National Champion by Universitetsforlaget

Navigating these turbulent global events, Statoil met with success and failure. Major strategic shifts into new energy resources like shale, oil sands and offshore wind proved particularly vexing, exposing a recurring tension in Statoil’s governance between public expectations and capital market demands. On the one hand, Statoil’s management felt the pressure from

National Champion

investors to become a global oil and gas company. On the other, management had to navigate public demands to become a greener company. Out of this conundrum Equinor emerged as a somewhat more global and greener company than Statoil was in 2001, but still with deep roots in Norway and in oil and gas. Marten Boon (b. 1978) is Lecturer in History of International Relations at Utrecht University, the Netherlands. Boon is a business historian and has published several books and articles on the history of oil and gas.

National Champion Statoil and Equinor since 2001

Statoil’s history since 2001 has been turbulent and transformative. The company’s privatization in 2001 attuned its management more to investors’ expectations than to state policies. An unprecedented rise in oil prices between 2004 and 2014 and the merger with Norsk Hydro’s oil and gas division in 2007 buoyed the company’s rapid internationalization, transforming it from a Norwegian company into a global one. And the impending climate crisis forced the company to consider a world without oil and gas, transforming it into an energy company under a new name – Equinor.

Marten Boon

Statoil and Equinor since 2001

ISBN 978-82-15-05696-8

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National Champion

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National Champion

Marten Boon

Statoil and Equinor since 2001

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© Universitetsforlaget 2022 ISBN 978-82-15-05696-8 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise, without the prior permission of Universitetsforlaget. Enquiries should be sent to the Rights Department, Universitetsforlaget, Oslo, at the address below. www.universitetsforlaget.no Universitetsforlaget AS P.O. Box 508 Sentrum NO-0105 Oslo Norway Design: Modest [Rune Døli] Photo Editor: Tone Svinningen Cover Photo, front: Drilling site in the Marcellus shale gas field, 2010. Photo by Helge Hansen/Equinor. Cover photo, back: Wind turbine off the coast of Scotland, 2017. Photo by Øyvind Gravås/Equinor Typeset: Lyon Text 10/15,117 pt Paper: 120 g Munken Pure Binding: Bokbinderiet Johnsen Printed in Norway by 07 Media – www.07.no Cover, front: Helge Hansen/Equinor Cover, back: Øyvind Gravås/Equinor Dagens Næringsliv: p. 305 Mikaela Berg Equinor: p. 8 Manfred Jarisch; p. 10/11 Øyvind Hagen; p. 16 Leif Berge; p. 34 Ørjan F. Ellingvåg; p. 41 Arvid Steen; p. 44 and 49 Øyvind Hagen; p. 56 Sealand; p. 60 Leif Berge; p. 62 Tor Hammerstad; p. 66 Lars Gunnar Dahle; p. 69 Showcase Aerial Photos, Texas; p. 75 Kjetil Alsvik; p. 78/79 Mahmood Bargrizan;

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p. 86 Delband Rastgou; p. 89 and 98 Øyvind Hagen; p. 103 Harald Pettersen; p. 107 Øyvind Hagen; p. 118 Helge Hansen; p. 126 and 129 Harald Pettersen; p. 130 Kjetil Alsvik; p. 134/135 Trond Isaksen; p. 137 Sara Johannessen Meek; p. 140 Harald Pettersen; p. 144 Øyvind Hagen; p. 149 Harald Pettersen; p. 155, 156 and 160/161 Øyvind Hagen; p. 170 and 173 ukjent; p. 176 Kåre Foss; p. 180/181 Øivind Leren; p. 190 Harald Pettersen; p. 194 Terje S. Knudsen; p. 197 Knud Helge Robberstad; p. 212 Helge Hansen; p. 216/217 Manfred Jarisch; p. 223 Harald Pettersen; p. 226 Ola Morten Aanestad; p. 230 Ole Jørgen Bratland; p. 232/233 Roar Lindefjeld; p. 241 Axel Öberg; p. 242 Eva Sleire; p. 247 Todd Korol; p. 250/251 Halliburton; p. 254 Ole Berg-Rusten; p. 263 Eiliv Leren; p. 272/273 Øyvind Hagen; p. 275 Geir Otto Johansen; p. 280 and 283 Harald Pettersen; p. 288 Helge Hansen; p. 292 Harald Pettersen; p. 301 Ole Jørgen Bratland; p. 307 Harald Pettersen; p. 310 Arne Reidar Mortensen; p. 313 Øyvind Hagen; p. 316/317 Helge Hansen; p. 320 Odd Furenes; p. 324 Axel Öberg; p. 327 Fiona Emslie; p. 330/331 Øyvind Gravås; p. 333 Harald Pettersen; p. 336 Alan O’Neill/ CHVP; p. 338/339 Ole Jørgen Bratland; p. 353 Jan Arne Wold; p. 362 Einar Aslaksen; p. 369 Ole Jørgen Bratland; p. 375 and 382/383 Harald Pettersen Getty Images: p. 168 Tomohiro Ohsumi/Bloomberg INEOS Rafnes AS: p. 120/121 Norsk Oljemuseum: p. 71 privat; p. 81 privat; p. 268 Equinor NTB: p. 15 Agnete Brun; p. 19 Gorm Kallestad; p. 23 Bjørn Sigurdsøn; p. 37 Erik Johansen; p. 52 Lise Åserud; p. 90 Thomas Bjørnflaten; p. 109 Tor Richardsen; p. 124 Alf Ove Hansen; p. 146/147 AFP/NTB; p. 183 Knut Falch; p. 188 Reuters; p. 198 Alexander Zemlianichenko/AP Photo; p. 202 Peder Gjersøe; p. 205 Jarl Fr. Erichsen; p. 206 Lise Åserud; p. 256 Roger Hardy/Samfoto; p. 260 Heiko Junge; p. 295 Berit Roald; p. 343 Morten Holm; p. 349 Marit Hommedal; p. 358 Liselotte Sabroe; p. 365 Terje Bendiksby UN Photo: p. 29 Frank Leather

