Den Norske Stats Oljeselskap AS

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Den Norske Stats Oljeselskap AS

Post Office Box 300
N-4001 Stavanger Norway
(4) 80 80 80
Fax: (4) 80 70 42

State-Owned Company
Incorporated: 1972
Employees: 14,463
Sales: NKr59.60 billion (US$10.13 billion)

Norway is the largest producer and seller of crude oil from the North Sea. Den Norske Stats Oljeselskap AS, also known as Statoil, is an integrated oil and gas company, established in 1972 as a state corporation able to exert what the government saw as a necessary measure of management control over the development of oil and gas exploration and production. The government decided that a state enterprise could best secure public energy supplies and ensure the nation’s control over its resources and industrial development. The United Kingdom and Malaysia are examples of other countries which set up state-owned oil companies in the 1970s, responding to supply shortages in the international oil market, while the development of Norwegian policy on hydrocarbon resources has provided a framework which many other countries have attempted to emulate. Statoil is involved in all areas of the petroleum business from exploration and production to refining and distribution. About two-thirds of its crude is sold in northwest Europe. The rest is exported via its Mongstad operations to other countries. The company is also Scandinavia’s largest producer of petrochemicals such as ethylene and propylene.

The Norwegian continental shelf contains huge oil and gas reserves, of which only a small portion has been recovered to date. Natural gas accounts for around 60% of these reserves. Oil reserves in 1991 were estimated to last 30 to 40 years and gas reserves more than 100 years. The reserves are spread over around 250 million acres, of which large parts have yet to be explored, and Norwegian oil and gas are among the most difficult in the world to extract, because of the ocean depths and climatic conditions. North Sea crude is well suited for producing motor fuels because of its low sulfur and metal content.

The oil and gas discoveries in the North Sea only began to be a significant factor in the Norwegian economy and politics after 1962, when Phillips Petroleum first applied for sole rights to explore the continental shelf. The Norwegian government refused and proclaimed sovereignty over its continental shelf in 1963, defining it, in cooperation with the British and Danish governments of the day, as the median line between Norway and those two countries, and thus gaining unquestioned access to waters beyond the Norwegian Trench. It was not until 1965 that the government began to allocate licenses permitting exploration on a “carried-interest” basis. This means that the government has an option to participate on equal terms for a given percentage of a production license if a commercial find is made in the area covered by the license. The first well was drilled in 1966, and in 1968 the first find of oil occurred in the Cod field. In the early years, exploration activity, based around Stavanger, was relatively quiet, but the big Ekofisk find at the end of 1969 demonstrated the potential of Norway’s oil business and prompted the government to seek to establish a consistent oil policy.

Between 1970 and 1971 the government set up committees to draw up proposals for a state corporation. The system created in 1972 consisted of the Ministry of Industry, responsible for general policy and strategy; the Norwegian Petroleum Directorate, seeing to the day-to-day control and administration, unhampered, it was hoped, by political squabbling; and Statoil. The policy reflected the view that such strategic resources as oil and gas could not be left to the multinationals. The state had to have guaranteed access to these resources to formulate its fuel policies and to exert more control over the oil operations of foreign companies by way of production limits, leasing requirements, and bidding practices, as well as through taxation. The Labour Party, which governed Norway from 1964 to 1981, worked to increase Statoil’s control over domestic oil production. Statoil’s virtual monopoly, through its participation in every oil and gas venture, would provide for further investments in refining, transportation, and marketing. In addition the government decided to set ceilings on the production rate, not only to avoid depleting its resources but also to keep the impact of the new industry on the overall economy at a manageable level, since it recognized the potential for social and economic dislocation.

