The well-publicized efforts of the Chinese and Indian governments to secure oil and gas reserves have focused attention on the international ambitions of national oil companies. Investing abroad is nothing new for these companies, whether they are rich in resources or, in the case of those in China and India, simply attempting to secure supply. Baut many such foreign investments fail to create value for the national oil companies or their governments, according to our research. Often, strategies were poorly crafted, so the companies were slow off the mark or lacked the necessary resources (including technology and talent) to accomplish their goals. In other cases, value creation was plainly not a priority, as government policies, such as enhanced energy security, guided the internationalization efforts.¹

But all this doesn't mean that national oil companies should shun international investments. In fact, foreign deals may be the only way for some energy-rich countries to extract value from their natural resources. These players can succeed abroad but must focus on specific kinds of ventures: mainly those that stimulate demand for their products or secure market access for their reserves.

There are more than 100 national oil companies around the world—one from almost every...