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)