Earthstone Closes Bighorn Acquisition as well as Debt and Equity Financings

(Earthstone Energy, 14.Apr.2022) — Earthstone Energy, Inc. (NYSE: ESTE) announced the closing of the acquisition of assets of privately held Bighorn Permian Resources, LLC in the Midland Basin. The company also announced the closing of a $550mn private offering of senior unsecured notes; a $280mn private placement of equity (the “PIPE”); and an amendment to the company’s revolving credit facility. 

Further, the company provided an update on key balance sheet metrics as of 31 March 2022, and as adjusted for the recent closings of the Bighorn acquisition, the notes offering, the PIPE and the amendment to the Credit Facility.  Additionally, the company provided an estimate of daily production sales volumes for the first quarter of 2022.

Highlights:

  • Closed the Bighorn acquisition on 14 April 2022
  • The cash consideration for the Bighorn acquisition was reduced from the announced $770mn by approximately $131mn to $639mn and the equity consideration was reduced from the announced approximately 6.8mn shares of Class A common stock by approximately 1.2mn shares to 5.7mn shares, both based on preliminary purchase price adjustments
  • Closed the $550mn notes offering comprised of 8.0% senior unsecured notes on 12 April 2022
  • Closed the $280mn PIPE on 14 April 2022
  • Closed on an amendment to the credit agreement governing the credit facility which, among other things, increased the borrowing base to $1.325bn on 14 April 2022
  • Voluntarily elected to reduce commitments under the borrowing base of the Credit Facility to $800mn on 14 April 2022
  • Estimates that the company had $337mn of undrawn availability on the $800mn of commitments under the $1.325bn borrowing base on the credit facility as of 31 March 2022, as adjusted for the transactions described herein

Operations Update:

  • Earthstone estimates its average daily production for the first quarter of 2022 to be approximately 35,500 Boepd (44% oil, 26% NGLs, 30% natural gas) which only includes 45 days of production from the assets we acquired in the northern Delaware Basin from Chisholm
  • Earthstone continues to operate two drilling rigs in the Midland Basin and two drilling rigs in the northern Delaware Basin

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, “We are pleased to have taken multiple significant steps in the ongoing transformation of Earthstone as we have closed on the Bighorn acquisition and on significant debt and equity financings this week.   Based on the purchase price adjustments at closing as a result of the significant cash flows from the effective date, we will have funded the Bighorn acquisition with well over 50% equity in the form of direct consideration to the seller and the new equity investment from the PIPE, maintaining our conservative capital structure.

“Combining the recently closed Chisholm acquisition and its high-quality inventory in the northern Delaware Basin with the Bighorn acquisition and its low-decline, high free cash flow production base in the Midland Basin has created significant incremental scale for Earthstone.  We believe that the balance of high return drilling inventory and strong free cash flow production base within Earthstone creates an optimal opportunity for value creation as we continue our 2022 operating and capital plan.

“Our near-term focus will be to continue integration efforts on both the northern Delaware Basin assets and the newly acquired Midland Basin assets. We expect to continue our pursuit of additional scale through accretive acquisitions that we believe will result in continued improved cost structure and creation of shareholder value, while always keeping our balance sheet strength as the top priority.”

Liquidity Update

As of 31 March 2022, we had $1mn in cash and $624mn of long-term debt outstanding under our Credit Facility with a borrowing base of $825mn. Subsequent to 31 March 2022, Earthstone closed on its previously announced Bighorn acquisition, closed the $550mn notes offering, closed the $280mn PIPE and paid the $70mn of deferred cash consideration for the Chisholm acquisition. When adjusted to include the impact of these activities, we had estimated total debt outstanding of $1,013mn, comprised of $550mn of senior unsecured notes and $463mn of debt outstanding under our credit facility, leaving $337mn of undrawn availability on the $800mn of total commitments under our credit facility.

Board Appointment

In conjunction with the closing of the PIPE, the Earthstone Board of Directors has expanded to eleven members with the appointment of Mr. Frost Cochran.  Mr. Cochran is a Managing Director and a founding partner of Post Oak Energy Capital, L.P.

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