2010-11-04-2010-10-25

Plans to buy 30,000-acre East Kenedy project, which targets the Edwards Lime and is prospective for Eagle Ford shale.

Jeffrey Price, president of Wycombe, Pa.-based First Keystone Energy Group, which manages First Keystone Energy Funds, reports that one of the fund's leading projects, East Kenedy, is under contract to be sold to Norwegian oil firm Statoil ASA (NYSE: STO) and Calgary-based E&P company Talisman Energy Inc. (NYSE; Toronto: TLM) for $30 million. The deal is part of a larger, previously announced joint-venture acquisition of certain liquids-rich Eagle Ford shale properties in South Texas from Denver-based, privately held Enduring Resources LLC for approximately US$1.325 billion.

Enduring Resources is operator of the East Kenedy project, which is about 90 miles south of San Antonio, Texas. First Keystone was brought into East Kenedy at its infancy in 2006 by Abilene-based W. Dale Morris Inc., a co-founder. The prospect has since expanded to encompass approximately 30,000 acres in Bee, Karnes, and Dewitt counties. The holdings of First Keystone-related entities amount to approximately 1,700 net mineral acres. A total of 23 wells, in which First Keystone has a position, have been drilled down 13,000 feet to the Edwards Lime zone, resulting in average reserves for gas per well of approximately 4 billion cubic feet. Virtually all of the acreage is prospective for Eagle Ford shale.

First Keystone's holdings are valued at $18,000 per net mineral acre.

The share of the proceeds of the transaction that will be allocated to First Keystone Energy Fund–I LP is equal to $12.2 million, which will result in a payout to the limited partners in the amount of $17,000 per unit (preliminary estimate). When combined with prior cash distributions to these units, the cumulative payout is equal to 2.25 times that of each partner's total invested capital. Similarly, First Keystone Energy Fund–II is receiving $16.6 million in consideration, which brings the deal value up to a little more than 2 times the cash-on-cash of original investment. The balance of the $30 million in proceeds will be allocated for affiliates of First Keystone.

The deal is expected to close in December.

First Keystone establishes and manages investment partnerships that concentrate exclusively on owning upstream oil and gas E&P projects. The fund co-invests with several preferred partners which are primarily small independent oil and gas operators in West Texas.