Chevron, Arco Plan Venture in Southwest
Chevron Corp., the fourth-biggest U.S. oil company, and Atlantic Richfield Co., the seventh-biggest, on Tuesday agreed to combine their oil and natural gas assets in west Texas and southeastern New Mexico to reduce costs.
Their joint venture will be formed from Chevron USA Production Co. and Arco Permian, which plan to cut as many as 170 jobs, or 20% of their combined work force. The venture, which hasn’t been named, is expected to save $30 million to $40 million a year, said Arco Permian spokesman Tom Holland.
Major oil companies have been shifting exploration to new areas such as Central Asia and West Africa and away from mature fields in the continental United States. The Permian Basin region of west Texas has produced oil and gas since the 1920s, and production is declining at many of its fields.
“Combining our Permian assets as a joint venture will provide much better operating and financial results than Chevron and Arco could continue to achieve separately,” Chevron USA President Peter Robertson said in a statement.
Crude oil prices at historic lows have slashed the profits of San Francisco-based Chevron, Los Angeles-based Arco and rivals such as Texaco Inc. and Phillips Petroleum Co., forcing them to cut costs through layoffs and scaling back exploration.
Nymex crude oil averaged $12.92 a barrel in the fourth quarter, down $7 from the year-earlier period and the lowest quarterly average since the benchmark began trading in 1983. On Tuesday, crude was at $12.30. Chevron’s fourth-quarter profit fell 63% from 1997’s fourth quarter, while Arco’s plunged 79%.
Their venture, to be based in Midland, Texas, will produce 170,000 barrels of oil equivalent a day and have 600 million barrels of reserves. Oil equivalent counts everything taken from a well, including natural gas and other hydrocarbons. The companies expect to close the transaction by July 1.
Chevron’s total production was about 1.5 million barrels of oil equivalent in 1998, while Arco’s was 1 million.
In New York Stock Exchange trading, Chevron shares rose $1.25 to close at $74.94 and Arco rose $1.69 to close at $59.25.
Meanwhile Tuesday, Chevron Chairman and Chief Executive Ken Derr held talks with officials in Saudi Arabia, who have raised the prospect of further investment opportunities in its energy industry.
The visit was the latest by a top foreign oil executive seeking new deals in the kingdom, the world’s largest oil producer and exporter.
Derr’s talks follow similar trips made by Mark Moody-Stuart, managing director of the Royal Dutch/Shell Group and Texaco Chief Executive Peter Bijur.
Western oil companies have scrambled to come up with attractive new ideas for investment in Saudi Arabia following Crown Prince Abdullah’s rare meeting with U.S. oil executives in Washington in September.
Saudi oil officials have said the door would remain closed to companies seeking opportunities in upstream oil. But a Saudi oil official has said the country would consider upstream gas proposals.
The Chevron official said Derr was due to travel to the Saudi oil city of Dhahran, headquarters of Aramco, the national oil company of Saudi Arabia.
Chevron has a range of interests in Saudi Arabia, including petrochemicals, technical services to Saudi Aramco, crude and petroleum product purchases and automotive additives.
Chevron, Exxon, Mobil and Texaco, the former shareholders in Aramco, lost their role in producing Saudi oil in 1975, when Aramco became the national oil company.