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Contents 6

Preface

Introduction Chapter 1

Privatizing Statoil Chapter 2

High hopes and limited results Chapter 3

From ambition to action Chapter 4

131

From Super NOC to supermajor Chapter 5

171

StatoilHydro Chapter 6

213

Meeting the growth challenge Chapter 7

257

Revitalizing the Norwegian Shelf Chapter 8

289

From volume to value Chapter 9

321

Statoil in the clean energy transition Chapter 10

363

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385 386 395 417

Appendix Bibliography Endnotes Index

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Preface In Norway, Equinor is more than a company; it is an institution. The opportunity to write the company’s history was therefore not only a professional commitment but above all a privilege. The realization of this book would not have been possible without the assistance of many people to whom I owe much. First and foremost, I want to express my gratitude to Equinor and its people. To Hans-Åsmund Frisak and Anne Aae for always responding unwaveringly to questions and providing assistance in navigating Equinor’s sprawling organization. To Gro Elin Tuestad and the team at the document centre in Stavanger for their vital assistance in locating documents. To the many former and current Equinor employees and managers who took the time and effort to speak to me, especially Helge Lund, Eldar Sætre, Inge K. Hansen, Jon Arnt Jacobsen, Reidar Gjærum, Torgrim Reitan, Ole-Johan Lydersen, Kristoffer Marø, Peter Mellbye, Bill Maloney, John E. Strømman and Andreas Helsem. To Helge Vatn and his team at the Rotterdam office for their willingness to host me after I moved to the Netherlands. And to Ann-Toril, Tone, Britt, Lisbet, Grete and Elin at the Rotvoll office for treating me as their colleague. At the University of Oslo, I warmly thank Einar Lie for his trust and support. Although Covid-19 kept us from meeting more often, I greatly enjoyed the collegiality of Eivind Thomassen, Jonas Gjersø and Ada Nissen, who contributed with comments, suggestions and valuable insights into Norwegian politics and culture.

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I also owe a debt of gratitude to Bjørn Tore Godal, Kalle Manshaus, Jon Arnt Jacobsen and Espen Storli for reading numerous drafts of the manuscript. Many other people took the time to talk with me and share information, experiences and perspectives. I thank in particular Eivind Reiten, Petter Nore, Jon Gunnar Pedersen, Jarand Rystad, Svein Rennemo and Lill Heidi Bakkerud. Last but certainly not least, I want to thank the editorial team at Universitetsforlaget who guided the writing and editing process patiently but firmly. The value of the tireless discipline and support of Heidi Norland, Jenny Holmsen and Marte Mesna cannot be overstated. I also thank Susanna Sturgis for very competent editing, Rune Moen for the Norwegian translation, Tone Svinningen for expert guidance of photo selection and Rune Døli for the book’s stunning design. Finally, I want to express my gratitude to my family for their unconditional understanding, support and love. A book takes teamwork, but ultimately it is the author’s responsibility. Any errors that remain after the effort and support of so many people are exclusively my own. Marten Boon

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Introduction

In Amenas gas field in Algeria. In one of its first major international acquisitions, Statoil bought a stake in the field in 2004.

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Next spread: Statoil’s headquarters at Forus near Stavanger in 1999.

