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Phillips Acquires Coal-Bed Assets

Phillips Acquires Coal-Bed Assets

Phillips Petroleum announced last week that it has done some coal-bed methane shopping recently. Phillips acquired River Gas Corp., a privately held coal-bed methane producer, as well as coal-bed methane positions of three other companies located in the Powder River Basin of Wyoming. The cost of the four transactions was $123 million in cash.

As a result of the transactions, Phillips expects to initially add about 215 Bcf of net reserves, 100 of which are proved/developed, and the remaining 115 Bcf are proved/undeveloped. Phillips estimates the reserves are being acquired at about 57 cents per Mcf. Included in the deal, the company acquired significant acreage in major coal-bed methane basins.

The River Gas Corp. acquisition includes 166,000 gross acres in the Drunkards Wash field in Utah and the Whitson field in the Black Warrior Basin of Alabama. Phillips will own a 25% interest in each field, which equates to a total combined production from both fields of 40 MMcf/d. Phillips will only realize 10 MMcf/d for the first three years due to overriding royalty interests. After three years, the company's net production from the assets will move to 50 MMcf/d. Phillips expects to drill 330 wells over the next six years.

The Powder River purchases will increase Phillips' gross acreage by 90,000 acres, with more than a 90% working interest. This brings Phillips position in the Powder River Basin to 430,000 gross acres. The assets bring the company's total net U.S. coal-bed methane production to 235 MMcf/d, which is expected to increase by almost 50% in the next three years.

Alex Steis

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