The U.S. petroleum industry continues to adjust to hard times.
In Los Angeles last week, Unocal Corp. disclosed plans to hike after tax cash flow by at least $200 million/year through permanent, company-wide operational changes and expense cuts, including "significant" workforce reductions.
Richard J. Stegemeier, Unocal chairman, president, and chief executive officer, told stockholders at the company's annual meeting, "Unocal also plans to sell or restructure nonstrategic, underperforming assets, which should generate at least $700 million in after tax proceeds. These asset sales are in addition to those that have already been announced."
In The Woodlands, near Houston, Mitchell Energy & Development Corp. announced it will close exploration and production district offices in Denver, New Orleans, and Oklahoma City and consolidate their functions at the company's Woodlands headquarters.
The company said in light of the current gas surplus, it is trimming exploration and concentrating for the time being on development of oil and gas leases and possible acquisitions.
Mitchell set its consolidated capital budget at $220.8 million for the fiscal year ending Jan. 31, 1993, down only a little more than 1% from $223.6 million spent last year.
UNOCAL STRATEGY
Stegemeier said Unocal plans to reduce total debt by $1.5 billion during the next five years. "This reduction, combined with increases in equity, should bring our debt ratio down to the 55% range, lowering interest costs and increasing our financial flexibility," he said.
Workforce and cost reductions are to be implemented in 1992, while the asset sales and restructuring will last for the next 2 years.
Cost reductions will be realized by consolidating offices and streamlining organizational structures and reducing exploration expense by focusing on significant, high return geologic trends.
"Every operating unit and staff department in the company has cost reduction targets, and we are well along in the process of preparing to implement those reductions in 1992," Stegemeier said.
The assets to be sold or restructured will be those providing a low return to Unocal relative to their potential sale price. Assets under evaluation include selected producing leases throughout North America, as well as certain non-U.S. properties.
The added cash flow is required to implement Unocal's long range operating strategies in an environment of flat oil and gas prices, fierce competition, and rising costs of regulation, litigation, and taxation, Stegemeier said.
"We will maintain or if possible increase crude oil and natural gas production, Unocal's primary source of cash flow. To do this, we will focus on the highest return projects, while increasing outside participation in selected development opportunities.
"Finally, we will continue selective frontier exploration, particularly overseas where significant opportunities exist to discover large fields."
MITCHELL REORGANIZATION
Mitchell's reorganization is part of a plan to improve its competitiveness and enhance shareholder value. It should be fully implemented in the current fiscal year, the company said.
The consolidation will involve some transfers to company headquarters, but about 30 employees at various locations are being laid off in connection with the office closings. Severance payments and outplacement services are being provided.
Mitchell last month announced a voluntary early retirement program for eligible exploration and production division employees.
An undisclosed number chose to retire early under the program, which is still in effect.
Cost of the reorganization and other aspects of the plan will entail a charge against first quarter earnings, but the amount has not been determined.
"The cutbacks are being undertaken as a result of today's abysmally low prices, which make it unprofitable to explore for natural gas in higher risk areas," said Chairman and Pres. George P. Mitchell.
"In the current market, we will concentrate most of our efforts on development of our substantial backlog of undrilled wells in proven areas, such as North Texas, Southeast New Mexico, East Central Texas, and the Texas Gulf Coast."
He said the company has 700-1,300 such well sites yet to be drilled and may acquire more leases as other U.S. operators shift their emphasis overseas.
Mitchell said his company is somewhat insulated from low natural gas prices because more than half of its gas is under contract at good prices and because low spot market prices help improve margins on natural gas liquids, Mitchell's biggest money maker.
"We buy more gas than we sell on the spot market to make up for fuel consumption and volume reductions associated with NGL extraction," Mitchell said.
MITCHELL BUDGET
Mitchell said his company's fiscal 1993 budget is in line with an intention to operate within its cash flow this year.
At $76.5 million, the exploration and production division's budget is less than its spending of $84.1 million last year.
The reduction resulted mainly from a plan to place more emphasis on development drilling and producing lease acquisitions and less on exploration until natural gas prices increase.
In addition to its consolidated budget, the exploration and production division in fiscal 1993 will manage $50 million of outlays planned by MEC Development Ltd., a drilling partnership operated by Mitchell. Comparable spending last year amounted to $49.5 million.
Transmission and processing division outlays for fiscal 1993 are budgeted at $53.3 million, up from $50.7 million in the prior year. The division's largest capital project is an underground natural gas storage site being installed near Beaumont Tex. Operations are to begin in the current year.
The rest of the consolidated budget will go to real estate development and other activities.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
