The purchase price at the effective date of January 1, 2007 is $375 million. In addition to receiving the oil and gas production and exploration assets of Devon Egypt, Dana will also gain approximately $67 million of working capital in Devon Egypt as at the effective date. Dana will pay the net consideration of approximately $308 million in cash (as adjusted at completion for ongoing 2007 production income and expenditure) via a newly arranged banking facility with ABN AMRO Bank. During 2006, Devon Egypt had working interest production of approximately 12,300 barrels per day, and USGAAP operating profits of approximately $53 million. At the end of 2006 gross assets were approximately $242 million.
Background to the Acquisition
Over the last two years, Egypt has been a significant focus area within Dana's new business strategy, and the Company has been building a portfolio of new oil and gas opportunities in the country. Dana has already secured three interests in Egypt: namely a 50% stake in the West El Burullus concession, offshore Nile Delta (working with Gaz de France), a 20% interest in the South Feiran concession in the Gulf of Suez (working with ENI), and, subject to final government approval, a 25% interest in the North Ghara concession (working with BP) also in the Gulf of Suez. This acquisition from Devon is the largest transaction to date and it builds significantly on the Company's position in Egypt. This further enables the delivery of Dana's corporate strategy which includes a geographical focus on high quality assets in the North Sea and Africa.
Summary of the Assets being Acquired
The new portfolio comprises interests in eight Production Sharing Contract areas ('PSCs'), four of which are developed and delivering production from a total of 13 fields. The fifth PSC has both development and exploration opportunities and the remaining three are at the earlier exploration stage. Four of the eight concessions are in the Gulf of Suez and four are in the Western Desert, both of these regions contain prolific, established oil basins.
Upon completion, this acquisition will add to Dana's portfolio approximately 12,500 barrels of oil per day and approximately 30 million barrels of proven and probable reserves net to Dana's working interest at the effective date of 1 January 2007. Looking beyond the existing production and reserves, there is considerable scope to add both within the producing fields. In addition, there is an array of new opportunities available through drilling prospects emerging in the largely unexplored exploration blocks.
Significant upside potential has been identified in the producing fields and this can be delivered through a combination of well workovers, infill drilling and production optimization. On the Devon operated East Zeit field, at least nine infill opportunities have been evaluated with the potential to increase production from 6,000 bopd to over 15,000 bopd. Dana and Devon will be working together during the handover period to pursue four of these during 2007 and to examine optimizing the use of artificial lift pumps on existing wells. 3D seismic has only recently been acquired in the East Beni Suef concession, and there is no 3D coverage yet on the West Abu Gharadig block, so there is potential for identification of further infill drilling targets in both areas. The use of horizontal completions and reservoir fracturing may further enhance oil recovery.
In addition to infill opportunities, there is a substantial portfolio of new opportunities through drilling in the vast exploration blocks. In both the Ras Abu Darag and South October concessions, both in the Gulf of Suez, there has been recent 3D seismic acquisition, interpretation of which is likely to lead to further drilling targets. In North Qarun, in the Western Desert, a well is planned for 2007, with further prospects already identified in the concession. Overall, there are at least 24 mapped prospects in the exploration acreage with the total potential of these prospects being greater than 300 million barrels of oil equivalent net to Dana. Increases in volumes are likely following the interpretation of existing and future 3D seismic. With onshore exploration and development wells costing just a fraction of those offshore, Dana would expect to have a substantial work program over the near term. Current plans envisage seven exploration wells in the next two years.
The most significant asset in the group is the East Zeit PSC, which contains the East Zeit producing field, offshore Gulf of Suez. Devon own 100% interest in the field and a 50% interest in the joint operating company, Ocean East Zeit Petroleum Ltd (commonly referred to as 'Zeitco') which also operates the onshore Zeitco base and provides services to other third party fields in the area. The East Zeit oil field produced 6,600 barrels of oil per day on average through 2006. Dana has identified a range of workover and infill opportunities in the East Zeit field that it will pursue.
The other assets in the Gulf of Suez are exploration PSCs, namely a 100% interest in the onshore North Zeit Bay concession, where a new exploration phase has just been entered, 65% in the offshore South October PSC, which is adjacent to very large existing fields and has exploration drilling planned for 2008, and 100% in the offshore Ras Abu Daraq PSC.
There are four assets in the Western Desert. Firstly, Dana is acquiring a 30% interest in the West Abu Gharadig PSC, operated by IEOC (a subsidiary of ENI) which contains the Raml and Raml SW fields, and which was producing 6,275 bopd gross at the end of 2006. Secondly, a 25% interest in the Qarun PSC, operated by Apache, which comprises 4 fields, which produced 9,445 bopd gross in 2006. Thirdly, a 50% interest in the East Beni Suef PSC, also operated by Apache, which contains 5 producing fields and significant exploration potential in a relatively underexplored area. Finally, a 50% interest and operatorship of the North Qarun exploration concession is also being acquired.
Final completion of the transaction, which is subject to normal regulatory, partner approvals and the waiving of some preferential rights on certain of the assets, is expected during the second half of 2007. On the basis of Dana's 2006 preliminary results, which are due to be released on April 30, 2007, this transaction does not require shareholder approval.
Tom Cross, Dana's Chief Executive, commented:
Looking forward, Dana will have the benefit of an excellent operating team in Egypt. This capability will position the Company with a strong foundation in the region from which to make further investments and acquisitions, and to build a substantial E&P asset base which will complement our successful North Sea business.'
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