Texaco joined the growing crowd of producers revising downwardcapital expenditures for 1999. The company said its 1999 capexwould 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 expensereduction program announced in December. “Given this period of lowenergy prices, our revised spending plan together with our cost andexpense reduction program are appropriate actions,” said CEO PeterI. Bijur. “We are strategically focusing capital on the keyprojects that represent optimum long-term growth opportunities, andat the same time continuing our effort to drive down costs. Thesemeasures will assist Texaco in weathering this extended period oflow prices.”

At its annual security analysts meeting in December, Texacoannounced a 1999 capex plan of $4.3 billion, based on an averageWTI crude price of $15.00/barrel. The revised plan of $3.7 billionis based on a lower crude price premise, reflecting generalindustry consensus that crude oil prices will not rebound aspreviously expected.

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

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

Texaco’s spending cuts are no surprise in light of recentsimilar moves by other producers. Unocal Corp. said last month itexpects 1999 capital spending to total between $1 billion and $1.1billion, down from the estimated $1.7 billion in 1998 capitalexpenditures ( see Daily GPI Dec. 22, 1998). The lower spendingreflects Unocal’s narrowed focus on core oil and gas explorationand production in response to lower commodity prices. Unocal’sactual capital spending in 1999 depends on commodity prices duringthe year, said Roger C. Beach, Unocal CEO. “If oil and gas pricesremain at current levels, our capital spending for the year couldbe even lower. We want to ensure that our debt ratio remains below50%, and we will review the investment plan on a month-to-monthbasis.” More than 90% of the planned capital spending will be foroil and gas exploration and production, with more than half of thatgoing to projects outside the U.S.

Also last month, ARCO said it expects 1999 capital spending tobe $2.7 billion, down 25% from 1998. The 1999 program reflects thecompany’s decision to focus operations in key geographic areas ofthe world. “In light of current oil prices, we have taken a hardlook at all of our projects,” said Mike R. Bowlin, ARCO CEO. “Weintend to pursue those that are key to our focus areas, and even inthose areas, defer some projects that require a more positivemarket outlook.”

And last month Chevron announced a $5.1 billion capital andexploratory spending program for 1999 and a plan to reduce expensesin 1999 by $500 million. The 1999 capital budget is about 8% lessthan projected spending for 1998, but significant spending willcontinue for promising long-term growth projects in Kazakhstan,West Africa and the Gulf of Mexico. “As I’ve said before, we willconsider mergers or acquisitions as one possible way to improvebusiness results. But it is not necessary for Chevron to merge witha competitor to continue to provide top returns to ourshareholders. We need to execute our business plan,” said ChairmanKen Derr.

Joe Fisher, Houston

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