Foils from the Speech

Your Excellencies, Ladies and Gentlemen,
It is a great pleasure for me to speak at this important conference. Houston is a global hub for the international oil- and gas industry. Many of the large international development projects are directed from here, and the US Gulf of Mexico represents itself important opportunities. I would like to use this opportunity to present the prospects of the Norwegian Continental Shelf and invite to further development of the good business relationships.

Since 1999, Intsok - Norwegian Oil and Gas Partners - has organised industry events in Houston with the aim of presenting Norwegian oil and gas capabilities. I think this year's topic, "Oil and Gas Developments in Arctic and Cold Regions" is particularly interesting, addressing issues of critical importance to both the US and Norway as we expand our activities in these regions.

Oil price, energy demand
First, let me briefly visit the oil market. Oil prices are in nominal terms at an all time high. There is unrest in many corners of the world, and this is fuelling high energy prices. China has emerged a world manufacturer of goods, driving energy demand, especially for oil. Even if the 2004 growth in oil demand was exceptional high, an increasing number of observers share the view that oil prices will remain at a high level also in 2005.

There is every reason to underline the fact that the world will need more energy both in the short term and in a long term perspective. The International Energy Agency predicts an increase in world energy demand of 60% towards 2030. The dependence on OPEC oil will inevitably increase in the coming years. In parallel, there is a growing awareness of the resource potential in the arctic and cold areas.

Let me turn to the prospects and challenges we are facing at the Norwegian Continental Shelf and in moving further North with oil and gas activities.

The Norwegian Continental Shelf
The petroleum industry is very important for our economy and for Norway as a whole. This industry contributes to a large share of our GDP, total investments, state revenues as well as total exports.

Production and Net Exports…
Production of crude oil and liquids is about 3,3 million barrels per day. With limited domestic consumption, Norway is the third largest exporter of oil globally, behind Saudi Arabia and Russia. We are also the third largest exporter of natural gas, behind Russia and Canada, exporting 2,7 tcf in 2004.

It goes without saying that developments and events in the global oil and gas markets are of great importance to the government and to our industry. Norway is committed to remaining a stable, long term supplier of oil and gas.

High actvity…
2004 was a year of positive development on the NCS. Production was all time high, and two new fields started producing (Skirne and Kvitebjørn). We expect record high investments in 2005. For the next five years total investment forecasts are approximately 50 billion kroner higher than what we expected six months ago. We believe that this positive development is viable going forward.

Resource potential
Norway is still a promising petroleum province with large resources to be discovered. Slightly less than one third of the recoverable resources have been produced. Furthermore, estimates show that one fourth of the total oil and gas resources on the NCS remain to be found. We need to explore for these resources, find them and develop them efficiently.

Exploration
The latest forecasts indicate a high level of exploration activity in the coming years. In 2004 17 exploration wells were drilled. In 2005 the Norwegian Petroleum Directorate has estimated that as much as 30-40 exploration wells could be drilled. Availability of drilling rigs can, however, be a limiting factor.

The high oil price is of course a main explanation behind this development. However, this government has implemented targeted initiatives which I believe are important contributors as well.

We have increased the frequency and the scope of licensing rounds, as well as tightened work commitments. I will continue to ensure that the industry has access to prospective areas, both in mature parts of the shelf and in less developed areas.

An important priority for us is to establish the NCS as an attractive province also for new entrants. Since 2000, 22 new companies have become pre-qualified or have established operations on the NCS. Many of these companies play or will play an active role in licencing rounds and contribute to a fruitful competitive environment. I would however also stress that the established companies are essential for the future developments of the Shelf. The new companies will not substitute, but supplement the existing players. It is therefore very encouraging to see the interest from the established and the larger companies in the recent licensing round on the NCS.

Ensuring a high rate of exploration and continued high activity levels also in mature areas of the NCS are important challenges which we are very much focused on.

