Resolute Energy Corp. is peeling off more of its Permian Basin midstream portfolio in Texas to devote more money to ever-better oil and gas wells within the Wolfcamp formation, the Denver-based producer said Friday.

In a series of related agreements with an undisclosed Permian midstream operator, Resolute and a minority interest holder are selling natural gas gathering and water handling systems in the Appaloosa and Mustang project areas of Reeves County. Resolute plans to use the proceeds, which could be up to $110 million, to reduce debt and boost activity in the Delaware sub-basin.

The buyer agreed to pay $50 million for the midstream assets now in place and up to $60 million through 2020 in earn-out payments tied to field drilling activity that would deliver gas and produced water into the system. Resolute initially is to receive $32.85 million, while its Mustang partner would receive $17.15 million.

The earn-out payments would be based on the completed lateral lengths of wells and the year in which a well is spud. Earn-out payments for Appaloosa area wells would be paid 100% to Resolute, while payments for Mustang wells would be allocated 60% to Resolute and 40% to its partner. Once the transaction is completed, Resolute also would recoup about $2.3 million in earn-out payments for wells completed this year.

Resolute and its partner agreed to dedicate and deliver to the midstream buyer all of the gas and water produced over a 15-year contract period. No minimum volume commitments or fee provisions are required.

Last year Resolute sold off a big chunk of its Permian exploration assets in the Midland sub-basin to give it more financial leverage in the Delaware (see Shale Daily, Nov. 24, 2015; March 30, 2015). According to the latest results in the Delaware, so far, so good.

Within the Delaware’s Wolfcamp A lateral in Reeves County, Resolute reported solid results from a series of recent horizontals. The South Elephant 02 1004H, North Elephant 02 1001H and Thunder Canyon 0204H have reached total depth (TD), and the rig was moved to the South Goat 02 2204H. South Elephant, North Elephant and South Goat are 10,000-foot laterals in Appaloosa and the Thunder Canyon is a 7,500-foot lateral in Mustang.

North Goat, the first 10,000-foot lateral in Appaloosa, established a peak 30-day production rate of 2,116 boe/d, 60% oil. North Mitre 02 2101H, another Appaloosa 10,000-foot Wolfcamp A lateral, has a current peak rate of 3,269 boe/d and a 30-day production rate of 2,877 boe/d, 55% weighted to oil. The newly drilled South Elephant has shown a peak rate of 2,976 boe/d, 57% oil, while North Elephant is being completed and Thunder Canyon is waiting on completion.

“Our operations team continues to perform exceptionally well,” with oil and gas wells producing “significantly” under authority for expenditure (AFE), Resolute said. “The two Mustang 7,500-foot laterals were brought in at an average of $8.6 million or $1 million (12%) under AFE, while three Appaloosa 10,000-foot laterals were brought in at an average of $9.6 million or $2.2 million (18%) under AFE. Rig time from spud to TD is illustrative. The four Appaloosa wells shaved an average of six days off of the AFE target.”

Resolute is targeting drilling and completion costs of $8.2-8.5 million for a 7,500-foot lateral and $8.8-9.2 million for a 10,000-foot lateral.

Because of its strong results to date, the Wolfcamp A type curve in the Reeves County project area has been increased by more than half. In Mustang, estimated ultimate recoveries (EUR) were increased on average by 56% to 2.014 million boe from 1.295 million boe. Appaloosa EURs were set 51% higher at 2.338 million boe from 1.545 million boe.

Resolute’s average production in 2Q2016 was 15,412 boe/d, which exceeded a prior record production rate of 14,911 boe/d — even though it sold about $275 million of properties during 2015.

“Wells that are waiting on completion should push that record higher in upcoming quarters,” management said. “We previously indicated that our 2016 drilling program anticipated nine wells. However, at our current pace we expect the ninth well to reach TD in August, and in light of the compelling results posted to date we may extend our drilling program beyond the previously announced nine wells.

“In that case, the rig that we have used this year will remain active for us through the remainder of 2016. Each of the wells recently drilled adds materially to the company’s reserves, both from the reserves attributable to the well itself, and by allowing the company to book offset locations based on 160-acre spacing.”

Resolute has 22,420 gross/12,940 net acres under lease in Reeves County, 65% held by production. Working interests average 60%. Using baseline assumptions about spacing and formation productivity, the producer said it has an inventory of 255 gross Wolfcamp A and Wolfcamp B locations in the Reeves County play alone.