Norway began its petroleum era in 1965. Prior to this we had no experience in oil and gas and our authorities stated with great decisiveness that there was no possibility of discovering oil and gas in Norway. However, in 1962 Phillips Petroleum came to Norway and offered $1 million for the exclusive right to all oil and gas resources on the Norwegian continental shelf for the next 40 years. Luckily some wise people in the Ministry of Foreign Affairs did not agree. We began to wonder whether there was something there and in 1963 the country claimed property rights over our oil and gas resources. As Norway is comprised of granite it has no oil onshore, but the continental shelf is different.
We established a basic law, only a few paragraphs long, allowing the government to permit oil companies to carry out oil and gas activities. As we had no domestic expertise we invited in foreign companies and decided we would do all we could to create our own oil and gas expertise in Norway. We also set out simple basic aims for the oil and gas sector in 1965 which remain the same today. Simply put, we wanted the oil companies to help us maximise the value creation from our activities; we wanted to be at the forefront environmentally and with regard to safety; and after we built up our expertise we wanted our industry to be international.
We were not a significant petroleum producer in 1965 but it has been developed. I will not go into detail on this, but after 40 years of production oil and gas are very important to the Norwegian economy and today we are the world's second largest gas exporter and the seventh largest oil exporter. In 1965 it was thought that Norway had perhaps 2% of the total oil and gas resources in the world. We are a small country and we do not use much oil and gas ourselves; therefore, we export almost all of the gas and oil we produce. This has been very advantageous to the Norwegian economy. When I studied law a long time ago I did my thesis on oil and gas law, and the policy principle then was that Norway should not become dependent on oil and gas revenue. However, we have become dependent on it.
Our key to success is good resource management. The ministry in which I work has been tasked by law to ensure oil and gas resources on our continental shelf are managed to benefit society as a whole. This has been the red thread in our activities and in the actions of our authorities since 1965. The international oil companies contribute with capital, competence and the most modern technology, and in our experience this is important. We decided to ensure Norway would be in control of all phases of the activities including dealing with seismic data, drilling expression wells, developing oil and gas fields, shutting down fields and removing platforms and installations. Our law has been structured so that each important activity is subject to approval or consent by the authorities, in most cases the Minister of Petroleum and Energy. This has been the case since the beginning and is key to our success story.
We have maintained the same system for 40 years without making many changes. We have also had political consensus throughout the past 40 years on petroleum policy in Norway. We try to ensure competition between the oil companies when we award permits for oil and gas resources. We have tried to create a fiscal regime that ensures for the state the biggest share of the revenue while leaving enough to attract companies to remain. This is our recipe, so to speak.
As I have said, we established our petroleum policy at a very early stage. The most important tools in implementing such a policy are the petroleum legislation, which should reflect the policy principles, good resource management, which I have mentioned, and the award system, whereby oil companies are given oil and gas exploration and production rights. Norway has a petroleum Act, a set of regulations and some technical regulations. Important regulations are laid down by royal decree of the King in council. The King of Norway meets the Norwegian Government every Friday. We were asked how we developed our petroleum legislation. It is not as complicated as it seems. We introduced a very simple law in 1963 and a set of royal decrees in 1972. Since then, we have basically kept the system that was put in place at that time. The system was developed into a law in 1985. That law was substituted with another law in 1996. As Norway is part of the European Economic Area, it has to implement directives in its legislation, just as Ireland has to do.
We were also asked how we have organised our state administration to take care of our oil and gas activities. The Parliament has the top role in that regard, just as it does in Ireland. It is followed by the Government. The Ministry of Petroleum and Energy of Norway is in charge of giving rights to oil companies to explore for and produce oil and gas. The Ministry has a subordinate directorate, which is known as the petroleum directorate, and also has technical and geological branches. The Ministry of Labour and Social Inclusion is in charge of health and safety. The Ministry of the Environment is also important. As these activities take place at sea, the Ministry of Fisheries and Coastal Affairs always has an important role. A basic principle of our oil and gas activities has always been to ensure there is a good coexistence between fisheries, shipping, tourism and other uses of the sea. The Ministry of Finance is also very important. I can come back to the companies that are mentioned on the slide, one of which is Statoil.
