The Norwegian Experience Jerusalem, January 23 rd 2012 www.agr.com 1
About the presenters Eivind Reiten Chairman AGR CEO Hydro from 2001 to 2009 Minister of Oil & Energy from 1989 to 1990 Minister of Fishery from 1985 to 1986 Deputy Minister of Finance from 1983 to 1985 Sverre Skogen CEO AGR Group EVP Floating Production PGS ASA President & CEO Aker Kværner Oil & Gas AS President & CEO Aker Maritime AS Atle Andresen AGR Energy PGS Hydro Geology Conoco Geology 2
Introduction About today s presentation 1. Experiences from the development of the Norwegian oil and gas sector 2. Governing principles and results achieved AGR s operations in Israel Pelagic licenses (6 licenses) Arye license Izhak license Awarded 5% and operatorship in these licenses Currently applying for additional licenses 3
Many parallels between Israel today and Norway in the early 1970s Discovery of the Groningen gas field onshore Holland in the late 50s sparked interest for exploring the Norwegian Continental Shelf High expectations of significant oil and gas resources Seismic activity from the early 60s and exploration drilling from the mid 60s Disappointing results initially lead to moderated optimism - about 30 dry wells by late 60s Indications that Norway could become major oil and gas province Norway was unprepared Policies and regulations lacking No domestic oil and gas capabilities A major discovery made late 69 (Ekofisk) on the final well on Phillips drilling program 4
The Norwegian oil & gas model has proven to be successful Developed into a major oil and gas producer Government captures significant share of profits from offshore oil & gas activity Created an internationally competitive oil service industry Developed new technology leading to world leading recovery rates Created a major global oil company (Statoil) Established a state pension fund based on oil and gas revenue Trial and error - mistakes made Amendments and adjustments along the way 5
Norway has developed into a major oil and gas producer Oil and gas production Norwegian oil service companies revenue source Mill boe Net gas Net oil Bn NOK Int. sales Dom. sales 942 162 1377 270 1505 413 1371 564 1326 669 196 96 248 120 17 121 12 105 330 151 179 535 177 358 780 1106 1092 807 657 105 88 49 57 64 38 18 18 39 46 50 56 100 128 1972 72 82 87 92 97 02 07 2010 1995 97 03 05 07 2009 8 th largest oil and gas producer 2010 6
O&G has become very important to the Norwegian economy % 2010 Share of GDP 19 Share of export 46 Share of labor force 2-4 7
Key governing principles paramount to Norway s success Governing principles: Pro-active Government Regulator Supervisor Government interventions only when needed and based on sound economic principles 1. 2. Resisted public pressure and avoided sub-optimal solutions, e.g. Natural gas sold to highest bidder rather than used domestically No requirements to use Norwegian oil service providers Resisted pressure from oil companies Implemented terms and conditions according to Norway s long term benefit 8
Regulations in 5 areas have been particularly important 1 License awards 2 Government take Gradual opening up of NCS License awards based on applications Oil company capabilities required to apply for licenses Petroleum tax on all offshore activities (in addition to corporate tax) Significant direct state ownership (Petoro and SDFI) 3 National oil companies Provided for the development of 3 competent and committed national oil companies (which later became Statoil) 4 Infrastructure 5 State pension fund Decision to capture value capture via producing assets not transporting assets (avoid monopoly) Strong government involvement in creating jointly owned infrastructure Established to avoid Dutch decease Value of fund ~USD bn 550 by YE 2011 USD 115,000 per capita 9
1. Attracting leading international operators was vital because they possessed competence, experience and technology Transformation of offshore hydrocarbons in the ground to commercial values is a very complex, challenging, lengthy and risky process Key element behind Norway s success was the ability to attract major international oil and gas operators during the early years These companies provided world class capabilities, experience, technology and capital 10
1. Today much of the competence, experience and technology has been transferred to the oil service industry 1 International Oil Companies (IOCs) Before Project managers Capital contributors Technology developers Today Increasingly a coordinator Examples 2 Oil service companies Suppliers to IOCs Regional operations Project managers for National Oil Companies (NOCs) Asset and equipment owners and operators Technology drivers Worldwide operations 11
1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2. Government take model has created significant cash flows Government income from oil and gas, Bn NOK 416 Annual cash flow last 5 years represent between 30-50 % of Government s expenses every year 70 % of cumulative cash flow transferred to state pension fund 243 276 355 316 280 276 161 204 170 174 0 0 0 0 0 2 3 4 7 19 27 30 31 40 39 25 8 3 15 34 39 31 28 26 39 70 87 45 45 12
Challenging but important to find the right dynamic between government and operator Dynamics between stakeholders The role of an operator Dialogue Government Policy Build and maintain good relationships with government Set ambitious goals Agree on project plans, tempo and milestones Report progress Raise red flags, e.g. roadblocks and sub-optimal solutions Operators Collaboration Licencees Build and maintain a good relationship with licensees Plan and execute project Coordinate meetings and communication Necessary for operator to have: Frequent and open dialogue Predictable terms & conditions 13
There s no substitute for experience. 14
Drilling consortia, example Bredford Dolphin AGR facilitated drilling operations AGR coordinate operations Background On the Norwegian Continental Shelf, several companies with individual drilling programs too small to be attractive to rig owners Rig & related services Rig Operator Solution AGR facilitates contracting of rig and administers operations AGR provides drilling services Result Bredford Dolphin contracted for 3 years 3 rig years sold to a consortium of smaller players Drilling Services Engineering Drilling Services Completion HSE Contracts Etc. Supply base, boats, helicopt er, etc. 15