The new Norwegian Government took office on the 19 ^th> of October. I had the honour and privilege to be appointed State Secretary in the Ministry of Petroleum and Energy. I am looking forward to be working on issues of vital importance to Norway.

The petroleum sector has created enormous wealth for the Norwegian society. In the year 2000 export from the petroleum operation counted for about half of the total Norwegian export. Investment in the industry amounted to nearly 20 per cent of total investments in Norway, while more than 20 per cent of the Norwegian gross domestic product was created on the Norwegian continental shelf last year. In addition, the petroleum sector constituted to about 25 percent of the State income. The Government anticipate numbers at this level also this year.

Visions for the future
Both the industry and the authorities have to take on board the consequences of a more integrated world economy. For a small and open economy like Norway, this is particularly valid, and this Government is prepared to meet these challenges.

• We have a vision to see Norwegian petroleum production extend well into the future based upon the oil and gas resources, development and application of new technologies, and the presence of competent Norwegian and international companies. This vision implies that the petroleum sector will continue to contribute to the financing of the Norwegian welfare state.
• We want to see Norwegian petroleum companies among the leading companies in the world. Furthermore, the vision is to see the players on the Norwegian Continental Shelf as world leaders when it comes to increased oil and gas recovery.
• We want increased focus on research and development. As the IEA also emphasizes in its recently released World Energy Outlook of 2001, the energy supply outlook will depend on technology.
• Last, but not least, we want the Norwegian oil and gas industry to be in the forefront when it comes to protecting the environment and safety offshore. It is a major challenge to exploit the resources in the arctic zone; several hundred meters below sea level, with due regard to the environment and to the fishing interests. All petroleum activities must be within the concept of sustainable development.

Framework
The Government will work constantly to adjust the Norwegian oil and gas framework conditions so that we attract the most qualified companies. We believe that the role of the government is to develop a stable framework within which the industry will find it attractive to work. At the same time the government has an objective to maximise the income for the state through the tax system and the state's economic interests.

The petroleum activity give rise to a considerable surplus, of which it is the government's intention that the community shall have a high share. The economic rent is collected by the fact that government-take is higher in large or very profitable fields. The state's direct financial investment – the SDFI – and net profit taxation make the total government-take system progressive.

Early this year the government proposed amendments to the petroleum tax system, based upon the proposals of the Expert Committee on Petroleum Tax. The amendments were approved by the parliament last spring.

The main elements of the amendments to the petroleum tax system are as follows:

• Financial costs will be allocated based on reduced tax values, and not based on income. This will prevent that financial costs attributable to activities outside of the Norwegian continental shelf are deducted against the petroleum tax bases. This rule should reduce incentives for tax motivated investment, establishment or acquisition on the main land or abroad.
• Another amendment is that deficits in petroleum income now will be carried forward increased by interest both for the corporate tax and the special tax. This will equalize the cost of capital expenditure for companies out of tax position – usually new entrants – with those who are in a tax position. Thus, the new amendment should stimulate the participation of new entrants on the continental shelf.
• The new rule also allow losses in case of a disposal of business activities or a merger of companies to be transferred to companies acquiring the business. Some companies might never reach a tax level which makes it possible to exercise all their tax deductible losses. The possibility to transfer such losses will certainly reduce the financial risk that new entrants meet when they are trying to establish themselves on the Norwegian continental shelf.

Production capacity
The production on the Norwegian Continental Shelf has surpassed even the most optimistic prognosis made in the seventies and the eighties. This year, we will produce 3.1 million barrels of oil a day and are expecting to produce the same volume until 2005. We expect the next five years to represent the peak of our oil production, but it is important to note that we see a significant potential for further production and developments.

Our gas export will reach 63 billion cubic meters this year and we are committed to deliver 80 billion cubic meters in 2005. We expect that Norwegian gas sales in the coming years will increase well above these commitments.

