updated 12/21/2006 1:26:01 PM ET 2006-12-21T18:26:01

Statoil ASA will acquire the oil and gas operations of Norsk Hydro ASA in a $30 billion deal that would create the world’s largest offshore oil operator, the two Norwegian companies said Monday.

Prime Minister Jens Stoltenberg welcomed the deal as “the start of a new era” in Norway’s petroleum industry and said the government would seek two-thirds ownership of the merged company.

The market also reacted positively, with Hydro shares soaring 23 percent to 193 kroner ($31.02). Statoil shares fell 0.4 percent to 172.25 kroner ($27.69).

Statoil is already the key operator on the offshore fields that make Norway the world’s third largest oil exporter, and Norsk Hydro is also a major player.

With a total oil production of 1.9 million barrels per day and proven oil and natural gas reserves of 6.3 billion barrels, a merged Statoil-Hydro would pass Royal Dutch Shell PLC as the world’s largest offshore oil producer, the companies said.

Both companies have been expanding internationally, and Statoil President and Chief Executive Helge Lund said it makes sense for them to work together on such projects.

“The competition (for foreign fields) is extremely tough, and both companies are in a process where we work more and more outside Norway,” Lund said. “There has proven to be little point to compete for the same opportunities.”

The deal is expected to be completed in the third quarter of 2007, following shareholder and regulatory approval.

Hydro’s shareholders would hold 32.7 percent and Statoil’s shareholders 67.3 percent of the new company.

Hydro’s shareholders would receive 0.8622 shares in the new company for each Hydro share and continue as owners of Hydro. Statoil shareholders would maintain their holdings in the new company on a one-for-one basis.

The deal was worth about 185 billion kroner ($29.7 billion) based on Friday’s closing share prices and the number of outstanding shares reported by Norsk Hydro at the end of the third quarter.

Stoltenberg called the merger “industrially and strategically well founded.”

“This is the start of a new era. We are creating a global energy company,” Stoltenberg said.

The government would hold 62.5 percent of the merged company, but Stoltenberg said he would seek Parliament’s approval to increase the state’s share to 67 percent.

The government owns 71 percent of Statoil and 44 percent of Norsk Hydro.

Lund would be chief executive of the merged company, while Norsk Hydro Chief Executive Eivind Reiten was proposed as board chairman.

Reiten would also stay on as chief executive of Norsk Hydro’s aluminum operations, which would remain as a separate company together with Hydro’s hydroelectric and solar power units.

“Hydro is ready to move on as a strong and focused aluminum company,” Reiten said.

Analyst Kjetil Bakken of the Fondsfinas investment house in Oslo said he had expected moves to split off Norsk Hydro’s aluminum unit but was surprised at the timing of the oil merger.

“Both (companies) have been big enough to manage on their own,” he said, adding that the main argument in favor is their expansion plans abroad.

The Nordic country’s largest labor union, LO, said the merger would strengthen Norway’s oil industry, while the Norwegian Oil Industry Association also welcomed the deal.

“With a starting point on the Norwegian continental shelf, the new company will be in a unique position to further develop the global oil and gas industry,” said Per Terje Vold, the managing director of the oil industry group.

Statoil is based in the western port of Stavanger and employs about 24,000 people in 31 countries. Norsk Hydro, based on the outskirts of Oslo, employs about 33,000 people in 40 countries. It also has a division for production of light metals.

The new company would have its headquarters in Stavanger and would employ about 31,000 people.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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