ARENA Working Papers
WP 02/34


Statoil � between Nationalisation,

Globalisation and Europeanisation


Dag Harald Claes


In Norway Statoil has been a shining example of state regulation and participation in industrial and economic activities. The company was established as a operative and fully state owned company, and it soon entered into competition with the large international oil companies, the foremost symbol of international capitalism. From a pro-state perspective, Statoil�s role in the Norwegian petroleum sector was a success story during the seventies. As pointed out in the chapter the external (and internal) conditions were favourable during this decade. The paper then goes on to discuss why and how this state regulatory model was challenged from the early eighties and onwards. The challenges can all be related to different aspects of �globalisation�: spread of political ideology, volatility of commodity prices, the role of international organisation, and the changing structure of international industries and multinational companies. Although Statoil was partly privatised in 2001, the core elements of the model regulating the Norwegian oil sector are intact. The model has been reformed, but it still provides the state with a dominant role both in regulating and operating the Norwegian oil sector. The narrative provided is thus in need of explaining stability as much as change.

It should be remembered that oil is not an ordinary commodity

like tea or coffee. Oil is a strategic commodity too important to

be left to the market Sheik Ahmed Zaki Yamani

1.  Introduction

The concept of globalisation

This concept of globalisation has many meanings. Laxer (1995) defines it as: �the norms, institutions, and laws that supports global capital accumulation along neo-liberal principles.� Key indicators are: open financial and capital accounts, removal of foreign exchange restrictions, cut in public expenditures, balanced budgets and lower corporate taxes, deregulation of businesses, encourage foreign investments inflow, and disposal of public enterprises. It is often conceived of as an '�American'� model and thought of in terms akin to an overarching ideology of governance. Globalism challenge democratic assumptions about the sovereignty of states and national citizenry. Under globalism, states are: oriented less to internal demands, focused on maximizing exports, freeing the flow of capital and enshrining transnational corporate rights as �national treatment�, and locked into neo-liberal principles � by international agreements and institutions (Clarkson 1999).

As Michael Mann (1997:473) points out, even though globalisation enthusiasts agree on very little, they agree on one point, that �contemporary changes are weakening the nation-state.� However, the deteriorating role of the state might have been overstated in the globalisation literature. Furthermore, the state might be able to adapt to new environments and external threats. It might also be that there is no contradiction between capitalism and state sovereignty: �effective state intervention is now assumed to be an integral part of successful capitalist development� (Rueschemeyer and Evans 1985:44). For the purpose of this paper we need not conclude this debate. Rather the question is what balance between forces of globalisation and demands for state control, ie. commdification vs. de-commodification, can explain the changed structure of the Norwegian oil sector and role of the Norwegian State Oil Company � Statoil.


Commodification and de-commidification in the oil industry

As other industries the oil industry goes through phases of structural change. In the 1950s and 1960s the so-called �seven sisters� [1] controlled more than 90 percent of the worlds oil reserves and production. The role of state owned companies, upstream or downstream, was minimal, although the oil industry was strongly regulated in several countries. During the early seventies the control of the sister slipped, and the role of state companies increased both in producing and consuming countries. With the increased price oil was considered a matter of highest national concern. On the international political scene this gave the role of OPEC paramount security connotations in the eyes of the US government. Domestically in the consuming countries state involvement increased to ensure security of supply for consumers and industries. In the producing countries the rapidly increased revenues following the price rise increased the political attention and state involvement. There are many motives for state interventions in this sector: secure state revenue through taxation, control access to resource and distribution of private revenues through the disbursement of concession, and ensure and enforce safety and health regulations through various legislative and regulatory measures. In addition, the sate might prefer a more direct participation through an operative state owned company. When the oil price fell back in the mid-1980s, oil was increasingly perceived as just another commodity, [2] and thus more easily left to private business actors. This coincided with a more general tend of privatisation and liberalisation, and in Europe, a focus on the European Communities launch of the Internal Market project. This trend now goes under the name �globalisation�.

One key feature of today�s globalisation, that geographical location is reduced as a parameter for economic activity, is thus not new to the oil industry. However, the political changes of the end of the cold war, significantly increased the number of areas open for exploration and production by Western oil companies. Today, almost all oil provinces are open to the international oil companies. The oil price fall of 1998 triggered a new round of concentration among the international oil companies. In Europe, state involvement in the energy sector was generally reduced as part of the internal energy market project inside the EU. This coincided with a hype in the value of Internet- and �new technology-�companies on the stock exchanges world-wide. The relative value of traditional industries as oil was severely weakened. The low oil price and the relative weakness of return on investments in the financial markets caused the oil companies to cut costs and engage in a new round of mergers. Big international oil became even bigger. The level of concentration among the companies that was reduced in the early seventies returned in the late nineties.


The Statoil case

Given the variations over time in the intensity of globalisation in the international oil industry. One should thus expect that the climate for state oil companies rapidly improved in the early seventies, but deteriorated from the early eighties and onwards. Thus we would expect the Norwegian regulated model of the seventies to have been put under considerable stress during the 1980s and 1990s. As this paper will show it has been a substantial pressure on the model, but not unambiguously in a liberalising direction. Along that dimension the model has been surprisingly robust.

