Petsec Lays Down $110 Million for U.S. Fields

Petsec Energy is set to acquire six producing gas fields one soon to be producing field for US $110 million in the Gulf of Mexico and onshore Louisiana. These acquisitions will double Petsec's reserves and production.

Petsec has signed a binding agreement to purchase the package of onshore and offshore production assets from LLOG Exploration effective October 1, 2007. The US $110 million acquisition will be fully funded and will provide immediate earnings growth for shareholders. Assets to be Acquired:

- Interests in three offshore producing gas fields in the Eastern Gulf of Mexico, USA, being Main Pass 20 & 270 and Chandeleur 31/32. These fields are close to Petsec Energy’s Main Pass and Mobile Bay gas fields.

- Interests in four onshore gas fields in Louisiana, USA, three of which are currently producing; the fourth is expected to commence production late this year.

Under the agreement, Petsec Energy will have a majority working interest in all but one of the fields and will become the operator of two of the three offshore and two of the four onshore fields.

Only one of the fields is subject to pre-emptive purchase rights.

Impact on Reserves & Production:

- Acquiring independently assessed net proved & probable (2P) reserves of 36.2 Bcfe which will more than double Petsec Energy’s existing US reserves of 33.5 Bcfe (at 30 June 2007). Net proved (1P) reserves to be acquired are 24.8 Bcfe.

Oil and gas production from the acquisition assets is expected to be 9 – 10 Bcfe in the 2008 calendar year, which will more than double expected production for 2008 from Petsec Energy’s existing US assets.

- The purchase price equates to US$ 3.04 per Mcfe on independently assessed 2P reserves. Lease operating costs and continuing capex are anticipated to be below US$1.25 per Mcf, providing a comfortable profit margin considering the current 12 month strip gas price of around US$8 per Mcf.

Key Benefits & Rationale for Shareholders:

The acquisition is consistent with Petsec Energy’s objective of delivering growth with a keen focus on financial returns, principally financed by internally generated cashflow. In part, the acquisition of these assets will:

- Immediately and substantially increase Petsec Energy’s earnings.

- Significantly enhance the scale and efficiency of Petsec’s US operations.

- Significantly reduce concentration risk as production will now be sourced from a larger number of oil and gas fields, both offshore and onshore.

- Continue Petsec Energy’s growth within its existing area of expertise in the shallow waters of the Gulf of Mexico shelf and onshore Louisiana.


The acquisition will be fully funded by a US$135 (A$150) million debt facility with Petsec Energy’s existing US financiers Guaranty Bank, together with Merrill Lynch Capital, secured by a charge over the company’s US operating subsidiary Petsec Energy Inc’s assets.

The US$135m debt facility is comprised of the following components:

- US$105m Senior Secured Credit Facility with a 3 year Revolving Facility of US$75m subject to a Borrowing Base and a $30m short term component to be amortized from cashflow within 5 months of drawdown.

- US$30m Subordinated Term Facility repayable in the 4th year from drawdown.

Petsec Energy will proceed to reduce gas pricing risk by hedging approximately 50% of anticipated production over the next two years, over which time a majority of the debt incurred will be repaid.

Petsec Energy is currently debt free, and given the high levels of current and forecast production from the new assets, we forecast that the debt can be adequately serviced from internally generated cashflow. No new equity is required to complete the transaction.


Petsec expects the acquisition to settle early in November 2007 after satisfaction of a number of conditions precedent normal in the industry, with net consideration (after adjustment for production to settlement date) expected to be approximately US$106 million.

Further details on the assets will be provided at the time the acquisition is settled.

CEO Comments:

"This acquisition is a very positive transaction for Petsec Energy and its shareholders. It will substantially increase the scale, diversity and efficiency of our US exploration, development and production operations. Our US reserves and production will double leading to significantly increased earnings and a stronger platform to pursue our traditional exploration based reserves growth."

Petsec Energy Ltd is an independent oil and gas exploration and production company listed on the Australian Stock Exchange. It has operations in the shallow waters of the Gulf of Mexico, the onshore Louisiana Gulf Coast region of the USA, and oil in the shallow waters of the Beibu Gulf off the south coast of China.


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