Highly Accretive Expansion in Northern Delaware Basin Meaningfully Increases
Scale
THE
WOODLANDS, Texas, June 28,
2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE:
ESTE) ("Earthstone" or the "Company") today announced that it has
entered into an agreement (the "Agreement") to acquire the
New Mexico assets of Titus Oil
& Gas Production, LLC and Titus Oil & Gas Production II,
LLC and their affiliates (collectively, "Titus") located in the northern Delaware Basin (the "Titus Acquisition").
Titus is privately held with
sponsorship by investment funds managed by NGP Energy Capital
Management, LLC.
The aggregate purchase price of the Titus Acquisition is
approximately $627 million consisting
of $575 million in cash and
approximately 3.9 million shares of Earthstone's Class A common
stock valued at $52 million based on
a closing share price of $13.51 on
June 24, 2022, both subject to
customary closing adjustments. The effective date of the Titus
Acquisition will be August 1, 2022,
with closing anticipated in the third quarter of 2022. The
cash portion of the consideration is expected to be funded with
cash on hand and borrowings under the Company's senior secured
revolving credit facility (the "Credit Facility"). In
conjunction with the Titus Acquisition, Earthstone has obtained
$400 million of incremental
commitments from existing lenders, increasing elected commitments
under the Credit Facility from the current $800 million to $1.2
billion upon closing. Earthstone's current borrowing
base is $1.4 billion and is expected
to increase with the Titus Acquisition.
Titus Asset Highlights:
- June 2022 net production has
averaged ~31,800 Boepd (65% oil, 83% liquids) from 44 gross / 37
net operated wells and is inclusive of ~1,200 Boepd from
non-operated interests (1)
- $857 million Proved Developed
PV-10 as of 8/1/22 with reserves of
approximately 28.9 MMBoe (2,3)
- Estimated $320-340 million of
next twelve months Adjusted EBITDAX from Proved Developed Producing
based on 8/1/22 effective date
(4,5)
- Low-cost, high-margin producing assets generating significant
Free Cash Flow (4,5)
- Approximately 7,900 net acres (65% operated, 78% WI, 93% HBP)
in the core of the Delaware Basin
in Lea and Eddy Counties, New
Mexico
- High-return, de-risked drilling inventory with 114 gross / 86
net locations comprised of 61 gross / 46 net operated high-graded
locations focused on 2nd and 3rd Bone Spring
and Wolfcamp A /XY formations with an additional 53 gross / 40 net
operated locations from secondary targets
- Titus is currently utilizing
three rigs to drill six wells (93% working interest) in
Lea County, with completions
expected late in the third quarter of 2022
Impact on Earthstone:
- Expected to increase net production by 18,000-23,000 Boepd (65%
oil) in the fourth quarter of 2022
- Earthstone intends to maintain two rigs in the Delaware Basin and two rigs in the Midland
Basin with an additional rig being considered for the Delaware Basin after closing
- Expected increase in capital expenditures in the fourth quarter
of 2022 of $25-50 million
- Increases Earthstone's Delaware Basin acreage position to ~44,000 net
acres and its broader Permian Basin acreage position to ~256,000
net acres
- Expected impact on Earthstone's guidance for the remainder of
the year dependent upon timing of closing and will be provided
after closing
- Maintains conservative balance sheet metrics with low
leverage
-
- Forecasted increase of 0.1x in Debt / Last Quarter Annualized
("LQA") Adjusted EBITDAX at year-end 2022 allows for maintenance of
targeted sub-1.0x Debt / LQA EBITDAX
- Increase in share count of only 3%, driving significant
immediate per share accretion
- Anticipated total common share count of ~142.4 million shares
upon closing and with the expected conversion of the outstanding
convertible preferred stock (6)
- Significantly increases magnitude of expected Free Cash Flow
generation while maintaining timing of consideration of shareholder
return program
Robert J. Anderson, President and
CEO of Earthstone, commented, "The Titus Acquisition continues our
path of building scale in the Permian Basin, increasing our daily
production to around 100,000 Boepd upon closing. We had a
goal of adding to our recently established Northern Delaware Basin position and are
excited about this transaction and the drilling inventory we are
acquiring as it is among the highest economic locations in the
Permian Basin. We continue to pursue synergies from the two
acquisitions completed since the beginning of 2022. In
particular, we are very pleased with the execution of our
operations in the Northern
Delaware Basin assets acquired earlier this year and expect
to apply that knowledge to the Titus Acquisition assets after
closing. We have continued to build out our high margin asset
base, which is generating significant Free Cash Flow to which this
acquisition will contribute in a meaningful way.