During its thirty years existence, the Norwegian State Oil Company � Statoil has held a position as a vertical integrated operating company in competition with other companies, while at the same time been a regulatory instrument on behalf of the Norwegian government. The company has been the core of what has been called the Norwegian model for balancing the power of the international oil companies through state regulation and participation. This chapter will show how the neo-mercantilist model for regulating the Norwegian petroleum sector, developed in the early seventies, have since the early eighties, been challenged both from external and internal forces. In 1984 the Norwegian oil sector was reorganised reducing the role of Statoil. In 1986 the oil price fall created a need for cost-cutting reforms inside the company and in its role in the regulation of the oil sector. In 1994 Norway signed the European Economic Area Agreement with the EU, including Norway in the EU Internal Market. In 2001 Statoil was partly privatised. Despite these changes, the state majority ownership combined with the establishment of a new state company (Petoro), the concession system and other regulations, implies that the Norwegian oil sector remains a highly state regulated sector.

The story of Statoil is thus a case of a changing balance between commodification and de-commodification. However, the development is not a case of straightforward increased commodification. The aim of this study is to explain why and how the Norwegian regulated model was challenged, and to what extent and how it resisted the challenges?

All the challenges described represent different ways �globalisation� influence national and domestic resource management and public policy. In 1984 the challenge came from the Conservative Party�s ideological attack on the State Company. In 1986 it was simply a matter of exposure to volatility in the price of the commodity - oil. In 1994 the challenge came from Norwegian ties with an international organisation advocating free trade and liberalisation. In 1998 the increased concentration and restructuring of the international oil companies constituted the challenge.

After presenting the initial construction of the Norwegian model in section three, the challenges to the model will be discussed chronologically in the sections three to six.


2.    The Statoil era 1965-80

The Norwegian petroleum adventure started in 1962 when representatives of Phillips Petroleum Company approached the Norwegian government requesting �an oil and gas concession covering the lands lying beneath the territorial waters of Norway plus that portion of the continental shelf lying beneath the North Sea which may now or in the future be under the jurisdiction of Norway.� [3] At first, the authorities perceived the existence of such resources as unlikely. When the Norwegian Foreign Ministry ensured Norwegian sovereignty over the Continental Shelf and negotiated the Middle-line division of the North Sea with Denmark and Britain the focus was on fisheries and the strategy would have been the same with or without the prospect of petroleum resources. When it came to the relationship to the international oil companies the logic was different.

The governments� aim was a rapid exploration of large parts of the Shelf in order to determine whether there were any commercially viable oil resources or not. The government openly discouraged Norwegian industrial and shipping interests that sought to enter the oil industry at this time, due to the uncertainty and high risk of loss of invested capital. [4] The capital, know-how and technical experience was located in the international oil companies, which became the key resource of information for the government and were also invited to suggest legislative and management solutions. The companies were used to define the rules of the bargaining game with local or national political authorities. At the same time the Norwegian authorities were unwilling to commit political or economic resources to what was regarded as a high risk venture. This lead to the development of a general legislative framework to ensure the government control over the resources, but which provided for a dominant role of foreign companies in exploration and operation at the Continental Shelf. There was no nationalization of the Norwegian oil industry at this time, nor was there a conflictious relationship between the government and the international companies. This was in line with the international situation regarding the relationship between the international oil companies and the host countries. These characteristics were to change dramatically at the moment oil was discovered.

In the spring of 1969 traces of hydrocarbons was found in block 7/11, this raised the optimism both among the companies and in the government. At the same time the OPEC countries, in their negotiations with the international oil companies, announced that they would include a clause concerning state participation. The international climate was changing. The producing countries were slowly gaining the upper-hand in their relations with the international companies. After the second licensing round was announced the government, through negotiations with the companies, included a clause of state participation with �carried interests� until commercial discoveries were made. The Norwegian concession system only allowed individual applications. Thus the foreign companies all submitted competing analysis of the same fields. This was an effective way of increasing the information and know-how in the Norwegian oil bureaucracy (Andersen and Austvik 2000:35). Furthermore, the concession increasingly included non-economic or technical conditions like: encouraging Norwegian partners, placing orders with Norwegian industry, creating jobs in Norway and so on (Noreng 1980:126).

In 1971 the so-called �ten oil commandments� were agreed in parliament. Among these were ambitions to ensure (i) national governance and control over all activities at the Continental Shelf, (ii) that the petroleum resources contribute to the development of new industrial activities in Norway, (iii) that oil and gas should be to piped to Norway, (v) that the state engage in all aspects of the petroleum activities where it seems appropriate, and (vi) that a state oil company was to be established. In 1972 the administrative structure was split into three parts: the Ministry of Industry handled principles, legislation, and concessions; the Oil Directorate handled daily administration, exploration, and control; and a state oil company was in charge of the government�s commercial interests.

After Statoil was established in 1972, the state participation agreements with the international companies were amended to include a 50 per cent direct share to be granted to Statoil in every block, in addition to the carried interest clause. Statoil would thus be exempted from incurring expenses during the exploration phase. From 1974 a new �sliding scale� was devised which enabled Statoil to claim an additional share of 30 per cent, up to a maximum share of 80 per cent of a given field after profitable discoveries were made. At the Gullfaks field Statoil was awarded an 85 percent share. The carried interest concept enabled the state to combine a risk-averse posture with a very high direct state ownership share. Since the voting rights were based on a company's ownership share, Statoil had veto power over all production leases and field development decisions that were made after 1973. With regard to the Gullfaks field, Statoil could take all these decisions alone. In addition Statoil was given the right to acquire the operator responsibility at the large Statfjord field from Mobil within ten years. The company could use expertise and information acquired by the private companies, select its own partners in a handful of promising concessions, and exercise a role as key adviser to the ministry. By 1980 Statoil�s annual investments had reached about 2.5 bill. Norwegian kroner, and the staff above 1000 employees.

