Chevron Corp. and Phillips Petroleum Co. each recently announced major spending cuts for 1999. Phillips officials said the company's plastics businesses won't be affected much by the cuts, but at Chevron, it could be a different story.
Both companies have been hammered by low crude oil prices. Crude oil, which was selling for about $25 a barrel in early 1997, currently is selling for less than $15 a barrel.
As a result, Chevron recently announced it is eliminating 300 jobs in its chemicals division, which will be moved from San Ramon, Calif., to Houston. The cuts are expected to produce annual savings of $76 million by 2001.
``These are hard decisions to make, but [they] must be done if we are to remain competitive during this severe petrochemicals downturn and extended period of low energy prices,'' Chevron Chemical Co. President Darry Callahan said in a news release.
San Francisco-based Chevron plans to reduce overall expenses by $500 million in 1999 by cutting capital spending in exploration, production, refining, marketing and chemicals.
Chevron's chemicals division ranks fifth in North American polyethylene production with 7.2 percent of anticipated 1999 capacity. The company also is North America's fifth-largest polystyrene maker.
Chemicals and plastics accounted for more than $3.6 billion in sales for Chevron in 1997. That represents about 9 percent of the company's total sales of $40.6 billion.
Chevron officials said recently that no decisions have been made regarding cuts to the PE or PS businesses in 1999.
Whatever decisions are made will not affect Chevron's planned addition of 250 million pounds of high density PE capacity in Orange, Texas. The company recently shut down a 250 million-pound HDPE line at the site so it could add the new capacity, which will be on line in April.
``We need that [HDPE] product to serve our customers in the pipe-grade and blow molding markets, where we've seen solid growth,'' said Joe Locke, Chevron's national sales manager for film, coating and pipe resins.
So far, the only change in Chevron's PS business has been a 3-4 percent reduction in nonmaterial costs such as consulting fees and travel budgets, according to styrenics product manager Joe Howlett.
``It's not a significant slash-and-burn,'' Howlett said.
In a recent news release, Chevron officials also addressed the numerous merger and acquisition rumors that have surrounded it as slumping oil prices cut into profits.
``As I've said before, we will consider mergers or acquisitions as one possible way to improve business results,'' Chevron Chairman Ken Derr said. ``But it is not necessary for Chevron to merge with a competitor to continue to provide top returns to our shareholders.''
Phillips, North America's third-largest HDPE maker, plans to eliminate 1,400 jobs in 1999, primarily in its exploration and production segment and corporate staffs. Of the cuts, 850 will be in the United States, including 400 at the company's Bartlesville, Okla., headquarters.
It also is cutting $650 million from its 1999 capital-expenditures budget. All but $50 million of that amount will come from the exploration and production segment.
``We'll have some cutbacks across the board, but most of them will come in exploration,'' said James Gallogly, Phillips vice president of olefins and polyolefins. ``Plastics will see some cutbacks through early retirements, but the reductions will be more modest than in other divisions.''
He declined to provide an estimate of the number of jobs that will be eliminated from the North American HDPE and polypropylene businesses.
Gallogly added that the expense cuts will have no impact on HDPE projects the company is working on in Qatar and China. Via partnerships, Phillips is set to expand an HDPE plant in China in 2001 or 2002 and open a new HDPE plant in Qatar in 2002.