Morale and debt

When Helge Lund stepped down as the chief executive of Norway’s state-controlled oil company Statoil last October to assume the same role at UK energy firm BG Group from March this year, Brent crude traded at about $85/bl.

Now — 112 days later and with Brent $30/bl cheaper — his new employer has given him much food for thought. BG had to write down $8.9bn before tax — $5.9bn after tax — in the fourth quarter, primarily as a result of a sharp drop in commodity prices since the middle of 2014. Its capital investment plans for 2015 also had to be cut — by about 30pc, to $6bn-$7bn.

“The chief executive of any oil and gas company in the current market only has a short-term priority, and this is even more exaggerated in the case of BG, where we are still managing a fairly substantial quantity of debt,” says BG interim executive chairman Andrew Gould about Lund’s tasks at BG when the latter relieves the former of the top executive role in less than a month’s time.

Indeed, the firm’s net debt amounts to $12bn, while it has $5.3bn in cash and cash equivalents and access to some $7.3bn of undrawn facilities.

BG also counts on about $5.5bn in cash disposal proceeds in the first half of this year from the already announced sale of QCLNG Pipeline in Australia and two LNG carriers. The money will be used mainly to cut net debt and to fund future investment growth.

Lund will be expected to demonstrate “a continued execution of the growth projects that are creating cash flow and, at the same time, the ability to manage cost to the extent that we can”, Gould says. Bringing down contractor rates is also key to better weathering the lower commodities price environment.

“Beyond that, any new chief executive has the right to review the company’s strategy, and I think that Helge is in some ways fortunate — in as much as one can be fortunate in a low commodity price environment — as it gives him time to thoroughly review where he wishes to take BG over the next five to 10 years,” Gould says.

But there will be one very BG-specific issue Lund will have to address from the off.

“To a certain extent, one of the most important things that he has to do is to rebuild a sense of team work and morale within the company which, after all, has had two permanent chief executives and one interim chief executive in the last three years,” Gould says. “And, like any organisation, an uncertainty in leadership is not good in the medium term.”

Lund, who is still officially employed by Statoil, will be earning much more at BG than he did in Norway — even after BG had to revise his pay package in the face of a potential shareholder revolt.

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