These changes are expected to result in annual pre-tax cost savings in excess of $65 million. Approximately 45 percent of the projected savings will result from business process improvements and organizational efficiencies, with the remaining portion from the elimination of approximately 265 staff positions, primarily at the company's Houston headquarters and U.S. production business units. Implementation of these actions has begun, and it is anticipated that most of the changes will be completed by year-end.
The actions announced today are the result of a recently completed business transformation study of Marathon's existing operations that identified ways to improve the company's competitiveness. Key actions being taken are:
"The plans and actions we have announced today are part of a continuum of steps Marathon has taken during the past two years to improve our competitiveness and enhance shareholder value," said Clarence P. Cazalot, Jr., Marathon President and CEO. "During this period of time, we have grown our proved reserve base, expanded our international portfolio with new core areas, realized exploration success, advanced our integrated gas strategy and sold non-core assets. However, while we have continued to improve operations, our current overhead cost structure is too high. The actions we have announced today will reduce costs, make us more efficient, improve our business focus and help us achieve the full potential of our strategic plan."
Marathon anticipates these activities will result in a pretax charge of approximately $40 million. Approximately 40 percent of this charge is expected to be recorded in the third quarter of 2003. The remainder will be recognized when incurred, primarily in early 2004.
Marathon's current U.S. production organization will be consolidated into two business units, Northern and Southern, headquartered in Houston. The company expects to maintain field personnel in its production offices located in Anchorage, Alaska; Cody, Wyoming; Lafayette, Louisiana; Midland, Texas; and Oklahoma City, Oklahoma. Existing production field offices will be retained with few positions impacted. The former business unit office in Denver, Colorado, will close. Approximately 230 positions from these offices will be transferred to Houston. This consolidation will not affect the company's existing production operations in these geographic areas.
By consolidating production operations into Houston, the company will concentrate operational management and technical expertise in a single location. This will provide economies of scale, enhance knowledge transfer and sharing of best practices, and improve Marathon's ability to maximize the potential of its U.S. production operations. The consolidation will not impact Marathon's international production operations.
"Although not included in the projected savings announced today, we anticipate further cost reductions from either outsourcing certain services and functions, or identifying more efficient ways of performing the work ourselves," added Cazalot. The company plans to assess strategic outsourcing opportunities of many support functions including information technology, finance and accounting, procurement, human resources and administrative services. This assessment will be coordinated with the company's 62-percent owned downstream subsidiary, Marathon Ashland Petroleum LLC, which is undertaking a similar analysis.
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