NOCs-iOCs relationship

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EASTERN MACEDONIA AND THRACE INSTITUTE OF TECHNOLOGY
FACULTY OF ENGINEERING
DEPARTMENT OF PETROLEUM AND NATURAL GAS TECHNOLOGY
MSc in OIL AND GAS TECHNOLOGY
Coursework Assignment:
NOCs-IOCs Relationship
Coursework Supervisor: Nikolaos C. Kokkinos
Prepared by: Leonidas Eleftheriadis, Athanasios Pitatzis, Kantartzis
Apostolis
KAVALA 2015

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ABSTRACT
This study is an initial attempt to investigate the relationship between National Oil companies and
International Oil Companies (NOCs – IOCs Relationship). Moreover using local, national and
international data this study was designed to contribute to the global literature to identify the future
structure of Oil and Gas Industry.
SUBJECT AREA: NOCs – IOCs Relationship
KEYWORDS: NOCs, IOCs, Energy Policy

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Table of Contents
International Oil Companies (IOCs) ..............................................................................................................5
National Oil Companies (NOCs) ................................................................................................................6
Strategic alliances in the O&G industry ....................................................................................................7
The Goliat project .....................................................................................................................................8
China Shale Gas Sector................................................................................................................................10
Complexity of the information................................................................................................................13
China Natural Gas Industry.....................................................................................................................14
Barriers to the development of China’s shale gas industry....................................................................14
China Energy Reforms – Increase Flexibility on Shale Gas Sector – Attract IOCs to enter to China Shale
Gas Sector ...............................................................................................................................................14
China NOCs invest in USA and Canada Shale Gas Sector........................................................................16
Extraction issues on Shale Gas development in China ...........................................................................19
SWOT Analysis of China Shale Gas Sector...............................................................................................20
China NOCs and IOCs cooperation on China Shale Gas sector...............................................................21
Mexico Oil and Gas Sector..........................................................................................................................22
Mexico Energy Reform............................................................................................................................22
Energy reform could increase Mexico’s long-term oil production by 75% ..........................................23
Some facts about Mexico Oil and Gas Industry......................................................................................25
Opportunities for IOCs in Mexico Oil and Gas Industry..........................................................................28
Upstream Sector .................................................................................................................................28
Midstream and Downstream Sector...................................................................................................30
Mexico benefits from the Energy Reforms.............................................................................................31
Win - Win Situation.................................................................................................................................32
Qatar LNG Prospect ....................................................................................................................................33
Gas Demand............................................................................................................................................34
Qatar Petroleum and Exxon shared Projects..........................................................................................36
Conclusion...................................................................................................................................................38
NOCs on decline, IOCs diversify performance for 2013..........................................................................38
Energy Outlook for 2020: IOC-NOC Partnership?...................................................................................38
Third International Energy Forum NOC-IOC Forum................................................................................40
Final Assumption.....................................................................................................................................44
References: .................................................................................................................................................45

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International Oil Companies (IOCs)
The term “international oil companies (IOCs)” is referring to companies which compete across
borders and, despite of the term, almost all IOCs have to do with gas production and sales also.
The acronym “IOCs” is also used for the “integrated oil companies”, meaning companies which
compete in every sector of the oil and gas value chain, from the upstream segment to the midstream
and downstream ones. In general and in this assignment as well, IOCs is mostly used to describe
the major integrated non-state-owned oil and gas firms. Nowadays, the most important of them are
the supermajors Exxon, Chevron, BP, Royal Dutch Shell, ConocoPhillips and Total, but the
smaller one Italian ENI is also included. [1]
The IOCs are the most traditional and historic players in the field. The current status quo of the
supermajors’ has gone through a large circle of mergers and acquisitions. In any case they are still
the largest operators in the market, being the first to develop competence, technological
advancement and generally the ability to work effectively and efficiently in large scale level and
to fulfill big risk projects and operations in a quite profitable manner. [2]
Nevertheless, their main weakness in the last decade is the replacement of their holding reserves.
IOCs hold nowadays less than 20% of the conventional oil reserves worldwide and their
production has fallen significantly since 1990s. In order, to replace their reserves they require large
investments in unconventional resources, such as oil sands and heavy oils. In addition, most of the
known conventional reserves worldwide are located in technologically challenging areas, such as
the Arctic and the Asia-Pacific, which also require heavy and expensive research and development
investments in order to exploit them. Furthermore, other known conventional reserves are located
in countries which lack political stability, like for example Nigeria and Sudan, making their
exploitation extremely insecure. [3]
As a result, sustainability has become a challenge for the IOCs. In order to continue in the
traditional way and sustain their production at same level, heavy investments in drilling in extreme
and cost intensive environments are needed. Since their main target is monetization and keeping
their stakeholders satisfied, that could prove a difficult balancing act.

