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    Seizing opportunities Annual report and accounts 2003

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    Finland Norway Sweden Estonia Denmark Latvia UK Russia Ireland Lithuania Belgium Poland France Germany Kazakhstan Austria Georgia USA Italy Portugal Turkey Azerbaijan Algeria Iran Saudi Arabia China Abu Dhabi Mexico Venezuela Nigeria Singapore Angola Brazil Statoil is represented in 28 countries. Head office is in Stavanger. The Borealis petrochemicals group has production facilities in 11 countries and its head office is in Copenhagen. Borealis is owned 50 per cent by Statoil. Statoil 2003 Statoil is an integrated oil and gas company with substantial international activities. Represented in 28 countries, the group had 19 326 employees at the end of 2003. Nearly 40 per cent of these employees work outside Norway. Statoil is the leading producer on the Norwegian continental shelf and is operator for 20 oil and gas fields. The group’s international production is enjoying strong growth, and Statoil is a leading retailer of petrol and oil products in Scandinavia, Ireland, Poland and the Baltic states. One of the major suppliers of natural gas to the European market, Statoil is also one of the world’s biggest sellers of crude oil. As one of the world’s largest operators for offshore oil and gas activities, Statoil has been used to tackling major challenges with regard to safety and the environment from the very start. Today, we are one of the world’s most environmentally-efficient producers and transporters of oil and gas. Our goal is to generate good financial results for our shareholders through a sound and proactive business performance. It is our ambition to achieve good results across three bottom lines – financial, environmental and social – which strengthen each other in the long term and contribute to building a robust company. We hope that this annual report successfully conveys this ambition, and the results achieved in 2003 which contribute to realising it.

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    Key figures INCOME CASH FLOW RETURN NOK bn NOK bn Per cent 60 25 60 50 50 20 40 40 15 30 30 10 20 20 5 10 10 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 Income before financial items, other items, Cash flow used in Return on average capital income taxes and minority interests investing activities employed after tax Net income Cash flow provided by operating activites OIL PRODUCTION/PRICE GAS PRODUCTION/PRICE PROVEN OIL/GAS RESERVES USD/barrel 1 000 bbls per day NOK/scm 1 000 boe per day Million boe 30 800 1.75 350 5 000 700 1.50 300 25 4 000 600 1.25 250 20 500 3 000 1.00 200 15 400 0.75 150 2 000 300 10 0.50 100 200 1 000 5 0.25 50 100 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 Entitlement oil production Sales equity gas production Natural gas Average oil price Brent Blend Average gas price Oil and NGL CARBON DIOXIDE (CO2) TOTAL RECORDABLE INJURY FREQUENCY SERIOUS INCIDENT FREQUENCY Million tonnes 14 8 10 12 8 10 6 6 8 4 4 6 4 2 2 2 0 -2 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 1999 2000 2001 2002 2003 Number of total recordable injuries Number of serious incidents CO2 reductions made through measures per million working hours per million working hours implemented between 1997 and 2003 for Statoil operations Total CO2 emissions from Statoil operations

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    USGAAP - Financial highlights 2003 2002 2001 2000 1999 Financial information (NOK million) Total revenues 249,375 243,814 236,961 230,425 150,132 Income before financial items, other items, income taxes and minority interest 48,916 43,102 56,154 59,991 17,578 Net income 16,554 16,846 17,245 16,153 6,409 Cash flow provided by operating activities 30,797 24,023 39,173 56,752 29,610 Cash flow used in investing activities 23,198 16,756 12,838 16,014 24,988 Interest-bearing debt 37,278 37,128 41,795 36,982 50,497 Net interest-bearing debt 20,906 23,592 34,080 23,379 42,856 Net debt to capital employed 22.6% 28.7% 39.0% 25.0% 42.6% Return on average capital employed after tax 18.7% 14.9% 19.9% 18.7% 6.4% Operational information Combined oil and gas production (thousand boe/day) 1 080 1 074 1 007 1 003 967 Proven oil and gas reserves (million boe) 4 264 4 267 4 277 4 317 4 511 Production cost (USD/boe) 3.2 3.0 2.8 3.0 3.4 Finding and development cost (USD/boe, 3-year average) 5.9 6.2 9.1 8.2 8.7 Reserve replacement ratio (3-year average) 0.95 0.78 0.68 0.86 1.03 Share information Net income per share 7.64 7.78 8.31 8.18 3.24 Net income per share adjusted for special items(1) 7.32 7.72 7.32 8.18 4.54 Share price at Oslo Stock Exchange 30 December 74.75 58.50 61.50 - - Weighted average number of ordinary shares outstanding 2,166,143,693 2,165,422,239 2,076,180,942 1,975,885,600 1,975,885,600 (1) Special items covers certain gains on sale of assets, write-downs and provisions. See “Operating and financial review and prospects”. Net interest-bearing debt = Production costs = Carbon dioxide (CO 2 ) = Definitions Gross interest-bearing debt less cash and Operating expenses associated with pro- Carbon dioxide emissions from Statoil cash equivalents. duction of oil and natural gas divided by operations embrace all sources such as tur- total production (lifting) of oil and natural bines, boilers, engines, flares, drilling of Net debt to capital employed = gas. exploration and production wells and well The relationship between net interest- testing/workovers. Reductions in emiss- bearing debt and capital employed. Finding and development costs = ions are accumulated for the period 1997- Calculated from new proven reserves, 2003. Average capital employed = excluding acquisitions and disposals of Average of the capital employed at the reserves. Total recordable injury frequency = beginning and end of the accounting peri- The number of total recordable injuries per od. Capital employed is net interest-bear- Reserve replacement ratio = million working hours. Employees of Statoil ing debt plus shareholders’ equity and Additions to proven reserves, including and its contractors are included. minority interests. acquisitions and disposals, divided by vol- umes produced. Serious incident frequency = Return on average capital employed The number of incidents of a very serious after tax = Barrel of oil equivalent (boe) = nature per million working hours. An incident Net income plus minority interests and net Oil and gas volumes expressed as a com- is an event or chain of events which has financial expenses after tax as a per- mon unit of measurement. One boe is equal caused or could have caused injury, illness centage of capital employed. to one barrel of crude, or 159 standard and/or damage to/loss of property, environ- cubic metres of gas. mental damage or harm to a third party.

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    Opportunities Strategies and prospects 2 The chief executive 4 Baltic success 6 Cleaner results 8 Footprints in the sand 10 An ear to the seabed 12 Business review Facts and highlights 14 Exploration & Production Norway 16 International Exploration & Production 20 Natural Gas 24 Manufacturing & Marketing 28 Technology 32 People and society 36 People and The environment 40 the environment HSE accounting 44 Corporate governance Corporate governance 52 The corporate executive committee 55 Directors’ report Directors’ report 56 Operating and financial Operating and financial review 64 review Accounts for 2003 The Statoil group – USGAAP 93 Notes 98 Auditors’ report 130 Report on reserves Proved reserves report 131 Shareholder information Shares and shareholder matters 132 General information 134 Statoil’s articles of association 135 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 1

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    Corporate strategy The main strategy of Statoil is to: Exploration & Production Norway • enhance value creation on the Norwegian continental shelf (NCS) • develop a broad European gas position • attain substantial growth in production internationally • strengthen downstream operations in selected areas Considerable growth creation. Systematic work on con- International Exploration & Production Statoil’s ambition is to become a tinuous improvements is necessary leading international oil and gas to meet the main objectives: group with up to 40 per cent of • zero harm to people or the envi- production taking place outside ronment Norway in 2010-2012. Production • zero material damage or losses. outside Norway at present accounts for eight per cent. Oil and People and the organisation gas production forms the basis for In order to meet the goal of the group’s business and Statoil becoming a leading international oil expects output to be high in the and gas group, it is necessary to Natural Gas next few years. The gas business is develop a common set of values expected to become increasingly and modes of working. It is also important. necessary to secure the best possi- ble use and further development of International focus personnel and expertise. It is While a strong international com- therefore important to strengthen mitment is necessary to ensure the efforts within management and group’s long-term growth, the NCS personnel development. will remain the cornerstone of Statoil for a long time to come. Access and trust Manufacturing & Marketing Output from known fields will Statoil needs access to resources decline towards the end of this through formal licences from the decade. With production growth up relevant authorities and is depend- to 2007 secured through identified ent on society’s confidence in the and sanctioned projects, the chal- group’s activities. The Horton affair lenge will be to secure access to in the autumn of 2003 revealed reserves that will provide new how vulnerable the group’s reputa- long-term production. tion is, and showed how important it is that business is conducted Critical factors within accepted norms. Continuous Technology Statoil’s continued involvement on and systematic efforts are neces- the NCS and the development of sary to improve the group’s per- international production depend on formance along the three bottom several key factors. lines of financial results, environ- Good results for health, safety mental performance and social and the environment (HSE) are responsibility. basic to achieving long-term value 2 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Business strategies Strategy Prospects It is the business area’s ambition to become the industry’s best Access to new exploration acreage will be vital if the current level production operator on the NCS. Statoil currently produces of activity is to be maintained. The government decision to about one million barrels of oil equivalent per day off Norway. reopen the Barents Sea for exploration operations is positive. The goal is to maintain this level until 2008, or even longer if Through improvement processes, measures have been identified possible. Proven reserves must be developed and access to new to reduce cost levels for fields operated by Statoil. 2004 will be an exploration acreage must be secured. important year for realising the ambitions declared at the time of the group’s flotation in 2001, as regards production, operating costs and investment framework. Strategy Prospects Secure future growth through production from international core International production will increase from 89 000 barrels of oil areas, each delivering more than 100 000 barrels of oil equiva- equivalent per day in 2003 to more than 300 000 in 2007 from lent per day. Build on Statoil's experience as a national oil compa- Statoil’s positions in the UK, Angola, Azerbaijan, Venezuela, Iran ny to form partnerships with national and international oil com- and Algeria. The group will continue high-priority screening of panies in resource-rich areas. It is important to access basins globally, and extending exploration activities in countries high-quality exploration and exploit a competitive edge in estab- in which it is already present. The main areas of interest are the lishing and operating complex gas value chains. Atlantic margins, the Middle East and the Caspian region. Strategy Prospects The gas strategy is rooted in a unique position, characterised by large European consumption of natural gas continues to rise. For a long reserves, substantial market shares secured through long-term con- time to come Statoil’s main markets will be in north-western tracts, an efficient and integrated transport infrastructure and Europe, and the company will be in a good position to meet the wide-ranging technical and commercial expertise. Future earnings UK’s increasing demand for gas imports. Additional gas from the will be secured by maximising the value of long-term contracts Caspian region, Algeria, west Africa, Snøhvit LNG and other combined with efficient operation of processing and transport facili- sources, will enable Statoil to supply more countries in Europe ties. Further growth will be achieved through developing supply and the USA in a cost-effective manner. solutions and new markets. Strategy Prospects Manufacturing & Marketing will create value through integration and The average price of North Sea oil in 2003 was USD 28.8 per brand and utilise profitable opportunities for synergy and growth. barrel. That is the highest price since 1985. The market Through our market position we will maximise the value of Statoil’s and prospects are uncertain but continued growth in the demand for the Norwegian state’s access to crude oil, rich gas and refined prod- oil is expected, at a level of 1-1.5 million barrels per day. An ucts. We will further develop Mongstad and Tjeldbergodden as indus- upturn in the world economy will help to improve earnings in the trial centres in the value chain, and strengthen our position in retail markets for refined products and plastic raw materials. marketing and sale of traditional oil products in our core markets. Strategy The technology strategy will result in value cre- Business challenges: Key areas of technology: ation through skilful application of technology. • Increasing recovery from subsea • Exploration and reservoir management It consists of two main elements: the main busi- wells • Well design ness challenges to be solved through research • Tail-end production • Subsea field development and technology development, and identification • Finding and developing new • Cost-effective, reliable and regular of the most important areas of technology. resources operation • New business opportunities. • Development of the gas value chain • The environment. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 3

