Questar Buys Shenandoah for $406M, Boosts Reserves by 59%

Questar Corp. subsidiary Questar Market Resources is buying Uintah Basin producer Shenandoah Energy (SEI) for $406 million in cash and debt. The deal boosts Questar's proved gas reserves by 59% (415 Bcfe) to 1.1 Tcfe.

The Questar subsidiary received board approval to buy 100% of the stock of SEI, a privately held Denver-based exploration, production, gathering and drilling company. SEI's board also approved the transaction, which is expected to close by Aug. 1. SEI's principal operations are in the Uintah Basin of eastern Utah. The deal, which breaks down to a cost to Questar of about $0.52/Mcfe, includes 198 Bcfe of high quality probable reserves, 331 Bcfe of possible reserves, 100 MMcf/d of processing capacity, 90 miles of gathering, 114,000 acres of undeveloped leasehold acreage and four drilling rigs capable of developing the leasehold.

"The SEI acquisition--the largest in Questar history--strengthens our position in the key Rocky Mountain producing region. This acquisition continues our strategy of expanding unregulated activities and adding low-cost reserves with substantial upside potential," said Questar CEO R.D. Cash. He said the SEI properties are in a core Questar operating area that includes extensive pipeline and gathering systems. "In addition to the value of the reserves and hard assets, this acquisition will create numerous growth opportunities for our other businesses," he said.

"In addition to increasing our proved reserves, we are acquiring over 500 Bcfe of high-quality probable and possible reserves. This represents significant long-term growth potential," he added.

Gary L. Nordloh, Questar Market Resources CEO, said the deal will expand production by 63 MMcfe/d. He said the acquisition cost--based on proved reserves alone--would be $0.98/Mcfe. However, the actual finding cost for proved reserves would be $0.52/Mcfe after assigning value to all acquired assets. He said the transaction will immediately enhance cash flow, reserves and production and is expected to be accretive to earnings in 2002. The impact on 2001 earnings, with 100% debt financing, could be neutral or nominally accretive as reserves are developed. He noted that a six-rig drilling program is currently under way, and the number of wells planned for 2001 may be accelerated.

SEI will remain a separate division within Questar Market Resources for the foreseeable future. Petrie Parkman and Co. acted as financial advisor and assisted SEI in the negotiations.

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