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UPR Cuts Staff, Expects 4Q Charge

UPR Cuts Staff, Expects 4Q Charge

Following the lead of numerous other oil and gas companies who are trimming staff this year because of low commodity prices, Union Pacific Resources Group announced it will reduce headquarters staff by 14%, or about 140 positions. Combined with attrition, UPR's headquarters staff will have been reduced by about 20% since the beginning of the year.

UPR said the staff cuts will result in annual pre-tax savings of $12 million, but it will take an after-tax charge of $34 million in the fourth quarter that includes severance and other costs of about $11 million. The fourth quarter charge also includes $23 million for marking to market certain major gas transportation contracts. UPR also said it is anticipating a non-cash charge to earnings in the fourth quarter attributable to a writedown in the book value of its properties in recognition of weak oil and gas prices and reserve revisions.

UPR has significantly cut back its U.S. operations this year, divesting an estimated $600 million in exploration and production properties. The property divestitures have covered a vast amount of acreage in Canada, the Rocky Mountain region, Texas and the Gulf of Mexico. Additional property sales are scheduled for early 1999. The properties identified for sale represent about 10% of its reserves, production volumes and cash flows.

UPR acquired Norcen Energy, with its strong Latin American focus, earlier this year for $2.9 billion in an effort to expand production internationally. But the deal came with a large debt assumption of $900 million.

The company announced two weeks ago it was selling its entire domestic gathering, processing and marketing operations to Duke Energy for $1.35 billion. The sale to Duke was designed to pay down that debt and unload operations that were performing poorly in a low commodity price environment. The deal is expected to be complete next March.

As a result, the headquarters staff cuts are just the first wave of downsizing. About 600 more employees will be leaving the company as part of UPR's sale to Duke.

UPR reported a $17.3 million net loss during the quarter ended Sept. 30, compared to $67.2 million in net income during the same period in the year prior. The earnings decline was attributed to lower oil and gas prices, a $64 million increase in interest expenses related to debt from the Norcen acquisition and a $43.4 million loss on foreign currency exchange. Also contributing to the loss were lower operating results from gathering, processing and marketing operations.

Rocco Canonica

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