$300-Million Investment to Boost Reserves : Arco to Buy Interests in Oil Field

In a move to boost its reserves, Arco Oil & Gas Co., a division of Los Angeles-based Atlantic Richfield, said Tuesday that it had reached an agreement to acquire interests in some East Texas oil and gas properties from Henderson Clay Products for $300 million in cash.

The properties, located in Rusk County, cover 56,000 acres and contain 172 wells producing natural gas. Arco’s interest in the properties would amount to 25,000 acres and its total shares in the wells would be equal to 85 wells.

The properties have natural gas reserves of 300 billion to 500 billion cubic feet, according to Homer L. Bryce, chairman, chief executive and the largest shareholder of Henderson Clay Products, a privately held brick manufacturer based in Henderson, Tex.

A spokesman for the Dallas-based Arco division declined to comment on the size of the reserves, saying that the company is in the process of evaluating the properties. The acquisition would include about 6,300 unexplored acres in Rusk and neighboring Leon and Shelby counties.

Arco said that, over the next several years, it would drill another 85 to 90 wells in the area. It estimated that the project has a productive life of 45 to 50 years.

Alan Edgar, an analyst with the Dallas brokerage house of Schneider, Bernet & Hickman, said the acquisition “is in line with Arco’s plan . . . to supplement drilling budgets with prudent acquisitions of reserves where they can find them.”

He said that, although drilling and exploration costs industrywide currently are running below pre-1979 levels--at an average of $12 a barrel--such “finding costs” remain high compared to current depressed prices for oil.

As a result, he said, a number of oil and gas companies are finding it more economical to buy existing reserves. But he added, “Companies now are having trouble finding reserves.”

While Arco would not give details of the transaction, industry observers believe the company negotiated a good deal.

“Arco Oil & Gas is pretty strict on what they will pay,” Edgar said. “Their finding costs are $6 to $7 a barrel--half the industry average. They are not going to pay too much more than that for reserves in an acquisition.”

Bryce said: “They got a bargain. I’m happy, and they are too. I’ll be able to eat for a while.” Asked why a brick manufacturing company got into the energy business, Bryce explained: “We didn’t have any gas to run a brick factory, so we had to go and find gas. We found so damn much, we threw it in Arco’s lap,”

The agreement is subject to a review of the assets and titles involved, clearance from the Federal Trade Commission and the approval of Henderson Clay’s 400 shareholders.