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Houston Exploration Sells Texas GOM Assets for $220M

The Houston Exploration Co., which announced last year it would sell its offshore assets to become a pure U.S. onshore natural gas producer, has signed an agreement with an undisclosed private operator to sell the Texas portion of its Gulf of Mexico assets for $220 million in cash. At year-end 2005, Houston Exploration's proved reserves in the Texas Gulf were estimated at 58.5 Bcfe.

The producer announced a strategic shift in its operations to focus in onshore U.S. basins last November (see NGI, Nov. 14, 2005). The sale proceeds from the offshore assets are expected to be used in several ways, including acquiring more U.S. onshore assets, decreasing debt or repurchasing stock. To date, South Texas has been the company's most active onshore area, but the Rocky Mountains are expected to be a high-growth region. In September, the company entered into a joint venture agreement with Enduring Resources LLC in Utah's Uinta Basin (see NGI, Sept. 12, 2005). Under the terms of the agreement, each company will contribute 40,000 acres, and in turn earn a 50% working interest in all contiguous 80,000 acres.

The deal, with an effective date of Jan. 1, is expected to close March 31. Wachovia Securities is serving as the financial adviser.

Also last week Houston Exploration reported net income in the final quarter fell to $19.8 million (68 cents/share), well below $34.8 million ($1.21) for the same period of 2004. Production totaled 26.3 Bcfe, or 285 MMcfe/d, down from 4Q2004's rate of 30.3 Bcfe or 329 MMcfe/d. "Quarter-over-quarter, 2005's fourth quarter received the brunt of the impact from the hurricane shut-ins and delays, which accounted for the majority of the decline," the company said in a statement. Full-year 2005 net income was $105.2 million ($3.62/share), down from $162.8 million ($5.44) in 2004.

Year-end 2005 proved reserves totaled a record 861 Bcfe, up 9% from 2004. Total production for 2005 was 114.3 Bcfe, or 313 MMcfe/d, down from 124.0 Bcfe, or 339 MMcfe/d, reported for 2004. The decline was attributed to last fall's hurricanes, which impacted the annual production volume by 10.6 Bcfe, or 30 MMcfe/d.

The company's average natural gas sales price for 2005 was $7.71/Mcf, compared with $5.78/Mcf in 2004, an increase of 33%. After accounting for all hedging activities, the company's average realized price for 2005 natural gas sales was $5.21/Mcf, up from $5.17 in 2004. Houston Exploration realized an average gas sales price for 4Q2005 of $10.39/Mcf, compared with $6.37 in 4Q2004. After accounting for all hedging activities, the company's 4Q2005 average realized price for gas sales was $5.69/Mcf, up from $5.24 in 4Q2004.

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