Earthstone Energy, Inc. and Northern Oil and Gas, Inc. have closed the acquisition of the Northern Delaware Basin assets from private equity firm Novo Oil & Gas Holdings LLC, according to press releases from both companies.
Earthstone will become the operator of virtually all assets. In connection with the transaction, NOG and Earthstone entered into cooperation and joint operations agreements, which include a multi-year development plan for Novo’s assets, NOG said.
At closing, NOG paid $468.4 million in cash, funded in part by a $37.5 million deposit paid at signing in June. The closing agreement is net of preliminary and customary purchase price adjustments and remains subject to post-closing agreements between the parties, NOG said.
Under the deal announced in June, Texas-based Earthstone would pay $1 billion for a 66.67 percent stake in Novo, while NOG would acquire working interests equivalent to 33.3 percent of the oil assets and gas for $0.5 billion, with an effective date of May 1. Novo’s assets are primarily located in Eddy County, New Mexico and Culberson County, Texas.
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. 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.
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.
“We are excited to add Novo’s assets to Earthstone’s core position in northern Delaware. A key piece of our strategy has been to grow our footprint in the northern Delaware Basin,” said the president and Earthstone CEO Robert Anderson. “In February 2022, we acquired the Chisholm assets and then added to this position with the acquisition of Titus last August. Adding the Novo assets further shifts our focus to the prolific northern Delaware Basin. We expect the majority of our capital activity will be in this area going forward, with four of our five platforms focused on the northern Delaware Basin.”
“Novo significantly enhances our scale and operational synergies with Earthstone’s estimated production profile for the fourth quarter of more than 130,000 boepd,” Anderson added. “Novo will add more than 200 high-yield, low-risk drilling locations, deepening our inventory and extending our life to 13 years. This level of production propels us to be one of the top producers in the Permian SMID-Cap E&P Group . We expect this transaction to be significantly accretive to our 2024 EBITDAX, but more importantly, we expect to increase 2024 free cash flow by more than 60 percent.”
Concurrent with the closing of the Novo acquisition, Earthstone announced the effectiveness of an amendment to the company’s senior secured credit facility, which increases the elected borrowing base commitments from $1.45 billion to $1.75 billion of dollars and increases the loan base from $1.65 billion to $2 billion.
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