NEW ZEALAND PETROLEUM CONFERENCE,

September - 2010

LESSONSFROMTHE
NORWEGIANEXPERIENCE
By
FaroukAlKasim
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1.INTRODUCTION

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TotalRecoverableResources=81.1BBOE
Remainingbyendof2009=51.0BBOE

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1.57billionbblequiv./year
4,000,000bbl/day

D
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EC
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Norwaysmanagementofthepetroleumsector
hasbeenadmiredmainlybecauseit:
1.
2.
3.
4.
5.
6.

Masteredtheoffshorechallenges.
Managedtoprotecttheenvironment.
AvoidedtheOILCURSE.
Maintainedgrowthinnonoilsectorsoftheeconomy
Developedworldclassoffshoreindustry.
Improvedoilrecovery(30%to45%).
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Some major factors behind the

success:
y Richhydropowerresources.
y Norwaywaswelldevelopedbeforeoil.It

had:

Efficientgovernance.
Socialdemocraticculture.
Homogeneoussociety.
Welldevelopedinstitutions.
Highleveleducationandresearch.
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2.SALIENTFEATURESINTHE
NORWEGIANAPPROACH

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1.ConsensusonNationalSteering
2.GovernmentLicenseePartnership
3.LicensingPolicy
4.CompetitionandDiversityamonglicensees
5.StatePetroleumAdministration
6.DevelopmentofNationalExpertise
7.NationalParticipationandLocalContent
8.HSEMonitoringSystem
9.DataManagement
10.ImprovedResourceEfficiency
11.RevenueManagement
12.SUMMARY
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y Earlypoliticalconsensusonfullnational

controlonthetempoanddirectionof
petroleumactivities:Objective:AVOIDTHE
OILCURSE.
y PoliticalpartiesagreedtokeepOiloutof
electioncampaigns.Theyhavekepttheir
word.Sofar.
y Slowlicensingin70stoprotectnonoil
enterprises.
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PartnershipbetweenIndustryandStateisatraditionin
Norway.
y NorthSeachallengesemphasisedneedforpartnership
y Indesigningthefiscalterms,governmentwaskeento
provideinvestorswith:
Securerecoveryofinvestment,plus:
Adequaterewardsreflectinginvestmentrisk.
y

Governmentretainedmostofthewindfallprofit

whenpriceswentup.Highstateparticipationand
taxationmakesgovernmentbeartherisk.
TotalGovernmentTakeincludingprofitonstate
participationreachesupto80%.
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Thestateplaysaproactiveroleinpromotingexploration.
y Licensingisbaseduponopenandcompetitivebidding.
y TherearenobonusesinNorwaybecause:
y

Bonusesareoftendeductiblefromincome.Theyarevirtuallyloans

thatreducefundsavailableforexplorationandfielddevelopment.
ExcessivebonusescanalsodilutetheGovernmentsmoralauthority
astheregulator.

Thefrequencyandresourcecontentoflicensingrounds
regulatethetempoandthegeographicspreadofactivities.
y Gradual expansionofexplorationareashelpsimprove
licensingtermsanddiscoveryratesinsubsequentlicence
rounds.
y Fewblocksatatime.Notalleggsinonebasket..

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y
y
y
y
y

Competitionhelpsimprovelicensingtermsinanyroundand
alsotheefficiencyofoperationsingeneral.
EachLicenceGroupcontains3to5colicensees.
ColicenseesandoperatorareselectedbytheMinistry.
Rigorousscreeningeliminatesnonqualifiedapplicants.
Diversityhelpsovercometechnologicalchallengesandalso
assiststheREGULATORbyhavingmostrelevantoptions
investigatedbyvariouscolicenseeswithinlicensegroups.
In1985theParliamentreducedStatoilsdominanceinorder
torestorebalancetovotingrightsthusprotectingdiversity.

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MINISTRY

POLICY

DIRECTORATE

REGULATOR

ADMINISTRATIVESEPARATION
IOC -1

IOC - 2

Statoil: 67%ownedbytheState

NOC

IOC - 3

IOC - 4

Petoro: 100%ownedbytheState
Gasco: 100%ownedbytheState
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Whyisthemodelsuccessful?
y

Separationofadministrativetasksfrom
commercialinterestsofgovernmentis
essentialforensuring:
a) Dedicated,unbiasedandprofessionalregulator.
b) Equalandfairtreatmentofallstakeholdersincludingnationals.
c) Effectivecooperationbetweengovernmentandcompanies.
d) Effectivecooperationbetweennationalandinternationalfirms.
e) Accountabilityforallplayers.

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Inthemid70soilcompanieswereaskedtocontributetothe
developmentofnationalexpertise.Notonlywithinoil.

Oilcompanieshelpedacceleratetechnologicaldevelopment.

Qualityresearchatlowcostimpressedtheoilcompanies.

