Open letter from the Chairman of the Board

This article originates from the news archive of Det norske.

23. March 2015

Distribution of ownership interests in Johan Sverdrup

In a letter of 12 March to Terje Lien Aasland, First Vice Chair of the Storting’s Standing Committee on Energy and the Environment, Minister of Petroleum and Energy Tord Lien states that he has been concerned with avoiding postponement of the development of the Johan Sverdrup oilfield. Like the Minister, Det norske oljeselskap is concerned with ensuring that the project is not delayed. It is quite possible for the Ministry to approve the Plan for development and operation (PDO) before the distribution of the deposits has been finally decided. The Ministry has itself given up its original linking of these two questions by considering the PDO before the distribution had been agreed.

The Ministry will now, pursuant to the Petroleum Activities Act, decide on an independent but professional and legal basis the correct distribution of the assets on the field. The decision will be made independently of the proposal for distribution that Statoil presented just before the PDO was submitted, which the Ministry was strongly engaged in obtaining support for. In Det norske’s view, this proposal does not result in a fair distribution of the deposits. We also believe that the Ministry has been pushing for a distribution based on volume rather than on value. The amount of oil in the ground is knowledge-based information, but the final outcome of the distribution will be decided in 2025 when the agreement is reassessed. By then, we will have more exact information about the field. We see this as a fair and correct process. The question now concerns value, i.e. development and operating costs. It is a choice between principles where Statoil is no more qualified than the other partners, as the Ministry has argued so far.

As regards the process leading up to the submission of the PDO, we do not agree with the Minister’s description of the situation. Det norske has repeatedly expressed concern about the process surrounding the negotiations and the fact that several of the partners made no genuine attempt to agree on a solution. Among other things, we saw that the principle presented by ourselves and Petoro for a distribution based on volume and value was ignored in the final stages of the negotiations.

At the meeting on 12 February, just before the deadline expired, the Minister asked Statoil to hold short bilateral meetings – without negotiations – with each of the companies and then to present a proposal for distribution. The minor adjustments made by the operator took very little account of the other two Norwegian companies’ views about placing greater emphasis on value in addition to volume. It is clear from the letter from the Minister that the companies, with a deadline of just a few hours, were supposed to vote yes or no to this proposal in sealed envelopes.

The Minister writes that, in connection with the vote, only one company (Det norske) stated that it could not accept the proposed ownership interests, while Petoro ‘needed more information/time from the facilitator Statoil before it could reach a final decision on the proposal’. This does not tally with the facts, and my own perception of the meeting was that Petoro had strong reservations, which I find difficult to interpret differently than that they said ‘no’ to the proposal. The Ministry has an opportunity to clarify this by publishing the available written material relating to this meeting.

The Minister of Petroleum and Energy summoned Petoro and Det norske to separate meetings. The Minister writes that he has not instructed Petoro or any of the other companies to accept any particular outcome of the negotiations. But why were the other companies not summoned to such meetings? The answer is obvious: the purpose of the meetings was for the Ministry to get the two companies that it had already labelled ‘the no companies’ to change their minds. The Minister thereby accepting Statoils proposal, rather than allowing the companies to use the last day to negotiate a mutually acceptable agreement.

Petoro must answer for itself, but the reality is that the company, after this separate meeting with its owner, switched from ‘no’ to ‘yes’. For the general public – and for Det norske as the affected licensee – it would be interesting to know what ‘information’ Petoro was given by Statoil.

The Minister writes that the commercial negotiations on behalf of the State’s Direct Financial Interest (SDFI) ‘are a responsibility that rests with Petoro’s board’, and that he ‘does not know the details of Petoro’s collaboration with other licensees in this negotiation process, including Det norske oljeselskap’. For almost three years, we have been completely open about the fact that Det norske and Petoro have had an extensive, close collaboration. Based on our professional expertise, we have reached a common view on the distribution of ownership interests. For Petoro, this has been financed through substantial additional allocations over the national budget, because the Storting wanted Petoro to be able to safeguard the State’s and the Norwegian people’s interests in the best possible way.

The distribution of ownership interests in Johan Sverdrup is now being considered by the Norwegian Petroleum Directorate (NPD) before the Ministry of Petroleum and Energy makes its decision. This is the last chance to put right everything that has been wrong until now. The most important thing for us is that the process must now be open and transparent, a view that the Ministry has fortunately listened to and confirmed in its assignment letter to the NPD. Furthermore, must all parties be given full freedom to present what it really believes is the correct distribution. Finally, it is of decisive importance that the prevailing distribution principle based on volume and value forms the basis for the decision, as the practice has been for big Norwegian oilfields.

Not until these requirements are met can all the parties feel confident that this has been a fair process in which the ownership interests in Norway’s biggest industrial project have been correctly distributed.

Signeringsside regnskap.xlsx

 

Sverre Skogen, Chair of the Board of Det norske oljeselskap