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    Fit for the future Statoil is ready to face the future. Impressive efforts from the whole organisa- tion have secured a record-high level of production and reduced costs – and laid the basis for a strong financial result in 2003. Continuous improvement and con- centration on creating value have provided our shareholders with a competitive return. Strong financial results and considerable strategic progress pave the way for profitable growth in the years ahead. The Norwegian continental shelf (NCS) will constitute the foundation of Statoil’s operations for many years to come. Safe and effective opera- tions, development of good projects and purposeful exploration activity will secure Statoil’s leading position on the NCS. Good results have given ously we take efforts to improve that underpin our success over rise to big ambitions. safety in the group. Statoil will pur- recent years. This also applies to our interna- sue its business in a profitable, safe Statoil has a good basis on which tional operations which will be and ethical manner. It will also show to continue its success in the time Statoil’s most important source of consideration to the environment ahead. We have a solid industrial growth in the years ahead. and accept social responsibility. This platform based on valuable experi- Concentrated efforts in a limited is the core of Statoil’s focused ence and we have competent, moti- number of countries are now provid- efforts for sustainable development. vated employees. Last but not least, ing results in the form of important Through these efforts we will gain we have a robust strategy which contributions to the group’s reserves the confidence of our employees, already yields good results. and production. Farming into two big partners and owners. It is with a sense of pride in our gas fields in Algeria provides inter- The “Horton affair” last year achievements and with expectation, esting prospects for the natural gas reminds us how Statoil can be that we welcome Helge Lund as business. harmed when we do not succeed in Statoil’s new chief executive. Running our business without practising openness and compliance Our job in Statoil is to exploit our causing harm to people or the envi- with our own ethical guidelines. advantages to build the Statoil of the ronment is a prerequisite for success. However, the matter was taken future, providing maximum value We are working hard to improve extremely seriously, and I am con- creation for its owners, employees behaviour and attitudes, and we vinced that confidence will be and society. Statoil’s employees are have launched the safe behaviour restored in Statoil. looking forward to doing this programme to motivate employees Changes in our surroundings and together with our new chief execu- and improve safety at work. competitive conditions are taking tive. Covering 18 000 permanent place at an ever-increasing tempo. employees and contractor personnel Our response must show an ability to working on the NCS, the extent of adapt quickly and to seize the right Erling Øverland this programme illustrates how seri- opportunities. These are the qualities Acting chief executive 4 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Construction workers close the roof on one of the big gas in the Baltic states, new technology in the search for tanks on Melkøya island off Hammerfest. The first export subsea oil and gas, focused efforts in the Algerian desert facility for liquefied natural gas (LNG) in Europe is being and environmental ambitions. built there by Statoil. Involving much environmental and technological innovation, this project is driven by able These pieces share a common denominator. They all tell a specialists who have seen and seized new opportunities. story of Statoil employees who have seized opportuni- ties, exploited possibilities and contributed to getting the Four articles on the following pages feature different group ready to face the future. areas of Statoil’s business. They deal with doing business STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 5

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    Baltic success Three women, three countries, three success stories – one way to sum up Statoil’s story in Estonia, Latvia and Lithuania. Since September 2001, the female trio of Epp Kiviaed, Baiba Rubess and Anne Martory has led Statoil’s subsidiaries in these Baltic states. And they have done well, with their 1 700 employees creating good results. Statoil ranks as the largest petrol up in Canada and Sweden respec- early years, but gave us the chance retailer in Estonia and Latvia, and as tively, and came to Latvia and to build a solid organisation from the one of the 10-12 largest enterprises Estonia soon after these countries ground up on the basis of Statoil’s in these countries. In Lithuania, the regained their independence. They values,” she says. “We’re reaping the group comes second in the fight for belong to a large group of well-edu- fruits of this personnel policy today, customers. Equally important, it is cated young people who upped with very loyal and motivated earning good money from its 156 stakes to help build the nations employees.” service stations in the Baltic states. which their parents left under the Statoil acquired Shell’s service Significant factors in explaining Soviet yoke. stations in the Baltic states in 2002, this performance must include a Statoil’s arrival in the Baltic states and 52 of these forecourts were management style characterised by also coincided more or less with rebranded during 2003. The three good humour and plenty of laughter. independence. The group estab- presidents describe this takeover as Meeting the three national presi- lished its first subsidiary in Estonia a complex but rewarding process, dents is no dull experience. even before the USSR collapsed. An providing a solid market boost. “We’re different, and have early entry is part of Statoil’s success Having three women in charge of intense though humour-filled dis- story. Its first service stations three oil companies is unique in the cussions – but we reach agreement,” opened in 1992. Baltic states, which are otherwise a says Ms Martory. She is French, but Ms Kiviaed highlights another male-dominated world. has lived most of her adult life in reason for success. Rather than con- “They’re tough men who play Norway and has 22 years of experi- centrating on franchise agreements, hard,” says Ms Rubess, who makes it ence from various parts of Statoil’s the group opted to own its fore- clear that she can also play hard. business. A Lithuanian magazine courts directly and employ all their “We have 23 per cent of the recently called her one of the 15 staff. Latvian market, and we’re going to best business leaders in the country. “This required more resources get that up to 30 per cent,” she Ms Rubess and Ms Kiviaed grew and yielded lower revenues in the affirms. Statoil has a strong position in these three states. In addition, a new trademark has emerged there – the group’s “1 2 3” fully- automated forecourts were developed in Latvia and Estonia. “We’re very proud that our concept has been approved and adopted by the parent company,” says Ms Rubess 6 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Baiba Rubess (left), Anne Martory and Epp Kiviaed head Statoil’s subsidiaries in Latvia, Estonia Latvia Lithuania Lithuania and Estonia. 1.4 million inhabitants 2.3 million inhabitants 3.7 million inhabitants Operations in the three 30 per cent market share 23 per cent market share 18 per cent market share states cover 1 700 44 stations plus three unstaffed 47 stations plus five unstaffed 53 stations plus four unstaffed employees and 156 618 employees Oil terminal in Riga 585 employees service stations. 593 employees STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 7

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    Cleaner results The requirement is clear. All fields on the NCS must have reduced harmful dis- charges to the sea to zero by the end of 2005. This represents one of Statoil’s most important environmental challenges, and its commitment on the Åsgard B gas platform in the Norwegian Sea is already yielding results. Zero harmful discharges means that a leader in the environmental area, platform have been cut by about 30 discharges on a field must be within this is motivating work. We regard it per cent as a result of energy opti- the carrying capacity of the ecosys- as spending money to make money.” misation in the process facilities. tem. In plain language, no marine Low nitrogen oxide turbines also organisms must suffer from their Demanding conditions reduce emissions of these gases by coexistence with oil and gas opera- Åsgard has been one of the most more than 80 per cent. tions. The big saithe hauled over the complex development tasks ever Discharges to the sea also repre- railings on Åsgard B by Kristin Øye undertaken by the oil industry. Its sent a challenge for an oil and gas (facing page) has also grown fine 10 reservoirs lie at depths from field, and a number of measures and big as a neighbour to the instal- 2 300 to 4 870 metres beneath the have been initiated on Åsgard. lations on this field. seabed. Very different in terms of Its flowlines are in 13 per cent content, pressure, temperature and chrome steel, eliminating the need Motivating work geology, they make heavy demands for corrosion-inhibiting chemicals. Ms Øye is environmental coordina- on the technological solutions cho- That in turn reduces discharges of tor on Åsgard, a large field compriing sen and on safety and environmental such substances. Direct heating of the Midgard, Smørbukk and measures. flowlines is another measure which Smørbukk South discoveries. The B “These waters are a sensitive cuts out the need for chemicals to platform serves as its centre for area, with large fish resources and inhibit the formation of hydrate – processing gas, and ranks as the great biological diversity,” com- ice-like solids which can form in world’s largest floating unit of its ments Ms Øye. “We regard it as gas/oil mixtures. An amine plant for kind. entirely natural to want to meet removing hydrogen sulphide sub- “We’ve implemented extensive both official standards and our own stantially reduces the need for measures to look after the environ- environmental targets.” chemicals to strip out the hydrogen ment,” Ms Øye explains. “For an oil Emissions of carbon dioxide, one sulphide, and thereby cuts dis- and gas company which wants to be of the greenhouse gases, from the charges of such substances. 8 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    The fishing and oil industries must be able to flourish side by side, says environmental coordinator Kristin Øye, pictured here hauling a fine saithe over the railings of the Åsgard B platform. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 9

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    Footprints in the sand “We’re here to stay for a long time,” says Statoil’s Ola Krumsvik as he eyes the footprints in the desert sand. The group has become an equal partner and operator with BP and Sonatrach on Algeria’s major In Salah and In Amenas gas fields. Mr Krumsvik has been named vice desert undoubtedly has its own Plateau production president for gas operations at In special challenges – with snakes In Salah is due to reach its plateau Salah when this field comes on and scorpions among the lurking output of nine billion cubic metres stream during the summer of 2004. hazards. This represents a fantastic of gas annually within a few years. He brings with him first-class expe- opportunity to participate in gas Plans call for In Amenas to come on rience from operations on the NCS, production from large and rich stream in late 2005, with an esti- where his previous jobs include deposits beneath the desert sand.” mated annual production of nine platform manager on Gullfaks and Algeria looks like becoming a billion cubic metres of gas at operations vice president for core asset in Statoil’s purposeful plateau. This will be supplemented Åsgard. He has also served as a international commitment, says by liquids corresponding to 60 000 chief engineer and held several Ottar Rekdal, executive vice presi- barrels of oil per day. important managerial posts for dent for International Exploration & “Algeria will be our third avenue, technology and production. Production. Involvement with pro- with these reserves strengthening duction facilities under a burning our position as a long-term and sta- Special challenges Saharan sun brings the group a long ble gas supplier to customers in “Coming from a platform on the NCS step forward in its internationalisa- Europe,” says Algeria manager Terje to a production facility deep inside tion efforts. The agreement on Halmø at Statoil, who has his head the Sahara will involve a number of acquisitions from BP in the summer office in the capital, Algiers. differences,” Mr Krumsvik admits. of 2003 means that Statoil will “Our first avenue runs from the “In technical terms, the process have 32 per cent of In Salah and 50 NCS and the second is now taking plant is the same as the ones we’re per cent of In Amenas. Farming into shape from the Caspian to Turkey, familiar with in Norway and other these two fields will add roughly with opportunities for an extension parts of the world. I imagine it’s 50 000 barrels of oil equivalent to to the continental European mar- rather simpler to operate on land the group’s daily production within a ket.” than offshore, even though the few years. Ola Krumsvik (left) will be oper- ations vice president for the In Salah and In Amenas gas fields. Pictured here with Ottar Rekdal, head of international exploration and production activities, and Kåre Røssandhaug, who is responsible for operations in Algeria. 10 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    An ear to the seabed Oil explorers have been provided with an extended organ of hearing by advanced receivers installed on the seabed before electromagnetic waves are transmitted into the subsurface. This seabed logging (SBL) service is customers world-wide and That can identify structures, offered by Statoil’s newly-created attracted much attention. World but fails to distinguish between Electromagnetic GeoServices Oil, the international petroleum hydrocarbons and water in the way (EMGS) subsidiary at 10 per cent journal, has awarded EMGS its achieved by the new EMGS of the cost of drilling an exploration prestigious prize for new explo- method. well. Based on logging echoes from ration solutions. electromagnetic waves transmit- More information ted underground, this solution can Recognised product “We get out key information about distinguish hydrocarbons from “That means recognition for us, the subsurface to supplement tra- water with a high degree of proba- not only in Norway but also inter- ditional seismic surveys,” says Mr bility. The new technology is nationally,” says Terje Eidesmo, Eidesmo. “These data are available described as a major leap forward president of EMGS. He has many before we decide to drill a well, in oil and gas exploration. years of technological experience which reduces the risk of drilling a It all started in 1997 as an idea from Statoil, primarily in well log- duster. With SBL, in reality, we on the drawing board at Statoil’s ging. bring the well up to the seabed. In research centre in Trondheim. “We’re no longer just a new- that way, we can obtain supple- Within a few years, the solution has comer, but have an acclaimed mentary information which was been commercialised and readied product which gives us a position in previously inaccessible without for international marketing. EMGS the exploration industry.” drilling.” started with a staff of three, but He adds that SBL with electro- The industry is very interested this number has increased 10-fold magnetic waves represents an in SBL. Mr Eidesmo says that and the company’s annual turnover important supplement to tradition- Statoil and Norsk Hydro, through is more than NOK 100 million. The al seismic surveying, where sound their operations on the NCS, have future looks bright for an innova- waves sent into the subsurface are played a crucial role in the adoption tive company which has secured measured as they bounce back. of the new technology. SBL is currently confined to water depths beyond 300 metres, which are found across much of the NCS and in explo- ration provinces in many other parts of the world. Mr Eidesmo believes that the new method is very relevant for the Barents Sea, and just over 30 areas have so far been investigated with its aid. These include both Troll and Ormen Lange. 12 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Svein Ellingsrud (left) and Terje Eidesmo have helped develop a research idea into a commercial product which is described as a considerable innovation in the search for subsea oil and gas. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 13

