0001140625-17-000006.txt : 20170317 0001140625-17-000006.hdr.sgml : 20170317 20170317130420 ACCESSION NUMBER: 0001140625-17-000006 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 41 CONFORMED PERIOD OF REPORT: 20170317 FILED AS OF DATE: 20170317 DATE AS OF CHANGE: 20170317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATOIL ASA CENTRAL INDEX KEY: 0001140625 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-15200 FILM NUMBER: 17697203 BUSINESS ADDRESS: STREET 1: FORUSBEEN 50 CITY: STAVANGER NORWAY STATE: Q8 ZIP: N 4035 BUSINESS PHONE: 47 51 99 00 00 MAIL ADDRESS: STREET 1: FORUSBEEN 50 CITY: STAVANGER STATE: Q8 ZIP: N 4035 FORMER COMPANY: FORMER CONFORMED NAME: STATOILHYDRO ASA DATE OF NAME CHANGE: 20071005 FORMER COMPANY: FORMER CONFORMED NAME: STATOIL ASA DATE OF NAME CHANGE: 20010515 20-F 1 sto_20-f16.htm STATOIL ANNUAL REPORT ON FORM 20-F  

 

 

 

 

 

 

 

 

 

2016

                         

Annual Report

on Form 20-F

 

 


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

                                                                                           FORM 20-F

(Mark One)

    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        For the fiscal year ended December 31, 2016

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        For the transition period from _________ to _________

OR

    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        Date of event requiring this shell company report _________

Commission file number 1-15200

Statoil ASA

(Exact Name of Registrant as Specified in Its Charter)

N/A

(Translation of Registrant’s Name Into English)

Norway

(Jurisdiction of Incorporation or Organization)

Forusbeen 50, N-4035, Stavanger, Norway

(Address of Principal Executive Offices)

Hans Jakob Hegge

Chief Financial Officer

Statoil ASA

Forusbeen 50, N-4035

Stavanger, Norway

Telephone No.: 011-47-5199-0000

Fax No.: 011-47-5199-0050

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange On Which Registered

American Depositary Shares

New York Stock Exchange

Ordinary shares, nominal value of NOK 2.50 each

New York Stock Exchange

 

*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:       None 

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:        None 

 

 

 

 

 

 

 

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Ordinary shares of NOK 2.50 each                                                        

3,245,049,411

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

X Yes   ☐  No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes   X No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

X Yes   ☐  No

 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).**

 

Yes   ☐  No

**This requirement does not apply to the registrant in respect of this filing.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   X

Accelerated filer   ☐ 

Non-accelerated filer   ☐ 

 

 

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   ☐ 

International Financial Reporting Standards as issued
by the International Accounting Standards Board     X

Other    ☐ 

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17  ☐   

 

 

 

Item 18  ☐   

 

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   X No

 

 

                           

Statoil, Annual Report on Form 20-F 2016    1 


 

 

 

  

2   Statoil, Annual Report on Form 20-F 2016     


INTRODUCTION  
Message from Chair of the board 3
Chief executive letter 5

Statoil at a glance

6
About the report 8
   

STRATEGIC REPORT

 
2.1 Strategy and market overview 9

2.2 Business overview

14

2.3 DPN - Development and Production Norway

19

2.4 DPI - Development and Production International

27

2.5 MMP - Marketing, Midstream and Processing

33

2.6 Other group

36

2.7 Corporate

39

2.8 Operating and financial performance

44

2.9 Liquidity and capital resources

69

2.10 Risk review

74

2.11 Safety, security and sustainability

85
2.12 Our people 90
   

CORPORATE GOVERNANCE

 

3.1 Introduction

93

3.2 General meeting of shareholders

96

3.3 Nomination committee

97

3.4 Corporate assembly

98

3.5 Board of directors

101

3.6 Management

111

3.7 Compensation to governing bodies

116

3.8 Share ownership

124

3.9 External auditor

125

3.10 Controls and procedures

127
   

FINANCIAL STATEMENTS AND SUPPLEMENTS

 
4.1 Statoil Consolidated financial statements 129
   

ADDITIONAL INFORMATION

 

5.1 Shareholder information

203

5.2 Accounting standards (IFRS) and Non-GAAP measures

216

5.3 Legal proceedings

220
5.6 Terms and abbreviations 221
5.7 Forward-looking statements 224

5.8 Signature page

225

5.9 Exhibits

226

5.10 Cross reference to Form 20-F

227

 


 

 

 

 




Dear shareholder,

 

2016 was a challenging year for the oil and gas industry. Across the industry, the financial results were impacted by the continued low price environment and Statoil ended up with a negative net income of USD 2.9 billion. In this situation, it is encouraging to see how well the company has delivered on its improvement programme and that the operational performance has continued to be strong. Statoil is now well positioned to for the future. 

 

The board of directors has in its work focused both on short term measurements to secure the company’s position in a challenging environment, and more long term through the work of sharpening our strategy. Protecting and enhancing shareholder value guides the board of directors in its work and priorities – short and long term.

 

Strong safety performance is essential for the company’s operations. Last year we experienced the worst imaginable, with a fatality on a yard in South Korea and a helicopter crash outside Bergen that took 13 lives.

 

Further, the serious incident frequency, measured as incidents per million hours worked for both Statoil employees and contractors, increased from 0.6 in 2015 to 0.8 in 2016. Together with the administration, the board of directors has focused on new steps to reinforce safety measures and get back to a positive trend to improve our safety performance.

 

The response to the market challenge through our improvement programme delivered annualised efficiency gains of USD 3.2 billion measured against a 2013 baseline, USD 700 million above the USD 2.5 billion target. As the company moves from an improvement programme to an improvement culture, new targets are set.

 

The board of directors have during the year worked closely with the administration to review and confirm Statoil’s sharpened strategy. Statoil has set clear principles for the development of a distinct and competitive portfolio. Statoil will develop long-term value on the

Norwegian continental shelf, deepen in core areas and develop new growth options internationally, and grow value creation in its marketing and midstream business. The company is making progress in creating a material industrial position in new energy solutions, primarily focused on offshore wind.

 

Responding to the climate challenge and preparing Statoil for a low carbon future is an integrated part of our strategy. Concrete actions to reduce greenhouse gas emissions in the operations have been implemented, and steps have been taken to build a more resilient portfolio. The updated climate roadmap captures the new set of measurements to be implemented.

 

Statoil remains committed to shareholder value creation and maintained the dividend during the year. A resolution is proposed to the annual general meeting to maintain the dividend at USD 0.2201 per share in the fourth quarter, and to continue the scrip dividend programme through to the third quarter of 2017.

 

The board of directors believes the company is well prepared to deal with the current market situation and has the competence, capacity and leadership necessary to create new opportunities and long-term value for our shareholders.

 

I would like to thank our shareholders for their continued investment, as well as the many employees of Statoil for all the dedication and commitment they show every day.

 

 

 

 

Øystein Løseth

Chair of the board




 

 

 

Statoil, Annual Report on Form 20-F 2016    3 


 

 

 

 

 

 

 

 

 

  


4   Statoil, Annual Report on Form 20-F 2016     


 

Dear fellow shareholder,

 

 

Safety and security is our top priority in Statoil. And while 2016 was a year of many achievements, we also experienced the worst thinkable. We had a contractor fatality during construction work in South Korea, and on 29 April we lost 13 colleagues when a helicopter crashed on its way from Gullfaks B to Bergen.

 

For the year as a whole, our serious incident frequency came in at 0.8, an increase from the two previous years. We are not satisfied with this development and have taken several steps to reinforce safety measures throughout the company.

 

In 2016, we saw oil prices below USD 30 per barrel and while prices increased towards the end of the year, our average realised liquids price was still below USD 40 per barrel for the year as a whole.

 

We delivered our cost improvement programme above target. The next step will be to go from project mode to a culture of continuous improvement, and we have set a target of achieving USD 1 billion in additional cost improvements in 2017.

 

By reworking solutions from reservoir to market, we have transformed our opportunity set. The break-even price for our “Next generation” portfolio of projects (those sanctioned since 2015 or planned for sanction with start up by 2022), is now at USD 27 per barrel of oil equivalent (boe).

 

Organic capex for 2016 was USD 10.1 billion, a USD 3 billion reduction from the original guiding. Production for the full year was 1,978 mboe per day, a slight increase from 2015 due to continued high production efficiency and despite high turnaround activity. Our reserve-replacement ratio (RRR) was 93%.

 

“High value, low carbon” is at the core of our sharpened strategy. We believe the winners in the energy transition will be the producers which can deliver at low cost and with low carbon emissions.

Statoil is pursuing a distinct and value-driven strategy:

·          On the Norwegian continental shelf (NCS) we have a unique position which we will leverage further to build our future business and maximise value

·          In our international upstream business, we will focus, deepen and explore further. Brazil is a core area for us, together with our position in the highly flexible US onshore business

·          For the Marketing, Midstream and Processing (MMP) business area, the job is to secure flow assurance by accessing premium markets and strengthening asset-backed trading, based on a ‘capex light’ approach

·          In the New Energy Solutions (NES) business area, we are building a profitable business with the long-term potential to account for 15-20% of our capex in 2030, provided that we can access and mature attractive opportunities

 

Our commitment to long-term sustainable value creation, is in line with the principles of the UN Global Compact.

 

We believe a low carbon footprint will make us more competitive in the future. We also believe there are attractive business opportunities in the transition to a low-carbon economy. Statoil intends to be part of this transformation in order to fulfil our purpose of turning natural resources into energy for people and progress for society. Our Climate roadmap explains how we plan to achieve this and how we will develop our business, supporting the ambitions of the Paris climate agreement. 

 

I look forward to further strengthening Statoil in 2017, pursuing the priorities set out at our Capital markets update: resetting our cost base, transforming our opportunity set and continuing to chase improvements. We have sharpened our strategy as an energy company towards 2030, and are ready to capitalise on high-value opportunities.

 

 

Eldar Sætre

President and Chief Executive Officer

Statoil ASA

 

 

  

 

Statoil, Annual Report on Form 20-F 2016    5 


 

STATOIL AT A GLANCE

 

Our history

The company was founded as The Norwegian State Oil company (Statoil) in 1972, and became listed on the Oslo Børs (Norway) and New York Stock Exchange (US) in June 2001. Statoil merged with Hydro`s oil and gas division in October 2007.

 

Statoil is an international energy company with operations in over 30 countries. We are headquartered in Stavanger, Norway with approximately 20,500 employees worldwide. We create value through safe and efficient operations, innovative solutions and technology. Statoil’s competitiveness is founded on our values-based performance culture, with a strong commitment to transparency, cooperation and continuous operational improvement.

 

Our shareholders

The Norwegian State is the largest shareholder in Statoil, with a direct ownership interest of 67%. Its ownership interest is managed by the Norwegian Ministry of Petroleum and Energy. US investors hold 9.6%, Norwegian Private owners hold 8.9%, other European investors hold 7.1%, UK investors hold 5.1% and others hold 1.5%.

 

 

Our business areas

We have eight business areas:

·          Development and Production Norway

·          Development and Production International

·          Development and Production USA

·          Marketing, Midstream and Processing

·          Technology, Projects and Drilling

·          Exploration 

·          Global Strategy and Business Development

·          New Energy Solutions

 

 

Our strategy

Statoil is an energy company committed to long-term value creation in a low carbon future. Statoil will develop and maximise the value of its unique Norwegian continental shelf position, its international oil and gas business and its growing new energy business; focusing on safety, cost and carbon efficiency. Statoil is a values based company where empowered people collaborate to shape the future of energy.

 

 

Our values

Open, Collaborative, Courageous and Caring.

 

 

Our dividend  policy

It is Statoil's ambition to grow the annual cash dividend, measured in USD per share, in line with long term underlying earnings. Statoil announces dividends on a quarterly basis. In May 2016, the annual general meeting approved the introduction of a two-year scrip dividend programme commencing from the fourth quarter of 2015.  

 

6   Statoil, Annual Report on Form 20-F 2016     


 

Key figures and highlights

 

(in USD million, unless stated otherwise)

  For the year ended 31 December

2016

2015

2014

2013

2012

 

 

 

 

 

 

 

Financial information4)

 

 

 

 

 

Total revenues and other income3)

45,873

59,642

99,264

108,318

123,660

Net operating income

80

1,366

17,878

26,572

35,808

Operating expenses

(9,025)

(10,512)

(11,657)

(12,669)

(10,467)

Net income

(2,902)

(5,169)

3,887

6,713

12,234

Non-current finance debt

27,999

29,965

27,593

27,197

18,137

Net interest-bearing debt before adjustments

18,372

13,852

12,004

9,542

7,057

Total assets

104,530

109,742

132,702

145,572

140,921

Share capital

1,156

1,139

1,139

1,139

961

Non-controlling interest

27

36

57

81

121

Total equity

35,099

40,307

51,282

58,513

57,468

Net debt to capital employed ratio before adjustments

34.4%

25.6%

19.0%

14.0%

10.9%

Net debt to capital employed ratio adjusted

35.6%

26.8%

20.0%

15.2%

12.4%

Calculated ROACE based on Average Capital Employed before adjustments

(4.7%)

(8.9%)

3.4%

11.3%

18.7%

 

 

 

 

 

 

 

Operational information

 

 

 

 

 

Equity oil and gas production (mboe/day)

1,978

1,971

1,927

1,940

2,004

Proved oil and gas reserves (mmboe)

5,013

5,060

5,359

5,600

5,422

Reserve replacement ratio (annual)

0.93

0.55

0.62

1.28

0.99

Reserve replacement ratio (three-year average)

0.70

0.81

0.97

1.15

1.01

Production cost equity volumes (USD/boe)

5.0

5.9

7.6

7.5

7.2

 

 

 

 

 

 

 

Share information1)

 

 

 

 

 

Diluted earnings per share USD

(0.91)

(1.63)

1.21

2.14

3.80

Share price at Oslo Børs (Norway) on 31 December in NOK

158.40

123.70

131.20

147.00

139.00

Dividend per share USD 2)

0.88

1.07

0.97

1.15

1.21

Weighted average number of ordinary shares outstanding (in thousands)

3,194,880

3,179,443

3,179,959

3,180,684

3,181,546

 

 

 

 

 

 

 

1)

See section 5.1 Shareholder information for a description of how dividends are determined and information on share repurchases.

2)

Proposed cash dividend for the second quarter of 2016. From and including the third quarter of 2015, dividends were declared in USD. Dividends in previous periods were declared in NOK. Figures for 2015 and earlier periods are presented using the Central Bank of Norway year end rates for Norwegian kroner.

3)

Total revenues and other income for 2013 and 2012 are restated.

4)

On 1 January 2016 Statoil changed its presentation currency from Norwegian kroner (NOK) to US dollar (USD), mainly in order to better reflect the underlying USD exposure of Statoil’s business activities and to align with industry practice. Comparative figures have been represented in USD to reflect the change. For further details, reference is made to Note 26 Change of presentation currency to the Consolidated Financial Statements.

