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Magnum Hunter adds to swelling Permian position Picks up $40 million worth of oil and gas properties in West Texas basin Ray Tyson Petroleum News Houston Correspondent
Magnum Hunter again is spreading its wings over the U.S. Permian Basin, agreeing to buy $40 million worth of oil and gas properties in West Texas from a private seller to go along with $243 million in nearby southeastern New Mexico assets it purchased earlier this summer from EnCana subsidiary Tom Brown.
Among the fastest growing exploration and production independents in the United States, Magnum Hunter this time would gain a respectable 53 billion cubic feet of gas equivalent and rather sparse daily production of 3.4 million cubic feet of equivalent, consisting of 59 percent natural gas. But that’s just for starters.
The deal includes about 100 proved undeveloped locations in the Canyon, Clearfork, Spraberry and Wolfcamp formations, the company said, adding that its geologists and engineers also have identified additional upside potential on the properties using a new planned vapor recovery unit, as well as a proposed Clearfork formation waterflood.
Moreover, Magnum Hunter would have operational control over the entire 26,000 net mineral acres being acquired from the undisclosed seller. The transaction comes with about 171 producing wells that are currently 100 percent operated.
“All of the properties being acquired … are in close proximity to areas of existing company operations,” the company said Aug. 30. “This Permian Basin has been a core area of geographic focus for (us) for the last 15 years.” Properties predominately in West Texas The properties to be acquired are located predominately in Reagan and Irion counties of West Texas. Additional properties are situated in Glasscock, Mitchell and Gaines counties.
The deal is expected to close before Oct. 15 of this year with an effective date retroactive to Sept. 1, the company said.
Gary Evans, Magnum Hunter’s chief executive officer, said that considering the cost of properties in today’s high commodity price environment, “we believe this add-on property acquisition was extremely well negotiated” at a purchase price of 76 cents per thousand cubic feet of gas equivalent, or about half the going rate. Tom Brown deal boosted output 11% The earlier Tom Brown deal netted Magnum Hunter proved reserves of about 100 billion cubic feet of gas equivalent, plus an estimated 50 billion cubic feet of proved, probable and possible reserves from additional wells. That transaction alone represented an increase of about 11 percent of the company’s total net daily production.
With the addition of the properties to Magnum Hunter’s existing proved reserve base, the company’s total proved reserves would grow to about 1 trillion cubic feet of gas equivalent and daily production to 250 million cubic feet of equivalent. The Permian basin alone would represent about 44 percent of the company’s overall net daily production and roughly 37 percent of its net daily natural gas production.
The combination of recent farm-ins from major companies, together with the Tom Brown properties, made Magnum Hunter one of the largest producers and mineral acreage owners in southeastern New Mexico. Financed through borrowings Magnum Hunter said it intends to finance it latest deal through borrowings under its recently increased $480 million senior bank credit facility. Once the transaction closes, company debt would range between 52 and 54 percent of capitalization.
However, the company said its target is to reduce the debt ratio to 50 percent of capitalization by the end of the current fiscal year, in part from proceeds collected from the sale of “already identified non-strategic, non-core, higher lifting cost properties.” The company said its goal is to achieve a ratio of between 40 and 45 percent by year-end 2005.
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