In June, the Board of Directors in Equinor ASA initiated a review of the company’s US investments, with a particular focus on the onshore business. The review has been led by state authorised accountant Eli Moe-Helgesen from PwC. Learning and improvement have been the main objectives, and the review team has now presented their report to the board.
“We have received a thorough and critical report. Equinor has recorded large financial losses in the US. These were mainly driven by an ambitious growth strategy and investments that were based on overly optimistic price assumptions. In addition, rapid growth for a period led to significant control problems. The board and management should have seen and addressed this sooner. It is now the responsibility of the board and management to ensure that we learn from this experience. The report also confirms that comprehensive improvement efforts were launched when the extent of the challenges were identified in 2014. We have a good foundation on which to follow up the recommendations in the report, and this job has already started,” says board chair of Equinor, Jon Erik Reinhardsen.
The report describes how Equinor followed a growth strategy when building the US onshore business, and how this came at the expense of value and control. The onshore acquisitions in the period from 2008 to 2011 were based on overly optimistic price assumptions and were not robust when prices fell from 2014. This has led to large losses, and impairments in the onshore business of 9.2 billion USD as of the end of 2019.
The report also describes how Equinor experienced serious challenges in business support functions such as production revenue accounting, land management and procurement in the onshore business.
The review is based on over 120 interviews and documentation going back to 2005.
The main findings in the report are listed below.
On Equinor’s US onshore business:
- Equinor’s growth strategy came at the expense of value and control. Rapid growth outpaced and overwhelmed critical business support processes.
- Corporate oversight should have been stronger and did not sufficiently reflect the underlying risks of the business.
- Limited onshore competence experience in senior leadership teams and a lack of continuity in important roles negatively impacted the performance and follow-up of the onshore business.
- From 2014, comprehensive improvement efforts were launched by the administration and reported regularly to the board. Today, the internal control environment in the US organisation is significantly improved.
US and international audit reports:
- Relevant findings from the internal audit reports of Equinor’s US and international business have been addressed and closed, except for certain specific issues where improvements are still ongoing.
The review team has identified areas that can be further strengthened: within strategy and business development; governance, risk and internal control; and leadership and culture.
“We point to how Equinor had clear weaknesses and challenges with internal control in the US. Since the onshore acquisitions, a lot has changed in Equinor. We still see room for improvement, and the recommendations reflect this. They primarily cover how Equinor acquires and integrates assets and companies outside its core business,” says head of the review team, Eli Moe-Helgesen.
The recommendations include creating a more systematic approach to learning from investments for future business development, developing more tailored governance structures, improving collaboration and corporate oversight when entering new markets, ensuring that leaders have the right experience and expertise, and improving continuity in key roles.
CEO Eldar Sætre says that Equinor takes the findings in the report seriously.
“I know this is tough reading for many. We made investments that were no longer robust when the market turned, and we should have seen the control problems in the onshore business earlier. Our job now is to learn, and to turn the recommendations into concrete actions to ensure we do not experience something similar again,” says Sætre.