Norway’s state oil company Equinor continued to be dragged through the mud this week, as its “scandalous” losses on US operations grew and it was publicly scolded by Oil Minister Tina Bru. Now the company faces probes of alleged mismanagement and cover-ups, amidst calls for Equinor’s international operations to be spun off and sold.
The week started on Monday with a report by state broadcaster NRK that Equinor’s massive losses on oil and gas projects in the US rose again in the first quarter. Even though Equinor’s beleaguered executives insist they’ve “cleaned up” after what they call “challenges” at its Houston-based US operations, collective losses over the past 20 years now amount to around NOK 218 billion at current exchange rates.
Once again the company mostly blames the fall in oil prices, while newspaper Dagens Næringsliv (DN) has been systematically revealing how big spending when oil prices boomed and a lack of internal control over various US operations also played a major role. Equinor, the former Statoil, had crafted an image over the years as a strong and careful company that maintained so-called Norwegian values of modesty and restraint. DN‘s revelations of high executive pay, careless accounting and lots of partying have set off sharp reaction from investors, analysts, Members of Parliament and, not least, the government, which still holds a 67 percent stake in Equinor.
Oil Minister Tina Bru had already summoned Equinor’s chief executive, Eldar Sætre, and the leader of Equinor’s board, Jon Erik Reinhardsen, to her office Monday afternoon. She had also confirmed to the Parliament that the ministry had not been made aware of the extent of Equinor’s accumulated losses in the US. That raised questions over whether Bru can have confidence in the board that’s ultimately responsible for Equinor.
Bru also made it clear that her ministry was of the opinion that Equinor “could have made information” about the accumulated losses “more easily accessible.” Equinor executives and spokesmen still insist they’ve been “open,” that the numbers have been available and they didn’t hide them, basically implying that state officials, analysts and investors weren’t paying close enough attention over the years. That has put them in what DN commentator Terje Erikstad now calls “a hopeless position.”
Then Oil Minister Bru, who hails from Equinor’s base in Stavanger, stated that all the negative attention around Equinor’s operations in the US is justified. She all but praised DN‘s exposé of what’s earlier been called Equinor’s “fiasco” in Houston, and called it “very un-Norwegian.” With both a chastened CEO Sætre and board leader Reinhardsen standing by, she added that “this is not how we expect large Norwegian companies to operate. Some of what’s come forth has been quite unsettling, and not how we should operate.”
Reinhardsen responded that it remained “difficult to say” how internal control over the US operations could have been so weakened. “We haven’t followed closely enough as a company during the time around 2010 to 2014,” Reinhardsen told NRK. That’s when Helge Lund, who initiated the expansion into troublesome shale oil operations in the US, was CEO. Sætre, however, was also part of top management at the time and succeeded Lund in October 2014. He has defended his own role in the scandal, while Lund, now the chairman of BP, continues to refuse all comment.
No one held responsible, yet
Professor Arne Johan Vetlesen at the University of Oslo wrote about “the art of not answering” questions in Tuesday’s issue of newspaper Klassekampen. Vetlesen referred to how Sætre, unlike Lund, has allowed himself to be interviewed, but opts for language that’s of little help. “A central part of business leadership training seems to consist of never using the word ‘problem,’ always ‘challenges,'” Vetlesen wrote, “and when ‘unified management’ has been behind decisions that led to astronomical losses in a a company in which the state owns 67 percent, they imply that everyone is guilty, so no one is.”
Asked who should be held responsible for all the poor investments followed by lack of control, Reinhardsen was vague: “There are various things that have built up to the accumulated losses. This has occurred over a lengthy period of time during which several people have been involved. What happened has had organizational consequences, but I won’t go into evaluations of individuals in this.”
Reinhardsen said the company “has not discussed” selling off the US operations. Rather, he said, “our focus now is to get the most out of what value we’re sitting on over there.” He claimed the company still thinks it can turn losses into profits in the US, after strengthening internal control, cutting costs and exploiting deferred tax deductions amounting to USD 3.8 billion.
Demands for change
Others, however, are demanding major changes at Equinor, which already has given in to calls for reporting US results separately. Now several Members of Parliament are slamming the US operations, demanding to see more detailed accounts from them and calling for Equinor to be reined in abroad. They don’t want Equinor to use its profitable offshore operations in Norway to subsidize losses abroad, which, they argue, is essentially what’s happened for years.
