6 elements of successful collaboration among NOCs, IOCs, service companies

By Joanne Liou, Associate Editor

The oil and gas landscape is shifting, with the continuing growth of NOCs and the industry going toward unconventional resources and new frontiers. Historically, IOCs have driven technology innovation. However, the tables are turning as NOCs are driven by the need to secure energy reserves to sustain domestic growth. Many are pursuing international expansion on a bigger scale. “The rise of NOCs has been an accelerating theme of the last 15 years. Many now have local portfolios that are being built very rapidly,” Robert Baker, Senior Manager at Bain & Co, said. “With the re-emergence of resource nationalism around the world, at least 75% of the world’s commercial reserve is closed to international private capital.” In turn, IOCs are pursuing offshore opportunities in harsher, more remote environments, Mr Baker said.

He participated on a panel, “Technology collaboration between NOC, IOC and service companies in sustaining growth,” at the 2014 IADC/SPE Asia Pacific Drilling Technology Conference in Bangkok on 26 August. Mr Baker noted that half of the top 10 R&D spenders in the industry today are NOCs. “NOCs have moved away in playing the pure partner role as they once have, to one that involves them being a partner, a customer and also competitor to IOCs and even other NOCs,” he said.

This shift means that “industry participants are more interdependent than ever,” he stated. “We see the industry also faces some common challenges, whether this relates to the need for transparency in data and market operations, consistency of policies and regulations across many national boundaries, or to better manage factors that influence the sector, whether it’s from NGOs or the financial market system.” Collaboration is critical to overcome challenges, he stressed, and “no single company has the resources to overcome the technology challenges.”

Mr Baker suggested six elements for a successful collaboration model:

1. Build a true partnership. The partnership must be based on trust and respect. It is a long-term commitment, and participants should participate in R&D programs to overcome common challenges and to share costs.
2. Invest in people, “whether this involves developing training and education programs, encouraging staff mobility – even across companies – and even establishing a network of highly skilled individuals,” Mr Baker said.
3. Recognize that cooperation must be based on mutual benefit. “It’s important that the collaborating partners address the core business issues as opposed to just the peripheral ones, whether this relates to EOR, issues related to water efficiency, etc,” he said. He added that companies also must cooperate to overcome regulatory and policy barriers.
4. Promote and continue to invest in R&D, both in good times and the bad. Brazil is a case in point, he said. “The government is making billions of dollars in funding available to help promote research that will spur offshore oil exploration,” Mr Baker said. “About 25% of the country’s oil production comes from deepwater fields.”
5. Obtain a social license to operate. Collaborating partners must recognize that they are part of a community. Companies must “commit to high levels of participation in social programs amongst the countries in which they collaborate in,” Mr Baker explained. “They need to respect local cultures and expectations.”
6. Sustain for the long term, despite changing economic conditions. “In good times, in bad times, partnership in the new collaborative model is very much akin to marriage,” he said. Partners must favor dialogue and negotiate issues that will challenge the collaboration. “Conflicts are bound to rise. It is important that collaborating partners work through those.”