Earthstone Energy, based in The Woodlands, has agreed to be acquired by Permian Resources in an all-stock transaction worth $4.5 billion. The executives of PR will run the combined business from its headquarters in Midland. Earthstone’s shareholders will get 27% of the combined business.
[UPDATE – 11-01-23 The deal has been completed.]
Both companies operate exclusively in the Permian Basin. Combined they will have 403,000 net acres and run 11 drilling rigs. They will be the sixth largest producer in the Permian.
Earthstone was formed in 1969 as Basic Earth Science Systems. Initially, it was based in Denver and operated in Montana and North Dakota of the Bakken. The company changed its name to Earthstone Energy in 2010 and went public the following year.
In December 2014, Oak Valley Resources, a Houston-based company completed a reverse takeover of Earthstone for $138 million. Oak Valley founder and CEO Frank Lodzinski is now the Chairman of Earthstone.
The history of Permian Resources starts with Colgate Energy Partners. It was formed in 2015 with backing from private equity firms Pearl Energy Investments and NGP. Colgate went public in September 2022, via a merger with Centennial Resource Development. The combined company was renamed Permian Resources. Centennial was originally taken public in 2016 by a SPAC founded by Mark Papa, who built EOG Resources and was backed by Riverstone.
In June, Earthstone agreed to buy a two-thirds interest in Novo Oil and Gas for $1 billion. Novo is a Delaware Basin E&P operator, backed by EnCap Investments. In 2022, it made three separate acquisitions for $1.5 billion.
Permian is targeting $175 million of cost synergies, mainly through lower drilling costs. The savings include $30 million for general and administrative costs or 50% of Earthstone’s current cash G&A costs.
I tried to determine what payouts would be due to the senior management of Earthstone in the event they left as a result of the takeover. Unfortunately, unlike most of their peers, the company didn’t publish a summary compensation table for that event. However, CEO Robert Anderson would get 3x base salary and bonus (about $3.9 million), while other executives would get 2x (about $2.1 million each).
Interestingly, most of the unvested stock held by the Earthstone management vests (or has vested) this year. That’s worth around $15 million for Mr. Anderson and around $8 million or so for each of the other executives.
The deal is expected to close by the end of 2023.