Vastar acquires 23 Gulf of Mexico fields

Houston-based independent Vastar Resources Inc. has expanded its Gulf of Mexico portfolio by acquiring 23 producing fields in a deal involving ARCO and Mobil Exploration & Producing U.S. Inc. The acquisition will increase Vastar's reserves by about 11%. It will also give it "substantial opportunities for future field exploitation and extension drilling," according to Vastar. The transaction involves 23 fields, 45 developed lease blocks, 93 platforms, and 295 active wells. The fields have

Aug. 10, 1998

4 min read

Houston-based independent Vastar Resources Inc. has expanded its Gulf of Mexico portfolio by acquiring 23 producing fields in a deal involving ARCO and Mobil Exploration & Producing U.S. Inc.

The acquisition will increase Vastar's reserves by about 11%. It will also give it "substantial opportunities for future field exploitation and extension drilling," according to Vastar.

The transaction involves 23 fields, 45 developed lease blocks, 93 platforms, and 295 active wells. The fields have proved reserved of 360 bcfe.

According to Vastar, "total re- serves, including chance-weighted probable and possible reserves, are estimated at 600 bcfe."

Net production attributable to the acquisition, less anticipated divestitures, will be about 180 MMcfd during 1999. About 60% of this will be gas.

Also included are interests in pipelines, gathering lines, and a shore base at Cameron, La.

Adjusted for non-producing assets, the purchase price to Vastar is $1.25/Mcfe for proved reserves.

The transaction

Vastar's Gulf of Mexico acquisition involves three companies and two separate transactions.

First, ARCO subsidiary Western Midway Corp., Bakersfield, Calif., will make an exchange of properties with Mobil. Western Midway will trade five producing fields in California's San Joaquin Valley (SJV) to Mobil in exchange for 23 gulf fields and associated assets, primarily in the western shelf region. The SJV fields produce about 40,000 b/d of oil and 10 MMcfd of gas and have proved reserves of about 160 million boe.

Mobil also will receive ARCO's 49% ownership in the 234-MW San Joaquin Energy Co. cogeneration plant in Midway-Sunset field.

In a subsequent deal, Vastar will acquire for $170 million in cash all the stock of Western Midway. Western Midway's $300 million in debt will remain outstanding.

Vastar expects to divest in 1999 several of the properties that exhibit "less strategic fit" with its gulf portfolio.

Because the Mobil production is about two-thirds gas, the Mobil-ARCO deal includes a crude price protection clause that guarantees Mobil a minimum price on the California crude volumes, while allowing ARCO to retain crude realizations above a ceiling price. The price protection agreement expires in December 1999.

Upon completion of the ARCO-Mobil trade, Mobil will transfer the California properties to Aera Energy LLC, a joint venture of Mobil and Shell Oil Co. At that time, Mobil's equity interest in the JV will increase to 48.2% from 41.4%.

Both transactions are expected to close on Oct. 30, 1998.

Western Midway will become a subsidiary of Vastar. It will conduct evaluation and exploitation programs on the properties in 1999 and beyond, and serve as operator of about half of the acquired properties.

Western Midway's Bakersfield headquarters will be closed as a result of the acquisition. About 270 employees, there and at field units, will be affected.

Potential

The deal involves 45 developed lease blocks and about 40 undeveloped lease blocks. It includes Eugene Island 330, the largest cumulative producer of any Gulf of Mexico field, and seven more of the gulf's top 100 cumulative producers.

According to Vastar, the fields have "promising geology-multiple fault blocks, stacked pay sands, and deeper potential." Vastar has been successful in applying advanced exploration and redevelopment technologies under similar circumstances in the gulf.

The fields have an average of 14 pay sands each; eight fields have 20 or more pay sands. The deepest pay interval averages 11,500 ft.

"Five fields have salt features much like Vastar's South Pass 60 and Eugene Island 175 (blocks)," said the firm.

The fields have 3D seismic coverage of various vintages, so there are opportunities to acquire new seismic or reprocess existing data.

More than 300 exploitation projects have been identified to date, says Vastar. This is a 2-3-year inventory for the firm. The projects identified so far would require about $70-80 million/ year in capital spending.