W&T Offshore Inc. (WTI) has agreed to sell its Yellow Rose Field in the Permian Basin in a deal that sacrifices none of its offshore holdings while helping the company pay down debt.
The company expects to use its dry powder for offshore deals in the Gulf of Mexico (GoM).
W&T said Sept. 1 that it entered a definitive agreement with Ajax Resources LLC to sell all interests for $376 million. The company also reserved a 1-4% sliding scale overriding royalty interest in the field.
W&T's interest in its Yellow Rose Field includes about 25,800 highly contiguous net acres in Andrews, Martin, Gaines and Dawson counties, Texas. In July, net production in the northern Midland Basin averaged about 3,000 barrels of oil equivalent per day (boe/d).
Drilling in the field had been suspended until commodity prices improved and the cost of goods and services fall.
Subtracting the value of production—about $135- to $150 million—the land costs about $9,000 per acre, said Kevin Smith, analyst, Raymond James.
By comparison, Laredo Petroleum Inc. (LPI) entered into an agreement in August to sell 5,882 acres of nonstrategic and primarily nonoperated properties for $64.8 million or about $8,000 per acre.
Since W&T hasn’t drilled the field in the past several months, “the price seems reasonable but does highlight the difference in core Permian acreage. There have been recent Permian transactions involving core acreage that have fetched as much as $35,000/acre,” he said.
About 90% of the acreage is HBP. With multiple target formations, the play held promise for W&T. At the end of 2014, the company was able to replace 113% of its production through proved reserve extensions and discoveries from the Yellow Rose Field and Dantzler deepwater field in the GoM.
Tracy W. Krohn, chairman and CEO, said the sale will allow the company to improve its financial flexibility to pursue the acquisition of GoM assets while valuations are favorable. W&T has about $259 million drawn on a $500 million borrowing base. As of May 12, the company had $4.4 million cash on hand.
“We believe that current conditions are good for W&T to identify quality offshore producing assets that offer upside exploration and development opportunity,” he said.
Ajax Resources is led by Forrest Wylie, executive chairman and former CEO and chairman of Buckeye Partners LP. The company is an affiliate of private equity firm Kelso & Co.
“Ajax will be my tenth energy transaction with the Kelso team, as they have been my partner for over a decade,” Wylie said. “This investment positions us with a substantial acreage footprint in one of the most prolific and low-cost oil basins in the U.S.”
Ajax is a new Houston-based oil and gas company that was formed to acquire W&T's Permian assets.
Jefferies LLC was sole M&A adviser for Kelso and also lead financial adviser for Ajax. Tudor, Pickering, Holt & Co. was a financial adviser to Kelso. Kirkland & Ellis LLP and Debevoise & Plimpton LLP were legal advisers to Kelso. Thompson & Knight LLP was legal adviser to Ajax.
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