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Saturday, July 13, 2024

‘Vendetta’ implied in oil field conflict

Norway’s huge new Johan Sverdrup oil field has been Oil Minister Tord Lien’s pride and joy in the midst of the country’s oil industry slowdown, but a quarrel among its partners over ownership stakes in the field forced him to step in to settle it. Now his ministry has doled out stakes that have sparked new complaints and even suggestions that the ministry is punishing the company that refused to agree with its partners in the first place.

Oil & Energy Minister Tord Lien kept smiling through last Friday's presentation of plans for Johan Sverdrup's development and operation, despite disagreement over its license partners' ownership stakes. PHOTO: Ole Jørgen Brattland/Statoil
Oil & Energy Minister Tord Lien kept smiling through last February’s presentation of plans for the Johan Sverdrup oil field, but an ongoing conflict over ownership stakes among the field’s partners has put a damper on what otherwise was supposed to be a bright point in the midst of an oil industry slowdown. PHOTO: Ole Jørgen Brattland/Statoil

“It can seem like someone in the ministry was furious (that a conflict arose),” John Olaisen, chief of analysts at ABG Sundal Collier, told newspaper Dagens Næringsliv (DN) on Friday. “It can seem strange, but there may have been some hurt feelings in swing here. It can be a vendetta.”

Olaisen was referring to the ministry’s decision to reduce the stake held by oil company Det norske oljeselskap, which wouldn’t go along with its other partners’ agreement. The ministry also reduced the state’s own direct stake held through state-owned Petoro, while stakes held by the other three partners (Maersk Oil, Lundin Norway and Statoil) were all increased, with Lundin coming out the best.

The size of the actual changes seem small, with Det norske’s declining further from the 11.89 percent it wouldn’t accept earlier this year to 11.57 percent allocated by the state this week. The differences amount to billions of kroner though, with the new 11.57 percent stake worth an estimated NOK 5 billion less than what Det norske’s owner Kjell Inge Røkke had demanded of his partners.

“It’s a big cake to cut up, and the crumbs are big, too,” Rolf Jarle Brøske, communications director at Det norske, told DN. “This new proposal is at a lower level than what we refused to sign for in February. We are disappointed and surprised by the ministry’s decision.”

Det norske’s investors were, too, sending its share price down by 3 percent when news of the state’s decision was released on Thursday. The decision has also raised eyebrows within the Norwegian oil industry, since many analysts were expecting the ministry would uphold the stakes agreed on by Det norske’s other four partners. Røkke’s company was the only one unhappy with its stake and demanding more.

Unusual disagreement
Now Det norske is faced with a stake worth around a billion kroner less than its partners had agreed on when Det norske wanted a bigger stake worth NOK 4 billion more. Analyst Olaisen told DN that he thinks Det norske is being punished by someone in the ministry for complaining so loudly about how the field was initially divvied up. It was highly unusual when Det norske refused to go along with its four partners after three years of negotiations. They all went ahead and presented their development and operation plans at an event orchestrated by the minstry in February, allowing Lien to go ahead with his exclamations of how “historic” and “exceptional” the event was for Norway, but the underlying conflict put a serious damper on things.

That’s what prompted the suggestion that the ministry’s decision to further cut Det norske’s stake is a “vendetta” by “someone who is furious and wants to get back,” Olaisen told DN. At least one professor was defending the ministry’s decision on Friday, though. Ernst Nordtveit, who specializes in petroleum law at the University of Bergen, said the most important principle should be volume, not value. “It’s the volumes the partners have won licenses from the state to extract, not values,” Nordtveit told DN. “I don’t think it’s very probable Det norske would win any claim here against the state.”

Can complain to the king, or sue
Executives at Det norske are unrepetent and now seem more angry than ever themselves. Det norske’s chairman, Sverre Skogen, had already accused Lien and top ministry bureaucrat Lars Erik Aamot of having a conflict of interest because of the state’s own interests in the oil field. Røkke wrote in a letter to his shareholders this spring that the company should have had a bigger stake worth NOK 4 billion more than what its partners allocated. Now that it has ended up with even less, there’s talk of first appealing the ministry’s decision (which officially would involve a formal complaint to King Harald V), or filing a lawsuit against the ministry.

“We don’t regret a thing, you can be sure of that,” Skogen told DN. “It was absolutely necessary to go through a new round on this.”

He said that he’d always regarded Norway’s oil ministry as running “a thorough and good process” but was “very surprised and disappointed” in this case. “We have not gotten to the bottom of this,” Skogen told DN. “Various arguments have been presented and highlighted,” he allowed, but in the end “this was handled behind closed doors.” Berglund



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