Unocal's Spirit Energy 76 drilling successes on GOM shelf offset production decline; deepwater drilling cost reductions lead industry
Sugar Land, Texas, July 6, 1999 - Unocal Corporation's Spirit Energy 76 unit said today that its exploration drilling successes and aggressive development program on the Gulf of Mexico shelf area in the first half of 1999 should more than offset the natural production declines for the year.
"We have a long record of low drilling and operating costs on the shelf, which enables us to enjoy returns that cannot be matched by the typical shelf operator," said Roger C. Beach, Unocal chairman and chief executive officer. "We can be profitable where others are less successful." Spirit Energy's drilling costs are among the lowest in the region, according to an independent database of drilling costs.
Beach noted that Spirit Energy's GOM shelf prospects are predominantly natural gas and deliver production quickly, making them extremely attractive in the current capital-constrained environment.
Spirit expects new projects on the shelf this year to generate the same amount of new production as last year with roughly one-third less capital investment.
"The continued success and profitability of Unocal's exploration and exploitation program on the Gulf of Mexico shelf validates our strategy there and supports our ongoing presence as other companies exit the region," Beach said.
The company said that the departure of other producers from the shelf region creates opportunities for Unocal to leverage its exploration, drilling and operating expertise across a larger asset base.
Shelf/transition zone discoveries
Spirit Energy's discoveries on the shelf and transition zone this year include:
Mazda (High Island Block 133) - The Mazda well was drilled to a total depth of 14,834 feet and encountered approximately 360 feet of net gas pay. First production from this new field began in June, with production expected to reach 50 million cubic feet of natural gas per day (mmcfd) from two wells. Spirit Energy has a 100-percent working interest.
Redfish Point (Vermilion Parish, Louisiana) - The Redfish Point well was drilled to a total depth of 18,123 feet and encountered 185 feet of net gas pay. Production began in April at a gross daily rate of 900 barrels of oil and 4 mmcfd of gas. Spirit has a 50-percent working interest; PennzEnergy is operator.
In the coming weeks, the company also expects to have the results of at least two, highly promising exploration wells, which are currently testing Norphlet formation targets in the offshore Mobile area.
Deepwater Gulf of Mexico exploration
The company said that the first three deepwater exploration wells it operated in the Gulf of Mexico were drilled in and average 47-percent less time than comparable wells. "We are well on our way to delivering the lower drilling costs we committed to when we launched this program," Beach said.
The Nag el Madamud well in Mississippi Canyon block 541 was drilled at a rate of 331 feet per day, or 35 percent faster than comparable deepwater exploration wells in the Mississippi Canyon area. The well reached its final objective in 22 days.
Drilled in 2,016 feet of water to a total depth of 8,891 feet, the well was deemed non-commercial. Unocal has a 50-percent working interest in the prospect. Approximately $6 million in well costs will be charged against the company's second quarter 1999 earnings.
The Bowshock well in Garden Banks block 460 was drilled at a rate of 415 feet per day, or 39 percent less time than comparable deepwater exploration wells in the Garden Banks area. The well reached its final objective in 44 days.
Drilled in 2,500 feet of water to a total depth of 17,014 feet, the well was a dry hole. Unocal has a 100-percent working interest in the prospect. Approximately $17 million in well costs will be charged against the company's second quarter 1999 earnings. An additional $2 million will be charged in the third quarter.
The previously announced South Sierra well was drilled in 57 percent less time than comparable wells.
The company attributes the lower costs to its program to enhance the value of its deepwater portfolio through use of techniques and procedures proven in Unocal's Indonesia and Thailand operations.
Beach said that although the hydrocarbon results at Nag and Bowshock were disappointing, he continues to be encouraged by the industry-leading drilling cost performance achieved on the wells and has high expectations for success on other prospects scheduled for exploration drilling.
"Our deepwater portfolio represents a long-term investment, and the exploration expenses can be viewed much like research and development costs in other industries. The dry hole costs in the second quarter tend to obscure the underlying earnings power of Spirit Energy's mature areas," Beach said.
He added that the first three wells operated by Unocal in its Gulf of Mexico deepwater exploration program have given the company important knowledge that will be valuable as Unocal drills the more complex sub-salt plays and prospects in deeper waters.
The Sumatra sub-salt prospect in Garden Banks block 941 is the next well on Spirit Energy's deepwater drilling schedule. Located in 3,770 feet of water, the well is expected to spud this month. Spirit will operate the well and holds a 100-percent working interest.
Spirit Energy is currently participating in the K2 in Green Canyon block 562 (Conoco-operated; Unocal, 50% working interest). K2 is located just north of the recent Mad Dog discovery in Green Canyon block 826 in a similar geologic trend.
The company anticipates appraisal drilling to begin late this year on its discoveries at Mad Dog and at Mirage in Mississippi Canyon block 941.
Next year, Spirit Energy will begin using the new Discoverer Spirit drillship to drill Unocal's "ultra deep" prospects in up to 10,000 feet of water, many of which are on trend with the recent Mad Dog discovery.
Spirit Energy 76, Unocal's U.S. Lower 48 exploration and production unit, has major operations onshore in Texas and Louisiana and on the Gulf of Mexico shelf, in addition to a significant presence in the Gulf of Mexico deepwater. Unocal is one of the world's largest independent oil and gas exploration and production companies, with resource development, power plant and pipeline projects in Asia, the U.S. Gulf of Mexico region and Latin America.
Forward-looking statements about reserves, future exploration and development activities, production rates and costs in this news release are based on assumptions concerning geological, market, competitive, regulatory, environmental, operational and other considerations. Actual results could differ materially as a result of factors discussed in Unocal Corporation's'1998 Form 10-K report filed with the Securities and Exchange Commission.
Updated: July 1999