Helge Lund takes responsibility after US fadese – oil ministers point...

Tina Bru agrees with her predecessors that an oil minister can push responsibility away from himself when Equinor loses NOK 190 billion in the USA.

Published:Updated: November 3, 2020 6:19 PM, Published: November 3, 2020 5:49 PM

The US losses in Equinor have grown by another 3 billion this year and have now reached a total of 24.5 billion dollars. Adjusted for the dollar exchange rate at the relevant times, the loss amounts to around NOK 190 billion.

Helge Lund was CEO from 2004 to 2014 and on Tuesday took responsibility for everything that happened in Equinor as long as he was CEO.

– Everything that happened in my time as CEO is my responsibility. This includes corporate culture, management selection, strategy, investments and internal control, to name a few, Lund said.

Bought too expensive

During the hearing in the Storting, Lund acknowledged risky investments, poor internal control and too unstable decisions in the United States.

He also acknowledged that Equinor bought too much and too expensive in the period up to the fall in oil prices in 2014.

– We who were responsible should have been closer, Lund said.

Billion-dollar loss in footnote

Does it help anything that Lund takes that responsibility? Minister of Petroleum and Energy Tina Bru (H) answers:

– I think it is good that everyone who was in the hearing acknowledges that what happened was not good, that it is important to avoid it happening in the future, and that you also acknowledge responsibility for having ended up where you have ended up, says Bru to Aftenbladet.

At the same time, Lund pointed out that in 2009–2014 Equinor sold assets at far better prices than could be achieved today. That gave $ 12 billion on the books, according to Lund.

He also said that the group under his leadership overall delivered top-class returns compared to competitors – and that this was achieved by taking risks.

According to the recently resigned CEO, Eldar Sætre, there has been “no secrecy” about the losses. For example, the US loss of $ 20.4 billion was reported in a footnote on page 288 in the annual report last year.

The United States was the subject of ownership dialogue

Chairman of the board Jon Erik Reinhardsen emphasized that the ministry has received the same information as all other shareholders, including ongoing briefings on economic developments, write-downs, resources and values.

Reinhardsen pointed out that all shareholders have had access to the complete picture of what has happened in Equinor, and that it is a “discretionary question” whether Equinor should have been more clear on the losses overall.

The chairman of the board also said that the foreign and US investment has been especially on the agenda in the ownership dialogue with the ministry all the way.

Sætre said that the ministry was regularly concerned with operations in North America and write-downs there.

Bru himself explained that the MPE has been particularly concerned about the development in the profitability of the land operations in the USA.

But Bru first became aware of the extent of the US losses via media coverage.

– Do you think Equinor has drawn or tried to draw a picture that you and the ministry knew more than what you have expressed and have corrected Equinor for afterwards?

– No, I do not have the impression of it, Bru answers.

Culture?

Dagens Næringsliv reported losses of around NOK 200 billion in the USA after a number of acquisitions in 2007 to 2011 and what the newspaper described as a “loose” business culture.

That the MPE did not know the full extent, Bru has explained with the way the figures were reported. Equinor has been given a clear message to tighten internal control, be more open and provide more information.

Bru has announced an escalation in the follow-up of Equinor’s foreign operations, not just in the USA. She has also stated that the business culture that prevailed in the US business has not been acceptable.

– It has been known to the ministry that the losses in the US have been large, but these figures should have been more readily available, says Bru.

– Could you have done something different if it had been more accessible?

– The write-downs were taken when the write-downs were taken, Bru answers.

– Not a political responsibility

Ole Borten Moe was Minister of Petroleum and Energy from March 2011 to October 2013. He perceives that Equinor takes significant self-criticism.

– In any case, this is not a political responsibility, but a responsibility the board and management have to take, said Borten Moe.

– In my opinion, it is neither desirable nor feasible if the ministry or political leadership should follow the daily operations or the individual commercial assessments that each company makes, he said.

Tord Lien, Minister of Petroleum and Energy from October 2013– December 2016, also pointed out that the responsibility lies with the board of Equinor. Lien believes that business culture, or lack thereof, has contributed marginally to the US losses overall.

