Statoil, Norsk Hydro CEOs: Merger to Boost Foreign Prospects

OSLO Jun 14, 2007 (Dow Jones Newswires)

The merged StatoilHydro will be better able to negotiate projects with national oil and gas companies increasingly protective of their resources, the chief executives of Statoil (STO) and Norsk Hydro (NHY) told Dow Jones Newswires in interviews.

While energy-rich nations toughen terms or seize outright control of development projects, even as high energy prices prompt oil and gas companies to chase down scarce reserves farther from home, the ability to foster working partnerships with national oil companies has grown in importance.

The planned merger of the two Norwegian companies' energy assets will create a 62.5%-state-owned company well versed in the need to balance the short-term gains of the company with the longer-term economic and energy needs of the Norwegian population.

Statoil and Norsk Hydro have sold off assets to non-Norwegian investors to streamline the company and satisfy shareholders, while contributing heavily via Norway's tax regime to the country's huge state pension fund, in which surplus oil wealth is invested for future generations.

That makes StatoilHydro well placed to enhance its prospects abroad, said Statoil Chief Executive Helge Lund.

"The key driver for the merger is to support even more effectively the international growth agenda," Lund said. "We have developed some strong relationships with other national oil companies, or NOCs, throughout the world. Building NOC partnerships is one way of taking this company forward."

The combination of the two companies "will create a bulked-up entity and help attract future cooperation with other NOCs," said Norsk Hydro CEO Eivind Reiten.

Statoil is developing Iran's South Pars gas field, one of the world's largest, with the Iranian government, despite U.S. pressure discouraging investment in Iran over the Islamic country's nuclear ambitions. The two companies are also in talks with Russia's state gas monopoly Gazprom (GSPBEX.RS) over participation in the massive Shtokman gas project in the Barents Sea, and Statoil has retained a presence in Venezuela even after the government there seized majority control of the Sincor heavy-oil development in which Statoil is a minority partner.

Lund said the merged StatoilHydro, however, will initially focus its international growth in North and West Africa and the U.S. Gulf of Mexico, where the Norwegian firms already have a presence. Lund is slated to be the chief executive of StatoilHydro. The merger is on target to close, as forecast, by Oct. 1, he said.

Reiten, who will be the new company's chairman said: "This will of course create by no doubt the Norwegian national oil company, and we will be then of a size where we really matter in the NOC environment."

Lund appreciates the challenges. "In many ways the industry is at a crossroads. We see more complexity moving forward, more challenges that an oil and gas company needs to respond to."

The StatoilHydro tie-up will bolster the company's ranking versus international oil companies and give it an improved balance sheet and shared competence and technology.

"We can compete with the best in the world where we want to compete," Lund said, adding that the key element to partnerships is creating value. Statoil does this via its competence and its technology, he said. "But I think it could be an advantage that we have also been a purely national oil company so we can understand some of the local concerns and needs, and maybe then can be able to strike an equal partnership."

Statoil has partnered successfully with Algeria's state-owned Sonatrach (SON) at the In Salah and In Amenas gas fields, and signed a deal earlier this month with Russia's Gazprom Neft (GZPFY) to explore exploration and development opportunities in Russia and farther afield.

Lund said Statoil will bring offshore experience to the Russian oil and gas industry previously more focused on developments onshore. "We are sharing the Barents Sea as neighbors, and I think that may be a basis for a healthy relationship," Lund said.

The Russian gas behemoth spurned five shortlisted international oil companies late last year, two of which were Statoil and Norsk Hydro, saying it would go it alone on the project. It later said it would select contractors for the project without giving them an equity stake. "I can confirm that we are in a renewed dialogue with Gazprom on Shtokman, but it's too early to speculate on the result," Lund said.

ABN Amro analyst Barry MacCarthy said that a combined StatoilHydro could "reduce any potential confusion regarding the degree of political support from Norway by the host country," in a project like Shtokman. Overall, the merger means the Norwegian government can now be very overt and vocal in its support of StatoilHydro, no longer needing to be neutral, he added.

While analyst Fred Lucas of Cazenove agreed that the merger could strengthen their position in negotiations, he added that the market needs convincing that the combined entity will do any better in that respect. "Gazprom is seen to have ultimate bargaining power on this tricky frontier project, and several Western companies are still very keen to get some equity," Lucas said.

Elsewhere, in Venezuela Statoil is negotiating to receive compensation for the ownership share it's losing in Sincor, an estimated 5% of its previous 15% share, Lund said. "We hope to conclude these discussions in the next couple of months."

Meanwhile, Lund remained sanguine over possible repercussions from the U.S. over Statoil's Iranian investment.

"We have a dialogue with the U.S. authorities over many years about that project, so important actions and investments have been thoroughly informed about on Statoil's part."

Lund refrained from commenting on whether discussion with the U.S. on the matter had grown more heated in recent months, saying, "I don't want to grade our meetings."

Lund pointed instead to Statoil's presence in the Gulf of Mexico, its ability to "add value" there, and the "important strategic link" from Statoil and Norway to the U.S. later this year when the Snoehvit liquefied natural gas project comes onstream, supplying the U.S. via the Cove Point, Md., gas receiving terminal.

Still, some remain skeptical about StatoilHydro's ability to offer something new to partners.

"We doubt the market will rate the new company until it can prove the merits of the merger," said Cazenove's Lucas. "We must see how cost reduction, improved operational efficiency, potential asset rationalization and superior new project access create enduring advantage."

Lund and Reiten are optimistic.

"To be a national oil company is good, to be from Norway is good, but at the end of the day what counts is that we're really competitive in the industry, that we can deliver something to our partners that they don't find in others," Reiten said.

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

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