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EPL, W&T Build GOM Portfolios

EPL Oil & Gas Inc. last week agreed to pay $550 million to a unit of Hilcorp Energy Co. for a package of shallow water Gulf of Mexico (GOM) shelf oil and natural gas interests. W&T Offshore Inc. also built it GOM portfolio last week, after agreeing to pay $228 million to acquire all of Newfield Exploration Co.'s remaining properties in the GOM, a 78-block inventory that covers more than 430,000 gross acres.

The Hilcorp Energy GOM Holdings LLC properties being purchased by EPL in the Central GOM currently produce 10,000 boe/d, equally weighted to natural gas and oil. Estimated proved reserves on July 1 totaled 36.3 million boe. The transaction would nearly double EPL's proven reserves to about 74 million boe and would drive the company's output to "above 20,000 boe/d," said EPL CEO Gary Hanna.

Gross earnings from the EPL acquisition for 2013 were estimated at $450-500 million. The purchase comes three years after the New Orleans-based producer began to rebuild after filing for Chapter 11 bankruptcy protection because of a credit squeeze (see NGI, May 4, 2009).

"This is the fourth acquisition we have made since 2011, and it is the most transformational," said Hanna. The acquisition "provides scale and diversification while continuing to focus the value of our company in the Central Gulf, which is the most prolific, oil-bearing region of the GOM."

The Central GOM shelf properties, which are near existing EPL exploration areas, include three fields that Hilcorp acquired from Chevron Corp. in Ship Shoal Block 208, South Pass 78 and South Marsh Island 239. The three fields account for 64% of the current proved reserves and 82% of the total proved acquisition, which puts the total value at about $626 million using strip prices as of Aug. 31, EPL stated. EPL also would assume about $120 million in debt.

"The high operating control of 95% will permit us timely access to the development opportunities that exist on these properties," said Hanna. "There are already over 90 low-risk, oil-rich shallow behind pipe and drilling opportunities, as well as numerous optimization projects that our operational teams will vigorously pursue."

EPL plans to hedge 80% of the forecasted proved producing oil and natural gas production of the assets being acquired for years 2013 through 2015, with 2013 hedges scheduled to represent about 80% of forecasted proved production. About half of EPL's existing oil production is hedged for 2013. The purchase is expected to close by the end of October.

Meanwhile, 65 of the 78 blocks purchased by W&T from Newfield last Tuesday are in the deepwater, with six wells now in production. Ten blocks are on the Outer Continental Shelf with four producing wells. W&T also would capture an overriding royalty interest in three deepwater blocks, two of which are producing. Average production from the properties in July was 8,350 boe/d net, about 63% weighted to natural gas and 37% to oil. July output was 75% from deepwater. Houston-based W&T would take over operations of about 90% of the production.

The producing deepwater blocks are in the Garden Banks, Mississippi Canyon and Viosca Knoll areas. Producing conventional shelf leases are in Ship Shoal, West Cameron, Vermillion and West Delta. Total undeveloped acreage is estimated at 312,000 gross acres, 91% of which is in the deepwater. Estimated proved and probable reserves total 7.7 million boe and 1.2 million boe, respectively. The transaction is expected to close in early October.

The sale closes the door on Newfield's GOM business. The Woodlands, TX-based producer, which at one time captured about 10% of its total output from the GOM, began to defer its U.S. offshore spending in 2010 to expand in the U.S. onshore. Including the agreement with W&T, as well as sales in 2011 and early this year, Newfield's total asset sales from the GOM have generated about $300 million.

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