Statoil Asa Business Information, Profile, and History
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History of Statoil Asa
Formerly known as Den Norske Stats Oljeselskap AS, Statoil ASA is Norway's oil and gas powerhouse. With operations in 25 countries, Statoil is involved in all areas of the petroleum business from exploration and production to refining and distribution. The company operates about 1,500 service stations in such European countries as Ireland, Poland, Norway, Sweden, and Russia. The Norwegian government has nearly 81 percent ownership of Statoil.
Capitalizing on Large Oil and Gas Reserves: 1960s-70s
Den Norske Stats Oljeselskap AS, also known as Statoil, was established in 1972 as a state corporation able to exert what the government saw as a necessary measure of management control over the development of oil and gas exploration and production. The government decided that a state enterprise could best secure public energy supplies and ensure the nation's control over its resources and industrial development. The United Kingdom and Malaysia are examples of other countries that set up state-owned oil companies in the 1970s, responding to supply shortages in the international oil market, while the development of Norwegian policy on hydrocarbon resources has provided a framework that many other countries have attempted to emulate.
The Norwegian continental shelf contained huge oil and gas reserves, of which only a small portion had been recovered. Natural gas accounted for around 60 percent of these reserves. Oil reserves in 1991 were estimated to last 30 to 40 years and gas reserves more than 100 years. The reserves were spread over some 250 million acres, of which large parts had yet to be explored, and Norwegian oil and gas were among the most difficult in the world to extract, because of the ocean depths and climatic conditions. North Sea crude was well suited for producing motor fuels because of its low sulfur and metal content.
The oil and gas discoveries in the North Sea only began to be a significant factor in the Norwegian economy and politics after 1962, when Phillips Petroleum first applied for sole rights to explore the continental shelf. The Norwegian government refused and proclaimed sovereignty over its continental shelf in 1963, defining it, in cooperation with the British and Danish governments of the day, as the median line between Norway and those two countries, and thus gaining unquestioned access to waters beyond the Norwegian Trench. It was not until 1965 that the government began to allocate licenses permitting exploration on a "carried-interest" basis. This meant that the government had an option to participate on equal terms for a given percentage of a production license if a commercial find was made in the area covered by the license. The first well was drilled in 1966, and in 1968 the first find of oil occurred in the Cod field. In the early years, exploration activity, based around Stavanger, was relatively quiet, but the big Ekofisk find at the end of 1969 demonstrated the potential of Norway's oil business and prompted the government to seek to establish a consistent oil policy.
Between 1970 and 1971 the government formed committees to draw up proposals for a state corporation. The system created in 1972 consisted of the Ministry of Industry, responsible for general policy and strategy; the Norwegian Petroleum Directorate, seeing to the day-to-day control and administration, unhampered, it was hoped, by political squabbling; and Statoil. The policy reflected the view that such strategic resources as oil and gas could not be left to the multinationals. The state had to have guaranteed access to these resources to formulate its fuel policies and to exert more control over the oil operations of foreign companies by way of production limits, leasing requirements, and bidding practices, as well as through taxation. The Labour Party, which governed Norway from 1964 to 1981, worked to increase Statoil's control over domestic oil production. Statoil's virtual monopoly, through its participation in every oil and gas venture, would provide for further investments in refining, transportation, and marketing. In addition the government decided to set ceilings on the production rate, not only to avoid depleting its resources but also to keep the impact of the new industry on the overall economy at a manageable level, since it recognized the potential for social and economic dislocation.
From the outset Statoil was engaged in a diverse range of oil-related activities. In 1975 Norway became a net exporter of oil. In the same year Statoil commissioned its first subsea oil pipeline, the Norpipe line from Ekofisk to Teesside in the United Kingdom, and it began exploring for oil and gas. The first two gas pipelines, Ekofisk-Emden and Frigg-St. Fergus, were commissioned in 1977 and offshore oil loading began in 1979 on Statfjord. In 1978 an ethylene plant, jointly owned by Statoil (49 percent) and Norsk Hydro, was built at Rafnes in eastern Norway. Close by were Statoil's plants that produced polyethylene and polypropylene. Polyethylene was used in the making of products such as film, packaging, and cable insulation, while polypropylene went into medical equipment, car parts, and pipes, among many other products.
