Kristin Øye Gjerde, Norwegian Petroleum Museum
The Norwegian fiscal regime for the offshore sector was no more onerous than in other oil-producing countries when the first licensing round was held in 1965. By the early 1980s, however, the tax burden on the industry had risen to a record 85.8 per cent. Amoco Norway was then one of the oil companies which led the way in expressing the strongest dissatisfaction with the level of Norwegian taxes.
— The foreign oil companies were dissatisfied with the way the tax level developed in Norway.
“We’re willing to accept the negative consequences of saying that the financial terms in Norway aren’t good enough to justify applying for new interests in blocks in the ninth round,” Amoco public affairs manager Øyvind Kvaal said in August 1984.
The company was displeased with the Norwegian tax regime in general, and argued that the special tax levied on offshore players required an oil price of USD 40 per barrel – USD 10 above the 1984 level. It viewed the high tax rate as an obstacle to developing small fields such as Hod.[REMOVE]Fotnote:Aftenposten , 22 August 1984, “Nytt angrep på oljeskatten”.
Special tax imposed
A more detailed presentation of the way the offshore tax burden increased in several stages and with varying justifications is provided below.
When the first Petroleum Tax Act was passed by the Storting (parliament) in 1965, the Ministry of Finance took the view that the oil sector should be treated in the same way as other industry on land.
Ordinary corporation tax was levied at a rate of 50 per cent on profits. The main objective of oil policy at the time was to encourage maximum exploration to determine whether petroleum existed on the Norwegian continental shelf (NCS).
Offshore taxation was reassessed in the spring of 1972 after large quantities of oil and gas had been found in Ekofisk and this field had been brought on stream.
The tax rules were adjusted in part as a result of fiscal changes for limited companies a few years earlier. A progressive system was also introduced for calculating royalty on oil production.[REMOVE]Fotnote: Hanisch, Tore Jørgen, and Nerheim, Gunnar, Norsk Oljehistorie. Fra vantro til overmot . Bind 1, 1992, 420-421. (See the article on Rows over royalties.)
These adjustments were nevertheless moderate compared with the changes introduced three years later, in the wake of 1973-74 oil crisis which led to a quadrupling in global crude oil prices.
Israel had been in constant conflict with its Arab neighbours since the state was founded in 1948, and the Yom Kippur war broke out with Egypt, Jordan and Syria on 6 October 1973.
The USA supported the Israelis with military equipment, prompting the Organisation of the Petroleum Exporting Countries (Opec) to use oil for the first time as a political weapon.
Aimed at states backing Israel politically and militarily, the measures adopted included production cut-backs – with a ban on exports to certain nations – and a big rise in crude prices.
The boycott hit the western world hard and sparked a crisis in the world economy. Norway was also affected by fuel shortages, and took such steps as banning Sunday motoring.
While Norwegian shipping and shipbuilding suffered, however, the country’s oil production became more profitable. That combined with a nationalist mood after a 1972 referendum rejected joining the European Community.
One effect of this vote was a more radical attitude in government towards Norwegian oil taxation. A petroleum revenue committee (PIU) was established as early as 24 January 1974 to discuss state revenues from the industry.
The results of its work ended up as a key chapter in the seminal Report no 25 to the Storting (1973-1974) on the place of petroleum operations in Norwegian society.
This included the declaration that “Norway’s petroleum resources are the property of the Norwegian people and must benefit the whole society”.[REMOVE]Fotnote: Hanisch, Tore Jørgen, and Nerheim, Gunnar, Norsk Oljehistorie. Fra vantro til overmot . Bind 1, 1992, 419-426.
The price rise which accompanied the oil crisis meant that the government expected crude to continue to cost more in the future. Petroleum production from the NCS would thereby become far more profitable than previously expected.
The PIU accordingly took the view that Norway must conduct “a reassessment of the government’s attitude with regard to revenues from Norwegian petroleum activities on the NCS”.
Instead of treating the oil sector on a equal footing with other industry, calls were now made for a special tax which would only apply to petroleum operations.
In this context, the committee turned to the concept of economic rent.[REMOVE]Fotnote: For an explanation of the economic rent concept in Norwegian, see Norwegian Official Report (NOU) 2000: 18 Skattlegging av petroleumsvirksomheten. www.regjeringen.no/nb/dep/fin/dok/nouer/2000/nou-2000-18/13/2.html?id=359932 Income “which derives from the actual resource as such, and especially the unexpected new addition to this income” should fall to the owner of the resource – in other words, the Norwegian state.
The conclusion was that “the committee regards the justification for a special tax under the new price conditions as indisputable”.[REMOVE]Fotnote: Hanisch, Tore Jørgen, and Nerheim, Gunnar, Norsk Oljehistorie. Fra vantro til overmot . Bind 1, 1992, 427-428.
At the same time, it proposed that a new government body should calculate a notional price or value for oil and gas – known as the norm price.
The oil companies were shocked, to put it mildly. Phillips Petroleum, Shell, Agip and Norsk Hydro all reacted sharply, and maintained that binding agreements on tax rates – at least for a period – had been entered into in 1965.
Ably assisted by highly competent lawyers, the government emphasised for its part that the companies had only received production licences in 1965 on specific terms. The Storting could not bind itself then that a given tax rate would prevail in perpetuity.[REMOVE]Fotnote: Hanisch, Tore Jørgen, and Nerheim, Gunnar, Norsk Oljehistorie. Fra vantro til overmot . Bind 1, 1992, 429-433.
In protest, Chevron decided not to apply for new acreage in the next Norwegian licensing round. Amoco took even more tangible action by halting the planned development of South-East Tor.
This field was proven in 1972 and put into development in 1974, with a steel jacket (support structure) acquired for a platform and materials for its topside ordered.
After the finance minister reported in December 1974 on the new tax regime which was in the offing, further planning for the project was put on hold.
A press release was later issued to announce that South-East Tor, due to come on stream together with the Tor field in 1977, would not now be developed. It was so marginal that this would be uneconomic.[REMOVE]Fotnote: Øyvind Kvaal, articles in Amoco Viking. The discovery has since remained undeveloped.
Despite these protests, the new Petroleum Tax Act was passed on 13 June 1975. It comprised four elements, including the above-mentioned sliding scale from eight to 16 per cent for royalty.
In addition came ordinary corporation tax at the same 50.8 per cent rate as for land-based activities. The special tax comprised a levy of 25 per cent calculated on net income. Finally, the government acquired the power to set a norm price for petroleum calculated on the assumption that a free market existed.
The Act was adopted virtually unanimously, with the exception of the anti-tax Anders Lange’s Party, and boosted the marginal tax rate for the oil companies to a total of 75.8 per cent.
Tax burden follows oil prices
A new oil crisis occurred in 1979, following the Iranian revolution which deposed the Shah and brought Ayatollah Khomeini to power.
With memories of the first crisis still fresh, widespread hoarding of oil began worldwide, even though most countries had sufficient stocks to cover a brief production shortfall.
Prices were driven to even higher levels than in 1973-74, and peaked at USD 34 per barrel. They continued to rise after Iraq’s attack on Iran in 1980 and remained unusually high for the next five years.
This was beneficial for Norway as an oil producer, and new field developments were sanctioned on the NCS. But was it right for the oil companies to “skim the cream” from a boom market?
In line with the thinking which underpinned the 1975 Act, the special tax was increased in 1980. The government maintained that the rise in the economic rent from higher prices should fall to the state. This boosted the marginal tax rate for the oil companies to 85.8 per cent.
Oil prices began to decline in 1985, creating uncertainty about prospects for the petroleum sector. Amoco, for one, announced in February 1986 that development plans for Hod had been put on ice, and that no further investigation would be conducted on this oil and gas field while prices remained so low.
A rise in the price of oil or radical changes to the Norwegian tax regime were the only considerations which could persuade the AmocoNoco partners to change their minds.
The spot price of North Sea (Brent Blend) oil reached a low of USD 10 per barrel on 2 April 1986. Nobody had expected it to fall so far.[REMOVE]Fotnote: Statistics Norway (SSB), Økonomiske analyser no 1 – 1987, 70.
A banking crisis, unrest in financial markets and a sharp fall in share prices on the Oslo Stock Exchange prompted the non-socialist coalition headed by Conservative premier Kaare Willoch to introduce austerity measures. But these failed to secure a majority in the Storting, and Labour leader Gro Harlem Brundtland formed a new government that May. The Norwegian krone was devalued and fiscal retrenchment taken even further.
To ensure that the NCS remained attractive to foreign oil companies, the Brundtland government presented a proposition (Bill) in August which introduced tax concessions for offshore exploration and production.
The requirement that foreign companies had to carry the costs of the state’s direct financial interest (SDFI) on the NCS was abolished for new production licences.
Royalty was also set to zero for future developments, and depreciation rules were amended to allow companies to write down spending on operating equipment from the first investment year.
Last but not least, the special tax was cut from 35 to 30 per cent.[REMOVE]Fotnote: Statistics Norway (SSB), Økonomiske analyser no 1 – 1987, 73. That reduced the marginal tax rate for the oil companies to 80.8 per cent.
Amoco sues over tax
Amoco Norway Oil Company was still not satisfied with Norway’s tax provisions, and initiated legal proceedings in the Oslo District Court against the Ministry of Finance in November 1988 over a disputed charge of about NOK 130 million.
On this occasion, the case did not concern tax rates but the opportunity for the companies to deduct interest charges on loans from their tax liability.
Amoco Norway’s operations were largely financed through loans raised by its parent company, which was registered in the US state of Delaware – regarded as a tax haven. (See the article on Financing the Valhall development.)
In its tax returns for 1982 to 1985, the Norwegian subsidiary had claimed deductions for interest paid to the parent company. The tax assessment authorities fully accepted that such charges could be deducted – but with one exception.
Since Amoco Norway was to be regarded in tax terms as an independent company in relation to its parent, a certain minimum level of financing had to be treated as equity. This could not be deducted as interest on a loan.
Based on the equity calculated by the tax assessors, Amoco Norway was found to have underpaid its tax by NOK 130 million for 1982-85.
The interest deducted on the remainder of the loans was not in dispute. Amoco claimed for its part that the total loan must also be regarded as genuine for tax purposes.[REMOVE]Fotnote:Aftenposten , 5 November 1988, “Strid om oljeskatt for retten.”
In legal terms, the case concerned the application of section 54, paragraph 1 of the Petroleum Tax Act concerning “thin” capitalisation of companies producing petroleum.
This term applies to subsidiaries which operate with very limited equity. The legal issue was accordingly whether this section entitled the tax assessors to regard all or part of such loans as equity.
Amoco maintained that no grounds existed for doing this, with the effect that the sum which could be deducted for interest charges and currency losses was reduced.
The court, for its part, tried to assess what could be regarded as a “commercially reasonable and natural” capital structure.
Where Amoco Norway was concerned, equity accounted for only 1.7 per cent of its total capital – which did not represent a reasonable commercial relationship between debt and equity.
The company would not have been able to achieve such a high debt-to-equity ratio independently, and could not have obtained equally good terms by borrowing in an open market.
In legal terms, it had to be regarded in Norway as an independent entity. That made it reasonable for the tax assessors to calculate a higher equity, and base liability on that.
A number of purely legal issues were addressed by the court in its wide-ranging judgement, including the tax treaty between the USA and Norway and discrimination between Norwegian and foreign oil companies.
Amoco claimed it had been taxed more heavily than purely Norwegian-owned companies, which would in the event contravene the tax treaty. The court found no such discrimination had occurred.[REMOVE]Fotnote:Aftenposten , 27 January 1989, «Amoco tapte skattesak mot staten».
This judgement was a disappointment for Amoco Norway, since it upheld the power of the tax assessment authorities to regard part of its financing as equity. It had to pay not only the disputed NOK 130 million, but also the government’s legal costs.
A rich nation
Together the other oil companies, Amoco Norway could celebrate when the Storting approved a new tax regime in 1992 which cut their liability to the government.
The revised system involved a special tax of 50 per cent in addition to conventional corporation tax of 28 per cent. A production-based deduction from the special tax was replaced with an uplift related to investment. These changes almost returned the overall tax burden to the 1975 level.[REMOVE]Fotnote: Statistics Norway (SSB), Økonomiske analyser no 1 – 1993, 105.
Since Amoco Norway’s fiscal history ceased when it merged with BP in 1998, the changes in Norway’s petroleum tax regime which have occurred since then are not covered here.
Government revenues from petroleum taxation were relatively stable during the 1990s, and accounted for about five per cent of its overall income from direct and indirect taxes.
This proportion has risen sharply since 2000 to reach 14-23 per cent of the total. In 2010, petroleum tax totalled NOK 177 billion in 2011 value.
One reason for this growth was the restructuring undertaken in 2002, when the government established Petoro to take over the management of the SDFI and sold assets from this portfolio to the oil companies. More of the revenues from holdings disposed of in this way thereby derived from tax.
The bulk of petroleum taxation in Norway is paid by a handful of large companies – with Statoil in a special position.[REMOVE]Fotnote: Didrik Lund, “Erfaringer med rammevilkår for petroleumsproduksjon i Norge”, paper, 18 April 2012.
Revenues accruing to the state from the oil industry have made Norway a rich nation with a big sovereign wealth fund. This was established by the Storting in 1990 to secure the country’s future economic freedom of action.
Government income from the petroleum sector is transferred to the oil fund, which invests the money in foreign shares and bonds. The first allocations were made in 1995.
Since 2001, successive governments have subjected their use of oil cash in the domestic economy to the “fiscal rule”, which limits current drawings from the fund to the real rate of return on its investments.
That corresponds to about four per cent of the fund’s value at the start of a year, and aims to ensure a stable use of oil revenues for a long time to come.
Renamed the government pension fund – global in 2006, this “piggy bank” exceeded NOK 5 000 billion in December 2013. That corresponds to roughly NOK 1 million per Norwegian, and means that Norway can be regarded today as one of the world’s wealthiest nations.[REMOVE]Fotnote: Gjerde, Kristin Øye (2013), “Oljelandet og ny næring langs kysten”, 17.
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Published 9. August 2019 • Updated 14. October 2020
This website is one result of the Valhall Industrial Heritage project, pursued in 2013-15 to document the Valhall and Hod oil and gas fields on the Norwegian continental shelf (NCS).
The work has covered the platforms on these two fields as well as the pipelines carrying their production to market. Physical structures above and below the waves are detailed – exteriors, interiors, machinery and equipment as well as significant modifications. A systematic selection of documentary sources related to Valhall from 1962 to 2012 covers documentation and depictions of characteristic features of the field’s development. These include technological advances, special projects, historical events, negotiations and decisions underlying development decisions and choices, political decisions and debate.
Work has been pursued by the Norwegian Petroleum Museum, the Regional State Archives in Stavanger and the National Library of Norway in Mo i Rana, in cooperation with BP Norge and Hess Norge.
The project has been led by the Norwegian Petroleum Museum , reporting to a council with representatives from the bodies listed in the previous paragraph.
Photographs, films, publications and objects have been preserved by the museum, whose staff has written articles for the website which help to create a context for the archival material.
The National Library and Seeds Consulting have delivered the technical platform for the website, based on the eZ Publish tool and adapted to provide the desired functionality. A search function has also been developed by the National Library to make the digital
material searchable across the whole website. This means that photographs, films, radio clips, books, scanned magazines, objects and other interesting material are now readily accessible.
The National Library has also ensured the preservation of digital radio clips, scanned magazines and digitised film.
The Norwegian Oil and Gas Archive/Regional State Archives in Stavanger has been responsible for the sub-project relating to archives. This has identified, selected, organised and catalogued the records covered by the project.
As operator of the Valhall field, BP Norge has collaborated on the execution of the industrial heritage project with support from fellow licensee Hess Norge.
National Library of Norway
The National Library of Norway is one of the most important sources of information about the country, its people and Norwegian conditions.
