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Encore Acquisition Teams with ExxonMobil in West Texas Development Agreement

April 3, 2006
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Encore Acquisition Co. said last week that it has entered into a joint development agreement with ExxonMobil to further develop seven natural gas fields in West Texas. Encore will have the opportunity to earn 30% of ExxonMobil's working interest in each well drilled. It will operate each well during the drilling and completion phase, after which ExxonMobil will assume operational control of the well.

Encore said its horizontal drilling expertise will help renew ExxonMobil's portfolio of producing natural gas properties in West Texas. The agreement covers certain formations in the Parks, Pegasus, and Wilshire Fields in Midland and Upton counties, the Brown Bassett Field in Terrell County, and the Block 16, Coyanosa and Waha Fields in Ward, Pecos and Reeves counties. Encore said targeted formations include the Barnett, Devonian, Ellenberger, Mississippian, Montoya, Silurian, Strawn and Wolfcamp horizons.

The agreement is similar to two other agreements ExxonMobil entered into over the past two years. In July 2005, XTO Energy Inc. agreed to develop acreage in the northeastern portion of the Piceance Basin in western Colorado under a farm-in agreement with ExxonMobil (see NGI, July 4, 2005). In a similar joint agreement in May 2004, Apache Corp. took over operation of 28 of ExxonMobil's producing fields in West Texas and New Mexico, as well as exploration rights on more than 370,000 undeveloped acres in Alberta (see NGI, May 31, 2004).

After Encore has fulfilled its obligations under the 24-well commitment phase, the company will be entitled to a 30% working interest in future drilling locations. Encore will also have the right to propose and drill wells for as long as it is engaged in continuous drilling operations.

For full-year 2006, Encore said it intends to drill 22 wells and invest $17 million of net capital in the joint venture. The company said it anticipates operating four rigs in West Texas by the end of 2006. "To have the opportunity to invest in an opportunity of this size is a significant step for Encore," said Encore CEO Jon S. Brumley.

Formed in 1998, Fort Worth, TX-based Encore is an independent producer with gas reserves in four core areas: the Cedar Creek Anticline of Montana and North Dakota; the Permian Basin of West Texas and Southeastern New Mexico; the Midcontinent area, which includes the Arkoma and Anadarko Basins of Oklahoma, the North Louisiana Salt Basin, the East Texas Basin and the Barnett Shale; and the Rocky Mountains.

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