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Santa Fe Snyder Buys into Shell's Gulf Arsenal

Santa Fe Snyder Buys into Shell's Gulf Arsenal

Santa Fe Snyder, the resultant company from the recently approved Santa Fe Energy Resources and Snyder Oil Corp. merger, bought $210 million of interest in four Shell Exploration & Production Co. (SEPCo) Gulf of Mexico (GOM) assets. Closing is expected in August. Monday's deal, which would give Santa Fe Snyder access to production from the Macaroni, Troika and Brutus deep-water fields as well as the Angus Complex, is expected to add 14.5 MMcf/d and 11,500 b/d of oil to the new company's production results in 2000.

SEPCo will remain the operator and continues to maintain a majority working interest in each of the assets. Santa Fe Snyder's working interests will range from 15% to 49%. The fields are in water depths of 1,400 to 3,700 feet. The Macaroni, Angus and Brutus areas are still in development. The reported transaction value includes Santa Fe Snyder's share of the cost to bring the fields on production in 1999.

These assets are considered main pillars in Shell's Gulf of Mexico strategy (See Daily GPI, April 9, 1999). The $900 million Brutus project, 165 miles Southwest of New Orleans on Green Canyon block 158, is expected to produce 100,000 Boe/d and 150 MMcf/d when it comes on line in 2001. Like the Brutus project, the $200 million Angus facility, with a drilling depth of 2,000 feet, is in the Green Canyon area of the GOM. The $270 million Macaroni project is 225 miles southwest of New Orleans in the Garden Banks area of the Gulf.

"This transaction offers substantial upside exploration and continuing development potential in the Gulf of Mexico and will make a significant contribution to our production, reserves, cash flow and earnings per share," said Santa Fe Snyder CEO James Payne.

The company expects to finance the SEPCo transaction with a combination of equity and a forward sale of crude oil production. Goldman, Sachs & Co. and Credit Suisse First Boston Corp. will manage the equity offering.

The additions come on the heels of other bullish production news for the merged company. Natural gas production increased 53% to 281 MMcf/d during the second quarter of 1999 from 183 MMcf/d in the second quarter of 1998, fueled principally from Snyder Oil's predominate domestic gas production. Domestic production in the second quarter was 64% natural gas and 36% oil.

"With the further cost savings expected in the second half of the year and the recent improvement in commodity prices, we have positioned the company to take advantage of the changes now occurring within the industry," Payne said. "We exited June producing 48,000 barrels of oil and 320 MMcf/d, both above our plan levels."

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