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Uranienborg Rotary, 12 June 2014 Bengt Lie Hansen Advokatfirmaet Selmer (og Mossegutt)

Oil and gas activities in the arctic – challenges and opportunities with particular focus on russia. Uranienborg Rotary, 12 June 2014 Bengt Lie Hansen Advokatfirmaet Selmer (og Mossegutt) Former Head of Division, MPE, Vice President Deminex

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Uranienborg Rotary, 12 June 2014 Bengt Lie Hansen Advokatfirmaet Selmer (og Mossegutt)

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  1. Oil and gas activities in the arctic – challenges and opportunities with particular focus on russia Uranienborg Rotary, 12 June 2014 Bengt Lie Hansen Advokatfirmaet Selmer (og Mossegutt) Former Head of Division, MPE, Vice President Deminex Senior Vice President Norsk Hydro and President Statoil Russia

  2. The Arctic – What are the key factors for oil and gas • Geography and recourses • Actors • Norwegian activities in the Barents Sea • Russian strategy in the Arctic • Exploration • Shtokman development • Technology • Environment • Politics • Neighbours in the North – Norwegian-Russian cooperation • New transportation routes • To succeed in Russia you need to know more than your business • Russian history, culture values and church • Summary Doc. ref.: 2268111

  3. Source: Norwegian Ministry of Petroleum and Energy Doc. ref.: 2268111

  4. Petroleum activities in the Norwegian Barents Sea • First activities started in 1980 • Snøhvit LNG in production 2007 • Goliatoil field under development - delayed • 100 exploration wells drilled • Promising Skrugard oil discovery 2011 • Promising Havis oil gas discovery 2012 • Promising Wisting discovery 2013 • Promising Gotha discovery 2013 Johan Castberg Tornerose Skrugard Snøhvit Nucula Goliat Doc. ref.: 2268111

  5. First gas development in the Barents Sea: Snøhvit • First LNG plant in the Arctic • Subsea to shore development • First infrastructure for gas in the Barents Sea • Developed on the basis of comprehensive impact assessment • In production Q4 2007 • Contributed to substantial local/regional employment and other economic activities • Markets in Europe (and the US) Doc. ref.: 2268111

  6. First oil development in the Barents Sea: Goliat • Under development • Production planned in 2013, but now delayed to 2015 • Developed on the basis of comprehensive impact assessments • One of the largest industrial projects undertaken in Northern Norway • Substantial ripple effects locally and regionally • Offshore loading with oil shipments to markets Doc. ref.: 2268111

  7. Exploration in the Barents Sea in focus • 100 wells drilled since 1980 • 22nd round attracted high interest in the industry • Blocks awarded in the 22nd round June 2013 • The majors are returning to the Barents Sea • Gas transportation challenges • Pipe line • LNG • The 23rd round in the Barents Sea important in uncovering the potential in the area Doc. ref.: 2268111

  8. The Norwegian technological development towards Arctic solutions – step by step Shtokman Shtokman • Contractor knowledge / industrial cooperation Snøhvit Level of competence Ormen Lange Kristin Troll TOGI Gullfaks Oseberg • Key to successful implementation of technology – the road to the vision of a sub sea factory Time 2005 2015 2025 Doc. ref.: 2268111

  9. The BarentsSea – emerging petroleum frontier area • The Delimitation Agreement between Norway and Russia agreed 26 April 2010 in Oslo and in force by July 7, 2011 • An area like the North Sea split 50/50 Russia - Norway • Norway applies its concession policy in the new area after formally opening the area in 2013 • Russia has awarded all its new acreage to Rosneft • Rosneft has entered into cooperation agreements with Statoil and Eni in the area with no license rights Source: Norwegian Ministry of Petroleum and Energy Doc. ref.: 2268111

