Transcript Doing business in a strictly regulated sector Experience

Doing business in a strictly
regulated sector
Experience from Norway
Otto Beyer
Second largest operator
on the Norwegian continental shelf
SNORRE B
Harstad
TORDIS
SNORRE
NJORD
VISUND
VIGDIS
OSEBERG Ø
TROLL B
TROLL C
Trondheim
OSEBERG C
OSEBERG
ABD
Operator of 13
producing
fields
Bergen
Oslo
Stavanger
OSEBERG S
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Hydro Media
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Among the leading global offshore
players
Global Offshore Operator
production mill. barrels/day
2000
 40% of Norwegian oil
production
 Producing
1.2 mill. b/d
1500
1000
500
0
Source: Oil & Gas Journal McKinsey
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Hydro’s International Petroleum
Activity
Norway
Norway
Russia
Russia
Canada
Canada
Iran
Iran
Gulf
Gulf of
of Mexico
Mexico
Libya
Libya
Angola
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Norsk Hydro in Canada
 Entered Canada in 1997 through a swap
deal with Petro-Canada
 Offices in Calgary and ST.John’s
 5 % in Hibernia - 10.000 bbl/day
 15% in Terra Nova – 22.500 bbl/day
 Technical Assistant to Petro-Canada
 AMI with Petro-Canada on the Grand
Banks
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Current Norsk Hydro Licenses
November 2002
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History 1
1965 Look to Britain
 Regulatory Regime based on the British
 10 % royalty
 Discretionary power to grant licenses –
accepted groups and small companies
 All production licences with work program
obligations- normally one or more wells to
be drilled
 Transportation to be decided by the
Ministry – where and how
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History 2
1972 “Blue eyed Arabs”
 Political aim: National control and
development of Norwegian competence
 Establishment of the Petroleum Directorate
and Statoil
 Statoil participation of more than 50%,
leaving little to the others
 State dictate the terms of the JOA
 Statoil veto
 Carry of Statoil in the exploration phase
 Tax increased to 75% with up-lift
 Royalty between 8 – 16%
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History 3
1972 cont.
 Stricter requirement to oil companies’
financial and technical competence and
you had to be a “good” company
 No group applications - ministry decides
on groups
 Operator appointed by the State
 Right to change operator without cause
 Procedures implemented to promote the
use of Norwegian goods and services
 Requirement to use base in Norway
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History 4
1985 Statoil is getting too big
 Creation of SDFI
 Statoil’s interest reduced to the level of
others
 Bigger interests for others
 Statoil votes on behalf of SDFI
 No veto right, except for the State in
certain circumstances
 Carry of Statoil stops
 No royalty for new developments
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History 5
From 1995 European Union
 Joint applications allowed
 Objective criteria’s - opens for closed bids
 No preference for Norwegian oil
companies – new players
 No reporting of Norwegian goods and
services
 Statoil partly privatized (State 81.8%)
 Sale of some of the States interests
 Establishment of Petoro and Gasco
 Still no negotiation of the JOA
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Opening new areas
 Impact Assessment prior to opening of a new area for
exploration activities performed by Government to avoid
later conflicts
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impact on environment
 impact on other industries (fisheries)
 impact on communities (economic and socially)
 Public hearing
 As a result the Government may lay down specific
requirements to avoid conflicts, e.g:
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parts remain closed
restrictions on seismic activity and exploration drilling
during parts of the year
number of exploration wells drilled at the same time
restrictions on discharges to sea
oil spill emergency response requirements
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Exploration Phase
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17 Licensing rounds since 1965
Discovery in 40% of total wells drilled
New acreage for continuous activity
Exploration phase is norm. 6 years - max.
10 years
 After fulfillment of work program and
relinquishment of parts of area, license is
extended up to 30 years if required
 Progressive area fee as incentive for
relinquishment
 Approval of drilling permit: Normally 9
weeks
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Development Phase
 Operator to prepare Impact Assessment
Report (IAR)
 Public hearing of program and report takes
each 3 months
 Approval of Development Plan takes 6
months depending on delivery of IAR
 High costs and long lead time
 Ministry open for new ideas
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SHE – issues 1
Early period:
 Conflict between Petroleum Directorate and original
bodies and between their respective regulations
 Detailed regulations and inspections
 Little standardization Norway - UK
 Poor communication with environmental bodies
Continuous improvements till to day:
 The most regulated industry in Norway
 Internationally the strictest requirements
 The cleanest oil industry in the world
 Less than 2% of oil discharges to the North Sea
comes from Norwegian oil industry
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SHE - issues 2
 Co2 tax CAD 62 per ton to promote new
technology to reduce emission
 Kyoto not a topic for discussion by
industry
 0 discharge to water by 2005
 When will impact study for the North be
finished and will it require stricter terms
and petroleum free zones?
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SHE - Management Control System
Change of control system:
 Initially focus on inspection (technical & product),
directed towards operator
 Present focus on management system for own control,
directed towards all licensees
Improvements:
+ Fewer applications, less handling of deviations by the
authorities
+ Gives all participants more direct responsibility
Disadvantages:
- Functional requirements need interpretation; discussions
and extra work
- Authorities’ handling time for applications for consent
increased from 2 to 9 weeks
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Delivery of goods and services
 Since1969 through 1994 it was required that
Norwegian companies should be given full and fair
opportunity to deliver goods and services
 Reporting to the Ministry which checks bidders list
 By 1980 Norway had achieved a competitive
national oil industry due to:
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Long maritime traditions with a strong shipbuilding
industry and global shipping environment
Focus on developing 3 national oil companies
Conversion of traditional industries
Rapid development of engineering capabilities
Educational institution focusing on the oil industry
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Closing remarks
 Overall terms and cond. extremely tough
 Very high focus and involvement from
authorities and politicians
 System overall quite predictable and clear
 Good communication with knowledgeable
authorities
 NCS is quite mature and passed its peak –
is it still competitive?
 Is it time for better terms for industry?
 Ministry so fare been extremely clever in
striking the balance between tough terms
and continued interest from the industry
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