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National Oil Companies (NOCs)
One could say that the National Oil Companies (NOCs) are the other side of the coin. Unlike the
IOCs, the NOCs are governmentally controlled and they usually manage a country’s hydrocarbons
resources. Unlike most of the other markets, the O&G one is far from an exclusively economic
and technical market, but it many cases it has a rather strong political or – more accurately
geopolitical- character. Certain countries prefer to obtain control of their own national resources,
gaining control of their energy efficiency, rather than giving the initiative to the free markets alone.
Having been given the privilege to the domestic reserves, the aim of the NOCs is, differently than
the IOCs, not monetization, but serving the national interests, supporting the local economies and
even protecting the territorial environments. [3]
Some examples of the most important NOCs are Saudi Aramco (the largest integrated oil and gas
company in the world), Kuwait Petroleum Corporation, Petrobras, Petronas, PetroChina, Sinopec,
StatOil, and Malaysian NOC. The NOCs are traditionally characterized by lower technological
capabilities than the IOCs, thus giving the latter usually a partial access to their reserves in order
to obtain technical competence through collaboration. In some cases, the NOCs are partially owned
by private investors like for example Gazprom, Petrobas and Sinopec, while some of them even
operate internationally much like an IOC (Gazprom, Petrobas, Statoil).[4]
Back in the 70s the market was literally controlled by the IOCs, which owned 75% of the oil
production and held 90% of the reserves worldwide. Nowadays, the situation is different. NOCs
control now more the 80% of the world’s known reserves. The tradition they have built in the area,
has given them the technological advancement to compete side to side with the supermajors in
environments that were unreachable so far.
According to Daniel Wagner (CEO of Country Risk Solutions): “Brazil's Petrobras, Malaysia's
Petronas and Norway's Statoil are prime examples of NOCs which have specialized in deepwater
drilling technologies - once monopolized by the IOCs. NOCs have also set their focus on
unconventional oil plays - particularly in the Americas - by leveraging themselves as strong
financial partners and acquiring a large number of shale oil and gas plays around the world.” [5]

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In conclusion, the boundary limits between the IOCs and the NOCs have become more and more
unclear. Yet, the IOCs still have the competitive advantage as far as competence is concerned,
while the main advantage of the NOCs remains the privileged access to the O&G resources, which
means that more changes to the current landscape are going to happen, especially through strategic
alliances that will be further analyzed.
Strategic alliances in the O&G industry
First of all the meaning of a strategic alliance should be clarified. One of the common definitions
of a strategic alliance is “an agreement between two or more parties to pursue a set of agreed upon
objectives needed while remaining independent organizations.” In the markets, a strategic alliance
has the meaning of two or more companies collaborating in order to achieve common goals. This
collaboration requires the sharing of the resources of each company, in order to achieve a common
competitive advantage. [6]
Secondly, the question about the reason that companies proceed to strategic alliances should be
answered. Since the main goal of a company is gaining a competitive advantage, an alliance is
created when the companies do not individually hold the sum of the resources needed in order to
achieve this goal. In that case the only way to obtain the necessary tools is to search for them
beyond their internal boundaries. Other methods that a company can use could be mergers or
acquisitions of other companies, although a strategic alliance has the major advantage of the
flexibility that it involves and it also does not contain the cost of merging two separate companies
into one. An alliance does not permit its parts to operate independently and gives them the option
to involve more players or to form further alliances if needed.
But what is the case in the O&G industry? Why would an IOC or an NOC be interested in taking
part into a strategic alliance? From the IOCs’ perspective the case is obvious. It is about reserves,
reserves, reserves…As it was previously mentioned; replacing their reserves is the most important
issue that the IOC’s have to face in the recent years. The states are nowadays more protective about
their existing reserves than ever before, especially with the presence of today’s’ more advanced
local O&G companies. In this case a strategic alliance with them is the option for an IOC in order
to operate in reserves, which would be otherwise impossible to gain access to. [6]-[7]

