Introduction
In November 2021, China’s Communist Party passed its third historical resolution in its 100-year history. Whereas the 1981 resolution strongly criticized the former Maoist regime’s Cultural Revolution as a “comprehensive, long-drawn-out and grave blunder,” the party under the leadership of Xi Jinping offered little but praise for Deng Xiaoping’s flagship “reform and opening-up” initiative.Footnote 1 In fact, it was held that “the Party and the people [had] showed the world that reform and opening up was a crucial move in making China what it is today,” and it was resolved that “reform and opening up … should […] deepen across the board.”Footnote 2 This reasserted commitment to a set of policies that emerged in the late 1970s demonstrates not only their continued relevance but warrants a fuller understanding of their origins, some of which can be traced back to China’s efforts at developing its capital- and technology-intensive offshore sector in the 1970s to the 1980s.
A 1960s roughneck awakening from a Rip van Winkle sleep in the 2020s would doubtless have been astounded by the changes wrought in the industry. In the space of just six decades, both the pattern of global oil trade and the structure of the international oil industry have undergone a revolution. The United States has been eclipsed by China as the world’s largest oil importer; and the erstwhile “Seven Sisters” iron grip on oil’s upstream has been broken by a vanguard of national champions, ranging from China National Offshore Oil Corporation (CNOOC) to Norway’s Equinor (hereafter Statoil).Footnote 3 The purpose of this article is to explore the links between these seemingly unrelated processes by examining Sino-Norwegian relations and the operations of Statoil in China during the 1970s through the 1990s. The offshore knowledge transfers and foreign direct investments made in this era of “reform and opening up” contributed to China’s economic transformation and inspired the formation of its own offshore national oil company (NOC). It also exerted a profoundly transformative effect upon one of the agents participating in and fomenting this process, representing as it did the start of Statoil’s international expansion.
The Organization of Oil Exporting Countries’ (OPEC) oil embargo in October 1973 spurred the international oil companies (IOCs) into a search for alternative petroleum provinces. Famously, the North Sea benefited from this realignment of upstream investments, situated as it was in low-risk jurisdictions and near consuming markets. Less well known is how the oil crisis also led to an urgency about developing the hydrocarbon potential of its Far Eastern equivalent, both among western oil companies and important sections of China’s political elite. Premier Zhou Enlai’s 1973 decision to export crude to finance China’s wider modernization betrayed a movement away from orthodox Maoism, a schism in the ruling Communist Party that was to come to full fruition at the end of the decade.Footnote 4 After Mao Zedong’s death in 1976, Hua Guofeng’s successor government called for a “New Great Leap” by redoubling the emphasis on petroleum production, particularly offshore—a policy that was sustained by Zhou’s protégé Deng.Footnote 5
Offshore oil production was pioneered in the Mexican Gulf in the 1940s, but as a relatively new technique, it was capital intensive and technologically demanding, positioning the IOCs as its gatekeepers. Yet, due to the knowledge transfers inherent to the participation model of concession regimes, their technological oligopoly was increasingly challenged during the 1970s by a new cadre of resource-holding and market-seeking NOCs, one of which was the newly formed Den norske stats oljeselskap AS, or Statoil. To leading members of China’s so-called “petroleum faction,” social-democratic Norway’s model of resource governance represented an attractive method of negotiating with the predominantly American corporations and a way in which to reconcile China’s doctrine of self-reliance with the need for advanced technology and capital, while to Norwegian authorities, China represented a burgeoning market for its infant offshore services industry.
Building upon Lieberthal and Oksenberg’s seminal study into Chinese policy making between 1977 and 1986, recently released Norwegian diplomatic files, and Statoil’s corporate archive, this article will investigate how and why Norwegian and Chinese petroleum interests converged, emphasizing Norway’s role in the development of China’s offshore sector and governance model.Footnote 6 In addition to illuminating this little-known episode in the history of Sino-Norwegian relations, it is is hoped this analysis will illustrate both how petro-knowledge was diffused between two oil-producing states and the political origins of NOC internationalization. Reflecting the sequence of events and for reasons of clarity, the analysis is divided into three distinct sections.
The first section details the development and status of the Chinese petroleum sector; the second concerns the convergence between Sino-Norwegian petroleum interests on a political level, how the “Norwegian model” of petroleum governance was transmitted and partially adopted by China; notably how China abandoned its doctrine of self-reliance and how Statoil served as inspiration for the formation of CNOOC.Footnote 7 The third and final section will attempt to show how Statoil’s role in this bilateral relationship evolved from that of policy tool to that of an agent with ambitions developed independently of its state owner. Importantly, the article will demonstrate how Statoil was granted a general permission to operate outside the Norwegian continental shelf (NCS) as a function of its China engagement, specifically in order to participate in China’s second licensing round.
A “Great Joy”: China’s Oil Industry
As the world reeled from the economic effects of OPEC’s oil embargo over the autumn months of 1973, NATO prepared a report entitled “the prospects for China’s oil industry.” It concluded that China “probably had considerable offshore reserves,” but that technological and political problems prevented their exploitation.Footnote 8 Over the next decade, both the technical and the political problems were overcome, but the question remained as to whether the Bay of Bohai or the Yellow Sea harbored reserves akin to the Mexican Gulf or the North Sea.
