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Good afternoon ladies and gentlemen. I would like to welcome you to your Corporation's annual stockholders meeting and thank you for joining us today.
1999 began with historically low oil price levels of only $12 a barrel, but as the year progressed oil prices increased, finishing the year at over $25 before reaching a peak of over $30 in the first quarter of this year. Although we have benefited greatly from the rise in oil and gas prices, we recognize the cyclical nature of the business and the continuing need to achieve superior financial returns at whatever point we are in the commodity cycle. The substantial improvement in our financial performance is not just the result of higher prices.
Four years ago, we identified the upstream sector as the engine of long term growth for the company and identified a three-pronged approach for improving returns. This involved a strategy of bringing on stream lower cost sources of production, reducing the cost base of our existing mature fields and accessing new high quality opportunities. I am happy to report significant progress has been made in all three areas.
Today I will discuss several of the key areas of progress, as well as outline the challenges we face.
Significant opportunities and challenges are present for our industry as we continue to see consolidation of the sector. Whilst this creates stronger competitors, we also believe it will provide Amerada Hess with opportunities to access new high quality assets, either through divestitures from the Majors or indeed by continued consolidation in the sector. Our company is well positioned to take advantage of these opportunities due to its strong balance sheet, improved market equity, and by our ability to forge close and profitable relationships with governments, national oil companies and strong regional players.
This year we have made substantial progress in our long-term business plan to upgrade Amerada Hess' asset base, to deliver consistently superior financial returns.
During 1999, the Corporation increased production by 37,000 barrels of oil equivalent per day to a worldwide total of 339,000 barrels per day. Production in the US increased by 29%. Much of this increase was due to the Baldpate field in the Gulf of Mexico attaining a full year of peak production levels.
In Europe, the South Arne field started producing in July, boosting production by year end by some 28,000 barrels of oil equivalent net to the Corporation. This is Denmark's largest field and one of the Corporation's most important, both in terms of our investment and its earnings potential. During 1999 we drilled a number of deviated production wells on the field with state-of-the-art completion technology which we believe will further improve the recovery from the field.
In 1999 five new fields were brought on stream in the United Kingdom increasing production to over 160,000 barrels of oil equivalent per day net to the Corporation. The company has brought on stream a further two fields this year. The Bittern field came on stream in April and will boost production substantially when it reaches peak levels later this year. Amerada Hess' share of that production will be around 18,000 barrels of oil equivalent per day. Last week, the Cook field, in which Amerada Hess has a 28% interest, also commenced production.
In the Corporation's emerging new focus areas of South East and Central Asia, production has grown appreciably over the last 12 months from Indonesia, Thailand and Azerbaijan. Our share of production from South East Asia has now reached 5,000 barrels of oil and 35 million cubic feet of gas a day.
In Azerbaijan, the offshore Azeri, Chirag and Guneshli fields in the Caspian Sea have increased production to a gross rate of 120,000 barrels of oil per day. Whilst our interest in these AIOC fields is small, we believe they will generate long-term stable earnings due to their large low cost production base. In addition to these offshore interests, Amerada Hess also acquired an interest last year in the onshore field development of the Kursanga and Karabagly fields, which are under production and where a drilling program this year will further boost our production from the Caspian region.
In addition to growing production from our current fields, your Corporation has made a number of successful acquisitions of producing assets to enhance both our current and future performance. The majority of these acquisitions have been in high impact areas, where we can leverage our technical skills to yield the very best results.
Last month in Algeria, Amerada Hess acquired the redevelopment rights to the Gassi El Agreb fields in the major oil-producing region of the Berkine basin in central Algeria. This agreement with the State oil company Sonatrach gives us our first exploration and production interest in this prolific oil and gas producing area and we hope that it will be the first of many agreements in this highly prospective region.
Currently these fields are producing at a gross level of almost 30,000 barrels of oil per day but with the enhanced recovery program that we shall be implementing, we expect to achieve gross production of at least 45,000 barrels per day by 2003. The new company, Sonahess, will be operational in the third quarter of this year. This investment forms part of our strategy to leverage our technical skills in miscible gas flooding and to grow our international exploration and production business by accessing high-quality, long-life, low-cost production with attractive financial returns.
