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Evergreen Locks Up Raton Basin With KCPL Deal
Evergreen Resources, the largest producer in the Raton Basin of Colorado, got a lot larger last week. The company bought 153 Bcf of coal-bed methane reserves in the basin from a subsidiary of Kansas City Power & Light for $176 million, or about $1.15/Mcf.
The transaction covers interests in 24,000 acres of producing coal-bed methane properties that are adjacent to Evergreen's existing operations. It means Evergreen will be producing nearly 90% of the basin's existing gas production and will be the largest leaseholder with about 225,000 acres.
"This property purchase is a perfect fit to our existing operations in the Raton Basin and will be accretive immediately to our per-share production, cash flow and earnings," said Evergreen CEO Mark S. Sexton. "Upside potential exists in combined field operating efficiencies, recompletion of existing wells, and shallow Raton coal completions. We also anticipate that the transaction will significantly reduce our per-unit general and administrative costs.
"In addition, we have established an important relationship with Kansas City Power & Light Company, which is targeting coal-bed methane properties for future development. We plan to pursue other coal bed methane development projects with KLT [a KCPL subsidiary], along with potential future acquisitions."
Evergreen is buying the properties with $70 million in cash, $100 million in mandatory redeemable preferred stock and $6 million in Evergreen common stock. Properties representing 20% of the transaction price are subject to a preferential right to purchase. The transaction is effective Sept. 1.
Sexton noted that the purchase price is higher than what the company had been paying for properties recently, but he said these properties are "relatively mature. I would describe them as at or near peak production... We see a lot of synergies in these properties. One of the things we intend to do is tie the gathering systems together to help resolve some inefficiencies..."
The acquired properties currently produce 28 MMcf/d from a total of 151 net wells. Prior to the acquisition, Evergreen's daily net gas sales were 47 MMcf from 303 net producing wells. With the incremental production from the acquired properties, Evergreen's daily gas sales will increase from 55% to 88% of total daily gas sales from the Raton Basin.
Of the reserves attributed to the acquired properties, 87% are classified as proved developed producing, 4% are proved developed non-producing, and 9% are classified as proved undeveloped.
The present value of estimated future net revenues from the acquired proved reserves, discounted at 10%, was $211 million as of Sept. 1. This calculation is based on an unescalated average net gas price of $3.50/Mcf.
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