Clayton Williams Energy sells acreage, hedges production for 2016

Clayton Williams Energy hedged 814,500 barrels of oil production during first half of 2016 at $40.25 per barrel

Midland-based Clayton Williams Energy, Inc. says it continues to consolidate operations in the face of low oil price, including selling acreage and hedging some production.

The company announced it has completed a swap of non-producing acreage in the core of its Southern Delaware position in Reeves County, Texas with the operating subsidiary of Concho Resources, Inc.

Substantially all of the acreage subject to this agreement was associated with a farm out agreement in which Clayton Williams Energy earned a 75  per cent interest in certain leases. Subsequently, Concho acquired the remaining 25 per cent of the leases.

The company and Concho agreed to exchange net acre for net acre across the company’s entire Reeves County position. As a result of the exchange, the company acquired Concho’s 25 per cent working interest in certain leases, and Clayton  conveyed its 75 per cent working interest in certain leases to Concho.

Clayton’s acreage position remained at approximately 65,000 net acres, but its working interest in the leases increased from 75 per cent to 100 per cent throughout most of its largely contiguous acreage block.

All lease rights transferred under this agreement were limited to undrilled acreage and excluded reserves and production attributable to existing wells. The interest in the existing producing wells will remain the same.

Mel Riggs, President of Clayton Williams Energy

“This agreement was highly beneficial to both companies,” said Mel Riggs, president of Clayton Williams Energy.

“Each now has a higher degree of operational control over the development of its respective acreage positions. This enables us to determine the timing, targets, well design and approach for development of this very valuable resource in the best interest of our shareholders.”

Clayton Williams Energy also announced it sold acreage in Burleson County, Texas in the Eagle Ford Shale  to an undisclosed buyer for cash consideration of $21.8 million in Dec. 2015.

The acreage, located east of the company’s contiguous acreage block, was sold under a three-year term assignment that may be extended beyond the stated term as long as the buyer maintains a 180-day continuous development program on the acreage.

The company retained its rights to all depths and formations other than the Eagle Ford formation and also retained its interest in acreage and production in all wells currently situated on the acreage. The company also reserved an overriding royalty interest to the extent the net revenue interest of any assigned lease exceeds 75 per cent.

Proceeds from the sale were used to reduce outstanding borrowings on the company’s bank credit facility.

On Jan. 6, 2016, the company entered into a swap agreement covering the sale of 814,500 barrels of its oil production during the first half of 2016 at $40.25 per barrel.

Clayton Williams Energy granted the counterparty the option to extend the agreement to cover an additional 738,500 barrels of oil production during the second half of 2016 at the same price of $40.25 per barrel. The option to extend expires on June 30, 2016.