AmocoNoco group seeks licences

Adding more partners

Amoco Norway Oil Company was established in May 1965 as a subsidiary of Standard Oil Company of Indiana, and acquired its first Norwegian office at Fridtjof Nansens plass 6, over the road from Oslo’s City Hall.

Its first managing director was F W Popp Jr, who had worked for the company since 1949 and had international experience from Indonesia, Spain and Venezuela.[REMOVE]Fotnote: Øyvind Kvaal in a collection of articles from Amoco Viking.

According to the collaboration agreement between Noco and Amoco, the latter was to act as operator to conduct further seismic surveys and to drill in accordance with a work programme agreed with the government as the licensing authority.

The US company would bear the cost of seismic investigations, drilling and other activities up to and including the first well, which meant that Noco was “carried” for its 15 per cent interest.

Thereafter, the Norwegian consortium would become an equal partner with a working interest. This could vary between five and 15 per cent, with Noco deciding on the percentage within 30 days of the licence being awarded.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Extract of the offer from American International Oil Company prepared by R Karlsrud, 16 February 1965.

When the application for blocks in Norway’s first licensing round was submitted on 14 June 1965, however, it was not confined to the original duo. Two other US companies had joined the group.

Amoco wanted to spread the financial risk across more partners, and this was permitted under the agreement with Noco providing the companies concerned had the required expertise.

The newcomers were Texas Eastern Transmission Co of Houston and Amerada Petroleum Co from Tulsa in Oklahoma, both companies Amoco had experience of collaborating with in the British sector.

They also established Norwegian subsidiaries, which took equal shares with Amoco. Amerada Petroleum Corporation of Norway was Amerada’s local arm, with Texas Eastern owning what was originally called Oslo Inc.

The American members of the AmocoNoco group were presented in the licence application submitted to the Ministry of Industry on 14 June 1965.

Amoco Norway Oil Company was to be the operator for the partnership. In addition to participating with Amerada and Texas Eastern on the UK continental shelf, the Amoco group had broad experience of offshore work from other parts of the world.

Its parent company had pursued both exploration for and production of oil and gas in the Gulf of Mexico, Cook Inlet in Alaska, and the Gulf of Paria and Lake Maracaibo in Venezuela.

Other locations around the world included the Persian Gulf, the Atlantic east of Trinidad, the Strait of Malacca near Sumatra and the Gulf of Suez.

With involvement in building refineries, petroleum transport, petrochemicals and the sale of refined products, Amoco was also a fully integrated oil company. (See the article on The Amoco  corporation and the logo.)

Amerada Petroleum Company of Norway was part of the Amerada Petroleum Corporation, a company established in 1919 in the US state of Delaware.

This parent company was a pioneer in the use of geophysical know-how to produce petroleum, and found the first oil field proven with the aid of the reflective seismic method in Oklahoma in 1928.

Major Amerada discoveries included the Rio Vista gas field in California as well as oil in North Dakota’s Willison Basin in 1951, Sturgeon Lake in Alberta, Canada, and several Libyan fields.

Oslo Inc was a subsidiary of Texas Eastern Transmission Corporation which, as its name implies, was primarily involved in pipeline transport of natural gas.

Among other achievements, the company had laid and operated the gas pipeline which ran all the way from McAllen near the Texas-Mexico border to New York City. Another Texas Eastern line carried liquid oil products north-eastwards from refineries in the Houston area to New York state.

The company was also active in exploration for and production of petroleum, and formed part of the Amoco-Amerada group in the British sector.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: The AmocoNoco group’s application for production licences, 14 June 1965.

Collectively, the parent companies of these three partners represented broad expertise in oil production and were solidly capitalised. Amerada had no bank loans, for example.

Licence application and outcomes

The partnership with Noco gave Amoco access to the seismic data acquired by the Norwegian consortium from German company Prakla. However, the quality of this information was poor for the deeper geological strata.

Amoco accordingly wanted to launch immediate seismic surveys ahead of 15 June 1965. when the licence application had to be submitted to the Norwegian government.

Although the company largely managed to complete this work before that deadline, surveys continued for some time afterwards. Amoco also purchased seismic data from Superior Oil for use in interpretation.[REMOVE]Fotnote: Schartum, Dag: Hvordan Noco ble til…, 1990, 67.

AmocoNoco applied for no less than 40 blocks in the first round. This was a tactical move, since the group was aware that it would have to reduce its ambitions during negotiations with the Norwegian Oil Council.

