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Unocal Merges Permian and San Juan Assets with Titan

Unocal Merges Permian and San Juan Assets with Titan

Unocal Corp. and Titan Exploration, Inc. announced an agreement to merge Unocal's oil and gas exploration and production assets in the Permian and San Juan basins with Titan last week. The new company, Pure Energy Resources Inc., is expected to be formed after a Titan shareholder vote during the first quarter of 2000. Unocal and Titan expect the new company to have a balance sheet valued between $800 and $900 million.

Unocal will report the financial and operating results of Pure Energy Resources on a consolidated basis. "The merger will be accretive to both Unocal and Titan stockholders as a result of significant synergies and opportunities for profitable growth," said Timothy H. Ling, Unocal CFO. "There is significant overlap in the Unocal and Titan properties, and the operating and administrative synergies from the merger should result in cost savings of at least $5 million/year," Ling said.

Jack D. Hightower, current CEO of Titan, will be CEO of the new company. Hightower said, "The merger improves Titan's current positioning to increase focus on the Permian and San Juan basins and other areas where Titan is most competitive. The transaction improves the quality of our asset portfolio and facilitates high-grading of our combined opportunity set."

Pure Energy Resources will become one of the largest independent E&P companies doing business in its core geographic areas. On a pro forma basis, the new company will have 175 million BOE in reserves (approximately 80% is proved developed producing) with net production of approximately 40,000 BOE/day. This production consists of 60% natural gas and 40% oil on a 6-to-1 Mcf per barrel ratio.

When formed, the new company will have approximately 50 million common shares outstanding. Unocal will hold 65%, or 32.7 million shares of the new company. Upon approving the merger, Titan's stockholders will receive 0.4302 shares of Pure Energy Resources, Inc. stock for every share of Titan they currently hold.

Frank Nuttle, an analyst with PaineWebber inc., said a key aspect of the deal is the low debt the new company will inherit. When formed, Pure Energy will have just $90 million in outstanding debt. "Such a large player is being created. It will be a publicly traded company and it will have very little debt. It looks like it will be a very strong platform for future growth. Overall I'd have to say it looks like the companies will get more out of it than they put in. It's a two plus two equals four and a quarter situation, and I think it could go up to five with future acquisitions."

For its part, Unocal is contributing property in the areas that accounted for almost 74 MMcf/d and more than 9,800 b/d of oil. The amount of production contributed is proportionate to the amount of interest Unocal will have in the new company. Barry Lane, a spokesman for Unocal, said the Midland, TX office will be the most affected outfit as a result of the deal, but that it was to early to know of any employee-related moves.

Titan's core area of operations is in West Texas. For the third quarter of this year, Titan reported production of approximately 9.2 Bcfe. Its average production for the quarter was almost 65 MMcf/d. The company currently has wells drilling or workovers in progress in the MiVida, Gomez, Evetts, Caprito, Foster and Puckett Fields in West Texas and in the Brenham Dome area of Central Texas. The results of most of these operations should be known prior to year-end.

Jack Rathbone, former president of Mobil Producing Texas & New Mexico Inc., will assume the role of executive vice president of operations and Gary Dupriest, current vice president of Unocal's Permian operations, will assume the role of vice president of production.

"This is a great asset base that presents our shareholders with a balanced portfolio of low-risk development, near field exploration and higher risk technology plays that provide exciting opportunities for additional production growth," said Hightower.

While Unocal's Permian and San Juan basin assets will fall to the new company, Ling said that Unocal's Spirit Energy 76 unit will continue to be focused on its key Gulf of Mexico growth areas - the deepwater, shelf, Mobile Bay and onshore. "The structure of Spirit Energy and Pure Energy Resources, Inc., in Unocal's portfolio will provide capitalization and cash flow and the right teams to grow Unocal's Lower 48 oil and gas assets," he said.

John Norris

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