During these years the Norwegian oil industry contributed to the growth of industries such as shipping and chemicals, as the leading companies in these sectors speculated in the new industry, but at the same time Norwegian manufacturing was badly affected by a slowdown in growth. Between 1975 and 1980 the Norwegian government required foreign oil companies to engage in industrial cooperative projects as a means of qualifying for license awards. Many of these projects were in non-oil sectors.
Expansion and Exploration in the 1980s and Early 1990s
The 1980s provided Norway with increased wealth from its oil revenues, but because of the growing burden of foreign loans and the inflationary effects of oil on its other industries, the economy as a whole became less competitive. The foreign loans were needed for the continuing costs of foreign technical expertise and exploration. It remained an important policy to stimulate Norwegian industry generally through subcontracts with the oil industry.
In 1981 Statoil, with its competitors Saga and Norsk Hydro as co-owners, began to operate in the Gullfaks field, the first time that a field was owned 100 percent by Norwegian interests. Production started in Gullfaks in 1987. Statoil also decided to lay a pipeline, the Statpipe, a transport and process system for gas, from the Statfjord, Gullfaks, and Heimdal fields across the Norwegian Trench to shore. The Statpipe system came onstream in 1985, with 830 kilometers of pipeline on the sea floor at depths down to 330 meters. In 1984 it was decided to lay another pipeline to land crude from the Oseberg field at Sture near Bergen.
A Conservative-led government made some important changes in Statoil's powers and conditions in 1984. It was decided that all gross income from each field would go directly into the Treasury instead of through the usual taxes and dividends. Voting procedures were to be changed in all licensee groups. Statoil lost its automatic right to veto its partners' proposals, on licenses where it held a stake of 50 percent or more. To exercise this veto it would have to obtain the consent of the Oil Ministry. It was at this time that Norway decided to aim toward bringing the management of oil production in some fields entirely under Statoil's control, rather than subcontracting to foreign companies. In late 1984 Statoil reached an agreement with Mobil under which Statoil would take over as operator of the huge Anglo-Norwegian Statfjord field by 1989 at the latest. Norway was moving away from its dependence on foreign oil. The operation of Statfjord, the largest offshore oil and gas field in the world, passed over to Statoil in 1987.
While expanding its own operations Statoil recognized the advantages of retaining a prominent position within the industry as a whole, at home and abroad. Thus in 1986 it took the lead in negotiations on behalf of a group of companies for the selling of gas from two fields, Troll and Sleipner, to other European countries. Troll, in which Statoil had a 74.6 percent share, was one of the largest offshore gas fields in the world. It was under the operatorship of Royal Dutch/Shell, which had an 8.3 percent share in it, with Statoil taking over as operator when the fields came onstream in 1996. Statoil's share in the Sleipner field was 49.6 percent and its gas was due to come onstream in 1993. A pipeline system, known as the Zeepipe, was being built from these fields to Zeebrugge in Belgium. Statoil planned to construct and operate the pipeline and the reception terminal at Zeebrugge, where any solid or liquid components would be removed from the dry gas.
By 1985 Statoil had established itself as the largest industrial company in Norway, accounting for as much as 10 percent of gross national product and a similar proportion of government revenue. As it developed it began to look abroad for acquisitions as well as markets. Its first foreign acquisition was Exxon's Swedish oil retailing and petrochemicals operation, in 1985. The petrochemicals subsidiary, renamed Statoil Petrokemi AB, used naphtha, propane, and butane as its raw materials and its main products were ethylene and propylene. Statoil Petrokemi expanded and modernized its plant, creating one of the most advanced petrochemicals facilities in Europe. In 1986 Statoil purchased Exxon's oil products marketing company in Denmark and its Kalundborg refinery. It also bought a West German factory, which produced plastic for car bumpers and cable insulation. This was seen as an important investment for Statoil because it increased its capacity to process the plastic resins made at its petrochemical plant in Rafnes, in eastern Norway. Statoil was now able to offer more than 70 different grades of plastics.
