Earthstone Energy Inc. and Northern Oil and Gas Inc. (NOG) are buying Novo Oil & Gas Holdings LLC for $1.5 billion, according to press releases from both companies.
Texas-based Earthstone will pay $1 billion for a 66.67 percent stake in Novo, while NOG will acquire working interests equivalent to 33.3 percent of the oil and gas assets for $0.5 billion. The effective date of the agreement is May 1 and is expected to close in the third quarter, subject to customary closing conditions. Novo’s assets are primarily located in Eddy County, New Mexico and Culberson County, Texas. Upon closing and transition of services, Earthstone will operate “substantially” all of the assets, and NOG will participate in the development of the assets subject to future joint operating agreements.
Earthstone will finance the acquisition with cash on hand and borrowings under its secured revolving credit facility. The company also secured $250 million in incremental commitments from existing lenders, increasing its credit facility commitment to $1.65 billion.
The Novo assets to be acquired by Earthstone, approximately 11,300 net acres in the Delaware Basin, have recent production of approximately 38,000 barrels of oil equivalent per day (boepd) from 114 wells, measured at 37 percent oil and 66 percent liquids. The assets are estimated to contain $912 million of proven developed PV-10 and proven developed reserves estimated at 73.9 million barrels of oil equivalent. There are also 21 crude operated wells awaiting completion.
The move is in line with Earthstone’s consolidation strategy to further build its asset base in the northern Delaware Basin, according to the company’s CEO and President Robert Anderson. “With significant production volumes from the Novo acquisition, we expect Earthstone’s near-term production levels to exceed 135,000 barrels of oil equivalent per day,” Anderson said.
“We expect free cash flow to increase significantly compared to standalone Earthstone as we have added substantial production assets but are not increasing capital expenditures,” Anderson noted. “We believe the benefits of continued consolidation are very compelling and strongly believe this is a value-creating transaction for Earthstone. We are also pleased that Northern has recognized the value of these assets and chosen to participate in this transaction very grateful.”
“Over the past several years, we have strategically positioned the company as a major operator in the Permian Basin,” Anderson said. “In 2022, we substantially advanced our consolidation strategy, closing three incremental acquisitions for a total of [approximately] $2 billion, including two major asset acquisitions in the northern Delaware Basin.”
With the acquisition, Earthstone plans to move one of its two drilling rigs currently operating in the Midland Basin to the Delaware Basin to focus on the Novo assets, resulting in four rigs operating in the basin of Delaware after the deal closes.
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The assets to be acquired by NOG include approximately 5,600 net acres, 29.2 net producing wells, 7.2 net in-process wells and 59.9 net undeveloped locations. Recent production was approximately 13,000 boepd, the company said.
For the second half of 2023, NOG expects average production of approximately 11,500 boepd for its Novo assets and approximately $20 million of capital expenditures. In the long term, NOG expects Earthstone to bring back online an average of approximately six to seven net annual wells at NOG, which should keep production at around 10,000 boepd.
“Novo is NOG’s largest transaction to date and is among the most enjoyable, with significant, high-quality, long-standing inventory,” said NOG CEO Nick O’Grady. “We are excited to work together with our partners at Earthstone developing these assets over the next decade and believe this transaction will generate higher earnings per share, free cash flow and shareholder returns for our investors both immediately and over the long term.” time limit”.
“With Novo, we continue to showcase NOG’s unique capabilities and access to great tailor-made opportunities,” said NOG President Adam Dirlam. “Our return-focused strategy, combined with our scaled data advantage, has fundamentally changed the types of transactions we can undertake. Our reputation as an aligned and balanced partner allows us to participate across asset classes and areas of the highest quality with respected operators.”
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