Norway's Statoil (NYSE:STO) just recently announced that it has discovered a massive oil field in the North Sea. This field, the Aldrous Major South - Avaldnes on the Utsira High structure, is believed to contain between 1.7 billion and 3.3 billion barrels of recoverable oil. This is much greater than the original estimate of 100 million to 400 million recoverable barrels, which would be nothing to be excited about.
Norwegian oil production peaked in 2001 and has been declining at an average rate of 5% annually since then. At the start of 2011, there were officially 16.2 billion barrels of oil-equivalents in Norway after a downward revision of 4.473 billion boe. Total remaining resources stood at 46 billion boe with just 6.7 billion boe of proven reserves. Given the country's energy production at the time, Norway had about 9 years of production remaining. The Norwegian Petroleum Directorate has been predicting that production will keep declining going forward.
According to an article posted in the European Energy Review, that all changed over the last year. The country has seen two very large discoveries at Aldrous and Skrugard since the beginning of the year. These two fields were the first major find in Norway since 1997. These two finds are beginning to renew optimism in the Norwegian oil-and-gas industry. The country's new Minister of Petroleum and Energy is supportive of this renewed optimism in the industry. He has published a document (PDF, 8.7 MB) that contains a number of policies that would be very beneficial for the country's energy industry, including the opening up of new areas for exploration for the first time since 1994. There is a lot of optimism that these new areas could include promising finds and this optimism is bolstered by the two large recent finds.
One way that investors can play this trend is with the Global-X Norway ETF (NYSEARCA:NORW). The Global-X Norway ETF is designed to mimic the performance, before expenses and fees, of the FTSE Norway 30 index. This index consists of thirty Norwegian companies and is designed to correspond with the performance of the overall Norwegian stock market.
The rationale for investing in the Norway ETF is that the renewal of optimism in the oil-and-gas industry combined with the added government support promises to be a boon to the Norwegian economy. I mentioned earlier in this article that the Minister of Petroleum and Energy intends to open up new areas to oil-and-gas exploration. If these areas do indeed contain economically viable energy resources then it could mean new business for the country's oil-and-gas exploration and production companies. This will boost income at those companies and it will also generate income for the people that work at those companies. When these workers spend their income, it generates cash flow and income for other Norwegian companies.
The energy industry makes up the largest portion of the ETF's total holdings at 39.16%. The remaining industry sectors in the Norwegian economy make up much smaller shares of the ETF's holdings. The financial industry makes up the second largest portion of the ETF's holdings but at 16.17%, it has much less representation than the energy industry.
Click to enlargeSource: Global X Funds
The energy and basic materials industry make up slightly more than half of the ETF's total holdings. As a result, the ETF is somewhat exposed to commodity prices. This is a risk factor with this ETF that should not be ignored. A fall in commodity prices could cause the value of the ETF to fall. I expect that any such decline will be temporary, however, and that commodity prices will go up over the long-term.
Disclosure: I am long STO. STO is the largest single holding of the Norway ETF.