Parallel Petroleum Corporation has entered into a farm-out agreement with Chesapeake Energy related to its Barnett Shale gas project. Details of the farm-out agreement are discussed below. Parallel has also provided an update for its work-in-progress as of December 31, 2008 and its revised 2009 capital investment (CAPEX) budget.
Barnett Shale Farm-Out Agreement
On February 11, 2009, Parallel and Chesapeake Energy Corporation entered into a farm-out agreement related to Parallel's approximate 35% interest in their Barnett Shale gas project. Under the farm-out agreement, for all wells drilled on Parallel's Barnett Shale leasehold from November 1, 2008 through December 31, 2016, Parallel has agreed to assign to Chesapeake 100% of Parallel's leasehold in the Barnett Shale, subject to the following terms:
Parallel estimates that its Barnett Shale leasehold operated by Chesapeake and subject to the farm-out agreement is approximately 25,600 gross (9,300 net) acres. Parallel anticipates that approximately 61 gross (10.0 net) wells will be drilled and included in the 2009 payout period from November 1, 2008 through December 31, 2009. Payout of each project will depend on drilling and completion costs, timing of completion and pipeline connection to sales, and natural gas prices, among other matters.
Work-in-Progress Well Operations
As of December 31, 2008, the Company had 37 gross (13.26 net) wells in progress. Of the 37 gross wells, 34 gross (12.12 net) wells were shut-in awaiting pipeline, completing or awaiting completion, and 3 gross (1.14 net) wells were drilling. Of the 34 wells that were shut-in awaiting pipeline, completing or awaiting completion, 31 gross (9.49 net) wells were in the Barnett Shale, 2 gross (1.75 net) wells were in the Wolfcamp, and 1 gross (0.88 net) well was in the Permian Basin. Of the 3 wells that were drilling, 1 gross (0.01 net) well was drilling in the Wolfcamp, and 1 gross (0.88 net) well was drilling in the Permian Basin, and 1 gross (0.25 net) well was drilling in the Cotton Valley. Please refer to Table 1 at the end of this press release for a summary of work-in-progress on certain of Parallel's properties as of December 31, 2008.
Revised 2009 CAPEX Budget
Parallel's revised 2009 CAPEX budget is approximately $29.1 million. This is a 76% decrease when compared to the $118.8 million preliminary 2009 CAPEX budget that the Company announced in its November 3, 2008 field operations press release. The $89.7 million decrease is associated with reduced expenditures in the Company's North Texas Barnett Shale gas project as a result of its farm-out agreement with Chesapeake and decreases in previously planned drilling activity in the New Mexico Wolfcamp gas and Permian Basin oil projects and is allocated as follows: $51.5 million decrease in the Barnett Shale, $9.7 million decrease in the Wolfcamp, $28.3 million decrease in the Permian Basin, and $0.2 million net decrease in the Company’s other projects.
Parallel's $29.1 million revised 2009 CAPEX budget includes approximately $26.7 million for the completion of approximately 37 gross (13.3 net) wells that were in progress as of December 31, 2008, the drilling and completion of approximately 7 gross (4.4 net) new wells, and the workover or conversion-to-injection of approximately 22 gross (19.3 net) existing wells. Approximately $2.4 million of the budget is allocated for the purchase of leasehold and seismic data. Of the total $29.1 million revised CAPEX budget, Parallel has budgeted approximately $12.1 million for its Permian Basin oil projects, approximately $10.2 million for completion of previously drilled wells in its Barnett Shale gas project and approximately $5.2 million for its New Mexico Wolfcamp gas project. The remainder of the 2009 budget will be allocated to the Company’s other projects. Please refer to Table 2 at the end of this press release for further information pertaining to the revised 2009 CAPEX budget, as it compares to the preliminary budget that was announced on November 3, 2008.
Larry C. Oldham, Parallel's President, commented, "During 2009, our top priorities are to maximize liquidity and maintain financial flexibility by funding our $29.1 million CAPEX budget out of operating cash flow, while positioning ourselves to capitalize on potential growth opportunities. In November 2008, we announced a $118.8 million preliminary CAPEX budget for 2009, which included $61.7 million for the non-operated Barnett Shale gas project. Because of our farm-out to Chesapeake, our 2009 capital requirements for the Barnett Shale gas project have dropped 80% to $10.2 million for the estimated completion costs of the 31 gross (9.49 net) wells that were in progress at year-end 2008."
Oldham further commented, "Due to the current disconnect between low oil and natural gas prices and the relatively high cost of goods and services, we are also reducing our 2009 CAPEX budget in our Permian oil projects and our New Mexico Wolfcamp gas project, all of which are under company control. We will continue to monitor commodity markets, service costs, economic conditions and other factors and may further adjust our $29.1 million 2009 CAPEX budget based upon product prices, service costs and workover project inventory, among other factors. In the meantime, these measures will help us through these challenging times."
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