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Oil Company Strategies from 1970 to the Present

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Oil Company Strategies from 1970 to the Present 5.2 Oil company strategies from 1970 to the present Since 1970, the world oil and gas industry has been three-and-a-half decades. The most notable change transformed by a series of massive shifts in the has been the widening international diversity of economic, political and technological environment. the leading companies. The newcomers to the Adapting to these external forces has involved ranks of the major oil and gas companies were major changes in the strategies of the oil and gas primarily state-owned companies that were based companies. The impact of these changes is either in major petroleum producing countries indicated by a comparison of the leading (Pemex of Mexico, Statoil of Norway, PDVSA of companies in the industry in 1970 and in 2004 Venezuela, Gazprom of Russia) or in major (Table 1). In 1970, the industry was dominated by consumer countries (China Petroleum & Chemical the Seven Sisters,1 the leading US and and PetroChina of China, SK Corporation of European-based petroleum companies that South Korea, Indian Oil of India). Indeed, our list pioneered the development of the industry for most grossly understates the importance of the national of the Twentieth century. Five of the sisters were oil companies from several oil producing American: Exxon (then, Standard Oil New Jersey), countries because they do not publish financial Mobil, Chevron (then, Standard Oil California), accounts. On the basis of their estimated revenues, Texaco, and Gulf Oil; the remaining two were Saudi Aramco and National Iranian Oil European: Royal Dutch/Shell Group, the Corporation would certainly be included in our Anglo-Dutch joint venture, and British Petroleum top-20 for 2004. (BP). US dominance of the ranks of the leading oil companies also extended beyond the Seven Sisters; twelve of the twenty largest oil companies were US 5.2.1 Driving forces domiciled. It is notable that all of the non-US of industry change companies (except Royal Dutch/Shell Group, PetroFina, and Nippon Oil) were either wholly or Political factors partly publicly owned. All the leading companies The most important factor causing change in in 1970 were vertically integrated and had an the structure of the industry and the strategies of international spread of activities. The exception the oil and gas companies has been the changing was Nippon Oil whose main activities were international political environment. The end of the downstream and within Japan. 1960s and beginning of the 1970s saw growing By 2004, the Seven Sisters had been reduced recognition by the oil producing countries of the to four: ExxonMobil, Royal Dutch/Shell Group, economic and political power that their ownership BP and Chevron Texaco. These four had been of oil reserves conferred. Although the joined by Total (which had merged with Elf Organization of Petroleum Exporting Countries Aquitaine and PetroFina) and ConocoPhillips to create a leading group of six ‘supermajors’. But, 1 The term Seven Sisters was coined by Enrico Mattei despite the continued dominance of a small group the founder of the Italian energy company, Eni, and was of integrated, western-based majors, the top-20 list popularized by Anthony Sampson in his book The Seven of 2004 had changed greatly over the preceding Sisters (1975). VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION 301 KEY ACTORS IN THE HYDROCARBONS INDUSTRY AND COMPANY STRATEGIES Table 1. The world’s top-20 oil and gas companies ranked by sales (1970 and 2004) Sales Sales Company Company in 2004 (109 $) in 1970 (109 $) BP (UK) 285.1 Exxon (US) 16.6 Royal Dutch/Shell Group Royal Dutch/Shell Group 265.2 10.8 (Netherlands/UK) (Netherlands/UK) ExxonMobil (US) 264.0 Mobil (US) 7.3 ChevronTexaco (US) 142.9 Texaco (US) 6.3 Total (France) 131.6 Gulf Oil (US) 5.4 ConocoPhillips (US) 118.7 Chevron (US) 4.2 Eni (Italy) 79.3 British Petroleum (UK) 4.1 Pemex (Mexico) 70.0 Amoco (US) 3.7 Valero Energy (US) 54.6 Atlantic Richfield (US) 2.7 Statoil (Norway) 50.1 Phillips Petroleum (US) 2.3 China Petroleum & Chemical (China) 49.8 Sun Oil (US) 1.9 Repsol-YPF (Spain) 48.0 Eni (Italy) 1.8 Marathon Oil (US) 45.1 Unocal (US) 1.8 PDVSA (Venezuela) 42.6* Elf Aquitaine (France) 1.5 PetroChina (China) 36.7 PetroFina (Belgium) 1.3 SK Corp (South Korea) 33.8 Continental Oil (US) 1.3 Petrobras (Brazil) 33.1 Getty Oil (US) 1.2 Nippon Oil (Japan) 30.4 Nippon Oil (Japan) 1.0 Gazprom (Russia) 28.9 Total** (France) 0.9 Indian Oil (India) 26.1 Petrobras (Brazil) 0.9 * Estimated. ** Total was then called Compagnie Française des Pétroles. Sources: Company annual reports; «Fortune» and «Forbes», 1970 and 2004. (OPEC) was founded in 1960, it was the the producer countries to appropriate a larger share renegotiations of oil concessions by Libya in 1970 of the value of their hydrocarbon resources was and Iran in 1971, followed by the Arab-Israeli war simply