Job losses hit Norwegian offshore sector
OSLO • When Joergen Langaunet started as a project planner at offshore engineer Aker Solutions ASA in 2012, he worked a lot of overtime. Norway’s oil industry, so rich it spawned the world’s largest sovereign wealth fund, was booming.
Then last year, he realized he was spending most of his time in the lunch room: His services weren’t needed. In September, as crude prices were on their way to the biggest plunge since 2008, Mr. Langaunet lost his job. Today he’s a regional manager for Tine SA, Norway’s biggest dairy producer.
“Our office went through two rounds of downsizing, so you start to see the picture when people have to leave and no matter how many people leave, there’s still less and less work to do,” the 29-year-old said by phone from Trondheim, Norway.
Norwegian companies including Statoil ASA and global behemoths with Norwegian units, such as Conoco-Phillips Co., are gearing up for the biggest investment cuts the Nordic nation has seen since 2000.
As many as 40,000 jobs could disappear out of about 250,000 nationwide. Oil workers made on average almost 60% more than other industrial workers, and a survey from recruitment firm Hays Inc. showed salaries in the industry were in the top two worldwide over the past five years.
The 50% slump in oil prices since June is threatening projects worldwide. Spending cuts will reach 20% this year and 10% in 2016, Danske Bank AS says.
Already, Russia is on the brink of a recession and job creation is slowing in Texas, where the shale boom revived the economy over the past decade. More than 30,000 oilindustry workers have been let go globally, according to a Bloomberg News tally.
In Norway, western Europe’s top oil producer, the Petroleum Directorate expects offshore investments will fall 15% this year as maintenance and upgrades and exploration are cut back. It’s a sharp reversal after a fourfold increase in oil prices and offshore investment in the 12 years ended in 2013.
“The effect on the Norwegian oil and gas industry could be pretty brutal,” said Sveinung Fjose, managing partner at Menon Business Economics AS. The Oslo-based consulting firm predicts as many as 30,000 more oil jobs may disappear by the end of the year on top of the 10,000-plus announced already.
Statoil last week said it will deepen cost cuts by 30% and lower planned investment by 10%. That will put even more pressure on Norwegian service and equipment suppliers, said Petroleum and Energy Minister Tord Lien.
“It’s too early to say how big the impact will be,” he said in an interview.
“The situation is dramatic,” said Staale Kyllingstad, chief executive of IKM Gruppen AS. His company, a service supplier to the oil industry, has cut 40 jobs and “may have to cut more,” he said.
The industry’s struggles are rippling through the Nordic country’s economy, where petroleum accounts for more than one fifth of gross domestic product.
In December, the central bank, which had been keeping rates up to guard against a housing bubble, eased its benchmark for the first time in more than two years and said there was a 50-50 chance for another reduction as soon as March.
Prime Minister Erna Solberg said last month that the government is now “on alert” to provide stimulus if necessary. The country’s sovereign wealth fund, worth US$860 billion, is available to plug budget deficits.
Yet the country has in store its biggest offshore project in decades, the Johan Sverdrup field in the North Sea, which holds as much as 2.9 billion barrels of oil. Due to start production in 2019, the field is deemed profitable even at sub-US$40 oil prices.
Spending cuts will reach 20% this year and 10% in 2016