Arco’s New World View : Energy: After overseeing a five-year overhaul, Chairman Lodwrick M. Cook is mapping out plans to find overseas oil to replace the company’s Alaskan reserves.

Atlantic Richfield Co. Chairman Lodwrick M. Cook, speaking to a visitor in Arco’s black glass headquarters tower, lets his guard slip just once.

He has been describing the changes that transformed the once-bloated oil company into one of the industry’s leanest enterprises through a five-year program of stock buybacks, staff cuts, writedowns and sales of everything from copper mines to solar factories to refineries.

But as Cook escorts the visitor out, he pauses to make a plea: Please don’t dwell on comparisons between himself and Robert O. Anderson, Arco’s previous chairman and the man who helped create the company in 1966.

Arco has moved on, Cook says. Let’s focus on the future.

It says a lot about Arco veteran Cook, 61, and his trouble with public perceptions. Though he has been running Arco for five years, it is clear that Cook remains mindful of the comparisons still made between himself and Anderson.

It also underlines Cook’s dilemma. For the past five years, he has been essentially implementing the master plan devised by Anderson and by the former president and chief executive, William F. Kieschnick. Now that the Los Angeles-based company’s restructuring is complete, it falls to Cook to chart Arco’s future.

Among his main challenges: finding overseas oil to replace Arco’s still-massive but now-declining Alaskan reserves.

Is Cook equal to the task? Based on past performance, observers believe the answer is yes.

“(Arco’s) biggest asset is its management,” said Bernard J. Picchi, an industry analyst with the Salomon Bros. investment firm in New York. “This management, more so than any other, has the ability to rethink periodically the premises on which they do business, and to do that proactively, not reactively. That has uniquely distinguished Arco.”

Cook acknowledged that Anderson is “kind of a legend in the industry,” adding: “The good thing was that when he moved on, I kind of moved out from under that shadow and began to do things in a way that I felt at that particular time needed to be done.

“I have to admit,” he said, that “it’s easier when you’re out there on your own.”

Cook was named to the chief executive’s job when Kieschnick retired abruptly in 1985, just as the restructuring was taking place. Anderson left the chairmanship shortly afterward, at the beginning of 1986, leaving Cook completely in control.

Cook recalls a news story five years ago that reported his appointment by calling him, “Lodwrick who?” At the time, Anderson seemed to be everything that Cook was not.

Anderson grew up in Chicago; Cook grew up in a small Louisiana bayou town called Grand Cane. Cook’s speech still bears the cadences of the South, especially when he talks of “bidnez units.”

Anderson--in bow tie and weathered Stetson--was the wildcatter, entrepreneur and visionary corporate philosopher who cobbled Arco together from the pieces of several oil companies.

Cook was the consummate company man, starting in 1956 as an engineer trainee for one of Arco’s precursor companies, and working his way up the corporate ladder in a variety of assignments in personnel, labor relations and later in Arco’s transportation unit. He made a mark as head of the committee of oil companies building the Trans-Alaska Pipeline and later as supervisor of a team that developed a compound to ease oil flow through the pipeline.

When Anderson retired from Arco, he had built a reputation as an adviser to Presidents, patron of the arts and point man for the oil industry. When Cook took over, he was virtually unknown outside Arco.

In 1987, Cook gained some attention for himself when he appeared on a telethon to raise money for the fire-damaged main library in Los Angeles--dancing a soft-shoe in a 10-gallon hat to the tune “Just a Gigolo.”

But Cook ultimately proved himself by taking the hard steps needed to transform Arco into a profit-driven enterprise, analysts said.

Kieschnick credits Cook with the idea of selling parts of Arco’s Lyondell and Arco Chemical units to the public, as a way to draw attention to their value and to insulate Arco from fluctuations in chemical operations.

Cook also engineered acquisitions that added to Arco’s reserves, including the June, 1988, takeover of Britain’s Tricentrol PLC for $710 million and the late 1988 purchase of the West Coast exploration and production operations of Tenneco Inc. for $700 million.

And Cook presided over Arco’s most recent public relations coup: the introduction of EC-1, its lower-emissions gasoline, which helped put gasoline on the list of possible fuels to reduce smog.

Cook has plans to push Arco into new activities. The company’s capital spending, expected to be announced in the next few weeks, will increase to about $2.9 billion in 1990 from $2.5 billion in 1989. In part, that will cover greater spending for overseas exploration and production.

Cook estimates that Arco must pick up at least 750 million barrels of new oil and gas reserves internationally over the next 10 years to offset the decline of its U.S. supplies.

Among other things, Arco appears to have its eye out for an overseas acquisition, most likely in the North Sea. In 1987, it tried and failed to acquire Britoil for its North Sea reserves.

But Cook says that Arco won’t jump headlong into a major acquisition. “We don’t want production at any cost or reserves at any cost,” he said.

Arco’s production from Alaska will fall to about 400,000 barrels a day by the end of the 1990s from 459,000 barrels a day last year, Cook said.

Declines from current fields in Alaska will be offset somewhat by new production scheduled to come on line there and elsewhere in the 1990s, as well as implementation of new enhanced-recovery methods to add life to existing Alaskan production.

Last year, Arco announced the discovery of a 300-million-barrel oil reserve in Alaska’s Point McIntyre field, of which Arco has a 30% to 40% interest. In July, 1988, Arco discovered a major gas reservoir in the Wilburton field of Oklahoma, which added 314 billion cubic feet to its proved reserves.

