Identifier
Created
Classification
Origin
06OSLO363
2006-03-23 14:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Oslo
Cable title:  

AMBASSADOR MEETS NORWEGIAN PETROLEUM

Tags:  EPET ENRG EINV ECON PREL SENV NO 
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R 231436Z MAR 06
FM AMEMBASSY OSLO
TO RUEHC/SECSTATE WASHDC 3678
INFO RUEHSM/AMEMBASSY STOCKHOLM 2796
RUEHHE/AMEMBASSY HELSINKI 7769
RUEHRK/AMEMBASSY REYKJAVIK 0659
RUEHCP/AMEMBASSY COPENHAGEN 2031
RUEHLO/AMEMBASSY LONDON 1324
RUEHMO/AMEMBASSY MOSCOW 3870
RUEHHH/OPEC COLLECTIVE
RUCPDOC/USDOC WASHDC
RHEBAAA/USDOE WASHDC
RUEHBS/USEU BRUSSELS
UNCLAS SECTION 01 OF 04 OSLO 000363 

SIPDIS

SENSITIVE
SIPDIS

PARIS FOR USOECD
STATE FOR EUR/NB RDALLAND, EB/ESC SGALLOGLY,
RGARVERICK
USDOC FOR 4212 MAC/EUR/OEURA
USDOE FOR PI DPUMPHRY, ZHADDAD, LEKIMOFF; FE FOR
EROSSI, JSLUTZ, GDEHORATIIS, JSWIFT

E.O. 12958: N/A
TAGS: EPET ENRG EINV ECON PREL SENV NO
SUBJECT: AMBASSADOR MEETS NORWEGIAN PETROLEUM
INDUSTRY LEADERS IN STAVANGER

Summary
-------

UNCLAS SECTION 01 OF 04 OSLO 000363

SIPDIS

SENSITIVE
SIPDIS

PARIS FOR USOECD
STATE FOR EUR/NB RDALLAND, EB/ESC SGALLOGLY,
RGARVERICK
USDOC FOR 4212 MAC/EUR/OEURA
USDOE FOR PI DPUMPHRY, ZHADDAD, LEKIMOFF; FE FOR
EROSSI, JSLUTZ, GDEHORATIIS, JSWIFT

E.O. 12958: N/A
TAGS: EPET ENRG EINV ECON PREL SENV NO
SUBJECT: AMBASSADOR MEETS NORWEGIAN PETROLEUM
INDUSTRY LEADERS IN STAVANGER

Summary
--------------


1. (SBU) The Ambassador met with leading U.S. and
Norwegian petroleum firm executives during his
initial visit to Stavanger, Norway's "oil capital,"
March 13-15. Discussions with Statoil,
ConocoPhillips, ExxonMobil, Marathon and
Halliburton focused largely on the firms'
operations and plans on the Norwegian Continental
Shelf (NCS),High North energy, and Russia's
Shtokman natural gas project. With respect to the
High North, some executives were skeptical about
prospects for the Norwegian side of the Barents
Sea. ConocoPhillips is bidding on Barents acreage
in Norway's 19th petroleum concession licensing
round, but considers it a "high risk" option
unlikely to be developed for a decade or so.
ExxonMobil is not bidding at all. Statoil, on the
other hand, is sinking billions into developing
Barents resources, notably the Snoehvit natural gas
field off Hammerfest. Two companies on Gazprom's
shortlist for the Shtokman project --
ConocoPhillips and Statoil -- were enthusiastic
about its prospects. Both firms wished to see
Norway and Russia settle the disputed maritime
border to open up promising areas of the current
"disputed zone" to exploration. End summary.

