Shares of Earthstone Energy (NYSE: ESTE) gained in morning trading on Thursday at the time of writing after the energy company announced that it has acquired Novo Oil & Gas Holdings, a privately-held exploration and production company in the Delaware Basin backed by EnCap Investments for $1.5 billion.
Concurrently, Northern Oil and Gas (NOG) will acquire “working interests equal to a pro-rata 33⅓% of the oil and gas assets of Novo for $0.5 billion from Earthstone, resulting in a $1.0 billion purchase price net to Earthstone for the retained 66⅔ % interest”. The Novo Acquisition is expected to close in the third quarter of this year.
Robert J. Anderson, President and CEO of Earthstone, commented, “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 (“Boepd”). 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 Novo acquisition is expected to be funded with cash on hand and a loan from Earthstone’s senior secured revolving credit facility. In relation to the Novo acquisition, Earthstone has “secured $250 million of incremental commitments from existing lenders.”
Analysts are cautiously optimistic about ESTE stock with a Moderate Buy consensus rating based on one Buy and two Holds.
