Outlook for the Norwegian industry Focus on the oil

1
Outlook for the Norwegian industryFocus on the
oil gas sector

• Erling Øverland
• Chairman of the Confederation of Norwegian
  Enterprise
• The Sparebank 1. Capital Market Day
• Stavanger, June 14th, 2005

2
Outlook for the Norwegian industryFocus on the
oil gas sector

• Headlines
• Introduction
• Structural opportunities and challenges
• Petroleum as a transformer
• Summary

3
A spoiled nation?
What help is lower income tax when you raise the
VAT on my Rolex?
Per Kristian Foss Minister of Finance
Newspaper drawing in the aftermath of the
National Budget 2005
Source Inge Grødum, Aftenposten, October 2004.
4
The Norwegian economy is blessed . . .

• A high standard of living
• An open economy
• Natural recources
• Ability to use new technology
• A high level of education
• High participation in the labour force

5
. . . but we also face challenges

• Globalisation
• Small domestic market
• Petroleum economy/governance challenges
• Rapid increase in public expenditure
• Tax level among the highest in the world
• Shortage of labour
• A high wage-level for workers, more competitive
  for engineers
• A strong currency threatens export industries
• Limited influence in EU

6
Competitive Norwegian industrial clusters
SEA FOOD
fish, fishfarming, fishing boats, equipment
HYDRO ELECTRIC POWER waterpower, equipment,
power generation power distribution,
metalurgical industries
MARITIME INDUSTRIESshipyards, shipsgear,
offshore, shipping services, maritime RD
FOREST INDUSTRIES saw
mills, wood products, chemical wood pulp, paper
industry, packing special products
PETROLEUM INDUSTRIES Oil and gas companies,
offshore industry, offshore service, shipping,
petrochemical industries
7
Among the wealthiest nations in the worldGDP per
capita 2004 (EU25 100)
Source Statistics Norway/Eurostat, 2005.
8
Increasing oil importanceGDP by sector (per cent)
Source Statistics Norway.
9
Exports dominated by oil and gasNorwegian export
by sector (per cent)
Source Statistics Norway, 2003.
10
Strong growth in the Norwegian economyAnnual
growth in GDP and employment (per cent)
4
2 3/4
Trend
Source Statistics Norway/NHO.
11
Low unemployment in NorwayUnemployment rates
(per cent)
Source OECD.
12
Currency appreciation hurts the competitivesCost
competitiveness index (trading partners 100)
?
Source TBU/NHO estimates.
) Based on unchanged exchange rate from May, and
wage inflation in line with trading partners.
13
Manufacturing productionSeasonally adjusted
volume index (1995 100)
14
Public sector and manufacturing
industriesEmployment (1,000 persons)
Source Statistics Norway/NHO forecast.
Source SSB/NHO forecast
15
People live longer lives . . .. . . but
working-life is shorter than before
2040
2003
1964
20
Retired
26
Retired
10
Retired
Working
Working
34
Working
45
36
23
Education
25
Education
Education
20
75 years old
79 years old
85 years old
Source Statistics Norway /NHO forecast.
16
Globalisation and the Norwegian economyEffects
on economy and industries

• Higher productivity
• Improved trade balance
• Higher economic growth
• Structural unemployment higher

EU enlargement

• Lower import cost
• Interest rates down
• Wage pressure down
• Higher oil export prices

Norwegian economy
New competition from China
Lidl and WTO
17
Globalisation of Norwegian companiesNumber of
employees
Source NHO/Annual reports 2003/2004.
18
Norske Skog international growth

• 1990 Only production in Norway

Norske Skog Canada (30)
Pan Asia (50)
Europe - 100
South America (100)
Austral asia (100)
19
IMD competitiveness ranking 2005
Finland 6.
Denmark 7.
Sweden 14.
Norway 15.
Source IMD 2005.
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NHO report June 2005Main conclusions on the
Norwegian economy
The effects of globalisation and the
introduction of China in the WTO result in lower
inflation through cheaper imports, decreasing
interest rates and higher oil and export
prices. The increased manufacturing production
by our trade partners is positive for Norwegian
exports in 2004-2005. Our companies are
increasing productivity in the early stages of
the recovery due to uncertainty regarding
currency, tax and wage levels. Fiscal budgets
must be kept in line with the 4 per cent rule
in order to prevent a special Norwegian interest
rate increase and a stronger currency.
21
Petroleum as a transformerFuelling the
aspirations of a European periphery

Macro-economic indicators 2004 per cent
Value creation 1970-2004 GDP (bn NOK, nominal)
Source Statistics Norway, Ministry of Finance.
22
Strong oil price exposureOil and offshore
industries 50 of OSE market cap.
Company Market cap Share in OSE
(NOK M) (per
cent)
Statoil 239,000 26,1 Hydro 137,005
15,0 Telenor 101,958 11,1 DnB Nor
88,568 9,7 RCCL 54,245 5,9 Orkla
51,483 5,6 Yara 30,187
3,3 Frontline 23,242 2,5 Norske Skog
17,008 1,9 Storebrand 16,830
1,8 Stolt-Nielsen 16,533 1,8 Aker
Kværner 13,014 1,4 Schibsted 11,426
1,2 SAS AB 10,775 1,2 Stolt Offshore
9,967 1,1 Tandberg 9,921
1,0 Odfjell 9,016 1,0 PGS 8,810
1,0 Fred Olsen Energy 7,756
0,8 Smedvig 6,572 0,7 Prosafe 6,474
0,7 Wilh. Wilhelmsen 6,321
0,7 Sum 875,891 69,5
44 per cent
30.5
69.5
Source Holbergfondene
23
Shaped by technological challengesPathbreaking
skills and competence
Technology content in development projects (per
cent)
1970s- and 1980s
1990s
2005 . . .
Source IPA.
24
A competitive industrial cluster
25
A strongly positioned regionStatoils total 2004
procurement NOK 57 bn
Norway 77 per cent
Rogaland 32 per cent
Rest of Norway45 per cent
Stavanger
Source Directorate of Labour (Aetat).
Source Statoil.
26
Two strategic priorities
International production
NCS production

• Realise the full potential on the NCS
• Build international platforms for long-term growth

27
27
NCS production towards 2020
Source Statoil.
28
High investments on the NCS Total investments
1980-2012
Source Statistics Norway/Statoil.
29
Long-term development of the NCSPushing
geographical and technological barriers
To Asia
Oil, gas and LNG terminals
Barents Sea
Oil, gas pipelines
Oil, gas production
LNG ocean tankers
Melkøya
Nordland
Murmansk
Vesterålen
To USA
Deepwater
To Europe
Tjeldbergodden
Nyhamna
Mongstad
Kollsnes
Kårstø
30
New international challengesPushing
technological frontiers in a competitive
environment
Arctic waters

Different business environment
Onshore operations in exotic climate
New reservoir types
Ultra-deep water


18
31
Market and industry dynamicsOpportunities and
challenges in a high-price environment
15 USD/bbl
30 USD/bbl
50 USD/bbl
March 1999
Oct 2003
June 2005
32
Norway 2025 Still on the top?