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    The Statoil group Statoil is an integrated oil and gas company. It is the Exploration & Production Norway biggest operator on the NCS and has considerable opera- tions internationally. Represented in 28 countries, the group has 19 326 employees. Statoil is one of the world’s most environmentally-efficient producers and trans- porters of oil and gas. In 2003, the group had a turnover of NOK 249 billion and a net income of NOK 16.6 billion. Statoil’s goals International Exploration & Production When Statoil was floated on the 1 350 000 boe in 2007. An output stock market in 2001, it announced a of 1 350 000 barrels in 2007 entails set of targets for 2004. These were an annual growth of six per cent in operational objectives associated the period 2004-2007. Production with increasing production, enhanc- growth is expected to take place ing efficiency and improving prof- internationally, since the ambition for itability. In 2003 the group the NCS is to maintain production at announced a new set of targets for today’s level in the years ahead. the period up to 2007. Natural Gas Improvement programme Improved profitability The group is conducting a pro- and efficiency gramme to improve financial results Statoil has set a target to increase its by NOK 3.5 billion from 2004, return on capital employed in 2004 through increased efficiency and to 12 per cent, normalised for prices, reduced costs in the upstream area, margins and currency effects. At 31 higher gas sales and improved prof- December 2003, the return was itability in the downstream business. 12.4 per cent. The target for 2007 is At the end of 2003, the effect of set at 12.5 per cent, but changes in measures implemented was calculat- Manufacturing & Marketing normalised factors mean that the ed to contribute annual improve- target remains a demanding one. ments of NOK 2.8 billion from 2004. The table below shows Statoil’s Strong production growth targets and results so far for return Statoil’s oil and gas production on capital employed, increased totalled 1 080 000 barrels of oil access to reserves in relation to pro- equivalent (boe) per day in 2003 and duction and expenditures for explo- the goal is to increase this figure to ration, development and operation. 1 120 000 boe in 2004 and Technology Financial and operational results and targets: 2001 2003 2004 Return on capital employed (at USD 16/ per boe)* 9.4% 12.4% 12% Production (1 000 boe per day) 1 007 1 080 1 120 Reserve replacement ratio** 0.68 0.95 >1.0 Finding and development costs (USD/boe)** 9.1 5.9 <6.0 Production cost (USD/boe)* 3.2 2.8 <2.7 * Normalised ** 3-year average 14 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    The business areas Facts Highlights in 2003 The business area is responsible for Statoil’s operations on the • Gas deliveries from the Mikkel field started. Development costs NCS. The fields operated by the group account for roughly 60 per 20 per cent lower than planned. cent of total Norwegian oil and gas output. Statoil is operator for • Vigdis extension project started production more than two 20 oil and gas fields, which comprise 18 platforms and produc- months ahead of schedule. Costs 14 per cent lower than planned. tion ships with crew, four unstaffed installations and 19 remotely • Topsides for Kvitebjørn platform installed; the largest and heavi- controlled subsea facilities. Employees: 6 405, of whom 3 384 est lift Statoil has ever carried out offshore. work offshore. • Statoil bought Hydro’s and Svenska Petroleum’s interests in Snøhvit – raising its holding to 33.53 per cent. Facts Highlights in 2003 The business area is responsible for Statoil’s exploration, develop- • Agreement with BP on farming into major Algerian gas projects. ment and production of oil and gas outside the NCS. Its responsi- • First development phase launched for the Shah Deniz gas field bility for natural gas sales outside Europe was transferred to the in the Caspian. Natural Gas business area on 1 January 2004. Statoil has substan- • Statoil became operator for a gas sales company in Azerbaijan tial positions in the Caspian region, northern and western Africa, and commercial operator for a pipeline company. western Europe and Venezuela. Employees: 606, of whom 268 • Exploration success in Angola, and two fields brought on work outside Norway. stream. Facts Highlights in 2003 The business area is responsible for transporting, processing and mar- • Statoil received responsibility for planning and constructing a new keting Statoil’s own gas from the NCS to Europe and for the group’s trunkline from the Ormen Lange gas field to the UK. international gas marketing. Statoil also markets the Norwegian state’s • Contract signed with Electricité de France National for the supply gas, and thereby accounts for two-thirds of Norwegian gas exports. of gas from Statoil over 15 years, with deliveries to start in 2005. Statoil has substantial interests in, and operational responsibility for, • Statoil sold its 5.26 per cent share in German Verbundnetz Gas. export pipelines and land-based treatment plants and terminals The • First deliveries of liquefied natural gas (LNG) from Statoil to the business area is responsible for Statoil’s commitment to LNG. USA. Employees: 994, of whom 147 work outside Norway. Facts Highlights in 2003 The business area covers Statoil’s downstream oil operations, and • Successful sale of Navion. methanol and petrochemical business. Responsible for selling • Letter of intent signed with ICA covering the acquisition by Statoil’s and the Norwegian state’s crude oil, rich gas and refined Statoil of ICA’s 50 per cent holding in retailer Statoil products. Also sells natural gas to the Nordic countries. It is responsi- Detaljhandel Skandinavia AS. ble for operating and developing refineries and methanol production. • Price of North Sea crude in 2003, measured in USD, the highest Statoil has more than 2 000 service stations in nine countries and in 18 years. New petrol desulphurisation plant at Statoil’s has a 50 per cent share in the Borealis petrochemicals group. Mongstad refinery came on stream. Employees: 8 447, of whom 6 941 work outside Norway. • Production record set at the Tjeldbergodden methanol plant. Facts Highlights in 2003 The technology entity is responsible for maintaining the group’s • New light well intervention method for subsea wells boosts earn- long-term technology development. Its function is to provide ings. the cost-effective technical solutions and top expertise that it • Intensified efforts to develop new forms of energy such as hydro- would not be practical for the business areas to invest in inde- gen and electricity production without emissions of carbon dioxide. pendently. It is responsible for the commercialisation of technol- • New technology developed for treating produced water before ogy and industrial rights, and for the management and quality discharge into the sea. assurance of decision-making processes. Employees: 998, of • Demonstration plant for gas-to-liquid (GTL) technology under whom 22 work outside Norway. construction in South Africa. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 15

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    Exploration & Production Norway Statoil’s oil and gas production from the NCS in 2003 was roughly on a par with 2002, averaging 991 200 barrels of oil equivalent per day. While oil output declined slightly, this was largely offset by higher gas sales to the group’s European customers. Key figures (NOK million) 2003 2002 2001 topside and module fabrication for Total revenues 62,494 58,780 67,245 the floating platform, and manufac- Income before financial items, other items, turing of subsea production equip- taxes and minority interest 37,589 33,953 42,287 ment. Four templates were installed Gross investments 13,412 11,023 10,759 in June-July. With the high pressure and tem- perature found in its reservoir, Two Statoil-operated fields and one Development of the Kvitebjørn Kristin represents the most with Statoil participation came on field east of Gullfaks is on schedule. demanding field so far sanctioned stream in 2003. The Mikkel gas field The upper part of the platform for development on the NCS. That has been developed with a subsea jacket was installed in the spring of applies both to equipment quality installation tied back to the Åsgard B 2003, followed by the 10 000- and reservoir drainage. platform. Its gas is being piped tonne topside in May. Laying of the through the Åsgard Transport trun- oil and gas pipelines from this Tight schedule for Snøhvit kline to the Kårstø processing com- installation took place in April-May. Development of the Snøhvit proj- plex. Vigdis Extension embraces the Gas deliveries from the field are due ect is running mainly according to Borg North/West and Vigdis East to start on 1 October 2004. plan and remains within the revised structures, and represents a further The Kristin gas development in investment budget of NOK 45.3 development of existing subsea the Norwegian Sea is in full swing billion. The progress plan for the installations on Vigdis which are tied but the project has a very tight project is however very tight due to back to Snorre A. Operated by Norsk schedule. After the largest and delays in the construction of the Hydro, Fram West is a subsea devel- most important contracts were process plant for the gas liquefac- opment comprising two templates placed in 2002, the main activities tion plant. More than 1 000 people tied back to Troll C. in 2003 were concentrated on hull, were employed at the site on 989 989 991 940 940 249 319 319 331 249 691 670 691 670 661 Oil and gas production, Norwegian continental shelf 2003 2002 2001 Oil (thousand boe per day) 661 670 691 2001 2002 Natural gas (thousand boe per day) 331 319 249 Olje Gass Total production (thousand boe per day) 991 989 940 2001 2002 2003 Oil Gas 16 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    He hangs high, but safe. Are Christiansen in Linjebygg Offshore has a spectacular workplace on the outside of the derrick during a turnaround on the Gullfaks A platform in the North Sea. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 17

