Changing fiscal landscape

Abstract

Oil company and government relationships at the turn of this century are under intense pressure. These relationships are always in a state-of-flux but higher drama now exists in the heat of the current price shock. Just as the aftermath of the 1973 embargo has under-gone nearly constant re-examination over the years, the dynamics of today's industry will be reviewed and studied for generations. This is true for a number of reasons but partic-ularly because governments are reconsidering their position with respect to their oil industry partners and many are taking action. Sometimes sorting out cause and effect is like chasing one's tail. The dynamics are complex and fundamentals do not always provide the answers. The changing landscape is due to a number of things aside from this price shock, but the focus here is the future of the relationships between oil companies and governments. 1. IOCs–NOCs – Service companies What was once the exclusive domain of the major international oil companies (majors) has become intensely competitive. Independent oil companies (independents), national oil companies (NOCs) and service companies are all encroaching upon the traditional domains of the majors. The major oil companies still have an edge in deepwater and fron-tier regions and with mega-projects, but even these areas are no longer exclusively theirs. It is often said that oil companies' main contributions are capital and technology. Fur-thermore, companies typically have taken upon themselves the lion's share of the risk associated with exploration. These were the main reasons why governments brought in outside companies to explore for, develop and produce hydrocarbons (instead of doing it themselves). To say that oil companies provide capital and technology is an over-simplification. Actually, to a large extent companies provide a service of 'procurement' for and on behalf of governments and themselves for both capital and much of the technology. While com-panies still possess impressive geological and geophysical (G&G) talent and the ability to orchestrate large-scale international projects, they must still procure much of what is needed to conduct petroleum operations. For example, it is widely known that drilling technology is highly evolved and in many circumstances (particularly deepwater and harsh frontier environments) it is virtually 'space-age' technology. Yet, most oil compa-nies do not own drilling rigs. *