Earthstone Energy has agreed to acquire the Delaware basin assets in the US from oil and gas firm Chisholm Energy in a cash-and-stock deal worth approximately $604m.
Chisholm’s assets are located in the northern Delaware basin of New Mexico. The assets have a current net production of approximately 13,500 barrels of oil equivalent per day.
Under the terms of the deal, Earthstone will pay $340m in cash to Chisholm, followed by a deferred cash sum of $70m over the 12 months after the transaction has been closed.
Chisholm will also receive approximately 19.4 million shares of Earthstone Class A common stock. These have a value of $194m.
The transaction is planned to be completed in the first quarter of 2022.
Earthstone expects the acquisition to boost its net production by approximately 39%, and increase the Permian basin acreage by more than 35%, to approximately 138,000 net acres.
Earthstone president and CEO Robert J Anderson said: “The Chisholm acquisition caps off a series of highly accretive and value-adding transactions that have dramatically transformed Earthstone during 2021, and further establishes Earthstone as a Permian basin focused company with increasing scale.
“When this acquisition is combined with the previous four acquisitions completed in 2021, we will have increased our Permian basin net acreage footprint by approximately 400%, almost tripled our daily production rate, and meaningfully increased free cash flow generation capacity.
“In particular, the Chisholm acquisition expands our operations into the Delaware basin with low cost, high margin assets that are generating significant production and cash flow from existing producing wells, while also providing growth opportunities from a high-return drilling inventory.”
In 2022, the firm plans to continue the two-rig programme in the Delaware basin, as well as the two-rig programme in the Midland basin.
Private equity company Warbrg Pincus and its affiliates own a majority stake in Chisholm. Warburg Pincus also has a 15.1% beneficial ownership of Earthstone’s total Class A and Class B common stock.
As part of the traction, Warburg Pincus would receive an estimated 13.2 million shares of Class A common stock in Earthstone, indirectly, through its majority stake in Chisholm.
Beneficial ownership of Warburg Pincus in Earthstone’s total Class A and Class B common stock is expected to be increased to approximately 24.7%.
Last month, Earthstone acquired privately held assets, located in the Midland basin, from Foreland Investments and BCC-Foreland, for $73.2m.
EnCap Investments recently reportedly the merging of two of its companies to create one of the largest privately owned oil producers in the Delaware basin.