(WO) – Earthstone Energy, Inc. has entered into an agreement to acquire Novo Oil & Gas Holdings, LLC , a privately-held Delaware Basin focused E&P company backed by EnCap Investments L.P., for $1.5 billion. Concurrently, Northern Oil and Gas, Inc. will acquire working interests equal to a pro-rata 33⅓ % of the oil and gas assets of Novo for $0.5 billion from Earthstone, resulting in a $1 billion purchase price net to Earthstone for the retained 66⅔ % interest.
Robert J. Anderson, President and CEO of Earthstone, commented, “With significant production volumes from the Novo Acquisition, we expect Earthstone’s near-term production levels to surpass 135,000 boed. Further, we anticipate Free Cash Flow to increase significantly compared to standalone Earthstone as we have added substantial producing assets but are not increasing capital expenditures. The addition of approximately 200 high-quality, low breakeven locations deepens our drilling inventory and with our flat rig count, extends our inventory life significantly to over a decade.”
Novo asset highlights
- Recent production of approximately 38,000 boed (37% oil, 66% liquids) from 114 wells
- $912 million Proved Developed (“PD”) PV-10 and PD reserves of approximately 73.9 MMboe
- 21 gross operated wells waiting on completion
- Estimated $360-380 million of next twelve months
- Approximately 11,300 net acres (99% operated, 57% working interest, 86% held by production) in the core of the Delaware basin in Eddy County, New Mexico, and Culberson County, Texas
- High-return drilling inventory with roughly 200 gross operated locations and with average breakeven below $40 bbl
Novo acquisition highlights
Adds high-quality inventory: Strengthens deep inventory with roughly 200 high-return locations, with average breakeven blow $40/Bbl and de-risked gross locations across multiple benches that will immediately receive an allocation of capital. Extends inventory life to approximately 13 years.
Creates a stronger Earthstone: Transaction significantly strengthens operational and financial performance, better positions Earthstone as a Permian consolidator, and accelerates potential for meaningful shareholder returns.
Earthstone intends to maintain its five operated drilling rigs post-closing. Given that Novo’s inventory immediately competes for capital, Earthstone intends to move one of its two drilling rigs currently operating in the Midland basin to the Delaware basin to focus on the Novo assets.
The net result will be Earthstone having four rigs operating in the Delaware basin and one in the Midland basin post-closing. The Novo Acquisition and revised development plan continues Earthstone’s evolution over the past several years, with its drilling inventory and development program now heavily weighted towards the highly economic northern Delaware basin assets.
Q4 2023 production is expected to increase by 30,000-35,000 boed (37% oil) relative to the current operating plan and guidance. Earthstone’s total production in 2024 is expected to decline moderately compared to Q4 2023 production, with the production profile flattening out in H2 2024
The company’s Delaware basin acreage position increases by approximately 11,300 net acres to approximately 56,000 net acres. Drilling inventory increased 24% to 1,020 gross locations, with approximately 70% of locations in the Delaware basin
