The Performance and Value Creation of National Oil Companies: An Analytical Framework

Abstract

This paper sets out an analytical framework for assessing the performance and value creation of National Oil Companies (NOCs). NOCs differ greatly in their institutional environments, their corporate objectives and operations, and their domestic and international socio-economic linkages, which makes a comparative assessment of NOCs’ value creation far from trivial. But because the petroleum sector is of significant importance to many countries around the world, the attempt of identifying, measuring, benchmarking and improving NOC value creation is vital for the broader effort of improving standards of living in these countries.

The aims of the framework are thus: (1) to provide a conceptual model of the different ways in which value can be created within a national petroleum sector; (2) to propose a quantitative measure of NOC value creation that facilitates the benchmarking of NOC performance; and (3) to suggest different approaches to rank and/or quantify the importance of various drivers of value creation.

A central contribution of this framework is the proposal of the 'NOC Value Creation Index', a composite indicator that attempts to integrate measurement of NOC operational performance, financial performance and delivery on the national mission.

This is a draft version of Chapter 4 of the Study on “National Oil Companies and Value Creation”, undertaken by the Oil, Gas and Mining Policy Division of the World Bank. This draft has been published to inform the public on progress and invite dialogue. A revised version of this paper will be included in the Study which is expected to be completed by June 2010.

The paper was written by Christian O. H. Wolf (Consultant), with contributions from the Task Leader of the Study, Silvana Tordo (Lead Energy Economist, Oil, Gas and Mining Division of the World Bank), and Robert W. Bacon (Consultant).

Keywords: petroleum, oil and gas, national oil companies, performance measurement, value creation

JEL Classification: C43, D21, H80, L71, M21, Q48