CHEVRON RESTRUCTURING U.S. UPSTREAM UNIT

Feb. 26, 1990
Chevron Corp. has begun a major restructuring of its U.S. upstream operations in a program designed to cut costs and reduce layers of management. The reorganization of Chevron U.S.A. Inc. will involve an acceleration of its property sales program calling for the sale of more than ,$700 million worth of properties in 1990-91. In addition, the program will eliminate a total of 8001,000 jobs-10-12% of the organization-including middle and senior level management.

Chevron Corp. has begun a major restructuring of its U.S. upstream operations in a program designed to cut costs and reduce layers of management.

The reorganization of Chevron U.S.A. Inc. will involve an acceleration of its property sales program calling for the sale of more than ,$700 million worth of properties in 1990-91.

In addition, the program will eliminate a total of 8001,000 jobs-10-12% of the organization-including middle and senior level management.

The company cited this critical factor in its outlook: "Public policy in the U.S. is expected to continue to prohibit access to acreage with promising exploration potential, making it difficult or impossible to develop domestic energy resources."

Chevron operates the $2 billion Point Arguello development project, biggest U.S. offshore field, which has sat idle off Santa Barbara County, Calif., for 3 years because of permitting wrangles.

The company also operated the only well drilled on the Coastal Plain of the Arctic National Wildlife Refuge, the most prospective untapped hydrocarbon province in North America and off limits to further drilling.

Efforts to gain Point Arguello start-up and ANWR Coastal Plain leasing were dealt major setbacks by the Mar. 24, 1989, Exxon Valdez tanker oil spill in Prince William Sound off Alaska.

Point Arguello's start-up efforts likely will suffer further as a result of the recent oil spill off California.

RESTRUCTURING DETAILS

Chevron's current exploration, land, and production regions in San Ramon, Calif., Houston, and New Orleans will be eliminated, including management organization structure and positions.

The U.S. upstream organization will then be divided into seven business units, each directly responsible for its financial performance, plus a centralized land department. All will report to a Chevron U.S.A. senior vice-president in San Francisco, Chevron Corp.'s headquarters city.

Chevron will create production business units in Bakersfield, Calif., Denver, Houston, New Orleans, and Midland, Tex. Current production activities managed from Ventura, Calif., will be consolidated and report to the Bakersfield office. Hobbs, N.M., activities will report to Midland.

The New Orleans unit will consist of three existing divisions-two in New Orleans and one in Lafayette, La.

Production management and staff based in San Ramon and still needed in the new organization will move to Bakersfield.

Exploration groups in San Ramon and Houston will be combined in Houston to coordinate western and central U.S. and Alaskan exploration. An existing group in New Orleans will manage Gulf of Mexico and Offshore East Coast exploration.

Land activities will be consolidated in Houston, including lease administration, with support units in producing and exploration business units as needed.

Any current regional staff needed to conduct the new organization's business will be consolidated into the new business units.

Chevron expects by early summer to tell each upstream employee how he will be affected. The restructuring is to be complete by yearend.

RESTRUCTURING EFFECTS

The changes are intended to make Chevron more competitive and boost profits and shareholder values.

Chevron anticipates the changes will result in a $2530 million charge against first quarter 1990 earnings.

The company expects its U.S. upstream organization to continue to shrink the next few years.

However, any further cuts in staff are to be handled through normal attrition, training, retraining, and transfer programs.

Further, as its international upstream programs continue to expand, there may be job opportunities there for employees affected by U.S. cuts.

Chevron will emphasize job cuts through a voluntary severance program, details of which it will announce later.

PROMPTED BY STUDY

The restructuring was spurred by an internal strategic study started last August that was designed to make Chevron a top financial performer among U.S. upstream competitors in the next few years.

The study concluded that the best way to achieve that goal is to decentralize management and work, focusing responsibility at the lowest possible level.

"This will ensure that the people most familiar with the business are making key decisions with a minimum of technical and management review," Chevron said. "Improved efficiency and greater profitability are expected to result quickly."

In addition, the study found, Chevron must focus on properties that provide the best potential for long term profitability vs. properties that cannot be profitable no matter how well the people operating them are doing their jobs.

That finding resulted in the accelerated property selloff. In 1988-89, Chevron sold about $210 million of U.S. upstream assets.

After putting the acquisitions of Gulf Oil Corp. and Tenneco Inc. Gulf of Mexico properties behind it, Chevron U.S.A. reviewed its organization from top to bottom to improve performance, said Ray Galvin, Chevron U.S.A. senior vice-president of exploration, land, and production.

"To do that," he said, "we believe it is important to change our way of doing business, shifting every employee's attention from simply producing a barrel of oil to understanding their role in running a profitable business unit."

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