Foils (in pdf format)

History in brief
Norway’s sovereignty over the Norwegian Continental Shelf in respect of subsea natural resources was proclaimed in 1963. A new act determined that the state owns any natural resources on the continental shelf, and that the King alone is authorised to award licences for exploration and production. In the same year, companies were granted permission to carry out preparatory surveys and reconnaissance. These reconnaissance licences entitled the holder to perform seismic surveys, but not to drill. Agreements on dividing the North Sea in accordance with the median line principle were reached by Norway with the UK in March 1965, and with Denmark in December of the same year.

Norway’s first offshore licensing round was announced on 13 April 1965, and Norwegian North Sea oil production began in 1971 when Ekofisk at the southern end of the sector came on stream.

Key goals for Norwegian oil and gas policies since the early 1970s have been national management and control, building a Norwegian oil community and state participation.

Exploration in the 1970s was confined to the area south of the 62nd parallel. A phased opening of the continental shelf to exploration and restrictions on the number of blocks awarded in each licensing round were used to maintain a moderate pace. Foreign companies dominated exploration off Norway in the initial phase, and were responsible for developing the country’s first oil and gas fields. Since then we rapidly established national oil companies and a supply industry which by now is highly qualified and experienced and internationally competitive.

Norway - an important energy producer
Daily Norwegian offshore production averaged 3.3 mill barrels of oil (including NGL) in 2002, and Norway ranked seventh among the world’s leading oil producers. Norwegian oil production was more or less unchanged from 2001. The NCS accounts for 4.3 per cent of total world production. Since Norway consumes some 200 000 barrels of petroleum products per day, its net exports of crude oil and petroleum products (including NGL) totalled about 3.1 mill b/d (incuding NGL/ condensate). This puts Norway in third place after Saudi Arabia and Russia among the world’s leading net crude exporters.

Norwegian dry gas exports totalled 64.2 bn scm in 2002, an increase of roughly 22 per cent from 2001. The country is an important gas supplier to Europe, with its deliveries accounting for some 12 per cent of total European gas consumption.This makes Norway the third largest gas exporter to Europe, and the fourth biggest on a world basis.

The oil industry now accounts for a substantial share of the Norwegian economy. Petroleum production and pipeline transport create substantial revenues for oil companies and the state. At the same time, development and operation consume considerable resources.

The significance of the petroleum sector in the Norwegian economy is indicated in this figure which presents various indicators from the national accounts for this sector as a percentage of the total national economy. Its share of gross domestic product, exports and total government revenues has been substantial over the past two decades, reaching a particularly high level in 2000, 2001 and 2002.

The principal reason why revenues have been so high in recent years is a combination of high oil prices, a strong NOK/USD exchange rate and historically high petroleum production.

This figure breaks down the government’s net cash flow from petroleum operations into its components. This clearly shows that the government’s most important revenue sources in recent years have been cash flow from the state’s direct financial interest (SDFI) and from taxes.

Objectives for the government
The Norwegian Petroleum act states the following:

"Resource management is executed by the King in accordance with the provisions of this Act and decisions made by the Storting (Parliament).

Resource management of petroleum resources shall be carried out in a long-term perspective for the benefit of the Norwegian society as a whole. In this regard the resource management shall provide revenues to the country and shall contribute to ensuring welfare, employment and an improved environment, as well as to the strengthening of Norwegian trade and industry and industrial development, and at the same time take due regard to regional and local policy considerations and other activities."

In the latest report to the Storting on oil and gas issues, Report No. 38 to the Storting 2001– 2002, the government states the following objectives for its oil and gas policy:

• The government will ensure that the petroleum sector remains a significant contributor to financing the welfare state and to nationwide industrial development in future.
• The government will lay the basis for continued development of the petroleum sector by ensuring that the NCS remains an attractive area for investment, value creation and industrial development in Norway.
• The government will pursue ambitious environmental and resource management policies based on the goals of a sustainable petroleum business and coexistence between the petroleum sector, other industries and environmental considerations.
• The government wants the petroleum sector to be a leading-edge industry with a strong focus on health, safety and the environment at all levels of the industry, and to base its operations on a goal of continuous improvement.
• The government will contribute to the internationalisation of the Norwegian oil and gas industry. This will provide the sector with development opportunities in addition to operations on the NCS, while experience from international activities can contribute to continued development of the NCS.

