Earthstone & Northern Oil & Gas Ink Acquisition Deal For Delaware Basin Permian Assets

Earthstone Energy, Inc. ESTE inked a deal to acquire Novo Oil & Gas Holdings, LLC, a privately-held Delaware Basin-focused E&P company, for $1.5 billion.

Concurrently, Northern Oil & Gas Inc NOG penned a deal with Earthstone to acquire a 33.33% undivided working stake in the Novo assets for $500.0 million in cash.

With this, ESTE will hold 66⅔ % interest in Novo assets. 

ESTE plans to fund Novo asset purchase with cash and borrowings under the senior secured revolving credit facility. 

Together with the buyout, ESTE booked $250 million of incremental commitments from existing lenders and boosted credit facility commitment to $1.65 billion (from the current $1.4 billion).

The acquisition will boost ESTE's Delaware Basin acreage position by about 11,300 net acres to 56,000 net acres.

The buyout is effective May 1, 2023, and is expected to close in Q3 2023, subject to customary closing conditions. 

Post-deal closure, ESTE will be the operator of all assets, and NOG will participate in the development, according to cooperation and joint operating agreements related to the buyout. 

"With significant production volumes from the Novo Acquisition, we expect Earthstone's near-term production levels to surpass 135,000 barrels of oil equivalent per day ("Boepd"). Further, we anticipate Free Cash Flow to increase significantly compared to standalone Earthstone as we have added substantial producing assets but are not increasing capital expenditures. The addition of approximately 200 high-quality, low breakeven locations deepens our drilling inventory and with our flat rig count, extends our inventory life significantly to over a decade," said Robert J. Anderson, President and CEO of Earthstone.

Guidance and Acquisition Impact: ESTE expects Q4 2023 production to increase by 30,000 Boepd-35,000 Boepd (37% oil) compared to the current operating plan and guidance (2023 guidance of 96,000 Boepd-104,000 Boepd).

The company expects 2024 production to decline moderately vs. Q4 2023, with the production profile flattening out in H2 2024.

ESTE reiterated the 2023 capital expenditures outlook at $725 million-775 million.

The company projects 2024 FCF to increase by over 60%, given higher production, unchanged capital expenditures, and enhanced efficiency with the Novo drilling inventory.

As of March 31, 2023, ESTE had zero cash and long-term debt of $452 million.

As of March 31, 2023, NOG had total liquidity of $437.1 million, with $6.1 million in cash. 

Price Action: ESTE shares are up 5.7% at $13.51, and NOG is higher by 2.06% at $33.40 on the last check Thursday.