RESTRUCTURING STILL RAMPANT IN U.S.

Restructuring and response to recession is far from over in the petroleum industry.

Last week Unocal Corp. disclosed a major reorganization of its operating business units, part of a company wide restructuring program first unveiled in April. It also outlined other steps it plans to take to speed its program of reducing debt by $1.5 billion during the next 5 years and increasing cash flow.

Unocal forecast that expense cuts and work force reductions will yield a $200 million/year increase in after tax cash flow starting in 1993.

In addition:

Mobil Corp. made an $800 million cut to $4 billion in its 1992 capital and exploration budget. Personnel reductions and savings from Mobil's restructuring program will be greater than previously expected, said Allen E. Murray, chairman and chief executive officer.
Amoco Corp. said it plans to take about $800 million in after tax charges against second quarter earnings mainly to cover the costs of writeoffs, restructuring, and workforce reductions, all part of a realignment of business operations.

The company expects before tax savings of more than $600 million/year due to sweeping elimination of operating costs. The full effect of the savings will be felt by yearend 1993, with much of the savings being effected by yearend 1992.

UNOCAL RESTRUCTURING

Unocal's reorganization will consolidate operating units into two main divisions: energy resources, consisting of upstream activities, and petroleum products and chemicals, made up of refining, marketing, and chemicals segments.

As a result, the company will eliminate about 1,100 jobs and implement "other significant expense reductions" this year. Unocal earlier said employee cuts would range from 800 to 1,200 (May 25, p. 17).

With reorganization, the company will eliminate 450 jobs in petroleum and geothermal energy exploration and production, 400 in downstream operations, and 250 in corporate staff and research groups.

The planned staff reductions are in addition to personnel in business units that were previously being restructured or offered for sale.

The company has offered a voluntary enhanced retirement program and severance package, which will be available until mid-August. The extent of involuntary employee reductions will be determined after the results of the voluntary programs are known.

Unocal's new energy resources division will combine three existing divisions-international oil and gas, North American oil and gas, and geothermal-and eliminate or downsize the seven regional structures in North America.

The total employee reduction for energy resources will be more than 16% of the salaried work force. Executive level positions and total salaries will be reduced by more than 20%.

The energy resources division will be divided into four line groups:

Unocal Thailand, Unocal Indonesia, Louisiana onshore and all offshore areas in the Gulf of Mexico, and the Permian basin, mainly West Texas. These are large scale operations that offer major development and exploration opportunities and will be high growth areas, commanding significant capital investment, Unocal said.
U.K., Netherlands, Canada, and the rest of the U.S., including California and Alaska.
Worldwide exploration, to be downsized and consolidated in Sugar Land, Tex., near Houston. Unocal plans to continue oil and gas exploration, especially in frontier areas "with potential for significant reserves." It will trim exploration costs by consolidation of offices and more tightly focused programs.
Geothermal development and power generation. U.S. geothermal operations will be consolidated with most personnel based in Santa Rosa, Calif.

The new petroleum products and chemicals division will reflect previously announced downsizing of Unocal's downstream operations. Consolidation of downstream divisions will reduce costs to bring them in line with new operating requirements.

As part of the reorganization, Unocal will close its office complex in Schaumburg, Ill., by September 1993 and consolidate the Schaumburg accounting and information services functions with other operations elsewhere.

In recent months the company has sold its polymers and chemicals distribution business, as well as its product terminals network in the U.S. Southeast. Unocal is negotiating to sell its nationwide Auto/TruckStop system and is phasing out product marketing in the Southeast.

The company has identified and started the sales process of additional nonstrategic assets, which it believes could generate at least $700 million in after tax proceeds during the next 2 years.

Unocal also is contemplating, depending upon market and other conditions, the private placement of about $500 million of securities convertible into about 7% percent of presently outstanding shares of its common stock. The issue would complement Unocal's restructuring program by permitting the company to expand development of proved undeveloped oil and gas reserves in the U.S. and speed its debt reduction drive.

