No. 1, 2006


Oil of Russia magazine talks with Petter Nore, President of Hydro Oil & Energy, Russia

Norsk Hydro, one of the world's most high-tech oil companies, has great hopes for Russia. The Norwegian company's unique technology and great experience in working on the shelves of the northern seas make it the most probable candidate for helping to develop the gigantic oil and gas reserves in the Russian sector of the Arctic Shelf.

Q: Norsk Hydro celebrated its 100th anniversary last year. What were the most important events that influenced the company's establishment as a transnational oil corporation?

A: A key moment in the history of Norsk Hydro was the very decision to start oil and gas prospecting on Norway's continental shelf. As you know, the company was originally set up as a manufacturer of plant nutrients. Until very recently, its operations were based on simultaneous and consistent development in three major areas, a kind of triad. The first of these was energy: the production of oil, gas, and hydroelectricity. The second was the manufacturing of aluminum, and the third was fertilizer. Not too long ago, we spun the production of plant nutrients off into a separate company. So, the discovery of hydrocarbon resources in the North Sea and the decision to also start producing oil was an important step in establishing Hydro as one of the world's leading oil and gas companies.

Among other events was the rise in prices on the world oil market in 1992–1993. Prior to this, only one of our major fields, the Ekofisk, was sufficiently cost effective for developing. It was hard to speak of increasing oil production at other fields so long as prices were at $2–$3 a barrel. In the 1990s, however, when prices doubled and then tripled, our company's oil and gas operations expanded considerably.

Q: Your company is involved in exploration and the production of oil in many parts of the world. What place does Russia hold today in Hydro's global strategy?

A: Russia holds a very important place in our strategy, since one of Norsk Hydro's goals is to increase its presence on the world markets. There are few countries around the world that have conditions as favorable for our company as does Russia. First of all, the Kingdom of Norway and the Russian Federation are two neighboring countries. Second, because of their similar climatic and geographic conditions, we can use in the Russian sector of the Arctic the technologies that Norsk Hydro has successfully employed in the North and Barents Seas. Third, we see the Russian Federation as a country with great possibilities, one that has enormous hydrocarbon resources.

We'd like to make our own contribution to the development of Russia, its economy, and – of course – to the functioning of the Russian oil and gas industry.

I have no qualms about saying that, if we don't make it here, we won't be able to make it anywhere else in the world. Our company really is aiming to make it big in Russia.

Q: Hydro has been working in Russia for 15 years now and participating in developing the Kharyaga field. What have been some of the initial results from the company's operations in Russia?

A: First of all, our work in Russia has provided us with some very good experience. Even though Kharyaga wasn't a very big project (compared to Norsk Hydro's large-scale operations in the North Sea), it taught us how to do business in Russia. We've finally resolved the tax problems we were having and are now ready to move on and make new investments. The task we're now setting for ourselves is to strengthen our position in this project.

Q: How does Norsk Hydro feel about its experience working with Russian companies?

A: I have to say in particular that, over the last few years, we've managed to build a good relationship with Gazprom, Russia's largest company; we've been working with them for 15 years now on the Stockmanovskoye project. We have some very constructive contacts with this company's top management, and we're impressed with the technical solutions that Gazprom has implemented in a number of projects. Gazprom is already one of the world's leading gas corporations, and it's now beginning to take an active part in the oil business. It'll be really interesting to see what happens, even though it's still too early to draw any kind of conclusions.

I'd like to add that, even though a lot of Russian companies today lack experience in working on marine projects (and we're studying this area as one possible line of our collaboration), so far as developing onshore fields is concerned, we're impressed with the Russian technologies now being employed, for example, in western Siberia.

Q: What can you say about the investment climate in Russia?

A: I'd like to note that the investment climate in Russia has improved recently, and the country is now attracting a lot of new direct foreign investment. I'm glad to see that there's an understanding at the level of the Russian government that the conditions for working in Russia ought to be attractive for foreign companies, since there's competition from other countries that also need an influx of foreign investment. To me, the drafting of the new Law “On Subsoil” was a very good sign. The country's overall economic policy is further proof of the trends I mentioned earlier. To be sure, there are certain negative things in Russia today that foreign investors are keeping an eye on. But so far as the development of the situation as a whole is concerned, I can say it's pretty good.

Q: Objectively, Russia today needs foreign investment and technology. How could Hydro's experience and specific Norwegian technologies be applied in Russia's oil and gas industry?

