Vanguard Natural Resources has entered into an agreement to acquire producing oil and natural gas properties in South Texas for $52.25 million from an affiliate of Lewis Energy Group, L.P. ("Lewis"). The properties to be acquired have total estimated proved reserves of 27 Bcfe as of July 1, 2009, of which 94% is natural gas and 74% is proved developed. Lewis will operate all of the wells acquired in this transaction. Based on the current net daily production of approximately 5,000 Mcfe, the properties have a reserve to production ratio of approximately 15 years.
Mr. Scott W. Smith, President and CEO of Vanguard commented, "We are very pleased to be able to announce this transaction with Lewis, our South Texas operating partner. When we closed our initial South Texas acquisition last summer, we indicated one of our goals was to add additional assets through subsequent acquisitions as Lewis looked to monetize mature assets to fund their exploration efforts. With an enviable leasehold position in the emerging Eagle Ford Shale play, this transaction provides Lewis the opportunity to monetize a small percentage of its assets to provide capital for an exciting exploration opportunity. For Vanguard, this acquisition will increase our production and reserves and will increase the value of the collateral backing our reserve-based credit facility."
The acquisition has a July 1, 2009 effective date, is subject to customary closing conditions and purchase price adjustments and is expected to close in the third quarter of 2009. Vanguard is evaluating options for financing this acquisition and is currently in the process of amending its existing credit facility. At closing, Vanguard will assume natural gas puts and swaps based on Nymex pricing for approximately 67% of the estimated gas production from existing producing wells for the period beginning August of 2009 through 2010. In addition, concurrent with the execution of the purchase and sale agreement, Vanguard entered into a costless collar for certain volumes in 2010 and a series of costless collars for a substantial portion of the expected gas production for 2011 at a total cost to the Company of $3.1 million which was financed through deferred premiums. Inclusive of the hedges added, we expect that approximately 90% of the estimated gas production from existing producing wells is hedged through 2011.
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