EPL Oil & Gas, Inc. said Monday it will pay $550 million to a unit of Hilcorp Energy Co. for a package of shallow water Gulf of Mexico (GOM) shelf oil and natural gas interests.

The Hilcorp Energy GOM Holdings LLC properties in the Central GOM currently produce 10,000 boe/d, equally weighted to natural gas and oil. Estimated proved reserves on July 1 totaled 36.3 million boe.

The transaction would nearly double EPL's proven reserves to about 74 million boe and would drive the company's output to "above 20,000 boe/d," said CEO Gary Hanna. Gross earnings from the acquisition in 2013 were estimated at $450-500 million. The purchase comes three years after the New Orleans-based producer began to rebuild after filing for Chapter 11 bankruptcy protection because of a credit squeeze (see Daily GPI, May 4, 2009).

"This is the fourth acquisition we have made since 2011, and it is the most transformational," said Hanna. The acquisition "provides scale and diversification while continuing to focus the value of our company in the Central Gulf, which is the most prolific, oil-bearing region of the GOM."

The Central GOM shelf properties, which are near existing EPL exploration areas, include three fields that Hilcorp acquired from Chevron Corp. in Ship Shoal Block 208, South Pass 78 and South Marsh Island 239.

The three fields account for 64% of the current proved reserves and 82% of the total proved acquisition, which puts the total value at about $626 million using strip prices as of Aug. 31, EPL stated. EPL also would assume about $120 million in debt.

"The high operating control of 95% will permit us timely access to the development opportunities that exist on these properties," said Hanna. "There are already over 90 low-risk, oil-rich shallow behind pipe and drilling opportunities, as well as numerous optimization projects that our operational teams will vigorously pursue."

EPL plans to add to its crude oil and natural gas hedge positions to provide downside protection with the purchase. The company is planning to hedge 80% of the forecasted proved producing oil and natural gas production of the assets being acquired for years 2013 through 2015, with 2013 hedges scheduled to represent about 80% of forecasted proved production. About half of EPL's existing oil production is hedged for 2013.

EPL has obtained committed financing from Bank of Montreal to complete the transaction, including an increase in its senior secured credit facility to $750 million from $250 million. The purchase is expected to close by the end of October.

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