Internationalization of NOC

Crude Ambitions:
The Internationalization of Emerging Country NOCs

Pauline Jones Luong
Department of Political Science
University of Michigan
pjluong@umich.edu
and
Fiorella Jazmin Sierra
Department of Political Science
Brown University
fiorella_sierra@brown.edu

Revised Draft – March 2013

Abstract
The burgeoning literature on the internationalization of emerging country NOCs asserts that
the combination of technology transfer in the 1970s-‐80s and sustained high oil prices in the
1990s created an unprecedented opportunity in the 2000s for NOCs to internationalize their
operations at a rapid pace, enabling them to compete successfully with International Oil
Companies (IOCs) for dominance in global oil markets. The 2000s has indeed witnessed the
expansion of emerging country NOCs’ investment, exploration, production, and personnel
abroad. And yet, this widespread ambition to internationalize has been realized with varying
levels of success. We capture this variation by developing an original composite index that
assigns NOCs a degree of internationalization score (DIS). We then provide an alternative
explanation for why emerging country NOCs achieve such different levels of success. Contra
existing explanations that emphasize structural and economic changes at the international
level, we argue that an NOC’s capacity to internationalize is constrained by domestic politics
tied to the legacy of its mode of emergence (MOE), the timing of convergence between the
government and NOC management regarding the merits of internationalization, and the
sequencing of sectorial reforms vis-‐à-‐vis convergence.

1

Emerging country National Oil Companies (NOCs) have received increasing attention both
within and outside the scholarly community due to the recognition that they have played
an increasingly dominant role in the exploitation of petroleum reserves as well as the
management of petroleum sectors in host countries since the late 1960s. By the end of the
20th century, NOCs in the developing world alone numbered over 100 and accounted for
over 70 percent of world oil production and over 20% of world gas production.1

Yet, what has been largely overlooked outside the petroleum industry is that emerging
country NOCs have also sought to increase their economic influence beyond their own
borders. Since the late 1990s, NOCs have increasingly sought to internationalize their
operations. In other words, like all multinational corporations (MNCs), they are pursuing
investment, production, and employment in multiple countries and regions around the
world. More specifically, NOCs seeking to internationalize are trying to become
international oil companies (IOCs); that is, to expand their assets and operations abroad to
include exploration, production, refining, marketing, and distribution. Given that the bulk
of growth in oil and gas production over the next two decades is expected to be precisely
where NOCs are presumed to have an advantage over IOCs – that is, outside the OECD
countries (IEA 2009) and in countries that are especially prone to the “resource curse”2
(Ross 2011) – an investigation of the causes behind this trend is all the more pressing.

The ambition to internationalize, moreover, has been realized with varying levels of
success. While some have managed to compete successfully with IOCs to win the rights to
exploit new and pre-‐existing petroleum reserves in the developing world (e.g., China
National Petroleum Corporation (CNPC), Petrobras, and Petronas), others have been
denied the necessary legal framework and/or investment capital to make this possible (e.g.,
the National Iranian Oil Company (NIOC), Pemex, and Pertamina). In order to accurately
capture this variation, we develop an original composite index that assigns NOCs a degree
of internationalization score (DIS) that ranges from 0 to 5 based on its individual scores (0,
.5, or 1) for each of five indicators for the period 2000-‐2010. According to our index,
emerging country NOCs range from achieving a low degree of internationalization (0-‐1) to
achieving a high degree of internationalization (4-‐5), and most fall between these two
extremes with a moderate degree of internationalization (1.5-‐3.5). See Figure 1 for details.

Figure 1 about here

The purpose of this paper is to explain why emerging country NOCs have achieved such
different degrees of internationalization in the 2000s. Although the topic of NOC
internationalization has received little or no attention among social scientists, it has
motivated a large number of studies within the global petroleum industry. Existing
explanations thus tend to emphasize the economic and structural factors that have
universally made NOCs more capable of pursuing internationalization since the late 1990s.

1 This is a sharp reversal of the pre-‐1970s period when IOCs controlled over 70% of world oil production.
2 This refers to the thesis that, paradoxically, mineral rich countries are doomed to suffer from a variety of
negative developmental outcomes -‐-‐ including poor economic performance, unbalanced growth,
impoverished populations, weak states, and authoritarian regimes -‐-‐ by virtue of their wealth.
2

We argue instead that an NOC’s capacity to internationalize is constrained by domestic
politics. In sum, internationalizing NOCs face two main obstacles: 1) a conflictual mode of
emergence (MOE) in which either the NOC’s creation or the nationalization of the
petroleum industry involved forced expropriation from IOCs; and 2) a divergence of
interests between NOC managers and government officials as to whether
internationalization is either necessary or desirable. They are most likely to achieve the
highest level of success, then, under two conditions: a consensual MOE and a convergence
of interests regarding the merits of internationalization.

In order to demonstrate the plausibility of our argument, we engage in a controlled
comparison among three cases that represent each of the main outcomes along our
continuum: Mexico’s Pemex (low DIS), Brazil’s Petrobras (high DIS), and Venezuela’s
PdVSA (moderate DIS). This approach enables us to both specify the causal mechanisms
linking each these two conditions to an NOC’s capacity to internationalize and illustrate
how they interact to produce different levels of success. A dual legacy of conflictual
expropriation that has long impaired its relations with IOCs and divergent interests
between NOC management and the government not only delayed Pemex’s pursuit of
internationalization but also ensured that it would lack the technical and financial capacity
to do so with any degree of success. Conversely, the absence of historical tension with IOCs
combined with an increasingly supportive government enabled Petrobras’ management
not only to be among the first NOCs to initiate internationalization but also to acquire the
necessary technical and financial capacity to be among the most successful NOCs. Finally,
PdVSA’s moderate level of success can be attributed to a consensual expropriation process
and the divergence of interests between NOC management and the government over time.
While the company’s early drive for internationalization achieved some success due to the
initial transfer of technology and knowledge from IOCs, the lack of government support has
impeded its ability to further expand its overseas operations.

Finally, we assess the external validity of our argument. Although our cases studies lend
some support to our initial set of hypotheses, they also suggest the need to modify our
variables of interest in order to increase our analytical leverage. In particular, the
Petrobras case suggests that we should take into account both the timing of convergence
and the sequencing of sectoral reforms vis-‐à-‐vis convergence. We thus present a more
refined set of hypotheses and perform a very preliminary test on a new set of NOCs drawn
from the universe of cases listed in Table 1. We conclude by briefly discussing the broader
empirical and theoretical implications of our findings, including the conditions under which
emerging country NOCs can become viable “globalized national champions.”

Table 1 about here

Mapping the Variation

The extant literature offers no single agreed upon definition of NOC internationalization or
clear and comprehensive criteria for what constitutes success. As a result,
internationalization is often erroneously equated with engaging in any kind of activity
3

abroad, from establishing a commercial office to a partnership agreement between two
firms to winning a bid for an exploratory block. This literature also routinely relies on a
singular indicator both to determine whether an NOC has internationalized and to assess
the degree of internationalization across NOCs, such as the number of foreign countries in
which an NOC has operations abroad (e.g., Brogan 2008). This indicator, moreover, can be
as minimal as whether NOCs export their oil abroad or invite foreign direct investment
(FDI) into their petroleum sector in which case nearly every NOC can be considered
internationalized or as maximal as whether an NOC has engaged in exploration abroad in
which case we can consider only a minority of NOCs to be internationalized (e.g., Jaffe &
Soligo 2007, 16). Each indicator thus clearly privileges some NOCs over others in
determining whether it is internationalized and none provides an accurate picture of the
empirical distribution of outcomes across NOCs. Relying solely on downstream indicators
(e.g., Al-‐Moneef 1998), for example, tends to overstate the degree to which NOCs buying
and/or building refineries abroad have internationalized.

Thus, we begin by defining internationalization and then utilize this definition to develop a
set of indicators for determining the level of success. In order to clarify what
internationalization is, it is helpful to clarify what it is not. First, internationalization is not
the liberalization of the domestic oil sector. It is not, for example, simply inviting IOCs to
explore and produce domestic reserves. Secondly, exporting domestic production abroad is
not sufficient to constitute internationalization -‐-‐ not only because this is a minimal
requirement but also because commercialization alone is unlikely to have any meaningful
effect on the characteristics and organization of the company. Thirdly, and perhaps most
importantly, internationalization does not amount to any singular type of foreign activity
but rather to a strategy of vertical integration. For any firm internationalization involves
becoming an MNC; that is, the pursuit of investment, production, and employment in
multiple countries and regions around the world. For NOCs in particular,
internationalization means becoming an IOC; that is, expanding their assets and operations
abroad to include exploration, production, refining, marketing, and distribution in multiple
countries and regions around the world.

Composite Index

Our comprehensive definition has a two-‐fold advantage over the status quo; it establishes a
threshold between a traditional NOC and one that is internationalizing and provides a set
of clear indicators with which to evaluate success. We take this one step further and build a
composite index that assigns NOCs a “degree of “internationalization score” or DIS (from 0
to 5) based on its individual scores (from 0 to 1) for each of five indicators: a) geographical
scope of foreign operations; b) foreign assets; c) foreign production; d) foreign profits, and
e) vertical integration. (See Table 2 for details.) According to our index, emerging country
NOCs range from achieving a low DIS (0-‐1) to achieving a high DIS (4-‐5), and most fall in
between these two extremes with a moderate DIS (1.5-‐3.5). More substantively: a high DIS
connotes that an NOC holds shares in multiple kinds of projects in multiple regions, is
making substantial investments in those projects, and these investments are paying off; a
low DIS suggests that an NOC does none of these things; and an NOC with a moderate DIS
4

can range from holding shares in a few kinds of projects and regions that are somewhat
profitable to holding shares in many kinds of projects and regions that are not profitable.

Because they are not purely commercial entities, we believe it is unreasonable to hold
NOCs to exactly the same standards as IOCs when evaluating their foreign operations. Most
NOCs were explicitly created to perform a dual function in their home countries – that is, to
develop domestic reserves and to serve as an engine of economic development, for
example, by funding social welfare programs and providing fuel subsidies and directed
credits to industry (e.g., Baker 2007). We therefore utilize Norway’s NOC Statoil as a
benchmark for determining the initial cut points for each of our indicators – specifically,
whether NOCs should receive a low (0), medium (.5), or high (1) score. Statoil has the
distinct advantage of not only being a developed country NOC but also serving as the
international petroleum industry’s standard for what constitutes a fully internationalized
NOC (e.g., Victor et al 2011). Statoil does not receive the highest DIS, however, because it
actually underperforms vis-‐à-‐vis emerging country NOCs on some indicators.

Table 2 about here

Although our index provides a more accurate assessment of internationalization than
either of the alternatives -‐-‐ UNCTAD’s Transnationality Index (TNI) and
Internationalization Index (II),3 it is not without its limitations. The main constraint is the
availability of accurate and consistent data for a sufficient number of NOCs; specifically, we
must limit our index to the 2000s because these are the years for which we have access to
the best data. Focusing on this decade, however, serves a valuable analytical purpose since
this is when internationalization becomes a global trend; indeed, although a few NOCs
began to internationalize as early as the 1970s, the number of NOCs seeking to expand
their operations abroad has grown dramatically since the late 1990s. Between 1995 and
2000, for example, NOCs’ foreign acreage holdings more than tripled and between 1995
and 2005, the number of foreign countries in which NOCs produced oil and/or gas
increased significantly (e.g., Green 2007). The consistent boom in oil prices in the 2000s
also enables us to control for the high price of oil – one of the main alternative explanations
for NOC internationalization (as we will see in the subsequent section).

Existing Explanations and Empirical Puzzles

The topic of emerging country NOC internationalization has received scant attention
among political scientists, and yet, motivated a large number of studies within the global
petroleum industry. Thus, the bulk of the literature is written from a business perspective
that tends to emphasize the economic and structural factors that have made NOCs
increasingly capable of pursuing internationalization since roughly the 1990s. This

3 The TNI is calculated as the average of three ratios: 1) foreign assets to total assets; 2) foreign sales to total
sales; and 3) foreign employment to total employment. Thus, it can measure the intensity of foreign
operations but cannot distinguish among the types of these operations or their geographical scope. The II is
even more limited. It utilizes a single measure -‐-‐ foreign affiliates as a percentage of total affiliates -‐-‐ but only
includes majority owned affiliates and is only available for four years (2003-‐06).
5

literature also tends to conflate two separate questions: first, why do NOCs pursue
internationalization; and second, why do they succeed. Thus, it provides more insight into
the general phenomenon than it does into individual cases. And, because it equates pursuit
with success, it cannot explain variation in degrees of internationalization across NOCs.

Changes in the Structural Characteristics of the Global Oil Industry

The most prominent set of alternative explanations for NOC internationalization concern
changes in the structural characteristics of the global oil industry and the way in which
each of these has not only facilitated NOC expansion abroad but also favored NOCs’ vis-‐à-‐
vis IOCs. It emphasizes three in particular: 1) high oil prices; 2) changes in the core areas of
petroleum production; and 3) growing technical capabilities of NOCs.

