Statoil isn’t backing away from its major cost-cutting program and now also aims to reduce pay levels at the state-controlled oil company. Three out of four oil firms based along the country’s oil- and offshore-oriented West Coast (Vestlandet), meanwhile, believe their business is in a state of crisis. It’s going to take a lot more than the recent rise in oil prices to restore optimism to Norway’s biggest and most important industry.
“We just have to say it right out,” Anders Opedal, Statoil’s chief operating officer, told newspaper Dagens Næringsliv (DN) recently. “Future staffing in the oil and gas industry will be lower, and we’re going to have to do the same types of activity we do today with fewer people.”
Opedal is now at the forefront of Statoil’s new “lean production” philosophy that’s rooted in other sectors of Norwegian industry. The need for efficiency is paramount, and that means doing more with less. Statoil already has cut staffing by several thousand and expects to have around 21,000 employees by the end of this year, down from 25,500 at the end of 2013.
The cutbacks started even before oil prices started falling. When Jannicke Nilsson took responsibility for Statoil’s “Technical Efficiency Programme” (STEP), the price of a barrel of Statoil’s North Sea crude oil was USD 119. It fell to as low as USD 27 in January and has since recovered, to more than USD 40 this week, raising some hopes and prompting Norway’s krone to strengthen.
Eystein Gjelsvik, who tracks the oil industry for Norway’s largest trade union federation LO, believes oil prices will continue to rise, and that the increase will mean a lot for the oil industry “because then optimism will come back.” He said at a seminar hosted by LO and national employers’ organization NHO on Thursday that the oil industry is merely in the midst of a “cycle” that doesn’t mean the end of the industry for Norway. Prices as high as USD 44 per barrel this week, though, nonetheless seem far from high enough to move oil executives out of their current cost-cutting phase.
“The long-term oil price rise from 2004 to 2014 was driven by amazing growth in emerging economies,” Opedal told DN. “That’s not around any longer. Where is the system that will drive oil prices up over the next 10 years? We don’t see it.”
And that’s why he and other Statoil executives now want employees who have survived the cuts to settle for lower wages. “Our goal is that our pay levels will be competitive,” Opedal said, and he added that pay won’t be cut “next year, or the year after that.” In the long term, though, Opedal said that pay levels in the oil and gas industry will become “quite similar” to those in other industries within the next 15 years. DN reported that base pay in Statoil last year was NOK 750,000 (USD 90,000), compared to NOK 410,000 at timber firm Norske Skog. Lower pay levels among workers on offshore platforms must decline, Opedal believes, for Statoil to be able to compete internationally in a business where all oil companies are slashing costs and staff.
“Forget it,” responded Leif Sande, the leader of labour organization Industri Energi, which represents thousands of industrial workers. He recognizes the need to preserve jobs but dismissed Opedal’s call for lower pay as “predictable” at a time when workers are already down in the dumps. “Everyone suddenly needs to be so clever, and adapt within the industry,” Sande told DN. “Two years later they’ve forgotten everything and are thowing money after people to hire them, or sending out bids abroad. So just forget it.”
Bjørn Asle Teige of the labour organization Safe, the largest union representing Statoil’s offshore workers, was equally provoked. “We know that some groups have driven wages way up, and that management pay is high, but thousands of our members aren’t in that situation,” he told DN. Teige claimed that most offshore workers have base pay of NOK 400,000-500,000, which rises in accordance with overtime and other special allowances.
‘Crisis’ mood prevails
A recent survey conducted by business associations in Stavanger, Haugesund, Stord and Bergen, meanwhile, showed that fully 75 percent of companies responding characterized their business as in “crisis” as a result of the dive in oil prices. Nearly 40 percent responded that they expect lower levels of activity next year, compared to just 11 percent expecting that last year. Around 30 percent expected more layoffs, double the number last year, and nearly all were clearly in “crisis mode:” 80 percent of those responding from Stavanger-based businesses, 75 percent of those in Haugesund and 63 percent of those in Bergen.
Newspaper Aftenposten reported on Friday, however, that efforts are being made to prevent the expectations of more hard times ahead from scaring students away from course work aimed at careers in the oil industry. Gisle Hellsten, leader of the University of Oslo’s career center, is urging students to overlook some of the gloom and doom at present.
“Prognoses show that there will still be considerable activity within the oil industry, also in the future,” Hellsten told Aftenposten. “Those starting to study now will be graduating after the market is expected to turn around. Then there will be great need for oil workers.”