ARCO Confirms At Least 13 Trillion Cubic Feet of Gas Reserves in Eastern Indonesia; Discovery is Third Largest in ARCO's History

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02 September 1997

ARCO (NYSE: ARC) today announced proved and probable reserves in excess of 13 trillion cubic feet (TCF) of natural gas in support of a major liquefied natural gas (LNG) project in Irian Jaya in eastern Indonesia.

The discovery, first confirmed by ARCO in 1995, ranks among the largest natural gas discoveries in the world in recent years.

In recognition of the project's size and economic importance to Indonesia, President Suharto officially named the project "Tangguh" (signifying strength) during a meeting today with ARCO Chairman and Chief Executive Officer, Mike R.Bowlin. The project was previously known by the well site designations of Weriagar and Vorwata.

On an oil equivalent basis (13 TCF of gas equating to approximately 2 billion barrels of oil), Tangguh is the third largest discovery of hydrocarbons in ARCO's history, surpassed only by the giant Prudhoe Bay and Kuparuk River oil discoveries in Alaska during the 1960s.

The Tangguh reserves, located on the Weriagar and Berau blocks onshore and offshore Irian Jaya, were estimated by the Dallas-based independent petroleum engineering consulting firm of DeGolyer and MacNaughton (D and M). Given appraisal drilling to date, consisting of 11 ARCO wells and two earlier wells, D and M also estimated that there may be an additional 6.5 TCF of possible reserves beyond the 13 TCF of proved and probable reserves.

Development plans call for LNG production to begin in time for anticipated increases in market demand around 2003. With the Berau Bay region emerging as a major new gas basin, ARCO plans continued exploration drilling to assess the ultimate potential of the area.

The Tangguh project will provide Indonesia with a significant resource base to expand Indonesia's LNG market share. Through its state oil company, Pertamina, Indonesia is the largest marketer of LNG in the world, with a 50% market share in the Asia-Pacific region.

At the meeting, at the Presidential palace in Jakarta, at which he presented the D and M findings to President Suharto, Chairman Bowlin said: "This is a milestone in ARCO's global growth agenda and our continuing relationship with Indonesia, where we have been Pertamina's partner for three decades. Indonesia will continue to be a major focus area for ARCO well into the next century.
"LNG development in Irian Jaya will give ARCO another anchor field development to broaden our income generation overseas," noted Bowlin. "Such developments are characterized by long-term, stable cash flow which would contribute substantially to ARCO's international growth objectives.

"Natural gas developments, whether pipeline or LNG, rank very high on our global growth agenda. This is especially true in the Pacific Rim area. Simply stated, if a project is economic and there's a market for the gas, we want to develop it as soon as possible."

Leon Codron, President of Atlantic Richfield Indonesia, Inc., (ARII), said, "Irian Jaya is ideally located to service expanding Asian markets, where energy growth is forecast to remain robust. ARCO and our partners will drill more wells to certify additional reserves for a multiple-train LNG project — the first of its kind in eastern Indonesia."

ARCO is now working with Pertamina on a declaration of commerciality and on marketing LNG from the project. The Tangguh project would add a third independent production source to Indonesia's two existing LNG production centers in Arun and Bontang.

Herb Vogel, ARII Vice President and manager of the Tangguh project, said that the Pertamina-ARCO partnership is ideal for the project. Pertamina and ARCO have over 30 years of experience partnering in Indonesia. "Pertamina has over 20 years of operations and marketing experience in LNG and operates two of the largest LNG plants in the world," Vogel said. "ARCO has worldwide upstream experience in managing large gas projects, and we are already the leading provider of natural gas to Indonesian domestic markets."

Vogel added that ARCO's recent greenfield international gas projects include the Pagerungan field development in Indonesia and the Yacheng field in the South China Sea which began producing in 1994 and 1996 respectively.

Codron gave considerable credit for the initiation of ARCO's exploration program in Irian Jaya to Pertamina and the Indonesian Ministry of Mines and Energy. "In 1993 the government provided additional incentives for companies to engage in riskier frontier exploration in areas such as eastern Indonesia," Codron said. "The resulting improvement in contractor economics was a key factor in ARCO's decision to establish an active exploration program in Irian Jaya."

Codron stated that ARII currently has 2,200 employees in Indonesia, where it recently produced its billionth barrel of oil. Total ARCO investment in Indonesia over the past three decades has been nearly $3 billion. The Tangguh project is expected to require several billion dollars of investment.

Partners in the Berau block are ARCO (48%), Occidental Berau of Indonesia, Inc., (22.856%), Nippon Oil Exploration (Berau) Ltd (17.144%), and KG Berau Petroleum, Ltd (12%). ARCO holds an 80% interest in the Weriagar block in partnership with KG Weriagar Petroleum, Ltds 20% interest.

ARCO is the operator of both blocks through its Atlantic Richfield Berau, Inc., and Atlantic Richfield Weriagar Inc subsidiaries.

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