State organisation of the petroleum operations
The Storting (parliament) determines the framework for petroleum operations in Norway. Major development projects or issues of principle must be considered and approved by the Storting.

MPE
Overall administrative responsibility for petroleum operations on the NCS rests with the Ministry of Petroleum and Energy (MPE). Its job is to ensure that these operations are pursued in accordance with the guidelines laid down by the Storting.

MLGA
The Ministry of Labour and Government Administration has overall responsibility for the working environment in the petroleum sector, as well as for emergency response and safety aspects of the industry.

NPD
The Storting resolved on 2 June 1972 to establish a Norwegian Petroleum Directorate (NPD) in Stavanger. This agency is administratively subordinate to the MPE. On issues relating to the working environment, safety and emergency response, however, the NPD reports to the Ministry of Labour and Government Administration.

Primary functions of the NPD are:

• to exercise administrative and financial control to ensure that exploration for and production of petroleum are carried out in accordance with legislation, regulations, decisions, licensing terms and so forth
• to ensure that exploration for and production of petroleum are pursued at all times in accordance with the guidelines laid down by the MPE
• to advise the MPE on issues relating to exploration for and production of submarine natural resources The NPD is headquartered in Stavanger, and has a branch office in the north Norwegian port of Harstad.

SDFI
State participation in petroleum operations was reorganised on 1 January 1985. Statoil’s interest in many licences was split into two components, one linked to the company’s commercial participation and the other becoming part of the state’s direct financial interest (SDFI) in petroleum operations.

This arrangement means that the state itself funds the exploration expenses, investment and operating costs falling to the SDFI, and receives the share of production and revenues which corresponds to its interest in each production licence.

This arrangement is a field-specific instrument in that the interest is adapted to the profitability and resource potential of each production licence. From 1985 until the 14th licensing round in 1993, the SDFI received a holding in each production licence awarded. In awards made after the14th round, participation reflects the resource potential and expected profitability in the respective rounds at the time when the awards were made. The SDFI holding is set to zero in some production licences.

Petoro
Petoro AS manages the SDFI on behalf of the state, which remains the owner of the SDFI portfolio. The overall long-term objective for managing the portfolio is to create, on a commercial basis, the largest possible economic value from the SDFI while also taking account of the state’s total economic assets.

PetoroAShas three duties:

1. managing the state’s interests in partnerships where such interests are held at any given time

2. monitoring Statoil’s sale of petroleum produced from the SDFI, in line with the sales instruction issued to Statoil

3. financial management of the SDFI, including keeping accounts.

Petoro is financed by appropriations from the government, and receives no revenues from the SDFI’s assets. These assets will be managed on the government’s account. As before, income and expenditure relating to the SDFI will be carried on the central government budget.

Statoil will continue to be responsible for marketing the state’s directly-owned oil and gas.

Gassco
In connection with the partial privatisation of Statoil, the Storting resolved to create a separate

company for transport of natural gas. Gassco AS was established on 14 May 2001. The government’s intention in creating Gassco is that:

• gas transport and treatment facilities will serve all producers and contribute to efficient overall utilisation of resources on the NCS
• the company will act neutrally towards all users of the gas transport systems in operating this infrastructure
• the company will play a key role in further development of the transport systems.

Gassco took over on 1 January 2002 as operator of all the leading pipelines for landing gas and the most important land-based facilities. From 1 January 2003, these pipelines and facilities have been organised as a unified transport system under the Gassled name, with Gassco as the operator. Based at Bygnes in Karmøy local authority north of Stavanger, the company is wholly stateowned.

Petroleum resources
Discovered and undiscovered resources on the NCS are expected to total just over 13.7 bn scm oe. Production to date amounts to 3.5 bn scm oe, corresponding to 26 per cent of total resources. Remaining recoverable resources total 10.2 bn scm oe, of which proven reserves total 5.4 bn scm oe. Undiscovered petroleum resources on the NCS are estimated at 3.9 bn scm oe. In addition, possible future measures for improving resource utilisation from fields are expected to add a total of 900 mill scm oe.

Resources in the order of 10-13 mill scm of recoverable oil and just under 10 mill scm oe of gas were proven in 2002. Overall petroleum production from the NCS in 2002 amounted to 259 mill scm oe. Cumulative output since petroleum production began off Norway in 1971 amounts to 3.5 bn scm oe from 57 fields.

