State's Direct Financial Interest

State's Direct Financial Interest (SDFI) (Norwegian:Statens direkte økonomiske engasjement (SDØE)) is a portfolio of the Norwegian governments directly owned exploration and production licenses for petroleum and natural gas on the Norwegian continental shelf. Since 2001 the management of the portfolio has been managed by Petoro.

History and background

The government of Norway is in principal as landlord owner of all resources on and under the sea in the geographical area known as the continental shelf. When the government wants to find and produce petroleum in an area it awards production permits, often call licences, to one or more cooperating companies.

Since 1970 when the Norwegian oil production started it was clear that there were large values in the petroleum reserves in the shelf and there was a political goal that as much as the economic rent of petroleum production was transferred to the state as resources. Economic rent represent the extra profit that is produced exceeding the nominal return on capital, adjusted for risk. The economic rent is dependent on the production costs as well as crude oil and natural gas price. In other words the profitability in the petroleum sector has little to do with normal market forces.

The governments tool to create income from the petroleum sector has been taxes and fees as well as itself being a participant in the industry. Participation was at first taken care of through the creation and development of the state oil company Statoil. From 1973 to 1985 the government made sure that Statoil was well awarded in licence awardings, typically 50% or more. In the 1980s though there broke out a political discussion about the this management through Statoil, because Statoil's cash flow was becoming very large in relation to the gross national product. The solution was splitting Statoil's ownership. From January 1 1985 SDFI was created as a separate juridical entity managed by Statoil. Statoil's original ownership was divided in two, one to Statoil itself, typically 20%, and the rest to SDØE.

When Statoil was partially privatised in 2001 this solution was no longer desirable and a new state owned management company, Petoro, was created to manage SDØE. The government also reduced the size of SDFI by Statoil taking over 15% of the portfolio and Norsk Hydro taking over 5%.

Values in SDFI

Petoro is registered as owner for the states portions with permissions 93 licences. This also gives portions of production from 36 fields.

The states portion of the total reserves on the Norwegian shelf are as of January 1 2005 294 millioner Sm³ oil and 1005 mrd Sm³ natural gas. This represent 24% of the oil reserves and 41.6% of the natural gas reserves, and makes Petoro the largest licenceholder on the shelf. As of January 1 2006 the value of SDFI was NOK 850 billion.

The states portion of the oil production on the shelf was in 2004 about 46.6 million Sm³, 14% of the sates reserves at the beginning of 2004.

The table below lists all remaining field reserves as of January 1 2005 where the state by Petoro has ownerships in the production, with prosent ownership in the field, crude oil listed in million standard cubic meters MSm³ and in million barrels that belong to the state, gass in billion standard cubic meters GSm³, Natural gas liquids in million tonnes, Natural gas condensate in MSm³ and the total of all remaining petroleum in the field given in million oil equivalents (oe).

All numbers are from the Norwegian Oil Directorate.

External links

* [http://www.npd.no Norwegian Oil Directorate]
* [http://www.petoro.no Petoro]