Recovery rate
Furthermore, we must increase the recovery rate from existing fields. Today we expect an average recovery rate of 46 percent on the NCS. This is a considerable increase compared to 1991, when we expected an average recovery rate of 34 percent. Our ambition is to reach a recovery rate of 50 percent or even more.

Many operators have ambitious plans for increasing production from their existing fields. We welcome this positive development; it will contribute to extended lifetimes for the fields and thereby enhanced value creation.

Mature areas present, though, new challenges in terms of decreasing production, higher unit costs and smaller discoveries. In the white paper which was published in May 2004, the Ministry emphasised the need for cost reductions on the NCS. Focusing on cost reductions is a robust strategy in order to ensure solid profitability and extended lifetimes for the fields. The government as regulator and the industry itself are jointly responsible for reducing the cost level.

To sum up regarding the current status of the NCS: We expect new discoveries to be made and the recovery rate to increase. What about the longer term perspective? In my mind there is one element which could really alter the future significantly. That is the development in the Arctic region.

Further development in theBarents Sea
The geopolitical interest encompassing these waters will most likely increase in the coming years. The environment, the ice, the darkness, national bounderies to be determined, long distance to markets; the challenges are many. But so is the potential reward.

Many believe that the world's Arctic regions contain significant amounts of petroleum resources. The US Geological Survey (USGS) estimates that as much as one fourth of the world's remaining petroleum resources may be found here. Although Norwegian authorities do not necessarily concur with the exact numbers presented by the USGS, we expect that large resources of oil and gas are still to be found in the Barents Sea.

Issues related to the Arctic are global in nature. The clean and productive waters of the Barents Sea, the vulnerable environment and the potentially huge petroleum resource base here, naturally attract global attention. On the other hand, more than one third of Norway's territory lies north of the Polar Circle. Areas under Norwegian sovereignty reach far into the Polar oceans. Our responsibilities and obligations in this respect concern areas that are more than six times the Norwegian territory.

In other words, Norway has strong interests in good resource management in the Arctic, and we have an international responsibility in this respect. This responsibility is shared with other Arctic nations such as Russia, the United States, Canada and Denmark. We must work together to ensure that this part of the world is managed in a prudent and sustainable manner.

In Norway, our renewed focus on the Arctic has led to a stronger than ever need for a national policy for the North. The Government therefore plans to present a White Paper to the Storting before summer, outlining such policy and what measures are to be taken. Our fundamental aims for the North are based on:

• a stringent and consistent assertion of sovereignty
• a responsible and sustainable management of all natural and marine resources
• environmental protection and climatic change
• peace and stability

Petroleum activity in the arctic offshore is very much in its infancy.

In Norway we have decided to proceed step by step and with great caution. We have built knowledge about the environment and the petroleum activity through comprehensive studies of the area. We have adopted a precautionary principle with the strictest conditions for petroleum exploration and production in the Barents Sea. In practice we adopted a "zero-discharge to sea from operations" policy when the Government decided to allow petroleum activities to be resumed in 2003. We have introduced a flexible regulatory system. The regulations are based on expected technological progress that will benefit the industry and the society as a whole. I believe that all these measures have been and will be necessary in order to achieve or earn the public opinion's acceptance to operate in these areas.

Currently a drilling campaign of 3 wells is under way in the Norwegian part of the Barents Sea South. The geological risks are high, but so is the potential. Following the 19th concession round to be announced this summer, new exiting opportunities to test the multitude of possibilities in the Barents Sea will be made available to the oil & gas industry. It is our hope that the huge successes we have experienced in the North Sea and the Norwegian Sea can be repeated in the Barents Sea.

We share the Barents Sea with our Russian neighbours. Like us, the Russians have recently signalled the intention of a comprehensive concession rounds in their part of the Barents Sea. This is good. Activity and success in one part of the Barents Sea can bring about success and activity in other parts of the Sea.

I believe it has been proved possible to have large scale petroleum activities in the Arctic in a manner that is environmentally acceptable and in line with sustainable development criteria. This is backed by recent studies, but more studies and R&D efforts are required.

