The New Barons of Oil

A consumer who wanted to know where the power lay in the world oil business once had only to memorize the names of the "seven sister" international companies: Exxon, Royal Dutch/Shell, Gulf, Texaco, Mobil, California Standard and British Petroleum. Now he must also learn such less familiar names as National Iranian, Petromin and Pertamina. They are among a host of government-owned companies that are muscling in on the majors' market by taking over many of the seven sisters' operations outside the U.S.

Last week, in a move deliberately timed to coincide with the oil-consuming nations' talks in Washington --which some Arab countries saw as "an act of aggression"--Libya pointed up the trend. It nationalized the local operations of Atlantic Richfield, Texaco and Standard Oil of California, which together produce about 9% of Libya's daily output of 2 million bbl. a day. The U.S. companies will be compensated for their facilities, but the details of payment remain to be worked out.

By similar nationalization or by negotiating "participation" agreements, nearly every producing nation has entered the oil business. From Abu Dhabi to Zaire, government-owned firms are asserting more and more control over drilling, pumping, refining, shipping and pricing local petroleum. They already have played a key role in pushing prices to undreamed-of heights: several have auctioned off oil for $14.69, $17.34 or even $20 per barrel.

Some of the most notable of the national companies:

THE NATIONAL IRANIAN OIL CO. is the biggest and most sophisticated government firm. Iran nationalized petroleum in 1951, and N.I.O.C. controls all oil production, pricing and exploration in the country, which has reserves of 60 billion bbl. Pumping the oil is left to a foreign consortium--including British Petroleum, Gulf and Exxon--that is allowed to buy most of the oil that is lifted. Of the 5.7 million bbl. pumped daily, about 600,000 bbl. go directly to N.I.O.C., which refines and markets this amount for use within the country.

Iran's Shah Mohammed Reza Pahlavi is the real boss of N.I.O.C., and he has been pressing the company's expansion. N.I.O.C. now runs four refineries in Iran and holds interests in refineries in India and South Africa. The company is also moving into petrochemicals and exploitation of Iran's immense natural-gas reserves. In a deal that suggests the shape of the future, N.I.O.C. is contracting to sell up to 100,000 bbl. a day for 15 years to Ashland Oil Co. in return for a half interest in 180 service stations in New York State (which will sell gasoline under the Ashland-N.I.O.C. brand name) and a refinery in Buffalo.

PETROMIN, Saudi Arabia's company, has enormous potential because of the country's vast reserves, estimated to be 132 billion bbl. At present, it stands in the shadow of the world's biggest oil-producing firm, Aramco, which pumps virtually all of the 7.3 million bbl. produced daily in Saudi Arabia. King Faisal's government holds the largest share of Aramco (25%) in partnership with Exxon, Standard of California, Texaco and Mobil. The government has contracted to take over 51% of Aramco by 1982--and, according to reports last week, may demand 100% much sooner.

Whenever the takeover happens, Petromin stands to expand greatly. Today it markets the Saudi government's share of the crude produced by Aramco and operates a refinery, a drilling company and a shipping line. Ultimately, it plans to expand into petrochemicals and to market Saudi oil worldwide.

KUWAIT NATIONAL PETROLEUM CO. Operates a refinery and markets oil and other refined products internationally through offices in the U.S., Britain, Japan and Singapore; it may also buy a tanker fleet. The two companies that hold a joint concession in Kuwait, Gulf and British Petroleum agreed in 1972 to sell to the government 25% of their venture at once and the rest by 1982.

Wanting more, the government rejected the offer. Now the firms have agreed to sell a 60% interest immediately, for a low price of $112 million, and the remainder in six years. Though the companies would probably continue to act as sellers of Kuwait oil, the marketing and production role of the state-owned firm would be rapidly expanded.

IRAQ NATIONAL OIL CO. rose to power after the government in 1972 seized almost all the concessions, equipment and pipelines of the Iraq Petroleum Co., a consortium that included British Petroleum, Shell, Exxon and Mobil. Iraq has estimated reserves of 31.5 billion bbl., and I.N.O.C. manages exploration and production, though it still sells some to the majors. I.N.O.C. has a big plus: an adequate supply of trained personnel, many of them schooled abroad largely at the expense of the major international oil firms.

NIGERIAN NATIONAL OIL CO. is Africa's largest and most promising state petroleum firm. Nigeria produces 2.2 million bbl. a day--about 40% of which finally ends up in the U.S.--and the government of General Yakubu Gowon openly intends to gain control of every aspect of the petroleum business N.N.O.C. has already bought 35% of the biggest oil firm, Shell-BP, and will take over 51% by 1982.

PERT AMINA, Indonesia's state company, has prospered by attracting 32 foreign oil companies to explore and by allowing them to earn handsome profits. Until recently, the companies retained up to 58% of the oil that they produced and gave the rest to Pertamina, which sold it. Now, with prices soaring for its low-sulphur "sweet crude" and production up to 1.4 million bbl. a day, Pertamina is renegotiating its contracts with foreign concerns to bring the government share up to 60% or more.

VENEZUELAN PETROLEUM CORP. (CVP) will grow larger in production, shipping and sales because the country's incoming president, Carlos Andres Perez, has vowed that the government will take over foreign concessions, including all plants and equipment, before agreements expire in 1983. CVP will soon get a lead role in developing huge reserves along the Orinoco River, though it will need technological help from the majors.

Despite the growth of state-owned companies, the major oil companies will not just fade away. Beyond their massive transportation and retailing facilities, they have the technology and management skills that most producing nations will have to continue to hire, however reluctantly. Instead of acting as entrepreneurs, however, the companies will serve more and more as contractors--pumping, refining and moving oil for governments that own it. The role will be profitable, but it will be some distance from the rewarding position in center stage.

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