High oil prices are often cited as the main driver of emerging country NOC
internationalization because they create surplus budgets, which, in turn, provide
companies with excess capital to invest abroad and greater confidence that an
internationalization strategy may be effective (e.g., Brogan 2008). This sheds light on the
growing number of NOCs pursuing internationalization in the 2000s as oil prices continued
to rise, but leaves several questions unanswered. First, high oil prices may have a positive
effect on countries with large domestic reserves (i.e., “reserve holders”) but what about
those with low or declining reserves (i.e., “reserve seekers”)? Higher oil costs might
provide a greater incentive to explore abroad but it would also create higher import costs,
and thus, less capital available for international expansion. Secondly, even if higher oil
prices lead to enlarged budgets, there is no reason to presume that this will create an
incentive on the part of either the government or the NOC to invest abroad. Third, the
increase in oil price alone cannot explain the timing of internationalization either on an
individual country or aggregate basis since many NOCs (including “reserve holders” like
PdVSA and SaudiAramco and “reserve seekers” like China’s CNOC and India’s ONGC) began
pursuing internationalization in the late 1980s and early 1990s when prices were
relatively low. And finally, this explanation does not account for those NOCs that did not
actively pursue internationalization despite high oil prices, including Mexico’s Pemex,
Indonesia’s Pertamina, and the Nigerian National Petroleum Company (NNPC).

Another leading explanation for NOC internationalization is the shift from major core areas
of production, which are now in their maturity phase, to new non-‐OECD basins in Africa,
Asia, and Latin America (e.g., Bressand 2009). It is not clear however, why NOCs are
necessarily able to take better advantage of this shift than IOCs. One rationale is that many
IOCs underwent “de-‐verticalization” beginning in the 1980s (e.g., Al-‐Moneef 1998), but this
still does not explain either why we should expect NOCs rather than IOCs to exploit this
opportunity or why some NOCs have been more adept at doing so than others.

Finally, NOC internationalization is commonly viewed as the inevitable result of the
shrinking gap in technical capabilities between NOCs and IOCs (e.g., Nell 2010). According
to this argument, the technology transfer and the expansion of service companies that took
place during the 1970s and 1980s has enabled oil producing countries both to exploit their
6

own petroleum resources without requiring FDI and to compete for the rights to develop
petroleum resources in other countries (e.g., Bressand 2009). While this helps to explain
why NOC internationalization became a global trend in the 2000s, it does not account for
either the frontrunners that began to expand their foreign operations in the 1970s or the
stragglers that only began at the end of the 2000s or have not begun at all. More
importantly, it takes technology transfer for granted, assuming that all NOCs have both had
such an opportunity and taken full advantage of it. Yet, as we will discuss further below,
there is actually a great deal of variation across NOCs when it comes to the will and
capacity to acquire advanced technology and skills from their international counterparts.

Level of Reserves and NOC Managerial Autonomy

National-‐level explanations are of two main types. The first emphasizes the incentives that
either state leaders or NOC managers have to internationalize, and thus, portrays
internationalization as the product of one side’s discrete preference.

State leaders are portrayed as driven primarily by the level of reserves. “Reserve seekers”
pursue internationalization to secure access to supply of energy sources in response to
declining or non-‐existent reserves (e.g., Goldstein 2009). “Reserve holders” seek to secure
demand; that is, access to export markets for their crude. We should thus find similar
degrees of internationalization in reserve seekers and reserve holders, with the key
distinction being that the former will pursue primarily (if not exclusively) downstream
activities such as marketing and refining and the latter will pursue upstream activities such
as exploration and production (e.g., Brogan 2008). Indeed, this seems to explain the
apparent behavior of high profile cases like well-‐endowed Saudi Arabia’s SaudiAramco
(e.g., Marcel 2006) versus resource-‐starved China’s CNPC/Petrochina (e.g., Herberg 2007).
It does not, however, explain the behavior of reserve-‐abundant Kuwait’s KPC versus
reserve-‐deficient Indonesia’s Pertamina. Nor can it explain the behavior of NOCs such as
Petronas and Rosneft that have a similarly modest level of reserves, and yet, have achieved
opposing degrees of internationalization. In fact, as depicted in Figure 2, there is no
systematic relationship between the level of domestic reserves and the degree of
internationalization.4 Finally, it is a stagnant explanation; it cannot account for an NOC
continuing its internationalization strategy despite a change in the level of reserves or
altering its internationalization strategy without a change in the level of reserves.

Figure 2 about here

NOC managers are portrayed as driven primarily by the desire for autonomy; they are
either already fairly autonomous and seek to exert their independence or they have no
autonomy and seek to gain greater independence from the government (e.g., Marcel 2006,
195-‐6; Goldstein 2009, 43). Yet, this it is not very illuminating. It suggests that we should
expect NOC managers to always prefer overseas expansion and perhaps even to initiate

4 This is primarily because our definition and measurement of internationalization presupposes that
countries are striving for vertical integration, and thus, are including both upstream and downstream
activities in their overseas expansion acquisitions.
7

this expansion, which also suggests that NOCs can unilaterally finance internationalization
with their own investment capital. But the empirical evidence does not support any of
these propositions (e.g., Jones Luong 2012). This argument also offers no insight into the
variation in outcomes; in other words, given the universal desire to pursue
internationalization, why some are able to do so more successfully than others.

Financial and Political Advantages of NOCs over IOCs

The second type of national-‐level explanation emphasizes the inherent advantages that
NOCs have over IOCs by virtue of their status as a state enterprise and thus close
connection to the government.

First and foremost, NOCs have direct access to government financing, which allegedly
makes it easier for them to acquire the capital they need to pursue internationalization.
And yet, if this is so, then we should find that NOCs with generally similar levels of access to
government financing exhibit similar levels of internationalization. And yet, as the
experience of the publicly-‐financed CNPC and other Chinese NOCs versus the self-‐financed
Petrobras illustrate, this is not the case empirically. Dependence on public funding,
moreover, may come with high costs: governments may be more likely to micro-‐manage
the internationalization process, and thus, to impose politically motivated international
projects on the NOC that undermine its success. Governments also routinely deny NOCs the
capital to invest abroad as a way of blocking their potential expansion.

The other selective benefits that NOCs are presumed to enjoy are political. First, NOCs are
said to be willing to invest where IOCs are not because they are more amenable to high
political risk and more tolerant of human rights violations. IOCs are also more likely to be
banned from exploring in certain countries by international sanctions (Jaffe and Soligo
2007, 11). While this provides some insight into the geographical patterns of NOC versus
IOC investment overseas, it does not account for the varying level of success among NOCs.
It also relies on the assumption that IOCs are necessarily more concerned with protecting
human rights than NOCs, which is not the case.5 Second, NOCs are said to prefer partnering
with other NOCs rather than IOCs (Bressand 2009). This is appealing because it is
consistent with the patterns we have seen, for example, in Latin America. However, the
reality is that NOCs choose their partner based on risk assessment, which often favors IOCs
(Nolan and Thurber 2010). Even where NOCs do prefer to partner with other NOCs, these
partnerships are unlikely to foster successful internationalization as many such
relationships are politically rather than commercially driven.

The Domestic Limits of International Expansion

We argue instead that there are significant domestic limits to the international expansion
of emerging country NOCs, and moreover, that these limitations are primarily political. In

5 Among other things, this is contingent on the importance of human rights in domestic politics, which also
varies across NOCs and IOCs. British Petroleum (BP), for example, is much more conscientious than Italy’s Eni
(formerly Agip), which has been the chief operator in the Niger Delta since 1962.
8

sum, NOCs face two main obstacles to acquiring the capacity they need to internationalize
successfully: 1) a conflictual mode of emergence (hereafter MOE) in which either the NOC’s
creation or the nationalization of the petroleum industry involved forced expropriation
from IOCs; and 2) a divergence of interests between NOC managers and government
officials as to whether internationalization is either necessary or desirable. They are most
likely to achieve the highest level of success, then, under two conditions: a consensual MOE
and a convergence of interests regarding the merits of internationalization.

Consensual Mode of Emergence (MOE)

The MOE refers to the political context in which the NOC was created and its role in the
nationalization of the petroleum industry. A consensual MOE is one in which the
nationalization process either did not include expropriation or in which expropriation was
relatively harmonious, often involving protracted but amicable negotiations with IOC
representatives. A conflictual MOE is one in which the nationalization process included
expropriation from IOCs that was explicitly combative, often involving stalled or failed
negotiations with and open hostility toward IOC representatives.

The MOE can facilitate or undermine the NOC’s capacity to pursue internationalization via
three mechanisms. First, it affects the likelihood of technology transfer from the IOCs to the
NOC, and thus, both its technical capabilities and the professionalization of its
management. A consensual MOE is more likely to result in the transfer of skills and
knowledge from the IOCs to the NOC, whether directly and immediately via amicable
negotiations with IOCs as part of the nationalization and expropriation process or
indirectly and over the longer term via future interactions between the NOC and IOCs made
possible by the absence of hostilities. Conversely, a conflictual MOE is more likely to block
the transfer of skills and knowledge from the IOCs to the NOC, both in the short-‐ and long-‐
run. Second, the type of MOE influences the balance of power within the NOC between
management and labor, and thus, the potential for the latter to serve as a veto player either
vis-‐à-‐vis enacting internal reforms that are necessary to successfully pursue
internationalization or the pursuit of internationalization itself. Particularly where unions
play a prominent role in the nationalization and expropriation process, a conflictual MOE
can both solidify labor’s resistance to cooperation with IOCs and elevate its status and
influence within the company. Third, the type of MOE affects the political cost that
governments expect to incur for supporting internationalization. While the decision to
support internationalization is never without cost, it is nonetheless a much more feasible
policy choice where the MOE is consensual than where it is conflictual because
internationalization is less likely to be a highly politicized issue – both within the company
and among the general population.

Convergence of NOC and Government Interests

NOC internationalization is also contingent upon whether the interests of government
officials and NOC managers converge regarding the merits of internationalization. Contra
the conventional wisdom, internationalization requires the endorsement of both sides.
9

NOCs pursuing internationalization obviously need government support, which can range
widely and take a variety of forms: from passive support (e.g. non-‐interference) to actively
demonstrating political support domestically (e.g., promoting favorable legislation and
combatting resistance – whether from labor unions, opposition parties, or the public at
large) to providing overt financial and political support (e.g., directed credits alongside a
public relations campaign) to extending its political and financial support to the
international level (e.g., using diplomacy and foreign aid to win contracts). Perhaps less
obvious is that governments that desire internationalization also require the NOC’s
cooperation, not only when it comes to implementing internal reforms (including technical
as well as managerial improvements) that will make the NOC more competitive overseas
but also regarding partnerships with IOCs, which must be utilized effectively to capture
gains, and the selection of economically viable international projects.

Such a convergence of interests is far from automatic, however, given the significant
disincentives that both sides face to implementing internal reforms and investing capital
overseas. And it is often particularly problematic for government officials, who fear losing
discretionary control over the NOC’s finances and hence their ability to divert investment
capital to fund pet projects,6 and may face strong popular opposition to
internationalization, particularly as the trade-‐off with domestic investment becomes
apparent. Interests are thus more likely to diverge, creating a serious impediment to
successful internationalization. Simply put: where one side is less than enthusiastic, it can
undermine the efforts of the other through various means. Governments can obstruct the
NOC’s access to financing, refuse to remove legal impediments to partnering with IOCs, and
deny it diplomatic support for its overseas ventures. NOC managers can thwart internal
reform and deliberately approach international projects with less vigor and attentiveness
than domestic ones. Divergence also imposes a significant opportunity cost: where both
sides regard internationalization as essential to the future viability of the NOC itself, there
is a much greater likelihood that -‐-‐on balance-‐-‐ international projects will be commercially
rather than politically motivated. Close connections to the government can thus be as much
of a disadvantage to NOCs pursuing internationalization as they are an advantage.

Explaining Varying Levels of Success

Importantly, it is not the independent effect of either of these variables that accounts for
varying levels of success in NOC internationalization, but rather, their interaction (see
Figure 3). In sum, an NOC is more likely to achieve a high level of success where it
experienced a positive mode of emergence and its interests align with the government’s.
Conversely, an NOC’s quest for internationalization is more likely to fail where it
experienced a negative mode of emergence and its interests do not align with the
government’s. Because both conditions are necessary but neither is sufficient, the absence
of either a positive mode of emergence or a convergence of interests between NOC
managers and the government increases the likelihood that an NOC will only achieve a low

6 This is directly related to the aforementioned dual purpose for which most NOCs were created. For details,
see Jones Luong and Weinthal 2010, Chapter three.

