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Encore does it again with $82M deal Small E&P company antes up $82M for Texas natural gas properties Ray Tyson Petroleum News Houston Correspondent
Exploration and production independent Encore Acquisition, which just three weeks ago closed on its $123 million acquisition of Cortez Oil & Gas, is shelling out another $82 million for natural gas properties in the Overton field in Smith County, Texas.
“This acquisition has more upside than most of Encore’s acquisitions,” Encore President Jonny Brumley said April 26, adding that Encore is acquiring the Overton properties from a group of unidentified private sellers.
The Overton field assets are in the same core area as Fort Worth, Texas-based Encore’s interests in Elm Grove field and have similar geology. Encore said it expects to double current daily production to 14 million cubic feet of natural gas equivalent within a year and add another 7 million cubic feet of equivalent per day within two years.
Moreover, Encore said it identified total reserve potential of about 111 billion cubic feet of equivalent with 46 billion cubic feet of equivalent in the proved category at the end of 2004. In terms of value, the company said it plans to allocate $63 million to the 46 billion cubic feet of proved reserves, $17 million to the 66 billion cubic feet of upside potential and $2 million to the gathering system.
The production is 94 percent natural gas and will be operated by Encore, the company said, adding that it expects to close the transaction in June. Encore said it plans to initially finance the acquisition with bank debt from its existing credit facility. More than 100 drilling locations identified Encore said it identified more than 100 drilling locations in the Travis Peak and Cotton Valley formations in the Overton field. The properties currently produce primarily from multiple tight sandstone reservoirs at depths ranging between 8,000 and 11,500 feet. Encore said it also identified additional upside in the shallower Pettit and Rodessa formations.
Development costs for the proved undeveloped reserves in the Overton are estimated to be $1.06 per thousand cubic feet of gas equivalent.
“The Overton field acquisition and the Cortez acquisition … should result in continued growth through the drill bit for years,” Brumley said.
The Cortez deal gave Encore total proved reserves of 15 million barrels of oil equivalent, 60 percent of which are proved developed and producing. The properties have an additional 7.8 million barrels of identified drilling and waterflood opportunities, Encore said. The Cortez properties currently produce about 8,400 mcf per day of natural gas and 1,550 barrels per day of oil.
During the past two years alone, Encore increased revenues 37 percent to $220.1 million and cash flow from operations 35 percent to $123.8 million, while boosting production 10 percent to 22,218 barrels of oil equivalent per day. The company reported year-end proved reserves of 141 million barrels of oil equivalent.
Organized in 1998 by father-son team Jon and Jonny Brumley, Encore operates primarily in the Cedar Creek Anticline of Montana and North Dakota, the Permian basin of West Texas and Southeastern New Mexico, the Arkoma and Anadarko basins of Oklahoma, the North Salt basin of Louisiana, the Barnett Shale near Fort Worth, Texas, and the Rocky Mountains.
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