Arco Employees Receive Severance Information

Atlantic Richfield Co. employees have been handed details of severance packages as a prelude to a major layoff that the Los Angeles-based company confirms will be announced in the next few days.

Sources predict the job cuts may run as high as half of headquarters staff, which totals 400 permanent and 250 temporary employees, through a combination of layoffs and “outsourcing” of jobs. Rumors swirled in the anxiety-filled hallways of Arco Tower in downtown Los Angeles that the company’s international operations will also shrink ranks dramatically and close some foreign offices.

This follows the departure of Arco President William E. Wade Jr. and several other top executives, two of whom had been promoted and transferred to new foreign posts only last February. Arco, in the process of cutting costs in a stated attempt to remain independent, has jettisoned its corporate aircraft and the people who maintain them, and has hinted at plans to vacate the landmark Arco Tower.

Arco Chairman and Chief Executive Mike R. Bowlin e-mailed employees Sept. 16 to warn that across-the-board cuts would be announced this month. He later said capital spending would be reduced and that Arco would focus on markets in which it is the leader or close to it.

Arco employs about 20,000 people worldwide, with about 1,500 permanent and temporary employees in downtown Los Angeles. During its last major restructuring in 1993 and 1994, the company terminated nearly 3,800 employees.

Arco’s cost-cutting program will be unveiled later this week, spokesman Lee Tashjian said. He confirmed that Arco employees had received a letter from John Kelly, the senior vice president of human resources, outlining a severance package in which employees will be paid between one and a half weeks and three weeks of salary for every year of service, plus five additional years.

Like all other oil companies, Arco is struggling with the reality of oil prices that are lower than expected for longer than expected--about 30% below a year ago--and the likelihood they will remain low for at least the next 12 to 18 months. In response, severe cost-cutting is underway at Arco and at other companies. Shell Oil Co. said last week that it plans to eliminate 20% of its domestic exploration and production staff.

But Arco faces its own particular set of problems as well. It is still absorbing its $3-billion acquisition of Union Texas Petroleum last spring and must eliminate redundant costs and employees. Those kinds of cuts usually entail charge-offs and other sorts of costs.

Moreover, Arco’s foreign exploration and development programs in Russia and South America have suffered costly setbacks. These are regions that the company had hoped would compensate in coming years for slowly declining oil production in its North Slope, Alaska, fields, a mother lode since the early 1980s that is slowly running dry.

Company sources say Arco is scaling back its international activities and may close offices in London, Rio de Janeiro, Venezuela, Russia and Africa.

“Arco’s overseas efforts have been a big bust as far as I’m concerned,” said Sal Ilacqua, oil analyst with Rothschild Inc. in New York.

The increasingly unforgiving economics of oil are forcing more companies into one another’s arms. Amoco Corp. and British Petroleum Co. announced plans to merge in September.

Although Arco insists that it intends to remain independent, Ilacqua and other analysts believe it is a likely takeover candidate. The potential partner that comes up most frequently in such speculation is Mobil Corp.

“Arco has said publicly that it considers itself a target,” said John Hervey, oil analyst at Donaldson, Lufkin & Jenrette in London. “The difficulty is in seeing an obvious suitor. They have gotten their costs down considerably, so it’s harder to see why suitors would be interested in them.”

Arco shares declined $1.44 to close at $67.75 on the New York Stock Exchange.

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Times Senior Economics Editor James Flanigan contributed to this report.