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Big Oil hashes out issues with state-run firms

VIENNA, AUSTRIA - Big Oil met national oil Thursday during an OPEC-sponsored conference of the world's most powerful companies, from Exxon Mobil and Royal Dutch-Shell to Saudi Aramco and Venezuela's PDVSA.

Analysts have been complaining that the oil market is looking for leadership but getting rhetoric. After a daylong session on the industry's future, it is easy to understand why market watchers are frustrated.

Philosophies clashed as Exxon Mobil Chairman Lee Raymond rebuked some OPEC nations for imposing drilling limits, while Saudi Arabia's oil minister, Ali al-Naimi, defended his country's state-owned oil company, saying it could meet future challenges.

Raymond said,"The future need for petroleum energy will be such that restrictions, in whatever form and wherever imposed, will jeopardize the provision of adequate energy supplies to world consumers."

Al-Naimi, who has 40 years of ties with Saudi Aramco, insisted the kingdom's oil company is efficient and can procure any technical expertise needed to overhaul its fields.

"Don't question our ability to deliver," he said.

Tables are turning

State-owned oil companies control 80 percent of the world's reserves and account for two-thirds of oil production.

"In the next decade, relations between national oil companies and major independent oil companies will be even more vital but probably even more strained," said Vahan Zanoyan, President of PFC Energy, a Washington-based consultancy.

Zanoyan urged state-owned oil companies to ditch their 1970s-style hands-off-our-oil attitude and chastised Western oil companies' invader attitude that casts national oil companies as impediments to access.

The president of Malaysian-owned Petronas, Tan Sri Dato Sri Mohd Hassan Marican, echoed the sentiment, saying, "We have no choice but to adopt a more global outlook or be left behind."

In its 30-year history, Petronas, has ventured outside its borders and partnered with state-owned, as well as independent, energy outfits. It gets 35 percent of its revenues and 25 percent of its oil reserves from outside Malaysia.

Zanoyan predicted life could get hard for independent oil companies, even the well-capitalized supermajors because the key factor for any oil company today is access to so-called aboveground resources, such as investment dollars and advanced technologies.

Zanoyan explained that during the 1970s, national oil companies dominated the oil market because they held the underground resources atop most of the world's reserves. During the '80s, Big Oil wrestled the upper hand from OPEC by controlling those crucial aboveground resources. Until now.

The tables are turning again, he said. National oil companies have begun to get access to the production expertise while maintaining control.

Helping each other

In general, government oil companies do not like to take exploration risk, a necessarily evil when scouting for new hydrocarbon sources. Partnering with independent oil companies is one way state-owned oil companies can reduce their risk.

But Zanoyan said that before more substantive long-term deals can emerge in this investment climate, state-owned oil companies have to revisit their unfavorable lease agreements.

"It's a generalization, but many deals between government-owned and independent oil companies assume a barrel of oil will sell for between $15 and $20. So despite current crude prices that persist above $40, independent oil companies often don't see any additional earnings once the price rises above $25."

According to Zanoyan, that profit goes to the state-owned companies.

There is a risk-reward ratio where investment becomes possible, he said.

For the first time, producing governments have a real choice to make.

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