Earthstone Energy expands Midland basin position in merger

Earthstone Energy Inc., The Woodlands, Tex., has agreed to acquire all outstanding membership interests in Bold Energy III LLC, a Midland-based portfolio company of EnCap Investments LP.

On completion of the deal, current Earthstone stockholders will own 39% of the combined company and Bold members will own the remaining 61% on a fully diluted basis. The deal is expected to close in first-quarter 2017.

Bold’s assets include 20,900 net surface acres (62,500 net effective acres) in the core of the Midland basin in Texas, with 16,000 net acres in Reagan County; 3,260 net acres in Upton County; 1,310 net acres in Midland County; and the remainder in Glasscock, Howard, and Martin counties.

Of the total position, 99% is operated with an average working interest of 85% on net operated acreage.

Earthstone says the acreage features 500 gross highly prospective, largely derisked operated horizontal drilling locations across multiple benches, with the “vast majority” in the Wolfcamp formation and remainder in the Lower Spraberry.

The firm sees further upside from future derisking of additional Wolfcamp and Spraberry benches, increased drilling density, and potential acreage trades to create additional drilling locations.

The acreage has current net production of 2,320 boe/d, of which 63% is oil, predominantly from 12.6 net (18 gross) horizontal operated Wolfcamp wells. It’s expected to exit 2016 at 2,640 boe/d, of which 61% will be oil.

Bold is operating a one-rig drilling program on the acreage, with two wells flowing back, one well being completed, and six wells waiting on completion. Earthstone says the one-rig program can satisfy all material leasehold obligations. The combined company may add a second rig after the deal’s completion.

Merger outcome

The combined company will have 26,800 net surface acres (80,150 net effective acres) in the Midland basin and 18,600 net surface acres in the Eagle Ford.

The acreage includes Earthstone’s nonoperated position in the core of the Midland basin, added in its acquisition of Lynden Energy Corp. that closed in May, with 5,883 net acres at an average working interest of 40% in Howard, Glasscock, Martin, and Midland counties alongside “a prominent Permian basin operator.”

Together the companies have current production of 7,400 boe/d, of which 63% is oil, comprising 46% from the Midland basin, 38% from the Eagle Ford, and 16% from the Bakken and other areas.

The existing Earthstone management team, including Frank A. Lodzinski, president and chief executive officer, will lead the combined company, which will maintain its headquarters in The Woodlands and an office in Midland.

“We will immediately begin to integrate the operations and activities of the companies while we continue our pursuit of additional opportunities,” said Lodzinski. “We intend to continue our growth in the Permian basin via direct leasing, development, and [merger and acquisition] activities.”

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