Unocal is looking at near-record earnings

Sep 10, 2001 02:00 AM

When Unocal CEO Charles R. Williamson spoke at the Lehman conference in New York, it was hard to tell which of his company's projects excited him the most. There was the Ranggas discovery in Indonesia (in which the El Segundo, California, independent producer holds an 80 % stake), with potential reserves of 350 mm to 600 mm boe. There was the Trident ultra-deepwater discovery in the Gulf of Mexico, where Unocal has an 59.5 % interest in a hit with 320 mm to 800 mm boe of gross resource potential.
There was the Plamuk field in Thailand, where Unocal holds a 71.25 % stake and where production that began at 2,500 to 3,000 bpd of oil in July could reach 15,000 to 18,000 bpd during 2002's first quarter. And there was Brazil, where Unocal has interests ranging from 30 to 40.5 % in three offshore blocks with acreage in the Campos and Espirito Santo offshore basins equal to 240 Gulf of Mexico leases.
"We're looking at near-record earnings," Williamson said in a presentation that also was webcast from the Lehman conference. "Our projected reserve replacement and development costs are the best they've been in the last five years. We have balanced positions in North America and Asia. I hope we'll have a good position in Brazil someday."

Unocal anticipates earnings of $ 3.20 to $ 3.40 per share and cash flow between $ 9.10 and $ 9.25 per share for 2001, assuming average prices of $ 27 for West Texas Intermediate crude and $ 4.50 for Henry Hub natural gas. Williamson said that the company expects to replace at least 120 % of its production this year.
He suggested that Unocal accomplished this by increasing its production while maintaining a competitive cost structure, turning exploration projects into appraisal and development programs, improving reserve replacement rates and reducing finding and development costs, getting new developments on-stream quickly and adding medium-term production while maintaining a strong balance sheet.

The Trident discovery typified the Unocal successes that Williamson described. A hit with more than 300 feet of pay in a 10,000-acre closed structure that followed two dry holes, it flowed oil that was 40 degrees API gravity in a July 25 test. Trident's structure is large and simple, with thick hydrocarbon columns and substantial pay intervals. Unocal plans appraisal wells to determine the reservoir's continuity and quality as well as possible development options.
Williamson was especially pleased with the discovery's impact on overall strategy. "We were spending $ 200 mm of budgeted money each year on the deepwater Gulf of Mexico -- entirely too much for a company our size," he explained. "This discovery will allow us to cut back to a more reasonable level."
Elsewhere in the Gulf, Unocal plans to continue executing low-risk, close-in projects with quick payouts. It intends to augment its drill bit programs with modest complementary acquisitions. It aggressively will pursue deeper water tie-backs to its existing infrastructure. It will continue to focus on its drilling advantages as it continues to advance its interests in the Norphlet and Bossier plays. And it plans to shift its exploration focus to higher-risk, higher-potential and deeper prospects.

Going forward, Unocal expects $ 1.8 bn to $ 2 bn of yearly capital outlays and a ratio of debt to total capitalization between 45 and 50 %. "There are lots of questions about consolidation and where we positions ourselves. We understand that," said Williamson. "We have done smaller ones in the $ 100 mm to $ 200 mm range. Frankly, the larger ones are more dilutive to our growth portfolio than we like. We have very good long-term prospects already, with a larger growth profile beyond 2007."

Source: Petroleum Finance Week/PBI Media
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