ARCO plans to shed staff for efficiency

ARCO plans to shed staff for efficiency

JAKARTA (JP): Atlantic Richfield Indonesia Inc. (ARII), a unit
of the giant United States energy company Atlantic Richfield
(ARCO) plans to shed employees as part of an efficiency program.

Head of the foreign contractors management body at state oil
and gas Pertamina Gatot K. Wiroyudo confirmed on Wednesday that
the company had asked Pertamina's approval of the plan, but
Pertamina as management holder of all foreign contractors'
operations, had not yet made any decision.

"We are evaluating the plan. We are looking at schemes in
which the company could boost efficiency without having to lay
off its employees," Gatot told The Jakarta Post.

Gatot said ARII had not yet detailed the number of workers it
sought to shed. The company has about 3,000 workers in the
country.

"My understanding is that ARCO is currently staging a
worldwide corporate restructuring in which it will reduce its
workforce by between 6,000 and 9,000 worldwide, excluding
Indonesia," Gatot said.

He said only ARII of the tens of foreign contractors operating
in the country had thus far planned to shed workers amid the
collapse in oil and gas prices.

The oil and gas sector was initially perceived as one of the
few sectors in the country which were left unaffected by the
current economic crisis, given its dollar-based earnings.

However, the crisis, which had been battering many parts of
the world, particularly East Asia for more than one year, has
resulted in a drop both in oil demand and oil prices globally.
This has forced many giant energy companies to merge to prune
costs.

ARCO acquired the giant U.S. energy company Union Texas
Petroleum (UTP) in a transaction valued at approximately US$3.3
billion in May this year to reduce costs by eliminating business
overlap of both companies.

Analysts said ARCO's operation in Indonesia has also been
affected by the failure of state electricity company PLN to pay
for its gas supplies from the Kangean gas block in East Java.

The huge gas reserve it recently found in the Tangguh area in
Irian Jaya has thus far not been able to boost the company's
operations in the country. The development of a liquefied natural
gas (LNG) center there is still delayed due to the absence of
buyers.

Gatot said as part of the efficiency program, Pertamina would
advise ARII to put its non core workers, including cleaning
service people and security guards, into service companies and
re-employ them.

As such, the company can reduce its overheads but still keep
all its workers in their present jobs.

"As a matter of fact, we have planned to apply such a cost and
overhead reduction scheme in all other oil and gas companies as
part of the effort to boost efficiency in the oil and gas
sector," Gatot said.

Minister of Mines and Energy Kuntoro Mangkusubroto earlier
called on the country's oil and gas sector to boost efficiency to
maintain large enough margins for themselves and the government
amid slumping oil prices.

Oil prices have decreased to the one-digit level over the past
several weeks, the lowest price in two decades.

Gatot said oil contractors were also expected to reduce costs
thanks to the pending deregulation in the procurement of services
and equipment and deregulation in the licensing of operations.

Pertamina will also request that contractors use state-of-the-
art technology, which could reduce costs, and create synergy
among contractors in their operations, including through joint
production facilities.

Contractors have also been called on to temporarily shut down
high cost oil wells pending the recovery of oil prices.

Gatot targeted savings on production costs of up to 35 percent
in the coming years thanks to the efficiency programs. (jsk)