Oil at $80 a great price for Maersk CEO with room to cut

Oil at $80 a great price for Maersk CEO with room to cut

PETER LEVRING

COPENHAGEN, Denmark (Bloomberg) -- Nils Smedegaard Andersen, the CEO of A.P. Moeller-Maersk A/S, says today’s oil price isn’t a problem for companies with the scope to continue cutting costs.

“It’s more difficult to make money on oil if the price is $80/bbl than when it was $120/bbl,” he said Nov. 11 in a phone interview. “But historically $80 is a great price so it’s a matter of costs having to come down.”

Brent crude has slumped from a June high of about $115/bbl to about $81 on Nov. 11 as the Organization of Petroleum Exporting Countries hesitates to tackle a supply glut. For producers like Maersk, a Danish conglomerate that owns the world’s biggest shipping line as well as an oil rig unit, the price development may create opportunities as competitors with less scope to cut costs suffer losses.

On Nov. 11, Maersk reported a 2.8% increase in profit last quarter -- before interest, tax, depreciation and amortization -- to $3.20 billion. Maersk’s oil unit saw earnings fall 4.6% to $915 million, with the drop in crude prices outweighing the benefit of lower bunker fuel prices at the shipping line.

Maersk shares fell 1.1% as of 12:56 p.m. in Copenhagen to 12,650 kroner, after declining 3.5 % on Nov. 11. The stock has gained 7.5% this year, compared with a 20% increase in the benchmark OMX Copenhagen 20 index of Denmark’s most-traded companies.

Maersk on average sold a barrel of oil for $102 in the third quarter, 7.3% less than last year. It said longer-term contracts protect it somewhat from fluctuating market prices.

Under Pressure

Declining oil prices “will be a challenge for some time as drilling rig charters are under pressure already, and will probably have to go even lower yet,” Smedegaard Andersen said. “There are enough rigs for deepwater exploration, but some of the older rigs still operating need to be competed out of the market.”

The company is back in acquisition mode and may use the development in the oil industry as an opportunity to buy, according to Karl Thorngren, head of M&A and projects at Maersk.

“There is a quite fluid M&A market in oil, especially as some of the supermajors are retracting from some of their positions, which could be something we look at to grow our own business,” Thorngren said in an interview last week.

Maersk reiterated on Nov. 11 that group earnings will reach $4.5 billion this year, excluding discontinued operations, impairment losses and divestment gains. Third-quarter profit was in line with the $3.22 billion estimate of six analysts surveyed by Bloomberg. Capital expenditure this year will amount to $9 billion, compared with an earlier forecast for about $10 billion, it said.