It is responsible for acquiring, preserving and making available collections covering all types of media. The Legal Deposit Act ensures that a copy of everything published in Norway – regardless of format – must be placed with the library. These testimonies to Norwegian culture and social life are thereby preserved for posterity and represent an important resource for research and documentation.
Activities at the National Library are pursued in part through collaboration with other institutions, such as libraries, media, educational bodies, research institute, archives, museums and artistic bodies. New services for the public are also developed. The library ranks as an important resource in a number of areas, such as the infrastructure for Norwegian research – including its role as a research library. Others include serving as a cultural policy tool, as a body responsible for the long-term preservation of Norway’s cultural heritage, and ensuring the celebration of author anniversaries.
The library has also been given an expanded responsibility for linguistic policy through the job of establishing, building up and running a Norwegian language bank. In addition, it has been made responsible for developing the library sector in Norway. Digitisation, long-term storage of digitised materials and the development of digital library services represent a key part of the library’s activities.
It has launched an extensive programme to digitise its whole collection – a job expected to take 20-30 years to complete. Materials held by the library are made available in accordance with the Norwegian Copyright Act or under agreements with the holders of intellectual property rights. The National Library has almost 450 employees and is headed by a director general. Its operations are split between Oslo and the north Norwegian town of Mo i Rana.
Role of the National Library in Valhall Industrial Heritage
A copy of all information made available in the Norwegian public domain must be deposited with the National Library, which is in the process of digitising its whole collection. It is accordingly equipped to make available that part of its collection which relates to the field via the search page on the Valhall Industrial Heritage site. Books, newspapers, radio programmes and minor printed works found here have been digitised by the National Library, which has also received digital files and metadata for photographs and objects (from the Digital Museum ) as well as films.
The library also operates the complete web solution used by the Valhall Industrial Heritage site, and has implemented the search engine for the site. This makes it possible to search both metadata (name, title, author, etc) and the actual content of a book or other printed work. Users can also view or listen to the relevant digital object. In addition, they can find other digital material in the National Library’s own digital collection .
Norwegian Oil and Gas Archive
The Norwegian Oil and Gas Archive has national responsibility for preserving records from this industry and making them accessible. These materials come from operator companies as well as suppliers, unions, government bodies and key people in the sector.
By taking care of relevant sources, the archive provides a basis for research both at the present time and in the centuries to come. It is located at the Regional State Archives in Stavanger, and forms part of Norway’s National Archives, where all public agencies are obliged to deposit their records.
The Norwegian Oil and Gas Archive currently holds some 4 000 shelf-metres of materials on petroleum-related activities, including files from the Norwegian Petroleum Directorate (NPD), the Continental Shelf Office and the police. Oil companies acting as operators on the Norwegian continental shelf who have deposited records include Statoil, ExxonMobil, ConocoPhillips, Norske Shell, Total Norge, Eni Norge and BP Norge.
Among suppliers come such players as Moss Rosenberg Verft, Teekay, NorSeaGroup and Norwegian Contractors, while organisations include the Norwegian Union of Industry and Energy Workers (IE), the Norwegian Union of Energy Workers (Safe) and the Norwegian Oil and Gas Association. Archives have also been preserved from an extensive downstream industry, other organisations such as the Petroleum Wives Club, and a number of individuals.
Handling of materials
The various documents received by the archive go through an important process before they are ready for long-term deposition in the storage facility. This includes removing plastic sleeves, files, binders and other covers which could damage the paperwork, and replacing packaging with a new acid-free material for optimum preservation. Such purging and repacking reduces the volume of the archive by 40 per cent on average, without any scrapping of the actual records. Once the process has been completed, the material is placed in the climate-controlled store. That creates the best possible conditions for indefinite preservation. Finally, the material is registered in the Asta database maintained by the National Archives and published in the catalogue at www.arkivportalen.no .
Such registration makes the records searchable and simplifies access to it by the public. However, the material is not initially open to all. Permission to study an archive must be granted by its owner on the basis of a written application. All the records will ultimately become public in a 100-year perspective.
Archives with information on Valhall
Records about and from the field are found in a number of different government and private archives, providing a comprehensive picture of Valhall’s development and social role.
Public-sector archives derive, for example, from the Ministry of Industry’s oil office, the NPD, the Petroleum Safety Authority Norway (PSA) and the police relating to their specific areas of responsibility. The NPD, as the successor to the oil office, has served as the regulator for the petroleum sector, originally covering both safety and resource management. Established in 2004 by separating the safety department from the NPD, the PSA has yet to deliver records to the oil and gas archive.
Among private companies, BP Norge – as operator for Valhall – has deposited the largest volume of archival material about the field. That originally totalled 145 shelf-metres, reduced to just under 100 after sorting and registration. This is the old Amoco Norway Oil company archive, and is registered as private archive 1740 at the Regional State Archives in Stavanger. Its contents cover a period of more than 30 years, from 1965 to 1999, documenting Amoco Norway’s operations in Norway and on the NCS. The materials cover the company’s relations with government, licence partners, Norwegian society as a whole and employees, and range widely. They document everything from major technological achievements to smaller triumphs – such as a successful Christmas party.
The important decisions taken in Amoco Norway over the years can often be found in the abundant selection of minutes from meetings in various bodies. These include the operating committee, management committee, exploration committee, Valhall unit committee, bid committee and partner meetings. The deliberations of these bodies provide a good insight into the history of the company, revealing how decisions were discussed, assessed, justified and implemented. Although the archive documents the whole range of Amoco Norway’s operations, the bulk of the material naturally enough deals with the Valhall and Hod fields. The section dealing with the latter covers such aspects as Hod development and planning reports, administration, engineering, fabrication and transport/installation, and the Hod saddle project.
More than a third of the whole archive deals directly with Valhall, including development and planning, committees, meetings and minutes, economics and safety. In addition come details on the living quarters, drilling, process and compression, wellhead and riser platforms as well as on engineering. Other topics include daily activity reports, production operations, field development, oil and gas pipelines and incoming/outgoing correspondence. The language in the archive varies between Norwegian and English, with most reports, correspondence and minutes of meetings in the latter. The file index uses English terms.
Since it largely follows Amoco Norway’s file index, the archive is simple to navigate – which eases retrieval and searches. All the same, a good many reports and the like fail to comply with the file index. However, they are searchable by key word, title and year. Hess Norge, which is BP Norge’s fellow licensee in Valhall, has so far deposited only a small quantity of records with the Norwegian Oil and Gas Archive. This material, both paper-based and electronic, has been mapped. It contains interesting information related to Valhall, but also to Hess in general. So further deposits are possible.
In addition to the oil companies, the Amoco Company Union (ABC) has transferred a great many of its files. It was established in 1982 as a “house” union for Amoco employees. After the merger between Amoco and BP, it changed its name to the Employees Company Union – retaining the same initials in Norwegian. It is now the BP branch of the IE union. The records deposited with the Regional State Archives in Stavanger amount to six-seven shelf-metres, and consist largely of correspondence, minutes of various meetings and printed materials.
Published 9. August 2019 • Updated 14. October 2020
A fire broke out on 2 March during the final phase of test drilling on Deepsea Saga . The flames roared high into the air, and the whole rig shook. The drill bit had penetrated a pocket of gas under high pressure. With the string driven out of the well like crumpled spaghetti and the casing cut, the gas ignited to produce an explosive blaze. Forty of the 63-strong crew were evacuated by helicopter to Ekofisk, Sola airport outside Stavanger or standby vessel King Supplier.
The remainder remained on the rig to fight the fire and clean up. Fortunately, the flames were extinguished fairly quickly and nobody was injured. The fire went out once the gas pocket was exhausted. Representatives from the Norwegian police, the Norwegian Petroleum Directorate (NPD) and Amoco investigated the incident.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , p 68; Norwegian Official Reports (NOU) 1977 no 47, Ukontrollert utblåsing på Bravo 22. april 1977 , p 21.
September 1984 – death on Valhall
A 39-year-old welder died from injuries sustained during maintenance work on Valhall for Bomek A/S. He was installing a cradle on the crown block while standing on scaffolding, and was pushing the cradle into the correct position on the platform deck when the plank he was standing on shifted in the opposite direction.
The victim himself had undone the security clamps and removed one of the boards to access a weld. No defects were discovered in the scaffolding. He fell 11.7 metres onto a deck grating. Both the police and the NPD investigated the incident.[REMOVE]Fotnote:Stavanger Aftenblad , 10 September 1984, “Drept på Valhall”. They found no deficiencies in the equipment or the procedure which raised issues of criminal liability, and neither agency took further action.[REMOVE]Fotnote: Police report, case 7869/84, Stavanger police department’s archive.
The insurance company refused to pay full compensation to the family because it maintained that the worker had behaved negligently.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , p 151.
June 1985 – fire
Nobody was hurt when a fire broke out in the inlet to a gas-driven compressor on Valhall’s process platform. The area was closed off and the flames extinguished within four-five minutes. Production resumed after a couple of hours.[REMOVE]Fotnote:Stavanger Aftenblad , 5 June 1985, “Brann på Valhall”.
January 1987 – methanol poisoning
The weather on Valhall was unusually cold in January 1987, when a combination of moist air and high wind corresponding to 30 degrees of frost had caused sharp cooling of decks, pipes and other gear. An unusual work accident occurred after methanol had been poured on ice covering the deck to help it thaw and aid its removal. This chemical is an effective anti-freeze because of its low freezing point, but is also a colourless and toxic liquid which can cause serious health complications and even death.
As the methanol vaporised, it was carried by the air conditioning system to an enclosed room where a man was working. The chemical paralysed his sense of smell, and he inhaled the vapour without realising this. The first symptoms of methanol poisoning soon appeared, with the worker forgetting what he was saying and hearing over the phone. He felt faint, and a colleague eventually discovered him sitting with his feet on the desk and humming.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , p 150. After a swift transfer to the sick bay, he was dosed with ethanol – neat alcohol. Paradoxically, this acts as an antidote to methanol by slowing its absorption by the body. That in turn prevents the poison being broken down, so that it can be voided in urine and by breathing.
The nurse requisitioned more alcohol in the form of vodka from a standby ship, and spent the subsequent helicopter flight to hospital on land trying to keep the patient awake and drinking.
Tests showed that the methanol was out of his system, but that his alcohol content was so high that he had to remain under observation overnight. Fortunately, things went well and he could be discharged the following day.[REMOVE]Fotnote:Stavanger Aftenblad , 21 January 1987, “Metanolforgiftning på Valhall”.
November 1988 – gas blowout
The alarm sounded in the joint rescue coordination centre at Sola airport when a gas blowout occurred onDyvi Stena , which was engaged in exploration drilling for Amoco. Emergency preparedness was stepped up, but it was fortunately unnecessary to respond. Since the blowout was small, no evacuation of personnel from the rig was required either. Because no riser had been installed between drill floor and seabed, the gas escape failed to reach the surface. However, all drilling halted as soon as the blowout had been registered. Heavy drilling mud was pumped down the well to counterbalance the pressure and stop the gas flow.[REMOVE]Fotnote: NTB, 13 November 1988, “Gassutblåsning i Nordsjøen”. No pollution threat was posed.
A total of 272 incidents involving gas leaks of various sizes from fixed installations on the Norwegian continental shelf (NCS) were recorded in 1988-89. Only 69 were notified to the NPD, which had no explanation for the under-reporting.[REMOVE]Fotnote:Dagens Næringsliv , 30 October 1990, “Kun 69 av 272 gasslekkasjer rapportert”. These figures derive from an analysis conducted by the Petcon Consultancy on behalf of the Norwegian Oil Industry Association (OLF) and the Federation of Offshore Workers Trade Unions (OFS). Information was collected for each incident on its date, type of gas, the equipment or components involved, the kind of activity, the hazard class and the cause.
Drainage of gas from the incorrect place in the reservoir and at the wrong pace appeared to be the most frequent reasons for the discharges. Others included cracking, fractures, corrosion, failure of seals and inadequate liberation of gas. The leaks were ascribed by the oil companies in some reports to human error. That explanation was unclear, and both the OLF and the OFS found this classification to be incomprehensible.[REMOVE]Fotnote: NTB, 29 October 1990, “272 større og mindre gasslekkasjer på sokkelen på to år”.
1994 – radioactive sources
Control of a radioactive source with a radiation intensity of 15 billion becquerels was lost during downhole logging on Valhall. After four days of fishing for the stuck item, they had to give up and plug the well. This incident was not reported to the Norwegian Radiation Protection Authority, despite a licence requirement to do so immediately – and directly – in the event of any accident.
Although Baker Hughes Intec, which was doing the logging, informed operator Amoco, the radiation protection authority only received a notification from the NPD 12 days after the latter had been told. It was not the NPD’s job to pass the information on. In the wake of the incident, a new agreement was drawn up between the two state agencies to clarify the practical details of collaboration between them.[REMOVE]Fotnote:Aftenposten , 23 August 1994, “Radioaktiv avklaring fra Oljedirektoratet”.
This was the eighth accident involving radioactive substances on the NCS in 1993-94. They are used because these instruments are much more effective in identifying small amounts of oil.[REMOVE]Fotnote:Aftenposten , 18 August 1994, “Radioaktivt uhell ble ikke varslet”. The NPD conducted an audit on Valhall in 2000 to check not only BP Amoco but also subcontractors Mærsk, Baker Hughes and Schlumberger. Doubts were expressed by the regulator about BP Amoco’s competence in monitoring subcontractors using radioactive materials. It criticised the operator and Mærsk for failing to play an active part in limiting the use of such substances.
An audit on the Mærsk Guardian rig revealed that radioactive sources were stored close to explosives – a condition which led the NPD to issue a notification of order. The involvement of the management committee and the safety delegate service in the use and handling of radioactive substances was also described as deficient. BP Amoco rejected the accusation of insufficient competence.[REMOVE]Fotnote:Stavanger Aftenblad , 15 January 2000, “Radioaktiv OD-kritikk”.
Control of a radioactive substance was again lost on Valhall in 2012, when the drillstring carrying the source became stuck. Efforts to free the string were unsuccessful. Its lowest section was accordingly unscrewed in order to avoid more of the string getting stuck. The radioactive sources were left behind in the well with other equipment. The Petroleum Safety Authority Norway (PSA) characterised this incident as less serious, but nevertheless found that it represented a case of acute pollution.[REMOVE]Fotnote: Offshore.no, 10 August 2012, “Borestreng satt seg fast”.
July 1997 – discharge of hydrogen sulphide
The smell of rotten eggs spread on Mærsk Guardian after the injection of an algae-based starch caused the formation of highly toxic hydrogen sulphide (H2S) gas. Standard gas detection equipment had been installed on the jack-up rig, which was drilling on Valhall for Amoco, and this functioned as intended. The discharge site was fortunately unoccupied, so nobody was injured by breathing in the gas.[REMOVE]Fotnote: NTB, 11 July 1997, “Gassalarm på Valhall-feltet”.
December 1997 – gas intrusion
A serious gas intrusion occurred while Transocean Nordic was drilling on Valhall, requiring 30 of the 65 oil workers to be evacuated. Downhole pressure increased sharply in the middle of the night as a result of the unexpected inflow, and the threat of a gas blowout is high under such conditions.
An alert was sent at once to the joint rescue coordination centre at Stavanger’s Sola airport, which dispatched a Sea King helicopter to the rig. The NPD and the police were also notified, and Amoco immediately initiated its response plan for oil emergencies. The 35 remaining crew succeeded in stabilising the pressure from the gas intrusion and preventing an uncontrolled blowout by increasing the weight of the drilling mud in the well. Everything was back under control within a couple of hours, and the 30 evacuated workers could be flown back to the rig after a day had passed.[REMOVE]Fotnote:Dagbladet , 14 December 1997, “Tilbake etter gassdrama”.
