The production outlook is based on a capital budget of about $1.7 billion, essentially flat with 2002. Capital spending on major developments will continue to account for an increasing percentage of the company's overall capital spending profile, at the expense of small, shorter term, production-adding projects.
"We are committed to growing production and increasing returns and per-barrel margins," said Charles R. Williamson, Unocal chairman and chief executive officer. "We hope to meet these commitments by emphasizing investments in our inventory of larger, higher potential return projects, exercising capital discipline and continuing to de-emphasize smaller scale, lower return development and exploitation activities."
The keystone of the 2003 production growth forecast is the start of new production from the deepwater West Seno oil and gas field in Indonesia, which is expected to come on line at the beginning of the second quarter. The Phase One development has peak production potential of more than 52,000 BOE per day net to Unocal, increasing to more than 65,000 BOE per day with Phase Two.
Modest growth is also expected in Thailand, with continued expected strong gas demand and the full-year effect of the Pailin 2 gas and Yala/Plamuk oil developments, which are currently producing at almost 24,000 BOE per day (net).
North America production is expected to be relatively flat with 2002, as increases in Canada are offset by declines in the Lower 48. This assumes a modest degree of success with the company's emerging deep shelf exploration program and does not include the impact of any divestitures that may occur.
Longer term, the company sees five-year annual production growth rates of between 5 and 7 percent, fueled by the company's backlog of major development projects.
"We have a string of major production projects that are slated to come on line over the next five years," Williamson said. "In addition, we have other projects throughout our global operations arena that we expect to sanction in 2003 and beyond."
Currently sanctioned projects include West Seno Phases One and Two, AIOC Phases One and Two, Mad Dog (Gulf of Mexico) and South Kenai (Alaska) gas. The company expects to make sanction decisions on AIOC Phase Three, Ranggas and Merah Besar in Indonesia, K2 and Trident in the deepwater Gulf of Mexico, and Arthit in Thailand, each of which could have a production impact in the five-year timeframe.
Unocal will also continue to take steps to reduce the decline rate of its mature legacy production base. Unocal's Lower 48 and Canadian production base is equally split between the lower decline onshore U.S. and Canada and the higher decline Gulf of Mexico shelf. Success with the deep-shelf program would have the effect of offsetting decline rates there as the company continues to grow its Canada and onshore U.S. positions.
In Indonesia, the company will begin substituting lower cost deepwater gas production for marginal shelf gas production beginning in 2003. In Thailand and Myanmar, decline rates are immaterial as production is managed as a function of market demand and there are resources available to meet the existing sales contracts.
The backlog of major projects extends well beyond the five-year horizon, and includes the monetization of giant gas fields in deepwater Indonesia, Bangladesh, and Vietnam. These fields combined represent 10 to 20 trillion cubic feet in discovery volumes.
"The next phase of Unocal's future will be characterized by bringing on existing major developments, sanctioning existing discoveries, continuing our focused and high-impact exploration programs, and moving the monetization of our huge Asian gas resources forward," Williamson said. "These major projects allow us to be more selective with respect to smaller scale, lower return projects."
Williamson added, "We believe our portfolio stacks up to any competitor's portfolio of established, captured projects, and we are excited about our ability to grow the value of the company over this time period. We've worked hard to build this backlog of projects, and we look forward to seeing it pay off for our stockholders."
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