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On the other hand, there also many advantages for both the NOCs and the states that are involved
in a strategic alliance too. The main reason for a state to give partial access to its O&G reserves is
still the expertise that an IOC can offer. The IOCs remain the top experts in the industry, especially
in cases where the exploitation requires high-end technological knowhow, like for example in the
cases of unconventional or even deep water O&G fields.
Another advantage for the states could even be the justification of political decisions which would
be otherwise unpopular. A NOCs main aim is to serve the local public interests, but in a so
competitive industry like the O&G one, often unpopular decisions have to be made, like for
example decisions which could have environmental consequences. In this case, a strategic alliance
with an IOC often provides a political cover, since the politicians can simply raise the argument
of not having the ability to interfere.
The Goliat project
The Goliat project is a characteristic example of collaboration between an IOC and an NOC. In
this case the operators are the Italian Eni, which holds 65% of the total production, and the
Norwegian StatoilHydro, owning the other 35% of the licenses. Eni is now a private O&G
company, member once of the so called “seven sisters” which were dominating the oil production
worldwide back in the 70s. On the other hand StatoilHydro is considered a major NOC, despite
the international profile that it has adopted, because 67% of its shares belong to the Norwegian
State. [8]
The Goliat oil and gas field, which is located some 85km northwest of Hammerfest in Finnmark,
was discovered in 2000. Nine years after its discovery, the development and operations plans were
approved. According to the plan, 22 wells will drilled from eight templates during the field
development. The method that was chosen in order to achieve effective reservoir drainage was
pressure maintenance by injecting water. According to Statoil official website, this method will
provide also an opportunity for the reinjection of produced water. A solution for withdrawing the
gas was needed; therefore the reinjection of the associated gas into the reservoir was preferred.
The production is planned to start in the third quarter of 2015. [8]
What makes this project an interesting example of a strategic alliance, is the circumstances that
exist in the area. The oil fields are located in the Barents Sea, north of Russia and Norway, where
drilling for hydrocarbons is considered too risky, especially because of the environmental hazards

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that exist. In addition, the local regulations regarding those hazards are very strict, in order to
protect both the environment and the local economies. The latter mostly rely on fishing.
So, far no other IOC was willing to take the risk of involving in that mega project, except Eni.
Being maybe the smallest of the major IOCs and having the smallest international network among
them, Eni decided to operate in Norway for the profound reason of gaining access to new reserves,
which would offer her further sustainability. On the other hand, sustainability was the issue for the
Norwegian oil industry in another manner. So far, the Norwegian state was unable to exploit those
reserves. The collaboration with an IOC has two significant advantages though. The first one is
that Eni can offer the expertise and the competence needed to fulfill the project. Secondly, sharing
the responsibility with an international major player such as Eni, reduces the risk involved and
makes the political decisions much easier to take. To conclude a strategic alliance was the best
option for both of the companies in order to undertake a project which would be otherwise not
possible. [9]

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China Shale Gas Sector
According to the (Xu & Investment n.d.) Competition between NOCs and IOCs will continue to
increase in the future, but the two business sectors which can promote the cooperation of the
NOCs and IOCs are:
 Cooperation in NOCs’ home countries, and
 Cooperation in many host countries against the harsh investment climate [10]
In our example the Chinese Shale Gas Sector is belongs to the first case. Also according to the
U.S. Energy Information Administration (EIA) (Statistics 2013) China ranks first between the
Top 10 countries with technically recoverable shale gas resources. (Observe the graph below) [11]
Source: U.S. Energy Information Administration Statistics, I., 2013. Technically Recoverable Shale
Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries outside the
United States. , (June).

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More specific China possess the 1115/7299= 15, 2% of the total technically recoverable shale
gas resources. To identify the opportunity for the IOCs we must examine and the consumption
and the production of natural gas in China. (Observe the graphs below)
Chinese Natural Gas Demand Reality and Medium-term Perspective, Source: Series, P.C., 2011.
Update on Overseas Investments by China’s National Oil Companies.(International Energy
Agency)

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Chinese Natural Gas Supply Reality and Medium-term Perspective, Source: Series, P.C., 2011.
Update on Overseas Investments by China’s National Oil Companies.(International Energy
Agency)
According to the IEA Medium-term Gas Market report 2014 we identify that China will be very
dependent to natural gas imports until to increase its own production. As the given date we
conclude in two facts about this situation:
 China until 2020 must import enormous natural gas quantities
 Shale gas reserves is the only alternative for China to increase its own natural gas
production and if we consider that the Chinese natural gas consumption will reach at 350
billion cubic meters the 2019 according to the IEA this choice is obvious.
Finally if we consider the global market trends in natural gas from the IEA (Anon 2015) which
predict global production of natural gas rises in a near-linear fashion to 5 400 bcm in 2040, with
an increasingly important role for unconventional gas which increases its share in output from
17% to 31%. Also this mini report predict that Gas resources are more than sufficient to meet
this increase in demand, but the required cumulative investment of more than $11 trillion along
the gas supply chain represents a stern challenge, with the way that gas will be priced on
domestic and international markets a key uncertainty. (IOCs great opportunity for profits and
beneficial cooperation for the foreign companies with the China NOCs)

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Complexity of the information
During our research for our basic hypothesis for China shale gas sector, we observe information
diversification or manipulation you can call it. Observe the photos below.
Source of the first photo: http://www.economist.com/news/business/21614187-china-drastically-
reduces-its-ambitions-be-big-shale-gas-producer-shale-game
Source of the second photo: http://www.reuters.com/article/2014/08/29/china-shalegas-outlook-
idUSL3N0QZ1R420140829
One common clue in these articles is the almost same date of publishing. We mention all of that
because we want to conclude that the cooperation of NOCs and IOCs in China Shale Gas sector
has many geopolitical consequences.

