The Rising Influence of Rising Affluence

[DewDiligence]

CVX to Cut Downstream Workforce 20% in 2010-2011

[This announcement was made concurrently with CVX’s annual investor presentation two days ago.]

http://online.wsj.com/article/SB20001424052748704784904575111451674989046.html

›MARCH 10, 2010
By ISABEL ORDONEZ

Chevron Corp. is cutting staff from its crude-oil refining and marketing business by more than 20% as fuel demand remains sluggish.

About 2,000 workers were laid off in 2009, and just as many are to go this year. The layoffs are expected to continue in 2011. In 2008, Chevron, of San Ramon, Calif., had 19,000 people employed in that segment.

Chevron, the second-largest U.S. oil company by market capitalization after Exxon Mobil Corp., in January said it would be reducing its work force, but specific figures only became available on Tuesday ahead of the company's annual meeting with analysts in New York.

The scale of the layoffs underscores the dim prospects for what is known as downstream—the business of purchasing crude oil and refining it into useful products such as gasoline and diesel. Several refineries in the U.S. have already closed their gates for good. Industry executives were caught off guard by the precipitous decline in fuel demand that accompanied the global economic slowdown. While consumption has recovered somewhat, additional capacity from foreign refineries has further depressed profits that were weighed down by higher crude-oil prices.

"Market conditions are likely to be difficult for the next several years," said Mike Wirth, Chevron's executive vice president for global downstream. "We intend to further concentrate our downstream portfolio in North America and Asia-Pacific."

Chevron gave more details about possible divestitures. The company plans to ask for bids for some assets in Europe, including the Pembroke refinery in Wales. It also intends to sell its lubricants-and-marketing business in parts of Central America and the Caribbean. Operations in Hawaii and Africa, outside of South Africa, will be reviewed.

The cost-cutting measures are expected to boost profit this year and push margins back to double digits by 2012. In the fourth quarter of 2009, Chevron incurred a $613 million loss in its downstream segment, compared with a $2.1 billion profit during the same period in 2008.

Despite the refining industry's woes, Chevron will continue to operate as an integrated oil company, as refining in the past has buoyed the company when profit to be had from extracting crude oil from the ground was slim.

Now, though, crude exploration and production is generating all the profit, as output is rising amid a stable oil price of about $80 a barrel.

"We don't contemplate closing refineries," said Chevron Chief Executive John Watson. "Our refineries are competitive, but the industry conditions are difficult. Over time, we think returns will be competitive again."‹