Sign of the Times

Russia has provided evidence for the direction in which Big Oil is headed: smaller and humbler.

This indication comes with Russia's announcement that it's selling a 24% stake in one of its most strategic natural gasfields -- Shtokman -- to Norway's Statoil. Read AP report on WSJ.com

That deceptive news release by the Kremlin hides a bitter fact for the company -- the likelihood that Statoil will be a mere contractor; it will not occupy the accustomed role of developer.

The fine print is what the industry calls booked reserves. These are the standard underpinning of an oil company's worth -- how much oil and natural gas they themselves control, and thus can sell at some point at, say, $90 a barrel or $260 a thousand cubic meters.

In the Russian case, Moscow is denying the companies the right to book the reserves. Hence, there is no real reason to celebrate. That's the deal that France's Total got in July, when the Kremlin gave it a 25% stake in the operating company developing the field, and though no details were released on the Statoil deal, one would expect them to get the same terms.

Why do the companies go along? Because they are desperate for any entree into places like Russia, and hope (without basis) for better terms later.

This is a blueprint for how Big Oil is likely to be increasingly treated around the world. Somewhere between 80% and 90% of the world's oil and natural gas is controlled by countries like Venezuela, Saudi Arabia and Russia, not Exxon, Shell or BP. And, over the next two or so decades, those countries are going to turn the big oil companies into employees.

Is that bad or good for the buyers of the actual end product -- motorists and homeowners? It could very well mean even higher prices than Big Oil commands since the countries are not under the same competitive or cost pressures as the companies.