Global Oil - Local Issue

Reproduced below is a piece from The Economist (if you don't already subscribe, what are you waiting for?) that's worthwhile reading. It's a brief profile of the head of ENI, a major oil company out of Italy and provides a very interesting perspective on the global oil industry and their relationship with nationalistic governments (of which Premier Williams would have to be counted as one for this discussion).

No doubt some will take this as a ray of hope for Williams' quest on forcing a Hebron deal on his terms.

Of course one significant difference is that this province doesn't actually own the resource. Under current federal-provincial arrangements, the province can stop deals, the province can allow deals but the province can't force deals. Nor can the province push a company off a license it alread holds. Recently the province has gone to the feds to get exactly those pwers.

Notwithstanding the "support" from the other Premiers announced at the recent Council of the Federation meeting, Prime Minster Harper has already made it clear that Williams should not be holding his breath.
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Jul 20th 2006, From The Economist print edition

Paolo Scaroni, an Italian oilman, believes big oil companies ought to be more humble

BIG Western oil firms are like addicts in denial, says Paolo Scaroni—and he should know, because he is the boss of the sixth-biggest, the Italian oil group ENI. The oil giants are trying to do business as usual, he explains, as if nothing is wrong. Yet they are, in fact, having trouble laying their hands on their own basic product. State-owned or state-controlled national oil companies (NOCs) are sitting on as much as 90% of the world's oil and gas, and are restricting outsiders' access to it. Worse, the best NOCs are beginning to expand beyond their own frontiers and to compete with the oil majors for control over the remaining 10% of resources. The first step in overcoming this predicament, Mr Scaroni declares, is admitting that it is a problem.

Not all oil bosses do. Rex Tillerson, the head of Exxon Mobil, the biggest private oil firm, insists that his company is not short of opportunities. David O'Reilly, who runs Chevron, another oil major, points out that despite a recent spurt of nationalism in Russia and Latin America, more of the world is open to firms like his nowadays than 20 years ago. With the price of oil high and with big oil firms chalking up record profits as a result, the oil and gas business hardly looks like an industry in crisis.

Most oilmen see the long-running battle between nationalist governments and foreign oil firms over the division of oil's spoils as the natural state of the industry. When the price is low, and money scarce, foreigners are welcomed for their access to capital and their ability to eke more oil out of the ground. When the price is high, and money abundant, their skills seem less useful and their fees more extortionate. But Mr Scaroni thinks that the battle is now over, and that the oil-rich countries have won. These days, he says, NOCs are capable of developing big, readily accessible fields by themselves—with a little technological help from service companies such as Halliburton or Schlumberger where needed. Even in countries where foreign oil firms still have a part to play, since the oil is hard to get at or the NOC inept, they are seen as supplicants rather than saviours, vying for the honour of extracting local resources.

So the majors must come up with innovative ways to make themselves useful. ENI is doing just that in Congo-Brazzaville, where it has developed several offshore fields that contain a lot of oil and a little natural gas. Other firms working in the country used to extract the oil from their fields and simply burn off the gas, since there was not enough of it to justify building expensive export facilities. But ENI decided to use its gas to fuel a power plant so as to reduce Congo's frequent power cuts. Better yet, it took the country's leaders to Italy to see similar plants of its own, to prove that it knew what it was doing. Most of ENI's rivals, Mr Scaroni says, could not have done the same, since they do not run gas-fired power plants. More to the point, they are not sufficiently imaginative about endearing themselves to the governments on whose sufferance they operate.

ENI is also deep in negotiations with Gazprom, Russia's state-controlled natural-gas monopolist. For ENI to get hold of more gas to feed into its European distribution network, Mr Scaroni says, it will have to gratify Gazprom's desire to gain direct “downstream” access to customers in Italy. The deal has yet to be done—but it is clear that ENI will be offering more than the majors' normal enticements of money and expertise.

These tactics are not as new as Mr Scaroni suggests. The Italian government founded ENI after the second world war to break the oligopoly of the “Seven Sisters”—the majors of the day and the precursors of Exxon, Chevron, BP and Royal Dutch Shell. From its inception, it presented itself as a more reasonable, flexible partner than the overweening Anglo-Saxon oil firms. In its first big foreign venture, it offered Iran three-quarters of the revenue from any production there, rather than the standard half. ENI's boss at the time reportedly even floated the idea of marrying an Italian princess off to the shah to seal the deal.

Nor is ENI the only energy firm trying to ingratiate itself with oil-soaked governments and their NOCs. Wintershall, a German oil producer, and e.ON, a German utility, recently swapped shares in various downstream businesses for a stake in one of Gazprom's big gas fields. Both are also co-operating with Gazprom on a new undersea gas pipeline to western Europe, to the consternation of east European governments. Similarly, many observers contend that BP subscribed to the recent public offering of Rosneft, another Russian NOC, only because it hoped to win better treatment for its Russian ventures.

Oil and water

But Mr Scaroni takes this deference further than most. He is not at all offended, he says, by the notion that governments will increase taxes or tear up contracts to try to grab a bigger share of the proceeds of oil production when the price rises. The oil belongs to the countries concerned, he says, not to the oil firms that pump it, which must accept that they have no God-given right to the extra revenue. He does caution that governments should change existing arrangements by negotiation, not fiat. Indeed, he is in the middle of a row with the Venezuelan authorities about just that. But it is a far cry from oil bosses' usual rhetoric about the sanctity of contracts.

Then again, Mr Scaroni is a far cry from the usual oil boss. He has been in the business only a year. Instead of serving a long apprenticeship within his firm, as did his counterparts at Shell, Chevron, Exxon and BP, he moved to ENI from Enel, Italy's biggest utility, which he ran for three years after moving from Pilkington, a British glassmaker. He studied economics and management, rather than engineering. His relaxed, self-confident demeanour stands in marked contrast to the gruff, awkward bearing of many oilmen. A fitting messenger, then, for the idea that big Western oil firms need to change their ways.