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Tuesday, June 25, 2024

Oil ministers face Equinor grilling, too

A long string of Norwegian oil ministers from across political party lines also have some explaining to do, regarding huge losses at state oil company Equinor. They formally serve as representatives of the state’s and taxpayers’ large ownership stake in Equinor, and will be called into an upcoming hearing on the losses in Parliament.

Oil & Energy Minister Tina Bru had been unaware of the magnitude of Equinor’s losses until newspaper Dagens Næringsliv (DN) started writing about them last spring. PHOTO: OED

Current Oil Minister Tina Bru from the Conservative Party took much of the initial heat last spring when Parliament wanted to know how the government ministry in charge of oil and energy in Norway has carried out its duties as the largest shareholder in Equinor. Newspaper Dagens Næringsliv (DN) was running stunning stories at the time on how Equinor, also when it was still called Statoil, had lost around NOK 200 billion (USD 22 billion) on its operations in the US. The US investments were already controversial on a climate and environmental basis, and suddenly they’d resulted in enormous losses that no one, including stock analysts or the government, seemed to know about. Now Members of Parliament have questions of their own, following the release Friday of a crushing report on how Equinor ran things.

Bru, who only took over as oil minister in January, has earlier admitted that she’d been unaware of the magnitude of the losses. She was far from being the only oil minister over the past 20 years, however, who either wasn’t fully informed by Statoil/Equinor or didn’t ask enough questions.

Progress and Center parties had controlled the ministry
The conservative Progress Party, which is a strong supporter of Norway’s oil industry in general, held political control of the oil ministry during the six years prior to Bru’s appointment, which came only after Progess withdrew from the Conservatives-led government coalition. Progress was already in charge not least back in 2014 and 2015, when the first highly critical internal audits of Equinor’s highly questionable onshore fracking projects in the US were being circulated.

The losses also stem back, however, to the former left-center government led by the Labour Party. That’s when Labour’s partner, the also pro-oil Center Party, held political control from 2005 through 2013. The Center Party’s Terje Riis Johansen and Ola Borten Moe (who now works in in the oil industry himself) both served as oil ministers when US investments were being made under former Statoil CEO Helge Lund and Moe was still in charge when Statoil/Equinor lost control of them, according to a new report compiled by accounting firm PwC.

Ola Borten Moe of the Center Party was a pro-oil minister during Statoil’s expansion that went wrong, and now works in the oil business himself. PHOTO: Olje- og energidepartementet

The losses went on for years, as did a work culture of big spending, flashy company cars and inadequate attention to cost control. That was the period under Moe’s watch, and there was little if any reaction. On the contrary: Moe was a big supporter of the oil industry and encouraged ever more oil investment, not least on Norway’s own continental shelf and in the Arctic.

Rumblings within Statoil at the time had already begun during Moe’s term and internal audits were launched. They’re said to later have been downplayed or ignored by Statoil/Equinor’s own top management, and they led to major internal conflicts between Statoil/Equinor’s managers in charge of US operations and the auditors questioning them. Several so-called “red reports” were issued. The PwC report released on Friday stresses that management at headquarters in Oslo and Stavanger did not follow up on them.

Progress aware of ‘some challenges’
Nor were the reports, or the information in them, shared with the oil ministers. When Tord Lien took over after Moe and the rest of Labour’s left-center coalition lost the election in 2013, he was aware that Statoil lacked experience with oil production on land. He told DN in June that the Norwegian offshore oil company’s lack of such experience “presented some challenges, and that was fairly well-known in the branch.” He added that it was now easy to see that the magnitude of the “challenges” was “bigger than what I had understood.”

Former Oil Minister Tord Lien of the Progress Party, on board the Statoil (now Equinor) rig Statfjord, while the company was also arguing internally over losses at the US operations. PHOTO: EBM/OED

He agreed with Bru that Statoil/Equinor’s information “could have been better,” but he otherwise refused to supplement any of her earlier statements on the losses.

