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Texaco Joins Ranks of Producer Cost-Cutters

Texaco Joins Ranks of Producer Cost-Cutters

Texaco joined the growing crowd of producers revising downward capital expenditures for 1999. The company said its 1999 capex would total $3.7 billion, including subsidiaries and affiliates, down $600 million from its original $4.3 billion plan. Chevron, Arco and Unocal announced similar reductions last month.

Texaco also will accelerate its $650 million cost and expense reduction program announced in December. "Given this period of low energy prices, our revised spending plan together with our cost and expense reduction program are appropriate actions," said CEO Peter I. Bijur. "We are strategically focusing capital on the key projects that represent optimum long-term growth opportunities, and at the same time continuing our effort to drive down costs. These measures will assist Texaco in weathering this extended period of low prices."

At its annual security analysts meeting in December, Texaco announced a 1999 capex plan of $4.3 billion, based on an average WTI crude price of $15.00/barrel. The revised plan of $3.7 billion is based on a lower crude price premise, reflecting general industry consensus that crude oil prices will not rebound as previously expected.

For 1998, capital expenditures are expected to be 11% below the $4.6 billion originally planned. Texaco reduced its spending program during 1998 when it became evident oil prices would remain low for an extended period.

In the U.S. upstream, spending will be directed primarily toward continuing development of the deep-water Gulf of Mexico.

Texaco's spending cuts are no surprise in light of recent similar moves by other producers. Unocal Corp. said last month it expects 1999 capital spending to total between $1 billion and $1.1 billion, down from the estimated $1.7 billion in 1998 capital expenditures ( see Daily GPI Dec. 22, 1998). The lower spending reflects Unocal's narrowed focus on core oil and gas exploration and production in response to lower commodity prices. Unocal's actual capital spending in 1999 depends on commodity prices during the year, said Roger C. Beach, Unocal CEO. "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.

Also last month, ARCO said it expects 1999 capital spending to be $2.7 billion, down 25% from 1998. The 1999 program reflects the company's decision 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."

And last month Chevron 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.

Joe Fisher, Houston

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