Direct and indirect management of petroleum resources
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Direct and indirect management of petroleum resources
Valery Kryukov and Arild Moe
Strategic Forum
Moscow, 23 september 2008
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Main issues
What have been the main elements in state policies in the petroleum sector in Russia and Norway?
How has direct and indirect state management been balanced?
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Forms of control Ownership – direct (extreme case USSR) Regulatory framework – indirect (extreme
case USA)
Norway: Flexible combination Russia: Unclear balance
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Privatisation and de-privatization of the Russian oil industry Principal decision political But speed and the way privatization was
carried out determined by narrower goals– Initial goal: restructurization and creation of
more efficient industry
– Later dominant goal: revenues to the state budget
Deprivatization from 2003 onwards– Alternative to a resources management
system?
– But also other reasons...
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Composition of ownership in the Russian oil industry 2004 - 2007
2004Foreign24 %State
33 %
Private43 %
2007 Foreign29 %
Private24 %
State47 %
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Norway’s experience Starting point: Foreign companies Establishement of a Norwegian oil industry
– Statoil - 100% state owned– Hydro - 50% state owned– Saga Petroleum - private
Saga sold to Hydro: Initial consolidation of sector – Part privatization of Statoil: Increased efficiency, sharing of
risk Fusion of Statoil and Hydro: Consolidation of sector in light
of mature continental shelf + international challenges– StatoilHydro 62.5% state owned
Creation of Petoro (100%) – State’ direct financial interest in petroleum licenses– Separate from state oil company
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State representation on the boards of directorsRussia: From professionals to high level officials 2008: A return to professionals?
– Weak stimulus to increased efficiency
Norway: State represented by independent people on
board of StatoilHydro State may be represented in license committes
– Capacity issue
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Development of Russian reserves
Post-USSR: Huge reserve base Developed reserves transferred to users
(companies) No incentive for companies to explore for
new discoveries– Only additional exploration in fields in
production and in their vicinity
Crisis in prepared reserves building up – visible 2004-05– Reasessment of policy
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How to increase exploration?
Stimulation of private companies and investors: Finder’s rights More flexible system for transfer of licenses Access to information
Increased state activity: Increased budgets New state exploration organization From tenders to auctions From annual plans to long-term program
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The Russian licensing system - changing From flexible annual plans to inflexible program
approach– Results unsatisfactory – return to application
From license (investment) competitions to auctions– Results unsatisfactory - return to competitions
From public process on regional and federal level to closed administrative process on federal level
Offshore resources removed from competition altogether
Licensing not used strategically, but as a way to allocate assets.
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Norwegian licensing strategy – a flexible programme approach Stated goal:
– ”increase the attractiveness of the Norwegian continental shelf for established and new players that can contribute to efficient exploration”
Ministry proposes opening of areas for licensing
– Overall consideration of resource potential and impact on society
Consultation between companies and authorities
Nomination– Oil companies suggest blocks for licensing
Ministry announces blocks available for application
Companies apply
Balanced state/company interaction
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License conditions - Russia
A certain production level within a certain time after start-up
No room for adjustments according to changing geological or technical conditions
No clear criteria for revoking of license License violation widespread
Results: Uncertainty, unpredictability
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Licensing terms - Norway
License period Work commitments
Plan for development and operation Cooperation agreement (within license
group) Room for adjustments
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State control of trunk pipelines: Stimulus or hindrance for resource users?
Main issues for determining profitability for new entrants to oil production:– Access to trunk pipelines in the production
areas, or
– The possibility for a company to build and use its own pipelines
– Access to selected markets, especially exports, but also to lucrative domestic markets in terms of volumes and price
– Outlets for associated gas
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Russian pipelines
Trunk pipeline transportation monopolized:
– Trunk gas pipelines – Gazprom 100%
– Trunk oil pipelines – Transneft 90%
– Oil product pipelines – Transnefteprodukt 30%
State ownership of trunk pipelines presented as important for the functioning of the economy
Pipeline companies have their own interests and priorities
Separate government commission granting access to oil pipelines abolished 2002
General impression: Regulatory powers transfered to the operators
– But new regulation of independents’ access to Gazprom pipelines under consideration
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Norwegian pipelines
Initially gas pipelines controlled by state oil company (Statoil). Combined with de-facto gas exports monopoly (GFU)
Smaller (foreign) companies complained about access
Gas transportation transferred to new independent operator – Gassco - providing equal access. Combined with dissolution of export monopoly. – Pipelines owned by partnership of oil companies
Combination of indirect and direct measures
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Resource data - in whose interest?
Access to information reduces the investment risk and facilitates rational development of resources.
Norwegian system: Collection and sharing of data to give resource users equal opportunities
Russian data management has a different main purpose: control over the fullfillment of license conditions
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Taxation
Very powerful instrument in resources management. – Differentiated taxation can encourage resource
users to enter new areas
– Various schemes can be used to reduce the investment risk
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Taxation systems – main characteristicsRussia: Fiscal orientation – maximization of state
revenues– Simplicity – easy to apply and administer– Absence of considerations for the specifics of
hydrocarbon exploitation – deteriorating production conditions in existing fields
– Adjustments based on selected criteria
Norway: Fiscal objectives, but also encourage investment– Taxation depending on market developments: oil
market, equipment market, service market
– But also negotiations about marginal areas• Negotiation power changes over time
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Preconditions for a more flexible taxation system An objective picture of costs Consideration of the special characteristics
of each field is impossible without a market determining costs– a market for equipment, technology and
services
But development of this market is hurt by the monopolization in the petroleum industry
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The basis – technical regulations
Russia had a detailed standard system (GOST)– Development plans presupposes use of existing,
sometimes outdated technologies– Complicated to introduce new technology– Supposedly possible to calculate costs
2002: Law introducing a system of technical regulations covering only safety aspects– Leaving the rest to the market
2008: Proposed new ”Law on standardization”– A return to the Soviet GOST model?
Norway: Safety standards – Elsewhere technologies determined by resource user to achieve stated goals
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Russia: Extended state participation The state is governing through regulatory
agencies on one hand and participating in commercial enterprises on the
other But also quasi governance through state
controlled companies, by letting them take on regulatory functions
Neglect of impact on other economic sectors Increasing monopolization
– No cost concern – alliances with ‘friendly companies’
Non-public character of decisions
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Norway: Increased flexibility
Access to resources Access to infrastructure Taxation Public character of development decisions Will increased dominance of one company
(StatoilHydro) on Norwegian shelf be counterbalanced?
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Direct and indirect management
Clear delineation of methods depends on clear determination of goals
Russian policies pursuing several competing goals, Norwegian goal hierachy simpler
No objective balance direct/indirect– Depends on circumstances over time
Different countries – different models; but similar challenges – similar solutions
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Thank you for your attention!