In at the start

18.05.2015
Law graduate Nils B Gulnes was the first person hired by the Ministry of Industry to deal with “oil”. He got the job in late 1964 because the division head heard from a neighbour that he could probably speak English.
  • Bjørn Rasen and Sverre Christian Jarild (photos)

Nils B Gulnes
Nils B Gulnes and his colleagues in the Ministry of Industry were allowed to work for five years without political interference. “And that meant we could create a system which is still doing its job today,” he says. “I don’t believe the result would have been the same with political involvement.”


The first administrative and legislative work for the coming oil nation was done by the Ministry of Foreign Affairs, with senior official Jens Evensen taking the lead.

“His presence was a godsend,” says Nils Gulnes. “The way he worked – commercially minded, open to fresh ideas and not frightened to get involved in new things – meant we got a very good system for the NCS. Most of that was down to Evensen.”

The continental shelf committee chaired by Evensen, with Leif Terje Løddesøl as secretary and lawyer Carl August Fleischer, submitted the recommendation which led to the royal decree of 9 April 1965 on petroleum exploration and exploitation on the NCS.

Aged 79, Gulnes retired on 31 March from his final employment as adviser to the Norwegian subsidiary of Japan’s Idemitsu oil company. He says it has been a fantastic 50-year journey.

The Ministry of Industry took over the baton from the foreign ministry on 1 January 1965, and its mining office was given the job of launching Norway’s first offshore licensing round.

The office already had many duties, and was a little nervous about taking on responsibility for the oil business as well – with the English skills that this called for.

Applications were invited from lawyers who could speak the language and would work on something called “oil”. Nobody responded.

Division head Thorgrim Haga was worried and asked his neighbour, who was studying law, whether she knew anyone due to graduate at Christmas 1964 who might work for him.

The woman knew Gulnes had attended the Norwegian Naval Academy and was a naval officer, which meant he could probably speak English.

“She suggested I paid Haga a visit,” Gulnes recalls. “After a 30-minute chat, he asked me to pen two lines: ‘I hereby apply for the job of temporary secretary’.

“I was given the job on the spot. It remained temporary right up to 1970. Everyone working with oil at the ministry was hired on the same basis.” 

 

Clean

Gulnes began work on 2 January 1965, and was given a big office with three windows, a filing cabinet but no documents. He literally started with a clean sheet.

After that, everything happened fast. The legislation was in place by 9 April, and 278 blocks on the NCS were put on offer four days later.

“It was Norway’s biggest-ever licensing round,” Gulnes says. “We received 11 applications by the 15 June deadline, and awarded the first licences on 17 August.”

Nine of the 11 applicants were successful. The round embraced all the blocks south of the 62 parallel (the northern boundary of the North Sea) except for some along the boundary with Denmark.

A lot has been said and written about Norway’s North Sea boundary with the Danes, but Gulnes maintains that most of this is rubbish. There was never any question of Ekofisk becoming Danish.

Noting that the relevant documents become public this year, after half-a-century, he says nobody is likely to find any nuggets of gold there.

“Most things were dealt with orally and we didn’t have time to write it all down. We solved the problems and didn’t commit that much to paper.”

Report no 22 to the Storting (parliament) in 1965 was the first White Paper to deal with oil, and Gulnes says that the politicians had no comments.

“I was so disappointed. There was a 30-minute debate, which focused largely on whether seismic surveys could damage fishing activity. Few people, if any, believed in the oil business.” 

 

Best

At the same time, the lack of debate on the big issues in the Storting was the best that could happen. Gulnes says they were able to work for five years without political interference.

“And that meant we could create a system which is still doing its job today. I don’t believe the result would have been the same with political involvement. That wouldn’t be possible today.”

Gulnes recounts how, as secretary to the petroleum council, he wrote letters with Evensen in the foreign ministry, which then landed on his desk at the industry ministry. “And that was that. The senior ministry officials supported us in everything we did.”

The basis was laid before 1965, when Evensen and his team got help from the British to draw up Norwegian legislation – but this differed in some respects from the UK provisions.

In Gulnes’ view, Norway was fortunate. During negotiations on the North Sea boundary, the British agreed that the Norwegian base line should be drawn to include the country’s outermost islands.

“That was fantastic, given that the UK had no equivalent to our skerries. This concession gave us a bigger share of the continental shelf.”

The initial well drilled in 1966 found sedimentary rocks. So the first requirement for oil was in place. The politicians began to get interested after Ekofisk was found in 1966.

“Prime minister Per Borten ordered all members of the Cabinet to take lessons from us on the oil business,” Gulnes explains. “These were given on the top floor of the government building.

“We lectured from 17.00 to 22.00. Borten was interested. When the rest of the ministers left, he kept us behind for another hour to learn more.”

The Storting’s standing committee on industry, chaired by Teddy Dyring from the Centre Party, also wanted lessons. “That gave us an advantage, because we got to shape them,” says Gulnes. 