January 1998 – injury on rig
A 20-year-old man from Jørpeland near Stavanger was injured while working on the Mærsk Guardian rig when production wells were being drilled on Valhall. After he had been crushed against a railing by a heavy length of riser pipe, a helicopter was called in from Ekofisk to take him to Rogaland Central Hospital. Doctors subjected him to an internal examination, while both the police and the NPD conducted their own investigations in line with routines for such incidents.[REMOVE]Fotnote:Stavanger Aftenblad , 15 January 1998, “20-åring alvorlig skadet etter ulykke på Valhall”.
The police inquiry revealed that the crane driver involved in lifting the riser pipe lacked the required certificate. Mærsk Contractors personnel both on land and offshore were aware of this, but failed to intervene. In addition, the crane’s operating levers had been extended in a way which contravened the regulations. The accident was caused when the driver unintentionally brushed against one of the levers. Mærsk Contractors was fined NOK 400 000 as a result of the work accident.[REMOVE]Fotnote:Stavanger Aftenblad , 23 August 2000, “Mærsk bøtlagt etter kranulykke”.
November 1999 – audit
BP Amoco was sharply criticised by the NPD in an audit report because the recently merged company was allegedly unable to document that its working environment and level of safety were unacceptable. This followed an investigation by the regulator into these aspects of a reorganisation process launched partly because of the merger and partly in order to cut costs.
“BP Amoco has failed to analyse the consequences of organisational changes made and planned offshore in the support functions on land ahead of their introduction,” the NPD found. “The company was thereby unable to document that it could maintain an acceptable level of safety on the installation.”
The company was ordered to produce “an overall review and analysis of the consequences of staffing and organisational changes made and planned in connection with the merger and parallel change processes”. At the same time, the NPD demanded that BP Amoco’s employees be involved in the analysis work. For its part, the company maintained that the restructuring processes had been “satisfactorily planned and executed”. The NPD’s investigations were not confined to BP Amoco. Several oil companies merged in this period, and audits were conducted with the Norsk Hydro-Saga Petroleum and Phillips-Conoco unifications.[REMOVE]Fotnote:Dagens Næringsliv , 27 November 1999, “Svært kritisk til BP Amoco”.
August 2000 – rust and blocked nozzles
Lack of maintenance for fire safety equipment halted production on Valhall, with rusting and blocked nozzles among the irregularities identified by a routine inspection. An abrupt shutdown is rare in the oil industry, but the safety of people working in the sector took priority. Nevertheless, none of the personnel on the field were sent ashore. Production remained at a standstill for several days, and BP Amoco had to invest in new fire safety equipment.
Local government minister Sylvia Brustad had this comment: “I feel it’s a source of concern that matters are allowed to reach such a stage that the whole platform must be shut down.
“Prevention must be pursued in this area at all times, so that we can rely on safety being 100 per cent – particularly with regard to employees in the oil sector.”[REMOVE]Fotnote: NTB, 27 August 2000, “BP stoppet oljeproduksjonen på Valhall”.
Union officials on the field were also very critical. Ingard Haugeberg, chair of the ABC house union, commented: “Failures in the fire extinguishing system are among the worst that can happen. It worries me that we don’t know how long the equipment has been non-functional.”[REMOVE]Fotnote:Stavanger Aftenblad , 29 August 2000, “Sterk kritikk av Valhall-sikkerhet”.
The Norwegian Oil and Petrochemical Workers Union (Nopef), which included the ABC, blamed safety conditions in the North Sea on the Norsok process implemented in the mid-1990s.
In the union’s view, a clear relationship existed between this Norwegian government initiative to make savings and a negative trend in offshore safety. It also believed that the oil companies had to up their game.
“It’s a disturbing signal when the NPD halts production on Valhall,” said Haugeberg. “The worst aspect is that this incident forms part of a long series of revelations which show that offshore safety is not as good as it once was.”[REMOVE]Fotnote:Stavanger Aftenbladet , 29 August 2000, “Nopef: Svekket sikkerhet er myndighetenes Ansgar”.
In connection with the discovery of blocked fire water pipes on Valhall, the OFS union raised another aspect of offshore safety – the safety bonuses given if no accidents occurred on a platform. Additional payments to management and rank-and-file on offshore installations which had achieved good safety statistics and cost cuts were increasingly common. According to Stavanger Aftenblad , a number of people on Valhall feared that such bonuses could undermine safety and lead to an overly positive picture of reality – with accidents going unreported to avoiding losing attractive rewards.
The OFS feared that platform managements were applying pressure to keep down costs in order to secure their bonuses, and that spending cuts would mean lower priority for important maintenance. BP had introduced performance contracts for both management and groups of rank-and-file workers with the aim of motivating them to avoid accidents and to pay attention to safety.[REMOVE]Fotnote:Stavanger Aftenblad , 31 August 2000, “Sikkerhetsbonus svekker sikkerheten”.
August 2003 – injury on IP
A 36-year-old scaffolding foreman fell 13.5 metres and suffered severe injuries while working on a skid beam over the drill floor on the Valhall IP injection platform. He was working with a scaffolder to disassemble equipment on scaffolding when the accident happened, and first hit a beam and then the platform deck. Both men were attached with lines and hooks because part of the work area had no grating. The foreman probably disconnected his hook in order to reach a new position.
When the equipment he was holding slipped out of his grasp, he lost his balance, fell backwards and landed on a temporary deck 13.5 metres below. The victim worked for maintenance specialist Rheinhold & Mahla Industrier. Both the PSA and the police investigated the accident.[REMOVE]Fotnote: NTB, 30 August 2003, “Alvorlig skadd etter fall på Valhall-feltet”. Although serious, the foreman’s injuries were not life-threatening. The PSA nevertheless took the view that the accident had the potential to be fatal in only marginally different circumstances.
Its investigation identified management weaknesses, including inadequate planning and communication. General work permits were used for building and demolishing scaffolding, and were rolled over without a specific assessment of risk in each case.[REMOVE]Fotnote: PSA, 7 January 2004, Gransking av fallulykke på Valhall.
December 2003 – well kicks
Control was lost over well A08B on the Valhall drilling platform (DP) on 10 December. The crew managed to re-establish control fairly quickly following this well kick, but a new and more serious incident occurred seven days later. After a period of worsening conditions and pressure build-up in the well, control was regained towards the end of December. The PSA criticised BP for doing a poor job when things went wrong.[REMOVE]Fotnote: PSA, investigation report, summary, Granskning av brønnspark i brønn 2/8-A08B Valhall DP i desember 2003. The incident was characterised as high-risk, and could have caused a blowout. According to the PSA, staffing on Valhall was too small after the kick.
Other shortcomings included unclear communication and division of responsibilities between land and offshore, along with a lack of understanding of the risk.[REMOVE]Fotnote:Stavanger Aftenblad , 23 September 2004, “Nær utblåsning på Valhall”.
January 2004 – gas leak
A gas leak occurred on Valhall after valves had undergone a maintenance check.[REMOVE]Fotnote:Stavanger Aftenblad , 13 January 2004, “Millionbot for dødsulykke”. Gas leaked from a lubrication nipple, and triggered the alarm and deluge systems. Production shut down immediately, and 154 workers crossed the bridge to the quarters platform until the position could be clarified. After just under 30 minutes, the leak had been located and stopped, and work began five hours later to bring the facility back on stream.
BP’s own investigation team was joined by representatives from the PSA and the police, who flew out to Valhall to determine what had occurred.[REMOVE]Fotnote:Stavanger Aftenblad , 13 January 2004, “154 ble evakuert på Valhall-feltet: Produksjonen er i gang igjen”. According to the PSA, the nipple should have been replaced during a maintenance campaign two years earlier but was not defined as sufficiently critical. Moreover, it found that the relevant job had not been adequately planned on the basis of the error scenarios which might have arisen.[REMOVE]Fotnote:Offshore.no , 18 February 2004, “Gransking av gasslekkasje på Valhall”.
April 2004 – injury on rig
A 33-year-old employee of Schlumberger Well Service was badly injured on the West Epsilon rig during drilling on Valhall, when a steel plate weighing 357 kilograms fell 15 metres and struck him on the thigh. He also suffered facial injuries.The accident happened during a lifting operation with a telescopic crane. This struck a hatch cover and caused it to fall from the rig’s cellar deck onto Valhall’s north flank platform, where two people were standing. Investigators from the police, the PSA and BP flew out.[REMOVE]Fotnote:Stavanger Aftenblad , 3 April 2004, “Alvorlig for 33-åringen etter Valhall-ulykke”. Conditions identified by the PSA prompted it to order BP to stop using the crane type responsible for the accident at once.
The safety regulator seldom issues an immediate prohibition of this kind, but it found the position to be so serious that instant action was required. According to the PSA, problems on the platform embraced procedures, documentation and understanding of the risk. The victim was only centimetres from death.
The order required BP to check and update the crane, requirements for expertise were imposed, and checks had to be carried out on similar equipment on other BP platforms. The company had to confirm compliance with these terms before the cranes could be taken back into use.[REMOVE]Fotnote:Stavanger Aftenblad , 20 April 2004, “BP får pålegg etter Valhall-ulykke”. It transpired that parts of the crane’s safety system, including the anti-collision system, were not working. Nor were the window wipers in the crane cabin, so that visibility was poor in the dawn light when the accident happened. Moreover, the hatch cover which fell down had not been secured with additional chains.
BP was sharply criticised by the PSA after the accident. Although several factors contributed to this mishap, they all related to “serious failures in BP’s management system”. Notifications for four other orders were also issued, requiring BP to ensure the necessary crewing and expertise for crane operation both on land and offshore. The company was also told to verify its system for monitoring how contractors carried out their work and complied with the health, safety and environmental (HSE) regulations.
A further requirement was to follow up and continue developing BP’s management system and to ensure that changes to projects were followed up during testing and commissioning. Finally, the company was ordered to check management systems at its suppliers, so that testing and commissioning were carried out, and to make sure the necessary documentation was available before start-up.[REMOVE]Fotnote:Stavanger Aftenblad , 22 June 2004, “Tilsyn med pålegg til BP”.
July 2011 – fire on PCP
Inadequate maintenance was the PSA’s verdict on a fire which broke out in the compressor on Valhall’s process and compression platform (PCP) on 13 July. A shaft fracture on a cooling pump in a crane engine room was the immediate cause. The engine lost coolant circulation, causing a minor blaze to break out. Red-hot particles from the exhaust vent were blown across to ignite flammable gases emerging from a vent stack for the compression modules.[REMOVE]Fotnote: PSA, Investigation report: fire on Valhall PCP on 13 July 2011 , 4 January 2012.
A glowing cinder about the size of thumbnail floating onto the bridge between the PCP and the WP was the first indication of the fire to be noticed. The person who saw it reported the incident to the senior mechanic, who in turn saw flames two metres high in the vent stack. White smoke was also blowing from the crane’s exhaust vent while it was in use. This was immediately reported to the central control room (CCR). Instead of initiating a general fire alarm, however, the latter asked the area technician to check the position. Only when the blaze was confirmed to be genuine was a general alarm sounded. No alarms were triggered by smoke or heat from the fire.
The crane driver had received no signals that anything was amiss when the CCR initiated an equipment shutdown, and accordingly went to check why the engines had stopped. Through the blue-black smoke filling the engine room, he saw a small flame from the diesel injector for one engine. He succeeded in extinguishing this with the aid of a glove. But the heat, possibly combined with an increase in exhaust fumes as a result of entrained water vapour, caused red-hot particles to be blown out from the engine’s combined spark arrestor and silencer. The latter devices had more or less rusted away. It subsequently transpired that the spark arrestor was not classified as safety-critical equipment and accordingly had no maintenance programme.[REMOVE]Fotnote: PSA, Investigation report: fire on Valhall PCP on 13 July 2011 , 4 January 2012.
According to the PSA, ensuring that this device functioned was crucial and its failure increased the probability of igniting leaks from the gas coolers – an incident with major accident potential. The wind had blown red-hot particles from the exhaust vent over to the vent stack for flammable gases from the compressors, causing the gases to ignite. This could have had major consequences. If the crane engines had not been shut down, the blaze in the engine room could have developed into a diesel fire.
That would have caused piping for the diesel injectors to rupture and spray diesel oil on the exhaust manifold, leading to a much bigger conflagration and making it hard to evacuate the crane. The only escape route was a ladder next to the engine room door. It proved difficult to put out the fire in the vent stack. No automatic extinguishing systems covered the area, and it was considered too risky to send in personnel with hoses. No assessment of how to fight a fire there had been made, so it was decided to deploy a standby ship with FiFi water monitors to spray water on the flames.
The fire was extinguished in just over 90 minutes, but no standby ship with FiFi monitors was included in the emergency response plan for Valhall. Although nobody suffered physical injury, the PSA considered that the fire could have led under slightly different circumstances to a serious condition on the platform.[REMOVE]Fotnote: PSA, Investigation report: fire on Valhall PCP on 13 July 2011 , 4 January 2012. Production from Valhall was suspended for nine and a half weeks as a result of the incident.[REMOVE]Fotnote:Stavanger Aftenblad , 13 July 2011, “Brann på Valhall”.
BP lost control on 22 July of a well being drilled to store cuttings and other waste on Valhall when gas suddenly intruded into the borehole. This kick was remedied by pumping “kill mud” into the well so that the gas could be circulated out. Another serious incident had arisen only days before in the same well, when a leak occurred through the cemented casing in the well. A pressure test showed that this involved one-two barrels per hour. Both incidents were classified at the most serious level, described as a “serious weakening or failure of safety functions or other barriers, so that the facility’s integrity is at risk”.[REMOVE]Fotnote:Dagens Næringsliv , 29 August 2011, “Mistet kontroll over Nordsjø-brønn”.
November 2013 – serious nonconformities
Valhall licensee Hess Norge AS was ordered by the PSA to conduct a full review of its management and documentation systems after an audit had found what were described as serious nonconformities. Issues related to organisation, management, documentation and handling of risk were key components in the audit. This revealed that Hess had serious deficiencies in its management of the business and failed to satisfy regulatory requirements. Hess was the first licensee without operator responsibilities to be audited by the PSA after it had developed a method for supervising such companies.
Hess has an interest of about 64 per cent in Valhall, with operator BP holding the remaining 36 per cent. The US company has been a player in Norway’s oil and gas sector since activity started in 1965, but with varying levels of involvement and organisation. It moved its head office back to Stavanger in 2007 after a period in Oslo, primarily to get closer to its partners and the broader petroleum community. The PSA’s audit identified three nonconformities related to the company’s management system, its handling of risk and its documentation system.
Hess was found to lack such fundamental capabilities as a functioning management system to meet HSE requirements, and was unfamiliar with the basis for its own risk management system. In addition, the absence of a documentation system meant that it was unable to trace old documents and thereby establish what it had done earlier.[REMOVE]Fotnote:Teknisk Ukeblad , 13 January 2014, “Petroleumstilsynet fant ‘alvorlige’ HMS-avvik på Valhall”.
The PSA also identified an improvement potential in relation to the dual role which licensees are meant to play in a production licence.[REMOVE]Fotnote: PSA audit report, 14 November 2013, Tilsyn med Hess som rettighetshaver i Valhall utvinningstillatelsen. Pursuant to the framework HSE regulations, the PSA ordered Hess to conduct a full review of the regulatory requirements concerning the management of activities and to implement measures to fulfil these requirements in its own activities. The company was given until May 2014 to comply with this order, and the PSA was to be notified when the work had been carried out.[REMOVE]Fotnote: PSA, 20 December 2013, Pålegg gis etter tilsyn med Hess som rettighetshaver.
2014 – quarters platform shut down
The PSA decided in December 2014 that the quarters platform (QP) on Valhall had to shut down during the winter following a study which found that it could collapse if struck by high waves. This assessment by Sintef and Marintek indicated that the risk of a wave which could threaten the QP’s structural integrity was higher in November-March than Norway’s offshore regulations permitted.[REMOVE]Fotnote:Offshore.no , 12 December 2014, “BP-plattform kan måtte stenge”.
