Denver-based St. Mary Land & Exploration Co. late Wednesday announced the largest acquisition in its history, a deal to acquire West Texas oil and gas assets from several undisclosed private parties for $250 million cash. The properties are in the Midland Basin and target the producing formations in the Spraberry interval. St. Mary attributes 78.1 Bcfe of proved net reserves to the assets, which are producing net 16 MMcfe/d. The transaction is scheduled to close by Dec. 15 and is subject to customary due diligence.
"This transaction will be the largest in our history," said St. Mary CEO Mark Hellerstein. "It is from the same play book that we have been successful with for many years: acquire high working interest properties through negotiated transactions that have exploitation potential in familiar basins where we can operate. This deal meets all of those criteria. With this acquisition, we will be adding high working interest, low risk properties to our portfolio and increasing our presence in the Permian Basin. It will also add a multi-year drilling program to our inventory of projects with potential for significant upside related to possible down spacing."
A third party has a contractual right to purchase up to an undivided 20% of the working interests acquired in the transaction. This right to acquire must be exercised concurrent with the closing. Assuming St. Mary retains 100% of the transaction, deal attributes are:
In conjunction with this transaction, St. Mary has hedged the majority of the anticipated oil production for the first five years at prices ranging between $65.15 and $68.04/bbl. St. Mary has hedged natural gas production with swaps over five years and natural gas liquids with swaps over the first two years.
St. Mary also reported third quarter earnings of $55.9 million, or 88 cents/diluted share. Third quarter 2005 earnings were $27.3 million or 42 cents/diluted share. Earnings for the third quarter 2006 period include a non-cash, after-tax gain of $0.5 million, or 1 cent/diluted share.
"In the third quarter, we had record quarterly net income, discretionary cash flow, and production," said Hellerstein. "We are pleased that we were able to accomplish these results both in absolute terms as well as on a per share basis."
Daily oil and gas production during third quarter 2006 averaged 252 MMcfe, an increase from 251 MMcfe in the comparable 2005 period. Since December 31, 2004, the company has increase production in six of the last seven quarters, including the impacts of hurricanes Katrina and Rita in 2005. Average prices realized, inclusive of hedging activities, during the quarter were $7.14/Mcf and $61.28/bbl, 9% lower and 10% higher, respectively, than the realized prices in the third quarter of 2005. Average prices excluding hedging activities were $6.41/Mcf and $65.02/bbl during the quarter, which are 20% lower and 9% higher, respectively, than the same quarter last year.
"We also had several positive operational developments in the third quarter," said COO Tony Best. "At Centrahoma, we saw improved results in the Woodford shale as we continue to work our way up the learning curve. In the ArkLaTex, new stimulation techniques in the Hosston and upper Cotton Valley formations at the Elm Grove field should add substantial value to this field. The exploration program using direct hydrocarbon indicator technology has resulted in five discoveries out of six wells in the Gulf Coast this year, with our most recent success being a discovery at Vermilion 101. In the Rockies region our Hanging Woman Basin coalbed natural gas project produced 12 MMcfe/d gross as of the end of September."
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