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El Paso Buys Producing Assets in South TX for $255M

El Paso Corp.'s exploration and production subsidiary on Friday agreed to pay $255 million to acquire Laredo Energy III LP, which operates and is majority owner of some producing properties and undeveloped acreage in Zapata County, TX. The assets have current net production of 18 MMcfe/d, with estimated proved reserves of 84 Bcfe. About 73% of the proved reserves are undeveloped.

According to El Paso, the properties are 100% operated with an average working interest of 85%. The 27,000 gross (23,000 net) acres are close to El Paso's existing operations in the Bob West field in Zapata County. They will be assimilated into El Paso's Texas Gulf Coast operations. El Paso expects to close the acquisition in January, subject to regulatory requirements.

Privately held Laredo Energy, which is headquartered in Houston, focuses on acquiring and developing natural gas reserves in South Texas. Since its formation in 2001, Laredo Energy has twice sold most of its assets to Chesapeake Energy Corp. In Oct. 2003, Laredo Energy and its working interest partners sold a portion of their producing and undeveloped properties to Chesapeake for $200 million. Production at the time of the sale was approximately 30 MMcfe/d.

In March 2005, Laredo and its partners sold another portion of their South Texas properties to Chesapeake for $227.5 million (see Daily GPI, April 13, 2005). The assets consisted of approximately 41,000 gross (28,000 net) acres, which included 248.6 Bcfe of proved and probable reserves (estimated by Laredo). Gross daily operated production at the time of the sale was 40 MMcfe/d (20 MMcfe/d net).

Laredo was formed in October 2001 by a partnership consisting of EnCap Investments LLC, Jim R. Smith, R. Graham Whaling, Glenn D. Hart, and members of the senior management of Michael Petroleum Corp. EnCap was the largest shareholder of independently held Michael Petroleum, which was sold to Calpine Natural Gas in August 2001.

At the time of its sale, Michael Petroleum had part or full interest in more than 115,000 acres and more than 400 wells in Webb and Zapata counties, plus proven natural gas reserves of 218 Bcfe. Michael Petroleum specialized in the acquisition and development of natural gas properties in the Lobo Wilcox Trend of South Texas. It also was the third largest gas producer and the sixth largest taxpayer in Webb County.

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