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Unocal plans Gulf of Mexico asset sales Company’s goal to lower costs, fund international growth Petroleum News Anchorage Staff
Unocal said June 5 that that it will sell assets — primarily oil and gas fields in the Gulf of Mexico region — to reduce the company’s operating and depreciation, depletion and amortization unit costs and to lower corporate and business unit administrative and general costs. Cash flow from operating activities and proceeds from sales would be used to reduce debt and other financing, the company said.
El Segundo, Calif.-based Unocal said these asset sales are in addition to sales earlier this year of North American properties with production of some 5,000 barrels of oil per day equivalent.
Charles Williamson, Unocal’s chairman and CEO, also said the company’s focus on large development projects is beginning to pay off, with production from the West Seno deepwater project in Indonesia expected within 30 days. The company expects to sanction additional developments in Azerbaijan, Thailand, Indonesia, Bangladesh and the deepwater Gulf of Mexico in the next 12-18 months, he said.
“Improving the sustainability and profitability of our domestic E&P businesses and reducing across-the-board costs will help to highlight our attractive international growth program,” Williamson said.
In the Gulf of Mexico, Unocal said, its goal is to create a more profitable and sustainable business by selling smaller fields and reducing costs. Approximately 65 to 70 percent of the company’s shelf production comes from about 25 properties, Unocal said.
What the company is selling is its working interest in some 75 other fields in the Gulf of Mexico area, properties which, Williamson said, “only represent a net average daily production of approximately 25,000 to 30,000 barrels of oil equivalent per day and proved reserves of 40 to 50 million BOE.”
Unocal said that with asset sales and cost reductions in the Gulf of Mexico, it expects to reduce Lower 48 finding and development costs to below $8 per BOE.
Deepwater Gulf of Mexico Unocal said it will continue to explore for and develop major oil and gas accumulations in the deepwater Gulf of Mexico. It expects to drill between three and five wildcat exploration wells per year in the deepwater GOM over the next few years, but will relinquish a number of primary-term outer continental shelf blocks not considered prospective enough to warrant additional rents.
Williamson said the company expects a reduction of 20 percent in deepwater Gulf of Mexico cash expenses which will “allow us to continue to explore our inventory of high-potential drillsites.” The company will record a pre-tax $25 million charge associated with the early relinquishment of these blocks in its second quarter 2003 results.
Unocal said it is near completion on an appraisal well on the Champlain discovery in Atwater Valley block 63 and will then drill its St. Malo prospect in Walker Ridge and the Myrtle Beach prospect in Green Canyon.
“These prospects are significant tests in very good areas that have attracted high industry interest. By bringing in additional companies, we will be able to participate at an attractive cost,” Williamson said.
Production from the Mad Dog and K-2 discoveries is expected in 2005, and Trident development approaches are being evaluated pending the results of regional development planning currently under way by the operators in the Perdido play, Unocal said.
Changes in equity holdings, debt reduction The stockholders of Matador Petroleum, a private company in which Unocal has a 29 percent ownership interest, are voting on the sale of the company. Unocal said it has voted in favor of the sale and if the sale closes, will realize $78 million in pretax proceeds and recognize a significant gain on the investment.
Last year, Unocal completed purchase of the outstanding 35 percent of Pure Resources shares that it didn’t own. And said it has been able to reduce capital spending by $100 million, while keeping production relatively flat and continuing to invest in conventional and deep gas exploration opportunities.
Unocal said it is “committed to reducing debt and strengthening the balance sheet” irrespective of commodity prices and has locked in prices on 41.1 billion units of Lower 48 natural gas from July 2003 through March 2004 at an average price of $5.96 per unit. In 2003, if prices hold at current Nymex futures levels of $29.40 for oil and $6 for gas, the company said expects to have about $450 million in cash available to prepay debt and other financings in 2003.
The level of debt reduction could be substantially higher, the company said, depending on the amount and timing of the proceeds from the sale of the Gulf of Mexico assets, the Matador Petroleum investment and various non-core assets (real estate holdings and certain non-E&P business interests).
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