Major oil and gas discoveries during the last decade opened new energy frontiers in East Africa and offshore West Africa, as well as in the Caribbean and the Mediterranean. These regions saw a surge of exploration interest from foreign oil companies of various sizes.
If, as seems likely, prices will remain low for a number of years, NOCs, and the oil and gas industry as a whole, must reconsider their strategies and ambitions. Investors will be far more cautious, international oil companies will see reduced cash flows, and many exploration projects will be put on hold or cancelled.5 Companies are focusing on developing reserves rather than exploring for new ones. This will have an impact on the ambitious plans that some emerging producers had nurtured for national participation in the petroleum sector, forcing them to refocus on an affordable strategy for developing upstream capabilities. Domestic aspirations in countries with recent discoveries are still strong, however. Many national oil companies were created, or existing ones restructured, to take on greater responsibility for exploiting new-found reserves. Some of these NOCs were called on to develop operator capabilities. As an operator, an NOC has legal authority to explore for and produce petroleum resources in a given field. In practice this requires the company to have the capability to propose a development plan, raise money and manage a large project, including supervising international partners and contractors. Given those very high expectations – along with a need to demonstrate to the public an ability to exploit reserves efficiently and transparently – some governments have tasked NOCs with roles they cannot play because of limited capabilities. And without a clear view of revenue streams in the pre-production phase, those NOCs struggle to make staffing decisions, develop strategies to deliver these roles and raise finance. There is often a mismatch between available finance in emerging producer countries and national aspirations for the extent of NOC activities in the early stages of development. The current environment offers an opportunity for governments to refocus their efforts on defining a mandate that the country can afford. This paper examines the cost of various NOC roles in new or prospective producer countries and how they can be financed at different stages of developing the resource base. Governments of emerging producer countries, and their NOCs, need to understand what is possible today in order to develop clear and appropriate strategies for getting to where they want to be tomorrow.