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

EC J O R P

D E T

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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:

Richhydropowerresources. 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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 Earlypoliticalconsensusonfullnational

controlonthetempoanddirectionof petroleumactivities:Objective:AVOIDTHE OILCURSE. PoliticalpartiesagreedtokeepOiloutof electioncampaigns.Theyhavekepttheir word.Sofar. Slowlicensingin70stoprotectnonoil enterprises.

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PartnershipbetweenIndustryandStateisatraditionin Norway. NorthSeachallengesemphasisedneedforpartnership Indesigningthefiscalterms,governmentwaskeento provideinvestorswith: Securerecoveryofinvestment,plus: Adequaterewardsreflectinginvestmentrisk.

Governmentretainedmostofthewindfallprofit

whenpriceswentup.Highstateparticipationand taxationmakesgovernmentbeartherisk. TotalGovernmentTakeincludingprofitonstate participationreachesupto80%.

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Thestateplaysaproactiveroleinpromotingexploration. Licensingisbaseduponopenandcompetitivebidding. TherearenobonusesinNorwaybecause:

Bonusesareoftendeductiblefromincome.Theyarevirtuallyloans

thatreducefundsavailableforexplorationandfielddevelopment. ExcessivebonusescanalsodilutetheGovernmentsmoralauthority astheregulator.

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

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

MINISTRY
DIRECTORATE
REGULATOR

ADMINISTRATIVESEPARATION
IOC -1 IOC - 2
NOC

IOC - 3

IOC - 4

Statoil: 67%ownedbytheState

Petoro: 100%ownedbytheState Gasco: 100%ownedbytheState

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Whyisthemodelsuccessful?

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. 2. 3. 4. 5.

EnhancenationalcontrolwithinLicenceGroups Increasethenationalshareofprofits. SpendingofcapitalandoperationalcostsinNorway maximisesbenefit. Supportemploymentandindustrialdevelopment. Stimulatetechnologicaldevelopmentandknowhow.

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

hastodayadominantrolebut23%ofitssharesareprivate.
Petorois100%governmentowned.Itholdsthestatesdirect

participationsharesandsendsprofitsdirectlytotheTreasury.

LOCALCONTENT
Norwayencouragedthedevelopmentofacompetentlocalcontent. Theultimateaimof70%ofdeliverieswaspartlymetinearly80s. Astateoftheartoffshoreindustrywasthusdevelopedwithin10yrs

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The"InternalControl principlemeansthatthelicensees areresponsibleformaintainingthegovernmentsstandards forHSEbydevelopingtheirowncodesandprocedures.

Theauthorities'roleisthereforetoensurethat:
a) Operators'codesandproceduresareadequateformeetingthe

objectivessetoutbygovernment,and
b) Auditsconductedbytheregulatoryauthorityensurethatoperators

adheretotheirsowncodesandprocedures.
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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:
Achieveahighdiscoveryrate. Increasedevelopmentofdiscoveredresources. Increaserecoveryfromproducingreservoirs.

>RESOURCES >RESERVES >IOR

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

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

revenuefromnationalspending.TheFundcanonlyinvestabroad.
TheFundalsoprovidesacushionagainstsuddendropinoilprices. LocalcontentdevelopmentledtotheexportofNorwegianOffshore

ServicesandEquipmentonasustainablebasis.
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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