Midland, TX-based Clayton Williams Energy Inc. (CWEI) has struck a deal with a financial investor to monetize 95% of its Wolfberry oil and gas reserves, leasehold interests and facilities in Andrews County, TX, for $214 million. Proceeds will be used to reduce debt.
At closing of the transaction, the borrowing base under CWEI's credit facility will be reduced from $585 million to $470 million to account for the release of collateral, leaving about $99 million of additional availability under the facility. Closing is expected on Wednesday.
In connection with the transaction, CWEI will contribute 5% of the assets to a newly formed limited partnership in exchange for a 5% general partner interest, and the partnership will purchase the remaining 95% of the assets from the company. The partnership will obtain the proceeds from the investor in exchange for a 95% limited partner interest.
Wunderlich Securities Inc. said in a note that the transaction will lower CWEI's debt-to-capital ratio to 61% by year-end. "If CWEI is successful in securing a JV [joint venture], we expect debt to decline to a level more in line with peer average," Wunderlich said. "The company is retooling to become a pure resource player, and our preliminary analysis shows the transaction to be mildly dilutive for 2013 earnings and neutral for NAV [net asset value]."
If CWEI is successful in funding its drilling program, Wunderlich said, its drilling inventory of 1,200 wells should deliver multi-year growth.
The Andrews County assets accounted for about 21% of the CWEI's total proved reserves at Dec. 31 and about 16% of its total oil and gas production for the quarter ended December 31. Andrews County is among the top oil-producing counties in Texas (see Shale Daily, Jan. 31).