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t the cusp of the year 2000, Statoil faced a very different world from when it first saw the light of day. In 1972, Statoil had been established as a political instrument to foster the development of a fledgling Norwegian petroleum industry and to secure the country’s petroleum wealth for the benefit of Norwegian society. By the end of the 1990s, however, Norway’s institutions and petroleum industry had matured into a stable and competitive system in which full state ownership in Statoil had become somewhat of an anachronism. This was the background against which Harald Norvik, Statoil’s second CEO, announced in January 1999 that the time had come for the state to privatize Statoil.1 Two years later, Statoil was partially privatized, opening a new chapter in the company’s history—a chapter in which the company enjoyed much greater autonomy over its own strategic direction than before, despite the state retaining majority ownership of the company. Statoil’s partial privatization paved the way for the pursuit of new growth opportunities, especially abroad. Statoil could now evolve in a way that would have hardly been possible as a fully state-owned company. But at every turn of the company’s turbulent history after 2001, fundamental questions about its ownership and governance kept reappearing in the public debate: Why was a change to Statoil’s ownership structure necessary in the first place? Why did Norvik claim that Statoil’s governance was no longer fit for purpose? Whose interests had partial privatization primarily served? And how had it affected the relationship between state and company? To what extent did a more autonomous Statoil still serve the interests and objectives of the state? These questions came to the fore in full force in the spring of 2020 when the financial daily Dagens Næringsliv (DN) published a series of articles on the accounting losses that Statoil—which changed its name to Equinor in 2018—had been racking up on its investments in the U.S., the company’s largest foreign operation, since the early 2000s. At over 21.5 billion U.S. dollars, approximately 160 billion kroner, the company’s accumulated losses in the U.S. contrasted sharply with the nearly 56 billion U.S. dollars (over 470 billion kroner) in accumulated profits from Statoil’s Norwegian activities.2 This suggested that Statoil was irresponsibly squandering cash earned from its privileged positions on the Norwegian Shelf on risky foreign adventures.3 These privileged positions—the result of Statoil’s preferential treatment in production licence awards in the 1970s and 1980s—had served the state well. On the basis of these positions, Statoil had evolved into a

Introduction

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competent offshore operator developing profitable oil and gas fields on the Norwegian Continental Shelf that yielded the state hundreds of billions of kroner in revenues and contributed to the creation of the world’s largest sovereign wealth fund, the Government Pension Fund Global. The losses in the U.S. seemed to suggest that the same did not apply to Statoil’s international expansion. DN’s articles in particular highlighted questions about the governance of privatized Statoil: How was it possible that the state had seemingly stood by while the company squandered billions of kroner? Had the partial privatization given Statoil too much autonomy over its pursuit of international expansion? Did the state have too little control over the company to justify a continuation of its majority shareholding? Essentially, the debate centred on a general problem of state-owned enterprises: how to reconcile the political objectives of the state with the interests of the company? In other words, what is the right balance between profit and politics in the governance of a state-owned company? The company’s U.S. investments seemed to suggest that Statoil’s business interests had outweighed the state’s political interests. This was the exact opposite of the problem that the company had experienced in the late 1990s, when it perceived full state ownership as a roadblock for the company’s further development, especially abroad. The common denominator in both cases, and the central theme for this book, is the balance between profit and politics, between the government’s desire to maintain a Norwegian oil company and Statoil’s ambition to expand beyond its home country. When Norvik argued in 1999 that Statoil’s ownership structure had become an anachronism, he first and foremost had Statoil’s own interests and ambitions in mind. These ambitions were the product of Statoil’s history. Having grown from a political vision into Norway’s largest industrial company in a matter of decades, Statoil had managed to overcome technical, commercial and political barriers through its own commitment and ingenuity. The strong emphasis on technology and ground-breaking innovation in the company’s identity fostered a mindset in which the company’s ambitions seemed to have no boundaries. If Statoil had once primarily served the state as its operational agent for the development of a Norwegian oil and gas industry, by the 1990s Statoil was operating on the assumption that it was developing along a path of its own, separate from the state, and justified by the company’s historical accomplishments. In other words, when Statoil argued for privatization, it was implying that 13

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the state was hampering the company from further developing the competences it had accumulated since the 1970s and creating value beyond the Norwegian Shelf. The idea of privatizing Statoil was born from political, economic and industrial shifts that were in the process of radically changing the company’s competitive environment, in which full state ownership increasingly seemed a stumbling block for Statoil’s further development. Four trends in particular were framing Statoil’s outlook: the internationalization of the Norwegian oil and gas industry, the maturation of the Norwegian Shelf as an oil and gas province, the concentration and globalization of the international oil and gas industry, and the global wave of economic liberalization and denationalization that was changing conceptions about the role of the state in national economies.

