Mobil Enters Into Definitive Agreement with Arco
5 August 1998
Mobil Enters Into Definitive Agreement with Arco on Exchange of Domestic Upstream Assets
FAIRFAX, Va.--Aug. 4, 1998--Exit of Western Gulf of Mexico Increases Ownership in Aera Energy
Mobil Corp. announced Tuesday its domestic exploration and production business unit, Mobil Exploration & Producing U.S. Inc. (MEPUS), and Atlantic Richfield Co. (ARCO), have reached a definitive agreement on an exchange of assets that would transfer Mobil's interests in certain shelf operations in the central and western Gulf of Mexico to Western Midway Co., a wholly-owned subsidiary of ARCO, in exchange for all of its onshore exploration and producing properties in California.
Under terms of the agreement, ARCO would acquire Mobil's interests in the offshore producing and non-producing properties with related infrastructure primarily located in the western shelf region of the Gulf of Mexico. Total net production from the Mobil properties is approximately 40 thousand barrels of oil equivalent per day (TBDOE), with total reserves of about 80 million barrels of oil equivalent (MMBOE).
In return, Mobil would receive ARCO's oil and gas assets in California located in the San Joaquin Basin. Mobil would also receive ARCO's 49 percent partnership interest in a 234-megawatt co-generation facility operated by San Joaquin Energy Co. at the Midway Sunset field.
In addition, because the Mobil production is about two-thirds gas, Mobil and ARCO have negotiated a crude price protection agreement that guarantees Mobil a minimum "floor price" on the California crude volumes while allowing ARCO to retain crude realizations above a "ceiling price". The price protection agreement expires in December, 1999.
Upon completion of the asset exchange, Mobil and Shell Oil Co. (Shell) will arrange to transfer the newly acquired California properties to Aera Energy LLC, a joint venture company between Mobil and Shell, and increase Mobil's equity interest in Aera from 41.4 percent to 48.2 percent.
Mobil's share of Aera production is expected to increase by about 40 TBDOE to approximately 140 TBDOE, with reserves increasing by 150 MMBOE. Aera production is about 30 percent light oil and gas.
"These transactions demonstrate Mobil's commitment to profitably maintaining our production in the United States through growth in areas where the company has a competitive advantage," said Lou Allstadt, executive vice president, Mobil Corp.
The transaction, which is subject to completion of due diligence and regulatory approvals, is anticipated to close around the end of October, 1998. Other than potential payments that may arise as a result of the price protection agreement, the transaction involves no exchange of cash.
"This is a win/win situation for both companies and will significantly benefit Mobil and ARCO by adding to their individual areas of strength and allowing for significant cost savings through overhead reductions and operational efficiencies," said J. Michael Yeager, president and general manager of MEPUS.
"Upon completion of this asset exchange, Mobil will be able to focus its Gulf of Mexico capital, technology and people resources to the Central Gulf, Deepwater and Mobile Bay regions. We are also very glad to be increasing our interest in Aera Energy and its long-lived reserve base."