Canadian Superior Acquires Drumheller Assets from El Paso
Canadian Superior Energy Inc. has entered into an agreement with the Canadian division of El Paso Corporation to acquire El Paso's Drumheller Area oil and gas assets, production facilities, gas plants and undeveloped lands located in Central Alberta, effective October 1, 2002, for approximately $59.0 million, net of purchase price adjustments.
The Drumheller Area production purchase includes approximately 2,800 boe/d of company operated sweet gas and light crude oil production and high working interests in 170,000 gross acres of land (106,693 net acres). The transaction includes extensive seismic data and key infrastructure assets consisting of interests in three gas plants, three oil batteries, 20 production facilities and 130 kilometers of company-operated pipelines. Production is comprised of 75% natural gas and 25% light sweet crude. The properties are being acquired for approximately $59.0 million, net of purchase price adjustments, which equates to $21,071 per flowing boe/d using a 6:1 conversion ratio. Approximately 40 high working interest drilling locations have been identified for drilling during 2003 on the undeveloped lands with an estimated risked potential to add 1,945 boe/d of net production to Canadian Superior.
The acquisition compliments Canadian Superior's existing portfolio of high impact prospects in Western Canada by adding assets with year round access. Proforma the transaction Canadian Superior's production is currently approximately 4,000 boe/d. Canadian Superior has identified considerable upside on the acquired lands. Speaking in Calgary today, Canadian Superior's Land Manager, Dan MacDonald said, "The transaction adds high quality production, reserves, extensive infrastructure and undeveloped lands easily accessible for development on a year-round basis. El Paso has successfully targeted primarily the shallow opportunities on its lands. In addition to continuing to develop low risk shallow opportunities, we believe that deeper horizons can be targeted to add reserves and production on a cost effective basis. The potential exists to enhance the value of these assets through:
- Exploitation of Proved Undeveloped and Probable reserves: several low risk locations for immediate drilling, with short tie-in distances, have been identified;
- Waterflood programs to increase deliverability and recovery factors that have not been included in reserves estimates noted below;
- Utilization of existing capacity in owned gas plants and strategic production facilities; and
- Exploration on a significant high working interest undeveloped land base of 80,000 gross acres (64,000 net acres).
- The acquisition adds low risk stable production and development prospects to compliment Canadian Superior's existing high impact prospects, including the East Ladyfern project and the offshore Nova Scotia drilling projects."
The transaction is being funded by bridge financing and Canadian Superior's existing credit facilities.
Other key features of this acquisition are as follows:
- The transaction is extremely accretive and significantly increases Canadian Superior's cash flow and production base. Proforma the acquisition, Canadian Superior's production is approximately 4,000 boe/d.
- This purchase establishes a significant new core production area for Canadian Superior. The Drumheller Area assets being acquired are concentrated high working interest (62%) operated assets, comprised of high quality light oil and sweet natural gas which commands premium prices and high net backs.
- The Drumheller Area has year-round access and contains multi-zone, low risk light oil and sweet gas reserves and production. Drumheller is located in Central Alberta, 100 miles northeast of Calgary, Alberta.
- The Drumheller Area purchase adds high working interests in 265 sections of land (170,000 gross acres and 106,693 net acres). Undeveloped lands consist of 125 sections with exploration potential.
- Approximately 40 locations (73% average working interest) have been identified for drilling during 2003 with an estimated risked potential to add 1,945 boe/d of net production to Canadian Superior.
- As estimated by Gilbert Laustsen Jung Associates Ltd. ("GLJ"), the transaction includes Proven reserves of 4.4 million barrels of oil equivalent of which 96% are Proved producing. Estimated established reserves (Proved + 1/2 Probable) are 4.9 million barrels of oil equivalent results in a cost of $12.04 per established boe.
- A pilot waterflood project for enhanced oil recovery is currently underway and reservoir modeling estimates for waterflood enhancement potential indicates a potential for recoverable reserves additions of between 1.0 million and 4.0 million barrels of light oil. These potential reserves have not been included in the GLJ estimates.
- Development upside exists in both proven undeveloped and probable reserves which can be expected to result in cost effective deliverability growth on the acquired interests and increased utilization of capacity in existing company-owned infrastructure.
Other key assets included in the acquisition:
- Proprietary interest in 300 kilometres of 2D seismic data;
- Proprietary interest in 50 square kilometres of 3D seismic data; and
- Key infrastructure assets consisting of interests in three gas plants, three oil batteries, 20 production facilities and 130 kilometers of company-operated pipelines.