wcms_161662

1.2. Evolution of the oil industry
1.2.1. International oil companies
5. Until the end of the 1970s, the oil industry was dominated by a few vertically integrated
international oil companies (IOCs), known as the “Seven Sisters”. 5 However, most major
oil companies lost their crude-producing affiliates as a result of nationalization by the oilproducing
States. In addition, the low price of crude oil in the early 1970s forced major oil
companies to rearrange their operations in order to remain profitable. Nationalization of
crude oil production, low prices and consequent tight profit margins led to several waves
of rationalization. A series of mergers in the 1980s occurred as companies sought to
acquire access to proven oil reserves and refineries, rather than seek new reserves or build
new facilities. In the 1990s, the major companies developed cost-reduction programmes
and made changes in organizational structure and systems to increase efficiency, flexibility
and responsiveness to change. As a result, both capacity and employment fell. Between
1980 and 1992, employment figures for eight major oil companies fell from 800,000 to
300,000. For six major oil companies, there was an overall reduction in headquarters staff
from approximately 3,000 in 1988 to 800 in 1992.
6. The collapse in oil prices between November 1997 and February 1999 sped up merger and
acquisition activity, including between the erstwhile petroleum “majors” in the West and
East. These consolidations have enabled major oil companies to improve their financial
performance.
1.2.2. National oil companies
7. The size and importance of national oil companies (NOCs) are undisputed. Collectively,
NOCs control about 80 per cent of total world oil reserves. This is a reversal of the
situation in the early 1970s when IOCs controlled 85 per cent of the world’s reserves. 6
The new “Seven Sisters” are Saudi Aramco, Gazprom (of the Russian Federation), the
China National Petroleum Corporation (CNPC), the National Iranian Oil Company
(NIOC), Petróleos de Venezuela SA (PDVSA), Petróleo Brasileiro SA (Petrobras) and
Petroliam Nasional Berhad (Petronas) of Malaysia. 7
8. In addition to being under government control or government ownership, NOCs differ
from IOCs in other respects. In contrast to IOCs, with their focus on maximizing return on
capital to shareholders, many NOCs are used by their governments as an instrument to
achieve wider socio-economic policy objectives. These non-commercial objectives
include: oil wealth redistribution to society at large; foreign and strategic policy and
5 Standard Oil of New Jersey (Esso); Royal Dutch/Shell; Anglo-Persian Oil Company (APOC);
Standard Oil Company of New York (Socony); Standard Oil of California (Socal); Gulf Oil; and
Texaco.
6
S. McNulty: “Chevron prepares to harness the power of mighty Gorgon”, in Financial Times
(London), 18 Jan. 2008.
7
C. Hoyos: “The new Seven Sisters: Oil and gas giants dwarf western rivals”, in Financial Times
(London), 12 Mar. 2007.
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