Daily Management Review

Norwegian government wants Big Oil to stay in the country


11/23/2016


For a long time, oil production on the Norwegian continental shelf has mainly been a privilege of large foreign companies and Statoil, a major player in the country’s market, which produces about 70% of the Norwegian oil. However, two years of low prices have changed the situation. Assets in the Norwegian North Sea are now flooded by small private businesses that were previously unable to break into the market.



Diego Delso
Diego Delso
In June 2016, Norske Oljeselskap has acquired rights to develop one of BP’s fields. Arne Trondsen, main partner of HitecVision investment company, called the $ 1.3 billion-worth transaction "the first sign of alteration of the Norwegian continental shelf."

Not only BP, but also the American Exxon Mobil, the Dutch Royal Dutch Shell and French Total expressed their intentions to reduce costs and to sell part of the assets. Basically, the changes relate to exploration costs, which, in turn, reduced number of new projects in Norway. At the same time, small companies are actively using the government’s program, which compensates part of the development costs.

For multinational corporations, this amount is not enough. "This does not mean that all major companies are leaving Norway. However, the North Sea no longer seems to them a territory of growth, they are not willing to invest in there, "- says Trondsen.

Falling oil revenues resulted in attempts to improve profitability of mining companies. Oil and gas sector are protesting against employers' plans for wages reduction. In 2017, the Norwegian government plans to increase support for the sector, and provide additional 225.6 billion kronor ($ 28 billion, about half of this amount - from the state welfare fund). However, investment in oil and gas production on the shelf will be reduced by 10% in 2017 and 6.8% in 2018.

While the big players are thinking about how to get away from Norway with minimal losses, the government reminds them of their responsibilities. If the authorities are not satisfied with buyers of assets or the environment, the company can pay a substantial fine.

Each transaction will be evaluated by the Ministry of Petroleum and Energy in Norway. If the officials doubt the acquirer’s ability to bear costs of field development, the responsibility for its preservation or closing will passed onto the former owner, Bloomberg notes. 

According to Rune Solberg of Thommessen law firm, before this practice was applied only to rare transactions. Now, however, the government wants to prevent foreign companies from leaving the country by increasing operational costs, as well as to deal with potential overstatement of value of assets. A letter from the Ministry of Information states that it does not matter whether a company is selling a full license, or just a share in a fielf - testing will be applied on all transactions without exception.

According to the industry’s regulator, deconstruction costs and conservation of the deposits, which foreign partners have already declared, will amount to about 170 billion kroner ($ 20 billion).

source: bloomberg.com






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