Unocal Corp. and Titan Exploration, Inc. announced an agreementto merge Unocal’s oil and gas exploration and production assets inthe Permian and San Juan basins with Titan last week. The newcompany, Pure Energy Resources Inc., is expected to be formed aftera Titan shareholder vote during the first quarter of 2000. Unocaland Titan expect the new company to have a balance sheet valuedbetween $800 and $900 million.

Unocal will report the financial and operating results of PureEnergy Resources on a consolidated basis. “The merger will beaccretive to both Unocal and Titan stockholders as a result ofsignificant synergies and opportunities for profitable growth,”said Timothy H. Ling, Unocal CFO. “There is significant overlap inthe Unocal and Titan properties, and the operating andadministrative synergies from the merger should result in costsavings of at least $5 million/year,” Ling said.

Jack D. Hightower, current CEO of Titan, will be CEO of the newcompany. Hightower said, “The merger improves Titan’s currentpositioning to increase focus on the Permian and San Juan basinsand other areas where Titan is most competitive. The transactionimproves the quality of our asset portfolio and facilitateshigh-grading of our combined opportunity set.”

Pure Energy Resources will become one of the largest independentE&P companies doing business in its core geographic areas. On apro forma basis, the new company will have 175 million BOE inreserves (approximately 80% is proved developed producing) with netproduction of approximately 40,000 BOE/day. This productionconsists of 60% natural gas and 40% oil on a 6-to-1 Mcf per barrelratio.

When formed, the new company will have approximately 50 millioncommon shares outstanding. Unocal will hold 65%, or 32.7 millionshares of the new company. Upon approving the merger, Titan’sstockholders will receive 0.4302 shares of Pure Energy Resources,Inc. stock for every share of Titan they currently hold.

Frank Nuttle, an analyst with PaineWebber inc., said a keyaspect of the deal is the low debt the new company will inherit.When formed, Pure Energy will have just $90 million in outstandingdebt. “Such a large player is being created. It will be a publiclytraded company and it will have very little debt. It looks like itwill be a very strong platform for future growth. Overall I’d haveto say it looks like the companies will get more out of it thanthey put in. It’s a two plus two equals four and a quartersituation, and I think it could go up to five with futureacquisitions.”

For its part, Unocal is contributing property in the areas thataccounted for almost 74 MMcf/d and more than 9,800 b/d of oil. Theamount of production contributed is proportionate to the amount ofinterest Unocal will have in the new company. Barry Lane, aspokesman for Unocal, said the Midland, TX office will be the mostaffected outfit as a result of the deal, but that it was to earlyto know of any employee-related moves.

Titan’s core area of operations is in West Texas. For the thirdquarter of this year, Titan reported production of approximately9.2 Bcfe. Its average production for the quarter was almost 65MMcf/d. The company currently has wells drilling or workovers inprogress in the MiVida, Gomez, Evetts, Caprito, Foster and PuckettFields in West Texas and in the Brenham Dome area of Central Texas.The results of most of these operations should be known prior toyear-end.

Jack Rathbone, former president of Mobil Producing Texas &New Mexico Inc., will assume the role of executive vice presidentof operations and Gary Dupriest, current vice president of Unocal’sPermian operations, will assume the role of vice president ofproduction.

“This is a great asset base that presents our shareholders witha balanced portfolio of low-risk development, near fieldexploration and higher risk technology plays that provide excitingopportunities for additional production growth,” said Hightower.

While Unocal’s Permian and San Juan basin assets will fall tothe new company, Ling said that Unocal’s Spirit Energy 76 unit willcontinue to be focused on its key Gulf of Mexico growth areas – thedeepwater, shelf, Mobile Bay and onshore. “The structure of SpiritEnergy and Pure Energy Resources, Inc., in Unocal’s portfolio willprovide capitalization and cash flow and the right teams to growUnocal’s Lower 48 oil and gas assets,” he said.

John Norris

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