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Friday, April 19, 2024

Statoil warns of ‘bad’ oil market

Statoil’s chief executive Eldar Sætre has issued a new warning that the market for oil can be “really bad for a long time,” after the price of oil fell to new lows this week. Statoil is thus cutting staff and investments, but not its dividend to shareholders, and that’s sparking more criticism.

Statoil CEO Eldar Sætre said he has to be prepared that the oil market may be "really bad" for a long time, although he hopes it will improve. PHOTO: Statoil/Harald Pettersen
Statoil CEO Eldar Sætre said he has to be prepared that the oil market may be “really bad” for a long time, although he hopes it will improve. PHOTO: Statoil/Harald Pettersen

Oil prices recovered a bit on Friday after falling below USD 35 a barrel on Wednesday and below USD 34 on Thursday. Predictions of price levels vary widely among analysts, with some warning that a barrel of Norway’s North Sea crude may fall into the USD 20s, while others think it will rebound.

At an annual gathering of business and government leaders on Thursday, Sætre was predictably surrounded by both them and reporters during a break in the program hosted by NHO, Norway’s main employers’ organization. He offered some of his own thoughts on the business he’s been active in for several decades.

“I can have a belief in what the oil price will be, but because of uncertainty, I also have to be prepared and have plans for it being something completely different,” Sætre told newspaper Dagens Næringsliv (DN). “It can be really ille for a long time.”

In this context, ille translates into “bad,” because companies like Statoil and countries like Norway with oil-fueled economies benefit from high oil prices. The dive from well over USD 100 a barrel less than two years ago to as low as USD 33 this week has prompted Statoil to cut staff by nearly 20 percent over the past three years, and slash its investment budgets in new projects.

Dividend debate continues
One thing has not been cut, though, and that’s the hefty dividend Statoil pays out to shareholders. The state remains Statoil’s largest shareholder, with a 67 percent stake, so the national treasury stands to benefit from dividend payouts. Statoil’s failure to cut its dividend, though, has already been criticized by some analysts and economists who call it “irresponsible” given the relatively poor state of the oil business.

DN noted how Statoil’s dividend policy is steered by earnings over the long term. John A Olaisen, chief analyst at ABG Sundal Collier, remains unconvinced: “It will be irresponsible of (Statoil’s) board not to cut the dividend,” Olaisen told DN on Friday. He pointed to Statoil’s debt level and a likely need to cut investments even more if the dividend is upheld. “Statoil would perhaps be punished on the stock market the first day after a dividend cut,” Olaisen added, “but one shouldn’t underestimate the market either.” Statoil, he said, could also be rewarded “if it does the right thing.”

He also accused Statoil officials of being too prone to knee-jerk reactions to cycles. “They panic when the oil price is low and go bananas when the oil price is high” said Olaisen. His criticism of Statoil’s dividend policy is shared by chief analyst Anne Gjøen of Handelsbanken, who told DN she thinks Statoil’s high dividend payments create problems for the company. If oil prices stay low and investments are cut, there will be consequences for production volume.

Sætre admits that oil prices have fallen much lower than he and many others in the business had thought. He still has faith they will rise again: “This is a short-term situation characterized by current supply and demand,” he told DN. It remains highly unclear when that situation might change.

Employee appeal to Solberg goes unheard
DN reported that at least one Statoil employee has appealed to Prime Minister Erna Solberg to get Statoil to change its dividend policy. “Hei Erna,” wrote an employee last summer in an email listed on Solberg’s public disclosure of incoming correspondence. “Since the oil industry is struggling, and those of us in Statoil have to ask colleagues to take severance packages or, in the worst case, be terminated, it’s important that you who represent (Statoil’s) biggest shareholder help us so that we come out of this crisis in the best possible way. Your contribution could thus be that you suspend the dividend from the company, or at least cut it in half, so that we can reduce the damage from it as much as possible.”

Solberg, however, told the same NHO conference attended by Sætre that her government hadn’t expected oil prices to fall so low and that prices are difficult to predict. She’s confident, though, that oil prices will rise again: “We must never draw conclusions on the background of a few weeks,” Solberg told DN, referring to the most recent price slide. “I’ve seen oil prices down at USD 11 a barrel. So you have to be calm about this.”

Oil consutant Jarand Rystad also thinks oil prices will rise, in line with consumption, and predicts good times ahead for the oil industry again. Oil has never been so competitive against other energy sources as it is now, he told DN, all but canceling the “green shift” promoted by many politicians and environmentalists.

Oil Minister Tord Lien, meanwhile, remains bullish on the business as well, even claiming that low prices boost prospects for controversial oil exploration in areas closer to shore such as fields around scenic Lofoten and Vesterålen. Others claim the exact opposite, contending such projects wouldn’t be profitable at low prices and pose far too much risk to Norway’s booming fishing industry. Berglund



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