Peoples Energy Production, the oil and gas production subsidiary of Peoples Energy, Chicago, (NYSE: PGL) has acquired oil and gas properties in East Texas, North Louisiana and Mississippi, from a private entity for approximately $139 million. The company also announced that it has received proposals and is in negotiations to sell its power generation assets and exit that business. "The acquisition of oil and gas properties announced today is consistent with our strategy of acquiring proven reserves with upside potential," says Thomas M. Patrick, chairman, president and chief executive of Peoples Energy. "While adding to our existing production base, it will also provide an extensive inventory of low risk drilling opportunities for years to come. Meanwhile, the anticipated sale of our power assets now positions Peoples Energy to focus on three primary lines of business - gas distribution, oil and gas production, and energy marketing - while helping to fund growth initiatives in these businesses and maintain a strong balance sheet." The acquired properties consist of approximately 60,000 gross acres in 33 fields in the Cotton Valley/Travis Peak gas trend and will initially add production of approximately 7.5 million cubic feet of gas equivalent per day and proved reserves of approximately 59 billion cubic feet of gas equivalent of proven reserves (47% developed, 95% gas). The company's first quarter 2006 production averaged 64 million cubic feet of gas equivalent per day, while its year-end 2005 proved reserves totaled 181.6 billion cubic feet of gas equivalent. This acquisition will increase the company's reserve-to-production ratio from 7.4 to approximately 9 years. Peoples has identified approximately 190 proven and probable drilling locations and estimates that an additional 50 billion cubic feet of gas equivalent of identified low-risk, upside reserve potential exists within the acquired acreage. This transaction represents the first significant acquisition by Peoples Energy Production since December 2003. It will be financed with commercial paper borrowing until receipt of the proceeds from the power asset sales.
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