A model of the operation and development of a National Oil Company

Peter Hartley and Kenneth Medlock

Energy Economics, 2008, vol. 30, issue 5, 2459-2485

Abstract: We present a model of the exploration and development activities of a National Oil Company (NOC), which uses similar technology to a private firm to extract a depletable resource. However, unlike the private firm, the NOC may have a wider range of objectives than maximizing the present value of profits. Specifically, we assume an objective function that balances firm profitability against a political desire to favor domestic consumer surplus and domestic employment. We find that the non-commercial objectives faced by a NOC tend to reinforce each other in their effects on profitability, the timing of cash flows and employment.

Date: 2008
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