Effect of government control on the performance of upstream oil and gas companies in Nigeria
type: CreativeWork
description: International Oil Companies (IOCs) and Oil-rich nations (States) pool their resources together in order to explore for and exploit oil in the most effective and efficient manner. The IOCs are entrusted with the exploration and exploitation activities due to their technological expertise and financial capability. However, the uncertainties surrounding the exploration for oil constitute the major sources of risks in upstream operations. Similarly, moral hazard and adverse-selection problems emerge during the exploitation of oil reserves. Hence, States adopt a number of control mechanisms in order to maximise their take from the oil reserves. Thus, establishing Joint Venture Companies (JVCs) is considered to be one of such control mechanisms. The Nigeria Government has ownership (about 57%) in the JVCs operating in the upstream sector. The JVCs operate alongside other upstream oil and gas companies (non-JVCs) that do not have Government ownership. This study adopts an agency theory in order to critically analyse the principal-agent relationship expounded above. Therefore, using a multivariate regression analysis based on a panel dataset of monthly observations (1999 - 2007) this study examine the cost efficiency and gross margin of both the JVCs and non-JVCs with the aim of determining whether or not Government ownership in the JVCs has any significant and systematic effect on their performance. Findings of the study indicate that JVCs are more efficient and more profitable than the non-JVCs, as non-JVCs spend twice as much as the JVCs to produce a barrel of crude oil. Hence, it can be concluded that Government ownership really matters in improving the cost efficiency and gross margin of the upstream oil and gas companies operating in Nigeria. Similarly, due to perennial funding problem bedeviling the operations of JVCs in Nigeria, an alternative funding (AF) arrangement was introduced in 2003; so that the companies will provide funds as loan to cover for the Governmen…
abstract: International Oil Companies (IOCs) and Oil-rich nations (States) pool their resources together in order to explore for and exploit oil in the most effective and efficient manner. The IOCs are entrusted with the exploration and exploitation activities due to their technological expertise and financial capability. However, the uncertainties surrounding the exploration for oil constitute the major sources of risks in upstream operations. Similarly, moral hazard and adverse-selection problems emerge during the exploitation of oil reserves. Hence, States adopt a number of control mechanisms in order to maximise their take from the oil reserves. Thus, establishing Joint Venture Companies (JVCs) is considered to be one of such control mechanisms. The Nigeria Government has ownership (about 57%) in the JVCs operating in the upstream sector. The JVCs operate alongside other upstream oil and gas companies (non-JVCs) that do not have Government ownership. This study adopts an agency theory in order to critically analyse the principal-agent relationship expounded above. Therefore, using a multivariate regression analysis based on a panel dataset of monthly observations (1999 - 2007) this study examine the cost efficiency and gross margin of both the JVCs and non-JVCs with the aim of determining whether or not Government ownership in the JVCs has any significant and systematic effect on their performance. Findings of the study indicate that JVCs are more efficient and more profitable than the non-JVCs, as non-JVCs spend twice as much as the JVCs to produce a barrel of crude oil. Hence, it can be concluded that Government ownership really matters in improving the cost efficiency and gross margin of the upstream oil and gas companies operating in Nigeria. Similarly, due to perennial funding problem bedeviling the operations of JVCs in Nigeria, an alternative funding (AF) arrangement was introduced in 2003; so that the companies will provide funds as loan to cover for the Governmen…
author: Ahmad, Sunusi
language: eng
date published: 2014-12
date modified: 2026-07-24T00:50:03Z
provider: Abertay University
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Abertay University