Today, less than 25 years since its inception, that nest egg has grown into the world's most valuable sovereign wealth fund, worth about $850 billion – more than $165,000 per Norwegian citizen, according to an SWF Institute report. It is the envy of the world, funding initiatives ranging from infrastructure improvements and green energy projects to public pensions.
Meanwhile, the Alberta Heritage Fund, which is 14 years older, is worth about $17 billion. The Alaska Permanent Fund sits at $50 billion. Even combined, they represent a fraction of the wealth Norway has amassed, and which it will be able to draw on long after its oilfields run dry.
And perhaps most remarkable of all, a large chunk of the credit for Norway's phenomenal success with its oil fund belongs to a geologist from Iraq.
It was 1968, and Farouk al-Kasim was struggling with an important decision that would change his life, and that of his young family. What he didn't know at the time was that it would have such a profound impact on Norway's future as well.
"Our youngest son was born with cerebral palsy, which left him handicapped, and it turned out that Norway was one of the best countries in the world for cerebral palsy treatment," al-Kasim explained in a feature interview with Michael Enright, host of The Sunday Edition.
His wife was Norwegian, and the couple decided to move their young family from Iraq to the Scandinavian country for their son's medical treatment.
It was a difficult decision; al-Kasim was a fast-rising executive at the Iraq Petroleum Company. He was one of the few Iraqi engineers at the firm, whose leadership was dominated by British expats, and he suspected his job prospects in Norway would be notably dimmer.
"I was really thinking of working for a petrol station or some such thing, because that was the only type of oil company I knew existed in Norway," he said.
Al-Kasim didn't know it at the time, but there were already a number of oil companies drilling in the North Sea, so when he showed up at Norway's Ministry of Industry one afternoon looking for information about the oil industry, government officials all but hired him on the spot.
He was tasked with analyzing data coming in from various offshore exploration wells, and what he found was very promising.
"I was [very excited], but I had a very hard time making others share my enthusiasm. They were truly brainwashed into believing that there is absolutely no chance of discovering oil or gas, or even coal," he said.
Al-Kasim's instincts turned out to be right, and in 1971, Phillips Petroleum discovered Ekofisk, one of the world's largest offshore fields. It is expected to continue producing oil until 2050.
"The reason for my impatience was my belief that they should get prepared and establish a petroleum administration that could cope with such great wealth. Otherwise ... things might not develop in a positive way for them."
He was concerned about "Dutch Disease," a phenomenon first seen in the Netherlands in the 1960s, when the Dutch economy unexpectedly suffered after a massive oil field was found in its part of the North Sea. Al-Kasim knew it would take a clear strategy and careful planning to avoid a similar situation in Norway.
He said Norway studied other oil-exporting countries, and found that the biggest problem was a lack of planning.
"They did not have a clear enough policy for how to manage petroleum resources when they were starting out," he said. "Norway concluded that if you don't have a policy up front, and if you don't have a consensus on that policy, that human nature would tend to favour individual interests rather than coherent national interests."
In 1971, shortly after the Ekofisk discovery, the Norwegian parliament drafted legislation that came to be known as the country's "10 Oil Commandments."
"These 10 Oil Commandments form the basic policy on which Norway has managed its petroleum resources ever since," al-Kasim said. "And the politicians not only agreed on this document, but they agreed not to debate it in elections and the third miracle ... that they kept their promise."
He was an instrumental force behind the Norwegian government's decision to establish a national oil company, StatOil, and an independent industry regulator.
The government also legislated that Norway's participation, through Statoil, in all future discoveries should be no less than 50 per cent. Al-Kasim says that stipulation was actually welcomed by international oil companies, who remained keen to partner with Statoil.
"They were guaranteed recovery of their investment," he explained. "And on top of that, they received a very reasonable interest on their investment .... There was virtually no risk at all, so the oil companies were quite happy going along with this formula."
For the first two decades Norway's share of the oil revenues were funnelled back into developing the necessary infrastructure, but by 1990 its stake was generating significant profits. It was time to set up a national oil fund.
One was established that year, and by 1996, every cent of oil revenue was flowing into the fund.
Norway's early planning paid off in terms of making sure the fund would continue to grow as the oil fields were exploited. Al-Kasim said a decade earlier, the government set very strict guidelines to prevent oil revenue from being used as general revenue for the government. Norway has since eased those restrictions, but still remains very cautious, allowing up to just four per cent of the oil fund to be used as general revenue.
"By using only four per cent, the fund will continue to grow and is still growing. But now that we have reached the peak of our production, most of the growth will be from investing the revenue rather than increasing the oil and gas production."
And al-Kasim said the government has been smart with its investments.
"It has been very careful to use that four per cent on wise investments that improve the productivity of the country as a whole, things like improving infrastructure, improving education, improving research," he said. "Things that will benefit all sectors of the economy, and that most citizens will benefit from."
The fund has now hit almost $850-billion, and Norway plans to use it to finance healthy retirements for its citizens. The government even renamed it a pension fund.
"The objective of the fund is to act as a guarantee for all Norwegian citizens as they grow into a pension age," he explained. "They see it as an important guarantee that they will have funds to use after their retirement."
Al-Kasim said he would encourage all oil-producing countries, including Canada, to develop a mission statement in concise, plain language that outlines the principles behind its oil industry.
"Concentrate on the principles rather than the ways and means," he said. "It is defining where you want to go today with your petroleum resources. You don't have to spell out the details. All you need to say is 'Where do I want to go? What do I want to use petroleum resources for?' Because once they're out of the ground, there'll be no second chances. They will be gone, and they cannot be replaced."
[Listen to the full audio documentary on Norway's $850 billion oil wealth fund, and why it's 50 times the size of Alberta's Heritage Fund, on The Sunday Edition starting at 9 a.m. Sunday April 13 on CBC Radio, or in the link at the top-left of this page.]