  10. Russian reserves are substantial also in the Arctic • 8th place in the world for oil • 80 bln bbl • 6.3% of the world total • World champion in natural gas • 43.3 tcm proven gas reserves • 24% of the world total • 50-65% of remaining reserves are “hard to develop & produce” – costly • Key areas for reserves additions are Far North, Arctic Shelf, the Caspian, East Siberia and the Far East offshore • Little exploration made after the Soviet period – underexplored • Annual reserves replacement has only been achieved twice since 1994 Source: WoodMackenzie Source: BP Statistical Review 2009 Doc. ref.: 2268111

  11. Russian petroleum sectoroverview • State controlled (~51%) Gazprom is the world’s biggest gas producing company, with 61% of Russia’s total proven gas reserves and 17% of global gas reserves • State owned (75%) Rosneft controls about 50% of Russia’s oil production (4,5 mln bbl/d) and is the largest owner of oil reserves. Rosneft is the worlds largest listed oil producer after the take over of TNK/BP • All major world oil companies are present in Russia, but the position is limited with no license access • Need for foreign technology for offshore and complex developments, project management, and financing • LNG strategically important to establish a leading global gas position for Russia. Break up of Gazproms gas export monopoly on LNG underway Doc. ref.: 2268111

  12. Business outlook • Government is an active player, remains a regulator and controls ~ 50% of petroleum sector • All significant onshore and all offshore licenses are to be split between state controlled Gazprom and Rosneft • International oil companies (IOCs) are minority partners to thetwo state owned champions with no license rights • IOC’s participation is limited by minority shares (< 50%) in newprojects bigger than 70 mln tons of oil and 50 bcm of gas, andin all offshore projects • Need for improved fiscal/tax regime and legal framework for difficult developments and offshore reserves in the Arctic • Some economic incentives have been introduced on Yamal, but not for Shtokman • The Ukraine dispute have changed the geopolitics of natural gas, Russia's most important export item • Russia's response is to move from Europe and east to China with lower net-back than gas export to Europe Doc. ref.: 2268111

  13. NORWAY Shtokman – The Mother of all Projects • Production start: Who knows? • Annual gas production: 23.7 BCM for Phase I, including 7.5 MTY LNG • Annual production Full field 71 – 90 BCM • A giant locomotive for new developments in the Arctic has not delivered so far • Location: 650 km northeast of Murmansk • Gas reserves: ~3000 BCM • Condensate Reserves: 43 mill. Sm3 • Water depth: 340 meter • Sea Ice every 4th year, icebergs may occur Doc. ref.: 2268111

  14. Shtokmanchallenges • Mega development in Arctic climate • Sensitive ecosystem • HSE • Ice conditions • Arctic cost level impact • Market developments • Time schedule Doc. ref.: 2268111

  15. Shtokman phase 1 development put on hold A combination of Snøhvit and Ormen Lange - SDAG • Field development offshore • Pipeline to shore • Gas plant on land for processing and export compression • Pipeline to Europe and/or LNG • Issues: • Extremely high cost in the Arctic, more cost effective solutions needed • New concept and more sub-sea and multiphase transport • Tax incentives Source: Statoil Doc. ref.: 2268111

  16. Rosneft CEO steps in spotlight Source: Business & Finance, November 2-4, 2012 Doc. ref.: 2268111

  17. Statoil agreementwithRosneft • Joint exploration in four licences in Russia • Covering more than 100,000 km2 of prospective acreage • Statoil 33.33 %, Rosneft 66.67% • Statoil funding phased exploration programme • Rosneft opportunity to gain equity interest in Statoil assets • Joint application in 22nd round in Norway • Joint technical studies on two Russian onshore assets Source: Statoil Doc. ref.: 2268111

  18. Harsh environment & arctic experience Gas value chain Cutting-edge offshore technology Management of large integrated projects Industry’s most strict HSE standards Proximity of well- developed Norwegian infrastructure Norway has a lot to contribute in Russian oil and gas Competitive suppliers Strong R&D institutions Doc. ref.: 2268111