Norwegianacademicandindustrialinstitutionsweresoon
operatingattheforefrontofpetroleumtechnologies.

Today,theoffshoreindustryprovideshighexportrevenues.

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Objectivesofnationalparticipationare:
1.

EnhancenationalcontrolwithinLicenceGroups

2.

Increasethenationalshareofprofits.

3.

SpendingofcapitalandoperationalcostsinNorway
maximisesbenefit.

4.

Supportemploymentandindustrialdevelopment.

5.

Stimulatetechnologicaldevelopmentandknowhow.
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PARTICIPATIONASINVESTOR
y From1970,nationalparticipationataminimumof50%.
y 3nationalcompaniesownedover33%ofthelicenceshares.Statoil

hastodayadominantrolebut23%ofitssharesareprivate.
y Petorois100%governmentowned.Itholdsthestatesdirect

participationsharesandsendsprofitsdirectlytotheTreasury.

LOCALCONTENT
y Norwayencouragedthedevelopmentofacompetentlocalcontent.
y Theultimateaimof70%ofdeliverieswaspartlymetinearly80s.
y Astateoftheartoffshoreindustrywasthusdevelopedwithin10yrs

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The"InternalControl principlemeansthatthelicensees
areresponsibleformaintainingthegovernmentsstandards
forHSEbydevelopingtheirowncodesandprocedures.

Theauthorities'roleisthereforetoensurethat:
a) Operators'codesandproceduresareadequateformeetingthe

objectivessetoutbygovernment,and
b) Auditsconductedbytheregulatoryauthorityensurethatoperators

adheretotheirsowncodesandprocedures.

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y
y
y
y

Dataisthebasisforcommunicationanddialogue.Itisthus
fundamentaltoalldecisions.
NPDandothercompaniesstartedeachtheirowndata
systems.Thisdidnothelpcommunicationordataexchange.
Inthe80s,NPDtooktheinitiativetostandardisereporting,
storageandexchangeofdata.
Today,acollectivedatabaseisoperatedbyaneutral
operatorsecuringprotectedandefficientaccessforall
subscribers,atalowersharedcost.
Accesstodataisthusmadeeasier,faster,morereliableand
athighquality.Efficiencyisthusenhancedcollectively.

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Throughpositivepartnershiptheoilcompaniesandthe
authoritieshaveworkedtogetherto:
y Achieveahighdiscoveryrate.
y Increasedevelopmentofdiscoveredresources.
y Increaserecoveryfromproducingreservoirs.

>RESOURCES
>RESERVES
>IOR

Averageoilrecoverywasincreasedfromworldaverageof
30%to45%.Thisimpliesimprovementinbothproduction
profilesandultimaterecovery.
y Licensee/governmentcooperationalsocoveredjoint
researchprojects,pilotproductionschemesandcontinual
consultationsonimprovedrecovery.
y Jointresearchprojectswerealsoconductedonother
importantpioneeringprojects.
y

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HowdidNorwaymanagetoavoidthe OILCURSE?
y WhitePaperNo.25of1974warnedthenationagainsttheOilCurse.
y Slowlicensinginthe70sallowedtheeconomytoadjustgradually.
y From1990,theOilFund(NowcalledthePensionFund)insulatedoil

revenuefromnationalspending.TheFundcanonlyinvestabroad.
y TheFundalsoprovidesacushionagainstsuddendropinoilprices.
y LocalcontentdevelopmentledtotheexportofNorwegianOffshore

ServicesandEquipmentonasustainablebasis.
y Governmentmonetarypoliciessucceededinmaintaininggrowthin

nonoilsectorsoftheeconomy.

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1. Wouldpoliticalconsensusonfundamentalaspectsofpetroleum
2.
3.
4.

5.
6.

7.
8.
9.

policyhelpgainthelongtermconfidenceofinvestors?Isitpossible?
Howdowecreateamodeofproactivecollaborationbetween
governmentandinvestorsinexplorationandfielddevelopment?
Isdiversityoflicenseesapracticethatneedstobeconsidered?
HasNewZealandtriedorganisingextensiveseismicsurveysin
selectedbasinsjointlywithoilcompanies?Or,alternatively
speculativeSurveys.
Isthegovernmentwillingtoparticipateinthegassectorinorderto
providelongtermconfidenceamonginvestors?
Doesgovernmenttaketheleadindevelopingthegasinfrastructure
andinoptimisingitsutilisation.WhataboutfacilitatingThird Party
Access?
Hasacommondatabankbeenestablishedthatwouldfacilitate
communicationandexperiencesharingamongallstakeholders?
IsthereascopeforIOR?Isthereastrategyforachievingthe
objectives?
Isthereaclearpolicyfortheutilisationofpetroleumrevenue that
secureslonglastingbenefitforthenation?
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