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El Paso Buys Lehman's Interest in Joint Drilling Venture for $62.5M

El Paso Corp. last Wednesday said it acquired the interest held by one of its partners, a wholly owned subsidiary of investment banker Lehman Brothers, in a joint drilling venture, which is developing oil and natural gas properties in the Gulf of Mexico, South Texas and the ArkLaTex regions. The purchase price was reported at $62.5 million.

El Paso entered into the joint drilling venture with Lehman Brothers and a wholly owned subsidiary of Nabors Industries Ltd. in October 2003. Under the terms of the original agreement, Lehman committed to contribute 50% of the total cost to develop two specified packages of wells in exchange for a 50% net profits interest, and Nabors committed to 20% in return for a 20% net profits interest in the wells. The remaining 30% of the cost was contributed by El Paso as part of its 2003 and 2004 capital budget.

As a result of the latest transaction, El Paso now holds 80% of the interest in the joint drilling venture. Nabors' interest in the venture was unaffected by the deal, according to El Paso.

El Paso estimated that proved reserves associated with the properties are approximately 14.6 billion cubic feet equivalent (Bcfe). Most of the reserves (73%) are natural gas, it said. An estimated 95% are classified as prove developed and 88% are proved developed producing . Incremental average daily production for the rest of 2005 is pegged at 23 MMcfe. Hedges have been put in place for most of the volumes, the company noted.

"This acquisition is an attractive tactical step in our continuing efforts to reshape the production business. We have acquired reserves that are short-lived but low risk. We already own an interest in the reserves, and we operate all 86 wells, which are in our core operating areas," said Lisa Stewart, president of El Paso's Production and Non-regulated Operations.

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