Statoil's massive restructuring on track for 2001 completion

March 5, 2001
The top-to-bottom restructuring that state-owned Norwegian oil and gas giant Statoil AS launched 3 years ago is on track to be completed by yearend.

The top-to-bottom restructuring that state-owned Norwegian oil and gas giant Statoil AS launched 3 years ago is on track to be completed by yearend.

Statoil CEO Olaf Fjell, speaking at the Institute of Petroleum's IP Week conference late last month, said the company expects to meet targets set as part of its four-pronged "strategic response" to its profit-damaging overexpansion during the 1990s "on time."

Statoil's 1998 strategy-aimed at "concentrating and consolidating" the company's business-entailed selling down its portfolio of oil and gas assets by 24%, cutting costs by 20% and staffing levels by 10%, "focusing" growth, and "improving management systems."

"As to the restructuring of our assets, by the end of last year, we had achieved a 17% reduction in capital employed. That is, we are on track," said Fjell. "Cost reduction was also seen as critical. By the end of 2000, 15% of that 20% had been accomplished."

He said the company had "taken the decisions necessary" to meet its staff reduction target.

"Together with new corporate systems and clear incentive schemes, these measures will enable us to unlock a potential for significant and profitable growth within our core activities," Fjell stated.

"The Norwegian Continental Shelf (NCS) will remain the core industrial area for Statoil for many years to come," he emphasized.

Fjell said the firm would be ready for its much-discussed partial privatization by June.

The Norwegian government plans to float as much as 25% of the state-owned company through an initial public offering while selling a slice of its state direct financial interest (SDFI) in the NCS.

He said the white paper released by the government last December would serve as a "cornerstone [for the Norwegian oil and gas industry] for years to come," and would, following the initial public offering, result in a "stronger Statoil."

Statoil's equity production, said Fjell, would increase by 30% through the cash and equity transfer of 15% of the government's current SDFI holdings. He added that the acquisition of SDFI interests would also give the company greater "strategic flexibility."

Under the proposal put before Norwegian parliament on Dec. 14 by the Ministry of Petroleum and Energy, 10-25% of Statoil would be floated as early as next summer through an IPO, with the government retaining at least two thirds of the shares in the company. The option to enter into "equity-based strategic alliances" with other companies would be open to Statoil, but only after the IPO.

At the time of the release of the white paper, Fjell had felt the proposal fell far short of Statoil's own vision of its future. He had said he was "disappointed" the proposed SDFI redistribution didn't "live up fully" to recommendations drawn up by Statoil, but he also acknowledged that the government plans would give his company "greater strength and freedom of action" through an IPO.

Fjell said that, as part of the privatization plans, the parent company will change its name from Den norske stats oljeselskap AS to Statoil AS.

Statoil's plans

Statoil's longer-term goals, he said, include being a "top upstream player and operator" on the NCS and in its international core areas-where some 15% of its reserves lie, emerging as a "strong" European gas company, and establishing a high-profile brand in the downstream Scandinavian and Baltic energy markets.

"Our strategy has always been to cash in on our competitive strengths in new areas," he added. "Our international progress would have been impossible without a track record in Norway. On the other hand, international presence will probably also be critical for the future attractiveness of our homeground, the NCS."

Enhanced oil recovery, said Fjell, was a "very high priority" for a company that is responsible for some 50% of hydrocarbon production in a province where only about 25% of total reserves had been exploited to date.

He said Statoil would concentrate both on "exploiting the large potential remaining in existing fields, as well as [on] attractive unexplored acreage in increasing water depths" on the NCS in the future.

Fjell said Statoil plans to build on its position as the "largest European gas supplier" as its supply commitments reach 70 billion cu m/year in "a few years time" by tapping gas fields already on stream to increase its UK market share from its current level of "almost zero."

"Norwegian reserves should be especially competitive in the UK market," he said. "The Vesterled gas transmission system is the first to move gas across the North Sea, but we already see a potential for utilizing more existing infrastructure for transportation of Norwegian gas to the UK."

He said Statoil calculates a market for 3-7 billion cu m/year of gas in the UK, "depending on the terms offered by the market," in the coming decades.

"As UK gas production flattens out, we expect continued demand growth to open a potential for Norwegian gas also in the UK," said Fjell.

Statoil financial, operating results

Statoil chalked up a pretax profit of 38.1 billion kroner ($4.3 billion) last year, its best-ever result and nearly triple its yearend figure for 1999.

Net profit for the year was 11.3 billion kroner, some 6.6 billion higher than the year before, while its return on capital employed climbed from 5.9% in 1999 to 15.1%. Fjell called the result "very satisfactory," crediting it to higher oil prices and Statoil's improvement efforts.

"Our costs have been reduced in line with the targets we've set for ourselves, and we have improved the overall portfolio by concentrating operations on our core assets," he said.

By the end of 2000, Fjell said, Statoil had cut its operating, administrative, and exploration costs by a total of 3 billion kroner, compared with the previous year. The group had also trimmed 17.6 billion kroner from its debt and raised its equity by 7.6 billion kroner.

"Our profitability and financial position are good," he stressed. "That gives us freedom of action."

Statoil's E&P business notched up a profit before financial items of 36.2 billion kroner, made up of 35.4 billion kroner from operations in Norway and just over 800 million kroner from international activities. E&P brought 12.6 billion kroner into Statoil coffers in 1999.

Workforce downsizing and operational savings aided planned cost reductions on the NCS, said Fjell. The group's balance sheet was also slimmed through the sale of 2.1 billion kroner in assets on the NCS via its so-called Pandora disinvestment program.

Statoil's refining and marketing division turned in a profit of 4.6 billion kroner, as against a loss of 276 million kroner in 1999, thanks to "very good" refining margins and a stronger performance by Statoil's shipping and tanker subsidiary Navion AS. Fjell said, "work is continuing" on plans to restructure Navion.

The group's petrochemicals unit showed a profit of 441 million kroner before financial items in 2000, as compared with a loss of 23 million kroner the year before.

Statoil closed the year with booked proven reserves of more than 1.51 billion bbl of oil and natural gas liquids, down slightly on the 1.56 billion booked the year before. Booked proven gas reserves totaled more than 1.46 billion boe, up from 1.43 billion boe in 1999. Fjell noted that the company's international holdings now account for 18% of its total booked proven reserves.

The group's oil production averaged 509,000 boe/d in 2000, of which 57,000 boe/d came from Statoil operations outside Norway. Statoil produced 465,000 boe/d in 1999. Gas production averaged 21.9 million cu m/day compared with 25.1 million cu m/day in 1999, a decline that Fjell said reflected the sale of its US subsidiary in 2000.

One black mark on the company 's record for 2000, Fjell acknowledged, was in the area of health, safety, and the environment. Statoil's annual HSE numbers, he said "show that the improvement trend of recent years has come to a halt.

"I'm not satisfied with progress on safety. There were too many serious incidents registered last year. We have accordingly initiated a number of measures to improve safety results. The manager's role is very important in this context. In addition, a full review of technical safety has been launched at all our facilities."

Statoil CEO Olaf Fjell

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Statoil's long-term goals include being a top upstream player and operator on the Norwegian continental shelf and in its international core areas-where some 15% of its reserves lie, emerging as a "strong" European gas company, and establishing a high-profile brand in the downstream Scandinavian and Baltic energy markets.