Unocal hopes to raise oil production in E. Kalimantan

Unocal hopes to raise oil production in E. Kalimantan

SINGAPORE (Dow Jones): Unocal Corp.'s (UCL) Indonesian unit is
producing 4,000 barrels a day of crude oil from its Mahoni field
in the southern portion of Unocal's East Kalimantan production
sharing contract area, Unocal Indonesia Co. said in a statement
on Tuesday.

Production began Oct. 11, one month ahead of schedule.

The horizontal well is flowing through facilities in the
nearby Yakin field, also in Balikpapan Bay off Kalimantan, Unocal
said. Excluding oil from Mahoni, the Yakin field produces 6,900
b/d, a Unocal Indonesia official said.

Unocal's total production in Indonesia, including production
from Mahoni, is now 66,000 b/d, the official said.

Production at the Mahoni field forms part of Indonesia's
efforts to increase production to meet new output quotas from the
Organization of Petroleum Exporting Countries, the Unocal
statement said.

Indonesia's quota rose 26,000 b/d effective Oct. 31, to 1.3586
million b/d, when OPEC raised total output quotas by 500,000 b/d
after its price band mechanism was triggered.

However, Rachmat Sudibjo, director general of oil and gas at
Indonesia's Ministry of Mines and Energy, said in late September
that the country would struggle to meet new ceilings. Indonesia's
production at the time was about 1.32 million b/d, Sudibjo said.
OPEC subsequently increased total output quotas by 800,000 b/d,
effective Oct. 1.

According to the terms of the price band, OPEC will increase
output targets by 500,000 b/d if the price of its benchmark
basket of crudes trades over $28/bbl for 20 consecutive trading
days. The organization will cut total output by 500,000 b/d if
the basket of crudes trades under $22/bbl for 10 consecutive
trading days.

The Mahoni field was discovered in 1999, but considered
marginal, Unocal said.

However, an "economic framework" developed with state-owned
oil and gas company Pertamina "provided the basis for Unocal's
development of the Mahoni field, as well as providing an
incentive for development of additional small field discoveries
in the area," Unocal said.

Unocal received an investment credit of 17 percent to develop
the fields, the official said.

He could not comment on the company's split of the production
sharing contract. Normally, the state gets 85 percent of revenue
from production sharing contracts, but for frontier and deep sea
projects, the developing company's share can rise to 35 percent.

Unocal plans additional wells in the Mahoni field by year-end,
and hopes to raise production from the field to 10,000 b/d, the
official said.

Unocal estimates total recoverable reserves from Mahoni and
the nearby Mahoni West fault block at 3.6 million barrels.

Additionally, the company is still evaluating two discoveries
in the nearby Bangkirai field, where it plans to drill another
well to delineate the extent of its find, the official said. Four
more wells at Bangkirai are slated for 2001, Unocal said.

Developing marginal fields is necessary to maintain Unocal
Indonesia's production levels, as production at existing fields
is declining, the official said.

However, Unocal Indonesia expects an increase in overall
production by end-2002, when its deep-water West Seno field comes
onstream. At its peak, that field should produce at 60,000 b/d,
the official said.

Another field, the Merah Besar field, will come onstream in
2004.

The West Seno field is located in the Makassar Strait
production sharing contract area, in which Unocal holds a 45
percent interest and Exxon Mobil Corp. holds the remainder. The
Merah Besar field straddles the East Kalimantan and Makassar
Strait areas, according to Unocal's Web site.