Shipowner John Fredriksen has alone the paper lost 17.6 billion on drilling company Seadrill.
It’s not just employees oil industry which have been noticing drop in oil prices on the body. The owners of the ten largest oil-related companies on the Oslo Stock Exchange has been reduced value of its shares by a third since oil prices began to fall steeply in late June last year.
The oil heavy energy index has fallen 32 percent since the historic peak at sthansaften last year. The decline, however, after a year of very strong growth. Returning to the same time in 2013, the fall only five percent.
Down for Røkke, Fredriksen and Fred Olsen
The rig company Fred Olsen Energy, which is controlled by Fred and Anette Olsen, had the kratigste downturn among the ten largest oil-related companies on the stock exchange, with a drop of 68.9 per cent last year. Market capitalization of the company has decreased by nearly eight billion during this period.
Also John Fredriksen drilling company Seadrill have been noticing downturn sharply. The company has reduced its market capitalization with 65.5 per cent last year. Fredriksen owns 24.2 percent of the company, giving him up to a loss of 17.6 billion.
Aker Solutions, where Kjell Inge Røkke’s major shareholder along with the state, and the recently separated sister company Akastor, has total reduced value by 58.7 percent, according to estimates strategist Kim Evjenth in ABG Sundal Collier has done.
Not since the 2008 financial crisis, companies have lost so great values in such a short time, according to analyst Truls Olsen in Fearnley Fonds.
– But this time it’s more dramatic. The financial crisis was a shock that was relatively quickly and settled, while this has been a long-term tenacious pining due to a structural imbalance in the market, he said.
Also analyst Kim Evjenth in ABG Sundal Collier believes the drop is dramatic .
– Though oil prices have been fairly flat in recent months, several of the oil-related companies still fall. It shows that people are beginning to take into account the fact how serious the situation is, he says.
Oil prices peaked around sthana last year. Thence pointed arrows steep downward. Within a few months dropped the price of North Sea oil from around $ 115 a barrel to below 50 dollars a barrel, as cheap US shale oil flowed out of the market, while Opec was not willing to cut its production to keep prices up.
Even before the drop in oil prices struggled Norwegian oil companies with weak profitability, and had begun to reduce the level of activity in order to gain control of the high cost. Meanwhile, there had been a fierce capacity building in the oil service industry.
– When it collided with the oil companies started cutting activity, it began to make painful for supplier companies, says Olsen.
Must wait improvement
– Oil prices are now at a level that very few fields were profitable a year ago, so now works companies like crazy to cut costs. But what are the costs for the oil companies, revenues for oil service companies, says Evjenth.
Both he and Olsen believes it will take time before the market balance will be restored.
– I think the worst downturn is done, but it’s probably still a little left. It is difficult to say when the trend will reverse, says Evjenth.
According to figures Statistics Norway announced in June, will the oil companies to invest roughly the same amount next year as they do this year. The analysis is based on the companies’ own estimates, and the agency points out that it is easy for companies to scale down their investment budgets if they have to cut more costs. Economists in DnB think oil investment will fall by around eight percent next year.
– We have to enter in 2017 or 2018 before it gets better. 2015 and 2016 we can put a line across, says Olsen.
– Oil companies have been proud
Economics Professor Klaus Mohn at the University of Stavanger mean the oil companies have been too optimistic own investments. Now pay the bill.
15 years of continuous oil rally may have made the oil companies some momentum blind, says Klaus Mohn, former chief economist at Statoil.
– When the recovery was strongest there were few who saw the danger signs. Growth appetite among oil companies seemed almost insatiable, with investment plans that grew bigger than the capacity in the Norwegian supplier market, he said.
He believes there is evidence suggesting that oil companies are over optimistic about their own projects, because they have been too unilaterally focused on growth.
Shareholders rejoices over cuts
– An indication of this is that share prices in recent years have risen when the oil companies have announced cuts in investment plans. It is not normal, and can hardly be interpreted in any other way than that shareholders believe projects that cut is not profitable today, he said.
He says share prices in a normal situation will rise when companies announce investment plans because it will bring additional value to shareholders.
– Does the oil companies followed badly in class?
– Some factors suggest that valuations are stretched somewhat far, both in terms of exploration and development investments and acquisitions, he said.
He believes the expectations now come down to a more realistic level, as companies focus less on growth and more on profitability.
– I think is a good development, not least for oil company shareholders, he said.
– Have we seen the bottom of the oil slump now?
– I still do not believe we have seen the bottom in terms of oil and gas-related activity. We must also the next 6-12 months rely on us more bad news, unless oil prices skyrocketing, says Mohn.
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