Measurement of the Efficiency and Productivity of National Oil Companies and Its Determinants

Abstract

Most countries, both oil-producing and oil-consuming countries, have established national oil companies (NOCs) that are saddled with the responsibility of protecting and managing their respective governments' interests. As NOCs' production influence and market power have risen, they become major players competing with international oil companies (IOCs) in the global petroleum market. However, the performance of NOCs is considered lower than IOCs because of the perceived inefficiency due to the structure of the petroleum industry, government regulation and policy, and government's other interests through NOCs. Since oil exports account for a majority of their foreign incomes in most oil-rich developing countries and those incomes are the indispensable resource for the country's economic and social development, it is critical to find a way to improve the performance of NOCs. Against this backdrop, we measured the relative efficiency and productivity of 38 NOCs and IOCs in total, which belong to the world's largest 50 oil companies in the period of 2003–2010 sourced from the Energy Intelligence Petroleum Industry Weekly. In this process, the data envelopment analysis method was used, which enables the comparison of a firm's performance with those of other firms relatively. In addition, random-effects regression model was used for the second stage analysis on the environmental factors which influence the efficiency and productivity level. The empirical results showed that Organization of the Petroleum Exporting Countries NOCs are the low performers while big IOCs are the high performers. Based on secondary analysis, specific policies were suggested such as reviewing the size and percentage of its government ownership in NOCs, diversifying its crude oil and gas export supply market, reducing the level of government interference in its technical management, and granting greater autonomy to its subsidiaries.