Norwegian Statoil: Vision and Victory

Imagine having operations in 36 countries around the world.  What type of infrastructure would you need?  What communication channels are essential?  How do you manage people and results?  How would you guarantee peak performance and meet budgets and deadlines?  These have been the questions and challenges of the energy industry for the last 40 years, and no company has been more effective at answering these questions than the Norwegian oil-and-gas giant Statoil, which has become a world energy leader in the game of growth, while still having the presence of mind to be sustainably conscious.

Commenting on the 2012 second quarter results, Statoil President and CEO Helge Lund was full of pride for his company, “which raised oil and gas production by 17 percent and increased international production by 32 percent, including more than doubling the production in North America compared to the second quarter last year.”  He was confident that Statoil will continue to grow internationally and will continue “to leverage its competitive strengths towards delivering on the production ambition of above 2.5 mmboe per day for 2020.”

History

Drilling superintendant Haver White from Chesapeake and seconded drilling engineer Karl Gerhard Longvastøl from Statoil are discussing plans for this Pennsylvania well. Photo: Helge Hansen / Statoil

Given the fact that the oil and gas industry in Norway is tightly controlled and managed by the national government, it is no wonder that Statoil was established in 1972 as a state-owned company in accordance with a decision by the Norwegian Parliament. Thirty years later, it eventually went public and was then partly privatized.

The privatization of the largest oil and gas producer on the Norwegian continental shelf (60 percent out of 3.8 million barrels of oil equivalents a day, according to Norway’s Oil Industry Association) has been carried out largely due to the strategy of the expansion by Statoil’s overseas operations.

Statoil realized that as a government-run company it would not necessarily be welcomed in foreign countries, where business disputes could turn into intergovernmental clashes.

After the government’s stake in its ownership was diluted, Statoil was listed on both the Oslo and New York Stock Exchanges and has started to aggressively scale new heights in the oil and gas industry worldwide.

American Presence

Chesapeake produces in the mountainous forest landscapes typical of the Appalachian region in the north-eastern USA. Photo: Chesapeake / Statoil

Of the 35 years of Statoil’s presence in the industry, only the last five could be fully associated with the company’s operations in the United States. Nevertheless, the American ramp-ups have heavily contributed to the continuing growth of the company. Horizontal drilling and hydraulic fracturing technologies have allowed Statoil to decisively tap into the enormous Marcellus formation of shale gas in Pennsylvania, and, in addition, the company plans to benefit from direct gas supplies to New York City.

Along with Marcellus, Statoil has gained a strong foothold in the liquids-rich Eagle Ford formation in Texas and has acquired sizable stakes in the Bakken and Three Forks plays in North Dakota and Montana, with a view to becoming a major producer of tight oil there.

Another priority area for the company is the Gulf of Mexico with its deep sub-salt oil fields. Empowered with the most advanced seismic practices, Statoil is ready to meet the challenges of salt layers, to rightly identify productive structures and secure sustainable drilling.

Working in Canada

Leismer Oil Sand, Canada. Photo: Øyvind Hagen / Statoil

Following a bifurcated strategy in North America, Statoil also affirms its presence in Canada, which is ranked third in the world in terms of its oil reserves that are largely concentrated in the Albertan oil sands.

Statoil considers the extraction of unconventional oil in Alberta a good example of the company’s responsible drilling procedures.  In this area, it uses the relatively new steam assisted gravity drainage (SAGD) technology to decrease the viscosity of oil and rejects traditional open mines with their large footprint on the environment.

In Eastern Canada, Statoil has steadily increased its presence and has already become a major operator of offshore Newfoundland with seven exploration, development and production licenses, covering a total area of over 11,000 km2.

The Canadian North also has helped enlarge Statoil’s Arctic portfolio. The farm-out agreement, signed with Chevron, allocates to the company a 40 percent stake in their offshore venture in the Beaufort Sea, where a 3-D seismic program is slated to start in 2012. Its upper northern experience is comfortably transferable in further international expansion to other Arctic countries such as Russia.

Dealing with Russia

Brukt i We juni 2010 Surplus gas not used to generate power is currently flared. Statoil and its Kharyaga partners are now building a facility to treat the gas, with flaring set to cease in 2012. Photo: Svein Are Enes / Statoil

Statoil’s presence in Russia accounts for more than two decades of growth and has empowered the company with a unique experience in harsh local environments, ranging from the hostile weather conditions to also dealing with the political or legal entanglements encountered there.

Having a long history of hydrocarbon production, Russia is now actively seeking advanced technologies and multibillion dollar investments that are needed to explore and develop the new unconventional oil and gas reserves, instead of using the conventional ones that are depleting Western Siberia.

Statoil is regarded by the Russians as a company that could provide both technology and investment. This is the reason why President Vladimir Putin appeared at a recent ceremony for the signing of an agreement on strategic cooperation between Statoil and Rosneft, the Russian state-owned oil giant.

The partners agreed to explore the Perseyevsky block in the Barents Sea and the three fields in the Sea of Okhotsk, which could contain more than 2 billion tons of recoverable oil and 1.8 trillion cubic meters of gas and liquids.

Steve LeVine, an expert on Russian affairs in foreign policy, is certain that the agreement would require Statoil to pay every dime of the expenses, which in the case of the Norwegian company could reach $100 billion.

However, this incredible sum seems to have not alarmed the company.  As the Statoil CEO explained to Reuters after entering into the partnership with Rosneft, his company “finds the projects prospective with a high risk/reward ratio which falls exactly in line with the strategy.”

So far, Statoil’s never-failing strategy to profit from international operations has bared fruit. Hopefully, it will not lose its footing in Russia, and the partnership will bring to the company what it wants most—new production highs and fresh flows of cash.

Langeled near Sleipner. Photo: Kim Laland / Statoil