Norsk Hydro A.S.

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Norsk Hydro A.S.

Bygdøy allé 2,
N-0240, Oslo 2
Norway
(47) 243-2100
Fax: (47) 243-2725

U.S. Headquarters:
Norsk Hydro U.S.A. Inc.
800 Third Ave.
New York, New York 10022-7671
(212) 688-6606
Fax: (212) 750-1252

Public Company (51% owned by Kingdom of Norway)
Incorporated: 1905 as Norsk Hydro-Elektrisk Kvaelstofaktieselskab (Norwegian Hydro-Electric Nitrogen Corporation)
Employees: 34,957
Sales: NOK 58,06 billion (1992)
Stock Exchanges: New York
SICs: 2873 Nitrogenous Fertilizers; 2879 Pesticides and Agricultural Chemicals, Nee; 3354 Aluminum Extruded Products; 2821 Plastics Materials and Synthetic Resins, Synthetic Rubber, Cellulosic & Other Manmade Fibers, Except Glass; 2834 Pharmaceutical and Biological Research; 1311 Crude Petroleum and Natural Gas; 1321 Natural Gas Liquids

Norsk Hydro was Norway’s largest publicly owned industrial group in the early 1990s, with multinational activities in the production of fertilizers, light metals aluminum and magnesium, petrochemical raw materials and plastics, industrial chemicals, and oil and gas. The company also controlled interests in aquaculture, biomedicine and pharmaceutical research, and hydroelectricity. Hydro’s head offices were located in Norway and 51 percent of the company was owned by the Kingdom of Norway. Ninety percent of sales were made to international markets, with approximately 83 percent of sales made to western European countries, including Norway. During the 1990s, the company made efforts to expand sales in such regions as Vietnam, Russia, Sri Lanka, and the United States.

Norsk Hydro was founded in 1905 by Norwegian entrepreneurs Sam Eyde and Kristian Birkeland as Norsk Hydro-Elektrisk Kvaelstofaktieselskap (Norwegian Hydro-Electric Nitrogen Corporation). Originally, the company exploited the hydroelectric resources of waterfalls to generate electricity used in the production of nitrogen fertilizers. Initial output was mostly limited to Scandinavian markets until after the World War II, when the Norwegian government took a 48 percent stake in the company and ushered in an era of multinational expansion and diversification. In 1969, the company name changed to Norsk Hydro A.S. By the 1990s, the company’s size justified a decentralized organization plan grouping the company into four business segments, each serving as the strategic and financial center for its composite divisions: agriculture, oil and gas, light metals, and petrochemicals. Combining these segments with a growing number of other activities—from alginate production to pharmaceutical research, seafood, and insurance—Hydro proved that its origins in fertilizers laid fertile ground for almost a century of lush business growth.

Hydro’s original business continued to play a leading role in the company’s agriculture segment. By the 1990s, Hydro had become a western European leader in the production and sale of mineral fertilizers. Principal ammonia and fertilizer production plants were located in Norway, Germany, France, the Netherlands, the United Kingdom, Trinidad, and Tobago, with additional partnerships in Qatar and the United States. In addition to the marketing and distribution of fertilizers in over 100 countries, the agriculture segment also produced a wide variety of industrial gases and chemical products—mostly related to fertilizer manufacture—through its industrial chemicals division.

Hydro’s oil and gas segment began its rapid ascent after the discovery of oil and gas in the Ekofisk field in 1969, giving the company interests in roughly two-thirds of the wells drilled on the Norwegian shelf by the early 1990s. Gas and oil production expanded beyond the Ekofisk and Frigg fields developed in the 1970s, into the Gullfaks and Oseberg fields in the late 1980s, and into development of other fields, including the Troll Oseborg Gas Injection Project offshore, and the Brage, Snorre, Sleipner East, Sleipner West, and Heidrun oilfields, as well as growing interests in Denmark, the Netherlands, Egypt, Gabon, Angola, Syria, Yemen, Namibia, Vietnam, and Russia. The oil and gas segment also marketed and distributed its products throughout Scandinavia.

Hydro’s light metals segment included hydro aluminum and the magnesium and energy divisions. Metal was produced in the form of rolling slabs, billets, wire rod, and foundry alloys, as well as semi-fabricated extruded and rolled products, with particular emphasis on aluminum and magnesium extruded products for such industries as automobile manufacturing. Just as the division’s metal production was increasingly used for Hydro’s own semi-fabricating facilities, most of its hydro-electric energy fueled Hydro’s own internal operations.

