Occidental Petroleum to Trim U.S. Payroll by 20%

Occidental Petroleum Corp. said Tuesday that it would lay off 900 workers, or about 20% of its domestic work force, and restructure its U.S. oil and gas operations in the latest move by an American oil company to cut costs in the face of weak prices.

The company said streamlining its Occidental Oil & Gas Corp. unit would would cut annual costs by nearly $100 million. The bulk of the layoffs would occur in the unit’s Tulsa, Okla., headquarters.

Other cuts will come in staffs in Houston; Jackson, Miss; Oklahoma City, and Bakersfield (about 50 people). Los Angeles-based Occidental Petroleum employs about 9,000 people, half of them in the United States.

“This restructuring recognizes a need to simplify and streamline domestic oil and gas operations while at the same time generating additional cash to sustain or improve capital programs for exploration and development,” said David A. Hentschel, Occidental Oil & Gas chairman and chief executive, in a prepared statement.

Occidental’s move is only the latest in a series of domestic cutbacks by major oil companies in the wake of crude oil prices that fell from $30 per barrel to around $10 a barrel in 1986, only recently climbing back to about $18 per barrel, analysts said.

“What we’re seeing is a cutback in the U.S. oil and gas exploration effort pretty much across the board, and more and more companies are seeking reserves overseas,” said Rosario (Sal) Ilacqua, an oil industry analyst with Nikko Securities Co., International, in New York.

Linda Hauser, a spokeswoman for Occidental Oil & Gas, stressed that the reorganization was intended to cut costs, not curtail domestic exploration and production.

Layoffs will occur primarily in the old City Services Oil & Gas Corp., which Occidental bought for $4 billion in 1982 and renamed Oxy USA Inc., the domestic subsidiary of Occidental Oil & Gas.

“When they bought City Services . . . it was an oil company best known for its natural gas reserves, and yet prices for natural gas have just not been that attractive in terms of the incentive to go out and drill,” said William L. Randol, an industry analyst with First Boston Corp. in New York.

At the end of the 1988 fiscal year, Occidental reported its natural gas reserves worldwide at 2.92 trillion cubic feet, most of which is in the Kansas Hugoton field in the United States.

The reorganization “is positive for the shareholders . . . but unfortunate for employees who are in an area already hard hit by layoffs,” said Ronald Londe, an analyst with A. G. Edwards & Sons in St. Louis.

“It reflects the poor returns in the natural gas area,” he added. “So far, prices are about flat with where they were last year, and demand is only up 1% or 2%.”

Hauser said the changes had begun and would be completed by year-end.

The company will move its domestic exploration operation out of Tulsa and combine it with its international exploration unit in Bakersfield, she said.

Tulsa will remain the headquarters for the international and domestic oil and gas company, but with 650 to 700 fewer employees as operations are decentralized. Employees will be offered voluntary retirement packages, severance plans and outplacement help, Hauser said.

New regional offices will be created in Oklahoma City; Midland, Tex., and Houston. The company’s natural gas liquids business will be combined with oil and gas production operations in those new offices, Hauser said.

Occidental’s restructuring comes relatively late in the game. In 1986, Atlantic Richfield Co. reduced the size of its domestic oil and gas work force by 23%, or about 2,000 employees, and said it would sell about 900 smaller and less profitable properties in the continental United States.

In January, 1988, Phillips Petroleum announced layoffs of 7% to 10% of its 22,500 employees.

One of Last to Cut

And in May, Unocal Corp. announced a restructuring of its domestic oil and gas operations, consolidating and streamlining its regional office structure and reassigning or offering early retirement to employees.

“Oxy is one of last, relative to Arco, Phillips and the others, to take cuts in its domestic payroll,” said M. Craig Schwerdt, an analyst with Seidler Amdec Securities Inc. in Los Angeles. “They may have been more optimistic that prices would rebound and were slower to cut costs,” he said. Earnings from Occidental Oil & Gas declined sharply in the second quarter to $26 million from $78 million in the 1988 quarter.

The decline was in part because of higher income tax expenses and lost North Sea crude oil production resulting from the devastating explosion of the Piper Alpha platform in July, 1988. Some of that production has been restored, the company added.

Revenue in the quarter totaled $676 million, compared to $744 million a year ago.

The company has operations in 25 states and 15 foreign countries.