1998 Capital Expenditures and Investments — $427 million

Field Services’ 1997 operating profit decreased 7 percent from the previous year, when the effects of insurance recoveries in both years are excluded. Although lower per-unit natural gas liquids margins and higher operating expenses hurt financial performance in 1997, increased liquids and processing volumes partially offset these negative effects.

Key Points
*Several projects position Field Services to access the Gulf of Mexico’s deep-water play. The federal government estimates the play to represent as much as 3 Bcfd of incremental volumes by 2000.

We are evaluating customer commitments supporting the construction of a 600 MMcfd natural gas processing plant in Southwest Alabama. During fourth-quarter 1997, we began building a 90 MMcfd natural gas gathering pipeline that will tap deep-water reserves offshore Louisiana. The pipeline is expected to be in service fourth-quarter 1998.

Other Gulf Coast activity completed in fourth-quarter 1997 includes expansion of the Bee County processing plant in South Texas to 80 MMcfd, a 33 percent increase, and extension of the Southeast Louisiana gathering system to capture some 50 MMcfd of new production. During first-quarter 1997, we acquired the remaining 50 percent ownership of a 500 MMcfd plant in Southwest Louisiana.

*Despite greater than expected production declines in conventional gas from the Green River Basin and coal-seam gas from the San Juan Basin, we maintained volumes in that western region through new well connections, compression installations and connections between our systems.

The new connections move gas from our capacity-constrained conventional gathering system to our coal-seam gathering system, offsetting declining coal-seam production in the San Juan Basin. To the north in the Green River Basin, we signed a long-term agreement with producers in early 1998 to add 60 MMcfd to our Wyoming system.

*We plan to file a request in first-quarter 1998 with the FERC to transfer to us — and deregulate — certain Transco Gulf Coast onshore gathering assets. The FERC in fourth-quarter 1997 rejected a request by Transco for permission to provide firm transportation service under flexible terms that allow its production-area services to be more competitive. Field Services operates these gathering facilities as agent for Transco. Transco plans to file another request during the first half of 1998.

These filings are interim strategies while we await rehearing of our request to transfer all of Transco’s Gulf Coast onshore and offshore gathering assets. The transfer, or spindown, would let us compete on a level playing field with other unregulated gathering companies and provide more timely, cost-effective service to producers.

In fourth-quarter 1997, the 5th U.S. Circuit Court of Appeals directed the FERC to reconsider its decision disallowing the deregulation of another offshore pipeline, Sea Robin. The ruling is significant because the FERC denied our initial spindown request based on precedent set by its Sea Robin decision.

Outlook
Operating profit in 1998 should be similar to 1997 results despite an expected continued decline in natural gas liquids margins. Gathering, processing and liquids volumes should climb as increased production is connected to our facilities in New Mexico and Wyoming, and some of our Gulf Coast projects go into service.

With a focus on capturing deep-water and downstream business in the prolific Gulf Coast region, Field Services expects to more than double capital expenditures to $427 million in 1998, with more than 80 percent earmarked for expansions. In addition, we expect to spend some $30 million to enhance producers’ ability to bring volumes onto our gathering systems in New Mexico and Wyoming. Considered a building year, 1998 will mark implementation of our most aggressive growth strategy to date.