From the outset Statoil was engaged in a diverse range of oil-related activities. In 1975 Norway became a net exporter of oil. In the same year Statoil commissioned its first subsea oil pipeline, the Norpipe line from Ekofisk to Teesside in the United Kingdom, and it began exploring for oil and gas. The first two gas pipelines, Ekofisk-Emden and Frigg-St. Fergus, were commissioned in 1977 and offshore oil loading began in 1979 on Statfjord. In 1978 an ethylene plant, jointly owned by Statoil (49%) and Norsk Hydro, was built at Rafnes in eastern Norway. Close by are Statoil’s plants which produce polyethylene and polypropylene. Polyethylene is used in the making of such products as film, packaging, and cable insulation, while polypropylene goes into medical equipment, car parts, and pipes, among many other products.

During these years the Norwegian oil industry contributed to the growth of such industries as shipping and chemicals, as the leading companies in these sectors speculated in the new industry, but at the same time Norwegian manufacturing was badly affected by a slowdown in growth. Between 1975 and 1980 the Norwegian government required foreign oil companies to engage in industrial cooperative projects as a means of qualifying for license awards. Many of these projects were in non-oil sectors.

The 1980s provided Norway with increased wealth from its oil revenues, but because of the growing burden of foreign loans and the inflationary effects of oil on its other industries, the economy as a whole became less competitive. The foreign loans were needed for the continuing costs of foreign technical expertise and exploration. It remained an important policy to stimulate Norwegian industry generally through subcontracts with the oil industry.

In 1981 Statoil, with its competitors Saga and Norsk Hydro as co-owners, began to operate in the Gullfaks field, the first time that a field was owned 100% by Norwegian interests. Production started in Gullfaks in 1987. Statoil also decided to lay a pipeline, the Statpipe, a transport and process system for gas, from the Statfjord, Gullfaks, and Heimdal fields across the Norwegian Trench to shore. The Statpipe system came onstream in 1985, with 830 kilometers of pipeline on the sea floor at depths down to 330 meters. In 1984 it was decided to lay another pipeline to land crude from the Oseberg field at Sture near Bergen.

A Conservative-led government made some important changes in Statoil’s powers and conditions in 1984. It was decided that all gross income from each field would go directly into the Treasury instead of through the usual taxes and dividends. Voting procedures were to be changed in all licensee groups. Statoil lost its automatic right to veto its partners’ proposals, on licenses where it held a stake of 50% or more. In order to exercise this veto it would have to obtain the consent of the Oil Ministry. It was at this time that Norway decided to aim toward bringing the management of oil production in some fields entirely under Statoil’s control, rather than subcontracting to foreign companies. In late 1984 Statoil reached an agreement with Mobil under which Statoil would take over as operator of the huge Anglo-Norwegian Statfjord field by 1989 at the latest. Norway was moving away from its dependence on foreign oil, companies’ expertise. Ther operation of Statfjord, the largest offshore oil and gas field in the world, passed over to Statoil in 1987.

While expanding its own operations Statoil recognized the advantages of retaining a prominent position within the industry as a whole, at home and abroad. Thus in 1986 it took the lead in negotiations on behalf of a group of companies for the selling of gas from two fields, Troll and Sleipner, to other European countries. Troll, in which Statoil has a 74.6% share, is one of the largest offshore gas fields in the world. It was under the operatorship of Royal Dutch/Shell, which has an 8.3% share in it, with Statoil taking over as operator when the fields came onstream in 1996. Statoil’s share in the Sleipner field is 49.6% and its gas is due to come onstream in 1993. A pipeline system, known as the Zeepipe, is now being built from these fields to Zeebrugge in Belgium. Statoil will construct and operate the pipeline and the reception terminal at Zeebrugge, where any solid or liquid components will be removed from the dry gas.

