Ladies and Gentlemen,
It is a great pleasure for me to be here at Holmenkollen during the Ski Festival to speak to you about the Norwegian Oil and Gas Policy.

Total Government Take – (foil in pdf format)

Over the past 35 years, petroleum activities have developed into an important part of the Norwegian economy and have made a large contribution to developing Norway’s welfare state. This sector is a substantial contributor to state revenues and to overall value creation.

An overall objective for the government is that the largest possible share of value creation from oil and gas operations accrues to the community. Our petroleum resources must be managed to the benefit of the whole population and the future generations.

The state's cash flow from petroleum activities derives from taxation of the oil companies, revenues from the SDFI and dividend from Statoil and Norsk Hydro.

Petroleum Resources NCS – (foil in pdf format)

The resource base on the NCS is substantial. According to our latest estimates, we have more than 13 billions Sm3 petroleum on the NCS – this is equivalent to more than 83 billions barrels of o.e.

By the beginning of 2001 about 22 per cent of Norway’s petroleum resources have been produced. Considerable oil and gas resources accordingly remain to be discovered and produced. Possibilities for making large new discovery, primarily of gas, are good. In our estimates, 27 per cent of the resources on the NCSs are yet to be discovered.

Total Petroleum Production – (foil in pdf format)

From the early –70 the total petroleum production from the NCS has been increasing quite rapidly. The petroleum production in 2000 was all time high with an oil production in the range of 3 millions barrels/day and a gas production of 50 billions Sm3.

To maintain the petroleum productions at current level is a challenge because ;

• a number of fields show a declining production profile,
• some fields will be shut in and abandoned in the coming years, and
• extensive areas of the NCS have moved into a mature phase – this applies particularly to the North Sea. Discoveries are fewer and smaller, and making them commercial is more demanding.

As our forecasts shows, a decline in the production from the NCS will take place if we are not able to improve oil recovery from existing fields, or timely and efficient discover and develop new fields.

But we are optimistic. Based on the rapid present-day technology development and the promising results from recovery projects, we expect that the recovery factor will continue to rise for oil and gas fields on the Norwegian Shelf. The objective is to attain a recovery factor of 50 per cent on average for the recovery of oil and 75 per cent for the recovery of gas.

Such an increase corresponds to about 25 % of all oil produced on the Norwegian Shelf and nearly 80 % of gas produced to date. These are very high numbers also in an international context, and constitute an additional potential for the resources of around 1 billion Sm ³> oil equivalents (o.e).

This clearly illustrates the magnitude of our ambitions, and the economical importance of a continued effort to find and implement measures to increase the recovery rates in existing and new fields.

It should be pointed out, though; that these expected increases in recovery factor partly depend on technology that is not yet available. Thus, the challenge ahead of us is certainly a difficult one, but I am convinced that it can be met.

As an important part of our long-term commitment to the management of resources on the NCS, the Government will continue to encourage development of technology for increased oil recovery and efficient exploration, development and operation of fields.

Due to dramatic changes in the petroleum marked, last year was very exiting for everyone following Norwegian petroleum policy. It culminated just before Christmas when the government submitted the proposition about ownership of Statoil and future management of SDFI to the Storting. This year shouldn't be less exiting, as some major political decisions are in progress.

I will take this opportunity to elaborate on the Statoil/SDFI issu. Before doing so, I will underline that the principal objectives for the Norwegian petroleum policy are still maintained.

Principal Objectives of the Petroleum Policy– (foil in pdf format)

Oil and gas resources represent a substantial part of the country’s national wealth, and must be administered in a long-term perspective. The principal objectives for these petroleum activities can be summarised as follows:

First: Value creation, welfare and employment

• It is important to ensure that oil and gas resources yield the highest possible value-added and help to secure welfare and employment. Welfare also embraces safeguarding life and health at a level that as a minimum is on a par with other parts of the welfare state.

Internationalisation

• Contribute to internationalisation of our petroleum-related industry. This will help to extend the life of this industry beyond the duration of Norwegian oil and gas resources.

Environment and energy

• Combine the role as a large energy producer with a frontline national role on environmental issues.

To meet these goals, it is important that oil and gas operations are organised in a way which optimises the utilisation of the resources.

An important consideration for the government is to ensure that operations on the NCS contribute to industrial development in Norway. This can be industrial development in relation to exploration and production activities, developments of fields, operation and maintenance, onshore processing of oil and gas, technology development and research.

The Norwegian supplies industry forms an important part of the country’s overall petroleum community, and much of the technological development in this sector occurs in the interaction between suppliers and oil companies. We want Norway to retain a competitive and profitable oil and gas industry that contributes to employment and increased value creation.

One of the most important policy issues in Norway at the moment is the issue concerning ownership of Statoil and future management of the SDFI.

Norway’s oil and gas resources belong to the whole Norwegian society and must be managed to the best advantage of present and future generations. The largest possible value creation to society from oil and gas operations accordingly represents an overriding objective for the government’s oil and gas policy.

Changes in market and competitive conditions in the oil and gas industry necessitate adjustments to achieve this goal and to continue safeguarding employment, high value creation and a strong Norwegian oil and gas industry. It is important that this industry both fulfils its responsibilities on the NCS while at the same time being competitive internationally.

Accordingly, the government put forward a Storting proposition just before Christmas, with proposals for an improved organisation of the state’s ownership of oil and gas resources.

Ownership of Statoil – (foil in pdf format)

Statoil was established in 1972 as the state’s commercial instrument in petroleum activities. It was long a privileged national state-owned oil company.

