STATOIL NORWAY

Committed to accommodating the world's energy needs in a

responsible manner, applying technology and creating
innovative business solutions. Building on more than 35 years
of experience from oil and gas production on the Norwegian
continental shelf.

MINORITY REPORT
Jimmy Lozano, Asim Hussain, Hassan Qureshi,
Bonny Nguyen, Duvan Forero, Andy Cheung

Agenda

About Norway
About Statoil
Ownership
Relationship w/ State
Governance
Operating Segments
Products
Marketing
Technology & Operations
Strategy & Behavior
Financial Performance
Keys to Success
Resource Curse
Conclusion

History
1959: Oil discovered at
Groningen
1962: Phillips Petroleum applies
to explore Application rejected

1963: Norways government

creates legal and regulatory
framework
1965: Government clarifies how
to divide NCS with Denmark and
Great Britain

1972: Statoil created Timing

allowed for government to
avoid geological risk
1985: State participation in oil
reorganized by conservative
party
1990s: Expand internationally to
Ireland, China, Angola
2001: Statoil listed on NYSE

and Oslo SE

About Norway
Not a member of Organization of the Petroleum Exporting Countries (OPEC)
or the EU
Member of the International Energy Agency (200709), the World Trade
Organization, and the Kyoto Protocol.
Benefits from political stability, a solid currency (kroner), and a good, albeit
slow-growing economy. It is ranked fifth in the world in terms of GDP per
capita ($58,600)
Because of the relatively small size of the Norwegian economy,
hydrocarbons dominate the budget and macro-indicators, accounting for 35
percent of state revenues and 25 percent of GDP
Norway has adopted policies to avoid macroeconomic distortions resulting
from an oil-based economy, and is often cited as example of success in
dealing with the resource curse

About Statoil

Founded in 1972 as the national oil company (NOC) of Norway

Operates in 36 countries
Involved in exploration, drilling, transport, refining, and marketing
13th largest oil and gas company;
largest company in Nordic region by revenue and profit
80% of Norways oil and gas production
Alliance with BP
One of the major suppliers of natural gas to the European market
One of the world's biggest sellers of crude oil.
Became StatoilHydro in 2007 and Recerted to the Statoil in
November 2009
50% of employees work outside Norway /Workforce consists of
nationals as well as foreigners

Ownership
1972: Statoil 100 % government owned.
2001: Parliament approved its partial privatization with
the sale of 19.2 % of Statoil
Current: Over the years parliament allowed a further
reduction in state ownership down to 67 %

Relationship w/ State
A balance act for politicians to support Statoil while containing its
power in the government.
In 1981, Statoils balance sheet was split into 2, created States
Direct Financial Interest (SDFI) to decrease its cash flow.
Lost ability to veto over field decisions in the licensing group.
Mongstad debacle led to Johnsens resignation in 1988 and
ultimately ended the strong influence Statoil has in politics.

Relationship w/ State (cont.)

New CEO Norviks strategy is to developing a more arms
length relationship with the government.
Need to effectively compete with IOC abroad
Stronger relationship between employee and Statoil vs
government improve performance

Strong relationship with government limits the

companys freedom.

Relationship w/ State (cont.)

Today, more corporate like than state-own NOC.
Minimal interference from government in operational
decisions.

Governance
Strong: The roles and responsibilities of the shareholders, the board of
directors, and Statoils management are clearly defined
Independent: A nomination committee, whose members are elected by the
shareholders for a term of two years, is independent of both the board and
the companys management
The board: composed of 11 members, of which 8 are independent
Audit: The NOCs external auditor is independent in relation to the
companys management and is elected by the annual general meeting

Norwegian Model
The Norwegian model of petroleum management features the separation of
responsibilities among:
Ministry of Petroleum and Energy (MPE), oversees the states ownership interests in
petroleum activities
Norwegian Petroleum Directorate (NPD), the regulator, whose mission is to create
the greatest possible values for society from the oil and gas activities
Petoro AS, a wholly state-owned company established in 2001, which is responsible
for the commercial aspects related to the states direct involvement in petroleum
activities on the NCS, and associated business.
Gassco, a wholly state-owned company established in 2001, which is responsible for
transporting Norwegian gas to continental Europe and the United Kingdom.
Statoil, an integrated oil company in which the state is the majority shareholder

