The Impact Of Ownership And Vertical Integration On The Performance Of Petroleum Firms

ABSTRACT The petroleum industry is one of the essential industries globally. State participation and vertical integration are some of the most prevailing phenomena in the industry. This study sought to assess the impact of ownership and vertical integration on the performance of petroleum firms. Petroleum firms were categorized into four different clusters, based on ownership types, comprising fully private, minority state owned, majority state owned and fully state owned for the assessment on ownership. The firms were again grouped into least integrated, semi integrated and highly integrated based on their level of forward vertical integration for the assessment of vertical integration in the industry. These groupings help to determine the specific levels of state ownership or vertical integration that is helpful or detrimental to the performance of petroleum firms. In order to assess the performance of these groups of oil firms which might face different production technologies in a dynamic fashion while accounting for carryover variables such as oil and gas reserves, the Metafrontier framework was incorporated into the Dynamic Slack Based Measure (DSBM) of DEA to propose a DSBM-Metafrontier model. Using a 10-year data of 32 petroleum firms globally, it was found that fully state-owned firms were the best performers followed by fully private, majority state-owned and lastly, minority stateowned firms. This is an indication that not all types of state-owned petroleum firms are outperformed by private petroleum firms. Firms with shared ownership between state and private have a lesser comparative advantage in the industry than those firms with full private or full state ownership. On vertical integration, semi integrated firms topped the list followed by least integrated and lastly, highly integrated firms. The study also reveals that though integration could be beneficial, it is a costly strategy and can impact negatively on technical efficiency. Vertical integration should therefore be done in moderation if it must be embarked upon.