MarkWest, Magnum Gain Gas Reserves in Seperate Transactions
As mergers and acquisitions attempt to live up to the pace set during 2000, Denver-based MarkWest Hydrocarbon Inc. reported it has more than doubled natural gas reserves with the $51 million acquisitions of Leland Energy Canada Ltd. and Watford Energy Ltd. -- two privately owned exploration and production companies based in Calgary. The companies' current management, which directs both Leland's and Watford's operations, will remain intact, MarkWest said.
The two acquired businesses will add 15 MMcf/d and 190 b/d of oil to MarkWest's current net production of 6 MMcf/d. According to a recent reserve report, Leland and Watford will add net proved reserves of 26.4 Bcfe to MarkWest's current portfolio of 63 Bcfe.
The acquisition also adds more than 300 drillable locations on 106,000 acres in central and southern Alberta. The existing wells have been drilled approximately 3,500 feet deep and are expected to carry a reserve life of five to seven years. MarkWest said its capital expenditure budget is expected to exceed $40 million over the next 24 months.
The company said it expects the acquisition to be accretive to both earnings and EBITDA in 2002 and beyond. "Unused capacity under our increased borrowing arrangement will be approximately $25 million to $30 million," said John Fox, CEO of MarkWest. "Absent further acquisitions, we expect cash flow to fully fund ongoing capital expenditures.
"This is a major new core area for MarkWest in a prolific gas-producing basin. Not only will it more than triple our equity gas production, but the future development potential over the next four to five years is outstanding," added Fox. "We are very impressed with our Canadian management team and are very pleased they will remain with the company. Finally, this not only provides a fee-based midstream opportunity, but it also further reduces the more volatile Appalachian liquids margin business to less than 25% of our cash operating income."
Magnum Hunter Resources Inc. also got a little larger last week as it reported it has entered into a purchase and sale agreement with Denver-based Mallon Resources Corp. for the acquisition of Mallon's Delaware Basin oil and natural gas reserves and related assets located in Eddy and Lee counties of southeast New Mexico. As of Dec. 31, 2000 these properties had proved reserves of 41.8 Bcfe. The company said the total purchase price is nearly $32 million.
Included in the transaction is Mallon's interest in 23 fields consisting of 141 producing wells and 13,742 net mineral acres. After the transaction closes, which is expected to occur on or before Sept. 15, it is anticipated that Magnum Hunter's subsidiary, Gruy Petroleum Management Co. will become the operator of 59 of the 141 producing wells. Magnum Hunter reported that approximately 73% of the proved reserves are natural gas with the remainder constituting oil.
"This acquisition of properties has relatively low development risk and attractive economics," said Gary C. Evans, CEO of Magnum Hunter. "The purchase of these producing oil and gas properties and related assets from Mallon complement our very active and successful exploration and development drilling programs that are ongoing in the Morrow and Atoka formations of southeastern New Mexico. Magnum Hunter presently has several rigs actively drilling in this area targeting these formations, with working interests of 50% and 100% in the two wells currently drilling. Our activities in this region have provided our shareholders an outstanding rate of return on investment capital.
"Magnum Hunter has drilled 14 gross wells in this area, expending approximately $14 million of capital and discovered 33.5 Bcfe of proven reserves -- this equates to an all in $0.42 Mcfe finding and development cost," added Evans. "Magnum Hunter's net daily production in New Mexico alone is up over 30% over the last twelve months. As in prior acquisitions, we believe that there exists the potential to develop additional reserves and increase production on these properties with the mineral acreage position we will hold."
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