[Editor’s note: This story was updated at 10 a.m. CT May 18.]
Centennial Resource Development Inc. terminated the sale of Permian Basin water infrastructure on May 15 citing failure of the buyer to close the multimillion-dollar transaction.
The transaction included saltwater disposal wells and associated produced water infrastructure located primarily in Reeves County, Texas, within the Delaware Basin where Centennial’s operations are focused. Houston-based WaterBridge Resources LLC agreed in late February to acquire the assets in a $225 million transaction, which was expected to close at the end of the first quarter.
“Pursuant to the terms of the purchase and sale agreement, Centennial provided written notice of termination relating to the divestiture after WaterBridge failed to close the transaction on or before 5 p.m. Mountain Time on May 15, 2020, which was the outside date for the divestiture set forth in the purchase and sale agreement,” Denver-based Centennial said in a company release.
Centennial also expects to receive the $10 million purchase price deposit, which is currently held in escrow.
In a February release, Centennial described WaterBridge as a long-standing partner, adding that the company historically disposed of nearly half of Centennial’s produced water volumes in Reeves County.
WaterBridge is backed by Five Point Energy LLC, which sold a 20% minority equity stake in the company to affiliates of Singapore’s sovereign wealth fund GIC in May 2019. The company recently announced a leadership succession plan that will see CEO and Founder Stephen M. Johnson transitioning into a new role, effective May 18.
Analysts with Tudor, Pickering, Holt & Co. (TPH) said they continue to see a “tough road ahead” for Centennial, absent a material rally in crude, given elevated leverage combined with high PDP declines and tightening liquidity constraints.
“While we see the official announcement as a negative event we had already removed proceeds from our model in anticipation of a low probability of closure given the plunge in crude prices and significant decline in [Centennial Resource Development] production,” the TPH analysts wrote in a May 18 research note.
TPH’s model for Centennial currently calls for roughly $255 million of spend this year driving exit-to-exit oil declines of 25%. Further, the firm’s analysts see a 2021 budget of $145 million continuing to roll production by an additional 17% exit-to-exit as Centennial “attempts to protect liquidity.”
Centennial is expected to give an update on a corporate debt exchange which was extended until May 19.
The shift comes as Continental Resourcs is re-orienting its production portfolio to focus more heavily on oil, CEO Bill Berry told investors during an earnings call.
Twenty-seven of the 30 upstream E&P companies, or 90%, surveyed had hedges on the books at year-end 2020, up from 83% in the prior year, according to a recent survey of how oil and gas producers hedge.
Many producers raced to lock in sales when crude oil prices rose to over $40 per barrel last year but are now faced with losses after oil prices climbed.