Six years earlier, Hydro’s board had met in Notodden and declared that it was time to enter the oil and gas business. The company wanted to secure stable access to oil as a raw material and as energy for its plants. At Porsgrunn, work was already under way on the conversion of ammonia production to the use of oil as raw material. A vital step for the company to maintain its competitive edge.
At first, not many people expected to find oil or gas under the North Sea. But some did, among them Phillips Petroleum, which was the first company to seek permission to drill for oil offshore of Norway.
Large amounts of gas had already been found off the coast of The Netherlands, in the Groningen field. The possibility that this geologic formation stretched north into the Norwegian sector of the North Sea had been declared to be out of the question.
The first exploration
However, Phillips applied in the autumn of 1962 for exclusive rights to explore for oil and gas, in exchange offering Norway a seismic study worth USD 1 million.
Rights to areas in the British and Danish sectors of the North Sea had already been spoken for. Only the Norwegian sector remained available. Phillips’ offer landed first at the Foreign Ministry, to great astonishment.
Phillips was asked to submit a formal application. The company did so, and after a long wait was finally given an answer in June 1963. The Foreign Ministry had found the seismic study to be in order, but stated that the case would be looked at again if a discovery was made. This was the start of a long process of establishing frameworks, rules and routines.
In May 1965 a sufficient framework had been drawn up for the Norwegian authorities to release the first blocks in the Norwegian sector – 278 in all. One of the interested companies was the Petronord group, which consisted of Hydro, Elf and six other French companies.
|The Petronord Group consisted of Hydro, Elf and six other French companies.
The award of exploration licences launched a new industry in Norway. The companies allowed to explore for oil and gas needed a base, and the city of Stavanger, on the southwest coast of Norway, became just this – long before the first drop of oil was found.
Doubt turns to joy
Esso announced in the summer of 1967 that the structures it was exploring showed signs of oil. The optimism was short-lived, however, as further investigation showed that the discovery was not commercial.
Before the second round of licences, new hopes surfaced when Phillips found hydrocarbons with the Ocean Viking drilling rig on the Cod field. Meanwhile doubts were running so high that many companies that had participated in the first licensing round had dropped out by the second round.
Three rigs were operating in the Norwegian sector in the autumn of 1969. Gas had been found in the British sector, but nothing had turned up in the Norwegian sector. Hope was running out.
But in November there was a news flash from Phillips: We’ve made a discovery! Several more wells were drilled, and more messages of success came back to headquarters. There was growing belief that the discovery was commercial, and this was confirmed by the Norwegian authorities on Christmas Eve 1969. The discovery was called Ekofisk. It was not only the first discovery, but it would also prove to be the largest oil and gas discovery in the history of the North Sea, with a production lifespan of several decades.
Ekofisk - a foot in the door
The Petronord group had had relatively good results in the first licensing round, but like many of the other players, they were asking themselves questions: Who had made the right choices? Was it better to look for gas given that most of the others had set their sights on oil?
This uncertainty was an important part of the reason why the Petronord group and the Phillips group undertook a swap in 1967, giving each other a 20 per cent stake in the blocks they controlled. This also meant better utilization of the exploration drilling rigs.
Hydro later renegotiated its agreement with Phillips. Under the new agreement, Hydro received a 2.5 per cent stake in Ekofisk, with options to increase the share to 6.7 per cent.
Income came in from Ekofisk as soon as test production started. Hydro was thus in a position to pursue further its quest for North Sea oil.
A centre at sea
Drilling in the Ekofisk area later revealed a number of other oil and gas fields, which in turn could be connected to the production and transport system at the Ekofisk centre. It was an enormous undertaking - technically and financially - to recover and transport petroleum resources to land via pipelines. Development of the field took place in five phases. Ekofisktown, as it came to be called, had become more than a kilometer long and in 2002 yielded more than 200 million cubic meters of oil and more than 250 million cubic meters of gas. The total value is greater than NOK 1,100 billion (EUR 135 billion at 2003 exchange rate), and the licence to operate the field continues through 2028.
New discoveries followed one after the other, and Hydro made the transition from participant to operator in several of the new fields.