Resolute Sells Permian Midstream Assets For $110 Million

Resolute Energy Corp. (NYSE: REN) has shed Permian Basin midstream assets for an injection of capital to cover its debt and drilling needs.

The Denver company said July 8 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 gathering systems are currently operated by Resolute in the company’s Appaloosa and Mustang project areas in Reeves County, Texas. Following closing, operatorship will transfer to the undisclosed buyer.

Resolute will initially use proceeds from the sale to reduce debt, which totaled $528.3 million at year-end 2015. The company will also use proceeds to fund development activity in the Delaware Basin, where it has roughly 22,420 gross (12,940 net) acres under lease in Reeves County, about 65% HBP.

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.

‘Compelling Results’

The company estimates it has an inventory of about 255 gross Wolfcamp A and B locations in the heart of the Reeves Wolfcamp horizontal play.

In May, the company reported it had drilled five horizontal wells to total depth in Reeves County. All five wells have now been completed and are either producing or flowing back.

Resolute’s next two wells, the North Elephant and the Thunder Canyon, have also reached total depth. The company has moved its rig to drill its next well in the area, the South Goat.

The North Elephant and South Goat are 10,000-foot Wolfcamp A laterals in the Appaloosa area. The Thunder Canyon is a 7,500-foot Wolfcamp A lateral in the Mustang area.

Resolute’s 2016 drilling program includes nine wells, but at the company's current pace, it expects the ninth well to reach total depth in August. The company said it might decide to extend its drilling program this year due to “compelling results.”

Midstream Sale

The buyer of Resolute’s gathering systems has also agreed to expand the assets to meet all current and future production by the company and its partner. The companies have agreed to dedicate and deliver all gas and water produced from their acreage for midstream services for a 15-year term.

The purchase price for the midstream assets is comprised of a $50 million payment for the assets currently in place and up to $60 million in earn-out payments tied to drilling activity through 2020.

Resolute will receive $32.85 million of the initial payment. The company’s partner in the Mustang area will receive the balance of $17.15 million.

Petrie Partners LLC was financial adviser to Resolute for the transaction, which is expected to close by Aug. 1 subject to customary closing conditions. The buyer has placed a purchase deposit of $3 million into an escrow account.

Emily Moser can be reached at emoser@hartenergy.com.