Norway government on spot over Statoil

*Statoil CEO, Eldar Saetre.

*Statoil CEO, Eldar Saetre.

27 November 2015, Stavanger – Norway waits for a response, as cost cuts, unemployment and fears for future projects take their toll Statoil is behaving like most major oil companies these days — delaying projects, cutting costs and reducing its workforce. But how much longer will its major stakeholder, the Norwegian government, sit idly by and allow this to carry on?

Industry observers are waiting for the government to respond to Statoil and others cutting more than 35,000 jobs from the oil and gas sector over the past year, almost singlehandedly increasing the country’s unemployment rate by nearly 2%.

The budget cuts even spurred wholly-owned state player Petoro to warn the Ministry of Petroleum & Energy that constrained access to capital may mean some of the country’s time-sensitive hydrocarbon resources will never be developed.

Statoil argues that project postponements are just part of a drive to reduce costs in Norway, but the logic can be questioned.

So far four drilling rigs on long-term charters to Statoil have been cold-stacked, earning dayrates of between 70% and 80% of the contractually agreed sums, even though the operator has several profitable drilling targets on existing fields.

Petoro believes Statoil is stalling or scaling-down several profitable projects at fields including Snorre, Oseberg, Heidrun, Johan Sverdrup 2 and Johan Castberg.

Energy advisor Hans Henrik Ramm argues that capital restraints should not be accepted as a valid excuse to avoid investments, as this is purely a question of priorities.

He believes the government — which is highly dependent on petroleum revenues — will be forced to act if there is a risk that profitable, time-sensitive resources are at stake. The government, however, cannot use its 67% ownership to force Statoil to make investments that its management opposes without causing a stock market uproar and possible legal action by minority shareholders.

Some argue the time has come to allow Petoro to act as an operator, having been established in 2001 at the same time as Statoil was listed on the Oslo and New York stock exchanges.

Petoro, with only 68 employees, handles the state’s direct financial interest in Norwegian offshore licences and is supposed to function as a counter-weight to Statoil.

However, this role is made all the more difficult if the government continues to give Statoil’s views on oil and gas policy more weight than Petoro’s.

Another way for Statoil to raise cash and boost spending is by divesting stakes in producing fields, but those such as Snorre, Oseberg and Heidrun have a strong symbolic value for Norway and are extremely profitable.

Neither the government nor Statoil may be keen to sell stakes in these fields to foreign investors, and the company would probably prefer to sacrifice a few hundred million barrels in future production. Then there is the question of Statoil’s dividend payments, with some, including Norwegian Business School professor Oystein Noreng, arguing they should not be prioritised given current circumstances.

“But management bonuses are tied to the share price. Curiously, the major owner, the state, does not intervene,” he said.

Others, such as whistleblower and former resource director at the Norwegian Petroleum Directorate, Rolf Wiborg, argue that a fundamental problem lies in the Energy Ministry being both the formal owner of Statoil and regulator of the country’s offshore resources.

He claims the government gives Statoil preferential treatment, such as being allowed to delay the Snorre 2040 development since 2007, while ConocoPhillips, BP and others were forced to sanction increased oil recovery projects.

However, Statoil’s dominance in the sector — where it operates about 70% of the resources — is a major challenge and can have an unhealthy impact on the country’s employment statistics.

What’s best for Statoil may no longer be what’s best for Norway.
*Ole Ketil Helgesen – this article first appeared in the comment section of the 27 November, 2015 issue of Upstream newspaper.

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