Norway’s petroleum history

12/13/2010

The history of the oil and gas industry in Norway is a saga of wise political decisions, world-class industrial development and huge value creation. Highlights from almost 50 years of oil operations in Norway are presented below.

1958 – Little faith in the NCS
In a letter of February 1958 to the Ministry of Foreign Affairs, the Norwegian Geological Survey wrote that: “The chances of finding coal, oil or sulphur on the continental shelf off the Norwegian coast can be discounted”.

Those who made this claim have subsequently said they were thinking of near-shore waters, but it remains a fact that geologists of the time did not believe oil or gas could be found on the NCS.

1962 – Companies come a-courting

US oil company Phillips Petroleum applied for permission to conduct geological surveys in the waters off Norway, and was quickly followed by others.

The Norwegian authorities wisely decided not to start negotiations with individual companies about rights on the NCS. That contrasts with the Danes, for instance, who gave Danish shipowner A P Møller an exclusive concession to their whole continental shelf.

1963 – Norway takes charge

Norwegian sovereignty over exploration for and production of natural deposits on the country’s continental shelf was proclaimed on 31 May.

1965 – Drawing the line

A treaty was signed between Norway and the UK in March on dividing the continental shelf in accordance with the median line principle. Denmark and Norway concluded a similar treaty in December.

This meant that boundaries in the North Sea had been agreed before exploration began, making it simple to clarify the division of resources in fields which straddled these lines.

In other parts of the world, such clarification has been lacking before drilling starts and major discoveries are made. That applies in the Caspian, for instance, where Azerbaijan, Iran and Russia are in dispute over boundaries and rights in proven fields.

1966 – First rig to Norway

The Ocean Traveler semi-submersible rig was towed from New Orleans to Norway and began drilling for Esso on 19 July 1966 in block 8/3, about 180 kilometres south-west of Stavanger.

After reaching a depth of 3 015 metres in 84 days, the well failed to find traces of oil and gas. But cores taken during the work demonstrated that the types of geological sediments sought by the oil explorers were in place.

1969 – First commercial discovery

Phillips Petroleum informed the Norwegian government on 23 December that it had discovered Ekofisk – one of the largest offshore oil fields ever found.

The company spudded what was meant to be the last well in the Norwegian North Sea on 21 August. It had actually wanted to cease drilling on the NCS, but was committed to expensive hire charges for the Ocean Viking rig and decided to drill in block 2/4.

After a few days, the well encountered a pocket in the bedrock containing gas under high pressure. Oil and gas flowed up with the mud, posing a risk of an uncontrolled blowout.

The well was plugged with cement from top to bottom, and work resumed 1 000 metres further away. An oil reservoir was penetrated by the bit on 25 October.

Autumn gales made it difficult to conduct production tests, and Ocean Viking actually had to abandon the site during a storm in November. Part of its crew was evacuated, and testing could not resume until 7 December.

By the time the well was abandoned the day before Christmas Eve, it was clear that a massive discovery had been made.

1971 – First oil produced

Ekofisk came on stream, initiating Norway’s career as an oil producer. The field also contained substantial quantities of gas, which were piped to Germany from 1977. That marked the start to the huge volumes of Norwegian gas later sold to continental Europe.

– Boundless gas

The Frigg gas field was discovered, straddling the UK-Norwegian boundary in the North Sea. Since Norway had the largest share, it was resolved to run production from there with Elf Aquitaine as operator.

1972 – Government gets a grip

The Storting (parliament) voted on 14 June to establish Statoil as a state-owned oil company and the Norwegian Petroleum Directorate (NPD) as the industry regulator.

It also adopted the “10 oil commandments”, which were to form the foundation for future Norwegian oil policy.

The NPD acquired great authority in matters related to exploration for and exploitation of oil and gas on the NCS. From the start, it has had the very important job of recommending which licences the government should award in these waters.

Responsibility was also allocated to the NPD for long-term technological and geological analyses required by the authorities to manage the industry as well as the pace of exploration and production from individual fields.

In addition, the directorate was charged with ensuring that companies with production licences complied with the safety regulations in force at any given time for offshore drilling and production.

– The 10 oil commandments

Norway’s politicians appreciated the importance of a national oil policy, and a unanimous Storting adopted the following 10 basic principles in June 1972.

1.   National supervision and control must be ensured for all operations on the NCS.

2.   Petroleum discoveries must be exploited in a way which makes Norway as independent as possible of others for its supplies of crude oil.

3.   New industry will be developed on the basis of petroleum.

4.   The development of an oil industry must take necessary account of existing industrial activities and the protection of nature and the environment.

5.   Flaring of exploitable gas on the NCS must not be accepted except during brief periods of testing.

6.   Petroleum from the NCS must as a general rule be landed in Norway, except in those cases where socio-political considerations dictate a different solution.

