Amerada Hess Corp. on Monday sold 26 of its Gulf of Mexico shelf properties to Anadarko Petroleum Corp., transferred ownership of North Sea properties to EnCana Corp. and announced the lay off of about 30% of its workforce in a shakeup to reduce costs and improve its bottom line.

Hess estimates the changes will net it $500 million, which it plans to use to invest in new fields and to reduce debt. The total after-tax gain from asset dispositions in the second quarter will be approximately $170 million. Following the property sale and transfer, Hess confirmed its previous forecast that production in 2003 will average about 360,000 boe/d.

In the Anadarko deal, the New York-based independent sold some mature shelf properties for $260 million, which will result in a second quarter after-tax gain of about $75 million. The properties had proved reserves of 25 MMboe on April 1, of which 60% is natural gas. The properties averaged production of approximately 16,000 boe/d in the first quarter.

Anadarko said that approximately $190 million of the purchase price was allocated to the proved reserves; the remainder was attributed to unproven potential that will be evaluated over the next several years. Current daily net production is 4,000 bbl and 57 MMcf. The acquisition is expected to add about 2.5 MMboe to Anadarko’s 2003 volumes. The company funded the acquisition with available cash and credit facilities.

“These are high quality assets with excellent profit margins and a lot of upside,” said Anadarko CEO Robert J. Allison Jr. “There’s considerable opportunity for reserve additions and production growth on these properties.”

Anadarko has identified more than 50 development opportunities including production enhancements, recompletions and low risk development wells, and as many as 10 exploration prospects that can be drilled over the next few years. The identified exploration prospects are located in high potential deep shelf gas plays, which Anadarko has been pursuing. More than 60% of the reserves are concentrated within three fields: South Timbalier blocks 172 and 190/205/206 and South Pass 89.

“The key producing fields lie within our active fairway, which means we expect to benefit from operational efficiencies,” Allison said. “And we’ve hedged the current production with costless collars providing a minimum cash margin of $21/boe over the next two years.” Cash flow from the properties for the remainder of 2003 is projected to be $75 million, generating a cash margin of more than $29/boe based on the current New York Mercantile Exchange forward curve for oil and gas prices.

“Our aim is to focus on our key assets and reduce costs,” Allison said. “At the end of the year, we expect to have fewer Gulf of Mexico fields but higher margins. This is an ongoing strategy that has allowed us to high-grade our portfolio, increase cash margins per barrel and add growth potential.”

In its agreement with Calgary-based EnCana, Hess plans to exchange interests in some mature properties in the North Sea, primarily in the Scott and Telford Fields, for an additional interest in the Llano Field, an oil and gas field under development in the Gulf of Mexico, and $17 million. This transaction is expected to close in the third quarter of 2003 and will result in a small gain, according to Hess.

With approval, Hess would transfer to EnCana 14% interests in both the Scott Field and the Telford Field and a 42.08% interest in another North Sea block. Amerada wold retain interests in the fields, however. In return, EnCana would pay to Hess $17 million and transfer its 22.50% working interest in the Llano Field in the Gulf of Mexico on Garden Banks Blocks 385 and 386 and its 20% working interest in Garden Banks Blocks 387 and 388, bringing Hess’ working interest in the Llano Field to 50%. Production from the Llano Field is expected to begin during the second quarter of 2004 and is expected to average a gross rate of 40,000 boe/d at peak.

With the sale of its shelf properties to Anadarko and its exchange with EnCana, Hess would cut 30% of the employees and contractors in its Exploration and Production operations, with offices downsized in Aberdeen, Scotland and in London. Overall, Hess employs about 11,600. One-time costs will be approximately $70 million ($45 million after-tax), which would be charged to income as specific liabilities are incurred. Approximately $30 million of the after-tax one time costs will be reflected in second quarter results. Staff and facilities reductions are expected to save Hess about $50 million a year ($30 million after tax).

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