Houston Exploration Co. boosted its proved reserves to 742 Bcfe after announcing last week that it would acquire the entire shallow-water Gulf of Mexico asset base of Transworld Exploration and Production Inc., which is 75% natural gas, for $155 million.

The Transworld properties have proven reserves of 92 Bcfe, and current production from 11 fields is running approximately 35 MMcfe/d net. The acquired assets include 86,237 gross acres from 21 blocks. Houston Exploration will operate 97% of the proved reserves and will have an average working interest of 65%.

Houston Exploration, which is 56% owned by Keyspan Corp., plans to fund the transaction from its bank revolver and cash on hand at the time of closing. After the acquisition, the independent expects to have a debt-to-capitalization ratio of 29%. The effective date of the sale is July 1, and the closing is set for Oct. 15.

Houston Exploration Chairman Robert B. Catell said the transaction would enhance the company’s value “on many levels.” Along with being accretive to earnings and cash flow, “it adds high quality reserves to our drilling inventory.” CEO William G. Hargett added that properties would compliment existing production and “give us a strong platform from which to launch our 2004 Gulf of Mexico drilling program.” Current plans call for allocating $40-$50 million of the 2004 capital budget to the Transworld fields.

For the acquisition, Houston Exploration has hedged 40 MMBtu/d during 2004 at $4.96/MMBtu. The hedging is in addition to its already announced 200 MMBtu/d of hedges for next year.

Standard & Poor’s analyst Scott Beicke said that even though the price was “relatively high, Houston Exploration “will continue to benefit from a moderate capital structure that will have total debt per barrel of oil equivalent of roughly $2.35, assuming the company borrows $115 million under its credit facility.”

Beicke added that the company’s “aggressive hedging of the acquired properties reduces commodity price risk associated with the volatile natural gas segment. In addition, the acquisition will lengthen Houston Exploration’s proved reserve-to-production ratio, a figure that fell as low as 4.4 at year-end 2002 due to production growth consistently outpacing reserve growth. ”

Transworld, which is headquartered in Houston and registered in Bermuda, has concentrated most of its recent exploration in New Zealand through subsidiary New Zealand Overseas Petroleum Ltd.

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