12. Subsequent Events
On October 15, 2015, we sold certain oil and natural gas property interests to Ajax Resources, LLC (“Ajax”) for approximately $376.1 million in cash and the assumption of certain ARO, subject to certain customary purchase price adjustments. The effective date of the sale was January 1, 2015. Ajax acquired all of our interest in the Yellow Rose field in the Permian Basin, covering approximately 25,800 net acres in Andrews, Martin, Gaines and Dawson counties in West Texas. We were also assigned a non-expense bearing overriding royalty interest (“ORRI”) in production from the working interests assigned to Ajax, which percentage varies on a sliding scale from one percent for each month that the prompt month NYMEX trading price for light sweet crude oil is at or below $70.00 per barrel to a maximum of four percent for each month that such NYMEX trading price is greater than $90.00 per barrel. We used a portion of the proceeds of the sale to repay all outstanding borrowings under the revolving bank credit facility, while the remaining balance of approximately $100.0 million was added to available cash.
Under the full cost method, sales or abandonments of oil and natural gas properties, whether or not being amortized, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to the cost center. The sale to Ajax did not represent greater than 25% of the Company’s proved reserves of oil and natural gas attributable to the full cost pool. As a result, alteration in the relationship between capitalized costs and proved reserves of oil and natural gas attributable to the full cost pool was not deemed significant and no gain or loss will be recognized from the sale.
On October 30, 2015, the Company entered into the third Amendment to the Credit Agreement, which amended the Credit Agreement as follows:
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Eliminated the maximum Leverage Ratio.
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Eliminated the minimum Interest Coverage Ratio.
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Revised the First Lien Leverage Ratio from 2.50:1.00 to 1.50:1.00 effective for the third quarter of 2015.
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Maintained the minimum Current Ratio requirement of 0.75:1.00 through the fourth quarter of 2015 and maintained increasing the ratio to 1.00:1.00 in the first quarter of 2016.
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Maintained the maximum Secured Debt Leverage Ratio requirement at 3.50:1.00.
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Permitted uncapped bond and term loan repurchases subject to:
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the revolver loan balance outstanding being $0, after giving effect to such repurchases;
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having a minimum borrowing base of $200 million;
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having a maximum outstanding letters of credit balance of $100 million;
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having no Event of Default having occurred or being continuing; and
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having no Borrowing Base Deficiency occurred, being continuing or resulting therefrom.
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The foregoing description of the amendment to the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the agreement. Capitalized terms used but not defined above have the meanings given to them in the Credit Agreement.
After the fall of 2015 redetermination, the borrowing base was set at $350.0 million effective on October 30, 2015. As such, a proportional amount of the unamortized debt issuance costs will be expensed in the fourth quarter of 2015.
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