Resolute Energy Corp. (NYSE: REN) has entered into a definitive agreement with Firewheel Energy LLC, a portfolio company of EnCap Investments, to acquire certain oil and gas properties located in Reeves County, Texas, for a purchase price of $135 million.
The Firewheel Properties consist of 3,293 net acres in the Resolute’s Delaware Basin operating area, and include interests in 13 horizontal and 15 vertical wells, which produce approximately 1,200 net Boe per day. Approximately 95% of the acreage and substantially all of the production and proved reserves are located within the Resolute-operated Mustang project area in Reeves County. The remainder of the acreage is also in Reeves County.
The Firewheel Properties contain estimated proved reserves of 6.2 MMBoe with PV-10 of $45.8 million, using strip pricing at June 30, 2016. The acquisition also includes Firewheel’s interest in the Earn-Out Agreement (to which Resolute is also a party) with Caprock Permian Processing LLC and Caprock Field Services LLC. Following the closing of the acquisition, Resolute will receive 100% of all payments from Caprock under the Earn-Out Agreement.
According to Richard Tullis of Capital One Securities, the price equals roughly 15% of Resolute’s enterprise value, and the deal boosts the company’s production by approximately 7%.
The transaction was funded with a concurrent $55 million cumulative perpetual convertible preferred stock offering (+$7.5MM over-allotment option), Tullis noted. Overall the deal price “equates to ~$27K/acre after adjusting for the 1.2 Mboe/d assuming $60K per bbl/d for oil and $4K per Mcf/d for gas,” he said.
Resolute expects to finance the cash portion of the acquisition price with the net proceeds of a private offering of a newly created class of preferred stock of the company, and borrowings under its currently undrawn revolving credit facility.
The acreage to be acquired represents an approximately 25% increase in the company’s net acreage in Reeves County while leaving its gross acreage position essentially unchanged as the company already owns interests in all of the same properties.
Nicholas J. Sutton, Resolute’s chairman and CEO, said: “This acquisition adds materially to our prospective acreage in one of the most exciting US oil and gas basins, with 95% of the acquired acreage operated by Resolute. Our Mustang project area, covering more than 12,400 gross acres, is one of our two concentrated acreage positions in the Delaware Basin. This transaction allows us to add acreage, production and opportunity without either the uncertainty associated with acquiring more speculative acreage or adding to our staffing and infrastructure needs.
BMO Capital Markets and Petrie Partners LLC acted as financial advisors to Resolute.
The acquisition agreement contains customary terms and conditions and is expected to close on October 7, 2016.