Cutbacks in the oil and gas industries are seeping into other areas of the Norwegian economy, as companies slash costs for travel, representation and a host of other activities. Airlines serving Norway, local hotels and restaurants are among those feeling the pinch that already has affected oil service firms.
“Given what’s happening in the oil market, we’re cutting costs where we can,” Dag Nordbø, communications director for National Oilwell Varco (NOV) told newspaper Dagens Næringsliv (DN) this week. The drilling company has more than 5,000 employees in Norway, more than 3,000 of them based in Kristiansand.
Less travel, cheaper tickets
Nordbø confirmed that first the company dropped its Christmas and summer parties for employees and now it’s cutting travel expenses “considerably.” NOV is far from alone, as other companies in the once-high-flying oil and gas business evaluate who really needs to travel and whether expensive flexible airline tickets and hotels can be replaced with videoconferencing.
Such cutbacks, also being made by oil and gas companies worldwide with employees who often traveled to Norway, are hurting Norwegian hotels, where vacancy rates have shot up in recent months. Per-Arne Villadsen, chief executive of large Norwegian travel agency Berg-Hansen, told DN that its sales to petroleum-related customers are down 15 percent so far this year.
“But it’s more dramatic than that indicates, because we’re also seeing a clear tendency that far more customers are choosing the cheapest airline tickets,” Villadsen told DN. “For the airlines, I’d estimate they’re seeing a 30 percent decline in revenues.” Villadsen also reported travel cutbacks in other non-oil businesses, as the economy in general slows down. “The only clarification we can see is a combination of the cost-cutting programs in the petroleum sector combined with increased uncertainty regarding development of the Norwegian economy.”
New cost-cutting boss at Statoil
Via Egencia, Norway’s largest travel agency chain, confirmed the trend and also reported a decline in sales to oil and gas sector customers of as much as 15 percent. “We’re seeing a contagious effect in other branches, too,” Via Egencia director Rune Feltman told DN. Nordbø of NOV said even the taxi companies are likely to feel the effects of cost-cutting in the oil business.
The cost-cutting is likely to continue. Norway’s state-controlled oil company Statoil last week appointed its first COO (Chief Operating Officer), 46-year-old Anders Opedal, who will be charge of operating efficiency and improvement. In Statoil’s case, his job will be to get the most bang for the buck, so to speak.
Opedal said he won’t be the equivalent of the number-two boss at the company, second only to the CEO. “COO is a title that’s used in different ways,” he told DN. “In the American model, it can often mean overall operating responsibility, but in the European model, it’s more like a counterpart to the finance director.” He explained that whereas the CFO (Chief Financial Officer) aims to achieve economic results and financial efficiency, he’ll work for operating results and efficient activity throughout the company.
And that means imposing long-term cost control at Statoil, which won’t ease even if oil prices rise again. Statoil already has eliminated 1,950 jobs at the company in recent years, and many other oil sector workers are defecting to find more secure jobs. Union leaders at Statoil are bracing for at least as many job cuts by the end of 2016.