Norway Oil Chief Outlines Industry Challenges

OSLO Mar 30, 2007 (Dow Jones Newswires) Norway's oil industry must tackle the competition challenges raised by the merger of its two largest companies if it's to continue to flourish, the head of the country's oil industry association said.

It must also push for prospective new acreage and continue to appeal to new companies, OLF's director general Per Terje Vold told Dow Jones Newswires.

Statoil ASA (STO) is to take over Norsk Hydro ASA's (NHY) oil and gas assets in a $30 billion deal due to complete later this year.

"The new company must be run in a way that competition is taken care of," Vold said. "I have no position on the merger itself, but on how it will affect the Norwegian continental shelf," or NCS.

"The deal can be referred to as a challenge. We all know there will be a lack of competition because the two companies have traditionally proposed concepts, field developments and cost estimates with counter-arguments and that's been a good process," he said.

Norway's energy and petroleum ministry said Friday it has no plans to limit the new company's holding of either assets or operatorships.

Vold noted that Norway is already facing a challenge in stemming the slide in its global oil exporting rank, despite investment highs of around NOK100 billion a year.

"I will not refer to Norway as a net oil exporter in third place globally, it's probably fourth or fifth now," Vold said.

Vold said daily exports of 2.4 million barrels of oil mean Norway is on a par with the group of countries that produce between 2.3 million to 2.5 million barrels of oil a day, like Qatar and Kuwait.

Norway produced 3.1 million barrels of oil a day in 2001, compared with 2.4 million barrels a day by 2005. Figures for 2006 have yet to be published.

Over the same period, Norwegian gas exports have increased, and are set to lift still further, as the giant Ormen Lange gas field, and Snoehvit start up, helping raise Norway's exports in barrels of oil equivalent terms. The Statoil-Hydro merger may bring opportunities to boost both oil and gas exploration on the NCS.

"Smaller companies hope acreage will be freed up (by the merger). But it's hard to judge if that will happen. We have no insights into Statoil, Hydro acreage in terms of its prospectivity," he said.

In terms of asset operatorships, merging Statoil and Hydro could optimize their assets within particular regions, for example the Tampen area, Vold said. "They could approach that area to optimize production and operation, so that could have an effect" on freeing up assets elsewhere," he said.

"Having these two big companies operating differently (in future) will affect construction, maritime, well and drilling services companies. They're the branches that are (most) concerned" about the tie-up," he said.

The merger could make it harder to compete on the NCS. "In the good old days, if a company lost a contract with Statoil it could go to Norsk Hydro, or vice versa. I am however convinced that the management of the new company is very much aware of this situation."

The primary imperative behind the Statoil-Hydro deal was to "count more internationally," but this shouldn't threaten StatoilHydro's involvement in Norway, Vold said.

"Despite the fact it's obvious that a growing percentage of their overall investment will be international, and the Norwegian share will decrease, in absolute terms, I'm not personally very concerned that investment from the group will drop," he said. "They'll probably increase investment both internationally and on the shelf."

As the country's oil industry gets used to the shakeup, Vold said OLF will continue to lobby for access to prospective acreage, and commitment from the authorities to the timetables for assessing new areas like Norland 6 and 7 and Troms 2, regarded to be prospective.

It's crucial for Norway to continue the profitable policy started in 2002 of bringing new companies to the NCS, Vold said.

"There are good reasons for this even without the merger. But now that will be crucial for plurality on the NCS," he added, saying there need to be incentives to invest.

"I think we're in good shape when it comes to that," he said, in comparison with the recent spate of asset nationalization globally. He admitted that the government's intention to raise its stake in StatoilHydro to 67% from 62.5%, while judged negatively by the stock market, "shouldn't mean anything for operations."

"It's a unique situation when it comes to Norway, you can drill exploration wells practically for free and get your tax costs refunded. No other country worldwide has that incentive," Vold said.

Norwegian licensing rounds have been crucial in encouraging newcomers to Norway, he said. In the latest awards in predefined areas, new companies like the U.K.'s Centrica PLC (CNA.LN) and Premier Oil PLC (PMO.LN), and Norway's Revus Energy ASA (REVUS.OS) were awarded numerous licenses.

"The government's initiatives since 2002 to encourage newcomers to the shelf have been a success, we want to see more of the same," Vold said.

He said Norway needs to increase exploration to make discoveries, whether in previously unexplored areas, or around existing projects by increasing oil recovery or developing new phases.

Big discoveries in Norway are less frequent, but still appear occasionally. "The Nucula discovery in the Barents Sea is a very important discovery, (especially) the fact they've struck oil. After some years with depressing results, the timing was very good," Vold said.

He's hopeful that interest from international companies will be higher in the next license rounds.

"There's optimism in Northern Norway after the Nucula find, much discussion over where to land the production, but we need to approach these questions soberly, to avoid raising expectations too much," he cautioned.

Copyright (c) 2007 Dow Jones & Company, Inc.

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