Foil (pdf format)

Ladies and Gentlemen,
It is a pleasure for me to be the opening speaker at the Anglo-Norwegian Energy Conference this year.

Introduction
Nature has given Norway excellent conditions for being a leading supplier of energy to Western Europe. Over the years Norwegian companies have developed world class expertise in production and use of energy resources.

The petroleum sector is Norway’s largest industry. It accounted for almost 20 per cent of gross domestic product in 2002. This corresponds to three times the value creation in any other single industry. This sector also makes a major contribution to government revenues, yielding 24 per cent of the total in 2002. The oil and gas business provides jobs nationwide and in some regions the industry is crucial for employment.

The Resource Base
So far we have produced around 3,5 billion standard cubic metres of oil and gas – slightly more than a quarter of Norway's total petroleum resources which are estimated to 12,8 billion [standard cubic metres]. Increased recovery rates will enlarge this number further. We have discoveries waiting to be developed, and more importantly – more than one fourth of the resources are still to be found. There are considerable volumes of undiscovered oil and gas in both the mature and frontier areas of the shelf.

The Long-term Scenario
We have created two scenarios for the Norwegian Continental Shelf to illustrate how the remaining petroleum resources may materialise over time. The decline scenario depicts a future where no new projects are decided. In this case we would produce approximately half of the current level ten years from now, and twenty years from now production would be down to one fifth of today's level.

If we can develop existing discoveries, achieve our goals for increased oil and gas recovery, and utilise existing infrastructure to tie in satellite resources, we will be able to reduce the production decline. Still, the decline can be dramatic for the industry, and the entire country.

Thus, there is need for further measures. I will in this presentation expand on efforts which I believe will be decisive for realising the long-term scenario. Firstly, the exploration policy is obviously crucial as companies need access to prospective areas. I will then discuss the cost level on the shelf and the cooperation for developing new technology - both issues which are important for instance for tail end production. Finally, I will turn to the changes we have made to our gas organisation and the comprehensive UK-Norwegian cooperation. These are all efforts which will help us realise the vision of the long-term scenario, where Norway is a significant petroleum producer for decades to come.

I will also address the two reports from Konkraft regarding taxes and the activity level on the NCS.

Exploration policy
Let us look at the exploration policy and access to prospective acreage. As we approach Christmas, we are coming closer to two important milestones in the continued development of the NCS, namely the awarding of licenses in our first round in Predefined Areas and the announcement of blocks in our 18 ^th> Licensing Round in Frontier Areas.

The policy of a predefined exploration area in mature parts of the NCS was introduced by the government this year. The purpose of this change in the licensing system is to encourage more activity through creating a greater degree of predictability for the industry.

Earlier this fall, we received applications from in all 16 companies for acreage in the first such licensing round. This is a higher number than in recent rounds and includes applications from four new companies. I am very pleased with this development which shows that new policies can contribute to a higher exploration level in mature areas. This policy can also contribute to increased participation from new companies.

While attracting new entrants is important, it is equally important that we keep the interest of the largest international oil companies. Their skills and experience are crucial for the development of new areas with new technological challenges. Offering acreage with a potential for large discoveries is therefore important and licensing rounds in frontier areas play a vital role. The Norwegian Continental Shelf can still offer these types of areas – and attract those companies with the best knowledge and competence. This will benefit other parts of the shelf as well.

As for the 18th round, my goal is to announce a comprehensive and large round. Our aim is to announce the blocks in December. Awards can then take place before next Summer. The 18th licensing round will give the companies access to frontier acreage.

This licensing round is in part connected to the parallel process of the Impact Assessment Study of All-Year Petroleum Activities in the Lofoten and Barents Sea Area, which was presented to me this Summer and which has afterwards been on a public hearing. Whether blocks in Nordland VI will be included in the 18th round will depend on the Government's evaluation of the environmental impact assessment.

The Lofoten and Barents Sea Area is a large and diverse sea area with respect to natural resources and sensitivity of the environment. The assessment study has shown that in some areas within this large area the potential for consequences for the environment from petroleum activity are considerably higher than for others. In my opinion the assessment study has provided valuable information by clarifying in which areas the petroleum industry is facing the biggest environmental challenges.

Environmentally Sensitive Areas
The government's task is now to try and balance the different interests concerning this issue so that we can conserve and protect the environment and at the same time give the petroleum industry opportunities for further development. The government will shortly conclude on which decisions regarding oil and gas activities in the northern part of Norway can be made in the short term, and which decisions require additional time.

Cost development
Turning now to the cost level, I think both the authorities and the industry must address this more intensively in the future. The cost level is crucial in order to secure tail-end production from existing fields, and to promote new developments, enhanced oil recovery and exploration activities.

