Arco Needs A Fill Up

By major oil company standards, Arco was a latecomer. Formed by the 1966 merger of Atlantic Refining Co. and Richfield Oil Corp., it became the envy of the industry by aggressively developing the massive Alaskan fields discovered by Richfield nine years earlier. Eventually, its huge cache of cheap Alaskan crude made it the largest seller of gasoline in the car-crazed Western states.

Those were the good old days. Now, unable to replace its Alaskan reserves at anything like the pace at which they are being depleted, the Los Angeles-based company is redirecting its efforts. That puts the company's new leader--51-year-old Mike R. Bowlin, the onetime head of Arco's international unit who takes over for retiring CEO Lodwrick M. Cook on July 1--in the hot seat.

Bowlin is taking charge just as Arco is stepping up its cost-cutting efforts. On June 20, the company announced that it would eliminate nearly one-third of its 2,350 Alaskan workers. More pink slips are likely: On June 27, Arco's board is expected to consider a restructuring plan aimed at cutting even more heads from the company's corporate staff, as well as from its chemical, coal, and transportation units. The cuts, which insiders say could involve more than 1,000 jobs, come on top of past restructuring that has slashed nearly 10% of Arco's total 25,000-person workforce in a bit more than a year.

Now, Arco badly needs to strike it rich in the field. The company's total base of proven reserves has dwindled by 19% since 1989, to 2.5 billion barrels. And Mary K. Quinn, an analyst with S.G. Warburg & Co., estimates that it spent $490 million to drill dry holes last year, some $159 million more than in 1992.

NORTHERN DUDS. The major disappointments included three duds in a once-promising Camden Bay region off northern Alaska. Given the poor results, Arco scheduled only four exploratory wells in Alaska this year, down from 13 in 1993. And it slashed its Alaskan exploration budget by 57%, to just $90 million this year.

Arco has had little success finding oil elsewhere, either. The company currently is drilling in the North Sea and off the coasts of China, Indonesia, and Tunisia--and last year it announced a major discovery in Ecuador. But it produced a mere 79,000 barrels of crude a day overseas last year vs. 604,700 from domestic sources. To speed up its overseas drive, analysts say, Arco will likely have to make some major acquisitions.

Arco could use a boost. Last year, its net dropped to just $269 million (chart), including restructuring charges, on $18.5 billion in revenues. Cost-cutting and rising oil prices will help. But unless there's another Alaska out there somewhere, Arco may have more tough years ahead.

Before it's here, it's on the Bloomberg Terminal.