ARCO said it will implement a cost reduction program designed toreduce before-tax costs by more than $500 million over the next twoyears. Approximately $350 million of the cost savings are expectedin 1999. The cost reductions will fall largely into fourcategories: upstream operating and support costs; explorationspending; downstream operating and support costs; and costs for thecorporate center and support services. ARCO’s increasedconcentration on core exploration and production areas and therecent divesting of non-strategic assets have facilitated theadditional cost reductions.

The company will cut about 900 administrative and technicaljobs, most of which are in Los Angeles and Plano, TX. In addition,the company will close 20 small offices, which are locatedprimarily outside the United States, and downsize a number of otheroffices.

Upstream cost reductions are expected to make up about $330million of the program’s two-year commitment of $500 million. Thisincludes about $85 million of previously announced cost reductionsthat will be realized in 1999 as a result of the company’sacquisition of Union Texas Petroleum. Of the $330 million,exploration spending will be reduced by $150 million, most of itcoming from the international area. Production costs will bereduced about $110 million.

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

The corporate center and support staff costs will make up $80million of the total cost savings of $500 million. This willinvolve reductions of about 270 people, all in Los Angeles. Thesecorporate center and support cost reductions are possible becauseof the cuts in upstream and downstream operations, the company’sgreater focus on core businesses and the divestment of severalnon-strategic businesses.

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