Triton Energy Ltd., Dallas, has disclosed plans to restructure its operations in an effort to cut capital spending and improve cash flow. As part of the effort, the firm has sold half its 50% interest in a gas development project in the Malaysia-Thailand Joint Development Area (JDA) to ARCO.
The restructuring will involve "a dramatic scale-back of exploration activity," a "significant" number of layoffs, and a reduction in capital spending, according to the firm's new chairman, Sheldon Erikson. Triton does not yet know how many employees it will cut or how many offices it will close.
Former Chairman Thomas Finck has resigned from the company. Triton's board replaced him with Erikson, who was already a board member and is chairman and CEO of Cooper Cameron Corp., Houston. Robert Holland has been named interim president and CEO of Triton but will also remain senior vice-president, general counsel, and secretary.
Triton's reorganization is aimed at improving cash flow, but the company's balance sheet will take a hit in the short run. As a result of its restructuring, Triton will take a $72 million charge this year for withdrawal from exploration projects. Another $17 million will be spent on office closures and layoffs. The company also expects to incur a ceiling test write-down of about $70 million as a result of low oil prices, said Erikson.
The changes are aimed at improving corporate liquidity immediately, increasing cash flow in the next 2 years, and reducing capital spending.
ARCO partnership
On July 17, ARCO and Triton signed a definitive agreement, under which ARCO will acquire 50% of Triton's interest in Block A-18 in the Thai-Malay JDA. Triton and ARCO each will own a 25% interest in the block through their holdings in the joint operating firm Carigali-Triton Operating Co. The remaining 50% is held by Malaysian state oil firm Petronas.ARCO will pay Triton $150 million for the 25% stake and fund half of project development costs until first commercial production (up to a maximum of $377 million). ARCO will recover these development costs under the terms of the production-sharing contract once production starts.
Paine Webber concludes that this means, "Triton should not incur any out-of-pocket expense for the Phase 1 development of Block A-18." According to the analyst, "Any entity that would now buy Triton would get the company's share of Phase 1 production without incurring any cost."
ARCO also will make two incentive payments of as much as $65 million-one in 2002 and another in 2005-if specific development objectives are met.
Erikson believes this total of $657 million is a "substantial validation of the reserves" on Block A-18.
Triton's difficulties
The ARCO acquisition gives a significant capital boost to the gas development project on Block A-18, which Triton has had difficulty funding.In March, Triton began its search for buyers to take part of its A-18 interest. The company retained CIBC World Markets Lovegrove & Associates and Lehman Bros. Inc. as its advisers in studying "strategic alternatives" for A-18.
ARCO's was the best proposal to emerge from this review, said Erikson. "The other offersellipsedid not meet our expectations of value at this time."
Development of Cakerawala-the first gas field that will be brought on stream in the JDA-is estimated to cost over $600 million. Without the ARCO deal, half that amount would have been the responsibility of Triton alone.
Triton and Petronas Carigali have already spent about $200 million exploring and delineating the tract.
Eight gas fields have been discovered on the block. Triton estimates original gas in place on A-18 at 10.6 tcf, although proved reserves are only 1.2 tcf of gas and 30 million bbl of oil, at this time.
The combine of Triton and Petronas Carigali in April signed a heads of agreement to sell natural gas from A-18 to the Petroleum Authority of Thailand and Petronas (OGJ, May 25, 1998, p. 14). The accord involves the delivery of 390 MMcfd of Cakerawala gas for 20 years, starting in first quarter 2001.
Triton has not yet determined the amount of cash generated by the ARCO acquisition that it will apply to its debt, said Holland, nor has it identified the need for any similar transactions to reduce debt.
Triton has been rumored to be an acquisition candidate in recent months. Its agreement with ARCO contains no prohibition against Triton being acquired by another firm.
"We're going to do what makes sense from a shareholder standpoint," said Erikson. "We're certainly open to that."
Triton's stock was down 81/4 points on July 17, the day the ARCO transaction was announced. Erikson believes this is probably because investors expected to see the entire company acquired: "There were a lot of people that wanted to see the company sold."
Exploration plans
Triton has exploration plans in China, Colombia, Ecuador, Guatemala, and Italy, among other countries. Holland says the firm will place no less emphasis on Colombia-where it is a partner in the giant Cusiana and Cupiagua fields-but that all other opportunities will be reviewed with a view to cutting back the exploration budget.Triton's exploration budget was $100 million in 1998, but exploration spending will be "down significantly" next year, said Holland. He does, however, expect Colombia to be "cash-positive" for Triton in 1999.
Copyright 1998 Oil & Gas Journal. All Rights Reserved.
