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Statoil balances state demands with shareholders interests

Statoil is a model for other NOCs, neatly balancing the needs of its state controller with the urges of its private shareholders

Statoil is a curious beast. It is both NOC and IOC, with characteristics of each. Like a typical NOC, it is dominant in its home territory, and is widely viewed as Norway’s national champion. Yet the company has the clout and global reach of an IOC.

This is due in large part to the company’s partial privatisation. As with Petrobras, Statoil’s closest peer in the NOC sphere, the state retains a majority stake in the company (67.3% in Statoil’s case). However, Statoil is accountable to its other, non-state shareholders and releases a portion of its profit via dividend payments. The company’s operations, therefore, come under the scrutiny of both the state and private investors, and it must operate in such a way to ensure it meets the demands of both.

Established in 1972 as a wholly state-owned company by the unanimous vote of Norway’s parliament, Statoil’s remit was clear: the new company would ensure Norwegian participation in the country’s energy sector and develop the expertise needed for a national oil industry. It was a major undertaking - when Statoil opened for business in Stavanger in early 1973, it had just two employees.

Statoil’s payroll is larger these days; it employs more than 23,000 people worldwide. Its horizons have broadened too. Partially privatised in 2001, Statoil shares are listed in Oslo and New York. It consolidated its dominance offshore Norway with its merger with state-controlled compatriot Norsk Hydro’s oil and gas division in 2007. In 2012, it produced 1.335m barrels of oil equivalent a day (boe/d) from the Norwegian Continental Shelf (NCS), roughly 80% of the country’s total production. And, as the NCS matured, it looked abroad, expanding into more than 30 countries. 

The company has fulfilled the second part of its original mandate too, establishing itself as a technological innovator. In common with many new NOCs, it relied on IOC expertise in the early years of NCS exploration and production - the country’s fourth licensing round in 1979, for example, included technology transfer agreements with NCS entrants. Since the mid-1980s, however, Statoil has built a solid reputation for innovation. It has pioneered a number of technologies, including multiphase flow transportation; multilateral drilling; and 4-D seismic surveying. It now has its sights set on moving offshore development from the surface to the seabed. It aims to install subsea compression at Åsgard in 2015 as part of its push to develop a full suite of subsea plant  by 2020.

However, the metamorphosis from tightly-focused NOC to an international integrated player has not been completely smooth, and further difficulties may lie ahead. As well as taking stakes in Canada’s oil sands and the Bakken and Marcellus shale plays in the US, Statoil has expanded into carbon capture and storage, renewable power generation and biofuels. As well as refining and retail interests, it also has a trading arm.

The company’s reputation was tarnished by a 2003 Iranian corruption scandal. Earlier this year, Statoil said it was one of a number of firms being investigated as part of an oil-price manipulation probe launched by the European Commission. Statoil came under criticism at home in January, when five Statoil employees were among the 39 foreign hostages killed in a four-day siege at the In Amenas gas plant in Algeria. 

Plans for Statoil’s part-privatisation were controversial, sparking debate in Norway about its role, its responsibilities and positioning in the oil sector. This debate is likely to reignite if, as expected, this month’s general election ushers in a new government. If the polls are correct, Erna Solberg, leader of the conservative party Høyre, is likely to lead a centre-right coalition government. Solberg has made clear her intention to reduce the state’s holding in Statoil to just 50.1%. Such a move is unlikely to affect Statoil’s day-to-day operations, but increased shareholder pressure could force the company to modify its longer-term strategy, cutting costs and moving into more profitable plays.

Solberg also wants to open the waters offshore Lofoten and Vesterålen, in the Norwegian Sea, to hydrocarbon exploration. The area, a rich fishing ground, is currently off-limits, but is widely believed to be a potentially rich petroleum province. Statoil, which is keen to boost its NCS reserves figures, is ideally positioned to move quickly should the area be opened to exploration.

One of Statoil’s primary concerns is maintaining production and reserves, and paying for a number of major developments, including Johan Sverdrup, which could hold up to 3.3bn barrels of oil, as well as discoveries offshore Brazil and Tanzania. It is an upstream-heavy company, and in 2012 it achieved an organic reserve replacement ratio of 1:1. Chief executive Helge Lund expects that ratio to be maintained at this level or slightly higher at least until 2020. He thinks Statoil’s global portfolio has the potential to deliver 2.5m boe/d in 2020.

But any successful producer needs to keep an eye on the long term. For Statoil, this has meant pursuing an aggressive exploration campaign (this year it plans to drill 50 exploration wells at a cost of about $3.5bn) and rationalising its global portfolio as it seeks to improve growth and rein in spending. As Petroleum Economist went to press, Statoil announced it had sold North Sea stakes – minority interests in Gullfaks, Gudrun, Rosebank and Schiehallion – to OMV for $2.65bn. The sale frees cash set aside for those developments and will appease investors concerned about capital spending. Its 2013 capital expenditure is budgeted at $19bn. Lund put the total cash generated by the sale at around $7bn.

In its 41 years, Statoil has proved itself to be a nimble and resilient company, able to balance the competing demands of the state and private sectors. As the company matures, and evolves further, the question is whether it will be able to maintain this balance. 

Table 1: Statoil by the numbers
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