This Permian Basin has been a core area of geographic focus for Magnum Hunter for the last 15 years. At year-end 2003, the Permian Basin represented approximately 52% of Magnum Hunter's proved reserves (38% natural gas). On a proforma basis, including the effects of the recently completed acquisition of properties from Tom Brown, Inc., a subsidiary of EnCana Corporation, the Permian Basin represents approximately 44% of our current net daily production and approximately 37% of our current net daily natural gas production.
DeGolyer and MacNaughton, an independent reservoir engineering firm ("D & M"), has estimated that the properties to be acquired represent approximately 53 Bcfe of proved reserves (59% natural gas and 69% proved undeveloped) and include approximately 100 proved undeveloped locations in the Canyon, Clearfork, Spraberry and Wolfcamp formations. Internally, Magnum Hunter's team of geologists and engineers have identified additional upside potential on these properties in a new planned vapor recovery unit as well as a proposed Clearfork formation waterflood.
Magnum Hunter will be acquiring approximately 171 producing wells that are 100% operated and currently producing approximately 3.4 Mmcfe per day (59% natural gas). With the addition of these properties to Magnum Hunter's existing proved reserve base, the Company's total proved reserves will grow to approximately 1 Trillion cubic feet equivalent.
The Company will have operational control over the entire 26,000 net mineral acres being acquired. As Magnum Hunter has significant ongoing field operations in the immediate vicinity of the properties being acquired, no additional general and administrative expenses are anticipated.
The closing of the acquisition is subject to customary conditions including preferential rights, title, and environmental inspections. Closing is anticipated on or before October 15, 2004, with an effective date of September 1, 2004.
Magnum Hunter intends to finance the acquisition through borrowings under its recently increased $480 million senior bank credit facility. The Company's September 30, 2004 pro-forma debt-to-book capitalization ratio would be in the range of 52% to 54%, post closing of this transaction. The Company continues to target a debt-to-book capitalization ratio of around 50% by fiscal year-end 2004 via additional reductions to debt levels from the sale of already identified non-strategic, non-core, higher lifting cost properties, and systematic increases in the Company's shareholder's equity account from continued record net income. Magnum Hunter's long-range debt-to-book capitalization ratio target is in the 40% to 45% range which should be obtained by year-end 2005.
In conjunction with this property acquisition, Magnum Hunter has entered into approximately 1,000 Bbls per day of new 2005 crude oil cost-less collars with a floor of $35.00 per barrel and a ceiling price of $55.00 per barrel.
Mr. Gary C. Evans, Chairman, President and CEO of Magnum Hunter stated, "Our acquisition strategy remains centered around properties that are located within our core areas of operations where our technical expertise is superior. In today's commodity price environment, when record purchase prices are being paid for proved oil and gas properties at more than twice the price paid here, we believe this add-on property acquisition was extremely well negotiated at a purchase price of $0.76 per Mcfe on proved reserves only. Magnum Hunter's company-wide production should be in the 250 Mmcfe per day range upon closing this latest transaction."
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