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Norway's Statoil extends focus from output growth to cost cuts

Norway's Statoil Tuesday announced an extension away from its previously targeted production expansion targets to deeper cost cuts.

Statoil said its effort to standardize, simplify and increase efficiency across its operations was entering the next phase.

It said that as a result there would be what it called a "potential workforce reduction" estimated at 1,100 to 1,500 permanent employees by the end of 2016.

Statoil said that since the end of 2013 its workforce had been reduced by 1,340 permanent employees and 995 external consultants.

The reductions were achieved through more limited use of consultants, attrition, internal deployment into new positions, severance packages and early retirement.

Norway, one of the biggest oil producers in the world and currently the biggest supplier of natural gas to western Europe, has seen its industry go into deep contraction with the loss of jobs and delay and cancellation of new projects as a result of the correction late last year of the oil price.

But Statoil had already earlier in the year begun to cut back on its operations as it became alarmed at the relentless increase in costs offshore Norway, which have nearly quadrupled since 2000 even as total crude output has almost halved to current levels.

Until early last year the Stavanger-based company, by far the biggest operator offshore Norway, had been focusing on major global output growth.

In February 2014, announcing fourth-quarter results, Statoil pushed back its output guidance of 2.5 million b/d of oil equivalent for 2020 by three to four years, and instead shifted its strategic focus to reining in significant cost rises, in one of the most expensive places to drill for oil and gas in the world.

It has also postponed and even cancelled major projects.

It postponed an investment decision on the development of the massive $15 billion Johan Castberg field in the Barents Sea, citing concern for costs including higher taxes, and has since been studying a scaled back version of the project.

The Norwegian Petroleum Directorate has estimated total investments in oil and gas activity in Norway in 2015 at NOK182.42 billion ($23.5 billion), a one-fifth fall that it said the industry attributed to the drive for cost cutting on the Norwegian shelf.

Others, including consultant WoodMac, have said the cuts could be far deeper.

Statoil in its statement Tuesday said that in addition to the extra job cuts it would further reduce the number of consultants it employed by around 525.

It said the estimate for workforce reductions reflected its cost reduction campaign efficiency potential and further improvements over the coming 18 months.

"We regret the need for further reductions, but the improvements are necessary to strengthen Statoil's competitiveness and secure our future value creation," said Anders Opedal, executive vice president and chief operating officer.

Statoil added that further changes and adjustments to the organizational set up in its business areas would be presented by the end of the month.

The Oslo-listed company said it had committed to delivering $1.7 billion in annual savings from its cost-cutting program in 2016, and beyond.

It said that so far it had cut its workforce surplus through voluntary measures, and maintained its ambition to extend the cuts over the next 18 months without forced measures.

Two weeks ago the head of powerful industry representative group the Norwegian Oil & Gas Association, which counts Statoil among its members, warned that more cuts to Norway's already flagging capital expenditure by its flagging oil and gas industry would come before the sector began to turn around.

Director General Karl Eirik Schjott-Pedersen told Platts in an interview that current predictions were for even more cost reductions, meaning more jobs could go.

Analysts have already factored in a reduction in the workforce directly employed by the Norwegian petroleum industry of 15,000-20,000 jobs, or 10-12% of the total.

That prospect has alarmed politicians.

On June 3 the mayor of Norwegian energy hub Stavanger convened an unprecedented meeting of 29 mayors of Norwegian municipalities dominated by the industry.

The summit, dubbed a crisis meeting, included government and industry representatives.

Stavanger mayor Christine Helgo said the industry could be cutting far too hard, which could affect oil and gas production going forward, as well as investments.

Patrick McLoughlin,
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