Midland, TX-based Costilla Energy Inc. and ONEOK Inc. formed astrategic alliance to capitalize on properties Costilla plans toacquire from Pioneer Natural Resources Co. as well as otherpotential transactions. Tulsa, OK-based ONEOK will participate inCostilla’s previously announced $335 million acquisition of oil andgas properties from Pioneer (assuming it is successful) through anequity investment in Costilla preferred stock.

ONEOK’s level of participation will be $100 million, $35 millionin properties and $65 million in equity. ONEOK will have the optionto participate with Costilla in potential future productiontransactions in the Midcontinent. Specific terms of the agreementwere not announced pending approval by the companies’ boards ofdirectors.

“ONEOK’s investment in Costilla forms the financial cornerstonefor our acquisition from Pioneer,” said Mike Grella, CostillaEnergy CEO. “Just as importantly, this transaction complements ourexploration expertise with ONEOK’s significant marketing anddistribution strengths.”

David Kyle, president of ONEOK, said, “This transaction reflectsONEOK’s strategy of growing its non-regulated operations by addingvalue through reserve acquisitions and equity ownership. It isconsistent with our geographic interests of moving westward intothe Texas Permian Basin where we have been active in gasmarketing.” The Pioneer transaction is scheduled to close on March31.

Costilla Energy is engaged in the exploration, acquisition anddevelopment of oil and gas properties, with operations primarily inthe Permian Basin of Texas and New Mexico, South and East Texas,and the Rocky Mountain regions.

In a move to cut debt and costs by reducing its property inventory,Dallas-based Pioneer last September agreed to sell certain oil and gasproperties to Costilla Energy Inc. for $410 million (see Daily GPI Sept. 9, 1998). The sale pricehas since been renegotiated to $335 million. The sale propertiesrepresent about 425 domestic fields, primarily in Texas. Productionfrom these fields in September was estimated at eight million barrelsof oil equivalent annually, of which about 57% was natural gas. Theproperties represent about 95% of Pioneer’s domestic fields but onlyabout 10% of year-end 1997 proved reserves. The sale will result inPioneer’s domestic operations now being focused on its coreproperties. The company will be concentrating on the Permian Basin,Gulf Coast, Midcontinent, Canada, and Argentina. About 80% of theproperties are in the United States, and the oil-gas mix is 50-50.

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