 

Statoil, Annual Report on Form 20-F 2016    7 


 

About the report

This document constitutes the Annual report on Form 20-F in accordance with the US Securities and Exchange Act of 1934 applicable to foreign private issuers. A cross reference to the Form 20-F requirements are set out in section 5.10 in this report. The Annual report on Form 20-F and other related documents are filed with the US Securities and Exchange Commission (the SEC).

 

Financial reporting terms used in this report are in accordance with International Financial Reporting Standards (IFRS) as adopted by the European union (EU) and also comply with IFRS as issued by the International Accounting Standards Board (IASB), effective at 31 December 2016. This document should be read in conjunction with the cautionary statement in section 5.7 Forward-looking statement.

 

The Statoil Annual report and Form 20-F may be downloaded from Statoil’s website at [Statoil.com/annualreport2016]. No other material on Statoil’s website forms any part of such document. References to this document or other documents on Statoil’s website are included as an aid to their location and are not incorporated by reference into this document. All of the SEC filings made available electronically by Statoil may be obtained from the SEC at 100 F Street, N.E., Washington D.CC. 20549, United States or on the SEC’s website at www.sec.gov

 

  

 

8   Statoil, Annual Report on Form 20-F 2016     


 

2.1 Strategy and market overview

 

Statoil’s business environment

Market overview

2016 was another year of sub-par growth, with global economic GDP growth easing from 2.6% to 2.3%. This was largely driven by the slowdown in OECD economies, with non-OECD economies gaining momentum over the year. In the United States, consumer spending remained healthy, but investment contracted and resulted in GDP growth decelerating from 2.6% in 2015 to 1.6%. Economic expansion continued at a moderate pace in the Euro-zone at 1.7%, supported by private consumption and higher employment. The economy in the United Kingdom held up well despite the EU Leave vote, while in contrast Japan logged relatively modest growth. Emerging markets maintained their growth rate from 2015, partly due to Russia heading towards economic recovery during the year. 2016 saw China's growth stabilise due to intensified stimulus efforts amidst the continued slowdown since 2012, caused by economic rebalancing. India’s GDP growth rate eased to 6.6% on the sudden demonetarisation of large currency notes that hampered consumption. Several major forces are at play in the global economy and will continue to affect demand, including relatively low commodity prices, low interest rates, increased policy uncertainty and weak world trade. 

 

Global oil demand grew by a healthy 1.5 mmbbl per day in 2016. Production from non-Opec countries reacted to lower prices and declined by 0.9 mmbbl, with most of the decline taking place in North America and China. However, Opec added 1.1 mmbbl per day to production. This resulted in an oversupplied market throughout 2016, with storage levels moderately increasing.

 

The first half of 2016 saw a downward trend in gas prices, which reflected both market balance and surrounding competitive fuels. However, in the second half of 2016, markets have strengthened due to a rebounding commodity market and demand responding to weak gas prices in the first half of 2016.

 

Oil prices and refining margins

Higher than usual volatility characterised the oil market in 2016 as it did in the previous year, with the price of dated Brent moving in a range between USD 26 per barrel to USD 55 per barrel.

 

Oil prices

The oil market is generally volatile and has been highly volatile since June 2014. The average price for dated Brent crude in 2016 was USD 43.7 per barrel, down USD 10 per barrel from 2015. The dated Brent oil price started the year on a downward trajectory and hit a low of USD 26 per barrel in the second half of January. Positive market sentiment driven by healthy demand growth and significant supply disruptions pushed the price of dated Brent up to around USD 50 per barrel by the end of second quarter. The return of disrupted volumes during the summer and signs of weakening demand growth sent prices down again towards USD 40 per barrel early in August. The price of dated Brent recovered somewhat again in the third quarter after Opec and Russia agreed to come up with a plan to freeze or cut their production. The Opec meeting in late November concluded with an agreement among the members to cut joint output by 1.2 mmbbl per day effective 1 January 2017, alongside a non-Opec cut of around 0.6 mmbbl per day. The immediate effect of this announcement was an increase in the dated Brent price towards USD 53 per barrel. The futures market for Brent at the Intercontinental Exchange (ICE) was in contango throughout 2016.

 

Over the course of 2016, North American tight oil has provided the largest share of non-Opec declines that offset continued growth in Opec production. While US shale production has been in decline over much of the past two years, productivity gains and cost reductions have accelerated, planting the seeds of future growth. Specifically, enhanced completions and extended-reach laterals have allowed producers to do more with less. Nowhere is this more evident than in the Permian basin of West Texas. As oil prices have increased during the course of the year, the Permian has recorded the largest rebound in drilling rigs. At current levels, the Permian basin is home to almost 50% of all oil rigs in the US, up from 30% in early 2013. From a pricing perspective, declining production, an abundance of infrastructure, and the lifting of the crude export ban have caused most North American grades to price close to their technical refining values, reflective of the ongoing de-bottlenecking of US onshore crude pipeline infrastructure. These narrow differentials relative to global waterborne crudes have caused rail loadings to fall precipitously with all indications being that this trend is set to continue in the years ahead.

 

Refinery margins

2016 was a solid year for European refinery margins. Through 2015, a surplus of crude oil had been converted to a surplus of products, incentivised by strong margins. By early 2016, diesel stocks were building fast and diesel margins were low. Refineries then shifted to maximise gasoline output, in expectation of a strong summer gasoline market. However, summer gasoline demand disappointed, leading to stocks building and sharply falling gasoline margins. Weak product prices through the summer led to constrained refinery throughput and supported demand. By the fourth quarter, the gasoline market rebalanced and diesel stocks fell

Statoil, Annual Report on Form 20-F 2016    9 


 

again. This caused refinery margins to improve again in the fourth quarter. The average margin for an upgraded refinery in North West Europe was solid and in line with 2014, but well below 2015 margins.

 

Natural gas prices

Natural gas prices declined throughout 2015 but stabilised in the second quarter of 2016. The fourth quarter of 2016 experienced a robust price recovery due to consumption growth in Asia and Europe. Henry Hub experienced its lowest annual price in over a decade through 2016.

 

Gas prices – Europe

NBP prices fell from an average of USD 7.5/MMBtu in first quarter 2015 to USD 5.4/MMBtu in fourth quarter 2015. The decline continued in first quarter 2016, averaging USD 4.3/MMBtu, before falling to a decade low of USD 3/MMBtu in August 2016. Since August’s low point, average monthly prices have strengthened, closing 2016 at USD 6.2/MMBtu and resulting in an annual 2016 average of USD 5/MMBtu.

 

EU gas consumption continued to grow in 2016 as power generation responded to higher priced coal and outages of nuclear reactors in France. Furthermore, heating demand has responded to a more normal European weather pattern. EU indigenous gas production held at a record low of 125 bcm as the Dutch government revised the production limit at the Groningen field down to 24 bcm. European imports from Russia were at a record high of 179 bcm and imports from Norway were at the same record level as in 2015, 108 bcm. Record levels of pipeline imports have been encouraged by a small downturn in LNG deliveries to Europe. LNG supplies into North Western Europe have diminished, whilst imports into Southern Europe remain constant.

 

Gas prices - North America

Gas prices were volatile in 2016, falling below USD 2/MMBtu early in the year, before rising above USD 3/MMBtu at the end of the year. The Henry Hub average of USD 2.4/MMBtu was the lowest annual price in over a decade, down from USD 2.6/MMBtu in 2015 largely as a result of oversupply. US gas producers responded to the falling prices by withdrawing rigs to the lowest level in decades. Gas production fell throughout the year as a result. Demand for gas was strong in 2016, with natural gas replacing coal in the power sector and LNG exports starting from the Gulf Coast.

 

Global LNG prices

LNG prices fell throughout 2015 from an average of USD 7.3/MMBtu in first quarter 2015 to USD 4.5/MMBtu in first quarter 2016, but stabilised in second quarter of 2016 at an average of USD 4.9/MMBtu.  The second half of 2016 experienced robust price recovery to average USD 8/MMBtu in fourth quarter 2016, largely due to consumption growth in Asia and the Middle East, further intensified by lower-than-expected ramp-up of new LNG facilities as well as unplanned outages.

 

Statoil’s corporate strategy

Statoil is an energy company committed to long-term value creation in a low carbon future. Statoil creates value by turning natural resources into energy for people and progress for society. Statoil will develop and maximise the value of its unique NCS position, its international oil and gas business and its growing new energy business, focusing on safety, cost and carbon efficiency. Statoil is a values-based company where empowered people collaborate to shape the future of energy.

 

To succeed in turning Statoil’s vision into reality, Statoil pursues a strategy to:

 

·          Deepen and prolong the NCS position

·          Grow material and profitable international positions

·          Provide energy for a low-carbon future through growth in New Energy Solutions (NES)

·          Focused and value-adding mid- and downstream

 

In addition, Statoil will research, develop, and deploy technology to create opportunities and enhance the value of Statoil’s current and future assets.

 

Deepen and prolong the NCS position

For more than 40 years, Statoil has explored, developed and produced oil and gas from the NCS. Statoil aims to deepen and prolong its position by accessing and maturing opportunities into valuable production. At the same time, Statoil plans to improve the reliability, efficiency and lifespan of fields already in production. The NCS represents approximately two thirds of Statoil’s equity production at 1,235 mboe per day in 2016.

 

10   Statoil, Annual Report on Form 20-F 2016     


 

·          Exploration:  Statoil continues to be a committed NCS explorer across mature, growth and frontier areas. In 2016, Statoil participated in 14 exploration wells on the NCS, resulting in 11 discoveries. Statoil was awarded 29 licenses in mature areas in Norway’s Awards for Predefined Areas (APA) 2016 round (result announced January 2017), 16 as operator and 13 as non-operating partner, and five licenses in frontier areas in Norway’s 23rd concession round, four as operator and one as partner  

·          Development:  The Johan Sverdrup Phase 1 project is progressing in line with schedule. Production drilling started in the first quarter of 2016. Pre-sanction for Johan Sverdrup Phase 2 is scheduled for the first quarter of 2017. Statoil increased its equity interest in the UK part of the Utgard license and submitted the Utgard Plan for Development and Operation (PDO) in the second quarter of 2016. The PDOs for Byrding and Trestakk were delivered and the PDO for Oseberg Vestflanken 2 was approved during 2016

·          Production:  Gullfaks Rimfaksdalen came on-stream. Production started at Fram C, tied into existing infrastructure in the Fram and Troll area

 

Statoil has completed two share transactions resulting in a 20.1 per cent equity ownership in Lundin Petroleum AB. Lundin is our partner in several fields, including a 22.6% interest in the unitised Johan Sverdrup field development. Statoil also acquired 25% of Byrding.

 

By the end of 2016, Statoil had achieved CO2 emission reductions in excess of 1 million tonnes per year compared to a 2008 baseline on the NCS, primarily through better energy management and improved energy efficiency. Our 2020 target is to deliver 1.2 million tonnes of CO2 emission reductions compared to 2008. In August 2016, the Norwegian petroleum industry announced its ambition to implement CO2 reduction measures corresponding to 2.5 million tonnes on the NCS by 2030 compared to 2020. Statoil’s commitment is to deliver 2.0 million tonnes of this CO2 reduction target.

 

Grow material and profitable international positions

International oil and gas production represented approximately one third of Statoil’s equity production at 744 mboe per day in 2016. Statoil will continue to explore, develop, and produce oil and gas opportunities outside Norway to enhance Statoil’s upstream portfolio.

 

·          Exploration:  Statoil continues to explore internationally for oil and gas. Statoil participated in nine exploration wells internationally, of which three were discoveries, including the Baccalieu discovery in Canada. Statoil added exploration acreage in Brazil, Canada, New Zealand, Russia, the UK and the US Gulf of Mexico, accessed exploration acreage in Ireland and Turkey and entered two new countries, Mexico and Uruguay. A joint venture comprising Statoil, BP and Total was awarded Blocks 1 and 3 in the Saline Basin in Mexico, with Statoil as the operator.  

·          Development:  Statoil strengthened its strategic partnership with Petrobras in Brazil. Construction progress continued as planned on Peregrino Phase II

·          Production:  Heidelberg and Julia production came on-stream in the US Gulf of Mexico and, along with operator BP and other partners, significant advances have been made towards the award of a licence extension for Azeri-Chirag Guneshli (ACG) in Azerbaijan. The In Salah southern fields in Algeria and the Corrib field in Ireland both had major ramp-ups in 2016

 

In Brazil, Statoil acquired a 66% interest in and became the operator license of BM-S-8, which contains a substantial part of the Carcará field. Operatorship was assumed and appraisal activities began on BM-C-33. In the US, Statoil increased its stake in the Eagle Ford field and assumed full operatorship. Statoil continued to focus its portfolio with a partial divestment of non-core Marcellus acreage and agreeing the sale of its oil sands business in Canada.

 

Provide energy for a low-carbon future
Statoil recognises that opportunities are increasingly available in producing low carbon energy.

 

In 2016 Statoil launched Statoil Energy Ventures, a USD 200 million venture capital fund dedicated to investing in attractive and ambitious growth companies in renewable energy. This fund made its first investments in United Wind Inc. and later in ChargePoint Inc., Convergent Energy and Power Inc. and Oxford Photovoltaics Ltd., and is continuing to evaluate market opportunities. Statoil has also continued to explore new business opportunities in carbon capture and storage as well as other potential new energy markets.

 

·          Development:  The 402 MW Dudgeon Offshore Wind Park development started installation in the first quarter of 2016 and is expected to be fully commissioned by the fourth quarter of 2017

·          Production:  In 2016, Statoil signed a letter of intent to become operator of the Sheringham Shoal Offshore Wind Farm in January 2017; it currently produces from an installed capacity of 317 MW. Statoil has a 40% ownership stake of the Scira consortium which produces electricity from the Sheringham Shoal wind park

 

Statoil partnered with E.ON to develop the 385 MW Arkona wind farm offshore Germany, with start-up planned for 2019. In the US, Statoil was declared the provisional winner of the US government’s wind lease sale offshore New York, with a potential generation capacity of more than 1.8 GW.

 

Statoil will also start production from the world's first floating windfarm, Hywind Scotland, in the fourth quarter of 2017. Statoil's partner in the 30 MW project is Masdar, which acquired 25% of the project in January 2017. The project will also include an innovative battery storage solution, Batwind, which represents the company's first wind development with integrated energy storage. 

Statoil, Annual Report on Form 20-F 2016    11 


 

 

Statoil has delivered a feasibility study to the Norwegian government for part of a Norwegian carbon capture and storage (CCS) value chain. The scope has been to find commercial methods to inject CO2 volumes arriving via ship into an underground reservoir on the NCS. Statoil’s long experience with CO2 storage from Sleipner and Snøhvit has been valuable, finding commercial and technical means to store large volumes of third party CO2 in order to accommodate the world’s need for CCS solutions. 