In the petrochemical segment, Hydro entered the 1990s as a leading producer of ethylene, plastic resin polyvinyl chloride (PVC), and vinyl chloride monomer (VCM), the main ingredient in PVC production. In addition to its PVC leadership in Scandinavia and the United Kingdom—with a 1992 market share of about 40 percent and 25 percent respectively—Hydro manufactured and sold VCM to other PVC producers in Europe and the Far East. With the growing global PVC market at about 18.4 million tonnes in 1992, and with studies suggesting that the material was environmentally preferable to many other plastic products, PVC production augured positive growth for the petrochemical segment, despite lagging sales in the early 1990s.

Despite Hydro’s tremendous diversity by the 1990s, the company never lost sight of its historical origins in fertilizers. In fact, the initial objective of diversification into oil and gas was to garner raw materials for fertilizer production; subsequent growth into light metals, petrochemicals, pharmaceutical research, and seafood development—yielding products from PVC pipes to packaged salmon—also branched out of fertilizer interests.

As early as World War II, Hydro’s fertilizer activities fueled widely divergent enterprises; in this case, German occupying forces made use of the company’s plant in Rjukan, Norway to produce heavy water (deuterium oxide) for use in nuclear reactor research. The Rjukan plant produced ammonia, which yielded heavy water as a by-product. With its use as an atomic brake fluid, heavy water was a key tool in atomic fission experiments and the development of the atomic bomb, a device that was considered a key determinant for the outcome of the war. Fearing German access to heavy water for their escalating research program, the Allies chose 11 saboteurs, trained them in the British Isles, and on February 1943 parachuted them onto the Hardanger plateau, from where the renowned “Heroes of Telemark” descended to Vemork by combining skiing, treacherous climbing, and sheer willpower to destroy the plant. Though the definitive impact of the sabotage on the outcome of the war remained a point of historical debate, the mission’s unquestionable adventure appeal energized numerous books and documentaries and two feature films.

World War II brought far more change than the destruction of the Rjukan plant. After the bombing of Hydro’s Herøya plants in 1944 and the financial losses that resulted, the company moved to consolidate much of its business in Norway and to expand the scope of its interests. While 97 percent of the company’s shares were owned by foreigners at the outbreak of World War II, after armistice the Norwegian government seized German holdings and took a 48 percent stake, which along with additional purchases and reparation rose to a 51 percent government stake in the company.

Starting in the 1950s, Hydro expanded into a number of new businesses, both directly and indirectly related to its core fertilizer production. In 1951, Hydro began production of magnesium metal and poly vinyl. In 1967, the company opened an aluminum reduction plant and semi-fabricating facility at Karmoy, Norway, and constructed the Rldal-Suldal hydro-electric facility to power the Karmoy works. The company also made preliminary steps in seafood with its fish-arming subsidiary, MOWI, in 1969. With Hydro’s 1965 and 1967 opening of two Norwegian ammonia plants using naphtha (a liquid mixture of hydrocarbons distilled from petroleum, coal tar, and other hydrocarbon-rich substances) and heavy fuel oil feedstocks in the production process, the company became dependent on outside suppliers of raw materials. Attempting to supply its own hydrogen for ammonia production, Hydro began investigating opportunities in gas and oil production in the late 1960s. These initiatives, paired with a new management strategy starting in the late 1960s, spurred tremendous growth that transformed the company into an industrial group.

Under the leadership of Johan B. Holte (president from 1967 to 1977 and chairman of the board from 1977 to 1985), Hydro restructured not only its policies on employee relations but its overall organizational structure. Holte set new standards for cooperation between management and workforce at all levels of Hydro; and those levels multiplied rapidly, as Holte initiated aggressive moves to expand and diversify core business beyond domestic fertilizers and into light metals, gas and oil, and eventually other segments on an international scale. In a 1990 retrospective article, Holte’s successor as president, Odd Narud, summarized the organizational strategy for Hydro’s in-house publication, Profile Magazine: “The company has concentrated on growth in its core areas; agriculture, oil and gas, light metals and petrochemicals. It is the sustained efforts to improve in these areas which have created the basis for serious involvement in new product areas.”

By the early 1970s, oil and gas constituted one such “new product area.” In 1965, when Norway granted licenses for offshore petroleum exploration, Hydro obtained concessions and formed partnerships with foreign companies on numerous fields. In 1969, the Phillips Petroleum-operated drilling rig Ocean Viking struck oil in the Ekofisk field, in which Hydro owned a share. The company’s success with North Sea oil and gas continued with the Elf-Aquitaine-operated Frigg discovery in 1971. In an attempt to combine Hydro’s success with a stronger petroleum policy, the Norwegian government increased its share of Hydro to 51 percent and created Statoil, a state-owned company, in 1972. Hydro began operating its oil refinery at Mongsted, Norway in 1975. Experience from these projects in the 1960s and 1970s would prove extremely beneficial for Hydro’s innovative contributions to oil and gas development in the late 1980s and early 1990s.

