New and Old Seven Sisters

Business & Markets Desk
New and Old Seven Sisters
New and Old Seven Sisters

When Enrico Mattei, Italian oil company Eni’s CEO, coined the phrase "seven sisters" to signify the oil companies constituting "the Consortium for Iran", which dominated the global oil scene from the mid-1940s to the 1970s, he did not expect them to lose their hold on the energy industry.

However, at present, energy groups that emerged out of the original seven sisters, including ExxonMobil and Chevron of the US and Europe’s BP and Royal Dutch Shell, have replaced the influential state-owned companies, some 50 years later.

The “new seven sisters”, as the Financial Times wrote, are Saudi Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobras and Petronas of Malaysia. All of them are state-owned and together control almost one-third of the world’s oil and gas production, and over one-third of its total oil and gas reserves.

"In contrast, the old seven sisters, which shrank to four in the industry consolidation of the 1990s, produce about 10% of the world’s oil and gas, and hold just 3% of reserves," FT wrote.

But have the new really replaced the old? Is the NIOC on par with BP today?  

Yes, NIOC controls 10% of the world's proven oil reserves and 18.2% of the world's proven gas reserves. None of the listed oil giants sit on such a gold mine. And wealth is power. And yes, the supermajors' production output is nowhere near the new seven.

Saudi Aramco alone pumped around 12.7 million barrels of oil equivalent from the Arabian Peninsula every day in 2013, Forbes wrote. ExxonMobil barely brings out 4 million barrels of oil equivalent per day.

Even so, the supermajors' integrated status, which means they sell not only oil and gas, but also gasoline, diesel and petrochemicals, push their revenues notably higher than those of the newcomers.

Also, there is a huge gap in technological might between the two groups, and let us not forget that this is the age of technology.

NIOC is having a hard time pulling its hydrocarbon wealth out of the ground, because it does not have the latest technology to do so, due to sanctions that deter the supermajors from doing business with it. Other members of the new seven are not much different in this regard.

Although Petrobras has developed deepwater drilling technology, the cutting edge technology in the sector is still the domain of Royal Dutch Shell and Chevron.

This trend holds true in all other parts of the oil and gas industry, be it exploration, extraction, refining, transporting and marketing. ExxonMobil is the largest refiner in the world and not any of the new seven. European and American companies still hold the keys to the industry.

So for the new to truly replace the old, a long and hard road is ahead. NIOC is hindered from boosting its oil production or fixing its refineries because of the burden of financing subsidies that keep gasoline prices at just 30 US cents a liter.

If NIOC is to truly become an oil giant, executives at the company and its Iranian suppliers should take concrete steps to transfer technology from foreign companies at every turn, and fund research and development projects of their own.

The Iranian Oil Ministry will showcase a new contract format, the Iranian Petroleum Contract, to the international companies looking to develop oilfields at a conference in London in December.

The new contract will replace buyback contract format that was previously used to avoid giving a share in Iranian oilfields to oil majors. The ministry should make measurable technology transfers an integral part of the IPC, even if it means giving concessions elsewhere.