 

Focused and value-adding mid- and downstream

The prime objective for Statoil’s mid- and downstream activities is to process and transport its oil and gas production (including the Norwegian State’s petroleum) competitively to premium markets, securing maximum value realisation. The main focus is on:

 

·          Safe and efficient operations

·          Continuous improvement in operational regularity, HSE and costs

·          Flow assurance and marketing of Statoil’s equity production (crude oil, natural gas, related products) and the State’s Direct Financial Interest (SDFI) volumes for maximum value creation

·          Utilisation of the Asset Backed Trading model across commodities to capture margin opportunities

·          Maintaining Statoil’s position as a leading European gas supplier

·          A capital lean asset structure

 

Strategic focus is directed at optimising the value of Statoil’s flexible Norwegian gas production assets that supply Europe and at Statoil’s midstream activities in North America, where Statoil’s onshore portfolio is developing. Statoil achieved strong marketing trading results across all commodities.

 

Research, development, and deployment of technology to unlock opportunities and enhance value
Statoil believes that technology is a critical success factor for value creation. Statoil’s technology development activities aim to increase access to new oil and gas resources at competitive cost, reduce field development, drilling and operating costs, and CO2 and other greenhouse gas emissions. Statoil’s technology efforts focus on the following priority areas:

·          Business-critical technologies: Upstream technologies are prioritised, primarily in the areas of Exploration, Reservoir, Drilling and Well, and Subsea Production Systems. Statoil’s main focus has been on cost reduction, for example Statoil’s simplified subsea production concept Cap-XTM has been developed to enable possible future development projects in the Barents Sea

·          Strengthening Statoil’s licence to operate: Statoil has strengthened its commitment to sustainability. For the oil & gas and new energy value chains, technology development is concentrated on increased energy efficiency for power generation and reduced CO2 emissions. For renewables, technological improvements to reduce cost in the areas of construction and maintenance for both fixed and floating offshore wind applications is a priority

·          Expanding Statoil’s capabilities: Statoil continues its broader research efforts for both the oil and gas value chain and new value chains. Work is conducted both in-house and in collaboration with academia, research institutes and suppliers and through venture activities

·          Capturing the value of digitalisation: Statoil is exploring the opportunities of digitalisation in the energy industry. In 2016, the focus has been determining the optimal approach to accelerate digitalisation to capture a greater value potential

 

At the capital markets update (CMU) on 7 February 2017, Statoil shared its sharpened strategy to respond to the changing business context. Geopolitical shifts, challenges in accessing new oil and gas resources, changing market dynamics, digitalisation and a global transition towards a low carbon economy are increasing uncertainty and volatility. This change in outlook drives the need to build a more resilient, diverse and option-rich portfolio, delivered by an agile organisation that embraces change and empowers its people. To deliver on the sharpened strategy and fulfill the strategic intent of “high value, low carbon”, Statoil will continue to build opportunities to optimise its portfolio around the following pillars:

 

·          Norwegian continental shelf – Build on unique position to maximise and develop long-term value

·          International Oil & Gas – Focus geographically to deepen core areas and develop growth options

·          New Energy Solutions – Create a new material industrial position

·          Midstream and Marketing – Secure market access and grow value creation through cycles

 

The following strategic principles guide Statoil in shaping a robust, balanced and distinct portfolio:

12   Statoil, Annual Report on Form 20-F 2016     


 

1.     Cash generation capacity

Generating positive cash flows from operations, even at low oil and gas prices, in order to sustain dividend and investment capacity through the cycle. 

2.     Capex flexibility

Having sufficient flexibility in organic capital expenditure to be able to respond to market downturns and avoid value destructive decisions.

3.     Capture value from cycles

Ensuring the ability and capacity to act counter-cyclically to capture value through the cycles.

4.     Low-carbon advantage

Maintaining competitive advantage as a leading company in carbon efficient oil and gas production, while building a low carbon business to capture new opportunities in the energy transition.

 

Group outlook

Statoil’s plans address the current environment while continuing to invest in high-quality projects. Statoil continues to reiterate its efforts and commitment to deliver on its priorities of high value creation, increased efficiency and competitive shareholder return.

 

·          Organic capital expenditures for 2017 (i.e. excluding acquisitions, capital leases and other investments with significant different cash flow pattern) are estimated at around USD 11 billion

·          Statoil intends to continue to mature its large portfolio of exploration assets and estimates a total exploration activity level of around USD 1.5 billion for 2017, excluding signature bonuses

·          Statoil expects to achieve an additional USD 1 billion in efficiency improvements in 2017 for a total of USD 4.2 billion

·          Statoil’s ambition is to keep the unit of production cost in the top quartile of its peer group

·          For the period 2016 – 2020, organic production growth is expected to come from new projects resulting in around 3% CAGR (Compound Annual Growth Rate)

·          The equity production for 2017 is estimated to be around 4-5% above the 2016 level

·          Scheduled maintenance activity is estimated to reduce quarterly production by approximately 10 mboe per day in the first quarter of 2017. In total, maintenance is estimated to reduce equity production by around 30 mboe per day for the full fiscal year 2017, which is lower than the 2016 impact

·          Indicative effects from Production sharing agreements (PSA-effect) and US royalties are estimated to be around 150 mboe per day in 2017 based on an oil price of USD 40 per barrel and 165 mboe per day based on an oil price of USD 70 per barrel

·          Deferral of production to create future value, gas off-take, timing of new capacity coming on stream and operational regularity represent the most significant risks related to the foregoing production guidance

 

These forward-looking statements reflect current views about future events and are, by their nature, subject to significant risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. For further information, see section 5.7 Forward-Looking Statements.

 

Statoil, Annual Report on Form 20-F 2016    13 


 

2.2 BUSINESS OVERVIEW

 

History

On 18 September 1972, Statoil was formed by a decision of the Norwegian parliament and incorporated as a limited liability company under the name Den norske stats oljeselskap AS. Being a company owned 100% by the Norwegian State, Statoil's initial role was to be the government's commercial instrument in the development of the oil and gas industry in Norway. Growing in parallel with the Norwegian oil and gas industry, Statoil’s operations have primarily been focused on exploration, development and production of oil and gas on the Norwegian continental shelf (NCS).

 

During the 1980s, Statoil grew substantially through the development of the NCS. Statoil also became a major player in the European gas market by entering into large sales contracts for the development and operation of gas transport systems and terminals. During the same decade, Statoil was involved in manufacturing and marketing in Scandinavia and established a comprehensive network of service stations. This line of business was fully divested in 2012.

 

In 2001, Statoil was listed on the Oslo and New York stock exchanges and became a public limited company under the name Statoil ASA, 67% majority owned by the Norwegian State. Since then, substantial investments both on the NCS and internationally, have grown our business. The merger with Hydro's oil and gas division on 1 October 2007 further strengthened Statoil’s ability to fully realise the potential of the NCS. Enhanced utilisation of expertise to design and manage operations in various environments have expanded our upstream activities outside our traditional area of offshore production. This includes the development of heavy oil and shale gas projects and projects that focus on other forms of energy, such as offshore wind and carbon capture and storage.

 

Activities

Statoil is an international energy company primarily engaged in oil and gas exploration and production activities, organised under the laws of Norway and subject to the provisions of the Norwegian Public Limited Liability Companies Act. In addition to being the leading operator on the Norwegian continental shelf (NCS), Statoil has also substantial international activities and is present in several of the most important oil and gas provinces in the world. Our activities span operations in more than 30 countries and employs approximately 20,500 employees worldwide.

 

Our access to crude oil in the form of equity, governmental and third party volumes makes Statoil a large seller of crude oil, and Statoil is the second-largest supplier of natural gas to the European market. Processing and refining are also part of our operations.

 

Statoil’s registered office is at Forusbeen 35, 4035 Stavanger, Norway and the telephone number of its registered office is +47 51 99 00 00.

 

Our competitive position

Key factors affecting competition in the oil and gas industry are oil and gas supply and demand, exploration and production costs, global production levels, alternative fuels, and environmental and governmental regulations. When acquiring assets and licences for exploration, development and production and in refining, marketing and trading of crude oil, natural gas and related products, Statoil competes with other integrated oil and gas companies.

 

Statoil's ability to remain competitive will depend, among other things, on continuous focus on reducing costs and improving efficiency. It will also depend on technological innovation to maintain long-term growth in reserves and production and the ability to seize opportunities in new areas.

 

The information about Statoil's competitive position in the strategic report is based on a number of sources; e.g. investment analyst reports, independent market studies, and our internal assessments of our market share based on publicly available information about the financial results and performance of market players.

 

Improvement programmes

Improvement programmes are Statoil’s response to the industrial challenge that has emerged over the recent years characterised by reducing prices for our products and declining returns. More specifically, the ambition is to realise positive production effects and capex and operating cost savings to improve financial results and cash-flows. For 2017 Statoil targets additional annual efficiency improvements of USD 1 billion on top of the already achieved USD 3.2 billon.

 

14   Statoil, Annual Report on Form 20-F 2016     


 

CORPORATE STRUCTURE

Business areas

Statoil's operations are managed through the following business areas:

 

Development and Production Norway (DPN)

DPN manages Statoil’s upstream activities on the Norwegian continental shelf (NCS) and explores for and extracts crude oil, natural gas and natural gas liquids. The business area’s ambition is to continue Statoil’s leading position on the NCS and ensure maximum value creation through continuously improved HSE and operational performance.

 

Development and Production International (DPI)

DPI manages Statoil’s worldwide upstream activities that are not included in the DPN and Development and Production USA (DPUSA) business areas. It explores for and extracts crude oil, natural gas and natural gas liquids. DPI's ambition is to build a large and profitable international production portfolio comprising activities ranging from accessing new opportunities to delivering on profitable projects in a range of complex environments.

 

Development and Production United States (DPUSA)

DPUSA manages Statoil’s upstream activities in the USA and Mexico. DPUSA's ambition is to develop a material and profitable position in the US and Mexico, including the deep water regions of the Gulf of Mexico and unconventional oil and gas in the US.

 

Marketing, Midstream and Processing (MMP)

MMP manages Statoil’s marketing and trading activities related to oil products and natural gas, transportation, processing and manufacturing, and the development of oil and gas. MMP seeks to maximise value creation in Statoil's midstream and marketing business.

 

Technology, Projects and Drilling (TPD)

TPD is accountable for the global project portfolio, well deliveries, new technologies and sourcing across Statoil. TPD seeks to provide safe and secure, efficient and cost-competitive global well and project delivery, technological excellence, and research and development. Cost-competitive procurement is an important contributory factor for maximising value for Statoil.

 

Exploration (EXP)

EXP manages Statoil’s worldwide exploration activities with the aim of positioning Statoil as one of the leading global exploration companies and this is achieved through accessing high potential new acreage in priority basins, globally prioritising and drilling more significant wells in growth and frontier basins, delivering near-field exploration on the NCS and other select areas, and achieving step-change improvements in performance.

 

New Energy Solutions (NES)

NES reflects Statoil’s  long-term goal to complement our oil and gas portfolio with profitable renewable energy and other low-carbon energy solutions. NES is responsible for wind farms, carbon capture and storage as well as other renewable energy and low-carbon energy solutions.

 

Global Strategy and Business Development (GSB)

GSB sets the corporate strategy, business development and merger and acquisition activities for Statoil. The ambition of the GSB business area is to closely link corporate strategy, business development and merger and acquisition activities to actively drive Statoil's corporate development.

Reporting segments

Statoil reports its business in the following reporting segments:

·          DPN reporting segment - Development and Production Norway – the DPN business area

·          DPI reporting segment - Development and Production International, which combines the DPI and the DPUSA business areas

·          MMP reporting segment - Marketing, Midstream and Processing – the MMP business area

·          Other – which includes activities in NES, TPD, GSB and Corporate staffs and support functions

 

Activities relating to the EXP business area are fully allocated to - and presented in - the relevant development and production reporting segment. Activities relating to the TPD and GSB business areas are partly allocated to - and presented in - the relevant development and production reporting segments.

Presentation

In the following sections in the report, the operations are reported according to the reporting segment. Underlying activities or business clusters are presented according to how the reporting segment organises its operations.

 

Statoil, Annual Report on Form 20-F 2016    15 


 

See note 3 Segments  to the Consolidated financial statements for further details.

 

As required by the SEC, Statoil prepares its disclosures about oil and gas reserves and certain other supplementary oil and gas disclosures based on geographic areas. Statoil’s geographical areas are defined by country and continent and consist of Norway, Eurasia excluding Norway, Africa, and the Americas.

  

 

SEGMENT REPORTING

Internal transactions in oil and gas volumes occur between our reporting segments before being sold in the market. The pricing policy for internal transfers is based on estimated market prices. See Production volumes and prices in section 2.8 Operating and financial performance for further information.

 

We eliminate intercompany sales when combining the results of reporting segments. Intercompany sales include transactions recorded in connection with our oil and natural gas production in the DPN or the DPI business areas and also in connection with the sale, transportation or refining of our oil and natural gas production in the MMP business area. Certain types of transportation costs are reported in both the MMP and the DPUSA business areas.

 

The DPN business area produces oil and natural gas which is sold internally to the MMP business area. A large share of the oil produced by the DPI and DPUSA business areas is also sold through the MMP business area. The remaining oil and gas from the DPI and the DPUSA business areas is sold directly in the market. For intercompany sales and purchases, Statoil has established a market-based transfer pricing methodology for the oil and natural gas that meets the requirements as to applicable laws and regulations.

 

In 2016, the average transfer price for natural gas was USD 3.42 per mmbtu. The average transfer price was USD 5.17 per mmbtu in 2015 and USD 6.55 in 2014. For oil sold from DPN to MMP, the transfer price is the applicable market-reflective price minus a cost recovery rate.

 

The following table shows certain financial information for the four reporting segments, including intercompany eliminations for each of the years in the three-year period ending 31 December 2016. For additional information please refer to note 3 Segments to the Consolidated financial statements.

16   Statoil, Annual Report on Form 20-F 2016     


 

Segment performance

  For the year ended 31 December

(in USD million)

2016

2015

2014

 

 

 

 

 

Development & Production Norway

 

 

 

Total revenues and other income

13,077

17,339

28,926

Net operating income

4,451

7,161

17,753

Non-current segment assets1)

27,816

27,706

35,243

 

 

 

 

 

Development & Production International

 

 

 

Total revenues and other income

6,657

8,200

13,661

Net operating income

(4,352)

(8,729)

(2,703)

Non-current segment assets1)

36,181

37,475

44,912

 

 

 

 

 

Marketing, Midstream and Processing

 

 

 

Total revenues and other income

44,979

58,106

95,171

Net operating income

623

2,931

2,608

Non-current segment assets1)

4,450

5,588

6,234

 

 

 

 

 

Other

 

 

 

Total revenues and other income

39

354

118

Net operating income

(423)

(129)

(199)

Non-current segment assets1)

352

690

688

 

 

 

 

 

Eliminations2)

 

 

 

Total revenues and other income

(18,880)

(24,357)

(38,612)

Net operating income

(219)

133

420

Non-current segment assets1)

-

-

-

 

 

 

 

 

Statoil group

 

 

 

Total revenues and other income

45,873

59,642

99,264

Net operating income

80

1,366

17,878

Non-current segment assets1)

68,799

71,458

87,077

 

 

 

 

 

1)

Deferred tax assets, pension assets, equity accounted investments and non-current financial assets are not allocated to segments.