7.   The state must become involved at all appropriate levels and contribute to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated oil community which sets its sights both nationally and internationally.

8.   A state oil company will be established which can look after the government’s commercial interests and pursue appropriate collaboration with domestic and foreign oil interests.

9.   A pattern of activities must be selected north of the 62nd parallel which reflects the special socio-political conditions prevailing in that part of the country.

10. Large Norwegian petroleum discoveries could present new tasks for Norway’s foreign policy.

National management and control, the build-up of a Norwegian oil community and state participation were important elements in the country’s oil policy during the 1970s.

The wise choices made at an early stage explain why Norway ranks today as one of the world’s best places to live and a world leader in many areas of the oil industry.

It was resolved that management and control would be exercised by the Storting, the government, the ministry (initially of industry, later of petroleum and energy) and the NPD. The Storting decides on the opening of new areas of the NCS to petroleum activity, and the government awards licences.

Exploration activity was concentrated during the 1970s in the area below the 62nd parallel, which marks the northern limit of the North Sea.

The Storting wanted a moderate pace of exploration and opened the NCS gradually. A limited number of blocks were put on offer in each licensing round.

Norway’s petroleum industry was initially dominated by foreign companies, which were responsible for developing the first oil and gas fields. Although the government wanted these players to remain, it was also convinced that building up domestic expertise was equally important.

When Den norske stats oljeselskap a.s (Statoil) was established on 14 June, it was also decided that the state would have a 50 per cent holding in each production licence.

The Storting subsequently resolved that this proportion could be increased or reduced on the basis of an assessment in each case.

Statoil’s goal was to become a fully integrated oil company as quickly as possible. It would explore for, produce, transport, process and market oil and gas.

In addition to Statoil, wholly owned by the state, Norway’s partly state-owned Norsk Hydro and fully private Saga Petroleum companies came to set their stamp on national offshore activities.

1973 – Oil crisis

Members of the Organisation of Petroleum Exporting Countries (Opec) instituted a boycott in October of countries which had supported Israel in the Yom Kippur War.

This boosted oil prices by 70 per cent in the same month, followed by a further 130 per cent jump in December. They climbed from around USD 2.80 per barrel before the crisis to roughly USD 10.50 when it was over in 1974.

In Norway, the crisis led to the closure of all service stations on Saturday and Sunday and after 19.00 on weekdays. A ban on weekend driving was instituted in December.

Preparations were made for petrol rationing from the January, but this was never instituted. An unusually mild winter and extensive hoarding meant that the restrictions could be lifted in February.

The oil crisis also plunged Norway’s shipping industry into a long-lasting depression.

1974 – A giant is found

Statfjord was proven in the North Sea, with the bulk of its resources found to lie on the Norwegian side of the boundary. A smaller proportion extended into the UK sector.

All its production installations stand on the NCS, and it is run from Norway with Statoil as operator (after replacing Mobil in 1987).

This field ranks as one of the world’s largest offshore oil discoveries, and also contains substantial volumes of associated gas.

1977 – Bravo blowout

The first uncontrolled blowout on the NCS occurred on 22 April, involving the Ekofisk Bravo platform in block 2/4 in the North Sea.

Attracting huge international attention, this incident laid the basis for the strict safety and environmental regulations enforced on the NCS.

Professional well-killers Red Adair and “Boots” Hansen were flown in from the USA to halt the blowout and succeeded on 30 April – eight days after the incident began.

This became the biggest media event in Norwegian history. A few hours after the news had been announced, journalists from all over the world started pouring into Stavanger.

A special commission of inquiry was appointed, which sharply criticised the operator’s control of the well and a number of other conditions – including emergency response.

Fortunately, the blowout caused less damage than feared. The oil slick dissipated before reaching North Sea beaches. But the debate on its possible environmental impact delayed a start to exploration drilling above the 62nd parallel by two years.

– Unions established

The independent Federation of Offshore Workers Trade Unions (Norwegian Oil and Gas Associatio) and the Norwegian Oil and Petrochemical Workers Union (Nopef) – affiliated to the Norwegian Confederation of Trade Unions (LO) – were created.

Few offshore workers were initially unionised, but the LO organised crew on the first drilling rigs. This position was weakened when production began from fixed installations. The foreign companies were known for their unwillingness to deal with unions and tried to prevent the LO from establishing itself.

The oil companies wanted local house unions unaffiliated with the national federations. Formed by Phillips employees in 1973, the Ekofisk Committee fitted that model.

But it soon sought contacts with others, and joined forces in 1977 with the house unions for Mobil and Elf to establish the OFS. The LO responded by forming Nopef.

Many groups of workers in the North Sea felt it would be advantageous to stay outside the LO. The aggressive stance of the OFS and its willingness to strike yielded pay benefits and attracted ever more members.

