The Cost of an Emerging National Oil Company

 

  • The fall in oil prices since mid-2014 has profoundly changed the prospects for national oil companies (NOCs). If, as seems likely, prices remain low for a number of years, investors will be far more cautious, international oil companies will see reduced cash flows, and many exploration projects will be put on hold or cancelled. NOCs, and the oil and gas industry as a whole, must reconsider their strategies.
  • This will have an impact on the ambitious plans that some emerging producers had nurtured for national participation in the petroleum sector, forcing them to refocus on an affordable strategy for developing upstream capabilities.
  • Governments of emerging and prospective producer countries, and their NOCs, need to understand the cost of various NOC roles, and how these can be financed at different stages of developing the resource base. This will enable them to formulate clear and appropriate strategies for the future.
  • The current environment offers an opportunity for governments to refocus their efforts on defining a mandate that supports their national vision and priorities. This requires an evaluation of the resource base, national capabilities (including those of the NOC) and possible revenue streams, so that the NOC can be tasked with a role it can execute and the state can afford.
  • Governments must approve clear revenue streams for NOCs.
  • NOCs should focus on costs, as well as on strong accounting and reporting standards.
  • Governments and NOCs should be strategic about capacity-building, so that efforts and scarce resources are dedicated to building the right skills and using them on the job.

The report is available to download at the link below.

Enhancing the Performance of African National Oil Companies

Countries endowed with oil and gas hope these resources will lift their economies. They create national oil companies (NOCs) to act as vehicles for national participation in the oil and gas sector, to capture a greater share of the resource rents and act as catalysts for the implementation of broader development goals. The fulfilment of these aspirations depends on the technical and commercial ability of the NOCs, as well as the operational environment provided by their governments. The ability of NOCs to carry out their mandate should therefore be assessed, as should the inducements offered by their government. This study proposes a methodology to evaluate and benchmark the performance of African NOCs, taking into account the regulatory and policy environment in which they operate. It also offers pathways for enhancing their processes and capabilities.

This report was drafted for the African Development Bank. The below document is the authors’ manuscript completed in January 2020. Publication by the AfDB is forthcoming in 2021.