The oldest platforms on Valhall, standing at the southernmost end of the NCS, had been installed 34 years earlier. Seabed subsidence meant that their topsides were closer than before to the waves, and that the required air gap no longer existed. A high level of activity on Valhall meant that BP needed accommodation capacity, but fewer people could work there if the number of berths was reduced.
The cost of closing the QP and acquiring a flotel to provide alternative berths meant that it and its partner, Hess, had to lower their ambitions for the field.[REMOVE]Fotnote:Offshore.no , 19 December 2014, “Får ikke forlenget levetid”.
arbeidsliv, Alarmen går… et utdrag hendelser på Valhall
arbeidsliv, Alarmen går… et utdrag hendelser på Valhall
arbeidsliv, Alarmen går… et utdrag hendelser på Valhall
Published 12. July 2019 • Updated 29. October 2020
At the time of this writing in 2014, Valhall has only two licensees – BP Norge AS, as operator with 35.95 percent interest, and Hess Norge AS with the remaining 64.05 per cent. This structure is very different from when the license was originally awarded in 1965, with Amoco Norway Oil Company serving as the operator and holding 28.33 percent interest.
The first partners were Amerada Petroleum Company of Norway and Texas Eastern Norway Inc., also with 28.33 percent, plus the Norwegian Oil Consortium A/S & Co (Noco) with 15 percent interest. Enterprise Oil Norway A/S took over Texas Eastern’s interest in 1989, while Elf Petroleum Norge AS bought Noco out of the field in 1992. Amoco and BP merged in 1998, giving the new BP Norge AS a 28 percent stake in the license. After various mergers and sales of holdings, Hess ended up with almost two-thirds of the field.
Although the operator is responsible for the day-to-day operations management, Norway’s Petroleum Safety Authority (PSA) Framework regulations require the non-operating partners to contribute actively and to check compliance with the regulations. These rules impose clear duties to support and challenge the operator, to be a competent collaborator and to “see to it” that petroleum operations are conducted in an acceptable manner.
In 2012 the PSA launched a campaign to ensure that non-operating partners were fulfilling their “see to it” obligations defined by these framework regulations. This campaign involved conducting an audit that focused on organization, management, documentation and risk management.
Hess Norge was chosen as the first non-operating licensee to be covered by the new audit process. As a result of the audit, Hess Norge received orders from the PSA in January 2014.
In Norwegian regulatory practice, an order is an individual decision based on the regulations. Before the PSA issues an order, it sends a notice to the company concerned. Notice of an order is neither an instrument nor a warning of sanctions, but part of the PSA’s administrative routines. The notice asks the recipient to assess the finding on factual basis. The notice is merely a first step before an order is issued. The order has a strongly preventive character and is legally binding on whoever receives one.[REMOVE]Fotnote: PSA 4 December 2013, Notice of order to Hess – Valhall.
The 2012 Hess Norge audit was the first time PSA conducted an audit on a non-operator directly and the PSA plan was to carry out similar audits on other non-operators. According to the PSA, no special factors prompted it to take a closer look at the non-operating licensees. Under the regulations, the licensees must make provision for the operator to perform its role. They have a duty both to “see to it” and to take action. Their “see to it” duty (påseplikt) is a Norwegian legal term for the requirement that the license partners must follow up the operator in a systematic manner. How this responsibility is exercised must be specified in their management system. Accordingly the licensees must be able to document that they possess sufficient resources and expertise to be able to decide how the operator is doing its job.
The duty to take action includes ensuring that conditions comply with the regulations, and imposes an independent obligation on the non-operating licensee to obtain adequate information. That means the non-operator, depending on the factors involved in specific cases, may have a duty to conduct audits of the operator.[REMOVE]Fotnote: PSA, 14 February 2012, Responsibilities of operators and licensees.
The findings of the audit identified that Hess had to improve their documentation system needed to track decisions and basic documents and needed to demonstrate a management system in accordance with the regulations system.[REMOVE]Fotnote: PSA, 14 February 2013, Audit of Hess as a licensee in the Valhall production licence. However, Hess was in a process of developing a new management system which would satisfy both the Norwegian regulations and the requirements of Hess Corporate, its parent company.
The second non-conformity identified dealt with its risk management system. While Hess had conducted annual risk workshops they were unable to rigorously document results and action plans from these activities as well as recording that the results had been applied to the license.
A third non-conformity was about the robustness of its documentation system. Contributing factors was that former employees had handled documentation personally and that some activities had been conducted by the company’s former London office. Documentation was difficult to trace and the system needed improvement.
To address the audit findings Hess Norge established a comprehensive process-based Management System that addressed the regulatory requirements, implemented a Risk Management Practice and a Document Management System. Training was provided across the organization on these Systems and this training as well as internal audits and compliance checks continue to take place regularly. The order was closed and the PSA confirmed that the company has got its systems to function.[REMOVE]Fotnote: Teknisk Ukeblad, 13 May 2014, “Nå skal Petroleumstilsynet på tilsynsoffensiv mot rettighetshaverne”.
Published 12. July 2019 • Updated 25. February 2021
Finn Harald Sandberg, Norwegian Petroleum Museum
Valhall is a large oilfield at the southernmost end of the Norwegian continental shelf (NCS), close to the boundary with the Danish sector. It lies in about 70 metres of water.
— View of the platforms on the Valhall field. The quarters platform QP is located at the far end, followed by the drilling platform DP, the process and compression platform PCP, the wellhead platform WP and the injection platform IP. Photo: BP Norge AS/Norwegian Petroleum Museum
Installations on the field have also produced oil and gas from Hod, about 13 kilometres further south. This small development was permanently shut down in 2013. Discovered in 1975, Valhall was the fourth commercial find made on the NCS. Amoco Norway Oil Company was the operator and responsible for drilling. Development of the field was approved in 1977, and production began in October 1982. Hod was discovered in 1974, but was so small that it remained non-commercial for many years. Development plans for this field were finally approved in 1988 and it came on stream in 1990.
Valhall produces from chalk formations deposited in the Late Cretaceous and known as Tor and Hod. The reservoir lies at a depth of 2 400-2 700 metres. The rock in the Tor formation is fine-grained and soft, with relatively large fractures which allow the oil and water to flow through more easily than in the Hod structure.
People who know Valhall well describe it as a very special field. The more it produces, the larger the remaining reserves appear to be. When the plan for development and operation (PDO) was originally submitted to the government in 1977, Valhall was estimated to contain 247 million barrels of recoverable oil. By 2014, it had yielded almost a billion barrels of oil equivalent and the vision is to recover a further 500 000. Both technological advances and enhanced efficiency will be needed to release the field’s full potential.
Little Hod was discovered in 1974 and began production on 30 September 1990. It was remotely operated from the main Valhall field.The field was originally developed in 1982 with a quarters platform (Valhall QP), a drilling platform (Valhall DP) and the process and compression platform (Valhall PCP).
A wellhead platform (Valhall WP) was installed in 1996 to provide an additional 19 well slots. Approval for a new PDO was obtained in 2000, and the injection platform (Valhall IP) was installed in the summer of 2003 to carry water injection equipment.
In connection with this approval, the licence expiry date was extended from 2011 to 2028. And yet another PDO secured a green light in 2001. A flank development embracing two wellhead platforms (flank south and flank north) was brought on stream in 2003 from the first of these units. The northern flank followed in 2004.
Yet another application to extend the licence was submitted to the government in 2006. The operator – by now BP – envisaged that the field would stay on stream for many years to come.
A new PDO entitled “extended producing life for Valhall” accompanied this request. The extension sought would mean keeping the licence until 2049.
The seabed over the Valhall field had subsided so much that the QP no longer met the applicable safety standards. A new process and hotel (PH) platform was planned to replace both the QP and the existing PCP. BP had also developed plans to meet the energy requirements of the field by transmitting electricity from shore, with the new PH facility as the reception point.
This platform was installed in 2012, making Valhall the first field on the NCS to be converted from locally generated diesel-generated electricity to power from shore.
Published 14. September 2018 • Updated 10. August 2020
Flexibility and change had become a trend in the global oil industry by the mid-1980s. This article considers how a Norwegian-American enterprise acted in a world where continuous improvement was the mantra. It analyses policies and assessments by Amoco Norway’s management and the latter’s efforts to be part of this new paradigm, but does not deal with criticism of the new organisational approaches from unions or others.
— Full-riggers from past and present meet on the Valhall field. Photo: BP/Norwegian Petroleum Museum
Norway had become a fully fledged oil nation by the early 1980s, when its offshore production was fetching good prices in international markets. The future also looked bright for the multinational oil companies which had established a presence on the Norwegian continental shelf (NCS). But Valhall operator Amoco Norway was among the companies hit when oil prices halved in 1985-86. Declining production also contributed to a fall in earnings. Something clearly had to be done, and a turnaround was launched in late 1987.
Amoco needed a new top man in Stavanger, and Canadian Robert (Bob) Douglas Erickson arrived in late 1987 as managing director with new visions and objectives. Change and reorganisation were key elements in his thinking, which envisaged creating a flexible new organisation with adaptable and innovative employees. Erickson’s goal appears to have been a “fluid” organisation, a flexible entity with flourishing informal internal communication utilising ad hoc structures such as work groups. At the same time, employees would get things done by adapting readily. The task was to create an innovative company which was particularly good at continuously adjusting to every change in the outside world.
So what processes did this Canadian rescuer initiate, and what were their goals? And what theories and organisational philosophies inspired the changes experienced by the company? The ideas and visions pursued by Amoco Norway’s management found expression in the Amoco Info house journal, which was published several times a year and distributed to all employees.
Erickson had his own regular column in this publication “From the President”, which he used to communicate conditions in and changes to the organisations. In addition to other articles, interviews with members of the management at the time and manuals for some of the programmes launched have been used as sources.
When Amoco arrived
A Norwegian subsidiary was established by US oil company Amoco Production Company in 1965 in order to participate actively in drilling operations in the country’s sector of the North Sea. This Amoco Norway Oil Company arm was involved in the offshore hunt from the first licensing round, which was announced on 13 April of the same year.
Amoco applied for 40 blocks in this round together American partners Texas Eastern and Amerada as well as the newly established Norwegian Oil Consortium (Noco). They secured 10 blocks in three licences, including two of the most sought-after holdings on the southernmost NCS. Amoco became operator of these licences, one of which contained Valhall. When this field was established as commercial in 1975 with the eighth well, the job of building up a Norwegian organisation began in earnest.
Its initial assignment was to plan and build the necessary platforms. An establishment for operating the offshore facilities followed, with a corresponding “shadow” team on land. This outfit had a hierarchical configuration based on large, ineffective departments with a number of middle managers and foremen.[REMOVE]Fotnote: Interview Nomi-00007-03, Norwegian Petroleum Museum.
The company moved to new premises in central Stavanger, engineering design of the platforms began and fabrication contracts were awarded. Valhall production was formally inaugurated on 26 May 1983. Everything looked promising, but the field soon proved to be one of the most challenging on the NCS.
That reflected the chalk reservoir, which differed from most producing formations off Norway. Wells collapsed and the soft rock followed the wellstream to the topside. Large quantities of sludge looking like discoloured toothpaste had to be dug from the drill floor. This southernmost Norwegian field was dubbed the “problem child” by the media in 1985, when only one of its five wells was still producing and overall daily output lay below 40 000 barrels.
That was less than half the planned volume. Since the expected progress had stalled, no personnel were being recruited with an eye to sustaining future operations.
Departments were downsized, and the exploration team almost disappeared – it was reduced to just three people. In addition came the dramatic oil price slump of the mid-1980s.
No resources were available for active exploration, and Amoco refused to apply in the next licensing rounds. The vision of becoming one of the major operators on the NCS vanished, and all energy and attention focused on getting Valhall back into profit.
The organisation showed signs of fatigue, and employees were frustrated.[REMOVE]Fotnote: Interview Nomi-00007-03, Norwegian Petroleum Museum. Staff turnover reached no less than 31.3 per cent during this period – a dramatic proportion.[REMOVE]Fotnote:Amoco Info , 1991, no 1.
Unemployment was low in Norway at the time, and many personnel opted to try their luck elsewhere rather than sticking to a company with no prospects. Amoco lost much expertise to rivals.
The many disappointments and poor earnings – Norway contributed only about five per cent of Amoco’s overall production – also led to a downgrading of the Stavanger subsidiary.
Offered a generous retirement package, the managing director was not replaced. This signalled that the Norwegian arm had lost status and was now under more direct management from the USA.
Uncertainty prevailed in the company about what the senior executives in Chicago and Houston intended to do with it. But Erickson’s arrival suddenly reversed the outlook.
The new chief executive launched a turnaround which was to extend over several years, with one process following on the heels of another. His goal was to build a new corporate culture and thereby turn Amoco Norway into an outstanding company which led the way. Culture, values and visions were thought to be vital in achieving this, and Erickson was among the many who believed that companies possessed attitudes which were capable of amendment. The idea appears to have been that companies needed symbols, ideologies, languages, beliefs, rituals and myths. Clear shared values underpinned the idea that the interests of company and employees were indistinguishable.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In search of excellence: lessons from America’s best-run companies , New York, Harper & Row, 77.
Most companies have heroic legends which express the fundamentals of their culture, and that also applied to Amoco Production Company. Its history – or myth – had begun a century earlier on a piece of waste ground in Indiana, where the Standard Oil Trust of Indiana (later Amoco Production Corporation) was founded in 1889. This modest refinery developed into a big international energy company with worldwide operations and a level of success on a par with the biggest of the oil majors. According to the legend, Amoco’s progress was a result of the people who composed it – the able employees who liked a challenge and were inspired to work towards the company’s goals. Their motivation, combined with good management, had ensured success. Amoco Norway was part of the “family”, and therefore also inculcated with this traditional ability and pride in one’s work.
Although Amoco’s real history differed a bit – it was founded by John D Rockefeller as part of his Standard Oil Trust – the myth helped to give employees self-esteem and a sense of belonging. Erickson’s cultural realignment began with the formulation of a vision for Amoco Norway’s future, where he spelt out what the company should look like in 10 years time.
He envisaged returning to Stavanger as a representative of the top management to learn from the Norwegian experience and the company’s success. His hope was that everyone in the city would know the Amoco name and that it would adorn the front pages of the nation’s newspapers in headlines such as “giant discovery for Amoco” or “successful Amoco development”.
This vision was conveyed to the workforce both offshore and on land. Erickson seems to have wanted to get everyone to feel and believe that the company would grow and that they were part of this progress – and perhaps its most important element. It was emphasised that attention could not be concentrated only on the bottom line in the accounts, but should also extend to the employees.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 229.
Amoco Norway would also be moving to new premises – a landmark building, modern, forward-looking and conveying a warm impression. It would also be tailored for the multidisciplinary teamwork which Erickson regarded as the new way of working. The carefully configured layout included an open reception area and a centrally located office for Erickson, where he would be available – and not hidden on the top floor with the best view. These concepts were greeted with enthusiasm both on land and offshore. Erickson and his Norwegian team also received plaudits when they presented them to top management in the USA.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 229.
This vision summed up a number of the elements which were to occupy a central place in the change processes launched over the next few years.
Although much was talked about the employees, the company still had to make money. All personnel were polled in 1988 to identify areas where action could be taken to make Amoco’s whole international organisation better and more efficient.
Erickson’s comment on this organisational effectiveness survey was: “I know you’ll see the positive aspects of this process, and take this unique chance to make your own contribution”.[REMOVE]Fotnote:Amoco Info , no 1, 1988, From the President.
The response rate was high both globally and in Norway, exceeding management expectations. Focus groups were established to identify problems in the Norwegian organisation on the basis of the responses, find their causes and come up with solutions.[REMOVE]Fotnote:Amoco Info , no 3, 1988.
At the same time, the management constantly highlighted the difficult conditions facing the industry when oil prices were persistently low.
Erickson wrote: “I’d therefore urge everyone to work efficiently and cost-consciously, and to try to find new ways of improving our general productivity both on land and offshore, so that the effect of the tough financial conditions can be minimised”.[REMOVE]Fotnote:Amoco Info , no 3, 1988, From the President.