10

or moderate degree of success. And yet, the MOE clearly has a very strong path dependent
effect, suggesting that even where the government has a vested interest in pursuing
internationalization, this may not be adequate to overcome the loss of technology transfer,
the strength of veto players within the company, and the cost of negative public opinion.

Figure 3 about here

Case Study Narratives

In order to demonstrate the plausibility of our argument, we investigate the engage in a
controlled comparison of three cases. We selected these cases for several reasons. First,
because this is a primarily a theory-‐building exercise, we deliberately maximize variation
on our dependent variable -‐-‐ the level of success, operationalized as our degree of
internationalization score (DIS): Mexico’s Pemex (low DIS), Brazil’s Petrobras (high DIS),
and Venezuela’s PdVSA (moderate DIS). Secondly, these cases enable us to reject several of
the main alternative explanations; in sum, their varying levels of success cannot be
attributed to differences in global oil prices, the level of domestic reserves, access to
government financing, technical capabilities, or even economic liberalization. Third, these
NOCs stand out for their domestic, regional, and global importance. All three are the largest
firms in their domestic economies. They are also the largest and most important NOCs in
Latin America and the developing world. Fourth, choosing cases from the same region
helps us to control for a variety of cultural, historical, and geographical factors, and thus, to
mitigate the effects of causal heterogeneity. Fifth and related, these cases represent a hard
test for our argument given the long history of “resource nationalism” and strong labor
unions that are characteristic of this region. Finally, because these three firms have long
been the object of considerable scholarly and practitioner attention, there exists a vast
array of reliable primary and secondary sources. These three NOCs have also provided the
authors with a relatively high degree of access to internal records and interviews.

Pemex: Conflictual MOE, Divergence of Interests, & Failed Internationalization

Despite rising oil prices and dwindling domestic reserves,7 by the end of the 2000s
Petróleos Mexicanos (Pemex) had failed to internationalize by any metric. Most have
attributed this failure to the country’s financial dependence on the oil sector, which not
only subjects the company to excessive taxation and deprives it of investment capital but
also ensures that the government will oppose any corporate restructuring (e.g., Shields
2006, Stojanovski 2012). But this is only a small part of the story. While it is undeniable
that Pemex is among the least efficient and worst performing NOCs in the world, this is a
symptom rather than a cause of its failure to internationalize.

The single most important constraint on Pemex’s capacity to internationalize is the political
context in which it was created. In contrast to both Petrobras and PdVSA, Pemex has been

7 It is widely acknowledged, both within and outside Mexico, that its reserves cannot be replaced via domestic
exploration and production alone (e.g., Ibarra 2008).

11

plagued by the legacy of a conflictual MOE in which labor played a prominent role. This has
impeded technology transfer in both the short-‐ and long-‐term, empowered unions that are
opposed to both internal reform and overseas expansion abroad, and made any form of
government support for internationalization politically untenable. The legacy of aggressive
expropriation that has long impaired relations with IOCs, combined with divergent
interests between NOC management and the government, all but guaranteed that when
Pemex sought to internationalize its operations at the end of the 1980s, the company
would lack the technical expertise and financial means to do with any degree of success.

Conflictual MOE

The expropriation of the oil industry from IOCs that had long been active in the sector was
one of the most radical episodes of the Mexican Revolution. Legally, its roots lie in of the
new constitution adopted in February 1917 – specifically Article 27, which radically altered
property rights over all hydrocarbons in the subsoil by vesting them in the nation rather
than in private individuals (Brown 1993). Perhaps more importantly, Article 27 also
established a justification for the state’s revocation, with indemnification, of an individual’s
use of land and mineral rights. The main motivations for the establishment of this new legal
framework, however, were political. Revolutionary elites viewed the IOCs as a potential
threat, both because the foreign companies claimed to have entrenched rights regardless of
the policies of any post-‐revolutionary government and because they intervened in local
struggles among factions of the revolution (for details, see, e.g., Philip 1982).

It was not until the 1930s that Mexican government found good cause to exercise its new
authority to expropriate. Under President Lázaro Cárdenas (1934-‐40), the IOCs became
increasingly involved in labor disputes. Although the oil workers’ first struggle dates back
to 1917, the creation of the Mexican Oil Workers Union (Sindicato de Trabajadores
Petroleros de la República Mexicana, STPRM) in 1935 with Cardenas’ support increased
labor militancy (Pazos 2008). In 1936, STPRM demanded a collective labor agreement from
the 15 IOCs, and their rejection led to a major strike. Subsequently, the Union presented its
case to the Supreme Court, which ruled in its favor. The mobilization of oil workers and the
reaction by the IOCs led to a chain of events that radicalized oil politics and culminated in
the creation of Pemex. Importantly, the NOC itself thus emerged from an entrenched
conflict between the post-‐revolutionary government, foreign interests and organized labor.

In early 1938, the IOCs refused to recognize the Supreme Court’s ruling and removed their
deposits from Mexican banks in retaliation (Pazos 2008). The IOCs recalcitrance, combined
with strong union pressure, lead Cardenas to expropriate the oil industry by decree in
March 1938. Immediately afterward, the workers occupied the oil fields and refineries, and
so commenced the period of the Union’s direct administration over the industry (Adler
1992). The day after the expropriation, the National Executive Committee of STPRM issued
emergency instructions concerning the organization of production. According to the
directive, local administrative councils were to be established. Each council had the
authority to designate the personnel for positions of responsibility and to manage
12

production in the various departments and dependencies of the expropriated companies.
These local councils managed the industry until the formation of Pemex in July 1938.

The forced expropriation had several lasting consequences. First, hostilities with the IOCs
and their governments prevented Pemex from accessing foreign financing and acquiring
technology, knowledge, and skills via direct and immediate transfer. Pemex thus suffered in
the short-‐run from both a lack of equipment and qualified personnel. The company also
faced a severe disruption in accumulated knowledge because the IOCs took with them
archives and reports, including geological information. Over the long-‐run, these deficits
contributed to the continued extraction of Mexico’s “easy oil” without the discovery of new
fields. While the lack of immediate transfer certainly did not doom Pemex to technological
backwardness, it did create a potentially slow and painful catching-‐up process. It also
meant that, in order to ameliorate this situation, Pemex would have to actively seek other
ways to acquire the technology and skilled personnel it needed or entice IOCs back into
Mexico with lucrative contracts to explore and develop its reserves. Yet, as we will see, the
conflictual MOE also created significant hurdles to following either strategy.

Second, the circumstances surrounding Pemex’s conflictual MOE institutionalized the
Union’s veto power over the company. In the aftermath of a forced expropriation in which
the government had invited the workers to assume direct (albeit temporary) control over
the daily operations of the nationalized oil industry, the government was forced to reserve
a leading role for STPRM. Although it was eventually able to put an end to direct worker
administration (see, e.g., Adler 1992 for details), the Union’s power nonetheless remained
entrenched in the company’s structure. Article 7 of the Pemex statute states that the NOC is
to be managed and administrated by a Board of Directors and a Director General appointed
by the Federal Executive (Law of Petróleos Mexicanos, 2010). Article 8 states that the
Board of Directors of Pemex shall be comprised by fifteen regular members, as follows: six
representatives from the State, appointed by the Federal Executive, five representatives
from the STPRM, who must be active members therein and permanent employees of
Pemex, and four professional directors appointed by the Federal Executive, who will
represent the State and be public officials (ibid).

The institutionalization of STPRM’s power has proven thus far to be devastating to Pemex’s
ability to build the necessary capacity to expand abroad. The Union has used its privileged
position not only to block cooperation with IOCs inside Mexico but also to resist technology
and knowledge transfer via partnerships overseas. In fact, the company has a history of
squandering opportunities to adopt new skills from its foreign partners (see, e.g.,
Stojanovski 2008). Perhaps more importantly, they have used their power to oppose
internal reforms that would allow the company to improve its performance overall, thus
paving the way for internationalization, including salary and employment reduction as well
as instituting corporate governance measures. According to a Pemex manager, the firm
“has a corporate governance problem” as union leaders have the prerogative to oppose any
change that affects their interests (Authors’ interview, Mexico City, July 2012). Fear of
union opposition has impeded any serious attempt to reduce the company’s operating
costs or to deregulate the petroleum sector in any meaningful way (Phillip 1999a). This
13

applies to both the NOC’s management and the government. The deregulation of the
petrochemical sector in the mid 1990s provides politicians with an acute example of the
level of union unrest they would face if they promoted greater liberalization.8 Although the
government has attempted reforms aimed at weakening the STPRM since the late 1980s,
for example under presidents Carlos Salinas de Gortari (1989-‐1992) and Felipe Calderón
(2008), they have been unsuccessful (for details, see e.g., Barbosa 1992b, Elizondo 2011).

Third, the expropriation was a highly politicized event that has become a core foundational
myth of modern Mexico (Alberro 2007). The anniversary of the expropriation is even
celebrated as a national holiday. According to a Pemex executive, “there are three key
institutions in Mexico: the army, the virgin of Guadalupe and Pemex” (Authors’ interview,
Mexico City, July 2012). This has mobilized public opinion against any type of interaction
with IOCs, thus reinforcing union opposition, and, most importantly, entrenched the
perception among government officials that there is a very high political cost to allowing
FDI in the petroleum sector. Even during the presidency of Miguel Aleman Valdes (1946-‐
52), when the Mexican government was more conservative and adopted many pro-‐
American policies, FDI in the oil sector was discussed but not pursued for fear of political
backlash (Philips 1982). Fifty years later, both Presidents Vicente Fox (2000-‐06) and Felipe
Calderón initiated modest reforms that would allow FDI only in the most costly and risky
endeavors in the Mexican oil sector and were similarly forced to back down.

Divergence of Interests

The legacy of a conflictual MOE meant that Pemex faced major obstacles for its
internationalization. The lack of technology transfer from IOCs to the NOC at the time of the
latter’s creation meant limited capability. This could be overcome either through
liberalization and internal restructuring of the domestic sector or collaboration with IOCs
abroad, as in the case of Petrobras. The combination of an institutionalized union power
with a public opinion distrustful of foreign firms, however, made these options politically
difficult to implement. Convergence on internationalziation was thus crucial for Pemex to
overcome this legacy.

Instead, interests between the NOC’s management and the Mexican government regarding
the merits of internationalization have diverged. Pemex management began to recognize
the benefits of overseas expansion in the 1980s and the need for internal restructuring and
sectoral liberalization as a precursor. Over the next two decades it argued for both, despite
encountering strong opposition from within and outside the company. In the end, with
mostly reluctant support from the government, the union resistance and popular outcry
proved decisive. Thus, while Pemex’s managers continue to view internationalization as a
desirable goal, they do not believe the NOC can pursue it effectively without extensive
sectoral reform (Authors’ interview, Mexico City, July 2012).

8 Ortega Pizarro, Fernando and Ricrado Ravel. “Crece la oposición de los petroleros contra la privatización de
la petroquímica, Profesionales y técnicos, en manifestaciones multitudinarias” Proceso. 10/15/1995.

14

Until the late 1980s, both Pemex’s managers and the government considered the
company’s primary purpose to be producing, refining and distributing for the domestic
market. Its export business was re-‐started only in 1974, following a series of major
discoveries and improvements in production in the 1960s (Stojanovski 2008). The bulk of
Pemex’s oil production, however, continued to be consumed domestically at a heavily
subsidized price. Combined with an excessive tax burden and heavy public sector debt, this
impeded the company’s ability to benefit financially from this oil boom (Phillip 1999a).

By the end of the 1980s, the petroleum industry was starved for capital and Pemex was
deprived of modern infrastructure and technology (Puig 1992). It was at this point that an
intense debate emerged within Pemex regarding the company’s future among three
possibilities: maintaining the status quo, privatizing the firm (following the example of YPF
in Argentina) or relaxing its monopoly to allow risk contracts, and partially deregulating
the petroleum sector (Rousseau 2006, 34). Economic nationalists and the labor union
blocked the second and third options, respectively (Phillip 1999a, 44-‐46).

Internationalization emerged as a fourth option with the creation of Pemex Comercio
Internacional (PMI) in 1989 (Rousseau 2006, 28-‐29). The expressed purpose of PMI was to
commercialize Mexico’s crude and petroleum-‐related products for international markets,
thus enabling it to profit from surplus production (Shields 2003, 36). Its broader goal,
however, was to increase Pemex’s ability to compete internationally. In fact, already in the
early 1990s, analysts described its purpose as “participating in international markets, in
exploration, perforation and transformation of petroleum abroad… as well as the
construction of pipelines, plants or petrochemical complexes” (Barbosa 1992, page #?).

