Caza Oil & Gas Inc. (TSE: CAZ) announced Feb. 26 that it terminated its farm-out and exploration agreement in the Permian Basin with Clayton Williams Energy Inc. (NYSE: CWEI) by mutual agreement.

The agreement, announced Nov. 12, covered a portion of the Midland, Texas-based Clayton Williams' 71,000 net acre resource play in Reeves County, Texas. All of the roughly 15,000 net undeveloped acres covered by this agreement are located along the western flank of Clayton Williams' acreage block. The company has drilled no horizontal Wolfcamp wells within the farm-out area.

Caza, of The Woodlands, Texas, was to drill an initial horizontal Wolfcamp well on the Reeves County acreage to earn 50% of the acreage associated with that well (either 640 or 1,280 gross acres, depending on lateral length).

Caza said it elected to not proceed with the agreement because of its current strategy to actively manage capital expenditures and other costs, and to focus on near-term only obligation wells during this period of low oil prices.

"We are disappointed that Caza is no longer participating in developing this substantial acreage in Reeves County, Texas," said W. Michael Ford, CEO of Caza, in a statement. "The original agreement with Clayton Williams represented an opportunistic and innovative transaction and one which was potentially transformational for the company, tripling its current net leasehold position. However, the original deal terms are no longer commercially viable in the current oil price environment and, whilst we sought to reach agreement on revised terms to reflect prevailing economics, this was unfortunately not possible and the decision was taken to terminate the agreement rather than incur further costs and commitments."

Ford said the company remains in a good position with assets in its Bone Spring program in Lea and Eddy counties, N.M., with no pressing lease obligations.