Amoco Chief Wants to Cut Costs

VOLATILITY will remain a feature of Middle East politics. Thus the United States should expand its strategic petroleum reserve, allow oil exploration on federal land that is now off limits, and encourage use of natural gas. So says H. Laurance Fuller, who tomorrow becomes chairman and chief executive officer of Amoco Corporation, the nation's fifth-largest oil company. Mr. Fuller was interviewed at the company's Chicago headquarters.

A 30-year company employee, Fuller was president for the last eight. He describes himself as ``deeply involved'' in developing Amoco's strategy during those dark days of the oil price collapse. Some companies were so weakened that competitors absorbed them. Others paid ``greenmail,'' repurchasing shares at a premium to buy off a hostile takeover.

Neither happened at Amoco. ``The history of the oil business, like most businesses, is that the average performer ... doesn't survive for a long period of time,'' Fuller says.

``Obviously size in itself is a bit of a defense,'' he says. ``But I really think that our shareholders, the institutional ones as well as the individual ones, are quite happy with our performance and do not see that somebody else could do a better job of running the business.''

Fuller acknowledges that Amoco's earnings were relatively flat during the 1980s. But since oil prices fell by two-thirds over that period, ``I think we've actually done a superb job in maintaining earnings,'' he says.

For the future, he says he'll focus on cutting costs and shoring up the profitability of Amoco's three key businesses: exploration and production (Amoco Production Company), oil refining and marketing (Amoco Oil Company), and manufacture and sale of petrochemical products (Amoco Chemical Company).

This means continuing a program of dissolving bureaucracy and delegating authority to smaller ``strategic business units.'' It also means instructing employees in the company's ``mission, vision, and values.''

Amoco has put considerable effort into articulating these concepts, which range from integrity to environment to customer relations. Once the employees catch on, Fuller reasons, they will know how to operate without being micromanaged. ``Everybody understands what the basic ground rules are and can move forward on that basis.''

At Amoco Production, efficiency has been increased by concentrating its $500 million annual worldwide exploration into one organization. The move was needed: Five-year data collected by Arthur Andersen & Co., Amoco had one of the highest finding costs per barrel among major oil companies. ``We have to get our cost of production and our cost of finding oil and gas down,'' Fuller agrees.

During the 1980s, major oil companies shifted the bulk of their exploration outside the US. Likewise, two-thirds of each Amoco exploration dollar will go abroad. ``It's very clear that the opportunity ... for the discovery of new large oil reserves is in places like Alaska, onshore and offshore, as well as offshore the West Coast, possibly the East Coast, possibly the area around Florida,'' Fuller says. ``And a good deal of that real estate is not available to us because of regulatory or congressional a ction.''

Already, 48 percent of Amoco's US oil production comes from enhanced recovery methods like water flooding in aging oilfields. Fuller says that's ``indicative of the general state'' of US oil production. With federal lands unavailable because of environmental concerns, he hopes Amoco can ``minimize the decline in liquids production here.'' If oil prices rise convincingly, Amoco could use enhanced recovery to boost production from west Texas and Canada. ``And I'm not talking about $40,'' Fuller says. ` `The mid-$20s will do.''

This year Amoco will drill wells or conduct other exploratory work offshore Alaska and Canada, as well as in China, Burma, Indonesia, Madagascar, Congo, Gabon, and Trinidad, Fuller says. Amoco will be very active in Egypt, its largest producing area outside the US.

Two purchases of reserves in 1988 made Amoco the largest holder of natural gas reserves in North America. The company has established a marketing unit to boost sales, and is pushing construction of a pipeline that would tap its vast Canadian gas holdings. But regulatory approval is a year or two away, Fuller says.

Natural gas prices spike upward during cold weather, but otherwise remain in the cellar. Just when a rise will stick, Fuller says, is a ``superb question.'' He believes that the frosty December of 1989, when a shortage of gas caused by insufficient capacity in pipelines and at the wellhead sent gas prices soaring, shows supply and demand are not far out of sync.

Amoco Oil sold its last foreign refining and marketing assets in 1990, and now concentrates on bolstering its share of the highly competitive US market. Already Amoco can claim an average 14 percent of gasoline sales in the 30 states where it operates. ``I think that there isn't any reason that we couldn't have 20 percent or higher in a particular market area,'' Fuller says.

The new Clean Air Act, which mandates production of a less-polluting gasoline, will force all refiners to spend large sums retrofitting plants. ``Those increased investments and costs are going to have to be recovered in the marketplace, so we will see the price of gasoline being higher than it otherwise would be, ... certainly several cents a gallon,'' Fuller says.

Amoco's chemical business had been growing at twice the rate of national output until the recession hit. Now the petrochemical industry is somewhat overbuilt, but ``it's nowhere near as bad as it was in the last recession in the early '80s, when chemical plants were running, some of them, in the 60 to 70 percent range. We're basically over 80 percent in everything that we have.''

Amoco dabbles in such fields as lasers, biotechnology, photovoltaics, and waste incineration. ``We're not excluding businesses that we can grow from our own technology and aggressiveness,'' Fuller says. ``I think that both biotechnology and physics generally, of which lasers is an example, are areas where there isn't anybody out there that has a monopoly position or is somebody we can't afford to compete with.''

However, he adds, ``We're not going to be adding a so-called fourth leg to the stool by making a major acquisition totally outside of our business. I don't think the history of those kinds of acquisitions indicates that those can add value in general to shareholders.''