Caspian Energy (CE): Mr. Bacher, which development milestones has the Company passed for 40 years of operation? Which of them have given the greatest impulse to Company’s rooting in the world markets?
Lars Christian Bacher, EVP Development and Production International, Statoil ASA: Our company was founded as a Norwegian NOC in 1972, a few years after the first major discovery on the Norwegian Continental Shelf in 1969. We learned from the best international oil companies, and over time developed a leading position first on the Norwegian Continental Shelf and then also internationally.
Among many important milestones for our company, I would like to highlight our entrance together with BP to Azerbaijan 20 years ago. This gave us the opportunity to work with SOCAR and other partners on some of the world’s largest oil and gas fields, and it was also the start of our journey from being a national champion in Norway to also be an international oil company.
The listing of Statoil in 2001 has also been important for the further development of our company. Since then, the development of Statoil’s competitive position and portfolio has accelerated. We have further developed profitable productions at Norwegian Continental Shelf. We have planned and executed and completed a mega merger with Hydro’s oil and gas division. We have developed some of the most technologically challenging projects within the industry like Kristin high temperature, high pressure, like Snohvit and also Ormen Lange as good examples. And production from our operations outside of Norway has increased more than five times through organic and inorganic development of our portfolio. And I think also it’s fair to say that we have taken positions in some of the most attractive offshore basins and onshore plays that exist.
CE: Could you, please, tell about the major principles of development of Statoil’s further operations?
Lars Christian Bacher: In recent years, Statoil has streamlined its business, reinforcing its position as a technology focused upstream company. While building a leading position on the NCS, Statoil has taken positions in a number of the world’s most prolific provinces and established an attractive resource base. Since listing the company has increased its non-Norwegian production more than fivefold. The core competencies and capabilities, including innovative development and application of technology coupled with the execution of complex offshore and onshore field development projects, positions Statoil as operator and partner globally.
Statoil has grown considerably over the past decade, and we expect to continue to grow going forward. We have outlined a strategy to grow our production from about 1.9 million barrels per day in 2010 to 2.5 million barrels per day in 2020. During this period we expect to more than double our international production and our ambition is to establish material positions in 3 – 5 offshore business clusters, including the Caspian.
Over the last few years Statoil’s exploration efforts have been successful with several high impact discoveries offshore Norway, Brazil and Tanzania. We will continue to invest in exploration and pursue the exploration strategy that has provided these positive results.
CE: What are Statoil’s plans in the shelf of Arctic seas? How attractive are they nowadays for the Company?
Lars Christian Bacher: Sustainable oil and gas production in the Arctic will be an important contributor to securing supply for the growing global energy demand. With an estimated 25 per cent of the remaining yet to find oil and gas resources in the world located in the Arctic, energy companies are now exploring the region with increased fervor.
Statoil has been building upon its 40 years of experience from the rough weather conditions on the Norwegian continental shelf and secured a strong portfolio across the Arctic. We now have licences in Arctic waters in the US, Canada, Greenland, Norway and Russia. Using the experienced gathered across operations in these countries will be a key component to successful developments.
There are different climatic and operational challenges between the different Arctic areas. Some areas, like the Norwegian Barents Sea are ice free. Other areas have challenges with ice bergs, while for example East Coast Greenland have seasonal ice for substantial parts of the year. Statoil will continue to take a step wise approach and invest in technology to enable safe exploration and production in Arctic waters.
CE: One of today’s global trends envisages consolidation of major oil and gas resources in the hands of state-owned oil and gas companies, which adds relevant risks. Why did not Statoil follow that way 10 years ago and became a private company?
Lars Christian Bacher: Statoil continues to invest to maximize production and value creation from the Norwegian Continental Shelf, while also investing to grow our international production. Since Statoil moved from being fully stated owned to be a publically listed company we have improved our competitive position and portfolio. We know that we have to compete to win opportunities, and we believe our NOC heritage is a competitive advantage when working with other NOCs.
CE: Since 1972 the global oil market has lived through many shocks, all possible embargos, price crises (especially in the late 90s when transformation of the famous “Seven Sisters” did happen). How did all that affect the operation of the Company? Can the market face similar shocks in the near future?
Lars Christian Bacher: In our industry, with huge investments, long lead times and changing markets, companies needs to be robust and prepared to handle rapid market changes as we have seen them several times over the past decades. Therefore Statoil has built a strong balance sheet and flexibility in our portfolio. We believe that we have demonstrated our ability to create value in different market cycles and we have a strong position to continue to do so also in the future.
CE: Nowadays some world oil companies have reoriented their development strategies to gas. Is it possible in case of Statoil? Do you consider such choice correct and why?
Lars Christian Bacher: Statoil has a strong position both within oil and gas. We are today the second largest gas exporter to Europe and we have strong gas positions in different areas of the world. We will continue to invest in profitable gas projects and build value creating gas value chains also in the future.
