Occidental Petroleum Corp. aims to save at least $300 million next year by trimming capital spending and operating costs, including an across the board hiring freeze and a salary freeze.
"We must continue to operate on the assumption that our performance in the near term could very well remain under the influence of a sluggish economy," Ray R. Irani, Oxy chairman, president, and chief executive officer, told New York security analysts.
Oxy earlier completed in a little more than 1 year a broad restructuring program that had been expected to take 2 years. Most of that took place in 1991, which Irani called "a year of transition" in which Oxy returned to basics (OGJ, Mar. 23, p. 26).
SALARIES, CAPITAL SPENDING
The pay freeze, effective immediately, will remain in place through 1993 for all salaried employees earning more than $40,000/year. Salaried employees who earn less than $40,000/year will receive a 3% increase Apr. 1 to offset inflation.
Hourly workers are not affected.
Savings from the salary freeze, as well as some changes in employee benefits, are expected to be about $55 million/year.
In addition, savings of about $100 million/year are expected from targeted cost reductions, including company wide workforce reductions of about 500 jobs by the end of 1993.
Capital spending will be reduced by about $150 million, to $750 million in 1993 vs. a budgeted $900 million in 1992.
The net effect to date of Oxy restructuring that began in January 1991 has been an increase of about $350 million in net income.
"However, the benefits of restructuring have been temporarily negated by the recession," Irani said. "A combination of lower volumes and prices and correspondingly reduced profit margins has lowered the results from our core businesses."
NON-U.S. ACCENT
"We have already begun to scale back capital expenditures in all areas except our primary growth business international oil and gas," Irani said. "In fact, the international oil and gas budget will be increased by $75 million next year, or about 30% above the 1992 level. Capital spending in other areas will be increased when the economy improves and investment opportunities develop." He said international oil and gas will fuel Oxy's growth and profits. Chemicals are positioned to rebound "dramatically" when the economy strengthens.
Net production of Oxy's non-U.S. oil and gas operations will increase by more than 50% to nearly 210,000 b/d during the next 2 years as a result of discoveries in Ecuador and Yemen coming on stream and because of an enhanced oil recovery project in Russia. In addition, Oxy has exploration programs under way in 16 countries encompassing 47 million acres. It expects to drill 45-50 wildcats in 1993.
A recent discovery off Philippines could contain 300-500 million bbl of oil, and a recent appraisal well off Malaysia confirmed that Oxy's Jintan discovery has about 4 tcf of gas and 75 million bbl of condensate in place. Oxy holds 50% and 37.5% interests in these projects, respectively.
The company also is discussing enhanced oil recovery projects with Algeria and several other parties.
MIDCON, OXYCHEM
Irani said Oxy's U.S. gas transmission arm, MidCon Corp., will generate about $650 million in operating cash flow and report earnings of more than $300 million this year.
MidCon's comparative performance with respect to return on assets, operating income, sales, storage volumes, and throughput "will be strong again this year and in 1993," he said.
OxyChem's commodity businesses "are currently out of favor because they are at the bottom of the cycle." But Irani added, "Our chemical operations have tremendous upside potential in a healthy economy."
Copyright 1992 Oil & Gas Journal. All Rights Reserved.