...IOCs are facing both structural and cyclical challenges. Depressed oil prices throughout the mid- to late 1990s caused a period of low investment in new exploration by IOCs and nationalized oil companies (NOCs) alike, which has left many firms reliant on a relatively smaller number of "superfields" that are beginning to dry up. As the oil price has steadily risen, several governments -- most notably in Russia and Venezuela -- have responded by expropriating foreign-owned oil and gas fields for their own state-run firms, usually under the guise of environmental transgressions or tax irregularities.


ConocoPhillips lost a $4.5 billion investment recently when Hugo Chavez turned control of their assets over to PDVSA, the Venezuelan state oil company. BP and Shell have both lost majority control of significant hydrocarbon reserves in Russia over the last 12 months. Rosprirodnadzor, the Russian Environmental Conservation Agency, recently announced that it was conducting investigations into a further 19 foreign oil and gas firms. These losses, combined with continued instability in less-politicized markets like Nigeria, have weakened confidence in IOCs' ability to consistently replace their proven reserves -- the sine qua non of long-term profitability. As this trend emerged, many within the industry argued that IOCs' superior technical ability, particularly in deep-sea and arctic exploration and production, would force NOCs to offer them access to reserves that would otherwise lie dormant. Total's recent deal with Gazprom over the huge Shtokman gas field -- the first between a Russian NOC and an IOC since 2003 -- heralded precisely this new model.

However, Gazprom's monopoly position allowed it to negotiate, aided by a phone call between Presidents Vladimir Putin and Nicolas Sarkozy, a deal that effectively relegated Total to the role of an oil services provider like Schlumberger or Halliburton. These firms are contracted to provide technical assistance to the actual asset owner, usually an oil major. Total received a 25% stake in the special purpose vehicle that owns the infrastructure of the Shtokman operation, and will take 25% of the profits under the terms of their production-sharing agreement. But in order to put the commensurate 25% of Shtokman's gas onto their assets and liabilities sheet, the French company had to pay Gazprom $800 million. Under a traditional product-sharing agreement, that share of the reserves would have come at no additional cost. In return, Gazprom has gained access to cutting-edge deep-water extraction and gas liquefaction technology.