Statoil abandoned its 2020 production target and slashed its spending plans yesterday after becoming the latest oil major to acknowledge the fading appeal of new energy projects.
Rising investment costs and falling prices have cut the potential returns on new oil and gas plays, especially more ambitious ones that present greater risks, prompting some companies to delay or curtail them.
Now the company aims to spend £3billion less than planned in the next three years and is pushing back a 2020 target to increase output by a quarter to 2023 or 2024 so it can raise dividends and buy back shares.
The announcement comes as the North Sea operator, which is gearing up for its Mariner project on the UK Continental Shelf, saw full-year earnings for 2013 drop more than 15% to £16billion.
Fourth quarter earnings were also down from £4.8billion to £4.1billion year on year.
Statoil has been one of the top spenders, ploughing much of the £11billion it earned since 2010 from selling producing fields, pipelines and its retail chain to fund an aggressive global expansion of exploration and production.
Its wild success in exploration – it found more reserves than any other conventional energy firm last year – risks becoming a burden as it now has a plethora of projects to monetise across every continent.
Statoil is a pioneer in Arctic oil exploration. It has also spent heavily on US shale assets, leaving it exposed to depressed US gas prices, dragging down its profits last year.
“Given market circumstances we need to find a better balance between growth and return that also gives us earlier free cash flow so that we can also service the shareholders,” chief executive Helge Lund said.
“This industry does not have the best track record in terms of cost discipline.”
The firm has also acknowledged that it needs to strengthen its ability to respond to emergency situations after losing staff in a terror attack last year. Forty innocent people – including five Statoil employees – died in the brutal terrorist attack on In Amenas in Algeria last January.
Statoil launched an investigation after the incident, which concluded the company’s overall capabilities and culture “must be strengthened to respond to the security risks associated with operations in volatile and complex environments”.
The firm added: “The company will now ensure that the recommendations are integrated and a prioritised part of the initiated improvement programme in the security area.”