Who Owns Reality? Part 2
A story in nine parts.
The autumn of 1986 marked a milestone for Statoil. After years of planning and development, production was finally set to begin on Gullfaks – the company’s great masterpiece and its first major field as operator. But just as optimism peaked, oil prices plummeted. What was meant to be a triumph quickly turned into a challenge.
The organization, painstakingly built to manage a large-scale operational unit, now faced a demanding restructuring. Staffing changes hit Gullfaks particularly hard. Such changes rarely come without resistance, and it didn’t take long before a crisis of trust emerged between employees and management – a crisis that would take years to heal.
A story in nine chapters.
New Leadership – New Identity
In the 1980s, the construction of the Gullfaks platforms and the establishment of the Gullfaks organization were central tasks for many Statoil employees. At the same time, several important developments—both internal and external—led to a strategic shift in the company’s leadership and organizational structure.[REMOVE]Fotnote: Se egen artikkel: Gullfaks fra Statoil til staten.docx
In 1984, a political compromise known as the “Statoil compromise” was reached, which the following year resulted in the establishment of the State’s Direct Financial Interest (SDFI).[REMOVE]Fotnote: Se egen artikkel: Duket for stemoderlig behandling av Gullfaks`.docx This marked the beginning of a new direction for Statoil. At the same time, the company was hit by major cost overruns at the Mongstad refinery, and a dramatic drop in oil prices in 1986 triggered further restructuring.[REMOVE]Fotnote: Då isfjellet vaks til ein «mong»
The 1986 oil price collapse was severe – prices plummeted and stabilized at a much lower level than Statoil and the rest of the industry were used to. This created immediate financial challenges: revenues from the fields declined while borrowing needs increased. The Gullfaks development, with its two large and costly Condeep platforms, Gullfaks B and C, contributed to a sharp drop in the company’s equity.[REMOVE]Fotnote: Thomassen, E. (2022). Statoil og Equinor: 1: Middel og mål: 1972-2001 (Vol. 1). Universitetsforlaget. s. 269.
Meanwhile, it became known that the Mongstad expansion had resulted in massive cost overruns. The consequences were serious: CEO Arve Johnsen and the entire board were forced to resign. This marked the end of an engineer-dominated leadership, replaced by a new group of economists and lawyers.[REMOVE]Fotnote: Finn Lied, chairman of the board from 1974 to 1983, civil engineer; Inge Johansen, chairman from 1984 to 1988, civil engineer. The appointment of Jan Erik Langangen[REMOVE]Fotnote: Jan Erik Langangen (born 1950) is a Norwegian business executive and lawyer. He served as CEO of Storebrand from 1985 to 1992 and was chairman of the board at Statoil from 1987 to 1992. He began his career at Statoil in 1975 as a financial consultant and became head of the finance and economics department in 1979. In 1991, he failed in the so-called “Skandia raid” and was forced to resign from both his position at Storebrand and the board of Statoil. as new chairman of the board signaled a clear shift. Langangen, a lawyer and economist with a background in private enterprise, brought several economists and legal professionals into the board.[REMOVE]Fotnote: Thomassen, E. (2022). Statoil og Equinor 1: Middel og mål: 1972-2001 (Vol. 1). Universitetsforlaget. s. 265-268.
Harald Norvik was appointed as the new CEO. He was also an economist, but with stronger ties to the private sector than his predecessor. With new leadership and growing financial challenges, a comprehensive consolidation of the company became necessary. One of the first measures was the introduction of profitability requirements for all investments – a move Norvik saw as a matter of both culture and values.[REMOVE]Fotnote: Thomassen, E. (2022). Statoil og Equinor: 1: Middel og mål: 1972-2001 (Vol. 1). Universitetsforlaget s. 271.
Norvik launched a major turnaround effort, with programs for efficiency and cost-cutting that would significantly impact Gullfaks.[REMOVE]Fotnote: Thomassen, E. (2022). Statoil og Equinor 1: Middel og mål: 1972-2001 (Vol. 1). Universitetsforlaget. s. 270. It appears that Harald Norvik, like many other leaders in the oil industry, had been influenced by the wave of organizational theorists who, starting in the early 1980s, promoted the importance of corporate culture for efficiency and flexibility. He pointed out that Statoil’s financial position was more vulnerable than that of its competitors due to the company’s heavy reliance on the Norwegian continental shelf, where production costs were significantly higher.[REMOVE]Fotnote: Norvik, Harald. (1988). Statoil mot 2000. Utviklingstrekk og perspektiver. Foredrag Polyteknisk forening 4. oktober 1988. Adapting to new market realities was therefore essential.
In a speech to the Polytechnical Society in October 1988, Norvik emphasized the need to develop both a business culture and a corporate culture. Arve Johnsen had envisioned an integrated oil company operating across the entire value chain. With the start of operations at Gullfaks, Statoil also became an operator, taking a major step toward becoming a fully-fledged oil company. However, the company’s various activities operated under very different conditions and were organized in separate hierarchies.
This led to tensions—both between different business areas and between the centre and the periphery. Many of Statoil’s internal organizations enjoyed a high degree of autonomy. The Gullfaks operations organization was established as an independent functional area, and here the centre–periphery conflict became particularly pronounced. Although the organization was formally part of the parent company, it effectively operated as a separate oil company, with bases both offshore and in Bergen. A distinct “Gullfaks identity” began to emerge.[REMOVE]Fotnote: Elvekrok, Ingunn. (2019). Et selskap i bevegelse. Strategi og struktur i Statoil 1972 – 2018. Masteroppgave i historie. Institutt for arkeologi, konservering og historie. UiO. s. 49-58.
This situation was not unique to Gullfaks. Over time, several subcultures had developed within the company, and many employees identified more with their unit than with Statoil as a whole. An “us versus them” culture took hold, especially on the platforms, where a sometimes radical union culture also emerged.[REMOVE]Fotnote: Statoil 1. s. 247-250. Og Elvekrok, Ingunn. (2019). Et selskap i bevegelse. Strategi og struktur i Statoil 1972-2018. Masteroppgave UiO.
For Norvik, this fragmented culture became a barrier to change. To address the challenges, he moved away from organizing by function and instead introduced three business areas: Exploration and Production (E&P), Refining and Marketing, and Petrochemicals.
In the years that followed, a number of programs were launched and implemented—with varying degrees of success. At the same time, the level of conflict increased between center and periphery, between platforms and the onshore organization, and between unions and management.