Statoilhydro - a new chapter in the norwegian offshore industry

The Norwegian Prime Minister, Jens Stoltenberg, has described the merger between oil giants Hydro and Statoil as “the start of a new era”. The start, perhaps, but it is also the end of a long process that has required the blessing of both the European Union, which approved the deal on 03 May this year, and the Norwegian Parliament, which completed its own scrutiny on 08 June. By the time StatoilHydro came into being on 01 October, the global petroleum industry was well aware of just how impressive this new giant would come to be.

StatoilHydro’s estimated revenue of NOK 480 billion places it on the Fortune Global 500 list at number nine in the world, if one is to include oil companies alone. Already the world’s leading offshore petroleum company, StatoilHydro also boasts being the world’s largest operator in deepwater fields, the third-largest net seller of crude oil, and arguably in possession of the most advanced technology for carbon capture and storage and deepwater operations. StatoilHydro aims to produce, on average, 1.7 million barrels of oil per day, and has a proven equivalent reserve of at least 6 billion barrels.
 
StatoilHydro is undisputedly a Scandinavian giant, but its focus is increasingly international. As it is, StatoilHydro has 31,000 employees working in more than 40 countries, and it is committed to long-term expansion. On 25 October 2007, StatoilHydro won a 24 percent ownership in the development company responsible for the development of the Shtokman field in the Barents Sea, and further acquisitions, especially in the Gulf of Mexico, seem likely. But, for the industry as a whole, it is hoped that the merger will also provide a higher profile for other Norwegian companies that stimulates their market potential.
 
Statfjord A. Statoil has long had operations on the Norwegian Continental Shelf. The NPD emphasises that continuing operations on the NCS are vital for Norway’s socio-economic health.
© Øyvind Hagen/
StatoilHydro

Implications for the Industry and Subcontractors
The simple fact of StatoilHydro’s size is not the only factor contributing to its potential as a market leader. The whole may be worth more than the sum of its parts in the case of this merger, at least according to the Norwegian Petroleum Directorate’s Bente Nyland, who cautiously notes on NPD’s website that “The companies have justified their merger plan by a desire to become stronger internationally in the fight over resources. Should StatoilHydro succeed in this ambition on the basis of its domestic operations, value creation could be higher than the two companies would have generated separately.” (27.4.2007, ‘Big Events’).
 
There are indeed notes of caution to be sounded. In light of the merger, one of the biggest challenges will be to maintain general activity levels on the Norwegian Continental Shelf (NCS), which is vital to Norway’s socio-economic health. If StatoilHydro’s foreign commitment and international growth potential have been enhanced by the merger, the advantages of focused strategies and specialisation remain with smaller companies.
 
The NPD in particular has been keen to emphasise the importance of competition in the drive to stimulate a dynamic domestic industry. Over forty small to medium-sized companies have been pre-qualified for operations on the NCS since the turn of the century, and the Norwegian authorities are cautiously optimistic that the unification can provide certain advantages, not just for StatoilHydro, but also for more efficient industry-wide usage of human resources on the NCS.
Industry leaders, including Remi Eriksen, Chief Operating Officer of Det Norske Veritas (DNV), concur that the act of merging will itself create interest and opportunities in the industry that are beneficial to the Norwegian state and to company shareholders. “In the short term the number of key players in the Norwegian oil and gas industry is one down. However, more important is the general activity level which is influenced by many other factors such as access to acreage, license awards, stability in fiscal and tax conditions, investment in research, innovation and more. The StatoilHydro merger will create new opportunities for other oil companies − old and new − which are in for the long term and are committed to safely and responsibly creating value for their shareholders and the Norwegian State.”
 
Eriksen clearly believes that new opportunities for subcontractors are not about to disappear quickly. “The Norwegian contractor and equipment supplier industry has been active and well positioned outside the Norwegian Continental Shelf for many years. With a stronger and bigger Norwegian player in the international arena, the totality of future opportunities for the Norwegian subcontractors can only be bigger,” he says.
 
