The profile of investor-owned companies (IOC) relative to their national oil company (NOC) peers has declined over the last 40 years as NOCs have taken greater control of their home territories and have made significant inroads into the international arena, according to a report by IHS Cambridge Energy Research Associates (IHS CERA) done in conjunction with Deloitte.
In the past two decades the number of companies (excluding NOCs that do not operate outside their home territories) with production of more than 1 MMboe/d has doubled from eight to 16. The report found that non-U.S.-based companies have fared better in the face of this new competition than their U.S.-based counterparts over the same period.
What's more, companies based in the United States are hindered in competing on the global stage due to taxes back home, the report found.
"The acquisition of oil and gas concessions is the paramount point of competition between oil and gas companies in the upstream sector," said IHS CERA Chief Energy Strategist David Hobbs. "Success provides a company with the 'fuel' in its portfolio to deliver superior growth and returns. Failure leads to more of an uphill struggle. This has important implications for the long-term health and employment prospects of oil and gas companies."
When oil and gas companies are successful overseas, their home countries benefit from a greater sense of energy security; increased employment; promotion of their technology, equipment and services suppliers; research and development investment to support international operations; and returns to shareholders through repatriated dividends, the report said.
There are a variety of factors that contribute to the difference in performance between U.S.-based and non-U.S.-based companies, including the policy objectives of the home country, access to capital, the ability to mobilize collateral investments in the host country (e.g., ports, railways, power generation, etc.) and the complex interactions between the host country's fiscal regime and that of the home country. This last factor has not previously received the attention it deserves, according to the analysis.
The analysis "Fiscal Fitness: How Taxes at Home Help Determine Competitiveness Abroad" includes an examination of the tax policies of the 10 countries that are home to the largest IOCs.
The combined costs of "exporting" profits (dividend withholding taxes) from the host country and of "importing" profits to the home country (in some cases, paying taxes on the profits that have already been taxed in the host country) creates differences in the valuation of assets depending on the home country to which they are referenced, the report said. This difference is reflected in the amounts that companies can afford to bid for oil and gas rights.
The costs of repatriating profits from international operations back to the United States is higher than many of its chief competitors and places a value hurdle in the path of U.S.-based oil and gas companies that is higher than that of companies based in other countries.
Companies from other countries, such as the United Kingdom, Netherlands, Russia, Canada, Norway, Italy and China pay less by way of additional taxes on their repatriated profits and are therefore able to compete more easily with U.S.-based companies -- in some cases enabling them to afford to bid twice as much for oil and gas concessions, according to the report.
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