Two major critiques of PMI have been made since its creation by opposition political
parties and public commentators with extensive access to media outlets. First, expansion
abroad it perceived as a zero-‐sum game with regards to domestic exploration and
consumption.9 Secondly, PMI is criticized for bypassing local legislation. From its creation,
PMI was assigned more latitude in entering into contractual arrangements that other
Pemex subsidiaries are barred from. Detractors argue that PMI submits to the laws of other
countries and is not legally bounded by local accountability laws.10

While company managers have defended the goal of internationalization from these
critiques, they have been adamant from the start that their ability to succeed at
internationalization is tied directly to both internal restructuring and sectoral
liberalization. They thus attempted to secure government support for undergoing these

9 For example, in 1977 the government signed an agreement with the United States to build a pipeline
connecting both countries. However, public outcry led President Lopez Portillo to back down from the
agreement and commit to use the natural gas for domestic consumption. No further attempts were made after
this episode. See: Castillo, Heberto. “¿Teme Pemex la polémica?”. Proceso., 10/09/1977. Castañeda, Rafael
Rodríguez. “La negra historia del petróleo, escrita y perdida en este sexenio, Culmina en Estados Unidos la
gestión de Díaz Serrano; exhiben a su equipo”. Proceso. 09/26/1982.
10 For early critiques of PMI see: Castillo, Herberto. “Pemex, nodriza del imperialismo”. Proceso. 25/03/1990.
For more recent arguments see: Arzate, Esther. “PMI, la cara del Pemex no auditado”El Financiero.
03/15/2012. Agencia el Universal. “ASF plantea poner orden en Pemex Internacional”. 04/23/2012.
15

reforms. Since the creation of P.M.I. no administration has voiced its opposition to
internationalization publicly. However, government’s responses in the past three decades
to sectoral reform can best be described as tepid.

Mexico has experienced three waves of attempted sectoral reforms. The first one began in
July 1992, when Pemex underwent significant decentralization aimed at increasing
efficiency and “boosting the economic return from investment” (Stojanovski 2008, 43).
Additionally, in the 1990s, it enacted some changes in procurement rules that allowed
Pemex to hire foreign companies as subcontractors. But these have limited profitability
(e.g., because these companies are not allowed to acquire equity in projects rather than a
fixed rate of return) and do not provide the company with the opportunity to upgrade its
own technological capacity (ibid, 56). Although some further liberalization of this process
accompanied the signing of NAFTA agreement with the U.S., the Carlos Salinas government
(1988-‐94) feared that any significant reform would attract domestic criticism (Elizondo
2011, 17). Despite the fact that Salinas had full control of Congress he was not willing to
risk the consequences of pursuing further reforms in the oil sector.

The second and biggest push for internal restructuring came in the 2000s. President
Vicente Fox was sympathetic to the need for oil sector modernization and supported
reforms that would enable Pemex to form partnerships with private foreign investors
where it lacked the technology and expertise; for example, deep-‐water exploration, and the
exploitation of aging oil fields (Pastor and Wise 2005, 147). Yet, fragmentation in Mexican
politics and the general weakness of Fox's administration meant that the first six years of
Mexican democracy ended without significant reforms for the firm. Throughout Fox’s term,
Congress set a negative and non-‐compromising tone over Pemex and Fox was not willing to
generate a political conflict over this issue (Stojanovski 2008, 22).

The Calderón administration introduced a new wave of internal restructuring. During this
period Pemex itself pushed strongly for reform, presenting the current Pemex situation in
dire terms.11 In November 2008 a new law – the Law of Petróleos Mexicanos – was enacted.
Its main goal is to have any operational or commercial decision made by PEMEX oriented
toward increasing its economic value and equity. This new legal framework includes
changes in the structure of the Board, specific contracting procedures for substantive
production activities, some ability to invest funds generated through surplus income, a
differentiated fiscal regime that takes into consideration the complexity of crude oil and
natural gas fields, and the ability to issue “bonos ciudadanos” (Citizen Bonds)12. The 2008

11 In a speech delievered at the Mexican Congress during the energy reform debate, Jesus Reyes Heroles,
president of Mexico asked: “Why should we be surprised as Pemex rezago with regards to other NOCs whose
national governments and congresses have created the necessary conditions for their modernization, growth
and internationalization?“ See: Intervención de Jesús Reyes Heroles G.G., Director General de Petróleos
Mexicanos en el Senado de la República, en el foro organizado por el Senado de la República acerca de la
"Reforma para fortalecer a Pemex”. 05/08/2008.
Available at: http://www.sener.gob.mx/webSener/portal/Default.aspx?id=1352
12 Although the small size of Mexican capital markets impedes this reform from having a substantial effect on
Pemex capitalization, its objective is to create greater awareness within public opinion on the state of Pemex
finances (Pascal & Paramo 2009).
16

reform has also created a regulatory agency, the Comisión Nacional de Hidrocarburos, CNH
(National Hydrocarbon Commission) (Ballinas Valdes 2011, OECD 2010).

In its public discourse, the firm highlights that “the legislative changes that were approved
in October 2008 have offered PEMEX two elements that are fundamental to its operations:
greater administrative autonomy and more flexible contracting mechanisms” (Pemex 2009,
29). However, in private remarks Pemex managers describe the reform as incomplete
(Interview with authors, Mexico City, July 2012). In fact, Pemex presented its own proposal
for reform to key government officials and opposition legislators based on OECD best
practices, which was largely ignored when discussing the Calderon proposal. While it is
clear that the 2008 reform aims at bringing Pemex’s contracting regime closer to
international practices, there are several areas that require further attention (see OECD
2010). Risks and profits still cannot be shared, preference rights for the purchase of oil will
not be awarded, hydrocarbons and oil reserves continue to be state property, and private
participation can only occur through services agreements (Moran 2010, Cuervo 2009).

Pemex managers and the government remain divided with regards to further liberalization
of the oil sector, labor reform and Pemex regulation. PRI and PAN Congress members
remain concerned with the unpopularity of liberalizing the oil sector, particularly given the
rising support for the PRD, the left-‐leaning political party that most consistently objects
liberalization (Interview with authors, Mexico City, July 2012). The fact that liberalization is
constantly conflated with privatization in public discourse on Pemex makes this policy a
harder sell.13 Furthermore, the STPRM has successfully built ties both with the PRI’s old
guard and with the PRD. In this sense, democracy has provided multiple entry points for
the union to influence legislation. Another point of divergence between the government
and the NOC is the desirability of Pemex’ self-‐regulation. The firm has boycotted any
attempts by the government for greater oversight. The role of the Secretaria de Energia
(Energy Secretary) is quite limited and members of the CNH describe their relationship
with Pemex as tense and conflictual (Interview with authors, Mexico City, July 2012). It is
an external actor, the Securities Exchange Commission, which provides the greatest
oversight for Pemex (Rosseau 2008). Because it forces firms that issue international bonds
to report their financial situation, it has led to greater transparency, particularly with
regards to its dwindling reserves.

Pemex managers continue to reason that capacity enhancement should occur prior to
internationalization. In 2009, during the discussions of the upcoming business plan, upper-‐
level management debated the inclusion of internationalization as a key goal for the firm, in
part due to the conviction of then Pemex president, Jesus Reyes Heroles, of the benefits of
expanding abroad (Interviews with authors, Mexico City, July 2012). However, they
concluded that until Pemex underwent reforms, it would not be able to successfully
compete internationally, a situation that would provide more arguments for PMI’s critics.

13 See, for example, “Reyes Heroles cabildea en Houston”. Energía 8 (103) 11, FTE de México, available at:
http://www.fte-‐energia.org/pdf/e103-‐11-‐13.pdf
17

Petrobras: Consensual MOE, Convergence of Interests & Highly Successful Internationalization

An unlikely frontrunner given its lackluster beginnings, as of 2010 Petróleos Brasileiros
(Petrobras) had achieved a greater degree of internationalization not only than its Latin
American counterparts but also than most other emerging country NOCs. Indeed, since the
1950s Petrobras has literally transformed itself from an NOC with little technical expertise
and a modest operating budget into a leading multinational energy corporation. The
primary explanation for this dramatic turnaround is the liberalization of the petroleum
sector in the late 1990s, which effectively ended Petrobras’ 40-‐year public monopoly over
the petroleum sector and forced it to compete with private companies for concessions (e.g.,
Bridgman, Gomes, and Teixeira 2008).14 However, Petrobras began actively pursuing
internationalization as early as 1970. Admittedly, the company made its greatest strides in
the 1990s and 2000s, but by this time it had already undergone some internal
restructuring and acquired the technical capacity it needed to successful internationalize.15
Thus, Petrobras was already well-‐positioned to respond to increased competition at home
by accelerating its expansion abroad. Petrobras’ drive to internationalize is also associated
with Brazil’s relatively modest level of domestic reserves, especially when compared to its
neighbors in Mexico and Venezuela. And yet, the NOC has continued to actively pursue
internationalization following the discovery of large offshore reserves in 2006.16 According
to the director of its overseas operations, Petrobras’ goal in “pursu[ing]
internationalization now is “not to fulfill the demand of the domestic market but to invest
and seek [financial] return on their investments…”.17

What then explains Petrobras’ international rise? In stark contrast to Pemex, it has been
the beneficiary of both a consensual MOE and convergent interests between NOC
management and the government. In short, the absence of historical tension with IOCs,
combined with an increasingly supportive government, enabled Petrobras not only to be
among the first NOCs to initiate internationalization but also to acquire the necessary
technical and financial capacity to be among the most successful.

Consensual MOE

Petrobras was created in the context of an increasing role for the state in the Brazilian
economy. Nationalist sentiments certainly played a role in its emergence, as in the case of
Pemex. And yet, both the sources of nationalism and its impact on the evolution of the oil
sector were distinct. While in Mexico radical oil nationalism was fueled by an alliance
between political elites and the working class, in Brazil it was spearheaded by the middle
class and took on a much milder “developmentalist” form (e.g., Smith 1972). Moreover, the

14 There is also some question as to whether the amendments to the constitution in 1995 and the Petroleum
Law of 1997 actually ended Petrobras’ monopoly (e.g., Sennes and Narciso 2009).
15 For example, the company first won the prestigious Offshore Technology Conference prize in 1992.
16 The Tupi field, discovered in 2006, contains an estimated 5-‐8 billion barrels of recoverable reserves; it is
the largest oil discovery since the supergiant Kashagan field in Kazakhstan.
17 Marin, Denise. "Política externa ajuda Petrobrás". O Estado de São Paulo, 02/19/2006.

18

limited presence of IOCs in the country’s oil sector meant that nationalization was
uncontested and expropriation was unnecessary, thus decoupling nationalism from overt
conflict with foreign companies.

Until the 1930s oil was not a politicized issue in Brazil (Carvalho 2005). In the previous
decades, oil exploration was limited by the legal framework, set in the Constitution of 1891,
which emphasized the property rights of provinces and local landlords (Carvalho 2005). Oil
exploration began in the 1890s by private domestic companies. However, their limited
resources led to no results during the following five decades. It was not until the early
1920s that the central government began to support the exploration activities of these local
companies in the early 1920s.18 However, the limited resources of these firms combined
with the effects of the Great Depression led to meager results (Marinho 1970).19 During this
period, IOCs showed limited interest in the Brazilian oil sector.

It was not until the reign of Getúlio Vargas (1930-‐45) that the federal government initiated
an official review of the country’s oil policy in response to both increased domestic oil
consumption and its desire for greater centralization. Vargas created a secret commission
for this purpose. It was divided between nationalists who sought to impose total state
control and those more concerned with the consequences of “extreme nationalism,”
pointing to the decline of oil production in Mexico after the expropriation (Philips 1982).
The latter group prevailed and the Vargas administration promoted three nationalistic
measures in the petroleum sector (Carvalho 1977). First, it demanded Brazilian nationality
for shareholders of oil firms, eliminating both FDI in the oil sector and the participation of
foreign nationals. Although participation of the domestic private sector was allowed, the
legislation created the possibility for the state to acquire complete control of the industry.
Secondly, it declared that all oil fields discovered in Brazil belonged to the national
government.20 Lastly, it established the Conselho Nacional do Petróleo, CNP (National
Petroleum Commission) in 1938. As a result, oil exploration fell under the purview of the
central government and oil politics finally acquired a national dimension (Carvalho 2005).

The influence of the more nationalistic sectors within the Vargas administration began to
decline shortly after. In 1943 a new head of the CNP was named who two years after
assuming office asked the government to liberalize its oil policy and allow the IOCs to
invest in refining (Vitor 1970). It is also during this period that the IOCs attempt to play a
role in Brazilian oil politics. On several occasions Standard Oil attempted to expand its
influence in the refining industry (Marinho 1970).21 However, Vargas was overthrown
before any change of policy could be implemented. Thus, a key difference between Brazil,

18 Among these local companies we may find: Companhia Petrolifera Brasileira (Balone), Companhia
Petrolera Nacional S/A (Alagoas), Companhia Petróleo de Brasil, Companhia Mato-‐Grossense de Petróleo,
Sociedade Limitada Petróleos de Marau, Companhia Itatig, Petróleo, Asfalto e Mineração.
19 For example, the plumb lines used for exploration were borrowed from the Serviço Geológico e
Mineralógico (Marinho 1970).

