Houston-based Earthstone Energy, Inc. announced it has entered into an agreement to acquire the assets of privately held Bighorn Permian Resources, LLC located in the Midland Basin.
The aggregate purchase price of the Bighorn Acquisition is approximately $860 million, consisting of $770 million in cash and approximately 6.8 million shares of Earthstone's Class A common stock valued at $90 million based on a closing share price of $13.25 on January 28, 2021, subject to customary closing adjustments.
The effective date of the Bighorn Acquisition will be January 1, 2022, with closing anticipated early in the second quarter of 2022. The cash portion of consideration is expected to be funded with cash on hand, proceeds from a private placement of equity and borrowings under the Company's senior secured revolving credit facility. Earthstone has obtained commitments from its existing lenders to increase the borrowing base and elected commitments under its Credit Facility to a total of $1.325 billion from the current $625 million upon both the anticipated February 2022 closing of the previously announced Chisholm Acquisition and the closing of the Bighorn Acquisition.
Bighorn Asset Highlights:
- Average daily production of ~42,400 Boepd (25% oil, 57% liquids) during November 2021 (1)
- Asset level projected 2022 Adjusted EBITDAX of approximately $348 million (2,3) with minimal capital expenditures expected
- $1.01 billion PDP PV-10 as of 1/1/22 with associated reserves of approximately 106 MMBoe (20% oil, 34% NGL, 46% natural gas) (4) based on NYMEX strip pricing as of January 18, 2022
- Low decline PDP asset base, with ~19% forecasted production decline from 2022 to 2023 production
- High margin production base with upside potential from operating synergies and reducing lease operating expenses
- Approximately 110,600 net acres (98% operated, 93% WI, 99% HBP) in the Midland Basin, primarily in Reagan and Irion counties
- 49 gross / 35 net Earthstone identified drilling locations on conservative spacing and economic assumptions
Impact on Earthstone:
- Combination with Earthstone (including impact of pending Chisholm Acquisition) is expected to increase net production by ~70%, Adjusted EBITDAX by ~54% and Free Cash Flow by ~194% in 2022 (5), while only increasing share count by 30%, driving significant per share accretion
- 2022 preliminary estimated combined snapshot (6):
- - 76,000-80,000 Boepd of production (40% oil, 68% liquids)
- - $940-980 million of Adjusted EBITDAX
- - $410-440 million of capital expenditures
- - $480-520 million of Free Cash Flow
- Leverage neutral transaction maintains conservative balance sheet
- - Maintains targeted 2022 Debt / Adjusted EBITDAX of 1.0x or lower
- Earthstone anticipates holding production flat to moderate growth on a go forward annual basis based on continuously running the total of four rigs currently being operated by Earthstone and Chisholm in the Midland Basin and the Delaware Basin, respectively
- Mature asset base with ~50% capital reinvestment sufficient to maintain production
- Accelerates timing of establishing a shareholder return strategy
Robert J. Anderson, president and CEO of Earthstone, commented, "The transformation of Earthstone continues with the announcement of the significant and highly-accretive Bighorn Acquisition. Combining the Bighorn Acquisition with the four acquisitions completed in 2021 and the pending Chisholm Acquisition, we will have more than quadrupled our daily production rate, greatly expanded our Permian Basin acreage footprint and increased our Free Cash Flow generating capacity by many multiples since year-end 2020.
The proximity of the Bighorn assets to existing Earthstone operations positions us to create further value by applying our proven operating approach to these assets, primarily in the form of reducing operating costs. The addition of the high cash flow producing assets from Bighorn to the strong drilling inventory of Earthstone, including the Chisholm Acquisition, furthers Earthstone's transformation into a larger scaled, low-cost producer with lower reinvestment in order to maintain combined production levels.
"Consistent with our track record, we are adding substantial size and scale while preserving our balance sheet strength. The mix of debt and equity utilized for the Bighorn Acquisition was designed to be leverage neutral and maintain our targeted 1.0x Debt to EBITDAX or better.
"We are excited about the future of Earthstone, as we have the size and quality of drilling inventory and magnitude of Free Cash Flow generation to accelerate consideration of shareholder returns, to improve capital allocation efficiency and to continue to be a consolidator of assets in the Permian Basin."