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China NOCs-
IOCs
Cooperation
Barriers
Uncertainty
in water
management
systems
Monopoly
over pipeline
access
De facto
monopoly over
exploration
rights
Institutional
barriers to
innovation
transfe
China Natural Gas Industry
China possess three integrated national oil companies, CNPC, Sinopec and CNOOC. Also
according to the (Sandalow et al. 2014) in the year 2011, CNPC, Sinopec and CNOOC
respectively represented 71%, 12% and 15%of natural gas production in China. Also according
to the same research Petro China, a subsidiary of CNPC, controls 80 to 90% of the trunk natural
gas pipelines in China. (China has roughly 40,000 kilometers of natural gas pipelines, if we
consider that this amount is roughly represent 10% of that in the United States) [12]
Barriers to the development of China’s shale gas industry
The information for this graph was derived from this article (Wan et al. 2014) (more information
to the references). [13]
China Energy Reforms – Increase Flexibility on Shale Gas Sector – Attract IOCs to enter to
China Shale Gas Sector
According to the article (Wan et al. 2014) in the conclusion describe how China can accelerate
the shale gas production. Also the writers of this article claim that China must inspire by the US

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Shale Gas revolution. Moreover suggest to the Chinese government many energy reforms which
must be implemented such us:
 Breaking the monopoly that major state-owned oil companies have over high-quality
shale gas resources
 opening pipeline network access
 providing geological data,
 developing the domestic oil service market [13]
Source: Wan, Z., Huang, T. & Craig, B., 2014. Barriers to the development of China’s
shale gas industry. Journal of Cleaner Production, 84, pp.818–823. Available at:
http://linkinghub.elsevier.com/retrieve/pii/S0959652614004363 [Accessed January 2, 2015].
If China wants to accelerate the development of shale gas technologies must open its market to
IOCs, more especially to USA IOCs which obtain the know-how of the shale gas technologies.
 creating conditions for fair competition between service providers, and
 Improving the water management system.
Finally the opportunities for China thought the increasing of shale gas production is:
 Increasing the use of natural gas in china energy mix
 Use of natural gas to produce electricity, reduce coal use – Environmental benefits

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 Increasing China Energy Security
 Increasing China GPD through the development of china shale gas industry
 Strategic cooperation of China NOCs with major IOCs players, this cooperation has
many beneficial geopolitical consequences for China such as strategic alliance with USA.
China NOCs invest in USA and Canada Shale Gas Sector
According to the IEA Report with the name “Update on Overseas Investments by China’s
National Oil Companies OECD/IEA 2014 Achievements and Challenges since 2011”China
NOCs follow a different strategy from our basic hypothesis. More specific China NOCs through
their financial strong position (possess enormous capacity of cash and Chinese economy is the
leading economy in the word as the given date) invest in USA and Canada Shale Gas sector with
merges and acquisitions with IOCs and local USA and Canada O&G companies. [14]
Source: IEA Series, P.C., 2011. Update on Overseas Investments by China’s National Oil
Companies

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Source: IEA Series, P.C., 2011. Update on Overseas Investments by China’s National Oil
Companies
Source: IEA, P.C., 2011. Update on Overseas Investments by China’s National Oil Companies
The last years the China NOCs have invest 27 billion dollars to USA and Canada O&G sector,
according to the above IEA report. Also China NOCs focus their investment to access to the
know-how of upstream shale gas technologies and LNG technologies. We observe from the
above graphs that major NOCs of China gain experience on shale gas production through their
evolvement in shale gas projects in North America. For instance in February 2013, CNOOC
completed its USD 15.1 billion takeover of Nexen, representing China’s largest NOC takeover of
an oil and gas company.(Series 2011) Also according to CNOOC, the deal increased the
company’s production and reserve base by 20% and 30%, respectively. The deal also
strengthened CNOOC’s positions in Canadian shale and oil sands. (Series 2011). [14]
The general trend as the given date promotes that China NOCs
prefer to partner with IOCs to benefit from their experiences and
networks outside China.

