Statoil

Founding

In 1972, as part of its national petroleum strategy, the Storting (Norway’s parliament) created the “Den norske stats oljeselskap A/S” (Norwegian State Oil Company), a private limited company owned by the government to participate in the developing petroleum industry on the Norwegian Continental Shelf. The decision received support across the political spectrum in Norway. The name was difficult to communicate, especially as the company ventured into consumer markets. The company soon adopted the far simpler moniker, ‘Statoil.’  

In chartering a state-owned oil company, Norway’s politicians realized they were taking on considerable risk. Even if the fledgling Statoil managed to become a fully functioning oil company, the more direct avenue to state revenue would have been to rely on taxing the output of international oil giants that took on the technologically difficult task of extracting oil from the Norwegian Continental Shelf. Although Norway did tax income from developments in their territorial waters, by entering the petroleum industry directly, it was forgoing certain profits to create “an instrument for the realization of the state’s industrial policy within the petroleum sector.” The early leaders of Statoil also realized developing the ability to extract oil was not enough; the company would have to be vertically integrated as were most of the major oil companies. Statoil’s ability to turn a profit would depend on having market power in the refining and sales part of the value chain as well.

Coming up to speed in oil extraction was not an easy technological task. The national government stepped in and made the undertaking easier by requiring international oil companies to take on Statoil employees as part of their licensing agreements. Therefore, Statoil staff were embedded within large oil companies like Mobil with the same rights and obligations as the company’s own employees, including the opportunity to take training courses. In time, Statoil built its own technological expertise, matching and eventually surpassing other oil companies in its ability to build and operate offshore oil facilities in the harsh North Sea environment.

The government gave Statoil preference in winning leases to new oil fields over its foreign competitors. Nonetheless, the company relied on state support for its first eight years of existence, piling up massive deficits. The reliance on state largess made the fledging company something of a political football during its first years, as legislators sought to have the company benefit their own constituents.

The political considerations varied according to the issue, but critics in the Storting assailed the company on everything from the location of infrastructure components to concerns about how the company was impacting traditional industries like fishing, to environmental concerns about sea birds.

The debate around Statoil centered around key questions: to what extent should the company make allocation decisions based on political considerations? Or should it prioritize criteria for commercial success as an ongoing business?  The company itself promoted the idea that commercial criteria should control its actions, but achieving that goal required attention to the complex stakeholder interactions involved, particularly between the government as owner as well as the representative of the people of Norway, the political interests of elected officials, and the goals of company management.

The political debate eased in the 1980s as Statoil began making profits and paying dividends. The company had become a successful operator of offshore wells and managed to build other parts of the petroleum value chain, including refining and sales capabilities. Headquartered in Stavanger, Statoil employed thousands of Norwegian citizens on its oil rigs and in other parts of its operations. The Norwegian government’s bet on creating Statoil appeared to have paid off. Beyond the country's direct profits from Statoil's operations, Norway became the home of major portions of the petroleum value chain, as well as subsidiary industries such as engineering and construction.

Dramatic Changes

Having enjoyed success through most of the 1980s and '90s, Statoil faced a changing petroleum industry as the century came to its close. The Norwegian Continental Shelf was showing signs of depletion. No new oil finds had been registered after 1990, and existing reserves were being drawn down. Internationally, the price of oil had plummeted. Large oil companies were merging, such as Exxon with Mobil and BP with Amoco, creating a tier of "supermajor" oil companies far larger than Statoil. In response, the Norwegian government and the leadership of Statoil agreed to significant changes, including the internationalization of Statoil's petroleum sources, partial privatization, and a merger of state-owned companies.

Internationalization represented something of a break with Statoil’s traditional mission to be an instrument in the exploitation of the oil finds on the Norwegian Continental Shelf. To be sure, the company had engaged in significant international operations before the late 1990s, as the company sold its wares on the global market. But as the decade came to a close, Statoil began to also compete for new leases across the globe. Observers argued that the move represented a new understanding of the company’s identity. Rather than being just a tool to develop a particular oil field, one historian of the company noted that Statoil “saw itself first and foremost as a technology company, driven primarily by the purpose of mastering, developing, and deploying technological and operational competences.” ^[1]  Supporters argued that allowing this technological expertise to wither away as Norway’s national oil fields depleted would be wasteful. Furthermore, it would harm those enterprises in Norway that had developed to support the oil industry.

