Earthstone buys Midland basin assets for $950 MM

10/19/2018

THE WOODLANDS, Texas -- Earthstone Energy has entered into an agreement with Sabalo Holdings to buy producing and non-producing oil and gas assets in the northern Midland basin.

Sabalo has entered into an agreement to acquire wellbore interests held by Shad Permian, which were part of a drilling joint venture between Sabalo and Shad.

As a result of these agreements, Earthstone expects to acquire 20,800 net acres located in the Midland basin and an estimated 488 gross operated horizontal drilling locations and 349 gross non-operated horizontal drilling locations for an aggregate purchase price of approximately $950 million, which consists of $650 million in cash and $300 million in stock.

Sabalo’s and Shad’s combined average production in Sept. 2018 was approximately 11,200 boed with approximately 83% being oil.

The Sabalo Acquisition represents a large, contiguous acreage position with a deep inventory of favorable economic drilling locations and significantly expands Earthstone’s footprint in the Midland basin. The Sabalo Acquisition is expected to close in late 2018 or in the first quarter of 2019.

Robert J. Anderson, President of Earthstone, commented, “The Sabalo Acquisition is an important milestone in our ongoing transformation into a premier Midland basin focused operator. We have delivered on our goal, as stated after our 2017 acquisition of Bold, to significantly increase our operated acreage and inventory of highly economic locations. With the addition of this especially attractive contiguous acreage to our existing Midland basin assets, we have positioned Earthstone to capitalize on increased scale and strong asset quality to generate significant returns. This contiguous acreage block in the heart of the northern Midland basin with a deep inventory of high-return drilling locations provides an exciting foundation for growth.”

“We have identified a high-quality de-risked inventory of nearly 500 gross operated locations in the Middle and Lower Spraberry and Wolfcamp A and B formations. The Lower Spraberry and Wolfcamp A supported the valuation while recent results in the Middle Spraberry and Wolfcamp B create the potential for additional upside and inventory expansion. The Sabalo Acquisition adds strong cash flow generation and increases our footprint in the Midland basin by 69% and includes substantial operated acreage with high working interests. This larger scale of operations combined with being a much bigger company should drive a number of additional benefits as we now have the ability to secure dedicated services and focus on further improving corporate and field-level operating efficiency.”

“Sabalo’s continuing two rig development program has created significant momentum and driven over a 300% increase in its oil production over the last 12 months. We expect production to continue to increase and our plan is to maintain those two rigs and the single rig we have been operating on our southern Midland basin acreage since May 2017. We have a clear line of sight toward being cash flow positive in 2020."

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