Energy policy spokespersons in Parliament for the Labour, Liberal, Greens, Reds and Socialist Left (SV) parties have all questioned or criticized Equinor’s international operations, while the Reds demand a sell-off: “We need an industrial locomotive here at home, instead of committing hundreds of millions to adventures abroad,” Reds’ deputy leader Marie Sneve Martinussen told Klassekampen. MPs Kari Elisabeth Kaski and Lars Haltbrekken of SV stressed how there’s been no lack of warnings about shale oil operations and agreed that “yes, the foreign operations should be sold off.”
Political critics not alone
Union leaders keen on creating and preserving jobs in Norway are also furious about Equinor’s “chaos” abroad. Leif Sande, the former head of Industri Energi who now has a substitute seat in Parliament for Labour, suggests merging Equinor with Petoro (the state company in charge of Norway’s direct oil ownership interests) and told newspaper Stavanger Aftenblad that the overseas interests should be spun off and sold.
Jørn Eggum, head of the powerful labour federation Fellesforbundet, called the state’s failure to even be aware of Statoil/Equinor’s losses “a stain” on the history of Norwegian state ownership of companies. He also harshly criticized the role of Equinor’s board in Tuesday’s DN, not least since several critical reports from auditors were released to management from 2013 to 2016. “Isn’t it the board’s responsibility to request information and pose critical questions?” Eggum rhetorically asked DN. “It seems like there was a total absence of critical voices here.”
Some of Equinor’s employees’ own representatives on the board have said they weren’t aware of the US losses: Per Martin Labråthen, current leader of Industri Energi that represents thousands of Equinor workers, told DN just before the weekend that he was surprised by the extent of the losses. He blames them on Helge Lund’s “aggressive” international strategy during his 10 years as CEO. He also blames current management for failing to follow up on critical reports from internal auditors.
Another employee representative, Bjørn Asle Teige, has demanded the resignation of Torgrim Reitan, who has been Equinor’s finance director, head of its US operations and now heads all international operations. Sætre responded to NRK that Reitan was sent to take over US operations and “clean up,” and that he has confidence in Reitan.
Calls for external investigation
Eggum and others are also calling for a full, external investigation of how the losses could have mounted and gone unnoticed over a many years. Aage Borchgrevink, author of a book on Statoil/Equinor that earlier has raised questions about the company’s powerful position in Norway, wrote in newspaper Aftenposten on Tuesday that the government should set up a commission to examine “what’s gone well and less-well in Equinor’s international operations, what can be learned from them,” and whether the state as owner and the company “have the same interests.” If not, wrote Borchgrevink, “the state should consider splitting up (the company) of selling off stock in Equinor.”
The state isn’t the only shareholder in Equinor upset by all the losses and revelations of a company culture in which executives haven’t behaved the way they do at home. KLP, Norway’s largest pension company and a major investor in Norwegian firms, was also surprised by the size of the losses. Norway’s largest bank, DNB, which has invested in Equinor through its Asset Management division, reports that it had known for a long time that US investments weren’t successful, but was seriously unsettled by the lack of control. Norway’s state pension fund Folketrygdfondet has noted that greater openness around Equinor’s US investments could have contributed to reducing losses.
No one has been satisfied by Equinor’s own attempts at explanation. Reitan, the current head of international operations, has publicly tried, unsuccessfully, “to correct the picture DN creates of secrecy.” He can’t explain, though, why even analysts and investors were surprised by the losses. Bård Glad Pedersen, who carries the title of “information director” at Equinor, has tried to downplay DN‘s reports and the size of the losses, still suggesting the financial information has been available to anyone willing to dig for it. The company even tried to contact both Norway’s finance minister and prime minister on the day DN‘s first reports were published, to “explain how it viewed the situation.”
Their own written responses were received, but no meetings were held until Bru called in Sætre and Reinhardsen. She said after that meeting on Monday that “I have heard that Equinor has done a thorough job in cleaning up the critical processes regarding the business culture, poor internal control, etc.” Her ministry remains answerable to Parliament, where the Equinor drama continues.