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    Melkøya island outside Hammerfest required – had been appointed at facility for liquefied natural gas at 1 January 2004. Services there 31 December. (LNG). have been provided by 350 compa- NOK 8.7 billion of contract value nies so far, with 35 nations repre- Spin-offs from Snøhvit has gone to Norwegian suppliers, sented among the workforce. Contracts totalling NOK 20.8 billion including NOK 1.5 billion placed in Recruitment of personnel for had been placed for the Snøhvit northern Norway. The west the operations organisation was in project by 31 December 2003. This Finnmark region has secured work full swing during the autumn, and development includes the first worth NOK 1.1 billion. This is grati- 90 people – just over half the total Norwegian and European export fying, since the original estimate for contract value going to northern Norway was NOK 600 million. Statoil’s oil and gas production - Norwegian continental shelf 1000 barrels of oil equivalent/day Statoil expanding in Snøhvit Field 2003 Statoil’s share In January 2004 Statoil agreed with Statfjord 84.6 51.88% Norsk Hydro to buy Hydro’s 10 per Statfjord East 10.5 25.05% cent interest in the Snøhvit field. Statfjord North 11.9 21.88% Statoil has also signed an agree- Sygna 7.0 24.73% ment to acquire Svenska Gullfaks 168.7 61.00% Petroleum’s 1.24 per cent share in Snorre 36.3 14.40% Snøhvit. These two acquisitions Vigdis 16.6 28.22% raise Statoil’s holding from 22.29 www.statoil.com/snohvit Visund 11.5 32.90% per cent to 33.53 per cent. They Tordis 22.7 28.22% will strengthen Statoil’s gas produc- Troll Gas 98.6 20.80% tion and the group’s position in a Sleipner West 107.2 49.50% strongly expanding LNG market. Sleipner East 25.0 49.60% Gungne 17.7 52.60% Statfjord late life Veslefrikk 5.6 18.00% Once one of the world’s largest off- Huldra 13.8 19.66% shore oil fields, Statfjord is now Glitne 17.1 58.90% producing less than 100 000 bar- Norne 40.4 25.00% rels per day. To ensure continued Heidrun 22.5 12.41% production and profitability, future Åsgard 104.1 25.00% operation of the field has been Mikkel 2.6 35.10% studied by the Statfjord late life Total Statoil-operated 828.0 project. Statoil is recommending to Total partner-operated 163.2 the partnership that the best Total production 991.2 development solution for this field Underlifting -9.1 and the rest of the Tampen area in Total lifted production 982.1 the North Sea will be to remove The Snøhvit development has pro- vided jobs for companies in many countries. Here a river barge trans- ports two heat exchangers for the gas liquefaction plant. The voyage through Germany follows the Danube and the Rhine, from Passau on the Austrian border to Bremen in northern Germany. The journey to Hammerfest will continue in 2005. At Melkøya outside Hammerfest the construction of the gas lique- faction plant is making progress. At the end of 2003 this engaged a workforce of 1 000. The facility should be ready to export LNG in 2006. 18 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    bottlenecks in the production sys- several wells in both the Barents East to Easington in the UK. Hydro tem through efficiency enhance- and the Norwegian Seas during has also given Statoil responsibility ments and improvements to exist- 2004. for steel pipe deliveries to Ormen ing installations. A decision on what Lange. to do will be taken at the end of Collaboration with suppliers 2004. and partners Benchmarking Statoil established a management Statoil came top for efficient drilling Exploration forum in 2003 to pursue coopera- operations in a benchmarking of 18 Nine wildcat and appraisal wells tion with suppliers at chief execu- operator companies in Europe car- were completed during 2003. Six of tive level. Regular meetings are held ried out by Rushmore Associates. the wells resulted in discoveries, within this framework with the Ranking the group as best or one of with the oil find in Ellida as the most largest and most important suppli- the best in every category, this interesting. In 2003, the Norwegian ers. The forum is intended to allow exercise was based on 280 government announced a first participants to exchange informa- European offshore wells drilled in annual licensing round in predefined tion. Extensive collaboration is also 2002. Statoil accounted for 60 of areas near existing infrastructure. pursued by Statoil with its joint these, and was the biggest partici- Statoil secured four operatorships venture partners over both devel- pant in the benchmarking. Similar in this round, including three in the opment and operation. On the basis studies focused on platform opera- Halten/Nordland area and one in of the group’s long experience in tion show that the group is steadily Troll/Sleipner. The group forecasts a executing major pipeline projects, narrowing the gap between it and substantial expansion in exploration development operator Norsk Hydro the very best North Sea operators. www.statoil.com/fields_ncs activity during 2004, not least and the other partners in the Ormen Statoil’s ambition to be the indus- because of the reopening of Lange gas field have commissioned try’s best production operator licences/acreage already awarded it to design and build the gas export remains unchanged. in the Barents Sea. It expects to drill system from Nyhamna via Sleipner Statoil is involved in more than 25 projects which are being planned or developed on the NCS. Total investments in the licences amount to NOK 170 billion. The most important projects are shown below. Projects under development Statoil’s Statoil’s Production Plateau production Field share investment1 start Statoil’s share2 Lifetime Ormen Lange3 10.84% 6.1 2007 48 000 30 Snøhvit 33.53% 15.2 2006 44 000 30 Kristin 46.60% 7.6 2005 105 000 12 Kvitebjørn 50.00% 4.9 2004 105 000 17 Sleipner West Alfa North 49.50% 1.4 2004 23 000 13 Tyrihans 46.81% 4.4 2007 41000 16 Skarv/Idun3 36.00% 5.9 2008 55 000 18 1) Estimated in NOK bn 2) Boe/day 3) Partner-operated project INVESTMENTS PER BUSINESS AREA 24.1 20.1 18.0 Other On the Kvitebjørn field NOK bn Manufacturing & the 10 000-tonne Marketing platform topside was Natural Gas lifted onto the jacket in International Exploration May 2003. The top- & Production side was built by ABB Exploration & Offshore Systems in 2001 2002 2003 Production Norway Haugesund. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 19

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    International Exploration & Production International exploration and production operations are becoming increasingly significant in Statoil’s overall business. International production is expected to rise from 89 000 barrels of oil equivalent per day in 2003 to more than 300 000 barrels per day by the end of 2007. Key figures (NOK million) 2003 2002 2001 three offshore production plat- Total revenues 6,980 6,769 7,693 forms and pipelines to land. This Income before financial items, other items, project is well under way, and the taxes and minority interest 1,702 1,086 1,291 first platform jacket was installed Gross investments 8,147 5,995 5,027 in early January 2004. To ensure access to future An important step forward in responds to no less than 62 per projects, Statoil is pursuing con- Statoil’s internationalisation cent of current international out- siderable activities aimed at busi- process was taken in June 2003, put by the group. The price paid ness development in Iran. The when the group reached agree- for these holdings is USD 740 main priorities relate to convert- ment with BP on farming into million, plus costs relating to the ing gas to liquid fuels and studies Algeria’s third and fourth largest transferred interests incurred of opportunities for improved oil gas projects and becoming their from 1 January 2003. Statoil will recovery (IOR) for three fields in joint operator. Statoil’s interests invest a total of USD 1.3 billion in the Zagros region of southern will be 32 per cent in the In Salah the two projects. Iran. This trio – Ahwaz, Marun project and 50 per cent in the In and Bibi Hakimeh – are among Amenas project. With develop- Operator in Iran the country’s largest oil deposits ment due to be completed for In Statoil concluded a contract in the and account for 40 per cent of its Salah in 2004 and for In Amenas autumn of 2002 on developing current production. Applying best in late 2005, these two projects phases six-eight of South Pars in practice from the NCS, these are expected to increase Statoil’s the Persian Gulf, which ranks as studies have identified substan- production by 50 000 barrels of the world’s largest gas field. The tial IOR opportunities for these oil equivalent per day. That cor- group is operator for installing old fields. g 86 89 6 3 67 80 87 7 Oil and gas production 60 outside Norway 2003 2002 2001 Oil (thousand boe per day) 87 80 60 Natural gas (thousand boe per day) 3 6 7 Total production (thousand boe per day) 89 86 67 2001 2002 2003 Oil Gas 20 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Sincor’s plant in Venezuela, where heavy crude oil is upgraded to sulphur-free crude. Statoil owns 15 per cent, and its share of production in 2003 was 20 300 barrels per day. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 21

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    Developing Shah Deniz and commercial operator for the Two new fields on stream In Azerbaijan, Statoil is involved in South Caucasus Pipeline compa- The Xikomba and Jasmim fields production from and continued ny. came on stream off Angola in development of the Azeri- Early production from the November 2003. Jasmim pro- Chirag-Gunashli oil field and in Azeri-Chirag-Gunashli develop- duces from a subsea installation STATOIL’S OIL AND GAS RESERVES the development of, and gas ment yielded 10 000 barrels of tied back to the production ship sales from, Shah Deniz. oil per day for Statoil in 2003. on Girassol, where Statoil has a 4 267 4 264 The first development phase The construction work aiming at 13.3 per cent interest. Girassol is 2 400 2 474 for Shah Deniz was approved in a full development of the field is the group’s largest international February 2003 on the basis of a proceeding as planned. The next producer, providing it with an Million boe gas sales agreement with phase is due to be ready to come average of 26 700 barrels per Azerbaijan, Georgia and Turkey. A on stream in January 2005. day in 2003. This has risen to 1867 1789 650-kilometre pipeline will be When the whole field is com- 28 500 daily barrels with the laid from Azerbaijan through pleted in 2008, the group’s share addition of Jasmim’s production. Georgia to the Turkish border. of output will be about 80 000 Xikomba is producing 70 000 2002 2003 Statoil is operator for the barrels per day. barrels per day from a small pro- Gas Oil Azerbaijan Gas Supply Company duction ship. Dalia is the next large field with a Statoil holding under development off Angola. The Statoil’s international oil and gas production DISTRIBUTION OF project was approved in 2003, RESERVES IN 2003 (1 000 barrels of oil equivalent/day) and will yield a daily production of Field 2003 Statoil’s share 16.5% 225 000 barrels – rather higher Girassol 26.0 13.30% than Girassol. Statoil’s share will Jasmim 0.2 13.33% be 30 000 barrels per day. Xikomba 1.1 13.33% Operated by Total, Dalia is due to Azeri-Chirag-Gunashli 9.7 8.56% come on stream in 2006 from a Sincor 20.3 15.00% production ship. LL652 1.3 27.00% 83.5% Lufeng 3.9 75.00% International Field development in Nigeria Alba 14.1 17.00% NCS Work is under way on unitising Dunlin 2.0 28.76% interests in the Agbami-Ekoli Merlin 0.1 2.35% field off Nigeria, which straddles Schiehallion 6.1 5.88% a deepwater block operated by Caledonia 1.7 21.32% Statoil and another block with Total oil 86.5 ChevronTexaco as operator. Plans Jupiter (gas) 2.5 30.00% envisage a ship able to produce Total 89.1 250 000 barrels per day, and AZERBAIJAN Baku Oily Rocks Sangachal Qaradag oil terminal Dubend Gunashli Chirag The first development phase of the Shah Deniz gas and conden- Azeri sate field was approved in February 2003. Statoil has a 25.5 per cent interest, and its share of oil production from Azeri-Chirag- Gunashli is roughly 10 000 bar- Gas Shah Deniz C a s p i a n S e a rels per day. Oil Condensate 22 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    possible start to production in 2003 averaged 20 000 barrels capital, Astana, primarily to sup- 2007. Statoil’s share of this out- per day. port the business area in achiev- put would be in the order of ing an important exploration 40 000 barrels per day. Exploration and business agreement in this country. development Spudding in Venezuela Exploration success was achieved Employee development PRODUCTION IN 2003 Statoil plans to spud its first wild- by Statoil off west Africa in Growing international activity 8.2% cat in the Plataforma Deltana 2003, and securing new explo- means that an increasing propor- licence off Venezuela during the ration acreage in the Angolan and tion of Statoil’s workforce will hail second quarter of 2004. The Nigerian sectors will be impor- from countries other than group is committed to drilling tant over the next few years. Norway. Ensuring that such three wells over four years on Future exploration activity will employees find their feet in the this acreage, which was awarded also cover the Atlantic margin, group is therefore important. 91.8% in February 2003. the Middle East and the Caspian Human resource policy and man- Production from Sincor was region. agement must reflect this. Much International hit by a strike in Venezuela and Russia is regarded as a possi- work has been done by the busi- NCS had to be shut down for 10 weeks ble new core asset, with interest ness area on communication and early in the year with the loss of focused particularly on its north- personnel development, includ- 17 per cent of planned produc- ern regions – including the ing the creation of an Inter- PLANNED PRODUCTION IN tion for 2003. Despite this, a Barents and Pechora Seas. national Business School in 2003 2007 third of the shortfall was recov- It has also been decided to to strengthen training and ered. Statoil’s share of output in open an office in the Kazakhstan expertise development. Projects under development Statoil’s Statoil’s Production Plateau production Field share investment1 start Statoil’s share2 Lifetime ACG Azeri 8.56% 5.5 2005 61 000 20 International Kizomba A 13.33% 3.7 2004 30 000 22 NCS Kizomba B 13.33% 3.3 2005 30 000 21 Dalia 13.33% 3.6 2006 27 000 22 Corrib4 36.50% 2.6 2007 20 000 19 South Pars 6, 7 and 8 Up to 40% 2.5 2006 19 000 43 In Salah 31.85% 4.1 2004 40 000 24 In Amenas 50.00% 4.5 2005 15 000 18 Shah Deniz 25.50% 4.4 2006 37 000 15 1) Estimated in NOK bn. 2) Boe/day. 3) Pay-back period. 4) Awaiting sanctioning by authorities. ANNUAL OIL AND GAS PRODUCTION 1 350 1 120 1 074 1 080 1 003 1 007 967 1000 boe/day A worker on the In Salah gas field in Algeria covers up his face to protect himself 1999 2000 2001 2002 2003 2004 2007 from the desert sand. Oil Gas Target STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 23

