Resolute Liquidates Portion Of Midland Basin To Pay Debt

Resolute Energy Corp. (NYSE: REN) said Nov. 23 it has agreed to sell assets in the Midland Basin as it takes a swipe at its massive debts.

The Denver company entered into an agreement with an undisclosed buyer to sell its Gardendale assets in the basin for $177.5 million. Gardendale production made up about 12% of its second-quarter 2015 volumes.

Proceeds will initially be used to take a chunk out of Resolute’s debt, which totaled about $740 million at the end of third-quarter 2015. As it works to pay off the debt, the company runs a tight ship, spending less than its cash flow among an industry of chronic spendthrifts.

In the long-term, Resolute plans to use the funds for development activity, which includes its recently greenlit four-well Wolfcamp drilling program in Reeves County, Texas.

The initial plans consist of two 7,500-foot horizontal wells, which the company expects to have EURs of roughly 1 million barrels of oil equivalent (boe).

"On the heels of the EUR and well program announcement, Resolute appears to be gaining traction with regard to developing its high-quality Delaware Basin acreage in Reeves County," said John Freeman, managing director at Raymond James, in a Nov. 10 report.

However, with more than $700 million in debt outstanding, the balance sheet remains a "starkly present issue," Freeman said.

"Asset liquidation remains the clearest path for capital structure repair going forward," he added.

Gardendale

Resolute’s Gardendale assets cover 4,700 gross (4,600 net) acres in Midland and Ector counties, Texas. The company holds about 98% working interest in the property, which is HBP by vertical wells.

Production during the second quarter of 2015 was 1,649 boe/d from a companywide total of 13,528 boe/d. In the third quarter, overall production fell to 12,439 boe/d.

The acreage includes resource potential in the Middle and Lower Spraberry and Wolfcamp B formations. Resolute has successfully drilled three horizontal Wolfcamp B wells on the Gardendale property.

Resolute’s Midland wells averaged 30-day initial production rates of 536 boe/d, with 81% oil.

Additional potential exists on the property in the Wolfcamp A, C and D (Cline), Atoka and Clearfork formations, according to the company.

Under the terms of the purchase and sale agreement, the buyer has placed a purchase deposit of $15 million into an escrow account.

Petrie Partners LLC and BMO Capital Markets were financial advisers to Resolute on the Gardendale sale.

The transaction, which is expected to close by Dec. 22, has an effective date of Sept. 1. The deal is subject to customary closing conditions and purchase price adjustments, including for title and environmental defects.

Debt Woes

Though Resolute is working to pay its debts, the company has dodged market and lender punches in 2015.

However, it is the only company within Wells Fargo’s small-cap coverage universe to spend less than it takes in. The company is estimated to spend about $11 million less than the $81 million in discretionary cash flow (DCF) it generates in 2015.

Still, Resolute has had its share of tests this year.

In February 2015, the company received notification that its listing on the New York Stock Exchange (NYSE) was in peril. The 30 trading-day average closing price of the company’s common stock was under the $1 requirement by the NYSE.

Even though Resolute regained compliance in June, its stock dipped under $1 during the summer and the company was on the ropes with the NYSE again. As of opening on Nov. 23, the company’s stock was trading at $0.64 which is an increase of nearly 15% from its previous close.

In the meantime Resolute has worked to clean up its portfolio. Including the Gardendale sale, the company has sold almost $275 million of properties so far in 2015.

In May, the company closed the sale of noncore assets in the Midland Basin in Howard County, Texas, for about $42 million. By October, it had closed another sale of a Powder River Basin field for $55 million.

"We believe these transactions have positioned the company to accelerate development of the attractive opportunities in our property base," said Nicholas J. Sutton, Resolute's chairman and CEO, in a statement.

Using proceeds from the Powder River Basin sale, the company lowered the borrowing base under its revolving credit facility by $95 million to $165 million during its fall redetermination. The company had about $85 million drawn at the end of the third-quarter.

Resolute will continue to work on a "number of other strategic initiatives," including the potential sale of its midstream infrastructure assets in Reeves County, Texas, Sutton said.

"We are also assessing the potential restructuring of our existing secured debt facilities in light of the numerous transactions recently announced by other companies in the industry," he added.

Resolute’s producing properties are located in Utah's Paradox Basin, the Permian Basin and the Powder River Basin. It also owns exploration properties in Texas’ Permian Basin and Wyoming’s Big Horn Basin.

Resolute also said Nov. 23 that it would not undertake a reverse stock split prior to year-end 2015.

The company might decide to pursue a reverse stock split again if the price of its common stock doesn't increase before the 2016 annual meeting, the release said.

Contact the author, Emily Moser, at emoser@hartenergy.com.