LONDON, Feb. 16, 2017 /PRNewswire/ — National oil companies (NOCs) are under pressure to evolve from a volume to value business model in a lasting low oil price environment, according to the EY report From volume to value: the transformation of National Oil Companies. This is a dramatic shift in the oil and gas industry as NOCs account for 58% of global reserves and 56% of production.
Paul Navratil, EY Global Oil & Gas Emerging Markets Leader, says:
The report finds that many governments around the world are now reducing subsidies on fuel and energy prices, reducing salaries for government employees across all levels, cutting capex programs, maximizing oil and gas production volumes and considering partial privatization of their NOC in response to oil price volatility.
Countries taking action to reduce deficit, raise capital or to attract new investment include Mexico, Brazil, Nigeria, Egypt, Tanzania, Angola, Kuwait, United Arab Emirates, Iran, Oman, Russia, Saudi Arabia and Indonesia.
Andy Brogan, EY Global Oil & Gas Transactions Leader, says:
“Traditional NOCs understand that to maintain the critical role they play in their countries, they must make changes to improve margins and increase capital efficiency. Generating value must take priority over generating volume.”
The report outlines how, for a NOC to be able to maximize the quality of its earnings and contribution to their country, it must undergo a transformation that addresses the autonomy of the NOC and role capital plays in: diversifying revenue streams; balancing national versus commercial objectives; internationalization; funding operations; capabilities and skills development; enabling technology; and vertical integration.
Brogan says: “NOC success depends on the ability to build capital and operational excellence into a new culture fit for a lower-for-longer price. Only then will NOCs maximize their potential enterprise value and, as a result, the contribution to their country.”
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