Petoro – the anonymous, little giant

Equinor’s sprawling head office at Forus is a well-known landmark for most Stavanger residents. Far fewer notice a relatively modest building near the city’s concert hall. There, roughly 60 people administer a large slice of the revenues from Norway’s petroleum production – more than NOK 2 000 billion since the company was founded in 2019.

By Ole Jone Eide, Norwegian Petroleum Museum

- The headquarters of Petoro, in Stavanger. Photo: Shadé B. Martins/Norwegian Petroleum Museum

Petoro is a wholly state-owned limited company which administers a substantial part of the cash flow – revenues and expenses – on the Norwegian continental shelf (NCS). It represents both a continuation of and changes to earlier arrangements.

Continuity

Kjell Pedersen was the first CEO of Petoro. Photo: Harald Pettersen/Equinor

The foundation for Petoro’s business can be traced back to discussions in the 1980s on the limits of Statoil’s influence. At issue was whether its rapidly growing financial muscle would always be utilised in line with the interests of the state as owner. After long debate, the political parties reached a compromise.

From 1985, a substantial part of Statoil’s cash flow was to be separated from the company and come under the government’s immediate control. This was named the state’s direct financial interest (SDFI).

Statoil was to administer the SDFI on behalf of the government, which included keeping the accounts and selling the oil and gas. This management arrangement remained in place until the company became listed on the stock market in 2001, when the newly created Petoro took it over.

Changes

Although Petoro’s business therefore had roots back to the 1980s, its establishment also reflected substantial changes. It was not only a new player in the petroleum sector, but also a new type of player.

Petoro was not to be an oil company in the conventional sense, as the previous administrator had been.[REMOVE]Fotnote: That the company would not be awarded operatorships in licences was expressly stated in Proposition no 36 (2000-2001) to the Storting on ownership of Statoil and the future administration of the SDFI (see page 13). Among other differences, it would hold licence interests but not be an operator.[REMOVE]Fotnote: The operator is “the agent who, on behalf of the licensee, is in charge of the day-to-day management of the petroleum activity”, ABC of oil, Norwegian Petroleum Directorate, https://www.npd.no/en/about-us/information-services/abc-of-oil/, accessed 21 March 2022.

According to its articles of association, Petoro will, on behalf of the state, manage the commercial relations related to the state’s direct engagement in petroleum operations on the NCS and related activities.[REMOVE]Fotnote: Article 2, articles of association for Petoro AS, https://www.petoro.no/Vedtekter_Petoro_AS_2020.pdf, accessed 21 March 2022.

These articles build on a separate chapter of the Norwegian Petroleum Act.[REMOVE]Fotnote: Chapter 11, management of the state’s direct financial interest, Act relating to petroleum activities, 29 November 1996, https://lovdata.no/dokument/NL/lov/1996-11-29-72#KAPITTEL_11, accessed 21 March 2022. This specifies that the company does not receive revenues of its own from the SDFI holdings it manages, which are held by the state. Its operating expenditures are covered by appropriations from the government.[REMOVE]Fotnote: Ibid, section 11-2, management company. The company is also exempt from the provisions of the Public Administration Act.[REMOVE]Fotnote: Ibid, section 11-9, the relationship to provisions of the Public Administration Act, etc. Petoro was not to be responsible for selling or marketing of oil and gas, which remained with Statoil. Moreover, it would check that Statoil met its obligations pursuant to instructions from the government.

The SDFI was restructured in connection with the partial privatisation. Statoil had signalled that it wanted the greatest possible control over these assets to equip the company for international competition. The outcome was that 15 per cent of the SDFI portfolio was sold to Statoil for NOK 38.6 billion[REMOVE]Fotnote: “SDØE-avtalen klar”, 3 March 2001, https://www.equinor.com/no/news/archive/2001/05/03/SDEAvtalenKlar.html, accessed 21 March 2022. and 6.5 per cent to Norsk Hydro and other companies. That left the bulk of the original SDFI under direct state control.

Petoro is thereby the licensee for roughly a third of the petroleum reserves on the NCS. The company also manages the largest ownership interest, on behalf of the state, in transport systems and associated land facilities.[REMOVE]Fotnote: “SDFI facts”, https://www.petoro.no/about-petoro/sdfi-facts, accessed 21 March 2022.

Timeline from the establishment of Statoil to when Petoro was founded. Illustration: Petoro

Category of its own

Petoro reflects a tradition in Norwegian petroleum history whereby the government, with the varying involvement of companies, has set the agenda for the balance between the interests of the state and commercial operation.

Within these parameters, Petoro represents a new and key element in the state ownership structure for the petroleum industry as amended around 2000.[REMOVE]Fotnote: For an analysis of Petoro from a legal perspective, see: Kantanen, Eevamarjut, 2003, Petoro – partner og verdiforvalter: En rettslig analyse av den nye forvalterordningen for SDØE. master’s/special thesis, University of Oslo, https://www.duo.uio.no/bitstream/handle/10852/22426/kantanen.pdf?sequence=2&isAllowed=y, accessed 21 March 2022.

Its combination of continuity and innovation, together with a modest number of employees managing huge assets, contributes to a unique corporate structure in Norwegian petroleum history.