Resolute Energy Corp. (NYSE: REN) entered a definitive agreement to sell its interests in the Aneth Field in the Paradox Basin of Southeastern Utah, the company said Sept. 14.

The sale of its EOR assets for $160 million cash and up to $35 million in contingency payments should improve the company’s balance sheet as it transitions into a Delaware Basin pure play E&P, Capital One Securities analyst Richard Tullis said in a Sept. 15 report. Resolute’s subsidiary in the Aneth will be sold to an affiliate of Australia’s Elk Petroleum Ltd. (ASX: ELK).

Elk Petroleum focuses on mature oil fields using EOR methods, including CO2, in plays in the U.S. and Australia. The company’s affiliate will pay an additional $35 million to Resolute if WTI rise above $52.50 to $60 per barrel in the three years after closing.

Capital One valued Resolute’s assets at about $100 million. The additional funds should increase the amount of money spent on operations to produce a barrel of oil equivalent (boe). Resolute said it intends to repay its credit facility with the proceeds.

Resolute’s lease operating expenses (LOE) in the Delaware are $4.87 per boe, Resolute CEO Rick Betz said.

“This sale is the final step in our previously announced strategy to transform Resolute into a pure-play Delaware Basin company,” he said in a news release. “Closing this transaction will significantly improve our cost structure, strengthen our balance sheet and position the company to accelerate the development of our prolific Delaware Basin property and continue our strong growth profile.

“As previously disclosed, second quarter lease operating expense for the Permian Basin was $4.87 per boe,” he said. Second-quarter 2017 expenses, which included the Aneth, were $8.95 per boe.

Proceeds from the transaction are expected to repay the outstanding balance of the company’s revolving credit facility, which will be an estimated $130 million to $135 million by Sept. 30.

Resolute’s Aneth-dedicated staff will transition to Elk Petroleum, annually reducing Resolute’s general and administrative overhead by about $6 million as well as $3 million in stock-based compensation.

Seaport Global Securities analysts said the sale did not affect its estimates, which already reflected 5,900 boe/d of sold production and anticipated cost structure improvements. “Unit LOE costs drop 46% versus second-quarter figures, and $9 million of annual G&A [is] knocked off,” the analyst said in a Sept. 15 report.

Under the contingency agreement, Elk’s affiliate will pay Resolute:

  • $40,000 per day for the 12 months after closing in which the WTI spot oil price exceeds $52.50 (about $10 million);
  • $50,000 per day in the 12 months following the first anniversary of closing that the oil price exceeds $55 (about $10 million); and
  • $60,000 for each day in the 12 months following the second anniversary of closing that WTI exceeds $60 (roughly $15 million).

The transaction is expected to close in late October and has an effective date of Oct. 1.

Petrie Partners, LLC and Barclays Capital Inc. acted as financial advisers to Resolute on the Aneth Field sale transaction. Resolute was represented by Arnold & Porter Kaye Scholer LLP.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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