Lien was replaced by another Progress Party colleague, Terje Søviknes, in 2016. Søviknes served as oil minister until 2018 but refused to answer any of DN‘s questions about the losses at Equinor that continue to roll in under his watch. In August 2018, Søviknes was replaced by another Progress Party politician, Kjell-Børge Freiberg, until he was replaced in December 2019 by Progress’ deputy leader and perhaps biggest cheerleader for the oil industry in Norway, Sylvi Listhaug.

She only served for around a month, though, until Progress left the government in January 2020. Freiberg claimed the heavy losses being logged on US operations weren’t a theme during his tenure, when he also promoted the oil industry. “It was important for me to have an overview over what an owner should have, and I contend that we did what we could to have that,” Freiberg told DN. “The NOK 200 billion that stretches back over time was not a theme when I was minister and not on the agenda when we (the ministry) had meetings (with Equinor). But international operations were of course part of the discussion.”

‘Glad guys not asking critical questions’
Statoil/Equinor has been criticized for consistently refusing to break out results of its investments outside Norway on a country-by-country basis, or even just the US alone. It now must do so, after finally giving in to repeated requests from analysts and financial authorities.

Progress’ Oil Minister Kjell-Børge Freiberg in a famous pose while visiting Equinor’s big new oil platform Johan Sverdrup. PHOTO: Equinor/Ole Jørgen Bratland

When asked what he did, specifically, to make sure he had enough information, Freiberg said he could “only confirm that we asked questions and that international operations have had some attention.” He conceded that there “can always be a discussion about whether other questions should have been raised and whether we should have spent more time going into detail, but it’s not as though we didn’t ask any questions.”

Others aren’t so sure. Jørn Eggum, head of one of the largest trade union federations representing Equinor employees, has called the Equinor losses and the government’s failure to have learned about them or acted on them “a stain on Norwegian stock ownership history.” Eggum told DN that until Bru called Equinor in on the carpet in May, there had been “a string of glad guys who haven’t been asking any critical questions (of Equinor). Now this lands in Bru’s lap. I have faith that she’ll tighten control so that this won’t happen in the future.”

Calls for more active state ownership
It’s all led to demands for the government to take much a more active role as a major shareholder in companies like Equinor, Telenor, Hydro, Yara and more. Labour now seems keen to do that, but it has also been reluctant over the years to meddle in management issues. Several professors, however, are also calling on the state to pay more attention to how the companies in which it owns major stakes are performing. Asked how a company, especially a state-owned company, could lose NOK 200 billion without such a loss having any consequences on all those responsible, University of Stavanger Professor Ola Kvaløy points to a carefully controlled communications strategy and weak shareholder control.

“Equinor’s management has managed to spin a story about how the company is doing well,” Kvaløy wrote in a commentary last summer. “With a communications department that numbers 160 people, it’s not so strange that the company’s board and its shareholders have been led to believe that the US story is an exception in an otherwise well-run company.” In an interview in newspaper Klassekampen last May, when DN‘s first stories on Equinor’s losses were running, Equinor’s information director Bård Glad Pedersen was still insisting that the company had indeed reported its US losses (in a footnote in its latest annual report) and that the losses were almost entirely caused by the fall in oil prices, not any mismangement or high risk-taking on Equinor’s part.

Interest in the state-Equinor ‘dialogue’
Espen Barth Eide is the Labour Party politician who leads the Parliament’s energy and environment committee that will hold the hearing on an as-yet unspecified date. He told DN over the weekend that the main goal isn’t to conduct a new audit of Equinor but rather to find out what kind of “dialogue” the state has had with Equinor. He wants to know what ministry officials knew, when they knew it and what they’ve asked.

“The underlying question will be whether the responsible government ministers have carried out their responsibility as they should,” Eide said. His own party had responsibility as well, at least for the Center politicians who had control of the oil ministry during the former left-center government. Bru already seems ready with an answer:

“What happened in the US is Equinor’s and its board’s responsibility,” she told DN on Saturday. “I can’t see what I, Ola Borten Moe, Terje Riis Johansen, Tord Lien, Terje Søviknes … could have done in following up as an owner that would have hindered the challenges tied to internal control, or such big losses in the US.” Berglund



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