  • Page 28

    Natural Gas There is continued growth in Statoil’s sales of natural gas from the Norwegian continental shelf. In 2003 it sold 20.8 billion cubic metres (scm) of gas, an increase of 1.2 billion cubic metres, or six per cent, from the previous year. In addition the group sold 25.6 billion scm on behalf of the state’s direct financial interest (SDFI). The corresponding figure for 2001 was 23.5 billion scm. Key figures (NOK million) 2003 2002 2001 strengthened its position through Total revenues 25,087 24,536 23,468 sales to BP and Centrica as well as Income before financial items, other items, by its own marketing efforts. taxes and minority interest 6,350 6,428 8,039 Centrica is the largest supplier of Gross investments 456 465 671 gas to the UK household market. Statoil has signed a contract In 2002 consumption of natural (IEA) expects this to rise to 588 with British Gas Trading, a wholly- gas in Europe was 490 billion scm. billion scm in 2010 and to 734 bil- owned subsidiary of Centrica, to Consumption rose by four per cent lion scm in 2020. deliver two billion cubic metres of in 2003 according to preliminary gas per year. Deliveries started on figures from Eurostat, the EU’s Statoil’s position 1 October 2003 and the contract statistical office. The number of Statoil enjoys a strong position in will run for three years. The group customers has increased in all sec- the European gas market, particu- had already signed a contract with tors and a medium-to-high rise in larly in north-western Europe. British Gas Trading for the delivery gas consumption by the power Through its sales of equity gas and of five billion cubic metres of gas sector has been noted in most SDFI gas the group now covers over a period of 10 years, starting European countries. The improved nearly 10 per cent of OECD in 2005. economic situation in 2003 has Europe’s consumption. The largest also led to higher consumption by volumes are placed in Germany and New sales to electricity sector industry. Over the past 10 years France, where Ruhrgas and Gaz de In April, Statoil signed an agree- European gas consumption has France are the biggest customers. ment with the French electricity risen by over 40 per cent. The largest growth area at present company Electricité de France The International Energy Agency is the UK, where Statoil has National (EDF), to deliver one bil- Statoil’s first cargo of liquefied natural gas (LNG) was delivered to the USA in September 2003. The picture shows an LNG tanker docking at the Cove Point receiv- ing terminal in Maryland, the entry point for Statoil’s LNG ship- ments to the USA. 24 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

  • Page 29

    Statoil chef Charles Tjessem prepares a meal over a gas flame. In January 2003 Mr Tjessem won the unofficial world championship for master chefs in Lyons. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 25

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    lion cubic metres of natural gas deliver gas by the third quarter of previously signed agreement for annually for a period of 15 years. 2007, while the construction peri- substantial volumes of gas to Deliveries start on 1 October od for the complete facility is Poland. This was the last agree- 2005. Another agreement was expected to last until 2009. ment to be signed with the former signed in September with EDF’s Norwegian Gas Negotiating subsidiary, EDF Trading Limited, for Agreement on gas Committee (GFU), but in 2001, the delivery of 900 million cubic transportation when the Norwegian authorities metres of gas in the period from 1 British and Norwegian authorities decided to introduce company- January 2004 to 1 October 2005. have reached agreement on the based sales of gas from the NCS, EDF is one of the world’s largest main principles of a new treaty the agreement with POGC was electricity companies. between the two nations setting split between the original sellers. In February 2004 an agreement the framework conditions for new was signed with the Dutch energy pipelines from the NCS to the UK. Selling out of VNG company Essent for the sale of 6.5 This will provide the basis for con- Statoil has sold its 5.26 per cent billion cubic metres of natural gas structing a 1 200-kilometre holding in the German gas compa- over a five-year period, with deliv- pipeline for transporting gas to the ny Verbundnetz Gas (VNG) to EWE eries starting at the end of 2004. UK from the Ormen Lange field in AG, Germany. VNG is a regional gas Statoil already has gas sales agree- the Norwegian Sea. The pipeline company operating mainly in ments with several other European will be laid via the Sleipner facilities Germany’s eastern states. Statoil electricity companies. The elec- in the North Sea to Easington on acquired its stake in the company tricity sector in general represents the east coast of England. Statoil in 1991. German authorities the greatest growth potential in shares responsibility for planning wanted to privatise VNG as part of respect of demand for gas in and pipelaying with the operator, the process of selling out compa- Europe. Hydro. If everything goes accord- nies previously owned by the state ing to plan, Statoil will be able to in the former German Democratic Collaboration on start exporting gas from Ormen Republic. gas storage facility Lange through this pipeline in the Statoil and Scottish and Southern autumn of 2007. The Sleipner New gas pipeline and Energy (SSE) have entered into an connection means that by the terminal company agreement in principle to set up a autumn of 2006 Statoil will also be With effect from 1 January 2003 joint venture for the development able to send other gas to the UK Statoil coordinated its ownership of an underground gas storage market through this system. interests in the biggest Norwegian facility at Aldbrough, near Hull, on gas pipelines and terminals in the the UK’s east coast. One third of Revision of gas Gassled partnership. Statoil has a the total storage capacity of nine deliveries to Poland holding of 21 per cent and is tech- underground caverns will be at Statoil and the Polish Oil and Gas nical operator for most of the Statoil’s disposal. According to the Company (POGC) no longer con- Gassled pipelines and terminals. As plan, the facility will be ready to sider that they have a basis for the of 1 February 2004 the Kollsnes The market for imported gas to the USA will expand in coming years, and much of the gas will be used to produce elec- tricity. 26 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    plant, previously owned by Troll, in the state of Maryland. A sub- will be incorporated into Gassled. stantial increase in LNG exports to Ormen Lange This will not change the holdings in the USA is expected in the years the partnership. ahead. From 2006 Statoil will be able to export LNG to the USA Nyhamna Kårstø expanding from the Snøhvit field. Snøhvit will A special development project for supply the US market with up to processing gas from the Statoil- 2.4 billion cubic metres annually operated Mikkel field in the for a period of 17 years, from Norwegian Sea got off to a flying 2006 to 2023. Pending the gas d start on 1 October 2003. The exports from Snøhvit LNG, Statoil Bergen gele project was completed in a shorter has secured deliveries from the Lan 42” time than planned, and cost 20 per Algerian company Sonatrach and cent less than budgeted for. the Belgian company Tractebel. Furthermore, Gassled and Etanor Statoil made its first delivery of The Sleipner area Stavanger DA decided to invest NOK 5.74 bil- LNG to the Cove Point terminal in Draupner lion, to permit the landing and pro- September 2003. The group has cessing of gas from the Statoil- signed a letter of intent which will operated Kristin field in the secure access to extra capacity at Norwegian Sea. Etanor DA spe- this terminal for a 20-year period. cialises in the separation and sale eled of ethane to Borealis’ petrochemi- International gas Lang 44” cal plants in Norway and Sweden. Statoil’s participation in gas activi- These two projects will mean an ties outside Europe has been increase in capacity of more than organised by the International 40 per cent at the Kårstø gas pro- Exploration & Production business cessing plant. Statoil is technical area through the international gas service provider and will imple- and power (IGAS) business cluster. ment the development on behalf On 1 January 2004 this business Easington Emden of the operator, Gassco. The cluster was transferred to the plant’s ethane-recovery capacity Natural Gas business area. will also be expanded by more than Functions in IGAS relate to the 50 per cent. value chain for LNG, gas transport and sale from the Shah Deniz field Zeebrugge LNG to the USA off Azerbaijan and the down- Dunkerque Statoil has secured access to the stream activities in Turkey. The gas trunkline from Ormen Lange will be laid via Sleipner to the UK. This US market for liquefied natural gas decision strengthens Sleipner’s position as a gas hub in the North Sea. Gas (LNG) via the Cove Point terminal from other fields can be mixed with the gas from Ormen Lange, and gas from this field can be delivered to other markets. www.statoil.com/kep2005 www.statoil.com/pipelines Erik Kjos-Hanssen, head of Statoil operations in the UK, sees new opportunities for gas sales with a new pipeline to the UK market. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 27

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    Manufacturing & Marketing Statoil is one of the world’s largest net sellers of crude oil and it traded an aver- age of 2.3 million barrels per day in 2003. The group’s entitlement oil accounted for 32 per cent of this total, crude purchased from the Norwegian state for 41 per cent and oil acquired from third parties for 27 per cent. Statoil’s most impor- tant oil customers are its own refining business and large oil companies in Scandinavia, Europe, the USA and Asia. Key figures (NOK million) 2003 2002 2001 early in the year by unrest in Total revenues 218,642 211,152 203,387 Venezuela, fears of conflict in Income before financial items, other items, Iraq and the actual war when it taxes and minority interest 3,555 1,637 4,480 came. Statoil refined about a Gross investments 1,546 1,771 811 third of its entitlement oil in 2003 and produced 14 million The international market for crude Blend reference crude fluctuated tonnes of products. The principal oil was affected in 2003 by high between USD 34.7 immediately markets for refined products are prices measured in USD, reflecting before the Iraq war and USD 22.9 the Scandinavian countries, the production discipline in the Opec immediately afterwards. It aver- Baltic region, the rest of north- www.statoil.com/marketing countries, uncertainties over Iraqi aged USD 28.8 over the year, as western Europe and North production and the loss of vol- against USD 25 in 2002. Quoted America. Two-thirds of Statoil’s umes from Venezuela. Demand prices for Brent Blend in 2003 refined products were sold also expanded much faster than in were again tied to prices for through its own marketing sys- previous years, with growth par- Oseberg and Forties crude, tem. ticularly high in China. Stocks were improving the liquidity underlying low, particularly in the USA. this pricing and providing more Refinery investment Russian production continued to representative pricing than was Just under NOK 1 billion was increase substantially, while North the case before this arrangement invested at Mongstad in a new Sea output declined. began in 2002. petrol desulphurisation plant. Refining margins developed This became operational in the High oil prices well in 2003 compared with the first quarter of 2003, in good The per-barrel price of Brent year before. They were driven up time before new EU standards Statoil’s road tankers covered a total distance of 44 million kilometres in 2003 – the equivalent of driving from Oslo to Rome roughly 18 000 times. 28 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Statoil is the first chain of service stations in Europe to offer wireless internet access at its forecourts. At the end of 2003 this service was available at 150 stations in Norway and all 44 stations in Estonia. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 29

