Statoil Said to Eye Deals as Government Loosens Control: Energy

Source: Statoil
A large deal would vault Statoil toward the first rank of global oil producers -- the so-called supermajors whose lineup has barely changed in a decade.

Statoil ASA (STL) is the giant of Norway’s economy, accounting for almost 20 percent of Oslo’s benchmark index. The state oil producer also looms large emotionally, as a symbol of Norway’s resource wealth and engineering prowess.

It may soon get less Norwegian.

Encouraged by a newly elected conservative government that’s considering reducing the state’s 67 percent stake, Statoil is studying overseas acquisitions, according to people familiar with the matter. It’s examining takeovers that would allow it to diversify away from Norway while diluting the state’s $51 billion shareholding, said the people, asking not to be identified because the deliberations are private.

A large deal would vault Statoil toward the first rank of global oil producers -- the so-called supermajors whose lineup has barely changed in a decade. It would also present political challenges in Norway as Prime Minister Erna Solberg’s new government seeks to balance an international future for Statoil with continued Norwegian control.

“Diluting the government could really give Statoil a lot of firepower,” said Neill Morton, an analyst at Investec in London. “In terms of acquisition opportunities, the focus is clearly on upstream and outside of Norway.”

Tullow Oil Plc (TLW), a London-based oil producer focused on Africa, is among potential targets on which Statoil is stepping up analysis, one of the people said.

Anadarko Petroleum

In the past, the Norwegian company has also looked at deals with rivals as large as Anadarko Petroleum Corp. (APC), EOG Resources Inc. (EOG) and BG Group Plc (BG/), two of the people said. However, attempting to merge with companies of that size -- all have a market value of more than $40 billion -- while keeping majority state ownership would be difficult, they said.

Officials at Anadarko, Tullow, EOG and BG declined to comment on prospects for a tie-up with Statoil.

Statoil shares fell 0.3 percent in Oslo today to 148.2 kroner. Tullow Oil rose 3.1 percent in London.

Solberg’s Conservative Party and the Progress Party, whose minority government has pledged to reduce taxes and the state’s role in the economy, said during the 2013 campaign they may cut the current stake in Statoil to as low as 51 percent. The Stavanger-based company was built after the discovery of giant North Sea fields in the 1970s. As those fields run dry, Norway’s largest company must grow overseas or shrink.

“The new government is probably less interested in political management of Statoil than the previous one,” said Tore Johnsen, a finance professor at the Bergen-based Norwegian School of Economics. “Even with new discoveries, the truth is the North Sea is on the wane, so it’s internationally that Statoil will want to use its human and capital resources.”

Open Market

The government would rather cut its stake as part of a strategic transaction than simply sell shares on the open market, the people said. That coincides with opinion within the company, where strategy chief John Knight, a U.K. citizen, has been driving consideration of major deals and has a receptive, though cautious, boss in Chief Executive Officer Helge Lund, two of the people said, citing their interactions with the managers.

“A possible strategic strengthening of Statoil using equity is the right way to think about this,” said Harald Norvik, Statoil CEO from 1988 to 1999. Selling shares for cash would “weaken the opportunity to use equity as currency.

‘‘The initiative for such a move would come from Statoil, not the government,’’ he said in an interview yesterday.

Lowest Debt

Diluting the government stake to 51 percent could allow the issuance of more than $22 billion in new shares for use in a takeover, at current prices. Statoil also has the lowest ratio of net debt to earnings before interest, taxes, depreciation and amortization among integrated European energy producers at about 0.25, according to Bloomberg data, giving the company plenty of financing room.

Lund declined to comment on Statoil’s future acquisition plans, as did oil minister Tord Lien.

The government has little use for the cash a direct sale of its stake would generate. Norway has the biggest budget surplus of any country with AAA credit rating and no net debt, meaning any windfall would be directed to its $800 billion sovereign wealth fund, itself a large investor in the shares of energy companies including Royal Dutch Shell Plc. (RDSA)

Still, any dilution could present delicate political problems, said the School of Economics’ Johnsen.

‘‘It would highlight the fact that Statoil is becoming less and less Norwegian,” he said. “It’s a reality, but it may be difficult to accept.”

International Production

The share of international production in Statoil’s total is already forecast to grow to 44 percent in 2020 from 7 percent in 2001.

Determining the extent of Norwegian control after a deal would be a key political concern. Without a parliamentary majority, Solberg would need to convince at least one party beyond Progress to go along with her plans. The opposition Liberal Party has a “pragmatic” stance, deputy leader Ola Elvestuen said.

“It’s completely unthinkable to imagine a merger that would allow us to lose national control, meaning majority ownership, a Norwegian CEO, and a Norwegian chairman of the board,” said Ole Borten Moe, a Center Party member who served as oil minister between 2011 and 2013.

Norway’s main opposition party, Labor, is opposed to any reduction of the state’s stake.

To be sure, Statoil could also dilute the government by raising equity for purposes other than a takeover, like building out its activities in East Africa, the people said.

Major Deals

“The issue now isn’t access to resources,” said Teodor Sveen Nilsen, an analyst at Swedbank First Securities. “They’ve discovered a lot of resources over the last years -- it’s about execution now.”

The oil and natural gas industry has seen many discussions of major deals that never became reality. BP Plc (BP/) and Shell, for example, flirted with a tie-up in the mid-2000s, former BP CEO John Browne said in his memoirs.

The Woodlands, Texas-based Anadarko has operations throughout North America as well as in East Africa, while BG Group, based outside London, has gas projects in Brazil and Australia. Statoil considered a bid for BG after its shares plunged more than 20 percent in 2012 amid production difficulties, one of the people said.

Acquiring Anadarko, which has a market capitalization of about $40 billion, or BG, at $75 billion, would stretch Statoil’s financial capacity if the government stake must remain above 51 percent. For that reason a smaller but still substantial deal is more likely, the people said.

Smaller Targets

“It would be easier with smaller targets, for example companies specialized on Africa, which is getting higher and higher on Statoil’s agenda,” said Carl Christian Bachke, an analyst with Nordea Markets.

In addition to Tullow, Edinburgh-based Cairn Energy Plc (CNE), with operations in West Africa and Europe, could be such a target, Bachke said. The company declined to comment.

Statoil has already made forays into North America through takeovers, spending $4.5 billion to acquire Austin, Texas-based Brigham Exploration Co. to add shale oil reserves. Meanwhile, it sold offshore fields in Norway for more than $5 billion over the past two years to Centrica Plc (CNA), Wintershall AG and OMV AG. (OMV)

To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net

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