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Monday, July 15, 2024

Statoil’s former CEO defends expansion

Not much has been heard from Helge Lund since he quit Statoil just as oil prices started to dive and results from his overseas expansion became a burden on the company. In his first interview with Norwegian media since accepting the top job at the UK-based BG Group, Lund said he understands the debate over Statoil’s acquisitions during his tenure, but thinks it’s too early to draw any conclusions.

Statoil chief executive Helge Lund was paid NOK 13.8 million (USD 2.3 million) last year. Company officials, meanwhile, won't say why he was invited to the White House last fall for a meeting that ended up getting cancelled. PHOTO: Statoil/Harald Pettersen
During his 10 years at Statoil, the company’s former CEO Helge Lund embarked on a major international expansion that since has generated losses for the company. He thinks it’s too early to pass judgment on what was meant as a long-term strategy. Lund will formally be out of a job soon, since his short stint as CEO of the former British Gas group will end with BG’s acquisition by Shell next month. Lund won’t suffer financially, though, and seems unlikely to remain unemployed for long. PHOTO: Statoil/Harald Pettersen

“It’s clear that all oil companies have had to take relatively large writedowns because of the oil price fall,” Lund told newspaper Dagens Næringsliv (DN), which met Lund at the World Economic Forum in Davos, Switzerland. “But I think it’s much too early to say how the investments for all companies will look in five years, or 10.”

During Lund’s time at Statoil, he launched the company on a major overseas expansion that included major investments in the Gulf of Mexico and off Brazil, in shale oil and gas projects in the US and, most controversially, in the climate-unfriendly oil sands projects in Alberta, Canada. DN reported that all told, the investment binge has so far forced Statoil to take writedowns of around NOK 70 billion. The company still lists values of the various projects in North America at NOK 170 billion, according to securities firm Pareto.

The acquisitions were made in the belief that Statoil’s projects on the Norwegian Continental Shelf would eventually run dry, and in order to maintain growth, Statoil needed to expand abroad. Not only did Statoil instead end up making huge new discoveries of oil in its own proverbial backyard, the price of oil dove from well over USD 100 a barrel to less than USD 30 this past week. The world is awash in oil at a time of economic downturn in former locomotives like China, and more oil is coming into the international market after sanctions were eased against Iran. The relatively low oil prices, which may fall further, mean that many of Statoil’s ventures abroad have become a drain on the company. DN also reported on Friday, meanwhile, that the price of a barrel of Statoil’s Canadian oil from the oil sands project is only generating USD 14 a barrel.

Not surprised by the debate
Lund isn’t surprised that his bullish acquisitions over the past decade have prompted some debate and criticism. “I understand that,” he told DN. He said he didn’t want to use the word “defend” in looking back over his record at Statoil, “but I don’t think you can evaluate the investments in the oil industry in the short term,” he said. “You have to evaluate them over a longer perspective.”

DN noted that Lund’s successor as CEO at Statoil, Eldar Sætre, has repeatedly characterized Statoil’s ownership stakes in North American gas and oil projects as good. Sætre believes the shale fields have shown better production results than expected, and has pointed out that the writedowns taken so far can be reversed if or when oil prices rise again.

“I think most believe the oil prices will rise again, but no one knows when,” Lund told DN. “So the oil companies have to adjust to a relatively conservative level and make sure they can survive a period with low prices.” He stressed, though, that as CEO of BG Group, he didn’t want to get involved in a debate about Statoil, and said his comments applied to investments made by oil companies all over the world.

Soon out of a job
Things haven’t exactly gone Lund’s way since he left Statoil after a decade as CEO 15 months ago, and not just because of sinking oil and gas prices. He’d negotiated what looked like an exciting and lucrative new job at BG Group, only to see BG Group snapped up by Shell just weeks after he took over as BG’s CEO.

That effectively made Lund redundant, and he’s spent the past year leading the company into its merger with Shell. Shareholders in both Shell and BG Group will formally vote on the merger next week and there won’t be any CEO job left at BG once the merger is effective.

Lund does stand to receive handsome compensation for his short stint at BG Group, with DN reporting that he may pocket as much as NOK 400 million thanks to a merger clause in his employment contract. “I can’t comment on that, nor is it clarified yet,” he told DN.

Nor would he say what he plans to do when the merger is complete and his company becomes part of Shell, responding to DN’s question about his future only with a secretive smile before heading out of the Davos hotel where he’d been attending a meeting of top oil industry executives.

DN reported that Shell’s CEO Ben van Beurden emerged from the same meeting room as Lund, but he wouldn’t answer any questions. The entire Shell-BG deal has been criticized as too profitable for BG and based on oil price levels shown to be too optimistic. Asked in the hotel’s cloak room whether the pending merger has become a problem for him, van Beurden said only that “my biggest problem is finding my jacket.” Berglund



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