Buoyant oil prices in 2000 helped Hydro's Oil and Energy business area log record high annual earnings while the merger with Saga Petroleum helped cut costs, optimize domestic Norwegian petroleum operations and develop promising future ventures abroad.
"We've started implementing strategies outlined a year and a half ago and are quickly establishing footholds to secure maximum return on our investments for many years to come," says Tore Torvund, executive vice president in charge of Oil and Energy.
The business area's strategic petroleum goals include doubling oil and gas output within 10 years, balancing its portfolio between domestic and international operations, and developing four to five exploration and production core areas outside Norway.
On the Energy side: "We're well positioned for a liberalized EU energy market," he says. Hydro is not only a major European gas producer, but one of Europe's largest gas consumers with extensive Agri and Aluminium operations. Sharpened gas and electricity trading skills support Oil and Energy's strategy to cultivate a pan-European "gas for power tolling concept."
Hydro expects its average total oil and gas production to be about 435,000 barrels of oil equivalents (boe) per day in 2001. Five new fields will come on stream by the end of this year. The company's updated production profile predicts gas production to rise from 5 billion cubic meters per year to 13 billion cubic meters per year by 2010 and total collective output to reach 800,000 boe per day.
"The target is based on Hydro's existing portfolio, and includes production from fields in production and under development, resources yet to be developed and forecast recovery from future exploration activities in existing acreages, including the expected allocation of ultra-deep water Block 34 in Angola," Torvund says.
Hydro's planned production profile does not take into account petroleum assets that may be acquired through the potential privatization of the Norwegian State Direct Financial Interest (SDFI).
Good things in small packages
"We're a relatively small company, but our technological and operational expertise is comparable to the world's largest oil companies," he says. Hydro currently operates production facilities with total output averaging 1.2 million boe per day. "We're a technology-driven company with deep water expertise and experience operating in extremely harsh environments."
In Norway, Hydro is development operator for the challenging giant deep-water Ormen Lange gas project (see pages 16-20), slated to start producing in 2006. The field will become the basis for Hydro's long-term gas deliveries to Europe and assist its transition from mainly a domestic oil producer to gas supplier.
Crossing boundaries
Hydro's exploration budget in Oil and Energy will grow to approximately NOK 2.1 billion (USD 240 million) in 2001, compared with NOK 1.8 billion (USD 206 million) in 2000. For the first time, Hydro's international exploration program will exceed exploration activities in Norway. A total of NOK 1.1 billion (USD 126 million) is earmarked for foreign exploration in 2001.
"We've had to find ways to offset Norway's declining oil reserves," Torvund says. Hydro's international core area entry strategy secures access to an initial portfolio with long-term field development and exploration potential.
In Iran, Saga laid the initial groundwork and Hydro now holds the first exploration contract signed by a Western company in the Anaran area near the Iraqi border. It also has rights to negotiate exploration opportunities in the western Persian Gulf region. Iran will account for about 20 percent of Hydro's international exploration budget in 2001.
In eastern Canada, Hydro's oil intake will grow this year to about 29,000 barrels per day (bpd) and could reach 110,000 bpd by 2010 – depending on successful exploration results.
Hydro's 10 percent stake in Angola's Block 17 has proven to be a bonanza. To date, 10 large commercial finds have been made on the block with the potential for several billion barrels of recoverable oil. A production share agreement awarding Hydro a 30 percent stake on Block 34, directly south of Block 17, is expected to be signed by the Angolan authorities in the second quarter.
Northwest Russia requires "a long-term view and patience," says Torvund. Hydro has a 20,000-bpd plateau production share in the producing Kharyaga field and participates in a Western alliance poised to develop the gigantic Shtokman gas field in the Barents Sea.
Hydro's Aluminium and Agri activities in Brazil have built inroads to promising potential participation in the country's lucrative oil and gas industry. A similar diversified industrial relationship in Trinidad and Tobago contributed to Hydro's recent acquisition of half of Brazilian oil company Petrobras' 38 percent stake in the Caribbean country's deep water Block 27.
Hydro is also evaluating potential swaps of Norwegian offshore assets for deep water interests in the Gulf of Mexico.
"We're increasingly utilizing the Oil and Energy, Light Metals and Agri business areas in an integrated manner to effectively penetrate new regions and markets," Torvund says. "We have to play on our conglomerate structure."