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Source: IEA, P.C., 2011. Update on Overseas Investments by China’s National Oil Companies

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China's Shale Production Falls Short, but Goals Remain in Place, Source:
http://www.stratfor.com/analysis/chinas-shale-production-falls-short-goals-remain-
place#axzz3MtuNNs3w
Extraction issues on Shale Gas development in China
According to the (KPMG.) The shale gas production in China faces many challenges and it is
more complex than USA shale gas production. Some issues on extraction of shale gas in China
is:
 Gas reserves in the Sichuan basin tend to contain high amounts of corrosive and
potentially lethal hydrogen sulphide, and levels of carbon dioxide and nitrogen could also
be high.
 China gas reserves are buried twice as deep as those in United States
 China gas fields are placed in mountainous regions, making drilling a complex and very
costly process
 China reserves are located in areas with high level of seismic activity
All the above potential extraction issues could prove time-consuming and costly [15]
Also according to the (KPMG.) China general strategy for the development of shale gas is the
strategic partnerships with foreign companies in order to help China acquire the necessary skills
and technologies. Also these foreign companies must cooperate of course with the main China
NOCs.[15]
Stratfor claim the super majors have struggled in China, and their investments have not always
been profitable. Also in the same article mention that oil service companies such as Weatherford
International and Halliburton Co join ventures with China NOCs to provide hydraulic fracturing
and other advanced oilfield services or to collaborate on advanced drilling tools, such as those
used in high temperature and high pressure wells, and well completion. [16]

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• Unconfirmed
resource potencial
• Imperfect policy
system
• Poor Infrastructure
• Deficient
investment
mechanish
• Huge potensial
market
• Policy Support
• Increased
investment and
financing channels
• Plentiful foreigh
development
experience
• Deepend
international
cooperation
• Lack of funds
• Lack of Key
technologies
• Prominent
watertreatment
problems
• Serious
enviromental risks
• Enormous Resource
Reserves
• Great development
potencial
• Enviromental
benefits,reducing
the use of coal
• Long life time for
exploitation, China
shale gas wells can
produce stably for a
longer time
Strengths Weaknesses
ThreatsOpportunities
SWOT Analysis of China Shale Gas Sector
The information for this SWOT Analysis was derived from all the above facts about China shale
gas sector and from the articles (Xingang et al. 2013) and (Wang et al. 2014) [13] – [17]

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China NOCs and IOCs cooperation on China Shale Gas sector
Some of the key points are derived from (Ernst & Young 2013). [18]

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Mexico Oil and Gas Sector
Mexico Energy Reform
Until 2013 Petroleos Mexicanos (Pemex – Mexico NOC) was 75- year monopoly in Mexico oil
and gas industry since 1938 when the company was created. The December of 2013 the
Mexico’s congress approved a legislation which liberate and open the Mexico oil and gas sector
to foreign companies and allow foreign investments. According to U.S Energy Information
Administration (EIA) this reform is very important for the future of oil and gas production in
Mexico. The last decade the oil production in Mexico continuing to decline from 3.85 million
bbl/d in 2004 to 2.90 million barrels per day (bbl/d) of total liquids in 2013. (Observe the graph
below) [19]
Mexico’s energy reform seeks to reverse decline in oil production, U.S Energy Information
Administration (EIA), Source: http://www.eia.gov/todayinenergy/detail.cfm?id=16431#
The new key elements of the reforms include the following:
 Open the upstream oil and gas sector, allowing foreign companies to invest in this sector.
Also the state create four oil and gas exploration and production contract models.
 Give Pemex the advantage to access to oil and gas fields of Mexico before the private
companies. (round zero) Also this legislation provides Pemex the right to provide
financial and technical plans to develop the resources within three years.

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 Establishing the Mexico Petroleum Fund, a sovereign wealth fund to manage and invest
the oil revenues.
 Keep Pemex under national;- state control but provide to the government financial and
cooperate independence
 Open downstream and midstream sectors to private investments and competition [19]
A general view of the Energy Reform in Mexico, Source: Pemex- Mexico NOC internal file, more
specific a presentation by José Manuel Carrera Panizzo CEO of PMI Groups of Companies,
www.pemex.com
Energy reform could increase Mexico’s long-term oil production by 75%
According to EIA if Mexico implementing the new reforms the long-term oil production could
stabilize at 2.9 MMbbl/d through 2020 and then rise to 3.7 MMbbl/d by 2040. Also in the
previous projection of IEA if Mexico don’t implement these reforms then Mexico's oil

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production would continue to decline from 3.0 million barrels per day (MMbbl/d) in 2010 to 1.8
MMbbl/d in 2025 and then struggle to remain in the range of 2.0 to 2.1 MMbbl/d through 2040.
[20]
(Observe the graph blow)
Energy reform could increase Mexico’s long-term oil production by 75%, U.S Energy Information
Administration (EIA), Source: http://www.eia.gov/todayinenergy/detail.cfm?id=17691
Quick take on the new energy sector in Mexico, Source: Pemex- Mexico NOC internal file, more
specific a presentation with name Mexico’s Energy Reform & PEMEX as a State Productive
Enterprise, www.pemex.com

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Some facts about Mexico Oil and Gas Industry
Source: U.S Energy Information Administration (EIA)
Mexican Oil Production, Consumption, and Exports 2002 – 2013, Source: BP Statistical Review of
World Energy 2013, June 2013.

