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FOR IMMEDIATE RELEASE EXHIBIT 99.1
WEDNESDAY, JANUARY 13, 1999
UNION PACIFIC RESOURCES GROUP INC.
ANNOUNCES $760 MILLION 4TH QUARTER CHARGE,
PRELIMINARY 1999 BUDGET, CONTINUING DEBT REDUCTION PROGRAM
FORT WORTH, Texas -- Union Pacific Resources Group Inc. (NYSE - UPR) today
announced that it will take a non-cash charge to earnings of approximately $760
million after tax in the fourth quarter as the result of an FAS 121 asset
impairment.
The Company also reported that its 1999 plans include a continuing cost
reduction program and a preliminary capital budget of approximately $500
million. Excess cash flow of more than $250 million will be used to further
reduce debt, keeping the Company's $2 billion deleveraging program on target.
"The low price environment in which the oil and gas industry finds itself is
forcing us and many of our competitors, large and small, to take asset
impairments and actions to reduce costs and conserve cash," UPR Chairman and CEO
Jack Messman said.
"Our writedown has been triggered by low commodity prices and largely relates to
Norcen Energy Resources' assets acquired just before the collapse in prices in
early 1998. While we are required by Financial Accounting Standard 121 to mark
these assets to market with a charge to 1998 earnings, the writedown will lead
to improved earnings going forward.
"UPR is on target to meet its deleveraging objectives," Messman added. "Our cash
flow remains strong and will allow us to meet our debt covenants, fund our
capital program and pay down additional debt. UPR will live within its means and
adjust its capital spending as commodity prices and cash flows change," he
continued.
"While we are not making any predictions regarding a rebound in prices, at
current price levels these actions put us on the road to profitability in 1999.
We are prepared to deal with this low-price environment and have the financial
capacity to do so," Messman added. "After all the changes to our Company in 1998
caused by the Norcen acquisition and the subsequent asset sales, UPR has about
50 percent more reserves and about 50 percent more production today than it did
at this time in 1998," Messman concluded.
Asset Impairment
The Company determined that an asset impairment of $760 million is necessary
under FAS 121. Current and anticipated hydrocarbon prices - particularly their
effect on the value of the Company's heavy oil properties in Canada and
Guatemala - and reserve revisions following a recently completed comprehensive
review of reserves by UPR and third-party engineers, are the principal factors
contributing to the impairment.
Oil prices have collapsed since the acquisition of Norcen in March. Norcen's
reserves were 47 percent oil and today's prices are 25 percent below the prices
in effect at the time the acquisition was made. UPR's 1999 crude oil price
assumption is $13.50 NYMEX per barrel, escalating to $15.50 in the year 2000 and
$17.50 beyond. The Company's assumptions for natural gas are $2.05 in 1999,
$2.25 for the year 2000 and $2.35 beyond.
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UPR's proved total reserves at year-end 1998, after exploration and production
asset sales and the divestiture of its gas gathering, processing and marketing
business, will be about 1,020MMBOE. This amount incorporates a downward revision
of 2.5 percent of pro forma proved reserves of UPR and Norcen at the beginning
of 1998. Most of the reserve revisions are associated with former Norcen
properties in Canada and the Gulf of Mexico. The revisions are due primarily to
disappointing well performance from recent discoveries not on production at the
time of the Norcen acquisition, and recent reserve reviews.
UPR's depletion, depreciation and amortization per unit of production will
decline to approximately $0.90 per thousand cubic feet of gas equivalent as a
result of the impairment.
1999 Capital Budget
The Company's preliminary 1999 capital budget of approximately $500 million is
down by about two-thirds from 1998's $1.2 billion expenditure on exploration and
production projects, exclusive of the $3.5 billion purchase of Norcen in March
1998. The capital reduction is a direct consequence of the current pricing
environment and UPR's commitment to continued deleveraging.
The Company is concentrating this year on development drilling that generates
more immediate cash flow. Almost 90 percent of the budget will be devoted to
development projects in its core business areas, divided in roughly equal
proportions among the Offshore Gulf of Mexico, the Austin Chalk, other domestic
onshore development, Canada and Latin America.
At this reduced spending level, the Company expects production volumes to
decline slightly from the projected exit rate for 1998 of 2.3 billion cubic feet
of gas equivalent per day (BCFED) to an average rate of about 2.2 BCFED. Should
the pricing environment improve, UPR has significant drill site inventory
available in the U.S., Canada and Latin America.
Cost Reduction
The preliminary budget also includes initiatives to reduce cash expenses across
the board. These initiatives will result in reduced lease operating expenses and
lower general and administrative costs on a per unit basis compared to 1998. In
addition to a previously announced reduction in force and other restructuring
actions, further opportunities for cost savings will result from completed asset
sales and lower capital spending.
Deleveraging
Cash generated from operations in 1999 should exceed projected capital spending
by more than $250 million, which the Company plans to apply to debt reduction.
This is in addition to UPR's deleveraging program through asset sales now
nearing completion. In late November, UPR announced an agreement to sell its
midstream gas business to Duke Energy Field Services, Inc. for $1.35 billion.
This transaction, together with the completed and anticipated closings of E&P
property sales worth approximately $700 million, should bring total asset sales
to approximately $2.1 billion by the end of the first quarter 1999. After-tax
proceeds of more than $1.7 billion, combined with the planned application of
excess cash flow in 1999, should bring UPR to its $2 billion debt reduction
goal, announced in April of last year, on schedule.
Amounts annualized for 1998 and figures related to the impairment discussed in
this press release are subject to audit by the Company's independent auditors in
conjunction with their normal year-end review.
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Union Pacific Resources is one of the nation's largest independent oil and gas
exploration and production companies. Based in Fort Worth, Texas, UPR is one of
the most active domestic drillers and was the No. 1 gas producer in the state of
Texas in 1997.
This press release, other than historical financial information, contains
forward looking statements that involve risks and uncertainties including
planned construction and drilling activity, expected production efforts and
volumes and budgeted capital expenditures, the timing and completion of planned
asset sales and other risks and uncertainties detailed in the Company's SEC
reports, including the report on Form 10-Q for the quarter ended September 30,
1998. Actual results may vary materially.
Media Contact: Analyst Contact:
Dan Sullivan David Larson
Director, Public Affairs Director, Investor Relations
817-321-6527 817-321-7294
Internet: www.upr.com
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