Earthstone Energy to acquire Novo Oil & Gas in strategic Delaware Basin expansion

Earthstone Energy has inked an agreement to purchase Novo Oil & Gas Holdings, a private exploration and production (E&P) company focused on the Delaware Basin, for $1.5 billion.

At the same time, Northern Oil and Gas will acquire a 33⅓% stake in Novo Oil & Gas’ oil and gas assets from Earthstone Energy for $0.5 billion. This will result in a net purchase price of $1 billion for Earthstone Energy’s retained 66⅔% interest.

Novo Oil & Gas Holdings’ assets include a recent production of around 38,000 Boepd from 114 wells and an estimated $360-380 million of Adjusted EBITDAX for the next twelve months. It also possesses about 11,300 net acres in the Delaware Basin’s core, located in Eddy County, New Mexico, and Culberson County, Texas.

Earthstone Energy plans to maintain its five operated drilling rigs after the acquisition. Additionally, the company intends to move one of its two drilling rigs operating in the Midland Basin to the Delaware Basin to focus on the Novo assets. The revised development plan amplifies Earthstone Energy’s drilling inventory and development program, now heavily leaning towards the highly profitable northern Delaware Basin assets.

This deal marks a significant expansion for Earthstone Energy in the Delaware Basin, as it increases the company’s acreage position by roughly 11,300 net acres to around 56,000 net acres. The drilling inventory grows 24% to 1,020 gross locations, with about 70% of locations in the Delaware Basin, extending the inventory life to approximately 13 years with a five-rig drilling program.

Robert J. Anderson — Earthstone Energy said: “Over the past few years, we strategically positioned the Company as a significant operator in the Permian Basin. In 2022, we materially advanced our consolidation strategy, closing three accretive acquisitions totaling ~$2.0 billion, including two significant northern Delaware Basin asset acquisitions.

“I am pleased that we are continuing to further our consolidation strategy with today’s announcement of the Novo Acquisition as we further build our northern Delaware Basin asset base. 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 (Boepd).”

Earthstone Energy, primarily engaged in the development and operation of oil and natural gas properties, has its primary assets in the Permian Basin of southern New Mexico and west Texas.

The agreement, which is already approved by the Board of Directors of Earthstone Energy, is set to conclude in the third quarter of 2023, subject to customary closing conditions.