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Norway's Statoil Is Trolling As Fast As It Can (Int'l Edition)


International -- Int'l Business: NORWAY

NORWAY'S STATOIL IS TROLLING AS FAST AS IT CAN (int'l edition)

It needs foreign fields to offset declining domestic production

When Harald Norvik took the top job at Norway's state-owned oil company in 1987, he wondered at the time "if I was the winner or the loser." With huge cost overruns, management turmoil, and plummeting morale, Statoil was a mess. But Norvik, a former deputy energy minister, skillfully used his understanding of Norwegian politics to cut government interference and chop $400 million in operating costs. Results have improved: On Feb. 22, Statoil reported pretax profits for 1995 of $2.1 billion on sales of $13.6 billion. In contrast, losses in 1987 approached $236 million. "I now see I was the winner," Norvik says.

But Norvik, 49, can't relax. He must maintain his winning ways in the face of a serious problem: declining production at Statoil's biggest fields. The company has revealed that last year its oil output fell for the first time ever, contributing to a 7% drop in overall earnings from 1994. Because of shrinking reserves, production from its three North Sea "elephants"--industry jargon for massive oil fields--should decline by 1998 to one-half the 1994 level, when they contributed 74% of Statoil's production. "It will be very hard for them to replace those reserves. The management is under pressure," says Douglas Montgomery, oil analyst at Edinburgh-based Wood Mackenzie.

Norvik has to find a solution because to a large degree Norway's welfare state--one of the world's most lavish--depends on Statoil's ability to pump and sell oil. The energy industry accounts for 13% of government revenues, which go to support generous pensions, health care, and education for Norway's 4.3 million people. Statoil is responsible for 60% of Norway's total production of 3.1 million barrels per day.

To avert a crisis, Norvik has spent much of this decade scouring the earth for new fields of oil and gas. His goal: build Statoil's non-Norwegian production from 2% of its total output now to one-third by 2005. To that end, Norvik, an economist by training, has become a dealmaker. There's a joint venture with British Petroleum Co. to explore in West Africa, Southeast Asia, and the former Soviet Union. After two years of arduous negotiations, a consortium including Statoil/BP is close to an agreement that will allow transmission of early oil production out of Azerbaijan. The partners have also discovered a major natural-gas field off Vietnam. And despite pressure from human-rights groups, they continue to look for more oil off Nigeria. In January, Statoil acquired Aran Energy PLC, an Irish oil company with promising offshore acreage, for $315 million.

SKEPTICS. Norvik figures that his plan to boost profits is well under way. Besides the overseas ventures and the development of smaller Norwegian fields with new technology, Statoil also expects to get an enormous lift from natural gas. It could overtake oil in importance for Norway and Statoil by 2020, thanks to the country's massive Troll offshore field.

But some analysts aren't so sure of Norvik's latest efforts, which in 1995 alone cost $945 million. "The question is whether they have paid too much" to realize their overseas ambitions, says Erik Storelv, analyst at Enskilda Securities in Oslo. Montgomery figures many of Statoil's overseas projects won't mature until after 2000, and while selling gas helps offset the decrease in oil production, gas doesn't have the same margins as oil.

Norvik also has downstream problems. Because of a surplus of refining capacity in Europe, profits at Statoil's refining business plummeted last year. Yearend results weren't helped by a 40% construction cost overrun on the new Kalundborg (Denmark) refinery.

Norvik says the company can only keep pushing while also cutting costs. It plans, for example, to continue expanding its profitable retail gas business in the Baltic region, Germany, and Ireland. Borealis, Statoil's petrochemical joint venture with Finland's Neste, will expand into Asia. Borealis reported big profits last year--but will have to battle through a projected slump in petrochemicals in 1996.

It's tough enough keeping shareholders happy, especially in a business as volatile as energy. Keeping a government and its citizens content can be even tougher. In some ways, the true test of Norvik's skills is just beginning.BY HEIDI DAWLEY IN LONDON, WITH ARIANE SAINS IN OSLO


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