An affiliate of GE Structured Finance's Oil & Gas Unit will be a limited partner in Teal Hunter, L.P., holding a 95% initial ownership interest, and a subsidiary of Magnum Hunter will be the general partner with a 5% initial ownership interest. Magnum Hunter's ownership will increase to 37.63% upon limited partner payout (estimated to be approximately 10 years). Magnum Hunter's wholly-owned subsidiary, Gruy Petroleum Management Co., will remain operator of the majority of the properties that have been sold to the new partnership.
Magnum Hunter sold approximately 41 billion cubic feet equivalent of proved producing reserves to the limited partnership, effective September 1, 2002, for a cash payment of approximately $49.0 million ($46.6 million net to Magnum Hunter). Additionally, Magnum Hunter will receive COPAS income and management fees from the limited partnership to be earned over the life of the partnership. The management fees are valued at approximately $5.6 million undiscounted, or approximately $3.1 million discounted. The total compensation to Magnum Hunter amounts to $1.00 per Mcfe of proved reserves, which compares to approximately $0.80 per Mcfe paid for the same properties in the acquisition of Prize Energy Corp., which closed less than seven months ago.
Additionally, Magnum Hunter has sold 9.1 billion cubic feet equivalent of proved producing reserves for $11 million at the August, 2002 Oil and Gas Clearinghouse Auction and through privately negotiated transactions. The sales price equates to $1.35 per Mcfe for total proved reserves, which compares to approximately $0.99 per Mcfe paid for the same properties in the Prize acquisition, a 36% increase.
The combined net daily production losses due to these asset sales amount to 18.2 MMcfe net to Magnum Hunter, the majority of which became effective September 1, 2002. These sales have reduced Company wide production to approximately 210 MMcfe per day. Magnum Hunter's total commercial bank indebtedness has been reduced from a high of $223 million earlier this year to approximately $160 million presently.
The Company plans to also participate in the September and October, 2002 Oil and Gas Clearinghouse Auctions with additional divestment properties. Additionally, Magnum Hunter has also engaged Oil & Gas Journal Exchange to sell a package of non-core, South Texas oil and gas assets with bids due and a final sale expected sometime during the fourth quarter of 2002.
Commenting on the divestiture plan for non-core oil and gas assets, Mr. Gary C. Evans, Chairman, President and Chief Executive Officer of Magnum Hunter stated, "The property sales completed thus far this year allow our Company and management team to "high grade" our base of operations and focus our attention on the core assets within the Company's portfolio where we can add incremental value, through a combination of reducing costs, and adding production and reserves. These properties sold represent our lowest tier properties that have the distinct profile of also being our highest operating cost assets. Therefore, their net margins are the smallest. With current commodity prices at very favorable levels, the future commodity price curve at historically high levels, and significant demand from the private sector remaining with very limited supply of properties on the market, we plan to continue this asset rationalization effort over the foreseeable future."
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