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Tuesday, May 21, 2024

Statoil optimistic in a new oil market

After years releasing a lot of bad news, the chief executive of Norway’s biggest and arguably most important company now seems defiantly optimistic. Statoil CEO Eldar Sætre even had his closest associates laughing last week, just before they all had to release some of the poorest results in the company’s history. They’re all confident that the company is now well-positioned to grow in an entirely new oil market.

Statoil CEO Eldar Sætre thinks things are definitely looking up for Norway’s largest company, even though not all investors seem to agree. PHOTO: Statoil/Ole Jørgen Bratland

Last week was also a week in which Statoil executives had to see the company’s  share price battered, face analysts disappointed by operating results that were 20 percent below expectations, and endure harsh criticism of their international operations that led to huge writedowns that resulted in the company’s pre-tax annual loss of NOK 1.5 billion. That’s down from a profit of nearly NOK 214 billion in 2011, when the oil boom that was fueled by record high oil prices hit its peak.

It’s financially been downhill ever since and Statoil has reacted with major cost-cutting that’s slimmed down its staffing, streamlined operations and prompted the company to get rid of unprofitable and even controversial operations like its oil sands in Alberta, Canada and, just this week, its gas power plant at Mongstad on Norway’s own west coast. Statoil also has been refusing to pay the high rates once claimed by offshore and oil service companies, further driving costs down. At one point, Statoil was even accused of cutting back on coffee service at its helicopter terminals, a claim the company said was overblown.

There’s no question, though, that Sætre has been opting to cut back and take huge losses (to the tune of NOK 130 billion) since he took over for Statoil’s former longtime CEO Helge Lund. Now, with an entirely different cost structure, an oil industry environment that’s sobered up from the boom years and oil prices starting to rise again, Sætre firmly believes his clean-up leaves Statoil poised to do well in what’s also an entirely different market. He claimed during the company’s annual meeting with analysts in London last week that he hasn’t seen so many profitable opportunities at Statoil in his 36 years at the company. The Statoil veteran also told newspaper Dagens Næringsliv (DN) over the weekend that Statoil’s portfolio of projects contains the highest degree of profitablity he’s ever seen, even though oil prices are still roughly half of what they were when they peaked just a few years ago.

At around USD 56 a barrel this week, however, they’re also more than double the level they were last year, and that cheers Sætre and others in the oil industry considerably. Many of Statoil’s offshore oil installations are already profitable again and, with costs lower, can continue to be at an oil price level of USD 30 or even less. Statoil reported that it has cut its annual costs by a hefty USD 3.2 billion since 2013 and it intends to cut a billion dollars more this year. That contributes to a new average break-even level on new projects at an oil price level as low as USD 27.

Statoil is a hugely important player for the entire oil and offshore industry in Norway, like here, when it needed offshore vessels to pull out its Njord installation. PHOTO: Statoil/Johan Anthoniussen

The company has, for example, cut its building costs on the planned projects like Johan Castberg in the Barents Sea by half. Its Johan Sverdrup project in the North Sea is expected to be highly profitable and the Ivar Aasen project that recently started operating can turn a profit at less than USD 50 a barrel. Statoil currently plans around NOK 170 billion of new investments due to be operating by 2022. If oil prices stay above USD 50, it’s expected they can be paid off by 2023.

All the cost-cutting has come at a cost itself, of couse, with thousands of people losing their jobs both in Statoil and in the offshore industry servicing it. Statoil has also been dealing with serious safety problems at several of its oil and gas installations, and is under pressure to solve them quickly from both state authorities and labour organizations representing Statoil’s workers. Sætre’s management team has vowed to do so, while Sætre himself is working to make amends with the company’s labour unions after relations fell to a low point last year.

Sætre thus remains optimistic, even though investors in the “new market” didn’t seem to believe his predictions last week. He chose to view Statoil’s steep share price fall as a reaction to its fourth-quarter performance instead of its long-term strategy. “I’m creating a picture now of an almost unique portfolio that we’re sitting on,” he told DN, whose reporter had also been allowed to sit in on Sætre’s meeting with his top management team before they all faced the analysts last week. When Sætre got overly enthusiastic while rehearsing his speech, DN reported that he was told not to gesture so much with his arms or point his fingers: “It can make you look like Trump.” They all broke into laughter, seemingly forgetting the oil crisis of the past few years.

Hasn’t ‘wasted a good crisis’
Sætre now maintains that it’s been important for Statoil not to “waste a good crisis.” The boom years led to prices and costs that were too high, he believes, and the crisis has forced cutbacks and more sensible operations. He claims Statoil has not stopped being a “machine for creating billions” of kroner worth of wealth for Norway, as Oslo newspaper Aftenposten suggested last week.

Sætre also remains eager to open new oil fields and is bullish on more exploration and production, also around the highly contested areas of Lofoten and in the Arctic, despite climate and environmental concerns and political disagreement. Sætre and his team can now in return point to the fact that their decision to shut down the Mongstad plant will cut carbon emissions in Norway by as much as 300,000 tons a year and that they’re moving into alternative and renewable energy like wind power. When Statoil opens its new wind-power operations in the UK this year, it will provide renewable to around 400,000 British homes. Sætre can even argue that Norwegian gas can replace coal in Britain, and thereby cut emissions even more.

“I think it’s important to see that this is a cyclical industry,” Sætre told DN in an effort to sum up Statoil’s status and explain the arguable excesses of the past. “Decisions must be evaluated based on the situation you’re in when they need to be made.” Now he’s in charge in a new market, and still sees upside potential ahead, even for his company’s core involvement in fossil fuels. Berglund



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