Introduction

The record of events that describe the petroleum industry (Yergin 1991; Parra 2004) and the analysis of these events (Jacoby 1974; Kobrin 1984b; Adelman 1995) provide a context from which to draw observations about the drivers and evolution of the structure of the industry. Private operating companies are seen to have been employed in the great majority of instances for the exploration and early development of a new “frontier” petroleum province, yet governments have often revisited those choices in favor of nationalization and the transfer of petroleum assets to a state operating company. Most notably, in the early 1970s, nationalizations in a host of countries, including all of the major developing world oil producers, left three-quarters of the world’s oil reserves in the hands of state-owned companies. Control of a major part of the oil industry – decisions on oil price, production, and investment in reserves replacement – passed from private enterprise to a small group of producer countries.

Conventional wisdom holds that nationalizations are rooted in political motives of the petroleum states, which perceive value in the direct control of resource development though a state enterprise. State motives are inarguably important and are considered in detail throughout this book, including in the introductory and concluding chapters, in Chapter 2 by Chris Warshaw on drivers of states’ expropriation and privatization behavior, and in all of the individual NOC case studies. At the same time, the argument presented in this chapter is that this motive to nationalize, whatever its cause, is in fact severely constrained by both the significant risks associated with the creation of petroleum reserves and the capacity of the petroleum state to take these risks.