Asset A&D

Torchlight Signs Option Agreement to Divest Hazel Project in Texas

By Shivangi Jain
August 14, 2020
2 minutes read
Oil Pumpjacks

NASDAQ-listed Torchlight Energy Resources Inc. has signed an option agreement with Masterson Hazel Partners LP (MHP) and McCabe Petroleum Corp. to divest interest in the Hazel Project in Texas, for a total consideration of up to ~US$12.7 million. Torchlight currently holds an 80% operated interest in the project with McCabe Petroleum holding the remaining 20%. McCabe Petroleum is owned and controlled by Gregory McCabe, the Chairman of Torchlight.

The Hazel Project is located across Sterling, Tom Green, and Irion counties in Texas, and includes approximately 300 potential horizontal drilling locations targeting the Wolfcamp A and B formations, with secondary targets including the Leonard and Dean formations. Torchlight controls 9,762 net acres in the play and if the option is exercised and the acreage sold, the purchase price would bring in approximately US$12.7 million.

Under the terms of the agreement, Torchlight has agreed to sell the Hazel Project acreage at US$1,300 an acre after an option period. The investors must drill and complete the Flying B Ranch #4 well in the project to earn the option and then, after a period of evaluation, they have the option to acquire the remaining acreage for the amount stated.

If the option is exercised, the funds would be transferred no later than March 31st, 2021. If the investors do not exercise the option, their recourse is the revenue associated with the production from the Flying B #4 only, until such time as they recoup their funds, and then the wellbore and production is turned back over to Torchlight. The well will be drilled and completed horizontally in the Wolfcamp A formation with a proposed lateral distance of 7,500 feet.

“This transaction solidifies the value we have in the Hazel project and more importantly, if the option is exercised and the transaction completed, will provide for sufficient capital to pay off our secured debt. The group of investors are sophisticated high net worth investors who see the value in the Hazel project, having the foresight to move the asset forward in a down market,” said Torchlight’s CEO, John Brda.

Texas-based Torchlight currently owns and operates assets in the Orogrande, Midland, and Delaware Basins in West and Central Texas.

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