Reflection on the Norwegian Experience within the Oil and Gas sector

Grata Law Firm Seminar Almaty, 23 April 2010

Odd Instefjord General Director, Statoil North Caspian as

Norway is admired for its management of petroleum resources because:

It conquered the challenges of the North Sea. It avoided the OIL CURSE. It created growth in non oil sectors. It formed robust national oil companies side by side with international oil companies. It formed world class Norwegian offshore industry. It nearly doubled oil recovery from 25 to 45%.

National organization of the petroleum sector

Petroleum Policy Main Principles

The right to sub sea petroleum deposits is vested in the State The petroleum deposits shall be administered for the benefit of the Norwegian society as a whole Due regard for the environment and high HSE standards Effective government take Goal: Maximize value creation:

legal / licensing system resource management R&D and industrial development

State participation and Tax system

The Production License

Exclusive right for licensees to gather seismic data, exploration drilling and production of petroleum within the licence area Licensees and participating interest State participation Duration up to 10 years + 30 years Work obligation:

seismic data gathering and interpretation drilling of exploration wells

Other conditions

The Joint Operating Agreement The Accounting Agreement

Classification: Internal

2010-

Part conclusion

The petroleum legislation:

Predictable Transparent No hidden costs or sign-on bonuses

Highly competent and approachable public administration

A common goal: Maximizing the values of the petroleum resources on the NCS

Close dialogue between the authorities and the industry

So how could Norway succeed ?

Richness in Hydro power which allowed Norwegian to develop their oil
resources at a moderate pace. Norway was also highly developed before the oil age:

Highly efficient system of governance Social democratic culture enhancing collective effort. Homogeneous society. Solidarity. Cohesionetc. Well developed institutions. High level education and R&D competence and capacity. .etc

Industry Development
- based on our capabilities and competitive strengths

A good starting point:

Developed and diversified economy Significant maritime nation Relatively high level of education Political consensus

The important majors

Transferred skills and competence Created necessary competition In joint teams with Norwegian companies Statoil given a central role Participation in training courses Operatorship to learn the business

Government Leadership from the start..

Preference for local content - on a competitive basis Make international oil companies maximize local benefits Build local competence Ownership less important Avoid creating unsustainable jobs Avoid cost pressure

Work and value creation to be carried out in Norway!

Control and monitoring

Operators

Monitoring of contracting and procurement practices Mandatory announced tender-schedules Mandatory lists of invited companies Ensure qualified Norwegian companies on bidders list Stimulate Joint Ventures Encourage R&D

Suppliers

R&D

Transparency -

Predictability - Stability

SALIENT FEATURES OF THE NORWEGIAN APPROACH?

National steering of the direction and pace of petroleum operations. Good governance (Govt. Petroleum Administration). Constructive competition among the oil companies. Variety among the licensees to master challenges and enhance efficiency. Direct participation by national companies alongside IOCs. Encouraging the local content in deliveries to petroleum operations. Maintaining balance between national and international oil companies. Co-operation between the authorities and the oil companies. Focus on high oil recovery. Focus on Health, Safety and Environmental protection. Technical innovation to cope with petroleum operations in rough seas.
Source: Petroteam

Summing up the Norwegian Experience

Coherence local content part of overall policy Local content policies aimed at Increasing value added > not deter investments
Balancing industry and government needs Building on existing capabilities Encouraging JVs with international players

Local content policies should be temporary

Thank you
Reflections on the Norwegian Experience within the Oil and Gas sector Odd Instefjord General Director www.statoil.com

Back-up

The RKK model from 1989 - still relevant today!

Financesing

The good circle - 1989

Innovation Entrepreneurship International perspectives

Local industry

Regional development ICT - tecnology Development of schools Post education Life Time Learning Networks Projects Competencies exchange Export of competencises Retraining of adults Flexible education

Local community The schools

The RKK model from 1989: - still relevant today!

Why is this organization successful ?

Separation of the commercial interests of government from its administrative tasks has proved essential for :

Dedicated, unbiased and professional monitoring. Equal and fair treatment of the various stakeholders. Effective co-operation between national and international oil companies. Transparency in promoting national objectives while upholding commercial
interests.

Effective co-operation between Government and companies.

WHAT WERE THE OBJECTIVES OF NATIONAL PARTICIPATION ?

1. 2. 3. 4. 5.

Enhance national control. Increase the national share of the petroleum profit (revenue). Maximise the national share of funds spent on oil operations. Stimulate industrial activity on the basis of petroleum, thus securing employment and industrial development. Stimulate the development of general know-how in Norway

PREPARATIONS FOR ENHANCING THE LOCAL CONTENT

In the period from 1965 to early 70s

Norway had a well developed technical basis from the start. Local content grew largely through co-operation with reputable international firms. Government encouraged use of local deliveries if competitive. In 1969 the principle was included in licence documents. In 1972 the principle was included in Royal Decree of 8t Dec. Norway declared its target of 70% local content in deliveries to petroleum operations.

STEPS TO ENCOURAGE THE DEVELOPMENT OF TECHNOLOGY

1978:
Government required oil companies to spend 50% of R & D budget on field development in Norway. Oil companies were satisfied with both the quality and the price of Norwegian research work. Many "Good-will Agreements" were then voluntarily signed between oil companies and Norwegian institutions. The objective of 70% local content was partly achieved.

DEVELOPMENT OF THE LOCAL CONTENT

From the 80s the status can be summarized as follows:
Within a decade Norway had managed to create a vibrant national offshore industry. The policy of slow licensing had given the local industry time to catch up with international levels and to even take the lead in some fields of offshore construction and installation.

By 2006
Norwegian export of offshore goods and services formed 3% of the total GNP and 20% of the total Norwegian exports.