A key finding of the survey globally was the need to reform the management culture. The answer for the parent company and for Erickson was a new approach, where managers naturally and regularly created a working environment which inspired employees to be creative.
Searching for excellence
The processes initiated, and not least the language used, clearly indicate that Erickson and Amoco Production Company had been inspired by organisational pundits writing in the early 1980s. Known as “new leadership”, their theories were characterised by a focus on the internal culture of organisations and its significance for efficiency and flexibility.
Leadership was defined as culture-building – in other words, an effective manager was one who succeeded in creating a constructive corporate culture. But this set of attitudes could not be shaped by senior management alone. It emerged through interaction between the members of the organisation. Perhaps the best-known work on “new leadership” is In search of excellence , by Thomas J Peters and Robert H Waterman Jr, which appeared in 1982. This book seeks to identify the characteristics of leadership in the world’s most successful companies – as defined by the authors.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In search of excellence: lessons from America’s best-run companies , New York, Harper & Row.
Both Amoco and Erickson appear to have been influenced by this innovative theory on corporate culture, and perhaps particularly by the Peters and Waterman study. Success stories highlighted in their book were held to share eight features – including closeness to customers, active decision-making, autonomy and entrepreneurship, and a simple structure with lean staffs. The others were pursuing productivity through people, being hands-on and value-driven, sticking to the business they knew, and being able to swap between loose and tight management. In the authors’ view, the rational and analytical approach belonged to an old paradigm which underplayed values such as shared culture, internal competition and pressure from colleagues. But these were precisely the qualities regarded as the most important motivational forces by the proponents of “new leadership”.
If Peters and Waterman were to be believed, becoming an excellent company – the best of the best – required several elements to coincide.
The main goal was to build up a strong culture and a set of base values rooted in a vision. That had to start with management. The organisation had to be simple, with a small top team.
This structure had to be reorganised regularly to maintain flexibility and speed, and to counteract the normal tendency towards conformity and inertia.
Employees had to be encouraged to innovate and experiment, and the best way to achieve this was to strive for organisational fluidity.
This was characterised by informal communication between ad hoc work teams with relatively few members, which existed for limited period – preferably only a few months.
Personnel should be viewed as a source of ideas, and not just pairs of hands. Management needed to be both practical and value-driven, and it was important to bear in mind that the company’s fundamental philosophy at any given time meant more for its results than technological or financial resources.
To become successful, a company also had to “stick to the knitting” – carry on with what it knew best in terms of its core business.
Peters and Waterman also emphasised both hard and soft values, arguing that management should display simultaneous loose and tight properties.
The overall idea of adopting a strong culture and clear common base values was to create a family feeling among employees, with the company giving them a sense of belonging.
According to the two authors, so strong was the need for meaning that “most people [would] yield a fair degree of latitude or freedom to institutions which gave it to them”.
The final and crucial theme identified by Peters and Waterman was the relationship with the customer, which they believed could not be over-exaggerated. Companies must listen to both internal and external clients, seek their advice and learn from them.
As noted above, this culture-based theory seems to have been the foundation on which Erickson intended to build the new Amoco Norway.
Healthy organisation with healthy bodies
The new chief executive was concerned to build an organisation which collaborated. Arriving in Norway, he was surprised at the compartmentalised or “silo” thinking which dominated the company.
He found that departments such as procurement, drilling, maintenance and operation failed to communicate with each other, and pursued to some extent different goals.[REMOVE]Fotnote: Interview Nomi-00007-03, Norwegian Petroleum Museum. The result was an inefficient organisation and systemic delays.
Stavanger hero Kjell Schou-Andreassen – a former football player and one of Norway’s most successful coaches in this sport – was recruited to launch the cultural shift.
After his sporting career was over, he had built up his own company specialising in personal development and offered experience of building teams.
The idea was that he could contribute strategies and know-how to creating Amoco’s new culture. This aimed “to improve an already fine organisation by ensuring that each and every one of us works together as a single team towards a common goal”.[REMOVE]Fotnote:Amoco Info , no 1, 1988, From the President.
Attention focused on developing a management responsibility at every level through systematic training. A good team was one governed by a set of rules, and breaching these would carry penalties. Nothing was said about what these might be.
In addition to getting all players to obey the rules and perform together, the emphasis was on shifting rapidly between defence and attack.
The football rhetoric was unmistakable. A balance also had to be struck between the challenges taken on by the teams and the skills available, and they had to pull in the same direction.
In addition, a health programme was incorporated in the new strategy. Dag Kaas, a well-known sports and management coach, joined the implementation group.
A healthy body – created by good diet and exercise – was to help build a sense of solidarity in the company. Personnel were encouraged to compete jointly in sporting events, for example.
Several elements from the innovative culture theories were merged in the new management development programme. Employees would learn to work in teams with shared values and common goals. This also helped to build a common identity.
The workforce was eventually offered exercise equipment and other products in Amoco’s colours and logo, which they could use in their free time. A case in point was Stavanger’s annual Ingrid run, which had aroused great enthusiasm among employees.
But this “uniform-wearing” was not necessarily adopted only to create a sense of identity, according to senior researcher Ulla Forseth at the Norwegian University of Science and Technology (NTNU).[REMOVE]Fotnote: Forseth, Ulla, “Som logo”, Arbeid for livet , Oslo, 2002.
She argues that, by turning personnel into living mannequins, a company achieves a personification of its logo. Employees identify with the services it offers and thereby become willing to devote “a little extra”.
American sociologist Richard Sennett, a specialist on working life, writes in The Corrosion of Characterabout the steady spread of sporting rhetoric in companies – with departments becoming teams and bosses becoming facilitators or team leaders.
Companies can then alter, adapt and reorganise without managers having to justify their actions. Everything is down to change – and “change” is not a person who can accept blame.[REMOVE]Fotnote: Sennett, Richard (1998): The Corrosion of Character, the Personal Consequences of Work in the New Capitalism , Norton, 115.
To create the organisation and corporate culture Erickson wanted, the whole senior management had to acquire a greater professional and commercial stamp. Valhall had to be operated as a team effort, and Amoco Norway must participate in future licensing rounds.
According to Erickson, the company’s most important objective in 1989 was:
to participate in exploration for and exploitation of petroleum deposits on the NCS. The goal is that this will be accomplished in an able and cost-conscious way in order to ensure maximum financial results for Amoco and Norwegian society. The activities involved will be pursued in a responsible and professional manner with regard to health, safety and the environment.[REMOVE]Fotnote:Amoco Info , extra edition, February-March 1989.
In line with the theories expounded by Peters and Waterman, Erickson also maintained that an organisational change had to start with the management.
“I chose to devote a lot of time and energy to building up the management, and made it clear that it would take a full commitment by everyone to achieve success,” he commented in an interview after his departure from Amoco.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 228.
Managers would show the way. All the jargon was deployed: they would lead, motivate, create trust, stand for openness and acknowledge their subordinates.
Many sessions were organised for top executives as well as the expanded management group. Team-building emphasised learning how to talk together in an open manner and to collaborate. The idea was that everyone formed part of a wider team, which also included suppliers, contractors and customers.
Work on building the new culture was eventually moved out into the teams. By the time things got that far, however, the programme was no longer functioning fully in line with the intentions.
Another aspect of Erickson’s management philosophy also appears to have been taken directly from the theories propounded by Peters and Waterman.
The aim was to work together with the employees, set an example, listen, be flexible, take decisions and have a bit of fun. So simple – and so difficult.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 230.
To achieve this, Erickson practised “management by wandering around”.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 230.
A manager should not call subordinates into his or her office, but instead visit them in theirs.
He appears to have believed in the benefits of giving personal recognition. Employees had to feel they could safely go to management with ideas or critical comments.
While this might be regarded as generosity, pleasure might not be the only result of recognising personnel. Peters and Waterman suggested it could also concern control, using instincts, and gauging the mood to detect if things were going well or badly.
A manager had to make themselves available, but their most important job was to listen.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In search of excellence: lessons from America’s best-run companies , New York, Harper & Row, 51. Peters calls this leadership style “management by wandering around”. He did not believe in management by edict, but more in informal control through casual personal communication.
Erickson had hung a graph outside his office door to show how much time he had devoted to walking around. It indicated how many employees he had visited and how long he had spent on this.[REMOVE]Fotnote: Rasen, Bjørn (2007): LF6A. Valhall at 25 … and it’s only the beginning , 230.
He also incorporated the concept of visible management and interpersonal communication in the drawings for the new offices which stood ready in Stavanger harbour in 1994.
The building was to be light and open, with many opportunities for meeting across technical disciplines. This reflected the philosophy that people who talked together solved problems and fixed things rather than adopting positions, quarrelling and delaying processes.
As mentioned above, a key concept was that Erickson’s office would not be located out of sight on the top floor with the best view, but in the centre of the building and accessible.
Another aspect of the Canadian’s management style was to have fun, an approach also endorsed by Peters and Waterman.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In Search of Excellence, 240. Amoco Norway became famed for its get-togethers and celebrations.
No expense was spared for the Christmas party. And to help build an Amoco identity, a different department each year was charged with providing the entertainment – helping to build solidarity and encourage creativity.
Amoco performance management
Erickson’s ideas and intentions on building a new company culture naturally also resulted in practical changes. An important step was a new assessment system for personnel – Amoco performance management (APM).
Everyone participating in this new process had to take a two-day course in order to understand what was involved and to establish a unified attitude towards it throughout the company.[REMOVE]Fotnote:Amoco Info , no 4, 1989, From the President.
Initiated by Amoco Production Company and applied to all its subsidiaries worldwide, APM was primarily a tool for helping managers to set annual targets with their subordinates and to discuss how these could best be met.
Follow-up reviews would assess the goals and how they were being met, and make possible adjustments. Progress, developments and effectiveness would be evaluated close to year-end.[REMOVE]Fotnote:Amoco Info , no 1, 1990.
Another process called “employee involvement” was interwoven with APM and also applied worldwide.[REMOVE]Fotnote:Amoco Info, no 5, 1989. Put briefly, this meant management and rank-and-file jointly accepting responsibility for meeting the company’s goals.
The aim was to contribute to creating an environment where personnel were motivated to be active in promoting ideas and recommendations which helped Amoco meet its objectives.
An attitude rooted in openness, mutual support and collective commitment was to be created. Managers were expected to encourage
subordinates to come up with proposals and ideas, giving management the broadest possible basis for taking decisions.
The concept was to be incorporated as part of Amoco’s culture – wholly in line with the ideas of Peters and Waterman. Employees would be encouraged to take the initiative and to be innovative.
Management by wandering around also supported employee involvement because managers were accessible and personnel felt sufficiently secure to offer ideas and criticism.
It was emphasised that individuals should not have to work more, but do their job in a way which made greater and more efficient use of available resources.
In addition to Peters and Waterman, APM appears to have been influenced by another strand in organisation theory originating during the 1980s – the performance management system (PMS). This covered activities intended to ensure that goals were consistently attained in an efficient manner.
It was developed by Aubrey Daniels to describe a technology for handling both behaviour and results, but eventually became a collective term for organisational solutions where instrumental rewards were introduced as essential mechanisms for success.
The main point was the employees should be rewarded in line with their commitment – those who contributed most to the company’s progress should receive more than those who added less.
Performance-related pay was, indeed, the next step in reforming Amoco’s corporate culture. This meant that an individual’s pay award would reflect their commitment over the preceding year.
The annual APM evaluation, which looked at how the employee had done their job and whether they had exceeded expectations, was also used to determine their remuneration.
In other words, this involved what would now be called incentive pay to encourage greater dedication and efficiency.[REMOVE]Fotnote:Amoco Info, no 5, 1989. Delivering weak results accordingly carried a penalty.
This system is common in a number of sectors today, and a constant topic of debate. It was headline news in Norwegian media when Statoil adopted a marking system for employees in 2011.
Marks were given not only for professional competence and development, but also for behaviour. Pay rises are then allocated in relation to the number of points scored.
One criticism of the system is that having a “face which fits” can be crucial for both promotion and pay determination. But Amoco was not alone in adopting incentive pay in the 1980s and 1990s.
A number of examples can be cited of companies – particularly in the consultancy sector – which were already linking pay and promotion to performance assessments in the early 1980s.[REMOVE]Fotnote:Teknisk Ukeblad, issue 25, January 2011, “Flere gir ansatte karakterer”.
In addition to incentive pay, a system for “recognition and reward” was introduced in Amoco as a way to show appreciation for a commitment far beyond the expected level.
Extraordinary performance in projects with tight deadlines was also recognised, as was creativity which resulted in substantial savings and/or financial productivity.[REMOVE]Fotnote:Amoco Info , no 3, 1990.
Rewards under this system were divided into three levels: public acknowledgement from a superior, non-financial symbols and cash payments.
A direct connection can again be seen here with Peters and Waterman, who considered small rewards to be more effective than large ones. Big bonuses often became political, and could discourage those who failed to get them.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In search of excellence: lessons from America’s best-run companies, New York, Harper & Row, 71.
The two authors divided what they termed reinforcement into several levels – appreciation from senior management, ceremonies during coffee breaks, and winners who received a gift and had their names publicised.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In search of excellence: lessons from America’s best-run companies, New York, Harper & Row, 176.
Assessment by Norwegian management
Sickness absence in Amoco Norway fell from a peak of 3.73 per cent in 1987 to a record low of 0.78 per cent by 1990. And staff turnover was just 2.1 per cent in the latter year, compared with a maximum of 31.3 per cent in 1985.
These developments were interpreted by the management as clear indicators that the company had succeeded in its process of cultural change.
Some of the improvement can undoubtedly be attributed to changes in the overall labour market, which resulted in higher unemployment.
Nor is it possible to exclude the Hawthorne effect, which specifies that every change to a variable results in increased production.
That reflects the extra attention devoted to the employees during the process, which has a motivating effect in itself and explains the positive impact.
A key element in the “new leadership” theories was precisely that people who are given attention increase their productivity.[REMOVE]Fotnote: Peters, Thomas J, and Waterman, Robert H, Jr (1982): In search of excellence: lessons from America’s best-run companies, New York, Harper & Row, 94. Continuous change would accordingly promote continuous improvement – a concept Erickson soon introduced in Amoco, as we shall see.
But several factors contributed to the company’s progress, and it found 1990 to be a very good year in many ways – not least because the first Gulf War boosted oil prices.
Amoco had also brought the Valhall wells under control, production from the field was good and the company brought Hod on stream as its second NCS development.
In fact, the Norwegian subsidiary was doing so well that it acquired the status of a separate business unit, reporting directly to top management in Chicago.
Until then, important proposals, contracts, staff changes and so forth had to be approved at several intermediate levels before reaching the corporate summit.
The new status was intended to provide Amoco Norway with more control over its own commercial operations, and thereby give it greater responsibility for the results.
This upgrading was seen as evidence of confidence in the organisation and a conviction that Amoco in Norway had a long-term future. It was regarded as a pioneer for continuous improvement.
With the change in status and the greater self-government it allowed, Erickson’s ideas continued to be extended. Freedom of action applied not only to the company but also to each employee.
The idea was that, if a manager trusted their subordinates, it would have a positive effect on the individual’s sense of identity and thereby also on their productivity. Decisions could be taken faster and with a quicker response.[REMOVE]Fotnote:Amoco Info , no 1, 1991.
But the positive results achieved did not halt the efforts to change, with the performance improvement process (PIP) and continuous improvement (CI) being added to portfolio.
Performance improvement process
High oil prices proved transient, and fresh concerns were expressed over inadequate earnings combined with an increase in operating costs.
Low and unstable prices were compounded by Norwegian government proposals to reform the petroleum tax regime in a way which could increase the fiscal burden on Amoco.
In other words, the outside world and the market were unpredictable and constantly changing – and the company had to keep up. In this endless process, Amoco had to strive for greater adaptability and organisational flexibility.
