Bought an additional 10% WI in Cinco Terry Field in W TX Permian Basin, gaining 470 BOE/d, 1.9 MMBOE proved.
Approach Resources Inc., Fort Worth, Texas, (Nasdaq: AREX) has acquired an additional 10% working interest in Cinco Terry Field in the Permian Basin from Magnum Hunter Resources Corp., Houston, (Amex: MHR) for $21.5 million.
The assets include 5,033 acres in Cinco Terry Field is in West Texas. Production is 470 barrels of oil equivalent per day. Proved reserves are 1.9 million barrels equivalent (60% oil and gas liquids, 61% proved developed) and unproved reserves were 1.2 million barrels equivalent.
Approach now has a total acreage position in the Permian Basin of approximately 98,000 net acres prospective for one or more of the deeper, original targets, Canyon Sands, Strawn and Ellenburger zones, as well as for the shallower Wolfcamp shale and Clearfork zones.
Approach will fund the acquisition using its existing revolving credit facility. The company's borrowing base under the credit facility is $150 million, with $51.1 million drawn at Sept. 30.
Approach president and chief executive J. Ross Craft says, "Through extensive geoscientific, petrophysical and engineering studies we have identified significant potential oil and gas in place in our Permian acreage attributable to the Wolffork formations. We believe that acquiring the additional interests in Cinco Terry increases our opportunities in this field, gives us more leverage to the reserve potential of the Wolffork shale oil resource play and enhances our ability to deliver long-term stockholder value."
Magnum Hunter chairman and CEO Gary C. Evans says, "We are pleased to announce the divestiture of this conventional natural gas property. As a legacy asset of our company, Cinco Terry simply no longer fits the company's business strategy of focusing on unconventional resource plays (either oil or liquids rich) and this property is non-operated. We made the decision to divest all of our conventional oil and gas properties approximately thirty days ago and this transaction represents our first sale to meet that objective."
Magnum Hunter will use the proceeds from the sale to reduce debt and fund a portion of its anticipated 2011 capex program.
The effective date was Oct. 1.
Jefferies & Co. Inc. estimates the deal value at $7,700 per flowing Mcfe and $1.50 per Mcfe proved. KeyBanc Capital Markets places the metrics at $11.32 per BOE proved, $45,745 per flowing BOE, and $4,272 per acre. "These metrics compare favorably to other oily transactions in the Permian Basin completed during 2010." Average metrics for eight selected transactions are $15.80 per BOE proved, $135,826 per flowing BOE, and $17,545 per acre.