WATCHING THE WORLD OSLO'S BRAGE INTEREST

Norwegian governments, whether they are right or left of the political center, have an uncanny ability to irritate operators in the Norwegian North Sea when it comes to making and announcing changes of policy.

The latest example is Osio's new right-of-center administration and its decision to exercise its right to increase state participation in Norsk Hydro's Brage oil field development (see p. 29).

Operators have never been particularly happy with the so-called sliding scale under which the state's share in commercial licenses can be increased to 85% in some cases. But the sliding scale provision, part of the license terms, has gradually been accepted as part of the way of offshore life in Norway.

A CHANGE OF RULES

In giving approval for the 8.4 billion kroner ($1.29 billion) Brage project to proceed, Norway's Ministry of Petroleum and Energy has signaled a change of rules.

The sliding scale was used to increase the government's direct equity to 38.4% from 33.4%. That would boost Norway's total participation, including the 17.6% held by state owned Den norsk stats oljeselskap AS, to 56%. Nothing too controversial in that.

What annoyed Norsk Hydro and partners Statoil, Esso Norge, ARCO Norge, and BP Petroleum Development Norway was the subsequent government statement that once Storting (parliament) approves the development, the additional 5% holding acquired through the sliding scale will be put up for sale on the open market.

According to the Ministry of Petroleum and Energy, if the 5% interest generates an acceptable bid, the five existing license holders will have the opportunity to match the price and buy back the share. But if the partners choose not to match the highest bid they will find themselves sifting alongside a new shareholder.

Norsk Hydro is hopping mad. The company charges that Oslo has already damaged the economics of the 240 million bbl field by imposing in May 1988 a delay of as long as 5 years on starting the project.

It is determined to plead its case to Storting members in the hope they will throw out the government proposal. That may be a tall order, given that Labor and Socialist members are likely to back the government on this issue.

Assuming the government's proposals are accepted by Storting, interest will then center on possible bidders for the 5% interest and the amount they are prepared to pay.

The government reckons Brage will yield a 32.5% rate of return before tax falling to 21.5% after tax. Those figures are based on a greater reserve estimate than Norsk Hydro's, a real oil price of $22/bbl by 1994 and $28/bbl by 2000, and a restriction on writing off historic exploration costs against the project.

Norsk Hydro calculated its return at 20% before tax 15.5% after tax and only 9.6% if historic costs are not allowed.

NO CASE FOR A SALE

Observers will want to see whose figures other oil companies believe. Certainly if the government accepts its own figures it is hard to make a case for selling.

Taking the money and putting it in the new oil reserve fund to be invested in overseas bonds will earn nothing like 21.5%. But at this stage it appears the reserve fund capital is unlikely to be invested outside Norway. It's far more likely to be spent to cover the national budget deficit, earning a political dividend that will be difficult to value.