Houston-based Development Capital Resources LP has made an agreement with Midland, Texas-based Endeavor Energy Resources LP to develop acreage in the Permian Basin.
DCR will provide $300 million to fund the majority of the project, though it will not take an operating role in it, according to a press release.
The joint venture — which already has two drilling rigs in operation — is focused on Wolfcamp horizontal wells in the Midland Basin...
That's fairly typical for a deal with that type of structure, said Austin Elam, a Houston-based associate at Haynes and Boone LLP and the leader of the team that represented Endeavor in the deal.
Essentially, DCR is funding the development of acreage that Endeavor controls in exchange for a temporary working interest in the joint venture. At a certain point — once DCR has reached a certain level of returns on its investments — a portion of DCR's interest will revert to Endeavor ownership automatically.
That deal structure is generally attractive to producers because it gives access to capital funding withoutloading the producer down with debt or equity deals, Elam said. On the other hand, financiers might be attracted to it because it protects their investment even if the company they are financing declares bankruptcy — they own an absolute working interest in the joint venture, not debt with the development company, Elam said.
Excerpted from Houston Business Journal. To read the full article, please click here (subscription required).