|
Alaska Escapes Worst Alaska largely spared in Atlantic Richfield’s $500 million, two-year cost savings plan; Bowlin says company can’t afford to cut costs in state Kay Cashman PNA Editor-in-Chief
Atlantic Richfield Co. will cut costs by $500 million over the next two years, ARCO said Oct. 16, a month after it announced it would be making worldwide budget reductions due to low oil prices. The price of oil is approximately 32 percent below its price a year ago.
The bad news is, the cost cuts will include the elimination of 900 jobs from the company’s work force of 20,000 people. The good news is, Alaska will be largely spared from the work force reductions, which are “principally in the L.A. area and Plano, Texas,” ARCO spokesman Lee Tashjian told PNA.
ARCO Alaska Inc.’s only cost cut to date was a tentative announcement Sept. 16 that a 10 percent drop in spending levels from $550 million in 1998 to $500 million for 1999 was likely. Spending levels for Alaska in 1999 have since been restored to $550 million, ARCO Alaska spokesman Ronnie Chappell told PNA Oct. 15.
“We will be doing some restructuring of our operations here in Alaska,” said Chappell, “ and some jobs will be eliminated.” But because ARCO Alaska has kept its per barrel operating costs flat, it won’t be seeing the same kinds of cuts that other ARCO operations are seeing, he said.
ARCO Chairman Mike Bowlin said the company can’t afford to cut back in Alaska, Bloomberg Energy reported Oct. 16. Tashjian confirmed Bloomberg’s report. ARCO’s costs for bringing oil to market are the lowest in Alaska, where the company is working to reverse production declines and boost reserves, said Bowlin. (See related comments from ARCO Alaska President Kevin Meyers on page A11.)
ARCO is looking to reduce its cost per barrel to the lower fourth among oil companies in all its projects, he said, and will abandon efforts in a number of countries where it cannot achieve a leading position. Bloomberg said Bowlin would not comment on which international operations might be dropped. International under close scrutiny About $330 million of the $500 million in cost savings will affect company operations that find and produce oil. Of that, $150 million will come from international operations.
Michael E. Wiley, ARCO president and chief operating officer, said in the company’s Oct. 16 statement that ARCO is “seeking the same level of performance in our international activities that we have achieved in ARCO’s Alaska, Lower 48 and Gulf of Mexico operations. All of these are best quartile operators.”
Bloomberg said that ARCO will concentrate on its projects in the U.K. North Sea, Indonesia, China, Algeria and Venezuela, retaining its ownership in Russia’s OAO Lukoil Holding. 5-5-3 retirement plan In addition to the elimination of approximately 900 administrative and technical jobs — 450 at Plano and 270 at company headquarters in Los Angeles —ARCO will close 20 small offices, which are primarily outside the United States, and downsize a number of other offices.
Most of the jobs will be eliminated by firings rather than attrition or early retirement, Bowlin told employees in the initial Sept. 16 announcement. However, a letter describing a 5-5-3 retirement package went out to employees system-wide recently, which would give retirees five additional years on their retirement, extends their current age in ARCO’s data banks by five years and gives them three weeks of paid vacation for every year they have worked for the company.
The package is involuntary, said Tashjian. Cuts good for stock prices Bloomberg reported that Bowlin said ARCO must cut expenses to lift sagging returns from crude sales and avoid being swallowed up by a rival: “The motivation for these cost reductions is somewhat driven by consolidation in the industry, which is driven by costs. Low oil prices have persisted. We are preparing our company to be successful, whatever the economic situation,” said Bowlin.
ARCO said it expects to cut $350 million in costs in 1999 and another $150 million in 2000.
Bowlin said the cost cuts should hike the price of ARCO stock. Bloomberg reported that since the original cost reduction announcement in September, ARCO shares outperformed Standard & Poor’s index of large domestic oil companies by 2.8 percent. Jets, 51-story building on hit list chopping block About $90 million of the savings will come from refining and fuel sales operations, where 100 jobs will be eliminated. No workers at the 1,700 ARCO branded gasoline and convenience stores on the U.S. West Coast will be fired, Bowlin said in the Bloomberg report.
Since Sept. 16, ARCO said it will move its top executives out of the top two floors of the ARCO Tower in Los Angeles, and may move its headquarters completely out of the 51-story landmark.
The company, which intends to remain in Los Angeles, is reviewing space in the nearby ARCO Products building. The ARCO Tower now houses 400 employees and the ARCO Products building, 490.
ARCO will also get rid of its two corporate jets and eliminate some upper managers in regions where it hopes to improve performance, said Bloomberg. Corporate senior vice presidents Steve Mut, head of ARCO exploration and production in Latin America, and John Cheatham, in charge of exploration and production in the Middle East, the former Soviet Union, Africa and Europe, are stepping down without being replaced, ARCO said in early October.
On Sept. 30, ARCO said ARCO President William Wade, 56, and Executive Vice President Anthony Fernandes, 53, are stepping down.
Alaska accounts for 37 percent of ARCO’s worldwide production.
| 