Policies of Scale: Efficient Global Policy

Who Are The World’s Top Energy Companies?

Platts publishes an annual Top-250 Energy Companies list while Forbes puts out its own top-25 biggest oil and gas producers list, and in 2013 many of Forbes’ biggest companies do not show up on Platts’ list. The overall picture speaks to the burgeoning diversity and multiplicity of dynamics at play in the global energy sector.

Platt’s Top 250 Energy Companies for 2013 is out, and integrated oil companies (IOCs) take the top 11 spots. The top-3 spots go to independently owned companies (as in not state-owned, and unfortunately also referred to as “IOCs”), with the fifth, sixth, and eleventh spots also going to independents. Yet back in August I said of the weakening position of independents vis-à-vis their competitors, the nationally owned companies (NOCs), that:

“If the prospects of the IOCs are as poor as I have suggested [I had suggested very poor], and they do not find ways of remaining relevant or reinventing themselves, we are looking at a point – probably not far in the future – where OPEC will continue to have a large influence over the oil market while countries with NOCs, including importers like China who “forward deploy” their NOCs to secure foreign production for domestic use, will create a new type of influence in energy markets at the expensive of the IOCs.”

Among many indicators, I wrote about how control over the world’s petroleum reserves has swapped hands over the last 40 years from independent IOCs to NOCs:

“In the 1970s, NOCs controlled less than 10% of global oil and gas reserves. It was the “Seven Sisters,” a group of seven IOCs (non-nationalized companies), who controlled 85% of the global total at that time. By 2012, however, NOCs were controlling as much as 90% (estimates vary, but most fall in the 80-90% range). Only four of the Seven Sisters remain, and on the list of the biggest 25 oil companies today none cracks the top three. In fact, only 6 IOCs crack the top 25. Since 2006, oil production by the five largest IOCs (the “supermajors”) has actually decreased by 2%.”

Yet with five independents among the top eleven spots in Platts’ ranking, which measures companies based on asset worth (undefined), revenues, profits, and returns on invested capital, the evidence seems to suggest the futures of IOCs may not be as bad as I suggested, though there is more to the issue than that.

A consideration of Platts’ methodology is in order. As with this kind of international comparison, Platts acknowledges that reporting standards are not the same, nor do the reporting periods line up across the range of companies. Platts classifies companies as one of nine types. The two relevant categories for this discussion are “Integrated Oil and Gas,” where much of Forbes’ 25 biggest oil companies are found, and “Oil and Gas Exploration and Production,” where there are a number of companies of interest, namely ConocoPhillips and several independent companies from Western countries.

I have no doubt Platts puts a reasonable, if not ample, effort into ensuring as good data collection and analysis as possible, so let’s consider some realities that might be hidden in the data. Ideally we would be able to look at the data set, but that information is not available. What is available, however, is a list of the top-50 fastest growing companies. Companies categorized as “Oil and Gas Exploration and Production” dominate, taking 9 of the top-10 spots and 31 of the top-50 spots. This fact alone is worth its own piece, and an important insight for energy investors. Independents hit the list at 2, 7, 8, 10, 14, 16, 23, 25, 46. Meanwhile, NOCs fall at 21, 30, 32, 27, 40 and 49.

Another breakdown of the data supplied by Platts is a list of this year’s “Biggest Mover” companies, capturing those who “have ascended 50 ranks or more from the previous year, and were traded publicly for both years.” The list also includes companies who have entered the top-250 list for the first time. Five independent IOCs make the list: Anadarko Petroleum Corporation, Continental Resources, and Noble Energy, all of the United States; Crescent Point of Canada; and Origin Energy of Australia. No NOCs are listed.  So overall it appears independents are doing well in terms of growth relative to their industry. Yet in its own analysis Platts points out that:

“This year’s list also underscores the persistent rise of ever-more integrated and diverse National Oil Companies challenging the role of traditional oil and gas producers…Chinese and Russian NOCs made up four of the top ten biggest energy companies last year, up from three in 2011. When the rankings were launched in 2002, only one NOC sat in the top-ten list.”

Without the data collected by Platts it is hard to determine, but I imagine there is a convergence factor at play. NOCs have become monstrous beings over the last ten-plus years, and now dominate the top-25 biggest oil and gas companies in the world. A common dynamic for these kinds of entities is the catch-up effect by which smaller valued entities tend to grow at faster rates that larger valued entities. During the catch-up period, however, growth rates tend to slow, and as the entities get closer to converging the up-and-comer faces increasingly challenging conditions. And so when Platts builds its lists for the Fastest Growing and Biggest Mover categories, it’s looking at the numbers that speak to the entities’ development, not their respective aggregate size nor their ability to continue high or even positive growth rates into the future; the top-250 is a retrospective look.

The Forbes top-25 list measures simply the combined values of a company’s production of oil and natural gas, and is therefore a more brunt measure of aggregate size. According to this metric, the largest company producing both oil and natural gas (akin to Platts’ Integrated Oil and Gas category) is Saudi Aramco, which does not show up on Platts’ list at all, and neither does Forbes’ number 3, 8, 10, 12, 16, 17, 22, 23, 24, and 25. The dynamics of oil and gas in most producing countries outside the West are developing in ways that increasingly favor agile companies who are willing to work on low, neutral, or negative-profit contracts or accept terms that give the company little to no control over the reserves (read: nationals who have far more leverage as arms of governments and constituencies who care, to a great extent, about production levels more than profits). It is no wonder that energy companies from the West and Asia dominate the Platts list while factoring little on the Forbes list.

So where does this leave the discussion of independents versus nationals? Given Platts’ four measurements that give a comprehensive picture of an energy company’s past and current performance, we can see that small to medium sized companies operating in the Americas and Asia dominate. However on pure output, it is the nationals that lead the way, and increasingly so. Yet neither measure speaks to a company’s future in terms of their access to energy reserves. On this front, however, I have previously shown that nationals have a much brighter future for a number of reasons, many of which independents are unlikely to counter or reverse.

On the sheer value of these lists, it may be helpful to consider them a few different ways. If you’re an investor looking at the energy sector and want good diversification in your portfolio, take a look at both Platts’ and Forbes’ lists as a place to start. Investors, along with public policy professionals and otherwise concerned citizens, can consider the lists an indication of the growth potential of companies as they operate within their target market as well as an indication of liberalization of markets, be they national, regional, or global as measured by the performance of companies operating within those markets.

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