Encore Announces $410M Deal for Williston Basin Properties
Encore Acquisition Company said late Thursday that it has entered into an agreement with Howell Petroleum Corporation and Kerr-McGee Oil and Gas Onshore LP, subsidiaries of Anadarko Petroleum Corporation, to purchase oil and natural gas properties in the Williston Basin in Montana and North Dakota for $410 million in cash, subject to customary purchase price adjustments and closing conditions.
The Williston Basin properties produce from over 50 different fields across Montana and North Dakota. The assets are primarily waterfloods and producing properties with approximately 70,000 net acres in the prolific Bakken play in Montana and North Dakota. Encore plans to enhance the production from the acquisition through drilling, redevelopment, stimulation, and waterflood optimization.
Encore's internal engineers have estimated that the properties have total proved reserves of approximately 21 million barrels of oil equivalent ("BOE"), which are 90% oil and 81% proved developed producing. Encore estimates that the 4 million BOE of proved undeveloped reserves will require approximately $57 million to develop. The properties currently produce approximately 5,000 net BOE per day and the Company estimates that the properties have a total proved reserves-to-production ratio of approximately 11 years. These properties will be 85% operated by Encore and will complement Encore's existing Rockies oil portfolio.
Jon S. Brumley Encore's Chief Executive Officer and President stated that, "We are very pleased to be adding another quality suite of long-lived producing properties to our extensive Rockies position that remains the heart of the company." He continued, "We are very excited to be entering the Bakken play with a large acreage position in an active emerging play. This acquisition has significant upside potential with 4 million BOE in the proved undeveloped category and 9 million BOE in the probable category."
Encore's internal engineers have estimated that the proved developed properties will generate approximately $60 million in cash flow (revenues less direct operating expenses) in 2007. The light sweet crude oil in this acquisition has been sold at approximately $8.00 under NYMEX. Lease operating expenses are estimated to be approximately $9.35 per BOE. Production taxes are expected to average 11% of revenues.
Also, as part of this acquisition, Encore acquired approximately 70,000 net acres and 800 BOE per day of production in the prolific Bakken play in Montana and North Dakota. The Company estimates 35,000 net acres as high-quality acreage with several already identified proved undeveloped and probable locations. The remaining 35,000 net acres were valued as trend acreage which is expected to become more valuable as the emerging play develops in the future.
Combined Acquisition Parameters:
Encore recently announced the Big Horn Basin package, and combined with the Williston Basin package, the total combined acquisition parameters are as follows:
Daily production: 9,350 BOEPD Total Proved Reserves: 41 million BOE Probable reserves: 11 million BOE Percentage Proved Developed: 85% Percentage Oil: 93% Reserves-to-Production Ratio: 12.5 years Combined Purchase Price: $810 million
Hedging and Financing:
In connection with the acquisition, Encore has purchased put contracts on approximately 80% of the acquisition's proved developed producing volumes at an average price of $57.50 per barrel for remainder of 2007 and all of 2008. By purchasing puts, the Company has mitigated the negative effects of declining commodity prices in 2007 and 2008 with respect to the acquired production, while retaining the benefits of increasing commodity prices.
Encore intends to finance the combined acquisitions through cash flows from operations and borrowings under one or more credit facilities. Additionally, Encore intends to divest of certain properties in the Anadarko Basin, Arkoma Basin, and the Barnett Shale in the Fort Worth Basin.
Bank of America will provide the financing of the acquisition for Encore under one or more credit facilities.
Credit Suisse Securities (USA) LLC served as financial advisor to Encore on the transaction which is expected to close in April of 2007.
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