"Consistent with EOG's 'growth-through-the-drillbit' philosophy, this acquisition is a natural fit because it allows us to continue expanding our Canadian program by adding a significant number of shallow gas drilling locations. The acquisition gives us at least 600 infill drilling locations and 380 recompletions," said Mark G. Papa, Chairman and Chief Executive Officer. EOG will operate the properties, consisting of approximately 34 million cubic feet equivalent per day (MMcfed) of current production and approximately 275 billion cubic feet equivalent (Bcfe) of proved reserves, both net to EOG of royalty and other working interests. Additionally, this acquisition will allow EOG access to at least 100 net Bcfe of probable reserves.
EOG's shallow gas play in southeast Alberta and southwest Saskatchewan is a core component of its Canadian operations. During 2002, EOG drilled approximately 1,000 wells in this trend. Over the last six years, EOG's natural gas production from the trend has increased from 30 to 100 MMcfed. Since 1997, EOG has built a substantial acreage position by expanding its presence in the shallow gas area with ten acquisitions in the trend. The company's total Canadian proved reserves have increased at a 15 percent compounded annual rate since EOG's initial public offering in 1989. Production has increased at a 13 percent compounded annual rate during this same time period.
Based on EOG's 2002 year-end Canadian proved reserves of 821 Bcfe and second quarter 2003 production of 170 MMcfed, this acquisition increases EOG's Canadian proved reserves by 33 percent and production by 20 percent.
The purchase price is expected to be funded from internally available cash and short-term commercial paper. At June 30, 2003, EOG's debt-to-total capitalization ratio was 33.8 percent with a cash position of US $151 million. Based on current commodity prices and the completion of this acquisition, the ratio is expected to be in the same range at year-end 2003. EOG expects to hedge the natural gas production from the transaction through 2004.
"EOG can complete the acquisition of these strategic shallow gas properties while maintaining our strong financial position," said Papa. "We expect this transaction will be financially accretive on both an earnings and cash flow basis."
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