Doing business in a strictly regulated sector

Experience from Norway

Doing business in a strictly regulated sector

Experience from Norway

Otto BeyerOtto Beyer

JRH - Date: 2002-11-07 - Page: 2

L&U Norge

Operator of 13 Operator of 13 producing producing fieldsfields

Second largest operator on the Norwegian continental shelf

Oslo

Stavanger

Bergen

Trondheim

Harstad

OSEBERG ABD

TORDIS

VIGDIS

OSEBERG C

HEIMDAL BRAGE

SNORRE

TROLL BOSEBERG Ø

SNORRE B

VISUNDNJORD

TROLL C

OSEBERG S

31647_2E - 02.2002 Hydro Media *04

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0

500

1000

1500

2000

Global Offshore Operator production mill. barrels/day

Source: Oil & Gas Journal McKinsey

40% of Norwegian oil production

Producing 1.2 mill. b/d B

P

Ex

xo

n

Sh

el l

Hy

dro

Among the leading global offshore players

TF

E

31647_2E - 02.2002 Hydro Media *06

St a

t oil

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Hydro’s International Petroleum ActivityHydro’s International Petroleum ActivityHydro’s International Petroleum ActivityHydro’s International Petroleum Activity

NorwayNorway RussiaRussia

CanadaCanada

Gulf of MexicoGulf of MexicoIranIran

Angola

LibyaLibya

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Norsk Hydro in Canada

Entered Canada in 1997 through a swap deal with Petro-Canada

Offices in Calgary and ST.John’s5 % in Hibernia - 10.000 bbl/day15% in Terra Nova – 22.500 bbl/dayTechnical Assistant to Petro-CanadaAMI 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 BritainRegulatory Regime based on the British10 % royaltyDiscretionary power to grant licenses –

accepted groups and small companiesAll 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 competenceEstablishment of the Petroleum Directorate

and Statoil Statoil participation of more than 50%,

leaving little to the others State dictate the terms of the JOAStatoil vetoCarry of Statoil in the exploration phaseTax increased to 75% with up-liftRoyalty 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 StateRight to change operator without causeProcedures implemented to promote the

use of Norwegian goods and servicesRequirement to use base in Norway

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History 4

1985 Statoil is getting too bigCreation of SDFIStatoil’s interest reduced to the level of

othersBigger interests for others Statoil votes on behalf of SDFINo veto right, except for the State in

certain circumstancesCarry of Statoil stopsNo royalty for new developments

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L&U Norge

History 5

From 1995 European UnionJoint applications allowedObjective criteria’s - opens for closed bidsNo 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 interestsEstablishment of Petoro and GascoStill 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 1965Discovery in 40% of total wells drilledNew acreage for continuous activity Exploration phase is norm. 6 years - max.

10 yearsAfter 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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L&U Norge

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 timeMinistry open for new ideas

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L&U Norge

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 2005When 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 toughVery high focus and involvement from

authorities and politiciansSystem overall quite predictable and clearGood communication with knowledgeable

authoritiesNCS 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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L&U Norge

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