Unocal Makes Gas Discovery on Alaska's Kenai Peninsula

Unocal has made a natural gas discovery at its Happy Valley prospect located approximately seven miles southeast of Ninilchik on Alaska's Kenai Peninsula. The discovery well found 110 feet of natural gas pay and was followed by a successful appraisal well.

Unocal has approved development of the Happy Valley Field and will likely drill three development wells in 2004.

First production from Happy Valley is planned for fourth quarter 2004. Average production from the field is expected to be 20-25 million cubic feet per day during 2005 at Henry Hub pricing. The field is estimated to contain approximately 75-100 bcf of recoverable natural gas with finding and development costs averaging around 50 cents per mcf. Unocal holds a 100-percent working interest.

Gas sales will be under the ENSTAR Gas Sales Agreement, which was signed in 2000. This contract covers the first 450 bcf of gas that the company can deliver. The gas price is based on a 36-month trailing average of Henry Hub prices.

This is the second discovery for Unocal in its current exploration program on the southern Kenai Peninsula. Unocal participated with Marathon Oil Company in the discovery of the Ninilchik Unit in 2000, which is currently on production. Unocal has a growing inventory of exploration prospects in this emerging gas play and plans to drill 2-3 additional exploration prospects in 2004.

"This is an important discovery for us and for our customer," said Charles Pierce, vice president of the Unocal Alaska business unit. "We now have the basis for growth in this play as we have developed an attractive inventory of on-trend prospects. Having this kind of exploration leverage is a key element of our business unit's and the company's exploration strategy."