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Earthstone (ESTE) to Acquire E&P Firm, Add Midland Basin Assets

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Zacks Equity Research
·3 min read
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Earthstone Energy, Inc. ESTE recently agreed to acquire a privately-held oil and gas exploration and production company, Independence Resources Management, LLC. The transaction is expected to be valued at less than $185.9 million, comprising $135.2 million in cash and 12.7 million shares of Class A common stock of Earthstone. The current market volatility might trigger more such acquisitions in the oil and gas space.

The deal is expected to close in the March quarter of 2021. The acquiree operates in the Midland Basin, wherein production averaged 8,780 barrels of oil equivalent per day (Boe/d) in third-quarter 2020, of which 66% was crude oil. It has around 4,900 core net acres in the Midland and Ector counties. Moreover, in the eastern Midland Basin, the company has 38,500 net acres.

The move of adding the complementary Midland Basin properties is expected to boost Earthstone’s greater Permian Basin production capacity and adjusted EBITDAX by 50%. However, it is expected to have minimal impact on the acquirer’s leverage. Notably, pro-forma third-quarter production for the combined entity is estimated to rise 52% following the acquisition. As such, Independence Resources Management’s low-cost and high-margin assets will likely enhance Earthstone’s portfolio. Moreover, the deal is expected to support Earthstone’s free cash flow generation capacity.

Following the deal closure, its borrowing base is likely to rise from $240 million to $360 million. Additionally, the acquisition will add 70 high-quality undeveloped horizontal locations to Earthstone’s portfolio. Potential Jo Mill, Wolfcamp B and Wolfcamp D locations are also included in the deal.

Oil and Gas Acquisitions

The present market situation is allowing Earthstone to acquire rich shale assets at beaten-down prices. In fact, we have witnessed several merger and acquisition deals in this turbulent period. For example, ConocoPhillips COP is acquiring smaller rival Concho Resources. Chevron Corporation CVX acquired Noble Energy for its Eastern Mediterranean assets for $5 billion. In another deal, Canadian Natural Resources Limited CNQ acquired all issued and outstanding common shares of smaller rival, Painted Pony Energy. During September-end, Devon Energy and WPX Energy decided to merge in a bid to strengthen their position in the Permian Basin.

Price Performance & Zacks Rank

The company’s shares have jumped 41.2% in the past six months compared with 24.1% rise of the industry it belongs to. Earthstone currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

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Chevron Corporation (CVX) : Free Stock Analysis Report
 
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