Few labour conflicts occurred on the NCS before 1978. In the years which followed, oil workers went on strike far more often than other occupational groups.

A number of these disputes reflected poor working conditions and authoritarian treatment. Others focused on pay and related issues. Many led to big pay rises – especially in the early 1980s.

The government disliked both the strikes and the knock-on effect of offshore pay levels, and responded with extensive use of compulsory arbitration. Pressure was also put on the oil companies to limit the pay growth.

In 1981, the Norwegian Employers Association for Operator Companies (Noaf) was established and joined the Norwegian Employers Association (NAF). This was the predecessor of the Norwegian Oil and Gas Associatio.

Pay had previously been negotiated by each company, but all operator-union deals which conferred the right to strike were now consolidated into a single agreement.

Noaf, the OFS and Nopef eventually established collaborative relations and negotiations in line with the model familiar in mainland Norway.

The number of labour conflicts on the NCS declined towards the end of the 1980s, while Nopef managed to strengthen its offshore position.

1979 – Jewel in the crown

The first of the three large concrete platforms on Statfjord came on stream, with US oil company Mobil as operator until Statoil took over in 1987.

This field was called the “jewel in the crown” of the Norwegian oil adventure because of its huge size. It remains the world’s largest offshore oil discovery.

Troll was also proven in 1979, with 1 300 billion cubic metres of gas. It took 17 years to bring the field on stream, and Norway became one of the world’s most important energy suppliers when Troll gas began flowing to continental Europe in 1996.

Every year, the field yields 3.5 times as much energy as all the Norwegian hydropower stations put together. The first long-term sales agreement for its gas was signed as early as 1986.

1980 – Alexander L Kielland disaster

The Alexander L Kielland flotel turned turtle on 27 March 1980 near the Edda platform in the Ekofisk area of the Norwegian North Sea, creating the biggest disaster in Norway’s oil history.

This accident woke up both government and industry, and the country’s oil and gas industry developed in subsequent years into a world leader for safety.

One of the five support columns on the rig broke off because of fatigue cracking in a steel brace. One of the worst accidents in Norwegian history, it claimed the lives of 123 people.

In the hours after the Alexander L Kielland overturned, seven planes and 19 helicopters from Norway, Denmark, Germany and the UK searched for survivors and bodies.

Nine naval vessels and 71 civilian ships from the whole North Sea area also participated in the rescue operation during a strong gale with winds gusting up to hurricane force. Eighty-nine of the 212 people on the rig were saved.

This disaster led to new and tougher safety standards on the NCS, with better routines for emergency response and the development of more efficient rescue equipment.

– Exploration drilling moves north

Parts of the NCS north of the 62nd parallel were opened to oil exploration by the government. Such a move had been politically controversial throughout the 1970s.

The Labour government wanted to start drilling in 1977, and was backed by the Conservatives. These plans were also supported by the three northernmost country councils on the grounds that oil activity would provide new jobs and development.

However, the fishing organisations, the environmental movement, the Socialist People’s Party and the centrist parties feared that such an expansion could have both environmental and economic consequences.

Disagreement also prevailed within the government. The Ministry of the Environment had the plans postponed by a year because of the lack of emergency response.

The uncontrolled blowout on the Ekofisk Bravo platform in 1977 led to a further two-year postponement.

1981 – Discoveries in the Norwegian Sea

Midgard (now part of Åsgard) was the first discovery in the Halten Bank region of the Norwegian Sea off mid-Norway, which has since become an important area for the country’s petroleum industry.

The Draugen field came on stream in 1993 from a fixed platform, Heidrun in 1995 from a tension-leg floater, Njord in 1997 with subsea wells and a floating steel platform, Norne – which lies north of the actual Halten Bank – in 1997 with a production ship, and Kristin in 2005 with a semi-submersible platform.

Åsgard, which embraces Smørbukk and Smørbukk South as well as Midgard, has been developed with subsea wells tied back to a production ship for oil and a semi-submersible for gas.

1984 – Snøhvit found

The Snøhvit gas field in the Barents Sea was discovered.

In the same year, the Storting resolved to establish the State’s Direct Financial Interest (SDFI) in the offshore petroleum sector.

A proportion of Statoil’s holdings in a number of fields were transferred to a special account in the Ministry of Finance. This was because revenues from these assets had become much bigger than first expected, and it was felt to be wrong that all the government’s earnings should flow via Statoil’s accounts.

Revenues from the SDFI today account for the great bulk of the capital held by the government pension fund – global (the oil fund).

1986 – Go for gas

The Storting approved the development of the Sleipner East and Troll fields, boosting Norway’s growth as a gas producer. The country has become one of the most important energy exporters to the European market. Norwegian gas is sold today to all the major consumer nations in western Europe.

