Opening address at Petrad's 8 weeks courses

Distinguished Audience, Ladies and Gentlemen!
It is with great honour and pleasure I address you today at the opening of Petrad's 8-weeks courses. Welcome, all of you, to Norway. I hope you shall have a pleasant and rewarding stay in our country!

Let me also express my acknowledgement to Petrad for their excellent work with the 8-weeks courses, this year's courses being the 10'th consecutive.

I am invited to speak to you on how the State organises the petroleum activities, and about the role and policy of the Ministry of Petroleum. In this context I will point out some of the challenges we are facing today. Let me first highlight some facts of the Norwegian oil and gas activities:

Facts of Norwegian oil and gas activities
The oil history of Norway is fairly short; it started some 30 years back. Yet Norway has become a major player on the international oil and gas scene. During the period of oil and gas production on our continental shelf we have developed production capacities that presently make Norway the world's 7 ^th> largest producer and the third largest exporter of crude oil. In addition our country is a major contributor of natural gas to the European market.

The petroleum industry is one of the most important industries in Norway. This year about 23% of the State's income is expected to come from the petroleum sector. About 44% of our export earnings is expected to come from oil and gas this year. This, of course, fluctuates with the oil price; last year less than 10% of the State income came from the oil and gas business. There is however, no doubt that the petroleum sector is and will persist to be a major industry in Norway also in the future.

After some 30 years of production the Norwegian resource base is still quite comfortable. Only 21% of what we expect to recover has been produced to date. Of the remaining 79% we expect the gas reserves to last 80-100 years and the oil reserves 20-30 years, given today's production forecasts. Adding undiscovered resources, the time perspective for oil and gas production at the Norwegian Continental Shelf will be even longer.

If we look a little closer at the oil production , Norway's output is set to average almost 3,2 mill b/d of crude oil during 2000. Crude oil output is expected to rise to about 3,4 mill b/d in 2001-2002, and should thereafter start on a slow decline in the coming 20-30 year period.

Norway is also a major producer and exporter of natural gas.

As we do not have a significant domestic market for natural gas, we are fortunate to have a well developed nearby European market for our gas. Norwegian gas covers about 10 percent of the total natural gas consumption in Western Europe. Norwegian gas is expected to cover one third of the total gas demand in Germany and in France.

Now, a little about how the Norwegian State organises its petroleum activities and the functioning of the Ministry of Petroleum and Energy.

The organisation of the Norwegian petroleum policy
The Norwegian Parliament (Stortinget) determines the framework for petroleum operations in Norway. The opening of new areas for exploration activities, approval of major development projects or issues of principle must be considered and approved by the Parliament. Authority is however, delegated to the Government and the Ministry of Petroleum.

Thus, overall administrative responsibility for petroleum operations on the Norwegian continental shelf rests within the Ministry of Petroleum and Energy. The Ministry of Local Government and Regional Development has overall responsibility for the working environment and safety aspects of the petroleum sector. The Ministry of Finance has overall responsibility for the Petroleum tax system.

The Norwegian Petroleum Directorate, in whose premises you are now, has control functions towards the industry and serves as an advisory body for the Ministries. Practically speaking, the Petroleum Directorate is staffed mainly with engineer-type of personnel, whereas the Ministries are staffed mainly with personnel with an economist or law background. The Petroleum

Directorate is subordinated to the Ministry of Petroleum. In resource related matters it reports to the Ministry of Petroleum. However, in matters concerning safety and working environment, the Petroleum Directorate reports to the Ministry of Local Government. This division of power is regarded an important feature of our petroleum policy to avoid conflicts of interest between commercial matters and safety.

Statoil is the state owned company and takes care of the State's interests in the petroleum sector. The company operates on a fully commercial basis. Statoil is engaged in exploration, production, transportation, refining and marketing. Increasingly more of Statoils operations are taking place in a global context. Important countries for Statoil are Angola, Nigeria and Azerbaijan in the Caspi region, along with several other countries, many of which are represented here today. Statoil is also responsible for the operative and financial management of the State's direct financial interest in licenses on the Norwegian continental shelf.

Now, to my own Ministry.
The Ministry of Petroleum and Energy is organised in three departments. The responsibility for petroleum activities rests within the Oil and gas department, which is organised in eight sections.