 

Meetings

He highlights the many working meetings held by the industry ministry team with Angus Beckett, under-secretary at the time in Britain’s Ministry of Power.

“He gave us the most valuable advice we could get – namely, that we should have a work programme which was expressed in wells down to a certain depth rather than in money.”

The UK had found in 1964 that drilling wells was very costly, and a work programme specified in cash was soon exhausted. Nor did the government have any way of enforcing further activity.

That was crucial to the discovery of Ekofisk, Gulnes emphasises. “Operator Phillips came to us in 1969 and said it had drilled four times without success.

“The company wanted to skip the final well in the programme. We answered that this was fine, but it would then have to pay what the well would have cost.”

The US operator also had Ocean Viking on a long-term charter. Instead of paying, it opted to drill the last well – and discovered Ekofisk.

“Without that advice from the British about the work programme, it could have taken many years more before we’d found oil,” says Gulnes.

Ekofisk is now halfway through its producing life, and he recalls that the original recovery factor for the field was 12-14 per cent of the oil originally in place.

“We’re now up to 50 per cent. That’s quite fantastic. Technological progress has been incredibly rapid. Norwegian industry was interested from the start and saw the opportunities.

“Shipping companies and fishing boat owners were quick to adapt their vessels. And Aker built the first Norwegian platform as well as constantly developing new concepts.” 

 

Century

Gulnes cannot see that the business he has now left is even close to being a sunset industry. On the contrary, he thinks Norway’s oil sector will last for at least another century.

He points to the recent massive Johan Sverdrup discovery as evidence that “it’s never too late to explore”, and feels today’s debate is based on a misunderstanding.

“We’ve had oil price reductions several time. They last a few years, and then recover. The oil companies have again been stupid and started firing people.

“Then they have to start anew later. That’s very short-sighted, and reflects their preference for thinking in terms of quarterly results.

“Their focus is on the stock market, which is destructive for a long-term business. And it’s silly, after all, because the government meets the bulk of the bill for employees.

“Pay is a tax-deductible operating expense, and retaining people accordingly costs little. However, things are different for the supplies industry.”

He says that this is not the first time the industry has suffered a depression. In 1969, the oil companies – including Phillips – said they wanted to pull out of the NCS because they did not believe any oil was to be found.

“That was perhaps our first oil crisis. And a number of people in the ministry wondered if we hadn’t backed the wrong horse.” 

 

Revenues

Gulnes and his industry ministry colleagues – Fredrik Hagemann (see separate article), Olav K Christiansen and Iraqi geologist Farouk Al-Kasim – began to see the revenues rolling in.

“Some of us wanted Norway to buy controlling interests in non-oil companies, like Nestlé, in order to develop other types of industry in Norway,” he says.

“That idea was proposed in 1971-72, but it didn’t happen, of course. In the end, we got the petroleum fund. I didn’t agree with it at the time.

“We also wanted a holding company to look after the agreements on state participation we’d negotiated with the oil companies. We’d become licensees and sat in licence management committees. That was a hopeless role.”

The ministry had three hats. It was responsible for safety on the NCS, it acted as the licensing authority, and it handled the government’s commercial interests through deals with the companies. This was an untenable position.

Gulnes says the safety responsibility was not made any easier because Norway already had a Labour Inspection Authority, a Maritime Directorate and a Civil Aviation Authority.

If these three were allowed to act independently, the ministry felt the oil companies would find themselves in an impossible position – and prevented from doing their job. Coordination was necessary.

“We needed a technical agency to help us, which became the NPD, and then a company which could deal with the government’s commercial interests,” Gulnes explains.

“Our aim wasn’t to build up a state oil company. That came later. What we wanted was an equivalent to today’s state-owned Petoro enterprise.”

But that was not how it turned out. Arve Johnsen and Jens Christian Hauge, respectively president and chair of Statoil, had other ideas.

And Finn Lied came into government with the Labour Party. This trio knew each other well, and the state oil company accordingly developed along different lines than originally envisaged.

Gulnes recalls that some wanted Norsk Hydro to take this role, and the Borten government had increased the state stake in the industrial group from 48 to 51 per cent.

“That wasn’t what we wanted. We couldn’t give a free gift to the 35 per cent of Hydro’s shareholders who were French citizens. That was out of line with our thinking in the ministry.”

Nor were the civil servants keen on getting three Norwegian oil companies – Statoil, Saga Petroleum and Hydro. But Den norske Creditbank (DnC) wanted to merge various small players.

“At a lunch, the bank asked if we were opposed to the merger of several small enterprises into a single Norwegian companies,” Gulnes said. “We said it was fine. So we got Saga.”

At the end of his professional career, Gulnes sums up the development he has witnessed from the sober society of the 1960s to an international community today.

“Norway’s become a completely different country. We’ve managed to handle all the money we’ve gained. But the wealth hasn’t only been good for us.

“We’ve become a bit spoilt, and things are a bit too easy for us. At the same time, it’s created an incredible range of opportunities for many people.”