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Friday, June 14, 2024

Profit dive fuels more Statoil cuts

Statoil boss Eldar Sætre warned on Wednesday that Norway’s biggest company would need to keep cutting costs and reduce investment, after reporting third-quarter profits that were half what they were last year. Analysts were disappointed, while employees and Norway’s offshore industry have more reason to be nervous.

PHOTO: Statoil/Harald Pettersen
Statoil CEO Eldar Sætre, shown here in a survival suit used on North Sea oil rigs, delivered disappointing results on Wednesday but tries to keep smiling. PHOTO: Statoil/Harald Pettersen

Statoil reported adjusted operating earnings of NOK 16.7 billion, while news service TDN Finans reported that NOK 18.3 billion had been expected by analysts. The third-quarter result compared to NOK 30.9 billion in the same quarter last year.

Production was up but after-tax earnings were down to a third of last year’s level, with Statoil reporting NOK 3.7 billion for the quarter ending September 30. That compared to NOK 9.1 billion for the third quarter of 2014.

There’s no question that last year’s dive in oil prices, and the fact that they’ve stayed relatively low ever since, is eating into Statoil’s bottom line. It has left Statoil with prices for its primary product that are, on average, 37 percent lower in terms of Norway’s currency, the krone. If the krone hadn’t weakened considerably as well because of the oil price dive, the price reduction would probably be worse.

Some satisfaction, but heads rolled in Houston
Chief executive Sætre claimed he nonetheless was satisfied with the company’s reduction of underlying operating costs so far, and he seemed pleased by “strong operational performance and solid results” from marketing and trading. But the near-term future is not bright, with cost-cutting due to continue and investments likely to be reduced by at least USD 1 billion (NOK 8.4 billion at current exchange rates).

Sætre called it “progressing with our efficiency programs,” and added that he was “pleased with the way we are taking costs down.” Then came the warning, though: “Continued low (oil) prices in the third quarter demonstrates that we must continue to chase further cost efficiencies.”

That means more cost cuts and less business for the wide range of Norwegian companies that supply and serve oil companies like Statoil, while more staff cuts loom as well at both Statoil and its suppliers. Scores of Statoil employees  in the US felt the pain of that just last week, with newspaper Stavanger Aftenblad reporting that another 70 workers at Statoil’s offices in Houston and Austin were laid off with severance packages and had to immediately leave the buildings, escorted out by security guards. Statoil has already eliminated thousands of jobs in Norway and abroad.

Dividend intact, for now
Development of Statoil’s huge Johan Sverdrup oil field off the coast of Stavanger is one bright spot, but even there, Statoil is able to drive hard bargains from suppliers desperate to win contracts. Sætre could announce that cost estimates on the Sverdrup project were “coming down by 7 percent.” He also confirmed delays on the Aasta Hansteen and Mariner oil fields until late 2018, another disappointment for the offshore industry keen to find more work.

Low oil prices, which dipped to below USD 47 on Tuesday, are also putting Statoil’s cash flow under pressure. While Statoil’s board didn’t cut its dividend for shareholders, speculation is rising over whether the board can continue to avoid it. Newspaper Dagens Næringsliv (DN) reported how investment banking firm JP Morgan Cazenove is skeptical and thinks it’s probable that Statoil will cut its quarterly dividend during the first quarter of 2016, possibly in February.

Only one of 12 analysts polled by TDN Finans recommend buying Statoil shares right now. Seven recommended hanging on to them and four recommended selling. Statoil’s share price fell sharply when trading opened on Wednesday after results were released, initially by 3 percent to NOK 134 per share.

(To see Statoil’s own quarterly report, and the profit statements released, click here – external link.) Berglund



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