With his constant introduction of new processes, Erickson provides a good example of what Sennett sees as the problem for a modern leader – standing still is the same as being left behind.
Instead, today’s managers must change, adapt and reorganise. Everything is in motion and the latest ideas are already out of date. The solution is to launch a process, even if you are not actually sure what it deal with or where it could lead.[REMOVE]Fotnote: Sennett, Richard (1998): The Corrosion of Character, the Personal Consequences of Work in the New Capitalism , Norton, 87.
Becoming a business unit not only increased authority but also boosted responsibility for the results achieved. That led to the adoption of the PIP in 1991.
This was intended to be a long-term process which addressed the way Amoco Norway was run, and aimed to identify projects with various objectives – such as improved earnings.
Other ambitions were to streamline jobs and processes or eliminate those which were unnecessary, and to exercise cost management and control.
Each department had to choose a coordinator who would:
[I]nitiate brainstorming and solve the problems in a creative way through the active use of co-determination, teamwork and interpersonal communication skills. This process will combine and practise many of the initiatives which have already been initiated, such as co-determination, interpersonal communication skills, recognition and reward, teambuilding and APM.[REMOVE]Fotnote:Amoco Info , no 2, 1991.
Employees were urged to submit ideas and proposals for improvement. It was emphasised that the whole workforce shared responsibility for the company’s success, and each person could exercise great influence on its commercial results through active participation in the PIP.
The financial position and ever tougher competition were cited as reasons why the new process was needed. “This strengthens the need to support the PIP initiative actively.”[REMOVE]Fotnote:Amoco Info , no 3, 1991.
Suggestions and ideas poured in, and the PIP coordinators collaborated with each other in implementing the proposals and thereby boosting the efficiency of Amoco Norway’s overall efforts.
The process was intended to improve the company’s financial results while not least creating a satisfactory working environment for all employees.
CI and Whitewater[REMOVE]Fotnote: This initiative has a lot in common with what is known as total quality management (TQM). were introduced in parallel with the PIP. While the latter involved a long-term project plan, CI was intended to make day-to-day operation more efficient and economic.
That meant defining commercial requirements more clearly, clarifying individual roles in customer-client relations (something we also find in Peters and Waterman), and developing better methods for work processes and problem-solving.
Whitewater was the CI project team, drawing up a strategy for developing the ability to compete effectively in a world of “constant and unexpected change”.[REMOVE]Fotnote:Amoco Info , no 4, 1991.
CI was not a new programme intended to replace its predecessors, but an addition to the work which had already been done. It provided more a description of the way Amoco operated.
Both it and Whitewater were intended to support the PIP process, and the company was told in no uncertain terms that this measure would affect every employee.
The initiative involved each person defining why and how they worked for each other. Everyone was to clarify the work processes they were involved in, who their customers were – both internal and external – and what these clients required.
In addition, the quality of all the work done would be measured and nonconformities identified, and improvement measures would be adopted.
Manuals and training programmes were developed. A key point was that all employees were to be trained in and had to use a common set of concepts.
Attention would be focused on products, services and customers, and each employee had to ask themselves every day “What have I done to improve my work”. One goal was to identify unnecessary tasks and exclude them from the system.
The process was followed up with a new guideline called Amoco career management (ACM). All employees were given access to computerised details about internal vacancies.
Amoco wanted to increase the number of applicants for such posts in order to simplify the process of moving people to positions where their expertise could be used to the full.
Through the Amoco self-nomination application process (ASNAP), employees could also see what expertise was needed for each job. An individual development plan (IDP) would then be developed for them.
A form covering future ambitions had to be completed by the employee. The IDP was then discussed with their team leader, who would do a reality check on the hopes expressed.
The plan spelt out the skills which the person felt were required to get where they wanted – not only the capabilities, experience and knowledge they thought they already possessed, but also those they needed to acquire.
Each employee was offered a personal development course lasting a day and a half, which was given the catchy title of Amoco career management – managing personal growth (ACM-MPG).
It was meant to help participants identify new opportunities for growth and development, and required them to assess their most important positive qualities, motivational factors and skills.
The development programme was said to be voluntary, with nobody forced to plan their own career or check jobs in the ASNAP. But commentators maintained that the company and its teams had to have a strategy for reaching their objectives.
If an employee failed to submit the form setting out their ambitions, it fell to the team or – ultimately – the company to shape future job opportunities without taking account of that person’s wishes or needs.[REMOVE]Fotnote:Amoco Info , no 2, 1993.
The management and change process which had been introduced in Amoco Norway until then were largely well received. But a further reorganisation was introduced in 1993 under the New Start name.
When everything fell apart
It turned out in June 1992 that Amoco Norway was still failing to meet the financial targets set for the company – despite all the changes and improvements.
Both earnings and production were below budget, while total costs outstripped the planned level. Something had to be done – new adaptations implemented.
That applied not only to the Norwegian subsidiary, but also for the whole international company. Initiated once again from the USA, the New Start process comprised eight stages.
First, the number of contractors was to be reduced and recruitment policy reviewed. All work would be evaluated in terms of its necessity or contribution to value creation.
Every opportunity was to be taken, moreover, to concentrate attention on areas where personal development and improved performance were required.
Third, the whole organisation was to be assessed. A restructuring was recommended to improve efficiency and streamlining in general. The authority structure was to be described more clearly, so that responsibility rested at the right level and was clearly defined.
The fourth point related to the CI process, which would ensure that all work done by each employee was necessary and created value.
Each job was to be done faster by a process of work re-engineering. To assist the improvement process, groups were established to rationalise and improve all tasks covering several teams or departments.
Where business-related costs were concerned, the importance of all business trips, conferences and out-of-town meetings was to be assessed.
Management and personal development also appeared in the eight-point plan. Everyone was to given opportunities to develop, train and grow professionally, and good leadership was to be identified and practised – based on each individual being conscious of their responsibility.
Amoco Norway would continue to grow, and persist in seeking new licences and operatorships in future rounds.
The final point covered customer relations and image. Amoco would have a strong, positive customer relationship with government, partners and international colleagues – all should be met with respect and recognition.[REMOVE]Fotnote:Amoco Info , nos 1-2, 1992.
Management pointed to the changeable and difficult times to justify the reorganisation and cut-backs, and called for a continuous and selective restructuring and adaptation on the basis of the eight points listed above.
It soon became clear that organisational changes would be sweeping. The restructuring aimed specifically to boost financial results, enhance efficiency and reduce unnecessary bureaucracy.
A conviction that a flatter organisation was more effective underlay these moves. Emphasis was placed on groups of able people who collaborated in finding solutions and new opportunities.
The idea was to identify the personnel who were professionally prepared to enter a new era – those who were flexible and able to adapt.
Team leaders were to pick out those who failed to meet these criteria, based on the forms filled out by the workforce and the follow-up conversations each employee had with their manager.
The people identified in this way were urged to find another place to work. APM affected not only an employee’s pay and promotion prospects, but also their whole future in the company.
Re-engineering is a key concept here. This involves a radical redesign of work processes and, by seeing everything in context, can ensure a dramatic improvement in results.
Sennett argues that the term provides a semblance of efficiency, an illusion of a tighter organisation which differs radically from its predecessor.
But he maintains that re-engineering is actually a very chaotic process, and primarily an excuse for making people redundant. Power is concentrated without being centralised – a characteristic of a flexible system.
People at the bottom of the organisational structure gain more control over their own activities, but new information systems give management a comprehensive overview.
Employees end up with few places to hide. In modern organisations based on concentration without centralisation, control from the top is both strong and diffuse.
According to Sennett, cuts are unlikely to yield financial benefits because companies become dysfunctional during the actual downsizing process.
At the same time, employee motivation and morale fall as the changes proceed and the remaining workforce are left fearing that they will be the victims next time round.[REMOVE]Fotnote: Sennett, Richard (1998): The Corrosion of Character, the Personal Consequences of Work in the New Capitalism , Norton, 50-56.
That was to a great extent what happened in Amoco Norway. New Start represented a shift towards a leaner and more flexible company, but a process meant to contribute to continuous improvement also created constant uncertainty.
Even more new initiatives soon followed, additional processes were launched and further reorganisations took place. But the workforce, having been through a downsizing they saw as arbitrary, feared each of them. The workplace had become more uncertain, and several dozen people were made redundant.
New Start was supposed to create organisational flexibility by demanding adaptability from the workforce. While jobs were standardised, they also had to be constantly improved through more efficient use of time. Space was provided for established practices to be replaced by new and better ones.
The cultural change initiated by Erickson in 1987 and the subsequent processes to create a more flexible and secure company were largely welcomed by employees.
All the same, many felt that no sooner had a process “finished” than others took its place and the new systems were never given a chance to bed in.
But that was also part of the philosophy underlying the continuous improvement approach – constant change so that systems could not ossify and become bureaucratic and rational.
Bob Erickson left Amoco Norway in 1994, only a few months before the new prestige offices on the Stavanger waterfront were ready for occupation.
Retirement followed five years later for the man with the big vision of a modern and flexible Amoco Norway, and the leading believer that cultural change through continuous improvement was possible.
He left behind him a workplace which had become a little more uncertain and where the employees were a bit more concerned whether they were next for the headsman’s axe.
Published 12. July 2019 • Updated 2. September 2020
Amoco employees opted to establish a “house” or “enterprise” union when Valhall came on stream in 1983. But a later decision to join the Norwegian Confederation of Trade Unions (LO) gave rise to a protracted dispute with its former partners.
— ABC union sticker. Photo: Shadé Barka Martins/Norwegian Petroleum Museum
This Amoco Company Union (Amoco Bedrifts Club – ABC) was organised on the model of similar organisations on the Ekofisk, Frigg and Statfjord fields. None of these new bodies were part of Norway’s established union structure, and all were independent of the main national labour confederations. The emergence of such independent associations represented a special feature of labour relations in the Norwegian petroleum sector during its early years.
As time passed, the ABC became part of a larger combine called the Federation of Offshore Workers Trade Unions (OFS). But developments in Norwegian labour organisation meant this grouping eventually became too small. The OFS ceased to be an independent union without political affiliations and joined by Confederation of Vocational Unions (YS). But the ABC refused to accept that move, and its “divorce” from the OFS eventually had to be settled by the Supreme Court.
To see how and why the ABC was created, how it existed outside Norway’s “corporative” union structure through the OFS, and how it ultimately capitulated to that system, Norwegian labour relations in the early years of the oil industry need to be understood.
Norway in the 1960s
The first licence awards on the Norwegian continental shelf (NCS) were dominated by Anglo-American operators, suppliers, experts and foremen whose attitudes were rooted in oil company traditions and multinational forms of organisation. Offshore operations in Norway during the 1960s were relatively fenced in and isolated, making them a small enclave among the nation’s industries. Personnel were confined to direct company employees, and exploration provided few jobs – just 500 in 1969.[REMOVE]Fotnote: Gunnarsen, Harald, Fagforeninga som ikkje let seg temje , Unpublished master’s thesis, University of Bergen, 2012, p 72.
The international oil industry in the 1970s had authoritarian and hierarchical features which seemingly shoved aside Norway’s corporative system and its greater worker co-determination. With attitudes and methods derived from multinational operations, the oil companies in general had little time for Norwegian union traditions and collective organisation. The biggest of these enterprises were the Seven Sisters – Standard Oil of New Jersey (Esso), British Petroleum, Royal Dutch-Shell, Gulf Oil, Texaco, Standard Oil of California (Chevron) and Standard Oil of New York (Mobil). They had succeeded in concentrating great power in their hands, and by and large imposed their own interests and working methods – with a centralised and rigid management system, where decisions down to a detailed level were taken centrally.
In Norway, the companies were faced with demands that offshore activities should be conducted from Norwegian soil through national subsidiaries. But this did not affect theory tight reporting structures to parent-company management. Although Amoco was not among the Seven Sisters, its systems were the same and the freedom given to local subsidiaries was limited.
Work procedures were characterised by standardisation in terms of both technology and organisation. The US companies were managed on a top-down model. Their activities were also marked by an extensive division of labour based on a whole network of specialised contractors. While the operator company handled certain key functions, more labour-intensive jobs were contracted out. The result was a complex and diversified corporate structure.[REMOVE]Fotnote: Gunnarsen, Harald, Fagforeninga som ikkje let seg temje , Unpublished master’s thesis, University of Bergen, 2012, p 75. That in turn undermined cohesion and mutual support. These conglomerations of companies and organisational patterns were impenetrable and fragmented, which limited the sense of solidarity between occupational groups.
Conflicts emerged at an early stage between the oil industry and Norway’s work culture. The foreign operators regarded the management authority and commercial freedom as sacrosanct, and were antagonistic to unionisation and co-determination. That also applied to Amoco, one of the first international oil companies to establish itself in Norway.
The house unions
Much of the activity on the NCS was dominated by the house union model during the early 1970s, and Norway’s established labour organisation were scarcely present.
The Ekofisk Committee was founded as early as 1973 by Phillips Petroleum, followed by the Statfjord Workers Union (SaF) at fellow US oil company Mobil and the Elf Aquitaine Norge Offshore Union (Eanof) for employees of this French operator. Initially, the Ekofisk Committee was not an independent organisation but what the Americans call a “company” or “sweet” union. Phillips Petroleum Company Norway proposed a representative body for its 200 or so employees on the field to handle more formal relations between management and workers.
The aim was to establish a committee which the company could deal with – within the confines of what it found acceptable. Phillips accepted no restrictions on management authority, and accordingly established the sort of structure it was used to.[REMOVE]Fotnote: Kulturminne-Ekofisk.no. Surprisingly, few objections were raised to this proposal and the Phillips Petroleum Company Norway Employee Committee (PPCNEC) was accordingly launched.[REMOVE]Fotnote: Gunnarsen, Harald, Fagforeninga som ikkje let seg temje , Unpublished master’s thesis, University of Bergen, 2012, p 69.
Management had a dual agenda with the project – to secure a reasonably loyal set of employee representatives which it could rely on, and to exclude established unions in order to avoid interference from “outside third parties”. The company was willing to discuss pay and to provide support on tax issues, but the house union got nowhere over issues related to the working environment, working hours or safety. But developments did not go the way Phillips had envisaged and wanted. The house union began to oppose management at an early stage, and started work later the same year to build an independent organisation.
Without affiliation either to the company or a broader labour federation, this Ekofisk Committee proved to be ready to strike and act freely on behalf of oil workers.
After having tried out loose alliances with several other unions, the Ekofisk Committee began to look to the other house unions in Mobil and Elf. The three decided in 1977 to establish a collaborative body to provide a forum where their officials could meet and exchange opinions and views. This initially had no decision-making authority or rules. Late that year, however, more binding and formal statutes were adopted and the association was named the Collaboration Committee for Operator Unions (OFS). This was a free-standing organisation without affiliation to any national labour federation – indeed, it was established almost expressly to act as a counterweight to the LO.
Its member unions did not merge, and continued to negotiate separately with their respective employers. Pay and conditions accordingly varied considerably from company to company.[REMOVE]Fotnote: Gunnarsen, Harald, Fagforeninga som ikkje let seg temje , Unpublished master’s thesis, University of Bergen, 2012, p 93. After expanding steadily, the OFS celebrated a milestone in 1980 when it acquired the status of a nationwide employee association. That established it as a tough competitor to the Norwegian Oil and Petrochemical Workers Union (Nopef), which had been created by the LO in 1977 to represent workers in the new offshore industry.
A fundamental difference between the OFS and Norway’s established union movement was its mode of action, based on grass-roots activism and a willingness to down tools. The latter had been displayed at the first opportunity, when stoppages were staged on Statfjord during 1981 in contravention on Norwegian labour law. These were the first in a long series of such actions. And the willingness to act tough turned out to be rewarding, with rises of 30-35 per cent secured in the 1981 pay settlement.
