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Cablegate: Ambassador's Stavanger Discussions with Gon and Oil

VZCZCXRO7345
PP RUEHIK
DE RUEHNY #0748/01 3380643
ZNR UUUUU ZZH
P 040643Z DEC 09
FM AMEMBASSY OSLO
TO RUEHC/SECSTATE WASHDC PRIORITY 8016
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFIUU/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHCV/AMEMBASSY CARACAS 0097

UNCLAS SECTION 01 OF 03 OSLO 000748

STATE FOR EUR/NB, EEB/ESC - AGREENSTEIN

SENSITIVE, SIPDIS

E. O. 12958: N/A
TAGS: EPET EINV SENV PREL NO VE RS
SUBJECT: Ambassador's Stavanger Discussions with GON and Oil
Companies

REF: (A) Oslo 697 (b) Oslo 718

OSLO 00000748 001.2 OF 003


(U) This document is sensitive but unclassified. Please protect
accordingly.

Summary
-------

1. (SBU) In meetings during the Ambassador's first visit to Norway's
"oil city" of Stavanger, U.S. companies told the Ambassador they
were keenly interested in access to more offshore production
acreage, particularly in the environmentally/ politically sensitive
area of Lofoten-Vesteralen. The Director General of the GON's
Petroleum Directorate highlighted the state's role in ensuring that
society shares in the risks and benefits of offshore oil
development. End Summary.

2. (U) The Ambassador, accompanied by FCS Chief and Poleconoff,
visited Stavanger, Norway's fourth-largest city and the center of
the country's energy industry, between November 22 and 24. He met
with executives from Exxon-Mobil, Hess, ConocoPhillips, Marathon,
Halliburton, BakerHughes and Weatherford; Bente Nyland, Director
General of the Norwegian Petroleum Directorate; Mayor Leif Johan
Sevland; the Stavanger Chamber of Commerce's Committee on
Norwegian-American Relations. The Ambassador also toured
Stavanger's International School, spoke at a reception hosted by
Amcham, and met with U.S. servicemen at NATO's Joint Warfare Center
outside the city. His visit was covered by regional newspaper
Stavanger Aftenblad and national state-owned broadcaster NRK.

Norwegian Petroleum Directorate (NPD)
-------------------------------------

3. (SBU) In a November 23 briefing for the Ambassador on the state's
role in Norway's oil and gas industry, Stavanger-based Director
General of the Norwegian Petroleum Directorate (NPD), Bente Nyland,
emphasized that the state does not award operating licenses on the
basis of prices bid, but rather aims to award development work to
groups of bidders who can provide the best value from oil for
society as a whole. The state typically takes a 20 percent share in
both the investment and the return from development activities,
though this varies from case to case. NPD claims to take the long
view, and is very interested in maximizing total oil and gas
recovery.

4. (SBU) Nyland stated that the seabed off Jan Mayen island had a
very complicated geology which made prospects for oil and gas there
relatively uncertain. As a result, energy companies were not
interested in developing the area. She advised that energy
companies were very interested in developing the much more
accessible Lofoten-Vesteralen offshore blocks, but noted these were
currently closed to exploitation. Nyland told us that a White Paper
on development in this area was due to be produced in 2010.

5. (SBU) The Director General said the GON is working hard to reduce
greenhouse gas emissions in the energy sector (which generates about
27% of Norway's CO2 emissions), despite the tradeoff between
enhanced oil recovery and reduced emissions. Norway is encouraging
companies to supply their platforms with electric power from onshore
sources and to reduce flaring of natural gas. (Note: Norway
prohibits flaring except to test systems at the start of operations
or in emergencies. End Note.)

Exxon-Mobil (EM)
----------------

6. (SBU) Managing Director Lee Tillman and his team emphasized EM's
strong interest in obtaining new acreage for development,
particularly in the Lofoten-Vesteralen areas. Industry wants a
steady, predictable opening of new acreage. Currently open areas in
the Barents Sea do not look promising. The even more remote area
around Jan Mayen island - which is not currently open - is even less
interesting to the international oil companies (IOCs), as noted
above. Another concern is tough competition from majority
state-owned Statoil, the dominant player on the Norwegian
Continental Shelf (NCS).

7. (SBU) If the government does not open new production acreage,
Norway risks losing out to other parts of the world in the
competition for EM's investment resources, according to Tillman. EM
is interested in not only more, but larger projects and in actually
operating platforms rather than merely contributing equity. Higher
energy production would not only supply Europe with badly-needed
energy, but would also contribute to a better environment, given
that Norway's oil and gas production is the least carbon-intensive
in the world. At the same time, Norway's stable investment regime
is very attractive to shareholders.

