WATCHING THE WORLD STATOIL'S DOWNSTREAM PINCERS MOVEMENT

With David Knott from London While most oil companies are treading water in the retail sector, Norway's Den norske stats oljeselskap AS (Statoil) is expanding. The company intends to become a leading retailer around the Baltic and North seas. Most of Statoil's income comes from upstream. In first half 1993 the exploration & production division made a profit of almost 5 billion kroner ($680 million), more than tenfold the profit of its refining/marketing division.

Oct. 18, 1993

3 min read

While most oil companies are treading water in the retail sector, Norway's Den norske stats oljeselskap AS (Statoil) is expanding. The company intends to become a leading retailer around the Baltic and North seas.

Most of Statoil's income comes from upstream. In first half 1993 the exploration & production division made a profit of almost 5 billion kroner ($680 million), more than tenfold the profit of its refining/marketing division.

"To be profitable downstream a company needs size, weight, and a cohesive system," said Staffan Riben, Statoil's president of refining/ marketing. "If it can build, a company has a chance to be profitable. Downstream expansion for Statoil would balance the portfolio."

Upstream bias makes Statoil subject to crude price volatility, said Riben, which a bigger downstream presence would help to balance out.

"There are no windfall profits downstream, but a balanced portfolio gives greater stability."

NEW MARKETS

Downstream development of Statoil has been in phases. Integration in Norway came first, then expansion through Scandinavia, then consolidation. Since 1992 Statoil been on an international expansion program in retailing.

"As Statoil was preparing to expand, former Communist states of Eastern Europe began to come out of the shadows," said Riben. "We were presented with new markets with growth potential. This suited Statoil fine."

Riben decided on a two pronged foray. One trail of acquisitions and developments would take Statoil into countries surrounding the Baltic Sea. Another would take it to countries around the North Sea.

The Baltic trail has seen Statoil build service stations in Estonia, Poland, and Germany. Retail projects are under way in Russia and Latvia, while a Statoil subsidiary has been set up in Lithuania and is studying the market.

RETAIL RING

Riben said drivers soon will be able to journey clockwise from Tallinn in Estonia to Murmansk, using only Statoil gasoline for most of the route. There still are gaps in the chain near Riga in Latvia and Warsaw, however.

"Statoil's thrust is to provide Scandinavian levels of quality and service," said Riben. "There is a limited number of markets you can enter and pursue this approach. You cannot litter a country with stations, you must pick key sites and build recognition."

Last year's purchase of 260 service stations in Ireland from British Petroleum Co. plc saw Statoil hit its first target on the North Sea trail. Already Riben said Statoil had taken Irish market share from 10% to 11%.

"We have not identified the next target, but it could be the U.K. or Germany," said Riben. "Large investments would be needed, so this is not in the cards short term.

Long term, it would suit our strategy to have one more large market in western Europe."