AMOCO FINE TUNES EXPLORATION AND STRUCTURE

April 15, 1991
Amoco Corp. is sharpening its worldwide exploration focus and operating in the U.S. under a new organization structure designed to make the company more effective. Amoco's exploration strategy is to target spending to provide large resource additions at low costs. "We are channeling the bulk of our spending into basins we call emerging or established," H. Laurance Fuller, Amoco chairman and chief executive officer, told the Boston Society of Financial Analysts.

Amoco Corp. is sharpening its worldwide exploration focus and operating in the U.S. under a new organization structure designed to make the company more effective.

Amoco's exploration strategy is to target spending to provide large resource additions at low costs.

"We are channeling the bulk of our spending into basins we call emerging or established," H. Laurance Fuller, Amoco chairman and chief executive officer, told the Boston Society of Financial Analysts.

Amoco does not intend to concentrate on frontier areas, often linked with large discoveries but where only about 15% of significant discoveries are made, Fuller said.

More promising areas for investment are "emerging basins that provide greater opportunities to find hydrocarbon deposits large enough to have a significant effect on a company of Amoco's size."

Meantime, Amoco Production Co. is now structured along three major lines of business: exploration, production, and natural gas. The company's new organization shifts away from a structure that had regional offices responsible for a wide variety of functions.

CORPORATE STRATEGY

An analysis of industry performance during the 1980s revealed that about 85% of the significant oil resources found outside North America, eastern Europe, and the Soviet Union were in basins that already had proven plays, Fuller said.

Amoco has been shifting its spending emphasis from mature basins toward the less explored, emerging areas.

Both of these investment arenas fall within the proven play category and can generate economic returns," Fuller said.

The result is increased emphasis on overseas exploration (OGJ, Mar. 11, p. 28).

Amoco's strategy includes maintaining worldwide production on an oil equivalent basis. The company's reserve additions replaced 119% of production during the last 10 years and 121% in the last 5 years.

In refining and marketing, Amoco last year increased profits to 4/gal of refined product from 2.5/gal in 1985. Gasoline sales increased by nearly 11% during the same period, or almost twice the growth rate in total U.S. gasoline demand.

Amoco's refinery utilization reached 92% of capacity in 1990, while at the same time the company's refineries used 9% less energy per barrel of oil processed than in 1985.

Turning to chemicals, Fuller said Amoco Chemical Co.'s strategic position is to "capitalize on the growth patterns of the worldwide chemical industry by balancing its international and U.S. operations."

Investments are positioning Amoco Chemical in the high growth economies overseas, particularly in Asia, he said. In the U.S., AMOCO is building a new polypropylene unit and is significantly expanding olefins plants to meet expected increases in demand.

The company's capital and exploration budget for 1991 is $4.3 billion, a 17% increase from 1990 outlays of $3.7 billion.

AMOCO PRODUCTION STRUCTURE

Amoco Production formed seven business units responsible for production operations in specific geographic areas of the U.S. Three units are based in Houston, three in Denver, and one in New Orleans-all sites of former regional offices.

In addition, Amoco formed groups to focus on international production operations, worldwide exploration, production technology and services, business development, and natural gas supply, transportation, and marketing. Most of the U.S.-based employees in those groups are in Houston.

The company's research structure in Tulsa remains unchanged, and company headquarters remain in Chicago.

"This reorganization should result in better implementation of the company's business plans and strategies," said Patrick J. Early, president of Amoco Production.

"The new structure should allow us to make effective decisions faster and achieve better cost control. We're also aiming for more teamwork among employees with different disciplines.

"And while giving business unit managers more decision making authority, the new organization will also provide better focus and accountability for business results."

Copyright 1991 Oil & Gas Journal. All Rights Reserved.