Operating Segments
Upstream: Exploration and production dominates the companys
long term asset base. After initially operating only within the NCS,
Statoil moved to international territory in order to expand its
growth in E&P and focus on natural gas
Midstream: Natural gas segments transports, processes, and sells
natural gas from Statoils operations in Norway and internationally
Downstream: Statoils downstream activities include sales and
trading, refining, methanol production, and retail and industrial
marketing of oil

Upstream Global Footprint

Products
Oil
Crude Oil and NGLs from Norwegian Continental Shelf (NCS) ~ 42 Statoil
operated assets.
Development & Production International (DPI) responsible for all
development and production of oil and gas outside the NCS.

Gas
The Arctic gas is sent ashore through a 143-kilometre-long pipeline to
Melkya
Gas from Caspian Sea - Statoil has a significant position in the Azerbaijani
gas industry through its 25.5 per cent interest in the Shah Deniz gas field.
Operate shared shale gas and gas liquids assets with Canadian joint
venture partner Talisman on the Eagle Ford formation in 2013.
Active partnership with Chesapeake Energy in the Marcellus formation in
several states in the United States' north-east.

Products (cont.)
Renewable
One of the largest offshore wind farms in the UK, Sheringham
Shoal, was formally opened in September 2012.
The Norwegian government and Statoil are planning a full-scale
post combustion carbon dioxide capture project in conjunction
with the combined heat and power (CHP) station at Mongstad.

Statoil Fuel & Retail (SFR)

Downstream
SFR is a road transportation fuel retailer with a presence in eight
countries across Scandinavia and central and eastern Europe.
SFR was established in May 2010 as a separate legal entity within
the Statoil group. In October 2010, Statoil transferred all activities
relating to the fuel and retail business to SFR.

Marketing
Marketing, Processing and Renewable Energy (MPR) is responsible
for the marketing and trading of crude oil, natural gas, liquids and
refined products, for transportation and processing, and for
developing business opportunities in renewables.

Technology Development
Developing resources on the NCS was technologically challenging
from the start
Innovations in platform technology were required in order to
address the harsh conditions of the North Sea
A longtime interest of Statoil have been projects that push the
envelope of technology in response to increasingly harsh conditions
as developments have moved into deeper water and further North

Allowed for petroleum and political advantages

Share knowledge and investment risk to accelerate companys
international efforts with experienced partners (BP Alliance)

Operations Development
The Norwegian petroleum policy created a knowledge base
obtained from IOCs from the start of developing the Norwegian
Continental Shelf (NCS)
Public policy facilitated the early development of Statoil by removing
exploration and discovery risk
After the acquisition of Norsk Hydro in 2007, Statoil focused on the
internationalization of upstream operations

The Statoil-BP Alliance allowed the company to be successful in the

rapid expansion of the world stage

Financial Performance 2004-2008

Statoils financial performance falls short of the average NOC performance

recorded.
This reflects the maturity of Statoils portfolio, as well as possible
adjustment costs following the merger with Hydro in 2006.

Net cash flow to capital expenditure sharply declined after the 2006 merger,
mainly due to the large and ambitious internally funded capital expenditure
program initiated by the NOC.

Financial Performance 2009-2013

Financial Performance State

Revenue

The Norwegian government derives revenues from 3 major sources:

Taxes and fees paid by oil companies, the governments share through
its SDFI holdings and dividends from Statoil

Financial Performance Statoil

Strategy & Behavior

Control: Norway's policy orientation from the start was focused on
maintaining control over the oil sector, as opposed to simply maximizing
revenue. As a result, the country was more concerned with understanding
and mitigating the possible negative ramifications of oil wealth than with
any special advantage that could be gained from it
Knowledge: Civil servants gained knowledge of petroleum to regulate the
sector through systematic efforts to build up their own independent
competence, enabling them to productively steer the political discourse on
petroleum management after the first commercial oil discovery was made.
Competition: Robust contestation between socialist and conservative
political parties also helped contribute to a system of oil administration that
supported competition and was able to evolve new checks and balances as
needed

Strategy & Behavior (Cont.)