The expected remaining petroleum resources on the Norwegian shelf amount to more than thirteen billion standard cubic meter oil equivalents. To put this figure in perspective, I would like to bring to your attention that during the past 30 years of production we only have recovered some three billion standard cubic meters. Put another way, almost 80% of our reserves are still to be exploited. That means that Norway has a potential for at least another 50 years of oil production, and gas for 100 years to come. In my opinion, the prospects are looking good for an industry many seem to think is in rapid decline.

Opportunities through technology
As mentioned, the production has become fare bigger than earlier expected. That is to a large extent due to unforeseen enhanced oil recovery. A number of factors are involved, but technology is viewed as being the main contributing factor behind the improvements in productivity of the major fields, especially with respect to the use of new technology within drilling and reservoir characterisation.

Including existing plans for increased recovery, the average recovery rate is anticipated to reach 44 per cent. But we should be more ambitious. Thus our goal is to reach a recovery rate of 50 per cent for oil and 75 per cent for gas. The management of our gas resources is important in this respect. Gas is being used for injection to increase the oil recovery rate. Today, about 40 per cent of our gas production are used for injection. This volume will increase.

Common efforts are needed to obtain increased recovery rates. Decisions we make today will influence the future value creation and both the Government and the Industry will therefore benefit from research, improved technology and maintaining a competent labour force. This Government would like to see even more research and technology development in Norway and will seek to establish a framework that encourages this to happen.

Different stages of maturity
It is a fact that the resources on the Norwegian Continental Shelf have reached different stages of maturity. This is taken into consideration during our licensing rounds.

The North Sea basin is maturing, and hence future developments will have different characteristics compared to the ones that we know. Developing smaller discoveries and increasing the recovery rate from existing fields is of crucial importance. These objectives have implications on how fields are developed and the way that we use existing infrastructure.

The Norwegian Sea is less mature than the North Sea. We hope to see new, significant discoveries in this area. Prospects are looking good both for oil and gas, but gas is expected to be dominant in new discoveries. The water depths reach 1500 meters and the climate is rough. The challenges related to gas infrastructure and to protecting the fishing interests and the environment must not be forgotten. Still we believe there is reason to be optimistic about the future. We aim for an announcement of the 17th licensing round in December for the Norwegian Sea.

Environment
Developments in the Barents Sea are linked to the LNG-project, "Snøhvit". Let me add that we have seen encouraging exploration results in the Barents Sea lately. The Government is concerned about any possible environmental impact the petroleum activities may have and will evaluate consequences from exploration and production in the Barents Sea closely.

It is furthermore of vital importance to ensure a solid knowledge about how the discharges from oil and gas activities may affect living marine resources like fish. Today, actors both within the industry and public research institutions are contributing to improving our knowledge on the effects of the oil industry's discharges to sea. In spite of the many studies and activities that have been conducted, there is common agreement that we need to know more in one particular area: what are the consequences of the discharges to sea from exploitation of oil and gas in the long term?

The challenge is both to strengthen the research and knowledge on this topic and better to co-ordinate the effort that is going on. The Ministry of Petroleum and Energy together with the Ministry of the Environment and the Ministry of Fisheries, are presently working on how to deal better – and in a sustainable way – with the different challenges that arise from the necessary co-existence between the oil industry and the fisheries.

We firmly believe that the best environmental achievements can be obtained in a close co-operation between the relevant stakeholders. MILJØSOK and its MILJØFORUM are arenas where high level representatives from the oil companies, supply industry, research institutions, environmental organisations and authorities, through dialogue and co-operation, aim at meeting the environmental challenges in a better way. MILJØSOK has undoubtedly contributed to increased attention and awareness regarding the environment. Good results have been obtained, such as the oil companies establishing environmental goals. This could serve as an example for other sectors and industries to follow.

The new Government wants do encourage environmental achievements in a variety of ways, and as you probably know, the Sem declaration has named several measures that the Government proposes to this effect.

