1. Petoro role and strategy
A driving force offshore Norway
Petoro role and strategy

2. Development of the NCS business
1960’s 1970’s ’s ’s ’s ’s
Oklahoma
pioneers
Further t&c improvements
royalty, CO2 tax
Parliament cuts
red tape
Gov. accept EU
gas liberalisation
GFU out – comp. based gas sales
SDFI sale, Statoil privatisation
Petoro
Gassco
Predictable t&c
New drive for
the Arctic
Industry boom
by private enterprise
but then....
State takes control
through Statoil,
NPD, regulations and the
taxman
New areas open
up for the industry
internationally
=competition for
capital and people
Improved t&c
Norw. industry
sees need to
compete abroad
Statoil wins strong
positions through
BP alliance
Gov. accepts EU
liberalisation
of licensing and
purchasing
Focus on politics
=suboptimal
solutions?
= cost overruns
Too much Statoil
= SDFI
Huge t-o-p gas
deals by Statoil,
= later GFU
1986 price fall
= tax cut
= new investments
Majors complain,
.....but remain
High oil prices,
hightened
government
take
Examples of
hidden ”re-nationalisation”
Global
positioning
More market
Commercial
thinking
MARKET
OPPORTUNITIES KNOCKS
Little
awareness
in Norway
”Let the foreigners do this”
Send in
the state
“Resource
nationalism”
Politics
before value?
More government
Statoil
established
1972
SDFI
established
1985
Petoro
established
2001
Petoro role and strategy

3. Petoro offshore Norway
Others
Petoro act as owner on behalf of the government (§11)
Role: licensee in the offshore licenses/fields
Votes for the government share
Jonit venture cooperation
Only the NCS – and not operator
165 licenses/jv interesets – 40 producing fields
Commercial goal
Max. value of the SDFI
Influence through ownership/competence – not by exercising authority
Monitoring Statoils marketing/sales
Max. value, just distribution of cost/income
Financing, management, owner control:
Parliament funds operations
The Minister is the General Assembly
Professional board
Government rules for economic control asplies
Audit General
IOCs
Cash flow 103,6 bn NOK
Production (kboed) 1,08 mill boe/d
Number of licenses 146
Number of fields 36
Number of employees 70
Value of SDFI bn NOK
Petoro role and strategy

4. What is SDFI – and Petoro?
The State Direct Financial Interest = A portfolio of direct government owned oil and gas reserves, fields and facilities for processing and transportation.
Petoro AS = A government owned management company which acts as the owner of SDFI on behalf of the government in licenses and other joint ventures where SDFI has an ownership share. Petoro’s goal is to maximize the economic value of SDFI – based on sound business principles.
Petoro role and strategy

5. SDFI basics SDFI (State Direct Financial Interest)
1985: SDFI established
SDFI is owned by the Norwegian State
SDFI accounts (income and expenses) are integrated in the Norwegian State’s accounts and a part of the Norwegian State’s budget
From 1985 to 2001 SDFI was managed by Statoil
Management based on business principles
Towards third parties Statoil appeared to be owner of the SFDI
SDFI represents about 1/3 of Norway’s reserves/production
Petoro role and strategy

6. Petoro basics Petoro was established in May 2001
Petoro - management company for the SDFI portfolio
Took over the management after the privatization of Statoil
Formal position as a licensee
Petoro is a partner in the production JV’s – never operator
Petoro is a State owned company, funded by Parliament via the State budget
Petoro role and strategy

7. Main principles of Petoro in the Petroleum Act (Section 11)
The State participates in the petroleum activity by retaining a share in selected production licenses or taking a share in infrastructure ventures when granting the license.
This share is the SDFI-share owned by the State
Petoro 100% state-owned company charged with managing the business aspects of the SDFI interests in the Norwegian petroleum activity
Petoro is a licensee and party to all license agreements and other relevant agreements
All income from the SDFI-share belongs to the State
All costs or investments relating to the SDFI share are covered by appropriations in the annual State budget
All costs of Petoro as the management company are covered by appropriations in the annual State budget
Separate accounts for SDFI and Petoro
The Norwegian State is by law liable for all obligations undertaken by Petoro
Petoro is a limited company and standard corporate governance principles apply
However; the board have some additional obligations; asset transactions are decided by the Minister under mandate from the Parliament
Petoro role and strategy

8. The wider government context
The Norwegian Parliament
The Government
Ministry of Petroleum and Energy (MPE)
Ministry of Labour (MOL)
Ministry of Finance (MOF)
Ministry of the Environment (MOE)
Norwegian Petroleum Directorate (NPD)
Petroleum Safety Authority
Government Pension Fund Global
Petroleum tax office
The Climate and Pollution Authority
STATE OWNERSHIP
EXERCISING AUTHORITY
Oil and gas companies
Statoil (ca 67 %)
Ptoro (100%)
Shell
ExxonMobil
ConocoPhillips
Total BP
Eni
etc.
Petoro role and strategy

9. From oil to money (PET to ORO) …and from money to more money
SDFI = 35-40%
Yearly SDFI
cash flow
~100 bn. NOK
Petoro role and strategy

10. Big job for small company
PRECONDITIONS FOR SIZE:
Statoil markets and sells all the oil and gas under a common strategic ownership
Parliament accepts that Petoro’s responsibility for a number of small and non-strategic fields can be outsourced to other companies
Parliament accepts that Petoro does not need all competencies and capacities of the international oil companies
Petoro has been able to muster competence and capacity from two competing Norwegian companies, Statoil and Hydro
THINGS HAVE CHANCED
After the Statoil-Hydro merger, Petoro needs to do more technical and commercial work/studies of its own
The maturing of the NCS implies increased focus on big mature fields, not least by Petoro due to major state ownership
Petoro role and strategy