"As we have continued to demonstrate from prior acquisitions, we
believe that the price for this acquisition is highly attractive,
with our ability to buy the assets at less than 2x PDP cash flows
using current NYMEX strip prices. We are also obtaining six
wells in progress and 86 potentially highly economic net locations
which will be incorporated into our drilling plans as quickly as
possible. The combination of the attractive price being paid,
the current high level of commodity prices and production of the
acquired assets will allow us to acquire the assets utilizing
primarily debt funding while having only a minimal impact on
leverage. We expect this to increase our 4Q 2022 Debt / LQA
Adjusted EBITDAX by only 0.1x while remaining below our targeted
1.0x leverage ratio at year-end 2022. The moderate levels of
expected leverage and significant incremental Free Cash Flow
further strengthens our outlook in 2023, while positioning us to
consider implementing a shareholder return plan as we look into
2023."
Transaction Consideration and
Sources
The consideration for the Titus Acquisition consists of
approximately 3.9 million shares of Earthstone's Class A common
stock to be issued to Titus, which
will represent 3% of total Class A and Class B common stock on a
pro forma basis (6) and a cash amount of $575 million based on the effective date (subject
to customary closing adjustments).
Earthstone intends to fund the cash portion of the consideration
and fees and expenses with cash on hand and incremental bank
borrowings. The Company has received $400
million in increased commitments from existing lenders.
Approvals
The board of directors of Earthstone has unanimously approved
the Titus Acquisition. The board of directors and members of
Titus Oil & Gas Production, LLC and Titus Oil & Gas
Production II, LLC and those of their applicable affiliates have
also unanimously approved the Titus Acquisition.
Investor Presentation and Other
Details
Please refer to the "Investors" section of Earthstone's website,
www.earthstoneenergy.com, for access to a presentation highlighting
the Titus Acquisition.
Further details of the terms of the Titus Acquisition are set
forth in the Agreement, which will be filed by Earthstone with the
Securities and Exchange Commission ("SEC") and will be available
for viewing under its profile at www.sec.gov or under the
"Investors" section of Earthstone's website.
Advisors
Legal advisors included Haynes and Boone, LLP and Jones &
Keller, P.C. for Earthstone, and Bracewell, LLP for Titus.
Jefferies LLC acted as exclusive financial advisor to Titus.
About Earthstone Energy,
Inc.
Earthstone Energy, Inc. is a growth-oriented, independent energy
company engaged in the development and operation of oil and natural
gas properties. Its primary assets are located in the Permian Basin
of west Texas and southern
New Mexico. Earthstone is listed
on the New York Stock Exchange under the symbol "ESTE." For more
information, visit Earthstone's website at
www.earthstoneenergy.com.
