Energen to Purchase Permian Basin Assets


Permian Basin
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Energen announced that its oil and gas exploration and production company, Energen Resources Corporation (ERC), has signed a purchase and sale agreement to buy Permian Basin assets in the Wolfberry trend from a private seller for $185 million plus standard closing adjustments. The cash transaction is expected to close on or before September 30, 2010, and will have an effective date of September 1, 2010.

The bulk of the acquisition's 8,700 net acres is located in Martin County, Texas, in a prime location for Wolfberry development. The Permian Basin in West Texas is one of the oldest producing oil basins in the United States and ERC's second largest area of operation. The acquisition includes 19 producing wells, and ERC has identified 142 proved undeveloped (PUD) locations and approximately 50 probable locations. It is 100 percent operated.

Estimated proved reserves total 18.0 million barrels of oil equivalents (MMBOE) of which 16.0 MMBOE (89 percent) are PUDs; sweet oil represents 65 percent of total proved reserves; natural gas liquids (NGL) comprise 22 percent; and natural gas makes up the remaining 13 percent. The acquisition also includes an estimated 6.2 MMBOE of probable reserves.

Energen estimates that future development costs associated with proved and probable reserves will be approximately $325 million (less estimated plug-and-abandonment costs). This brings the all-in acquisition cost to approximately $21.11 per barrel of oil equivalents (BOE).

"We are pleased to be announcing another Permian Basin acquisition," said James McManus, Energen's chairman and chief executive officer. "This acquisition features high-quality drilling opportunities across a sizable, contiguous acreage position in the heart of the Wolfberry trend in the Permian Basin. We are drilling more than 30 Wolfberry wells on our existing properties in 2010 and look forward to expanding our activity in this exciting oil play."

"Energen has an outstanding balance sheet and is generating superior cash flows," McManus added. "We will be able to purchase these properties with available cash and consider the associated development potential to be an excellent use of capital in the coming years. Importantly, Energen's financial strength will allow us to continue pursuing oil and gas acquisitions."

To help lock-in returns through 2014, Energen has hedged 78 percent of its estimated oil production associated with this acquisition over that 4-year period.

Average realized oil and gas prices for Energen Resources' production associated with NYMEX contracts as well as for unhedged production will reflect the impact of basis differentials. Average realized NGL prices will be net of transportation and fractionation fees.
 

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