Torchlight Energy Resources Inc. (NASDAQ: TRCH) said April 5 it will acquire Midland Basin assets covering about 12,000 gross (7,999 net) acres.

The Plano, Texas-based company has signed an agreement with McCabe Petroleum Corp. to purchase a 66.66% working interest in the properties for an undisclosed amount. Torchlight will also take over operations.

Highlights:

  • 75% net revenue interest;
  • Potential of up to 300 horizontal drilling locations;
  • Targets include Wolfcamp A and B formations;
  • Prospective for the Leonard and Dean formations providing upside; and
  • Continuous drilling clause on the lease starting in July.

Torchlight is required to drill one well, vertical or horizontal, every six months to hold the entire acreage block. The company will pursue a joint development partner, much like it did with the Orogrande Project, to provide for project capex funding, the release said.

As part of the agreement, McCabe will receive 1.5 million warrants to purchase Torchlight common stock at $1 per share. The company will also receive back-in after payout of 25% working interest.

The president of McCabe is currently Torchlight's largest shareholder, the release said.

Rich Masterson, geologist, has worked closely with McCabe to develop the prospect. Torchlight expects Masterson will reside as the project geologist throughout its development, according to the release.

The acreage was previously acquired by McCabe through a farm-out, the release said.

Johnson Rice & Co. LLC advised on the transaction and has been engaged to assist Torchlight with a variety of strategic initiatives.