Prize Energy, a privately-held Dallas-based producer, increasedits core area production and reserve base yesterday by announcing adefinitive merger agreement with Vista Energy Resources. Thetransaction will create a mid-sized independent oil and gas companynamed Prize Energy Corp. with assets valued in excess of $450million. The merger is expected to be completed in the fourthquarter of this year.

The combined company will be headquartered in the Dallas areawith operating offices in Midland and Victoria, TX, and ElmoreCity, OK. It will have total proved reserves of 286 Bcf and 95million Boe. Net average production for the combined company isexpected to reach 66.7 MMcf/d and 9,482 barrels of crude oil andliquids once the deal is complete. Lon Kile, President of PrizeEnergy, said that the deal increases Prize’s gas production 15%.

The company’s focused growth strategy will concentrate on theacquisition and exploitation of oil and gas properties in thePermian Basin, onshore Gulf Coast area of Texas and Louisiana, andthe Midcontinent area of Western Oklahoma and the Texas Panhandle.

Under the terms of the contract, Prize would become awholly-owned subsidiary of Vista in exchange for 58.2 millionshares of common stock and 27.7 million shares of a to be createdSeries A 6% convertible preferred stock. After the transaction iscompleted, Vista will be renamed Prize Energy, Kile said. Thetransaction, structured as a reorganization for tax purposes, willresult in Prize Energy stockholders owning 84% of the new company.The boards of directors for both companies have unanimouslyapproved the transaction, which is still subject to shareholderapproval from both companies as well as other customary closingconditions.

“This is a strategic merger for our company that gives us accessto a sizable reserve base that we know well,” said Philip B. Smith,Chairman of Prize. “We will be able to operate these propertiesvery efficiently given the proximity of many of the properties toour current production base.”

In 2000, the new Prize Energy anticipates its capitalexpenditures program to be $50 – $60 million, focused on convertingits inventory of development projects into added value throughhigher levels of reserves, production, and cash flow, the companysaid. It is expected that the 2000 capital expenditure program willbe funded through internally generated cash flow.

“We are an acquisition and exploitation company, so another moveis not out of the question,” Kile added, but he would not speculateon any future transactions.

The executive management team of Prize will serve as theexecutive management team of the combined company. Philip B. Smithwill be chairman and CEO and Kile will be COO.

Randy Hill, Chairman of Vista said, “This transaction creates amid-size independent oil and gas company for our stockholders whichhas a much larger, balanced, and diversified oil and gas reservebase. We expect that the institutional capital markets interest inthe company will increase, resulting in increased liquidity andother benefits.”

Vista is based in Midlands, TX and has 28 employees. Kile saidPrize has not determined the number of lay-offs that will resultfrom the transaction. For the six months ended June 30, revenuestotaled $8.5 million, up from $4.1 million from the same period in1998. Net income totaled $298,000 versus a loss of $340,000.

Prize was formed earlier this year. In its first acquisition,the company bought $245 million worth of oil and gas fields fromPioneer Natural Resources. The sale was composed of 400 domesticonshore fields in Texas and Oklahoma. Proven reserves are estimatedat 60 million Boe. A Pioneer spokesperson said 1998 gas productionfrom these fields averaged approximately 60 MMcf/d.

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