ARCO announced a major cost reduction program last week thatwill chop $500 million in before-tax expenses and 900 employeesfrom it operations over the next two years. The majority of thecut-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 corporatecenter and support services. ARCO’s increased concentration on coreexploration and production areas and the recent divesting ofnon-strategic assets have facilitated the additional costreductions.

Administrative and technical operations, most of which are inLos Angeles and Plano, TX, will be hit hardest by workforcereductions. In addition, the company will close 20 small offices,which are located primarily outside the United States, and downsizea number of other offices.

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.

Joe Fisher, Houston

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