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Can National Oil Companies Create Value for Their Countries?


National Oil Companies and Value Creation, Volume I by Silvana Tordo with Brandon Tracy and Noora Arfaa. World Bank Working Paper Series #18

Background Papers

National oil companies (NOCs) control approximately 90 percent of the world’s oil reserves and 75 percent of production (similar numbers apply to gas), as well as many of the major oil and gas infrastructure systems. Of the top 25 oil and gas reserves holders and producers, 18 are NOCs. In addition, an estimated 60 percent of the world’s undiscovered reserves lies in countries where NOCs have privileged access to reserves. As such, NOCs are of great consequence to their country’s economy, to importing countries’ energy security, and to the stability of oil and gas markets.

Nonetheless until recently, researchers had largely neglected NOCs and their performance. Most of the analyses carried out to date point to the existence of efficiency gaps between NOCs and privately owned companies (POCs). In general, NOCs exhibit lower labor and capital efficiency, generate lower revenue, are less profitable, and produce a significantly lower annual percentage of their upstream reserves than POCs. Such efficiency gaps have been partly justified by the complexity of objectives pursued by NOCs compared to the simple maximization of shareholders’ return on capital pursued by POCs. Indeed NOCs are often used by their governments to achieve a wide range of socio-economic and political objectives. The results, although indicative of a general trend, shed little light on the performance of NOCs, since they attempt to measure performance with reference to an objective function—the maximization of shareholders’ return on capital— that fails to capture the broad mandate and mission of NOCs.

The paper on National Oil Companies and Value Creation attempts to fill the knowledge gap by introducing a new conceptual model for assessing value creation by NOCs. An exploratory statistical analysis is carried out on data from 20 NOCs to understand what drives value creation. The paper then focuses on detailed analysis of 12 NOCs, and attempts to answer the following questions:

  • Are certain corporate governance arrangements more suited than others to promote value creation?
  • Is good geology a pre-condition for NOC value creation?
  • Are there benefits from exposing the NOC to competition from POCs?
  • Does the development of forward and backward linkages hamper NOC value creation?

The paper comprises three volumes:

Author: Silvana Tordo (Lead Energy Economist, and Task Leader), with Brandon S. Tracy (Economist) and Noora Arfaa (Consultant). For information contact

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