In a bid to transform itself into a Delaware Basin pure play, upstream player Resolute Energy Corporation (REN - Free Report) recently inked a deal to divest assets in the Paradox Basin in southeastern Utah.
Per the deal, Resolute Energy will sell the Aneth Field assets in the Paradox Basin to an affiliate of Elk Petroleum Limited. Aneth is one of the largest carbon dioxide enhanced oil recovery field projects in the Rocky Mountains with a production capacity of 6,500 barrels of oil per day. The oilfield contains around 1.5 billion barrels of oil equivalent, out of which just 31% has been recovered yet.
The divestment deal will result in a payment of up to $195 million to Resolute Energy. The company will receive $160 million in cash upon the closure of transaction with additional payments up to $35 million if oil price rise to certain levels in the subsequent three years. Elk Petroleum will fund the payment by a combination of equity and debt. It plans to raise $98 million through debt, $55 through preferred equity and $22 million through equity placement. Subject to regulatory approvals and satisfactory closing conditions, the transaction is scheduled for closure in late October.
Proceeds from the deal will be used to pay the outstanding balance under the revolving credit facility of Resolute Energy. This will help the company to reduce its leverage ratio and strengthen its financials. Employees of Aneth Field will also make a transition to Elk Petroleum reducing the future overhead expenses of Resolute Energy by $6 million along with $3 million in stock-based compensation. The deal will also lower the lease operating expenses of the company.
The transaction not only aims at improving the cost structure of the company, it also makes Resolute Energy become a pure play in the Delaware Basin. The deal will position the company to ramp up activities in the Delaware Basin. Delaware basin is one of the most productive and economically viable oil and gas fields in the United States. Resolute Energy has been drilling some of the most successful Wolfcamp wells in the Delaware Basin. The company entered into an acquisition deal with Firewheel Energy LLC in October 2016 to develop its Reeves holdings by 3,293 acres. In March, the company also clinched a $160 million acquisition deal to beef up its Delaware Basin acreage by 4600 acres. The company plans to drill up to 45 wells in the region by 2018.
However, taking into effect the latest divestment deal, Resolute Energy has lowered its production guidance for the year by 1000 barrels of oil equivalent.
The acquisition of Aneth oilfield will make Australia-based Elk petroleum one of the biggest oil producers in terms of reserves and production on the Australian Stock Exchange. The field boasts varied organic growth opportunities and complements the existing assets of Elk Petroleum thereby increasing the cash inflow of the company.
Zacks Rank and Key Picks
Resolute Energy deals in the acquisition, exploration and development of oil and gas properties in the United States. The company is headquartered in Colorado and currently carries a Zacks Rank #3 (Hold). Over the year, shares of Resolute Energy have rallied 25% against roughly 24% decline recorded by the industry.
Some better-ranked players in the same industry are Lonestar Resources US, Inc. (LONE - Free Report) and Range Resources Corporation (RRC - Free Report) and Rex Energy Corporation (REXX - Free Report) . While Lonestar Resources and Range Resources sport a Zacks rank #1 (Strong Buy), Rex Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lonestar Resources delivered an average positive earnings surprise of 39.71% in the trailing four quarters.
Range Resources posted an average positive earnings surprise of 51.82% in the trailing four quarters.
Rex Energy reported an average positive earnings surprise of 6.65% in the trailing four quarters.
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