Building on its natural gas liquids resources, Hydro began investing large amounts of capital in the petrochemical industry in the early 1970s, with the decision to build the Rafnes petrochemical complex, which began production of ethylene and vinyl chloride in 1978. Falling in the wake of the international oil crises, however, Hydro’s petrochemical activity incurred losses until the late 1980s. Nevertheless, the company implemented ongoing growth strategies through the 1980s: in 1982, the company formed Norsk Hydro Polymers Ltd., one of two PVC manufacturers in the United Kingdom, after acquiring BIP Vinyl’s Aycliffe facility and the last 50 percent of Vinatex; in 1984 the company acquired KemaNord’s facility in Stenungsund, Sweden, and formed Norsk Hydro Plast AB; in 1987 Hydro bought 47 percent of Singapore Polymer to better target Asian markets (increasing its holdings to 60 percent a year later); and in 1989, Hydro Polymères was formed in France to produce PVC and engineering plastics in continental Europe. By 1990, the company announced development of a new PVC plant at Rafnes. And in March of 1991, Hydro announced a joint venture with BFGoodrich Company to market vinyl-based injection-molding compounds for use in applications such as business machine components, telecommunications equipment, and construction products.

The company also covered new ground in fertilizers, with the acquisition of NSM, a Dutch firm (1979); 75 percent of the Swedish firm, Supra (1981); a British firm renamed Norsk Hydro Fertilizers Ltd. (1982); a West German company renamed Ruhr Stickstoff AG (1985); and 80 percent of the French Compagnie Francaise de L’Azote (1986), along with the remaining 20 percent the following year. After restructuring its fertilizer division in 1987, the other divisions in Hydro’s agriculture segment shifted as well, with sales of industrial gas operations in Finland and Sweden and formation of a new company, Hydrogas AS, the largest company in the industrial chemicals division. By 1990, Hydrogas sold the whole range of industrial gases in Norway and held about 10 percent of the carbon dioxide market in Europe. In 1991, the agricultural segment continued to acquire fertilizer facilities: one in Rostock, Germany; another in Green Bay, Florida; another in the United Kingdom; and three ammonia plants facilities in Trinidad and Tobago.

Hydro expanded its light metals segment in the 1980s. First it acquired five aluminum extrusion plants in Europe from Alean Aluminum Limited. Then, in 1986, the group merged with Ardal og Sunndal Verk AS (ÅSV), a government-controlled aluminum company, and consolidated its interests in May 1988, renaming the merged entity Hydro Aluminum AS (ranked as the world’s fifth largest aluminum company in 1990, with sales of 15 billion NOK). Hydro positioned its growing aluminum extrusion business to supply growing demand in strategic market segments, such as the automotive industry (a separate automotive aluminum unit was established in Munich, the German automotive capital, in 1990) and tubing for air conditioning systems in the United States. The company’s purchase of Bohn Aluminum & Brass in 1990 further strengthened its position in the American extruded products market.

Just as aluminum’s light weight and high strength characteristics made it suitable for automotive parts ranging from frames to tires, magnesium was characterized by similarly useful form-ability and lightness. In addition to the construction of a new magnesium plant in Canada in 1986, Hydro collaborated with the automotive industry in the development of magnesium components. By the early 1990s, these efforts were disrupted by a stagnant economy—which led to depressed prices and high inventories of magnesium—and by reverberations from the United States Commerce Department International Trade Administration’s 1991 claim that Canada and Norway were unfairly dumping magnesium in the United States, and its imposition of anti-dumping duties to deter continuation of the practice. That same year, Hydro announced reduction of magnesium production in its Norwegian and Canadian plants, resulting in 1992 levels between 25,000 and 30,000 tonnes less than 1991 levels.

Expansion and internationalization of its core businesses increasingly exposed Hydro to opportunities in the less related, though no less promising spectrum of “other activities,” including seafood and salmon farming and processing. While Hydro’s involvement in salmon farming began with its 50 percent acquisition of MOWI in 1959, not until the end of the 1970s did Hydro’s stake reach 75 percent, and not until 1980 did MOWI operate internationally. In 1980, MOWI acquired 44 percent of the Icelandic ocean ranching company, ISNO, and 75 percent of Fanad Ireland, a near-bankrupt trout farming operation that became a world leader in fish farming. Other developments included the acquisition of Golden Sea Produce (1983), with Sea Life Centre aquariums in Scotland and England; new fish farms at Haverøy and Turøy (1985 to 1986); the establishment of the Prodemar turbot farming facilities, in cooperation with the Bank of Bilbao in Spain (1987); the establishment of Biomar, a joint venture between Norsk Hydro, Dyno Industrier a.s., and KFK (1988); and the acquisition of the Danish fish smoking companies Pescadana and B&H Fish Export (1990).