While the People’s Republic of China (PRC) only had modest experience of offshore operations, it was certainly not a newcomer to the oil industry.Footnote 9 Japanese technicians sank the first oil well in the Shaanxi Province in 1907, a contract that the Republic of China renewed with Mobil Oil Corporation in 1914.Footnote 10 Three years of exploration proved unsuccessful, however, and China was deemed an “oil-poor” region. China’s fortunes changed in the mid-twentieth century, when significant oil discoveries were made: Laojunmiao in 1940 and Songliao in 1959, the latter of which formed the backbone of China’s oil industry. The promising results of No. 3 Songji well just four days before the Communist revolution’s tenth anniversary served as the inspiration for its name Daqing or “Great Joy.”Footnote 11
Across the 1960s, Daqing became a veritable Far Eastern Spindletop, accounting for 67.9 percent of total crude output when Premier Zhou Enlai declared China self-sufficient in 1963.Footnote 12 Two decades later, the field still provided more than half of Chinese production, but the volume had increased almost twentyfold.Footnote 13 The Ministry of Petroleum Industry (MPI) was responsible for these increases, which propelled total Chinese production from 227,000 barrels per day (bbl/d) in 1965 to 2.1 million bbl/d in 1979. China thus emerged over the course of the 1970s as one of the world’s top ten crude oil producers and, as a means of earning foreign currency, a net exporter.Footnote 14
Hitherto China’s oil industry had been exclusively land-based, yet it was its continental shelf that seemed the most promising for boosting production in the early 1970s. Some attempts at exploratory drilling off Hainan had been made from 1959 onward, and for almost a decade in the Bay of Bohai using floats, but neither met with much success.Footnote 15 Due to their proximity, Japan had speculated in China’s offshore potential, and with a view to exploration drilling, sold China the drillship Pailung in 1969, followed in 1972 by the drillship Fuji, a jack-up rig, and a semi-submersible rig.Footnote 16 NATO’s report nonetheless criticized the Chinese government for its putative unwillingness to deploy foreign technology and capital adequate for the “massive effort” involved in turning the country into an oil exporter of any real significance.Footnote 17
This “unwillingness” NATO alluded to was more than a bureaucratic oversight; it derived from the very center of the Communist Party’s factional strife in the late Mao years. Daqing’s significance had not been limited to enhancing China’s oil output; it had also given rise to an ideological notion of self-sufficiency and economic development through mobilization of manpower in “battle formations”: the “Daqing method” or “Daqingism.”Footnote 18 The Sino-Soviet split had elevated Daqing’s importance to that of a Maoist model industry and an “affirmation of Maoist ideology,” a symbolic role that was further entrenched during the Cultural Revolution and its method applied with varying degrees of success across the Chinese economy.Footnote 19 In tandem with the illusion of autarky, it empowered the group of technocrats that had been set to manage the field, the so-called “Petroleum Faction,” whose pragmatism ultimately proved Daqingism’s undoing.
Mao had assigned the running of the field, and by extension the country’s oil industry, to a select group of officials, which included Yu Qiuli, Gu Mu, Tang Ke, and Kang Shien.Footnote 20 While not insulating the leaders from the purges inflicted across China’s structures of state during the Cultural Revolution, the oil industry’s success and strategic importance tempered the Red Guards’ severity: all of whom were removed in 1967 but swiftly reinstated between 1969 and 1970.Footnote 21 In the twilight of Mao’s chairmanship, several factions had emerged vying for the party’s control, one of these powerful groups was the so-called “Oil Kingdom Faction.”Footnote 22 This “oil clique” occupied the political middle ground between the orthodox Maoists such as Hua Guofeng and Ye Jianying to the left and the rehabilitated victims of the Cultural Revolution to the right, notably Zhou Enlai’s reformist faction, the leadership of which was assumed by Deng Xiaoping in 1977 after Zhou’s death in 1976.Footnote 23 China’s petroleum industry thus represented an ideological battleground and an important source of political influence, its fortunes to some extent swaying the Communist Party’s balance of power.Footnote 24
The first oil crisis had focused Western attention on China’s potential as an alternative petroleum province and identified the principal challenges of developing it. Technology and capital were readily available from Western IOCs, but the question remained as to whether Mao’s regime would open its strategic petroleum sector to foreign investments. Contemporary observers presumed that if China was to pursue an offshore strategy, the capital- and technology-intensive nature of offshore oil production would inexorably force the country on a path-dependent progression toward a more general trade liberalization.Footnote 25
Scrambling for “the World’s Richest Petroleum Reservoir”
In sharp contrast to the oil market stability enjoyed in the 1960s, when crude prices had averaged at $1.8 per barrel, the 1970s brought acute supply shortages and price shocks. The first oil crisis in 1973 propelled the cost of crude oil over sixfold to $11.58. Prices plateaued until 1979, when the Iranian Revolution and the second crisis drove them even higher, to an almost unprecedented $31.61 per barrel.Footnote 26 The dramatic volatility of the 1970s lent a sense of urgency on behalf of consuming countries and the IOCs, while strengthening the hands of reserve-holding governments.