2)

Includes elimination of inter-segment sales and related unrealised profits, mainly from the sale of crude oil and products.

Inter-segment revenues are based upon estimated market prices.

 

 

 

Statoil, Annual Report on Form 20-F 2016    17 


 

The following tables show total revenues by country.

 

2016 Total revenues and other income by country

Crude oil

Natural gas

Natural gal liquids

Refined

products

Other

Total sales

(in USD million)

 

 

 

 

 

 

 

Norway

20,544

7,973

3,580

4,135

(497)

35,735

USA

3,073

957

455

1,110

867

6,463

Sweden

0

0

0

1,379

(53)

1,326

Denmark

0

0

0

1,518

14

1,532

Other

690

272

1

0

(27)

936

 

 

 

 

 

 

 

Total revenues (excluding net income (loss)

from equity accounted investments and other income

24,307

9,202

4,036

8,142

305

45,993



 

2015 Total revenues and other income by country

Crude oil

Natural gas

Natural gas liquids

Refined

products

Other

Total sales

(in USD million)

 

 

 

 

 

 

 

Norway

22,741

10,811

4,932

5,644

1,454

45,582

US

3,718

1,133

532

1,605

933

7,922

Sweden

0

0

0

1,762

115

1,877

Denmark

0

0

0

1,750

8

1,759

Other

1,347

446

17

0

722

2,532

 

 

 

 

 

 

 

Total revenues (excluding net income (loss)

from equity accounted investments and other income

27,806

12,390

5,482

10,761

3,232

59,671



 

2014 Total revenues and other income by country

Crude oil

Natural gas

Natural gas liquids

Refined

products

Other

Total sales

(in USD million)

 

 

 

 

 

 

 

Norway

40,899

12,817

8,799

8,718

2,864

74,096

US

7,933

2,212

643

2,379

1,351

14,518

Sweden

0

0

0

2,636

260

2,896

Denmark

0

0

0

3,050

37

3,087

Other

2,970

704

65

0

963

4,702

 

 

 

 

 

 

 

Total revenues (excluding net income (loss)

from equity accounted investments and other income

51,803

15,732

9,506

16,782

5,475

99,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RESEARCH AND DEVELOPMENT

Statoil is a technology-intensive company and research and development is an integral part of our strategy. Our technology strategy is about prioritising technology for value creation that enables us to achieve growth and access, and sets the direction for technology development and implementation for the future. Our focus is on low cost, low carbon solutions and re-using standardised technologies.

 

We continuously research, develop and deploy innovative technologies to create opportunities and enhance the value of Statoil’s current and future assets. Statoil’s technology development activities aim to reduce field development, drilling and operating costs, and CO2 and other greenhouse gas emissions. We utilise a range of tools for the development of new technologies:

 

·          In-house research and development (R&D)

·          Cooperation with academia and research institutes

·          Collaborative development projects with our major suppliers

·          Project related development as part of our field development activities

·          Direct investment in technology start-up companies through our Statoil Technology Invest venture activities

·          Invitation to open innovation challenges as part of Statoil Innovate

 

Research and development expenditures were USD 298 million, USD 344 million and USD 476 million in 2016, 2015 and 2014, respectively.

 

18   Statoil, Annual Report on Form 20-F 2016     


 

2.3 DPN - DEVELOPMENT AND PRODUCTION NORWAY

 

OVERVIEW

The Development and Production Norway (DPN) reporting segment is responsible for field development and operations on the Norwegian continental shelf (NCS) which includes the North Sea, the Norwegian Sea and the Barents Sea. DPN aims to ensure safe and efficient operations and to maximise the value potential from the NCS. For proved reserves development see Development of reserves in Proved oil and gas reserves in section 2.8 Operating and financial performance.


  

Key events and portfolio developments in 2016:

Statoil, Annual Report on Form 20-F 2016    19 


 

·          In January, Statoil announced the acquisition of 11.93% of the shares and votes in Lundin Petroleum AB (Lundin) for a total cash purchase price of SEK 4.6 billion (USD 0.5 billion), and in May, Statoil announced divestment of its entire 15% interest in Edvard Grieg for an increased shareholding in Lundin. The transaction also included divestment of a 9% interest in the Edvard Grieg oil pipeline and a 6% interest in the Utsira High gas pipeline, and in addition payment of cash consideration of USD 64 million to Lundin. Statoil now owns 20.1% of the shares in Lundin.

·          On 1 March, the drilling of the first well of the Johan Sverdrup field development commenced.

·          On 12 March, the Goliat field came on stream with Eni Norge as operator.

·          In June, the plan for development and operation for Oseberg Vestflanken 2 was approved by the Ministry of Petroleum and Energy.

·          In June, the Njord Future project was established to secure long-term production for both the Njord and Hyme fields. The Njord field was temporarily shut in, and both the Njord A and Njord B platforms were towed to shore.

·          On 9 August, Statoil and its partners submitted the plan for development and operation for the Utgard gas and condensate discovery to the Norwegian and UK authorities. The plan for development and operation was approved on 17 January 2017.

·          On 19 August, Statoil and its partners submitted the plan for development and operation of the Byrding oil and gas discovery. On 30 December, Statoil completed the acquisition of Wintershall’s 25% interest in Byrding, increasing Statoil’s interest to 70%. The plan for development and operation of the Byrding discovery was approved on 17 January 2017.

·          Gullfaks Rimfaksdalen started production ahead of schedule on 24 August.

·          Volve ceased production on 17 September.

·          The plan for development and operation of the Trestakk discovery was submitted on 1 November.

·          On 24 December, the Ivar Aasen field came on stream with Aker BP as operator.

 

Fields in production on the NCS

The following table shows DPN's average daily entitlement for the years ending 31 December 2016, 2015 and 2014.

Production level maintained by new fields and new wells from existing fields. See chapter "Fields under development on the NCS" for future production replacement.

 

 

  For the year ended 31 December

 

2016

 

2015

 

2014

 

Oil and NGL

Natural gas

 

 

Oil and NGL

Natural gas

 

 

Oil and NGL

Natural gas

 

Area production

mbbl/day

mmcm/day

mboe/day

 

mbbl/day

mmcm/day

mboe/day

 

mbbl/day

mmcm/day

mboe/day

 

 

 

 

 

 

 

 

 

 

 

 

Statoil operated fields

 511  

 86  

 1,049  

 

 545  

 88  

 1,100  

 

 533  

 78  

 1,027  

Partner operated fields

 70  

 17  

 177  

 

 50  

 13  

 132  

 

 55  

 16  

 157  

Equity accounted production

 8  

 -    

 8  

 

 -    

 -    

 -    

 

 -    

 -    

 -    

 

 

 

 

 

 

 

 

 

 

 

 

Total

 589  

 103  

 1,235  

 

 595  

 101  

 1,232  

 

 588  

 95  

 1,184  

20   Statoil, Annual Report on Form 20-F 2016     


 

The following tables show the NCS production by fields in which Statoil was participating during the year ended 31 December 2016.

 

Field

Geographical area

Statoil's equity interest in %

 

On stream 

Licence expiry date

 

Average daily production in 2016 mboe/day

 

 

 

 

 

 

 

 

 

 

Statoil operated fields

 

 

 

  

  

 

  

Troll Phase 1 (Gas)

The North Sea

30.58

 

1996

2030

 

159.4

Åsgard 

The Norwegian Sea

34.57

 

1999

2027

 

93.1

Gullfaks 

The North Sea

51.00

 

1986

2036

 

83.8

Oseberg

The North Sea

49.30

 

1988

2031

 

76.2

Kvitebjørn

The North Sea

39.55

 

2004

2031

 

63.3

Visund 

The North Sea

53.20

 

1999

2034

 

59.8

Snøhvit

The Barents Sea

36.79

 

2007

2035

 

47.4

Statfjord Unit

The North Sea

44.34

 

1979

2026

 

44.8

Tyrihans

The Norwegian Sea

58.84

 

2009

2029

 

44.6

Sleipner Vest

The North Sea

58.35

 

1996

2028

 

42.5

Grane

The North Sea

36.61

 

2003

2030

 

41.5

Troll Phase 2 (Oil)

The North Sea

30.58

 

1995

2030

 

39.8

Gudrun

The North Sea

36.00

 

2014

2028

 

35.0

Snorre 

The North Sea

33.28

 

1992

2018

1)

32.8

Valemon

The North Sea

53.78

 

2015

2031

 

29.0

Kristin

The Norwegian Sea

55.30

 

2005

2033

2)

19.1

Mikkel 

The Norwegian Sea

43.97

 

2003

2020

3)

17.4

Fram 

The North Sea

45.00

 

2003

2024

 

16.8

Vigdis area 

The North Sea

41.50

 

1997

2024

 

13.8

Morvin

The Norwegian Sea

64.00

 

2010

2027

 

11.6

Alve

The Norwegian Sea

85.00

 

2009

2029

 

10.5

Tordis area 

The North Sea

41.50

 

1994

2024

 

10.3

Urd

The Norwegian Sea

63.95

 

2005

2026

 

10.1

Heidrun 

The Norwegian Sea

13.04

 

1995

2024

4)

9.5

Sleipner Øst

The North Sea

59.60

 

1993

2028

 

9.4

Gungne 

The North Sea

62.00

 

1996

2028

 

5.2

Norne

The Norwegian Sea

39.10

 

1997

2026

 

4.0

Volve

The North Sea

59.60

 

2008

2028

 

3.5

Veslefrikk 

The North Sea

18.00

 

1989

2020

5)

2.7

Statfjord Nord

The North Sea

21.88

 

1995

2026

 

2.4

Hyme

The Norwegian Sea

35.00

 

2013

2014

6)

2.0

Njord

The Norwegian Sea

20.00

 

1997

2021

7)

1.4

Fram H Nord

The North Sea

49.20

 

2014

2024

 

1.4

Statfjord Øst

The North Sea

31.69

 

1994

2026

8)

1.3

Gimle 

The North Sea

65.13

 

2006

2034

9)

1.2

Tune

The North Sea

50.00

 

2002

2032

10)

1.1

Sygna 

The North Sea

30.71

 

2000

2026

11)

0.9

Heimdal

The North Sea

29.44

 

1985

2021

 

0.7

 

 

 

 

 

 

 

 

Total Statoil operated fields

 

 

 

 

 

 

1,049.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statoil, Annual Report on Form 20-F 2016    21 


 

 

Field

Geographical area

Statoil's equity interest in %

Operator 

On stream 

Licence expiry date

 

Average daily production in 2016 mboe/day

 

 

 

 

 

 

 

 

 

 

Partner Operated Fields

 

 

 

 

 

 

 

Ormen Lange

The Norwegian Sea

25.35

Shell

2007

2041

12)

73.9

Skarv

The Norwegian Sea

36.16

Aker BP ASA

2013

2033

13)

43.9

Goliat

The Barents Sea

35.00

Eni Norge AS

2016

2042

 

17.9

Ekofisk area 

The North Sea

7.60

ConocoPhillips

1971

2028

 

13.6

Marulk

The North Sea

50.00

Eni Norge AS

2012

2025

 

11.6

Sigyn 

The North Sea

60.00

ExxonMobil

2002

2022

 

5.9

Edvard Grieg

The North Sea

0.00

Lundin Norway AS

2015

2035

14)

4.8

Vilje

The North Sea

28.85

Aker BP ASA

2008

2021

 

4.1

Ringhorne Øst

The North Sea

14.82

ExxonMobil

2006

2030

 

1.4

Ivar Aasen

The North Sea

41.47

Aker BP ASA

2016

2029

15)

0.2

Enoch

The North Sea

11.78

Repsol Sinopec

2007

2018

 

0.1

 

 

 

 

 

 

 

 

Total Partner Operated Fields

 

 

 

 

 

 

177.3

 

 

 

 

 

 

 

 

Equity accounted production

 

 

 

 

 

 

 

Lundin Petroleum AB

 

20.10

Lundin Petroleum AB

 

 

 

8.1

 

 

 

 

 

 

 

 

Total Development and Production Norway (DPN) including share of equity accounted production

 

 

1,234.8

 

1)  PL089 expires in 2024 and PL057 expires in 2018 (prolonged from 2016 to 2018).

2)  PL134D expires in 2027 and PL199 expires in 2033.

3)  PL092 expires in 2020 and PL121 expires in 2022.

4)  PL095 expires in 2024 and PL124 expires in 2025.

5)  PL052 expires in 2020 and PL053 in 2031.

6)  PL348 expires in 2029.

7)  PL107 expires in 2021 and PL132 expires in 2023.

8)  PL037 expires in 2026 and PL089 expires in 2024.

9)  PL120B expires in 2034 and PL050DS expires in 2023.

10)  PL034 expires in 2020. PL053 expires in 2031 and PL190 in 2032.

11)  PL037 expires in 2026 and PL089 expires in 2024.

12)  PL209/250 expires in 2041 and PL208 expires in 2040.

13)  PL212/262 expires in 2033 and PL159 expires in 2029.

14)  From 1 January to 30 June 2016 Statoil owned a 15% interest in the Edvard Grieg field. On 30 June 2016 this interest was sold to Lundin. The Edvard Grieg swap agreement was a part of Statoil increasing the ownership in Lundin.

15)  PL001B, PL452BS and PL242 expire in 2036. PL 338BS expire in 2029.

 

 

 

  

Main producing fields on
the NCS


Statoil operated fields

Troll is both the largest gas field on the NCS and a major oil field. The Troll field regions are connected to the Troll A, B and C platforms. Troll gas is mainly exported and produced at Troll A, while oil is mainly produced at Troll B and C. Fram and Fram H Nord are tie-ins to Troll C.

 

The Åsgard field includes the Åsgard A production and storage ship for oil, the Åsgard B semi-submersible floating production platform for gas, and the Åsgard C storage vessel for condensate. In 2015 Statoil started the world first subsea gas compressor train

22   Statoil, Annual Report on Form 20-F 2016     


 

on Åsgard, and the second train was started in February 2016. Mikkel and Morvin are tie-ins to Åsgard. The Trestakk development will be a tie-in to Åsgard A with production start planned in 2019.

 

Gullfaks has been developed with three large concrete production platforms. Since production started on Gullfaks in 1986, several satellite fields have been developed with subsea wells that are remotely controlled from the Gullfaks A and C platforms.

 

The Oseberg area includes the Oseberg Field Centre, Oseberg C, Oseberg East and Oseberg South production platforms. Oil and gas from the satellites are transported to Oseberg Field Centre for processing and transportation.

