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Equinor: Statoil to Equinor - Transitioning for a Low-Carbon Future

Equinor: Statoil to Equinor - Transitioning for a Low-Carbon Future

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Yale School of Management
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In 2017, Equinor, one of the world’s largest oil companies, announced that it was planning to expand its renewable energy business while maintaining its oil business with low carbon solutions like carbon capture and sequestration (CCS). In 2020, the company created an ambitious roadmap to get to net zero in terms of its business by 2050, a commitment greeted with skepticism by some environmental groups, who doubted the company’s sincerity and the ambitiousness of its plans.

Equinor began life in 1972, after substantial oil deposits were discovered on the continental shelf of Norway. With the Norwegian government as its owner, the company, eventually named Statoil, developed expertise in extracting fossil fuels from deepwater locations. Statoil entered the public markets in 2001, with the Norwegian government remaining as its majority stockholder The company was cognizant that Norway’s continental shelf would eventually be depleted, and it merged with another Norwegian energy firm in 2007 as they both developed international operations within oil and gas. Over time Statoil developed strong capabilities in building and managing complex stakeholder relationships: with the government, other shareholders, the citizens of Norway, customers, suppliers, and employees. Statoil’s Norwegian fields coupled with its subsequent international operations made it a power in the global oil market.

However, in the 2010s, Statoil’s management became concerned about climate change, including would impact the oil and gas market over time. Statoil began planning for a low-carbon future. The company announced it would explore ways of extracting oil and gas in a less carbon-intensive way as well as build a substantial renewables business. The moves, the company management believed, would help maintain the company through a transition to a new energy future. But numerous stakeholders found fault with this hybrid approach.

Some argued that the revenue from oil had built the Norwegian economy and the country had benefited from fossil fuels more than any other outside the Persian Gulf. Margins from fossil fuels remained strong, and the returns from renewables were much smaller. Oil and gas would continue to be the dominant form of energy for some time to come, and many giant oil companies were competing with Statoil. For the company to lose focus and investment muscle to these competitors could imperil the company’s level of profitability and impact as Norway’s corporate champion.

Throughout the years of its transition to a diversified business model, Equinor had to gain the support of a complex dynamic of stakeholders, from the Norwegian government and shareholders to employees and customers. To reflect the strategic shift, after careful consideration and management attention, the company changed its name from Statoil to Equinor in 2018.

Substantial portions of the Norwegian population were concerned about climate change – the country had the highest number of electric vehicles per capita of any country in the world. And for the most ardent environmentalists, who held that the only good barrel of oil was one that stayed in the ground, argued for a phase-out of all oil production towards 2023. In addition, ESG investors and environmental advocates were well aware of other energy companies that had dipped their toes into the renewables market only to withdraw when they hit obstacles.

Investors, in general, preferred “pure play” companies to hybrids. Renewables were different from oil businesses in some fundamental ways. Renewables firms tended to be nimble, high-tech operations focused on innovations, whereas oil and gas companies were often seen as reliable, lumbering giants focused on high margins and cost control. How could management reconcile the demands of these dissimilar businesses without losing its strategic focus? How could Equinor develop the skills and networks required for the renewables market after its workforce had spent decades perfecting their knowledge of the oil business?

The dissimilarity of the businesses had persuaded many other fossil fuel companies to shy away from the hybrid approach. Ørsted, the Danish oil and gas company, decided to sell off all of its fossil fuel holdings by 2024 to concentrate on renewables, while ExxonMobil had doubled down on oil and gas. Other fossil fuel companies like Shell and BP had made feints toward building renewable businesses with only mixed success.

The Russian invasion of Ukraine in 2022 renewed focus on Equinor’s commitment to the hybrid strategy, as the company and its stakeholders broadly discussed how to balance the energy trilemma – sustainability, security and affordability. Equinor found itself a key player in ensuring Europe’s energy security during this period of hostilities. It increased its production of natural gas to help fill the EU's energy gap left by declining amounts bought from Russian suppliers. While Equinor maintained that it was continuing on its announced roadmap to net zero, environmentalists in Norway and abroad raised alarms about the increasing production and the unusual level of profits from the company's fossil fuel business. How could Equinor’s management continue to make its hybrid strategy credible to stakeholders in this new environment?  

Dedicated to making its hybrid approach work, Equinor continued to concentrate on working with stakeholders to find and show synergies between its oil business and renewables, develop new skills among its workforce, and make strategic investments in renewable businesses across the globe. How would they manage the new challenges introduced by the strategy shift, most prominently changing their culture and developing new stakeholder relationships?

Citation: Jean Rosenthal, Jon Iwata, Edward A. Synder, and Jaan Elias, "Equinor: Statoil to Equinor - Transitioning for a Low-Carbon Future," Yale School of Management case study 23-023, September 14, 2023.