____________________
|
(1)
|
Earthstone management
estimate of Titus three stream sales volumes for first 20 days of
June 2022.
|
(2)
|
PV-10 is a non-GAAP
measure that differs from a measure under GAAP known as
"standardized measure of discounted future net cash flows" in that
PV-10 is calculated without including future income
taxes.
|
(3)
|
Earthstone management
estimate of proved developed reserve volumes and values as of
August 1, 2022, discounting cash flows at a rate of 10% and
utilizing NYMEX strip prices as of June 17, 2022.
|
(4)
|
Based on Earthstone
management estimates and NYMEX strip prices as of June 17, 2022;
excludes general and administrative expenses.
|
(5)
|
Adjusted EBITDAX and
Free Cash Flow are non-GAAP measures. Adjusted EBITDAX is
defined as net (loss) income plus, when applicable, accretion of
asset retirement obligations; impairment expense; depletion,
depreciation and amortization; interest expense, net; transaction
costs; (gain) loss on sale of oil and gas properties, net;
exploration expense; unrealized loss (gain) on derivative
contracts; stock-based compensation (non-cash); and income tax
expense. Free Cash Flow is defined as Adjusted EBITDAX
(defined above), less interest expense, less accrual-based capital
expenditures.
|
(6)
|
Pro forma share count
of ~142.4 million includes ~79.1 million Class A Common Shares and
~34.3 million Class B Common Shares, as of 6/24/22; the assumed
conversion on July 6, 2022 of the 280,000 shares outstanding of
Series A Convertible Preferred Stock into ~25.2 million Class A
Common Shares, and ~3.9 million Class A Common Shares issued to
Titus as partial consideration for the Titus
Acquisition.
|
Forward-Looking
Statements
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Statements that are
not strictly historical statements constitute forward-looking
statements and may often, but not always, be identified by the use
of such words such as "expects," "believes," "intends,"
"anticipates," "plans," "estimates," "forecast," "guidance,"
"potential," "possible," or "probable" or statements that certain
actions, events or results "may," "will," "should," or "could" be
taken, occur or be achieved. The forward-looking statements include
statements about the expected benefits of the Titus Acquisition to
Earthstone and its stockholders, the anticipated completion of the
Titus Acquisition or the timing thereof, the expected future
reserves, production, financial position, business strategy,
revenues, earnings, costs, capital expenditures and debt levels of
the combined company, and plans and objectives of management for
future operations. Forward-looking statements are based on current
expectations and assumptions and analyses made by Earthstone and
its management in light of their experience and perception of
historical trends, current conditions and expected future
developments, as well as other factors appropriate under the
circumstances. However, whether actual results and developments
will conform to expectations is subject to a number of material
risks and uncertainties, including but not limited to: the ability
to complete the Titus Acquisition on anticipated terms and
timetable; Earthstone's ability to integrate its combined
operations successfully after the Titus Acquisition and achieve
anticipated benefits from it; the possibility that various closing
conditions for the Titus Acquisition may not be satisfied or
waived; risks relating to any unforeseen liabilities of Earthstone
or Titus; declines in oil, natural
gas liquids or natural gas prices; the level of success in
exploration, development and production activities; adverse weather
conditions that may negatively impact development or production
activities; the timing of exploration and development expenditures;
inaccuracies of reserve estimates or assumptions underlying them;
revisions to reserve estimates as a result of changes in commodity
prices; impacts to financial statements as a result of impairment
write-downs; risks related to level of indebtedness and periodic
redeterminations of the borrowing base and interest rates under
Earthstone's credit agreement; Earthstone's ability to generate
sufficient cash flows from operations to meet the internally funded
portion of its capital expenditures budget; Earthstone's ability to
obtain external capital to finance exploration and development
operations and acquisitions; the impacts of hedging on results of
operations; uninsured or underinsured losses resulting from oil and
natural gas operations; Earthstone's ability to replace oil and
natural gas reserves; and any loss of senior management or
technical personnel. Earthstone's annual report on Form 10-K for
the year ended December 31, 2021,
quarterly reports on Form 10-Q, recent current reports on Form 8-K,
and other Securities and Exchange Commission ("SEC") filings
discuss some of the important risk factors identified that may
affect Earthstone's business, results of operations, and financial
condition. Earthstone undertakes no obligation to revise or update
publicly any forward-looking statements except as required by
law.
Contacts
Scott Thelander
Vice President of Finance
281-298-4246 / scott@earthstoneenergy.com
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SOURCE Earthstone Energy, Inc.