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Arco, Unocal to Focus on Exploration

Energy: Arco will reduce its chemical stake; Unocal will consider several options for its non-oil businesses.

June 04, 1998|NANCY RIVERA BROOKS | TIMES STAFF WRITER

Atlantic Richfield Co. and Unocal Corp. announced separately Wednesday that they will reduce or eliminate some non-oil operations to better focus on oil and gas exploration.

Los Angeles-based Arco said it will reduce its ownership stake in Arco Chemical to 50% from 82.2% by selling stock to the public and to its former chemical subsidiary. The oil giant said it expects to receive $2.15 billion for the shares.

El Segundo-based Unocal said it has retained Credit Suisse First Boston to review "restructuring options" for its agricultural fertilizer operation. Unocal said it is also evaluating other parts of its Diversified Business Group, including its carbon and minerals unit and its stakes in various pipelines. The group, which last year accounted for more than one-third of the firm's $581 million in earnings, employs about 2,000 of Unocal's nearly 8,400 employees worldwide.

Many U.S. oil companies have been shifting their attention overseas because domestic oil and gas reserves have become more difficult to find and more expensive to extract. Arco, for example, agreed last month to pay $3.3 billion for Union Texas Petroleum Holdings Inc., a Houston firm that explores for oil and gas overseas.

That purchase will sharply boost Arco's international presence but will also increase its debt, prompting Chairman and Chief Executive Mike R. Bowlin to consider asset sales in the $1-billion-to-$2-billion range.

"We continue to look at non-core assets," said Arco spokesman Albert Greenstein. "While we're not predicting that there will be more sales, we're still looking at what can be done."

Arco Chemical, based in Newton Square, Pa., accounted for about 7.2% of Arco's $1.77 billion in net income in 1997.

Arco will sell about 24 million shares to the public, and Arco Chemical will spend $600 million to $850 million to bring the Arco stake down to 50%.

Arco Chemical shares declined $3.25 to close at $53.06 on the New York Stock Exchange. Shares of Arco itself fell 31 cents to close at $77.75 on the NYSE.

The after-tax proceeds of about $1.4 billion will be used to pay off short-term debt, Arco said.

Another $1 billion or so in debt will be shifted to the Arco Chemical books.

Unocal is considering several options for its non-oil operations, including outright sales, joint ventures, initial public offerings and spinoffs, said Roger C. Beach, chairman and chief executive.

"Each of these businesses is highly attractive and profitable," he said. "While they don't fit into Unocal's long-term growth plans, we believe that they offer opportunities for growth under some other ownership structure."

Beach said the move is part of a continuing transformation of Unocal into a global energy company that is focused on the Gulf of Mexico, Central and Southeast Asia and Latin America.

Unocal has been revamping itself during the last two years, selling its familiar Union 76 gasoline stations and its refineries to Tosco Corp.

Unocal's agricultural products unit manufactures and markets nitrogen-based fertilizers, which are produced from natural gas that Unocal extracts in Alaska.

Company operations include urea and ammonia fertilizer manufacturing plants in Kenai, Alaska; ammonia production facilities in Finley, Wash.; and product upgrading facilities in Kennewick, Wash., and West Sacramento.

The carbon and minerals business includes Molycorp Inc., which produces lanthanide products at Mountain Pass, Calif., and molybdenum at Questa, N.M.

Unocal shares fell 13 cents to close at $35.50 on the NYSE.

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