Western oil majors are feeling the pinch from national companies

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31 January 2011, Oil, Gas, Electricity

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According to recent industry figures, oil majors are steadily losing ground to non-Western rivals. Although ExxonMobil continues to lead the league with a market capitalization of $369bn in 2010, the decline of Western oil giants and the rise of national rivals is becoming increasingly evident.

In 2005, for example, BP occupied second position in terms of market capitalization with $220bn, while TOTAL was ranked fifth with $154bn. In 2010 the two companies dropped to seventh and eighth position, respectively. Conversely, in 2005 Chinese company CNOOC was ranked the 27th largest oil company in terms of market capitalization but had climbed to 10th position by 2010. Similarly, Brazilian Petrobras became the third largest company in 2010 (up from 11th position in 2005), while PetroChina became the second largest (up from sixth position in 2005).

The main facts behind this phenomenon are evident. Firstly, major oil companies are facing significant challenges in replacing their oil and gas reserves, a key indicator for many investors in the industry. In the late 1960s these companies owned approximately 85% of global oil and gas reserves; at present they hold no more than 20% of global reserves. The difficulty of accessing the remaining hydrocarbon basins has thwarted the ability of these companies to seize new opportunities. With most of the more promising reserves located in emerging nations where the market is dominated by strong national oil and gas companies (NOCs), this does not look set to change in the near future.

Secondly, NOCs from emerging nations have adopted free market practices, adapting their strategies to a new reality. These companies are increasingly becoming global players, creating strong bonds with international financial markets via capitalization operations or through mergers and acquisitions. In the same vein, NOCs are exploring opportunities to co-operate with international and independent organizations, benefitting from knowledge-technology exchanges and the adoption of best practices in the industry. As a result, NOCs are tapping into resources that were hitherto inaccessible to them, increasing reserves and production rates.

There are some Western companies that have remained relatively stable in terms of market capitalization. Since 2005 for example, Chevron and Royal Dutch Shell have stayed among the top 10 companies, while ConocoPhillips has hovered around 12th position since 2004, with few strong oscillations. However, as NOCs continue to increase their market capitalization year-on-year, it is uncertain how long the historic dominance of Western oil majors will last.

Source: Datamonitor

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