"Medicine Bow Energy is a terrific acquisition for El Paso, and it is consistent with our acquisition goals," said Lisa Stewart, president of Production and Non-regulated Operations. "We are increasing our reserve life and the stability of our business by adding onshore properties that complement our existing operations. We expect that the annual cash flow from these properties will exceed capital expenditures by more than $100 million. We effectively use the benefits of some of our tax loss carry forwards, and we are using price risk management to protect the economics of this transaction. At the same time, we will improve the commodity mix of our business by adding properties with a high percentage of oil reserves. We will also add a solid group of exploration and production professionals to Team El Paso."
Proved Reserves: 356 Bcfe
- 68% proved developed producing
- 65% natural gas
Operated wells: 300
Current R/P: 10.2 years
Areas of operation: Rockies, East Texas, Mid-Continent, San Juan Basin, Permian Basin, Gulf Coast.
Medicine Bow Structure
Approximately 130 Bcfe of proved reserves and 27 million cubic feet per day equivalent (MMcfe) of production are owned directly by Medicine Bow, which also owns a 38.6- percent interest in Four Star Oil & Gas Company. Through this entity, Medicine Bow owns approximately 226 Bcfe of proved reserves and approximately 68 MMcfe of daily production, net to its interest. The Four Star reserves and volumes will not be consolidated into El Paso Corporation's or EPPH's financial reports but will be reported as an equity interest.
EPPH will finance $500 million of the acquisition costs through a five- year credit facility that is secured by a portion of EPPH's reserve base and will pay the balance with existing cash on hand. Within 12 months of the closing of this transaction, El Paso intends to issue common equity in an amount up to the full purchase price and use the proceeds to pay off the $500- million facility. El Paso believes that the acquisition and financing plan will strengthen the company's credit profile.
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