Reserve estimates entertained for China’s continental shelf were similarly inflated. Observers in 1975 believed offshore exploration would double China’s potential reserves to 50 billion barrels.Footnote 27 Five years later, as twenty European, American, and Japanese oil companies were conducting seismic exploration off Bohai Bay, the Yellow Sea, the East and South China Seas, and Tonkin Bay, this estimate was redoubled to a potential 100 billion barrels.Footnote 28 In fact, the continental shelf between Taiwan and Japan alone was presumed by experts in the UN’s Economic Commission for Asia and the Far East to be nothing less than the “world’s richest petroleum reservoir.”Footnote 29
Chinese inexperience in offshore exploration, transport, and production was a vacuum the global oil industry was eager to fill.Footnote 30 From 1974 to 1976, a range of countries had made representations to the PRC for the privilege of selling it equipment. In 1974, China purchased American exploration and drilling equipment for $10 million, while a French oil company had gained a contract worth $4.7 million for exploring the Yellow Sea. Jardine Matheson & Company of Hong Kong sold drillships and pipe-laying equipment, while Japan’s Mitsubishi & Nippon Steel had acquired a similar order to the value of $100 million.Footnote 31 In March 1976, the Dutch entered the fray by dispatching an industrial delegation. Chinese authorities were, however, not receptive to the idea of hosting another group of sales representatives and demanded that the delegation consist of scientists and practitioners relevant to offshore industry.Footnote 32
Despite the Dutch experts’ visit, the MPI did not commit to making any purchases but kept the possibility open once it had considered all its options.Footnote 33 These were presented by a wide variety of competing nations: Belgium, France, the German Democratic Republic, Sweden, and Denmark all followed suit in organizing or planning symposia concerning various aspects of the sector in order to position themselves for future Chinese orders. The timing was of particular importance, because the fifth five-year plan was about to be concluded.Footnote 34 Missing from this list of interested parties was Norway, a fact regretted by its ambassador Torleiv Anda, who implored Norwegian business interests to keenly monitor other nations’ advances toward the Chinese offshore industry. He warned that neither “the Japanese, Americans nor British would remain passive. Norway ought to […] assume a more active stance, by for instance, proposing to hold an offshore symposium for Chinese oil experts.”Footnote 35 Ambassador Anda’s patience would not be tried for long, as Norway dispatched a delegation of its own in early June 1976.Footnote 36
Norway’s relatively early recognition of the PRC in 1954 had ensured amicable relations with Mao’s regime.Footnote 37 Until the 1970s, Norwegian economic interests in the Far East derived almost exclusively from the activities of its merchant fleet. The advent of the North Sea oil boom and emergence of Japan as the world’s shipbuilder led, however, to the reinvention of Norway’s many shipyards as suppliers to the offshore industry.Footnote 38 Thus, it was as purveyors of drilling platforms, cleaning equipment for oil spills, and a plethora of the offshore oil industry’s other services and impedimenta that Norway from 1976 onward asserted its presence in the region. The first of these active steps was the delegation, which over the next decade was followed by a range of visits by technical experts on hydropower and petroleum and, at the political level, by foreign secretaries, ministers for oil and energy, and all three serving prime ministers: Odvar Nordli, Kåre Willoch, and Gro Harlem Brundtland.Footnote 39
The delegation’s official report reflected the political crisis and doctrinal transition gripping China in the late 1970s. The Norwegian diplomats speculated about the reasons for their hosts’ noncommitment and thought that “the battle between the so-called moderate and radical factions […] seemed to have paralysed the country’s ability to make political decisions.”Footnote 40 They deemed China’s bureaucracy to be largely sympathetic to the “pragmatic economic policies represented by Deng Xiaoping” but noted that the “daily criticism levelled against his so-called capitalist approach made them [Chinese bureaucrats] unable to take a definitive stand.”Footnote 41
The report was overall rather doubtful about the commercial opportunities for Norwegian firms. The Chinese were considered slow in developing their offshore sector, and Norway’s large trade surplus with China had attracted the disapproval of PRC officials. Finally, the delegates warned against the Chinese practice of copyright infringement. Thought to be a consequence of its self-reliance policies, it would typically manifest itself through the “purchasing of a single item of relatively advanced equipment, its dismantlement and the production of its own version.”Footnote 42 Naturally, this posed an unattractive proposition for a budding exporter of technologically advanced capital. Many Western countries were competing for the same contracts, and the Chinese did not appear to be pressed for time. The Norwegian diplomats’ rather bland advice for any company vying for contracts was to have patience and offer competitively priced products.
Yet the delegation’s projections proved pessimistic. Due to a fall in output from fields onshore, the Chinese sought to compensate by expanding their production portfolio to deep-water drilling.Footnote 43 China produced 2.1 million bbl/d in 1978, and its aim was to increase this to around 8.4–10.6 million bbl/d, of which 3 million bbl/d would derive from offshore production.Footnote 44 While crude production had increased by 11 percent in 1978 to 2.1 million bbl/d, the following year’s production increase had all but stagnated at 1.9 percent, increasing the deep-water impetus.Footnote 45
Experts estimated that China in 1978 occupied the same technological stage in terms of drilling equipment and other oil production gear as the United States did in the late 1940s. Most of it consisted of old infrastructure purchased from the Soviet Union and Romania before the Sino-Soviet split.Footnote 46 To overcome this threshold, China sent fact-finding missions to a select few countries that possessed the requisite technology: Japan, the United States, the United Kingdom, France, and Norway.Footnote 47 To attract Chinese custom, American suppliers such as General Electric, Ingersoll Rand, and Caterpillar attempted to reconcile Maoist self-reliance with foreign imports by offering to train the Chinese personnel in not only using, but also in designing their equipment—a form of help to self-help.Footnote 48 This strategy seems to have borne fruit, as yet another Chinese order was placed for a drilling platform with an American supplier, and as will be demonstrated, was an approach adopted and deployed in modified form by the Norwegian government in its own export drive.Footnote 49
Following Mao’s death and the arrest of the Gang of Four in the autumn of 1976, Hua Guofeng assumed the party’s chairmanship by Politburo resolution.Footnote 50 Hua had emerged from a leftist faction but had soon moved toward the center, distancing himself from the Cultural Revolution’s secret police in early 1977 and building a fragile coalition with the hard-line Maoist “Whateverists,” Long March veterans, and the moderate petroleum faction.Footnote 51 Hua’s reign was, however, short-lived. The failure of his ten-year plan, which relied heavily on increasing Chinese oil production along Daqingist lines, and insistence on Maoist orthodoxy led to his de facto ousting in December 1978.Footnote 52 China had by the end of Hua’s time in power amassed the largest trading deficit for decades, and the petroleum exploration efforts in Bohai Bay and Western China had proven unable to stem the stagnation in domestic oil production.Footnote 53 It was under these circumstances that a delegation from the Norwegian Water Resources and Energy Directorate (NVE), who in the spring of 1978 had visited China to consult on hydroelectric dam construction projects, was asked whether Norway also could assist in developing China’s petroleum sector.Footnote 54
A Sino-Norwegian Petro-Rapprochement: Knowledge Transfers between Oil-producing States, 1978–1983
If the late 1970s represented a period of relative stagnation for China’s offshore oil industry, its Far Western equivalent was undergoing a boom. As a corporate manifestation of the state’s participation rights in hydrocarbon production on the NCS, a unanimous Norwegian parliament established Den norske stats oljeselskap A.S., or Statoil, in 1972.Footnote 55 Despite the large construction projects underway on the NCS, Odvar Nordli’s Labor government had by 1978 become worried about the long-term viability of the industry.Footnote 56 Projections suggested that Norway would reach its maximum petroleum production rate in 1980–1981, at which time production would plateau and then “sharply fall from 1988 onwards.”Footnote 57 Coinciding with these predictions were data showing that exports from Norway’s offshore supply industry had plummeted between 1975 and 1977.
