Petroleum Logo
Petroleum Header

Petroleum Industry

The petroleum industry is quite complicated. Part of what makes it so complicated is the fact that most of the world’s oil supplies are control by state agencies and not by private corporations. In fact, well over half of total world oil reserves are controlled by state agencies in the Middle East. The somewhat complicated and intertwined operations of these major industry players can make it difficult to understand why the industry works as it does. To make it easier, the oil industry can be subdivided into two major categories: National Oil Companies (NOCs) and International Oil Companies (IOCs).

International Oil Companies

International Oil Companies include familiar names like ExxonMobil and Royal Dutch Shell. These are publicly traded corporations that function like any other corporation except that the product the deal in is petroleum. IOCs all have long histories that generally date back to the late 19th century when they were formed. Most IOCs in the United States arose from the break-up of Standard Oil, which was the dominant oil corporation until 1911.

Several terms are often associated with IOCs. “Supermajor” is the most often used and it refers to the 6 largest publicly traded oil companies in the world. Supermajors have gone through many changes since the 1990s as a result of mergers and acquisitions secondary to market forces, the introduction of NOCs (see next), and depression in oil prices in the early 1990s. As a group, supermajors control 6% of the world’s oil. Comparatively NOCs control 88% of the world’s oil. The six supermajors are as follows.



Revenue (Billions of Dollars)

Reserve Size in Billions of Barrels


Texas – United States



Royal Dutch Shell

The Hague – Netherlands




London – United Kingdom



Total SA

Paris – France




California – United States




Texas – United States



Reserve size is not the only way to divide the industry. It seems that reserve size is most often used in reference to NOCs while reserve size and industry segment are both used to describe IOCs. The American Petroleum Institute divides the industry into five categories based on function. These divisions help to explain why having large petroleum reserves does not automatically translate into large revenues and why the supermajors, despite their relatively small reserve sizes in comparison to NOCs, dominate the market. The industry segments are:




Exploration and development of crude


Tankers, refineries, and consumers


Any hazardous pipeline, including petroleum, liquid CO2, etc.


For transport by water of petroleum

Service and Supply (General)

Equipment manufacturers, consulting firms, etc.

Most supermajors are referred to as “vertically integrated.” This means that divisions of the company specialize in various segments of the industry like upstream, downstream, and marine. While all supermajors participate in upstream and downstream operations, some do not get involved in pipeline or marine segments. Most have some involvement in service and supply.

The upstream segments of most supermajors are their primary income divisions. For instance, Royal Dutch Shell make 2/3 of its profits from exploration and development of crude. Because supermajors have been in the petroleum business the longest, they have developed the necessary expertise to find and develop crude. This makes them indispensible to the industry, even to NOCs. As a result of market dominance in this segment, the supermajors do the majority of the upstream work in the industry and thus derive most of their income from providing these services both for their own oil reserves and to others.

Public Subsidy

It is briefly worth mentioning that the U.S. government provides large subsidies to publicly owned oil companies, even those that are based in other countries. In fact, this is not just true of the U.S. government, but is true of most governments which do not operate nationally owned oil companies. In the U.S., the effective tax rate for oil companies is 9%, well below the standard 25% corporate rate.

Many people have criticized governments for this practice and some politicians have even suggested it be stopped. The situation is complicated, being made more so by the fact that oil is of supreme importance to a nation’s national security. Governments are reluctant to drive oil companies overseas for fear that they will become even more dependent than they already are on foreign nations for oil.

Nation Oil Companies

State agencies are called National Oil Companies (NOC) and are set up much like any International Oil Company (IOC). The major difference is that IOCs release earnings reports and have stock holders. In the early history of oil, IOCs were the major producers. In recent decades, NOCs have been organized in most countries with large oil reserves. This trend has occurred for two reasons.

The first reason for the rise of NOCs is political change. Countries in which large oil reserves can be found have slowly wrested away the rights of IOCs that initially controlled the oil. Many military dictators in the Middle East have come to power in part because of their support for NOCs, which promised to return oil income to the people rather than seeing it go to IOCs. Of course, in many instances, these promises were not followed through on.

The other reason for the rise of NOCs is the industrial progress. Many of the oil-rich nations have leveraged their tremendous natural resources to negotiate profitable contracts with IOCs for extraction and development. The creation of OPEC was a direct response to the bargaining power of the IOCs. Like a giant union, OPEC has allowed oil rich countries to put more pressure on IOCs to offer price concessions. The development of their own means for extracting and refining oil has also allowed NOCs to reduce their reliance on IOCs.

The top ten largest NOCs in the world, in terms of reserve size, are in the following table. It is important to note that the numbers in the table below are for liquid petroleum and do not include such things as extra heavy petroleum, oil shale, etc. Most of these countries do not reveal earnings, so judging them based on income is relatively difficult. However, comparing the size of their reserves to those of IOCs should offer a rough estimate of their potential revenues.



Reserve Size in Billions of Barrels

Saudi Armaco

Saudi Arabia – Middle East


National Iranian Oil Company

Iran – Middle East


Quatar Petroleum

Quatar – Middle East


Iraq National Oil Company

Iraq – Middle East


Petroleos de Venezuela

Venezuela – South America


Abu Dhabi National Oil Company

Abu Dhabi – Middle East


Kuwait Petroleum Corporation

Kuwait – Middle East


Nigerian National Petroleum Corporation

Nigeria – Africa


Libya NOC

Libya – Africa



Algeria - Africa