Mapping out the oil and gas industry: National oil companies

The oil and gas industry includes a very diverse mix of corporate structures and governance models, from small enterprises to some of the world’s largest corporations. The risks and opportunities of energy transitions vary widely across this spectrum.

For the purposes of this analysis, oil and gas companies are grouped into four main categories: two of these categories cover companies that are fully or majority-owned by national governments and the other two relate to privately owned companies.

Among the former, this report distinguishes between national oil companies (NOCs) that concentrate on domestic production and a second group of international NOCs (INOCs) that have both domestic and significant international operations; the classification is done on the basis of upstream operations.

NOCs include the largest companies both in terms of production and in terms of reserve size. They have a mandate from their home government to develop national resources with a legally defined role in upstream development. Some NOCs are active in the downstream and even may operate outside their home country, but the home country upstream represents the vast majority of their asset base.

The largest of these NOCs are in the Middle East (notably Saudi

Aramco, National Iranian Oil Company, Basra Oil Company, Qatar Petroleum), but there are also companies in this category in the Russian Federation (“Russia”) and the Caspian (e.g. Rosneft, Uzbekneftegaz, SOCAR, KazMunayGaz), Latin America (Petrobras, PEMEX, Petróleos de Venezuela, S.A. [PDVSA]), and many parts of

Africa (Nigeria National Petroleum Corporation [NNPC], Sonatrach, Sonangol).

INOCs are similar to NOCs in terms of governance and ownership but have large upstream investments outside the home country, usually in partnership with host NOCs or private companies. INOCs include large players in global gas markets.

For oil, in most cases INOC production is sold into the international market either by companies’ own marketing arms or by the associated

NOC. On rare occasions, it may be transported back to the home country if this makes sense economically. INOCs are often dominant in the refining sector of their home country.

Companies in this category include Equinor, the China National Petroleum Corporation (CNPC), Gazprom, Sinopec, the China National

Offshore Oil Corporation (CNOOC), Petronas, India’s Oil and Natural Gas Corporation (ONGC) and Thailand’s PTTEP.

The “Majors” (sometimes referred to as international oil companies [IOCs]) are integrated companies listed on US and European stock markets. Their upstream division represents the majority of the financial value, but in physical terms most of these companies are net buyers of oil for their refining operations, where throughputs generally exceed the company’s crude production. The decoupling of the marketing of their upstream production and supply to their refineries makes them active players in the international oil market.

They have historically focused on large, capital-intensive projects (often in partnership with other NOCs and INOCs), taking both market and project management risk, although many are increasingly investing in shorter-cycle investments. Natural gas, especially liquefied natural gas (LNG), represents an increasing share of their production and capital investment.

In this report’s classification, the “Majors” grouping includes seven companies: BP, Chevron, ExxonMobil, Shell, Total, ConocoPhillips and Eni.

“Independents” are either fully integrated companies, similar to the

Majors but smaller in size, or independent upstream operators. They may focus on assets of less interest to the Majors such as medium-size declining fields or frontier areas. As with the Majors, they often outsource drilling, well completion and logistics operations.

Independents encompass a wide range, including Russian companies such as Lukoil; Repsol in Europe; a large number of North American players such as Marathon, Apache and Hess; and diversified conglomerates with upstream activities, such as Mitsubishi Corp.

This group also includes North American shale independents, a relatively new group of companies that almost exclusively focus on developing shale gas and tight oil resources. These companies have a high reliance on debt finance and financial leverage.

In addition to these four categories (NOCs, INOCs, Majors and Independents), there are three other company types – typically privateowned – that play significant roles in the oil and gas industry, and whose response is important in energy transitions:

•Service companies (e.g. Schlumberger, Baker Hughes). Most oil and gas companies rely on specialist engineering services for drilling, reservoir management and construction of infrastructure. Some of the most important technological innovations unlocking new resources were developed by service companies. Service companies tend to be highly exposed to the cyclicality of capital spending.

• Pure downstream companies (e.g. Marathon Petroleum,

Phillips 66). These are companies operating refineries and retail networks; their capitalisation and balance sheet position is usually considerably weaker than the Majors.

•Trading companies (e.g. Vitol, Glencore). Companies that are active in the physical trading of oil products and LNG. They sometimes invest in transport, refining, distribution and storage assets but their business models tend to rely on owning only those physical assets that help optimise their position in the market. They play a major role in ensuring the smooth, flexible functioning of markets.