Like oil producers around the world, Norway's national energy company Statoil has taken the axe to almost every part of its business. It has cut exploration and development activities, plans to lay off nearly 20 per cent of its work force over three years, and is chopping capital investment.
But Statoil is swimming against the tide in one important respect. It is among a handful of energy companies that has so far maintained its dividend, and it may be the only one that is actually considering raising the payout.
Statoil's dividend policy has become a matter of hot political debate in Norway, and has raised eyebrows in the oil industry. It raises questions that go to the heart of corporate governance.
For example, should a company reward shareholders even as it punishes workers? How important is a stable dividend to shareholder confidence? And, what role should a controlling shareholder play in determining a company's dividend policy?
CEO Eldar Saetre has said that the company is taking a long-term view of the market. "We have clear intentions of raising our dividends over time," he told Norwegian business newspaper Dagens Naeringsliv in October. "It's important for me to stand by this policy. We can't have a dividend policy that comes and goes with the price of oil."
Some other oil majors have taken a similar view. Royal Dutch Shell, Chevron and Exxon Mobil have also so far kept their dividends intact, despite plunging profits as oil has slid from a peak of $112 (U.S.) in mid-2014 to about $30 this week.
The bulk of Statoil's operations are in the Norwegian section of the North Sea. But it also has wide international interests, including stakes in the Terra Nova and Hibernia oil fields off the coast of Newfoundland, and nearby development projects. It also owns leases related to the Kai Kos Dehseh oil sands project in Alberta.
Statoil reported adjusted earnings of 16.7 billion kroners ($2.7-billion Canadian) in the third quarter of 2015, a 46-per-cent drop from the previous year. Its shares, listed in Oslo and New York, have lost more than 30 per cent of their value over the last three months. At recent prices, Statoil shares offer a dividend yield of about 6.63 per cent, according to Bloomberg. The company posts fourth-quarter results on Thursday.
A Statoil spokesman said that the company would stand by its dividend policy, which is determined by long-term underlying earnings. He said that underlying earnings are a reflection of profits under normal conditions, and not unusually low oil prices.
Some question the wisdom of this strategy.
"The oil market developed much worse than Statoil and most oil analysts had expected," says Anne Gjoen, head of equity research for Handelsbanken Capital Markets in Oslo. "They have not been willing to listen that this is too risky a strategy."
Norwegian politicians, including some in the ruling Hoyre party, are also speaking out against Statoil's dividend policy.
"We question whether the dividends should have been significantly lower and perhaps close to zero at a time when the company loses so much money," says Nikolai Astrup, vice-chairman of Hoyre's parliamentary group.
"I think this could develop into a political crisis," says Oystein Noreng, a professor at BI Norwegian Business School in Oslo. "The government may eventually be forced to act."
The Norwegian government is Statoil's biggest shareholder with a 70-per-cent stake. The rest of the shares are held mostly by U.S. investment banks.
Statoil told investors last year that its future plans were based on a low-case oil price of $60 a barrel, roughly double today's price. At oil prices of $40 a barrel, Ms. Gjoen estimates that the company would need to borrow more than 50-billion kroners to finance the current dividend while also meeting capital commitments.
Statoil already carries a higher debt load than many of its peers. It has a debt-to-capital ratio of 24 per cent, an increase from 19 per cent a year ago and double the level four years ago.
"Unless they [invest] over time, they risk having their assets dwindle away and become an indebted company," she says, "They risk not having anything left in equity, or to pay shareholders."
Statoil has announced plans to cut its work force by 20 per cent over three years. Since January, 2014, the number of permanent staff and consultants has been reduced by more than 3,000 and the company is expected to cut another 1,500 workers in 2016.
Ola Wam holds a fellowship at the Munk School of Global Affairs.