Also in the BML project area, the Company has recently logged its SL 18041 #1 well on its Hornets Nest 2 prospect. The well is awaiting the installation of pipeline and facilities before testing. The Company has begun the construction of the pipeline and hopes to have the infrastructure in place by February 2005. Upon completion of the infrastructure, the Company will test the SL 18041 #1 well to sales along with placing its recently announced BML No. 28-1 well on the Hornets Nest 1 prospect on sales.
As previously announced the BML No. 28-1 well was drilled to approximately 11,300 feet MD and logged gas pay in the Big Hum and apparent pay by log analysis in two separate Tex W sand intervals. The well was tested from the deeper Big Hum sand interval through 10 feet of perforations between 10,603 feet and 10,613 feet MD at a stabilized gross daily flow rate of 5.1 million cubic feet of gas, 85 barrels of condensate and 127 barrels of water. The water production appeared to be emulsion of the liquids produced and was declining upon termination of the testing operations. Flowing tubing pressure was measured at 3,550 psi and shut-in tubing pressure was measured at 4,320 psi. The Company owns a 92% working interest in the Hornets Nest prospect area. These two wells represent the first of 8-10 wells that the Company plans to drill in this immediate area through 2005.
The rig utilized to drill the Prejean No. 1 well is currently drilling the Company's Lake Eugenie Land and Development No. 31-1 ("Lake Eugenie No. 31-1") well on its South Ceres prospect. The Lake Eugenie No. 31-1 well is drilling at approximately 7,950 feet MD and will drill to a total depth of approximately 9,600 feet MD. The rig utilized to drill the SL 18041 #1 well was mobilized to drill the Company's SL 18041 #2 well on the Hornets Nest 3 prospect. The SL 18041 #2 well is currently drilling at approximately 4,950 feet MD and will be drilled to a total depth of approximately 11,200 feet
MD. In the Riceville area, the Company is drilling the Ferdinand Boudreaux No. 1 well on the Zwan prospect. The well is currently drilling at approximately 12,950 feet MD and will be drilled to a total depth of 13,600 feet MD. The well is expected to reach its total depth during January 2005.
The Company is also pleased to announce that during December 2004, it entered into a new four-year $200 million senior secured credit agreement (the "Credit Agreement") with Fortis Capital Corp., as administrative agent, sole lead arranger and bookrunner; Comerica Bank as syndication agent; and Union Bank of California, N.A. as documentation agent. Bank of Nova Scotia and Allied Irish Banks, p.l.c. complete the syndication group. The initial Borrowing Base under the Credit Agreement will be $130 million of which approximately $75 million is outstanding as of December 31, 2004.
During 2004, the Company repaid or converted into common stock approximately $77.2 million of outstanding indebtedness, bringing its outstanding indebtedness from $152.3 million as of December 31, 2003 to $75.1 million as of December 31, 2004. As a result of the repayments, the Company's debt to total capitalization has been reduced from approximately 38% as of December 31, 2003 to below 20% as of December 31, 2004. Meridian plans to continue its stated goal of systematically reducing its debt level to maintain liquidity in its balance sheet and a flexible capital structure.
During the fourth quarter of 2004, the Company entered into a series of hedging contracts to hedge a portion of its expected gas production for 2004 and 2005. The hedge contracts were completed in the form of costless collars and commodity swap agreements. The costless collars provide the Company with a lower limit "floor" price and an upper limit "ceiling" price on the hedged volumes. The floor price represents the lowest price the Company will receive for the hedged volumes while the ceiling price represents the highest price the Company will receive for the hedged volumes. The costless collars are settled monthly based on the closing NYMEX price of natural gas for each respective month. The following table summarizes the contracted volumes and price for the costless collars put in place:
Contracted Floor Ceiling Volume Price Price Contract Period (MMBtu/Mth.) ($ / MMBtu) ($ / MMBtu) --------------- ------------ ----------- ----------- Dec. - '04 970,000 $7.00 $13.00 Q1 - '05 2,970,000 $7.00 $13.00 Q2 - '05 1,150,000 $6.50 $7.90 Q3 - '05 1,100,000 $6.50 $7.90 Q4 - '05 350,000 $6.50 $7.90
In addition, the Company recently entered into swap agreements on additional gas production totaling 2,610,000 Mmbtu for the period of April 2005 through October 2005. Under the terms of the swap agreements the Company will receive an average price of $6.34 per Mmbtu. The swap agreements are settled monthly based on the closing NYMEX price of natural gas for each respective month. The addition of the above hedges allows the Company to more accurately predict its future cash flow and budget for its capital expenditures and future debt repayments.
Meridian continues to focus on its exploration and exploitation of the BML project area in addition to the development of its other properties which comprise an asset base consisting of approximately 8,000 square miles of 3-D seismic data.
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