Energen Unit to Acquire Permian Basin Properties for $168 MM


Permian Basin
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Energen Resources has signed a purchase and sale agreement to buy Permian Basin oil properties from a private company for $168 million (subject to closing adjustments). The sale, expected to close by the end of the year, will have an effective date of November 1, 2005.

The properties include the North Westbrook Unit in Mitchell County, Texas, and two smaller fields nearby, and encompass approximately 15,000 gross acres. The North Westbrook Unit is contiguous to ERC's existing waterflood operations in the Southeast Westbrook Unit. The Permian Basin in West Texas is the oldest producing oil basin in the United States and ERC's second largest area of operation.

Approximately 80 percent of the 21.8 million barrels of oil equivalent (MMBOE) proved reserves are undeveloped; in addition, ERC estimates that probable reserves total approximately 15 MMBOE. The combination of proved undeveloped and probable reserves is expected to generate a drilling inventory for the Company of approximately 470 wells over the next six years. More than 90 percent of the estimated proved and probable reserves are oil.

Assuming future development costs of approximately $145 million on proved reserves and $80 million on probable reserves, the all-in acquisition cost is $10.62 per barrel ($1.77 per thousand cubic feet equivalent).

"This acquisition is an excellent fit for Energen Resources," said James McManus, president and chief operating officer of Energen's oil and gas subsidiary. "While these properties have a smaller component of proved developed reserves than our previous acquisitions, their location adjacent to our successful Southeast Westbrook Unit represents an important expansion in one of our core areas of operation and gives us an excellent opportunity to capitalize on our operating expertise there.

"In keeping with our acquisition criteria, the properties are 100 percent operated, offer multiple pay zone opportunities and are long-lived, with a proved reserves-to-production ratio in excess of 30," McManus added. "Our major productive interval targets will be the Middle and Upper Clearfork."

Production is estimated to be 0.5 MMBOE in 2006 and is expected to triple over the next 5-6 years before beginning a gradual decline at a four-year rate of approximately 5 percent a year.

In order to reduce its overall exposure to oil price volatility, Energen has entered hedge contracts to sell oil volumes comparable to approximately 85 percent of the acquisition's total estimated proved production (developed and undeveloped) for the years 2006 through 2009. The Company has hedged the following volumes:

 Year    Hedge Vols.  NYMEX price (per barrel)
------- ------------- ------------------------
  2006       420 MBbl                  $60.16
------- ------------- ------------------------
  2007       600 MBbl                  $59.65
------- ------------- ------------------------
  2008       900 MBbl                  $57.71
------- ------------- ------------------------
  2009       900 MBbl                  $56.25
------- ------------- ------------------------

Note: Associated basis differentials not hedged

"Energen's current earnings guidance of $3.25-$3.60 per diluted share for 2006 suggests significant growth over 2005 without the benefit of acquisitions," said Mike Warren, Energen's chairman and chief executive officer. "While we are not dependent on property acquisitions for near-term earnings growth, they are an integral part of our long-term growth plans. That makes this acquisition particularly compelling to us at this time since its real impact on the Company's earnings is not near-term but, rather, will be felt well into the next decade."

Energen plans to use available cash and existing lines of credit to finance the acquisition without having to access the capital markets; the Company expects to repay short-term borrowings related to the acquisition during 2006.

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