Clipping Statoil’s wings and the Statfjord effect

This involved splitting its licence holdings, and thereby the related revenue stream and expenditure, into company and government components. The latter formed the state’s direct financial interest (SDFI) in the Norwegian petroleum industry. Both Statoil and the Labour Party were strongly opposed to this effort to rein in the state company. Before the issue was finally settled by the Storting (parliament), however, Labour invited the Conservative government to negotiations on a compromise.

The outcome was that the principle of splitting up Statoil’s holdings was retained, but that the Statfjord field was excluded from the change. White Paper no 73 (1983-1984) concerning state participation in petroleum operations was approved by the Storting against the votes of the far-right Progress Party.

The reform stripped Statoil of positions and power by reducing its interests in licences on the Norwegian continental shelf (NCS) and by introducing new voting rules in these licences. Statoil was no longer to be supreme in any licence.

Statfjord was the key to the compromise. Labour demanded that Statoil should retain its full 50 per cent holding in the Norwegian share of this field if the party was to support the creation of the SDFI. For its part, the government wanted Statoil to tailor its level of activity to a more limited financial interest. But excluding Statfjord meant that the effect was limited in the short term.

This field was the state company’s most important source of revenue and also had relatively low marginal costs. That meant it yielded a good financial return even when oil prices were low. The earnings capacity of most of the fields in which the SDFI took a stake was much lower.

So Statoil could continue to milk Statfjord, which was cheap to operate and yielded big revenues, while the state was left with the bulk of the expenses for running the more cost-intensive development projects. This “Statfjord effect” meant that it was the government rather than Statoil which bore the highest costs from developing such big fields as Oseberg, Gullfaks and Troll.

Thanks to such SDFI expenditures and low oil prices, net cash flow to the Treasury from the petroleum sector was almost zero in 1988. In other words, the cash flow managed by Statoil was not reduced in the first few years.

To learn more, see: The reorganisation of Statoil. “Clipping its wings” or symbolic politics?

Sources
Krogh, Finn E. “Reorganiseringen av Statoil”. Norwegian Petroleum Museum Yearbook 1997.
Lerøen, Bjørn Vidar. Drops of black gold . Stavanger 2002.