StatoilHydro and Norwegian Foreign Policy
Public ownership of StatoilHydro is high, and is likely to remain so. The Norwegian Foreign Minister, Jonas Gahr Støre, addressed the StatoilHydro leadership forum, G-500, in Stavanger before the merger. “As Norwegians, we are, in effect, both shareholders and stakeholders of the company. How you manage the business – how you find, produce, transport and consume energy – is important to us, from both perspectives: the shareholders’ and the stakeholders’,” he explained (28.06.07). The high level of interest taken by the Norwegian government in the merger between StatoilHydro confirms not only the size and importance of the unification, but in some ways reflects an implicit confidence that it is of benefit not just to individual parties, but to all Norwegians – and that includes the smaller companies operating on the NCS that are so important to the economy of the country as a whole.
 
“You will also bring the Norwegian oil and gas cluster, and the petroleum industry as a whole, to new levels of excellence with regard to value creation, technology and sustainability,” Støre added. Emphasising StatoilHydro’s responsibilities, he challenged the new company to fulfil both “industrial” and “social licenses” – the “industrial” being connected to excellence and natural growth as a company, while the “social license” refers to a more general responsibility to the Norwegian people, including environmental policy. StatoilHydro may not be a state company, but, in Støre’s eyes, it represents Norwegian values in its role as the country’s biggest energy exporter. “StatoilHydro is not just any company,” said Støre. “No matter how we define it, it will stand out as Norway’s flagship and an industrial and technological locomotive. This flag will be easily seen in Norway – and worldwide.”
 
Nevertheless, excellence in the twenty-first century oil industry is not simply defined on the basis of production alone, but also on attitudes towards emissions and a perceived willingness to confront the environmental conundrums faced by all energy producers. Støre is clear that Norway must be firm as a leader in environmental responsibility, and StatoilHydro is naturally a large part of that. “On climate change, the Government has already signalled that it will lead the efforts to mitigate the negative effects of Norway’s oil and gas production,” he said.
 
The In salah project in Krechba, Algeria. StatoilHydro has 31,000 employees working in over 40 countries. The merger could open up further opportunities for international development.
© Øyvind Hagen/
StatoilHydro

An Integrated Environmental Policy
StatoilHydro, however, is already taking its responsibilities seriously. DNV is an independent, knowledge-based organisation founded to safeguard life, property and the environment, offering wide-ranging services and proposing industry standards throughout the world, with operations in around a hundred countries. DNV has a long history stretching back to 1864, when it came into being with the objective of regulating the condition of Norwegian merchant vessels. DNV has contributed to discussions involving the Norwegian offshore industry that have established rules and practices designed to manage the environmental effect of the industry.
 
DNV’s Energy division has also worked regularly with both Hydro and Statoil, and Remi Eriksen is confident that both companies take their environmental policies seriously. “Both Statoil and Hydro have pioneered a cadre of initiatives benefiting the environment. Environment has been an integrated part of the way they have conducted their business − not as a separated, isolated activity,” he says.
 
According to Eriksen, both companies have been credited with significant achievements in preventing and preparing for oil spill scenarios. Additionally, Hydro and Statoil have continued to exceed regulatory and legislative requirements in relation to biodiversity at the site of operations in North Norway, to name one example. “In relation to biodiversity, innovative measures have been taken to ensure minimum impact on the environment,” Eriksen confirms.
 
He believes that these successful environmental policies will continue after the merger. In fact, the emergence of a larger market force can only improve the efforts of the industry as a whole. “The environment was high on the agenda for both Statoil and Hydro. We believe it will be strong also in the new merged company. The merger of StatoilHydro will create a new stronger international player, which will create opportunities for further positive influence in other important oil and gas regions where the environment traditionally has been lower on the agenda,” he says.
 
As environmental policies play an increasingly important role in global oil and gas initiatives, StatoilHydro at least has an integrated policy that addresses its corporate responsibilities in a way that can be a beacon to other operators in the global market. It is as such – as a beacon or flagship company – that the Norwegian government, and the oil and gas industry as a whole, hope that StatoilHydro will act. The merger provides an opportunity for Norway to present itself to the world as a dynamic leader in offshore technology and an environmentally responsible, but at the same time highly productive, energy supplier. Whilst a level of activity must be maintained on the Norwegian Continental Shelf in order to secure the health of the industry, both the government and the NPD are well placed to encourage competition and ensure that smaller companies benefit from the profile-boost that the merger has already generated. The future of StatoilHydro, and of the entire Norwegian oil and gas industry, looks bright indeed.

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