  19. Norwegian industrial participation in Russian oil and gas – perspectives and realities • Oil and gas companies • Supplier companies • Research and development • Supplier development programs • The Norwegian model From South to North From Onshore to Offshore Troll Ormen Lange Snøhvit New opportunities Shtokman Prirazlomnoye Onshore fields Doc. ref.: 2268111

  20. Doc. ref.: 2268111

  21. Forretninger i Russland – mentalitet og kultur Å inngå en forretningsavtale Kommunikasjon (forretningsspråk, formelt og uformelt) Kleskoder, taler, små presanger Jo viktigere avtaler er, desto flere offisielle representanter tilstede – glad i "MOU"-er Ingenting skjer etterpå? Suksess avhengig av personlige kontakter/evne til å skape relasjoner Behov for langtidsperspektiv Hva som er bra for Russland er vesentlig Kontroll til enhver tid er en nødvendighet Referat skrives ut før møtene Hierarki – “sjefen er sjefen” Kombinasjonen politikk og forretning krevende Russisk beslutningsprosess er ikke transparent/gjennomsiktig Korrupsjon er et stort samfunnsproblem som rir det russiske samfunn som en mare “The winnertakes it all”- holdning Kontrakten er første steg i forhandlingene – må ha mer å gå på til neste runde Relasjoner viktigere enn kontrakter Familie og venner er grunnlag for russernes sikkerhet, ikke staten Doc. ref.: 2268111

  22. Russernes historiske lærdommer • Usedvanlig oppfinnsomhet • Stor overlevelsesevne • Humor • Krokveier nødvendig for å oppnå noe • Skippertaksmentalitet Doc. ref.: 2268111

  23. Faseveksling i russisk historie som det er viktig å forstå Kampen mellom orden og kaos • Kaos – Mongoltiden • Orden - Ivan den grusomme (Rurikene) 1. tsardynasti • Kaos – Urotiden med litauere, polakker og svensker • Orden – Romanovene – 2. tsardynasti • Kaos – Den russiske revolusjonen • Orden – Kommunistperioden – Stalin har fortsatt mange støttespillere • Kaos – Perestrojka pluss Jeltsintiden • Orden – Putintiden – spiller på nasjonale følelser (Krim) Doc. ref.: 2268111

  24. Putintiden • Lov og orden • Nytt oppsving i økonomien (men mye gratis gjennom høye olje og gass priser) • Stanser fragmenteringen av Russland og strammer inn regionenes selvråderett • Oppløsningen av Sovjetunionen var den største geopolitiske katastrofe i det forrige århundre • Angrepet på Ukraina er et gufs fra den kalde krigen Men også: • Ensretting av massemedia – ref. Aftenposten den 10. juni 2014 • Utarming av sivilsamfunnet • Mangel på reformer • Lov og orden (men mer av det siste) Doc. ref.: 2268111

  25. Arktisk lidenskap gir store turopplevelser Spitsbergen Grønland Murmansk Sibir Jotunheimen Doc. ref.: 2268111

  26. Oppsummering • Det er betydelige olje- og gassressurser i Arktis • Vi har teknologi og kompetanse til å utvinne disse ressursene • Men vi står overfor høye kostnads- og lønnsomhetsutfordringer • Russland er et meget stort og rikt land med store ressurser • Russland er fascinerende, uforutsigbart, spennende og med mange kriseperioder • Jo mer jeg lærer om Russland, jo mer fascinert blir jeg • Jeg har vært bitt av Russlandbasillen – men Ukraina har vært en alvorlig belastning • Svalbardbasillen er enda større og den må stadig oppleves • Jeg får aldri nok av slike opplevelser i Arktis • En interesse som ble vekket med mange ungdomsturer til sagnomsuste Ishavet i Mossemarka i 1960-årene Doc. ref.: 2268111

  27. Doc. ref.: 2268111

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