Permian Resources Snaps Up Earthstone Energy for $4.5 Billion

The transaction will add significant high-quality inventory offset to Permian Resources’ existing core acreage in New Mexico.


Permian Basin pure-play producer Permian Resources has agreed to acquire Earthstone Energy in an all-stock deal valued at $4.5 billion, including debt.

The deal comes just days after Earthstone closed its acquisition of rival private-equity-backed Novo Oil & Gas for $1.5 billion, adding more than 200 high-return drilling locations and increasing its inventory to 13 years, according to The Woodlands-based shale producer.

For Permian Resources, the deal is expected to increase its position in the prolific shale play of west Texas and southeastern New Mexico to more than 400,000 net acres, with a pro forma production of about 300,000 BOEPD, the operators said in a joint release on Monday.

Permian Resources, formed from the $7-billion merger between Centennial Resource Development and Colgate Energy Partners in 2022, said the Earthstone deal adds about 56,000 net acres of “high-quality, stacked-pay reservoirs, largely offset to Permian Resources’ existing acreage” in Lea and Eddy counties, New Mexico. Earthstone’s remaining acreage is in the Midland Basin, and the company expects to primarily harvest free cash flow from this asset at current commodity prices.

Will Hickey, co-chief executive of Permian Resources, said that Earthstone’s northern Delaware position brings high-quality acreage with core inventory that immediately competes for capital.

“Additionally, we have identified numerous ways to leverage its deep Delaware Basin experience and incremental scale to improve upon these assets across the board, including approximately $175 million of annual synergies,” he said. “Permian Resources has a proven integration track record, and we believe the successful execution of these cost savings will create incremental value for both Permian Resources and Earthstone stakeholders.”

The companies are operating an 11-rig drilling program in aggregate, primarily focused on the Delaware Basin. In 2024, the combined company plans to move one of Earthstone’s rigs currently operating in the Midland basin to the Delaware, where it plans to allocate approximately 90% of capital to high-rate-of-return projects, predominantly focused on Lea, Eddy, Reeves, and Ward counties.

Robert Anderson, president and chief executive of Earthstone, said that combining the two companies top-tier assets and history of success will create an even stronger large-cap E&P company.

“In less than 3 years, we have grown Earthstone from a small-cap E&P company producing approximately 15,000 BOEPD to one with a production base of over 130,000 BOEPD, delivering significant value enhancement for shareholders along the way,” he said.

Under the terms of the deal, each share of Earthstone common stock will be exchanged for 1.446 shares of Permian Resources common stock for each share of Earthstone common stock, with Permian Resources issuing about 211 million shares of common stock in the transaction.

Andrew Dittmar, director at Enverus Intelligence Research, said that the deal "will give Permian Resources a pro forma market cap of about $10 billion, moving the company ahead of its peers Matador Resources and Civitas Resources, making it solidly the third largest (nearly) Permian pure-play behind Pioneer Natural Resources and Diamondback Energy."

He noted that by acquiring a public company rather than a private equity acquisition, Permian Resources demonstrates a potential new approach for those looking to scale up in the region.

"Rather than pursue the common private equity acquisition, Permian Resources is picking up another public company. Given the ramp-up in the valuations of private equity assets over the last year, public company M&A is starting to look more attractive for buyers to build scale versus targeting private equity deals. Permian Resources is accomplishing this by purchasing Earthstone, which looks to be attractively priced relative to the prior private equity deals, including Earthstone's purchase of Novo Oil & Gas," he said.

"However, the private equity deal activity was also necessary for Earthstone to build into the type of company that is an appealing acquisition partner for Permian Resources. Besides Novo, Earthstone had previously rolled up Titus Oil & Gas and Chisholm Energy. Through those deals, it built a position with five to six years of inventory that breaks even at less than $50/BBL WTI in the Delaware Basin, just a bit beneath PR’s own inventory life of just over six years at that quality threshold," he said.

The deal is expected to close by year-end 2023, at which point Permian Resources shareholders will own about 73% of the combined company and Earthstone shareholders will own about 27%. Permian Resources will continue to be headquartered in Midland, Texas.