The U.S. petroleum industry's campaign to reorganize, downsize, and refocus is far from over.
That's apparent in programs unveiled by Pennzoil Co., Occidental Petroleum Corp., Texaco Inc., and Howell Corp. All have outlined separate programs designed to cut costs and improve operating efficiency.
Here is a summary of what's happening:
- Pennzoil mapped plans for a broad cost reduction, lower dividends, and related actions that James L. Pate, chairman and chief executive officer, said "will significantly strengthen our operating performance, improve our financial flexibility, increase capital available for our growth opportunities, and enhance long term shareholder value."
- Oxy plans to consolidate its worldwide oil and gas business into a single operating unit, Occidental Oil & Gas Corp., with headquarters in Bakersfield, Calif. It's the latest in a series of steps Oxy began in 1991 to bolster shareholder value. Among other things, the latest change is designed to save $100 million/year in operating costs.
- Texaco will realign its Texaco USA division in a move designed to speed the company's campaign for growth. Included are fewer layers of management and shortened reporting lines to improve agility and effectiveness.
- Howell Corp., Houston, will refocus U.S. efforts of its Howell Petroleum Corp. unit. Part of the effort is a plan to trade Howell's offshore production for onshore leases with similar production and undeveloped potential.
PENNZOIL
Pennzoil aired plans for:- A program to reduce general and administrative (G&A) costs by $40 million/year which, combined with G&A reductions already under way in the oil and gas division, will result in cost savings of $75 million/year.
- A reduction in dividend payments to 25/share/quarter from 75, which will save $92 million/year "for growth opportunities."
- Adoption of Financial Accounting Standard No. 121, which will result in noncash writedowns of $265 million after tax during third quarter 1995. It also will improve future reported earnings because of lower depreciation, depletion, and amortization (DD&A) expense.
Pennzoil expects the combined actions to increase after tax earnings by $76 million/year, or about $1.65/share, and improve after tax free cash flow by $152 million/year.
Most of the targeted $75 million/year in reduction of G&A costs will be in place by first quarter 1996.
Although Pennzoil has not determined the number of jobs to be eliminated as a result of cost cutting measures, it expects to recognize charges of less than $20 million in fourth quarter 1995 for severance and related costs.
The cost reduction program stemmed from an internal review of all aspects of Pennzoil's business, including the continuing low level of natural gas wellhead prices. The company retained McKinsey & Co. Inc. as adviser in its review of G&A costs.
Pennzoil's long term strategy focuses on its core businesses and assets. The plan includes capital intensive projects designed to create substantial future cash flow and create shareholder value.
Those projects include the Excel Paralubes venture with Conoco Inc. and the Atlas refinery upgrade, which are to be complete in fourth quarter 1996, as well as the company's investment in the Caspian Sea, where production is to start in second half 1996.
Pennzoil changed its method of determining book value of its assets to comply with the new mandatory standard issued by the Financial Accounting Standards Board on impairment of long lived assets. The change is reflected in the company's third quarter 1995 financial statements.
As a result of the adoption of Standard 121, the company recognized a third quarter 1995 noncash charge of $265 million after tax. Writedowns related to oil and gas assets totaled $250 million after tax. Other long lived assets recorded writedowns totaling $15 million, also after tax.
Pate acknowledged that shareholders' equity will be reduced. But future reported earnings will improve significantly because the reduction of DD&A expenses will amount to $42 million/year during the next several years.
OXY
Oxy has a review under way to work out final details of its consolidation. Announcements are due by mid-January 1996 on work consolidations, system redesigns, asset redeployment, and employee transfers and separations.Oxy expects to take a charge against fourth quarter 1995 earnings as a result of the reorganization.
With integration of Oxy USA and Occidental International Exploration & Production Co. into Occidental Oil & Gas, Tulsa will become the site of the Midcontinent region office early in 1996. Operations in the present Midcontinent region office in Oklahoma City will shift to Tulsa. The Occidental Petroleum corporate data center, as well as tax and audit departments, will remain in Tulsa.
The Occidental Crude Sales office in Houston will close, with its function consolidated in Bakersfield under a new worldwide group responsible for selling crude oil and natural gas.
In addition, Occidental Engineering Services Co., Bakersfield, will be integrated into the newly formed International EOR & Engineering group.
The reorganization also could affect certain non-U.S. offices.
As part of its restructuring, Oxy last week completed the sale of its agricultural business to a unit of Potash Corp. of Saskatchewan Inc. for about $286 million. Oxy will use proceeds in its debt reduction program.
TEXACO
Texaco USA (TUSA) conducts all of Texaco Inc.'s exploration, production, refining, transportation, and marketing of natural gas, petroleum, and petroleum products in the U.S. The division also oversees U.S. purchases, trades, and resale of crude oil, as well as Texaco's U.S. crude and product pipeline systems.Here are the changes in alignment, effective Jan. 1, 1996:
- Texaco Natural Gas Inc. (TNGI) will become a stand-alone unit and report directly to the president of TUSA. TNGI is responsible for U.S. natural gas processing, gas liquids, gas pipelines, and gas sales. TNGI is a unit of Texaco Exploration & Production Inc. (TEPI) at present.
- Texaco Lubricants Co. North America (TLC) also will become a stand-alone unit and report directly to the president of TUSA. TLC is a North American manufacturer and marketer of automotive and industrial lubricants and antifreeze coolants. TLC now reports to Texaco Refining & Marketing Inc. (TRMI).
- Credit card services will move from under the TRMI umbrella, reporting directly to TUSA.
TRMI, which will focus exclusively on refining and marketing on the West Coast and Midcontinent, will keep its headquarters in Los Angeles. It will report to TUSA's president, as will TEPI, Houston, and Texaco Trading & Transportation Inc., Denver.
HOWELL
Howell's sharpened focus will center on exploration and production in the eastern half of Texas and in Louisiana, Mississippi, and Alabama. A planned increase in liquids production in this area will complement Howell's other operations, including a crude oil pipeline, marketing, and truck transport.In its program to exchange its offshore production for onshore leases, no trade will be completed without an equal acquisition of onshore producing properties.
Howell plans to sell its mineral acreage interests if an acceptable sale price is received. Proceeds will be used in part to acquire producing leases in Howell's four state focus area.
Disposition of fractional working interests will continue. Howell has sold about $900,000 in small working interests in Rocky Mountain production, and further sales are under negotiation. As leases are sold, cash will be used to buy core area production. Copyright 1995 Oil & Gas Journal. All Rights Reserved.