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    come into force on 1 January low-sulphur and environment facility ranks as the largest, most 2005. Statoil invested in equip- class 1 diesel from the second modern and most efficient ment at Kalundborg to produce quarter of 2005. methanol producer in Europe. In low-sulphur diesel oil which 2003 Statoil sat a new produc- meets the same standards. In the Methanol production up tion record, producing 915 518 first quarter of 2003, this refin- Annual output from the methanol tonnes of methanol. Statoil is a ery also started using a new facil- plant at Tjeldbergodden major player in the European ity which allows it to produce increased by 100 000 tonnes in market for this commodity, and environmental class 1 diesel oil 2000-03 through improved reg- its production corresponds to 15 for the Swedish market. Further ularity and capacity increases. per cent of Europe’s methanol investments have been sanc- Unit costs were cut by 26 per consumption. The continent is a tioned to increase capacity for cent over the same period. This net importer of methanol, which Improvement for Borealis in 2003 The Borealis petrochemicals More feedstock from Statoil old production lines. A good year group owned 50 per cent by Statoil reached agreement with was experienced in the United Statoil was affected by weak Borealis in 2003 on increasing Arab Emirates, where Borealis margins in 2003. These reflected sales of ethane to the latter’s owns 40 per cent of the both high feedstock prices and Norwegian operations. Borealis Borouge petrochemicals com- pressure on prices for polyethyl- intends to pursue an extensive plex, with production above ene and polypropylene. Europe’s improvement programme to design capacity and a good generally low rate of economic expand production capacity on financial result. Production growth led to weak growth in the basis of these extra feed- capacity for polyethylene at this demand for these polyolefins. stock supplies. It is also pursuing complex is due to be expanded However, an improvement was an extensive improvement pro- by almost 30 per cent during noted during the year, with the gramme in Austria which 2004. second half considerably better involves building a new polyeth- than the first. Overall results ylene plant, based on its propri- increased marginally from 2002, etary Borstar polyolefin tech- www.borealisgroup.com but remained unsatisfactory. nology, and shutting down two In 2003 the methanol plant at Tjeldbergodden set a production record of over 900 000 tonnes. This rep- resents 15 per cent of all methanol consumption in Europe. 30 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    makes the Tjeldbergodden plant company owned 50-50 with ICA. Expertise enhancement well positioned in this market. ICA and Statoil have signed a let- Systematic long-term measures ter of intent concerning the sale for enhancing employee expert- Total supplier of energy of ICA’s holding to Statoil. ise are pursued by the various Statoil sells heating oils, lubri- The acquisition of Shell’s serv- business units, in close coopera- cants, marine and aviation fuels ice stations in Estonia, Latvia and tion with other entities in the and liquefied petroleum gases Lithuania has made Statoil the group. In addition, commercially- (LPG) and is responsible for sell- leading player in the Baltic states and-technically-tailored educa- ing natural gas in Scandinavia. (see page 6). Development of the tional programmes have been With more than 300 000 cus- station network in Poland will established for employees. The tomers in the consumer and continue to be pursued with full O&S Business School is a case in industrial segments, the group vigour. Acquiring Preem in 2003 point. Manufacturing & Marketing has a 25 per cent share of the means that Statoil now has more pursues planned training and rota- market. Statoil has about 40 per than 200 Polish forecourts. tion of managers, both within and cent of the LPG market. outside the business area. The range of energy prod- Strengthened HSE commitment Collaboration with union officials ucts is being expanded, with a Manufacturing & Marketing has is good and constructive. special focus on gas and renew- strengthened its commitment to ables. In Denmark, Statoil avoiding injuries to people and Brand acquired EcoNordic in 2003 to harm to the environment. Results Statoil has developed a strong become the largest player for for total recordable injuries, lost- brand and pursues a clear and wood pellets with 40 per cent of time injuries and serious incidents consistent use of this trademark the market. showed a positive trend in 2003. in its marketing operations. In addition to the group’s Analyses show that the Statoil More than 2 000 overall management system, brand is well entrenched. Statoil service stations local management systems have is perceived as serious, compe- A network of more than 2 000 been implemented in parts of the tent and professional. service stations makes Statoil business where they are required. one of the leading players in Several entities have been certi- Scandinavia, the Baltic states, fied to the ISO 9001:2000 and Poland and Ireland. The group 14001:1996 standards for quali- also has forecourts in the ty assurance systems and envi- Murmansk area of Russia. Sales of ronmental management systems petrol and diesel oil totalled 4.7 respectively. Some entities have billion litres in 2003. Retailing implemented both standards. operations in Scandinavia are Women currently occupy 27 organised through the Statoil per cent of the business area’s Detaljhandel Skandinavia (SDS) senior management positions. Market share Market Number of Statoil (petrol) position stations Norway 26% 1 496 Sweden 25% 1 583 Denmark 14% 3 304 Ireland 20% 1 237 Poland 5% 3 207 Lithuania 18% 2 57 Latvia 23% 1 52 Estonia 30% 1 47 Statoil also has six service stations in Murmansk, Russia, and 16 on the Faroe Islands. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 31

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    Technology The Technology entity in Statoil consists of three main areas: • the technical staff function, which is responsible for best practice and decision-making processes. • research and technology, responsible for delivering research products and providing specialist services. • industrial development, responsible for industrial and commercial development of technology. In 2003, efforts in the Techno- Statoil’s research work in A new method has been logy entity were concentrated 2003 cost NOK 1 billion. developed for use of electromag- on delivering good results relat- Several benchmarking exercis- netic waves to obtain information ing to the requirements outlined es between Statoil and leading about possible underground oil in Statoil’s technology strategy. international oil companies were reserves. The Electromagnetic The strategy comprises two conducted in 2003. According to GeoServices (EMGS) subsidiary main elements. One of these Independent Project Analysis Inc, was formed to exploit this outlines the most important an independent survey company, method. EMGS was awarded the business challenges to be solved Statoil is among the leaders in the World Oil Award for the best with the aid of research and development of offshore oil and exploration solution. (see article technology development. The gas reserves. Statoil is the com- on page 12). other specifies the most impor- pany to make the most frequent New world-leading technolo- tant areas of technology to be use of new technology to find gy has been developed to obtain focused on to solve the business profitable development solutions. the necessary data for modelling challenges. Good results in our own tech- oil recovery from sandstone The strategy also provides nology and expertise develop- reservoirs. Better data, and con- clear financing and implementa- ment, in close collaboration with sequently greater knowledge of tion guidelines. Efficiency will be suppliers and research organisa- the reservoir, have led to increased through greater collab- tions, help us to achieve these improved recovery. The technol- oration with external players, good results in comparison with ogy provides a better basis for new models of collaboration and our competitors. decisions concerning recovery organisation into multidiscipli- In 2003 Statoil achieved good methods and reservoir manage- nary projects. results in a number of areas. ment. Transferring this method Statoil has developed a special technology for converting gas to diesel. Franz Marx opens the gate to the testing facility, where the technology will now be tested over an 18-month period. The plant was built in Mossel Bay, South Africa, in cooperation with South African state oil company PetroSA. 32 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Researcher Bernd Schmid is a staff engineer in oil refining. His job involves testing materials at Statoil’s Rotvoll research centre in Trondheim. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 33

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    and applying it to carbon reser- the sea from the production plat- relation to LNG. Statoil’s GTL voirs will mean better exploita- forms. Great efforts have there- research started around 1985. A tion of the carbon fields which fore been put into developing plant is currently under construc- contain most of the world’s new technology to reduce the tion in Mossel Bay in South Africa remaining resources. environmental load and the cost to demonstrate that the GTL of dealing with produced water. technology has reached a com- Sophisticated data Condensate (light oil) has proven mercial stage. This project is communication an effective cleanser of produced being conducted in collaboration Statoil’s research centre and sev- water, and is the central element with South African state oil com- eral operating entities have been in the patented CTour technolo- pany PetroSA. working together to develop new gy, which uses condensate from In 2002 Statoil set up a busi- technology based on an "intelli- own production to remove envi- ness development unit for new gent field" concept. Previously ronmentally-harmful hydrocar- energy, whose remit was to real-time data transfer was by bons from produced water. The develop business solutions lead- satellite. Today many fields use technology will be installed on all ing to more sustainable energy sophisticated data communica- the Statfjord fields by 2005 to production and increased use of www.statoil.com/DARTandOSC tion via fibreoptic cables. This meet the regulatory require- clean energy carriers. New ener- allows for more advanced real- ments for marine discharges. gy works in the areas of renew- time interaction between data, able energy, more efficient ener- expertise and work processes From gas to diesel gy, handling of carbon dioxide offshore and onshore. Statoil will Transportation by pipeline is nor- and hydrogen. In concrete terms, utilise this in the Onshore mally the best option for gas the market is being developed for Support Centre, the group’s first fields in the proximity of a com- small-scale power and heat pro- facility for real-time operational mercial market. If it has to be duction, wood pellets and the use support. This centre is at the transported over long distances of carbon dioxide for improved oil forefront as regards the imple- the cooling down of the gas to a recovery. mentation of new and existing liquid form (LNG) has traditional- technology. Given an optimum ly been the only commercially location of wells, this will enable viable solution. Gas-to-liquid an increase in production of 19 (GTL), a high-value diesel prod- million barrels of oil, worth NOK 3 uct, is now beginning to emerge billion. A ten per cent increase in as an interesting alternative. earnings has already been There is an almost unlimited fuel demonstrated in one well. market for GTL. Previously, the Water treatment technology disadvantage of GTL was its high The oil companies face major cost level, but recent develop- challenges relating to the dis- ments have gone a long way to charge of produced water into ironing out the cost difference in The world’s first tidal power station opened in the Kval Sound south of Hammerfest in November 2003. The pictures show one of the water tur- bines being installed, and an illustration of the turbine park. Statoil has a 46 per cent inter- est and has also contributed to the project in the form of proj- ect management and subsea technology. 34 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    New well technology boosts earnings Statoil has developed a new and be approximately NOK 200 bil- pioneering technology for light lion. well intervention in subsea Virtually nowhere in the wells that is expected to reduce world are there as many subsea the costs of well maintenance wells as on the NCS. However, to a third of the present level. the problem with these wells is The new technology will reduce that there is no direct access to operating costs, extend the life them, as there is from a plat- of, and increase recovery from, form. To date, maintenance the subsea fields. work has involved hiring in Statoil believes that the costly floating rigs. The extra new technology will give sub- quantities of oil that can be stantial gains in addition to extracted are often not worth lower maintenance costs. It the expense of the mainte- also believes that it will be pos- nance work or the efforts sible to increase the recovery required to increase recovery. factor for subsea fields from today’s level of 43 per cent to No need for rigs 55 per cent. In terms of The new technology allows increased oil production, this downhole tools to be deployed means a recovery of approxi- under pressure without the mately one billion extra barrels need for a floating rig. The of oil from the NCS as a whole. technology has been developed Based on the rate of exchange by Statoil, in collaboration with and prices at 31 December Prosafe and FMC Kongsberg 2003, the additional value will Subsea. Together with Prosafe and FMC Kongsberg Subsea, Statoil has developed a new technology for work on subsea production wells. The technology enables work to be carried out on the wells without the use of floating rigs. Maintenance costs will be reduced to a third, and the recovery factor should improve considerably. Statoil has patented a total of 415 different inventions that are active today. In 2003 it applied for patents for 36 of its inventions. The corresponding figures for 2002 and 2001 were 45 and 55, respectively. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 35

