EPL Acquires Central Gulf Assets from Hilcorp

New Orleans-based EPL Oil & Gas will nearly double its production and reserves by acquiring certain shallow water Gulf of Mexico assets from Hilcorp Energy GOM Holdings for $550 million.

EPL's acquisition marks its fourth since 2011 and is the most transformational, said EPL President and CEO Gary Hanna in a statement Monday.

"This transaction nearly doubles our proved reserves to approximately 74 million [barrels of oil equivalent]."

"Additionally, it drives our production above 20,000 [barrels of oil equivalent] per day, supports EBITDAX generation in 2013 in the range of $450 million to $500 million and is very accretive to our key operational and valuation metrics," Hanna said.

The assets are currently producing approximately 10,000 barrels of oil equivalent per day, about 50 percent of which are oil, and hold estimated proved reserves of approximately 36.3 million barrels of oil equivalent, of which 54 percent is oil.

The properties include Ship Shoal Block 208, South Pass Block 78, and South Marsh Island 239, which Hilcorp acquired from Chevron. All three fields are located in the central Gulf near EPL's existing core field areas.

The three fields account for 64 percent of the current proved reserves, and approximately 82 percent of the total proved acquisition PV10 value estimated at $626 million using strip prices as of Aug. 31, 2012.

The high operating control of 95 percent will allow EPL "timely access" to the development opportunities that exist on these properties, Hanna noted.

"There are already over 90 low-risk, oil-rich shallow behind pipe and drilling opportunities, as well as numerous optimization projects that our operational teams will vigorously pursue."

The acquisition is expected to close by Oct. 31 of this year. Hilcorp has indicated to EPL that the sale marks Hilcorp's existing from the Gulf of Mexico shelf, EPL said. EPL has paid a 10 percent cash deposit to Hilcorp under the terms of the purchase agreement.

Merger and acquisition activity among exploration and production companies appears to be heating up this fall after a relatively slow summer with the EPL/Hilcorp deal and several transactions announced last week, according to a Sept. 17 analyst note from GHS Research.

"After last year's gas price collapse, early 2012 liquids price collapse and the early summer oil price declines, we may finally be at a point for some major rationalization of assets," according to GHS.

Exploitation of liquids-rich targets and nascent ultra-deep gas drilling have been the primary drivers of the post-Macondo recover in the shallow water Gulf of Mexico, according to a Sept. 7 analyst note from GHS.

The increased use of enhanced seismic imaging techniques, which are beginning to migrate from the ultra-deep shelf to conventional shallow water Gulf acreage, could contribute to more interest in oil exploration on the Gulf shelf, GHS noted.

"By refining plentiful existing seismic data with reprocessing technologies such as pre-stack depth migration and inversion analysis, GOM shelf operators are identifying previously overlooked shallow pay horizons around the salt," GHS said.

In this year's Central Gulf lease sale, 193 shallow water bids were made, the highest since 2006 and 43 percent of all bids received. GHS analysts said they believed shelf operators such as Apache, Chevron, EOL and McMoRan would consider multi-faceted drilling programs, including sidetrack/workover activity, development of stacked shallow pay horizons and exploration of deeper oil objectives at 17,500 to 22,500 feet.


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