Earthstone Adds Eagle Ford to Consolidation Strategy with Acquisition

The Woodlands, Texas-based Earthstone Energy Inc. is not quite finished with A&D.

Months after agreeing to acquire Midland Basin assets in the Permian for $126.5 million, Earthstone has tacked on another multimillion-dollar acquisition—this time in the Eagle Ford—representing “yet another step in our ongoing consolidation strategy,” according to CEO Robert J. Anderson.

“While not as significant in size as the previously announced acquisitions, the Eagle Ford Acquisitions will increase oil production and positively impact our overall cash margins,” Anderson said in a statement on June 14.

According to a company release, Earthstone agreed to pay $48 million in cash for the acquisition of working interests in Eagle Ford assets the company operates located in southern Gonzales County, Texas, from four separate sellers. The largest of the acquisition comprised interests owned by two affiliates of Titanium Exploration Partners LLC, a portfolio company of EnCap Investments LP, which is also a significant holder of Earthstone common stock and represented on the company’s board of directors.

The acquisition is expected to increase Earthstone working interest in subject assets in Gonzales County to roughly 96% from 34%, ultimately adding oil-weighted production and cash flow contribution to its existing asset base. The company also has Eagle Ford properties in Fayette and Karnes counties in South Texas.

“We paid an attractive price for these producing assets which we already operate and they will add 1,150 boe/d of production with a lower decline profile compared to our current aggregate corporate decline profile,” Anderson noted in his statement.

According to Earthstone, the purchase price implied a PV-22 discount rate on PDP. Earthstone funded the acquisitions, which had an effective date of April 1, with cash on hand and borrowings under its senior secured revolving credit facility.

Because one of the four sellers in the Eagle Ford transaction is owned by an affiliate of EnCap, the audit committee of the Earthstone board independently reviewed and approved the related-party acquisition, the company said. Further, after participating in a competitive sales process, Earthstone acquired the assets for $8.2 million from that entity.

Earthstone expects to close its recent Midland Basin acquisition in the Permian, which is still pending, following its annual meeting to be held on June 20. The transaction, which included privately held operated assets from Tracker Resource Development III LLC and affiliates of Sequel Energy Group LLC, followed the closing of Earthstone’s acquisition of Independence Resource Management LLC, a fellow Permian producer backed by Warburg Pincus, for $185.9 million in January.

Over the years, Earthstone has utilized M&A of small operators to propel its scale in the Permian Basin and Eagle Ford Shale, a strategy the company intends to continue, according to Anderson. In addition to its latest series of deals, the company also made a 2017 acquisition of Bold Energy, an EnCap-backed company operating in the Permian Basin, which gave the capital provider a controlling interest in the stock. 

“We intend to continue seeking other value-enhancing transactions that would increase our operational and corporate cost efficiencies while maintaining financial discipline, ultimately benefitting our shareholders via stock price appreciation,” Anderson added in the June 14 release.