earthstone energy shares up permian resources deal

Earthstone Energy shares jump 15% on Permian Resources deal

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Written on Aug 21, 2023
Reading time 2 minutes
  • Permian Resources is buying Earthstone Energy Inc for $4.5 billion.
  • The all-stock transaction is expected to complete by the end of 2023.
  • Earthstone Energy shares are now up 45% versus the start of the year.

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Earthstone Energy Inc (NYSE: ESTE) popped up more than 15% up on Monday after Permian Resources Corp (NYSE: PR) revealed plans of buying the oil and gas company for $4.5 billion.

Why is Permian Resources buying Earthstone Energy?

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Permian Resources expects this all-stock transaction to help expand its footprint in the Permian basin. Will Hickey – its Co-CEO also said today in a press release:

The acquisition represents a compelling value proposition for our shareholders and strengths our position as premier Delaware Basin independent E&P.

The said deal values each Earthstone Energy share at about $18.64.

On Monday, Permian Resources also revealed plans of raising its quarterly dividend to 6 cents – a 20% increase applicable from the first quarter of 2024. Its shares opened roughly flat this morning but are up a whopping 45% year-to-date.

Permian Resources expects an increase in free cash flow

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Permian Resources is convinced that buying Earthstone Energy will boost its free cash flow on a per-share basis by more than 30% over the next two years. According to CEO Hickey:

Earthstone’s Northern Delaware position brings high-quality acreage with core inventory that immediately competes for capital within our portfolio.

The benefit to free cash flow will sit at over 25% over the next five to ten years, he added. Wall Street currently rates Earthstone Energy shares at “overweight”.

Permian and Earthstone have identified annual synergies worth about $175 million, as per the press release. The agreement will likely complete before the start of 2024 provided that it meets customary closing conditions, including regulatory and shareholders’ approval.

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