 

Kvitebjørn is a gas and condensate field developed with an integrated accommodation, drilling and processing facility with a steel jacket.

 

Visund is an oil and gas field that includes a floating drilling, production and living quarter unit and two subsea templates.

 

Partner-operated fields

Ormen Lange operated by Shell, is a deepwater gas field in the Norwegian Sea. The well stream is transported to an onshore processing and export plant at Nyhamna.

 

Skarv is an oil and gas field located in the Norwegian Sea, with BP as operator. The field development includes a floating production, storage and offloading vessel (FPSO) and five subsea multi-well installations.

 

Goliat  is the first oil field to be developed in the Barents Sea. The field is being developed by means of 22 subsea wells tied back to a circular floating production, storage and offloading vessel (FPSO). The oil is offloaded to shuttle tankers. The Goliat field is operated by Eni and started production 12 March 2016.

 

Ekofisk is operated by ConocoPhillips. It consists of the Ekofisk, Tor, Eldfisk and Embla fields. The Eldfisk II project delivered a new PDQ platform early 2015 that will serve as Eldfisk field center.

 

Marulk is operated by Eni. It is a gas- and condensate field developed as a tie-back to the Norne FPSO.

 

Ivar Aasen  is an oil and gas field located in the North Sea. The development includes a fixed steel jacket with partial processing and living quarters tied in as a satellite to Edvard Grieg for further processing and export. The Ivar Aasen development is operated by Aker BP ASA and started production 24 December 2016.

 

Exploration on the NCS

Statoil holds exploration acreage and actively explores for new resources in all three regions on the NCS, the Norwegian Sea, the North Sea and the Barents Sea.

In 2016 Statoil was awarded five licences (four as operator) in the 23rd concession round for frontier areas, 29 licences (16 as operator) in the Awards for Predefined Areas (APA) round 2016 for mature areas and completed several farm-in transactions with other companies, notably in the Barents Sea.

Throughout 2016, as part of the industry initiative Barents Sea Exploration Collaboration (BaSEC), Statoil have been preparing for a drilling campaign of five to seven wells in the Barents Sea that will commence in 2017,

In 2016 Statoil completed a six well appraisal campaign of the Krafla discovery in the North Sea and made five new discoveries. The campaign set a record in drilling efficiency, with the Beerenberg well taking only nine days from spud to reaching total depth of 2,694 meters below the seabed.

In 2016 Statoil and its partners completed 14 exploratory wells and made 11 discoveries in Norway. In 2017 Statoil expects to complete 16 to18 exploration wells on the NCS, with the Barents Sea campaign being at the core of the activity plan.

 

 

Exploratory wells drilled1)

2016

2015

2014

 

 

 

 

North Sea

 

 

 

Statoil operated

9

11

11

Partner operated

2

3

7

Norwegian Sea

 

 

 

Statoil operated

2

5

0

Partner operated

0

1

1

Barents Sea

 

 

 

Statoil operated

0

0

9

Partner operated

1

1

1

Total (gross)

14

21

29

 

1)  Wells completed during the year, including appraisals of earlier discoveries.

 

Statoil, Annual Report on Form 20-F 2016    23 


 

 

Fields under development on the NCS

Statoil’s major development projects on the NCS as of 31 December 2016:

 

Johan Sverdrup (Statoil 40.03%, operator, with additional 4.54% indirect interest held through Lundin)  is an oil discovery in the North Sea. A plan for development and operation was submitted in February 2015 and approved by the Norwegian authorities in August 2015. Phase 1 of the development will consist of 35 production and water injection wells and a field centre with four platforms: A living quarter platform, a wellhead platform with permanent drilling facility, a processing platform and a riser and utility platform. Crude oil will be exported to Mongstad through a 274 km long dedicated pipeline, and gas will be exported to the gas processing facility at Kårstø through a 156 km long pipeline via a subsea connection to the Statpipe pipeline. On 1 March 2016, the drilling of the first well of the Johan Sverdrup field development commenced. Production is expected to start in 2019.

 

Aasta Hansteen  (Statoil 51%, operator) is a deep water gas discovery in the Norwegian Sea. The field development concept includes three subsea templates tied in to a floating processing unit with gas export through a new pipeline, Polarled, to Nyhamna and further exportation through the Langeled pipeline. The Aasta Hansteen processing unit can also serve as a hub for other potential discoveries in the area. On 9 January 2016, the living quarter was lifted onto the topside, which is under construction in South Korea. On 27 July 2016, the final megablock was lifted onto the substructure in South Korea. Production is expected to start in 2018.

 

Gina Krog  (Statoil 58.7%, operator) is an oil and gas discovery in the North Sea. The field development concept includes a steel-jacket platform and a total of 15 wells. Oil will be exported via offshore loading from a floating storage unit. Due to the high condensate content, the rich gas will be exported via Sleipner, where it will be further processed. The development concept also includes gas injection in order to maximise the recovery factor for the field. On 20 July 2015, the drilling of the first well of the Gina Krog field development commenced, and the drilling operations continued in 2016. On 23 August 2016, all the topside modules had been lifted in place, and the Gina Krog platform was complete in the field. Production is expected to start in 2017.

 

The Utgard development (Statoil 38.44% interest in the Norwegian and 38% in the UK sector, operator) will include two wells in a standard subsea concept, with one drilling target on each side of the UK-Norwegian maritime border. Gas and condensate will be piped through a new pipeline to the Sleipner field for processing and further transportation to market. On 17 January 2017, the plan for development and operation and the field development plan were approved by Norwegian and UK authorities. Production is expected to start in 2019.

 

The Trestakk discovery (Statoil 59.1%, operator) will be developed with five wells, three producers and two injectors, to be tied in to the Åsgard A installation for processing, measurement and gas injection. On 1 November, 2016, Statoil, on behalf of the licensees, submitted the plan for development and operation.  Production is expected to start in 2019.

 

Oseberg Vestflanken 2 (Statoil 49.3%, operator) is the development of the oil and gas structures Alfa, Gamma and Kappa. The well stream will be routed to the Oseberg field centre through a new pipeline. The plan for development and operation was approved by the Ministry of Petroleum and Energy in June, 2016. The discoveries will be developed using an unmanned wellhead platform. Production is expected to start in 2018.

 

Gullfaks C subsea compression (Statoil 51%, operator), an increased gas recovery project for the Gullfaks Sør Brent reservoir, includes the installation of a subsea compressor solution in the vicinity of the L/M template in order to prolong the gas production plateau at Gullfaks C and increase the recoverable reserves from the Gullfaks Sør Brent reservoir. The compressor is expected to come on stream in 2017.

 

Byrding (Statoil 70%, operator)  will be developed as a subsea installation with one well drilled from an existing template on Fram H-Nord. On 17 January 2017, the Norwegian Ministry of Petroleum and Energy approved the plan for development and operation. Production is expected to start in 2017.

 

Troll B gas module (Statoil 30.58%, operator), a new gas module being installed to increase the processing capacity at Troll B, was sanctioned in September 2016, and is expected to be brought on stream in 2018.

 

24   Statoil, Annual Report on Form 20-F 2016     


 

Martin Linge  (Statoil 19%) is an oil and gas field operated by Total, near the British sector of the North Sea. The reservoir is complex with gas under high pressure and high temperatures. The development includes a fixed steel jacket platform with processing and export facilities, with electric power to be supplied from Kollsnes. The operator expects production to start in 2018.

 

Decommissioning on the NCS

Under the Petroleum Act, the Norwegian government has imposed strict procedures for removal and disposal of offshore oil and gas installations. The Convention for the Protection of the Marine Environment of the Northeast Atlantic (OSPAR) stipulates similar procedures.

 

Huldra ceased production in September 2014, after 13 years in production. The permanent plugging and abandonment of wells has been ongoing in 2016 with removal of topside facilities planned in 2019.

 

Volve ceased production in September 2016, after more than eight years in production. The permanent plugging of wells was finalised during 2016, and the removal of subsea templates is expected to be completed in 2017.

 

During 2016, there were permanent plugging and abandonment operations at Statfjord, Visund, Tune, Kristin and Heimdal. The partner-operated field Ekofisk also had ongoing removal and plugging activities.

 

For further information about decommissioning, see note 2 Significant accounting policies to the Consolidated financial statements.

 

Statoil, Annual Report on Form 20-F 2016    25 


 

2.4 DPI - DEVELOPMENT AND PRODUCTION INTERNATIONAL

 

DPI overview

Statoil is present in several of the most important oil and gas provinces in the world. The Development and Production International (DPI) reporting segment covers all development and production of oil and gas outside the Norwegian continental shelf (NCS).

 

DPI is present in more than 20 countries and had production in 11 countries in 2016. DPI produced 38% of Statoil's total equity production of oil and gas in 2016. For information about proved reserves development see section 2.8 Proved oil and gas reserves.

 

The map shows the countries where DPI has activity.




  

Key events and portfolio developments in 2016 and early 2017:


 

 

·          In January, the Heidelberg field achieved first oil. The field is located in the Green canyon area of the Gulf of Mexico with Anadarko as the operator. Discovery was made in 2009, and sanctioning took place in 2013

·          Operations at the In Salah Southern Fields project in Algeria started in March

·          In April, the Julia field achieved first oil, on time and under budget. Julia is located in the Walker Ridge area of the Gulf of Mexico near Jack and St Malo. ExxonMobil is the operator

·          In May, Statoil divested its operated acreage in the Marcellus West Virginia to EQT Corporation for USD 407 million in cash. The transaction was completed in July

·          In July, Statoil announced acquisition of Petrobras’ 66% operated interest in the offshore licence BM-S-8 in Brazil’s Santos Basin. This licence contains a substantial part of the Carcará pre-salt oil discovery. The transaction was completed in November

·          The third processing train on the In Amenas field in Algeria, which was damaged in the January 2013 terrorist attack, restarted in July, and the In Amenas Gas Compression project came into operation in February 2017. The compression project has enabled increased production and thereby capacity to utilize all three trains 

·          In December, the drilling of the first well of the Mariner field development commenced

·          In December, Statoil increased its ownership in the deep-water Vito discovery from 30.0% to 36.89%, after exercising pre-emption rights on the Freeport-McMoran sale to Anadarko. The field is located in the Mississippi Canyon area. A final investment decision is expected in 2018 with first production in 2021

·          In December, on request of US authorities, Statoil has become operator of record for blocks MC941  and MC942  in the Gulf of Mexico following the bankruptcy of Bennu Oil & Gas LLC. With the bankruptcy proceedings still ongoing, the full implications for Statoil are still to be determined

·          In 2016, Statoil completed transactions to increase its equity interest to 100% in the UK continental shelf licence (P312) of the Utgard field, which spans the UK-Norway maritime border.  In March 2016, Statoil’s purchase of a 31% equity interest from Talisman Sinopec North Sea Limited was completed, and in June the purchase of a 45% operated equity share from JX Nippon was completed. In January 2017, the plan for development and operation for the Utgard field was approved by the Norwegian and UK authorities. For more information, see Fields under development on the NCS in section 2.3 DPN – Development and production Norway

·          In December, Statoil signed an agreement to divest its 100% owned Kai Kos Dehseh (KKD) oil sands projects in the Canadian province of Alberta to Athabasca Oil Corporation. The transaction covers the producing Leismer demonstration plant and the undeveloped Corner project, along with a number of midstream contracts associated with Leismer’s production. Following this transaction, Statoil will no longer own or operate any oil sands assets. As part of the transaction, Statoil will own just below 20% of Athabasca’s shares, and this will be managed as a financial investment. The transaction was completed 31 January 2017. For more information about the transaction see note 4 Acquisitions and disposals to the Consolidated financial statements.

 

International production

Statoil's entitlement production outside Norway was about 32% of Statoil's total entitlement production in 2016.

 

The following table shows DPI's average daily entitlement production of liquids and natural gas for the years ending 31 December 2016, 2015 and 2014. Entitlement production volumes are Statoil’s share of the volumes distributed to the partners according to production sharing agreement (PSA) (see section 5.6  Terms and abbreviations). For US assets entitlement production is expressed net of royalty interests. For all other countries royalties paid in-cash are included in entitlement production and royalties payable in-kind are excluded.

 

 

  For the year ended 31 December

 

2016

 

2015

 

2014

 

Oil and NGL

Natural gas

 

 

Oil and NGL

Natural gas

 

 

Oil and NGL

Natural gas

 

Production area

mboe/day

mmcm/day

mboe/day

 

mboe/day

mmcm/day

mboe/day

 

mboe/day

mmcm/day

mboe/day

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 189  

 18  

 299  

 

 177  

 17  

 283  

 

 155  

 19  

 272  

Africa

 203  

 5  

 232  

 

 211  

 5  

 241  

 

 179  

 3  

 198  

Eurasia

 32  

 3  

 50  

 

 36  

 1  

 44  

 

 37  

 4  

 64  

Equity accounted production

 10  

 -    

 10  

 

 12  

 -    

 12  

 

 12  

 -    

 12  

Total

 435  

 25  

 592  

 

 436  

 23  

 580  

 

 383  

 26  

 546  

Statoil, Annual Report on Form 20-F 2016    27 


 

The table below provides information about the fields that contributed to production in 2016

 

Field

Country

Statoil's equity interest in %

Operator 

On stream 

Licence expiry date

Average daily equity production in 2016 mboe/day

 
 
 

 

 

 

 

 

 

 

 

 

Americas

 

 

 

 

 

341.5

 

Marcellus 1)

US

Varies

Statoil/others

2008

HBP2)

119.7

 

Bakken 1)

US

Varies

Statoil/others

2011

HBP2)

51.1

 

Eagle Ford 1)

US

Varies

Statoil/others

2010

HBP2)

40.8

 

Peregrino

Brazil

60.00

Statoil

2011

2034

37.5

 

Leismer Demo

Canada

100.00

Statoil

2010

HBP2)

20.4

 

Tahiti

US

25.00

Chevron

2009

HBP2)

17.3

 

Caesar Tonga

US

23.55

Anadarko

2012

HBP2)

12.6

 

St. Malo

US

21.50

Chevron

2014

HBP2)

12.2

 

Jack

US

25.00

Chevron

2014

HBP2)

9.3

 

Hibernia/Hibernia Southern Extension3)

Canada

Varies

HMDC

1997

2027

8.9

 

Julia

US

50.00

ExxonMobil

2016

HBP2)

5.1

 

Terra Nova

Canada

15.00

Suncor

2002

2022

4.9

 

Heidelberg

US

12.00

Anadarko

2016

HBP2)

1.6

 

 

 

 

 

 

 

 

 

 

Africa

 

 

 

  

  

308.0

 

Block 17

Angola

23.33

Total

2001

2022-344)

146.1

 

Agbami

Nigeria

20.21

Chevron

2008

2024

46.3

 

Block 15

Angola

13.33

ExxonMobil

2004

2026-324)

42.1

 

In Salah

Algeria

31.85

Sonatrach/BP/Statoil

2004

2027

38.4

 

Block 31

Angola

13.33

BP

2012

2031

21.7

 

In Amenas

Algeria

45.90

Sonatrach/BP/Statoil

2006

2022

13.4

 

 

 

 

 

 

 

 

 

 

Eurasia

 

 

 

 

 

83.6

 

ACG

Azerbaijan

8.56

BP

1997

2024

53.9

 

Corrib

Ireland

36.50

Shell

2015

2031

17.6

 

Kharyaga

Russia

30.00

Zarubezhneft

1999

2032

9.4

 

Alba

UK

17.00

Chevron

1994

HBP2)

2.6

 

Jupiter

UK

30.00

ConocoPhillips

1995

HBP2)

0.2

 

 

 

 

 

 

 

 

 

 

Total Development and Production International (DPI)

 

 

733.0

 

 

 

 

 

 

 

 

 

 

Equity accounted production

 

 

 

 

 

 

 

Petrocedeño5)

Venezuela

9.68

Petrocedeño

2008

2033

10.3

 

 

 

 

 

 

 

 

 

 

Total Development and Production International (DPI) including share of equity accounted production

 

 

743.4

 

 

 

 

 

 

 

 

 

 

1)

Statoil’s actual equity interest can vary depending on wells and area.