The export of production platforms had slowed to but a trickle: the total value of Norwegian exports was NOK 2.3 billion in 1975, while the equivalent for 1977 was a paltry NOK 20 million.Footnote 58 Across the North Sea, James Callaghan’s Labour government had instituted protectionist policies through its Office of Offshore Supplies, which all but removed Norway’s principal export market for its platforms. The minister for industry, Bjartmar Gjerde, recognized that Norway was hampered by both high wage costs and low levels of specialization due to lack of oil sector experience.Footnote 59 Yet Gjerde announced that he would be seeking new markets for the country’s suppliers, specifically identifying South America and China.Footnote 60
In what in retrospect may seem a happy coincidence for the Norwegian oil industry, 1978 marked a watershed in China’s modern political and economic history. The early failure of Hua’s ten-year plan paved the way for Deng Xiaoping’s ascendancy at the 3rd Plenary Session of the 11th Central Committee of the Communist Party of China in December 1978.Footnote 61 Deng, who under the Cultural Revolution had officially been designated “China’s capitalist lackey number 2” had from mid-1977 to the end of 1978 purged fifteen out of twenty pro-Hua provincial party committee first secretaries and replaced them with his own supporters.Footnote 62 His rise marked the next step in China’s doctrinal transition: from the Maoist Gang of Four’s orthodox policies of self-reliance through Hua’s embrace of a limited liberalization by adopting policies from Yugoslavia and Romania, which accepted foreign currencies, technology, and joint ventures with foreign companies, toward Deng’s reform and opening up program.Footnote 63
Gjerde visited the country November 11–24, 1978, and met with Vice-Premier and Chairman of the State Economic Commission Kang Shien, Minister of Petroleum Sung Che-ming and Deputy Minister Chang Wenpin.Footnote 64 Importantly, on his return visit to Norway in 1980, Kang made clear to Prime Minister Nordli that Gjerde’s visit marked a “turning point” in China’s petroleum policy, because it was the first time China had cooperated with a foreign state with regard to its oil sector.Footnote 65 As Yu Qiuli’s protégé, the minister for petroleum in the crucial years 1958–1965 when Daqing was discovered and developed, Kang was certainly well placed to pronounce the end of orthodox Daqingism.Footnote 66
In anticipation of a rich new oil province, NOCs, such as Total, Elf, and Japex Daqing and IOCs, including BP, Chevron, Texaco, Esso, Mobil, Phillips, Amoco Orient, Occidental, and Arco, had all been attracted to China and were positioning themselves for licenses in the first offshore concession round.Footnote 67 Norway had two areas of expertise that proved to be of interest to the Chinese hosts: experience of hydropower production and a new, but significant offshore oil and gas sector governed by a sophisticated three-pronged bureaucratic structure retrospectively dubbed “the Norwegian model.”Footnote 68 What seemed particularly attractive was Norway’s relationship with the IOCs, whereby it retained sovereign control over resources while using the companies’ capital and expertise to develop the country’s petroleum sector.
Both the development of hydropower and exploitation of the oil potential on China’s continental shelf were important components in Deng’s economic readjustment program dubbed “the Four Modernizations.”Footnote 69 Kang and his colleagues expressed to Gjerde that China desired to fully exploit its offshore petroleum reserves and that tentative experience from the Bohai Sea indicated that it needed further expertise in planning, exploration, field development, transport, and refining.Footnote 70 While recognizing that Norway could offer assistance in these operative fields, Chinese officials showed more interest in the legal, regulatory, and fiscal aspects of the Norwegian model of oil governance and, most importantly, how Norway conducted contract negotiations with the IOCs.Footnote 71 Kang, a geologist by profession, expressed two years later that “he long had entertained a personal interest for Norwegian petroleum policy and offshore activities and that the ‘Statoil model’ in particular had caught his interest.”Footnote 72 He elaborated upon this point again in his confidential discussions with Norway’s deputy minister for oil and energy Hans Henrik Ramm in 1982:
You have organised Statoil and this is a good idea. CNOOC is organised after this idea, but with small adjustments in order to account for China’s social structures. We can also learn in other fields. We have also studied other countries, but in our opinion, Norway has the best solutions. The large oil companies complain about Norway, and this would suggest that you are doing a great job! These are the type of teachers we need!Footnote 73
This is significant not only in terms of determining the organizational origin of CNOOC, but also in terms of how Deng had gained the support of the petroleum faction in 1977. He had destabilized Hua’s support from the petroleum faction by “openly siding with the Oil Kingdom Faction in economic discussions,” a group whose leading figure, Kang, had identified the “Norwegian model” as a way in which to restructure China’s offshore oil industry.Footnote 74
On the basis of these discussions, a memorandum of understanding was drawn up wherein Norway and China committed to “strengthening their co-operation within the energy sector.”Footnote 75 This cooperative aspect of the memorandum was, however, heavily tilted in China’s favor. Norway would assist in developing Chinese oil and gas fields in the Bohai Sea, as well as other regions, and would offer advanced technology for exploration and construction of installations; for seismic surveys and reviews; and for logistical bases, supply vessels, offshore rigs, production equipment, and pipelines. It would also provide consultancy services for offshore oil and gas exploration, contracts, financing, law-making, administration, and operations, “thus assist[ing] China in solving its problems in regard to its co-operation with the international companies in oil exploration and field development offshore.”Footnote 76
In return for this panoply of assistance, China expressed “a wish to use Norwegian goods and services,” while promises of further orders had been made verbally.Footnote 77 It was perhaps not without reason that Norway’s Ministry for Oil and Energy (OED) by 1980 sought to deemphasize the economic importance of the cooperation in favor of the external aid dimension, specifically how the bilateral relationship promoted “knowledge transfers from industrialized to developing nations within the energy sector.”Footnote 78
Despite the lopsided nature of Sino-Norwegian industrial relations, the intention from the start was to “achieve a balance in the bilateral relationship that could be of benefit to both parties.” As a gesture of good faith, Gjerde dispatched a delegation under the leadership of OED’s permanent secretary Karl-Edwin Manshaus to China in April 1979 to chart the potential for Norwegian assistance.Footnote 79 Since the signing of the first memorandum, Chinese officials had been pressing Norway to send a group of consultants, and this group, consisting of a geologist, a physicist, an economist, and a lawyer, was designated to begin the consultancy program. All were required to be state employees, which in practical terms meant either from the ministry, the Norwegian Petroleum Directorate, or Statoil. This insistence contributed to making Statoil the vehicle by which Norway would execute its “export promoting” policies vis-à-vis China.Footnote 80