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Mexico Energy Infrastructure, Source: Compiled by CRS using data from IHS, Platts, and Esri.
Date: September 2013. Original Source: Seelke, C.R., Ratner, M. & Hagerty, C.L., 2014. Mexico ’ s
Oil and Gas Sector : Background , Reform Efforts , and Implications for the United States.
Mexican Natural Gas Production, Consumption, and Imports 2002 – 2013, Source: BP Statistical
Review of World Energy 2013, June 2013

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Mexico Shale Gas Reserves – Regions, Source: World Shale Gas and Shale Oil Resource
Assessment, U.S. Energy Information Administration

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Mexico Shale Gas Reserves
Source: U.S. Energy Information Administration Statistics, I., 2013. Technically Recoverable Shale
Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries outside the
United States. , (June).
More specific Mexico possess the 545/7299= 7,4% of the total technically recoverable shale gas
resources. This enormous shale gas reserves can provide to US IOCs very big opportunities such
as:
 Enter Mexico Shale Gas Industry
 Enter Mexico natural gas market
 Strategic alliance with Pemex
 Increase U.S Energy security
Opportunities for IOCs in Mexico Oil and Gas Industry
Upstream Sector
The IOCs if enter to Mexico Upstream Sector can gain many benefits, such as:
 Access to Mexican Shale Gas Reserves

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 Access to new oil and natural gas contracts
According to Ernst & Young the Mexican government on 11 December 2014 made a call for
bids and announced the terms and conditions for the bidding of 14 blocks in shallow waters as
part of Round 1. Also it is known that Mexico will declare and a Round 2 the next years. [21]
The new Mexico Oil and Gas Blocks, Source: http://www.ronda1.gob.mx/
Moreover according to the EIA the Energy Reform introduced three new types of contracts,
these are:
 Profit-sharing contracts
 Production-sharing contracts
 Licenses allow participating companies to be paid in the form of oil and natural gas
extracted from each project. [20]
All of these contracts can allow to the IOCs to invest in Mexican oil blocks in the next rounds.

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Mexico Moves to Open Its Energy Sector, Stratfor, and Source:
http://www.stratfor.com/analysis/mexico-moves-open-its-energy-sector#axzz3NsZXhUGn
 Long – term Partnership
 Access to Mexico Oil and Natural Gas Market
 Risk diversification
Midstream and Downstream Sector
The main trend the last years when a country like Mexico privatize its energy sector then IOCs
or other NOCs get in the game and buy major assets. Also a common tactic of the IOCs through
merge, acquisition and joint ventures agreements participate in the midstream and downstream
sector. For instance the buy 20% of a refinery and 30% of a pipeline.

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Mexico benefits from the Energy Reforms
According to the Mexican government the recent energy reforms can:
 Reduce prices for natural gas and electricity
 create 500,000 new jobs, and
 boost GDP growth by 1% by the end of his term in 2018 [22]
Also JP Morgan claims in its report with name “J. P. Morgan, “Mexico: Positive Surprises in
Mexico Energy Reform and Implications for Fixed Income” may increase annual growth rates in
Mexico by up to 0.8% and foreign investment in Mexico by $20 billion per year by 2016 or
2017. [22]
Finally according to International Monetary Fund (IMF) the first phase of development of the
Mexico upstream sector, between 2015 and 2019, is estimated to require investment of about $40
billion per year. These investments are focus in shale and deepwater oil and gas blocks. For the
second stage, between 2020 and 2025, about $50 billion per year is needed (see chart below) [23]
Source: Issues, S., 2014. Mexico: Selected Issues; IMF Country Report 14/320; October 23, 2014. ,
(14).

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Win - Win Situation
From our analysis so far it is obvious that our basic hypothesis the cooperation of the
NOCs and IOCs is cooperation in NOCs’ home countries for Mexico Case Study is feasible
because this cooperation lead the two parties in a win – win situation.

