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Doing business in a strictly regulated sector Experience from Norway

Doing business in a strictly regulated sector Experience from Norway. Otto Beyer. Second largest operator on the Norwegian continental shelf. SNORRE B. Harstad. TORDIS. SNORRE. NJORD. VISUND. VIGDIS. OSEBERG Ø. TROLL B. TROLL C. Trondheim. Operator of 13 producing fields.

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Doing business in a strictly regulated sector Experience from Norway

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  1. Doing business in a strictly regulated sectorExperience from Norway Otto Beyer

  2. Second largest operator on the Norwegian continental shelf SNORRE B Harstad TORDIS SNORRE NJORD VISUND VIGDIS OSEBERG Ø TROLL B TROLL C Trondheim Operator of 13 producing fields OSEBERG ABD OSEBERG C Bergen Oslo Stavanger OSEBERG S HEIMDAL BRAGE 31647_2E - 02.2002 Hydro Media *04

  3. Among the leading global offshore players Global Offshore Operator production mill. barrels/day • 40% of Norwegian oil production • Producing 1.2 mill. b/d Statoil Exxon Shell Hydro TFE BP Source: Oil & Gas Journal McKinsey 31647_2E - 02.2002 Hydro Media *06

  4. Hydro’s International Petroleum Activity Norway Russia Norway Russia Canada Canada Iran Iran Gulf of Mexico Gulf of Mexico Libya Libya Angola

  5. Norsk Hydro in Canada • Entered Canada in 1997 through a swap deal with Petro-Canada • Offices in Calgary and ST.John’s • 5 % in Hibernia - 10.000 bbl/day • 15% in Terra Nova – 22.500 bbl/day • Technical Assistant to Petro-Canada • AMI with Petro-Canada on the Grand Banks

  6. Current Norsk Hydro LicensesNovember 2002

  7. History 1 1965 Look to Britain • Regulatory Regime based on the British • 10 % royalty • Discretionary power to grant licenses – accepted groups and small companies • All production licences with work program obligations- normally one or more wells to be drilled • Transportation to be decided by the Ministry – where and how

  8. History 2 1972 “Blue eyed Arabs” • Political aim: National control and development of Norwegian competence • Establishment of the Petroleum Directorate and Statoil • Statoil participation of more than 50%, leaving little to the others • State dictate the terms of the JOA • Statoil veto • Carry of Statoil in the exploration phase • Tax increased to 75% with up-lift • Royalty between 8 – 16%

  9. History 3 1972 cont. • Stricter requirement to oil companies’ financial and technical competence and you had to be a “good” company • No group applications - ministry decides on groups • Operator appointed by the State • Right to change operator without cause • Procedures implemented to promote the use of Norwegian goods and services • Requirement to use base in Norway

  10. History 4 1985 Statoil is getting too big • Creation of SDFI • Statoil’s interest reduced to the level of others • Bigger interests for others • Statoil votes on behalf of SDFI • No veto right, except for the State in certain circumstances • Carry of Statoil stops • No royalty for new developments

  11. History 5 From 1995 European Union • Joint applications allowed • Objective criteria’s - opens for closed bids • No preference for Norwegian oil companies – new players • No reporting of Norwegian goods and services • Statoil partly privatized (State 81.8%) • Sale of some of the States interests • Establishment of Petoro and Gasco • Still no negotiation of the JOA

  12. Opening new areas • Impact Assessment prior to opening of a new area for exploration activities performed by Government to avoid later conflicts • impact on environment • impact on other industries (fisheries) • impact on communities (economic and socially) • Public hearing • As a result the Government may lay down specific requirements to avoid conflicts, e.g: • parts remain closed • restrictions on seismic activity and exploration drilling during parts of the year • number of exploration wells drilled at the same time • restrictions on discharges to sea • oil spill emergency response requirements

  13. Exploration Phase • 17 Licensing rounds since 1965 • Discovery in 40% of total wells drilled • New acreage for continuous activity • Exploration phase is norm. 6 years - max. 10 years • After fulfillment of work program and relinquishment of parts of area, license is extended up to 30 years if required • Progressive area fee as incentive for relinquishment • Approval of drilling permit: Normally 9 weeks

  14. Development Phase • Operator to prepare Impact Assessment Report (IAR) • Public hearing of program and report takes each 3 months • Approval of Development Plan takes 6 months depending on delivery of IAR • High costs and long lead time • Ministry open for new ideas

  15. SHE – issues 1 Early period: • Conflict between Petroleum Directorate and original bodies and between their respective regulations • Detailed regulations and inspections • Little standardization Norway - UK • Poor communication with environmental bodies Continuous improvements till to day: • The most regulated industry in Norway • Internationally the strictest requirements • The cleanest oil industry in the world • Less than 2% of oil discharges to the North Sea comes from Norwegian oil industry

  16. SHE - issues 2 • Co2 tax CAD 62 per ton to promote new technology to reduce emission • Kyoto not a topic for discussion by industry • 0 discharge to water by 2005 • When will impact study for the North be finished and will it require stricter terms and petroleum free zones?

  17. SHE - Management Control System Change of control system: • Initially focus on inspection (technical & product), directed towards operator • Present focus on management system for own control, directed towards all licensees Improvements: • Fewer applications, less handling of deviations by the authorities • Gives all participants more direct responsibility Disadvantages: • Functional requirements need interpretation; discussions and extra work • Authorities’ handling time for applications for consent increased from 2 to 9 weeks

  18. Delivery of goods and services • Since1969 through 1994 it was required that Norwegian companies should be given full and fair opportunity to deliver goods and services • Reporting to the Ministry which checks bidders list • By 1980 Norway had achieved a competitive national oil industry due to: • Long maritime traditions with a strong shipbuilding industry and global shipping environment • Focus on developing 3 national oil companies • Conversion of traditional industries • Rapid development of engineering capabilities • Educational institution focusing on the oil industry

  19. Closing remarks • Overall terms and cond. extremely tough • Very high focus and involvement from authorities and politicians • System overall quite predictable and clear • Good communication with knowledgeable authorities • NCS is quite mature and passed its peak – is it still competitive? • Is it time for better terms for industry? • Ministry so fare been extremely clever in striking the balance between tough terms and continued interest from the industry

  20. CLICK HERE TO RETURN TO NORWEGIAN DELEGATION PAGE

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