Local Content_Farouk Al-Kasim

8/12/2019 Local Content_Farouk Al-Kasim

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LESSONSFROMTHE

NORWEGIANEXPERIENCE

By FaroukAlKasim

NEW ZEALAND PETROLEUM CONFERENCESeptember - 010

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INTRODUCTION

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TotalRecoverableResources = 81.1BBOE

Remaining byendof2009 = 51.0BBOE

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1.57billionbblequiv./year4,000,000bbl/day

PROJ

ECTED

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Norwaysmanagementofthepetroleumsector

hasbeen

admired

mainly

because

it:

1.

Masteredtheoffshorechallenges.

2.

Managedtoprotecttheenvironment.

3.

AvoidedtheOILCURSE.

4. Maintained

growth

in

non

oil

sectors

of

the

economy

5.

Developedworldclassoffshoreindustry.

6.

Improvedoilrecovery(30%to45%).

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Some major factors behind the

success: Richhydropowerresources.

Norwaywaswelldevelopedbeforeoil.It

had: Efficientgovernance.

Socialdemocratic

culture.

Homogeneoussociety.

Welldevelopedinstitutions.

Highlevel

education

and

research.

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2. SALIENTFEATURESINTHE

NORWEGIANAPPROACH

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1. ConsensusonNationalSteering

2. GovernmentLicenseePartnership

3.

LicensingPolicy

4. CompetitionandDiversityamonglicensees

5. StatePetroleumAdministration

6.

Development

of

National

Expertise

7. NationalParticipationandLocalContent

8. HSEMonitoringSystem

9. DataManagement

10.ImprovedResourceEfficiency

11.RevenueManagement

12.SUMMARY

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Earlypoliticalconsensusonfullnational

controlonthetempoanddirectionof

petroleumactivities:

Objective:

AVOID

THE

OILCURSE.

Politicalparties

agreed

to

keep

Oil

out

of

electioncampaigns.Theyhavekepttheir

word.Sofar.

Slowlicensingin70stoprotectnonoil

enterprises.

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PartnershipbetweenIndustryandStateisatraditionin

Norway.

NorthSeachallengesemphasisedneedforpartnership

Indesigningthefiscalterms,governmentwaskeento

provideinvestorswith:

Securerecoveryofinvestment,plus:

Adequaterewardsreflectinginvestmentrisk.

Governmentretainedmostofthewindfallprofitwhen

prices

went

up.

High

state

participation

and

taxationmakesgovernmentbeartherisk.

TotalGovernmentTakeincludingprofitonstate

participationreaches

up

to

80%.

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Thestateplaysaproactiveroleinpromotingexploration.

Licensingisbaseduponopenandcompetitivebidding.

There

are

no

bonuses

in

Norway

because: Bonusesareoftendeductiblefromincome.Theyarevirtuallyloans

thatreducefundsavailableforexplorationandfielddevelopment.

ExcessivebonusescanalsodilutetheGovernmentsmoralauthorityastheregulator.

Thefrequencyandresourcecontentoflicensingroundsregulatethetempoandthegeographicspreadofactivities.

Gradual expansionofexplorationareashelpsimprovelicensing

terms

and

discovery

rates

in

subsequent

licence

rounds.

Fewblocksatatime.Notalleggsinonebasket..

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Competitionhelpsimprovelicensingtermsinanyroundand

alsotheefficiencyofoperationsingeneral.

EachLicence

Group

contains

3to

5co

licensees.

ColicenseesandoperatorareselectedbytheMinistry.

Rigorousscreeningeliminatesnonqualifiedapplicants.

Diversityhelpsovercometechnologicalchallengesandalso

assiststheREGULATORbyhavingmostrelevantoptions

investigatedbyvariouscolicenseeswithinlicensegroups.

In1985theParliamentreducedStatoilsdominanceinorder

torestorebalancetovotingrightsthusprotectingdiversity.

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MINISTRY

DIRECTORATE

IOC -1 IOC - 2

NOC

IOC - 3 IOC - 4

POLICY

REGULATOR

Statoil: 67%ownedbytheStatePetoro:

100%ownedbytheState

Gasco:

100%ownedbytheState

ADMINISTRATIVESEPARATIONADMINISTRATIVESEPARATION

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Whyisthemodelsuccessful?

Separationofadministrativetasksfrom

commercialinterestsofgovernmentis

essentialfor

ensuring:

a)

Dedicated,unbiasedandprofessionalregulator.

b)

Equalandfairtreatmentofallstakeholdersincludingnationals.

c)

Effectivecooperationbetweengovernmentandcompanies.

d)

Effectivecooperationbetweennationalandinternationalfirms.

e)

Accountabilityforallplayers.

