Norway to approve radical oil legislation

Norway's parliament is expected to approve one of the most radical pieces of oil legislation in its four-decade history as a petroleum nation. Among the most important changes is the opening up of Norway's prized state oil assets to foreign and domestic investors, primarily through the privatisation of Statoil, Norway's state-owned oil company.
The state will also auction 21.5 % of the SDFI -- its direct held interests in 150 licences offshore Norway worth more than NOK 250 bn ($ 27.4 bn). Norway produces some 4.5 mm bpd of oil equivalent. It is the world's third largest exporter of oil and a significant exporter of natural gas. But what was set to be a feast for foreign participation on the Norwegian shelf has instead turned out to be mere crumbs for those internationals even interested in willing to bid for the leftovers. Statoil is all but guaranteed the first and best picks from the SDFI sale, followed by Norsk Hydro, Norway's second largest company, which is 44 % held by the state.
Thegovernment has said 15 % of the SDFI sale should go to Statoil ahead of a planned flotation of 10-25 % this June. Statoil has signalled interest in increasing its stake in the Tampen area, which includes Statoil-operating producing fields Statfjord and Gullfaks. Norsk Hydro, which will battle with foreign companies for a 6.5 %, is expected to focus on increasing its stake in the Oseberg area. The company already owns between 22 and 32 % of the Oseberg oil and gas fields as operator.

It is expected that Norsk Hydro will grab the lion's share of the 6.5 %, simply because it would benefit most from increasing its stake in areas where it already has infrastructure in place. Foreign companies are expected to be less willing to pay a premium, given their small presence.
Nils Hovtun, an Oslo-based oil analyst said: "Those with operatorships generally want a larger share of interest so that they are more able and have better incentives to optimise their field portfolios and carry through cost efficient measures." He added that, "Measured by proven reserves, Statoil and Norsk Hydro have more than 80 % of the operatorships on the Norwegian continental shelf."
Despite this, several international companies have expressed interest. Gaz de France, the French state-owned utility, confirmed that it sees further opportunities in the SDFI sale but for the moment the Norwegian government appears to have ruled this out. The group has set itself the target of raising the proportion of gas supplies coming from its own production from 6 % to 15 % by 2003. Last year it became the first gas company to be allowed into the Norwegian sector when it bought 20 % of the Njord field of associated gas and 12 % of the Snow White gas field in the Barents Sea.

J.J. Traynor, analyst at Deutsche Bank, believes international companies will receive more benefit from the privatisation through secondary trades of the SDFI assets transferred to Norsk Hydro and Statoil. He says: "Both companies want to increase their activities overseas and we believe the majors and some smaller exploration and production companies will want to boost flagging oil asset bases and to get better positions in what will be a key European gas play."
Shell, BP, TotalFinaElf and Enterprise Oil have all expressed an interest in swapping assets with Statoil and Norsk Hydro. Other companies expected to do deals include ExxonMobil, Chevron-Texaco, ENI and Conoco.
Shell in particular is keen to streamline its operations in the UK and Norwegian sectors of the North Sea. By increasing its stakes in Norwegian fields close to the UK border it could cut costs by sharing supply boats and helicopters between the two countries.
Enterprise, which has about 40 % of its production portfolio in Norway, could be one of the largest international beneficiaries. The group has made much of its "good relations" with the Norwegian government and will be trying to pick up additional interests in the Scarve-Idun-Norne trend and the Jotun and Valhall fields.

Further down the scale is Paladin Resources, a small UK exploration and production company with some assets in Norway already. Roy Franklin, its CEO, says he would be interested in acquiring more, "particularly to get small fields in which the majors are no longer interested".
With pressure on oil groups to show production growth, some in the industry still have doubts that Statoil and Norsk Hydro will want to swap many of their best assets with foreign companies. "Statoil and Norsk Hydro have good fields that are producing very well and there is probably a lot more they can get out of Norway. Much of the talk so far has come from a desire to send positive signals to the markets ahead of the privatisation," according to one oil official.