Norwegian and French companies join forces

Opportunity to gain entry to Norway

France and its government had long wanted to gain entry to Norway and opportunities for participating in the exploration of the NCS. Political developments in the Middle East and north Africa, combined with the liberation process in France’s former colonies, meant that the country had to seek alternative sources of oil. The Suez crisis of 1956, in particular, highlighted the vulnerability of French oil supplies.

When it became known that petroleum resources might be found in the North Sea basin, President Charles de Gaulle could not let the chance pass. But it proved difficult for French companies to secure a foothold in Norway. For a start, France’s language and culture were alien to the Norwegians.

But the biggest handicap was nevertheless that major competitors such as Shell, Esso and BP were already established in the country with refineries and distribution networks. None of the French companies were big enough individually to compete with them. With President de Gaulle in the lead, the French authorities did everything they could to facilitate the greatest possible national participation in the North Sea. The desire was for a collaboration between a number of companies in order to bring the largest possible resources to bear and to spread the risk over as many partners as possible.

An agreement on a joint French commitment throughout the North Sea was signed on 6 December 1963 by state oil companies BRP[REMOVE]Fotnote: Bureau de Recherches de Petrole (Office for Petroleum Research) was established on 12 October 1945. RAP transferred substantial funds to BRP, which was responsible for promoting and coordinating French oil activities. This was done both by injecting large amounts of government funding and by attracting private capital with the aid of favourable taxation. BRP developed major centres for petroleum research and education. (later Elf) and RAP[REMOVE]Fotnote: Regie Autonome des petroles, conversion of CRPM in 1939. French state oil company., the partly state-owned CFP/Total and three small private companies (known as the “rex”s) ” Francarep, Coparex and Eurafrep. To make the process of securing access to oil exploration in the North Sea as efficient as possible, these waters were divided between the various companies. CFP/Total was made responsible for the UK continental shelf, RAP for the Dutch sector, and BRP for the Norwegian, Danish and German continental shelves.

Danish shipowner A P Møller had secured a 50-year sole concession for all petroleum exploration and production on land and offshore in Denmark. So BRP turned its attention to Norway. Investigations it had conducted on the NCS showed that opportunities existed for finding oil and gas.

In order to begin exploration, contact needed to be established with the Norwegian authorities. As a state company, BRP felt that the most appropriate route was through official channels. The head of Operation North Sea, Alexis de Spengler, and geologist Maurice Carril set off on 27 March 1963 for a meeting with the Ministry of Industry in Oslo.

However, they received only vague answers to their questions about Norway’s plans to exploit North Sea resources and whether the country would ratify the Geneva convention. A letter was accordingly sent on 8 May 1963 to Jens Evensen, head of the legal affairs department at the Ministry of Foreign Affairs and responsible for ensuring that Norway secured sovereignty over the NCS, to ask directly for permission to start further work on exploring the continental shelf. The reply was positive.

Hydro becomes a partner

BRP and RAP, who were cooperating to gain access to the NCS, felt  it would be appropriate to secure a Norwegian partner. It was clear from an early stage that Hydro could be relevant. The company had strong links with France – 37 per cent of its shares were French-owned and two of its directors came from that country. Hydro also had close ties with the Norwegian government, since 48 per cent of its shares belonged to the state. And it had sufficient financial strength to become involved in a resource-intensive and risky business like petroleum exploration.

Although some doubts were expressed within Hydro about becoming involved in the uncertain hunt for oil, the company resolved after an in-house discussion that this was a unique chance to get involved in the new industry. The possibility of securing feedstock for the company’s new ammonia plants and other petrochemical industry provided another strong argument.

After a few months of negotiation, BRP, RAP and Hydro were able sign the final protocol on 14 August 1963. This specified that a new company was to be created as soon as possible. Its primary object would be to pursue exploration for oil and gas and to exploit possible discoveries on the NCS. The protocol also contained draft articles of association, a proposed name and a decision that the share capital would be modest. The company was named Petronord.

Initial proposals called for a total of 180 shares to be issued, with 120 going to Petropar – BRP’s Norwegian subsidiary – 59 to Hydro and one to Hydro on behalf of the Norwegian government. This was subsequently amended to 300 shares with a nominal value of NOK 1 000 each, of which 119 went to Petropar, 120 to RAP, 60 to Hydro and one to Erik Poulsson, who was the company’s legal adviser. The management would comprise three French representatives, two people from Hydro and Paulsen.

The agreement

The final deal was signed on 16 January 1964. Based at Hydro’s offices in Oslo, Petronord’s main job was to represent the partners with the Norwegian cabinet and other government agencies. Through a supplementary accord of 2 January 1965, CFP/Total and some small French companies joined the Petronord agreement. The duration of the deal was specified as 12 years. Hydro would thereby be able to build up expertise and become an independent operator from 1977.

Hydro was offered a “carried interest” arrangement in Petronord. This meant that Petropar would lead and fund exploration operations without any financial contribution in this phase from the Norwegian company, despite its 20 per cent stake in Petronord. In addition, Hydro secured the right to be represented on the board and at technical committee meetings in the French group which would run the operation. Hydro would also nominate a reasonable number of Norwegian engineers and technicians to be recruited by the group, and received a pre-emptive right to buy any oil which might be discovered.

Norway as a nation also benefited from the agreement, in that Norwegian companies acquired a pre-emptive right to deliver equipment where they were competitive on price and quality. A final detailed and amended appendix to the Petronord agreement was signed on 1 September 1967.

Sources
Tore Jørgen Hanisch and Gunnar Nerheim: Norsk oljehistorie. volume 1. Fra vantro til overmot- Oslo 1992.
Birger Lindanger: Var Phillips likevel ikke først- Norsk Oljemuseums årbok, 1994.
Finn Erhard Johannessen, Asle Rønningen and Pål Thonstad Sandvik: Nasjonal kontroll og industriell fornyelse. Hydro 1945-1977. Pax Forlag 2005.