Unocal Sells 70 Gulf of Mexico Fields to Forest Oil

Unocal Corporation said its Gulf Region business unit has agreed to sell 70 properties in the Gulf of Mexico and onshore Louisiana to Forest Oil for $295 million (subject to certain purchase price adjustments) as part of an initiative announced earlier in the year to improve the profitability and sustainability of its Lower-48 exploration and production businesses.

The company expects to close the transaction by the end of October. The effective date of the sale will be July 1, 2003. Net proceeds from the sale will be used to reduce debt and increase the company's capacity to fund its sizable inventory of development projects and discoveries.

Estimated July 1, 2003, reserves of the fields included in the purchase and sale agreement are approximately 34 million barrels of oil equivalent (BOE). The net production associated with the properties to be sold was about 18,000 BOE per day on the effective date.

The properties included in the sale represent the majority of the Gulf of Mexico properties that were earmarked for divestment. The company expects to divest the remaining properties before year-end 2003. The company expects that the anticipated sale of these assets will result in an estimated $45 million (pretax) third quarter 2003 impairment charge. Of this, an estimated $30 million that is in excess of normal depreciation and depletion will be classified as a special item.

After the divestments are complete, the Gulf Region business unit portfolio will include roughly 25 fields with production of approximately 67,000 BOE per day, along with an option to initiate deep exploration on many of the fields being sold to Forest. Unocal is continuing its active deep shelf exploration program and currently is drilling five deep shelf tests.

About 20 properties remain in the asset packages being offered for sale, and the company expects to sell those properties in the fourth quarter 2003. Some of those properties have book value in excess of the anticipated fair market value. The company expects to record an estimated $20 million pretax impairment charge in the third quarter to reduce the book value of those properties to the anticipated fair market value. Of this, an estimated $18 million that is in excess of normal depreciation and depletion will be classified as a special item.

Other properties in the asset packages are also expected to sell in the fourth quarter to different buyers and are expected to yield a pretax gain of around $25 million, which will be classified as a special item.