Bakersfield, CA-based Berry Petroleum Co. said Friday that it has entered into an agreement with a private seller to acquire a 50% working interest in natural gas assets in the Piceance Basin of western Colorado for approximately $150 million in cash.
After analyzing the territory, Berry internally estimates 330 Bcf of reserves, which are composed of 26 Bcf of proved reserves and 304 Bcf of probable reserves. The company has identified over 600 drilling locations based on 10-acre downspacing.
"This is a tremendous opportunity for Berry as we diversify our portfolio with another long-lived, low geologic risk natural gas asset that is an excellent entry into the prolific Piceance Basin," said Robert Heinemann, Berry Petroleum's CEO. "We will be the operator and own a 50% working interest in 6,314 gross acres, targeting gas in the Williams Fork section of the Mesaverde formation.
"We anticipate that our full-life finding and development cost will be less than $2.20 per Mcf and are increasing our 2006 capital budget by an additional $30 million to $190 million to develop this resource. We have two rigs dedicated to this project, and based on the productivity of this acreage and surrounding producing operations we estimate that we will prove up significant reserves by the end of 2006." Heinemann said the company is also looking to add additional drilling rigs to accelerate development, noting that Berry intends to hedge a portion of the future production from the asset.
In late December, Berry raised its 2006 capital expenditure budget 15% to $160 million, with about 60% of the total going to exploration and production in the Rocky Mountains and Midcontinent assets (see NGI, Dec. 26, 2005). At the time, the other 40%, or $62 million, was earmarked to develop Berry's California assets. Late last year, the company said it was targeting production growth of 9% to average about 25,000 boe/d before acquisitions. Production in 2006 was expected to be about 70% heavy oil, 15% light oil and 15% natural gas.
The effective date of the transaction announced Friday is dated back to Oct. 1, 2005, while closing is expected by March 1. Berry said it will be funded under the company's existing credit facility.
As a publicly traded independent oil and gas production and exploitation company, Berry has -- since 2003 -- added more than 1 million acres to its oil and gas asset portfolio with acreage in California, Utah, Colorado, Kansas, Nebraska and North Dakota.
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