Archives for March 2012

The Multiplying Effect of Knowledge

Intellectual capital —that is, knowledge— is often underestimated.

Whenever goods are exchanged, the selling party deducts them from an inventory and receives money in return. However, that does not happen with knowledge. If properly processed, whoever receives that knowledge increases his or her intellectual heritage and information level. But whoever transfers it still retains the knowledge. If dealing with more than a simple piece of information, quite frequently such knowledge is enhanced and perfected during the process. This is what happens to teachers every day—a truly perfect win-win situation!

Today’s communications tools, especially the Internet, provide a virtually limitless supply of information, including very valuable university level courses in different disciplines. Apple Inc. [AAPL] through its iTunes Store, and YouTube, a subsidiary of Google Inc. [GOOG], offer an endless menu of free academic materials in various media formats, such as video and audio, and are related to virtually all areas of knowledge taught in dozens of renowned universities from around the world. The areas of knowledge covered include business, engineering, mathematics, science, fine arts, medicine and health sciences, history, humanities, languages, literature, social sciences, pedagogy, and education. Because this scheme is fully flexible, it can be extended with virtually no limits. Examples are MIT’s courses on video, and an analysis of various famous literary works from the University of British Columbia in Vancouver. It is important to consider that these academic institutions and companies are highly competitive and feature their best talents within their vast range of options. There is no way to overstate the monumental importance of this kind of development: the highest quality, university education, is now available worldwide for free!

In order to provide an idea of the extensive variety of possibilities mentioned in the paragraph above, we must underline that when this survey was conducted, more than one hundred prestigious universities from different countries, such as the United States, Canada, the United Kingdom, France, Spain, and Australia, were already offering this amazing free service.

There truly is no way to overstate the extraordinary opportunities, many of them free, that our times offer to anyone who is genuinely willing to improve his or her skills.

Information availability has undergone a radical transformation since the Internet’s birth. Just take a look at Google [GOOG], Wikipedia, and social networking. Not too long ago, only a few narrow-minded, jealous guardians had access to information and knowledge. This is no longer the case —the current amount of available information is overwhelming, quite frequently at a nominal cost, as the case previously exposed. In fact, we now suffer from the opposite problem, surplus instead of scarcity of information. This makes it imperative to analyze all the available information, so as to be able to keep the best and discard the rest.

Even knowledge follows the principles of creative destruction. Good sense about the content, of course, should include a very high dose of basic moral values in addition to appropriate intellectual essence.

The World’s State-Owned Oil Companies

There are very few global instances where an industry analysis can be made with so much public and contrasting information available; furthermore, an instance where meaningful comparative analysis between state and private sector performance.

There is not much point in debating which arrangement, on the average, makes more economic sense for society, privately owned and managed oil companies versus state-owned and managed ones. We all are well aware that private structures, on the balance, tend to outperform government ones; structural incentives to run a company well tend to be higher and more effective in the private sector than in the governmental. However, it is very important to recognize some exceptional cases of well-managed state oil companies, like Norway’s StatOil [STO], Brazil’s Petrobras [PBR], and more recently Colombia’s Ecopetrol [EC]. The legal and management structures set up by the governments behind these three companies are praiseworthy. The results obtained, on the average, have been excelled in adding value to society.

The state-owned oil company cases can be classified in several groups, related to their performance levels. It is not the purpose nor the reach of this post to delve into too much detail and depth in this fascinating topic; in fact, only the top twenty oil producing nations were considered in this analysis. The purpose is to provide a general perspective on the subject.

Source: Computations based on GLOBALIZATION, Opportunities and Implications, The ABCs to a Global Social Revolution, Martin Marmolejo. Market prices obtained from www.bloomberg.com

The top of the performance list is formed by the group of the three cases already mentioned. Those three companies have a lot in common. In addition of being government owned and operated, they are very well managed companies, with shares listed in the NYSE as well as in their respective countries of origin; these three outstanding companies have independent management –from their governments– with a meaningful number of independent board members. The table below summarizes some relevant financial information about them.

Brazil’s PBR has worldwide recognition for its deep-water operations, with several world records set along the way. Norway’s STO has generated such a surplus in the past two decades, that the autonomous fund established in 1990 for this purpose, had accumulated about $557 billion USD by the end of 2010, two times Norway’s GDP! Colombia’s EC, the youngest of them, was listed on September of 2008 in the NYSE, and evidently has modeled itself after STO and PBR, with excellent performance both in increasing reserves and oil production in recent years.

Listed in a separate category, the oil companies of Saudi Arabia, UAE, Kuwait and, Qatar, all of them with strong interactions and joint-ventures with the big oil multinationals. Although transparency and accountability can be substantially improved in all four cases, some well-invested surpluses, in well-taught efforts to diversify from hydrocarbons, are a clear, if indirect, testimony of a reasonable level of proper management practices and performance.

China must be placed in a special category because: a) Its gigantic size (world’s second largest economy); b) PTR is by far, the world’s largest market cap among state-owned oil companies; c) Despite having its two largest oil companies listed in the NYSE, when dealing with China, the level of transparency and accountability must be taken with a grain of salt, until proven otherwise.

In a fourth category are countries like Russia, Iran, Venezuela, Iraq, Nigeria, Algeria, Angola, and Libya. These countries share two basic similarities, very closely interrelated between them: a) Very poor level of transparency and extremely poor accountability –if any at all. b) To different degrees, oil revenues are considered a personal right –somehow shared with the inner circle of power– by the rulers of those countries.

Finally, Mexico, and Kazakhstan belong to a fifth category, of stated-owned oil companies that seem to be transitioning away from the fourth previous category. Mexican government has been struggling in the past decades –essentially since 1988– to open-up that industry to private investment, with limited success so far; Pemex is still a very poorly run operation. Kazakhstan is more advanced in that topic, since january 2001, it established a sovereign oil fund with its surpluses modeled after Norway’s experience, currently worth over US$20 billion.

Both the energy and the oil markets are very dynamic. There is a lot of change in progress in many countries in those areas. The coming years might present a very different energy landscape, with more evolved management structures, where the global private sector continues to increase its participation in numerous joint-ventures –if not outright ownership– in many projects all over the world. The increasing availability and development of alternative energy sources is also enriching the possibilities and additional supply of that precious resource.

Beyond the ownership and management of any company, there is something non-negotiable: transparency and accountability, effective checks and balances systems in place. There is no substitute for that. When that basic principle is appropriately observed, at the end of the day the ownership and management issue is not necessarily that relevant. The private sector has also had plenty of sour experiences in the corporate arena all over the globe: the Enrons, the Tycos, the Parmalats, the Lehman Brothers, the AIGs, the Olympuses of the world, just very disgraceful recent cases.

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