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Earthstone Offers Eagle Ford Assets for Sale, Considers Departure from South Texas
08/22/2023
Earthstone Energy is selling Eagle Ford locations to concentrate on the Permian Basin, streamlining its exploration and production focus.
Earthstone Energy Inc., based in The Woodlands, Texas, is putting an Eagle Ford asset on the market as the company focuses on divesting non-core properties and directing investment towards the Permian Basin.
The assets that Earthstone is planning to sell include production and land in northeast Karnes County, Texas, as well as in southern Gonzales County, Texas, as outlined in the marketing documents.
For the sales process, Earthstone has engaged Opportune Partners LLC to serve as its exclusive financial adviser.
Earthstone's Eagle Ford Asset
- The Eagle Ford asset that's up for sale consists of low-decline net production approximating 1,300 boe/d (83% oil) coming from 33 horizontal wells.
- Opportune has stated that the PV-10 value of the asset’s Proved Developed Producing (PDP) is roughly $95.5 million.
- In addition to the primary asset, the 33 operated PDP wells are being promoted as top-quality prospects for Enhanced Oil Recovery (EOR).
- Situated in an "EOR fairway," they are neighbored by more than 200 EOR projects carried out by Houston-based EOG Resources Inc., as revealed in the marketing materials.
- The development of EOR projects within the Eagle Ford asset is anticipated to contribute about 3.2 MMboe in incremental reserves.
The opportunity encompasses eight proven undeveloped drilling locations, with three targeting the Lower Eagle Ford and five aimed at the Austin Chalk.
The marketing materials also suggest that the sale of this particular Eagle Ford asset would mark a complete withdrawal from the play for Earthstone.
Earthstone's Strategic Shift
Earthstone has been methodically reducing its footprint in the Eagle Ford, holding about 3,000 net leasehold acres at the end of 2022, down from 12,700 acres at the end of 2021, according to regulatory filings from the company.
In July 2022, Earthstone made a sale of Eagle Ford interests in Fayette and Gonzales counties, Texas, for roughly $25.6 million before closing adjustments, a deal that included a non-operated asset in the Eagle Ford.
Meanwhile, Earthstone has strategically targeted growth in the prolific Permian Basin. Key moves in this region include:
- February 2022: Acquisition of Warburg-backed Chisholm Energy in the northern Delaware Basin, valued at $604 million.
- Later in 2022: Purchase of Midland Basin assets from private E&P Bighorn Permian Resources LLC in an $860 million transaction.
- August 2022: Addition of New Mexico assets from Titus Oil & Gas Production LLC and Titus Oil & Gas Production II for $627 million.
- June 2023: Announcement of plans to acquire Delaware Basin assets from Delaware Basin E&P Novo Oil & Gas for $1 billion; Earthstone is set to acquire 66.66% of Novo, with Minneapolis-based Northern Oil & Gas snagging the remaining 33.33% interest for $500 million.
Upon the closing of the Novo deal, Earthstone will have possession of more than 223,000 net acres with proven reserves of 460 million boe in the Permian, stated President and CEO Robert Anderson.
Four of Earthstone's five drilling rigs are set to concentrate on the northern Delaware Basin, according to the company's leadership.
"Our recent announcement and the pending close of the Novo acquisition align with our strategy, as our asset base is shifting further towards a focus on the prolific Northern Delaware Basin. The large majority of our capital activity will be dedicated to this area moving forward," stated Anderson.
Earthstone, Callon, and the Shift Towards Permian Pure-Play E&P
Earthstone's strategic refocusing is not unique in the industry. Other public E&P companies are also streamlining their portfolios around the Permian.
For instance, Houston-based Callon Petroleum Co. recently exited the Eagle Ford through a $551 million sale to Ridgemar Energy Operating LLC, backed by Carnelian Energy Capital Management LP. In a separate deal, Callon acquired Delaware Basin assets from Percussion Petroleum Operating II LLC for $249 million in cash and around 6.3 million shares. The collective A&D transactions, worth $1.13 billion and closed in July, now position Callon as a Permian Basin pure-play E&P.
Earthstone's move towards becoming a Permian pure-play E&P and its exit from the Eagle Ford might be attractive to investors and analysts. There could also be potential for the company to achieve increased cost synergies by concentrating operations within a single basin rather than spreading across multiple regions.
Growth in U.S. oil production is currently being propelled by volumes from the Permian. Forecasts from the International Energy Agency project U.S. crude output to reach 13.6 MMbbl/d by 2028, primarily driven by light tight oil developments originating from the Permian.
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