Approach Resources acquires additional agreage in the Permian Basin, doubles 2011 budget, planning to drill 46 wells

Source: Approach Resources

Approach Resources Inc. (NASDAQ: AREX) has acquired the remaining 38% working interest in its Cinco Terry operating area in the Permian Basin, Crockett County, Texas, from two non-operating partners. 

As a result of the Working Interest Acquisition, Approach’s total working and net revenue interests in Cinco Terry are now approximately 100% and 76%, respectively. The purchase price was $76 million, subject to usual and customary post-closing adjustments, with an effective date of December 1, 2010. 

The 19,800-net-acre acquisition includes 9.0 MMBoe estimated proved reserves (61% oil and NGLs and 61% proved developed), 4.7 MMBoe estimated unproved reserves, and 1.4 MBoe/d current production. 

“With the acquisition of the remaining working interest in Cinco Terry, we have expanded Project Pangea to approximately 133,000 net, primarily contiguous acres,” said J. Ross Craft, president and CEO of Approach Resources. “In addition, we have increased our working interest to approximately 100% across this multi-pay, liquids-rich acreage position.” 

Estimates of proved and unproved reserves for the acreage exclude reserve potential for the Company’s shallower Wolfcamp Shale and Clearfork (Wolffork) zones, and are based on the Company’s internal estimates. 

The Company’s total acreage position in the Permian Basin now covers approximately 133,000 net acres prospective for one or more of the Company’s deeper, original targets, Canyon Sands, Strawn and Ellenburger zones, as well as for the shallower Wolffork zones. 

Approach More Than Doubles 2011 Capital Budget 

Due to the Working Interest Acquisition and recent leasing activity, the Company increased its 2011 capital budget to $220 million from $100 million. Approximately $130 million of the 2011 capital budget will be allocated to drilling and recompletion projects in the Permian Basin and approximately $90 million will be allocated to the Working Interest Acquisition and lease extensions, renewals and lease acquisitions in the Permian Basin. 

“During 2011, our focus will be on our Wolffork oil shale resource play, which we believe is present throughout our acreage,” Craft said. “We are encouraged by the results of our recent vertical pilot program targeting the Wolffork and are in the process of completing our first horizontal Wolfcamp well. Acquiring the remaining interests in Cinco Terry provides us more leverage to the reserve potential of the Wolffork oil shale resource play, which we believe enhances our ability to deliver long-term stockholder value.” 

The 2011 drilling program includes one rig to drill 11 horizontal wells targeting the Wolfcamp Shale, one rig to drill 19 vertical wells targeting the Wolffork and Canyon Sands, one rig to drill 26 vertical wells targeting the Canyon Sands (which we expect to recomplete in the Wolffork in 2012), and one workover rig to recomplete 10 wells in the Wolffork. As a result of the Working Interest Acquisition, our working interest in these wells will be approximately 100%. 

The Working Interest Acquisition was funded with borrowings under our revolving credit facility and cash on hand. The Company’s borrowing base under the credit facility is $150 million. After the Working Interest Acquisition, outstanding borrowings under our credit facility were $67 million.

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