Atlantic Richfield (ARCO) and Mobil Exploration & ProducingU.S. yesterday announced that they closed an exchange transactionthat will allow ARCO subsidiary Vastar Resources to boost its gasproduction and reserve activity level in the Gulf of Mexico shelfby one third, and Mobil’s exploration and production arm tosignificantly increase its stake in California production. The dealclosed on Oct. 31st.

Under the arrangement, Mobil E&P transferred to ARCO itsinterests in 23 producing fields in the western Gulf, which areexpected to average production of 180 MMcf/d equivalent in 1999 andresult in proved reserves of 360 Bcf of gas equivalent, to ARCO.ARCO, in exchange, transferred to Mobil E&P five fields in Kernand Los Angeles counties with a net production of about 37,000barrels per day (BPD) of oil and 6 MMcf/d of gas. Mobil alsoreceived an interest in a cogeneration facility in Kern County.

ARCO sold the Gulf of Mexico properties to its Vastar productionsubsidiary for $470 million, which led to a writedown of $190 toARCO’s third-quarter earnings, while Mobil E&P turned over itsownership in the newly acquired California properties to AeraEnergy LLC, a California-based production joint venture between itand Shell Oil. The transfer of the properties increased MobilE&P’s equity interest in the 290 TBD venture to 48.2% from41.4%.

The deal gives Vastar, of which ARCO owns 82%, working interestsin 93 platforms and 295 active wells, as well as interests in morethan 80 lease blocks in the central and western Gulf. In addition,the producer acquired small support pipelines, gathering lines anda shore base in Cameron, La.

James Bartlett, a spokesman for Vastar, estimated that theacquisition would increase overall gas reserves for the company,which were put at 3.15 Tcf at the end of 1997, by 11% annually.Total company-wide production for Vastar as of the third quarterwas 1.2 Bcf/d of gas equivalent. The deal is expected to furthercement Vastar’s position as one of the leading producers in theGulf shelf, he said.

For Mobil, giving up its interests in the western Gulf was asmall price to pay for receiving “long-life reserves,” about 20-40years and mainly oil, in California, said J. Michael Yeager,president and general manager of Mobile E&P. “If you thinkforward of what might occur or could occur in the U.S., we think itmakes imminent sense to have large positions in these verylong-life places in the U.S., as there are not very many of themleft.”

As for the Gulf, he noted that it only gave up its interests inone piece – the western shelf – where it is uneconomical for Mobilto drill. “It’s primarily deep gas, and we think it’s expensive.It’s just not strategically at the top of our list,” Yeager toldNGI. “We are still active in the eastern part of the shelf of theGulf of Mexico, which is kind of at the mouth of the MississippiRiver. And we’re very, very strong in the Mobile Bay area.”

Under the deal, Mobil gave up the rights to about 40,000 of80,000 BPD of production – which leaves it with about half of itscurrent total oil and gas production in the Gulf shelf. Inaddition, Mobil has another 35,000 BPD of production at Mobile Bay.”So we still have a large presence there in the offshore Gulf ofMexico theater,” he noted.

The asset exchange is expected to result in a net reduction ofabout 230 positions to Mobil’s Gulf of Mexico work force, with mosteligible for a separate benefits package, according to the company.At the same time, ARCO said it plans to close its Bakersfield, CA,office, a move which would affect about 270 professional and hourlyemployees.

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