Two recent deals for South Texas gas assets have brought purchase prices of around $1.50 per thousand cubic feet of proved reserves. Westport Resources Corp., Denver, (NYSE: WRC) has a deal under way with privately held United Resources for 211 billion cu. ft. of gas equivalent of proved reserves, 97% gas and 60% proved developed, for approximately $350 million. Production is some 78 million cu. ft. equivalent per day. Westport expects to operate approximately 86% of net production. The average lease operating cost is approximately 50 cents per thousand cu. ft. equivalent. The reserve-to-production ratio is eight years. The assets include another 100 billion cu. ft. equivalent of probable and possible potential and 48,000 gross (25,000 net) undeveloped acres. Westport assigned $38 million of the purchase price to unproved properties, undeveloped acreage, seismic data, exploration projects and other assets. The purchase price assigned to proved reserves is $1.48 per thousand cu. ft. equivalent, according to Westport. Prospects target the Wilcox, Lobo and Vicksburg trends. The purchase will be funded with cash and debt and may close in December. A week earlier, Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) bought 108 billion cu. ft. equivalent of proved reserves and 88 billion of probable or possible in South Texas assets from privately held Laredo Energy LP, Houston, and partners for $200 million. Laredo was formed in 2001 by former Michael Petroleum executives primarily with EnCap Investments private-equity funding. The assets, which are 100% gas, are in the Zapata County portion of the Lobo Trend. Production is approximately 30 million cu. ft. equivalent per day. Of the price, Chesapeake assigned $48 million to unevaluated leasehold for probable and possible reserves and exploratory acreage. Excluding that, Chesapeake estimates the purchase price at $1.41 per thousand cu. ft. equivalent of proved reserves. Including future leasehold and drilling costs to fully develop the proved, probable and possible reserves, Chesapeake estimates the all-in acquisition cost for the 196 billion cu. ft. equivalent at $1.51 per thousand cu. ft. equivalent. The proved reserves have a reserves-to-production index of 10 years and are 32% proved developed. Initial lease operating expenses on the acquired properties are expected to average 9 cents per thousand cu. ft. equivalent, compared with 52 cents for Chesapeake during the first three quarters of 2003. Chesapeake has hedged 100% of the projected Laredo production at more than $5 per thousand cu. ft. through year-end 2004. The purchase will be funded with cash on hand and debt. -A&D Watch

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