The New Seven Sisters

Saudi Aramco
Saudi Aramco has carved out for itself the role of the world’s central banker of oil. It can produce nearly three times the amount of oil of any other company.

Gazprom
No other company has kept Europe, and now increasingly Asia, on tenterhooks more intensely in the past two years than Gazprom, the Russian natural gas giant that controls all of the country’s pipelines and export routes.

CNPC / PetroChina

When PetroChina last year became the world’s third-biggest listed energy company by market value, it was a stark illustration of how the world energy order had changed.

National Oil Company of Iran
The National Oil Company of Iran has been at the forefront of Tehran’s strained relations with the US.


Petrobras

Petrobras is a great domestic success story that is beginning to move on to the world stage.

Petronas
Petronas, Malaysia’s national oil company, has been described as the role model that other national oil companies would like to follow.

Petróleos de Venezuela
Venezuela’s president has turned Pdvsa from a foreigner-friendly national oil company of competent technocrats into a pawn of his nationalist agenda.

Honorary mention: Iraq National Oil Company
The Iraqi cabinet’s long-awaited approval in February of the country’s new hydrocarbon law takes it one large step closer to resurrecting its national oil company.

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The New Seven Sisters: A new era of nationalism
By Carola Hoyos
Published: June 19 2007 11:13 | Financial Times

John Paul Getty, one of the world’s first billionaires, once said: “The meek shall inherit the earth, but not its mineral rights.”

Though the quip holds as true today as it did in 1916 when Mr. Getty first struck oil in Oklahoma, it is likely the oilman was thinking of his fellow industrialists as the inheritors.

Today’s true power brokers are a group of state-owned oil companies that span the globe from China to Venezuela, rather than the Gettys, Rockefellers, Nobels and Rothchilds of yesteryear.

Today’s industry rule makers – or “the New Seven Sisters” – are: Saudi Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobras and Petronas of Malaysia. Together, they control almost one-third of the world’s oil and gas production and more than one-third of its total oil and gas reserves.

Meanwhile, the influence of the companies that emerged from Standard Oil and the old seven sisters – ExxonMobil and Chevron of the US and Europe’s BP and Royal Dutch Shell – has waned, especially in the past three years of high oil prices and renewed energy nationalism.

The new order is so difficult for the oil majors that Helmut Langanger, head of exploration and production at OMV, the Austrian energy group, wrote in a recent conference paper: “International oil companies (IOCs) will more and more change from operator to a service provider with pre-agreed reimbursement figures, thereby substantially diminishing rates of return. Reduced profitability will lead to IOCs not delivering on major performance indicators, such as annual production growth, 100 per cent reserve replacement rates and moderate finding and development costs.”

Though many have been less blunt than Mr Langanger, much has been written about the difficulties the world’s biggest listed energy groups face. Less is known about those companies that are usurping them.

They are a diverse group, with some moving from strength to strength and others providing cautionary tales of the destructive nature of power-hungry governments. Saudi Aramco, Gazprom, of Russia, Venezuela’s PDVSA and Iran’s Nioc all own vast riches of gas and oil. CNPC of China, though also endowed with large domestic resources, is Beijing’s most powerful tool to ensure the country’s economy has enough energy to fuel its rapid expansion.

Petrobras and Petronas are most powerful as examples of national energy groups that have managed to pick up the know-how and become competitors to the likes of BP, Royal Dutch Shell and Chevron Texaco around the world. Petrobras is a leader in drilling oil from the world’s deepest waters, while Petronas has managed to turn itself from a national natural gas provider in to an international competitor with some of the best-trained staff in a labour-tight market. At the top is Saudi Aramco. Not only does it hold 25 per cent of the world’s proven oil reserves, but, unlike many of its peers, it has learned how to best exploit the riches it has inherited. Two factors have been instrumental to the company’s success. First, it absorbed the technical and managerial expertise needed to run its industry from the international oil companies it nationalised more than 20 years ago and it continues to invest in development and research, aided by foreigners. Second, the house of Saud, though ultimately responsible for energy policy, has left the day-to-day running of the industry to technocrats.

This has allowed Saudi Aramco to embark on its most ambitious expansion project in a generation. It is investing $50bn over the next 15 to 20 years, planning to bring its crude oil capacity from 10.5m barrels a day to 12m b/d by 2009 and eventually to 15m b/d. Meanwhile, refining capacity is set to double in the next five years.

Neither the Venezuelan or Iranian governments, have followed Saudi Arabia’s path and their national energy companies have suffered as a result. PDVSA’s production is shrinking as Hugo Chavez, Venezuela’s populist president, funnels the country’s oil riches away from developing its oil fields and into domestic and international social programmes.

Meanwhile, Iran has yet to properly develop the world’s largest gas field, on which it sits, as it is hampered by its government’s strained international relations and generous domestic fuel subsidies. Nevertheless both companies still wield huge power as international oil and gas groups vie to be their partners, despite the ever higher hurdles set by Caracas and Tehran.

Gazprom, Russia’s gas monopoly, sits somewhere in between Saudi Aramco and its less successful peers. In the past three years, as the Kremlin has moved to consolidate its power over Russia’s oil and gas resources, Gazprom has been its main beneficiary. The company has a monopoly on the country’s gas transport infrastructure and recently gained Royal Dutch Shell’s controlling stake in Sakhalin II, its most ambitious liquefied natural gas project. But it needs to invest billions in its ageing pipelines and, with Moscow playing Europe, its biggest current customer, off against Asia, its biggest future market, analysts fear the company will not be able to meet its long-term commitments or its true potential.

Unlike Gazprom and Saudi Aramco, CNPC is not blessed with mineral wealth so vast that it can keep its energy-hungry country supplied. The power and influence of CNPC lies not in what it has, but in what its government wants: oil and gas. To that end, the company has Beijing’s international diplomatic influence and deep pockets on its side. It has fanned out across the globe to controversial countries such as Sudan, where other companies fear to tread because of the murderous crisis in Darfur. In 2005, CNPC paid $4.2bn for Petrokazakhstan in China’s biggest-ever foreign takeover and this year it bolstered its domestic oil coffers when PetroChina, its subsidiary, made one of the biggest discoveries of the decade in northern China. Even the achievements of ExxonMobil, the world’s largest listed international energy group, pale in comparison. But the tide could turn again in favour of Exxon and the world’s other big companies whose know-how and ability to access financial markets are still stronger than that of most national oil companies. For the power to shift again, however, oil prices would have to decline substantially, executives, acknowledge.

So far, few of them are betting on a collapse. But there is also a second, more gradual way the balance could shift.

As global warming and energy security creep up the list of things governments in Europe, the US and Asia, worry about, nuclear, biofuels, efficiency gains and other alternatives to oil and gas are coming into focus.

As they do, the ranking of the next generation’s seven sisters will be determined by which companies – national or international – adapt most nimbly to the changing paradigm.

Interested readers can find more on The New Seven Sisters via The Financial Times here.



About This Blog
Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.