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Vol. 11, No. 52 Week of December 24, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Statoil purchases Norsk Hydro O&G

$30B stock deal to transform Norway’s Statoil into largest offshore operator, major deepwater player in U.S Gulf of Mexico

Ray Tyson

For Petroleum News

Statoil has agreed to purchase the oil and gas assets of fellow Norwegian company Norsk Hydro in a US$30 billion stock deal that would elevate Statoil to the world’s largest offshore operator, and transform it from an up-and-coming contender to a major player in the U.S. Gulf of Mexico.

The deal also would strengthen Statoil’s position in the Norwegian Sea and the Norwegian sector of the Barents Sea, a frontier area and environmentally harsh deepwater region of the Arctic that carries high hope for large hydrocarbon deposits.

Hydro has the Norwegian continental shelf as its base, but also produces oil and gas in Angola, Canada, Russia and Libya. The company also has activities in Iran and Denmark, as well as in the U.S. Gulf. Hydro operates a total of 13 oil and gas installations, posting 2006 third-quarter daily production of around 548,000 barrels of oil equivalents, up 7,000 barrels per day from the 2005 third-quarter.

Statoil reported 2006 third-quarter daily production of 1,076,000 barrels of oil equivalent, down 5 percent from 2005 third-quarter production of 1,128,000 barrels per day.

The new Statoil would have combined reserves of 6.3 billion barrels of equivalent. If the deal closes, Hydro will continue operating as the world’s third largest aluminum supplier.

Offshore portfolio largest in world

According to Statoil, the combined offshore oil and gas portfolio alone would rank the new company number one in the world, followed in order by Royal Dutch-Shell, Brazil’s Petrobras, UK’s BP, U.S.’ ExxonMobil, Australia’s Woodside Energy, U.S.’ Chevron, France’s Total, Italy’s Eni, U.S.’ Hess, U.S.’ ConocoPhillips and China’s CNOOC.

In addition to the Norwegian Sea, Barents Sea and U.S. Gulf, the proposed merger would strengthen Statoil’s E&P position in the North Sea, Canada, South America, North and West Africa, Russia, the Caspian Sea and the Middle East.

“By combining forces, the new company will be a highly competent and financially strong Norwegian-based energy champion,” Hydro Chairman Jan Reinas and Statoil Chairman Jannik Lindbaek said in a Dec. 18 joint statement announcing the $30 billion all-stock transaction.

Under terms of the merger agreement, Hydro’s shareholders would get 32.7 percent and Statoil’s shareholders 67.3 percent of the new company. Hydro’s shareholders would receive 0.8622 shares in the new company for each Hydro share and continue as owners of Hydro. Statoil shareholders would maintain their holdings in the new company on a one-for-one basis. The Norwegian State would hold about 62.5 percent of the merged entity.

The shareholders of Statoil and Hydro must approve the transaction, as well as regulatory authorities. Final closing would be in the third quarter of 2007. In the meantime, Hydro and Statoil said they will be managed as separate companies.

Expansion outside Norway the goal

Statoil said it was acquiring the oil and natural gas operations of its smaller rival in a deal largely motivated by their mutual desire to expand outside Norway, where the competition for offshore acreage is intense amid high oil prices. Among the targets is hydrocarbon-rich Gulf of Mexico.

In fact, Statoil and Hydro already have carved out separate deepwater niches in the U.S. Gulf through farm-ins, acquisitions and federal lease sales.

Hydro made headlines in 2005 with its $2.45 billion acquisition of Texas-based Spinnaker Exploration, a relatively small E&P independent with rich assets both in deepwater Gulf of Mexico and in shallower waters of the Gulf’s continental shelf.

Hydro’s take from the Spinnaker deal included interests in three “ultra-deepwater” natural gas discoveries — Spiderman (18.33 percent), San Jacinto (26.67 percent) and Q (50 percent) — that along with other gas discoveries in the eastern Gulf will be fed into the Anadarko Petroleum-operated Independence Hub. The facility, scheduled to come on stream in 2007, will be capable of processing 1 billion cubic feet of gas per day.

