Earthstone Energy agrees to buy Sabalo’s Midland Basin assets

US-based Earthstone Energy has signed an agreement to purchase all of Sabalo Holdings’ interests in producing and non-producing oil and gas assets in the northern Midland Basin in a cash-and-stock deal valued at around $950m.

The transaction will also add certain well-bore interests held by Shad Permian. Sabalo Holdings’ subsidiary Sabalo Energy signed an agreement to buy these interests earlier this week.

This acquisition represents 20,800 contiguous net acres in the core of Midland Basin and an estimated 488 gross operated horizontal drilling locations and 349 gross non-operated horizontal drilling locations.

The purchase is expected to expand Earthstone’s footprint in the Midland Basin by 69%.

Under the agreement, Earthstone will pay $650m in cash and issue 32,315,695 shares of Earthstone Class B common stock and corresponding membership interests of Earthstone Energy Holdings worth $300m to Sabalo.

Last month, Sabalo’s and Shad’s combined average estimated production stood at approximately 11,200Boe/d.

Earthstone Energy president Robert Anderson said: “The Sabalo acquisition is an important milestone in our ongoing transformation into a premier Midland Basin focused operator.

“With the addition of this especially attractive contiguous acreage to our existing Midland Basin assets, we have positioned Earthstone to capitalise on increased scale and strong asset quality in order 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.”

Once the transaction is completed, the company will have around 50,800 net Midland Basin acres spanning Howard, Reagan, Upton and Midland Counties in Texas.

Earthstone’s production guidance for next year is in the range of 25,000Boe-29,000Boe/d with capital expenditures of $425m-$500m.

Closure of the acquisition is dependent on certain conditions but is expected to take place later this year or during the first quarter of 2019.