Permian Resources increases Delaware basin position with $4.5 billion Earthstone Energy acquisition

(WO) – Permian Resources Corporation and Earthstone Energy, Inc. have entered into a definitive agreement, under which Permian Resources will acquire Earthstone in an all-stock transaction valued at approximately $4.5 billion, inclusive of Earthstone’s net debt. Under the terms of the transaction, each share of Earthstone common stock will be exchanged for a fixed ratio of 1.446 shares of Permian Resources common stock. The transaction strengthens Permian Resources’ position as a leading Delaware basin independent E&P with over 400,000 Permian net acres, pro forma production of approximately 300,000 boed and an enhanced free cash flow profile to increase returns to shareholders.

Permian Resources and Earthstone are operating an eleven-rig drilling program, primarily focused on the Delaware basin. The combined company plans to allocate at least one of Earthstone’s two rigs currently in the Midland basin to the Delaware basin. During 2024, the combined company expects to allocate approximately 90% of capital to high rate-of-return projects in the Delaware basin, predominantly focused on Lea, Eddy, Reeves and Ward Counties. Delaware basin activity is expected to be weighted slightly more towards New Mexico, as a result of the transaction. The Company expects to maintain optionality from the low decline Midland basin asset base, while harvesting significant free cash flow.

Extensive, high rate of return combined inventory. The transaction adds significant core inventory and bolsters Permian Resources’ position in highly productive areas within the Northern Delaware basin, characterized by proven stacked-pay intervals and low-cost operating environment. Earthstone’s New Mexico acreage position is highly complementary to Permian Resources’ existing high-return asset base, which has generated repeatable strong results. Additionally, this transaction provides the ability to high grade the combined company’s capital allocation across a broader asset base, improving capital efficiency.

Adds significant size and scale. The transaction increases Permian Resources’ position in the Permian basin by approximately 223,000 net acres to over 400,000 net acres, with pro forma production of approximately 300,000 boed. In the Delaware basin, the acquisition adds approximately 56,000 net acres of high-quality, stacked-pay reservoirs, largely offset to Permian Resources’ existing acreage in Lea and Eddy Counties. Earthstone’s remaining acreage is located in the Midland basin, and the company expects to primarily harvest free cash flow from this asset at current commodity prices.

The company expects to reduce LOE expense on a per unit basis through personnel and contract services optimization and enhanced production operations. Additionally, the combined company expects to leverage its enhanced size and scale to optimize pricing across completion, production and midstream operations.

Permian Resources has identified $30 million of annual general and administrative savings. The combined company is also expected to benefit from a lower overall cost of capital, leading to potential financial synergies of $30 million annually.

The all-stock transaction will consist of 1.446 shares of Permian Resources common stock for each share of Earthstone common stock, representing an implied value to each Earthstone stockholder of $18.64 per share based on the closing price of Permian Resources common stock on August 18, 2023. Permian Resources will issue approximately 211 million shares of common stock in the transaction. After closing, existing Permian Resources shareholders will own approximately 73% of the combined company and existing Earthstone shareholders will own approximately 27% of the combined company.

Upon closing of the transaction, Permian Resources’ Board of Directors will be expanded to consist of eleven directors, including the addition of two representatives from Earthstone. Permian Resources’ executive management team will lead the combined company with the headquarters remaining in Midland, Texas.

“We believe the acquisition of Earthstone represents a compelling value proposition for our shareholders and strengthens our position as a premier Delaware basin independent E&P. Earthstone’s Northern Delaware position brings high-quality acreage with core inventory that immediately competes for capital within our portfolio,” said Will Hickey, Co-CEO of Permian Resources. “Additionally, we have identified numerous ways to leverage our deep Delaware basin experience and incremental scale to improve upon these assets across the board, including approximately $175 million of annual synergies.”

“We are very pleased to announce this transaction with Permian Resources and believe the combination of the two companies’ top-tier assets and history of success will create an even stronger large-cap E&P company which is uniquely positioned to drive profitable growth and development in the world-class Permian Basin,” said Robert Anderson, President and Chief Executive Officer of Earthstone. “In less than three years, we have grown Earthstone from a small-cap E&P company producing approximately 15,000 boed to one with a production base of over 130,000 boed, delivering significant value enhancement for shareholders along the way.”