Norway's assets jam

Aug. 30, 1999
After the Norwegian government was criticized for its role in the takeover battle for Saga Petroleum AS, the country's assets are in the news again.

After the Norwegian government was criticized for its role in the takeover battle for Saga Petroleum AS, the country's assets are in the news again.

The government engineered a deal between state firm Statoil AS and Norsk Hydro AS, of which it owns 51%, that enabled Hydro to beat off Elf Aquitaine SA to buy Saga (OGJ, June 21, 1999, p. 24).

Saga Chairman Wilhelm Wilhelmsen resigned in protest at the government "using taxpayers money to nationalize Saga." At first sight, the recent suggestion by Statoil that Norway's petroleum assets should be privatized looked like a move to reassure foreign investors (OGJ, Aug. 23, 1999, Newsletter).

This was not the case. A Ministry of Petroleum and Energy official explained that the Statoil board's proposals originated from a question in parliament in June 1998 about how best to manage the state assets.

"The ministry sent a letter to Statoil asking for its suggestions in April 1999," said the official. "The results of the ministry's investigations will be presented to parliament in a white paper in February 2000."

Statoil's claim

Given such a golden opportunity, Statoil's board naturally recommended that it should be given the state's direct financial interest (SDFI) to boost its own position in the industry.

Statoil Chairman Ole Lund justified this advice by saying that the Norwegian state, as owner of both Statoil and the SDFI, has a unique opportunity to realize substantial additional value by transferring the SDFI assets to Statoil, which would then be partially privatized.

Statoil currently operates SDFI's assets in combination with its own, but it has net production of 450,000 b/d of oil and 20 million cu m/day of gas compared with SDFI's 1.2 million b/d of oil and 50 million cu m/day of gas.

Similarly, while Statoil has net reserves of 2.5 billion bbl of oil and 300 billion cu m of gas, SDFI has reserves of 5.5 billion bbl of oil and 1.2 trillion cu m of gas.

Statoil's board reckons that being responsible for almost three times its own production and reserves base and selling the state petroleum without raking in the full income puts it at a disadvantage in today's industry.

Hydro's view

"Generally speaking," said Lund, "the major oil and gas companies are more profitable than the smaller ones.

"To hold our own against ever-tougher competition, we must have access to the same instruments as our competitors. Equity capital from the stock market is the most important of these.

"By securing all or part of the SDFI, Statoil will strengthen its competitiveness and help to develop Norwegian oil and gas expertise into a larger and more important export product."

While Statoil's long stewardship of the SDFI may give it the major claim, Norsk Hydro also will most likely feel it deserves a share of the spoils, should government eventually decide to take the route to full or partial privatization.

A Hydro official said the company had been asked to provide its own proposals to the ministry by Sept. 1. Hydro's ideas will not be made public before the ministry receives them, but a claim for a substantial chunk of the SDFI seems a safe bet.