Permian Resources Corporation and Earthstone Energy entered into a definitive agreement under which Permian Resources will acquire Earthstone in an all-stock transaction valued at approximately $4.5 billion, inclusive of Earthstone’s net debt.
The transaction increases Permian Resources’ position in the Permian Basin by approximately 223,000 net acres to more than 400,000 net acres with pro forma production of approximately 300,000 Boe/d. In the Delaware Basin, the acquisition adds approximately 56,000 net acres of high-quality, stacked-pay reservoirs, largely offset to Permian Resources’ existing acreage in Lea and Eddy Counties.
Earthstone’s remaining acreage is located in the Midland Basin, and the company expects primarily to harvest free cash flow from this asset at current commodity prices.
Under the terms of the transaction, each share of Earthstone common stock will be exchanged for a fixed ratio of 1.446 shares of Permian Resources common stock.
The transaction is expected to be accretive to all relevant per share metrics before synergies, including operating cash flow, free cash flow and net asset value per share. Permian Resources expects the transaction to deliver accretion to free cash flow per share of more than 30% per year during the next two years and over 25% during the next five and ten-year periods.
Total synergies resulting from the transaction are expected to drive approximately $175 million in annual cash flow improvements, which include $145 million of operational and G&A synergies expected to be fully realized by year-end 2024. Expected annual operational synergies total $115 million and are primarily associated with reduced drilling, completions and facilities (“DC&F”), lease operating and midstream costs.
Permian Resources expects to realize significant DC&F savings in the Delaware Basin through improved efficiencies and lower cost structure. The company expects to reduce LOE expense on a per unit basis through personnel and contract services optimization and enhanced production operations. Additionally, the combined company expects to leverage its enhanced size and scale to optimize pricing across completion, production and midstream operations.
The transaction has been unanimously approved by the Boards of Directors of both Permian Resources and Earthstone and is expected to close by year-end 2023, subject to customary closing conditions, regulatory approvals and shareholder approvals. Permian Resources’ and Earthstone’s largest shareholders, which currently own approximately 49% and 48% of each respective company’s outstanding shares, have executed a Voting and Support Agreement in connection with the transaction.