Wapiti Teams With Gasco In Uinta Basin Venture

To acquire undivided 50% WI in 117,000 gross producing Uinta Basin acres in Utah, gaining 42.5 Bcf proved.

Privately held Wapiti Energy LLC, Houston, plans to acquire an undivided interest in producing Uinta Basin oil and gas assets in Utah and enter an agreement to develop additional reserves with Gasco Energy Inc., Denver, (NYSE Amex: GSX) for a total enterprise value of $35.75 million.

Wapiti will pay $20.75 million in cash, of which $5.75 million is allocated to producing assets and $15 million to a drilling carry. Wapiti will pay an additional $15 million toward the carry over the next two years.

The assets include an undivided 50% working interest in 117,000 gross acres (84,000 net) in Uintah, Duchesne and Carbon counties, Utah, as well as 135 producing vertical wells. Some 93% is held by production.

Production is from the Wasatch, Mesaverde and Mancos gas formations, with Blackhawk and Dakota prospective as well. About 11,000 net acres are prospective for the Green River oil play, of which two vertical wells have been drilled. Proved reserves at of year-end 2010 were 42.5 billion cubic feet of gas. Upside includes an estimated 5,000 drilling locations.

Wapiti president and chief executive Bart Agee says, “This transaction adds to our large, low-risk, primarily gas position in the Rockies.”

Total drilling costs will be $37.5 million, with Gasco contributing $7.5 million. Wapiti will earn a 67.5% net revenue interest until payout, then revert to actual working interests.

After one year, if the Nymex five-year futures strip natural gas price is $5 per million Btu or greater, Wapiti will increase the drilling program to $43.75 million, of which Gasco will fund an additional $2.5 million.

“The transactions with Wapiti constitutes an important first step in Gasco’s implementation of its strategy of enhancing its financial position to allow it to pursue diversification of its asset base,” says Gasco president and CEO King Grant.

He adds, “Together, we will not only meet our drilling obligations and further develop our acreage, but will also conduct further testing of the Mancos formation. From a commodity perspective, the Uinta projects with natural gas and Green River oil are complementary to our California oil projects.”

The effective date is Sept. 11, 2011. Closing is expected in March. The break-up fee is $5 million.