Unocal to Sell Oil Field Stakes in Gulf of Mexico

Oil and natural gas producer Unocal Corp. said Thursday that it would sell stakes in 75 producing fields in the Gulf of Mexico and give up some prospects there to boost domestic profit and reduce debt.

The El Segundo-based company said the sale would result in lower overhead costs and “a sustainable, more predictable and more profitable” Gulf of Mexico operation.

Charles R. Williamson, chairman and chief executive, said streamlining domestic exploration and production operations “will help to highlight our attractive international growth program.” Williamson said projects in Indonesia, Azerbaijan, Thailand and Bangladesh were particularly promising.

The Gulf of Mexico properties for sale produce the equivalent of as much as 30,000 barrels of oil a day and have estimated reserves of up to 50 million barrels. The daily production represents about 30% of the company’s output from the Gulf region and some 6% of Unocal’s companywide production.

The properties could fetch $300 million to $450 million, according to an estimate by Bryan Caviness, a Fitch Ratings director who follows the oil and gas industries.

Unocal’s total debt stands at $3 billion, he said.

“I think it’s a positive to neutral move,” Caviness said. “These are producing properties, so it does take cash off the table now, but they may be able to get a pretty good price for them and they could pay down some debt.”

Unocal said it also would relinquish claims on several deep-water Gulf of Mexico exploration blocks that it deemed not promising enough to warrant additional spending. The company’s withdrawal from those blocks will trigger a $25-million pretax charge in the current quarter, Unocal said.

In addition, the consolidation of gulf operations could result in “hundreds” of lost jobs, according to Unocal spokesman Barry Lane.

Unocal is keeping 25 Gulf of Mexico fields that produced the equivalent of as much as 70,000 barrels combined in the first quarter. Those fields show promise for expansion, Lane said.

Worldwide, “we’re looking at a number of large capital projects coming down the line, and they are going to require cash or financing,” Lane said.

Unocal’s “West Seno” project is about to start producing oil and natural gas in the deep waters off the coast of Indonesia. The field’s development, which would be divided into three phases, is expected to cost about $740 million for just the first two phases. The first phase represents about $500 million of the overall figure, and Unocal said it is responsible for about $450 million of that.

West Seno is expected to reach production rates of 35,000 to 40,000 barrels of oil a day by the end of 2003, with gross peak production in 2005 expected to be 60,000 barrels of oil and 150 million cubic feet of natural gas per day, according to the company.

Unocal also has interests in oil and natural gas projects in the Caspian Sea. In addition to existing production of 130,000 barrels per day of oil (12,000 net to Unocal), the Azerbaijan consortium of which it is a member is developing a field with an estimated 1.5 billion gross barrels of crude oil reserves. Unocal is planning to spend $310 million for its share of the first phase of that project, which is scheduled to begin producing oil in early 2005.

Unocal continues to develop natural gas and crude oil fields in Thailand and Bangladesh, as well as in Myanmar, formerly known as Burma, and other nations.

On Thursday, the company said the pending sale of its 29% stake in Matador Petroleum would produce $78 million in pretax proceeds and a “significant gain” on the investment if the deal closes.

Unocal shares closed at $30.20, down 35 cents, on the New York Stock Exchange.