Chevron Goes Bargain Hunting
Chevron Corp., the fourth-largest U.S. oil company, is looking to purchase cut-rate assets as it also eliminates several hundred jobs and reduces expenses by $500 million next year to cope with oil prices that are near 12-year lows, Chief Executive Kenneth Derr said Tuesday.
Derr also told analysts in New York he had submitted investment proposals to Saudi Arabian officials as a follow-up to a meeting of major oil companies with the Saudi oil minister and crown prince in September. He said he will travel to the oil-rich kingdom for talks after Jan. 1.
Chevron’s moves come as the oil industry faces a wave of mergers, job cuts and cost cutting as oil prices languish 40% lower than a year ago. Derr said some smaller companies’ distress may be Chevron’s opportunity.
“There are a lot of companies on the rocks and getting a lot cheaper,” he said. “We’re actively looking at a number of assets.”
Chevron shares fell $2.69 on Tuesday to close at $83 on the New York Stock Exchange.
San Francisco-based Chevron, which has 34,000 employees, also said it budgeted $5.1 billion for spending on capital projects in 1999, down 7.3% from the $5.5 billion allotted this year.
Derr gave no details on the location of job cuts, though the cost-savings program will mostly target U.S. operations. He said he expects fewer than 1,000 jobs to be eliminated.
Much of the first $300 million of the cost-cutting program will come out of exploration and production expenses in U.S. onshore regions, with another $100 million cut from exploration and production outside the U.S., he said.
The rest will come from reductions in corporate and computer expenses, Derr said.
Chevron expects to continue exploring in the Gulf of Mexico and boost production off West Africa and in its giant Tengiz field project in Kazakhstan.
“A $500-million cut isn’t small. The business is getting more competitive,” said Rosario Ilacqua, vice president and senior oil analyst with Rothschild Inc.
Though Chevron is looking at acquiring assets, Derr is skeptical about a merger with a major oil company.
“I don’t think you should undergo a major merger if the only thing you get is a one-time reduction in costs,” he said.
Speculation that Chevron would buy another company or be taken over has grown since Exxon Corp. and Mobil Corp., the two largest U.S. oil companies, announced plans Dec. 1 to merge in a deal valued at about $80 billion. British Petroleum said in August it would buy Amoco Corp. in a $60-billion deal.
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