Statoil experienced its worst political and financial difficulties in 1987, starting with a drastic fall in profits as a result of the worldwide collapse in the price of oil in 1986. Politicians opposed to its economic and social power began to complain about its secretiveness and its closeness to the Labour Party establishment, as symbolized by the company's president, Arve Johnsen, who had been a government minister before joining Statoil. Then an official investigation revealed that cost overruns on the Mongstad refinery project had reached about NKr 5.4 billion ($850 million) and concluded that the refinery would never be profitable. At first the oil minister rejected opponents' claims that the report showed Statoil's management was overstretched in relation to the number of projects in which the company was involved. Amid allegations that the losses had been concealed deliberately, the company's six directors resigned and Johnsen too resigned. The government appointed a new board, however, to take up the challenge of expanding and diversifying Statoil's operations further.
Statoil now had a retail distribution network in all three Scandinavian countries. The government had originally forbidden Statoil to get involved in distribution, which was thought to be better handled by the multinationals. In 1991 Statoil's Norwegian marketing affiliate, Norsk Olje AS, an oil retail firm with 650 outlets throughout Norway, was renamed Statoil Norge AS and started using Statoil livery in its marketing. By then Statoil had a total of 1,600 retail outlets in Norway, Sweden, and Denmark.
Statoil had a better year in 1988 than in 1987. Statoil became sole owner of the Norwegian petrochemical plants that it had been operating since 1984 in conjunction with Norsk Hydro. This subsidiary was renamed Statoil Bamble, in reference to its main plant at Bamble, in southern Norway, which had come into operation in 1978-79 and had become the largest center for plastics technology in Norway. In the same year the Tommeliten field began producing oil without the platforms that were the standard technology in oilfields, by using equipment placed on the seabed and connected to the Edda platform on the Ekofisk field.
The Mongstad refinery, which had been the focus of Statoil's troubles in 1987, was started up again in 1989. Two more oil platforms, Veslefrikk and Gullfaks C, came onstream. The Veslefrikk was the first floating production platform after being in the Norwegian sector of the North Sea, while the Gullfaks C platform, which stood in 220 meters of water, was the world's largest production platform. Its total height of about 380 meters made it 30 meters taller than the Eiffel Tower.
In 1990 Statoil expanded its interests into new Danish technology. Its subsidiary Dansk Bioprotein sought to use bacteria to convert natural gas into edible protein, to be used as an additive in animal and fish feeds.
As Statoil looked for new international markets, it joined forces with BP to explore for oil in West Africa, Vietnam, China, and the Soviet Union. It also held exploration and production interests in The Netherlands and a 10 percent stake in a Chinese offshore license. In 1991 it made an oil discovery in the Danish sector of the North Sea. The following year Statoil expanded into Ireland with the purchase of BP's service stations. The Sleipner field came onstream in 1993 as planned.
Continued Growth and Growing Pains: Mid- to Late 1990s
Moving into the mid-1990s Statoil remained focused on the North Sea as its primary area of exploration. Exploration of new regions off mid-Norway in the Norwegian Sea was planned as well as development of existing fields. The East Statfjord field went onstream in late 1994, and the North Statfjord subsea oilfield went onstream in early 1995. Reserves at North Statfjord were estimated at 170 million barrels of oil, and Statoil hoped to produce 300 million barrels of oil between North and East Statfjord.
Diversification was also a component of Statoil's business strategy, and in 1994 the company formed a joint venture with rival Neste of Finland to produce petrochemicals and polyolefins. The terms of the agreement called for Neste to provide its technology and chemical assets while Statoil contributed funding and ethane from its North Sea ventures. The resulting joint venture, named Borealis, was based in Copenhagen, Denmark, and became the top producer of polyolefins in Europe. With operations across Europe, Borealis was off to a promising start--after one year in operation, the company reported sales of $2.6 billion.
