energy development: can alaska learn from norway’s success? a lunch and learn presentation january...
TRANSCRIPT
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ENERGY DEVELOPMENT:
Can Alaska Learn from NORWAY’s
Success?A Lunch and Learn Presentation January 26, 2012
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The NORTH
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Why We Went:Oil Production in Decline
Alaska’s Economic Future is Uncertain
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7 Years of Surplus Ahead; Then What?
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NORWAYwith Alaskan cities at corresponding latitudes
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July 22, 2011
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A Nation Grieving
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WHAT WE FOUND
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Norway Today:
PROSPEROUS
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Norway has more jobs in the oil and gas sector than Alaska.
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Norway’s version of a Permanent Fund is much bigger than ours.
$3 Trillion before oil & gas run out.
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Snapshot of Norway (2010):• Population: 4,888,000 (7x that of Alaska)• Income Per Capita: $88,400 (vs. $43,209 AK)• Income: GDP/PPP: $59,100 (vs. $47,700 U.S.)• Unemployment Rate: 3%• % of Government annual expenditure paid by
oil and gas revenues: 10 - 26% (vs. 80-90% AK)• Democratically elected unicameral Parliament.
Plus ceremonial monarch.
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Tour Focus: Norway’s Investment in Energy:
• Hydro-Electricity for Domestic Consumption
• Oil and Gas Development for Export
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A Summary of What We Learned:
• Norwegians are not worried about their economic future.
• Norway has abundant affordable electricity for all Norwegians.
• Norway has stopped oil and gas production decline. How?
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Domestic Energy: HYDROELECTRICITY IS KING
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Over 100 Years of Hydroelectricity
• The foundation of Norway’s modern economy
• Early 20th century dams still producing• Large build-up post WWII• Electricity is used for heating
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Norway’s Hydroelectricity
• Grid: To all communities. Owned or controlled by Norwegian government
• Electric costs similar across Norway• Co-exists with Norway’s valuable fishing
industry
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Renewable Energy Leader
–Hydroelectric Dams
–Wind Power (none used in Norway)
–Osmotic Power (salt/fresh water)
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Oil and Gas• Primarily for export
• World’s sixth largest oil exporter
• Europe’s second largest gas exporter
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Norway’s Continental Shelf100% of Oil and Gas is Offshore/State-owned
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A Summary of What We Learned:
• Norwegians are not worried about their economic future.
• Norway has flattened oil and gas production decline.
• How:– By attracting investment capital, and– Co-investing in its own oil and gas development.
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Norway’s Oil and Gas Production:Production Decline Delayed for 10 – 20 years
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Lesson LearnedNorway successfully attracts private investment to help develop its oil and gas resources: 60+ International oil and gas
producers are investing in Norway.
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60+ Oil and Gas Companies Invest in Norway
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Norway’s Licensing System:
• Norway selects tracts to license (6 year initial term) after consultation with stakeholders
• Norway conducts initial seismic (2D); results are made public
• Industry submits applications consisting of a work plan, financial strength, safety record (no bonus bid, no royalty)
• Licenses are awarded based upon work plan and qualifications; 6 years = “Drill or Drop”
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Norway’s Licensing System (cont.)
• Environmental and other approvals are included in license
• License may include several partners and specifies state (Petoro) share as part of terms
• Going forward, all partners are part of decision process, share investment, expenses and information
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BUT: The #1 investor in Norway’s oil and gas development is……
NORWAYThrough State Direct Financial
Interest (SDFI)
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What is SDFI
• State invests and participates directly (the same as a producer) in the development of the resource
• State substitutes …… definitive work and investment commitments, for upfront lease bonus,… participation in development decisions and access to information, for passive royalty role
• State becomes an active participant rather than a passive, back seat driver
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Most significant lesson learned
• SDFI creates alignment of interests between the State and producers– State gains understanding of investment dynamics– State has full access to data and better understands field
dynamics and development – State participates directly and has the ability to help drive
development decisions– Increases State understanding, reduces State suspicion
• Norway once used bonus and royalty system, but transitioned away from it because they concluded it impaired investment decisions
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RECAP: Private Companies Like: Norway’s Investment Incentives:
• Reduced Risk (2D seismic provided by Norway)• Reduced Up-Front Costs (no $ bids)• Shared Risk/CO-INVESTMENT (SDFI)• Alignment between Norway and industry• Predictability: Quick permitting, consistent
environmental and safety rules, limited judicial interference. License to Production in 3 years.
• Tax Stability: 78%; non-progressive. Rapid deductibility of development costs
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SUMMARY: “The Norway Model”:
1. SAVE2. CO-INVEST3. PROSPER
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7 Years of Surplus Ahead; What Should We Do?
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THANK YOU!
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Backup Slides
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Implementing SDFI in Alaska
• Can be added as an option in new leases• But, that does not reach “low hanging fruit”
– Challenge is to make SDFI available as an option to help immediately in developing existing resources
• Important part of Norwegian model: create a professional, non-politicized corporation (similar to Permanent Fund Board) to administer state’s interest
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A Way Forward
• Create an option for converting to SDFI under existing leases (upon mutual agreement)– Focus on undeveloped or underdeveloped
horizons • Potential approach
– State exchanges royalty for specified ownership percentage, fixes fiscal terms, becomes a participating owner
– Parties (including State) agree to a specified work commitment for the agreed areas
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The Goal: Change the Curve
Source: BP Presentation on Proposed PPT (Alaska State Legislature House & Senate Resources Committees 2006)
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• Started by the Norwegian government in the 1970’s to learn the oil business and bring jobs to Norwegians.
• STATOIL is now a publicly traded private oil and gas giant.
• Norway earns dividends of $3,000,000,000 per year from its ownership of 68% of STATOIL’s shares.
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• Now operates in 34 countries
• North American Headquarters in Houston
• With 140 Norwegian oil and gas support companies
• Norway’s #2 export: Oil and gas support and expertise
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• STATOIL is now in Alaska:
• 16 of its own leases in the Chukchi
• Additional leases shared with ConocoPhillips
• Offices in Anchorage
• Norway’s government will likely receive more $ from production in the OCS off Alaska than the State of Alaska will.