Statoil: Determined to Push into High North
--------------


2. (SBU) Statoil CEO Helge Lund laid out the
company's "strategic agenda" for the Ambassador.
Lund cited four key areas. First, Statoil aimed to
continue growing on the Norwegian Continental
Shelf, including in the Barents, with an ambitious
goal of producing as much petroleum in 2015 as it
does now (a tall order given declining oil
production rates in the North Sea). Second,
Statoil, already an important supplier of natural
gas to Europe, sought to expand gas production
significantly in the next decade, marketing

additional volumes to Europe by pipeline and to the
U.S. as LNG. Third, Statoil looked to strengthen
its international position by expanding operations
in the Gulf of Mexico, Russia, Azerbaijan, Algeria
and elsewhere. Fourth, Statoil planned to boost
its downstream marketing operations, e.g. by
increasing the number of its retail gas stations.


3. (SBU) On High North energy, Lund said Statoil
viewed the Barents as one unified region without
regard to the disputed Russian-Norwegian maritime
border. A border settlement was necessary for the
Barents to reach its full potential, though, said
Lund, "We don't push" the government on the issue.
It was important for a Norwegian company to be
included in Russia's Shtokman project. Lund
predicted that Gazprom would announce its choice of
partners within the next couple of months, but the
subsequent commercial negotiations to nail down the
final deal would take time. Lund said he would
feel "more at ease" with a strong U.S. partner in
Shtokman to balance Gazprom politically.


4. (SBU) Lund also discussed energy security
issues, which he noted were rising on the EU's
agenda. Statoil was pushing Norwegian authorities
for permission to exploit a new area in the vast
Troll gas field in the North Sea, which could lead
to construction of an additional undersea pipeline
to northern Europe. Statoil was also looking to
expand gas export volumes to the EU from Algeria,

OSLO 00000363 002 OF 004


where it was the second largest foreign investor in
the natural gas sector and could conceivably extend
the Caspian gas pipeline network to Turkey into
southeastern Europe. Lund added that EU Energy
Commissioner Andris Piebalgs had recently asked him
why Statoil was planning to send Snoehvit gas to
the United States instead of Europe.

ConocoPhillips: Angling for a Share of Shtokman
-------------- --


5. (SBU) ConocoPhillips executives told the
Ambassador the firm was "extremely enthusiastic"
about prospects for Russia's Shtokman natural gas
field. ConocoPhillips is on the short list of five
potential Gazprom partners for Shtokman.
ConocoPhillips "brings the U.S. gas market" to the
deal, said the executives. ConocoPhillips is the
first or second largest gas marketer in the United
States, and for Shtokman gas to get into the U.S.
market, "they have to come through us."


6. (SBU) ConocoPhillips executives predicted that
a natural gas "crunch" would hit the United States
in the next decade, at least until expected new
resources from Prudhoe Bay and Canada's McKenzie
Delta come on line. Shtokman gas could help fill
the gap, but U.S. demand for Russian LNG could drop
significantly when these new North American sources
are available. More volumes of Shtokman LNG would
likely go to Europe than people now foresee. The
Shtokman project could also experience delays
because the world market for petroleum contractors
and specialists was very tight. The industry was
approaching the limit of its capacity in both
available people and equipment.


7. (SBU) ConocoPhillips executives were very
interested in seeing the Russian-Norwegian maritime
border settled. The "disputed zone" in the
Barents, currently off-limits to exploration,
likely held some very promising acreage.
ConocoPhillips was less optimistic about the
Norwegian Barents. The firm was bidding on Barents
acreage in Norway's 19th petroleum concession
round, but the executives called the prospect a
"very high risk option play" with "negative
economics," though it could pan out in ten years or
so. Having drilled 8-10 wells in the area a decade
or so ago, ConocoPhillips did not find the geology
in the Norwegian Barents particularly promising and
thought some Norwegian officials exhibited "wishful
thinking" in touting High North energy resources.

