Overview

Approximately two billion dollars a day of petroleum are traded worldwide, which makes petroleum the largest single item in the balance of payments and exchanges between nations. Petroleum represents the larger share in total energy use for most net exporters and net importers. While petroleum taxes are a major source of income for more than 90 countries in the world, poor countries net importers are more vulnerable to price increases than most industrialized economies. This paper has five chapters. Chapter one describes the key features of upstream, midstream, and downstream petroleum operations and how these may impact value creation and policy options. Chapter two draws on ample literature and discusses how changes in the geopolitical and global economic environment and in the host governments' political and economic priorities have affected the rationale for and behavior of National Oil Companies' (NOCs). Rather than providing an in-depth analysis of the philosophical reasons for creating aNOC, this chapter seeks to highlight the special nature of NOCs and how it may affect their existence, objectives, regulation, and behavior. Chapter three proposes a value creation index to measure the contribution of NOCs to social value creation. A conceptual model is also proposed to identify the factors that affect value creation. Chapter four presents the result of an exploratory statistical analysis aimed to determine the relative importance of the drivers of value creation. In addition, the experience of a selected sample of NOCs is analyzed in detail, and lessons of general applicability are derived. Finally, Chapter five summarizes the conclusions.

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Silvana Tordo is a Lead Energy Economist at the World Bank’s Energy and Extractives Global Practice, Extractives Group. She focuses on extractive sector legal and contractual frameworks, taxation, and sovereign wealth funds. Her advisory work, research, and publications include value creation by national oil companies, auction design in oil and gas, extractives-led productive policies, petroleum taxation, resource revenue frameworks, and sovereign wealth management, with particular focus on governance arrangements and policies for domestic investment. Prior to joining the World Bank in 2003 Silvana held various senior management positions in new ventures, negotiations, legal affairs, finance, and mergers and acquisitions.

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