Company News - Amerada Hess shedding properties to cut costs

June 23, 2003
Amerada Hess Corp. said it will sell 26 oil and natural gas fields to Ana- darko Petroleum Corp., reported it will exchange some assets with Calgary-based EnCana Corp., and plans to cut exploration and production jobs by 30%.

Amerada Hess Corp. said it will sell 26 oil and natural gas fields to Ana- darko Petroleum Corp., reported it will exchange some assets with Calgary-based EnCana Corp., and plans to cut exploration and production jobs by 30%.

The sale to Anadarko, valued at as much as $260 million, involves Gulf of Mexico properties while Amerada Hess is transferring its interest in mature UK North Sea fields to EnCana in exchange for $17 million and an additional interest in Llano field in the Gulf of Mexico.

Amerada Hess said the deal will enable it to cut E&P employees and contractors, mainly at its Aberdeen and London offices. Meanwhile, Anadarko also said it wants to reduce costs, by selling about $100 million worth of properties in West Texas and in the Gulf of Mexico this year.

Unocal Corp. also followed the cost-cutting trend by reporting that it will sell its interest in 75 Gulf of Mexico fields to improve profitability of its Lower 48 US E&P unit and to strengthen its balance sheet.

In other upstream deals:

  • Plains Exploration & Production Co. acquired 3TEC Energy Corp. for more than $400 million. Both firms are based in Houston.
  • XTO Energy Inc., Fort Worth, agreed to buy coalbed methane and natural gas-producing properties in the San Juan basin from Markwest Hydrocarbons Inc., Denver, for $60.5 million.
  • Some recent midstream and downstream transactions include:
  • The US Federal Trade Commission announced a proposed consent order conditionally allowing Dearborn, Mich.-based CMS Energy Corp. to sell its interstate natural gas pipeline unit, CMS Panhandle Cos., and that business unit's accompanying subsidiaries, to Wilkes-Barre, Pa.-based Southern Union Panhandle (SUP) for $1.828 billion.
  • ChevronTexaco Corp. plans to sell its share of the El Paso, Tex., refinery and certain associated assets to the privately owed Western Refining Co. LP of El Paso. Financial details of the agreement were not disclosed.

Amerada Hess divestiture

Regarding the Anadarko deal, the two companies estimated the transaction value at $225-260 million, depending upon the exercise of preferential rights and closing adjustments. Amerada Hess said the properties had proved reserves of 25 million boe as of Apr. 1, and that first quarter production averaged 16,000 boe/d.

The company plans to raise $500 million in the second quarter from the sales of the Gulf of Mexico properties along with the sale of interests in Jabung field in Indonesia, Montrose, Arbroath, and Arkwright fields in the UK North Sea, and the sale of a very large crude carrier.

Anadarko's divestiture

Anadarko plans to sell 20 properties in West Texas and 40-50 properties in the Gulf of Mexico. The asset sales could amount to as much as 400,000 boe in 2003 volumes.

Robert J. Allison Jr., president and CEO, said the company wants to focus on key assets and reduce costs.

"At the end of the year, we expect to have fewer Gulf of Mexico fields but higher margins. This is an ongoing strategy that has allowed us to high-grade our portfolio," he said.

Unocal's cost-cutting plan

Unocal's pending oil and natural gas field sales are intended to reduce its operating expenses and depreciation, depletion, and amortization unit costs. The company also plans to reduce administrative and general costs. Proceeds will be used to reduce debt, the company said.

The 75 fields targeted for sale represent a net average production of 25,000-30,000 boe/d and proved reserves of 40-50 million boe.

In addition, Unocal plans to relinquish some primary-term Outer Continental Shelf blocks. The company will record a pretax $25 million charge associated with the early relinquishment in its second quarter results.

Plains E&P-3TEC deal

The 2003 production outlook for the combined Plains E&P and 3TEC is 40,000 boe/d, of which 67% is oil, Plains E&P said.

As of Dec. 31, 2002, Plains E&P reported 253 million boe of reserves, and 3TEC reported 296 bcfe of proved reserves. 3TEC's reserves were 87% gas. During 2002, 3TEC's production averaged 70.3 MMcfd of gas and 2,268 b/d of oil.

Plains E&P was spun off from Plains Resources Inc., Houston, in late 2002 in a move to separate Plains Resources' upstream and downstream businesses. It operates in California—onshore in the Los Angeles basin and offshore in the Point Arguello Unit—and in the Illinois basin.

3TEC has oil and gas properties in East Texas and the Gulf Coast and Gulf of Mexico.

XTO CBM deal

XTO's property acquisition involved proved reserves of 47 bcfe, according to seller MarkWest. XTO expects the acquisition initially will add 9.5 MMcfd to its gas production base.

The properties are in La Plata County of southwestern Colorado and San Juan County of northwestern New Mexico. The transaction is expected to close on June 30, effective retroactive to June 1.

About 15% of the property package is subject to preferential purchase rights. After closing, XTO said the acquisition will increase its San Juan basin holdings by 15,300 gross acres and will add another 115 operated wells.

SUP acquisition

FTC's proposed order on the sale of CMS Panhandle to SUP is subject to public comment until June 27. It requires SUP to terminate an agreement that would have allowed its subsidiary Energy Worx Inc. to manage the Central pipeline, which delivers natural gas to the same Kansas City, Mo., distribution area.

Last December, Southern Union Panhandle Corp. (SUPC)—an entity owned by Southern Union Co. and AIG Highstar Capital LP—agreed to pay $662 million in cash and assume $1.166 billion in debt for the CMS asset (OGJ Online, Dec. 23, 2002).

The proposed order precludes SUP and CMS from transferring any interest in Panhandle to AIG, the owner of Central pipeline. FTC told the companies that after the deal is finalized, neither SUP nor its subsidiaries may operate, manage, or hold any interest in the Central pipeline.

Western Refining's refinery purchase

Finalization of ChevronTexaco's sale of its stake in the El Paso refinery and certain assets remains subject to regulatory approvals and financing. Until last year, Western Refining did business as Refinery Holding Co. LP.

Under the agreement, Chevron Products Co. also will sell its El Paso light products terminal to Western Refining. In 1993, Chevron Corp. and Western Refining combined separate El Paso refineries into one joint facility that Chevron has operated since.

The sale does not include Chevron Products' El Paso asphalt plant, but the agreement calls for Chevron Pipe Line Co. to sell an associated crude oil pipeline system to Western Refining's subsidiary, Kaston Pipeline Co. LP.

In 2000, Western Refining agreed to buy Chevron's part of the joint refinery and the crude oil pipeline, but Chevron Corp. called off the transaction in 2001, citing complications with the then-pending merger with Texaco Inc. (OGJ Online, Oct. 9, 2001).