Ajax Resources LLC and affiliates of Kelso & Company have entered into a definitive agreement with W&T Offshore Inc. (NYSE:WTI) to acquire W&T’s interest in the Yellow Rose field in the Permian Basin of West Texas for $376.1 million, subject to customary closing adjustments.
Ajax, a Houston-based oil and gas company backed by Kelso, was established to acquire W&T's Permian Basin assets.
W&T will retain a 1% to 4% sliding scale residual overriding royalty interest in the field. The transaction is expected to close during the third quarter of 2015, with an effective date of Jan. 1, 2015.
W&T's interest in its Yellow Rose field includes approximately 25,800 net acres in Andrews, Martin, Gaines, and Dawson counties in West Texas. For the month of July, net production from the Yellow Rose field averaged approximately 3,000 barrels of oil equivalent (boe) per day. The acreage position is ~90% held by production, and according to a statement by Ajax, contains “substantial in-place infrastructure to support operations and “significant resource potential” through multiple stacked pay horizontal drilling zones.
The deal is “the sale we’ve been waiting for,” said Global Hunter Securities analysts in a note to investors Tuesday. “With focus and capital spending directed to the deepwater GOM, WTI’s Yellow Rose assets in the Permian appeared ripe for divestiture, and the company has taken advantage of a still-active A&D market in that basin to monetize those assets for $376.1MM. The sale price implies $9K-$10K/acre after backing out production at $50K-$40K/boepd, a good price in our opinion, given that WTI will retain a 1%-4% override and participate in the upside of the acreage. Proceeds will go to the balance sheet, eliminating bank debt, putting cash on the balance sheet and significantly boosting liquidity ($245MM at 6/30),” they continued.
Jefferies LLC acted as sole M&A advisor and lead financial advisor for Kelso and Ajax, respectively. Tudor, Pickering, Holt & Co. also served as a financial advisor to Kelso as part of the transaction. Kirkland & Ellis LLP and Debevoise & Plimpton LLP served as legal advisors to Kelso. Thompson & Knight LLP served as legal advisor to Ajax.