The properties were originally acquired in mid-2006 as part of the Stroud purchase. Upon closing the Stroud acquisition, Range designated the properties as "properties held for sale." As a result, the production and associated operations were excluded from Range's income from continuing operations. In addition, the production and reserves associated with the properties are excluded from Range's historical production results and year-end 2006 proved reserves and the sale does not impact those previously reported amounts.
In designating the properties "held for sale," Range viewed the properties as non-core to its existing operations. Range's plan was to monetize the properties and to redirect the sales proceeds into its core activities. In concert with the plan, Range also announced that it has reinvested a portion of the sales proceeds. First, Range has acquired the minority owner's interest in its northern Oklahoma shallow oil play for $30.5 million. Approximately 15.7 Bcfe of proved reserves were acquired at a cost of $1.94 per mcfe. Importantly, Range now owns 100% of the project and will reap all the benefits from proving up the additional reserves. Range has identified more than 400 drilling locations on the current acreage position of which only 67 are classified as proven. Second, Range has recently expanded its Barnett Shale acreage position by almost 10,000 acres to a total of 73,000 gross (64,000 net) acres. More than 90% of the Barnett Shale leasehold is located in the core and expanding core portions of the play. One of the recently drilled wells was placed on production two weeks ago and is now producing in excess of 12 Mmcfe per day. For 2007, Range plans to drill 60 Barnett Shale wells on its existing acreage position.
Because of the non-core nature of the assets held for sale and the proportion of non-producing reserves present at purchase, our acquisition price of Stroud attributed $80 million to the properties. However, at the closing of the Stroud acquisition, the assets held for sale were recorded at $140 million based upon an independent third-party fair value assessment. Therefore, accounting for the $82 million of sales proceeds, a $25.4 million after-tax non-cash loss from discontinued operations will be recognized in the fourth quarter of 2006.
Commenting, John H. Pinkerton, the Company's President, said, "We are pleased to have completed the Austin Chalk sale at an attractive price. Importantly, we have reinvested a portion of the sales proceeds in core areas where we are having terrific drilling results. We are also considering the sale of our Gulf of Mexico properties. These actions are in lock-step with our strategy of focusing on long-lived, onshore properties in our core areas. The asset sales coupled with our rising cash flow, should be more than sufficient to fund our 2007 capital expenditure program."
Range Resources is an independent oil and gas company operating in the Southwestern, Appalachian and Gulf Coast regions of the United States.
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