The latter body was chaired by Jens Evensen, head of the legal department at the Ministry of Foreign Affairs. Another of its members was Carl Wilhelm Carstens, head of Stordø Kisgruber and later chief executive of Noco for many years.[REMOVE]Fotnote: Schartum, Dag: Hvordan Noco ble til…, 1990, 68.

Negotiations over proposed work programmes were conducted by the council from 15 July to 15 August with all the applicants. AmocoNoco attended confidential talks on 27 July, when the number of blocks sought was reduced to 10 and the group undertook to drill four wells – the maximum it would commit to.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Letter to Elektrokemisk A/S from R Karlsrud, 31 July 1965.

AmocoNoco secured three production licences, 004, 005 and 006, when the awards were announced on 17 August. These embraced 10 of the 74 blocks allocated, as follows:

• quadrant 6, block 3, and quadrant 7, blocks 1 and 4
• quadrant 7, blocks 3 and 6, and quadrant 8, block 4
• quadrant 2, blocks 2, 5 and 8, and quadrant 3, block 4.

This acreage covered many of the group’s original preferences, and it was very satisfied. Block 2/4 – which later proved to contain Ekofisk, for example – had not been on its wish list.

The awards were accompanied by obligations, with the group required to complete a work programme of four wells in the areas allocated by 1 September 1971.

In addition, the government imposed various fees, including a one-off payment of NOK 830 500. The licences lasted for six years and AmocoNoco could have them extended for up to 40 years. But it then had to pay an area fee per square kilometre, which went up annually.

The group was required to pursue exploration for and exploitation of petroleum deposits in an acceptable manner which accorded with good practice in the oil industry.

Disruption of other activities, such as fishing, shipping or aviation, had to be avoided. Specific rules governed the use of explosive charges in connection with seismic surveys.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Production licence for petroleum products no 004 from the Ministry of Industry, 17 August 1965, with notification of its award.

Exploration operations had to be supported from bases in Norway. Norwegian workers and industry were to be given preference under otherwise equal conditions. An educational programme was to be prepared for employees.

Furthermore, the oil companies were required to pay a 10 per cent royalty on any production from oil and gas discoveries, and 15 per cent tax on their activities.[REMOVE]Fotnote: Aftenposten 19 August 1965, “Norsk olje ‘fanger’ 600 mill kr. Åtte grupper fikk Nordsjø-konsesjon.”

Further opportunities near the Danish boundary

The boundary of Norway’s continental shelf in the North Sea with the UK had been ratified on 29 June 1965, a month and a half before the awards in the first licensing round.

However, the boundary with Denmark was only temporarily delineated on the basis of the median line principle enshrined in the Geneva convention on the continental shelf of 1958.

Negotiations were still under way with the Danes.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Letter to Amoco Norway Oil Company from the Ministry of Industry, 17 August 1965, with notification of the licence awards. It was rumoured that the Swedes were trying to acquire a sector in the Skagerrak, and that this was possibly why a Dano-Norwegian deal had been delayed.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Memo of 10 September 1965 by B W Bommen.

In this context, a consideration for the AmocoNoco group was that the blocks it had been awarded in August 1965 were close to the Norwegian-Danish boundary.

As soon as the latter had been finalised, Norway would be able to accept applications for production licences covering blocks along the boundary line.

Four of these – 2/9, 2/11 and 2/12 as well as 3/7 – were bordered by AmocoNoco’s acreage, and corresponded to two blocks of normal size.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Memo of 10 September 1965 by B W Bommen.

The Petronord group, where Norwegian industrial group Norsk Hydro participated, also had a block adjacent to this area. Opportunities for collaboration between AmocoNoco and Petronord over the acreage concerned were discussed in the autumn of 1965.

Noco now expressed a desire for a larger carried interest in these Danish-boundary blocks, but that was fairly brusquely turned down by Amoco.

The Americans were positive to the Norwegians having the largest possible share, by all means 25 per cent, but without carried interest. That would give four equal partners.[REMOVE]Fotnote: Dag Schartum’s archive at the Norwegian Petroleum Museum: Memo of 10 September 1965 by B W Bommen.

It transpired that the partners had plenty of time to find a solution. The boundary blocks were not put on offer by the Norwegian government until 1968 (see the article on The AmocoNoco group starts to drill.)

The awards of 1965 and 1968 laid the basis for AmocoNoco in Norway. Norwegian industry was involved with American oil companies in the blocks which would prove to contain Valhall and Hod.