Cabot Oil & Gas Buy East Texas Assets for $602.8 MM
Cabot Oil & Gas Corporation announced that it has executed a definitive agreement to acquire producing properties, leasehold acreage and a gathering infrastructure from a private party for $602.8 million.
Included in the purchase are approximately 25,000 gross acres in the Minden area in east Texas with a 97% average working interest, proved reserves estimated by Cabot to approximate 176 billion cubic feet equivalent (Bcfe) (allocated mainly to the Cotton Valley formation). Also, approximately 32 million net cubic feet of natural gas equivalent Mmcfe) per day to add to Cabot's production and infrastructure, which includes 33 miles of pipeline, 5,400 horsepower of compression and four water disposal wells, valued at about $26 million.
These properties were acquired by Cabot to realize significant growth in production and reserves and also to capture additional opportunity to exploit the Bossier/Haynesville. "Cabot has drilled 77 wells in the Minden area on its 12,700 acres with a 100% success rate since our initial discovery in 2006," said said Dan O. Dinges, Chairman, President and Chief Executive Officer. "The acquired acreage lies in immediate proximity to our existing acreage, which enhances our ongoing development of the Pettet, Travis Peak and Cotton Valley formations. There is also significant incremental exposure to the emerging Bossier/Haynesville opportunities. The property is essentially cash flow neutral at the current production rate with four rigs drilling.
"Anticipated production growth from future drilling activity will generate additional cash flow to allocate towards exploitation of the Bossier/Haynesville," Dinges added. "Over 98% of Cabot's combined total acreage of 37,700 in the greater Minden area is undeveloped below the Cotton Valley formation. The timing of this acquisition fits well considering we will spud our first of several planned horizontal Bossier/Haynesville wells on Cabot's existing Minden acreage in the next several weeks."
To lock in margins and to ensure cash flow to execute the drilling program without dilution to Cabot's 2008 capital program, the Company placed swaps covering estimated production for the remainder of 2008, and all of 2009 and 2010. The volumes swapped during this period represent revenues of over $600 million from 47.5 Bcfe, or approximately 27 percent, of the acquired proved reserves. Swaps for 2008, 2009 and 2010 were set at $13.15, $12.18, and $11.43 per Mcf, respectively, net to the properties for natural gas and $125.35 average swap price for oil over the same period.
In addition to the proved reserves, Cabot expects to benefit from significant resource potential through 300-400 probable and possible deepenings or new locations. This transaction is subject to customary closing conditions and will be financed through a combination of debt and common equity.
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