Development: Statoil did play an important role in contributing to the
development of Norwegian industry and technological capability, in large
part because it had the freedom to take a long-term approach to technology
development.
Innovation: With a strong engineering orientation and few consequences
for failure as a fully state-backed company, Statoil developed a culture
valuing innovation over development of a lean, commercially-oriented
organization. The focus on innovation contributed to significant
technological breakthroughs and helped spur the development of a highvalue-added domestic industry in oil

Strategy & Behavior (Cont.)

Maturity: The formal relationship between Statoil and the government has
become more arm's-length as Norway's resources and oil expertise have
matured. Under its first CEO, Statoil aggressively flexed its political muscles
to gain special advantages in licensing and access to acreage. As domestic
resources began to mature, Statoil's leadership focused more on forging an
independent corporate identity and governance structure that would allow
the company to compete effectively abroad.
Connected: The effect of residual ties effect is magnified by Norway's small
size and Statoil's importance within it as the largest petroleum developer.
Areas of impact are:
The effect on policy decisions of direct personal connections between Statoil
leaders and politicians.
Persistent "Norway-centric" influences on Statoil's strategy even in the larger
context of efforts to internationalize
Public pressure from politicians who continue to see themselves as Statoil's
masters.

Strategy & Behavior (Cont.)

Government restrictions on entry: Major development projects or
issues of principle must be considered and approved by the Storting.
The oil and gas market is highly regulated. Statoil has competitive
advantage as a state owned company.
Economies of scale:Benefit from producing on a large scale, which
means that the average cost of one barrel is lower. Statoil is actively
involved in the direct trade sector, delivering large quantities.

Keys to Success
Change: successfully adapted to changes in the market outlook, trends in the
regulation of the petroleum sector, and the relative importance and shifting of
relationships between the NOC and private oil companies.
Success: Statoil is an example of a successful NOC, it has benefited from the backing
of the state and the privileges afforded to it. With the states support, the NOC has
been able to focus on its core business, to develop knowledge and expertise, and to
realize strategic investments in technologies
Strategy: The government decisions to open the petroleum sector to private
investors, and eventually to revoke the NOCs state privileges, were far-sighted policy
measures. By partnering with experienced international operators the NOC was able
to:
(i) Accelerate its learning curve,
(ii) Develop a portfolio of assets without having to take the exploration risk
(iii) Benchmark its performance with private companies.

When its privileges were revoked, the NOC had to find its place in the market, but by
then it had the size, strength, and knowledge to do so.

Summary
For at least a decade after its establishment, Statoil could count on
the extensive privileges granted to it by the state, which allowed it
to build its expertise and asset base without taking the exploration
and development risk. Indeed the governments aim was to create a
strong NOC

The NOC strategy evolved over time adapting to changing geological,

economic, and political conditions
Statoil played an important role in contributing to the development
of Norwegian industry and technological capability.

Summary (Cont.)
Strong engineering orientation and few consequences for failure as a
fully state-backed company, Statoil developed a culture valuing
innovation over development of a lean commercially oriented
organization
Innovation contributed to significant technological breakthroughs
and helped spur the development of a high-value-added domestic
industry in oil services

Conclusion
Statoil is heavily affected by domestic politics and in turn has a
heavy impact on Norwegian domestic politics and foreign policy
The goals, strategies, and behaviors of Statoil, as an NOC, will
change over time in order to further its growth in a maturing
resource base
The future organization and operation of Statoil will advance in an
efficient manner as the countrys oil and gas sector matures
Statoil has a commitment to advance abroad, develop existing fields,
satellite fields, and application of enhanced recovery technologies

Questions?

Avoiding the Resource Curse

Policy focus on long-term wealth management
Awareness of resource curse
Successful transition from infant industry

Limited non-commercial policy interference in Statoils

operations
Manage to keep Statoil free from political entanglements
Statoil is relatively professional

Allows for some competition to add efficiency