A: Subwater technologies are hugely important. Needless to say, we have great experience in developing offshore fields. We're now offering Russian companies our offshore production systems that are being applied successfully at Ormen Lange. In a number of parameters, this field is similar to the Stockmanovskoye field. For example, the weather conditions are similar: the sub-zero temperatures at the sea floor are having a serious impact on the project's implementation. Production at Ormen Lange is proceeding at a depth of 1,000 meters, and the working conditions there are of course harsher than at other fields of ours. We freely admit that our technical solutions for the Stockmanovskoye field are virtually identical to those being employed at Ormen Lange.

Yury Trutnev, Russia's minister for natural resources, is in favor of involving foreign companies with experience working on offshore fields in implementing similar projects in Russia. As I said before, Russian companies' experience in this area is quite limited. There are only isolated examples: the development of the Prirazlomnoye field, and LUKOIL's Baltic and Caspian projects. Russian oil and gas producers recognize that they need the knowledge and technologies foreign companies have to offer in this area.

We can also make our technologies for drilling on dry land available to our Russian partners. They are now being successfully used to develop Norwegian onshore fields, and in our projects in other countries.

I should also say something about organizational skills and project management, and there's one very important aspect of this I'd especially like to stress: It's one thing to make one technology or another available, and something completely different to correctly organize and supervise work with it. Effective management often does not receive the attention it deserves, and the focus is just in technologies. Competent management, however, is now of great importance in raising a project's financial performance. Hydro's experience in this field is enormous. In our 100-year history, we have learned to perform all kinds of jobs strictly on schedule and within budget.

The third important element of what we can offer today on the Russian market has to do with different companies' relations with the public. It is important that foreign oil and gas corporations do not come to Russia just to make money and exploit natural resources. The country's industry, economy, and people need their help in building the future.

Investor companies should not only fulfill their obligations toward the Russian government: they also ought to help support the community and stimulate the development of local industry. We have some experience in this field, since the situation in Norway in the 1970s was the same as that in Russia today. The Norwegian government faced the same complicated problems that of the Russian government agencies face today. Our companies didn't then have either the knowledge or the skills they needed to develop marine fields. The national government's task was clear: to bring Norwegian industry to the international energy market and stake out a competitive position in it. It took a long time to accomplish this, but Norway is now a leader in the oil and gas production on the World Ocean's shelf. Our country also has one of the highest standards of living in the world.

Q: Tell us a bit more about the state-of-the-art technologies Norsk Hydro uses in regions with harsh climatic conditions.

A: If we're talking about starting work under Arctic conditions, Hydro has a great deal of experience in implementing projects on Canada's east coast and in Greenland. The things we developed in these countries will undoubtedly be of great use to us in the Barents Sea. With regard to severe climatic conditions in general, we've gained a lot of skill from working in the North Sea where it's quite stormy indeed, and equipment and platforms wear out very quickly. These difficulties don't bother us. They're what we as a company grew up on, and we have a great deal of experience in dealing with them.

So far as transport in a multiphase flow is concerned, we're sure these technologies can be employed at the Stockmanskoye field as well. There has been a lot of debate about this, but we still hold to our point of view. We're now working on our Ormen Lange project, where we plan to do such transport over a distance of 50 kilometers, but we're ready to extend this to 250 kilometers on the Stockmanskoye project. Our engineers are certain this is feasible, even when you take the topography of the Barents seabed and the quality of the gas into consideration. We've introduced a few new technical solutions at the Stockmanskoye project, but these have mainly been associated with transporting the gas in a multiphase flow.

Q: You've already mentioned the importance of the management factor. Which of the methods developed by Hydro over so many years are, in your opinion, applicable under Russian conditions?

A: In my opinion, you can't take the model of project management for developing a field in one country and simply transfer it mechanically to another. A scheme like this has never worked properly anywhere, mainly because of the peculiarities of different legal and tax systems. All of the steps in implementing a project have to be examined in perspective, taking the level of economic development, and even the historical and cultural features specific to a given country, into consideration. There are, though, certain key elements and rules that can be taken at the fundamental level and applied both on land and at sea.

We have experience in implementing such different projects as developing the Ormen Lange field at a cost of $10 billion and constructing huge aluminum factories in Norway and Western Europe. What they have in common is certain key rules that we never change.

The most important element is planning, to which we really do devote an enormous amount of time and effort. You can't rush this stage or speed up the implementation of one project or another without good reason. If you don't spend enough time on planning, you pay dearly for it in the future.

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Oil of Russia, No. 1, 2006
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