20 See decrees Decreto-‐Lei n 395 (April 29th, 1938) and Decreto-‐Lei n 366 (April 11th, 1938).
21 In 1940, in a confidential memorandum, Standard Oil offered to carry out exploration activities in Brazil
through Standard Oil of Brazil. See Exposição de Motivos N 2558 by Gen. Joao Carlos Barreto sent to President
Getulio Vargas On June 5th, 1945 reproduced by Vitor 1970, 158-‐159.
19

on the one hand, and Mexico and Venezuela on the other, is that changes in oil legislation
took place in the absence of significant investments by IOCs. While IOCs opposed
nationalistic policies it was because they impeded entrance into the Brazilian market, not
because they affected their investments.

The Gaspar Dutra administration (1946-‐1950) set up a commission in 1948 to discuss a
new oil law, o Estatuto do Petróleo, which would allow IOCs to enter the sector through
concessions in all areas of the oil sector (Cavalho 1977, Cohn 1968). A fierce debate
emerged over the future of the oil sector, which echoed divisions regarding the proper role
of the state in the economy (Carvalho 2005). Support for a change in the petroleum laws
stemmed from both the domestic business sector and the CNP (Cohn 1968). The
government also counted on a solid support in Congress due to an inter-‐party agreement
between the PSD, UDN and PR (Mattos Dias & Quaglino 1993).

It was not legislative politics that impeded change in oil laws, but a highly coordinated
public opinion campaign led by the Armed Forces. These organized a nationalist campaign
advocating full state ownership and control of Brazil’s natural resources under the slogan
“O petróleo é nosso” (Petroleum is ours). Their most ardent supporters came from the
Brazilian Communist Party, resulting in an unlikely alliance between the two groups
(Penna 2005). University students, organized in the União Nacional dos Estudantes
(National Students Union) played a key role in mobilizing public opinion (Carvalho 1977).
These actors found a voice in the texts produced by the Centro de Estudos e Defesa do
Petróleo e da Economia Nacional (Cohn 1968, Carvalho 1977). Pressure from these
organizations gave several legislators the opportunity to break ranks from their party’s
positions and join the nationalistic campaign (Mattos Dias & Quaglino 1993).

Vargas was elected to the presidency in 1950. He made little mention of oil during his
campaign, but clearly recognized that supporting a more nationalistic oil policy was
untenable because this would favor the positions of his two key political rivals: the
Communist Party and the right wing sectors of the military (Philips 1982). In 1951
President Vargas sent a bill to Congress, proposing the creation of a state agency that
would be 51 percent government owned and would act as a holding company to oversee
future development and financing of the oil sector (Carvalho 1970).22 The government
sought to sell Petrobras shares to private individuals, government organizations and both
national and foreign private firms. The government also guaranteed that any foreign capital
would be confined to a minority position, unable to obtain a combined share of 15%
(Carvalho 1970, 51). This proposal was rejected by the same nationalists groups that had
promoted the “o petróleo é nosso” campaign, this time accompanied by members of Vargas’
own party, the Partido Trabalhista Brasileiro (Brazilian Labour Party). The proposal sent to
Congress by the Executive underwent radical changes between December 1951 and
October 1953. Vargas eventually compromised by endorsing Law 2004 of October 3rd 1953,
which established Petrobras as Brazil’s state-‐owned oil company, granted it a monopoly
over the exploration, production, transportation, and refining of hydrocarbons, prohibited

22 See Vargas presidential address to Congress.
20

foreign investment in the company, and retained CNP’s regulatory authority over the oil
industry (e.g., Randall 1993).

The IOCs offered little resistance to the creation of Petrobras (e.g., Oliveira 2012). However,
their limited role in the sector also meant that Petrobras did not have the opportunity to
benefit from an immediate and direct transfer of technology and knowledge as occurred in
the case of PdVSA. And yet, because relations with IOCs remained amicable, Petrobras
could make up for this loss over time through its overseas alliances with IOCs, which it
consciously exploited to gain new skills and access to advanced technology (Interview with
authors, Rio de Janeiro, July 2010).

Additionally, the government did not depend on labor unions for political or administrative
support during the nationalization. Furthermore, the creation of a peak labor organization
in the petroleum sector was delayed until 1993. During its first 40 years of existence, the
NOC management faced eighteen state-‐level petroleum unions, which lacked the financial
resources and numbers of a national level association. Thus, while unions remained vocal
opponents of internationalization, they did not have the institutionalized power within
Petrobras to veto internal reform and overseas expansion, as they did within Pemex.

Convergence of Interests

The legacy of its consensual MOE meant that Petrobras faced less political obstacles than
Pemex to developing the capacity to expand overseas. However, what has enabled
Petrobras to further develop and fully utilize its capacity since the 1970s is the
convergence of interests between NOC management and the Brazilian government
regarding the merits of internationalization, which has resulted in increasing levels of
financial and political support.

After the creation of Petrobras, its monopoly continued to be questioned by liberal sectors
(Carvalho 1970). Yet the NOC found support not only on a vocal constituency defending its
monopoly, but also in a government that eventually rallied behind it (Smith 1969). By the
late 1950s the defense of Petrobras was taken up by whoever occupied executive positions
and was constructed in nationalistic terms.

During the first few years of its existence, Petrobras was in a strong financial position due
to several fiscal advantages. Between 1954 and 1959, almost 40 percent of its budget came
from tax exemptions and earmarked sources of revenue (Philips 1982, 368). Nonetheless,
profitability was a key objective of the NOC’s management in order to increase the
company’s independence from Congressional oversight and criticism (Carvalho 1970).
With this objective in mind, Petrobras pursued a systematic evaluation of the viability of
exploration and production. The Relatório Link (Link Report), published in 1960, was quite
pessimistic of the possibilities of exploring Brazilian reserves (Dias 1993). The conclusion
of the report directly attacked one of the most important nationalistic myths: the
abundance of petroleum in the country. It also suggested that if Brazil sought to satisfy its
energy demand it should seek supplies offshore and overseas (Philips 1982). However, the
21

report had little influence because it was largely ignored; many claimed it was the
nefarious work of a foreign agent that sought to boycott the NOC (Smith 1969).

In the early 1960s, Petrobras became increasingly politicized (Smith 1972). Three
proposals were at the center of the debate: the expansion of Petrobras’ economic activities,
the expropriation of two remaining small private refineries, and greater exploration in the
Amazon, which was believed to contain lucrative reserves (Philips 1982). While more
conservative technocrats within Petrobras opposed these proposals, they found strong
advocates among the extreme nationalists within the company, who were allied with
Petrobras unions controlled by the Communist Party. The latter group was also allied with
President João Goulart (1956-‐1961), and thus, drove oil policy until the 1964 military coup.

During this period, labor became increasingly more involved in the decisions of the NOC.
For example, labor unions exercised veto power over the executive designations of
Petrobras presidents (Smith 1969). In 1962, Francisco Mangabeira was named Petrobras
president with the explicit support of the Petrobras union. In return, Mangabeira created a
department for the workers and the position of Social Director in the administrative
council (Smith 1969, pp. 170-‐171).

After the coup, the Petrobras conservative technocrats benefitted from greater political
support and the suppression of union activity (Philips 1982). The company was also able to
convince the authoritarian government to endorse the controversial policy of overseas oil
exploration. Petrobras management has shown a deep and surprisingly early commitment
to internationalization. This strategy was presented as one logically linked to the original
objectives of Petrobras. In July 1970 Geisel, president of Petrobras at the time, argued that
“it would be a great national catastrophe if Brazil did not become either self-‐sufficient or a
great international oil power” (Philips 1982, 382). The company’s managers thus sought to
create its own structure to dispute for exploratory rights abroad, Petrobras Internacional
(Braspetro) (Dias 1993). In order to do so, however, they had to solve a legal problem tied
to Petrobras’ creation: Article 41 of Law 2004 imposed restrictions on the company
operating outside of Brazil and demanded a provision in an international treaty as a
precondition for Petrobras to explore petroleum abroad (Petrobras 2007). After intense
discussions in Congress (Scaletsky 2003), this restriction was eliminated via Law 5665 of
June 1971. For ardent nationalists, the creation of Braspetro signified the end of the search
for self-‐sufficiency, but others considered it a pragmatic reorientation of the NOC.

The government provided important political assistance for Braspetro’s activities during
the 1970s. The NOC relied on both Brazilian diplomacy and military to maintain its
investments in the changing Middle East. The country moved away from its support of
American foreign policy and supported the Arab countries positions on Israel, among other
issues (Philips 1982). This enabled Petrobras to become the first company in the world to
purchase oil from the new NOCs in Libya, Egypt, and Iraq after the nationalization of their
respective petroleum industries (Petrobras 2007). The main objective behind this policy
was to establish a direct linkage with these companies and avoid intermediaries, such as
British Petroleum (Petrobras 2007). In 1972, Petrobras arrived in Iraq for petroleum
22

exploration. Although British Petroleum had embargoed the Rumalia field, Petrobras,
violating a Hay Tribunal resolution, bought the oil and relied on the Brazilian armed forces
to help transport it back to Brazil (ibid).

In the 1980s, the NOC was instead encouraged to focus on developing domestic reserves.
Between 1976 and 1988 Petrobras was authorized by the government to sign “risk
contracts” with IOCs for exploration and production. By 1984, internal production was
raised by 500 thousand barrels per day due to the discovery of the Bacia de Campos field
(Petrobras 2007). With its fiscal resources turned inward, Petrobras’ internationalization
decelerated. Nonetheless, via Braspetro, it continued to seek opportunities to expand its
capabilities. It arrived in Angola in 1980, for example, where it worked alongside BP,
Texaco, Petrofina and Total to develop an offshore area in which three important fields had
already been discovered (ibid, 89). Braspetro also sought joint ventures at home; in fact, it
was due to such a partnership with Texaco, that the company was able to gain a foothold in
the US, creating Petrobras America (PAI) in 1987 to participate in the exploration of six
fields off the coast of Louisiana. This strategy not only expanded its role while reducing its
risks, but also facilitated a key transfer of expertise between Petrobras and the IOCs and an
opportunity to learn international standards. In fact, the explicit goal was to help the NOC
become more like the majors (ibid).

It was also in the 1980s that Braspetro began providing services as a financial alternative
(Petrobras 2007, 85). This strategy gave the company access to foreign currency and
assured its continued presence in the international market. It also exposed the company to
the competitive environment of market economies, which was non-‐existent at home due to
its state monopoly (ibid). Braspetro soon was involved in all the different stages of
petroleum production: consultancy, well perforation, technical assistance and training in
exploration and production and provision of equipment for refinement, petrochemical and
fertilizing industries (ibid, 86). Although this strategy was controversial, the company was
able to pursue it unimpeded (ibid, 87).

Braspetro’s main concern in the 1990s was to avoid being part of the state budgetary
reduction efforts. It was an especially good candidate because it had not produced any
earnings between 1980 and 1992. Thus, when José Coutinho Barbosa became president of
the company in 1992, his main goal was to make Braspetro financially independent from
Petrobras, which had kept the capital-‐intensive subsidary alive with an annual US $80
million “allowance.” In the early 1990s, Braspetro launched a Strategic Plan with the main
goal of financial austerity and reduction of personnel.

The partial privatization of Petrobras and the liberalization of the oil market were a major
part of the Fernando Henrique Cardoso administration’s (1995-‐2002) economic program.
Both were deemed necessary to improve the NOC’s economic efficiency and to address the
country’s balance of payment problem and the government’s fiscal deficit (Oliveira 2012).
Despite the discoveries in Bacia de Campos, the country was heavily dependent on oil
imports, acquiring 45% of its oil consumption abroad (Petrobras 2007, 152).

23

The government faced several challenges for the implementation of its preferred agenda.
Nationalists argued that the Cardoso administration’s true intentions were full
privatization. While some figures in the Cardoso government favored the complete
privatization of the NOC, this policy was politically unfeasable.23 Public opinion at the time
was divided with regards to privatization. A survey by IBOPE, for example, indicates that
28% of the population was against the privatization, 30% was in favor and 32% were
indifferent or did not have an opinion (Scaletsky 2003). Even within the most liberal party,
the PFL, there was divergence among its members regarding the benefits of privatization.24
In order to dissipate fears that the government was after full privatization, key oil policy-‐
makers that responded to Cardoso and Petrobras management argued publicly in favor of
maintaining government control. Cardoso himself went to great lengths to dissipate the
possibility of privatization.25 In fact, reforms were presented by the government as a
continuation of the reforms that had introduced risk contracts in the late 1970s.26

Union leaders determined to take a stand in defense of Brazil’s state-‐owned industries and
against the liberal privatization moment presented a key obstacle for the Cardoso
administration (Scaletsky 2003). The Petrobras workers had recently organized under a
national labor federation, the Federação Única dos Petroleiros (FUP), which had fervently
supported Cardoso’s opponent, Luiz Inácio “Lula” da Silva and remained the strongest base
of organized opposition to his government (Goertzel 1999). During the first half of the
decade, Petrobras had already undergone a drastic reduction in the number of employees.
Between 1989 and 1995, nearly 14,000 employees were fired; that is, 23 percent of the
company’s total labor force (Scaletsky 2003). The oil workers were in a particularly strong
position to wage a strike given their capacity to interrupt the distribution of a key resource
(Goertzel 1999), their organizational capacity and the grievances of their base.

