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Financial and operational efficiencies of national and international oil companies: An empirical investigation

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  • Al-Mana, Ali A.
  • Nawaz, Waqas
  • Kamal, Athar
  • Koҫ, Muammer

Abstract

The last two decades have seen a shift in market interest in favor of national oil companies (NOCs) to replace the dominance of international oil companies (IOCs). Since approximately 90% of the oil reserves and 75% of oil production is under the control of NOCs, it is imperative to analyze and understand their performance and efficiency in comparison to the successful business and governance model of IOCs in order to have enhanced forecasts in highly fluctuating market conditions. In the past, some studies attempted to understand the influence of different ownership models, i.e., public or private, but these studies are constrained by their assumptions and limitations. Moreover, the previous studies fail to reach a consensus with regards to the effectiveness of a given ownership model in comparison to the other. The present work is an effort to fill this gap by estimating the operational and financial efficiency differentials of NOCs and IOCs. A comprehensive literature review is carried out as a first step, which helped in identifying the relevant performance measures and the statistical methods that should be employed to obtain conclusive results. Overall, 10 indicators (3 financial and 7 operational) are used in this study to perform four analyses: (i) financial analysis; (ii) operational analysis; (iii) Stochastic Frontier Analysis (SFA); and (iv) Data Envelopment Analysis (DEA). The sample consists of 50 firms (composed of 16 NOCs and 34 IOCs), and our temporal interest is in fifteen years (2002–2016). The results suggest that, in general, IOCs perform better than NOCs but the role of privatization on the performance and efficiency of NOCs remains contentious since some NOCs perform as good as the best IOCs. Nevertheless, on average, it is safe to imply that privatization may lead to improved performance and efficiency since shareholder-owned firms, generally, perform better than the national players. For that matter, even some partially privatized firms show evidence of better performance in comparison to NOCs. However, since NOCs are mandated to fulfil the non-commercial objectives of the state as well, in addition to commercial obligations, it would be interesting to establish the comparison between NOCs and IOCs based on commercial and non-commercial performance.

Suggested Citation

  • Al-Mana, Ali A. & Nawaz, Waqas & Kamal, Athar & Koҫ, Muammer, 2020. "Financial and operational efficiencies of national and international oil companies: An empirical investigation," Resources Policy, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:jrpoli:v:68:y:2020:i:c:s0301420719304167
    DOI: 10.1016/j.resourpol.2020.101701
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    References listed on IDEAS

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    1. Peter R. Hartley and Kenneth B. Medlock III, 2013. "Changes in the Operational Efficiency of National Oil Companies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    2. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. "The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-452, June.
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    4. Atris, Amani Mohammed & Goto, Mika, 2019. "Vertical structure and efficiency assessment of the US oil and gas companies," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    5. Juliet D'souza & William L. Megginson, 1999. "The Financial and Operating Performance of Privatized Firms during the 1990s," Journal of Finance, American Finance Association, vol. 54(4), pages 1397-1438, August.
    6. Stacy Eller & Peter Hartley & Kenneth Medlock, 2011. "Empirical evidence on the operational efficiency of National Oil Companies," Empirical Economics, Springer, vol. 40(3), pages 623-643, May.
    7. Christian Wolf & Michael G. Pollitt, 2008. "Privatising national oil companies: Assessing the impact on firm performance," Working Papers EPRG 0805, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    8. Hartley, Peter & Medlock III, Kenneth B., 2008. "A model of the operation and development of a National Oil Company," Energy Economics, Elsevier, vol. 30(5), pages 2459-2485, September.
    9. Wolf, Christian, 2009. "Does ownership matter? The performance and efficiency of State Oil vs. Private Oil (1987-2006)," Energy Policy, Elsevier, vol. 37(7), pages 2642-2652, July.
    10. Gong, Binlei, 2018. "Different behaviors in natural gas production between national and private oil companies: Economics-driven or environment-driven?," Energy Policy, Elsevier, vol. 114(C), pages 145-152.
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    4. Adel Hatami-Marbini & Aliasghar Arabmaldar & John Otu Asu, 2022. "Robust productivity growth and efficiency measurement with undesirable outputs: evidence from the oil industry," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(4), pages 1213-1254, December.
    5. Pei Fun Lee & Weng Siew Lam & Weng Hoe Lam, 2023. "Performance Evaluation of the Efficiency of Logistics Companies with Data Envelopment Analysis Model," Mathematics, MDPI, vol. 11(3), pages 1-15, January.
    6. Sami Jarboui & Hind Alofaysan, 2024. "Global Energy Transition and the Efficiency of the Largest Oil and Gas Companies," Energies, MDPI, vol. 17(10), pages 1-17, May.
    7. Alex Borodin & Irina Mityushina & Mustafa Harputlu & Natalia Kiseleva & Andrey Kulikov, 2023. "Factor Analysis of the Efficiency of Russian Oil and Gas Companies," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 172-188, January.
    8. Hatami-Marbini, A. & Arabmaldar, A. & Otu Asu, J., 2022. "Robust productivity growth and efficiency measurement with undesirable outputs: evidence from the oil industry," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 138964, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).

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