Statoil Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The former Norwegian petroleum company, Den Norske Stats Oljeselskap AS, was founded on July 14, 1972, and operated as a private limited company wholly owned by the government of Norway after a unanimous act of parliament passed by the Norwegian Stortinget. It came about after the discovery of large deposits of offshore oil and the Norwegian government was keen to take part in exploitation of oil on its continental shelf. Its initial managing director was Arve Johnsen.

The theory of oilfields in the North Sea led to problems about how these might be exploited, but these were largely academic until December 1969 when Phillips Petroleum, an American independent company, was able to map out the Ekofisk field in the Norwegian sector of the North Sea. Phillips negotiated a flat 10 percent royalty fee from the government, plus taxes. Initially, the Norwegian government was not sure how to exploit this, but it founded Den Norske Stats Oljeselskap AS—known as Statoil—to do this, using the expertise of other oil companies that would be hired on a contractual basis. This kept the control—and also the profits—with the Norwegian government, a move that became more important with the discovery of other oilfields such as the Statfjord one, which was then estimated to have 2 billion barrels, soon after the mapping of the Ekofisk oilfield.

The other economic imperative driving the decisions by the Norwegian government was that the oilmen should be Norwegian. To proceed, they moved far slower than their British counterparts who sought to exploit their oilfields in the North Sea as quickly as they could. The British were keen for the oil to save them from having to import increasingly costly oil— the price having quadrupled—and were in a precarious financial position. The Norwegians, by contrast, with a much smaller population, recognized that they would become self-sufficient in oil by 1975. They were helped by the fact that, at that time, 55 percent of all power in the country came from hydroelectricity. Initially, most of the oilmen operating in Norway were foreign, but the Norwegian government introduced a program of systematic training, and by 1974, four out of five of the oilmen working in Norway or in Norwegian waters were Norwegian.

In August 1975, to ensure greater Norwegian control over the oil, the Norwegian government took over Norsk Braendesloje, a subsidiary of British Petroleum (BP) that was 50 percent owned by BP. This was then handed to Statoil to improve its control of the sector. Thus, by late 1975, Statoil controlled 75 percent of production from Ekofisk, and to help with the exploitation of Statfjord, became equal partners with Mobil. Statoil was also invested with control of 37 blocks of seabed on Norway’s continental shelf, each of which covered some 200 sq. mi. However, the strategic plan for the Norwegians was for Statoil to exploit an oilfield on its own. This became closer to reality when the Norwegian government, in October 1980, announced that an oilfield west of Bergen, with about 1 billion barrels of oil, was to be exploited by Statoil, which would have an 85 percent stake, Norsk Hydro a 9 percent stake, and Saga Petroleum a 6 percent stake.

There was further success for Statoil which, on July 15, 1981, reported that it had found large deposits of natural gas southwest of Stavanger, and that they hoped to start production there in 1986. In January 1988, Arve Johnsen stepped down as managing director, a post he had held for 15 years. He had been forced to resign two months after six government-appointed board members had also resigned after there had been massive cost overruns on the expansion of the Mongstad refinery. Indeed, in 1987 the company recorded a loss of $300 million, as against a profit in the previous year of $180 million. This led to the appointment of private sector economist Harald Norvik, who had headed the Astrup-Hoeyer construction company. Norvik introduced cost-cutting moves including reducing jobs as crude oil prices fell.

By 2004 the production of oil in Norway had leveled off at 3 million barrels a day, and fell progressively since then as no new oilfields were found. By this time much of the production by Statoil was concentrated near Stavanger. The problems that Statoil has faced with new exploration plans is that oil is believed to be at places such as the Lofoten Islands, off the northern part of Norway, in the Arctic Circle, close to the spawning ground of cod and where there are large seabird colonies.

There was also controversy for Statoil, which was seeking to expand operations in Iran, and some executives were involved in allegations of bribery, which saw a number of senior Statoil employees including the chief executive resign in September 2003. By this time, the Norwegian government no longer controlled Statoil. It had been privatized in 2001, and listed on the Oslo Stock Exchange and the New York Stock Exchange. In December 2006, plans were revealed by which Statoil was going to merge with the Norwegian conglomerate Norsk Hydro, and it did to form StatoilHydro on October 1, 2007, the world’s largest offshore oil and gas company. Exports of petroleum and gas remain the most significant exports from Norway, the wealth having transformed the country markedly in the last 30 years.

Bibliography:

Mark Arnold-Forster, “Norway’s Oil: A Treasure Deeply Buried,” New York Times (September 22, 1974);
Jad Mouawad, “Oil Explorers Searching Ever More Remote Areas,” New York Times (September 9, 2004);
“Norway to Begin Soviet Oil Talks,” New York Times (September 5, 1974);
Leonard B. Tennyson, “For Norway, Oil Means Slow Wealth,” New York Times (September 14, 1975).

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