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Tuesday, July 16, 2024

Statoil’s ‘uncertainty’ grips the market

The new chief executive of Statoil, Eldar Sætre, welcomed reporters to a press conference on Friday by saying it was “a time with much uncertainty.” The uncertainty over oil prices alone pervades Norway’s economy at present, with thousands of jobs at stake.

Oil prices rose again on Friday, to just over USD 57 for a barrel of North Sea crude oil by late morning. Some analysts, like Torbjørn Kjus at Norway’s largest bank, DNB, think oil prices bottomed out on January 13, when they fell to USD 46.59 a barrel, well under half their level just last summer. Peter Anker of shipbroking and securities firm Clarkson Platou thinks oil prices will continue to rise, and strongly.

Industry jitters
“Right now it’s a dramatic picture in the oil and offshore branch,” Anker told newspaper Dagens Næringsliv (DN) earlier this week. “Our evaluation is that we see considerable strengthening of the oil price over the next six to 18 months.” Anker pointed to economies like those in China and India that continue to consume more oil, while oil reserves decline. Anker claims there’s still a need to search for more oil, “so that the world’s energy needs can be covered in the years ahead.”

The recent dive in oil prices led to a 36 percent profit decline at Statoil during last year’s fourth quarter, sending jitters through Norway’s oil and gas sector that relies on Statoil for business. Just hours after presenting the relatively poor results, though, Sætre was due to face analysts in London with more promising news. DN reported that according to documentation Statoil intended to present, Norway’s biggest company only needs an oil price of USD 40 a barrel to break even on its enormous Johan Sverdrup project (formerly called the Aldous prospect) in the North Sea. Costs at riskier and more difficult oil and gas projects farther north in the Arctic are higher, demanding higher oil prices to ensure profitability.

Not enough work
Kjus, oil analyst at DNB Markets, predicts the oil price will rise some more, resulting in an average oil price throughout the rest of the year of USD 65 a barrel. He warned, though, that oil companies like Statoil shouldn’t breathe more easily: “We’re not finished with job cuts even if oil prices rise. Everyone who does business with the oil industry will have to live with a lot of pain in 2015 and 2016.”

That includes employees at Statoil itself, after the company announced a 30 percent increase in cost-cutting and a 10 percent reduction in investments. Other oil companies including ConocoPhillips and Chevron are cutting investment budgets as well, meaning much less work for companies in Norway that serve the oil sector. DN reported Wednesday that oil industry supply firm Aibel, for example, has cut 2,000 jobs in Norway during the past year, in a sector that saw a total loss of around 10,000 jobs.

Many companies in Norway are counting on business from the Johan Sverdrup project, with both Aibel and Kværner competing for contracts to build the first two oil platforms for the field. A lack of other looming contracts, though, means there still won’t be enough work in the offshore sector. Norwegian oil authorities had expected to receive around a dozen development plans for the Norwegian continental shelf in 2014 and 2015 but only one has been delivered. Statoil’s large Johan Castberg project in the Barents Sea is also on hold, largely because of the fall in oil prices.

‘Great challenges’
Government officials insist they’re following developments closely and still see no crisis for the Norwegian economy. Finance Minister Siv Jensen huddled recently with a group of top Norwegian economists and maintained her confident outlook for the long term, allowing only that the Norwegian economy faces “great challenges” that will affect large portions of Norwegian business.

There have been some worrisome signs of late, with around 700 people applying for a single job at electronics retailer Elkjøp, and hundreds of others applying for a cashier’s job at local grocery store chain Kiwi. Even trade union bosses have warned that given the new economic uncertainty, workers with jobs shouldn’t expect any big pay raises this year.

Other analysts, moreover, aren’t as optimistic about oil price development as Anker and Kjus. DN reported Friday that major London bank Barclays was predicting that oil prices may sink down to USD 30 a barrel in the second quarter.

“Things are going to get ugly,” Barclays analyst Miswin Mahesh told DN. It will take two to three years, he says, for the investment cuts now being made by Statoil and others to reduce production volumes. In the meantime he predicts relatively hard times for the oil and offshore industry, with an average oil price of USD 44 per barrel this year and USD 60 next year. That compares to the prices well over USD 100 that fueled the business as late as last year. Berglund



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