Earthstone Energy Acquires Operated Assets in the Midland Basin
NYSE-listed Earthstone Energy Inc. has entered into definitive agreements with Denver-based Tracker Resource Development III LLC and Sequel Energy Group LLC to acquire certain operated and producing assets located in the Midland basin, for approximately US$126.5 million. The transaction has been approved by the board of directors of both companies.
The total consideration (allocated approximately 50/50 to Tracker and Sequel) is comprised of US$81.6 million in cash, plus the issuance of 6.2 million shares of Earthstone’s Class A common stock, valued at US$44.9 million (based on a closing share price of US$7.24 per share on March 30th, 2021). Upon closing of the deal, the existing shareholders of Earthstone will retain 93% of common equity.
The assets acquired include approximately 20,300 net acres and 71 (30 horizontal and 41 vertical) producing wells in the Midland basin in Irion County, Texas. No drilling commitments are required on the acreage. Total proved developed and producing (PDP) reserves attributable to the assets are approximately 19.8 million barrels of oil equivalent (MMBoe) as of March 1st, 2021. Current net production from the assets is approximately 7,800 barrels of oil equivalent per day (boe/d), of which 80% is oil/liquids.
In December 2020, Earthstone entered into a definitive agreement to acquire Independence Resources Management LLC (IRM) from its majority-owner Warburg Pincus LLC and other shareholders, in a corporate transaction valued at approximately US$185.9 million.
“This acquisition, on the heels of closing the IRM acquisition in early January, is a complementary next step in what we view as continued progress of our consolidation strategy. We paid an attractive price for this producing asset, and while the inventory may not fit into our capital plans this year, the 49 drilling locations represent low-risk and repeatable upside value not included in our purchase price valuation,” said Robert J. Anderson, President and CEO of Earthstone.
Woodlands, Texas-headquartered Earthstone Energy is focused on conventional and unconventional operations, and holds a portfolio of oil & gas assets in the Midland and Eagle Ford basins in Texas.
Tracker Resource Development is a privately-held oil & gas company backed by equity investments from 1901 Partners Management LP and EnCap Investments LP, with each holding a 49% ownership interest. Sequel Energy Group is focused on making structured investments in drilling joint ventures and non-operated oil & gas working interests in proven resource plays throughout North America.
Northland Securities provided its fairness opinion to Earthstone on the deal, and Jefferies is acting as financial advisor to Tracker and Sequel.
The transaction, which is subject to shareholder and regulatory approvals, is expected to close in Q3-2021. Warburg Pincus LLC, a shareholder of Earthstone, has pledged to vote its 13.2 million shares of Class A common stock in favor of the acquisition.