"This transaction will be the largest in our history. It is from the same play book that we have been successful with for many years: acquire high working interest properties through negotiated transactions that have exploitation potential in familiar basins where we can operate. This deal meets all of those criteria. With this acquisition, we will be adding high working interest, low risk properties to our portfolio and increasing our presence in the Permian Basin. It will also add a multi-year drilling program to our inventory of projects with potential for significant upside related to possible down spacing," commented Mark Hellerstein, Chairman and CEO.
A third party has a contractual right to purchase up to an undivided 20 percent of the working interests aquired in the transaction. This right to acquire must be exercised concurrent with the closing. All the following highlights assume that St. Mary retains 100 percent of the transaction.
In conjunction with this transaction, St. Mary has hedged the majority of the anticipated oil production for the first five years at prices ranging between $65.15 and $68.04 per barrel. Although a smaller component of the overall value of the acquisition, we have hedged natural gas with swaps over five years and natural gas liquids with swaps over the first two years.
Since closing is scheduled for mid-December, the Company does not anticipate updating our previously issued guidance for the fourth quarter or full year of 2006. However, total production for the Company is now expected to come in above the mid-point of the year-end guidance. The transaction will be financed with bank borrowings under the Company's existing credit facility. With the increased debt borrowings on the credit facility, the Company is expecting its year end debt-to-book capitalization ratio to be approximately 38 percent and 29 percent if the Senior Convertible Notes are assumed to be equity. The acquisitions budget for 2006, inclusive of this acquisition, is now expected to be approximately $285 million.
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