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Vastar's Davidson Credits Early Deep Water Entry

Vastar's Davidson Credits Early Deep Water Entry

Vastar Resources has placed much of its hopes for the future in the deep-water Gulf of Mexico as evidenced by its recent deal to acquire interests in 23 producing fields through a three-way deal with Atlantic Richfield and Mobil (See Daily GPI Aug. 5, 1998). However, the company realizes it is not alone in pinning its hopes on the Gulf and was wise to begin its Gulf of Mexico program when it did.

"The competition is clearly increasing," Vastar CEO Chuck Davidson said earlier this week in Houston. "We've seen that in every lease sale as we've continued on. Vastar has built up its leasehold position in deep-water since really the beginning of 1996. We now have approximately 125 blocks in the deep-water, and clearly we can see that as we continue on there are more and more players entering into the deep-water."

Davidson said he doesn't expect any dramatic changes to Vastar's capital expenditure budget for 1999 as long as the cash flow is there. This year the company is slated to spend about $700 million. Next year's amount will likely be about the same unless "commodity prices go completely wacko." Since Vastar's production is 75% natural gas, it's largely gas market prices that count. Questioned as to whether the E&ampP program would continue at the current pace if gas prices averaged $1.50, Davidson commented that was "extremely low."

Vastar began building its deep-water portfolio in late 1995. "We saw that (deep-water) had evolved to the point where we as an independent company could certainly benefit by participating in it. It was important for us to build a position early before the rest of the independent sector moved in. And, of course as we all know in the last few years, there's been a broad movement into the deep water by both majors as well as independents."

Davidson said it would be impossible for the company to build the deep-water position it has now if it were just starting today. "I say that for a couple of reasons. One is that it would be much more expensive to try to start over today, but two, as we all know, the industry has leased a large amount of acreage in the Gulf of Mexico, and clearly a lot of the key prospects have been and acquired and are now in various stages of exploration or further evaluation."

Through its deal with ARCO and Mobil, Vastar is set to acquire interest in, among other fields, Eugene Island 330, which is predicted by the Department of the Interior's Minerals Management Service (MMS) to offer the greatest prospect for gas/oil recovery at about 750 MMBoe. Vastar already holds an interest in Grand Isle 43, ranked No. 3 by the MMS. In all, five Vastar fields rank among the MMS' top 50; Six Mobil Fields rank among the top 50. And Vastar will hold interests in 11 of the top 50 fields once it acquires the Mobil properties.

Davidson also touted Vastar's first operated deep-water discovery, King, which is in the same vicinity as Gulf discoveries Mars and Ursa. First production is expected from King some time in 2000. King offers potential recovery of 50 to 150 MMBoe. Vastar holds a 50% interest in the prospect. Also on the company's list is a much larger prospect, Mirage, in which it holds a 75% working interest. Mirage could see recovery ranging from 200 to 600 MMBoe, Davidson said.

"We do feel that today it would be almost impossible to duplicate the position that we've built up over the last couple of years."

Joe Fisher, Houston

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