That victory was a result not only of OFS activism, but also of weak organisation by the employers. As mentioned above, the ideology of the latter was to be free and untrammelled. They were opposed in principle to all government intervention and overriding organisation. A collaboration body certainly existed, but it was not binding and had no affiliation with a national employer federation.
The Norwegian Operator Companies Association had six members – Norway’s Statoil, Norsk Hydro and Saga Petroleum as well as Phillips, Mobil and Elf. But it did not negotiate on behalf of these companies, and pay and conditions were regulated through agreements at local level. Following the illegal strikes on Statfjord, Mobil yielded and offered its employees a generous pay rise. And the other companies had to follow suit. Pay was only a small part of operator costs, after all – a production shutdown was considerably more expensive. Employers, the LO and the government began to view the OFS as a threat to the balance of power in Norway’s labour market. The other organisations in this arena largely abided by the corporative system and accepted the government’s economic parameters.
Although the OFS was outside the established system, it had had initially enjoyed much public sympathy. That changed after the 1981 pay settlement, when its members were increasingly disparaged as “wage aristocrats”. But the rises achieved by the outsiders also created frustration among workers organised by the LO, and sparked mass resignations. The OFS had proved a problem for the whole system for pay determination in Norway. To overcome this, the government launched a wholesale “Norwegianisation” of the oil sector.[REMOVE]Fotnote: Sejersted, 2002, p 197.
Norway’s oil industry went through a process from the early 1980s whereby rules more in accordance with general Norwegian working practices were gradually imposed on its players. That involved a “normalisation” of pay deals and working conditions in the companies, while encouraging the development of a simplified and far less fragmented structure for both employer and employee organisation.
Only two dominant unions are left in the oil industry today –the Norwegian Union of Industry and Energy Workers (IndustryEnergy) in the LO and the Norwegian Union of Energy Workers (Safe) as part of the YS. On the other side of the table, foreign and domestic oil companies have coordinated their interests through the Norwegian Oil and Gas Association.
The result is that at the oil industry no longer represents a kind of enclave in national society, but has become an integrated and important part of the Norwegian social model. With its uncompromising approach, the OFS proved able to cause maximum pain by shutting down all offshore production at short notice. That gave it more power than its size might suggest. Following the 1981 pay settlement, the minority Conservative government headed by Kåre Willoch was not primarily concerned about income trends in the North Sea as such. His worry lay with their knock-on effect for mainland industry.
The same party which had earlier criticised corporatist tendencies in Norway now began to argue that the oil companies had to adapt to domestic labour market traditions. Operators were instructed to amend their pay policies and join an employer association. Failure to do so would have consequences for future licence awards, tax regulations and the Labour Disputes Act. This became known as the “Willoch doctrine”.
And the oil companies fell into line, converting the former Norwegian Operator Companies Association into the Norwegian Operator Companies Employers Association (Noaf) – forerunner of today’s Norwegian Oil and Gas – and joining the Norwegian Employers Confederation (NAF).
While the unions had hitherto been able to play off the companies against each other, an alliance between the latter and the government now removed such opportunities. The OFS thereby lost its most important card.
The restructuring on the employer side also prompted changes in the OFS. This had been a non-bureaucratic organisation with little hierarchy and closeness between grass roots and leaders.
However, its big victory over the 1981 settlement had prompted a growing number of associations and occupational groups to seek membership. Combined with the government’s curbs, this led in 1982 to an extraordinary national conference which decided that the OFS should be a federation for all North Sea workers – not just operator employees.
New statutes were adopted, and the name was changed to the Federation of Offshore Workers Trade Unions – while retaining the Norwegian abbreviation of OFS. The three former house unions for operator personnel then joined forces as the Union of Operator Employees (OAF), one of four member organisations in the OFS.
Three new bodies were admitted – the Union of Shipping Company Employees (ROF), the Oil Drillers Union (OBF) and the Catering Workers Union (CAF).
But the OFS centrally continued to exercise little power over the individual unions, and each of the latter formulated its own pay demands and pursued its own negotiations.
During the first few years, solidarity between the four OFS members was relatively high even if tensions existed.[REMOVE]Fotnote: Gunnarsen, Harald, Fagforeninga som ikkje let seg temje , Unpublished master’s thesis, University of Bergen, 2012, p 116. The primary aim was now to drive the LO and the YS out of the NCS.
ABC established and joins the OFS
The Amoco union was created on 14 February 1983 as a house association for all employees in the oil company. It applied to join the OAF in March, and was accepted a month later.
Some difficult years for the OFS had followed the 1981 success. Real pay for most offshore workers declined over the following decade, and each income settlement was imposed by law through compulsory arbitration except in 1987.
Certain groups, such as the catering workers, did better than others, but they still lagged well behind operator company employees.
Although the OFS continued to pursue an activist and aggressive pay strategy, it failed to outperform the LO unions. Frustration spread among contractor personnel, whose primary demand was harmonisation of earnings.
Both the economic parameters and the form of pay settlements were determined by the LO and the NAF in league with the government. The Willoch doctrine and the frequent recourse to compulsory arbitration had weakened the OFS.
The latter complained that genuine negotiations in the North Sea were impossible. But it kept its autonomy and grass-roots orientation, and came across as politically independent and decentralised.
Membership of Noaf had expanded from the 12 original operators through the addition of four catering contractors and six drilling companies, which strengthened its position. To rationalise a profusion of pay deals, the employers proposed in the autumn of 1985 to establish a single agreement for production, catering and drilling. But the unions rejected this. The OFS wanted negotiations to be conducted on a union-by-union basis, with no coordination between them. At the same time, however, it defined some common demands.
These involved a reduction in the retirement age from 67 to 55, a contraction in weekly working hours from 55 to 33.6, increased maternity leave and equal pay for equal work. But even while calling for pay harmonisation, which cut across unions and occupational categories, the federation remained committed to independent negotiations.
Noaf stuck to its guns, and made it clear ahead of the pay talks in 1986 that agreements and negotiations would be coordinated. A solidarity approach would be taken, with one union’s settlement influencing the others.
Coordinated negotiations were unacceptable to the OFS. Each union was to pursue its demands in isolation.[REMOVE]Fotnote: www.kulturminne-statfjord.no. Some exceptions were made when the federation presented joint demands on behalf of all the unions for earlier retirement, shorter working hours and pay harmonisation. But the actual talks were separate.
The CAF was the first to negotiate, and pressed for full pay harmonisation with other offshore employees. This was rejected by the employers, and the union downed tools on 6 April 1986. Despite some reluctance, the other OFS members loyally took their own members out in sympathy. For its part, Noaf was unable to accept the demand and imposed a lock-out on all members of both the OFS and Nopef on all fixed Norwegian production platforms.
The whole workforce was accordingly in conflict before the other unions had even begun talks. All NCS output accordingly ceased, prompting the government to impose compulsory arbitration through the National Wages Board.
This conflict was convenient for both government and companies, since oil prices had fallen dramatically over the previous year.
The Organisation of the Petroleum Exporting Countries (Opec) was pressing Norway to cut production, and the USA was also giving clear signals that output restrictions would be desirable to help boost prices. In other words, the government was in no hurry to see the conflict resolved, and the strike/lock-out dragged on. The confrontation was expensive for the OFS, and had to be halted one way or another.
The employers did not look like budging. To twist arms and preferably compel the government to turn to the Wages Board, the OFS took out all the Norwegian workers on Frigg. That included all those working on the UK side of the Anglo-Norwegian gas field, and halted all production from it. This had the desired effect.
The pressure became too great for the government, which feared the consequences for Norway’s credibility as a gas supplier. After two weeks, it presented a Bill on compulsory arbitration and work immediately resumed. The CAF secured none of its demands, and the parameters from the LO/NAF settlement were accepted.
This conflict demonstrated that its decentralised decision-making structure gave the OFS insufficient control, and the federation’s organisation was debated at the 1986 conference. A way to end internal conflicts had to be found, and a restructuring led to the abolition of the various subordinate unions. Each workplace branch (“club”) became a direct member.
The OFS thereby became a single union responsible for a main pay agreement and determining the use of strike funds. That power had previously rested with the subordinate unions.
This change was regarded as an institutional breakthrough, and as the end product of the Norwegianisation process and the government-initiated disciplining of the oil workers. The troublemakers had been tamed – it was thought.
On a world basis, industry in 1990 was characterised by increased globalisation, market liberalism, outsourcing of services, project-based working and use of contractors.
Norway faced an economic crisis and its highest level of unemployment since 1945. Rising job losses in the late 1980s imposed economic adjustments after the borrowing frenzy of the mid-decade and the oil price slump of 1986.
A new consensus on roles in the labour market was established. Employers and unions would ensure moderate pay settlements, while financial policy would be used to keep down unemployment. After two years of statutory incomes policy in 1988-89, when pay rises were curbed by law, the rate of inflation had been slowed and free pay bargaining was restored.
For its part, the LO had no desire to return to the unfortunate developments of the previous decade and wanted the moderation approach to be retained.[REMOVE]Fotnote: Per Kleppe, Fafo report, Samfunnskontrakt. Solidaritetsalternativet fortid og framtid , 1999. But the OFS did not agree. Its expectations for the 1990 pay settlement were high. With the lifting of statutory income restrictions, the workers wanted something in return for the moderation they had shown in earlier settlements.
A view prevailed at the grass roots in favour of repeating the 1981 strategy of striking for better terms – even if a stoppage was illegal.
The negotiations were uncompromising and the workers downed tools after compulsory mediation and a meeting with the minister of local government and labour.
Compulsory arbitration was imposed in just 36 hours. That was as expected, but the speed of the decision nevertheless took the employees by surprise.
The OFS lost control over its own ranks, and an illegal strike continued. But the employers were well prepared, and kept oil flowing with a minimum of staffing while redeploying as many managers as possible offshore.
Telephone lines were shut down in some places, and a number of companies – including Statoil – threated to dismiss strikers. Within a week, the workers had to admit a crushing defeat.
The reprisals which followed laid the basis for long-lasting distrust and bitterness between the OFS and the operator companies. But they also reduced the willingness to strike.
Twenty-eight workers were sacked. Statoil, which had employed 20 of them, required the OFS to take disciplinary action against the real strike leaders as a condition of their reinstatement.
The union accepted this demand, but that decision created such dissatisfaction among the members and that the OFS leadership also had to resign.
Most pay deals in the 1990-96 period, when the solidarity model dominated, were settled without conflict. But that is not to say they were orderly – the unions fought each other fiercely. However, the 1990 episode had left the OFS weakened and the internal split never healed. On the contrary, it could be said to have laid the basis for the developments to come.
Rights under threat
A corporative system calls for close collaboration between unions and government. The former participate in official councils and commissions, while formal and informal ties develop between the various players. This means the unions are required to accept the government’s economic policy parameters, and must commit their members to do the same.
The labour movement acquires influence, but is tied more strongly to government strategy. That restricts shop-floor opportunities to mobilise in opposition to these policies.
Many people regarded the OFS as a threat to this system, both because it was not tied into a binding collaboration and because of its willingness to fight through legal and illegal strikes.
The government and a number of the big organisations in the labour market claimed that it was too easy to down tools in Norway, and that small, independent unions were irresponsible in pursuing their pay demands.
Both the LO and the Confederation of Norwegian Business and Industry (NHO) presented proposals to restrict the right to negotiate and strike. For their part, the employers wanted unions to have at least 100 000 members and be organised on a nationwide basis before they could pursue pay talks and down tools.
The Labour Law Council was asked by the Ministry of Local Government and Labour to assess the principles underpinning the Labour Disputes Act, with particular attention to cases where several competing pay agreements covered the same area.
In its 1993 report, the council reached the same conclusion as the NHO – a union federation should have more than 100 000 members in order to negotiate and call strikes. It also proposed that the decisions of such a federation should be binding on its member unions, and that it should have the final word on whether to launch a conflict.[REMOVE]Fotnote: Norwegian Official Reports (NOU) 1996:14, Prinsipper for ny arbeidstvistlov. These proposals were controversial. Although the OFS was defined as a national organisation, it had no chance of meeting the membership requirement.
While these extensive amendments to the Labour Disputes Act were debated, the Storting (parliament) resolved after a long and fairly heated discussion to drop them. But the proposals from the NHO, the LO and the law council provide an indication of the mood affecting labour relations in the 1990s, and of the way small, independent, quarrelsome unions were regarded.
Internal conflicts pile up
The law council’s report also had a big impact on disputes emerging within the OFS. The federation had been affected by internal strife between individuals, between south and north in the Norwegian North Sea (the Ekofisk Committee versus the SaF) and between large and small branches. Substantial disagreement had also arisen over the expansion of the membership base. The ABC stood on the same side as the Ekofisk Committee on these questions.[REMOVE]Fotnote: Supreme Court judgement, HR 2000-328, Rt-2001-603 (114-2001).[REMOVE]Fotnote:De Facto , March 1996, “Ved en skillevei”.
One of the most difficult issues was whether contractor personnel working on the NCS could become members of the OFS, which had started life as a body confined to operator employees.
Over time, however, the union had absorbed various groups working for offshore contractors. To secure pay agreements for these, other groups were taken out in sympathy strikes which proved burdensome for established branches, including the ABC.
The future organisation of the union was debated both centrally and locally, and the ABC proposed talks with Nopef as early as the 1994 conference. This suggestion was rejected.
A committee was appointed by the general council on 30 August 1995 to discuss the issue with a view to a conference decision on joining a national federation in the following year.
The SaF, which was the largest OFS branch, decided to go its own way and submitted a proposal on collaboration with the YS to a membership ballot in 1995. This produced a majority for leaving the OFS and joining the larger federation, which would also be able to negotiate on behalf of oil industry employees on land. The Statoil union wanted a single body covering all groups in the oil and energy sector, whether offshore, in offices on land, at refineries or in possible gas-fired power stations.
In its view, that could be most easily achieved by joining the YS. Following the ballot, the OFS statutes allowed the SaF to leave after a new vote six months later.
What were the differences between the two relevant federations? The LO has traditionally collaborated closely with the Labour Party, while the YS is politically neutral. In organisational terms, the LO is based on “industrial” unions organising all the workers in a specific sector, and the YS embraces both industrial and vocational unions. Both the OFS – later Safe – and Nopef – now called IndustryEnergy – aim to organise all employees in the Norwegian energy sector.
With chair Terje Nustad in the lead, the SaF now launched a campaign aimed at getting the whole OFS to join the YS rather than experiencing a split which would leave the whole union weakened. Nustad argued his case at the ABC annual conference in January 1996, but failed to convince. The Amoco union wanted the OFS to remain independent, and adopted the following resolution:
The annual conference of the ABC has resolved to work to maintain the Federation of Offshore Workers Trade Unions (OFS) in its present form. The Amoco Company Union will hold the chair of the area committee for operator employees in 1996, and will serve as a driving force in this context for continuing to develop the OFS.
A discussion forum for operator employees without decision-making authority, the area committee voted on 1 March 1996 (with the exception of the SaF) to work for a unified OFS which could continue to serve as an independent alternative to the main union federations.
Despite agreement in the committee on maintaining an independent OFS, tensions persisted between the operator area and the sitting general council.
Nor were SaF members shy about describing the leadership in derogatory terms – a gerontocracy, naval-gazing, backward-looking and self-absorbed were just some of the expressions recorded in an interview by Bergen daily Bergens Tidende.[REMOVE]Fotnote:Bergens Tidende , 14 February 1996, “Oljearbeiderne splittet”.
The SaF secured the support of Hydro’s OFS branch. A letter sent by the council of the latter in 1996 to its members expressed what many felt:
We currently have such major internal conflicts in the OFS centrally that it is very difficult to see how the organisation is capable of protecting the interests of us members on the continental shelf. The OFS is an organisation where major personal intrigues have been pursued, with personal prestige put ahead of the federation’s well-being. Similarly, the large unions have a tendency to ‘refuse’ to accept legally taken decisions … Fairly undemocratic forms of governance do not hold out the promise of any long future as an organisation. This uncertainty has created paralysis, stupid initiatives and loss of members.