During the eleven days of meetings in April 1979, the government officials conveyed the details of Norwegian petroleum policy, with a particular emphasis on Norway’s experiences during its initial phase of offshore exploration and production.Footnote 81 Before their visit, the Norwegian delegation had translated the government’s “blue book” of continental shelf legislation into Mandarin and later reported that “they had surmised that the Chinese were, in several instances, interested in copying the Norwegian regulations.”Footnote 82 China’s partial adoption of Norwegian petroleum taxation law affirmed these assumptions.Footnote 83 At this early stage, it was clear that China’s priority lay in establishing the structures that would govern its offshore petroleum sector and “in choosing which model of licensing to adopt, be it service agreements, risk contracts or the so-called “Norwegian model.” Statoil’s representative reported that the delegation “had the impression” that China might “move in the direction” of adopting the latter.Footnote 84
Sino-Norwegian petro-relations were further deepened in 1980 when China’s vice-premier Kang visited Norway as part of his whistle-stop tour of international offshore locations in Europe and North America, in particular the British and Norwegian sectors of the North Sea, Washington, New York, Houston, and San Francisco.Footnote 85 During his stop in Norway, Kang’s delegation was duly flown by Statoil to the Statfjord A-platform, which in May 1980 was still operated by Mobil.Footnote 86 One of the principal reasons for this worldwide fact-finding mission was to learn about offshore contracting, so the visit to the platform constructed and run by the IOC—due to be taken over by the domestic NOC in 1987—offered a pertinent demonstration of what China might also achieve in its negotiations with the IOCs.Footnote 87
In advance of the vice-premier’s visit, the Chinese government had indicated a set of topics it wanted its Norwegian hosts to elaborate upon. The first point concerned “the history of the exploration and opening-up of the North-Sea oil- and gas-fields and related experiences”; the second related to the development of land bases; while the third touched upon the institutional framework of resource governance: the “evaluation of resources, distribution of blocks, conditions on bids […] administration of joint-ventures in the co-operation with foreign capital in exploring and constructing North-Sea oil-fields.” The fourth and final point concerned the fiscal arrangements: “how the state, in the course of co-operating with foreign capital, works out tax policy, classification of taxes, ways of collecting taxes and other related policies and decrees.”Footnote 88 The wish list betrayed the PRC’s focus in its bilateral relationship: rather than Norwegian technical know-how per se, it was interested in how the Norwegian state had used the IOCs to serve its own purposes, striking a balance between maximizing government take on the one hand, while remaining sufficiently attractive for further investment on the other.Footnote 89
The result of Kang’s visit was the drawing of a second bilateral memorandum aimed at “further strengthening energy cooperation” between the two states. China’s first round of bidding on offshore blocks was about to commence, and the Chinese desired Norwegian consultation “on matters pertaining to bidding, terms and conditions of contracts, legislation, financing, evaluation of reserves etc.”Footnote 90 It was also hoped that Norway would “expand its consultation scope to engineering, technology, management, administration, etc.” and assist in the development of land bases.Footnote 91 In return, “priority” would be given to “purchasing from Norway on the basis of international competition” if certain equipment used in the offshore industry could not be sourced from China.Footnote 92 While the promises made to Norwegian industry were still modest, Prime Minister Nordli, during his visit to Beijing, noted that Norway was “very flattered by the emphasis China placed on this cooperation” and that “the example of a Great Power cooperating with Norway, a country of four million, offers hope of a better co-existence between the world’s large and small nations.”Footnote 93
The Sino-Norwegian petro-rapprochement led Western media to warn against “a hard-line Peking petroleum policy,” as the allegedly “tough Norwegian state oil officials [were] whispering in China’s ear about how to out-manoeuvre powerful Western oil companies.”Footnote 94 The Australian newspaper Financial Review further speculated whether this would manifest itself as China “following Oslo’s lead in dividing its southern offshore fields in a patchwork of small concessions and by employing the ‘four group’ consortium policy used so profitably by Norway.”Footnote 95
When China held its first licensing round in May 1982, licenses were awarded on the basis of production-sharing agreements requiring the IOCs to carry the entirety of exploration costs.Footnote 96 The state’s interests were represented by the newly created CNOOC, which held a 51 percent stake in each block, an ownership share that might be raised in case of a promising discovery; in addition to this came the levy of a 17.5 percent royalty.Footnote 97 It was also stipulated that CNOOC was to “exploit offshore petroleum resources in cooperation with foreign enterprises,” which in turn were mandated to “provide exploration investment, undertake exploration operations and bear all exploration risks.”Footnote 98 If China not had outright implemented a “Norwegian style” joint venture arrangement, it certainly had adopted a hybrid model, what Lieberthal and Oksenberg described as an “eclectic solution, heavily influenced by the Indonesian and Norwegian models.”Footnote 99 The terms of China’s petroleum contract echoed the contemporary Norwegian contractual hallmarks: bæring (carried interest) and glideskala (a sliding [equity] scale).Footnote 100 Indeed, one of its main constituents, as Minister of Petroleum Kang Shien remarked in March 1982, CNOOC—formed the previous month—was both directly inspired by and modeled on Statoil.Footnote 101
Becoming an International National Oil Company: Statoil’s Expansion into China, 1979–1989
Whereas the Labor government viewed Statoil principally as a tool with which to promote the Norwegian offshore supply industry, the company itself minuted in a board meeting that it would participate in developmental aid work, as it was “economically sensible and would offer participating employees some international experience.”Footnote 102 Despite its status as a state-owned enterprise (SOE), Statoil exhibited a considerable and increasing degree of agency in its Chinese operations in the course of the 1980s.Footnote 103 The difference between how the Norwegian and Chinese governments construed the NOC, as opposed to how Statoil itself defined its scope of operations and objectives, sheds light on the dynamics inherent to the process of state-sponsored internationalization.