Remaining reserves declined by a total of 257 mill scm oe in 2002. Gas reserves fell by 72 bn scm, while the recorded reduction in oil reserves was 195 mill scm.

Two possible development scenarios
This figure illustrates two possible development scenarios for oil and gas production.

The lower of these involves production declining towards 2020, when oil output virtually ceases. This covers anticipated output from fields in production or covered by a development decision, and is termed the decline scenario.

In the other scenario, production is maintained at a substantially higher level. This long-term scenario involves the realisation of profitable projects which ensure production of oil for at least 50 years and gas in a century- long perspective.

The government’s clear objective is to achieve the long-term scenario. The Parliament gave a broad support to this when the white paper was discussed.

The decline scenario illustrates a trend in operations on the NCS where the industry and the authorities rest content with what has been achieved, reap returns from the investment made, and pursue policies which contribute to a relatively rapid phase-out of the oil and gas industry.

Development of the NCS and Norway’s oil and gas industry stagnates in the decline scenario over the next 10–20 years. This will result in substantially reduced income for the government and lower value creation for the industry by comparison with the potential for income and value creation inherent in the resource base. In addition, a trend of this kind would make an international commitment by the Norwegian petroleum industry more difficult.

The long-term scenario can be achieved if a commitment is made to efficient exploitation of the resource base. As the curve in this figure shows, the resources exist to sustain substantial oil and gas production towards and beyond 2050. This perspective is conditional on:

oil prices staying at a reasonable level

a commitment by the oil and gas industry and the authorities to developing petroleum resources in a cost-effective manner.

The aim is to secure the best possible resource utilisation and the highest possible value creation for the Norwegian community.

Achieving the long-term scenario will be very demanding. This is partly because the most accessible resources have been developed, and recovering those that are less accessible will be increasingly challenging. That job rests primarily with the oil and gas industry, but the resource potential of the NCS will not be fully realised without pursuing a determined policy to continue developing the petroleum sector.

Our main contribution as a Government is to ensure the right framework conditions for the industry. With regard to exploration, the Government has a strong focus on access to acreage. The means, however, have to be different in the different parts of the NCS: the North Sea, the Norwegian Sea and the Barents Sea.

The North Sea was the first to be explored, and is now a rather mature petroleum sector. Here the biggest discoveries so far have been made. The possibility of new giant fields may be declining in this part of the NCS, but there are still a considerable potential for discovering new resources. We awarded licenses in the North Sea Awards 2002 on April 11 ^th> of this year.

In addition to this, one week ago we announced a licensing round in so-called pre-defined exploration acreage, mostly in the North Sea, but also in mature parts of the Norwegian Sea. This is the first time we announce such a round, and it will replace the former annual North Sea Awards. This is a sort of open door policy which should lead to a more predictable and simplified licensing system. It is specially adapted to mature oil provinces, and will hopefully be initial to renewed interest in developing small fields and tail-end resources as tie-ins to existing infrastructure.

The Norwegian sea is probably the most interesting province on the NCS to-day. It consists of both mature areas and more frontier deep water areas. Large parts of the Norwegian Sea are still regarded as unknown. In the more frontier areas we have invited the oil companies to nominate areas that they would like to see included in the upcoming 18 ^th> licensing round. This round will be of great importance to the development of frontier areas. Exploration activity in the Norwegian Sea needs to be revitalised, and the nominations from the companies are an important input to including high quality acreage in the licensing round.

The Barents Sea is a very environmentally sensitive area. Although the area has been open to petroleum activity since 1980, only small discoveries have been made. The exeption is Snøhvit, which is a gas field and where activity is just starting. When my Government ame into office, we initiated an impact assessment study for the Barents Sea to see whether further petroleum activity can be allowed within acceptable risk limits. This study will shortly be made subject to a public hearing.

Based on the results from the study, the Government will consider which decisions may be made as to further petroleum activity in this part of the Shelf. In any case, any possible petroleum activity in this area will be subject to strict conditions with respect to both fisheries and the environment, to ensure that the activity is undertaken within the framework of sustainable development.

Conclusions
More than 30 years of experience on the Norwegian Continental Shelf have demonstrated that the petroleum activity can be pursued in acceptable coexistence with other activities such as fisheries, merchant shipping, the navy and the environment. With particular concern to your interests, it may be worth emphasising that the coexistence between the navy and the petroleum activities has been harmonious and constructive.

Thank you for your attention.