Govt Says Sustained Activity Significant for Norwegian Petroleum Sector

"Over the last years, the Norwegian petroleum sector has shown a high level of activity, a high exploration rate, and good market conditions for the supply industry. We expect sustained activity on a very high level in 2009, but the outlook is less positive than only a few months ago. The historically high oil prices from last summer have decreased significantly. The level of costs is still high and there is economical uncertainty in the market. These factors generate a growing concern in the industry, and we observe projects being reevaluated and postponed. To monitor the market development, the government will continue to have close communication with both the supply industry and the oil companies," said Mr. Terje Riis-Johansen, Minister of Petroleum and Energy.

In the midst of the economic crisis, the petroleum industry plays an important role. The income generated from the industry has provided Norway with a considerable financial fortune. By the end of 2008 the market value of the government pension fund-global was approximately NOK 2 275 billion. The financial crisis hit at a time when the activity level on the Norwegian continental shelf was higher than ever before. Even if the investments level is somewhat lower than it would have been if the crisis had not hit, it is still high and expected to rise even more in 2009. The investments are expected to be around NOK 137 billion in 2009, including exploration activity.

"During a time of substantial economic uncertainty it is important to maintain the activity level in the petroleum sector without reducing the emphasis we have on environmental effects. We have started building the new technology center for carbon capture and storage (CCS) on Mongstad. Further the Government has awarded 21 new production licenses in the 20th Licensing round. The Government has also presented the Integrated Management Plan for the Norwegian Sea, which will contribute to increased economic activity and a stable framework for petroleum activity in this area. We have also presented the plan for development and operation for the Goliat field, an industrial project that will generate revenues to the Norwegian society, but also spin-off effects and creation of several new jobs in the county of Finnmark," continued Mr. Terje Riis-Johansen.

The average oil price in the Revised National Budget for 2009 (RNB09) is estimated to 350 NOK per barrel. This is equal to the oil price assumption in the amendments to the 2009 Fiscal Budget that was proposed by the Government in January.

Brent oil price fell substantially in the second half of 2008, from almost 150 USD/barrel in July to about 40 USD/barrel by the end of the year. The financial crisis and the recession in the world economy have caused oil demand to decline severely in 2008/2009. At the same time OPEC has made sizeable cut in the oil supply, which has stabilized oil prices at around 40 - 50 USD/barrel this year. With expectations of more stable oil demand and continued curbs on supply from OPEC, one could expect somewhat higher oil prices.

The lower oil price expectations affect the net cash flow from this sector. In the Revised National Budget for 2009 the net cash flow is estimated to NOK 261 billion. This constitutes about 26 percent of the State's total income. Of the total cash flow taxes and fees constitute about NOK 165 billion, the net cash flow from the State Direct Financial Interest (SDFI) is at NOK 81 billion and dividend from StatoilHydro is at NOK 15.5 billion.

Expected oil production in 2009 (including NGL* and condensate) is estimated at 2.3 million barrels per day. Whereas oil production is expected to decline gradually in the coming years, the gas production is expected to increase. In 2009 we expect Norwegian gas production to exceed 102 billion cubic metres (bcm).

In 2007 the Norwegian petroleum supply and service industry had a turnover of about NOK 195 billion. Activity towards foreign markets accounted for roughly half the turnover. Norwegian petroleum activity abroad creates considerable value in Norway, both on a regional and local level. The petroleum industry employs 140 000 persons, a majority of these are settled along the Norwegian cost.

We have currently produced about 38% of the expected total resources on the Norwegian Continental Shelf. A large part of the remaining resources is not yet proven. Exploration activity and focus on enhanced recovery from existing fields will be decisive to realize the potential from the Norwegian resource base.