One month after announcing their intention to merge, Houston-based Lucas Energy Inc. said it has entered into separate collaboration and funding agreements with Austin, TX-based Victory Energy Corp.

Lucas said the collaboration agreement will allow it to transfer certain rights on seven wells in the Eagle Ford Shale to Victory. In return, Victory will now be required to fund the development of the wells.

“Lucas’ senior secured lender amended the terms of its credit facility, allowing Lucas to assign the wells rights to Victory, regain compliance with the credit facility and provide flexibility in achieving the [merger],” Lucas said Tuesday. “If the [merger] does not occur, the wells rights will remain an asset of Victory, the lender will have the right to receive compensation from Victory, and Lucas will retain its rights to the remaining unassigned leasehold. Otherwise, the well interests will be owned by the combined company as a result of the closing of the [merger].”

Last month, the companies said they had executed a letter of intent and term sheet for a proposed merger (see Shale Daily, Feb. 4). At the time, the companies said the deal was contingent upon the signing of a definitive merger agreement and a funding agreement — with the former providing equity to Victory’s shareholders and the latter giving Lucas the funding necessary to satisfy its obligations on several Eagle Ford wells, among other things.

“The structuring and negotiation of the two agreements to fund well commitments and working capital needs was paramount to advancing our overall objective,” said Lucas CEO Anthony Schnur. “We will now turn our full attention toward finalizing a definitive agreement for the [merger], and I am confident that we will be able to reach agreement expeditiously.”

Of the seven wells contained in the collaboration agreement, five are operated by Penn Virginia Corp. with Lucas having an average working interest (WI) of 2.5%, and two are operated by Earthstone Energy Corp. with a 50% Lucas WI. Lucas estimates drilling and development costs for the seven wells will be $9.4 million, and the wells are expected to begin generating production revenue before the end of July.

Meanwhile, under the terms of a funding agreement and working capital budget that was also agreed between the two companies, all loans made by Victory are to be secured by a pledge of Lucas’ treasury stock. Upon closing of the merger, the pledge will become intercompany obligations that can be eliminated.

“At closing, Victory provided $517,000 per the collaboration agreement and $250,000 per the funding agreement and anticipates providing a total of approximately $12 million under the agreements,” Lucas said. “The parties expect to raise additional capital for acquisitions that will expand the combined company’s drilling and producing property footprint and have initiated preliminary discussions with potential funding sources for this purpose.”

Both companies are independent oil and gas producers. Lucas is focused on the Austin Chalk and the Eagle Ford, while Victory is trained on the Permian Basin.