Cleary - Trillion Dollar Baby: How Norway Beat the Oil Giants and Won a Lasting Fortune

Published by Black Inc., an imprint of Schwartz Publishing Pty Ltd

Level 1, 221 Drummond Street

Carlton VIC 3053, Australia

www.blackincbooks.com

Copyright Paul Cleary 2016

Paul Cleary asserts his right to be known as the author of this work.

ALL RIGHTS RESERVED.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording or otherwise without the prior consent of the publishers.

National Library of Australia Cataloguing-in-Publication entry:

Cleary, Paul, 1964 author.

Trillion dollar baby: how Norway beat the oil giants and won a lasting fortune / Paul Cleary.

9781863958691 (paperback)

9781925435214 (ebook)

Sovereign wealth fundsNorway.

PetroleumNorwayHistory.

NorwayEconomic policy.

NorwayEconomic conditions.

332.6725209481

Cover design by Peter Long

Text design and typesetting by Tristan Main

Front cover photo: Bloomberg/Getty Images

Back cover photo: Statoil/Norwegian Petroleum Museum

Map page x: A map showing the location of the Norwegian Sea in the North Atlantic Ocean. Created by Norman Einstein, August 25, 2005.

BY THE SAME AUTHOR

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The Men Who Came Out of the Ground

Too Much Luck

Mine-Field

CHRONOLOGY

MAP OF NORWAY AND ITS MARITIME TERRITORY

PROLOGUE

O N A WINTRY DAY IN LATE NOVEMBER 1974, EXECUTIVES FROM the worlds most powerful oil companies filed into a grand quadrangular building in Oslo. Adorned with a white wedding cake faade, Victoria Terrasse had served as the headquarters for the Nazi security police during the Second World War. Now it was the head office for the Ministry of Foreign Affairs, and the government had chosen this venue because it was about to assert its sovereignty like never before. Most of the executives assembled in the large auditorium came from the big American companies. They operated in the four corners of the world, where they were accustomed to deciding how theyd do business. But Norway, which at the time had a population of just 3.85 million people, knew it needed to take control of its destiny and reap a much larger share of the benefits from the once-only extraction of its petroleum wealth.

A year earlier, Arab oil producers had formed the cartel known as the Organization of Petroleum Exporting Countries (OPEC), which slashed production and triggered a quadrupling of oil prices, thus ending a halcyon era of abundant fossil fuel. The following year, oil companies reported spectacular increases in profit. Norways economic advisers quickly realised the tax regime that had been put in place a few years back wasnt designed for this new era of rising prices, and would deny the country tens of billions of dollars of revenue. Foreign companies exploring in Norways part of the North Sea had discovered two mammoth oilfields over the past five years, and several smaller ones as well. Firm and wise stewardship of this endowment was called for.

In the five years since oil was discovered in 1969, Norway had learned a great deal about the powerful oil industry and it was now ready to extract the maximum possible share of revenue. It had set up a national oil company and given it a mission to generate direct ownership and profits for the state, and to drive the involvement of locals in the development of the industry. It had created a policy that allowed the state to take a direct equity stake in oilfields should they prove to be very profitable, without having to invest in the exploration costs. It was what might be known as a cake-and-eat-it policy. But on the revenue front, the existing tax regime still meant that any super profits would be collected by the companies, not the government of Norway.