Doing business in a strictly regulated sector Experience from Norway

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Doing business in a strictly regulated
sectorExperience from Norway

• Otto Beyer

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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
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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
BP
TFE
Source Oil Gas Journal McKinsey

31647_2E - 02.2002 Hydro Media 06
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Hydros International Petroleum Activity
Norway
Norway
Russia
Russia
Canada
Canada
Iran
Iran
Gulf of Mexico
Gulf of Mexico
Libya
Libya
Angola
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Norsk Hydro in Canada

• Entered Canada in 1997 through a swap deal with
  Petro-Canada
• Offices in Calgary and ST.Johns
• 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

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Current Norsk Hydro LicensesNovember 2002
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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

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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

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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

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History 4

• 1985 Statoil is getting too big
• Creation of SDFI
• Statoils 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

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History 5

• From 1995 European Union
• Joint applications allowed
• Objective criterias - 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

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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

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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

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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

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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

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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?

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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

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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

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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

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