Den Norske Stats Oljeselskap AS was established in 1972 as a state-owned corporation dedicated to the exploration and production of the huge reserves of oil and gas in the Norwegian continental shelf. Until the late 1990s the company remained a state-owned entity with its principal operations in gas production and oil refinement and exportation, almost exclusively focusing on the Norwegian shelf.
However, at the end of the millennium the direction of the company changed radically. Newly-appointed CEO, Olav Fjell believed that for the company to remain successful in an increasingly competitive and volatile climate it needed to make significant changes. Mergers and acquisitions of major players in the oil and gas industry, the deregulation of European markets, and the rapid maturing of oil fields on the Norwegian shelf were all factors Statoil needed to take into consideration.
Fjell believed that a public listing of at least a part of Statoil was necessary to ensure the company’s continued success. In 2001, shares of Statoil were listed on the Oslo Stock Exchange and New York Stock Exchange. With this move, the company officially changed its name to Statoil ASA.
As Statoil celebrated its 30th birthday, the company gained a stronger presence in Iran when the Iranian government agreed to allow Statoil to develop several phases of Iran’s South Pars gas and condensate field. In early 2003 Statoil was named operator of gas sales for the Shah Deniz gas and condensate field in Azerbaijan. The deal also included operation of the South Caucasus pipeline system, which funnelled gas to Georgia and Turkey in addition to Azerbaijan.
The party goes sour
Statoil entered 2003 with confidence and optimism, but in September the company found itself embroiled in a major corruption scandal. In 2002 the company was accused of paying off Iranian consultants to help secure business deals in Iran. At the time, Iran was awarding contracts for the development of the South Pars field, one of the world’s largest natural gas fields. In 2001, Statoil developed contacts with and began negotiating with an Iranian government official who could influence the award of oil and gas contracts in Iran. Statoil then entered into a ‘consulting contract’ with an offshore intermediary company, the purpose of the contract – worth more than $15m over 11 years – was to induce the Iranian official to use his influence to help Statoil obtain a contract to develop portions of the South Pars field and to open doors to future Iranian oil and gas projects.
Two bribe payments totalling more than $5m were made by wire transfer, and Statoil was awarded a South Pars development contract that was expected to yield millions of dollars in profit. Following the charges, Norwegian police raided Statoil’s headquarters as part of an investigation. As a result of the scandal, both Statoil Chairman Leif Terje Loeddesoel and Fjell resigned. Newly-appointed Chairman Jannik Lindbaek quickly hired Ernst & Young to review all of Statoil’s international consultancy contracts and Inge Hansen was named acting CEO.
Enter Lund
Shortly after Lund took the hot seat, his credentials making him the sensible choice. Lund graduated as a Business economist at the Norwegian School of Economics and Business Administration in Bergen, and went on to gain an MBA from the INSEAD business school in France. He began his career as a consultant at McKinsey & Co and soon found himself a political adviser in the Conservative Party’s parliamentary group. Lund joined the Hafslund Nycomed industrial company in 1993 and in 1997 took over as a Deputy Managing Director of Nycomed Pharma. In 1999 he moved to the the Aker Kvaener group, a provider of construction and engineering services principally to the energy sector. He held several senior positions within the group, including CEO, before becoming CEO of Statoil.
Under the deferred prosecution agreement, Statoil acknowledged making the corrupt payments, agreed to pay a $10.5m penalty, and agreed to the appointment of an independent compliance consultant for a three-year period. And in 2006, having satisfied obligations under a deferred prosecution agreement, the charges were dismissed.
Having fended off the company’s most serious legal challenge in its history, Lund now turned to more strategic issues. Lund saw that M&A was key in attaining the company’s ambitions on the global energy stage, and to this end began investigating the possibility of a merger with the oil and gas division of Norwegian energy player, Norsk Hydro.
The merger proposal was announced in December 2006 and was approved by the EU in May the following year. Following the deal, Statoil’s shareholders hold 67.3 percent of the new company, with Norsk Hydro shareholders owning the remaining 32.7 percent. The Norwegian Government, the biggest shareholder in both Statoil and Norsk Hydro, holds 62.5 percent of the combined entity. Commenting on the acquisition, Jens Stoltenberg, the Prime Minister of Norway, believes the deal represented ‘the start of a new era.’ He said, “We are creating a global energy company and strengthening Norway’s oil and gas industry.” And according to industry commentators he is not far off the mark. Energy analysts have predicted that the new group will wield a considerable competitive clout versus its larger rivals, which include BP, Total and Shell.
Since the merger Lund has continued to pursue M&A and partnership agreements. In late 2007 Statoil acquired oil sand leases in Canada and purchased of the remaining share in the Peregrino field in Brazil in 2008. The group also took a 24 percent ownership share in Shtokman Development AG, responsible for phase one of the Shtokman development, a natural gas field located in the Barents Sea. Furthermore, in South America, the firm has purchased significant stakes in heavy oil projects in waters off Brazil and the Mexican Gulf, from US group Andarko, in a deal believed to be worth in excess of $2bn.
Under Lund’s guidance, Statoil has successfully executed a forward-looking strategy of merger and acquisitions as a means of replacing declining oil production from maturing fields off Norway. Today, thanks to Lund, Statoil is the largest offshore oil and gas company in the world and the largest company by revenue in the Nordic region.