Norway Oil Investmnet 2017

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Norway Country Analysis

Team 3:

Austin, William

Greco, Sylvia

Hoffman, Parker

Rebbapragada, Ram

Rubin, Brian

Table of Contents

Section                                                                                                      Page Number

Executive Summary                                                                                              1

General Background                                                                                             2

Political Structure and Stability                                                                             3

Economic Environment                                                                                         6

Structure of Capital Markets                                                                                17

Investment Choice                                                                                               22    

References                                                                                                           36

Executive Summary

This analysis journeys through a holistic cultural and economic journey of on one of the smallest but wealthiest economies in the world, Norway. The analysis illustrates that although this nation has many geographic and size restrictions, it has been able to capitalize on its natural resources and skills and become the biggest exporter of oil and natural gas outside of the Middle East. The analysis also provides a brief cultural history of this Scandinavian nation as well as the evolution of its currency, the Kroner since its conception in 1875.

Furthermore, the analysis takes an in-depth focused look at Norway’s economy and discusses the economic environment along with trade agreements and the correlation of the Kroner exchange rate with the production of oil and gas. The fourth section examines the structure of Norway’s capital market, and more specifically its three markets: the Oslo Bors, Oslo Axess, and Merkur Market. A brief history is provided after the introduction of these three markets, before we dive deeper into all three of them. Further analysis ventures into the regulatory features surrounding the market, including the enterprises that create and enforce regulations in these markets.  The following analysis discusses Norway’s history and our recommendation of foreign direct investment.

The final section examines the strengths and weaknesses of Norway's largest sectors of maritime and oil as well as the overall ease of doing business in Norway. This section identifies oil as the best sector to invest in, and more specifically, Statoil as the best company to invest in. Statoil has a very high P/FCF at 5.46, which is the highest in Norway. It has been in business for over 40 years and has both many short and long-term opportunities to be extremely profitable in. Short term wise, there is a large area in the Norwegian Continental shelf that it can drill and recover oil from which could only be beneficial as oil prices are expected to increase 19% in 2018. The top priority for Statoil is New Energy Solutions (NES) as a long-term opportunity.  To hedge from foreign exchange currency risk, we also recommend that we buy option contracts to help limit transaction exposure.

Part 1:  General Background

      Norway is a relatively small country in Northeastern Europe that is home to roughly 5.3 million people. It shares a long border to the East with Sweden and borders with Russia and Finland to the northeast. On the western side, Norway has thousands of miles of coastline that runs from the North Sea all the way up to the Norwegian Sea. In terms of shape, Norway is relatively long and thin, but it still has over 125,000 square miles of land, most of which are mountainous regions and the reason why less than 10% of Norway’s land is arable. This has forced Norwegians to look west to the sea to obtain resources needed for survival. 

Most of the population in Norway is of Scandinavian descent, which have inhabited these lands for thousands of years dating all the way back to the original Vikings. The official language is Norwegian and the close to 70% of the population follows Lutheran Protestant beliefs. Norwegians in general live very healthy lives, they tend to be extremely active and eat healthy diets mostly composed of fish and meat; because of this they tend to live relatively long with an average life expectancy of roughly 82 years. This puts Norway in the top 15 countries in regard to life expectancy globally.  

Norway is a unique developed market economy; although it is a relatively small country it has an extremely strong economy with 12th highest GDP per capita in the world. Outside of the Middle East, Norway is the largest producer of oil and natural gas, making it an extremely wealthy and independent nation. Some of its other notable exports include metals, chemicals, ships and fish. Norway is an active member of NATO, World Trade Organization and the European Free Trade Association but not a part of the European Union, which it has rejected in the past due to referendum results. 

Evolution of the Kromer

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Part 2:  Political Structure and Stability

Legal System

Kingdom of Norway is a constitutional monarchy.  Current legal system is based on the constitution of 1814.

National Legislature

The Parliament (“Storting”) is composed of 169 members who are elected by proportional representation (modified Sainte-Laguë system).  Members of the Storting members serve a four-year term and there is no right of dissolution between elections.

Electoral System

Universal suffrage over the age of 18.

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