Oil and Gas News

Who is most responsible for world oil production, governments or private investors

Although investor-owned oil companies are often thought of as those most responsible for world oil production, government-controlled companies actually control the majority of both current production (more than 52% in 2007) and proven reserves (88% in 2007), one indicator of future production potential.

Investor-owned and government-controlled oil companies often operate differently

Let’s first examine the differences in the three types of companies that currently supply essentially all crude oil to the world. The distinction between these three types of companies is important because each has different general operational strategies and production-related goals.

Investor-owned oil companies, including ExxonMobil, Royal Dutch Shell, and BP (formerly known as British Petroleum), are primarily concerned with maximizing shareholder return. These companies, often referred to as international oil companies (IOCs), typically move quickly to develop and produce the oil resources to which they have obtained access and sell their output in competitive markets.

National oil companies with strategic and operational autonomy that function as corporate entities, including Petrobras (Brazil) and Statoil (Norway), often balance profit-oriented concerns and the objectives of their country into the development of their corporate strategy. While these companies may support their country’s goals, they are primarily commercially-driven entities.

National oil companies that operate as an extension of the government or a government agency, including Saudi Aramco (Saudi Arabia), Pemex (Mexico), and PDVSA (Venezuela), support their government’s programs either financially or strategically. They also provide fuels to domestic consumers at prices lower than world customers pay. These companies do not always have the incentive, means, or intention to develop their proven reserves at the same pace as commercial companies. Due to the diverse situations and objectives of the governments of their countries, these national oil companies pursue a wide variety of objectives that are not necessarily market-oriented, such as employing their citizens, furthering a government’s domestic or foreign policy objectives, generating long-term revenue, and supplying inexpensive domestic energy.

Tags: Mexico, PDVSA, PEMEX, Saudi Arabia, Saudi Aramco, Venezuela