Starting in the mid-1980s, Hydro also aspired to become a leading company in bio-polymers, fatty acids, and pharmaceuticals. A series of acquisitions toward that end started in 1985, when Hydro bought a majority share (and later acquired over 90 percent) of Carmeda AB, a producer of biologically active surfaces for medical equipment. In 1986, Hydro Pharma AS was established to develop pharmaceutical activities, including the products of drug delivery systems by Biogram AB, diagnostic ultrasound equipment by Vingmed Sound A/S, enzymes by Marine Biochemicals, and fatty acids by Johan C. Martens. In 1987, Hydro Pharma acquired all the shares of NAF Laboratories, a leading Norwegian Pharmaceuticals supplier. Hydro’s Pharma and Biomarine Divisions were merged into the Bio-medical Division in 1988. And in 1989, the company increased its stake in Securus, a company listed on the Oslo stock exchange, to 77.3 percent. By 1990, these diversified activities were all brought under one umbrella with Securus’s takeover of Hydro’s Biomedical division.

The 1980s represented a period of growth that virtually transformed Hydro into a multinational giant. The company’s operating revenue of 14 billion kroner in 1980 soared to over 60 billion in 1990; its 13,000 employees increased to 42,000 over the same period.

A picture of Hydro with nothing but such positive growth figures, however, would be misleading; suffering from international economic recession in the late 1980s and early 1990s—compounded by low-priced competition from the changing economies of Eastern Europe and the former Soviet Union in areas such as light metals and fertilizers—Hydro was forced to consolidate operations and manage cost reductions to remain competitive into the 1990s. As early as April of 1991, efforts began to pay off, with Moody’s upgrading Hydro senior debt ratings to A3 from Baal, reflecting the company’s good positioning in the face of possible economic slowing in Western Europe. In 1992, the company president, Egil Myklebust, announced a two-year plan to reduce fixed costs by NOK 1,500 million. In the third quarter of 1991, the magnesium and fertilizer businesses were extensively restructured, with plant closures and rationalization of Swedish fertilizer interests. In December 1991, Hydro’s UK North Sea oil and gas interests were sold to British Borneo Petroleum, and Dutch exploration and production assets were also put up for sale. In June of that year, Japan’s Nippon Steel Chemical Co. and Nichimen Corp. jointly took over the resin compound manufacturing division of Hydro’s chemical division.

In the early 1990s, Hydro also implemented a strategy of internationalization in its core businesses. In 1992, the company’s oil and gas division was made operator for the first offshore license in Namibia. It was also awarded blocks in Vietnam, Angola, and continued to negotiate numerous feasibility contracts in Russia (such as the 1990 gas discovery in Schtockmanskoye in the Barents Sea). In 1993, Hydrogas A.S. negotiated the acquisition of 70 percent of the Polish state-owned Plgaz Gdansk as part of that firm’s privatization process.

Major gas and oil development continued to distinguish Hydro as a major technical innovator and a big player in improved petroleum markets projected for the later 1990s. Hydro applied state-of-the-art technology as an operator in the Oseberg field, which quickly became a major source of oil and gas after it began production in 1988. Building on Oseberg’s transport system, the Troll-Oseberg gas injection (TOGI) project, and later on the Troll oil project, Hydro demonstrated the advantages of remote-controlled subsea systems to develop and control deep-water projects. Much of the technology was used in the Phillips Petroleum Company’s 1993 project to plan and build new facilities called Ekofisk II at the Ekofisk field, of which Hydro held a 6.7 percent share. After acquiring 300 Danish gasoline stations from UNO-X in 1990 and Mobil Oil’s Norwegian marketing and distribution system in 1992, Hydro also became a major player in on-land gas and oil marketing.

Moving into the mid-1990s, the outlook for the Hydro group would depend on many complex factors: the success of the fertilizer industry in a European agriculture scene under the flux of freer world markets; the long-term demand for Norwegian gas and oil; the demand for PVC products and their resistance to concerns over their environmental impact; and the continuation of research and technology to develop new products and technologies in the group’s strategic segments. Hydro’s power lay largely in its diversity; and that diversity stemmed from years of success related to its original success in hydro-electric power. If the adage that power begets power holds true, the Hydro industrial group will remain as a powerful and growing force in multinational agriculture, light metals, oil and gas, petrochemicals, and beyond.

Principal Subsidiaries:

Freia Marabou a.s. (Norway; 38.3%); Dyno Industrier a.s. (Norway; 39.2%); Hydrogas a.s. (Norway); Hydro Aluminum a.s. (Norway); Pharmala a.s. (Norway); Securus Industrier A-S (Norway); Hydro Seafood A/S (Norway); Ammonia A/S (Denmark; 29%); Norsk Hydro Azote SA (France); Hydra Supra AB (Sweden; 95%); Hydro Aluminum Automotive Inc. (USA).