Chevron to Cut Up to 3,600 Jobs : Oil Firm’s Cost-Reduction Plan Could Result in a $270-Million Charge

Blaming low natural gas prices and poor refining profits because of the recession, Chevron Corp. on Wednesday announced a sweeping cost-cutting program that could trim between 2,500 and 3,600 jobs and result in a $270-million charge against fourth-quarter earnings.

The program is only the latest of several restructuring moves announced over the last few years by San Francisco-based Chevron, the nation’s third-largest oil company.

A central piece of the plan would scale back operations at Chevron’s aging oil refinery in Port Arthur, Tex., which has been plagued with labor-management problems and now faces $1 billion of upgrading, analysts said. Under the worst-case scenario, the refinery, Chevron’s largest, would be all but shut down, resulting in the layoff of 1,600 of its 1,900 workers.

Chevron Chairman Kenneth T. Derr announced the plan by video and audio hookups to 26,000 Chevron workers at 60 sites in the United States, Canada and the United Kingdom. After the announcement, Chevron’s stock slipped 50 cents to $68.375 per share in trading on the New York Stock Exchange.

The program was intended to respond to the “short-term lousy profit situation our industry--especially in the U.S.--finds itself (in), and in the longer term, to make sure all parts of our business are as competitive and low-cost as possible,” Derr said in an interview.

Chevron, the nation’s largest refiner, has suffered from poor refining profits, particularly on the highly competitive and recession-weary West Coast, where all refiners have been hit hard. In addition, the company, which is also the nation’s largest producer of natural gas, has suffered from the continuing weakness in natural gas prices, analysts said.

Over the next five years, Chevron faces more than $2 billion in expenses to modernize production and to satisfy environmental regulations at all eight of its American refineries.

Operations at the Port Arthur refinery will be reduced in one of four ways. At minimum, production will be scaled back one-third, resulting in the loss of 500 jobs. At worst, the plant will be closed, except for some chemicals manufacturing, which would slash 1,600 jobs. Alternatively, Chevron could sell the refinery or seek a joint-venture partner. A decision is due “later this year,” the company said.

The least drastic measure will require asset write-offs and severance costs of about $83 million after taxes, which will be recorded in the fourth quarter. Shutting down the refinery would require an additional charge against 1992 earnings of about $200 million after taxes, which could be “substantially increased” by the costs of dismantling, environmental cleanup and other items, the company said.

Beyond Port Arthur, Chevron plans to cut the company’s total work force by about 2,000, half through a voluntary early retirement program and half through asset sales, restructuring and organizational changes, the company said. Those job cuts will cost about $102 million after taxes, also to be recorded in the fourth quarter of 1991.

Other unrelated special charges, primarily for environmental liabilities and asset sales, will reduce fourth-quarter earnings by another $85 million after taxes, for a total of $270 million.

Chevron hopes to cut its total operating costs by 50 cents per barrel by mid-1993. At current volumes, this would increase profitability by about $600 million per year before taxes, Derr said.

Other highlights of the plan announced Wednesday:

* Chevron will speed up the previously announced sale of non-strategic oil and gas properties, including more than two-thirds of its oil-field properties, and the streamlining of its domestic exploration and production unit, eliminating more than 800 jobs. In the next few weeks, the company will release details of this program.

* The company will defer raises for all exempt employees for at least three months and cut back on new hiring.

* The company will increase its 1992 capital and exploratory budget to $5.3 billion, 6% over 1991, with a greater emphasis on overseas spending.

Frederick P. Leuffer Jr., senior oil analyst with CJ Lawrence Inc. in New York, doubted that Chevron’s most recent moves would help cut costs much.

Leuffer estimated that an employment cut of 2,500 workers would save at most only $125 million to $140 million, and less if the early retirements or layoffs took place over a long period of time. Moreover, “every major oil company, and every large independent, has a long list of marginal oil and gas properties they’d like to sell, and there is an oversupply of these on the market, depressing their value,” he said.

For his part, Derr was not concerned about finding buyers for Chevron’s unwanted properties. “To date, we’ve had very little problem in selling the things we’ve wanted to sell at prices that are OK,” Derr said.

Derr added that the company overall was “on target” in its long-term strategy to improve return to shareholders.