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Inthemid70soilcompanieswereaskedtocontributetothe

developmentof

national

expertise.

Not

only

within

oil.

Oilcompanieshelpedacceleratetechnologicaldevelopment.

Qualityresearch

at

low

cost

impressed

the

oil

companies.

Norwegianacademicandindustrialinstitutionsweresoon

operatingat

the

forefront

of

petroleum

technologies.

Today,theoffshoreindustryprovideshighexportrevenues.

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Objectivesof

national

participation

are:

1.

EnhancenationalcontrolwithinLicenceGroups

2. Increasethenationalshareofprofits.3.

SpendingofcapitalandoperationalcostsinNorway

maximisesbenefit.

4.

Supportemploymentandindustrialdevelopment.

5.

Stimulatetechnologicaldevelopmentandknowhow.

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PARTICIPATIONASINVESTOR

From1970,

national

participation

at

aminimum

of

50%.

3nationalcompaniesownedover33%ofthelicenceshares.Statoil

hastodayadominantrolebut23%ofitssharesareprivate.

Petorois100%governmentowned.Itholdsthestatesdirect

participationsharesandsendsprofitsdirectlytotheTreasury.

LOCALCONTENT

Norwayencouraged

the

development

of

acompetent

local

content.

Theultimateaimof70%ofdeliverieswaspartlymetinearly80s.

Astateoftheartoffshoreindustrywasthusdevelopedwithin10yrs

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The"InternalControlprinciplemeansthatthelicensees

areresponsible

for

maintaining

the

governments

standards

forHSEbydevelopingtheirowncodesandprocedures.

Theauthorities'

role

is

therefore

to

ensure

that:

a)

Operators'codesandproceduresareadequateformeetingthe

objectivessetoutbygovernment,and

b)

Auditsconductedbytheregulatoryauthorityensurethatoperators

adheretotheirsowncodesandprocedures.

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Throughpositivepartnershiptheoilcompaniesandtheauthoritieshaveworkedtogetherto: Achieve

ahigh

discovery

rate. >

RESOURCES

Increasedevelopmentofdiscoveredresources. >RESERVES Increaserecoveryfromproducingreservoirs. >IOR

Averageoilrecoverywasincreasedfromworldaverageof

30%to

45

%.

This

implies

improvement

in

both

production

profilesandultimaterecovery.

Licensee/governmentcooperationalsocoveredjointresearchprojects,pilotproductionschemesandcontinual

consultationson

improved

recovery.

Jointresearchprojectswerealsoconductedonotherimportantpioneeringprojects.

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HowdidNorwaymanagetoavoidthe OILCURSE? White

Paper

No.25

of

1974

warned

the

nation

against

the

Oil

Curse.

Slowlicensinginthe70sallowedtheeconomytoadjustgradually.

From1990,theOilFund(NowcalledthePensionFund)insulatedoil

revenuefrom

national

spending.

The

Fund

can

only

invest

abroad.

TheFundalsoprovidesacushionagainstsuddendropinoilprices.

LocalcontentdevelopmentledtotheexportofNorwegianOffshore

Servicesand

Equipment

on

asustainable

basis.

Governmentmonetarypoliciessucceededinmaintaininggrowthin

nonoilsectorsoftheeconomy.

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1.

Wouldpoliticalconsensusonfundamentalaspectsofpetroleum

policyhelpgainthelongtermconfidenceofinvestors?Isitpossible?

2.

Howdowecreateamodeofproactivecollaborationbetweengovernmentandinvestorsinexplorationandfielddevelopment?

3.

Isdiversityoflicenseesapracticethatneedstobeconsidered?

4.

HasNewZealandtriedorganisingextensiveseismicsurveysin

selectedbasinsjointlywithoilcompanies?Or,alternatively

speculativeSurveys.

5.

Isthegovernmentwillingtoparticipateinthegassectorinorderto

providelongtermconfidenceamonginvestors?

6.

Doesgovernmenttaketheleadindevelopingthegasinfrastructure

andinoptimisingitsutilisation.WhataboutfacilitatingThird

Party

Access?

7. Has

a

common

data

bank

been

established

that

would

facilitate

communicationandexperiencesharingamongallstakeholders?

8.

IsthereascopeforIOR?Isthereastrategyforachievingthe

objectives?

9. Is

there

a

clear

policy

for

the

utilisation

of

petroleum

revenue that

secureslonglastingbenefitforthenation?

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