– The most important factor is obviously that the oil price fell, Lien said.

Bridge: – Close and thorough dialogue

Bru says that state ownership is exercised through the general meeting and the board. She assumes that it is the board that must be responsible for strategic decisions and investment decisions.

– An oil minister can have no responsibility when Equinor loses a three-digit billion in the US?

– This is not how the roles for the division of responsibilities are, no. There are no politicians who believe that politicians should go in and decide investments up or down, says Bru.

The Conservative minister says she has asked Equinor a number of critical questions in the ownership follow-up. She has also asked questions about the business in Brazil:

– But it is a long way from saying that “I do not think you should have or make that investment”. It would be a completely different way of governing and far from the state ownership we know today. But what we can do, and which I think we already do, is to have a close and thorough dialogue, at owner meetings, in quarterly reporting and other meetings, says Bru.

No to Brazil change

She will meet Equinor more frequently, and the group will now report on US status every three months.

– Do you want to encourage Equinor to do it for other countries like Brazil or Angola?

– It is decided by the company itself. I have challenged Equinor to single out renewables in reporting, and they are doing so now.

– But do you want to challenge Equinor to separate other countries?

– We have asked about it, and they have given us answers as to why it is not possible. We have asked about it for Brazil, and the answer is that it is not mature enough as a segment yet, says Bru.

– Tina Bru has asked if Equinor can not report on Brazil, but got no. What do you think about that?

– I believe that Equinor does not benefit from reporting in ways that provide as much transparency as possible, Lars Haltbrekken (SV) answers.

Acknowledges errors

The acquisition of Brigham Exploration in 2011 in particular led to a lot of clutter for Equinor in the USA, but chairman of the board Reinhardsen, Lund, and others point out that the fall in oil prices in 2014 is the main reason for the US losses.

Reinhardsen believes that investments on land in the US were not “robust” when oil prices fell.

– We see today that the conditions should have been uncovered and attacked earlier, Reinhardsen said.

Svein Rennemo, chairman of the board in 2008–2015, also believes that the board should have revealed what was going on. He calls the Brigham acquisition a very bad investment that damaged Equinor.

At the same time, Equinor’s investment strategy in total has provided a good return for investors, both absolutely and relative to competitors, Rennemo said.

Reinhardsen acknowledged that the board and management were not close enough to the situation. He believes action should have been taken for the problems were identified and understood in 2014.

When asked how the same error should be avoided again, he referred to a large number of changes in the way the board now follows up and considers new investments with regard to, among other things, oil and gas prices, geopolitics, climate conditions and climate risk.

Makes demands on Tina Bru

Haltbrekken asked in the hearing whether Equinor may be exposed to more losses abroad, given that it missed the oil price in the US acquisitions.

Reinhardsen replied that Equinor has no indications of such exposure in other countries. Equinor recently downgraded the underlying oil price assumptions.

Haltbrekken believes the government must be clearer in its ownership dialogue and ask more questions to Equinor.

– That responsibility rests with the Minister of Petroleum, says Haltbrekken.

Espen Barth Eide (Labor Party) is also calling for clearer corporate governance.

– Does the Labor Party want oil ministers to interfere more in daily operations and commercial assessments?

– We are not talking about daily operations. The ownership principles must be there as before. All ownership must be carried out in openness and must first and foremost take place through the general meeting and election of the board and such, but within that framework you can be even clearer on goals, direction and expectations, and make sure that the company informs you if they are on another course, says Eide.

Auditor General before Christmas

Jon Georg Dale (Frp) says the hearing did not reveal anything that was not already known. He says that the red-green government clearly communicated to Equinor that the investments in the USA were clearly within the framework of the company.

– Now we know the consequences of the decision made by the board. We also received confirmation that since the warning lights went off in 2014, the ministry has systematically followed up Equinor to ensure profitable operations in the company, says Dale.

The Energy and Environment Committee shall submit a recommendation by 3 December. On 15 December, the Office of the Auditor General will present its investigations into the Ministry’s follow-up of Equinor’s foreign investments.