Many of Statoil's projects went into operation in the 1990s, including the Europipe gas trunkline to Germany, the Troll gas project in the North Sea, Lufeng off China, Azerbaijan's Azeri-Chirag, and Norne in Norway. In 1998 the Franpipe gas trunkline went onstream. Aggressive exploration continued, and Statoil made new deepwater discoveries off Angola, an area that held much promise. By the late 1990s Statoil, which originally focused efforts solely on the Norwegian shelf, had operations in eight countries including Norway.
Strategic acquisitions also carried on. In 1994 Statoil made significant headway into the U.S. energy market with the purchase of The Eastern Group, based in Virginia. This U.S. subsidiary became Statoil Energy Inc. and focused on exploration and production of natural gas. Between 1994 and 1998 the company grew rapidly through 18 acquisitions, and in 1998 Statoil Energy reported revenues of $3.6 billion. Other Statoil acquisitions included Aran Energy, which held interests in fields off Ireland and the United Kingdom, and the Blazer properties in the Appalachian basin in the United States.
Although the company's holdings grew significantly in the 1990s, its revenues did not. Low oil prices plagued the entire industry, and in 1998 Statoil reported a net income of NKr 1.64 billion on sales of NKr 114 billion, a decrease from the previous year's net income of NKr 6.5 billion on sales of NKr 134 billion. Statoil faced other hurdles as well; in 1997 BP and Amoco merged, which necessitated the severing of the partnership between Statoil and BP.
As the end of the decade approached, Statoil began oil production from Asgard in the Norwegian Sea, a subsea field. Asgard field's reserves were estimated to hold more than two billion barrels of oil equivalent (boe). The ambitious project, which had a purported budget of $3.67 billion, included the construction of a new gas pipeline, an oil transport tanker, a storage and production vessel for oil, and the development of three fields. In 2000 gas production began from Asgard B, and the Asgard gas pipeline to Karsto began operation. Upon completion, the gas pipelines would transport gas not only from Asgard but from the Norne, Heidrun, and Draugen fields as well. Statoil estimated the system would handle some 15 percent of Norway's total gas exports to Europe.
Major Changes at the Beginning of the 21st Century
Facing the new millennium, Statoil saw the need for a radical overhaul of its business strategies and implemented a major restructuring effort. Olav Fjell, who joined Statoil as CEO in 1999, explained that for the company to remain successful in an increasingly competitive and volatile climate, it needed to make significant changes. Mergers and acquisitions of major players in the oil and gas industry, deregulation of European markets, and maturation of oilfields on the Norwegian shelf were all factors Statoil needed to take into consideration. Privatization of part of Statoil, Fjell believed, was necessary for Statoil's success. Speaking at a conference of the Cambridge Energy Research Associates in 2000, Fjell noted, "Statoil has to be able to compete on equal terms with its major competitors, in Norway and in the international markets, by being more flexible and reacting faster. Therefore, we must expose Statoil fully to market challenges." On June 18, 2001, shares of Statoil were listed on the Oslo Stock Exchange and New York Stock Exchange. The company also officially changed its name to Statoil ASA.
Statoil barreled ahead with expansion and exploration, and in 2002 it commenced construction of the Snohvit project, a subsea development in the Barents Sea, located on the Norwegian shelf. The project, Statoil's most complex to date, entailed the drilling of 21 wells from the Snohvit, Askeladd, and Albatross fields. The three fields held an estimated 193 billion cubic meters of natural gas. Statoil, the development's operator, held a 22.29 percent interest in the project. Partners included Petoro AS, TotalFinaElf Exploration Norge AS, Gaz de France Norge AS, Norsk Hydro Produksjon AS, and others.
As Statoil celebrated its 30th anniversary, the company gained a stronger presence in Iran when the Iranian government agreed to allow Statoil to develop several phases of Iran's South Pars gas and condensate field. In early 2003 Statoil was named operator of gas sales for the Shah Deniz gas and condensate field in Azerbaijan. The deal also included operation of the South Caucasus pipeline system, which funneled gas to Georgia and Turkey in addition to Azerbaijan. Further, Statoil was in talks with Russian companies regarding further exploration of the Barents Sea.