The preferential rights granted Statoil ensured the company a dominant position in the petroleum sector with ownership of the largest resource base on the Norwegian continental shelf. This enabled the company to control a very large and growing share of the total Norwegian oil and gas production. [5] During the mid-seventies the Norwegian petroleum sector goes into a smooth phase of development, lead by Statoil.


Internationally the early seventies saw a change in the relationship between the producing countries and the international oil companies. While some countries, like Iraq, nationalised the company operating in Iraq, others, like Saudi Arabia, followed a more moderate strategy and negotiated an agreement of state participation. The regulations put in place by the Norwegian government amounts to a legislative framework giving the state the ultimate control over the resources, a politically governed concession system, and a strong element of direct state participation through the state oil company � Statoil. The Norwegian model had certain peculiarities, but was fundamentally in line with the international trend. It followed from the preferences given to the Norwegian companies in general, and the Norwegian state company in particular, that the bargaining position of the international companies was reduced. In the first half of the seventies the importance of democratic control over important aspects of the petroleum policy was emphasised. Statoil was set to be the key institution for implementing the authorities� petroleum policy. [6] The long-term perspective was that the international oil companies� role on the Norwegian Shelf should become mainly one of consultants, entrepreneurs, and possibly minority shareholders. [7]


3.    The internal political challenge: government vs. company 1981-84

With the rapid price increase due to the Iranian revolution and the outbreak of the Iran-Iraq war, the value of Norwegian petroleum resources increased dramatically around 1980. As the Norwegian oil income increased, so did the importance of the question of political governance of the oil sector. The petroleum sector�s share of GDP increased from 6.8 percent in 1978 to 16 percent in 1981. In the same period the sector�s contribution to the state income increased from 10.78 billion to 57.63 billion in 1996 NOK. The Norwegian economy changed into an oil-based economy. Statoil accumulated a substantial part of the revenue.

The potential for a tremendous accumulation of the income from the petroleum activity in one company raised important questions about the division of the economic rent between the company and the public treasury. The company had a strong incentive to increase its activity levels as much as possible, in order to prevent capital from leaving it (Richardson 1981:44). The larger the share of capital that the company could retain, the higher was its growth potential. The comprehensive nature of the preferences granted Statoil would make the state an important risk-taker. Statoil's high capitalization would also enable the company to build close links or ties to Norwegian industrial actors involved in the spin-offs from oil and gas activities. [8] Richardson notes that �Statoil's relationship to the rest of Norwegian industry could provide it with a degree of autonomy not envisaged by central policy-makers� (Richardson 1981:45). As an example of institutional breadth, the regulations in the state participation agreements that guided the use of Norwegian goods and services clearly favoured Statoil and therefore facilitated the development of such close Statoil-industry links. The high degree of administrative discretion in the concession system enabled the government to select, in its granting of exploration permits and production leases, those oil companies that favoured the use of Norwegian goods and services. [9] Thus, the discretionary nature of the concession system also served to benefit Statoil. The elimination of Statoil's preferences would represent a challenge to the links between Statoil and various industry actors. But since Statoil was so strongly integrated into the overall regulatory structure, a severing of the links between Statoil and Norwegian industry interests necessitated changes also in the concession system.

When the non-socialist parties won the election in 1981, the Conservative party formed a minority government supported by the Centre Party and the Christian People's Party. In 1982 the three parties formed a Conservative-Centre coalition government. One concern of the new government was to reduce the power and growth of Statoil. In 1982 to conservative government appointed a commission to recommend changes in the organisation of state participation in the petroleum sector. In the commission�s report the need to reduce the future growth of Statoil was emphasised. Such growth was inevitable, due to the corporation's role as a rent collector for the public treasury. The Commission intended to ensure that the division of funds between Statoil and the public treasury would correspond with the split between the company�s operative tasks and the state's tax and other incomes which accrued to the corporation as a rent collector for the state. Further, the Commission noted that the wide range of preferences granted the company gave it wide leverage to influence the actions of all business actors in the petroleum sector. [10]

����������� The first and most important recommendation was to devise a split between the state's direct share of a field and that of Statoil in order to ensure that a certain portion of the economic rent was channelled directly to the public treasury. In the "historical Statoil compromise" that was struck between the Conservative-Centre government and the main opposition Labour party in 1984, and after the proposal had been tabled in the Storting, it was agreed that the split would not apply to the huge Statfjord field. This would ensure Statoil of a very large source of income in many years to come. [11] The SD�E (The state's direct share of the economic involvement) consisted mainly of fields that had not yet been developed. This, however, must be viewed as part of a much wider programme of government reorganisation, part of which would generate a clearer delineation between state and societal actors.


