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Dear Colleagues,
I want to follow up on the video message I sent last month on the evolving business climate and the actions we’re taking to remain competitive. Since then, the operating environment has grown more challenging, with falling stock markets, lower oil prices and sobering economic news. Our stock has been hit particularly hard. It’s critical that we focus on delivering on the five initiatives I noted: reducing operating expenses, improving project execution, decreasing capital spending, completing our divestment program, and operating safely and reliably.
We’ve launched several projects to address costs at an enterprise level. These include:
• Project Alpha, the effort to review the effectiveness, efficiency and affordability of our corporate departments, service companies, Technology, Projects and Services organization and select Gas and Midstream groups.
• The improvement initiatives and reorganizations undertaken by Upstream’s operating companies and business units.
• Procurement/Supply Chain Management’s market response initiative to capture supplier cost reductions.
We’re also preparing next year’s business plans, assessing the appropriate level of spend – for capital expenditures and operating expenses – given the current market environment. And we’re making progress on our goal of $15 billion in divestments through 2017, completing this year the sale of our interest in Caltex Australia, The New Zealand Refining Company, our Pakistan retail and commercial fuels businesses, and assets in Nigeria, Vietnam and Cambodia.
While we pursue these enterprise-wide efforts, I need each of you to look for ways to achieve our five initiatives in your area of business. Many of you already have undertaken efforts to work smarter and more efficiently. Examples include:
• The Indonesia Business Unit installed real-time, online, marine tracking and monitoring in its Kalimantan crew boats to minimize fuel consumption. The project has saved $1.8 million in fuel in the last four months and is expected to save $5.4 million for the full year.
• The Richmond Refinery found ways to create value during the turnaround of a major process unit. The facility identified about $14 million in extra value by implementing efficiency improvements and producing more products than typical during a turnaround.
• The Environmental Management Company last year began looking for efficiencies in its well plug and abandonment spending. To date the organization has completed 13 Lean Sigma Projects, resulting in better upfront planning, proactive responses to changes in regulatory requirements and the use of new technology for $30 million in savings.
I look forward to seeing more such examples as we look for further efficiency and cost savings improvements. We Lead underscores the expectation that there’s a leader in each of us. There’s no better time to challenge ourselves to find opportunities to improve performance. The end result will be a more competitive company with a cost structure that’s sustainable during all phases of the business cycle.
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