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    People and society Integrity, honesty and reliability are central to Statoil’s values and the founda- tion for building a good reputation. The latter is important for the group’s ability to realise its commercial ambitions. The basis for this reputation is laid through the attitudes and behaviour of the individual employee. That makes the way the business is conducted as important as the commercial results achieved. Develop corporate culture ment which deals with labour rela- ment at Statoil comprises a large The development of a strong, col- tions in mergers and acquisitions. number of different measures. In lective corporate culture, rooted in 2003, these involved 75 000 stu- clear values, is dependent on man- Expertise dent days in traditional courses and agers demonstrating a correspon- The Statoil School of Business and 8 000 in the form of e-learning dence between word and deed. Technology was established in programmes. These figures do not Statoil’s base values and its require- 2002 with 17 decentralised educa- include the IT step 2 programme, ment for uniform practice form the tional units. It is intended to help which employees pursued in their cornerstones of its management strengthen the group as a learning free time. training programmes. During 2003, organisation, where changes in Statoil ranks as one of Norway’s 40 of the group’s most senior man- commercial challenges determine largest companies for apprentice agement teams and more than 300 the expertise required. The link training. It recruited 111 appren- other managers completed the top between commercial needs and tices on two-year contracts in management programme estab- measures to develop the expertise 2003. The two-year corporate lished in 2002. of individual employees is ensured trainee programme for newly-qual- An introductory programme was through Statoil’s management and ified graduates continued in 2003, developed in 2003 which all exter- personnel development system. and 2 600 applications were nally-recruited managers and other The performance evaluation and received for 23 positions. key personnel must take soon after planning (PEP) discussion, which In 2003 Statoil was assessed as joining Statoil. defines personal development the most attractive employer by During 2003, the group imple- measures, occupies a central place final-year Norwegian students of mented a training programme on here. Ninety-two per cent of technology and economics. The labour standards for externally- employees had a PEP discussion in group was also rated as the most recruited managers. It is also com- 2003. attractive employer in a “Young pleting work on a governing docu- In-house expertise develop- professionals” survey of 2 000 Geographical distribution of employees (at 31 December 2003) Norway 11 835 Lithuania 585 Faroe Islands 126 At 31 December 2003 Statoil had 19 326 employees, an increase of Poland 2 367 Latvia 593 Belgium 43 2 211 from the previous year. Of Ireland 1 287 Estonia 618 Germany 45 Statoil’s employees, 7 491 (39 per Denmark 762 UK 162 Asia 152 cent) work outside Norway. This represents an increase of 1 590 Sweden 500 Russia 124 America 79 during 2003. Africa 48 36 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Linda Kolstø, a 20-year-old apprentice crane operator from Karmøy, is pictured here in a crane cabin on the Gullfaks C platform. Statoil takes on a large number of apprentices each year – 111 joined the group in 2003. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 37

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    newly-qualified Norwegian univer- reached in 2003, but some entities international arena, the survey sity graduates. still have a way to go. The target has shows progress on questions relating therefore been left standing, with to job satisfaction and motivation. New learning portal attention focused on those entities As in 2002, 13 per cent of A new web-based learning portal which have yet to reach it. respondents felt they had health accessible to all employees was Employees in the parent compa- problems which could derive from introduced in 2003 to help make ny, Statoil ASA, are remunerated in their work. An analysis shows a training measures more effective accordance with their position and clear relationship between heavy through standardisation, reuse and competence. Weight is given to pressure of work and experience of a clear-out of parallel and overlap- results achieved when awarding health difficulties. Women also suf- ping programmes. The portal pro- individual pay increases. In the fered more from such problems Women in Statoil 2003 vides information about the various annual pay awards for individual than men. To some extent, health 32% of the total workforce educational units in the Statoil employees, Statoil also applies the problems among offshore person- 23% in managerial positions School and the expertise develop- principle of equal pay for equal nel also increase with age. 30% of parent company ment programmes available. work. Employees on maternity Local care work in Statoil has apprentices Employees can sign up for new and leave maintain their salary grade been strengthened and systema- 28% of new parent company traditional courses, order pro- during their leave of absence. tised since the parent company recruits grammes based on CD-Roms, and As a general rule, all permanent joined Norway’s inclusive workplace take web-based courses. The sys- parent company employees are (IA) programme in 2002. Great tem registers courses completed employed on a full-time basis. The emphasis is given to the integrated and updates the individual’s CV company can grant a temporary place of IA efforts in everyday work www.statoil.com/hse automatically. reduction in working hours on and Statoil has achieved good Statoil is committed to a diverse health, social or other weighty wel- results. That part of the group cov- workforce in terms of gender, age fare grounds when this is possible ered by the IA agreement with and cultural background. Studies without causing particular problems Norway’s national insurance service have shown that such diversity pro- for the business. Women account can report a decline in such absence vides a better working environment for the majority of those applying to from 4.1 per cent in 2002 to 3.5 and improves an organisation’s abil- reduce their working hours. per cent in 2003. ity to develop. A computer tool for managing Occupational health and the chemicals was adopted in 2003 for Women in the workforce working environment operations on the NCS. Risk assess- Women account for more than 30 Results from the working environ- ments relating to health as well as per cent of Statoil’s current work- ment survey conducted in the to the working and natural environ- force. An important future chal- autumn of 2003 indicate that Statoil ments are carried out before a lenge will be to increase the propor- generally has a working environment chemical is purchased, and the tion of females on the specialist and an organisation with many posi- group has substituted and reduced career ladder. tive qualities. Despite negative the number of chemicals used. On an overall basis, the 2005 media coverage because of the Statoil pursues production target of women occupying 20 per Horton affair, the chief executive’s around the clock, and night-shift cent of top managerial posts was resignation and challenges in the working can cause considerable The safe behaviour programme is an important measure in achiev- ing long-lasting safety improve- ment on the NCS. A total of 18 000 Statoil employees and contractor personnel are taking part in seminars and follow-up work at their individual work- places. 38 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    reductions in the amount and quali- since 2002 to reduce risky behaviour sations pursuing local development ty of sleep. These disruptions are at work. The people responsible for work. In its international operations burdensome and increase the risk of this measure were awarded the chief Statoil has spent NOK 33 million on suffering a range of health problems executive’s HSE prize for 2003. social development projects in and incidents. Robberies and road tanker acci- 2003. Of that amount, NOK 22 dents account for a large proportion million has been provided to proj- Strengthened commitment to of serious incidents in the ects selected by the group. The rest improving safety Manufacturing & Marketing busi- has been allocated through the field Statoil’s goal is zero injuries, acci- ness area. Efforts to avoid robberies operators. dents and losses, and ensuring that and attempted robberies, and to its business is conducted without promote defensive driving, repre- Work on human rights any hazardous incidents. sent important priorities in the dis- In 2003 Statoil formulated special The group suffered two fatal tribution chain. Statoil suffered 82 guidelines for relations with indige- accidents in 2003, which both robberies or attempted robberies in nous peoples in its operations. involved contractor personnel. Two 2003, as against 110 in 2002. These guidelines clarify the princi- Statoil employees and four contrac- ples on how we are to behave tor personnel died in 2002. The Social commitment towards indigenous peoples and number of total recordable injuries Transparency is essential if society their rights, and accord with rele- per million working hours was six is to be able to assess Statoil’s con- vant international conventions. for 2003, unchanged from 2002. tribution to social development in In Nigeria the group has extend- Following a review of safety the countries in which it operates. ed its collaboration with three work in Statoil, America’s DuPont This year’s sustainability report, human rights organisations which Safety Resources identified a num- Transparency and trust, addresses started in 2002, and the long-term ber of improvement measures this challenge in detail. The group’s village development project in which are now being pursued. The most important contribution to Akassa in the Niger Delta continues. aim is to improve attitudes and society is measured as value cre- In Venezuela the judge training pro- behaviour in all parts of the organi- ation – principally through the gramme run by the United Nations sation in order to avoid injuries and impact of its investments on jobs, Development Programme (UNDP) accidents. procurement of goods and services, and Amnesty International The safe behaviour programme, transfer of technology and expert- Venezuela is entering its third initiated by the Exploration & ise, infrastructure development and phase, and includes training in Production Norway (UPN) business tax revenues. human rights. All the schemes sup- area, embraces 18 000 Statoil Statoil also seeks to contribute ported by the group accord with the employees and contractor person- to social development through UN’s principles for development nel, and represents the group’s social investment projects. These work. In 2003 Statoil extended its biggest commitment so far to are intended to contribute to local collaboration agreements with the developing a strong HSE culture. capacity building in education, Norwegian Refugee Council, the UN This programme builds on expe- health and human rights, and the High Commissioner for Refugees rience gained with the open safety funds for this are channelled (UNHCR), Amnesty International dialogue tool, which has been used through non-governmental organi- and the Norwegian Red Cross. Statoil has been successful with its safety work on the Lufeng field in the South China Sea. No injuries were recorded on the Munin production ship in 2003. Lufeng has been operated by Statoil since 1997. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 39

