In a surprisingly deep cut, Atlantic Richfield Co. announced Monday that it will lay off an additional 1,250 workers, including several hundred at its high-rise headquarters in Downtown Los Angeles.
The oil company said it plans to take after-tax charges of about $150 million in the second quarter for costs related to the new round of layoffs. It said it expects the cutbacks and other operating changes to save $400 million annually by 1996.
The company has been hurt by falling oil prices and an inability to find new sources of petroleum, particularly in Alaska, where its oil supply from the North Slope has been in decline for several years.
Headquarters employees learned of the job cuts in a memo circulated Monday, but they will not know for several days who will be laid off.
The company employs about 1,600 people on its headquarters staff, most of them in Los Angeles. About 400 of the cuts are expected to come from the headquarters office. The rest will occur at other Arco facilities.
"Unhappily, the majority of the 1,250 jobs are in California," Arco spokesman Albert Greenstein said. "All I can say is that these reductions represent the major reductions in our restructuring program."
The latest cuts are in addition to 2,050 layoffs already described in the companywide reorganization first announced last fall. A total of 3,300 jobs will have been trimmed by the end of 1995, leaving Arco with 23,000 employees worldwide.
A new round of layoffs had been predicted at Arco's shareholders meeting in early May by Chairman Lodwrick M. Cook and Mike R. Bowlin, who became chief executive on July 1. Bowlin had also predicted both "cost cutting and perhaps some paring of our capital spending."
But the latest layoffs are "bigger than I expected," said George Schink, president of the industry analysis group at AUS Consultants in Conshohocken, Pa. "But looking at their prospects, they probably decided to make the big step now as opposed to later."
Arco, the nation's seventh-largest oil company, has had trouble finding new oil, particularly in Alaska. And it has been hit harder by the economic problems in California than the other major oil companies, Schink noted, though all of them have been hurt by falling prices.
"This second quarter is probably going to be the worst for the oil companies, so this is the time to take your charges," said Holly Gustafson, an energy analyst with NatWest Securities Washington Analysis in Washington. "And restructuring is a very popular thing to do. There's no better way to increase the price of your stock than to lay a few people off."
Analysts and the stock market clearly approved of the move. Arco shares jumped $2.125 to $107.875 on Monday on the New York Stock Exchange, nearing the 1994 high of $112.375.
Being more dependent on revenue from oil and gas production than refining or marketing, Arco has been particularly sensitive to the low oil prices that have plagued the industry lately.
The company's failure last year to find significant new oil reserves at its Kuvlum and Cook Inlet exploration sites in Alaska only put more pressure on it to trim operations and turn overseas in its oil hunt.
Although Arco has brought on some new Alaskan wells in recent years, its production in the state has slipped from a peak of 487,000 barrels a day in 1988 to 420,000 barrels a day last year.
Arco has had better luck finding natural gas. Its largest non-U.S. development is in a giant gas field in the South China Sea. Production began in 1993 at two offshore gas developments in Indonesia, and the company will explore for more gas in the East China Sea and Britain.
"What really concerns me about this company is that they have had trouble finding new oil reserves," Gustafson said. "They're relatively new players overseas compared to others." Gustafson noted that the company is expected to have about $3.6 billion in cash because of an upcoming issue of debt securities with one of its majority-owned subsidiaries, Lyondell Petrochemical, along with the recent sale of 17.7% of Vastar Resources, an Arco gas subsidiary.
On July 12, Arco announced a preliminary deal to invest $1 billion over the next 25 years in an enhanced oil-recovery project in Algeria, from which it could begin producing oil as early as 1995. Arco believes it could triple the 25,000-barrel-a-day production at the Rhourde el Baguel Field, receiving up to 49% of the crude.
"Certainly all of that helps," Gustafson said, "but I think they need something big. They need an acquisition. . . . If they make a smart acquisition, they can be a great company."