A further break with Statoil’s traditional mission came in 2001, when the government put 17% of the company’s shares into the public markets. (Over time, the government’s share of the company would dip to 67%.) Even though the government continued to hold the majority of the ownership, the non-government shareholders created a new stakeholder group with unique interests and opinions.

The IPO represented a considerable change in the relationship between the Norwegian government and the company. While political pressures on the company had abated somewhat, Statoil’s entry into the public markets made the commercial imperatives of the company clear – to develop oil resources throughout the globe for the benefit of its shareholders. As a historian of the company observed,

With partial privatization and listing on the stock exchange, the company’s profits would in reality also become the state’s foremost objective in owning the company.… Although the state retained a majority share in Statoil on the political premise of keeping Statoil’s strategically important head office and research and development (R&D) activities in Norway, the state’s overarching objective became primarily financial: to secure a long-term financial return on its shareholding in Statoil. It manifested a more professional ownership role for the state, in which it refrained from political micromanagement and instead aimed for long-term, predictable ownership that provided stable conditions for Statoil’s further development.^[2]

Statoil further reinforced its position as an international oil firm through a merger with the oil and gas assets of Norsk Hydro in 2006. Like Statoil, Norsk Hydro was a firm partially owned by the Norwegian government. It also built offshore facilities for the extraction of oil and gas (as part of a larger business portfolio). Norwegians initially had considered the competition between the two firms as a way of encouraging each firm to improve its own operations. Over time, each firm had developed a distinct culture: Norsk Hydro, the older of the two firms, was seen as a conservative steward of assets, while Statoil was considered its more technologically advanced, risk-taking rival. With both firms competing for international leases, analysts outside Norway wondered why the two companies continued to exist separately while the rest of the industry had become much more concentrated after the merger wave of the late 1990s. By 2006, the firms and the Norwegian government saw the advantages of combining their efforts, and a merger was announced. 

The merger further clarified the relationship between Statoil's long-term goals and government policies. Norway's prime minister Jens Stoltenberg said, "Norway’s oil and gas industry should thrive internationally and not live or die on the Norwegian shelf." ^[3] In a news release, Helge Lund, then President and CEO of Statoil, described the goal of the merger as "to form a national champion with its sights set beyond the dwindling oilfields of the North Sea." He added,

This is a historic milestone. The time is right for one strong Norwegian-based energy champion. We are creating a stronger and more competitive company. Combining the best of both organizations, we will significantly improve our competitive position internationally and promote the long-term vitality of the Norwegian Continental Shelf." ^[4]

In 2008, Statoil was completing the organizational changes required by its merger with the oil and gas facilities of Norsk Hydro, becoming one of the largest offshore gas and oil companies. It had expanded its oil and gas operations internationally, including explorations of oil and gas licensing offshore in Brazil and in other countries. It had invested in Canadian oil sands and U.S. fracking operations. Lund recalled the strategy that was in place:

Strategy development during my start as the CEO was really about maximizing value from the Norwegian continental shelf, because that was the whole reason why the company was established in the first place. And by that, I mean maximizing shareholder value, but of course, also to create value for the country in many other dimensions. The second strand of the strategy was to use the capabilities, the scales, and the technology that we had developed over many decades to also create value with oil and gas outside Norway.

The merger propelled Statoil into the next league of international oil companies. The merger raised the company’s reserves and production by 50 percent, grouping it with majors like Total, ConocoPhillips, and Lukoil and big national oil countries like Petrobras and Rosneft. The gap between Statoil and the supermajors was still large, but as the world’s biggest offshore operator, the company’s international prestige had grown considerably. By 2015 the company had 23,000 employees and activities in 36 countries, a stock market value of NOK 417 billion ($55 billion), as of Jan. 9, 2015, and a history as one of Norway’s most important tools in the recovery of petroleum resources on the Norwegian continental shelf.^[5] Statoil was also a very important player in Norway with supplier stakeholders in its role as a customer of other Norwegian businesses. The company bought goods and services worth NOK 127 billion ($17 billion) from Norwegian suppliers in 2013.^[5]