Este announcement

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Fraser921
Posts: 3012
Joined: Mon Mar 22, 2021 11:48 am

Este announcement

Post by Fraser921 »

dan_s
Posts: 34633
Joined: Fri Apr 23, 2010 8:22 am

Re: Este announcement

Post by dan_s »

Earthstone is the top Aggressive Growth company in the Sweet 16.
I will update my forecast/valuation model for ESTE and post it to the EPG website later today.
My valuation before this announcement was $38/share.


The Woodlands, Texas, June 28, 2022 – 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 < Pushes Q4 production forecast to 102,000 to 107,000 Boepd (~43% oil).
 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

 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 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.
Dan Steffens
Energy Prospectus Group
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