CE: According to Statoil’s corporate forecasts, by 2040 global gas consumption would have increased by 60%. Does Statoil plan to raise gas production? In which regions of the world will the Company activate its operations?
Lars Christian Bacher: Statoil expects both oil and gas to be important parts of the global energy mix for the foreseeable future. We expect demand for gas to increase in all markets. Statoil is involved in gas projects in areas like the Norwegian Continental Shelf, the Caspian, North Africa, East Africa and the US.
CE: How promising is, in your opinion, the LNG market? Is the Company interested in involvement in international LNG projects?
Lars Christian Bacher: Statoil recently made two large gas discoveries offshore Tanzania. We have so far proved up 9 tcf in place in total, and the discoveries mark an important step towards a possible natural gas development in Tanzania. We are now evaluating how we can find a commercial solution and in an early phase of evaluating the concept selection for a possible LNG plant.
Statoil continue to be in dialogue with Gazprom about the possible development of the Shtokman field with a LNG solution.
CE: How did the “Shale Revolution” in the USA affect Statoil’s operation?
Lars Christian Bacher: Statoil recognized the shale gas potential and entered this area early. We now have a broad and diversified portfolio within unconventionals in the US, with assets in the Marcellus shale gas area in the north east of the US, the more liquid rich Eagle Ford in Texas and the Bakken tight oil field in North Dakota. We also have started exploration activity in Australia and have signed agreements for joint studies in Russia with Rosneft and Germany with Winthershall.
CE: The EU is committed to reducing gas demand in the future through development of new energy saving technologies, diversification of supply sources, construction of EU’s single gas ring. How efficient can be the operation of such giants as Statoil in such conditions in the future?
Lars Christian Bacher: We believe gas will be an important part of the European energy mix also going forward. We recently signed a large long term gas sales agreement to Wintershall in Germany, and one year ago we signed a large long term agreement with Centrica in the UK. Renewables will grow, but also gas is needed to meet the demand. With a desire to use low carbon emitting gas more than high carbon emitting coal, the need for gas to Europe increases over time.
CE: Statoil has worked in the Caspian (in Azerbaijan) for 20 years and is now a leading operator in the Azerbaijan shelf. What role will the Caspian region play in the structure of global energy resources market? Does Statoil have plans to expand its assets in this region like the ongoing expanding in the UK shelf?
Lars Christian Bacher: Azerbaijan has developed ACG and Shah Deniz and started exporting oil and gas to the world markets. That in itself is an achievement, where Statoil has contributed. Statoil operates the Azerbaijan Gas Supply Company (AGSC) which is handling the sales of the current gas production from Shah Deniz to Azerbaijan, Georgia and Turkey. The BTC and SCP pipelines were built to export oil and gas from Azerbaijan respectively. The Shah Deniz partnership is currently working on the Shah Deniz stage 2 project that will make Azerbaijan a major supplier of gas to Europe. Statoil holds a 25.5% share of Shah Deniz, and if the project is decided to go ahead, we will more than double our current investments in Azerbaijan. Statoil is proud to have been an integral part of Azerbaijan’s industrial development since 1992. Azerbaijan is one of Statoil’s top international assets, and as Statoil has grown considerably in size, experience and international presence over the last 20 years, we are now seeking a more active position in Azerbaijan.
CE: Does the Company consider its involvement in TANAP and Nabucco? What do you think about prospects of these projects?
Lars Christian Bacher: Statoil has been offered to take part in TANAP, and we are currently evaluating this offer.
The oil and gas business is a long term business, and we have to look at our expectations to the European and Turkish gas markets 6-8 years from now and in a 25-30 years perspective. The gas market in Europe is expected to grow over the next decades, and the European market would need more gas also from Azerbaijan.
CE: Statoil is world’s true leader in terms of environmentally friendly and safe oil and gas production. This issue has become especially urgent after the accident in the Gulf of Mexico in April 2010. Has the Company toughened its environmental requirements? What care will Statoil give to this field of business in the future?
Lars Christian Bacher: Our main objective will always be to operate safely to protect people, assets and the environment. Statoil participates actively in industry efforts to strengthen industry systems and routines at a global level. Statoil and the industry need to continue this work along three axes; 1. Prevention: Focus on well design, equipment and operational procedures, 2. Shutdown: Shutdown and recovery if a blowout occurs, and 3. Oil spill response preparedness: Acknowledge that if everything else fails, quick and thorough response is crucial.
CE: How do you evaluate main indicators of operational and financial results of company’s activity through 2012?
Lars Christian Bacher: Statoil delivered solid financial results also in the third quarter this year. By ramping up new fields, we have grown production year to date by 10% compared to the same period last year. We maintain momentum in realising our strategy for growth towards 2020, with new discoveries and investments for improved oil recovery on the NCS, and continued profitable growth in our production outside Norway.