Corporate M&A

Earthstone Energy Acquires Permian-Focused IRM

By Isha Makkar
December 19, 2020
2 minutes read
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NYSE-listed Earthstone Energy Inc. has 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.

Under the terms of the agreement, Earthstone will acquire a 100% of IRM in exchange for a cash consideration of approximately US$135.2 million, plus the issuance of 12.7 million Earthstone shares valued at US$3.99 per share (based on Earthstone’s closing share price on December 16th, 2020).

Upon completion, Earthstone shareholders will own 83.7% of the combined entity, and IRM shareholders will hold the remaining 16.3%. Warburg Pincus will also receive the right to appoint a director to Earthstone’s board.

IRM is engaged in operations in the Midland basin in West Texas, and currently holds interests in approximately 43,400 net acres targeting multiple unconventional hydrocarbon formations. Total Proved (1P) Reserves attributable to the company as of December 1st, 2020 were 16.3 million barrels of oil equivalent (MMboe). The company’s total production during Q3-2020 averaged approximately 8,780 barrels of oil equivalent per day (boe/d), 66% of which was oil.

The combined entity will hold interests in approximately 72,500 net acres in the Midland basin and Eagle Ford shale in Texas. 1P Reserves for the combined entity (as of December 1st, 2020) are approximately 110.6 MMboe. Net average daily production during Q3-2020 was 25,737 boe/d.

“The addition of these complementary Midland Basin assets increases our production and adjusted EBITDAX by approximately 50% with minimal impact to leverage. Additionally, we will be adding 70 gross high-graded drilling locations from IRM’s core acreage that carry a similar return profile to our highly economic Midland Basin wells and will compete with our existing inventory for future development capital,” said Robert J. Anderson, President & CEO of Earthstone.

RBC Capital Markets and Wells Fargo Securities are advising Earthstone on the deal. Jefferies is acting as financial advisor to IRM.

The transaction has been unanimously approved by the board of directors of both companies, and is subject to customary closing conditions, including the receipt of regulatory approval, with closing expected in Q1-2021.

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