Reflection on the Norwegian Experience within the Oil and Gas sector

Grata Law Firm Seminar Almaty, 23 April 2010

Odd Instefjord

General Director, Statoil North Caspian as

Norway is admired for its management of petroleum resources because:

– It conquered the challenges of the North Sea.

– It avoided the OIL CURSE.

– It created growth in non oil sectors.

– It formed robust national oil companies side by side with international oil companies.

– It formed world class Norwegian offshore industry.

– It nearly doubled oil recovery from 25 to 45%.

National organization of the petroleum sector

Petroleum Policy – Main Principles

• The right to sub sea petroleum deposits is vested in the State

• The petroleum deposits shall be administered for the benefit of the Norwegian society as a whole

• Due regard for the environment and high HSE standards

• Effective government take

Goal: Maximize value creation:

• legal / licensing system

• resource management

• R&D and industrial development

• State participation and Tax system

So how could Norway succeed ?

•Richness in Hydro power which allowed Norwegian to develop their oil resources at a moderate pace.

•Norway was also highly developed before the oil age:

– Highly efficient system of governance

– Social democratic culture enhancing collective effort.

– Homogeneous society. Solidarity. Cohesion…etc.

– Well developed institutions.

– High level education and R&D competence and capacity.

– …….etc

Industry Development - based on our capabilities and competitive strengths

A good starting point:

–Developed and diversified economy

–Significant maritime nation

–Relatively high level of education

–Political consensus

                                                      

                              

The important majors

• Transferred skills and competence

• Created necessary competition

• In joint teams with Norwegian companies

• Statoil given a central role

• Participation in training courses

• Operatorship to learn the business

Government Leadership from the start..

• Preference for local content - on a competitive basis

• Make international oil companies

maximize local benefits

• Build local competence

• Ownership less important

• Avoid creating unsustainable jobs

• Avoid cost pressure

Work and value creation to be carried out in Norway!

Control and monitoring- Monitoring of contracting

and procurement practices

- Mandatory announced tender-schedules

- Mandatory lists of invited companies

- Ensure qualified Norwegian companies on bidders list

- Stimulate Joint Ventures

- Encourage R&D

Operators

Suppliers R&D

Transparency - Predictability - Stability

• National steering of the direction and pace of petroleum operations.

• Good governance (Govt. Petroleum Administration).

• Constructive competition among the oil companies.

• Variety among the licensees to master challenges and enhance efficiency.

• Direct participation by national companies alongside IOCs.

• Encouraging the local content in deliveries to petroleum operations.

• Maintaining balance between national and international oil companies.

• Co-operation between the authorities and the oil companies.

• Focus on high oil recovery.

• Focus on Health, Safety and Environmental protection.

• Technical innovation to cope with petroleum operations in rough seas.• Source: Petroteam

SALIENT FEATURES OF THE NORWEGIAN APPROACH?

Summing up the Norwegian Experience

Coherence – local content part of overall policy

Local content policies aimed at…

• Increasing value added > not deter investments

• Balancing industry and government needs

• Building on existing capabilities

• Encouraging JVs with international players

Local content policies should be temporary

Reflections on the Norwegian Experience within the Oil and Gas sector

Odd InstefjordGeneral Directorwww.statoil.com

Thank you

Back-up

Why is this organization successful ?

Separation of the commercial interests of government from its administrative tasks has proved essential for :

–Dedicated, unbiased and professional monitoring.

–Equal and fair treatment of the various stakeholders.

–Effective co-operation between national and international oil companies.

–Transparency in promoting national objectives while upholding commercial interests.

–Effective co-operation between Government and companies.

WHAT WERE THE OBJECTIVES OF NATIONAL PARTICIPATION ?

1. Enhance national control.

2. Increase the national share of the petroleum profit

(revenue).

3. Maximise the national share of funds spent on oil

operations.

4. Stimulate industrial activity on the basis of petroleum, thus

securing employment and industrial development.

5. Stimulate the development of general know-how in Norway

PREPARATIONS FOR ENHANCING THE LOCAL CONTENT

In the period from 1965 to early 70s

Norway had a well developed technical basis from the start.

Local content grew largely through co-operation with reputable international firms.

Government encouraged use of local deliveries if competitive.

In 1969 the principle was included in licence documents.

In 1972 the principle was included in Royal Decree of 8t Dec.

Norway declared its target of 70% local content in deliveries to petroleum operations.

In the period from 1965 to early 70s

Norway had a well developed technical basis from the start.

Local content grew largely through co-operation with reputable international firms.

Government encouraged use of local deliveries if competitive.

In 1969 the principle was included in licence documents.

In 1972 the principle was included in Royal Decree of 8t Dec.

Norway declared its target of 70% local content in deliveries to petroleum operations.

STEPS TO ENCOURAGE THE DEVELOPMENT OF TECHNOLOGY

1978:

Government required oil companies to spend 50% of R & D budget on field development in Norway.

Oil companies were satisfied with both the quality and the price of Norwegian research work.

Many "Good-will Agreements" were then voluntarily signed between oil companies and Norwegian

institutions.

The objective of 70% local content was partly achieved.

1978:

Government required oil companies to spend 50% of R & D budget on field development in Norway.

Oil companies were satisfied with both the quality and the price of Norwegian research work.

Many "Good-will Agreements" were then voluntarily signed between oil companies and Norwegian

institutions.

The objective of 70% local content was partly achieved.

DEVELOPMENT OF THE LOCAL CONTENT

From the 80s the status can be summarized as follows:

Within a decade Norway had managed to create a vibrant national offshore industry.

The policy of slow licensing had given the local industry time to catch up with international levels and to even take the lead in some fields of offshore construction and installation.

By 2006

Norwegian export of offshore goods and services formed 3% of the total GNP and 20% of the total Norwegian exports.

From the 80s the status can be summarized as follows:

Within a decade Norway had managed to create a vibrant national offshore industry.

The policy of slow licensing had given the local industry time to catch up with international levels and to even take the lead in some fields of offshore construction and installation.

By 2006

Norwegian export of offshore goods and services formed 3% of the total GNP and 20% of the total Norwegian exports.