oil companies out there were the result of government siezure, not government development of the oil fields nor their production infrastructure.
The private sector remains the driving force behind energy development, even in the era of heavy subsidies and nationalization. If you look past the politics you will still see Halliburton, Schlumberger, Smith Tool, Baker Hughes, and a host of drilling and service companies getting the job done.
It all depends on how you measure it. Based on oil produced and reserves the NOCs lead. But on sales and profits, the western private sector companies lead.
And as others have pointed out, in the US, produced oil and and reserves are spread out among many many companies and individuals besides the majors and super majors.
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