 

2)

Held by Production (HBP): A company’s right to own and operate an oil and gas lease is perpetuated beyond its original primary term, as long thereafter as oil and gas is produced in paying quantities. In the case of Canada, in addition to continuing to be in production, other regulatory requirements must be met.

 

3)

Statoil's equity interests are 5.0% in Hibernia and 9.0% in Hibernia Southern Extension.

 

4)

Varies by field.

 

5)

Petrocedeño is a non-consolidated company and accounted for pursuant to the equity accounting method. It produces extra-heavy crude oil from the Junin area in the Orinoco Belt.

 

 

 

28   Statoil, Annual Report on Form 20-F 2016     


 

Americas

Statoil has had strong growth in production and continues to optimize its portfolio within US shale since entering the first play in 2008. Statoil entered the Marcellus shale gas play, located in the Appalachian region in north east US, in 2008 through a partnership with Chesapeake Energy Corporation; Statoil has continued to optimize its North America onshore portfolio through acreage acquisition and divestments since 2008. In 2012, Statoil became an operator in the Marcellus through the purchase of additional acreage in the State of West Virginia and Ohio. The most recent divestments occurred in 2016 with divestment of West Virginia to EQT and Antero Resources. At the end of 2016, Statoil continues operatorship in the State of Ohio.

 

Statoil entered the Bakken tight oil play through the acquisition of Brigham Exploration Company in December 2011. Statoil's net acreage position in Bakken and Three Forks shale formation at the end of 2016 was 241,000 acres.

 

Statoil entered the Eagle Ford shale formation located in southwest Texas in 2010. In 2013, Statoil became operator for 50% of the Eagle Ford acreage. As part of a global transaction in December 2015 with Repsol, which acquired Talisman in May 2015, Statoil increased its working interest and took full operatorship of all of the assets in the Eagle Ford Shale. As a result, Statoil has a total working interest of 63%. Our joint venture partner, Repsol, continues to hold 37% working interest.

 

US gathering system

Statoil’s participates in gathering and facilities for initial processing of oil and gas in the Bakken, Eagle Ford and Marcellus assets in the US. This includes crude and natural gas gathering systems, fresh water supply systems, salt water disposal wells, oil and gas treatment and processing facilities to provide flow assurance for Statoil’s upstream production. Midstream assets in Bakken are owned and operated 100% by Statoil. In Eagle Ford, Statoil is the operator for 100% of the midstream assets outside of the Oak, Karnes, DeWitt and Bee (KDB) area with a working interest of 63%. In the KDB area of Eagle Ford, Statoil has an ownership interest of 25.2% in Edwards Lime Gathering LLC, which is operated by Energy Transfer Partners L.P. For Marcellus, Statoil has operated assets in Marcellus South in Monroe Country, Ohio while in the Marcellus non-operated areas both in the North and South, Statoil’s working interest ranges from 16.25% to 32.5% depending on gathering system and number of JV partners which include Williams Energy and Anadarko.

 

As of 1 January 2016 responsibility for the US gathering system has been transferred from MMP to DPI North America. 

 

Statoil is positioned in the Gulf of Mexico for the following offshore developments:

The Tahiti oil field is located in the Green Canyon area and is produced through a floating spar facility. As of 31 December 2016, there were 12 production wells in operation, and additional wells will be phased in over time to fully develop the field.

 

The Caesar Tonga oil field is located in the Green Canyon area. As of 31 December 2016, there were seven producing wells tied back to the Anadarko-operated Constitution spar host, and additional production wells will be phased in over time.

 

The Jack and St. Malo oil fields are located in the Walker Ridge area. The fields are subsea tie-backs to the Chevron operated Walker Ridge Regional Host facility. First production was achieved in December 2014. As of 31 December 2016, there were three wells producing on Jack and six wells producing for St. Malo. Additional production wells will be phased in over time.

 

The Julia oil field is located in the Walker Ridge area of the Gulf of Mexico near Jack and St Malo. First oil was in April 2016 and two wells are currently online. Additional production wells are currently being drilled and completed and will come online in 2017.

 

The Heidelberg oil field is located in the Green Canyon area. First oil was on January 2016 and four wells are currently online.

 

Canada 

Statoil has interests in the Jeanne d'Arc Basin offshore the province of Newfoundland and Labrador in the partner operated producing oil fields Terra Nova, Hibernia and Hibernia Southern ExtensionIn January 2017, Statoil completed the transaction to fully divest the 123,200 net acres of oil sands leases in Alberta which form the Kai Kos Dehseh project to Athabasca Oil Corporation.   

 

Brazil

The Peregrino field is a heavy oil field located in the Campos Basin, about 85 kilometres off the coast of Rio de Janeiro. The field came on stream in 2011. The oil is produced from two wellhead platforms with drilling capability and it is processed on the Peregrino FPSO and offloaded to shuttle tankers. Statoil holds a 60% ownership interest in the field and is operator.

 

Africa

Angola

The deep water blocks 17, 15 and 31 contributed with 38% of Statoil’s equity liquid production outside Norway in 2016. Each block is governed by a PSA which sets out the rights and obligations of the participants, including mechanisms for sharing of the production with the Angolan state oil company Sonangol.

 

Statoil, Annual Report on Form 20-F 2016    29 


 

Block 17 has production from four FPSOs; CLOV, Dalia, Girassol and Pazflor.

 

Block 15 has production from four FPSOs: Kizomba A, Kizomba B, Kizomba C-Mondo, and Kizomba C-Saxi Batuque.

 

Block 31 has production from the PSVM FPSO.

 

The FPSOs serve as production hubs and each receives oil from more than one field and a large number of wells. In 2016, new wells were added and set into production on all three blocks.

 

Nigeria

Statoil has a 20.2% interest in the Agbami deep water field which is located 110 km off the coast of the Central Niger Delta region. The field is developed with subsea wells connected to an FPSO. The Agbami field straddles the two licences OML 127 and OML 128 and is operated by Chevron under a Unit Agreement. Statoil has 53.85% interest in OML 128.

For information related to the Agbami redetermination process and the dispute between the Nigerian National Petroleum Corporation and the partners in Oil Mining Lease (OML) 128 concerning certain terms of the OML 128 Production Sharing Contract (PSC), see note 23 Other commitments and contingencies to the Consolidated financial statements.


Algeria

The In Salah onshore gas development is a joint operatorship between Sonatrach, BP and Statoil. The Northern fields have been operating since 2004, and the Southern fields project started production from two fields (Garet el Befinat and Hassi Moumene) in March 2016. The remaining two fields (Gour Mahmoud and In Salah) will start production in 2017. The Southern fields are tied back into the Northern fields’ existing facilities.

  

The In Amenas onshore development is a gas development which contains significant liquid volumes. The In Amenas infrastructure includes a gas treatment plant composed of three processing trains. The production facility is connected to the Sonatrach distribution system. The facilities are operated through a joint operatorship between Sonatrach, BP and Statoil. The third processing train, which was damaged in the January 2013 terrorist attack, restarted in July 2016. The In Amenas Gas Compression project, which was led by BP, came into operation in February 2017.  The compressors will make it possible to reduce wellhead pressure and thereby increase production.

 

Separate PSAs including mechanisms for revenue sharing, govern the rights and obligations of the Parties and establish joint operatorships between Sonatrach, BP and Statoil for In Salah and In Amenas.

 

Eurasia

Production largely consists of the output from the Azeri-Chirag-Gunashli oil field in the Caspian Sea and the Corrib gas field off Ireland’s northwest coast, which has successfully ramped up production since its start up in December 2015. The cessation of production from Jupiter in the UK North Sea has been declared and the decommissioning of the wells started in fourth quarter of 2016.

 

International exploration

Statoil has reduced exploration drilling activity outside Norway in 2016 and prioritised new access efforts and prospect maturation to support an increased drilling activity in 2017 and onwards.

 

Brazil is one of Statoil’s core exploration areas, where in 2016 Statoil successfully completed an appraisal program in BM-C-33, which includes the Pao de Acucar, Seat and Gavea discoveries.

 

In Canada Statoil and its partners completed a 19-month drilling campaign in the Bay du Nord area, making two new oil discoveries, Baccalieu and Bay de Verde.

 

In 2016 Statoil secured a position in Turkey through a partnership with Valeura Energy Inc. in the Thrace region in the European north-western part of Turkey.

 

In December 2016, Mexico’s deepwater bidding round, Round 1.4, took place in Mexico City. A joint venture comprised of Statoil, BP and Total was awarded 2 licenses in Block 1 and Block 3 in the Saline Basin, with Statoil as the operator.

 

In 2016 Statoil and its partners completed nine exploratory wells and made three discoveries internationally. In 2017 Statoil’s international exploration drilling activity will comprise growth opportunities in basins where Statoil already is established with discoveries and producing fields, such as Canada, Brazil and the UK as well as new frontier opportunities like Suriname and Indonesia. Statoil expects to complete 12 to 14 exploration wells internationally in 2017.

30   Statoil, Annual Report on Form 20-F 2016     


 

 

 

Exploratory wells drilled1)

2016

2015

2014

 

 

 

 

Americas

 

 

 

Statoil operated

5

8

4

Partner operated

2

2

5

Africa

 

 

 

Statoil operated

0

3

7

Partner operated

0

3

4

Other regions

 

 

 

Statoil operated

0

2

2

Partner operated

2

0

1

Total (gross)

9

18

23

 

 

 

 

1)  Wells completed during the year, including appraisals of earlier discoveries.

 

Fields under development internationally

This section covers all the sanctioned projects and selected pre-sanctioned projects.

 

Americas

US
The Stampede oil field is located in the Green Canyon area. The development includes a tension-leg platform (TLP) with downhole gas lift and water injection from start of production. Hess is the operator, and Statoil has a 25% working interest. Start of production is expected in 2018.

 

TVEX is an extension to Tahiti field, targeting shallower reservoirs above the existing main Tahiti reservoir, which is located in Green Canyon in Gulf of Mexico. Chevron is the operator, and Statoil has a 25% working interest. Start of production is expected in fourth quarter of 2018.

 

The Big Foot oil field is located in Walker Ridge area. The development includes a dry tree TLP with a drilling rig. Chevron is the operator, and Statoil has a 27.5% working interest. Start of production is expected in 2018. Initial plans called for production to start in late 2015, however, installation was halted and the TLP moved to sheltered waters following damage to subsea installation tendons in late May 2015

 

US Onshore operations use hydraulic fracturing to recover resources. Despite reduction in investment and activity level in recent years in shale plays Bakken, Eagle Ford and Marcellus, production growth continues. The increase in onshore production despite investment reduction is attributed to higher recovery per well due to enhanced completion and improved operational efficiency.

 

Canada

The Hebron field, operated by Exxon Mobil, is located in the Jeanne d'Arc basin offshore Newfoundland near the partner-operated producing fields Terra Nova, Hibernia and Hibernia Southern Extension. The Hebron field will be developed using a fixed gravity base structure (GBS) and first oil is expected in late 2017. The topside was constructed in Korea and was transported to Newfoundland during 2016, whereas the GBS was constructed in Newfoundland. The topside and GBS were successfully tested and mated in December 2016. Statoil working interest was reduced from 9.7% to 9.01% effective 1 January 2016 due to a redetermination process. 

 

Statoil has made oil discoveries in the Flemish Pass offshore Newfoundland comprising the Bay du Nord project, and work is on-going to assess options for developing Bay du Nord. Statoil is the operator of Bay du Nord and holds a 65% working interest.

 

Brazil

Peregrino phase II (Statoil 60%, operator) includes the Peregrino South and Southwest discoveries. The development consists of one wellhead platform tied back to the existing floating production, storage and offloading vessel. In December 2014, Statoil approved the investment decision for the development of the second phase of the Peregrino oil field. Following a programme improving project economics, project execution started in April, 2016. In September 2016, the plan for development was formally approved by the Brazilian national agency of petroleum, natural gas and biofuels (ANP). Production is expected to start in late 2020.

 

Statoil, Annual Report on Form 20-F 2016    31 


 

In November 2016, Statoil completed the acquisition of 66% operated share from Petrobras in licence BM-S-8 in the Santos basin. This licence contains a substantial part of the pre-salt discovery Carcará. Carcará straddles both BM-S-8 and open acreage to the north. The definition of the development concept and the subsequent development of licence are dependent on ownership of the open acreage. The open acreage is expected to be included in the licencing round in 2017.

 

In August 2016, Statoil took over the operatorship of licence BM-C-33 from Repsol Sinopec Brasil. Statoil has 35% equity interest in this licence which is located in the Campos basin. Work is on-going to assess options for developing the discoveries in the licence. For information regarding exploration activity in BM-C-33 see International exploration earlier in this section.   

  

Africa

Tanzania

Statoil has made several large gas discoveries in Block 2 offshore Tanzania. Statoil is the operator of Block 2 and holds a 65% working interest. The licence is located in the Indian Ocean 100 km off the southern part of Tanzania. Work is on-going to assess options for developing the discoveries, including the construction of an onshore LNG plant jointly with the co-venturers in Blocks 1 and 4 which are operated by BG Tanzania (100% owned by Shell). 

Eurasia
United Kingdom

Mariner (Statoil 65.11%, operator) is a heavy oil development in the UK, where Statoil is the operator. The field development concept includes a production, drilling and living quarter platform based on a steel jacket. Oil will be exported by offshore loading from a floating storage unit. The development concept includes a possible future subsea tie-in of Mariner East, a small heavy oil discovery. The Mariner B storage vessel arrived Scotland on 26 August 2016, after a two-month voyage from South Korea. On 1 December 2016, the drilling of the first well of the Mariner field development commenced. Production from Mariner is expected to start in 2018.