In December 1979, the first agreement between Statoil and China National Oil and Gas Exploration and Development Company (CNOGEDCO) was finalized.Footnote 104 On this occasion, Statoil’s CEO Arve Johnsen gave a speech at the reception dinner in Beijing.Footnote 105 While paying tribute to China’s long history of oil production, he noted that the country was “venturing on a new phase in the development of [its] petroleum resources,” specifically operating offshore and entering into comprehensive cooperative relationships with multinational oil companies. It was this combination that he acknowledged was the primary rationale behind Statoil’s consultative involvement.Footnote 106 Johnsen ended his speech by highlighting the importance of Norwegian industry’s participation in China’s offshore ventures and the fact that both Statoil and CNOGEDCO were SOEs, whose cooperation would foster stronger bilateral ties between the two countries.Footnote 107 However, as is evident from Statoil’s confidential correspondence of the early to mid-1980s, the company actively leveraged its NOC status to achieve its commercial objectives in the PRC.Footnote 108
What distinguished Statoil’s early years in China was its consultative role vis-à-vis the Chinese civil service, specifically as a pool of experience of how to negotiate with the IOCs.Footnote 109 Until 1980, most of the consultation had been performed by the OED, but a lack of spare capacity led the Foreign Office to speculate whether Statoil would assume “more and more of the oil ministry’s role’ vis-à-vis the Chinese.Footnote 110 Considered in the context of China’s wider political economy, this illustrates the reasons why Chinese officials were so insistent on consultancy services and the positioning Statoil in this role.Footnote 111 Access to advanced technology and expertise was a sine qua non to developing China’s continental shelf and the Sixth Five Year Plan (1981–1985) specified that active foreign participation should be sought in offshore oil exploration.Footnote 112
Statoil held a series of seminars in China through the early 1980s that covered most aspects of oil exploration and production offshore, but also subjects such as insurance, safety and contingency planning, accounting, and finance.Footnote 113 The courses proved so popular that Statoil acceded to Chinese demands for institutionalizing the consulting role by establishing an office in Beijing with a view to also using it as a bridgehead to acquire offshore licenses.Footnote 114 Then deputy-minister in OED, but future CEO of Statoil Harald Norvik opened the office in June 1981, and, considering Norvik’s role in internationalizing the company during the 1990s, the ceremony marked in more ways than one the beginning of a new chapter in the company’s history.Footnote 115 With permanent representation, the company found itself among the plethora of NOCs, including Elf, Total, Japex, and BP, present in China, although the company still was barred from expanding its engagement into overseas upstream activities.Footnote 116
A formal presence was, however, also useful to Statoil. As the Beijing office’s first head, Agnar Langeland noted: “Through meetings and seminar series we have also gained insight into CNOGEDCO’s organizational structure and general competence-level.”Footnote 117 His findings indicated there was a lot left to be desired on the part of his Chinese counterparts, who were characterized as lacking in organizational abilities, maintained an overly centralized decision-making structure, and exhibited low levels of commercial professionalism.Footnote 118 Langeland construed this as a boon, however, as it would ensure that Statoil could maintain a presence in China based on its educational program.
Equally, the improvement in skills was thought to ease Sino-Norwegian cooperation and enabled Statoil to “demonstrate its expertise and build personal connections with Chinese decision-makers.”Footnote 119 The latter two observations were of particular importance. “Statoil was in many ways in a unique position in China,” emphasized Langeland in his report, “since no other oil company in the world apart from Statoil had managed to enter into a commercial relationship with the Chinese.”Footnote 120 What he referred to was the fact that CNOGEDCO paid for the consulting services rendered by Statoil at undisclosed “international consultancy rates” as opposed to the free seminars provided by the other companies.Footnote 121
The exclusivity of the arrangements suggests that Statoil did in fact enjoy a privileged position in China and that Statoil’s Chinese clients thought the company possessed technology and expertise of value to their own development. Additionally, Statoil ran no financial risk by maintaining relations with its NOC counterpart; it built mutual trust through its seminars and garnered commercially sensitive information about China’s future cooperation with IOCs.Footnote 122 All of which would prove useful should the company be permitted to grasp the commercial opportunities inherent to the opening of China’s markets to foreign investment.
