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California Oil for Gulf Gas

California Oil for Gulf Gas

Atlantic Richfield (ARCO) and Mobil Exploration &amp Producing U.S. last week announced they closed an exchange transaction that will allow ARCO subsidiary Vastar Resources to boost its gas production and reserve activity level in the Gulf of Mexico shelf by one third, and Mobil's exploration and production arm to significantly increase its stake in California oil production. The deal closed on Oct. 31st.

Under the arrangement, Mobil E&ampP transferred to ARCO its interests in 23 producing fields in the western Gulf, which are expected to produce 180 MMcf/d of gas equivalent in 1999 and see proved reserves of 360 Bcf of gas equivalent. In return, Mobil E&ampP got from ARCO five fields in Kern and Los Angeles counties with a net production of about 37,000 barrels per day (BPD) of oil and 6 MMcf/d of gas. Mobil also received an interest in a cogeneration facility in Kern County.

ARCO sold the Gulf of Mexico properties to its Vastar production subsidiary for $470 million, while Mobil E&ampP turned over its ownership in the newly acquired California properties to Aera Energy LLC, a California-based production joint venture between it and Shell Oil. The transfer of the properties increased Mobil E&ampP's equity interest in the 290,000 BPD venture to 48.2% from 41.4%.

The deal gives Vastar, of which ARCO owns 82%, working interests in 93 platforms and 295 active wells, as well as interests in more than 80 lease blocks in the shallow waters (40-900 feet depth) of the central and western Gulf. In addition, the producer acquired small support pipelines, gathering lines and a shorebase in Cameron, La. The transaction resulted in an after-tax charge of $109 million that was reflected in ARCO's third-quarter earnings.

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

For Mobil, giving up its interests in the western Gulf was a small price to pay for receiving "long-life reserves," about 20-40 years worth of oil, in California, said J. Michael Yeager, president and general manager of Mobil E&ampP. "If you think forward of what might occur or could occur in the U.S., we think it makes...sense to have large positions in these very long-life places in the U.S., as there are not very many of them left."

As for the Gulf, he noted that Mobil E&ampP only gave up its interests in one piece - the western shelf. Unlike Vastar, which has been focusing on the western Gulf, "it's just not strategically at the top of our list," Yeager told NGI. "We are still active in the eastern part of the shelf of the Gulf of Mexico, which is kind of at the mouth of the Mississippi River. And we're very, very strong in the Mobile Bay area."

Under the deal, Mobil gave up the rights to about 40,000 of 80,000 BPD of production - which leaves it with about half of its current total oil and gas production in the Gulf shelf. In addition, Mobil has another 35,000 BPD of production at Mobile Bay. "So we still have a large presence there in the offshore Gulf of Mexico theater," he noted.

The asset exchange is expected to result in a net reduction of about 230 positions to Mobil's Gulf of Mexico work force, with most eligible for a separate benefits package, according to the company. At the same time, ARCO's Bakersfield, CA, office will be closed, a move which would affect about 270 professional and hourly employees. Susan Parker

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