NOCs offer opportunities, challenges

Understanding the strengths and weaknesses of individual national oil companies (NOC) is critical to collaborative efforts. At a conference at Rice University in Houston on March 1, David Asmus, senior partner at Baker Botts LLP, discussed some of the developmental challenges facing NOCs. "All NOCs are not created equal," he said.

Offshore staff

HOUSTON -- Understanding the strengths and weaknesses of individual national oil companies (NOC) is critical to collaborative efforts. At a conference at Rice University in Houston on March 1, David Asmus, senior partner at Baker Botts LLP, discussed some of the developmental challenges facing NOCs. "All NOCs are not created equal," he said.

Asmus enumerated some of the internal challenges that often hobble the efforts of NOCs that are trying to work with international partners.

"Some NOCs lack money for investment," Asmus said. Part of the reason for this, he said, is that revenues are often confiscated by the state. Asmus pointed to Pemex and PdVSA as victims of their governments in this respect, noting "These governments see their NOCs as cash cows."

Bureaucracy is another hurdle for NOCs, as is political interference. Asmus pointed to the firing of two-thirds of the PdVSA staff several years ago as a "glaring example" of undesirable and damaging government intervention. Internecine fighting within an NOC can be dangerous as well, he said. "Sometimes a project can become a battleground for ministerial warfare."

Corruption is another concern, Asmus said. "Management can be more focused on looting than on doing business."

The personnel issue is another problem. And it is hitting NOCs as hard as it is hitting everyone else, Asmus said, noting that NOCs often have bloated payrolls, but a shortage of qualified and experienced personnel. "We have a labor starved industry."

Asmus identified technology as the final challenge to NOCs. Though there are exceptions like Petrobras and Petronas, Asmus said, "Many NOCs suffer from lack of motivation to adopt the latest technology."

Clearly, there are significant obstacles that must be overcome when working with some NOCs, Asmus said, but international oil companies that approach these problems intelligently can still work with NOCs profitably. Continued political management is critical, he said, and international oil companies have to expect to provide much more than cash.

3/1/2007

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