The oil and natural gas producer Earthstone Energy Inc. agreed to acquire an EnCap Investments LP-backed upstream company with oil and gas assets in the northern Midland Basin for $950 million.
Under the agreement, Earthstone would acquire Sabalo Holdings LLC's interests in the Corpus Christi, Texas-based oil and gas company Sabalo Energy LLC and in Sabalo Energy Inc., as well as well-bore interests that were part of a drilling joint venture between Sabalo and Shad Permian LLC, according to an Oct. 17 news release. The purchase price is composed of $650 million in cash and $300 million in stock, priced at $9.28 per share.
The assets include 20,800 net acres, 85% operated, in the Midland Basin; a two-rig drilling program; and about 488 gross operated and 349 gross non-operated horizontal drilling locations. Sabalo posted a net operated oil production growth of more than 300% over the last 12 months on the assets. Sabalo and Shad have a combined average estimated production of about 11,200 barrels of oil equivalent per day, 83% of which is oil, for September.
The deal would result in Earthstone holding about 50,800 net acres in the Midland Basin, 81% operated, with three operating rigs and production of about 21,850 boe/d, composed of 75% oil and 89% liquids. Earthstone would boost its Midland Basin drilling locations by 97% to an estimated 990 gross operated drilling locations.
Earthstone plans to fund the cash portion of the deal with proceeds from sales of $225 million of preferred stock and $500 million of unsecured senior notes, along with borrowings from its revolving credit facility.
The deal is scheduled to close late this year or in the first quarter of 2019. Besides the Midland Basin, Earthstone also has operations in the Eagle Ford Shale of south Texas.