Breakout Session IA: National Oil Companies

Moderator: Andy Steinhubl, Principal, Energy and Chemicals Strategy Leader, KPMG LLP (U.S.)
Panelists:
Salvador Escobedo, President and Chief Executive Officer, Pemex Procurement International
Raymond Ng, Partner, Head of Oil & Gas, KPMG China
Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG Russia

To what extent will the future of the oil and gas sector belong to national oil companies (NOCs)? Will they displace the IOCs in dominance on the global stage? Is there room for both IOCs and NOCs amidst pressures on oil demand and price such as significant improvements in energy efficiency, and escalating trends in sustainability and decarbonization?

Andy Steinhubl, Principal, Energy and Chemicals Strategy Leader, KPMG LLP (U.S.), set the stage for a discussion of these and other questions by reviewing what he termed a “seismic shift” in current energy trends and economics. He suggested a number of key drivers for the next generation of exploration and production (E&P) operating models, including a shift in emphasis toward fit for purpose asset spending and optimization approaches, increased agility in supply chains, and the expanded use of intelligent process automation and machine learning in these and other areas of the upstream value chain.

NOCs and IOCs – more alike than not

Steinhubl noted that both IOCs and NOCs are in large part affected by similar industry trends, and hence driven to pull similar levers to improve performance and increase competitiveness.

Anton Oussov, Global Head of Oil and Gas and Head of Oil and Gas in Russia and the CIS, KPMG Russia pointed out that in terms of production volume, access to reserves and application of technology, “there is increasingly a limited differentiation between NOCs and IOCs.” NOCs now control 85 percent of global oil reserves.

A single NOC, Saudi Aramco, is potentially worth more than the combined market capitalization of the largest IOCs. And technology is widely available through third-party providers. All these factors, he said, help NOCs to compete on an equal footing with IOCs for investor funds.

Though Oussov also acknowledged that NOCs are often subject to national governments and national interests that don’t always coincide with the business interests of the company, including geopolitical constraints.

Historic changes for Pemex – on path to global competitiveness

Reforms by the Mexican government in 2013-2014 ended a 75-year monopoly over the energy sector by Petróleos Mexicanos, better known as Pemex. Salvador Escobedo, President and Chief Executive Officer, Pemex Procurement International, gave an update on recent developments for this NOC as the industry in Mexico reacts to new foreign investments, increased competition, and innovations in energy production.

The magnitude of these changes cannot be underemphasized, Escobedo said, citing a recent auction by Mexico’s National Hydrocarbons Commission for $200 billion in onshore and offshore exploration projects. The bidding included over 100 contracts for 110 blocks, with bids representing 75 companies from 20 countries.

Escobedo added that in this new market environment, Pemex will face an increasing level of both domestic and foreign competition. “Energy reform is forcing Pemex to become more efficient, reduce costs, and optimize assets”.

He added that by opening the energy value chain to players other than Pemex, that Pemex is being exposed to and learning new technology capabilities. The PEMEX drilling organization is competing for tenders in Latin America and other portions of the world. Ultimately, the goal of the Pemex CEO is for the company to become a competitive global player.

New agendas in China

Raymond K.K. Ng, Partner, Head of Oil and Gas, KPMG China, presented an update on NOCs in China and Asia. In contrast with Pemex in Mexico, he explained, three NOCs in China dominate the energy sector – PetroChina (held by CNPC) for upstream activities, China Petroleum and Chemical Corporation (Sinopec) for downstream, and China National Offshore Oil Corporation (CNOOC) for upstream and offshore.

However, for overseas acquisitions, these boundaries are not observed. For example, PetroChina recently acquired a number of offshore concessions in the Middle East, while Sinopec has also acquired upstream businesses.