This year will be remembered in Norway as the year of privatization. A 17.5% chunk of Statoil has been sold off to private owners, both individuals and institutions, and a significant part of the State's Direct Financial Interest (SDFI) is being sold to oil companies - 15% has already been acquired by Statoil, and after the summer holidays, negotiations will start for the sale of a further 6.5% to other oil companies active in the Norwegian sector.
Though minority voices in the country had long called for Statoil's privatization, the policy started becoming a reality when the company's then-chief executive, Harald Norvik, argued two years ago that such a move was essential if it was to face up to the challenges of securing its future in the highly competitive international arena.
Moreover, the notion of a wholly state-owned company, used to receiving privileged treatment when licenses were awarded, was judged incompatible with the more open conditions being introduced in Norway's offshore sector to enable it to compete with more attractive provinces for oil company investment.
Norvik's vision proved prophetic, but by the time it became true, he had fallen victim, along with the then Statoil board, to the scandal of huge cost increases on the Åsgard development. The new era for Statoil was therefore ushered in by his successor, Olav Fjell, and a new board.
The fact that only a small proportion of Statoil has been sold to private owners has led some analysts to claim that the move will have little more than cosmetic effect. However, oil and energy minister Olav Akselsen, a keen proponent of privatization, has not ruled out the possibility of selling off more in the future. The initial public offering proved popular, being three times oversubscribed.
More than 62,000 individuals applied, accounting for 6% of shares sold. The bulk, 78%, went to institutional investors abroad. The shares were launched at the equivalent of $7.50 and held their value in the early days of trading. Statoil's stock market capitalization on completion of the issue was equivalent to $595 million.
Petoro and Gasco
Just under half the 383.2 million shares which were sold were issued by Statoil for this purpose, while the remainder came from the state's shareholding. Statoil received proceeds of NKr 13 billion, which it put towards paying back a NKr 13.6 billion loan advanced by the state to help finance the company's acquisition of SDFI assets. The remaining SDFI assets, which Statoil used to manage, have now been transferred to a new state company Petoro, expressly set up for this purpose. Another new state company, Gasco, has been set up to take over the management of the gas export pipeline network from Statoil.
With its new ownership structure and share price to worry about, Statoil has plenty to occupy itself with. Probably the last thing it wanted was the "statement of objections" which arrived in June from the competition authorities of the European Commission, accusing the company of violating EC rules, together with Norsk Hydro, through their membership of the Gas Negotiating Committee (GFU).
The accusation presumably relates to the period from August last year, when the European Union's gas liberalization directive came into force, through 1 June when the government abolished the GFU, the cornerstone of its centralized gas marketing system.
Statoil and Hydro, which stand to face a fine of up to 10% of revenues if the case is upheld, feel understandably aggrieved at their treatment. Norway's gas marketing system was the government's responsibility, and the two companies were obliged to act within the given framework. So were other oil companies active in the Norwegian sector, which are also threatened with a "statement of objections" from the EC. The government has complained that it should be the object of the EC's objections, but so far to no avail. Meanwhile, the way is open for field licensees to sell their gas directly to customers.
Dominance of gas
Gas now accounts for more than half of Norway's total reserves - 7 bcm of oil equivalent out of a total of 13.8 bcmoe, according to the latest estimate by the Norwegian Petroleum Directorate. Just over one third of the gas - 2.4 bcmoe - is undiscovered, and there are still hopes of finding large fields. This is not so much the case with oil, of which an estimated 1.4 bcm remains undiscovered. Further exploration drilling is due this year in the Norwegian Sea, where hopes for large finds are concentrated. BP, for example, will drill the Havsula prospect, and Norsk Hydro the Blaaveis prospect. Last year's biggest find was made by ExxonMobil's Bella Donna high pressure/high temperature (HP/HT) well in the Norwegian Sea. The well, though not tested, contains 60-125 bcm of gas, according to the NPD. A further round of licensing of Norwegian Sea acreage is due this year.
Field development spending appears unlikely to approach the heady days of the late 1990s again. From a peak of NKr 45.1 billion in 1998, it fell to NKr 22.8 billion last year, and is forecast by Statistics Norway at NKr 18.4 billion this year. The emphasis is increasingly on production operations, on which this year's spend is forecast at NKr 26.3 billion.
Nevertheless, oil production is expected to remain above 3 MMb/d for five years, according to the NPD. This is partly due to the apparently inexorable rise in reserve estimates for producing oil fields, and is reflected in the further development of both Ekofisk and Troll Oil, the two largest oil producers, that are now each on their third stage of development.
In May, ExxonMobil brought the Ringhorne oil reserves onstream, and in the second half Hydro's Snorre North and Visund North, BP's Tambar. Statoil's Glitne and Shell's Garn West should follow.
