Company Man Says ‘We Can Work It Out’ as Statoil Cuts BackBy
Veteran CEO Eldar Saetre refocuses on Norway, offshore
Relations improve with unions despite thousands of job cuts
Facing the worst market slump in a generation, Norway’s biggest oil producer turned to a company veteran who likes to joke about his roots in a fjord-strewn district known for its penny-wise inhabitants.
Since becoming chief executive officer of Statoil ASA a few months after crude prices started to slide, Eldar Saetre, 60, has reduced spending at the state-controlled giant by almost half from a peak of $20 billion in 2014. That’s the deepest cut among European oil majors.
Initially reluctant to succeed the younger Helge Lund -- who became one of the industry’s highest-paid CEOs when he left Statoil for BG Group Plc -- Saetre, the first chief recruited from within the company, has eased into the role. Tapping almost four decades of experience, he’s targeting savings of $2.5 billion and has improved relations with labor unions, even as he cut thousands of jobs.
“In the phase they’ve been in, Eldar Saetre has been better suited,” said Trond Omdal, an analyst at Pareto Securities AS. “I would think the adjustment has gone down better than it would have with Helge Lund.”
While Lund transformed Statoil from a mainly domestic producer to an international company through acquisitions and a merger with Norsk Hydro ASA’s oil and gas unit, his relationship with the unions had become strained by the end of his 10-year tenure, according to Omdal.
Saetre, a fan of The Beatles, welcomed hundreds of guests to Statoil’s Stavanger headquarters in August with a speech that included singing a few bars of the quartet’s “We Can Work It Out.” Adopting that philosophy, he’s improved dialog with the unions and rolled back the use of consultants, making the painful restructuring easier for workers to accept, according to employee representatives.
“Everyone knows Eldar is the type who knows everything about Statoil’s history and also where the shoe pinches,” said Lill-Heidi Bakkerud, head of Statoil’s biggest union and an employee representative on the company’s board. “When you’ve been around for so long and you have such broad experience, it gives a whole other sense of security to people.”
The role of McKinsey & Co Inc., hired in 2014 to design and help implement a sweeping efficiency program, was “phased out” in the fall of that year, Statoil spokesman Bard Glad Pedersen said in an interview. He declined to say whether that happened before or after Saetre became interim CEO in October 2014. Statoil still uses consultants, including McKinsey -- where Lund worked earlier in his career -- but less than before, he said.
“There’s been focus on costs in the entire organization over the past years, including in the use of consultants,” Glad Pedersen said. “Using our organization’s own competence is important for us.”
Saetre declined to comment ahead of a capital markets update in London on Feb. 7, which coincides with the publication of the company’s fourth-quarter report. Lund, who works as an adviser to private-equity firm Clayton, Dubilier & Rice, declined to comment. Norway’s Petroleum and Energy Ministry, which holds 67 percent of Statoil, also declined to comment as did McKinsey Norway.
To be sure, Saetre continued on a path staked out by Lund, who presented plans to cut investments and costs as early as February 2014, before oil prices started falling.
Back to Basics
Still, as Saetre cut deeper, some of his strategic choices contrast with Lund’s decade of international expansion, marked by bets on unconventional resources such as shale oil and gas in the U.S. and tar sands in Canada. Saetre exited oil sands in December and has gone “back to basics,” re-focusing investments on Norway and seizing on lower prices to double down in Brazil, where offshore assets fit the company’s know-how, said Kjetil Bakken, an analyst at Carnegie ASA.
In Norway, Statoil is better suited to “manage the cycle” as it acts as operator for about 70 percent of oil and gas production and enjoys a strong relationship with the supplier industry, said DNB ASA analyst Helge Andre Martinsen.
Still, that relationship has been tested as Statoil used its clout to push down rates. In the offshore industry as a whole, more than 40,000 jobs have been lost since the start of 2014, according to DNB.
Statoil’s CEO is expected to announce on Tuesday that he will keep spending stable at $11 billion in 2017, according to the average estimate of 19 analysts surveyed by Bloomberg. Some, like Pareto’s Omdal, believe he will reduce it further to $10 billion, capping a 50 percent cut since 2014.
Shares of Statoil rose 0.1 percent to 154.8 kroner as of 10:28 a.m. in Oslo trading, bringing the stock’s gain over the past 12 months to 27 percent.
While Lund presided over a doubling in Statoil’s market value through the boom years, his bets on onshore assets in the U.S. and Canada contributed to billions in writedowns since 2014. Lund’s ventures into North America look like “international delusions of grandeur,” said Neil Dwane, manager of Allianz SE’s Industria fund, a Statoil shareholder. He welcomed Saetre’s changes.
“He’s more concentrated on making Statoil bigger and more excellent in a limited set of projects and targets,” Dwane said. “That then allows them to manage it better.”