Black Stone Minerals LP (NYSE: BSM) struck a joint venture deal in the Haynesville/Bossier shale play in East Texas that it expects will substantially reduce capital requirements by up to $50 million.
The Houston-based company said Feb. 21 it entered a farm-out agreement with Canaan Resource Partners covering Black Stone's working interests within a roughly 34,000 gross acre block in San Augustine County, Texas. A total of 58 wells is anticipated to be drilled over three phases.
The agreement covers certain Haynesville and Bossier shale acreage in the Shelby Trough operated by XTO Energy Inc. Black Stone has an average 50% working interest in the acreage and is the largest mineral owner, according to the release.
Canaan will commit on a phase-by-phase basis and fund 80% of Black Stone’s drilling and completion costs and will be assigned 80% of the company's working interests in the wells (40% working interest on an 8/8ths basis).
Black Stone Minerals will receive a base overriding royalty interest before payout and an additional overriding royalty interest after payout on all wells drilled under the agreement.
The company said it expects the farm-out agreement to reduce its capital obligations by about $35 million in 2017 and by an average of $40 million to $50 million annually thereafter. Each phase is expected last about two years, beginning with wells spud after Jan. 1.
“This is a great example of the creative deal structures that Black Stone Minerals pursues to generate value for its unitholders,” Thomas L. Carter Jr., president, CEO and chairman of Black Stone Minerals, said in a statement.
Carter added the transaction involves the company's "most concentrated area of working interest investment."
After the third phase, Canaan can earn 40% of Black Stone's working interest (20% working interest on an 8/8ths basis) in additional wells drilled in the area by continuing to fund 40% of the costs on a well-by-well basis.
Tudor, Pickering, Holt & Co. was the sole financial adviser for Black Stone Minerals. Legal advice was provided by Vinson & Elkins LLP.
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