I would like to speak about our responsibilities with regard to environmental issues. Norway is subject to the same environmental directives as Ireland. We have to carry out environmental impact assessments before areas of the continental shelf can be opened to petroleum activities. We do that in a step-by-step manner in order to ensure that not too many areas which are too large are given over to this use at the same time. We want to ensure the oil companies are doing geological mapping. That is the only way we can know whether we have oil and gas. When the Ministry of Petroleum and Energy carries out impact assessments on various areas, they are presented to the Parliament, which decides whether the areas in question should be opened for petroleum activities. Not all areas in Norway have been opened. Norway is responsible for a huge continental shelf which is seven times the size of the country itself. Just a few parts of it have been opened.
When we award production licences, we engage in public consultation. When we develop oil and gas fields, build pipelines or decommission fields, we provide for impact assessments to be carried out by the oil companies. That has resulted in the Government, over time, acquiring a very good knowledge of Norway's continental shelf, ocean areas, fish currents, coral reefs, environmental treasures, etc. It is a very good system. We decided from the first day to apply a licensing system. The Norwegian Government never signs agreements with oil companies because an agreement makes one bound by a contract. All experience in this sector shows that developments happen as time goes by. In such circumstances, one can regret entering into a contract with an oil company. It cannot be changed unless the company consents to such a change. We have never done that.
We call the concessions we award to oil companies production licences. We award them in dedicated licensing rounds. As a result, companies do not come to us - we come to them. We invite the oil companies to apply for production licences at regular intervals. This happens every second year, on average. My Ministry is responsible for conducting these licensing rounds. The final decision on licensing is taken by the King of Norway in council. The King has been given the authority by the Parliament to take the final decision. We do not go to the Parliament with these awards. We normally award these production licences to groups of companies because we have seen, in practice, that a single company is not as good at controlling its own costs and use of money as a group of companies. Most often, a single company does not have the best geological ideas. We apply what we call "the principle of plurality", which means that when more companies operate in a group, they are more creative when it comes to geology and they are able to share the costs and the responsibilities. In our experience, this is an important issue. We no longer award production licences to single companies. They have to work with other companies.
Each production licence gives the group of oil companies an exclusive right to explore for and produce anything it might find. In our experience, it is important to give such groups the security to spend money on exploration in the knowledge that they will have a right to produce whatever they find and deem profitable. We give them licences to explore and produce. In Norway, the licensees become the owners of proportionate shares of the oil and gas they produce. They are free to sell and market that oil and gas to whomever they like. Of course we have provisions in our law requiring that oil and gas be delivered to Norway in specific cases such as war or some other crisis. Those provisions have never been used. The main rule is that the companies are free to sell their oil and gas as they see fit. The Ministry of Petroleum and Energy decides the composition of these licence groups as part of what we call a discretionary system. We decide what company will be the operator. As that company will be doing the day-to-day activity, it has to be very competent. We do not use signature bonuses and never did. We want the companies to use their money for geological mapping. We oblige the companies to accept what we call a work obligation, as a condition for being awarded the production licence, following which the Ministry for Petroleum and Energy decides the work obligation, which the companies have to accept. They always accept it.
Another condition for the award of the production licence is that companies form a joint venture for the licence area in question. That joint venture is not a company that has been stipulated in our companies Act but the companies share the costs and the responsibilities in the area covered by the production licence.
A member asked if Statoil is treated in line with the other oil companies. The answer to that question is "yes", but it was not like that from the beginning. Statoil was established as soon as we knew there were profitable volumes of oil and gas in Norway. It was established in 1972 as a 100% State owned oil company and had a few privileges to build the company. One privilege was that the international companies had to carry Statoil in the exploration phase. That means that as Statoil had 50% in all joint ventures, the cost of exploration for that 50% had to be covered in proportionate shares by the other licensees. That is a fairly common procedure. In that way we built Statoil to the extent that today it is the largest company in Scandinavia. These privileges were maintained for about 20 years but at the beginning of the 1990s they were done away with. Since then Statoil has been treated like any other oil company in Norway. It has to apply for production licences and it does not get the licence if it is not considered to be the best company. We treat Statoil in the same way as any other oil company. We privatised Statoil in 2001 and sold off 20% of the company. It was the largest oil and gas listing in the world in 2001. Today we own 67% of Statoil.
