Amid falling commodity prices, companies like Earthstone Energy are high-grading their portfolios through asset disposal or acquisition, with Earthstone making a $1.5 billion cash deal for Novo Oil and Gas Holdings' Delaware basin acreage.
This most recent buy caps a torrid streak of M&A activity since 2020 by Earthstone, participating in 7 transactions totaling $2.5 bn. It’s taken a toll on the balance sheet, but during that time production has risen from ~15K BOEPD to ~100K BOEPD. With the 1/3 non-op NOG participation in Earthstone’s deal for Novo, the balance rises above its 1.0 D:E target in 2023, but the company forecasts bringing back into line in 2024.
The Novo transaction also brings scale enabling Earthstone to more efficiently operate legacy properties in the Delaware and Midland basins. Earthstone has been using this roll-up strategy as shown in the slide below, completing seven separate transactions in the Permian basin since 2020.“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 .
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