Because Statoil was still formally barred from operating outside the Norwegian NCS, it did not feature among the list of 33 applicants and 102 applications when China held its first offshore licensing round in 1982.Footnote 123 Neither could it accept the promising offshore blocks China’s new minister for petroleum Tang Ke had offered Statoil on his visit to Norway in 1983.Footnote 124 Tang had come on a return visit after Norway’s minister for oil and energy, Vidkunn Hveding, had visited China in 1982 and had been informed by CNOOC’s president Qin Wen Cai that the “international companies had complained that the Chinese terms had derived from the Norwegian standard contract.”Footnote 125 Hence, as late as 1982–1983, the Sino-Norwegian petroleum rapprochement was primarily on a bilateral basis; the commercial aspect emerging once Statoil was given permission to expand operationally overseas.
Statoil’s CEO Arve Johnsen had from the company’s foundation in 1972 conceived of it as a vertically integrated, IOC.Footnote 126 The missed licensing rounds in China and Denmark spurred management to consider overseas expansion more concretely.Footnote 127 Statoil deduced that an international diversification of its reserve and production portfolio would minimize the risk to disruptions downstream and provide it with access to “low-cost oil.”Footnote 128 Further, it was thought that an international engagement would improve the company’s stock of personnel deployable to the NCS.Footnote 129 In this respect, Statoil to some extent mirrored the behavior of its private Norwegian counterpart, Saga, which used international operations—and the practical experience thus ostensibly garnered—to position the company for domestic NCS concessions.Footnote 130 The company set out an ambitious expansion strategy: it wanted “[to acquire] assets and become an operator for petroleum fields by 1990,” and the regions it had identified as most suitable were in the Middle East, China, and West Africa.Footnote 131
Despite its marginal role as a consultant for CNOGEDCO, Statoil viewed this as simply the first step on a five-rung ladder that eventually would lead to the coveted prize of operator.Footnote 132 Statoil’s biggest obstacle in realizing these ambitions was not so much rival oil companies or Chinese licensing authorities, but its own government and owner who still prevented it from engaging in commercial upstream operations outside Norway.Footnote 133
Norwegian authorities worried that an expansion of Statoil’s activities in China would prejudice its position as an impartial advisor, which in turn would reduce its capacity to garner Chinese orders from Norwegian offshore suppliers. Manshaus noted in January 1980 that “Statoil would not be interested in acquiring an operatorship on the Chinese continental shelf” and dismissed speculations over whether Statoil would expand its commercial engagement in China: “This was not the intention,” as an operative role would prejudice Statoil’s neutrality as a consultant.Footnote 134 However, as a tactic “to gain permission” for an expansion program, Statoil identified that an international operatorship would act precisely as “a door opener for Norwegian goods and services more generally.”Footnote 135 And by casting itself in the role of a champion for Norwegian businesses and industry abroad—an overseas industrial bridgehead—Statoil hoped to gain government sanction for a large-scale internationalization strategy.Footnote 136
In 1983, Kåre Kristiansen, Norway’s new minister for petroleum and energy, faced questions in Parliament over his refusal of Statoil’s requests for engaging in upstream activities on the Danish and Chinese continental shelves.Footnote 137 Kristiansen denied that he had made any such representations to the company, retorting that the expansion plans had never been formally presented to him in the mandated annual public briefings of Statoil’s plans (the so-called paragraph ten statute) or voted upon at the annual general assembly.Footnote 138 Importantly, Kristiansen expressed that he viewed the proposition with favor and that both the matter of Statoil’s China plans and the overarching question over whether the company should be allowed to pursue a wider internationalization strategy would be dealt with by Parliament early the next year.Footnote 139 Statoil’s lobbying bore fruit in 1984 when the Norwegian Parliament passed White Paper No. 73 (1983–1984), proposed by Willoch’s conservative government, permitting the company to “actively participate in petroleum production abroad.”Footnote 140 Although it was too late for China’s first licensing round, it opened the door for participating in the next.
Having finally received political sanction, Statoil showed remarkable restraint in exploiting the opportunities of the Chinese continental shelf, what CEO Johnsen as late as October 1983 had described as “the most promising and interesting in the world.”Footnote 141 Less than a year later, the results of the exploratory drilling had nevertheless proved disappointing. Of the eight wells drilled by BP, Esso, and Occidental, only two were reported to contain “traces of oil”; the rest were dry. To avoid the IOCs deserting China, a second licensing round was scheduled for the end of 1984. Even Premier Zhao Ziyang had on his visit to Norway in 1984 expressed hope that Statoil would upgrade its China engagement from advisor to producer and participate in this round.Footnote 142
Despite the premier’s intervention and Statoil’s participation, Norway’s NOC was not awarded any blocks in this second round.Footnote 143 Together with Elf Aquitaine and Cluff Oil, it had bid for a block in which it would be operator and own 40 percent. The license was awarded the Japanese company Japex, and Norwegian diplomats speculated whether the block had been “too promising” for the relatively inexperienced Statoil, who thus could not use the argument that it was a “high-risk block.”Footnote 144 While the bidding was unsuccessful, Statoil attempted to gain a foothold on the Chinese shelf by purchasing ownership shares in two licenses. The first of these constituted 10 percent of a license operated by Total in the Gulf of Tonkin. The block already had limited output, and full-scale production was estimated to begin in August 1986.Footnote 145 The other license was a block in the Yellow Sea that had originally been awarded to the minuscule British oil company, Cluff Oil. Statoil purchased a 55 percent ownership share and assumed the operatorship.Footnote 146 Concurrently, China opened for foreign participation onshore in 1985, but Statoil did not take advantage of this offer.
