Living up to its Encore Acquisition Co. moniker, the Fort Worth-based company announced late Thursday its second $400 million oil and natural gas asset acquisition in a little more than a week. The company's latest agreement is with Howell Petroleum Corp. and Kerr-McGee Oil and Gas Onshore LP, subsidiaries of Anadarko Petroleum Corp., to purchase oil and natural gas properties in the Williston Basin in Montana and North Dakota for $410 million in cash.
The Williston Basin properties produce from more than 50 different fields across Montana and North Dakota. The assets are primarily waterfloods and producing properties with approximately 70,000 net acres in the prolific Bakken play in Montana and North Dakota. Encore plans to enhance the production from the acquisition through drilling, redevelopment, stimulation and waterflood optimization.
Encore said its internal engineers have estimated that the properties have total proved reserves of approximately 21 MMBoe, which are 90% oil and 81% proved developed producing. Encore estimates that the 4 MMBoe of proved undeveloped reserves will require approximately $57 million to develop. The properties currently produce approximately 5,000 net Boe/d and the company estimates that the properties have a total proved reserves-to-production ratio of approximately 11 years. These properties will be 85% operated by Encore and will complement Encore's existing Rockies oil portfolio, the company said.
"We are very pleased to be adding another quality suite of long-lived producing properties to our extensive Rockies position that remains the heart of the company," said Encore CEO Jon S. Brumley. "We are very excited to be entering the Bakken play with a large acreage position in an active emerging play. This acquisition has significant upside potential with 4 MMBoe in the proved undeveloped category and 9 MMBoe in the probable category."
Encore's internal engineers have estimated that the proved developed properties will generate approximately $60 million in cash flow (revenues less direct operating expenses) in 2007. The light sweet crude oil in this acquisition has been sold at approximately $8.00 under the New York Mercantile Exchange. Lease operating expenses are estimated to be approximately $9.35/Boe. Production taxes are expected to average 11% of revenues.
The Williston Basin deal is Encore's second major purchase in a little more than a week. Last week (see Daily GPI, Jan. 18), Encore entered into a $400 million agreement to acquire Houston-based Anadarko Petroleum Corp.'s interests, most of which are oil, in the Elk Basin and Gooseberry area, primarily located in Park County, WY. Encore's internal engineers have estimated that the properties have total proved reserves of approximately 20 MMBoe, which are 97% oil and 90% proved developed producing. The company estimates that the 2 MMBoe of proved undeveloped reserves will require approximately $17 million to develop. The properties currently produce approximately 4,000 net Boe/d with an additional 350 net Boe/d of natural gas liquids produced by the Elk Basin Gas Plant. The producing properties have a shallow one-year proved developed decline rate estimated at 6%. Encore estimates that the properties have a total proved reserves-to-production ratio of approximately 14 years.
With the two deals combined, Encore's $810 million has gained the company 9,350 Boe/d in production, 41 MMBoe of proved reserves and 11 MMBoe of probably reserves.
In connection with the latest acquisition, Encore said it has purchased put contracts on approximately 80% of the acquisition's proved developed producing volumes at an average price of $57.50/bbl for the remainder of 2007 and all of 2008. By purchasing puts, the company believes it has mitigated the negative effects of declining commodity prices in 2007 and 2008 with respect to the acquired production, while retaining the benefits of increasing commodity prices.
Encore said it intends to finance the combined acquisitions through cash flows from operations and borrowings under one or more credit facilities. Additionally, the company said it intends to divest of certain properties in the Anadarko Basin, Arkoma Basin, and the Barnett Shale in the Fort Worth Basin.
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