ITEM 1.01. Entry Into a Material Definitive Agreement.
Asset Purchase Agreement
As described in the annual and quarterly reports of SandRidge Permian Trust (the
"Trust") filed with the Securities and Exchange Commission, the trust agreement
governing the Trust (the "Trust Agreement") requires the Trust to dissolve and
commence winding up of its business and affairs if cash available for
distribution for any four consecutive quarters, on a cumulative basis, is less
than $5.0 million. As cash available for distribution for the four consecutive
quarters ended December 31, 2020, on a cumulative basis, totaled approximately
$2.4 million, the Trust was required to dissolve and commence winding up
beginning as of the close of business on February 26, 2021. Accordingly, The
Bank of New York Mellon Trust Company, N.A., as the trustee of the Trust (the
"Trustee"), is required to sell all of the Trust's assets, either by private
sale or public auction, and distribute the net proceeds of the sale to the Trust
unitholders after payment, or reasonable provision for payment, of all Trust
liabilities, which is expected to include the establishment of cash reserves in
such amounts as the Trustee in its discretion deems appropriate for the purpose
of making reasonable provision for all claims and obligations of the Trust,
including any contingent, conditional or unmatured claims and obligations, in
accordance with the Delaware Statutory Trust Act.
In April 2021, the Trustee commenced a sale process that was marketed with the
assistance of an independent oil and gas advisory firm. As a result of that
process, the Trustee received several offers from third parties and, after one
bidder withdrew its offer, the Trustee selected the offer from the highest
remaining bidder, Montare Resources I, LLC ("Montare"). As disclosed in
Amendment No. 8 to its Schedule 13D filed with the Securities and Exchange
Commission on December 31, 2020, Montare owns directly 9.4% of the outstanding
common units of the Trust. In addition, as previously disclosed in the Trust's
Quarterly Report on Form 10-Q for the period ended March 31, 2021, Montare,
Avalon Energy, LLC ("Avalon") and certain of their respective affiliates have
entered into a Contribution and Support Agreement pursuant to which Avalon,
among other things, agreed to, subject to certain conditions, contribute to
Montare all of the assets owned by Avalon at the time of contribution, including
the working interests underlying the overriding royalty interests held by the
Trust (the "Royalty Interests"). As provided in the Trust Agreement, Avalon has
a right of first refusal with respect to any sale of assets to a third party. On
June 17, 2021, Avalon notified the Trustee that Avalon would waive its right of
first refusal in connection with a proposed sale to Montare.
On June 18, 2021, the Trust and Montare entered into a Purchase and Sale
Agreement (the "Agreement") for the sale of all of the Royalty Interests for a
purchase price of $6,000,000. The sale closed on June 18, 2021, with an
effective date of July 1, 2021. Accordingly, the Trust is entitled to receive
all proceeds from production attributable to the Royalty Interests for the
three-month period ending June 30, 2021, which relates to production
attributable to the Royalty Interests from March 1, 2021 to May 31, 2021. The
Assignment of Overriding Royalty Interests assigning all of the Trust's right,
title and interest in and to the Royalty Interests effective July 1, 2021 was
filed in the Property Records of Andrews County, Texas on June 22, 2021. Montare
is entitled to all revenues from the oil and natural gas production attributable
to the Royalty Interests after July 1, 2021, which relates to the production
periods commencing on June 1, 2021 and thereafter. Therefore, the Trust will not
receive any further proceeds from such production after June 30, 2021 and will
not make any further regular quarterly cash distributions to the Trust
unitholders following the distribution to be made in August 2021 with respect to
the quarterly period ending June 30, 2021.
Under the Trust Agreement, the Trustee is required to distribute to the Trust
unitholders on the quarterly cash distribution date in August 2021 the net
proceeds of the sale, after payment of expenses related to the sale, and less
any amounts withheld as cash reserves in such amounts as the Trustee in its
discretion deems appropriate for the purpose of making reasonable provision for
all claims and obligations of the Trust, including any contingent, conditional
or unmatured claims and obligations, as discussed above.
The foregoing description of the Agreement does not purport to be complete and
is qualified in its entirety by reference to the full text of the Agreement,
which is filed as an exhibit to this Current Report on Form 8-K.
Assignment of Repayment Agreement
As previously disclosed, Avalon was unable to pay on a timely basis in May 2020
the approximately $4.65 million it owes the Trust (the "May 2020 Quarterly
Payment") relating to the three-month period ended March 31, 2020 (which
primarily relates to production attributable to the Royalty Interests from
December 1, 2019 to February 29, 2020). Consequently, the Trustee was unable to
make the quarterly distribution to Trust unitholders for the three-month period
ended March 31, 2020. In accordance with the terms of the conveyances pursuant
to which the Royalty Interests were originally conveyed to the Trust, the unpaid
amount owed the Trust has been accruing interest at the rate of interest per
annum publicly announced from time to time by The Bank of New York Mellon Trust
Company, N.A. as its "prime rate" in effect at its principal office in New York
City until paid to the Trust.
On March 1, 2021, the Trust and Avalon entered into a repayment agreement
setting forth the terms by which Avalon has agreed to pay the May 2020 Quarterly
Payment to the Trust, together with accrued interest (the "Repayment
Agreement"). Beginning with the quarterly distribution paid to Trust unitholders
on or about February 26, 2021, Avalon agreed to apply towards the payment of the
May 2020 Quarterly Payment the full amount of each quarterly cash distribution,
if any, to which Avalon, as a unitholder of the Trust, is entitled, until the
May 2020 Quarterly Payment, together with accrued interest, has been paid in
full to the Trust, subject to any obligations Avalon may have to repay the
revolving line of credit Avalon had previously obtained from Washington Federal
Bank, National Association, formerly Washington Federal, National Association
("WaFed"), pursuant to the terms of a loan agreement that are not waived by
WaFed as provided in the Agreement. As of June 24, 2021, Avalon has paid
$1,352,875 in cash to the Trust as partial payment of the May 2020 Quarterly
Payment.
On June 24, 2021, the Trust and Montare entered into an assignment agreement
(the "Assignment") effective as of June 30, 2021, pursuant to which Montare has
agreed to pay the Trust approximately $3.2 million representing payment in full
of the remaining unpaid portion of the May 2020 Quarterly Payment, together with
accrued interest, in exchange for the assignment by the Trust of the Trust's
rights and obligations under the Repayment Agreement. The Trustee will
distribute the cash received from Montare, less any amounts withheld to pay
expenses of the Trust, to the Trust unitholders on the quarterly cash
distribution date in August 2021.
The foregoing description of the Assignment does not purport to be complete and
is qualified in its entirety by reference to the full text of the Assignment,
which is filed as an exhibit to this Current Report on Form 8-K.
ITEM 2.01. Completion of Acquisition or Disposition of Assets.
The information provided in Item 1.01 of this Current Report on Form 8-K is
incorporated herein by reference.
ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits.
10.1 Purchase and Sale Agreement dated as of June 18, 2021 between SandRidge
Permian Trust and Montare Resources I, LLC.
10.2 Assignment Agreement, dated as of June 24, 2021, by and among SandRidge
Permian Trust, Montare Resources I, LLC, and Avalon Energy, LLC.
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