The recent dive in oil prices has taken a toll on profits at Norway’s state-controlled oil company Statoil. Now the company is bracing for more and much tougher cost-cutting, while its new chief executive also ponders possible changes in top management. New investments will be cut by 10 percent this year alone.
Eldar Sætre faced his first major public challenge on Friday as he had to present a 36 percent decline in earnings for the fourth quarter last year, the period when he took over as Statoil’s new acting chief executive officer. His job was made permanent earlier this week, and Sætre was immediately confronted by the grim task of tackling the sudden turnaround in profitability at Norway’s biggest company.
The fall in 2014’s fourth-quarter adjusted earnings, to NOK 26.9 billion from NOK 42.3 billion in the same quarter a year earlier, was linked first and foremost to what Statoil called the “sharp drop in oil prices.” The company and Sætre himself put the best possible spin on its relatively poor results (external link to Statoil’s own stock market announcement), but the numbers clearly showed how the dive in the price of Statoil’s main product coupled with Statoil’s high costs have abruptly ended the golden years of the past decade. Adjusted fourth-quarter earnings after tax fell to NOK 4.3 billion, down from NOK 11 billion in the fourth quarter of 2013, while full-year adjusted results before tax fell to NOK 136.1 billion for 2014. That compared to results of NOK 163.1 billion in 2013.
‘Well-prepared’ but major cost-cuts loom
The good times have stopped rolling, and Sætre is now charged with making sure Statoil can adjust and resume growth. He seemed optimistic, claiming that the company’s cash flow and underlying performance were solid. “Strong operational improvements” resulting from some major and controversial cost-cutting last year have helped Statoil retain a “robust” financial position, Sætre said, and a “stable dividend” for shareholders.
“Through our significant flexibility in our investment program, we are well-prepared for continuous market weakness and uncertainty,” Sætre claimed in a prepared statement.
Cost-cutting, in the form of what Statoil alternately calls its “improvement-” or “efficiency program,” will increase by 30 percent from 2016, to NOK 12.75 billion (USD 1.7 billion), the company said. Statoil had stated last year that it would maintain its investment spending at USD 20 billion, but now says its “organic capital expenditure” will decline by 10 percent (USD 2 billion) during 2015. That means the equivalent of NOK 15 billion less spending on new projects, a cut that clearly will be felt throughout Norway’s oil services industry.
Management team under evaluation
There wasn’t much for Sætre to smile about, and newspaper Dagens Næringsliv (DN) reports that he now may also reshuffle the company’s top management team. Four of his top-level colleagues were candidates for the CEO job that he got, and one of them, strategy director John Knight, had made it clear he wanted the job. Analysts have suggested that Statoil’s strategy should be reviewed, so Knight’s position may be uncertain while he and the other CEO candidates may feel overlooked themselves.
Sætre, who enjoyed widespread support from the board, employees, analysts and economists when he won the job on Wednesday, told DN that “it would be strange if I, in this role, don’t assure myself that both the structures we have in the company are those we’re best-served with, and that the team I have around me is the one we are best-served with.”
Sætre said Statoil’s top management “has been the right team so far, but we also must think about the future,” while stressing that he didn’t mean to send off any signals. On Friday, Sætre told reporters at a press conference in London that he has “absolutely no reason” to change the company’s fundamental strategy, claiming that it worked “very well” and was well-designed for the the future. He said he intended to maintain Statoil’s strong position on the Norwegian Continental Shelf, to continue to invest internationally and to prepare the company for “the transition to a low-emission society.”
Neither Sætre nor Statoil Chairam Svein Rennemo would comment on Knight’s desire for the top job and his ideas for the company, nor would Sætre comment on whether he thought Knight or fellow top executives Arne Sigve Nylund, Lars Christian Bacher and Torgrim Reitan might be disappointed that they were passed over. Rennemo would say only that Sætre’s solid performance as acting chief executive, following the resignation of Helge Lund last fall, secured him the position, and that he has the board’s support as he sets off on the rough road ahead.