The cost level on the Norwegian Continental Shelf is high. A main explanation for this is natural conditions. But given the values at stake, we must also closely evaluate the factors we can control. If we can reduce the costs and improve our efficiency, both the society and the industry will receive increased revenues. At the same time the activity level in the oil companies and the supply industry will increase. In this connection we should not turn away from addressing difficult issues and turn all stones in order to improve the cost efficiency. I know this is challenging – but also necessary.

Let met give you one example: From studies we have received it is evident that the cost of drilling an exploration well is significantly higher in Norway than on the UK Continental Shelf. If this is the case – and I intend to return with a closer description of the cost issue in next year's White Paper – it is evident that projects that are profitable in the UK will not necessarily be of commercial interest in Norway.

A high Norwegian cost level is not news. However, I think we are approaching a new stage in the development of the Norwegian Continental Shelf. To some extent we face the choice between reducing costs or the activity level. As the Norwegian Continental Shelf matures, a number of fields face growing unit costs of production which will determine when fields are closed down.

Extracting the large undiscovered resources in the mature areas will be a challenge, as they are expected to be mainly scattered in small reservoirs. The profitability of developing these resources will vary. Some fields may require simple solutions and yield a high return, while others have much lower profitability.

We need to search for these small fields as well as the large ones. If not, we will be wasting a lot of opportunities. If we have organised ourselves in a way that creates a distinctively high Norwegian cost level within exploration, development and production, less resources will be realised than with an alternative and more effective organisation.

Producing Fields - IOR-measures
Parts of the Norwegian shelf are maturing. This raises new challenges regarding optimal recovery. The chart to the left on this slide shows that many of the displayed fields are about to come off plateau. This implies increased efforts with regard to IOR-measures, cost reductions and other means to prolong the economic life of fields. The chart to the right underlines this point. However, mature fields also offer new opportunities. Reduced production could result in spare process capacity and hence, increased scope for tie-ins.

So far, numerous IOR-measures have been implemented and correspondingly the expected recovery rate has increased. It is vital that this trend continues. What the future of the NCS holds depends on the licensees' ability to explore and develop new fields, but also their ability to reduce costs and prolong the production profile from developed fields.

What can be done? – Some Examples
The Tampen 2020, The Ekofisk II and Oseberg 2015 projects may serve as examples of projects where added value may be created through optimal area solutions.

In the Tampen area the so-called Tampen 2020-project is ongoing. Under this project various measures are assessed to maximise the values from the Tampen area. This includes assessing whether existing infrastructure fits future needs, means to reduce operating costs and IOR-methods. An area plan under the Tampen 2020-project is expected in March-April next year.

Increased recovery may extend a field's economic life. At Ekofisk the expected recovery rate was estimated to 17 per cent when the field was originally developed and production was forecasted to cease about these days. Now the recovery rate is expected to reach 44 per cent and production will be maintained, at least, until 2028. Similar results are expected to be achieved at Valhall.

Technology
In order to fulfil the goals we have set for exploiting our petroleum resources, we need new and cost efficient technology.

Important tools in this respect are the Research Council of Norway, OG21 and Demo 2000, which are all supported by the Government.

The Research Council plays an important role in the process of organizing a coordinated R&D commitment from the energy industry in joint effort with the supply industry and related institutes.

OG21, consisting of the players in the petroleum cluster, has established a strategy in order to meet the challenges linked to further development of the NCS and strengthening of the international competitiveness of the Norwegian oil and gas industry. OG21 has identified five focus areas:

• Environment
• Increased recovery
• Deep water
• Small fields
• Gas value chain

Demo 2000, a co-operation between the authorities and the industry, aims at getting new technology demonstrated. The vision is that Norway should be a testlab for development, testing and qualification of new technology.

Combined, the activities of the Research Council of Norway, OG21 and Demo 2000 constitutes an excellent foundation for creating technologies for a sustainable energy future.

New Gas Organisation
Let me now step into the gas sector.

Norway is a big player on the European gas scene, and, with the Snøhvit LNG now under construction, Norway will soon enter the global gas market. For the Government it is imperative that we continue to focus on efficiency in our gas sector. As you know, all companies on the NCS now market and transport their gas individually and in the last couple of years, we have made substantial changes in our transportation organisation. I believe that the steps we have taken so far are of enormous importance to the efficient development of our gas resources. Firstly, we have established Gassco as an independent operator for most of the gas transportation and processing infrastructure. Secondly, the formation of Gassled established a uniform ownership for most of the transportation infrastructure. And not least, we have established a regulated access regime that is simple, flexible and transparent to all users. In total, the transformation of our gas regime will ensure a more efficient gas sector and a level playing field.

It is my understanding that Norwegian producers now are more able to optimise their portfolios and take advantage of the flexibilities in the transportation system.