Net income rose from NKr 6.4 billion ($714,301) on sales of NKr 149.6 billion ($16.67 million) in 1999 to NKr 16.15 billion ($1.8 million) on sales of NKr 229.8 billion ($35.6 million) in 2000. Oil and gas production rose 7 percent in 2002 over 2001, but Statoil reported a slightly lower net income--NKr 16.8 billion in 2002 and NKr 17.3 billion in 2001.
Statoil entered 2003 with confidence and optimism, but in September the company found itself embroiled in a major corruption scandal. Statoil was accused of paying off Iranian consultants to help secure business deals in Iran. Statoil allegedly signed an 11-year contract in 2002 with Iranian consultancy firm Horton Investments and paid the firm $15.2 million. The consultancy was said to have ties to the NIOC, the Iranian national oil group. Norwegian police raided Statoil's headquarters as part of an investigation. As a result of the scandal, both Statoil Chairman Leif Terje Loeddesoel and CEO Fjell resigned. Newly appointed Chairman Jannik Lindbaek quickly hired U.S. firm Ernst & Young to review all of Statoil's international consultancy contracts. Inge K. Hansen was named acting CEO.
Despite the scandal, Statoil forged ahead, and finances were, for the most part, unaffected. For the nine months ended September 30, 2003, the company reported sales of Nkr 183.98 billion, up 3 percent over the same period of 2002. Net income fell slightly to NKr 12.27 billion. The company entered discussions with Russian company Gazprom over the Shtokman gas field, among the world's largest fields and located in the Barents Sea. Statoil began transporting gas from the Mikkel gas and condensate field in the Norwegian Sea and the Vigdis Extension came onstream. In addition, the company signed a contract with British Gas Trading to deliver gas to the United Kingdom for three years.
At the close of 2003 Statoil announced that it would enter a joint venture to develop and operate a 740-mile pipeline from Ormen Lange, the second largest gas field in Norway, to the United Kingdom. Statoil would have a 14.95 percent stake in the joint venture, known as Langeled. The pipeline was set to begin construction in 2005 and would be the longest subsea pipeline in the world, costing an estimated $2.9 billion.
Statoil hoped to put the corruption scandal behind and move forward as a major player in the oil and gas industry. With its Norwegian Sea assets reaching a plateau, Statoil planned to strengthen and expand its foreign investments in the 2000s. The company was well on its way, having operations in 25 countries by the end of 2003.
Principal Subsidiaries: Statoil Norge AS; Statoil Danmark A/S (Denmark); Statoil AB (Sweden); Statoil (U.K.) Limited (U.K.); Statoil North America Inc. (U.S.A.); Statoil Apsheron AS; Statoil Nigeria AS; Statoil Coordination Center N.V. (Belgium); Statoil Venezuela AS; Statoil Sincor AS; Statoil Investments Ireland Ltd. (Ireland); Statoil Forsikring AS; Statoil Exploration (Ireland) Ltd.; Statoil (Orient) Inc. (Switzerland); Statoil Pernis Invest AS; Mongstad Refining DA (79%); Statoil Metanol ANS (82%); Statoil Angola Block 17AS; Statoil Dublin Bay AS.
Principal Competitors: BP p.l.c.; Royal Dutch/Shell Group of Companies; TOTAL S.A.
- Key Dates:
- 1972: Den Norske Stats Oljeselskap AS is formed as a state corporation.
- 1975: Statoil commissions its first subsea oil pipeline and begins exploring for oil and gas.
- 1981: Statoil commences operations in the Gullfaks field.
- 1985: Statoil makes its first foreign acquisition with the purchase of Exxon's Swedish oil retailing and petrochemicals operation; the subsidiary is renamed Statoil Petrokemi AB.
- 1992: Statoil enters the Irish gas market through the purchase of BP's service stations in Ireland.
- 1994: Statoil and Neste join forces to form Borealis, a petrochemicals company.
- 2001: The company changes its name to Statoil ASA and is listed on the Oslo and New York stock exchanges.
- 2003: Statoil's CEO and chairman both resign as a result of a corruption scandal.
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