Statoil Seen Deepening Cuts to Keep Dividends Amid Oil Rout

  • Adjusted net seen dropping 33% in the fourth quarter
  • Statoil seen extending investment cuts to 30% compared to 2014

Statoil ASA will maintain dividend payments this year, betting it can ride out a slump in crude prices by deepening investment cuts and adding debt, analysts predict.

Norway’s biggest oil company, which will present an update of its strategy along with fourth-quarter earnings on Feb. 4, will pay about 7.2 kroner a share in 2016, the same as in 2015, according to the median of a Bloomberg survey of 35 analysts. Statoil declares dividends in dollars as of the third quarter, while the estimates were provided in kroner. Bloomberg’s dividend forecast in dollars is also for an unchanged 88 cents this year.

“Our base case is that the dividend level is maintained,” Kjetil Bakken, an analyst at Carnegie AS, said in a Jan. 12 note to clients. “The company has been very firm on this ambition.”

Statoil’s Chief Executive Officer Eldar Saetre has insisted over the past year that a policy of raising dividends in line with long-term earnings “stands firm” and isn’t affected by lower oil prices, matching competitors such as Royal Dutch Shell Plc and BP Plc who have also made shareholders a priority even as profits tumble. Even so, uncertainty has grown about Statoil’s ability to keep up dividends as its spending cuts send shock waves through the Norwegian economy.

“The current share price, in our view, reflects a 30 percent to 40 percent reduction in the dividend,” said Christian Yggeseth, an analyst at Arctic Securities ASA, in a note to clients. He still believes Statoil will present a strategy that will allow it to maintain the current dividend level, “which should come as a big relief.”

Statoil rose 2.1 percent to 110.30 kroner a share as of 9:37 a.m. in Oslo, making it the biggest gainer after Repsol SA on the European STOXX 600 Oil & Gas Index.

Statoil is expected to further cut capital expenditure to $13.9 billion this year, Bloomberg’s survey showed. The company has said 2015 spending will fall to about $16.5 billion from $20 billion, though analysts expect the final figure for last year to be about $15.6 billion.

As a consequence of unchanged dividends and a dwindling cash flow due to lower oil prices, net debt is expected to soar to 174 billion kroner at the end of 2016 from 121 billion kroner at the end of last year. Statoil’s CEO has said that a targeted range of 15 percent to 30 percent for the company’s net-debt-to-capital-employed ratio should be viewed as a “reference” and that breaching it wouldn’t trigger “desperate action.” Standard & Poor’s said this week it may cut Statoil and other European oil companies’ ratings.

Teodor Sveen Nilsen, an analyst at Swedbank AB, said that while he expected Statoil to keep the dividend unchanged for the fourth quarter, there is “substantial risk” for a cut in 2016 and 2017 since a “lower dividend on lower oil prices makes sense.”

Statoil’s adjusted net income, which excludes financial and other items, is expected to drop 33 percent to 2.9 billion kroner in the fourth quarter, according to estimates of 17 analysts. BP on Tuesday reported a 91 percent decline in fourth-quarter adjusted profit, missing analyst estimates.

Before it's here, it's on the Bloomberg Terminal.