Business Context and Reporting Period
Company: W&T Offshore, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 25, 2011
Event: Entry into a Material Definitive Agreement (Purchase and Sale Agreement) to acquire oil and gas leasehold interests in the West Texas Permian Basin.
Key Financial Metrics and Transaction Details
- Purchase Price: $366.3 million (subject to adjustments).
- Assets Acquired: Approximately 21,900 gross acres (21,500 net acres).
- Reserves: Estimated 27 million barrel equivalents (164 Bcfe) as of December 31, 2010; over 91% oil and natural gas liquids; approximately 77% proved undeveloped.
- Current Production: Approximately 2,800 net barrel equivalents per day.
- Planned Capital Expenditures: Estimated between $35 million and $40 million for the balance of 2011.
- Deposit: 5% of the purchase price deposited into escrow.
- Funding Source: Cash on hand and borrowings under the revolving loan facility.
Material Changes and Transaction Terms
This filing represents a significant expansion of the Company's asset base in the Permian Basin. The transaction is subject to customary closing conditions and is anticipated to close in May 2011. Key terms include:
- Effective Date: January 1, 2011 (for purchase price adjustments).
- Termination Rights: Either party may terminate if aggregate purchase price adjustments exceed 20% of the unadjusted price, or if the acquisition is not completed by June 9, 2011.
- Indemnification: Sellers indemnify the Company for pre-closing liabilities (including environmental) subject to a 2% deductible in some cases. The Company indemnifies sellers for post-closing operational liabilities.
- Title Defects: Sellers may cure defects or allow price adjustments; no cure or adjustment required for defects below $25,000 or if the aggregate does not meet a 1.5% deductible.
Guidance, Outlook, and Risks
Outlook: The Company expects to fund the acquisition through existing cash and credit facilities. A transition agreement will cover post-closing matters.
Risks and Contingencies:
- Closing is contingent on satisfaction of customary conditions.
- Purchase price is subject to adjustments based on the effective date and identified title or environmental defects.
- Significant capital expenditures ($35M-$40M) are required for development in the remainder of 2011.
Investor Verification Checklist
- Verify the final closing date and any adjustments to the $366.3 million purchase price.
- Confirm the Company's available liquidity and capacity under its revolving loan facility to fund the transaction and planned capital expenditures.
- Review the specific environmental liabilities and title defects identified during due diligence that may trigger price adjustments or indemnity claims.
- Monitor the execution of the transition agreement and the integration of the 2,800 net barrel equivalents per day into existing operations.