Permian Resources Inks $4.5B Deal To Buy Earthstone Energy

Permian Resources Corp PR penned a definitive acquisition deal to acquire Earthstone Energy Inc ESTE for around $4.5 billion, including ESTE's net debt. 

The acquisition price represents an 8% premium to the exchange ratio based on the 20-day volume weighted average share prices.

As per the all-stock deal terms, ESTE will exchange each share for a fixed ratio of 1.446 shares of PR's common stock. 

The acquisition will boost Permian Resources' assets, adding over 400,000 Permian net acres with pro forma production of around 300,000 Boe/d.

PR expects the deal to be accretive to FCF per share by an average of over 30% annually in the next two years and over 25% annually in the next five and ten years. 

Consequently, the company expects to raise the quarterly base dividend by 20% to $0.06 per share, starting Q1 2024.

"We expect the transaction to be accretive across all key financial metrics before synergies and significantly accretive including synergies, both over the short and long-term. After evaluating over $20 billion of potential transactions during the past twelve months, we firmly believe the acquisition of Earthstone represented the best transaction for Permian Resources. It checks all the boxes, enhancing shareholder value while improving upon an already best-in-class company," said James Walter, Co-CEO of Permian Resources.

The transaction is expected to close by year-end 2023, subject to customary closing conditions and regulatory and shareholder approvals. 

The company anticipates garnering synergies with an expected annual cash flow improvement of $175 million, including operational and G&A synergies of $145 million, to be fully realized by end-2024.

Also, the company projects annual operational synergies of $115 million, mainly related to reduced drilling, completions and facilities, lease operating and midstream expenses.

As of June 30, 2023, PR's cash and cash equivalents and restricted cash stood at $18.85 million. 

Price Action: PR shares are trading down by 3.72% at $12.41, while ESTE shares are trading higher by 9.12% at $17.71 premarket on the last check Monday.