BP: IOCs and NOCs could partner up all over the world UPDATED

BP’s partnership with Rosneft was remarkable for a number of reasons, not least that it was done against the wishes of BP’s partners in TNK-BP and was the first equity partnership between a private international and a public national oil company. It is also a partnership not limited to developing Russian assets only: the two parties have a 50/50 ownership of Ruhr Oel, a German refining joint venture.

Ian Smale, BP’s group head of strategy and policy, told an audience in London on Monday that the two companies would be looking at further JVs outside Russia, and described the arrangement as an example of how IOCs and NOCs could form closer partnerships in future.

Smale said:

I think this is just one example of where things could go in the future… It will be fascinating to see where this takes the industry as a whole.

It’s an extraordinary parth for the industry. I can’t say it’s a model for the future. But it’s a model we’ve chosen. No one company has the technology to meet the challenges the oil industry has got.

The traditional model for partnerships between IOCs and NOCs has been that NOCs provide access to the resources and IOCs provide the technology and capital to exploit them. That is certainly the way BP and Rosneft’s joint Arctic drilling is expected to play out.

But if Smale is right about a new way for companies to work together even where the NOCs are not providing the licenses, it could begin to erode the natural distinction between the two. This in turn, could effectively double the size of the competition for IOCs.

UPDATE: The delegates at International Petroleum week are currently debating the role of IOCs given how powerful NOCs are becoming. The more they debate, the clearer it is that IOCs are going to have serious problems remaining competitive. Here are some reasons why:

  • New finds are increasingly coming from NOC-controlled regions
  • Cost of capital is dropping for NOCs. For some, it is even lower than at IOCs, because of the government backing they enjoy
  • NOCs are becoming more efficient. Andy Brogan from Ernst & Young suggested, “The most cost effective solution [for exploration in China] may be a Chinese NOC now, not an IOC.”

So far, it seems generally agreed that the advantage IOCs have is technological. But what is to stop smaller independents or oil services companies taking more risks and making themselves preferred technological partners for NOCs?

As Randall Gossen, the president of the World Petroleum Council, said: “Most NOCs are now also IOCs. I suggest we change the ‘I’ from ‘international’ to ‘independent’.”

Independent oil companies? I think they already exist…

On an unrelated note, I asked Smale about the company’s position in Libya. This was his response:

The best I can say at the moment is we like everyone continue to watch and observe what’s going on. Our first concern is the safety of our people and the security and integrity of our operations. Libya is not a major operating hub for BP.

We have no offshore drilling going on at the moment, and our onshore operations are sensibly suspended. These events are of intense interest as they continue to evolve. But the most important thing is the safety and security of our people and the people involved in our operations.

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