March and Olsen (1989:100) note that: �While the main tendency in Norway since 1945 has been to integrate organized interests, and thus social conflicts, into the administrative apparatus, the key argument of the conservative-center program was that the state, in order to govern, needed a certain distance and independence from the various interests.�

As part of this programme of reducing the role of established corporatist arrangements and delineating more sharply between the public and private sectors, were measures to decentralize power from centralized governmental agencies and to ensure strengthened political control over central state administrative and economic agencies. The chosen model in the petroleum sector, with a direct state share of field ownership in addition to the share of the state oil company, was a Norwegian innovation. The new Conservative government was clearly inspired by the new liberal ideologies presented by Thatcher and Reagan. In its general economic policy it liberalised the financial market, abandoned regulations in the housing market, and pursued a market-oriented industrial policy. The reorganisation of Statoil was, however, not a case of liberalisation, as we would define it today. The policy of constraining Statoil was rather an attempt to increase the direct role of the state in the oil sector. As the then prime minister, Kaare Willoch, later reflected over in his memoirs �The aim was to prevent Statoil from growing beyond reasonable limits and exercise disproportionate influence� (Willoch 1990:289). The challenge to the existing model was thus not a matter of liberalisation in the meaning of privatisation. Rather it was a matter of changing the balance between two government entities, the state oil company and the Ministry of oil and energy in favour of the ministry. Since Statoil was to continue the operative responsibility for the shares held directly by the Ministry, the new model precluded privatisation. International developments soon toppled the financial aim of the reform. With the reform, the state became directly exposed to changes in the returns from the fields with direct state participation. The state�s share of new investments in the fields had to be financed out of the public treasury, either as direct outlays or as foregone revenues. Two years after the reform the oil price collapsed, turning the prospected net benefit from a large part of Norwegian oil production into losses. Thus, until 1994 the net cash flow from SD�E negative or just barely positive. Statoil, on the other hand, could use the returns from the large Statfjord field to finance its share of future field developments. The reorganisation also gave Statoil a somewhat increased freedom of operation, not least regarding involvement in international oil prospects.


4.    The external market challenge: effects of the oil price fall 1985-93

During the first half of the 1980s the oil price had a downward trend. Furthermore, the oil producers� income from oil exports was propped up by the increase in the dollar exchange rate in the first half of the eighties. From 1980 to 1985 the oil price increased when measured in Norwegian kroner and decreased in US dollars. When the oil price and the dollar fell simultaneously in 1985�1986, the oil price measured in Norwegian kroner was halved (Claes 2001:327-29). Thus, the market situation dramatically changed the Norwegian income from the oil sector from December 1985 to May 1986. There was no sign of increase in oil consumption. With the oil price collapse in spring 1986, the Norwegian economy was severely weakened. The value of the exports of oil and natural gas fell by 32.3 billion NOK from 1985 to 1986. Paid taxes from the oil sector fell from 71 bill. NOK in 1985 to 16 bill. NOK in 1988 (all 2001-NOK figures). [12] When the economic situation changed so radically, the pressure for drastic political action increased. The Norwegian government introduced harsh measures in the country�s macroeconomic policy. The Norwegian krone was devalued by 12 percent. The fall in oil prices created a current account deficit of 33 billion NOK in 1986. After the devaluation, the Central Bank advocated increased interest rate and a fixed exchange rate in order to finance the current account deficit through the private sector. This policy, implemented in 1987, fundamentally changed the Norwegian economic policy, which since 1976 had been characterised by governmental support of the Norwegian export industry through technical or explicit devaluation of the Norwegian krone (Tran�y 1993:238�239). The governmental expenditure was reduced by the equivalent of 4 percent of GNP. On top of this, the high interest rates reduced aggregate demand by about the same amount (Sk�nland 1988:9).

����������� In this dramatic economic situation the state owned company Statoil was suffering from a severe crisis of mismanagement of its investments in the Mongstad refinery. In January 1988, as a result of the huge cost-overruns associated with the Mongstad refinery scandal. [13] The leader from the time of Statoil's founding, Arve Johnsen, resigned and was replaced by Harald Norvik. This leadership change also signified a reorientation in the company�s role, as the new leader, Harald Norvik, stressed the need for a more efficient business strategy and a corporate restructuring. [14] This may be viewed as a combined result of the changed economic climate associated with a weakened oil price and the Mongstad scandal which caused a great political uproar. Over time, international oil market developments seemed more effective in shaping the company's behaviour than were the political authorities in the early 1980s. But it should also be kept in mind that the initial reorganization may have altered the political setting sufficiently to facilitate future changes in the same direction. Such changes could occur as the result of conscious actions by political decision makers or they could be part of a - slow or rapid - process of adaptation to an altered political environment by NOC managers.

����������� By the end of the 1980s the international oil market situation changed once again. After the end of the Cold War new areas was opened for exploration by the international oil companies. In contrast to the situation when the companies approached the Norwegian government in the sixties they now had several alternatives to exploration in the North Sea. This created a new situation for the Norwegian oil policy. It now was necessary to use political instruments to make the Norwegian Continental Shelf attractive in a global competition among oil provinces. The organisational model came under pressure. Taxes was eased, the sliding scale abandoned, and the provision ensuring the state (and Statoil) a fifty-percent share was lifted. The argument was that with these provisions exploration that is valuable to the society might not be profitable to the companies and thus not conducted, and that the profitability of the different fields might vary, implying the need for flexible state involvement. Finally, it was argued that laws, contracts and the concession-system provided adequate instruments for political governance of the petroleum sector. [15] The Minister of Oil and Energy, Finn Kristensen stated that the overall level of state participation was not to be reduced, and that the state would continue to participate in all licenses. [16] The changes were welcomed both by the international companies and by Statoil. The new and more business-oriented leadership in Statoil saw the obligation to be part of all licenses as a liability. The need for concentration of limited personnel and financial resources implied that the company should be able to prioritise among fields based on its own considerations, not the ones of the government.