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    The environment Statoil’s objective is to operate without harm to people or the environment. Its environmental ambition is to be among the front runners in pursuing its business in an acceptable manner. The group works purposefully and continuously to improve its performance, and will contribute to developing alternative energy sources and bearers. Emissions to the air are largely reg- December 2005. Defined in White environment. Their level is influ- ulated by international agreements. Paper 25 of 2002-03, this concept enced by each field's reservoir con- The Kyoto protocol on reducing involves ceasing or significantly ditions and age as well as the greenhouse gas emissions and the cutting the release of defined envi- design, technology and operational Gothenburg protocol, involving ronmental toxins, and a substantial regularity of its installations. commitments to cut emissions of reduction in the risk of harm from Emissions relating to oil and gas nitrogen and sulphur oxides as well using and discharging chemicals. processing depend on the type of as volatile organic compounds The European Union’s integrated feedstock involved and the prod- (VOC), are particularly important pollution prevention and control ucts being produced. for Statoil's business. (IPPC) directive also applies to Emissions to the air include car- Discharges of oil and chemicals operations in Norway, and calls for bon dioxide, methane, VOC, and in the north-eastern Atlantic are the use of the best available tech- sulphur and nitrogen oxides. These regulated by the Oslo-Paris (Ospar) niques to reduce emissions/dis- contribute to the greenhouse convention. The oil content in pro- charges. From 2007, these require- effect, the formation of ground duced water released to the sea ments will also apply to existing level ozone and acid precipitation. must not exceed 30 milligrams per installations. The convention on Offshore operations account for litre from 2006, when the total biological diversity signed at Rio de the bulk of Statoil's carbon dioxide annual volume of oil discharged Janeiro in 1992 imposes a commit- and nitrogen oxide emissions, while must be 15 per cent lower than in ment to take account of bio- refining is responsible for most of 2000. diversity. the sulphur dioxide released by the group. Stricter standards Emissions and Norwegian government regulations environmental impact Increased water production require oil and gas installations to Producing oil and gas involves emis- Discharges to the sea embrace oil, have “zero discharges” by 31 sions and discharges to the natural organic compounds and chemicals, 40 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    and derive principally from pro- ronment. Statoil is well on its way to being made to reach the goal of duced water and drilling. Possible meeting government requirements trimming 1.5 million tonnes of car- harmful environmental effects for zero harmful discharges from its bon dioxide equivalent from the relate particularly to compounds oil and gas fields by 2005. annual volume of greenhouse gases which are slow to degrade and are Managing chemicals was an released by 2010, compared with highly toxic or have a potential for important priority area in 2003. A the amount which would be emitted bio accumulation. common database for material without special measures. At 31 Operations on the NCS are the safety data sheets has been estab- December 2003, the group had biggest source of Statoil's dis- lished with other operator compa- met 23 per cent of the 2010 tar- charges to the sea. The volume of nies on the NCS, and updated prod- get. produced water released is rising uct data sheets have been made Statoil supports the Kyoto pro- because several of the large oil easily accessible over the internet. tocol as the first step towards a fields are in a late phase. Statoil’s Apart from product details, the more far-reaching international offshore and land-based activities database provides information on agreement and the introduction of generate waste. Emphasis is given where the chemicals are in use. emission trading as an instrument to recovering and recycling the lat- Chemicals released from for limiting the release of green- ter, with hazardous waste being Statoil's offshore operations house gases in a cost-effective treated in line with prevailing regu- declined from 63 100 tonnes in manner. The group is making the lations. 2002 to 59 500 tonnes in 2003. necessary preparations for utilising Of chemicals used in 2003, 87 per the Kyoto mechanisms and for par- Environment-friendlier cent (2002: 89 per cent) posed lit- ticipating in emission trading in production tle or no environmental risk while order to meet future requirements Continuous efforts are being made 13 per cent (2002: 10 per cent) for lower greenhouse gas emis- to reduce emissions to the air and had acceptable environmental sions. Through its USD 10 million discharges to the sea through properties. Only 0.6 per cent investment in the World Bank’s pro- research and the development of (unchanged from 2002) are envi- totype carbon fund (PCF), it is ever-better technology, effective ronmentally questionable, and involved in roughly 30 projects emergency response and good efforts are being made to phase which will yield substantial emission management based on extensive these out. reductions. risk assessments. The aim is contin- uous improvement through Environmental monitoring Biological diversity enhanced energy efficiency and The condition of the environment Preserving biological diversity is other focused measures on existing around Statoil’s installations is mon- crucial for sustainable develop- and future installations. itored through regular programmes. ment. Statoil’s goal is to protect Discharges to the sea attracted Environmental monitoring covers such diversity by conserving natural particular attention in 2003. Work both water quality and seabed sedi- ecosystems, avoiding the introduc- was devoted to developing new ments, and shows a satisfactory tion of alien species and seeking not technological solutions and to trend. to affect the level of plant and ani- phasing out chemicals which repre- Where emissions to the air are mal populations through its opera- sent a possible hazard to the envi- concerned, continuous efforts are tions. In 2003 some 100 million tonnes of cargo were trans- ported by tanker from fields, terminals and refineries to customers all over the world. Safety and quality require- ments pertaining to vessels are strict. This picture is from Mongstad. 42 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    Statoil collaborates over a ments are estimated at some 45 Biofuels reduce emissions range of activities with other com- 800 tonnes, or roughly 0.5 per cent Using automotive biofuels cuts panies and environmental organisa- of the total carbon dioxide released greenhouse gas emissions. Such tions to promote protection of bio- from Statoil operations. fuels are sold by Statoil on the diversity by the oil and gas industry. Safety and environmental per- Swedish market in the form of These include the energy and biodi- formance are important in selecting petrol containing bioethanol and versity initiative (EBI), the road tankers. Key measures include diesel with rapeseed oil. The group International Petroleum Industry a high carrying capacity to reduce has also introduced a more environ- Environmental Conservation the number of consignments, mod- ment-friendly heating oil in Association/International ern engine technology with lower Scandinavia, with a reduced sulphur Association of Oil & Gas Producers fumes, optimal route planning content and additives which keep (IPIECA/OGP) working group and through good navigation systems, furnaces clean throughout the year. the Proteus programme of the UN and using diesel oils with good envi- This cuts consumption and reduces Environmental Programme’s World ronmental properties. emissions. Conservation Monitoring Centre Statoil is steadily increasing (UNEP - WCMC). The group works Products better deliveries of renewable energy to integrate biodiversity in its man- adapted to the environment through the production and sale of agement systems and governing Statoil produces and sells a number wood pellets made from forest documents. Specific activities of products, such as crude oil, nat- industry waste. This product pro- relating to biodiversity will be incor- ural gas, automotive fuels, heating vides an alternative to heating oil, porated in exploration and develop- oils, methanol, wood pellets, natural gas and electricity. ment projects. chemicals, lubricating oils and electricity. Its objective is for Investments and costs Strict transport requirements these commodities to rank among A provision of NOK 16.5 billion was About 100 million tonnes of hydro- the best for technical user qualities made at 31 December 2003 to carbons were shipped by tanker and environmental properties. meet the future cost of shutting from fields, terminals and refineries Burning oil and gas products down and removing oil and gas pro- to customers world wide, with can have a negative impact on the duction facilities. NOK 1.2 billion northern Europe as the main recipi- environment locally, regionally and was charged against income. ent. Statoil’s requirements for globally. Emissions per unit of Reusing offshore installations tanker quality exceed national and energy produced have been sub- and equipment offers financial and international standards. Tanker stantially reduced in recent years environmental gains. In 2003, operations in 2003 caused no sig- through cleaner products and Statoil earned NOK 30 million from nificant oil or chemical spills. improved engine and treatment the sale of surplus materials. Road tankers belonging to Statoil technologies. Annual carbon dioxide tax paid or hired by the group covered about The group has invested in a new for 2003 on emissions from Statoil 44 million kilometres in 2003 deliv- desulphurisation plant at its operated installations on the NCS ering products to service stations Mongstad refinery, and in equip- totalled NOK 768 million. and customers. Carbon dioxide ment for producing low-sulphur emissions relating to these consign- diesel at the Kalundborg facility. On the Kvitebjørn field oily water and drill cuttings are to be injected into a subsurface well. Safety manager Ellinor Nesse shows where the well is to be drilled. STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 43

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    HSE accounting for 2003 Statoil’s objective is to operate with zero harm to people or the environment, in accordance with the principles for sustainable development. The group supports the Kyoto protocol and the 16 principles of the International Chamber of Commerce for sustainable development. We apply the precautionary principle in the conduct of our business. Statoil’s management system for developments over time and performance indicators for safety health, safety and the environ- strengthen the decision-making are the total recordable injury ment (HSE) forms an integrated basis for systematic and pur- frequency, the lost-time injury part of the group’s total manage- poseful improvement efforts. frequency and the serious inci- ment system, and is described in HSE data are compiled by the dent frequency. These are its governing documents. business units and reported to reported quarterly at corporate Statoil’s management system the corporate executive commit- level for Statoil employees and relating to corporate governance tee, which evaluates trends and contractors, both collectively and is certified to the international decides whether improvement separately. Sickness absence is ISO 9001 standard. In addition, measures are required. The chief reported annually for Statoil several entities have been certi- executive submits the HSE employees. fied in accordance with this stan- results and associated assess- The group-wide indicators for dard as well as the environmental ments to the board together with the environment are reported standard ISO 14001 (an overview the group’s quarterly financial annually at corporate level, with of certified units can be found at results. These results are posted the exception of oil spills which www.statoil.com/hse). to the group’s intranet and its are reported quarterly. Indicators A key element in the HSE man- internet site. In 2003 Statoil for the external environment – oil agement system is registration, launched an HSE site spills, emissions of carbon dioxide reporting and assessment of (www.statoil.com/hse) where and nitrogen oxides, energy con- relevant data. HSE performance quarterly HSE statistics are com- sumption and the waste recovery indicators have been established piled and made more easily factor – are reported for Statoil- to assist this work. The intention accessible. operated activities. This includes is to document quantitative Statoil’s three group-wide the Gassled facilities at Kårstø, 44 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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    for which Gassco is operator, The HSE accounting shows the from work) and serious incident while Statoil is responsible for development of the performance frequency both show an their technical operation. indicators over the past five improvement in 2003 compared All of the group’s main activi- years. Use of resources, emis- with 2002. ties are included in the HSE sions and waste volumes for In addition to this corporate accounting section. Oil spills are Statoil’s largest land-based accounting, the business units the only data on the external plants and operations on the NCS prepare more specific statistics environment included for the are shown in separate environ- and analyses which are used in service stations. mental overviews. See also the their improvement efforts. Historical data include figures information on health, safety and Fines totalling NOK 1.2 million relating to acquired operations the environment in the review of were imposed on Statoil in 2003 from the acquisition date. Statoil’s operations (pages 38- for HSE-related matters. Of this Correspondingly, figures relating 43) and the directors’ report. amount, a fine of NOK 1.0 million to divested operations are includ- More than 92 million hours was imposed following a fatal ed up to the divestment date. worked in 2003 (including con- accident on a drilling rig in the tractors) form the basis for the North Sea in April 2002, when a Results HSE accounting. This is an contractor employee lost his life. Statoil suffered two fatal acci- increase of 13 million hours from dents in 2003: 2002. The rise is mainly due to On 24 March a contractor new operatorship for the Snorre, employee died as a result of a Tordis, Vigdis and Visund fields on working accident on board the the NCS, as well as several devel- Saipem 7000 crane barge in the opment projects. Contractors North Sea. handle a large proportion of the On 25 September a contractor assignments for which Statoil is employee died in an accident at responsible as operator or princi- the Iranian yard which is building pal enterprise. the jackets for the gas platforms Overall, the total recordable on South Pars phases six-eight. injury frequency (covering Statoil Both accidents have been employees and contractors) is investigated, their causes unchanged compared with 2002, recorded and improvement but the lost-time injury frequ- measures initiated. ency (injuries leading to absence STATOIL 2003 ANNUAL REPORT AND ACCOUNTS 45

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    Statoil’s performance indicators for HSE TOTAL RECORDABLE INJURY FREQUENCY Definition: The number of fatalities, lost-time injuries, cases of alternative work necessitated by an injury and other recordable injuries, excluding first- 14 aid injuries per million working hours. 12 10 Developments: The total recordable injury frequency (including both Statoil employees and contractors) is 6.0 in 2003, the same as in 2002. There has 8 been an improvement for Statoil employees, from 4.2 in 2002 to 3.7 in 2003, 6 while the result for our contractors shows a negative trend, from 7.6 in 2002 4 to 7.9 in 2003. 2 1999 2000 2001 2002 2003 LOST-TIME INJURY FREQUENCY Definition: The number of lost-time injuries and fatal accidents per million working hours. 5 Developments : The lost-time injury frequency (including both Statoil 4 employees and contractors) has improved from 2.8 in 2002 to 2.6 in 2003. 3 This frequency has been measured since 1987 and it has never been as low as the 2003 level. There has been an improvement for Statoil employees, from 2 2.4 in 2002 to 1.8 in 2003. The result for our contractors shows a negative trend, from 3.1 in 2002 to 3.3 in 2003. 1 1999 2000 2001 2002 2003 SERIOUS INCIDENT FREQUENCY Definition: The number of incidents of a very serious nature per million work- ing hours (1). 8 Developments : The serious incident frequency (including both Statoil 6 employees and contractors) has improved considerably and has never before been so low. The serious incident frequency was 3.2 in 2003 as against 3.8 in 4 2002, while the number of serious incidents remains at the same level as in 2002, with 299 in 2003, compared with 297 in 2002. 2 (1) An incident is an event or chain of events which has caused or could have caused injury, illness and/or damage to/loss of property, the environment or a third party. Risk matrices have been established where all undesirable incidents are categorised according to the degree of seriousness, and this forms the basis for follow-up in the form of notification, 1999 2000 2001 2002 2003 investigation, reporting, analysis, experience transfer and improvement. SICKNESS ABSENCE Definition: The total number of days of sickness absence as a percentage of possible working days (Statoil employees). 5 Developments: Sickness absence was 3.5 per cent in 2003, as against 3.4 per 4 cent in 2002. Sickness absence has been stable over the entire five-year peri- 3 od. This result is well below the Norwegian average (6.9 per cent in 2002, according to a study by the Confederation of Norwegian Business and 2 Industry). The part of the Statoil group which is covered by the inclusive workplace (IA) agreement with the Norwegian national insurance service, 1 (roughly 11 000 employees), shows a decline in sickness absence from 4.1 per cent in 2002 to 3.5 per cent in 2003. It is mainly long-term absence that has declined. 1999 2000 2001 2002 2003 46 STATOIL 2003 ANNUAL REPORT AND ACCOUNTS

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