MOBIL PROGRAM

Mobil's latest budget cut was not totally unexpected (OGJ, Mar. 23, p. 26). Murray pointed out that late in 1991 Mobil reduced its budget for that year by about 10%-from almost $6 billion to $5.4 billion.

He said, "We then approved a 1992 capital appropriations budget of $4.8 billion, about $1 billion less than we had previously anticipated. At that time I indicated the 1992 budget included $800 million that would not be appropriated this year unless business conditions improved.

"While the industry has benefited from improved prices for crude oil and natural gas, the pace of economic growth in much of the world continues to be sluggish, depressing margins in much of our downstream and chemicals business. As a result, we believe it is prudent to reduce the 1992 capital appropriations budget to $4 billion."

Because there is a lag between a reduction in capital appropriations and lower capital expenditures, 1992 spending will be only somewhat lower than the $5 billion spent in 1991, Murray said. The rest of the effect from lower appropriations will be seen beyond 1992.

Like oil companies large and small, Mobil is tightening ship to concentrate on operation of its key assets.

It sold $7 billion in assets during 1986-90 and about $600 million in 1991. It expects in third quarter 1992 to book an $80 million profit from the sale of its polystyrene resin business.

Murray said, "We expect this year we will exceed last year's level of asset sales as we continue to upgrade the earnings potential of our business..."

What's more, he said, Mobil's restructuring program will achieve savings and personnel reductions that are greater than previously anticipated, with the salaried payroll in the U.S. by yearend 1992 down by about 10%, or 2,000 persons, from the previous year.

AMOCO CHARGES

Amoco's $800 million charge includes about $250 million to cover anticipated losses on disposition and abandonment of producing oil and gas leases, $220 million for writeoffs and reserves in chemical operations, $160 million to cover miscellaneous reserves and writeoffs of a number of other assets, and about $170 million to cover costs in workforce reductions.

Amoco said its restructuring focuses on disposition of nonstrategic assets and elimination of costs and low value added work rather than people. But many jobs are being eliminated. By the end of 1993, the company plans to employ about 8,500 fewer persons than it did at yearend 1991, when employees numbered 54,120.

About 5,700 employees have taken or will take early retirement or severance packages or have left or will leave due to normal attrition. In addition, about 2,800 employees have left or will leave the company due to asset disposition.

During 1990 and 1991, through streamlining, reorganizations, and other efficiency efforts, nearly 1,800 jobs were eliminated throughout Amoco. "The human impact of our decisions is very real and very painful," said H. Laurance Fuller, chairman and chief executive officer.

"However, our actions also are very necessary. They address the decline in corporate earnings and cash flow brought about by lower prices for oil and gas and declines in demand for several key products due to the worldwide recession."

Fuller also said, "Al] our major operating divisions have had concerted efforts under way to reformulate strategy, reengineer work, and continuously improve their operations. The challenging environment of the last 9 months has accelerated these efforts. However, our work is not done. We will continue these efforts as a normal part of our business."

As an example of efforts that have been under way for some time, Fuller noted that Amoco's exploration and production subsidiary has undergone a complete review of its operations and a reorganization. As a result, its employee level at the end of 1991 was down 11% from 1988. In addition to examining assets and cutting operating costs, Amoco trimmed its 1992 capital and exploration budget to $3.3 billion from $3.7 billion. The latest budget is 17% below 1991 spending.

During the past several months Amoco identified several assets that were outside its core businesses. It sold its petroleum additives business and signed letters of intent to sell its east/south U.S. asphalt business and its U.S. carpet face yarn operations. It also offered for sale its Torrance, Calif., polystyrene plant, Gabon oil producing subsidiaries, and Welchem Inc., Houston, which manufactures chemicals used in oil and gas production and petrochemical processing.

In addition, the company closed its Casper, Wyo., refinery in last December, plans to cease operations at its Oelwein, Iowa, foam products plant this year, and is restructuring its European fabrics operations.