Story By Kevin George |Investopedia| Independent shale oil exploration and production (E&P) company Permian Resources (PR) said it would buy rival driller Earthstone Energy (ESTE) on Monday, in a move that could enhance its position in the Delaware Basin.
After the combination—and after Earthstone sells its final chunks of acreage in the Eagle Ford Shale—Permian Resources will be the third-largest pure-play Permian E&P behind Pioneer Natural Resources and Diamondback Energy, according to Enverus Intelligence Research Director Andrew Dittmar.
The all-stock transaction is valued at about $4.5 billion, including net debt. Each share of Earthstone common stock will be exchanged for a fixed ratio of 1.446 shares of Permian Resources common stock, according to the release.
The deal could strengthen Permian Resources’ position as a leading E&P in the Delaware Basin, with over 400,000 Permian net acres, while increasing shareholder returns via dividends, the company said.
Will Hickey
Earthstone’s Northern Delaware position “brings high-quality acreage with core inventory that immediately competes for capital within our portfolio,” said Permian Co-CEO Will Hickey.
The company also said that it had identified synergies that will drive around $175 million per year in cash flow. Earthstone has grown from the production of 15,000 barrels of oil (BOE) per day to over 130,000 BOE in just three years, and Permian said the acquisition “checks all the boxes.” Permian Resources will see its footprint in the Permian Basin grow by 223,000 net acres to more than 400,000, with a production of approximately 300,000 BOE per day.
Shares of Permian Resources climbed 2.3% on Monday following the news, while shares of Earthstone jumped 16.7%.
The $4.5 billion transaction, which includes Earthstone’s net debt, also adds about 56,000 net acres largely contiguous with Permian Resources’ footprint in the northern Delaware Basin.
MORE: Permian Basin of Western Texas
The Permian Basin is an oil-and-gas-producing area located in West Texas and the adjoining area of southeastern New Mexico. The Permian Basin covers an area approximately 250 miles wide and 300 miles long and is composed of more than 7,000 fields (best represented in Railroad Commission of Texas production figures as districts 7C, 08, and 8A) in West Texas. Various producing formations such as the Yates, San Andres, Clear Fork, Spraberry, Wolfcamp, Yeso, Bone Spring, Avalon, Canyon, Morrow, Devonian, and Ellenberger are all part of the Permian Basin, with oil and natural gas production depths ranging from a few hundred feet to five miles below the surface.
Other areas within the greater Permian Basin include the Delaware Basin and Midland Basin. The Delaware Basin includes significant development in the Bone Spring and Wolfcamp, together known as the Wolfbone. The Midland Basin includes significant development in the Spraberry and Wolfcamp, together known as the Wolfberry.
