Encore's internal engineers estimate that total proved reserves attributable to the properties are 48 billion cubic feet of gas equivalent, of which 65% are natural gas and 68% are proved developed producing. Current net production is estimated at approximately 10.5 million cubic feet of gas equivalent ("MMcfe") per day. Lease operating costs are estimated to be $1.14 per MMcfe. The reserves are long-lived, with an estimated ratio of total proved reserves to production of 12.5 years. The properties are expected to generate approximately $29 million of cash flow in 2006. The properties include 37,352 net acres of undeveloped leasehold and have many development opportunities. Encore has identified over 90 proved locations, and approximately 90 probable and possible locations.
Encore expects the transactions to close in September and October. Encore will finance the acquisitions by drawing on its $450 million credit facility. Consistent with past practice, Encore has increased its hedge position in 2006 by purchasing put options that protect against downward movements in the price of oil and gas, while retaining the benefits of increasing commodity prices. Based on current production rates, Encore has downside protection for 2006 on approximately 70% of combined production, while only approximately 20% of upside is limited.
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