2. Page 2 EY’s Petroleum Society Maturity Index
Source: OPEC Revenues Fact Sheet, EIA
Oil exporting countries are transforming
their economies
1
Governments have been forced to make steep cuts to investment and, critically, to
subsidies and social welfare programs following the drop in oil price.
2
Several countries are exploring the sale of stakes in National Oil Companies
(NOCs) to raise revenues.
3
NOCs are developing plans to expand along the oil and gas value chain and into
other sectors to reduce dependence on revenues from oil and gas.
decline in OPEC’s
oil export revenue
between 2014 -16
55%
3. Page 3 EY’s Petroleum Society Maturity Index
NOCs’ traditional four phase approach is less than optimal
► The NOC is established through
mandate from the government.
► Joint ventures are normally
formed to leverage external
expertise and technology.
► The focus is on exploitation of
the domestic resources.
► NOC/State focus is on building
local capability to take greater
control of domestic production
and a greater share of revenues.
► Processes are formalized and
leading practice asset
management methodologies are
applied.
► Vertical integration is applied to
refining/LNG/petrochemicals.
► NOCs start to participate
internationally through joint
ventures, acquisitions or
market entry.
► In order to operate in foreign
markets, contracts and
agreements are formed with
international companies.
► NOCs internally develop and
foster new talent.
► R&D facilities are established to
increase technological innovation.
► Synergies are created with
companies that are technology and
innovation leaders, allowing the NOC
to emerge as an International
Oil Company.
Phase 1
Establish foundations
Phase 2
Gain greater control over
production and build local
capability
Phase 3
Internationalize to
diversify portfolio and
strengthen relationship with
end-consumer
Phase 4
Expand and diversify
capabilities
► The traditional approach needs to be adapted to achieve reduced resource dependence and increased sustainability
► A cohesive overview of the domestic economy is required for NOCs to balance national and commercial objectives, achieving
economic transformation
4. Page 4 EY’s Petroleum Society Maturity Index
NOCs play a pivotal role in the transformation of national
economies
Petroleum society maturity and overall economic benefit
Sell-off Production Refining/LNG Petrochemicals OFS ecosystem Intellectual
capital
Petroleum society maturity
Short-term only
Dependent on
resources
Sustainability
Economicimpact
sustainability
Low
High
Resource
development
Value
addition
Economic
transformation
5. Page 5 EY’s Petroleum Society Maturity Index
Economic transformation through EY’s Petroleum Society
Maturity Index (PSMI)
► EY’s PSMI helps the NOC and the State to move toward economic transformation by improving the role of NOCs
► PSMI is composed of five indicators that track development of economies as they move along the value chain
Petroleum society maturity development indicators
Resource
development
Value addition
Economic
transformation
Declining reserves, no
energy stability
High reliance and
consumption
Alternatives to oil, gas,
efficient consumption
Energy
NOC or government
subsidized posts
Develop and employ
more nationals
World-class national
workforce
Society
Importing international
suppliers
Increasing capability of
domestic suppliers
Diversified competitive
exporting industries
Enterprise
Importing international
expertise
Oil and gas domestic
technology
Knowledge economy
exporting IP
Intellectual
capital
Sell-off resources to
bring in cash
Additional cash from
domestic value chain
Growing GDP from a
diverse economy
Economy
6. Page 6 EY’s Petroleum Society Maturity Index
The example below illustrates EY’s PSMI to understand the
current state of a country’s economy
► All three countries (A,B,C) have
substantial oil and gas reserves and
derive significant revenue from exports
of oil and gas.
► Country A is clearly the most developed
along the transformation.
► Country B is progressing well through
the journey but needs to continue to
develop across 4 of the 5 indicators to
deliver the most value to the national
economy .
► Compared to country A and B, country
C needs to develop a plan to lower
dependence on revenues from oil and
gas, improve quality of its exports, train
labor force, and optimize the energy
mix.
Enterprise
(export quality)
Economy
(economic
independence from oil
and gas)
Intellectual capital
Energy
(energy
independence)
Society
(youth employment
rate)
Country A Country B Country C
EY’s Petroleum Society Maturity Index
7. Page 7 EY’s Petroleum Society Maturity Index
EY’s PSMI can assist NOCs set the path for transformation
Today’s NOC model is no
longer fit for the future;
generating value must
take priority over
generating volume
NOCs must change how
they define their role and
contribution to the national
economy in order to
maintain their critical
position within the industry
and their countries
NOCs need to
commercially allocate
capital, measure it and
obtain reasonable returns
NOCs that embark on the journey of transformation to become “commercial NOCs”
will maximize their potential enterprise value and contribution to their country
To aid this transformation, EY has identified eight critical aspects NOCs need to address to
maximize their earnings and contribution to the State. Read more at ey.com/oilandgas/nocs
8. Page 8 EY’s Petroleum Society Maturity Index
► Building and recommending a robust plan for evolution of NOC that will serve as key contributor to the
country’s GDP
► New “commercial NOC” will fulfill both national objectives and the profitability expectations of key stakeholders of
the entity
Balancing national
vs. commercial
objectives1
9. Page 9 EY’s Petroleum Society Maturity Index
► Partial privatization of NOCs will raise their potential enterprise value and overall contribution to their country
► Improving capital structure through a mix of external commercial finance, equity investors and free cash flow from
operations
Meeting funding
needs through a mix
of external finance
and internal cash flow2
10. Page 10 EY’s Petroleum Society Maturity Index
► Utilizing technology and digital approaches throughout the value chain
► Harness the power of data to improve efficiency and productivity
► This will help the NOC to retain its status as one of the low-cost producers
► Effective monetization of options developed through R & D
Implementing
enabling technology
to drive better
commercial decisions3
11. Page 11 EY’s Petroleum Society Maturity Index
► NOC is fully integrated to capture and maximize income in the entire oil and gas value chain
► Improving mix of both backward and forward integration based on comparative advantage of the domestic
economy
Exploiting the value
chain opportunities
through better
coordinated vertical
integration4
12. Page 12 EY’s Petroleum Society Maturity Index
► Renegotiating certain elements of the contract with the state and the oil and gas regulator to assist the NOC to
act as “commercial NOC”
► Will facilitate optimal allocation of capital that will enhance its long-term value
► Improvement of the current tax regime
Clearly understanding
the autonomy
required by the NOC
to operate at its fullest
commercial extent5
13. Page 13 EY’s Petroleum Society Maturity Index
► Will increase productivity and efficiency and lower costs
► The transformed NOC will have well-developed centers of excellence in key locations, and its staff will be able to
participate in market-leading training programs
Improving people
capabilities and skills
development to
operate in a
commercial mind-set6
14. Page 14 EY’s Petroleum Society Maturity Index
► To secure demand/supply and access to technology
► Aligning internationalization strategy with broader corporate strategy will improve portfolio risk management and
diversification
Internationalization
through investments
in major high-growth
potential markets7
15. Page 15 EY’s Petroleum Society Maturity Index
► Developing core portfolio of investments in other sectors to diversify revenue streams
Maximizing revenue
potential through
targeted investments
and the diversification
of revenue streams8