Structural adjustments
The year 2001 has brought many structural adjustments for the State's financial interests in the petroleum industry. Changes in the market and the competitive conditions in the oil and gas industry necessitated these adjustments to maximise value creation and keep the Norwegian oil and gas industry strong. The four main decisions by the Parliament were:

1. to open up for private owners in Statoil (stock listing)

2. to sell holdings corresponding to 21.5% of the asset value of the SDFI, as part of a restructuring of state participation, providing that the state achieved satisfactory terms

3. to establish a new State-owned incorporated company to manage the remaining SDFI-portfolio (Petoro)

4. to establish an independent operator company for transport of gas on the Norwegian Continental Shelf (Gassco)

Statoil – a listed company
Statoil was partly privatised and listed on the New York and Oslo stock exchange 18 ^th> of June this year. At present private shareholders own 18,2 percent of the company and the State owns 81,8 percent. It is important to make clear that the company is operating according to commercial principles in line with its competitors. I also want to underline that the State's focus regarding the stake in Statoil is highest possible value creation and return on invested capital.

SDFI and Petoro – managing the petroleum wealth
In a broad based compromise this spring the Parliament decided to sell 21.5 percent of the value of the SDFI portfolio. About 15 percent were sold to Statoil. A new State-owned incorporated company, named Petoro, has been established for the future management of the SDFI portfolio on behalf of the Norwegian State. Petoro is not a new oil-company as such. The Norwegian State owns the SDFI interests directly as before. Petoro shall not apply for licenses on its own account. It will not be given operatorships.

Furthermore, the Parliament decided that about 6.5 percent would be sold to other companies. This is well under way. We aim for completion of the process by mid-February 2002.

A changing gas market
Another important change that has taken place is the termination of the Gas Negotiating Committee – GFU. It was temporary discontinued from June this year in the European Economic Area, and will be permanently terminated as of 1 January 2002. The decision is based upon considerations such as the increased maturity of the Norwegian Continental Shelf, the opening of the gas markets in Europe, and changes in company structures along the gas value chain. In these circumstances the producers in Norway should have freedom to act commercially.

Neutral and efficient utilisation and development of natural gas transport and processing facilities are very important for realising the value of Norway's natural gas. Therefor the government established Gassco; this is, like Petoro, a 100% state-owned incorporated company. The company will be an operator for the whole transport infrastructure of gas on the Norwegian Continental Shelf.

Gassco will concentrate on system management, licence administration and overall supervision of the gas transport infrastructure on the shelf. The company will take over responsibility for pipelines and transport related treatment facilities. These are facilities integrated in resource management and safety terms in the management of the gas transport system. It is crucially important that these are subject to unified responsibility. This will in turn provide a clear and unambiguous structure of incentives for the company and a natural demarcation with operations by commercial players.

The Government will do further work to develop a stable framework for the gas industry in Norway, in order for the companies to have a good basis for entering into gas sales commitments and for taking commercial decisions about new field and pipeline developments. The Government sees domestic use of natural gas as a potential for value added. This represents a unique opportunity for the petroleum industry to diversify – not only on a domestic scale, but also in terms of exports.

Net cash flow to the state
The main sources of the cash flow to the state from the petroleum operations have been the tax system, the state's ownership of Statoil and the State's direct financial interests – the SDFI. This year we expect that taxes and fees will add up to almost 110 billion Norwegian kroner. SDFI will most likely contribute with a net cash flow at more than 90 billion kroner. In addition the SDFI-sale gave an income of 38.6 billion kroner in 2001. After the restructuring of SDFI, the tax-system will amount to an even larger part of the total cash flow from the petroleum operations. This will make the tax-system a still more important tool to ensure the Community a fair share of the economic rent connected to petroleum production.

According to the prospectus, Statoil intend to pay an annual aggregate dividend to shareholders of an amount in the range of 45 percent to 50 percent of the company's net income as determined in accordance with US GAAP. In any one year the dividends paid to the shareholders may be lower or higher than 45 to 50 percent of net income. This reflecting the company's view of the cyclical outlook for energy product prices as well as the operating cash flows, financing requirements and capital expenditure plans to ensure that the company maintain appropriate financial flexibility. In 2001 the dividend from Statoil was 5.7 billion kroner.

Closing remarks
Given the resource base, the changes in the framework and the commitment from a strong and competent industry, I see a promising and sustainable future for the oil and gas sector in Norway.

Thank you for your attention.