Marathon Oil Co. intends to consolidate parts of its U.S. upstream organization to create a more focused, profitable and efficient core business. The Houston major oil company, which is the main operating entity of the USX-Marathon Group, said that approximately 200 jobs will be eliminated as a result of its plan. It expects to complete the consolidation by the end of the year. "Our U.S. domestic operations are a core business for Marathon," said Clarence Cazalot, the company's president. "We have a solid reputation as a low-cost producer, but in today's competitive marketplace, we need to ensure that our general and administrative costs are likewise competitive. The actions announced today are part of a productivity improvement effort targeting a $75-million reduction in annual, repeatable costs. It will be instrumental in providing the strong foundation we need to grow our business globally." Wall Street oil analysts applauded the moves. "We think this is only the first step and more actions will be taken during the next several months, perhaps including a significant shuffle of the upstream management organization," said Charles Ting, who follows Marathon for Lehman Brothers Inc. in New York. "Although it is premature to speculate the outcome of this latest restructuring program, we are cautiously optimistic in light of the sense of urgency that has been demonstrated by Mr. Cazalot." He reiterated his 1-Buy rating for USX-Marathon's common stock because of the company's attractive valuation, large share buyback program and potential turnaround benefits. George J. Gaspar of Robert W. Baird & Co. Inc. in Milwaukee had increased his earnings projections for Marathon before the company announced its domestic upstream consolidation plan. He estimates that Marathon's 2000 earnings will reach $3.40 per share, up from his previous forecast of $3.16 and 143% more than the $1.40 per share that it earned in 1999. For 2001, Gaspar raised his earnings forecast for Marathon to $2.64 from $2.48 per share. The company's domestic upstream consolidation plan has three main components. Research and development activities, which Marathon currently carries out at its Littleton, Colo., Petroleum Technology Center will be relocated, resulting in the closure of that facility. Upstream components will be streamlined and merged into a single Houston-based organization. Downstream activities will be integrated within Marathon Ashland Petroleum LLC, Marathon's domestic downstream venture with Ashland Inc., at MAP's refining analytical department in Catlettsburg, Ky. Marathon's former Rocky Mountain and Central regions will be merged into a single unit based in Oklahoma City. The company's Cody, Wyo., operations will remain responsible for production in the former Rocky Mountain region and will report to the Oklahoma City office. Exploitation activities previously carried out separately in the Rocky Mountain and Central regions will be consolidated in Oklahoma City. Marathon also plans to merge its Southern and Midcontinent regions into a single unit that will be based in Midland, Texas. That will allow the company to close its Tyler, Texas, office and move the Southern Region's production responsibilities to Midland. Marathon will retain outlying field offices in the Tyler area. Certain accounting functions and business development activities, currently carried out at all regional offices, will be centralized in Houston. Marathon also has begun a full review of its business practices and anticipates that additional efficiencies will be identified, resulting in further job eliminations. The total number of jobs to be cut will be determined later in the year, when the review is complete, and Marathon knows the outcome of a voluntary early retirement program that it is offering to certain domestic employees. Under that program, 970 members of Marathon's work force had until mid-October to elect to retire. Retiring are William F. Madison, senior vice president, worldwide production; John V. Parziale, senior vice president, planning and technical resources; and Ron S. Keisler, senior vice president, worldwide exploration. The company's new senior upstream leadership team includes Philip G. Behrman, senior vice president, worldwide exploration; G. David Golder, senior vice president, commercialization and development, a new position; Steven B. Hinchman, senior vice president, production operations; John T. Mills, senior vice president, finance and administration; and Steve Lowden, senior vice president of business development, also a new position. -Nick Snow
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