Statoil Sees Risk of Deeper Slump as Oil Touches 12-Year Low

  • Crude's slide `underlines the uncertainty' in market, CEO says
  • Comments differ from October view that price had found a floor

Statoil ASA, Norway’s biggest energy company, said an oil rout that’s pushed prices to a 12-year low may still get worse.

“It could go even lower, and it just underlines the uncertainty,” Chief Executive Officer Eldar Saetre said in an interview in Oslo. “We still have a situation with an imbalance in the market.”

West Texas Intermediate sank as much as 5.5 percent on Thursday to $32.10 a barrel, the lowest since December 2003, on concern the slowdown in Chinese growth is deepening while global oil supplies continue to swamp demand. Prices have tumbled for more than a year amid a decision by the Organization of Petroleum Exporting Countries to maintain output to defend market share. Benchmark Brent touched $32.16 on Thursday, the lowest since April 2004.

Saetre, who remarked in October that Brent may have found a “floor” as it recovered to about $50 a barrel after dropping to the mid-$40s twice in 2015, said most market participants are “probably surprised” prices have gone so low. Even so, Statoil expects crude to recover eventually and will stick to its dividend policy, the CEO said.

Dividend Plan

“We’re very clear that it has a long-term perspective in the same way that we operate our business and our financial governance, and the dividend policy isn’t linked to current oil prices,” Saetre said at a conference hosted by Norway’s Confederation of Industry.

State-controlled Statoil, whose policy is to increase payouts in line with underlying long-term earnings, has followed competitors in maintaining dividends even as oil’s collapse erodes income. The company’s ratio of net debt to capital employed -- a measure of financial leverage -- increased to 24 percent at the end of the third quarter from 19 percent a year earlier despite spending cuts.

The ratio could increase further, and a move beyond Statoil’s 15 to 30 percent “reference” range wouldn’t trigger “desperate action,” Saetre said. “It’s something we can live with comfortably, but we would then think a bit more about how to get the debt ratio down.”

Cost Savings

In such an event, Statoil would focus on efficiency measures, according to Saetre, who said it already has “good momentum” in a cost-cutting program designed to yield annual savings of $1.7 billion by the end of 2016. He declined to elaborate on strategy ahead of the company’s Feb. 4 markets update in London.

Statoil fell as much as 6.7 percent to 110.1 kroner in Oslo trading. That’s the biggest slump since Aug. 24 and the lowest level since 2011. The stock traded down 5.5 percent at 12:56 p.m. local time, compared with a 4.7 percent decline in the Stoxx Europe 600 Europe index of oil and gas companies.

Statoil said in December that it’s offered oil assets almost daily from rivals squeezed by the drop in prices. Still, few companies are willing to sell cheap, Saetre said Thursday.

“Everyone believes the market will come back and no one’s distressed enough to sell assets on the cheap,” he said. “But the longer the situation lasts, the more players may feel pressured to do this in some way.”

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