GeoResources announced the acquisition of additional working interests in the Giddings Field, Texas, and provided an operations update.
On May 29, 2009, but effective May 1, 2009, the Company closed the acquisition of undivided working interests in 68 producing wells located in the Giddings Field, Texas, from an affiliated partnership. In addition, the Company will immediately increase its sharing ratio in the partnership from 2% to 30%. GeoResources is the operator of the subject wells and the general partner of the affiliated partnership. Prior to the acquisition, GeoResources had direct working interests in the properties ranging from about 6.5% to 7.8%.
Now, its direct working interests in the producing wells will range from approximately 34% to 37%. The acquired direct working interests total an estimated 25 Bcfe of proved reserves, 88% natural gas and 73% developed, with daily production currently totaling 10,625 Mcf and 85 Bbls of associated liquids. In addition, the immediate increase in the Company's partnership sharing ratio to 30% amounts to approximately 13.2 Bcfe. Further, the Company's share of the partnership's daily production currently amounts to 5,618 Mcf and 45 Bbls of associated liquids. The net cash consideration for both the direct working interests and increased partnership interests was $48.4 million, prior to adjustments for post effective date net revenues. The Company will remain the general partner of the affiliated partnership and operator of the properties. The acquisition provides additional development opportunities and exposure to upside associated with the Eagleford Shale and other prospective targets.
The acquisition was funded with borrowings from the Company's Senior Secured Revolving Credit Facility. Borrowings for this acquisition and the recently announced acquisition in the Williston Basin totaled $58.0 million. In order to seek to maintain predictable cash flows and underwrite growth, commencing July 1, 2009, the Company entered into new commodity price hedges for 2009 and 2010. The quantities hedged are 1,080 Mmcf for the remaining six months of 2009 and 1,440 Mmcf for the calendar year 2010, both at a price of $5.155 per Mcf.
Drilling and Operations
GeoResources has continued its successful exploitation of the Austin Chalk Formation in the Giddings Field of Grimes and Montgomery Counties, Texas. The Hurst Bay 1-H, which was the fifth dual lateral well, has been drilled and completed. The well was drilled to a vertical depth of over 14,500 feet with an initial horizontal leg of 7,700 feet. The second horizontal leg was kicked off from a point approximately 1,000 feet into the first lateral and drilled 5,250 feet. The well had an initial production rate of approximately 19 Mmcfd. The Hoke-Cole 1-H, which is its sixth dual lateral well, has also been drilled and completed. The well was drilled to a vertical depth of over 14,000 feet with an initial horizontal leg of 6,500 feet. The second horizontal leg was kicked off from a point approximately 150 feet into the first lateral and drilled 7,000 feet. The well had an initial production rate of approximately 18 Mmcfd. The Company has drilled 12 wells to date and achieved a 100% success rate. The drilling rig has moved to the Longstreet 1-H, a planned dual lateral well expected to be completed and placed on production in late June. As a result of the above Giddings acquisition, the Company's direct working interest in the Longstreet well will be about 37% and it will have an additional 15.8% working interest through its affiliated partnership. Even at present commodity prices, these wells are highly economical. The Company presently expects at least 14 additional drilling locations in the area.
The Olson 1-21, located in Roger Mills County, Oklahoma, has been drilled and completed in the Upper Cherokee Formation and commenced producing at a rate of 1.2 Mmcfd. The Company has a 26.67% working interest in the property. The Romero #1, located in Vermillion Parish, Louisiana, has been drilled at an estimated true vertical depth of 15,860 feet and is being completed in the Camerina Sand Formation. The Company has a 10.42% working interest in the property. The Company had a 12% working interest in the Conner Heirs #1 located in Jefferson Davis Parish, Louisiana and a 6% working interest in the Moore #1 located in LaFourche Parish, Louisiana. Both wells failed to trap hydrocarbons in commercial quantities and have been plugged and abandoned.
Frank A. Lodzinski, Chief Executive Officer of GeoResources, said, "Our acquisition in the Giddings Field coupled with our recently announced acquisition in the Williston Basin (Bakken Shale) has provided the Company an opportunity to increase its interests appreciably in two core operating areas. Further, the acquisitions provide immediate increases to proved reserves, production and cash flow, and significantly expand our drilling and development inventory. The Bakken Shale is a premier oil play in the lower 48 and our Giddings Field acquisition gives us additional development opportunities and exposure to upside associated with the Eagleford Shale and other prospective targets. Our drilling and development programs continue to deliver positive results. We expect to continue to develop our assets and selectively expand our acreage and drilling inventory across the Company. While we have not yet finalized revisions to our capital budget as a result of these acquisitions, certain projects may be deferred in favor of drilling on the acquired acreage or additional attractive acquisitions of productive assets or acreage. Much of our prior drilling inventory is 'held by production' and accordingly, we have been positioned to take advantage of attractive acquisition opportunities and modify our capital spending without fear of losing acreage."
Mr. Lodzinski further stated, "Our approach and business strategy allows us to meet the challenges of the financial markets and price volatility. Importantly, the acquisitions can be operated without additional staffing. However, the incremental cash flow along with increasing availability of personnel in the marketplace will allow us to consider incremental technical staffing to compliment our current staff, and further pursue additional acquisitions and M&A opportunities. These acquisitions have been financed at favorable interest rates entirely with reasonable levels of senior secured debt under our credit facility. We have also entered into certain commodity price hedges to underwrite these acquisitions and our growth. Consistent with our business plan, we may sell certain properties to reduce debt, streamline operations, focus our personnel on the upside in our portfolio and generate additional opportunities for growth. We believe our diversified approach contributes to our strength and staying power and will allow the Company to continue to grow profitably."
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