WPX Energy (NYSE: WPX) has signed an agreement to sell a working interest in certain of its existing Piceance Basin wells to Legacy Reserves LP, a Midland-based master limited partnership, for $355 million cash subject to closing adjustments.

The agreement also provides WPX with 10% ownership in a newly created class of incentive distribution rights (IDR) with Legacy. WPX has the opportunity to increase its ownership to 30%, contingent upon completing other transactions in the future. This would include the potential to partner on third-party acquisitions.

The parties expect to close the sale during the second quarter, with an effective date of Jan. 1, 2014. The working interests represent 279 billion cubic feet equivalent of reserves based on contractual terms and commodity price assumptions as of Dec. 31, 2013, or approximately 9% of WPX’s year-end 2013 Piceance proved reserves.

The average production for the working interest over the next five years is expected to be 71 million cubic feet equivalent per day. WPX’s full-year 2013 Piceance production average was 727 MMcfe/d.

“We see tremendous benefits here on multiple fronts that are all accretive to our outlook,” said Jim Bender, WPX president and chief executive officer.

“First, the sales price reflects an attractive valuation of our company’s most important and largest asset – our Piceance Basin position. Second, the cash largely fills the gap in our 2014 capital plan.

“The nature of the transaction also effectively accomplishes the same outcome as pursuing the formation of our own master limited partnership without increasing the complexity of our corporate structure. This allows us to stay focused on WPX and keep our story simple.

“And strategically, the agreement provides upside incentives for WPX to work with Legacy on future deals if there are mutual benefits for both parties. They are an attractive partner with a proven record,” Bender added.

The agreement provides Legacy with 30% of WPX’s working interest in proved developed producing (PDP) Piceance wells that were drilled prior to 2009. The working interest increases to 37.5% in 2015 and 42% in 2016.

WPX’s undeveloped locations in western Colorado’s Piceance Basin – as well as the production and reserves associated with its recent Niobrara Shale natural gas discovery – are not included in the transaction. Overall, WPX has more than 12,000 remaining drillable locations in the Piceance.

Tulsa, Okla.-based WPX continues to expect to invest $475 million to $495 million in its Piceance Basin properties during 2014. This range includes funding for the continued delineation of WPX’s Niobrara Shale discovery.

Barclays provided a fairness opinion to WPX Energy in connection with this transaction.