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Texaco slashing 1,000 jobs
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November 12, 1998: 8:03 p.m. ET
Oil giant reorganizes to survive amid low oil prices; Royal Dutch/Shell cuts, too
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NEW YORK (CNNfn) - Texaco Inc. said Wednesday it will slash 1,000 jobs in an effort to remain competitive in the current low-price oil environment, three days after telling Wall Street that 1998 spending will come in 20 percent below earlier estimates.
The White Plains, N.Y.-based oil producer and marketer estimates the reorganization, expected to be completed early next year, will save $200 million a year.
"Changes in the industry have fundamentally altered the competitive landscape, and Texaco must respond in order to improve its position," said Texaco Senior Vice President John J. O'Connor. "By refocusing our capital and resources, the company is positioned to improve efficiencies in current operations and achieve our ambitious growth plans through a strong emphasis on strategic exploration activities, acquisitions and discovered reserve opportunities."
Texaco Chairman and CEO Peter Bijur blamed the job cuts on the global financial crisis, which has driven prices to historic lows near $13 a barrel as demand plummeted in Asia and other developing economies.
Appearing Thursday on "Moneyline News Hour with Lou Dobbs," Bijur said he thought prices might recover to their "commodity price level" of $17 to $21 by the fourth quarter of 1999, but he declined to speculate on the impact of the current showdown with Iraq.
"I've learned not to forecast oil prices," he said.
Bijur said Monday that Texaco's capital spending for 1998 should come in around $3.6 billion to $3.7 billion, down from the company's initial expectations of $4.6 billion.
He declined to project actual capital spending in 1999, but said it would be less than the initial 1998 projection.
Shares of Texaco (TX) closed up 1-5/8 at 59-15/16 at the New York Stock Exchange.
Royal Dutch/Shell also retrenches
The Royal Dutch/Shell Group announced Thursday it, too, would be cutting jobs and costs in response to continued weakness in oil prices.
The Anglo-Dutch oil giant said it would eliminate 3,000 jobs in an overhaul of its European downstream business.
Shell said the positions to be cut represented about 20 percent of the 15,000-strong operation. But a spokesman emphasized that the restructuring had first been announced in September 1997 and a number of those involved had already left the company.
Job cuts of around 15 percent had been anticipated at the time of the announcement last year, he added.
Shell last week reported a 56 percent drop in third quarter earnings, disappointing an investment community already impatient with its efforts to restructure.
'An industry in crisis'
The job cut announcements came as oil prices remained near 12-year lows and on the heels of sharp capital spending reductions announced this week by several oil companies, including Chevron, Amoco, Exxon, Royal Dutch/Shell and Mobil.
"These cuts point to how badly impaired the profitability of the oil industry has been in the last year. It also show what an enormous cash flow pressure these companies are under," said Michael Young at Deutsche Bank Securities.
Analysts believe the industry will continue to suffer next year from the global glut of crude and low prices.
They say it will take at least six months to begin seeing signs that worldwide supply and demand for oil is back in balance.
"This is an industry in crisis," said Fahnestock & Co. analyst Fadel Gheit. "Every oil company will reduce their production forecast as lower spending will immediately be followed by lower production and lower reserve replacement."
As a result, industry watchers say, oil workers could face more misery.
The merger of British Petroleum Co. Plc. and Amoco Corp., which created an industry behemoth rivaling the world's two largest publicly traded oil companies, Exxon and Shell, will result in the loss of 6,000 jobs from a combined workforce of 100,000.
"The only option for these companies is to merge and seek yet more job cuts and savings," said Gheit.
Analysts are also wary of a sharp rise in the shares of oil companies as the heightening Iraq crisis raised the prospect that two million barrels of Iraqi production could disappear from world markets. 
-- from staff and wire reports
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