Permian Resources Corp., Midland, Tex., has agreed to acquire Earthstone Energy Inc., increasing its operating size and scale in the Delaware basin with inventory that immediately competes for capital, the companies said in a release Aug. 21.
The all-stock transaction—valued at $4.5 billion, inclusive of Earthstone’s net debt—increases Permian Resources’ position in the Permian basin by about 223,000 net acres to over 400,000 net acres with pro forma production of about 300,000 boe/d.
In the Delaware basin, the deal adds about 56,000 net acres of stacked-pay reservoirs, largely offset to Permian Resources’ existing acreage in Lea and Eddy Counties. Earthstone’s remaining acreage is in the Midland basin, the companies said.
Currently, the companies are running an 11-rig drilling program in aggregate, primarily focused on the Delaware basin. The combine expects to allocate at least one of Earthstone’s two rigs currently in the Midland basin to the Delaware basin.
In 2024, the combine expects to allocate about 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, according to the release.
Total synergies are expected to drive about $175 million in annual cash flow improvements, which include $145 million of operational and general and administrative (G&A) synergies expected to be fully realized by year-end 2024. Expected annual operational synergies total $115 million and are primarily associated with reduced drilling, completions, and facilities (DC&F), lease operating and midstream costs.
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 Aug. 18, 2023. Permian Resources will issue about 211 million shares of common stock in the transaction.
After closing—expected by year-end 2023, subject to customary closing conditions, regulatory approvals and shareholder approvals—existing Permian Resources shareholders will own about 73% of the combined company and existing Earthstone shareholders will own about 27%.
With closing, Permian Resources’ board of directors will be expanded to 11 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, Tex.