Norwegian Government Endorses Statoil, Hydro Merger

The Ministry of Petroleum and Energy has presented a proposition to the Storting (parliament) which assesses the effects of the merger between Statoil and Hydro's petroleum business on the oil and gas activity on the Norwegian continental shelf (NCS).

In the government's view, the merger will not reduce value creation on the NCS, says Odd Roger Enoksen, Minister of Petroleum and Energy. - However, it will lead to changes in the activity which will require attention from the authorities in the time to come.

The merged StatoilHydro company will have its principal business on the NCS for the foreseeable future, and will have a strong self-interest in developing and operating this business in the best possible way. Statoil and Hydro have both been important companies in the development of Norway's petroleum activity, and have developed and operated most of the big Norwegian oil and gas fields.

The result of the merger is that the two biggest players on the NCS will be united into one big enterprise, with considerable holdings in oil and gas fields. Statoil currently operates 62 per cent of Norway's petroleum production. After the merger, StatoilHydro will operate 80 per cent of this output.

In the proposition, the government has therefore considered whether the company will be so large that conditions ought to set to reduce its ownership interests or number of operatorships on the NCS. The object would be to strengthen other players in an endeavor to compensate for the important role which Hydro has played as licensee and operator.

We have balanced the possible positive effects of setting such conditions against their costs and risk, and have concluded that they would not contribute to improved resource management or value creation from the petroleum activity, says Mr Enoksen.

StatoilHydro will be a major customer, both as licensee and as operator. The company is expected to encourage broad competition and diversity among suppliers in order to secure good and efficient solutions.

The Ministry of Petroleum and Energy will closely monitor how StatoilHydro operates in relation to the supplies industry and assess the possible effects which the merger might have for this sector.

The government will also pay special attention to the way StatoilHydro continues its significant engagement in research and development (R&D). The petroleum industry is a high-tech business in which research and the development of new technology are important for success. StatoilHydro will therefore have a strong self-interest in maintaining a significant commitment to R&D.

The government expects that the company maintains its research and development activity in Norway in line with what the two companies each have today, says Mr Enoksen.

Parts of the NCS are in a mature phase, where key challenges are to increase recovery and operate fields as efficiently as possible. However, other regions are frontier areas, and it is important that the players have the expertise and financial strength required to explore and develop new fields.

StatoilHydro will be a key operator of large fields such as Statfjord, Gullfaks, Snorre, Oseberg and Troll. These are large and complicated fields in the tail production phase*. The company will also be important in the further exploration of the frontier areas.

A multiplicity of players are involved on the NCS. They range from the largest multinational oil companies through medium-sized participants to a number of smaller enterprises. This applies especially to exploration in mature areas, but also gradually to the development and operation of new fields.

New players have gained increasing prominence in the most recent licensing rounds. Statoil and Hydro secured 18 per cent of total operatorships in the 2006 awards in predefined areas (APA), and 38 per cent in the 19th licensing round.

This indicates that StatoilHydro will be operating a smaller share of any new discoveries made. A shift can already be seen in this direction, since the four biggest discoveries being planned for development on the NCS have operators other than StatoilHydro**. In other words, the trend is towards an increasing number of licensees and operators on the NCS.

The government believes that several factors indicate that StatoilHydro will operate in accordance with good management of Norway's petroleum resources:

  • The company's business in Norway will be its principal activity for many years to come. That applies both to further operation of the large Norwegian oil and gas fields and to exploration for new resources.
  • A multiplicity of players are currently present on the NCS and are gradually building up their activity in Norway.
  • The licensing system and voting rules in the production licenses ensure a balance between operators and licensees. As operator, StatoilHydro will be dependent on the involvement and approval from other licensees in reaching decisions.

Nevertheless, the merger may influence activity on the NCS, and the government will take this into account in its management of the petroleum resources.

Relevant government bodies such as resource management, safety and environmental agencies will assess the need to review their instruments and methods, and whether these are sufficient to monitor and follow up their area of responsibility for the petroleum activity in a proper way.

As the responsible cabinet minister for petroleum resource management, I will make sure that the relevant regulatory authorities have the necessary expertise and capacity to monitor and follow up the petroleum activity in a satisfactory way, says Mr. Enoksen.

*The tail production phase is characterized by decreasing production and increasing costs per unit produced.

** Victoria, Skarv, Onyx and Gjoa.

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