W&T Offshore, a U.S. oil and gas independent, has closed the previously announced sale of all of its interest in its Yellow Rose field in the Permian Basin of West Texas to Ajax Resources, LLC, and will now focus on pursuing new offshore assets.
Gross pre-tax proceeds from the transaction are $376.1 million, subject to customary closing adjustments, with an effective date of January 1, 2015. W&T also reserved an overriding royalty interest (“ORRI”) based on a sliding scale of one to four percent that is benchmarked to the monthly oil price in the field.
The value of the ORRI will increase with increases in oil prices and higher production volumes. It is anticipated that higher production volumes should occur in the future with increased drilling activity.
The proceeds of the transaction will be used to pay down the outstanding balance under W&T’s secured revolving credit facility and provide additional liquidity for future operations and acquisitions.
More specifically, in its first announcement on the agreed sale of the onshore U.S. assets in September, W&T Offshore said it would use the cash to pursue the acquisition of Gulf of Mexico assets “while valuations are favorable.”
Tracy W. Krohn, W&T Offshore’s Chairman and Chief Executive Officer said at the time: “We believe that current conditions are good for W&T to identify quality offshore producing assets that offer upside exploration and development opportunity.”
W&T currently has under lease around one million gross acres offshore, including nearly six hundred thousand gross acres on the Gulf of Mexico Shelf, approximately four hundred thousand gross acres in the deepwater. The company did not take part in the recent Gulf of Mexico lease sale.
Offshore Energy Today Staff