NERCO ANNOUNCES PROPOSED SALE OF GAS SUPPLY CONTRACT
AND RECENT DEVELOPMENT ACTIVITIES
PORTLAND, Ore., Nov. 18 /PRNewswire/ -- NERCO Inc. (NYSE, Toronto: NER) today announced that it has agreed to sell a long-term natural gas supply contract. The company expects that the proceeds from the sale of its 25-year natural gas supply contract will include approximately $75 million in cash and notes. If the transaction is completed, the after-tax earnings effect to NERCO is expected to be approximately $40 million in 1991. The cash proceeds from the transaction will be used to pay down debt. The agreement is expected to be executed by year-end and is contingent upon completion of private placement financing arrangements by the purchaser. The anticipated reduction in NERCO's 1992 net income from lost contract revenue, after related reduction of interest expense, is expected to be approximately $2 million.
Under the proposed transaction, NERCO will sell its existing contract with Louisiana Power & Light Co. (LP&L) to Evangeline Gas Pipeline Co. L.P., a Texas limited partnership in which minority interests will be owned by affiliates of Acadian Gas Corp. and NERCO Oil & Gas Inc. The existing contract requires NERCO to provide up to 20 billion cubic feet (BCF) of natural gas annually through mid-1993, and up to approximately 48 BCF of gas annually for the remaining 20 years of the contract. In explaining the purpose of the transaction, NERCO President Lawrence E. Heiner said, "By selling the contract we can retire debt, avoid the delivery risks under the existing contract and allow LP&L greater flexibility in obtaining gas supplies."
In addition, NERCO agreed to enter into a 20-year gas supply agreement to provide, commencing Jan. 1, 1993, an average of 18.5 BCF of natural gas per year to an affiliate of Acadian Gas Corp. New Platform Installed
The company also announced that its NERCO Oil & Gas Inc. subsidiary has completed the installation and start-up of a four-pile platform located in the Ship Shoal 201/202 field, off the coast of Louisiana. The new facility, adjacent to an existing platform, represents the third new offshore platform brought on production by the company in 1991.
The Ship Shoal 201/202 field, located in 108 feet water depth, produces from multiple pays in the Pleistocene Horizon at approximately 10,000 feet subsea depth. NERCO has a 74 percent working interest in the field.
The Ship Shoal 201/202 field was producing approximately 2,400 barrels of oil per day (BOPD) from the 'A' Platform. With the installation of the 'B' Platform, recent development wells and recompletions, the field is now producing 4,300 BOPD. Sidetrack Well Drilled
Separately, the company reported the successful sidetrack of a well in Eugene Island 43 field, 21 miles off the coast of Louisiana. The Eugene Island 43 #A-1 Side Track was drilled to a total depth of 11,615 feet and encountered 32 feet of net measured pay in Miocene-age formation. Production from the well commenced on Oct. 1, 1991, at an initial rate of 10.6 million cubic feet per day (MMCFD) and 900 BOPD. NERCO has a 66.67 percent working interest in the well.
Through September 1991, NERCO Oil & Gas Inc. had participated in 12 gross (six net) exploratory wells, of which six (3.3 net) have been successful. In addition, the company had participated in 16 gross (8.4 net) development wells, of which 14 (7.4 net) have been successful.
NERCO Oil & Gas Inc. is currently producing approximately 330 MMCFD, 5,300 BOPD and 2,900 barrels of natural gas liquids per day. According to Heiner, "The company's production volumes are below our expectations due to field performance problems, market related curtailments, and routine field maintenance."
Headquartered in Portland, Ore., NERCO Inc. is a diversified natural resources company with major interests throughout North America in low-sulfur coal, oil and natural gas, and precious metals.
/CONTACT: John C. Cummings, 503-731-6649, or Richard T. O'Brien, 503-731-6732, both of NERCO Inc./
(NER) CO: NERCO Inc.; NERCO Oil & Gas Inc. ST: Oregon IN: OIL SU: CON LM -- SE008 -- 4644 11/18/91 17:05 EST