Characteristic of the Empirical Research Objective: Norwegian Oil Companies

The theoretical section of the analysis shows that the oil industry is strongly impacted by global oil prices and a company’s success is related to a stable financial environment. Moreover, the impact of the oil price on a country’s economy depends on whether or not said country is an oil producer or oil consumer. Also considered is that different sectors of the oil industry are impacted differently by oil prices. Hence in this part, we will talk about our empirical research objective and its characteristics. But before analyzing our selected companies and their sectors, we briefly present Norwegian oil production capacity and its global exports volume. In general, the Norwegian economy is heavily dependent on its oil and gas production industry. After presenting the Norwegian economy and its dependency on oil production, we will analyze the Norwegian offshore oil industry and its main players. After presenting an assessment of the Norwegian economy and oil industry, we will present selected companies.

The Norwegian oil industry’s development started more than 50 years ago (Norwegian Petroleum, 2018). At the time, nobody thought that the oil industry would be very important for Norway’s economy and on the 13^th of April 1965, production licenses oil companies were issued for the first time in Norway. Nowadays, production quantities are 6 times higher than 50 years ago (Norwegian Petroleum, 2018). Moreover, there are more than 30 listed Norwegian companies, more or less related to oil industry, and there are 1.100 companies related to the oil industry and carrying out their activities in Norway (Norwegian Petroleum, 2018). Relatedly, successful government participation in the oil industry and rapid growth of the global oil price was a significant factor in

raising Norwegian public welfare (Norwegian Petroleum, 2018). The public welfare is so high in Norway thanks to the government’s ability to generate about 30 percent of its revenues solely from the oil industry in 2012 (Hansen, Rasen, 2012). Overall, the oil industry added more than NOK 9.000 billion to Norwegian economy (Hansen, Rasen, 2012). Therefore, it is important to analyze Norwegian oil exports in a global context and how the oil sector impacts the larger Norwegian economy, hence Figures 6 and 7 present Norwegian oil’s current situation in the world and its standing in Norway’s economy relative to other economic sectors.

Figure 6. The largest exporters in the world in 2011

Source: Hansen and Rasen (2012).

The figure above presents the daily exports of the world’s 10 largest oil exporting countries (ca. 2011) expressed in millions of barrels per day. As we can see, Norway exports almost the same amount oil as other major oil-producing countries. The only outliers are Russia and Saudi Arabia, each producing more than 3 times more than the other 8 countries listed, including Norway. Norway has 76 oil fields in its North Sea production zone, and together they manage to produce about 1.8 million barrels per day (Hansen, Rasen, 2012). Moreover, we can see that Norway is the only developed country which is able to produce the same amount of oil as other countries in this figure.

Moreover, the most oil production came from the Middle East region and Norway and Russian represents Europe area. The dominance among developed countries gave them a huge advantage against developing countries and Norway was the seventh largest oil exporters in the world (Hansen, Rasen, 2012). In addition, Norway is only country listed which does not belong to OPEC. Therefore, we can see that Norway is a significant player in global oil production, even though the country does not belong to OPEC, it is still the seventh largest oil exporter in the world. Hence based information from Figure 6 we can conclude that Norway is the only listed country from the developed world and their production volume is the same as other OPEC countries, with the exception of Russia and Saudi Arabia, the largest exporters in the world in 2011. After presenting Norway’s role in global oil

industry, we can analyze the Norwegian economy and its sectors and find out how important the oil industry is to the Norwegian economy.

Figure 7. GDP per sector in 2010

Note: Created by author based on Leskinen, Bekken et al. (2012).

The figure above presents the sectors of the Norwegian economy. Overall, there are 7 sectors:

Oil and gas; Services; Manufacturing; Construction; Public Administration; Shipping; Agriculture, fishing, mining. Figure 7 shows that the biggest industry is the services sector and second biggest sector is oil and gas. Combined, they generate about 86 percent of total Norwegian GDP. The Norwegian oil industry increased their GDP per capita significantly: from 9.551 dollars in 1978 to 56.648 dollars in 2010 (OCED,2012). Moreover, the oil industry generates about 29 percent of total Norwegian investments and 52 percent of total Norwegian exports (Hansen, Rasen, 2012). The remaining industries only generate about 14 percent of total Norwegian GDP. Therefore, we can see that the oil industry has an influence on the economy and is second biggest sector in Norway’s overall economy. Moreover, the industry is very important for other industries, and directly or indirectly the oil industry created about 206.000 jobs in Norway in 2009 (Hansen, Rasen, 2012). Hence, we can conclude that oil industry is important for Norway’s success and economic growth.

In the theoretical section we found out that several authors who analyzed Norwegian oil companies concluded that some oil sectors are much more influenced by the global oil price than other oil sectors. Therefore, it is important to distinguish Norwegian oil sectors. As mentioned earlier, offshore oil production started in early 1970 (Hylleberg, Pederson, 2011). From that time, the industry significantly increased growth and competition in the offshore field industry. There are several factors which helped to increase the industry’s growth: low levels of corruption, low levels of bureaucracy, and high knowledge of shipping (Hylleberg, Pederson. 2011). However, the industry has also some weakness: the oilfield resource is low, political dilemmas between environmental preservation and continuity of oil production, and a relatively low level of outsourcing and investment as well as other

23%

53%

9%

5%

5% 3%

2%

Oil and gas Services Manufacturing Construction Public Administration Shipping

Agriculture, fishing, mining

factors which are related to the Norwegian oil industry (Hylleberg, Pederson. 2011). The next step is to present the Norwegian offshore oil sector and its characteristics. Therefore, Figure 8 presents the interaction between all oil industry companies and other players in Norwegian oil industry.

