Continuing on its property tear in the region, XTO Energy Inc. announced that it has entered into a definitive agreement with Denver-based Markwest Hydrocarbon Inc. to acquire coal bed methane and natural gas producing properties located in the San Juan Basin of New Mexico and Colorado for $60.5 million.

According to XTO Energy’s internal engineers, proved reserves on the properties are estimated to be 50 Bcfe, of which, 78% are proved developed. The Fort Worth-based independent figures that the acquisition will initially add about 9.5 MMcf/d of gas production to the company’s steadily growing production base.

The deal marks the company’s second move in the San Juan Basin in recent months. In April, XTO Energy entered into a definitive agreement with units of Williams to pay $400 million for some natural gas and coalbed methane producing properties located in the Raton Basin of Colorado, Hugoton Field of southwestern Kansas and the San Juan Basin of New Mexico and Colorado (see NGI, April 14). XTO estimates proved reserves to be 311 Bcfe, of which 77% are proved developed.

The Williams acquisition, which closed late last month, added about 60 MMcf/d of long-lived gas production to XTO Energy’s production base (see NGI, June 2).

“Over the past six months, XTO has been very effective in acquiring choice gas properties to supplement our strong internal growth,” stated Bob R. Simpson, XTO Energy CEO. “This deal highlights our continuing success in expanding XTO’s core areas with the right opportunities.”

The Markwest properties to be acquired are located in La Plata County of southwestern Colorado and San Juan County of northwest New Mexico. Upon completion of the acquisition, XTO Energy will increase its holdings in the San Juan Basin by 15,300 gross (7,663 net) acres and will add another 115 operated wells. Over 70% of current gas production is attributable to the highly prolific Fruitland Coal formation.

“Long-lived gas production with solid, low-risk upsides have built our company,” said Steffen E. Palko, XTO Energy president. “These assets fit perfectly into our operational expertise.”

The transaction comes as no surprise as MarkWest previously announced that it had engaged a third party to act as financial advisor to assist in soliciting acquisition proposals for certain oil and gas properties. The company noted that proceeds from the sale will be used to expand its Canadian drilling program, to repay debt outstanding under its existing bank revolving credit facility, and for general corporate purposes.

The companies said they expect the transaction to close on June 30 with an effective date of June 1. XTO Energy said the purchase will initially be funded through borrowings under the its existing bank credit facility and will be repaid through 2003 operating cash flow.

Commenting on the acquisition, Lehman Brothers analyst Jeffrey W. Robertson said it is raising its ’03/’04 production volume estimates for XTO Energy by 1-2%. Robertson said he continues “to believe there could be additional upside to our production numbers as the company deploys additional free cash flow towards other ‘add-on’ acquisitions in core areas.

“We have increased our 2003 and 2004 natural gas production estimates by 5 MMcf/d and 10 MMcf/d to 631 MMcf/d and 723 MMcf/d,” Robertson added. “Our new natural gas production estimates imply 23% growth in 2003 and a 15% incline in 2004. Our full-year 2003/2004 production estimates become 738 MMcfe/d and 829 MMcfe/d.”

He noted that the purchase price of $1.28/Mcfe is in line with the price paid for predominately CBM properties from Williams in April.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.