ExxonMobil: Earning Billions, Paying Billions
-------------- -


8. (SBU) The numbers that ExxonMobil executives
gave the Ambassador told the story of the company's
success in Norway last year -- USD 8 billion in
revenue, USD 1.5 billion in profits, and USD 800
million in new investment. Perhaps more startling
was ExxonMobil's tax bill -- USD 5 billion, the
result of Norway's special 78 percent tax rate on
petroleum firms. ExxonMobil, the largest U.S.
investor in Norway and the country's fourth largest
firm, sends nearly all its Norwegian crude to its
refinery in Slagentangen, south of Oslo, reselling
the refined products domestically and in northern
Europe.


9. (SBU) ExxonMobil was the only U.S. major in
Norway that did not submit a bid on Barents acreage
in the ongoing 19th petroleum concession licensing

OSLO 00000363 003 OF 004


round. Company executives explained that they had
wanted to enter the round but had reviewed the
available seismic data for the acreage offered and
had not found anything sufficiently promising to
justify the risks. Instead, the company was
gambling on a high risk proposition to the south --
the Kogge gas field near the Norwegian-Danish
maritime border. Though there was only about a 15
percent chance that Kogge would pan out, if the
field came in it could provide a major new gas
source for Europe.


10. (SBU) Touching on another "High North" issue,
ExxonMobil executives noted Norway's increasing
activity around the Svalbard Islands north of the
Arctic Circle. The Norwegian Petroleum Directorate
had recently sent an expedition to Svalbard that
claimed that the Norwegian Continental Shelf
extended above the islands, laying the potential
groundwork for staking a claim to the region's
offshore petroleum resources, if any. Norway was
taking "small steps toward the North Pole" said
ExxonMobil executives. Svalbard could be a source
of future political problems, where Norwegian, EU,
Russian and U.S. interests could collide.
"Something has to happen there," they concluded.

Marathon: Cutting Edge Technology for Alvheim Field
-------------- --------------


11. (U) Marathon executives briefed the Ambassador
on plans for further developing the firm's assets
in and around the North Sea's Alvheim Field.
Marathon's Norwegian operations have turned around
dramatically over the last several years. Marathon
almost pulled out of the NCS five years ago, but
its decision to stay paid off. It has aggressively
acquired North Sea acreage since 2001, increasing
its licenses holdings from two to nineteen.
Marathon plans to produce "first oil" from its
Alvheim holdings in early 2007.


12. (U) Marathon is refitting a 9,000 ton tanker
ship as a floating production and storage
operations vessel (FPSO) for Alvheim. Marathon
executives told the Ambassador that the Norwegian 3-
D modeling technology used to design the vessel was
among the world's best. The briefing took place at
the Rosenberg Verft shipyard, where some of the
equipment and facilities for the FPSO are being
fabricated. Rosenberg executives also briefed the
Ambassador on the history and operations of the
shipyard, where many of the offshore platforms now
in use on the Norwegian Continental Shelf were
built. The Ambassador toured the yards and viewed
some of the FPSO's facilities being constructed
there. A reporter from one of Norway's leading
tabloids, VG, accompanied the party on the tour and
wrote a feature article on the Ambassador's visit
to Stavanger.

Halliburton: Squeezing More Oil from Mature Fields
-------------- --------------


13. (U) Halliburton executives briefed the
Ambassador on the firm's Norwegian operations,
which produced about USD 350 million in revenue
last year. Halliburton offers a full range of
petroleum services in Norway, and is particularly
proud of its record in increasing recovery rates in
mature fields and reaching thin or smaller
reservoirs with cutting-edge horizontal drilling
techniques. Halliburton executives cited the
example of an older field that a major sold to a

OSLO 00000363 004 OF 004


small operator for 3 NOK (about 50 cents) several
years ago. Halliburton was able to squeeze so much
additional oil from the reservoir that the small
operator later sold it for one billion NOK (about
USD 150 million). Halliburton executives noted
that an increasing number of new, smaller operators
were being drawn to the niche market of squeezing
additional oil from some largely played out North
Sea fields.

WHITNEY