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TwitterWith a clear cut shrink-to-focus strategy in mind, Chevron Corp., America’s second largest multinational energy corporation, is planning to sell a U.K. oil refinery, cut 2,000 jobs as well as shed assets in the Caribbean and Central America in order to make up for losses from its fuel-making business. It is also contemplating further job reductions in 2011, along with asking for bids for some assets in Europe, including the Pembroke Refinery in the U.K. It may also reduce operations at a refinery in Hawaii, which reportedly lost $613 million during the last three months of 2009. The company said the cuts come as a part of its plans to boost earnings by lowering costs, exiting unprofitable markets, and streamlining its business.
Chevron to cut 2000 jobs
The announcement comes as Chevron and its competitors face a tough economic environment, with lower oil prices and relatively low demand. In January, Chevron reported fourth quarter earnings of $3.07 billion, which were down 39% from the prior year period. It is expected that the refining and marketing business will be challenging for the next several years. “Downstream market conditions are likely to be difficult for the next several years. We intend to further concentrate our downstream portfolio in North America and Asia-Pacific,” said Mike Wirth, Chevron’s executive vice president for global downstream in a prepared statement. “These are markets in which we have our greatest competitive strength. “We are also rapidly and aggressively lowering costs, reducing capital spending, improving efficiency and simplifying our organization.”
The company is looking to raise oil and gas production by 1 percent this year using new wells in the Gulf Of Mexico, Angola and Brazil, as it spends almost $60 million a day in pursuit of the same. Chief Executive Officer John Watson, who succeeded David O’Reilly in January is looking at generating returns of at least 10 percent from each plant just as he faces some very threatening circumstances. More than one in three exploration wells Chevron drilled last year failed to find oil or gas, a public filing showed. In 2008, the failure rate was 10 percent.
“Chevron has held a long-term view favoring aggressive upstream investment, and the company is poised for another decade of upstream growth,” said Watson in a prepared statement. “We expect a substantial production increase mid-decade as our portfolio shifts toward natural gas and Asia.”
Pembroke as mentioned earlier is under the scanner for possible bidding and processes 220000 barrels of crude oil a day, estimated to be worth £1.5m a week to the county’s economy. Although, Chevron said its intention to look for bids for some of its operations in Europe was part of its global restructuring, and that the process is aimed at determining interest in its operations in Europe, much remains to be seen about how exactly it would work out.
On the upside, Chevron made successful finds last year in Australia, Angola and the Gulf of Mexico, including the Buckskin No. 1 well, which encountered a 300-foot column of oil-soaked rock, according to the company’s Web site. The company’s 6.3 percent profit margin in 2009 exceeded that of The Hague-based Royal Dutch Shell Plc, which earned 4.5 cents on every dollar of sales, ConocoPhillips of Houston, which had a 3.3 percent margin, and Norway’s Statoil ASA and Calgary- based Suncor Energy Inc., which had profit margins of 4 percent and 4.6 percent, respectively. It expects its expenses on equipment and repairs to fall in the coming years as well. Meanwhile, the job cuts are here to stay.
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