Arco to Slash Capital Budget; Firm Cites Project Completions

Atlantic Richfield announced Monday that it will cut its capital spending by 20% in 1987 compared to this year’s levels, but it said the $1.6-billion capital budget doesn’t signal any further retrenchment or “new pessimism” about oil prices.

Arco said three-fourths of the reduction from actual 1986 spending of $2 billion will reflect smaller outlays in Alaska, where major projects on North Slope oil fields were finished this year as scheduled.

“This amount reflects a continuation of the level of activity of the last few months, after those projects were completed,” an Arco spokesman said.

The new capital budget is less than half the $3.6 billion spent in 1985, before oil prices collapsed. Arco entered 1986 planning to spend $3 billion but, along with virtually all oil producers, slashed its budget and laid off employees.

Crude oil prices plummeted from $30 a barrel to less than $10 this year before recovering to the current level of $16 to $17. Arco said its newest budget assumes prevailing prices of $20 per barrel for 1987, somewhat higher than the planning forecasts by other oil companies.

If successful, the recent agreement by the Organization of Petroleum Exporting Countries to trim production and set a fixed average price of $18 per barrel would probably send the benchmark U.S. crude oil known as West Texas Intermediate to about $20 a barrel.

“This capital plan reflects our outlook for long-range industry conditions,” said Lodwrick M. Cook, Arco’s chairman and chief executive. “The company continues to have flexibility to decrease spending if conditions warrant, or to increase spending if unique opportunities become available.”

Arco said about $900 million of the 1987 capital budget would be spent looking for oil and producing it. That compares to $1.35 billion this year and about $3 billion in 1985.