Ladies and Gentlemen,
It is a pleasure for me to be the opening speaker at the International Petroleum Tax Conference this year.

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.

In the long run, Norway, as most western countries, faces serious challenges in connection with future growth in pensions and expenses related to healthcare. Revenues from petroleum activities put our nation in a better economic position than many other countries - and our policy for managing the petroleum wealth is central for meeting these challenges. Important instruments for managing our petroleum wealth are the SDFI system, the tax system and not least a petroleum policy which lays the foundation for long term activities on the Norwegian Continental Shelf.

For decades the petroleum sector has been a major force in Norway's economic development. Our forecasts show that in a few years time we will experience a decline in total petroleum production and a significant fall in investments. Over the last years we have produced more than we have discovered. At the same time exploration activities are at a relatively low level.

Scenarios
From the Government's side we are concerned about the development in the activity level. It is an unavoidable fact that activities connected to production of non renewable resources such as oil and gas sooner or later will decline. The rate of the decline will be of importance for the creation of values and the employment in this sector.

In the White Paper presented in June last year we illustrated this point by using two scenarios for future development of the Norwegian Continental Shelf. In the decline scenario no new projects are decided. Thus, the development of the NCS and the Norwegian oil and gas production declines towards 2020 when oil output virtually ceases. The long-term scenario involves production of oil for at least 50 years and gas in a century-long perspective. Cumulated production in this scenario is in accordance with our total resource estimate.

The main point we sought to illustrate by this picture is that a long-term scenario does not come by itself. A long-term development of the Norwegian oil and gas industry is a demanding challenge. An important pre-condition for the long-term scenario is that oil and gas prices are at a reasonably high level. Access to acreage is crucial. More than 60 percent of the difference between these two scenarios is production from undiscovered resources. Cost efficient development of petroleum resources is another central element in bringing our resource base into profitable production.

A major goal for the Government is to provide conditions for production of oil and gas from the Norwegian Continental Shelf in a long-term perspective. So far we have only produced around a quarter of our resources. We have large undiscovered resources – according to the estimates of the Norwegian Petroleum Directorate - about as much as we have produced so far. The petroleum sector should therefore be an important industry in Norway for many years to come.

Challenges
The Norwegian Continental Shelf has much to offer. Norway has a unique position as a supplier of gas to Europe. When it comes to oil, the market outlook is good in the sense that oil will be a major source of energy for decades to come. I have already mentioned our large undiscovered resources, and we have indications that the exploration activities will increase next year. Last month we observed with satisfaction that many companies were interested in the licensing round under the new system with predefined areas. We are also optimistic with regards to the 18 ^th> round. At the same time new companies show interest in investing on the Norwegian Continental Shelf. This year we have seen 12 new discoveries, and 21 new exploration wells have been drilled.

However, we face a number of important challenges. It is difficult to avoid the decline in investments that we forecast in a few years. According to current forecasts we have too few and too small projects in the pipeline to maintain investments at today's level. The level of exploration activity has been relatively low in recent years, and discovery sizes are falling.

With falling production on a number of fields, it is important to exploit time critical resources and to reduce costs in order to increase production and maintain activities. Another challenge is to take advantage of the potential in new technology. At the same time we foresee the development of the petroleum industry into more environmentally sensitive areas in the northern regions and along our coast. Coexistence with fisheries and environmental considerations could become even more demanding in these areas.

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.

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.

Licensing
Access to prospective acreage is crucial in order to reach a long term scenario on the Norwegian Continental Shelf. In this regard the Government maintains an active exploration policy with a large number of new awards. This year the Government introduced a change in the licensing system by introducing awards in predefined areas. The change implies greater predictability, certain simplifications and a larger area available for applications.

For the awards in predefined areas we recently received applications from 16 companies, including four first time applicants, applying for 39 blocks. This is a significant increase compared to the last years' North Sea Awards. I am very pleased with this development which shows that our new policy can contribute to a higher exploration level in mature areas. The new policy can also contribute to increased participation from new companies - companies which through a different focus than the large companies - can create additional value in mature areas.

Acreage with potential for large discoveries is important for the largest domestic and international companies. In this regard 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 18 ^th> round, my goal is to announce a comprehensive and large round. Our aim is to announce the blocks by the end of the year. Awards could then take place before next summer. The 18 ^th> licensing round will give the companies access to frontier acreage, which is important to increase the exploration activity and to achieve the long-term scenario. Simultaneously, the Government emphasizes the need to balance the interests connected to environment, fishery, fish farming and petroleum activities to secure a sustainable development. When it comes to whether blocks in Nordland VI will be included in the 18 ^th> round this will be linked to the Government's evaluation of the environmental impact assessment of the Lofoten and Barents sea areas.

Costs
In order to reach a long term scenario for the continental shelf both the authorities and the industry must address the cost level. This is of high importance 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 state 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. This is challenging – but also necessary.

A high Norwegian cost level is not new. 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 cutting costs or reducing 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. We also need increased exploration for smaller fields.

Research and technology
New technology could make an important contribution to making a larger part of our resource base profitable. Exploration and enhanced recovery are necessary in order to obtain the Government's aim of a long term scenario for the Norwegian Continental Shelf. I have put large emphasis on increasing the state's contribution to research

In the proposed budget for 2004 the Government increased the grant for research and development in the petroleum sector by around 25 per cent. The Government's total commitment to R&D in the petroleum sector, amounts to NOK 140 million. The proposal implies that NOK 30 million is designated to establishing PETROMAKS, a major new program planned by the Norwegian Research Council.

Through the establishing of PETROMAKS the Ministry of Petroleum and Energy wants to channel means for releasing important projects within the national technology strategy Oil and Gas in the 21st Century. The establishing of PETROMAKS will embrace a strengthening of both strategic and user oriented research, as the intention of the program is to cover the whole value chain from basic to applied research, across former borderlines.

A rational management of our petroleum wealth is central for meeting the challenges the Norwegian economy is facing. The petroleum tax system is an important instrument for managing and distributing this wealth. I hope this conference will enlighten the challenges we face and the role of taxation.

Thank you for your attention.