Chevron Moves to Pare 9,100 Jobs : Collapse in Oil Prices Prompts Exxon to Cut Back Spending by $2.8 Billion
Chevron said Thursday it is preparing to eliminate as many as 9,100 jobs and will sharply reduce its exploration for new oil and gas because of this winter’s collapse of oil prices. The oil slide also cut a swath through No. 1 Exxon, which announced a $2.8-billion cutback in spending.
Coming on the heels of big reductions at Atlantic Richfield, Unocal and other oil giants, the actions signal a slowdown in the discovery of new oil reserves and the development of known oil fields. Many energy experts fear the cutbacks will set the stage for eventual shortages of domestic oil, renewed dependence on foreign oil and a 1970s-style surge in energy costs.
Chevron’s 61,000 employes were notified in a letter from Chairman George M. Keller that company managers are drawing up plans to cut the work force by 10% to 15%. Executives of the San Francisco firm, the largest industrial concern headquartered in the state, were told to determine by April 15 how many jobs should be cut and from where, the company said.
Third in California
About one-third of Chevron’s employees work in California, including about 15,000 in the Bay Area.
The Chevron and Exxon actions come as oil prices appear to be stabilizing in the $13-per-barrel range. That is a 60% drop from the $31.70 per barrel that crude oil fetched as recently as late November.
The virtual free-fall was touched off in December when Saudi Arabia, breaking with its traditional role as OPEC’s “policeman,” boosted production and created a glut of oil. The Saudis and their fellow members of the Organization of Petroleum Exporting Countries are scheduled to meet this weekend in Geneva in an effort to coordinate a production cutback. Industry analysts, however, generally agree that it may be too late for OPEC to reassert control of the world oil market.
Meanwhile, the major oil companies are faced with budgets for this year that were based on expectations of oil prices at anywhere from $20 to $30 a barrel.
Because oil is now worth less, the producers have less financial justification to undertake costly and uncertain exploration projects. Moreover, the lower prices leave the companies with less money to spend on such projects.
One of the biggest cutbacks to date was implemented by Arco, which slashed this year’s spending by 45% to $2 billion. Since then, the Los Angeles-based company has announced plans to shut down five of its nine drilling rigs on Alaska’s North Slope and has halted drilling on a platform in Cook Inlet offshore from Anchorage.
Nationwide, oil and gas drilling permits plummeted by 40% in February from the previous month.
Limited Reserves
Without any discoveries of new oil fields, known U.S. reserves would be depleted in an estimated seven years. The Saudis, by contrast, have enough oil to last about 112 years at their current production rate.
“Basically, we’re being lulled into a false sense of security” by the current oil glut, said John Curti, vice president for research at the Birr, Wilson brokerage house in San Francisco. “If you’re cutting spending on exploration, over a period of time you’ll be unable to replace your reserves.”
Chevron said it originally intended to boost its spending on capital projects and exploration to $5 billion this year from the $4 billion it spent in 1985. But the oil price decline since late November has prompted it to cut the original budget by 30% to $3.5 billion.
Specifics Withheld
Keller said the cutback “includes both project deferrals and cancellations” caused by the decline in oil prices and uncertainty over how much further prices could fall. But the company would not identify the areas that might be affected.
Among Chevron’s big California projects is a $3.2-billion, 15-year expansion in Kern County north of Los Angeles, increasing the use of steam to bring heavy oil to the surface. It is also engaged in offshore drilling near Santa Barbara and has large refineries in El Segundo and Richmond and a major research facility in La Habra.
The employment cutbacks are expected to be achieved as part of the decline in spending. Chevron said no final decision has been made on how many jobs will be cut, but said it will result partly from consolidations and deferrals of projects.
Earlier Steps
Like most large oil companies, Chevron has already trimmed employment, restructured and implemented other efficiencies as oil prices and demand have declined gradually since 1981. Since buying Gulf Oil in 1984, Chevron has sold off assets and slashed the work force of the combined firms from 79,000 employees to today’s 61,000 worldwide.
This time, in addition to eliminating jobs, Chairman Keller froze salaries “pending a reassessment of our competitive position in the current business climate,” his letter said.
Despite its $13-billion purchase of Gulf in 1984 and the heavy debt it took on in the process, analysts say the cutbacks already carried out have left Chevron in better shape than many oil companies to weather the rapid deterioration in oil prices.
The company, formerly known as Standard Oil of California, has reduced that debt from about $15 billion to $9 billion.
Domestic Cutbacks
Meanwhile, Exxon, the world’s largest oil company, announced a 26% cut, to $8 billion, in this year’s spending on capital projects and exploration compared to actual 1985 spending. New York-based Exxon would not say what it originally intended to spend this year or where the cuts will be made. Domestic projects will bear the brunt of the cutbacks, however, a spokeswoman said.
Chairman Clifton C. Garvin Jr. said the cutback is “largely in response to the sharp decrease in crude oil prices and a re-examination of our strategies.”
Garvin also indicated that Exxon expects the depressed prices to result in bargains for oil properties, saying that the $93-billion-a-year company wants to retain “the flexibility and resources to pursue attractive opportunities.”
In a related development, U.S. Steel said Thursday that it will take a charge of $260 million against its first-quarter earnings as a result of plummeting oil prices.
That compensates for the difference between current oil prices and the value U.S. Steel placed on the reserves of Marathon Oil when it bought that oil company in 1982.