In marketing and refining, Arco will spend $2.9 billion over the next five years. That includes $2 billion to upgrade its refineries in Carson and Cherry Point, Wash., to increase output of gasoline by 40% to 45%, especially lower-emissions fuels like the well-regarded EC-1, said George H. Babikian, president of Arco Products Co.

That should help Arco to expand its service station network, which already leads the state of California but whose growth is restricted by Arco’s refining capacity, including contract production from Tosco Corp.’s Avon refinery.

As a result of the restructuring, Arco wins praise from industry analysts and observers for its financial performance. Though it ranked eighth by its own estimate among major oil companies in terms of sales in 1989, it ranked third in reported income and fourth in income adjusted for non-recurring items. Its return on shareholders’ equity and return on capital exceeded industry averages for the year, analysts said.

Net income in 1989 was $1.95 billion, including $634 million from the sale of a majority interest in its Lyondell Petrochemical Co. unit. That compared to net income of $1.58 billion in 1988. Revenue in 1989 was $16 billion, compared to $18.3 billion in 1988, which included revenue from all of Lyondell.

Plans to restructure Arco came together when Kieschnick, Anderson and an Arco management team undertook a study in 1985 of an economic climate in which oil would sell at $18 a barrel, compared to the price of $30 to $35 a barrel that prevailed at the time.

Once implemented, the restructuring went against the conventional wisdom that big is better. Each piece of the company was made accountable for its own bottom line.

As a result, Arco shrank from a nationwide business to one concentrated in just five states, all in its key market in the West. It sold off metals and minerals units. Staff imploded from the decade’s peak of 53,362 in 1980 to 26,600 at the end of 1989.

To boost shareholder value, Arco spent $5.9 billion from 1984 to 1989 to buy back 95.1 million shares of its own stock, decreasing the total outstanding to 168.2 million shares at the end of last year. Arco has also increased its annual dividend regularly. Last month, it raised the annual dividend on its common stock to $5 from $4.50.

A symbol of Arco’s radical change: Kieschnick closed one of Anderson’s pet projects, the Arco Center for Visual Art, an innovative small museum in the mall beneath the company’s headquarters building. In its place, the company installed an am/pm mini market.

When oil prices plummeted in 1986, Arco found itself efficient, integrated and well-positioned to profit in the new climate, analysts said. Now, Arco’s cost to produce a barrel of oil, $4.13 in 1989, is among the lowest in the industry.

Arco produces all of the crude oil it refines, from its own fields in Alaska and elsewhere. Other U.S. oil companies generally produce only about half the crude oil they refine and must buy the balance outside.

In addition, Arco’s refineries are tuned to process Alaskan North Slope crude and to produce a larger percentage of higher-profit products, such as gasoline, than of cheaper products, such as fuel oil or asphalt, analysts said.

The restructuring came on the heels of a smaller revolution. In 1982, Arco took steps that would make it a leader in marketing on the West Coast. It eliminated its credit card and transformed its stations into high-volume, self-serve stations, many with am/pm mini market convenience stores.

In California, Arco captured 18% of the market to become the state’s No. 1 gasoline retailer.

The changes raised the ire of some dealers, many of whom went out of business after seeing their rents skyrocket. The state of Nevada, acting on claims of predatory pricing and unfair competition, enacted a law in 1987 limiting the number of stations that Arco could own outright in the state.

In addition, dealers and competitors sued Arco, though none have won. The latest suit, by Las Vegas retailer Jack Cason, was filed in January.

Arco’s success has not come without problems. As a partner in the Alyeska Pipeline Service Co., which operates the marine terminal in Valdez, Alaska, Arco faces liability in dozens of lawsuits resulting from the massive oil spill from the tanker Exxon Valdez last March.

It also faces tens of millions of dollars in repairs this year for corrosion problems on the Trans-Alaska Pipeline--problems that Cook argues were not foreseeable when he was vice chairman of the committee overseeing construction in the late 1970s.

Meanwhile, the Internal Revenue Service is pursuing a claim for about $1.3 billion in windfall taxes and interest that it argues Arco underpaid from 1980 through 1983. At issue is how Arco priced the Alaskan crude oil used in its refineries. Arco is contesting the assessment.

Whatever its troubles, Arco seems well-poised to move ahead, observers said, and Cook is optimistic.

“I’d rather be dealing from strength,” he said. “Four years ago, we were dealing from uncertainty and weakness. And we’ve come through extremely well. The only area that we still have to prove ourselves better in is in the international oil and gas arena. . . . But the international company is positioned now to do the job we need to do in the 1990s, and I feel good about it.”

ARCO’S MAJOR GLOBAL INTERESTS

Pacific Rim: Arco’s main oil drilling activities are concentrated off the coast of Indonesia. It also has some projects in New Zealand and Australia. The firm is now in the process of deciding how to proceed with exploration off the coast of China.

Europe: Expanded exploration and production activity is planned both onshore in Britain and in the North Sea on acreage acquired in its purchase of Tricentrol PLC.

Africa: Activity is being stepped up in West Africa, particularly in Ghana, Gabon and the Congo, as well as Egypt.

Alaska: Arco’s recently discovered Point McIntyre field will help stem the decline of production from the North Slope, as will enhanced oil recovery methods designed to extend the life of existing fields.