Amoco to refocus its U.S. upstream business

In a major refocusing of its U.S. upstream business, Amoco Corp. plans to sell numerous oil and gas properties and royalty interests in what officials say is the "largest divestment" by Amoco in the recent past.

Proceeds, to be generated by asset sales sold via an auction process, will be used to fund growth opportunities in the U.S. and overseas.

"The United States is and will continue to be a crucial part of our worldwide E&P portfolio," said L. Richard Flury, executive vice-president responsible for Amoco's exploration and production business.

"Even after this divestment, our North American upstream business will account for more than half of our worldwide reserves and production."

Pointing out that Amoco is not closing the door on the U.S., Flury noted, "We see attractive growth opportunities for our North American business, particularly in the deepwater Gulf of Mexico."

Reserves to be sold, primarily in western basins in non-core areas, total 460 million bbl of oil equivalent (boe); production totals about 70,000 boed.

The number of wells to be sold was not available.

Divestiture plans

Properties to be sold are about two-thirds gas and one-third liquids, located in Wyoming, Colorado, New Mexico, Oklahoma, and selected Gulf Coast locations.

Amoco will group the assets in as many as five sale packages. Assets represent about one-third of Amoco's U.S. working interest properties, accounting for about 15% of its U.S. total reserves and 10% of its U.S. net production in 1996.

While most sale properties include producing wells and reserves, Amoco said packages may include operating centers, selected processing plants, gathering systems, and other infrastructure.

No assets that comprise the Altura Energy Ltd. joint venture with Shell Oil Co. in the Permian basin will be part of the divestitute (OGJ, Mar. 3, 1997, Newsletter). Flury said Amoco expects the Altura JV will deliver more than $200 million in value over its life.

Assets in Canada, where Amoco has already carried out a successful streamlining process, are not included, officials said.

Amoco, which has retained Morgan Stanley as financial adviser, plans to begin marketing the properties early in the third quarter and hopes to complete the divestitures by yearend.

Portfolio management

Early in the 1990s, Amoco initiated a major refocusing of its E&P strategy, and the latest move is a further narrowing of that focus.

According to Flury, the asset sales constitute a "step to raise the bar" in a program concentrating on aggressive portfolio management.

Sales will enable Amoco to apply better focus to its U.S. operations, fund core E&D programs, as well as enhance shareholder value, officials said.

"Our profitability hasn't been dropping," Flury said. "Actually, last year was a record year for us in the E&P business, and our North American operations performed very well.

"But it's a very competitive world, and we would like to see Amoco Corp. at the front of the pack in terms of financial performance."

Amoco has a corporate goal of achieving a 15%/year return on capital employed and earnings growth of 10%/year.

"That requires a very hard look at the portfolio and making sure that we are allocating our capital and redeploying our assets in areas where we can achieve the greatest return."

Flury noted the properties to be sold on a unit of production basis cost $4.45/boe in 1996 compared with Amoco's portfolio average of $3.77/boe.

"There will be some people impact," said Flury, including possible layoffs and transfers of personnel. Amoco expects most field employees will be hired by purchasing companies.

Majority of the positions to be affected are located in the Denver/Rocky Mountain region, with a few Houston positions to be affected, also.

Growth areas

Amoco in 1996 added more reserves than it produced for the fourth straight year, primarily because of growth outside the U.S.

Amoco replaced 180% of its reserves on an energy-equivalent basis, excluding purchases and sales, with replacement outside North America totaling 437%.

In addition to the deepwater Gulf of Mexico, Flury identified five international areas where Amoco intends to channel a growing share of available capital:

Trinidad, where Amoco is advancing a major liquefied natural gas project and offshore development program (OGJ, Dec. 16, 1996, p. 12). Trinidad accounts for the company's most significant reserve additions; it has discovered more than 8 tcf of gas there since 1994.
Venezuela, where Amoco has been actively participating in that country's bid rounds (OGJ, July 22, 1996, p. 28) and developing oil reserves in eastern and northeastern Venezuela (OGJ, Mar. 25, 1996, p. 38).
Eastern Mediterranean area, including operations in the Gulf of Suez area of Egypt and the Nile Delta, where the company is actively exploiting gas reserves (OGJ, Feb. 24, 1997, p. 37).
Caspian Sea area, including positions in Azerbaijan and Kazakhstan, where Amoco recently became a participant in the Caspian Pipeline Consortium (CPC) and agreed to help finance Kazakhstan's stake in the planned 900-mile CPC project (OGJ, Mar. 17, 1997, p. 44).
Canada, where Amoco has a substantial acreage position and increasing production levels in a heavy oil project, as well as operations off the East Coast.
On a boe basis, Amoco's operations are split roughly 50-50 between international and U.S./North American operations, Flury said.

Currently, and for the foreseeable future, Flury indicated, Amoco will likely be investing "over 60% of our major cash overseas; but on a $2.5-3 billion/year program, that still leaves a substantial investment in North America, as well."