Houston-based junior exploration and production company Dune Energy Inc. has agreed to sell its Barnett Shale assets in Denton and Wise counties, TX, for $41.5 million effective May 1, 2008, with closing expected on or before July 31, the company said Monday.

As of Dec. 31, 2007, Dune’s Barnett Shale proved developed reserves totaled 19.3 Bcfe in 35 producing wells, plus six wells with behind-pipe pay awaiting fracture stimulation. An additional 13 proved undeveloped locations contained an estimated 14.1 Bcfe of net reserves. The buyer was not disclosed.

The Barnett Shale reserves represent approximately 19% of Dune’s total proved reserves, but only 6.8% of Dune’s year-end 2007 present value discounted at 10% (PV 10). First quarter 2008 revenue attributable to Barnett Shale operations totaled $7.64/Mcfe, while expenses were $4.36/Mcfe. Dune’s Gulf Coast operations yielded revenue of $12.14/Mcfe, while costs totaled $4.14/Mcfe. Operating profit for the Barnett Shale and Gulf Coast were $3.28/Mcfe and $8.00/Mcfe, respectively.

“The disposition of the Barnett Shale assets represents a turning point in Dune’s overall corporate strategy, which is designed to enhance shareholder value via a concentrated focus on the exploration and development of our superior portfolio of Gulf Coast properties,” said Dune CEO James A. Watt. “Our Gulf Coast properties, as we demonstrated during 2007, allow the company to benefit from solid reserve replacement at a much higher rate of return and lower operating costs. This will be our focus moving forward.”

The disposition of the Barnett Shale properties will allow Dune to focus on the substantially higher rates of return generated by its Gulf Coast fields, the majority of which were acquired last year, it said. Proceeds from the sale, after customary adjustments, will be used to pay down debt and for general working capital.

Also in the Barnett on Monday, Quicksilver Resources announced a $1.307 billion cash and stock acquisition of assets from various private parties (see Daily GPI, July 8). And in May Devon Energy Corp. said its Barnett production surpassed 1 Bcfe/d (see Daily GPI, May 8).

About a year ago Dune acquired Goldking Energy Corp. — with properties onshore along the Texas and Louisiana coasts — for $320.5 million in cash and stock (see Daily GPI, April 19, 2007). The company will have significant sustainable cash flow as most Goldking assets have extensive production history, which complements existing Barnett Shale “gas manufacturing,” the company said at the time. Dune also will have a high degree of operational control in more than 90% of the producing wells with an average working interest of more than 90%.

Pro forma for the sale, Dune’s proved reserves will consist of 60% natural gas and 40% oil. For the remainder of 2008 the company will continue its exploitation program in its Gulf Coast fields, concentrating on numerous workovers and low- to moderate-risk drilling designed to ramp up production and cash flow. Dune said it fully expects it will replace the production lost stemming from the sale of its Barnett assets, with fourth quarter volumes to exceed current levels. Dune said its annual production guidance given at the end of the first quarter of 2008, totaling approximately 15 Bcfe, remains unchanged. Second quarter production is anticipated to average 40 MMcfe/d.

With upgrades and repairs now completed, Dune said it will resume its 2007 drilling program at Garden Island Bay this month. In addition, given “excellent results” from an initial well at Chocolate Bayou, Dune plans to spud a second well in the field in September.

In November 2005 Dune acquired interests in about 320 acres of oil and natural gas leases and four producing wells in Denton County for $5.4 million, and another parcel of properties in Denton and Wise counties from Voyager Partners Ltd. for $68.3 million (see Daily GPI, Nov. 22, 2005). About a year later Dune announced another acquisition from Voyager, saying it would spend $32.8 million to acquire 2,457 gross acres on the Barnett Shale fairway in Denton County (see Daily GPI, Oct. 16, 2006).

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