Rival as modelThe road to the stock market

Background for the partial privatisation

Statoil’s partial privatisation ranks as one of the key events in its history. But it is also an important element in understanding the Norwegian state’s role as an industry owner after 1945. Development features to the beginning of 1999, when the process leading up to a listing of the company got properly under way, are reviewed here.
By Ole Jone Eide, Norwegian Petroleum Museum
- Harald Norvik at the lectern. Photo: Dag Tore Anfinsen/Equinor

Statoil was established in line with a tradition, where the Labour Party took the lead, of substantial state ownership in Norwegian industry. Its basis was laid in the wake of the Second World War, when the state took over many of the industrial activities which had been controlled by the German occupiers. A case in point was Årdal, where an aluminium works was under construction by Nordische Aluminium Gesellschaft (Nordag) when peace came. Another was substantial shareholdings in Norsk Hydro which had been owned by Germans.[REMOVE]Fotnote: For the immediate postwar period, see Lie, Einar, Myklebust, Egil and Norvik, Harald, 2014. Staten som kapitalist. Rikdom og eierskap for det 21. århundre. Pax: 48 ff.

The state was otherwise involved in a number of industrial sectors, eventually including petroleum. Important milestones were the acquisition of a majority shareholding in Hydro and not least the establishment of Statoil.

Organising full state ownership

The government’s policy as Statoil’s owner had openly protectionist features. That was clearly entrenched in the “10 commandments” or the basic tenets of Norwegian oil policy established in 1971. The seventh of these declared that “the state must become involved at all appropriate levels and contribute to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated oil community which sets its sights both nationally and internationally.”[REMOVE]Fotnote: Meland, Trude, The 10 oil commandments, https://statfjord.industriminne.no/en/2018/07/09/the-10-oil-commandments/, accessed 21 April 2022. Statoil became an instrument for implementing this.

The company awarded fabrication contracts for North Sea installations to Norwegian yards, for example, although they were more expensive than foreign competitors.[REMOVE]Fotnote: Lie, Einar, et al, op.cit: 73.

This put Statoil in a powerful position. A politician’s popularity in many coastal communities could be linked to their ability to secure jobs for cornerstone companies. These often depended in turn on deliveries to the oil industry. Critics therefore maintained that the company’s political clout could be utilised in processes where questions could be raised about whether its interests were aligned with those of the owner.

That formed part of a broader discussion about regulating Statoil as a rapidly expanding state-owned company.

The Conservatives formed a minority government in 1981. From possessing limited power as an opposition party in the Storting (parliament), strong forces in the party could now put greater weight behind their view that Statoil’s commercial strength should be tamed. This process became known as “wing-clipping”. A broad and lengthy political debate ended with a cross-party compromise. Part of the revenues and expenses from the company’s petroleum operations were converted into the state’s direct financial interest (SDFI).

Attention eventually shifted from the state’s dispositions as sole owner to the question of whether the state should own Statoil alone at all.

Johnsen and Norvik

After first CEO Arve Johnsen’s departure over the Mongstad cost overruns, Harald Norvik took over the top job in early 1988. The two men had much in common. Both had close ties to Labour and were business economics graduates from the Norwegian School of Economics.

An important job for Norvik was to depoliticise Statoil,[REMOVE]Fotnote: Thomassen, Eivind, 2020, The Crude Means to Mastery: Norwegian National Oil Company Statoil (Equinor) and the Norwegian State 1972-2001, PhD thesis, University of Oslo: 202. and commercialisation formed a key part of this project. By his own account, he had set a public listing as a central objective from the start of his time as CEO. But he appreciated that a privatisation debate would have to wait. “In the short term, my job was to restore credibility and trust after the massive cost overruns at Mongstad,” he subsequently observed. “In the long term, ownership changes had to broadly accepted by the company, the owner and society.”[REMOVE]Fotnote: Lerøen, Bjørn Vidar, 2002, Drops of black gold. Statoil 1972-2002. Statoil: 80.

Underlying contexts

Ronald Reagan and Margaret Thatcher. Photo: unknown/Wikimedia Commons

An important precondition for changing Statoil from a wholly state-owned company was the extensive wave of deregulation in the 1980s. This trend occurred above all in such trendsetting western nations as the USA under Ronald Reagan and the UK with Margaret Thatcher as prime minister.

Nor were Norwegian politics unaffected by this shift towards market liberalism, which led to such changes as the end of the Norwegian Broadcasting Corporation (NRK) monopoly, extended opening hours for shops and less government control of bank lending. Such moves related first and foremost to the Conservative takeover of government in 1981, and not least to the way Labour absorbed and administered much of the same thinking in the 1980s and 1990s.

These shifts were supplemented by a prevailing view that Statoil should not confine its operations to the Norwegian continental shelf (NCS). An important element in that connection was that the European Economic Area (EEA) agreement which came into force in 1994 meant the government could no longer give the same preference to domestic companies as before. Statoil, for example, had to bid for licence interests in open competition. Overall, that contributed to a desire for a stronger foreign commitment. This was realised in the 1990s through an alliance with BP.

