Key agrees to acquire Columbus Energy

Denver-based Key Production Co. Inc. said today that it would acquire Columbus Energy Corp., also of Denver, in an all-stock transaction. Key said it is trading 1.3 million of its common shares for all of Columbus's outstanding common stock. As a result, the shareholders of Columbus would own 10% of the combined company, with Key's shareholders owning the balance.


Denver-based Key Production Co. Inc. said today that it would acquire Columbus Energy Corp., also of Denver, in an all-stock transaction. Key said it is trading 1.3 million of its common shares for all of Columbus's outstanding common stock. As a result, the shareholders of Columbus would own 10% of the combined company, with Key's shareholders owning the balance.

Key's stock was trading at 17 13/16 the day before the deal was announced.

Under the terms of the proposed merger agreement, Columbus shareholders will receive 0.355 Key share for each Columbus share in a tax-free reorganization. Columbus plans to hold a special shareholder meeting in October or November to approve the merger, following completion of the US Securities and Exchange Commission's (SEC) review of the prospectus.

Both companies' boards have unanimously approved the transaction.

Francis H. Merelli, chairman and CEO of Key, said combining the companies should be additive to Key's cash flow per share and enhance its ability to grow net asset value. "The combined company will have a stronger balance sheet and a larger base of cash flow from which to fund drilling, acquisitions, or debt reduction," he said.

According to information contained in Columbus's latest 10-Q, filed with the SEC on July 14, its long-term debt has been reduced to $4.9 million, and working capital on May 31 approximated $1.3 million. Columbus also reported that its discretionary cash flow for the first 6 months of fiscal 2000 was $3.235 million.

Columbus has 3.75 million common shares outstanding, plus employee and director options of 0.6 million.

As of June 30, estimates by an outside engineering firm show that Columbus holds total proven reserves of 21 bcfe, including 2.4 bcfe classified as proven and undeveloped. Key noted, however, that, based on its economic evaluation parameters, Columbus's total proven reserves were 16 bcfe as of June 30, of which 98% are proven and developed.

Natural gas constitutes two thirds of the proven reserves, with the balance consisting of crude oil and condensate. Key also estimates that production during 2001 from Columbus's proven reserves will be 6 MMcfd of gas and 350 b/d of oil.

Key and Columbus have granted each other the right to receive a $1 million termination fee, subject to certain conditions.

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