Within the confines of the law, the Cardoso administration executed a carefully designed
plan to defeat the oil workers strike of May 1995 (Goertzel 1999). The first step was to
pump up as much oil as possible to the independent distributors thereby opening space in
the tanks in the port cities to receive more imported oil if needed. Companies were allowed
to take this oil on consignment and not pay for it until it was sold. Contracts were signed
with ESSO, Texaco and Shell to ensure a supply of imported oil. The government
subsequently prepared a legal brief for the Supreme Labor Tribunal, which would rule on
the legality of the strike. Finally, the government made arrangements with 220 retired
workers and petrochemists who were brought into the refineries before the strike so they
would know the equipment they had to work with. When the union finally went on strike,
the government was ready. Army troops occupied key refineries to protect them from

23 “Rennó discorda de Mendonça de Barros sobre destino da Petrobrás”. O Estado de São Paulo. 27 Oct 1997.
24 For discussions within the PFL see: “Governo vai reestruturar privatização”. Gazeta Mercantil. 12/23/1999.
25 Cardoso sent a public letter to the then president of the Senate José Sarney assuring that Petrobras would
not be privatized. This finally created enough assurance within Congress to pass the reform. See: Breve,
Nelson and Odail Figueiredo. “Rennó discorda de Mendonça de Barros sobre destino da Petrobrás”. O Estado
de São Paulo. 10/27/1997.
26 This point is made by then Petrobras director Antonio Carlos Sobreira de Agostini in a presentation
delivered at the seminar “A Nova Regulamentação da Industria do Petróleo no Brasil” organized by the
Instituto Brasileiro de Petróleo and the Fundação Getulio Vargas. May 1996.
24

sabotage and to guarantee the rights of those disposed to work. Public opinion began
turning in favor of the government and within a month the strike collapsed (Goertzel 1999,
134). According to a labor union leader “without a doubt, the worst government for
petroleum workers was Fernando Henrique Cardoso’s”.27

As in the case of Mexico, the NOC’s monopoly was constitutionally protected. This created a
potential barrier to reform. According to Kingstone (2011, 26), “while Brazil's constitution
can be amended, the process is lengthy with multiple veto gates.” In August 1995 the
government was finally able to enact a constitutional reform that ended the Petrobras
monopoly over hydrocarbon resources and retained, for itself, the right to allocate
concessions (to state or private entities) to exploit these resources (Oliveira 2012). Thus, it
was only because of an administration that was willing to risk its political capital on the
issue of Petrobras, that reform in the Brazilian oil sector was possible.

Undeterred, the Cardoso administration pursued further reforms in the next decade. In
2000, the federal government sold 180 million blocks of 100 shares for US$4 billion. Of the
total sum, 40% was sold in Brazil and 60% abroad through American Depository Receipts
(ADRs) on the New York Stock Exchange. As a direct result, Petrobrás’ financial and
management reports started to be analyzed and regulated by the Brazilian Securities and
Exchange Commission as well as by its American counterpart, which supervises open
capital firms. Petrobrás’ ADRs figure among the principal types of paper traded on the
international market. The federal government now holds only 33% of Petrobras’ capital;
however, it keeps most of the preferential shares (56%) (Sennes and Narciso 2009).

Petrobras managers have obtained two benefits from the reforms pursued by the Cardoso
administration. The first one is there ability to act simultaneously as a private and a state-‐
owned company (Interview with authors, Rio de Janeiro, June 2010). The perception of
being an NOC from a developing country has been an advantage for the company for
obtaining market access in other developing countries. However, in “road shows” where
the company has sought investors and in its alliances with IOCs, it has underscored its
market-‐driven behavior. In fact, Petrobras managers did effectively perceive themselves to
be independent from the government during the 1990s (Tojal de Araujo 1996).

Additionally, Petrobras managers used the reforms pushed by the Cardoso administration
to deepen the firm’s internationalization. Petrobras managers argued that their investment
portfolios in Brazil were attractive to the IOCs and the firm should use that as an
opportunity to expand abroad. Thus, the NOC explicitly favored joint ventures in the
domestic market with firms that provided market access abroad. 28

27 See: Memória Petrobras. “Depoimento Alan Rodrigues Brandao”, Pg.14. Available at:
http://memoria.petrobras.com.br/depoentes#.UUsfMhwelMQ (accessed 03/21/2013)o

28 “Petróleo/Internacionalização”. Agência Jornal do Brasil. 12/14/1997. Thuler, Fernanda “Braspetro atua em
novos mercados”. Gazeta Mercantil. 11/24/1998. “Petrobras busca mais parcerias com contrapartida-‐
gerente”. Reuters Focus. 03/21/2000.
25

In sum, the domestic political context facilitated Petrobras’ early and ultimately successful
internationalization strategy. By the end of the 1970s, Braspetro was already present in ten
countries: Iraq, Colombia, Iran, Egypt, Algeria, Libya, Madagascar, Philippines, Guatemala
and Italy (Petrobras 2007). In the late 1990s, Petrobras underwent an intense
restructuration process, which included merging Braspetro into the Petrobras structure
and renaming it the Area of International Business (ibid). This led the way for Petrobras’
internationalization strategy to really accelerate in the 2000s. Its success also helped
galvanize public opinion in support of overseas expansion, enabling even former
opponents like Lula to endorse internationalization As Nestor Cervero, former director of
the International Area, explains “there is a political orientation, by the firm and the
government, towards international expansion… From the beginning, the Lula
administration showed concern for our expansion… with the presence in new countries
and the integration that can mean new business linkages for the Brazilian economy” (ibid).

PdVSA: Consensual MOE, Divergence of Interests, & Moderately Successful Internationalization

PdVSA’s stunted overseas expansion is equally puzzling to Petrobras’s rise. Despite having
the highest level of reserves in Latin America, PdVSA also begin actively pursuing
internationalization in the 1970s and quickly acquired downstream assets abroad,
including a 50 percent interest in the German refinery Ruhr Oel in April 1983 and a 50
percent interest in the US-‐based Citgo Petroleum Co. in 1986. And yet, at the end of the
1990s, this regional frontrunner’s internationalization drive came to a screeching halt. The
most obvious explanation, of course, is the election of a leftist leader – Hugo Chavez – to the
presidency in 1999 (e.g., Boue 2002, Hults 2007). Oddly, the empirical evidence suggests
that this had little effect. First, PdVSA faced significant political barriers well before Chavez
came to power and internationalization was already stagnating. Second, despite all
expectations (and pronouncements) to the contrary, by the end of the 2000s the Chavez
administration had not reversed PdVSA’s overseas expansion even reinvigorated some
aspects of the company’s internationalization strategy.

PdVSA’s trajectory is indeed a product of domestic politics, but the story begins much
earlier than 1999. Like Petrobras, PdVSA benefitted from a consensual MOE, which
bolstered the authority of management over labor within the company and lowered the
political cost of government support for internationalization. Because IOCs both played a
large role in Venezuela’s petroleum sector and willingly participated in a protracted
nationalization and expropriation process, moreover, PdVSA also benefitted from the direct
and immediate transfer of technology and expertise. From its inception, then, PdVSA had a
greater technical capacity to pursue internationalization than did either Petrobras or
Pemex. And yet, while this certainly jumpstarted PdVSA’s efforts to internationalize its
operations in the 1970s and 1980s, the meager and uneven government support it received
stifled any further progress. Alongside Pemex, PdVSA demonstrates how the divergence of
interests between the government and NOC concerning the necessity of internal reform
and desirability of internationalization can obstruct the NOC management’s efforts at
internal restructuring and deprive the company of investment capital to expand abroad.

26

It was in this context that Chavez rose to power by campaigning against economic
liberalization in general and the privatization of PdVSA in particular. By 2001, the
government had forcibly reasserted PdVSA’s status and role as a state-‐owed company by
enacting a new Hydrocarbons Law, which stipulated that all future foreign investments
should take the form of joint ventures with majority PdVSA ownership and raised royalty
rates (Mommer 2002). The 2001 Law also mandates (along with the Constitution) that
PdVSA contribute to executive-‐run social programs and community projects (Mares and
Altamirano 2007).29 The following year, Chávez began to mandate changes within the NOC
and appointed a new board of directors. This antagonized PdVSA’s employees, leading to a
series of 2002-‐2003 protests and strikes against the government in April 2002 and then
December 2002 that nearly brought national oil production to a standstill (EIA 2004).
Chávez responded by seizing the country’s oil facilities and eventually firing 18,000 of
PdVSA’s employees who participated in the strike, many of whom were engineers (Harman
2006). Even accounting for subsequent re-‐hirings, the company lost a net 30-‐40% of its
workforce (Mares and Altamirano 2007, 6).

By the mid-‐2000s Chavez had succeeded in “transform[ing] PDVSA from a commercially
managed company to an integral government agent” (Hults 2007). The company’s political
an economic objectives are now closely aligned with the government’s. In its Plan Siembra
Petrolera (Oil Sowing Plan), for example, PdVSA adopted a business strategy for the
medium-‐ and long-‐term that deliberately emphasizes projects of central importance to the
Chavez administration, including the Magna Reserve certification project, the Orinoco oil
development project, and the Delta-‐Caribbean gas development project (PdVSA 2007). In
an abrupt reversal of its campaign to withdraw from OPEC in the early 1990s (Philip
1999b), PdVSA has also supported the government’s efforts to raise international oil prices
by revitalizing OPEC’s cartelization of production (EIA 2006).

The changes to PdVSA’s international profile, however, have been less dramatic than
expected. In 2004 and 2005, for example, Chavez declared his intention to sell the
company’s refineries abroad because they did not serve the country’s economic interest
(Mares and Altamirano, 2007, 51).30 Yet, PdVSA subsequently sold only a portion of shares
(41 percent) in one of its refineries (Lyondell-‐CITGO in 2006), and in fact continues to use
Citgo to refine and sell the bulk of its oil (Hults 2007). The aforementioned Plan Siembra
Petrolera includes the construction of three new domestic refineries as well as several
international ones (e.g., in Brazil, China, Cuba, Ecuador, and Vietnam), with the majority of
PdVSA’s refining capacity still remaining outside the country (PdVSA 2007). Chavez did
fundamentally change PdVSA’s international partners. Both the 2001 Hydrocarbons Law
and, more importantly, the 2006 “re-‐nationalization” of the industry and forced
expropriation of IOC assets effectively reversed the aperture of the 1990s in the oil sector.31
However, the thrust of Chavez’s policies have not been to reverse internationalization.

29 In mid 2004, the government created FONDESPA to channel financial support directly from PDVSA to social
and economic programs approved by the government (Mares and Altamirano 2007).
30 The reason for this assertion is two-‐fold: PdVSA’s failure to remit dividends from Citgo under previous
governments and the belief that transfer prices to refineries abroad were too low.
31 Chavez’s policies have been more favorable to FDI in the gas sector (see, e.g., EIA 2006).
27

Rather, they have been to deprive PdVSA’s of the capacity that enabled it to become a
frontrunner in the first place; that is, its fiscal independence, managerial and technical
expertise, and positive relations with IOCs.

Consensual MOE

Unlike Brazil, Venezuela was already an important oil producer in the 1920s and 30s. IOCs
were attracted to the country largely due to Juan Vicente Gomez’s (1908-‐35) liberal oil
policy (Hall 1995, 179), which included a pro-‐development taxation framework that
required extremely low royalties (around 3%) and subsurface tax rates (Hults 2012, 422).
And yet, unlike Mexico, the nationalization of the oil sector was largely a consensual
process. Instead of challenging the oil industry’s operational autonomy wholesale, the
government chose to experiment with gradual regulation and direct participation in
productive and commercial activities only in limited areas.

In 1960, the Betancourt administration founded Corporacion Venezolana del Petroleo
(Venezuela Petroleum Corporation), which would later be merged into PdVSA. It was
established to carry out small-‐scale exploration and production. However, Betancourt
explicitly discarded nationalization as too premature a policy option at the time (Matsuda
1997) and the Venezuela Petroleum Corporation never came close to replacing the
concessionaries as the main instruments for oil management.

