[Editor’s note: This is a developing story. Last updated at 3:45 p.m. CT.]
Resolute Energy Corp. (NYSE: REN) switched into growth mode with a $135 million acquisition that will boost its net acreage position in the Delaware Basin by 25%, the company said Oct. 4.
The Denver-based company entered a definitive agreement with Firewheel Energy LLC, a portfolio company of EnCap Investments, to acquire certain properties consisting of 3,293 net acres in Reeves County in West Texas.
After accounting for flowing production, the price tag comes out to about $26,400 per acre, which is in line with other “quality” Delaware acreage, said David Tameron, senior analyst at Wells Fargo Securities LLC.
Resolute now holds 16,450 net acres in Reeves. The company’s 22,400 gross-acre position in Reeves remains essentially unchanged as Resolute already owns interests in all of the same properties.
About 95% of the acreage and substantially all of the production and proved reserves are located within the Resolute-operated Mustang project area in Reeves. The remainder of the acreage is also in Reeves.
The deal gives Resolute higher interest in the production and cash flow generated from the company’s operated wells, further leveraging the work of its field staff, which “makes sense,” Tameron said in an Oct. 5 report.
“The fact that the vast majority of the acquired acreage is nonop interest in Resolute's existing project means that the company won't have to meaningfully increase activity as a result of the transaction to bring value forward, which should help the company achieve satisfactory burdened returns,” he said.
The deal includes interests in 13 horizontal and 15 vertical wells with production of about 1,200 net barrels of oil equivalent per day (boe/d). Proved reserves are an estimated 6.2 MMboe with a PV-10 value of $45.8 million. The deal also adds 47 net drilling locations.
In addition, the acquisition includes Firewheel’s interest in the earn-out agreement with Caprock Permian Processing LLC and Caprock Field Services LLC. Following closing of the acquisition, Resolute will receive 100% of all payments from Caprock under the agreement.
The $135 million purchase price for the Delaware assets is comprised of $90 million in cash and $45 million worth of Resolute’s common stock to Firewheel.
Resolute plans to finance the acquisition with proceeds from a private offering of preferred stock and borrowing under its revolving credit facility, which is currently undrawn. The company’s liquidity is expected to drop to between $73 million and $80 million following the cash payment, Tameron said.
The deal comes after nearly two years of Resolute unloading about $385 million worth of assets in order to trim its debt.
In July, Resolute said it entered into a series of related agreements with an undisclosed Permian midstream company to sell West Texas gas gathering and water handling systems for up to $110 million. The company plans to use proceeds to reduce debt and to fund development activity in the Delaware.
In 2015, Resolute sold three property packages with proceeds of nearly $275 million that were used to pay off outstanding bank balances. In addition to its midstream assets, the company has evaluated the monetization of its New Mexico properties.
BMO Capital Markets and Petrie Partners LLC were financial advisers to Resolute on the Delaware acquisition. The transaction is effective Sept. 1, with closing expected on Oct. 7.
Emily Moser can be reached at email@example.com.
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