Eagle Energy Trust “Trust” is pleased to announce that its operating subsidiary, Eagle Energy Acquisitions LP “Eagle”, has entered into a binding agreement to acquire a 92.5% interest in producing petroleum properties in the Permian Basin, located near Midland, Texas the “Acquired Assets”, for a purchase price of US$113.4 million, subject to closing adjustments the “Acquisition”. The Acquired Assets consist of 3,175 gross (2,937 net) acres of land with total estimated proved plus probable reserves of approximately 10.2 million barrels of oil equivalent “boe” as at March 31, 2012. Working interest production from the Acquired Assets in March 2012 was approximately 600 boe per day “boe/d”, which Eagle expects to increase to approximately 1,000 boe/d by the end of 2012 through a planned drilling program. Oil and natural gas liquids represent approximately 88% of the total proved plus probable reserves, and natural gas represents the remaining12%.
“We are pleased to add a second, high quality, oil-focused field to the Eagle portfolio,” said Richard Clark, President and CEO. “This Acquisition further demonstrates Eagle’s ability to successfully transact in the United States, adding a second, high netback, cash flow producing asset, with a large amount of low risk drilling remaining. The Acquired Assets maintain Eagle’s focus on oil production and enhance the long-term sustainability of Eagle’s asset base. These long-life, high netback assets represent a solid, low risk entry-point for Eagle into one of the most prolific and well-established oil weighted basins in North America. We believe that the Permian Basin will form a new strong core area of future operations for Eagle. It is one of North America’s most productive oil-weighted basins and has demonstrated, on a recurring basis, the addition of new reserves horizons and enhanced exploitation of existing horizons in the multi-zone stacked pay resource.”
In conjunction with the Acquisition, the Trust is also pleased to announce that it has entered into an agreement with a syndicate of underwriters led by Scotiabank pursuant to which it will issue 7,730,000 units of the Trust “Trust Units” on a bought deal basis for gross proceeds of approximately Cdn$85,030,000 the “Offering”. The Acquisition will be funded from the net proceeds from the Offering and an advance under Eagle’s Credit Facility. Closing of the Acquisition and the Offering are expected to occur on or about May 18, 2012.
Highlights of the Acquisition
The Acquired Assets have a long reserve life and are expected to generate long term sustainable cash flow, which complements the strong near-term cash flow of Eagle’s existing assets in the Salt Flat field, which assets are also located in Texas. Eagle and the seller have secured a drilling rig and completion services for these assets. Eagle expects this will ensure that the capital program will be executed as planned. Eagle anticipates increasing production in these assets by drilling at least ten wells per year.
The Acquisition has the following attributes:
- 92.5% working interest in 3,175 gross (2,937 net) acres of lands.
- Working interest in 31 gross (28.4 net) producing wells and three gross (2.76 net) non-producing wells and one gross (0.92 net) salt water disposal well.
- The Acquired Assets will be 100% operated by Eagle following a short transition period from the current operator.
- Current working interest production of approximately 600 boe/d, which Eagle anticipates it will increase to approximately 1,000 boe/d by year end.
- For 2011, the field netback for the Acquired Assets was US$46.60 per boe.
- Estimated reserves of approximately 8.1 million boe proved and 10.2 million boe proved plus probable, as of March 31, 2012, based on an independent reserves evaluation report prepared by Netherland, Sewell and Associates Inc.
- The reserves are being acquired at US$14.00 per proved boe and US$11.09 per proved plus probable boe (before giving effect to future development costs).
- Oil and natural gas liquids represent approximately 88% of the total proved plus probable reserves with natural gas representing the remaining 12% (using a boe conversion ratio of six thousand cubic feet (“Mcf”) to one barrel (“bbl”)).
- Development inventory of approximately 90 locations – an eight year inventory at a planned pace of drilling ten to twelve wells per year.
- Long life reserves that typically have 70% of estimated recoverable hydrocarbons remaining after drilling cost payout.
- Reserve life index “RLI” of 46.7 years, calculated on the basis of estimated proved plus probable reserves divided by current working interest production.
- Eagle has agreed to purchase the seller’s remaining 7.5% working interest the “Remaining Interest”)in the properties within 12 months at fair market value. The terms of the Acquisition restrict the seller from, indirectly or directly, soliciting, negotiating or taking any other actions or steps in respect of a sale or possible sale of the Remaining Interest to any third party prior to April 30, 2013.