Global Trends in Ownership of Assets IOCs

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Global Trends in Ownership of Assets - IOCs
NOCs

• Sipho Mkhize
• CEO President

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Contents

• Asset types
• Strategic drivers for asset ownership
• Upstream Assets ownership trends
• Downstream Assets ownership trends

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Asset types range from Upstream, Midstream to
Downstream
Upstream Assets

• Reserves
• Production sharing contracts
• Royalty / tax regimes
• Back-in rights

Midstream Assets

• Pipelines
• Storage facilities

Downstream Assets

• Refineries
• Retail networks

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Contents

• Asset types
• Strategic drivers for asset ownership
• Upstream Assets ownership trends
• Downstream Assets ownership trends

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Key strategic drivers for asset ownership
NOCs tend to balance strategic with commercial
drivers
IOCs are largely driven by commercial outcomes
Strategic drivers
Commercial drivers

• National security of supply
• Economic growth
• Job creation

• Profitability

Strategic drivers
Commercial drivers

• Competitors

• Profitability

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NOC Strategic Drivers National Security of supply

• Investments may be in strategic assets that
  improve supply reliability
• Investments can be in large scale, highly
  commercial assets that allow affordability
• Promotes diversification of energy sources
• Promotes local content and local beneficiation

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NOC Drivers Macroeconomic development

• Asset ownership tend to be geared towards
  sustainable national growth, e.g. Mthombo
• Key drivers are the promotion of Foreign Direct
  Investments and improved Balance of Payment
• Investments will be driven by the need to create
  jobs and alleviate poverty.
• This includes opportunities for local
  participation

NOC is a tool for economic development
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NOC Strategic Drivers Profitability

• Often financiers use profitability benchmarks to
  provide funding
• Even state treasuries tend to prioritise
  profitable investments
• The need to attract partners tend to promote
  profitability agenda
• Profitability assists with self funding capability

NOCs are increasingly profit driven
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IOCs Strategic driver Profitability

• Maximisation of shareholder value
• IOCs tend to target investments with high
  returns,
• IOCs tend to divest from marginal investments
• This explains IOC trend away from Downstream
  investments towards Upstream
• This also explains some IOCs reluctance to
  invest in South Africas existing and new
  refining capacity

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Contents

• Asset types
• Strategic drivers for asset ownership
• Upstream Assets ownership trends
• Downstream Assets ownership trends

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Upstream Reserves Ownership

• 1970, less than 1 of reserves were owned by NOCs
• By 2005, 80 of reserves were owned by NOCs
• Implications Reserve seekers now more likely to
  align themselves with NOCs
• NOCs now increasing government receipts higher
  royalties, taxes or production shares
• NOCs hold 10 times more reserves than IOCs yet
  produce 2.3 times IOCs production
• Implications NOCs tend to partner IOCs or
  offer service contracts for increased production
  efficiencies

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Contents

• Asset types
• Strategic drivers for asset ownership
• Upstream Assets ownership trends
• Downstream Assets ownership trends

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Downstream IOCs have maintained a controlling
strategy

• IOCs are maintaining some downstream assets, and
  divesting from others with limited new investment
• IOCs want to maintain markets for their overseas
  refineries, so reluctant to invest in new
  refineries
• NOCs increasingly investing downstream, mainly
  in partnership/JVs e.g Petrovietnam and Kuwait
  Petroleum

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The current trend in new refining capacity is
Growing economies and tightening of environmental
protection standards dictate that NOCs must
either invest to sustain supply or standards
must be relaxed
due to
Increase in NOC involvement in refining
investment likely to trigger more upstream
investment to guarantee security of supply
as a result
Strategic logistical infrastructure likely to
attract state intervention due to low economic
returns
...and further
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Conclusions

• Though there is increasing convergence between
  IOCs and NOCs, significant differences exist in
  asset ownership patterns across the value chain.
• IOCs have greater interest in Upstream
  Investments than in Downstream
• NOCs increasing Downstream investments will also
  dictate an increase in upstream investments to
  guarantee supply

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