From state protection to international competition In 1994, Norway formally joined the European Economic Area (EEA). This gave Norway access to the European Union’s common market on the condition that Norway conformed to the rules and regulations that governed it. These rules included a ban on the type of preferential treatment of domestic companies that had enabled the state to foster the emergence of a Norwegian petroleum industry in the 1970s and 1980s. However, instead of laying waste to domestic industries, Norway’s entry into the EEA was a decisive step in the gradual dismantling of the protectionism that began following the oil price crash of 1986.4 During the 1990s, the Norwegian petroleum industry rapidly expanded abroad as exports of services and capital goods rose and Norwegian companies established foreign subsidiaries or were taken over by foreign companies themselves.

Introduction

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Protesters gather at the Hordaland Labour Party congress in 1992 to protest against the Party’s support for Norwegian membership of the European Communities / European Union. Norway joined the European Economic Area in 1992 with the aim of becoming a full member of the European Communities / European Union, but a majority voted no to membership in a national referendum in 1994. Norway’s relations with the EU were henceforth regulated by the 1992 European Economic Area agreement.

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Introduction

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The prevalence of low oil prices during the 1990s and competition from newly opening oil and gas provinces gave rise to a series of joint industry- government projects to improve the efficiency and competitiveness of the domestic petroleum industry and the Norwegian Shelf.5 For Statoil, the dismantling of the protectionist system exposed the company to increasing competition from international oil companies as the state no longer discriminated against foreign firms in awarding exploration and production licences. Statoil was increasingly forced to compete on a level playing field. This created greater distance between Statoil and the state because the company had lost its function as a political instrument. However, full state ownership continued to give the state discretionary powers to interfere directly in the company’s operational, strategic and financial management. Statoil increasingly perceived this as an obstacle to its transformation into a more competitive and efficient company that could withstand international competition.

From prolific frontier to imminent decline Statoil’s increasing exposure to competition also reflected the maturation of the Norwegian Shelf. By the late 1980s, it had become clear that the likelihood of finding another giant field like Ekofisk, Statfjord or Troll was diminishing.6 The accumulation of oil and gas reserves had therefore already started slowing down in the early 1980s, but by the mid-1990s it appeared certain that the age of big discoveries was over (Figure 0.1), with the discovery of Ormen Lange in 1997 as the exception that confirmed the rule. The diminishing prospects for growth on the Shelf threatened to reduce Norway’s attractiveness for international oil companies. At the same time, production growth tapered off in the late 1990s and was expected to peak in the early 2000s. The combined result of rapidly growing production and dwindling discoveries saw the reserve life ratio, that is, the number of years that production levels could be sustained from available reserves, fall from

Workers operating a drilling rig outside of Baku, Azerbaijan in 1996. Statoil participated in the giant Azeri Chirag Gunashli oil field as partner in the production sharing agreement with the Azeri government that became known as the “contract of the century” in 1994.

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1.8

Ormen Lange

1.6

1.4

Accumulated resources 50

1.2

1.0

Snøhvit Troll

0.8

Production

0.6

Production (billion barrels of oil equivalent)

Accumulated resources (billion barrels of oil equivalent)

0.4 Statfjord 10 0.2 Ekofisk 0 69 19 70 19 71 19 72 19 73 19 74 19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99

Figure 0.1. Accumulated reserves and production, 1966–1999.

Source: Norwegian Petroleum Directorate, “Ressursrapport 2018 – Leting,” figure 2.6 Annual resource additions and production. Data retrieved from https://www.npd.no/fakta/ publikasjoner/rapporter/ressursrapporter/ressursrapport-2018/kapittel-2/

20 years in the 1980s to 10 in the late 1990s.7 Although the reserve life ratio fails to account for any future discoveries or the potential of technological development to unlock new reserves, the metric had a very powerful effect on the outlook of Norwegian business leaders, politicians and bureaucrats on the future prospects of the Norwegian Shelf and the competitive position of the Norwegian oil and gas industry. As the prospects for growth in Norway seemed to be diminishing from the late 1980s onwards, Statoil increasingly looked abroad in the 1990s to find new opportunities to sustain the company’s rapid expansion. The company’s strategic alliance with BP, established in 1990, gave Statoil access to prolific new oil and gas fields, particularly in West Africa and Azerbaijan. By 1999, however, the alliance had been dissolved after BP merged with the U.S. company Amoco. Its dissolution, along with the imminent oil production peak on the Shelf, significantly increased the urgency to accelerate Statoil’s internationalization.8 18

Introduction

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National Champion

National Champion Statoil and Equinor since 2001

Marten Boon

Statoil and Equinor since 2001

ISBN 978-82-15-05696-8

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