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. Last Updated: 07/27/2016

Slacking on Investment, National or Otherwise

The international oil companies descended from the mighty "seven sisters" have been losing their grip on the world's oil supply for years, but only as prices have settled stubbornly above $50 a barrel has the significance of the change become clear. The "new seven sisters," from outside the Organization for Economic Cooperation and Development, now hold the oil and the whip hand. If the world's energy demands are to be satisfied, to say nothing of oil producers' economic interests, interfamilial relations will have to improve.

The industry invested $340 billion in oil and natural gas in 2005. It sounds like a lot, but the International Energy Agency has described it as "inadequate." After adjusting for double-digit cost inflation, this spending has barely risen since 2000.

Should we blame the international or the national oil companies, which actually control the oil?

Saudi Aramco, Brazil's Petrobras and Malaysia's Petronas have shown that national oil companies can expand their own production and have managed to extract the maximum benefit from their own resources as well as from foreign expertise.

Those national oil companies that have failed include Mexico's Pemex and Venezuela's Pdvsa. Isolating oil fields from international expertise and running them using a cosseted state monopoly is unlikely to maximize their value, even if tight political control over revenues is a handy way to fund populist social programs.

The international oil companies are not blameless either. Instead of coming up with a solution to their growing access problems, they have handed billions of dollars back to their shareholders, in effect admitting defeat. Royal Dutch Shell, BP and Eni have had difficulties keeping a handle on the cost and timing of ever-more complex projects.

As a group, the international companies say their technical prowess sets them apart from most national oil companies. Nevertheless, they have produced no big breakthrough in more than a decade, paying dearly for firing tens of thousands of engineers and geologists, and starving research programs while they counted their pennies during the lean 1980s and 1990s.

It is perfectly clear that as the world's thirst for oil increases, the demand both for cutting-edge technology and for the biggest and best fields will only intensify. There is much to be gained from working together, but since oil exploration is a long-term, high-risk business, not much will happen without more trust. Industry figures should try to draw up thoughtful contracts that leave all sides happy even when the oil price does something unexpected. Is this too much to ask?

This comment appeared as an editorial in the Financial Times.