11. Champion of prioritization
80 % of value in first 10 assets, 95 % in first 20
100
200
300
400
500
600
700
800
900
1000
80%
License management:
Active
Selective
Administrative
Accumulated 7% before tax
Wood Mackenzie
Petoro role and strategy

12. Influencing business decisions
Ability to
influence
spending
Actual spending
IOR
pilots
Maturing
reserves
Quantum leaps in pro- duction drilling
Technology
qualification
Area
development
options
Progress monitoring
Challenge and support operators (partly by leaving them alone…)
Feedback/learning
Benchmark
Transfer of experience
Drilling
efficiency
Integrated
operations
Operations
strategy
Availability
of drilling
rigs
Drainage
strategy
Active (but not quite
as active) partner
Pro-active partner
Decision phase
Execution phase
Petoro role and strategy

13. NCS – opportunities and challenges

14. Petoro role and strategy

15. NCS: Great opportunities – and challenges
Potential for high output – long time
Smaller discoveries – new areas to drill are needed
More to gain from fields than from new discoveries
Time criticality in mature fields
TURNAROUND: Ways of the past won’t meet challenges of the
future
Total: 4,5 mill boe/d
(2004)
Recoverable
resources
(NPD-2011)
Oil: 3,4 mill b/d
(2001)
Undiscovered Discovered
Resources in fields
Reserves
Produced/sold
Total
Oil
Prognosis
(NPD 2011)
Historic production NCS (Source: NPD)
Illustration based on NPD-outlook 2009
and reduced estimates in 2011
1970
1980
1990
2000
2010
2015
2020
2030
Petoro role and strategy

16. Mature fields – backbone for further development
Other fields
10 biggest fields in 2010
Win- win, big- small fields
Source: RNB 2010
80% of SDFI oil and gas production from 10 field i the period
Petoro role and strategy

17. 2-3 times more production wells needed
REALITY:
No. of wells halved since 2001
Well cost quadrupled
WE NEED:
Better understanding of reservoirs and reduced well cost to increase investors’ confidence and drill 2-3 times more wells
NOK millions
No. of wells
2.5 km
Investments per well from fixed structure
Investments per well from floating structure
Number of wells
2005
1985
Source: Statoil
Petoro role and strategy
Scource: Statoil

18. The installations live longer than designed for
Increased production - increased life
Increased lifetime - opportunity for the development of new discoveries – and IOR/EOR
Aging – requires investment in integrity management
Installations age at expected abandonment
Installations age at expected abandonment
Typical lifetime is years
Expected abandonment
Scource: RNB
Petoro role and strategy

19. Investments are time critical
Production
Production wells
Modifications/ infrastructure
Investments
Time
Illustration of typical field life span
Petoro role and strategy

20. Golden times
….which harm profitability and disguise the need for time critical investments and cost control
Petoro role and strategy

21. Oil production falling faster than we think
2001:
3,42 mill b/d
What we thought in
2005 about 2010
2010:
1,86 mill b/d
45% ned
fra 2001
Kilde: OD
Petoro role and strategy

22. Time critical measures Trenger flere brønner – borer færre
Oljeproduksjonen faller
Vi investerer ikke ihht planer
3,42 mill fat/d
- 45,5%
Investeringer i SDØE-porteføljen
1,86 mill fat/d
Long term challenges
Time critical measures
2001
2010
Ny kostnadstsunami
Trenger flere brønner – borer færre
Petoro role and strategy

23. Challenging concentration of ownership
Partner shares of key fields
Diversity of IOCs, NOC and others was key to successful development of the Norwegian oil and gas business
Picture have changed:
- Petoro big partner
- Statoil dominating operator
- IOC drive for global growth may lead to reconsiderations
- New players – in exploration, not in mature fields
Eierskap i SDØE/Petoros 11 viktiste felt
Statoil SDFI Others
Others: 12 companies, mainly IOCs, avg. share: 9%
Petoro role and strategy

24. Petoro’s strategy for the period 2010 – 2015
SDFI portfolio, dependant on few fields with long production lives
Realise the potential in and around large mature fields
Increase the lifetime of prioritised installations through technology selection, efficient drainage methods and more wells
Prioritize selected installations to main hubs and provide solutions for area discoveries
Holistic and timely development of the gas value chain
Robust sales strategy for a challenging market (short and long term)
Optimizing capacity investment and the phasing of new fields
Explore business opportunities in the Vøring and the Barents Sea south
Continued exploration and maturation of resources – Snøhvit train 2 key in the Barents Sea
Ensure prioritization of the SDFI resources
other fields
10 largest fields in 2010
SDFI-portfolio - From oil and gas to gas
Petoro role and strategy

25. Petoro’s top three fields
HEIDRUN
Improved understanding of the reservoir, more and cheaper wells,
draining strategy
Petoro’s top three fields
Petoro role and strategy

26. Petoro’s top three fields
GULLFAKS Confidence in the reserves base, long term draining strategy, profitable and safe water injection, increased drilling pace, consider new well head platforms
Petoro role and strategy

27. Petoro’s top three fields
Foto/illustrasjon: Statoil
SNORRE more wells, increased gas injection and advanced EOR. Petoro initiative for 1-2 new wellhead platforms. Cost of aging.
Petoro’s top three fields
Petoro role and strategy

28. A driving force offshore Norway