CHEVRON SCHEDULES BIG CHANGES

Chevron Corp. last week disclosed a series of actions to cope with hard times.

The actions are designed to strengthen Chevron's ability to compete, increase profits, reduce operating costs, and place more emphasis on attractive business opportunities.

In addition, Chairman Ken Derr said fourth quarter 1991 financial results will reflect after tax special charges of about $270 million. That will include $183 million because of a major operational change at the Port Arthur, Tex., refinery and anticipated cuts of about 2,500 persons in the company's work force.

Chevron's program calls for:

Increasing the 1992 capital and exploration budget by 6% over 1991 spending-to $5.3 billion-to take advantage of "many profitable business opportunities, especially overseas."
A decision later this year on which of four options will be pursued for the Port Arthur refinery. At the least, capacity will be cut by about one third to 200,000 b/d, and the work force will be reduced by about 500 persons. The other three options are finding a joint venture partner, offering the plant for sale, or shutting it down except for chemicals manufacturing, which would cut about 1,600 jobs.
Stepping up the pace of a program to sell more nonstrategic U.S. oil and gas production. A strategy team will redefine the company's portfolio during the next few weeks, with a goal of cutting operating costs and boosting profits at a much faster pace than planned 2 years ago. Organizational consolidations also will take place.
A major focus on reducing operating costs. Derr set a goal of reducing company-wide unit operating costs by 50cts/bbl of total sales by mid-1993. At current volumes, that would increase profits by about $600 million/year before taxes.
Reducing the work force by about 2,000 this year, in addition to the 500 at Port Arthur, achieving half through a voluntary early retirement program and half from operational restructurings, organizational changes, asset sales, and other action.
About 3,000 exempt employees will be eligible for the voluntary early retirement program. Chevron anticipates about 1,000 will take advantage of it.
Benefits under the program will consist of 2 weeks pay for each year of service, with a minimum of 8 weeks of pay and a maximum of 70 weeks. About 100 of the company's most senior executives are not eligible.
Taking other short term steps to improve cash flow, including deferring salary increases for all exempt employees for at least 3 months and limiting hiring.

Derr said things such as low natural gas prices, poor refining margins especially on the West Coast, the recession, and reduced demand for petroleum products have hampered financial results.

PORT ARTHUR REFINERY

Chevron U.S.A. Products Co. will change the way it operates its Port Arthur refinery.

A Port Arthur team is studying the four options for change, with a single train operation being considered the minimum step. The single train configuration, essentially operating one set of processing units instead of two, will enable the planned staff cut from the current 1,900 workers. A plant shutdown except for chemical operations would result in job cuts of about 1,600.

Offering the refinery for sale or finding a joint venture partner would allow it to remain open in some configuration.

"In today's economy we cannot justify spending nearly $1 billion to upgrade Port Arthur while also facing major investments at our other, more competitive refineries," said Dave Hover, president of Chevron U.S.A. Products.

Chevron estimates that new environmental regulations, such as the Clean Air Act amendments, will require spending of more than $2 billion during the next 5 years at all eight of its U.S. refineries.

The Port Arthur action will have no effect on Chevron's petroleum marketing operations in the Southwest.

AFTER TAX CHARGES

The minimum change in the way the Port Arthur refinery operates and the resulting reduction in the plant's work force will require asset writeoffs and severance costs of about $83 million after tax. The added company-wide work force reduction of about 2,000 will cost about $102 million after tax.

Those provisions will be recorded in fourth quarter 1991.

In addition, the company expects that other unrelated special charges, mainly for environmental liabilities and asset sales, will reduce fourth quarter earnings by about another $85 million after tax, for a total of $270 million after tax.

If the decision is made to shut down the refinery, a minimum additional charge against 1992 earnings of about $200 million after tax will be incurred for the remaining book sale and related work force reductions. The amount of this potential charge would be substantially increased for dismantling costs, environmental cleanup, and other obligations.

INCREASED BUDGET

Chevron's $5.3 billion budget for 1992 is about $800 million less than the funds originally proposed by its operating companies.

Exploration and production units expect to spend about $2.8 billion, compared with 1991's $2.6 billion. Planned U.S. spending is about $1.1 billion, down 7%. By contrast, planned non-U.S. spending is about $1.7 billion, up 19%.

Major capital projects under way aimed at increasing oil and gas production include steamflood and waterflood operations in Indonesia, developing Alba oil field in the U.K. North Sea, installing oil production facilities off Nigeria and Angola, completing construction of the Papua New Guinea oil development, development of Hibernia oil field off Newfoundland, expansion of the Northwest Shelf liquefied natural gas project off Australia, and continuing enhanced oil recovery projects in California.

Refining and marketing units expect to spend about $2 billion, compared with 1991's $1.8 billion. U.S. spending will be about $1.1 billion, up 11%, while non-U.S. outlays will be about $850 million, up 14%.

Major U.S. projects include modifying all refineries to manufacture reformulated fuels to meet new Clean Air Act amendments. That will include building methyl tertiary butyl ether plants at Richmond, Calif., Pascagoula, Miss., and Philadelphia, installing emissions reduction equipment at the El Segundo, Calif., refinery, and upgrading service stations and building new ones.

The program also covers significant spending increases in refining and marketing in the U.K. and in the company's Caltex area to serve expanding customer demand. Caltex is Chevron's 50% owned affiliate operating throughout most of the Eastern Hemisphere.

Chemical businesses expect to spend about $270 million, unchanged from 1991. The largest project is a new plant at Pascagoula to produce chemical feedstocks using Chevron's proprietary Aromax process.

U.S. UPSTREAM

In February 1990, Chevron unveiled a major program to speed upstream asset sales to dispose of more than two thirds of its U.S. oil field properties in 5 years and streamline the organization, eliminating more than 800 jobs. The newly formed Chevron U.S.A. Production Co. is expanding the program to further step up asset sales and reduce costs.

Chevron said the new program will have "significant impact" on all business units.

For example, the Rocky Mountain and Central Production Business Units in Denver and Houston, respectively, likely will be combined with others or reconfigured. The Permian basin and Western Production Units in Midland, Tex., and Bakersfield, Calif., respectively, will be reorganized in response to changes in the company's property mix brought about by asset sales.

U.S. exploration operations will be consolidated into a single business unit with headquarters in Houston.