Arco Planning Layoffs, Major Cost-Cutting
Low oil prices and takeover fears have hit the local oil industry: Los Angeles-based Atlantic Richfield Co. is getting ready to fire an unspecified number of employees and slash expenses.
This follows an 80-employee layoff Wednesday at Occidental Petroleum’s Bakersfield-based drilling division, with promises of more cuts to come. Industry watchers predict that the layoffs are just beginning and that no cost-reduction program will be enough to save Arco or any other oil company when bigger players come courting.
The culprit is the rock-bottom price for crude oil and the resulting low prices for oil company stocks, which make them attractive acquisition targets.
Wall Street analysts are projecting sharp declines in third-quarter earnings for the oil industry, intensifying the urge to merge that recently brought together British Petroleum and Amoco.
That proposed merger, now valued at more than $60 billion, has been hailed as a model for an industry desperate to operate more cheaply. BP and Amoco together would create a giant with the financial muscle to win big contracts and force down costs.
Arco Chairman and Chief Executive Mike Bowlin told employees in an e-mail message sent last week that “it is clear that we must take action to ensure that Arco remains a strong and successful independent company.”
“To me, the answer is simple and straightforward--we must live within our means. We must reduce costs across the board--administrative, overhead, operating and capital costs,” Bowlin said.
Arco management hopes to complete a “thorough” global cost-reduction plan by mid- to late October that will include “reductions in our work force,” Bowlin said. He did not detail the scope of the layoffs and cost cuts. Arco, the nation’s seventh-largest oil company, employs about 20,000 people worldwide.
Arco’s stock gained 25 cents to close at $71.63 on the New York Stock Exchange while most other oil industry shares fell.
Crude oil prices hit a four-month high Thursday on the New York Mercantile Exchange, rising 17 cents to settle at $15.98 per barrel. A year ago, before the Asian economic crisis choked off demand, oil futures were 20% higher.
Arco and other oil exploration and production companies have been trimming their work forces throughout the 1990s, but now are realizing that oil prices may not rise much above $16 per barrel in 1999 and may remain depressed for years, said James Van Alen, an oil industry analyst with Janney Montgomery Scott Inc. in Philadelphia.
“Nobody knows what the heck is going to happen,” Van Alen said. “It just ain’t gonna be good, that’s all.”
Bowlin’s commitment to keep Arco independent is “wishful thinking,” said Fadel Gheit, senior energy analyst with Fahnestock & Co. in New York.
Rumors already are circulating around Arco’s downtown Los Angeles headquarters that the company is slimming down to become a more attractive partner and that Mobil and Texaco have expressed interest in the company. Gheit said that all companies are vulnerable to a suitor flashing cash.
“We really have to differentiate between being loyal to employees and being fair and loyal to shareholders,” Gheit said. “When it comes to money, there are no friends and relatives here. Money goes where it is treated best.”
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Oil Stocks’ Slide
Standard & Poor’s index of 10 large domestic oil stocks have rebounded recently but remains well off its 1998 highs. Weekly closes and latest:
Sept. Thursday: 812.85
* Source Bloomberg News
