Fidelity Exploration & Production Co., the exploration arm of MDU Resources Group Inc., is forecasting a double-digit gain in production with the purchase of some natural gas properties in an emerging area of East Texas for $235 million, or $2.42/Mcf of proved reserves.
The transaction, with EnerVest Ltd. and some of its affiliated parties and co-venturers, is expected to be completed by the end of this month.
The agreement to buy the properties, located in Rusk County, TX, includes the purchase of 97 Bcfe of proven reserves and 36 Bcfe of estimated probable reserves. Current net production is about 17.5 MMcfe/d. The acquisition is expected to be accretive to 2008 earnings per share and financed through a combination of internal funds and debt.
"This acquisition is in an area where we have experience and [it] fits well with our existing operations," said MDU CEO Terry D. Hildestad. "These lower-risk development properties strengthen our strategy of having a balanced portfolio of assets and add production in an actively developing area. There is long-term development potential within these high-quality proven reserves and upside potential from the unproven reserves. Combined with our active exploratory programs in the Bakken play in North Dakota and the Paradox Basin in Utah, we expect to be well positioned for the future."
Fidelity will be the operator of the East Texas assets, and it expects to drill about 25 wells in 2008.
Fidelity's projected growth for gas and oil production in 2008 was previously forecasted to be 5-8%. However, pending the successful close of the latest transaction, 2008 production now is forecast to increase to 12-16% over 2007. Meeting these targets, said Fidelity, will depend on regulatory approvals and the success of its exploration activities.
In 1999 an internal consolidation at MDU combined the nonoperated assets of predecessor Fidelity Oil Group and the operated gas production interests of WBI Production into one enterprise, Fidelity Exploration. The company acquired the assets of Preston Reynolds & Co. Inc. and its operating arm Redstone Gas Partners LLC in April 2000, which added coalbed methane gas lease positions in the Powder River Basin of Wyoming and Montana. In late 2000 the company's headquarters moved from Bismarck, ND, where MDU is headquartered, to Denver.
Fidelity's gas and oil production in 2006 reached 74 Bcfe, and its reserve base grew to 701 Bcfe, 77% weighted to natural gas. Until the EnerVest acquisition, 76% of Fidelity's proven reserves were located in the Rocky Mountains, 22% were throughout the Midcontinent and onshore along the Gulf Coast, and 2% were located offshore in the Gulf of Mexico.
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