Enhanced Oil Resources Inc. says that two of its wholly-owned U.S. subsidiaries have executed a reducing revolving Credit Facility with Regions Bank, Houston, Texas providing for up to US $25,000,000 in development financing for its oil and gas properties located in New Mexico. The new Credit Facility provides an initial borrowing base of US $3.6 million and maximum borrowings of up to $25 million. The new facility, which will have a three year term, requires minimum interest rates of 5% on borrowings under the facility. Borrowings will bear interest at 2.0% over the Bank's prime rate for Base Rate Loans or 3.5% over the London Interbank Offered Rate (LIBOR) for Eurodollar Loans outstanding. Interest payments will be due monthly for Base Rate Loans and, in connection with Eurodollar Loans, on the ending date of the Interest Period selected for such Loans, from one to six months. Payments under the Loan Agreement will be required to the extent that outstanding principal and interest exceed the Borrowing Base.

Increases in the Borrowing Base under the Loan Agreement will be revised based on the Bank's engineering valuation of the Company's subsidiaries oil and gas reserves, including additions from reactivations, drilling, enhanced oil recovery projects and provides for other oil field acquisitions. The Credit Facility is collateralized by certain Mortgaged Properties (principally the Company's Crossroads field and the Milnesand Unit field) located in Lea and Roosevelt counties, New Mexico. The Borrowing Base will decrease automatically at the rate of US $250,000 per month and will be re-determined semi-annually; however, the Company may request two additional re-determinations of the Borrowing Base annually.

Also in connection with the Credit Facility, the Company has entered into Hedging Agreements with the Bank's Capital Markets Group and executed transactions for the forward sale of a portion of its share of projected production. As of December 20, 2010, the Company's two subsidiaries have hedged approximately 55,000 net barrels of crude oil for delivery in 2011 at an average price of approximately $90.64 per barrel, subject to customary adjustments for quality and transportation.

Proceeds of the Borrowings may be used to provide working capital, to fund oil field acquisitions and developmental drilling expenses and to fund other working capital requirements. The Loan Agreement contains certain mandatory covenants, including minimum current ratio and cash flow requirements, limitations on indebtedness, limitations on dispositions, hedging limitations, and other standard business operating covenants.

The Company's President and CEO Mr. Barry Lasker states, "The signing of this Credit Facility is a significant step forward in the development of the multiple projects we have identified in our oil fields in New Mexico. A reserves based credit facility is a necessary tool for additional financing for projects we are pursuing, including our infill drilling programs we expect to commence in 2011, as well as the Cortez Pipeline connection to deliver CO2 to our oil fields in 2012. We are proud of our relationship with Regions Bank and the multiple facets of their affiliates in capital markets services which they can bring to focus on our projects. Together with our current positive cash flow stream this Credit Facility will accelerate further production reactivations at Crossroads and infill drilling to increase our San Andreas oil production at Milnesand field and will assist management in systematically increasing production on a larger scale than we had been able to achieve in the past. We thank the shareholders for their support and we look forward to announcing additional achievements in the future."

Tags: Enhanced Oil Resources