Statoil under fire over results

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UPDATED: Statoil CEO Helge Lund released disappointing financial results Friday morning that fanned the flames of investor discontent, but they ended up driving Statoil’s share price up later in the day. Meanwhile, real flames forced  evacuation at a Statoil complex in Bergen, while Norway’s offshore industry worried that their own years of red-hot business may cool off considerably as Statoil cuts back on new projects and production goals.

Statoil's Helge Lund only earns a tenth of the salary commanded by the chief executive of Chevron, for example, and much less than other CEOs as well. PHOTO: Statoil/Ole Jørgen Bratland

Statoil’s Helge Lund and his management team continue to defend their investments and strategy under increasing criticism. PHOTO: Statoil/Ole Jørgen Bratland

Norway’s biggest and arguably most important company could still report net operating income of nearly NOK 44 billion (USD 7 billion) for the fourth quarter (external link, to Statoil’s press release), but earnings in general were down for the quarter and the year. Analysts, who earlier have complained that Statoil isn’t performing as well as they think it could, were predictably disappointed.

Anne Gjøen at Handelsbanken Capital Markets, who has called for Statoil to be split up into different companies, called the results “disappointing and unclear.” Carl Christian Bachke, an analyst at Nordea, said that Statoil’s management now may be “moving in the right direction,” but its proposed measures are “a bit disappointing” because market expectations were higher.

Statoil shares initially fell just after its results were released, following price falls earlier in the week. By the end of the day, however, Statoil shares rebounded and were trading as much as 5.7 percent higher than Thursday’s close. Several other shares rallied as well, and Statoil investors seemed to value the company more than the analysts did.

More spending cuts loom
Statoil released its year-end results for 2013 just before Lund and his executive colleagues presented their Capital Markets Update in London Friday morning. They rolled out plans for a reduction in capital expenditures of more than USD 5 billion (NOK 31 billion) and admitted, in a footnote, that the company won’t meet its previously stated production goals.

Financial website reported that the footnote in one of Statoil’s slides sparked more criticism from analyst Trond Omdal of Arctic Securities, who commented that “someone like me who uses contact lenses barely managed to read” that Statoil won’t be producing 2.5 million barrels a day in 2020 after all. Lund had presented the ambitious goal in New York three years ago, but now it’s been postponed by three to four years.

Omdal, however, wasn’t as interested in Lund’s decision to give up his production ambitions as he was in Statoil’s actual results. “When you don’t deliver in the short term, it’s less interesting what you say about 2025,” Omdal told He predicts Statoil will need to undergo restructuring before then, adding that “we don’t know what the oil price will be after 2020.”

CEO under pressure
Lund is clearly under pressure as Statoil, after a string of earlier announcements about cost-cutting and the elimination of a few hundred jobs, suddenly seems viewed as a company facing severe challenges. After years of expansion and strong profits, 2013 was tough, with management having to deal with everything from a terrorist attack on a gas plant that Statoil helps run in Algeria, to volatile oil prices, lower demand for gas and oil and ever-rising costs. Statoil is now being alternately scolded over a lack of returns on its foreign expansion program and advised to rethink its strategy.

One billionaire investor, oil industry veteran Endre Røsjø, went so far as to claim that Helge Lund and several other members of Statoil’s top management should resign. Røsjø told newspaper Finansavisen on Friday that Statoil should have generated much higher dividends than it has under Lund’s management and that the Norwegian government, which remains Statoil’s largest single shareholder, should arrange for his replacement. Norwegian media quickly picked up Røsjø’s remarks, adding to the latest drama at the Stavanger-based company.

Lund, who’s been at the helm of Statoil for 10 years and barely had a free weekend since, defended himself and his management team, telling his audience in London that their new production goals and investment plans will create more value for shareholders. “We think we now have a better plan for value creation than what we had,” he said. He also told newspaper Dagens Næringsliv (DN), which covers Statoil closely, that he was satisfied with the overseas investments that have been made. The company will simply be making fewer new investments than it had planned.

Skepticism and concern
Analysts remain skeptical, noting that this is the third time Lund has failed to meet production goals and that his growth ambitions abroad have led to expensive foreign acquisitions that aren’t delivering adequate returns.

Norwegian industrial leaders, meanwhile were worrying about what more looming cuts and lower production at Statoil will mean for the country’s important offshore industry that serves oil exploration and oil field needs. Their business may decline in line with Statoil’s after years of growth.

Some analysts, though, think Statoil should spin off or otherwise reduce its overseas operations and concentrate on its activity on the Norwegian continental shelf, where the company has scored several major discoveries over the past few years. That could keep Norway’s offshore industry afloat also.

As the Statoil drama played out in London, another drama hit the company in Bergen, as fire forced evacuation of a new building in a Statoil complex on Sandliveien. The fire was quickly brought under control and extinguished, and no one was injured. Berglund