This article appears in Drillers and Dealers, March 2011, published by The Oil Council. (www.oilcouncil.com)
Written by Dr. Abdul-Jaleel Al-Khalifa, CEO, Dragon Oil
The continual change in Middle Eastern dynamics will have a profound impact on the Oil and Gas industry. Brent crude traded just below $120/bbl last week when events escalated in Libya. The panic is about security of supply rather than spare capacity, considering its abundance in the current oil markets.
In other words, the market doubts that the current pro-customer oil policy in terms of pricing and production can be maintained going forward. Changes in the 1960s brought OPEC into existence and changes in the 1970s delivered a higher level of oil pricing. Most importantly, these changes shifted leadership from International Oil Companies (IOCs) to National Oil Companies (NOCs). So, how does the Oil and Gas Industry quickly adjust and reshape under today’s dynamics?
Historically, the oil and gas industry has had a narrow focus on the bottom line of creating value for shareholders. The shareholder is the government for NOCs while it is public investors for IOC’s. Almost all strive to maximize financial earnings while delivering cost effective performance applying state-of-the art technologies. While considering governments responsible to meet community needs such as job creation and sustainable growth, companies had focused on corporate social responsibility aiming at improving their public image. This ‘profit-only’ business model, however, started to fail – especially in the Middle East.
One can argue that one of the catalysts of recent Middle Eastern changes is the poor standard of living of large local communities, while billions of dollars accumulated in the hands of business dealers. This small business group was supplying materials and services to industry and securing more corporate agencies over time. There was the false belief that such business pockets could ensure stability and secure supply of energy even at the expense of the community at large. It was further exacerbated by companies focusing on core business while outsourcing utilities, food catering, medical, IT services and others. As such, companies laid off or retired thousand of national employees, leaving room for big business to employ nonlocal employees at cheaper rates. This had severely shrunk the value of the oil and gas industry in the eyes of local communities.
The industry had also failed, most of the time, to build a complete chain of industrial and services support which provide…