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Qatar LNG Prospect
Qatar is ranked first among the producers of LNG. During the last decade, when the evolution of
LNG production started to boom, Qatar was the fastest growing LNG producer in the world. In
2006 Qatar outpaced traditional producers and became the top LNG exporter with 33 bcm. Other
significant exporters are Indonesia, Malaysia, Algeria and Australia. During the following five
years after 2006, Qatar expanded massively its production from 42 bcm to 105 bcm till the end of
2011, and 165 bcm at 2015 with an expected increase of 11% annually after the completion of
several major projects. At year 2011 Qatar had a liquefaction capacity almost a quarter of global
LNG liquefaction capacity. Qatar has a leading role in the world’s evolving LNG market according
to Boon von Ochssée (2011) because of its geographical location and its huge gas reserves, third
largest globally after Russia and Iran. [24]
Global LNG supply by country [25]
Qatar’s National Oil Company is Qatar Petroleum (QP) established in 1974. This National
Company is responsible to manage all the activities related to oil and gas, including exploration
and production. LNG production and exports boost the Qatari economy during the last years. It is
easier to understand how LNG exports and production contribute to the economic growth of Qatar,
when according to the Economist Intelligence Unit oil and gas exports accounted 70% of the total
government budget revenues and 40% of the GDP. [24]

34
The government of Qatar in order to strengthen its position as a leading LNG producer decided to
improve its LNG projects, including the production platform and the re-gasification terminals. In
order to achieve this, Qatar Petroleum turned to US super-major energy company ExxonMobil as
the partner of choice. Exxon is the major foreign investor in almost every project in Qatar by
owning a considerable share. The cooperation between QP and Exxon representing a unique
relation of National and International oil companies. [24]
LNG Project under construction (as of May 2012) [25]
Gas Demand
The global energy demand is expected to increase 40% until 2035. In this energy pie natural gas
is expected to double its share. The market for natural gas gradually becomes more global and
the demand for gas will keep growing in Asia and Middle-East. According to Ian Cronshaw,
Head of Gas, Coal and Power Markets at the IEA, “gas is set to become an increasingly
important energy source for future generations”. [26]

35
Growth in total primary energy demand [27]
Gas demand will increase in the next two decades from buildings, industry, transportation and
other areas because of the population growth. But, the electricity generation is expected to boost
the demand for gas, accounting according to IEA 45% of the extra demand of gas, since the world
electricity demand is expected to increase by more than two thirds over this period. [26]
The increased global demand will be met by 60% by regional domestic production, while the rest
40% will be covered by imports. LNG exports are intended to relief the countries that cannot meet
their increasing domestic demand for gas. LNG imports accounting 20% of the growing gas
demand. The main LNG importers are China, India, Taiwan and Japan. The LNG demand is
projected to boom during the next two years from South East Asia when more countries start to
import. [28]-[29]
Qatar manage to meet the growing LNG demand, therefore Qatar has a leading role in the evolving
LNG market. This was achieved by investing in big projects through the entire LNG chain, taking
in to advantage of its geographical position and resource base. Qatar Petroleum is strengthening
its position as an international investor, by the establishment of effective partnerships and
alliances, such as Exxon which has the US government backing. [24]-[30]

36
Qatar Petroleum and Exxon shared Projects
Qatar Petroleum sees Exxon as preferred partner with who decided almost 15 years ago to proceed
to the completion of strategic projects which offer increased volume capacity and economies of
scale. As mentioned above, Qatar’s geographical position and its continuously improved
infrastructure with mega projects offer to the country access to different markets.
Qatar oil and gas infrastructure [31]
Qatar Petroleum invested huge amounts in upstream liquefaction projects and has the largest share
by far in any of these projects. Exxon, on the other hand, is the largest foreign shareholder in Qatar.
Exxon owns up to 30% in all LNG projects (see table1), except two liquefaction terminals
(Qatargas 3 and 4) that have been awarded to Shell and Conoco Phillips respectively with a share
of 30%. Qatar Petroleum through the effective partnership with Exxon managed to acquire three
re-gasification terminals in the Atlantic Basin. These terminals are the first of their kind in an area
(Atlantic Basin) where the bulk of constantly increased LNG demand according to IEA is expected
to materialize in the following years. Additionally, Qatar recently completed a Gas to Liquid
(GTL) mega project. [32]-[33]-[34]

37
QP and Exxon: Ownership structure in re-gasification and liquefaction assets in 2011. [24]

38
Conclusion
After the Case Studies in the main part of our research we conclude that the main trend in global
O&G industry is the cooperation between NOCs – IOCs. In the conclusion we will examine the
NOCs and IOCs relationship from a general perspective.
NOCs on decline, IOCs diversify performance for 2013
According to the IHS Energy 50 outlook for 2013 (Shell & Morgan 2014) for the year 2013 the
combined value of the IOCs increased by average 9%. On the other hand the combined value of
the NOCs for the year 2013 fell by 15%. Also according to this report investors is very
concerned about the expectation of the NOCs to build value not only for the shareholders, but for
the national state and the key factors of the national host economy. This assumption is strictly
connected with the ability of the NOCs to have access to enormous oil and gas reserves. [35] -[36]
Source: Shell, R.D. & Morgan, K., 2014. The Definitive Annual Ranking of the World’s Largest
Listed Energy Firms JANUARY 2014. , (January).
Energy Outlook for 2020: IOC-NOC Partnership?
During our research we spotted a very interesting article/speech by Martin Bachmann
(Exploration & Production Europe and Middle East, Wintershall Company) for the NOC – IOC

