Earthstone Energy, Inc. (ESTE) inked a deal to acquire privately-held operated assets located in the Midland Basin from two unaffiliated sellers in a cash and stock deal worth $73.2 million.
Per the terms of the deal, oil and natural gas company Earthstone will pay $49.2 million in cash and 2.6 million shares of Earthstone’s Class A common stock valued at $24.0 million based on a closing share price of $9.20 on September 30, 2021. The stock consideration represents 3% of the total shares outstanding including Class A and Class B common stock.
The acquired asset base has low-cost, high-margin assets spread over 10,000 net acres, with an average daily production of 4,400 barrels of oil equivalent (Boe) per day during September 2021, and an expected adjusted EBITDAX of approximately $42 million for the next year.
The deal is expected to be immediately accretive on all key financial metrics and will compliment all of Earthstone’s existing assets. (See Earthstone Energy stock charts on TipRanks)
Earthstone intends to finance the cash portion of the deal with available cash and borrowings under its revolving credit facility.
The acquisition is expected to close by the middle of the fourth quarter of 2021, subject to certain regulatory approvals.
Earthstone CEO Mr. Robert J. Anderson said, “This transaction will be our fourth acquisition this year as we continue to advance our consolidation strategy and enhance our Midland Basin footprint with additional scale.”
He further added “The mix of consideration between cash and equity in accordance with our focus on maintaining a strong balance sheet positions us well to continue our consolidation efforts. We are pleased to continue to add incremental scale in an accretive manner without sacrificing our balance sheet or free cash flow generation.”
Wells Fargo analyst Joseph McKay recently downgraded Earthstone Energy from Hold to Sell with a price target of $10 (4.9% upside potential)
Consensus among analysts is a Moderate Buy based on 4 Buys and 1 Sell. The average Earthstone Energy price target of $14.30 implies 50.1% upside potential to current levels.
ESTE scores a 7 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock is likely to perform in line with market expectations.