PE-Backed Escondido Sells Land in $115M Deal

Escondido Resources II LLC, a fund backed by private equity commitments from EnCap Investments L.P., has sold 11,050 acres in the Eagle Ford Shale for $115.3 million. The transactions closed in December 2010. Midland, Texas-based Escondido Resources is focused on the development of conventional and unconventional reserves in South Texas.

PRESS RELEASE:
Escondido Resources II, LLC announced today that the company has sold 11,050 net acres in the Eagle Ford Shale for a total consideration of $115.3 million. The properties consist of three distinct blocks of acreage located primarily in La Salle County in South Texas. The transactions closed in December 2010.

Escondido II will retain a substantial acreage position in the region of approximately 60,000 net acres in the shallow Escondido and Olmos formations, primarily in northern Webb County. In addition, the Company still owns the rights to the deeper Eagle Ford Shale formation in over one-half of its acreage. Current natural gas production capacity for the company exceeds 50,000 million cubic feet per day (mcf/d) from the Wilcox, Escondido, Olmos and Eagle Ford formations.

The company’s first operated Eagle Ford well in Webb County has already produced in excess of 1 billion cubic feet of natural gas in its first eight months of production and is one of the strongest Eagle Ford wells drilled to date.

In addition, the company has recently drilled 11 horizontal wells in the shallow Escondido and Olmos sandstone reservoirs, which have exhibited very encouraging early results. The company intends to continue its drilling of these shallow reservoirs during 2011, as well as drilling additional Eagle Ford shale wells in Webb County.

“This sale is very strategic for Escondido Resources,” said William E. Deupree, President and CEO of Escondido Resources II, LLC. “It allows us to focus on our ‘bread and butter’ Escondido and Olmos reservoirs, which are very economic even in today’s low gas price environment, while still having a substantial position in the gas-prone portion of the Eagle Ford Shale. Our acreage position was put together with the idea of pursuing multiple drilling objectives and our recent results in drilling horizontal wells in these reservoirs have far exceeded our expectations. These results have radically changed the perception of this historically marginal drilling area to one exhibiting extremely robust economics.”

Escondido II was advised on the sales transactions by Griffis & Associates, LLC and Simmons & Company International, both based in Houston. The Company used the proceeds from the sale to pay off debt and to increase its capital drilling budget for 2011. Escondido II is also pursuing the acquisition of additional leasehold acreage and properties in the region.

About Escondido Resources II, LLC
With headquarters in Midland, Texas, and satellite offices in Houston, San Antonio and Kingwood, Texas, privately held Escondido Resources II, LLC is focused on the development of conventional and unconventional reserves in South Texas. Escondido II is engaged in development of acreage in Webb, LaSalle and McMullen counties in the Eagle Ford Shale and the Olmos and Escondido formations. Partners William E. Deupree, Mark E. Semmelbeck, J. Kurt von Plonski and J. David Wrather formed Escondido Resources II LLC as successor to Escondido Resources, L.P., which was sold for $249.5 million in October 2007. Escondido II is backed by private equity commitments from EnCap Investments L.P. of Houston, Texas.

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