While we seek to grow our asset base in these emerging areas we remain committed to our current core areas where good opportunities still exist. As an example, the Ivanhoe, Rob Roy and Hamish fields in the central North Sea have long exceeded all production expectations. We will be acquiring further interests in these fields, adding an extra 34% to our current holdings of 42%. This will increase our production by 5,000 barrels a day and enable us to tie back satellite discoveries, such the Rochelle discovery announced today in block 15/27.
All of these developments will contribute to a solid increase of production over the year and by the end of 2000 we expect to have increased production by around 10% over 1999.
The Corporation has a range of projects that are at various stages of appraisal, development planning, and construction. A common thread running through them all is that they are all designed to produce new production at significantly lower costs than in the past.
In the US, to the north west of the Baldpate field we are developing the Conger field, where we successfully drilled a third development well last year and this summer will install the subsea infrastructure that will enable us to bring the field on stream in the 4th quarter. Also in the Garden Banks area we are in the final stages of engineering for the deepwater Northwestern gas field for which Hess is the operator with a 50% interest. This field is also expected to come on stream early next year.
In the UK, appraisal drilling is in progress for three natural gas discoveries and the Skene field in the Central North Sea should attain development sanction shortly. We are also focusing on a number of other discoveries to see if profitable development solutions can be found so that further value can be realized.
Elsewhere, in Gabon the Atora field is currently under development and production is expected to begin later this year. In Indonesia, the North and Northeast Betara and the Gemah discoveries on the Jabung concession have been successfully appraised. Production from the first phase of development is expected by the end of the year. Further south onshore Sumatra, the appraisal of two discoveries on the Pulau Gading field and the Singa field have been successfully completed.
These new developments, together with improvements in current producing fields, will increase our production, reduce the Corporation's cost per barrel, and deliver a strong return on capital employed.
In addition to taking on new lower-cost fields, we need to continue to reduce the cost structure of our existing business. Since 1998 we have lowered out total unit costs by $2.05/BOE to $11.75/BOE which represents real progress.
Looking to the future, we continue to add new reserves. During 1999 the Corporation replaced 90% of our production, excluding purchases and sales.
Whilst we had success with the drill bit in Indonesia and we achieved improved appraisal and reserve upgrades, the overall results of our exploration program in 1999 did fall short of our targets due to a severely constrained drilling program. However, during the year we took the opportunity to refocus the program and acquire some highly prospective areas which we shall be drilling over the next few years.
A number of new opportunities are being pursued, most notably in Brazil, where the company now has interest in four blocks, three in the proven Campos and Santos basins.
In Algeria the Corporation has acquired an exploration block adjacent to the prolific Hassi Berkine region, and offshore Vietnam we acquired interest in the Mekong Basin. These help position the company for strong future growth. In addition to those areas, the Corporation remains active West of Shetland and will be submitting an application in the upcoming Faroes 1st licensing round where we believe significant potential exists.
Our exploration program for 2000 will remain highly focused and will comprise 34 wells in the areas of greatest prospectivity. Approximately one quarter of our exploration budget is being spent in the North Sea, primarily in and around our Central North Sea Focus Area; some 40% in the United States, where we are pursuing high impact opportunities in the deep water Gulf of Mexico; and the remaining 35% in the international areas I discussed.
Finally, we shall continue to undertake our operations in a manner that puts the safety of our personnel at the forefront and with due regard for the environment. We will maintain our existing high standards of health, safety, quality, and business ethics as we extend our operations further afield. Maintaining and advancing these standards is good practice, makes good business sense, and is an essential component of our license to operate.
In 1999 we worked hard to reposition the company by reshaping the asset base and reducing operating costs. We have brought on stream twelve developments increasing our worldwide production. We have refocused out exploration program to concentrate on high impact projects.
Our goals are to ensure the delivery of superior and consistent financial returns, to improve cash flow, and to make Amerada Hess the partner of choice. This will position Amerada Hess as the leading Independent in all the areas in which we operate, and one that continues to perpetuate the highest values extolled and exemplified by Leon Hess.
Thank you