The decision to nationalize the oil industry was basically a political one, which took place
against the backdrop of growing state capitalism in Venezuela (Baena 1999), but it was not
highly politicized, as it was in Mexico. As of 1973, there was broad consensus that the
nationalization process should be negotiated and gradual. In the spirit of the Punto Fijo
Pact32, the country’s two main political parties (Acción Democrática (AD) and COPEI)
supported the formation of a non-‐partisan commission, the Presidential Commission for
the Reversion of the Petroleum Industry appointed in May 1974 (for details, see Hults
2012). The Commission was comprised of the chief executive, members of both political
parties, and the armed forces composed the Commission their members, representatives of
the armed forces, and assisted by the Coordination Committee, which included
representatives of various segments of society, such as professional guilds, universities,
businessmen and unions. After a year's work, the commission produced a roadmap for
nationalization and suggested immediate implementation of the nationalization policy.

Also in contrast to Mexico, labor unions played little role in the nationalization process.
This was essentially because labor in Venezuela had little autonomy; it was incorporated in
the 1950's by the AD party, which also happened to be in power during the nationalization.
Interestingly, the only potential resistance within the industry came from a number of
domestic oil managers who formed the Agrupación de Orientación Petrolera, AGROPET (Oil
Orientation Group). Feeling somewhat alienated from the nationalization process, they
advocated for having members with industry expertise on the board of the NOC and

32 According to the pact, the two parties agreed to alternate power and agree on all major policy-‐initiatives.
28

establishing its political independence.

Over the course of these deliberations, there arose one important controversy: Article 5 of
the Nationalization Law authorized the NOC to form associations with private companies,
which neither the Commission nor AGROPET had recommended (Matsuda 1997). After
failing to persuade the opposition party to support the inclusion of this provision, the
Carlos Andrés Perez government (1974-‐79) unilaterally decided to insert it nonetheless,
citing its concern that Venezuela’s technological capacity was not sufficient to exploit the
Orinoco Oil Belt. Over the following decades, the role for foreign capital in the development
of the nationalized oil industry would become the most important source of divergent
policy preferences concerning PdVSA (ibid).

The reaction of IOCs also contributed to the consensual nature of Venezuela’s
nationalization and expropriation process. By the mid-‐1970s, international conditions had
changed such that they were more willing to take a conciliatory stance. Their bargaining
power in the international oil market had eroded and they could no longer call upon their
home governments to exert pressure on the host country to change its policy, as IOCs had
done in response to previous nationalization attempts (Petras et al 1977). In addition, due
to increasingly unfavorable tax conditions in Venezuela and more attractive opportunities
elsewhere, the IOCs were less interested in continuing their operations in the country.
Thus, the IOCs were less opposed to being expropriated as long as they were fairly
compensated. The initial hardline position adopted by some IOCs, such as the Exxon
Corporation, for example, was rapidly changed as the terms of settlement became clearly
favorable towards the IOCs (ibid). Finally, both the government and the IOCs appeared to
benefit from the previous experience of Mexico, which served as a clear warning against
aggressive expropriation strategies.

PdVSA benefitted in several ways from its consensual MOE. First, the company inherited an
internal structure that helped to shield it from the government. The relationship between
the executive and PDVSA’s directory is, in practice, determined by the firm’s internal
business organization (Mares and Altamirano, 2007, 40). From its founding until 1998,
PdVSA’s operating units were independent and autonomous form the holding company.
The three units (Maraven, Lagoven, and Corpoven) were similar to their pre-‐
nationalization counterpart affiliates of Shell, Mobil, and Exxon, respectively, and they
competed with one another like business adversaries (ibid). Although this structure
created huge economic inefficiencies, it was also conducive to avoiding political
interferences in oil business operations; since presidents could appoint allies to the
directory, but not control what went on in each subsidiary (ibid, 41).

Second, it allowed the continuation of a working relationship between the IOCs and the
nationalized oil industry (Petras et al 1977). In fact, contracts with IOCs were negotiated
before the nationalization even occurred. The Venezuelan government was able to
establish cooperation agreements with IOCs for technical assistance and managed to secure
access to market facilities enabling PDVSA to commercialize its crude (Matsuda 1997). The
IOCs, in turn, received indemnity for the expropriation of those wells for which the
29

concession would have expired in 1984 (Baena 1999). The level of cooperation was such
that shortly after the nationalization PdVSA and Exxon signed a substantial supply contract
of 900,000 barrels per day (Colgan 2010, 197). For at least the first two years of the post-‐
nationalization period, the former concessionaries operating in the country continued to
carry out the international commercialization of Venezuelan oil (Baena 1999).

Finally, it strengthened the role of management in the petroleum sector. Protracted
negotiations enabled PDVSA managers to maintain substantial control over the country’s
oil policy and insist upon their autonomy as a condition of remaining in the country.
Because it was characterized by bargaining and interaction among the actors involved
(Congress, executive, pressure groups and oil managers), PDVSA managers were able to
play different actors among each other (Baena 1999, Hults 2007). This is relevant because
the internal “management culture” of PDVSA was from the beginning technocratic and thus,
very different from the rest of the Venezuelan state (Philip 1999). The oil company
managers made it clear that they would only remain in Venezuela after the nationalization
if their managerial autonomy was respected (ibid). Because the political elite had largely
organized the Venezuelan state around oil rents, they sought to avoid a crisis.

Divergence of Interests

Venezuela’s consensual expropriation thus provided a strong foundation for PdVSA to
pursue internationalization successfully. In many ways, it was better poised to succeed at
expansion abroad than Petrobras. The divergence of interests between NOC managers and
the government, however, systematically undermined this advantaged position.

The 1975 law indicated that PDVSA was a commercial entity (Giusti 1995). The post-‐
nationalization structure was based on a concept of “separate spheres.” PdVSA and its
affiliates would run the oil industry in an efficient manner, much as the private sector had
in the past, and would pay taxes. The government would then use tax income according to
political criteria. This arrangement worked well enough when oil prices were high. Both
PdVSA and the Venezuelan state thrived in the late 1970s. Nominal PdVSA investment in
exploration and production grew by more than 500 and 600 percent, respectively, between
1976 and 1981 (Hults 2012).

This situation changed dramatically with the fall in oil prices around 1981. PdVSA
management and the central government began to see themselves as competing for scarce
resources, which led to increasing tensions between them (Philip 1999). Faced with high
levels of debt and capital flight, the Venezuelan government turned to PdVSA to relieve its
fiscal burden. It pursued a variety of coercive strategies, including forcing the company to
pay its taxes in advance to purchase government bonds (Mares & Atamirano 2007). Then,
in 1982, the Luis Antonio Herrera administration (1979-‐84) seized PdVSA’s foreign
currency holdings. The company’s management interpreted this act as a clear sign of
political interference, directly threatening its financial autonomy and its expansion plans
(Baena 1999). At the same time, depressed oil prices resurrected the concerns of PdVSA’s
30

management that the company lacked both independent downstream mechanisms and
limited experience by employees to undertake international sales of its crude (ibid).33

PDVSA’s management pursued internationalization as an anecdote to government
intervention in the NOC’s affairs (Parker 2005). In the first phase, PdVSA focused on
establishing joint ventures with refiners in its major markets. It entered into negotiations
with several IOCs, including Elf-‐Aquitaine of France and ENI of Italy, before signing a
contract with German Veba Oel in April 1983, which included a 50 percent share of the
Ruhr Oel refinery (Matsuda 1997). The contract found immediate support in the Ministry
of Energy but not within Congress. The main issue thus became whether in fact that
contract was legitimate without Congressional approval, which critics argued was required
under Article 5 of the Nationalization Law. PdVSA argued that because the agreement was
centered on oversees actions domestic legislation did not apply. The Republic's Solicitor-‐
General concurred and the deal was allowed to proceed (Baena 1999). Nonetheless, the
controversy surrounding it led PDVSA to suspend other similar arrangements already in
progress with other IOCs (Matsuda 1997) and discouraged other potential international
partners from seeking opportunities to work with PdVSA (Baena 1999).

By 1986, however, the company launched its second phase of internationalization in
response to both the continuing fall in oil prices and the reduction in OPEC production
quotas, which was depriving it of income (Phillip 1999b).34 PdVSA signed contracts to
establish joint ventures with several IOCs, including Swedish Axel Johnson, Southland
Petroleum Corporation, and Union Pacific Corporation. Of these its most important
acquisitions were the aforementioned 50 percent interest in Citgo and a 50 percent interest
in the Nynäs refining network in northern Europe (Baena 1999).
The return of President Perez (1989-‐93) further invigorated the commitment of PDVSA’s
management to internationalization (ibid). In 1990, they introduced – the Plan de
Expansión (Expansion Plan) – a coherent strategy for the company’s future that was
centered around acquiring the capacity to continue overseas expansion. (Espinasa 2006).
Among its goals was to increase the firm’s investment capacity by lowering the level of
domestic taxation. However, during the economic crisis of the early 1990s, Perez attempted
to regain political control over PDVSA and focus on domestic investments. The president
even asked the NOC to sell CITGO to which the company responded that “no buyer would
pay Venezuela a fair price” (Hellinger 2006, 61).

For most of the 1990s, therefore, PdVSA’s management focused on implementing the
Apertura (opening) policy, which was designed to foster associations with foreign
companies to explore and develop Venezuelan oil (Baena 1999, Hellinger 2006), including
most importantly in the Orinoco region (Hults 2007). This initiative came from then PdVSA
president Luis Gusti (Gusti 1999) PdVSA’s managers chief motivation for supporting the

33 This concern was raised during the nationalization process, but was not yet a priority (Baena 1999).
34 According to Phillip (1999b, 366), this was both because OPEC quotas reduced Venezuela’s production to
pre-‐1981 levels and because “the average cost of production [rose] during the 970s and 1980s.”

31

opening was financial. They recognized that they pushed for expansion without realizing
that they would not have sufficient resources to finance their program (Monaldi 2004). The
Apertura policy also served PdVSA’s interests because it led to significantly increased
production at the expense of OPEC quotas (Hults 2007), which PdVSA management had
strongly criticized (Hellinger 2006). The Apertura policy was interpreted by management
as a deepening of the commercial purpose from which PDVSA originated (Giusti 1999).

Attempts to expand the network of refineries abroad nonetheless continued during this
period. In 1990 PDVSA purchased the remaining 50 percent of CITGO’s assets, amending it
strategy of having a partner in its refinery ventures abroad (Baena 1999, 214). PdVSA’s
now wanted to make the company the center of its operations in the US and to maintain the
competitive advantage it had acquired in the US market. Despite the government’s vocal
opposition, PdVSA achieved what is “likely one of the largest transfers of South-‐North
capital made by an individual company” (Boue 2002).

The company also utilized this period to undergo necessary restructuring to make it more
competitive and attractive to foreign investors. In 1997, PdVSA’s president Luis Giusti
dismantled the company’s decades-‐old multiple operating company framework and began
to establish a vertically integrated structure to replace it (Giusti 1999). Further reforms
were presented in 1998 centered around increasing standards for the competitiveness of
employees and flexibility for hiring and firing standards (Mares & Altamirano 2007, 45).
Labor resisted changing perceptions about their roles in the company as well as old
business practices, and fought more eagerly than before for internal influence and benefits
that were threatened by the restructuring. The conflict between employees of the firm was
heightened by tensions related to national politics in the late 1990s. PdVSA’s management
was convinced that outsourcing upstream operations to IOCs was the best course of action
for the country and the company because the government’s dependence on the oil sector
was fueling corruption and restricting PdVSA’s capacity to invest. Venezuelans outside
PdVSA, however, largely opposed the philosophy motivating the aperture and blamed the
liberalization policies associated with PdVSA for the country’s stagnating economy (Hults
2012). Many within the left in particular accused PdVSA of “plac[ing] the interests of IOCs
in low taxes above the interests of the tax-‐collecting state” (Hults 2007).

In 1999,Chavez rose to power and reformed the Constitution. One of they key reforms was
related to the oil sector. PDVSA management publicly opposed these changes. According to
then PDVSA president, Héctor Ciavaldini, who was actually assigned by Chavez, the vague
REDACCION of the article “removed flexibility for business” and potentially created legal
obstacles for share sales and expansions of subsidiaries abroad.35 During this process the
government also seemed skeptical of continuing with the internationalization process.

By the mid-‐2000s Chavez had succeeded in “transform[ing] PDVSA from a commercially
managed company to an integral government agent” (Hults 2007). The company’s political

35 See: Flynn, Daniel. “Economía de Venezuela en peligro de volver al pasado”. Reuters -‐ Noticias
Latinoamericanas. 11/11/1999.
32

an economic objectives are now closely aligned with the government’s. In its Plan Siembra
Petrolera (Oil Sowing Plan), for example, PdVSA adopted a business strategy for the
medium-‐ and long-‐term that deliberately emphasizes projects of central importance to the
Chavez administration, including the Magna Reserve certification project, the Orinoco oil
development project, and the Delta-‐Caribbean gas development project (PdVSA 2007). In
an abrupt reversal of its campaign to withdraw from OPEC in the early 1990s (Philip
1999b), PdVSA has also supported the government’s efforts to raise international oil prices
by revitalizing OPEC’s cartelization of production (EIA 2006).