Statoil’s role in Norwegian oil and gas policy has changed fundamentally over the past 10-15 years. The company operates today under the same commercial terms as the other participants on the NCS, and is no longer an instrument of petroleum policy.

Statoil pursues operations in several business areas: exploration for and production of oil and gas, refining, petrochemicals, marketing and other activities. In addition to being the largest operator on the NCS, the company has secured a number of good positions in other petroleum provinces, especially in Angola and Azerbaijan.

The Government proposes to open up for private owners of Statoil by listing the company on the stock exchange. Expanding ownership will supply new expertise, partners and capital. The state will retain at least two-thirds of the shares in the company. Initially new owners corresponding to 10-25 per cent of the company’s value will be brought in through the listing.

Statoil will be given the opportunity to conclude equity-based strategic alliances with other companies. This can only be done after the company has been listed.

Restructuring og the SDFI – (foil in pdf format)

The SDFI was established in 1985, by dividing most of Statoil’s production licences on the NCS into a direct financial interest for the state (the SDFI) and a commercial share for Statoil.

An SDFI share has been included in nearly all production licences awarded since its establishment. The size of the share is a field-specific instrument that is related to the profitability and resource potential of the individual production licence.

The SDFI represents substantial state assets and revenues. Through this arrangement, the state is a direct participant in more than 150 production licences as well as in pipelines and land-based plants. Statoil manages operational and commercial functions for the SDFI on behalf of the state.

The government proposes that holdings, corresponding to 20 per cent of the asset value of the SDFI, are included in a restructuring of state participation, providing the state achieves satisfactory terms. 15 per cent is proposed sold to Statoil and 5 per cent to Norsk Hydro and other companies.

As part of the restructuring, the government also proposes a swap between the state and Statoil. This involves a reduction in the state’s ownership interests in Europipe II and selected fields, and increased ownership interests in Norpipe and Statpipe. Furthermore, the government proposes that the reorganisation should comprise the state getting an ownership interest in the crude oil terminal at Mongstad.

The government envisages that the state will continue to be able to take SDFI assets in future licensing rounds.

A restructuring along these lines would give companies increased licence interests on the NCS. Larger holdings will provide companies with stronger incentives, allow them to take better advantage of economies of scale and coordination benefits in and between production licences, and strengthen the decision-making processes. This will enhance exploration, development and operational efficiency as well as extending production.

The proposed disposal of SDFI assets has to be seen in the light of Statoil's important position on the NCS, both as an operator and when it comes to it's position in the gas chain, and the desirability of strengthening Statoil prior to an IPO.

As a consequence of a privatisation of Statoil, the present management arrangements of the SDFI cannot continue unchanged. An important question is therefore how to manage the SDFI assets the state decides to retain.

In my view, today’s management model for the SDFI has functioned satisfactorily since it was established in 1985. The present management model contains a number of positive features, which should be retained.

The government proposes to establish a new state-owned limited company to manage the SDFI portfolio. This new company will fulfil its purpose without possessing the same expertise as a traditional oil company. The company will not apply for licences on its own account. It will not be given operatorships. Activities in which the company is involved will be functionally related to petroleum activities on the NCS. The company will manage SDFI assets at the state’s risk.

Neutral and efficient utilisation and development of natural gas transport and processing facilities are very significant for realising the value of Norway’s natural gas, and must be viewed in a long-term perspective.

Statoil has a key role in the gas transportation system, but the privatisation of the company necessitates some adjustments to the system.

The government has proposed to establish an independent company to transport natural gas on the NCS. The new company will concentrate its activities on system operation, licence administration and overall supervision of the transport infrastructure on the NCS. For the present, this company will be owned by the state until a durable form of ownership has been found for the pipeline systems.

My understanding is that the proposals have been well received by the political environment. I think we have built a good foundation to create a robust and broad political majority in this very important issue.

Considerations are now being made by the Storting's Standing Committee on Energy and the Environment. The Storting is expected to reach its decisions this spring.

Implementation of possible Storting decisions is a major undertaking.

Conditional upon the Storting's decision, the government intends to determine the timing of the listing of Statoil during the spring. The aim is a listing of the company during 2001. A separate project team has already started this work.

A syndicate led by UBS Warburg, Morgan Stanley and DnB Markets – which are the global coordinators of the listing, will implement the sale of the shares. The global coordinators will also be responsible for preparing Statoil for a listing and for advising the Ministry and Statoil.

The project team is also composed of legal advisers, strategic advisors and others.

The process regarding sale of SDFI assets to Statoil has started. The sale of SDFI assets to others can take place in parallel, or with some time lag to the sales process with Statoil.

Preparatory work for establishing a management company for the SDFI and a transport company for natural gas is also well in progress. According to the plan these two companies will be established prior to the listing.

The authorities can influence the pattern of players on the NCS through policies on awarding new production licenses and by giving or withholding approval of transfers. The overall policy objective is to help secure a pattern, which promotes the best resource management and thereby lays the basis for creating the highest possible value and government revenues.

This year we are facing the 17th offshore licensing round and a new North Sea Award. The 17th licensing round will be launched in the third quarter of 2001 and includes areas in the Norwegian Sea. Awards during this round may be given in the second quarter of 2002.

For the North Sea Award 2000, thirteen companies submitted their applications. The award of the product licenses will take place this quarter, and includes 40 blocks or parts of blocks.

Norwegian oil and gas policy is facing significant challenges. Consequently, some crucial policy changes are under way. The Statoil/SDFI measures are designed to enhance the value creation on NCS as a whole. This is important both in a short and long term perspective. Although the state will benefit the most, also the other players on NCS will benefit from the proposals recently submitted to the Storting. That is in the interest of all of us.

Thank you for your attention.