The industry has a major challenge to demonstrate that exploration and production of petroleum can be conducted safely and cost efficiently and without harming the environment in the Arctic. Appropriate technologies and knowledge must be developed to meet this goal.

Research and new technology
The four workshops following this industry summit reflect some of the technological challenges we face in developing projects in the cold and arctic areas:

• subsea flow assurance and processing for long tie-backs
• environmental considerations
• drilling and intervention and offshore and onshore facilities in the arctic, and
• transport solutions for oil, gas/LNG from arctic frontiers to the markets

At the Norwegian Continental Shelf we have attained a long experience with technology development and project management for offshore developments in demanding geological structures under harsh climatic conditions. The Norwegian Continental Shelf has been a testing ground for technology related to floating production, subsea systems and drilling, among other areas. Ever since the activities started at the NCS the strictest environmental requirements have been followed.

Snøhvit
The Snøhvit LNG development and the Ormen Lange development are two excellent examples of front end technology being implemented at the NCS. Snøhvit is the northernmost LNG development in the world, located at 71 degrees north. For comparison, Prudhoe Bay is located at 70 degrees north. It will become Europe's first export facility for liquefied natural gas, and is Norway's first development in the Barents Sea.

The Snøhvit development will be produced from subsea installations and landed by multiphase transportation to the receiving and processing plant on Melkøya Island in Northern Norway and shipped by LNG carriers to markets in Europe and the United States.

The US will be a major market for Snøhvit gas, where Statoil will be a main marketer for the LNG. To gain access to the US market Statoil has acquired capacity at the Cove Point terminal in Maryland. The development of Snøhvit will provide a basis for further field developments based on LNG in the area, and is therefore important for further exploration activities in the Barents Sea.

Ormen Lange
The Ormen Lange field is Norway's largest gas development project, proven by Norsk Hydro in 1997. Hydro's subsea solution for Ormen Lange is taking deep water technology a significant step ahead. Nothing will be visible on the surface when the enourmous gas field comes on stream in 2007. When it reaches full production, the field will meet 20 percent of the demand for gas in the UK.

Long term fundamental and applied research in the fields of multiphase transportation and LNG at Norwegian research institutions, in cooperation with industry, has been decisive in facilitating the Snøhvit and Ormen Lange projects.

During the 30 year period of building our petroleums capacities we have had a close and constructive cooperation with American companies. American companies have contributed to developing our research capacities in the petroleums sector. Some have established research centres in Norway, and they have also represented constructive partners for the supply and services industry. This cooperation has also been brought forward to third markets.

OG21
To realise the long term potential of the NCS, continued focus on research and technology will be important as ever. With the introduction of our national technology strategy for the petroleum sector, the "Oil and Gas in the 21 ^st> Century", or OG21 in short, the Norwegian government wants to reinforce its focus on technological development. I am pleased that the major companies at the NCS support and contribute actively to this inititative. With the OG21-strategy we will build on our experience and aim at being the most innovative petroleum province in the world.

To back the strategy the Government has significantly increased the budgets for petroleum research this year, the budget having doubled over the last couple of years.

With the recent signing of a bilateral Memorandum of Understanding on energy, which is focused on expanding joint research in petroleum and energy fields, the United States and Norway will work together to develop long term reliable and sustainable energy sources. Individual initiatives are taken under the umbrella of this MoU, such as the cooperation between the US Deepwater Program and the Norwegian Demo 2000 program. The plan ahead is to stimulate new activities and ecourage industry and researchers to engage in bilateral activities and joint research programmes between Norwegian and US institutions and companies. The Research Council of Norway will be an active contributor to such joint projects.

Conclusion
In conclusion, I would like to emphasize Norway's intention, in cooperation with our partners, to remain a long term supplier of oil and gas and to contibute to sustainable exploration and development in our cold and Arctic waters. This gives me an optimistic view concerning the long term energy supply.

I see plenty of opportunity for continued and strengthened cooperation between Norway and the United States, both regarding business and research, as well as at the official level in the energy sector.

Thank you for your attention.