Norwegian 'assets guardian' to act as partner in SDFI licenses

A new player on the Norwegian continen-tal shelf is Petoro, which has a mission to manage the state oil and gas assets known as the State's Direct Financial Interest.

Nick Terdre
Contributing Editor

A new player on the Norwegian continental shelf is Petoro, which has a mission to manage the state oil and gas assets known as the State's Direct Financial Interest.

The company was established in May last year following approvals from Norwegian parliament Storting for a series of measures that would re-shape state participation in oil and gas activities. Among these was the partial privatization of Statoil, which made it no longer appropriate for that mainly state-owned company to manage the SDFI assets.

That role passed to Petoro, which, despite its small size, is responsible for a huge portfolio of assets. Even following the disposal of 15% to Statoil last year and a further 6.5% to other licensees on the Norwegian continental shelf earlier this year, the SDFI portfolio is worth NKr400-500 billion, and consists of around 80 licenses, including some 34 fields in production and under development, and interests in 24 pipelines and other infrastructure assets. The net cash flow generated by the assets in 2001 is provisionally estimated at a record NKr95 billion, equivalent to a cool $12.8 billion.

When it was formed, Petoro became at a stroke the largest oil and gas company in Norway. But it is quite unlike the other companies. A limited company wholly owned by the Ministry of Petroleum and Energy, its task is to act as the commercial caretaker of the state assets. It does not own these assets, though it is registered as the licensee by the Norwegian Petroleum Directorate. The income that accrues from the assets passes directly to the state, though Petoro keeps the accounts for them. The company is funded by the ministry and is exempt from paying tax.

Petoro's personnel come mainly from the petroleum industry and other businesses. Chairman Tore Sandvold was for many years director general for oil and gas at the MPE, while the vice president for commercial affairs, Dag Omre, is another ministry veteran, most recently working on the privatization of Statoil and before that leading the ministry's work on licensing rounds. CEO Kjell Pedersen came from ExxonMobil in Norway and had held various posts in the company, both in Norway and abroad.

Despite its unusual nature, the company found no difficulty in recruiting experienced professional staff after it opened its doors in Stavanger. No fewer than 1,300 applicants, mainly from the private sector and international companies, battled for just 60 posts.

Two main aspects to Petoro's role need to be balanced against each other, Omre says. On the one hand it acts as a fully commercial caretaker of the state assets, with all the rights and obligations of the licensee. On the other hand, there are a number of constraints on its scope of action, which distinguish it sharply from normal oil companies:

  • It will not apply for new licenses – the ministry will decide whether to take SDFI shares in new licenses, and will then pass these on to Petoro
  • It will not seek to become an operator
  • Its activities are focused exclusively on the Norwegian continental shelf
  • It is not responsible for selling the SDFI's oil and gas – this task has been given to Statoil, though Petoro has a supervisory role.

Petoro's main work will be as a partner in the SDFI licenses, managing the assets to maximize value for the owner. It aims to run a "lean and mean" operation, focusing its efforts where it can add most value. To this end, it will rely to some extent on a policy of outsourcing, hiring outside managers to look after the lower-value licenses while concentrating the efforts of its own staff on the higher-value assets.

Although it is not Petoro's intention to vie with other licensees in contributing traditional technical expertise to asset management, it has found that it could not do without a certain backbone of technical competence in-house, Omre says. It has, therefore, built up a technology department with relevant technical disciplines including geology and geophysics, in addition to its license management department and gas marketing and sales department.

Where the company feels it really can add value is by exploiting its position as the holder of the largest portfolio on the Norwegian shelf to capture synergy benefits across the portfolio. Examples where this kind of area thinking may bring rewards are in the maturing oil fields of the Tampen area of the northern North Sea and the oil and gas fields of the Norwegian Sea.

Another value-adding potential could be Petoro's strong position in gas, not least its large holdings in the Troll field and in the transport network.

In this context, the company welcomes the GasLed II initiative instigated by the government, which will ensure alignment of ownership across the assets of the gas transport network – pipelines and terminals – and the creation of equal access and tariff terms for all shippers, whether owners in the network or third parties.

"We're very positive to GasLed II," Omre says. "We see important efficiency gains for us in the equal and transparent treatment of shippers. This will be a valuable aid to our value creation."

Petoro will also play a role in advising on possible asset trades, though it may not be called on to do so for some time. When Minister of Petroleum and Energy Einar Steensnæs introduced the white paper on oil and gas policy in June, he said the government had no plans for further disposals, acquisitions, or swaps for the next few years. The company has no formal role in licensing rounds, but its detailed overview should position it well on advising how new asset acquisitions could benefit the overall portfolio.

But how will Petoro know whether it is doing a good job or not? Benchmarking with other oil companies is a means of measuring efficiency in some important areas, but could be of limited value in other areas as Petoro is so different from them. It is also working with outside advisers to define acceptable criteria for measuring its performance, Omre says. The aim is to establish a set of key performance indicators and targets to be met.

State spin-off opts for outsourcing, in-house expertise

More in Business Briefs