By 1985 Statoil had established itself as the largest industrial company in Norway, accounting for as much as 10% of gross national product and a similar proportion of government revenue. As it developed it began to look abroad for acquisitions as well as markets. Its first foreign acquisition was Exxon’s Swedish oil retailing and petrochemicals operation, in 1985. The petrochemicals subsidiary, renamed Statoil Petrokemi AB, uses naphtha, propane, and butane as its raw materials and its main products are ethylene and propylene. Statoil Petrokemi has expanded and modernized its plant, to create one of the most advanced petrochemicals facilities in Europe. In 1986 Statoil purchased Exxon’s oil products marketing company in Denmark and its Kalundborg refinery. It also bought a West German factory, which produces plastic for car bumpers and cable insulation. This was seen as an important investment for Statoil because it increased its capacity to process the plastic resins made at its petrochemical plant in Rafnes, in eastern Norway. Statoil is now able to offer over 70 different grades of plastics.

Statoil experienced its worst political and financial difficulties in 1987, starting with a drastic fall in profits as a result of the worldwide collapse in the price of oil in 1986. Politicians opposed to its economic and social power began to complain about its secretiveness and its closeness to the Labour Party establishment, as symbolized by the company’s president, Arve Johnsen, who had been a government minister before joining Statoil. Then an official investigation revealed that cost overruns on the Mongstad refinery project had reached about NKr5.4 billion (US$850 million) and concluded that the refinery would never be profitable. At first the oil minister rejected opponents’ claims that the report showed that Statoil’s management was overstretched in relation to the number of projects in which the company was involved. Amid allegations that the losses had been concealed deliberately, the company’s six directors resigned and Johnsen too resigned. However, the government appointed a new board to take up the challenge of expanding and diversifying Statoil’s operations further.

Statoil now had a retail distribution network in all three Scandinavian countries. The government had originally forbidden Statoil to get involved in distribution, which was thought to be better handled by the multinationals. In 1991 Statoil’s Norwegian marketing affiliate, Norsk Olje AS, an oil retail firm with 650 outlets throughout Norway, was renamed Statoil Norge AS and started using Statoil livery in its marketing. By then Statoil had a total of 1,600 retail outlets in Norway, Sweden, and Denmark.

Statoil had a better year in 1988 than in 1987. Statoil became sole owner of the Norwegian petrochemical plants which it had been operating since 1984 in conjunction with Norsk Hydro. This subsidiary was renamed Statoil Bamble, in reference to its main plant at Bamble, in southern Norway, which had come into operation in fiscal year 1978-1979 and had become the largest center for plastics technology in Norway. In the same year the Tommeliten field began producing oil without the platforms which are the standard technology in oilfields, by using equipment placed on the seabed and connected to the Edda platform on the Ekofisk field.

The Mongstad refinery, which had been the focus of Statoil’s troubles in 1987, was started up again in 1989. Two more oil platforms, Veslefrikk and Gullfaks C, came onstream. The Veslefrikk was the first floating production platform after being in the Norwegian sector of the North sea, while the Gullfaks C platform, which stands in 220 meters of water, is the world’s largest production platform. Its total height of about 380 meters makes it 30 meters taller than the Eiffel Tower.

In 1990 Statoil expanded its interests into new Danish technology. Its subsidiary Dansk Bioprotein seeks to use bacteria to convert natural gas into edible protein, to be used as an additive in animal and fish feeds.

As Statoil looks for new international markets, it has joined forces with BP to explore for oil in West Africa, Vietnam, China, and the Soviet Union. It also holds exploration and production interests in the Netherlands and a 10% stake in a Chinese offshore license. In 1991 it made an oil discovery in the Danish sector of the North Sea.

When the Norwegian Labour Party came back to power in 1990, it decided not to reintroduce controls on North Sea petroleum output, but it has no intention of privatizing Statoil. With its petroleum resources still largely untouched, Norway can look forward to a bright future in the petroleum industry, with Statoil at the forefront.

Principal Subsidiaries

Statoil Norge AS; Statoil Danmark AS (Denmark); Svenska Statoil AB (Sweden); Statoil Petrokemi AB (Sweden); Statoil Deutschland GmbH (Germany); Statoil Europarts AB (Sweden).