Most gas from Norway is sold long-term, but the number of short-term sales is increasing. It is also my understanding that major investments decisions, like Ormen Lange, could be sanctioned by company boards without new long-term take-or-pay contracts covering a substantial part of the expected production. This is a consequence of a developed and liberalised British gas market and the full opening of the Norwegian gas sector. The Continental gas market could gain from similar developments.

Konkraft
In August I received the reports from the two Konkraft projects regarding taxes and the activity level on the Norwegian Continental Shelf. The reports give a broad review of challenges and possible measures. These are important inputs to the Government's evaluation of the framework conditions on the Norwegian Continental Shelf. The activitiy project addreses a number of issues I have discussed today and that I intend to return to in next year's White Paper on petroleum activities.

From the Government's side we are committed to securing framework conditions in order to maintain an attractive investment climate on the Norwegian Continental Shelf. Over the last years, a number of adjustments have been made. Statoil has been partly privatised, we have sold large parts of the SDFI portfolio, and we have made adjustments in our licensing policy to increase predictability and attract new companies.

Over the last years we have implemented a number of changes in the fiscal framework conditions: Royalty is phased out, the CO2 tax has been reduced and losses can now be carried forwards with interest or they can be sold when a company is dissolved. We have recently introduced a new treatment of abandonment costs which is supported by the industry. To facilitate the approval process of licence transfers, The Ministry of Finance is currently working on guidelines regarding taxation issues which arise when licences are bought and sold.

From the Government's side we follow the developments in the industry closely, and on all framework issues we will continue our close dialogue with the industry. We are of course always open for suggestions and recommendations on how we can further improve our system.

As regards the report from Konkraft's tax project the Minister of Finance has stated that he will revert to the Parliament in due course on the issue.

UK-Norwegian Co-operation
This is the Anglo-Norwegian Energy Conference. Let me therefore discuss the development in our cross-border co-operation with the UK over the past few years.

In November 2001, Energy minister at that time, Brian Wilson, and I encouraged the industry and authorities to study increased UK-Norwegian cooperation in the North Sea and a report was presented at ONS last year.

The report included 14 recommendations which have been followed up by a cross-border Implementation Group with representatives from KonKraft and PILOT as well as from the authorities. A series of workgroups have dealt with the different aspects of cross-border cooperation: Share Fairs have been organized, treaty guidelines drafted, open-skies projects developed. A new report summarizing all this important work will be presented next week in London at a joint PILOT - KON-KRAFT meeting.

A vital part of the UK-Norway cooperation is the establishment of a new framework treaty for cross-border projects, including the planned new pipeline from Sleipner to Easington.

UK-Norwegian Co-operation
On 2 October this year, UK Energy Minister Stephen Timms and I signed an agreement which constitutes the most comprehensive energy co-operation yet between our two nations. The agreement centres around three main issues:

Firstly, we have agreed on issues relating to the laying and operation of the cross-boundary pipeline project from the Ormen lange field via Sleipner to Easington. The Norwegian access regime will apply to the whole of the cross-boundary pipeline.

The new pipeline, with a planned start-up in 2006 for the Southern leg, will transport huge volumes of Norwegian gas. In particular from 2007 when Ormen Lange, the second-largest Norwegian gas discovery, comes on-stream. The new pipeline will constitute about 20 % of our total gas exports gas capacity and will be of great benefit to our two nations. The total length of the pipeline from Nyhamna in Norway to Easington in UK is 1200 km! The agreement gives the investors sufficient assurance for them to embark upon this investment.

The second issue which is addressed is the use of existing infrastructure. On the UKCS there is substantial spare capacity for dry gas transportation and the selection of future transportation solutions for gas from Norway to the UK will involve the use of existing UK infrastructure if that is the best economic solution.

Thirdly, the development of trans-boundary fields is addressed in our agreement, as well as the use of installations on one continental shelf to exploit resources on the other side of the boundary. The North Sea is a mature oil and gas region. We share a common interest in ensuring good management and commercial development of our respective petroleum resources. We must therefore consider infrastructure across the boundary in project developments.

Our agreement is a prerequisite for the development of the Ormen Lange field. In addition, I expect that it will trigger developments in areas close to the border as the regulatory regime for such developments have now been agreed. This is an important agreement for our two nations. By strengthening our partnership in this way, we ensure that the North Sea remains a good place to do business. I have very high hopes for our future cross-boundary co-operation.

Concluding remarks
Allow me to sum up briefly. We have great opportunities that lie before us, but to reach our long-term vision there is a strong need for considerable efforts from all parties involved. I have mentioned the exploration policy, the cost level, the cooperation for development of new technology, changes in the gas organisation, taxation issues and the UK-Norway Co-operation. I can assure you that we will leave no stone unturned in the efforts we make to realise our vision: To be a significant producer for decades to come.

I am sure this conference will shed light on the challenges we face.

Thank you for your attention.