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Unocal, ARCO, Chevron Reduce Capital Spending

Unocal, ARCO, Chevron Reduce Capital Spending

Unocal Corp. said last week it expects 1999 capital spending to total between $1 billion and $1.1 billion, down from the estimated $1.7 billion in capital expenditures this year. The lower spending reflects Unocal's narrowed focus on core oil and gas exploration and production in response to lower commodity prices.

The 1998 capital expenditures included significant outlays, such as Gulf of Mexico Outer Continental Shelf leases, to build the company's deep-water exploration and growth portfolio. That level of spending for leases is not expected to be repeated in 1999, accounting for about one-fourth of the reduction in the overall capital spending plan.

"This capital spending plan is designed to preserve our high-potential, deep-water exploration and development program in the Gulf of Mexico and Indonesia," said Roger C. Beach, Unocal CEO. "We are prioritizing our capital spending in other areas based on our net present value and return on investment analysis, and some good projects on the list will have to be deferred."

Unocal's actual capital spending in 1999 depends on commodity prices during the year. "If oil and gas prices remain at current levels, our capital spending for the year could be even lower. We want to ensure that our debt ratio remains below 50%, and we will review the investment plan on a month-to-month basis." More than 90% of the planned capital spending will be for oil and gas exploration and production, with more than half of that going to projects outside the U.S.

Last Friday ARCO said it expects 1999 capital spending will be $2.7 billion, down 25% from 1998. The 1999 program reflects the company's previously announced intention to focus operations in key geographic areas of the world. "In light of current oil prices, we have taken a hard look at all of our projects," said Mike R. Bowlin, ARCO CEO. "We intend to pursue those that are key to our focus areas, and even in those areas, defer some projects that require a more positive market outlook."

Also last week, Chevron Corp. announced a $5.1 billion capital and exploratory spending program for 1999 and a plan to reduce expenses in 1999 by $500 million. The 1999 capital budget is about 8% less than projected spending for 1998, but significant spending will continue for promising long-term growth projects in Kazakhstan, West Africa and the Gulf of Mexico. "As I've said before, we will consider mergers or acquisitions as one possible way to improve business results. But it is not necessary for Chevron to merge with a competitor to continue to provide top returns to our shareholders. We need to execute our business plan," said Chairman Ken Derr. "We have the financial strength to deal with low oil prices, poor economic conditions in Asia and other financial challenges over the next few years. Our business is one of cycles."

Joe Fisher, Houston

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