  

Bressay (Statoil 81.6%, operator) is also a heavy oil discovery. In February 2016, Statoil decided to pause the concept selection work on Bressay. The partnership has agreed an extension of the licence period until end 2019 with the UK Oil and Gas Authority (OGA).   

 

32   Statoil, Annual Report on Form 20-F 2016     


 

2.5 MMP - MARKETING, MIDSTREAM AND PROCESSING



 

MMP overview

The Marketing, Midstream and Processing (MMP) reporting segment is responsible for marketing, trading, processing and transporting of crude oil and condensate, natural gas, NGL and refined products, including operation of Statoil operated refineries, terminals and processing plants. In addition, MMP is responsible for developing transportation solutions for natural gas, liquids and crude oil from Statoil assets including pipelines, shipping, trucking and rail. The business activities are organised in the following business clusters: Marketing and Trading, Asset Management and Processing and Manufacturing.

 

Key events in 2016:

·          Statoil had a strong increase in delivered sales of crude oil into Asia during 2016, based on West African equity production and shipping capability

·          The South Riding Point Terminal in Grand Bahamas sustained damage in the hurricane Matthew in October and was closed to traffic for a period

·          Major planned turnarounds at both Kalundborg and Mongstad refineries, Tjeldbergodden methanol plant and Gassled facilities

 

Marketing and Trading

The Marketing and Trading business cluster (MT) is responsible for the marketing, trading and transportation of all products from Statoil’s upstream, processing and refining business and for power and emissions trading.

 

MMP handles Statoil's own volumes, the Norwegian state's direct financial interest (SDFI) equity production of crude oil and NGL and third-party volumes, representing approximately 50% of all Norwegian liquids exports. MMP is also responsible for marketing SDFI’s gas together with Statoil’s own volumes and third party gas, representing approximately 70% of all Norwegian gas exports. See the Norwegian state’s participation and SDFI oil and gas marketing and sale in Applicable laws and regulations in section 2.7 Corporate.

 

Marketing and trading of gas and LNG

Statoil’s gas marketing and trading business is conducted from Norway and from offices in Belgium, the UK, Germany, the USA and Singapore.

 

Europe

The major export markets for gas from the NCS are Germany, France, the UK, Belgium, the Netherlands, Italy and Spain.  LNG from the Snøhvit field, combined with third party LNG cargoes, allow Statoil to reach global gas markets. The major part of the gas is sold to counterparties through bi-lateral sales and the remaining volumes over the trading desk through all the main European trading hubs. The bi-lateral sales are mainly carried out with large industrial customers, power producers and local distribution companies. A few of Statoil’s long-term gas contracts contain contractual price review mechanisms that can be triggered by the buyer or seller at regular intervals, or under certain given circumstances.

 

Statoil is active on both physical and exchange markets such as the Intercontinental Exchange (ICE). Statoil expects to continue to optimise the market value of the gas through a mix of bi-lateral contracts and trading via its production, transportation systems and downstream assets.  

 

USA 

Statoil Natural Gas LLC (SNG), a wholly-owned subsidiary, has a gas marketing and trading organization in Stamford, Connecticut that markets natural gas to local distribution companies, industrial customers and power generators. SNG also markets equity production volumes from the Gulf of Mexico, Eagle Ford and Marcellus and transports some of the northern Marcellus production to New York City and to Niagara, providing access to the greater Toronto area.

 

In addition, SNG has long-term capacity contracts with Dominion Resources Inc., which owns the Cove Point LNG re-gasification terminal in Maryland. LNG is sourced from the Snøhvit LNG facility in Norway. Due to continuing low gas prices in the US, almost all of Statoil's LNG cargoes have been diverted away from the US and delivered into higher-priced markets in Europe, South-America and Asia.

 

 

Statoil, Annual Report on Form 20-F 2016    33 


 

Marketing and trading of liquids

MMP is responsible for the sale of Statoil's and the SDFI’s crude oil and NGL, in addition to commercial optimisation of the refineries and terminals. The liquids marketing and trading business is conducted from Norway, UK, Singapore, US and Canada. The main crude oil market for Statoil is northwest Europe.

 

MMP also markets equity volumes from DPI assets located in Canada, US, Brazil, Angola, Nigeria, Algeria, Azerbaijan and UK, as well as third party volumes. Value is maximised through marketing, physical and financial trading and through optimisation of own and leased capacity such as refineries, processing, terminals, storages, pipelines, railcars and vessels.

  

Production plants

Statoil owns and is operator of the Mongstad refinery in Norway including the Mongstad Heat and Power Plant (MHPP). The refinery is a medium-sized refinery built in 1975, with a crude oil and condensate distillation capacity of 226,000 barrels per day. The refinery is directly linked to offshore fields through two crude oil pipelines, to the crude oil terminal at Sture and the gas processing plant at Kollsnes through an NGL/condensate pipeline, and to Kollsnes by a gas pipeline. MHPP produces heat and power from gas received from Kollsnes and from the refinery. It has capacity of approximately 280 megawatts of electric power and 350 megawatts of process heat.

 

Statoil has an ownership interest of 34% in Vestprosess, which transports and processes NGL and condensate. The Vestprosess pipeline connects the Kollsnes and Sture plants to Mongstad.

 

Statoil owns and is operator of the Kalundborg refinery in Denmark, which has a crude oil and condensate distillation capacity of 108,000 barrels per day. The refinery is connected via one gasoline and one gas oil pipeline to the terminal at Hedehusene near Copenhagen, and most of its products are sold locally.

 

Statoil has an ownership interest of 82% in the methanol plant at Tjeldbergodden. It receives natural gas from the Norwegian Sea through the Haltenpipe pipeline.  In addition, Statoil holds a 50.9% ownership interest in the air separation unit Tjeldbergodden Luftgassfabrikk DA.

 

The following table shows operating statistics for the plants at Mongstad, Kalundborg and Tjeldbergodden.

 

 

Throughput1)

Distillation capacity2)

On stream factor %3)

Utilisation rate %4)

Refinery

2016

2015

2014

2016

2015

2014

2016

2015

2014

2016

2015

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mongstad

9.8

11.9

9.2

9.3

9.3

9.3

94.4

97.6

93.4

93.9

93.4

90.0

Kalundborg

5.0

5.2

4.5

5.4

5.4

5.4

98.0

98.5

91.8

91.0

91.0

82.0

Tjeldbergodden

0.76

0.92

0.83

0.95

0.95

0.95

94.8

98.5

88.4

94.8

98.5

97.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1)

Actual throughput of crude oils, condensates, NGL, feed and blendstock, measured in million tonnes.

Higher than distillation capacity for Mongstad due to high volumes of fuel oil and NGL not going through the crude distillation unit.

Higher than distillation capacity for Kalundborg, due to volumes of kero, naphta, gasoil and biodiesel-additive not going through the crude-/condensate units.

2)

Nominal crude oil and condensate distillation capacity, and methanol production capacity, measured in million tonnes.

3)

Composite reliability factor for all processing units, excluding turnarounds.

4)

Composite utilisation rate for all processing units, stream day utilisation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Terminals and storage

Statoil has a 65% ownership interest in Mongstad crude oil terminal. Crude oil is landed at Mongstad through pipelines from the NCS and by crude tankers from the market. The Mongstad terminal has a storage capacity of 9.4 million barrels of crude oil.

 

The Sture crude oil terminal receives crude oil through pipelines from the North Sea. The terminal is part of the Oseberg Transportation System (Statoil interest 36.2%). The processing facilities at Sture stabilise Oseberg crude oil and recover LPG mix (propane and butane) and naphtha.

 

Statoil operates the South Riding Point Terminal, which is located on Grand Bahamas Island and consists of two shipping berths and ten storage tanks, with a storage capacity of 6.75 million barrels of crude oil. The terminal has facilities to blend crude oils, including heavy oils. The main damages suffered in the Matthew hurricane in October were related to the loading infrastructure at the Sea Island, and Berth 2 is still out of operation. Statoil is in the process of scoping the reconstruction.

 

Statoil UK holds one third share of the interests in the Aldbrough Gas Storage in UK, operated by SSE Hornsea Ltd.

 

34   Statoil, Annual Report on Form 20-F 2016     


 

Statoil Deutschland Storage GmbH holds a 23.7% stake in the Etzel Gas Lager in the northern part of Germany which has a total of nineteen caverns and secures regularity for gas deliveries from the NCS.

 

Statoil UK holds a 27.3% stake in the Teesside terminal, which stabilises unstable oil from the Ekofisk area and several other Norwegian and UK fields and recovers NGL.  

 

Pipelines

Statoil is a significant shipper in the NCS gas pipeline system. Most gas pipelines on the NCS that are accessed by third-party customers are owned by a single joint venture, Gassled, with regulated third-party access. The Gassled system is operated by the independent system operator Gassco AS, which is wholly owned by the Norwegian state. Statoil’s current ownership share in Gassled is 5%. See Gas sales and transportation from the NCS in section 2.7 Corporate  for further information.

 

MMP is technical service provider (TSP) for the Kårstø and Kollsnes gas processing plants in accordance with the technical service agreement between Statoil and Gassco AS, included as Exhibit 4(a)(i) to Form 20-F. MMP also performs the TSP role for the larger share of the Gassco operated gas pipeline infrastructure.

 

In addition, MMP manages Statoil’s ownership in the following pipelines in the Norwegian gas transportation system: Oseberg oil transportation system, Grane oil pipeline, Kvitebjørn oil pipeline, Troll oil pipeline I and II, Edvard Grieg oil pipeline, Utsira High gas pipeline, Valemon rich gas pipeline, Haltenpipe, Norpipe and Mongstad gas pipeline.

 

Statoil Deutschland GmbH held a 30.8% stake in the Norddeutsche Erdgas Transversale (NETRA) overland gas transmission pipeline via Jordgas Transport GmbH, which was sold during 2016 to Open Grid Europe GmbH and Gasuni Deutschland Transport Services GmbH.

 

Polarled (Statoil 37.1%, operator) will secure a gas export pipeline for fields in the Norwegian Sea. The project is aligned with the Aasta Hansteen field development.

 

The Johan Sverdrup oil and gas export pipelines (Statoil 40.0%, operator) will provide export from the Johan Sverdrup field.  

 

  

 

Statoil, Annual Report on Form 20-F 2016    35 


 

2.6 OTHER GROUP

 

The Other reporting segment includes activities in New Energy Solutions (NES), Global Strategy and Business Development (GSB), Technology, Projects and Drilling (TPD) and corporate staffs and support functions.

 

New Energy Solutions (NES)

The NES business area reflects Statoil’s aspirations to gradually complement its oil and gas portfolio with profitable renewable energy and other low-carbon energy solutions. Offshore wind and carbon capture and storage have been key focus areas in 2016.

 

Key events in 2016:

·          Acquisition of a 50% stake in the Arkona asset in the German part of the Baltic Sea

·          Launch of Statoil Energy Venture Fund and 4 subsequent investments

·          Agreement to increase UK presence through increasing owner share in the Dogger Bank projects

·          Signed a letter of intent to take over as operator of the Sheringham Shoal wind farm in 2017

·          Statoil has concluded a 25% farm down in the Hywind Scotland project

·          Winner of US Government’s wind lease sale of 79,350 acres offshore New York

 

The Sheringham Shoal offshore wind farm (Statoil 40%, operator from 2017) located off the coast of Norfolk, UK, was formally opened in September 2012. The wind farm is in full production with 88 turbines and an installed capacity of 317 megawatt (MW). Following divestment in 2014, it is now owned 40% by Statkraft, a Norwegian wholly state-owned company, 40% by Statoil and 20% by the UK Green Investment Bank (GIB). The wind farm's annual production is approximately 1.1 terawatt hours (TWh) and it has the capacity to provide power to approximately 220,000 households. Statkraft and Statoil have signed a letter of intent that Statoil takes over as operator of Sheringham Shoal in 2017.

The Dudgeon offshore wind farm (Statoil 35%, operator) is located in the Greater Wash area off the English east coast, short distance from Sheringham Shoal. A final investment decision for the 402 MW project was made in July 2014. The wind farm is expected to produce 1.7 TWh yearly from 67 turbines, with the capacity to provide power for around 410,000 households. On 7 January 2017, the first turbine was energised. On 7 February 2017, the first turbine was set in production, delivering electric power to the UK national grid. The wind farm is expected to be in full operation in fourth quarter 2017.

The Dogger Bank area has a total consented capacity of 4.8 GW and is potentially the largest offshore wind farm development in the world. Statoil and Statkraft, together with RWE and SSE, are partners in the Forewind consortium, each with a 25% equity stake. In February and August 2015, the consortium received consent from the UK authorities for four projects, each with a capacity of 1200 MW. Statoil has recently signed an agreement to acquire Statkraft’s share in Dogger Bank, the final shareholding is pending, among other things, partner approval.

The Arkona offshore wind farm (Statoil 50%) is being developed in the German part of the Baltic Sea, and the operations and maintenance base will be located in Sassnitz on the island of Rügen. In April 2016, Statoil acquired a 50% share in AWE-Arkona-Windpark Entwicklungs-GmbH from E.ON Climate & Renewables. A final investment decision for the up to 385 MW project was made in April 2016. All main construction contracts have been awarded, and fabrication has started. The wind farm is expected to supply approximately 400,000 German households from 60 turbines, and to be in full operation in 2019.

The Hywind Scotland pilot wind park (Statoil 75%, operator) is a floating wind pilot park using the Hywind concept, developed and owned by Statoil. The project is located at Buchan Deep, approximately 25 km off Peterhead on the east coast of Scotland. Statoil will install 5 Siemens 6MW turbines, a total capacity of 30MW. Production is expected to be 0.14 TWh/year, powering around 20,000 households. The project was sanctioned in October 2015. The planned first deliveries to the grid are in fourth quarter 2017. This is the next step in Statoil’s strategy towards deployment of the first utility scale floating wind farms.

 

Statoil is the winner of the New York Wind Energy Area lease, following the December 2016 BOEM lease sale, with a winning bid of USD 42.5 million. The lease is 321 km2, large enough to support one or more offshore wind developments with a total capacity of more than 1GW. The lease is located approximately 20 km directly south of Long Island. The project will be further matured during 2017.

 

Since 1996, Statoil has proven experience in carbon capture and storage (CCS) and has continued to develop competence through research engagement in the Technical Centre Mongstad (TCM) and offshore operations in Sleipner and Snøhvit. Statoil will seek to deploy our competence and experience in other CCS projects, continue to evaluate opportunities to reduce carbon dioxide emissions and explore carbon dioxide for enhanced oil recovery (EOR) possibilities. Statoil has on behalf of the Norwegian Ministry of Petroleum and Energy (MPE) performed a feasibility study for establishing a CO2 storage on the NCS. The MPE intends to issue a tender process at the end of this year for planning, construction and operation of such CO2 storage as a part of a full CCS value chain from three industrial sources in Norway.

