Do small oil and gas companies effectively practice knowledgemanagement? if yes, what are the incentives put in place to encourage it, if no, why not?

They do but the answer is not as simple, effectiveness of any system can be subjective to an organizations mission, vision and objectives. So it depends on an organizations top managements commitment to make it work for them. Knowledge/ Information as we are aware is pivotal to the strategy and operations of all organizations be that Oil and Gas or Software Development. The term KM can be simply broken down into "Knowledge", which can be scientific and technical i.e. petroleum chemistry and Instructions on how to operate a generator, or "Management" how to introduce new and improved operating procedures. 

I have attended several seminars conducted by Halliburton and Saudi Aramco on their approach towards KM,  you can visit this link http://econpapers.repec.org/article/mgnjournl/v_3a6_3ay_3a2013_3ai_3a8_3aa_3a1.htm

for more information and research papers.