Constellation Energy Partners LLC (CEP) expanded its coalbed methane (CBM) and gas shale holdings in the Cherokee Basin of Oklahoma with an agreement to buy AMVEST Osage Inc. from the Osage Indian Nation for $240 million. The sale is expected to close by the end of the month.
The properties’ estimated proved reserves are 93 Bcfe, current net production is 16 MMcfe/d, and the assets have an estimated reserve life of 16 years. According to CEP, there are 370 producing wells with generally a 100% working interest, and more than 1,000 additional drilling and recompletion opportunities.
“These acquired properties combined with our previous acquisition in the Cherokee Basin expand our ownership and further establish us as one of the leading producers in the basin,” said CEP CEO Felix Dawson. “The acquisition also provides potential opportunities for operational synergies and better positions us for further acquisition growth. Our Cherokee Basin properties are an excellent fit with both CEP and Constellation Energy’s existing asset portfolios.”
Baltimore-based Constellation Energy formed the exploration and production company in 2006, and it is the majority owner (see Daily GPI, Aug. 14, 2006). Most of CEP’s gas holdings are in Alabama’s Black Warrior Basin, however, in April, it completed a deal with EnergyQuest Resources LP to acquire CBM properties and more than 500 miles of pipeline gathering systems in the Cherokee Basin for $115 million (see Daily GPI, April 24).
The AMVEST Osage acquisition is expected to be immediately accretive to CEP’s distributed cash flow per unit. Net production from the properties in the first year is estimated at 6.5-7 Bcfe, and in the second year, it is 8.0-9.0 Bcfe. CEP expects to drill about 65 wells net and 80 recompletions in the first year of production.
AMVEST will fund $8.5 million of the operational expenses in the first year; about $6 million are estimated to be maintenance capital expenses. CEP said it plans to hedge the production through 2010.
To pay for about $210 million of the purchase price, CEP agreed to privately place about 2.7 million common units and 3.4 million newly created Class F units with GPS Partners LLC and Lehman Brothers MLP Opportunity Fund LP. The remainder of the purchase will be paid with existing credit.
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