Crude Oil Sales
Aneth Field. We currently sell all of our oil from our Aneth Field Properties
to Western under a purchase agreement dated July 2014. On December 31, 2014,
the Company entered into an amendment to the purchase agreement with Western
which provides for Resolute to receive a price equal to the NYMEX oil price
minus a differential of $8.00 per barrel of oil. The amendment also extended
the term of the agreement until March 31, 2015 and provided that the term would
continue thereafter on a month-to-month basis until terminated by a party with
ninety days prior notice. On December 8, 2015, the Company entered into a second
amendment to the agreement which provided for a reduction of the differential
to $7.50 per barrel of oil. On May 9, 2016, the Company entered into a third
amendment to the agreement which provides that Resolute and NNOGC will receive
a price equal to NYMEX oil price minus a differential of $7.50 per barrel of
oil for the first 6,000 barrels of oil purchased per day and a differential
of $5.50 for amounts in excess of 6,000 barrels per day, with such pricing effective
on May 1, 2016. In 2016, Western entered into a pre-merger agreement with Tesoro
Corporation. Upon closing of this agreement, we do not anticipate that our business
relationship will be negatively impacted; however, we cannot provide assurance
of such conclusion. If, for any reason, Western is unable to process our oil,
there is alternative access to markets through rail and truck facilities or
through the FERC-regulated Texas-New Mexico pipeline owned by Western. Furthermore,
oil can be trucked to refineries or oil pipelines in southern New Mexico, west
Texas or Salt Lake City, Utah.
Western refines our oil at their 25,000 barrel per day refinery in Gallup,
New Mexico. Our production is transported to the refinery via the Running Horse
oil pipeline owned by NNOGC to its Bisti terminal, approximately 20 miles south
of Farmington, New Mexico. From there, crude is transported through a Western
pipeline that serves the refinery. Our and NNOGC’s oil has been jointly
marketed to Western. The combined Resolute and NNOGC volumes were approximately
8,900 barrels of oil per day as of year-end. When combined with the royalty
barrels owned by the Navajo Nation, Aneth Field provides approximately 10,300
barrels per day to the Gallup refinery, more than 40% of total refinery capacity.
The Aneth Field oil is a sweet, light crude oil that is well suited to be refined
in Western’s refinery. Although we have sold all of our oil production
to Western since acquiring the Chevron Properties in November 2004, and despite
the value of our oil production to Western, we cannot be certain that the commercial
relationship with Western will continue for the indefinite future and that the
refinery will not suffer significant down-time or be closed. If for any reason
Western is unable or unwilling to purchase our oil production, we have other
production marketing alternatives. We have the ability to load up to 3,000 barrels
per day at Western’s Gallup refinery rail loading site in the event that
Western is unable to process or otherwise does not take our oil volumes. NNOGC
has completed construction of a high volume truck loading facility located at
the terminal end of NNOGC’s Running Horse pipeline that is capable of
loading all of our and NNOGC’s production. We have life-of-lease access
to the truck loading facility pursuant to an agreement with NNOGC. Oil can be
trucked a relatively short distance from the loading facility to rail loading
sites near and south of Gallup, New Mexico, or longer distances to refineries
or oil pipelines in southern New Mexico, west Texas, or Salt Lake City, Utah,
where structural changes in the regional oil supply have created a long term
premium market for oil sales to the refineries there and have positioned Salt
Lake City as a potentially attractive alternative market for Aneth Field crude
oil sales. We can also transport our oil by various combinations of truck and
rail from the Aneth Field Properties to markets throughout the United States.
The cost of selling our oil to alternative markets in the short term may result
in a greater differential to the NYMEX price of oil than we currently receive.
If we choose or are forced to sell to these alternative markets for a longer
period of time, these costs could be lowered significantly. Under long term
arrangements, which may require the investment of capital, we believe we would
realize a NYMEX differential approximately equal to the current differential
realized in the price received from Western.
Other fields. With respect to our oil production from all other fields, we
generally sell our crude oil under 30-day contracts at the best available price
in the area, the most significant purchasers of which were Western Refining
Southwest Inc, Plains Marketing LP, and Holly Frontier LLC for 2016.
Gas and NGL Sales
Our gas and NGL are sold to various midstream processing companies under long-term
percent of proceeds contracts, including Castleton Commodities International,
LLC in the Aneth Field, Energy Transfer Partners, L.P. in the Delaware Basin
Project area, and West Texas Gas and DCP Midstream in the Northwest Shelf Project
area.
