press release

Unocal intensifies focus on U.S. Gulf; lower 48 E&P capital expenditures to increase 50%

Sugar Land, Texas, August 1, 1997 -- "Between 1998 and 2001, Unocal's Lower 48 exploration and production spending could average almost $500 million annually and, if the right opportunities become available, we're prepared to invest even more," Roger C. Beach, Unocal Corporation chairman and chief executive officer, said Wednesday in a videotaped message presented during a company-sponsored conference for security analysts.

"Much of our investment is targeted at higher-return growth opportunities in Asia -- resource and power development projects in Thailand, Indonesia, Myanmar, Azerbaijan, Brunei, Bangladesh and other high-energy-demand markets," said Beach. "But make no mistake, Unocal will remain active in the United States. The turn-around we're envisioning for Spirit Energy 76 will complement the new -- and higher -- production we're expecting from our international operations in 1998."

Formed in August 1996, Spirit Energy 76 is Unocal's Lower 48 petroleum exploration and production unit.

Beach noted that over the past two years, the company has turned a dormant exploration program in Indonesia into a powerhouse performer, with production and reserves increasing by over 10 percent. "We're expecting the performance of Spirit Energy 76 to parallel this growth trend," he said.

Jack Schanck, president of Spirit Energy 76, told analysts, "Spirit Energy 76 is moving aggressively into deepwater exploration and expanding its onshore and outer continental shelf activities in the Gulf of Mexico. Within the next decade, we intend to establish Spirit Energy 76 as the largest, most successful independent-style exploration and production company in the United States."

He added, "Going forward, we will significantly grow production and reserves through the drill bit with aggressive onshore, outer continental shelf and deepwater exploration and increase capital expenditures by 50 percent."

"Our growth is focused on a deepwater campaign targeted at adding 400 million barrels of oil equivalent (mmboe) in reserves by 2002," said Schanck. "Current industry estimates suggest there may be 15-30 billion barrels of oil equivalent remaining in undiscovered deepwater prospects. Extensive seismic surveys and continued improvements in production and drilling technology should lower risk and yield higher returns."

By year-end 1997, Spirit Energy 76 plans to advance 5-7 deepwater prospects to drillable status and drill 4-6 wells by the end of 1998.

On the outer continental shelf, Spirit Energy 76 expects to drill up to 30 exploration wells annually, including 15 new field wildcats, and that, by the year 2000, its shelf exploration campaign could yield up to 20 mmboe per year.

Onshore, Spirit Energy 76 plans to expand its use of 3-D surveys to drill 7-10 wells annually, targeting annual increases in reserves of 10 mmboe.

While year-to-year production could decline marginally in the short term, Spirit Energy 76 is projecting production gains of 4-5 percent annually from 1999 to 2001. Since 1991, net natural gas production in currently owned fields has increased by 40 percent, reaching more than 912 million cubic feet per day in 1996.

While total proved reserves could decline in the short term, Spirit Energy 76 anticipates reserve growth beginning in 1998, and expects annual average growth rates of 8-12 percent principally through its planned exploration program.

Spirit Energy 76 expects to reduce finding and development costs from more than $10 per barrel of oil equivalent over the last three years to as low as $5 as reserves from deepwater discoveries are added.

Spirit Energy 76 is the third largest producer in the U.S. Gulf of Mexico, with 300 platforms and 2,700 active wells in 355 fields. In 1996, it produced an average of 912 mmcf of gas and about 52,000 barrels of oil per day.

This news release contains forward-looking information ,including projections of future capital spending, costs, oil and gas production and reserve levels. Actual results may be influenced by the inherent risks of the oil and gas exploration and production business, and will be determined by such factors as availability and cost of drilling rigs, the company's drilling success rate, the decline rates of present and newly discovered hydrocarbon reserves, and the costs incurred for future exploration, development and production operations. Actual results could differ materially from these projections.

Updated: August 1997