Energy Partners to Acquire Hall-Houston

Energy Partners, Ltd. announced that it has entered into a definitive agreement to acquire Hall-Houston Oil Company and certain affiliated interests for a total consideration to be paid at closing of approximately $88.3 million. Hall-Houston, founded in 1983, is a privately held exploration and production company based in Houston, Texas with operations focused in the central region of the Gulf of Mexico Shelf. Hall-Houston is an exploration-focused company with technical expertise, high quality natural gas reserves and an attractive inventory of exploratory prospects. The transaction, which is expected to close by mid-January, 2002, is subject to normal terms and conditions including a minimum threshold for participation in EPL's exchange offer to HHOC's debtholders.

The following are highlights of the transaction:

  • Adds high quality natural gas reserves and production. HHOC's proved reserves as of November 1, 2001 totaled 59.9 billion cubic feet of natural gas equivalent (Bcfe) with probable and possible reserves associated with these proven properties totaling an additional 24.6 Bcfe. Estimated current production is approximately 17 million cubic feet of natural gas equivalent (Mmcfe) per day, with an additional 20 to 25 Mmcfe scheduled to come onstream within the next nine months. Approximately 97% of acquired reserves and production are natural gas; 60% of the proved reserves acquired are classified as proved developed. Hall-Houston operates all of its 10 currently producing properties as well as three properties currently under development and scheduled for initial production within the next nine months.
  • Significantly expands EPL's exploratory inventory. HHOC's current prospect inventory includes 18 identified prospects on 12 offshore blocks having individual gross reserve potential ranging from 5 Bcfe to more than 70 Bcfe. All of HHOC's exploratory acreage is located in the central region of the Gulf of Mexico Shelf. Hall-Houston holds 3-D seismic data covering all of its properties.
  • Strengthens EPL's management team. Three of HHOC's senior officers will join EPL as executive officers. Gary Hall, HHOC's Chairman and CEO, will become Vice-Chairman and serve as a Director of EPL; Bruce Sidner will become Executive Vice President of Exploration; and John Peper will become Executive Vice President of Law and Business Development.
  • Expands EPL's technical expertise and adds physical presence in Houston. Hall-Houston's technical team is comprised of seven geologists, geophysicists and engineers with an average of 24 years of industry experience and significant region-specific expertise in the Gulf of Mexico. They have an excellent drilling success record with 80% of their drilling projects over the last 16 years having been successful. Their finding and development costs over that 16 year period have averaged in the range of $0.75 per Mcfe. The majority of the Hall-Houston team will remain in the Houston office and be fully integrated into EPL's management and technical team structure. EPL will remain headquartered in New Orleans.
  • Provides improved balance to EPL's reserves and production and reduces property concentration. Post-transaction combined proved reserves are estimated to be 37% natural gas, up from 23% for EPL alone at year-end 2000. Post-transaction combined daily production will be about 59% natural gas compared with 36% for EPL as a separate company during the third quarter of 2001. On a combined basis, EPL will operate about 91% of its production which will come from a more diversified portfolio of properties within its focus area.

Richard A. Bachmann, EPL's Chairman, President and Chief Executive Officer commented, "For some time now, we have been searching for the right combination of new properties and expanded technical expertise to complement and build upon what we have developed in-house at EPL over the last three years. Hall-Houston is exactly the kind of partner we were looking for. They have a very well respected name in the energy industry and have earned that reputation from many years of successful exploratory drilling and development of properties. We are very pleased to be able to integrate both of our teams into a strengthened EPL." Bachmann continued, "For EPL shareholders, this transaction is immediately accretive to earnings, cash flow, production, net asset value and reserves on a per share basis. Just as importantly, it significantly strengthens and expands our property base, portfolio of exploration opportunities and technical knowledge which will enable us to accelerate our growth even in an uncertain commodity price environment."

Gary Hall, Hall-Houston's founder and Chief Executive Officer added, "Like EPL, we have also been searching for the right opportunity to combine our expertise with a company whose strengths best complement ours. That company is EPL. Its strong financial structure and experienced management and technical team will give us the ability to optimize what we do best: explore for reserves in the Gulf of Mexico region."

Under the agreement, HHOC preferred and common stockholders and holders of the affiliated interests will receive approximately $1.9 million in cash, shares of EPL common stock valued at $3.4 million and warrants valued at approximately $3 million to purchase 4 million EPL common shares. HHOC's debt, which totals $80.2 million, will be exchanged for equal amounts of EPL senior subordinated notes and convertible preferred stock, both to be issued in conjunction with this transaction, or will be retired. As a condition to closing, a minimum of 80% of the debt must be tendered in the exchange offer. In addition, preferred shareholders of HHOC will have the right to receive contingent consideration related to future proved reserve additions from exploratory prospect acreage held by HHOC as of the date the merger closes.

EPL will maintain a strong balance sheet following the transaction with an estimated debt to total capitalization ratio of 22%. EPL is in the process of arranging an increase in its existing credit facility to a total of $100 million.

Merrill Lynch & Co. and Evercore Capital Partners L.P. served as financial advisors to EPL. Dain Rauscher Wessels advised Hall-Houston.


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