In Landmark Deal, St. Mary Picks Up Permian Basin Assets
St. Mary Land & Exploration Company on Thursday announced that it has entered into an agreement for the acquisition of oil and gas assets in West Texas from several undisclosed private parties for $250 million in cash. The properties are in the Midland Basin and target the producing formations in the Spraberry interval. St. Mary attributes 78.1 BCFE of proved net reserves to the assets, which are producing approximately net 16.0 MMCFED. The transaction is scheduled to close by December 15, 2006, and is subject to customary due diligence.
"This transaction will be the largest in our history. It is from the same play book that we have been successful with for many years: acquire high working interest properties through negotiated transactions that have exploitation potential in familiar basins where we can operate. This deal meets all of those criteria. With this acquisition, we will be adding high working interest, low risk properties to our portfolio and increasing our presence in the Permian Basin. It will also add a multi-year drilling program to our inventory of projects with potential for significant upside related to possible down spacing," commented Mark Hellerstein, Chairman and CEO.
A third party has a contractual right to purchase up to an undivided 20 percent of the working interests aquired in the transaction. This right to acquire must be exercised concurrent with the closing. All the following highlights assume that St. Mary retains 100 percent of the transaction.
- Purchase price of $250 million to be funded with bank borrowings under the Company's existing credit facility.
- 100 percent operated, with average working interest of 95 percent and net revenue interest of 71 percent.
- Estimated net proved reserves of 78.1 BCFE (78 percent oil), 45 percent of which are proved developed reserves.
- 110 BCFE (79 percent oil) of additional net probable and possible reserves.
- 70 producing wells, with current net production of 16.0 MMCFED (78 percent oil).
- 60 proved undeveloped locations and approximately 40 probable and possible drilling locations on 80-acre spacing. Average gross reserves per well are estimated at 1.0 BCFE on 80-acre spacing.
- Potential 40-acre development which, if successful, may add an additional 168 locations.
- Completed well costs of $1.6 million per well.
- Estimated production expenses of $0.65 per MCFE produced, excluding production taxes and overhead.
- Two rig drilling program initially with plans to increase to four rigs within 12 to 18 months. St. Mary estimates 30 wells will be drilled annually with a two rig program.
In conjunction with this transaction, St. Mary has hedged the majority of the anticipated oil production for the first five years at prices ranging between $65.15 and $68.04 per barrel. Although a smaller component of the overall value of the acquisition, we have hedged natural gas with swaps over five years and natural gas liquids with swaps over the first two years.
Since closing is scheduled for mid-December, the Company does not anticipate updating our previously issued guidance for the fourth quarter or full year of 2006. However, total production for the Company is now expected to come in above the mid-point of the year-end guidance. The transaction will be financed with bank borrowings under the Company's existing credit facility. With the increased debt borrowings on the credit facility, the Company is expecting its year end debt-to-book capitalization ratio to be approximately 38 percent and 29 percent if the Senior Convertible Notes are assumed to be equity. The acquisitions budget for 2006, inclusive of this acquisition, is now expected to be approximately $285 million.
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