 

36   Statoil, Annual Report on Form 20-F 2016     


 

In February 2016, Statoil launched the Statoil Energy Ventures Fund, a new energy investment fund dedicated to investing in attractive and ambitious growth companies in low carbon energy, supporting Statoil’s strategy of growth in new energy solutions. The Statoil Energy Ventures Fund, will invest up to USD 200 million over a period of four to seven years. During 2016, the fund made four investments in four different segments. United Wind is a distributed wind generation company based in New York that offers to install wind turbines on small property owner's land in exchange for a 20-year lease arrangement. ChargePoint is the largest electric vehicle charging infrastructure company in the USA with plans to expand globally in light of the growth in electric vehicles sales. Convergent Energy & Power is a US based energy storage project developer that builds, finances, owns and operates storage projects on behalf of large utilities and commercial and industrial customers. Oxford PV is a third generation solar technology company based in Oxford, UK that is developing a perovskites material that has the potential to make a significant increase in the efficiency of silicon photovoltaic panels.

 

Global Strategy and Business Development (GSB)

The Global Strategy and Business Development (GSB) business area is Statoil’s functional centre for strategy and business development. GSB is responsible for Statoil’s global strategy processes and identifies and delivers inorganic business development opportunities, including corporate mergers and acquisitions. This is achieved through close collaboration across geographic locations and business areas. Statoil's strategy forms the basis for guiding the company’s business development focus.

 

GSB also hosts a number of corporate functions including Statoil’s Corporate Sustainability function, which is shaping the company’s strategic response to sustainability issues and reporting on Statoil’s sustainability performance.

 

Corporate staffs and support functions

Corporate Staffs and support functions comprise the non-operating activities supporting Statoil, and include headquarters and central functions that provide business support such as finance and control, corporate communication, safety, audit, legal services and people and organisation.

 

Technology, Projects and Drilling (TPD)

The business area Technology, Projects and Drilling (TPD) is responsible for the development and execution of projects, well deliveries, procurement, research and technology in Statoil.

 

The TPD organisation was restructured 1 January 2016 to reduce cost, increase efficiency and secure high quality execution. All project expertise was integrated in one Project development organisation (PRD), and all expertise within technology, research and innovation was integrated in one Research and technology organisation (R&T).

 

Research and Technology (R&T) delivers technical expertise to projects, business developments and assets. Further, R&T drives research, innovation and implementation of new technology across Statoil, to secure both short and long term business needs.

 

Project Development (PRD) develops and executes all major facility developments, modifications and field decommissioning.

 

Drilling and Well (D&W) provides cost efficient well deliveries and rig management, including expertise and support to drilling and well operations globally in Statoil.

 

Procurement and Supplier Relations (PSR) manages the supply chain, conducts all procurements and provides management of contracts in accordance with business needs.

  

Statoil, Annual Report on Form 20-F 2016    37 


 

Project startups and completions 2016

Statoil's interest

Operator

Area

Type

 

 

 

 

 

Heidelberg

12.00%

Anadarko

Gulf of Mexico

Oil

Snorre A drilling facilities upgrade

33.28%

Statoil

North Sea

Improved oil recovery

Goliat

35.00%

Eni

Barents Sea

Oil and gas

In Salah Southern fields

31.85%

Sonatrach/BP/Statoil

Algeria

Gas

Julia

50.00%

ExxonMobil

Gulf of Mexico

Oil

Gullfaks Rimfaksdalen

51.00%

Statoil

North Sea

Oil

B11 removal

5.00%

Gassco1)

North Sea

Field decommissioning

Ivar Aasen

41.47%

Aker BP

North Sea

Oil and gas

 -  held through Lundin

0.28%

 

 

 

1)  Statoil is technical operator

 

 

Ongoing projects with expected startups and completions 2017-2020

Statoil's interest

Operator

Area

Type

 

 

 

 

 

Gina Krog

58.70%

Statoil

North Sea

Oil and gas

Gullfaks C subsea compression

51.00%

Statoil

North Sea

Improved gas recovery

Dudgeon offshore wind farm

35.00%

Statoil

North Sea, off English coast

Wind

Hywind Scotland pilot wind park

75.00%

Statoil

North Sea, off Scottish coast

Wind

Volve decommissioning

59.60%

Statoil

North Sea

Field decommissioning

Byrding

70.00%

Statoil

North Sea

Oil and associated gas

Hebron

9.01%

ExxonMobil

Newfoundland, Canada

Oil

Tahiti vertical expansion

25.00%

Chevron

Gulf of Mexico

Oil

Aasta Hansteen

51.00%

Statoil

Norwegian Sea

Gas

Polarled

37.10%

Statoil

Norwegian Sea

Gas export pipeline

Oseberg Vestflanken 2

49.30%

Statoil

North Sea

Oil and gas

Mariner

65.11%

Statoil

North Sea

Oil

Troll B gas module

30.58%

Statoil

North Sea

Increased processing capacity

Big Foot

27.50%

Chevron

Gulf of Mexico

Oil

Martin Linge

19.00%

Total

North Sea

Oil and gas

Stampede

25.00%

Hess

Gulf of Mexico

Oil

Arkona offshore wind farm

50.00%

E.ON

Baltic Sea, off German coast

Wind

Johan Sverdrup

40.03%

Statoil

North Sea

Oil and associated gas

 -  held through Lundin

4.54%

 

 

 

Johan Sverdrup export pipelines, JoSEPP

40.03%

Statoil

North Sea

Oil and gas export pipelines

 -  held through Lundin

4.54%

 

 

 

Utgard Norwegian sector

38.44%

Statoil

North Sea

Gas and condensate

    UK sector

38.00%

 

 

 

Trestakk

59.10%

Statoil

North Sea

Oil and associated gas

Huldra decommissioning

19.87%

Statoil

North Sea

Field decommissioning

Peregrino phase II

60.00%

Statoil

Brazil

Oil

 

Startups beyond 2020

 

 

 

 

In our world-class portfolio, an additional 35-40 projects are in the early phase.

 

 

 

 

 

 

 

 

 

 

 

 

38   Statoil, Annual Report on Form 20-F 2016     


 

2.7 CORPORATE

 

APPLICABLE LAWS AND REGULATIONS

Statoil operates in more than 30 countries and is exposed to, and committed to compliance with, a number of laws and regulations globally.

 

This article focuses primarily on Norwegian laws specific for Statoil`s core activities, taking into account that the majority of Statoil’s production is produced on the NCS, the ownership structure of the company and that Statoil is registered and has its headquarters in Norway.

 

Norwegian petroleum laws and licensing system

The principal laws governing Statoil’s petroleum activities in Norway are the Norwegian Petroleum Act and the Norwegian Petroleum Taxation Act.

 

Norway is not a member of the European Union (EU), but Norway is a member of the European Free Trade Association (EFTA). The EU and the EFTA Member States have entered into the Agreement on the European Economic Area, referred to as the EEA Agreement, which provides for the inclusion of EU legislation in the national law of the EFTA Member States (except Switzerland). Statoil’s business activities are subject to both the EFTA Convention and EU laws and regulations adopted pursuant to the EEA Agreement.

 

For further information about the jurisdictions in which Statoil operates, see sections 2.2 Business overview and 2.10 Risk review

 

Under the Petroleum Act, the Norwegian Ministry of Petroleum and Energy (“MPE”) is responsible for resource management and for administering petroleum activities on the NCS. The main task of the MPE is to ensure that petroleum activities are conducted in accordance with the applicable legislation, the policies adopted by the Norwegian Parliament (the Storting) and relevant decisions of the Norwegian State. 

 

The Storting's role in relation to major policy issues in the petroleum sector can affect Statoil in two ways: firstly, when the Norwegian State acts in its capacity as majority owner of Statoil shares and, secondly, when the Norwegian State acts in its capacity as regulator:

·          The Norwegian State's shareholding in Statoil is managed by the Ministry of Petroleum and Energy. The Ministry of Petroleum and Energy will normally decide how the Norwegian State will vote on proposals submitted to general meetings of the shareholders. However, in certain exceptional cases, it may be necessary for the Norwegian State to seek approval from the Storting before voting on a certain proposal. This will normally be the case if Statoil issues additional shares and such issuance would significantly dilute the Norwegian State's holding, or if such issuance would require a capital contribution from the Norwegian State in excess of government mandates. A decision by the Norwegian State to vote against a proposal on Statoil’s part to issue additional shares would prevent Statoil from raising additional capital in this manner and could adversely affect Statoil’s ability to pursue business opportunities. For more information about the Norwegian State's ownership, see Risks related to state ownership in section 2.10 Risk review and Major shareholders in section 5.1 Shareholder information

·          The Norwegian State exercises important regulatory powers over Statoil, as well as over other companies and corporations on the NCS. As part of its business, Statoil or the partnerships to which Statoil is a party, frequently need to apply for licences and other approval of various kinds from the Norwegian State. Although Statoil is majority-owned by the Norwegian State, it does not receive preferential treatment with respect to licences granted by or under any other regulatory rules enforced by the Norwegian State

 

The principal laws governing Statoil’s petroleum activities in Norway and on the NCS are the Norwegian Petroleum Act of 29 November 1996 (the "Petroleum Act") and the regulations issued thereunder, and the Norwegian Petroleum Taxation Act of 13 June 1975 (the "Petroleum Taxation Act"). The Petroleum Act sets out the principle that the Norwegian State is the owner of all subsea petroleum on the NCS, that exclusive right to resource management is vested in the Norwegian State and that the Norwegian State alone is authorised to award licences for petroleum activities as well as determine its terms. Licensees are required to submit a plan for development and operation (PDO) to the Ministry of Petroleum and Energy for approval. For fields of a certain size, the Storting has to accept the PDO before it is formally approved by the Ministry of Petroleum and Energy. Statoil is dependent on the Norwegian State for approval of its NCS exploration and development projects and its applications for production rates for individual fields.

 

Production licences are the most important type of licence awarded under the Petroleum Act and are normally awarded for an initial exploration period, which is typically six years, but which can be shorter. The maximum period is ten years. During this exploration period, the licensees must meet a specified work obligation set out in the licence. If the licensees fulfil the obligations set out in the initial license period, they are entitled to require that the licence be prolonged for a period specified at the time when the licence is awarded, typically 30 years.

 

Statoil, Annual Report on Form 20-F 2016    39 


 

The terms of the production licences are decided by the Ministry of Petroleum and Energy. A production licence grants the holder an exclusive right to explore for and produce petroleum within a specified geographical area. The licensees become the owners of the petroleum produced from the field covered by the licence. Production licences are awarded to group of companies forming a joint venture at the Ministry’s discretion. The members of the joint venture are jointly and severally responsible to the Norwegian State for obligations arising from petroleum operations carried out under the licence. The Ministry of Petroleum and Energy decides the form of the joint operating agreements and accounting agreements.

 

The governing body of the joint venture is the management committee. In licences awarded since 1996 where the state's direct financial interest (SDFI) holds an interest, the Norwegian State, acting through Petoro AS, may veto decisions made by the joint venture management committee, which, in the opinion of the Norwegian State, would not be in compliance with the obligations of the licence with respect to the Norwegian State's exploitation policies or financial interests. This power of veto has never been used.

 

Interests in production licences may be transferred directly or indirectly subject to the consent of the Ministry of Petroleum and Energy and the approval of the Ministry of Finance of a corresponding tax treatment position. In most licences, there are no pre-emption rights in favour of the other licensees. However, the SDFI, or the Norwegian State, as appropriate, still holds pre-emption rights in all licences.

 

The day-to-day management of a field is the responsibility of an operator appointed by the Ministry of Petroleum and Energy. The operator is in practice always a member of the joint venture holding the production licence, although this is not legally required. The terms of engagement of the operator are set out in the joint operating agreement.

 

Licensees are required to submit a plan for development and operation (PDO) to the Ministry of Petroleum and Energy for approval. For fields of a certain size, the Storting has to accept the PDO before it is formally approved by the Ministry of Petroleum and Energy.

 

If important public interests are at stake, the Norwegian State may instruct Statoil and other licensees on the NCS to reduce the production of petroleum. The last time the Norwegian State instructed a reduction in oil production was in 2002.

 

A licence from the Ministry of Petroleum and Energy is also required in order to establish facilities for the transportation and utilisation of petroleum. Ownership of most facilities for the transportation and utilisation of petroleum in Norway and on the NCS is organised in the form of joint ventures. The participants' agreements are similar to the joint operating agreements.

 

Licensees are required to prepare a decommissioning plan before a production licence or a licence to establish and use facilities for the transportation and utilisation of petroleum expires or is relinquished, or the use of a facility ceases. On the basis of the decommissioning plan, the Ministry of Petroleum and Energy makes a decision as to the disposal of the facilities.

 

For an overview of Statoil’s activities and shares in Statoil’s production licences on the NCS, see section 2.5 Development and Production Norway (DPN).

 

Gas sales and transportation from the NCS

Statoil markets gas from the NCS on its own behalf and on the Norwegian State's behalf. Gas is transported through the Gassled pipeline network to customers in the UK and mainland Europe.

 

Most of Statoil’s and the Norwegian State's gas produced on the NCS is sold under gas contracts to customers in the European Union (EU), and changes in EU legislation may affect Statoil's marketing of gas.

 

The Norwegian gas transport system, consisting of the pipelines and terminals through which licensees on the NCS transport their gas, is owned by a joint venture called Gassled. The Norwegian Petroleum Act of 29 November 1996 and the pertaining Petroleum Regulation establish the basis for non- discriminatory third-party access to the Gassled transport system.

 

The tariffs for the use of capacity in the transport system are determined by applying a formula set out in separate tariff regulations stipulated by the Ministry of Petroleum and Energy. The tariffs are paid on the basis of booked capacity, not on the basis of the volumes actually transported.

 

For further information, see Pipelines in section 2.5 MMP – Marketing, Midstream and Processing.

 

The Norwegian State's participation

The Norwegian State's policy as a shareholder in Statoil has been and continues to be to ensure that petroleum activities create the highest possible value for the Norwegian State.

 

40   Statoil, Annual Report on Form 20-F 2016     


 

In 1985, the Norwegian State established the State's direct financial interest (SDFI) through which the Norwegian State has direct participating interests in licences and petroleum facilities on the NCS. As a result, the Norwegian State holds interests in a number of licences and petroleum facilities in which Statoil also hold interests. Petoro AS, a company wholly owned by the Norwegian State, was formed in 2001 to manage the SDFI assets.

 

SDFI oil and gas marketing and sale

Statoil markets and sells the Norwegian State's oil and gas together with Statoil’s own production. The arrangement has been implemented by the Norwegian State.

 

At an extraordinary general meeting held on 25 May 2001, the Norwegian State, as sole shareholder, approved an instruction to Statoil setting out specific terms for the marketing and sale of the Norwegian State's oil and gas. This resolution is referred to as the Owner's instruction.

 

Statoil is obliged under the Owner's instruction to jointly market and sell the Norwegian State's oil and gas as