Analysis: U.S. Ranks Lower as Home Base for O&G Investment

Non-US-based companies have fared better in acquiring oil and gas concessions than US-based counterparts in the face of competition from national oil companies (NOCs) that have emerged as international players, according to a recent report by IHS Cambridge Energy Research Associates (CERA) and Deloitte.

In the analysis, Fiscal Fitness: How Taxes at Home Help Determine Competitiveness Abroad, the share of global activity by investor-owned companies (IOCs) measured by oil production, acreage owned and number of wells operated by international oil companies in the U.S. or elsewhere has declined in relative terms over the past 40 years as NOCs have taken control of their home territories and begun investing in overseas oil and gas ventures.

While a number of factors contribute to the difference in performance between U.S.-based and non-U.S.-based companies, one factor that has not received the attention it deserves is the complex interactions between the host country fiscal regime and that of the home country. Other factors include policy objectives of the home country, access to capital, and the ability to mobilize collateral investments in the host country, such as ports, railways, and power generation.

IHS and Deloitte concluded that the costs of repatriating profits from international operations back to the U.S. is higher than many of its chief competitors and places a value hurdle in the path of U.S.-based oil and gas companies that is higher than that of companies based in other countries. Securing new concessions requires them to overcome this hurdle.

"Companies from other countries such as the United Kingdom, Netherlands, Russia, Canada, Norway, Italy and China pay less by way of additional taxes on their repatriated profits and are therefore able to compete more easily with U.S.-based companies – in some cases enabling them to afford to bid twice as much for oil and gas concession," the report said.

The competitive playing field in the international oil and gas sector has become more crowded with new entrants and the growth of existing players. Over the past 20 years, the number of companies with production of over 1 million BOE/d has doubled from eight to 16. This number does not include NOCs that do not operate outside their home territories.

"The acquisition of oil and gas concessions is the paramount point of competition between oil and gas companies in the upstream sector," said IHS CERA Chief Energy Strategist David Hobbs. "Success provides a company with the 'fuel' in its portfolio to deliver superior growth and returns. Failure leads to more of an uphill struggle. This has important implications for the long-term health and employment prospects of oil and gas companies."

Oil and gas companies that succeed overseas give their home countries benefits such as a greater sense of energy security, higher employment, promotion of their technology, equipment and service suppliers, research and development investment to support international operations, and returns to shareholders through repatriated dividends.


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