Clayton Williams Energy Inc. (NYSE: CWEI) has entered into a farm-out and exploration agreement with Caza Oil and Gas Inc. (TSX:CAZ) (AIM:CAZA) covering a portion of the company’s 71,000 net acre resource play in Reeves County, Texas. All of the 15,000 net undeveloped acres covered by this agreement are located along the western flank of the company’s acreage block. The company has drilled no horizontal Wolfcamp wells within the farm-out area.
Under the terms of the agreement, Caza will pay 75% of the costs of the initial horizontal Wolfcamp well to earn 50% of the acreage associated with that well (either 640 or 1,280 gross acres, depending on lateral length). After the initial well, Caza will pay 100% of the costs of all other carried wells (as defined in the agreement) to earn 75% of the associated acreage. The company will pay its 25% of the cost to drill and complete all density wells drilled on previously earned acreage.
In addition to the initial well, Caza is obligated to drill and complete two additional horizontal Wolfcamp wells in the farm-out area by Dec. 31, 2015. Caza is subject to a penalty of $1.6 million per well for any obligation well not drilled. Caza must also drill a minimum of two carried wells per year in order to continue participation in the agreement beyond Dec. 31, 2015.