With petroleum prices reaching record levels, the Oil and Gas Mining Policy Division of the World Bank has initiated a study on the state of government-owned or national oil companies (NOCs) to ascertain their efficiency and competitiveness vis-à-vis private ones.

    The study will cover the corporate governance and value creation efficiency of leading state-owned oil companies, which are estimated to control approximately 90 per cent of the world's oil reserves and 75 per cent of production. In the light of increased global oil prices, the World Bank has already advised all governments to open up their petroleum sectors for foreign and private investment.

    The study will cover the operational performance and management standards of leading petroleum companies from the Middle East - Saudi Aramco, Iranian National Oil Company, Adnoc, Qatar Petroleum and Kuwait Petroleum. According to the World Bank, the NOCs of member countries of Opec hold about two thirds of the world's oil reserves and produce 40 per cent of the world's oil and gas.

    A concept note on the study by Silvana Tordo, the project leader, said the study has been initiated by the bank to inform various governments controlling these oil companies about how to "efficiently restructure."

    The study, which is part of the World Bank Group's assessment of the global hydrocarbon sector, will be completed by April 2009 and will form the basis of its technical advice on the restructuring and privatisation of various state-owned oil companies. The concept note is posted on the Oil and Gas Mining Policy Division of the World Bank's website.

    The study is being undertaken at a time when the high energy prices of the past few years and renewed fears of supply disruptions are said to have discouraged many governments from reforming their NOCs and opening the hydrocarbon sector to private investors.

    According to the bank's report, new NOCs have been created by Chad and Mauritania, while Uganda is considering such a company.

    The report, quoting the Petroleum Intelligence Weekly - a US-based petroleum industry magazine ranking the top 50 petroleum companies - said Saudi Aramco, 100 per cent owned by the Saudi Government, is the number one petroleum company in the world, followed by the National Iranian Oil Company, 100 per cent owned by the Iranian Government. "Given the often high risk and capital intensive nature of the hydrocarbon sector, there is a need to better understand the political, social, and developmental consequences of the growing importance of NOCs," said the concept note of the report.

    It added that the study will provide the foundation for the bank's policy advice on the management and oversight of the petroleum sector and said it will compare the performance of NOCs with private oil companies. However, a comparison of the two groups is difficult because the NOCs do not publish accurate data or financial information about their financial performance.

    "The Petroleum Intelligence Weekly ranks 17 NOCs among the top 25 oil and gas reserve holders and a similar proportion applies in respect of the top producers. In addition, approximately 60 per cent of the yet-to-be-discovered reserves are estimated to lie in countries where NOCs have privileged access to reserves. Thus, future production is likely to come mainly from the NOCs," said the note.

    According to the report, few NOCs have integrated upstream and downstream (refining and distribution) operations and very few of them hold downstream assets or are present in key premium consuming markets.

    "NOCs [especially in developing countries] are often the instruments for achieving a broad range of national, social and political objectives that go well beyond their original purpose of maximising revenues for their governments. Some industry observers have suggested that the pursuit of these non-core non-commercial objectives imposes additional costs on NOCs, reduces their incentive to maximise profits, and hinders the NOCs' ability to raise capital in the financial market, leaving their state treasuries to bear the burden of inefficient capital allocation," the World Bank said in its report.

    The NOC survey will analyse the national oil companies on their ownership structure and organisation, composition, appointment and replacement of the board of directors, role of the board of directors, recruitment and replacement of key executives, decision making processes, levels of budgetary autonomy, sources of capital, disclosure and transparency policies, skill base and incentives and career management.

    Their operating and financial performance will also be analysed using available information from stock exchange listings.

    Oil Under Government Control

    Some of the NOCs fully owned by governments include PDV of Venezuela, CNPC of China, Permex of Mexico, Sonatranch of Algeria, Kuwait Petroleum Company of Kuwait, Abu Dhabi National Oil Company of UAE, Petronas of Malaysia, NNPC of Nigeria, Qatar Petroleum of Qatar, Iraq National Oil Company of Iraq, Libya National Oil Company of Libya, EGPC of Egypt, Petramena of Indonesia, SPC of Syria, Socar of Azerbaijan and Ecopetrol of Columbia.

    Major oil companies such as Exxon Mobil, BP, Royal Dutch Netherlands, Total and Occidental occupy top positions in the world ranking of petroleum firms and are not owned by governments.

    Petroleum Development Oman, Oman's petroleum firm, 60 per cent owned by the government is the only oil company in the Middle East, which is not 100 per cent owned by the government.