Earthstone Energy has agreed to acquire Novo Oil & Gas Holdings, a US-based privately held oil and gas company, in a deal worth $1.5bn.

Novo Oil & Gas, which is backed by EnCap Investments, holds 17,000 net acres in the Northern Delaware Basin, a part of the wider Permian Basin in New Mexico.

The Northern Delaware Basin is said to hold high-quality, liquids rich, stacked pay zones.

Subject to customary closing conditions, the deal is scheduled to close in the third quarter of 2023.

Earthstone president and CEO Robert J Anderson said: “With significant production volumes from the Novo Acquisition, we expect Earthstone’s near-term production levels to surpass 135,000 barrels of oil equivalent per day.

“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.”

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At the same time, Northern Oil (NOG) agreed to buy 33.33% undivided stake in the oil and gas assets of Novo from Earthstone Energy for $500m.

This deal is subject to customary closing adjustments and is planned to close in August 2023.

The acquired assets include approximately 5,600 net acres, 7.2 net wells-in-process, 29.2 net producing wells, and 59.9 low-breakeven net undeveloped locations. These assets are primarily located in Eddy County, New Mexico and eastern Culberson County, Texas.

NOG CEO Nick O’Grady said: “We are excited to work alongside our partners at Earthstone developing these assets for the next decade and believe this transaction will drive higher per share profits, free cash flow and shareholder returns for our investors, both immediately and over the long term.”

In April 2023, Reuters reported EnCap Investments was looking to separately offload the Novo Oil & Gas Holdings and Forge Energy II to raise nearly $3bn in total.