The company also inherited a 25 percent stake in the Murphy-operated Thunder Hawk oil discovery, located within spitting distance of the BP-operated Thunder Horse field in Mississippi Canyon, the largest ever Gulf oil discovery with more than 1 billion barrels of reserves. Thunder Hawk was recently sanctioned as a standalone development with estimated reserves of 50 million to 75 million barrels. Hydro also holds varying deepwater interests in the Front Runner, Lorien and Telemark discoveries.

On the gas-prone continental shelf, Spinnaker properties produced oil and gas from 38 blocks. Total production from former Spinnaker properties is expected to reach about 50,000 barrels of oil equivalents per day by 2008, with expected total reserves of about 129 million barrels of oil equivalents.

Hydro active in federal lease sales

Hydro also has been an active participant in federal oil and gas lease sales, particularly in the two sales held since the Spinnaker acquisition. In the 2006 Central and Western Gulf of Mexico sales the company won 37 blocks on an investment of nearly $46 million, according to U.S. Minerals Management Service records. In the Western Gulf sale held in August, Hydro accounted for two of the highest 10 bids — $9.2 million for Keathley Canyon block 326 and $6.1 million for Garden Banks block 611.

Statoil established itself as a regional player in early 2005 with the $2 billion acquisition of EnCana’s entire deepwater Gulf portfolio, consisting of an average 40 percent working interest in 239 blocks covering 1.4 million acres. Interests in the Tahiti development and the Tonga, Fox, Jack, St. Malo and Sturgis discoveries represented the core of the deal.

The EnCana properties have the potential to deliver 30,000 net barrels oil equivalent to Statoil by 2009, increasing to more than 100,000 net barrels after 2012, Statoil said, adding that the properties contain expected discovered resources of 334 million net barrels oil equivalent, and expected total resources in excess of 500 million net barrels.

In addition to the EnCana deal, Statoil entered into exploration arrangements with ExxonMobil to drill wells in Alaminos Canyon. Statoil and Exxon also are jointly evaluating exploration acreage in Walker Ridge, on trend with the Jack and St. Malo discoveries. Statoil also entered into an agreement with BP regarding participation in the drilling of an exploration well in Walker Ridge Block 544 on the Tucker prospect.

Statoil bought Gulf prospects earlier this year

In September, Statoil doled out $700 million to E&P independent Plains Exploration & Production for Plains’ 17.5 percent interest in the Shell-operated Caesar discovery, a 12.5 percent interest in the Chevron-operated Big Foot discovery, and a 12.5 percent working interest in the Chevron-operated Big Foot North prospect. Expanding on that deal, Statoil coughed up another $901 million in early November to acquire Anadarko’s 25 percent interest in Knotty Head, 15 percent stake in Big Foot and 15 percent stake in Big Foot North.

Knotty Head also happens to be close to the Chevron-operated Tahiti development, in which Statoil holds a 25 percent share, and the Tonga discovery, in which Statoil holds a 25 percent interest. Statoil also holds a 25 percent interest in the Claymore prospect and a 2.25 percent stake in the Puma discovery.

In 2004, Statoil acquired Hydro’s 10 percent interest in Snohvit, the first major development in the Barents Sea offshore Norway. That deal raised Statoil’s interest in the Barents Sea gas field to 33.53 percent.

Statoil operates the massive Snohvit project which is expected to produce 201.3 billion cubic feet of gas per year from the project’s initial wells, or about 706 million to 883 million cubic feet per day for shipment as liquefied natural gas. Snohvit actually makes up three Barents Sea fields — Snohvit, Albatross and Askeladd. They were discovered in 1984 and extend across seven production licenses in water depths ranging from 820 to 1,132 feet. The total accumulation is believed to exceed 6.8 trillion cubic feet of natural gas and 113 million barrels of condensate.

Statoil also is a major player on Norway’s continental shelf, where the company operates some 30 fields with varying interests.

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