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Earthstone (ESTE) Signs Deal to Acquire Midland Basin Assets

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Earthstone Energy, Inc. ESTE signed an agreement to obtain privately-held operated assets worth $73.2 million in the Midland basin from two sellers.

The total consideration for the transaction involves $49.2 million in cash and 2.6 million shares of Earthstone Class A common stock.

The to-be-acquired properties involve 10,000 operated acres in the Irion County of Texas. The acquisition will increase the company’s production by 4,400 barrels of oil equivalent per day, with associated reserves of 13.3 million barrels of oil equivalent. Of the total reserves, natural gas comprises 58%, while natural gas liquids and crude oil constitute 31% and 11%, respectively.

Earthstone holds about 29,100 net acres in the Midland basin and an additional 14,500 net acres in the Eagle Ford shale. Notably, the latest transaction will be the company’s fourth acquisition this year as it continues to boost its foothold in the Midland basin. It is expected to gain from the additional operating synergies as production operations are combined with other assets in the area.

Over the past few years, Earthstone utilized mergers and acquisitions of small operators to fulfill its consolidation plan. This includes acquisitions of Independence Resource Management and Tracker Resource Development, both of which enhanced the company’s Midland basin position. It also completed an acquisition in the Eagle Ford Shale this year.

Earthstone will cover the cash payments, and fees and expenses for the transaction with its cash holdings and borrowings under its revolving credit facility. The acquisition is expected to close by the middle of fourth-quarter 2021, with an effective date of Jul 1.

The transaction comes amid a flurry of deals in the Permian basin, which is currently witnessing increasing activities as fuel prices continue to remain high. ConocoPhillips COP is acquiring Royal Dutch Shell plc’s (RDS.A) portfolio in the Permian basin for $9.5 billion. Moreover, fellow Permian basin pure-play Pioneer Natural Resources Company PXD acquired privately-held DoublePoint Energy, adding the highly contiguous net acres in the core of the Midland basin.

Cimarex Energy recently completed its merger with Cabot Oil & Gas Corporation, linking its Permian and Oklahoma assets with the latter’s Marcellus footprint. This is the latest in the wave of consolidations sweeping the energy industry in the aftermath of the pandemic-driven crisis.

As the market continues to recover from the pandemic, the Permian basin is experiencing a resurgence in transactions to strengthen operators’ presence in the most active oilfield of the United States.

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ConocoPhillips (COP) : Free Stock Analysis Report
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