Five years into Statoil’s Far Eastern venture, the company was evidently reconsidering its enthusiasm for pulling chestnuts out of the Chinese fire for Norwegian industry. It was probably not a coincidence that this reassessment coincided with a lowered likelihood of discovering significant hydrocarbon reserves on the Chinese continental shelf. Statoil estimated the probability of making commercial discoveries in the Yinggehai basin to be between 14 and 24 percent, but that it was both “expensive and complicated” to run operations in the country.Footnote 147
By 1987, most of Statoil’s and indeed the IOCs’ hopes for the Chinese continental shelf had been dashed, despite the license operated by Total producing 10,000 bbl/d, accounting for a full third of China’s total offshore output.Footnote 148 The well Statoil had drilled under its Yellow Sea license had proven to be dry. Global oil prices had plummeted, rendering even erstwhile commercially viable discoveries unprofitable.Footnote 149 A final block south of Hainan in the South China Sea was awarded to Statoil as a gesture of good faith during Prime Minister Brundtland’s visit to China in January 1988.Footnote 150 However, even this block—the size of eight North Sea equivalents—disappointed, and Statoil alerted the Norwegian Foreign Office in March 1989 of its intention to withdraw from China, closing its Beijing office in the process.Footnote 151
As Statoil was winding down its operations in China, the student protests at Tiananmen Square erupted, compelling the company to issue a press release reporting its repatriation of its Norwegian staff.Footnote 152 International condemnation of the Chinese human rights violations provided foreign oil companies a convenient excuse to withdraw from unprofitable investments, while alarming China’s MPI over capital and technology flight.Footnote 153 To stem the exodus following Total’s withdrawal, Statoil was offered a new license on generous terms in the Gulf of Tonkin.Footnote 154 Statoil accepted the offer shortly thereafter, but the Norwegian Foreign Office insisted that its operations had to “keep a low public profile and that it under any circumstances should be presented as a continuation of its existing commitments.”Footnote 155 In fact, Statoil remained an oil producer in China until 2009. In 1996, it acquired the Lufeng field that had been discovered by Occidental in the first licensing round of 1983. Considering the Chinese impetus behind the 1983–1984 white paper sanctioning Statoil’s internationalization, it was perhaps also fitting that it was in the South China Sea that Statoil finally acquired its first international operatorship.Footnote 156 When it divested its Chinese assets in 2009, they were sold to its partner, CNOOC, the company Statoil had served to inspire almost three decades earlier.
Conclusion
The Bay of Bohai and the South China Sea never became oil and natural gas provinces to rival the Gulf of Mexico or the North Sea. What was touted as “the world’s richest petroleum reservoir” proved to be anything but. Yet the history of China’s offshore sector as one of dashed expectations and meager returns has served to obscure its political and commercial significance: It was the promise of wealth rather than wealth itself that exerted a transformative effect on the parties involved.
Like Daqingism, which preceded it, China’s great leap offshore had political and economic consequences that extended far beyond its petroleum industry. By opening the most important sector of its economy—the offshore sector—to foreign equity holdings, the PRC pioneered in the late 1970s the doctrinal shift that from 1981 officially became known as “reform and opening up.” China’s oil industry remained the pivot of its general production model: as the terrestrial oil industry had served as a Maoist model of economic organization, the offshore oil industry emerged as the spearhead for economic liberalization. The sheer technology- and capital-intensive nature of the offshore industry made this imperative, and China’s deployment of “risk contracts” in the offshore industry was a policy derived from the petroleum faction.Footnote 157 Rather than riding roughshod over this oil clique, Deng’s reformist faction thus incorporated their “no-risk” policies into his economic readjustment program.Footnote 158
In this new, post-Maoist political climate, China sought capital and technology from countries ranging from the United States, to Japan, to France, to the United Kingdom, to Norway, with Norway emerging as a partner. Norway’s resource governance model—with its emphasis on maintaining sovereignty over reserves, high government take, low government financial risk through carried interest, and the facilitation of technology transfers through direct state participation via an NOC—offered incremental change along familiar political lines. The model thus turned the haunting specter of the ninteenth and early twentieth century system of unequal treaties on its head and reconciled Daqingist self-reliance with the means and methods of the international oil industry.
From a Norwegian perspective, the relationship was struck with a view at garnering orders for its struggling oil services industry, using its NOC Statoil as a bridgehead. Nor did Norway’s agent in the bilateral relationship emerge unaltered from the Chinese crucible. It was in order to participate in China’s second licensing round that Statoil was given parliament’s approval to operate internationally, a decision that was to profoundly reshape the corporate body in the decades that followed. Statoil’s reinvention as an IOC acted in turn as a fait accompli for its privatization and stock market listing and realigned the company’s focus on upstream exploration and production.
Four decades on, both China’s reaffirmation of reform and opening up and news of CNOOC’s first fully independent offshore oil project reaching full production capacity offer lasting reminders of the Sino-Norwegian energy rapprochement. As this study has shown, Statoil served to inspire the creation of CNOOC under the auspices of petroleum minister and prominent oil clique member Kang Shien in February 1982. The use of Norwegian-inspired carried interest clauses neutralized CNOOC’s exploration risk, and its controlling 51 percent interest in each block offered access to the IOCs’ intellectual property and expertise. Despite the disappointing exploration efforts, CNOOC acquired a vast body of knowledge into the process of petroleum exploration and evaluation; learning that it bootstrapped to rapidly become an international player in the oil and gas business within the next decade, indeed a vehicle for the pursuit of Chinese energy security in the international arena. Although the immediate objective of the Chinese—the establishment of a major new offshore oil province—was a failure, the implementation of Norwegian licensing and governance model led to the rapid development of an internationally competitive CNOOC, due to the ensuing knowledge and technology transfers from the IOCs.
Acknowledgment
Earlier versions of this paper were presented at the Centre Universitaire de Norvège à Paris history workshop held in Paris, October 2018 and at the European Business History Association 23rd Annual Congress in Rotterdam, August 2019. I would like to thank my former colleagues at the University of Oslo’s History of Statoil 1972-2022 project for their incisive comments on previous drafts and the three anonymous reviewers for greatly strengthening the paper’s argument. Lastly, I would like to express my gratitude to my wife Carol Thanki and son Magnus Thanki Gjersø for their love, help and support. In memoriam Ole Kallelid (1967–2022).
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