The oil price fall of 1986 is important in its own right because it turn the perspective of the oil industry from something creating excessive amount of income to a normal business with normal margins of profit, or in fact in the mid-1980s partly an industry loosing money fast. Thus it was no longer in need of special regulation by the government in order to secure excessive revenues on behalf of the state and the Norwegian society. The previous provisions in the concession system and the key role of Statoil could be viewed as a kind of �infant-industry� policy, where national industry is protected in the early stages. By the early nineties this phase was definitely over in the case of the Norwegian petroleum industry. Neither was there much to protect, since the idea of a resource rent to be collected by society had disappeared with the oil price fall of 1986. The picture was thus a more normal business, but an internationally competitive one. This was the attitude of the new director of Statoil, Harald Norvik: �Presently the Norwegian companies are internationally competitive. We have shown that we are competitive outside [the Norwegian Shelf] and have nothing to fear. We should rather, take this as an opportunity for further improvement.� [17] Also the conditions for foreign companies at the Norwegian Shelf was regarded as adequate given these changes. The interest for licenses by the international oil companies was satisfying. [18] Thus the perception among key participants in the Norwegian oil industry was changing. The previous attitude emphasising the need for protection, the state as a counterpart to the international oil companies, and Statoil as a instrument of political governance, gave way to the perspective of the Norwegian oil industry as a competitive part of the larger international oil industry. The new relations to the EU and the emerging internal energy market would further add to this change of perception.


5.    The external political challenge: the EU adaptation, 1994-98

Under the EEA-agreement with the EU in 1994, Norway implemented the regulations of free movement of goods, capital, labour and services, and thus provided Norwegian enterprises with equal opportunities as EU enterprises inside the Internal Market. [19] The agreement implies a one-sided adaptation by the EFTA-participants to the EU legislation. Although the agreement provides the EFTA-partners with an option to reject EU legislation, Norway has so far never exercised this right. About 70% of Norwegian exports and about 67% of Norwegian imports are with the EU. Being subject to the same regulation is thus important for a substantial part of Norwegian trade interests. Two directives in particular have caused concerns for the Norwegian governance of the petroleum sector in general and the role of Statoil in particular.

In the process of liberalising the EU energy sector, the Commission noted that oil producing countries had developed a strong national or state control over the exploration of hydrocarbon resources. To open-up the downstream segments of the product-chain to competition and at the same time leave the upstream production in the hands of national monopolies, seemed a contradiction. Thus as part of the Internal Energy Market the Commission in 1992 proposed a directive ensuring non-discriminatory and transparent procedures for granting of licenses for prospection, exploration and extraction of hydrocarbons. [20]

One of the biggest challenges to the Norwegian regulaytory regime was the consequences of the directive for the role of Statoil. As discussed above the privileged role of Statoil had been a cornerstone in Norwegian petroleum policy since the company was established in 1972. Statoil�s 50 per cent share, the �carried interest� and the so-called �sliding scale� were obviously violating the non-discriminatory clauses of the directive. The changes in 1993 discussed in section 4, although primarily necessitated by the price fall, also served as a pre-emptive move in the upcoming EU membership negotiations in general and as abidance with the licensing directive in particular.

The other major problem for Norway was the gas directive proposed by the Commission in 1991 aimed at establishing common rules for the transmission, distribution, supply and storage of natural gas. [21] For Statoil the problem has been its role as leader of the Norwegian gas selling committee (GFU). [22] In the mid 1980s the Norwegian government argued that: �given the strong concentration and co-ordination on the buyer side, Norwegian gas exports must be co-ordinated and all main negotiations lead by one entity.� [23] The reasons for excluding foreign companies in this co-ordination was that they had substantial downstream interests and thus might be on both sides of the table if included in the GFU. Subsequently, the GFU rather explicitly contradicted fundamental rules of the Internal Market regarding discrimination due to nationality. �When it comes to the central coordination of the marketing of gas that takes place through the GFU, there can be scarcely any doubt that this will be negatively affected by the competition rules. � To refuse foreign companies participation solely on the basis of their nationality will undoubtedly be in contravention of the EEA Agreement article 4� (Arnesen 1992:470). In the spring of 1993 gas field operators were included as participants in the sales negotiations, but not in the GFU itself. [24]

Although not discriminatory, the system of co-ordinated gas sales could still be regarded as reducing competition in the gas market. This was conspicuously demonstrated when one of the GFU partners, Saga Petroleum, tried to sell gas to the German company Wingas in 1995. [25] When Saga Petroleum applied to GFU to purchase Norwegian gas for sale to Wingas, the two other GFU companies, Statoil and Norsk Hydro, refused to sell gas to Saga. [26] GFU was clearly revealed as a trade-hindering organ. The German Bundeskartellamt placed the Saga-Wingas affair before the EU Commission. [27] In 1996 the EFTA Surveillance Agency (ESA) at the request of the Commission, conducted an inspection in the offices of the Norwegian companies as well as the Ministry of Petroleum and Energy. Two investigations were then initiated. One was based on the possible GFU violation of EEA-agreement article 53. [28] That concerns unlawful fixing of prices, sales volumes and other aspects of cartel behavior. This was directed towards Statoil, Norsk Hydro and Saga Petroleum. It was pursued by the Commission because the co-operation among the GFU companies had potential market-distorting effects in the EU. The other investigation was pursued by ESA on the basis of EEA-agreement article 59, [29] which considers the extent to which the GFU should be regarded as a public undertaking, whichperforms tasks of �general economic interest�, and thus should be exempted from the competition rules of the agreement. In 1997 the latter investigation triggered a response from the Norwegian Ministry of Petroleum and Energy to ESA in the form of a memorandum concerning the GFU. [30] Here the GFU is regarded as an integrated part of the Norwegian resource management system and thus the Ministry �does not consider the EEA-agreement applicable to the establishment and functioning of the GFU.�

