Energy giant El Paso Corp. said Tuesday that it is acquiring Denver-based Medicine Bow Energy Corp. for $814 million in cash through its wholly-owned subsidiary, El Paso Holding Co.

Medicine Bow is a privately held company with an estimated 356 Bcfe of proved reserves, mostly in the Rockies and East Texas. Of those reserves, El Paso said 68% were proved developed producing, and 65% were natural gas. It noted that Medicine Bow Energy has 300 wells currently in operation.

The transaction had an effective date of July 1 and is expected to close during the third quarter, according to the Houston-based energy company.

Calling it a “terrific acquisition,” Lisa Stewart, president of El Paso Production and Non-regulated Operations, said, “We expect that the annual cash flow from these properties will exceed capital expenditures by more than $100 million.” At the same time, “we will improve the commodity mix of our business by adding properties with a high percentage of oil reserves,” and acquire a “solid group” of exploration and production professionals.

Approximately 130 Bcfe of proved reserves and 27 MMcfe of production are owned directly by Medicine Bow Energy, which also has a 38.6% interest in Four Star Oil & Gas Co. Through that entity, Medicine Bow Energy owns approximately 226 Bcfe of proved reserves and about 68 MMcfe of daily production, net to its interest, El Paso said.

El Paso Holding plans to finance $500 million of the acquisition costs through a five-year credit facility that is secured by a portion of its reserve base and will pay the balance with existing cash on hand, the company said. Within 12 months of the closing of the transaction, El Paso said it intends to issue common equity in an amount up to the full purchase price and use the proceeds to pay off the $500 million facility.

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