Statiol's Alternative View | Russell T. Rudy Energy LLC
While most other majors are slashing budgets, rig counts and payrolls, Statoil chooses to merely snip, according to an article in “Rigzone”. In fact, the Norwegian giant is cutting back less than any of its peers. Major oil companies are reducing spending by an average of over 20%. Even ExxonMobil, known for taking the long view, has cut its budget by 11%, but Statoil has sought to trim costs by only 8%.
Admittedly, Statoil is a unique company in a unique country. The government of Norway is the largest shareholder and has a well-established tradition for a strategic approach. When your primary owner is a Triple-A rated sovereign entity, and you have little debt and your borrowing costs are among the lowest in the industry, you can be flexible when others cannot.
Norway is unique in that it gives away exploration licenses for free, provides subsidies for exploration and production, but levies a 78% tax on production, the world’s highest.
Because of its unconventional status, Statoil is willing to live with lower margins in the short term and invest in new technology that reduces long term costs. The company is now trying to avoid the boom-to-bust cycle which plagues the industry. Chief Economist, Erik Waerness observed “We as an industry tend to have a permanent bipolar disorder. We are either euphoric or depressed. Maybe this time it will be slightly different and this will allow us to look through the cycle.”
Apparently Statoil’s strategy is not appreciated by investors. Relatively small budget cuts and high dividends are expected to take their toll on 2015 earnings. Consequently, the stock has fallen by 32% in U. S. dollars, and on a PE ratio basis is still considered “sensationally expensive”.
Nevertheless, Hege Kvermeland, chief technology officer at oil service and supply giant National Oilwell Varco, observed “All companies on the stock exchange are pressured by shareholders to cut cost and they can’t see beyond their noses. Statoil has the possibility to look further and say, yes, it is a downturn, but we’ve been here before, it’s going to come up again.”
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/138252/Betting