The investigations by ESA were later put on hold since it wanted to see the effects of the implementation of the gas directive. [31] In the Commission investigation, there was not much progress until 2001. In June 2001 the Commission issued a statement of objections to Statoil and Norsk Hydro warning that �the joint sales of Norwegian gas through the GFU infringe article 81(1) of the EC treaty and Article 53(1) of the European Economic Area (EEA) Agreement.� [32] Such infringement procedures could ultimately lead to large fines for the companies involved. A week earlier the Norwegian government had abolished the GFU. [33] The Commission argued, however, that existing gas contracts negotiated by the GFU would continue to have detrimental effects in the European gas market and thus pursued the case against the companies even though the GFU had been abolished. The Norwegian government is regarded only as an affected third party in this case despite the fact that the companies' behavior in the GFU was based on formal legislation by the Norwegian government. [34] In February 2002 the government formally proposed to parliament that Norway adopted the gas directive. [35]


The EU adaptation implies a new set of constrains on the Norwegian governance of the oil sector. In the longer run this might lead to increased liberalisation and application of a more competitive model in regulating the sector. So far it has more been a matter of changing procedures and transfer of authority from one political body to another, and an increased juridical framing on behalf of political compromises and striking of bargains. The states role as sovereign owner of the resources, the amount of state ownership in the Norwegian companies, and the state role as granter of concessions have not been undermined by the EU.


6.    The global challenge: privatisation, 1999-2001

From 1999 to 2001 the organisation of the Norwegian petroleum sector changed once again. In April 1999 the development of the �sgard-field suffered substantial shortfall from the budget. Although �sgard still was one of the most profitable fields developed on the Norwegian Continental Shelf its complicated geological structure and introduction of new technologies in the development caused the costs to increase dramatically compared to the budget. [36] This caused the Minister of Oil and Energy acting as the general assembly to replace the entire board of the company, triggering the resignation of the president of the company. The following month Norsk Hydro launched a take-over bid on the third Norwegian oil company Saga Petroleum. Saga was a private owned upstream company. It was entirely based on the Norwegian Shelf, until it in 1996 bought the British Company Santa Fe, largely due to the logic described above, that oil companies have strong incentives to invest their income from the Norwegian sector in order to avoid taxation. The take-over of Santa Fe weakened Saga�s financial ability to cope with the price fall of 1998. Hydro took advantage of this and the fact that Statoil was suffering internal turmoil, and launched its take-over bid on Saga. In the end Statoil joined Hydro in taking over Saga, but the fundamental credo that Norway should have three oil companies one state owned (Statoil), a semi-state owned (Norsk Hydro) and one private (Saga Petroleum) was abolished. The politicians did not have any control over this process. As late as in May 1998 the Minister of oil and Energy, Marit Arnstad, stated that the opinion of the government was that there also in the future should be three Norwegian oil companies. [37]

����������� At the same time the then outgoing president of Statoil, Harald Norvik launched a discussion of the fruitfulness of state ownership in Statoil. His perception was that the total state ownership was a liability when Statoil was seeking access into other petroleum regions around the world. Investments in the �new� petroleum areas, as Latin-America, South-East Asia, West-Africa and The Caspian Sea demanded larger capital resources than Statoil could handle by itself. In order to participate in such areas, alliances and partnership with other international oil companies seemed the only feasible strategy. Such alliances and partnership was made more difficult, when no shares in Statoil were available to buy. The argument put forward was thus that Statoil should be partly privatised and given the opportunity to engage in more formal long-term or strategic alliances with private international companies. The proposal to partly privatise Statoil triggered political opposition, both inside the governing Labour Party, and among the political parties represented in Parliament. However, a majority in parliament decided that up until one third of the shares in Statoil could be sold to private interests. In June 2001 slightly above 20 percent was sold when Statoil entered the Oslo and New York stock exchanges, leaving about 12 percent for Statoil to use in a possible future strategic alliance. Of the state direct ownership (SD�E) 15 percent was sold to Statoil and 6,5 percent to Norsk Hydro and foreign companies. With Statoil as a private company, its role as manager of the SD�E in the fields was impossible to sustain. A new state owned company, Petoro, was thus set up in order to manage the states� interests in the Norwegian oil and gas fields. This company is a holding company and Statoil will continue to operate the sales of Petoro�s physical oil and gas reserves.


The state still owns two-third of Statoil and 78.5 percent of what used to be SD�E. Together this still implies a substantial state ownership on the Norwegian Continental Shelf. The value of Statoil is estimated to be about 120 bill. NOK and SD�E 660 bill. NOK (Andersen 2001:335). Th oil sector continues to constitute the dominant economic sector in Norway, with a share of 22 percent of GNP, almost 50 percent of export and a quarter of total government income in 2000. However, the government has during the last years been able to save a substantial portion of the oil income. The Petroleum Fund is by 2002 approaching 600 bill. NOK, placed in foreign equities, bonds and stocks. This puts the Norwegian state in a favourable financial position, and creates a buffer between the oil price changes and the government income. This also reduces the government�s dependency on Statoil, since the dividend from the company nevertheless would be a fraction of the overall tax income and the direct take from SD�E. It can hardly be concluded that the Norwegian state along these dimensions is loosing out to global private capital forces or actors. The flow of money is tightly controlled by the state. The ownership and the organisational model of the oil sector, with the partly privatised Statoil still in its key position is still a model ensuring state dominance and control, although the model has been somewhat reformed.


