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

“The competition is clearly increasing,” Vastar CEO ChuckDavidson said earlier this week in Houston. “We’ve seen that inevery lease sale as we’ve continued on. Vastar has built up itsleasehold position in deep-water since really the beginning of1996. We now have approximately 125 blocks in the deep-water, andclearly we can see that as we continue on there are more and moreplayers entering into the deep-water.”

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

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

Davidson said it would be impossible for the company to buildthe 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 muchmore 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 ofMexico, and clearly a lot of the key prospects have been andacquired and are now in various stages of exploration or furtherevaluation.”

Through its deal with ARCO and Mobil, Vastar is set to acquireinterest in, among other fields, Eugene Island 330, which ispredicted by the Department of the Interior’s Minerals ManagementService (MMS) to offer the greatest prospect for gas/oil recoveryat about 750 MMBoe. Vastar already holds an interest in Grand Isle43, ranked No. 3 by the MMS. In all, five Vastar fields rank amongthe MMS’ top 50; Six Mobil Fields rank among the top 50. And Vastarwill hold interests in 11 of the top 50 fields once it acquires theMobil properties.

Davidson also touted Vastar’s first operated deep-waterdiscovery, King, which is in the same vicinity as Gulf discoveriesMars and Ursa. First production is expected from King some time in2000. King offers potential recovery of 50 to 150 MMBoe. Vastarholds a 50% interest in the prospect. Also on the company’s list isa much larger prospect, Mirage, in which it holds a 75% workinginterest. Mirage could see recovery ranging from 200 to 600 MMBoe,Davidson said.

“We do feel that today it would be almost impossible toduplicate the position that we’ve built up over the last couple ofyears.”

Joe Fisher, Houston

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