As it adjusts its exploration and production portfolio, Texaco,like its brethren among major producers, is turning away from theUnited States and focusing on the international arena. However, thedeep-water Gulf of Mexico still shines like a new diamond, and thecompany also has professed a desire to become more weighted tonatural gas.

John Bethancourt, vice president of business development for thecompany’s international manufacturing and marketing division, saidTexaco is turning away from smaller incremental growth projects,mainly in the United States, in favor of “internationalmega-projects.”

“If I were to describe the current portfolio to you, I would sayit’s very mature. A lot of late in life properties. It’s highlyleveraged to liquid reserves and production, about 73% of theportfolio. At the current crude price, that’s a strength, but as weall know I don’t think that’s going to continue forever. We’reclearly over-dependant on heavy crude oil. About 33% of ourworldwide production comes from lower-revenue,higher-operating-cost heavy oil production,” Bethancourt toldattendees at a Houston Independent Petroleum Association of America(IPAA) luncheon last week.

Texaco is shifting away from late-life fields and is acquiringwhat Bethancourt calls impact reserves. “The first step is ourproperty sales. We have a program under way to sell mature assetsin the United States, offshore Trinidad and in the North Sea in theUK. This sales initiative, which is under way, is about 1,000barrels a day of oil equivalent. That’s 8% of Texaco’s worldwidecurrent production. While it’s 8% of our production, it’s onlyabout 2% of our 1999 upstream earnings. It’s expected to generatein excess of $700 million of proceeds after tax. We’re going tohave this program completed in 2000. The majority of that is eithercontracted or in the later stages of negotiation. With theseproperty sales, we will be transferring to the purchasers about$500 million of future abandonment liability worldwide.”

Besides the deep-water Gulf, Texaco’s current explorationefforts focus on offshore Brazil and offshore Nigeria. “Thisprogram is primarily focused on drilling prospects that cangenerate over 100 million barrels of net reserves to Texaco on aprospect-by-prospect basis.”

Bethancourt said it is worth noting that 65% of Texaco’s 2000capital investment will be in what he calls “new barrels,” withonly 35% of the budget going to maintenance and exploitation of itsexisting production base, a “significant shift from past trends.”

As for Texaco’s midstream and marketing business, Bethancourtconceded it has not performed as well as the company would like.”Our midstream gas business has not returned what we’ve been afterthe last three years. We’ve had quite a bit of change in thatrecently. The performance is improving, and improvingsignificantly. Texaco plans to continue to work that business andgrow it wherever it can.”

Bethancourt’s remarks fit in with those made by Texaco CEO PeterI. Bijur to security analysts last month. “I have spoken to youbefore about my dissatisfaction and impatience with Texaco’sexploration program. One of the major changes we made was toreposition this program for success. We concentrated on three majordeltaic plays in the world. They are Nigeria, Brazil, and the Gulfof Mexico. All of these areas have the potential to deliverhigh-impact reserves, which we define as at least 100 millionbarrels of recoverable reserves and significant production of50,000 to 100,000 barrels per day of production – Texaco share.”

Joe Fisher, Houston

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