Unocal & Shell Exit East China Sea E&P Project

Unocal and Shell have decided not to proceed with their participation in five contracts to explore for, develop, and market natural gas resources in the Xihu Trough of the East China Sea.

Unocal East China Sea, Ltd., a Unocal subsidiary, and Pecten Orient Company LLC, a subsidiary of the Royal Dutch/Shell Group, each hold a 20-percent working interest in the contracts. Other participants are China National Offshore Oil Corporation (CNOOC), 30-percent working interest; and China Petrochemical Corporation (Sinopec), 30 percent.

"Over the past year, we have conducted a detailed resource assessment and studied various development options," said Don R. Hansen, vice president of Unocal International Energy Operations. "For commercial reasons we have elected not to proceed with the project. We have enjoyed excellent cooperation with both CNOOC and Sinopec, and we look forward to other opportunities to work together."

The Unocal and Shell affiliates entered into the Xihu Trough contracts in August 2003. The contracts required a final investment decision to be made after a 12-month period of appraisal and analysis.

Unocal expects to record a charge of approximately $10 million after-tax in the third quarter 2004 for relinquishment of lands and settlement of remaining obligations.