Unocal Corp. has announced initiatives to improve the profitability and sustainability of its lower 48 US exploration and production businesses and to strengthen the company's balance sheet – initiatives designed to reinforce Unocal's capacity to move forward with its sizable inventory of major developments and discoveries.
The program includes the planned sale of certain 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 lower corporate and business unit administrative and general costs. In addition, the company anticipates using cash flow from operating activities net of capital expenditures and the proceeds from these and other non-E&P asset sales to reduce the company debt and other financings.
Charles R. Williamson, Unocal's chairman and CEO, said the company's portfolio of large development projects and exploration discoveries moving toward approval form the basis for significant and predictable growth in cash flows, production, and reserves over the next decade and beyond.
"Our focus on growth from large development projects is beginning to pay off," Williamson said. "The West Seno deepwater project in Indonesia is expected to begin production within the next 30 days. Major development initiatives, which do not require additional exploration success, are underway in Azerbaijan, Thailand, Indonesia, Bangladesh, and deepwater Gulf of Mexico, and we expect to sanction additional developments in each of these areas over the next 12-18 months."
In the Gulf of Mexico, Unocal's goal is to create a more profitable and sustainable business by selling smaller fields and reducing costs.
Approximately 65-70% of Unocal's shelf production comes from 25 properties, and the company sees future attractive opportunities associated with those larger fields.
"We anticipate selling our working interest in approximately 75 fields in the Gulf of Mexico area," Williamson said. "However, these properties only represent a net average daily production of approximately 25,000-30,000 boe/d and proved reserves of 40-50 MMboe."
Unocal will continue to explore for and develop major oil and gas accumulations in the deepwater Gulf of Mexico.
"We have identified opportunities for synergies and improved efficiency across our exploration groups, which will result in a 20% overall reduction in deepwater GOM cash expenses and allow us to continue to explore our inventory of high-potential drillsites," Williamson said.
In addition, the company will be relinquishing a number of primary-term outer continental shelf blocks that are not considered prospective enough to warrant additional rentals. The company will record a pre-tax $25 million charge associated with the early relinquishment of these blocks in its2Q 2003 results. The company expects to drill between three and five wildcat exploration wells per year in the deepwater GoM over the next few years.
Unocal is near completion on an appraisal well on the Champlain discovery in Atwater Valley block 63. The Discoverer Spirit drillship is committed to drill two wells for other companies.
Following those wells, Unocal will 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 underway by the operators in the Perdido play.