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ARCO to Cut $500 Million Expenses, 900 Employees

ARCO to Cut $500 Million Expenses, 900 Employees

ARCO announced a major cost reduction program last week that will chop $500 million in before-tax expenses and 900 employees from it operations over the next two years. The majority of the cut-backs, $350 million, are expected in 1999.

The cost reductions will fall largely into four categories: upstream operating and support costs, exploration spending, downstream operating and support costs, and costs for the corporate center and support services. ARCO's increased concentration on core exploration and production areas and the recent divesting of non-strategic assets have facilitated the additional cost reductions.

Administrative and technical operations, most of which are in Los Angeles and Plano, TX, will be hit hardest by workforce reductions. In addition, the company will close 20 small offices, which are located primarily outside the United States, and downsize a number of other offices.

Upstream cost reductions are expected to make up about $330 million of the program's two-year commitment of $500 million. This includes about $85 million of previously announced cost reductions that will be realized in 1999 as a result of the company's acquisition of Union Texas Petroleum. Of the $330 million, exploration spending will be reduced by $150 million, most of it coming from the international area. Production costs will be reduced about $110 million.

Downstream costs are expected to fall by about $90 million over the two-year period. Most of the reduction will be in refining and marketing and will involve additional staff cuts of about 100.

The corporate center and support staff costs will make up $80 million of the total cost savings of $500 million. This will involve reductions of about 270 people, all in Los Angeles. These corporate center and support cost reductions are possible because of the cuts in upstream and downstream operations, the company's greater focus on core businesses and the divestment of several non-strategic businesses.

Joe Fisher, Houston

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