The changes to PdVSA’s international profile, however, have been less dramatic than
expected. In 2004 and 2005, for example, Chavez declared his intention to sell the
company’s refineries abroad because they did not serve the country’s economic interest
(Mares and Altamirano, 2007, 51).36 Yet, PdVSA subsequently sold only a portion of shares
(41 percent) in one of its refineries (Lyondell-‐CITGO in 2006), and in fact continues to use
Citgo to refine and sell the bulk of its oil (Hults 2007). The aforementioned Plan Siembra
Petrolera includes the construction of three new domestic refineries as well as several
international ones (e.g., in Brazil, China, Cuba, Ecuador, and Vietnam), with the majority of
PdVSA’s refining capacity still remaining outside the country (PdVSA 2007). Chavez did
fundamentally change PdVSA’s international partners. Both the 2001 Hydrocarbons Law
and, more importantly, the 2006 “re-‐nationalization” of the industry and forced
expropriation of IOC assets effectively reversed the aperture of the 1990s in the oil sector.37
However, the thrust of Chavez’s policies have not been to reverse internationalization.
Rather, they have been to deprive PdVSA’s of the capacity that enabled it to become a
frontrunner in the first place; that is, its fiscal independence, managerial and technical
expertise, and positive relations with IOCs.

Refined Hypotheses and Initial Test

Our initial set of case studies yields findings that are consistent with our preliminary
hypotheses. The combination of Mexico’s legacy of conflictual expropriation that has long
impaired its relations with IOCs and the divergence of interests between NOC management
and the government regarding the merits of internationalization throughout the 1990s
clearly eviscerated Pemex’s capacity to internationalize in the 2000s. Conversely, Petrobras
has benefited form both the absence of historical tension with IOCs tied to its consensual
MOE and the convergence of interests between NOC management and the government,
which enabled it to acquire the necessary technical and financial capacity to attain the
highest degree of internationalization. In between these two extremes, PdVSA had the
capacity to achieve a moderate degree of internationalization due to a consensual MOE,
which facilitated the transfer of both technology and expertise from IOCs, and yet, the
divergence of interests between the NOC management and the government since the 1970s
has denied it the necessary support to realize its ambitions for further expansion overseas.

See: Flynn, Daniel. “Economía de Venezuela en peligro de volver al pasado”. Reuters -‐ Noticias
Latinoamericanas. 11/11/1999.
33

Thus, we have some confidence that we have accurately identified the key explanatory
variables and causal mechanisms we identify that link these variables to different degrees
of internationalization. And yet, our initial set of case studies also suggests that we need to
modify our hypotheses. In particular, the experience of Petrobras indicates that two
additional factors are essential in elucidating the multiple paths through which
internationalizing NOCs achieve varying degrees of success. First, especially where a
consensual MOE does not involve an extensive transfer of technology and expertise, as it
did for example, in PdVSA, we need to take into account not merely whether or not
interests converge but also the timing of this convergence. In Brazil, the relatively minor
involvement of IOCs in the petroleum sector at the time of nationalization mean that there
was little technology and expertise to transfer to Petrobras, but importantly, also did not
impede subsequent transfer from IOCs through future interactions. Because convergence
occurred as early as the 1970s Petrobras not only benefitted from government support for
its internationalization efforts but also had ample time and opportunity to acquire both the
technical and managerial expertise it needed to take full advantage of the structural
changes at the international level in the 1990s and 2000s. Thus, while early convergence –
that is, convergence prior to the 1990s – creates an early mover advantage for any NOC, it
is absolutely essential where there is either no or only minimal transfer during
nationalization. Second, the sequencing of sectoral reforms vis-‐à-‐vis convergence can also
have an effect on an NOC’s capacity to internationalize. Crucial to Petrobras’ success is not
just early convergence but the fact that this was followed by liberalization and
restructuring. A set of hypotheses that incorporates these factors is presented in Figure 4.

Figure 4 about here

We explore the validity of these hypotheses for a large number of cases drawn randomly
from the universe of cases (see Table 3). Although this is only a very preliminary test, it
provides some indication that there is indeed a relationship between the degree of
internationalization an NOC can achieve and its political history – specifically, the legacy of
its MOE, the timing of convergence between the government and NOC management
regarding the merits of internationalization, and the sequencing of sectorial reforms vis-‐à-‐
vis convergence. Future research will include consist of two more robust tests: an
econometric test that will enable us to control for alternative explanations and a closer
examination of causal mechanisms in a subset of these cases (potentially selected from the
same region – e.g., Pertamina, Petronas, and ONGC).

Table 3 about here

(Brief) Conclusion

Recent attention to internationalization strategies of emerging country NOCs has been
focused around their increased ability to compete successfully with IOCs for dominance in
global oil & gas markets since the late 1990s. As it turns out, not only have NOCs realized
their ambitions to internationalize to varying degrees, this variation can not be explained
by structural and economic changes at the international level. Rather, an NOC’s capacity to
34

internationalize is constrained by domestic politics tied to the legacy of its mode of
emergence (MOE), the timing of convergence between the government and NOC
management regarding the merits of internationalization, and the sequencing of sectorial
reforms vis-‐à-‐vis convergence. This has several important implications.

First, the dominance of NOCs in global energy markets is neither complete nor inevitable.
Although NOCs produce over 70 percent of the world’s oil, most of this production remains
domestic. Those NOCs that are the most effective at producing abroad have been able to do
so because they have adopted techniques and best practices directly from IOCs. Those
NOCs that have only achieved a moderate or low level of success, moreover, will likely
require partnerships with IOCs in order to improve their capacity.

Second, both the variation in the degree of internationalization across NOCs that we have
identified and documented and the preliminary evidence we present in support of our
explanation for this variation provides several theoretical insights. The fact that domestic
political conditions have enabled some (albeit few) NOCs to achieve high degrees of
internationalization suggests that NOCs can become commercialized entities, which may
serve as a path for averting the so-‐called “resource curse “ (for details, see Jones Luong and
Weinthal 2010, Chapter three). Our finding that NOCs seem to have much better prospects
of expanding aboard in countries that have undergone extensive sectoral reform counters
the dominant “institutional escapism” view of emerging country MNCs in general. Contra
the literature on economic development that places emphasis on late mover advantage
(e.g., Gershenkron 1962), we find that there is an early mover advantage for NOCs when it
comes to internationalization. NOCs that successfully internationalize, moreover, may be
poised to serve as the “national champions” of earlier eras.

Finally, our study contributes to future work on NOCs. Our DIS provides a systematic
measure of variation in success across internationalizing NOCs. Our detailed analysis of the
political context in which NOCs were created (i.e., the MOE) offers a much more nuanced
view of “expropriation” and introduces an important distinction between nationalization
and expropriation. Although often distinct events and processes, they tend to be conflated
in the extant literature. This oversight has impeded our understanding of how initial
conditions can affect the long-‐term trajectory of NOCs in the development world.

35

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Figure 1: Degree of Internationalization Score (DIS) for Selected NOCs, 2000-‐2010

6
5
4
3
2
1
0

1

Figure 2: Level of Reserves and Degree of Internationalization

10
NIOC SaudiAramco
9
NNPC Gazprom PdVSA
8
Sonatrach
7
KPC
6
Rosneft Petronas
5
4 Pemex
Statoil Petrobras
3
Ecopetrol
2
Pertamina
CNPC
1
ONGC
PTT
0
0 1 2 3 4 5

Degree of Internationalization
2

Figure 3: Summary of Hypothesized Causal Relationship

MOE

Conflictual Consensual

Divergence Convergence Divergence Convergence

Low DIS Moderate DIS High DIS

3

Figure 4: Summary of Refined Hypothesized Causal Relationship

MOE

Full Transfer No (or Minimal) Transfer

Convergence Divergence Divergence Late Convergence Early Convergence

Not preceded Preceded Not followed Followed
by reform by reform by reform by reform

Low DIS Moderate DIS Low DIS Low DIS Moderate DIS High DIS

4

Table 1: Universe of Cases (listed by region)
AFRICA (6)
NNPC (Nigeria)
NOCZIM (Zimbabwe)
PetroSA (South Africa)
SLNP (Sierra Leone)
Sonangol (Angola)
Sudapet (Sudan)
ASIA (9)
CNOOC (China)
CNPC (China)
ONGC (India)
Pertamina (Indonesia)
Petrobangla (Bangladesh)
Petronas (Malaysia)
Petrovietnam (Vietnam)
PNOC (Philippines)
PTT (Thailand)
ECE (2)
PKN Orlen (Poland)
MOL Group (Hungary)
FSU (4)
Gazprom (Russia)
Naftogaz (Ukraine)
Rosneft (Russia)
SOCAR (Azerbaijan)
MENA (8)
ADNOC (United Arab Emirates)
KPC (Kuwait)
NIOC (Iran)
OOC (Oman)
Qatar Petroleum (Qatar)
SaudiAramco (Saudi Arabia)
Sonatrach (Algeria)
TPAO (Turkey)
LATIN AMERICA (5)
Ecopetrol (Colombia)
PdVSA (Venezuela)
Pemex (Mexico)
Petrobras (Brazil)
PetroEcuador (Ecuador)
1
Table 2: Exposition of Composite Index
Indicator Description Operationalization Justification Data Source Scoring
Geographical Regional Number of regions in Takes into account Aykut and 1 = 4/5 regions
scope of foreign distribution of which the NOC is existence and quality Goldstein 2007; .5 = 3/5 regions
operations NOC operations actively engaged in of operations abroad + NOC annual 0 = 2/5 or less
production Best data available reports 2000-10
Foreign assets NOC property, Ratio of NOC foreign Provides clear picture UNCTAD Reports 1 = > 20%
resources, assets to total assets, of what portion of NOC on TNCs; SEC .5 = 10-20%
equipment, etc. 2000-08 wealth is held abroad + Form 20F 0 = < 10%
held abroad Best data available
Productivity NOC capacity to NOC production Indicates whether NOC annual 1 = > 20%
produce abroad abroad as a production abroad is reports 2000-10 .5 = 10-20%
percentage of total comparable to 0 = < 10%
production, 2000-10 domestic production +
Best data available
Profitability NOC capacity to NOC revenue Indicates whether NOCs and Value 1 = > 20%
generate generated abroad as a production abroad is Creation Dataset .5 = 10-20%
revenue from percentage of total comparable to (Tordo 2011) 0 = < 10%
foreign assets revenues, 2004-08 domestic production +
Best data available
Degree of Extent to which NOC involvement in Provides most NOC annual 1 = 4/5 activities
Integration an NOC meets each of five activities: complete info. to reports 2000-10 .5 = 3/5 activities
the definition of exploration, assess whether NOC is 0 = 2/5 or less
an integrated production, refining, functioning like an IOC
company marketing, and
distribution, 2000-10
2
Table 3: Preliminary Test of Refined Hypotheses
DIS NOC Type of MOE (with or Timing of Sequencing of

without full transfer) Convergence Sectoral Reform
LOW NNPC Consensual (without full Late Not preceded by

transfer) reform
LOW PTT Consensual (without full Late Not preceded by

transfer) reform
MODERATE Sonatrach Consensual (without full Late Not preceded by

transfer) reform
MODERATE Ecopetrol Consensual (without full Late Preceded by reform

transfer)
MODERATE Gazprom Consensual (with full Divergence N/A
transfer 1)
MODERATE KPC Consensual (without full Early Not preceded by

transfer) reform
MODERATE ONGC Consensual (without full Early Not preceded by

transfer) reform
MODERATE SaudiAramco Consensual (with full Divergence N/A

transfer)
HIGH CNPC Consensual (with full Convergence N/A

transfer 2)
HIGH Petronas Consensual Convergence N/A
1 Full transfer here refers to the transfer of technology and expertise from the Soviet Union rather than IOCs.
2 Full transfer here refers to the transfer of technology and expertise from the Soviet Union rather than IOCs.
3

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see Jones Luong and Weinthal 2010, Chapter three.

exploration and production alone (e.g., Ibarra 2008).

la petroquímica, Profesionales y técnicos, en manifestaciones multitudinarias” Proceso. 10/15/1995.

Mineralógico (Marinho 1970).

http://memoria.petrobras.com.br/depoentes#.UUsfMhwelMQ (accessed 03/21/2013)o

Indicator Description Operationalization Justification Data Source Scoring

DIS NOC Type of MOE (with or Timing of Sequencing of

LOW NNPC Consensual (without full Late Not preceded by

LOW PTT Consensual (without full Late Not preceded by

MODERATE Sonatrach Consensual (without full Late Not preceded by

MODERATE Ecopetrol Consensual (without full Late Preceded by reform

MODERATE KPC Consensual (without full Early Not preceded by

MODERATE ONGC Consensual (without full Early Not preceded by

MODERATE SaudiAramco Consensual (with full Divergence N/A

HIGH CNPC Consensual (with full Convergence N/A

HIGH Petronas Consensual Convergence N/A

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