£15bn merger creates world's largest offshore oil firm

Two major suppliers of oil and gas to the UK announced plans to merge their offshore operations in a £15bn (€22.3bn) deal today.

Statoil and Norsk Hydro said their merger will create the world’s largest offshore oil producer responsible for 80% of output in the Norwegian North Sea.

The UK has become increasingly reliant on Norway for gas as its own supplies from the North Sea dwindle.

Norway will supply around a third of the gas used in the UK when the Langeled pipeline becomes fully operational next year.

The first phase of the pipeline opened in October and it is currently meeting around 16% of UK demand. That will rise to 20% next year while Norwegian energy also arrives via the Interconnector pipeline from Belgium and the Vesterled pipeline between Norway and Scotland. Norwegian operators such as Statoil and Hydro export gas through Gassco.

Norway’s prime minister Jens Stoltenberg welcomed the Statoil-Hydro deal as “the start of a new era” in the country’s petroleum industry and said the government would seek two-thirds ownership of the merged company.

The market also reacted positively, with Hydro shares soaring 23.7% while Statoil shares gained 3.5%.

Statoil is already the key operator on the offshore fields that make Norway the world’s third largest oil exporter, and Hydro is also a major player.

With a total oil production of 1.9 million barrels per day and proven oil and natural gas reserves of 6.3 billion barrels, a merged Statoil-Hydro would pass Royal Dutch Shell as the world’s largest offshore oil producer, the companies said.

Both companies have been expanding internationally, and Statoil president and chief executive Helge Lund said it makes sense for them to work together on such projects.

“The competition (for foreign fields) is extremely tough, and both companies are in a process where we work more and more outside Norway,” said Mr Lund. “There has proven to be little point to compete for the same opportunities.”

The deal is expected to be completed in the third quarter of 2007, following shareholder and regulatory approval.

Hydro’s shareholders will hold 32.7% and Statoil’s shareholders 67.3% of the new company.

The deal was worth about 185bn kroner (€22.7bn) based on Friday’s closing share prices.

Mr Stoltenberg called the merger “industrially and strategically well founded”.

“This is the start of a new era. We are creating a global energy company,” Mr Stoltenberg said.

The government would hold 62.5% of the merged company, but Mr Stoltenberg said he would seek parliament’s approval for increasing the state’s share to 67%.

The government owns 71% of Statoil and 44% of Hydro.