I will leave you with some fact sheets to study the responsibility areas for each section. The same information is also available on the Ministries Internet page under the adress: www.oed.dep.no

Let me now share with you some key elements in Norwegian oil and gas policy, and then briefly point to some of the challenges we are facing today.

First and foremost, we have focused on establishing a base for an optimal resource depletion. One important element in this respect has been to attract the best of international expertise and competence. There has been a consensus that this would also give the best basis for developing a domestic oil industry. Foreign companies dominated exploration off Norway in the initial phase, and were responsible for developing our first oil and gas fields. While these multinational companies are also playing a decisive long-term role, the goal of building up a Norwegian oil industry was defined at an early stage.

Secondly, based on the fact that the Norwegian oil and gas resources are part of our national wealth, there is a consensus in the Norwegian society that the whole population should benefit from the depletion of these resources. This implies that our petroleum revenues must be managed with the view of improving living conditions and ensuring social development for all the citizens of Norway. The needs and demands of future generations should also be taken into account when managing our resources. The Petroleum Fund was established to secure a long term perspective in the management of the petroleum revenues.

Furthermore, a viable petroleum policy requires predictability, transparancy and stability for all parties involved, and, framework conditions formulating acceptable commercial incentives.

Concerning environmental issues, it is an aim to reconcile the role of being a major energy producer with being in the environmental forefront.
Finally, the Government is supporting the internationalisation efforts of our oil and gas industry. In pursuing the policy of internationalisation, we clearly state that human rights shall be attended to.

I would now briefly point to the main challenges facing our policy and the main issues the Ministry is working on presently.

Policy challenges
Operating on a global basis the oil industry is facing a constantly changing environment. Seen from an industry as well as a Government perspective it is important to monitor and foresee changes to be able to take necessary steps in time; to restructure and make changes in policy. The main challenge is to make sure that we obtain the maximum value of our petroleum resources. In order to succeed, we have to see to that the Norwegian Shelf is competitive.

The Ministry of Petroleum has recently issued a White Paper that underlines the willingness and interest of the Government to simplify procedures and regulations. Both by bringing down costs and by opening up for new players, we intend to maintain and enhance the competitiveness of the Norwegian Shelf. We also recently established a committee to evaluate the petroleum tax system.

The most important single case is, however, the future role of the State in the petroleum sector. This is a complex and politically very sensitive issue. The two main questions are related to the future structure of the States Direct Financial Interest and the future ownership structure for Statoil. The work is not finalised yet, the outcome not decided.

Another big issue is the response of our industry and our energy policy to the deregulation of the European gas markets. At present, the European gas market is in a process of being opened up for more competition. This is both due to structural changes in the business environment of the gas sector, and the adoption of the European Union Gas Directive. Increased competition in the gas market may result in new types of gas sales commitments, in addition to the traditional long term take or pay contracts. Further, a liberalised gas market in Europe will affect national energy policies and instruments established to fullfill energy policy aims.

Finally, internationalisation of our petroleum industry is an increasingly important matter. In the past our domestic supply market was constantly growing. It peaked in 1998 with about 9 billion USD investments. In the future, the Norwegian supply marked is expected to be smaller, in the order of 5-6 billion USD 1Exchange rate: 8.75, but still quite significant.

The future of our own supply industry will depend on its ability to compete for a fair share of the domestic market as well as obtaining contracts in the international market. The latter is a market of about 180 bill USD, of which we now only have a share of between 1 and 2 per cent. In a longer term, it must be a fair ambition to have 4 to 5 per cent of the international market.

We are currently working seriously to improve working relations between our supply industry and international oil companies operating world-wide, national oil companies in different countries and world leading supply companies.

It is also vital for our two oil companies, Norsk Hydro and Statoil, to go international, acquire new acreage and utilise their experience and competence in other areas of the world. If not, their basis for future activity would decline.

It is interesting to note that both Norsk Hydro and Statoil already have acquired important positions in demanding markets, such as Angola and Nigeria, Canada and in the Caspian. Iran is also coming up as a candidate for Norwegian investments. The magnitude of Norwegian investment in exploration and production abroad is already substantial and it is growing rapidly.

Let me underline that the Norwegian continental shelf, as well as our industry today has a strong competitive edge internationally. This has been obtained through the combined efforts of the industry and the Government through our policy regime. However, building up a domestic petroleum industry had not been possible without the involvement we have experienced from foreign oil companies and foreign industry.

Finally, let me wish all participants and the arranger good luck with the conference.

Thank you for your attention!