Permian Resources announces $4.5bn acquisition of Earthstone Energy

In a strategic move set to reshape the energy landscape, Permian Resources Corporation (NYSE: PR) announced an all-stock transaction to acquire Earthstone Energy, Inc. (NYSE: ESTE). Valued at an eye-popping $4.5 billion, inclusive of Earthstone Energy’s net debt, the deal is anticipated to fortify Permian Resources’ stronghold in the Delaware Basin. The merger implies a rate of 1.446 Permian Resources shares for each Earthstone Energy share, setting the stage for a mega energy conglomerate.

With this acquisition, Permian Resources solidifies its dominance in the Delaware Basin, boasting over 400,000 Permian net acres, an impressive pro forma production hovering around 300,000 Boe/d, and an enhanced cash flow trajectory poised to deliver increased returns to investors. Breaking down the stock dynamics, Earthstone Energy shareholders are looking at an implied value of $18.64 per share based on Permian Resources’ closing stock price on August 18, 2023.

Post-closure, the stake distribution sees existing Permian Resources shareholders retaining about 73% of the combined entity, leaving Earthstone shareholders with a 27% piece of the enlarged pie. Signifying the importance of this transaction, the Boards of both companies gave unanimous nods of approval. Notably, the transaction is on track for a year-end 2023 completion, pending regular regulatory clearances and shareholder assent. Pivotal shareholders from both camps, representing nearly half of each company’s stock, have showcased their support via a Voting and Support Agreement, amplifying the deal’s certainty.

Midland, Texas will remain the nerve center of operations for the combined entity, with Permian Resources’ executive cadre at the helm. The Board of Permian Resources is set for an expansion, welcoming two Earthstone Energy representatives into its fold.

Will Hickey, Co-CEO of Permian Resources, expressed unabashed enthusiasm about the merger, highlighting the Northern Delaware position of Earthstone as a boon for the portfolio. Predictions point toward synergies unlocking an annual cash flow uptick of around $175 million. Echoing the optimism, Robert Anderson, Earthstone Energy’s President and CEO, lauded the fusion, envisioning a formidable E&P entity unparalleled in the Permian Basin landscape.

The merger’s financial outlook is dazzling. Expectations hover around a >30% annual free cash flow per share uptick over the next two years and sustaining at >25% over subsequent five and ten-year brackets. The cherry on top? A promising 20% boost to the base dividend per share, setting the stage for lucrative future shareholder returns.

Conclusively, this transaction is not just another page in the M&A playbook but a testament to strategic vision, positioning the combined entity as an undisputed titan in the energy sector.