1987 – Change of operator

Statoil took over as operator of Statfjord after years of political controversy and conflict with its predecessor, Mobil. But this change was very successful because of good collaboration between the two companies.

Statfjord proved extremely important for Statoil’s continued development as an operator on the NCS and internationally.

1988 – Expensive on land

The extension of the Mongstad refinery north of Bergen was opened after four years of construction and conversion of the existing facility. Arve Johnsen had to resign as chief executive of Statoil after major budget overruns.

Ships carrying some 190 million barrels of crude call at the associated Mongstad terminal every year.

1991 – Concrete sinking

The concrete gravity base structure (GBS) for the Sleipner A platform in the North Sea sank on 23 August during a test submersion in the Gands Fjord outside Stavanger.

Resulting from a design fault, the accident caused no deaths. Norwegian Contractors built a new GBS, which was finished in time for production to start as scheduled two years later.

­– New tax

The introduction of a Norwegian carbon tax prompted the oil industry to take a number of steps to reduce greenhouse gas emissions from the NCS.

Norway has always imposed strict environmental regulations on petroleum production and transport. From the start, for instance, permanent gas flaring – normal in virtually all other producing countries – was prohibited on Norway’s oil fields.

The carbon tax has reinforced the attention paid by the industry to the environmental dimension, and strengthened Norway’s position as the world’s cleanest petroleum producer.

1992 – Another pipeline

The Storting approved the installation of the Haltenpipe gas line between Heidrun in the North Sea and Tjeldbergodden in mid-Norway, and construction of an associated methanol plant.

Completed in 1996, this line is 245 kilometres long.

1996 – Gas great power

Gas deliveries from Troll began, helping to make Norway a “great power” in the European gas market and the second largest gas exporter to continental Europe after Russia.

1997 – The last big one

Ormen Lange became the last major discovery on the NCS, lying 120 kilometres from land in 850-1 100 metres of water – a depth which called for completely new development solutions.

The field came on stream in 2007, with the gas landed in Aukra local authority for dewatering before export to the UK through the Langeled pipeline.

1999 – Preserving a young industry

Norway and Stavanger acquired a museum dedicated to the oil and gas industry. The Norwegian Petroleum Museum documents and exhibits the country’s offshore history – both its achievements and its challenges.

This allows the general public to acquire both an experience and an understanding of the way the industry and society have managed Norway’s most important economic sector.

– Sold and split

Saga Petroleum was acquired by Norsk Hydro and Statoil, a substantial Saga shareholder, took over part of the latter company’s interests on the NCS after negotiations with Hydro.

Shareholders in Saga chose to sell after its financial position had been weakened by acquiring Kuwait-owned Santa Fe Exploration at the same time as crude prices fell.

Åsgard came on stream in the Norwegian Sea, producing both oil and gas. The Åsgard Transport pipeline to Kårstø north of Stavanger tied the NCS off mid-Norway into the gas infrastructure further south, strengthening Norway’s ability to and flexibility of supply in relation to continental European markets.

2000 – Peak reached

Oil production peaked on the NCS. To stimulate exploration, the government produced a scheme which made it attractive for new companies to become involved in Norwegian offshore activity.

2001 – Listed

Statoil became listed on the Oslo and New York stock exchanges on 18 June. This followed a Storting decision in 2000 on partly privatising the company and selling it part of the SDFI.

2004 – Regulator split

Safety and control functions were separated from the NPD to ensure their independence from the resource management and production side. The Petroleum Safety Authority Norway (PSA) was established as an independent regulator responsible for health, safety and the working environment on the NCS.

2005 – Farewell to Frigg

The decommissioning of the Frigg field began. This was the first large gas field to begin production on the NCS, and had platforms on both British and Norwegian sides of the boundary. The frontier between the two countries cut across the gangway linking these installations.

2007 – Production start and merger

Gas fields Ormen Lange in the Norwegian Sea and Snøhvit in the Barents Sea came on stream. Statoil also merged with Hydro Oil and Energy to create a single company – initially called StatoilHydro but renamed Statoil in 2009 to accord with government wishes.

Snøhvit ranks as the world’s northernmost producing field, and utilises the longest multiphase flow transport system on the planet. This means that unprocessed gas, water and lighter hydrocarbons are sent together through the same pipeline.

Gas from the field is exported by specialised liquefied natural gas (LNG) carriers, primarily to the US east coast but also to Spain.

Ormen Lange is Europe’s third largest gas field, with the world’s largest gas wells. Output travels from Norway to the UK via the world’s longest submarine pipeline.

2011 – Still viable

Norway can celebrate 40 years as an oil and gas producer. This sector is the country’s most important industry, directly and indirectly employing 250 000 people nationwide.

A vocal debate is simultaneously being conducted on the industry’s future, and decisions taken over the next couple of years could have great significance for Norway’s long-term status as an oil and gas nation.