A member also asked about refineries. We do not have many refineries in Norway, but we have two. We are a small country and we are a raw material exporter. We have two refineries, one of which is being redeveloped. The plan is to have that refinery fitted with carbon capture and storage. The investment decision will be taken in 2016. We are working on finding suitable reservoirs on the continental shelf for storage of CO2.
Another question was how we consult the public in regard to our activities. We consult the public all the time. We were lucky because we started in 1965 at a time when communications were not the same as they are today and all the work happens at sea - therefore, one cannot see it. Over time other authorities have become very interested in this activity and are controlling and monitoring what we do all the time. Before opening new areas on the Continental Shelf, impact assessments are carried out by the Ministry for Petroleum and Energy and there is three months public consultation. When the Parliament is presented with the impact assessments we have to inform the Parliament of the comments received and how we have handled them. This is part of the opening process and part of the decision taken by Parliament.
Before inviting oil companies to apply for award of new production licences, we put the blocks out for public consultation for a period of six weeks. If the Ministry of Fisheries and Coastal Affairs or the Ministry of the Environment have grave objections those areas will be taken off the list.
Before oil companies are allowed to develop oil and gas fields they must present a plan to the ministry for approval. Part of that plan is the impact assessment which is also submitted for public consultation for three months. The same applies if the oil companies need to build pipelines for transportation of gas. We have 8,000 km of sub-sea pipelines in Norway for transportation of gas to England, Germany, Belgium and France. In that case the oil companies are required to carry out impact assessments and submit them for three months' public consultation.
Before any field is shut down an impact assessment must be carried out and submitted for six weeks' public consultation. We have regular public consultations several times a year where many comments are made.
I was asked if there was any good advice for the committee. If one awards many licences or rights to companies in neighbouring areas a good piece of advice would be to apply the principle of unitisation. That means that if companies discover an oil and gas field extending across the border of two licences they should not be allowed to start producing oil and gas from each end of that field. They must make a joint group in order that the field can be exploited as one unit. That is an example of good resource management because the Government will be able to control how that resource is produced in the best manner possible. In our experience that is very important.
I took part in the negotiations on the limitation agreement with the Russians for 13 years and in writing the oil and gas provisions of that treaty and the unitisation principle has also been included. We do not allow any development to take place before a unitisation agreement has been entered into between the groups of companies on each side of the field. We force the companies to enter into the agreement before being allowed to develop.
An extremely important piece of advice is to ensure that copies of all data the oil companies gather, particularly seismic data which are extremely expensive to gather, must be submitted to the State free of charge. Many countries forget to make such a requirement. The companies will often say, "sorry, this is my property, you will not have it". Then the country will not know its own geology and has to ask the oil company. That is extremely important. We have used this principle for 40 years. Of course we have the best knowledge of our own geology and that is a big advantage today when we negotiate with oil companies.
The prohibition on the laying of gas pipes is another very good piece of advice. We did not start producing gas in Norway until 1988 because of a prohibition and there was no market for it. We are offshore but there was no pipeline to transport the gas. We said to the companies that unless they create the market they would not be allowed to produce gas. Since 1988, as I said, 8,000 km of gas pipelines have been built and we did not burn it. That would have been like burning money.
With regard to the last question, we control production volumes at all times through annual permits for producing oil and gas. We have approved plans for the development of oil and gas fields but then the oil companies, in the plans, can propose to produce a certain type and amount for so many years yet we still require them to apply for a production permit every year. It ensures that the cream of our resources is not skimmed off. The oil companies will always try to earn money quickly while the state wants to ensure that as much revenue as possible is collected from the production of its resource. The oil companies are simply the helpers but the oil and gas resources are ours. They must submit applications every year for permits.
In our experience oil companies say that they will produce X volume from a particular field but often when they start producing the field is much larger and they can produce three or four times the volume. Therefore, it is important to have this kind of system whereby the State controls the volumes that the companies are allowed to take out every year.
Lastly, companies are allowed to assign their shares in production licences but they are subject to the consent of the Minister for Petroleum and Energy. The measure enables us to know who is the licensee and whether they are qualified at all times.
