Sohio Will Reorganize Its Mining Operations, Write Off $1.15 Billion

Standard Oil (Ohio), acting to staunch losses at its huge mining operations, said Tuesday that it will take a $1.15-billion charge against earnings in the fourth quarter and attempt to make the mines “competitive with other international producers.”

The Cleveland-based company said the after-tax charge is equal to about $4.90 per share. Wall Street investment analysts reduced their estimates for Sohio’s full-year earnings to about $1 per share, compared to the $6.14 per share that it reported for 1984.

Most of the charge reflects the write-down of outdated copper and coal mining equipment and the lower value of coal and minerals reserves. Another $210 million includes the costs associated with the elimination of 1,300 jobs and the shutdown of field offices in San Francisco and Denver.

Boost Cash Flow

The company, which is 55% owned by British Petroleum, said the various austerity moves will boost its already sizable cash flow by $500 million this year and in 1986 and will contribute $175 million to 1986 earnings. Its annual cash flow is currently about $3 billion.

Analysts said the charge reflects a nearly complete write-down of Sohio’s Kennecott copper unit, which it purchased for $1.7 billion in 1981. However, Sohio said it plans to spend $400 million over the next three years to modernize its Bingham Canyon copper mine in Utah, making clear that it intends to stay in the copper business.

Sohio’s decision contrasts with recent moves by such other oil companies as Amoco, Atlantic Richfield and Pennzoil, which have spun off, sold or written down their losing metals businesses. Earlier this year, Los Angeles-based Arco took a $1.03-billion charge that included the write-off of its metals businesses.

Many oil companies got into the metals businesses during the late 1970s and early 1980s when they were flush with cash from high oil prices and were looking for ways to diversify. For the most part, metals prices have followed the downward price path of crude oil, and the metals investments proved disastrous.

Lost $438 Million

“They all played follow the leader getting into the metals business, and, unfortunately, they’re not all playing follow the leader to get out,” said Frank Knuettel, an oil analyst with Prudential-Bache Securities in New York.

Sohio’s metals business has lost $438 million since 1982 as world commodities prices have continued to fall. In March, Sohio closed the Bingham Canyon mine after failing to receive wage concessions from its workers.

The company said it probably won’t reopen the mine until the modernization program is complete in 1988 unless it receives labor concessions. About 4,000 people were employed last year at the mine, the largest of Kennecott’s three copper mines.

Sohio said the modernized mine would have a yearly production capacity of 185,000 tons, somewhat less than its 220,000-ton potential capacity. Sohio Chairman and Chief Executive Alton W. Whitehouse said the modernization and lower labor costs “will return our metals mining operations to profitability, even at today’s depressed prices.” In 1981, copper sold for 76 cents a pound; it currently sells for about 61 cents a pound.

As part of its reorganization, Sohio said it would invest $200 million less in oil and gas exploration this year than last year, bringing the total to about $800 million, somewhat below 1983’s level. The company said it would develop acreage in Alaska and the Gulf of Mexico.

“We are clearly changing our emphasis in oil and gas from exploration to development and production,” Whitehouse said in a statement.

Sohio said the charge against earnings also includes a $165-million pretax charge due to planned 1985 oil and gas lease cancellations. Analysts said the cancellations were due to unsuccessful or uneconomic exploration results primarily in the Gulf of Mexico, Wyoming and Texas.

Also included is a $260-million pretax charge related to what the company called “various regulatory issues related to Alaskan operations.” Sohio, one of the eight owners of the Trans-Alaska Pipeline, hasn’t yet resolved an overcharging dispute with the federal government. The government alleged that the oil companies charged too much to ship crude oil through the pipeline. Six oil company owners have settled with the government.

Although Sohio hasn’t reached any agreement, a spokesman said that “it makes sense to set something aside.” The spokesman said the $260 million reflects more than any anticipated settlement costs.