In that respect, internationalisation was closely related to market liberalism. Were Statoil to make serious moves abroad, it was felt that being a wholly state-owned company would be a substantial drawback. Its political fetters might hamper taking the necessary commercial steps on a more or less equal footing with competitors.[REMOVE]Fotnote: Lie, Einar, et al, op.cit: 78.

SDFI and Statoil

A working group appointed by the Statoil management produced a study in 1990 which included the practical aspects of a possible partial privatisation. The need for this change was also stressed in a strategy plan submitted to the board in the same year.[REMOVE]Fotnote: Storsletten, Aslak Versto, 2018, Prosessen bak delprivatiseringen av Statoil i 2001 – fra selskap til vedtak, master’s thesis in history, University of Oslo: 35-36.

Finn Kristensen. Photo: Stortinget

The Statoil management believed that providing sufficient financial strength to become more competitive internationally was an important requirement for a privatisation. A key element in that context was the relationship with the SDFI and its substantial share of the cash flow from the company’s production.

Statoil managed the SDFI in accordance with instructions from the government. However, its top management considered this a constraint because of what were seen as non-commercial government guidelines. A Statoil study of the issue drew the clear conclusion that the split between the company and the SDFI was unfortunate. However, Labour trade and energy minister Finn Kristensen called a halt to plans for reassessing this relationship in the autumn of 1992. He had been closely involved in the compromise which established the SDFI eight years earlier.[REMOVE]Fotnote: Lerøen, Bjørn Vidar, op.cit: 82-83.

Onwards to partial privatisation

The Statoil management’s continued efforts to promote the privatisation idea could draw support from significant changes to ownership in the international petroleum sector. Several trendsetting western nations were characterised in this period by privatisations and public listings of several big petroleum companies.[REMOVE]Fotnote: Storsletten, Aslak Versto, op.cit: 18.

In addition, Statoil’s alliance with BP exposed problems for foreign engagements while it remained wholly state-owned. One example was Nigeria, where the company had primary responsibility within the partnership. The regime’s brutal human rights breaches led to demands that Statoil should serve as an instrument of Norwegian foreign policy by pulling out.[REMOVE]Fotnote: Lerøen, Bjørn Vidar, op.cit: 260.

Against that background, Norvik made several moves to extend the work of promoting privatisation. These kicked off by holding discussions with the rest of the management on the future ownership structure.

A process was then initiated to reach out to politicians and the media on the competitive position in oil industry generally and Statoil’s ownership in particular, without mentioning privatisation explicitly.[REMOVE]Fotnote: Storsletten, Aslak Versto, op.cit: 32 f. That laid the basis for a future discussion of a state sell-out.

The whole petroleum industry suffered a difficult year in 1998, with a marked slump in prices, which helped to highlight challenges with aspects of Statoil’s profitability. That gave new life to the ownership discussion. As part of a big wave of oil-industry mergers in the late 1990s, BP joined forces with Amoco in 1998. That in turn provided a reason for dissolving the alliance with Statoil the following year.[REMOVE]Fotnote: Ryggvik, Helge, 2002, BP/Statoil alliansen: et samarbeid til besvær, centre for technology, innovation and culture, University of Oslo: 2; https://valhall.industriminne.no/en/bp-and-amoco-in-giant-oil-merger/, accessed 2 May 2022. The newly-established giants left the latter a relatively smaller company.

It was therefore hardly surprising that ownership became an issue at Statoil’s board meetings during the autumn and winter of 1998.[REMOVE]Fotnote: Minutes, board meeting, Den norske stats oljeselskap a.s, 28 October 1998 in Oslo (copy), item 9/98-8, 8.3, Regional State Archives in Stavanger. Pa 1339 – Statoil ASA. 0001 – Sentralarkivet/Fjernarkivet, Abb – L0046; Ibid, 24 November 1998 in Stavanger, (copy), item 10/98-2 og 10/98-4, Regional State Archives in Stavanger. Pa 1339 – Statoil ASA. 0001 – Sentralarkivet/Fjernarkivet, Abb – L0046; Ibid, 16 December 1998 in Oslo (copy), item 11/98-5. Regional State Archives in Stavanger, Pa 1339 – Statoil ASA. 0001 – Sentralarkivet/Fjernarkivet, Abb – L0046. In a memorandum to the board, Norvik emphasised the challenges posed by the way questions about the company’s ownership should be communicated externally.[REMOVE]Fotnote: Harald Norvik, 9 December 1998, Kommunikasjonsstrategi i Statoil, memorandum to the board: 9. Regional State Archives in Stavanger. Pa 1339 – Statoil ASA. 0001 – Sentralarkivet/Fjernarkivet, Abb – L0046. This reflected a recognition that the discussion on partial privatisation would soon find its way from the boardroom to the public arena.

On 20 January 1999, Norvik mounted the speaker’s rostrum at the Norwegian Petroleum Society’s seminar in Sandefjord south of Oslo. He noted the need for “broad political agreement on a new political structure for Norway’s petroleum business, as in 1972 and 1984”.[REMOVE]Fotnote: Lerøen, Bjørn Vidar, op.cit: 80. That marked an important step towards partial privatisation as well as the start of a highly eventful period in the company’s history.

Here you can see Norvik’s presentation.


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