The property is located in Andrews County in the Permian Basin of West Texas and consists of 11,300 acres and 136 producing wells. Arena will be the operator and have a 100% working interest and 75% net revenue interest. In addition to the 136 existing producing wells, Arena's engineering team has identified an additional 130 locations for potential future drilling and development. The company currently plans on commencing additional development of this acreage in early 2005. Current production is from the San Andres formation at a depth of approximately 4,700 feet. Additionally, Arena has acquired the rights to the Yates gas formation (3,200 feet) covering more than 9,000 acres, and is currently preparing a detailed evaluation for future exploration and development.
Production and Reserves
The current net production to the company, from this acquisition, is approximately 240 BOE per day, which increases Arena's current total net daily production from all of its properties by 28% to approximately 1,100 BOE. The company's initial reserve estimates, as reviewed by Lee Keeling & Associates Inc., an independent reservoir engineering firm, indicate the lease has approximately 6.5 million BOE of proved reserves net to Arena. This represents an estimated cost of $1.62 per BOE and increases the company's combined proved reserves to approximately 18.3 million BOE. Based on a $35.00 BOE commodity price, Arena's estimated present value of reserves, discounted at 10% (PV-10), is expected to increase approximately $90 million to a combined PV-10 value of approximately $220 million.
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