The Norwegian E&P company Statoil which is 67 % state owned is planning to cut NOK 30 billion in expenses while trimming its staff significantly. Reasonable measures considering the ongoing oil price collapse. However Statoil has also decided to borrow funds in order to increase its annual dividend payment to its investors. In 2014 the dividend payment was NOK 33.7 billion. As seen in the below graph, Statoil is currently generating negative cash-flows.
Statoil YTD Q3 2015 cash-flow:
During times of normal oil price fluctuations I understand the need to pay a growing annual dividend as this is highly appreciated by investors. Consistent payment of dividend will during normal market cycles ensure lower stock volatility and lower cost of capital for E&P companies. With that said, what we currently are experiencing in the oil market is not a normal market cycle.
Instead of firing employees hand over fist while using borrowed money to pay dividend, Statoil should in my opinion utilize its human capital and financial strength to improve the company´s future growth prospects. It should be common sense to use the current downturn constructively by spending the borrowed money on maintenance, exploration and drilling as such services are cheap these days. Such a move may hurt the stock price in the short-term, however it should enable Statoil to catapult into the next bull market. Both the Statoil investors and the Norwegian people deserve a national oil company which is able to take responsible long-term decisions. Currently Statoil is all about quick fixes.
Average large semisubmersible rig day rates:
Spot rates Offshore Service Vessels:
Disclosure: I am long Statoil ASA.
I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
