Magnum Hunter Resources Corporation (Magnum Hunter, or the Company) announced a new Joint Operating and Exploration Agreement (Joint Agreement) with privately-held Hunt Oil Company (Hunt Oil) based in Dallas, Texas. The Area of Mutual Interest (AMI) covers existing mineral lease acreage positions currently owned by both companies in Gonzales and Lavaca Counties, Texas.
Terms of the new Joint Agreement include Magnum Hunter and Hunt Oil working together within the AMI on an equal and joint basis throughout these two South Texas counties for a period up through December 2014. Both companies have cross-assigned existing ownership interests in their respective lease acreage positions for both Lavaca and Gonzales Counties. Additionally, Magnum Hunter and Hunt Oil will share all future leasing, exploration, drilling, completion and development costs and other expenses in the AMI on a "fifty-fifty" basis. Each company has also agreed to allow the other company to be the designated operator for all wells on lease acres specifically contributed by each company to the AMI under the Joint Agreement. It is the intent of both companies that all new wells to be drilled under the Joint Agreement within the AMI will be horizontal Eagle Ford Shale wells.
The Joint Agreement covers 28,187 (gross acres) and 26,822 (net acres) with 50% ownership interest owned by each company being 14,094 (gross acres) and 13,411 (net acres).
The Joint Agreement potentially allows for two wells to be drilled on the joint acreage position within the AMI during 2010. One of the first two exploratory wells to be drilled will be the Magnum Hunter operated "Gonzo Hunter #1-H" well located in Gonzales County. The "Gonzo Hunter #1-H" well is currently anticipated to be spudded around the first of June 2010. The Joint Agreement allows for the option of a second well to be drilled on the Hunt Oil acreage in the AMI during 2010 with Hunt Oil as operator. It is presently anticipated that Magnum Hunter and Hunt Oil will own a 50.0% working interest in each of the contemplated wells.
Magnum Hunter has allocated approximately $30.7 million out of its fiscal year 2010 total capital expenditure budget of $55.0 million (55.7% of the total capex budget) for the Eagle Ford Shale oil-window of South Texas. Approximately $10.6 million out of the $30.7 million capex budget for 2010 will be for purposes of horizontally drilling three unbooked Eagle Ford Shale exploratory locations. The balance of the Company's 2010 capex budget is dedicated to the Eagle Ford Shale play for additional leasing related activities that are currently ongoing.
Mr. H.C. "Kip" Ferguson, Executive Vice President of Exploration of Magnum Hunter, commented, "We are extremely pleased to announce the execution of this Joint Agreement with Hunt Oil Company today and the establishment of an AMI for Gonzales and Lavaca Counties, Texas. Very few companies in our industry enjoy such a tremendous reputation for success, highly regarded ethical standards, and a 76 year commitment to operational and technical excellence as does Hunt Oil. The Joint Agreement and AMI announced today will allow Magnum Hunter to spread our exploratory risk over a larger number of prospects in an area of the Eagle Ford Shale play we believe to be especially prospective based on recent well data released by EOG Resources, Inc. (NYSE: EOG). With spudding of the "Gonzo Hunter #1-H" exploratory well scheduled for early June, we are hopeful that Magnum Hunter's early and continuing efforts in this emerging unconventional play will add significant incremental shareholder value for fiscal year 2010 and beyond."