Minister of Petroleum and Energy rejects assertions that Equinor is too bigWill respond to the Storting
The newly appointed Minister of Petroleum and Energy is about to deliver a report to the Storting on the competitiveness of the Norwegian shelf. He does not think that Equinor is too big, and believes that the oil policy of the 2000s has resulted in the diversity everyone wanted.
“This is my first PDO (Editor’s note - development application for the shelf), and it is amazing to be given the opportunity to influence this process. If this had been a project on the mainland, it would have made huge headlines in the newspapers”, Minister of Petroleum and Energy Kjell-Børge Freiberg told E24.
He was talking about the Nova field development worth around NOK 10 billion, headed by its operator Wintershall. Nova was the first development application to be delivered by the oil industry to the Norwegian authorities in 2018.
In the oil industry, the Nova development is considered to be a small or medium-sized project, but it still involves investments to the tune of billions, and will generate around NOK 10 billion in pre-tax profit, according to the Ministry.
Freiberg illustrates his point by talking about his time as mayor of Hadsel municipality in Nordland when, after many years of discussions, it made headline news the region got a local hospital worth NOK one billion.
“This application also shows that we have excellent diversity in terms of the companies involved with the Norwegian shelf”, said the Minister, referring to the growth from 8 operators in 2009 to the present 14.
Will respond to the Storting
E24 was meeting the new Minister of Petroleum and Energy partly because Nova has now been approved, and partly because he now has to deliver a response to the Storting in relation to the national budget. This is because in June last year, the Storting asked the government to ‘report on the competitive situation on the Norwegian shelf and the future prospects of the Norwegian supplier industry’.
One of the objectives of this was to enable the government to respond to the many critics who have claimed through the years: That Equinor (then Statoil) has been too big and powerful on the Norwegian shelf.
This allegation was driven by the Christian Democrats, who won the support of the entire Standing Committee on Trade and Industry for their call for a report on the competitive situation and companies involved. However, the Christian Democrats did not get a majority for their proposal to form a public committee.
“This is an important issue for the supplier industry in Norway, and we are now addressing the problems which have been mentioned a number of times since the merger between Statoil and Hydro”, said Line Henriette Hjemdal of the Christian Democrats, who at the time was the party’s industry policy spokeswoman.
Does not think Equinor is too big
It was in October 2007 that the oil division in Hydro was merged with Statoil to form StatoilHydro. The company subsequently switched back to the Statoil name, before changing its name again this year to Equinor.
“So your conclusion is that Equinor is not too big for the Norwegian shelf. How did you reach this conclusion”?
“Our objective was to deliver to the Storting a full response to the request it voted for. Equinor is a major, important company in terms of diversity on the shelf, as I have already mentioned”, said Freiberg, going on to say:
“I see no conflict of interest between having a broad spectrum of companies, such as we now have, and a large, active Equinor which contributes to developments with all its experience and knowledge”.
“Do you agree or disagree with those who allege that Equinor has misused its market power through the years”?
“I can see that we have an excellent diversity of companies on the shelf, with Wintershall’s Nova field being an excellent example of the fact that we now have many high-quality companies on the shelf. That is tremendously important for development”, said Freiberg.
The policies of the 2000s are now having an effect
In the last few years, there has been a very significant shift in terms of the companies on the Norwegian shelf. Equinor is still there, but it has also been joined by companies like Aker BP, Lundin and a number of European energy companies.
Among the ‘new’ companies to have arrived is the merged DEA-Wintershall and Vår Energi. The latter is a merger of Eni Norway’s business and the HitecVision-owned Point Resources.
At the same time, a number of major companies have either pulled out (like ExxonMobil which sold its business to Point Resources) or retrenched somewhat, such as Shell, which has sold some of its assets, and BP, which sold its business to the merged Aker BP.
The fact that a number of private equity companies have recently arrived on the shelf does not concern the Ministry, and they point out that these organisations have also been involved in acquisitions, such as the sale of Exxon’s business to HitecVision.
“Have the companies changed so much in the last few years that Equinor’s dominance is no longer a problem, as many people have pointed out before”?
“There have certainly been some major changes since the APA scheme (the annual award of licences in mature areas - Editor’s note) and the exploration rebate scheme were introduced in the early 2000s; since then we have seen a rapid increase in the number of companies and a significant increase in the number of operators”, said Freiberg.
“We would very much like to have a diversity of companies, but obviously we need companies which have the ability and will to invest on the shelf” said Lars Erik Aamot, Head of the Ministry’s Oil and Gas Department.
He pointed out that we are now seeing the effect of the changes which were introduced in the early 2000s:
“Many of the fields which Equinor operates come from earlier allocations under the old licensing regime. Equinor will obviously continue to be an operator or key player when associated licences are awarded, which is right and proper, but if we look at the licences which are now being allocated, the type of companies involved is a lot more varied”, said Aamot.
“Are companies like Lundin, Aker BP, Vår Energi and DEA/Wintershall big enough to have the scale and muscle to be independent companies which can act as a counterbalance to Equinor, or should they be even bigger”?
“Well, these are not exactly small companies, and they have been given their approvals and allocations because they are qualified. It is important for us to have this competition on the shelf”, said Freiberg.
“It was exactly this type of company that we wanted when we modified the framework in the early 2000s, and companies which have a production of around 200,000 barrels per day are significant in terms of size”, added Aamot.
Expecting new development applications
If the Norwegian shelf is to continue to be attractive in the future, the Minister of Petroleum believes that one thing is of paramount importance: Access to new areas.
However, the Ministry is extremely satisfied that Equinor is launching a clear strategy to continue investing heavily on the Norwegian shelf in the future, despite the fact that there is starting to be a shortage of major new projects to be developed after Johan Castberg, Alta and Wisting are complete in the 2020s.
“How many development applications are you expecting to receive this year”?
“What we can say is that we have received three PDOs so far”, said Freiberg, receiving a confirmatory nod from Director General Lars Erik Aamot.
Last year, the Ministry received a total of 10 development applications, and Freiberg’s predecessor Terje Søviknes indicated earlier this year that they were expecting to receive between 5 and 10 applications this year, depending on the progress of the various projects.