The Houston Exploration Company and El Paso Production Company, a subsidiary of El Paso Corporation, announced that they have executed a letter of intent to conduct an exploration drilling joint venture in the Gulf of Mexico. Under the terms of the agreement, El Paso will contribute up to $50 million for land, seismic and drilling expenditures and pay 100 percent of the dry hole costs to earn 50 percent of Houston Exploration's working interest in up to six specified exploration wells to be drilled during the remainder of 2002 and early 2003.
The wells to be drilled by the joint venture are comprised of exploration prospects developed by Houston Exploration on its leases located in the Central and Western Gulf of Mexico and in Texas state waters. Houston Exploration will operate two of the wells while El Paso will be operator of the remaining four wells.
In addition to its commitment for the drilling of the six initial obligation wells, El Paso will also receive an option to extend the joint venture by payment of incremental fees to Houston Exploration for the drilling of additional exploration wells. These option wells consist of designated exploration prospects developed by Houston Exploration on leases also located in the Central and Western Gulf of Mexico.
In comments regarding the joint venture, William G. Hargett, President and CEO of Houston Exploration said, "We are pleased to have El Paso as a partner in the evaluation and drilling of some of the company's high potential offshore exploration prospects. This agreement helps us manage risk and reduce our capital outlay for new exploration while providing the company with immediate exposure to significant new reserves. Two wells are currently drilling, and two more will be spud in the fourth quarter of this year. We are also quite interested in the technology El Paso brings to the program as their well completion expertise, which optimizes production rate and reserves, is among the best in the industry."
Charles Adcock, Senior Vice President and General Manager Offshore Division
for Houston Exploration added
, "This joint venture enables the company to accelerate into 2002 the drilling of two prospects that were originally planned for next year. We believe that this is a very cost effective way to manage our offshore exploration program and test prospects that could add significant value to the company in the near term."
Rodney D. Erskine, President of El Paso Production, commented, "We are excited about participating in this joint venture with Houston Exploration, which has done an excellent job of identifying several prospects that have the potential upside of delivering the joint venture more than one trillion cubic feet of natural gas. El Paso will do additional evaluation on the option blocks that will include the reprocessing of 3D seismic data in order to better assess the risk of these properties. The joint venture provides an opportunity for El Paso to earn an interest in up to 17 additional blocks in the Gulf of Mexico."