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The Wall Street Journal: Statoil, Norsk Hydro Create an Energy Behemoth

Oil-Rich Norway Emerges
As a Power With the Heft
To Compete on Global Scale
December 19, 2006; Page A12

Statoil ASA’s $30 billion share swap for Norsk Hydro ASA’s petroleum business makes the government of tiny but oil-rich Norway the majority owner of a bulked-up and acquisitive player in the global oil industry.

The deal, which the two companies announced yesterday, would create a European oil giant with a market capitalization estimated at more than $80 billion. That would be Europe’s fifth-largest oil company by market value, placing it behind Anglo-Dutch giant Royal Dutch Shell PLC, London-based BP PLC, Total SA of France and Italy’s Eni SpA.

Under the deal, the Norwegian government would end up with a 62.5% stake in the combined company, which it said it would seek to raise to 67%. Norway owns about 71% of Statoil. Norsk Hydro’s shareholders would hold 32.7% of the new company.

See a transcript of the Statoil-Norsk Hydro conference call, provided by Thomson StreetEvents ( Adobe Acrobat required.”The time is right for one strong Norwegian-based energy champion,” said Helge Lund, Statoil’s president and chief executive. Mr. Lund will hold on to those roles in the new company.

The added heft and state backing could help Statoil compete more effectively for access to fresh resources on the world stage with international oil companies like Exxon Mobil Corp., Shell and BP. Amid dwindling prospects and tightening access to fields by oil-rich governments around the world, these companies have scrambled to close deals in order to boost reserves and production, two of the most important metrics of a company’s growth prospects.

While Norway is one of the world’s largest oil producers, its home fields are mature and in many cases declining, forcing both Statoil and Hydro to look for reserve and production growth overseas. The added heft could give them more scope to pursue bigger deals.

“We still see them as an acquirer” in the Gulf of Mexico, for example, said Derek Butter, a corporate analyst at Wood Mackenzie in Edinburgh, Scotland.

Both Statoil and Hydro have made recent, big forays into fields far from home, including the Gulf of Mexico. Because of the companies’ experience in the deep and challenging waters offshore Norway, they have developed reputations for cutting-edge offshore drilling and development technology, which could give them a stronger competitive advantage when pitching for new development deals as a combined company.

The combined company would have 2007 production of 1.9 million barrels a day of oil equivalent and a proven reserves base of 6.3 billion barrels. The new energy giant wouldn’t include Hydro’s aluminium assets, which will remain as a stand-alone firm.

The deal will create a company with roughly a 70% share of oil production in Norway, the world’s third-biggest crude exporter, and significant positions in basins such as Angola and the Gulf of Mexico.

Based on the closing price of Statoil shares in Norway on Friday, the deal values the petroleum assets of Hydro at 149.16 Norwegian kroner, or about $23.94 a share. Hydro’s American depositary receipts rose $4.70, or 19%, to $29.55 in 4 p.m. New York Stock Exchange composite trading, yesterday, while Statoil’s ADRs fell 89 cents, or 3.2%, to $26.74.

Carl Bachke, an analyst at Fondsfinans in Oslo, said the companies’ international portfolios “are really well fitted,” with their Gulf of Mexico assets being an example of the potential to combine operations to improve profitability.

Norsk Hydro shareholders will receive 0.8622 share in the company for each Hydro share and retain ownership of the Hydro aluminum assets, while Statoil shareholders will maintain their stock on a 1-for-1 basis.

Eivind Reiten, Hydro’s chief executive, will assume the role of chairman of the combined company. Completion of the deal, which is subject to approval by shareholders and regulatory authorities, is expected in the third quarter of 2007.

Morgan Stanley advised Statoil, Goldman Sachs Group Inc. advised Hydro, and Lehman Brothers Holdings Inc. advised the Norwegian government.

Write to Elizabeth Cowley at [email protected], Michael Wang at [email protected] and Chip Cummins at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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