Approximately $14 million of the increase will be directed to the Company's Gulf of Mexico activities. Magnum Hunter was high bidder on 38 awarded OCS Blocks at the March 2003 Minerals Management Service Lease Sale, with a total net expenditure of approximately $9.5 million. Additionally, the Company and its industry partners continue to increase their drilling activities in the GOM area this year in an effort to take full advantage of the current higher commodity price environment along with lower field service costs.
The increase in capital spending will be funded solely from Magnum Hunter's discretionary cash flow, which is up significantly from the higher than originally budgeted commodity price environment at the beginning of the year. It is the Company's plan to use discretionary cash flow beyond what is needed to fund this year's capital expenditure budget for continued reductions to outstanding long-term indebtedness.
For calendar 2003, the $115 million capital expenditure budget has been front-end loaded with approximately 68% of total capital expenditures spent during the first half of the year. The new 2003 capital budget will be broken down by region as follows:
The Company has budgeted to participate in the drilling of approximately 116 new wells during 2003, including 25 wells offshore in the shallow waters of the GOM and 91 wells onshore, primarily in Southeastern New Mexico, West Texas, and the Texas Panhandle. In the GOM, 40% of the anticipated capital expenditures will be spent on drilling, 22% on completion operations, and 38% on new leases and facilities. Of the planned 25 GOM wells, 20 are deemed exploratory and 5 are developmental. Onshore, 90 of the 91 planned new wells for 2003 are deemed developmental.
Commenting on the increase in the 2003 capital expenditure budget, Mr. Gary C. Evans, Chairman, President and CEO of Magnum Hunter stated, "Commodity prices received to-date in 2003 from Magnum Hunter's daily production mix has exceeded everyone's expectations. Now that we are half way through the year and have a much better handle on our net daily oil and gas production, after property divestitures, and net available free cash flow, we feel very comfortable in increasing our capital budget in a manner that continues to allow for continued debt reductions. Magnum Hunter has maintained a very high drilling success rate of 90% in 2003 with a total of 52 wells completed successfully out of 57 wells drilled through May 31, 2003."
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