7.    Conclusion

The political and economic external environment in which the Norwegian model for state participation and control in the oil sector was developed in the seventies has changed dramatically. The international oil companies have gone from being few and strong, to become many and weaker, to become few and stronger again. The tendency for state participation has increased during the seventies and then decreased during the eighties and nineties. The oil price has been volatile through the whole period, with some dramatic moves in all three decades. The Norwegian net government income from the sector increased during the first half of the eighties, fell back and increased substantially again in the late half of the nineties, creating a governmental budgetary surplus saved in the Petroleum Fund. Furthermore, Norway has during the period in question signed an agreement making Norway effectively a part of the EU Internal Market.

����������� All these changes have caused changes in the Norwegian oil sector. The organisational structure, the state involvement, and most important for the theme of this paper, the role of Statoil has changed. The company has lost its privileged role of being handed a fifty percent share in all new fields, having the foreign companies carry their costs until profitable oil deposits were discovered, and having been reserved the most lucrative fields. The company had to give the state a direct access to ownership in the fields in 1984 and cut costs in order to sustain the oil price fall of 1986. The government had to abandon the preferential treatment of Statoil and let it compete on equal terms with private companies in order to apply with EU directives following the Norwegian entry into the Internal Market. Finally, due to internal and external pressures the company was partly privatised in 2001.

����������� Nevertheless, it is the conclusion of this paper that the core of the Norwegian state-dominated model is sustained. The company has a dominant ownership position on the Norwegian Continental Shelf and it is still a majority state owned company. It will for the foreseeable future be the key company in most licenses on the Norwegian shelf. Through Petoro (former SD�E) the sate will have a substantial direct participation in the most fields on the Shelf. The fully state company, Petoro, the majority state owned company Statoil and minority state owned company, Norsk Hydro, will continue to be the principal advisors for the government in the future restructuring of the Norwegian petroleum sector.

����������� Relating to perspectives on the relationship between globalisation and the nation-state the empirical assessments made above puts the Statoil case in a need of explanation of stability as much as change. Based on the character and force of the external changes the domestic effects seem modest. The distinction made by March and Olsen (1998:959) between efficient and inefficient conceptions of history. �If history were efficient, political practice would adjust immediately and uniquely to current, exogenously determined desires and capabilities. We have argued that history is not efficient in that sense; that, indeed, institutions are relatively robust against environmental change and deliberate reform and that desires and capabilities coevolve with the practices that reflect them. As a result, history is path dependent in the sense that the character of current institutions depends not only on current conditions but also on the historical path of institutional development.� Such a perspective seems to encompass the observation, that though Statoil, and its role in the Norwegian model, has changed due to external environmental pressures, the path dependency following the characteristics of the establishment of the company creates a strong element of stability and persistency.

����������� Regarding the future of Statoil, much will be dependent how the company utilises its new freedom. That is what strategies are developed, how are they pursued and what will be the degree of success at the end of the day. The first new challenge is how Statoil is going to use the shares devoted to strategic alliances. Three different allies have been proposed: a international oil company with upstream assets and activities globally, a European gas transmission company with downstream assets, operations and know-how, and finally, a merger with the oil and gas division of the other Norwegian oil company - Norsk Hydro.

The first strategy will intensify Statoil�s activities in oil exploration internationally, an activity that so far has not been very profitable. The profit might improve through such an alliance, but regarding the role of the state two questions will arise. First, would not any state ownership be a liability for a company in international oil exploration and production industry? Secondly, why should the state own any part of such a company? The more Statoil engage in such activities, the less will the resources on Norwegian Continental Shelf matter to the company. This weakens the argument of using the ownership of Statoil to control the management of the Norwegian resources. We foresee a continuos pressure for further privatisation if Statoil joins an international oil company.

The second strategy, to join with a European downstream gas company, would make Statoil an interesting gas company in Europe with unprecedented large physical reserves on its hands compared to the other downstream companies. The main competitor on the gas supply side - Gazprom, has followed a more active downstream strategy than Statoil for years. On the state ownership side, several gas transmission companies in Europe are still highly state controlled and owned, so given choice of alliance partner among these, the pressure for immediate increased privatisation is less than in the gas of an alliance with an upstream oil company.

The third proposed alliance partner is the oil and gas division of Norsk Hydro. This would mean a retraction from the ambition of internationalisation, at least for a period of time. Norsk Hydro is presently as heavily focused on the Norwegian Continental Shelf as is Statoil. Together the two companies would stand stronger in the international competition, but internationally it would be more as starting from scratch that if Statoil joined up with an existing larger international oil company. As for the role of the state, a merger between Statoil and Hydro would leave the new company far more state dominated than by the other strategies, because the Norwegian State still owns 44 percent of Norsk Hydro.

As for the international oil industry, the structural changes in the Norwegian oil industry is not over. The conclusion that the changes so far have been less than could have been expected, does not preclude more dramatic changes in the future.




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[1] The designation �the Seven Sisters� was first used by the Italian oil man Enrico Mattei, and was later used as the title of Anthony Sampson�s book about the seven largest oil companies (Sampson 1975:11). This group included Exxon, Mobil, Standard Oil of California, Texaco, Gulf (all American), BP (British Petroleum; 51 percent of the shares were formerly held by the British government), Royal Dutch/Shell (60 percent Dutch and 40 percent British). CFP (Compagnie Francaise des P�troles) is sometimes included in this group, despite representing a minimal share of world production (approximately 1.2 percent in 1950) (Schneider 1983:39).