a manifestation of political assertiveness of 1973, that put in place the conditions for and economic development goals of the developing OPEC’s escalation of oil prices in 1973-1974. world and the non-aligned countries. New oil The power and assertiveness of the oil producing countries in the developed world producing countries were also evident in a more (notably, Norway and the UK) were just as keen to aggressive approach to the international oil majors. maximize so that they could exploit their reserves From the 1960s onwards (earlier in the case of for the maximum benefit of their nations. Iran), many of the producer countries nationalized Auctioning of exploration and production licenses, the oil and gas subsidiaries and joint ventures participation agreements, and new petroleum taxes within their boundaries, thereby creating national were not limited to the politically-aggressive oil and gas companies responsible for exploiting OPEC countries. Some of the most ambitious and the countries’ hydrocarbon assets and making deals far-reaching attempts by producer countries to with western oil companies (Table 2). The desire of appropriate the returns to petroleum resources were 302 ENCYCLOPAEDIA OF HYDROCARBONS OIL COMPANY STRATEGIES FROM 1970 TO THE PRESENT Table 2. The establishment of national oil companies by OPEC countries (Tetreault, 1985) Country Company Date established Algeria SONATRACH 1963 Ecuador CEPE 1972 Gabon PetroGab 1979 Indonesia Pertamina 1971 Iran National Iranian Oil Corp. 1951 Iraq Iraqi National Oil Corp. 1964 Kuwait Kuwait Petroleum Corp. 1976 Libya NOC 1968-1970 Nigeria Nigerian National Petroleum Corp. 1977 Qatar QGPC 1974 Saudi Arabia* Petromin 1962 United Arab Emirates ADNOC 1971 Venezuela PDVSA 1975 * In 1974 the Saudi government acquired majority ownership of Aramco which, in 1988, became Saudi Aramco. established by the Norwegian and British closeness of their relationships (four of them were governments in relation to North Sea oil. former members of the Standard Oil Trust) However, the new-found power of OPEC did little encouraged ‘conscious parallelism’ in their to ensure price stability. A central issue of the period competitive behaviour. After 1970, the Seven 1970-2005 was the increased volatility of the price of Sisters lost their dominant position within the crude oil. If the first oil shock was the result of the industry; during 1973-1987, their share of world power of OPEC, the second oil shock, which followed crude oil production fell from 29.3% to 7.1%, and the Iranian revolution of 1979, demonstrated the their share of world refinery capacity fell from power of world markets to respond to shifts in world 25.5% to 17.0% (Verleger, 1991). This decline was supply. Since the early 1980s, crude hit lows of $8 a a result of two key factors. First, the nationalization barrel in 1986 and $10 in 1998, and highs of $31 in of a large part of the majors’ oil assets after 1972. 1990 (following the invasion of Kuwait) and $60 in Second, the expansion of smaller players including 2005 (Verleger, 1991). state-owned oil producers (some formed from the The second political force for change was the nationalized oil assets of the majors), and collapse of communism and the wave of liberalization domestically-based oil companies (e.g. Elf which opened many major oil and gas producing Aquitaine, Nippon Oil, Neste, and Repsol) which countries to inward investment, which led to the grew internationally. The result was a decrease in privatization of many previously state-owned oil and both the economic and political power of the oil gas companies, and encouraged globalization by majors. many domestically-focused energy companies. Competitive pressures were exacerbated by the emergence of excess capacity. The two oil shocks Competition depressed demand for oil products by encouraging The increasingly competitive structure of the energy conservation and the substitution of oil industry was apparent from the declining alternative energy sources for oil. The oil intensity position of the major oil companies over the of the US economy2 halved over the period 1970 to period. Until the early 1970s, the world oil industry was dominated by a small group of major, integrated oil companies, the above-mentioned 2 Measured in Btu (British thermal unit) per Seven Sisters. The smallness of this group and the constant-price dollar of GNP. VOLUME IV / HYDROCARBONS: ECONOMICS, POLICIES AND LEGISLATION 303 KEY ACTORS IN THE HYDROCARBONS INDUSTRY AND COMPANY STRATEGIES 1990. On the supply side, the world crude oil provided the secure outlets for the companies’ supply capacity increased due to expanded risky E&P investments). Most intermediate steps exploration efforts and new exploration and were also managed internally: the companies production techniques. Excess refining capacity provided most of their own engineering and was exacerbated by refinery investment by many oilfield services, and were some of the world’s oil producing countries.
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