Predominately all of the increase in the capital expenditure budget will be utilized in the Company's Gulf of Mexico ("GOM") drilling activities on the Shelf. Magnum Hunter and its industry partners continue to increase drilling efforts in the GOM this year in an effort to take full advantage of the historically high commodity price environment and the Company's significant prospect inventory.
Onshore, two new additional wells were recently drilled and logged in the Arbol de Nada Field of Ector and Winkler Counties, Texas. These wells encountered pay intervals of approximately 100 feet in the Devonian and had porosities up to 27.5%. Early indications show the field size could exceed five million barrels of oil utilizing primary recovery methods only. Magnum Hunter owns a 25% working interest in this area and a 75% working interest in adjacent mineral acreage. Since initiation of a drilling program in this region over two years ago, 23 successful wells have been drilled which have provided primary reserves of 2.76 million barrels of oil or 690,000 net to Magnum Hunter's ownership interests.
Magnum Hunter's 2004 capital budget will be funded entirely from the Company's record high levels of cash flows from operating activities for fiscal year 2004. It is this cash flow that has allowed the Company to increase investment in one its highest rate of return regions as well as improve its ratio of long-term debt to book capital from 60% at year-end 2003 to an anticipated 50% level projected for year-end 2004.
The revised 2004 capital expenditure budget will be broken down by operating region as follows:
2004 Capital Budget (Millions) Gulf of Mexico $150 Southeast New Mexico 37 West Texas 28 Mid-Continent 14 Gulf Coast (Onshore) 16 Total $245The Company has now budgeted to participate in the drilling of approximately 170 new wells during 2004, including 25 wells offshore in the shallow water GOM and 145 wells onshore, with a large percentage located in Southeastern New Mexico, West Texas and the Texas Panhandle. In the GOM, 61% of the anticipated capital expenditures will be spent on drilling and completion operations, and 39% on new leases and facilities. Of the planned 170 wells company-wide, 35 are deemed exploratory and 135 are developmental.
Mr. Gary C. Evans, President and Chief Executive Officer of the Company, commented "Magnum Hunter is fortunate to have a rich prospect inventory that has allowed our Company to expand our drilling budget several times this year due to record cash flow derived from our growing production base. Our West Texas discovery announced today is such an example of the depth that exists in our Company's legacy onshore assets. We remain on target in averaging between 250 - 260 MMCF equivalents per day in oil and gas production during the fourth quarter of 2004."
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