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Interview

with Per Terje Vold, Director General, OLF

24.03.2009 / Energyboardroom

How would you describe OLF’s role in Norway today, and the issues at the top of its agenda?

OLF has developed a strategy for 2009-2011, and the quick answer to your question can be summarized in five priorities: 1. Health, safety and the working environment; 2. The environment; 3. Employer policy and expertise; 4. Operations, frame conditions and cost; 5. Access to prospective acreage.

To explain some in further detail, “the environment” encompasses the climate challenge in addition to emissions to sea. The environment in Norway is a broad topic, going hand in hand with access to prospective acreage. It’s important for industry to excel in HSE, with the E representing the internal environment, as well as the external environment.
The third priority comprises developing competence, recruitment, creating awareness among young people, orientation, etc.

Taken together, if the industry can be strong in the first four priorities, then logic tells us we will have access to prospective acreage. Norway has opened up its continental shelf in a very successive way, starting in the North Sea, continuing to the Norwegian Sea in middle Norway, and now approaching the Barents Sea, as well as the prospective areas of Lofoten and Vesterålen, which we will hear more and more about in coming years. In these areas there is a co-existence between oil and fisheries. It’s a coincidence, but it happens to be the most prospective areas for fisheries and oil and gas as it is seen today. With this co-existence in the sea, it is very important to run seismic without disturbing fishermen more than necessary. The industry has agreements with windows in the local time schedule when to and to not perform seismic work, in the same way as with exploration and drilling.

The country has very tough conditions for exploration and development activities, and the government claim is that we should, on a continuous basis, improve the standard of the overall operations. The industry has documented that it has done so, and has a very good record in this regard. We keep this record at top of mind when arguing for access to prospective acreage in Northern areas, with the necessity to convince opposing sides in the form of NGOs, fisherman’s organizations, politicians or those who for one or another reason vote against oil and gas development in parliament. The final station where OLF lobbies for the oil and supplier industry is of course the parliament, which is the final governmental step after civil servants in the relevant ministries and the political management of these same ministries.

Internally, the over 100 companies within OLF agree to voice the same concerns to parliament, for example, opening new acreage, and that the standard of operations are good enough to receive a green light after having red lights for many years. Now, we can see yellow lights in some places, and have to work even harder to get clearance and be approved for further acreage.

You mention some of the political difficulties occurring over the last 40 years. How does the Norwegian social paradigm of high taxes coupled with high benefits transfer to or reflect in the industry?

Within the current climate debate involving the UN Panel, Kyoto agreements, and governments, the OLF has worked very hard to set up the formula for Norwegian CO2 emissions and how to deal with them in the EU market. It has been necessary for us because our emissions account for 24% of the Norwegian total. That is of course a significant factor in the Norwegian economy, but let me also mention that the value creation from this sector is tremendous. Oil and gas is by far the biggest sector in the Norwegian economy, representing 25% of GDP, 25% of gross investment, close to one third of the state’s total income by taxes, fees, and dividends from StatoilHydro and Petoro. Additionally, 55% of Norway’s exports are accounted for by oil and gas. The state recently increased its stake in StatoilHydro, taking advantage of a depressed stock price in a low market cycle to move from 62.5% to 67% ownership.

In relative terms, it’s important to note that Norway has the cleanest oil and gas production in the world, and in fact emits at levels below one third of the global average.

How is this possible, given the high fiscal burden implied by Norway’s social model?

It is in fact this burden that has resulted in such high efficiency. High taxation breeds innovative solutions. For example, initially faced with an unprecedented CO2 tax that remains the strictest in the world, companies were disappointed at the prospect of costly compliance. However, this disagreement quickly changed to significant investment in technology, which has now resulted in world-leading standards and performance. For example, a barrel of oil produced in Russia results in 2.5 times the volume of emissions as Norway, and in Angola this figure is 5 times. As a national industry we realize that the world needs energy, and if it needs energy, it may as well receive it from the cleanest source. Fortunately, Norway has the best technology and cleanest know-how.

However, simple efficiency is not enough. The biggest opportunities in Norway involve field development, which requires strong cooperation between E&Ps and service providers to improve technologies further, as well as an opening up and internalization of the supplier industry. Norway can be on the cutting edge, but only if it keeps challenging itself, which implies opening up new reservoirs to more challenges. In this respect, opening up new and prospective acreage will ensure that Norwegian industry remains competitive.

What has been the impact so far of the financial crisis on competitiveness?

Total investment amounted to over 120 billion Norwegian Kroner (NOK) in 2008. In 2009, this figure is estimated at 137 billion NOK, although recent revisions predict a more modest number of approximately 127 billion NOK, representing a 6-7% decrease. To give a comparison statistic to demonstrate the importance of this amount in relative terms, the entire Norwegian defense budget is approximately 30 billion NOK.

Indeed, oil and gas is the most robust sector of the economy. The decline has not been strongly felt perhaps because the size of investments requires a more long-term outlook of at least three to four years, and is thus less affected by temporary ups and downs in the market.

Over the past decades, Norway has transitioned from a traditional industrial to a high-technology economy. Now some are calling for a similar transition from a “petroleum nation” to “energy nation” – how do you see this evolution panning out?

Despite a rich history of 40 years in oil and gas, two thirds of Norway’s reserves remain to be exploited. One third is under production, and one third remains undiscovered. This latter category is an x-factor, possibly representing much more or less than anticipated. The key to the industry’s future in Norway will rely on opening up new and prospective areas, because in the last 10 years, there have just been small discoveries in existing exploration areas. Oil and gas will still be here for decades. Renewables will enter the picture, but investment is needed to realize these opportunities. There are high ambitions for politicians, but when it comes to renewables Norway needs expertise from the broader global industry, and there are questions around whether Norway, with a population under 5 million and falling production, has sufficient competence to go it alone. The knowledge based Norwegian oil and gas industry will represent and important and necessary base for developing a renewable industry in the country.

As activities will limit themselves in a natural decline, it will become increasingly important to further develop Norway’s industry, because there are simply too few people.

What do you envision for the future of the oil and gas industry?

The world has two main challenges. The first is energy. Is it possible to support the market with sufficient energy and electricity, even given the fact that 1.6 billion people still have no access to electricity? Second is the issue of climate change. With so much uncertainty, solving both challenges must be done in parallel. Compounding these difficulties is the economic crisis, although that’s more in the one to three year time frame. Norway will play a very significant role supplying energy, especially gas in support of the European market over less reliable Russian imports.

I often quote the Chair of the Research Council of Norway. He says that if these tremendous challenges are to be overcome, and our ambitions to be realized, it will be important to utilize the expertise of the Norwegian oil and gas industry.

We produce to the highest world standards, and do so in a cost-effective and pro-industry way, with a competence developed over 40 years that will continue to be utilized for new technology development. This experience will be crucial as Arctic areas, representing approximately 25% of remaining resources – up to one third or as low as one fifth – become viable. At the same time, the industry will be developed in parallel with the benefit of renewables and ultimately the environment, in concert with international partners in the US, Canada, Iceland, EU, Russia, and elsewhere. In doing so, Norway will ensure it maintains its status as the cleanest oil and gas producer, with a long tradition and experience, but still a long way to go yet.

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