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ARCO to cut staff, costs
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September 18, 1998: 3:28 p.m. ET
Internal memo outlines cost-cutting plans; details due by late-October
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NEW YORK (CNNfn) - Atlantic Richfield Co. plans to implement an overall cost-reduction program by the end of the year that includes reducing its staff of 24,000 employees, company officials said Friday.
ARCO Chairman and Chief Executive Mike Bowlin outlined the intentions earlier this week in an internal memo to employees.
"Some downsizing would be expected," said Albert Greenstein, ARCO spokesman.
No specific targets were discussed.
The Los Angeles-based integrated oil company plans to complete its review of global operations by mid- to late-October.
The development comes amid difficult business conditions for the oil industry, which has faced excess global inventories and shrinking profit margins squeezed by current historically lowest crude prices.
"They squeeze the upstream (operations) because you have pretty fixed costs to get the oil out of the ground," said John Parry, consultant at John S. Herold Inc.
Indeed, Royal Dutch/Shell Group said Friday it is writing down assets and closing four offices throughout Europe.
Although integrated oil concerns can offset higher exploration costs through their so-called "downstream" -- or refining and marketing -- operations, companies such as ARCO are still pinched and need to cut back further on exploration and capital expenditures, Parry said.
"I think the downsizing that's occurring is because most of these companies are taking a second look at some of their longer-term investment plans (in light of) reduced expectations for oil prices," the industry consultant said.
ARCO has numerous exploration projects in Indonesia, Venezuela and Russia through its strategic alliance with oil giant Lukoil Holding.
"Now what's happening is all these projects are going on a slower pace," Parry said.
And to exacerbate matters for ARCO is its increasing dependence on the oil market in the wake of its $5.6 billion sale of ARCO Chemical to Lyondell Petrochemical Co.
"In one sense, ARCO Chemical was a stable cash source for them. ARCO Chemical was able to hold on to margins better," Parry explained.
As of year-end 1997, ARCO had about 24,000 employees. Following the sale of the chemicals unit, the company still is estimated to have more than 20,000 workers.
-- by staff writer Robert Liu
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