He’s seen a ghost

That was the canvas for a summit when the Storting was to hold a hearing on Equinor’s enormous losses from land-based oil operations in the USA. Did I say huge? Giant is more precise. The loss amounts to 24.5 billion dollars so far, ie 230 billion kroner.

From a home office with curtains (former Minister of Petroleum Ola Borten Moe) and sterile cell offices (former Statoil CEO Helge Lund), one central head after another appeared via screen in this covid-adapted hearing. The goal was to find answers to the following: How could this happen? And what did the largest owner (the state) do to put pressure on the right steps to be taken to adjust the course?

It became a kind of history lesson, and thus we got the answer to the first question. The second became more hanging in the air, but sufficiently illuminated to make it possible to draw any clear conclusions.

Let’s take history lesson first. It addressed the modern, international oil market. Around the turn of the millennium, there was an enormous demand for oil and gas. The economies in Asia were growing rapidly, but for Statoil (Equinor) it looked a bit dark. They had made few discoveries in Norway, and looked around for more opportunities internationally.

We fast forward a bit. With high oil prices, and expectations that the level would remain, a number of companies invested billions in shale oil in the United States. Statoil could not be any worse.

It became a problem, in two ways – expensive and embarrassing.

It became expensive because the oil price later fell considerably, with no particular prospect of it rising to old levels again. It was embarrassing because it turned out that Statoil had embarked on a project in the United States that they could not control. They had never been involved in oil on land. The company underestimated the challenges, and overestimated its own capabilities.

Investments in shale oil were like a limb march towards a drop in oil prices. The breakthrough that shale oil technology represented led to the market flooding and the price falling accordingly. No one came to see this, not even Statoil. The write-downs, ie the losses, in shale oil among the world’s largest oil companies have totaled $ 300 billion, according to the central oil analyst Jarand Rystad.

The fall in oil prices is the absolute majority of Equinor’s billion losses. Some, among others Rystad mentioned, have it that the criticism the company is exposed to in this case is thus exaggerated and out of proportion.

I mean that is to overlook a significant point in this case. The poor handling of the investment in the USA raises questions about how well equipped the company is to cope with the major restructuring that the company is now facing. The sea animal Equinor will not only crawl up on land and succeed with oil production on land. Equinor will go from being an oil and gas company to becoming something completely new: A broad energy company that will succeed – and make money – on offshore wind, carbon capture and storage and probably other projects in the coming decades.

The hearing showed once again that the company was too poorly prepared, and reacted too late when the investment in the USA went off course. It also showed that the largest owner, at the Ministry of Petroleum and Energy, has been too passive towards the company. All the former managers and chairmen of the board pointed out that it was the company’s responsibility to ensure that the right steps were taken to clean up the problems. But both the Office of the Auditor General and Finanstilsynet have pointed out shortcomings in Equinor’s reporting to the owners, which the state could have followed up better. Former Minister of Petroleum and Energy Tord Lien in particular, who was on “watch” when the major problems arose, had problems giving full answers during the hearing today. In the name of justice, it must be said that he also had to deal with the entire oil collapse in 2014.

Also has The current Minister of Petroleum and Energy, Tina Bru, has now introduced several regular meetings, and the company has agreed to quarterly reporting from the USA (as Finanstilsynet requested already in 2015). From the new year, Equinor will also report on the renewable investment for itself, and not together with the rest of the business as it has been until now. The largest owner, the state, is thus tightening its grip and becoming more active – and the company is recovering. There is a clear admission that the contact between the company and the largest owner has not been good enough.

Never so wrong that not NOK 230 billion lost is good for anything. The US scandal provides important lessons. It also comes at a good time. Equinor’s brand new boss, Anders Opedal, has very ambitious renewable plans for the company. The development towards this will be followed with an arguing eye. For both the state and Equinor, the shale oil fade from the United States will be like a ghost they would rather not meet again.