Arco Cuts Include 900 Layoffs, Many of Them in L.A.

Citing a dismal oil price outlook and mounting competitive pressure to cut costs, Atlantic Richfield Co. announced a sweeping and much-anticipated restructuring Thursday involving cutbacks in international operations and 900 layoffs, primarily in Los Angeles and Plano, Texas.

But Chairman Mike R. Bowlin reiterated in an interview that the company plans to remain independent and headquartered in downtown Los Angeles despite rumors that it might be looking to merge or move. Arco, which hopes to trim $500 million in costs during the next two years, is perceived by many in the oil patch as a takeover candidate.

In a striking pullback from an expansive international strategy laid out as recently as May, Arco said it will close 20 offices outside the United States and shrink several others as it reduces offshore exploration. Arco plans to cut capital spending by an undisclosed amount next year.

Bowlin insists that Arco is still an international oil company but will now focus on core areas such as Alaska, the Gulf of Mexico, west Texas and its gasoline refining and marketing business concentrated in California. With a 20% statewide market share, Arco is California’s largest gasoline refiner and marketer.

Arco’s decision to cut costs and its international operations comes as no surprise, said PaineWebber oil analyst Frank Knuettel.

“If they are going to be dealing with an oil environment of constrained prices, cost-cutting is necessary for them and for a great many other companies,” he said.

On the New York Stock Exchange on Thursday, Arco shares rose $1.81 to close at $70.81.

The company also signaled that it will soon recognize big losses on its $340-million investment in Lukoil, Russia’s largest oil company, and that plans to invest up to $1 billion more are on hold. Lukoil stock has dropped more than any other publicly held oil company this year, according to PaineWebber. Arco did not disclose the current value of its 8% stake.

The new layoffs pale in comparison with Arco’s last big restructuring, which stretched through 1993 and 1994, when it eliminated nearly 3,800 jobs. But the announcement signaled a relatively sudden retrenchment in a rapidly changing industry.

Arco is reacting to two industry realities. One is the 30% drop in crude prices in the last year and the likelihood that prices will remain low for the next year or two, Bowlin said.

The industry also faces cost-cutting pressures that are leading to increasing mergers and alliances, a trend dramatically illustrated by British Petroleum Co.’s August agreement to buy Amoco Corp. in a deal now valued at $61 billion in stock and debt. The $3.1-billion deal between oil exploration companies Kerr-McGee Corp. and Oryx Energy Co. announced Thursday is only the latest example.

“We are responding to an external environment in which Arco must be cost-competitive with the best players in the industry,” Bowlin said. “We will exit places where we will not be a dominant player.”

Hardest hit by the Arco restructuring are the downtown Los Angeles staff, which will shrink by 370 jobs--more than half--and the international support, exploration, production and technology operations in Plano, where 450 jobs will be axed, or nearly half the total.

Costs related to the restructuring will be taken as charges against fourth-quarter earnings, which already were expected to be sharply lower because of cut-rate oil prices. Arco, the nation’s seventh-largest oil company, employs about 20,000 people worldwide.

Employees learned of the layoff plans Thursday in a memo from Bowlin, but many won’t know until mid-November whether they will lose their jobs. Bowlin had warned of cuts to come in a companywide e-mail Sept. 16 as part of an attempt to remain profitable and independent. The company has been studying a reorganization since the summer of 1997.

In the last month, at least four senior executives have left the company, including President and No. 2 exec William E. Wade Jr., and two international region chiefs, Stephen Mut and John Cheatham, who just last spring had assumed new posts in Venezuela and London, respectively.

“I feel terrible. . . . But the world changed on us. Bad as it feels, you have to respond to the economic realities you face out there. You have a responsibility not only to your shareholders but to the rest of the employees and communities,” Bowlin said. “I know we’re making the right decision.”

Arco frequently is first in the industry to announce layoffs and cost reductions because its earnings are tied closely to the price of oil. For every $1 change in the price of crude, Arco’s per-share earnings move 45 cents, compared with an average of 23 cents among other large integrated oil companies, said the investment firm CIBC Oppenheimer & Co.

The cuts are not over: Bowlin said Arco will announce the sale of “remaining nonstrategic assets” later in the year. Arco earlier this year sold its U.S. coal operations and its interest in Arco Chemical.

Arco said earlier that it will vacate the top two floors at its namesake Arco Plaza in downtown Los Angeles, where the real estate market remains soft. It also might try to lease out its remaining nine floors.

The company’s cutbacks will deliver a major blow to the twin skyscrapers of Arco Plaza--where nearly 30% of the space is already vacant--and its owner, Shuwa Investments of Japan. Shuwa has put Arco Plaza up for sale as part of the sell-off of its U.S. real estate portfolio.

In addition to the space the energy company will vacate in Arco Plaza, another major tenant, the accounting firm Deloitte & Touche, will soon be moving out of the 100,000 square feet it occupies in one of the 52-story towers, according to broker Stephen Bay.

Jack Kyser, chief economist for the Los Angeles Economic Development Corp., noted that Arco might end up consolidating in Arco Center, a nearby downtown office building that was the old headquarters of Security Pacific Bank until the bank was purchased in 1992 by BankAmerica Corp., resulting in significant layoffs.

“There are some ironies at work here,” Kyser said.

Times Senior Economics Editor James Flanigan and staff writer Jesus Sanchez contributed to this report.