Statoil announced some major new investment in one of its North Sea oil fields on Friday, welcome news for the oil and gas industry if not for climate and environmental activists. The new projects come as the company, which has been slashing jobs because of low oil prices, is also catching criticism over its plans to keep paying out dividends to shareholders.
Oil Minister Tord Lien was smiling as Statoil’s senior vice president in charge of field development on the Norwegian continental shelf, Ivar Aasheim, literally handed him a Christmas gift: Plans for development and operation of the Oseberg Vestflanken 2 field, eight kilometers northwest of the Oseberg field center that’s located in the North Sea west of Bergen.
Statoil and its partners in the oil field (the state’s Petoro, Total of France and ConocoPhillips of the US) stated that the project will yield around 110 million of oil equivalents. The project will be a so-called “unmanned wellhead platform” with no facilities, helicopter deck or lifeboats. That’s new in Norway, but Statoil claimed such platforms have been “thoroughly tested” in others areas including on the Danish and Dutch continental shelves.
The project, which Norwegian Broadcasting (NRK) reported will cost NOK 8.2 billion project (nearly USD 1 billion), should provide some badly needed work for oil service companies, while Lien claimed that such further development of existing oil fiels would “create great value” and help maintain oil production at a “demanding” time in the oil industry.
It was just earlier this week that Statoil unveiled a new effort to cut more jobs by offering severance pay packages to everyone in the company. The goal is to eliminate at least another 1,000 jobs as low oil prices pose major challenges for the company.
Labour unions and even some professors, however, are calling on Statoil to cut its dividend to shareholders instead of jobs. Newspaper Dagens Næringsliv (DN) reported that many employees and union leaders are upset that Statoil intends to pay out NOK 23 billion in dividends while trying to force staff out of the company.
“Shall the employees be kicked out of their jobs so that shareholders can get even more money?” asked Bjørn Asle Teige, a main representative of Statoil workers. One of the labour federations representing Statoil employees, YS, is demanding that Statoil’s board cut its dividend by half instead, noting that Statoil faces having to borrow money to maintain its current dividend level.
Companies are always reluctant to cut dividends, however, not least because of the negative signal that can send to investors. They may fear that management in turn fears lower revenues and profits, but with oil prices down at a third of what they were early last year, many likely realize that not nearly as much money is flowing into the company as earlier.
DN commentator Bård Brekholt noted that while many understand a need to cut jobs in hard times, there’s less understanding when dividends are maintained at the same time. “It’s ridiculous to put a priority on the dividend in the situation Statoil is in now,” Øystein Nordeng, a professor emeritus at Norwegian Business School BI told website Offshore.no. Newspaper Aftenposten reported on Thursday that far too few Statoil employees are tempted by the severance pay offered to voluntarily quit. According to Aftenposten, Statoil wants to cut as many as 1,500 jobs, but only between 300 and 400 employees have applied for severance packages.
Climate concerns cloud future for fossil fuels
Bjerkholt also noted that oil companies now form an “over-ripe” industry that faces limitations on fossil fuel production much less expansion, because of climate concerns over the emissions such production creates. Much of the world’s oil and gas reserves will likely need to remain untapped, he believes, in order to meet climate goals as agreed at a UN summit last weekend.
Statoil has also been hit by its former CEO Helge Lund’s acquisition binge in North America, which DN reported has cost Statoil around NOK 70 billion. Bjerkholt wrote that CEO Eldar Sætre thus has a need to tell his shareholders that he will be less keen on empire-building and more concerned with long-term profitability than his predecessor was.
At least one professor defends Statoil’s decision not to cut its dividend. Klaus Mohn, professor of petroleum economics at the University of Stavanger, told NRK that maintaining the dividend can serve employees well in the long term.
“Employee representatives have an interest in maintaining activity and jobs, but it’s not access to capital or cash that’s limiting Statoil’s activities, it’s access to profitable projects,” Mohn told NRK. “Paying out dividends doesn’t have much to do with activity.” By demanding dividends, Mohn said, shareholders also demand that the company remains profitable. That makes it difficult for Statoil to use more money on projects that aren’t profitable, such as its controversial oil/tar sands and shale gas projects in North America, where Statoil is now scaling back.