Arman holds a coordinator position in Shell Development Kashagan (Royal Dutch Shell). Previously he has served in the Presidential administration of Kazakhstan as division head for energy policy and also obtained MPA degree from Columbia University (USA).View all articles by Arman Kalbayev
Well, let's go back from the records of the U.S. presidential race to the records of business. By the way, recently there was one. $14.83 billion quarterly net income – that was an Exxon Mobil record and for all American business, too!
The Big Five Oil companies (Exxon Mobil, BP, Royal Dutch Shell, Chevron and ConocoPhillips) earned a $44.4 billion net income in the third quarter of 2008. The admiration for these figures decreases if one remembers oil prices reached historical records in July 2008; however, if one takes into account the supermajors control only 5% of the world oil reserves, the admiration returns once more.
Definitely, state-owned Saudi Aramco and Gazprom got huge profits too, but accurate figures are their secret. Nevertheless, something tells us their financial results were worse than western companies’.
The supermajors have what state-owned companies do not have – efficiency. Perhaps right now it has remained the only advantage of Western oil companies in the great petrogame.
The history of oil always was a struggle for control over oil. Western companies won control over the oil fields of the Persian Gulf, Northern Africa and Venezuela 70 years ago, but lost it after 40 years of dominancy. They can even be pitied. If before the Seven Sisters directly dealt with the oil-rich countries’ governments, it now is impossible. The oil-producing countries prefer to talk to governments, not to companies.
Even inside Western countries Big Oil loses lobbyist influence on governments. The consumers (i.e. voters) do not care who produces oil – a national company or a Western oil corporation. In any case, this oil will come onto the world market, where a final consumer will swallow it with pleasure.
Any Western government takes into account the voters’ mood as well as the obvious fact that direct foreign control over the Persian Gulf’s oil fields is history now. The oil-rich countries prefer to own the oil and to produce it by themselves.
Well, is the supermajors’ future so sad? Where should they go?
One cannot say the above cited tendencies were outside the field of view of the oil giants’ analytical departments. It became clear 30 years ago that it’s transformation time for Western oil companies. Gradually the idea dawned that the field on which the petrostates never can compete with the private oil companies is the service sector. To survive and to succeed you should propose technologies, but not money. The oil business rules really have changed. He who doesn’t want to change and clings obstinately to old methods, will simply disappear from the business. Such is the harsh reality.
The wish to control oil fields grows in the new states of the former USSR, too. Because the iron curtain isolated them for dozens of years, the first contracts with Western oil companies were signed less than 15 years ago. But even they already are changing. So, at the end of October, changes in the contract for the Kashagan oil field, the world's largest oil find in 30 years, were signed in Astana, capital of Kazakhstan. Naturally, these changes were in favor of Kazakhstan. Eni, Exxon Mobil, Shell, Total and other oil companies were forced to concede.
But Kazakhstan as well as other oil-rich countries understands that oil industry development only by their efforts alone will most likely be insufficiently effective. Western companies can do the same work much better. These restrictions on the governments are a chance for the companies. Operate as service companies and the governments of any oil-rich country will be happy for you.
It is important to remember that political games are favorite exercises of governments. They try to bring politics into any process, and into business, too. Do not play on this field and do not allow it to involve you there, and then you never will lose your trump card – efficiency.
I hope sooner or later the supermajors’s activity becomes pure business, without a hint of politics. Leave policy to politicians and let oil businessmen just make money. Maybe then the oil market will find greater stability that it is needed so much.