Legacy Closes On Purchase Of Permian Assets

Transaction Type
Announce Date
Post Date
Close Date
Estimated Price
$72.0MM
Description

Closed on its purchase on oil properties.

Legacy Reserves LP (Nasdaq: LGCY) has closed on its previously-announced purchase of Permian Basin oil properties from Resaca Exploitation Inc.

Legacy announced in May that it planned to buy the majority of the assets of Resaca for about $72 million. After closing, however, Legacy announced that it planned to split the purchase with an unidentified minority partner, who would buy 5% of the assets. Legacy would pay about $67.9 million for a 95% stake in the assets.

The sale represents substantially all of Resaca’s producing assets, which include the Cooper Jal Unit, the Edwards Grayburg Unit, the Jordan Andrews Unit, the Kermit Leases and the Langlie Jal Unit. Collectively, the assets produce a net 668 barrels of oil equivalent (BOE) per day. Legacy estimates that these properties contain 3.8 million BOE of proved reserves, of which 88% are oil and 84% are proved, developed producing.

Resaca shareholders approved the sale on June 25 and agreed to delist the company from the London AIM Stock Exchange. Under the rules of the AIM exchange, Resaca is required to give at least 20 business days notice of delisting. The company is tentatively scheduled to delist on July 5.

After that, executives will wind up the company’s assets and voluntarily liquidate. Once the customary adjustments are made and debts are paid off, management expects to have a special distribution of about 11 cents per share. The announcement marks the latest chapter in a long struggle with debt covenants for the Houston-based upstream independent.

Resaca borrowed $1.85 million on June 30, 2010. In December 2010, the company took a subordinated credit for $20 million over a four year period. In addition, Resaca borrowed $75 million from Regions Bank in January 2011 in the form of a four-year note.

In August 2011, Resaca acquired the Langlie Jal Unit in Lea County, N.M., near the city of Jal and the company’s largest property, the Cooper Jal Unit.

The company announced on March 30, 2012 that it had fallen out of compliance with the terms of the latest loan, primarily that its EBITDA (earnings before interest, taxes, depreciation and amortization) failed to meet specific ratios. The failure to comply with the terms of the company’s debt covenants led to a spike in interest rates and the company fell further out of compliance. Its stock began to falter as a result.

Resaca’s management said it has looked into strategic alternatives, including a corporate merger, asset sale, recapitalization and joint venture arrangement to meet requirements of its debt covenants. In October 2012, Resaca announced that it retained Albrecht & Associates Inc. to sell its interests in two mature waterflood units, the Cooper Jal and Langlie Jal, in Lea County in an effort to reduce debt and to bring the company back into compliance with the terms of its outstanding debt. The plan at the time was to close on the sale by the end of the year.

In March, Resaca announced that it has tentative plans to sell the assets to ERG Resources LLC and expected the sale to close in the second quarter of 2013. In addition to the Cooper Jal and the Langlie Jal units, the company would also sell off its interests in the Jordan San Andres Unit, Edwards Graburg Unit, the Kermit, McElroy and Kayser properties as well as its office complex in Odessa.

Three weeks later, it announced that Houston-based ERG Resource had withdrawn its bid. The company was still searching for a buyer.

A few weeks later, in April 2013, Legacy approached Resaca with a bid of $72 million for substantially all of the company’s assets. Legacy Reserves LP is an upstream master limited partnership based in Midland, Texas. Its primary focus is in the Permian Basin, Midcontinent and Rocky Mountain regions of the U.S.

Legacy Reserves LP is a master limited partnership based Midland, Texas, focused on the upstream development of oil and natural gas properties, primarily in the Permian Basin, Mid-Continent and Rocky Mountain regions of the United States.