39
relationship. This speech took place during the “The Gulf Intelligence UAE Energy Forum
2014”. We will mention the key points of this speech:
 NOCs in 1970’s controls only 15% of the oil and gas reserves but nowadays controls
85%
 Back in 1970’s IOCs financial stability and strength it was the key that opened the doors
of cooperation with NOCs
 Nowadays technology and long-term strategies / partnerships are the important keys for
NOCs – IOCs cooperation. For instance in terms of technology, geological conditions in
the reservoirs are becoming tremendously complex (Sour gas fields and tight gas)
 Also Martin Bachmann claims that technology expertise is not enough, we need a new
“partnership culture” between NOCs and IOCs. On general terms we must have a win –
win situation in which IOCs must gain access to the sources in sources in the large
producing countries and the NOCs to gain access to sources outside their regions
 Wintershall was the first NOCs pipeline operator in Libya (IOCs invest in energy
infrastructure in NOCs home countries)
 Wintershall cooperation with Gazprom in many projects such as tight gas competence
and from joint production to the joint construction of high-performance transit pipelines
to the markets in Europe. Wintershall and Gazprom cooperate for 20 years. (IOCs and
NOCs long term strategic alliance)
 Wintershall also cooperate with UAE NOC ADNOC in the exploration and development
of the sour gas and condensate field Shuwaihat. (Wintershall is leader of the know – how
of the exploration of sour gas fields due to their experience in sour gas fields
development in Germany) (NOC – IOC cooperation due to technological expertise)
 Finally energy consumption in Middle - East countries increasing rapidly, this situation
can lead the countries of Middle East to improve the recovery rate from their existing
fields – with Enhanced Oil Recovery technologies or to explore more complex fields
such as tight gas and instead of flaring the associated gas can use it for electricity, (IOCs
– NOCs cooperation long term strategic alliance)

40
He closes his speech with this phrase:
“Those who work alone, add. Those who work together,
multiply”
This speech explain to us the main trends between NOCs and IOCs cooperation in different
regions of the world, with the use of a variety of technologies and finally for the exploration of a
variety of conventional and unconventional resources. [37] - [38] - [39]
Third International Energy Forum NOC-IOC Forum
This forum took place on New Delhi, India at 11-12 June 2013. According to the summary report
of this conference the current situation of the NOCs and IOCs as the given date represented in
the next table.[7]
Source: Summary, Third International Energy Forum NOC-IOC Forum, www.ief.org

41
According to the forum results the main trends of investments in O&G Industry are:
 On nowadays NOCs follow and implement very different strategies than in the past, more
specific implement international portfolio diversification and access to technology. One
other global trend is that Asian NOCs invest in all over the world.
 How the companies will get access to capital to complete gas projects if the underlying
contracts are not linked to oil prices. (periods of high and low prices, unstable project
financing)
 Asset swap, especially for contracts with a timeframe of 20-30 years (balance in the
upstream/downstream investment mix). With the use of these financial tools many
companies sell equity and receive the value in cash, thus increasing liquidity.[41]
Some facts about the future co-operation of NOCs – IOCs according to the forum, these are:
 IOCs must offer value proposals to the biggest producer host countries if they want to
gain access to the reserves.
 If IOCs wants to succeed to the host countries must share technology and try to
strengthen the domestic economy
 In the near future may be we will observe the Asian NOCs to invest in the exploration
and production segment in the Gulf region
 The future for IOCs and NOCs is likely one in which they will both compete and co-
operate. [40] - [41]

42
Source: Ledesma, D., 2009. The Changing Relationship between NOCs and IOCs in the LNG Chain
Oxford Institute for Energy Studies. , (July).

43
Source: Deloitte Report, 2013. Oil and Gas Reality Check 2013 A look at the top issues facing the
oil and gas sector Contents.

44
Final Assumption
We would like to conclude our research with the phrase from the Third International
Energy Forum NOC-IOC Forum, more specific:
The future for IOCs and NOCs is likely one in which they
will both compete and co-operate
Source: www.economist.com

45
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bidding of 14 blocks in shallow waters. , (December).
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, Reform Efforts , and Implications for the United States.

47
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48
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new-pipeline.html
[40] Asset swap, From Wikipedia, http://en.wikipedia.org/wiki/Asset_swap
[41] Summary Report, Third International Energy Forum NOC-IOC Forum, www.ief.org

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