OSLO 00000748 002.2 OF 003

8. (SBU) Commenting on other markets, Tillman said that Russia's
Shtokman project (in which Statoil and France's Total are currently
partners with Russia's Gazprom) was struggling given current, lower
gas prices. On Venezuela's nationalization of EM assets, he said EM
did not object to the nationalization but wanted to receive
market-based compensation.

9. (SBU) On environment issues, Tillman touted the success of
industry's proposal to cut emissions of NOX (a nitrogen compound
which contributes to acidification) through contributions to a fund
rather than a NOX tax. He also highlighted EM's investments in
various clean technologies, while suggesting that most first and
second generation technologies were not currently commercially
viable.

Hess
----

10. (SBU) Managing Director Alf Frugard provided an overview of
Hess' relatively limited activities in Norway, concentrated in its
small share of the Snohvit gas development in the Barents Sea and
its North Sea Valhall field. He echoed EM's call for opening more
acreage for exploration and development, especially in the
Lofoten-Vesteralen areas. Frugard was hopeful that the GON might
reverse its current policy of maintaining the protected region
closed to oil and gas development. Hess is currently sponsoring two
American students studying for a master's degree in petroleum
engineering at the new University of Stavanger. Interestingly, Hess
claimed that the accident rate for all companies' operations on the
NCF had increased in recent years, though he did not have an
explanation for this phenomenon.

Ambassador's meeting with Stavanger Mayor
-----------------------------------------

11. (U) Mayor Leif Johan Sevland highlighted strong ties between the
sister cities of Houston and Stavanger, and also noted the large
resident American (and specifically Texan) community in Stavanger.
There is an annual exchange of high school students between the two
cities, with about 100 students spending a week with a host family
in their sister city. Sevland, a member of the center-right Hoyre
party, has been mayor for 14 years and is generally regarded as a
successful booster for his city.

ConocoPhillips (CP)
------------------

12. (SBU) CP Country Manager (and Chair of Norway's Oil Industry
Association) Steinar Vage generally agreed with points raised by
other IOCs on the need for new acreage. He stressed the importance
of opening the Lofoten-Vesteralen areas for Norway to retain the
IOCs. Vage emphasized that the GON needs to develop new acreage to
offset declining production from existing sources, given the large
contribution of energy revenues to the state budget. CP is also
looking at opportunities in East Greenland. Vage was not very
optimistic about the prospects for the success of carbon capture and
storage (CCS) efforts.

Marathon
--------

13. (SBU) Country Director Kristin Faerovik expressed the company's
desire for new acreage, while also suggesting that Statoil's
dominance of the NCF has been a bottleneck for development.
Faerovik claimed that Statoil has in many cases failed to develop
assets in a timely manner, depriving other companies of business
opportunities and delaying revenue-generating projects for Norway.
The validity of recent licenses is now limited in duration to
discourage delays. Faerovik noted Marathon's support for cancer
research collaboration between the University of Stavanger hospital
and the University of Texas' M.D. Anderson Cancer Center as an
example of the company's contribution to the local community.

Service Companies
-----------------

14. (SBU) The Ambassador met jointly with Halliburton's Country Vice
President Jorunn Saetre, BakerHughes Country Manager Oyvind Grotmol,
and Weatherford's Managing Director Rolf Leknes on November 24. The
companies reiterated their interest in more acreage, noting that
Statoil had set up a task force to lobby the GON on this issue.
Saetre suggested that PM Stoltenberg had left himself some wiggle
room to change state policy on opening new acreage later in his new
government's term of office, which runs from 2009 to 2013. The
representatives pointed out that developing further oil and gas
production is not only important for Norway fiscally, but is also a

OSLO 00000748 003.2 OF 003


question of maintaining the country's industrial capabilities in
this sector. Halliburton expressed some concern about industry's
current competitiveness, given the strong Norwegian currency, the
krone.

15. (SBU) Comment: The oil companies were unanimous in calling for
the government to increase the amount of acreage open for
exploration and development, particularly in the sensitive and
heretofore protected Lofoten-Vesteralen area. The Ambassador raised
this in his initial courtesy call with the Oil and Energy Minister
Terje Riis-Johanssen on November 25 (septel), but this will continue
to be a difficult position for the government to reverse given the
very strong opposition of the Labor Party's two junior coalition
partners, the Center and Socialist Left parties, based on their
environmental concerns (see ref A).

WHITE

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