Equinor's former chief executive Helge Lund admitted in a parliamentary hearing on Tuesday that the Norwegian state-controlled giant's investments in Canadian oil sands and US shale were poor investment decisions that failed to take into account the significant risk they represented.
Lund was joined by former chairman Svein Rennemo as parliament summoned company leaders and former oil ministers to a committee hearing to examine the government's role in Equinor's investments, which led to huge losses from its US operations.
Both Lund and Rennemo were at Equinor when it was known as Statoil.
Results of a new probe conducted by auditing giant PwC into the losses have revealed a lack of management control and poor follow-up when problems were pointed out by internal auditors over the past six years.
In the hearing, current chairman Jon Erik Reinardsen revealed that the losses in Equinor’s US onshore business have spiralled to $23.5 billion from the previously disclosed $19.5 billion.
Betting on high oil prices
The PwC report — ordered by Equinor to help the company determine what went wrong with its investments — also revealed how Lund and his colleagues’ decision to acquire shale oil company Brigham Exploration in 2011 was based on their belief that oil prices would remain at an average of around $125 per barrel for the next 10 years.
Just three years later, however, oil prices have crashed and have only briefly recovered to even half that level.
“The Brigham acquisition was a very poor investment,” Rennemo told the Norwegian parliament's Energy Committee.
'There were things we should have done better'
Lund argued, however, that the company made several good investment decisions in a period where investors wanted to see reserves growth due to rising prices and increasing global oil demand.
“However, there were things we should have done better,” Lund, who left the company in 2014, admitted at the hearing.
He explained that its investments in Canadian oil sands were poor and that he was personally responsible for the challenges related to internal control in the company’s US shale business.
“The investments on land in the US have not given the results we planned for, and in hindsight it is clear that we took too much risk,” he said.
Lund stressed that investors expected growth and that most of the company’s peers had similar oil price expectations as the then-Statoil.
He also contended that, over the past 20 years, the company's investor returns have been among the best in the industry.
Company must learn from this - Bru
Current Petroleum & Energy Minister, Tina Bru, said: “I see the need to step up the ministry’s follow-up of Equinor’s international business, not limited to the US."
However, since Equinor is listed on Norwegian and US stock exchanges, the ministry will not get access to vital information about Equinor’s business, unless all other shareholders get the same information, thus limiting the government's scope for involvement.
Bru stated that she wants more openness from the company about important developments in different business segments.
“The most important learning points from this process is with the company itself and its board,” she said, adding that the framework for the state’s ownership practice should remain firm.
The hearing concluded on Tuesday, with the committee set to discuss the next steps.