[2] Yergin (1991:721) states that �oil was becoming �just another commodity.� This, however, was the perspective of the consuming side of the market. Viewed from the producer side, the situation in the seventies was commercial, as the oil �sold itself.� There were no political arrangements by the oil producers that created the price increases of the seventies; it was simply a group of producers taking advantage of an inelastic demand. The consuming countries� perception of this was of political interference in the market, because the price rose. In the eighties, the price fell, and the consuming side perceived the cause to be a more competitive market. For the producers the eighties meant the introduction of more politics in order to sell their oil. They now had to tighten the cartel, introduce production restrictions, and monitor one another�s behavior. Thus, what is economics for one actor in a market might be politics for another.

[3] Letter from W. Dunn, head of Paris-office of Phillips Petroleum, to Trygve Lie 29.10.62, quouted in Hanisch and Nerheim 1992:12.

[4] Report to Parliament no. 11 (1968-69): 6-7.

[5] [5] It was estimated that in the year 1990 Statoil's share of oil and gas production from the Norwegian continental shelf would be almost half. In the year 2000, however, this share would rise to over 70 per cent, or 56 mill. TOE out of a total production of 80 mill. TOE. Report to Parliament no. 11 (1968-69): 9.

[6] Report to Parliament 25 (1973-74):9.

[7] Report to Parliament 25 (1973-74):13.

[8] In 1983, Statoil purchased Norwegian goods and services for a total sum of NOK 9300 mill. See Report to Parliament 35 (1984-85): 106.

[9] From 1979 on, the state participation agreements included special regulations pertaining to the purchase of Norwegian goods and services. As part of these agreements, Statoil was granted the right to participate in the evaluation of the various business offers and also had the right to partake in the negotiations with private industry actors even when the company itself did not act as an operator of a field (NOU 16:1983: 34).

[10] See Selvig (1983):15.

[11] Statoil's share of remaining reserves in the Statfjord field at the end of 1983 was 198 mill. TOE. Out of this, 165 mill. TOE was oil and the remainder natural gas. The initial total field size was 215 mill. TOE which means that only 17 mill. TOE had been produced by then. Report to Parliament 35 (1984-85): 37.

[12] Ministry of Oil and Energy Fact Sheet 2001:28. Since taxes are calculated several months after production takes place, the effect of the price fall on the state�s income was somewhat delayed.

[13] The huge cost overruns put the company in the red in 1987.

[14] Report to Parliament 22 (1988-89): 41.

[15] Proposition to Parliament no. 1 (1992-93), Attachment 6, p.5.

[16] Norsk Oljerevy [Norwegian Oil Review] no. 6, 1993 p.14-15.

[17] Dagens N�ringsliv (Oslo) 25 June 1993.

[18] Minster of Oil and Energy, Finn Kristensen, Norsk Oljerevy [Norwegian Oil Review], no. 61993, p.15.

[19] The EEA-agreement was originally between twelve EU members and all the EFTA-countries. Since the agreement was signed, Switzerland rejected participation, and Finland, Sweden and Austria joined the EU, leaving Iceland, Liechtenstein and Norway as the three EFTA-partners of the EEA-agreement. The relationship between the two sides of the EEA-agreement has thus become very asymmetric.

[20] Directive 94/22/EC

[21] With the directive the transmission companies� exclusive rights to supply customers in a specific area are abolished. Furthermore, non-discriminatory rights to build new and competing gas facilities like storage, transmission and so on are introduced. Large customers are given the right to freely choose gas supplier, and have the gas transported through the European gas pipeline system provided there are spare capacity. Ownership of the pipelines have been separated from the transmission of gas in the pipelines.

[22] When Statoil in 1973 gained an automatic majority in all licenses it followed that Statoil also took charge of the gas sales negotiations on behalf of all licensees. The general reorganisation of Statoil�s role in 1984, implied that the two other Norwegian oil companies, Norsk Hydro and Saga Petroleum were included in the gas sales activities through the establishment of the GFU.

[23] Report to the Parliament, no. 46 (1986-87):59, my translation.

[24] Dependent upon the actual field selected as supply source and guarantor for new contracts, GFU must to an increased degree include in the sale process holders of rights� Report to Parliament, no. 2 1992-93:104-105.

[25] Saga Petroleum had negotiated an agreement with Wingas for the leasing of transport and warehousing capacity for a 15-year period, and an agreement on sales of gas of volume 1.5 billion cubic meters annually. Dagens N�ringsliv (Oslo) 21 April 1995.

[26] �Saga Petroleum gives up its attempt to sell gas to Germany. Under pressure brought to bear by Statoil and Norsk Hydro, the company withdraws from the gas negotiations with the German company Wingas� Dagens N�ringsliv (Oslo) 18 August 1995.

[27] Aftenposten (Oslo) 22 June 1996.

[28] Equivalent to EC Treaty article 81.

[29] Equivalent to EC Treaty article 86.

[30] Ministry of Petroleum and Energy, Memorandum on the Establishment and Functioning of the GFU, Oslo 20 January 1997.

[31] Dagens N�ringsliv (Oslo) 7 April 1999.

[32] IP 701/830 13 June 2001.

[33] Press release from the Ministry of Petroleum and Energy 67/01, 29 May 2001.

[34] Parliamentary Report no. 46 (1986-87) latest revision by instruction from The Ministry of Petroleum and Energy based on Kgl. Res 28 January 2000.

[35] St.prp. no. 42 (2001-2002).

[36] According to the Petroleum Directorate the increases were 36 percent from the application for development in November 1995 to March 1999.

[37] Dagens N�ringsliv (Oslo) 22, May 1998.