Maverick Basin, Texas
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The Exploration Company has entered into an agreement with EnCana Oil & Gas (USA) Inc. to sell selected interests in TXCO's approximately 670,000-acre Maverick Basin block in Southwest Texas for US$80 million. EnCana Oil & Gas (USA) Inc. is an indirect wholly owned subsidiary of EnCana Corporation of Calgary, Alberta, Canada.
Terms of the purchase and sale agreement include:
- The Purchaser will acquire interests in approximately 300,000
gross acres across the southern portion of TXCO's acreage.
TXCO will retain an interest in two intervals, the Glen Rose
formation under the entire block and the San Miguel formation
in the Pena Creek field only.
- The Purchaser will initially acquire an undivided 50 percent
interest in approximately 220,000 gross acres across the
northern portion of TXCO's Maverick Basin acreage below the
Glen Rose formation, including the Pearsall and Jurassic
formations. Within two years, or the joint drilling of 15
wells, whichever comes first, TXCO and the Purchaser will
undertake to partition the lands with each retaining 100
percent in their respective partitioned lands. TXCO will
retain all existing interests in the remaining shallow
formations of the northern block, including the Glen Rose,
Georgetown, McKnight, Eagleford, Austin Chalk, San Miguel and
Olmos coalbed methane.
- The Purchaser will acquire approximately 3 percent of TXCO's
estimated proved reserves at June 30 and approximately 20
percent of TXCO's existing production at Sept. 1, primarily
from the Georgetown formation.
- Upon closing, TXCO will increase its working interest up to
100 percent in the oil and gas rights and related production
facilities attributable to the Glen Rose formation across the
southern block and retain its rights to the San Miguel
formation on its Pena Creek field, as well as its extensive
gas gathering and transmission pipeline assets.
- TXCO will continue to hold interests in approximately 670,000
gross acres and approximately 470,000 net acres in the
Maverick Basin after closing the transaction.
Closing is subject to: the Purchaser's satisfactory completion of due diligence and title review; corporate approvals by both parties; the Purchaser's acquisition of a third party's joint interest in the subject properties; and other contingencies common for a transaction of this type. Purchase price is US$80 million. The effective date will be Sept. 1, 2005, with closing to occur no later than Sept. 30, 2005.
"This transaction is the result of our board of directors' strategic alternatives review announced in December 2004," said TXCO President and CEO James E. Sigmon. "TXCO will continue to hold substantial interests in our large acreage block after closing, with numerous, attractive horizons. We will have increased available capital, allowing us to pursue additional opportunities. By monetizing a portion of primarily nonproducing assets, we will be able to strengthen our balance sheet by redeeming our outstanding preferred stock and eliminating our bank debt.
"Adding EnCana's technical expertise to various zones in the basin will enable us to refine our multi-play/multi-pay strategy growing via the drillbit, further enhancing shareholder value," Sigmon continued. "Another benefit of this transaction is that it allows us to better focus on the Glen Rose porosity play, which has been -- and continues to be -- one of our most prolific and profitable targets. We will increase our working interest from 50 percent to 100 percent over most of the area."