Commentary, 11/12 2005

Published Dec 7, 2005
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Reality Check
It is good to remember that in any modern government, a ministerial posting is a reflection of a parliament’s will. A minister, in a relationship not unlike a CEO and a board of directors, is responsible for carrying out the policies of the majority of a parliament (although most CEOs probably have more latitude in doing their jobs).

The recent example of Iran’s parliament rejecting three nominees for oil minister put forward by Mahmoud Ahmadinejad may prove to have serious economic damage for the world’s fourth largest oil producer – the perception of instability can mean the loss of foreign investment and expertise. This example is extreme, but subtle, almost unnoticeable events can have consequences as well.

Norway’s newly elected Government has selected the new Petroleum and Energy Minister, Odd Roger Enoksen, without a hint of uncertainty and Mr. Enoksen dove into the job without hesitation. But the new coalition Government has raised a few eyebrows when it comes to oil and gas activities on the Norwegian Continental Shelf (NCS). The coalition includes parties whose political platforms run from “yes, if it’s environmentally friendly” to “no, never” on the issue of oil and gas activities in northern waters, especially in the Barents Sea.

Many felt that these northern waters could be frozen out – that the moratorium that had only recently been lifted could be put back in place. The industry waited to see what the new Government would do about the 19th licensing round. Would they “take back” some of the blocks?

The success of Statoil’s Snøhvit field as well as the investments made at Melkøya are only the beginning – Russia’s Shtokman field, estimated to contain gas reserves of 3.2 trillion cubic metres, is a strong incentive to expand Norwegian activities. The Barents’ potential profitability is too interesting to ignore.

Likewise, Norwegians were “early-adopters” of high petroleum industry taxes, although more and more oil nations are increasing their cut of oil profits. The profits from Norway’s oil adventure have done much to improve life in the country. During the election, the new Government made its share of promises, promises that require capital to carry out. In a very real sense, the new Government cannot afford to shut down activities in the north.

In an effort to appeal to many of their supporters, the new Government has proposed an increase in the funding for energy research by NOK 15 million in the 2006 budget. “The Government’s vision is that Norway shall be an environmentally friendly energy nation and world leading when it comes to development of environmentally friendly energy,” says Minister Enoksen. This kind of investment in the future is admirable, yet the money must come from somewhere. More oil and gas produced means more cash in the oil fund to fund such investments in the future as well as to fund contemporary needs.

So it appears that the efforts of the previous Government will continue. One goal of the previous ruling coalition was to attract small companies, the independents, to the NCS. And smaller actors are well represented among the twenty-four companies that bid in the 19th round.

But there are rumours are that new restrictions may be applied for those who are awarded acreage during the 19th licensing round. Some believe that, in the name of environmental protection, operators may be required to drill from large, expensive rigs rather than from drill ships. This sort of initial investment is something that can send the smaller companies packing. Unless a company has deep pockets, failing to find oil or gas after investing in a drill-rig lease can mean going out of business.

If the rumour proves to be true, the new Government would be subtly trying to have it both ways –appearing to be open to northern development while in fact limiting access.

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