Houston-based Cabot Oil & Gas Corp., which has been boosting its natural gas exploration and development across East Texas and into northern Louisiana, agreed to pay an undisclosed private party $602.8 million to purchase some producing properties, leasehold acreage and natural gas gathering infrastructure in the Cotton Valley trend.
The 25,000 gross acres to be acquired in the Minden area of East Texas would add about 32 MMcf/d net to Cabot’s production, the company said. Proved reserves are estimated by Cabot to be around 176 Bcfe, but Cabot said it “expects to benefit from significant resource potential through 300-400 probable and possible” new locations. Infrastructure includes 33 miles of pipeline, 5,400 hp of compression and four water disposal wells and is valued at about $26 million. The independent would have a 97% average working interest in the leasehold.
“The timing of this acquisition fits well considering we will spud our first of several planned horizontal Bossier/Haynesville wells on Cabot’s existing Minden acreage in the next several weeks,” said CEO Dan O. Dinges.
Cabot has drilled 77 wells in the Minden area on its 12,700 acres with a 100% success rate since its initial discovery in 2006, Dinges noted.
“The acquired acreage lies in immediate proximity to our existing acreage, which enhances our ongoing development of the Pettet, Travis Peak and Cotton Valley formations. There is also significant incremental exposure to the emerging Bossier/Haynesville opportunities. The property is “essentially cash flow neutral at the current production rate with four rigs drilling. Anticipated production growth from future drilling activity will generate additional cash flow to allocate towards exploitation of the Bossier/Haynesville. Over 98% of Cabot’s combined total acreage of 37,700 in the greater Minden area is undeveloped below the Cotton Valley formation.”
To lock in margins and to ensure cash flow to execute the drilling program without diluting Cabot’s 2008 capital program, the company placed swaps covering estimated production for the rest of 2008 through 2010. The volumes swapped during this period represent revenues of more than $600 million from 47.5 Bcfe, or 27%, of the acquired proved reserves, the company said. Swaps for 2008, 2009 and 2010 were set at $13.15, $12.18 and $11.43/Mcf, respectively, net to the properties for natural gas and $125.35 average swap price for oil over the same period.
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