Figure 8. Norwegian oil industry’s structure

Note: Created by author based on Leskinen, Bekken et al. (2012).

There are many important actors in Norwegian oil industry such as educational institutions, government, specialized services companies, suppliers and institutions for collaboration, but the main actors are upstream companies (exploring fields for oil and getting oil and gas out of the ground), midstream companies (transportation and storage of oil), and downstream (distributing, selling, refining, marketing oil products) (Garcia, Leskinen, Bekken, et al., 2012). The previously mentioned organizations or companies help oil companies to operate more efficiently and ethically in the industry. For example, suppliers support production by renting or providing Subsea and geology services, drilling technology and operational support to oil companies (Garcia, Leskinen, Bekken, et al., 2012). In addition, special services companies are law firms, accounting firms, banks and other companies (Garcia, Leskinen, Bekken, et al., 2012). Therefore, without those companies and institutions the industry would be neither efficient nor productive. However, based on Garcia et al.

(2012), the main actors mentioned earlier generate the most profit from the industry. Going more in to details, we could add that the biggest competition is in upstream sector and the sector could be divided in two into segments: Operators and suppliers. Operators are responsible for production or have production rights in specific fields; the biggest Operator is Statoil, which is responsible for about 70 percent of production (Sasson, Blomgren, 2011). Moreover, Statoil export about 46 percent of total Norwegian export (Sasson, Blomgren, 2011). Suppliers are responsible for supporting Operators in producing oil. Based on conclusions by Garcia et al., there are five oil supplier sub-sectors:

Topside; Drill and well; Subsea; Operation support; Geology and seismology (Garcia, Leskinen, Bekken et al., 2012).

The Geology and Seismology companies are responsible for gathering and analyzing geological and seismological data, interpreting, and presenting the data results (Ernst and Young, 2016). Moreover, Operators could engage their services to find the location of oil within a specific field (Garcia, Leskinen, Bekken, et al., 2012). Our collected data shows that we have 4 Geology and Seismology companies (Table 2). The other upstream supplier could be Drill and Well firms. The companies are responsible for safely and efficiently pumping oil from the sea (Ernst and Young, 2016). Out of 22 companies we have 5 Drill and Well companies (Table 2). Topside and Subsea companies are responsible for equipment supply, manufacturing, installation and construction of offshore platforms (Garcia, Leskinen, Bekken et al., 2012). Combining both subsegments, we will analyze 3 Subsea and 4 Topside companies (table 2). Operations companies have production licenses and employ suppliers for all upstream activities (Garcia, Leskinen, Bekken et al., 2012). These companies should gain the most profits compared to other industries’ companies, but in this paper, we will analyze only 3 Operators (Table 2). Operation support companies are those which support Operators and other sub-segment companies in all upstream activities and we will analyze 3 operation support companies in the Norwegian oil industry (Garcia, Leskinen, Bekken et al., 2012).

Table 2.

Selected Norwegian oil companies and their sectors Norwegian oil companies Short name Sector

Bonheur BON Drill and Well

Fred. Olsen Energy FOE Drill and Well

Petrolia drilling PDR Drill and Well

Seadrill SDRL Drill and Well

Aker Solutions AKSO Topside

BW Offshore Limited BWO Drill and Well

DOF DOF Subsea

Eidesvik Offshore EIOF Subsea

Electromagnetic Geoservices EMGS Geology and seismology

Havila Shipping HAVI Operation support

Petroleum Geo-Services PGS Geology and seismology

Prosafe PRS Operator

Reach Subsea REACH Subsea

SeaBird Exploration SBX Geology and seismology

Sevan Marine SEVAN Topside

Siem Offshore SIOFF Topside

Solstad Farstad SOFF Operation support

Subsea 7 SUBC Subsea

TGS-NOPEC Geophysical Company TGS Geology and seismology

DNO DNO Operator

InterOil Exploration and Production IOX Operator

I.M. Skaugen IMSK Operation support

Note: Created by author based on sources, which disclose company’s activity.

Therefore, the Norwegian oil industry is seventh in overall oil exporters in the world and only country which do not belong to OPEC organization among top 10 exporters in 2011. Moreover, the oil industry generates about 23 percent of total Norway’s economy. Due to previously mentioned

factors and government participation, the offshore oil industry has become a very competitive one, with many players. Upstream sectors are very competitive and other sectors are mostly controlled by Statoil. The sector could be separated in two groups: Operators and suppliers. The suppliers part is very competitive, and it could be separated into 5 sub-groups: Topside, operation support, Geology and Seismology, Subsea, Drill and Well. Based on information from Table 2, our selected companies are diverse and should fully present an overview of the Norwegian oil industry. However, it should be mentioned that some companies are global companies and have diverse business activities and some operate in different geographical regions.