The branch council also urged the members to assess whether the OFS was an organisation they wanted to stay with in the future. It sought authority to start negotiations with the local Nopef branch.[REMOVE]Fotnote: “OFS today”. Undated letter to the members of OFS Hydro, signed by chair Oddvar Karlsen, ABC archive, folder ABC ballot, box 4066.
The last strike
When this power struggle was at its height, in the spring of 1996, the OFS called its members in the construction and maintenance sector out on strike in a bid to secure a separate pay agreement for them. Maintenance personnel working alternatively offshore and on land had been recruited by the OFS during the 1990s, both to secure greater weight and as a result of the Labour Law Council’s report.
The NHO refused to agree to a separate agreement with the OFS on the grounds that the LO’s United Federation of Trade Unions was already the recognised negotiator for this group.
Although unions in Norway have the right to use strikes and other sanctions to force employers to concede an agreement, such action made big demands on unity and strength.
The OFS was a campaigning organisation, and very conscious that its members administered the oil and gas assets which were the source of national prosperity.
To win its case, the strongest action had to be taken. Oil production on the NCS needed to be shut down, which meant in turn that operator employees had to down tools in sympathy.
Despite the vocal reluctance of the area committee for the operator unions, the OLF’s executive committee resolved to bring out the members of certain branches on 16 April in support of the striking construction and maintenance workers. Once the decision had been taken, however, the general council dispersed for Easter and left responsibility for the strike to an official.
This person, who was not centrally employed in the organisation, forgot to notify the branches concerned, contrary to the approved procedure. The way things were handled sparked strong reactions, not least from the ABC, and the first attempt at a sympathy strike was halted because the conflict had not been approved by the general council.
After the executive committee had secured a general council go-ahead, the sympathy strike began on 4 May with the exception of two branches – the Ekofisk Committee and the ABC.
The first of these voted in April 1996 to stay at work. It did not want to participate in a stoppage which hit the installations where its own members worked unless they had also participated in the decision.
That view was supported by reference to the 1993 statutes which effectively gave the Ekofisk Committee a veto. The OFS dubbed this strikebreaking and claimed that the Phillips union was refusing to support a legally approved stoppage.
The ABC supported the Ekofisk Committee and asked the OFS leadership to change the strike notice. Its statutes had also been amended in 1993 so that it could refrain from a centrally imposed sympathy strike. On the basis of this provision, the ABC refused in 1994 to comply with the OFS call for a sympathy strike. That led in turn to a showdown meeting.
On that occasion, the Ekofisk Committee had supported the OFS and approved a rebuke for the ABC for poor organisational discipline.
However, the two branches were now on the same side. The ABC maintained that the strike was very badly organised and that the decision had been taken by the central leadership without involving the branches affected.
Withdrawing from the OFS general council, the ABC wrote to the federation on 30 April to say:
We wish to inform the executive committee/general council that the ABC resigns from its posts in the operator area committee as a natural consequence of opposing the general council’s decision to take sympathy action on 4-5 May 1996.
The signatory was ABC chair Ingard Haugeberg, who wrote in a press release dated 3 May 1996 that:
The basis for refraining from a sympathy strike lies in the total lack of preparation, coordination and information from the OFS centrally to the ABC council. The ABC was first notified by the management, for example, that its members on Valhall were to take part in a strike.
It emerged from the release that the ABC found it unwise to strike at a time of internal unrest, when several branches were considering withdrawing and when the union was held in poor regard by its members. The ABC was fully aware that exclusion from the OFS was a possibility. “It now only remains to be seen whether the general council excludes us on 10 May.”[REMOVE]Fotnote: Press release, 3 May 1996, from ABC chair Ingard Haugeberg, “ABC – hvorfor vi trosser OFS”. ABC archive, folder ABC ballot, box 4066.
Exclusions – beginning of the end
And the council did just that. All council members in the Ekofisk Committee and the ABC were excluded from the OFS general council because of their refusal to participate in the sympathy strike.[REMOVE]Fotnote: Letter from OFS chair Petter Chr Bonde to Ingard Haugeberg, 10 May 1996. ABC archive, folder ABC ballot, box 4066. The Ekofisk Committee chose to regard itself as excluded from the OFS. A decision to withdraw from the federation was due to be confirmed by a ballot of members in July. An appeal by the ABC to a planned extraordinary national conference resulted in the exclusion decision being overturned on 28 May.
The same meeting adopted a motion of no confidence in the sitting general council, and elected a new body. Oddleiv Tønnesen became chair, with Terje Nustad as deputy chair. Both supported joining the YS.
Regarding itself as excluded from the OFS, the Ekofisk Committee applied for membership in Nutec. It became an associate member in May 1996 and a full member two years later. The dispute between the Phillips union and the OFS was settled in the Gulating court of appeal on 18 May 1998.
The sympathy strike was, as claimed above, very badly organised and had to be called off after nine days – when the branches in Statfjord, in Hydro and in BP had already returned to work on their own initiative.
As the organisational debate continued, it became clear that three options existed – retain and develop the established structure, join the YS or become part of Nopef.
These choices must be seen in light of the Labour Law Council’s proposal that a main federation had to be nationwide, have at least 100 000 members and be able to bind its members in pay negotiations and disputes.
Discussion materials were developed, and two conferences for union officials were held in September with participation by both Nopef and the YS.
The ABC wanted the OFS to remain independent, but supported a broad and detailed debate on various other options. But it found that internal debate was coloured by the new leadership’s view that only membership of the YS was relevant.[REMOVE]Fotnote: Letter from Ingard Haugeberg, dated 22 September 2000, ABC archive, box 4066. As time passed, the ABC began to see that its main objective – continued independence for the OFS – was unattainable. A proposed agreement for joining Nutec was prepared in September 1996.[REMOVE]Fotnote: Norwegian Supreme Court judgement of 26 April 2001. Case no 2000/328, civil case, appeal. ABC archive.
The general council secured a resolution at the OFS national conference from 31 October to 1 November to recommend that members be balloted on an application to join the YS.
This was rejected by the ABC’s delegates, and Haugeberg moved that two ballots on affiliation with the YS should be held six months apart. That was in line with the requirement for leaving the OFS, but was voted down by a big majority.
In June 1996, the ABC had proposed to the national conference that a single ballot would be sufficient for a union to leave the OFS should this decide to join a national federation. The motion had no chance of being carried and was withdrawn without a vote.[REMOVE]Fotnote: Norwegian Supreme Court judgement of 26 April 2001. Case no 2000/328, civil case, appeal. ABC archive.
When the OFS voted to affiliate with the YS, the ABC conducted a ballot of its own membership on whether to accept this decision or become part of Nopef. Eighty members voted, with one ballot blank, two for the YS and 77 for Nopef. In other words, the overwhelming majority opted to follow the Ekofisk Committee into the LO union.
OFS members were balloted in January 1997 on the question of affiliating with the YS. Participation was low, primarily because the Ekofisk Committee members were still registered to vote but abstained because they considered themselves to be excluded. In January 1997, the ABC council decided to ignore the OFS rule requiring two ballots six months apart for withdrawing from the federation.
Instead, the union decided to apply its own statutes, which stated that a council decision to transfer to Nopef became valid after 30 days. If any of the members objected, they had to say so within this deadline.
The reason given for the withdrawal was that the original basis for joining the OFS had been removed once the federation ceased to be free and independent by affiliating with the YS.[REMOVE]Fotnote: Executive committee decision, 29 January 1997. Signed by Ingard Haugeberg, Jan Hveinnis and O Johansen.
A quick response was received from the OFS in the form of an brusque letter which questioned the ABC’s democratic organisation and seriousness.
Three demands were listed – the council’s decision of 29 January had to be withdrawn in its entirety, the ABC had to comply with the general council’s statutes, and a written response had to be provided in 12 days.[REMOVE]Fotnote: Letter of 3 February 1997 from the OFS to the ABC executive committee. Signed Terje Nustad, chair. At the same time, the OFS announced that it would take legal action to secure a resolution of the dispute through the courts.[REMOVE]Fotnote: Norwegian Supreme Court judgement of 26 April 2001. Case no 2000/328, civil case, appeal. ABC archive.
The ABC refused to meet the federation’s demands, on the grounds that the OFS had chosen to join the YS on the basis of a simple majority vote in the ballot.
With effect from 3 March 1997, the ABC regarded itself as a branch of Nopef, and required that all correspondence to it had to pass through the latter.
Court case opens
That was not the end of the matter. The OFS filed a complaint with the conciliation court on 23 April 1997 on the grounds that the ABC was a member of the federation.
The ABC won in the Stavanger conciliation court, primarily on the basis of its right to reserve itself. According to the judgement:
[A]lthough a large majority of the OFS members had shown through balloting that they wished the federation’s basis as an independent organisation to cease, and for the federation to be no longer independent, this cannot deprive the individual members/unions of their right to reserve themselves against remaining in the OFS when the basis for its originally creation has been removed.[REMOVE]Fotnote: Case no 9700761. Extract from the proceedings of the court of conciliation in Stavanger, 2 August 1997.
When the OFS took the case to the Stavanger district court, the ABC won again and was awarded costs against the federation. The latter appealed, and the Gulating court of appeal came to a different conclusion – the ABC was a member of the OFS and had to pay NOK 105 875 in costs for both court appearances.
This was a difficult issue for the LO, which would in many respects have preferred to see a judgement in favour of the OFS to safeguarded its own barriers against disaffiliation. So although the ABC regarded itself as affiliated to Nopef, it was unable to use the LO’s legal team. This had been anticipated, and the Amoco union had found an external lawyer – paid for by Nopef.[REMOVE]Fotnote: Interview with Ingard Haugeberg.
The ABC challenged the appeal court’s finding in the Supreme Court on the grounds of both erroneous application of the law and errors of fact.[REMOVE]Fotnote: Norwegian Supreme Court judgement of 26 April 2001. Case no 2000/328, civil case, appeal. ABC archive.
In its judgement of 16 April 2001, the court found that the ABC’s resignation from the OFS contravened the latter’s statues. It was clear that the union had failed to follow the specified procedure, since only one ballot was held rather than two.
The ABC’s strongest argument for pulling out as quickly as it did, with a single vote, was that affiliating with the YS – even for a brief period until the second ballot could be held ­– against the will of the bulk of its members would have had serious consequences for the union.
While the Supreme Court appreciated that the ABC had found itself in a difficult position, it took the view that this was not enough to contravene the statutes. But this did not mean the OFS had won its case that the ABC remained a member of the federation such a long after the latter had withdrawn contrary to the statutes on 3 March 1997.
The Supreme Court decided it was impossible to enter a judgement that the ABC’s membership of the OFS remained in force. It noted that the two organisations were by then members of different national federations. This had been the case since the ABC withdrew. On that basis, the court found that it would be unreasonable and make little sense to declare that the union was still an OFS member.
Because of the overwhelming majority in favour of withdrawal in the ABC ballot, the court also concluded that a new vote six months later would have had a similar outcome. On that basis, it decided to declare that the union’s membership of the OFS had terminated on 30 June 1997 – six months after the first ballot.
The outcome was that both sides scored a partial victory. Neither side was awarded costs against the other, but the ABC had to pay membership dues to the OFS from 3 March to 30 June 1997.
That marked the end of the ABC’s time in the OFS. It was now a member of Nopef and, when Amoco and BP merged, remained the union for employees on Valhall. But it changed its name from the Amoco Company Union to the Employees Company Union (Ansattes Bedriftsklubb).
Published 12. July 2019 • Updated 2. November 2020
The Valhall partners entered into an agreement to share revenues from oil and gas sales on the basis of their proportionate interest in the field.
Crude oil was initially sold under contracts with specific customers which specified the quantity to be delivered, the time of delivery, and the price to be paid. But it was swiftly discovered that this approach failed to optimise profit. The spot market, where individual tanker cargoes are sold to the highest bidder, was more profitable – but more demanding.
Contract sales ensure stable prices, because specified quantities are negotiated at a fixed rate over a lengthy period – months or years, as is common in the Middle East, for example.
Oil sold spot often earns more because of the ability this approach provides to take advantage of fluctuations in both prices and demand. Like most of the oils from the North Sea, Valhall crude is a particularly attractive grade in terms of its product specifications. That has meant it is in demand both as a main product and for blending with cheaper grades with less attractive qualities, such as heavier oils from the Middle East.
Two terms are important for determining spot prices – the cost of Brent Blend “reference” crude and the divergence in quality from this grade.
Brent Blend is priced daily by independent publications in London, and the market price is typically the average of this rate on the day the oil is loaded into tankers and for two days before and after – in other words, an average of five days.
The quality difference is the supplement or deduction determined by negotiations on the basis of quality, quantity and the buyer’s requirements.
Valhall oil is sold in practice when it leaves field, which means that the individual partners cease to own the crude once it has been pumped into the Norpipe line to Teesside in the UK.
Another reference price is the one used in the USA – West Texas Intermediate (WTI). Like Brent Blend, this is set by independent pricing publications on the basis of WTI sales. For a long time, the relationship between these two guideline prices was based – as a rule of thumb – on freight costs between Europe and the USA, with WTI having the higher value.
Gas has been used in many European countries since the 19th century. But it was not until the 1960s – when the Netherlands began production and export from its big Groningen field – that a common market for this commodity began to develop in Europe. The Soviet Union, Algeria and Norway gradually followed as gas exporters in the 1970s and 1980s, developing infrastructure for production, transport, storage and consumption as demand grew. Establishing a system of pipelines from fields in the producer countries to the minor distributors called for heavy investment, which needed to be repaid. To ensure that, long-term contracts usually lasting for 20 years were established between the gas producers and the transmission companies in the consumer countries.
Norwegian gas exports began with the development of the Ekofisk area of the North Sea and the construction of a pipeline to Emden in Germany, which became operational in 1977. After tough negotiations, Valhall gas was also piped via Ekofisk to the same destination for distribution to industry and households in Germany, the Netherlands, Belgium and France.
In 1986, the Norwegian government established a gas negotiating committee (GFU) to handle the preparation and conduct of all discussions on gas sales from licences awarded after 1985. This body comprised representatives from Statoil, Norsk Hydro and – until 1999 – Saga Petroleum. They were supported in individual negotiations by personnel from foreign companies. Should licensees be able to achieve better terms or market the gas to their own facilities, they could reach sales agreements independently of the GFU.
But the government opted to end this arrangement in 2001, since it conflicted with the EU’s gas directive and competition rules. Sales of Norwegian gas through the GFU to the European Economic Area (EEA) were finally terminated on 1 January 2002.[REMOVE]Fotnote:Store Norske Leksikon.
Gassco ensures that Norwegian gas is delivered to continental Europe and the UK, where it meets almost 20 per cent of consumption of this commodity. Established by the Ministry of Petroleum and Energy on 14 May 2001, Gassco is responsible today for transporting all gas sold by licensees on the Norwegian continental shelf (NCS).
This state-owned company took over operator responsibility for most pipeline systems from the NCS on 1 January 2002. Before that, these facilities had been operated by several companies. Creating Gassco was part of an extensive restructuring of Norway’s petroleum sector around 2001, and met the EU’s requirements as specified in the gas market directive.
The political reasons for the company’s establishment found expression in Proposition (Bill) no 36 to the Storting (2000-2001) and Recommendation no 198 (2000-2001) from the Storting (parliamentary) committee on energy and the environment.
These specified in part that Norway’s transport and treatment facilities must serve all gas producers equally, and that Gassco would be neutral in relation to these players.
During the company’s first year of operation, the gas transport system was opened to third parties as required under the EU gas directive. With the GFU also wound up, marketing and sale of Norwegian gas became the responsibility of the individual producer companies. The Gassled joint venture was established by merging several earlier pipeline partnerships, and took over as the formal owner of most Norwegian gas infrastructure.[REMOVE]Fotnote: www.gassco.no/om-gassco/historie/
Published 25. June 2019 • Updated 3. December 2020