Black Stone Minerals, L.P. (NYSE: BSM) (“Black Stone Minerals,” “Black Stone,” or “the Partnership”) announced today that it has entered into a farmout agreement with Canaan Resource Partners (“Canaan”), which will reduce Black Stone’s future capital requirements and will generate additional royalty income. The farmout covers the Partnership’s working interests within an approximate 34,000 gross acre block in San Augustine County, Texas. Black Stone expects the farmout agreement to reduce its capital obligations by approximately $35 million in 2017 and by an average of $40-$50 million annually thereafter during the three program phases discussed below.
“This is a great example of the creative deal structures that Black Stone Minerals pursues to generate value for its unitholders,” said Thomas L. Carter, Jr., Black Stone Minerals’ President, Chief Executive Officer and Chairman. “This transaction, involving our most concentrated area of working interest investment, accomplishes several important things for Black Stone Minerals. It meaningfully reduces our near-term capital exposure while facilitating the continued development of a play where we have significant royalty interests. We will also benefit from the anticipated growth in volumes from this asset through the overriding royalty interests we are retaining. Lastly, it delivers on our commitment to our unitholders to remain focused on managing and growing our core minerals and royalty business.”
- Agreement covers certain Haynesville and Bossier shale acreage in the Shelby Trough in San Augustine County, Texas operated by XTO Energy. Black Stone has an average 50% working interest in the acreage and is the largest mineral owner.
- A total of 58 wells are anticipated to be drilled over an initial phase and two additional phases that Canaan may participate in at its option, with each phase estimated to last approximately two years, beginning with wells spud after January 1, 2017.
- During the first three phases of the agreement, Canaan will commit on a phase-by-phase basis and fund 80% of Black Stone’s drilling and completion costs and will be assigned 80% of Black Stone’s working interests in such wells (40% working interest on an 8/8ths basis).
- After the third phase, Canaan can earn 40% of the Partnership’s working interest (20% working interest on an 8/8ths basis) in additional wells drilled in the area by continuing to fund 40% of Black Stone’s costs for those wells on a well-by-well basis.
- Black Stone Minerals receives a base overriding royalty interest (“ORRI”) before payout and an additional ORRI after payout on all wells drilled under the agreement.
Canaan Resource Partners (www.crpok.com) has directed and managed energy investments through a number of current and predecessor investment vehicles since 1990.
Tudor, Pickering, Holt & Co. served as the sole financial advisor for Black Stone Minerals. Legal advice was provided by Vinson & Elkins LLP.