The New NOC's-What will the Future Bear ?
Authors: Fryklund Bob , Stark Pete 
Published: February 2016

NOCs have entered a new growth period, fostered by current market conditions. Three types of NOCs have emerged - producer, hybrid and consumer. Consumer and hybrids dominantly work aboard and are often given the label of INOCs. A review of their tactics and strategies suggests they really act as any other IOC. A look at the exploration record, drilling success ratios and sizes and reserves replacement suggests that they are now responsible for at least a 1/3 of growth. A look into the future suggests this trend will continue and perhaps go higher. Still the INOCs will have to contend with the same challenges as the IOCs—reserve replacement, access to new assets and supply, the fiscal squeeze, climbing capital costs, manpower shortages and international standards in HSE and accounting. One of the biggest questions is-- how successful will the INOCs be? For most, it is too early to tell, but some metrics are beginning to come in. Another key question is what impact INOCs will have on IOCs, particularly in the global scramble for resources. Early analysis suggests they are driving the buyer's side and further squeezing already tough IR numbers.

Introduction

Global energy market changes such as increased high demand in Asia and energy supply tightness due to a shift in location and type of supply coupled with delivery bottlenecks have resulted in renewed focus on energy security around the world. A major outgrowth of this has been the search for diversity of supply by consumer nations and diversity of markets by producer nations. The natural vehicle with which to move aboard to search for supply and market diversity is an international branch of the National Oil Company (NOC). This paper looks at some of the strategies the NOCs working aboard are using, as well as some of the impacts they are having on the market place.

Defining NOCs

National Oil Companies have different roles depending on their mandates from their government but generally can be divided along their status as either producer or consumer nations. In both instances, there is often a role as regulator and/ or administrator of the domestic industry. For producer nations, the focus is generally on domestic E & P and utilization of the value chain to optimize national production. In contrast, consumer nations rely on the NOC to supply the nation's energy needs via external sources. Today's market conditions have lead to a rise of a hybrid group which fulfills both domestic and international obligations. The governing factor for the hybrid group is the degree of imports needed. In order to compete better and to raise cash, the hybrid group often is partially privatized but in all cases remains majority owned by the government. Recent countries which have gone this route are Brazil, Colombia, China and Norway.

As in most industries, there is also a business evolution process or growth path which can be mapped out. NOCs offer no exception and where they are along this process is important for those wishing to do business with them. The most rapid change and growth have occurred in the consumer NOC whose international arms (often referred to as INOCs) have entered the open market; hence, becoming just another IOC. There tactics and strategies, henceforth, become those very similar to that of their competitors. The following excerpts were taken from several public statements by oil companies about their strategies and goals. See if you can discern which is from an IOC and which is from an NOC.

"We add value through technology and we are looking for places to apply our technology"

"We want to be regional leaders and capitalize on our contacts, knowledge of the culture and proximity to markets"

"We plan on focusing first on growing our domestic fields and then applying this expertise globally to increase our reserve base abroad"

"We are searching for long life assets, which can become legacy assets and produce strong cash flow"

The answer is that almost the exact same words can be found in statements by executives from both IOC and NOCs. There is clearly a blurring of strategies and tactics and this can be seen further via a simple categorization of selected companies.