Unocal Corp. announced Thursday it will be selling off non-core assets, consisting of primarily natural gas properties in the Gulf of Mexico (GOM), paring its inventory to focus on its core properties.

“We anticipate selling our working interest in approximately 75 fields in the Gulf of Mexico area,” CEO Charles R. Williamson said. “However, these properties only represent a net average daily production of approximately 25,000 to 30,000 barrels of oil equivalent (boe) per day and proved reserves of 40 to 50 million boe.” The properties are between 75-80% natural gas, a spokesman said.

Approximately 65-70% of Unocal’s shelf production comes from about 25 properties, and the company sees future attractive opportunities associated with those larger fields. As the smaller fields are divested, Unocal will reduce associated direct and indirect costs. With the asset sales and cost reductions in the Gulf of Mexico, Unocal expects to reduce Lower 48 finding and development (F&D) costs to below $8/boe.

Disposing of the assets will reduce the company’s operating and depreciation, depletion and amortization (DD&A) unit costs and lower corporate and business unit administrative and general costs. In addition, Unocal anticipates using cash flow from operating activities net of capital expenditures and the proceeds from these and other non-E&P asset sales to reduce the company debt and other financings.

The asset sales announced Thursday would be in addition to earlier sales this year of North America E&P properties, which had production of about 5,000 boe/d.

Williamson, Unocal’s chairman and chief executive officer, said the company’s portfolio of large development projects and exploration discoveries moving toward approval form the basis for significant and predictable growth in cash flows, production and reserves over the next decade and beyond.

“Our focus on growth from large development projects is beginning to pay off,” Williamson said, citing major projects overseas and in the Gulf of Mexico.

“We have identified opportunities for synergies and improved efficiency across our exploration groups, which will result in a 20% overall reduction in deepwater GOM cash expenses and allow us to continue to explore our inventory of high-potential drillsites,” Williamson said. In addition, the company will be relinquishing a number of primary-term Outer Continental Shelf blocks that are not considered prospective enough to warrant additional rentals. The company will record a pre-tax $25 million charge associated with the early relinquishment of these blocks in its second quarter 2003 results.

Unocal expects to drill between three and five wildcat exploration wells per year in the deepwater GOM over the next few years.

In order to reduce debt and ensure its ability to fund its development and discovery inventory, regardless of commodity price fluctuations Unocal has locked in prices on 41.1 Bcf of Lower 48 natural gas from July 2003 through March 2004 at an average price of $5.96 per unit. In 2003, if prices hold at current Nymex futures levels of $29.40 for oil and $6.00 for gas, the company expects to have about $450 million in cash available to prepay debt and other financings in 2003. Unocal produces about 886 MMcf/d of gas, a spokesman said. The hedged amount would be about 166 MMcf/d.

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